1. EASTNETS EUROPE S.A
IFRS DIRECTORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2012
Our Mission
EASTNETS DELIVERS FINANCIAL
SOLUTIONS THAT ARE RESILIENT,
COMPLIANT AND CONVENIENT.
3. KEY FIGURES 2012
2012 2011
IN THOUSANDS EUR
KEY FIGURES:
Total Income 8.545 8.441
EBITDA 4.412 3.694
Profit for the year 357 598
OTHER KEY FIGURES
Normalised Equity IN THOUSANDS EUR 12.523 12.108
Number of employees (head count at year end) 58 58
Number of FTE (at year end) 57 57
9000
8000
7000
6000
5000 2012
4000 2011
3000
2000
1000
0
Total Income EBITDA Profit for the year
3
4. CONTENTS
SECTION 1: The company in a nutshell
I.Foreword by Hazem Mulhim, CEO of EastNets Group 5
II.Our Company and strategy 6
III.Our Customers 6
IV.Our Products 8
V.Our People 10
VI. Directors’ Report 13
SECTION 2: Audited Consolidated Financial Statements
I. Independent Audit Report 14
II. Consolidated Financial statements of EastNets Europe under IFRS 16
III. Notes and disclosures to the consolidated Financial statements 21
1.Legal status and activities 21
2.Going concern 21
3.Summary of significant accounting policies 21
4.Financial Risk Management 32
5.Critical accounting estimates and judgements 35
6.Property and Equipment 35
7.Intangible Asset & Goodwill 36
8.Investment in an associate 37
9.Income Tax expense and liability 37
10.Trade and other receivables 38
11.Related party transactions and balances 39
12.Cash and cash equivalents 39
13.Share capital 40
14.Retained earnings 40
15.Legal reserve 40
16.Other reserves 40
17.Provisions 40
18.Bank Borrowings 41
19.Trade and other payables 41
20.Revenue and Revenue Recognition 41
21.General and administrative expenses 42
22.Other (losses)/gain - net 43
23.Financial Income 43
24.Financial costs 43
25.Staff costs 44
26.Contingencies and commitments 44
27.Changes or additions to the accounting principles and policies and revenue recognition 44
28.Events after the balance sheet date 44
29.Government grants and loans 44
30.Cash generated from operations 45
31.Loan granted to associates 45
32.Proceeds from borrowings 45
33.Repayments of borrowings 45
34.Prepaid expenses and accrued income 46
35.Accrued charges and deferred revenue 46
4
5. FOREWORD
by Hazem Mulhim
SECTION 1: The company in a nutshell
I.Foreword by Hazem Mulhim, CEO of EastNets Group
To Our Shareholders:
EastNets has completed another year of energetic growth and strong returns in 2012 following a series
of important milestones and strategic initiatives. The 7 per cent increase in turnover highlighted the
exceptional performance we have achieved in 2012,providing the thrust to further expand our growth
objectives as we enter the new fiscal year.
As always, EastNets continued to build on its excellent track record in customer satisfaction and service
excellence to anchor our robust business performance in 2012. In this regard, we are pleased that
en.MoRes had been certified for the SWIFTRemit live service, which guarantees that it complies with the
most stringent industry standards.
EastNets has also strengthened its strategic partnerships to further expand the range and scope of our
services. In partnership with Qtel, Qatar’s telecoms service provider, we are now offering mobile money
transfer services to Nepal through en.MoRes,in addition to India, Pakistan, the Philippines, and the rest
of the Middle East. The new service benefits more than 200,000 Nepalese who reside in Qatar.
It is certainly evident that 2012 had been a very busy and eventful year for EastNets. This is further
highlighted when EastNets was ranked 35th in the 2012 edition of the RiskTech 100 survey released by
Chartis Research, jumping two slots higher in the most comprehensive and prestigious study of the 100
top technology firms involved in the risk management market.
These important breakthroughs have certainly given us the confidence to look forward to another
productive and profitable performance in 2013 and beyond.
Hazem Mulhim
Chief Executive Officer of EastNets
5
6. Strategic
VISION for the future
II.Our Company and strategy
EastNets strategy is to extend current business into new geographies and markets; to evolve solutions to adapt to
new regulations and technology changes; and to anticipate market needs by developing innovative solutions that
deliver incremental value to customers.
For the Compliance Solutions, EastNets growth strategy is to move from point solutions to an integrated approach to
anti-money laundering (AML) and enterprise risk and compliance management. As part of this integrated solution
set, EastNets has developed a fraud prevention solution, to meet the growing threat of online, ATM, wire and
payment card fraud. It is fully integrated with EastNets SafeWatch Filtering and Profiling anti-money laundering
solutions – with shared and integrated databases and workflow processes. Today, over 500 customers in 80
countries rely on EastNets Compliance Solutions.
EastNets has also expanded its outsourced en.Service Bureau offering to enable ASP / SaaS for anti-money
laundering (watch list filtering), reconciliation (operational risk) via our partnership with SmartStream, disaster
recovery, and various SWIFT messaging support capabilities.
Mobile Remittances
EastNets Remittance Company Ltd. (ENR), a company fully owned by EastNets Holding, is a payment service
provider licensed by the UK Financial Services Authority. ENR specializes in the remittance market, explicitly in
enabling international person to person (P2P) remittance services. ENR will provide a complete business solution
that is based on an innovative technological solution. This solution is built on the en.MoRes platform aimed at
mobile money transfer. The en.MoRes platform enables mobile subscribers to send payment instructions over
payment networks cross border, through their mobile phone, conveniently and securely to a beneficiary, through an
over the counter setting and/or into a bank account. The en.MoRes service obtained the SWIFTRemit conformance
label in 2011. The SWIFTRemit is designed to support financial institutions’ needs for low-value, cross-border
person-to-person payments - otherwise known as remittances.
en.MoRes will also launch a new online remittance service as part of its mission to provide a multi-channel platform
for supporting international person-to-person (P2P) remittance services based on the innovative en.MoRes techno-
logical solution. The ultimate goal is to cater to the estimated 200 million migrant workers around the globe that
send money to their homeland on a regular basis.
III.Our Customers
EastNets is committed to providing its customers with ongoing, responsive and superior customer service.
Customer Communication and Feedback
EastNets communicates on a regular basis with its customers in order to improve customer satisfaction. People,
Processes, Products, Policies and Premises are measured periodically to ensure customer satisfaction and to align
and expand new solutions and services to meet their needs.
As such, customer feedback is essential to guide our product and company strategies and performance. We value
our customers for their insight and guidance as customer feedback is an integral component of EastNets strategy
development and improvement.
6
7. Customer
COMMITMENT
and partnership
III. Customer Support
In 2012, a total of 4.208 tickets (compared to 3.017 in 2011) have been handled by the customer service team
which translates into an average of 19,5 tickets per working day. Around 33% of the tickets have been resolved
within 24 hours thanks to the committed efforts of the customer service team. This focus on customer service
activities is best proof of EastNets dedication towards its customer satisfaction.
