THE SYGNITY S.A. GROUP INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENT FOR THE 3 MONTH PERIOD ENDED MARCH 31, 2010

Transcription

1 INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENT FOR THE 3 MONTH PERIOD ENDED MARCH 31, 21 May 17 th, 21

2 Interim condensed consolidated financial statement for the 3-month period ended March 31, 21 (all amounts in PLN thousands, unless stated otherwise) List of contents Page INFORMATION ABOUT... 5 INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME... 7 INTERIM CONSOLIDATED BALANCE SHEET... 8 INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY... 1 INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS ADDITIONAL NOTES GENERAL INFORMATION THE STRUCTURE OF THE GROUP THE BASIS FOR PREPARATION OF THE FINANCIAL STATEMENT ACCOUNTING POLICIES NEW ACCOUNTING STANDARDS AND INTERPRETATIONS OF THE INTERNATIONAL FINANCING REPORTING INTERPRETATIONS COMMITTEE (IFRIC) RELEVANT ACCOUNTING ESTIMATES AND ASSUMPTIONS INFORMATION ON OPERATING SEGMENTS REVENUE FROM THE SALE OF PRODUCTS AND PROVISION OF SERVICES REVENUE FROM THE SALE OF GOODS AND MATERIALS COSTS BY THE TYPE AND MANUFACTURING COSTS OF SOLD PRODUCTS AND SERVICES FINANCIAL COSTS INCOME TAX ASSETS HELD FOR SALE EARNINGS PER SHARE DIVIDENDS PAID OUT (OR DECLARED FOR PAYMENT) TOTAL AND PER SHARE WITH DIVISION INTO ORDINARY SHARES AND PREFERRED SHARES TANGIBLE FIXED ASSETS INTANGIBLE ASSETS TRADE AND OTHER RECEIVABLES LONG-TERM CONTRACTS CASH AND CASH EQUIVALENTS SHARE CAPITAL AND CAPITAL RESERVES BANK LOANS AND CREDITS PROVISIONS TRADE AND OTHER LIABILITIES BOND AND OTHER FINANCIAL LIABILITIES ACCRUALS SHAREHOLDERS MEETING DESCRIPTION OF SIGNIFICANT EVENTS IN THE REPORTING PERIOD SEASONAL OR CYCLIC NATURE OF ACTIVITIES UNTYPICAL TRANSACTIONS WITH RELATED ENTITIES CONTINGENT LIABILITIES INFORMATION ABOUT PENDING COURT PROCEEDINGS CONCERNING THE LIABILITIES OR RECEIVABLES OF SYGNITY S.A. AND ITS SUBSIDIARIES POST BALANCE SHEET EVENTS

3 Interim condensed consolidated financial statement for the 3-month period ended March 31, 21 (all amounts in PLN thousands, unless stated otherwise) Warsaw, May 17th, 21. Q1 21 changes in the Company s Management Board, planned losses In Q1 21 Sygnity Group generated revenues of PLN 14.2 million, it also generated an operating loss of PLN 17.5 million and a net loss of PLN 17.1 million. The presented results are consistent with those which the Company's Management Board presented to the Supervisory Board in the financial plan for 21. A decrease in the revenues on a year-to-year basis results from sale by Sygnity of its subsidiaries: KPG and Web Inn, an apparent decrease in revenues from execution of projects for Telekomunikacja Polska SA, revenues from sales by the Company's subsidiary Sygnity Technology lower than those generated one year ago and lack of orders from Clients related to infrastructural projects. Data in PLN thousands Q1 21 Q1 29 Revenue Operation profit (loss) (17 454) (16 125) Net profit (loss) (17 113) (16 979) The lowest decrease was recorded in the public sector (from PLN 41.6 million to PLN 38.7 million), while the highest revenues decrease were recorded in the general business sector (from PLN 31.1 million to PLN 12.7 million). The sales structure was as follows: The Group generated over PLN 88 million from sale of products and services, and PLN 15.9 million from sale of goods and materials. In Q1 21, the decrease in costs was influenced by the executed savings programme. However, the scale of the planned savings did not allow to offset the decrease in revenues or to generate profits at the beginning of 21. Sygnity's Management Board assumes that higher savings resulting from the executed programme will have greater influence on the Group's standing and the results in the subsequent reporting periods. There were significant changes in the Management Board of Sygnity SA in the discussed period. On 2 nd March, the Supervisory Board accepted the resignation of the hitherto President Piotr Kardach and recalled Mr. Andrzej Marciniak from the position of Vice-President. At the same time, Sygnity s Supervisory Board appointed Mr. Norbert Biedrzycki President of the Management Board. Upon request of the President, Mr. Norbert Biedrzycki, while continuing the process of changes in the structure of the Management Board, the Supervisory Board appointed Mr. Arkadiusz Lew-Kiedrowski Vice-President of the Management Board responsible for operations, who is directly responsible for execution of the planned results of the Sygnity Group, and it appointed Mr. Andrzej Paszyński Vice- President of the Management Board responsible for sales. Mr. Paszyński is responsible for two business divisions: Utilities and General Business. The Group also enhanced supervision over project execution. Mr. Jacek Kaczyński was appointed General Director for Implementation at the Sygnity Group. He is responsible for supporting execution of projects undertaken by the Group and monitoring of their implementation. The Management Board of Sygnity SA, fulfilling its duties in the new composition, completed the process of review of all the business areas. As a result, a decision to introduce subsequent savings 3

