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ComputerLand SA ADDITIONAL INFORMATION to the abridged financial statements SA- QSr4 / 2005 1. Accounting principles and methods, assets and liabilities valuation methods as of the balance sheet day and profit and loss measurement methods The financial statements were drawn up according to the following regulations: -The Act on Accounting of 29 September 1994 (uniform text Journal of Laws No. 76, item 694, 2002); -The Ordinance of the Council of Ministers of 19 October 2005, on current and periodical information communicated by the issuers of securities (Journal of Laws No. 209, item 1744); The principles for drawing up financial statements for Q4 2005 employed by the company have not changed since their last description included in the financial statements for the year 2004 - SA-R 2004. 2. Information on adjustments due to provisions and asset revaluation write-offs. As of 30 September 2005, the provisions and assets related to deferred income tax were as follows: Deferred tax assets: In PLN ‘000 Item 1. non-settled investment relief 2. revaluation of securities 3. estimated income from long-term contracts 4. Unrealised foreign exchange gains 5. capital component related to B series convertible bonds 6. - other Total provision related to deferred income tax As at 30.09.2005 Change in Q4 As at 31.12.05 1 - 1 387 (11) 376 7,242 751 7,993 9 27 36 918 (285) 633 4 8,561 13 495 17 9,056 -Deferred tax assets: In PLN ‘000 Item 1. provisions made 2. unpaid remuneration 3. estimated cost of servicing B series convertible bonds 4. unrealised foreign exchange losses 5. estimated costs arising from longterm contracts 6. financial asset revaluation 7. other Total Deferred tax assets As at 30.09.2005 Change in Q4 As at 31.12.05 3,325 1,556 4,868 683 692 (11) 4,008 2,248 4,857 55 (24) 31 1,114 257 1,371 921 (162) 759 281 12,120 57 1,492 338 13,612 ComputerLand SA Changes in asset revaluation write-offs during Q4 2005 were as follows: In PLN ‘000 Item 1. receivables revaluation As at 30.09.2005 4,785 2. financial asset revaluation 3. Other asset revaluation Total asset revaluation write-offs Change in Q4 As at 31.12.05 229 5,014 5,792 5,792 89 89 10,666 229 10,895 Selected items in assets and liabilities shown in the financial statements were converted into EUR at the average PLN-EUR exchange rate specified by the National Bank of Poland on the balance sheet date. Selected items in the profit and loss account were converted into EUR at an average exchange rate calculated as an arithmetic mean of all average exchange rates specified by the National Bank of Poland on the last day of each month covered by the profit and loss account. Average exchange rate during January-December 2004 2005 4.5182 4.0233 Exchange rate on the last day of the period ending 31 December 4.0790 3.8598 3. ComputerLand S.A. Capital Group On the basis of a share sale agreement dated 21 November 2005 ComputerLand SA, purchased from Geomar S.A., a subsidiary, 19,847 shares in KPG Sp. z o.o. constituting 81.66% of its share capital. By the same, ComputerLand SA became the entity directly dominant towards KPG Sp. z o. o. (ComputerLand SA communiqué 76/2005 of 22 November 2005) On 24 November 2005 ComputerLand SA purchased 100% of the shares in ICD COMP Consulting Sp. z o. o. for the aggregate amount of PLN 167,300 zł. As a result of the above transaction ComputerLand SA became the owner of 100% of the shares in ICD COMP Consulting Sp. z o. o. and is authorised to exercise 100% of the votes at this company’s Meeting of Shareholders. ICD COMP Consulting Sp. z o. o. is a supplier of IT solutions and services on the Polish financial institutions market. ComputerLand SA purchased the shares in ICD COMP Consulting Sp. z o. o. as a long-term capital investment realised within the development strategy of the ComputerLand Capital Group.(ComputerLand SA communiqué 78/2005 of 25 November 05) On 5 December 2005, ComputerLand SA in return for cash consideration of 10,000 roubles, assumed control over 100% of the shares in the limited liability company ComputerLand CIS with its registered office in Moscow, the Russian Federation. ComputerLand took over the shares in ComputerLand CIS as a long-term investment within the development strategy of the ComputerLand Capital Group. ComputerLand’s own funds were used to finance the share acquisition. (ComputerLand SA communiqué 82/2005 of 05 December 05) On 29 December 2005 the District Court for the City of Warsaw, XX Commercial Division of the National Court Register disclosed in the register of businesses a merger of ComputerLand SA with the sole shareholder subsidiaries: Centrum Informatyki Energetyki Sp. z o. o and Computerland Mielec Sp. z o. o. (ComputerLand SA communiqué 88/2005 of 29 December 05) ComputerLand SA On 21 December 2005 ComputerLand S.A. signed with Elektrownią Połaniec S.A. - Electrabel Group, an agreement for the purchase of 99 shares in Elpoinformatyka Sp. z o. o. As a result of the above mentioned transaction, ComputerLand S.A. will become