HMSG: HMS Group Plc: Final Results

  HMSG: HMS Group Plc: Final Results

UK Regulatory Announcement

LONDON

April 26, 2013

                  HMS Hydraulic Machines & Systems Group plc

     (the “Company”, and together with its subsidiaries, the “HMS Group”)

               HMS Group full year 2012 IFRS financial results

Moscow, Russia– April 29, 2013 – HMS Group plc (the “Group”) (LSE: HMSG), the
leading pump and compressor manufacturer and provider of flow control
solutions and related services in Russia and the CIS, today announces its
audited IFRS financial results for the twelve months ended December 31, 2012.

FULL YEAR HIGHLIGHTS

(Figures in brackets are for the twelve months ended December 31, 2011)

  *Order backlog grew by 21% year-on-year to RUB 21.5 billion and was driven
    by continued steady demand for pumps, equipment and EPC services for
    infrastructure projects
  *Revenues up 22.4% year-on-year to RUB 33.7 billion (RUB 27.5 billion)
  *Adjusted EBITDA^1up 13.1% year-on-year to RUB 6.2 billion (RUB 5.5
    billion), with an adjusted EBITDA margin of 18.5% versus 20% in the
    previous year
  *Profit for the year contracted by 31.8% to RUB 2. 3 billion from RUB 3.4
    billion
  *Total debt grew by 109.3% from RUB 6.4 billion to RUB 13.4 billion
  *Net debt grew by 150.8% to RUB 12.1 billion as of December 31, 2012 (RUB
    4.8 billion)

Artem Molchanov, CEO of HMS Group commented:

“In 2012, HMS Group has continued to make good progress with underlying
revenue growth across all its businesses. Though overall pace of economic
recovery is still lackluster, we managed to achieve a solid 22.4% revenue
growth driven by infrastructure investments in the oil and gas sector, water
and nuclear industries. Importantly, the full year results were within our
guidance range, both revenue and EBITDA, though they were unevenly distributed
within the year, which is a peculiarity of the Group’s business model. That’s
why we stick to long-term orientation rather than focusing on short-term
performance.

Outstanding execution of the several flagship projects allowed us to become a
winner of new tenders held in 2012, and maintain a strong level of the backlog
during the whole year. This reflects strength of the diversified business
model and we are pleased with the record-high order flow of Rub 33.1 bn, which
we managed to secure during the year.We keep our efforts and currently we’re
focusing on a number of large infrastructure projects that can happen in late
2013-early 2014.

We’ve been also trying to expand our positions on growing markets where we
expect strong demand in the foreseeable future. In 2012, we completed two
acquisitions: Kazankompressormash (KKM) and Apollo Goessnitz (Apollo). Being
the leading Russian compressor manufacturer, KKM will allow us to diversify
our product portfolio for existing customers and penetrate into new promising
market of gas projects, while the worldwide operating manufacturer of
specialized pumps and pump systems, Apollo will strengthen our positions in
Russia on the market of pumps for oil refineries, power generation and
off-shore applications and provide opportunities to leverage our export
potential. Both deals have strategic importance, and I believe we will further
strengthen HMS Group capabilities to service our customers, as well as provide
earnings growth for our shareholders.”

KEY DEVELOPMENTS IN 2012

Operating activities

  *Several landmark projects in Russia have been successfully completed.
    Among them was the delivery of trunk line pump systems to the East Siberia
    – Pacific Ocean (ESPO) pipeline by Transneft. The project has strategic
    importance for the country’s oil industry infrastructure and features a
    total pipeline length of more than 4,100 km.
  *Another flagship project completed in 2012 was the second stage of the
    Vankor oilfield development, where HMS provided an integrated solution on
    delivery of a broad range of equipment and commissioning of water
    processing units as part of a produced water treatment system which was
    previously designed by HMS. The Vankor oilfield was launched in 2009 and
    is now one of the largest high-quality oil suppliers to the ESPO pipeline.
  *The Group secured several large infrastructure contracts across all
    business segments for different economic sectors, including:

       *the follow-up contract for ESPO - production and delivery of 12 trunk
         pipeline pump units for 3 pump stations,
       *projects for the production and delivery of specialist pumps for the
         nuclear industry in Russia and China,
       *construction of 3 main water pumping stations located in
         Turkmenistan,
       *the turn-key project for delivery and installation of a compressor
         station.

