control the flows ⁄ ⁄ ⁄ ⁄ ⁄ ⁄ ⁄ ⁄ ⁄ ⁄ annual report 2019 2019 52,196 52,196 55,891 7% yoy 7 59,679 6 40,624

Order intake ––> Rub mn 5 32,979

2019 44,693 44,693 42,634 5% yoy 7 39,067 6 24,035

5 about HMS Backlog ––> Rub mn 24,409 # 1 producer of pumps and oil gas equipment as well one of the leading compressor producers in Russia 2019 14,369 and the CIS 14,369 13,163 7 11,422 Business platform and core expertise are established 9% yoy /// contents and provide a strong base for future growth 6 13,347 5 Net debt ––> Rub mn 12,388 4 Overview Key industries: oil & gas, nuclear and thermal power 6 Who We Are generation, petrochemistry and wastewater industry 10 Chairman Statement 11 Ceo Statement 12 Investment Thesis 2019 24,321 14 Our History 24,321 19,458 16 Our Strategy 18 HMS Business Model 25% yoy 7 16,042

6 16,336 21 HMS Markets & Macroeconomics 22 Macroeconomic Environment in 2019 5 Total debt ––> Rub mn 15,884 24 Market Trends

28 HMS Performance In 2019 30 Financial & Operational Overview 38 2019 Calendar of Events 2019 4,824 42 HMS Key Projects, Development & Innovations 4,824 6,621 48 Modernization 50 Corporate Social Responsibility 27% yoy 7 6,839 6 6,369 54 Corporate Governance 56 Board of Directors EBITDA ––> Rub mn 5 7,446 60 Risk Management & Internal Control 66 HMS Global Depository Receipts 70 Information for Shareholders and Disclaimer

2019 51,413 72 Appendices 74 Vocabulary, Calculations and Formulas 51,413 52,619 You can find more information on our website: 7 44,422 2% yoy grouphms.com/shareholders_and_investors/ 6 41,582 See our Online Report ar2019.grouphms.com 5 Revenue ––> Rub mn 37,296 overview

6 Who We Are 10 Chairman Statement 11 Ceo Statement 12 Investment Thesis 14 Our History 16 Our Strategy 18 HMS Business Model – –> overview markets performance governance appendices

23.7% a 11.7% a n 9.8% a 6.8% n 2.6% an 2.2% na who we are 2.0% 41.2%

Revenue structure HMS Group is one of the largest privately-owned by client ––> % machine-building companies in Russia and the CIS. The company was established as a small The company specializes in production of industrial trading company in 1993. Today, HMS machinery based around pumps, compressors as well is the company with a sustainable place as oil & gas equipment, including state-of-the-art and in the market and loyal high-profile highly sophisticated solutions. HMS Group is the only customers, such as Gazprom, Rosneft, machine-building company from Russia listed on the NOVATEK, Transneft, Gazprom Neft, London Stock Exchange. Rosatom, LUKoil, BP, ENI, and others.

A well-diversified HMS is a dynamic engineering company with successful 40% an a an client base includes practice in the design, installation, construction and 16% a anan ~6,000 “blue-chip” clients, commissioning of complex oil and gas production and a 12% i.e. the largest oil & gas well-diversified client water facilities. It is a vertically integrated holding company 12 12% n companies in Russia base with a modern corporate management system wherein the The company produces both manufacturing facilities 9% nan and the CIS. Our clients functions of the manufacturing companies’ shareholders and serial and/or standard models in Russia, CIS countries 8% a operate through that of its business administration are traditionally separated. (recurring business) and and Germany 4% anan numerous contracts customized configurations in different subsidiaries, The parent holding company is HMS HYDRAULIC (large integrated projects). which take independent MACHINES & SYSTEMS GROUP PLC (the Republic of The execution of large projects purchasing decisions. ~14,000 Cyprus). It issued securities in the form of Global Depositary includes implementation of 6 Revenue structure A significant portion employees Receipts at the London Stock Exchange in February 2011. the crucial project’s work as Research & Development by industries ––> % of HMS’ revenue is well as large-scale projects’ centres, including one of generated by the oil The Group consists of 12 manufacturing facilities in Russia, turnkey execution, from project & gas industry, from CIS countries and Germany, plus 6 Research & Development the largest pump-testing and design to commissioning downstream to upstream. centres, including one of the largest pump-testing facilities and launching. Revenue from facilities in Europe in Europe, and employs 14 thousand people. recurring business contributes c. 75-80% on average.

n annual 2019 report –––> GROUP HMS Industrial pumps 7 5 6 36 3 n n Oil & gas equipment n a and projects na Compressors Construction 17 16 Headoffice & trade 1 2 company 11 73 75 7 6 7 8 10 5 6 7 9 7 14 15 12 6 13 18 19 5 Revenue structure 4 by contract’s type ––> % 3 6/ 7 – –> overview markets performance governance appendices

HMS Group, Russian and CIS pump market leader offers /// who we are convenient products solutions and services for clients from oil & gas, energy, water supply and utilities, chemical processing, industrial applications, etc.

Our manufacturing, R&D, EPC and servicing capacities allow developing and delivering customer-oriented reliable and affordable products and services. industrial pumps

This is the oldest business segment, responsible for the project and oil & gas design, engineering, manufacturing and supply of a diverse range of equipment pumps and pump-based integrated construction solutions to customers in the oil and projects and gas, power generation and compressors The fourth operating segment water utilities sectors in Russia, The oil & gas equipment business consists of only one facility, the CIS countries and across the segment manufactures, installs and The division is responsible for project Tomskgazstroy. It focuses on the globe. It also provides aftermarket commissions modular pumping and design, engineering, manufacture, main and infield pipelines and oil maintenance, repair services and stations, automated metering and supply of a diverse range of and gas-condensate fields, facilities other support for its products. equipment, and oil, gas and water compressors and compressor-based construction and overhaul. processing and preparation units, as solutions to customers in the oil and well as other equipment and systems, gas, metals and mining and other core that are primarily used for the industries in Russia. сore products and services extraction and transportation of oil. сore products and services

‒ Oil refineries ‒ Construction, reconstruction and ‒ Nuclear and Thermal power сore products and services overhaul of the linear objects, e.g. ‒ Water utilities сore products and services namely oil pipelines, gas pipelines, ‒ Water injection ‒ Oil & gas production product pipelines, water pipelines, ‒ Trunk pipelines ‒ Oil pumping stations and pump ‒ Oil & gas transportation condensate pipelines and power ‒ General industrial pumps stations for water injection ‒ Gas processing transmission lines ‒ Oil & gas and water processing ‒ Oil refineries units ‒ Oil & gas chemistry ‒ High-precision and automated ‒ Refrigeration applications 13% metering units for various industries 3% annual 2019 report –––> GROUP HMS ‒ Tanks, reservoirs and vessels ‒ Oil development equipment contribution in EBITDA margin 38% -1% consolidated revenue contribution in 35% consolidated revenue contribution in contribution in EBITDA 54% 3% 9% consolidated revenue -2% EBITDA margin EBITDA margin contribution in EBITDA EBITDA margin 25% contribution in 32% consolidated revenue 9% contribution in EBITDA

contribution in EBITDA 8/ 9 – –> overview markets performance governance appendices chairman CEO statement statement

The 2019 year was challenging for the company, facing The Memorandum on Strategic Partnership, signed with HMS Group is one of the leading producers of pumps, As a part of the import substitution program, the influence of several factors which affected its financial PAO NOVATEK in 2019, set the general principles of mutual compressors and oil & gas equipment in Russia and the CIS, HMS Group produced and delivered results. One of them was weak results of the oil & gas cooperation in the area of development of domestic and we intend to maintain our market share in the future. compressor units for the Yamal LNG project equipment business segment that were the main reason technological basis for LNG projects of PAO NOVATEK that (PAO NOVATEK). These units were developed of HMS’ revenue and EBITDA downswing. We believe will allow to equip LNG plants under construction with high- In 2019, HMS Group became one of the suppliers of gas by Kazankompressormash in sci-manufacturing that implemented business optimization and cost tech equipment made in Russia. transportation units for GAZPROM. Also, we started to tandem with NIITurbokompressor involving the use reduction demonstrated their effectiveness, given actively engage in LNG projects of PAO NOVATEK as one of the domestic technology of natural gas liquefaction that the oil & gas equipment business segment The fruitful cooperation of HMS Group and PAO NOVATEK of the suppliers of compressor-based equipment. We named Arctic Cascade and patented by NOVATEK. The had shifted from the losses towards a good in the field of LNG equipment production resulted in signing commercialized a new product line of double-entry pumps scientific novelty of the technology is the use of the level of profitability. a contract to manufacture 6 main compression units for a for water industry, and today we are involved in development ambient temperature in the Arctic climate for natural gas natural gas liquefaction for the Obsky LNG in March 2020. of a new product line of water overhang pumps. The liquefaction process. The experimental industrial line will We consider HMS’ entry into the domestic The contract requires the supply of three types of gas company continues to build a sizeable portfolio of orders for be implemented at the Yamal LNG project, and its capacity market of LNG equipment to be one of the compression units, developed by HMS’ specialists, and nuclear pumps. will be 0.9 mln t of LNG per annum. PAO NOVATEK plans to company’s breakthroughs. equipped with high-capacity gas turbine drives. create the whole industry – construction of LNG production In 2019, we continued to build long-term relations with our lines, and, thanks to successful execution of the project, HMS Group continues its work on winning profitable large core customers. So, for example, in autumn 2019 we signed HMS Group is one of the main developers and producers of contract. As of today, orders backlog grew 5 percent year- a Memorandum on Strategic Partnership with PAO NOVATEK innovation-based equipment. on-year. Based upon current pipeline of large contracts and which will allow us to organize a more effective collaborative a stable inflow of recurring business, we feel optimistic about work in the field of development of new products for natural In 2019, HMS developed the technology of production of the future, despite the challenging situation in the world. gas treatment and liquefaction. In the context of cooperation, pump body castings, where ceramic running system with HMS Group intends to develop not only compressors but siphon CFF-filtering of liquid melt input was used. This pump-based equipment, like submersible cryogenic pumps technology will be used in production of AS-1D200-90-A Your faithfully, for LNG loading, and other diverse oil and gas equipment. pumps for nuclear power plants, which will have the safety Artem MOLCHANOV class 2. The produced two units successfully passed all In 2019, HMS Group started active developing of a new non-destructive control tests. activity area – Process Engineering in Oil and Gas Processing. We have built a team of highly-skilled professionals in the In the short term, we observe a number of interesting field of technological engineering. The company opened a projects to participate in. We will continue playing an active Moscow branch of GTNG, which became the competence role in implementation of ambitious projects in the oil & center of the institute in the area of oil and gas treatment, gas industry, in projects to develop nuclear and thermal annual 2019 report –––> GROUP HMS and petrochemicals. Consequently, today we can supply power sectors, and in the national projects of the Russian not only separate equipment, but complete technological Federation, primarily, with environmental focus. package for oil & gas extraction facilities, petroleum refineries and gas chemical facilities as well. Our unique sci-tech competences allow us to develop and localize the Your faithfully, production of the majority of equipment types independently Nikolay YAMBURENKO within a short time if requested by our customers, from preparation of design and detailed documentation to construction supervision, installation supervision and commissioning works.

10/ 11 – –> overview markets performance governance appendices

6. Market share and installed base Business platform and core ‒ HMS is a major player in pumps, oil and gas expertise are established and Optimisation equipment and compressors, with significant investment provide a strong base market shares and established relations with for future growth of the business clients (including follow-on services) ‒ The company has the largest installed equipment portfolio base in Russia

‒ HMS entered the oil & gas thesis infrastructure construction segment in 2007 with a view to offering integrated solutions ‒ Following the financial crises, this Entering new segment saw a sharp decrease in markets profitability Mature Business ‒ HMS Group decided to exit the segment and currently Low capex needs and flexible 5. dividend policy Platform ‒ Further development of business has significantly reduced with Gazprom & other major its exposure to construction ‒ HMS Group is a fully invested business with ‒ HMS Group’s business is based on names in the oil & gas industry ‒ HMS continues to develop modest maintenance capital expenditure needs a mature and established business by executing large customized Engineering and Procurement (“EP”) at c. 1.5x the D&A level platform with a focus on products projects in all HMS Group’s key business, based on HMS products ‒ All major acquisitions have already been where the Company has unmatched segments and engineering competences completed R&D expertise and production ‒ Customers in new markets are ‒ There are no strict dividend commitments, which capabilities already a part of the client base and allows us to minimize payments in a harsh market environment, as was the case in 2014 ‒ The company has stable recurring offer strong future opportunities Management focuses on business with confirmed order ‒ Return to the market of oil 3. maintaining a moderate backlog for the next year transportation on the back of debt position ‒ EU presence: HMS Group has access localization of trunk line pumps in and is conducting business with EU Russia ‒ The current Net debt-to-EBITDA ratio is engineering companies (Siemens, ‒ Oil & gas refining and conservative Alstom, etc.) through its EU-based petrochemicals represent another ‒ Debt is naturally hedged as HMS follows a subsidiary Apollo Goessnitz growth area with expanded strong strategy of a match in revenues, costs and debt Well-diversified quality client base currency structures – ca. 98% of debt is Russian ‒ Business is to be further developed references, incl. major international 4. ruble denominated organically, i.e. currently there are no engineering companies ‒ Over 6,000 small and medium clients generate ‒ Short-term debt remains at low levels and is plans for M&A on average 70-80% of revenue actively managed ‒ ‒ Further development will be carried The blue-chip client base covers nearly all Russia’s oil and gas major players out with low CAPEX at ca. 1.5x the ‒ Our largest clients operate through numerous D&A level contracts in different subsidiaries, taking independent purchasing decisions and offering numerous points of entry –––> annual 2019 report –––> GROUP HMS Leader in both large projects and 2. standard production segments ‒ HMS is the established top player in large-scale Factors of Business projects (with a “blue-chip” client base) ‒ The company enjoys sustainable, recurring Sustainability: Delivery of Mission-critical business from standard pumps and compressors 1. equipment with over six thousand clients

‒ HMS’ equipment is crucial to clients. It is installed at the final stage of construction projects and is difficult to replace ‒ The project cost is affordable within clients’ project budgets: equipment accounts for less than 2-3% of the total project CAPEX. As a result, clients do not postpone their purchases 12/ 13 – –> overview markets performance governance appendices

