Financial Reporting. Management Accounting: Voluntary Redundancy

Transcription

1 Financial Reporting & Management Accounting: Voluntary Redundancy A Report/Essay by George Blekas CITY Liberal Studies Affiliated Institution of the University of Sheffield February

2 Abstract A Financial/Accounting investigation is being attempted having a Voluntary Redundancy Program on the main stage. Its impact, over various entities such as the balance sheet(s), financial ratios and individual accounts affected, is considered. The task becomes more difficult since the investigation in question is being complicated by posting of the financial results over two fiscal years. For simplicity reasons it is assumed that the dates where this redundancy takes place are single ones (i.e. a single day for each fiscal year), since the investigation would have been diverted if it was meant to investigate the redundancy issue equally spread over a period of time (i.e. few employees leaving every day). Furthermore the cost of the salaries of the redundant employees is being taken into consideration since the company has to bear the redundancy cost (i.e. employees compensation) but on the other hand the total operating results are diminishing due to not having to bear anymore the salaries of the departing employees. Focus is also being drawn on the way the relevant figures are being posted keeping in mind the accounting rules of Valuation, Recognition and Classification. Results are being drawn and interpreted utilizing Ratio analysis on both the short-run (same fiscal year) and also the medium-run (next fiscal year) and comparisons are being made on 2004/2005 figures with and without the redundancy scheme. 2

3 Contents 1. Introduction p.4 2. Company Profile p.5 3. Voluntary Redundancy Program (VRP) p.6 4. Accounting Records Analysis p.7 5. Financial Statements Analysis p Ratio Analysis p.10 a. Profit Margin, 2004 p.10 b. Return on Assets, 2004 p.11 c. Debt to Equity, 2004 p.12 d. Return on Equity, 2004 p.13 e Ratio Analysis Summary p Ratio Analysis p.14 a. Profit Margin, 2005 p.16 b. Return on Assets, 2005 p.16 c. Debt to Equity, 2005 p.17 d. Return on Equity, 2005 p.18 e Ratio Analysis Summary & Comparison with 2004 p Conclusion p Literature Overview p.21 3

4 1) Introduction A Financial Reporting investigation of a company s report produces valuable findings in crucial domains such as profitability and liquidity. These are actually representing a firm s overall picture and when properly monitored and analyzed can pinpoint existing or even forthcoming problems. Furthermore these findings can be a guide map pinpointing towards the direction in general terms since critical thinking is always required of proper action(s) needed to be taken by the management. In our case an evaluation of the financial impact of employment redundancy is being performed. We shall step into Chief Financing Officer s (CFO) shoes in order to study/evaluate the redundancy versus accounting and financial implications. For this reason a case study will be utilized, based on actual data, in order to shed light behind the numbers, or even better through them, and reaching conclusions taking into consideration financial reporting and accounting theories/principles. Remark: Some of the presented figures might have a last decimal discrepancy due to rounding. 4

5 2) Company Profile Intracom S.A. (the Firm) is the largest multinational Information & Communications Technology (ICT) solutions provider headquartered in Greece. It was founded in 1977 and is listed on the Athens Stock Exchange since The Firm serves primarily the following business markets: Telecommunications Government Banking & Enterprise Defence The Firm s activities are organized along three Sectors (Operating Divisions): Telecommunications Systems, Services & Operations, and Defence Electronics (appendix 1: Organizational Plan). The Firm, at November 2005, was employing professionals of whom 60% corresponds to higher education graduates with extensive scientific training (appendix 2: Human Resources Distribution): 19% Postgraduate Studies (MSc, PhD) 40% University - College Degree 41% High School - Junior College Degree In 2004, the Firm s revenues reached 478M and profit before taxes reached 36,1M. 5

