control
the flows
⁄ ⁄ ⁄ ⁄ ⁄ ⁄ ⁄ ⁄ ⁄ ⁄ annual report 2019
52,196
7% yoy
Order intake ––> Rub mn
2019
2018
2017
2016
2015
52,196
55,891
59,679
40,624
32,979
44,693
5% yoy
Backlog ––> Rub mn
2019
2018
2017
2016
2015
44,693
42,634
39,067
24,035
24,409
about HMS
# 1 producer of pumps and oil gas equipment as well
one of the leading compressor producers in Russia
and the CIS
Business platform and core expertise are established
and provide a strong base for future growth
Key industries: oil & gas, nuclear and thermal power
generation, petrochemistry and wastewater industry
14,369
9% yoy
Net debt ––> Rub mn
2019
2018
2017
2016
2015
14,369
13,163
11,422
13,347
12,388
24,321
25% yoy
Total debt ––> Rub mn
2019
2018
2017
2016
2015
24,321
19,458
16,042
16,336
15,884
4,824
27% yoy
EBITDA ––> Rub mn
2019
2018
2017
2016
2015
4,824
6,621
6,839
6,369
7,446
51,413
2% yoy
Revenue ––> Rub mn
2019
2018
2017
2016
2015
51,413
52,619
44,422
41,582
37,296
You can find more information on our website:
grouphms.com/shareholders_and_investors/
See our Online Report ar2019.grouphms.com
/// contents
Overview
Who We Are
Chairman Statement
Ceo Statement
Investment Thesis
4
6
10
11
12
14 Our History
16 Our Strategy
18
HMS Business Model
21 HMS Markets & Macroeconomics
22 Macroeconomic Environment in 2019
24 Market Trends
Financial & Operational Overview
2019 Calendar of Events
28 HMS Performance In 2019
30
38
42 HMS Key Projects, Development & Innovations
48 Modernization
50 Corporate Social Responsibility
54 Corporate Governance
Board of Directors
56
60
Risk Management & Internal Control
66 HMS Global Depository Receipts
70
Information for Shareholders and Disclaimer
72 Appendices
74
Vocabulary, Calculations and Formulas
overview
6 Who We Are
10 Chairman Statement
11 Ceo Statement
12
14 Our History
16 Our Strategy
18 HMS Business Model
Investment Thesis
who we are
HMS Group is one of the largest privately-owned
machine-building companies in Russia and the CIS.
The company specializes in production of industrial
machinery based around pumps, compressors as well
as oil & gas equipment, including state-of-the-art and
highly sophisticated solutions. HMS Group is the only
machine-building company from Russia listed on the
London Stock Exchange.
23.7%
11.7%
9.8%
6.8%
2.6%
2.2%
2.0%
Gazprom
Gazprom neft
Novatek
Rosneft
Slavneft
Surgutneftegaz
KMPO
41.2%
Others
Revenue structure
by client ––> %
The company was established as a small
trading company in 1993. Today, HMS
is the company with a sustainable place
in the market and loyal high-profile
customers, such as Gazprom, Rosneft,
NOVATEK, Transneft, Gazprom Neft,
Rosatom, LUKoil, BP, ENI, and others.
12
manufacturing facilities
in Russia, CIS countries
and Germany
6
Research & Development
centres, including one of
the largest pump-testing
facilities in Europe
The company produces both
serial and/or standard models
(recurring business) and
customized configurations
(large integrated projects).
The execution of large projects
includes implementation of
the crucial project’s work as
well as large-scale projects’
turnkey execution, from project
and design to commissioning
and launching. Revenue from
recurring business contributes
c. 75-80% on average.
40%
16%
12%
12%
9%
8%
4%
Oil and gas extraction
Gas transportation
Water supply
Other industries
Power generation
Petrochemicals
Oil transportation
Revenue structure
by industries ––> %
A well-diversified
client base includes
“blue-chip” clients,
i.e. the largest oil & gas
companies in Russia
and the CIS. Our clients
operate through
numerous contracts
in different subsidiaries,
which take independent
purchasing decisions.
A significant portion
of HMS’ revenue is
generated by the oil
& gas industry, from
downstream to upstream.
~6,000
well-diversified client
base
HMS is a dynamic engineering company with successful
practice in the design, installation, construction and
commissioning of complex oil and gas production and
water facilities. It 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.
~14,000
employees
The parent holding company is HMS HYDRAULIC
MACHINES & SYSTEMS GROUP PLC (the Republic of
Cyprus). It issued securities in the form of Global Depositary
Receipts at the London Stock Exchange in February 2011.
The Group consists of 12 manufacturing facilities in Russia,
CIS countries and Germany, plus 6 Research & Development
centres, including one of the largest pump-testing facilities
in Europe, and employs 14 thousand people.
1
2
17
16
11
8
10
9
7
6
5
4
3
15
18
14
13
12
19
Industrial pumps
Oil & gas equipment
and projects
Compressors
Construction
Headoffice & trade
company
27% 25% 26% 36% 30%
Revenue from
recurring business
Revenue from large
integrated projects
73% 75% 74% 64% 70%
2015
2016
2017
2018
2019
Revenue structure
by contract’s type ––> %
6/ 7
––> overviewmarketsperformancegovernanceappendicesHMS GROUP –––> annual report 2019 /// who we are
HMS Group, Russian and CIS pump market leader offers
convenient products solutions and services for clients from oil
& gas, energy, water supply and utilities, chemical processing,
industrial applications, etc.
Our manufacturing, R&D, EPC and servicing capacities allow
developing and delivering customer-oriented reliable and
affordable products and services.
industrial pumps
This is the oldest business segment,
responsible for the project and
design, engineering, manufacturing
and supply of 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 countries and across the
globe. It also provides aftermarket
maintenance, repair services and
other support for its products.
сore products and services
‒ Oil refineries
‒ Nuclear and Thermal power
‒ Water utilities
‒ Water injection
‒ Trunk pipelines
‒ General industrial pumps
13%
EBITDA margin
38%
contribution in
consolidated revenue
54%
contribution in EBITDA
oil & gas
equipment
and projects
The oil & gas equipment business
segment manufactures, installs and
commissions modular pumping
stations, automated metering
equipment, and 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.
сore products and services
‒ Oil pumping stations and pump
stations for water injection
‒ Oil & gas and water processing
units
‒ High-precision and automated
metering units
‒ Tanks, reservoirs and vessels
‒ Oil development equipment
3%
EBITDA margin
25%
contribution in
consolidated revenue
9%
contribution in EBITDA
compressors
The division is responsible for project
and 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.
сore products and services
‒ Oil & gas production
‒ Oil & gas transportation
‒ Gas processing
‒ Oil refineries
‒ Oil & gas chemistry
‒ Refrigeration applications
for various industries
9%
EBITDA margin
35%
contribution in
consolidated revenue
32%
contribution in EBITDA
construction
The fourth operating segment
consists of only one facility,
Tomskgazstroy. It focuses on the
main and infield pipelines and oil
and gas-condensate fields, facilities
construction and overhaul.
сore products and services
‒ Construction, reconstruction and
overhaul of the linear objects, e.g.
namely oil pipelines, gas pipelines,
product pipelines, water pipelines,
condensate pipelines and power
transmission lines
3%
contribution in
consolidated revenue
-1%
contribution in EBITDA
-2%
EBITDA margin
8/ 9
––> overviewmarketsperformancegovernanceappendicesHMS GROUP –––> annual report 2019 chairman
statement
HMS Group is one of the leading producers of pumps,
compressors and oil & gas equipment in Russia and the CIS,
and we intend to maintain our market share in the future.
In 2019, HMS Group became one of the suppliers of gas
transportation units for GAZPROM. Also, we started to
actively engage in LNG projects of PAO NOVATEK as one
of the suppliers of compressor-based equipment. We
commercialized a new product line of double-entry pumps
for water industry, and today we are involved in development
of a new product line of water overhang pumps. The
company continues to build a sizeable portfolio of orders for
nuclear pumps.
In 2019, we continued to build long-term relations with our
core customers. So, for example, in autumn 2019 we signed
a Memorandum on Strategic Partnership with PAO NOVATEK
which will allow us to organize a more effective collaborative
work in the field of development of new products for natural
gas treatment and liquefaction. In the context of cooperation,
HMS Group intends to develop not only compressors but
pump-based equipment, like submersible cryogenic pumps
for LNG loading, and other diverse oil and gas equipment.
In 2019, HMS Group started active developing of a new
activity area – Process Engineering in Oil and Gas Processing.
We have built a team of highly-skilled professionals in the
field of technological engineering. The company opened a
Moscow branch of GTNG, which became the competence
center of the institute in the area of oil and gas treatment,
and petrochemicals. Consequently, today we can supply
not only separate equipment, but complete technological
package for oil & gas extraction facilities, petroleum
refineries and gas chemical facilities as well. Our unique
sci-tech competences allow us to develop and localize the
production of the majority of equipment types independently
within a short time if requested by our customers, from
preparation of design and detailed documentation to
construction supervision, installation supervision and
commissioning works.
As a part of the import substitution program,
HMS Group produced and delivered
compressor units for the Yamal LNG project
(PAO NOVATEK). These units were developed
by Kazankompressormash in sci-manufacturing
tandem with NIITurbokompressor involving the use
of the domestic technology of natural gas liquefaction
named Arctic Cascade and patented by NOVATEK. The
scientific novelty of the technology is the use of the
ambient temperature in the Arctic climate for natural gas
liquefaction process. The experimental industrial line will
be implemented at the Yamal LNG project, and its capacity
will be 0.9 mln t of LNG per annum. PAO NOVATEK plans to
create the whole industry – construction of LNG production
lines, and, thanks to successful execution of the project,
HMS Group is one of the main developers and producers of
innovation-based equipment.
In 2019, HMS developed the technology of production of
pump body castings, where ceramic running system with
siphon CFF-filtering of liquid melt input was used. This
technology will be used in production of AS-1D200-90-A
pumps for nuclear power plants, which will have the safety
class 2. The produced two units successfully passed all
non-destructive control tests.
In the short term, we observe a number of interesting
projects to participate in. We will continue playing an active
role in implementation of ambitious projects in the oil &
gas industry, in projects to develop nuclear and thermal
power sectors, and in the national projects of the Russian
Federation, primarily, with environmental focus.
Your faithfully,
Nikolay YAMBURENKO
CEO
statement
The 2019 year was challenging for the company, facing
the influence of several factors which affected its financial
results. One of them was weak results of the oil & gas
equipment business segment that were the main reason
of HMS’ revenue and EBITDA downswing. We believe
that implemented business optimization and cost
The Memorandum on Strategic Partnership, signed with
PAO NOVATEK in 2019, set the general principles of mutual
cooperation in the area of development of domestic
technological basis for LNG projects of PAO NOVATEK that
will allow to equip LNG plants under construction with high-
tech equipment made in Russia.
reduction demonstrated their effectiveness, given
that the oil & gas equipment business segment
had shifted from the losses towards a good
level of profitability.
We consider HMS’ entry into the domestic
market of LNG equipment to be one of the
company’s breakthroughs.
The fruitful cooperation of HMS Group and PAO NOVATEK
in the field of LNG equipment production resulted in signing
a contract to manufacture 6 main compression units for a
natural gas liquefaction for the Obsky LNG in March 2020.
The contract requires the supply of three types of gas
compression units, developed by HMS’ specialists, and
equipped with high-capacity gas turbine drives.
HMS Group continues its work on winning profitable large
contract. As of today, orders backlog grew 5 percent year-
on-year. Based upon current pipeline of large contracts and
a stable inflow of recurring business, we feel optimistic about
the future, despite the challenging situation in the world.
Your faithfully,
Artem MOLCHANOV
10/ 11
––> overviewmarketsperformancegovernanceappendicesHMS GROUP –––> annual report 2019 investment
thesis
Business platform and core
expertise are established and
provide a strong base
for future growth
Mature Business
Platform
‒ HMS Group’s business is based on
a mature and established business
platform with a focus on products
where the Company has unmatched
R&D expertise and production
capabilities
‒ The company has stable recurring
business with confirmed order
backlog for the next year
‒ EU presence: HMS Group has access
and is conducting business with EU
engineering companies (Siemens,
Alstom, etc.) through its EU-based
subsidiary Apollo Goessnitz
‒ Business is to be further developed
organically, i.e. currently there are no
plans for M&A
‒ Further development will be carried
out with low CAPEX at ca. 1.5x the
D&A level
Factors of Business
Sustainability:
Entering new
markets
‒ Further development of business
with Gazprom & other major
names in the oil & gas industry
by executing large customized
projects in all HMS Group’s key
segments
‒ Customers in new markets are
already a part of the client base and
offer strong future opportunities
‒ Return to the market of oil
transportation on the back of
localization of trunk line pumps in
Russia
‒ Oil & gas refining and
petrochemicals represent another
growth area with expanded strong
references, incl. major international
engineering companies
1.
Delivery of Mission-critical
equipment
‒ HMS’ equipment is crucial to clients. It is installed
at the final stage of construction projects and is
difficult to replace
‒ The project cost is affordable within clients’
project budgets: equipment accounts for less
than 2-3% of the total project CAPEX. As a result,
clients do not postpone their purchases
6.
Market share and installed base
‒ HMS is a major player in pumps, oil and gas
equipment and compressors, with significant
market shares and established relations with
clients (including follow-on services)
‒ The company has the largest installed equipment
base in Russia
5.
Low capex needs and flexible
dividend policy
‒ HMS Group is a fully invested business with
modest maintenance capital expenditure needs
at c. 1.5x the D&A level
‒ All major acquisitions have already been
completed
‒ There are no strict dividend commitments, which
allows us to minimize payments in a harsh market
environment, as was the case in 2014
4.
Well-diversified quality client base
‒ Over 6,000 small and medium clients generate
on average 70-80% of revenue
‒ The blue-chip client base covers nearly all
Russia’s oil and gas major players
‒ Our largest clients operate through numerous
contracts in different subsidiaries, taking
independent purchasing decisions and offering
numerous points of entry
Optimisation
of the business
portfolio
‒ HMS entered the oil & gas
infrastructure construction segment
in 2007 with a view to offering
integrated solutions
‒ Following the financial crises, this
segment saw a sharp decrease in
profitability
‒ HMS Group decided to exit the
segment and currently
has significantly reduced
its exposure to construction
‒ HMS continues to develop
Engineering and Procurement (“EP”)
business, based on HMS products
and engineering competences
3.
Management focuses on
maintaining a moderate
debt position
‒ The current Net debt-to-EBITDA ratio is
conservative
‒ Debt is naturally hedged as HMS follows a
strategy of a match in revenues, costs and debt
currency structures – ca. 98% of debt is Russian
ruble denominated
‒ Short-term debt remains at low levels and is
actively managed
2.
Leader in both large projects and
standard production segments
‒ HMS is the established top player in large-scale
projects (with a “blue-chip” client base)
‒ The company enjoys sustainable, recurring
business from standard pumps and compressors
with over six thousand clients
12/ 13
––> overviewmarketsperformancegovernanceappendicesHMS GROUP –––> annual report 2019 our history 26 years: from a start-up
to the industry leader
2014
2019
1993
1998
foundation
Three founders (German Tsoy, Artem
Molchanov, and Kirill Molchanov)
established the trading company
Hydromashservice and brought
together a core team of three founders
and five sales managers
Hydromashservice actively increased
sales in Russia and the CIS and built
relations with key clients (primarily with
companies in water utilities and metals
& mining sectors)
1999
2003
ambitions for
market leadership
Hydromashservice demonstrated
boosting growth of the client base,
expanded relations with the largest
oil & gas and energy companies and
gained leading positions in the pumps
market in Russia and the CIS
The company gained experience
in large commercial projects and
humanitarian programs outside of
Russia (such as the UN Oil-for-Food
Programme)
The largest Russian pump
manufacturer, Livgidromash, joined
Hydromashservice in 2003
2004
2008
from sales
to production
The company acquired its key
production facilities: Neftemash
(Tyumen), Nasosenergomash (Sumy),
and Livnynasos (Orel region, Central
Russia)
The investment industrial group
Hydraulic Machines & Systems was
established as an industrial holding
(since 2008 - HMS Group plc.)