EastNets Support Testimonials – Selected Survey Comments 2012
• “You are doing the best, please keep it up.” Commercial bank Int'l, UAE
• “What I feel, the engineer's are very proficient and knowledgeable. Happy and very satisfied with
the service :) Thanks” Oman International Bank SAOG, Oman
7
8. Solutions that reduce
COMPLEXITY
and risk
IV.Our Products
For over 25 years, EastNets has been committed to helping businesses transform the way they manage risk and complexity.
With EastNets suite of Compliance and Payments solutions and services customers benefit from enhanced risk control with
solutions that strengthen processes for improved financial crime protection, transparency, resilience and regulatory controls.
For over 28 years, EastNets has been committed to helping businesses transform the way they manage risk and complexity.
With EastNets suite of Compliance and Payments solutions and services customers benefit from enhanced risk control with
solutions that strengthen processes for improved financial crime protection, transparency, resilience and regulatory controls.
8
9. EastNets three solution areas include:
• Compliance EastNets delivers a suite of compliance solutions and services that can be leveraged through a single platform
for improved fnancial crime management and regulatory control. Over 500 customers in 80 countries rely on EastNets
anti-money laundering solutions.
• Resilience EastNets offers first-in-its-class solutions for financial institutions and SWIFT users to strengthen processes for
improved connectivity, transparency, and resiliency. Over 366 customers benefit from EastNets SWIFT plug-ins for improved
message reporting, disaster recovery and duplicate message detection. In addition, EastNets Service Bureau provides
outsourced SWIFT connectivity to over 272 banks and corporates around the world.
• Convenience EastNets provides mobile remittance solutions with en.MoRes to enable secure, compliant mobile money
transfer, and electronic fund transfer (EFT) point of sale (POS), and identity management solutions designed to make it faster,
more secure and convenient for customers to process and deliver transactions through electronic channels.
Compliance Resilience Convenience
en.SafeWatch en.Reporting en.Mores
Filtering en.Recovery Mobile POS
Profiling en.Duplicate Detection
Anti-Fraud en.PaymentSafe
Reconciliation Double-Take
HOSTED SERVICES HOSTED SERVICES HOSTED SERVICE
Mobile Wallet
en.PaymentSafe en.Service Bureau
TLM Reconciliation SWIFT
SafeWatch
Reporting
Dudplicate
Detection
9
10. Talent
TEAMWORK
and commitment
V.Our People
In an IP and services related company like EastNets, relying on our people, their enthusiasm, talent and commitment
is key to building our company and business success for high value creation.
EastNets depends on the quality of its people to deliver excellent service to its customers. EastNets strongly believes
that better services towards our customers can be reached by well trained and experienced individuals.
With the support of the Walloon region, EastNets has been able to receive funding to finance part of its R&D
employees. EastNets believes that the more experienced and trained its people are, the better service they will give
to our customers. That’s why EastNets Europe invested about 41% of its turnover on Research & Development
activities in 2012, relating mainly to investments in human capital and training.
EastNets Europe employed in 2012 approximately 58 people in Europe and in the USA. EastNets wants to enhance
its reputation as an employer of choice that provides excellent career development, equipping employees with the
necessary skills and experience they need to help EastNets compete successfully.
EastNets results are to be seen as an achievement, considering the financial crisis. This success is the fruit of the
achievements of the following Management team:
10
11. Michel Corthouts
Managing Director
Michel has a Masters Degree in Law from Katholieke Universiteit Leuven, MBA from Vlerick Leuven-Gent
Management School, and another MBA (CEPAC) from Solvay Business School.
Michel has a track record of success and during his career, Michel held many leading Business Development
and Managerial position with top financial institutions including SWIFT, JPMorgan, Chase Manhattan, Bank
of America, Credit Lyonnais, and Banco Europeo para America Latina, Argentina (BEAL).
Michel spent 14 years with SWIFT and the last position he held was Director for SWIFT Latin America and
Member of the Americas Management Team.
Mohamed El Bakkali
Finance & Administration Director
Mohamed El Bakkali is the Finance & Administration Director of EastNets Europe, he joined from the EU
institutions where he was in charge managing the finance of the an EU-funded programme aiming to set up
a Free Trade Area between Europe and the Southern Mediterranean countries. With proven abilities to
manage finance, his specialist skill areas include budgeting, cash management, reporting and tax.
He started his career in the United States in the Telecom business, after he graduated in Business administra-
tion with a major in Accountancy and another one in International Business from the Brussels Business School
ICHEC. His educational background has been corroborated with a Master in Business Administration, a
Master in European Tax Law and a degree on Strategy from the prestigious Harvard University.
Hanadi Salame
Development Director
Hanadi Salameh is a USA national holding a Doctorate in Business Administration of Information Systems
from Argosy University, California and a Master degree in Computer Science, California.
She brings with her over 15 years of experience in software engineering and management, as well as IT
management and development. She previously has held positions as Director of Solution Architecture, Project
Manager, Chief Software Architect, and Development Manager. Hanadi has worked at various US compa-
nies before joining EastNets such as J. D. Power and Associates, The McGraw-Hill Companies, CBS Market-
Watch and Bank of America.
11
12. Our HR values are:
1. Team Work
. We work towards common goals through open communication, mutual supports, trust, and understanding.
. We respect each other and build upon our strengths and experience.
2. Commitment
. We are an enthusiastic and self motivated team who are committed to providing solutions and quality
service to our valued customers.
. We are emotionally and intellectually close to our clients, products, work, employees, and the community
at large.
3. Customer Focus
. Our success depends on the success of our customers.
. We provide our customers with our comprehensive experience and solutions so they can achieve their
objectives quickly and effectively.
4. Innovation
. We encourage Innovation to shape our future.
. We strive to create an open and friendly environment.
. We recognize creativity and original thinking.
5. Accountability
. We are obliged to demonstrate and take responsibility for performance in light of agreed expectations
and also bear the consequences
. Our Executive Management is obliged to answer the Board for an action
. Managers are obliged to answer the Executive Management for an action
. Employees are obliged to answer the Managers for an action
6. Respect
. Our cultural diversity provides strengths, as well as challenges, and we strive to turn uncomfortable
situations into learning opportunities
. We do not tolerate cultural or ethnic stereotyping and promote openness, knowledge sharing, and
tolerance.
12
13. VI. Directors’ Report
The Directors submit their report together with the audited consolidated financial statements of EastNets
Europe and its subsidiaries for the year ended 31 December 2012.
Principal activity
EastNets is a global leading provider of compliance and payment solutions and services with headquarters
in Dubai, and 16 offices across Europe, North America, the Asia-Pacific and Middle East.
Results and appropriations
The results of the Group for the year ended 31 December 2012 are set out under section III “Consolidated
financial statements”.
