MicroLink Annual Report 2000/2001

MicroLink
Annual Report
2000/2001
During financial year 2000/01 MicroLink
concentrated its focus on internal
restructuring that became necessary after
aggressive expansion through mergers and
acquisitions in 1998-2000.
•
•
•
•
•
Sales EEK 983 m (99/00 726 m)
Gross profit EEK 273 m (174 m)
EBITDA EEK -2 m (-7 m)
Loss from operations EEK –73 m (-49 m)
Net profit EEK –76 m (-43 m)
Table of Contents
1. General information
4
2. Confirmation of the annual report
5
3. Statement of Chairman of the Council
6
4. Management report
7-15
5. Auditor’s opinion
16
6. Consolidated financial statements
17-42
6.1 Consolidated balance sheets
17
6.2 Consolidated income statements
18
6.3 Consolidated cash-flow statements
19
6.4 Consolidated statements of changes in equity
20
6.5 Accounting methods and principles used in preparing
the financial statements
21-25
6.6 Notes to the financial statements
26-42
3
General information
MicroLink is an information technology group consisting of 26 companies. In addition
MicroLink AS owns shares in four computer companies. The consolidated financial
statements are prepared for the Group.
Legal address
Auditor
MicroLink AS
Pärnu mnt. 158
11317 Tallinn
Estonia
Arthur Andersen Eesti AS
Roosikrantsi 2
10119 Tallinn
Estonia
Commercial Registry No: 10169013
Tel: +372 6 501 700
Fax: +372 6 504 987
Tel: +372 611 0480
Fax: +372 611 0481
Financial y
ear
ye
1 July – 30 June
Chairman o
oar
d:
off the Managemen
Managementt B
Bo
ard:
Allan Martinson
Member
so
oar
d:
Members
off the Managemen
Managementt B
Bo
ard:
Janis Bergs
Normunds Bergs
Ville Jehe
Peter Priisalm
Aivar Paalberg
Chairman o
upervis
ory B
oar
d:
off the S
Supervis
upervisory
Bo
ard:
Kristjan Kalda
Member
so
upervis
ory B
oar
d:
Members
off the S
Supervis
upervisory
Bo
ard:
Rainer Nõlvak
Hanno Haamer
Erich Rannu
James Syme
4
The consolidated Annual Report of MicroLink Group for the financial year 2000/2001
consists of the management report, auditor’s report and financial statements (balance
sheet, income statement, cash-flow statement, statement of changes in equity and notes to
the financial statements).
The Management Board has prepared the management report and the financial statements
that give a true and fair view of the assets, liabilities and owners’ equity of MicroLink Group
and of the result of its operations.
According to the estimate of the Management Board MicroLink Group is operating as a going
concern.
Signed and authorised for issuance:
Management Board 26 September 2001
(Allan Martinson)
Chairman of the Management Board
(Peter Priisalm)
Member of the Management Board
(Aivar Paalberg)
Member of the Management Board
(Normunds Bergs)
Member of the Management Board
(Ville Jehe)
Member of the Management Board
(Janis Bergs)
Member of the Management Board
Supervisory Board: “…” …………. 2001
(Kristjan Kalda)
Chairman of the Supervisory Board
(Erich Rannu)
Honorary Chairman of the Supervisory Board
(Rainer Nõlvak)
Member of the Supervisory Board
(Hanno Haamer)
Member of the Supervisory Board
(James Syme)
Member of the Supervisory Board
The Annual Report for the financial year 2000/2001 was approved by the General Meeting of
Shareholders of MicroLink Group on “…” …………….. 2001.
5
Statement of
the Chairman of the Council
When Baltic Investment Fund invested in Microlink in April 1999 our investment rationale was
based on the strongest management team in the Baltic IT sector and high growth in the fields of
communications, software development and Internet. Under the leadership of Allan Martinson
Microlink has grown from a local PC-assembler with EEK 183 million annual sales in 1997/1998
to a leading Baltic information technology group with nearly EEK 1 billion in annual sales in
2000/01. MicroLink’s growth phase has been executed well and the group has moved way ahead
of its competitors in developing its business, surpassing competitors by management power as
well as in the number of competencies.
MicroLink’s ability to attract and motivate young and talented managers is the main aspect that
distinguishes MicroLink from its competitors and enables the company to outperform the
market in the long run.
At the same time one of the main reasons for the last year’s weak results was also related to
human factor. Aggressive growth turned out to be more difficult to handle and more costly than
initially expected. Our pace of investments was too quick to take immediate control over all of
them. However, in the first half of 2001 MicroLink made changes in its management structure,
enabling the group to manage its business areas much more efficiently with existing
management team. In 2001/2002 Microlink will continue with the same management team and
will show the first results of reorganisation.
Following aggressive expansion in 1998-2000 it is now time for MicroLink to take advantage of
the synergies present in its international structure. Taking this into account MicroLink will
pursue the following principles in next financial year.
• MicroLink will be conservative in venturing into new business areas or new markets.
MicroLink will continue to concentrate its focus and exit less profitable or non-core
businesses
• MicroLink will be conservative in mergers & acquisitions
• MicroLink will be using its strong cash flow to decrease its leverage. Our target is to increase
owners’ equity to 30% of the balance sheet in two years. We will use 50% of company’s cash
flow for loan repayments and the rest for group’s development
• MicroLink will concentrate on growth of revenues from software development, IT solutions
and services, communications solutions and new media. Having achieved considerable scale
in sales MicroLink’s next step is to move towards more value-adding areas and reach in two
years net profit margin above 8%.
I am convinced that Microlink people will continuously enjoy working in Microlink and provide
professional services and innovative solutions to our customers.
Kristjan Kalda
Chairman of the Council
6
Management Report
Consolidated Financial Results
During financial year 2000/01 MicroLink concentrated its focus on internal restructuring that
became necessary after aggressive expansion through mergers and acquisitions in 1998-2000.
The costs related to internal restructuring had significant effect on MicroLink’s financial results
by contributing to MicroLink’s net loss. At the same time MicroLink considerably improved its
cash flow compared to year earlier, as most of the non-recurring expenses were non-cash items.
MicroLink’s consolidated sales reached 983.1 million kroons, a 35% growth compared to year
earlier. Group’s gross profit grew 57% from 173.7 million kroons to 272.6 million kroons. Group’s
gross margin increased from 24% to 28%, indicating the Group’s continuing strive towards
higher margin solutions and services.
Sales, EBIT and Net Profit for Last Four Financial Years (EEK million)
7
MicroLink Group’s EBITDA (earnings before interests, taxes, depreciation and amortization)
amounted to -1.6 million kroons, which is by 5.7 million kroons better than year earlier.
Group incurred operating loss (EBIT) of 56.4 million kroons, which is by 14.1 million kroons
higher compared to the previous year.
Main contributors to MicroLink’s net loss were the following:
• 22.0 million kroons – loss from New Media Division
• 20.0 million kroons – loss from parent company
• 15.4 million kroons – goodwill amortization
In addition several non-recurring items influenced the net result of -75.7 million kroons in 2000/
01, which is by 32.4 million kroons higher than the previous year. Loss from operations
excluding those items was -49.8 million kroons.
• 17.7 million kroons
• 4.8 million kroons
• 3.4 million kroons
– write-offs in inventory and receivables (net)
– losses from e-solutions team, which has been terminated as
a separate business unit (unit was merged to High-End
Corporate Solutions Division and re-focused)
– expenses related to acquisitions made in 1999/00 and writeoff of an accounting software licenses in Business Sales Division
Despite high net loss MicroLink’s cash flow from operating activities was positive in the amount
of 23.9 million kroons. MicroLink’s investment activities resulted with 50.4 million kroons cash
outflow, including investment of 51.5 million kroons into fixed assets and 9.1 million kroons into
financial investments. Financing activities balanced negative outflow of investment activities
with 38.2 million kroons cash inflow, including 68.0 million kroons through the increase of
owners’ equity.