the owner of 99% of the shares in the share capital of Elpoinformatyka Sp. z o. o., and will be authorised to exercise 99% of the votes at this company’s Meeting of Shareholders. The shares in Elpoinformatyka Sp. z o. o. are treated as a long-term investment within the development strategy of the ComputerLand SA. development strategy. The final transfer under the agreement will take place after satisfaction of the conditions precedent, amongst others: obtaining a decision of the President of the Office for the Protection of Competition and Consumers granting consent to the merger of undertakings consisting in the acquisition and taking up by ComputerLand SA of shares in the Company. (ComputerLand SA communiqué 87/2005 of 21 December 05) 4. Financial results, description of significant achievements or failures and most important events that took place in the period subject to this report. In 2005 ComputerLand posted revenues of over PLN 682 million, which when compared to PLN 628 million in 2004 represents an increase of almost 9%. Operating and net profit before a adjustment connected with a claim of the Agency for Restructuring and Modernisation of Agriculture (ARiMR) amounted to PLN 38.7 million and 21.7 million accordingly (Tabe A1). These results after the balance sheet date were adjusted in view of the necessity of creating a provision due to a claim brought by ARiMR (table A2), which ComputerLand's management board announced in a communiqué dated 31 January 2006. Taking into account the provision ComputerLand achieved revenues of PLN 682 million, an operating profit of PLN 28.4 million and a net profit of 13.3 million (table A3). This provision may be dissolved in connection with a possible settlement to be reached with ARiMR and the execution of recourse claims vis-à-vis Techmex. The costs of servicing convertible bonds were charged to the net results shown. These costs exceeded PLN 16 million for the whole of 2005. Table A1 (prior to adjustment) In PLN 000’s 2005 2004 change Sales revenues 683,199 627,889 8.8% Operating result 38,726 38,323 1.1% Net profit 23,553 15,659 50.4% Table A2 (amount of adjustment) In PLN 000’s Sales revenues Operating result Net profit effect of provision (744) (10 378) (10 237) ComputerLand SA Table A3 (following adjustment) In PLN 000’s Sales revenues Operating result Net profit 2005 682,455 28,348 13,316 2004 627,889 38,323 15.659 change 8.7% (26%) (15%) In Q4 of 2005 sales revenues exceeded PLN 290 million and the operating and net profit before the provision amounted to PLN 14.7 and 8.5 million accordingly (table B1). These results after the balance sheet date were adjusted in view of the necessity of creating a provision due to a claim brought by ARiMR (table B2), which ComputerLand's management board announced in a communiqué dated 31 January 2006. Table B1 (prior to adjustment) In PLN ‘000 Sales revenues Operating result Net profit Table B2 (amount of adjustment) In PLN ‘000 Sales revenues Operating result Net profit Q4/ 2005 Q4/ 2004 change 291.120 14.708 8.503 184.423 13.034 471 57,9% 12,8% 1.705% effect of provision (744) (10 378) (10 237) Table B3 (following adjustment) In PLN ‘000 Sales revenues Operating result Net profit Q4/ 2005 290.376 4.330 (1.734) Q4/ 2004 184.423 13.034 471 change 57,5% (66,8%) 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 million in revenues. 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 company also commenced cooperation with new clients in this sector, including with EFG Polbank. This was another year confirming that ComputerLand has 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 million. 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 million, 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 million at the beginning of the year. ComputerLand SA The company reaffirmed its strong presence in the utilities sector by realising major projects for electricity, gas and heat providers. Despite clear delays with IT projects in this sector, the Group posted revenues of over PLN 77 million. Successive good figures in this sector provide a basis for market growth in 2006. The health sector accounted for almost PLN 24 million in revenues, the result of the performance of a contract for the National Health Fund involving ongoing maintenance 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. An increase in the Group’s profitability – consulting project Jointly with a consulting firm, ComputerLand is finalising a plan aimed at boosting profitability . Because of the Group’s very rapid growth in previous years, it is necessary to improve interdepartmental cooperation. At the start of the II quarter of 2006, ComputerLand will launch a programme to boost organisational effectiveness. 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 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 million in the first year and by at least PLN 30 million 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 the following companies: Intelligent Software (bankingfinance sector), Efekt Software (self-government sector) and ELPOINFORMATYKA (outsourcing in the utilities sector). 