CERSANIT CAPITAL GROUP Management Report on the Issuer and the Cersanit Capital Group in 2008

Transcription

1 CERSANIT CAPITAL GROUP Management Report on the Issuer and the Cersanit Capital Group in 2008 April 30 th, 2009

2 Contents Contents...2 Introduction...4 General information...4 I Letter from the President of the Management Board of Cersanit S.A....5 II Cersanit S.A. Management Report on the Issuer and the Cersanit Capital Group for Introduction Cersanit Capital Group Shareholders Discussion of basic economic and financial data as disclosed in the financial statements Balance sheet consolidated data Profit and loss account consolidated data Cash flow statement consolidated data Balance sheet unitary data Profit and loss account unitary data Cash flow statement unitary data Factors and events, including those of an untypical nature, influencing the business activity and the generated profit/ loss of Cersanit S.A. and Cersanit Group in Estimated development of Cersanit S.A. and Cersanit Group Information on basic products, goods and services, their value and volume, individual groups share in the total sales of Grupa Kapitałowa Cersanit S.A. and related changes in Information on sales markets, divided into domestic and foreign ones, and on the sources of production materials, goods and services, including the dependence on a single or several customers and suppliers Information on agreements important for the business activity of Cersanit Group, including information on any agreements concluded in 2008 between the shareholders, insurance agreements and co-operation agreements Material agreements Insurance agreements Partnership or cooperation agreements Information on changes linked to organisational or capital relations with other entities and the main domestic and foreign investments (securities, financial instruments, intangible assets and real estate), including capital investments outside the group and description of their financing methods. Description of the main capital investments structure of the Cersanit Capital Group made outside the group of related entities in 2008 and the method of financing Description of material transactions concluded by the issuer or its subsidiary with related entities on terms other than market terms, including the amounts and nature of such transactions Information on loan and borrowing agreements concluded and terminated in 2008, including their amounts, type and interest rate, currency and maturity dates as well as warranties and guaranties granted and received Loan agreements Borrowing agreements Warrantees Guarantees April 30 th, 2009 Page ~ 2 ~

3 10. Description of the issuer s application of proceeds from the issue of securities in the reported period Assessment, with justification thereof, regarding the management of financial resources of the Cersanit Group, and identification of possible threats and steps the Issuer has taken or is planning to take in order to counteract these threats Information about financial instruments in terms of: Feasibility of investment plans, including capital investments compared to the funds held, taking into consideration the possible changes in the structure of financing of such operations Assessment of untypical factors and events influencing the profit/loss in 2008, specifying the impact of these factors or the impact of untypical events on the results Description of external and internal factors significant for the Company s and the Capital Group s development and description of the forecast development of business activity, including the developed market strategy elements External and internal factors significant for the Company s and the Cersanit Capital Group s development and description of the issuer s business activity, including the developed market strategy elements Description of basic risk factors and threats Expected development of the Cersanit Group and characteristics of the Capital Group s development policy Organizational changes in the Company and the Cersanit Group, including their causes; changes in the fundamental principles of management in Cersanit S.A. and the Cersanit Group Major research and development achievements Agreements concluded between the issuer and managerial staff, providing for a compensation if such persons resign or are dismissed from their position without a valid reason or if they are recalled or dismissed as a result of a merger of the issuer by acquisition Total number and nominal value of the issuer s shares (holdings) and shares and holdings in the issuer s related entities owned by managerial and supervisory staff (separately for each person) Ownership of the shares of Cersanit S.A. by managerial and supervisory staff Information on any agreements, known to Cersanit S.A. and concluded in 2008 that in the future may lead to changes in the proportion of shares held by existing shareholders and bondholders Information on the system of controlling employee share ownership plans Description of significant off-balance-sheet items in terms of the subject, scope and value Explanation of differences between the financial results presented in the report and earlier published forecasts of results for a given year Remuneration, rewards and benefits paid, due or potentially due to the managerial and supervisory staff Information on agreements concluded with an entity authorised to audit financial statements for the audit or review of financial statements or consolidated financial statements Material events after the balance sheet day Statements by the Management Board of Cersanit SA Statement by the Management Board of Cersanit S.A. on the application of the rules of corporate governance in April 30 th, 2009 Page ~ 3 ~

4 Introduction Cersanit S.A. s Management Report on the Issuer and the Cersanit Capital Group for 2008 ( Report ) contains the following: I. Letter from the President of the Management Board, II. Report of the Management of Cersanit S.A. on the operations of the Cersanit Capital Group in 2008, including the scope of information specified in the Ordinance of the Minister of Finance dated February 19 th, 2009 concerning current and interim disclosures made by issuers of securities and the conditions for recognising the information required by the law of a country that is not a member state as equivalent and valid. III. Statement of the Management Board of Cersanit S.A. on financial statements and the entity authorised to audit them. IV. Statement of the Management Board of Cersanit S.A. on corporate governance in General information The controlling entity of Grupa Kapitałowa Cersanit S.A. (Capital Group, the Group) is a public limited company Cersanit Spółka Akcyjna having its registered office in Kielce at al. Solidarności 36 (Cersanit S.A., the Company, the Issuer). The company is entered into the commercial register under the number RHB 3458 and to the National Court Register under the number KRS The establishment of the company resulted from the transformation of a state-owned business referred to as Przedsiębiorstwo Państwowe - Zakłady Wyrobów Sanitarnych Krasnystaw, forming part of a large state-owned ceramic production business Zjednoczenie Przemysłu Szklarskiego i Ceramicznego Vitrocer, having its registered office in Warsaw, into a sole shareholder company of the State Treasury. On January 15 th, 1992 Przedsiębiorstwo Państwowe Zakłady Wyrobów Sanitarnych Krasnystaw was transformed into Cersanit Krasnystaw S.A. In 1996 the privatisation of the company was commenced. Pursuant to the decision of the District Court in Chełm, 5 th Economic Division, dated July 7 th, 1997 Cersanit Krasnystaw Spółka Akcyjna is entitled to use the abbreviated name of Cersanit S.A. On May 25th, 1998 the shares of Cersanit SA made their debut on the Warsaw Stock Exchange. The fundamental business area of the Group is the manufacture and distribution of products used as finishing materials and furnishings for bathrooms and sanitary facilities, including: sanitary ceramic ware, ceramic tiles, shower cubicles, acrylic bathtubs and shower basins, bathroom furniture and other bathroom-related supplies. April 30 th, 2009 Page ~ 4 ~