The following tables provides the summary of main financial
information:
by divisions
ss Commu- W
ir
ele
ss Ne
w
High-End Busine
usines
Wir
irele
eles
New
s
nic
oadb
and Media
ales
nication
Bro
adband
Solutions Sale
ation Br
Solutions Equipmen
quipmentt
Consolidated sales
(incl. between
segments)
456,518
Depreciation 13,826
Segment
performance 252
Segment
assets
120,408
Segment
liabilities
83,711
Number of
employees*
309
Par
en
Elimiaren
entt
co. & Fin. nations
In
vest.
Inv
Total
Cons
oli
onsoli
dat
ed
dated
433,887 119,516
8,546
13,754
32,430
630
13,005 53,768
4,623 15,654
-125,984 983,139
-2,238 54,794
-15,613
-4,378
2,065
-21,977 -35,299
-754
79,614
66,173
26,545
20,379 249,882 -221,021 341,980
64,751
43,214
19,908
10,714
127,377
188
130
23
62
27
-57,918
-75,704
291,758
739
by countries
Sales
Gross profit
Number of employees*
* As of June 30, 2001
Es
Esttonia
Lat
via
Latvia
Lithuania
Eliminations
Total C
ons
olidat
ed
Cons
onsolidat
olidated
547,350
115,733
291
610,171
156,304
381
32,799
14,025
67
-207,181
-13,455
983,139
272,607
739
8
Financing
During the financial year MicroLink undertook several share issues. In August 2000 MicroLink
issued 60,233 new shares, including 13,200 shares sold in the course of 52 million kroons
Private Placing to financial investors.
In November 2000 MicroLink issued 8,737 shares in the course of acquisition of minority
interest in IC Systems, where MicroLink earlier held 55% ownership. Minority shareholders of IC
Systems subscribed for the shares.
In December 2000 and February 2001 MicroLink issued shares to employees amounting to
1,700 and 9,646 shares, respectively.
In April 2001 MicroLink issued 245,083 new shares to existing shareholders of MicroLink,
including among others Baltic Republics Fund, Baltic Investment Fund and MicroLink’s founders.
The shares were issued at 200 kroons per share, raising 49.0 million kroons in equity capital.
Total of 325,399 new shares were issued during the financial year 2000/01. The share issues
brought 64.7 million kroons as capital over par.
MicroLink did not issue any public debt instruments during the last financial year. In July 2001
the Group redeemed its first series of Latvian lat denominated commercial papers in the
amount of 0.6 million Latvian lats and in August 2001 the Group redeemed the bonds in the
amount of 2.1 million euros that were issued for financing acquisition of Fortech.
Despite MicroLink consolidated current liabilities exceeding current assets by 46.3 million
kroons as of June 30, 2001, MicroLink management expects to meet all its current liabilities
when they fall due, as the Group has already prolonged its current bank overdraft facilities in
the amount of 33.6 million kroons and expects to prolong its remaining bank overdrafts in the
amount necessary to cover the deficit. Furthermore, the shareholders of the Group have stated
that they are prepared to subscribe additional capital of the Group should this be needed to
finance operations in the future.
9
Results by Business Areas
High-End Corporate Solutions
High-End Corporate Solutions Division had consolidated sales of 456.5 million kroons during
the financial year. Division’s operating profit before non-recurring items was 12.0 million kroons.
Most of the revenue was generated by Latvian Fortech with its subsidiaries (341 million kroons)
and Estonian MicroLink Systems (116 million kroons). Reselling of hardware and software still
formed majority of the sales of the division, while the share of services and software
development in gross profit rose sharply.
In Fortech largest product Groups were servers and PC-s, followed by networking equipment
and peripherals sales. Revenues related to sales of proprietary accounting software, SAP
enterprise software and tailor-made software products were the largest items on services and
software development side.
MicroLink Systems derived the majority of its revenues from the sales of Sun Microsystems
products. Company’s software development department went through a quick growth and
increased its monthly sales to more than 1 million kroons at the end of financial year.
In Lithuania MicroLink’s subsidiary MicroLink Netcoms won the tender for building the network
management system for Lithuanian Gas and sold the first installations of its proprietary
document management software Propero, the first client being the Ministry of Economics.
Business Sales
Business Sales Division’s consolidated sales was 433.9 million kroons and operating loss before
non-recurring items 10.7 million kroons.
Despite significant changes in structure the division generally managed to keep its market
share in Estonian and Latvian PC sales. MicroLink assembled 18,447 computers during last
financial year, which is by 2% more than the previous year. Division’s companies sold altogether
19,910 PC-s and laptop computers, which according to MicroLink’s estimates forms 17% of the
Baltic computer market.
At the beginning of 2001 MicroLink Computers in Estonia launched its new Internet sales
channel www.arvutid.com, which quickly became popular and contributed more than 20% of
company’s sales by the end of the financial year. Altogether Internet sales formed close to 5%
of division’s total sales.
By the end of the financial year MicroLink closed all its retail outlets in Estonia and Latvia and
concentrated on sales to business customers and Internet sales.
Communication Solutions
Communication Solutions Division generated consolidated sales of 119.5 million kroons and
operating profit before non-recurring items of 0.9 million kroons during last financial year.
During the year the division managed to maintain quick growth of business clients in all three
countries. As of September 2001 the division operated 25 private networks, compared to 14
clients a year earlier. The number of leased lines grew 73% compared to last year, amounting to
more than 2000 lines. The number of dial-up customers remained flat and amounted to 15,700
in September 2001.
10
In Estonia telecommunication market was affected by the liberalization of the market starting
from January 1, 2001. MicroLink started its voice communication offering with the termination
of international long-term calls in partnership with international telecom operator Net2Phone.
The division’s most significant investment was made into the construction of the fiber-optic
ring, connecting the main business centers in Tallinn. In the middle of September the
metropolitan area network, called Metroo, had more than 100 customers. The construction of
Metroo’s first stage (20 km) will be completed by the end of 2001.
New Media
DELFI portal continued its aggressive growth in the financial year 2000/01. During the year
DELFI portals delivered 339 million page views, which is by 5 times more than during the first
seven months of operations in the financial year 1999/00. During the last quarter of the
financial year DELFI delivered 130 million page views, growing 247% compared to last year.
According to the statistics of Gallup e-Ratings DELFI attracted 276,000 unique weekly users
among 15-74 year old people to its Baltic portals in the 2nd quarter of 2001. During the first half
of 2001 DELFI’s Baltic portals were visited altogether by 486,000 unique users in the age of 1574 years. Gallup e-Ratings market research was made by EMOR, BMF Latvia and SIC Gallup
Media.
In September 2000 DELFI launched a pilot project in Russia in order to explore the
opportunities presented by Russian market. Due to the low level of cash-based advertising (as
opposed to barter transactions) and fierce competition in Russian Internet market DELFI
decided to terminate its Russian project in June 2001.
DELFI’s portal operations posted 13.0 million kroons consolidated revenues from core activities
in 2000/01 and operating loss before non-recurring items of 24.0 million kroons.
Wireless Broadband Equipment
SAF Tehnika, MicroLink’s 51% Latvian subsidiary providing wireless data transmission solutions,
went through rapid development during its first full financial year. SAF Tehnika’s focus was
mainly concentrated on laying strong basis for expanding its activities outside Baltic markets.
For this purpose the company undertook the certification of its main products. Company’s pointto-point digital microwave systems (CFM-22) operating in 22 GHz frequency and with data
transmission speeds of 8 and 16 Mbps (called CFM-22) were certified to meet all EU standards
in February and August, respectively.
In 2001 SAF Tehnika has put all its efforts towards bringing its products to international
markets. By September 2001 SAF Tehnika had attained type approvals for its core systems in
the UK, Poland, Sweden, Denmark, Norway, Finland, Latvia and Lithuania. SAF Tehnika has
already signed distributor agreements in Scandinavia, the UK, Ireland, Kazakhstan and the
Baltic States and is holding negotiations with CEE distributors.
