Krakow, 14 August 2017

Transcription

1 Krakow, 14 August 2017 CONSOLIDATED INTERIM REPORT FOR Q2 2017

2 TABLE OF CONTENTS I. LETTER OF THE PRESIDENT OF THE MANAGEMENT BOARD... 3 II. INTRODUCTION... 4 III. KEY INFORMATION CONCERNING THE ISSUER... 5 IV. CONDENSED QUARTERLY FINANCIAL STATEMENTS OF THE COMPANY AND THE GROUP... 7 V. INFORMATION ON PRINCIPLES ADOPTED FOR PREPARATION OF THE REPORT, INCLUDING INFORMATION ON CHANGES IN THE ACCOUNTING POLICIES VI. BRIEF DESCRIPTION OF THE ISSUER'S SIGNIFICANT ACHIEVEMENTS OR FAILURES DURING THE REPORTING PERION ALONG WITH DETAILS OF THE MOST IMPORTANT FACTORS AND EVENTS, ESPECIALLY THOSE OF UNUSUAL NATURE, AFFECTING THE RESULTS ACHIEVED BY THE ISSUER THE GROUP SUMMARY OF FINANCIAL PERFORMANCE OF THE GROUP SUMMA LINGUAE MAYFLOWER LANGUAGE SERVICES SUMMA LINGUAE ROMANIA VII. WHERE THE ISSUER PUBLISHED EARNINGS GUIDANCE - THE POSITION AS REGARDS ITS FEASIBILITY IN THE YEAR CONCERNED, IN LIGHT OF THE RESULTS PRESENTED IN THE QUARTERLY REPORT VIII. WHERE THE ISSUER'S INFORMATION DOCUMENT CONTAINED THE INFORMATION REFERRED TO IN ARTICLE 10(13A) OF EXHIBIT 1 TO THE ALTERNATIVE TRADING SYSTEM RULES - DESCRIPTION OF THE ADVANCEMENT OF THE ISSUER'S OPERATIONS AND INVESTMENTS ALONG WITH THE SCHEDULE OF THEIR IMPLEMENTATION IX. WHERE THE ISSUER UNDERTOOK DURING THE REPORTING PERIOD INITIATIVES TO INTRODUCE IN THE COMPANY INNOVATIVE SOLUTIONS AIMED AT THE DEVELOPMENT OF ITS BUSINESS - INFORMATION ON SUCH ACTIVITY X. THE NUMBER OF THE ISSUER'S EMPLOYEES IN FULL-TIME EQUIVALENTS XI. DESCRIPTION OF THE STRUCTURE OF THE GROUP WITH INFORMATION ON THE CONSOLIDATED ENTITIES Page 2

3 XII. WHERE THE ISSUER IS THE PARENT OF A GROUP AND DOES NOT PREPARE CONSOLIDATED FINANCIAL STATEMENTS - THE REASON WHY SUCH STATEMENTS ARE NOT PREPARED XIII. INFORMATION ON THE ISSUER'S SHAREHOLDING STRUCTURE WITH DETAILS OF SHAREHOLDERS HOLDING, AS OF THE DATE OF THE REPORT, AT LEAST 5% OF VOTES AT THE GENERAL MEETING I. LETTER OF THE PRESIDENT OF THE MANAGEMENT BOARD Dear Sirs, On behalf of Summa Linguae S.A. ( Company ), as its President of the Management Board, I hereby present to you the Company's interim report for Q The Report includes information concerning both the Parent Company - Summa Linguae - and its subsidiary and jointly controlled entity - Summa Linguae Romania and Mayflower Language Services. Our consolidated revenue for Q amounted to PLN 2,376 thousand. Yet again, it is the highest quarterly revenue in the Company's history, with an increase of 8% compared to Q and of 75% compared to Q (i.e. to separate revenue from the period preceding the foreign investments). Both the Polish company, Summa Linguae S.A., and the Indian company, Mayflower Language Services Pvt. Ltd., reported an increase in revenue (+5.5% y/y vs.+33.1% y/y, respectively). Higher sales were also reported by the Romanian company, Summa Linguae Romania S.r.l., whose revenue more than quadrupled q/q and which accounted for as much as 14% of total revenue in the Group in Q2 (compared to 3% in Q1 2017). The consolidated EBITDA for Q was negative and amounted to PLN thousand, which is a similar result to the one reported in Q is the period of intense investments aimed at upscaling the Group's operations which would allow us to enter the recognized group of the largest translation corporations not only in Europe, but also in the world, in the coming years. Our decision to follow such a dynamic development path implies a temporary increase in the fixed costs to sales ratio, which directly translates into the relatively low profit, or even into a temporary loss. However, judging by the current interest in our services at the global level, we have reasons to believe that our strategy and investments will soon generate measurable effects. We continue to intensify our sales operations addressed to prospective corporate customers, with particular focus on industries with development potential. We also continue to believe that the relatively new group of services focused on the outsourcing of resources offers an opportunity to significantly increase our revenue. As this prospective group of services is already beginning to generate economic effects of higher profitability than those generated by traditional translation services, it may become one of the main sources of our growth. The benefits related to the location of our offices and thus our resources in the global outsourcing centers (Krakow, Page 3

4 Bangalore, Bucharest) foster the growth of our Group in this respect, as they provide a significant competitive advantage. I would like to express my gratitude to our Investors, business partners and colleagues for their trust and cooperation, and kindly invite you to get familiar with this Report. Krzysztof Zdanowski President of the Management Board of Summa Linguae S.A. II. INTRODUCTION Summa Linguae S.A. based in Krakow ( Company, Issuer ) is a leading company operating on the translation services market in Poland. The Issuer provides translation and interpreting services for virtually all industries, in more than 70 languages and in all forms of translation and interpreting. Services offered by Summa Linguae S.A. are addressed to a wide group of customers: a. corporations, including international ones, SMEs, associations and other private organizations, b. Polish and international public institutions, c. LSPs in Poland and abroad. The services provided by the Issuer include e.g.: a. standard and certified translations and standard and sworn interpreting, b. localization of applications, games, e-learning platforms, websites and videos, c. text reviewing, edition and proofreading, d. organization of simultaneous interpreting with the provision of relevant equipment, e. organization of conferences, f. accompanying interpreting, also away, g. machine translations, post-edition of machine translations (MT / PEMT), h. voice-over, i. staff outsourcing for LSPs. Within the period of the operation of the Company and its legal predecessors, the Company has translated more than 2 million pages and interpreted for 100 thousand hours in the framework of several dozen thousand projects for more than 1.4 thousand corporate customers and nearly 100 different public institutions. Page 4

5 The Company's strategy provides for dynamic growth through, among others, acquisitions and the consolidation of the translation services market Merger of Busy B Translations Sp. z o.o. and Spectraling Sp. z o.o. Summa Linguae S.A. is founded Acquisition of the infrastructure and ongoing projects of Contact Language Services Sp. j. (the formal acquisition took place in 2014) Acquisition of International Translators Group s.c Acquisition of Transmart Business Services Sp. z o.o. Sp. k. (with access to Transmart.System) Signing of an investment agreement providing for exchanging shares (25% of shares in the share capital) in Mayflower Language Services Pvt Ltd, based in Bangalore (India), for shares in Summa Linguae S.A Signing of an investment agreement providing for the acquisition of 59.99% of shares in Certitude Eurologos S.r.l. based in Bangalore (Romania), and change of the company's name into Summa Linguae Romania S.r.l. (the shares were acquired in January 2017). III. KEY INFORMATION CONCERNING THE ISSUER PARENT COMPANY Name Registered office Governing bodies Summa Linguae S.A. ul. Lublańska 34, Kraków Management Board composed of: Krzysztof Zdanowski - President of the Management Board Foundation date 26 October 2011 National Court Register The Company is entered in the register of companies kept by the District Court for Krakow - Śródmieście in Krakow, 11 th Economic Division of the National Court Register under KRS number VAT identification number REGON statistical number Core business Z (PKD 2007): Translation and interpreting services Share capital PLN 248, Phone number Tel Tel Page 5

6 Fax number Fax Website JOINTLY CONTROLLED COMPANY Name Registered office Governing bodies Registration data Core business Mayflower Language Services Pvt Ltd No. 104, 2nd Floor, Infantry Techno Park, Infantry Road, Shivajinagar, Bangalore , India Management Board composed of: Madhuri Hegde - President of the Management Board Corporate Identification Number U74140KA2003PTC Translation and interpreting services Share capital INR 155,010 (PLN 8, as at 30 June 2017) Phone number Website Tel Tel connect@mayflowerlanguages.com SUBSIDIARY COMPANY Page 6