  *Two acquisitions completed during 2012:

       *Kazankompressormash (KKM), one of the leading manufacturers of
         centrifugal and screw compressors in Russia, located in Kazan,
         Tatarstan. HMS acquired 77.8% of voting shares (74.35% of share
         capital)
       *Apollo Goessnitz (Apollo), a worldwide operating manufacturer of
         centrifugal pumps and system equipment, located in Goessnitz
         (Thuringia), Germany. HMS Group acquired 75% of share capital of
         Apollo Goessnitz GmbH. The stake was acquired proportionally from the
         management, who has remained as part of the integrated team.

R&D activities

  *HMS Group was included in the short list of finalists of Pump Industry
    Awards, established by the British Pump Manufacturers’ Association. The
    Group was recognized finalist in the “Technical innovation of the year -
    Projects” nomination for its turnkey project of a pump station
    construction in Turkmenistan
  *Continued working on new models of pumps (high efficiency D type pump,
    high tech feed pump PA 1840-80, modernized feed pump PTA 3750-75) and
    equipment (control and protection system - HMS Control L3, innovative
    measuring equipment Mera MFR)
  *Automated multifunctional measuring and computing complex ACIS-6 was
    purchased for subsurface laboratory for analysis of subsoils for the
    project and design facility

Operational improvements

  *Ongoing implementation of unified IT infrastructure for accounting and
    reporting purposes, development of the head office IT security system
  *Ongoing development of an ERP project based on software by Infor-LN
    integrated with PDM systems that focuses on capturing and maintaining
    information on products and services through its useful life, maintaining
    an engineering and technological database, planning and coordinating of
    all transactional operations for R&D support

FINANCIAL SUMMARY

(Rub million)                         FY2012  FY 2011  Year-on-Year Change
Order intake                           36,110   23,221    55.5%
Backlog                                21,513   17,777    21.0%
Revenue                                33,656   27,496    22.4%
Adjusted EBITDA                        6,231    5,509     13.1%
Operating profit                       4,237    4,547     -6.8%
Profit for the period                  2,301    3,377     -31.8%
Basic and diluted earnings per share   17.89    27.88     n/a
(Rub per share)
ROCE (LTM)^2                           18.7%    36.2%     n/a

OPERATING REVIEW

Group

Total order backlog reached Rub 21.5 billion, driven by several large
contracts secured during the first three quarters of 2012. As a result the
total backlog was 21.0% higher than the RUB 17.8 billion level in 2011, with
stronger backlog diversification.

HMS Group’s consolidated revenues increased by 22.4% year-on-year for the full
year in 2012, mainly driven by a gradual execution of the infrastructure
projects implemented by the main oil and gas majors. Strong activity in
oilfield development, oil transportation and the water and energy markets in
2012 was a core driver of revenue growth. During 2012, HMS executed projects
for the main oil and gas majors, including providing pump-based integrated
solutions for Transneft in the midstream, delivery of oil and gas equipment,
and providing EPC works for Rosneft, TNK-BP, Surgutneftegaz, Lukoil and
Gazprom Neft, Taas-Yuriakh Neftegazodobycha, in the up- and downstream as well
as in gas processing for Gazprom and Novatek. Revenue growth in 2012 was
mainly driven by strong performance in the oil and gas equipment and EPC
business units, primarily due to large-scale projects with Rosneft and several
major projects for engineering and construction services. The industrial pumps
business unit accounted for approximately 50.7% of Group’s total consolidated
revenue in 2012 versus 56.9% in 2011. The oil and gas equipment business unit
accounted for 23.3% compared to 21.5%, while the EPC business unit share of
revenue was flat, accounting for 21.8% in 2012 versus 21.6% in the previous
year. Newly-established in July 2012, the Compressors business segment
accounted for 4.2%.