4 Interim condensed consolidated financial statement for the 3-month period ended March 31, 21 (all amounts in PLN thousands, unless stated otherwise) within the Capital Group was adopted, both within personnel and non-personnel costs. The Management Board approved also the budget of all units operating within the Group according to the new model of the organization's functioning. Its basic solutions include: concentration of sales and execution in the business divisions, and single-person responsibility for the business (P&L) at the level of all business areas and divisions. Sygnity s Management Board will put all its efforts to execute the objectives of particular business units. The order portfolio of the Sygnity Group amounts now to PLN 5 million, including PLN 366 million for 21. In the corresponding period of the previous year, the backlog for 29 was PLN 396 million, including PLN 27 million of revenues of KPG and Web Inn companies. The company s Management Board expects an increase in the sales dynamics in the following periods, which should result in sales level in 21 similar to the level in the previous year. In the period under discussion, Sygnity SA concluded loan agreements with PEKAO SA and BRE BANK. The banks preserved the hitherto amount of credit lines. These satisfy the Company s current needs. The agreements have been concluded for the oncoming 12 months. At the end of Q1, the total indebtedness of the Sygnity Capital Group, calculated as the balance of used bank loans and issued bonds reduced by the balance of cash on bank accounts amounted to PLN 1 million (at present it amounts to PLN 16 million) and is definitely lower than that recorded at the end of Q1 29 (PLN 53 million). The total indebtedness of the Sygnity Group under bank loans and issued bonds amount as of the date of publication of the statements to PLN 73 million. In Q1 21, the Group signed a major contract with Centrum Projektów Informatycznych MSWiA (Centre of IT Projects of Ministry of the Interior and Administration) on construction of the Integrated Module of End User Service ( ZMOKU ) executed within the pl.id Project. Moreover, WINUEL S.A. (a company belonging to the Sygnity Group) started implementation of a comprehensive GIS class system intended for management of the client s vast technical infrastructure in the Wroclawbased MPWiK (City Waterworks and Sewage Company). The agreement amounts to over PLN 5 million net, and execution of the project will last until the end of 211. At present, the Management Board of Sygnity SA is completing the process of preparation of the development plan to be implemented in the Capital Group in the years Its main assumptions will be made publicly known in the first half of June 21, once the Company's Supervisory Board has got acquainted with them. It should be emphasized, however, that the Management Board's priority for the next months will be to significantly increase the Company s profitability and to stop the decrease in revenues. 4

5 Interim condensed consolidated financial statement for the 3-month period ended March 31, 21 (all amounts in PLN thousands, unless stated otherwise) Information about the Sygnity S.A. Group 1. Core business activity The basic business objects of Sygnity S.A. ("Company, Parent Entity, Issuer ) and entities of the Sygnity Group S.A. ( Group") consist of activities in the area of software and computer equipment consulting services. The Sygnity Group s portfolio includes the following IT services: IT Consulting Software development and deployment IT system integration Outsourcing Hardware delivery and installation LAN and WAN construction Technical support for software, networks and hardware Trainings. 2. The registered office of a parent company Sygnity S.A. Al. Jerozolimskie Warszawa 3. Supervisory Board Jacek Kseń - the President of the Supervisory Board Tomasz Sielicki - the Vice President of the Supervisory Board Tomasz Jędrzejczak - a Member of the Supervisory Board Martin Miszerak - a Member of the Supervisory Board Przemysław Aleksander Schmidt - a Member of the Supervisory Board Paweł Turno - a Member of the Supervisory Board Jan Woźniak - a Member of the Supervisory Board 4. Management Board The composition of the Management Board as of the publication date: Norbert Biedrzycki - the President of the Management Board Jacek Kujawa - a Vice President of the Management Board Arkadiusz Lew-Kiedrowski - a Vice President of the Management Board Andrzej Paszyński - a Vice President of the Management Board Piotr Wierzbicki - a Vice President of the Management Board On 2 March 21, Mr Piotr Kardach resigned from the function of a President of the Management Board. On 2 March 21 the Supervisory Board recalled Mr Andrzej Marciniak from the function of a Vice-President of the Management Board. 5

6 Interim condensed consolidated financial statement for the 3-month period ended March 31, 21 (all amounts in PLN thousands, unless stated otherwise) On 2 March 21 the Supervisory Board appointed Mr Norbert Biedrzycki for the position of a President of the Management Board. On 2 March 21 the Supervisory Board appointed Mr Andrzej Paszyński for the position of a Vice President of the Management Board for Sales. On 3 March 21 the Supervisory Board appointed Mr Arkadiusz Lew-Kiedrowski for the position of a Vice President of the Management Board for Operations. 5. Statutory auditor PricewaterhouseCoopers Sp. z o.o. Al. Armii Ludowej Warszawa 6