HMS Group continued to develop long-
term relations with its key customers
The company successfully
implemented its first large projects in
specialist pumps for nuclear power
plants in India (Kudankulam) and China
(Tianwan)
The shareholders established HMS
Group Management Company LLC.
The extended management team was
formed to achieve new ambitious goals
2009
2013
diversification
and complex
solutions
The Board of Directors approved the
strategy for accelerated growth for
2009-2015 with a focus on M&A and
complex solutions
HMS Group acquired
Giprotyumenneftegaz, the leading
project and design institute for
oil and gas fields, as well as new
production assets: Sibneftemash,
Dimitrovgradhimmash, Bobruisk
Machinery Plant, and Apollo Goessnitz,
and entered the market of equipment
for oil refining and petrochemistry
HMS Group ran a successful IPO on the
London Stock Exchange in 2011
The company gained access to the
compressor market via acquisition of
the alliance: Kazankompressormash
– NIIturbokompressor, the largest
manufacturer of compressor
equipment in Russia and the CIS
HMS Group became the provider of key
technological units for large projects
in oil extraction and transport: Vankor
oilfield, the system of export pipelines
BPS-2, ESPO-1, ESPO-2, Zapolarye-
Purpe, Purpe-Samotlor and many others
The Group introduced a new line of
pumps for oil trunk pipelines (NM,
NPV, and NOU series) and mastered
production of large-scale technological
modules, as well as tanks, vessels and
heat exchangers
engineering
and gas
technologies
HMS Group increased its expertise
in design and manufacturing
of equipment for natural and
associated gas extraction
and treatment on the base
of Giprotyumenneftegaz and
Neftemash
The company
(Kazankompressormash) started
sales of complete gas compression
systems for booster compressor
stations and gas trunkline
compressor stations of Gazprom
Livgidromash plant expanded its
engineering and manufacturing
capabilities. The new mechanical
treatment shop and the new unique
testing unit were built
The Group implemented a large-
scale investment programme
covering all production units,
renewed and expanded the
product portfolio, and developed
new product lines for pumps,
compressors, measuring and other
equipment for oil & gas
HMS Group supplied technological
units for large scale gas projects,
including:
‒ Technological equipment for
ROSPAN INTERNATIONAL (East-
Urengoyskoye field, Rosneft);
‒ Equipment for the extraction,
transportation and processing
of liquid hydrocarbons (Nadym-
Pur-Taz region, Gazprom);
‒ Helium
concentrate
membrane
separation unit
(Chayandinskoye field,
Gazprom);
‒ Equipment for LNG plants
based on the “Arctic cascade”
technology (PAO NOVATEK),
followed by the Memorandum on
Strategic Partnership, signed with
PAO NOVATEK in 2019, as a part of
the import-substitution program.
In 2019, total revenue, generated
by the gas sector, reached almost a
third of HMS’ consolidated revenue,
improving diversification.
The top management developed
the new strategy for sustainable
growth with a focus on operational
efficiency and leadership in the
market of technological units for
large-scale investment projects
14/ 15
––> overviewmarketsperformancegovernanceappendicesHMS GROUP –––> annual report 2019
our strategy
vision
HMS Group is a leading Russian machine-building company
– a specialist in industrial pumps, compressors, and modular
technological units, as well as a provider of integrated
solutions for several industries, including oil & gas,
petrochemistry, energy, metals & mining and water utilities.
We consider our customer benefits to be our highest priority:
building long-term relations has always been a key focus for
HMS Group. All our business processes, from R&D to quality
control and from manufacturing to sales and aftersales
service are geared to provide our clients with high-end
products and the most efficient solutions.
strategic goals
and priorities
Organic growth
Despite the uncertain economic
situation, our business has continued
to expand. Our objective is to maintain
our leadership position across all our
business segments: industrial pumps,
industrial compressors, oil & gas
equipment and engineering.
On the one hand, we expand sales to
our existing clients by developing new
products and offering sophisticated
solutions. The Group continues to
invest in development of its production
sites to keep quality at the highest level.
On the other hand, HMS Group
continues to increase its client base
in all markets in Russia and the CIS,
as well as in the Middle East, Asia and
Europe.
We also look into options to enter new
market segments, if we find them to be
promising.
HMS Group concentrates on
profitability growth in order to invest
in further development and create
additional value for shareholders.
We implement systematic measures
to increase the efficiency of our
businesses, from the individual level
of standalone plants to the level of the
entire Group.
Our technical expertise and proven
experience in delivery of technological
units ensure our participation in high-
margin large projects, and we intend to
maintain a substantial share of these in
our contract portfolio. We also plan to
continue taking part in multiple large-
scale projects across all industries in
order to strengthen partnerships with
industry leaders.
The company will also develop its
standard and engineered product
lines; the majority of our products are
already among the best in their class
and we will further expand our product
portfolio in order to maintain the
profitability of our recurring business.
We recognise different forms of
strategic partnership (joint ventures,
consortia, license agreements) with
machinery and engineering companies,
both Russian and international. Thus,
we will be able to offer new, more
sophisticated products and solutions to
our customers.
corporate
responsibility
HMS Group follows ethical principles
with regard to all its stakeholders.
We strictly comply with health and
safety international standards in order
to lower the environmental impact of
our operations.
We carry out charity activities and
offer support to charitable foundations
for children and the disabled. In 2019,
we continued to provide support to a
number of charity funds, schools, and
civic and sport organisations in the
regions of our business activities.
sustainable development
Reliable and up-to-date business
processes are crucial for the company’s
sustainable growth.
In the face of a rapidly changing
environment, we work on maintaining
an effective organisation, management
and corporate culture. The company
is strengthening its competences in
marketing, engineering and R&D.
We have a team of highly devoted
professionals in all business functions
and are dedicated to the development
of our personnel: HMS Group has a
multi-level system of training for its
employees. We are focused on the
culture of innovations and change by
developing incentives to ensure that
each employee contributes to the
company’s success.
After 26 years in business, HMS
Group is a full-cycle machine-
building company that has achieved
a leading position among Russian
players. The company follows best
practices and international standards
in R&D, manufacturing and quality
management in order to meet
the growing requirements of the
market. We actively participate in
the government-initiated process of
import substitution, which allows us
to broaden our product portfolio and
attract a large number of clients.
Facing new challenges, we continue
to implement the latest and most
efficient IT systems, from specialised
software for R&D to ERP and IT security
solutions.
16/ 17
––> overviewmarketsperformancegovernanceappendicesHMS GROUP –––> annual report 2019 HMS business
model
HMS Group’s business model reflects the whole value
chain: marketing & sales, research & development,
procurement and manufacturing, as well as after-sales
service across all of its business units. We may also use
outsourcing from specialized suppliers
HMS Group’s business consists of two main aspects: running
recurring operations (sales and production of standard and
customized pumps, compressors and oil & gas equipment)
and delivery of technological units for large-scale investment
projects of our clients.
HMS’ main customers are large and medium-sized industrial
companies. We also approach small businesses through our
certified dealers, as well as independent trading companies.
Our expertise in engineering is a basis for expanding
relations with oil & gas and energy companies, clients in
metals and mining industry and water utilities.
HMS Group’s business model reflects the whole value chain:
marketing & sales, research & development, procurement
and manufacturing, as well as after-sales service across
all of its business units. We may also use outsourcing from
specialized suppliers.
Research
& development
Marketing
& sales
After-sales service
across all of its business units
Procurement
& manufacturing
Our core competence is research & development in a broad
range of disciplines of rotating equipment. We develop new
products and offer state-of-the-art solutions to maintain
our leading positions on the Russian and CIS markets.
HMS’ expertise in engineering helps us to design efficient
solutions that meet the highest customer requirements.
The Group’s production facilities consist of 12 plants in
Russia, Ukraine, Belarus and Germany. We benefit from
cooperation between our plants, which complement each
other to shorten the lead-time and optimize costs.
We continued to implement our large-scale capital
expenditures program (Rub 1.6 billion in 2019) to develop
our manufacturing capacities and retain the highest
level of product quality. The biggest investments include
the construction of a new shop for large steel casting at
Kazankompressormash and the expansion of machinery
shops for new lines of water pumps (DeLium, Kordis series)
at HMS Livgidromash.
Our marketing function strengthens and promotes the HMS
brand in both conventional and prospective markets. As part
of our marketing strategy, we regularly present new products
and solutions to our customers at leading trade exhibitions in
Russia and abroad.
In 2019, HMS’ overall sales volumes equaled Rub 51.4 billion
(-2% yoy). Our direct client list comprised over 6,000 names
in Russia and abroad. Industrial pumps division accounted
for the largest part of the revenue – Rub 19.4 billion
(+11% yoy).
Outside of Russia, HMS’ sales offices are currently located
in Germany, the UAE, as well as in Belarus and Kazakhstan.
We are also growing our presence in new markets and
developing relations with oil & gas, energy and international
EPC companies in Russia and abroad.
18/ 19
––> overviewmarketsperformancegovernanceappendicesHMS GROUP –––> annual report 2019 HMS Markets & Macroeconomics
22 Macroeconomic Environment in 2019
24 Market Trends
20/ 21
performancegovernanceappendicesoverview––> marketsHMS GROUP –––> annual report 2019 macroeconomic
environment
in 2019
The Russian GDP grew by 1.3% yoy in 2019 (2.5% yoy in 2018).
The main factors of this moderate growth were decrease in exports
(-2.3% yoy compared with 5.5% yoy in 2018) and lower final consumption
expenditure (2.4% yoy compared to 2.8% yoy in 2018), including household
consumption (2.5% yoy compared with 3.3% yoy in 2018). Increased
imports (+3.4% yoy compared with 2.6% yoy in 2018), gross capital
formation (1.5% yoy compared with 0.2% yoy in 2018) and public spending
(+2.2% yoy compared with 1.3% yoy in 2018), supported by the launch of
the National projects, did not provide enough to ensure higher growth.
1.3%
2.5% in 2018
The Russian
GDP ––> %
2.4%
2.9% in 2018
The industrial
production growth ––> %
The industrial production grew by 2.4%, which is 0.5% less than in 2018
(2.9%). The highest growth was observed in basic pharmaceutical products
and preparations (+19.6% yoy), fabricated metal products (+8.9% yoy),
computers, electronic and optical products (+8.0% yoy), furniture (+6.8%
yoy), wood and products of wood and cork (+5.3% yoy). Machinery and
equipment declined (-2.4% yoy), while the most significant decline was in
the segment of transport equipment (-12.1% yoy).
In 2019, consumer inflation in Russia (the Consumer Price Index)
remained low (3.0%). The unemployment rate reached 4.6% at the
end of the year, being one of the lowest in the history of the country.
3.0%
4.3% in 2018
consumer inflation
in Russia ––> %
In 2019, the world GDP growth slowed down to 2.9%
against 3.6% in 2018: advanced economies grew by 1.7%
compared with 2.3% in 2018, and emerging markets and
developing economies (EMDEs) grew by 3.7% compared
with 4.5% in 2018. The main factors of the slow-down
included the trading tensions between the United
States and China and stagnation in the main European
economies. The price of Brent crude oil averaged
to US$ 64 per barrel in 2019, US$ 7 per barrel lower
than its 2018 average (US$ 71).
64.6bn
113.7 billion in 2018
current account
surplus ––> US$
6.25%
7.75% in 2018
CBR key rate ––> %
Industrial Producers Price Index declined by 4.3% in
2019. The Central Bank of Russia decreased the key
rate 5 times in 2019 (from 7.75% to 6.25%) to support the
economic activity on the back of low inflation, which made
the loans more available for both business and households.
As a result, the total corporate debt reached Rub 41.9 trillion
(+5% yoy) at the end of 2019, while loans to individuals grew
up even faster, to the level of Rub 19.1 trillion (+19% yoy), so
that the Central Bank of Russia took control measures to limit
the credits to individuals with high credit-risk profiles.
Despite the continued sanctions of the United States and the
European Union the Russian ruble remained stable in 2019:
it declined by 3% against the US Dollar (average USD/RUB:
from 62.6 to 64.8) and grew by 2% against the Euro (average
EUR/RUB from 74.1 to 72.4).
The year 2019 was marked by the beginning of the pension
reform in Russia, which will result in the retirement age
increase by 5 years for both men (increase from 60 to 65
years) and women (increase from 55 to 60 years). The reform
will eventually increase the country’s available labor force in
the face of the ageing population.
Starting from January 1, 2019, the Value Added Tax in Russia
increased from 18% to 20%, which will bring additional
revenue into the Russian budget.
The current account surplus was at the level of US$ 64.6
billion for 2019 (lower than US$ 113.7 billion in 2018).
Commodities Exports amounted to US$ 417.9 billion, with
US$ 121.6 billion coming from crude oil, US$ 66.3 billion –
from oil products, US$ 41.5 billion – from gas, US$ 8.4 billion
– from LNG (total sum of oil and gas exports, including oil
products reached US$ 237.8 billion). Commodities Imports
reached Rub 254.8 billion. Direct investments amounted to
US$ 26.9 billion, a significant increase compared to US$ 5.9
billion in 2018. Exports of services reached US$ 63.6 billion,
while Imports of services amounted to US$ 98.3 billion.
500bn
9.9% yoy
total external debt
of Russia ––> US$
The Russian Budget showed a surplus of Rub 1.9 trillion,
equal to 1.8% of the GDP. Budget revenue increased by 3.8%,
while spending grew by 9.0%. Total external debt of Russia
(both government and corporate) increased by 9.9%, to the
level of US$ 500 billion.
As the result of favorable economic conditions, the MOEX
Russia Index increased from 2,369 points at the end of
2018 to 3,046 points at the end of 2019 (+29%), with a total
capitalization of Rub 11.8 trillion. The RTS Index growth was
even higher, from 1,069 points to 1,549 points (+45%) during
2019, with a total capitalisation of US$ 190.4 billion.
22/ 23
performancegovernanceappendicesoverview––> marketsHMS GROUP –––> annual report 2019 market trends
oil and gas industry
In 2019 extraction of minerals brought 12.6%
to the Russian GDP (-0.6% yoy). The oil and
gas share in total income of the Federal
Budget of Russia decreased from 46% in 2018
to 39% in 2019, as a result of decline of Urals
oil price from US$ 70 per barrel to US$ 64
per barrel. Yet, the oil price was sufficient
to ensure the funding of the Russian Budget
and further CAPEX of oil and gas companies.
Russian oil industry consists of a number
of large players, 5 largest companies
account for 3/4 of country’s oil production
and refining, while Gazprom is the major gas
company in Russia.
About a half of the oil produced is processed
at the Russian refineries, while the other half
is exported.
upstream
The overall situation on the oil market remained stable in
2019. Russia increased its production of oil to 560.3 million
tons in 2019 (+0.9% yoy). During the year, the country’s well
stock increased from 181.7 thousand units to 187.1 thousand
units (+3% yoy). The total measured drilling depth declined by
1% yoy to 28.4 thousand meters.
Total investments in oil & gas production increased by 7% yoy
in 2019, to Rub 2 trillion.
In 2019, 569 wells on new oilfields (not older than five years)
were put into operation, including newly launched
the Zapadno-Erginskoye, the Traygorodsko-Kondakovskoye
and the Lenskoye fields.