Directors
The following members of the board of EastNets Europe were directors throughout the financial year and
each remains a member of the Board as at 31 December 2011:
• Hazem Mulhim - Managing Director
• Pierre Goffinet - Director
• Dominique Fontaine - Director
Auditors
The consolidated financial statements have been audited by Moore Stephens.
On behalf of the Board
Hazem Mulhim
…………………................
14 February 2013
13
14. SECTION 2: Audited Consolidated Financial Statements
VII. Independent Audit Report
Blue Tower
Avenue Louise 326, Box 32
B-1050 Brussels
Belgium
T +32 (0)2 640 07 96
F +32 (0)2 640 53 43
Report of the independent auditor www.moorestephensbrussels.com
Moore Stephens A S SC SPRL
to the shareholders of EastNets Europe SA RPM Bruxelles
9, Route des Trois Cantons Longwy 370, L-83991941 Luxembourg TVA BE 0831.408.873
Consolidated Financial Statements as at 31 DECEMBER 2012
In accordance with our contract, we have audited the accompanying consolidated financial statements of EastNets
Europe SA set out in section 2 of this documente annual report, which comprise the balance sheet as at 31 December
2012 and the income statement and the cash flow statement for the year then ended, the statement of changes in
equity, and a summary of significant accounting policies and other explanatory notes. We stamped the audited
documents in order to identify them. We have not audited any other document that can be distributed with these
consolidated financial statements.
Respective responsibilities of management and auditors
Management is responsible for the preparation and the fair presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards as adopted by the European Union. This responsibility
includes maintaining internal control relevant to the μpreparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies that are
consistent with IFRS accounting rules; and making accounting estimates that are reasonable in the circumstances.
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted
our audit in accordance with International Standards on Auditing. Those standards require that we plan and perform
the audit to obtain reasonable, but not absolute, assurance whether the consolidated financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The audit procedures selected depend on the auditor’s assessment of the risks of material
misstatement of the consolidated financial statements.
In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial
statements as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation and disclosures.
An independent member firm
of Moore Stephens International Limited
– members in principal cities
throughout the world
14
15. We believe that the audit evidence that we have obtained is sufficient and appropriate to provide a reasonable basis
for our opinion on the financial statements.
Basis for Qualified Opinion
The company’s revenue in the consolidated income statement amounts to EUR 8.545.079. Management has recognised
in the company’s revenue a contract of EUR 704.000 for which only a letter of intent was received, which constitutes
a departure from International Financial Reporting Standards. Accordingly, the company’s revenue would have been
decreased by EUR 704.000 to EUR 7.841.079 and shareholders’ equity would have been reduced from
EUR 12.522.776 to EUR 11.818.776.
Qualified Opinion
In our opinion, except for the effects of the matter described in the Basis for Qualified Opinion paragraph
In our opinion, the financial statements give a true and fair view of the financial position of Eastnets Europe SA as of 31
December 2012 and its financial performance and its cash flows for the year then ended in accordance with International
Financial Reporting Standards.
Explanatory Paragraph
The accompanying consolidated financial statements have been prepared assuming that the company will continue as
a going concern. As discussed in Note 2 to the financial statements, the company has also suffered recurring losses from
operations of its subsidiary in the USA affecting its cash flow situation that raise substantial doubt about its ability to
continue as a going concern. Management's plans in connection with these matters are also described in Note 2.
In addition, we have received the comfort from the parent company that they will support EastNets Europe SA.
Without questioning the opinion expressed above, we draw the attention that directors have approved the
financial statements on a going concern basis and they justify the application of accounting rules in the context of continuity.
Moore Stephens AS SC Scprl
Brussels, 15 February 2013
Represented by:
Christopher Thubron FCA
Partner
15
16. VIII. Consolidated financial statements of EastNets Europe under IFRS
A.Consolidated balance sheet (2012-2011)
Assets
Assets
Notes 2012 2011
Non-current assets
Property, plant and equipment 3.4, 6 205.471 270.680
Intangible assets 3.6, 7 11.525.641 10.877.763
Investments in associates 0 0
Deferred income tax assets 0 0
Available-for-sale financial assets 0 0
Trade and other receivables 10 3.530.450 1.800.595
Goodwill 3.7 7.981.544 7.981.544
Total non-current assets 23.243.106 20.930.582
Current assets
Inventories 0 0
Trade and other receivables 3.101, 10 4.987.596 5.628.189
Available-for-sale financial assets 0 0
Derivative financial instruments 0 0
Financial assets at fair value through profit or loss 0 0
Cash and cash equivalents 3.11,12 2.435.085 2.294.318
Assets of disposal group classified as held for sale 0 0
Prepaid Expenses and accrued income 343 37.666 65.437
Total current assets 7.460.346 7.987.944
Total Assets 30.703.452 28.918.526
16
17. Liabilities and equity
Notes 2012 2011
Equity attributable to owners of the parent
Ordinary shares 13 6.100.000 6.100.000
Share premium 0
Other reserves 0 0
Retained earnings 14 6.066.256 5.409.584
Earnings 2011 356.520 598.125
Minority interest
Total equity 12.522.776 12.107.709
Non-current liabilities
Borrowings 4.1 6.329.658 6.398.702
Derivative financial instruments 0
Deferred income tax liabilities 0
Retirement benefit obligations 0
Provisions for other liabilities and charges 3.15, 16 92.709 1.138.915
Total non-current liabilities 6.422.367 7.537.617
Current liabilities
Trade and other payables 3.14,18 2.804.982 2.182.802
Current income tax liabilities 9 828.548 736.254
Borrowings 4.1 4.788.428 3.067.351
Derivative financial instruments 0 0
Provisions for other liabilities and charges 0 0
Liabilities of disposal group classified as held-for-sale 0 0
Accrued charges and deferred revenues 354 3.336.351 3.286.792
Total current liabilities 11.758.309 9.273.200
Total Liabilities 30.703.452 28.918.526
These consolidated financial statements were approved by the board of directors on 14 February 2013 and were signed
on their behalf by:
Hazem Mulhim
Chief Executive Officer
17
18. B. Consolidated income statement (2012-2011)
Notes 2012 2011
Revenue 20 8.545.079 8.440.564
Cost of sales (64.334) ( 624.491)
Gross Profit 8.480.745 7.816.074
Distribution costs 0 0
Administrative expenses 21 (7.003.233) ( 6.617.859)
Other Income 0
Other (losses)/gains Ð net 24 (576.700) (79.558)
Loss on expropriated land 0 0
Operating profit 900.812 1.118.657
Financial income 23 44.900 156.114
Financial costs 24 (414.293) (336.880)
Financial costs Ð net (369.393) (180.765 )
Share of (loss)/profit of associates 0 0
Profit before income tax 531.419 937.892
Income tax expense 3.18,9 (174.899) ( 339.766)