7 Interim condensed consolidated statement of comprehensive income for the 3-month period ended March 31, 21 (all amounts in PLN thousands, unless stated otherwise) INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Note Net income from sale of products, goods and materials, including: Net income from sale of products Net income from sale of goods and materials Cost of sales of products, goods and materials including: (9 616) ( ) Cost of sales of products (-) 1 (77 436) (19 115) Cost of sales of goods and materials (-) (13 18) (12 619) Gross profit on sales Selling and distribution expenses (-) 1 (7 672) (13 737) General administration expenses (-) 1 (23 84) (24 117) Other operating revenues Other operating costs (-) (651) (1 284) Operating loss (17 454) (16 125) Financial revenues Financial costs (-) 11 (2 587) (2 995) Financial result (1 679) (1 97) Share of profit (loss) in associates (184) 37 Loss before tax (19 317) (17 995) Income tax (current and deferred) Net loss (17 113) (16 979) OTHER COMPREHENSIVE INCOME Valuation of financial instruments available for sale 12 (24) Exchange differences on translating foreign operations (284) (153) Other comprehensive income (272) (177) TOTAL COMPREHENSIVE INCOME (17 385) (17 156) Net loss attributable to: - Equity holders of the parent company 14 (17 57) (17 33) - Minority interest (56) 54 Total comprehensive income attributable to: - Equity holders of the parent company (17 329) (17 21) - Minority interest (56) 54 Basic and diluted net loss per share attributable to equity holders of the parent company in PLN 14 (1,44) (1,43) 7

8 Interim consolidated balance sheet as at March 31, 21 (all amounts in PLN thousands, unless stated otherwise) INTERIM CONSOLIDATED BALANCE SHEET Note ASSETS Fixed assets (long-term) Tangible fixed assets Intangible assets Goodwill Investments in associates valued at equity method Not consolidated subsidiary Long-term financial assets available for sale Long-term loans Long-term financial assets valued at fair value Long-term receivables Deferred tax asset Long-term prepayments Current assets (short-term) Inventories Trade and other receivables Income tax receivables Financial assets valued at fair value Short-term loans Prepayments Cash and cash equivalents Fixed assets (disposal group) classified as held for sale TOTAL ASSETS

9 Interim consolidated balance sheet as at March 31, 21 (all amounts in PLN thousands, unless stated otherwise) INTERIM CONSOLIDATED BALANCE SHEET (continuance) Note EQUITY AND LIABILITIES Equity (attributable to equity holders of the parent company) Share capital Share premium Other capital reserves Exchange differences on translation of foreign subsidiaries 21 (36) (76) Accumulated loss 21 (171 96) (154 39) Minority interest Total equity Long-term liabilities Financial lease liabilities Other liabilities Other provisions Deferred tax liability Accruals Short-term liabilities Bank loans and credits Trade and other liabilities Income tax liabilities 24-7 Bonds payable Liabilities from currency agreements 25-9 Financial lease liabilities Provisions Accruals Liabilities directly associated with fixed assets (disposal group) classified as held for sale TOTAL LIABILITIES TOTAL EQUITY AND LIABILITIES

10 Interim consolidated statement of changes in equity for the 3-month period ended March 31, 21 (all amounts in PLN thousands, unless stated otherwise) INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Attributable to equity holders of the parent company Share premium Other capital reserves Share capital Exchange differences on translation of foreign subsidiaries Accumulate d loss Equity attributable to equity holders of the parent company Minority interest Total equity Equity as at (76) (154 39) Total comprehensive income: - Net loss (17 57) (17 57) (56) (17 113) - Valuation of financial instruments available for sale - Exchange differences on translating (284) - (284) - (284) foreign operations Equity as at (36) (171 96) Equity as at (51 46) Total comprehensive income: - Net loss (17 33) (17 33) 54 (16 979) - Valuation of financial instruments - - (24) - (24) - (24) available for sale - Exchange differences on translating (153) - (153) - (153) foreign operations Equity as at (68 79)

11 Interim consolidated statement of cash flows for the 3-month period ended March 31, 21 (all amounts in PLN thousands, unless stated otherwise) INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS Note Cash flow from operating activities Loss before tax (19 317) (17 995) Adjustments: 8 54 (23 81) Share of profit (loss) in associates 184 (39) Depreciation and amortization Interest income and expenses Net income (loss) on exchange differences (4) (9) Profit/(loss) on investment activity (138) 415 Other adjustments Change in working capital* (329) (36 925) Cash from operations (1 813) (41 85) Income tax (paid) returned (46) (927) Net cash flow from operating activities (1 859) (42 732) Cash flow from investing activities Proceeds from a sale of tangible and intangible fixed assets Revenue from the sale of subsidiaries or organized part of company Purchase of tangible and intangible fixed assets (2 222) (2 249) Revenue from the sale (purchase of) financial assets 164 (3) Loans granted - (27) Dividends received Other investment expenses - (147) Net cash flow from investing activities (1 133) (2 466) Cash flow from financing activities Net receipts (repayments) of loans and credits (1 733) (6 62) Net receipts (repayments) debt securities Repayment of financial lease liabilities (944) (15) Interest paid (755) (1 825) Net cash flow from financing activities (7 16) Net increase (decrease) in cash and cash equivalents (52 34) Cash and cash equivalents from assets classified as held for sale - (398) Cash and cash equivalents at period beginning Exchange differences on translating foreign operations (284) - Cash and cash equivalents at period end

