AB S.A. Capital Group. Consolidated Financial Statements for the financial year 2015/16 covering the period from to

Transcription

1 AB S.A. Capital Group Consolidated Financial Statements for the financial year 2015/16 covering the period from to

2 TABLE OF CONTENTS Page CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE PERIOD FROM 1 JULY 2015 TO 30 JUNE CONSOLIDATED COMPREHENSIVE INCOME STATEMENT FOR THE PERIOD FROM 1 JULY 2015 TO 30 JUNE CONSOLIDATED STATEMENT OF FINANCIAL POSITION FOR THE PERIOD ENDED ON 30 JUNE 2016 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE PERIOD FROM 1 JULY 2015 TO 30 JUNE 2016 CONSOLIDATED CASH FLOW STATEMENT FOR THE PERIOD FROM 1 JULY 2015 TO 30 JUNE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS PREPARED AS AT 30 JUNE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS PREPARED AS AT 30 JUNE 2016 Page 1 General information 9 2 Applied accounting principles 10 3 Critical accounting judgments and the basis for estimation of uncertainty 19 4 Revenues 20 5 Operating segments 20 6 Revenues and expenses 24 7 Income tax 25 8 Earnings per share 27 9 Tangible fixed assets Investment properties Long-term financial assets Goodwill Other intangible assets Subsidiaries Financial assets Other current Inventories Trade and other receivables Assets pledged as collateral Share capital Supplementary capital Reserve capital Net profit and retained profit Loans received Other financial liabilities Provisions Trade and other liabilities Financial instruments Transactions with related entities Takeover of subsidiary companies Cash and cash equivalents Non-cash transactions and funding sources Contingent liabilities Post-balance sheet events Approval of the financial statements 52

3 Consolidated Financial Statements of the AB Capital Group CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE PERIOD FROM 1 JULY 2015 TO 30 June 2016 Continued operations NOTE Period from to Period from to Sales revenues 4.5 7,553,068 6,793,162 Internal costs of sales 7,218,551 6,492,962 Gross profit (loss) on sales 334, ,200 Costs of sale 186, ,105 Overheads Other operating revenues Other operating expenses 35,919 6,947 20,850 34,194 5,129 30,879 Profit (loss) on operating activities 98, ,151 Financial income 5,908 3,429 Financial expenses Profit on disposal of affiliated entities Share in profit of affiliated entities 21,805 14,651 Profit (loss) before tax 82,737 88,929 Income tax 7 18,134 20,537 Net profit (loss) from continued operations 64,603 68,392 Discontinued operations Net profit (loss) from continued operations Net profit (loss) 64,603 68,392 Net profit (loss) attributable to: Shareholders of the parent entity 64,603 68,392 Non-controlling shareholders 3

4 CONSOLIDATED COMPREHENSIVE INCOME STATEMENT FOR THE PERIOD FROM 1 JULY 2015 TO 30 JUNE 2016 Consolidated Financial Statements of the AB Capital Group Net profit (loss) 64,603 68,392 Other comprehensive income: 6 Items that may be reclassified to profit (loss) of subsequent periods FX differences from translation of investments in foreign entities 14,354 3,788 Hedge accounting -3,028-4,914 Share in other comprehensive income of affiliated entities Results of measurement of financial assets available for sale Income tax pertaining to items that can be reclassified Items that will not be reclassified to profit (loss) Results of revaluation of fixed assets Actuarial gains and losses Income tax pertaining to items that will not be reclassified Comprehensive income attributable to: 75,929 67,266 Shareholders of the parent entity 75,929 67,266 Non-controlling shareholders 4

5 CONSOLIDATED STATEMENT OF FINANCIAL POSITION FOR THE PERIOD ENDED ON 30 JUNE 2016 Consolidated Financial Statements of the AB Capital Group NOTE on on ASSETS Fixed assets 274, ,624 Intangible assets 13 24,391 21,965 Goodwill 12 44,386 41,914 Tangible fixed assets 9 186, ,779 Investment properties Long-term financial assets Deferred income tax assets 6 17,863 13,338 Current assets 1,565,058 1,259,022 Inventories , ,088 Trade and other receivables , ,652 Income tax receivables Financial assets Other current 16 3,451 3,119 Cash and cash equivalents 33 26,800 95,115 Total assets 1,839,276 1,519,646 LIABILITIES Total equity 584, ,820 Equity attributable to shareholders of the parent entity Equity attributable to non-controlling shareholders 584, ,820 Issued share capital 20 16,188 16,188 Treasury shares 21 Supplementary capital , ,266 Reserve capitals , ,029 Retained profit , ,337 Liabilities and provisions for liabilities Long-term liabilities 202, ,974 Long-term borrowings and bank loans 195, ,785 Deferred income tax provision 6 6,303 5,189 Short-term liabilities 1,052, ,852 Trade and other , ,798 payables Short-term borrowings and bank loans , ,404 Other financial liabilities 26 7,359 2,317 Income tax liabilities 6,610 4,880 Short-term provisions 27 42,389 47,453 Total payables 1,254, ,826 Total liabilities 1,839,276 1,519,646 5

6 Consolidated statement of changes in equity for the period from 1 July 2015 to 30 June 2016 Share capital Supplementary capital Reserve capital from reduction of share capital General reserve capital Cash received from measurement of cash flow hedges Reserve capital for currency translations Total reserve capital Retained profit Total equity attributable to shareholders of the parent company Equity attributabl e to noncontrolling sharehold ers Total equity As at 1 July , , , , , , , ,885 Issue of ordinary shares Purchase of treasury shares Redemption of treasury shares Cash flow hedge Net profit for the financial year -4,914-4,914-4,914-4,914 68,392 68,392 68,392 Dividend distribution -11,331-11,331-11,331 Translation of values from financial statements of foreign subsidiaries Profit distribution for the preceding year 1,298 33,719 3,788 3,788 3,788 3,788 33,719-35,017 As at 30 June , , ,226-5,102 13, , , , ,820 6

7 Share capital Supplement ary capital Reserve capital from reduction of the share capital General reserve capital Cash received from measurement of cash flow hedges Reserve capital for currency translations Total reserve capital Retained profit Total equity attributable to shareholders of the parent company Equity attributabl e to noncontrolling sharehold ers Total equity As at 1 July , , ,226-5,102 13, , , , ,820 Issue of ordinary shares Purchase of treasury shares Redemption of treasury shares Dividend distribution -11,331-11,331-11,331 Net profit for the financial year Profit distribution for the preceding financial year Translation of values from financial statements of foreign subsidiaries ,800 41,800-42,146 64,603 64,603 64,603 14,354 14,354 14,354 14,354 Net cash flow hedge -3,028-3,028-3,028-3,028 Other As at 30 June , , ,026-8,130 28, , , , ,418 7

8 Consolidated cash flow statement for the period from 1 July to 30 June 2016 Note No. on on Cash flows from operating activities Gross profit (loss) 82,737 88,929 Financial costs recognised in the profit and loss account 10,874 7,206 Amortisation and depreciation 5 13,658 8,278 Profit (loss) on investments FX profit (loss) 11,063-6, ,914 98,119 Changes in the working capital Change in trade receivables -143,319-17,900 Change in other receivables Change in inventories -230, ,058 Change in other assets Change in trade liabilities 211,976 92,892 Changes in provisions -5,064 12,401 Other adjustments -167,191-13,373 Cash generated from operating activities -49,277 84,746 Interest paid Corporate income tax paid -19,256-23,743 Net cash flows from operating activities -68,533 61,003 Cash flows from investing activities Payments for acquisition of financial assets Proceeds from disposal of financial assets Interest received 15 Borrowings disbursed Borrowings repaid Payments for tangible fixed assets -16,870-94,976 Inflow on disposal of tangible fixed assets 1, Payments for intangible assets -2, Paid development costs Net cash (spent) / generated from investing activities -17,729-95,149 Cash flow from financing activities Dividend distribution -11,331-11,331 Proceeds from issues of debt securities 69,825 99,750 Inflow from share issues Payments for purchased treasury shares Borrowings and loans received 2,023 Borrowings and loans repaid -29,673 Interest Redemption of debt securities -10,874-7,206 Net cash used in financing activities 17,947 83,236 Net change in cash and cash equivalents -68,315 49,090 Cash and cash equivalents at the beginning of financial year 95,115 46,025 Impact of changes in FX rates on the balance of cash in foreign currencies Cash and cash equivalents at the end of financial year 26,800 95,115 8

9 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS PREPARED AS AT 30 JUNE General information The parent entity of the AB S.A. Group was incorporated by way of a notary deed, Repertory A No. 5302/98, on 24 September 1998 at a notary s office in Warsaw, ul. Gałczyńskiego 4, before Notary Public Marek Bartnicki. The registered office of the parent entity is located in Wrocław. The Company is registered with the National Court Register for Wrocław-Fabryczna under the KRS No AB S.A. has the following REGON statistical number: and NIP tax identification number: On 20 December 2006, AB S.A. s Extraordinary Shareholders Meeting adopted, by way of a notary deed, Repertory A No. 6416/2006, a resolution to change the Company s financial year. Pursuant to Resolution No. 28/2006, the Company s accounting year begins on 1 July of every calendar year and ends on 30 June of the next calendar year. The consolidated financial statements present financial data for the reporting period from 1 July 2015 to 30 June 2016 and comparable data covering the period from 1 July 2014 to 30 June The Capital Group was established as a result of AB S.A. s purchase. on 19 September 2007 of 100% shares in AT Computers Holding a.s., with its registered office in the Czech Republic, which itself holds 100% shares in the following five entities: - AT Computers a.s. - AT Compus s.r.o - Comfor Stores a.s. - AT Computer s.r.l. - icomfor s.r.o AB S.A. holds 100% shares in Alsen Spółka z o.o. with its registered office in Chorzów, over which it assumed control in The company was not previously consolidated and the parent entity did not prepare consolidated statements due to immateriality. In December 2008, AB S.A. incorporated a new commercial company under the name of Alsen Marketing Sp. z o.o. with its registered office in Chorzów, which started its business activities in In October 2009, B2B IT Sp. z o.o. with its registered office in Magnice was established. In July 2013, AB S.A. established a new commercial company Optimus Sp. z o.o. with its registered office in Magnice. In September 2013, AB S.A. acquired 100% shares in another commercial company Rekman Sp. z o.o. with its registered office in Magnice. The Group s structure AB S.A. 100 % 100 % 100 % 100 % 100 % 100 % Alsen Sp. z o.o. B2B IT Sp. z o.o. Alsen Marketing Sp. z o.o. Optimus Sp. z o.o. Rekman Sp. z o.o. AT Computers Holding % % % % % icomfor s.r.o. AT Compus s.r.o. Comfor Stores a.s. AT Computer s.r.o. AT Computers, a.s. In the period covered by the Financial Statements, the business activities involved trade in computer hardware, consumer electronics, computer software, household appliances, assembly and repair of computer hardware as well as other IT services. The parent entity and the Group s entities were established for an unspecified period of time. The amounts disclosed in the Financial Statements are expressed in PLN 000. The Polish Zloty is the reporting currency of the Capital Group. The Polish Zloty, Euro and the Czech Crown are the functional currencies. The Financial Statements of foreign subsidiaries are presented in accordance with the rules described in Note 2. 9

