Annual Report 2019

we improve banking

Content

A word of introduction

Company presentation

Company information update

Financial results

Auditor`s report

Report on relations

Dear Sirs/Madams,

Let me introduce to you the results of our Company for the year 2019.

In 2019, we continued with restructuring of the relations with our customers. As our long-term goal we would like to move thecustomers at the markets where we have direct representation in the form of subsidiaries under the service care of the teamsfrom our local companies. This goal is related with a transfer of such customers’ contracts to our local branch offices. In 2019, werestructured the contracts in Slovakia. Since 2019 the business of our significant Slovak customers has no longer been included inthe results of Banking Software Company s.r.o. (hereinafter as “BSC”), but in the results of our subsidiary BSC SK s.r.o.; the resultsof all our subsidiaries are subsequently a subject of consolidation at the level of the entire BSC Group.

In 2019, we continued with our strategy of building a strong international company, which is creating its own original softwareproducts that are subsequently sold to customers in Europe, Asia and the USA.

We were successful in our business activities and despite restructuring of the business relations with the customers in Slovakia wemanaged to increase the revenues of BSC to more than CZK 304 million (at the level of consolidation of the entire Group weexpect the revenues to grow by more than 15%). Our profit margin at the level of operating profit reached the value of 12%. Wegrew at all markets. We did well in the Czech Republic and Slovakia where our growth exceeded the average rate.We think of the future.

In 2019, investments in our products represented the largest expenditure item to which we allocate a great part of our gross profit.In 2019, we invested almost 43 million Czech crowns in the research and development of our products, which amountsapproximately to 14% of our turnover.

In 2019, we also invested in the development of our operation in the USA; by means of our partner we signed several newcontracts and collected revenues, such as subscription (“subscription“) from the new BaaS (bank-as-a-service) business model. Thisyear we look forward to further grow of the subscription revenues ensuing from acquisition of new banks in the USA.

Our business is growing and our teams are extended accordingly, which requires expansion of our existing premises in Prague.This expansion will also continue in 2020.

As we strive to behave as a responsible company, in 2019 we decided to support our future, i.e. to support the kids living inchildren’s homes whose beginning of life is more complicated than that of most of us. BSC initiated cooperation with Hvězdydětem (Stars to Kids) and wishes to cooperate with this association in a long term, not only in the form of financial support, butalso via personal engagement of my colleagues in several planned events in 2020.

To conclude, I would like to thank our loyal customers and also to the colleagues with whom we are striving to make the world ofbanking better.

Yours Petr KoutnýGeneral Manager and Managing Director

Banking Software Company s.r.o.9.3. 2020

Company Introduction

Since its establishment in 1990, Banking Software Company s.r.o. has been providing top software solutions tofinancial institutions. We belong among the global leaders in the field of digital banking for financial institutionsacross three continents already, i.e. in the Czech Republic, Slovakia, Ukraine, Georgia, Azerbaijan, Russia and theUSA. In Slovakia and Russia we have our own branch offices operated by our subsidiaries.

In the field of digital banking, our flagship includes the Digital Bank OS platform based on which we supply awide range of digital products comprising retail or corporate banking, SME banking or digital sale. All includingend-user applications for web and more and more frequently also for mobile devices. The added value of ourDBOS platform is the mix of state-of-the-art technologies, business know-how and many years of experience ofour specialists. By merging these ingredients, new software solutions occur enabling us to provide services toour customers (banks) with an extraordinary customer experience.

In the field of mandatory reporting we are a leader at our home market, as concerns my|BI products. BSC hasbeen paying attention to reporting and regulatory reporting almost from the beginning of its existence, and withregard to the growing regulatory scope in Europe we are able to extend our portfolio, as concerns the depthand width of the functionalities and the number of customers.

We are not lagging behind even in the field of BackOffice systems; in many cases they are optimised for the IBMSystem i platform. It mainly concerns an interface for the MIDAS banking system and our own products in thefield of payments and transactions, card systems, fees, etc. This area is fully covered with my|BOS products.

Basic company details

Business Name Banking Software Company s.r.o.

Co. Reg. No. 00549533

VAT No. CZ00549533

Executive Officer Petr Koutný

Company Secretary Radek Borovský

Registered Address Na Hřebenech II 1718/10, Praha 4 – Nusle, 140 00

Commercial Register Banking Software Company s.r.o. is registered in the Commercial Register with the Municipal Court in Prague, Section C, Insert 195.

