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Annual Report for the year ended December 31, 2016

Asseco Group Annual Report

Present in

54

countries

301 mPLN

in net profit

5,512 in order backlog for

2017

6th

largest software vendor in Europe

22,364

highly committed employees

7,932 mPLN

in sales revenues

Report on Operations of Asseco Group

for the year ended December 31, 2016

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President’s Letter



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PRESIDENT’S LETTER

Dear Shareholders,

It is my pleasure to present to you the report on business operations of Asseco Group for the year 2016. This was another year with an increase of the scale of our business and the international development of our Group. For the consecutive year we have reached a record level of revenues, PLN 7.9 billion, out of which 79 percent have been generated by our foreign companies. At the same time, the Group's operating profit increased to a record level of PLN 769 million. We operate in 54 countries and employ over 22,000 people. Our products have been appreciated by foreign analyst firms, such as Gartner, Celent and Forrester Research.

In the past year, as in the previous years, the Israeli market grew dynamically. The companies from the Formula Systems Group account for 55% of Asseco Group's revenues. The decision to form the Group's competence center for insurance in Sapiens has turned out to be a huge success resulting in dynamic growth in this area. Positive experiences of the integration in the insurance sector reinforce our belief

that a consolidation strategy around the competence centers will bring further benefits to the Group. We will continue to pursue that strategy in other areas.

The concentration on key competences has also led to further changes in our Group in Poland. On the basis of domestic companies we have created four strong entities responsible for selected market segments. Newly-established Asseco Data Systems is responsible for infrastructure projects, local administration and enterprise security solutions. DahliaMatic is responsible for implementing third-party solutions and Asseco Business Solutions is focused on the ERP software. After the changes, our main company, Asseco Poland, focuses on proprietary software and related services for large clients in the financial, public administration and general business segments.

We continue our development in the Central European market, in which we increased our revenues thanks to the implementation of our strategy of organic growth and acquisitions. Strong demand for the ERP solutions supported the company's natural growth, and the acquisitions made at the end of 2015 have further strengthened it. We have done well in the South Eastern European region. We have significantly increased the share of proprietary products and services and thus improved the profitability of our operations there. Double-digit growth was a result of an improvement in all fields of activity - the payment, banking and integration services segments.

The positive effects of the changes to the Group's structure have also been observed in Western Europe, where, after the sale of Matrix42 and the purchase of Exictos, the profitability has significantly improved, with a scale of operations similar to the 2016 levels. This was a result of an increased profitability of the Portuguese company, which generates the largest share of its revenues in Africa.

On behalf of myself and the whole management team, I would like to cordially thank all the people who contributed to the continued process of building of a powerful and modern IT group of Asseco Group.

With best regards,

Adam Góral

President of the Management Board of Asseco Poland

S.A.



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Management Report on Operations of Asseco Group



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MANAGEMENT REPORT ON OPERATIONS OF ASSECO CAPITAL GROUP


PRESIDENT’S LETTER ................................................................................................................... 4

GENERAL INFORMATION ON ASSECO GROUP .............................................................................. 9

COMPANY’S AUTHORITIES .......................................................................................................................... 10

Management Board .......................................................................................................................................................... 10 Supervisory Board ............................................................................................................................................................ 12

IT MARKET AND ITS OUTLOOK .............................................................................................................. 13

STRATEGY AND DIRECTIONS OF DEVELOPMENT................................................................................................. 15

ORGANIZATIONAL STRUCTURE OF ASSECO GROUP ................................................................................ 17

Federation model ............................................................................................................................................................. 17 Structure of Asseco Group ............................................................................................................................................... 17 Long-term development of Asseco Group ....................................................................................................................... 22

TARGET MARKETS, BUSINESS SECTORS AND PRODUCT PORTFOLIO OF ASSECO GROUP ........................... 25

Target markets by geographical regions .......................................................................................................................... 25 Operations by sectors ....................................................................................................................................................... 25 Product portfolio of Asseco Group ................................................................................................................................... 29

MAJOR EVENTS WITH IMPACT ON FINANCIAL PERFORMANCE OF ASSECO GROUP IN 2016 ...................... 31

Polish market .................................................................................................................................................................... 31 Israeli market .................................................................................................................................................................... 32 Central European market ................................................................................................................................................. 32 South Eastern European market ...................................................................................................................................... 33 Western European market ............................................................................................................................................... 33 Eastern European market ................................................................................................................................................. 33

FINANCIAL INFORMATION OF ASSECO GROUP....................................................................................... 34

Financial results ................................................................................................................................................................ 34 Cash flow .......................................................................................................................................................................... 38 Balance sheet ................................................................................................................................................................... 38

OTHER INFORMATION ON ASSECO GROUP ................................................................................ 40

Non-recurring events with impact on our financial performance .................................................................................... 40 Significant events with impact on Asseco Group operations after December 31, 2016 .................................................. 40 Opinion on feasibility of investment plans ....................................................................................................................... 41 Asseco Poland S.A. in the capital market ......................................................................................................................... 41 Shareholder structure ...................................................................................................................................................... 42 Discussion of significant risk factors and threats ............................................................................................................. 44 Opinion on feasibility of the Management Board financial forecasts for 2016 ............................................................... 47 Changes in the Capital Group management policies ........................................................................................................ 47 Agreements concluded by the Capital Group with its management personnel providing for payment of compensations if such persons resign or are dismissed from their positions ........................................................................................... 47 Remuneration of the management and supervisory personnel ...................................................................................... 47 Information on the agreements known to the Issuer which may result in future changes of the equity interests held by the existing shareholders and bondholders ..................................................................................................................... 47 Changes to equity relationships ....................................................................................................................................... 48 Related party transactions ............................................................................................................................................... 48 Bank loans, borrowings, sureties and guarantees ............................................................................................................ 48



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Loans granted during the financial year ........................................................................................................................... 48 Off-balance-sheet items ................................................................................................................................................... 48 Monitoring of employee stock option plans .................................................................................................................... 48 Information on judicial proceedings where the value in dispute exceeds 10% of the amount of equity ........................ 48 Information on adhering to the corporate governance standards .................................................................................. 48 Remuneration of the entity authorized to audit financial statements ............................................................................ 48 Agreement with the entity authorized to audit financial statements .............................................................................. 48



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MANAGEMENT REPORT ON OPERATIONS OF ASSECO CAPITAL GROUP


This Management Report on Operations has been approved for publication by the Management Board of Asseco Poland S.A. on March 16, 2017.

Management Board:

Adam Góral President of the Management Board

Przemysław Borzestowski Vice President of the Management Board

Tadeusz Dyrga Vice President of the Management Board

Krzysztof Groyecki Vice President of the Management Board

Rafał Kozłowski Vice President of the Management Board

Marek Panek Vice President of the Management Board

Paweł Piwowar Vice President of the Management Board

Zbigniew Pomianek Vice President of the Management Board

Przemysław Sęczkowski Vice President of the Management Board

Robert Smułkowski Vice President of the Management Board



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GENERAL INFORMATION ON ASSECO GROUP Asseco Group

The parent company of Asseco Group (the "Group", "Asseco Group") is Asseco Poland S.A. (the "Company", "Asseco").

Asseco Poland (WSE: ACP) is the largest Polish information technology company listed on the Warsaw Stock Exchange. With a market capitalization exceeding PLN 4.5 billion (about EUR 1.0 billion), the Company is included in the prestigious WIG20 index. It is also the largest company listed in the IT industry index, WIG-Informatyka.

Asseco Poland stands at the forefront of the multinational Asseco Group which is present, along with its subsidiaries, in 54 countries worldwide, including most of the European countries as well as Israel, USA, Japan, Canada, Russia and African countries. Asseco Group is the sixth-largest European software vendor according to the Truffle 100 ranking for 2014 as well as the largest provider of innovative IT solutions in Central and Eastern Europe.

The Group's companies are listed not only on the Warsaw Stock Exchange, but also on the NASDAQ Global Markets as well as on the Tel Aviv Stock Exchange.

Asseco Group is a unique combination of a software house and a service provider. It produces technologically advanced, top quality software that supports mission-critical business processes of enterprises in all key sectors of the economy. Revenues from proprietary software and services represent over 80% of the Group's total sales. Concurrently, 79% of Asseco Group’s sales are generated by its foreign operations.

Asseco Group is a unique federation of companies which are allowed a great deal of independence in making business based on their local competencies, while taking advantage of synergies arising from their cooperation within the whole Asseco Group.



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COMPANY’S AUTHORITIES

Management Board

Adam Góral

President of the Management Board

responsible for the development

vision and strategy of Asseco Group

Przemysław Borzestowski

Vice President of the Management

Board

responsible for Public Administration

Division, Capital Market Division,

and Office for Protection of

Non-Public Information

Tadeusz Dyrga


Board

responsible for Social Insurance

Division and Systems Maintenance

Division

Krzysztof Groyecki


Board

responsible for Healthcare Division

Rafał Kozłowski


Board

Chief Financial Officer responsible

for Finance Division of

Asseco Group,

and Logistics Department



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Marek Panek


Board

responsible for Development

Division of Asseco Group,

and EU Projects Office

Paweł Piwowar


Board

responsible for Energy and Gas

Industry Division,

Telecommunications and Media

Division, and Enterprises Division

Zbigniew Pomianek


Board

responsible for Commercial Banks

Division, Cooperative Banks Division,

Business Intelligence Division,

Compliance Department, and

Maintenance and Development of

Back-Office Systems Department

Przemysław Sęczkowski


Board

responsible for Public and Investor

Relations Department, and

Marketing Department

Robert Smułkowski


Board

responsible for PKO Bank Division

During the period of 12 months ended December 31, 2016, the Company’s Management Board was composed of the following persons:

Management Board Period of service

Adam Góral 01.01.2016 – 31.12.2016

Przemysław Borzestowski 01.01.2016 – 31.12.2016

Andrzej Dopierała 01.01.2016 – 30.06.2016

Krzysztof Groyecki 01.06.2016 – 31.12.2016

Tadeusz Dyrga 01.01.2016 – 31.12.2016

Rafał Kozłowski 01.01.2016 – 31.12.2016

Marek Panek 01.01.2016 – 31.12.2016

Paweł Piwowar 01.01.2016 – 31.12.2016

Zbigniew Pomianek 01.01.2016 – 31.12.2016

Włodzimierz Serwiński 01.01.2016 – 31.03.2016

Przemysław Sęczkowski 01.01.2016 – 31.12.2016

Robert Smułkowski 01.01.2016 – 31.12.2016



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Supervisory Board

Jacek Duch

Chairman of the Supervisory Board

Adam Noga

Vice Chairman of the Supervisory

Board

Piotr Augustyniak


Board

Dariusz Brzeski


Board

Artur Kucharski


Board

During the period of 12 months ended December 31, 2016, the Company’s Supervisory Board was composed of the following persons:

Supervisory Board Period of service

Jacek Duch 01.01.2016 – 31.12.2016

Adam Noga 01.01.2016 – 31.12.2016

Piotr Augustyniak 01.01.2016 – 31.12.2016

Dariusz Brzeski 01.01.2016 – 31.12.2016

Artur Kucharski 01.01.2016 – 31.12.2016

Dariusz Stolarczyk 01.01.2016 – 28.04.2016



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IT MARKET AND ITS OUTLOOK

Development prospects of the global IT market

According to Gartner’s forecasts, in 2017, the global IT industry will grow by 2.7% to reach the total value of USD 3,464 billion. Concurrently, according to these same experts, in 2016 the market recorded a decline by 0.6%, which was caused primarily by lower sales of hardware and communication services. An increase was recorded in the segment of IT services – by 3.9% to USD 899 billion – and of software for general business – by 5.9% to USD 333 billion. Both segments are key to Asseco Group’s operations.

It is worth noting that according to Gartner, the growth of the IT market in the EMEA region – Europe, Middle East and Africa – reached 0.6% in 2016 and will accelerate to 1.9% in 2017. As on global level, the expenditures on IT software and services will grow faster than other market segments – by 6.0% and 3.8%, respectively.

According to Gartner’s analysts, IT software and services will remain the market’s growth engine in the following year on the back of companies’ intensifying digitization processes, increased spending on automation and optimization services, as well as on innovation. However, the growth will be hindered by global companies' fear of excessive investments due to the uncertainty related to GDP prospects of the global economy.

It is expected that spending on cloud solutions will be one of the market's fastest-growing segments in the coming year. According to analysts from the International Data Corporation (IDC), the global spending on these solutions will increase by 24.4% to USD 122.5 billion. Although the US will remain the largest market for such solutions, IDC is forecasting that similar spending in Europe will increase by 23.2% to USD 24.1 billion.

IT spending (in billions of USD) 2016 2017

Data center systems 170 175

Software for businesses 333 355

Hardware 588 589

Services 899 938

Telecommunication services 1,384 1,408

Total 3,374 3,465

Source:Gartner (http://www.gartner.com/newsroom/id/3568917)

IT Market in Poland

According to the latest report prepared by PMR, published in September 2016, the Polish information

and communication technologies market is growing at the stable rate of 4-5% per year, boosted by Poland’s GDP growth, which, despite slight slowdown to 2.8% in 2016 from 3.6% in 2015, is still higher than in other European countries.

According to PMR, the Polish IT market should grow by 4.1% in 2016 versus 4.2% in 2015. Software and IT services will be the growth engine in the market, but the situation will be more difficult in the computer hardware market, where a drop in the sales of PCs and peripherals is forecast. That will force many distributors to change their strategies and enter new product segments. The value of the whole market is estimated at PLN 34 billion.

