Report of the Board of Directors and Financial Statements 1.1.2008-31.12.2008
2 Solteq Financial statements 2008
contents 4 7 8 9 10 11 12 20 21 22 22 22 23 23 24 24 24 24 25 26 28 30 30 31 32 32 34 35 37 37 38 38 39 39 40 41 43 45 45 46 47 48 55 56 Report of the Board of Directors Consolidated income statement Consolidated balance sheet Consolidated statement of cash flows Consolidated statement of changes in equity Notes to consolidated financial statements Accounting policies for the consolidated financial statement 1 Segment information 2 Business combinations 3 Revenue and long-term projects 4 Other income 5 Other expenses 6 Depreciation, amortisation and impairment 7 Employee benefit expenses 8 Research and development costs 9 Financial income 10 Financial expenses 11 Income taxes 12 Earnings per share 13 Property, plant and equipment 14 Intangible assets 15 Available-for-sale financial assets 16 Deferred tax assets and liabilities 17 Trade and other receivables 18 Cash and cash equivalents 19 Notes to equity 20 Share-based payments 21 Interest-bearing liabilities 22 Trade and other payables 23 Financial risk management and capital management 24 Adjustments to cash flow from business operations 25 Other lease agreements 26 Contingent liabilities and collateral 27 Related party transactions 28 Events after the balance sheet date 29 Five year figures 30 Distribution of ownership and shareholder information Parent company s financial statements 2008 Parent company s income statement Parent company s balance sheet Parent company s cash flow statement Notes to the parent company s financial statements Proposal for distribution of profits Auditor s Report 3
Report of the Board of Directors BUSINESS ENVIRONMENT AND BUSINESS DEVELOPMENT Solteq is a strategic partner for trade and industry, whose core competency is IT solutions that are critical to business. Solteq combines its own product portfolio with the products from leading software companies in the world to deliver individual business development and ERP solutions for its customers. The information that is processed by means of these solutions is helping customers to lead their business more efficiently and to improve their profitability. Solteq Plc s operations are internally divided to five separate units. The result is monitored through two business segments. The segment Trade consists of Trade and Car Trade units. Industry and Services segment consists of Industry and Information Management units. Application Services is company s internal service unit. OOO Solteq Russia acts as a separate subsidiary that serves with the support of the parent company s organization Solteq s customers operating in Russia. REVENUE AND RESULT Revenue increased by 8,8 per cent compared to the previous year and amounted to 30.383 thousand euros (27.926 thousand euros in previous financial period). Revenue consists of several individual customerships. At the most, one client corresponds to less than five percentages of the total revenue. Operating profit for the financial year totalled 1.460 thousand euros (1.304 thousand euros), result before taxes 1.136 thousand euros (1.090 thousand euros) and profit for the period 867 thousand euros (1.118 thousand euros). The contractual increase in personnel costs during the financial year could not be transferred to customer fees completely by the end of the financial year. Thus, the increase in the operating result did not correspond directly with the increase in turnover. Although the result before taxes for the financial year was at the same level as a year before, the profit for the period decreased from the previous year. This is due to tax benefits from intra-group reorganisations recognised in previous year. BALANCE SHEET AND FINANCING The total assets amounted to 22.033 thousand euros (22.046 thousand euros). Cash and cash equivalents amounted to 695 thousand euros (345 thousand euros). The company s interest-bearing liabilities were 6.316 thousand euros (7.052 thousand euros). As a consequence of the company s overall loan portfolio rearrangement an amount of 3.500 thousand euros has been transferred in accordance with the terms of the loan contract from current interest-bearing loans to non-current interest-bearing loans. The company s equity ratio was 43,6 % (44,1%). CAPITAL EXPENDITURE, RESEARCH AND DEVELOPMENT Gross capital expenditure during the financial year, not including assets acquired under financial lease agreement, were 920 thousand euros (1.833 thousand euros). The gross capital expenditure include additional purchase price due to acquisition of Fulmentum Oy totalling 200 thousand euros. 4 Solteq Financial statements 2008
Research and development Solteq s research and development costs consist mainly of personnel costs. When developing basic products, it is Solteq s strategy to cooperate with global actors such as SAP, Wincor-Nixdorf and Microsoft and utilize their resources and distribution channels. Own development efforts are focused on added value products and developing tailored service concepts. During the financial period development costs have been capitalized in the amount of 587 thousand euros (129 thousand euros) in accordance with IFRS. Due to their nature, most costs relating to development work are expensed annually. Capitalised costs relate to two development projects. Amortisation according to plan will start when the projects will be taken into commercial use. PERSONNEL Solteq s number of permanent employees at the end of the financial period was 268 (259). The average number of personnel during the financial period was 266 (252). At the end of the financial period the number of personnel per segment was as follows: Trade 126, Industry and Services 111 and shared functions 31. RELATED PARTY TRANSACTIONS The company has related party relationships with members of the Board of Directors, the managing director and the management group of the company. There have not been any significant changes in the company s related party transactions after the issuance of the financial statements for the year 2007. SHARES, SHAREHOLDERS AND OWN SHARES Solteq Plc s shareholder s equity at 31.12.2008 was 1.009.154,17 