Profit for the year from continuing operations 356.520 598.125
Discontinued operations 0 0
Profit for the year from discontinued operations 356.520 598.125
Profit attributable to:
Owners of the parent 356.520 598.125
Minority interest 0
18
19. C. Consolidated statement of comprehensive income (2012)
Year ended 31 December
Note 2012
2011 2010
2011
EUR EUR
Profit for the year 598.125
356.520 856.950
598.125
Other comprehensive income:
Gain on revaluation of land
Currency translation differences (95.116)
58.547 (62.407)
(95.116)
--------------- ---------------
Total other comprehensive income (95.116)
415.067 (62.407)
503.010
--------------- ---------------
Total comprehensive income for the year 503.010
415.067 794.543
503.010
attributable to equity holders of the Company
======= =======
D. Consolidated statement of changes in equity (2012)
Share Revaluation Capital Legal Translation Retained
Notes
Notes capital r e s e rv e reserve reserve reserve earnings Total
EUR EUR EUR EUR EUR EUR EUR
1 January 2010
January 2010 6.100.000 6.007.709 12.107.709
Capital Increase
CapitalIncrease
Comprehensive income
Comprehensive income
Profit for the year
Profit for the year 356.520 356.520
Other comprehensive
Other comprehensive
income
income
- Revaluation surplus
surplus
- Currency translation
translation
difference
difference 58.547 58.547
---------------- ------------------ -------------- ------------- ---------------- ------------ ------------
At 31 December 2010
December 2012 6.100.000 6.422.776 12.522.776
19
20. E. Consolidated Cash flow statement (2012)
Note 2012
Cash flows from operating activities
Cash generated from operations 29 4.363.167
Interest paid 23 (327.380)
Income tax paid 9 (174.899)
Net cash generated from operating activities 3.860.888
Cash flows from investing activities
Acquisition of subsidiary, net of cash acquired
Purchases of property, plant and equipment (PPE) 3.4,6 (74.606)
Proceeds from sale of PPE
Capitalised development 7 (3.569.001)
Purchases of intangible assets 7 (2.725)
Purchases of available-for-sale financial assets
Loans granted to associates (1.731.462)
Loan repayments received from associates
Loans granted to subsidiary undertakings
Loan repayments received from subsidiary undertakings
interest received 22 4.836
Dividends received
advances to other parties 1.607
Net cash used in investing activities (5.371.351)
Cash flows from financing activities
Proceeds from issuance of ordinary shares
Purchase of treasury shares
Proceeds from issuance of convertible bonds
Proceeds from borrowings 30,31 2.016.554
Repayments of borrowings 32 (1.517.916)
Proceeds from loan from subsidiary undertaking
Dividends paid to companyÕs shareholders
Dividends paid to holders of redeemable preferences shares
Dividends paid to minority interests
Net cash used in financing activities 498.639
Net (decrease)/increase in cash, cash equivalents and bank overdrafts
(1.011.824)
Cash, cash equivalents and bank overdrafts at beginning of year12 695.216
Exchange gains/(losses) on cash and bank overdrafts (803)
Cash and cash equivalents at the end of the year - continuing operations
12 (317.411)
20
21. IX. Notes and disclosures to the consolidated financial statements
1. Legal status and activities
EastNets Europe is a Limited Liability Company incorporated in 2007 under Luxemburg Law and have moved
its registered office in Luxemburg to - 9, Route des Trois Cantons, 8399 Windhof.
The principal activity of the Company and its subsidiaries (together, “the Group”) is the development and
delivery of compliance and payment solutions and services mainly in Europe, USA and the rest of the world
through its global resellers.
The Company is 100% owned by EastNets Holding Ltd (“the Parent Company”).
The Group holds participations in the following principal subsidiaries:
- EastNets Americas Corp (USA) - 100%
- EastNets R&D S.A (Belgium) - 100%
- EastNets France S.A.S (France) - 100%
- EastNets Nederland B.V (Netherlands) - 100%
No change in the ownership has occurred during 2012.
2. Going concern
At 31 December 2012, EastNets Europe had net current liabilities of KEUR 11.756 (2011: KEUR 9.273). Based
on the attached figures of our financial statements and our market potential, we have sufficient comfort that EastNets
Europe and its subsidiaries have sufficient resources to continue to operate existence for the foreseeable future.
We would like to remind our shareholders that we have taking the following facts to justify the application of the
going concern aspects:
- We continue intensively to invest in research & development to improve the quality of our product (cost for this year
is EUR 3.569k) and this could not be financed fully by our operating activities ;
- We also had to face significant losses in the US subsidiary affecting its cash flow situation totalling for the year
ended 2011: USD 3.858.075,
- We have also short term liabilities due to the Belgian and Luxembourg social securities amounting to EUR 350.000
and to the tax and VAT administrations amounting to EUR 450.000
Our budget for next year showing total cash in flows from sales amounting to EUR 9.500.00 and a positive net cash
flow of EUR 4.319 which will allow EastNets Europe to face all his obligation towards all our creditors.
Accordingly, EastNets Europe continues to use the going concern basis in preparing its financial statements.”
3. Summary of significant accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.
These policies have been consistently applied to all the years presented, unless otherwise stated.
3.1. Basis of preparation
The consolidated financial statements of the Group have been prepared in accordance with International Financial
Reporting Standards (IFRS). These consolidated financial statements have been prepared under the historical cost convention.
21
22. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates.
It also requires management to exercise its judgment in the process of applying the Group’s accounting policies.
(a) New and amended standards adopted by the Group:
The Group has adopted the following new and amended IFRSs as of 1 January 2012:
• IFRS 7 ‘Financial Instruments’: Disclosures- Amendments resulting from May 2011 Annual Improvements to IFRSs.
The amendment will not result in a material impact on the Group’s financial statements.
• IFRS 7 ‘Financial Instruments’ (for the annual periods beginning on or after 1 July 2011) Disclosures- Amendments
enhancing disclosures about transfers of financial assets. The amendment will not result in a material impact on the
Group’s financial statements.
• IFRS 7, ‘Financial Instruments’. Disclosures - Amendments enhancing disclosures about offsetting of financial assets
and financial liabilities beginning on or after 1 January 2013 and interim periods within those periods. IFRS 7 is not
expected to have a material impact on the Group’s financial statements.
• IFRS 7, ‘Financial Instruments’. Disclosures - Amendments requiring disclosures about the initial application of IFRS 9
beginning on or after 1 January 2015 (or otherwise when IFRS 9 is first applied). IFRS 7 is not expected to have
a material impact on the Group’s financial statements.
• IFRS 9, ‘Financial Instruments’. IFRS 9 represents the first milestone in the comprehensive IASB project to replace for
annual periods starting on 1 January 2015 (mandatory application date amended December 2011). IFRS 9 is not
expected to have a material impact on the Group’s financial statements.