6 3) Voluntary Redundancy Program (VRP) Employment redundancy is the planned process of cutting back on human resources (Hardy, 1986). On 1 st of November 2004 the Firm announced its VRP in an attempt to reduce its personnel. Eligible applicants were those having at least two years of employment and also having a labour contract of indefinite period. Both direct and indirect motives have been introduced (additional compensation apart from the one specified by the law, insurance coverage for a year after disengagement, etc). The program was initially announced to end by the end of December 2004 while afterwards it has been extended until 31/3/2005. For simplicity reasons it is assumed that the dates the VRP takes place (i.e. the relevant accounts are being debited) are on 31/12/2004 and 31/3/2005, impacting the fiscal years 2004 and 2005 respectively, since the investigation would have been diverted if it was meant to investigate a VRP equally spread over a period of time (i.e. few employees departing every day) Calculations performed based on applicants number along with the relevant categorization of each of them (i.e. expertise, level of salary, etc), raised the cost of the redundancy program to the amount of 11,490M. The Firm decided to post the amount of 3,853M in the Profit and Loss Statement of the financial year 2004, the amount of 4,418M to be covered by existing provision, while the amount of 3,219M to be posted in the Profit and Loss Statement of the financial year 2005 (appendix 3: 2004 Balance Sheet along with 2003 and partially 2002 and 2001, appendix 4: VRP Posting Cost Summary). What is not clear at the present point is whether the existing provisions account was going 6

7 to be utilized once (i.e. only 2004) or twice (for both 2004 and 2005) and by which proportion. The issue is investigated further on. 4) Accounting Records Analysis Employees willing to participate in the redundancy program have applied to do so through the Human Resources Directorate. Utilizing this approach the Firm had precise picture of the personnel (to be) involved in the program and was able to perform custom tailoring according to its needs (upon program s announcement it was stated that it was on the Firm s discretion to accept any filled application). The aforementioned allowed the Firm to have a precise cost calculation and thus fulfilling the Valuation accounting rule. Parallel the Recognition rule has also been addressed since the program span a two year fiscal period and thus the required trimming when/if needed could have taken place (i.e acceptance of application). The last but not least accounting rule of the Classification has been addressed by Firm s on a two-pole scheme: Administrative Expenses: part of the Profit & Loss account (i.e. Income Statement). The relevant distribution has been performed based on Firm s decision of distribution of redundancy personnel over the program s period Provision for severance and retirement payment: The amount remaining after the cost distribution on the Profit & Loss accounts of 2004 and 2005 is being recorded in this account. According to 7

8 relevant legislation the Firm is obliged to maintain such an account in order to be able to compensate for severances and retirements. This account is updated and presents a debit balance since 1987 Upon expiration of the program, on 31/3/2005, three hundred ninety one (391) people have been successfully awarded. 5) Financial Statements Analysis The Owners (i.e. shareholders) Equity & Liabilities Statement has been impacted in its Provision for severance and retirement pay account. This long term liability account at 31/12/2003 presented a credit balance of 6,239M while at 31/12/2004 the same account presents a credit balance of 4,266M. During 2004 only very few employees have been retired, and thus these can be taken out of the equation, assuming that the difference of 1,973M was utilized to cover a portion of the VRP. The Provisions account of 2004 has been debited accordingly. According to the Firm s statement on 2004 Balance Sheet an amount of 4,418M is to be debited to the Provisions account. Following the aforementioned the amount of 4,418M - 1,973M = 2,445M was to be debited on the 2005 Provisions account. 8

9 The Profit & Loss account has been similarly utilized and was debited for an amount of 7,072M for both 2004 and This account is actually consisted of three sub-accounts of: Administrative Expenses Research & Development Expenses Distribution Expenses All of them have been debited accordingly based on the number of applicants per category along with applicants weight (i.e. cost based on existing salary, years of employment impacting on VRP compensation, etc) for the total of 7,072M. According to the Firm s decision this amount was distributed as 3,853M on 2004 and 3,219M on Summing up we have total debits of: 2004: 1,973M + 3,853Μ = 5,826Μ 2005: 2,445M + 3,219Μ = 5,664Μ The aforementioned indicate how the Firm has distributed the cost over the VRP s period (1/11/ /3/2005). Although VRP spans over two months of 2004 and three months of 2005 and while the time distribution percentages are 40% and 60% the actual cost distribution percentages are 49% and 51% respectively. Based on the analysis performed on chapter 4 it can be deducted that the Firm utilized the applications approvals the best way possible in order to achieve acceptable cost distribution between the two fiscal years. 9