12 Interim consolidated statement of cash flows for the 3-month period ended March 31, 21 (all amounts in PLN thousands, unless stated otherwise) *Change in working capital Change in provisions (94) 1 69 Change in inventory (653) Change in receivables Change in liabilities (45 365) ( ) Change in prepayments and accruals (34 6) Change in assets held for sale Total (329) (36 925) 12

13 21 (all amounts in PLN thousands, unless stated otherwise) ADDITIONAL NOTES 1 General information The Sygnity S.A. Group is composed of Sygnity S.A. and its subsidiaries. The parent company of the Sygnity S.A. Group is Sygnity S.A. based in Warsaw at al. Jerozolimskie 18. The parent company is registered in the Register of Entrepreneurs of the National Court Register managed by the District Court for the Capital City of Warsaw, 13th Commercial Division of the National Court Register, under KRS number The parent company has the following REGON statistical number The parent company and entities comprising the Group have been established for an indefinite period. The Company s shares have been traded at the Warsaw Stock Exchange since These interim condensed consolidated financial statements ("Financial statements") have been prepared with the assumption of continuation of the Company's activities in foreseeable future. These interim condensed consolidated financial statements of the Group include data for the period of 3 months ended on 31 March 21 and as of 31 March 21, as well as comparable data for the period of 3 months ended on 31 March 29 and as of 31 December 29. On 17 May 21, the Management Board approved these interim condensed consolidated financial statements for publication. 2 The structure of the Group As of 31 March 21, the Sygnity Group S.A. was composed of 1 subsidiary companies, 5 associated companies and 2 partially owned subsidiary companies. Associated companies: Tetra S.A., Computer System for Business International (CSBI), StalPortal S.A. in liquidation, a partially owned subsidiary company RUM IT S.A. and a subsidiary company Sygnity Research S.A (formerly C2 System Polska S.A.) are not valued by the equity method, nor are they valued by the full or proportional consolidation method as their financial data do not have significant influence on the Group's financial statements. Emtal Sp. z o.o. is presented as affiliated company due to lack of Group s representatives in its Management Board. As at 31 March 21 r. the Group was composed of the following entities: 13

14 21 (all amounts in PLN thousands, unless stated otherwise) No. Subsidiaries Name Headquarters address 1 Sygnity Technology Sp. z o.o. ul. Towarowa 35, Poznań 2 Projekty Bankowe ul. Abpa Antoniego Polsoft Sp. z o.o. Baraniaka 88A, Poznań 3 Aram Sp. z o.o. Al. Jerozolimskie 18, Warszawa 4 GEOMAR S.A. ul. Monte Casino 18a, Szczecin 5 CL Agent Transferowy ul. Ryżowa 33 A, Sp. z o.o. in liquidation Warszawa 6 ICD Comp Consulting ul. Urszuli nr 33, Sp. z o.o Warszawa 7 Winuel S.A. ul. Strzegomska 56 a, Wrocław 8 Max Elektronik S.A. ul. Dąbrowskiego 12, Zielona Góra 9 UAB Baltijos A. Juozapavičiaus g. Kompiuteriu Centras 6/2, Vilnius 26 1 Sygnity Research S.A. al. Jerozolimskie 18, (formerly C2 System Warszawa Polska S.A.) Area of operations WANs and service networks Designing, deploying and supporting IT systems for the B&F sector and customers from other sectors Systems for government and local administration, government agencies and the local government sector. GIS, geodesy and cartography. Software and services for insurance and banking sectors. Software and services for the banking sector. Software and IT services. Software and IT services. Percentage share in the capital Percentage share in the capital , 1, 1, 1, 1, 1, 86,43 86,43 1, 1, 1, 1, 1, 1, 91,67 91,67 IT services for industry, commerce and public administration. 1, 1, Special purpose vehicle for offset agreement implementation. 1, 5, No. Co-subsidiaries Name Headquarters address 1 RUM IT S.A. ul. Grójecka 127/16 B, Warszawa 2 Budimex Dromex S.A. ul. Stawki 4, Sygnity S.A. Sp. j. 1-4 Warszawa Area of operations Special purpose vehicle for offset agreement implementation. Special purpose vehicle for investment project Percentage share in the capital Percentage share in the capital , 5, 33, 33, No. Affiliates Name Headquarters address 1 Tetra S.A. in liquidation ul. Wawelska 15B, 2-34 Warszawa 2 Emtal Sp. z o.o. ul. Chmielna 11/12, Gdańsk 3 DSB Sp. z o.o. ul. KEN 6a, 59-3 Lublin 4 Computer System for Pobedy Square 2, Business International St. Petersburg (CSBI) 5 StalPortal S.A. in liquidation ul. Bytowska 1B, Katowice Area of operations Special purpose vehicle for offset agreement implementation. Provider and integrator of systems for public transport. Trainings. Banking sector IT services. Running a trading portal for steel and industry goods Percentage share in the capital Percentage share in the capital , 21, 5, 5, 24,75 24,75 2,6 2,6 21, 21, 14

