Computerland Group SA
Consolidated quarterly financial statements as at 31 December 2005
All data is presented in thousands of PLN unless stated otherwise
COMPUTERLAND S.A.
ABRIDGEDCONSOLIDATED SIX-MONTHLY FINANCIAL STATEMENTSFOR THE THREE-MONTH PERIODS ENDED 31 DECEMBER 2005 AND 31 DECEMBER 2004
PREPARED UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS
Contents
Management Board commentary to the financial statements for the IV quarter of 2005 3
Six-monthly consolidated balance sheet6
Six-monthly consolidated profit and loss account8
Six-monthly consolidated statement of changes in equity9
Six-monthly consolidatedcash-flow statement11
Notes to the abridged consolidated financial statements13
Management Board commentary to the financial statements for the fourth quarter of 2005
In 2005, the ComputerLand Group posted revenues of almost PLN 860 million, almost 14% more than the PLN 756 million in revenues noted in 2004. The operating and net result, prior to the adjustment connected with the claim by the Agency for the Restructuring and Modernisation of Agriculture (ARiMR), was PLN 44.2 mln and 21.7 mln respectively (table A1). The pre-adjustment results are higher than the figures forecasted by the Management Board on 19 October 2005 (a minimum of PLN 800 mln in revenue and a net profit of PLN 20 mln had been expected).
These results were adjusted after the balance sheet date because of the need to create a provision to cover a claim put forward by ARiMR (table A2), which the Management Board reported in a communique of 31 January 2006.
Taking into above provision into account, the ComputerLand Group attained net revenues of PLN 858 mln, an operating profit of PLN 33.8 mln and a net profit of PLN 11.4 mln (table A3).This provision may be dissolved in connection with a possible settlement to be reached with ARiMR and the execution of recourse claimsvis-à-vis Techmex.
The costs of servicing convertible bonds were charged to the net results shown. These costs exceeded PLN 16 mln for the whole of 2005
Table A1 (prior to adjustment)
In PLN 000’s / 2005 / 2004 / ChangeSales revenues / 859 331 / 755 944 / 13.7%
Operating result / 44 216 / 43 657 / 1.3%
Net result / 21 671 / 12 310 / 76.0%
Table A2 (amount of adjustment)
In PLN 000’s / Effect of provision
Sales revenues / -744
Operating result / -10 378
Net result / -10 237
Table A3 (following adjustment)
In PLN 000’s / 2005 / 2004 / change
Sales revenues / 858 587 / 755 944 / 13.6%
Operating result / 33 838 / 43 657 / -22.5%
Net result / 11 434 / 12 310 / -7.1%
After three stable quarters of 2005 (with quarterly revenues of PLN 152 mln, 159 mln and 183 mln respectively), the fourth quarter turned out to be the best period in 2005, as expected. Revenues exceeded PLN 360 mln and the pre-adjustment operating and net result was PLN 18.8 mln and PLN 10.6 mln respectively (table B1).
These results were adjusted after the balance sheet date because of the need to create a provision to cover a claim brought by ARiMR (table B2), which the Management Board reported in a communique of 31 January 2006.
Taking the above provision into account, in the IV quarter the ComputerLand Group attained revenues of almost PLN 363 mln, an operating result of PLN 8.4 mln and a net profit of PLN 0.4 mln (table B3).
