Hms Hydraulic S Regulatory News (HMSG)

21 Feb 2012 10:11

February 21, 2011

HMS Hydraulic Machines & Systems Group plc

(the "Company", and together with its subsidiaries, the "HMS Group")

HMS GROUP TO OBTAIN CONTROL OVER RUSSIAN OIL AND GAS EQUIPMENT MANUFACTURER - DGHM

Moscow, Russia - HMS Group (LSE: HMSG) today announces that it has agreed to acquire additional 11% in a share capital of DIMITROVGRADKHIMMASH (DGHM), Russian manufacturer of equipment for oil refineries, chemical, petrochemical and gas processing plants for Rub 206 million ($6.9 million). The deal is a subject to approval of the Federal Antimonopoly Service. After approval the Group will increase its stake in the DGHM's share capital to 51%.

Founded in 1931, DGHM supplies major oil & gas and chemical companies with a wide range of products - from pumps for oil and oil products to tanks and vessels and other special technological equipment for different applications.

For the FY2011, in accordance with RAS DGHM had revenues of Rub cca 1.6 billion ($53 million) and EBITDA1 of Rub 387 million ($13.0 million) with a strong 24.5% margin. The company had no outstanding debt as of the end of 2011. HMS will consolidate DGHM's financials into HMS Group's IFRS reporting starting from January 1, 2012.

Artem Molchanov, Managing Director (CEO) of HMS Group, commented:

"The acquisition of DGHM is perfectly consistent with our growth strategy in the most appealing markets with positive fundamentals. Through this acquisition we gained adjacent products that would enhance our existing product offering. This will allow us to provide complex solutions for strategically important projects implemented by our customers. Moreover, having acquired the healthy company with strong financials, we retained a sound balance sheet that would support our further growth initiatives."

Transaction rationale:

1) Reinforcement of the strategic priority to strengthen market positions in oil downstream, chemical, petrochemical and gas processing industries by broadening and diversification of the product portfolio.

2) The acquisition, that allows HMS to provide clients with a broad range of products, services and integrated solutions for different mission critical applications, will enable the Group to create additional competitive advantages.

3) The Group will benefit owing to operational synergies in marketing and sales, product development and purchasing.

HMS Group has purchased 29.99% stake of the DGHM's share capital in 2007 implying further potential stake increase. In 2009 the Group increased its stake to 40%. Under the current transaction HMS Group has agreed to acquire additional 11%.

"This deal is another illustration of our ability to derive synergies from successful integration of acquired companies through competent management and efficiency growth. Under the first purchase in 2007 we valued DGHM at around 9.8 EV/EBITDA multiple2 taking into consideration high quality of the asset and potential expansion of the business. Over these five years of our cooperation we managed to increase EBITDA of DGHM more than five times leveraging HMS Group marketing and sales power. As a result, this led to 2.2 EV/EBITDA3 multiple of the total deal based on FY 2011 financials under RAS", - added Mr. Molchanov.

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The HMS Group is the leading pump manufacturer and provider of flow control solutions and related services to the oil and gas, nuclear and thermal power generation and water utilities sectors in Russia and the CIS. The HMS Group's products are mission-critical elements of projects across a diverse range of industries. It has participated in a number of large-scale infrastructure projects in Russia, including providing pumps and modular equipment to the Vankor oil field and pumping stations on recent trunk pipelines projects linking Russia's core oil producing areas to export ports on the Pacific Ocean and Baltic Sea. The Group reported revenues of RUB 20.6 billion, adjusted EBITDA of RUB 4.4 billion and profit for the period of RUB 3 billion for the nine months ended September 30, 2011. The HMS Group's global depositary receipts ("GDRs") are listed under the symbol "HMSG" on the London Stock Exchange.

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DISCLAIMER

THIS COMMUNICATION DOES NOT CONSTITUTE AN OFFER OF, OR THE SOLICITATION OF AN OFFER TO BUY OR SUBSCRIBE FOR, GDRs OR OTHER SECURITIES TO ANY PERSON IN ANY JURISDICTION TO WHOM OR IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL AND, IN PARTICULAR, IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA, JAPAN OR THE RUSSIAN FEDERATION.

THIS ANNOUNCEMENT IS NOT AN OFFER FOR SALE OF ANY SECURITIES IN THE UNITED STATES. SECURITIES MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES ABSENT REGISTRATION OR AN EXEMPTION FROM REGISTRATION UNDER THE US SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HMS GROUP HAS NOT REGISTERED AND DOES NOT INTEND TO REGISTER ANY PORTION OF ANY OFFERING IN THE UNITED STATES OR TO CONDUCT A PUBLIC OFFERING OF ANY SECURITIES IN THE UNITED STATES.

THIS COMMUNICATION IS ONLY BEING DISTRIBUTED TO AND IS DIRECTED ONLY AT (I) PERSONS WHO ARE OUTSIDE THE UNITED KINGDOM OR (II) INVESTMENT PROFESSIONALS FALLING WITHIN ARTICLE 19(5) OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER 2005 (THE "ORDER") AND (III) HIGH NET WORTH ENTITIES, AND OTHER PERSONS TO WHOM IT MAY LAWFULLY BE COMMUNICATED, FALLING WITHIN ARTICLE 49(2) OF THE ORDER (ALL SUCH PERSONS TOGETHER BEING REFERRED TO AS "RELEVANT PERSONS"). THE SECURITIES REFERRED TO IN THIS ANNOUNCEMENT ARE ONLY AVAILABLE TO, AND ANY INVITATION, OFFER OR AGREEMENT TO SUBSCRIBE, PURCHASE OR OTHERWISE ACQUIRE SUCH SECURITIES WILL BE ENGAGED IN ONLY WITH, RELEVANT PERSONS. ANY PERSON WHO IS NOT A RELEVANT PERSON SHOULD NOT ACT OR RELY ON THIS DOCUMENT OR ANY OF ITS CONTENTS.

1 - EBITDA is calculated as sales profit plus depreciation and amortization

2 - Based on 2006 RAS financials with EBITDA of RUB 73mn

3 - Simplified multiple estimates: 2007 - 29.99% for RUB 214.4mn, 2009 - 10,01% for RUB 122.8mn, current deal - 11% for RUB 205.9mn. Total deal - RUB 543.1mn. Estimated Mcap - RUB 1,065mn; Net debt as of 01.01.2012 RUB (212.3) mn; EV - RUB 852.6mn; EV/EBITDA of 2.2.

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