ASSECO GROUP Quarterly Report for the period of 3 months ended 31 March 2014

Transcription

1 ASSECO GROUP Quarterly Report for the period of 3 months ended 31 March 2014

2 Presence in over 30 countries 1,450 mpln in sales revenues 17,335 professionals working to achieve results 97 mpln in net profit 4,615 mpln in orders backlog for th largest software vendor in Europe

3 QUARTERLY REPORT OF ASSECO GROUP For the period of Table of contents FINANCIAL HIGHLIGHTS OF ASSECO GROUP... 5 INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF ASSECO GROUP... 7 INTERIM CONDENSED CONSOLIDATED INCOME STATEMENT... 9 INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS SUPPLEMENTARY INFORMATION TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS I. GENERAL INFORMATION II. BASIS FOR THE PREPARATION OF FINANCIAL STATEMENTS AND ACCOUNTING POLICIES APPLIED III. ORGANIZATION AND CHANGES IN ASSECO GROUP STRUCTURE, INCLUDING INDICATION OF ENTITIES SUBJECT TO CONSOLIDATION IV. INFORMATION ON OPERATING SEGMENTS V. EXPLANATORY NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Sales revenues and operating costs Financial income and expenses Corporate income tax Earnings per share Information on dividends paid out Property, plant and equipment Intangible assets Goodwill Financial assets Prepayments and accrued income Long-term and short-term receivables Cash and cash equivalents Interest-bearing bank loans and debt securities issued Financial liabilities Long-term and short-term liabilities Accruals and deferred income Related party transactions Notes to the Statement of Cash Flows Off-balance-sheet liabilities in favour of related companies Off-balance-sheet liabilities to other companies Employment Significant events after the balance sheet date Significant events related to prior years 65 Page All figures in PLN millions, unless stated otherwise 3

4 COMMENTARY AND SUPPLEMENTARY INFORMATION TO THE QUARTERLY REPORT OF ASSECO GROUP I. SUMMARY AND ANALYSIS OF FINANCIAL RESULTS OF ASSECO GROUP FOR THE PERIOD OF 3 MONTHS ENDED 31 MARCH II. MAJOR FACTORS AND EVENTS WITH IMPACT ON OUR FINANCIAL PERFORMANCE Polish market Israeli market (Formula Systems Group) Central European market (Asseco Central Europe Group) South Eastern European market (Asseco South Eastern Europe Group) Western European market Eastern European market 73 III. NON-RECURRING EVENTS WITH IMPACT ON OUR FINANCIAL PERFORMANCE IV. CORPORATE OFFICERS OF ASSECO POLAND S.A V. SHAREHOLDER STRUCTURE OF ASSECO POLAND S.A VI. ISSUANCE, REDEMPTION AND REPAYMENT OF NON-EQUITY AND EQUITY SECURITIES VII. EFFECTS OF CHANGES IN THE ORGANIZATIONAL STRUCTURE VIII. INFORMATION ON PENDING LEGAL PROCEEDINGS CONCERNING LIABILITIES OR RECEIVABLES OF ASSECO POLAND OR ITS SUBSIDIARIES IX. RELATED PARTY TRANSACTIONS X. BANK LOANS, BORROWINGS, SURETIES, GUARANTEES AND OFF-BALANCE-SHEET LIABILITIES XI. CHANGES IN THE GROUP MANAGEMENT POLICIES XII. AGREEMENTS CONCLUDED BY ASSECO GROUP WITH ITS MANAGEMENT PERSONNEL PROVIDING FOR PAYMENT OF COMPENSATIONS IF SUCH PERSONS RESIGN OR ARE DISMISSED FROM THEIR POSITIONS.. 75 XIII. INFORMATION ON THE AGREEMENTS KNOWN TO THE ISSUER WHICH MAY RESULT IN FUTURE CHANGES OF THE EQUITY INTERESTS HELD BY THE EXISTING SHAREHOLDERS AND BONDHOLDERS XIV. OPINION ON FEASIBILITY OF THE MANAGEMENT BOARD FINANCIAL FORECASTS FOR XV. MONITORING OF THE EMPLOYEE STOCK OPTION PLANS XVI. FACTORS WHICH IN THE MANAGEMENT S OPINION MAY AFFECT OUR FINANCIAL PERFORMANCE AT LEAST TILL THE END OF THIS FINANCIAL YEAR XVII.OTHER FACTORS SIGNIFICANT FOR THE ASSESSMENT OF HUMAN RESOURCES, ASSETS, AND FINANCIAL POSITION INTERIM CONDENSED FINANCIAL STATEMENTS OF ASSECO POLAND S.A INTERIM CONDENSED INCOME STATEMENT OF ASSECO POLAND S.A INTERIM CONDENSED STATEMENT OF FINANCIAL POSITION OF ASSECO POLAND S.A INTERIM CONDENSED STATEMENT OF CHANGES IN EQUITY OF ASSECO POLAND S.A INTERIM CONDENSED STATEMENT OF CASH FLOWS OF ASSECO POLAND S.A All figures in PLN millions, unless stated otherwise 4

5 FINANCIAL HIGHLIGHTS OF ASSECO GROUP FINANCIAL HIGHLIGHTS OF ASSECO GROUP for the period of for the period of

6 FINANCIAL HIGHLIGHTS OF ASSECO GROUP Financial highlights of Asseco Group are presented in the following table. 31 March March March March 2013 PLN millions PLN millions EUR millions EUR millions Sales revenues 1, , Operating profit Pre-tax profit and share in profits of associates Net profit Net profit attributable to Shareholders of the Parent Company Net cash provided by (used in) operating activities Net cash provided by (used in) investing activities (68.4) (105.1) (16.3) (25.2) Net cash provided by (used in) financing activities (73.1) 69.1 (17.5) Cash and cash equivalents at the end of period 1, Basic earnings per ordinary share attributable to Shareholders of the Parent Company (in PLN/EUR) Diluted earnings per ordinary share attributable to Shareholders of the Parent Company (in PLN/EUR) The financial highlights disclosed in these interim condensed consolidated financial statements were translated into euros (EUR) in the following way: Items of the interim condensed consolidated income statement and statement of cash flows were translated into EUR at the arithmetic average of mid exchange rates as published by the National Bank of Poland and in effect on the last day of each month. These exchange rates were respectively: o for the period from 1 January 2014 to 31 March 2014: EUR 1 = PLN o for the period from 1 January 2013 to 31 March 2013: EUR 1 = PLN the Group s cash and cash equivalents as at the end of the reporting period and the comparable period of the previous year have been translated into EUR at daily mid exchange rates as published by the National Bank of Poland. These exchange rates were respectively: o exchange rate effective on 31 March 2014: EUR 1 = PLN o exchange rate effective on 31 March 2013: EUR 1 = PLN All figures in PLN millions, unless stated otherwise 6

7 INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF ASSECO GROUP for the period of prepared in accordance with the International Financial Reporting Standards adopted by the EU

8 INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS of Asseco Group for the period of These interim condensed consolidated financial statements have been approved for publication by the Management Board of Asseco Poland S.A. on 14 May Management Board: Adam Góral President of the Management Board Przemysław Borzestowski Vice President of the Management Board Andrzej Dopierała Vice President of the Management Board Tadeusz Dyrga Vice President of the Management Board Rafał Kozłowski Vice President of the Management Board Marek Panek Vice President of the Management Board Paweł Piwowar Vice President of the Management Board Zbigniew Pomianek Vice President of the Management Board Włodzimierz Serwiński Vice President of the Management Board Przemysław Sęczkowski Vice President of the Management Board Robert Smułkowski Vice President of the Management Board All figures in PLN millions, unless stated otherwise 8

9 INTERIM CONDENSED CONSOLIDATED INCOME STATEMENT ASSECO GROUP 31 March March 2013 Note (unaudited) (restated) PLN millions PLN millions Sales revenues 1 1, ,345.2 Cost of sales 1 (1,090.4) (985.0) Gross profit on sales Selling costs General administrative expenses 1 1 (94.1) (90.0) (120.7) (103.5) Net profit on sales Other operating income Other operating expenses (1.5) (1.3) Operating profit Financial income Financial expenses 2 (17.1) (21.9) Pre-tax profit and share in profits of associates Corporate income tax (current and deferred tax expense) 3 (36.4) (32.0) Share in profits of associates Net profit for the reporting period Attributable to: Shareholders of the Parent Company Non-controlling interests Consolidated earnings per share attributable to Shareholders of Asseco Poland S.A. (in PLN): Basic consolidated earnings per share from continuing operations for the reporting period Diluted consolidated earnings per share from continuing operations for the reporting period All figures in PLN millions, unless stated otherwise 9

10 INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ASSECO GROUP 31 March 2014 (unaudited) PLN millions 31 March 2013 (restated) PLN millions Net profit for the reporting period Other comprehensive income: Components that may be reclassified to profit or loss Net profit/loss on valuation of financial assets available for sale Income tax relating to components of other comprehensive income Exchange differences on translation of foreign operations Components that will not be reclassified to profit or loss Amortization of intangible assets recognized directly in equity (0.2) (0.2) (0.2) Actuarial gains/losses (3.1) - Income tax relating to components of other comprehensive income Total other comprehensive income TOTAL COMPREHENSIVE INCOME FOR THE REPORTING PERIOD Attributable to: Shareholders of the Parent Company Non-controlling interests All figures in PLN millions, unless stated otherwise 10

11 INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION ASSECO GROUP ASSETS Note 31 March Dec March 2013 (unaudited) (restated) (restated) PLN millions PLN millions PLN millions Non-current assets Property, plant and equipment Intangible assets ,002.7 Investment property Goodwill Investments in associates accounted for using the equity method Long-term receivables , , , Deferred income tax assets Long-term financial assets Long-term prepayments and accrued income Current assets , , ,041.8 Inventories Prepayments and accrued income Trade receivables 11 1, , Corporate income tax receivable Receivables from the state and local budgets Other receivables Other non-financial assets Financial assets Cash and short-term deposits 12 1, , , ,704.1 Non-current assets classified as held for sale TOTAL ASSETS 10, , ,745.9 All figures in PLN millions, unless stated otherwise 11

12 INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION ASSECO GROUP EQUITY AND LIABILITIES Equity (attributable to shareholders of the Parent Company) Note 31 March Dec March 2013 (unaudited) (restated) (restated) PLN millions PLN millions PLN millions Share capital Share premium 4, , ,180.1 Transactions with non-controlling interests (54.0) (57.9) (43.2) Exchange differences on translation of foreign operations Retained earnings 1, Net profit for the reporting period attributable to shareholders of the Parent Company , , ,305.3 Non-controlling interests 2, , ,175.7 Total equity 7, , ,481.0 Non-current liabilities Interest-bearing bank loans, borrowings and debt securities Long-term finance lease liabilities Long-term financial liabilities Deferred income tax liabilities Long-term provisions Long-term deferred income Other long-term liabilities , Current liabilities Interest-bearing bank loans, borrowings and debt securities Finance lease liabilities Financial liabilities Trade payables Corporate income tax payable Liabilities to the state and local budgets Other liabilities Provisions Deferred income Accruals , , ,340.0 TOTAL LIABILITIES 2, , ,264.9 TOTAL EQUITY AND LIABILITIES 10, , ,745.9 All figures in PLN millions, unless stated otherwise 12

13 INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ASSECO GROUP Share capital Share premium Transactions with non-controlling interests Exchange differences on translation of foreign operations Retained earnings and current net profit Equity attributable to shareholders of the Parent Company Non-controlling interests Total equity PLN millions PLN millions PLN millions PLN millions PLN millions PLN millions PLN millions PLN millions As at 1 January 2014 (restated) ,180.1 (57.9) , , , ,463.1 Net profit for the reporting period Total other comprehensive income for the reporting period (0.8) Dividend for the year (20.5) (20.5) Equity-settled employee payment transactions Transactions with non-controlling interests (including settlement of contingent financial liabilities to non-controlling shareholders (put option)) Obtaining control over subsidiaries As at 31 March 2014 (unaudited) ,180.1 (54.0) , , , ,736.1 As at 1 January 2013 (audited) ,180.1 (45.9) , , ,223.7 Net profit for the reporting period Total other comprehensive income for the reporting period (0.1) Dividend for the year (24.8) (24.8) Equity-settled employee payment transactions Transactions with non-controlling interests (including settlement of contingent financial liabilities to non-controlling shareholders (put option)) Obtaining control over subsidiaries As at 31 March 2013 (restated) ,180.1 (43.2) , , ,481.0 All figures in PLN millions, unless stated otherwise 13