HMS Group’s cost of sales grew in line with the revenue and increased by 23.6%
year-on-year to RUB 23,645 million in 2012, compared to RUB 19,131 million in
2011, mainly due costs growth driven by consolidation of the acquired
companies. As a result, gross margin was 29.7% versus 30.4% in the previous
year.

Sales, general and administrative expenses increased by 45.1% year-on-year to
RUB 5,217 million for the full year 2012 while its share of total revenue
accounted for 15.5%, up from 13.1% in the previous year. In 2013, the Group
intends to maintain SG&A growth in line with revenue expansion.

The Group’s adjusted EBITDA increased by 13.1% year-on-year from RUB 5,509
million to RUB 6,231 million, driven by the execution of several large-scale
infrastructure contracts in oil upstream and oil transportation segments. The
Group’s adjusted EBITDA margin was 18.5% in 2012, compared to 20.0% in 2011.

Due to the growth of other operating expenses largely driven by fines under
contracts, social expenditures, provision for legal claims and expenses
related to acquisitions, the Group’s EBIT contracted by 6.8% year-on-year in
2012. The EBIT margin stood at 12.6% in the reporting period from 16.5% in
2011.

Due to debt growth driven by acquisitions completed in 2012, interest expenses
grew to Rub 1,220 mln, compared to Rub 486 mln, and comprised 3.6% of revenue
versus 1.8% in the previous year. As a result, the Group’s profit for the year
declined by 31.8% year-on-year and amounted to RUB 2,301 million in 2012
versus 3,377 million in 2011. Lower operating profit compared to the last year
and higher interest expenses were among the key factors contributing to the
full year profit performance.

Industrial Pumps Business Unit

The industrial pumps business unit designs, engineers, manufactures and
supplies a diverse range of pumps and integrated solutions to customers in the
oil and gas, power generation and water utility sectors in Russia, the CIS and
internationally. The business unit’s principal products include ready-made
pumps built to standard specifications, customized pumps and integrated
solutions. It also provides aftermarket sales, maintenance and repair services
and other support for its products.

The industrial pumps business unit demonstrated 9.1% year-on-year external
revenue growth in the reporting period, generating RUB 17,066 million. This
revenue growth largely stemmed from an ongoing flow of small and medium orders
and a number of large-scale projects with major customers mainly in oil
transportation, oil refineries and upstream segments.

Generally, total sales of pumps to the oil industry was flat in 2012 with 32%
year-on-year growth in oil upstream pumps and 16% growth in pumps for oil
refineries on the back of 5% year-on-year contraction of revenue from the oil
transportation industry. Despite a high-base effect in oil transportation
pumps in 2011, caused by participation in the ESPO project, the Group
successfully managed to replace the revenue from the project over 2012, which
led to just 5% contraction.

Sales of pumps for power generation applications grew by 43% year-on-year. The
growth was driven by modernization and construction of nuclear power plants in
Russia. Sales of pumps for nuclear applications surged by 180% driven by the
contracts signed in 2010-2011 with a long-term cycle of nuclear pumps
production. At the same time, sales of pumps for thermal power generation also
grew by 16% year-on-year.

Sales in the water utilities segment declined by 18% year-on-year, mainly due
to revenue contraction both in submersible water-well pumps and pumps for
water treatment systems. Sales of household pumps continued to decline on the
back of high competition and the purchasing power of end consumers.

The industrial pumps business unit’s adjusted EBITDA declined by 2.7%
year-on-year to RUB 4,278 million in 2012, compared to RUB 4,399 million in
2011, due to changes in the project mix and lower revenue share of high-margin
contracts. The adjusted EBITDA margin stood at 25.1% in 2012 versus 28.1% in
2011.

Oil and Gas Equipment Business Unit

The oil and gas equipment business unit manufactures and installs 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, as well as for the water utility sector. The
unit’s 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 a customer’s site as a modular but fully
integrated part of the customer’s operations.