2014 26 years: from a start-up to the industry leader 2019 our history

1993 2009 engineering and gas 1998 2013 technologies HMS Group increased its expertise in design and manufacturing of equipment for natural and foundation diversification associated gas extraction and treatment on the base Three founders (German Tsoy, Artem 2004 and complex of Giprotyumenneftegaz and Molchanov, and Kirill Molchanov) solutions Neftemash established the trading company Hydromashservice and brought 2008 The Board of Directors approved the The company together a core team of three founders strategy for accelerated growth for (Kazankompressormash) started and five sales managers 2009-2015 with a focus on M&A and sales of complete gas compression complex solutions systems for booster compressor Hydromashservice actively increased stations and gas trunkline sales in Russia and the CIS and built from sales HMS Group acquired compressor stations of Gazprom relations with key clients (primarily with to production Giprotyumenneftegaz, the leading companies in water utilities and metals project and design institute for Livgidromash plant expanded its & mining sectors) The company acquired its key oil and gas fields, as well as new engineering and manufacturing production facilities: Neftemash production assets: Sibneftemash, capabilities. The new mechanical (Tyumen), Nasosenergomash (Sumy), Dimitrovgradhimmash, Bobruisk treatment shop and the new unique 1999 and Livnynasos (Orel region, Central Machinery Plant, and Apollo Goessnitz, testing unit were built ‒ Helium Russia) and entered the market of equipment concentrate for oil refining and petrochemistry The Group implemented a large- membrane 2003 The investment industrial group scale investment programme separation unit Hydraulic Machines & Systems was HMS Group ran a successful IPO on the covering all production units, (Chayandinskoye field, established as an industrial holding London Stock Exchange in 2011 renewed and expanded the Gazprom); (since 2008 - HMS Group plc.) product portfolio, and developed ‒ Equipment for LNG plants The company gained access to the new product lines for pumps, based on the “Arctic cascade” ambitions for HMS Group continued to develop long- compressor market via acquisition of compressors, measuring and other technology (PAO NOVATEK), term relations with its key customers the alliance: Kazankompressormash equipment for oil & gas followed by the Memorandum on market leadership – NIIturbokompressor, the largest Strategic Partnership, signed with Hydromashservice demonstrated The company successfully manufacturer of compressor HMS Group supplied technological PAO NOVATEK in 2019, as a part of boosting growth of the client base, implemented its first large projects in equipment in Russia and the CIS units for large scale gas projects, the import-substitution program. annual 2019 report –––> GROUP HMS expanded relations with the largest specialist pumps for nuclear power including: oil & gas and energy companies and plants in India (Kudankulam) and China HMS Group became the provider of key In 2019, total revenue, generated gained leading positions in the pumps (Tianwan) technological units for large projects ‒ Technological equipment for by the gas sector, reached almost a market in Russia and the CIS in oil extraction and transport: Vankor ROSPAN INTERNATIONAL (East- third of HMS’ consolidated revenue, The shareholders established HMS oilfield, the system of export pipelines Urengoyskoye field, Rosneft); improving diversification. The company gained experience Group Management Company LLC. BPS-2, ESPO-1, ESPO-2, Zapolarye- ‒ Equipment for the extraction, in large commercial projects and The extended management team was Purpe, Purpe-Samotlor and many others transportation and processing The top management developed humanitarian programs outside of formed to achieve new ambitious goals of liquid hydrocarbons (Nadym- the new strategy for sustainable Russia (such as the UN Oil-for-Food The Group introduced a new line of Pur-Taz region, Gazprom); growth with a focus on operational Programme) pumps for oil trunk pipelines (NM, efficiency and leadership in the NPV, and NOU series) and mastered market of technological units for The largest Russian pump production of large-scale technological large-scale investment projects manufacturer, Livgidromash, joined modules, as well as tanks, vessels and Hydromashservice in 2003 heat exchangers 14/ 15 – –> overview markets performance governance appendices

corporate responsibility

HMS Group follows ethical principles our strategy with regard to all its stakeholders. We strictly comply with health and safety international standards in order to lower the environmental impact of our operations.

vision We carry out charity activities and offer support to charitable foundations HMS Group is a leading Russian machine-building company We also look into options to enter new for children and the disabled. In 2019, – a specialist in industrial pumps, compressors, and modular market segments, if we find them to be we continued to provide support to a technological units, as well as a provider of integrated promising. number of charity funds, schools, and solutions for several industries, including oil & gas, civic and sport organisations in the petrochemistry, energy, metals & mining and water utilities. HMS Group concentrates on regions of our business activities. profitability growth in order to invest We consider our customer benefits to be our highest priority: in further development and create building long-term relations has always been a key focus for additional value for shareholders. HMS Group. All our business processes, from R&D to quality We implement systematic measures control and from manufacturing to sales and aftersales to increase the efficiency of our service are geared to provide our clients with high-end businesses, from the individual level sustainable development products and the most efficient solutions. of standalone plants to the level of the entire Group. Reliable and up-to-date business processes are crucial for the company’s Our technical expertise and proven sustainable growth. experience in delivery of technological units ensure our participation in high- In the face of a rapidly changing margin large projects, and we intend to environment, we work on maintaining maintain a substantial share of these in an effective organisation, management After 26 years in business, HMS our contract portfolio. We also plan to and corporate culture. The company Group is a full-cycle machine- strategic goals continue taking part in multiple large- is strengthening its competences in building company that has achieved and priorities scale projects across all industries in marketing, engineering and R&D. a leading position among Russian order to strengthen partnerships with players. The company follows best industry leaders. We have a team of highly devoted practices and international standards Organic growth professionals in all business functions in R&D, manufacturing and quality The company will also develop its and are dedicated to the development management in order to meet Despite the uncertain economic standard and engineered product of our personnel: HMS Group has a the growing requirements of the situation, our business has continued lines; the majority of our products are multi-level system of training for its market. We actively participate in to expand. Our objective is to maintain already among the best in their class employees. We are focused on the the government-initiated process of our leadership position across all our and we will further expand our product culture of innovations and change by import substitution, which allows us business segments: industrial pumps, portfolio in order to maintain the developing incentives to ensure that to broaden our product portfolio and industrial compressors, oil & gas profitability of our recurring business. each employee contributes to the attract a large number of clients. annual 2019 report –––> GROUP HMS equipment and engineering. company’s success. We recognise different forms of Facing new challenges, we continue On the one hand, we expand sales to strategic partnership (joint ventures, to implement the latest and most our existing clients by developing new consortia, license agreements) with efficient IT systems, from specialised products and offering sophisticated machinery and engineering companies, software for R&D to ERP and IT security solutions. The Group continues to both Russian and international. Thus, solutions. invest in development of its production we will be able to offer new, more sites to keep quality at the highest level. sophisticated products and solutions to our customers. On the other hand, HMS Group continues to increase its client base in all markets in Russia and the CIS, as well as in the Middle East, Asia and Europe. 16/ 17 – –> overview markets performance governance appendices

HMS business model HMS Group’s business model reflects the whole value chain: marketing & sales, research & development, After-sales service procurement and manufacturing, as well as after-sales across all of its business units service across all of its business units. We may also use outsourcing from specialized suppliers

HMS Group’s business consists of two main aspects: running recurring operations (sales and production of standard and customized pumps, compressors and oil & gas equipment) and delivery of technological units for large-scale investment projects of our clients. Procurement HMS’ main customers are large and medium-sized industrial & manufacturing companies. We also approach small businesses through our certified dealers, as well as independent trading companies. Our expertise in engineering is a basis for expanding relations with oil & gas and energy companies, clients in metals and mining industry and water utilities.

HMS Group’s business model reflects the whole value chain: marketing & sales, research & development, procurement Our core competence is research & development in a broad Our marketing function strengthens and promotes the HMS and manufacturing, as well as after-sales service across range of disciplines of rotating equipment. We develop new brand in both conventional and prospective markets. As part all of its business units. We may also use outsourcing from products and offer state-of-the-art solutions to maintain of our marketing strategy, we regularly present new products specialized suppliers. our leading positions on the Russian and CIS markets. and solutions to our customers at leading trade exhibitions in HMS’ expertise in engineering helps us to design efficient Russia and abroad. Research solutions that meet the highest customer requirements. annual 2019 report –––> GROUP HMS & development In 2019, HMS’ overall sales volumes equaled Rub 51.4 billion The Group’s production facilities consist of 12 plants in (-2% yoy). Our direct client list comprised over 6,000 names Russia, Ukraine, Belarus and Germany. We benefit from in Russia and abroad. Industrial pumps division accounted cooperation between our plants, which complement each for the largest part of the revenue – Rub 19.4 billion other to shorten the lead-time and optimize costs. (+11% yoy).

We continued to implement our large-scale capital Outside of Russia, HMS’ sales offices are currently located expenditures program (Rub 1.6 billion in 2019) to develop in Germany, the UAE, as well as in Belarus and Kazakhstan. our manufacturing capacities and retain the highest We are also growing our presence in new markets and level of product quality. The biggest investments include developing relations with oil & gas, energy and international the construction of a new shop for large steel casting at EPC companies in Russia and abroad. Kazankompressormash and the expansion of machinery shops for new lines of water pumps (DeLium, Kordis series) Marketing at HMS Livgidromash. & sales 18/ 19 overview – –> markets performance governance appendices

HMS Markets & Macroeconomics

22 Macroeconomic Environment in 2019 24 Market Trends –––> annual 2019 report –––> GROUP HMS

20/ 21 overview – –> markets performance governance appendices

In 2019, the world GDP growth slowed down to 2.9% against 3.6% in 2018: advanced economies grew by 1.7% macroeconomic compared with 2.3% in 2018, and emerging markets and developing economies (EMDEs) grew by 3.7% compared with 4.5% in 2018. The main factors of the slow-down included the trading tensions between the United States and China and stagnation in the main European environment economies. The price of Brent crude oil averaged to US$ 64 per barrel in 2019, US$ 7 per barrel lower than its 2018 average (US$ 71). 64.6bn 113.7 billion in 2018 in 2019 current account surplus ––> US$

The current account surplus was at the level of US$ 64.6 6.25% billion for 2019 (lower than US$ 113.7 billion in 2018). Commodities Exports amounted to US$ 417.9 billion, with 7.75% in 2018 US$ 121.6 billion coming from crude oil, US$ 66.3 billion – from oil products, US$ 41.5 billion – from gas, US$ 8.4 billion 1.3% CBR key rate ––> % – from LNG (total sum of oil and gas exports, including oil The Russian GDP grew by 1.3% yoy in 2019 (2.5% yoy in 2018). 2.5% in 2018 products reached US$ 237.8 billion). Commodities Imports The main factors of this moderate growth were decrease in exports reached Rub 254.8 billion. Direct investments amounted to (-2.3% yoy compared with 5.5% yoy in 2018) and lower final consumption The Russian Industrial Producers Price Index declined by 4.3% in US$ 26.9 billion, a significant increase compared to US$ 5.9 expenditure (2.4% yoy compared to 2.8% yoy in 2018), including household GDP ––> % 2019. The Central Bank of Russia decreased the key billion in 2018. Exports of services reached US$ 63.6 billion, consumption (2.5% yoy compared with 3.3% yoy in 2018). Increased rate 5 times in 2019 (from 7.75% to 6.25%) to support the while Imports of services amounted to US$ 98.3 billion. imports (+3.4% yoy compared with 2.6% yoy in 2018), gross capital economic activity on the back of low inflation, which made formation (1.5% yoy compared with 0.2% yoy in 2018) and public spending the loans more available for both business and households. (+2.2% yoy compared with 1.3% yoy in 2018), supported by the launch of the National projects, did not provide enough to ensure higher growth. As a result, the total corporate debt reached Rub 41.9 trillion (+5% yoy) at the end of 2019, while loans to individuals grew 500bn up even faster, to the level of Rub 19.1 trillion (+19% yoy), so that the Central Bank of Russia took control measures to limit 9.9% yoy the credits to individuals with high credit-risk profiles. 2.4% The industrial production grew by 2.4%, which is 0.5% less than in 2018 total external debt 2.9% in 2018 (2.9%). The highest growth was observed in basic pharmaceutical products Despite the continued sanctions of the United States and the of Russia ––> US$ and preparations (+19.6% yoy), fabricated metal products (+8.9% yoy), European Union the Russian ruble remained stable in 2019: The industrial computers, electronic and optical products (+8.0% yoy), furniture (+6.8% it declined by 3% against the US Dollar (average USD/RUB: The Russian Budget showed a surplus of Rub 1.9 trillion, yoy), wood and products of wood and cork (+5.3% yoy). Machinery and from 62.6 to 64.8) and grew by 2% against the Euro (average equal to 1.8% of the GDP. Budget revenue increased by 3.8%,

production growth ––> % annual 2019 report –––> GROUP HMS equipment declined (-2.4% yoy), while the most significant decline was in EUR/RUB from 74.1 to 72.4). while spending grew by 9.0%. Total external debt of Russia the segment of transport equipment (-12.1% yoy). (both government and corporate) increased by 9.9%, to the The year 2019 was marked by the beginning of the pension level of US$ 500 billion. reform in Russia, which will result in the retirement age increase by 5 years for both men (increase from 60 to 65 As the result of favorable economic conditions, the MOEX 3.0% years) and women (increase from 55 to 60 years). The reform Russia Index increased from 2,369 points at the end of 2018 to 3,046 points at the end of 2019 (+29%), with a total In 2019, consumer inflation in Russia (the Consumer Price Index) 4.3% in 2018 will eventually increase the country’s available labor force in remained low (3.0%). The unemployment rate reached 4.6% at the the face of the ageing population. capitalization of Rub 11.8 trillion. The RTS Index growth was end of the year, being one of the lowest in the history of the country. consumer inflation even higher, from 1,069 points to 1,549 points (+45%) during Starting from January 1, 2019, the Value Added Tax in Russia 2019, with a total capitalisation of US$ 190.4 billion. ––> % in Russia increased from 18% to 20%, which will bring additional revenue into the Russian budget.

22/ 23 overview – –> markets performance governance appendices

20 229 20 200 21 roen ept perent rar ol proen 1 n ua t 9 market trends

29.5mt 201 201 201 201 2019 9% yoy Primary oil processing volume oil and gas industry The volume of LNG produced and processing depth in Russia in Russia ––> mt In 2019 extraction of minerals brought 12.6% upstream to the Russian GDP (-0.6% yoy). The oil and gas share in total income of the Federal The overall situation on the oil market remained stable in 2019. Russia increased its production of oil to 560.3 million downstream 911 2 port a pre t Budget of Russia decreased from 46% in 2018 02 tons in 2019 (+0.9% yoy). During the year, the country’s well 0 9 atural a prouton to 39% in 2019, as a result of decline of Urals stock increased from 181.7 thousand units to 187.1 thousand 9 9 There are 39 large oil refineries in Russia with total crude oil n ua oil price from US$ 70 per barrel to US$ 64 units (+3% yoy). The total measured drilling depth declined by 2 2 distillation capacity of 0.8 million tons per day. Rosneft, the leading 192 205 oate a prouton 1% yoy to 28.4 thousand meters. 1 Russian oil company, is the largest refinery operator owning 12 per barrel. Yet, the oil price was sufficient n ua major refineries. LUKOIL, with 4 major refineries, is the second- to ensure the funding of the Russian Budget Total investments in oil & gas production increased by 7% yoy 9 91 largest refineries operator. In Russia, primary oil processing and further CAPEX of oil and gas companies. in 2019, to Rub 2 trillion. 201 201 201 201 2019 reached 285.1 million tons, a decrease by 0.6% yoy, compared with 2018. The depth of processing remained 83 percent, at the level Russian oil industry consists of a number In 2019, 569 wells on new oilfields (not older than five years) Natural and associated gas production of 2018. of large players, 5 largest companies were put into operation, including newly launched in Russia, and average export price of gas account for 3/4 of country’s oil production the Zapadno-Erginskoye, the Traygorodsko-Kondakovskoye In 2019, total CAPEX in oil & gas downstream grew by 28% yoy and the Lenskoye fields. to Rub 0.5 trillion. and refining, while Gazprom is the major gas company in Russia. A number of future projects on the modernisation of oil 9 0 midstream refineries as well as new construction are planned on l pre arrel ral the horizon until 2025. Examples of projects include the About a half of the oil produced is processed rue ol routon n ua 0 As Russian oil fields and gas fields are widespread construction of new units at Taneco (Tatneft), Khabarovsk at the Russian refineries, while the other half nlun a onenate across the country, Russia has the largest oil and refinery (NNK), Orskneftegazsyntez (Safmar). 1 t is exported. 2 gas pipeline networks in the world, which has been significantly developed during the last ten years. In 2019, seventeen large gas-processing plants in Russia (processing over 1 bcm per year each) and nineteen smaller 201 201 201 201 2019 Transneft is the major operator of the Russian oil plants processed in total 122.37 bcm of natural gas and Top oil producers Top petroleum trunk pipeline system (51,600 km) and oil-product petroleum associated gas (+13.4% yoy). The main trend in gas in Russia, refiners in Russia, Crude oil production in Russia trunk pipeline system (16,700 km). The annual processing is the steadily increasing share of LNG production. CAPEX in the oil transport system exceeded Rub The volume of LNG produced in Russia reached 29.5 mt ––> ––> and Urals oil price dynamics 2019 % 2019 % 266.7 billion in 2019 (+3% yoy). compared with 19.8 mt the previous year (+49% yoy). The largest LNG projects include the Yamal LNG and The total length of the Russian gas transportation the Arctic LNG-2 (NOVATEK). annual 2019 report –––> GROUP HMS Natural gas extraction in Russia hit the 2018-year record – system is ~172,600 km; the only operator of gas 737.59 bcm were produced (+1.7% yoy), the average export pipelines is Gazprom. In 2019, Gazprom launched prices declined by 17% yoy to US$ 205 bcm, because of the Power of Siberia that will supply gas to China, growing competition from LNG producers. finalized works on the Turk Stream, and continued construction of other pipelines, such as a part In 2019, Gazprom launched the Chayandinskoye gas field of the Sakhalin-Khabarovsk-Vladivostok – one of the largest fields in Eastern Siberia and continued and the Ukhta-Torzhok (Yamal) pipelines. development of a number of other large projects, including the Kovyktinskoye field and the Achimov deposits of the onet uol urutnetea Urengoyskoye field. apro net atnet ter

24/ 25 overview – –> markets performance governance appendices

/// market trends 3.1% yoy in 2019

Overall extraction of mineral resources ––> % power generation metals and mining water utilities

In 2019, Russia continued to increase Mining industry in Russia is highly Municipal water utilities were supported by its electricity output, which reached 93.3bn concentrated, and consists of large the continued growth of tariffs. 1,096.2 billion kWh (+1.2% yoy). 27% yoy companies, which typically have a full For example, in 2019, tariffs for cold water Total installed capacity of Russian power production cycle from ore mining supply increased by 5.0% yoy, system increased by 2.96 GW (+1.1% yoy) Crude oil exports brought Russian to the production of metal products hot water supply – by 4.1% yoy, and amounted to 252 GW. companies in 2018 ––> US$ with high value added. and sewerage – by 6.0% yoy.