14 INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ASSECO GROUP (continued) Share capital Share premium Transactions with non-controlling interests Exchange differences on translation of foreign operations Retained earnings and current net profit Equity attributable to shareholders of the Parent Company Non-controlling interests Total equity PLN millions PLN millions PLN millions PLN millions PLN millions PLN millions PLN millions PLN millions As at 1 January 2013 (audited) ,180.1 (45.9) , , ,223.7 Net profit for the reporting period Total other comprehensive income for the reporting period - (8.0) (1.0) (9.0) Dividend for the year (200.0) (200.0) (106.8) (306.8) Equity-settled employee payment transactions Transactions with non-controlling interests (including settlement of contingent financial liabilities to non-controlling shareholders (put - - (12.0) - - (12.0) option)) Obtaining control over subsidiaries As at 31 December 2013 (restated) ,180.1 (57.9) , , , ,463.1 All figures in PLN millions, unless stated otherwise 14

15 INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS ASSECO GROUP Cash flows operating activities Pre-tax profit from continuing operations and profit on discontinued operations Note 31 March 2014 (unaudited) PLN millions 31 March 2013 (restated) PLN millions Total adjustments: (52.5) 66.7 Depreciation and amortization Changes in working capital 18 (102.6) (15.2) Interest income/expenses Gain/loss on foreign exchange differences Gain/loss on financial assets (valuation, disposal, impairment, etc.) (28.2) 2.8 Other financial income/expenses Gain/loss on disposal of property, plant and equipment and intangible assets (2.0) (0.5) Costs of equity-settled employee payment transactions Revaluation write-downs on intangible assets and property, plant and equipment Other pre-tax profit adjustments Cash provided by (used in) operating activities Corporate income tax paid (45.7) (28.4) Net cash provided by (used in) operating activities Cash flows investing activities Disposal of property, plant and equipment and intangible assets Acquisition of property, plant and equipment and intangible assets 18 (56.5) (44.5) Expenditures for the acquisition of subsidiaries and associates 18 (19.0) (99.5) Cash and cash equivalents in subsidiaries acquired Disposal of shares in related companies Disposal/settlement of financial assets carried at fair value through profit or loss Acquisition/settlement of financial assets carried at fair value through profit or loss (0.2) (6.1) Disposal of financial assets available for sale Disposal of financial assets held to maturity - (3.3) Loans granted 18 (8.1) (8.6) Loans collected Interest received Net cash provided by (used in) investing activities (68.4) (105.1) All figures in PLN millions, unless stated otherwise 15

16 Note 31 March March 2013 (continued) (unaudited) (restated) Cash flows financing activities Proceeds from transactions with non-controlling interests 18 PLN millions PLN millions Expenditures for the acquisition of non-controlling interests 18 (37.9) (0.2) Proceeds from bank loans and borrowings Repayment of bank loans and borrowings (40.7) (66.8) Finance lease liabilities paid (6.4) (7.4) Interest paid (7.6) (6.2) Dividends paid out 18 (16.5) (22.0) Other cash flows from financing activities Net cash provided by (used in) financing activities (73.1) Net increase (decrease) in cash and cash equivalents Net foreign exchange differences Net cash and cash equivalents as at 1 January Net cash and cash equivalents as at 31 March 12 1, All figures in PLN millions, unless stated otherwise 16

17 SUPPLEMENTARY INFORMATION TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS I. GENERAL INFORMATION Asseco Group ( Asseco Group, the Group ) is a group of companies, whose Parent Company is Asseco Poland S.A. (the Parent Company, Company, Issuer ) with registered office at 14 Olchowa St., Rzeszów, Poland. The Company was established on 18 January 1989 as a limited liability company and subsequently, under notary deed of 31 August 1993, it was transformed into and since then has operated as a joint-stock company with registered office at 72a, 17 Stycznia St., Warsaw, Poland. The Company is entered in the Register of Entrepreneurs of the National Court Register under the number KRS (previously it was entered in the Commercial Register maintained by the District Court of the Capital City of Warsaw, Commercial Court, XVI Commercial and Registration Department, under the number RHB 17220). On 4 January 2007, the Issuer changed its name from Softbank S.A. to Asseco Poland S.A., and moved its registered office from 72a, 17 Stycznia St., Warsaw to 80 Armii Krajowej Av., Rzeszów. On 8 March 2010, the Issuer moved its registered office from 80 Armii Krajowej Av., Rzeszów to 14 Olchowa St., Rzeszów. Since 1998, the Company s shares have been listed on the main market of the Warsaw Stock Exchange S.A. The Company has been assigned the statistical ID number REGON The period of the Company s operations is indefinite. Asseco Poland S.A. is the largest IT company listed on the Warsaw Stock Exchange. The Company is also a major player in the European software producers market. As a leader of the Group, Asseco Poland S.A. is actively engaged in business acquisitions both in the domestic and foreign markets, seeking to strengthen its position across Europe and worldwide. The Company is now expanding its investment spectrum for software houses, with an eye to gain knowledge of their local markets and customers, as well as access to innovative and unique IT solutions. Our comprehensive offering includes products dedicated for the sectors of banking and finance, public administration, industry, trade, and services. The Group has got a wide-range portfolio of proprietary products, unique competence and experience in the execution of complex IT projects, and a broad customer base, including the largest financial institutions, major industrial enterprises as well as public administration bodies. All figures in PLN millions, unless stated otherwise 17

18 II. BASIS FOR THE PREPARATION OF FINANCIAL STATEMENTS AND ACCOUNTING POLICIES APPLIED 1. Basis for preparation These interim condensed consolidated financial statements were prepared in accordance with the historical cost convention, except for financial assets carried at fair value through profit or loss and financial assets available for sale which are also measured at fair value. The presentation currency of these interim condensed consolidated financial statements is the Polish zloty (PLN), and all figures are presented in PLN millions, unless stated otherwise. These interim condensed consolidated financial statements were prepared on a going-concern basis, assuming the Group will continue its business operations over a period not shorter than 12 months from 31 March Till the date of approving these interim condensed consolidated financial statements, we have not observed any circumstances that would threaten the Group companies' ability to continue as going concerns. These interim condensed consolidated financial statements do not include all the information and disclosures required for annual consolidated financial statements, and therefore they should be read together with the Group s consolidated financial statements for the year ended 31 December 2013, which were published on 21 March Compliance statement These interim condensed consolidated financial statements have been prepared in conformity with the International Financial Reporting Standards adopted by the European Union ( IFRS ) and, in particular, in accordance with the International Accounting Standard 34. As at the date of approving publication of these financial statements, given the ongoing process of implementing the IFRS standards in the European Union as well as the Group s operations, in the scope of accounting policies applied by the Group there is no difference between the IFRS that came into force and the IFRS adopted by the EU. IFRS include standards and interpretations accepted by the International Accounting Standards Board and the International Financial Reporting Interpretations Committee ( IFRIC ). Some of the Group companies maintain their accounting books in accordance with the accounting policies set forth in their respective local regulations. The consolidated financial statements include adjustments not disclosed in the accounting books of the Group s entities, which were introduced to adjust the financial statements of those entities to the IFRS. 3. Estimates In the period of, our approach to making estimates was not subject to any substantial change. 4. Professional judgement Preparing consolidated financial statements in accordance with IFRS requires making estimates and assumptions which impact the data disclosed in such financial statements. Despite the estimates and assumptions have been adopted based on the Group s management best knowledge on the current activities and occurrences, the actual results may differ from those anticipated. Presented below are the main areas which in the process of applying the accounting policies were subject to accounting estimates and the management s professional judgement, and whose estimates, if changed, could significantly affect the Group s future results. i. Valuation of IT contracts and measurement of their completion The Group executes a number of contracts for construction and implementation of information technology systems. Additionally, some of those contracts are denominated in foreign currencies. Valuation of IT contracts requires that future operating cash flows are determined in order to arrive at the fair value of income and expenses and to provide the fair value of the embedded currency derivatives, as well as it requires measurement of the progress of contract execution. The percentage of contract completion shall be measured as the relation of costs already incurred (provided such costs contribute to the progress of work) to the total costs planned, or as a portion of man-days worked out of the total work effort required. All figures in PLN millions, unless stated otherwise 18

19 Assumed future operating cash flows are not always consistent with the agreements with customers or suppliers due to modifications of IT projects implementation schedules. In case of contracts denominated in foreign currencies deemed to be functional currencies or in case of contracts denominated in EUR (even if EUR is not a functional currency), embedded financial derivatives are not disclosed separately. In the Management s opinion, EUR should be regarded as a currency commonly used in contracts for the sale or purchase of IT systems and services. Revenues and expenses relating to such contracts are determined on the basis of spot exchange rates. In all the other cases embedded derivatives are separated from their host contracts. When an embedded instrument is separated, revenues resulting from the host contract are recognized at the embedded exchange rate; whereas, any foreign exchange differences between the exchange rate applied in the issued invoice and the embedded exchange rate are recognized as financial income or expense. As at 31 March 2014 and in the comparable periods, no embedded instruments were separated from any effective agreements. ii. Rates of depreciation and amortization The level of depreciation and amortization rates is determined on the basis of anticipated period of useful economic life of the components of tangible and intangible assets. The Group verifies the adopted periods of useful life on an annual basis, taking into account the current estimates. In 2014 the rates of depreciation and amortization applied by the Group were not subject to any substantial modifications. iii. Goodwill and intangible assets with indefinite useful life impairment testing In line with the Group s policy, every year as at 31 December, the Management Board of the Parent Company performs an annual impairment test on cash-generating units to which goodwill as well as intangible assets with an indefinite period of useful life have been allocated. Whereas, as at each interim balance sheet date, the Management Board of the Parent Company performs a review of possible indications of impairment of cash-generating units to which goodwill and/or intangible assets with indefinite useful life have been allocated. In the event such indications are identified, an impairment test should be carried out as at the interim balance sheet date. Each impairment test requires making estimates of the value in use of cash-generating units or groups of cash-generating units to which goodwill and/or intangible assets with indefinite useful life have been allocated. The value in use is estimated by determining both the future cash flows expected to be achieved from the cashgenerating unit or units and a discount rate to be subsequently used in order to calculate the net present value of those cash flows. Details of the last impairment test that was carried out as at 31 December 2013 have been presented in the Group s consolidated financial statements for the year ended 31 December 2013 which were published on 21 March iv. Liabilities to pay for the remaining shares in subsidiaries (put options) As at 31 March 2014, the Group recognized liabilities resulting from future payments to noncontrolling shareholders. Determination of the amounts payable under such liabilities required making estimates of future financial results of our subsidiaries. As at 31 March 2014, such liabilities amounted to PLN million (see explanatory note 14 to these interim condensed consolidated financial statements). v. Liabilities for deferred contingent payments for controlling interests in subsidiaries As at 31 March 2014, the Group recognized liabilities for deferred contingent payments for controlling interests in subsidiaries in the amount of PLN 57.1 million. Determination of the amounts payable under such liabilities required making estimates of future financial results of our subsidiaries (see explanatory note 14 to these interim condensed consolidated financial statements). vi. Classification of leasing agreements The Group classifies its leasing contracts as operating or finance depending on whether substantially all the risks and rewards incidental to ownership of leased assets are retained by the lessor or transferred to the leaseholder. Such assessment is based on the economic substance of each leasing transaction. All figures in PLN millions, unless stated otherwise 19