External revenues for the segment were up 32.7% year-on-year and totaled RUB
7,828 in 2012, compared to RUB 5,900 in 2011. The increase was primarily
driven by the large-scale project on the Vankor oilfield under which the Group
equipped oilfield facilities over the second stage of the project development,
and consolidation of oil and gas equipment producer acquired in 2011.

Sales of water injection pumping stations and other large technological units
increased by 8.3% as a result of increased sales to large-scale projects,
including the Rosneft’s Vankor oilfield. Sales of automated group metering
units (AGMU) and other modular equipment for gas transportation surged by 88%,
mainly due to government regulations effected last year requiring oil
companies to install metering devices to measure volumes of gas flared.

The unit’s adjusted EBITDA doubled year-on-year to RUB1,397 million in 2012,
compared to RUB 697 million in 2011. The adjusted EBITDA margin was 17.8% in
the reporting period, up from 11.8% in 2011.

Compressors Business Segment

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.

In July 2012, HMS acquired Kazankompressormash (KKM), one of the leading
compressor producers in Russia, which was consolidated into the IFRS reporting
of the Group starting from July 01, 2012. Previously, KKM didn’t apply IFRS
accounting principles for its financial reporting which makes it therefore
impossible to provide a year-on-year comparison for the key financial
indicators.

HMS applied IFRS accounting principles for KKM reporting starting from the
third quarter of 2012 and reports the results under the Compressors business
segment.

In the second half of 2012, revenue of the business segment was RUB 1,426
million and EBITDA was RUB 85.6 million. As a result, EBITDA margin stood at
6%.

Engineering, Procurement and Construction (EPC) Business Unit

The engineering, procurement and construction (EPC) business unit provides
design and engineering services, project management and construction works for
projects, including on a turn-key basis, for customers in the upstream oil and
gas, oil transportation and water utility sectors.

The EPC’s external revenues grew by 23.4% year-on-year to RUB 7,336 million in
2012, compared to RUB 5,946 million in 2011, mainly driven by contracts for
oilfields infrastructure construction.

EBITDA in the EPC business segment contracted by 15.6% year-on-year to RUB 475
million in 2012 with EBITDA margin of 6.5% versus 9.5% in the corresponding
period of the previous year. The segment’s margin contraction resulted from
the challenges that appeared during implementation of one of the two EPC
contracts at Srednebotuobinskoye oilfield. Due to insufficient quality of
design documentation under one of the contracts, resulting in a number of
uncertainties, the project required additional investment. Over the course of
the negotiations with the customer, HMS continued to incur expenses related to
the project implementation that damaged the expected profitability of the
project. However, HMS didn’t break off relations with the customer and has
continued to work successfully under the second contract in line with the
budgeted performance.

Lower than expected margin in the project and design area has also contributed
to the segment’s performance since the Group continued to execute several
innovative projects as well as temporarily applying an aggressive pricing
policy to penetrate promising new market segments. However, the average margin
for these projects is expected to be recovered as a result of synergies
between the different business segments, as the Group intends to participate
in the later stages of these projects.

FINANCIAL REVIEW

Cashflow generated from operations before changes in working capital increased
to RUB 5,725 million, compared to RUB 5,186 million. Despite material growth
of interest expenses, net operating cashflow was positive and amounted to RUB
3,184 million versus net cash outflow from operating activities of RUB (1,595)
million in 2011.

Net cash used for investing activities totaled RUB 8,303 in 2012, compared to
2,193 million in 2011. The Group spent RUB 1,623 million in 2012 for capital
expenditures, compared to RUB 1,194 million in 2011. Payments for acquisitions
of KKM and Apollo Goessnitz, completed in 2012 and final payment for DGHM,
acquired in 2011, net of cash acquired, totaled RUB 6,690 million.

Dividend payment for the FY 2011 results, effected in the second quarter of
2012, amounted to RUB 1,500 million. Subject to reviewing its capital position
against its current and expected future capital requirements, the Group
intends to pay dividends in the future with a payout ratio not less than 25%
of profit for the year.

Thus, the Group’s free cash flow (before acquisitions of subsidiaries, net of
cash acquired) amounted to RUB 1,561 million.

