Chairman’s statement

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

Chairman of HMS Group, Nikolay Yamburenko

Dear Shareholders,

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

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

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

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

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

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

  • Executed many large projects for Russia’s oil and gas majors, proving ourselves as a reliable supplier and one that is able to deliver technically sophisticated projects;
  • Certified our production in accordance with international standards and created a professional export sales team;
  • By the end of 2017, we expect to complete the localization of production of foreign high-tech pumps for the transport of oil and oil products, oil processing and petrochemistry (in compliance with API standards), as well as for thermal and nuclear power generation, and water utilities;
  • Assured full access to capital markets, both on the public debt market and the bank facilities market, including the possibility of receiving large bank guarantees for the execution of large contracts.

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

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

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

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

Chairman Sign

Yours faithfully,
Nikolay Yamburenko

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