20 5. Accounting policies applied The significant accounting policies adopted by the Parent Company have been described in the consolidated financial statements for the year ended 31 December 2013, which were published on 21 March The accounting policies adopted in the preparation of these interim condensed consolidated financial statements are coherent with those applied for the preparation of the Group s annual consolidated financial statements for the year ended 31 December 2013, except for applying new or amended standards and interpretations effective for annual periods beginning on or after 1 January 2014: IFRS 10 Consolidated Financial Statements effective for annual periods beginning on or after 1 January 2013 to be applied in the EU at the latest for annual periods beginning on or after 1 January The Company has decided to apply this IFRS from the annual period beginning on 1 January 2014; IFRS 11 Joint Arrangements effective for annual periods beginning on or after 1 January 2013 to be applied in the EU at the latest for annual periods beginning on or after 1 January The Company has decided to apply this IFRS from the annual period beginning on 1 January 2014; IFRS 12 Disclosure of Interests in Other Entities effective for annual periods beginning on or after 1 January 2013 to be applied in the EU at the latest for annual periods beginning on or after 1 January The Company has decided to apply this IFRS from the annual period beginning on 1 January 2014; Amendments of IFRS 10, IFRS 11 and IFRS 12 Transitional Provisions effective for annual periods beginning on or after 1 January 2013 to be applied in the EU at the latest for annual periods beginning on or after 1 January The Company has decided to apply this IFRS from the annual period beginning on 1 January 2014; IAS 27 Separate Financial Statements effective for annual periods beginning on or after 1 January 2013 to be applied in the EU at the latest for annual periods beginning on or after 1 January The Company has decided to apply the amended IAS from the annual period beginning on 1 January 2014; IAS 28 Investments in Associates and Joint Ventures effective for annual periods beginning on or after 1 January 2013 to be applied in the EU at the latest for annual periods beginning on or after 1 January The Company has decided to apply the amended IAS from the annual period beginning on 1 January 2014; Amendments to IAS 32 Financial Instruments: Presentation: Offsetting of Financial Assets and Financial Liabilities effective for annual periods beginning on or after 1 January 2014; Amendments to IAS 36 Recoverable Amount Disclosures for Non-Financial Assets (issued on 29 May 2013) effective for annual periods beginning on or after 1 January 2014; Amendments to IAS 39 Novation of Derivatives and Continuation of Hedge Accounting (issued on 27 June 2013) effective for annual periods beginning on or after 1 January 2014; The Group did not decide on early adoption of any other standard, interpretation or amendment which has been published but has not yet become effective. 6. Corrections of material errors In the reporting period, no events occurred that would require making corrections of any material misstatements. 7. Changes in the presentation methods applied In the reporting period, the applied principles of presentation were not subject to any change. All figures in PLN millions, unless stated otherwise 20

21 8. Changes in the comparable data In these interim condensed consolidated financial statements, the comparable data have been subject to the following restatements: a. Changes resulting from the application of IFRS 10 According to the new IFRS 10, an investor, irrespective of the nature of its involvement with the investee, should in each case analyze whether it is a parent, taking into account the influence it exerts on such entity. IFRS 10 identifies the following three elements of control: power over the investee; exposure, or rights, to variable returns from involvement with the investee (participation in the return or loss on investments); and the ability to use power over the investee to affect the amount of the investor s returns. An investor must possess all the three elements of the definition of control to conclude it controls an investee. The assessment of control is based on all facts and circumstances and the conclusion is reassessed if there is an indication that there are changes to at least one of the three above-mentioned elements of control. Having analyzed the above-mentioned elements of control, the Group has concluded that despite the lack of an absolute majority of voting rights at the general meeting of shareholders of Sapiens International Corporation N.V. (hereinafter Sapiens ) there are other reasons and circumstances which indicate that Sapiens is still controlled by the Group. Hence, as a result of applying IFRS 10, the Group restated its comparable data (i.e. data reported as at 31 December 2013), as if the control over Sapiens was never lost in In particular, such restatement required elimination from the income statement of the financial result recognized on the loss of control over Sapiens in 2013, as well as recognition of revenues and costs of Sapiens for the full financial year b. Changes resulting from the application of IFRS 11 The Group holds a 50% stake in E-mon Montenegro. Until 31 December 2013, this company was classified as a jointly controlled entity and accounted for using the proportionate method in line with the Group s accounting policy. Due to the entry into force of IFRS 11 Joint Arrangements which shall be effective in the European Union at the latest for annual periods beginning on or after 1 January 2014, and the resulting impossibility of applying the proportionate method, in these interim condensed consolidated financial statements the company of E-mon Montenegro has been accounted for using the equity method. The equity method has been also applied retrospectively to the comparable data reported for 31 March 2013 and as at 31 December 2013 and 31 March c. Changes resulting from the completion of purchase price allocation As described in the consolidated financial statements for the year ended 31 December 2013, in 2013 the Group completed the process of allocation of the purchase price of Sigma Turkey (a subsidiary of Asseco South Eastern Europe) and CommIT Technology Solutions Ltd (a subsidiary of Magic Software Enterprises Ltd). The completion of these processes necessitated a restatement of certain items of assets and liabilities reported as at 31 December 2012 and consequently as at 31 March The impact of the said changes on the comparable data has been presented in the tables below. All figures in PLN millions, unless stated otherwise 21

22 Restatement of comparable data as at 31 December 2013: Report for the year ended 31 Dec (audited) Changes resulting from application of IFRS 10 Changes resulting from application of IFRS 11 Restated Statement of Financial Position as at 31 Dec (restated) Restatement of comparable data as at 31 December 2013: Report for the year ended 31 Dec (audited) Changes resulting from application of IFRS 10 Changes resulting from application of IFRS 11 Restated Statement of Financial Position as at 31 Dec (restated) PLN millions PLN millions PLN millions PLN millions Non-current assets 6, ,986.9 Property, plant and equipment (0.2) Intangible assets (0.1) Investment property Goodwill 4, ,046.3 Investments in associates (478.4) Long-term receivables Deferred income tax assets Financial assets (0.1) 50.1 Prepayments and accrued income Current assets 2, (1.5) 2,965.3 Inventories Prepayments and accrued income Trade receivables 1, (0.2) 1,226.2 Corporate income tax receivable Receivables from the state and local budgets Other receivables Other non-financial assets Financial assets (0.5) 97.1 Cash and cash equivalents (0.8) Assets held for sale PLN millions PLN millions PLN millions PLN millions Total equity 7, (0.5) 7,463.1 Equity (Parent Company) 5,318.0 (72.5) (0.5) 5,245.0 Non-controlling interests 1, ,218.1 Non-current liabilities Bank loans, etc Finance lease liabilities Financial liabilities Deferred income tax liabilities Provisions Deferred income Other liabilities Current liabilities 1, ,634.3 Bank loans, etc Finance lease liabilities Financial liabilities Trade payables Corporate income tax payable Liabilities to the state and local budgets Other liabilities Provisions Deferred income Accruals TOTAL LIABILITIES 2, ,511.8 TOTAL EQUITY AND LIABILITIES 9, (0.5) 9,974.9 TOTAL ASSETS 9, (0.5) 9,974.9 All figures in PLN millions, unless stated otherwise 22

23 Restatement of comparable data as at 31 March 2013: Report for 31 March 2013 (audited) Changes resulting from completion of purchase price allocation Changes resulting from application of IFRS 11 Restated Statement of Financial Position as at 31 March 2013 (restated) Restatement of comparable data as at 31 March 2013: Report for 31 March 2013 (audited) Changes resulting from completion of purchase price allocation Changes resulting from application of IFRS 11 Restated Statement of Financial Position as at 31 March 2013 (restated) PLN millions PLN millions PLN millions PLN millions Non-current assets 7, ,041.8 Property, plant and equipment (0.2) Intangible assets 1, (0.1) 1,002.7 Investment property Goodwill 5, ,039.8 Investments in associates Long-term receivables Deferred income tax assets Financial assets (0.1) 87.6 Prepayments and accrued income Current assets 2, (1.7) 2,704.1 Inventories Prepayments and accrued income Trade receivables (0.3) Corporate income tax receivable Receivables from the state and local budgets Other receivables (0.2) Other non-financial assets Financial assets Cash and cash equivalents (1.2) Assets held for sale PLN millions PLN millions PLN millions PLN millions Total equity 7,481.8 (0.4) (0.4) 7,481.0 Equity (Parent Company) 5, (0.4) 5,305.3 Non-controlling interests 2,176.1 (0.4) - 2,175.7 Non-current liabilities Bank loans, etc Finance lease liabilities Financial liabilities Deferred income tax liabilities Provisions Deferred income Other liabilities Current liabilities 1, (0.3) 1,340.0 Bank loans, etc Finance lease liabilities Financial liabilities Trade payables (0.1) Corporate income tax payable Liabilities to the state and local budgets (0.1) Other liabilities (0.1) Provisions Deferred income (0.3) Accruals TOTAL LIABILITIES 2, (0.3) 2,264.9 TOTAL EQUITY AND LIABILITIES 9, (0.7) 9,745.9 TOTAL ASSETS 9, (0.7) 9,745.9 All figures in PLN millions, unless stated otherwise 23

24 Restatement of comparable data for the period of 31 March 2013 Interim Condensed Consolidated Income Statement for 31 March 2013 (unaudited) Changes resulting from application of IFRS 11 Restated Interim Condensed Consolidated Income Statement for 31 March 2013 (restated) PLN millions PLN millions PLN millions Sales revenues 1,345.5 (0.3) 1,345.2 Cost of sales (985.2) 0.2 (985.0) Gross profit on sales (0.1) Selling costs (90.0) - (90.0) General administrative expenses (103.5) - (103.5) Net profit on sales (0.1) Other operating income Other operating expenses (1.3) - (1.3) Operating profit (0.1) Financial income Financial expenses (21.9) - (21.9) Pre-tax profit and share in profits of associates (0.1) Corporate income tax (32.0) - (32.0) Share in profits of associates Net profit for the reporting period of which attributable to: Shareholders of the Parent Company Non-controlling interests All figures in PLN millions, unless stated otherwise 24

25 III. ORGANIZATION AND CHANGES IN ASSECO GROUP STRUCTURE, INCLUDING INDICATION OF ENTITIES SUBJECT TO CONSOLIDATION The chart below presents the organizational structure of Asseco Group as at 31 March 2014 and in the comparable period: All figures in PLN millions, unless stated otherwise 25