Situation in the public administration segment

According to estimates of market research companies, the public administration remains one of the leading recipients of services from the IT industry. Therefore, the situation in this sector has a significant impact on the situation in the whole services and software market. 2016 did not bring the expected increase in orders from the public administration, which, as the PMR’s study indicates, is one of the key challenges for the development of some companies in the sector. Currently, in line with market expectations, an increase in public orders related to the absorption of EU funds is expected in the second half of 2017.

Situation in the financial and general business segments

The economic growth contributes to increasing spending on software and IT services by the general business sector. This trend is clearly visible among smaller and mid-sized companies whose IT needs grow along with the scale of their operations and drive demand for the ERP solutions.

Among banks and financial institutions, the spending on technology is determined by intense fight for the customer and competition, in which modern solutions play a very important role. This phenomenon, supporting the demand for IT services, is partially offset by the need for cost savings and a conservative financial policy of these institutions.

According to market research, cloud and SaaS solutions, although still representing small part of the IT market, will grow particularly dynamically in the near term. These solutions are particularly attractive for small and mid-sized companies, which can gain access to more advanced products with relatively lower costs. The growing importance of products from that market area will be one of the factors



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enhancing the need for the expansion of data centers - another rapidly growing sector of the IT market in Poland.

Company’s market position

The Polish IT sector is a competitive and diversified market consisting of both local and leading global companies. Asseco Poland S.A. is one of the largest IT companies in Poland and the largest company in the country focused on the sales of proprietary software and services, and not computer hardware.

According to the latest available estimates of COMPUTERWORLD TOP200, Asseco Poland ranked 12th in the category of the “Largest IT companies operating in Poland”. However, it is worth noting that all companies which have ranked higher than Asseco Poland are producers of computer hardware or companies whose share of hardware in sales exceeds 60%.

IT companies with highest net

profit in 2015 Net profit (in millions of

PLN)

CD Projekt 336.2

Asseco Poland 257.1

ABC Data 60.3

Comarch 57.7

AB 54.3

Ericpol 51.3

Asseco Business Solutions 33.5

Source: COMPUTERWORLD TOP200 2016, Ranking of IT and telecom

companies by net profit generated in 2015

Concurrently, Asseco Group is the second-largest capital group and the second-largest IT company in Poland in terms of net profit. Asseco is also the biggest R&D spender in this market. It is also worth noting that another company from Asseco Group - Asseco Business Solutions – holds 7th position in the rank in terms of profitability.

Asseco Poland's leading market position is confirmed by the next table, which presents the positions taken by the Company in the COMPUTERWORLD TOP200 ranking that compares leading companies operating in the Polish market by type of business. Asseco Poland is a clear leader in the category of customer-tailored software and IT services for the business sector.

Ranking Ranking

position

Producers of customer-tailored software 1

Providers of IT maintenance services 1

Providers of IT services 1

Providers of system integration services 5


companies by sales revenues generated in 2015.

In terms of sectors, Asseco Poland is the leader or one of the leading suppliers in the key segments of its business. A drop to 8th position in the ranking of financial institutions is a result of the sales of the insurance competence center to Israeli subsidiary Sapiens in July 2015. Positions in individual segments are presented below.

Ranking of providers of software and

services to the sector of Ranking

position

Public administration 1

Healthcare 1

Large companies and corporations 2

Banking 3

Energy industry 2

Financial institutions 8

Telecommunications 5


companies by sales revenues generated in 2015.



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STRATEGY AND DIRECTIONS OF DEVELOPMENT

Mission

Our mission is to build a reliable and profitable, global information technology company providing high quality software and services.

Values of Asseco – our Source Code

Asseco has come up with its own “source code” that lists the common values shared by Asseco employees. These values have been devised by all of our employees and are recorded in a formal document, which is effective across our organization.

Commitment

We are fully committed to each and every project and the success of our Clients is our greatest satisfaction.

Respect

We require trust, honesty and mutual respect both from ourselves and from others.

Quality

We always maintain high quality standards in all of our activities.

Professionalism

We continually upgrade our qualifications and are willing to share experience.

Effectiveness

We are ambitious and consistent in striving to achieve our goals.

Responsibility

We take full responsibility for our work and environment in which we operate.

Strategy

The foundation of the strategy of Asseco Group is providing proprietary software and IT services to business customers and public administration. The strategy of Asseco Group is based on two pillars. The first is organic growth which is achieved through proprietary software and services, whereas the second one involves expansion through acquisitions. In 2017, the Company will continue its present approach.

Organic growth

The strategy of organic growth of Asseco Group is based on providing proprietary software and services to clients in Poland and abroad. Asseco strategy relies on sector-specific business expertise, which is

supported by technological competence. In addition, Asseco leverages on the vast experience of its international affiliated companies to create a comprehensive portfolio of products satisfying the highest needs of its customers. The Group's wide competences and geographical presence increase the knowledge of local markets and their specific conditions, make it easier to reach customers and allow for providing the best solutions tailored to customer expectations. Thanks to global scale of operations and strong financial foundations, Asseco Group can cope with the toughest and most ambitious implementation projects.

The activities of the Group and its companies focus on providing a wide range of proprietary IT solutions and services. The Group specializes in implementing the largest and most complex IT projects ordered by various clients, offering comprehensive solutions to all sectors of the economy, and also selling standardized products to smaller entities. The Group builds long-term trust-based relationships with customers, becoming their strategic business partner.

One of the elements of organic growth is increasing integration of divisions with similar or identical competences. That allows the Group to increase efficiency and improve its offer to customers.

Expansion through acquisitions

Asseco Group has been pursuing successful acquisition policy in Poland and abroad for many years. Asseco Poland, the leading company in the Group, is ranked among the most experienced companies in this field in Poland. Since 2004, the Company has finalized over 60 purchase transactions, repeatedly increasing the scale of its operations and geographic reach. Also, other companies from the Group, mainly Israeli group Formula Systems, pursue active and effective acquisition policy.

The purpose of acquisitions of Asseco Group is to increase competence in key sectors of activity, enter new geographic markets, or strengthen the position of the entire Asseco Group in the countries where it has been already active. Above all, the Group is interested in profitable entities with committed and highly-specialized employees willing to further develop themselves by connecting to a unique federation model of Asseco or integrating with Asseco Poland.

In the past, the Group’s acquisitions were focused on increasing the scale of operations in the largest global IT markets – the US and Europe. Majority of the transactions finalized by the Group have involved



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small and mid-sized capital investments up to several dozen million euros, which have brought synergy effect and carried limited risk for the Group’s stability.



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ORGANIZATIONAL STRUCTURE OF ASSECO GROUP

Federation model

Asseco Group is based on a unique cooperation model - a federation model. Asseco Poland, acting as the leading company in the Group, is the largest shareholder in the companies which create the Group, but does not aim to have 100% of the stake in the companies or force the integration of the members of the Group. The companies which decide to join Asseco Group maintain a wide degree of autonomy in their daily activities, and the Group sets out their strategic directions of development and goals and monitors their achievement.

The functioning of the Group's federal model is based on mutual trust, focus on people and a set of clearly defined principles of cooperation between the entities of the Group. Therefore, the companies acquired by Asseco Poland retain their local character and are often managed by existing owners and management teams.

The Group’s benefits resulting from the federation model are the following:

▪ Strengthening the market position and increasing customer confidence.

▪ Access to interesting, locally well-known product solutions.

▪ Knowledge of local markets, customers, business environment and unique circumstances.

▪ Access to local teams of employees who speak their native language.

▪ Conducting responsible business activities in

relation to local stakeholders.

A company which becomes a part of Asseco Group can count on:

▪ Access to the products and the experiences of other members of the Group.

▪ Access to the sales network of Asseco Group. ▪ Strengthening of the financial position. ▪ Becoming a part of international brand with a

strong market position. ▪ Access to global agreements with equipment

suppliers.

The cooperation model based on a federation creates a wide scope for sales and cost synergies in the activities of the Group.

Structure of Asseco Group

Asseco Group has identified six geographical markets where the Group companies conduct their business operations, including Poland, Israel, Central Europe, South Eastern Europe, Western Europe, and Eastern Europe.

Polish market

Asseco Poland S.A.

Asseco Poland (WSE: ACP) is the largest Polish information technology company listed on the Warsaw Stock Exchange and one of the major software vendors in Europe. With a market capitalization amounting to about PLN 4.5 billion (about EUR 1.0 billion), the Company is included in the prestigious WIG20 index. It is also the largest company listed in the IT industry index WIG-Informatyka.

Asseco Poland is a producer of state-of-the-art software that supports mission-critical business

processes of enterprises in all key sectors of the Polish economy. Asseco's software applications are used by more than half of Polish banks, the largest insurance, energy and telecommunication companies, various healthcare institutions, local and central public administration bodies, as well as by the uniformed services.

Asseco Enterprise Solutions a.s. and Asseco Business Solutions S.A.

Asseco Enterprise Solutions was established in December 2016 and does not conduct operating activities. Its most important asset are the shares in Asseco Business Solutions, provided by Asseco Poland as an in-kind contribution.

Asseco Business Solutions is listed on the Warsaw Stock Exchange (WSE: ABS) and delivers state-of-the-art IT solutions for businesses, regardless of their sector, size and specificity. In Asseco Group, Asseco Business Solutions is a competence center responsible



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for the ERP systems, software for small and mid-sized companies and the IT outsourcing. The company's product portfolio also includes mobile solutions, factoring systems as well as electronic data exchange platforms.

Asseco Data Systems S.A.

Asseco Data Systems (ADS) has been built on the knowledge base and many years of experience of six Polish subsidiaries of Asseco Group, namely ADH-Soft, CK Zeto Łódź, Combidata Poland, ZUI Otago, PI Zeto Bydgoszcz, and Unizeto Technologies. It has been strengthened by the infrastructure division separated from Asseco Poland in 2016. Thanks to that operation, the company formed a competence center specialized in providing the IT infrastructure, including database centers, to both the public administration and general business sector. In addition, the company is a provider of IT software and services for small and mid-sizes companies as well as the local administration.

DahliaMatic Sp. z o.o.

The company was established on the basis of a subsidiary of listed company Infovide Matrix, which was acquired by Asseco Poland in 2015. DahliaMatic received from that subsidiary divisions responsible for integration services and third-party software implementation. In 2016, the company was strengthened by the general business division of Asseco Poland due to similar operation profiles. As a result, a competence center was established in Asseco Group which deals with the implementation of business software and third party solutions - primarily SAP, Oracle and Microsoft.

SKG S.A.

The company is a provider of software for customs agencies, retail trade sector, as well as for auditing and data analysis. Apart from its flagship software called Wrota Celne (a customs system) marketed in the SaaS model, SKG S.A. provides services of design and implementation of IT systems. The company's quality management system is certified according to ISO 9001: 2008 standards.

ZUI Novum Sp. z o.o.

The company specializes in the development of IT systems supporting the cooperative banking sector. It functions as a developer of banking applications, ATM software, integrator and ATM equipment provider.

Israeli market

Formula Systems Ltd

Formula Systems is listed on the NASDAQ Global Markets (NASDAQ: FORTY) as well as on the Tel Aviv Stock Exchange in Israel. It is a holding company which owns shares in five IT companies (Matrix IT Ltd., Magic Software Enterprises Ltd., Sapiens International Corporation N.V., Insync Staffing Inc., and TSG IT Advanced Systems Ltd.) that are specialized in the production and supply of software solutions for various sectors. The companies of the Formula Systems Group operate in over 50 countries: in Northern America (the US and Canada), Europe, EMEA (including Israel, the United Kingdom, Germany, the Netherlands, France and Nordic countries) and Asia (including Japan and India).

Matrix IT Ltd.

This company is listed on the Tel Aviv Stock Exchange (TASE: MTRX). Matrix IT is an information technology market leader in Israel. Its key competencies include IT services, security solutions, outsourcing as well as integration of information systems to the client's order. The company is also engaged in the modernization and development of IT systems, providing the following services:

▪ development of dedicated IT systems;

▪ adaptation of software to the client's requirements;

▪ development and testing of software to ensure its high quality

Matrix IT also acts as a distributor for the world's leading software manufacturers. It provides infrastructure solutions for computer and communication systems. The company is also engaged in hardware distribution and, through its subsidiary John Bryce, it runs training and qualification centers offering professional courses and trainings for IT personnel. Its offering is complemented with "soft" trainings, vocational education and capital market courses.

Sapiens International Corporation N.V.

This company is listed on the American NASDAQ (NASDAQ: SPNS) and on the Israeli TASE. It is a leading global provider of software solutions for the insurance industry.

The company's product portfolio features the following solutions:

▪ ALIS - comprehensive software solution for life, pension and annuity, and medical insurance products;



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▪ IDIT Software Suite - comprehensive, component-based, core solution for insurance companies and financial institutions operating outside the North American market;

▪ RapidSure - component-based insurance software for the US property and casualty insurance market;

▪ Reinsurance - software enabling insurers and brokers to handle all reinsurance activities on a single platform. The product ensures full support for controlling and reporting functions;

▪ Decision - business decision management software for financial institutions.

Magic Software Ltd.

This company is listed on the American NASDAQ (NASDAQ: MGIC) and on the Israeli TASE. Technologies offered by Magic Software accelerate the processes of building and deployment of business applications that can be easily adapted to current and future demands or integrated with the customer's legacy enterprise systems.

The company's products allow users to create business applications that support their existing IT resources to enhance business capabilities.