7 Name Registered office Summa Linguae Romania S.r.l. Calea Plevnei 20, scara B, interfon 28, sector 1, Bucuresti, Romania Governing bodies Management Board composed of: Irina Didoiu President of the Management Board Registration data Registry of Commerce: J40/334/2012 CUI: RO Core business Translation and interpreting services Share capital RON 254,100 (PLN 235, as at 30 June 2017) Phone number Tel Tel Website IV. CONDENSED QUARTERLY FINANCIAL STATEMENTS OF THE COMPANY AND THE GROUP The Issuer presents financial data for Q along with comparable data for the same period of the previous year. Due to the fact that the Issuer did not form a Group in 2016, data comparable to consolidated data include only separate data concerning the Issuer. The balance sheet, income statement, cash flow statement and statement of changes in equity have been prepared pursuant to the Accounting Act of 29 September 1994 (Journal of Laws of 2016, item 1047) and its implementing acts. The presented data have not been audited. Amounts are given in PLN thousand unless otherwise specified. Table 1. Consolidated income statement for Q along with comparable data (in PLN thousand) Consolidated income statement of Summa Linguae S.A. (PLN thousand) Q1-Q Q1-Q Q Q A. Sales revenue and equivalents, of which: 4, , , , from related parties which are not fully consolidated I. Net revenue from sales of products 4, , , ,525.9 II. Movement in inventories - additions (+), withdrawals (-) III. Cost of production for internal purposes IV. Net revenue from sales of goods and materials B. Operating expenses 5, , , ,380.9 I. Amortization and depreciation II. Consumption of materials and energy Page 7

8 III. Third-party services 3, , , IV. Taxes and fees, of which: excise tax V. Salaries 1, VI. Social security and other benefits, of which: retirement pay VII. Other costs by type VIII. Value of goods and materials sold C. PROFIT/(LOSS) ON SALES (A-B) -1, D. Other operating income I. Profit on disposal of non-financial fixed assets II. Subsidies III. Revaluation of non-financial assets IV. Other operating income E. Other operating expenses I. Loss on disposal of non-financial fixed assets II. Revaluation of non-financial assets III. Other operating expenses of which: goodwill amortization F. OPERATING PROFIT/(LOSS) (C+D-E) -1, G. Financial income I. Dividends and share in profits, of which: (a) from related parties, of which: those in which the entity has equity interests (b) from other entities, of which: those in which the entity has equity interests II. Interest, of which: from related parties III. Profit on disposal of financial assets, of which: in related parties IV. Revaluation of non-financial assets V. Other H. Financial expenses I. Interest, of which: to related parties II. Loss on disposal of financial assets, of which: in related parties III. Revaluation of financial assets IV. Other I. Profit/(loss) on sale of all or part of shares in controlled entities J. PROFIT/(LOSS) ON ORDINARY ACTIVITIES (F+G-H+/-I) -1, K. Goodwill write-off I. Goodwill write-off - subsidiaries II. Goodwill write-off - jointly controlled entities L. Negative goodwill write-off I. Negative goodwill write-off - subsidiaries II. Negative goodwill write-off - jointly controlled entities M. Profit/(loss) on shares in controlled entities measured in accordance with the equity method N. PROFIT/(LOSS) BEFORE TAX (J-K+L+/-M) -1, O. Income tax P. Other obligatory charges Page 8

9 R. Minority interest profit/(loss) S. NET PROFIT/(LOSS) (N-O-P+/-R) -1, Table 2. Consolidated balance sheet as at 30 June 2017 along with comparable data (in PLN thousand) Consolidated balance sheet of Summa Linguae S.A ASSETS A. NON-CURRENT ASSETS 5, ,097.2 I. Intangible assets 4, , R&D expenses Goodwill 4, , Other intangible assets Advances for intangible assets II. Goodwill of controlled entities Goodwill - subsidiaries Goodwill - jointly controlled entities III. Property, plant and equipment Fixed assets (a) freehold land (including right of perpetual use) (b) buildings, premises, rights to premises and constructions (c) plant and machinery (d) vehicles (e) other non-current assets Fixed assets under construction Advances for fixed assets under construction IV. Non-current receivables From related parties From other entities in which the reporting entity has equity interests From other entities V. Long-term investments , Real property Intangible assets Non-current financial assets ,643.2 (a) in subsidiaries and jointly controlled entities which are not measured using the full or proportional consolidation method shares other securities loans granted other non-current financial assets (b) in subsidiaries, jointly controlled entities and affiliates measured using the equity method shares other securities loans granted other non-current financial assets (c) in other entities in which the reporting entity has equity interests 0.0 2, shares 0.0 2, other securities loans granted other non-current financial assets (d) in other entities shares other securities Page 9

10 - loans granted other non-current financial assets Other long-term investments VI. Non-current prepayments and accrued income Deferred income tax assets Other accrued income B. CURRENT ASSETS 3, ,240.7 I. Inventories Materials Semi-finished goods and work in progress Finished products Goods Advances for deliveries and services II. Current receivables 1, , Receivables from related parties (a) trade receivables, maturing: within up to 12 months in over 12 months (b) other Receivables from other entities in which the reporting entity has equity interests (a) trade receivables, maturing: within up to 12 months in over 12 months (b) other Receivables from other entities 1, ,138.8 (a) trade receivables, maturing: 1, within up to 12 months 1, in over 12 months (b) taxes, subsidies, customs duties, social and health insurance and other public liabilities (c) other (d) claimed in court III. Short-term investments 1, Current financial assets 1, (a) in subsidiaries and jointly controlled entities shares other securities loans granted other current financial assets (b) in affiliates shares other securities loans granted other current financial assets (c) in other entities shares other securities loans granted other current financial assets (d) cash and cash equivalents cash in hand and at bank other cash other financial assets Other short-term investments Page 10

11 IV. Current prepayments and accrued income C. CALLED UP SHARE CAPITAL D. TREASURY SHARES TOTAL ASSETS 9, ,337.9 EQUITY AND LIABILITIES A. EQUITY 3, ,502.4 I. Share capital II. Reserve capital, of which: 3, , share premium 3, III. Revaluation reserve, of which: fair value revaluation IV. Other capital reserves, of which: created in accordance with the Articles of Association V. Exchange rate differences from translation of foreign operations VI. Profit/(loss) carried forward VII. Net profit/(loss) -1, VIII. Net profit write-offs during the financial year (negative value) B. MINORITY INTERESTS C. NEGATIVE GOODWILL OF CONTROLLED ENTITIES I. Negative goodwill - subsidiaries II. Negative goodwill - jointly controlled entities D. LIABILITIES AND PROVISIONS FOR LIABILITIES 5, ,835.4 I. Provisions for liabilities Provision for deferred income tax Provision for retirement and similar benefits long-term short-term Other provisions long-term short-term II. Non-current liabilities 2, , Payable to related parties Payable to other entities in which the reporting entity has equity interests Payable to other entities 2, ,997.6 (a) loans and borrowings 1, (b) arising from issue of debt securities 0.0 1,448.0 (c) other financial liabilities (d) bill-of-exchange liabilities (e) other III. Current liabilities 3, Payable to related parties (a) trade liabilities, maturing: within up to 12 months in over 12 months (b) other Payable to other entities in which the reporting entity has equity interests (a) trade liabilities, maturing: within up to 12 months in over 12 months (b) other Payable to other entities 3, (a) loans and borrowings Page 11