10 2. Applied accounting principles The basis for preparation of the Statements These consolidated financial statements were prepared in accordance with the International Financial Reporting Standards (IFRS), in the form approved by the European Union (EU). The International Financial Reporting Standards (IFRS), as approved by the EU, do not differ significantly from the regulations adopted by the International Accounting Standards Board (IASB), with the exception of standards and amendments to the already applicable standards which as at 30 June 2016 had not yet been approved by the EU. In the Group s opinion, new standards and amendments to standards would not have had a material impact on the Financial Statements if they had been applied by the entity as at the balance sheet date. At the same time, the regulations adopted by the EU still do not apply to hedge accounting for the portfolio of financial assets or liabilities, as they have not yet been approved for application in the EU. According to the Group, the application of hedge accounting for the portfolio of financial assets or liabilities in accordance with IAS 39 Financial Instruments: Recognition and Valuation would not have a material impact on the financial statements adopted by the EU for application as at the balance sheet date. Approving of standards, amendments to standards and interpretations is a continuous process in the EU. A current report on the progress of work on the approval of standards, amendments to standards and interpretations, called The EU endorsement status report, was published on 8 October 2012 at: The Group complies with all International Financial Reporting Standards (IFRS), in the form approved by the European Union (EU), which have been approved and come into force. When preparing these Statements, the Group did not take advantage of the possibility of earlier application of standards. According to the Group, standards, amendments to standards and interpretations that were approved but have not come into force as well as possible earlier application of such standards, amendments to standards and interpretations would not have had a material impact on the Financial Statements if they had been applied by the entity as at the balance sheet date. As of 1 July 2011, the Group implemented hedge accounting to protect against changes in cash flows connected with FX rates. Apart from the implementation of hedge accounting, the Group applied, in all material aspects, the same accounting policy, as well as presentation of data and measurement principles as it did for the reporting period ended 30 June Consolidation basis These Consolidated Financial Statements have been made in accordance with the historical cost convention, with the exception of derivative financial instruments, which are measured at fair value. The Consolidated Financial Statements include the financial statements of the parent entity and the financial statements of the entities controlled by the parent entity. Control is deemed to have been assumed when the parent entity is able to influence financial and operational policies of the subordinated entities directly or indirectly in order to benefit from their activity. Financial performance of subsidiary entities acquired or disposed during the year is disclosed in the Consolidated Financial Statements from/until the time of effective acquisition or disposal. These statements are annual consolidated financial statements of the Group for a period from to They contain financial data of the parent entity AB S.A. and its subsidiary entities: Alsen sp. z o.o., Alsen Marketing Sp. z o.o., Optimus Sp. z o.o., B2B Sp. z o.o. Rekman Sp. z o.o. for the period from to , as well as financial data of the Czech companies and the Slovak company for the period from to Financial figures for the previous financial year, i.e. from to , are presented as comparable data. Alsen Sp. z o.o., Alsen Marketing Sp. z o.o., B2B IT Sp. z o.o., Rekman Sp. z o.o. and Optimus Sp. z o.o. keep their books in compliance with the accounting rules set forth in the Accounting Act of 29 September 1994, as amended. The Czech companies and the Slovak company keep their books in compliance with the national standards applicable in the territory of the Czech Republic and Slovakia, respectively. To make the Consolidated Financial Statements compliant with IFRS, adjustments have been made which are not included in the books of account of the entities within the Group. 10

11 Whenever required, the financial statements of subsidiary or affiliated entities are adjusted to make the accounting rules applied by these entities compliant with the rules applied by other Group entities. All transactions, balances, revenues, and expenses between the consolidated entities are fully eliminated for consolidation purposes. Non-controlling interests in net assets (with the exclusion of goodwill) of the consolidated subsidiary entities are disclosed separately from the Group's equity. Non-controlling interests include the value of shares as at the date of business combination (see below) and non-controlling interests in changes to equity starting from the business combination date. Losses attributable to non-controlling interests in excess of the interest in the entity s share capital are allocated to the Group s interests with the exception of where there is a binding commitment and ability of noncontrolling shareholders to make additional investments to cover the losses. The Consolidated Financial Statements have been prepared under a going concern assumption that the Group shall continue its business in the foreseeable future. As of the date of these Financial Statements, no circumstances occur that would pose a threat to continuation of business activities. The profit and loss account has been prepared with classification of profit and loss by function, while the cash flow statement was compiled using the indirect method. The functional currency of the parent entity is PLN, while other companies of the Group, which operate outside of Poland, use CZK and EUR as their functional currencies. The presentation currency of the Group is PLN. These consolidated financial statements are presented in the Polish Zloty ( PLN ), and all values, unless indicated otherwise, are stated in PLN 000. As at the balance sheet date, financial statements of foreign subsidiaries whose functional currency is other than the Polish zloty are translated into the presentation currency of the Group, i.e. the Polish zloty. In the case of the statement of financial position, the rate as of 30 June 2016, i.e , was used, while in the case of the comprehensive income statement the weighted average rate for a given financial period, i.e , was applied. Business combinations Acquisitions of subsidiary entities and separate business operations were accounted for in accordance with the acquisition method as per the IFRS 3, applicable as at the combination date. Goodwill Goodwill resulting from acquisition represents a difference between the total purchase consideration and a total of the fair value of the identifiable assets, liabilities, and contingent liabilities of the subsidiary or affiliated entity or joint venture recognised as at the acquisition date. Goodwill is initially recognised as an asset at cost, and is subsequently revalued at cost reduced by accumulated impairment. Recognition of sales revenues Sales revenues are recognised at fair value received or due after accounting for anticipated discounts, returns by clients and similar charges. Sale of goods Revenues from the sale of goods are recognised when all conditions specified below have been met: the Group has transferred to the buyer significant risks and rewards of ownership; the Group retains neither continuing managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold; the amount of revenues can be measured reliably; it is probable that the economic benefits associated with the transaction will be received by the entity; and the costs incurred or to be incurred in respect of the transaction can be measured reliably. 11

12 Provision of services Consolidated Financial Statements of the AB Group Revenues generated under service contracts are recognised by reference to the stage of completion of the transaction under each contract. Interest income Interest income is recognised on an accrual basis by reference to the amount of the outstanding principal and subject to the effective interest rate which is the rate effectively discounting estimated future cash receipts through the expected life of an asset to the net carrying value of the asset. Foreign currencies The separate financial statements of the Group s companies are presented in the currencies prevailing in the markets of their respective business operations (their functional currencies). The Consolidated Financial Statements present the financial results and items relating to the individual entities in the Polish Zloty (PLN), which is the functional currency of the Company and the presentation currency of the Consolidated Financial Statements. In the separate financial statements transactions executed in currencies other than PLN are disclosed at the exchange rate prevailing on the transaction date. As at the balance sheet date, foreign currency-denominated cash assets and liabilities are translated at the exchange rate prevailing as at that date. Non-cash assets and liabilities measured at fair value and denominated in foreign currencies are translated at the exchange rate prevailing on the date the fair value was determined. Non-cash items stated at historical cost in foreign currencies are not re-translated. FX differences are recognised in the Comprehensive Income Statement in the period in which they occurred, with the following exceptions: FX differences concerning assets under construction to be used in production that are incorporated as costs of such assets and that are treated as adjustments of interest expense of foreign currency-denominated loans; FX differences resulting from transactions executed to hedge certain FX risk (see: rules of hedge accounting); and FX differences resulting from cash receivables from or liabilities towards foreign entities with which no settlements are planned or such settlements are not probable and that are part of net investments in such foreign entities and are recognised in the reserve capital for currency translations and in the net profit (loss) on disposal of investments. For consolidation purposes, the assets and liabilities of foreign subsidiaries are translated into PLN at the exchange rate as at the balance sheet date. Revenues and expenses are translated at the mean exchange rate for the reporting period except when fluctuations of the exchange rates are material (then the exchange rates of the transaction dates are applied). Any resultant FX differences are recognised in the Consolidated Financial Statements in equity and are transferred to the Reserve Capital for currency translations, set up by the Group. Such FX differences are recognised as revenues or expenses in the period when a foreign subsidiary is sold. Goodwill and fair value adjustments resulting from the acquisition of a foreign subsidiary are treated as an asset or liability of the entity domiciled abroad and are translated into PLN at the exchange rate prevailing as at the balance sheet date. External borrowing costs External borrowing costs directly related to the acquisition or manufacturing of assets that require a longer time to be used or resold, are added to the manufacturing costs of such assets until the assets are ready for intended application or resale. Gains on investments generated as a result of short-term investments of the external funding before it is invested in the assets referred to above reduce the borrowing costs subject to capitalisation. All other costs of external funding are recognised directly in the profit and loss account in the period in which they were incurred. Costs of future retirement benefits In accordance with the labour law regulations, employees of the Group are entitled to a retirement allowance. Retirement allowances are a one-off payment due to employees upon their retirement. The amount of retirement allowance depends on the average salary of an employee. The Group sets up a provision for future retirement allowance liabilities in order to allocate the costs to the relevant periods. In accordance with IAS 19, retirement allowances are defined post-employment benefit plans. The accrued liability is equal to discounted payments to be made in the future subject to staff rotation and applies to a period until the balance sheet date. Demographic information 12