26 All figures in PLN millions, unless stated otherwise 26

27 All figures in PLN millions, unless stated otherwise 27

28 All figures in PLN millions, unless stated otherwise 28

29 All figures in PLN millions, unless stated otherwise 29

30 All figures in PLN millions, unless stated otherwise 30

31 The Parent Company maintains control over Formula Systems (1985) Ltd despite holding less than 50% of its shares due to the specific stock option plan provisions pertaining to voting rights attached to shares awarded to the CEO of Formula Systems under the employee stock option plan. The Parent Company maintains control over Asseco Business Solutions S.A. despite holding less than 50% of its shares, because, according to the articles of association of Asseco Business Solutions S.A., 3 out of the total 5 members of the Supervisory Board of that subsidiary are appointed by Asseco Poland S.A. The Parent Company maintains control over Magic Software Enterprises Ltd despite holding less than 50% of its shares, because there are other reasons and circumstances which indicate that Magic is still controlled by the Group. The Parent Company maintains control over Sapiens International Corporation N.V. despite holding less than 50% of its shares because there are other reasons and circumstances which indicate that Sapiens is still controlled by the Group. The Group holds shares in the companies of Bielpolsoft j.v. and Soft Technologies which were excluded from these consolidated financial statements because Asseco Group has no influence upon them whatsoever. During the period of 31 March 2014, the following changes in the Group composition were observed: Asseco Poland Registration of the merger of Asseco Poland S.A. with PIW POSTINFO Sp. z o.o. On 2 January 2014, the court registered the merger of Asseco Poland S.A. with PIW POSTINFO Sp. z o.o. seated in Warsaw. The merger was effected pursuant to art item 1 of the Commercial Companies Code (merger by acquisition), this is by transferring all the assets of Postinfo (being the acquired company) to Asseco Poland (acting as the takingover company). Following the merger, the company of Postinfo was dissolved without going into liquidation. Because prior to the merger Asseco Poland held 100% of shares in the acquired company, the said merger had no impact on these interim condensed consolidated financial statements of the Group. Acquisition of shares in Park Wodny Sopot Sp. z o.o. On 18 March 2014, Prokom Investments S.A. and Podkarpacki Fundusz Nieruchomości Sp. z o.o. (hereinafter PFN ) concluded an agreement under which Prokom Investments sold 18,143 shares in Park Wodny Sopot Sp. z o.o. seated in Sopot, representing a 98.34% equity interest in that company, to PFN, and furthermore authorized PFN to pay the total sale price to Asseco Poland on behalf and by assignment of Prokom Investments. PFN accepted the assignment and became liable and responsible directly to Asseco. Since Asseco Poland also had a liability towards PFN resulting from the acquisition of new shares in PFN; therefore, on 18 March 2014, Asseco Poland and PFN signed an agreement to offset their mutual obligations. As a result, Asseco s liabilities to PFN have been entirely extinguished with its receivables from Prokom; whereas, PFN s liabilities to Asseco have been entirely compensated with the payment due from Asseco for the acquisition of new shares in PFN; hence mutual obligations of both the companies have been offset. Asseco Central Europe Acquisition of 100% of shares in Asseco Solutions AG by Asseco Central Europe from Asseco DACH S.A. On 9 January 2014, Asseco Central Europe acquired 100% of shares in Asseco Solutions AG seated in Germany from Asseco DACH S.A. This transaction was accounted for as an acquisition of non-controlling interests. Asseco South Eastern Europe Merger of ASEE Croatia and EŽR Croatia On 2 January 2014, a merger of our two Croatian subsidiaries, namely ASEE Croatia (the takingover company) and EŽR Croatia (the acquired company) was registered. This transaction had no impact on these interim condensed consolidated financial statements of the Group. All figures in PLN millions, unless stated otherwise 31

32 Matrix IT Exercise of put options for non-controlling interests in Exzac Inc. In January 2014, Matrix IT, as a result of the exercise of put options, acquired all of noncontrolling interests in Exzac Inc. The transaction amounted to USD 5 million which was paid to minority shareholders in cash. Formula Systems Ltd (1985) Issuance of shares by Magic Software Enterprises Ltd. (hereinafter Magic ) On 28 February 2014, Magic completed the process of issuance of 6,900,000 shares at the price of USD 8.5 per share. The total capital raised from this issuance shall reach nearly USD 54.7 million. The company intends to use the issuance proceeds for general business purposes, including financing of its working capital and potential acquisitions. As a result of that issuance, the equity and voting interest held in Magic by Formula Systems (a subsidiary of Asseco Poland) dropped to approx. 45.1%. The Group carried out an analysis of whether, in the absence of an absolute majority of voting rights at the general meeting of shareholders of Magic Software Enterprises Ltd, there are any other reasons and/or circumstances which might indicate that Magic Software Enterprises Ltd is still controlled by the Group in accordance with IFRS 10, and concluded that the control over Magic has not been lost. All figures in PLN millions, unless stated otherwise 32

33 IV. INFORMATION ON OPERATING SEGMENTS According to IFRS 8, an operating segment is a separable component of the Group s business for which separate financial information is available and regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance. Asseco Group has identified the following reportable segments (a reportable segment is an operating segment that is required for disclosure under IFRS 8): Polish market this segment groups the companies which generate sales revenues mostly in the domestic market. Performance of this segment is analyzed on a regular basis by the Parent Company s Management Board acting as the chief operating decision maker. The Polish market segment comprises the following companies: Asseco Poland, Asseco Business Solutions, Combidata, ZUI Novum, ADH Soft, ZUI Otago, Asseco Systems, CK ZETO, SKG, PI ZETO Bydgoszcz, Podkarpacki Fundusz Nieruchomości, and Gladstone Consulting. The aforementioned companies offer comprehensive IT services intended for a broad range of clients operating in the sectors of financial institutions, public administration and general business. South Eastern European market this segment groups the companies which generate revenues mostly in the markets of Serbia, Romania, Croatia, Macedonia, and Turkey. Performance of these companies is assessed on a periodic basis by the Management Board of Asseco South Eastern Europe. This segment is identical with the composition of Asseco South Eastern Europe Group. The segment s performance as a whole is subject to regular verification by the Management Board of Asseco Poland. The aforementioned companies offer comprehensive IT services intended for a broad range of clients operating primarily in the sector of financial institutions. Central European market this segment groups the companies which generate revenues mostly in the markets of Slovakia, Czech Republic, and Hungary. Performance of these companies is assessed on a periodic basis by the Management Board of Asseco Central Europe. This segment is identical with the composition of Asseco Central Europe Group. The segment s performance as a whole is subject to regular verification by the Management Board of Asseco Poland. The aforementioned companies offer comprehensive IT services intended for a broad range of clients operating in the sectors of financial institutions, public administration and general business. Israeli market this segment includes companies which generate sales revenues mostly in North America, Japan, and Europe, Middle East, and Africa (EMEA region). Performance of these companies is assessed on a periodic basis by the Management Board of Formula Systems; hence, the segment s composition corresponds to the structure of Formula Systems Group. The segment s performance as a whole is subject to regular verification by the Management Board of Asseco Poland. Western European market this segment groups the companies which generate revenues mostly in the countries of Western Europe, including Germany, Spain, Portugal, and Denmark. The segment s performance as a whole is subject to regular verification by the Management Board of Asseco Poland. This segment is comprised of the following entities: Matrix42, Asseco Spain, Asseco Denmark, Peak Consulting, and Necomplus Group. Eastern European market this segment groups the companies which generate revenues mostly in the countries of Eastern Europe. The segment s performance as a whole is subject to regular verification by the Management Board of Asseco Poland. This segment is comprised of the following entities: R-Style Softlab, Asseco Georgia, Sintagma, and Asseco Lietuva. Revenues from none of our clients exceeded 10% of the Group s total turnover in the period of. All figures in PLN millions, unless stated otherwise 33

34 Polish market Central European market South Eastern European market Israeli market Western European market Eastern European market Eliminations (unaudited) PLN millions PLN millions PLN millions PLN millions PLN millions PLN millions PLN millions PLN millions Total Sales to external customers ,450.3 Inter-segment sales (1.2) - Operating profit (loss) of operating segment (1.2) (0.8) Interest income (0.3) 6.0 Interest expenses 2 (3.6) (0.5) (0.2) (6.5) (0.4) (10.9) Corporate income tax (20.4) (4.4) (1.0) (9.2) (1.4) - - (36.4) Non-cash items: Depreciation and amortization (22.8) (11.6) (4.6) (22.3) (3.5) (1.0) 0.7 (65.1) Impairment write-downs on segment assets: (0.4) (1.3) (0.3) (0.8) - (0.3) write-down on goodwill net write-down on operating assets (0.4) (1.3) (0.3) (0.8) - (0.3) Share in profits of associates and jointly controlled companies (0.3) Net profit (loss) of operating segment (0.8) (0.6) Net cash provided by (used in) operating activities 10.6 (5.0) (1.8) Goodwill 2, , ,081.1 Average workforce in the reporting period 4,296 1,609 1,362 8, ,335 1 Interest income on loans granted, debt securities, finance leases, trade receivables, and bank deposits 2 Interest expense on bank loans, borrowings, debt securities, finance leases, and trade payables All figures in PLN millions, unless stated otherwise 34

35 Central European South Eastern Western European Eastern European 31 March 2013 Polish market Israeli market Eliminations Total market European market market market (restated) PLN millions PLN millions PLN millions PLN millions PLN millions PLN millions PLN millions PLN millions Sales to external customers ,345.2 Inter-segment sales (2.3) Operating profit (loss) of operating segment (0.2) (1.4) Interest income (0.8) 6.6 Interest expenses 2 (5.6) (0.3) - (5.2) (0.5) (10.8) Corporate income tax (18.7) (4.4) (2.6) (5.2) (1.1) - - (32.0) Non-cash items: Depreciation and amortization (20.6) (11.8) (3.3) (24.2) (4.3) (0.1) 0.4 (63.9) Impairment write-downs on segment assets: (0.1) (0.8) (0.2) - (0.3) (0.1) - (1.5) write-down on goodwill net write-down on operating assets (0.1) (0.8) (0.2) - (0.3) (0.1) - (1.5) Share in profits of associates and jointly controlled companies Net profit (loss) of operating segment (0.2) (1.4) Net cash provided by (used in) operating activities (1.2) (1.3) Goodwill 2, , ,039.8 Average workforce in the reporting period 4, , , , , Interest income on loans granted, debt securities, finance leases, trade receivables, and bank deposits 2 Interest expense on bank loans, borrowings, debt securities, finance leases, and trade payables All figures in PLN millions, unless stated otherwise 35

36 V. EXPLANATORY NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Sales revenues and operating costs During the period of and in the comparable period, operating revenues and costs were as follows: Sales revenues by type of products 31 March 2014 (unaudited) PLN millions 31 March 2013 (restated) PLN millions Proprietary software and services 1, ,065.1 Third-party software and services Hardware and infrastructure Other sales Total 1, ,345.2 Sales revenues by sectors Banking and Finance General Business Public Administration Total 1, ,345.2 Operating costs Cost of goods, materials and third-party services sold (309.5) (244.1) Employee benefits (688.8) (607.3) Depreciation and amortization* (64.8) (63.9) Other (242.1) (263.2) Total (1,305.2) (1,178.5) Cost of sales (1,090.4) (985.0) Selling costs (94.1) (90.0) General administrative expenses (120.7) (103.5) Total (1,305.2) (1,178.5) *we recognized a depreciation charge of PLN 0.3 million on properties being leased out by the Group which was included in other operating activities as part of expenses associated with revenues from the lease of office space. i. Costs of employee benefits 31 March 2014 (unaudited) PLN millions 31 March 2013 (restated) PLN millions Salaries (558.8) (489.2) Social insurance contributions (42.6) (40.0) Retirement benefit expenses (35.6) (59.1) Costs of equity-settled employee payment transactions (6.4) (4.6) Other costs of employee benefits (45.4) (14.4) Total employee benefit expenses (688.8) (607.3) All figures in PLN millions, unless stated otherwise 36

37 ii. Reconciliation of depreciation and amortization charges The table below presents the reconciliation of depreciation and amortization charges reported in the income statement with those disclosed in the tables of changes in property, plant and equipment (note 6) and in intangible assets (note 7): 31 March March 2013 Note (unaudited) (restated) PLN millions PLN millions Depreciation charge for the period as disclosed in the table of changes in property, plant and equipment Amortization charge for the period as disclosed in the table of changes in intangible assets 6 (27.8) (25.4) 7 (38.7) (40.4) Depreciation charge on investment property for the period - (0.1) Depreciation charge transferred to other operating activities Amortization charge recognized directly in other comprehensive income Reduction of amortization charge due to recognition of a grant to internally generated licenses Total depreciation and amortization charges recognized in operating costs iii. Currency structure of sales revenues The table below presents the currency structure of sales revenues: (0.3) (64.8) (63.9) 31 March 2014 (unaudited) 31 March 2013 (restated) NIS (new Israeli shekel) 30.9% 28.6% PLN (Polish zloty) 27.2% 28.6% EUR (euro) 18.1% 18.2% USD (American dollar) 10.3% 11.1% CZK (Czech crown) 2.2% 3.6% RON (new Romanian leu) 1.3% 1.3% RSD (Serbian dinar) 1.7% 2.0% other currencies 8.3% 6.6% 100.0% 100.0% All figures in PLN millions, unless stated otherwise 37