Company Management

Petr has beenworking for BSCsince 1993. Hisprofessional careerhas been relatedwith banking andsoftware for over 25years. As theExecutive Director ofthe Company he isin charge of thestrategicmanagement andHR within the entireBSC Group,including the BSC SKand BSC Mscsubsidiaries.

Honza has been theFather of our businessline comprisingBusiness Intelligenceand reporting offinancial institutionssince 1998. The largemarket share of ourproducts correspondsto his deepknowledge andexperience in thisarea.

Milan is an expert forthe main bankingsystems and relatedapplications. His richknowledge andpractical experiencegained in BSC since1994 allowed him toform a team havingat its disposal uniqueknow-how and over90 years of practicalexperience in thebanking business.

Since 2011 Petr hasbeen managingGEMINI, our mostextensive businessline. Digital services:that is what we helpbanks to create. Petrhas deep experiencein banking, softwaredevelopment andcomplex projectmanagement.

PETR KOUTNÝCEO

JAN HANUŠBI

MILAN VINTRBOS

PETR ŠTĚPÁNEKGEMINI

Karel has had over 25years of experience inthe financial sector,product developmentand businessconsultancy. He hadworked in ArthurAndersen, Accentureand Komerční banka.He returned to BSCafter almost 15 yearsin 2019.

KAREL BERANProducts and Innovations

Company management (continued)

Radek came to BSC in1995 and since then hehas been focusing onour financialmanagement. Today, inthe position of theFinancial Director,Radek is managing thefinancial operations ofthe entire Group.

Čeněk has been incharge of sales inBSC since 2007. Inhis position of theSales Director he isin charge of allmarkets where BSCis carrying out itsbusiness activities.His division is alsoliable for customerrelationshipmanagement andcompany marketing.

ČENĚK NAVRÁTILSales Director

RADEK BOROVSKÝFinancial Director

LUCIE KANDOVÁHead of People Management

Josef ŘezáčHead of Customer Care

Lucka is a realprofessional in the fieldof HR. She hasdedicated her wholecareer to working withpeople and even aftermany years she is stillfull of enthusiasm andenergy which she isspreading around.Lucka has beenworking for BSC since2005.

Pepa has beenfocusing on customerservices for over 15years. His intent is notonly to fulfil allcustomers’expectations, but alsoto give themsomething more tomake them fullycontent and engagedin relation to BSC. Pepahad spent a substantialpart of his careerdeveloping thecustomer support ofthe global companyDHL. He has beenworking for BSC since2018.

BSC Group Structure

Partnerships

Banking Software Company has been a long-term partner of Oracle Czech for applications, in particular database systems, application servers and middlewaretechnologies. BSC not only sells these products, but also implements them and ensures highly specialist post-implementation service and technical support. Our Digital Bank OS product is a registered application set within the ASFU program.

Banking Software Company is a long-term partner of Finastra. Close cooperation with one of the world’s largest suppliers of banking information systems has resulted in multiple successful implementations of our Midas DBA universal banking system in the Czech Republic and Slovakia. We are currently developing support of MIDAS expansion within national particularities.

In December 2010, Banking Software Company became a Silver Competency Partner, reflecting the high degree of competence and expertise of our .NET developers from the Business Intelligence Department. Membership of the Microsoft Partner Network is an opportunity for us to develop our specialisation, thanks to which we can offer our customers services of an even higher standard.

Banking Software Company is IBM’s long-term and successful partner for the distribution of systems IBM Series i (formerly AS/400) and pSeries (formerly RS/6000) categories, and in WebSphere software solutions. Our specialists configure and optimise WebSphere products, which are operated as mission critical applications by the majority of our customers.

Banking Software Company has worked with Tech Data for several years. During our partnership, we have realised a number of successful products involving the supply of IBM and Oracle products, which have established a solid foundation for this successful cooperation to continue in the future..

Selected accounts

Up-to-date Information on the CompanyIn 2019, all lines of our business were growing. With regard to our international scope of activity, it is important for us to monitor the BSC results and the development of the entire Group’s business. We therefore always share up-to-date information concerning the Banking Software Company together with the relevant data evidencing the business activity of the entire Group.