15 21 (all amounts in PLN thousands, unless stated otherwise) 3 The basis for preparation of the financial statement These interim condensed consolidated financial statements have been prepared compliant with the International Accounting Standard (IAS) 34 Interim Financial Reporting. 4 Accounting policies Accounting principles adopted while preparing these condensed consolidated financial statements are in line with the principles adopted while preparing the annual consolidated financial statements for the business year ended on 31 December 29, except for new accounting standards effective since 1 January 21. These condensed consolidated financial statements do not include information or disclosures required with complete financial statements, and should be read together with the annual consolidated financial statements for the year ended 31 December 29. The consolidated financial statements of the Group for the year ended on 31 December 29, compliant with IFRSs, is available at These financial statements were prepared in accordance with the historical cost principle, except for derivate financial instruments and financial assets available for sale, which are valued at fair value. Below, new and amended regulations of IFRSs as well as new IFRIC interpretations applied by the Group in the current reporting period have been presented: Improvements to IFRSs 29 On 16 th April 29, the International Accounting Standard Board issued Improvements to IFRSs 29 that amend twelve standards. The amendments include changes in presentation, recognition and valuation, and also include terminological and editorial changes. Most of these changes shall be effective for annual periods that begin on 1 st January 21. The amendments to the above mentioned standards do not have any significant influence on the previously presented financial results or equity. Changes to IFRS 2 Share-based payments. Changes to IFRS 2 Share-based payments were published by the International Accounting Standard Board on 18th June 29 and they are applicable to periods that begin on 1st January 21 or after that date. The improvements specify formulation of share-based payments settled in cash within capital group. They also specify the scope of IFRS 2 and regulate the joint application of IFRS 2 and the other standards. The amendments introduce issues regulated previously in IFRIC 8 and IFRIC 11 to the standard. The amendments to the above mentioned standard have no significant influence on the previously presented financial results or equity. Changes to IFRS 1 First-time Adoption of IFRS. Changes to IFRS 1 First-time Adoption of IFRS were published by the International Accounting Standard Board on 23rd July 29 and they are applicable to periods that begin on 1st January 21 or after that date. The changes introduce additional exclusions from valuation of assets on the day of transfer to IFRSs for companies operating in the petroleum and gas sector. The 15

16 21 (all amounts in PLN thousands, unless stated otherwise) amendments to the above mentioned standard have no significant influence on the previously presented financial results or equity. These financial statements were prepared in accordance with the historical cost principle, except for derivate financial instruments and financial assets available for sale, which are valued at fair value. Some entities in the Group maintain ledgers in accordance with the accounting principles (policies) set forth in the Accounting Act of 29 September 1994 (Journal of Laws of 22, no. 76, item 694 as amended) and regulations issued on the basis thereof ("Polish accounting principles ). The condensed consolidated financial statements contain adjustments which are not included in the ledgers of the Group s entities in order to make financial statements of these entities compliant with IFRSs. 5 New accounting standards and interpretations of the International Financing Reporting Interpretations Committee (IFRIC) Some new accounting standards and interpretations of the IFRIC, obligatory for reporting periods beginning after 1 January 21, had been published by the International Financing Reporting Interpretations Committee until the date of publication of the latest annual consolidated financial statements. The Group's assessment concerning the influence of these new standards has been presented below. Changes IAS 32 Classification of rights issues. Changes to IAS 32 Classification of rights issues were published by the International Accounting Standard Board on 8th October 29 and they are applicable to periods that begin on 1st February 21 or after that date. The amendments concern accounting of rights issues (rights, options, warrants) denominated in a currency different than the functional currency of the issuer. The amendments require, upon fulfilment of certain conditions, rights issue to be classified as equity regardless of the currency of the settled right execution price. The Company does not expect that standard amendment to have any significant influence on its financial statement. Changes to IFRS 1 First-time Adoption of IFRS. Changes to IFRS 1 First-time Adoption of IFRS were published by the International Accounting Standard Board on 28th January 21 and they are applicable to periods that begin on 1st July 21 or after that date. The amendments relieve the companies that apply international standards for the first time from the requirements of presentation of additional information required by the amendment to IFRS 7 Financial Instruments: Disclosures. The amendments of the above mentioned standard have no significant influence on the previously presented financial results or equity as the Company s accounting is already based on IFRSs. 16