Table B1 (prior to adjustment)In PLN 000’s / Q4/ 2005 / Q4/ 2004 / change
Sales revenues / 363 641 / 233 032 / 56.0%
Operating result / 18 776 / 15 879 / 18,2%
Net result / 10 637 / 1 227 / 766.9%
Table B2 (amount of adjustment)
In PLN 000’s / Effect of provision
Sales revenues / -744
Operating result / -10 378
Net result / -10 237
Table B3 (following adjustment)
In PLN 000’s / Q4/ 2005 / Q4/ 2004 / change
Sales revenues / 362 897 / 233 032 / 55.7%
Operating result / 8 398 / 15 879 / -47.1%
Net result / 400 / 1 227 / -67.4%
Traditionally strong sectors are boosting profitability
The banking and financial sector accounted for over one-third of the entire Group’s sales in 2005. It brought PLN 285 mln in revenues, exactly the same as in the previous year. However, this level of sales was achieved at a considerably higher level of profitability. In 2005, the Group consolidated cooperation with its biggest clients, i.e. the NBP, Bank BPH, BZ WBK, Kredyt Bank and PKO BP, and also dynamically expanded its cooperation with clients such as Lukas Bank, ING Bank Śląski, BGŻ and Bank Millennium. The Group also commenced cooperation with new clients in this sector, including with EFG Polbank. 2005 confirmed yet again that the ComputerLand Group possesses the broadest client base in the Polish banking sector.
After an excellent performance in 2004, in 2005 the telecom sector increased its revenues and its profitability yet again. Sales amounted to PLN 112 mln. This can be attributed largely to cooperation with Telekomunikacja Polska in realising the following projects: Geomarketing.CL, OSS and the financial-bookkeeping system.
The public sector achieved sales of almost PLN 200 mln, almost 50% more than in 2004. This was possible thanks to the realisation of many projects financed from EU funds and numerous contracts for the state administration. The Group consolidated its position in this sector by realising new ventures for clients such as the Ministry of National Defence and Ministry of Internal Affairs and Administration, as well as many projects for GIS. Aside from high revenues, the public sector also boasted a record portfolio of orders, amounting to over PLN 100 mln at the beginning of the year.
The Group reaffirmed its strong presence in the utilities sector by realising major projects for electricity, gas and heat providers. Despite the clear delay with IT projects in this sector, the Group posted revenues of over PLN 85 mln. Successive good figures in this sector provide a basis for a market growth in 2006.
As in previous years, the industrial sector earned the Group 15% of its annual revenues. In 2005, this sector concentrated on serving selected clients and boosting profitability.
The health sector accounted for almost PLN 24 mln in revenues, the result of the performance of a contract for the National Health Fund involving ongoing conservation of the Fund’s IT system and the introduction of ComputerLand's own applications to Polish hospitals. With such good performance and expanded cooperation with the National Health Fund, the Group seems a natural partner in the task of creating a nationwide Register of Medical Services.
The Group commenced 2006 with a portfolio of orders worth PLN 400 mln, compared with PLN 300 mln at the start of 2005.
An increase in the Group’s profitability – consulting project
Jointly with a consulting firm, ComputerLand is finalising a plan aimed at boosting its profitability. Because of the Group’s very rapid growth in previous years, it is necessary to improve cooperation between individual departments. At the start of the II quarter of 2006, ComputerLand will launch a programme to boost its profitability. It will concentrate on three main tasks:
- an increase in productivity in software manufacturing processes,
- a more efficient use of human resources,
- centralised procurement of products and services throughout the Group.
This programme is based on the best practices that have proved themselves in many international corporations. The Management Board expects that the implementation of this programme will boost the gross profit by at least 20 mln in the first year and by at least PLN 30 mln in the following year. The first effects are expected to be visible in the second half of 2006.
Consolidation – a strengthening of sectors
In 2005, the Group continued its consolidation strategy, involving the acquisition of companies which expand the ComputerLand range of products and its competencies in individual sectors.The Group acquired shares or took over IT systems in more companies: Intelligent Software (banking-finance sector), Efekt Software (self-government sector) and ELPOINFORMATYKA (outsourcing in the utilities sector).
At present, the ComputerLand Group is ready to allocate PLN 75 mln for acquisitions.
Consolidated six-monthly balance sheet
Note31 Dec.31 Dec.