Total number of large power plants in Russia is 805 (with In 2019, overall extraction of mineral resources grew by 3.1% Total investments in water utilities and waste utilization in installed capacity higher than 5 MW each). The structure of yoy, where: Russia reached Rub 158 billion (+5.7% yoy). Some of the most 22 the installed capacity in the Unified power system remained 2 2 2 20 letrt output llon important ongoing projects in water utilities construction and practically unchanged in 2019: thermal power plants ntalle apat ‒ Extraction of metal ores increased by 5.2% yoy; modernization in 2019 were at St. Petersburg, Belgorod and 1092 109 ‒ accounted for 67 percent of installed capacity, hydro power 102 10 The volume of coal production amounted to 439.2 million Saratov water facilities. plants – 20 percent, nuclear power plants – 12 percent. 109 tons, a 0.2% yoy decrease compared with 2018; ‒ Coal exports decreased to 192.4 million tons (-0.4% yoy). In 2019, the implementation of the National project “Ecology” Total investments in the energy industry declined by (consisting of 11 Federal projects) continued, that will ensure

8.8% yoy to Rub 962.1 billion. 201 201 201 201 2019 In 2019, overall investments in metal ores extraction slightly large modernization of water facilities all over the country, declined to Rub 274.9 billion (-0.2% yoy), while investments yet it was going much slower than the plan. By November Russian energy companies continued construction of new in coal industry reached Rub 179.2 billion (+18% yoy). 2019, only 27.1 percent of the planned for the period budget power plants, such as nuclear Kursk-2 NPP, Leningrad-2 Total installed capacity and electricity had been spent (Rub 15.4 billion), including only 12.4 percent NPP, Novovoronezh-2 NPP, conventional Primorskaya TPP, output in Russia, 2015-2019 In 2019, overall production of metals increased by 0.6% yoy, of the “Clean Water” Federal project budget. The main Voronezh TPP (new 115 MW unit) and other. where: reason for this delay was the lack of expertise in preparation, approval and implementation of such investment projects. The State Atomic Energy Corporation, ROSATOM, also runs a ‒ Production of cast iron was at the level of 51.2 million tons number of projects on NPP construction abroad with Russian (a 1.2% decrease yoy), while production of stainless steel technology and equipment, such as: Akkuyu NPP in Turkey, reached 199 million tons (+4.4% yoy); Kudankulam NPP in India, Busher NPP in Iran, Belarusian NPP, ‒ Production of some rare and precious metals showed even Tianwan-2 NPP in China and has a number of projects under higher growth: gold production grew by 17% yoy, cobalt by 158bn negotiation. eral 5.7% yoy, and titan by 3.6% yoy. ro 5.7% yoy annual 2019 report –––> GROUP HMS A new program of TPP modernization was launched in 2019 - ulear Total investments in the production of metals grew by 6.3% new capacity of 17.2 GW will be built in 2022-2025, with total eneale yoy to Rub 324.1 billion. Total investments CAPEX over Rub 200 billion. in water and waste Russian metals and mining companies continue to implement ––> Rub large-scale investments programs. EVRAZ, Severstal, Rusal, utilization Nornickel and others are running long-term programs Installed capacity Eelectricity output on development of new mines and construction of new by types of power by types of power production units (coke batteries, new furnaces, etc.) that will ensure investments in the industry for the next years. plants ––> % plants ––> %

26/ 27 overview markets – –> performance governance appendices HMS Performance in 2019

30 Financial & Operational Overview 38 2019 Calendar of Events 42 HMS Key Projects, Development & Innovations 48 Modernization 50 Corporate Social Responsibility –––> annual 2019 report –––> GROUP HMS

28/ 29 overview markets – –> performance governance appendices

& operational overview HMS austerity program In 2019, HMS experienced the influence 4. The “Arctic Cascade” project of The cost-optimization program of HMS of several negative factors that affected PAO NOVATEK, the first ever HMS Group consists of two types of austerity the company’s financial results: project in the field of designing and measures - short-term and long-term. manufacturing of compressors for The short-term measures have been 1. Change in a mix of large contracts liquefaction of natural gas: already implemented and realized. In portfolio, where compressor-based 2020, the short-term ones will be partly large contracts increased their share, HMS Group had analyzed the project, complimented or replaced by long-term /// FY 2019 financial results and they traditionally have lower and has taken actions to prevent measures. margins compared with pumps and losses in foreseeable projects oil & gas equipment: of that kind. The equipment was The short-term measures include (1) a RUB mn 2019 FY 2018 FY Change 4Q 2019 4Q 2018 Change manufactured under the innovative temporarily decrease of wages, which yoy yoy

financial HMS addressed this by working on proprietary natural gas liquefaction has been already realized in 2H 2019, Orders 52,196 55,891 -7% 15,970 25,176 -37% prospective profitable contracts. technology called the “Arctic and (2) a decrease or cancellation of As a result, today the company has Cascade” patented by PAO NOVATEK dividend payments in 2020, which Backlog 44,693 42,634 5% 44,693 42,634 5% signed already a sustainable volume in 2018. decision will depend on 2019 FY Revenue 51,413 52,619 -2% 14,732 20,757 -29% of large contracts in the pumps results and general situation with large EBITDA 4,824 6,621 -27% 1,432 2,302 -38% and the compressors segments. The aim of the project was to localize contracts portfolio in the spring 2020. In the oil & gas equipment and the manufacturing and assembly EBITDA margin 9.4% 12.6% 9.7% 11.1% projects segment, the portfolio of of LNG equipment to decrease The long-term austerity measures Profit for the 151 1,946 -92% (45) 772 -106% large contracts is improving. Also, the overall cost of liquefaction and include, among others: period based on a current pipeline of large develop a technological base within projects, the oil & gas equipment and Russia. While the participation in ‒ Rightsizing (personnel optimization); Depreciation & 2,296 1,843 25% 597 521 14% projects segment has a potential of the project incurred losses for the ‒ Minimization of operating amortization the further portfolio’s development. company due to the fact that HMS costs including optimization of Free cash flow 23 (139) na 2,646 1,854 43% has developed a new product, the procurement processes and 2. Weak results of the oil & gas project’s successful execution has improvement of products’ design equipment and projects business given the access to the new and solutions; segment in recurring business: prospective LNG market in Russia. ‒ Reduction of capital expenditures group Revenue decreased to Rub 51.4 billion, EBITDA margin was down to 9.4%, to Rub 1.5 billion per annum (pure down by 2%, compared with Rub 52.6 compared with 12.6% for 2018FY. HMS had analyzed the factors that 5. Austerity measures time lag: maintenance level); performance billion for 2018FY, due to weak results affected financial results of the ‒ Strengthening of control over of the oil & gas equipment business Profit for the 2019 year declined segment, and has taken actions to HMS had started the cost- working capital; Order intake declined by 7% yoy to segment. to Rub 151 million, compared with mitigate their impact on 2020FY optimization program at the end of ‒ Analysis of non-performing assets Rub 52.2 billion, compared with Rub Rub 1.9 billion for 2018FY, down by results. 1H 2019. It has taken several months for further decision-making annual 2019 report –––> GROUP HMS 55.9 billion for 2018FY, mainly due to a EBITDA was down to Rub 4.8 billion 92% yoy. from the implementation of austerity regarding restructuring of HMS decrease in the compressors business compared with Rub 6.6 billion (-27% 3. Postponement of a number of the measures to the decrease of fixed business. segment because less large contracts yoy) mainly because of the oil & gas Depreciation & amortization was up oil & gas equipment signed and costs and increase of profitability, were signed in the reported period. equipment projects and partly because 25% yoy to Rub 2.3 billion, compared budgeted deliveries from 3-4Q which were clearly seen at the of the compressors. with Rub 1.8 billion for 2018FY because 2019 to the 2020 year due to HMS improved results of 2H 2019. Backlog, in contrast, grew to Rub of assets acquired in 2019. customers’ decisions: 44.7 billion by 5% yoy, compared with Revenue from recurring business Rub 42.6 billion last year, based on increased by 8% yoy, and revenue Free cash flow grew to Rub 23 million, One the one hand, this factor growth in the pumps and the oil & gas from large projects declined by 19% compared with Rub (139) million for affected 2019 FY financial results, equipment. In terms of contracts type, yoy. EBITDA from recurring business 2018FY, mainly due to a decrease in and on the other hand, it should the recurring business was the main increased by 56% yoy, and from large working capital (-3% yoy). positively influence 2020 FY financial contributor to this growth. projects contracted by 62% yoy. results.

1. Herein, materials & components, labour costs and social taxes, construction & design were additionally derived from Change in work in progress and finished goods, thereby do not coincide with the note in the financial statement 30/ 31 overview markets – –> performance governance appendices

/// financial & operational overview

expenses and RUB mn 2019 FY 2018 FY Change Share of Share of yoy FY 2019 FY 2018 operating profit revenue revenue Gross profit 9,609 12,002 -20% 18.7% 22.8% Cost of sales was up to Rub 41.8 billion Distribution and transportation 1,961 1,916 2% 3.8% 3.6% by 3% yoy, compared with Rub 40.6 billion for 2018FY, due to the increase General and administrative 5,395 5,636 -4% 10.5% 10.7% in Materials and components (+1% yoy). As a share of revenue, distribution and SG&A expenses 7,356 7,551 -3% 14.3% 14.4% business The main reason of the increase was transportation expenses was up to large compressor contracts, which Other operating expenses 196 250 -22% 0.4% 0.5% 3.8% compared with 3.6% last year. segments had a higher share of outsourced Operating expenses ex. Cost of 7,553 7,802 -3% 14.7% 14.8% performance components in their costs of sales. sales General and administrative expenses were down by 4% yoy to Rub 5.4 Gross profit was down 20% yoy to Rub Operating profit 2,057 4,200 -51% 4.0% 8.0% billion, compared with Rub 5.6 billion I 9.6 billion, compared with Rub 12.0 Finance costs 1,785 1,611 11% 3.5% 3.1% last year, due to the sizable 9% yoy /// industrial pumps billion for 2018FY. totaling decrease in labor costs and social taxes. As a share of revenue, Distribution and transportation general and administrative expenses RUB mn 2019 FY 2018 FY Change 4Q 2019 4Q 2018 Change yoy yoy expenses grew by 2% yoy, due to the RUB mn 2019 FY 2018 FY Change decreased to 10.5% from 10.7% for grown transportation expenses (+25% yoy 2018FY. Orders 22,792 19,573 16% 6,369 6,141 4% yoy) that was because of increased Finance costs 1,785 1,611 11% Backlog 19,572 17,152 14% 19,572 17,152 14% deliveries of equipment produced SG&A expenses1 declined to Rub under large contracts to the remoted Interest expenses 1,764 1,598 10% 7.4 billion, compared with Rub 7.6 Revenue 19,770 17,811 11% 5,866 6,613 -11% regions of Russia. billion (-3% yoy), and as a share of Interest rate, average 8.56% 8.72% EBITDA 2,599 2,390 9% 728 1,191 -39% revenue, declined to 14.3% from Interest rate Rub, average 8.69% 8.91% 14.4%. EBITDA margin 13.1% 13.4% 12.4% 18.0%

Operating profit was down to Rub 2.1 RUB mn 2019 FY 2018 FY Change Share of Share of billion, compared with Rub 4.2 billion Order intake of industrial pumps EBITDA increased to Rub 2.6 yoy FY 2019 FY 2018 last year (-51% yoy). grew by 16% yoy based mainly bn, by 9% yoy, from Rub 2.4 revenue revenue on large contracts. bn for 2018FY due to recurring Cost of sales1 41,804 40,617 3% 81.3% 77.2% Finance costs were up to Rub 1.8 business. And EBITDA margin billion, compared with Rub 1.6 billion Backlog grew by 14% yoy to Rub was 13.1%, compared with 13.4% Materials and components 27,957 27,628 1% 54.4% 52.5% for 2018FY, due to the increase of 19.6 bn due to both recurring for 2018FY, with a minor drop, Labour costs incl Social taxes 7,060 7,276 -3% 13.7% 13.8% interest expenses (+10% yoy) because business and large contracts, because recurring business of a higher level of total debt. Average mainly in the sphere of pumps generated a larger share of Depreciation and amortization 1,954 1,567 25% 3.8% 3.0% rates decreased to 8.56% p.a. for nuclear power plants. EBITDA compared with 2018FY. annual 2019 report –––> GROUP HMS Construction and design and engineering services of subcontractors 2,467 2,102 17% 4.8% 4.0% compared with 8.72% p.a. last year. Revenue was Rub 19.8 bn, up 11% There are two low-margin Others 2,365 2,045 16% 4.6% 3.9% yoy, compared with Rub 17.8 bn for production facilities in the pumps 2018FY. The growth was based on business segment, and their both recurring business and large negative effect has been already contracts. reflected in the company’s financial results. Currently, HMS is working on an optimization strategy of their operations.

1. SG&A expenses - Selling, General and Administrative Expenses, compiled of distribution & transportation expenses plus general & administrative ones 32/ 33 overview markets – –> performance governance appendices

/// financial & operational overview

/// oil and gas equipment II /// compressors III

& projects (OGEP) The “Arctic Cascade” allowed HMS to RUB mn 2019 FY 2018 FY Change 4Q 2019 4Q 2018 Change yoy yoy develop competencies in the new area RUB mn 2019 FY 2018 FY Change 4Q 2019 4Q 2018 Change of equipment for liquefaction of natural yoy yoy Orders 17,363 23,883 -27% 8,785 15,811 -44% gas and penetrate the Russia’s booming Orders 11,887 12,023 -1% 791 3,203 -75% Backlog 16,067 16,688 -4% 16,067 16,688 -4% LNG market.

Backlog 7,426 6,658 12% 7,426 6,658 12% Revenue 17,884 14,678 22% 4,558 9,371 -51% The successful execution of the “Artic Revenue 13,160 20,859 -37% 4,562 4,346 5% EBITDA 1,546 1,758 -12% 280 1,320 -79% Cascade” turned PAO NOVATEK into one of HMS largest clients. In EBITDA margin 8.6% 12.0% 6.1% 14.1% EBITDA 430 2,883 -85% 601 166 261% September 2019, PAO NOVATEK and EBITDA margin 3.3% 13.8% 13.2% 3.8% HMS Group signed the Memorandum on localization of LNG equipment.