During the last financial year SAF Tehnika sold altogether 223 pieces of CFM-22 system and
298 pieces of AM-10 system, which is operating in 10.5 GHz frequency and with transmission
speed of up to 2 Mbps.
SAF Tehnika generated the sales of 32.4 million kroons during last financial year. Company’s
operating profit before non-recurring items formed 7.2 million kroons.
11
Group’s Development
Internal Restructuring
In 2000/01 MicroLink concentrated its focus on internal restructuring, which became necessary
after the extensive expansion in 1998-2000 that created many overlapping operations.
In the course of restructuring MicroLink divided its activities between five core business areas.
Companies where MicroLink has ownership interest, but where the Group does not exercise
direct control or where the Group does not have long-term interests, were classified as nonstrategic investments. Restructuring of operations was accompanied with significant changes in
operational management in order to establish clearer division of responsibilities.
According to new structure (See also graph under section MicroLink Group Structure)
MicroLink has the following divisions:
1.
2.
3.
4.
5.
6.
High-End Corporate Solutions, headed by Mr. Allan Martinson
Business Sales, headed by Mr. Aivar Paalberg
Communication Solutions, headed by Mr. Mait Nilson
New Media, headed by Mr. Ville Jehe
Wireless Broadband Equipment, headed by Mr. Normunds Bergs
Parent company and non-strategic investments, headed by Mr. Peter Priisalm
Changes in MicroLink’s Management Board and Supervisory Board
Changes in MicroLink’s operating management accompanied also changes in MicroLink’s
Management Board, which, with one exception, now consists of the heads of the divisions. Thus,
during last financial year Aivar Paalberg and Peter Priisalm were appointed to MicroLink Board
and Antti Aasma, Kaupo Pastak and Jaak Anton excluded from the Board. While Jaak Anton
decided to leave MicroLink, Kaupo Pastak continues as MicroLink Group’s Chief Financial Officer
and Antti Aasma, former Marketing Director of MicroLink Group, started to run MicroLink’s
Estonian reselling unit MicroLink Astrodata.
After the changes MicroLink’s Management Board includes the following members:
1.
2.
3.
4.
5.
6.
Allan Martinson (Chairman)
Janis Bergs
Normunds Bergs
Ville Jehe
Aivar Paalberg
Peter Priisalm
Changes took place also in MicroLink’s Supervisory Board. MicroLink’s General Meeting of
Shareholders released Edvins Karnitis from fulfilling the duties of Supervisory Board Member
on his own request. In April 2001 Supervisory Board elected Kristjan Kalda as the new
Chairman and appointed former Chairman Erich Rannu as the Honorary Chairman of
Supervisory Board. Hanno Haamer, Rainer Nõlvak and James Syme continue as the members of
Supervisory Board.
12
Changes by Divisions
High-End C
orpor
at
eS
olutions Division was created on the basis of former Professional Services
Corpor
orporat
ate
Solutions
and Corporate Sales, Software Development and Interactive Architects divisions. In the course
of restructuring in Estonia MicroLink Systems was merged with IC Systems and it also took over
the operations of MicroLink Netcoms. In Latvia Fortech took over the activities of Latvian
Interactive Architects team MicroLink Netcoms, passed all its retail and service activities to
VAR and took over VAR’s high-end corporate sales business. In Lithuania former Interactive
Architects company was included into High-End Corporate Solutions business and refocused
into servicing large corporate customers and state institutions.
Busine
ss S
ale
s Division was formed from former Retail & Service and PC Assembly operations.
usines
Sale
ales
Under new management MicroLink decided to exit from retail sales of products and focused on
servicing business clients and concentrated on internet sales. As a result of that MicroLink
closed altogether 6 retail outlets in Estonia and Latvia. In Latvia VAR took over Fortech’s
service activities and merged it with its own service activities. Significant synergies were also
achieved by uniting the back-office operations (inventory management, book-keeping) of the
companies in the division.
Communic
ation S
olutions Division, formerly called as Data Communication operations or ISP, is
ommunication
Solutions
based on three internet and communication solution providers, covering all three Baltic
countries. Earlier the activities were under MicroLink’s internet holding Delfi AS, which also
included portal and interactive architect teams, but by now they have all been separated.
Ne
w Media Division or DELFI portal now comprises one legal entity in each Baltic country. In the
New
course of restructuring non-media activities were separated from Delfi AS (holding) in Estonia
and it remained the portal company. In Latvia and Lithuania portal activities were earlier under
the roof of Communication Solutions companies and now operate in newly founded legal bodies.
Wir
ele
ss Br
oadb
and E
quipmen
irele
eles
Bro
adband
Equipmen
quipmentt Division continues to consist of the leading Latvian fixed
wireless radio communication equipment producer SAF Tehnika.
13
Mergers and Acquisitions
As MicroLink’s focus in 2000/01 was concentrated on internal restructuring, all MicroLink’s
M&A activities were performed with the aim of clarifying Group structure and increasing
efficiency of existing operations.
In August 2000 MicroLink acquired 50% of the shares in Baltic Computer Academy, a leading
Latvian IT training provider, where MicroLink’s subsidiary Fortech earlier held 50% ownership.
In August 2000 MicroLink increased its ownership in Estonian Interactive Architects team
MicroLink Netcoms (later renamed to TriLink) from 51% to 100% by purchasing out minority
shareholders. In April 2001 MicroLink As sold 50% stake in TriLink AS to Trigon Capital AS.
Subsidiary TriLink was still consolidated to the Group as the group had the authority to
determine the financial and operating principles and receive profit from the activities of the
investment object.
In September 2000 MicroLink executed buyout of minority shareholders of UAB Delfi, at that
time MicroLink’s Lithuanian portal and ISP, where MicroLink had been holding 75% ownership.
In November 2000 MicroLink acquired 45% of the shares in IC Systems, an Estonian software
company, where MicroLink already held 55% stake. After achieving 100% control over IC
Systems MicroLink decided to merge it with MicroLink Systems. The merger was registered in
Estonian Commercial register on August 28, 2001.
During the financial year MicroLink also increased its ownership in Latvian IT reselling company
VAR from 51% to 98% through buyout of most of the minority shareholders and following share
capital increase.
Divestments
Following internal restructuring MicroLink sold its ownership in three non-strategic investments
in July 2001. MicroLink sold its shares in Latvian Internet payment services provider SIA SMC,
Latvian computer equipment services provider CHS Service and former Estonian consulting
services provider Trilink. The transactions will not have significant effect on MicroLink’s
financial results in 2001/02.
14
MicroLink Group Structure
Group Structure presented as of June 30, 2001.
15
16
Consolidated Balance Sheets
NOTE
30 June 2001
30 June 2000
1
2
3
20,671
77,546
25,199
1,354
68,824
193,594
9,045
68,898
37,224
353
67,992
183,511
1,927
77,497
68,962
148,386
341,980
4,147
61,565
73,815
139,527
323,038
Assets
Current assets
Cash
Trade receivables
Other receivables
Prepayment of corporate income tax
Inventories
Total current assets
4
Noncurrent assets
Long-term financial assets
Tangible assets
Intangible assets and goodwill
Total noncurrent assets
Total assets
6
7
8
Liabilities and owners’ equity
Liabilities
Current liabilities
Short-term loans
Supplier payables and other payables
Corporate income tax payable
Accrued expenses and other current liabilities
17
9, 15
10
113,028
90,562
269
36,062
77,123
85,528
290
23,744
239,921
186,685
12, 15
25
49,785
2,051
51,836
291,757
4,552
81,087
344
81,431
268,116
1,507
13
13
14
18,293
141,526
1,232
-39,676
-75,704
45,671
341,980
15,039
76,820
1,232
3,643
-43,319
53,415
323,038
11
Total current liabilities
Noncurrent liabilities
Noncurrent liabilities
Deferred income tax
Total noncurrent liabilities
Total liabilities
Minority interest
Owners’ equity
Share capital
Paid-in capital over par
Statutory legal reserve
Retained earnings
Net profit (loss) for the financial year
Total owners’ equity
Total liabilities and owners’ equity
The accompanying notes are an integral part of these financial statements.