Magic Software provides services taking a code-free approach, allowing users to focus on business logic rather than on technological requirements. Code-free structure is a key operating feature of the company's products:

▪ Magic xpa – application development platform;

▪ Magic xpi – system and process integration suite.

Insync Staffing Inc.

Insync Staffing is a provider of consulting services and human resources outsourcing for the sectors of technology and professional services (i.e. accounting and finance, administration, customer service, healthcare, human resources management, or marketing services).

TSG IT Advanced Systems

TSG operates primarily in the market of software solutions for the defense industry and uniformed services. It is a leading provider of IT systems to Israel's defense organizations, including the national military forces and the police.

Central European market

Asseco Central Europe, a.s.

This company is listed on the Warsaw Stock Exchange (WSE: ACS) and is the parent of Asseco Central Europe Group. It provides comprehensive IT solutions and services for international financial institutions (Erste, Allianz, UniCredit, etc.), for the private sector enterprises, as well as for the public institutions of central and local administration. Its product portfolio comprises information systems for banks, insurance companies and construction firms, card transaction systems, healthcare information systems, data warehouses, Business Intelligence and e-Commerce solutions, reporting systems, and turn-key projects.

Asseco Solutions

Asseco Solutions Group is comprised of three companies: Asseco Solutions CZK, Asseco Solutions SK, and Asseco Solutions AG, which are engaged in the provision of proprietary ERP solutions dedicated to small, mid-sized and large enterprises.

ACE Magyarorszag

The company has been formed as a result of the merger of Globenet and Statlogics. This company is one of the leading vendors of IT systems for the healthcare sector in Hungary, including primarily hospitals and medical clinics. Its flagship product is MedWorkS, a system providing support for all operating processes performed by a healthcare institution. Through the take-over, Statlogics has expanded its offerings with a range of dedicated consumer finance solutions, including comprehensive Credilogic system, which handles the full life cycle of the loan and credit lending process in consumer finance.

DanubePay

This company is a provider of IT solutions for payment cards, online payments, ATMs etc. It offers a comprehensive portfolio of products and services for authentication and transaction processing, acts as a partner in card issuing processes, and also develops own loyalty program systems.

InterWay

InterWay is engaged in the implementation of technologies and systems (including IDM, SSO, ECM, ERP, BPM, Cloud Computing), integration of e-commerce and SOA solutions, as well as in content management systems based on its own and third- party software.

Exe



20

This company is specialized in the provision of IT infrastructure services, localization services as well as in the distribution of related software of third-parties.

South Eastern European market

Asseco South Eastern Europe S.A.

This company is listed on the Warsaw Stock Exchange (WSE: ASE) and is the parent of Asseco South Eastern Europe Group. It was created by integrating the competence, experience, know-how, software solutions and customer base of many South Eastern European companies, each being a leader in its market segment. From the beginning of its operations, it has focused on the development of proprietary IT solutions. Asseco South Eastern Europe runs its business operations in five major segments of the IT market: solutions and services for the banking sector, authentication solutions, supply, installation and maintenance of ATMs and POS terminals, software and services for the telecom sector, as well as integration services, supply and implementation of IT systems and hardware. Nowadays, this holding incorporates subsidiaries operating in the territories of Serbia, Croatia, Montenegro, Bosnia and Herzegovina, Kosovo, Moldova, Albania, Bulgaria, Romania, and Turkey.

Western European market

Exictos

Portuguese company offering IT services and providing software to the general business and banking sectors. Its main markets are Portuguese-speaking countries in Africa – Angola and Mozambique.

Asseco Spain S.A.

This company is a provider of IT infrastructure consulting services, security solutions, human resources management solutions, outsourcing services, as well as fully comprehensive IT support.

Valorista

A company providing modern IT infrastructure and offering complementary services.

Necomplus S. L

This Group is engaged in the provision of electronic payment solutions (POS), self-service solutions as well as professional Call Center technologies.

Asseco Lietuva UAB

The company is a leading producer of software and integrator of IT systems in Lithuania. Its main business

lines include IT systems providing support in archiving, management of business processes, finances and EU funds, as well as software solutions for the insurance industry. The company's products and services are dedicated to a large extent to the public administration sector.

Asseco Danmark A/S

This company is a provider of top class consulting services and proprietary information solutions for the sectors of finance and biotechnology.

Peak Consulting ApS

This is a provider of high class consulting services in Scandinavia.

Eastern European market

Asseco Georgia LLC

This company is a provider of consulting and system implementation services for the banking and insurance industry companies as well as for the public administration. The company's operations are well diversified and include competence in software development, offering of proprietary ERP and CRM systems, solutions for insurance companies, software for schools and stores, as well as consulting services and implementation of third-party products.

R-Style Softlab JSC

R-Style Softlab is a Russian producer of software for the sector of banking and finance. It is specialized in three key areas: online banking and customer service systems, data warehouses and business intelligence systems, as well as core banking systems. R-Style Softlab is headquartered in Moscow and also has branches in Bryansk, Vologda, Almaty, and Kiev.

Asseco Kazakhstan LLP

The company's operations include three business lines: information security, information management, and cloud computing services. At present, it focuses primarily on the public sector clients as well as on large telecommunications and energy enterprises.



21

Organizational Structure of Asseco Group

The complete organizational structure of the Group is presented in item IV of Supplementary Information to the consolidated financial statements of Asseco Group for the year ended December 31, 2016.

Changes that took place in the Group’s organizational structure during 2016 have been described also in item IV of Supplementary Information to the consolidated financial statements of Asseco Group for the

year ended December 31, 2016.

Western European market Eastern European market South Eastern European market

Asseco Enterprise Solutions, a.s. KKI-BCI Sp. z o.o. * Asseco Western Europe S.A. Peak Consulting Group ApS R-Style Softlab JSC Asseco South Eastern Europe S.A.

Slovakia Poland Poland Denmark Russia Poland

100/100 (0/0) 100/100 (100/100) 100/100 (100/100) 73.68/70 (73.68/70) 100/100 (70/70) 55.34/55.34 (51.06/51.06)

Asseco Business Solutions S.A. Podkarp. Fund. Nieruchomości Sp. z o.o. Necomplus, S.L. Asseco Danmark A/S R-Style Softlab Kiev South Eastern European market

Poland Poland Spain Denmark Ukraine

46.47/46.47 (46.47/46.47) 100/100 (100/100) 65/65 (65/65) 62.25/55 (61.11/55) 99/99 (100/100) Central European market

Gladstone Consulting Ltd Park Wodny Sopot Sp. z o.o. Necomplus Serveis Andorra, S.L. SINTAGMA UAB R-Style Softlab South LLC Asseco Central Europe, a.s.

Cyprus Poland Andorra Lithuania Ukraine Slovakia

100/100 (100/100) 100/100 (100/100) 33.33/33.33 (33.33/33.33) 96.94/96.94 (81.34/81.34) 100/100 (100/100) 99.32/99.32 (93.51/93.51)

SKG S.A. Aquapark Sopot Sp. z o.o. Necomplus Portugal Lda. Asseco Lietuva UAB Asseco Kazakhstan LLP Central European market

Poland Poland Portugal Lithuania Kazakhstan

60/60 (60/60) 100/100 (0/0) 100/100 (100/100) 96.94/96.94 (81.34/81.34) 51/51 (51/51) Israeli market

ZUI Novum Sp. z o.o. Asseco Software Nigeria Ltd Necomplus Dominicana, Srl CodeConnexion Ltd. Asseco Georgia LLC Formula Systems (1985) Ltd.

Poland Nigeria Dominican Republic Sri Lanka Georgia Israel

51/51 (51/51) 51/51 (51/51) 100/100 (100/100) 45/45 (45/45) 51/51 (51/51) 46.33/46.33 (46.33/46.33)

Asseco Data Systems S.A. DahliaMatic Sp. z o.o. Necomplus Colombia SAS Exictos SGPS S.A. Matrix IT Ltd.

Poland Poland Colombia Portugal Eastern European market Israel

100/100 (100/100) 100/100 (100/100) 90/90 (90/90) 69.4/69.4 (61.38/61.38) 50.01/50.01 (50.04/50.04)

SIGILOGIC Sp. z o.o. Solver Sp. z o.o. Necomplus PERÚ SAC Portexictos S.A. Magic Software Enterprises Ltd.

Poland Poland Peru Portugal Israel

100/100 (100/100) 100/100 (100/100) 90/90 (90/90) 100/100 (100/100) 47.26/47.26 (46.4/46.4)

CTPartners S.A. one2tribe Sp. z o.o. T EMPLEAMOS ETT, S.L. LebaTechnology S.A. Sapiens International Corp. NV

Poland Poland Spain Angola Netherlands Antilles

100/100 (100/100) 0/0 (45.66/45.66) 100/100 (100/100) 99.86/99.86 (99.86/99.86) 48.85/48.85 (49.13/49.13)

Modulus Sp. z o.o. IMX tow Asseco Spain S.A. Mzexictos Lda. A - Group structure presented in chart A Insync Staffing Inc Poland Ukraine Spain Mozambique B - Group structure presented in chart B USA

50/50 (0/0) 100/100 (100/100) 70.32/70.32 (70.32/70.32) 90/90 (90/90) C - Group structure presented in chart C 90/90 (90/90)

D - Group structure presented in chart D

Postdata S.A. Valorista S.L.U. Cvexictos Lda. E - Group structure presented in chart E TSG IT Advanced Systems Ltd.

Poland Spain Republic of Cape Verde Israel

49/49 (49/49) 100/100 (100/100) 90/90 (90/90) 50/50 (0/0)

Logis IT S.L.U.

Spain

100/100 (100/100) * company in liquidation

Israeli market

Random Centro de Informática, S.A.U. subsidiary company

Spain

100/100 (100/100)

joint venture

Polish market Western European market 100/100 voting rights / equity interest as at 31 December 2016 (in %)

(100/100) voting rights / equity interest as at 31 December 2015 (in %)

Asseco Poland S.A.

Polish market

associated company

B)

A)

D)

E)

C)



22

Long-term development of Asseco Group

Asseco Group’s strategy is focused on creating new value for stakeholders in the long-term through organic growth and acquisitions. Thanks to progressive

geographical expansion and broadening the range of offered products and services, Asseco Group has been improving revenues and operating profits for years.

The below chart presents Asseco Group’s revenues and operating profit in 2008-2016.

An important factor for Asseco Group is the pursuit of product and geographic diversification. This approach allows for a significant reduction of the impact of negative market factors on the Group's activity. Thanks to a geographic diversification, the risk of negative influence of local factors on the functioning of the Group is significantly reduced, and a broad range of products protects Asseco from possible breakdowns of particular market sectors.

Asseco Group's activities are focused on a long-term improvement of the efficiency of individual companies. The Group accepts the fact that cost and sales synergies in the federation model are usually achieved over a longer period, usually in several years.

▪ Israeli market

Asseco Poland entered the Israeli market in 2010 through the acquisition of the Formula Systems group. Since then, the companies making up the holding company have grown dynamically, increasing revenues and improving operating profit EBIT. It is currently the most dynamically developing geographical area in Asseco Group.

In 2011-2016, the average annual growth rate (CAGR) for this market amounted to 23.7% and reached 27.8% for operating profit EBIT.

The chart below presents the revenues and operating profits for the Israeli market in 2011-2016.

The chart below presents the revenues and operating profits for the Israeli market in 2011-2016.

▪ Polish market

Asseco Poland has been operating in the Polish market since 1991. After a period of dynamic development, it has become the largest homegrown IT company in the country. Since then, the scale of operations in Poland

2,787 3,050 3,238

4,9605,529 5,780

6,232

7,2567,932

494 526 566645 652 599 637

745 769

0

2000

4000

6000

8000

10000

2008 2009 2010 2011 2012 2013 2014 2015 2016

Revenues and EBIT of Asseco Group in 2008-2016 (in millions of PLN)

Revenues EBIT

1,877

2,411 2,5802,951

3,677

4,399

129158 167 188

281

343

0

2000

4000

2011 2012 2013 2014 2015 2016

Israeli market in 2011-2016 (in millions of PLN)

Revenues EBIT



23

has remained stable, with the gradual tightening of operating margins. Currently, the Polish market is the second largest region of the Group's business in terms of revenues, and according to the strategic goal of building a global company, mainly foreign markets are expected to boost Asseco's further growth

The average annual growth rate (CAGR) for this market in 2008-2016 amounted to -1.8% and reached -5.3% for operating profit EBIT.

The chart below presents the revenues and operating profits for the Polish market in 2008-2016.

▪ Central European market

The Central European market is, apart from Poland, the longest-running geographical market of Asseco Group. The market's revenues have recorded dynamic growth continuously since 2013 and the operating profit has been steadily improving since 2014. The average annual growth rate (CAGR) for the revenues from this market for the period of 2008-2016 reached 5.5%, and for operating profit EBIT - 1.1%.

The chart below presents the revenues and operating profits for the Central European market in 2008-2016.

▪ South Eastern European market

The South Eastern European market is represented in the Group by Asseco South Eastern Europe, a company listed on the WSE since 2009. The scale of operations in this market has been gradually increasing year by year, and operating profits have been going up steadily since 2013.

In the years 2008-2016, the average annual growth rate (CAGR) for revenues was 7.3% and for operating profit EBIT reached 3.3%.

The chart below presents the revenues and operating profits for the South East European market in 2008-2016.