12 (b) arising from issue of debt securities (c) other financial liabilities (d) trade liabilities, maturing: within up to 12 months in over 12 months (e) received advances for deliveries and services (f) bill-of-exchange liabilities (g) taxes, subsidies, customs duties, social and health insurance and other public liabilities (h) payroll liabilities (i) other 1, Special purpose funds IV. Accruals and deferred income Negative goodwill Other accruals and deferred income long-term short-term TOTAL EQUITY AND LIABILITIES 9, ,337.9 Table 3. Consolidated cash flow statement for Q along with comparable data (in PLN thousand) Consolidated cash flow statement of Summa Linguae S.A. A. OPERATING CASH FLOW Q1-Q Q1-Q Q Q I. NET PROFIT/(LOSS) -1, II. Adjustments (total) 2, , Minority interest profit/(loss) Profit/(loss) on shares in entities measured using the equity method Amortization and depreciation Write-off of goodwill Write-off of negative goodwill Gains/(losses) on foreign exchange differences Interest and share in profits (dividends) Profit/(loss) on investing activity Movement in provisions Movement in inventories Movement in receivables Movement in current liabilities, excluding loans and borrowings 1, , Movement in prepayments and accrued income Other adjustments III. Net operating cash flow (I+/-II) 1, , B. CASH FLOW FROM INVESTING ACTIVITIES I. Inflows Disposal of intangible assets and property, plant and equipment Disposal of investments in real property and intangible assets From financial assets, of which: (a) in entities measured using the equity method (b) in other entities sale of financial assets dividends and share in profits repayment of long-term loans granted interest Page 12

13 - other inflows from financial assets Other inflows from investments II. Outflows Purchase of intangible assets and property, plant and equipment Investment in real property and intangible assets For financial assets, of which: (a) in entities measured using the equity method (b) in other entities acquired financial assets long-term loans granted Dividends and other interests in profit paid to minority shareholders Other investment outflows III. Net cash flows from investing activities (I-II) C. CASH FLOWS FROM FINANCING ACTIVITIES I. Inflows 1, , Net inflows from issue of shares and other securities and from capital contributions Loans and borrowings 1, , Issue of debt securities Other financial inflows II. Outflows 1, , Purchase of treasury shares Dividends and other payments to shareholders Profit distribution expenses other than payments to shareholders Repayment of loans and borrowings Redemption of debt securities Other financial liabilities Payment of liabilities under finance lease agreements interest Other financial outflows 1, , III. Net cash flows from financing activities (I-II) D. TOTAL NET CASH FLOWS (A.III.+/-B.III+/-C.III) E. BALANCE SHEET MOVEMENT IN CASH, of which: movement in cash due to foreign exchange differences F. OPENING BALANCE OF CASH G. CLOSING BALANCE OF CASH (F+/-D), of which: restricted cash Table 4. Consolidated statement of changes in equity for Q along with comparative data (in PLN) Consolidated statement of changes in equity of Summa Linguae S.A. Q1-Q Q1-Q Q Q I. OPENING BALANCE OF EQUITY (OB) 5, , , , changes in adopted accounting policies adjustments to errors I.a. Opening balance of equity (OB) after adjustments 5, , , , Opening balance of share capital Movement in share capital (a) increase (due to) issue of shares Page 13

14 (b) decrease (due to) redemption of shares Closing balance of share capital Opening balance of reserve capital 3, , , , Movement in reserve capital (a) increase (due to) share premium (statutory) profit distribution profit distribution (above the minimum statutory value) issue of Series E shares (b) decrease (due to) loss coverage issue costs Closing balance of reserve capital 3, , , , Opening balance of revaluation reserve Movement in revaluation reserve (a) increase (due to) (b) decrease (due to) disposal of fixed assets Closing balance of revaluation reserve Opening balance of other capital reserves Movement in other capital reserves (a) increase (due to) (b) decrease (due to) Closing balance of other capital reserves Exchange rate differences from translation of foreign operations Opening balance of profit/(loss) carried forward Opening balance of profit carried forward changes in adopted accounting policies adjustments to errors Opening balance of profit carried forward, after adjustments (a) increase (due to) distribution of profit carried forward (b) decrease (due to) Closing balance of profit carried forward Opening balance of loss carried forward changes in adopted accounting policies adjustments to errors Opening balance of loss carried forward, after adjustments (a) increase (due to) previous years' loss carried forward (b) decrease (due to) Closing balance of loss carried forward Closing balance of profit/(loss) carried forward Net profit/(loss) -1, (a) net profit (b) net loss -1, (c) profit write-offs II. CLOSING BALANCE OF EQUITY (CB) 3, , , ,502.4 III. EQUITY ACCOUNTING FOR PROPOSED PROFIT DISTRIBUTION/(LOSS COVERAGE) 3, , , ,502.4 Page 14

15 Table 5. Separate income statement for Q along with comparable data (in PLN thousand) Separate income statement of Summa Linguae S.A. (PLN thousand) Q1-Q Q1-Q Q Q A. Sales revenue and equivalents, of which: 3, , , , from related parties which are not fully consolidated I. Net revenue from sales of products 3, , , ,525.9 II. Movement in inventories - additions (+), withdrawals (-) III. Cost of production for internal purposes IV. Net revenue from sales of goods and materials B. Operating expenses 3, , , ,380.9 I. Amortization and depreciation II. Consumption of materials and energy III. Third-party services 2, , , IV. Taxes and fees, of which: excise tax V. Salaries 1, VI. Social security and other benefits, of which: VII. Other costs by type VIII. Value of goods and materials sold C. PROFIT/(LOSS) ON SALES (A-B) D. Other operating income I. Profit on disposal of non-financial fixed assets II. Subsidies III. Revaluation of non-financial assets IV. Other operating income E. Other operating expenses I. Loss on disposal of non-financial fixed assets II. Revaluation of non-financial assets III. Other operating expenses F. OPERATING PROFIT/(LOSS) (C+D-E) G. Financial income I. Dividends and share in profits, of which: (a) from related parties, of which: those in which the entity has equity interests (b) from other entities, of which: those in which the entity has equity interests II. Interest, of which: from related parties III. Profit on disposal of financial assets, of which: in related parties IV. Revaluation of non-financial assets V. Other H. Financial expenses I. Interest, of which: to related parties II. Loss on disposal of financial assets, of which: in related parties III. Revaluation of financial assets IV. Other I. PROFIT/(LOSS) BEFORE TAX (F+G-H) J. Income tax K. Other obligatory charges L. NET PROFIT/(LOSS) (I-J-K) Page 15

16 Table 6. Separate balance sheet as at 30 June 2017 along with comparable data (in PLN thousand) Separate balance sheet of Summa Linguae S.A. (PLN thousand) ASSETS A. NON-CURRENT ASSETS 6, ,097.2 I. Intangible assets 4, , R&D expenses Goodwill 4, , Other intangible assets Advances for intangible assets II. Property, plant and equipment Fixed assets (a) freehold land (including right of perpetual use) (b) buildings, premises, rights to premises and constructions (c) plant and machinery (d) vehicles (e) other non-current assets Fixed assets under construction Advances for fixed assets under construction III. Non-current receivables From related parties From other entities in which the reporting entity has equity interests From other entities IV. Long-term investments 1, , Real property Intangible assets Non-current financial assets 1, ,643.2 (a) in related parties , shares 0.0 2, other securities loans granted other non-current financial assets (b) in other entities in which the reporting entity has equity interests 1, shares 1, other securities loans granted other non-current financial assets (c) in other entities shares other securities loans granted other non-current financial assets Other long-term investments VI. Non-current prepayments and accrued income Deferred income tax assets Other prepayments and accrued income B. CURRENT ASSETS 2, ,240.7 I. Inventories Materials Semi-finished goods and work in progress Finished products Goods Page 16

17 5. Advances for deliveries and services II. Current receivables 1, , Receivables from related parties (a) trade receivables, maturing: within up to 12 months in over 12 months (b) other Receivables from other entities in which the reporting entity has equity interests (a) trade receivables, maturing: within up to 12 months in over 12 months taxes, subsidies, customs duties, social and health insurance other Receivables from other entities 1, ,138.8 (a) trade receivables, maturing: within up to 12 months in over 12 months (b) taxes, subsidies, customs duties, social and health insurance and other public liabilities (c) other (d) claimed in court III. Short-term investments Current financial assets (a) in related parties shares other securities loans granted other current financial assets (b) in other entities shares other securities loans granted other current financial assets (c) cash and cash equivalents cash in hand and at bank other cash other financial assets Other short-term investments IV. Current prepayments and accrued income C. CALLED UP SHARE CAPITAL D. TREASURY SHARES TOTAL ASSETS 8, ,337.9 EQUITY AND LIABILITIES A. EQUITY 3, ,502.4 I. Share capital II. Reserve capital, of which: 3, , share premium 3, III. Revaluation reserve, of which: fair value revaluation IV. Other capital reserves, of which: created in accordance with the Articles of Association for treasury shares VI. Profit/(loss) carried forward Page 17