547.3 546.7 555.9 560.3
533.6
70
64
51
42
53
2015
2016
2017
2018
2019
Oil price, US$/barrel (Urals)
Crude oil Production in Russia
(including gas condensate),
mt
Top oil producers
in Russia,
2019 ––> %
Top petroleum
refiners in Russia,
2019 ––> %
Crude oil production in Russia
and Urals oil price dynamics
24%
7%
5%
11%
31%
38%
32%
15%
4%
7%
11%
15%
Rosneft
Lukoil
Surgutneftegaz
Gazprom neft
Tatneft
TANEKO
Other
Natural gas extraction in Russia hit the 2018-year record –
737.59 bcm were produced (+1.7% yoy), the average export
prices declined by 17% yoy to US$ 205 bcm, because of
growing competition from LNG producers.
In 2019, Gazprom launched the Chayandinskoye gas field
– one of the largest fields in Eastern Siberia and continued
development of a number of other large projects, including
the Kovyktinskoye field and the Achimov deposits of the
Urengoyskoye field.
282.9
280.6
287.0 285.1
280.0
81%
79%
83% 83%
74%
Processing depth, percent
Primary oil processing
in Russia, mt
2015
2016
2017
2018
2019
Primary oil processing volume
and processing depth in Russia
downstream
There are 39 large oil refineries in Russia with total crude oil
distillation capacity of 0.8 million tons per day. Rosneft, the leading
Russian oil company, is the largest refinery operator owning 12
major refineries. LUKOIL, with 4 major refineries, is the second-
largest refineries operator. In Russia, primary oil processing
reached 285.1 million tons, a decrease by 0.6% yoy, compared with
2018. The depth of processing remained 83 percent, at the level
of 2018.
In 2019, total CAPEX in oil & gas downstream grew by 28% yoy
to Rub 0.5 trillion.
A number of future projects on the modernisation of oil
refineries as well as new construction are planned on
the horizon until 2025. Examples of projects include the
construction of new units at Taneco (Tatneft), Khabarovsk
refinery (NNK), Orskneftegazsyntez (Safmar).
In 2019, seventeen large gas-processing plants in Russia
(processing over 1 bcm per year each) and nineteen smaller
plants processed in total 122.37 bcm of natural gas and
petroleum associated gas (+13.4% yoy). The main trend in gas
processing is the steadily increasing share of LNG production.
The volume of LNG produced in Russia reached 29.5 mt
compared with 19.8 mt the previous year (+49% yoy).
The largest LNG projects include the Yamal LNG and
the Arctic LNG-2 (NOVATEK).
29.5mt
9% yoy
The volume of LNG produced
in Russia ––> mt
635.5 640.2
556.9
556.9
725.4 737.7
691.1
635.9 643.6
605.7
245
168
192
246
205
78.6 83.3 85.4 89.5 94.1
2015
2016
2017
2018
2019
Export gas price, US$/ tcm
Natural gas production
in Russia, bcm
Associated gas production
in Russia, bcm
Natural and associated gas production
in Russia, and average export price of gas
midstream
As Russian oil fields and gas fields are widespread
across the country, Russia has the largest oil and
gas pipeline networks in the world, which has been
significantly developed during the last ten years.
Transneft is the major operator of the Russian oil
trunk pipeline system (51,600 km) and oil-product
trunk pipeline system (16,700 km). The annual
CAPEX in the oil transport system exceeded Rub
266.7 billion in 2019 (+3% yoy).
The total length of the Russian gas transportation
system is ~172,600 km; the only operator of gas
pipelines is Gazprom. In 2019, Gazprom launched
the Power of Siberia that will supply gas to China,
finalized works on the Turk Stream, and continued
construction of other pipelines, such as a part
of the Sakhalin-Khabarovsk-Vladivostok
and the Ukhta-Torzhok (Yamal) pipelines.
24/ 25
performancegovernanceappendicesoverview––> marketsHMS GROUP –––> annual report 2019
/// market trends
power generation
In 2019, Russia continued to increase
its electricity output, which reached
1,096.2 billion kWh (+1.2% yoy).
Total installed capacity of Russian power
system increased by 2.96 GW (+1.1% yoy)
and amounted to 252 GW.
Total number of large power plants in Russia is 805 (with
installed capacity higher than 5 MW each). The structure of
the installed capacity in the Unified power system remained
practically unchanged in 2019: thermal power plants
accounted for 67 percent of installed capacity, hydro power
plants – 20 percent, nuclear power plants – 12 percent.
Total investments in the energy industry declined by
8.8% yoy to Rub 962.1 billion.
Russian energy companies continued construction of new
power plants, such as nuclear Kursk-2 NPP, Leningrad-2
NPP, Novovoronezh-2 NPP, conventional Primorskaya TPP,
Voronezh TPP (new 115 MW unit) and other.
The State Atomic Energy Corporation, ROSATOM, also runs a
number of projects on NPP construction abroad with Russian
technology and equipment, such as: Akkuyu NPP in Turkey,
Kudankulam NPP in India, Busher NPP in Iran, Belarusian NPP,
Tianwan-2 NPP in China and has a number of projects under
negotiation.
A new program of TPP modernization was launched in 2019 -
new capacity of 17.2 GW will be built in 2022-2025, with total
CAPEX over Rub 200 billion.
93.3bn
27% yoy
Crude oil exports brought Russian
companies in 2018 ––> US$
Electricity output, billion kWh
Installed capacity, GW
243 244 247 250 252
1,072
1,074
1,092
1,096
1,049
2015
2016
2017
2018
2019
Total installed capacity and electricity
output in Russia, 2015-2019
1%
12%
20%
0.2%
19%
Thermal
Hydro
Nuclear
Renewable
18%
67%
63%
Installed capacity
by types of power
plants ––> %
Eelectricity output
by types of power
plants ––> %
3.1% yoy
in 2019
Overall extraction of mineral
resources ––> %
metals and mining
water utilities
Mining industry in Russia is highly
concentrated, and consists of large
companies, which typically have a full
production cycle from ore mining
to the production of metal products
with high value added.
Municipal water utilities were supported by
the continued growth of tariffs.
For example, in 2019, tariffs for cold water
supply increased by 5.0% yoy,
hot water supply – by 4.1% yoy,
and sewerage – by 6.0% yoy.
In 2019, overall extraction of mineral resources grew by 3.1%
yoy, where:
‒ Extraction of metal ores increased by 5.2% yoy;
‒ The volume of coal production amounted to 439.2 million
tons, a 0.2% yoy decrease compared with 2018;
‒ Coal exports decreased to 192.4 million tons (-0.4% yoy).
In 2019, overall investments in metal ores extraction slightly
declined to Rub 274.9 billion (-0.2% yoy), while investments
in coal industry reached Rub 179.2 billion (+18% yoy).
In 2019, overall production of metals increased by 0.6% yoy,
where:
‒ Production of cast iron was at the level of 51.2 million tons
(a 1.2% decrease yoy), while production of stainless steel
reached 199 million tons (+4.4% yoy);
‒ Production of some rare and precious metals showed even
higher growth: gold production grew by 17% yoy, cobalt by
5.7% yoy, and titan by 3.6% yoy.
Total investments in the production of metals grew by 6.3%
yoy to Rub 324.1 billion.
Russian metals and mining companies continue to implement
large-scale investments programs. EVRAZ, Severstal, Rusal,
Nornickel and others are running long-term programs
on development of new mines and construction of new
production units (coke batteries, new furnaces, etc.) that will
ensure investments in the industry for the next years.
Total investments in water utilities and waste utilization in
Russia reached Rub 158 billion (+5.7% yoy). Some of the most
important ongoing projects in water utilities construction and
modernization in 2019 were at St. Petersburg, Belgorod and
Saratov water facilities.
In 2019, the implementation of the National project “Ecology”
(consisting of 11 Federal projects) continued, that will ensure
large modernization of water facilities all over the country,
yet it was going much slower than the plan. By November
2019, only 27.1 percent of the planned for the period budget
had been spent (Rub 15.4 billion), including only 12.4 percent
of the “Clean Water” Federal project budget. The main
reason for this delay was the lack of expertise in preparation,
approval and implementation of such investment projects.
158bn
5.7% yoy
Total investments
in water and waste
utilization ––> Rub
26/ 27
performancegovernanceappendicesoverview––> marketsHMS GROUP –––> annual report 2019
HMS Performance in 2019
30 Financial & Operational Overview
38 2019 Calendar of Events
42 HMS Key Projects, Development & Innovations
48 Modernization
50 Corporate Social Responsibility
28/ 29
governanceappendicesoverviewmarkets––> performanceHMS GROUP –––> annual report 2019 l
i
a
c
n
a
n
fi
&
operational
overview
/// FY 2019 financial results
RUB mn
2019 FY
2018 FY
Change
yoy
4Q 2019
4Q 2018
Change
yoy
Orders
Backlog
Revenue
EBITDA
52,196
55,891
-7%
15,970
25,176
-37%
44,693
42,634
5%
44,693
42,634
5%
51,413
52,619
-2%
14,732
20,757
-29%
4,824
6,621
-27%
1,432
2,302
-38%
EBITDA margin
9.4%
12.6%
9.7%
151
1,946
-92%
(45)
11.1%
772
-106%
2,296
1,843
25%
597
521
14%
Profit for the
period
Depreciation &
amortization
Free cash flow
23
(139)
na
2,646
1,854
43%
group
performance
Order intake declined by 7% yoy to
Rub 52.2 billion, compared with Rub
55.9 billion for 2018FY, mainly due to a
decrease in the compressors business
segment because less large contracts
were signed in the reported period.
Backlog, in contrast, grew to Rub
44.7 billion by 5% yoy, compared with
Rub 42.6 billion last year, based on
growth in the pumps and the oil & gas
equipment. In terms of contracts type,
the recurring business was the main
contributor to this growth.
Revenue decreased to Rub 51.4 billion,
down by 2%, compared with Rub 52.6
billion for 2018FY, due to weak results
of the oil & gas equipment business
segment.
EBITDA was down to Rub 4.8 billion
compared with Rub 6.6 billion (-27%
yoy) mainly because of the oil & gas
equipment projects and partly because
of the compressors.
Revenue from recurring business
increased by 8% yoy, and revenue
from large projects declined by 19%
yoy. EBITDA from recurring business
increased by 56% yoy, and from large
projects contracted by 62% yoy.
EBITDA margin was down to 9.4%,
compared with 12.6% for 2018FY.
Profit for the 2019 year declined
to Rub 151 million, compared with
Rub 1.9 billion for 2018FY, down by
92% yoy.
Depreciation & amortization was up
25% yoy to Rub 2.3 billion, compared
with Rub 1.8 billion for 2018FY because
of assets acquired in 2019.
Free cash flow grew to Rub 23 million,
compared with Rub (139) million for
2018FY, mainly due to a decrease in
working capital (-3% yoy).
HMS austerity program
4. The “Arctic Cascade” project of
PAO NOVATEK, the first ever HMS
project in the field of designing and
manufacturing of compressors for
liquefaction of natural gas:
HMS Group had analyzed the project,
and has taken actions to prevent
losses in foreseeable projects
of that kind. The equipment was
manufactured under the innovative
proprietary natural gas liquefaction
technology called the “Arctic
Cascade” patented by PAO NOVATEK
in 2018.
The aim of the project was to localize
the manufacturing and assembly
of LNG equipment to decrease
the overall cost of liquefaction and
develop a technological base within
Russia. While the participation in
the project incurred losses for the
company due to the fact that HMS
has developed a new product, the
project’s successful execution has
given the access to the new and
prospective LNG market in Russia.
5. Austerity measures time lag:
HMS had started the cost-
optimization program at the end of
1H 2019. It has taken several months
from the implementation of austerity
measures to the decrease of fixed
costs and increase of profitability,
which were clearly seen at the
improved results of 2H 2019.
The cost-optimization program of HMS
Group consists of two types of austerity
measures - short-term and long-term.
The short-term measures have been
already implemented and realized. In
2020, the short-term ones will be partly
complimented or replaced by long-term
measures.
The short-term measures include (1) a
temporarily decrease of wages, which
has been already realized in 2H 2019,
and (2) a decrease or cancellation of
dividend payments in 2020, which
decision will depend on 2019 FY
results and general situation with large
contracts portfolio in the spring 2020.
The long-term austerity measures
include, among others:
‒ Rightsizing (personnel optimization);
‒ Minimization of operating
costs including optimization of
procurement processes and
improvement of products’ design
solutions;
‒ Reduction of capital expenditures
to Rub 1.5 billion per annum (pure
maintenance level);
‒ Strengthening of control over
working capital;
‒ Analysis of non-performing assets
for further decision-making
regarding restructuring of HMS
business.
In 2019, HMS experienced the influence
of several negative factors that affected
the company’s financial results:
1. Change in a mix of large contracts
portfolio, where compressor-based
large contracts increased their share,
and they traditionally have lower
margins compared with pumps and
oil & gas equipment:
HMS addressed this by working on
prospective profitable contracts.
As a result, today the company has
signed already a sustainable volume
of large contracts in the pumps
and the compressors segments.
In the oil & gas equipment and
projects segment, the portfolio of
large contracts is improving. Also,
based on a current pipeline of large
projects, the oil & gas equipment and
projects segment has a potential of
the further portfolio’s development.
2. Weak results of the oil & gas
equipment and projects business
segment in recurring business:
HMS had analyzed the factors that
affected financial results of the
segment, and has taken actions to
mitigate their impact on 2020FY
results.
3. Postponement of a number of the
oil & gas equipment signed and
budgeted deliveries from 3-4Q
2019 to the 2020 year due to HMS
customers’ decisions:
One the one hand, this factor
affected 2019 FY financial results,
and on the other hand, it should
positively influence 2020 FY financial
results.
1. Herein, materials & components, labour costs and social taxes, construction & design were additionally derived from Change in work
in progress and finished goods, thereby do not coincide with the note in the financial statement
30/ 31
governanceappendicesoverviewmarkets––> performanceHMS GROUP –––> annual report 2019
/// financial & operational overview
expenses and
operating profit
Cost of sales was up to Rub 41.8 billion
by 3% yoy, compared with Rub 40.6
billion for 2018FY, due to the increase
in Materials and components (+1% yoy).
The main reason of the increase was
large compressor contracts, which
had a higher share of outsourced
components in their costs of sales.
RUB mn
2019 FY
2018 FY
Change
yoy
Share of
FY 2019
revenue
Share of
FY 2018
revenue
Gross profit
9,609
12,002
-20%
18.7%
22.8%
Distribution and transportation
1,961
1,916
2%
3.8%
3.6%
General and administrative
5,395
5,636
SG&A expenses
7,356
7,551
-4%
-3%
10.5%
10.7%
14.3%
14.4%
Other operating expenses
196
250
-22%
0.4%
0.5%
Operating expenses ex. Cost of
sales
7,553
7,802
-3%
14.7%
14.8%
Gross profit was down 20% yoy to Rub
9.6 billion, compared with Rub 12.0
billion for 2018FY.
Operating profit
Finance costs
2,057
4,200
-51%
1,785
1,611
11%
4.0%
3.5%
8.0%
3.1%
Distribution and transportation
expenses grew by 2% yoy, due to the
grown transportation expenses (+25%
yoy) that was because of increased
deliveries of equipment produced
under large contracts to the remoted
regions of Russia.
RUB mn
Finance costs
Interest expenses
Interest rate, average
Interest rate Rub, average
Change
yoy
11%
10%
2019 FY
2018 FY
1,785
1,611
1,764
1,598
8.56%
8.72%
8.69%
8.91%
RUB mn
Cost of sales1
Materials and components
Labour costs incl Social taxes
Depreciation and amortization
Construction and design and engineering services of subcontractors
2,467
Others
2,365
2,045
2019 FY
2018 FY
Change
yoy
Share of
FY 2019
revenue
Share of
FY 2018
revenue
41,804
40,617
27,957
27,628
7,060
1,954
7,276
1,567
2,102
3%
1%
-3%
25%
17%
16%
81.3%
77.2%
54.4%
52.5%
13.7%
13.8%
3.8%
4.8%
4.6%
3.0%
4.0%
3.9%
As a share of revenue, distribution and
transportation expenses was up to
3.8% compared with 3.6% last year.