Order intake slightly declined to Rub The main reason of the decline were HMS Group has changed management Order intake was down 27% yoy to Since HMS had developed a new In 2019, PAO NOVATEK and HMS Group 11.9 bn, compared with Rub 12.0 bn absence of new large contracts under at HMS Neftemash to speed up the Rub 17.4 billion, compared with Rub product, it has incurred losses for the signed two large compressor contracts for 2018FY, and totally consists of execution in 2019FY compiled with costs reduction. Implemented austerity 23.9 billion, because of a lower volume company, and that was one of the main worth Rub 3 billion rubles. And in 2020, recurring contracts. a low profitability of recurring business measures align with more profitable of large contracts signed. Recurring factors that affected the compressors another large contract was signed, to in 1H 2019. orders portfolio resulted in a recovery business orders, in contrast, grew by segment’s EBITDA. But on the other engineer and manufacture 6 main gas Backlog was up by 12% yoy to Rub of the oil & gas equipment and projects 7% yoy. hand, the company had analyzed the compression units to deliver and install 7.4 billion, compared with Rub 6.7 bn When its backlog of large projects segment’s financial project, has taken actions to prevent at the Obsky LNG processing plant. for 2018FY, also based on recurring decreased in mid-2018, the production results. Backlog decreased by 4% yoy to Rub them and is fully prepared for execution contracts. facility didn’t manage to cut quickly its 16.1 billion, compared with Rub 16.7 of similar projects in the future. fixed costs. Also it didn’t manage to HMS Neftemash postponed deliveries billion last year, also because of less Revenue decreased by 37% yoy to Rub sign a sufficient volume of profitable from 3-4Q 2019 to 2020, worth c. Rub large contracts signed. 13.2 bn, compared with Rub 20.9 bn for recurring contracts to replace large 0.4 billion EBITDA, that should positively IV 2018FY. EBITDA declined to Rub 430 contracts. The combination of the influence 1H 2020. Revenue was up by 22% yoy to Rub 17.9 /// construction mlnn, compared with Rub 2.9 bn, and above-mentioned factors resulted in billion, compared with Rub 14.7 billion, EBITDA margin was 3.3% vs. 13.8% for a decrease of revenue and margins in based on both recurring business and RUB mn 2019 FY 2018 FY Change 4Q 2019 4Q 2018 Change 2018FY. the period from 4Q 2018 to 2Q 2019. large contracts. EBITDA declined by yoy yoy Consequently, recurring business 12% yoy to Rub 1.5 billion, compared Orders 155 411 -62% 25 20 25% generated less EBITDA than expected. with Rub 1.8 billion for 2018FY. EBITDA margin was down to 8.6% compared Backlog 1,628 2,137 -24% 1,628 2,137 -24% annual 2019 report –––> GROUP HMS with 12.0% for 2018FY. Revenue 1,394 1,795 -22% 295 537 -45% In the 2nd half of 2018, HMS Group EBITDA (29) (138) na (78) 23 na started execution of the pilot “Artic EBITDA margin -2.1% -7.7% -26.4% 4.2% Cascade” project. That was a project to supply a main 25 MW gas compression system for the Yamal LNG project of PAO NOVATEK. Order intake equaled Rub 155 million. Revenue was down to Rub 1.4 billion, Backlog was Rub 1.6 billion. compared with Rub 1.8 billion for 2018FY. EBITDA was Rub (29) million, compared with Rub (138) million last year.

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/// financial & operational overview significant events after the reporting date & financial /// working capital and capital expenditures management

RUB mn 2019 FY 2018 FY Change yoy 4Q 2019 3Q 2019 Change qoq large contracts covid-19 and fall in oil prices Working capital 8,846 9,115 -3% 8,846 11,522 -23% After the reporting date, HMS Starting from early 2020, a new In addition to that, in March 2020, Working capital / Revenue LTM 17.2% 17.3% 17.2% 20.1% announced the signature of a large coronavirus disease (COVID-19) has oil prices dropped by more than Capex 1,571 2,335 -33% 367 403 -9% compressor contract with PAO begun rapidly spreading all over the 40%, which resulted in immediate NOVATEK, to deliver main compression world resulting in announcement of weakening of Russian Rouble against Acquisition 670 (112) - - units to the Obsky LNG processing the pandemic status by the World major currencies. plant. Health Organization in March 2020. Responses put in place by many Management considers the outbreak working capital debt refinancing countries to contain the spread of of COVID-19 coronavirus infection and capital expenditures debt position COVID-19 are resulting in significant and the reduction in oil prices to shareholding In February 2020, the Group made operational disruption for many be non-adjusting events after the Working capital was Rub 8.8 billion, Total debt increased to Rub 24.3 billion, and HMS GDRs a full Rub 3 billion redemption of its companies and have significant impact reporting period. down by 3% yoy, compared with Rub up by 25% yoy, compared with Rub 19.5 bonds, issued in 2017, at 100% par on global financial markets. As the 9.1 billion for 2018FY. As a share billion for 2018FY. Net debt was Rub In December 2019, the major value. In 4Q 2019, HMS Group situation is rapidly evolving it may have The Group developed a stress of revenue, working capital slightly 14.4 billion, up by 9% yoy, compared shareholder of HMS Group, JSC HMS attracted Rub 3 billion bank credit, a significant effect on business of scenario of the possible impact of declined to 17.2%. with Rub 13.2 billion for 2018FY. Holding (“HMS Holding”), completed that was deposited, for this bonds many companies across a wide range the current operating environment the process of cancellation (disposal redemption. of sectors, including, but not limited to on the Group’s business, including Capital expenditures were Rub 1.6 Net debt to EBITDA LTM ratio increased by HMS Holding) of 2,924,207 global such impacts as disruption of business the analysis of possible deviations in billion, down by 33% yoy, compared to 2.98x compared with 1.99x last year. depositary receipts issued under operations as a result of interruption execution of large contracts, included with Rub 2.3 billion last year, as the the Company’s depositary receipts of production or closure of facilities, in the Group’s budget for 2020, as result of the implemented austerity program representing 14,621,035 supply chain disruptions, quarantines well as assessment of probabilit y of measures. shares in the Company (the of personnel, reduced demand and reduction in revenues on recurring “Underlying Shares”) and withdrawal difficulties in raising financing. In business, the analysis of factual of (acquisition by HMS Holding of) the addition, the Group may face the liquidity and debt position of the Underlying Shares from the depositary increasingly broad effects of COVID-19 Group at the date of issuance of these /// debt position (the Bank of New York Mellon) in as a result of its negative impact on the consolidated financial statements, the name of HMS Holding (the global economy and major financial its future expected cash inflows RUB mn 2019 FY 2018 FY Change 4Q 2019 3Q 2019 Change “Conversion”). markets. The significance of the effect and outflows and the consideration yoy qoq of COVID-19 on the Group’s business of debt covenants. The scenario Total debt 24,321 19,458 25% 24,321 21,115 15% As a result of the Conversion, HMS largely depends on the duration and the demonstrated the Group’s ability Holding retains full control over the incidence of the pandemic effects on to continue as a going concern. Net debt 14,369 13,163 9% 14,369 16,960 -15% majority shareholding in the Company the world and Russian economy. annual 2019 report –––> GROUP HMS Net debt / EBITDA LTM 2.98 1.99 2.98 2.98 being a direct holder of 71.51 percent of the Company’s issued share capital, and, consequently, the Conversion neither triggers an obligation of the Company or HMS Holding to make any i. The industrial pumps business segment designs, engineers, manufactures and supplies a diverse range of pumps and pump-based mandatory offer to the GDR holders, integrated solutions to customers in the oil and gas, power generation and water utilities sectors in Russia, the CIS and internationally. nor lead to any change in corporate The business segment’s principal products include customized pumps and integrated solutions as well as pumps built to standard specifications; it also provides aftermarket maintenance and repair services and other support for its products. governance of the Company. ii. The oil and gas equipment and projects business segment manufactures, installs and commissions modular pumping stations, automated metering equipment, oil, gas and water processing and preparation units and other equipment and systems for use primarily in oil extraction and transportation. The segment’s core products are equipment packages and systems installed inside a self-contained, free-standing structure which can be transported on trailers and delivered to and installed on the customer’s site as a modular but fully integrated part of the customer’s technological process. iii. The compressors business segment designs, engineers, manufactures and supplies a diverse range of compressors and compressor-based solutions, including compressor units and compressor stations, to customers in the oil and gas, metals and mining and other basic industries in Russia. The business segment’s principal products include customized compressors, series- produced compressors built to standard specifications, and compressor-based integrated solutions. iv. The construction provides construction works for projects for customers in the oil upstream and midstream, gas upstream. 36/ 37 overview markets – –> performance governance appendices

2019 calendar of events

Apollo Goessnitz presented the consequently none of the january following equipment: march transactions made as a part of the restructuring triggers The major shareholder of HMS ‒ KRH/KRHA series overhang radially The major shareholder of HMS an obligation of the Company, Group, H.M.S. Technologies Limited, split process pumps (type OH2, Group, H.M.S. Technologies Limited HMST or HMS Holding to make transferred 2,000,000 (two million) API610) that features low operational (“HMST”) registered at Cyprus, any mandatory offer to the GDR ordinary shares in HMS HYDRAULIC costs and ease of maintenance transferred its entire shareholding in holders. MACHINES & SYSTEMS GROUP PLC due to back pull-out design with the Company to JSC HMS Holding comprising 1.7070 percent of the total de-mountable coupling and (“HMS Holding”), registered at Russia, This restructuring of the core number of shares in its share capital retrofittable runners; the subsidiary undertaking of HMST, via shareholders’ shareholding in the to JSC HMS Holding, the subsidiary ‒ AMG series between bearing axially the following transactions: Company did not lead to any change undertaking of H.M.S. Technologies split process pumps (type BB3, in corporate governance or corporate Limited, in the form of the shareholder’s API610) featuring high reliability ‒ HMST transferred 67,159,421 control of the Company. All applicable asset contribution for nil consideration. low vibration due to back to back ordinary shares in the Company regulatory approvals have been This transaction was completed as impellers design; (comprising 57.32 percent of the obtained in connection with this part of the ongoing restructuring of ‒ TL/TG series barrel multistage Company’s issued share capital) restructuring. the core shareholders’ shareholding in radially split process pumps (type to HMS Holding in the form of the the Company and does not lead to any BB5, API610) with cartridge pull-out shareholder’s asset contribution for HMS Group repurchased 59,380 change in their effective interest in the that enables changeover of inner nil consideration; of its global depositary receipts Company. case on-site without dismantling the ‒ HMST transferred 2,924,207 global representing 0.55 percent of the outer case. depositary receipts issued under Company’s issued share capital the Company’s depositary receipts during the period. Since the start of february HMS Group repurchased 1,200 of its program (“GDRs”) (representing the programme, the Company has global depositary receipts representing 14,621,035 shares in the Company repurchased 1,204,149 GDRs in total Apollo Goessnitz GmbH participated 0.01 percent of the Company’s issued and comprising 12.28 percent of the (representing 5.14 percent of its issued in the Egypt Petroleum Show that took share capital during the period from Company’s issued share capital) share capital). place within February 11–13 in Egypt February 4, 2019 up to and including to HMS Holding in exchange for International Exhibition Center (Cairo). February 8, 2019. Since the start of additionally issued shares in HMS One of HMS’ managers acquired The TAKAT compressor systems At the exhibition the company exposed the programme, the Company has Holding. 14,500 of HMS Group’s GDRs using his with a unit capacity of 2,329 Nm³/h models of the pumping equipment repurchased 1,144,769 GDRs in total own funds and discharge pressure of 7 bar are annual 2019 report –––> GROUP HMS product line for oil and gas upstream, (representing 4.89 percent of its issued As a result of this restructuring: based on single-stage oil-injected midstream and downstream. All the share capital). Three screw compressor systems screw compressors with a common equipment is compliant with widely ‒ HMS Holding became a direct holder made by KKM were placed in pilot lube oil system. The systems have recognized industry standards and of 69,159,421 ordinary shares in operation as part of a new associated block-container design and equipped highly esteemed by the customers the Company and 2,924,207 GDRs petroleum gas (APG) compressor with 200 kW electric motors as well for reliability and great operating comprising in aggregate 71.51 station at the preliminary water as automation system operated from performancel. percent of the Company’s issued knock-off unit No. 34 (Bashneft- a separate room. These systems share capital; and Dobycha) under the target program of were designed and manufactured in ‒ HMST remains the sole voting APG utilization increase implemented accordance with the requirements of shareholder of HMS Holding by ANK Bashneft. international (API 619) standards retaining control over the majority shareholding in the Company, and

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/// 2019 calendar of events

HMS signed two contracts to Taking into account a successful april june august engineer and procure oil & gas experience of cooperation between december equipment worth a total Rub 1 billion. HMS Group and NOVATEK on HMS Group participated in the 23rd KKM completed testing of the HMS signed a contract to engineer The manufactured equipment will be design and manufacture of the key The Group signed Rub 2 billion International Exhibition of machines main gas compression system and procure compressors and delivered in 1H 2020 compressor-based equipment under contract to deliver gas transportations and equipment for mining, processing manufactured for NOVATEK’s “Arctic complementary equipment worth Rub the “Arctic cascade” technology units and transportation of minerals Cascade” liquefied natural gas (LNG) 1.7 billion to a compressor station. HMS Group refinanced a number of (home-grown technology of MiningWorld Russia 2019. The HMS production technology. The system was The manufactured equipment will be credits worth a total Rub 5 billion with natural-gas liquefaction, which HMS signed a Rub 1.4 billion Group exposition featured the pumping designed to operate in the natural gas delivered in 2020. payment due in 2020-2021, shifting was developed by NOVATEK), the follow-up contract to a recently signed equipment for the main processes of liquefaction complex of the 4th stage repayment dates to the 2022 year. Parties fixed their mutual interest in Rub 3 billion compressor contract. the mining industry, including a new of Yamal LNG project. The integrated HMS signed a contract to engineer Average interest rate of refinanced cooperative development of new types The manufactured equipment will be HDP series slurry pumps with capacity compressor unit consisting of three and procure gas transportation units credits was decreased on 0.21 percent of high-performance equipment for delivered in 2020 up to 8,000 m3/h and head up to 100 centrifugal compressors designed to worth Rub 3 billion to a gas booster natural-gas liquefaction as well as m for abrasive hydraulic mixtures with handle three process gases (methane, station. The manufactured equipment further localization of equipment for KKM produced and delivered a solids content up to 200 mm. The nitrogen and ethane). All three will be delivered in 2020. october large-capacity LNG projects and their centrifugal compressor system with exposition also included the samples of compressors are driven by a single raw-material base. a capacity of up to 1 Mtpa for a LNG the new advanced pump series: Russian-made 25 MW gas turbine HMS signed a contract to engineer complex in Sabetta (Yamal-LNG, through a multi-shaft gearbox with one september and manufacture gas transportation Prioritized directions of cooperation, NOVATEK) ‒ DeLium – new generation double input and three output shafts. One of units worth Rub 6.1 billion. The fixed in the Memorandum, comprise suction pump for process water the compressors is designed as a multi- HMS signed a contract to engineer equipment is to be delivered in 2021. design, manufacture and testing of circulation systems shaft unit of five compression stages and procure gas transportation units hi-tech pumping and compressor ‒ VVN water-ring vacuum pump for worth Rub 2.3 billion for an oil & gas The company and PAO NOVATEK equipment, including submersible steam-gas mixtures removal in the condensate field. The manufactured signed the Memorandum on Strategic cryogenic LNG-unloading pumps, ore processing july equipment will be delivered in 2020 Partnership, which aims the further as well as column, heat-exchanging ‒ Sidus submersible drainage pump for development of mutual cooperation in and vessel equipment for natural-gas transfer of liquids with a high content Fitch Ratings affirmed JSC HMS HMS signed Euro 16 million contract a field of design and manufacture of treatment and liquefaction units. of solid particles Group’s Foreign- and Local-Currency to engineer and procure compressors first-of-its-kind-in-Russia equipment ‒ 2NK overhung pump for chemical Issuer Default Ratings (IDR)s of “B+”, for an oil processing plant in Russia. for LNG projects. The Memorandum solutions supply in the ore dressing the outlook “Stable”. The full text of The manufactured equipment will be set the general principles and main process Fitch’s press release is available on delivered by the end of 2020 directions of mutually beneficial the agency’s website https://www. cooperation. It composes the long- HMS Group repurchased 133 of its fitchratings.com/site/pr/10084287 HMS signed two contracts to term intention of the Parties to pursue a GDRs. Since the start of the buyback engineer and procure nuclear pumps wide-scale cooperation to localize the programme, the Company has and pump-based solutions worth a manufacturing of compressors, pumps repurchased 1,204,282 GDRs in total total Rub 1.9 billion. The manufactured and other equipment for NOVATEK’s (representing 5.14 percent of its issued equipment will be delivered in LNG projects. share capital) 2021-2022

One of HMS’ managers acquired 975 of HMS Global depositary receipts annual 2019 report –––> GROUP HMS using his own funds

HMS Group signed two contracts to deliver gas transportation units worth Rub 4 billion. The manufactured equipment is to be delivered by the end of 2019

40/ 41 overview markets – –> performance governance appendices

HMS Group follows best practices and international standards in R&D, manufacturing and quality management in HMS key projects, order to meet the growing requirements on the market. We actively participate in the government-initiated process of import substitution, which allows us to broaden development & our product portfolio and attract a large number of clients. innovations research and development

PUMPS Nuclear power generation Sewage water export activities In 2019, the company set up smelting HMS Group developed the technology HMS Group continues to expand of high-alloy nickel cast iron, analogy of production of pump body castings, the range of standard sizes of mass- Export sales revenue of HMS Group of foreign Ni-resist ASTM A 436 cast where ceramic running system with produced rotor-dynamic pumps outside the FSU has reached US$ 56 iron. Production of wetted part casting siphon CFF1-filtering of liquid melt input intended for sewage water, type CD. million including international nuclear 56mn from this kind of cast iron will allow was used. This technology will be used Centrifugal CD pumps and electric power plants projects, showing steep 37% yoy improve operating properties of pumps in production of AS-1D200-90-A pumps pump units, made on their base, are 37% yoy increase versus a previous and increase their performance life in for nuclear power plants, which will have used for urban and industrial waste year. Export sales aggressive environment. the safety class 2. waters and other non-aggressive revenue ––> US$ liquids with a possible additions of Adding up sales revenue from projects The produced two units successfully petroleum products of max 2 percent. involving international EPC companies passed all non-destructive control tests. in Russia and the CIS of US$ 12 million makes total HMS export sales revenue figure equaling US$ 68 million, i.e. 103% of the HMS Group Export Sales strategy Capacity Head, Pressure at Power Rotational Positive (rated), m the pump consump- speed, suction adopted by the HMS Board of Directors m³/h inlet, МPа, tion of rpm head, m, in 2016. 30% yoy maximum the pump maximum (max.), кW in 2019 Signing in 2019 high value contracts CD 100/40 100 40 0.25 26 2,900 9.0 in Persian Gulf/ MENA region has

export sales annual 2019 report –––> GROUP HMS anchored considerable export sales CD 100/40a 90 32 0.25 20 2,900 9.0 growth pace ––> % revenue backlog for 2020 amounted CD 100/40b 80 28 0.25 17.8 2,900 9.0 in c. US$ 90 million , including CD 250/22,5 250 22.5 0.25 32 1,450 5.0 international nuclear power plants projects that keeps export sales growth CD 250/22,5а 225 18.5 0.25 26 1,450 5.0 pace at the challenging level of over CD 250/22,5b 205 16 0.25 20 1,450 5.0 30% yoy compared to 2019.