18 VII. Net profit/(loss) VIII. Net profit write-offs during the financial year (negative value) B. LIABILITIES AND PROVISIONS FOR LIABILITIES 4, ,835.4 I. Provisions for liabilities Provision for deferred income tax Provision for retirement and similar benefits long-term short-term Other provisions long-term short-term II. Non-current liabilities 2, , Payable to related parties Payable to other entities in which the reporting entity has equity interests Payable to other entities 2, ,997.6 (a) loans and borrowings 1, (b) arising from issue of debt securities 0.0 1,448.0 (c) other financial liabilities (d) other III. Current liabilities 2, Payable to related parties (a) trade liabilities, maturing: within up to 12 months in over 12 months (b) other Payable to other entities in which the reporting entity has equity interests (a) trade liabilities, maturing: within up to 12 months in over 12 months (b) other Payable to other entities 2, (a) loans and borrowings (b) arising from issue of debt securities (c) other financial liabilities (d) trade liabilities, maturing: within up to 12 months in over 12 months (e) received advances for deliveries and services (f) bill-of-exchange liabilities (g) taxes, subsidies, customs duties, social and health insurance and other public liabilities (h) payroll liabilities (i) other 1, Special purpose funds IV. Accruals and deferred income Negative goodwill Other accruals and deferred income long-term short-term TOTAL EQUITY AND LIABILITIES 8, ,337.9 Page 18

19 Table 7. Separate cash flow statement for Q along with comparable data (in PLN thousand) Separate cash flow statement of Summa Linguae S.A. (PLN thousand) Q1-Q Q1-Q Q Q A. OPERATING CASH FLOW I. NET PROFIT/(LOSS) II. Adjustments (total) 2, , Amortization and depreciation Gains/(losses) on foreign exchange differences Interest and share in profits (dividends) Profit/(loss) on investing activity Movement in provisions and deferred income tax assets Movement in inventories Movement in receivables Movement in current liabilities, excluding loans and borrowings 1, Movement in prepayments and accrued income Other adjustments III. Net operating cash flow (I+/-II) 1, B. CASH FLOW FROM INVESTING ACTIVITIES I. Inflows Disposal of intangible assets and property, plant and equipment Disposal of investments in real property and intangible assets From financial assets, of which: (a) in entities measured using the equity method (b) in other entities sale of financial assets dividends and share in profits repayment of long-term loans granted interest other inflows from financial assets Other inflows from investments II. Outflows Purchase of intangible assets and property, plant and equipment Investment in real property and intangible assets For financial assets, of which: (a) in entities measured using the equity method (b) in other entities acquired financial assets long-term loans granted Other investment outflows III. Net cash flows from investing activities (I-II) C. CASH FLOWS FROM FINANCING ACTIVITIES I. Inflows 1, , Net inflows from issue of shares and other securities and from capital contributions Loans and borrowings 1, , Issue of debt securities Other financial inflows II. Outflows 1, , Purchase of treasury shares Dividends and other payments to shareholders Profit distribution expenses other than payments to shareholders Repayment of loans and borrowings Page 19

20 5. Redemption of debt securities Other financial liabilities Payment of liabilities under finance lease agreements Interest Other financial outflows 1, , III. Net cash flows from financing activities (I-II) D. TOTAL NET CASH FLOWS (A.III.+/-B.III+/-C.III) E. BALANCE SHEET MOVEMENT IN CASH, of which: movement in cash due to foreign exchange differences F. OPENING BALANCE OF CASH G. CLOSING BALANCE OF CASH (F+/-D), of which: restricted cash Table 8. Separate statement of changes in equity for Q along with comparative data (in PLN) Separate statement of changes in equity of Summa Linguae S.A. (PLN thousand) Q1-Q Q1-Q Q Q I. Opening balance of equity (OB) 5, , , , adjustments to errors from previous years effects of changes in accounting policies I.a. Opening balance of equity (OB) after adjustments 5, , , , Opening balance of share capital Movement in share capital (a) increase (due to) issue of Series E shares (b) decrease (due to) redemption of shares Closing balance of share capital Opening balance of called up share capital Movement in called-up share capital (a) increase (due to) increase in share capital/registration in the National Court Register (b) decrease (due to) issue of series E / G shares Closing balance of called up share capital Opening balance of treasury shares Movement in treasury shares (a) increase (b) decrease Closing balance of treasury shares Opening balance of reserve capital 3, , , , Movement in reserve capital (a) increase (due to) share premium (statutory) profit distribution profit distribution (above the minimum statutory value) issue costs (b) decrease (due to) issue costs Closing balance of reserve capital 3, , , , Opening balance of revaluation reserve Movement in revaluation reserve Page 20

21 (a) increase (due to) (b) decrease (due to) disposal of fixed assets Closing balance of revaluation reserve Opening balance of other capital reserves Movement in other capital reserves (a) increase (due to) INCREASE ISSUE OF SERIES E SHARES INCREASE ISSUE OF SERIES G SHARES (b) decrease (due to) issue of Series E shares Closing balance of other capital reserves Opening balance of profit/(loss) carried forward Opening balance of profit carried forward adjustments to errors from previous years effects of changes in accounting policies Opening balance of profit carried forward, after adjustments Movement in profit carried forward (a) increase (due to) distribution of profit carried forward (b) decrease (due to) distribution of profit carried forward decrease - movement to reserve capital Closing balance of profit carried forward Opening balance of loss carried forward adjustments to errors from previous years effects of changes in accounting policies Opening balance of loss carried forward, after adjustments Movement in loss carried forward (a) increase (due to) previous years' loss carried forward (b) decrease (due to) previous years' loss carried forward Closing balance of loss carried forward Closing balance of profit/(loss) carried forward Net profit/(loss) (a) net profit (b) net loss (c) profit write-offs II. Closing balance of equity (CB) 3, , , ,502.4 III. Equity accounting for proposed profit distribution 3, , , ,502.4 V. INFORMATION ON PRINCIPLES ADOPTED FOR PREPARATION OF THE REPORT, INCLUDING INFORMATION ON CHANGES IN THE ACCOUNTING POLICIES These financial statements cover the period from 1 January 2017 to 30 June 2017 and have been prepared assuming that the Company will continue its business in the foreseeable future, and that it neither intends Page 21

22 nor is forced to abandon its business or significantly reduce its scale. To the knowledge of the Issuer, there are no circumstances indicating a threat to the continued operation of the Company. Due to the fact that the Issuer did not form a Group in 2016, data comparable to consolidated data include only separate data concerning the Issuer. The Company prepares a comparative income statement. The cash flow statement is prepared using the indirect method. The Polish zloty is the reporting currency. The Company's profit/(loss) for the period concerned includes all revenue generated by it, as well as revenue payable to it and costs related to this revenue calculated on an accrual basis, and according to the principle of prudence and the matching principle. The accounting policies adopted in the preparation of these financial statements are compliant with the Accounting Act. Individual assets are measured at their actual purchase prices or costs, subject to the principle of prudence. Liabilities are measured at the amount due. In the case of financial liabilities, the amortized cost can be used, and for those intended for sale within up to three months - the market value or a fair value specified otherwise. Intangible assets and fixed assets Intangible assets, fixed assets and fixed assets under construction are measured at purchase price or manufacturing cost, less accumulated depreciation. Depreciation is calculated in accordance with the straight-line method. In the case of assets for which there is a suspicion that they will not bring economic benefits in the foreseeable future, an allowance is made for impairment losses. The Company uses the following annual tax depreciation rates for its key categories of assets: 1) For intangible assets: a. all are charged against costs within a period of 48 months, whereby the components relating to fees for modification of computer software are treated as services. 2) For fixed assets: a. Buildings - 2.5% Page 22