10 6) 2004 Ratio Analysis Utilizing ratios analysis we can reach meaningful conclusions out of the figures contained in the Balance Sheet(s) and the relevant statements. Its primary purpose is to pinpoint areas needing further investigation (Needles, 2005) and thus allowing management to proceed to the relevant countermeasurements. However applied and interpreted intelligently, financial ratios are very powerful analytical and planning tools, but they should carry a wealth warning as their improper use can lead to erroneous diagnoses and invalid conclusions (McMenamin, 1999). These are analyzed below based on Firm s Balance Sheets impacted by the VRP (appendix 5: Ratio Analysis). a) Profit Margin, 2004 A ratio presenting the percentage of the Sales resulted in Net Income: Profit Margin = Net Income Net Sales In the Firm s case, and for the year 2004, the ratio was: Profit Margin = Net Income Net Sales 36,113M = = 7,55% 478,017Μ In case of not having implementing the VRP, the Firm would not have debited its Profit & Loss account for an amount of 3,853M and thus would have achieved an increased Net Income impacting its Profit Margin: 10

11 Profit Margin = Net Income Net Sales 39,966M = = 8,36% 478,017Μ A difference of -0,81 percent exists which translates into 0,81 less net income received for every Euro of goods sold. b) Return on Assets, 2004 Presents the relationship of achieved income per asset: Return on Assets = Net Income Average Total Assets In the Firm s case, and for the year 2004, the ratio was: Return on Assets = Net Income Average Total Assets = 36,113M = 2,86% 1.264,218Μ If VRP had not been implemented the Firm would not have debited its Profit & Loss account for an amount of 3,853M and thus would have an increased Net Income resulting in an increased Return on Assets: Return on Assets = Net Income Average Total Assets = 39,966M = 3,16% 1.264,218Μ The difference of -0,30 percent stands of 0,30 less income received for every Euro of the Firm s assets. 11

12 c) Debt to Equity, 2004 States the correlation of external financing (i.e. creditors) versus self financing (i.e. stakeholders): Debt to Equity = Total Liabilities Owners' Equity In the Firm s case, and for the year 2004, the ratio has been calculated: Debt to Equity = Total Liabilities Owners' Equity 487,204M = = 70,03% 695,730Μ VRP not having been implemented, the Firm would not have debited its Owners Equity account for an amount of 1,973M, corresponding to Provision for severance and retirement pay, and thus would have experienced less Total Liabilities and consequently a better Debt to Equity ratio: Debt to Equity = Total Liabilities Owners' Equity 485,231M = = 69,74% 695,730Μ The interpretation of the aforementioned is that an additional percentage of +0,28 percent of the Firm is being financed by its creditors. 12

13 d) Return on Equity, 2004 A ratio presenting the Net Income earned over Owners Equity (averaged): Return on Equity = Net Income Average Owners' Equity In the Firm s case, and for the year 2004, the ratio was: Return on Equity = Net Income Average Owners' Equity 36,113M = = 5,23% 691,121Μ In case VRP had not been implemented the Firm would not have debited its Profit & Loss account for an amount of 3,853M and thus would have achieved an increased Net Income impacting its Return on Equity: Return on Equity = Net Income Average Owners' Equity 39,966M = = 5,78% 691,121Μ The difference of -0,55 percent stands of 0,55 less income received for every Euro of the investment (i.e. Owners Equity). e) 2004 Ratio Analysis Summary Compared to the Firm not having implemented VRP it can be identified that the overall Firm s picture has diminished. The Firm has made less profit 13