In 2019, Export sales directorate has broadened the export sales product portfolio starting sales of centrifugal compressors and static equipment for international EPC projects in Russia.

1 CFF – ceramic foam filter, is used to remove inclusions which are generated between the refinancing system and the mold table. The ability of the ceramic foam filter to capture these inclusions is critical to maintaining a clear ingot during to solidification of metal. 42/ 43 overview markets – –> performance governance appendices

/// HMS key projects, development & innovations

Liquid-packed ring vacuum Mobile Secondary Reference Hydromechanical drive measures (pressure, temperature, pumps Metrology Complex for sucker rod pumping units etc.); ‒ Conversion of wells from periodic to HMS Group continues to expand In 2019, HMS continued research and The main advantages of the constant duty; the range of mass-produced liquid- development upon an investment hydromechanical drive developed by ‒ Operation of wells with high content packed ring vacuum pumps of VVN project to develop the Intelligent Mobile HMS Group are: of aromatic hydrocarbons, gas and type and started the serial production Secondary Reference Metrology solids. of VVN2-50 pumps. These pumps Complex mounted on a cross-country ‒ No need to redevelop an oil-well for and units, made on their base, are chassis. an offered technology; In 2019, HMS Neftemash continued applicable in petrochemicals, metals ‒ Release of sucker-rod-pumping- the project on a rodless oil extraction & mining, pulp & paper industries, The new Mobile Metrology Instrument unit foundation land, improvement mechanism. Following the results of agriculture, construction and medicine. will allow oil & gas companies to of the environmental security of the factory acceptance testing, the The pumps are intended for exhaustion calibrate online metering units, surface management (elimination of company modernized and put the of air, water-insoluble inert or without interruption of hydrocarbons’ oil product leaks through seals and finishing touches to the mechanism: aggressive gas, depending on the flow extraction, thus lowering costs of stuffing-box seals of a rod); part’s material, to create or maintain extraction. ‒ Reduction in metal consumption ‒ Implemented an additional fine filter vacuum. The pump is produced in 3 during replacement of the obsolete in a delivery line of a hydraulic unit standard sizes: rotational speed of The company successfully completed rocker-machines fleet; to enhance reliability of the unit and 500 rpm, 600 rpm and 750 rpm with the following project’s milestones: ‒ The no-sucker-rod enables a hydraulic motor; 40m3/hour, 50m3/hour and 60m3/hour OIL & GAS EQUIPMENT Biochemical Physics of the Russian mechanical dewaxing of a lift; ‒ Increased a diameter of a ensure capacity respectively. Academy of Sciences in accordance ‒ Completion of 3D-model and the ‒ Increase in pumps’ volumetric transmission shaft of a protector Thermo-Chemical Binary with a contract with the Ministry of electronic paste-up of the unit; efficiency, improvement of oil module to 25 mm for its vibration Mixture Technology (TCBXT) Education of the Russian Federation. ‒ Completion of research testing of the recovery efficiency, decreased level isolation at a high idle; 100m3 Underground vessel electronic paste-up. Completion of of power consumption; ‒ Upgraded an axial piston pump, (storage tank) In 2016-2018, HMS Group was In 2019, the Group concentrated on simulation of circulation of multi- ‒ Option to use downhole-to- which complies with technological developing the technology and promoting and commercialization phase flows inside the complex’s surface telemetry with online and weight-size requirements In 2019, NRS developed a technology the equipment complex for thermo- of the new technology. Also, the elements. Evaluation of working output to a dispatcher console of production of underground storage chemical and oil-and-gas-bearing company acquired the industrial patent effectiveness of the complex; with controllability of the main well A pilot run was coordinated on a tanks with nominal value at 100m3. The formation treatment, with the aim of # 2696714 for a thermochemical ‒ Completion of engineering analysis number of oil & gas fields. most producers don’t have capacities increasing hydrocarbon production and treatment of oil-and-gas-bearing of the complex’s core elements by to produce and transport vessels with restoring the ecological environment formation. the finite-element method; such mass and dimensions parameters on oil and gas fields, instead of using ‒ Development of design & operational (13m length, 4m height, 3.2m diameter the foreign technology of proppant-gel HMS aimed at oil & gas companies, and design & technological and 18.5t weight). fracturing. The project was being which expressed interest in the documents; carried out in cooperation with Tyumen implementation of the new technology. ‒ Completion of a design of a crude oil State University and the Institute of As an example, PAO “Tatneft” signed analyzer. Completion of its 3D-model the first commercial contract to treat 10 and corresponding engineering wells on a number of its oil & gas fields. analysis; ‒ Completion of development of the The company entered into cooperation complex’s APCS software. annual 2019 report –––> GROUP HMS with the Kazan University regarding conduction of laboratory and stand research of different binary systems under diverse reservoir conditions. Also, in Tyumen, HMS organized laboratory experiments, laboratory and stand testing of cores, subsamples of crude oil and oil-field water.

44/ 45 overview markets – –> performance governance appendices

/// HMS key projects, development & innovations

COMPRESSORS ENGINEERING

Compressor units for NOVATEK In 2019, GTNG started active development of a new activity area HMS Group continues to expand – Process engineering in oil and As part of the import-substitution gas processing, oil extraction and program, Kazankompressormash petrochemical industry, where the facility developed a number of compressor provides with the full range of services: unit for NOVATEK.

The main gas transportation unit for Project activities: NOVATEK’s 4th stage of the Yamal Project management: LNG project. The unit consists of ‒ Concept development three centrifugal compressors and ‒ Preparation of a technical inquiry ‒ Interaction with the leading world In 2019, GTNG completed more than is intended for compression of three ‒ Preparation of a business case and a licensors 10 innovative research projects for technological flows: feed gas, nitrogen cost-benefit analysis ‒ Analysis, comparison and selection Russia’s oil & gas companies, and and ethane. All three compressors are ‒ Basic design of the best possible technology patented the invention “Method of driven by a single 25 MW gas turbine, The system is designed under the In 2019, Kazankompressormash ‒ Customization of a basic design and ‒ Organization of complex engineering individual-group metering of the oil well made in Russia, though a multi-shaft “Arctic Cascade” technology patented implemented the additive FEED according to Russian codes surveying cluster’s product flow and the metering gearbox with one input and three by NOVATEK, and it helps to reduce manufacturing technology, 3D printing. and standards ‒ Preparation of land surveying system”. Also, GTNG was ranked the output shafts. One of the compressors the capital costs and develop the The new technology shortened the time ‒ Preparation of documents to documentation best regional “Innovative company of was designed as a multi-shaft unit of engineering base for LNG projects period from a project to a prototype to assessment of environmental impact ‒ Development of the project’s specific the Year”. five compression stages. in Russia through the domestic 10 days. ‒ Project approval by the Russia’s State technical specifications equipment application. Expert Evaluation Department ‒ Interaction with the Russia’s State The first-of-its-kind solution makes The printed and tested impeller was ‒ Project approval by the Russia’s State bodies it possible to reduce the mutual produced from titan in accordance Environmental Expertise ‒ Development and supervision of thermodynamic impact of compression Compressor impellers with the method Selectiv. During the ‒ Detailed design project schedule and budget stages and reduce significantly the overspeed test, the pilot compressor ‒ 3D-project design ‒ Construction supervision overall dimensions and the mass of Kazankompressormash began impeller was put on the maximum ‒ Update of 3D-project design ‒ Installation supervision and the entire compressor system of the embracing of alternative technologies 23,500 rpm, and didn’t demonstrate to “As built” commissioning works. LNG production complex. All elements of production of self-balancing unicycle any configuration‘s changes or defects were designed and produced in (compressor impeller). Today, impellers in the form of cracks in the metal. accordance with the API standards and are cut from a unitary block of a forging, were completed with a local automatic which means a low capacity ratio and control system. a high level of labour inputs. The time LEGAL PROTECTION OF INTELLECTUAL PROPERTY period from a project HMS Group designed and to a developmental HMS’ current operating portfolio consists manufactured a centrifugal compressor prototype made in metal of more than 300 objects of intellectual system with a capacity of up to 1 mtpa takes 120 days. property, including 241 patents, 31

300 12 annual 2019 report –––> GROUP HMS for Yamal-LNG. The complete boil-off registered computer programmes, and current operating portfolio in 2019 gas compressor system is intended to 54 registered trademarks. compress a boil-off gas flow and supply Objects of intellectual New registered inventions into feed gas, which is to be liquefied. In 2019, the company received exclusive property ––> amount and utility model patents The 6.87 MPa discharge pressure rights to 12 inventions and utility model ––> amount system is designed in accordance patents, and filed applications for with the API 617 and ASME PTC-10 9 patents including the international international standard requirements PCT procedure. and is capable to operate on a cold gas.

46/ 47 overview markets – –> performance governance appendices

16,2% yoy modernization in 2019 labour intensity of details processing ––> %

PUMPS COMPRESSORS

Machining Foundry

In 2019, HMS Livgidromash continued In 2019, the facility purchased Kazankompressormash continued The facility expect to complete the third modernization of its machining a 4-plate roll bending machine an investment project on the foundry stage of the upgrade by the end of production shop and placed in HRB-4 2035 developed by re-equipment to create the modern 2020, that comprises foundation of the operation a CNC1 lathe machining DURMA. After it is placed in foundry complex on its base. The molding area for large-sized castings center PUMA V8300MR developed by service, HMS Livgidromash modernization will expand the range and a pattern shop equipped with DOOSAN (South Korea). will be able to produce circular of sizes and materials and enhance three- and five-axis machining centers. rings, conical billets and other quality and accuracy of production The vertical turning center is intended radius parts from sheet materials the castings of a wide range of alloys, for heavy duty and high precision 20-60 mm thick and up to 2,050 width. including the steel ones of a large cutting over long-term operations, Commissioning of this roll bending size. The smelting complex comprises including cutting of large diameter machine will allow production of three furnaces made by EFAS (Turkey) workpieces and complete milling, circular rings for further manufacturing with 8, 6, and 3 tons capacity, which drilling and tapping operations in a of heavy bodies for pumps used In 2019, the Ukrainian facility of HMS are automatically operated and have single setup. The facility uses the in petrochemicals, nuclear power Group, NEM, placed in operation a an option of gas purging through a center for processing of pump bodies, generation, etc. The facility plans to multifunctional CNC machining center molten metal. The new shot-blasting seal cases, impellers and bearing start its industrial use in 1H 2020. SKODA HCW 1. The center provides machine made by Tachtech (Czech) caps. Since the center was placed in with high precise complex machining with an overhead conveyor for the large operation, the labour intensity of details In 2019, Livnynasos was equipped of bodies and caps, pump cradles, and castings shorten finishing operations processing decreased by 16.2%, and with two new CNC horizontal lathe other pump parts and pieces. time by three times. the machining quality of pump parts machining centers PUMA 2600Y by significantly improved. DOOSAN, that allowed to reach the new A complex of four heat-treating level of precise and high-quality surface Colouring and Dyeing of metals furnaces with a total capacity up to Also, the facility placed in operation machining. These centers are utilized 90 tons was put into pilot operation a CNC lathe machining center PUMA for complex mechanical machining of NEM installed a spay booth with inside also. The heat-treating complex allows 2600B developed by DOOSAN as pump parts with simultaneous milling, dimensions 6990х4500х3000mm. heat treatment of castings, forgings, well. This high-performance and drilling and tapping, that significantly The booth is equipment with an assemblies and other large-sized parts multifunctional turning center is decreased labour intensity and intake-outtake air filtering system as with an in-process temperature range annual 2019 report –––> GROUP HMS intended for fine turning, milling, excluded additional movement of parts well as coloring & dying temperature from 550 to 1200°C. drilling and screwcutting of stainless, between drilling and milling machines. monitoring system. Due to the full tempered and heavy-duty materials. insulation of coloring and dying from The foundry complex is intended, Also, the next step in sophistication of other kinds of work, the facility reached primarily, for production of large-size Since placed in service, the labour the facility’s production process was the high quality of anti-corrosion castings and is capable of simultaneous intensity was down by 9.2%. the implementation of a CNC vertical coating. smelting up to 17 tons of liquid metal turning machine EMAG VL-2 (Germany) to produce high-quality steel castings intended for machining of space sleeves with weight up to 9 tons and cast iron of ECV 8 pumps. The utilization of castings with a weight up to 13 tons. the center improved preciseness and quality of parts, i.e. reliability of pump parts’ friction.