23 b. Plant and machinery - 10% - 30% c. Vehicles - 20% d. Other fixed assets - 20% Whereby: a. fixed assets of a greater value (over PLN 2,500) are depreciated linearly, b. fixed assets of a lesser value (up to PLN 2,500) are depreciated (recognized as expenses) as follows: 100% of the value at the time of purchase, c. tax depreciation rates are used. The Company passed resolutions under which it adopted a 20-year period of amortization of the goodwill of Contact Language Services P. Stróżyk, P. Siwiec spółka jawna (CLS) and that of Summa Linguae Outsourcing Sp. z o.o. (SLO) pursuant to Article 44b(10) of the Accounting Act. The useful economic life of the goodwill arising from the acquisitions is 20 years and results, among others, from contracts signed with customers acquired along with CLS and SLO and the history of cooperation with them. In accordance with its strategy, Summa Linguae S.A. does not foresee the sale of the organized parts of the aforementioned enterprises and intends to draw from them tangible economic benefits for the minimum period of 20 years. The Management Board of Summa Linguae S.A. believes that the proposed period for carrying out amortization of the goodwill reflects in the best way the actual period of drawing economic benefits arising from the acquisition. Since Q inclusive, amortization of the goodwill defined above has been recognized in the other operating expenses. Permanent investments Acquired or generated financial assets and other financial investments are recognized in the accounts as of their acquisition or generation date at their acquisition/purchase price. As at the balance sheet date, shares in other entities and other investments classified as fixed assets are measured at their acquisition price less any impairment losses. Impairment losses are charged to financial expenses. In the event of cessation of the reason for which assets have been written down, the equivalent of all or part of the previously made impairment losses increases the value of a given asset and is recognized in financial income. As at the balance sheet date, shares in other entities and other investments recognized as fixed assets for which maturity dates have been specified are measured at their amortized cost. Page 23

24 Short-term investments Acquired shares and other current assets are recognized in the accounts as at the date of their acquisition or generation at the acquisition cost. As at the balance sheet date, assets classified as short-term investments are measured at their market price. The effects of changes in the value of short-term investments affect in the full amount financial income or expenses, respectively. As at the balance sheet date, assets classified as short-term investments for which maturity dates have been specified are measured at amortized cost. Inventories Materials and goods acquired during the financial year are recognized at their purchase price. The costs of consumption of materials and goods are determined on the first-in, first-out basis. Inventories of materials and goods are measured as at the balance sheet date at their purchase price, not higher, however, than the net selling price of a given asset. Inventory assets produced during the financial year are recognized at the manufacturing cost. Finished and semi-finished products are measured as at the balance sheet date at their manufacturing cost which is not higher, however, than the net selling price of a given asset. Inventory assets which have lost their commercial and utility value are written down. Inventory writedowns are classified respectively as other operating expenses. The Issuer keeps inventory quantity and value records. Receivables and liabilities Receivables denominated in PLN are recognized at the amount due, subject to the principle of prudence. Liabilities (including loans and borrowings) denominated in PLN are measured at the amount due. In the case of financial liabilities, the amortized cost can be used, and for those intended for sale within up to three months - the market value or a fair value specified otherwise. Receivables and liabilities denominated in foreign currencies at the time of their origination are recognized at the average exchange rate determined for a given currency by the President of the National Bank of Poland on the day preceding the day of their recognition. Foreign exchange gains/(losses) arising on the Page 24

25 date of payment due to the difference between the exchange rate as at that date and the exchange rate on the date when receivables or liabilities originated, are charged to financial income or expenses, respectively. Receivables and liabilities in foreign currencies outstanding as at the balance sheet date are measured at the average exchange rate determined for that date for a given currency by the President of the National Bank of Poland. The value of receivables is re-measured based on the probability of their payment by creating an allowance for bad debts. Cash Cash in hand and at bank denominated in PLN is measured at its nominal value. Transactions denominated in foreign currencies are recognized in the accounts as of the date on which they were carried out - unless separate provisions on the funds from the budget of the European Union and other countries of the European Economic Area and on non-reimbursable funds from foreign sources provide otherwise - at the rate actually applied on that date, resulting from the nature of the transaction - in the case of sale or purchase of currencies and payment of receivables or liabilities. As at the balance sheet date, cash in foreign currencies is measured at the average exchange rate determined for that date for a given currency by the President of the National Bank of Poland. Foreign exchange gains/(losses) determined at the end of the financial year are recognized as financial income or expenses, respectively. Equity The share capital is recognized in the amount specified in the Articles of Association and entered in the relevant court register. Prepayments and accruals and provisions for liabilities Prepayments are made when the Company incurs expenses relating to future reporting periods. Expenses settled over time mainly include: property insurance, costs of lease, costs directly related to issue of bonds, other. Provisions are made for certain or highly probable future liabilities that may be caused by past events where the amount or date of their payment or incurrence is not certain, but they can be Page 25

26 reliably estimated. The Company creates provisions for expenses in the amount of probable liabilities falling in the current reporting period, which arise from services provided to the Company by its contractors and the obligation to meet future liabilities relating to current operations, whose value can be estimated, although the date when they will arise is yet unknown. Provisions are recognized in other operating expenses, financial expenses or extraordinary losses, depending on the circumstances which caused the loss. Liabilities recognized as accruals and rules for determining the amounts thereof should be based on acceptable trade practices. Accruals include mainly future liabilities related to current operations, such as: liabilities payable to the employees, including holiday and retirement pay, liabilities payable to unknown persons, whose amount can be reliably estimated, although the date when they will arise is yet unknown, including those relating to warranty repairs and guarantee for durables sold. Accruals are charged to operating expenses. Deferred income The Company's deferred income includes in particular the equivalent of revenue from services that will be performed in future reporting periods, intangible assets and fixed assets received free of charge, in the part not covered with depreciation write-offs, and negative goodwill. Deferred income also includes cash received to finance the acquisition or construction of fixed assets, including fixed assets under construction and development work. Amounts charged to deferred income gradually increase the amount of other operating income, in parallel with amortization or depreciation write-offs of fixed assets or costs of development work funded from these sources. Provisions for deferred income tax and deferred income tax assets Due to temporary differences between the book value of assets and liabilities and their tax value and tax loss deductible in the future, the Issuer creates a provision for deferred income tax and determines such deferred income tax assets. Deferred income tax assets are determined in the amount of the expected future income tax deduction in relation to deductible temporary differences which will result in a future reduction of the income tax base and a reduction of the deductible tax loss determined in accordance with the principle of prudence. Page 26

27 A provision for deferred income tax is established in the amount of income tax payable in the future in respect of taxable temporary differences, i.e. differences that will increase the income tax base in the future. The amount of the provision for deferred income tax and that of deferred income tax assets are determined using the income tax rates applicable in the year when the tax liability arose. In its balance sheet, the Company presents the balance of deferred income tax assets and provisions for deferred income tax. Financial instruments Acquired financial assets are measured at the price of expenditure (the par value and transaction costs incurred directly in connection with the acquisition of the financial assets). As at the balance sheet date, assets held for trading and available for sale are measured at fair value, while held-to-maturity assets and loans granted by the Company - at amortized cost. Financial liabilities are recognized in the accounts in the amount due. As at the balance sheet date, financial liabilities held for trading are measured at their fair value. Other financial liabilities are recognized as at the balance sheet date at amortized cost. Gains and losses from revaluation, as at the balance sheet date, of financial assets and financial liabilities classified as held for trading (including derivatives) and financial assets classified as available for sale and measured at fair value (with the exception of hedged items) are recognized respectively as financial income or expenses for the reporting period. In the case of financial assets and liabilities measured at amortized cost (with the exception of hedged and hedging items), discount or premium amortization and other differences fixed as at the date of their exclusion from the accounts are recognized respectively as financial income or expenses under interest in the reporting period. An embedded derivative instrument is measured as at the date of its recognition in the accounts and as at the balance sheet date at its fair value. The difference between the fair value determined as at the balance sheet date and the fair value as at the date of recognition in the accounts is recognized in profit/(loss) on financing activity. Derivative instruments used to hedge fair value are measured at fair value, and the change is recognized in profit/(loss) on financing activity. Page 27