5 I Letter from the President of the Management Board of Cersanit S.A. To Shareholders, Business Partners, Customers and Employees of the Cersanit Group Dear Sir or Madam, The year 2008 was another successful period for the Cersanit Capital Group. As part of our strategy involving continuous development and consolidation of the Group s position on the national and foreign bathroom products markets, the companies Cersanit S.A. and Opoczno S.A. merged. This will benefit the Group by optimising production costs, logistics and administration, and enhancing the effective use of the brand Opoczno. Furthermore, a sanitary ceramics and ceramic tiles plant in Ukraine was commissioned to use (1 st stage), with an annual production capacity of 1 million sanitary ceramic products and 7 million square meters of ceramic tiles annually. The development of technological lines of the sanitary ceramics plant in Romania was completed, thus increasing its production output from 650 thousand to 1 million pieces of sanitary ceramic products annually. We also purchased a property in the Romanian town of Bacau in connection with the planned construction of a bathroom fittings plant. Another important element of our strategy is the 2 nd stage of construction of our production facilities in Ukraine. It is assumed that in 2009 the Group s annual production capacity in Ukraine will increase up to 2 million pieces of sanitary ceramic products and 12 mln sq. m of ceramic tiles. In response to the signs of the global economic crisis, the Company verified its investment plans for 2009 by adjusting its development plans to economic forecasts for this year. This verification is a part of Cersanit Group s efforts to make the Group companies fit for operation under the conditions of the current economic downturn by making savings with regard to the purchase of materials and raw materials, the costs of sale and administration. Therefore, development projects will be temporarily suspended, for example, the development of production capacities of Russian companies producing ceramic tiles to up to 13 million sq. m annually and the construction of a bathroom products plant in Bacau, Romania. Cersanit continues to analyse all important macroeconomic factors to make the decision on the optimal date for resuming the abovementioned projects. I would like to assure you that, as it has been the case over the years, the Group s operations serve to achieve a superior objective: to create a strong, all-european organisation that is able to reach and retain its position as a leader on the market of comprehensive bathroom furnishings and ensure that our Shareholders benefit from the stable growth of the firm s value. Mirosław Jędrzejczyk President of the Management Board of Cersanit S.A. Kielce, April 30 th, 2009 April 30 th, 2009 Page ~ 5 ~

6 II Cersanit S.A. Management Report on the Issuer and the Cersanit Capital Group for Introduction 1.1. Cersanit Capital Group Cersanit S.A. is the biggest Polish supplier of comprehensive bathroom furnishings. The Company operates within the Capital Group. Cersanit S.A. distributes products, manufactured by its manufacturing subsidiaries, as well as other bathroom furnishing goods. Each domestic subsidiary manufactures a different assortment of products. The Group s organisation is conducive to, among others, cost savings, and enables the establishment of a consistent image of the CERSANIT brand as synonymous with EVERYTHING FOR THE BATHROOM. As at December 31 st, 2008, the Cersanit Capital Group was composed of: As at December 31 st, 2008, the Cersanit Capital Group was composed of: Cersanit S.A., having its registered office in Kielce, parent company, distribution entity, leader on the domestic market of bathroom furnishings, Cersanit I Sp. z o.o., having its registered office in Krasnystaw (100% subsidiary of Cersanit S.A.), entity operating as a holding company, Cersanit II S.A. in the Special Economic Zone in Starachowice (99.99% subsidiary of Cersanit S.A.) manufacturer of bathroom furniture, shower cubicles, shower trays and acrylic bathtubs, Cersanit III S.A. in the Special Economic Zone in Wałbrzych (100% subsidiary of LXIV S.a.r.l.) manufacturer of ceramic tiles and milled rock, Cersanit IV Sp. z o.o. in Krasnystaw subsidiary of Cersanit I Sp. z o.o. ( %) and of Cersanit S.A. ( %) Cersanit Invest Sp. z o.o. in Chizivka, Ukraine subsidiary of Cersanit Cyprus Limited ( %) and of the European Bank for Reconstruction and Development (1.0675%), having its registered office in London; until June 12 th, 2008, 100% subsidiary of Cersanit Cyprus Limited production and distribution of sanitary ceramic products and ceramic tiles. Cersanit Ukraina Sp. z o.o. in Chizivka, Ukraine (99.99% subsidiary of Cersanit Invest Sp. z o.o.) potential manufacturer of bathroom furnishings, Cersanit Luxembourg S.a.r.l. in Luxembourg (100% subsidiary of Cersanit S.A.), entity operating as a holding company, Cersanit Cyprus Limited in Nicosia, Cyprus (a 99.94% subsidiary of Cersanit Luxembourg S.a.r.l. and a 0.06% subsidiary of Cersanit S.A.) entity conducting holding activity Cersanit UK Limited in London, UK (100% subsidiary of Cersanit S.A.), entity not running operating activities, S.C. Cersanit Romania S.A. (previously Romanceram S.A.) in Roman, Romania (99.36% subsidiary of Cersanit S.A.) manufacturer of sanitary ceramic products, S.C. Cersanit Bacau S.r.l. in Bacau, Romania (100% owned subsidiary of Cersanit S.A.) a prospective manufacturer of bathroom furnishing articles, Avtis LLC in Moscow, Russian Federation (a 100% subsidiary of Cersanit S.A.), Zolotoy Irys LLC in Moscow, Russian Federation (100% subsidiary of Cersanit S.A.), Tiles Trading LLC in Moscow, Russian Federation (100% subsidiary of Cersanit S.A.), Cersanit RUS LLC (previously: Lira Trade LLC) in Moscow, Russian Federation (100% subsidiary of Cersanit S.A.), Frianovo Ceramic Factory LLC in Moscow, Russian Federation (100% subsidiary of Cersanit S.A.), Bulakovo-2 LLC in Moscow, Russian Federation (100% subsidiary of Frianovo Ceramic Factory LLC), April 30 th, 2009 Page ~ 6 ~