1 CNC – computer numerical control 48/ 49 overview markets – –> performance governance appendices

In 2019, HMS Group took part in the Awards “The most socially responsible company in the oil & gas industry of Russia” hold by the Ministry of Energy of Russian Federation. The goal of the Awards was to promote social policies of fuel-and-energy companies, identify and survey the corporate social most active socially responsible companies, which reached a high efficiency in accomplishment of social tasks, improvement of quality of employees’ work environment and life, and to popularize the oil and gas industry. responsibility HMS Group won in nominations “Interaction with professional education institutions. 10 to 100,000 work force company” and “Employees’ motivation and building their loyalty. Additional benefits granting to employees”.

primary areas of social policy safety and health

Social development policy Support and building heritage: Local life HMS Group believes that achieving We promote and encourage a healthy and providing adequate living its strategic goals and maintaining lifestyle, not only because it helps to standards and normal working and ‒ Honoring HMS’ veteran workers on HMS Group fully participates in the its competitive advantages requires maintain a productive and positive life conditions for HMS’ employees. Machine Builders Day ; local life of the regions where its systematic management of labor workplace, but also because it is ‒ Meetings with mentors; facilities operate: health protection and the prevention the right The company has developed and ‒ Professional skill competitions of industrial injury and professional thing to do. implemented collective agreements, among young workers; ‒ Taking part in local creativity illness. Production facilities introduce in-house policies and acts, which ‒ Honoring best workers; competitions, cultural, sport, charity modern methods of accident 3. Compliance of HMS’ reflect social welfare issues, benefits, ‒ Meetings of veteran workers (former and other events; prevention and maintain hygiene and activities in the area of compensations and guarantees employees) with the colleagues. ‒ Holding festivals; sanitary conditions, which prevent labor health protection granted to the employees, including: ‒ Helping schools, hospitals, childcare professional illnesses and ailments with the requirements centres and religious organisations. driven by workplace factors. and expectations of all ‒ Hardship-duty pays; interested parties, and ‒ Preservation of average earnings On this basis, the company set up four with rules and regulations, after transfer to easier work; main goals in the area of labor health established under ‒ Pecuniary aid in the event of the protection and accident prevention: legislation and normative worker’s death; technical documents: ‒ Pecuniary aid for medical treatment, 1. Prioritisation of its employees’ health and purchase of expensive and safety over business performance ‒ Regular examination pharmaceutical drugs; results and continuous improvement of industrial safety, and ‒ Bonus payments to veterans; of work conditions and labor health ‒ Regular training in the area ‒ Maternity coverage on monthly basis; protection at every working place. of industrial safety. ‒ Additional holidays in case of significant events, and for continuous 2. Significant decrease of risks of 4. Establishment of personal service with the company; industrial traumatism and professional responsibility by company employees –––> annual 2019 report –––> GROUP HMS ‒ Pecuniary aid to non-working illness of the company’s employees: of all levels for meeting all labour health veterans, including for public protection requirements accurately holidays; ‒ Regular medical examinations, and and in a timely manner. Also, HMS ‒ Events to support young people. availability of stationary medical and actively engages its employees while feldsher’s stations. developing in-house documentation, ‒ Issuance of free personal protective which determines the regulations of equipment, including work clothes, implementation and realisation of the safety shoes and other personal labor health safety system. safety apparel. The special commissions at HMS’ facilities analyse the given personal safety The company continues to sponsor one of its engineers, Mr. Nikolay Kuzovlev, the leading Russian apparel on a regular basis and athlete in Ice Climbing. In 2019, he clinched the Ice Climbing World Cup. examine novelty products, which appear on the market. ‒ Issuance of milk to employees with harmful working conditions, etc. 50/ 51 overview markets – –> performance governance appendices

/// corporate social responsibility 0.3 otal 2019 7.8 3.6 2.1 0.3 14,024

0 201 2 2 22 0 12 the environment 0 201 29 2 0 19 charity and social 0 In general, the environmental impact 201 2 2 0 1 assistance of our production facilities is low due to 1 the business specifics. Nevertheless, 201 9 19 2 0 19 The company believes in its Besides targeted aid to schools, the management and personnel responsibility for social and economic foster homes, indigenous of HMS Group fully recognise their 1 climate in regions where it operates, people and others, the Group responsibility to nature and to future 201 9 19 2 0 11 takes part in social projects and continues being one of the main generations. The company continues nutral pup ontruton orer programs, among other things on sponsors of The Tatarstan Judo to work on developing and selling l a eupent an proet anaeent opan a voluntary pro-bono basis. The Federation. energy-efficient products and service charity activities are realized in the solutions. Apart from that, HMS Group opreor otal form of public private partnership Every autumn, the festivals of set the following environmental goals, aiming sustainable development of professions are hold for 6-11 which are critical in the company’s view: the company and the region, where it class pupils in Russia’s regions. Average Headcount operates. These are the main events as ‒ Reducing emissions of harmful a part of the project “Ticket substances into the atmosphere; HMS Group focuses on helping children to the future”, and are hold by ‒ Abating waste water pollution; who are in need of medical treatment, the international organization, ‒ Improving waste management in the as well as children in need of social and WorldSkills International. area of reducing waste and curbing people professional assistance. These projects The “Ticket to the future” adverse environmental impact; are realised through: is the leading educational ‒ Developing and widely using As an employer of 14 thousand people, HMS Neftemash placed 1,216 platform in the form of waste-free technologies in industrial HMS is one of the major job creators employees for skills training and ‒ Social support and protection of professional tests, that processes; across the cities where its facilities are reskilling. 149 of them were placed citizens, including improvement unites pupils, industry ‒ Rational usage of raw materials, located. Employees are one of HMS for training under the “Workforce of the financial position of the experts, teachers and environmental items and energy; Group’s core assets, and the company productivity and employment support” indigenous peoples, social career-guidance specialists. ‒ Improving HMS’ image in this sphere. encourages them and assists them in federal program. 734 employees were assistance to the unemployed, the The workshop consists of achieving their full potential. placed for training as a part of the disabled and other disadvantaged several clusters: Health, Urban HMS Group’s facilities conducted internal technical instruction. groups who, due to their specific environment, IT, Novel materials, quarterly surveys of emission of harmful In 2019, HMS continued staff training physical or intellectual condition or Transport, Agriculture and substances into the atmosphere and and education, with a focus on the Sibneftemash placed 236 employees other circumstances, are unable to Power generation. The career- evaluations of the effectiveness of areas of accounting and functional for all kinds of trainings, including implement their legitimate rights and guidance is given in the form of dust and gas catchers. The company education. targeted skills improvement. 187 interests by themselves; practical training under tenure conducted an examination of emission employees were placed for training ‒ Promoting the prestige and the role of an experienced mentor. sources, revised a draft of maximum As part of the national project under the “Workforce productivity and of the family in society; permissible emissions, received “Workforce productivity and employment support” federal program. ‒ Promoting the protection of The employees of HMS Neftemash As a part of strategy to develop new permits for air emissions, and employment support”, KKM placed motherhood, fatherhood and participated as experts in this event the corporate culture and internal developed a set of actions to decrease 14 core operations executives for In 2019, the average headcount childhood. for the first time, and represented the communications, HMS Group hold a the level of pollutant emissions under a “Productivity leaders” training decreased by 503 people (-3.5% annual 2019 report –––> GROUP HMS facility in the cluster “Novel materials”. number of social events, such as the unfavourable weather conditions. For and 1 executive for “Export growth yoy) mainly due to the Industrial HMS Group forms the charity program They told pupils about modern Pancake Week, Victory day, New Year the last three years, no excess of the accelerator” training. Also, KKM took pumps personnel optimization and a based on an opinion of experts, technologies, used for production of celebration, volunteer clean-ups and maximum allowable pollutant emissions part in the federal project “The Older decrease in the Construction because heads of regional social agencies as metal work and steels test methods, environmental campaigns. has been discovered. generation”, and as part of this project of business downturn. Oil & gas well as selected fiduciary boards. which won’t fade in the future. Also, the placed 30 soon-to-retire employees equipment and projects grew because The company doesn’t make any experts demonstrated capabilities of On the yearly basis, HMS’ facilities hold The Group’s production facilities for skills training and additional of the asset, acquired at the beginning independent monitoring of social HMS Neftemash modern lab equipment. sporting competitions with participation conducted chemical and skills training. Also, the facility held of the year. situation in the presence regions. More than 400 pupils received the basic of all organization units in checkers, microbiological analyses of natural “Lean management” and “Effective skills of work with the lab equipment, kettlebell lifting, shooting, ski, biathlon, surface water and waste storm water on management of large projects” including operational principles of a running, and other kinds of sport. a quarterly basis, and spillover tracking trainings for top-management and core spectrometer. of storm water on a monthly basis. operations executives.

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corporate governance

56 Board of Directors 60 Risk Management & Internal Control 66 HMS Global Depository Receipts 70 Information for Shareholders and Disclaimer –––> annual 2019 report –––> GROUP HMS

54/ 55 overview markets performance – –> governance appendices board Executive Directors Non-executive Directors

Mr. Artem V. Molchanov Mr. Yury N. Skrynnik Mr. Ezio Vergani

Member of the Board of Directors, Member of the Board of Directors Member of the Board of Directors, Chair of directors Managing Director (CEO) of the Audit Committee Mr. Skrynnik was appointed as an As one of the founders of the Group, executive member of the Board of Mr. Vergani was appointed as an Good governance generates trust and engagement between a company and its stakeholders and contributes to Mr. Molchanov has held various Directors in October 2010. He is currently independent non-executive member of the company’s long-term success. Accountability, integrity, transparency, fairness, equity, sustainability and executive positions within the HMS the Head of the Compressor Business the Board of Directors in June 2018. ethics are all fundamental values of good governance. Group since its establishment in 1993. Unit, a position he has held since its Mr. Molchanov became the President establishment in 2012. Previously, Mr. Mr. Vergani is the owner and the President The Board of Directors of HMS Group is committed to the highest standards of corporate governance and of the HMS Group in 2008 and was Skrynnik held the position of Director of Asco Pompe, an Italian company which aims to ensure on an ongoing basis that the Company is a modern, transparent, competitive and sustainable appointed as an executive member of for Strategic Marketing. Prior to joining produces, distributes, supplies and organization. By adopting best practices in corporate governance and corporate administration, the Company the Board of Directors in October 2010. the HMS Group, he served as the integrates products and technological achieves a dynamic and effective communication between the Board, management and shareholders, leading Mr. Molchanov has more than 20 years Chief Representative of JSC “Sumy systems for fluid handling, monitoring to the successful implementation of its strategy. of industry experience. He graduated Frunze NPO” (Ukraine) in Russia from and water treatment. Prior to joining Asco from the Plekhanov Russian Academy of 1999 to 2008. Mr. Skrynnik worked as Pompe, from 1985 to 2008, Mr. Vergani The corporate affairs are governed by the memorandum and articles of association of the Company and Economics (currently Plekhanov Russian Director of the Innovative Technical was the CEO and major shareholder the provisions of applicable Cyprus law. Although the Company is not subject to any mandatory corporate University of Economics), where he Subdivision of “Machines, Equipment, of Finder Pompe, one of the European governance code in its home jurisdiction of Cyprus, nor required to observe the UK Corporate Governance gained a degree in industrial economics. Technologies, Products and Services” leading companies in the design and Code, it has implemented various corporate governance measures. These include the appointment of two Ltd. from 1992 to 1999. He served manufacture of engineered pumps and independent non-executive Directors to its Board of Directors and the establishment of an Audit Committee as a scientific research officer at the systems for oil & gas. Mr. Vergani has and a Remuneration Committee. Each of these Committees of the Board of Directors is chaired by an Mr. Kirill V. Molchanov Moscow Institute of Chemical Machinery received a Master’s degree in Mechanical independent, non-executive Director. Under the Cyprus Companies Law, the directors have to declare the (currently the Moscow State University Engineering from the Politecnico nature of their interest (either direct or indirect) in transactions at a meeting of the directors of the company. Member of the Board of Directors of Environmental Engineering) from 1986 University of Milan, Italy and the Executive Under the articles of association of the Company, directors have no right to vote on a matter in which they have to 1988. Mr. Skrynnik has more than Program Certificate of the Stanford an interest even if the director has disclosed any interests in the transaction. As one of the founders of the Group, Mr. 20 years of science and management Business School, Palo Alto, California, Molchanov has held various executive experience. He graduated from the USA. He has served as a Board member HMS Group continues to review its corporate governance policies in line with international best practice. positions within the HMS Group since its Sumy branch of the Kharkiv Polytechnic in Confindustria Lecco since 2014. establishment in 1993. Mr. Molchanov Institute with a degree in mechanical was appointed as an executive member engineering in 1983. He was awarded of the Board of Directors in October a PhD in engineering science from the Mr. Andreas S. Petrou 2010 and has served as Vice President Moscow Institute of Chemical Machinery performance of the HMS Group since 2008. Mr. (currently the Moscow State University of Member of the Board of Directors Molchanov has 20 years of industry Environmental Engineering) in 1988. Mr. General Overview Chairman experience. He graduated from the Skrynnik is the author of more than 50 Mr. Petrou was appointed as a Bauman Moscow Higher Technical scientific publications and creator of 20 non-executive member of the Board of As at 31 December 2019, the Board Mr. Nikolay N. Yamburenko Mr. Yamburenko previously held the School (currently the Bauman Moscow inventions. Directors in June 2010. From 1989 to comprised of nine (9) Directors: the position of Head of the Industrial Pumps State Technical University) with a degree 1998, Mr. Petrou served as a member annual 2019 report –––> GROUP HMS Group Chairman who was independent Chairman of the Board of Directors, Business Unit from 2005. Prior to joining in electromechanical engineering. He of the Board of The Cyprus Tourism on appointment, three (3) Executive Non-Executive Director, Chair of the the Group, Mr. Yamburenko was the graduated from the Judge Business Development Public Company Ltd, Directors and five (5) Non-executive Strategy and Investments Committee CEO of Livhydromash (HMS Pumps), School, University of Cambridge with an representing the interests of the Directors. During the year ending 31 which is now part of the Group. Mr. executive MBA degree. Government of the Republic of Cyprus. December 2019, Mr. Vyacheslav G. Mr. Yamburenko was appointed as Yamburenko has more than 30 years of From 1987 to 1990, Mr. Petrou served Tsoy was appointed as a Director of the a member of the Board of Directors industry experience. He graduated from as the General Secretary of Cyprus Company by the Board of Directors. in October 2010. He has been a the faculty of radio electronics of the Dairy Organisation. In 1986, Mr. Petrou non-executive member of the Board Moscow Aviation Institute named after established his own law firm. He is an of Directors since 10 July 2014, when S. Ordzhonikidze, where he gained a honours graduate of the Law School of he was appointed Chair of the Board of degree in radio electronics. Democrious University of Thrace. Mr. Directors. Petrou has been a member of the Cyprus Bar Association since 1985.