5. Description of factors and events, particularly those of an untypical nature, which have significantly affected the financial results 5.1. Servicing of B series convertible bonds The financial costs for Q4 2005 include the amount of PLN 4,319 thousand for servicing issued B series convertible bonds. Interest of B series bonds (8.5% per annum) accrued during this period amounted to PLN 1,445 thousand, and the Premium payable on redeeming the bonds amounts to PLN 1,373 thousand. The structure of financial costs relating to B series bonds, taking into account the amortised cost of the financial instrument, is as follows: ComputerLand SA Reporting period Interest of 8.5% Premium*/ 2001 2002 2003 2004 Total costs 1Q/2005 4,662 7,597 7,584 7,609 1,415 4,425 7,210 7,210 7,230 1,342 (223) 725 2,434 4,440 1,141 2Q/2005 3Q/2004 1,431 1,358 1,232 4,021 3Q/2005 1,446 1,373 1,349 4,168 4Q/2005 1,445 1,373 */Premium payable on the redemption of bonds 1,501 4,319 Amortised cost of financial instrument One-off costs arising from partial redemption Total costs 8,864 15,532 17,228 24,051 3,898 4,772 On 17, 25 and 26 January and 16 February 2006 ComputerLand SA purchased 6,220 of its own series B bearer bonds convertible to ordinary bearer series N bearer shares, for the purpose of their redemption. After the redemption, the number of series B bearer bonds convertible to ordinary bearer series N shares will be 530. As a result of the discussed transactions involving the redemption of bonds, the financial costs associated with the bonds to their final redemption date, i.e. 21 May 2006 and having an impact on the company's results in particular quarters, will changes and will be as follows: Reporting period Interest of 8.5% Premium*/ Amortised cost of financial instrument 1Q/2006 424 403 498 1Q/2006 63 60 74 One-off costs resulting from partial redemption Total cost 4.196 */Premium payable on the redemption of bonds 6. Explanations related to the seasonal or cyclical nature of the Company’s activities in Q4 2005 The Company’s activities are not subject to seasonal or cyclical factors. 5.521 197 ComputerLand SA 7. Differences between Polish Accounting Principles and the International Financial Reporting Standards ComputerLand SA has drawn up the report for Q4 2005 pursuant to Polish Accounting Principles, whereas the consolidated financial statements for Q4 2005 were drawn up pursuant to International Financial Reporting Standards (IFRS) as the dominant entity. 8. Information on issue, redemption or repayment of debt and capital securities In Q4 2005 Dom Inwestycyjny BRE Bank SA in response to ComputerLand SA.’s Proposal to Purchase series G bonds with a first purchase right to subscribe series U shares, Dom Inwestycyjny BRE Bank SA made an entry in the register of 137,200 series G bonds with a right of first purchase to subscribe series U shares, indicating that it became the owner of the bonds allocated to it. The purpose of the Bond issue is the realisation of the management option programme carried out on the basis of a resolution adopted by the Extraordinary Meeting of Shareholders on 25 October 2001. One hundred and thirty seven thousand registered bonds with a first purchase right in relation to subscribing series U shares are issued. Each bond carries the right to subscribe one series U share in the company. 9. Information on paid or declared dividends The company did not pay out dividends 10. Events after the balance sheet date that may have a significant impact on the company’s future financial results Other than the information contained in point 13 there were no events after the balance sheet that could exert a major impact on the future financial results of the company. 11. Results of changes in the Company’s structure, including changes resulting from mergers, acquisitions or the sale of entities within the capital group, long-term investments, division resulting from restructuring and the discontinuation of operations. The management board of ComputerLand SA announces that on 29 December 2005 the District Court for the City of Warsaw, XX Commercial Division of the National Court Register disclosed in the register of businesses the merger of ComputerLand SA with the sole shareholder subsidiaries Centrum Informatyki Energetyki Sp. z o. o and Computerland Mielec Sp. z o. o. The merger of Centrum Informatyki Energetyki Sp. z o. o and Computerland Mielec Sp. z o. o. with ComputerLand SA was carried out on the basis of Article 492 paragraph 1 sub -paragraph 1 of the Act dated 15 September 2000 , the Commercial Companies Code, by way of transferring th e entire assets of Informatyki Energetyki Sp. z o. o and Computerland Mielec Sp. z o. o. to ComputerLand SA. As a result of the fact that ComputerLand S.A. was the only shareholder of Centrum Informatyki Energetyki Sp. z o. o and Computerland Mielec Sp. z o. o. the merger took place without an increase in the share capital of ComputerLand SA and an issue of new shares in the company. ComputerLand SA Information on changes in the Company’s contingent liabilities or assets that arose after December 31 2004 12. As at December 31 2004, the total value of sureties and guarantees provided by the company to subsidiaries was PLN 14,400 thousand. As at December 31 2004, the total value of sureties and guarantees provided by the company was PLN 71,588 thousand. As at December 31 2005, the total value of sureties and guarantees provided by the company was PLN 115,970 thousand. As at December 31 2005, the total value of sureties and guarantees provided by the company to subsidiaries was PLN 28,781 thousand. 