THE SYGNITY S.A. GROUP INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENT FOR THE 12 MONTH PERIOD ENDED DECEMBER 31, 2009

Transcription

1 INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENT FOR THE 12 MONTH PERIOD ENDED DECEMBER 31, 2009 February 25 th, 2010

2 List of contents Page INFORMATION ABOUT THE SYGNITY S.A. GROUP... 6 INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME... 8 INTERIM CONSOLIDATED BALANCE SHEET... 9 INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS ADDITIONAL NOTES GENERAL INFORMATION THE STRUCTURE OF THE GROUP THE BASIS FOR PREPARATION OF THE FINANCIAL STATEMENT CHANGES IN THE DATA PRESENTED WITHIN A COMPARABLE PERIOD ACCOUNTING POLICIES NEW ACCOUNTING STANDARDS AND INTERPRETATIONS OF THE INTERNATIONAL FINANCING REPORTING INTERPRETATIONS COMMITTEE (IFRIC) RELEVANT ACCOUNTING ESTIMATES AND ASSUMPTIONS INFORMATION ON OPERATION 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 OTHER OPERATING REVENUES OTHER OPERATING COSTS FINANCIAL REVENUES FINANCIAL COSTS RELEVANT ONE-TIME TRANSACTIONS 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 Warsaw, February 25 th, 2010 Q Introducing new organization at Sygnity 2009 Economic slowdown influences the Group s results In Q the Sygnity Group generated revenue of PLN million, recorded an operating profit of PLN 11.3 million and a net profit amounting to PLN 6.9 million. In the presented operating profit the Company has recognized PLN 2.9 million as a result of the judgment of the Court of Appeal in Łódź ordering the Agency for Restructuring and Modernization of Agriculture to return to Sygnity the unduly collected contractual penalties. In the whole year 2009 the Group generated revenue of PLN million, recorded an operating loss of PLN 94.8 million and a net loss amounting to PLN 89.2 million. In the perspective of the whole year the results have first of all been influenced by the provisions and write-offs set up by the Company at the end of Q in the amount of PLN 66.3 million. The provisions and write-offs have been set up, among others, as a result of restrictive estimation of budgets of long-term contracts concluded within the Sygnity Capital Group in the years , as well as to cover the possible contractual penalties related to those projects. Data in PLN thousand Q Q Revenue Operating profit (loss) (94 802) Net profit (loss) (89 178) (1 329) In Q the Group did not generate the planned revenues as Clients withdrew from the implementation of 2 projects and 3 other projects were shifted to the year The estimated revenue the Group had planned to obtain from those projects in that period amounted PLN 55 million. 3