7 The aforesaid Russian companies conduct business activity related to manufacturing and sales of ceramic tiles in the territory of the Russian Federation. CRTV Limited in Nicosia, Cyprus (100% subsidiary of Cersanit S.A.) intermediary in the trade of raw materials for the manufacture of ceramic products, LXIV S.a.r.l. in Luxembourg (100% subsidiary of Cersanit S.A.), entity operating as a holding company, Cersanit West GmbH in Berlin, Germany (100% subsidiary of Cersanit S.A.), entity established to distribute bathroom furnishing products, Opoczno I Sp. z o.o., having its registered office in Opoczno (100% subsidiary of Cersanit S.A.), ceramic tiles manufacturer, Opoczno Trade Sp. z o.o., having its registered office in Kielce (100% subsidiary of Cersanit S.A.), entity distributing goods under the Opoczno brand, Opoczno Luxembourg S.a.r.l. with its registered office in Luxembourg (a 100% subsidiary of Cersanit S.A.) the entity does not conduct operating activities, Opoczno III Sp. z o.o., having its registered office in Opoczno (100% subsidiary of Cersanit S.A.), the entity does not conduct operating activities, Opoczno (RUS) LLC in Moscow (100% subsidiary of Cersanit S.A.), entity running marketing and promotional activities, Opoczno Ukraina LLC in Kiev (100% subsidiary of Cersanit S.A.), entity running marketing and promotional activities, OMD Sp. z o.o. in liquidation, in Opoczno (60% subsidiary of Cersanit S.A.), the company abandoned its operations, Kopalnia Piasku Kwarcowego POLKWARC Sp. z o.o. in liquidation, with its registered office in Częstochowa (Cersanit S.A. holds 31% of holdings in the company s share capital), the company abandoned its operations, AB Dvarčionių Keramika in Vilnius, Lithuania (92.25% subsidiary of Cersanit S.A.) ceramic tiles manufacturer, UAB Baltijos Keramika in Družų, Lithuania (AB Dvarčionių Keramika holds 30% of shares in UAB Baltijos Keramika) glue and joints producer, SIA Dvarčionių Keramika in Riga, Latvia, in liquidation (a 100% subsidiary of AB Dvarčionių Keramika), the company abandoned its operations, Cersanit Cyprus Lira Limited in Nicosia, Cyprus (a 100% subsidiary of Cersanit S.A.) the entity does not conduct operating activities, Cersanit S.A. has no divisions (facilities). Cersanit S.A. has representative offices in Moscow, Kiev and Vilnius, compiling separate financial statements Shareholders As at December 31 st, 2008, the shareholders holding, directly or indirectly via subsidiaries, at least 5% of the overall number of votes at the GSM of Cersanit S.A. are: Michał Sołowow 70,122,170 shares and votes at the GSM, Commercial Union OFE 14,360,789 shares and votes at the GSM, ING Nationale Nederlanden Polska OFE 13,065,851 shares and votes at the General Shareholders Meeting. April 30 th, 2009 Page ~ 7 ~

8 Percentage interest of shareholders in the share capital and total votes at the GSM of Cersanit S.A. Others 32.38% Michał Sołowow* 48.61% ING Nationale Nederlanden OFE** 9.06% Commercial Union OFE** 9.95% As at December 31 st, 2008: * according to the notification of October 28 th 2008 ** according to the structure of portfolios of OFE (open pension funds), as at December 31 st, The sole shareholder of Cersanit I Sp. z o.o. is Cersanit S.A Cersanit S.A. is a majority shareholder of Cersanit II S.A. and holds 29,999,998 shares and votes at the GSM. The remaining shareholders are two individuals, holding together two shares and two votes at the General Shareholders Meeting LXIV S.a.r.l is the sole shareholder of Cersanit III S.A. and holds 90,000,000 shares and votes at the GSM Cersanit I Sp. z o.o. is a majority shareholder of Cersanit IV Sp. z o.o. and holds a % interest. The remaining holdings are held by Cersanit S.A Cersanit Cyprus Limited is a majority shareholder of Cersanit Invest Sp. z o.o. and holds % of the capital and votes at the GSM. The remaining interest is held by the European Bank for Reconstruction and Development with its office in London Cersanit Invest Sp. z o.o. is a majority shareholder of Cersanit Ukraina Sp. z o.o. and holds 99.99% of the capital and votes at the GSM. The minority shareholder is an individual Cersanit S.A. is a majority shareholder of Cersanit Luxembourg S.a.r.l. and holds 100% of the capital and votes at the GSM Cersanit Luxembourg S.a.r.l. is a majority shareholder of Cersanit Cyprus Limited and holds 99.94% of the capital and votes at the GSM. The remaining interest is owned by Cersanit S.A Cersanit S.A. is a majority shareholder of Cersanit UK Limited and holds 100% of the capital and votes at the GSM Cersanit S.A. is a majority shareholder of S.C. Cersanit Romania S.A. and holds 99.36% of the capital and votes at the GSM The sole shareholder of S.C. Cersanit Bacau S.r.l. is Cersanit S.A The sole shareholder of Avtis LLC is Cersanit S.A. April 30 th, 2009 Page ~ 8 ~