13 and information on staff rotation is based on historical data. Changes in the provisions resulting from the calculations are recognised as profit or loss. Taxation Income tax of the entity includes current tax payable and deferred tax. Current income tax The current tax liability is calculated on the basis of the taxation base for the current financial year. Tax profit (loss) differs from the carrying net profit (loss) due to exclusion of taxable income and tax-deductible expenses in future periods, as well as revenues and expenses that are never subject to taxation. The current income tax liability is calculated on the basis the tax rates applicable in a given financial year. Deferred income tax Deferred income tax is calculated using the balance sheet liability method as a tax payable or refundable in the future taking into account differences between the carrying value of assets and liabilities and the corresponding tax values used to calculate the taxation base. The deferred income tax provision is recognised with respect to all positive temporary taxable differences while the deferred income tax asset is recognised at a probable reduction amount of future taxable profit by recognised negative temporary differences. No deferred income tax asset or provision is recognised when the temporary difference arises from goodwill or due to initial recognition (other than in a business combination) of another asset or liability, which, at the time of transaction, does not affect accounting or taxable profit. The deferred income tax provision is recognised on temporary tax differences resulting from investments in subsidiary and affiliated entities and in joint ventures, unless the Group is able to control the reversal moment of such temporary difference and it is probable that in the foreseeable future a temporary difference is not reversed. A deferred income tax asset for deductible temporary differences related to such investments and interests is recognised to the extent that it is probable that taxable profit will be available against which the temporary differences can be utilised. The carrying value of the deferred income tax asset is subject to review as at each balance sheet date and when the anticipated future taxable profit is not sufficient to recover the asset or a part thereof, the value is reduced accordingly. The deferred income tax asset and provision are calculated at the tax rates that will be applicable when such asset is realised or liability becomes due, in accordance with the tax regulations (rates) applicable legally or actually as at the balance sheet date. The measurement of deferred income tax assets and liabilities reflects tax consequences of the method according to which the Group expects to recover or settle the carrying value of deferred income tax assets and liabilities as at the date of the Financial Statements. The deferred income tax assets and liabilities are set-off when there is a right to set-off current income tax assets against current income tax liabilities, as long as such items are taxable by the same tax authority and the Group intends to settle its income tax assets and liabilities at net amounts. Current and deferred income tax for the current accounting period Current and deferred income tax is recognised as income or expense in the profit and loss account, except to the extent that the tax arises from items recognised directly in equity, in which case the income tax is also recognised in equity, or from the initial recognition of business combinations. In case of business combinations, tax consequences are taken into account for goodwill calculation or determination of the fair value of the acquiring entity s share in identifiable assets, liabilities, and contingent liabilities of the acquired entity in excess of the acquisition cost. Tangible fixed assets Fixed assets and fixed assets under construction are initially recognised at acquisition cost or manufacturing cost. As at the balance sheet date, fixed assets are recognised at acquisition cost or manufacturing cost reduced by accumulated depreciation and impairment losses. Depreciation rates are applied in order to reduce the acquisition cost or manufacturing cost of assets other than fixed assets under construction. Such write-downs are made using a straight-line method over assets' useful life, starting from the month following the month a fixed asset has been taken over for use. Estimated useful life, residual values, and depreciation methods are subject to review at the end of each year and the results of any changes to estimates are recognised prospectively. In accordance with the materiality principle, fixed assets with the initial value under PLN 2,500 are expensed in the month following the month in which such fixed assets were taken over for use. Assets held pursuant to finance lease contracts are depreciated over a period of their anticipated useful economic life in accordance with the same principles as the Company's own assets, however, not longer than until the end of the lease contract. 13

14 Profit or loss resulting from disposal / liquidation or withdrawal from use of tangible fixed assets is the difference between disposal proceeds and the carrying value of such items and is recognised in the profit and loss account. Investment properties Investment properties are the properties that generate rental revenues and/or are held with the anticipation that they will grow in value. Investment property is initially recognised at acquisition cost. As at the balance sheet date, investment property is recognised at acquisition cost reduced by accumulated depreciation and impairment losses. Intangible assets Intangible assets acquired by separate purchase Intangible assets acquired by separate purchase are recognised at historical cost reduced by accumulated amortisation and impairment losses. Amortisation is applied using a straight-line method over the anticipated useful life of the assets. The estimated useful life and the related amortisation are reviewed at the end of each annual reporting period and the effects of changes in estimates are recognised in future reporting periods. Intangible assets acquired through business combinations Intangible assets acquired as part of a business combination are identified and recognised separately from the goodwill if they comply with the definition of intangible assets and if their fair value can be reliably assessed. The cost of such assets is equivalent to their fair value as at the acquisition date. After the initial recognition, the assets are disclosed at historical cost reduced by amortisation and accumulated impairment losses in the same manner as intangible assets acquired by separate purchase. Intangible assets with indefinite useful life are subject to impairment tests each year. Impairment of tangible fixed assets and intangible assets excluding goodwill As at each balance sheet date, the Group reviews the carrying values of its fixed assets and intangible assets to identify any indications of impairment. Where there is an indication of impairment, the recoverable amount of an asset is calculated to determine a potential impairment loss. Where an asset does not generate cash flows that are largely independent of those generated from other assets, such an analysis is performed for cash generating unit (CGU) of which such an asset is part. If it is possible to identify a reliable and uniform allocation basis, fixed assets held by the Group are allocated to specific CGUs or to smallest groups of CGUs for which a reliable and uniform allocation basis may be identified. With respect to intangible assets with indefinite useful life, impairment tests are performed annually and, additionally, when there is an indication of possible impairment. A realisable value is the higher of: the fair value less selling costs or the value in use. The latter is an equivalent of the present value of future cash flows discounted with a gross discount rate accounting for the time value of money and the risk specific for each asset. If the recoverable amount is lower than the carrying value of an asset (or CGU), the carrying value of the asset or CGU is reduced to the recoverable value. Impairment loss is recognised forthwith as the cost of the period in which it occurred with the exception of a situation when an asset is recognised after revaluation (then the impairment is treated as a reduction to the prior revaluation). If an impairment loss is subsequently reversed, the net value of an asset (or CGU) is increased to the new estimated recoverable amount not exceeding, however, the carrying value of the asset that would have been recognised if no impairment of the asset / CGU had been previously recognised. Impairment reversal is recognised forthwith in the profit and loss account unless it relates to a revalued asset in such a case reversal of impairment is treated as a revaluation increase. Inventories Inventories are recognised at the lower of: purchase price/ manufacture cost or net sale price. Inventories include goods, materials, and finished products. Goods and materials are disclosed at acquisition cost, including the purchase price increased by import duties, costs of transportation, loading, unloading and other costs directly related to acquisition of the goods and materials less any discounts and rebates. The manufacture costs of products include costs directly related to a product unit and appropriately allocated variable and fixed manufacturing overheads. Variable manufacturing overheads are allocated to a product unit on the basis of the current use of the manufacturing machinery and equipment. Fixed manufacturing overheads are allocated on the 14

15 basis of normal use of production capacity. Rotation of stocks follows the weighted average and FIFO method while rotation of products follows the FIFO method. NRV is the realisable price as at the balance sheet date net of VAT. Provisions Provisions are recognised when the Group has present obligations (legal or contractual) that result from past events, the Group will probably have to pay them and the amount can be reliably assessed. The recognised provision reflects most accurately the estimated expenditure required to settle the present obligation as at the balance sheet date, taking into account the underlying risk and the related uncertainty. If a provision is assessed using the estimated cash flows required to settle the present obligation, the carrying value is equal to the present value of the cash flows. If it is probable that economic benefits required to cover the provisions may be recovered from a third party in part or in whole, such receivable is recognised as an asset provided the probability of recovering such amount is high enough and the amount can be reliably assessed. Warranty obligations Provisions for costs of warranty repairs are recognised at the time of the sale of products, taking into account the management s best estimate as to the future costs to be incurred by the Group during the warranty period. Financial assets Investments are recognised on a purchase date and derecognised on a disposal date if a contract requires that they are delivered on a date determined by a given market; the initial value is measured at fair value reduced by transaction costs with the exception of those assets that are classified as financial assets originally measured at fair value through profit and loss. Financial assets are classified in the following categories: financial assets originally at fair value through profit and loss; investments kept until maturity, financial assets available for resale, as well as loans and receivables. The classification depends on the nature and application of financial assets which is determined at initial recognition. Effective interest rate method This is a method to calculate the amortised costs of financial assets and to allocate interest income in relevant periods. The effective interest rate is the rate discounting estimated future cash flows over the anticipated useful life of a financial asset or over a shorter time, if justified. Income from debt instruments other than financial assets measured at fair value through profit and loss is recognised at the effective interest rate. Financial assets measured at fair value through a statement of comprehensive income This group includes available-for-sale financial assets or assets measured at fair value through profit and loss account. A financial asset is classified as available for sale if: it has been acquired primarily for resale in the near future; or it is a part of a portfolio of financial instruments managed by the Group as a whole, in compliance with the current and actual model to generate short-term profit; or it is a derivative instrument not classified as a hedging instrument. A financial asset other than available for sale may be classified as measured at fair value through profit and loss at initial recognition if: such classification eliminates or materially reduces inconsistency of valuation or recognition occurring in other circumstances; a financial asset is a part of a group of the financial assets or liabilities or both that are managed and its performance is evaluated on a fair value basis in accordance with the documented risk management strategy or investments of the Group within which information on asset groups is transferred internally; or 15

16 an asset is a part of a contract containing one or more embedded derivative instruments and IAS 39 allows the classification of the entire contract (an asset or a liability) to be measured at fair value through profit and loss account. Financial assets measured at fair value through profit and loss are disclosed at fair value and the resultant profit or loss is recognised in profit and loss. Net profit or loss recognised in the profit and loss account includes dividend or interest generated by a specific financial asset. The fair value is determined with the method described in note 14. Held-to-maturity investments Commercial papers and debentures with fixed or determinable payment terms and with fixed maturity dates that the Group intends to and is able to hold to maturity are classified as investments held to maturity. Such investments are recognised at amortised historical cost using the effective interest rate less impairment, while the income is recognised using the effective income method. Financial assets available for sale Shares and listed redeemable bills of exchange held by the Group that are traded in an active market are classified as assets available for sale and measured at fair value. Profit and loss resulting from changes in fair value are recognised directly in equity as a revaluation reserve with the exception of impairment losses, interest accrued at the effective interest rate and FX gains and losses on cash assets that are recognised directly in profit and loss. If an investment is sold or impaired, the accumulated profit or loss previously recognised in a revaluation reserve is transferred to the profit and loss for the reporting period. Dividend on equity instruments available for sale is recognised in profit and loss when the Group is awarded a right to the dividend. The fair value of available-for-sale cash assets denominated in foreign currencies is determined by translating the amounts at a spot rate as at the balance sheet date. Change in fair value of FX differences resulting from a change in the amortised historical cost of a given asset is recognised in the profit and loss account while other changes are recognised in equity. Loans and receivables Trade receivables, loans and other receivables with fixed or determinable payment terms that are not quoted in an active market are classified as loans and receivables. They are measured at amortised cost using the effective interest method and by taking impairment into account. Interest income is recognised using the effective interest rate with the exception of short-term receivables where interest recognition would be immaterial. Impairment of financial assets Financial assets apart from those measured at fair value through profit and loss are tested for impairment at each balance sheet date. Financial assets are impaired when there are objective indications that events occurring after the initial recognition of an asset have adversely affected the related estimated future cash flows. With respect to financial assets recognised at amortised historical cost, impairment is a difference between the carrying value and the present value of estimated cash flows discounted at the financial asset's original effective interest rate. The carrying value of a financial asset is reduced directly with an impairment charge with the exception of trade receivables whose book value is reduced with charges to a specially designated account. The charges apply to trade receivables deemed as uncollectible; when they are collected, such amounts are credited to the account. Changes in the carrying value of the charge account are recognised in profit and loss. If in a subsequent period, the amount of impairment charges is reduced and the reduction may be objectively related to an event that occurred after the impairment charge, the impairment charge shall be reversed through comprehensive income statement to the extent corresponding to the reversed carrying value as of the impairment date and up to the amount of the amortised historical cost that would have been recognised had it not been for the impairment. The above applies to all assets with the exception of available-for-sale equity instruments. In this case, an increase in fair value following impairment is recognised directly in equity. De-recognition of financial assets The Group derecognises financial assets only after expiry of any contractual rights to cash flows generated by such assets or when such financial assets substantially with all their related risk and all rewards have been transferred to 16