Consolidated Income Statements
Net sales
Cost of goods and services sold
NOTE
2000/01
1999/00
16
17
983,139
-710,532
726,478
-552,808
272,607
173,670
-22,020
-4,461
-80,699
-164,132
10,924
-13,838
-13,131
-3,762
-81,490
-87,848
9,156
-3,914
-1,619
-7,319
-39,349
-15,446
-29,211
-5,768
-56,414
-42,298
2,119
-16,838
-2,054
-16,773
10,979
-18,718
815
-6,924
-73,187
-49,222
-1,859
-75,046
-658
-75,704
-287
-49,509
6,190
-43,319
Gross Profit
Marketing, advertising and PR expenses
Doubtful receivables
Other operating expenses
Personnel expenses
Other income
Other expenses
18
2
19
20
21
22
EBITDA
Depreciation, amortization and
value adjustments
Amortization of goodwill
23
8
Operating loss
Financial income and expenses
Interest and other financial income
Interest expense
Foreign exchange loss
Total financial income and expenses
24
Loss from operations
Income tax
Loss after tax
Minority interest
Net loss
25
The accompanying notes are an integral part of these financial statements.
18
Consolidated Cash Flow
Statements
2000/01
1999/00
-56,414
-42,298
54,795
4,550
-1,250
934
17,665
1,868
1,707
23,855
34,979
2,316
-843
-96,660
73,216
-2,620
344
-31,566
-51,453
7,633
-9,058
351
2,119
-50,408
-64,708
1,700
-64,722
4,75
6,723
-116,251
67,960
19,453
-32,396
0
-16,838
38,179
45,665
51,419
-213
70,699
-18,718
148,852
Total cash flow
11,626
1,035
Cash at the beginning of period
Total cash flow
Cash at the end of period
9,045
11,626
20,671
8,010
1,035
9,045
Cash flow from operating activities
Operating loss
Depreciation, amortization and
value adjustments
Net loss from disposal of tangible assets
Income tax paid
Change in current assets (excl. cash)
Change in liabilities
Change in long-term receivables
Change in long-term liabilities
Total cash flow from operating activities
7, 8
6
12
Cash flow from investing activities
Purchase of tangible and intangible assets
Proceeds from sales of tangible assets
Acquired financial assets
Proceeds from sales of financial assets
Interest received
Total cash flow from investing activities
8
Cash flow from financing activities
Payment into share capital
Short-term loans received
Repayment of short-term loans
Long-term loans received
Interest paid
Total cash flow from financing activities
13
1
The accompanying notes are an integral part of these financial statements.
19
Consolidated Statements
Of Changes In Equity
Share
capital
Paid-in
capital
Statutory
legal reserve
Retained
earnings
Profit (loss)
for the
financial year
Total
30 June 1999
Issue
Allocation into
reserve capital
from the net
profit of 1998/99
1998/99 retained
earnings
Loss for the
financial year
10,652
4,387
35,565
41,255
648
0
3,236
0
992
0
51,093
45,642
0
0
584
0
-584
0
0
0
0
407
-407
0
0
0
0
0
-43,319
-43,319
30 June 2000
Issue
1999/00
retained earnings
Loss for the
financial year
15,039
3,254
76,820
64,706
1,232
0
3,643
0
-43,319
0
53,415
67,960
0
0
0
-43,319
43,319
0
0
0
0
0
-75,704
-75,704
30 June 2001
18,293
141,526
1,232
-39,676
-75,704
45,671
The accompanying notes are an integral part of these financial statements.
20
Accounting methods and principles
used in preparing the financial
statements
MicroLink is an information technology group consisting of 26 companies (20 companies in
1999/00). In addition MicroLink AS owns minority shareholdings in four computer companies (5
companies in 1999/00). The company’s consolidated financial statements for the financial year
ended on 30 June 2001 include the parent company and its subsidiaries (hereinafter “Group”)
and the Group’s participation in associated companies.
The Group’s consolidated financial statements of 2000/01 and 1999/00 have been prepared in
accordance with International Accounting Standards (IAS), based on the historic cost principle.
The financial statements have been prepared in Estonian kroons rounded to thousands.
The presentation of the income statement and some balance sheet items has been changed in
comparison with the previous year. The change is due to more appropriate presentation of
certain items. The amounts for the previous period have been reclassified in order to ensure
comparability with the current financial year. The format of the income statement was changed
from the one classified by function to the one classified by nature. In the balance sheet the
main reclassification was related to reclassifying goodwill as an intangible asset (previously
recorded as a long-term financial asset).
The main accounting principles used in the preparation of the consolidated financial statements
have been provided below.
Subsidiaries and consolidation
All the companies controlled by the parent company have been consolidated by the Group.
Control exists when the parent company directly or indirectly has the authority to determine
the financial and operating principles and receive profit from the activities of the investment
object. The activities of the subsidiaries are included in the consolidated financial statements
using the purchase method for acquired businesses since the start of control until its end.
Consolidated financial statements are prepared by adding up the balance sheets of all the Group
companies line by line, eliminating the receivables, payables and transactions between the
consolidated companies together with unrealized income and expenses arising from these
transactions.
Associated companies
Investment objects in which the parent company directly or indirectly has significant influence
but not the control over the determining of financial and operating principles are recorded as
associated companies. As a general rule such influence is determined by 20% - 50% share in
the company. Associated companies are recorded by using the equity method.
Cash
Cash in the cash register, bank account balances (excl. overdraft), term deposits up to 3-months
and securities that can be sold without delays are recorded as cash in the cash flow statement.
21
Revenue recognition
Sales revenue is recognized when all material risks related to the asset sold have been
transferred to the purchaser and sales revenue and expenses related to the transaction can be
measured reliably. Revenue from rendering of services is recorded according to the stage of
completion of the transaction. The stage of completion of rendering a service is estimated
based on the proportion of expenses made on the service until the current moment compared
to total expenses of the project. Interest income is accounted for by using the effective interest
rate, except if the collectability of the interest is uncertain. In such cases interest income is
accounted for on cash basis. Dividend income is recognized at the moment when the company’s
right to receive payment is established.
Foreign currency transactions
Foreign currency transactions are recorded based on the foreign currency exchange rates
officially valid on the transaction date. Assets and liabilities denominated in foreign currency
have been revaluated into Estonian kroons based on the foreign currency exchange rates of the
Bank of Estonia valid on the balance sheet date.
Assets and liabilities of foreign subsidiaries have been converted into Estonian kroons based on
the exchange rate on the balance sheet date. Income statements of the subsidiaries located
abroad are converted into Estonian kroons based on the average exchange rate during the
financial year.
Receivables
Accounts receivable are included in the balance sheet according to the probability of the
collectability of the receivables, assessed on an individual basis, considering the information
available regarding the solvency of the customer. Allowance has been made for doubtful
receivables and un-collectable receivables have been written off from the balance sheet.
Inventories
Finished goods and work in progress are recorded at production cost consisting of those direct
and indirect expenditures without which the inventories would not be in their present state and
amount. Other inventories are recorded at acquisition cost consisting of the purchase price,
other non-refundable taxes and direct transportation costs related to acquisition, less discounts
and subsidies received. Inventories are recorded using the FIFO method.
Inventories are recorded in the balance sheet at the lower of acquisition/production cost or net
realizable value.
22
Noncurrent assets
Tangible assets
Assets with useful life over 1 year are considered tangible assets. Assets are initially recorded
at acquisition cost. Depreciation is calculated on a straight-line basis. Depreciation rate for each
tangible asset item is determined individually based on its useful life.
Annual depreciation rates for the groups of tangible assets are the following:
Plant and equipment
Motor vehicles
Office equipment
Computers
20-40 %
20-40 %
30-50 %
33-50 %
Intangible assets
Intangible assets are treated as assets if it is probable that the company shall gain economic
benefits from the asset in the future and the value of the asset can be reliably determined.