4 Both in the perspective of Q4 as well as of the whole 2009, the consequences of the economic slowdown have had a negative influence on the Company s results. The economic crisis decreased the scale of orders mainly from the public sector, the banking sector and the telecommunications sector. The Company has also recorded a decrease in the margins due to the client s increased demand for reductions in projects valuations. Both in Q4 and in the whole 2009 the Group recorded the largest decrease in revenues related to infrastructural orders, and to a smaller extent in relation to services and software. As a result of introducing saving programs, the clients were no longer as prone to undertake new projects related to the development of software and its functionalities as in the previous years, and more often allocated their IT budgets for ensuring the maintenance of the IT environment. Due to the decrease in revenues and the generated losses the Company started implementing a savings program at the end of Q3. The main objective of the savings program is to reduce the costs both in the discussed period and in the following quarters. During the first stage of the program, implemented in Q4 2009, the Group achieved the objective to reduce operating costs by over PLN 20 million, mainly as a result of temporary reduction of employees remuneration, including that of the Management Board, suspending bonus mechanisms, strict expense control and changes in the organization s functioning. During the second stage of the savings program, implemented in Q and Q1 2010, the Group has reduced the employment by over 350, which shall contribute to reduction in costs in the next 12 months by PLN 30 million. The Sygnity Management Board still estimates that all the measures undertaken within the second stage of the savings program shall lower the costs of the Group s operations in a 12-month perspective by at least PLN 40 million. The scale and pace of the next savings shall be adapted to the needs and the market volume. Within the discussed period the Group has again reduced its indebtedness. As of 31th December 2009 the Sygnity Group s total bank loans and issued bonds indebtedness amounted to PLN 68 million, and as of the date of publication of this report it amounted to PLN 77 million. However, as a result of large amount of cash at the bank accounts, PLN 72 million at the end of the year, PLN 83 million as of the date of publication of this report, for the first time in several quarters the Group has recorded a balance of cash and cash equivalents higher than the indebtedness level and amounting at the end of 2009 to PLN 4 million and as of the date of publication of this report to PLN 6 million. In Q the Company has signed new important contracts with the public sector. One of them is the contract concluded between the European Parliament and a consortium created by Sygnity and European Dynamics S.A. from Greece. This project includes the development, implementation and maintenance of IT systems, among others, in relation to the following areas: document management, web content management, Open Source software development, as well as maintenance and integration of the implemented systems with the existing applications. The estimated total budget of the European Parliament allocated for the implementation of the aforementioned works within the period of 4 years amounts to EUR 34.1 million, which is equivalent to PLN million according to the mean exchange rate announced by the National Bank of Poland (NBP) binding as of the day of concluding the Agreement. The Sygnity s estimated share in the works within the Consortium amounts to 22 per cent of the whole value of the Agreement, which amounts to EUR 7.5 million Euro, which is equivalent to PLN 31.3 million according to mean exchange rate announced by the NBP and binding as of the day of concluding the Agreement. 4

5 Moreover, Sygnity has signed an agreement with Centrum Rozwoju Zasobów Ludzkich (Centre for Human Resources Development an agenda established by the Ministry of Labor and Social Policy) regarding expansion of the scope of services related to the implementation of the Syriusz std software and fields of use of application software. The net value of that contract amounts to PLN 18.3 million. Another agreement signed by Signity in Q was the contract concluded with PFRON (National Disabled Persons Rehabilitation Fund) for modification of the System Obsługi Dofinansowań i Refundacji (Supplementary Financing and Reimbursement Servicing System). The agreement includes maintenance, support, servicing and modification of the SODiR system according to the needs and changing legal provisions in the area regulated by the Act on occupational and social rehabilitation and employment of the disabled. The gross value of the contract amounts PLN 14.9 million. The Company has also concluded an agreement with the Centre of IT Project of the Ministry of Interior and Administration (MSWiA) for the construction of an integrated module of end user service (Zintegrowany Moduł Obsługi Końcowego UŜytkownika ZMOKU) which constitutes a part of the pl.id project (Agreement). The gross value of the Agreement amounts to PLN 31.8 million. The ZMOKU application shall support self-government administration officers at municipal level in performing tasks related to census registers, issuing identity documents (in any municipality on the whole territory of the country) and vital records. The ZMOKU system shall be implemented in all municipalities on the whole territory of Poland till the end of Q In Q the Group also performed intense works aimed at the restructuring of the business organization. These works led to the launching from 1 st February 2010 of a new model of the Capital Group s functioning. Its basic solutions are the following: concentrating sales and implementation in 5 business units, one-person business (P&L) responsibility at the Business Area level and at the business unit level, centralization of purchases coordination and strict control of internal and external resources used for projects implementation, active management of the sales process by the Unit s Offer Committee, strictly defined evaluation and motivation system for new management roles (Unit Manager, Business Area Manager, PM, Sales Manager), strict monitoring of investments in internal projects and new products, uniform accounting rules and uniform IT system in the area of finance and controlling. The Sygnity Management Board plans that the introduction of the new organizational model in the whole Group shall allow to increase the volume of revenues and improve the economic and operating effectiveness of the Company. 5