euros which was represented by 12.148.429 shares. The shares have no nominal value. At the end of the financial year, the amount of own shares in Solteq Plc s possession was 188.600 shares. The amount of own shares represented 1,55 % from total amount of shares and votes in the end of the financial year. The accountable par of acquired shares was 15.667 euros. Exchange and price During the financial year, the exchange of Solteq s shares at the Helsinki Stock Exchange was 1,0 million shares (2,7 million shares) and 1,5 million euros (4,3 million euros). The highest price during the financial year was 1,77 euros and the lowest price was 1,16 euros. The weighted average price of the share was 1,44 euros and closing price at the last business day of the year was 1,16 euros. The market value of the company s shares at the end of the financial year totalled 14,1 million euros (21,1 million euros). Ownership At the end of the financial period, Solteq had a total of 2.003 shareholders (2.117 shareholders). Solteq s 10 largest shareholders owned 8.101 thousand shares i.e. they owned 66,7 per cent of the company s shares and votes. Solteq Plc s members of the board owned a total of 5.189 thousand shares which equals 42,7 per cent of the company s shares and votes. ANNUAL GENERAL MEETING Solteq Plc s annual general meeting at 28.3.2008 adopted the financial statements for 2007 and the members of the board and the managing director were discharged from liability for the financial year. 5
The annual general meeting decided, in accordance with the board s proposal to share dividend in the amount of 0,06 euros per share. The reconciliation date for the dividend was 2.4.2008 and dividend payments were made 9.4.2008. The annual general meeting decided to authorise the board of directors to decide on acquiring the company s own shares so that the amount in the possession of the company does not exceed 10 percent of the company s total shares at that moment. The shares can be acquired in order to develop the company s capital structure, finance and execute acquisitions or similar arrangements or used as part of incentive schemes for the personnel or convey otherwise or be voided. The shares can be acquired in other proportion than the shareholders holdings. The shares are to be acquired through public trading and at market price. The Company s unrestricted shareholders equity is to be used for the acquisitions. The authorization is valid until the next annual general meeting. BOARD OF DIRECTORS AND AUDITORS Six members were elected to the board of directors. Seppo Aalto, Ari Heiniö, Veli-Pekka Jokiniva, Ali Saadetdin and Jukka Sonninen continued as members of the board. Markku Pietilä began as a new member of the board. The board elected Ali Saadetdin to act as the chairman of the board. Of the members of the board, Seppo Aalto has not been able to participate in the board of directors duties due to sick leave. His sick leave will continue until further notice. KPMG Oy Ab, Authorised Public Accountants, were re-elected as Solteq s auditors. Frans Kärki, APA, acts as the lead partner. EVENTS AFTER THE REVIEW PERIOD After the balance sheet date, Solteq Plc has issued a stock exchange bulleting dated 5.1.2009 regarding the beginning of co-operation negotiations. RISKS AND UNCERTAINTIES Most significant uncertainties and risks in the near future relate to the timing and pricing of business deals that are the basis for the revenue, changes in the level of costs and the company s ability to manage extensive contract agreements and deliveries. These significant risks and uncertainties relating to the company s business operations are monitored regularly as a part of the board and management group work. The company does not have a separate internal audit organization or committee. PROSPECTS In the interim review 8.8.2007 Solteq Plc set a long-term objective for the years 2008-2010 that is to achieve an average of 10 % yearly organic growth of revenue. Additional growth is searched through targeted acquisitions. The company is aiming for an annual operating profit of 10 % of the revenue in the same period. The board will decide upon more specific objectives for the year 2009 in its February meeting. PROPOSAL OF THE BOARD FOR DISTRIBUTION OF DIVIDEND At the end of the financial period 2008, the distributable equity of the group s parent company is 9.047.660,34 euros. The Board of Directors proposes to the annual general meeting a dividend of 0,04 euros per share, excluding own shares, for the financial period 2008 (2007: 0,06 euros/share). 6 Solteq Financial statements 2008
Consolidated income statement thousand EUR Note 1.1.-31.12. 2008 1.1.-31.12. 2007 Revenue 1,3 30 383 27 926 Other income 4 44 69 Materials and services -7 744-6 398 Employee benefit expenses 7-15 583-14 356 Depreciation and amortisation expenses 6-718 -742 Other expenses 5,8-4 922-5 195 Operating profit 1 460 1 304 Financial income 9 16 15 Financial expenses 10-340 -229 Profit before taxes 1 136 1 090 Income tax expense 11-269 28 Profit for the financial period 867 1 118 Earnings per share attributable to equity holders of the parent Earnings per share, undiluted, continuing operations (EUR) 12 0,07 0,09 Diluted result does not differ from the undiluted result for the financial year or the previous year. 7
Consolidated balance sheet thousand EUR Note 1.1.-31.12. 2008 1.1.-31.12. 2007 ASSETS Non-current assets Property, plant and equipment 13 2 707 2 743 Goodwill 14 8 286 8 086 Other intangible assets 14 2 417 2 069 Available-for-sale financial assets 15 93 117 Deferred tax assets 16 268 661 13 771 13 676 Current assets Trade and other receivables 17 7 567 8 025 Cash and cash equivalents 18 695 345 8 262 8 370 Total assets 22 033 22 046 EQUITY AND LIABILITIES Equity attributable to equity holders of the parent Share capital 19 1 009 1 002 Share issue 19 0 64 Share premium reserve 19 75 18 Reserve for own shares 19-255 0 Distributable equity reserve 19 7 213 7 213 Retained earnings 19 1 560 1 422 Total equity 9 602 9 719 Non-current liabilities Interest-bearing liabilities 21 3 663 163 3 663 163 Current liabilities Trade and other payables 22 6 115 5 275 Short-term interest bearing liabilities 21 2 653 6 889 8 768 12 164 Total liabilities 12 431 12 327 Total equity and liabilities 22 033 22 046 8 Solteq Financial statements 2008