17 21 (all amounts in PLN thousands, unless stated otherwise) As of the date of preparation of these financial statements, the standards and interpretations of the IFRIC listed below had not been approved by the EU: - IFRS 9 Financial Instruments ; - Changes to IFRIC 9 and IAS 39 Hybrid instruments ; - Changes to IFRS 1 First-time Adoption of IFRS, - Changes to IFRIC 14, Prepayments of a Minimum Funding Requirement - IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments, - Changes to MSR 24 Related Party Disclosures. 6 Relevant accounting estimates and assumptions These result from the experience gained to date and other factors, including predictions as to future events which seem reasonable. Accounting estimates and judgments are subject to regular assessment. Important estimates and assumptions The Group performs estimates and adopts assumptions concerning the future. Thus obtained accounting estimates will rarely match by definition factual results. Estimates and assumptions which involve significant risk of necessity to introduce material adjustment into the balance sheet value of assets and liabilities within the next business year have been discussed below. Asset component due to deferred tax The Group recognizes a deferred tax asset based on the assumption that a future tax gain will be achieved which will allow for its utilization. Deterioration of tax results achieved in the future could make the assumption ungrounded. Estimations of significant provisions and contracts While settling revenues from agreements with a specified price for provision of services within projects the Group applies the percentage of completion method. Application of this method requires from the Group to estimate the proportion of the costs incurred to date to the total budgeted costs. The budgets of particular contracts are subject to formal process of updating based on current information as of every balance sheet date and they are reviewed by the Managements Boards of the Group companies. In case of occurrence of events between official revisions of the budget which have significant influence on the contract result, the value of total revenues or contract costs may be updated earlier. As of every balance sheet date, there is a significant part of performed works unconfirmed and not invoiced by subcontractors, which the Group recognizes as contract costs on accrual basis. The amount of subcontractors costs due to performed but not invoiced works is determined by the technical team based on the factual progress of works and it may differ from the amount specified in the formal work acceptance process which is compliant with a bilaterally approved schedule. In consideration of the prevailing economic downturn, a decrease in the number of orders and cuts in clients' budgets, the Management Boards of the Group companies reviewed the current long-term agreements and introduced into the estimated contracts conservative changes and changes reflecting the current macroeconomic conditions. As a result, additional provisions for contract costs were established, the already identifiable losses were recognized and additional receivable write-downs were made. Estimated goodwill impairment 17

18 21 (all amounts in PLN thousands, unless stated otherwise) The Group tests goodwill for its impairment annually (on 31 December every year) and whenever there are relevant impairment indicators, in accordance with accounting rules described in annual consolidated financial statement of the Sygnity Group for the year ended 31 December 29. Estimation of value in use consists in determining future cash flows generated by a cash generating unit and requires determination of a discount rate to be applied in order to calculate current amount of these cash flows. The details of test conducted as of 31 December 29 are described in Note 17 to these consolidated financial statements. Additionally on 31 March 21 the Group has conducted a review of assumptions made to create CGUs financial plans as well as the review of impairment indicators. Based on the analysis the Company determined there was no need to conduct full impairment test on assets as at 31 March 21. Analysis of current economic conditions The current global financial crisis which started in the mid 28 has resulted, among other things, in a lower level of financing of the capital market, lower liquidity of the banking sector and, in some cases, higher interest rates on interbank loans and high share markets volatility. Unpredictability of global financial markets has led also to bank collapses and corrective action plans for banks in the United States of America, Western Europe, Russia and other parts of the world. At present, it is impossible to assess the full scale of the influence of the ongoing financial crisis and to completely protect against its consequences. The Management Board is unable to reliably assess the influence on the Group s financial situation of any further deterioration of liquidity on financial markets and increased volatility of currency markets and stock exchanges. The Management Board believes that it is undertaking all measures necessary to maintain in the present conditions the scope of the Group s activities and its growth. The Group s clients may suffer from liquidity deterioration, which may have influence on their capacity to pay off liabilities. Deteriorating conditions in which the clients perform their activities may affect predictions of the Management Board concerning cash flows and estimation of financial and non-financial asset impairment. The Management Board considered in an appropriate manner the influence of change of estimations on the anticipated cash flows and estimations of impairment to the extent in which information is available. 18

19 21 (all amounts in PLN thousands, unless stated otherwise) 7 Information on operating segments The main areas of the Group s activities are: comprehensive IT services and sale of equipment directed to a broad range of entities operating in various sectors, and services consisting in implementation of integrated tele-technical systems, maintenance services and others. The IT segment covers mainly manufacture, purchase and sale of integrated IT systems, infrastructure and computer equipment in the following sectors: Banking and Finance, Industry, Telecommunications, Public and Public Utilities. The Others segment includes revenues generated in areas which are not part of the Group's basic activities, such as: geodesy, tele-technical systems and maintenance. The line Operating costs of a segment in the Exclusions and unassigned positions column includes mainly general administration expenses. Industry segments Period of 3 months ended and as at IT Other Exclusions and unassigned positions Total Segment sales Sales between segments (-) (721) (3 53) - (3 774) Sales to external clients Operating costs of a segment (-) (88 47) (1 241) (23 84) (122 92) Profit (loss) from a segment (2 68) (23 84) (17 94) Other operating income/costs (net) 635 (185) - 45 Profit (loss) from operations 8 63 (2 253) (23 84) (17 454) Financial income/ costs (net) - - (1 679) (1 679) Share of profit (loss) in associates - - (184) (184) Profit (loss) before tax 8 63 (2 253) (25 667) (19 317) Income tax Net profit (loss) 8 63 (2 253) (23 463) (17 113) Assets of a segment