6 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 Tomasz Jędrzejczak Jacek Kseń Martin Miszerak Przemysław Aleksander Schmidt Tomasz Sielicki Jan Woźniak Paweł Turno Following the balance sheet date, on 1 July 2009, Mr. Jan Woźniak was appointed Member of the Supervisory Board. On 30 June 2009, Mr. Szczepan Strublewski resigned from membership in the Supervisory Board of Sygnity S.A. 4. Management Board Piotr Kardach - the President of the Management Board Jacek Kujawa - a Vice President of the Management Board Andrzej Marciniak - a Vice President of the Management Board Piotr Wierzbicki - a Vice President of the Management Board On 12 March 2009, Mr Rajmund Gral resigned from the function of a Vice President of the Management Board. On 12 March 2009, the Supervisory Board appointed Mr Piotr 6

7 Wierzbicki a member of the Company s Management Board in which he holds the position of a Vice President of the Management Board. On 3 September 2009, the Supervisory Board recalled Mr Bogdan Kosturek from the function of a Vice-President of the Management Board. On 3 September 2009, Mr Andrzej Kosturek resigned from the function of a Vice-President of the Management Board. 5. Statutory auditor PricewaterhouseCoopers Sp. z o.o. Al. Armii Ludowej Warszawa 7

8 INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME PROFIT AND LOSS ACCOUNT 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 0 ( ) ( ) ( ) ( ) including: Cost of sales of products (-) 11 ( ) (82 007) ( ) ( ) Cost of sales of goods and materials (-) 0 (88 547) (31 916) ( ) (95 274) 0 Gross profit on sales Selling and distribution expenses (-) 11 (55 321) (7 419) (64 816) (20 109) General administration expenses (-) 11 ( ) (32 171) ( ) (30 890) Other operating revenues Other operating costs (-) 13 (4 036) (1 360) (3 487) Operating profit / (loss) 0 (94 802) Financial revenues Financial costs (-) 15 (10 754) (3 563) (14 153) (5 216) 0 Financial result 0 (8 229) (2 839) (8 915) (3 430) 0 Share of profit (loss) in associates 0 (37) Profit (loss) before tax 0 ( ) Income tax (current and deferred) (1 617) (4 131) (5 490) 0 Net profit (loss) 0 (89 178) (1 329) OTHER COMPREHENSIVE INCOME/(LOSS) 0 Valuation of financial assets (136) (136) Exchange differences on translating foreign subsidiaries 0 (76) 729 (43) 327 Other comprehensive income / (loss) 0 (51) 772 (179) TOTAL COMPREHENSIVE INCOME/(LOSS) 0 (89 229) (1 508) Net profit / (loss) attributable to: 0 - Equity holders of the parent company 0 (89 391) (1 484) Minority interest Total comprehensive income / (loss) attributable to: 0 - Equity holders of the parent company 0 (89 442) (1 663) Minority interest Net loss per share attributable to equity holders of the parent company: 19 (89 391) (1 484) Basic 0 (7,52) 0,58 (0,13) 1,66 - Diluted 0 (7,52) 0,58 (0,13) 1,66 8

9 INTERIM CONSOLIDATED BALANCE SHEET Note ASSETS Fixed assets (long-term) Tangible fixed assets Intangible assets, including: goodwill Investments in associates valued at equity method Long-term financial assets available for sale Other long-term financial assets Long-term receivables Restricted cash Deferred tax asset Long-term prepayments Current assets (short-term) Inventories Trade and other receivables Income tax receivables Financial assets valued at fair value through profit and loss Short-term loans Short-term prepayments Cash and cash equivalents Assets classified as held for sale TOTAL ASSETS

10 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 Foreign exchange differences 0 (76) 294 Accumulated loss 0 ( ) (51 046) 0 Minority interest Total equity Long-term liabilities Long-term bank loans and credits Long-term financial lease liabilities Other long-term liabilities Other long-term provisions Long-term retirement benefits provision Deferred tax liability Long-term accruals Short-term liabilities Short-term bank loans and credits Trade and other liabilities Income tax liabilities Bonds payable Other financial liabilities Financial lease liabilities Other provisions Retirement benefits provision Short-term accruals Liabilities directly associated with assets classified as held for sale 0 TOTAL LIABILITIES TOTAL EQUITY AND LIABILITIES

