20.07.2012

HMS Group to acquire Apollo Goessnitz GmbH

Moscow, Russia – July 20, 2012 – HMS Group (LSE: HMSG), the leading pump manufacturer and provider of flow control solutions and related services in Russia and the CIS, announces today that it has entered into agreement to acquire 75% of Apollo Goessnitz GmbH, worldwide operating manufacturer of centrifugal pumps and system equipment, located in Goessnitz (Thuringia), Germany.

The main products of Apollo Goessnitz GmbH (Apollo) are primarily used for specific applications in oil refining, offshore and onshore upstream, thermal power generation as well as chemical plants and water utilities, and include centrifugal pumps and related spare parts that comply with API (American Petroleum Institute) and DIN (German Industrial Standards), as well as integrated pump-based systems. The company has two business divisions “Pumps” and “Engineering systems”. The company’s sales are focused in Western Europe and EMEA region via a network of specialized local agents and contracts with global EPC-providers.

Apollo Goessnitz GmbH has recently completed several flagship projects of international exposure, including:

  • Fuel oil pump skids for GS Engineering & Construction (South Korea) for Sohar 2/Barka 3 project in Oman
  • Heavy-duty API process pumps for Siemens (Germany) for Suaibah III project in Saudi Arabia
  • Wet gas scrubber recycle pump according to API610 for AIBEL/Statoil project

HMS Group is to pay total cash of EUR 25 million for 75% of share capital of Apollo Goessnitz GmbH.  The transaction will be fully financed with debt capacity. The stake will be acquired from the management, which will remain the part of integrated team that will continue run the business after the deal. The Apollo’s management team to sell their stake proportionally with the rest 25% to remain under the management control. The value of the deal corresponds to the annualized 2012E EV/Sales multiple of 1.57x and EV/EBITDA multiple of 8.7x based on 2012 budgeted results. Net debt-to-EBITDA(LTM) ratio of 1.98 will remain within internal covenant of 2.5 after the completion of the deal.

Transactions rationale:

  • HMS will strengthen its product offering with hi-end API pumps for oil refineries, petrochemical and chemical plants on top of the current product offering mainly focused on replacement of existing installed base. This will lead to the market share growth in the hi-end segment of pump market for Russian and the CIS downstream that is currently dominated by several international players.  According to Frost and Sullivan’s research, the Russian market of pumps for oil refining and petrochemicals was valued at USD 76.5 mn in 2010, while CAGR for 2010-2015E is expected at 20.3% level. A number of large-scale investment projects, aimed at increasing processing depth and government-backed switch to Euro 4 and Euro 5, will drive the demand for new equipment due to upgrade of technological processes. Total HMS share in the market, including Bobruisk Plant, Belorussian pump manufacturer,  acquired in 2011, is projected to increase to 30-33% in 2015;
  • HMS Group’s sales network and strong relationships with clients will allow to  increase sales of Apollo’s bespoke pumps made to European standards (DIN) and API to Russian and the CIS thermal power plants and EPC providers;
  • Production cooperation of Apollo’s R&D and “know-how” with Russian and CIS operating subsidiaries of HMS will allow to produce state-of-the-art skids based on Apollo’s API pumps with significant potential for localization and incremental EBITDA margin;
  • Joint participation in the international engineering projects and a global footprint of Apollo will allow HMS to increase the share of international sales in its revenue.

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

“Due to strong prospects for construction and modernization of oil refineries and petrochemical plants in Russia and the CIS, we set a goal to significantly enhance our current position in these attractive market segments. I’m pleased to say that Apollo Goessnitz GmbH is the well-established and rapidly growing international company with focus on manufacturing of API and DIN pumps for these particular industries. On top of this, Apollo’s business strategy of developing R&D and engineering expertise, particularly in offshore applications, is a great value for us as we’ve been always focusing on providing technically advanced integrated solutions for our customers. With this acquisition we will strategically expand our engineering and research & designs capabilities. By now this is the second acquisition we completed in 2012 and from now on we’ll be focusing on synergies extraction to maximize shareholder value”

Lothar Wagner, Managing director of Apollo, commented:
“We have been looking for a partner that would be able to provide us with an opportunity to drive future growth with a leading platform in attractive and growing markets in Russia and the CIS. As the strategic partner, HMS has all the necessary resources to develop new products and solutions. We’ve analyzed the track record of HMS’ integration of the acquired companies and I’m convinced that the development as a part of HMS Group will be proved to be successful. Our management team intends to remain with the business and looking forward to theopportunities arising from this deal”.      

Apollo Goessnitz is the manufacturer of centrifugal pumps and system equipment used in oil refining, gas processing, chemical and petrochemical industries, power generation and water utilities as well as offshore production and liquid gas transportation. Production of Apollo Goessnitz is made according to API 610 (American Petroleum Institue), DIN (Deutsches Institut fuer Normung) and ISO (International Standards Organizations). Apollo has two business divisions “Pump division” (pump production and service)  and “Engineering systems division” (projecting, design and manufacture of plants for liquid fuels, process plants, plants for water supply, automation systems and electrical equipment). In 2011, Apollo Goessnitz sales were EUR 20.3 mn, net debt of EUR 1.6 mn and net profit of EUR 1.3 mn.

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 7.3 billion, adjusted EBITDA of RUB 1.4 billion and profit of RUB 485 million for the 3 months ended March 31, 2012. The HMS Group’s global depositary receipts (“GDRs”) are listed under the symbol “HMSG” on the London Stock Exchange. 

For further information, please contact:

Investor Relations: Sergey Klinkov, Head of Investor Relations
Phone: +7 (495) 730-6601 x 1302, Klinkov@hms.ru

Media Relations: Nozima Karimova, Head of Press Service
Phone: +7 (495) 730-6610, Karimova@hms.ru

Disclaimer
The information contained herein has been prepared using information available to HMS Hydraulic Machines & Systems Group Plc (“HMS Group” or “HMS” or “Group” or “Company”) at the time of preparation of the presentation. External or other factors may have impacted on the business of HMS Group and the content of this presentation, since its preparation. In addition all relevant information about HMS Group may not be included in this presentation. No representation or warranty, expressed or implied, is made as to the accuracy, completeness or reliability of the information.
Any forward looking information herein has been prepared on the basis of a number of assumptions which may prove to be incorrect. Forward looking statements, by the nature, involve risk and uncertainty and HMS Group cautions that actual results may differ materially from those expressed or implied in such statements. Reference should be made to the most recent Annual Report for a description of the major risk factors. This presentation should not be relied upon as a recommendation or forecast by HMS Group, which does not undertake an obligation to release any revision to these statements.
This presentation does not constitute or form part of any advertisement of securities, any offer or invitation to sell or issue or any solicitation of any offer to purchase or subscribe for, any shares in HMS Group, nor shall it or any part of it nor the fact of its presentation or distribution form the basis of, or be relied on in connection with, any contract or investment decision.