hms hydraulic machines & systems group plc …grouphms.com/files/hms_plc_cfss_6m2015_eng.pdf ·...

HMS Hydraulic Machines & Systems Group plc Consolidated Condensed Interim Financial Information (unaudited) 30 June 2015

Contents Independent Auditor’s report on Review of consolidated condensed interim financial information .......... 1 Consolidated Condensed Interim Statement of Financial Position ........................................................... 3 Consolidated Condensed Interim Statement of Profit or Loss and Other Comprehensive Income .......... 4 Consolidated Condensed Interim Statement of Cash Flows .................................................................... 5 Consolidated Condensed Interim Statement of Changes in Equity .......................................................... 6 Notes to the Consolidated Condensed Interim Financial Information 1 General Information ........................................................................................................................ 7 2 Basis of Preparation ........................................................................................................................ 7 3 Operating Environment of the Group .............................................................................................. 7 4 Accounting Policies and Critical Accounting Estimates and Judgments ........................................ 8 5 Property, Plant and Equipment .....................................................................................................10 6 Other Intangible Assets .................................................................................................................11 7 Goodwill.........................................................................................................................................12 8 Cash and Cash Equivalents ..........................................................................................................12 9 Inventories .....................................................................................................................................12 10 Trade and Other Receivables and Other Financial Assets ...........................................................13 11 Investment Property ......................................................................................................................13 12 Borrowings ....................................................................................................................................14 13 Retirement Benefit Obligations .....................................................................................................15 14 Construction Contracts ..................................................................................................................15 15 Trade and Other Payables ............................................................................................................16 16 Other Taxes Payable ....................................................................................................................16 17 Other Long-term Payables ............................................................................................................16 18 Provisions for Liabilities and Charges ...........................................................................................17 19 Earnings per Share .......................................................................................................................17 20 Income Taxes ................................................................................................................................17 21 Revenue ........................................................................................................................................18 22 Cost of Sales .................................................................................................................................18 23 Distribution and Transportation Expenses ....................................................................................18 24 General and Administrative Expenses ..........................................................................................19 25 Other Operating Expenses, net ....................................................................................................19 26 Finance Income .............................................................................................................................19 27 Finance Costs ...............................................................................................................................19 28 Balances and Transactions with Related Parties..........................................................................20 29 Contingencies and Commitments .................................................................................................21 30 Segment Information .....................................................................................................................21 31 Fair Value of Financial Instruments ..............................................................................................24 32 Subsequent Events .......................................................................................................................25

HMS Hydraulic Machines & Systems Group plc Consolidated Condensed Interim Statement of Profit or Loss and Other Comprehensive Income for the six months ended 30 June 2015 (unaudited) (in thousands of Russian Roubles, unless otherwise stated)

______________________________________________________________________________________

The accompanying notes on pages 7 to 25 are an integral part of this consolidated condensed interim financial information.

4

Note

Six months ended

30 June 2015

Six months ended

30 June 2014

Revenue 21 16,588,722 12,841,772 Cost of sales 22 (11,554,155) (9,609,023)

Gross profit 5,034,567 3,232,749 Distribution and transportation expenses 23 (622,986) (618,962) General and administrative expenses 24 (1,990,279) (1,938,565) Other operating expenses, net 25 (86,103) (38,745)

Operating profit 2,335,199 636,477 Finance income 26 102,766 102,072 Finance costs 27 (926,214) (886,189) Share of results of associates (172) (242)

Profit/(loss) before income tax 1,511,579 (147,882)

Income tax expense 20 (410,334) (87,535)

Profit/(loss) for the period 1,101,245 (235,417)

Profit/(loss) attributable to: Shareholders of the Company 1,152,726 (222,000) Non-controlling interests (51,481) (13,417)

Profit/(loss) for the period 1,101,245 (235,417)

Other comprehensive loss: Items that will not be reclassified to profit or loss Remeasurement of post-employment benefit obligations

(39,644) (3,119)

Items that may be reclassified subsequently to profit or loss Currency translation differences (875,072) (645,854) Currency translation differences of associates (19,578) (24,391)

Other comprehensive loss for the period, net of tax (934,294) (673,364)

Total comprehensive income/(loss) for the period 166,951 (908,781)

Total comprehensive income/(loss) attributable to: Shareholders of the Company 353,694 (794,877) Non-controlling interests (186,743) (113,904)

Total comprehensive income/(loss) for the period 166,951 (908,781)

Basic and diluted earnings/(loss) per ordinary share for profit/(loss) attributable to the ordinary shareholders (RR per share)

19 9.99 (1.92)

HMS Hydraulic Machines & Systems Group plc Consolidated Condensed Interim Statement of Cash Flows for the six months ended 30 June 2015 (unaudited) (in thousands of Russian Roubles, unless otherwise stated)

The accompanying notes on pages 7 to 25 are an integral part of this consolidated condensed interim financial information.

5

Note Six months ended

30 June 2015 Six months ended

30 June 2014

Cash flows from operating activities

Profit/(loss) before income tax 1,511,579 (147,882)

Adjustments for: Depreciation and amortisation 744,697 724,269 Loss from disposal of property, plant and equipment and intangible assets 25 2,951 4,978 Finance income 26 (102,766) (102,072) Finance costs 27 926,214 886,189 Change in retirement benefits obligations 13 47,596 9,841 Change in warranty provision 22 44,025 (522) Impairment of property, plant and equipment charge and reversal, net 25 31,534 (3,229) Change in provision for tax risks 24 - 26,884 (Gain)/loss on revaluation of redemption liability 25 (10,553) 5,470 Change in provision for impairment of trade and other receivables and other financial assets 24 7,007 38,960 Change in provision for obsolete inventories 22 (4,687) 56,148 Foreign exchange gain, net 25 (61,017) (111,105) Change in provision for legal claims 25 17,192 (41,175) Share of results of associates 172 242 Net monetary effect on non-operating items - (23,776)

Operating cash flows before working capital changes 3,153,944 1,323,220

Increase in inventories (1,440,682) (937,539) Increase in trade and other receivables (216,198) (419,232) Decrease in other taxes payable (482,043) (346,201) (Decrease)/increase in accounts payable and accrued liabilities (1,437,754) 991,830

Cash (used in)/from operations (422,733) 612,078

Income tax paid (500,824) (469,039) Interest paid (949,254) (619,996) Increase in restricted cash (35,695) (1,727)

Net cash used in operating activities (1,908,506) (478,684)

Cash flows from investing activities Repayments of loans advanced 10,325 24,297 Loans advanced (31,711) (23,846) Proceeds from sale of property, plant and equipment and intangible assets 14,242 69,573 Interest received 1,214 15,027 Purchase of property, plant and equipment (522,323) (510,770) Acquisition of intangible assets (35,545) (23,797)

Net cash used in investing activities (563,798) (449,516)

Cash flows from financing activities Repayments of borrowings (3,822,967) (2,910,352) Proceeds from borrowings 3,313,745 4,608,168 Payments for finance lease (1,140) (3,907) Dividends paid to shareholders of the Company - (157,489) Dividends paid to non-controlling shareholders of subsidiaries (3,610) (296)

Net cash (used in)/from financing activities (513,972) 1,536,124

Net (decrease)/increase in cash and cash equivalents (2,986,276) 607,924

Effect of exchange rate changes on cash and cash equivalents and effect of translation to presentation currency (108,230) (14,984)

Cash and cash equivalents at the beginning of the period 4,534,953 1,584,222

Cash and cash equivalents at the end of the period 1,440,447 2,177,162

HMS Hydraulic Machines & Systems Group plc Consolidated Condensed Interim Statement of Changes in Equity for the six months ended 30 June 2015 (unaudited) (in thousands of Russian Roubles, unless otherwise stated)

The accompanying notes on pages 7 to 25 are an integral part of this consolidated condensed interim financial information. 6