20 21 (all amounts in PLN thousands, unless stated otherwise) Period of 3 months ended and as at IT Other Exclusions and unassigned positions Total Segment sales Sales between segments (-) (67) (4 347) - (5 17) Sales to external clients Operating costs of a segment (-) ( ) (2 879) (24 117) ( ) Profit (loss) from a segment (3 294) (24 117) (19 212) Other operating income/costs (net) 3 88 (1) Profit (loss) from operations (196) (24 117) (16 125) Financial income/ costs (net) - - (1 97) (1 97) Share of profit (loss) in associates Profit (loss) before tax (196) (25 967) (17 995) Income tax Net profit (loss) (196) (24 971)) (16 979) Assets of a segment Revenue from the sale of products and provision of services Sales of licenses and software Deployment services Support services Other Revenue from the sale of goods and materials Computer hardware Other goods

21 21 (all amounts in PLN thousands, unless stated otherwise) 1 Costs by the type and manufacturing costs of sold products and services Consumption of materials and energy (2 464) (5 535) External services (43 962) (62 458) Remuneration (45 388) (54 729) Social insurance and other payments (8 447) (1 939) Depreciation (7 473) (9 589) Taxes and charges (587) (783) Other (591) (2 936) Total costs by type (18 912) ( ) Sales and distribution costs (7 672) (13 737) General administration costs (23 84) (24 117) Total manufacturing cost (77 436) (19 115) From 1st January 21, deviations from the standard work costs are presented in production costs (they were included in general administration costs before). Therefore, the company changed the comparable data of the three-month period that ended on 31st March 29 by reclassification of the amount of PLN 8899 from general administration costs to production costs of sold products and services. 11 Financial costs Interest costs, including: - interest on loans and borrowings (62) (793) - interest on bonds and other debentures (1 9) (1 988) - finance lease interest (61) (115) - other interest (11) (14) Other financial costs, including: - negative exchange rate differences (8) (17) - other titles (5) (68) (2 587) (2 995) 21

22 21 (all amounts in PLN thousands, unless stated otherwise) 12 Income tax 12.1 Tax burden The main elements of the tax burden for the period of 3 months ended on 31 March 21 and 31 March 29 are as follows: Disclosed in the statement of comprehensive income Current income tax (1) (157) Current income tax liability (1) (157) Deferred income tax Associated with the occurrence and reversal of temporary differences Tax benefit disclosed in the statement of comprehensive income Reconciliation of the effective tax rate The reconciliation of the income tax on the gross financial result before tax at the statutory tax rate with the income tax calculated at the effective tax rate of the Group for the 3-month periods ended March 31, 21 and March 31, 29 is as follows: Reconciliation of the effective tax rate Profit/loss before tax (19 317) (17 995) Tax at the statutory rate of 19% (in 29: 19%) costs of management options permanent differences in current income tax other adjustments 13 (42) Effect of tax exclusions on tax Income tax disclosed in the statement of comprehensive income Deferred income tax Deferred tax is recognized in the financial statements in the full amount in accordance with the balance sheet method, due to temporary differences between the tax value of assets and liabilities and their balance sheet value at a 19% rate. Assets under deferred tax are recognized provided it is probable that the entity will generate in the future an income to be taxed which will enable to utilize temporary differences and tax losses. Change in the assets and liabilities due to deferred income tax within the year is as follows: 22

23 21 (all amounts in PLN thousands, unless stated otherwise) Deferred income tax asset Provision for deferred income tax Change in deferred tax Balance as at 1 January Changes in the profit and loss (415) (664) (775) account Balance as at 31 March Calculation of deferred income tax asset and provision for deferred income tax As at (Decrease)/ increase in net profit As at Provision for unused holidays Provisions for remuneration and bonuses (837) 3 58 Provision for warranty services (1 74) 4 85 Provision for the costs of contracts Provision for interest and loans Provision for unbilled liabilities (11 326) Provision for court procedures (1 8) Bond discount Receivables and inventories revaluation write-downs (1 5) Unrealized foreign exchange losses Stocks and shares revaluation write-downs (36) Retained tax losses Other 8 6 (2 153) Deferred income tax assets disclosed in the balance sheet (@ 19%) As at Decrease/ (increase) in net profit As at Balance-sheet valuation of IT contracts (-) (estimated (25) revenues) Depreciation below the value specified in tax (1 289) 5 9 regulations Unrealized foreign exchange gains 584 (31) 274 Intangible assets identified at acquisition of EMAX (3 161) Capital Group Revaluation of financial assets 65 (99) 56 Other differences Provision for deferred tax disclosed in the balance-sheet (@ 19%) (664)