In 2019, the BSC revenues reached CZK 304 million. The GEMINI revenues amounted to CZK 214 million and despite restructuring of the relationships with our customers in Slovakia they reached a similar level as in 2018 (at the level of the Group the GEMINI revenues increased by as much as 21% on the year-to-year basis). The BI business line showed a single-digit increase of 4%, mainly due to postponement of the date of release of the new Czech National Bank (CNB) metasystem. As concerns sales, the year 2019 was very successful for BI (the sale of licenses doubled); just project implementations were moved to 2020. As concerns revenues, the BOS business line stagnated in 2019, i.e. only reached a minimum growth of 2% and the revenues amounted to approximately CZK 33 million.

In 2019, we made another significant investment into research and development when we allocated almost CZK 43 million in thisarea. We significantly increased the expenditure related with the sales and marketing - by as much as 65%, and the total expenditures reached approximately CZK 21 million. We maintained the administration expenditures at the same level as in 2018. They amounted to CZK 22 million.

The BI and BOS business lines were profitable and GEMINI independently showed a loss in BSC (however, after consolidation, even this business line was profitable). The profit margin of BSC at the level of operating profit (EBITDA) was 19% and ranged close to the target amount of 20%). Thus, as regards profitability, 2019 represented another successful year for us.

Compared to 2018, our balance increased by CZK 44 million (+23%) to CZK 235 million. The Company currently does not have any long-term debts, it is funded by equity and through short-term financing provided by the bank. The equity share on the balance sheet total is 73%. At the time of this Annual Report compilation, BSC renewed contracts for the operation funding up tothe maximum amount of CZK 50 million and obtained a foreign-currency loan of EUR 1.2 million. The credit lines may be used by the Company in the course of the business cycle for short-term financing of the working capital.

In 2019, our subsidiary BSC Msc also achieved great results. In comparison to 2018, its revenues increased by as much as 44%. The balance sheet total of BSC Msc achieved RUB 119 million (+27% compared to 2018). BSC Msc does not maintain any loans; it is fully funded by equity.

In 2019, our subsidiary BSC SK showed a profit of CZK 9.8 million, mainly thanks to direct servicing of the Slovak customers whose contracts were transferred to BSC SK in 2019.

GEMINI in 2019The year 2019 was characterised by a number of changes in the GEMINI division. In compliance with the fulfilment of the corporate strategy in the field of product transformation, a dedicated team was formed to focus on innovation and product development. The team was established at the level of the Company management. The marketing team was also significantly supported and its activity was intensified, especially in the field of digital marketing and public relations for the BSC and GEMINI products.

Intense investments in the development of our key product - Digital Bank OS - also continued. During the year, the product was extended to 23 software components in total that are providing all key services necessary to build and operate a modern digital bank. Digital Bank OS offers classic services, full support of the PSD2 standard and multi-banking implementation, as well as support to sales and acquisition processes, including administration of the content and online communication between the bank and the client. In 2019, we carried out a complex review of the maintenance and support principles and for our customers and partners we launched the Product Portal comprising information on the Digital Bank OS updates and planned development.

Within the Nymbus Project run at the American market we completed a complex redesign of mobile applications and we reached 7 operated banks in total. As concerns our other customers, we managed to actively develop our services in the field of mobile development. We won new projects from customers Slovenská spořitelna, PPF, and Medfox and carried out fundamental redesigning of the mobile applications in TBC Bank. Our work was appreciated by the fact that with our mobile application our customer TBC Bank obtained an award of the “Best in mobile banking GLOBAL WINNER” from the prestigious GLOBAL FINANCE organization.

We also succeeded in fulfilling the requirements of our clients concerning PSD2 regulation and we fully implemented the Multibanking services. We were pleased that we defended our position and repeatedly obtained an award in the “MOST AMBITIOUS PROJECT” category in the competition organised by Raiffeisenbank.

Development of GEMINI was carried out not only by our customers, but also internally. We opened new premises in Košice and Prešov. We included the OpenSource community in our cooperation within the Gravitee.io and Openhub.czprojects. We focused on technological development in the field of cloud technologies and CI/CD processes. Within the Digital Bank OS ecosystem we integrated interesting technologies in the field of security and digital content management.

Generally, we may evaluate 2019 as the year of investments and growth.