Consolidated statement of cash flows thousand EUR note 1.1.-31.12. 2008 1.1.-31.12. 2007 Cash flow from operating activities Operating profit 1 460 1 304 Adjustments for operating profit 24 718 742 Changes in working capital 966-2 229 Interest paid -340-227 Interest received 16 15 Paid taxes 124-61 Net cash from operating activities 2 944-456 Cash flows from investing activities Acquisition of subsidiaries -200-3 904 Investments in tangible and intangible assets -675-243 Sale of tangible and intangible assets 0 551 Proceeds from sales of securities 0 121 Net cash used in investing activities -875-3 475 Cash flow from financing activities Withdrawal of non-current loans 5 000 0 Repayment of non-current loans -500 0 Withdrawal of current loans 0 3 293 Repayment of current loans -5 236 0 Income from issued shares 0 82 Acquisition of treasury shares -255 0 Dividend distribution -728 0 Return of equity paid 0-1 204 Net cash used in financing activities -1 720 2 171 Changes in cash and cash equivalents 350-1 760 Cash and cash equivalents 1.1. 345 2 105 Cash and cash equivalents 31.12. 18 695 345 Cash and cash equivalents presented in the cash flow statement consist of the following items: thousand EUR 2008 2007 Cash and bank accounts 695 345 Total 695 345 9
Consolidated statement of changes in equity thousand EUR Share issue Share capital Reserve for own shares Share premium reserve Shareholders equity reserve Distributable equity reserve Retained earnings Total Equity 1.1.2007 994 0 0 2 164 5 962 298 296 9 714 Awarded options 7 7 Profit for the financial period 1 118 1 118 Total recognised income and expense 1 125 1 125 Return of equity -1 204-1 204 Transfers between reserves / share issue without payment 6-2 164-5 962 8 120 0 Subscription issue 2 64 18 84 Equity 31.12.2007 1 002 64 0 18 0 7 213 1 422 9 719 Profit for the financial period 867 867 Total recognised income and expense 867 867 Own shares acquired -255-255 Dividend distribution -728-728 Subscription issue 7-64 57 0 Equity 31.12.2008 1 009 0-255 75 0 7 213 1 560 9 602 10 Solteq Financial statements 2008
Notes to consolidated financial statements Group information Solteq group is an IT solutions and service provider to domestic companies in the trade and industry sectors. It has specialist know-how in the fields of chained trade, retail and wholesale trade, car trade and selected industry segments IT systems and related services. The group operates mainly in Finland. In Russia operates a fully-owned subsidiary OOO Solteq Russia, which has its domicile in St. Petersburg. The group s parent company is Solteq Plc. The parent company is a Finnish publicly limited company, domiciled in Tampere and its registered address is Eteläpuisto 2 C, FI-33200 TAMPERE, Finland. A copy of the consolidated financial statements is available from the aforementioned address as well as the company s website at www.solteq.com/annual-reports. In its meeting 27.1.2009, the Board of Directors of Solteq Plc has approved these financial statements to be published. According to the Finnish Companies act, the shareholders may adopt or reject the financial statements in the annual general meeting held after the publication. The annual general meeting also has the option to make changes in the financial statements. Accounting policies Basis of preparation Solteq Group s consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) complying with the IAS and IFRS standards as well as the SIC and IFRIC interpretations valid as at 31.12.2008. International Financial Reporting Standards mean the standards and their interpretations that have been approved for adoption in the EU in accordance with the procedure No. 1606/2002 enacted in the Finnish Accounting Act and EU (EC) regulations laid down by the Act. The notes to the consolidated financial statements are also in accordance with the requirements of the Finnish Accounting and Companies Acts. The consolidated financial statements have been prepared on historical cost convention basis, with the exception of available-for-sale financial assets which are measured at fair value. Financial statement information is presented in thousands of euros. The group has adopted following new and revised standards, amendments and interpretations effective from 1.1.2008: IFRIC 11 IFRS 2 Group and Treasury Share Transactions. Interpretation clarifies the scope of application of those standards which relate to equity-settled transactions (IFRS 2) and require such transactions to be re-estimated in subsidiaries. This interpretation did not have an effect on the consolidated financial statements. IFRIC 12 Service Concession Arrangements. The group did not have agreements with the public sector as set out in the interpretation during the financial period now ended or prior periods. IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. The group does not have defined benefit plans as set out in the interpretation. 11
The preparation of the financial statement in accordance with the IFRS standards requires the group management to make certain estimates and assumptions that affect the application of accounting policies. Information of these considerations that the management has used in applying accounting policies and which have the most effect in the figures shown in the financial statement, have been presented in the section Accounting policies requiring management judgement and significant uncertainties relating to accounting estimates. Accounting policies for the consolidated financial statement Subsidiaries The consolidated financial statements include Solteq Plc and its subsidiaries. The consolidated financial statements for year 2007 include Fulmentum Oy starting from 1.5.2007 and Solorus Holding Oy starting from 1.1.2007. As a consequence of intra-group rearrangements, Artekus Oy merged to the parent company on 1.10.2007 and Tampereen Systeemitiimi and Fulmentum Oy merged to the parent company on 31.12.2007. Starting from 1.5.2008, OOO Solteq Russia has been consolidated in the