▪ Western European market

Asseco Group began investing in Western Europe in 2009. In 2015, there were significant changes in this

1,8771,724 1,801

1,568 1,6201,770

1,6821,779

1,650

379410 408

370 350303 298 278 259

0

1000

2000

2008 2009 2010 2011 2012 2013 2014 2015 2016

Polish market 2008-2016 (in millions of PLN)

Revenues EBIT

507

596

519553 561

401

494

649

736

6249

5875 74

55 5063 67

0

100

200

300

400

500

600

700

800

2008 2009 2010 2011 2012 2013 2014 2015 2016

Central European market 2008-2016 (in millions of PLN)

Revenues EBIT

348

437467 462 463 470

501 487

571

4556 51 55 53

42 4653 56

0

100

200

300

400

500

600

700

2008 2009 2010 2011 2012 2013 2014 2015 2016

South Eastern European market 2008-2016 (in millions of PLN)

Revenues EBIT



24

area of business - Matrix42 left the Group and Portuguese company Exictos joined it. This resulted in a significant improvement in operating EBIT in 2016.

In the years 2009-2016, the average annual growth rate (CAGR) for revenues in this market was 7.2% and for operating profit EBIT reached 27.4%, thanks to the acceleration in 2016, among others.

The chart below presents the revenues and operating profits for the Western European market in 2009-2016.

▪ Eastern European market

The Eastern European market is the youngest of the geographical segments in Asseco Group. The business growth in this market has been hampered by a decision of one of the key customers to stop cooperating with external IT service providers, which negatively affected the revenues and operating profit in 2016.

In the period of 2012-2016, the average annual growth rate (CAGR) for revenues in this market was 38.4%.

The charts below presents the revenues and operating profits for the Eastern European market in 2012-2016.

Currently, Asseco Group's strategic goal is to continue strengthening the cooperation of the Group's entities with similar production profiles and to create competence centers in the respective segments. Up until now, there has been a merger of two companies offering solutions to the insurance sector - Insseco and Sapiens (2015). Also, there has been a reorganization of subsidiaries in Poland (2016) and the consolidation of assets related to the ERP software for small and mid-sized enterprises through the establishment of Asseco Enterprise Solutions (2016).

379428

508462 483 499

599 575

13

39

21 19

36 37 38

56

0

100

200

300

400

500

600

700

2009 2010 2011 2012 2013 2014 2015 2016

Western European market 2009-2016 (in millions of PLN)

Revenues EBIT

23

87

114106

60

1 1

1723

-11-20

0

20

40

60

80

100

120

140

2012 2013 2014 2015 2016

Eastern European market 2012-2016 (in millions of PLN)

Revenues EBIT



25

TARGET MARKETS, BUSINESS SECTORS AND PRODUCT PORTFOLIO OF ASSECO GROUP

Target markets by geographical regions

Asseco Group has identified six geographical markets where the Group companies conduct their business operations, including Poland, Israel, Central Europe, South Eastern Europe, Western Europe, and Eastern Europe.

The Group’s companies located in Israel conduct business in over 50 geographical markets in the world. The most important regions include Israel, Northern America, Western Europe and the Middle East.

Israel and Poland remain two key geographical regions for Asseco Group’s operations. In 2016, the share of the Polish market in the revenues dropped to 21% due to lower annual sales. At the same time, Asseco Group’s companies located in Israel increased their sales and the share in the Group’s total revenues to 55%. The revenues generated by Central and Southern

Eastern European markets were increasing at similar rate to the revenues of the whole Group – therefore, their share in total revenues did not change and remained at the level of 9% and 7% for Central and Southern Eastern Europe, respectively. In turn, the share of Western and Eastern Europe in the Group’s total revenues dropped in the reported period.

Operations by sectors

Banking and finance

PLN 3,062 m39%

Public administration

PLN 1,742 m22%

General businessPLN 3,128 m

39%

2016

PolandPLN 1,650 m

21%

IsraelPLN 4,399 m

55%

Central EuropePLN 736 m

9%

South Eastern EuropePLN 571 m

7%

Eastern EuropePLN 60 m

1%

Western EuropePLN 575 m

7%

2016

PolandPLN 1,779 m

24%

IsraelPLN 3,677 m

50%

Central EuropePLN 649 m

9%

South Eastern EuropePLN 487 m

7%

Eastern EuropePLN 106 m

2%

Western EuropePLN 599 m

8%

2015

Banking and finance

PLN 2,689 m37%

Public administration

PLN 1,738 m24%

General businessPLN 2,829 m

39%

2015

*Data excluding the sales between segments * Data excluding the sales between segments



26

Banking and finance

Banks - production of banking software is one of the key businesses of the majority of Asseco Group subsidiaries. Both regional and international expansion of our Group is largely dependent upon continuing development and further improvement of IT solutions tailored to meet the banking sector's growing expectations from information technology.

The Group's flagship product for the banking sector is def3000, a comprehensive IT system developed by Asseco Poland. In addition, we offer dozens of specialized ready-to-implement solutions, requiring only some adaptation to specific operations of a particular institution.

Comprehensive banking systems are also offered by other companies of our Group. Asseco Central Europe, marketing its proprietary StarBANK solutions, has gained a strong position in the Slovak market for banking industry software. Asseco South Eastern Europe offers core banking systems, payment gateways, business intelligence solutions, and customer relationship management (CRM) solutions, and is engaged in the installation and maintenance of ATMs and POS terminals.

Insurance - Asseco Group companies boast many years of experience in the provision of comprehensive software solutions for major global insurance companies. Among them are life and property insurance companies, insurance brokers, as well as insurance market regulators. Advanced solutions provided by Asseco are always adjusted to conform to applicable insurance regulations and ensure the highest levels of security.

The Group's portfolio features core insurance systems and a variety of specialized solutions, including billing and collection systems, applications supporting claim settlement processes, reinsurance, co-operation with agents, and detection of insurance frauds. We also provide tools enabling insurance companies to fulfill the requirements of Solvency II.

The Group's flagship insurance industry products are ALIS, IDIT, and INSIGHT systems which are offered by our Israeli Sapiens group. In turn, Asseco Central Europe offers its own StarINS software suite.

To complement the above described banking and insurance industry competencies, Asseco is also a provider of all-in-one IT solutions for brokerage houses, investment funds, as well as for leasing and factoring companies.

Public institutions

Asseco Group is the largest IT provider for the public administration sector in Central Europe and one of the leading players in that market in Israel. The Group supplies the largest and most complex projects at the central level, in the defense sector, as well as smaller solutions at the local level and in the healthcare sector.

Central level - Asseco Poland develops and implements software solutions for public administration in the areas that cannot be supported by ready-made tools. These are mostly complex systems with powerful functionality suitable for processing of large data volumes.

Asseco Poland has got vast experience in the execution of complex IT projects for the public administration. The largest information technology project in Poland - the Comprehensive Information System of the Social Insurance Institution - has been implemented by Asseco. The companies from the group of Asseco Central Europe also have a long track record of cooperation with the institutions of central administration. For years, they have been offering high quality solutions and services to the Ministry and Finance, the Ministry of Interior Affairs and the equivalent of the Polish Supreme Audit Office (NIK) in Slovakia. In turn, Matrix IT is one of the key partners of the Israeli government.

We also have broad competences and experience in the security sector. As the only IT company from Central and Eastern Europe, we have executed over 50 prestigious projects for the EU and NATO agencies, including the EU border protection system for the Frontex agency. Our competences in the security field are strengthened by Israeli company TSG IT Advanced Systems, associated with Formula Systems. It is an important supplier of software and services to the Israeli defense and interior ministries.

Experience gained during the implementation of projects for international institutions allowed the Company to move from the position of a service provider to the position of a supplier of solutions and products. Over the past two years, the Company has invested in the development of innovative solutions in the areas of: unmanned platforms, examination and data analysis, command support systems, satellite solutions and cybersecurity.

Local governments – In cooperation with other companies from the Group, Asseco Poland provides proprietary IT solutions for all levels of local administration. A significant advantage of our software is that it can be easily integrated with specialized tools such as digital maps or metropolitan networks.



27

Healthcare – Asseco Group continues to build its market leadership in the provision of IT solutions for all types of medical facilities. Our solutions are used by hundreds of major hospitals and most clinics in the region of Central and Eastern Europe. Asseco's services include professional consulting on the design, implementation and maintenance of information systems for health insurance companies, and the provision of comprehensive solutions for hospitals and clinics. Asseco delivers patient service solutions, contract settlement systems as well as facility management solutions.

The Group's flagship product is AMMS (Asseco Medical Management Solutions), Asseco Poland's comprehensive package of information systems designed to help manage large and medium-sized hospitals, polyclinics, medical centers, outpatient clinics and emergency departments. Asseco Central Europe also provides a proprietary healthcare information system, which is called Mediform. The Group's portfolio for the healthcare sector is complemented with Hungarian GlobeNet solutions. In turn, the Israeli center of innovation develops pioneering IT solutions for the largest medical centers in the world. These include Tanit, which meets the specific needs of hospital management.

General business

Telecommunications and utilities - Asseco Group offers comprehensive proprietary solutions that are capable of handling multi-million customer databases and are customized for the specific needs of telecommunication, media, energy, gas and utility enterprises. Over a 20-year long presence of our solutions in this sector resulted in strategic partnerships with many major companies in Europe, which appreciate Asseco specialists' in-depth professional knowledge and experience, just as the quality of our solutions.

Our product portfolio dedicated to the Telco & Utilities sector includes billing systems, fraud detection systems, sales and CRM applications, portal applications, data warehouses, BI tools, and many more. The product portfolio is supplemented with technical infrastructure and asset management systems, and GIS/NIS solutions.

Asseco Poland has, for many years, been one of the key providers of billing systems to Orange Poland. Our software solutions are also used by other mobile and fixed-line operators, as well as by media companies, including Grupa ITI. Moreover, our solutions are utilized by major energy holdings operating in Poland, such as Tauron, PGNiG, Enea and PGE.

At the same time, Asseco Central Europe specializes is technical infrastructure management systems for network enterprises, while Asseco South Eastern Europe delivers IT solutions to many leading telecom operators in the Balkans region.

ERP solutions - Asseco Group offers a full range of state-of-the-art ERP systems for small, mid-sized and large companies. All of them are fully integrated software packages designed to support enterprise management processes. Owing to their diversified functionality and module-based structure, our solutions can be utilized in virtually every industry. Moreover, the Group has departments specializing in the implementation, development and industry adaptation of ERP systems based on the technologies of Oracle, SAP and Microsoft.

One of the Group's subsidiaries operating in the Polish market is Asseco Business Solutions (ABS), which specializes in ERP systems to support the management of small and medium-sized enterprises. Depending on the client's preferred technology, ABS may offer Asseco SAFO based on Oracle technology, or Asseco SOFTLAB ERP using Microsoft technology.

In addition, Asseco Central Europe developed a proprietary ERP solution which has been implemented by its Asseco Solutions subsidiary. Also, a German company of Asseco Solutions has competences in the field of ERP.

Furthermore, Asseco Group provides consulting and implementation services covering SAP, Oracle, and Microsoft Dynamics AX solutions.



28

Product portfolio - sectors

Banking and finance

▪ Banks ▪ Insurance ▪ Brokerage houses ▪ Investment funds ▪ Leasing companies ▪ Factoring companies

Public institutions

▪ Central administration ▪ Local administration ▪ Healthcare ▪ International organizations ▪ Social insurance ▪ Uniformed services ▪ Education

General business

▪ Telecommunications ▪ Municipal utilities ▪ Energy industry ▪ Gas industry ▪ Manufacturing, trade and services ▪ FMCG ▪ Multimedia



29

Product portfolio of Asseco Group

Asseco Group is focused on providing customers with proprietary solutions in the form of software and services. Third-party software and IT equipment are provided only when necessary. As a result, the Company offers its customers top-class solutions tailored to their needs.

▪ Dedicated software solutions

Asseco Group is the most experienced Polish IT company when it comes to the execution of large-scale and complex IT projects, implemented to individual customer needs. A good example of Asseco’s competence in this area is the IT project implemented for the Social Insurance Institution (ZUS), the largest in the history of our country. The Comprehensive Information System handles more than 24 million unique accounts and is used by over 30 thousand users on a daily basis. The Comprehensive Information System of ZUS won the main prize in the “eEurope Awards for eGovernment – 2005” competition, which was organized by the European Institute of Public Administration (EIPA), working under the auspices of the European Commission. The ZUS’s CIS was awarded for the creation of optimum environment for successful implementation of a public administration project.

▪ Comprehensive solutions for business sectors

We offer comprehensive IT packages that are customized to individual needs of large and mid-sized companies virtually from every sector of the economy. In this category, our product portfolio includes comprehensive systems dedicated to the banking sector (Asseco def3000), power industry (AUMS), healthcare (AMMS), as well as for brokerage houses (Promak) and the insurance sector (IDIT, ALIS).

▪ Standard software packages

We also provide standard software packages for thousands of small and mid-sized companies. With no need for customer-tailored products and at an affordable cost, firms can use Asseco’s out-of-the-box software to support their routine enterprise management functions. A good example of a standard software package is Magic xpa – a platform for creating and developing applications.

▪ Cloud computing solutions

Small and mid-sized enterprises can use our IT solutions available over the Internet. With a minimum of effort and cost and maximum benefits, our customers may take advantage of our knowledge and experience without investing large sums of money in IT infrastructure or a team of IT experts. Major clients for cloud-based e-banking systems delivered by Asseco Poland are cooperative banks operating in Poland.