20052004
Non-current assets
Tangible fixed assets32320 33 512
Investment properties 3824 3 939
Goodwill47778 45 991
Other intangible assets25376 17 880
Investments in an associate valued using the equity method 126 1 114
Financial assets valued at fair value through profit or loss 1067 1 066
Long-term receivables 1106 1 767
Prepayments and deferred costs 28 164
Deferred tax assets14533 15137
126158 120600
Current (short-term) assets
Inventories36901 45 208
Trade and other receivables 226684 153 801
Income tax receivables 424----
Prepayments and deferred income53401 59 503
Financial assets valued at fair value through profit or loss83016 50 214
Loans granted 399 1 876
Cash and cash equivalents 106578 46861
507403 357 463
Total assets 633561 478063
EquityNote31 Dec.31 Dec.
20052004
Share capital10090 10 061
Share premium53467 50 914
Other reserves 166404 147 471
Foreign exchange gains (415) (553)
Retained earnings (accumulated losses) (14235) (10573)
Equity attributable to owners of the holding company 215311 197 320
Minority interest 4587 8 025
Total equity 219898 205345
Long-term liabilities
Long-term loans and borrowings 213-
Financial assets valued at fair value through profit or loss - 79 202
Other financial liabilities 1000 2 133
Provision for pensions 610 392
Provision for liabilities 699
Long-term accruals and deferred income 354 197
Deferred income tax provision9386 12690 TotalLong-term liabilities 12232 94614
Short-term liabilities
Short-term loans and borrowings 1711 1 592
Trade and other liabilities 246 049 125 397
Income tax liabilities 778 1678
Financial assets valued at fair value through profit or loss 92575 2 438
Provision for pensions 288-
Provision for liabilities 617 5531
Short-term accruals and deferred income 59413 41468
TotalShort -term liabilities 401431 178104
Total liabilities 413663 272 718
Total equity and liabilities 663561 478 063
Consolidated six-monthly income statement
Note3 months 12 months 3 months 12 months
endedended ended ended
31/12/05 31/12/05 31/12/04 31/12/04
Net sales of goods for resale and materials6-8 362897 858587 233032 755944
Cost of sales of finished goods, goods for resale and materials(250544) (639030) (164308) (528369)
Gross profit 72353 219557 68723 227525
Other operating income 1653 4865 322 4650
Selling costs (17 091) (60275) (16833) (58869)
General management expenses(35582) (115651) (33924) (122741)
Other operating expenses(12287) (14658) ( 2409) ( 6958)
Operating profit 9046 33838 15879 43657
Financial income 1503 7555 1596 7388
Financial costs 9( 5149) (19898) (13760) (30802)
Net financial costs( 3646) (12343) (12164) (23414)
Participation in profit of an associated entity - (4) (281)45
Profit before tax 5400 21 491 3434 20288
Income tax(4366) (9564) (2383) ( 7769)
Net profit 1034 11927 1051 12519
Net profit (loss) of minority shareholders 634 493 (176) 209
Net profit of the shareholders of the holding company 400 11434 1227 12310
Net profit per one share (in PLN):
Basic 0.06 1.66 0.18 1.79
Diluted 0.06 1.64 0.18 1.77
Computerland Group SA
Consolidated quarterly financial statements as at 31 December 2005
All data is presented in thousands of PLN unless stated otherwise
Consolidated six-monthly statement of changes in equity
For 3 months ending 31 December 2004
Note / Share capital / Reserves from the issue of shares above their par value / Other reserves / Foreign exchange gains / Retained profit / Equity attributable to shareholders of the holding company / Minority shares / Total equityEquity at 1 October 2004 according to IFRS / 10 037 / 49 292 / 141 218 / (240) / ( 3248) / 197 059 / 6 004 / 203 063
Share subscription – execution of management options / 24 / 1 802 / 11 / - / - / 1 837 / - / 1 837
Share issue costs / - / (180) / - / - / - / (180) / - / (180)