• IFRS 10, ‘Consolidated Financial Statements’. IFRS 10 will be applicable for the annual periods beginning on or after
1 January 2013. IFRS 10 is not expected to have a material impact on the Group’s financial statements.
• IFRS 11, ‘Joint Arrangements’. IFRS 11 will be applicable for the annual periods beginning on or after 1 January
2013. IFRS 10 is not expected to have a material impact on the Group’s financial statements.
• IFRS 12, ‘Disclosure of Interests in Other Entities’. IFRS 12 will be applicable for the annual periods beginning on
or after 1 January 2013. IFRS 10 is not expected to have a material impact on the Group’s financial statements.
• IFRS 13, ‘Fair Value Measurement’. IFRS 12 will be applicable for the annual periods beginning on or after
1 January 2013. IFRS 10 is not expected to have a material impact on the Group’s financial statements.
(b) Standards, interpretations and amendments to published standards that are not yet effective and
have not been early adopted by the Group:
• Nihil
(c) Standards, interpretations and amendments to published standards that are not yet effective and
have not been early adopted by the Group (continued):
• Nihil
22
23. 3.2 Basis of Consolidation
(a) Subsidiaries
Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the
financial and operating policies, generally accompanying a shareholding of more than 50% of the voting rights. The
existence and effect of potential voting rights that are currently exercisable or convertible are considered when assess-
ing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is
transferred to the Group. They are de-consolidated from the date that control ceases.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group, except for
acquisitions involving entities under common control, which are accounted for using the uniting of interests method. The
cost of an acquisition under the purchase method is measured as the fair value of the assets given, equity instruments
issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition.
Identifiable net assets acquired, including separately identifiable intangibles e.g. brands, and contingent liabilities
assumed in a business combination, are measured initially at their fair values at the acquisition date, irrespective of the
extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of identifi-
able net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of
the subsidiary acquired, the difference is recognised directly in the consolidated income statement.
(b) Transactions eliminated on consolidation
Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated in
preparing the consolidated financial statements. Unrealised losses are also eliminated. Uniform accounting policies are
used for like transactions and events. Therefore, if a subsidiary or a joint venture uses different accounting policies from
those applied in the consolidated financial statements, appropriate consolidation adjustments to align accounting policies
are made when preparing these consolidated financial statements.
(c) Associates and Joint Ventures
Associates are all entities over which the Group has significant influence but not control, generally accompanying a
shareholding of between 20% and 50% of the voting rights. A joint venture is a contractual arrangement between the
Group and one or more other parties to undertake economic activity that is subject to joint control.
Investments in associates and joint controlled entities are accounted for using the equity method of accounting and are
initially recognised at cost. The Group’s investment in associates includes goodwill identified on acquisition, net of any
accumulated impairment loss.
23
24. (c) Associates and Joint Ventures
The Group’s share of its associates and joint controlled entities post-acquisition profits or losses is recognised in the
consolidated income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The
cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s
share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables,
the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the
associate/joint ventures.
The Group’s interests in jointly controlled operations are accounted for by proportionate consolidation. The Group
combines its share of the joint ventures’ individual income and expenses, assets and liabilities and cash flows on a
line-by-line basis with similar items in the Group’s financial statements. The Group recognises the portion of gains or
losses on the sale of assets by the Group to the joint venture that is attributable to the other venturers. The Group does not
recognise its share of profits or losses from the joint venture that result from the Group’s purchase of assets from the joint
venture until it sells the assets to an independent party. However a loss on the transaction is recognised immediately if the
loss provides evidence of a reduction in the net realisable value of current assets, or an impairment loss.
Unrealised gains on transactions between the Group and its associates/joint ventures are eliminated to the extent of the
Group’s interest in the associates/joint ventures. Unrealised losses are also eliminated unless the transaction provides
evidence of impairment of the asset transferred. Accounting policies of associates/joint ventures have been changed
where necessary to ensure consistency with the policies adopted by the Group. Dilution gains and losses are recognised in
the consolidated income statement.
(d) Changes in the consolidation scope
No change in the consolidation scope has occurred.
The consolidated companies remain the following:
- EastNets Americas Corp (USA) - 100%
- EastNets R&D S.A (Belgium) - 100%
- EastNets France S.A.S (France) - 100%
- EastNets Nederland B.V (Netherlands) - 100%
3.3. Foreign currency translation
(a) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the
primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial
statements are presented in Euro, which is the Company’s functional and Group’s presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the
dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from
the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are
recognised in the consolidated income statement, except when deferred in equity as qualifying for cash flow hedges
and qualifying net investment hedges.
Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the
consolidated income statement within “financial income or cost”. All other foreign exchange gains and losses are
presented in the consolidated income statement within “General and administrative expenses”.
(c) Group entities
The results and financial position of all the Group entities (none of which has the currency of a hyper-inflationary economy)
that have a functional currency different from the presentation currency are translated into the presentation currency as
follows:
(i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet.
(ii) income and expenses for each income statement are translated at average exchange rates; and
(iii) all resulting exchange differences are recognised as a separate component of equity.
24
25. On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and
of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’
equity. When a foreign operation is partially disposed of or sold, exchange differences that were recorded in equity
are recognised in the consolidated income statement as part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of
the foreign entity and translated at the closing rate.
3.4. Property and equipment
Property and equipment are stated at cost less accumulated depreciation and impairment losses, if
any, except land which is stated at revalued amount. The cost of property and equipment is its
purchase cost together with any incidental costs of acquisition. Subsequent costs are included in
the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item will flow to the Group and the cost
of the item can be measured reliably. The carrying value of the replaced part is taken
to the consolidated income statement. All other repairs and maintenance costs are charged to the
consolidated income statement during the financial period in which they are incurred.
Increases in the carrying amount arising on revaluation of land are credited to other reserves in
shareholders’ equity.
Decreases that offset previous increases of the same asset are charged against other reserves
directly in equity; all other decreases are charged to the consolidated income statement.
Land is not depreciated. Depreciation on other assets is calculated on the straight-line method, at
rates calculated to reduce the cost of assets to their estimated residual value over their expected
useful lives, as follows:
Years
Furniture and office equipment 5
Tools and equipment 5
Motor vehicles 5
Computer hardware and software 3
The residual values and useful lives of assets are reviewed, and adjusted if appropriate, at each
balance sheet date.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s
carrying amount is greater than its estimated recoverable amount.
25
26. Gains and losses on disposals are determined by comparing proceeds with carrying amount and
are included in the consolidated income statement.
Capital work-in-progress is stated at cost. When commissioned, capital work-in-progress is trans-
ferred to the appropriate category of property and equipment and depreciated in accordance with
the Group’s policy.
3.5 Investment property
Investment property is defined as property held to earn rentals or for capital appreciation or both
and is carried at cost less accumulated depreciation and impairment losses, if any. In addition,
land held for undetermined use is classified as investment property and is not depreciated. The fair
values for disclosure purposes of the investment properties are determined by external valuers.
3.6 Intangible Assets
(a) Capitalised Development
Principles
IAS 38 on Intangible Assets requires an entity to recognise an intangible asset if, and only if, certain criteria
are met.
