Warsaw, 16 August 2012
Dear Sirs,
Publication of the results of Sygnity S.A. for Q6 2011/2012 is in my opinion a perfect
occasion to present you with my assessment of the Company's current business situation and
the prospects for its development.
As you know Sygnity has been recently undergoing thorough restructuring which is bringing
measurable benefits both as regards cost reduction and the scope the Company's activity. The
Company has been implementing consistently the development plan which was
communicated previously to the market participants. The Company has managed to obtain
funding by means of issue of bonds worth PLN 60 million.
The main short- and long-term objective which I set myself while deciding to assume the
position of acting President of the Management Board of Sygnity S.A. is to develop a strategy
which will allow for increased operating performance and a considerable increase in the
Company's profitability. This will enable the Company to start soon its gradual and
sustainable growth. I would like to emphasize that I am absolutely determined to achieve
those objectives. Ultimately, I would like Sygnity to record profitability levels similar to those
achieved by other leading IT companies operating in Europe. Based on the analysis of
"opening balance": of the Company's human resources, products, processes, methods of
contract management, financial and other potential, carried out to date, I do confirm that
Sygnity has great potential to achieve the aforementioned objectives. Together with the
Company's Management Board we will pursue a strategy of predictability of achieved
financial results, which is so important for our shareholders.
Obviously the main objective is to build up goodwill in the long term, based on a strong and
stable position of the leading Polish, and in future regional, player on the IT market, which in
turn should be reflected in a gradual increase in the share price on the stock exchange.
Importantly, the shareholders with their representatives in the Supervisory Board, provide me
with their full support as regards the implementation of the adopted action plan. Following
introduction of changes to the broadly understood method of management of the entire
Company and individual projects, and implementing the current development strategy, I
believe that Sygnity should "beat the market", in other words to develop better and faster than
the market.
The budget process for the financial year 2013 (lasting from October 2012 to September
2013) is nearly over. Once the Supervisory Board has approved the budget taking into account
the traditionally best fourth quarter of the calendar year, the Management Board will be able
to address the projected financial results for the calendar year 2012, published on 7 March
2012, to present investors with a clear and complete picture of the Company's financial
standing in the short term.
Furthermore, in accordance with best practice as regards transparent communication and
corporate governance, the Management Board intends to present the capital market and all
stakeholders in the Company's with a detailed report on both those actions which have been
already implemented and on the planned ones, the current vision of the Company's
development and the medium-term expectations for the financial year 2013.
With kind regards,
Janusz R. Guy
acting President of the Management Board
The Management Board's comment on the financial results for Q6 2011/2012
The results achieved by the Company in the sixth quarter of the financial year 2011/2012
were strongly affected by external factors largely beyond the Company's control. They were
affected primarily by a tender offer for the Company's shares announced by Asseco Poland
S.A. and lasting for over four months, as well as the unfavourable macroeconomic
environment reflected in the overall low level of contracting in the IT industry.
The tender offer announced by Asseco Poland ended in early July and, although it did not
actually take place, it had a significant impact on the operations and, as a result, on the
financial results of Sygnity S.A. Significant volatility of the price of the Company's shares
during the tender offer and after it was also undoubtedly due to it.
The financial results for the sixth quarter of the financial year 2011/2012 are consistent as
regards most statement items with market expectations (similar to the median of the
consensus of analysts' estimates), with revenues lower by PLN 7.4 million and an operating
result higher by PLN 0.9 million as compared to the previous year. Despite unfavourable
external conditions and a slight drop in sales year-to-year, the Company recorded several
positive achievements. The Sygnity Group recorded an increase in gross margin on sales
compared to the same period of the previous calendar year. Compared to the previous quarter,
the Group increased efficiency of working capital management (marked improvement in cash
flow from operations) and as a result it reduced its net debt and increased the proportion of its
own products and services in the sales structure.