14 per sales, achieved less return out of its assets, was financed more by external sources instead of its own and had achieved less profit compared to its investment. All of the aforementioned are valid but it is needed to be kept in mind that this was a short-term analysis of the VRP s impact. 7) 2005 Ratio Analysis For the year 2005 the actual figures are available (i.e. published and made public by the Firm) only for the first half of the year (appendix 6: Financial Information 1/1/ /6/2005) requiring some assumption(s) to be made in order to obtain comparable figures. This can be that the Firm is not involved in a seasonal business and thus it can be quite safely assumed that its business volume on the second half of 2005 will be similar to that of the first half. This involves mostly ratios such as Return on Assets and Return on Equity heavily impacted by Net Income on which the numerator is being influenced by the time period (i.e. first half versus whole 2005) while the denominator is fairly stable over it, and less Debt to Equity impacted by the Provision account. The Profit and Loss account has been debited for an amount of 3,219M due to the VRP. On the other hand VRP was completed on 31/3/2005 having 391 participants of whom, according to the cost distribution investigated on chapter 5, 192 of them (49%) were posted during 2004 and the remaining 199 (51%) on Thus the salary cost of the 192 employees involved by 31/12/2004 has not debited this account at all as it should if the VRP had not been performed. Similarly the salary cost of the remaining 199 employees 14

15 involved by 31/3/2005 has not debited this account, as it should if the VRP had not been performed, for 2005Q2. In terms of figures, an approximation might be utilizing the average monthly salary cost of an employ times the employees involved in the VRP (for simplicity reasons we assume that employees have been awarded on 31/12/2004 and 31/3/2005 respectively): 192 employees x x 6 months = 2,650M 199 employees x x 3 months = 1,373M For the first half of the year 2005, the Firm had 4,023M less liabilities due to VRP and thus the Profit & Loss account has totally been credited, instead of debited, for the amount of 4,023M - 3,219M = 0,804M. Since for some ratios we have to perform the calculations for the whole 2005 the relevant amounts are: 192 employees x x 12 months = 5,299M 199 employees x x 9 months = 4,119M So for the full year 2005, the Firm would have 9,418Μ less liabilities due to VRP and thus the Profit & Loss account would, on the total, have been credited, instead of debited, for the amount of 9,418Μ - 3,219M = 6,199M. It is also assumed that in order to satisfy the accounting rule of Recognition the amounts to be debited during 2005 due to VRP have been debited on the first half where the VRP took place. 15

16 a) Profit Margin, 2005 Profit Margin = Net Income Net Sales 16,331M = = 8,93% 182,776Μ In case of not having implementing the VRP the Firm would not have debited its Profit and Loss account for an amount of 3,219M but as it was mentioned before would have had to debit this account for an amount 4,023M due to employees salary cost. Thus the actual impact of the VRP to this account during the first half of 2005 would be 4,023M - 3,219 = 0,804M which affects the Net Income and consequently the Profit Margin: Profit Margin = Net Income Net Sales 15,527M = = 8,50% 182,776Μ A difference of +0,43 percent exists which translates into 0,43 more income received for every Euro of sales. b) Return on Assets, 2005 Return on Assets = Net Income Average Total Assets = 16,331M x ,913Μ = 2,81% Following the aforementioned in case of not having implementing the VRP the Firm would not have debited its Profit & Loss account for an amount of 3,219M but on the other hand it should have debited this account for an amount of 9,418Μ corresponding to the cost of

17 employees still being on the payroll. Thus, the Firm would have sustained a reduction in Net Income resulting in a reduced Return on Assets: Return on Assets = Net Income Average Total Assets = ( 16,331Μ x 2) + 3,219M 9,418M 1.161,913Μ = 2,28% The difference of +0,53 percent stands for 0,53 more income received for every Euro of the Firm s assets. c) Debt to Equity, 2005 Debt to Equity = Total Liabilities Owners' Equity 529,788M = = 88,35% 599,666Μ In case of not having implementing the VRP the Firm would not have debited its Owners Equity account for an amount of 2,445M, corresponding to Provision for severance and retirement pay, and thus would have experienced less Total Liabilities and consequently a better Debt to Equity ratio: Debt to Equity = Total Liabilities Owners' Equity 527,343M = = 87,94% 599,666Μ The interpretation of the aforementioned is that an additional percentage of +0,41 percent of the Firm is being financed by its creditors. 17