An intangible asset is an identifiable non-monetary asset without physical substance.
An asset is a resource that is controlled by the entity as a result of past events (for example, self-creation)
and from which future economic benefits (inflows of cash or other assets) are expected.
The three critical attributes of an intangible asset are:
- identifiability
- control (power to obtain benefits from the asset)
- future economic benefits (such as revenues or reduced future costs)
An intangible asset is identifiable when it:
- is separable (capable of being separated and sold, transferred, licensed, rented, or exchanged,
either individually or together with a related contract) or
- arises from contractual or other legal rights, regardless of whether those rights are transferable or
separable from the entity or from other rights and obligations.
26
27. IAS 38 requires an entity to recognise an intangible asset (at cost) if, and only if:
- it is probable that the future economic benefits that are attributable to the asset will flow
to the entity; and
- the cost of the asset can be measured reliably.
Development costs are capitalised only after technical and commercial feasibility of the asset for
sale or use have been established.
This means that the entity must intend and be able to complete the intangible asset and either
use it or sell it and be able to demonstrate how the asset will generate future economic benefits.
Intangible assets are initially measured at cost, including direct and indirect cost.
Amortisation: over useful life, based on pattern of benefits (straight-line is the default).
Subsequent expenditure on an intangible asset after its purchase or completion should be recog-
nised as an expense when it is incurred, unless it is probable that this expenditure will enable
the asset to generate future economic benefits in excess of its originally assessed standard of
performance and the expenditure can be measured and attributed to the asset reliably.
An intangible asset is recognized as an asset if it is probable that future economic benefits
attributable to the asset will flow to the enterprise and if the cost of the asset can be measured
reliably.
The Capitalised R&D is recognized at cost in the balance sheet (cost method), less any accumu-
lated depreciation and any accumulated impairment losses.
Starting this year and in line with EastNets Group requirements, the Capitalised R&D is depreci-
ated on a straight-line basis at 25% per annum starting the year following its capitalisation.
Intangible assets are reviewed at each balance sheet date in order to identify indications of
potential impairment that may have arisen during the fiscal year. In case such indications are
noted, an estimate of the recoverable amount of the intangible assets in question is established.
The recoverable amount is defined as the higher of the net fair value of an asset and its value in
use.
Intangible assets are impaired when their carrying amount exceeds the amount that can be
recovered, as a result of obsolescence of these assets or due to economic or technological circum-
stances. A review of the capitalised R&D has been done with the Product team and it has been
decided that no impairment is required as all products capitalised over the past 3 years are still
commercialised and enhanced.
Intangible assets with an indefinite useful life are subject to an annual impairment test, and an
impairment loss is recognized
when their carrying amount exceeds their recoverable amount.
The useful life, the depreciation method and the potential residual value of intangible assets are
reassessed at each balance sheet
date and revised retrospectively, if applicable.
27
28. Intangible assets consist exclusively of the carrying amount of investment software developed by
EastNets Europe S.A. This software is amortized over 4 years on a straight-line basis, starting the
year after its initial capitalisation.
Major investments during the fiscal year concern software developed in relation to the AML and Swift
solutions. These investments are the result of the internal developments carried out by “Center of
Excellence” located in Waterloo – Belgium which has been employing Software and Q&A Engineers
and Product Managers. Major investments related to the Service Bureaux have also continued in
2012.
EastNets Europe S.A emphasizes that no indications existed at the balance sheet date that the value
of intangible assets may have been impaired.
On the intellectual property side, EastNets Europe believes that its success will be partly dependant
on its ability to secure the intellectual rights of its product suite and by enforcing its intellectual rights
are respected by third parties.
EastNets Europe uses mainly copyright to protect the intellectual property developed as a result of its
R&D. These copyrights allow EastNets to prevent competitors from copying EastNets source codes,
but do not prevent competition from developing products that perform the same functionalities.
Management has decided to capitalise costs incurred in the continuing development of the product
line which forms the basis of the sales of the company. In the year ended 31 December 2012 the
amount was evaluated by the Management at K€3.569 (2011: K€3.468), including 60 % indirect costs.
3.7. Goodwill
Goodwill represents the excess, at acquisition date, of the cost of a business combination over the
purchaser’s share in the net fair value of identifiable assets, liabilities and contingent liabilities. If this
difference is positive, goodwill is recognized as an asset.
An impairment test is carried out each year, even when there is no indication that goodwill may have
been impaired, or more frequently if events or changes in circumstances indicate that goodwill may
have been impaired (IFRS 3 – Business Combinations).
If the difference is negative, any impairment would be recognized in the income statement.
Impairments will exist if there is:
• objective evidence of impairment as a result of a loss event that occurred after the initial recog-
nition of the asset and up to the balance sheet date (“a loss event”);
• the loss event had an impact on the estimated future cash flows of the financial asset or the
group of financial assets; and
• a reliable estimate of the loss amount can be made.
As the company continues its growth in terms of revenue and profitability the test confirms
that no impairment is required at the balance sheet date.
28
29. 3.8. Impairment of non-financial assets
Assets that have an indefinite useful life, for example goodwill, are not subject to
amortisation and are tested annually for impairment. Assets that are subject to
amortisation are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. An impairment loss is
recognised for the amount by which the asset’s
carrying amount exceeds its recoverable amount. The recoverable amount is the higher of
an asset’s fair value less costs to sell and value in use. For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there are separately
identifiable cash flows (cash-generating units). Non-financial assets that suffered an
impairment are reviewed for possible reversal of the impairment at each reporting date.
3.9. Inventories
Inventories are stated at the lower of cost and estimated net realisable value. Cost is
determined by the weighted average method and includes all costs incurred in acquiring
the inventories and bringing them to their present location and condition. Net realisable
value is the estimate of the selling price in the ordinary course of business, less variable
selling expenses, if any.
3.10. Trade receivables
Trade receivables are amounts due from customers for merchandise sold in the ordinary
course of business. If collection is expected within one year or less, they are classified as
current assets. If not, they are presented as non-current assets.
Trade receivables are recognised initially at fair value and subsequently measured at
amortised cost using the effective interest method, less provision for impairment.
3.11. Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, current accounts and bank deposits
with original maturity of three months
or less.
3.12. Borrowings
Borrowings are recognised at fair value, net of transaction costs incurred. Fees paid on
the establishment of loan facilities are recognised as expenses.
Borrowings are classified as current liabilities unless the Group has an unconditional right
to defer settlement of the liability for at least 12 months after the balance sheet date.
29
30. 3.13. Employee benefits
Provision is made for the estimated liability for employees' entitlement to annual leave as a
result of services rendered by eligible employees up to the balance sheet date.
Provision is also made using actuarial techniques for the full amount of end of service ben-
efits due to eligible employees in accordance with Labour Laws applicable to the individual
Group companies, for their period of service up to the balance sheet date.