General and administrative expenses
were down by 4% yoy to Rub 5.4
billion, compared with Rub 5.6 billion
last year, due to the sizable 9% yoy
totaling decrease in labor costs and
social taxes. As a share of revenue,
general and administrative expenses
decreased to 10.5% from 10.7% for
2018FY.
SG&A expenses1 declined to Rub
7.4 billion, compared with Rub 7.6
billion (-3% yoy), and as a share of
revenue, declined to 14.3% from
14.4%.
Operating profit was down to Rub 2.1
billion, compared with Rub 4.2 billion
last year (-51% yoy).
Finance costs were up to Rub 1.8
billion, compared with Rub 1.6 billion
for 2018FY, due to the increase of
interest expenses (+10% yoy) because
of a higher level of total debt. Average
rates decreased to 8.56% p.a.
compared with 8.72% p.a. last year.
business
segments
performance
/// industrial pumpsI
RUB mn
Orders
Backlog
Revenue
EBITDA
2019 FY
2018 FY
Change
yoy
4Q 2019
4Q 2018
Change
yoy
22,792
19,573
16%
6,369
6,141
4%
19,572
17,152
14%
19,572
17,152
14%
19,770
17,811
2,599
2,390
11%
9%
5,866
6,613
-11%
728
1,191
-39%
EBITDA margin
13.1%
13.4%
12.4%
18.0%
Order intake of industrial pumps
grew by 16% yoy based mainly
on large contracts.
Backlog grew by 14% yoy to Rub
19.6 bn due to both recurring
business and large contracts,
mainly in the sphere of pumps
for nuclear power plants.
Revenue was Rub 19.8 bn, up 11%
yoy, compared with Rub 17.8 bn for
2018FY. The growth was based on
both recurring business and large
contracts.
EBITDA increased to Rub 2.6
bn, by 9% yoy, from Rub 2.4
bn for 2018FY due to recurring
business. And EBITDA margin
was 13.1%, compared with 13.4%
for 2018FY, with a minor drop,
because recurring business
generated a larger share of
EBITDA compared with 2018FY.
There are two low-margin
production facilities in the pumps
business segment, and their
negative effect has been already
reflected in the company’s
financial results. Currently, HMS
is working on an optimization
strategy of their operations.
1. SG&A expenses - Selling, General and Administrative Expenses, compiled of distribution & transportation expenses
plus general & administrative ones
32/ 33
governanceappendicesoverviewmarkets––> performanceHMS GROUP –––> annual report 2019
/// financial & operational overview
/// oil and gas equipmentII
& projects (OGEP)
RUB mn
Orders
Backlog
Revenue
EBITDA
2019 FY
2018 FY
Change
yoy
4Q 2019
4Q 2018
Change
yoy
11,887
12,023
-1%
791
3,203
-75%
7,426
6,658
12%
7,426
6,658
12%
13,160
20,859
-37%
4,562
4,346
5%
430
2,883
-85%
601
166
261%
EBITDA margin
3.3%
13.8%
13.2%
3.8%
Order intake slightly declined to Rub
11.9 bn, compared with Rub 12.0 bn
for 2018FY, and totally consists of
recurring contracts.
Backlog was up by 12% yoy to Rub
7.4 billion, compared with Rub 6.7 bn
for 2018FY, also based on recurring
contracts.
Revenue decreased by 37% yoy to Rub
13.2 bn, compared with Rub 20.9 bn for
2018FY. EBITDA declined to Rub 430
mlnn, compared with Rub 2.9 bn, and
EBITDA margin was 3.3% vs. 13.8% for
2018FY.
The main reason of the decline were
absence of new large contracts under
execution in 2019FY compiled with
a low profitability of recurring business
in 1H 2019.
When its backlog of large projects
decreased in mid-2018, the production
facility didn’t manage to cut quickly its
fixed costs. Also it didn’t manage to
sign a sufficient volume of profitable
recurring contracts to replace large
contracts. The combination of the
above-mentioned factors resulted in
a decrease of revenue and margins in
the period from 4Q 2018 to 2Q 2019.
Consequently, recurring business
generated less EBITDA than expected.
HMS Group has changed management
at HMS Neftemash to speed up the
costs reduction. Implemented austerity
measures align with more profitable
orders portfolio resulted in a recovery
of the oil & gas equipment and projects
segment’s financial
results.
HMS Neftemash postponed deliveries
from 3-4Q 2019 to 2020, worth c. Rub
0.4 billion EBITDA, that should positively
influence 1H 2020.
The “Arctic Cascade” allowed HMS to
develop competencies in the new area
of equipment for liquefaction of natural
gas and penetrate the Russia’s booming
LNG market.
The successful execution of the “Artic
Cascade” turned PAO NOVATEK
into one of HMS largest clients. In
September 2019, PAO NOVATEK and
HMS Group signed the Memorandum
on localization of LNG equipment.
In 2019, PAO NOVATEK and HMS Group
signed two large compressor contracts
worth Rub 3 billion rubles. And in 2020,
another large contract was signed, to
engineer and manufacture 6 main gas
compression units to deliver and install
at the Obsky LNG processing plant.
/// compressorsIII
RUB mn
Orders
Backlog
Revenue
EBITDA
2019 FY
2018 FY
Change
yoy
4Q 2019
4Q 2018
Change
yoy
17,363
23,883
-27%
8,785
15,811
-44%
16,067
16,688
-4%
16,067
16,688
-4%
17,884
14,678
22%
4,558
9,371
-51%
1,546
1,758
-12%
280
6.1%
1,320
-79%
14.1%
Since HMS had developed a new
product, it has incurred losses for the
company, and that was one of the main
factors that affected the compressors
segment’s EBITDA. But on the other
hand, the company had analyzed the
project, has taken actions to prevent
them and is fully prepared for execution
of similar projects in the future.
/// constructionIV
EBITDA margin
8.6%
12.0%
Order intake was down 27% yoy to
Rub 17.4 billion, compared with Rub
23.9 billion, because of a lower volume
of large contracts signed. Recurring
business orders, in contrast, grew by
7% yoy.
Backlog decreased by 4% yoy to Rub
16.1 billion, compared with Rub 16.7
billion last year, also because of less
large contracts signed.
Revenue was up by 22% yoy to Rub 17.9
billion, compared with Rub 14.7 billion,
based on both recurring business and
large contracts. EBITDA declined by
12% yoy to Rub 1.5 billion, compared
with Rub 1.8 billion for 2018FY. EBITDA
margin was down to 8.6% compared
with 12.0% for 2018FY.
In the 2nd half of 2018, HMS Group
started execution of the pilot “Artic
Cascade” project. That was a project to
supply a main 25 MW gas compression
system for the Yamal LNG project of
PAO NOVATEK.
RUB mn
Orders
Backlog
Revenue
EBITDA
2019 FY
2018 FY
Change
yoy
4Q 2019
4Q 2018
Change
yoy
155
411
-62%
25
20
25%
1,628
2,137
1,394
1,795
-24%
-22%
(29)
(138)
na
1,628
2,137
-24%
295
(78)
537
23
-45%
na
EBITDA margin
-2.1%
-7.7%
-26.4% 4.2%
Order intake equaled Rub 155 million.
Backlog was Rub 1.6 billion.
Revenue was down to Rub 1.4 billion,
compared with Rub 1.8 billion for
2018FY. EBITDA was Rub (29) million,
compared with Rub (138) million last
year.
34/ 35
governanceappendicesoverviewmarkets––> performanceHMS GROUP –––> annual report 2019
/// financial & operational overview
/// working capital and capital expenditures
RUB mn
Working capital
Working capital / Revenue LTM
Capex
Acquisition
2019 FY
2018 FY
Change yoy
4Q 2019
3Q 2019
Change qoq
8,846
17.2%
1,571
670
9,115
17.3%
2,335
(112)
-3%
-33%
8,846
17.2%
367
-
11,522
20.1%
403
-
-23%
-9%
working capital
and capital expenditures
debt position
Working capital was Rub 8.8 billion,
down by 3% yoy, compared with Rub
9.1 billion for 2018FY. As a share
of revenue, working capital slightly
declined to 17.2%.
Total debt increased to Rub 24.3 billion,
up by 25% yoy, compared with Rub 19.5
billion for 2018FY. Net debt was Rub
14.4 billion, up by 9% yoy, compared
with Rub 13.2 billion for 2018FY.
Net debt to EBITDA LTM ratio increased
to 2.98x compared with 1.99x last year.
Capital expenditures were Rub 1.6
billion, down by 33% yoy, compared
with Rub 2.3 billion last year, as the
result of the implemented austerity
measures.
/// debt position
RUB mn
Total debt
Net debt
2019 FY
2018 FY Change
4Q 2019 3Q 2019 Change
yoy
qoq
24,321
19,458 25%
24,321 21,115
15%
14,369 13,163
9%
14,369 16,960 -15%
Net debt / EBITDA LTM
2.98
1.99
2.98
2.98
shareholding
and HMS GDRs
In December 2019, the major
shareholder of HMS Group, JSC HMS
Holding (“HMS Holding”), completed
the process of cancellation (disposal
by HMS Holding) of 2,924,207 global
depositary receipts issued under
the Company’s depositary receipts
program representing 14,621,035
shares in the Company (the
“Underlying Shares”) and withdrawal
of (acquisition by HMS Holding of) the
Underlying Shares from the depositary
(the Bank of New York Mellon) in
the name of HMS Holding (the
“Conversion”).
As a result of the Conversion, HMS
Holding retains full control over the
majority shareholding in the Company
being a direct holder of 71.51 percent
of the Company’s issued share capital,
and, consequently, the Conversion
neither triggers an obligation of the
Company or HMS Holding to make any
mandatory offer to the GDR holders,
nor lead to any change in corporate
governance of the Company.
significant events
after the reporting
date & financial
management
large contracts
covid-19 and fall in oil prices
After the reporting date, HMS
announced the signature of a large
compressor contract with PAO
NOVATEK, to deliver main compression
units to the Obsky LNG processing
plant.
debt refinancing
In February 2020, the Group made
a full Rub 3 billion redemption of its
bonds, issued in 2017, at 100% par
value. In 4Q 2019, HMS Group
attracted Rub 3 billion bank credit,
that was deposited, for this bonds
redemption.
Starting from early 2020, a new
coronavirus disease (COVID-19) has
begun rapidly spreading all over the
world resulting in announcement of
the pandemic status by the World
Health Organization in March 2020.
Responses put in place by many
countries to contain the spread of
COVID-19 are resulting in significant
operational disruption for many
companies and have significant impact
on global financial markets. As the
situation is rapidly evolving it may have
a significant effect on business of
many companies across a wide range
of sectors, including, but not limited to
such impacts as disruption of business
operations as a result of interruption
of production or closure of facilities,
supply chain disruptions, quarantines
of personnel, reduced demand and
difficulties in raising financing. In
addition, the Group may face the
increasingly broad effects of COVID-19
as a result of its negative impact on the
global economy and major financial
markets. The significance of the effect
of COVID-19 on the Group’s business
largely depends on the duration and the
incidence of the pandemic effects on
the world and Russian economy.
In addition to that, in March 2020,
oil prices dropped by more than
40%, which resulted in immediate
weakening of Russian Rouble against
major currencies.
Management considers the outbreak
of COVID-19 coronavirus infection
and the reduction in oil prices to
be non-adjusting events after the
reporting period.
The Group developed a stress
scenario of the possible impact of
the current operating environment
on the Group’s business, including
the analysis of possible deviations in
execution of large contracts, included
in the Group’s budget for 2020, as
well as assessment of probabilit y of
reduction in revenues on recurring
business, the analysis of factual
liquidity and debt position of the
Group at the date of issuance of these
consolidated financial statements,
its future expected cash inflows
and outflows and the consideration
of debt covenants. The scenario
demonstrated the Group’s ability
to continue as a going concern.
i. 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 standard
specifications; it also provides aftermarket maintenance and repair services and other support for its products.
ii. The oil and gas equipment and projects 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.
iii. 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 standard specifications, and compressor-based integrated solutions.
iv. The construction provides construction works for projects for customers in the oil upstream and midstream, gas upstream.
36/ 37
governanceappendicesoverviewmarkets––> performanceHMS GROUP –––> annual report 2019
2019 calendar
of events
january
Apollo Goessnitz presented the
following equipment:
march
‒ KRH/KRHA series overhang radially
split process pumps (type OH2,
API610) that features low operational
costs and ease of maintenance
due to back pull-out design with
de-mountable coupling and
retrofittable runners;
‒ AMG series between bearing axially
split process pumps (type BB3,
API610) featuring high reliability
low vibration due to back to back
impellers design;
‒ TL/TG series barrel multistage
radially split process pumps (type
BB5, API610) with cartridge pull-out
that enables changeover of inner
case on-site without dismantling the
outer case.
HMS Group repurchased 1,200 of its
global depositary receipts representing
0.01 percent of the Company’s issued
share capital during the period from
February 4, 2019 up to and including
February 8, 2019. Since the start of
the programme, the Company has
repurchased 1,144,769 GDRs in total
(representing 4.89 percent of its issued
share capital).
The major shareholder of HMS
Group, H.M.S. Technologies Limited,
transferred 2,000,000 (two million)
ordinary shares in HMS HYDRAULIC
MACHINES & SYSTEMS GROUP PLC
comprising 1.7070 percent of the total
number of shares in its share capital
to JSC HMS Holding, the subsidiary
undertaking of H.M.S. Technologies
Limited, in the form of the shareholder’s
asset contribution for nil consideration.
This transaction was completed as
part of the ongoing restructuring of
the core shareholders’ shareholding in
the Company and does not lead to any
change in their effective interest in the
Company.
february
Apollo Goessnitz GmbH participated
in the Egypt Petroleum Show that took
place within February 11–13 in Egypt
International Exhibition Center (Cairo).
At the exhibition the company exposed
models of the pumping equipment
product line for oil and gas upstream,
midstream and downstream. All the
equipment is compliant with widely
recognized industry standards and
highly esteemed by the customers
for reliability and great operating
performancel.
The major shareholder of HMS
Group, H.M.S. Technologies Limited
(“HMST”) registered at Cyprus,
transferred its entire shareholding in
the Company to JSC HMS Holding
(“HMS Holding”), registered at Russia,
the subsidiary undertaking of HMST, via
the following transactions:
‒ HMST transferred 67,159,421
ordinary shares in the Company
(comprising 57.32 percent of the
Company’s issued share capital)
to HMS Holding in the form of the
shareholder’s asset contribution for
nil consideration;
‒ HMST transferred 2,924,207 global
depositary receipts issued under
the Company’s depositary receipts
program (“GDRs”) (representing
14,621,035 shares in the Company
and comprising 12.28 percent of the
Company’s issued share capital)
to HMS Holding in exchange for
additionally issued shares in HMS
Holding.
As a result of this restructuring:
‒ HMS Holding became a direct holder
of 69,159,421 ordinary shares in
the Company and 2,924,207 GDRs
comprising in aggregate 71.51
percent of the Company’s issued
share capital; and
‒ HMST remains the sole voting
shareholder of HMS Holding
retaining control over the majority
shareholding in the Company, and
consequently none of the
transactions made as a part
of the restructuring triggers
an obligation of the Company,
HMST or HMS Holding to make
any mandatory offer to the GDR
holders.
This restructuring of the core
shareholders’ shareholding in the
Company did not lead to any change
in corporate governance or corporate
control of the Company. All applicable
regulatory approvals have been
obtained in connection with this
restructuring.
HMS Group repurchased 59,380
of its global depositary receipts
representing 0.55 percent of the
Company’s issued share capital
during the period. Since the start of
the programme, the Company has
repurchased 1,204,149 GDRs in total
(representing 5.14 percent of its issued
share capital).