11 INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Share capital Attributable to equity holders of the parent company Share premium Other capital reserves Foreign exchange differences Accumulated loss Equity attributable to equity holders of the parent company Minority interest Total equity Equity as at January 1, (51 046) Sale of subsidiaries (note 33) - - (854) (294) 700 (448) (1 316) (1 764) Total comprehensive income (76) (89 391) (89 442) 213 (89 229) Dividends Profit distribution - - (316) Equity as at December 31, (76) ( ) Equity as at January 1, ( ) Total comprehensive income - - (136) (43) (1 484) (1 663) 155 (1 508) Costs of managerial options Issue of shares Cost of shares issue - (923) (923) - (923) Loss cover/profit distribution - - (52 988) Equity as at December 31, (51 046)

12 INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS Note Cash flow from operating activities Loss before tax 0 ( ) Adjustments: Share of profit (loss) in associates 0 37 (196) Depreciation and amortization Change in working capital * Interest income and expenses Net income (loss) on exchange differences 0 (76) - Profit/(loss) on investment activity 0 (15 458) Costs of managerial options Other adjustments Cash from operations 0 (1 819) Income tax (paid) returned (7 067) Net cash flow from operating activities Cash flow from investing activities 0 Proceeds from a sale of tangible and intangible fixed assets Proceeds from a sale of short-term debentures 0 - (1 941) Revenue from the sale of subsidiaries or organized part of company Purchase of tangible and intangible fixed assets 0 (6 428) (20 069) Revenue from the sale (purchase of) financial assets 0 (64) Loans (granted)/received Interest received Other net inflow/(outflow) from investment activities 0 - (456) Net cash flow from investing activities Cash flow from financing activities 0 Net inflow from the issue of shares and other capital instruments Receipts of loans and credits Receipts from issuing of debt securities Expenditure from repayment of debt securities 0 (85 150) (33 424) Loans and credits repayments 0 (52 633) ( ) Net inflow (repayment) of financial lease liabilities 0 (2 034) 300 Dividends paid to minority shareholders Interest paid 0 (6 447) (7 292) Net cash flow from financing activities 0 (41 853) (45 208) 0 Net increase (decrease) in cash and cash equivalents 0 (16 389) Cash and cash equivalents from assets classified as held for sale 0 - (5 232) Restricted cash 0 - (189) Cash and cash equivalents at period beginning Cash and cash equivalents at period end

13 Note *Change in working capital 0 Change in provisions (4 887) Change in inventory Change in receivables Change in liabilities 0 ( ) (35 393) Change in prepayments and accruals (10 184) Change in assets held for sale 0 (1 796) - Total

14 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 180. 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 As of 31 December 2009 the Company s Management Board composed: - Piotr Kardach President of the Management Board, - Jacek Kujawa Vice-president of the Management Board, - Andrzej Marciniak Vice-president of the Management Board, - Piotr Wierzbicki Vice-president of the Management Board. On 12 March 2009, Mr Rajmund Gral resigned from the function of a Vice President of the Management Board. On 12 March 2009, the Supervisory Board appointed Mr Piotr Wierzbicki a member of the Company s Management Board in which he holds the position of a Vice President of the Management Board. On 3 September 2009, the Supervisory Board recalled Mr Bogdan Kosturek from the function of a Vice-President of the Management Board. On 3 September 2009, Mr Andrzej Kosturek resigned from the function of a Vice-President of the Management Board. These 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 12 months ended on 31 December 2009 and as of 31 December 2009, as well as comparable data for the period of 12 months ended on 31 December 2008 and as of 31 December On 25 February 2009, the Management Board approved these interim condensed consolidated financial statements for publication. 2 The structure of the Group As of 31 December 2009, the Sygnity Group S.A. was composed of 10 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., 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, 14