18 d) Return on Equity, 2005 Return on Equity = Net Income = Average Owners' Equity 16,331M x 2 647,698Μ = 5,04% In case of not having implementing the VRP the Firm would not have debited its Profit and Loss account for an amount of 3,219M but it would have had to debit this account for an amount 9,418M due to employees salary cost. Thus the actual impact of the VRP to this account during the first half of 2005 would be 4,023M - 3,219 = 0,804M which affects the Net Income and consequently the Profit Margin: Return on Equity = ( 16,331Μ x 2) + 3,219M 9,418M 647,698Μ = 4,09% Net Income Average Owners' Equity = The difference of +0,96 percent stands of 0,96 more income received for every Euro of the investment (i.e. Owners Equity). e) 2005 Ratio Analysis Summary & Comparison with 2004 The Profit Margin taking the VRP in mind has been improved from 7,55% on 2004 to 8,93% on 2005 for a difference of +1,38%. Similarly, in case the VRP was not performed, the improvement of 2005 over 2004 would have been a mere +0,14% (8,36% for 2004 versus 8,50% for 2005) 18

19 The Return on Assets has slightly diminished, by -0,05% (2,86% for 2004 and 2,81% for 2005) while in case of not implementing the VRP it would have diminished much more for a percentage of -0,88% (3,16% for 2004 versus 2,28% for 2005) The Debt to Equity have increased from 70,03% in 2004 to 88,35% in 2005 for a total of +18,32% while in case of not having the VRP the figures would have been 69,74% on 2004 versus 87,94% on 2005 for a similar difference of +18,20% The Return on Equity has diminished by -0,19% (5,23% on 2004 versus 5,04% on 2005) while by avoiding the VRP would have diminished by -1,69% (5,78% on 2004 versus 4,09% on 2005) 8) Conclusion Comparing the issue of having or not the VRP and its impact over the various ratios it has been shown that although in the short term (i.e. 2004) all ratios have diminished moderately (except Debt to Equity which actually works in reverse) the situation have turned around on the middle run (i.e. 2005) where the ratios have either simply mitigated (i.e. Profit Margin) or simply crossed over to the positive side (i.e. Return on Assets, Return on Equity). Furthermore, and by the general picture we presented on chapter 7e, it seems that the financial results of the Firm would have been more depressing instead of the present ones utilizing the VRP. 19

20 As presented a Voluntary Redundancy Program might prove to be a useful tool for an organization in it s pursuit of prosperity. However what needs to be borne in mind is that the relevant timing, amount and category of personnel involved, and lastly, but definitely not least, the proper posting of its financial results. 20

21 Literature Review Published Literature (Books/Journals) Hardy, C. (1986) Strategies for Redundancy: Reconciling Individual and Organizational Needs. Canadian Journal of Administrative Science, 3, p.275. McMenamin, J. (1999) Financial Management: An Introduction. Routledge, p.322. Needles, B. et al (2005) Principles of Accounting. 9 th Edition. USA, Houghton Mifflin Company, p.765. Online Literature/Sources Intracom S.A. (2006) Organisation. [online]. Available from: [Accessed 23/2/2006] Intracom S.A. (2006) Human Resources. [online]. Available from: [Accessed 23/2/2006] Intracom S.A. (2006) Investor Relations: Financial Statements. [online]. Available from: [Accessed 8/2/2006] 21

22 APPENDIX 1 INTRACOM S.A. Organizational Plan 22

23 APPENDIX 2 Human Resources Distribution by Educational Background 19% Postgraduate Studies (MSc, PhD) 40% University - College Degree 41% High School - Junior College Degree Data: November 2005 Human Resources Distribution by Function 21% Production-Systems Operation 14% Technical Support 20% Research & Development 22% Software Development 15% Administration/Finance 8% Marketing & Sales Data: November