Petr ŠtěpánekGEMINI Business Line Manager

BackOffice Systems in 2019As concerns our BackOffice business line, in 2019 we implemented projects in 5 main areas:o Card business and Dispo balance HUBo Payment system and related legislative changeso Co-participation in the implementation projects for the myGEMINI omni-channel solutiono Customer projects in the field of the MIDAS core banking systemo Development and implementation of a new product - CEMANpay

As concerns the card business, we proceeded with implementation and development of the CM24 system, including the Dispo Balance HUB functionalities. We implemented a card solution for one customer and support of immediate payments was successfully implemented in the Dispo Balance HUB of two customers.

As concerns the payment system, we implemented new R-Transactions in the scope of the “SEPA Changes 2019” requirements. It concerned a quite extensive new functionality and its mandatory part was successfully launched with the existing customers. The optional part should be launched in 2020. Implementation of changes in relation to the legislative requirement for unification of the fees and payments within EEA was also a part of our efforts.

We carried out implementation and integration to the myGEMINI omni-channel solution for one customer with the FusionBankingMidas core system. A brand new interface GEMINI/400 MCH was created that is “streamlined” and independent of the operation.

Similarly as in the preceding years, some development of the existing products and systems, as well as specific customer development was carried out as concerns all customers. In some cases it concerned for example a greater automation/unattended performance of payment processing, in others implementation of the principle of data administration in the “4-eye” regime. Also, we continued in developing the interface for another direct banking provider.

In 2019, development and successful deployment of a new product with a new customer was also completed. It concerns the CEMANpay product. This product is able to connect a payment system participant in the Czech Republic to the CERTIS system, without a need to implement full support for the domestic payment system in the existing systems of such participant. It concerns a suitable solution for foreign banks that wish to speedily (and cheaply) become participants of the Czech payment system.

Milan VintrBackOffice Systems Business Line Manager

BI in 2019The results of the BI business line in 2019 showed growth that was however slowed down by the postponement of the new CNB metasystem deployment to 2021. Thus, the year 2019 brought about increased new sales with the provision that implementations will be carried out in 2020. The year 2019 repeatedly confirmed extraordinary economic results of the BI business line for the preceding decade. We cannot indicate a single main reason of such long-term success, as it concerns combination of multiple factors with a prevailing permanent interest of the new customers in buying the myBI system products and the continuing strengthened supervision over the financial market in the Czech Republic, which leads to further orders placed by the existing customers. Extension of the regulatory reporting obligations in relation to CNB as the local regulator ensues from the dynamically developing requirements of the European regulation authorities (ie. EBA, EIOPA, ESMA, and ECB itself).In the last year we won ten new customers in total; it concerns the following entities: Československá obchodníbanka, Hypoteční banka, UniCredit Bank Czech Republic and Slovakia, Českomoravská záruční a rozvojová banka, HSBC France - branch office in CZ, J&T bank CZ, J&T investiční společnost, ATLANTIK finanční trhy, SLAVIA pojišťovna, and DIRECT pojišťovna. We are also leading advanced negotiations with other potential customers, mainly in the sectors of insurance companies, cooperative banks and security brokers, which leads us to believe that the positive trend of extending the customer base will also continue in the future. Our current market share in the banking sector of the Czech Republic reaching almost 85% does not allow for any dramatic increase in the customer base; on the other hand, as an absolute leader at the market, it is a great challenge for us to be the first preferred and also the target choice.Within the STAR module, in 2019 we launched a new communication channel for the RIAD register (Register of Institutions and Affiliates Database), including covering of all related ECB requirements to extend reporting of the loan portfolios provided to the segment of legal persons according to the AnaCredit standard.This year, we would like to focus mainly on development of a brand-new generation modules of the myBI system that will be fully compatible with the new SDAT metasystem implemented by CNB for data collection in the financial sector of the Czech Republic. We have already launched the first module at the market in November 2019 for reporting to the Central Register of Accounts.

In 2019, the BI business line achieved extraordinary results and confirmed the top quality of the products and services provided to its customers.

Jan HanušBusiness Intelligence Line Manager

2019 Income statement (in thousands of CZK)

2019 Balance sheet (in thousands CZK)

BSC Group Sales

Country split

Business line split

Our peopleWe have increased the number of people working within BSC Group. Permanent staff has increased for 20% compare to 2018 and reached 382 people. We grew especially across our branches.