One of HMS’ managers acquired
14,500 of HMS Group’s GDRs using his
own funds
Three screw compressor systems
made by KKM were placed in pilot
operation as part of a new associated
petroleum gas (APG) compressor
station at the preliminary water
knock-off unit No. 34 (Bashneft-
Dobycha) under the target program of
APG utilization increase implemented
by ANK Bashneft.
The TAKAT compressor systems
with a unit capacity of 2,329 Nm³/h
and discharge pressure of 7 bar are
based on single-stage oil-injected
screw compressors with a common
lube oil system. The systems have
block-container design and equipped
with 200 kW electric motors as well
as automation system operated from
a separate room. These systems
were designed and manufactured in
accordance with the requirements of
international (API 619) standards
38/ 39
governanceappendicesoverviewmarkets––> performanceHMS GROUP –––> annual report 2019
/// 2019 calendar of events
april
june
august
HMS Group participated in the 23rd
KKM completed testing of the
HMS signed a contract to engineer
and procure compressors and
complementary equipment worth Rub
1.7 billion to a compressor station.
The manufactured equipment will be
delivered in 2020.
HMS signed a contract to engineer
and procure gas transportation units
worth Rub 3 billion to a gas booster
station. The manufactured equipment
will be delivered in 2020.
september
HMS signed a contract to engineer
and procure gas transportation units
worth Rub 2.3 billion for an oil & gas
condensate field. The manufactured
equipment will be delivered in 2020
HMS signed Euro 16 million contract
to engineer and procure compressors
for an oil processing plant in Russia.
The manufactured equipment will be
delivered by the end of 2020
HMS signed two contracts to
engineer and procure nuclear pumps
and pump-based solutions worth a
total Rub 1.9 billion. The manufactured
equipment will be delivered in
2021-2022
International Exhibition of machines
and equipment for mining, processing
and transportation of minerals
MiningWorld Russia 2019. The HMS
Group exposition featured the pumping
equipment for the main processes of
the mining industry, including a new
HDP series slurry pumps with capacity
up to 8,000 m3/h and head up to 100
m for abrasive hydraulic mixtures with
solids content up to 200 mm. The
exposition also included the samples of
the new advanced pump series:
‒ DeLium – new generation double
suction pump for process water
circulation systems
‒ VVN water-ring vacuum pump for
main gas compression system
manufactured for NOVATEK’s “Arctic
Cascade” liquefied natural gas (LNG)
production technology. The system was
designed to operate in the natural gas
liquefaction complex of the 4th stage
of Yamal LNG project. The integrated
compressor unit consisting of three
centrifugal compressors designed to
handle three process gases (methane,
nitrogen and ethane). All three
compressors are driven by a single
Russian-made 25 MW gas turbine
through a multi-shaft gearbox with one
input and three output shafts. One of
the compressors is designed as a multi-
shaft unit of five compression stages
steam-gas mixtures removal in the
ore processing
july
Fitch Ratings affirmed JSC HMS
Group’s Foreign- and Local-Currency
Issuer Default Ratings (IDR)s of “B+”,
the outlook “Stable”. The full text of
Fitch’s press release is available on
the agency’s website https://www.
fitchratings.com/site/pr/10084287
‒ Sidus submersible drainage pump for
transfer of liquids with a high content
of solid particles
‒ 2NK overhung pump for chemical
solutions supply in the ore dressing
process
HMS Group repurchased 133 of its
GDRs. Since the start of the buyback
programme, the Company has
repurchased 1,204,282 GDRs in total
(representing 5.14 percent of its issued
share capital)
One of HMS’ managers acquired
975 of HMS Global depositary receipts
using his own funds
HMS Group signed two contracts
to deliver gas transportation units
worth Rub 4 billion. The manufactured
equipment is to be delivered by the end
of 2019
december
The Group signed Rub 2 billion
contract to deliver gas transportations
units
HMS signed a Rub 1.4 billion
follow-up contract to a recently signed
Rub 3 billion compressor contract.
The manufactured equipment will be
delivered in 2020
KKM produced and delivered a
centrifugal compressor system with
a capacity of up to 1 Mtpa for a LNG
complex in Sabetta (Yamal-LNG,
NOVATEK)
Taking into account a successful
experience of cooperation between
HMS Group and NOVATEK on
design and manufacture of the key
compressor-based equipment under
the “Arctic cascade” technology
(home-grown technology of
natural-gas liquefaction, which
was developed by NOVATEK), the
Parties fixed their mutual interest in
cooperative development of new types
of high-performance equipment for
natural-gas liquefaction as well as
further localization of equipment for
large-capacity LNG projects and their
raw-material base.
Prioritized directions of cooperation,
fixed in the Memorandum, comprise
design, manufacture and testing of
hi-tech pumping and compressor
equipment, including submersible
cryogenic LNG-unloading pumps,
as well as column, heat-exchanging
and vessel equipment for natural-gas
treatment and liquefaction units.
HMS signed two contracts to
engineer and procure oil & gas
equipment worth a total Rub 1 billion.
The manufactured equipment will be
delivered in 1H 2020
HMS Group refinanced a number of
credits worth a total Rub 5 billion with
payment due in 2020-2021, shifting
repayment dates to the 2022 year.
Average interest rate of refinanced
credits was decreased on 0.21 percent
october
HMS signed a contract to engineer
and manufacture gas transportation
units worth Rub 6.1 billion. The
equipment is to be delivered in 2021.
The company and PAO NOVATEK
signed the Memorandum on Strategic
Partnership, which aims the further
development of mutual cooperation in
a field of design and manufacture of
first-of-its-kind-in-Russia equipment
for LNG projects. The Memorandum
set the general principles and main
directions of mutually beneficial
cooperation. It composes the long-
term intention of the Parties to pursue a
wide-scale cooperation to localize the
manufacturing of compressors, pumps
and other equipment for NOVATEK’s
LNG projects.
40/ 41
governanceappendicesoverviewmarkets––> performanceHMS GROUP –––> annual report 2019
HMS key projects,
development &
innovations
HMS Group follows best practices
and international standards in R&D,
manufacturing and quality management in
order to meet the growing requirements on
the market. We actively participate in the
government-initiated process of import
substitution, which allows us to broaden
our product portfolio and attract a large
number of clients.
research
and development
56mn
37% yoy
Export sales
revenue ––> US$
30% yoy
in 2019
export sales
growth pace ––> %
export activities
Export sales revenue of HMS Group
outside the FSU has reached US$ 56
million including international nuclear
power plants projects, showing steep
37% yoy increase versus a previous
year.
Adding up sales revenue from projects
involving international EPC companies
in Russia and the CIS of US$ 12 million
makes total HMS export sales revenue
figure equaling US$ 68 million, i.e. 103%
of the HMS Group Export Sales strategy
adopted by the HMS Board of Directors
in 2016.
Signing in 2019 high value contracts
in Persian Gulf/ MENA region has
anchored considerable export sales
revenue backlog for 2020 amounted
in c. US$ 90 million , including
international nuclear power plants
projects that keeps export sales growth
pace at the challenging level of over
30% yoy compared to 2019.
In 2019, Export sales directorate has
broadened the export sales product
portfolio starting sales of centrifugal
compressors and static equipment for
international EPC projects in Russia.
PUMPS
Nuclear power generation
Sewage water
In 2019, the company set up smelting
of high-alloy nickel cast iron, analogy
of foreign Ni-resist ASTM A 436 cast
iron. Production of wetted part casting
from this kind of cast iron will allow
improve operating properties of pumps
and increase their performance life in
aggressive environment.
HMS Group developed the technology
of production of pump body castings,
where ceramic running system with
siphon CFF1-filtering of liquid melt input
was used. This technology will be used
in production of AS-1D200-90-A pumps
for nuclear power plants, which will have
the safety class 2.
The produced two units successfully
passed all non-destructive control tests.
HMS Group continues to expand
the range of standard sizes of mass-
produced rotor-dynamic pumps
intended for sewage water, type CD.
Centrifugal CD pumps and electric
pump units, made on their base, are
used for urban and industrial waste
waters and other non-aggressive
liquids with a possible additions of
petroleum products of max 2 percent.
Capacity
(rated),
m³/h
Head,
m
Pressure at
the pump
inlet, МPа,
maximum
Power
consump-
tion of
the pump
(max.), кW
Rotational
speed,
rpm
Positive
suction
head, m,
maximum
CD 100/40
CD 100/40a
CD 100/40b
CD 250/22,5
CD 250/22,5а
CD 250/22,5b
100
90
80
250
225
205
40
32
28
0.25
0.25
0.25
22.5
0.25
18.5
0.25
16
0.25
26
20
17.8
32
26
20
2,900
2,900
2,900
1,450
1,450
1,450
9.0
9.0
9.0
5.0
5.0
5.0
1 CFF – ceramic foam filter, is used to remove inclusions which are generated between the refinancing system and the mold table.
The ability of the ceramic foam filter to capture these inclusions is critical to maintaining a clear ingot during to solidification of metal.
42/ 43
governanceappendicesoverviewmarkets––> performanceHMS GROUP –––> annual report 2019 /// HMS key projects, development & innovations
Liquid-packed ring vacuum
pumps
HMS Group continues to expand
the range of mass-produced liquid-
packed ring vacuum pumps of VVN
type and started the serial production
of VVN2-50 pumps. These pumps
and units, made on their base, are
applicable in petrochemicals, metals
& mining, pulp & paper industries,
agriculture, construction and medicine.
The pumps are intended for exhaustion
of air, water-insoluble inert or
aggressive gas, depending on the flow
part’s material, to create or maintain
vacuum. The pump is produced in 3
standard sizes: rotational speed of
500 rpm, 600 rpm and 750 rpm with
40m3/hour, 50m3/hour and 60m3/hour
ensure capacity respectively.
100m3 Underground vessel
(storage tank)
In 2019, NRS developed a technology
of production of underground storage
tanks with nominal value at 100m3. The
most producers don’t have capacities
to produce and transport vessels with
such mass and dimensions parameters
(13m length, 4m height, 3.2m diameter
and 18.5t weight).
OIL & GAS EQUIPMENT
Thermo-Chemical Binary
Mixture Technology (TCBXT)
Biochemical Physics of the Russian
Academy of Sciences in accordance
with a contract with the Ministry of
Education of the Russian Federation.
In 2016-2018, HMS Group was
developing the technology and
the equipment complex for thermo-
chemical and oil-and-gas-bearing
formation treatment, with the aim of
increasing hydrocarbon production and
restoring the ecological environment
on oil and gas fields, instead of using
the foreign technology of proppant-gel
fracturing. The project was being
carried out in cooperation with Tyumen
State University and the Institute of
In 2019, the Group concentrated on
promoting and commercialization
of the new technology. Also, the
company acquired the industrial patent
# 2696714 for a thermochemical
treatment of oil-and-gas-bearing
formation.
HMS aimed at oil & gas companies,
which expressed interest in the
implementation of the new technology.
As an example, PAO “Tatneft” signed
the first commercial contract to treat 10
wells on a number of its oil & gas fields.
The company entered into cooperation
with the Kazan University regarding
conduction of laboratory and stand
research of different binary systems
under diverse reservoir conditions.
Also, in Tyumen, HMS organized
laboratory experiments, laboratory and
stand testing of cores, subsamples of
crude oil and oil-field water.
measures (pressure, temperature,
etc.);
‒ Conversion of wells from periodic to
constant duty;
‒ Operation of wells with high content
of aromatic hydrocarbons, gas and
solids.
In 2019, HMS Neftemash continued
the project on a rodless oil extraction
mechanism. Following the results of
the factory acceptance testing, the
company modernized and put the
finishing touches to the mechanism:
‒ Implemented an additional fine filter
in a delivery line of a hydraulic unit
to enhance reliability of the unit and
a hydraulic motor;
‒ Increased a diameter of a
transmission shaft of a protector
module to 25 mm for its vibration
isolation at a high idle;
‒ Upgraded an axial piston pump,
which complies with technological
and weight-size requirements
A pilot run was coordinated on a
number of oil & gas fields.
Mobile Secondary Reference
Metrology Complex
Hydromechanical drive
for sucker rod pumping units
The main advantages of the
hydromechanical drive developed by
HMS Group are:
‒ No need to redevelop an oil-well for
an offered technology;
‒ Release of sucker-rod-pumping-
unit foundation land, improvement
of the environmental security of
surface management (elimination of
oil product leaks through seals and
stuffing-box seals of a rod);
‒ Reduction in metal consumption
during replacement of the obsolete
rocker-machines fleet;
‒ The no-sucker-rod enables
mechanical dewaxing of a lift;
‒ Increase in pumps’ volumetric
efficiency, improvement of oil
recovery efficiency, decreased level
of power consumption;
‒ Option to use downhole-to-
surface telemetry with online
output to a dispatcher console
with controllability of the main well
In 2019, HMS continued research and
development upon an investment
project to develop the Intelligent Mobile
Secondary Reference Metrology
Complex mounted on a cross-country
chassis.
The new Mobile Metrology Instrument
will allow oil & gas companies to
calibrate online metering units,
without interruption of hydrocarbons’
extraction, thus lowering costs of
extraction.
The company successfully completed
the following project’s milestones:
‒ Completion of 3D-model and the
electronic paste-up of the unit;
‒ Completion of research testing of the
electronic paste-up. Completion of
simulation of circulation of multi-
phase flows inside the complex’s
elements. Evaluation of working
effectiveness of the complex;
‒ Completion of engineering analysis
of the complex’s core elements by
the finite-element method;
‒ Development of design & operational
and design & technological
documents;
‒ Completion of a design of a crude oil
analyzer. Completion of its 3D-model
and corresponding engineering
analysis;
‒ Completion of development of the
complex’s APCS software.
44/ 45
governanceappendicesoverviewmarkets––> performanceHMS GROUP –––> annual report 2019
/// HMS key projects, development & innovations
COMPRESSORS
Compressor units for NOVATEK
HMS Group continues to expand
As part of the import-substitution
program, Kazankompressormash
developed a number of compressor
unit for NOVATEK.
The main gas transportation unit for
NOVATEK’s 4th stage of the Yamal
LNG project. The unit consists of
three centrifugal compressors and
is intended for compression of three
technological flows: feed gas, nitrogen
and ethane. All three compressors are
driven by a single 25 MW gas turbine,
made in Russia, though a multi-shaft
gearbox with one input and three
output shafts. One of the compressors
was designed as a multi-shaft unit of
five compression stages.
The first-of-its-kind solution makes
it possible to reduce the mutual
thermodynamic impact of compression
stages and reduce significantly the
overall dimensions and the mass of
the entire compressor system of the
LNG production complex. All elements
were designed and produced in
accordance with the API standards and
were completed with a local automatic
control system.
HMS Group designed and
manufactured a centrifugal compressor
system with a capacity of up to 1 mtpa
for Yamal-LNG. The complete boil-off
gas compressor system is intended to
compress a boil-off gas flow and supply
into feed gas, which is to be liquefied.
The 6.87 MPa discharge pressure
system is designed in accordance
with the API 617 and ASME PTC-10
international standard requirements
and is capable to operate on a cold gas.
In 2019, Kazankompressormash
implemented the additive
manufacturing technology, 3D printing.
The new technology shortened the time
period from a project to a prototype to
10 days.
The printed and tested impeller was
produced from titan in accordance
with the method Selectiv. During the
overspeed test, the pilot compressor
impeller was put on the maximum
23,500 rpm, and didn’t demonstrate
any configuration‘s changes or defects
in the form of cracks in the metal.
The system is designed under the
“Arctic Cascade” technology patented
by NOVATEK, and it helps to reduce
the capital costs and develop the
engineering base for LNG projects
in Russia through the domestic
equipment application.
Compressor impellers
Kazankompressormash began
embracing of alternative technologies
of production of self-balancing unicycle
(compressor impeller). Today, impellers
are cut from a unitary block of a forging,
which means a low capacity ratio and
a high level of labour inputs. The time
period from a project
to a developmental
prototype made in metal
takes 120 days.