24 APPENDIX 3 BALANCE SHEET AS AT DECEMBER 31st, th FINANCIAL YEAR ( ) ASSETS As at 31/12/2004 As at 31/12/2003 (Adjusted) ACQUISITION ACCUMULATED NET ACQUISITION ACCUMULATED NET COST DEPRECIATION BOOK VALUE COST DEPRECIATION BOOK VALUE B. INCORPORATION EXPENSES 4. Other establishment expenses , , , , , , , , , , , ,56 C. FIXED ASSETS I. INTANGIBLE FIXED ASSETS 1. Research & development expenses , , , , , ,46 2. Concessions and rights , , , , , ,25 3. Goodwill Other Intangible Assets , ,61 0, , ,61 0, , , , , , ,72 II. TANGIBLE FIXED ASSETS 1. Land , , , ,30 3. Buildings & structures , , , , , ,46 4. Machinery, installations & instruments

25 - Machinery , , , , , ,12 - Instruments , , , , , ,78 5. Motor Vehicles , , , , , ,21 6. Furniture & other equipment - Furniture & fittings , , , , , ,93 - Office Equipment , , , , , ,00 - Computers , , , , , ,40 7. Tangible assets under construction & advances , , , , , , , , , ,00 INTANGIBLE & TANGIBLE FIXED ASSETS (CI+CII) , , , , , ,72 III. EQUITY PARTICIPATIONS AND OTHER LONG-TERM RECEIVABLES 1. Equity participations in related companies , ,90 2. Equity participations in other companies , ,49 Less: Provisions for devaluations , , , ,89 6. Long - Term Equity participations , Other long-term receivables , , , ,47 TOTAL FIXED ASSETS (CI+CII+CIII) , ,19 D. CURRENT ASSETS I. INVENTORIES 1. Merchandise , ,66 2. Finished and semifinished goods, by-products , ,08 3. Work in progress , ,16 4. Raw materials, spare parts & packing materials , ,84 5. Advances for inventory purchases , , , ,99 II. RECEIVABLES 1. Trade debtors , ,89 Less Provisions for bad & doubtful debts , , , ,99 25

26 3a. Cheques receivable , , Sundry debtors , , Account for the management of advances and credits , , , ,12 III. SECURITIES 1. Shares , ,58 4. Treasury stock , ,20 Less Provisions for devaluation of shares , , , ,90 IV. BANK AND CASH 1. Cash , ,73 3. Bank accounts , , , ,05 TOTAL CURRENT ASSETS (DI+DII+DIII+DIV) , , , ,00 E. TRANSITORY ASSET ACCOUNTS 1. Deferred expenses , ,22 2. Accrued income , ,17 3. Other transitory asset accounts , , , ,57 TOTAL ASSETS ( B + C + D + E ) , , , ,00 CONTINGENT DEBIT ACCOUNTS 2. Letters of Guarantee & guarantees granted , ,40 3. Receivables under dual binding contracts , ,00 4. Other contingent debit accounts , , , ,36 26

27 SHAREHOLDERS' EQUITY AND LIABILITIES As at 31/12/2004 As at 31/12/2003 (Adjusted) A. SHAREHOLDERS' EQUITY (SHARE CAPITAL & RESERVES) I. SHARE CAPITAL ( Common Registered Shares of 2,11each) 1. Paid up share capital , ,55 II. SHARE PREMIUM , ,55 1. Paid up share premium , ,21 III. REVALUATION & SUBSIDIES RESERVES , ,21 1. Reserves from equity participations and securities revaluation , ,35 3. Reserves from subsidies for investment in fixed assets , ,65 IV. RESERVES , ,00 1. Statutory reserve , ,66 3. Special reserves according to Law 1892/90 Article 23A & Law 2601/98, Article , ,25 4. Extraordinary reserves , ,55 5. Tax-exempt reserves arising from special legislation , ,92 6. Reserves for Treasury stock , , , ,58 V. RETAINED EARNINGS RESERVES 1. Profit carried forward , ,92 TOTAL SHAREHOLDERS' EQUITY (AI+AII+AIII+AIV+AV) , , , ,00 B. PROVISIONS 1. Provision for severance and retirement pay , , , ,00 2. Other provisions , , , ,50 C. LIABILITIES 27