17 another entity. If the Group does not transfer nor retains substantially all risk and all rewards related to a financial asset and retains control of such asset, it recognises the retained share in such asset and the related obligations of potential payments. However, if the Group retains substantially all risk and all rewards related to such a transferred asset, it continues to recognise the financial asset and any secured loans underlying the received income. Financial liabilities and equity instruments issued by the Group Classification as debt or equity Debt and equity instruments are classified as financial liabilities or as equity, subject to contractual agreement. Equity instruments Equity instruments include any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. They are recognised at the amounts received less direct issue costs. Financial liabilities Financial liabilities are classified either as financial liabilities stated at fair value through comprehensive income or as other financial liabilities. Financial liabilities measured at fair value through profit and loss This category includes available-for-sale financial liabilities or liabilities defined as measured at fair value through profit and loss account. A financial liability is classified as available for sale if: it has been contracted to be repurchased within a short time; it is a part of a portfolio of financial instruments managed by the Group as a whole, in compliance with the current and actual model to generate short-term profit; or it is a derivative instrument not classified as a hedging instrument. A financial liability other than available for sale may be classified as measured at fair value through profit and loss at initial recognition if: such classification eliminates or materially reduces the inconsistency of valuation or recognition occurring in other circumstances; or a financial asset is a part of a group of the financial assets or liabilities or both that are managed and its performance is evaluated on a fair value basis in accordance with the documented risk management strategy or investments of the Group within which information on asset groups is transferred internally; or it is a part of a contract containing one or more embedded derivative instruments and IAS 39 allows classification of the entire contract (an asset or a liability) to be measured at fair value through profit and loss. Financial liabilities measured at fair value through profit and loss are stated at fair value and the resultant financial profit or loss is recognised in the profit and loss account, including interest paid on the financial liability. The fair value is determined with the method described in Note 28. Other financial liabilities Other financial liabilities, including bank loans and borrowings, are initially measured at fair value net of transaction costs. Subsequently, they are recognised at the amortised historical cost using the effective interest rate method and interest expense is recognised using the effective income method. The effective interest method is used to calculate amortised cost of a liability and to allocate interest expenses to the relevant periods. The effective interest rate is a rate discounting future cash payments over the foreseeable useful life of a liability or over a shorter time, if required. Derivative instruments The Group uses forward currency contracts and interest rate swap and cross currency swap term contracts to hedge the interest rate risk and the FX risk. Detailed information on derivatives is disclosed in Note 25 to the Financial Statements. 17

18 Derivative instruments are recognised at fair value as of the date of the contract and subsequently they are re-measured to fair value as at each balance sheet date. The resultant profit or loss is immediately recognised in the profit and loss account. Derivative instruments not designated as effective hedging instruments are classified as short-term assets or liabilities. Hedge accounting On 1 July 2011, the Group implemented hedge accounting for the protection against FX risk consisting in hedging future cash flows. The purpose of hedge accounting is to minimise the FX risk connected with the sale of goods purchased in a foreign currency (EUR and USD) the prices of which are indexed to the domestic currency for companies within the Group (PLN for AB S.A. and CZK for ATC Holding). Hedging includes specified items of receivables, liabilities, bank loan, cash, and FX Forward contracts for currency sale/purchase items expressed in the relevant currency. In line with the accounting principles adopted, the results of changes in the valuation of hedging instruments insofar as they function as effective collateral are charged to revaluation reserve and then they adjust revenues from sale. The results of balance-sheet valuation of hedging instruments are recognised in the other comprehensive income statement. Since August 2015 the Group has been applying hedge accounting for cash flows and fair value against interest rate risk (WIBOR risk) and FX risk (CZK/PLN) to hedge future cash flows related to the loan granted within the Group. To this end an FX interest rate swap transaction has been concluded. The effects of changes in the measurement of the hedged positions to the extent they constitute an effective hedge are recognised in the revaluation reserve (cash flow accounting) and recognised as profit or loss of the current period (fair value accounting). The profit and loss related to the hedged position resulting from the hedged risk is also recognised as profit or loss of the current period, respectively. The Group mitigates the level of FX risk by executing forward currency contracts (outright and NDF). Hedging transactions are executed in line with the procedures applicable in the AB Group and are always reflected in the open position exposed to the FX risk. The Group uses derivative instruments only for the purpose of hedging its operational activities. 3. Critical accounting judgments and the basis for estimation of uncertainty Using the accounting rules applicable within the Group, as specified in Note 3, the Management has to make judgements, estimates and assumptions concerning the carrying value of assets and liabilities that cannot be assessed otherwise on the basis of available sources. Estimates and their underlying assumptions are based on historical experience and other factors deemed as material. The actual results may differ from the assumed estimates. Estimates and the underlying assumptions are subject to ongoing review. Changes in estimated values are recognised in the period of the review if they apply solely to such a period or in the current period and future periods if the changes apply both to a current period and to future periods. 3.1 Critical judgments in applying accounting rules Critical judgments other than connected with estimates (see below) made by the Management Board in the process of applying the Group s accounting principles, having the greatest influence on the values presented in the Consolidated Financial Statements, are presented below. Impairment of goodwill In order to verify whether goodwill has been impaired, an estimate of the value in use of all cash-generating units to which the goodwill has been attributed needs to be made. To calculate the value in use, the Company needs to estimate future cash flows attributable to a unit and determine an appropriate discount rate as required to calculate the present value of such cash flows. As at the balance sheet date, the book value of goodwill was PLN 44.4 million. Asset impairment As at each balance sheet date, the Group verifies if there are any indications of impairment of non-financial assets. Assessment of the value in use consists in identifying future cash flows by a centre generating cash flows and requires the determination of a discount rate to calculate the present value of such cash flows. As at 30 June 2016 and 30 June 2015, in the opinion of the Management of the Group, no assets held by the Group were impaired. Intangible assets with indefinite useful life 18

19 Intangible assets with indefinite useful life are annually tested for impairment at the level of cash generating units. As at the balance sheet date, the Group holds intangible assets with unspecified useful life of PLN 22.9 million. Useful life of tangible fixed assets The depreciation / amortisation rates are determined on the basis of the anticipated economic useful life of tangible fixed assets and intangible assets. Annually, the approved economic useful life is subject to review on the basis of current estimates. As at the balance sheet date, the fixed assets amounted to PLN million. Assessment of the provisions for employee benefits The provisions for employee benefits (provision for retirement allowance) were assessed using actuarial methods. Fair value of financial instruments Fair value of financial instruments for which there is no active market is measured using the appropriate valuation techniques. The Group uses professional judgement to select adequate methods and to make assumptions. The Management Board makes a judgement selecting an appropriate method to measure financial instruments not quoted in an active market. Methods applied are commonly used by market players. With respect to financial derivative instruments, the assumptions are based on market rates adjusted for instrument-specific features. Other financial instruments are measured at discounted cash flows on the basis of assumptions confirmed to the extent possible with observable prices or market rates. Details regarding the assumptions used and results of analysis of their sensitivity are provided in Note 28. Deferred income tax asset The Company recognises a deferred income tax asset assuming that taxable profit will be generated in the future to utilise the asset. Material deterioration of the generated taxable profit in the future could render this assumption unjustified. Impairment of receivables and inventories As at the balance sheet date, the Group assesses if there is objective evidence of impairment of receivables, groups of receivables and inventories. If the realisable amount of an asset is below its carrying value, a given unit recognises an impairment loss down to the present value of anticipated cash flows. 3.2 Change in estimates In the period covered by the consolidated financial statements there were no material changes in estimates affecting the values reported in the current historical consolidated financial statements. 4. Revenues In the reporting period, there were no discontinued operations. The analysis of the Group s revenues for the current year from continued operations is as follows: on on Continued operations Revenues from sales of goods 7,454,116 6,733,704 Revenues from sales of products and services 98,952 59,458 Discontinued operations 7,553,068 6,793,162 For a portion of the Group's revenues from sales of goods denominated in foreign currencies cash flow hedges were created. The above amounts of revenues from sales of goods comprise the recovered effective part of FX derivatives used to hedge revenues in foreign currencies. 19

20 Information on revenues, expenses and profit and loss of the parent company for Q4 2015/2016 is provided in Note III.4 of the Report of the Management Board from operations of AB S.A.. Report of the Management Board on the operations of AB S.A. in the financial year 2015/ Segments Since 1 July 2009, the Group has been applying the new IFRS 8 Operating Segments standard. IFRS 8 stipulates that operating segments should be identified based on internal reports on those elements of the Group which are regularly reviewed by persons allocating funds to the individual segments and evaluating their financial results. The adoption of IFRS 8 did not alter the identification of reporting segments in the Group. The basic reporting presentation of the Group is based on geographical segments. Geographical segments The three key divisions of the Company operate in three basic geographical areas: A, B, and C. The composition of each geographical segment is as follows: Area A Poland Area B Czech Republic Area C Slovakia In Area A the Group operates wholesale outlets. In Area B the Group operates wholesale and retail outlets and manufacturing facilities. In Area C the Group operates wholesale outlets. The Group's revenues from external sales and information on assets in each geographical segment are presented below. Revenues per segment External sales Sales between Other Total segments Period ended on Period ended on Period ended on on Poland 4,079, ,491 4,415,066 Czech 3,109, ,094 3,621,002 Republic Slovakia 363, ,831 Total segments 8,399,899 Eliminations 846,831 Consolidated revenues 7,553,068 20

21 External sales Sales between Other Total segments Period ended on Period ended on Period ended on on Poland 4,254, ,067 4,490,995 Czech 2,242, ,817 2,663,733 Republic Slovakia 295, ,660 7,450,388 Total segments Eliminations 657,226 Consolidated revenues 6,793,162 The selling prices between segments are comparable to the prices applied in external sales of similar products. Assets and liabilities per segment Assets Liabilities Poland 1,083, ,367 Czech Republic 714, ,954 Slovakia 41,458 41,537 Total segments 1,839,276 1,254,858 Eliminations Non-allocated Consolidated 1,839,276 1,254,858 Results per segment Continued operations Of which interest expense / income on Poland (12,124) 45,597 Czech Republic (3,544) 36,932 Slovakia Eliminations Non-allocated Profit before income tax 82,737 21

22 Income tax Consolidated Financial Statements of the AB Group 18,134 Profit for the financial year on continuing operations 64,603 Discontinued operations Profit before income tax Income tax Profit for the financial year on discontinued operations Profit for the financial year 64,603 Depreciation per segment Continued operations Acquisition of fixed assets on Poland 17,623 10,579 Czech Republic 1,285 3,064 Slovakia - 15 Consolidated 18,908 13,658 Information on products and services The business of the Group is split into: - wholesale trade in computer, telecommunications, multimedia and electronic equipment, - retail trade in computer hardware - production of personal computers. Revenues from sales to external customers Assets Acquisition of fixed assets Period ended on on Wholesale trade 7,461,848 1,692,785 7,185 Retail trade 65,127 11, Production 26, ,893 11,624 7,553,068 1,839,276 18,908 Revenues from sales to external customers Assets Acquisition of fixed assets 22