Proprietary software and

servicesPLN 6,351 m

80%

HardwarePLN 950 m

12%

Third-party software

PLN 627 m8%

OtherPLN 5 m

2016

Proprietary software and

servicesPLN 5,783 m

80%

HardwarePLN 936 m

13%

Third-party software

PLN 533 m7%

OtherPLN 5 m

2015



30

▪ Solutions designed to

individual customer needs.

▪ Solutions designed and developed for multiple large and mid-sized clients.

▪ Standard solutions for a large number of small and mid-sized customers.

▪ Solutions available for numerous customers over the Internet.

Dedicated software solutions

Comprehensive solutions for business sectors

Standard software packages

Cloud computing solutions

SELE

CTE

D P

RO

DU

CTS

Comprehensive Information System – ZUS

Insurer – PZU

Clearance System – National Border Guard

Central Register of Vehicles and Drivers

– Ministry of the Interior

Asseco def3000 (banking)

Asseco Utility Management Solutions

(energy industry)

Asseco Medical Management Solutions

(healthcare)

Sapiens IDIT, ALIS (insurance)

OTAGO System (administration)

Promak (brokerage houses)

Asseco WAPRO

Asseco HR

Magic xpi Integration Platform

Magic xpa Development Platform

def3000 REB / CEB (banking)

Asseco Mobile Touch (general business use)

abStore Wapro (e-commerce)

wrotacelne.pl (customs systems)



31

MAJOR EVENTS WITH IMPACT ON FINANCIAL PERFORMANCE OF ASSECO GROUP IN 2016

Polish market

In 2016, Asseco Group continued its strategy of selling proprietary software and services to its existing and new customers in three key segments: banking and finance, public administration and business sector.

The results of Asseco Poland were affected by the reorganization of its business in Poland in 2016. The process was connected with the merger with Infovide-Matrix (Regulatory Filling No. 4,8,10,22/2016) and ended on June 30, 2016.

The company's objective was to create competence centers by consolidating organizational units of similar or identical business areas. As part of these changes, divisions dealing with implementation of

third-party software (SAP, Oracle, Microsoft) have been transferred from Asseco Poland and Infovide-Matrix to DahliaMatic. Divisions responsible for the banking, energy and telecommunications sector have joined Asseco Poland, while the infrastructure division has been transferred to Asseco Data Systems.

As a result, Asseco Poland remains a competence center in the Polish part of the Group for large and mid-sized businesses, the financial sector and the public administration (healthcare and central level). Asseco Data Systems focuses on infrastructure solutions and local administration, and DahliaMatic is responsible for the implementation of third-party solutions.

In 2016, we continued our long-lasting cooperation with PKO BP, which is the largest bank in the region. In addition, Asseco Group managed to strengthen its leading position as a provider of software for the cooperative banking sector.

In 2016, Asseco Poland successfully implemented the Asseco Customer Banking Platform system for the individual clients of Raiffeisen Polbank and the customers of cooperative banks affiliated with Spółdzielcza Grupa Bankowa. In 2016, the Group also worked on the implementation of PROMAK Powiernik and Portfel systems in leading Polish brokerage houses.

The results of Asseco Group in the Polish market in 2016 were negatively affected by a situation in the public administration and a delay in expected rebound in the announcements of new public tenders. Asseco Group managed to offset these

negative factors by a significant share of long-term contracts with existing clients in the portfolio - both for the maintenance of information systems as well as their development. In October 2016, an Annex was signed to the Agreement for the provision of operational support and maintenance services for the Comprehensive Information System in the Social Insurance Institution (ZUS). The Annex value does not exceed PLN 73.17 million net. The signed Annex extends the effective period of the Agreement till June 30, 2018 or till the time when funds appropriated for the execution of work covered by the Annex are fully used.

In the general business sector, the scope of operations in the energy segment was reduced after a period of intensive implementations in 2015. The Group's specialists continued the cooperation with the existing clients and worked on the development of the AUMS system. Also, the system was being

Infrastructure Division Banking

Energy

Telecommunication

SAP

Implementation Center

Business division (SAP, Oracle, Microsoft)



32

implemented in the Network Information Security Agency (INSA) in Ethiopia. In the area of telecommunication and media, the process of the centralization of the systems of mobile operator Polkomtel and Cyfrowy Polsat began. The project is being implemented in the cooperation with the Chinese company Huawei.

Asseco Business Solutions, a subsidiary of Asseco Group, specializing in the ERP solutions for small and mid-sized companies and the FMCG sector, continued its rapid growth in 2016. In December 2016, all shares of Asseco Business Solutions owned by Asseco Poland were transferred to newly-established Asseco Enterprise Solutions a.s as a contribution-in-kind. The goal of the transfer was to focus the operations of Asseco Group involving the ERP solutions in one entity, which will be also responsible for a competence center in that field.

Newly-established Asseco Data Systems has been carrying out intensive organizational and optimization works on its internal structure to adjust it to market requirements. At the same time, in the second half of the year, it signed a number of contracts for the supply of IT equipment for the clients from the local administration, finance and general business sectors. A maintenance and development of the EMIR system at the Social Insurance Institution (ZUS) and the Farmer and NSIU systems at the Agricultural Social Insurance Fund (KRUS) were also continued. New contracts have been signed for the implementation of proprietary solutions in the field of document circulation in local administration bodies. Also, intensive works were continued regarding the development of proprietary solutions involving electronic signatures and trust services.

In the reported period, Asseco Poland increased its stake in various subsidiaries - R-Style Softlab, Exictos, Asseco Central Europe and Asseco South Eastern Europe - which affected cash flows and the level of consolidated financial results.

In the fourth quarter, a write-down was made for the impairment of trade receivables from KT Corporation. As at December 31, 2016, Asseco Poland held trade receivables from KT Corporation amounting to PLN 88.9 million. The Company made a write-down amounting to PLN 6.5 million, which constitutes half of the disputed amount.

Israeli market

In Asseco Group, the Israeli market is represented by Formula Systems holding company, consisting of Matrix IT, Sapiens International and Magic Software,

among others. In 2016, the Formula Systems companies continued their existing organic growth strategy in Israel and in the international markets - primarily in the United States and Europe.

Sapiens International, the second-largest software producer in the insurance industry in the world, signed a number of contracts with new customers in the sector in 2016, including Medical Protection Society (MPS), Menora Mivtachim Insurance, where it will implement its Sapiens IDIT solution, LB Group, which has selected the IDIT P&C insurance policy management suite, and Generali Nederland, which has selected the solutions of Sapiens for life insurance portfolio management. In order to increase the scale of operations in Northern Europe, the company has opened an office in Copenhagen. In turn, it has opened a local support center in Istanbul for Turkish insurer Anadolu Insurance Company and other clients in Turkey and the Middle East.

In 2016, Sapiens took over the US software manufacturer for the insurance sector - Maximum Processing - expanding its product catalog with the Stingray solution, offered to small insurance companies looking for affordable solutions with the shortest possible implementation time.

Magic Software, a global provider of the xpa business application development platform, and the xpi package for system integration, also recorded significant revenue growth over the reporting period. It signed contracts with new customers, including, among others, beverage maker Schweppes, Toyota and ZF Lemfoerder. The organic growth of the company was supported by the purchase of a 60% stake in Roshtov Software, the leader in the Israeli healthcare software documentation market, for NIS 81 million.

Matrix IT improved revenues in all of its key business segments in both Israel and the US. During the previous year, especially dynamic growth was recorded in the segment of integration and infrastructure services related to the development of "cloud-based" technology, which the company provides as a partner of the US companies Amazon and Google.

Central European market

In the Central European market, Asseco Group is represented by Asseco Central Europe, which primarily offers products and services to the public and banking sectors in the Czech Republic and Slovakia, as well as the ERP solutions through Asseco Solutions Group's companies (Germany, the Czech Republic and Slovakia).



33

In 2016, the results of Asseco Central Europe were positively affected by the acquisition of infrastructure companies exe and Interway in the third quarter of 2015. In addition, the results were influenced by stronger demand for the ERP solutions offered by Asseco Solutions subsidiary in the DACH region (Germany, Austria and Switzerland). On the other hand, the sales levels were negatively affected by delays in tenders in the public sector in Slovakia before and after the election in March 2016. After stagnation in the first part of the reporting period, Asseco Central Europe signed several contracts in the public administration segment in the Czech Republic (during the past few months of the year). The contracts involved developing a register of rights and obligations for the Ministry of Interior and a register of persons for the Czech statistical office. In November 2016, the company also signed an agreement with the capital of Austria - Vienna - for a comprehensive solution for urban lighting management based on LIDS software.

South Eastern European market

In the South Eastern market, Asseco Group is represented by Asseco South Eastern Europe (ASEE), a group of entities offering integrated services, services and software for the banking sector, and solutions for the payment segment.

Last year, the payment segment was boosted by the acquisition of Chip Card - a company dealing with payment processing and payment authorization services. Chip Card's experience and competences translated into signing new contracts already the same year. In addition. last year, works were continued on the development of the Paratika project - an online payment transaction settlement service offered to web site owners. This solution should start generating revenues in 2017.

Western European market

In the Western European market, Asseco Group operates through a number of companies in Spain, Denmark, Portugal and Lithuania. In addition to normal operations of the companies, the 2016 results were strongly affected by ownership changes - the acquisition of Exictos, a Portuguese developer of software for financial institutions, and the sale of subsidiary Matrix42 in 2015.

In 2016, Portuguese company Exictos decided to stop offering ERP systems based on the programs of SAP company, which, together with the deterioration of the economic conditions in the African markets, negatively affected the company's financial results in

2016. According to the strategy of Asseco Group, Exictos will focus on proprietary products for the banking sector, including the continuation of the successful migration of its customers to the latest version of the software - 3G. The reason for optimism is also the choice of the company's solutions by merging banks in Angola.

In the Spanish market, a test implementation of self-service parcel pick-up stations and kiosks for Spanish postal operators and retailers was conducted. At the same time, we continued cooperation in delivering high-end mobile devices and computers to existing customers.

Eastern European market

The results of the Eastern European market, mainly represented by R-Style Softlab, significantly deteriorated in 2016 following a termination of a contract by a client in the banking sector.



34

FINANCIAL INFORMATION OF ASSECO GROUP

Financial results

In 2016, Asseco Group achieved record-high consolidated revenues and operating profit EBIT thanks to dynamic growth of the Group in foreign markets, accounting for 79% of the sales revenues.

A significant disproportion between operating profit EBIT and net profit attributable to shareholders of the Parent Company is above all a result of significant stake of minority shareholders in subsidiaries, mainly in the Formula Systems group.

The table below presents key consolidated financial results for the period of 12 months ended December 31, 2016 and the comparable period.

mPLN

12 months

ended Dec.

31, 2016

12 months

ended Dec.

31, 2015

Change

(%)

Revenues 7,932.0 7,256.2 9.3%

Proprietary software and service 6,351.0 5,782.6 9.8%

Gross profit/(loss) on sales 1,866.5 1,749.1 6.7%

Selling costs (480.8) (451.5) 6.5%

General and administrative

expenses (620.9) (543.7) 14.2%

Other operating activities 4.6 (9.2) -

Operating profit 769.4 744.7 3.3%

Net profit attributable to

Shareholders of the Parent

Company

301.3 365.0 (17.5%)

EBITDA 1,069.5 1,007.7 6.1%

EBITDA = EBIT + depreciation and amortization

In the fourth quarter, the revenues of the Group increased by 2.9% to PLN 2.26 billion, with an

increase in the sales of proprietary software and services by 10,9%. At the same time, operating profit EBIT dropped by 3.8% to PLN 203 million, and net profit attributable to shareholders of the Parent Company dropped to PLN 76.7 million.

The table below presents selected consolidated financial results for the period of 3 months ended December 31, 2016 and the comparable period.

mln PLN

3 months

ended Dec.

31, 2016

3 months

ended Dec.

31, 2015

Change

(%)

Revenues 2,259.1 2,196.0 2.9%

Proprietary software and service 1,776.7 1,602.1 10.9%

Gross profit/(loss) on sales 510.2 505.9 0.8%

Selling costs (131.5) (126.8) 3.7%

General and administrative

expenses (179.8) (166.9) 7.7%

Other operating activities 4.1 (1.1) -

Operating profit 203.0 211.1 (3.8%)

Net profit attributable to

Shareholders of the Parent

Company

76.7 125.5 (38.9%)

EBITDA 283.1 274.0 3.3%

EBITDA = EBIT + depreciation and amortization

The following table presents the key financial results generated by our various geographical segments in the period of 12 months ended December 31, 2016.