28 I. LONG-TERM LIABILITIES 2. Bank loans , , , ,00 II. CURRENT LIABILITIES 1. Suppliers , ,64 2. Notes payable , ,16 3. Short-term bank loans , ,25 4. Trade debtors advances , ,18 5. Taxes payable , ,67 6. Social security , ,37 7. Long term liabilities payable within the next financial period Dividends payable , , Sundry accounts payable , , , ,35 TOTAL LIABILITIES (CI + CII) , , , ,00 D. TRANSITORY LIABILITY ACCOUNTS 1. Deferred income , ,68 2. Accrued expenses , ,67 3. Other transitory liability accounts , , , ,27 SHAREHOLDERS' EQUITY & TOTAL LIABILITIES ( A + B + C + D ) , ,38 CONTINGENT CREDIT ACCOUNTS 2. Letters of Guarantee and guarantees granted , ,40 3. Liabilities under dual binding contracts , ,00 4. Other contingent credit accounts , , , ,36 28

29 PROFIT and LOSS ACCOUNT at 31/12/2004 at 31/12/2003 (Adjusted) I. OPERATING RESULTS Sales , , , ,00 Less : Cost of goods sold , ,81 Gross profit , ,16 Plus : Other operating income , ,96 Less : TOTAL , ,12 1. Administrative expenses , ,38 2. Research and development expenses , ,21 3. Distribution Expenses , ,61 Plus : , ,20 SUBTOTAL FOR OPERATING PROFIT , ,92 1. Income from equity participations , ,95 2. Income from securities , ,60 3. Gains from the sale of equity participations & securities , ,00 4. Interest & other relevant income , , , ,67 Less : 1. Provisions against devaluation of equity participations & securities ,00 2. Expenses & losses from securities , ,00 3. Interest & other relevant expenses , , , , , ,78 NET OPERATING PROFIT , ,70 II. PLUS EXTRAORDINARY & OPERATING RESULTS 1. Extraordinary & non-operating income , ,75 2. Extraordinary gains , ,60 29

30 3. Prior years' income , ,25 4. Receipts from prior years provisions , , , ,00 Less: 1. Extraordinary & non-operating expenses , ,46 2. Extraordinary losses , ,61 3. Prior years' expenses , ,33 4. Provisions for bad & doubtful debts , , , , , ,41 NET OPERATING & EXTRAORDINARY PROFIT , ,29 Less: Depreciation of fixed assets , ,63 Less: Depreciation included in operating cost , , , ,51 PROFIT BEFORE TAX , , , ,00 30

31 APPROPRIATION ACCOUNT For the year ended 31/12/2004 For the year ended 31/12/20043 PROFIT BEFORE TAX , ,78 (+) : Retained earnings brought forward , ,94 (-) : Tax audit differences from previous years ,00 (+) : Reserves after tax to be distributed , ,65 TOTAL , ,37 Less: 1. Income tax , ,74 2. Other taxes not included in operating cost , ,01 PROFIT TO BE DISTRIBUTED , ,62 Profit is distributed as follows: 1. Statutory reserve , ,00 2. Dividends from current year profit , ,85 - Dividends from prior years profit , ,65 2a. Reserves for Own Shares buy back , ,20 5. Special & Extraordinary reserves 5a. Extraordinary reserves , ,00 5b. Special reserves according to Law 2601/98, Article Tax-exempt reserves 000 6a. Reserves from tax-exempt income according to Law 3220/2004, Article , b. Reserves from specially taxed income Board of directors' fees , ,00 8. Retained earnings carried forward , , , ,62 31