9 The sole shareholder of Zolotoy LLC is Cersanit S.A The sole shareholder of Tiles Trading LLC is Cersanit S.A The sole shareholder of Cersanit RUS LLC is Cersanit S.A The sole shareholder of Frianovo Ceramic Factory LLC is Cersanit S.A The sole shareholder of Bulakovo-2 LLC is Frianovo Ceramic Factory LLC The sole shareholder of CRTV Limited is Cersanit S.A The sole shareholder of LXIV S.a.r.l. is Cersanit S.A The sole shareholder of Cersanit West GmbH is Cersanit S.A The sole shareholder of Opoczno I Sp. z o.o. is Cersanit S.A The sole shareholder of Opoczno Trade Sp. z o.o. is Cersanit S.A The sole shareholder of Opoczno Luxembourg S.a.r.l. is Cersanit S.A The sole shareholder of Opoczno III Sp. z o.o. is Cersanit S.A The sole shareholder of Opoczno (RUS) LLC is Cersanit S.A The sole shareholder of Opoczno Ukraina LLC is Cersanit S.A The majority shareholder of OMD Sp. z o.o. in liquidation is Cersanit S.A., which owns 60% of its holdings The majority shareholder of AB Dvarčionių Keramika is Cersanit S.A., which owns 92.25% of its holdings The sole shareholder of SIA Dvarčionių Keramika, in liquidation, is AB Dvarčionių Keramika Kopalnia Piasku Kwarcowego POLKWARC Sp. z o.o., in liquidation, is an affiliated entity of Cersanit S.A. Cersanit S.A. owns 31% of the holdings in the company s share capital UAB Baltijos Keramika is an affiliated entity of AB Dvarčionių Keramika (AB Dvarčionių Keramika holds 30% of the company s joint stock capital) The sole shareholder of Cersanit Cyprus Lira Limited is Cersanit S.A. 2. Discussion of basic economic and financial data as disclosed in the financial statements Balance sheet consolidated data The balance sheet total, as at December 31 st, 2008, equalled PLN 3,286, thousand. Assets Fixed assets, as at December 31 st, 2008, equalled PLN 1,627, thousand and made up 49.5% of the Group s overall assets; the tangible fixed assets made up 74% of the overall fixed assets. April 30 th, 2009 Page ~ 9 ~

10 Current assets, as at December 31 st, 2008, equalled PLN 1,658, thousand and made up 50.5% of total assets. Supplies made up 24.9% of current assets and short-term receivables made up 31.1%. Liabilities The Group s equity, as at December 31 st, 2008, equalled PLN 1,038, thousand and made up 31.6% of total liabilities. Liabilities and provisions for liabilities amounted to PLN 2,247, thousand. Long-term liabilities constituted 52.2% of total liabilities and provisions for liabilities. Short-term liabilities constituted 47.1% of all liabilities and provisions for liabilities. Book value per share The book value per share decreased from PLN 7.54, as at December 31 st, 2007, to PLN 7.20, as at the end of Profit and loss account consolidated data The net sales income amounted to PLN 1,517, thousand. The Group generated operating profit in the amount of PLN 233,909 thousand. The profit from business activity amounted to PLN 29, thousand, as did the gross profit. The net profit amounted to PLN 7, thousand. The net profit per share was PLN Cash flow statement consolidated data Cash at the beginning of the half-year amounted to PLN 388,857 thousand. The net cash flow from operating activities amounted to PLN 99,114 thousand. The abovementioned cash flows were most significantly affected by: change in supplies (PLN -143,233 thousand), profits (losses) on currency exchange differences (PLN 125,562 thousand), change in short-term liabilities, except borrowings and loans (PLN 110,057 thousand). The net flow from investing activities amounted to PLN -318,732 thousand. The most significant items in this period included the expenditure for the purchase of intangible assets and tangible fixed assets (PLN -343,070 thousand). Net cash flows from financial activities amounted to PLN 515,563 thousand. The most significant items for this group of cash flows were: proceeds from loans and borrowings (PLN 1,042,233 thousand), expenditures due to the repayment of loans and borrowings (PLN -600,145 thousand) and expenditures due to interest (PLN -60,434 thousand). Cash at the end of the reporting period amounted to PLN 716,830 thousand Balance sheet unitary data The balance sheet total, as at December 31 st, 2008, equalled PLN 2,025,839 thousand. Assets Fixed assets, as at December 31 st, 2008, equalled PLN 1,081,842 thousand and made up 53.4% of the Company s overall assets; the tangible fixed assets made up 4.5% of the overall fixed assets. April 30 th, 2009 Page ~ 10 ~

11 Current assets, as at December 31 st, 2008, equalled PLN 943,997 thousand and made up 46.6% of total assets. Supplies made up 0.1% of current assets and short-term receivables made up 51.9%. Liabilities The Company s equity, as at December 31 st, 2008, equalled PLN 410,410 thousand and made up 20.3% of total liabilities. Liabilities and provisions for liabilities amounted to PLN 1,615,429 thousand. Long-term liabilities constituted 31.2% of total liabilities and provisions for liabilities. Short-term liabilities constituted 68% of all liabilities and provisions for liabilities. Book value per share The book value per share increased from PLN 1.16, as at December 31 st, 2007, to PLN 2.84, as at the end of Profit and loss account unitary data The net sales income amounted to PLN 1,388,958 thousand. The Company generated operating profit in the amount of PLN 75,339 thousand. The profit from business activity amounted to PLN 33,175 thousand, as did the gross profit. The net profit amounted to 32,142 thousand PLN. The net profit per share was PLN Cash flow statement unitary data The balance of cash at the beginning of the year amounted to PLN 17,575 thousand. The net cash flow from operating activities amounted to PLN -85,984 thousand. The abovementioned cash flows were most significantly affected by: change in the balance of receivables (PLN -73,120 thousand), change in the balance of short-term liabilities, except borrowings and loans (PLN 97,842 thousand), change in the balance of prepayments/accruals, except deferred income tax assets (PLN - 84,303 thousand). The net flow from investing activities amounted to PLN -174,601 thousand. The most significant items included investment expenditures (PLN -146,555 thousand) and other investment proceeds (PLN 26,545 thousand). The net flow from financial activities amounted to PLN 277,906 thousand. This group of cash flows was most significantly affected by: proceeds from loans and borrowings (PLN 594,635 thousand), expenditures due to the repayment of loans and borrowings (PLN -409,757 thousand) and expenditures due to interest (PLN -40,731 thousand). Cash at the end of the reporting period amounted to PLN 36,364 thousand. April 30 th, 2009 Page ~ 11 ~