Our teams work on following locations:

Banking Software Company s.r.o – group headquartersNa Hřebenech II 1718/10, Praha 4 – Nusle, 140 00, Česká republika

Banking Software Company s.r.o – Olomouc officeLegionářská 1319/10, Olomouc, 779 00, Česká republika

BSC SK s.r.o. – branchJána Pavla II, Prešov, 080 01, Slovenská Republika

BSC SK s.r.o. – Košice officeTrieda SNP 37, Košice, 040 01, Slovenská Republika

BSC Msc, OOO – branch1st Kozhevnicheskiy lane 6, Moskva, 115114, Ruská Federace

BSC Msc, OOO – Vladimir officeMira street 34, Vladimir, 600017 Ruská Federace

BSC Msc, OOO – Nizhny Novgorod officeKerchenskaya 13, Nizhny Novgorod, 603086 Ruská Federace

BSC Msc, OOO – Izhevsk officeKarla Marksa Street 218, Izhevsk, 426008 Ruská Federace

Permanent staff of BSC Group

Independent Auditor’s Report on 2019 Financial Statements

Auditor’s opinion

“In our opinion the Financial Statements attached as an integral part of this Report give a true and fair view of the assets,liabilities, costs, revenues and operating results, as well as of the cash flow of limited liability company Banking SoftwareCompany for the year ending on 31 December 2019 and have been compiled in compliance with Act No. 563/1991 Coll., onthe Accounting, as amended by Decree No. 500/2002 Coll. and the Czech accounting standards, as amended on 5 March2020.”

Other information concerning the Annual Report

Our opinion concerning the Financial Statements for 2019 does not apply to any additional information or provide anyother special opinion about such information. Nevertheless, it is a part of our obligations related with the audit of theFinancial Statements to get acquainted with such additional information and consider whether it is not significantly(materially) non-compliant with the Financial Statements or our knowledge concerning Banking Software Company gainedduring the audit of the Financial Statements and whether the Annual Report is compiled in compliance with the legalregulations or whether such information does not appear as otherwise significantly (materially) incorrect. In the case thatbased on the works carried out we find out that this is not the case, we must include the established facts in our Report.

Based on the performed procedures and in the extent as we are able to assess, we hereby confirm that:• Additional information describing the facts that should be reflected in the Financial Statements is in all significant

(material) aspects in compliance with the Financial Statements; and• Such additional information was compiled in compliance with the legal regulations.

Using the aforesaid procedure, we did not establish any significant (material) factual misstatements in the informationobtained.

AUDITORSKÁ A DAŇOVÁ KANCELÁŘ s.r.o.Husitská 344/63, 130 00 Prague 3Certificate number: 181Auditor: Ing. Pavel AntošCertificate number: 1416Date of compilation: 13/03/2020

Controlled parties: Banking Software Company s.r.o., BSC SK s.r.o., OOO BSC MSK, Zygo it, s.r.o.

Controlling party: Algorithmiq, s.r.o.

BSC SK s.r.o. provides software services to Banking Software Company s.r.o. under regular business terms and conditions. The liability of Banking Software Company s.r.o. towards BSC SK s.r.o. amounting to EUR 77,743.71 as at 31 December 2019 has been duly paid at the date of this Report.

Banking Software Company s.r.o. provides software services to BSC SK s.r.o. under regular business terms and conditions. The receivables of Banking Software Company s.r.o. towards BSC SK s.r.o. amounting to EUR 18,073.98 as at 31 December 2019 has been duly paid at the date of this Report.

OOO BSC MSK provides software services to Banking Software Company s.r.o. under regular business terms and conditions. The liability of Banking Software Company s.r.o. towards OOO BSC MSK, spol. s r.o. amounting to RUB 1,796,412.62 as at 31 December 2019 have been duly paid at the date of this Report.

Banking Software Company s.r.o. provides software services to OOO BSC MSK under regular business terms and conditions. The receivables of Banking Software Company s.r.o. towards OOO BSC MSK, spol. s r.o. amounting to RUB 7,203,343 as at 31 December2019 have been duly paid at the date of this Report.

Banking Software Company s.r.o. provides administrative support services to Zygo it, s.r.o. under regular business terms and conditions. The liability of Banking Software Company s.r.o. towards Zygo it, s.r.o. amounting to CZK 605 as at 31 December 2019 has been duly paid at the date of this Report.

This Report was compiled by the Managing Director of the Company in compliance with Section 82 of the Business Corporations Act.

In Prague on 3 March 2020

Petr KoutnýManaging Director

Report on Relations