15 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. ComputerLand CIS was disposed of on 19 February 2009 and was consolidated until the date of its sale. Subsidiary companies: WebInn S.A., ZEC Infoservice Sp. z o.o., Elpoinformatyka Sp. z o.o. were disposed of on 9 June 2009 and were consolidated until the date of their sale. KPG Sp. z o.o. was disposed of on 9 July 2009 and was consolidated until the date of its sale. A subsidiary company UAB Baltijos Kompiuteriu Centras was not consolidated due to insignificant financial data for 2008 and it has been consolidated since 1 January Emtal Sp. z o.o. is presented as a subsidiary company due to the composition of its Management Board in which there are no representatives of the Group. On 1 April 2009 r. the Company merged with its subsidiary company Support Sp. z o.o. As at 31 December 2009 the Group was composed of the following entities: 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 180, Warszawa 4 GEOMAR S.A. ul. Monte Casino 18a, Szczecin 5 CL Agent Transferowy ul. RyŜowa 33 A, Sp. z o.o. under Warszawa liquidation 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 10 Sygnity Research S.A. (dawniej C2 System Polska S.A.) 6/2, Vilnius 2600 al. Jerozolimskie 180, Warszawa 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. Percentage share in the capital Percentage share in the capital 100,00 100,00 100,00 100,00 100,00 100,00 86,43 86,43 Software and services for insurance and banking sectors. 100,00 100,00 Software and services for the banking sector. Software and IT services. Software and IT services. 100,00 100,00 100,00 100,00 91,67 91,67 IT services for industry, commerce and public administration. 100,00 100,00 Special purpose vehicle for offset agreement implementation. 100,00 50,00 No. Co-subsidiaries Name Headquarters address 1 RUM IT S.A. ul. Grójecka 127/106 B, Warszawa 2 Budimex Dromex S.A. ul. Stawki 40, Sygnity S.A. Sp. j 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 50,00 50,00 33,00 33,00 15

16 No. Affiliates Name Headquarters address 1 Tetra S.A. ul. Wawelska 15B, Warszawa 2 Emtal Sp. z o.o. ul. Chmielna 101/102, Gdańsk 3 DSB Sp. z o.o. ul. KEN 6a, Lublin 4 Computer System for Pobedy Square 2, Business International St. Petersburg (CSBI) 5 StalPortal S.A. 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 21,00 21,00 50,00 50,00 24,75 24,75 20,06 20,06 21,00 21,00 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 Changes in the data presented within a comparable period Moreover, the Group introduced in comparable data as of 31 December 2008 an adjustment in presentation of the deposit related with unsubscribed shares. As a result of the adjustment cash and cash equivalents in the amount of 843 increased in relation to the surplus from sale of shares over their nominal value. 5 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 2008, except for new accounting standards effective since 1 January These condensed consolidated financial statements do not include information or disclosures required with complete financial statements, and should be read together with the annual separate financial statements for the period of 12 months ended 31 December The consolidated financial statements of the Group for the year ended on 31 December 2008, 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: 16