23 Period ended on on Wholesale trade 6,751,737 1,505,735 96,690 Retail trade 35,677 11, Production 5,748 2, ,793,162 1,519,646 97,119 Information on key Customers: The Company does not generate revenues from sales to individual customers that would account for 10% or more of total revenues. 6. Revenues and expenses Other operating revenues on Period ended on Profit on sales of tangible fixed assets Received damages and refunds 2, Subsidies 1,263 Reversed provisions and write-downs 1,637 3,013 Other 1,003 1,504 Total other income Other operating expenses 6,947 5,129 on Period ended on Market charges Costs of complaints 313 Provisions, write-downs 15,211 25,026 - write-downs to receivables 824 4,443 - costs of the network load 1,615 - inventories 9,049 7,666 - audit other costs 3,814 9,718 - holiday leaves 1,499 1,521 - guarantee repairs Shortages 1, Damages Insurance 1, Donations Written-off receivables 312 2,082 23

24 Court and bailiff costs 10 2 Other 1,678 1,696 20,850 30,879 Financial income on Period ended on Interest income 1,844 1,136 Other, including: 4,064 2,293 - foreign exchange gains 2,953 1,851 - other 1, ,908 3,429 Financial expenses on Period ended on Interest on loans and overdraft facilities 5,357 3,701 Interest on factoring 6,454 4,000 Interest on issued debt securities 5,517 3,505 Interest on other liabilities Total interest 17,507 11,363 Other financial costs 4,298 3,288 Commissions Foreign exchange losses Commissions, guarantees 1,805 1,415 Other 2,493 1,873 Total financial costs 21,805 14,651 Attributable to: Continued operations 21,805 14,651 Discontinued operations Costs per type 21,805 14,651 on on Amortisation and depreciation 13,658 8,278 Consumption of materials and energy 15,137 15,263 External services 104,649 76,037 Taxes and charges 6,534 4,836 Salaries 62,686 55,625 Social insurance and other benefits 17,152 15,863 Other prime costs 36,633 26,069 Total costs by type 256, ,971 Change in stocks, products and accruals 1,661 2,059 24

25 Costs of sale 186, ,105 Overheads 35,919 34,194 Manufacture costs of sold products 36,130 29, Income tax 258, ,030 Income tax recognised in the profit and loss account on on Elements of tax cost (income): Current tax liability (income) 20,986 23,304 Adjustments shown in the current year with respect to tax from previous years Deferred tax cost (income) connected with temporary differences and their realisation - 2,852-2,767 Total tax cost (income) 18,134 20,537 Attributable to: Continued operations 18,134 20,537 Discontinued operations Total tax liability for the current year may be reconciled to the book profit as follows: on on Profit on continued operations 82,737 88,929 Profit on discontinued operations Profit on operations 82,737 88,929 Cost of income tax at the applicable rate 15,720 16,897 Impact of non-taxable income in the current period (4,739) (4,035) Impact of non-deductible costs 7,153 7,675 Impact of differences in tax rates between Poland and Czech Republic Adjustments shown in the current year with respect to tax from previous years Cost of income tax recognised in the profit and loss account 18,134 20,537 Tax for the period ended 30 June 2016 is calculated according to the rates applicable in Poland, the Czech Republic and Slovakia. Current tax liability in the territory of Poland amounted to TPLN 11,707, while in the Czech Republic and Slovakia TPLN 9,279. Deferred income tax on on Deferred income tax assets Accelerated book depreciation Provisions established and revaluation write-downs 12,477 10,595 Other 4,684 2,186 Deferred income tax assets 17,863 13,338 25

26 Deferred income tax provision Accelerated tax depreciation Revaluation of fixed assets to fair value 5,319 5,000 Other Deferred income tax provision 6,303 5,189 The Group recognised deferred income tax assets on all temporary differences as at 30 June 2016 as well as 30 June Earnings per share on PLN per share on PLN per share Basic profit per share in From continued operations 64,603 68,392 From discontinued operations Total basic profit per share Diluted profit per share in From continued operations 64,603 68,392 From discontinued operations Total diluted profit per share Basic profit per share Basic profit per share is calculated by dividing the net profit for the period attributable to the shareholders of the parent entity by the weighted average number of shares in the reporting period. on on Profit for the financial year attributable to the shareholders of the parent entity 64,603 68,392 Profit used to calculate the total basic profit per share 64,603 68,392 Profit used to calculate the total basic profit per share on continuing operations 64,603 68,392 Period ended on Period ended on Average weighted number of ordinary shares used to calculate basic profit per share (all ratios) 16,187,644 16,187,644 26

27 Diluted profit per share Consolidated Financial Statements of the AB Group Profit used to calculate all diluted profit per share ratios is the same profit as shown above for the equivalent basic profit. Weighted average number of ordinary shares used to calculate diluted profit per share is set to the average weighted number of ordinary shares used to calculate basic profit per share as follows: on on Average weighted number of the ordinary shares used to calculate the basic profit per share 16,187,644 16,187,644 Average weighted number of ordinary shares used to calculate diluted profit per share (all ratios) 16,187,644 16,187, Tangible fixed assets Valuation cost Own land Buildings and Investments in third-party Plant and other Equipment under financial lease at structures fixed assets equipment historical cost Total As at 1 July ,802 68, , ,273 Increase ,920 5,974 Liquidations -1,679-1,679 Results of business combinations Reclassification to disposable assets Increase from revaluation Net FX differences Other [description] 17,861 68, , ,907 As at 1 July 2015 Increase ,706 41, ,939 Liquidations/sales -87-3,292-3,379 Results of business combinations Reclassification to disposable assets Increase (decrease) from revaluation Net FX differences Other As at 30 June , , , ,859 Redemption and impairment As at 1 July , ,779 40,935 Elimination as a result of disposal/liquidation of assets -1,586-1,586 Elimination as a result of revaluation Elimination as a result of reclassification to disposable assets Impairment write-down charged to profit and loss account Reversal of impairment write-down recognised in profit and loss account Depreciation: 23 2, ,443 6,895 Net FX differences Other [description] , ,636 46,244 As at 1 July 2015 Elimination as a result of disposal/liquidation of assets -87-2,703-2,790 Elimination as a result of revaluation Elimination as a result of reclassification to disposable assets Impairment write-down charged to profit and loss account Reversal of impairment write-down recognised in profit and loss account Amortisation costs 23 4, ,117 12,513 Net FX differences Other [description] As at 30 June , ,050 55,967 Book value 27

28 As at ,607 51, ,450 81,663 As at , , , ,892 Tangible fixed assets disclosed in the balance sheet include fixed assets under construction: TPLN 1,047 for the reporting period ended , and TPLN 101,116 for the reporting period ended The following standard useful life periods are used in calculating depreciation: Plant and equipment Means of transport Plant and equipment Other years 5-6 years years 5-10 years There were no legal restrictions on tangible fixed assets owned by the Group. The Group has no contractual liabilities related to purchase of tangible fixed assets that haven't been included in these Consolidated Financial Statements. 10. Investment properties As at the beginning of the financial year Increase through expenses Other changes As at the end of the financial year The indicated value of investment property pertains to the land owned by the Group. Land is not depreciated. 11. Long-term financial assets As at the beginning of the financial year Increase through expenses 11 Other changes -35 As at the end of the financial year The indicated value pertains to long-term deposit paid by a subsidiary and to loans granted. 12. Goodwill Cost As at the beginning of the financial year 41,914 41,592 Goodwill from business combination 3,112 28

29 FX difference from translation at the rate applicable as at the balance sheet date 2,472-2,790 As at the end of the financial year 44,386 41,914 Accumulated impairment charges As at the beginning of the financial year As at the end of the financial year Book value Opening balance 41,914 41,592 Closing balance 44,386 41,914 The goodwill was generated as a result of acquisition of 100% shares on 30 October 2007 in AT Computers Holding a.s. with its registered office in Ostrava, which holds 100% shares in the following entities: - AT Computers a.s. with its registered office in Žilina, Slovakia, - AT Campus s.r.o. with its registered office in Ostrava, Czech Republic, - AT Computer s.r.o. with its registered office in Ostrava, Czech Republic, - Comfor Stores a.s. with its registered office in Brno, Czech Republic. - icomfor Stores s.r.o. with its registered office in Brno, Czech Republic. and as a result or the acquisition on 30 September 2013 of 100% shares in Rekman Sp. z o.o. with its registered office in Magnice. 13. Other intangible assets Cost Licenses Patents Other Trademarks assets Total As at 1 July ,039 22,957 1,544 33,540 Increase Disposal or classification to disposable assets Net FX differences -3-3 Other [description] 9,039 22,957 1,998 33,994 As at 1 July , ,038 Increase Increase as a result of internal operations Business combinations Disposal or classification to disposable assets Net FX differences 1, ,533 As at 30 June ,011 24,367 2,187 37,565 Redemption and impairment 9,039 1, ,000 As at 1 July ,052 1,383 Amortisation costs -3-3 Disposal or classification to disposable assets Net FX differences Other [description] As at 1 July ,039 1,733 1,257 12,029 Amortisation costs 1, ,145 Disposal or classification to disposable assets Net FX differences Other [description] As at 30 June ,094 1,793 1,287 13,174 Book value As at , ,965 As at , ,391 29

30 The following useful life periods are used in calculating amortisation: Capitalised development Patents Trademarks Licenses 5 years years 20 years 20 years 14. Subsidiaries Detailed information on subsidiaries as at 30 June 2016: Subsidiary business name Place of registration and business operations Share in capital (%) Share in votes at the General Meeting (%) Core business Alsen Sp. z o.o. Poland wholesale trade AT Computers a.s. Czech Republic wholesale trade Comfor Stores a.s. Czech Republic retail trade AT Compus s.r.o. Czech Republic personal computer manufacturing AT Computer s.r.o. Slovakia wholesale trade icomfor s.r.o. Czech Republic retail trade AT Computers Holding a.s. Alsen Marketing Sp. z o.o. Czech Republic Parent company for: AT Computers, a.s. Comfor Stores a.s. AT Compus s.r.o. AT Computer s.r.o. icomfor s.r.o. Poland Wholesale trade B2B IT Sp. z o.o. Poland Logistics services Rekman Sp. z o.o Poland Wholesale trade Optimus Sp. z o.o Poland Computer manufacturing Alsen Sp. z o.o. was established in September 2004 and entered into the National Court Register kept by the District Court in Katowice under KRS No The company s registered office is in Chorzów. AT Computers a.s. was established on 11 December 1995 and registered in the Regional Commercial Court in Ostrava. The company s registered office is in Ostrava. Comfor Stores a.s. was registered in the Regional Commercial Court in Brno on 30 June The company s registered office is in Ostrava. AT Compus s.r.o. was registered in the Regional Commercial Court in Brno on 30 June The company s registered office is in Ostrava. AT Computer s.r.o. was registered in the Regional Commercial Court in Brno on 29 July The company operates in Slovakia. Alsen Marketing Sp. z o.o. was established in December 2008 and entered into the National Court Register kept by the District Court in Katowice under KRS No The company s registered office is in Chorzów. B2B IT Sp. z o.o. was established in October 2009 and entered into the National Court Register in Wrocław under No. 30