consolidated financial statements. The aforementioned subsidiaries are companies where the group holds the right of control. Right of control is assumed when the group owns more than half of the votes or it otherwise has the right of control. Right of control is defined as the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The group s mutual shareholdings have been eliminated using the acquisition method. Companies acquired are included in the consolidated financial statements from the date when the group has acquired right of control and subsidiaries sold until the date when the right of control seizes. All intra-group business transactions, receivables, debts and unrealised profits as well as internal distribution of profit are eliminated in the preparation of the consolidated financial statements. Unrealised losses are not eliminated in the event that they are caused by impairment. Foreign currency items Figures on the result and the financial position of the Group s entities are measured in the currency of the primary economic environment in which the entity operates ( functional currency ). The consolidated financial statements are presented in euros, which is the parent company s functional and presentation currency. Transactions in foreign currencies are translated to the presentation currency at the monthly average rate close to the date of the transaction. At the time of closing the annual accounts, receivables and debts in foreign currencies have been converted to functional currency at the exchange rate of that date. Any exchange rate gain or loss from transactions in foreign currencies has been recognised in the financial statements under financial income and expense. 12 Solteq Financial statements 2008
Property, plant and equipment Property, plant and equipment consist mainly of buildings, machines and equipment. They are measured at historical cost less accumulated depreciation and possible impairment losses. Shares in real estate companies have been presented in the balance sheet as buildings and land. Costs from building maintenance have been expensed over the financial period, which is why no depreciation has been recognised for buildings and land. Depreciation is calculated on a straight-line basis over their estimated useful life. The estimated useful lives are as follows: Machinery and equipment Other tangible assets 3-5 years consists of works of art which are not depreciated The residual values and useful lives are reviewed at each reporting date and, when necessary, are corrected to reflect any possible changes in expected future economic benefit. Gains and losses from disposal and divestment of tangible assets are recognised under other income or expenses. Intangible assets An intangible asset is recognised in the balance sheet only if the asset s acquisition cost can be reliably measured and if it is probable that future economic benefits will flow to the entity. Intangible assets with a finite useful life are recognised in the balance sheet at historical cost and are amortised on a straight-line basis during their useful life. Estimated amortisation periods are as follows: Development costs Intangible rights Other intangible assets 5-10 years 3-5 years 3-10 years Goodwill Goodwill is the part of the acquisition cost that exceeds the group s share in the acquired company s net assets fair value at the time of acquisition which has taken place after 1.1.2004. Acquisitions prior to the IFRS transition date have in accordance with IFRS 1 not been restated but the balance sheet values according to the previous accounting standards are taken as the deemed cost. The classification of these acquisitions or their accounting treatment has not been adjusted in the group s opening IFRS balance sheet. Goodwill is not amortised but is tested annually for impairment. For this purpose the goodwill is allocated to cash-generating units. The goodwill is valued at the original acquisition cost less impairment losses. Research and development costs Research costs are recognised as expenses in the income statement. Development cost for new or substantially improved product or service processes are capitalised in the balance sheet as intangible assets from 13
the date when the product is technically and commercially feasible and it is expected to bring financial benefit. Development costs previously expensed will not be capitalised at a later date. Assets are amortised from the date when they are ready for use. Assets that are not yet ready for use are tested annually for impairment. Development expenses that have been capitalised have a useful life of 5 to 10 years, during which capitalised assets are expensed on a straight-line basis. Government grants Government grants, such as grants from public institutions for acquisition of intangible assets, are deducted from the carrying amount of the asset when it is reasonably certain that they will be received and the group fulfils the requirements to receive such grants. Grants are recognized in the form of lower depreciation expense during the useful life of the asset. Grants that compensate for expenses incurred are recognized in the income statement when the expenses are recognized. These grants are presented in other income. Leases Group as a lessee Lease contracts for tangible assets for which the group have a significant part of the risks and rewards incidental to ownership, are classed as financial leases. At the inception of the lease term, a finance lease is recognised on the balance sheet at amounts equal to the fair value of the leased asset or, if lower, the present value of the minimum lease payment. Assets acquired by a finance lease are depreciated during the asset s useful life or, if shorter, the lease term. Lease payments are apportioned between financial expenses and loan repayments during the rental period so that the remaining debt at the end of a financial period has a constant periodic interest rate. Lease commitments are included in interest bearing liabilities. Lease agreements where the risks and rewards incidental to ownership remain with the lessor, are classified as other lease agreements. Lease payments under other lease agreements