17 Change to IAS 23 Borrowing Costs This change pertains to accounting for costs related to borrowing that may be directly attributed to the acquisition, construction or production of a qualifying asset that requires a significant time for preparing it to planned use or sale. This change has removed the possibility to immediately recognize such costs in the profit and loss account for the period, when such costs were borne. According to the new requirement of this Standard, such costs should be capitalized. Amendments to the aforementioned standard do not have influence on the previously demonstrated consolidated financial results and equity. IAS 1 (amended) Presentation of Financial Statements The amended standard requires that non-shareholder changes in equity are presented separately from shareholder changes in equity. All non-shareholder changes in equity are presented in the statement of total income, the entity may, however, choose to present one or two statements of total income: a profit and loss account and a statement of total income. In case of adjustments or reclassification of comparable data, it is required, besides the current requirement of presenting the balance sheet as of the end of the current report and of the comparable period, to present a transformed balance sheet as of the beginning of a comparable period. Amendments to the aforementioned standard do not have influence on the previously demonstrated consolidated financial results and equity. They influence exclusively presentation of financial statements and the title of these statements. IFRS 2 (amended) Share-based Payment Amendment to the Standard applies to two issues: it explains that vesting is conditioned exclusively by the service concession condition and the condition related to the entity s operating results. The other characteristics of a share-based program are not considered vesting conditions. The standard explains that an accounting recognition of program cancellation by the entity or another party to the transaction should be identical. Amendments to the aforementioned standard do not have influence on the previously demonstrated consolidated financial results and equity. IAS 32 (amended) Financial Instruments: Presentation and IAS 1 (amended) Presentation of Financial Statements Financial Instruments Puttable at Fair Value and Obligations Arising on Liquidation The amended standard requires that entities classify puttable financial instruments and instruments which impose on the entity an obligation to provide the other party with a proportional share in the entity s net assets exclusively in the event of the entity s liquidation, provided that these financial instruments have specific characteristics and meet specified conditions. Amendments to the aforementioned standard do not have influence on the previously demonstrated consolidated financial results and equity. IFRS 8 Operating Segments IFRS 8 replaces IAS 14 Segment Reporting and requires adopting an approach in which segment information is presented on the same basis as that applied for the purposes of internal reporting. In accordance with the requirements of IFRS 8, one should identify operating segments based on internal reports concerning those elements of the Group which are verified on a regular basis by individuals deciding on allocation of resources to a particular segment and assessing its financial results, while under the requirements of the previously binding IAS 14, the entity was obliged to identify two sets of segments (industry and geographical ones) applying risk and reward criteria, whereby the internal financial reporting system intended for the key members of the entity s management was 17

18 used solely as a starting point for identification of such segments. Therefore, following adoption of IFRS 8 identification of reporting segments within the Group has changed. Amendments to IFRSs resulting from the project of Annual Improvements to IFRSs published in May The major amendments include: - the possibility of presentation of financial instruments held for trading as longterm ones according to IAS 1; - change of the definition of borrowing costs contained in IAS 23 so that borrowing costs are calculated at the effective interest rate; - introduction into IAS 36 additional disclosures in case fair value is determined based on discounted cash flows; - introduction into IAS 38 an explanation concerning recognition of advertising and promotional costs; - explanation in IAS 19 that the reduction in the scope in which future remuneration increases are related to benefits in exchange for past services constitutes a restriction of a benefit scheme; - change in IAS 39 in the definition of the fair value category by a financial result. Changes resulting from the amendments do not have influence on the previously demonstrated consolidated financial results and equity. IFRIC 13 Customer Loyalty Programs The interpretation contains guidelines in the area of accounting recognition of transactions resulting from loyalty customer programs such as e.g. loyalty cards or loyalty award credits. In particular, IFRIC 13 indicates the correct manner of recognition of liabilities resulting from the necessity to deliver free or discounted products or services to customers realizing "points" gathered by them. Changes resulting from the interpretation do not have influence on the previously demonstrated consolidated financial results and equity. IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction The interpretation contains general guidelines concerning the manner in which assessment of the limit of a surplus of program asset fair value over the current value of liabilities under the defined benefit scheme should be performed compliant with IAS 19.The surplus may be recognized as an asset. Moreover, IFRIC 14 explains how statutory and contractual requirements within the minimum financing may influence the amount of an asset or liability under a defined benefit scheme. Changes resulting from the interpretation do not have influence on the previously demonstrated consolidated financial results and equity. Amendments to IFRS 1 First-time adoption of IFRS and IAS 27 Consolidated and unconsolidated financial statements The amendments allow for application as a deemed cost either fair value or balance sheet value determined in accordance with the hitherto accounting standards for subsidiary, associated or partially owned companies in their separate financial statements. Moreover, the definition of the cost method has been removed and replaced in separate financial statements with the revenue recognition method due to the received dividend. Application of the standard does not have influence on the previously demonstrated consolidated financial results and equity due to the fact that reporting of all the entities of the Group is already based on IFRSs. 18