31 KRS The Company s registered office is in Magnice. icomfor s.r.o. was established on 16 September 2011 and registered in the Regional Commercial Court in Brno under KRS No The Company s registered office is in Brno. Rekman sp. z o.o. was established on 22 December 2003 and entered into the National Court Register for Wrocław Fabryczna KRS No The Company s registered office is in Magnice. Optimus sp. z o.o. was established on 28 August 2013 and entered into the National Court Register for Wrocław Fabryczna KRS No The Company s registered office is in Magnice. 15. Financial assets Derivative instruments recognised at fair value FX forward contracts 224 Current Loans recognised at amortised cost Loans granted to related entities Loans to other entities Total Other current assets Prepayments and accruals - property insurance - disposition right - promotion and advertising costs - obligatory write-down to ZFŚS - rent - costs of services other 1,121 1,277 As at the end of the financial year 3,451 3,119 Expenses are prepaid in the Group if they refer to future reporting periods. 17. Inventories Materials Advances for deliveries 312 1,313 Finished products, goods 876, ,581 As at the end of the financial year 877, ,088 Inventories are valued at the lower of: purchase price (production cost) or realisable net selling price. The value of inventories recognised as cost in the analysed period was TPLN 7,182,421. The amount of charges to the value of inventories recognised as cost in the analysed period was TPLN 9,049. The carrying value of collateral is presented in Note 19 Assets pledged as collateral. 31

32 18. Trade and other receivables Trade receivables 638, ,274 Write-downs to receivables -17,524-16,729 Net trade receivables 620, ,545 Tax receivables 25,158 22,060 Other 11,279 42, , ,652 Aging of receivables as at Total gross value Impairment write-downs Total net value Current receivables 628, ,924 Overdue receivables, of which 39,530 11,483 28,047 - up to 30 days 28,841 3,965 24, days 5,145 2,086 3, days 2,520 2, days 1,839 1, over 360 days 1,185 1,185 - Aging of receivables as at Total gross value Impairment write-downs Total net value Current receivables 483, ,822 Overdue receivables, of which 39,158 9,328 29,830 - up to 30 days 32,543 5,787 26, days 2, , days 1,696 1, days over 360 days 1,700 1, Changes in impairment write-downs to receivables at risk on on Beginning of the financial year 16,729 16,420 Impairment write-downs 2,683 4,601 Amounts written off as unrecoverable 1,570 4,250 Amounts recovered during the year

33 Reversal of impairment write-downs Reversal of discount Consolidated Financial Statements of the AB Group As at the end of the financial year 17,524 16,729 The value of receivables claimed in court as at amounted to TPLN 6,041 and was fully covered with revaluation write-downs. The value of receivables claimed in court as at amounted to TPLN 7,401 and was fully covered with revaluation write-downs. To reduce the risk of insolvency of the Group s counterparties, measures are taken to secure, to the greatest extent possible, the interests of the Group's Companies. In the first place, the buyers of goods are reviewed. Based on financial data and obtained collateral, trade credit limits are established Trade receivables in the territory of Poland were covered with insurance under a contract concluded with Atradius Credit. Trade receivables in the territory of the Czech Republic and Slovakia were covered with insurance under a contract concluded with Atradius Credit and Euler Hermes Cescob. Irrespective of the insurance contract, all companies in the Group establish provisions for overdue and doubtful receivables. Generally, receivables overdue for six to twelve months are covered with a 50% impairment charge. Receivables overdue for over 12 months are covered with a 100% impairment charge. Irrespective of the general rules, receivables are individually monitored and reviewed in terms of payment risk. 19. Assets pledged as collateral Own land and buildings 42,900 65,400 Inventories 559, ,673 Trade receivables 377, , Share capital 980, ,683 As at 30 June 2015, the parent entity s share capital amounted to TPLN 16,188 and was divided into 16,187,644 with a par value of PLN 1 per share. In the period under report, the share capital was not changed. Number of shares Share capital PLN Type of preferential rights attached to shares Shareholding structure as at A series ordinary registered shares 2,729,971 2,729,971 none B series privileged registered shares 1,313,000 1,313,000 2 votes per share at GM C series ordinary registered shares 1,674,771 1,674,771 none C-1 series ordinary bearer shares 1,069,294 1,069,294 none C-2 series ordinary bearer shares 1,199,987 1,199,987 none D series ordinary registered shares 202, ,000 none E series ordinary registered shares F series ordinary bearer shares 1,764,621 1,600,000 1,764,621 1,600,000 none none G series ordinary bearer shares 269, ,000 none I series ordinary bearer shares 4,250,000 4,250,000 none K series ordinary bearer shares 115, ,000 none As at 30 June ,187,644 16,187,644 C series shares were acquired in exchange for a contribution in kind. Other share issues were covered with cash. Ordinary shares fully covered by capital with a par value of PLN 1 correspond to one voting right per share at the General Shareholders Meeting and carry the right to dividend. 33

34 Number of shares % of shares Number of votes % votes List of shareholders holding over 5% share in the share capital Iwona Przybyło 1,749, ,749, Aviva Otwarty Fundusz Emerytalny Aviva BZ WBK 2,118, ,118, ING OFE 2,291, ,291, Aviva Investors Poland S.A. 1,002, ,002, Andrzej Przybyło 1,316, ,629, Other 7,709, ,709, As at 30 June ,187, ,500, Supplementary capital Beginning of the financial year 145, ,968 Increases 346 1,298 Decreases As at the end of the financial year 145, ,266 Supplementary capital is recognised at the value of the surplus of shares sale price over their par value and at the value of retained profit. 22. Reserve capital General 244, ,226 After reduction of share capital From FX differences Cash flow hedge 28,113-8,130 13,759-5,102 As at the end of the financial year 264, ,029 General reserve fund Beginning of the financial year 202, ,507 Changes 41,800 33,719 As at the end of the financial year 244, ,226 General reserve fund was created from retained profit. 34

35 FX differences reserve As at the beginning of the financial year 13,759 9,971 Translation of values from financial statements of foreign subsidiaries 14,354 3,788 As at the end of the financial year 28,113 13,759 FX profit connected with translation into PLN of the results of the Group s foreign subsidiaries is presented directly in FX conversion reserve fund. Reserve capital from reduction of the share capital As at the beginning of the financial year Changes As at the end of the financial year Reserve funds resulted from a decrease in share capital. Reserve funds from revaluation of cash flow hedges As at the beginning of the financial year -5, Changes -3,028-4,914 As at the end of the financial year -8,130-5,102 The Group implemented hedge accounting as of 1 July The rules for its application are described in Note Net profit and retained profit As at the beginning of the financial year 147, ,293 Impact of changed financial guarantee settlement rules Net profit attributable to the members of the parent entity 64,603 68,392 Profit distribution -53,477-46,348 Expiry of option scheme (no issue) End of the financial year, including 158, ,337 Current profit 64,603 68,392 Undistributed retained profit 93,860 78,945 The indicated profit is not distributable but only subject to approval. Dividend may be paid based on financial result determined in non-consolidated financial statements. 35

36 24. Loans received Long-term Secured at amortised cost Overdraft facilities Bank loans 26,158 29,991 Transfer of receivables 26,158 29,991 26,158 29,991 Secured at amortised cost Current Overdraft facilities 135, ,404 Loans from other entities Transfer of receivables 135, , , ,404 Bonds Bonds 169,701 99, ,701 99,794 The Group issued series AB bonds with the nominal value of PLN 10,000 each, totalling TPLN 100,000. They are dematerialised, unsecured bearer bonds. Under the Program, coupon bonds are issued with minimum maturities of 1 (one) year on which interest will accrue in compliance with the terms and conditions of each series. The Bonds will be redeemed on 12 August 2019 at their nominal value. The Bonds earn interest at a variable interest rate WIBOR 6M plus a fixed margin. Odsetki wypłacane będą semi-annually. On 29 July 2015 the Group issued 7,000 series AB bonds with the nominal value of PLN 10,000 each, totalling TPLN 70,000. They are dematerialised, unsecured bearer bonds. Under the Program, coupon bonds are issued with minimum maturities of 1 (one) year on which interest will accrue in compliance with the terms and conditions of each series. The Bonds will be redeemed on 29 July 2020 at their nominal value. The Bonds earn interest at a variable interest rate WIBOR 6M plus a fixed margin. Odsetki wypłacane będą semi-annually. 36

37 In the period from 1 July 2015 to 30 June 2016, there was no breach of provisions of loan agreements concluded by the Group's entities. Details regarding applicable interest rates, repayment dates and collaterals for particular loans are presented below. 37

38 Name of entity Long-term ING Bank Śląski S.A. Short-term ING Bank Śląski S.A. PKO Bank Polski S.A. ING Bank Śląski S.A. BZ WBK S.A. BZ WBK S.A. BZ WBK S.A. Komerčni Banka, Czech Republic Registered office Katowice Katowice Warsaw Katowice Warsaw Warsaw Warsaw Prague Loan amount PLN 000 PLN 26,158 PLN 4,830 PLN 11,399 EUR 14 PLN 14,488 PLN 21,511 USD CZK 2,364 Interest rate WIBOR 1M + margin Repayment date Collateral Mortgage on property, pledge of assets, surety by AB S.A. WIBOR 1M + margin Mortgage on property, pledge of assets, surety by AB S.A. WIBOR 1M + margin EURIBOR 1M + margin WIBOR 1M + margin WIBOR 1M + margin 12 LIBOR 1M + margin Power of attorney to use bank accounts, submission to enforced collection, assignment of trade receivables up to PLN 33 million, registered pledge on inventories up to PLN 35 million, promissory note with a promissory note agreement Power of attorney to bank accounts, assignment of rights under insurance policies, submission to enforced collection up to PLN 96 M, assignment of trade receivables for no less than 50% of the loan amount Power of attorney to use bank accounts, submission to enforced collection, assignment of trade receivables up to PLN 28 million, registered pledge on inventories up to PLN 24 million Submission to enforced collection, assignment of trade receivables up to PLN 7,431 million, registered pledge on inventories up to PLN 24 million Submission to enforced collection, assignment of trade receivables up to PLN 7,431 million, registered pledge on inventories up to PLN 24 million. PRIBOR + margin assignment of receivables, ATCH guarantees Komerčni Banka, Czech Republic Prague CZK 31,069 PRIBOR + margin assignment of receivables, ATCH guarantees Československá Obchodní Banka Prague CZK 299 PRIBOR + margin letter of comfort by AB S.A., assignment of receivables, transfer of title to inventories Citibank Czech Republic Prague CZK 1, 636 PRIBOR + margin ATCH guarantees Citibank Czech Republic Prague CZK 7,969 PRIBOR + margin ATCH guarantees Citibank Czech Republic Prague CZK 39,973 PRIBOR + margin ATCH guarantees 161,722 Total All loans are subject to arm s length terms and conditions. The above loans are covered by the Companies of the Group with a surety of PLN M. 38