38 2. Financial income and expenses During the period of and in the comparable period, financial income and expenses were as follows: 31 March March 2013 Financial income (unaudited) (restated) PLN millions PLN millions Interest income on loans granted, debt securities, finance leases, trade receivables, and bank deposits Other interest income Foreign exchange differences Valuation/revaluation of financial assets and equity investments at the balance sheet date Exercise and/or valuation of financial assets carried at fair value through profit or loss Revaluation of deferred payments for controlling interests in subsidiaries Other financial income Total financial income In the line of Gain on valuation/revaluation of financial assets and equity investments at the balance sheet date, the Group recognized PLN 28.1 million of income resulting from the reversal of a write-down on commercial papers and other receivables from Prokom Investments as all of such receivables have been entirely settled by Prokom. This transaction has been described in detail in explanatory notes 9 and 11 to these interim condensed consolidated financial statements. The structure of financial expenses incurred during the period of and in the comparable period was as follows: 31 March March 2013 Financial expenses (unaudited) (restated) PLN millions PLN millions Interest expense on bank loans, borrowings, debt securities, finance leases and trade payables (10.9) (10.8) Other interest expenses (1.1) (1.2) Foreign exchange differences (1.6) (4.0) Expenses related to obtaining control over subsidiaries (0.4) (3.7) Valuation/revaluation of financial assets at the balance sheet date Exercise and/or valuation of financial assets carried at fair value through profit or loss Revaluation of deferred payments for controlling interests in subsidiaries - (0.4) (0.5) (0.1) (2.5) (0.8) Other financial expenses (0.1) (0.9) Total financial expenses (17.1) (21.9) Positive and negative foreign exchange differences are presented in net amounts (reflecting the surplus of positive differences over negative differences or otherwise) at the level of individual subsidiaries. Gain/loss on revaluation of deferred payments for controlling interests in subsidiaries resulted from changes in the estimates of deferred contingent liabilities arising from the acquisition of controlling interests in subsidiaries. All figures in PLN millions, unless stated otherwise 38

39 3. Corporate income tax The main charges on pre-tax profit resulting from corporate income tax (current and deferred portions): 31 March 2014 (unaudited) PLN millions 31 March 2013 (restated) PLN millions Current corporate income tax and prior years adjustments (24.5) (14.6) Deferred portion of income tax (11.9) (17.4) Income tax expense as disclosed in the income statement (36.4) (32.0) During the period of, the effective tax rate equalled 21.9% vs. 20.5% in the comparable period last year. 4. Earnings per share Basic earnings per share are computed by dividing net profit for the reporting period attributable to shareholders of the Parent Company by the weighted average number of ordinary shares outstanding during that reporting period. Diluted earnings per share are computed by dividing net profit for the reporting period attributable to shareholders of the Parent Company by the adjusted (for the diluting impact of potential shares) weighted average number of ordinary shares outstanding during that financial period, adjusted by the impact of diluting instruments. Both during the reporting period and the comparable period in prior year no events occurred that would result in a dilution of earnings per share. The table below presents net profits and numbers of shares used for the calculation of earnings per share: 31 March 2014 (unaudited) 31 March 2013 (restated) Weighted average number of ordinary shares outstanding, used for calculation of basic earnings per share Net profit attributable to shareholders of the Parent Company (in PLN millions) 83,000,303 83,000, Net earnings per share (in PLN) Information on dividends paid out A resolution on distribution of the Parent Company s net profit for the year 2013 had not been adopted until 31 March The relevant resolution was adopted on 12 May 2014, as described in explanatory note 22 to these interim condensed consolidated financial statements. In 2013 the Parent Company paid out to its shareholders a dividend for the year On 24 April 2013, the Ordinary General Meeting of Shareholders of Asseco Poland S.A. passed a resolution to allocate PLN 200 million out of the Company s net profit for the financial year 2012 to payment of a dividend amounting to PLN 2.41 per share. The remaining portion of net profit in the amount of PLN million was allocated to reserve capital. The dividend record date was set for 20 May 2013; whereas, the dividend payment was scheduled for 4 June Property, plant and equipment The net book value of property, plant and equipment, during the period of and in the comparable period, changed as a result of the following transactions: All figures in PLN millions, unless stated otherwise 39

40 Net book value of property, plant and equipment as at 1 January 31 March 2014 (unaudited) PLN millions 31 March 2013 (restated) PLN millions Increases, of which: Purchases and modernization Obtaining control over subsidiaries* Finance leases Decreases, of which: (29.0) (26.0) Depreciation charges for the reporting period (27.8) (25.4) Disposal and liquidation (1.2) (0.6) Exchange differences on translation of foreign operations Net book value of property, plant and equipment as at 31 March *of which PLN 73.2 million representing the value of property, plant and equipment in Park Wodny Sopot Sp. z o.o. 7. Intangible assets The net book value of intangible assets, during the period of and in the comparable period, changed as a result of the following transactions: Net book value of property, plant and equipment as at 1 January 31 March 2014 (unaudited) PLN millions 31 March 2013 (restated) PLN millions Increases, of which: Purchases and modernization Obtaining control over subsidiaries Costs of development projects in progress* Decreases, of which: (38.7) (40.4) Depreciation charges for the reporting period (38.7) (40.4) Exchange differences on translation of foreign operations Net book value of property, plant and equipment as at 31 March ,002.7 *including PLN 3.2 million in the Polish market, PLN 2.3 million in the South Eastern European market, PLN 7.4 million in the Israeli market, PLN 4.8 million in the Eastern European market, and PLN 1.5 million in the Western European market 8. Goodwill For impairment testing purposes, goodwill arising from obtaining control over subsidiaries is allocated by the Group in the following way: to the groups of cash-generating units that constitute an operating segment; or to individual subsidiaries; or to operating segments identified by the Parent Company (including: Banking and Finance, Public Administration, General Business, or Infrastructure). All figures in PLN millions, unless stated otherwise 40

41 The following table presents the amounts of goodwill as at 31 March 2014 and in the comparable periods, indicating the type of cash-generating units to which it has been allocated: groups of companies that constitute an operating segment 31 March Dec March 2013 (unaudited) (restated) (restated) PLN millions PLN millions PLN millions Asseco Central Europe Group Asseco South Eastern Europe Group individual subsidiaries or groups of subsidiaries (narrower than a segment) 2, , ,120.1 Israeli market (Formula Systems Group), of which: 1, , ,522.4 Magic Software Enterprises Ltd Matrix IT Ltd Sapiens International Corporation N.V Western European market, of which: Asseco Solutions A.G. 3) Matrix42 A.G Asseco Spain S.A Necomplus S.L Asseco Denmark 1) Eastern European market, of which: Sintagma UAB Sp. z o.o. 2) Asseco Georgia LLC n/a Polish market, of which: Asseco Business Solutions S.A Combidata Poland Group Gladstone Consulting Ltd ADH-Soft Sp. z o.o ZUI OTAGO Sp. z o.o ZUI Novum Sp. z o.o C.K. Zeto Łódź SKG S.A P.I. Zeto Bydgoszcz S.A Park Wodny Sopot Sp. z o.o n/a n/a operating segments identified within the Parent Company 2, , ,041.9 Goodwill allocated to the segment of Banking and Finance Goodwill allocated to the segment of Public Administration Goodwill allocated to the segment of General Business Goodwill allocated to the segment of Infrastructure , , , ) Goodwill recognized on the acquisition of Asseco Denmark and Peak Consulting. 2) Goodwill recognized on the acquisition of Sintagma UAB and Asseco Lietuva UAB. 3) As a result of moving the company of Asseco Solutions A.G. within the organizational structure of Asseco Group (on 9 January 2014 this company was sold by Asseco Dach S.A. to Asseco Central Europe a.s.), goodwill recognized on the acquisition of Asseco Solutions A.G. has been allocated to Asseco Central Europe as at 31 March All figures in PLN millions, unless stated otherwise 41

42 4) Goodwill arising from the acquisition of R-Style Softlab has been allocated to the cash-generating unit constituted by the Banking and Finance segment identified in the Parent Company. The Group s management expects that the synergies arising from this transaction will bring the greatest benefits to the Banking and Finance segment which will be able to sell its products to the clients of R-Style Softlab. During the period of, the following changes in goodwill arising from consolidation were observed: Goodwill as allocated to reportable segments: Goodwill at the beginning of the period (restated) Transfers between segments Increases due to obtaining of control Foreign exchange differences (+/-) Goodwill at the end of the period (unaudited) PLN millions PLN millions PLN millions PLN millions PLN millions Polish market 2, (4.8) 2,412.0 Central European market (0.2) South Eastern European market Israeli market 1, ,506.1 Western European market (69.3) Eastern European market (0.4) 18.0 Total 5, ,081.1 During the period of 31 March 2013, the following changes in goodwill arising from consolidation were observed: Goodwill as allocated to reportable segments: Goodwill at the beginning of the period (restated) Transfers between segments Increases due to obtaining of control Foreign exchange differences (+/-) Goodwill at the end of the period (restated) PLN millions PLN millions PLN millions PLN millions PLN millions Polish market 2, ,334.3 Central European market South Eastern European market Israeli market 1, ,522.4 Western European market Eastern European market Total 4, ,039.8 In the period of, the balance of goodwill arising from consolidation was affected by the following transactions: i. Park Wodny Sopot Sp. z o.o. On 18 March 2014, Podkarpacki Fundusz Nieruchomości Sp. z o.o. (hereinafter PFN ) and Prokom Investments signed an agreement for the sale of shares in Park Wodny Sopot Sp. z o.o. Under the agreement, PFN acquired 18,143 shares in Park Wodny Sopot Sp. z o.o. representing 98.34% of the share capital of that company, for the total price of PLN 39.6 million. As at 31 March 2014, the Group has not yet completed the process of purchase price allocation. Therefore, goodwill recognized on the acquisition of Park Wodny Sopot Sp. z o.o. may be subject to change till the end of All figures in PLN millions, unless stated otherwise 42

43 The provisional values of identifiable assets and liabilities of Park Wodny Sopot Sp. z o.o. as at the date of obtaining control were as follows: Assets acquired Provisional value as at the acquisition date (unaudited) PLN millions Property, plant and equipment 73.2 Trade receivables and other receivables 0.6 Cash and cash equivalents 0.3 Other assets 0.6 Total assets 74.7 Liabilities acquired Bank loans 36.1 Provisions 8.5 Trade payables and other liabilities 2.8 Prepayments and accrued income 0.3 Total liabilities 47.7 Net assets value 27.0 Value of non-controlling interests 0.4 Equity interest acquired 98.34% Purchase price 39.6 Goodwill as at the acquisition date 13.0 ii. Acquisitions made by Matrix IT Group In January 2014, Matrix IT finalized the acquisition of 100% of shares in Hoshen Eliav Engineering Systems Inc for approx. NIS 2.6 million payable in cash. The company focuses on providing consulting services for security companies. A portion of the purchase price was determined as a conditional payment to be made provided the acquired company achieves the target level of gross profit over the next three years. As at the date of preparing this report, the company valuation process has not yet been completed. Hence, it has been temporarily assumed that the excess of purchase price over net assets acquired amounting to NIS 3.5 million shall be accounted for as intangible assets acquired in a business combination in the amount of NIS 705 thousand, whereas the rest shall be recognized as goodwill. In March 2014, Matrix IT acquired 100% of shares in TopQ (Aqua) Software for approx. NIS 4 million payable in cash. The acquired company is specialized in the provision of tools and automation of software testing processes. A portion of the purchase price was determined as a conditional payment to be made provided the acquired company achieves the target level of gross profit over the next years. As at the date of preparing this report, the company valuation process has not yet been completed. According to the management s best judgment, it has been temporarily assumed that the excess of purchase price over net assets acquired amounting to NIS 4.1 million shall be accounted for as intangible assets in the amount of NIS 970 thousand, whereas the rest shall be recognized as goodwill. All figures in PLN millions, unless stated otherwise 43

44 9. Financial assets As at 31 March 2014 and in the comparable periods, the Group held the following financial assets: Financial assets held to maturity 31 March Dec March 2013 (unaudited) (restated) (restated) Long-term Short-term Long-term Short-term Long-term Short-term PLN millions PLN millions PLN millions PLN millions PLN millions PLN millions Treasury bonds Loans, of which: loans granted to entities related through the key management personnel loans granted to employees loans granted to other entities term cash deposits Financial assets carried at fair value through profit or loss, of which: currency forward contracts (EUR & USD) corporate bonds (quoted on active markets) Treasury bonds shares in companies quoted on active markets other assets Financial assets available for sale, of which: shares in companies quoted on active markets shares in companies not listed on stock markets Treasury and corporate bonds (quoted on active markets) Total All figures in PLN millions, unless stated otherwise 44