The provision relating to annual leave and leave passage is disclosed as a current liability,
while that relating to end of service benefits is disclosed as a non-current liability.
3.14. Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the
ordinary course of business from suppliers.
Accounts payable are classified as current liabilities if payment is due within one year or
less. If not, they are presented as non-current liabilities.
Trade payables are recognised at fair value.
3.15. Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as
a result of past events, it is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation, and a reliable estimate of the amount can
be made. Provisions are not recognised for future operating losses.
Provisions are measured at the present value of the expenditures expected to be required to
settle the obligation using a pre-tax rate that reflects current market assessments of the time
value of money and risks specific to the obligation. Increases in provisions due to the
passage of time are recognised as interest expense.
Where there are a number of similar obligations, the likelihood that an outflow will be
required in settlement is determined by considering the class of obligations as a whole. A
provision is recognised even if the likelihood of an outflow with respect to any one item
included in the same class of obligations may be small.
30
31. Provisions decreased by €1million, mainly due to the use, following the arbitration decision,
of the legal provisions made for the “reps and warranties” under the Share Purchase Agree-
ment. A settlement agreement has been signed with the previous owner which stops all legal
suit cases.
3.16. Revenue Recognition
Revenue comprises the fair value of the consideration received or receivable for the sale of
goods and services in the ordinary course of the Group’s activities. Revenue is shown net of
returns, rebates and discounts and after eliminating sales within the Group.
Under IAS 18 revenue is recognised when the risks and advantages of the sales of the
licences have been transferred to the clients. When a contract has been signed and the
licence delivered, the Group policy is to recognise the revenue.
At a local company level, revenue is recognised in line with the local regulations of the coun-
try in which the subsidiary is registered.
Professional services revenues are recognised in the period that the services are provided.
Support services invoiced through the maintenance are recognised within the year to which
they relate, independently of when they have been invoiced or paid.
3.17. Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by
the lessor are classified as operating leases. Payments made under operating leases (net of
any incentives received from the lessor) are charged to the consolidated income statement on
a straight-line basis over the period of the lease.
3.18. Taxation
The tax expense for the period comprises current and deferred tax. Tax is recognised in the
consolidated income statement;
The current income tax charge is calculated on the basis of the tax laws enacted or substan-
tively enacted at the balance sheet date in the countries where the Group’s subsidiaries oper-
ate and generate taxable income. Management periodically evaluates positions taken in tax
returns with respect to situations in which applicable tax regulation is subject to interpreta-
tion and establishes provisions where appropriate on the basis of amounts expected to be
paid to the tax authorities.
Deferred income tax is recognised, using the liability method, on temporary differences aris-
ing between the tax bases of assets and liabilities and their carrying amounts in the consoli-
dated financial statements. Deferred income tax is determined using tax rates (and laws) that
have been enacted or substantially enacted by the balance sheet date and are expected to
apply when the related deferred income tax asset is realised or the deferred income tax
liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that future taxable
profit will be available against which the temporary differences can be utilised.
31
32. 4. Financial Risk Management
4.1 Financial risk factors
The Group’s activities are exposed to a variety of financial risks: market risk (including
currency risk, price risk and cash flow and fair value interest rate risk), credit risk and liquidity
risk. The Group’s overall risk management programme focuses on the unpredictability of finan-
cial markets and seeks to minimise potential adverse effects on the Group’s financial perfor-
mance.
Risk management is carried out under policies approved by the Board of Directors. Key risks
are identified and evaluated based on which risk management procedures are designed and
implemented.
(a) Market risk
(i) Foreign exchange risk
The Group operates internationally and its exposure remain limited as its products and services
are invoiced in euros.
Foreign exchange risks arise from future commercial transactions, recognised assets and liabili-
ties and net investments in
foreign operations. Management does not consider this risk as important to warrant any
specific procedures to manage
the exposure.
(ii) Price risk
The Group is not exposed to significant price risk as it does not have investments in traded
equity securities.
(iii) Cash flow and fair value interest rate risk
The Group is not exposed to interest rate risk on its interest bearing assets and liabilities as
main Borrowings are at fixed rates.
b) Credit risk
Credit risk arises from cash and cash equivalents and deposits with banks and financial institu-
tions, as well as credit exposures to customers, including outstanding receivables. The Group
assesses the credit quality of the customer, taking into account its financial position, past experi-
ence and other factors.
This is mainly limited as the Group’s customers are mainly banks benefiting from their State
guarantee.
(c) Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash and the availability of
funding through an adequate amount of committed credit facilities. Due to the dynamic nature
of the underlying businesses, Group treasury maintains flexibility in funding by maintaining
availability under committed credit lines. Cash flow forecasting is performed by the Group on
an ongoing basis through rolling forecasts to ensure it has sufficient cash to meet the opera-
tional needs. These needs are met through the utilisation of the syndicated loan facility avail-
able.
As at 31 December 2012, balances due within 12 months equal their carrying balances as the
impact of discounting is not significant.
32
33. Less than Between 2 and More than
At 31 December 2012
1 year 7 years 7 years
EUR EUR EUR
Grants (Sofinex and novalia) 17 473.750 3.405.978
Bank overdraft 18 2.752.495
Bank borrowings 18 1.562.182 2.923.680
Subtotal
Borrowings(11.118.086) 4.788.428 6.329.658
Trade and other payables 19 2.804.982 -
Current income tax liabilities 9 828.548 -
Total
At 31 December 2012 8.421.957 6.329.658 -
33
34. 4.2 Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to
continue as a going concern in order to provide returns to shareholders and benefits for other
stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of
dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets
to reduce debt.
Consistent with others in the industry, the Group monitors capital on the basis of the gearing
ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as
total borrowings (including ‘current and non-current borrowings’ as shown in the consolidated
balance sheet) less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown
in the consolidated balance sheet plus net debt.
During 2012, the Group’s strategy was to maintain the gearing ratio within 41% to 37%.
The gearing ratios at 31 December 2012 and 2011 were as follows:
2012 2011
EUR EUR
Total borrowings (Note 4.1) 11.118.086 9.466.054
Less: cash and bank balances (Note12) -2.435.085 -2.294.318
Net debt 8.683.001 7.171.736
Total equity 12.522.776 12.107.709
Total capital 21.205.778 19.279.444
Gearing ratio 41 % 37%
The gearing ratio has remained stable.
4.3 Fair value estimation
The carrying value less impairment provision of trade receivables and payables are
assumed to approximate their fair values due to the short-term nature of trade receivables.
The fair value of financial liabilities for disclosure purposes is estimated bydiscounting
the future contractual cash flows at the current market interest rate that is available to the
Group for similar financial instruments. Other receivables and payables approximate their
fair values.
34
35. 5. Critical accounting estimates and judgements
Estimates and judgments are continually evaluated and are based on historical experience
and other factors, including expectations of future events that are believed to be reasonable
under the circumstances.