28 Derivative instruments intended for cash flow hedging are measured at fair value, and the change is recognized in the revaluation reserve to the extent representing an effective hedge, while the part which does not constitute an effective hedge is recognized in profit/(loss) on financing activity. Financial profit/(loss) Financial profit/(loss) accounts for: profit/(loss) on sales, profit/(loss) on other operating activities, profit/(loss) on financing activities, profit/(loss) on extraordinary operations and mandatory charges on the profit. The Company prepares a comparative income statement. The amount to be paid by the recipient of finished products and services, less output tax on goods and services, constitutes revenue from sale of products. The date of transfer of goods to the recipient or receipt of a service by the recipient is the date of sale. The amount to be paid by the recipient of goods or materials, less output tax on goods and services, constitutes revenue from sale of goods and materials. The date of transfer of goods or materials is the date of sale. The value of goods and materials sold at the purchase price, commensurate with the revenue on this account, is the value of goods and materials sold. Other operating income and expenses include expenses and revenues which are not directly related to operating activities, but which affect profit/(loss). Financial income includes revenue from financing activities, whereas financial expenses include expenses incurred with respect to such activities. Interest, fees and foreign exchange gains/(losses) relating to fixed assets under construction accrued to the date of putting those assets into use have an impact on the initial value of those assets. After putting a given fixed asset into use, foreign exchange gains/(losses) and interest on liabilities and investment loans affect profit/(loss) on financing activities. The difference between generated extraordinary profits and extraordinary losses incurred as a result of random events unrelated to the general risk to which the entity's business is exposed constitutes profit/(loss) on extraordinary events. Rules governing consolidation These consolidated financial statements have been drawn up based on the financial statements of the parent company and those of the controlled entity (subsidiary) and the entity jointly controlled by the parent company. The subsidiary (Summa Linguae Romania S.r.l.) has been fully consolidated from the moment from the moment it became controlled by the parent company and will be fully consolidated until such control Page 28

29 ceases. Any transactions, balances, revenue and expenses settled between the consolidated entities are subject to relevant elimination. The jointly controlled entity (Mayflower Language Services Pvt. Ltd.) has been proportionately consolidated from the moment it became jointly controlled by the parent company and will be fully consolidated until such joint control ceases. This involves recognizing part of amounts of items in the financial statements of the jointly controlled entity, proportionately to shares held by the shareholder of the jointly controlled entity. Any transactions, balances of settlements, dividends, revenue and costs related to dealings between the consolidated entities are subject to relevant elimination. In the case of proportionate consolidation, this is done in proportion to shares held. Exclusion applies to shares held by Summa Linguae S.A. in the aforementioned companies at their purchase price and a relevant part of net assets of these entities measured at fair value corresponding to the share of Summa Linguae S.A. in these entities. According to the Management Board the fair value as at the date of acquisition of shares in the aforementioned companies did not differ from their book value. Relevant adjustments were also made as regards the measurement and presentation of financial statements of the foreign companies to comply with the accounting policies of Summa Linguae S.A. and the Accounting Act. The Jointly Controlled Company (Mayflower Language Services Pvt. Ltd.) is consolidated proportionately, which results from the investment agreement concluded by this Jointly Controlled Company and its shareholders with the Parent Company. The agreement provides for the possibility of exercising the right of veto by the Parent Company in case of adopting by the Management Board or Shareholders' Meeting of the Jointly Controlled Company of a defined wide-ranging list of key decisions. In view of the above, the Management Board of the Parent Company believes that it has the capacity to manage - to the same extent as the other shareholders and on the terms and conditions set out in the investment agreement - the financial and operating policies of the Jointly Controlled Company in order to achieve economic benefits from its business. Therefore the Management Board of the Parent Company resolved to consolidate financial data of the Jointly Controlled Company in a proportionate manner. Page 29

30 VI. BRIEF DESCRIPTION OF THE ISSUER'S SIGNIFICANT ACHIEVEMENTS OR FAILURES DURING THE REPORTING PERION ALONG WITH DETAILS OF THE MOST IMPORTANT FACTORS AND EVENTS, ESPECIALLY THOSE OF UNUSUAL NATURE, AFFECTING THE RESULTS ACHIEVED BY THE ISSUER 1. THE GROUP Table 9. Entities making up the Summa Linguae Group. Company Country of incorporation Parent Company's share in the share capital Consolidation method Description Summa Linguae S.A. Poland NA Parent Company (NA) The company was founded in 2011 through a merger of two brands recognizable on the Polish translation market (Busy B and Spectraling). The leader on the domestic public procurement market and one of the leading translation agencies with Polish capital in the country. Mayflower Language Services Pvt. Ltd. India 25.00% Proportionate The company was founded in 2003 and is headquartered in Bangalore (India). Mayflower specializes in translation and localization of websites, software and computer applications, e-learning platforms as well as localization and video voice-over. Summa Linguae Romania S.r.l. Romania 59.99% Full Translation agency founded in 2012 (initially as Certitude Eurologos S.r.l.), headquartered in Bucharest. The company serves corporate and public customers, in particular from Southern Europe. The team has experience in tenders organized by EU institutions. Page 30

31 2. SUMMARY OF FINANCIAL PERFORMANCE OF THE GROUP In Q2 2017, the Group generated revenue of PLN 2,376 thousand (+56% compared to separate revenue of the Parent Company in Q2 2016), an EBITDA loss of PLN 406 thousand and a net loss of PLN 684 thousand. With regard to Tables 10 and 11 below, adjusted EBITDA mean respectively: EBITDA - Adjusted 1 Operating income plus depreciation and amortization and one-off costs related to acquisition processes (consolidation of the translation services market). EBITDA - Adjusted 2 Operating income plus depreciation and amortization and one-off costs related to acquisition processes (consolidation of the translation services market) plus revenue from liquidated damages offsetting an earn-out liability described in more detail later in the Report. Table 10. Separate revenue and profit/(loss) of the companies of the Summa Linguae Group (in PLN thousand). Item Q Q H Net sales revenue Summa Linguae S.A. 1, , ,007.0 Mayflower Language Services Pvt. Ltd. 2, , ,039.6 Summa Linguae Romania S.r.l EBITDA Summa Linguae S.A Mayflower Language Services Pvt. Ltd Summa Linguae Romania S.r.l EBITDA - Adjusted 1 Summa Linguae S.A Mayflower Language Services Pvt. Ltd Summa Linguae Romania S.r.l EBITDA - Adjusted 2 Summa Linguae S.A Mayflower Language Services Pvt. Ltd Summa Linguae Romania S.r.l Net profit/(loss) Summa Linguae S.A Mayflower Language Services Pvt. Ltd Summa Linguae Romania S.r.l Page 31

32 Table 11. Consolidated revenue and profit/(loss) of the Summa Linguae Group (in PLN thousand) with details of revenue and profit/(loss) of each company and additional components of the consolidated amount, specifying the applicable consolidation method and the share level. Item Q Q H Net sales revenue 2, , ,574.8 Summa Linguae S.A. 1, , ,007.0 Mayflower Language Services Pvt. Ltd ,259.9 Summa Linguae Romania S.r.l Consolidation adjustments EBITDA Summa Linguae S.A Mayflower Language Services Pvt. Ltd Summa Linguae Romania S.r.l EBITDA - Adjusted Summa Linguae S.A Mayflower Language Services Pvt. Ltd Summa Linguae Romania S.r.l EBITDA - Adjusted ,007.4 Summa Linguae S.A Mayflower Language Services Pvt. Ltd Summa Linguae Romania S.r.l Net profit/(loss) ,179.5 Summa Linguae S.A Mayflower Language Services Pvt. Ltd Summa Linguae Romania S.r.l Minority interest profit/(loss) Consolidation adjustments SUMMA LINGUAE (hereinafter referred to as SUL, Issuer, Parent Company ) In Q SUL, as the Parent Company, generated separate revenue of PLN 1,609, which represents an increase by 5.5% y/y. The increase in revenue was recorded mainly with respect to sales of translation services to public sector customers (+8.6% y/y), in Q accounting for 65% of separate revenue of SUL. Another notable and systematic increase was reported with regard to revenue from the new segment of services, i.e. from outsourcing addressed to LSPs in June alone, such revenue have already accounted for 6% of revenue and this share is constantly growing. SUL also improved the profitability of its services in terms of direct margin (i.e. after deduction of costs related directly to translation processes - including primarily the salaries of translators and Project Page 32

33 Managers under outsourcing) which reached 42% in Q (compared to 36% in the same period of the previous year). Separate EBITDA loss in Q amounted to PLN 290 thousand. However, the loss mainly resulted from one-off costs related to consolidation processes, amounting to PLN 18.8 thousand. At the same time, in Q the Company recognized part of liquidated damages (PLN 67 thousand) under an earn-out installment liability in the remaining operating income. This was described in more detail in the interim report for Q After adjusting the EBITDA amount for the aforementioned one-off costs (in plus), the separate EBITDA loss for Q amounted to PLN 271 thousand. After adjusting the loss also for the above-described liquidated damages (in minus), SUL's EBITDA for Q amounted to PLN 383 thousand. It should be noted that SUL's EBITDA also accounts for operating expenses stemming from the Company s intensified sales efforts, the effects of such activity not yet being reflected in the generated revenue. Table 12. Separate quarterly structure of operating expenses incurred by Summa Linguae S.A. Operating expenses (PLN thousand) Q Q Q1-Q Total operating expenses 1, , ,799.1 Direct expenses ,762.8 Selling expenses Production expenses General and administrative expenses Amortization and depreciation Other expenses Operating expenses as % of revenue Q Q Q1-Q Direct expenses 59.0% 58.3% 58.6% Selling expenses 19.1% 13.8% 16.3% Production expenses 13.6% 14.3% 13.9% General and administrative expenses 30.1% 30.9% 30.5% Amortization and depreciation 0.8% 1.0% 0.9% Other expenses 7.3% 5.0% 6.1% Notes to Table 12 items: Page 33