13. Information on the ability to realize published forecasts for the current year On 19 October 2005 the management board of ComputerLand announced a forecast for its consolidated results for 2005. The management board forecasted revenues at a level of over PLN 800 million and a net profit at the level of PLN 20 million. Achieving this forecast required exceptional results in Q4 of last year: sales exceeding PLN 300 million and a net profit of PLN 9 million. The management board hereby confirms the realisation in Q4 of the above plans. Due to an event which occurred after the balance sheet date, the management board has been forced to create a provision for potential costs associated with a claimed brought by ARiMR in the amount of PLN 10,378,107.83 in spite of the fact that it has undertaken action aimed at finding an amicable solution to the dispute with ARiMR and is convinced that the circumstances allow for another evaluation of the factual circumstances and the legal performance of the agreement. This provision in its full amount reduces the net profit for 2005; however payment by Techmex S.A. of a recourse claim in the amount of PLN 10,378,107.83 will increase the net profit by this amount when this occurs. Because of this the management board acting with due care changes the forecast for 2005 in respect of the forecasted net profit, to PLN 10 million, and is planning a simultaneous increase in the planned net profit for the first half of 2006 by the same amount. 14. Shareholders holding directly or indirectly at least 5% of the total number of votes at the company's general meeting of shareholders. During the period covered by this report no increase in share capital of ComputerLand S.A. was recorded. On 31 December 2005, the Company’s share capital was PLN 6,892,575. As at 1 March 2006, the Company’s share capital amounted to PLN 6,896,675 and consisted of 6,896,675 shares, with a nominal value of PLN 1 each. According to the information available to the company, the shareholders holding shares exceeding 5% of the share capital of ComputerLand SA as at 01 March 2006 were: - The president of the Management Board of ComputerLand SA – Tomasz Sielicki, who holds 9.12% of the share capital of ComputerLand SA and the same number of votes at the General Meeting of Shareholders of ComputerLand SA, - Commercial Union OFE BPH CU WBK SA, which holds 7.25 % of the share capital of ComputerLand SA and the same number of votes at the General Meeting of Shareholders of ComputerLand SA, - ING Natoniale – Nederlanden Polska OFE, which holds 5.22% of the share capital of ComputerLand SA and the same number of votes at the General Shareholders’ Meeting of ComputerLand SA, - Pioneer Pekao Investment Management S.A., which holds 5.01% of the share capital of ComputerLand SA and the same number of votes at the General Shareholders’ Meeting of ComputerLand SA, - J.P. Morgan Chase & Co. and subsidiaries, which hold 5.48% of the share capital of ComputerLand SA and the same number of votes at the General Shareholders’ Meeting of ComputerLand SA ComputerLand SA. SHARES Changes in the number of shares Structure on 9.11.2005 Number of % of Structure on 31.12.2005*/ Number of CL shares CL shares votes at the AGM % of votes Changes between 31.12.2005 and 1.03.2006 at the AGM Tomasz Sielicki 628,841 9.12% 628,841 9.12% CU OFE BPH CUWBK ING NationaleNederlanden Polska OFE Pioneer Pekao Investment Management SA J.P. Morgan Chase & Co. and subsidiaries 500,000 7.25% 500,000 360,000 5.22% 345,008 378,078 - Structure on 1.03.2006 Number of CL shares % of votes at the AGM 628,841 9.12% 7.25% No data 500,000 7.25% 360,000 5.22% No data 360,000 5.22% 5.01% 345,008 5.01% No data 345,008 5.01% 5.48% 378,078 5.48% No data 378,078 5.48% */ The list of shareholders has been drawn up according to the Company’s best knowledge and on the basis of notifications received under Article 69 paragraph 1 of the Act on public offers and the terms and conditions of introducing financial instruments to an organised system of trading and on public companies (Journal of Laws 2005, No. 184 item 1539) and on the number of shares owned by a given shareholder recorded at the last General Meeting of Shareholders 15. Changes in the structure of ownership of shares and share options by persons managing and supervising the Company that have taken place since the communication of the previous quarterly report are as follows: SHARES Tomasz