Equity attributable to the shareholders of the Company

Share

capital Share

premium

Treasury shares

Other reserves

Cumulative currency

translation reserve

Retained earnings Total

Non- controlling

interest Total

equity Balance at 31 December 2013 48,329 3,523,535 (201,205) (191,585) (170,541) 6,692,152 9,700,685 3,543,343 13,244,028 Effect of hyperinflation on opening retained earnings - - - - - 10,006 10,006 4,754 14,760 Balance at 1 January 2014 48,329 3,523,535 (201,205) (191,585) (170,541) 6,702,158 9,710,691 3,548,097 13,258,788 Loss for the period - - - - - (222,000) (222,000) (13,417) (235,417) Other comprehensive loss Remeasurement of post-employment benefit obligations - - - - - (3,732) (3,732) 613 (3,119) Change in cumulative currency translation reserve - - - - (544,754) - (544,754) (101,100) (645,854) Share of comprehensive loss from associates - - - - (24,391) - (24,391) - (24,391) Total comprehensive loss for the period - - - - (569,145) (225,732) (794,877) (113,904) (908,781) Dividends declared by the Group’s subsidiaries - - - - - - - (84,600) (84,600) Dividends declared to the shareholders of the Company - - - - - (393,323) (393,323) - (393,323) Effect of the Group restructuring on non-controlling interest - - - - - (14,002) (14,002) 14,002 - Total transactions with owners, recognised directly in equity - - - - - (407,325) (407,325) (70,598) (477,923) Balance at 30 June 2014 48,329 3,523,535 (201,205) (191,585) (739,686) 6,069,101 8,508,489 3,363,595 11,872,084

Balance at 1 January 2015 48,329 3,523,535 (201,205) (191,585) 430,519 4,783,043 8,392,636 3,550,667 11,943,303 Profit/(loss) for the period - - - - - 1,152,726 1,152,726 (51,481) 1,101,245 Other comprehensive (loss)/income Remeasurement of post-employment benefit obligations - - - - - (27,102) (27,102) (12,542) (39,644) Change in cumulative currency translation reserve - - - - (752,352) - (752,352) (122,720) (875,072) Share of comprehensive loss from associates - - - - (19,578) - (19,578) - (19,578) Total comprehensive (loss)/income for the period - - - - (771,930) 1,125,624 353,694 (186,743) 166,951 Dividends declared by the Group’s subsidiaries - - - - - - - (56,011) (56,011) Total transactions with owners, recognised directly in equity - - - - - - - (56,011) (56,011) Balance at 30 June 2015 48,329 3,523,535 (201,205) (191,585) (341,411) 5,908,667 8,746,330 3,307,913 12,054,243

HMS Hydraulic Machines & Systems Group plc Notes to the Consolidated Condensed Interim Financial Information for the six months ended 30 June 2015 (unaudited) (in thousands of Russian Roubles, unless otherwise stated)

7

1 General Information

HMS Hydraulic Machines & Systems Group plc (the “Company”) was incorporated in Cyprus on 27 April 2010. The Company’s registered office is at 13 Karaiskaki, 3032, Limassol, Cyprus.

The principal business activities of the Company and its subsidiaries (the “Group”) are the manufacture and repair of a wide range of pumps and pumping units, compressors, modular equipment, including oil and gas equipment, engineering and construction services mainly for oil and gas companies. These products and services are sold both in the Russian Federation and abroad. The Group’s manufacturing facilities are primarily located in Orel, Tomsk, Ulyanovsk, Tumen regions and the Republic of Tatarstan of the Russian Federation, Sumy in Ukraine, Minsk and Bobruisk in Belorussia, Goessnitz (Thuringia) in Germany.

At 30 June 2015, H.M.S. Technologies Ltd., the ultimate controlling parent of the Company, held 71.51% of the Company’s shares (31 December 2014: 71.51%), including shares in form of GDRs. At 30 June 2015 and 31 December 2014, the Company does not have an ultimate controlling party above H.M.S. Technologies Ltd.

2 Basis of Preparation

This consolidated condensed interim financial information for the six months ended 30 June 2015 has been prepared in accordance with International Accounting Standard 34 (“IAS 34”), Interim financial reporting, as adopted by the European Union (“the EU”). The consolidated condensed interim financial information should be read in conjunction with the annual consolidated financial statements for the year ended 31 December 2014 which have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as adopted by the EU and the Cyprus Companies Law, Cap. 113.

3 Operating Environment of the Group

Emerging markets such as Russian Federation are subject to different risks than more developed markets, including economic, political and social, and legal and legislative risks. Laws and regulations affecting businesses in Russian Federation continue to change rapidly, tax and regulatory frameworks are subject to varying interpretations. The future economic direction of Russian Federation is heavily influenced by the fiscal and monetary policies adopted by the government, together with developments in the legal, regulatory, and political environment. Because Russian Federation produces and exports large volumes of oil and gas, its economy is particularly sensitive to the price of oil and gas on the world market. During 2014-2015, the oil price decreased significantly, which led to substantial decrease of the Russian Ruble exchange rate. Management is unable to reliably estimate the effects of any further price fluctuations on the Group’s financial position. Starting from March 2014, sanctions have been imposed in several packages by the U.S. and the EU on certain Russian officials, businessmen and companies. In December 2014, the Central Bank of the Russian Federation significantly increased its key interest rate, which resulted in growth of interest rates on domestic borrowings. In the first quarter of 2015 international credit agencies downgraded Russia’s long-term foreign currency sovereign rating to the speculative level with the negative outlook. The above mentioned events have led to reduced access of the Russian businesses to international capital markets, increased inflation, slackening of the economic growth rates and other negative economic consequences. The impact of further political and economic developments in Russia on future operations and financial position of the Group is at this stage difficult to determine. Ukraine’s operating environment. In 2014 and in the beginning of 2015, Ukraine has been in a political and economic turmoil. The Ukrainian Hryvnia has devalued against major foreign currencies. The National Bank of Ukraine introduced a range of measures aimed at limiting outflow of customer deposits from the banking system, improving liquidity of banks, and supporting the exchange rate of the Ukrainian Hryvnia. Significant external financing is required to support the economy. Stabilization of the economic and political situation depends, to a large extent, upon success of the Ukrainian government’s efforts, yet further economic and political developments are currently difficult to predict.


8

3 Operating Environment of the Group (continued)

One of the Group’s subsidiaries, Nasosenergomash PJSC, is located in Sumy, Ukraine, and specializes in pumps manufacturing for oil and gas, thermal and nuclear power, water supply and utilities. Pumps produced by Nasosenergomash PJSC are primarily sold to Russian customers. For the six months ended 30 June 2015, the revenue of Nasosenergomash PJSC approximated 8% of consolidated revenue of the Group (for the year ended 31 December 2014: 13%). Though at the time of issuance of this consolidated condensed interim financial information, neither sanctions, imposed by the US and EU, nor political environment in Ukraine directly impacted operating activities of Nasosenergomash PJSC, the Group’s management believes that certain customers of the Group may take conservative and cautious position when considering the purchase of products from EU and Ukraine. Due to these risks as well as due to high-level capacity utilisation of Nasosenergomash PJSC, the Group has accelerated up the previously developed project aimed at building up the respective competencies within Russian subsidiaries of the Group.

4 Accounting Policies and Critical Accounting Estimates and Judgments

Accounting policies. The accounting policies applied are consistent with those of the annual consolidated financial statements for the year ended 31 December 2014, as described in those annual consolidated financial statements, except as described in the paragraphs Adoption of new or revised standards, amendments and interpretations and Accounting for the effect of hyperinflation below. Adoption of new or revised standards, amendments and interpretations. Certain new standards, interpretations and

amendments to the existing standards, as disclosed in the Group’s consolidated financial statements for the year ended 31 December 2014, became effective for the Group from 1 January 2015. They have not significantly affected this consolidated condensed interim financial information of the Group. Accounting for the effect of hyperinflation. Since 1 January 2015, the Belorussian economy has ceased to be hyperinflationary, consequently, IAS 29, Financial Reporting in Hyperinflationary Economies, is no longer applied by the Group in relation to its subsidiaries based in Belorussia.