Amortization of intangible assets is calculated on a straight-line basis over two to five years.
Internally developed intangible assets are capitalized at the cost comprising all expenditure
that can be directly attributed, or allocated on a reasonable and consistent basis, to creating,
producing and preparing the asset for its intended use, including:
• expenditure on materials and services used or consumed in generating the intangible asset;
• the salaries, wages and other employment related costs of personnel directly engaged in
generating the asset;
• any expenditure that is directly attributable to generating the asset, such as fees to register a
legal right and the amortization of patents and licenses that are used to generate the asset;
• overheads that are necessary to generate the asset and that can be allocated on a reasonable
and consistent basis to the asset (for example, an allocation of the depreciation of property,
plant and equipment, insurance premiums and rent).
Goodwill
Goodwill is the difference between the purchase price and the fair value of purchased net assets
of a subsidiary. In the financial statements goodwill is recorded as intangible asset and
amortized over five years using the straight-line method.
Tangible assets are written down to their recoverable value (market price or value in use,
depending on which is higher), if their recoverable value has decreased below their net book
value.
Accounting for leases
A lease is regarded as financial lease if all material revenues and risks arising from the lease
contract are transferred to the lessee. Assets leased on terms of financial lease are capitalized
in the present value of lease payments.
All other leases are regarded as operating leases and payments made according to such
contracts are expensed in equal parts over the lease period.
23
Liabilities
All known liabilities are recorded in the balance sheet if their size can be reliably determined
and their realization is probable. Contingent liabilities, guarantees and bails are recorded as offbalance sheet items. Liabilities, with payment due date over one year from the balance sheet
date are recorded as noncurrent liabilities.
Provisions
A provision is recognized when, and only when an enterprise has a present obligation (legal or
constructive) as a result of a past event and it is probable (i.e. more likely than not) that an
outflow of resources embodying economic benefits will be required to settle the obligation, and
a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at
each balance sheet date and adjusted to reflect the current best estimate.
Bonds and loans
Bonds are recorded at the discounted value. Loans are recorded at their settlement value.
Overdrafts are recorded in the balance sheet in the used amount. Loan interest expenses are
not capitalized but are recorded in expenses of the reporting period on an accrual basis.
Corporate income tax
The corporate income tax rate for Latvian companies is 25% and for Lithuanian companies
24% of taxable profit. No corporate income tax is paid on undistributed profit in Estonia.
Dividends paid by the company in Estonia to resident natural persons and non-residents are
subject to income tax (26/74 of net dividend paid).
According to the new Estonian Income Tax Law that took effect on 1 January 2000 all
temporary differences between the tax bases and carrying values of assets and liabilities
ceased to exist.
At recording the impact of the new income tax law IAS has been taken as basis, which requires
the recording of the impact of the law amendments in the period when the amendment was
made.
The company’s potential tax liability related to the distribution of its retained earnings as
dividends is not recorded in the balance sheet because it is impossible to estimate this liability
reliably. In the Republic of Estonia the amount of potential tax liability related to the
distribution of dividends depends on whether and when the company pays out the dividends,
and in which proportion the shares are owned by resident entities, resident natural persons and
non-residents. Dividends paid to the parent company by subsidiaries located in Estonia are not
taxed.
Calculation of deferred income tax continues as before in case of subsidiaries located abroad.
This includes deferred income tax on all temporary differences between the financial
statements and tax returns. Temporary differences represent differences between the carrying
amount of assets and liabilities for financial reporting purposes and the amounts used for profit
tax purposes.
24
Cash flow statement
The indirect method is used for preparing the cash flow statement. Cash consists of the
balances of cash in hand, bank accounts and deposit accounts.
Financial instruments
Financial assets and financial liabilities carried on the balance sheet include cash and cash
equivalents, customer receivables, other short-term and long-term receivables, investments,
loans and bonds.
The fair value of financial instruments, i.e. the value based on which the assets could be
exchanged or liabilities could be satisfied between independent and competent parties on the
free market, is determined on the following basis:
• the fair value of cash and cash equivalents is approximately equal to their book value;
• the book value of short-term receivables and current liabilities does not materially differ from
their fair value because of the short period to maturity of the instrument;
• the assessment of the fair value of long-term liabilities is based on the quoted market price
for the same or similar issues or on the current rates available for debt with the same maturity
profile.
In the management’s estimate the book value of financial assets and financial liabilities does
not differ materially from their fair value and therefore the fair value has not been indicated
separately in the financial statements.
As the Group operates internationally, it is open to risks related to the fluctuation of foreign
exchange rates. The Group uses derivative financial instruments (forward and swap
transactions) to mitigate foreign exchange rates risk.
Agreements concluded are accounted off-balance sheet at their nominal value. The difference
between the price of the foreign currency forward transaction and the exchange rate of the
date of the transaction (premium, discount) is accrued for as financial income or expense.
Gains and losses on derivative financial instruments used for hedging of foreign currency
transactions are recognized as income or expense on the same basis as the corresponding
hedged position.
25
Note 1
Cash
30.06.01
30.06.00
Cash
20,671
9,045
14,127 th. kroons was deposited as overnight deposit as of 30.06.01.
Monetary means are located on bank accounts; cash registry balance as of 30.06.00 and
30.06.01 was minimal.
The Group’s consolidated bank account is used to manage the monetary means more flexibly,
reduce the interest expense and the need for financing. The Group’s consolidated bank account
enables the Group companies to use the Group’s funds within the limit set by MicroLink AS.
Note 2
Trade receivables
30.06.01
30.06.00
Trade receivables
Allowance for doubtful receivables
84,255
-6,709
70,024
-1,126
Total
77,546
68,898
Trade receivables in the amount of 7,894 th. kroons have been written down to the collectable
amount based on the principle of conservatism, 3,433 th. kroons receivables previously written
down have been collected and 2,311 th. kroons have been written off the balance sheet during
the financial year ended as of 30.06.01.
26
Note 3
Other receivables
30.06.01
30.06.00
Other receivables
Prepaid VAT
Prepaid expenses
Short-term loans
Accrued income
11,581
6,616
6,128
562
312
8,056
16,453
8,545
3,003
1,167
25,199
37,224
Total
Other receivables as of 30.06.01 include the accrued receivables related to the State Treasury
in Latvia and Central Statistics Bureau project in Latvia in the amount of 8,570 th. kroons.
Other prepaid expenses include prepaid finance lease payments and expenses related to
insurance.
Short-term loans as at 30.06.01 consist of ADML OÜ 159 th. kroons, loans given to the
employees of Fortech in the amount of 138 th .kroons, Taide 92 th. kroons, AssPro 75 th. kroons,
other loans 98 th. kroons. Except for ADML OÜ (see Note 28) the loans have been granted at
average market interest rates.
Note 4
Inventories
30.06.01
30.06.00
Raw materials
Merchandise for resale
Finished goods
Prepayments to suppliers
34,681
28,445
2,345
3,353
25,086
39,918
289
2,699
Total:
68,824
67,992
27
Note 5
Subsidiaries
Consolidated financial statements have been prepared by consolidating the following
companies:
Name of the company
Share 30.06.01
Share 30.06.00
Country
• MicroLink AS
Parent company
Parent company
Estonia
High-End Solutions
• MicroLink Süsteemid AS
• IC Süsteemid AS
• Fortech SIA
• Fortech IT UAB
• MicroLink Netcoms SIA
• SMC SIA
• Linki SIA
• Baltijas Datoru Akademija SIA
• TriLink AS
• MicroLink Netcoms UAB
100%
100%
100%
100%
100%
100%
100%
100%
50%
100%
100%
55%
100%
100%
50 %
51%
100%
Estonia
Estonia
Latvia
Lithuania
Latvia
Latvia
Latvia
Latvia
Estonia
Lithuania
Business Sales
• MicroLink Arvutid AS
• MicroLink Astrodata AS
• MicroLink Teenindus AS
• MicroLink Datori AS
• VAR AS
100%
100%
100%
100%
98%
100%
100%
100%
100%
51%
Estonia
Estonia
Estonia
Latvia
Latvia
Communication Solutions
• MicroLink OnLine AS
• I-Võrgu Teenuste AS
• Delfi Internet AS
• Delfi Internet UAB (former Delfi UAB)
100%
100%
100%
100%
100%
100%
100%
75%
Estonia
Estonia
Latvia
Lithuania
51%
51%
Latvia
New Media
• Delfi AS
• Delfi SIA
• Delfi UAB
100%
100%
100%
100%
-
Estonia
Latvia
Lithuania
Fin. Invest.