45 Loans granted are measured at amortized cost at each balance sheet date. Loans to related entities were granted on an arm s length basis. Loans granted to related entities Loans granted to related entities include loans granted to the following related companies: 31 March Dec March 2013 (unaudited) (restated) (restated) PLN millions PLN millions PLN millions Gdyński Klub Koszykówki Arka S.A. 1) Asseco Resovia S.A. 2) Gambit Sp. z o.o. 3) Matrix42 Inc. 4) Loans granted to other related entities ) In the period of 3 months 31 March 2014 as well as in the comparable period, Mr. Przemysław Sęczkowski, Vice President of the Company s Management Board, served as President of the Management Board of Gdyński Klub Koszykówki Arka S.A. Furthermore, in the analyzed period Mr. Adam Góral, President of the Company s Management Board, as well as Mrs. Renata Bojdo and Mr. Andrzej Gerlach, the Company s Commercial Proxies, served as Members of the Supervisory Board of Gdyński Klub Koszykówki Arka S.A. 2) In the period of as well as in the comparable period, Mr. Marek Panek, Vice President of the Company s Management Board, served as President of the Management Board of Asseco Resovia S.A. Furthermore, in the analyzed period Mr. Adam Góral, President of the Company s Management Board, as well as Mrs. Renata Bojdo and Mr. Andrzej Gerlach, the Company s Commercial Proxies, served as Members of the Supervisory Board of Asseco Resovia S.A. 3) In the period of as well as in the comparable period, Mr. Krzysztof Koszewski, Member of the Supervisory Board of Combidata Poland Sp. z o.o., was a shareholder in Gambit Sp. z o.o. 4) In the period of as well as in the comparable periods, the Group held an 18% equity interest in Matrix42 Inc. During the period of, there were no significant changes in the balance of loans granted to related parties. Loans granted to other entities During the period of, our receivables from commercial papers issued by Prokom Investments S.A. were fully settled. On 17 March 2014, Asseco Poland S.A. and Prokom Investments S.A. signed an annex to their memorandum of understanding of 20 December 2012 under which the parties determined the amount of Prokom Investments liabilities towards Asseco Poland at PLN 39.6 million and changed the deadline for repayment of Prokom s outstanding liabilities. Under the said annex, Prokom agreed to repay all liabilities to Asseco on the date of selling its shares in Park Wodny Sopot Sp. z o.o. seated in Sopot. On 18 March 2014, Podkarpacki Fundusz Nieruchomości Sp. z o.o. and Prokom Investments signed an agreement for the sale of shares in Park Wodny Sopot Sp. z o.o. Under the agreement, PFN acquired 18,143 shares in Park Wodny Sopot Sp. z o.o. representing 98.34% of the share capital of that company, for the total price of PLN 39.6 million. PFN was authorized to pay the total sale price to Asseco Poland on behalf and by assignment of Prokom Investments. PFN accepted the assignment and became liable and responsible for payment of the whole price directly to Asseco. Concurrently, Asseco Poland S.A. had a liability towards PFN in the amount of PLN 39.6 million which resulted from the acquisition of new shares in PFN, in accordance with the declaration made on 14 March On 18 March 2014, Asseco Poland and PFN concluded an agreement to offset their mutual obligations both of which were therefore reduced by PLN 39.6 million. As a result, Asseco s liabilities to PFN have been entirely extinguished with its receivables from Prokom; whereas, PFN s liabilities to Asseco have been entirely compensated with the payment due from Asseco for the acquisition of new shares in PFN. All figures in PLN millions, unless stated otherwise 45

46 Following the above-mentioned transactions, Asseco Poland s claims against Prokom Investments have been fully settled. The nominal value (i.e. before impairment write-downs) of commercial papers, which were settled on the basis of the memorandum of understanding of 17 March 2014, amounted to PLN 26.0 million; whereas, their carrying amount as at 31 December 2013, as estimated by the Management Board of the Parent Company, equalled PLN 7.3 million. The said transaction resulted in reversing the impairment write-downs that were recognized on these commercial papers in prior reporting periods. The gain achieved on such revaluation of commercial papers was recognized in financial income (see explanatory note 2 to these interim condensed consolidated financial statements). The balance of term cash deposits includes term deposits with an original maturity of more than 3 months. Financial assets held to maturity are measured at amortized cost at each balance sheet date. This category includes investments in Treasury bonds quoted on an active market. Financial assets carried at fair value through profit or loss include forward transactions for purchase or sale of foreign currencies and the portfolio of financial assets held for trading, which comprise corporate bonds quoted on active markets and investment-rated Treasury bonds, as well as shares in companies quoted on active markets. Investments in debt securities and company shares are an alternative form of spare cash management as applied by Matrix IT Ltd. (a subsidiary of the Formula Systems Group). Forward transactions have been concluded chiefly in order to hedge against the foreign currency risk resulting from finance leases of real estate. The fair value of currency forward contracts is determined at each balance sheet date using calculation models based on inputs that are directly observable in active markets. Whereas, the fair value of the financial assets portfolio is determined on the basis of quoted prices of such assets in active markets. Financial assets available for sale include primarily equity investments not exceeding 20% of the target company s outstanding stock as well as bonds purchased without an intention to be held to maturity. Investments in companies quoted on active markets are measured at fair value at each balance sheet date, on the basis of their closing prices on the balance sheet date. Any changes in such valuation are recognized in other comprehensive income. Investments in companies not listed on active markets are measured at their purchase cost adjusted by any impairment charges. All figures in PLN millions, unless stated otherwise 46

47 10. Prepayments and accrued income As at 31 March 2014 and in the comparable periods, prepayments and accrued income included the following items: 31 March Dec March 2013 (unaudited) (restated) (restated) Long-term Short-term Long-term Short-term Long-term Short-term PLN millions PLN millions PLN millions PLN millions PLN millions PLN millions Prepaid services, of which: Prepaid maintenance services and license fees Prepaid sponsoring Prepaid rents and averaging of instalments under operating leases Prepaid insurance Other prepaid services Expenses related to services performed for which revenues have not been recognized yet Public issuance expenses Other prepayments and accrued income Total As at 31 March 2014 as well at as the end of comparable periods, prepayments comprised mainly: costs of prepaid maintenance services and licensing fees that will be gradually expensed in the income statement in future periods; prepaid marketing and advertising expenses, mostly in favour of Gdyński Klub Koszykówki Arka S.A. (the sponsorship agreement with this basketball club will be effective till 31 July 2017) and Asseco Resovia (the sponsorship agreement with this volleyball club will be effective till 31 May 2016). All figures in PLN millions, unless stated otherwise 47

48 11. Long-term and short-term receivables 31 March Dec March 2013 (unaudited) (restated) (restated) Long-term Short-term Long-term Short-term Long-term Short-term PLN millions PLN millions PLN millions PLN millions PLN millions PLN millions Trade receivables, of which: from related companies from other companies 0.2 1, , Allowance for doubtful receivables (-) (43.0) - (49.9) - (46.5) 0.2 1, , Corporate income tax receivable Receivables from the state and local budgets Value added tax Other Other receivables - Receivables from valuation of IT contracts Receivables from uninvoiced deliveries Other receivables Allowance for other uncollectible receivables (-) (11.3) (7.4) (9.0) (2.1) (7.3) All figures in PLN millions, unless stated otherwise 48

49 Related party transactions have been presented in explanatory note 17 to these interim condensed consolidated financial statements. Other receivables from the state and local budgets include primarily receivables of Matrix IT arising from government grants awarded for employing workers of Arabic origin as well as other religious and ethnic minorities. Receivables from valuation of IT contracts (implementation contracts) result from the surplus of the percentage of completion of implementation contracts over invoices issued. Receivables relating to uninvoiced deliveries result from sales of services which were performed during the reporting period, but have not been invoiced until the balance sheet date. The balance of other receivables includes, among others, receivables relating to guarantees of due performance of contracts (i.e. security in cash extended in favour of customers in order to compensate for their potential losses should the Company fail to fulfil its contractual obligations), receivables from disposal of tangible assets, receivables from security deposits paid-in, as well as receivables from disposal of shares. As described above, in the period of, our receivables from Prokom Investments S.A. were fully settled. As at 31 December 2013, the nominal value (i.e. before impairment write-downs) of other receivables from Prokom Investments, which were settled on the basis of the memorandum of understanding of 17 March 2014, amounted to PLN 10.6 million; whereas, their carrying amount as at 31 December 2013, as estimated by the Management Board of the Parent Company, equalled PLN 1.2 million. The said transaction resulted in reversing the impairment write-downs that were recognized on these receivables in prior reporting periods. The gain achieved on such revaluation of receivables was recognized in financial income (see explanatory note 2 to these consolidated financial statements). 12. Cash and cash equivalents 31 March Dec March 2013 (unaudited) (restated) (restated) PLN millions PLN millions PLN millions Cash at bank Cash on hand Short-term bank deposits (up to 3 months) Other cash equivalents Total cash and cash equivalents as disclosed in the balance sheet 1, Interest accrued on cash and cash equivalents (0.2) (0.2) (0.6) Bank overdraft facilities utilized for current liquidity management Total cash and cash equivalents as disclosed in the cash flow statement (38.9) (49.1) (54.4) 1, The interest on cash at bank is calculated with variable interest rates, depending on interest rates offered on bank deposits. Short-term deposits are made for varying periods of between one day and three months and earn interest at their respective fixed interest rates. All figures in PLN millions, unless stated otherwise 49

50 Bank overdraft facilities Quarterly Report for the period of 13. Interest-bearing bank loans and debt securities issued Outstanding debt as at: Maximum debt as at: Loan currency Effective interest rate Repayment date 31 March Dec March Dec (unaudited) (restated) (unaudited) (restated) PLN millions PLN millions PLN millions PLN millions EONIA + margin Q Q Q Q EURIBOR + margin Q EUR Q Q Q fixed interest rate Q Q MKD fixed interest rate Q Q Q PLN WIBOR + margin Q Q Q multi-currency EURIBOR + margin Q JPY fixed interest rate not specified NIS Prime (Israel) + margin not specified All figures in PLN millions, unless stated otherwise 50

51 Non-revolving bank loans Quarterly Report for the period of Loan currency Effective interest rate Repayment date 31 March Dec Long-term Short-term Long-term Short-term PLN millions PLN millions PLN millions PLN millions EUR NIS PLN USD TRY HRK EURIBOR + margin Q Q fixed interest rate Prime (Israel) + margin fixed interest rate WIBOR + margin LIBOR + margin Q fixed interest rate fixed interest rate EURIBOR + margin fixed interest rate Q Q Q All figures in PLN millions, unless stated otherwise 51

52 Borrowings Quarterly Report for the period of 31 March Dec Loan currency Effective interest rate Repayment date Long-term Short-term Long-term Short-term PLN millions PLN millions PLN millions PLN millions EUR NIS EURIBOR+margin fixed interest rate Q Q not specified The Group s liabilities under non-revolving bank loans and borrowings amounted to PLN million as at 31 March 2014, of which PLN million represented debt with maturities of over 12 months. As at 31 December 2013, liabilities under non-revolving bank loans and borrowings amounted to PLN million, of which PLN million represented long-term debt. In the reporting period, the margins realized by lenders to Asseco Group companies ranged from 0.01 to 6.99 percentage points on an annual basis. Whereas, in the comparable period such margins ranged from 0.2 to 4.05 percentage points per annum. Both as at 31 March 2014 and 31 December 2013, the Group had no liabilities resulting from debt securities issued. Hence, the Group s total liabilities under all bank loans and borrowings taken out and debt securities issued aggregated at PLN million as at 31 March 2014, as compared with PLN million outstanding as at 31 December All figures in PLN millions, unless stated otherwise 52