19 Comparable data or the data presented in the previously published financial statements were adjusted, if required, in order to take into account presentation changes introduced within the current period. None of the introduced changes influenced the previously presented amounts of net profit or equity. These condensed consolidated financial statements were prepared in accordance with the historical 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 2002, 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. 6 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 2010, 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. Amendments to IFRSs 2009 The International Financing Reporting Interpretations Committee published on 16 April 2009 Amendments to IFRSs 2009 which introduce changes to 12 standards. The amendments include changes in presentation, recognition and valuation and they include terminology and editorial changes. Most of the changes will be valid for reporting periods beginning on 1 January As of the date of preparation of these interim consolidated financial statements, amendments to IFRSs had not been approved by the European Union yet. At present, the Group is analyzing the influence of the standards on the prepared financial statements. Amendments to IFRS 2 Share-based payment. Amendments to IFRS 2 Share-based Payment were publicized by the International Accounting Standards Board (IASB) on 18 June 2009, and they have been effective for annual periods beginning on 1 January 2010 or after this date. The amendments make recognition of share-based payments settled in cash within a capital group more precise. The amendments specify the scope of IFRS 2 and they regulate joint application of IFRS 2 with other standards. The amendments introduce into the standard issues regulated previously in interpretations of IFRIC 8 and IFRIC 11. As of the date of preparation of these interim consolidated financial statements, the amendments to IFRS 2 had not been approved by the European Union yet. The Group does not assume the aforementioned amendment to the standard to have significant influence on the Group s financial statements. 19

20 Amendments to IFRS 1 First-time Adoption of IFRSs issued Amendments to IFRS 1 First-time Adoption of IFRSs issued were published by International Accounting Standards Board on 23 July 2009 r. are effective for annual periods from 1 January 2010 r. or after this date. The amendments introduce additional exemptions from asset valuation requirement in the first adoption of IFRSs for the companies in oil and gas industry sector. The Group does not assume the aforementioned amendment to the standard to have significant influence on the Group s financial statements. Amendments to IAS 32 Classification of Rights issues Amendments to IAS 32 Classification of Rights Issues were published by International Accounting Standards Board on 8 October 2009 and are effective for annual reporting periods from 1 February 2010 or after this date. The amendments clarify the recognition of rights issues (rights, options, warranties) denominated in the currency other then the functional currency of the issuer. The amendments specify that under certain conditions a rights issue is classified as an equity instrument regardless of the currency in which the exercise price is denominated. The Group does not assume the aforementioned amendment to the standard to have significant influence on the Group s financial statements. Amendments to IFRS 1 First-time Adoption of IFRSs issued Amendments to IFRS 1 First-time Adoption of IFRSs issued were published by International Accounting Standards Board on 28 January 2010 and are effective for annual periods from 1 July 2010 r. or after this date. The amendment relieves first-time adopters of IFRSs from providing the additional disclosures required by IFRS 7 Financial Instruments: Disclosures. Application of the standard does not have influence on the previously demonstrated financial results and equity due to the fact that reporting of the Company is already based on IFRSs. Moreover, the standards and interpretation of IFRICs listed below were issued to be applied in the future, and their discussion was included in the Group's financial statements for the year ended on 31 December 2008: - Amendments to IAS 39 Financial Instruments: apprehension and valuation" - "Criteria for recognition as a hedged item - IAS 27 (Amended) Consolidated and Separate Financial Statements ; - IFRS 3 (Amended) Business Combinations ; - Amendments to IFRS 7 "Financial statements: Information disclosure; - Amendments to IFRIC 9 and IFRS 7 "Embedded Instruments", - IFRIC 12 Service Concession Arrangements ; - IFRIC 16 Hedges of a net investment in a foreign operation"; - IFRIC 17 Distribution of non-cash assets to owners ; - IFRIC 18 Transfers of assets from customers. 20