are recognised as expense in the income statement in equal amounts throughout the lease term. Impairment of tangible and intangible assets The group estimates at the end of each financial period whether or not there is any indication of impairment on any asset. In the event of any such indication, the recoverable amount of the asset is estimated. Recoverable amounts are also estimated annually on the following asset groups regardless of whether or not there is any indication of impairment: goodwill and intangible assets not yet available for use. Need for impairment is monitored at the cash-generating unit level, that is, at the level of units that are independent from other units and whose cash flows can be separated from other cash flows. Recoverable amount is the greater of the asset s fair value less selling costs or its value in use. Value in use is defined as the present value of the future cash flows expected to be derived from an asset or a cash generating unit. In the calculation of present value, discounting percentage is pre-tax rate which reflects the market s view of time value of money and asset-specific risks. Impairment loss is recognised when the asset s carrying amount is higher than its recoverable amount. Impairment loss is immediately recognised in the income statement. If the impairment loss is allocated to a cash-generating unit, it is first allocated to decrease the carrying amount of any goodwill al- 14 Solteq Financial statements 2008
located to the cash-generating unit and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. Impairment loss is reversed, if circumstances change and the asset s recoverable value has changed from the time of the recognition of the impairment loss. Reversal amount cannot, however, be higher than the asset s book value would be without the recognition of the impairment loss. Impairment loss on goodwill is not reversed under any circumstances. Employee benefits Pension liabilities Pension arrangements are classed as defined benefit plans and defined contribution plans. The group has only defined contribution plans. Payments under the Finnish pension system and other contribution based pension schemes are recognised as expenses as incurred. Share based payments The group has applied IFRS 2 - Share based payments - standard to all its option arrangements, where the options had been issued after 7.11.2002 and which had not vested prior to 1.1.2005. Option arrangements prior to this date have not been recognised as expense in the income statement. Option rights are valued at fair value at the time of their issue and are recognised as expense in the income statement in equal amounts during the vesting period. Costs defined at the time of issue of the options are based on the group s estimate of the number of options which are expected to mature at the end of the vesting period. The valuation of the option rights is calculated using the Black-Scholes model. Effects of non-market based conditions are not included in the valuation of the options, but they are considered in the number of options that are expected to mature at the end of the vesting period. Group will update its assumption of the final number of options at the end of each financial period. Any such amendments are recognised in the income statement. When option rights are used, transactions made based on share subscription are recognised in accordance with the option terms in share capital and share premium reserve. Provisions and contingent liabilities Provision is recognised when the group has a present legal or constructive obligation as a result of a past event, realisation of the payment obligation is probable and the amount of the obligation can be reliably estimated. Provisions are valued at the present value required to cover the obligation. Present values are determined by discounting the expected future cash flows at a pre-tax rate that reflects the market s view of that moment s time value and risks associated with the obligation. If part of the obligation is possible to be covered by a third party, the obligation is recognised as a separate asset, but only once this coverage is virtually certain. Provisions are recognised for loss-making contracts, when the expenses necessary for fulfilling the obligations exceed the benefits receivable from that contract. Contingent liability is a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the group. Also present obligation that is not probable to cause liability to pay or the amount of obligation can not be measured with sufficient reliability are considered contingent liabilities. Contingent liabilities are disclosed as notes to the financial statements. 15
Income taxes Tax expenses for the financial period comprise current tax based on the taxable income of the financial period and deferred taxes. Tax calculated from the taxable income of the financial period is based on the tax rate prevailing in each country. Taxes are adjusted with possible taxes relating to previous financial periods. Deferred taxes are calculated from temporary differences between book value and taxable value. Most significant temporary differences are due to carryforward of unused tax losses and goodwill tax amortisation. Deferred taxes are not recognised on temporary differences arising from goodwill impairment losses that are not tax deductible. Deferred taxes are neither recognised on undistributed profit from subsidiaries when the differences are unlikely to reverse in the foreseeable future. Deferred taxes are calculated using the tax rates enacted at the end of the financial period. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available, against which the temporary differences can be utilised. Revenue recognition Income from the sale of goods, software licences and hardware is recognised at fair value excluding indirect taxes, discounts and exchange rate differences from sales in currencies. Services rendered and sale of software licences and hardware Income from services is recognised when the service has been rendered. Maintenance income is recognized over the agreement period. In order to recognise revenue from sales of software licences and hardware, there must be a binding agreement, delivery of product or equipment has taken place, the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the entity and the group has transferred to the buyer the significant risks and rewards of ownership of the software licence or hardware. Software licences with right of return or conditions relating to start-up project are recognized when the right of return has expired or conditions have been fulfilled. Long-term projects When the outcome of the project can be estimated reliably, income and expenses for long-term projects are recognised as income and expenses based on the stage of completion. Stage of completion is defined by comparing the costs incurred for work performed at the reporting date to the estimated total cost of the project. When it is likely that a project s completion costs are going to exceed the income from the project, the expected loss is immediately recognised in income statement. When the final result of a long-term project cannot be reliably estimated, costs incurred are recognised as expense during the period when incurred. Revenue from the project is recognised only to the extent of contract costs incurred and when it is probable that it will be recoverable. Losses from the project will immediately be recognised as cost in income statement. 16 Solteq Financial statements 2008
Other income Other income comprise gains from assets and income not relating to actual sales, such as rental income and government grants. Government grants are recognised in the income statement at the same time with those expenses that the government grants were intended to cover. Interest income and dividends Interest income is recognised using the effective interest method and dividends at the time the right for the dividend has been earned. Operating profit IAS 1 Presentation of financial statements standard does not define operating profit. The group has defined it as follows: operating profit is the net sum that is calculated by adding other income to the revenue, deduct material and services, employee benefit expense, depreciation and amortisation expense, possible impairment losses and other expenses. Everything else, except the aforementioned items, is presented below the operating profit. Financial assets and liabilities Financial assets The group has classified its financial assets to the following classes: loans and receivables and available-forsale financial assets. The classification is based on the purpose of purchasing financial assets and the classification is made at the time of the initial purchase. Transaction costs are included in the financial asset value at initial measurement. All purchases and sales of financial assets are recognised on the trade date. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire or the group has transferred substantially all the risks and rewards of ownership outside the group. Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market and the group is not holding them for trading. They are valued at amortised cost. They are classified in the balance sheet under current assets due to their nature. Available-for-sale financial assets are assets that are not designated to other categories. They are classified in non-current assets. Available-for-sale financial assets consist of shares. They are recognised at fair value or, if fair value can not be measured reliably, at cost. Cash and cash equivalents Cash and cash equivalents consist of cash and bank deposits that can be withdrawn on demand. Account with overdraft facility is included in current financial liabilities. Unused overdraft facility in the amount of 1,7 M, has not been recognised in the balance sheet 17
Impairment of financial assets The group assesses at the end of the financial period whether there is any objective evidence that a financial asset or group of financial assets is impaired. If any such evidence exists, the loss is recognised in the income statement. Based on a risk estimate, an impairment loss for non-recoverable trade receivables is recognised in the income statement. Financial liabilities Financial liabilities are initially recognised at fair value. Transaction costs are included in the financial liability value at the initial measurement. Later all financial liabilities are valued at amortised cost using the effective interest method. Financial liabilities are classified under non-current and current liabilities which can be either interest-bearing or interest-free. Borrowing costs Borrowing costs are recognised as an expense in the period in which they incur. Transaction costs directly attributable to acquisition of loans which clearly relate to a certain loan are included in the original amortised cost of the loan and are expensed using effective interest method. Equity Costs relating to the acquisition of own shares are deducted from the equity. If Solteq Plc acquires its own shares, the acquisition costs are deducted from the equity. Accounting policies requiring management judgement and significant uncertainties relating to accounting estimates In preparation of the consolidated financial statements, estimates and assumptions regarding the future must be made. The end results may deviate from these assumptions and estimates. In addition, some judgement must be exercised in the application of the policies of the financial statements. Management judgement regarding selection and application of accounting policies The group management uses judgement regarding selection and application of accounting policies. This applies especially to those cases where the IFRS standards and interpretations in effect have recognition, measurement and presentation alternatives. Uncertainties relating to accounting estimates Accounting estimates in preparation of the financial statements are based on management s best estimate at the end of the financial period. These estimates and assumptions are based on experience and other reasonable assumptions, which are believed to be appropriate in the circumstances that form the basis on which the consolidated financial statements are prepared. Uncertainties relate to the outcome of projects, recoverability of trade receivable and changes in economic environment when the overall economic situation is uncertain. Possible changes in estimates and assumptions are recognised in accounting during the financial year when the estimate or assumption is revised, and all the periods after that. 18 Solteq Financial statements 2008