Sielicki Sławomir Chłoń Michał Danielewski Elżbieta BujniewiczBelka Andrzej Miernik Increases in the share Number of CL shares at portfolio 9.11.2005 Purchase Exercise of of shares options 628,841 100 74,990 Decrease in Number of the share CL shares on portfolio, share 31.12.2005 sales 628,841 - - - - - - - - - - 100 74,990 Changes Number of between CL shares on 31.12.05 and 01.03.2006 01.03.06 628,841 (100)*/ - 74,990 - - - - - - - - */ Decrease due to a change in the members of the Management Board As at 31 December 2005 members of the ComputerLand SA supervisory board did not hold shares in ComputerLand SA. Changes in the ownership of share options by persons managing and supervising the Company: SHARE On 9.11.2005 Increases in the share option portfolio Decreases in the share option portfolio 109,500 61,000 64,000 66,750 - - - - - - - - OPTIONS Tomasz Sielicki Sławomir Chłoń Michał Danielewski Elżbieta BujniewiczBelka Andrzej Miernik 32,075 */ Decrease due to a change in the members of the Management Board On 31.12.2005 Changes between 31.12.05 and 1.03.06 On 1.03.2006 - 109,500 61,000 64,000 66,750 (61,000)*/ - 109,500 64,000 66,750 32,075 - 32,075 ComputerLand SA SHARE OPTIONS Henryka Bochniarz Heather Potters Maciej Jankowski Jacek Mościki Andrzej Koźmiński Szczepan Strublewski Józef Okolski 16. On 9.11.2005 3,000 3,300 1,200 2,250 Increases in the share option portfolio Decreases in the share option portfolio - - - - - - - - - - - - - On 31.12.2005 Changes between 31.12.05 and 1.03.06 3,000 3,300 1,200 2,250 - On 1.03.2006 3,000 3,300 1,200 2,250 Proceedings pending before courts, arbitration bodies or public administration bodies. In the presented quarter the Company did not initiate or carry on any proceedings related to liabilities or debts exceeding in total 10% of the Company’s share capital before a court or a public administration body. 17. Information on transactions with related entities. ComputerLand SA did not conclude any transactions with the ComputerLand SA Group companies outside the ordinary course of business. 18. Information on credit or loan sureties or guarantees granted The Company did not grant sureties / guarantees for credits or loans to any entity or subsidiary entity in amounts exceeding 10% of the Company’s share capital. Among the guarantees issued as at 31 December 2005, ca. 52 % are performance bonds. The objective of a performance bond is to secure claims arising from the non-performance or improper performance of an agreement. As at 31 December 2005 approximately 40% of the issued guarantees are payment guarantees the purpose of which is guaranteeing timely payment of cash receivables. Tender guarantees are 7% of the total of guarantees and sureties. The aggregate value of sureties and guarantees issued by the company as at 31 December 2005 amounts to PLN 115,970 thousand. 19. Other significant information for an evaluation of the personnel, property and financial condition of the company, its financial results and their changes, as well as material information for an evaluation of the possibility the company realising its obligations. On 23 February 2005 the company's supervisory board recalled Sławomir Chłon from the position of Vice-President of the ComputerLand SA management board, thanking him for his work over the years for the company, stressing his achievements and successes in this period. On 23 February 2005 the supervisory board of the holding company appointed as of 1 April 2006 Dariusz Chwiejczak to the position of Vice-President of the management board with responsibility for sales. The new Vice-President in view of his knowledge and professional experience will be responsible for supervising consolidated sales within the ComputerLand Group and for its international operations. This will strengthen the sales dynamics of the second largest group of IT companies in Poland, employing over 2000 employees. He will perform an active role in consolidation of the Group, comprised of several dozen subsidiaries and affiliated companies, including three ComputerLand SA abroad. There was no other material information for an evaluation of the personnel, property and financial condition of ComputerLand or material information for an evaluation of the possibility of ComputerLand realising its obligations during the reporting period. 20. Factors that may influence the company’s results over the next quarter ComputerLand Group expects 2006 to be a year of continued growth. The Group commenced 2006 with a portfolio of orders worth PLN 400 million. The Group will concentrate on increasing the profitability of projects, amongst others by introducing a programme jointly with a consulting company. Amongst others, the finalising in this period of projects or important phases of them in the banking-finance sector and the public sector will have an impact on Q1 results. The uneven distribution of revenues in the IT sector through the year, which is due to the seasonality of orders on the part of clients should be taken into account. Warsaw, 1 March 2006 ComputerLand SA