39 25. Other financial liabilities Consolidated Financial Statements of the AB Group Short-term Derivative instruments recognised at fair value FX forward contracts USD 438 EUR Interest CCIRS 2,443 4,639 1,342 7,359 2, Provisions Short-term Provision for warranty repairs 1,654 2,238 Provision for employee benefits 2,617 6,153 Provision for recycling costs 205 Other provisions, of which: 38,118 38,857 - promotions of goods audit charges to markets and other bonuses for counterparties. 35,389 34,785 - other 2,600 3,213 42,389 47,453 The Group establishes a provision for warranty repairs in connection with the expected costs of repairs, expected returns of sold goods and expected charges on account of bonuses for markets and other counterparties. Employee benefits provisions concern holiday leaves unused as at the balance sheet date, retirement allowances and salaries. 27. Trade and other liabilities Trade payables 792, ,275 Taxes, custom duties, social insurance and other payables 21,527 32,924 Payables towards employees 7,875 5,647 Other 38,545 26,952 Average repayment time for payables disclosed in the balance sheet is 30 days. 860, ,798 Other obligations include the amount of TPLN 23,012 related to the logistics centre built by B2B Sp. z o.o., co-financed by the European Regional Fund. 39

40 28. Financial instruments 28.1 Book value and fair value of financial instruments Financial assets Long-term financial assets Loans and receivables (including cash and cash equivalents) 647, ,708 Trade receivables 620, ,545 Loans granted Cash and cash equivalents 26,800 95,115 Stated at fair value through profit and loss account Derivative instruments 0 0 Financial liabilities Stated at fair value through profit and loss account Derivative instruments 0 0 Other items valued at amortised cost 1,124, ,651 Bonds 169, ,342 Bank loans 161, ,395 Trade payables 792, ,914 As at the date of these Financial Statements, there were no significant credit risk concentrations with respect to borrowings or receivables. The above carrying value reflects the maximum exposure of the Group to credit risk associated with such borrowings and receivables. Revenues and interest expense related to the above assets and liabilities were disclosed in Note 6 to the Financial Statements. Fair value of financial instruments held by the Group as at 30 June 2016 as well as 30 June 2015 did not significantly differ from the values presented in the financial statements for the respective years due to the following reasons: potential discount effect is not material with regard to short-term instruments; these instruments concern transactions concluded at arm s length; as for shares not listed in active markets, their carrying value was determined taking into account impairment losses, where necessary, and its value is approximate to the fair value Analysis of the levels of fair value The tables below present an analysis of the Company s financial liabilities which, after initial recognition, are stated at fair value, categorising them into Levels 1-3, depending on the level of observability of source data used for fair value measurement. 40

41 Fair value measurement In accordance with the amendments introduced to IFRS 7 in 2009, concerning financial instruments stated at fair value, which requires disclosure of the methods of measurement of fair value, grouped hierarchically: level 1 listed prices (non-adjusted) for identical assets or liabilities on active markets, level 2 on the basis of values observed on the market, determined by a direct (i.e. to prices) or indirect (i.e. to price derivatives) relation to similar instruments functioning on the market, level 3 prices other than those on active markets (inputs not based on observable market data). As at the balance sheet date, the Company estimated the fair value of spot transactions and FX forward transactions based on discounted future cash flows from concluded transactions based on the difference between the forward price and the transaction price. The forward price is calculated based on the fixing rate of NBP and the interest rate curve implied from FX swap transactions. In the fair value hierarchy, this is Level 2. Year ended on 30 June 2016 Financial liabilities Financial liabilities stated at fair value through profit or loss Derivative instruments 0 Hedging derivatives stated at fair value 277 through comprehensive income Total 277 Financial assets Financial assets stated at fair value through profit or loss Derivative instruments 0 Hedging derivatives stated at fair value 224 through comprehensive income Total 224 Fair value measurement Level 1 Level 2 Level 3 Total Fair value measurement Level 1 Level 2 Level 3 Total Year ended on 30 June 2015 Financial liabilities Fair value measurement Level 1 Level 2 Level 3 Total Financial liabilities stated at fair value through profit or loss Derivative instruments 0 Hedging derivatives stated at fair value through comprehensive income 976 Total 976 Financial assets Fair value measurement Level 1 Level 2 Level 3 Total Financial assets stated at fair value through profit or loss Derivative instruments 0 Hedging derivatives stated at fair value through comprehensive income 0 Total 0 Neither in the period ended 30 June 2016 nor the period ended 30 June 2015 there were any shifts between Level 1 and Level 2 of the fair value measurement and there were no shifts from/to Level 3. 41

42 28.3 Revenues, expenses, profits and losses recognised in the profit and loss account by categories of financial instruments Year ended on 30 June Dividend and profit distributions Financial assets available for sale Loans and receivable s Trade receivables Cash and cash equivalents Derivative instruments in hedge accounting Financial liabilities valued at amortised cost Liabilities under guarantees and factoring, excluded from IAS Total Interest income/cost ,024-11,053-6,454-15,663 FX differences , ,597-23, ,539 Reversal of revaluation write-downs Establishment of revaluation write-downs Profit/loss on revaluation to fair value recognised in profit and loss account Loss/profit on disposal of investments ,269 1, , Total , ,843-33,129-6,454-40,979 Year ended on 30 June Dividend and profit distributions Financial assets available for sale Loans and receivable s Trade receivables Cash and cash equivalents Derivative instruments in hedge accounting Financial liabilities valued at amortised cost Liabilities under guarantees and factoring, excluded from IAS Total Interest income/cost 0 0 1, ,363-4,000-10,227 FX differences , ,840-11, ,699 Reversal of revaluation write-downs Establishment of revaluation write-downs Profit/loss on revaluation to fair value recognised in profit and loss account Loss/profit on disposal of investments , , , , Total , ,875-20,311-4,000-33,677 42

43 28.4 Objectives, policy and processes of risk management associated with the financial instruments held The AB Group's companies manage risk through their dedicated organisational units, which usually form a part of financial departments. The entire risk area is supervised by the parent entity, AB S.A. The Group is exposed to market risks (in particular, due to substantial exposure, FX risk and interest rate risk). It also faces credit risk and liquidity risk. The Group manages risk by applying its developed strategies, mostly using natural methods of mitigating its inherent risks. The Group adjusts the type of hedging instruments applied to the nature of risks that are to be minimised. As part of FX risk mitigation, the Group concludes transactions involving derivatives. The use of derivatives is governed by the Group's regulations approved by the Finance Director that define the strategy of managing FX risk and interest rate risk. Credit risk is minimised by insurance contracts covering receivables of all of the Group's Companies and through the policy of determining individual credit limits for particular counterparties and their monitoring. Due to the nature of the Group s business, the risk associated with investing surplus liquidity is immaterial, as surplus cash is reinvested in working assets on an ongoing basis. The Group does not use or trade in financial instruments including derivatives as part of speculative transactions. Decisions connected with the area of risk management are centralised and are made on the basis of clearly defined conditions and supported with relevant reports Risk assessment methods AB S.A. Group assesses the impact of particular risk elements on its result mainly by applying the sensitivity analysis. Sensitivity of the Group's results to a given risk is measured as a potential loss on profit before tax within a given time frame and at an assumed level of volatility of the risk element (other elements remaining unchanged). Exposure to financial risk and its measurement method have not changed compared to the previous period Key accounting principles A detailed description of the key accounting principles and applied methods, including recognition criteria, the basis of valuation and the basis of disclosing income and expenses with respect to particular categories of financial assets, financial liabilities and capital instruments are presented in Note 2 to the Financial Statements Assessment of financial risks Market risk Market risk is the possibility of loss caused by fluctuations in the fair value of a financial instrument or future cash flows related to it, as a result of changes in market prices. It comprises three types of risk: FX risk, interest rate risk and other price risk. AB Group s activities involve predominantly the risk resulting from fluctuations in currency rates and interest rates. The Group concludes contracts for financial derivatives for the purpose of FX risk management, including forward contracts hedging against FX risk associated with imports and exports of goods as part of distribution activities; the contracts are in EUR and USD FX risk The Group is mostly exposed to FX risk. The Group s activities involve resale of goods purchased from producers. Depending on the period, 60% to 80% of all purchases are made from foreign counterparties in foreign currencies (EUR, USD, GBP). As at the balance sheet date, the carrying value of the Group s cash assets and liabilities denominated in foreign currencies was as follows: Financial assets USD EUR GBP Trade receivables 20,006 9, , ,598 1, Cash on hand and in banks ,314 10, Fair value of forward transactions

44 Financial liabilities Trade payables 74,453 58, , ,080 5, Fair value of forward transactions Foreign currency loan ,037 For the purposes of hedge accounting, only instruments concluded with external entities are designated as hedging instruments: Hedging instruments EUR Instrument type Nominal value, EUR 000 Fair value, PLN 000 Anticipated maturity period of hedged position Trade liabilities (130,483) (74,243) (578,208) (311,293) July, August, September July, August Trade receivables , ,985 57,846 July, August July, August Bank loans (7,003) (486) (31,083) (2,037) July, August July, August Cash 400 1,460 1,768 6,124 July, August July, August FX Forward EUR (31,497) (28,962) (278) (289) July, August July, August Total cash positions: (140,847) (88,429) (249,649) (249,649) * For items other than FX Forward derivative transactions, carrying values were stated, as they do not differ materially from the fair values. Hedging instruments USD Instrument type Nominal value, USD 000 Fair value, PLN 000 Anticipated maturity period of hedged position Trade liabilities (17,948) (14,394) (71,547) (54,055) July, August September July, August Trade receivables 3,683 1,647 14,677 6,190 July, August July, August Bank loans July, August July, August Cash July, August July, August FX Forward USD (68) (5,726) 176 (686) July, August July, August Total cash positions: (14,206) (18,346) (56,189) (48,074) * For items other than FX Forward derivative transactions, carrying values were stated, as they do not differ materially from the fair values. 44

45 Sensitivity to FX risk The Group is predominantly exposed to risk associated with fluctuations in USD and EUR exchange rates. The Group s level of sensitivity to a 10% increase in the PLN exchange rate to foreign currencies is presented in the table below. 10% is the sensitivity rate reflecting the Management Board s assessment of possible changes in the exchange rates to foreign currencies. The sensitivity analysis covers outstanding cash positions denominated in foreign currencies and corrects currency translation as at the end of the reporting period by a 10% change in the exchange rate. As the hedge accounting has been implemented, some profit/losses resulting from changes in the value of cash positions will be reflected in the financial result, while other in total comprehensive income. Impact of USD rate on the consolidated financial result Impact of EUR rate on the consolidated financial result on on on on (i) 4,101 1,331 (ii) Impact of USD rate on total comprehensive income Impact of EUR rate on total comprehensive income on on on on ,660-6,900 (i) -62,410-37,088 45