12 3. Factors and events, including those of an untypical nature, influencing the business activity and the generated profit/ loss of Cersanit S.A. and Cersanit Group in Estimated development of Cersanit S.A. and Cersanit Group. 1) FACTORS AFFECTING FINANCIAL PERFORMANCE In 2008, Cersanit Group generated sales income in the amount of PLN 1,517,340 thousand and EBITDA (operating profit increased by amortisation) in the amount of PLN 339,665 thousand. In comparison to 2007, this means a 4.3% increase in the sales income and a 4.7% increase in EBITDA. The share of EBITDA in sales income amounted to 22.4% in 2008, in comparison to 22.3% in In 2008, two investment projects were finalised, i.e. the 1 st stage of construction by Cersanit Invest Sp. z o.o. of sanitary ceramics and ceramic tiles facilities in Ukraine (with an annual production capacity of 1 million pieces of sanitary ceramic products and 7 million sq. m of ceramic tiles) and the development by Cersanit Romania S.A. of the sanitary ceramics plant in Romania (increase of production capacity from 650 thousand pieces to 1 million pieces annually). The abovementioned investments, given the date of their commissioning to use, will significantly translate into sales income, EBITDA and the Group s net profit starting from Changes in the currency exchange rates In 2008, the Group generated a consolidated net result in the amount of PLN 7,255 thousand. This amount was most significantly affected by the negative valuation of the Group s foreign currency loans in the amount of PLN -140,996 thousand. The net profit was also significantly affected by the result on currency future contracts (transactions on derivatives: options, forwards) concluded under the Cersanit Group s strategy to secure business activity against currency exchange-related risk. The result of transactions on derivatives settled in 2008 affected the consolidated net profit to the amount of PLN -11,700 thousand. As at December 31 st, 2008, the total valuation of open (unrealised) transactions on derivatives amounted to PLN -52,948.4 thousand. Of the abovementioned amount, PLN 10,294.6 thousand negatively affected the consolidated net profit for 2008, while the amount PLN -42,653.8 thousand, based on 88 IAS 39 Financial Instruments: Recognition and Measurement, is recognised in the revaluation capital as at December 31 st, Transactions on derivatives were concluded to secure the forecast net currency cash flows in 2009 and will be settled in 2009 based on the current currency exchange rates applicable on the day of expiry of individual contracts. It means that the profit/loss on the contracts may differ upward or downward from the prices specified above as at the end of In the opinion of the Management Board, if transactions are completed at exchange rates higher than the hedged rates, such a difference from an operational point of view should not be interpreted as a loss but rather as unearned additional income. The overriding goal for concluding such foreign exchange transactions is to establish a Company-independent external sales parameter at a fair level. In the opinion of the Company, this condition has been met. As at December 31 st, 2008, the negative valuation of foreign currency loans does not adversely affect the Group s cash situation. The repayment of loans will take place over a long period of time (by 2016), which enables the company to cover the expenses of debt service by proceeds from sales, increased proportionately to the rising exchange rate of the loan currency. For the Cersanit Group it is important to operate over a long-term perspective in a stable currency environment. An increase of foreign currency exchange rates results in a negative valuation of loans recorded by points (as at the day of compilation of the financial statement) in the balance sheet and the profit and loss account for the period. In the long term, a higher currency exchange rate influences the indexation of selling prices, income and EBITDA, thus offsetting the negative results of overvaluation of debt denominated in foreign currencies. Other factors Other factors affecting the financial result generated in 2008: - merger of Cersanit S.A. and Opoczno S.A., - manufacturing and sale of the products of Cersanit and Opoczno in individual selling markets, April 30 th, 2009 Page ~ 12 ~

13 - level of demand for products offered by the Capital Group in the domestic and foreign markets, - economic conditions in the building and installation market and demand for renovation, - situation in the financial market and general business conditions in Poland and in other countries where the Cersanit Capital Group operates, - development and modernisation of production plants, - implementation of the Cersanit Capital Group s development strategy in new markets, - and valuation of financial assets. 2) EVENTS AFFECTING THE BUSINESS ACTIVITY AND FINANCIAL RESULTS OF THE COMPANY AND THE CERSANIT CAPITAL GROUP PLAN OF MERGER BETWEEN CERSANIT S.A. AND OPOCZNO S.A. On January 18 th, 2008, in Current Report No. 2/2008, the information regarding the opinion of a certified auditor on the audit of the Merger Plan for Cersanit S.A. and Opoczno S.A. was published, and on January 25 th, 2008, Current Report No. 5/2008 included the Report of the Management Board of Cersanit S.A., substantiating the merger between Cersanit S.A. and Opoczno S.A. On February 25 th, 2008, the Management Board of Cersanit S.A. published its stance on the planned merger between the Company and Cersanit S.A. In its opinion, the Management Board of Cersanit S.A. evaluated the planned merger of the two entities as positive, given its potential benefits in terms of costs, operations and the market. The main objective of Cersanit S.A. and Opoczno S.A. is to form a powerful and stable organisation specialising in the production and distribution of a wide range of bathroom furnishings, effectively consolidating its position on the European market. The following opportunities substantiate the merger between the companies belonging to the same capital group, whose scopes of operations are partially identical and partially complementary: consolidation of the market position of the merged entities, development and optimisation of the structure of the offered products sold under the brands CERSANIT and OPOCZNO, benefits from the economies of scale and synergy linked to income growth, minimising the costs and exploitation of operational know-how of the two companies. The merger between entities belonging to the same capital group and having a similar scope of business activity is intended to consolidate the market position of the new entity, extend the range of products offered under the brand Opoczno and exploit the benefits from the economies of scale linked to income growth and minimising costs, exploitation of synergy of the merged businesses and the flow of operational know-how between the entities. In the view of the Management Board, the main benefits from the Merger include: - a reduction of operating costs - exploitation of the power of the brand OPOCZNO - increased potential to use human, organisational and financial resources of Cersanit S.A. in relation to the merger with Opoczno S.A. The main objectives to be achieved by the merger: - economies of scale effect, leading to the optimisation of costs, in particular in production, logistics and administration areas - optimisation of the organisation of production processes and traffic maintenance tasks - full exploitation of the production capacities of Cersanit plants on foreign markets - exchange of know-how between production plants of the entire Cersanit Capital Group - extension of the range of products under the OPOCZNO brand by adding bathroom furnishing products (sanitary ceramics, shower cubicles, bathtubs, etc.), allowing a more effective use of Opoczno s distribution channels and greater sales volume of products under the OPOCZNO and CERSANIT brands - wide range of products under the CERSANIT and OPOCZNO brands in all price segments - establishment of a single, economically powerful entity, effectively consolidating its position on the European market. April 30 th, 2009 Page ~ 13 ~