5.1 Critical accounting estimates and assumptions
The Group makes estimates and assumptions concerning the future. The resulting ccounting
estimates will, by definition, seldom be equal to the related actual results.
The estimates and assumptions that have a significant risk of causing a material adjustment
to the carrying amounts of assets and liabilities within the next financial year are as
follows:
(a) Impairment of trade and other receivables
The impairment charge reflects estimates of losses arising from the failure or inability of the
parties concerned to make the required payments. The charge is based on the aging of
party accounts, the customer’s credit worthiness and historic write-off experience. Changes
to the estimated impairment provision may be required if the financial condition of the
customers were to improve or deteriorate.
In management’s judgment, the impairment charge on trade and other receivables is
appropriate.
6. Property and Equipment
Machinery
Land and and furniture, Formation
buildings Equipment Fittings expenses TOTAL
At 31 december2011
Cost or valuation 188.850 516.788 124.531 70.496
accumulated depreciation (73.629) (416.710) (95.163) (44.482)
Net Book amount 115.221 100.078 29.368 26.013 270.680
During 2012
Additions 5.914 68.692 - -
Depreciation charge (21.418) (76.538) (17.251) (24.612)
Exchange dif / cost - (3.794) (476) -
Exchange dif / deprec. - 3.867 408 -
Closing net book amount 99.717 92.304 12.049 1.401 205.471
At 31 december2012
Cost or valuation 194.764 541.408 124.055 70.496
Accumulated depreciation (95.047) (449.104) (112.006) (69.094)
During the year ended 31 December 2012, a depreciation charge of K€140 was
recognised on buildings, machinery & equipment and furniture.
35
36. 7. Intangible Asset & Goodwill
Intangible Asset
Internally generated software developed
cost 31 December 2011 12.819.900
December 2010
accumulated depreciation -5.062.143
Net book account at 31 december 2011 7.757.757
During 2012:
additions 3.569.001
depreciation charge -2.905.288
exchange dif/cost
exchange dif/deprec
closing net account 8.421.470
AT close date
Cost of Valuation 16.388.901
accumulated depreciation -7.967.431
Net book account exercice 8.421.470
Other Intangible asset cost 31 Dec 2011 6.769.518
accumulated depreciation -3.649.512
Net book account at 31 december2011 3.120.006
During 2012
additions 2.725
depreciation charge -18.400
exchange dif/cost (2.527)
exchange dif/deprec (2.367)
closing net acco unt 3.104.171
AT close date
Cost of Valuation 6.769.716
accumulated depreciation -3.665.545
Net book account exercice 3.104.171
36
37. Goodwill
31 December 2011
Cost or valuation 7.981.544
accumulated depreciation
Net Book amount 7.981.544
31 December 2012
Opening net book amount 7.981.544
Additions
depreciation charge
closing net book amount 7.981.544
31 December 2012
Cost of valuation 7.981.544
Accumulated depreciation -
Net Book amount 7.981.544
8. Investment in an associate
Investment in associates at 31 December 2012 and 2011 was nil.
9. Income Tax expense and liability
2012 2011
Income Tax expenses EUR EUR
Current income tax 186.671 206.275
Adjustments for prior years
Deferred income tax -11.772 133.491
------------ ------------
174.899 339.766
====== ======
Profit before income tax 531.419 937.892
====== ======
2012 2011
Income Tax Liabilities
EUR EUR
Payroll tax liability 304.399 240.809
Income tax liability 264.492 283.034
VAT liability 259.657 212.411
------------ ------------
828.548 736.254
====== ======
37
38. 10. Trade and other receivables
2012 2011
More than one year
EUR EUR
22.062 23.668
3.508.388 1.776.926
3.530.450 3.530.450
These guarantees were mainly paid in relation to the office rentals in each of the subsidiaries of EastNets
Europe S.A. Other receivables (related parties) have increased due to interco transfers with headquarters.
Less than one year
4.979.470 5.622.130
(74.566) (94.560)
4.905.174 5.527.570
82.421 100.620
4.987.596 5.628.189
As at 31 December 2012, net trade receivables amounted to K€4.988 (2011: K€5.628).
As of 31 December 2012, trade receivables were impaired and for which a provision was made.
The amount of the provision was K€75 at 31 December 2012. The ageing analysis of these trade
receivables is over 6 months.
Movement in the Group’s provision for impairment of trade receivables is as follows:
2012 2011
EUR EUR
At 1 January
(Reversal of)/provision for receivables impairment 94.560 79.669
(Note 21)
New provision for receivables impairment (Note 22) -15.533
Use of provision for receivables impairment -19.995 37.403
74.566 94.560
38
39. 11. Related party transactions and balances
Related parties include the shareholders, key management personnel, directors and businesses including
affiliates controlled directly or indirectly by the shareholders or over which they exercise significant
management influence.
Related party transactions
During the year, the Group entered into the significant transactions with related parties in the ordinary course
of business, carried out on terms and conditions, agreed between the parties.
2012 2011
EUR EUR
Receivables from related parties
Personnel (advances) 16.588 5.163
EastNets Dubai 3.450.409 1.713.801
Director 57.979 63.125
Payables to related parties
Director 0 0
EastNets Dubai 0 0
12. Cash and cash equivalents
2012 2011
EUR EUR
Cash in hand 1.062 1.194
Bank deposit 2.207.698 1.771.199
Bank balances 226.325 521.925
-------------- --------------
Total cash and bank balances 2.435.085 2.294.318
======= =======
Cash, cash equivalents and bank overdrafts at beginning of year:
Short term deposit 1.771.199
Cash and Cash equivalent 523.119
Financial debt -1.599.101
695.216
at end of the year:
Short term deposit
2.207.698
Cash and Cash equivalent
Financial debt 227.387
-2.752.495
-317.411
39
40. 13. Share capital
The share of capital of the Company comprises of 16.000.000 authorised, issued and fully paid shares with
no par value for a total capital of K€6.100.
14. Retained earnings
2012 2011
EUR EUR
Legal reserve
Conolidated retained earnings 6.522.751 6.166.231
Translation reserv e -99.975 -158.522
------------- -------------
6.422.776 6.007.709
======= =======
15. Legal reserve
In accordance with Luxemburg Law, 5% of the profit for the year is to be transferred to a legal
reserve which is non-distributable.
In Belgium, 5% of the profit for the year is to be transferred in accordance with company law to a legal
reserve which is non-distributable.
In France, 10% of the profit for the year is to be transferred in accordance with company law to a legal
reserve which is non-distributable.
Transfers to the legal reserve have accordingly been made by the individual entities within the Group
including the Company.
16. Other reserves
The other reserves amount to K€0. This reserve is non-distributable and will be utilised at the discretion of
the shareholders.
17. Provisions
2012 2011
EUR EUR
At 1 January 1.138.915 1.191.893
Charge for the year 59.371
Payments during the year (1.105.577) (52.978)
------------ ------------
At 31 December (52.978) 1.138.915
====== ======
40