46 Hedging of cash flows against FX rate risk Consolidated Financial Statements of the AB Group Analysis of changes in fair value of hedging instruments recognised in equity is provided in the table below: 12 months until (PLN 000) 12 months until (PLN 000) Gross amount recognised in equity at the beginning of the period (6,299) (232) Net amount recognised in equity at the beginning of the period (5,102) (188) Effective portion of profit/loss on the hedging instrument in the period recognised in equity Amounts derecognised from equity and recognised in the profit and loss account during the period, of which: (26,214) (23,977) (23,798) (17,911) - adjustment of revenues from operating activities (24,300) (20,654) - adjustment of revenues from financing activities 502 (2,743) - adjustment due to hedge ineffectiveness - - Gross amount recognised in equity at the end of the period (8,71) (6,299) Deferred income tax asset/provision 1,656 1,197 Net amount recognised in equity at the end of the period (7,059) (5,102) Hedging of cash flows and fair value against FX rate risk and interest rate risk The Group is exposed to FX risk in CZK related to the loan granted in CZK and to interest rate risk. He risks were secured with a cross currency interest rate swap in line with the hedging policy applied in the Group. The Instrument hedging the FX and interest rate risk cross currency interest rate swap Cross currency interest rate swap Carrying value/fair value PLN 000 Anticipated realisation period: Premium/Accrued interest interest payable semi-annually by 28 valuation -4,639 - July 2020, final exchange of nominal Total -4,134 - amounts on 28 July Analysis of changes to the fair value of the hedging instruments An analysis of changes in fair value of the instruments hedging FX and interest rate risk recognised in equity is provided in the table below: Cash flow hedge Gross amount recognised in equity at the beginning of 12 months until PLN months until PLN

47 period Net amount recognised in equity at the beginning of period Amount transferred from equity and recognised in the profit 1,025 and loss account for the period: - ineffectiveness recognised in the financial result underlying cash flow hedges Gross amount recognised in equity at the end of the period (1,321) Net amount recognised in equity at the end of the period (1,070) Consolidated Financial Statements of the AB Group An analysis of changes in fair value of the instruments hedging FX and interest rate risk recognised in equity is provided in the table below: Fair value hedge PLN months 12 months until until Profit/loss on the hedging instrument (3,317) - Profit/loss on the hedged position related to the hedged risk 3, Interest rate risk AB Group is exposed to interest rate risk since its entities borrow at variable interest rates. The Group analyses the risk area. The Group mitigates interest rate risk by keeping an optimum balance between trade payables and interest payables, and in the analysed period there was an increase in the amount of non-interest payables. In order to hedge interest rate risk the Company entered into a cross currency interest rate swap (CCIRS) details in section FX Risk. FX risk It is worth noting that all bank loan agreements have been regularly renewed with annexes to the original agreements. Sensitivity to fluctuations of interest rates The Group s exposure to interest rate risk related to short-term loans is presented in the table below: Bank loans with variable interest rate PLN PLN'000 PLN'000 PRIBOR 1M 80, ,344 PRIBOR O/N 2,663 10,501 WIBOR 1M 78,386 43,457 WIBOR O/N 0 0 EURIBOR 1M 14 2,075 LIBOR USD 1M The following sensitivity analyses were based on the level of exposure to interest rate risk for derivative transactions concluded by the Group as at the balance sheet date and on the change occurring at the beginning of the financial year and subsequently retained for the entire financial year with respect to instruments with variable interest rates. When preparing internal reports on interest rate risk for the Management, fluctuations by 50 basis points up and down are used; this reflects the Management s assessment of a probable change in interest rates. If interest rates were higher by 50 basis points, with all other variables remaining unchanged: The Group s profit for the year ended on 30 June 2016 would decrease by TPLN 1,859. This change would be a consequence of the Group s exposure to the risk of variable interest rate of the contracted loans. 47

48 Interest payables Consolidated Financial Statements of the AB Group The Group mitigates interest rate risk by keeping an optimum balance between trade payables and interest payable, and in the analysed period there was an increase in the share of non-interest payables Other price risk An analysis of other market risks did not show concentration of risk that had or could have reached a significant level Credit risk Credit risk is the risk that a counterparty will default on its obligations, which will expose the Group to financial losses. Maximum exposure to credit risk: Financial assets and other credit risk Maximum credit risk Trade receivables 620, ,545 Loans granted The aging structure of trade receivables is presented in note 18 to the financial statements. Mitigation of credit risk Companies of the Group concluded insurance contracts covering approx. 95% of trade receivables. Therefore, credit risk is limited to receivables that have not been covered by insurance and to contractual limitation of the insurer s liability (deductibles). To further mitigate its insolvency risk, the Group enters into transactions only with counterparties of verified creditworthiness; if need be, collateral is established to reduce the risk of financial losses due to contractual breach. The Group s exposure to the risk of counterparty credit ratings is monitored on an ongoing basis, and the aggregated value of concluded transactions is shared between approved counterparties. The control of credit risk is facilitated by limits verified and approved on an ongoing basis by the Group s organisational units responsible for credit risk management. It should be stressed that risk is naturally mitigated by a considerable diversification of the Group s customer base. Trade receivables include amounts due from a large number of customers located in various geographical areas. Loans are systematically analysed on the basis of the status of receivables, and if need be, the Group requests additional collateral from its counterparties. The Group s customer base is dispersed and diversified, which translates directly into the level of credit risk. A vast majority of the Group s customers has less than 1% share in the sales. In the reporting period, there were no customers whose share would exceed 10% of the Group's sale revenues Liquidity risk Liquidity risk refers to exposure of the Group's companies to potential difficulties with meeting their financial obligations. Contractual maturity dates The following tables present information on contractual maturity dates for financial liabilities other than connected with derivatives. Weighted average interest rate 0-3 months 3 months to 1 year 1-5 years Over Adjustment Total % Non-interest bearing 698, ,052 Liabilities with variable interest rate 1.66% 178,086 47, ,000 30, , ,138 47, ,000 30,988 1,124,549 48

49 Weighted average interest rate 0-3 months 3 months to 1 year 1-5 years Over Adjustment Total % Non-interest bearing 572, ,834 Liabilities with variable interest rate 1.68% 145,925 12, ,510 29, , ,759 12, ,510 29, ,309 The Group manages liquidity risk by keeping an appropriate structure, amount and term of trade credit offered to customers, using bank services, ensuring a safe level of external financing and negotiating, on an ongoing basis, the amount of debt available to the Group under trade credit in order to mitigate liquidity risk. Responsibility for the management of liquidity risk rests with financial departments of the individual Group companies which handle ongoing management of the risk in order to ensure continuity of business. The Group has been using credit lines; the total amount of undrawn loans was TPLN 412,480 as at the balance sheet date. The Group is committed to meeting its obligations relating to operational cash flows at maturity. In addition, AB S.A. financed its operations using factoring transactions. The payment term for all derivative instruments of the Group is up to 3 months counting from Capital risk The Group manages its capital so as to ensure an adequate proportion of the equity involved and to optimise the leverage effect. The Group has been consistent in accumulating generated financial results in equity. The Group s capital structure comprises debt including loans disclosed in Note 24, capital held by the shareholders of the parent entity, including issued shares, reserve capital and retained profit, disclosed in Notes 20, 21, 22 and 23, respectively. Net debt to equity ratio The Management Board regularly reviews the capital structure. The latter is considerably affected by seasonality similarly to other entities active in the IT sector, the Group s companies experience seasonal changes in demand. The demand is usually highest in the last calendar quarter, when the sales may account for as much as 35% of the annual sales. Therefore, debt ratios are highest in the quarters ending on 30 September and 31 December. To minimise the impact of seasonality when assessing the capital structure, the Management Board analyses the average annual structure consisting of average amounts of capital in the four subsequent quarters. The review involves an analysis of the cost of capital and types of risk associated with each class of capital. The Group assumed the target net debt to equity ratio at the level of 50-70%. The annual average financial leverage ratio (at the end of the four consecutive quarters of the financial year): As at As at Average debt (i) 388, ,034-43,670 Average value of cash and cash equivalents -71,918 Average net debt 344, ,116 Average equity (ii) 561, ,605 49

50 Net debt to equity ratio 61% 45% Consolidated Financial Statements of the AB Group (i) (ii) Debt includes long-term and short-term debt excluding derivatives, off-balance sheet liabilities and financial guarantee contracts Equity comprises capital disclosed in the statement of financial position. 29. Transactions with related entities The direct and ultimate parent entity of the Group is AB Spółka Akcyjna with its registered office in Wrocław. There are no entities with material impact on the AB S.A. Group, neither are there any entities co-controlled by the Group. Transactions between the Company and its subsidiaries that are its related parties were eliminated as a result of consolidation and are not disclosed in these Statements. Remuneration for members of senior management In the financial year, remuneration of members of the Management Board and other members of senior management was as follows: Management Board of the parent entity Short-term payments 5,382 4,723 Post-employment payments Other long-term payments Share-based payments Supervisory Board of the parent entity ,566 4, Takeover of subsidiary companies In the period covered by the Statements, there were no takeovers of subsidiary companies. 31. Cash and cash equivalents For the purpose of the cash flow statement, cash and cash equivalents include cash and cash equivalents in hand and in bank accounts, as well as investments in financial market instruments including unsettled overdraft facilities. Cash and cash equivalents at the end of the financial year, disclosed in the cash flow statement, can be reconciled to balance sheet items in the following manner: Cash in hand and in bank accounts 26,800 95,115 26,800 95,115 50

51 32. Non-cash transactions and funding sources Consolidated Financial Statements of the AB Group Funding sources Secured short-term loans 1. amount drawn 135, , amount undrawn 412, , , , Contingent liabilities Contingent liabilities Factoring Guarantees granted 26,264 32,085 26,264 32,085 In order to secure its commercial contracts, the Group granted its counterparties bank guarantees for amounts as specified above. The above specification does not include guarantees for the benefit of subsidiary entities as detailed in Note Post-balance sheet events After the balance sheet date, there were no material events not disclosed in the Financial Statements. 35. Approval of the financial statements The financial statements were approved by the Management Board for publication on 19 September Date First and last name Position / function Signature PRESIDENT OF THE Andrzej Przybyło MANAGEMENT BOARD MEMBER OF THE MANAGEMENT Krzysztof Kucharski BOARD MEMBER OF THE MANAGEMENT Zbigniew Mądry BOARD MEMBER OF THE MANAGEMENT Grzegorz Ochędzan BOARD Danuta Uzarska CHIEF ACCOUNTANT 51