• Kungla Dialoog AS
• Neti Värav AS
80%
100%
80%
100%
Estonia
Estonia
Wireless Broadband Equipment
• SAF Tehnika SIA
In November 2000 MicroLink acquired 45% of the shares in IC Systems, an Estonian software
company where MicroLink already held 55% stake. After achieving 100% control over IC
Systems MicroLink decided to merge it with MicroLink Systems, which was registered in
Estonian Commercial register on August 28, 2001.
In August 2000 MicroLink acquired 50% of the shares in Baltic Computer Academy, a leading
Latvian IT training provider, where MicroLink’s subsidiary Fortech earlier held 50% ownership.
28
In August 2000 MicroLink increased its ownership in Estonian Interactive Architects team
MicroLink Netcoms (later renamed to TriLink) from 51% to 100% by purchasing out minority
shareholders. In April 2001 MicroLink As sold 50% stake in TriLink AS to Trigon Capital AS.
Subsidiary TriLink was still consolidated to the Group as the Group had the authority to
determine the financial and operating principles and receive profit from the activities of the
investment object.
During the financial year MicroLink also increased its ownership in Latvian IT reselling company
VAR from 51% to 98% through the buyout of most of the minority shareholders and the
following share capital increase.
In September 2000 MicroLink executed a buyout of minority shareholders of UAB Delfi, at that
time MicroLink’s Lithuanian portal and ISP, where MicroLink had been holding 75% ownership.
Note 6
Long-term financial assets
30.06.01
30.06.00
Long-term receivables
Shares of associated companies
1,508
419
3,377
770
Total
1,927
4,147
Long-term receivables
Agmin Italy warranty claim
Free PC receivables
Long-term loans to employees
Loan to OPR Konsultatsioonid OÜ
Total
30.06.01
Additions
Receipt
30.06.00
813
657
38
0
813
0
0
0
0
1,850
115
717
0
2,507
153
717
1,508
813
2,682
3,377
Investments in the shares of associated companies
30.06.01
Investment
30.06.00
Holding
value
Investment
%
Holding
value
Holding
%
ADML OÜ
Taig AS
CHS Serviss SIA
Datorprogrammu Autortiesibu
Agentura SIA
Baltijas Datoru Akademija SIA
25
365
0
50%
24,5%
40%
25
365
53
50%
24,5%
40%
29
0
33%
100%
13
314
17%
50%
Total
419
-
770
-
Baltijas Datoru Akademija SIA has been fully consolidated as of 30.06.01.
29
Note 7
Tangible assets
Land
Plant and equipment
Other equipment and
fixtures
Prepayments for
tangible assets
Total
30.06.
01
06.01
net bookvalue
Acquired
Depreciation
Disposal
30.06.00
net book value
1,732
37,703
0
34,448
0
15,405
0
10,921
1,732
29,581
37,200
34,001
15,955
11,007
30,161
862
77,497
789
69,238
0
31,360
18
21,946
91
61,565
Acquisition
cost
30.06.01
Land and buildings
Plant and equipment
Other equipment
and fixtures
Prepayments for
tangible assets
Total
Accum.
deprec.
30.06.01
Net book
value
30.06.01
Acquisition
Accum.
cost
deprec.
30.06.00 30.06.00
Net book
value
30.06.
00
06.00
1,732
70,895
0
33,192
1,732
37,703
1,732
49,807
0
20,226
1,732
29,581
63,029
25,829
37,200
47,192
17,031
30,161
862
0
862
91
0
91
136,518
59,021
77,497
98,822
37,257
61,565
Non-current assets leased under finance lease included in tangible
assets:
Equipment and transport vehicles
Acquisition cost 30.06.00
Depreciation 99/00
Accumulated depreciation 30.06.00
Net book value 30.06.00
19,823
3,342
5,177
14,646
Acquisition cost 30.06.01
Depreciation 00/01
Accumulated depreciation 30.06.01
Net book value 30.06.01
30,093
8,162
12,225
17,868
30
Note 8
Intangible assets and goodwill
Net book value
30.06.01
Acquired
Amortization
Disposal
Net book value
30.06.00
Software
Goodwill
13,370
55,592
10,233
9,058
7,989
15,446
709
0
11,835
61,980
Total
68,962
19,291
23,435
709
73,815
Acquisition
cost
30.06.01
Accum.
amort.
30.06.01
Net book Acquisition
value
cost
30.06.01 30.06.00
Software
Goodwill
23,129
76,806
9,759
21,214
13,370
55,592
Total
99,935
30,973
68,962
Accum.
amort.
30.06.00
Net book
value
30.06.00
14,863
67,748
3,028
5,768
11,835
61,980
82,611
8,796
73,815
Net book value of goodwill
30.06.
01
06.01
30.06.
00
06.00
Fortech SIA
Delfi Internet SIA
VAR
IC Süsteemide AS
I-Võrgu Teenuste AS
Delfi Internet UAB
Baltijas Datoru Akademija SIA
Neti Värav
36,086
7,928
3,680
2,844
1,894
1,642
1,518
0
45,926
9,707
0
0
1,864
2,010
0
2,473
Total
55,592
61,980
Note 9
Short-term loans
Bonds
Overdraft
Factoring
Short-term lease payable
Other short-term loans
Total:
30.06.01
Received
Paid
30.06.00
Interest rate
49,371
45,462
9,537
6,957
1,701
113,028
49,371
0
9,537
11,342
1,701
71,951
22,000
4,818
0
9,228
0
36,046
22,000
50,280
0
4,843
0
77,123
6.5%
7.25 –8%
8.5%
4-18%
8-8.5 %
As of 30.06.01 MicroLink Group has opened and used overdraft facilities in the following banks
and amounts: Hansapank (Estonia) 3,112 th. kroons (maximum limit 22,700 th. kroons), Eesti
Ühispank 22,001 th. kroons (maximum limit 22,001 th. kroons), Hansabanka (Latvia) 20,349 th.
kroons (maximum limit 36,879 th. kroons). The Group has already prolonged its current bank
overdraft facilities in the amount of 33.6 million kroons and expects to prolong its remaining
bank overdrafts.
31
Note 10
Supplier payables and other payables
30.06.01
30.06.00
73,679
14,199
2,684
79,020
6,241
267
90,562
85,528
30.06.01
30.06.00
12,455
11,723
1,428
2,718
358
4,637
2,743
0
8,083
10,368
958
1,791
725
850
0
969
36,062
23,744
Supplier payables
Customer advances
Other payables
Total:
Note 11
Accrued expenses and other current liabilities
Taxes payable
Payables to employees
Deferred income
Other accrued expenses
MicroLink Group marketing accrual
MicroLink Group warranty provision
Other current liabilities
Dividends payable
Total:
32
Taxes
30.06.01
Prepayment
2000/01
Payable
Calculated
Paid
30.06.00
Prepayment Payable
VAT
Social security tax
Personal income tax
6,616
0
0
3,600
5,988
2,867
98,854
43,157
30,117
86,716
41,109
30,094
16,453
0
0
1,299
3,940
2,844
Total
6,616
12,455
172,128
157,919
16,453
8,083
Prepaid taxes are recorded on the balance sheet line Other receivables (Note 3).
MicroLink Group gives a guarantee on its products in case the completed product set does not
work, appears to be defective etc. The corresponding warranty provision has been calculated
and recorded based on historical statistics.