Total debt grew by 109% year-on-year to RUB 13,410 million in the reporting
period, compared to RUB 6,408 million in 2011, mainly driven by M&A activities
of the Group. Apart from the acquisitions, the debt expansion was used for
working capital needs under the execution of current projects. By the end of
the year, 84% of total debt was represented by long-term credit facilities
with maturity of more than 1 year.

The net debt to EBITDA (taken for the last 12 months) ratio amounted to 1.94,
much lower than banks’ and internal covenants. As a result, the Group created
room for possible additional fund raising for business development and
expansion. The Group’s cash balances stood at RUB 1,346 million by the end of
2012, compared to RUB 1,598 million by the end of the last year. The ability
of the Group to meet its debt obligation remained comfortable with the
interest coverage ratio of 3.5.

As of 31.12.2012, the Group’s net working capital was within the targeted
range of 20-25% and amounted to 20.2% of total revenue taken for the last 12
months, compared to 21.9% in 2011.

During 2012, the Company acquired 224,385 GDRs (2011: no GDRs) from the market
for a cost of RR 31,507 thousand (31 December 2011: nil) representing 0.21% of
its issued share capital (2011: nil). The voting and dividend rights of these
GDRs are suspended.

M&A Activity

In the third quarter of 2012 the Group successfully completed two
acquisitions. In July 2012, HMS acquired 74.35% of a share capital of
Kazankompressormash, a leading compressor producer in Russia, for RUB 5,525
million funded from available debt facilities of the Group. Later in August
2012, HMS completedthe acquisition of 75% of a share capital of Apollo
Goessnitz, a German manufacturer of specialized pumps for power, oil
refineries and offshore application, for EUR 25 million.

Significant events after the reporting date

In February 2013, the Group issued RR 3.0 billion 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 2015. The raised
funds have been utilised to refinance existing credit facilities and for
working capital financing.

In January–March 2013, 485,500 GDRs of the Company representing 0.41% of its
issued share capital were bought back by the wholly-owned subsidiary of the
Group for a total consideration of RR 54,457. During April 2013, the
subsidiary continued to acquire GDRs from the market.

Conference call information

HMS Group’s management will host a conference call today at 9 am (New York) /
2 pm (London time) / 3 pm (CEST) / 5 pm (Moscow Time) to present and discuss
the full year results.

UK Local :     44 (0) 20 7190 15 96
UK Toll Free:   0800 358 52 71
Russia Local:   7 (495) 580 95 32
US Local:       1 480 629 98 22
US Toll Free:   1 877 941 60 13

Title: HMS Group FY 2012 IFRS Results

Conference ID: 4614021

Webcast link:

http://www.audio-webcast.com/cgi-bin/visitors.ssp?fn=visitor&id=1970

Please, join in 5-10 minutes prior to the scheduled start time.

Russia Toll Free:  8 800 500 9312
US Local:           1 646 254 3362
US Toll Free:       1 877 249 9037

Confirmation Code: 4330827

The management’s slide presentation will be posted at HMS Group’s website in
the Management Presentations section today.

HMS Hydraulic Machines & Systems Group plc

Consolidated Statement of Financial Position at 31 December 2012 

(in thousands of Russian Roubles, unless otherwise stated)

                                Note  31 December 2012  31 December 2011
ASSETS
Non-current assets:
Property, plant and equipment     6      14,415,505         8,225,805
Other intangible assets           7      685,866            497,871
Goodwill                          8      5,335,785          2,359,726
Investments in associates         10     124,963            129,805
Deferred income tax assets        26     252,772            207,383
Other long-term receivables       14     155,234            62,873
Total non-current assets                20,970,125         11,483,463
Current assets:
Inventories                       12     6,858,605          4,677,514
Trade and other receivables and   13     10,313,235         10,147,963
other financial assets
Current income tax receivable            126,782            33,556
Cash and cash equivalents         11     1,346,082          1,598,463
Restricted cash                   11     56,385             25,313
                                         18,701,089         16,482,809
Non-current assets held for       15     47,850             49,402
sale
Total current assets                    18,748,939         16,532,211
TOTAL ASSETS                            39,719,064         28,015,674
                                                                             