Reserve for deferred tax associated with the capital portion of convertible bonds / - / - / (3412) / - / - / (3412) / - / (3412)
Distribution of profit / - / - / - / - / - / - / - / -
Reconciliation of equity of consolidated companies as of assumption of control / - / - / - / - / 251 / 251 / 2 259 / 2 510
Net profit / - / - / - / - / - / 1 228 / 1 228 / (176) / 1 052
Cost of management options / - / - / 849 / - / - / - / 849 / - / 849
Exchange rate differences from consolidation / - / - / - / (313) / - / (313) / (62) / (375)
Equity at 31 December 2004 according to IFRS / 10 061 / 50 914 / 138 666 / (553) / (1768) / 197 320 / 8 025 / 205 345
For 12 months ending 31 December 2004
Note / Share capital / Reserves from the issue of shares above their par value / Other reserves / Foreign exchange gains / Retained profit / Equity attributable to shareholders of the holding company / Minority shares / Total equityEquity at 1 January 2004 according to IFRS / 2d / 9 971 / 44 045 / 138 661 / - / (14330) / 178 347 / 6 274 / 184 621
Share subscription – execution of management options / 90 / 7 049 / 21 / - / - / 7 160 / - / 7 160
Share issue costs / - / (180) / - / - / - / (180) / - / (180)
Reserve for deferred tax associated with the capital portion of convertible bonds / - / - / ( 3412) / - / - / ( 3412) / - / ( 3412)
Distribution of profit / - / - / 8 805 / - / (8805) / - / - / -
Reconciliation of equity of consolidated companies as of assumption of control / - / - / - / - / 251 / 251 / 1 604 / 1 855
Net profit / - / - / - / - / 12 310 / 12 310 / 209 / 12 519
Cost of management options / - / - / 3 396 / - / - / 3 396 / - / 3 396
Exchange rate differences from consolidation / - / - / (553) / - / (553) / (62) / (615)
Equity at 31 December2004 according to IFRS / 2 d / 10 061 / 50 914 / 147 471 / (553) / (10573) / 197 320 / 8 025 / 205 345
For 3 months ending 31 December 2005
Note / Share capital / Reserves from the issue of shares above their par value / Other reserves / Foreign exchange gains / Retained profit / Equity attributable to shareholders of the holding company / Minority shares / Total equityEquity at 1 October 2005 according to IFRS / 2d / 10 090 / 53 345 / 164656 / (400) / (19 672) / 208 019 / 6 518 / 214537
Share subscription – execution of management options / - / 122 / 2 / - / - / 124 / - / 124
Net profit / - / - / - / - / 4 002 / 4 002 / 598 / 4 600
Profit distribution in the holding company / - / - / - / - / - / - / - / -
Cost of management options / - / - / 1 746 / - / - / 1 746 / - / 1746
Foreign exchange gains / - / - / - / (15) / - / (15) / 35 / 20
Dividends distributed / - / - / - / - / - / - / - / - / -
Material error in a subsidiary / - / - / - / - / - / - / - / - / -
Changes in the capital group’s structure / - / - / - / - / - / 1 435 / 1 435 / ( 2 564) / ( 1129)
Equity at 31 October 2004 according to IFRS / 10 090 / 53467 / 166 404 / (415) / (14 235) / 215 311 / 4 587 / 219898
For 12 months ending 31 December 2005
Note / Share capital / Reserves from the issue of shares above their par value / Other reserves / Foreign exchange gains / Retained profit / Equity attributable to shareholders of the holding company / Minority shares / Total equityEquity at 1 January 2005 according to IFRS / 2d / 10 061 / 50 914 / 147 471 / (553) / (10573) / 197 320 / 8 025 / 205345
Share subscription – execution of management options / 29 / 2 553 / 2 / - / - / 2 584 / - / 2 584
Net profit / - / - / - / - / 11 434 / 11 434 / 493 / 11 927
Profit distribution in the holding company / - / - / 15 662 / - / (13662) / - / - / -
Cost of management options / - / - / 3504 / - / - / 3 504 / - / 3 504
Foreign exchange gains / - / - / - / 138 / - / 138 / 58 / 196
Dividends distributed / - / - / - / (235) / - / - / (235) / - / (235)