The marketing accrual has been formed because when selling its products to resellers the
Group takes a commitment to finance part of their marketing expenses for introducing and
advertising the larger component producers.
30.06.01
Additions
Used
30.06.00
358
4,637
2,834
7,182
3,201
3,395
725
850
Marketing provision
Warranty provision
Note 12
Noncurrent liabilities
Balance
30.06.01
Increase
Decrease
Balance
30.06.00
Due date
Interest
rate
Bonds
Long-term financial
lease payable
36,500
0
34,199
70,699
13,285
9,854
6,957
10,388
2002-05
9-13.7 %
Total
49,785
9,854
41,156
81,087
-
-
2003 3 – 8.5%
Note 13
Share capital
As of 30.06.00 the share capital of MicroLink AS was 15,039 th. kroons consisting of 1,504
thousand shares with a nominal value of 10 kroons. During the reporting period 325 thousand
new shares were issued for 3,254 th. kroons. The shares were paid for with the premium of
67,960 th. kroons. As of 30.06.01 the share capital of MicroLink AS is 18,293 th. kroons
consisting of 1,829 thousand shares with a nominal value of 10 kroons.
The maximum share capital allowed by the Statutes of the company is 20,000 th. kroons and
the maximum allowed number of shares is 2,000 thousand shares.
Note 14
Statutory legal reserve
A statutory legal reserve is formed from annual net profit transfers as prescribed by the
Estonian Business Law. Each financial year 1/20 of the net profit should be transferred to the
statutory legal reserve. If the statutory legal reserve reaches to 1/10 of share capital the net
profit transfers shall be terminated. According to the Estonian Business Law and upon the
resolution of the general meeting the reserve capital may be used to cover losses, if it is not
possible to cover the losses from undistributed profits of previous periods and other reserves
prescribed by the articles of association, or to increase share capital. Payments to shareholders
cannot be made from reserve capital.
33
Note 15
Finance lease and operating lease
1 year
2 – 5 years
Total
Finance lease
payable
Total payments in
the reporting period
incl. interest
expenses
Interest rates
6,957
13,285
9,228
1,989
4-18%
20,242
Short-term lease payable of 6,957 th. kroons is recorded on the balance sheet line Short-term
loans.
Long-term lease payable of 13,285 th. kroons is recorded on the balance sheet line Noncurrent
liabilities.
In the financial year 2000/01 MicroLink AS leased premises under operating lease agreements
and made operating lease payments in the amount of 19,596 th. kroons. The lease agreements
can be cancelled generally with 1-month prior notice without causing any additional related
costs.
The financial and operating lease agreements do not include any special terms on renewal of
the contracts, purchase options or escalation clauses. There are no restrictions imposed by the
lease agreements, such as those concerning dividends, additional debt or further leasing.
34
Note 16
Net sales
Sales turnover
00/01
99/00
High-End Solutions
Business Sales
Communication Solutions
Wireless Broadband Equipment
New Media
Parent co. & Financial Investments
409,764
384,602
105,940
23,646
11,528
47,659
193,679
387,759
77,521
1,876
2,503
63,140
Total:
983,139
726,478
Note 17
Cost of goods and services sold
00/01
99/00
Goods and components
Services purchased
394,935
315,597
422,504
130,304
Total:
710,532
552,808
The cost of goods and services sold includes non-recurring expense for the write off of
inventories in the amount of 13,239 th. kroons related to the restructuring of the activities of
the Group.
Note 18
Marketing, advertising and PR expenses
Marketing, advertising and PR expenses
Other purchased services
Total:
00/01
99/00
16,583
5,437
9,949
3,182
22,020
13,131
35
Note 19
Other operating expenses
Rent
Transport
Communication
Other purchased services
Consultation
Repairs and utilities
Office equipment
Business trips
Training
Other
Total:
00/01
99/00
19,596
14,509
9,409
6,998
6,382
5,754
5,599
4,821
4,432
3,199
15,134
2,690
4,752
11,833
15,723
3,779
2,119
1,569
945
22,946
80,699
81,490
Note 20
Personnel expenses
00/01
99/00
Salaries
Social tax
128,023
36,109
66,051
21,797
Total
164,132
87,848
As of 30.06.01 the Group had 739 employees (758 as of 30.06.00).
Note 21
Other revenue
Income from rendered services not related
to main operations
Other revenue
Total:
00/01
99/00
2,886
8,038
2,327
6,829
10,924
9,156
36
Note 22
Other expenses
Other miscellaneous services purchased
Loss from disposal of tangible assets
Other expenses
Total:
00/01
99/00
6,923
4,550
2,365
0
2,316
1,598
13,838
3,914
Note 23
Depreciation and value adjustment
Depreciation of tangible assets
Amortization and value adjustment of intangible assets
Total
00/01
99/00
31,360
7,989
26,387
2,824
39,349
29,211
Amortization and value adjustment of intangible assets in the financial year 2000/01 includes
the write off of software in the amount of 1,001 th. kroons.
Note 24
Interest and financial income
00/01
99/00
Interest income
Proceeds from the sales of financial assets
Other financial income
2,119
0
0
6,723
3,957
299
Total:
2,119
10,979
37
Note 25
Income Tax
00/01
99/00
Profit (loss) for the year before profit tax according to IAS
Changes in temporary differences
Permanent differences
Taxable profit (loss) for the year
-73,187
-4,069
77,866
610
-49,222
-12,057
63,199
1,920
Current income tax
Change in deferred income tax
Income tax (expense) charged to the statement of income
-153
-1,707
-1,860
-480
193
-287
Temporary differences
Deferred income tax on temporary differences
-11,237
-2,809
-7,168
-1,792
Tax loss carry forward
Deferred income tax asset before valuation allowance
Less: valuation allowance
Deferred income tax asset net
Deferred income tax, net
14,749
3,687
-2,929
758
-2,051
13,290
3,322
-1,875
1,447
-344
Deferred income tax asset:
Loss carry forward
Deferred income tax asset before valuation allowance
Less: valuation allowance
Deferred income tax asset after valuation allowance
3,687
3,687
-2,929
758
3,322
3,322
-1,875
1,447
Deferred income tax liability:
Depreciation in excess of accounting rates
Deferred income tax liability
-2,809
-2,809
-1,792
-1,792
-2,051
-344
-73,187
-18,297
-49,222
-12,306
19,466
690
1,859
15,800
-3,207
287
Income tax
Deferred income tax
Components of deferred income tax
Deferred income tax, net
Reconciliation of the effective tax rate
Profit (loss) for the year before income tax according to IAS
Tax at the applicable standard tax rate of 25%
Tax effect of losses not taken into account when
determining taxable profit
Tax effect of temporary differences
Income tax expense
The results generated in Estonia are treated as permanent differences.
38
Note 26
Loan collateral and pledged assets
26.1 As of 30 June 2001 the companies of MicroLink Group have established the following
pledges on their current assets (all assets other than land and transport vehicles):
MicroLink AS
• Notarized commercial pledge of the 1st rank in the amount of 7,000 th. kroons in favor of
Hansapank.
• Notarized commercial pledge of the 2nd rank in the amount of 11,000 th. kroons in favor of
Hansapank.
• Notarized commercial pledge of in the amount of 5,401 th. Latvian lats in favor of Hansapank
Latvia.
MicroLink Süsteemid AS:
• Notarized commercial pledge of the 1st rank in the amount of 400 th. kroons in favor of
Hansapank.
• Notarized commercial pledge of the 2nd rank in the amount of 2,000 th. kroons in favor of E
Eesti Ühispank. The transaction that was collaterized by the commercial pledge was
concluded on 30 June 98. Commercial pledge has not been ended by public notaries.
• Notarized commercial pledge of the 3rd rank in the amount of 20,000 th. kroons in favor of
Eesti Ühispank.
MicroLink Avutid AS:
Commercial pledge of the 1st rank in the amount of 20,000 th. kroons in favor of Hansapank.