53 Assets serving as security for bank loan facilities: Category of assets Net value of assets Utilized amount of loan facility secured with assets 31 March Dec March Dec (unaudited) (restated) (unaudited) (restated) PLN millions PLN millions PLN millions PLN millions Land and buildings Computers and other office equipment Long-term investments Current and future receivables TOTAL Assets serving as security for bank guarantee facilities: Category of assets Net value of assets Amount of granted guarantee secured with assets 31 March Dec March Dec (unaudited) (restated) (unaudited) (restated) PLN millions PLN millions PLN millions PLN millions Cash deposits Current receivables TOTAL Some loans taken from Polish and Israeli banks come with the so-called covenants which impose an obligation to maintain certain financial ratios at the levels required by the bank. These ratios are related to the level of indebtedness, e.g. debt to EBITDA or debt to equity ratios, or to achieving the expected operating profits. In the event a company carrying such a covenanted loan fails to satisfy the said requirements, the bank may apply a sanction in the form of a higher credit margin. Should the bank deem the new level of a ratio to be unacceptable, the bank may in certain cases exercise its rights in the collateral provided as security. As at 31 March 2014 and in the comparable periods, we did not default on any of such financial covenants. All figures in PLN millions, unless stated otherwise 53

54 14. Financial liabilities 31 March Dec March 2013 (unaudited) (restated) (restated) Long-term Short-term Long-term Short-term Long-term Short-term PLN millions PLN millions PLN millions PLN millions PLN millions PLN millions Dividend payment liabilities Liabilities for the acquisition of shares deferred and contingent payments for controlling interests Liabilities for the acquisition of shares in subsidiaries (put options) Other financial liabilities As at 31 March 2014 and in the comparable periods, dividend payment liabilities comprised basically dividends payable to non-controlling shareholders in subsidiaries and indirect subsidiaries of the Parent Company. As at 31 March 2014 and in the comparable periods, the Group had estimated liabilities resulting from deferred and/or contingent payments for controlling interests. The amounts of the above-mentioned liabilities have been measured using the price calculation formula as defined in the controlling interest acquisition agreements which shall correspond to company s net profit for the contractual term multiplied by a predetermined coefficient. All figures in PLN millions, unless stated otherwise 54

55 The table below presents liabilities resulting from deferred and/or contingent payments for controlling interests in subsidiaries as at 31 March 2014 and in the comparable periods: Liabilities from deferred and/or contingent payments for controlling interests 31 March Dec March 2013 (unaudited) (restated) (restated) PLN millions PLN millions PLN millions Liabilities from acquisitions made by Asseco Central Europe Group Liabilities from acquisitions made by Asseco South Eastern Europe Group Liabilities from acquisitions made by Magic Software Enterprises Group Liabilities from acquisitions made by Matrix IT Group Liabilities from the acquisition of SKG S.A As at 31 March 2014 and in the comparable periods, the Group had liabilities resulting from the acquisition of non-controlling interests in subsidiaries (put options). The amounts of such liabilities have been estimated using the formula for calculation of the exercise price of options that the Group granted to non-controlling shareholders which corresponds to company s net profit for the contractual term multiplied by a predetermined coefficient. The table below presents liabilities resulting from put options granted to non-controlling shareholders in subsidiaries as at 31 March 2014 and in the comparable periods: Liabilities under put options granted to non-controlling shareholders 31 March Dec March 2013 (unaudited) (restated) (restated) PLN millions PLN millions PLN millions Asseco Lietuva UAB Asseco South Eastern Europe S.A. 1) Multicard d.o.o. n/a n/a 1.2 Companies of Matrix IT Group 2) Companies of Magic Software Enterprises Group 3) SKG S.A ZAO R-Style Softlab n/a ) Option extended in favour of the European Bank for Reconstruction and Development 2) Liabilities related to the acquisition of companies: Babcom Centers, Matchpoint, K.B.I.S., and Exzac. 3) Liabilities related to the acquisition of CommIT Software Ltd. All figures in PLN millions, unless stated otherwise 55

56 15. Long-term and short-term liabilities As at 31 March 2014 and in the comparable periods, the Group had the following liabilities: 31 March Dec March 2013 (unaudited) (restated) (restated) Long-term Short-term Long-term Short-term Long-term Short-term PLN millions PLN millions PLN millions PLN millions PLN millions PLN millions Trade payables, of which from related companies from other companies Corporate income tax payable Liabilities to the state and local budgets Value added tax (VAT) Personal income tax (PIT) Social Insurance Institution (ZUS) Withholding income tax Other Other liabilities Liabilities arising from valuation of IT contracts Liabilities from uninvoiced deliveries Liabilities to employees (including salaries payable) Other liabilities Trade payables are non-interest bearing. Related party transactions have been presented in explanatory note 17 to these interim condensed consolidated financial statements. All figures in PLN millions, unless stated otherwise 56

57 16. Accruals and deferred income 31 March Dec March 2013 (unaudited) (restated) (restated) Long-term Short-term Long-term Short-term Long-term Short-term PLN millions PLN millions PLN millions PLN millions PLN millions PLN millions Accruals, of which: Accrual for unused holiday leaves Accrual for employee and management bonuses Provision for expenses Deferred income, of which: Maintenance services Other prepaid services Grants for the development of assets Other The balance of accruals comprises: accruals for unused holiday leaves, accruals for salaries of the current period to be paid out in future periods which result from the bonus schemes applied by the Group, provision for the audit of financial statements, and provisions for operating expenses of the Group s companies which were incurred in the current reporting period but have not been invoiced until the balance sheet date. The balance of deferred income comprises mainly future revenues recognized over time for the provision of services, such as IT support services, as well as grants for the development of assets. Grants for the development of assets represent subsidies received by the Group in connection with its development projects or projects related to the creation of IT competence centers. All figures in PLN millions, unless stated otherwise 57

58 17. Related party transactions Asseco Group sales to related companies: 3 months ended 31 March 2014 (unaudited) 3 months ended 31 March 2013 (restated) Name of entity Transaction type PLN millions PLN millions Transactions with associates Postdata S.A. Sale of goods and services related to implemented IT projects E-mon d.o.o. Sale of goods and services related to implemented IT projects Total Transactions with entities related through the Group s Key Management Personnel Gdyński Klub Koszykówki Arka S.A. 1) Rental of office space Polnord S.A. 2) Sale of goods and services related to implemented IT projects; rental of office space n/a 1.2 Decsoft S.A. 3) Sale of goods and services related to implemented IT projects Matrix42 Inc. 4) Sale of goods and services related to implemented IT projects Other entities related through the key management personnel Total Transactions with Members of the Management Board and Supervisory Board and Commercial Proxies of Asseco Poland S.A. Włodzimierz Serwiński Sale of goods and services related to other activities Total Transactions with Members of the Management Board and Supervisory Board and Commercial Proxies of other Group companies - - Total related party transactions ) In the period of 3 months 31 March 2014 as well as in the comparable period, Mr. Przemysław Sęczkowski, Vice President of the Company s Management Board, served as President of the Management Board of Gdyński Klub Koszykówki Arka S.A. Furthermore, in the analyzed period Mr. Adam Góral, President of the Company s Management Board, as well as Mrs. Renata Bojdo and Mr. Andrzej Gerlach, the Company s Commercial Proxies, served as Members of the Supervisory Board of Gdyński Klub Koszykówki Arka S.A. 2) 3) 4) In the period of 31 March 2013, Mr. Przemysław Sęczkowski, Vice President of the Company s Management Board, served as Member of the Management Board of Polnord S.A. He held this position till 2 December 2013; hence, in the period of 3 months ended 31 March 2014, Polnord S.A. was no longer an entity related through the Key Management Personnel. In the period of, Mr. Jacek Duch, Chairman of the Company s Supervisory Board, served as Member of the Supervisory Board of Decsoft S.A. In the period of as well as in the comparable period, our subsidiary Matrix42 AG held an 18% equity interest in Matrix42 Inc. In addition, in the period of as well as in the comparable period, Mr. Herbert Uhl, a major shareholder in Matrix42 Inc, was also a non-controlling shareholder in Asseco DACH S.A. All figures in PLN millions, unless stated otherwise 58

59 Asseco Group purchases from related companies: 3 months ended 31 March 2014 (unaudited) 3 months ended 31 March 2013 (restated) Name of entity Transaction type PLN millions PLN millions Transactions with associates Postdata S.A. Purchase of goods and services related to implemented IT projects Total Transactions with entities related through the Group s Key Management Personnel Gdyński Klub Koszykówki Arka S.A. 1) Sponsoring Asseco Resovia S.A. 2) Sponsoring Koma Nord Sp. z o.o. 3) Purchase of services related to implemented IT projects Top Fin Sp. z o.o. 4) Rental of office space Matrix42 Inc. 5) Matrix42 Ukraine 6) Purchase of goods and services related to implemented IT projects Purchase of goods and services related to implemented IT projects MHM d.o.o. 7) Rental of office space DM3 d.o.o. 8) Rental of office space Business Data Consulting S.R.L. 9) Purchase of advisory services MB Distribution Ltd. 10) Informatičke djelatnosti d.o.o. 11) Sospes d.o.o. 12) UAB Linkas 13) Other entities related through the key management personnel Purchase of goods and services related to implemented IT projects Purchase of goods and services related to implemented IT projects Purchase of goods and services related to implemented IT projects Rental of office space; purchase of services related to other activities Total Transactions with Members of the Management Board and Supervisory Board and Commercial Proxies of Asseco Poland S.A. Dariusz Brzeski Purchase of advisory services Andrzej Gerlach Purchase of advisory services Piotr Jakubowski Purchase of advisory services Transactions with Members of the Management Board and Supervisory Board and Commercial Proxies of other Group companies Total related party transactions ) 2) 3) 4) In the period of 3 months 31 March 2014 as well as in the comparable period, Mr. Przemysław Sęczkowski, Vice President of the Company s Management Board, served as President of the Management Board of Gdyński Klub Koszykówki Arka S.A. Furthermore, in the analyzed period Mr. Adam Góral, President of the Company s Management Board, as well as Mrs. Renata Bojdo and Mr. Andrzej Gerlach, the Company s Commercial Proxies, served as Members of the Supervisory Board of Gdyński Klub Koszykówki Arka S.A. In the period of as well as in the comparable period, Mr. Marek Panek, Vice President of the Company s Management Board, served as President of the Management Board of Asseco Resovia S.A. Furthermore, in the analyzed period Mr. Adam Góral, President of the Company s Management Board, as well as Mrs. Renata Bojdo and Mr. Andrzej Gerlach, the Company s Commercial Proxies, served as Members of the Supervisory Board of Asseco Resovia S.A. In the period of as well as in the comparable period, Mr. Andrzej Gerlach, the Company s Commercial Proxy, served as Member of the Supervisory Board of Koma Nord Sp. z o.o. In the period of, Mr. Andrzej Gerlach, the Company s Commercial Proxy, and Mrs. Ewa Góral, the wife of Mr. Adam Góral, President of the Company s Management Board, as well as Mrs. Jolanta Wiza, the wife of Mr. Artur Wiza, the All figures in PLN millions, unless stated otherwise 59