Impairment test The group carries out annual tests for the possible impairment of goodwill and intangible assets not yet available for use, and indications of impairment are evaluated in accordance with the principles described earlier in these financial statement. Recoverable amount of cash-generating units is defined with calculations based on value in use. These calculations require the use of estimates. Additional information about sensitivity analyses regarding changes in assumptions relating to recoverable amount are disclosed under note 14 Intangible assets. Adoption of new and amended standards and interpretations IASB has published the following new or amended standards and interpretations which are not yet effective and which the group has not yet applied. The group will introduce each standard and interpretation starting from the date they become effective or, if the effective date is other than the first date of the financial period, from the beginning of the next financial year: IFRS 1 First-time Adoption of International Financial Reporting and IAS 27 Consolidated and Separate Financial Statements amendment to the standards. Become effective in the financial period starting from 1.1.2009. IFRS 2 Share-based Payments Vesting Conditions and Cancellations amendment to the standard. Becomes effective in the financial period starting from 1.1.2009. IFRS 3 Business Combinations and IAS 27 Consolidated and Separate Financial Statements amendment to the standards (becomes effective after 2009). Becomes effective in the financial period starting from 1.1.20010. IFRS 8 Operating Segments new standard. Becomes effective in the financial period starting from 1.1.2009. IAS 1 Presentation of Financial Statements amendment to the standard. Becomes effective in the financial period starting from 1.1.2009. IAS 23 Borrowing costs amendment to the standard. Becomes effective in the financial period starting from 1.1.2009. IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements Financial Puttable Instruments and Obligations Arising on Liquidation. Borrowing costs amendment to the standards. Becomes effective in the financial period starting from 1.1.2009. IAS 39 Financial instruments: Recognition and Measurement Eligible hedged items. Becomes effective in the financial period starting from 1.1.20010. IFRIC 13 Customer Loyalty Programs new interpretation. Becomes effective in the financial period starting from 1.1.2009. IFRIC 15 Agreements for the Construction of Real Estate new interpretation. Becomes effective in the financial period starting from 1.1.2009. IFRIC 16 Hedges of a Net Investment in a Foreign Operations new interpretation. Becomes effective in the financial period starting from 1.1.2009. IAS 1 will affect the presentation of the financial statements and IFRS 8 will affect the notes to the financial statements. Other changes are not estimated to have significant effect on the consolidated financial statements. 19
1 Segment information Segment information is presented based on group s business segments. Geographical segment information is not disclosed as the group s main business operations are in group s home country which is one geographical segment. Business segments are based mainly on the group s internal organisational structure and internal financial reporting. Business segments consist of assets and business operations, whose products or services bear risks and profitability that deviate from the other business segments. Business segments The group s business segments are: Trade: all trade customers Industry and services: industry customers 2008, thousand EUR Business segment Retail and wholesale trade Industry and services Total Revenue 19 766 10 617 30 383 Operating result 1 581-121 1 460 Interests and taxes -385-208 -593 Result for the financial period 1 196-329 867 Segment s assets 9 768 12 265 22 033 Total assets 9 768 12 265 22 033 Segment s liabilities 7 459 4 972 12 431 Total liabilities 7 459 4 972 12 431 Investments 80 840 920 Depreciation 467 251 718 2007, thousand EUR Business segment Retail and wholesale trade Industry and services Total Revenue 18 517 9 409 27 926 Operating result 970 334 1 304 Interests and taxes -123-63 -186 Result for the financial period 847 271 1 118 Segment s assets 10 323 11 723 22 046 Total assets 10 323 11 723 22 046 Segment s liabilities 7 396 4 931 12 327 Total liabilities 7 396 4 931 12 327 Capital expenditure 102 1 731 1 833 Depreciation 490 252 742 20 Solteq Financial statements 2008
2 Business combinations No new business combinations took place during financial year 2008. OOO Solteq Russia was established in April 2008. Solteq acquired on 13.3.2007 all the shares of Fulmentum Oy which is specialized in global master data harmonizing and maintenance projects. Fulmentum Oy has been consolidated in the financial statements starting from 1.5.2007. The basic purchase price was 1.500 thousand euros and it has been paid in cash according to the purchase agreement. The additional price, that is 1.400 thousand euros at the maximum, consists of the possible financial benefit received from the ongoing and future projects of Fulmentum at the time of acquisition in the forthcoming three years. The acquisition price exceeding Fulmentum Oy s equity at the time of the acquisition has been allocated as goodwill totalling 1.422 thousand euros. The goodwill consists of future income expectations that relate to cross-utilizing customers, knowledgeable personnel and complementing product knowledge. In January 2008, additional purchase price in the amount of 200 thousand euros was paid. Additional purchase price is goodwill. Payment of the rest of the additional purchase price is not considered to be likely. Following assets and liabilities were recorded during financial year 2007 related to the acquisitions: thousand EUR Fair values used in the combination Book values before the combination Intangible assets 37 37 Tangible assets 4 4 Invesments 40 40 Receivables 106 106 Cash and cash equivalents 179 179 Total assets 366 366 Deferred tax liabilities 0 0 Current liabilities 265 265 Total liabilities 265 265 Net assets 101 101 Acquisition cost 1 524 Goodwill 1 422 Acquisition price paid in cash 1 500 Cash in acquired companies -179 Cash flow effect 1 321 If Fulmentum Oy had been consolidated from the beginning of the financial year 2007, the group s revenue had been 28.082 thousand euros and profit 992 thousand euros in financial year 2007. 21