Critical accounting estimates and judgments. The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next reporting period. Estimates and judgements are continually evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Management also makes certain judgements, apart from those involving estimations, in the process of applying the accounting policies.

(a) Assessment of construction revenue and receivables related to construction contracts

The Group accounts for construction projects, design and engineering projects and certain other long-term contracts using the ‘percentage-of-completion’ method. The use of this method requires the Group to estimate the proportional revenue and costs. If circumstances arise that may change the original estimates of revenues, costs, or extent of progress toward completion, estimates are revised. These revisions may result in increases or decreases in estimated revenues or costs and are reflected in profit or loss in the period in which the circumstances that give rise to the revision become known by management. For the six months ended 30 June 2015, the Group recognised revenue from the application of the ‘percentage-of-completion’ method of RR 6,408,640 (for the six months ended 30 June 2014: RR 2,879,503) (Note 14). In addition, receivables related to construction contracts and certain other contracts accounted for under the ‘percentage-of-completion method’ are subject to credit risk. In other words, although some revenue continues to be contractually bound, the customer can still refuse to pay or to pay in time. Where revenue has been validly recognised on a contract, but an uncertainty subsequently arises about the recoverability of the related amount due from the customer, any provision against the amount due is recognised as an expense.


9

4 Accounting Policies and Critical Accounting Estimates and Judgments (continued)

The Group’s major construction contracts accounted for using ‘percentage-of-completion’ method are as follows: (i) In December 2013, the Group signed a RR 5.7 billion contract to deliver technological integrated solution for a major Siberian gasfield. The scope of the contract includes development of design documentation, manufacturing, delivery, supervision and testing of complex technological facility, including compressors, pumps, tanks, vessels, filters, coolers and other components for providing complex integrated systems such as deethanising compressor station, methanol regenerating unit etc. The project implementation time is two years. Total amount of advances received in relation to this project at 30 June 2015 amounted to RR 2,041,367, net of VAT (31 December 2014: RR 1,506,464). For the six months ended 30 June 2015, the Group recognised revenue of RR 1,827,050 in relation to this project (for the six months ended 30 June 2014: RR 104,232), and the excess of accumulated revenue recognised over advances received of RR 516,476 was included in receivables due from customers for construction work (31 December 2014: the excess of advances received over accumulated revenue recognised of RR 775,672 was included in payables due to customers for construction work). (ii) During the year ended 31 December 2014, the Group signed a contract to deliver complex equipment for processing of liquid hydrocarbons for large oil-gas-and-condensate fields in Siberia. The scope of contract includes manufacturing and delivery of a complex technological facility, including block-modular process pump stations, block-modular head pump stations, block-modular main pump stations, block-modular retaining pump stations, buildings of oil system and other components of the major process equipment. Total budgeted revenue for this contract at 30 June 2015 amounted to approximately RR 7.3 billion. The contract is expected to be fulfilled by the end of 2015. At 30 June 2015, the total amount of advances received in relation to this project equalled to RR 4,469,753, net of VAT (31 December 2014: RR 3,277,185). For the six months ended 30 June 2015, the Group recognised revenue of RR 2,608,341 in relation to this project (for the six months ended 30 June 2014: nil), and the excess of accumulated revenue recognised over advances received of RR 1,245,266 was included in receivables due from customers for construction work (31 December 2014: the excess of advances received over accumulated revenue recognised of RR 170,507 was included in payables due to customers for construction work). (iii) During the year ended 31 December 2014, the Group signed a contract for the construction and delivery of highly customised pump stations for an oil-gas-and-condensate field in the northern part of Yamal peninsula. Total budgeted revenue for this contract at 30 June 2015 amounted to RR 1.7 billion. The contract is expected to be executed during 2015-2016. The Group recognised revenue of RR 537,404 in relation to this project for the six months ended 30 June 2015. Corresponding amount of receivables was included in receivables due from customers for construction work at 30 June 2015.

(b) Impairment assessment of property, plant and equipment At 30 June 2015, the Group performed the analysis to determine whether there were any indicators of impairment of its cash generating units (“CGU”). As a result of this analysis, there were no indicators of impairment identified for the CGUs of the Group, with the exception of Bobruisk Machine Building Plant OJSC, a pump manufacturer belonging to the reportable segment “Industrial pumps” of the Group. The Group performed an impairment test of assets of Bobruisk Machine Building Plant OJSC, determining the fair value less cost to sell, calculated by reference to the market of relevant assets, as the recoverable amount of this CGU. The fair value of the assets of Bobruisk Machine Building Plant OJSC was determined using Level 3 inputs assuming that the best use of the assets is to sell them. Based on the results of these calculations, the Group recognised impairment charge in relation to its property, plant and equipment of RR 32,914 (Note 5). At 30 June 2015, the recoverable amount of this CGU was approximately RR 610 million.


10

5 Property, Plant and Equipment

Property, plant and equipment and related accumulated depreciation and impairment consist of the following:

Land Buildings Plant and

equipment Transport Other Construction

in progress Total Cost Balance at 1 January 2014 1,446,154 8,549,633 5,654,184 287,150 694,404 939,963 17,571,488 Additions - 7,124 154,502 7,952 41,990 349,972 561,540 Transfers - 116,301 219,002 - 2,295 (337,598) - Effect of hyperinflation on profit or loss - 18,500 41,850 1,279 5,576 - 67,205 Disposals (127) (18,685) (32,183) (9,706) (24,642) (37,316) (122,659) Translation to presentation currency (8,226) (164,469) (323,922) (6,092) (35,486) (82,981) (621,176) Balance at 30 June 2014 1,437,801 8,508,404 5,713,433 280,583 684,137 832,040 17,456,398 Balance at 1 January 2015 1,452,586 8,869,493 6,542,384 289,765 808,413 831,104 18,793,745 Additions - 17,517 138,459 18,468 33,257 350,797 558,498 Transfers - 5,937 119,223 - 2,682 (127,842) - Disposals - (25,058) (30,933) (7,783) (25,270) (5,361) (94,405) Translation to presentation currency (9,958) (172,144) (368,739) (5,997) (47,834) (29,442) (634,114) Balance at 30 June 2015 1,442,628 8,695,745 6,400,394 294,453 771,248 1,019,256 18,623,724 Accumulated depreciation and impairment Balance at 1 January 2014 (7,993) (977,932) (1,829,203) (168,355) (372,611) (114) (3,356,208) Effect of hyperinflation on profit or loss - (2,577) (13,237) (511) (2,339) - (18,664) Eliminated on disposals - 2,048 14,101 4,762 14,448 114 35,473 Depreciation expense - (165,136) (285,226) (17,123) (54,827) - (522,312) Impairment reversal - 465 2,505 - 259 - 3,229 Translation to presentation currency - 21,225 73,935 2,601 14,066 - 111,827 Balance at 30 June 2014 (7,993) (1,121,907) (2,037,125) (178,626) (401,004) - (3,746,655) Balance at 1 January 2015 (7,993) (1,318,721) (2,431,692) (187,140) (477,025) - (4,422,571) Eliminated on disposals - 20,916 20,872 4,937 21,561 - 68,286 Depreciation expense - (163,821) (304,133) (15,978) (59,792) - (543,724) Impairment charge (Note 4) - - (30,209) - (2,705) - (32,914) Impairment reversal - - 1,305 - 75 - 1,380 Translation to presentation currency - 28,664 97,004 2,915 19,831 - 148,414 Balance at 30 June 2015 (7,993) (1,432,962) (2,646,853) (195,266) (498,055) - (4,781,129) Carrying amount Carrying amount at 1 January 2014 1,438,161 7,571,701 3,824,981 118,795 321,793 939,849 14,215,280 Carrying amount at 30 June 2014 1,429,808 7,386,497 3,676,308 101,957 283,133 832,040 13,709,743 Carrying amount at 1 January 2015 1,444,593 7,550,772 4,110,692 102,625 331,388 831,104 14,371,174 Carrying amount at 30 June 2015 1,434,635 7,262,783 3,753,541 99,187 273,193 1,019,256 13,842,595

At 30 June 2015, the Group’s property, plant and equipment for a total of RR 508,901 was pledged as security for certain borrowings (31 December 2014: RR 514,579) (Note 12). At 30 June 2015 and 31 December 2014, construction in progress includes capitalised expenses, related to the implementation of large investment projects by the Group, including the construction of a new production and testing facility for high-productivity and high-capacity pumps for oil transportation, oil extraction and power industries. Construction in progress includes advances for capital expenditures for a total of RR 236,103 at 30 June 2015 (31 December 2014: RR 112,140). At 30 June 2015, the Group had contractual commitments for the purchase of components for construction of property, plant and equipment for RR 512,548 (31 December 2014: RR 526,005). Based on the results of impairment tests the Group recognised an impairment of property, plant and equipment of Bobruisk Machine Building Plant OJSC in amount of RR 32,914 at 30 June 2015 and for the six months then ended (at 31 December 2014 and for the year then ended: no impairment charge) (Note 4).