34 Direct expenses direct expenses related to the translation and interpretation process (mainly translators salaries, accommodation, transport) and to the salaries of persons directly providing services under outsourcing (mainly project managers employed solely for this purpose). Selling expenses salaries of the sales and marketing department, costs of transport, representation and accommodation related to customer acquisition, participation in events, conferences and other industry events, as well as other expenses related to marketing and sales. Production expenses salaries of project managers, vendor managers, DTP and other expenses related to direct management of translation and interpretation projects, excluding salaries of translators and project managers delegated to outsourcing services. General and administrative expenses mainly fixed expenses related e.g. to salaries for the administration, customer service and management departments, as well as to office and infrastructure maintenance. It should be noted that in H1 2017, SUL incurred considerable travel and representation expenses (including transport and accommodation) directly resulting from the intensified sales and marketing efforts. These expenses amounted to PLN 92 thousand in H1 2017, and to PLN 17 thousand in Q2 2017, respectively. These were mainly associated with efforts to win new corporate customers and acquire a highly prospective LSP. The Management Board of SUL perceives these costs as an investment whose economic effects will be reflected in revenue and income for subsequent months and quarters. It should be noted that production department (PM, VM, DTP) within the existing structure can manage a significantly greater pool of revenue than it is currently the case. This means that this item should not be recognized as variable expense whose value depends on sales alone. Thus SUL s potential to optimize its profitability after acceptance of new translation, localization or outsourcing projects should be emphasized. The Management Board of SUL also notes that revenue generated by SUL in Q and in H does not fully reflect the potential of its sales and marketing structures which entail expenses related to salaries (PLN 158 thousand in Q and PLN 284 thousand in H1 2017, respectively) or to participation in industry events. Although the sales and marketing department is becoming more and more active, economic effects of its efforts will be noticeable only in the near future (new corporate customers and partners from the LSP segment). It is the intention of SUL to gain customers and carry out translation projects of significant unit value, whom SUL can acquire and manage under the existing organizational, and thus cost, structure. Table 12. Contracts under public procurement for the year as a maximum contractual compensation under agreements signed following successful tenders (in PLN thousand). Year Maximum ,539.5 Page 34

35 2012 2, , , , , ** 6, ** 3,200.0 * The level of actual compensation and, consequently, booked revenue depends on the value of translation and interpreting services commissioned to be performed by SUL under agreements entered into by it, whose maximum value arising from those agreements is presented in the table above. ** Includes agreements on the provision of translation and interpreting services concluded by 30 June 2017, whose implementation will take place within the calendar year indicated in the table. As shown in Table 12 above, as at 30 June 2017, SUL had already signed agreements under which its maximum compensation for the whole 2017 for services to be provided under tenders won by it amounted to PLN 6,620 thousand. This is already 114% of the maximum compensation under agreements concluded and implemented throughout DEVELOPMENT AND STRATEGY In Q2 2017, the Management Board of SUL decided to take measures in order to acquire an entity from the translation sector operating on the American market (Canada or the US). In the opinion of the Management Board, this can be financed through the issue of new shares in H and it will recommend it to the Shareholders' Meeting. The Management Board of SUL is considering the possibility to combine that issue with the transfer of SUL shares to the regulated market on the Warsaw Stock Exchange, assuming all formal requirements are met and the Shareholders' Meeting approves such decision. In Q2 2017, SUL concluded a loan agreement for the amount of PLN 1,450,000 with interest of 8% per annum, to be repaid by 30 March 2019 (Current Report No. 23/2017 of 07 April 2017). The loan was used for early redemption of series B bonds with a 10% coupon, whose initial redemption date provided for in the terms and conditions of issue was 11 July Page 35

36 As a result of the purchase of the series B bonds by SUL, on 28 April 2017 the Management Board adopted a resolution on the redemption of those bonds. On 10 May 2017, the Management Board of the Warsaw Stock Exchange decided to exclude the series B bonds from the alternative trading system on Catalyst due to their early redemption. On 5 June 2017, the Management Board of SUL adopted a resolution on the increase in the share capital by issuing series I ordinary shares under target capital by way of private placement excluding the preemptive rights of the current shareholders, on the dematerialization of Company shares, and on the application for admission of Company shares to alternative trading system on NewConnect organized by the Warsaw Stock Exchange, as well as on the amendment of the Company s Articles of Association. In accordance with the resolution, the share capital of SUL would be increased from PLN 282, to the maximum amount of PLN 297, by way of issue of at least 150,000 series I ordinary bearer shares with par value of PLN Upon the Supervisory Board s consent, acting in the Company s best interest, current shareholders had been fully abridged of the preemptive rights to the series I shares. The issue price of a single series I share was determined as PLN Series I shares would be issued under private placement. Subscription for series I shares had already ended in Q The shares were covered by contribution in cash amounting to PLN 1,500,000 (due to unregistered issue of series I shares as at the balance sheet date, relevant payments were recognized as other current liabilities in the balance sheet). In Q2 2017, SUL continued to develop its outsourcing center team as a result of the cooperation agreement concluded in December 2016 with Cintra Language Services Group Ltd, based in Cambridge ( Cintra ), which enabled SUL and the whole Summa Linguae Group to launch a new line of business. Under this agreement the Company will share with Cintra a qualified team of project managers and administrative staff to enable Cintra the provision of translation services to its customers. The cooperation terms and conditions were described in more detail in the report for Q In Q2 2017, SUL was adapting its internal structures and recruiting staff for project purposes. The revenue from outsourcing has been growing every month. In June, it already accounted for 5.7% of total revenue and generated direct margin of 42.4% (the ratio of revenue less salaries of PMs delegated to that line of business to the revenue generated by SUL in this segment). Page 36

37 The Issuer's Management Board intends to intensely develop this business segment by winning new customers on the international market in 2017 and in subsequent years. The new line of business will involve employment of project and vendor managers as well as administration and HR specialists who will work directly for foreign translation agencies, albeit under strict supervision of SUL and other entities forming part of the Group. Summa Linguae is one of the few translation agencies in the world, and the only one in Poland, offering such services. The services concerned are addressed solely to foreign entities seeking cost optimization as regards employment. At present, major foreign companies open their branches around the world, but smaller ones do not have sufficient financial and human resources to do so. The new line of business launched by the Issuer is intended for such smaller agencies. The Management Board of SUL intends to achieve a dynamic increase in the value of SUL and of the whole Group by implementation of the development strategy based on four main pillars of activity: Enhanced organization o Internal integration and further implementation of synergy inside the Group, o Optimization of structures and resources, o Improvement of competitive advantages, o M&A. Technology and innovation o o o Enhancement of technological capacity (InnovationHub in India, M&A), Automation of processes, New services and development of the existing services (VR/AR, AI, MT/PEMT, DTP). Prospective customers o o o o o Increased sales exposure on the markets of Western and Northern Europe and of North America, Global corporations, Development of outsourcing services, New offices and sales structures (M&A and organic), Sales and marketing activity. Vertical concentration on prospective strategic sectors o o o E-Commerce, Life Science, IT / Hi-Tech / Games / Applications. Page 37