Kungla Dialoog AS:
Commercial pledge of the 1st rank in the amount of 500 th. kroons in favor of Hansapank.
26.2 Guarantee agreements concluded by MicroLink Group in favor of Hansapank as of 30
June 2001:
• Guarantee agreement regarding credit cards.
• Letter of guarantee from 8 June 2000 314IB00-010E 600 th. Latvian lats (Hansabanka,
Latvia).
26.3 As of 30 June 2001 Microlink AS has concluded the following bail agreements as
collateral for the letters of guarantee issued by Hansapank in favor of the Group companies:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
MicroLink Astrodata, amount 100 th. kroons, agreement 01-031621-KÄ.
MicroLink Astrodata, amount 100 th. kroons, agreement 01-032529-KÄ.
MicroLink Astrodata, amount 10 th. kroons, agreement 01-045381-KÄ.
Kungla Dialoog C.P., amount 13 th. Euros, agreement 00-019886-KÄ.
Kungla Dialoog C.P., amount 2,781 Euros, agreement 99-002442-KÄ.
Kungla Dialoog C.P., amount 60 th. US dollars, agreement 95-1007-KÄ.
MicroLink Arvutid, amount 200 th. US dollars, agreement 00-070266-KÄ.
MicroLink Arvutid, amount 910 th. kroons, agreement 99-000463-KÄ.
MicroLink Süsteemid, amount 4 th. kroons, agreement 00-065216-KÄ, creditor Estonian
Ministry of Finance, due date 05.01.2002.
MicroLink Süsteemid, amount 300 th. kroons, agreement 99-000462-KÄ, creditor Estonian
Customs Department, due date 11.05.02.
MicroLink Süsteemid, amount 1,000 th. kroons, agreement 01-036137-KÄ, creditor Estonian
Ministry of Internal Affairs, due date 06.08.01.
MicroLink Süsteemid, amount 100 th. kroons, agreement 01-030736-KÄ, creditor Estonian
Ministry of Transport and Communication.
MicroLink Arvutid, amount 2,500 th. kroons, agreement No. 98-02750-KÄ.
MicroLink Datori, amount 528 th. kroons, creditor Computer 2000
Fortech, creditor DELL Distribution (EMEA) Ltd.
Eesti Ühispank, amount 22,000 th. kroons.
39
Note 27
Off-balance sheet liabilities
At the time of preparing this annual report AS Kungla Dialoog, a member of MicroLink Group
has a pending dispute with the Estonian Ministry of Justice regarding the 3.7 million kroons
contract concluded between the parties for delivering terminal system hardware and software
licenses to the Ministry. The Ministry of Justice regards that AS Kungla Dialoog has not met the
terms of the delivery contract. Accordingly the Ministry is applying for the unilateral
termination of the contract and additionally for the compensation of 0.6 million kroons for
penalty and incurred losses. According to the judgment of the management of MicroLink AS
Kungla Dialoog has not breached the terms of the delivery contract and the claims submitted by
the Estonian Ministry of Justice are unfounded. Therefore the management does not consider it
necessary to record the potential liability related to the mentioned dispute as of the balance
sheet date.
Note 28
Transactions with related parties
As of 30 June 2001 the Group has a short-term loan receivable from ADML OÜ, interest 0%,
due date 2001, amount 159 th. kroons.
During the reporting period sales and purchase transactions have been concluded between the
Group and its owners, employees, management and members of the Management Board or
companies related to these persons or near of kin to the above mentioned persons. The
transaction amounts are the following: BNS Estonia and Balti Uudistetalitus (purchased 380 th.
kroons, sold 56 th. kroons), Fomix Invest (purchased 104 th. kroons, sold 145 th. kroons), Finesco
(purchased 75 th. kroons) and Solving (purchased 50 th. kroons, sold 87 th. kroons).
During the financial year ended as of 30 June 2000:
Short-term loan was given to ADML OÜ, interest 0%, due date 2001, amount 159 th. kroons.
In addition to the transaction with the above-mentioned company sales and purchase
transactions have also been concluded between the Group and its owners, employees,
management and members of the Management Board or companies related to these persons or
near of kin to the above mentioned persons.
Transaction amounts are the following: BNS Estonia and Balti Uudistetalitus (purchased 359 th.
kroons), Fomix Invest (purchased 780 th. kroons, sold 160 th. kroons), Finesco (purchased 75 th.
kroons) and Solving (purchased 30 th. kroons, sold 12 th. kroons).
According to the estimate of the management of the Group the prices used in the transactions
with the related parties do not differ materially from market prices.
The compensation to the management board in the financial year 2000/01 was 1,412 th. kroons
(2,053 th. kroons in 1999/00).
40
Note 29
Subsequent events
Subsequent to the balance sheet date MicroLink Group has sold its share in the following
companies: TriLink AS (Estonia), SIA SMC (Latvia) and CHS Serviss SIA (Latvia). The
transactions do not have material effect on the results of MicroLink Group in the financial year
2001/02.
MicroLink AS decided to merge MicroLink Süsteemid AS and IC Süsteemid AS. In November
2000 MicroLink AS acquired 45% of their shares obtaining 100% control of the company. The
merger of MicroLink Süsteemid AS and IC Süsteemid AS was registered in the Estonian
Commercial Register as of 28 August 2001.
Note 30
Risks and hedging
Credit risk
Credit risk indicates the potential loss arising from the inability of the business partners of the
Group to fulfill their obligations. The most important issue for the Group is the ability of its
customers to pay for the goods delivered or services rendered to them. As a rule the Group
allows credit sales only to its long-term business partners and customers. In order to guarantee
the receipt of money from its customers the Group observes and analyses their financial status
and liquidity on ongoing bases. The maximum credit risk exposure as of the balance sheet date
was 90,001 th. kroons.
Interest risk
Management believes that the exposure to interest rate risk of financial assets and short term
financial liabilities as of 30 June 2001 was minimal since their deviation from their respective
fair values was not significant and the period to maturity was short. Management also believes
that there is no interest risk concerning long-term liabilities, as the Group has historically been
able to re-negotiate the interest rates of its long-term loan liabilities. Also, the Group has the
right to redeem all outstanding bonds before their maturity.
Currency risk
In long-term and material transactions the currency risks are hedged with forward and swap
transactions.
41
As of 30.06.01 the following transactions were open:
• Swap-transaction. As of 29.06.01 MicroLink AS sold 434 th. Latvian lats at spot- rate
29.0500 and purchased 12,608 th. kroons. As of 05.07.01 purchases 434 th. Latvian lats at
forward-rate 29.0315 and sells 12,599 th. kroons.
• Forward-transaction. As of 06.08.01 MicroLink Süsteemid purchases 37 th. US dollars at the
rate 18.2735 for 679 th .kroons.
• Forward-transaction. As of 13.08.01 MicroLink Süsteemid purchases 136 th. US dollars at the
rate 18.2818 for 2,492 th. kroons.
• Forward-transaction. As of 12.07.01 MicroLink Arvutid purchases 50 th. US dollars at the rate
18.4017 for 920 th. kroons.
• Forward-transaction. As of 19.07.01 MicroLink Arvutid purchases 47 th. US dollars at the rate
18.1459 for 853 th. kroons.
• Swap-transaction. As of 28.06.01 MicroLink Süsteemid sold 22 th. US dollars at spot-rate
18.4600 and purchased 404 th. kroons. As of 21.08.01 purchases 22 th. US dollars at forwardrate 18.5140 and sells 405 th. kroons.
• Swap-transaction. As of 28.06.01 MicroLink Süsteemid sold 17 th. US dollars at spot-rate
18.4600 and purchased 305 th. kroons. As of 15.08.01 purchases 17 th. US dollars at forwardrate 18.5075 and sells 305 th. kroons.
The fair value of the derivative financial instruments listed above at the date of concluding the
transactions was zero and as the conclusion date was close to the balance sheet date no
changes in the fair value of the instruments had occurred by the balance sheet date.
42