11

6 Other Intangible Assets

Patents and project

documen-tation

Licensed technology

Acquired software licenses

Customer relationships

and order backlog Trademarks Websites Total

Cost Balance at 1 January 2014 549,898 70,713 143,976 1,221,722 197,674 1,293 2,185,276 Additions 4,930 5,153 18,273 - 96 - 28,452 Disposals (2,447) (5,915) (15,356) - - - (23,718) Translation to presentation currency 515 (10,374) (8,611) 4,817 (2,612) (2) (16,267) Balance at 30 June 2014 552,896 59,577 138,282 1,226,539 195,158 1,291 2,173,743 Balance at 1 January 2015 607,120 77,371 152,312 1,352,199 196,878 1,299 2,387,179 Additions 7,822 6,298 29,313 - - - 43,433 Disposals (160) (2,028) (14,784) - - - (16,972) Translation to presentation currency (18,637) (10,591) (8,328) (38,103) (2,104) (3) (77,766) Balance at 30 June 2015 596,145 71,050 158,513 1,314,096 194,774 1,296 2,335,874 Accumulated amortisation and impairment Balance at 1 January 2014 (78,682) (15,237) (53,471) (524,109) (65,485) (576) (737,560) Eliminated on disposals 2,447 1,604 15,012 - - - 19,063 Amortisation expense (54,195) (5,475) (22,905) (99,795) (14,929) (60) (197,359) Translation to presentation currency 262 2,520 3,491 (696) 855 2 6,434 Balance at 30 June 2014 (130,168) (16,588) (57,873) (624,600) (79,559) (634) (909,422) Balance at 1 January 2015 (201,885) (22,701) (70,930) (767,901) (94,050) (703) (1,158,170) Eliminated on disposals 160 1,962 14,784 - - - 16,906 Amortisation expense (58,909) (6,134) (27,211) (86,802) (10,541) (61) (189,658) Translation to presentation currency 7,550 2,910 4,071 14,057 854 3 29,445 Balance at 30 June 2015 (253,084) (23,963) (79,286) (840,646) (103,737) (761) (1,301,477) Carrying amount Carrying amount at 1 January 2014 471,216 55,476 90,505 697,613 132,189 717 1,447,716 Carrying amount at 30 June 2014 422,728 42,989 80,409 601,939 115,599 657 1,264,321 Carrying amount at 1 January 2015 405,235 54,670 81,382 584,298 102,828 596 1,229,009 Carrying amount at 30 June 2015 343,061 47,087 79,227 473,450 91,037 535 1,034,397


12

7 Goodwill

Movements in goodwill and the composition of the goodwill balance are as follows:

Six months ended


30 June 2014

Gross book value 5,525,604 5,184,604 Accumulated impairment (2,225,205) (38,874) Carrying amount at 1 January 3,300,399 5,145,730

Effect of translation to presentation currency related to Apollo Goessnitz GmbH (99,532) 12,468 Carrying amount at 30 June 3,200,867 5,158,198

Gross book value 5,426,072 5,197,072 Accumulated impairment (2,225,205) (38,874) Carrying amount at 30 June 3,200,867 5,158,198

Goodwill is allocated to cash generating units, which represent the lowest level within the Group at which the goodwill is monitored by management and which are not larger than a segment for segment reporting purposes as follows:

30 June 2015 31 December 2014

Kazankompressormash OJSC 1,239,809 1,239,809 Apollo Goessnitz GmbH 897,579 997,111 Sibneftemash OJSC 511,784 511,784 Giprotyumenneftegaz PJSC

(*) 370,360 370,360

EPF “SIBNA” Inc. JSC 117,308 117,308 Dimitrovgradkhimmash OJSC 64,027 64,027

Total carrying amount of goodwill 3,200,867 3,300,399

(*) This amount of goodwill relates to Oil and gas equipment segment.

8 Cash and Cash Equivalents

Cash and cash equivalents are comprised of the following:


Cash on hand 1,897 2,664 RR denominated balances with banks 840,269 714,882 Foreign currency denominated balances with banks 108,046 296,874 RR denominated bank deposits 385,210 3,347,770 Foreign currency denominated bank deposits 88,552 151,858 Other cash equivalents 16,473 20,905

Total cash and cash equivalents 1,440,447 4,534,953

At 30 June 2015, the closing balance of short-term bank deposits denominated in RR comprised short-term bank deposits in five banks with 2.9-14.2% annual interest rate (31 December 2014: 2.6-26.9% – five banks).

At 30 June 2015, the closing balance of short-term bank deposits denominated in foreign currency comprised short-term bank deposits in three banks (31 December 2014: two banks). Annual interest rate of short-term bank deposits denominated in UAH was 18.0-23.5% (31 December 2014: 10.0-20.0%). Annual interest rate of short-term bank deposit denominated in BYR was 22.0%.

9 Inventories


Raw materials and supplies 3,128,106 3,003,196 Work in progress 2,176,786 2,101,319 Finished goods and goods for resale 1,960,012 1,202,825 Provision for obsolete inventories (286,246) (322,364)

Total inventories 6,978,658 5,984,976

At 30 June 2015, inventories of RR 51,473 were pledged as collateral for certain borrowings (31 December 2014: RR 26,810) (Note 12). The cost of inventories recognised as expense during the period and included in cost of sales is disclosed in Note 22.


13

10 Trade and Other Receivables and Other Financial Assets


Trade receivables 5,814,348 8,822,821 Less: provision for impairment of trade receivables (299,602) (303,988) Short-term loans issued 24,540 153,130 Less: provision for impairment of short-term loans issued - (36,647) Bank deposits 199,463 109,411 Other receivables 190,789 156,955 Less: provision for impairment of other receivables (71,949) (56,881) Receivables due from customers for construction work (Note 14) 3,124,195 754,109

Financial assets, net 8,981,784 9,598,910

Prepayments and advances to suppliers and subcontractors 2,147,040 1,488,492 Less: provision for impairment of advances to suppliers (32,282) (42,860) VAT receivable 683,720 650,639 Less: provision for VAT receivable (5,559) (6,177) Other taxes receivable 11,974 23,378

Non-financial assets, net 2,804,893 2,113,472

Total trade and other receivables and other financial assets 11,786,677 11,712,382

VAT receivable balance comprises VAT related to export sales which is normally offset against VAT payable after appropriate confirmation is received from the tax authorities. Such confirmation is expected to be received subsequent to the reporting date. At 30 June 2015, the closing balance of short-term bank deposits denominated in RR comprised short-term bank deposits in two banks with 11.0-11.4% annual interest rate (31 December 2014: 3.0-9.5% – four banks). At 30 June 2015, the closing balance of short-term bank deposits denominated in foreign currency comprised

short‑term bank deposit in four banks (31 December 2014: four banks). Annual interest rate of short-term bank deposit

denominated in USD was 5.5% (31 December 2014: 0.8-5.5%). Annual interest rates of short-term bank deposits denominated in EUR were 0.1-3.1% (31 December 2014: 1.0-22.0%). At 30 June 2015, short-term bank deposits and trade receivables arising from certain sales contracts in amount of RR 10,459 (31 December 2014: RR 11,618) and RR 171,767 (31 December 2014: RR 338,913) were pledged as collateral for certain borrowings (Note 12).