Financial results of key geographical segments, 12

months ended December 31, 2016

(in millions of PLN)

Poland Israel Central Europe

South Eastern

Europe

Western

Europe

Eastern Europe

Sales revenues * 1,650.2 4,399.0 736.1 570.6 575.1 59.6

EBIT 258.6 343.4 66.9 56.4 55.6 (11.2)

EBIT margin 15.7% 7.8% 9.1% 9.9% 9.7% -18.8%

Adjusted EBIT 276.8 426.8 68.7 56.4 62.4 (7.9)

Adjusted EBIT margin 16.8% 9.7% 9.3% 9.9% 10.9% -13.3%

EBITDA 349.1 477.6 86.3 93.7 71.5 (5.3)

EBITDA margin 21.2% 10.9% 11.7% 16.4% 12.4% -8.9%

CFO BT 339.1 383.1 90.7 95.5 124.7 (4.9)

CAPEX (51.6) (77.5) (18.5) (35.5) (27.5) (0.5)

FCF 287.5 305.6 72.2 60.0 97.2 (5.4)

Cash conversion rate 103.9% 71.6% 105.1% 106.4% 155.8% -



35




Poland Israel Central Europe

South Eastern

Europe

Western

Europe

Eastern Europe

Cash and cash equivalents at the end of

period 123.3 995.4 186.6 119.5 68.4 9.4

Interest-bearing debt at the end of

period (208.3) (1,086.2) (8.7) (47.5) (26.4) -

of which bank loans, borrowings and

bonds issued (113.7) (, 084.0) (8.5) (44.6) (25.2) -

of which finance lease liabilities (94.6) (2.2) (0.2) (2.9) (1.2) -

*Revenues generated in individual markets include sales to external customers as well as inter-segment sales EBIT = operating profit Adjusted EBIT = EBIT+PPA+SBP, where PPA means amortization charges on intangible assets recognized in purchase price allocation, and SBP means the costs of share-based payment transactions with employees EBITDA = EBIT + depreciation and amortization CFO BT = cash generated from operating activities, before income tax CAPEX = segment’s capital expenditures for non-current assets FCF = CFOBT – CAPEX Cash conversion rate = FCF/adjusted EBIT

The following table presents the key financial results generated by our various geographical segments in the period of 12 months ended December 31, 2015.




Poland Israel

Central

Europe**

South Eastern

Europe

Western

Europe**

Eastern Europe

Sales revenues * 1,778.5 3,676.8 649.3 487.2 598.9 106.0

EBIT 277.6 280.8 62.9 52.6 37.6 23.4

EBIT margin 15.6% 7.6% 9.7% 10.8% 6.3% 22.1%

Adjusted EBIT 295.5 356.5 64.4 52.6 42.7 26.8

Adjusted EBIT margin 16.6% 9.7% 9.9% 10.8% 7.1% 25.3%

EBITDA 365.7 397.7 79.2 82.9 55.1 29.6

EBITDA margin 20.6% 10.8% 12.2% 17.0% 9.2% 27.9%

CFO BT 414.8 398.9 107.3 84.3 14.0 24.3

CAPEX (61.7) (65.7) (10.2) (43.7) (9.7) (0.7)

FCF 353.1 333.2 97.1 40.6 4.3 23.6

Cash conversion rate 119.5% 93.5% 150.8% 77.2% 10.1% 88.1%

Cash and cash equivalents at the end of

period 122.1 972.0 188.5 101.1 199.1 17.0

Interest-bearing debt at the end of

period (280.2) (860.7) (4.5) (47.6) (65.2) -

of which bank loans, borrowings and

bonds issued (167.7) (857.0) (4.1) (45.3) (63.5) -

of which finance lease liabilities (112.5) (3.7) (0.4) (2.3) (1.7) -

*Revenues generated in individual markets include sales to external customers as well as inter-segment sales ** Data restated in comparison with the consolidated financial statement of Asseco Group for 2015 EBIT = operating profit Adjusted EBIT = EBIT+PPA+SBP, where PPA means amortization charges on intangible assets recognized in purchase price allocation, and SBP means the costs of share-based payment transactions with employees EBITDA = EBIT + depreciation and amortization CFO BT = cash generated from operating activities, before income tax CAPEX = segment’s capital expenditures for non-current assets FCF = CFOBT – CAPEX Cash conversion rate = FCF/adjusted EBIT

Revenues

In 2016, Asseco Group’s revenues increased by 9.3% to PLN 7.93 billion, reaching the highest level in the history of the Group. The revenues were boosted by

an increase in the sales in foreign markets, mainly of the Israeli companies, but also in the Central European and South Eastern European markets. Due



36

to the fact that significant part of Asseco Group’s sales (over 70%) is conducted in foreign currencies, it was additionally boosted by depreciation of the

Polish zloty. In turn, the revenues were negatively affected by the situation in the Polish, Eastern European and Western European markets.

The table below presents our sales revenues broken down into individual geographical markets in 2016.

General business Banking and finance Public institutions Total*

Polish market 567.3 489.4 593.5 1,650.2

Israeli market 1,871.6 1,774.3 753.2 4,399.0

Central European market 337.6 100.3 298.3 736.1

South Eastern European market 88.6 440.3 41.7 570.6

Western European market 265.9 257.9 51.2 575.1

Eastern European market 1.8 51.7 6.1 59.6

* Revenues generated in individual markets include sales to external customers as well as inter-segment sales

It is worth noting that in 2016, the revenues generated by the key segment for the Group – of proprietary software and services – increased by 9.8%, thus at faster rate than the Group’s total revenues.

The below table presents the currency structure of the sales in 2016 and 2015.

12 months

ended

December 31,

2016

12 months

ended

December 31,

2015

NIS (new Israeli shekel) 33.3% 31.2%

PLN (Polish zloty) 20.6% 22.3%

EUR (euro) 16.7% 16.3%

USD (US dollar) 15.3% 14.9%

CZK (Czech crown) 1.8% 1.5%

RON (new Romanian leu) 1.3% 0.0%

RSD (Serbian dinar) 1.8% 0.0%

GBP (British pound) 2.9% 2.8%

RUB (Russian ruble) 0.6% 1.2%

other currencies 5.7% 9.8%

100.0% 100.0%

A drop in the sales in the Polish market by 7.2% was mainly attributable to the lower revenues of the Group's key company, Asseco Poland, which recorded lovers sales in the public administration and general business segments. In the former case, it was a result of further delays in the settlement of important tenders in the central administration and in the healthcare sector. These negative trends were offset by a significant share of long-term contracts in the portfolio - both for the maintenance of information systems as well as their development.

The general business sector generated lower revenues because the scope of operations in the energy segment was reduced after a period of intensive implementations in 2015 in two energy companies - Enea and Tauron. Also, the AUMS system was being implemented in the Network Information Security Agency (INSA) in Ethiopia. In the area of telecommunication and media, the process of the centralization of the systems of mobile operator Polkomtel and Cyfrowy Polsat began. The project is being implemented in the cooperation with the Chinese company Huawei. In 2016, works were completed regarding the transfer of 3 million customers of Orange Polska to a new billing system.

Lower sales of the parent company in the general business sector was offset with higher revenues of subsidiary Asseco Business Solutions, which increased by 11% in 2016 to PLN 168.8 million thanks to growing demand for the ERP solutions in Poland and abroad.

Improvement in sales was recorded in the banking and finance sector, in which Asseco Poland has maintained strong market position. In 2016, we continued our long-lasting cooperation with PKO BP, which is the largest bank in Poland, and implemented several new projects, including modern, omnichannel online banking solution - Asseco Customer Banking Platform - in number of clients (Raiffeisen Polbank, among others). Asseco's flagship banking product - the def3000 central system - was implemented in several cooperative banks. In turn, the Promak family of products enjoyed strong demand among the players from the capital market.

The Israeli market generated 55% of Asseco Group's revenues and in 2016, as in the previous years, recorded a significant increase in sales, reaching



37

19.6% on annual basis to almost PLN 4.4 billion. All three key companies from the Formula Systems group improved their revenues, and the growth was further strengthened by the weakening of the Polish zloty.

In 2016, Magic Software's revenues increased slightly to over USD 200 million. The increase in revenues was the result of signing a number of new contracts for the supply of such flagship solutions as xpa and xpi with Schweppes, Toyota and ZF Lemfoerder, among others. In addition, revenues were affected by a take-over of medical software vendor Roshtov Software in 2016. The revenues growth was achieved despite the expected significant reduction in revenues from the renewal of the company's software licenses.

The revenues of Sapiens International - the world's second-largest software and services provider for the insurance sector - grew dynamically in 2016 to over USD 215 million. Most of the revenue growth came from organic growth - increasing the scale of works for existing clients and signing new contracts, with Medical Protection Society (MPS), Menora Mivtachim Insurance, LB Group or Generali Nederland, among others. The acquisition of the US software developer for small insurers - Maximum Processing - was an additionall factor influencing revenues. The revenues of the company were in turn negatively affected by the weakening of the British pound, caused by the unexpected result of the referendum on the UK's exit from the European Union (EU).

The Central European market, represented by Asseco Central Europe, recorded a 13.4% improvement in revenues in 2016. The company managed to offset the negative effect of the slowdown in the public administration segment in Slovakia due to parliamentary election with the expansion of the ERP solutions in German-speaking DACH markets. Also, it won several important contracts in the public sector in the Czech Republic. The infrastructure companies acquired in the third quarter of 2015 - Interway and exe - contributed to revenues for the first time for a full year.

Asseco South Eastern Europe, which deals with the operations in the South Eastern European market, improved its sales by 17.1% last year to PLN 570.6 million on the back of higher revenues in the banking, payment and integration segments.

In 2016, ASEE's activity in the banking segment focused on organic growth. After the restructuring period, financial results were improved in Romania, competences were extended in Bulgaria, and intensive work was carried out regarding the

development of new omnichannel (Digital Edge) products in Serbia. The payments sector improved sales thanks to the acquisition of Chip Card - a company dealing with processing and authorization of payment transactions.

In the period of 2015-2016, the Western European market went through considerable changes related to the sale of German company Matrix42 and the acquisition of Portuguese software maker Exictos. Among other things, as a result of these changes, the market's revenues decreased by 4% to PLN 575.1 million. In addition, the sales was affected by the strategic decision of Exictos to stop offering the ERP software.

The Eastern European market is the smallest geographical area in which Asseco Group operates. The revenues in this market in 2016 were largely determined by the decision of one of the key bank customers to break up cooperation with all external providers of technology services and software. As a result, the sales in this market dropped by 43.8%.

Profitability

In 2016, operating profit EBIT increased by 3.3% on annual basis to record-high level of PLN 769.4 million. The largest increase in EBIT was recorded in the Western European market – by 47.9% - and in the Israeli market – by 22.3%. The result in Western Europe was boosted by Exictos’s higher profitability than the one of Matrix42, sold in 2015. In addition, the results of the Portuguese software vendor were positively affected by the enforcement of overdue receivables from certain customers in the general business sector. In turn, higher EBIT in Israel was mainly a result of higher revenues, with margins kept at almost unchanged level. In addition, the weakening of the Polish zloty had a positive effect on EBIT.

The operations in the Eastern European market had the strongest negative impact on the Group’s operating profit. Due to a decision of one of key clients, the market recorded operating loss amounting to PLN 11.2 million. Operating profit also recorded a drop in the Polish market – EBIT was negatively affected by one-time revaluations, made in the fourth quarter, of contracts transferred to DahliaMatic, and especially by a write-down in the amount of PLN 6.5 million for the impairment of trade receivables from KT Corporation. At the same time, Asseco Group, similarly to the whole IT sector, had to face dynamically growing labor costs due to increasing global demand for the high technology employees. As a result, total labor costs increased in the Group by 15.4%.



38

Due to slower growth of operating profit than of revenues, the operating profit margin dropped by 0.6 percentage point to 9.7%. It is worth noting though that the EBIT margin increased in the Israeli market (to 7.8%), in Western Europe (to 9.7%) and in the Polish market (to 15.7%). Lower profitability was recorded in three markets, in which Asseco Group is present – in Eastern Europe (to -18.8%), in South Eastern Europe (9.9%) and in Central Europe (9.1%).

In 2016, net profit for the shareholders dropped by 17.5% on annual basis, mainly due to higher own financial costs, but also as a result of increasing share of the profit attributable to minority shareholders - that is due to more favorable dynamics of net profits in the companies, in which Asseco Group does not have full stake.

In 2016, consolidated net margin narrowed down to 6.9%.

12 months ended

December 31, 2016

12 months ended

December 31, 2015

Change

Gross profit margin 23.5% 24.1% (0.6) pp

EBITDA margin 13.5% 13.9% (0.4) pp

Operating profit margin 9.7% 10.3% (0.6) pp

Net profit margin 6.9% 7.9% (1.0) pp

Cash flow

In 2016, net cash flows from operating activities (CFO) of Asseco Group increased by 4.4% on annual basis thanks to lower level of taxes paid. Cash flows from operating activities (before tax payments) slightly dropped on annual basis due to lower profit before tax than in 2015 and unfavorable change in the working capital.

Negative cash flows from investing (CFI) were significantly higher, reaching the level of PLN 483.6 million in 2016. That was a result of higher level of granted loans and the acquisitions made by the Israeli companies from Asseco Group.

Negative cash flows from financing activities went up to the level of PLN 487.9 million, due to higher expenditures on the purchase of non-controlling stake, related to the increase of Asseco Poland's engagement in subsidiaries: R-Style, Asseco Central Europe and Asseco South Eastern Europe. In addition, the level of dividends paid, both by the parent company and for non-controlling interests, increased. Finally, majority of loans that had been previously taken were repaid. On the other hand, loans taken by Israeli companies - Magic and Matrix -

had positive effect on the cash flows from financing activity.

As a result of these cash flows, the level of cash and cash equivalents dropped by the total of PLN 88.3 million at the end of 2016.

Balance sheet

In the analysis of liquidity, Asseco Group uses the ratio of working capital, defined as the difference between current assets and current liabilities. It represents the amount of capital which is used to finance current assets.

In 2016, the level of working capital remained close to the levels from 2015, due to similar change dynamics between current assets and current liabilities. Therefore, also liquidity ratios remained mostly unchanged, and their slight drop is a result of slightly higher level of current liabilities and a drop in cash and cash equivalents at the end of the reporting period.