Material error in a subsidiary / - / - / - / - / - / (26) / (26) / - / (26)
Changes in the capital group’s structure / - / - / - / - / - / 592 / 592 / ( 3 989) / ( 3397
Equity at 31 December 2005 according to IFRS / 10 090 / 53 467 / 166 404 / (415) / (14 235) / 215 311 / 4 587 / 219 898
Computerland Group SA
Consolidated quarterly financial statements as at 31 December 2005
All data is presented in thousands of PLN unless stated otherwise
Consolidated six-monthly cash flow statement
3 months 12 months 3 months 12 months
endedended ended ended
31/12/05 31/12/05 31/12/04 31/12/04
Cash flows from operating activity
Profit before tax540021491 3435 20288
Adjustments 88402 110 574 23 331 66 992
Share in net profit of subordinated entities 4 281 (45)
Amortisation of fixed assets322313675 3286 13430
Amortisation of intangible assets and amortisation of goodwill2 790 8770 3060 11912
Foreign exchange (gains)/losses 79 (808) 898 (885)
Net interest and participation in profits412715994 9631 23510
(Gains)/losses on investing activities (58) (4251) 1468466
Change in working capital 76480 73903 4130 15082
Costs of management options 873 3504 849 3396
Other adjustments 888 (218) (283) 126
Cash from operating activities 93802132 065 26766 87 281
Income tax (paid) reimbursed(2138) (9 173) (2229) (10294)
Net cash flows from operating activities 91664 122892 24537 76 987
Cash flows from investing activities
Revenue from sale of tangible fixed assets and intangible assets 80 1533 595 1483
Cash flows from interest 174 761 535535
Sale (purchase) of short-term securities 10534 (29149) 55 704 9389
Capital expenditure on tangible fixed assets and intangible assets (10854) (29332) (5732) (19.836)
Net expenditure on the acquisition of subsidiaries and associates (1185) (5785) (19544) (28262)
Loans granted/(repaid)13601 360 --
Other expenses and flows from investing activities(1288)1299 579 2447
Net cash flows from investing activities(1 359) (59313) 32137 (34244)
Cash flows from financing activities
Net cash inflows from issue of shares and other capital
Instruments as well as additional payments to capital 672688 158 10104
Dividends and other payments to owners 36- --
Proceeds from loans and borrowings (564) 1110 (910) 4258
Repayment of loans and borrowings (23) (1592) ( 2 219) (6143)
Purchase of debt securities - - (30697) (30 697)
Interest(2878) (6072) (3866) (7848)
Other cash flows from financing activities 113 4 65 (110)
Net cash flows from financing activities (3249) (3862) (37469) (30436)
Net decrease in cash and cash equivalents8705659717 19205 12 307
Cash and cash equivalents at the start of the period19522 46861 27656 34554
Cash and cash equivalents at the end of the period 106578 106578 46861 46861
Notes to the consolidated six-monthly cash flow statement
3 months 12 months 3 months 12 months
endedended ended ended
31/12/05 31/12/05 31/12/04 31/12/04
Change in working capital
Increase in provisions5111(2534) 7159 7239
Decrease in inventory 13198 8775 13683 7849
(Increase)/decrease in receivables (89029)(51634)(35758) 36718
Change in liabilities 146231 105522 63614 (11351)
Change in accruals, prepayments and deferred income 969 13 595(44567) (25373)
76480 73903 4130 15 082
Notes to the abridged consolidated financial statements
1 General information and changes to the Group’s structure
The core business of the Computerland Group SA is programming and consulting in relation to computer hardware. The ComputerLand capital group comprises ComputerLand SA and 15 subsidiaries. In addition, ComputerLand SA exercises major influence over one affiliate company.
On 21 November 2005, the holding company bought from the subsidiary GEOMAR S.A. shares in KPG Sp. z o.o. constituting 81.66% of the share capital. Thus, ComputerLand S.A. became the holding company over KPG Sp. z o. o.
