21.02.2012

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 consolidates DGHM’s financials into HMS Group’s IFRS reporting starting from December 31, 2011.

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.

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.


***

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 billion, adjusted EBITDA of RUB 4.4 billion and profit for the period of RUB 2,9 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.


For further information, please contact:

Sergey Klinkov
Head of IR 
Tel: +7 (495) 730-66-01, ext. 1302
klinkov@hms.ru
Nozima Karimova
Head of Press Service
Tel: +7 (495) 730-66-10
karimova@hms.ru

 

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