21 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: - Amendments to IFRS 7 Financial Instruments: Disclosures"; - Amendments to IFRIC 9 and IFRS 39 Embedded Instruments ; - IFRIC 15 Agreements for the Construction of Real Estate ; - Amendments to IFRSs 2009; - Amendments to IFRS 2 Share-based Payment - Amendments to IFRS 1 First-time Adoption of IFRSs issued - Amendments to IAS 32 Classification of Rights issues - IFRIC 17 Distribution of non-cash assets to owners ; - IFRIC 18 Transfers of assets from customers. 7 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 another 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. As of 31 December 2009, the Group recognized deferred tax assets in regard to the recoverable part of receivable write-offs made in 2009 and tax losses to be settled. Due to tax losses possible to be settles in subsequent years, deferred income tax was recognized in assets (in the amount of 7 294), as achieving corresponding tax benefits is probable due to reducing by these losses the future income to be taxed. Tax losses possible to be settled expire in the years Estimations of significant provisions and contracts While settling revenues from agreements with a specified price for provision of design services the Group applies the method of percentage degree of advancement of work. Application of this method requires from the Group to estimate the proportion of the costs incurred to date to the total budgeting costs. The budgets of particular contracts are subject to formal process of updating (revision) based on current information as of every balance sheet date and they are approved by the Managements Boards of the Group companies. In case of occurrence of events between 21

22 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 day, 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 The Group tests goodwill for its impairment annually and in each case there are relevant premises. This requires estimation of usable value of cash generating units (CGU). Estimation of usable value 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 economic downturn observed in virtually all economy sectors had influence on a decrease in the revenues, margins and consequently the profit generated by the Sygnity Group in H1 2009, as compared to the analogous period of Based on those premises, the Management Board of the Parent Entity decided to conduct a goodwill impairment test as of 30 June The details of the test have been presented in note 22 to these consolidated financial statements. The relevant assumptions on which the management of the Parent Entity relied while preparing the model of discounted cash flows (DCF model), which was used in order to estimate the utility value of the CGU as at 30 June 2009 have been presented below. Discount rate The discount rate was built based on the average weighted average cost of capital (WACC). In order to determine the correct amount of the discount rate, the Company s Management Board used the publicly available financial valuations and analyses concerning the Sygnity Group published by independent financial institutions. The discount rate calculated in this manner was between 9.2% and 10.7%. If the discount rate had turned out to be by 1% higher than the Management Board's estimations, this would not have resulted in goodwill impairment of any CGU. An increase in the discount rate to the amount of 10.9%-12.4% would have resulted in equalizing the balance sheet value of assets of the most sensitive CGU with its usable value. In the assessment of the Management Board of the Parent Entity, the assumed discount rate (on the average level of 10.5%) reflects rates of return expected by both shareholders and creditors. 22

23 Cash flow increase rate following the forecast period A cash flow increase rate following a 5-year forecast period was assumed at the level of 4%, which, taking into account a forecast long-term increase of the entire market in Poland, is in the opinion of the Management Board a conservative assumption. If the cash flow increase rate following the forecast period had turned out to be by 1% lower than the Management Board's estimations, this would not have resulted in a goodwill impairment of any CGU. A decrease in the cash flow increase rate following the forecast period to the level of 2.3% would have resulted in equalizing the balance sheet value of assets of the most sensitive CGU with its usable value. CGU Based on the analyses performed in Q2 2009, it was found that the advancing integration processes and organization changes in the Company do not allow any longer for treating the four industry sectors as ones meeting the criteria for CGU identification, including those concerning generating cash flows which are to a large extent independent from each other. As a result of the performed work, it was deemed justifiable to isolate two CGUs: the IT Segment and the Other Activities Segment instead of application of the previous approach, i.e. isolating four separate industry sectors. A statement of goodwill allocation to particular CGUs has been presented below: r r. IT Other Total Analysis of current economic conditions The current global financial crisis which started in the mid 2008 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 23

24 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. 8 Information on operation segments As a result of entering into force as of 1 January 2009 of IFRS 8, the Group conducted a reassessment and isolation of reporting operating segments. In accordance with IFRS 8, an operating segment is an identifiable element of the Group's activities which is involved in projects from which the Group earns revenues and incurs expenses, and whose operating results are reviewed regularly by the chief body responsible for taking decisions about the manner of allocation of resources and assessment of performance. Identifiable operating segments are combined in one reporting segment when they have similar economic characteristics, and in particular when they have similar characteristics of sold products and services, clients, distribution manners and binding regulations. 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 teletechnical 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, teletechnical systems and maintenance. 24