14 The merger between Cersanit S.A. and Opoczno S.A. will be performed based on article 492, 1, item 1 of the Commercial Companies Code, by way of an acquisition of Opoczno S.A. by Cersanit S.A., involving the transfer of the entire property of Opoczno S.A. to Cersanit S.A. in exchange for the shares of Cersanit S.A. ( Merger Shares ) to be allowed by Cersanit S.A. to the shareholders of Opoczno S.A. The Merger Shares for the shareholders of Opoczno S.A. will be admitted to public trading and floated on the Warsaw Stock Exchange. The Management Board of Cersanit S.A. passed a positive opinion on the ratio of exchange of the shares adopted by the major shareholders of both entities, i.e. 4 shares of Cersanit in exchange for 3 shares of Opoczno. The analyses and valuations conducted by the Management Boards of Opoczno S.A. and Cersanit S.A. led to the conclusion that the preliminary exchange ratio adopted by the shareholder s reflects the ratio resulting from these analyses. The scope of the conducted analyses and valuations was presented in the Report of the Management Board of Cersanit S.A., substantiating the merger in Current Report No. 4/2008 of January 25 th, RESOLUTIONS OF THE COMPANY S EXTRAORDINARY GSM ON THE MERGER BETWEEN CERSANIT S.A. AND OPOCZNO S.A. AND THE ISSUE OF MERGER SHARES On February 28 th, 2008, in the Company s registered office at 36 Al. Solidarności St. in Kielce, the General Shareholders Meeting of the Company was held. During the meeting, a resolution was passed on the merger of the Company with Opoczno S.A., having its registered office in Opoczno, according to the procedure specified in article 492, 1, item 1 of the Commercial Companies Code, i.e. by way of transfer of the entire property of Opoczno S.A. to Cersanit S.A. in exchange for shares to be allowed by Cersanit S.A. to the shareholders of Opoczno S.A. The General Shareholders Meeting accepted the plan for the merger of Cersanit S.A. and Opoczno S.A., which was agreed and signed by the Management Boards of the companies on December 17 th, 2007, and published in the Court and Business Gazette No. 252/2007 of December 31 st, 2007, under item 16007, and the amendments introduced to the Statute of Cersanit S.A., whose draft version was published in the Court and Business Gazette No. 21/2008 of January 30 th, 2008, under item In addition, the General Shareholders Meeting passed a resolution on the increase of the share capital of Cersanit S.A. by way of issuing not more than 11,313,092 F-series shares and on the registration of these shares. The General Shareholders Meeting imposed an obligation on the Company s Management Board to undertake measures aimed at introducing the shares to public trading. PFSA s (POLISH FINANCIAL SUPERVISION AUTHORITY) APPROVAL OF THE INFORMATION MEMORANDUM ISSUE OF F-SERIES SHARES On May 7 th, 2008, the date for PFSA s submission of reservations (referred to in article 38, section 2 of the Act of July 29 th, 2005, on public offering and terms for introducing financial instruments into the organised trading system and on publicly listed companies) to the Information Memorandum submitted by the Company regarding the new issue of shares linked to the Company s merger with Opoczno S.A. lapsed. The Information Memorandum regarding the issue of new shares in relation to the Company s merger with Opoczno S.A. was made public in electronic form on May 9 th, 2008, on the following Internet sites: - Cersanit S.A Offer advisers IPO Doradztwo Strategiczne Sp. z o.o Issuing House Brokerage House of Bank Ochrony Środowiska S.A. - The mentioned Information Memorandum was made public in relation to the issue of F-series shares by Cersanit S.A. in relation to the Company s merger with Opoczno S.A. April 30 th, 2009 Page ~ 14 ~