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The Audit Committee supervises, monitors, Remuneration Committee The Strategy and Investments and advises the Board of Directors on Committee is responsible for /// board of directors risk management, control systems, and General Overview considering, amongst other matters: the implementation of codes of conduct. The Audit Committee also supervises the The Remuneration Committee comprises ‒ strategic business combinations; Group’s submission of financial information four Directors and is expected to meet ‒ acquisitions, mergers, disposals Mr. Giorgio Veronesi Mr. Vyacheslav Tsoy the board and a number of other audit-related issues, at least once per year. Currently, the and similar strategic transactions and assesses the efficiency of the work of Remuneration Committee is chaired by involving the Company; and Member of the Board of Directors, Chair Member of the Board of Directors of directors the Chair of the Board of Directors. Mr. Giorgio Veronesi; its other members ‒ fundamental investments of the of the Remuneration Committee are Mr. Nikolay N. Yamburenko, Mr. Ezio Company. Mr. Tsoy was appointed as committees Activities in 2019 Vergani and Mr. Vladimir V. Lukyanenko. Mr. Veronesi was appointed as an Non-executive Member of the Board The Remuneration Committee is Activities in 2019 independent non-executive member of of Directors in April 2019. Currently In order to exercise proper oversight Two meetings of the Audit Committee were responsible for, amongst other matters, the Board of Directors in June 2018. he is General Director of “ITS” LLC, of risk and control and pursuant to held in 2019. The main issues that the Audit determining and reviewing the Group’s One meeting of the Strategy and a manufacturer of prefab modular authority granted under the Articles of Committee oversaw during the year were remuneration policies. The remuneration Investments Committee was held in He has graduated in Chemical equipment. Prior to joining “ITS” LLC Association, the Board has delegated the preliminary review of IFRS financial of independent Directors is a matter 2019. The main matter reviewed by the Engineering at the University of Padua, from 2006 to 2011, Mr. Tsoy served certain responsibilities to committees of statements, internal control and risk for the Chair of the Board of Directors Committee was the updated strategy Italy and has over 35 years of experience the position of analyst and deputy the Board. The principal committees are management (including the audit plan). and the Executive Directors. No and financial model of the Group. in the international engineering and director of capital markets at HMS the Audit Committee, the Remuneration Director or manager may be involved construction sector. Mr. Veronesi has Group. From 2003 to 2006 Mr. Tsoy Committee, and the Strategy and The Audit Committee also supervised the in any decisions regarding their own Directors’ Compensation held various senior positions at leading was the analyst at “Smith Barney”, Investments Committee. Each internal and external audit procedures, remuneration. engineering companies Foster Wheeler, private wealth management Company. Committee has its own internal terms of and the implementation of the annual The total compensation of the Chairman Tecnimont, Siirtec Nigi and Techint. Mr. Tsoy graduated with honors from reference which set forth its duties and tax strategy within the course of the Activities in 2019 of the Board was Euro 270,115 for the Drew University, New Jersey, USA with responsibilities, as well as qualifications year. The Audit Committee also made year ended 31 December 2019. He has been the Commercial Manager in a degree in Economics and Finance for Committee membership, procedures recommendations to the Board of Four meetings of the Remuneration Techint E&C since 2012. in 2003. for Committee member appointment Directors with regards to internal control Committee were held in 2019. The main The total compensation of the and removal, Committee structure and efficiency. matter reviewed by the Remuneration independent Directors, as set out in operations and reporting lines to the Committee was the development the Group’s consolidated statement of Mr. Vladimir V. Lukyanenko Board of Directors. A brief description of External Audit of Financial and further implementation of the profit or loss and other comprehensive principal activities the main activities of these Committees Statements Group’s updated Long-Term Incentive income, was Euro 260,000 for the year Member of the Board of Directors in 2019 is set out below. Program as well as the 2019 Program ended 31 December 2019. of the board of Every year the Company/Group appoints an targets and the list of participants. The Mr. Lukyanenko was appointed as a directors in 2019 Audit Committee external auditor who is responsible for the Remuneration Committee also adopted Diversity policy statement non-executive member of the Board auditing and inspection of the consolidated decisions and made recommendations of Directors in July 2016. He is also General Overview financial statements of the Company/Group to the Board of Directors regarding the The Company operates in accordance the member of the Remuneration The Board of Directors held four in compliance with IFRS. The external CEO’s contract with the fundamental principles of Committee, the Audit Committee and the meetings in 2019, all of which occurred As at 31 December 2019, the auditor also prepares reviews of the equality, diversity and non-discrimination Strategy and Investments Committee. in Cyprus. During the course of the year, Audit Committee comprises three consolidated interim financial information and the Charter of Fundamental Rights Currently he is the Director General the Board of Directors continued working independent Directors and is expected of the Company/Group in compliance with Strategy and Investments of the European Union. All career, of PROFITPROM LLC. From 2006 to on the development of the Company’s to meet two to four times per year. IFRS requirements. The external auditor Committee training and development opportunities 2008 Mr. Lukyanenko was the Vice- mid-term and long-term financial and Currently, the Audit Committee is chaired of the Company/Group is selected from are afforded on the basis of gender, President of Hydraulic Machines LLC. business strategy, including investment by Mr. Ezio Vergani; its other members leading audit firms after a thorough review General Overview religious and other possible forms From 2006 to 2008 Mr. Lukyanenko was plans, M&A activities, budgeting, are Mr. Giorgio Veronesi and Mr. Nikolay of their respective proposals. Following of equality. Decisions and policies in the Vice-President of the HMS Group. long-term incentive program for the N. Yamburenko. the review, the Audit Committee gives its The Strategy and Investments respect of remuneration and recognition He has served as the Chairman of the management of the Company and recommendations to the Board of Directors Committee comprises four directors, are similarly based on the principles annual 2019 report –––> GROUP HMS Supervisory Board of Sumy Frunze NPO general corporate development. The Audit Committee is responsible for regarding the candidacy of the external one of whom is independent. The of equality, merit and ability. In the PJSC (Ukraine) from 2003 until 2007. considering, amongst other matters: auditor and the level of the auditor’s Committee is expected to meet at least Board’s opinion, this approach, which He graduated from Moscow Chemical At its meetings, the Board of Directors compensation and advises the Board of once each year. Currently, the Strategy incorporates equality and diversity as Engineering Institute (currently Moscow also reviewed other issues connected ‒ the integrity of the Group’s financial Directors on other terms and conditions and Investments Committee is chaired qualitative measures, achieves its aims State University of Engineering Ecology) with the activities of the Company statements, including its annual and of the contract with the auditor. In 2019, by Mr. Vladimir V. Lukyanenko and the better than a formal diversity policy with a degree in machine building in that are within its remit, including the interim financial statements; based on the recommendation of the Audit other members are Mr. Giorgio Veronesi, focused on quantitative measures, and 1991. Mr. Lukyanenko has over 18 years approval of corporate reports. ‒ the effectiveness of the Group’s Committee, the Board of Directors selected Mr. Yury N. Skrynnik and Mr. Nikolay N. for this reason the Company does not of experience in the industry. internal controls and risk Deloitte (Cyprus) to conduct the audit of Yamburenko. have a formal diversity policy in place. management systems; the financial statements of the Company/ Nevertheless, the Board maintains a ‒ auditors’ reports on the Group; Group for the year ending 31 December regular review of this position. and the terms of appointment and 2018. Deloitte remains appointed for the remuneration of the auditors of the 2019 audit. Group.

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& internal control continuous improvement

Internal control and risk management HMS Group’s goal is to continuously key features of the monitoring is performed through internal improve its governance and risk internal control and external assurance providers, which management sub-systems. We assess include: the findings of audits and internal system over investigations and use them to revise our ‒ Financial statement audits performed internal processes and procedures. financial reporting by external auditors. Discussion by the Audit Committee of the results The key features of the risk management overview The Group uses a formal risk of the audit, including a review of the process include: management program across its financial performance, any changes HMS Group is exposed to various The overall objective of this system is to companies; there is an ongoing process to disclosure, a subsequent events ‒ The gathering and analysis of risks and uncertainties that may have obtain reasonable assurance that HMS’ for identifying, evaluating and managing review, important accounting matters information related to internal and undesirable financial or reputational goals and objectives will be achieved. the significant risks the company faces. and other internal control matters. external factors which can affect implications. A risk management Risks are classified according to their ‒ Review and formal approval of the the achievement of the Group’s and internal control system has been The main principle in the design and likelihood and significance; different financial results by the CEO, CFO, objectives; integrated into the Group’s operations in maintenance of such systems is that the strategies are used to manage identified Audit Committee and the Board. ‒ Identifying the possible negative order to minimise the negative impact of expected benefits should outweigh the risks. This process is regularly reviewed ‒ Board and sub-committee approval impact of various events on such risks and to benefit from available associated costs. by the Board in accordance with and monitoring of operating, financial operational and financial results in

risk management opportunities. applicable guidance. and other plans. accordance with applicable risk- ‒ Consolidation and verification of assessment methods; The Board is responsible for the Group’s correct identification and proper ‒ Setting appropriate risk-tolerance system of internal control and for assessment of critical business levels; /// system of internal control reviewing its effectiveness. This system risks. The Audit Committee reviews ‒ Ranking risks according to their is designed to manage rather than changes to the risk profiles together significance and probability; eliminate the risk of failure to achieve with progress on actions for key risks ‒ Making appropriate decisions to ettn o rappette business objectives and can only provide on a regular basis. manage identified risks; oert reasonable and not absolute assurance ‒ Internal audit function. The Head ‒ Actively monitoring the steps taken against material misstatement or loss. of Internal Audit functionally to control the most significant risks. reports to the Audit Committee and annual 2019 report –––> GROUP HMS administratively to the First Deputy CEO. The internal audit department pleentaton performs its activities in accordance an oert with an audit plan and incorporates review of material controls, including financial, compliance and operational controls. The results of each audit ol pleentaton are discussed in detail with the an entaton peratonal nternal companies and business units anaeent aut concerned and action plans are proeent agreed upon.

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/// risk management and internal control Sanctions against the corporate sector Management of legal risks is based on (finance, defense, oil and gas industries) project execution their quality (expert) assessment and would create the most serious risks risks directed to their identification, monitoring for Russia’s economics and financial of risk factors, as well as their mitigation. system. Tighter and broader restrictions concerning both the use of equipment Since HMS’ contracts are typically HMS Legal department uses the and/or software and financial operations on a fixed-price basis, there are risks following basic strategy of risks /// categories of the risks could lead to a heavy disturbance on associated with cost overruns (especially management: the markets. The capacity to develop in large integrated projects). The Group RUB mn Enhancing Driving Generating Maximising Securing Securing new fields could also be constrained by seeks to mitigate these risks through its ‒ Legal risks are verified at the stage margins growth cash returns customers longterm sanctions; in the longer term, as existing efforts to improve profitability and cost of contracts’ preliminary qualification suppliers fields run out, the country may find it control, in part relying on volume growth and vetting as well as their further Global politician and economic risks     hard to maintain the current level of crude and an increasing share of high-margin support; output and gas production. integrated solutions services. ‒ Regarding risks (a)-(c): contracts Sales     execution security to guarantee Project execution risks       In 2019, Ukraine and Russia widened adequate sources of costs the range of sanctions imposed on contract covering in the case of contracts Human Capital     each other. In March 2019, Ukraine nonfulfillment is maintained through: broadened sanctions against 294 execution risks Acquisitions and disposals     Russian companies and 848 citizens. ‒ Usage of different kinds of Fraud and corruption risks       In response, in addition to individual HMS Group performs a systematic work collateral and non-material sanctions against certain companies to manage legal risks through their securities provided by a Technology  and Ukrainian citizens, Russia widened identification, and prevention of reasons counterparty when entering Legislation and regulations     the list of goods restricted of import in and conditions when they arise at the into an agreement in the form of Russia from Ukraine, including starch, pre-contractual stage as well as at the independent guarantees (banking,      Product liability and litigation fruit-sugar, certain medical equipment, stages of contracts execution and legal corporate) for advance payments/ Financial risks     heaters, central heating boilers and proceedings. contract performance, third-party certain machine-building products. guarantees, collateral and others; Risks formation in 2018 was ‒ Withholding of an advance In some instances, this could have an stipulated by a number of reason both payment till the provision of a adverse, material effect on the company’s macroeconomic and contractual related security; if it is not provided, then financial position and prospects. to a number of projects executed by the payment after delivery; principal risks global political and company. ‒ Management of the contract and uncertainties economic risks commitments chain “client - sales Main legal risks which arise at the producer”, which assures the stage of contracts execution, contracts receipt of the payment at the time The table below shows the relationship The Group may be exposed to various The introduction of new regulations or The Group’s business depends on signing: of cash flow passing between the main categories of the risks political, economic and other risks the imposition of trade barriers or a new the levels of capital investment and we encounter and how they affect our not only in the countries where it has round of sanctions against Russia could maintenance expenditures by the Group’s a. Risk of nonfulfillment of a contract ‒ Regarding (d) risks: control and strategy. primary production facilities (Russia, disrupt the Group’s business activities or customers, which in turn are affected by by a client (in whole or in part); organization of the work to fix legally Ukraine, Belarus, Germany) but also in impact the Group’s customers, suppliers numerous factors, including the state b. Risk of nonfulfillment of their important facts and circumstances Below is the summary of the principal jurisdictions, where the company has or other parties with whom it does of the Russian economy and that of liabilities by third parties (sub-tiers), through putting together evidential risks facing the Group’s business. HMS other interests (e.g. EPC projects in the business, though amid fairly high crude other nations, fluctuations in the price responsible for delivery (production) documentation (letter, acts, annual 2019 report –––> GROUP HMS also faces other risks both known and Middle East and Central Asia). oil prices the influence of these actions of oil, taxation of the Russian oil and gas of a product’s components; protocols, etc.), identified factors unknown; some of them apply to similar could be smoothed out. industry, availability and cost of financing, c. Risk of “a mediator” insolvency of contractual nonfulfillment (a companies operating in both the Russian Starting in 2014, sanctions have been and state investment and other support (failure to generate a cash flow customer’s fault), with subsequent and international markets. imposed in several packages by the US We consider the additional imposition of for the Group’s customers and for state- in a settlements’ chain “client claims settlement by signing and the EU on certain Russian officials, targeted personal sanctions to be most sponsored infrastructure projects. – producer”) amendments to the contract; businessmen and companies. The probable. They alone will hardly create d. Risk of penalty claims for the breach ‒ Regarding (e) risks: monitoring above-mentioned events have led to systemic risks and financial stability risks. The Group’s business depends on being of the contract; of changes and control of deals reduced access of Russia’s businesses Such measures could return certain awarded contracts and on the renewal e. Default risk (including, as a result of compliance with the current to international capital markets. The private capital to Russia and put some and extension of existing contracts; sanctions and/or other enforcement legislation of the Russian Federation; impact of further economic and political pressure on the Russian ruble amid moreover, the Group relies on a limited actions from state services); developments on future operations and relatively high oil prices. number of key customers and contracts f. Piracy risks the Group’s financial position might be and may incur losses due to unfavourable significant. terms of contracts with certain large customers. 62/ 63 overview markets performance – –> governance appendices

/// risk management and internal control

‒ Regards (f) risks: processing of Loss of key R&D employees (talents Tightening of anti-corruption control Moreover, the company has planned patent search, due diligence, and with high potential and unique over government-owned corporations legislation and other long-term measures which financial risk record-keeping of intellectual activity R&D knowledge) can reduce the (Gazprom: the Ashurkovs’ case, arrests regulations will mitigate the risk of information results. organisation’s productivity. Moreover on corruption charge of a number of security breaches: development of an HMS Group doesn’t use financial In case when risks occur at the trial level, the replacements can cost the executives of daughter enterprises of Laws and regulations affecting Information Security Policy, perimeter instruments for hedging or other risk standard legal procedures and collected Company long time. The Group uses Rosneft and Gazprom) can affect a businesses in Russia continue to change protection, segmentation of the network, management, so the company is not documentation, which proves the counter proactive approach to avoid unwanted pattern of interaction of HMS Group with rapidly. Tax and regulatory frameworks TDS/IPS, two-factor authentication, etc. exposed to such kind of risks, including nonfulfillment by the client, perspectively resignations. The Group increasing its its largest Russian customers in mutual are subject to varying interpretations. price and liquidity risks. deliver success of the trial (complete or focus on approaching and retaining trust and confidence. The future economic direction of the In 2019, in accordance with the partial rejection of the suit, or significant the right talents, using a tailored mix of Russian Federation is heavily influenced developed strategy, HMS Group lowering of penal sanctions) financial and non-financial incentives. Tightening of anti-corruption control by the fiscal and monetary policies completed the implementation of a credit and over state authorities (arrests and cases adopted by the government, together series of technical and administrative against ministers, governors and other with developments in the legal, regulatory measures to further mitigate the above liquidity risks human capital mergers & state officials), often accompanied and political environment. Recent Russian mentioned risks, i.e.: by media publications with political government initiatives which are currently In 2019, the company continued work The ability to achieve the Group’s acquisitions complexion, can affect mutual trust and under consideration are likely to include, ‒ The brand new Information Security with its debt portfolio. As a result, HMS strategic goals highly depends on our confidence between business and state inter alia, significant amendments to tax department has been established. smoothed its repayment schedule with most important asset — our people. We During the whole period of its operation, authorities as well. law governing operations with entities ‒ A number of hardware and software the major repayments of Rub 6.0 billion develop and remunerate our employees the Group has completed a number of incorporated in offshore jurisdictions. As solutions against malicious falling in 2021. At 2019-end, HMS Group using leading HR practices. In line with acquisitions targeting the key players HMS Group promotes ethical behaviour a company with a majority of its operating code, alongside with elaborated had Rub 3.5 billion repayments falling in Group’s growth strategy, we aim to attract in the markets of industrial pumps, among its employees and maintains assets located in Russia, HMS Group monitoring tools has been deployed, 2020, where Rub 3 billion was in the form talented employees from the market and compressors, modular oil & gas dedicated violation reporting channels to recognises that these developments namely: of corporate bonds. In 4Q 2019, HMS continuously improve our recruitment equipment and EPC-contracts. raise concerns within the Group through may have significant implications for Group attracted Rub 3 billion bank credit methods. an ethics hotline available 24/7. The its business and development plans. ‒ perimeter firewall and threat from VTB Bank that was deposited for Taking into account the economic slow- Group’s internal audit and/or security HMS Group continues to monitor these emulation appliances, endpoint bonds redemption in February 2020. The success of the Group’s businesses down and high uncertainties, insufficient department perform investigations developments. software anti-virus agent from depends heavily on the continued demand in many segments that makes into alleged fraud and misconduct. Checkpoint; At the end of 2019, the Group service of its key senior managers. These it difficult to evaluate potential synergies If necessary, the results of such ‒ threat emulation and intrusion accumulated Rub 10.0 billion of available individuals possess industry-specific from M&A, the Group does not consider investigations are provided to the CEO, information detection appliances from cash. Considering all the above factors, skills in the areas of sales and marketing, any material acquisitions in the nearest the Board, the management and the Group IB; HMS considers its exposure to credit and engineering and manufacturing that are future, so this risk as immaterial. Audit Committee, as necessary. technologies ‒ security information and event liquidity risks as immaterial. critical to the growth and operation of management solution from IBM. the Group’s businesses. While the Group As the Group operates in a number of There are several significant risks in IT has entered into employment contracts fraud and jurisdictions around the world, the Board that can affect the company, including ‒ Further hardened regulations for the with its senior managers, the retention of and senior management also put a strong cyber security and incident response privileged user accounts have been their services cannot be guaranteed. The corruption risks emphasis on corporate compliance with risk, IT resiliency and continuity risk, data developed and implemented. Group is not insured against damages applicable regulation, including anti- management risk, technology operations that may be incurred in the case of loss Fraud and corruption are pervasive and bribery and anti-corruption legislation, risk, etc. HMS Group believes that today or dismissal of its key specialists or inherent risks of all business operations. such as the UK Bribery Act. the main risks for the company are the foreign exchange annual 2019 report –––> GROUP HMS managers. Moreover, the Group may There is always some potential for fraud following – the risk of data loss, the risk of be unable to attract and retain qualified and other dishonest activity at all levels The Group has implemented procedures a computer virus epidemic or a large- risk personnel to succeed such managers. of a business, from that of a factory to ensure that all employees are aware scale (purposeless) hacking, and the risk If the Group suffers an extended worker to senior management. Efficient of the requirements of the Group’s of a special virus attack intended to pilfer The Group has no material foreign interruption in its services due to the operations and optimal use of resources anti-corruption policies, with a particular information undetected. exchange mismatch. The company loss of one or more such managers, its depends on our ability to prevent focus on those roles most exposed to the operates primarily in Russia, with the business, financial condition, results of occurrences of fraud and corruption at risk of breach. HMS Group has developed a company- majority of its revenue generated operations, prospects may be adversely all levels within the Group. wide information security (IS) strategy in Russian rubles. Operating costs are and materially affected. and a road-map based on the audit also mainly Russian ruble denominated results. The action plan was in 2018-2019, and 98 percent of debt is also including the creation of an Information in Russian rubles. Security department.