EQUITY AND LIABILITIES

EQUITY
Share capital                     24     48,329             48,329
Share premium                     24     3,523,535          3,523,535
Treasury shares                   24     (31,507)           -
Other reserves                           (191,463)          122,852
Currency translation reserve             (347,264)          (228,760)
Retained earnings                       6,704,590          6,116,729
Equity attributable to the               9,706,220          9,582,685
shareholders of the Company
Non-controlling interest                3,826,729          2,477,177
TOTAL EQUITY                            13,532,949         12,059,862
                                                                             
LIABILITIES
Non-current liabilities:
Long-term borrowings              16     11,219,833         4,433,984
Finance lease liability           17     10,072             -
Deferred income tax liability     26     1,866,684          1,091,372
Pension liability                 18     447,484            334,267
Provisions for liabilities and    23     46,663             31,352
charges
Other long-term payables          22     325,835            20,971
Total non-current liabilities           13,916,571         5,911,946
Current liabilities:
Trade and other payables          20     8,795,207          6,937,737
Short-term borrowings             16     2,190,520          1,973,886
Provisions for liabilities and    23     299,407            161,524
charges
Finance lease liability           17     7,568              9
Pension liability                 18     51,385             32,333
Current income tax payable               26,349             293,640
Other taxes payable               21     899,108            644,737
Total current liabilities               12,269,544         10,043,866
TOTAL LIABILITIES                       26,186,115         15,955,812
TOTAL EQUITY AND LIABILITIES            39,719,064         28,015,674

HMS Hydraulic Machines & Systems Group plc

Consolidated Statement of Comprehensive Income for the year ended 31         
December 2012

(in thousands of Russian Roubles, unless otherwise stated)

                                                               
                                       Note                
                                                 2012           2011
                                                                             
Revenue                                  27      33,655,644     27,495,553
Cost of sales                            28      (23,645,228)   (19,131,496)
Gross profit                                     10,010,416     8,364,057
                                                                             
Distribution and transportation          29      (1,240,649)    (1,070,407)
expenses
General and administrative expenses      30      (3,976,804)    (2,524,655)
Other operating expenses, net            31      (555,872)      (297,843)
Excess of fair value of net assets       9       -              21,304
acquired over the cost of acquisition
Gain on revaluation of investment in
associate upon acquisition of            9, 10   -              54,948
controlling share
Operating profit                                 4,237,091      4,547,404
                                                                             
Finance income                           32      83,263         120,131
Finance costs                            33      (1,246,382)    (493,909)
Share of results of associates           10      443            93,341
                                                                             
Profit before income tax                        3,074,415      4,266,967
                                                                             
Income tax expense                       26      (772,920)      (890,434)
                                                                             
Profit for the year                             2,301,495      3,376,533
Profit attributable to:
Shareholders of the Company                      2,094,951      3,224,719
Non-controlling interest                        206,544        151,814
Profit for the year                             2,301,495      3,376,533
                                                                             
Currency translation differences                 (129,227)      (25,251)
Currency translation differences of      10      (5,285)        5,092
associates
                                                                             
Other comprehensive loss for the year           (134,512)      (20,159)
Total comprehensive income for the              2,166,983      3,356,374
year
Total comprehensive income
attributable to:
Shareholders of the Company                      1,976,447      3,230,744
Non-controlling interest                       190,536        125,630
Total comprehensive income for the             2,166,983      3,356,374
year
                                                                             
Basic and diluted earnings per
ordinary share for profit attributable
to                                      24      17.89          27.88
the ordinary shareholders (RR per
share)

HMS Hydraulic Machines & Systems Group plc

Consolidated Statement of Cash Flows for the year ended 31 December 2012 

(in thousands of Russian Roubles, unless otherwise stated)