3 Revenue and long-term projects Revenue thousand EUR 2008 2007 Services 18 590 17 656 Sales of software licences 7 788 6 783 Sales of hardware 4 005 3 487 Total 30 383 27 926 Revenue from long-term projects totalled 2.220 thousand euros in 2008 (914 thousand euros in 2007). The consolidated income statement includes income from long-term projects in process totalled 1.868 thousand euros as at 31.12.2008 (598 thousand euros as at 31.12.2007). Receivable from long-term projects in process were included in prepayments and accrued income in the amount of 288 thousand euros as at 31.12.2008 (156 thousand euros as at 31.12.2007). 4 Other income thousand EUR 2008 2007 Gain from sale of tangible assets 0 30 Other income 44 39 Total 44 69 5 Other expenses thousand EUR 2008 2007 Expenses from telephone and telecommunications 451 453 Rental expenses 1 115 1 149 Car and travel expenses 1 436 1 404 External services 551 423 Other expenses 1 369 1 766 Total 4 922 5 195 External services include audit fees 35 thousand euros (37 thousand euros in 2007) and other services 17 thousand euros (26 thousand euros 2007) to the company s audit firm. 22 Solteq Financial statements 2008
6 Depreciation, amortisation and impairment thousand EUR 2008 2007 Depreciation and amortisation by asset group Intangible assets Development costs 118 118 Intangible rights 123 156 Other intangible assets 20 22 Total 261 296 Tangible assets Machines and equipment 457 446 Total 457 446 7 Employee benefit expenses thousand EUR 2008 2007 Wages 12 528 11 518 Pension expenses - defined contribution plans 2 128 2 014 Other personnel expenses 927 824 Total 15 583 14 356 Average number of employees in group during financial period Trade 133 126 Industry and services 109 97 Shared functions 24 29 Total 266 252 Employees as at 31.12. 268 259 Information on the management remuneration is disclosed in note 27 Related party transactions. Information on awarded options is disclosed in note 20 Share-based payments. 23
8 Research and development costs Income statement for 2008 includes research and development costs in the amount of 777 thousand euros (645 thousand euros in 2007), mainly comprising wages. 9 Financial income thousand EUR 2008 2007 Interest income from loans and receivables 13 14 Dividend income from held-for-sale financial assets 3 0 Other financial income 0 1 Total 16 15 10 Financial expenses thousand EUR 2008 2007 Interest expenses from financial liablities at amortized cost 269 188 Other financial expenses 71 41 Total 340 229 Other financial expenses include 4 thousand euros of variable rents relating to financial leasing contracts (1 thousand euros in 2007). 11 Income taxes thousand EUR 2008 2007 Taxes based on the taxable income of the financial period 0-104 Deferred taxes 269 76 Total 269-28 24 Solteq Financial statements 2008
Reconciliation between income statement s tax expenses and taxes based on the group s domestic tax rate (2008 and 2007: 26 %): thousand EUR 2008 2007 Result before taxation 1 136 1 090 Taxes based on domestix tax rate 295 283 Non-deductible expenses 36 7 Liquidation loss 0-309 Previously unrecognized losses in taxation -73 0 Other differences 10-10 Taxes in the income statement 269-28 12 Earnings per share Undiluted EPS is calculated by dividing the profit attributable to equity holders of the parent by the weighted average number of shares outstanding. EPS corrected by dilution calculated by using the weighted average number of shares takes into account all potentially diluting stock shares transformed into ordinary shares thus creating a diluting effect. Share options are instruments that increase the number of diluting stock shares in the group. Share options have a diluting effect when the issue price of the option is lower than the share s actual value. The number of shares causing the diluting effect is that which needs to be released without compensation, because the income from the use of options does not enable the group to release the same amount of shares at the fair value. The share s fair value is based on the average price of the shares over the financial period. 2008 2007 Profit for the financial period attributable to equity holders of the parent (thousand EUR), continuing operations 867 1 118 Weighted average of the number of shares during the financial period (1000) 12 013 12 052 Undiluted EPS EUR (per share), continuing operations 0,07 0,09 Dilutive effect has no influence on earnings per share (EPS). 25
13 Property, plant and equipment thousand EUR Land Buildings Machinery and equipment Other tangible assets Total Acqusition cost 1.1.2008 160 1 860 2 462 21 4 503 Additions 0 0 445 0 445 Deductions 0-24 0 0-24 Acquisition cost 31.12.2008 160 1 836 2 907 21 4 924 Accumulated depreciation and 0 0 1 760 0 1 760 impairment 1.1.2008 Depreciation 0 0 457 0 457 Accumulated depreciation and impairment 31.12.2008 0 0 2 217 0 2 217 Book value 1.1.2008 160 1 860 702 21 2 743 Book value 31.12.2008 160 1 836 690 21 2 707 Acqusition cost 1.1.2007 173 2 030 2 107 23 4 333 Additions 0 0 389 0 389 Acquisition of subsidiaries 0 0 4 0 4 Deductions -13-170 -38-2 -223 Acquisition cost 31.12.2007 160 1 860 2 462 21 4 503 Accumulated depreciation and 0 0 1 314 0 1 314 impairment 1.1.2007 Depreciation 0 0 446 0 446 Accumulated depreciation and impairment 31.12.2007 0 0 1 760 0 1 760 Book value 1.1.2007 173 2 030 793 23 3 019 Book value 31.12.2007 160 1 860 702 21 2 743 EUR 574 thousand remained to be depreciated of the group s machinery and equipment on 31.12.2008 (EUR 525 thousand on 31.12.2007). 26 Solteq Financial statements 2008