60 Company s Executive Director, were partners in the company Top Fin Sp. z o.o. Moreover, in the analyzed period Mrs. Jolanta Wiza served as President of the Management Board of Top Fin Sp. z o.o. 5) 6) 7) 8) 9) 10) 11) 12) 13) In the period of as well as in the comparable period, our subsidiary Matrix42 AG held an 18% equity interest in Matrix42 Inc. In addition, in the period of as well as in the comparable period, Mr. Herbert Uhl, a major shareholder in Matrix42 Inc, was also a non-controlling shareholder in Asseco DACH S.A. In the period of as well as in the comparable period, Mr. Jochen Jaser, a shareholder in Matrix42 Ukraine, was also a non-controlling shareholder in our subsidiary Asseco DACH S.A. Furthermore, Mr. Jaser serves as member of the managerial stuff of our subsidiary Matrix42 A.G. In the period of as well as in the comparable period, shareholders in MHM d.o.o. served as members of the managerial stuff of subsidiaries of Asseco South Eastern Europe. In the period of as well as in the comparable period, Mr. Mihail Petreski, a shareholder in DM3 d.o.o., served as Vice Chairman of the Supervisory Board of Asseco South Eastern Europe. In the period of as well as in the comparable period, Mr. Dragos Stan, a shareholder in Business Data Consulting S.R.L., served as Member of the Management Board of Asseco SEE s.r.l. (a subsidiary of Asseco South Eastern Europe). In the period of as well as in the comparable period, Mr. Dragos Stan, a shareholder in MB Distribution Ltd., served as Member of the Management Board of Asseco SEE s.r.l. (a subsidiary of Asseco South Eastern Europe). In the period of as well as in the comparable period, this company was related through the key management personnel of a subsidiary of Asseco South Eastern Europe. In the period of as well as in the comparable period, this company was related through the key management personnel of a subsidiary of Asseco South Eastern Europe. In the period of as well as in the comparable period, shareholders in UAB Konferenta, Mr. Albertas Sermokas and Mr. Evaldas Drasutis, both served as members of the managerial stuff of UAB Sintagma and Asseco Lietuva. All figures in PLN millions, unless stated otherwise 60

61 Trade receivables and other receivables as at Trade payables and other liabilities as at Name of entity 31 March Dec March Dec Associates (unaudited) (restated) (unaudited) (restated) PLN millions PLN millions PLN millions PLN millions Postdata S.A E-mon d.o.o Multicard d.o.o Transactions with entities related through the Group s Key Management Personnel Gdyński Klub Koszykówki Arka S.A Asseco Resovia S.A Polnord S.A Koma Nord Sp. z o.o Decsoft S.A Ruch S.A Top Fin Sp. z o.o Epta d.o.o Matrix42 Inc MB Distribution Ltd Disig a.s Virte a.s Fomax a.s UAB Linkas Higher School of Finance and Administration in Sopot Other Total Transactions with Members of the Management Board and Supervisory Board and Commercial Proxies of Asseco Poland S.A. Dariusz Brzeski Piotr Jakubowski Total Transactions with Members of the Management Board and Supervisory Board and Commercial Proxies of other Group companies Total related party transactions Transactions with related parties are carried out on an arm s length basis. As at 31 March 2014, receivables from related entities comprised trade receivables (PLN 4.3 million) as well as other receivables (PLN 4.0 million). As at 31 December 2013, the balance of receivables from related entities comprised trade receivables (PLN 9.1 million) as well as other receivables (PLN 7.0 million). As at 31 March 2014, liabilities to related entities comprised trade payables (PLN 0.8 million). As at 31 December 2013, liabilities to related entities comprised trade payables (PLN 7.6 million) as well as other liabilities (PLN 0.2 million). Loans granted to related entities have been described in explanatory note 9 to these interim condensed consolidated financial statements. All figures in PLN millions, unless stated otherwise 61

62 18. Notes to the Statement of Cash Flows Cash flows operating activities The table below presents items included in the line Changes in working capital : 31 March 2014 (unaudited) PLN millions 31 March 2013 (restated) PLN millions Change in inventories (14.3) (6.8) Change in receivables Change in liabilities (302.4) (225.5) Change in prepayments and accruals Change in provisions (5.8) (5.1) Cash flows investing activities (102.6) (15.2) In the period of, the balance of cash flows from investing activities was affected primarily by the following proceeds and expenditures: Acquisitions of property, plant and equipment and intangible assets include purchases of property, plant and equipment for PLN 35.5 million, purchases of intangible assets for PLN 1.8 million, as well as expenditures for ongoing development projects amounting to PLN 19.2 million. Expenditures for the acquisition of subsidiaries and associates, and cash and cash equivalents in the acquired subsidiaries as at the date of obtaining control: Acquisition of subsidiaries (unaudited) PLN millions Cash in subsidiaries acquired (unaudited) PLN millions Acquisitions made by Magic Software Enterprises Group (9.5) - Acquisitions made by Matrix IT Group (8.6) 0.2 Park Wodny Sopot Sp. z o.o SKG S.A. (0.9) - (19.0) 0.5 The following table presents detailed cash flows relating to loans during the period of 3 months ended 31 March 2014: Loans collected (unaudited) PLN millions Loans granted (unaudited) PLN millions Loans for entities related through key management personnel: 0.2 (1.3) Gdyński Klub Koszykówki Arka S.A Asseco Resovia S.A. - (1.3) Loans for other related entities Loans for employees 2.7 (0.2) Term cash deposits with original maturities exceeding 3 months 3.1 (6.6) Total 6.1 (8.1) All figures in PLN millions, unless stated otherwise 62

63 Cash flows financing activities Proceeds from transactions with non-controlling interests include capital raised from issuances of shares made by companies of Formula Systems Group under their employee stock option plans which are paid by non-controlling shareholders, as well as capital raised from the issuance of shares carried out by Magic Software Enterprises in the first quarter of 2014; Proceeds from bank loans include primarily a bank loan amounting to PLN million that was taken by Formula Systems; Expenditures for the acquisition of non-controlling interests include expenditures of PLN 22.5 million incurred by Formula Systems to acquire additional non-controlling interests in Magic Software Enterprises (shares were purchased in a public offering) and in Matrix IT, as well as expenditures of PLN 15.4 million incurred by Matrix IT on the exercise of put options for non-controlling interests in Exzac Inc; Dividends paid out include dividend payments made by our subsidiaries to their non-controlling shareholders. 19. Off-balance-sheet liabilities in favour of related companies As at 31 March 2014, guarantees and sureties extended by Asseco Poland for Arka Gdynia Basketball Club, an entity related through our key management personnel, were as follows: guarantee in the amount of PLN 1.3 million (EUR 0.3 million) issued in favour of Euroleague Properties NV in order to secure the participation of Arka Gdynia Basketball Club in the Euroleague. As at 31 March 2014, no guarantees were granted to any other related companies. 20. Off-balance-sheet liabilities to other companies The Group is a party to a number of rental, leasing and other contracts of similar nature, resulting in the following off-balance-sheet liabilities for future payments: Liabilities under leases of space 31 March Dec March 2013 (unaudited) (restated) (restated) PLN millions PLN millions PLN millions In the period up to 1 year In the period from 1 to 5 years Over 5 years Liabilities under operating lease agreements In the period up to 1 year In the period from 1 to 5 years Over 5 years In March 2013, the Parent Company signed an agreement with Grójecka Holding Sp. z o.o. to terminate the rental of an office building located at 127 Grójecka St. in Warsaw. The conditions precedent set out in the agreement have been met at the end of September and at the beginning of July Hence, off-balancesheet liabilities resulting from leases of office space disclosed as at 31 March 2014 and 31 December 2013 no longer include the Group s liabilities from rental of the above-mentioned office building. All figures in PLN millions, unless stated otherwise 63

64 21. Employment The Group s average workforce in the reporting period* 31 March 2014 (unaudited) 31 March 2013 (restated) Management Board of the Parent Company Management Boards of the Group companies Production departments 14,686 14,014 Sales departments 1,193 1,145 Administration departments 1,318 1,184 Total 17,335 16,488 *Average employment in the reporting period in full-time salaried jobs, i.e. employment in full-time jobs adjusted for (reduced by) positions which are not salaried by the Group companies (such as an unpaid leave, maternity leave, etc.) Numbers of employees in the Group companies as at 31 March Dec March 2013 (unaudited) (restated) (restated) Asseco Poland S.A. 3,182 3,137 3,144 Formula Systems Group 8,593 7,566 8,453 Asseco Central Europe Group 1,628 1,442 1,572 Asseco South Eastern Europe Group 1,376 1,416 1,317 ZAO R-Style Softlab n/a Asseco Business Solutions S.A Asseco South Western Europe Group Asseco DACH Group C.K. Zeto Łódź S.A Sintagma UAB Sp. z o.o Combidata Poland Sp. z o.o ZUI OTAGO Sp. z o.o PI Zeto Bydgoszcz S.A ZUI Novum Sp. z o.o ADH-Soft Sp. z o.o SKG S.A Asseco Georgia LLC n/a Asseco Denmark A/S Peak Consulting Group ApS Gladstone Consulting Ltd Sigilogic Sp. z o.o. 53 n/a n/a Total 17,791 16,782 16, Significant events after the balance sheet date Acquisition of Insync Staffing Inc by Formula Systems Ltd (1985) On 4 April 2014, Formula Systems acquired Insync Staffing Inc, an American provider of consulting services and human resources outsourcing for the sectors of technology and professional services (i.e. providers of services in accounting and finance, administration, customer service, health care, human resources management, marketing, etc.). The purchase cost amounted to USD 4.0 million. The management of Formula believes this acquisition will strengthen the group s existing presence on the U.S. market and help expand the current customer base with leading Fortune 500 companies. All figures in PLN millions, unless stated otherwise 64

65 Ordinary General Meeting of Shareholders of Asseco Poland S.A. passed a resolution on dividend payment On 12 May 2014, the Company s Ordinary General Meeting of Shareholders passed a resolution on distribution of the net profit generated by Asseco Poland S.A. for the financial year 2013 and payment of a dividend. The Ordinary General Meeting of Shareholders of Asseco Poland S.A. seated in Rzeszów, acting on the basis of art item 2) of the Commercial Companies Code as well as pursuant to 12 sect. 4 item 2) of the Company s Articles of Association, resolved that the net profit amounting to PLN 280,273, (in words: two hundred and eighty million two hundred and seventy-three thousand four hundred and seventy-two zlotys 93/100) shall be distributed as follows: 1) PLN 215,800, (in words: two hundred and fifteen million eight hundred thousand seven hundred and eighty-seven zlotys and 80/100) shall be distributed to the Company s Shareholders as payment of a dividend amounting to PLN 2.60 (in words: two zlotys and 60/100) per share; 2) PLN 64,472, (in words: sixty-four million four hundred and seventy-two thousand six hundred and eighty-five zlotys 13/100) shall be allocated to the Company s reserve capital. The Company s General Meeting decided that the dividend right shall be acquired on 21 May 2014 and that the dividend payment shall be made on 5 June Significant events related to prior years Until the date of preparing these financial statements for the period of, this is until 14 May 2014, we have not observed any significant events related to prior years, which have not but should have been included in these financial statements. All figures in PLN millions, unless stated otherwise 65

66 COMMENTARY AND SUPPLEMENTARY INFORMATION TO THE QUARTERLY REPORT OF ASSECO GROUP All figures in PLN millions, unless stated otherwise 66

67 I. SUMMARY AND ANALYSIS OF FINANCIAL RESULTS OF ASSECO GROUP FOR THE PERIOD OF 3 MONTHS ENDED 31 MARCH 2014 Consolidated financial results of Asseco Group for the period of as well as for the comparable period lat year are presented in the table below: Q Q Change (%) Sales revenues 1, , % Gross profit on sales (0.1%) Net profit on sales (13.0%) Operating profit (EBIT) (12.3%) EBITDA (9.7%) Net profit % Net profit attributable to Shareholders of the Parent Company % EBITDA = EBIT + depreciation and amortization - capitalized costs of R&D projects Profitability ratios The table below presents the key profitability ratios achieved by the Group for the period of 3 months ended 31 March 2014 and for the comparable period: Q Q Change (pp) Gross profit margin 24.8% 26.8% (2.0) EBITDA margin 13.3% 15.9% (2.6) Operating profit margin 10.1% 12.5% (2.4) Net profit margin 9.0% 9.2% (0.2) Gross profit margin = gross profit on sales / sales EBITDA margin = EBITDA / sales Operating profit margin = operating profit / sales Net profit margin = net profit / sales In the first quarter of 2014, operating costs increased by 10.8% quarter to quarter, while sales revenues improved by 7.8% over the same period; hence, operating profit margin deteriorated by 2.4 percentage points, decreasing from 12.5% to 10.1%. All figures in PLN millions, unless stated otherwise 67