11 Investment Property

In February 2014, the Group received certain buildings and land plots with an estimated fair value of RR 286,370 as repayment for certain loans from Trest Sibkomplektmontazhnaladka OJSC, a former subsidiary of the Group, sold in December 2013. As the Group plans to hold these assets to earn rentals or for capital appreciation, these assets are accounted for as investment property. At 30 June 2015 and 31 December 2014, the fair value of investment property approximates its carrying amount. The fair value of investment property was determined using observed prices for sales of similar assets in principal market (Level 3 of the fair value hierarchy).


14

12 Borrowings

Interest rate Denomi-nated in 30 June 2015 31 December 2014

Long-term unsecured bank loans and bonds: Bonds 1 10.75% RR - 2,099,199 Bonds 2 10.10% RR 2,421,185 2,994,383 Unsecured bank loans 9.95% - 17.00% RR 10,335,165 8,959,165 Unsecured bank loans from EURIBOR+3.82% to 5% EUR 1,620,644 1,802,316 Unsecured bank loans 11.00% USD - 8,873

14,376,994 15,863,936

Long-term secured bank loans:

Secured loans

EURIBOR+2.84% - EURIBOR+6% EUR 381,230 381,108

Secured loans 10.00% - 11.50% USD 25,554 40,423

406,784 421,531

Less: current portion of long-term borrowings (4,249,077) (3,050,960)

Total long-term borrowings 10,534,701 13,234,507

Short-term unsecured loans: Unsecured bank loans 17.00% - 23.00% RR 827,966 39,000 Unsecured non-bank loans 2.00% USD 13,659 -

841,625 39,000

Short-term secured bank loans:

Secured loans 17.25% RR 300,000 309,874 Secured loans 2.77% EUR 61,521 68,383 Secured loans 11.50% USD 51,159 46,747 Secured loans 53.00% BYR 1,818 -

414,498 425,004

Current portion of long-term borrowings 4,249,077 3,050,960 Interest payable 105,765 217,437

Total short-term borrowings 5,610,965 3,732,401

The Group’s borrowings are denominated in the following currencies:


RR 13,989,547 14,618,077 EUR 2,063,904 2,252,781 USD 90,373 96,043 BYR 1,842 7

Total borrowings 16,145,666 16,966,908

Bonds 1. In February 2012, HYDROMASHSERVICE JSC, the Group’s subsidiary, issued RR 3,000,000 of bonds through RTS-MICEX, bearing semi-annual coupon at 10.75% per annum, repayable in February 2015. HMS Hydraulic Machines & Systems Group plc, the parent company of the Group, and HMS Livhydromash JSC, the subsidiary of the Group, issued guarantees in respect of these bonds. At the beginning of September 2014, the Group purchased RR 900,000 of such bonds from the holders at par value. The bonds buy-back was financed by an unsecured non-revolving credit line, provided by a major Russian bank at the end of August 2014 for two years. At 31 December 2014, the outstanding amount was RR 2,099,199, net of unamortised transaction costs of RR 801. During January-February 2015, Bonds 1 were fully redeemed by the Group. The buy-back was financed by both the Group’s own funds and credit lines.


15

12 Borrowings (continued)

Bonds 2. In February 2013, HYDROMASHSERVICE JSC issued RR 3,000,000 of bonds. The maturity of the bonds is 5 years with a 3-year put option and semi-annual coupon periods. Coupon rate of 10.10% is set for the first six coupon periods. Subsequent coupon rates are to be determined in February 2016. HMS Hydraulic Machines & Systems Group plc and HMS Livhydromash JSC issued guarantees in respect of these bonds. During the six months ended 30 June 2015, HMS Neftemash JSC, the subsidiary of the Group, repurchased part of Bonds 2 with total par value of RR 574,083 at their market value of RR 543,653. The difference between par value and market value of repurchased bonds in amount of RR 30,430 was recognised within finance costs as a gain from repurchase of bonds (Note 27). At 30 June 2015, the outstanding amount of Bonds 2 was RR 2,421,185 (31 December 2014: RR 2,994,383), net of unamortised transaction costs of RR 4,732 (31 December 2014: RR 5,617).

In July 2015, the Group purchased before the maturity date 2,389,284 Bonds 2 at 97.75% par value worth RR 2,335,525, including bonds which were repurchased by HMS Neftemash JSC. As a result of above actions, Bonds 2 in amount of RR 610,716 have been left to be redeemed on maturity date. The buy-back was financed by a credit line (Note 32). At 30 June 2015, the Group pledged property, plant and equipment, inventories and short-term bank deposits in total amount of RR 508,901, RR 51,473 and RR 10,459 (31 December 2014: RR 514,579, RR 26,810 and RR 11,618), respectively. At 30 June 2015 and 31 December 2014, the Group also pledged its rights under some sales contracts with customers as the security for certain borrowings. At 30 June 2015, the Group recognised trade receivables under these sales contracts in amount of RR 171,767 (31 December 2014: RR 338,913).

13 Retirement Benefit Obligations

Entities within the Group provide post-employment and other long-term payments of a defined benefit nature to their employees. These defined benefit plans maintained by each entity separately include lump sum upon retirement, in case of disability, death or attaining jubilee age as well as financial support after retirement. All plans are completely unfunded, i.e. provided on pay-as-you-go basis. The liability arising from these plans was calculated by an external actuary in accordance with benefit formula based on individual census data using the Projected Unit Credit Method. Assumptions were determined based on market conditions as at the statement of financial position dates. The following amounts were recognised in profit or loss:

Six months ended 30 June 2015


Service cost 18,850 (10,039) Current service cost 9,472 12,286 Past service cost and gain from curtailment of plans 9,378 (22,325)

Interest expense 28,078 20,867 Net actuarial loss/(gain) on other long-term employment benefit obligations 668 (959) Net monetary gain - (28)

Net periodic benefit expense 47,596 9,841

14 Construction Contracts

During the six months ended 30 June 2015 and 2014, the construction contracts revenue was recognised in relation to stage of completion for each contract. The stage of completion of a contract was determined based on the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs.

The following figures relate to the Group’s continuing activities under construction contracts:



Construction contracts revenue 6,408,640 2,879,503 Contract cost expensed (4,389,153) (2,363,489) Gross margin 2,019,487 516,014


16

14 Construction Contracts (continued)

The Group’s financial position with respect to construction contracts in progress is as follows:

Contracts with net amount owing to the Group 30 June 2015 31 December 2014

Aggregate amount of contract cost incurred 9,365,906 4,662,012 Aggregate amount of recognised profits 3,984,277 1,257,374 Aggregate amount of recognised losses (46,646) (73,229) Less: Progress billings (10,179,342) (5,092,048) Gross amount due from customers for contract work 3,124,195 754,109

Contracts with net amount owed by the Group 30 June 2015 31 December 2014

Aggregate amount of contract cost incurred 4,505,423 6,095,295 Aggregate amount of recognised profits 1,400,756 2,335,444 Aggregate amount of recognised losses (3,639) (4,323) Less: Progress billings (6,015,617) (9,592,861)

Gross amount due to customers for contract work (113,077) (1,166,445)


Advances from customers, related to construction contracts 116,856 205,592 Retentions 80,099 94,351

15 Trade and Other Payables


Trade payables 3,690,782 4,056,336 Other payables 182,222 170,537

Financial trade and other payables 3,873,004 4,226,873

Advances from customers 2,808,725 2,914,755 Payables due to customers for construction work (Note 14) 113,077 1,166,445 Wages and salaries payable 849,046 899,647

Other non-financial payables 3,770,848 4,980,847

Total trade and other payables 7,643,852 9,207,720

16 Other Taxes Payable


VAT 331,796 750,631 Social funds contribution 179,744 150,380 Personal income tax 58,421 61,125 Property tax 18,666 16,753 Land tax 11,151 10,006 Transport tax 1,010 2,169 Other taxes 1,485 1,592

Total other taxes payable 602,273 992,656

17 Other Long-term Payables

At 30 June 2015, other long-term payables are represented by deferred income, which relate to government grants, obtained by the Group’s subsidiary HMS Neftemash JSC during 2013, in amount of RR 94,167 (31 December 2014: RR 95,000). At each reporting date, management assesses whether there is a reasonable assurance that the Group is able to comply with required conditions. At 30 June 2015, management believes that the Group will be able to comply with the conditions stipulated by the agreement.