ENGINEERING
In 2019, GTNG started active
development of a new activity area
– Process engineering in oil and
gas processing, oil extraction and
petrochemical industry, where the facility
provides with the full range of services:
Project activities:
‒ Concept development
‒ Preparation of a technical inquiry
‒ Preparation of a business case and a
cost-benefit analysis
‒ Basic design
‒ Customization of a basic design and
FEED according to Russian codes
and standards
Project management:
‒ Interaction with the leading world
licensors
‒ Analysis, comparison and selection
of the best possible technology
‒ Organization of complex engineering
surveying
‒ Preparation of land surveying
‒ Preparation of documents to
documentation
assessment of environmental impact
‒ Project approval by the Russia’s State
‒ Development of the project’s specific
technical specifications
Expert Evaluation Department
‒ Interaction with the Russia’s State
‒ Project approval by the Russia’s State
bodies
Environmental Expertise
‒ Detailed design
‒ 3D-project design
‒ Update of 3D-project design
to “As built”
‒ Development and supervision of
project schedule and budget
‒ Construction supervision
‒ Installation supervision and
commissioning works.
In 2019, GTNG completed more than
10 innovative research projects for
Russia’s oil & gas companies, and
patented the invention “Method of
individual-group metering of the oil well
cluster’s product flow and the metering
system”. Also, GTNG was ranked the
best regional “Innovative company of
the Year”.
LEGAL PROTECTION OF INTELLECTUAL PROPERTY
HMS’ current operating portfolio consists
of more than 300 objects of intellectual
property, including 241 patents, 31
registered computer programmes, and
54 registered trademarks.
In 2019, the company received exclusive
rights to 12 inventions and utility model
patents, and filed applications for
9 patents including the international
PCT procedure.
300
current operating portfolio
Objects of intellectual
property ––> amount
12
in 2019
New registered inventions
and utility model patents
––> amount
46/ 47
governanceappendicesoverviewmarkets––> performanceHMS GROUP –––> annual report 2019
modernization
16,2% yoy
in 2019
labour intensity of details
processing ––> %
PUMPS
Machining
In 2019, HMS Livgidromash continued
modernization of its machining
production shop and placed in
operation a CNC1 lathe machining
center PUMA V8300MR developed by
DOOSAN (South Korea).
The vertical turning center is intended
for heavy duty and high precision
cutting over long-term operations,
including cutting of large diameter
workpieces and complete milling,
drilling and tapping operations in a
single setup. The facility uses the
center for processing of pump bodies,
seal cases, impellers and bearing
caps. Since the center was placed in
operation, the labour intensity of details
processing decreased by 16.2%, and
the machining quality of pump parts
significantly improved.
Also, the facility placed in operation
a CNC lathe machining center PUMA
2600B developed by DOOSAN as
well. This high-performance and
multifunctional turning center is
intended for fine turning, milling,
drilling and screwcutting of stainless,
tempered and heavy-duty materials.
Since placed in service, the labour
intensity was down by 9.2%.
In 2019, the facility purchased
a 4-plate roll bending machine
HRB-4 2035 developed by
DURMA. After it is placed in
service, HMS Livgidromash
will be able to produce circular
rings, conical billets and other
radius parts from sheet materials
20-60 mm thick and up to 2,050 width.
Commissioning of this roll bending
machine will allow production of
circular rings for further manufacturing
of heavy bodies for pumps used
in petrochemicals, nuclear power
generation, etc. The facility plans to
start its industrial use in 1H 2020.
In 2019, Livnynasos was equipped
with two new CNC horizontal lathe
machining centers PUMA 2600Y by
DOOSAN, that allowed to reach the new
level of precise and high-quality surface
machining. These centers are utilized
for complex mechanical machining of
pump parts with simultaneous milling,
drilling and tapping, that significantly
decreased labour intensity and
excluded additional movement of parts
between drilling and milling machines.
Also, the next step in sophistication of
the facility’s production process was
the implementation of a CNC vertical
turning machine EMAG VL-2 (Germany)
intended for machining of space sleeves
of ECV 8 pumps. The utilization of
the center improved preciseness and
quality of parts, i.e. reliability of pump
parts’ friction.
In 2019, the Ukrainian facility of HMS
Group, NEM, placed in operation a
multifunctional CNC machining center
SKODA HCW 1. The center provides
with high precise complex machining
of bodies and caps, pump cradles, and
other pump parts and pieces.
Colouring and Dyeing of metals
NEM installed a spay booth with inside
dimensions 6990х4500х3000mm.
The booth is equipment with an
intake-outtake air filtering system as
well as coloring & dying temperature
monitoring system. Due to the full
insulation of coloring and dying from
other kinds of work, the facility reached
the high quality of anti-corrosion
coating.
1 CNC – computer numerical control
The facility expect to complete the third
stage of the upgrade by the end of
2020, that comprises foundation of the
molding area for large-sized castings
and a pattern shop equipped with
three- and five-axis machining centers.
COMPRESSORS
Foundry
Kazankompressormash continued
an investment project on the foundry
re-equipment to create the modern
foundry complex on its base. The
modernization will expand the range
of sizes and materials and enhance
quality and accuracy of production
the castings of a wide range of alloys,
including the steel ones of a large
size. The smelting complex comprises
three furnaces made by EFAS (Turkey)
with 8, 6, and 3 tons capacity, which
are automatically operated and have
an option of gas purging through a
molten metal. The new shot-blasting
machine made by Tachtech (Czech)
with an overhead conveyor for the large
castings shorten finishing operations
time by three times.
A complex of four heat-treating
furnaces with a total capacity up to
90 tons was put into pilot operation
also. The heat-treating complex allows
heat treatment of castings, forgings,
assemblies and other large-sized parts
with an in-process temperature range
from 550 to 1200°C.
The foundry complex is intended,
primarily, for production of large-size
castings and is capable of simultaneous
smelting up to 17 tons of liquid metal
to produce high-quality steel castings
with weight up to 9 tons and cast iron
castings with a weight up to 13 tons.
48/ 49
governanceappendicesoverviewmarkets––> performanceHMS GROUP –––> annual report 2019 corporate social
responsibility
In 2019, HMS Group took part in the Awards “The most socially responsible company in the oil
& gas industry of Russia” hold by the Ministry of Energy of Russian Federation. The goal of the
Awards was to promote social policies of fuel-and-energy companies, identify and survey the
most active socially responsible companies, which reached a high efficiency in accomplishment
of social tasks, improvement of quality of employees’ work environment and life,
and to popularize the oil and gas industry.
HMS Group won in nominations “Interaction with professional education institutions.
10 to 100,000 work force company” and “Employees’ motivation and building their loyalty.
Additional benefits granting to employees”.
Support and building heritage:
Local life
‒ Honoring HMS’ veteran workers on
Machine Builders Day ;
‒ Meetings with mentors;
‒ Professional skill competitions
among young workers;
‒ Honoring best workers;
‒ Meetings of veteran workers (former
employees) with the colleagues.
HMS Group fully participates in the
local life of the regions where its
facilities operate:
‒ Taking part in local creativity
competitions, cultural, sport, charity
and other events;
‒ Holding festivals;
‒ Helping schools, hospitals, childcare
centres and religious organisations.
primary areas
of social policy
Social development policy
and providing adequate living
standards and normal working and
life conditions for HMS’ employees.
The company has developed and
implemented collective agreements,
in-house policies and acts, which
reflect social welfare issues, benefits,
compensations and guarantees
granted to the employees, including:
‒ Hardship-duty pays;
‒ Preservation of average earnings
after transfer to easier work;
‒ Pecuniary aid in the event of the
worker’s death;
‒ Pecuniary aid for medical treatment,
and purchase of expensive
pharmaceutical drugs;
‒ Bonus payments to veterans;
‒ Maternity coverage on monthly basis;
‒ Additional holidays in case of
significant events, and for continuous
service with the company;
‒ Pecuniary aid to non-working
veterans, including for public
holidays;
‒ Events to support young people.
The company continues to sponsor one of its engineers, Mr. Nikolay Kuzovlev, the leading Russian
athlete in Ice Climbing. In 2019, he clinched the Ice Climbing World Cup.
safety and health
HMS Group believes that achieving
its strategic goals and maintaining
its competitive advantages requires
systematic management of labor
health protection and the prevention
of industrial injury and professional
illness. Production facilities introduce
modern methods of accident
prevention and maintain hygiene and
sanitary conditions, which prevent
professional illnesses and ailments
driven by workplace factors.
On this basis, the company set up four
main goals in the area of labor health
protection and accident prevention:
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.
3. Compliance of HMS’
activities in the area of
labor health protection
with the requirements
and expectations of all
interested parties, and
with rules and regulations,
established under
legislation and normative
technical documents:
1. Prioritisation of its employees’ health
and safety over business performance
results and continuous improvement
of work conditions and labor health
protection at every working place.
‒ Regular examination
of industrial safety, and
‒ Regular training in the area
of industrial safety.
4. Establishment of personal
responsibility by company employees
of all levels for meeting all labour health
protection requirements accurately
and in a timely manner. Also, HMS
actively engages its employees while
developing in-house documentation,
which determines the regulations of
implementation and realisation of the
labor health safety system.
2. Significant decrease of risks of
industrial traumatism and professional
illness of the company’s employees:
‒ Regular medical examinations, and
availability of stationary medical and
feldsher’s stations.
‒ Issuance of free personal protective
equipment, including work clothes,
safety shoes and other personal
safety apparel. The special
commissions at HMS’ facilities
analyse the given personal safety
apparel on a regular basis and
examine novelty products, which
appear on the market.
‒ Issuance of milk to employees with
harmful working conditions, etc.
50/ 51
governanceappendicesoverviewmarkets––> performanceHMS GROUP –––> annual report 2019
/// corporate social responsibility
charity and social
assistance
The company believes in its
responsibility for social and economic
climate in regions where it operates,
takes part in social projects and
programs, among other things on
a voluntary pro-bono basis. The
charity activities are realized in the
form of public private partnership
aiming sustainable development of
the company and the region, where it
operates.
HMS Group focuses on helping children
who are in need of medical treatment,
as well as children in need of social and
professional assistance. These projects
are realised through:
‒ 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;
‒ Promoting the prestige and the role
of the family in society;
‒ Promoting the protection of
motherhood, fatherhood and
childhood.
HMS Group forms the charity program
based on an opinion of experts,
heads of regional social agencies as
well as selected fiduciary boards.
The company doesn’t make any
independent monitoring of social
situation in the presence regions.
Besides targeted aid to schools,
foster homes, indigenous
people and others, the Group
continues being one of the main
sponsors of The Tatarstan Judo
Federation.
Every autumn, the festivals of
professions are hold for 6-11
class pupils in Russia’s regions.
These are the main events as
a part of the project “Ticket
to the future”, and are hold by
the international organization,
WorldSkills International.
The “Ticket to the future”
is the leading educational
platform in the form of
professional tests, that
unites pupils, industry
experts, teachers and
career-guidance specialists.
The workshop consists of
several clusters: Health, Urban
environment, IT, Novel materials,
Transport, Agriculture and
Power generation. The career-
guidance is given in the form of
practical training under tenure
of an experienced mentor.
The employees of HMS Neftemash
participated as experts in this event
for the first time, and represented the
facility in the cluster “Novel materials”.
They told pupils about modern
technologies, used for production of
metal work and steels test methods,
which won’t fade in the future. Also, the
experts demonstrated capabilities of
HMS Neftemash modern lab equipment.
More than 400 pupils received the basic
skills of work with the lab equipment,
including operational principles of a
spectrometer.
As a part of strategy to develop
the corporate culture and internal
communications, HMS Group hold a
number of social events, such as the
Pancake Week, Victory day, New Year
celebration, volunteer clean-ups and
environmental campaigns.
On the yearly basis, HMS’ facilities hold
sporting competitions with participation
of all organization units in checkers,
kettlebell lifting, shooting, ski, biathlon,
running, and other kinds of sport.
the environment
In general, the environmental impact
of our production facilities is low due to
the business specifics. Nevertheless,
the management and personnel
of HMS Group fully recognise their
responsibility to nature and to future
generations. The company continues
to work on developing and selling
energy-efficient products and service
solutions. Apart from that, HMS Group
set the following environmental goals,
which are critical in the company’s view:
‒ Reducing emissions of harmful
substances into the atmosphere;
‒ Abating waste water pollution;
‒ Improving waste management in the
area of reducing waste and curbing
adverse environmental impact;
‒ Developing and widely using
waste-free technologies in industrial
processes;
‒ Rational usage of raw materials,
environmental items and energy;
‒ Improving HMS’ image in this sphere.
HMS Group’s facilities conducted
quarterly surveys of emission of harmful
substances into the atmosphere and
evaluations of the effectiveness of
dust and gas catchers. The company
conducted an examination of emission
sources, revised a draft of maximum
permissible emissions, received
new permits for air emissions, and
developed a set of actions to decrease
the level of pollutant emissions under
unfavourable weather conditions. For
the last three years, no excess of the
maximum allowable pollutant emissions
has been discovered.
The Group’s production facilities
conducted chemical and
microbiological analyses of natural
surface water and waste storm water on
a quarterly basis, and spillover tracking
of storm water on a monthly basis.
2019
7.8
3.6
2.1
0.3
0.3
2018
2017
2016
2015
0.6
8.2
3.2
2.2
0.3
0.6
8.6
2.9
2.3
0.3
0.6
8.8
2.8
2.3
0.3
1.6
8.9
1.9
2.3
0.3
1.7
Total
14,024
14,527
14,595
14,735
14,977
2014
8.9
1.9
2.5
0.3
15,351
Industrial pumps
Construction (former EPC)
Oil & gas equipment and projects
HMS Management Company
Compressors
Total
Average Headcount
people
As an employer of 14 thousand people,
HMS is one of the major job creators
across the cities where its facilities are
located. Employees are one of HMS
Group’s core assets, and the company
encourages them and assists them in
achieving their full potential.
In 2019, HMS continued staff training
and education, with a focus on the
areas of accounting and functional
education.
As part of the national project
“Workforce productivity and
employment support”, KKM placed
14 core operations executives for
a “Productivity leaders” training
and 1 executive for “Export growth
accelerator” training. Also, KKM took
part in the federal project “The Older
generation”, and as part of this project
placed 30 soon-to-retire employees
for skills training and additional
skills training. Also, the facility held
“Lean management” and “Effective
management of large projects”
trainings for top-management and core
operations executives.
HMS Neftemash placed 1,216
employees for skills training and
reskilling. 149 of them were placed
for training under the “Workforce
productivity and employment support”
federal program. 734 employees were
placed for training as a part of the
internal technical instruction.
Sibneftemash placed 236 employees
for all kinds of trainings, including
targeted skills improvement. 187
employees were placed for training
under the “Workforce productivity and
employment support” federal program.
In 2019, the average headcount
decreased by 503 people (-3.5%
yoy) mainly due to the Industrial
pumps personnel optimization and a
decrease in the Construction because
of business downturn. Oil & gas
equipment and projects grew because
of the asset, acquired at the beginning
of the year.
52/ 53
governanceappendicesoverviewmarkets––> performanceHMS GROUP –––> annual report 2019
corporate governance
56 Board of Directors
60 Risk Management & Internal Control
66 HMS Global Depository Receipts
70
Information for Shareholders and Disclaimer
54/ 55
––> governanceappendicesoverviewmarketsperformanceHMS GROUP –––> annual report 2019 board
of directors
Good governance generates trust and engagement between a company and its stakeholders and contributes to
the company’s long-term success. Accountability, integrity, transparency, fairness, equity, sustainability and
ethics are all fundamental values of good governance.
The Board of Directors of HMS Group is committed to the highest standards of corporate governance and
aims to ensure on an ongoing basis that the Company is a modern, transparent, competitive and sustainable
organization. By adopting best practices in corporate governance and corporate administration, the Company
achieves a dynamic and effective communication between the Board, management and shareholders, leading
to the successful implementation of its strategy.