                                        Note   2012          2011
Cash flows from operating activities
Profit before income tax                          3,074,415      4,266,967
Adjustments for:
Depreciation and amortisation             6, 7    1,026,295      614,398
Loss from disposal of property, plant     31      29,182         8,432
and equipment and intangible assets
Finance income                            32      (83,263)       (120,131)
Finance costs                             33      1,246,382      493,909
Pension expenses                          18      106,549        27,555
Warranty provision                        28      13,617         31,855
Write-off of receivables                          12,073         2,236
Provision for impairment of accounts      30      65,620         (23,012)
receivable
Impairment of taxes receivable            31      11,741         -
Provision for obsolete inventories        28      111,093        28,354
Provision for VAT receivable              30      3,178          (9,185)
Provisions for legal claims               31      112,262        (21,852)
Excess of fair value of net assets        9       -              (21,304)
acquired over the cost of acquisition
Foreign exchange (income)/loss, net       31      (11,303)       45,291
Gain on revaluation of investment in
associate upon acquisition of             9, 10   -              (54,948)
controlling share
Net monetary effect on non-operating              10,777         10,371
items
Provision for tax risks                   30      (2,882)        -
Share of results of associates            10      (443)          (93,341)
Operating cash flows before working              5,725,293      5,185,595
capital changes
Increase in inventories                           (1,538,658)    (1,330,185)
Decrease in trade and other receivables           204,064        1,007,012
Increase/(decrease) in taxes payable              208,211        (518,016)
Increase/(decrease) in accounts payable           983,644        (4,772,053)
and accrued liabilities
Restricted cash                                  (31,072)       (20,335)
Cash from/(used in) operations                   5,551,482      (447,982)
Income tax paid                                   (1,296,273)    (653,314)
Interest paid                                    (1,071,294)    (493,899)
Net cash from/(used in) operating                3,183,915      (1,595,195)
activities
Cash flows from investing activities
Repayment of loans advanced                       27,866         4,174
Loans advanced                                    (32,784)       (3,317)
Proceeds from sale of property, plant             13,248         14,473
and equipment and intangible assets
Interest received                                 17             20,124
Dividends received                                976            14,670
Purchase of property, plant and                   (1,548,160)    (1,139,198)
equipment
Acquisition of intangible assets                  (74,616)       (55,080)
Acquisitions of subsidiaries, net of      9, 10   (6,689,967)    (1,049,184)
cash acquired
Net cash used in investing activities            (8,303,420)    (2,193,338)
Cash flows from financing activities
Repayments of borrowings                          (15,750,153)   (10,905,256)
Proceeds from borrowings                          22,200,957     12,616,367
Payment for finance lease                         (2,960)        (8,457)
Acquisition of non-controlling interest   9       (445)          -
in subsidiaries
Proceeds from share issue                         -              3,517,161
Expenses related to share issue                   -              (153,636)
Buy back of issued shares                 24      (31,507)       -
Dividends paid to the shareholders of     24      (1,499,692)    -
the Company
Dividends paid to non-controlling                (51,856)       (16,513)
shareholders of subsidiaries
Net cash from financing activities               4,864,344      5,049,666
Net (decrease)/increase in cash and              (255,161)      1,261,133
cash equivalents
Inflation effect on cash                         (277)          (10,770)
Effect of exchange rate changes on cash
and cash equivalents and effect of               3,057          (2,986)
translation to presentation currency
Cash and cash equivalents at the                 1,598,463      351,086
beginning of the year
Cash and cash equivalents at the end of          1,346,082      1,598,463
the year

Equity attributable to the shareholders of the Company

                                                                      Cumulative                                Non-
                          Share     Share                  Other       currency      Retained                                  Total
                 Note           premium    Treasury             translation               Total        controlling  equity
                          capital               shares     reserves                  earnings                    interest
                                                                       reserve
Balance at 1              42,510    210,862     -          38,987      (234,785)     2,892,010     2,949,584     1,503,075     4,452,659
January 2011
Profit for the           -         -           -          -           -             3,224,719     3,224,719     151,814       -
year
Other
comprehensive
income/(loss)
Change in
cumulative
currency                  -         -           -          -           933           -             933           (26,184)      (25,251)
translation
reserve
Share of
comprehensive            -         -           -          -           5,092         -             5,092         -             5,092
income from
associates
Total
comprehensive             -         -           -          -           6,025         3,224,719     3,230,744     125,630       3,356,374
income for the
year
                                                                                                                                           