17

18 Provisions for Liabilities and Charges

Warranty provision

Provision for legal claims

Provision for tax risks

At 1 January 2014 177,940 81,507 -

Additional provisions 31,260 - 54,808 Unused amounts reversed (31,782) (41,175) - Effect of translation to presentation currency (709) - -

At 30 June 2014 176,709 40,332 54,808

At 1 January 2015 216,123 52,070 137,107

Additional provisions 88,177 24,983 - Unused amounts reversed (44,152) (7,791) - Provision used during the period (36,747) (22,680) (137,107) Effect of translation to presentation currency (3,883) - -

At 30 June 2015 219,518 46,582 -

Warranty provision. The Group provides warranties on certain products and undertakes to repair or replace items that fail to perform satisfactorily. A provision has been recognised at the reporting date for expected warranty claims based on past experience of the level of repairs and returns. At 30 June 2015, the closing balance of the warranty provision comprised a short-term portion of RR 122,878 and a long-term portion of RR 96,640 (31 December 2014: RR 117,757 and RR 98,366, respectively).

Provision for tax risks. During the six months ended 30 June 2015, the provision for tax risks was fully utilised as the Group’s subsidiaries made respective tax payments and redeemed the liabilities in full.

19 Earnings per Share

The Company has no dilutive potential ordinary shares; therefore, the diluted earnings per share equal the basic earnings per share. Basic earnings per share are calculated by dividing the profit or loss attributable to owners of the Company by the weighted average number of ordinary shares in issue during the period. For the six months ended 30 June 2015 and 2014, earnings per share are calculated as follows:



Profit/(loss) for the period attributable to ordinary shareholders 1,152,726 (222,000) Weighted average number of ordinary shares in issue (thousands) 115,344 115,344

Basic and diluted earnings/(loss) per ordinary share (expressed in RR per share) 9.99 (1.92)

20 Income Taxes

Income tax expense for the six months ended 30 June 2015 and 2014 included:



Current tax expense 298,026 270,859 In respect of the current period 298,026 242,934 In respect of prior years - 27,925 Deferred tax expense/(benefit) 112,308 (183,324)

Total income tax expense 410,334 87,535

Most companies of the Group were subject to tax rate of 20% on taxable profits in the Russian Federation for the six months period ended 30 June 2015 and 2014.


18

21 Revenue



Sales of oil and gas equipment 7,457,738 3,888,544 Sales of pumps 5,462,804 5,175,844 Revenue from construction and design and engineering services 1,549,443 2,108,986 Sales of compressor equipment 1,244,007 818,477 Sales of other services and goods 874,730 849,921

Total revenue 16,588,722 12,841,772

22 Cost of Sales



Supplies and raw materials 7,140,792 4,440,810 Labour costs 2,913,969 2,915,187 Cost of goods sold 705,983 715,852 Depreciation and amortisation 642,436 616,181 Utilities 222,090 239,067 Construction and design and engineering services of subcontractors 179,165 252,857 Change in warranty provision 44,025 (522) Change in retirement benefits obligations 36,569 5,274 Change in work in progress and finished goods (1,044,164) (569,331) Change in provision for obsolete inventories (4,687) 56,148 Other expenses 717,977 937,500

Total cost of sales 11,554,155 9,609,023

23 Distribution and Transportation Expenses



Labour costs 276,640 252,682 Transportation expenses 190,551 204,812 Lease expense 35,734 34,663 Entertaining costs and business trip expenses 16,952 16,513 Insurance 15,721 20,675 Advertising 13,134 20,974 Depreciation and amortisation 10,948 13,970 Change in retirement benefits obligations 793 616 Other expenses 62,513 54,057

Total distribution and transportation expenses 622,986 618,962


19

24 General and Administrative Expenses



Labour costs 1,292,026 1,245,965 Taxes and duties 113,394 89,982 Depreciation and amortisation 87,893 89,828 Bank services 81,918 71,898 Audit and consultancy services 80,935 70,881 Entertaining costs and business trip expenses 48,638 34,953 Property, plant and equipment repair and maintenance 35,310 34,648 Stationary and office maintenance 29,881 27,688 Security 28,885 22,026 Lease expense 26,629 21,911 Insurance 21,591 18,708 Telecommunication services 14,542 17,329 Change in retirement benefits obligations 10,234 3,951 Training and recruitment 7,700 6,483 Change in provision for impairment of trade and other receivables and other financial assets 7,007 38,960 Change in provision for tax risks, other than income tax - 26,884 Change in provision for VAT receivable - (75) Other expenses 103,696 116,545

Total general and administrative expenses 1,990,279 1,938,565

25 Other Operating Expenses, net

Six months ended


30 June 2014

Charity, social expenditures 54,553 51,536 Impairment of property, plant and equipment charge and reversal, net (Note 5) 31,534 (3,229) Change in provision for legal claims 17,192 (41,175) Depreciation of social assets 3,420 4,290 Loss from disposal of property, plant and equipment and intangible assets 2,951 4,978 Net monetary loss - 12,073 Foreign exchange gain, net (61,017) (111,105) (Gain)/loss on revaluation of redemption liability (Note 31) (10,553) 5,470 Gain on purchase/sale of foreign currency, net (4,568) (11,881) Fines and late payment interest under contracts 15 85,444 Other expenses, net 52,576 42,344

Total other operating expenses, net 86,103 38,745

26 Finance Income

Six months ended


30 June 2014

Interest income 95,281 54,142 Foreign exchange gain from deposits, net 7,485 3,603 Discontinuing of financial assets - 44,327

Total finance income 102,766 102,072

27 Finance Costs

Six months ended


30 June 2014

Interest expenses 887,136 641,907 Foreign exchange loss from borrowings, net 66,935 236,536 Finance expenses related to redemption liability (Note 31) 2,444 7,169 Finance lease expenses 129 577 Gain from repurchase of bonds (Note 12) (30,430) -

Total finance costs 926,214 886,189


20

28 Balances and Transactions with Related Parties

At 30 June 2015, H.M.S. Technologies Ltd., the ultimate controlling parent of the Company, held 71.51% of the Company’s shares (31 December 2014: 71.51%), including shares in form of GDRs. At 30 June 2015 and 31 December 2014, the Company does not have an ultimate controlling party above H.M.S. Technologies Ltd. Parties are generally considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions as defined by IAS 24. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form. Related parties may enter into transactions which unrelated parties may not and transactions between related parties may not be effected on the same terms, conditions and amounts as transactions between unrelated parties. The table below contains the disclosure by group of related parties with which the Group entered into significant transactions or has significant balances outstanding. Other category of related parties comprises ultimate controlling parent of the Company, individuals who are the ultimate owners of shares in the Company, who are also key management of the Group, and other key managers as well as the companies controlled by those individuals.

Balances with related parties 30 June 2015 31 December 2014

Associates Other Associates Other

Loans received - 13,660 - - Accounts receivable 6,233 8,215 1,922 8,104 Accounts payable 2,058 60,978 3,326 106,806

No provision was made for bad debts from related parties. Neither party issued guarantees to secure accounts receivable or payable.