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.
performance
General Overview
Chairman
As at 31 December 2019, the Board
comprised of nine (9) Directors: the
Group Chairman who was independent
on appointment, three (3) Executive
Directors and five (5) Non-executive
Directors. During the year ending 31
December 2019, Mr. Vyacheslav G.
Tsoy was appointed as a Director of the
Company by the Board of Directors.
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.
Executive Directors
Non-executive Directors
Mr. Artem V. Molchanov
Mr. Yury N. Skrynnik
Mr. Ezio Vergani
Member of the Board of Directors,
Managing Director (CEO)
Member of the Board of Directors
Member of the Board of Directors, Chair
of the Audit Committee
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
the 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.
As one of the founders of the Group,
Mr. Molchanov has held various
executive positions within the HMS
Group since its establishment in 1993.
Mr. Molchanov became the President
of the 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.
Mr. Kirill V. Molchanov
Member of the Board of Directors
As one of the founders of the Group, Mr.
Molchanov has held various executive
positions within the 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 the 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. Vergani was appointed as an
independent non-executive member of
the Board of Directors in June 2018.
Mr. Vergani is the owner and the President
of Asco Pompe, an Italian company which
produces, distributes, supplies and
integrates products and technological
systems for fluid handling, monitoring
and water treatment. Prior to joining Asco
Pompe, from 1985 to 2008, Mr. Vergani
was the CEO and major shareholder
of Finder Pompe, one of the European
leading companies in the design and
manufacture of engineered pumps and
systems for oil & gas. Mr. Vergani has
received a Master’s degree in Mechanical
Engineering from the Politecnico
University of Milan, Italy and the Executive
Program Certificate of the Stanford
Business School, Palo Alto, California,
USA. He has served as a Board member
in Confindustria Lecco since 2014.
Mr. Andreas S. Petrou
Member of the Board of Directors
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.
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––> governanceappendicesoverviewmarketsperformanceHMS GROUP –––> annual report 2019 /// board of directors
Mr. Giorgio Veronesi
Mr. Vyacheslav Tsoy
Member of the Board of Directors, Chair
of the Remuneration Committee
Member of the Board of Directors
Mr. Veronesi was appointed as an
independent non-executive member of
the Board of Directors in June 2018.
He has graduated in Chemical
Engineering at the University of Padua,
Italy and has over 35 years of experience
in the international engineering and
construction sector. Mr. Veronesi has
held various senior positions at leading
engineering companies Foster Wheeler,
Tecnimont, Siirtec Nigi and Techint.
He has been the Commercial Manager in
Techint E&C since 2012.
Mr. Tsoy was appointed as
Non-executive Member of the Board
of Directors in April 2019. Currently
he is General Director of “ITS” LLC,
a manufacturer of prefab modular
equipment. Prior to joining “ITS” LLC
from 2006 to 2011, Mr. Tsoy served
the position of analyst and deputy
director of capital markets at HMS
Group. From 2003 to 2006 Mr. Tsoy
was the analyst at “Smith Barney”,
private wealth management Company.
Mr. Tsoy graduated with honors from
Drew University, New Jersey, USA with
a degree in Economics and Finance
in 2003.
Mr. Vladimir V. Lukyanenko
Member of the Board of Directors
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 the 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.
principal activities
of the board of
directors in 2019
The Board of Directors held four
meetings in 2019, 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.
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
In order to exercise proper oversight
of risk and control and pursuant to
authority granted under the Articles of
Association, the Board has delegated
certain responsibilities to committees of
the Board. The principal committees are
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 2019 is set out below.
Audit Committee
General Overview
As at 31 December 2019, the
Audit Committee comprises three
independent Directors and is expected
to meet two to four times per year.
Currently, the Audit Committee is chaired
by Mr. Ezio Vergani; its other members
are Mr. Giorgio Veronesi and Mr. Nikolay
N. Yamburenko.
The Audit Committee is responsible for
considering, amongst other matters:
‒ the integrity of the Group’s financial
statements, including its annual and
interim financial statements;
‒ the effectiveness of the Group’s
internal controls and risk
management systems;
‒ auditors’ reports on the Group;
and 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 2019
Two meetings of the Audit Committee were
held in 2019. The main issues that the Audit
Committee oversaw during the year were
the preliminary review of IFRS financial
statements, internal control and risk
management (including the audit plan).
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.
External Audit of Financial
Statements
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 2019,
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
2018. Deloitte remains appointed for the
2019 audit.
Remuneration Committee
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. Giorgio Veronesi; its other members
are Mr. Nikolay N. Yamburenko, Mr. Ezio
Vergani 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 2019
Four meetings of the Remuneration
Committee were held in 2019. The main
matter reviewed by the Remuneration
Committee was the development
and further implementation of the
Group’s updated Long-Term Incentive
Program as well as the 2019 Program
targets and the list of participants. The
Remuneration Committee also adopted
decisions and made recommendations
to the Board of Directors regarding the
CEO’s contract
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. Vladimir V. Lukyanenko and the
other members are Mr. Giorgio Veronesi,
Mr. Yury N. Skrynnik and Mr. Nikolay N.
Yamburenko.
The Strategy and Investments
Committee is responsible for
considering, amongst other matters:
‒ strategic business combinations;
‒ acquisitions, mergers, disposals
and similar strategic transactions
involving the Company; and
‒ fundamental investments of the
Company.
Activities in 2019
One meeting of the Strategy and
Investments Committee was held in
2019. The main matter reviewed by the
Committee was the updated strategy
and financial model of the Group.
Directors’ Compensation
The total compensation of the Chairman
of the Board was Euro 270,115 for the
year ended 31 December 2019.
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 260,000 for the year
ended 31 December 2019.
Diversity policy statement
The Company operates in accordance
with the fundamental principles of
equality, diversity and non-discrimination
and the Charter of Fundamental Rights
of the European Union. All career,
training and development opportunities
are afforded on the basis of gender,
religious and other possible forms
of equality. Decisions and policies in
respect of remuneration and recognition
are similarly based on the principles
of equality, merit and ability. In the
Board’s opinion, this approach, which
incorporates equality and diversity as
qualitative measures, achieves its aims
better than a formal diversity policy
focused on quantitative measures, and
for this reason the Company does not
have a formal diversity policy in place.
Nevertheless, the Board maintains a
regular review of this position.
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––> governanceappendicesoverviewmarketsperformanceHMS GROUP –––> annual report 2019
t
n
e
m
e
g
a
n
a
m
k
s
i
r
& internal
control
overview
HMS Group is exposed to various
risks and uncertainties that may have
undesirable financial or reputational
implications. A risk management
and internal control system has been
integrated into the Group’s operations in
order to minimise the negative impact of
such risks and to benefit from available
opportunities.
The overall objective of this system is to
obtain reasonable assurance that HMS’
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.
/// system of internal control
Setting of risk-appetite
oversight
BOARD
Implementation
and oversight
EXECUTIVE
MANAGEMENT
AUDIT
COMMITTEE
Policy implementation
and identification
improvements
Operational
management
Internal
audit
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 revise our
internal processes and procedures.
The key features of the risk management
process include:
‒ The gathering and analysis of
information related to internal and
external factors which can affect
the achievement of the Group’s
objectives;
‒ Identifying the possible negative
impact of various events on
operational and financial results in
accordance with applicable risk-
assessment methods;
‒ Setting appropriate risk-tolerance
levels;
‒ Ranking risks according to their
significance and probability;
‒ Making appropriate decisions to
manage identified risks;
‒ Actively monitoring the steps taken
to control the most significant risks.
key features of the
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 the company faces.
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.
Internal control and risk management
monitoring is performed through internal
and external assurance providers, which
include:
‒ 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.
‒ Review and formal approval of the
financial results by the CEO, CFO,
Audit Committee and the Board.
‒ Board and sub-committee approval
and monitoring of operating, financial
and other plans.
‒ 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.
‒ 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.
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––> governanceappendicesoverviewmarketsperformanceHMS GROUP –––> annual report 2019
/// risk management and internal control
/// categories of the risks
RUB mn
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
principal risks
and uncertainties
global political and
economic risks
The table below shows the relationship
between the main categories of the risks
we encounter and how they affect our
strategy.
Below is the summary of the principal
risks facing the Group’s business. HMS
also faces other risks both known and
unknown; some of them apply to similar
companies operating in both the Russian
and international markets.
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 company has
other interests (e.g. EPC projects in the
Middle East and Central Asia).
Starting in 2014, sanctions have been
imposed in several packages by the US
and the EU on certain Russian officials,
businessmen and companies. The
above-mentioned events have led to
reduced access of Russia’s businesses
to international capital markets. The
impact of further economic and political
developments on future operations and
the Group’s financial position might be
significant.
The introduction of new regulations or
the imposition of trade barriers or a new
round of sanctions against Russia could
disrupt the Group’s business activities or
impact the Group’s customers, suppliers
or other parties with whom it does
business, though amid fairly high crude
oil prices the influence of these actions
could be smoothed out.
We consider the additional imposition of
targeted personal sanctions to be most
probable. They alone will hardly create
systemic risks and financial stability risks.
Such measures could return certain
private capital to Russia and put some
pressure on the Russian ruble amid
relatively high oil prices.
Sanctions against the corporate sector
(finance, defense, oil and gas industries)
would create the most serious risks
for Russia’s economics and financial
system. Tighter and broader restrictions
concerning both the use of equipment
and/or software and financial operations
could lead to a heavy disturbance on
the markets. The capacity to develop
new fields could also be constrained by
sanctions; in the longer term, as existing
fields run out, the country may find it
hard to maintain the current level of crude
output and gas production.
In 2019, Ukraine and Russia widened
the range of sanctions imposed on
each other. In March 2019, Ukraine
broadened sanctions against 294
Russian companies and 848 citizens.
In response, in addition to individual
sanctions against certain companies
and Ukrainian citizens, Russia widened
the list of goods restricted of import in
Russia from Ukraine, including starch,
fruit-sugar, certain medical equipment,
heaters, central heating boilers and
certain machine-building products.
In some instances, this could have an
adverse, material effect on the company’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 that 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 and for state-
sponsored infrastructure projects.
The Group’s business depends on being
awarded contracts and on the renewal
and extension 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
Management of legal risks is based on
their quality (expert) assessment and
directed to their identification, monitoring
of risk factors, as well as their mitigation.
Since HMS’ contracts are typically
on a fixed-price basis, there are risks
associated with cost overruns (especially
in large integrated projects). 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.
contract
execution risks
HMS Legal department uses the
following basic strategy of risks
management:
‒ Legal risks are verified at the stage
of contracts’ preliminary qualification
and vetting as well as their further
support;
‒ Regarding risks (a)-(c): contracts
execution security to guarantee
adequate sources of costs
covering in the case of contracts
nonfulfillment is maintained through:
HMS Group performs a systematic work
to manage legal risks through their
identification, and prevention of reasons
and conditions when they arise at the
pre-contractual stage as well as at the
stages of contracts execution and legal
proceedings.
Risks formation in 2018 was
stipulated by a number of reason both
macroeconomic and contractual related
to a number of projects executed by the
company.
Main legal risks which arise at the
stage of contracts execution, contracts
signing:
a. Risk of nonfulfillment of a contract
by a client (in whole or in part);
b. Risk of nonfulfillment of their
liabilities by third parties (sub-tiers),
responsible for delivery (production)
of a product’s components;
c. Risk of “a mediator” insolvency
(failure to generate a cash flow
in a settlements’ chain “client
– producer”)
d. Risk of penalty claims for the breach
of the contract;
e. Default risk (including, as a result of
sanctions and/or other enforcement
actions from state services);
f. Piracy risks
‒ Usage of different kinds of
collateral and non-material
securities provided by a
counterparty when entering
into an agreement in the form of
independent guarantees (banking,
corporate) for advance payments/
contract performance, third-party
guarantees, collateral and others;
‒ Withholding of an advance
payment till the provision of a
security; if it is not provided, then
payment after delivery;
‒ Management of the contract
commitments chain “client -
producer”, which assures the
receipt of the payment at the time
of cash flow passing
‒ Regarding (d) risks: control and
organization of the work to fix legally
important facts and circumstances
through putting together evidential
documentation (letter, acts,
protocols, etc.), identified factors
of contractual nonfulfillment (a
customer’s fault), with subsequent
claims settlement by signing
amendments to the contract;
‒ Regarding (e) risks: monitoring
of changes and control of deals
compliance with the current
legislation of the Russian Federation;
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/// risk management and internal control
‒ Regards (f) risks: processing of
patent search, due diligence, and
record-keeping of intellectual activity
results.
In case when risks occur at the trial level,
standard legal procedures and collected
documentation, which proves the counter
nonfulfillment by the client, perspectively
deliver success of the trial (complete or
partial rejection of the suit, or significant
lowering of penal sanctions)
Loss of key R&D employees (talents
with high potential and unique
R&D knowledge) can reduce the
organisation’s productivity. Moreover
the replacements can cost the
Company long time. The Group uses
proactive approach to avoid unwanted
resignations. The Group increasing its
focus on approaching and retaining
the right talents, using a tailored mix of
financial and non-financial incentives.
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 an extended
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.
mergers &
acquisitions
During the whole period of its operation,
the Group has completed a number of
acquisitions targeting the key players
in the markets of industrial pumps,
compressors, modular oil & gas
equipment and EPC-contracts.
Taking into account the economic slow-
down and high uncertainties, insufficient
demand in many segments that makes
it difficult to evaluate potential synergies
from M&A, the Group does not consider
any material acquisitions in the nearest
future, so this risk as immaterial.
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.
Tightening of anti-corruption control
over government-owned corporations
(Gazprom: the Ashurkovs’ case, arrests
on corruption charge of a number of
executives of daughter enterprises of
Rosneft and Gazprom) can affect a
pattern of interaction of HMS Group with
its largest Russian customers in mutual
trust and confidence.
Tightening of anti-corruption control
over state authorities (arrests and cases
against ministers, governors and other
state officials), often accompanied
by media publications with political
complexion, can affect mutual trust and
confidence between business and state
authorities as well.
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.
If necessary, the results of such
investigations are provided to the CEO,
the Board, the management and the
Audit Committee, as necessary.
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
anti-corruption policies, with a particular
focus on those roles most exposed to the
risk of breach.
financial risk
HMS Group doesn’t use financial
instruments for hedging or other risk
management, so the company is not
exposed to such kind of risks, including
price and liquidity risks.
credit and
liquidity risks
In 2019, the company continued work
with its debt portfolio. As a result, HMS
smoothed its repayment schedule with
the major repayments of Rub 6.0 billion
falling in 2021. At 2019-end, HMS Group
had Rub 3.5 billion repayments falling in
2020, where Rub 3 billion was in the form
of corporate bonds. In 4Q 2019, HMS
Group attracted Rub 3 billion bank credit
from VTB Bank that was deposited for
bonds redemption in February 2020.
At the end of 2019, the Group
accumulated Rub 10.0 billion of available
cash. Considering all the above factors,
HMS considers its exposure to credit and
liquidity risks as immaterial.
legislation and
regulations
Laws and regulations affecting
businesses in Russia continue to change
rapidly. Tax and regulatory frameworks
are subject to varying interpretations.
The future economic direction of the
Russian Federation is heavily influenced
by the fiscal and monetary policies
adopted by the government, together
with developments in the legal, regulatory
and political environment. Recent Russian
government initiatives which are currently
under consideration are likely to include,
inter alia, 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
recognises that these developments
may have significant implications for
its business and development plans.
HMS Group continues to monitor these
developments.
information
technologies
There are several significant risks in IT
that can affect the company, including
cyber security and incident response
risk, IT resiliency and continuity risk, data
management risk, technology operations
risk, etc. HMS Group believes that today
the main risks for the company are the
following – the risk of data loss, the risk of
a computer virus epidemic or a large-
scale (purposeless) hacking, and the risk
of a special virus attack intended to pilfer
information undetected.
