Chairman’s statement

Meeting Challenges Head-On

Chairman of HMS Group, Nikolai Yamburenko

Dear Shareholders,

2015 was a successful year for HMS Group, despite imposition of international sanctions and intensifying recession in Russia with the GDP decreasing by 3.7%. The EBITDA reached its all-time high, which was proof of the sound development and growth strategy of HMS Group.

This success was attributable to a combination of factors: stable growth in revenue from standard equipment, effective performance of large contracts signed with our main clients, and an import substitution process. Thanks to these factors, all HMS Group's machine-building segments demonstrated financial results in line with the budget or better. The exception is the EPC business segment, which is experiencing a reduction in clients' Capex that hasn't been compensated by import substitution.

Large contracts in the pumps business segment in 2011-2014 gave place to large contracts in the oil and gas equipment business segment in 2014-2015. Based on the current trends in the order intake in the compressors business segment, the year 2016 could turn out to be a successful one for this segment.

We recognise that 2016 is likely to be even more challenging than 2015. Falling oil prices, high interest rates on new bank loans, depreciation of the ruble and high volatility of its rate - are all the factors that constantly shape Russia's economic landscape. However, for the last 25 years we have survived a number of crises every time getting stronger; and despite the current economic downturn, we are ready to further expand our business. HMS Group continues its project to localise production of heavy pumps for oil extraction, transportation and refining, the nuclear power generation industry in Nezhnevartovsk and Livny, as well as a modernisation process in Kazan.

It is hard to forecast as yet how many large contracts we will be signing this year and to say whether we will be able to outperform the results of 2015. However, I am certain that our team, the market position and the production potential will enable us to continue proper development of HMS Group, with well-balanced attention to the interests of our stakeholders: shareholders, employees, creditors, authorities, and government bodies.

Chairman Sign

Yours faithfully,
Nikolai Yamburenko

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