Gross margin on sales (17.6%) was maintained at a level higher than the average for the entire
18-month period ended on 30 June 2012 (17.4%). The Company recorded also positive cash
flow from operations (PLN 18 million), which in turn allowed it to reduce its net debt
compared to the end of Q5 2011/2012 (PLN 31 million as of 30 June 2012 compared to PLN
42 million as of 31 March 2012). Sygnity still records a very high proportion of its own
products and services – in Q6 2011/2012 they accounted for as much as 94% of total sales.
The Company settles it liabilities on time. In accordance with the repayment schedules, in
July and August 2012 (until the date of publication of this letter) the Company repaid a total
of PLN 24 million under bonds maturing in this period.
Despite the unfavourable external factors associated with the effects of the tender offer, which
translated temporarily into negative effect on the generated results, the Management Board is
convinced that Sygnity is on its way to intensive development. For a long time a number of
key corporate customers have been positioning the Company as their leading technological
partner. As regards the public market not only does the Company enjoy a continuously strong
position but it is also increasingly more successful in major tenders, competing effectively
with foreign providers and with major domestic ones. The existing high potential of the
Company is attested to by the fact that Sygnity is capable of developing interesting offers both
for the public sector mentioned above (an offer within a very large tender as regards e-taxes,
worth over PLN 200 million) and the banking one (an offer for BGK concerning the central
system), or the utilities sector. Further strengthening of the Company' position on the market
will also depend to a large extent on investments in new products, primarily those targeted at
customers from the banking sector and the utilities sector, as well as those targeted at SMB Quatra products, including new versions of applications and mobile devices. Developing and
incorporating in its offer new and innovative solutions will mean strengthening the
Company's competence in new areas, which implies both increasing the skills of the existing
employees and the need for hiring new ones. It should be noted that the current backlog of the
Company for the calendar year 2012 amounts to PLN 383 million.
Financial Highlights Q2 2011/2012 vs. Q6 2011/2012:
Data in PLN thousand
Sales revenues
Gross margin on sales
(profitability)
EBITDA
Operating profit (EBIT)
Net result
Q2 2011/2012
106,539
16,373
15.4 %
4,220
172
1,356
Q6 2011/2012
100,729
17,744
17.6%
277
(2,650)
(6,158)
Net debt structure in the last 4 quarters:
Data in PLN
million
Q3 2011/2012
Q4 2011/2012
Q5 2011/2012
Q6 2011/2012
Loans
(10)
(1)
(2)
(2)
Bonds
(33)
(34)
(94)
(91)
Cash and cash
equivalents
30
16
54
62
Net debt
(13)
(19)
(42)
(31)
Structure of revenues Q2 2011/2012 vs. Q6 2011/2012:
Data in PLN thousand
/share/
Public
Banking and finance
Utilities
Other
Total
Q2 2011
Q6 2011/2012
38,674
(36%)
34,958
(33%)
19,510
(18%)
13,397
(13%)
106,539
31,430
(32%)
30,431
(30%)
22,249
(22%)
16,619
(16%)
100,729
Major agreements and events in Q6 2011/2012:


agreement with the Center for Health Information Systems (CSIOZ) on the design,
implementation and guarantee supervision over IT systems in the framework of the ezdrowie (e-health) project. Sygnity to provide a data warehouse and a fraud detection
system; the agreement amounts to PLN 79.52 million gross
annex to the agreement with the National Bank of Poland (NBP) on the maintenance
and development of the Integrated Accounting System in the amount of PLN 44
million gross




conclusion of a cooperation agreement with Dell, providing for the implementation of
joint projects in the area of e.g. cloud-computing, mobile solutions targeted at SMB
customers, solutions aimed at monitoring and management of Dell SecureWorks
Security
launch of a new Information Portal of the Social Security Institution (ZUS) developed
by Sygnity S.A., which is part of the Electronic Services Platform enabling access via
the Internet to the services provided by the Social Security Institution
agreements with several brokerage houses on making their main brokerage systems
compatible with the Universal Trading Platform (UTP) being implemented by the
WSE
introduction into the offer of a new system enabling the processing of payments
between bank customers in real time based on the Express ELIXIR system.