Share issue        24     5,819     3,524,358   -          -           -             -             3,530,177     -             3,530,177
Expenses related
to share issue,
incurred           24     -         (127,820)   -          -           -             -             (127,820)     -             (127,820)
subsequent to 31
December 2010
Reclassification
of expenses
related to share                                
issue, incurred    24     -         (83,865)               83,865      -             -             -             -             -
prior to 31                                     -
December 2010,
upon completion
of IPO
Dividends
declared by the          -         -           -          -           -             -             -             (16,513)      (16,513)
Group’s
subsidiaries
Total
contributions by
and                       5,819     3,312,673   -          83,865      -             -             3,402,357     (16,513)      3,385,844
distributions to
owners of the
Company
                                                                                                                                           
Business           9      -         -           -          -           -             -             -             864,985       864,985
combinations
Total
transactions
with owners of
the Company,             5,819     3,312,673   -          83,865      -             -             3,402,357     848,472       4,250,829
recognised
directly in
equity
Balance at 31            48,329    3,523,535   -          122,852     (228,760)     6,116,729     9,582,685     2,477,177     12,059,862
December 2011
Effect of
hyperinflation
on opening               -         -           -          -           -             (7,438)       (7,438)       (7,517)       (14,955)
retained
earnings
Balance at 1              48,329    3,523,535   -          122,852     (228,760)     6,109,291     9,575,247     2,469,660     12,044,907
January 2012
                                                                                                                                           
Profit for the           -         -           -          -           -             2,094,951     2,094,951     206,544       2,301,495
year
Other
comprehensive
loss
Change in
cumulative
currency                  -         -           -          -           (113,219)     -             (113,219)     (16,008)      (129,227)
translation
reserve
Share of
comprehensive            -         -           -          -           (5,285)       -             (5,285)       -             (5,285)
loss from
associates
Total
comprehensive             -         -           -          -           (118,504)     2,094,951     1,976,447     190,536       2,166,983
income/(loss)
for the year
                                                                                                                                           
Buy back of        24     -         -           (31,507)   -           -             -             (31,507)      -             (31,507)
issued shares
Dividends
declared by the           -         -           -          -           -             -             -             (51,856)      (51,856)
Group’s
subsidiaries
Dividends
declared to the    24     -         -           -          -           -             (1,499,692)   (1,499,692)   -             (1,499,692)
shareholders of
the Company
Total
distributions to          -         -           (31,507)   -           -             (1,499,692)   (1,531,199)   (51,856)      (1,583,055)
owners of the
Company
Business           9
combinations
Recognition of
redemption
liability,
related to         9      -         -           -          -           -             -             -             1,218,874     1,218,874
acquisition of
share in
subsidiary
Acquisition of
non-controlling    9      -         -           -          (314,315)   -             -             (314,315)     -             (314,315)
interest in
subsidiaries
Total
transactions
with owners of
the Company,             -         -           -          -           -             40            40            (485)         (445)
recognised
directly in
equity
Balance at 31            -         -           (31,507)   (314,315)   -             (1,499,652)   (1,845,474)   1,166,533     (678,941)
December 2012

^1 EBITDA is defined as operating profit/loss adjusted for other
income/expenses, depreciation and amortization, impairment of assets,
provision for obsolete inventory, provision for impairment of accounts
receivable, unused vacation allowance, defined benefits scheme expense,
warranty provision, provision for legal claims, provision for VAT and other
taxes receivable, other provisions, excess of fair value of net assets
acquired over the cost of acquisition. This measurement basis excludes the
effects of non-recurring income and expenses on the results of the operating
segments.

^2 - ROCE is calculated as EBIT (last twelve months) divided by average total
debt plus average equity.

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HMS Group Plc