32 NOTES: 1. Upon the 20/12/2004 decision of the Board of Directors, Company's Share Capital increased by 913,138,37 through the issuance of 432,767 new shares and was paid up in cash. Upon the resolutions of the same decision, Company's "share premium reserves" account increased by 333, The aforementioned amount was paid in from those who exercised their preemptive roghts (L. 2190/1920,par. 9, art. 13), upon the decisions of the Shareholders General Meetings of 28/06/2000, 18/07/2001 and 12/06/ According to Company s decision, announced to the employees on 01/11/2004, a redundancy program was materialized. The total cost of this programme, as of today, amounts to 11,489,997,37 of which ( 4,417,899.52) is covered by existing provision. 3. The devaluation difference of Equity Participations and Securities account of 5,396, was counterbalanced by existing reserves of L. 3229/2004, article The account "Equity participations and other long term receivables" includes overdue receivables of client abroad of Company s Legal Advisor the recourse has significant probability to proliferate. Apart from this case, there are no litigation or other issues that can influence materially the Company s assets and liabilities structure and it s financial position. 5. For compatibility reasons some figures of FY 2003 have been adjusted where needed. 32

33 APPENDIX 4 VRP Posting Cost Summary Amount ( ) (negative numbers corresponds to DEBIT) Account st Half of 2005 WITHOUT Redundancy FULL 2005 WITHOUT Redundancy 2004 TOTALS Profit & Loss Operating Expenses Administrative Expenses Shareholders' Equity & Liabilities Provisions Provision for severance and retirement pay TOTALS , Cost Distribution 49,30% 50,70% 33

34 APPENDIX 5 Ratio Analysis PROFITABILITY Ratios As at 30/6/ WITHOUT Redundancy Description Profit Margin= Net Income (net profit) , ,00 8,93% 0,44% 8,50% Net Sales , ,00 Percentage of SALES ( ) that results in NET INCOME Asset Turnover= Net Sales ,00 Average Total Assets ,97 0,16 0,16 NOT CHANGED Euro of SALES generated by each Euro of ASSETS Net Income (net Return on profit) , ,00 2,81% 0,53% 2,28% Assets= Average Total Assets , ,97 NET INCOME genereated by each Euro of ASSETS Debt to Equity= Return on Equity= Total Liabilities , ,00 88,35% 0,41% 87,94% Owner's Equity , ,00 Net Income (net profit) , ,00 5,04% 0,96% 4,09% Average Owner's , ,87 Equity Percentage of the Firm financed by CREDITORS in comparison with that financed by OWNERS SALES Euro earned for each Euro of EQUITY (investment) Legend: 1st Half of 2005 Adjusted for FULL 2005 Adjusted WITHOUT Redundancy 34

35 PROFITABILITY Ratios As at 31/12/ WITHOUT Redundancy Description Profit Margin= Net Income (net profit) , ,57 7,55% Net Sales ,80 0,81% ,80 8,36% Percentage of SALES ( ) that results in NET INCOME Asset Turnover= Net Sales ,80 Average Total Assets ,66 0,38 0,38 NOT CHANGED Euro of SALES generated by each Euro of ASSETS Net Income (net Return on profit) , ,57 2,86% 3,16% Assets= Average Total Assets ,66 0,30% ,66 NET INCOME genereated by each Euro of ASSETS Debt to Equity= Total Liabilities , ,22 70,03% 0,28% 69,74% Owner's Equity , ,73 Percentage of the Firm financed by CREDITORS in comparison with that financed by OWNERS Return on Equity= Net Income (net profit) , ,57 5,23% Average Owner's ,50 0,56% ,50 Equity 5,78% SALES Euro earned for each Euro of EQUITY (investment) Legend: 1st Half of 2005 Adjusted for FULL 2005 Adjusted WITHOUT Redundancy 35

36 APPENDIX 6 FINANCIAL INFORMATION For the period 1 January 2005 to 30 June