December 31,

2016 December 31,

2015

Working capital (in millions of PLN) 1,835.9 1,872.5

Current liquidity ratio 1.7 1.8

Quick liquidity ratio 1.6 1.7

Absolute liquidity ratio 0.6 0.7

Cash conversion ratio 93% 100%

Working capital = current assets - current liabilities Current liquidity ratio = current assets / current liabilities Quick liquidity ratio = (current assets - inventories – prepayments) / current liabilities Absolute liquidity ratio = (cash + short-term bank deposits) / current liabilities

The lower level of the cash conversion rate (i.e. FCF/adjusted EBIT) in 2016 was a result of lower operating cash flows related to a delay in the payment for supplies and services by one of the clients. As a result, the rate dropped to 93% at the end of 2016 from 100% in the corresponding period in the previous year.

At the end of December 2016, the debt ratios increased due to higher level of non-current liabilities – amounting to PLN 1.62 billion. This increase was due to loans taken by Israeli subsidiaries and an increase in deferred corporate income tax liabilities.

December 31, 2016

December 31, 2015*

January 1, 2015*

Total debt ratio 32.2% 30.9% 25.5%

Debt/equity ratio 15.9% 15.1% 10.8%

Debt/(debt + equity) ratio 13.6% 13.1% 9.7%

* Data restated in comparison with the consolidated financial statement of Asseco Group for 2015



39

Working capital = current assets - current liabilities Total debt ratio = (non-current liabilities + current liabilities) / assets; Debt/equity ratio = (interest-bearing bank loans + debt securities + finance lease liabilities) / equity Debt/(debt + equity) ratio = (interest-bearing bank loans + debt securities + finance lease liabilities) / (interest-bearing bank loans + debt securities + finance lease liabilities + equity)



40

OTHER INFORMATION ON ASSECO GROUP

Non-recurring events with impact on our financial performance

Non-recurring events with impact on the financial performance, assets and cash flow of Asseco Poland in the year 2016 and in the comparable period were as follows:

▪ An increase of Asseco Poland’s engagement in Exictos, UAB Asseco Lietuva and UAB Sintagma through the purchase of their shares in 2016. The transactions have been described in explanatory note V.10 under the supplementary information to the financial statements of Asseco Poland for the period of 12 months ended 31 December, 2016.

▪ Asseco Western Europe S.A.'s buy-back on May 25, 2016. Asseco Western Europe S.A. purchased from Asseco Poland S.A. 15,744,681 of its own shares for cancellation. The value of the transaction reached PLN 59.2 million.

▪ Acquisition of 30% of the shares of R-Style Softlab JSC (Regulatory Filling No. 21/2016)

▪ for the total value of USD 12.09 million. As a result of the transaction, Asseco Poland's stake in the company increased to 100%.

▪ Acquisition of the shares of Asseco Central Europe on December 22, 2016 (Regulatory Filling No. 25/2016). As a result of a tender offer, Asseco Poland purchased 1,242,480 shares of the company, representing 5.82% in its share capital. As a result of the transaction, Asseco Poland's stake in the company increased to 99.32% from 93.51%.

▪ Acquisition of the shares of Asseco South Eastern Europe S.A. on December 22, 2016 (Regulatory Filling No. 27/2016). Asseco Poland bought from the European Bank for Reconstruction and Development (EBRD) 2,221,356 shares of Asseco South Eastern Europe, representing 4.28% in its share capital, for the total amount of PLN 21.1 million. As a result of the transaction, Asseco Poland's stake in the company increased to 55.34% from 51.06%.

▪ Write-down for the impairment of trade receivables from KT Corporation. As at

December 31, 2016, the Company held trade receivables from KT Corporation amounting to PLN 88.9 million. The Company made a write-down amounting to PLN 6.5 million, which constitutes half of the disputed amount. The amount of the write down for this impairment was determined individually, regardless of the rules resulting from the Company's accounting policy.

▪ Sale of a business venture of Asseco Poland S.A. to its subsidiary Insseco Sp. z o.o., which has been described in explanatory note V.9 under the supplementary information to the financial statements of Asseco Poland for the year 2015. This transaction concerned certain assets, including copyrights as well as the rights and obligations arising from contracts that have so far been executed by the Company for some clients in the commercial insurance industry.

▪ Acquisition by Asseco Poland of a 61.38% stake in Portugal-based Exictos SGPS for EUR 21.48 million. This transaction has been described in detail in explanatory note V.9 under the supplementary information to the consolidated financial statements of Asseco Group for the period of 12 months ended December 31, 2015.

▪ Decision to create an allowance for our trade receivables from Mostostal Warszawa, in the amount of PLN 7.7 million.

▪ Acquisition of 100% of shares in Infovide-Matrix S.A., a Polish IT company listed on the Warsaw Stock Exchange. This transaction has been described in our Regulatory Filling No. 28/2015 as well as in explanatory note V.9 under the supplementary information to the consolidated financial statements of Asseco Group for the period of 12 months ended December 31, 2015.

Significant events with impact on Asseco Group operations after December 31, 2016

▪ Significant events with impact on Asseco Group operations that took place after the reporting period, i.e. after December 31,



41

2016, have been described in explanatory note 37 to the annual consolidated financial statement of Asseco Group for the period of 12 months ended December 31, 2016.

Opinion on feasibility of investment plans

The companies of Asseco Group pay their trade payables, settle the state obligatory charges, and

fulfill their investment obligations on a timely basis. We maintain loan facilities at various banks in order to diversify our sources of financing. The Company pays its liabilities from current operating revenues which may be supplemented with third party financing, in the form of short-term bank overdraft facilities, bank term loans, borrowings, or capital contributions.

Asseco Poland S.A. in the capital market

In 2016, the share price of Asseco Poland followed the WIG20 index for most of the year and only in the last quarter it did not benefit from improving sentiment on the capital market. As a result, the share price of Asseco dropped by 2.8% during the year while the WIG20 index rose by 7.95% and the WIG index increased by 14.1%. The sector index WIG-

Informatyka, in which Asseco Poland has a significant share, grew by 35.9%.

For most of the previous year, the Polish capital market was influenced mainly by political factors in the country and abroad. In Poland, the proposals for changes to economic policy affected the share prices of the largest companies, especially in the banking and energy sector.

2016-01-04 2016-03-31 2016-06-30 2016-09-30 2016-12-31 Δ 12M

Asseco Poland S.A. (PLN) 55.50 60.59 52.51 55.71 53.96 -2.77%

WIG20 (points) 1,804.42 1,997.69 1,750.69 1,709.51 1,947.92 7.95%

WIG (points) 45,356.65 49,017.35 44,748.53 47,084.949 51,754.03 14.10%

WIG-Info (points) 1,586.45 1,772.31 1,714.45 2,032.44 2,155.40 35.86%

1500

1600

1700

1800

1900

2000

2100

40

45

50

55

60

65

70

Jan.16 Mar.16 May.16 Jul.16 Sep.16 Nov.16

Pri

ce o

f A

sse

co P

ola

nd

sh

are

s (P

LN) Asseco Poland shares in 2016

Asseco Poland WIG20

WIG

20

ind

ex (p

oin

ts)



42

Globally, investors focused on the referendum on the exit of the Great Britain from the European Union - the decision of the country to leave the EU affected the emerging markets, including Poland. In the second half of the year, investors shifted their focus to the US presidential election. The nomination of Republican candidate Donald Trump has been positively received by investors and, together with rising prices of oil and commodities, has led to an increase in risk appetite. That has also positively affected the stock exchange in Warsaw.

The factor which had a stabilizing effect on the share price of Asseco Poland was the payment of a dividend in the amount of PLN 3.01 per share.

Company’s stock information

Total number of shares 83,000,303

ISIN PLSOFTB00016

WSE ACP

Reuters ACPP.WA

Bloomberg ACP PW

Shareholder structure

Major Shareholders as at December 31, 2016

As at the date of publication of this report, i.e. on March 16, 2017, the Shareholders who, either directly or through their subsidiaries, hold at least 5.0% of total voting rights are as follows:

Shareholders

as at March 16, 2017 Number of shares held

Percentage of total

voting rights

Aviva Open Pension Fund2) 9,384,498 11.31%

Adam Góral, President

of the Management Board3) 8,083,000 9.74%

PZU Open Pension Fund1) 4,281,040 5.16%

NN Open Pension Fund4) 4,171,121 5.02%

Other shareholders 57,080,644 68.77%

83,000,303 100%

1) In accordance with the regulatory filling no. 38/2010 of June 2, 2010

2) In accordance with the regulatory filling no. 02/2012 of January 5, 2012

3) In accordance with the regulatory filling no. 51/2012 of December 15, 2012 4) In accordance with the regulatory filling no. 21/2015 of October 19, 2015

As at December 31, 2016, the Shareholders who, either directly or through their subsidiaries, held at least 5.0% of total voting rights were as follows:

Shareholders

as at December 31, 2016 Number of shares held

Percentage of total

voting rights







83,000,303 100%



3) In accordance with the regulatory filling no. 51/2012 of December 15, 2012

Aviva Pension Fund holds 9,384,498 shares representing

11.31% of voting rightsAdam Góral holds 8,083,000 shares

representing 9.74% of voting rights

PZU Pension Fund holds 4,281,040 shares


Nationale-Nederlanden Pension Fund holds

4,171,121 shares representing 5.02% of

voting rights

Other shareholders hold 57,080,644 shares




43

4) In accordance with the regulatory filling no. 21/2015 of October 19, 2015

As at the publication date of the prior report, i.e. on November 17, 2016, the Shareholders who, either directly or through their subsidiaries, held at least 5.0% of total voting rights were as follows:

Shareholders

as at November 17, 2016 Number of shares held

Percentage of total

voting rights







83,000,303 100%



3) In accordance with the regulatory filling no. 51/2012 of December 15, 2012

4) In accordance with the regulatory filling no. 21/2015 of October 19, 2015

Shares held by the management and supervisory personnel

The numbers of Asseco Poland shares held by its management and supervisory staff are presented in the table below:

March 16,

2017

Dec. 31, 2016 November

17, 2016

Jacek Duch –

Chairman of

the Supervisory

Board

31,458 31,458 31,458

Adam Góral –

President of

the Management

Board

8,083,000 8,083,000 8,083,000

Tadeusz Dyrga –

Vice President of

the Management

Board

3,710 3,710 3,710

Robert Smułkowski

– Vice President of

the Management

Board

2,212 2,212 2,212

The remaining members of the Supervisory Board and Management Board did not hold any shares in Asseco Poland S.A. in any of the above-mentioned periods.



44

Discussion of significant risk factors and threats

Asseco Group constantly monitors major factors posing risk to its operations in order to identify, prevent and mitigate their possible effects. For this purpose, the Company has introduced a number of management systems as well as control procedures and internal audit. In particular, Asseco uses the following systems:

▪ quality management system; ▪ risk management system; ▪ business continuity management system; ▪ information security management system; ▪ system monitoring the compliance with the

law and general standards, as well as the market standards adopted by the Company;

▪ internal control system.

The systems and smoothly functioning internal audit effectively reduce the negative impact of the following risk factors and threats to the Company's operations.

Risk related to intensified competition

Business operations of Asseco Group are under the pressure of intense competition both from local players and international IT corporations. Competitors with global reach are getting continually stronger as they have got faster access to innovative technological solutions, but also to cheaper sources of funds which makes it possible to finance large contracts more efficiently. It is not certain whether the increasing competition will have no significant adverse impact on the Group’s operations, financial position, financial results and future development outlook.

Risk related to technological changes in the industry and development of new products

The IT sector is characterized by rapid development of new solutions and technologies, which shorten the lifecycle of products.Therefore, the future success of Asseco Group will largely depend upon our capability to incorporate the latest technological solutions into our products and services.In order to maintain the competitive advantage in this market, it is necessary to conduct research work and to invest in new products.Asseco keeps on monitoring the present information technology trends and develops and upgrades its business offer accordingly.However, there is still a risk that the market will receive new products, which will cause our products and services to become less attractive, and eventually not as profitable as expected. Additionally, it cannot be

taken for granted that the new solutions which are, or will be, created or developed by Asseco will satisfy the technological requirements, and whether they will be accepted positively by their potential users. Such circumstances might have a significant adverse impact on the operations, financial position, financial results and prospective development of Asseco Group.

Risk related to market saturation

Technological saturation that begins to emerge in the Polish banks and private enterprises may prompt them to focus their strategies on smaller or mid-size IT projects that would address their current needs only. Such circumstances might have a significant adverse impact on the operations, financial position, financial results and prospective development of Asseco Group.

Risk related to consolidation and structural changes in the financial sector

The finance sector is the place of ongoing consolidation processes. There is a risk that consolidators of this sector will force the acquired financial institutions to use their global IT solutions, which may slow down the process of gaining new contracts or even result in termination of already concluded contracts. In addition, in the finance sector, there is a growing trend of establishing both IT and finance services companies (fintechs), whose solutions may be competitive for the products of the Company or may introduce alternative mechanisms of the functioning of finance companies, which may affect acquiring new contracts.

Such circumstances might have a significant adverse impact on the operations, financial position, financial results and prospective development of Asseco Group.

Risk related to carrying out of public tenders

Delays in finalization of the tendering procedures for delivery of IT infrastructure for the public administration may result in unstable revenues from this sector. If combined with unsatisfactory utilization of the EU funds granted for improving innovation at public offices, this might substantially reduce the local demand for IT services and thereby exert a negative impact on the operations, financial position, financial results and prospective development of Asseco Group.

Risk involved in gaining new contracts

It is characteristic of the IT business that most of contracts of Asseco Group are awarded under



45

tendering procedures. Therefore, it is not certain that the Company will be able to gain such new contracts that would ensure sufficiently high and satisfactory revenues in the future.These factors might have a significant adverse impact on the operations, financial position, financial results and prospective development of Asseco Group.