On 24 November 2005, ComputerLand SA acquired 100% of the shares in ICD COMP Consulting Sp. z o.o. for a total amount of PLN 167,300. As a result of this transaction, ComputerLand S.A. became the owner of 100% of the shares in ICD COMP Consulting Sp. z o.o. and holds 100% of the votes at this company’s General Meeting of Shareholders.
ICD COMP Consulting Sp. z o.o. provides IT solutions and services to Polish financial institutions. ComputerLand S.A. bought the shares in ICD COMP Consulting Sp. z o.o. as a long-term capital investment as part of the ComputerLand Capital Group’s development strategy.
On 5 December 2005, for cash consideration of 10,000 roubles, ComputerLand SA subscribed to 100% of the shares in the limited liability company “ComputerLand CIS" with its registered office in Moscow, Russian Federation. ComputerLand did so as a long-term investment as part of the ComputerLand Capital Group’s development strategy. The share subscription was paid for out of ComputerLand S.A.’s own funds
On 21 December 2005, ComputerLand SA signed an agreement with Elektrownia Połaniec SA - Grupa Electrabel for the purchase of 99 shares in Elpoinformatyka Sp. z o. o.
As a result of this transaction, ComputerLand S.A. is becoming the owner of 99% of the shares in the equity of Elpoinformatyka Sp. z o. o. and will hold 99% of the voting rights at that company’s General Meeting of Shareholders.
The shares of Elpoinformatyka Sp. z o. o. are considered a long-term investment as part of the ComputerLand SA Capital Group’s development strategy. The agreement shall take effect upon fulfilment of the conditions precedent, including the issue of a decision by the Chairman of the Office for the Protection of Competition and Consumers, approving a concentration entrepreneurs occasioned by ComputerLand S.A.’s acquisition of and subscription to shares in the Company.
On 29 December 2005, the District Court of the City of Warsaw, XX Commercial Division of the National Court Register, entered in the register of businesses a merger of ComputerLand SA with the following sole shareholder subsidiaries: “CENTRUM INFORMATYKI ENERGETYKI" Sp. z o.o. and “COMPUTERLAND MIELEC" Sp. z o.o.
The financial statements were prepared for the three-month period ended 31 December 2005, with data comparable for the three-month period ended 31 December 2004.
The financial statements were approved for publication by the Management Board on 1 March 2006.
2 Significant accounting policies
a)The basis ofpreparation of the consolidated financial statements
The semi-annual consolidated financial statements have been prepared in accordance with the historic cost principle, with the exception of derivative financial instruments and financial assets available for sale, which are shown at fair value. The condensed consolidated financial statements are presented in Polish zloty and all amounts, unless otherwise stated, are given in thousands.
b)Declaration of compliance
The abridged consolidated financial statements of the ComputerLand SA Group were drawn up in accordance with International Financial Reporting Standards (IFRS).
c)Changes to the accounting principles applied
The consolidated balance sheet as at 31 December 2005, consolidated income statement, consolidated cash flow statement and consolidated statement of changes in equity for the three-month period ended 31 December 2005 were not subject to review. The consolidated balance sheet as at 31 December 2004, consolidated income statement, consolidated cash flow statement and consolidated statement of changes in equity for the three-month period ended 31 December 2004 were drawn up in accordance with Polish Accounting Standards and subjected to review.
The abridged financial statements as at 31 December 2005 were prepared in accordance with International Accounting Standard (IAS) 34, “Six-monthly financial reporting,” and should be read in conjunction with the audited consolidated financial statements as at 30 June 2005, drawn up in accordance with IFRS.
The accounting principles adopted have been used consistently for each of the periods presented in these abridged financial statements and for preparation of the opening balance sheet in accordance with IFRS at 1 January 2004.
The accounting principles adopted (IFRS) differ in several significant aspects from the accountancy principles used for preparation of the published consolidated financial statements at 31 December 2004. The principal consequences of the changes in accountancy principles are discussed below.