K2 with a full set of awards.

In the period of 9 months ended on September 30, 2012, the K2 Internet S.A. Group generated consolidated revenues from sales of products and services in the amount of PLN 42.4 million, which decreased as compared to the same period of the previous year by 3.7%. The EBITDA after the 3 quarters of 2012 amounted to PLN 3,320 thousand, which is a decrease by 30.6% in comparison to the same period of 2011.

The Group's EBIT and net profit values were PLN 1,316 thousand and PLN 899 thousand, respectively, which in both cases represents a decrease by 65.4% and 70.2%, respectively, against the results after the first 9 months of 2011.

The balance sheet total as of September 30, 2012 amounted to PLN 39,267 thousand. The balance of short-term receivables, receivables on account of short-term loans, cash, and current liabilities increased from PLN 5,204 thousand at the end of June 2012 to PLN 9,977 thousand at the end of September 2012. The Company's liquidity position is currently stronger than ever before.

In spite of the market conditions worse than a year before that have direct impact on the financial results, K2 Internet S.A. achieved unprecedented successes in the last few months. In the recently resolved IAB MIXX Awards contest, K2 was granted the commendable title of "Agency of the Year 2012". At the end of last year, K2 was placed first among interactive agencies and took the second place among advertising agencies which qualified for the Grand Check survey (the survey is conducted annually by the "Press" monthly and TNS OBOP, and measures customer satisfaction levels). Over the 12-month period, K2 as the only agency in Poland won a full set of trophies and high marks from both customers and the industry's specialists.

The Company continued its relations with all the important customers. The most important projects completed in the last months include among other the PKO BP bank's portal winning customer and expert recognition, the first TV spot in the history of almost ten-year relations with Coca-Cola Poland Services (for the Cappy brand and the campaign run under the slogan: "Now you see what’s good" [Polish: „Teraz widzisz, co dobre!”]), another mobile implementation for the Heineken brand (the "License to win" lottery [Polish: „Licencja na wygrywanie”]), and last but not least, the spectacular film campaign promoting the city of Łódź.

The Company uses the poorer growth rate of the marketing and advertising service market for strengthening and consolidating its core operations as well as developing new undertakings:

  • A new item has been added to the K2 Agency's services: Service Design – designing interactions between the customer and the firm at all contact points – both online and offline.
  • Organizational changes and recruitment have been finalized for all the key positions (e.g. the sales force throughout the K2 Group has been enhanced, including especially the extensive development of the team in charge of media services).
  • The Group's organization structure is slowly gaining its target form. In the future, K2 Internet S.A. will not run operations and will become a classic holding company. Having moved the agency activities to the newly established entity and having made the other changes, we have become more tax effective. Another new entity in the Group is Oktawave sp. z o.o.
  • After several months of intensive tests, the Oktawave beta tests have been finished and the service has been activated in its commercial version. User remarks enabled us to i.a. improve the interface and fine tune the offer details. Oktawave offers the most flexible and technologically advanced computing cloud (IaaS type) in Poland. In the upcoming months, extensive advertising and sales actions will be performed.
  • Audioteka is growing dynamically. The company, enhanced both in terms of equity after the Giza (GPV I) fund investment, and in terms of staffing, is continuing the expansion in Poland and getting ready to start operations in other European countries. So far, the financial results of Audioteka have been significantly better than those forecasted last year. All the presently activated initiatives allow for conservative presumption that the rate of growth and ability to generate margins may even accelerate.
  • In the last few months, the K2 Web Systems made strategic partnerships, extending its offer with solutions from ABBYY, KnowledgeLake and AvePoint companies. Due to that and its own investment activities, the company enhances its competences focused on delivering specialized solutions in the field of business process management and document flow, processing and storage for large corporate customers.

The results for the last 9 months and on a full-year basis will additionally be influenced by i.a. the following factors:

  • The change in the Audioteka S.A. and MDPL Sp. z o.o. consolidation method related to the acquisition of 20% of shares in Audioteka S.A. by the new shareholder GPV I, with the pricing of MDPL Sp. z o.o. and Audioteka S.A. at 10 million zlotys after the capital increase. As a consequence of the consolidation method change, the fair value of the consolidated net assets was disclosed, which resulted in an increase in the consolidated net result by PLN 2.3 million.
  • The total investment expenses borne for Oktawave launch so far have amounted to over PLN 4 million. In addition, the project being now at an early commercialization stage weighs down on the current Company performance. We estimate the negative impact of Oktawave on the net profit after 9 months to be approx. PLN 1 million.
  • The situation in the advertising and marketing services market has deteriorated as compared to the previous two years. However, we remain, unlike most experts, moderately optimistic about the last quarter prospects. We also believe that next year will bring stabilization, which will enable the strongest entities to improve their market positions and offer a possibility to increase margins.