Risk related to the macroeconomic situation of Poland

Development of the IT services sector is closely correlated to the overall economic prosperity. The main factors affecting the financial results of Asseco Group include the pace of GDP growth, value of public orders for IT solutions, level of capital expenditures made by enterprises, inflation rate, and foreign currency exchange rates versus the Polish zloty. These factors might have a significant adverse impact on the operations, financial position, financial results and prospective development of Asseco Group.

Risk of becoming dependent on the key customers

The implementation of contracts with key clients will heavily impact the level of sales revenues generated by Asseco Group in the coming years. It cannot be precluded that a potential loss of any major client, deterioration in the financial terms for provision of services, or potential compensatory claims would have a significant adverse impact on the operations, financial position, financial results and prospective development of Asseco Group.

Risk of increasing cost of work

Salaries account for over 70% of the project implementation costs. Taking into account such high human resource requirements, an increase in salaries would squeeze the margins achieved on projects, and consequently have an unfavorable impact on the financial results of Asseco Group .

In order to manage the risk of higher cost of work, the Group takes a number of measures which can help reduce potential negative effects of rising salaries. Among other things, Asseco (i) employs people in many geographical regions aiming to diversify that risk, (ii) continually monitors the level of salaries in the market not to be taken by surprise, and (iii) tries to maintain an appropriate structure of employment within particular levels of competence.

Risk related to offshoring

Development of information technology services provided offshore to the customers based in the countries where Asseco conducts direct business operations may eventually trigger off stronger competition in those markets. On the other hand,

offshoring investments located in the countries where Asseco operates may bring about higher competition in the local labour markets. Such circumstances might have a significant adverse impact on the operations, financial position, financial results and prospective development of Asseco Group.

Foreign currency risk

The currency used by Asseco Group for presentation of its financial results is the Polish zloty (PLN). Moreover, functional currencies of the Group’s foreign subsidiaries are the local currencies of the countries where they operate. Consequently, assets of such subsidiaries or groups need to be translated into PLN, and therefore their values presented in the consolidated financial statements may change as they remain under the influence of foreign exchange rates against PLN.

Interest rate risk

Changes in the market interest rates may have a negative influence on the financial results of Asseco Group. The Group is exposed to the risk of interest rate changes primarily in two areas of its business activities: (i) change in the value of interest charged on loan facilities granted by external financial institutions, which are based on variable interest rates, and (ii) change in valuation of the concluded derivative instruments, which are based on the forward interest rate curve.

In order to manage its interest rate risk: (i) the Group tries to avoid taking loans based on a variable interest rate, and (ii) if the first precaution is not possible, the Group may conclude forward interest rate agreements.

Risk of changes in regulations and their interpretation

Frequent amendments, lack of cohesion and uniform interpretations of the provisions of law, concerning in particular the tax regulations, banking law, insurance law (inclusive of social insurance), public procurement law, personal data protection law, regulations pertaining to trading in securities and public offering, and commercial companies law, give rise to the regulatory risk occurring in the environment in which Asseco Group operates.The tax regulations and their interpretations are more than others prone to numerous changes. Practices of the internal revenue administration and the court judicature are not uniform in this domain. In the event the taxation authorities take a position that is different from our interpretation of tax regulations, the operations, financial position and financial results of Asseco may be exposed to negative consequences thereof. Such risk may be materializing especially due to potential



46

doubts expressed by the taxation authorities over the transactions the Company conducts with its related parties. This might have a significant adverse impact on the operations, financial position, financial results and prospective development of Asseco Group.

Risk of potential legal disputes concerning copyrights

Development of Asseco Group operations in the market of IT products depends to a large degree on ownership of intellectual property rights, especially copyrights to computer programs. Because of a variety of legal regulations pertaining to the protection of intellectual property that are applicable in the countries where Asseco Group operates, in some circumstances there may be doubts as to the effectiveness of transferring of copyrights in the software codes compiled by employees in favour of their employers (Asseco companies). In order to prevent such situations, any employment contracts or other contracts under which employees provide their services to the Group companies must include adequate provisions to effectively assign such employee’s copyrights in software to the Group companies.

Risk of losing the clients’ trust

Operations of Asseco Group are to a large extent based on the customers’ trust. Implementation of an IT system, which has critical importance for the customer’s business, usually results in signing a long-term agreement with the system user. The quality of solutions and services provided to such clients determines their confidence in the Asseco brand. In the event the quality of delivered products and services was poor, our customers might lose their trust in Asseco, which might hurt our reputation in the market and make it impossible to continue successful business operations.

Risk of underestimation of the project cost

Most of Asseco Group’s profits are derived from the execution of complex information technology projects carried out under long-term agreements with a predefined remuneration. Implementation of such projects requires very good planning both in terms of the schedule of work and the resources needed to provide the promised scope of the contract. Here the Group follows complex procedures, which on one hand facilitate the process of preparation of reliable plans and on the other hand prevent the incurrence of unexpected costs.

In order to manage the risk of the project cost underestimation, Asseco Group applies the methods (either based on the world recognized standards or proved by own experience) for estimation of the project costs, preparation of work schedules, and

identification of risks that may hinder timely, professional or financial performance under a contract.

Risk of concluding a contract with a dishonest customer

Asseco Group is exposed to the risk of defaulting contractors. This risk is connected firstly with the financial credibility and good will of customers to whom the Group provides IT solutions, and secondly with the financial credibility of contractors with whom supply transactions are concluded.

Hence, the risk control measures usually consist of monitoring the timely execution of bank transfers and, if needed, sending a reminder of outstanding payment. In addition, the Group uses processes for the initial and periodic verification of the operating process for external entities. In the case of smaller clients, it is quite helpful to monitor their industry press as well as to analyze previous experience gathered by ourselves and by our competitors, etc.

Risk of inability to effectively integrate the taken-over companies or to achieve the intended rates of return on acquisitions or investments

Asseco Group implements the strategy of development, among others, through acquisitions of or capital investments in IT companies. Valuation of the future acquisitions or investments will depend on the market conditions as well as on other factors beyond the Asseco’s control. It cannot be entirely precluded that the investor company may be unable to accurately estimate the values of undertaken acquisitions or investments. There is also a risk that earnings generated by the acquired or investee companies fall short of the initial estimates which might prevent us from achieving the rates of return that were originally expected from such transactions.

Risk involved in insufficient insurance coverage

Business activities conducted by the Group companies, including production and supply of software as well as implementation of integration projects, give rise to a risk of damages that may be incurred by the Group clients or their end customers as a result of defective operation or failure of the products delivered by Asseco, whether attributable to

its negligence or not. The agreements concluded by the Group companies provide for contractual penalties in the event of non-performance or improper performance of obligations. Any claims for compensation in excess of the guarantee amounts

under the carried insurance policies might have a significant adverse impact on the operations, financial



47

position, financial results and prospective development of Asseco Group.

Risk related to losing the key personnel

The Group’s operations and development outlook depend to a large extent on the knowledge, experience and professional qualifications of its employees, who implement the IT projects. A substantial demand for IT specialists and the competitors’ activities may induce the key personnel to leave our organization, and also make it quite difficult to recruit new employees with suitable knowledge, experience and professional qualifications. Still there is a risk that resignation by the key personnel would have a negative impact on the execution of IT contracts conducted by the Company, as well as on ensuring the required quality and range of services provided. This in turn might have a significant adverse impact on the operations, financial position, financial results and prospective development of Asseco Group.

Risk of business continuity

Occurrence of an emergency situation at one of Asseco Group companies may impair our ability to continue to provide services to our clients, which in turn may lead to delays, failure to comply with our obligations, claims for damages, or loss of reliability for our clients. Such circumstances might have a significant adverse impact on the operations, financial position, financial results and prospective development of the Group.

Risk associated with cyber-security, including the issue of data leakage

In recent years, cyber security has become one of the major challenges which contemporary states and economies have to face. The scale of cybercrime has been growing at an unprecedented pace so far.

As a result of deliberate actions of third parties or dishonest employees, as well as mistakes or carelessness of our employees or contractors, confidential data of the Group or of our clients may be disclosed to unauthorized persons. Such circumstances might have an adverse impact on the perception of Asseco by our clients, and consequently on the Group’s operations, financial position, financial results and prospective development.

Risk of property damage

As a result of abuse or errors committed by employees of Asseco, the Group may suffer damage to its property. Such circumstances might have an adverse impact on the Group’s financial condition and business continuity, and consequently on the Group’s

operations, financial position, financial results and prospective development.

Personnel policy risk

The Group companies may incur costs in connection with legitimate or illegitimate claims filed by their employees on the grounds of discrimination, working conditions, etc. Such circumstances might have a significant adverse impact on the operations, financial position, financial results and prospective development of the Group companies.

Opinion on feasibility of the Management Board financial forecasts for 2016

The management boards of the companies of Asseco Group did not publish any financial forecasts for the year 2016 or for subsequent financial periods.

Changes in the Capital Group management policies

During the year 2016, the Capital Group management practices remained unchanged.

Agreements concluded by the Capital Group with its management personnel providing for payment of compensations if such persons resign or are dismissed from their positions

Asseco Group did not conclude any agreements with their management officers that would provide for payment of compensations in the event such persons resign or are dismissed from their positions without substantial reason, or when they are dismissed as a result of a company merger by acquisition.

Remuneration of the management and supervisory personnel

The amounts of remuneration due to our management and supervisory staff have been disclosed in explanatory note 35 to the consolidated financial statement of Asseco Group for the year ended December 31, 2016.

Information on the agreements known to the Issuer which may result in future changes of the equity interests held by the existing shareholders and bondholders

There are no agreements which may result in future changes of the equity interests held by the existing shareholders and bondholders.



48

Changes to equity relationships

A description of the changes to equity relationships has been presented in Point IV of the consolidated financial statement of Asseco Group for the year ended December 31, 2016.

Related party transactions

Related party transactions have been presented in explanatory note 29 to the consolidated financial statement of Asseco Group for the year ended December 31, 2016.

Bank loans, borrowings, sureties and guarantees

Bank loans drawn, loans granted, as well as sureties and guarantees granted have been described in explanatory note 23 to the consolidated financial statement of Asseco Group for the year ended December 31, 2016.

Loans granted during the financial year

Information on loans granted by Asseco Group has been presented in explanatory note 15 to the consolidated financial statement of Asseco Group for the year ended December 31, 2016.

Off-balance-sheet items

The nature, purpose and value of significant off-balance-sheet items have been presented in the consolidated financial statement of Asseco Group for the year ended December 31, 2016.

Monitoring of employee stock option plans

As at the date of preparation of this report, the Company did not run any share-based employee incentive scheme.

Information on judicial proceedings where the value in dispute exceeds 10% of the amount of equity

At the publication date of this report, the Group was not a party to any proceedings pending before any court, arbitration authority or public administration authority, under which the value in dispute would exceed 10% of the Groups’s equity.

Information on adhering to the corporate governance standards

Information on adhering to the corporate governance standards has been contained in the separate Report on compliance of Asseco Poland S.A. with the corporate governance standards in the year 2016.

Remuneration of the entity authorized to audit financial statements

Information on remuneration due to the entity authorized to audit financial statements has been provided in explanatory note 34 to the consolidated financial statement of Asseco Group for the year ended December 31, 2016.

Agreement with the entity authorized to audit financial statements

The agreement with the entity authorized to audit financial statements, namely Ernst & Young Audyt Polska Sp. z o.o. sp. k., to carry out audits of the separate and consolidated financial statements of Asseco Poland S.A. drawn up for the year ended December 31, 2016 was signed on July 30, 2016.

This Management Report on Operations has been approved for publication by the Management Board of Asseco Poland S.A. on March 16, 2017.

Statements by the Management of Asseco Poland S.A. to the Annual Report

Statements made by the Management Board of Asseco Poland S.A. to the Annual Report for the year ended December 31, 2016

Statement made by the Management Board of Asseco Poland S.A. on the reliability of preparation of the annual financial statements of Asseco Poland S.A. for the year ended December 31, 2016

The Management Board of Asseco Poland S.A. hereby declares that, to the best of its knowledge, the annual financial statements of Asseco Poland S.A. for the year ended December 31, 2016 and comparable data contained therein have been prepared in compliance with the applicable accounting standards, namely the International Financial Reporting Standards as endorsed by the European Union.

Furthermore, the Management Board declares that the presented data give a true, reliable and fair view of the Company’s assets, financial position and financial performance. The report on operations of Asseco Poland S.A. provides a fair description of the development, achievements and economic position of the Company, inclusive of major risks and threats to its operations.











Statement made by the Management Board of Asseco Poland S.A. on the entity authorized to audit the annual financial statements of Asseco Poland S.A. for the year ended December 31, 2016

The Management Board of Asseco Poland S.A. hereby declares that the entity authorized to audit the annual financial statements of Asseco Poland S.A. for the year ended December 31, 2016, namely Ernst & Young Audyt Polska Sp. z o.o. Sp.k., seated in Warsaw, has been chosen in accordance with the provisions of the law in force.This entity as well as certified auditors, who audited these financial statements, satisfied the conditions for expressing an impartial and independent opinion on the audited annual financial statements, in line with the applicable regulations and professional standards.











Asseco Poland S.A.

14 Olchowa St.

35-322 Rzeszów, Poland

phone: +48 17 888 55 55

fax: +48 17 888 55 50

e-mail: [email protected]

inwestor.asseco.pl

mailto:[email protected]

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