Transactions with related parties Six months ended

30 June 2015

Six months ended

30 June 2014

Associates Other Associates Other

Sales of goods and finished products 9,048 11,738 3,952 9,696 Other income 502 409 562 746

Purchase of services (19,515) - (12,173) - Purchase of intangible assets (5,566) - (4,401) - Rent expense (5,253) - (4,399) - Purchase of raw materials (5,186) - (4,956) - Interest expense - (52) - -

Key management compensation

Key management compensation amounted to RR 89,645 for the six months ended 30 June 2015 (for the six months ended 30 June 2014: RR 71,928) and included fees and other short-term benefits such as salaries and bonuses paid to management as set forth in labour contracts concluded annually. Included in these amounts are emoluments paid to the Company's Directors by the Company totalling RR 15,353 (for the six months ended 30 June 2014: RR 4,468) and emoluments paid to the Company's Directors by subsidiaries in their executive capacity totalling RR 21,354 for the six months ended 30 June 2015 (for the six months ended 30 June 2014: RR 25,967). For the six months ended 30 June 2015, dividends of RR 45,280 were accrued by the Group’s subsidiary to the holder of non-controlling interests who is a member of key management (for the six months ended 30 June 2014: RR 57,872). Provisions of labour contract with the Group's CEO (the Company's Managing Director) include the retirement payment, which is contingent on the market capitalisation of the Company at retirement date and is only paid if the price of the Company's GDRs at that date is above USD 9.25 less dividend per share, paid during the CEO’s period in service. The retirement payment is payable only if the Group's CEO is dismissed by the Board of Directors without cause.


21

29 Contingencies and Commitments

(i) Tax legislation

Management believes that it has adequately provided for tax liabilities in the accompanying consolidated condensed interim financial information. At 30 June 2015, the Group did not recognise any provision for tax risks (31 December 2014: RR 137,107). With regard to matters where practice concerning payments of taxes is unclear, management estimated possible tax exposure to be approximately RR 32 million at 30 June 2015, before any fines and interest (31 December 2014: RR 63 million).

(ii) Contractual commitments

In the normal course of business, the Group has entered in the long-term purchase contract for development engineering services with an associate of the Group. At 30 June 2015, commitments for purchase of the services amounted to RR 178,091 (31 December 2014: RR 271,252).

At 30 June 2015, the Group had contractual commitments for the purchase of components for construction of property, plant and equipment for RR 512,548 (31 December 2014: RR 526,005).

During the year ended 31 December 2013, the Group’s subsidiary HMS Neftemash JSC obtained the right to receive government subsidies in the amount of RR 150,000 for executing a project relating to the development of high-tech production of metering equipment for metering of extracted oil and gas at the oilfields under final production stage. Also refer to Note 17.

The Group holds short-term cancellable and non-cancellable operating leases. The future commitments on non-cancellable leases are not material.

(iii) Loan covenants

Under the terms of its loan agreements, the Group is required to comply with a number of covenants, including maintenance of the certain level of net assets and certain other requirements. At 30 June 2015, the Group was in compliance with all its loan covenants.

30 Segment Information

Management has determined the operating segments based on the management reports, which are primarily derived from unaudited and not reviewed IFRS financial statements. The management reports are reviewed by the chief operating decision-maker (“CODM”), and are used to make strategic decisions. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Managing Director of the Company. The following criteria have been used for determining the operating segments and assigning the Group subsidiaries to particular segment:

Business activities of companies;

Organisational structure of companies;

Nature of production processes;

Manufactured and sold products;

Specific characteristics of buyers/customers.

The first operating segment “Industrial pumps” includes:

30 June 2015 30 June 2014

1 HMS Livhydromash JSC HMS Livhydromash JSC 2 Livnynasos JSC Livnynasos JSC 3 Nasosenergomash PJSC Nasosenergomash PJSC 4 - Trade house HYDROMASHSERVICE Ukraine LLC 5 HYDROMASHSERVICE JSC HYDROMASHSERVICE JSC 6 Plant Promburvod OJSC Plant Promburvod OJSC 7 HMS-Promburvod CJSC HMS-Promburvod CJSC 8 Bobruisk Machine Building Plant OJSC Bobruisk Machine Building Plant OJSC 9 Dimitrovgradkhimmash OJSC Dimitrovgradkhimmash OJSC 10 Apollo Goessnitz GmbH Apollo Goessnitz GmbH 11 Nizhnevartovskremservis CJSC Nizhnevartovskremservis CJSC 12 Institute Rostovskiy Vodokanalproekt OJSC Institute Rostovskiy Vodokanalproekt OJSC 13 - HMS Household Pumps OJSC (in process of

liquidation)


22

30 Segment Information (continued)

The second operating segment “Oil and gas equipment” includes:

1 HMS Neftemash JSC HMS Neftemash JSC 2 Sibneftemash OJSC Sibneftemash OJSC 3 4

EPF “SIBNA” Inc. JSC Trade House Sibneftemash LLC

EPF “SIBNA” Inc. JSC Trade House Sibneftemash LLC

The third operating segment “Compressors” includes Kazankompessormash OJSC and NIITurbokompressor named

after V.B.Shnepp CJSC. The fourth operating segment “Engineering, procurement and construction” (“EPC”) includes:

1 Tomskgazstroy OJSC Tomskgazstroy OJSC 2 Giprotyumenneftegaz PJSC Giprotyumenneftegaz PJSC 3 Noyabrskneftegazproekt LLC (in process of

liquidation) Noyabrskneftegazproekt LLC

The table below contains other companies that did not fall under the above listed operating segments.

1 HMS Group Management LLC HMS Group Management LLC 2 HMS Group JSC HMS Group JSC 3 4 5 6 7

Hydromashkomplekt LLC Business Centre Hydromash LLC HMS Hydraulic Machines & Systems Group plc H.M.S. FINANCE LIMITED H.M.S. CAPITAL LIMITED

Hydromashkomplekt LLC Business Centre Hydromash LLC HMS Hydraulic Machines & Systems Group plc H.M.S. FINANCE LIMITED H.M.S. CAPITAL LIMITED

8 Hydromash К LLC Hydromash К LLC 9 CMPC LLC - 10 HMS Active LLC -

Geographically, management considers non-current assets by their location and revenue based on the location of the Group's customers. The reportable operating segments derive their revenue primarily from the manufacture and sale of industrial pumps, oil and gas equipment, compressors, oil and gas construction and the other products and services. Sales between segments are carried out at the arm’s length. The revenue from external parties reported to management is measured in a manner consistent with that in the consolidated statement of profit or loss. Management of the Group assesses the performance of operating segments based on a measure of adjusted EBITDA, which is derived from the management report. For this purpose, adjusted EBITDA is defined as operating profit/loss from continuing operations adjusted for other operating income/expenses, depreciation and amortisation, impairment of assets, excess of fair value of net assets acquired over the cost of acquisition, defined benefits scheme expense and provisions (including provision for obsolete inventory, provision for impairment of accounts receivable, unused vacation allowance, warranty provision, provision for legal claims, tax provision and other provisions). This measurement basis, therefore, excludes the effects of a number of non-recurring income and expenses on the results of the operating segments. The segment information provided to the CODM for the reportable segments is reconciled to corresponding amounts reported in the Group’s consolidated condensed interim financial information prepared in accordance with IFRS. The segment information provided to the CODM for the reportable segments for six months ended 30 June 2015 is as follows:

Disclosures by segments

Industrial pumps

Oil and gas equipment Compressors EPC

All other segments

Intersegment transactions Total

External revenue 6,904,380 7,271,542 1,050,424 1,355,836 6,540 - 16,588,722 Intersegment revenue 1,244,737 2,401 340,478 485 736,992 - 2,325,093 EBITDA, management report

(1) 1,927,169 1,174,596 46,618 133,412 134,316

(51,993) 3,364,118

(1) EBITDA derived from management report is equal to adjusted EBITDA.