24 21 (all amounts in PLN thousands, unless stated otherwise) Calculation of deferred income tax asset and provision for deferred income tax As at (Decrease)/ increase in net profit As at Provision for unused holidays Provisions for remuneration and bonuses (6 47) Provision for warranty services (871) 6 76 Provision for the costs of contracts (1 916) Provision for interest and loans 5 58 (152) 4 96 Provision for unbilled liabilities (4 382) Receivables and inventories revaluation write-downs Unrealized foreign exchange losses Stocks and shares revaluation write-downs 5 21 (3 492) Retained tax losses Other (85) Deferred income tax assets disclosed in the balance sheet (@ 19%) (415) As at Decrease/ (increase) in net profit As at Balance-sheet valuation of IT contracts (-) (estimated 48 8 (1 718) revenues) Depreciation below the value specified in tax regulations Foreign exchange gains deriving from valuation Unrealized foreign exchange gains (13 499) Intangible assets identified at acquisition of EMAX Capital Group Other differences Provision for deferred tax disclosed in the balance-sheet (@ 19%) 2 4 (775) The Management Board of Parent Company adopted the conservative approach and on 31 st March 21 it did not recognize the asset from deferred income tax related to the losses generated in 26 and 29 by Sygnity S.A. of 625 and respectively that expire in the amount of 5% per year in and , respectively Tax settlements Tax settlements and other areas of activities subject to regulations (e.g. customs or currency matters) may be the subject matter of control by administrative bodies, which are entitled to imposing high penalties and sanctions. The lack of reference to well-established legal regulations in Poland results in ambiguities and incoherence in the binding regulations. Frequent discrepancies between opinions as far as legal interpretation of tax regulations is concerned, both within state authorities and between state authorities and enterprises, result in areas of uncertainty and conflicts. These phenomena result in the tax risk in Poland being considerably higher than that usually occurring in countries with a more advanced tax system. Tax settlements may be the subject matter of inspections for the period of 5 years, beginning with the end of the year in which the tax was paid. As a result of performed inspections, the hitherto tax settlements of the Group may be increased by additional tax liabilities. 24

25 21 (all amounts in PLN thousands, unless stated otherwise) 13 Assets held for sale The main groups of assets and liabilities of Geomar S.A. which were classified on 31 March 21 as assets held for sale are as follows: Tangible fixed assets Intangible assets Long-term financial assets measured at fair value through profit and loss Deferred tax assets Other assets 21 7 Fixed assets Inventories Prepayments Trade and other receivables Income tax receivables 48 - Cash and cash equivalents Current assets Assets classified as held for sale Long-term bank loans and credits Other long-term liabilities Long-term liabilities Bank loans and credits Trade and other liabilities Income tax liabilities Financial liabilities Other liabilities Short-term liabilities Liabilities directly associated with assets classified as held for sale As of 31 March 21 assets classified as held for sale include investment in Geomar S.A.. At present, the Company s Management Board is conducting measures aimed at disposal of these assets within the period of 12 months following the balance sheet date, as the Company intends to focus, within the ongoing process of the Group s restructuring, on its main business objects 25

26 21 (all amounts in PLN thousands, unless stated otherwise) 14 Earnings per share In the period between the balance sheet date and the date of preparation of these financial statements no significant change in the number of shares issued by the Parent Company occurred. The basic loss per share is calculated by means of dividing the net profit/(loss) of the shareholders of the parent entity for the reporting period by the weighted average number of issued ordinary shares outstanding within the reporting period Net loss (-) attributable to shareholders of the parent (17 57) (17 33) company Weighted average number of ordinary shares used to calculate basic earnings per share Basic net loss (-) per share (1,44) (1,43) The diluted loss per share is calculated by means of dividing the net loss for the reporting period of ordinary shareholders by the weighted average number of issued ordinary shares outstanding within the reporting period adjusted for diluting options. Share options connected with the employee share program did not result in potential dilution of ordinary shares within the period of 3 months ended on 31 March Dividends paid out (or declared for payment) total and per share with division into ordinary shares and preferred shares In the 3 months period of 21 the Company has not declared and paid any dividend for Tangible fixed assets Buildings and apartments Technical equipment and machines Vehicles Other fixed assets Total of tangible fixed assets

27 21 (all amounts in PLN thousands, unless stated otherwise) 17 Intangible assets Costs of finished development workings Acquired concessions, patents, licenses and similar assets (excluding computer software) Other intangible assets, including: relations with the Emax Group s clients the Emax Group s product brands the brands: WINUEL, MAX ELEKTRONIK Software under creation Other intangible assets total Goodwill acquired through the acquisition of the Emax Group Goodwill acquired through the acquisition of other companies Total goodwill Total intangible assets Impairment test conducted as of 31 December 29 While determining the recoverable value of cash generating units the Company applied in the test performed on 31 December 29 the value in use method. Cash flows Cash flows applied in value in use model are based on the approved financial plan for the years and assumptions concerning development of the IT market in Poland for the years The value in use accounts for the residual value estimated with assumption of an increase in the margin generated after the forecast period. Cash flows do not include cash inflows and outflows which the business unit is expected to generate from future restructuring or improvement of assets. However, while calculating the value in use investment expenditures necessary to be incurred in order to satisfy the current level of expected economic benefits were accounted for. Discount rate The Company used the discount rate built based on the weighted average cost of capital (WACC) to calculate discounted cash flows. In order to determine the correct amount of the discount rate, the Parent Company s Management Board used the publicly available financial valuations and analyses concerning Sygnity, issued by independent financial institutions. Particular items of that rate were estimated based on market data concerning risk free rates (quotation of IRS instruments for debt costs, treasury bond yield for equity), beta quotient value which has been leveraged based on the debt/equity market structure and the expected market return. 27