15 RECORD OF THE MERGER BETWEEN THE COMPANIES CERSANIT SA AND OPOCZNO SA On May 23 rd, 2008, the District Court in Kielce, 10 th Department of the National Court Register, entered into the register of entrepreneurs of the National Court Register the merger of the company Cersanit S.A., having its registered office in Kielce, with the company Opoczno S.A., having its registered office in Opoczno, entered into the register of entrepreneurs of the National Court Register under the number KRS The merger followed the procedure specified in article 492, 1, item 1 of the Commercial Companies Code by transferring the entire property of the company Opoczno S.A. (company subject to the acquisition) to the company Cersanit S.A. (company performing the acquisition) in exchange for shares to be issued by Cersanit S.A. to the shareholders of Opoczno S.A. (merger by acquisition). Cersanit S.A. is one of the largest and most dynamically developing enterprises in Poland, a domestic leader as regards comprehensive bathroom furnishings, which intensely develops its business. The Company operates within the capital group. The scope of business of the Cersanit Group includes the production and sale of sanitary ceramic products, ceramic tiles, shower cubicles, acrylic bathtubs and shower trays, bathroom furniture and other related articles. The Company s strategy assumes continuous development and consolidation of the Company s standing in the ceramic product market. A key long-term objective in the strategy of Cersanit S.A. is to use newly-acquired companies to become an indisputable leader on the bathroom furnishing market both in Central and Eastern Europe and the European Union. Opoczno S.A. is a leading manufacturer of ceramic tiles in Poland. The firm offers a variety of ceramic tiles: wall and floor tiles, glazed and non-glazed stoneware, polished stoneware and a wide-range of ceramic decorations. So far the strategy of Opoczno S.A. has consisted solely of manufacturing and sales of ceramic tiles under one of the most recognizable ceramic tile brands - OPOCZNO. According to the Management Board of Cersanit S.A., the major benefits from the merger include: - a reduction of operating costs - exploitation of the power of the brand OPOCZNO - increased potential to use human, organisational and financial resources of Cersanit S.A. in relation to the merger with Opoczno S.A. REGISTRATION OF THE INCREASE OF THE SHARE CAPITAL OF CERSANIT SA IN THE NATIONAL COURT REGISTER On May 23 rd, 2008, the Management Board of Cersanit S.A. received permission from the District Court in Kielce, 10 th Department of the National Court Register, regarding the increase of the Company s share capital by PLN 1,131,309.20, by way of issue of 11,313,092 F-series non-preference bearer s shares with a nominal value of 10 groszy each (Merger Shares). The persons authorised to acquire Merger Shares will only be the shareholders of Opoczno S.A. The increased registered share capital is PLN 14,425, and is divided into 144,259,382 shares, giving the holder 144,259,382 votes at the General Meeting of Cersanit S.A. THE REGISTRATION OF AMENDMENTS TO THE STATUTE OF CERSANIT SA ISSUE OF F- SERIES SHARES On May 23 rd, 2008, the District Court in Kielce, 10 th Department of the National Court Register, registered the amendments to the Statute of Cersanit S.A. The provision of 6, section 1 of the Statute of Cersanit S.A. was amended. The fragment that read: 6.1. The share capital of the Company amounts to PLN 13,294,629 and is divided into: April 30 th, 2009 Page ~ 15 ~

16 a) 56,328,000 A-series shares, b) 50,000,000 B-series shares, c) 10,000,000 C-series shares, d) 16,618,290 D-series shares with a nominal value of 10 groszy each. was amended as follows: 6.1. The share capital of the Company amounts up to PLN 14,425, and is divided into: a) 56,328,000 A-series shares, b) 50,000,000 B-series shares, c) 10,000,000 C-series shares, d) 16,618,290 D-series shares, e) not more than 11,313,092 F-series shares, with a nominal value of 10 groszy each. ENTRY AND REGISTRATION OF F-SERIES SHARES OF CERSANIT SA IN THE NATIONAL DEPOSITORY OF SECURITIES On May 27 th, 2008, the Management Board of the National Depository of Securities (NDS Management Board) passed resolution No. 310/08, pursuant to which the National Depository of Securities (NDS) accepted not more than 11,313,092 (eleven million, three hundred and thirteen thousand, ninety two) ordinary F-series bearer s shares of the company Cersanit S.A. with a nominal value of PLN 0.10 (ten groszy) each, issued pursuant to resolution No. 8 of the Extraordinary General Shareholders Meeting of Cersanit S.A. of February 28 th, 2008, registered as a result of allotment of the shares of Cersanit S.A., performed according to 153 of the Detailed Rules of Operation of the National Depository of Securities, by superseding the shares of the company Opoczno S.A. with the shares of Cersanit S.A. in a 3:4 ratio in relation to the merger of these companies, performed according to the procedure specified in article 492, 1 of the Commercial Companies Code, by way of an acquisition of Opoczno S.A. by Cersanit S.A. The shares were assigned the code PLCRSNT00011, provided that the company operating the regulated market decides to admit these shares into trading on the same regulated market on which other shares of Cersanit S.A. are listed, and assigned the code PLCRSNT In addition, the NDS Management Board decided on May 28 th, 2008, to be the reference day. In the mentioned resolution, the NDS Management Board stated that the allotment referred to hereinbefore closes registration accounts maintained in the NDS for the shares of Opoczno S.A. The F-series shares were registered in the NDS on June 6 th, 2008, after the Company s submission of documents to the NDS confirming the decision to admit these shares to trading on the regulated market. 11,313,092 F-series shares from the merger issue were registered under the code ISIN PLCRSNT The total number of shares assigned this code, after the mentioned registration of the shares, equals 144,259,382. FLOATATION AND ADMISSION OF F-SERIES SHARES OF CERSANIT SA TO PUBLIC TRADING AND THE EXCLUSION OF THE SHARES OF OPOCZNO S.A. FROM PUBLIC TRADING On June 5 th, 2008, the Management Board of Cersanit S.A. received information regarding resolution 436/2008 of the Management Board of the Warsaw Stock Exchange (later referred to as Stock Exchange Management Board ) of June 4 th, 2008, on the floatation and admission to public trading on the Main Market of the Warsaw Stock Exchange of the ordinary F-series bearer s shares of the company Cersanit S.A. In the resolution, the Management Board of the Stock Exchange states that in line with 19 sections 1 and 2 of the Rules of the Warsaw Stock Exchange, it admits to the Warsaw Stock Exchange (Main Market) 11,313,092 F-series ordinary bearer shares of the Company with a par value of PLN 0.10 each. In addition, the Stock Exchange Management Board, pursuant to 38, section 1 of the Stock Exchange Code of Operation, decided to admit to public trading on the main market the aforementioned shares of Cersanit S.A. on June 6 th 2008, under the ordinary procedure, provided that the National Depository of Securities registers these shares on June 6 th, 2008, and assigned them the code PLCRSNT The resolution became effective on the day when it was passed by the Management Board of the Stock April 30 th, 2009 Page ~ 16 ~