23

30 Segment Information (continued)

The segment information provided to the CODM for the reportable segments for six months ended 30 June 2014 is as follows:

Disclosures by segments

Industrial pumps


All other segments


External revenue 7,573,745 2,944,395 728,727 1,594,905 - - 12,841,772 Intersegment revenue 100,072 16,734 30,026 - 764,022 - 910,854 EBITDA, management report

(1) 1,094,891 277,682 (166,414) 208,630 237,084

42 1,651,915


Reconciliation of financial information analysed by CODM to corresponding information presented in this consolidated condensed interim financial information is presented below:


Industrial

pumps Oil and gas equipment Compressors EPC

All other segments Total

Revenue, management report 8,149,117 7,273,943 1,390,902 1,356,321 743,532 18,913,815

Less intersegment revenue (1,244,737) (2,401) (340,478) (485) (736,992) (2,325,093)

Revenue, IFRS 6,904,380 7,271,542 1,050,424 1,355,836 6,540 16,588,722


Industrial pumps


All other segments


EBITDA, management report

(1) 1,927,169 1,174,596 46,618 133,412 134,316 (51,993) 3,364,118

Depreciation and amortisation (309,282) (78,126) (208,447) (127,941) (20,901) - (744,697) Non-monetary items

(2) (114,150) (70,684) 19,008 (20,667) (31,348) - (217,841)

Other operating (expenses)/income, net

(3) (124,864) (13,603) (16,157) (4,306) 86,021 6,528 (66,381)

Operating profit/(loss) 1,378,873 1,012,183 (158,978) (19,502) 168,088 (45,465) 2,335,199

Finance income 102,766 Finance costs (926,214) Share of results of associates (172)

Profit before income tax 1,511,579


(2) Non-monetary items consists of defined benefits scheme expenses and provisions (provision for obsolete inventories, provision for impairment of accounts receivable, unused vacation allowance, warranty provision, provision for legal claims, tax provision and other provisions).

(3) Other operating (expenses)/income, net include other operating income and expenses as per Note 25, excluding depreciation of social assets and provision for legal claims.


Industrial

pumps Oil and gas equipment Compressors EPC

All other segments Total

Revenue, management report 7,673,817 2,961,129 758,753 1,594,905 764,022 13,752,626

Less intersegment revenue (100,072) (16,734) (30,026) - (764,022) (910,854)

Revenue, IFRS 7,573,745 2,944,395 728,727 1,594,905 - 12,841,772


Industrial pumps


All other segments


EBITDA, management report

(1) 1,094,891 277,682 (166,414) 208,630 237,084 42 1,651,915

Depreciation and amortisation (288,612) (70,433) (211,091) (139,188) (14,945) - (724,269) Non-monetary items

(2) (85,971) (63,542) (13,310) (29,009) (23,575) - (215,407)

Other operating expenses, net(3)

(34,132) (5,311) (17,742) (8,122) (8,402) (2,053) (75,762)

Operating profit/(loss) 686,176 138,396 (408,557) 32,311 190,162 (2,011) 636,477

Finance income 102,072 Finance costs (886,189) Share of results associates (242)

Loss before income tax (147,882)


(2) Non-monetary items consists of defined benefits scheme expenses and provisions (provision for obsolete inventories, provision for impairment of accounts receivable, unused vacation allowance, warranty provision, provision for legal claims, tax provision and other provisions).

(3) Other operating (expenses)/income, net include other operating income and expenses as per Note 25, excluding depreciation of social assets and provision for legal claims.


24

31 Fair Value of Financial Instruments

Fair value is the amount at which a financial instrument could be exchanged in an arm’s length transaction between knowledgeable willing parties, other than in a forced sale or liquidation, and is best evidenced by an active quoted market price. Fair value measurements are analysed by level in the fair value hierarchy as follows: (i) Level 1 are measurements at quoted prices (unadjusted) in active markets for identical assets or liabilities, (ii) Level 2 measurements are valuations techniques with all material inputs observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices), and (iii) Level 3 measurements are valuations not based on observable market data (that is, unobservable inputs). Management applies judgement in categorising financial instruments using the fair value hierarchy. If a fair value measurement uses observable inputs that require significant adjustment, that measurement is a Level 3 measurement. The significance of a valuation input is assessed against the fair value measurement in its entirety. The estimated fair values of financial instruments have been determined by the Group using available market information, where it exists, and appropriate valuation methodologies. However, judgment is necessarily required to interpret market data to determine the estimated fair value. The Russian Federation continues to display some characteristics of an emerging market and economic conditions continue to limit the volume of activity in the financial markets. Market quotations may be outdated or reflect distress sales transactions and therefore not represent fair values of financial instruments. Management has used all available market information in estimating the fair value of financial instruments. Financial assets carried at amortised cost. The estimated fair value of fixed interest rate instruments is based on estimated future cash flows expected to be received discounted at current interest rates for new instruments with similar credit risk and remaining maturity. Discount rates used depend on credit risk of the counterparty. The carrying amounts of trade receivables and originated loans approximate their fair values. Their fair values are within Level 2 of the fair value hierarchy. Liabilities carried at amortised cost. The estimated fair value of fixed interest rate instruments with stated maturity was estimated based on expected cash flows discounted at current interest rates for new instruments with similar credit risk and remaining maturity. The fair value of issued bonds is based on quoted market prices (Level 1 of the fair value hierarchy). At 30 June 2015, the fair value of bonds was RR 68,531 lower than their carrying amounts (31 December 2014: RR 856,982). The fair value of borrowings denominated in foreign currencies was based on Level 2 inputs and the fair value of borrowings denominated in RR was based on Level 3 inputs. At 30 June 2015, the fair value of borrowings denominated in foreign currencies was RR 91,639 lower than their carrying amounts (at 31 December 2014: RR 114,528). At 30 June 2015, the fair value of borrowings denominated in RR was RR 446,257 lower than their carrying amounts (at 31 December 2014: RR 1,644,119). Carrying amounts of other liabilities carried at amortised cost approximate their fair values. Financial instruments carried at fair value. In August 2012, the Group entered into call and put options agreement, under which the Group has a right to acquire the remaining 25% share in Apollo Goessnitz GmbH, while the holders of this non-controlling interest have the right to sell it to the Group. The options may be executed starting from 3 years after the options agreement date. The exercise price is determined based on EBITDA multiple and net debt level of Apollo Goessnitz GmbH for the year, preceeding the year of option execution, applying a discounting factor. At 30 June 2015, the present value of the redemption liability amounted to RR 170,753 (31 December 2014: RR 178,862). The increase in redemption liability in relation to the discounting effect of RR 2,444 was recognised in finance expenses (Note 27) (for the six months ended 30 June 2014: RR 7,169) and the decrease in redemption liability in relation to changes in underlying assumptions of RR 10,553 was recognised in other operating expenses, net as a gain (Note 25) (for the six months ended 30 June 2014: the increase in redemption liability – RR 5,470). EBITDA used for the calculation of the present value of the redemption liability at 30 June 2015 approximated to RR 120,107, net debt – RR 435,411 (31 December 2014: EBITDA – RR 127,638, net debt – RR 412,517). The redemption amount of the option approximates the fair value of the shares and as the calculation of the redemption amount is not based on observable market data (unobservable inputs are used), it was attributed to Level 3 of the fair value hierarchy. The calculation of the fair value of the redemption liability at 30 June 2015 is not sensitive to changes in underlying assumptions.


25

32 Subsequent Events

Bonds. In July 2015, the Group purchased before the maturity date 2,389,284 Bonds 2 at 97.75% par value worth RR 2,335,525. As a result of above actions, Bonds 2 in amount of RR 610,716 have been left to be redeemed on maturity date. The buy-back was financed by a credit line (Note 12). Borrowings. In August 2015, on the basis of contractual provision of the loan agreement, the Group extended long-term unsecured bank loan in amount of RR 829,532 with initial repayment date in February 2016 until 31 December 2017. The interest rate for the loan was increased from 12.82% per annum to 14.62% per annum effective 31 August 2015. At 30 June 2015, the respective loan in amount of RR 900,000 was included in current portion of long-term borrowings (Note 12).

hms hydraulic machines & systems group plc …grouphms.com/files/hms_plc_cfss_6m2015_eng.pdf ·...

Documents