38 OPERATING ACTIVITIES In Q2 2017, SUL continued its marketing strategy adopted in Q As a result, in Q a new corporate website tailored to the needs of new groups of customers (including foreign corporate customers and LSPs) was developed to be launched already in Q At the same time, the visual identity was refreshed and new network partners were attracted, including those operating in the social media. The Issuer is also gradually integrating its marketing structures with those of its subsidiary company / jointly controlled company (Summa Linguae Romania and Mayflower Language Services). The Company also continues its massive content marketing campaign. It should be noted that marketing activity has been generating greater and measurable business effects. The value of leads (understood as the value of all requests for proposals received by the Company as a result of the marketing activity) grew in Q by over 70% compared to Q MAYFLOWER LANGUAGE SERVICES (hereinafter referred to as MF ) In Q2 2017, MF generated revenue of PLN 2,088 thousand, which represents an increase by 33.1% y/y (the growth rate was based on data denominated in INR, before conversion to PLN). At the same time, in Q MF reported an EBITDA loss amounting to PLN 459 thousand, and a net loss amounting to PLN 542 thousand. The Management Board of MF believes that the drop in sales dynamics and the resulting loss are temporary and are the effect of the schedule of implementation of localization projects and of the periodically lower direct margin (i.e. after direct expenses related to translation processes). MF has notable potential to generate higher revenue in the coming quarters. In Q alone, MF gained 27 new corporate customers, including cooperation with Adobe Systems Inc. and with Accenture, one of the world s largest outsourcing and consulting providers in the management and technology sector (cooperation with regard to localization of e-learning platforms and multimedia). It was another quarter in a row when staffing services, i.e. the possibility to hire a translator or a whole team for the purposes of a specific project, were used by such international corporations as Daimler, Capgemini, Genpact, Tech Mahindra, Thomson Reuters. In Q2 2017, MF implemented a large translation project for NPTEL (National Programme on Technology Enhanced Learning) financed by the Indian government. Under the project, MF transcribed over 500 hours of specialist technical text. Page 38

39 Moreover, in the previous quarter MF participated as a translation partner in such prestigious events as Global Legal Confex or World Auto Forum. In order to provide high-quality voice-over services, in Q MF created new special booths, allowing for a much better recording quality. At the same time, MF had been preparing to move its headquarters to the new office in Bangalore, which took place in July. New offices allow for increasing employment and improving work conditions. In the coming months, MF will renew its ISO certification, as well as implement new processes related to quality assurance, with focus on total quality management. At the same time, works will be underway to optimize production processes in order to improve the quality of the provided services. 5. SUMMA LINGUAE ROMANIA (hereinafter referred to as SLR ) In Q2 2017, SLR generated revenue of PLN 326 thousand, an EBITDA loss of PLN 2 thousand and a net loss of PLN 6.9 thousand. It should be noted that SLR is at the initial stage of its development and it is creating new internal structures and becoming visible on the Southern European market. Nonetheless, in Q the revenue of SLR more than quadrupled q/q. The promising market on which SLR pursues its business makes the Issuer's Management Board see great potential for intense growth of SLR's business in subsequent months, quarters and years, given operational, sales and marketing support of the other companies of the Summa Linguae Group. One of the major achievements of SLR in the previous quarter was a new strategic customer providing global consulting, technological and outsourcing services in the area of content life cycle management and digital transformation, i.e. the Paris-based Jouve Group. With the support of SLR with regard to vendor management, Jouve opened a new office in Cluj-Napoca, Romania. The business relations with the whole Summa Linguae Group initiated by means of this contract offer an opportunity for implementing new joint projects. An example of such cooperation could be joint participation in the tender announced by the European Central Bank. SLR plans to employ a new sales manager who would be in charge of the commercial customers and LSPs e.g. in Southern Europe. VII. WHERE THE ISSUER PUBLISHED EARNINGS GUIDANCE - THE POSITION AS REGARDS ITS FEASIBILITY IN THE YEAR CONCERNED, IN LIGHT OF THE RESULTS PRESENTED IN THE QUARTERLY REPORT Page 39

40 The Management Board of Summa Linguae S.A. did not publish earnings guidance relating to the Parent Company or the Group for 2017 or for subsequent years. VIII. WHERE THE ISSUER'S INFORMATION DOCUMENT CONTAINED THE INFORMATION REFERRED TO IN ARTICLE 10(13A) OF EXHIBIT 1 TO THE ALTERNATIVE TRADING SYSTEM RULES - DESCRIPTION OF THE ADVANCEMENT OF THE ISSUER'S OPERATIONS AND INVESTMENTS ALONG WITH THE SCHEDULE OF THEIR IMPLEMENTATION The Management Board of Summa Linguae S.A. announces that the Issuer's Information Document did not contain the information referred to in Article 10(13a) of Exhibit 1 to the Alternative Trading System Rules. IX. WHERE THE ISSUER UNDERTOOK DURING THE REPORTING PERIOD INITIATIVES TO INTRODUCE IN THE COMPANY INNOVATIVE SOLUTIONS AIMED AT THE DEVELOPMENT OF ITS BUSINESS - INFORMATION ON SUCH ACTIVITY The Parent Company has been actively participating in the development of Transmart.System software, deployed at the Company. This software combines features of CAT (computer assisted translation) tools and those of machine translation. Transmart.System significantly accelerates the work of translators and provides unvaried consistency as regards terminology within the translated document. As a result, the cost of translation is considerably lower, which directly translates into increased margins on translations. At the same time, Summa Linguae S.A. and Summa Linguae Romania S.r.l. were also implementing a new Translation Management System (TMS) tool - Plunet. This software was successfully implemented in 2016 by Mayflower Language Services, and its implementation in the other companies of the Group will enable automation of a considerable part of processes, standardization of operational reporting as well as translation project control and management. X. THE NUMBER OF THE ISSUER'S EMPLOYEES IN FULL-TIME EQUIVALENTS As at 30 June 2017, the Summa Linguae Group employed - under contracts of employment or similar ones in the foreign companies full-time equivalent employees (including 22.0 in the Parent Company). Page 40

41 XI. DESCRIPTION OF THE STRUCTURE OF THE GROUP WITH INFORMATION ON THE CONSOLIDATED ENTITIES The composition of the Summa Linguae Group as at the last day of the period covered by this Quarterly Report was presented in its sections III and VI.1. The companies are subject to consolidation. XII. WHERE THE ISSUER IS THE PARENT OF A GROUP AND DOES NOT PREPARE CONSOLIDATED FINANCIAL STATEMENTS - THE REASON WHY SUCH STATEMENTS ARE NOT PREPARED The Issuer is the parent company of the Summa Linguae Group and prepares consolidated financial statements. XIII. INFORMATION ON THE ISSUER'S SHAREHOLDING STRUCTURE WITH DETAILS OF SHAREHOLDERS HOLDING, AS OF THE DATE OF THE REPORT, AT LEAST 5% OF VOTES AT THE GENERAL MEETING The Issuer's shareholding structure as at the date of this Quarterly Report, accounting for shareholders holding at least 5% of votes at the General Meeting of Shareholders, is presented in Table 6 below and Figures 3 and 4. Table 6. Shareholding structure of Summa Linguae S.A. No. Shareholder Number of shares % of shares Number of votes % of votes 1. Michał Butscher (previously via Potemma Ltd) 944, % 1,538, % 2. Krzysztof Zdanowski 919, % 1,319, % 1.1 Directly 281, % 421, % 1.2 Indirectly Fenomen SPV Sp. z o.o. 638, % 898, % 3. Other 961, % 967, % TOTAL 2,825, % 3,825, % Page 41

42 Figure 3. Shareholding structure of Summa Linguae S.A. (share in the share capital) Other 34,0% Michał Butscher 33,4% Krzysztof Zdanowski (directly and indirectly) 32,5% Figure 4. Shareholding structure of Summa Linguae S.A. (proportion of the total number of votes at the General Meeting of Shareholders) Other 25,3% Krzysztof Zdanowski 34,5% Michał Btuscher 40,2% Page 42

43 Krakow, 14 August 2017 Management Board of Summa Linguae S.A. Krzysztof Zdanowski, President of the Management Board Office in Krakow (registered seat) ul. Lublańska Kraków Tel. +48 (12) Fax. +48 (12) Office in Bangalore (India) No. 104,2nd Floor, Infantry Techno Park, Infantry Road, Tasker Town Shivajinagar, Bangalore Tel Tel Office in Warsaw pl. Europejski Warszawa Tel. +48 (22) Fax. +48 (22) Office in Bucharest (Romania) 20 Plevnei street, Division B Office 28 (interphone 28) Sector 1, Bukareszt Tel Marketing and PR Department marketing@summalinguae.com Tel Sales Department sales@summalinguae.com Tel Tel Administration Department office@summalinguae.com Tel Contact for the media paulina.macuga@summalinguae.com Tel