17 Exchange. The above shares will be quoted as of the day when they are admitted to the stock exchange. At the same time the Management Board of Cersanit S.A. hereby reports that on June 5 th, 2008 it got acquainted with resolution No. 437/2008 of June 4 th, 2008 of the Management Board of the Stock Exchange on excluding from the Warsaw Stock Exchange (Main Market) of shares in Opoczno S.A. Pursuant to the resolution, the Management Board of the Stock Exchange, in connection with the acquisition of Opoczno S.A.(acquired company) by Cersanit S.A. (acquiring company), has decided to exclude from the stock exchange, as of June 6 th, 2008, the shares of Opoczno S.A. The number of shares in Opoczno S.A. listed on the stock exchange was 16,450,000, including 11,700,000 A-series shares and 4,750,000 B-series shares. OBTAINING A DECISION ON THE COMMISSIONING OF THE FACTORIES IN UKRAINE On October 30 th, 2008, the Issuer was informed by its subsidiary Cersanit Invest Sp. z o.o., having its registered office in Chizivka, Ukraine (the Company ), that the Company received documents signed by competent Ukrainian government authorities allowing the commissioning of the following factories: the factory of ceramic tiles and the factory of sanitary ceramic products, owned by the Company, located in Chizivka near Novograd Volynsky, in the Zhytomyr district in Ukraine. As at December 31 st, 2008, Cersanit S.A. held indirectly % of the share capital of Cersanit Invest Sp. z o.o. The implementation of the project of construction of the abovementioned factories in Ukraine is incorporated in the policy of Cersanit Capital Group, assuming regular reinforcement of the Group s position of a supplier of comprehensive furnishings for bathrooms, both in the domestic and foreign markets, through building of a strong business organisation operating throughout Europe. The annual production capacity of these factories is respectively 7 mln sq. m of ceramic tiles and 1 mln sanitary ceramic ware units. In 2008 the second stage of the investment project in Ukraine started. It assumes that in 2009 the annual production capacity of Cersanit Invest Sp. z o.o. will be increased up to 12 mln sq. m of ceramic tiles and 2 mln sanitary ceramic ware units. SEE ALSO: SECTIONS 6.1., 7., 8. and 9. In 2008, Cersanit S.A. s trade activities focused mainly on sales, expanding the product range and promoting recognition of the CERSANIT and OPOCZNO brands. The Company continued to consistently develop its domestic distribution channels. It also continued successfully the strategy of internationalising its activities through exports. As part of its development strategy, Cersanit S.A. consistently extends its offer by new products under the Cersanit and Opoczno brands. They include richly ornamented ceramic tiles and stoneware, new lines of ceramic sanitary products, bathtubs, shower cubicles, shower trays and bathroom furniture. All market novelties, just like the remaining part of the Company s rich assortment, are characterised by high quality and advanced functional properties. 4. Information on basic products, goods and services, their value and volume, individual groups share in the total sales of Grupa Kapitałowa Cersanit S.A. and related changes in The assortment offer of Cersanit Capital Group may be divided into three basic groups: - ceramic tiles and milled rock products, - sanitary ceramic products, - other ceramic articles (bathroom furniture, acrylic bathtubs, shower cubicles and shower trays). April 30 th, 2009 Page ~ 17 ~

18 The offer includes sub-plaster sets, complementing series of sanitary ceramic products, accessories for bathtubs and devices improving the accessibility of bathrooms and toilets for disabled persons. In 2008, Cersanit Group distributed products, goods and materials under the brands Cersanit and Opoczno, which are flagship brands, and Dvarčionių Keramika and Lira. The Group s products are characterized by high functionality, easy and simple assembly as well as diverse patterns and colours. The Group develops its assortment offer so that every consumer performing renovation or finishing works can use just the Group s products. Ceramic tiles At the end of 2008, the offer of Cersanit S.A. included 52 sets of ceramic tiles, 35 lines of glazed milled rock products, 14 lines of ornamental milled rock products and 10 colour types of milled rock products for technical purposes as well as 4 sets of pressed mosaic. Wall and floor tiles manufactured by the Cersanit Group are primarily intended for bathrooms. In addition, Cersanit S.A. boasts 4 sets of kitchen tiles in its comprehensive offer. The tiles are characterised by a wide selection of colours, attractive design and excellent technical parameters. Cersanit S.A. offers 3 types of milled rock products porcellanato milled rock. Glazed milled rock combines the style of ceramic tiles with very high technical parameters, low humidity absorption, high grindability class and resistance. They can be used indoors and outdoors, in houses and in public utility objects with high traffic intensity. Ornamental cast milled rock products are the quintessence of style and good taste. The visual effect is intensified by nature-inspired colours: shades of beige, brown, grey, black and attractive red. Milled rock for technical purposes has excellent utilitarian properties. Near-zero humidity absorption makes it resistant to atmospheric conditions. The products are laid in terraces, communication routes, production halls and rooms with high hygienic and sanitary requirements. Polished tiles look impressive in exclusive interiors. In 2008, 64 collections of ceramic tiles and 26 collections of glazed milled rock products were introduced to the Cersanit Group s offer. The products of the ceramic tiles plant in Wałbrzych are manufactured in accordance with the international quality certificate ISO 9001: In addition to the aforementioned assortment, the Group also offers its products under the Opoczno brand: 70 collections of wall and floor tiles, 51 lines of milled rock products (glazed, decorated and technical). Products sold under the Opoczno brand are offered in all standard sizes, ranging from 10 x 10 cm to 30 x 60 cm. These products come in a wide selection of designs and colours, which allow a diversified and attractive set to be suited to individual customer needs and preferences. The portfolio of the Cersanit Capital Group is supplemented by: the Lithuanian brand Dvarčionių Keramika, offering 16 collections of ceramic tiles and 14 lines of milled rock products, Lira brand in the Russian Federation, including 62 collections of ceramic tiles. The Group applies modern technological solutions in the production of tiles. This enables efficient and stable production without a downtime and a reduction in production costs due to low raw material consumption. Detailed quality control, enabling early error elimination and maintenance of high quality of products, is performed at all manufacturing stages. Thanks to the developed highly efficient mixtures of clay and feldspar, used in tiles production, finished products are characterized by very good technical parameters (crack resistance, hardness, and abrasion resistance) as well as particular aesthetic qualities. A good example are tiles imitating natural wood. April 30 th, 2009 Page ~ 18 ~