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HMS global depository long term incentive plan credit ratings

As a result of the Conversion, HMS In May, 2019, the Group‘s Executive Fitch Ratings Expert RA Holding retains full control over the Directors and PDMRs listed below receipts As a result of this restructuring: majority shareholding in the Company acquired an interest over the B+ / Stable ruA / Negative being a direct holder of 71.51% of the Company’s Global depositary receipts ‒ a. HMS Holding became a direct Company’s issued share capital, and, following the grant of awards under the 22 Feb 2017 / 11 July 2017 / holder of 69,159,421 ordinary shares consequently, the Conversion neither Company’s Long Term Incentive Plan 30 July 2019 5 August 2019 in the Company and 2,924,207 triggers an obligation of the Company (“LTIP”) for the 2016 award year. The GDRs comprising in aggregate or HMS Holding to make any mandatory awards were part of a grant of GDRs shareholding According to the terms of the amended 71.51% of the Company’s issued offer to the GDR holders, nor lead to any to seventeen Company’s managers deposit agreement with BNY Mellon, the share capital; and change in corporate governance of the as a Motivational Package for the As of December 31, 2019, HMS annual depositary fee decreased to US$ ‒ b. HMST remains the sole voting Company. 2016 Award year under the Long-term Hydraulic Machines & Systems Group 0.01 per “new” GDR. shareholder of HMS Holding Incentive Program. The total amount of Plc had an issued share capital of Euro retaining control over the majority The issued number of ordinary shares GDRs paid to the LTIP participants was 1,171,634.27 divided into 117,163,427 In March, 2019, the major shareholder shareholding in the Company, and their nominal value remained equal to 1.77 percent of the Company’s ordinary shares with par value of Euro of HMS Group, H.M.S. Technologies and consequently none of the unchanged. Currently there are issued share capital. 0.01 per share, and these shares are Limited (“HMST”) registered at Cyprus, transactions made as a part of the 6,676,592 depositary receipts not traded. transferred its entire shareholding in the restructuring triggers an obligation outstanding in the GDR program. Company to JSC HMS Holding (“HMS of the Company, HMST or HMS In February 2011, the company signed Holding”), registered at Russia, the Holding to make any mandatory a depositary agreement with The Bank subsidiary undertaking of HMST, via the offer to the GDR holders. of New York Mellon (BNY Mellon), under following transactions: 00 900 which the issue of Global Depositary This restructuring of the core

‒ 00 receipts (GDRs) for HMS Group shares a. HMST transferred 67,159,421 shareholders’ shareholding in the 00 was initiated. The total number of GDRs ordinary shares in the Company Company did not lead to any change 00 issued in exchange for shares of HMS (comprising 57.32% of the Company’s in corporate governance or corporate 00 Group amounted to 48,004,000 GDRs issued share capital) to HMS Holding control of the Company. All applicable

00 or approximately 41% of the Company’s in the form of the shareholder’s asset regulatory approvals have been obtained 00 t

issued share capital. contribution for nil consideration; in connection with this restructuring. 00 e ‒ a b. HMST transferred 2,924,207

00 r t r

e p o

Since February 8, 2016, the ratio of the global depositary receipts issued Then in December, 2019, the new major 00

e –––> annual 2019 report –––> GROUP HMS e company’s GDRs program was changed: under the Company’s depositary shareholder of HMS Group, JSC HMS r 00 u l

00 o receipts program (“GDRs”) Holding completed the process of

Old ratio: 1 GDR equals 1 Ordinary share (representing 14,621,035 shares in cancellation (disposal by HMS Holding) 200 New ratio: 1 GDR equals 5 Ordinary the Company and comprising 12.28% of 2,924,207 global depositary receipts 200 shares of the Company’s issued share issued under the Company’s depositary 100 100 capital) to HMS Holding in exchange receipts program representing

For every 5 GDRs held, holders received 1 for additionally issued shares in HMS 14,621,035 shares in the Company 000 0 “new” GDR in return. The issued number Holding. and withdrawal of (acquisition by HMS 02012019 02022019 0202019 0202019 0202019 0202019 0202019 0202019 02092019 02102019 02112019 02122019 of ordinary shares and their nominal Holding of) the Underlying Shares from olue o trae t re per 1 value remained unchanged. After the the depositary (the Bank of New York ratio change, there were 9,600,800 Mellon) in the name of HMS Holding (the depositary receipts outstanding in the “Conversion”). GDR program. GDR performance and volume of trades in 2019, the London Stock Exchange

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/// HMS global depository receipts dividends

In 2016, the HMS Board of /// price of HMS Group’s GDRs Directors approved an updated /// history of dividend payments Dividend Policy reflecting the Min, US$ Max, US$ GDR price at the end of the Market capitalization at the Group’s strategy to maximize Period Dividend Dividend Amount Record Date Payment Date period, US$ end of the period, US$ mn shareholder returns. As a general per share, per GDR, announced, Rub Rub Rub mn 2011 19.90 41.21 22.05 516.69 rule, the company targets to pay our total dividends for a given 2013 FY 3.41 3.41 399.5 10 Jun 2014 27 Jun 2014 2012 19.50 29.90 21.10 494.43 reporting period in the region of 2015 9m (interim) 3.25 3.25 380.8 14 Dec 2015 30 Dec 2015 2013 10.50 21.15 12.50 292.91 50% of the “Profit attributable to Shareholders of the Company” 2015 FY (final) 5.12 25.60 599.9 03 Jun 2016 21 Jun 2016 2014 1.30 12.50 1.30 30.46 for the year, as set out in its IFRS 2016 9m (interim) 3.41 17.05 399.5 12 Jan 2017 26 Jan 2017 2015 1.30 4.50 2.76 64.67 Consolidated Financial Statements, subject to capital constraints such 2016 FY (final) 5.12 25.60 600.0 09 Jun 2017 27 Jun 2017 2016 2.05 8.01 7.46 174.81 as Debt and Liquidity position and 2017 9m (interim) 5.12 25.60 600.0 12 Jan 2018 26 Jan 20108 2017 7.46 9.80 9.80 229.64 forecast. HMS also plans to pay out dividends basically twice a year 2017 FY (final) 6.83 34.15 800.2 15 Jun 2018 03 July 2018 2018 6.60 11.30 7.00 164.03 (interim and final). Dividends are 2017 FY total 11.95 59.75 1,400.2 2019 4.10 7.50 4.60 107.79 announced per 1 ordinary share. 2018 9m (interim) 3.84 19.20 450.0 11 Jan 2019 25 Jan 2019 1Q 2019 6.50 7.50 155.83 For the period ended in 2018, 2018 FY (final) 5.97 29.85 699.5 14 Jun 2019 01 Jul 2019 2Q 2019 5.45 6.55 132.39 HMS Group paid Rub 9.81 total dividends per 1 ordinary share 2018 FY total 9.81 49.05 1,149.5 3Q 2019 4.20 5.75 105.92 (Rub 49.05 per 1 GDR). 4Q 2019 4.10 4.60 107.79

buyback In 2016, the company increased the The Buyback program will end as maximum number of GDRs, which could soon as the total amount of acquired program be repurchased, to 6% of the subscribed securities has reached the maximum capital of HMS Group. As of today, HMS amount specified (1,405,961 GDRs) or, HMS Group started its buyback has repurchased 1,204,282 GDRs since if earlier, in June 2020. program in 2012. The company the start of the program. management oln planned to invest in repurchase reeloat purchases of GDRs up to $ 25 million. The oter oler o main objectives of the program’s Within 2019 year, Directors/PDMRs of anaer an peron implementation were an intention HMS Group acquired the company’s loel aoate to maximize shareholder value as /// HMS Group Plc GDRs 15,475 GDRs on the open market, t anaeent well as a reduction of the effect of using their own funds. reaur external shocks on GDR’s price. Ticker

HMSG annual 2019 report –––> GROUP HMS

The Company’ shares are now held Buyback period is 1 year, and the CUSIP RegS: 40425X407 144A: 40425X308 Shareholders by JSC HMS Holding, though HMS renewal of the program should be LEI 254900DDFETNLASV8M53 Technologies remains the ultimate by legal entities, anaer an peron approved by the Annual General Exchange London Stock Exchange controlling parent as the sole 31.12.2019 ––> % loel aoate Meeting of Shareholders. shareholder of JSC HMS Holding. t anaeent ISIN RegS: US40425X4079 144A: US40425X3089 lar uaneno In 2015, the company approved new conditions of the program: Ratio, GDR : ordinary shares 1:5 eran o the maximum number of GDRs, Local exchange reeloat Not traded which could be repurchased, was oter oler o Underlying ISIN increased to 5% of the subscribed CY0104230913 reaur capital of HMS Group, including Underlying CFI ESVUFR previously acquired and held in the Depositary bank BNY Melon Shareholding by holders form of treasury shares. (effective share) ––> % 68/ 69 overview markets performance – –> governance appendices

GDRs of HMS Hydraulic Machines & Systems Group Plc are traded on the London Stock Exchange under ticker HMSG. information The Company’ shares are now held by JSC HMS Holding, though HMS Technologies remains the ultimate controlling parent for shareholders as the sole shareholder of JSC HMS Holding.

global depositary receipts disclaimer and disclaimer shareholders’ contacts: This document contains forward-looking statements that reflect management’s current views with respect to future events. Contacts for inquiries regarding: Such statements are subject to risks and uncertainties ‒ advise of a change of name and/or address that are beyond HMS Group’s ability to control or estimate GENERAL INFORMATION ‒ report lost/stolen GDR share certificates or the precisely, such as future market and economic conditions, Company Name HMS HYDRAULIC MACHINES & SYSTEMS GROUP PLC non-receipt of a dividend check the behavior of other market participants, the ability to ‒ request an election form for the scrip dividend program successfully integrate acquired businesses and achieve Company Type Public ‒ request forms to transfer GDRs anticipated synergies and the actions of government Fiscal Year-End December 31 ‒ report the death of a registered holder of GDR shares regulators. If any of these or other risks and uncertainties ‒ request a duplicate account statement occur, or if the assumptions underlying any of these Disclosure The London Stock Exchange ‒ have dividends electronically deposited to your bank statements prove incorrect, then actual results may be Managing Director (CEO) Artem Molchanov account materially different from those expressed or implied by ‒ consolidate similar account registrations such statements. HMS Group does not intend or assume First Deputy CEO (CFO) Kirill Molchanov ‒ request general information about your shareholder any obligation to update any forward-looking statements Ticker HMSG account, etc. to reflect events or circumstances after the date of these materials. CUSIP RegS: 40425X407 144A: 40425X308 The Bank of New York Mellon This annual report does not constitute an invitation to LEI 254900DDFETNLASV8M53 BNY Mellon Shareowner Services invest in HMS Group GDRs. Any decisions you make in Exchange London Stock Exchange PO Box 358516 reliance on this information are solely your responsibility. Pittsburgh, PA 15252-8516 The information is given as of the dates specified, and we 132.39 USA undertake no obligation to update it save as required by ISIN RegS: US40425X4079 Tel: +1 888 737 2377 (USA only) applicable law. HMS Group accepts no responsibility for any 144A: US40425X3089 Tel: +1 201 680 6825 (International) information on other websites that may be accessed from Email: [email protected] the company’s website by hyperlinks. Ratio, GDR:ordinary shares 1:5 Website: www.bnymellon.com annual 2019 report –––> GROUP HMS Local exchange Not traded Underlying ISIN CY0104230913 General Shareholder enquiries Underlying CFI ESVUFR and Investor Relations contacts Depositary bank BNY Melon HMS Group Investor Relations 7 Chayanova str. 125047 Moscow, Russia Tel: +7 495 730 6601 Fax: +7 495 730 6602 Email: [email protected]

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appendices –––> annual 2019 report –––> GROUP HMS

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Management of the Group assesses the performance of operating segments based on a measure of adjusted EBITDA, which is derived from the consolidated financial vocabulary, statements prepared in accordance with IFRS calculations and formulas /// abbreviations & contractions red.

API American Petroleum Institute EBITDA is defined as operating profit/loss from continuing operations /// units adjusted for other operating income/expenses, depreciation and Bank of Russia Central Bank of the Russian Federation, cbr.ru of measurement amortisation, impairment of assets, excess of fair value of net assets BIM Building Information Modelling acquired over the cost of acquisition, defined benefits scheme expense and provisions (including provision for obsolete inventory, provision BM Binary mixture red. for impairment of accounts receivable, unused vacation allowance, CAGR Compound annual growth rate, is the mean annual growth rate of an investment over a specified bcm Billion cubic meters warranty provision, provision for legal claims, tax provision and other period of time longer than one year provisions). This measurement basis, therefore, excludes the effects of bcma Billion cubic meters per annum CIS, the Commonwealth of Independent States a number of non-recurring income and expenses on the results of the bn Billion operating segments Chg Change cub.m. Cubic meter GDP Gross Domestic Product EBIT is calculated as Gross profit minus Distribution & transportation cmpa Cubic meter per annum expenses minus General & administrative expenses minus Other GDR Global depositary receipt operating expenses km kilometer GTNG Giprotyumenneftegaz

kW Kilowatt Total debt is calculated as Long-term borrowings plus Short-term ERP Enterprise Restructuring Project M Meter borrowings EU European Union

m3 Cubic meter Net debt is calculated as Total debt minus Cash & cash equivalents at EUR Euro mn Million the end of the period KKM Kazankompressormash

MPa Megapascal, a unit of pressure ROCE is calculated as EBIT LTM divided by Average Capital Employed KMPO Kazan Motor-Building Production Association (KMPO JSC) measurement (Total debt + Total equity) LNG Liquefied natural gas Mt Millions of tonnes ROE is calculated as Total equity period average divided by Profit for the LSE London Stock Exchange annual 2019 report –––> GROUP HMS MW Megawatt period NEM Nasosenergomash Nm3/Hour Normal cubic metre per hour OGEP Oil and gas engineering and projects business segment Operating profit adj. & Profit for the year adj. are deferred as adjusted by Rub/RUB Russian ruble impairment of PPE, investment property and goodwill OPEC Organization of the Petroleum Exporting Countries Scm3/hour Standard cubic meters per hour R&D Research and development Working capital is calculated as Inventories plus Trade and other t Ton / tonne receivables, excluding Short-term loans issued, Bank deposits and yoy Year-on-year tcm Trillion cubic meters Promissory notes receivable, plus Current income tax receivable minus Trade and other payables minus Short-term provisions for liabilities and US$ US Dollar charges minus Current income tax payable minus Other taxes payable

Capex = Organic capex = Purchase of PPE + Purchase of intangible assets 74/ 75