HMS Group has developed a company-
wide information security (IS) strategy
and a road-map based on the audit
results. The action plan was in 2018-2019,
including the creation of an Information
Security department.
Moreover, the company has planned
other long-term measures which
will mitigate the risk of information
security breaches: development of an
Information Security Policy, perimeter
protection, segmentation of the network,
TDS/IPS, two-factor authentication, etc.
In 2019, in accordance with the
developed strategy, HMS Group
completed the implementation of a
series of technical and administrative
measures to further mitigate the above
mentioned risks, i.e.:
‒ The brand new Information Security
department has been established.
‒ A number of hardware and software
solutions against malicious
code, alongside with elaborated
monitoring tools has been deployed,
namely:
‒ perimeter firewall and threat
emulation appliances, endpoint
software anti-virus agent from
Checkpoint;
‒ threat emulation and intrusion
detection appliances from
Group IB;
‒ security information and event
management solution from IBM.
‒ Further hardened regulations for the
privileged user accounts have been
developed and implemented.
foreign exchange
risk
The Group has no material foreign
exchange mismatch. The company
operates primarily in Russia, with the
majority of its revenue generated
in Russian rubles. Operating costs are
also mainly Russian ruble denominated
and 98 percent of debt is also
in Russian rubles.
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depository
receipts
As a result of this restructuring:
shareholding
As of December 31, 2019, 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.
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. The total number of GDRs
issued in exchange for shares of HMS
Group amounted to 48,004,000 GDRs
or approximately 41% of the Company’s
issued share capital.
Since February 8, 2016, the ratio of the
company’s GDRs program was changed:
Old ratio: 1 GDR equals 1 Ordinary share
New ratio: 1 GDR equals 5 Ordinary
shares
For every 5 GDRs held, holders received 1
“new” GDR in return. The issued number
of ordinary shares and their nominal
value remained unchanged. After the
ratio change, there were 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 decreased to US$
0.01 per “new” GDR.
In March, 2019, the major shareholder
of HMS Group, H.M.S. Technologies
Limited (“HMST”) registered at Cyprus,
transferred its entire shareholding in the
Company to JSC HMS Holding (“HMS
Holding”), registered at Russia, the
subsidiary undertaking of HMST, via the
following transactions:
‒ a. HMST transferred 67,159,421
ordinary shares in the Company
(comprising 57.32% of the Company’s
issued share capital) to HMS Holding
in the form of the shareholder’s asset
contribution for nil consideration;
‒ b. HMST transferred 2,924,207
global depositary receipts issued
under the Company’s depositary
receipts program (“GDRs”)
(representing 14,621,035 shares in
the Company and comprising 12.28%
of the Company’s issued share
capital) to HMS Holding in exchange
for additionally issued shares in HMS
Holding.
‒ a. HMS Holding became a direct
holder of 69,159,421 ordinary shares
in the Company and 2,924,207
GDRs comprising in aggregate
71.51% of the Company’s issued
share capital; and
‒ b. HMST remains the sole voting
shareholder of HMS Holding
retaining control over the majority
shareholding in the Company,
and consequently none of the
transactions made as a part of the
restructuring triggers an obligation
of the Company, HMST or HMS
Holding to make any mandatory
offer to the GDR holders.
This restructuring of the core
shareholders’ shareholding in the
Company did not lead to any change
in corporate governance or corporate
control of the Company. All applicable
regulatory approvals have been obtained
in connection with this restructuring.
Then in December, 2019, the new major
shareholder of HMS Group, JSC HMS
Holding completed the process of
cancellation (disposal by HMS Holding)
of 2,924,207 global depositary receipts
issued under the Company’s depositary
receipts program representing
14,621,035 shares in the Company
and withdrawal of (acquisition by HMS
Holding of) the Underlying Shares from
the depositary (the Bank of New York
Mellon) in the name of HMS Holding (the
“Conversion”).
long term
incentive plan
In May, 2019, the Group‘s Executive
Directors and PDMRs listed below
acquired an interest over the
Company’s Global depositary receipts
following the grant of awards under the
Company’s Long Term Incentive Plan
(“LTIP”) for the 2016 award year. The
awards were part of a grant of GDRs
to seventeen Company’s managers
as a Motivational Package for the
2016 Award year under the Long-term
Incentive Program. The total amount of
GDRs paid to the LTIP participants was
equal to 1.77 percent of the Company’s
issued share capital.
As a result of the Conversion, HMS
Holding retains full control over the
majority shareholding in the Company
being a direct holder of 71.51% of the
Company’s issued share capital, and,
consequently, the Conversion neither
triggers an obligation of the Company
or HMS Holding to make any mandatory
offer to the GDR holders, nor lead to any
change in corporate governance of the
Company.
The issued number of ordinary shares
and their nominal value remained
unchanged. Currently there are
6,676,592 depositary receipts
outstanding in the GDR program.
credit ratings
Fitch Ratings
Expert RA
B+ / Stable
ruA / Negative
22 Feb 2017 /
30 July 2019
11 July 2017 /
5 August 2019
$
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,
R
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G
r
e
p
e
c
i
r
P
8,00
7,00
6,00
5,00
4,00
3,00
2,00
1,00
0,00
02.01.2019
02.02.2019 02.03.2019
02.04.2019
02.05.2019
02.06.2019
02.07.2019
02.08.2019
02.09.2019
02.10.2019
02.11.2019
02.12.2019
Volume of trades, th US$ Price per 1 GDR, US$
GDR performance and volume of trades in 2019, the London Stock Exchange
900
800
700
600
500
400
300
200
100
0
$
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66/ 67
––> governanceappendicesoverviewmarketsperformanceHMS GROUP –––> annual report 2019
/// HMS global depository receipts
/// price of HMS Group’s GDRs
Min, US$
Max, US$
GDR price at the end of the
period, US$
Market capitalization at the
end of the period, US$ mn
2011
2012
2013
2014
2015
2016
2017
2018
2019
1Q 2019
2Q 2019
3Q 2019
4Q 2019
19.90
19.50
10.50
1.30
1.30
2.05
7.46
6.60
4.10
6.50
5.45
4.20
4.10
management
purchases
Within 2019 year, Directors/PDMRs of
HMS Group acquired the company’s
15,475 GDRs on the open market,
using their own funds.
The Company’ shares are now held
by JSC HMS Holding, though HMS
Technologies remains the ultimate
controlling parent as the sole
shareholder of JSC HMS Holding.
22.05
21.10
12.50
1.30
2.76
7.46
9.80
7.00
4.60
41.21
29.90
21.15
12.50
4.50
8.01
9.80
11.30
7.50
7.50
6.55
5.75
4.60
516.69
494.43
292.91
30.46
64.67
174.81
229.64
164.03
107.79
155.83
132.39
105.92
107.79
71.5%
19.3%
JSC HMS Holding
Free-float
(other holders of GDRs)
5.9%
Managers and persons
closely associated
with management
3.4%
Treasury GDRs
Shareholders
by legal entities,
31.12.2019 ––> %
30.2%
Managers and persons
closely associated
with management
Vladimir Lukyanenko
German Tsoy
Free-float
(other holders of GDRs)
27.4%
19.8%
19.3%
3.4%
Treasury GDRs
Shareholding by holders
(effective share) ––> %
dividends
In 2016, the HMS Board of
Directors approved an updated
Dividend Policy reflecting the
Group’s strategy to maximize
shareholder returns. As a general
rule, the company targets to pay
our total dividends for a given
reporting period in the region of
50% of the “Profit attributable to
Shareholders of the Company”
for the year, as set out in its IFRS
Consolidated Financial Statements,
subject to capital constraints such
as Debt and Liquidity position and
forecast. HMS also plans to pay out
dividends basically twice a year
(interim and final). Dividends are
announced per 1 ordinary share.
For the period ended in 2018,
HMS Group paid Rub 9.81 total
dividends per 1 ordinary share
(Rub 49.05 per 1 GDR).
buyback
program
HMS Group started its buyback
program in 2012. The company
planned to invest in repurchase
of GDRs up to $ 25 million. The
main objectives of the program’s
implementation were an intention
to maximize shareholder value as
well as a reduction of the effect of
external shocks on GDR’s price.
Buyback period is 1 year, and the
renewal of the program should be
approved by the Annual General
Meeting of Shareholders.
In 2015, the company approved
new conditions of the program:
the maximum number of GDRs,
which could be repurchased, was
increased to 5% of the subscribed
capital of HMS Group, including
previously acquired and held in the
form of treasury shares.
/// history of dividend payments
Period
Dividend
per share,
Rub
Dividend
per GDR,
Rub
Amount
announced,
Rub mn
Record Date
Payment Date
2013 FY
3.41
2015 9m (interim) 3.25
3.41
3.25
399.5
380.8
10 Jun 2014
27 Jun 2014
14 Dec 2015
30 Dec 2015
2015 FY (final)
5.12
25.60
599.9
03 Jun 2016
21 Jun 2016
2016 9m (interim) 3.41
2016 FY (final)
5.12
2017 9m (interim) 5.12
2017 FY (final)
6.83
17.05
25.60
25.60
34.15
399.5
600.0
600.0
800.2
12 Jan 2017
26 Jan 2017
09 Jun 2017
27 Jun 2017
12 Jan 2018
26 Jan 20108
15 Jun 2018
03 July 2018
2017 FY total
11.95
59.75
1,400.2
2018 9m (interim) 3.84
19.20
450.0
11 Jan 2019
25 Jan 2019
2018 FY (final)
2018 FY total
5.97
9.81
29.85
699.5
14 Jun 2019
01 Jul 2019
49.05
1,149.5
In 2016, the company increased the
maximum number of GDRs, which could
be repurchased, to 6% of the subscribed
capital of HMS Group. As of today, HMS
has repurchased 1,204,282 GDRs since
the start of the program.
The Buyback program will end as
soon as the total amount of acquired
securities has reached the maximum
amount specified (1,405,961 GDRs) or,
if earlier, in June 2020.
/// HMS Group Plc GDRs
Ticker
CUSIP
LEI
Exchange
ISIN
HMSG
RegS: 40425X407 144A: 40425X308
254900DDFETNLASV8M53
London Stock Exchange
RegS: US40425X4079 144A: US40425X3089
Ratio, GDR : ordinary shares
1:5
Local exchange
Underlying ISIN
Underlying CFI
Depositary bank
Not traded
CY0104230913
ESVUFR
BNY Melon
68/ 69
––> governanceappendicesoverviewmarketsperformanceHMS GROUP –––> annual report 2019 information
for shareholders
and disclaimer
GENERAL INFORMATION
Company Name
Company Type
Fiscal Year-End
Disclosure
Managing Director (CEO)
First Deputy CEO (CFO)
Ticker
CUSIP
LEI
Exchange
ISIN
Ratio, GDR:ordinary shares
Local exchange
Underlying ISIN
Underlying CFI
Depositary bank
HMS HYDRAULIC MACHINES & SYSTEMS GROUP PLC
Public
December 31
The London Stock Exchange
Artem Molchanov
Kirill Molchanov
HMSG
RegS: 40425X407
144A: 40425X308
254900DDFETNLASV8M53
London Stock Exchange
132.39
RegS: US40425X4079
144A: US40425X3089
1:5
Not traded
CY0104230913
ESVUFR
BNY Melon
GDRs of HMS Hydraulic Machines & Systems Group Plc
are traded on the London Stock Exchange under ticker HMSG.
The Company’ shares are now held by JSC HMS Holding,
though HMS Technologies remains the ultimate controlling parent
as the sole shareholder of JSC HMS Holding.
disclaimer
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.
global depositary receipts
shareholders’ contacts:
Contacts for inquiries regarding:
‒ advise of a change of name and/or address
‒ report lost/stolen GDR share certificates or the
non-receipt of a dividend check
‒ request an election form for the scrip dividend program
‒ request forms to transfer GDRs
‒ report the death of a registered holder of GDR shares
‒ request a duplicate account statement
‒ have dividends electronically deposited to your bank
account
‒ consolidate similar account registrations
‒ request general information about your shareholder
account, etc.
The Bank of New York Mellon
BNY Mellon Shareowner Services
PO Box 358516
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
General Shareholder enquiries
and Investor Relations contacts
HMS Group
Investor Relations
7 Chayanova str.
125047 Moscow, Russia
Tel: +7 495 730 6601
Fax: +7 495 730 6602
Email: ir@hms.ru
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––> governanceappendicesoverviewmarketsperformanceHMS GROUP –––> annual report 2019 appendices
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governance––> appendicesoverviewmarketsperformanceHMS GROUP –––> annual report 2019 vocabulary,
calculations
and formulas
/// units
of measurement
Billion cubic meters
Billion cubic meters per annum
Billion
Cubic meter
Cubic meter per annum
kilometer
Kilowatt
Meter
Cubic meter
Million
red.
bcm
bcma
bn
cub.m.
cmpa
km
kW
M
m3
mn
MPa
Mt
MW
Millions of tonnes
Megawatt
Nm3/Hour
Normal cubic metre per hour
Rub/RUB
Russian ruble
Scm3/hour
Standard cubic meters per hour
t
tcm
US$
Ton / tonne
Trillion cubic meters
US Dollar
EBITDA is defined as operating profit/loss from continuing operations
adjusted for other operating income/expenses, depreciation and
amortisation, impairment of assets, excess of fair value of net assets
acquired over the cost of acquisition, defined benefits scheme expense
and provisions (including provision for obsolete inventory, provision
for impairment of accounts receivable, unused vacation allowance,
warranty provision, provision for legal claims, tax provision and other
provisions). This measurement basis, therefore, excludes the effects of
a number of non-recurring income and expenses on the results of the
operating segments
EBIT is calculated as Gross profit minus Distribution & transportation
expenses minus General & administrative expenses minus Other
operating expenses
Total debt is calculated as Long-term borrowings plus Short-term
borrowings
Net debt is calculated as Total debt minus Cash & cash equivalents at
the end of the period
ROE is calculated as Total equity period average divided by Profit for the
period
Operating profit adj. & Profit for the year adj. are deferred as adjusted by
impairment of PPE, investment property and goodwill
Working capital is calculated as Inventories plus Trade and other
receivables, excluding Short-term loans issued, Bank deposits and
Promissory notes receivable, plus Current income tax receivable minus
Trade and other payables minus Short-term provisions for liabilities and
charges minus Current income tax payable minus Other taxes payable
Capex = Organic capex = Purchase of PPE + Purchase of intangible
assets
Megapascal, a unit of pressure
measurement
ROCE is calculated as EBIT LTM divided by Average Capital Employed
(Total debt + Total equity)
Management of the Group assesses the performance
of operating segments based on a measure of adjusted
EBITDA, which is derived from the consolidated financial
statements prepared in accordance with IFRS
/// abbreviations & contractions
red.
API
American Petroleum Institute
Bank of Russia
Central Bank of the Russian Federation, cbr.ru
BIM
BM
CAGR
Building Information Modelling
Binary mixture
Compound annual growth rate, is the mean annual growth rate of an investment over a specified
period of time longer than one year
CIS, the
Commonwealth of Independent States
Chg
GDP
GDR
GTNG
ERP
EU
EUR
KKM
KMPO
LNG
LSE
NEM
OGEP
OPEC
R&D
yoy
Change
Gross Domestic Product
Global depositary receipt
Giprotyumenneftegaz
Enterprise Restructuring Project
European Union
Euro
Kazankompressormash
Kazan Motor-Building Production Association (KMPO JSC)
Liquefied natural gas
London Stock Exchange
Nasosenergomash
Oil and gas engineering and projects business segment
Organization of the Petroleum Exporting Countries
Research and development
Year-on-year
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governance––> appendicesoverviewmarketsperformanceHMS GROUP –––> annual report 2019