THE MANAGEMENT BOARD'S REPORT ON THE ACTIVITY OF ZPUE S.A. CAPITAL GROUP FOR THE FIRST HALF OF 2011

Transcription

1 THE MANAGEMENT BOARD'S REPORT ON THE ACTIVITY OF ZPUE S.A. CAPITAL GROUP FOR THE FIRST HALF OF 2011 WŁOSZCZOWA, AUGUST 2011

2 LIST OF CONTENTS 1. INFORMATION ABOUT THE ENTITIES WHICH COMPRISE THE CAPITAL GROUP PARENT COMPANY PRESENTATION SUBSIDIARY - PRESENTATION OF THE COMPANY 3 2. DESCRIPTION OF ZPUE SA CAPITAL GROUP ORGANIZATION 5 ZPUE S.A. CAPITAL GROUP STRUCTURE 5 3. INFORMATION ON THE FINANCIAL STANDING OF ZPUE S.A. CAPITAL GROUP OVERVIEW OF BASIC ECONOMIC RATIOS KEY PERFORMANCE INDICATORS LIQUIDITY RATIO DEBT RATIOS 6 4. DESCRIPTION OF SIGNIFICANT RISKS AND DANGERS RISK RELATING TO THE OPERATION OF COMPANIES RISKS RELATING TO THE EXTERNAL ENVIRONMENT 7 5. LIST OF THE EFFECTS OF CHANGES TO THE STRUCTURE OF THE COMPANY, INCLUDING BUSINESS ENTITIES CONSOLIDATION, TAKE OVER OR SALE OF THE CAPITAL GROUP S ENTITIES, LONG-TERM INVESTMENTS, DIVISION, RESTRUCTURE AND CEASING BUSINESS OPERATIONS 8 6. THE POSITION OF THE BOARD CONCERNING THE POSSIBILITY OF EARLY ACHIEVEMENT OF THE PREVIOUSLY RELEASED FORECASTS FOR THE YEAR LIST OF SHAREHOLDERS WHO EITHER DIRECTLY OR INDIRECTLY OWN IN EXCESS OF 5% OF THE OVERALL NUMBER OF VOTES AT THE GENERAL MEETING 8 8. OWNERSHIP OF ISSUER S SHARES OR RIGHTS THERETO (OPTIONS) BY THE PERSONS IN MANAGERIAL AND SUPERVISORY POSITIONS AT THE ISSUER S COMPANY SHARES OF THE COMPANY OWNED BY MEMBERS OF THE SUPERVISORY BOARD SHARES OF THE COMPANY OWNED BY MEMBERS OF THE MANAGEMENT BOARD 9 9. INFORMATION ON LEGAL PROCEEDINGS BEFORE A COURT, AUTHORITY RESPECTIVE FOR ARBITRATION PROCEEDINGS OR A PUBLIC ADMINISTRATION AUTHORITY PROCEDURES INVOLVING LIABILITIES OR RECEIVABLES OF THE ISSUER OR ITS SUBSIDIARY, WHOSE VALUE IS AT LEAST 10% OF THE ISSUER'S EQUITY CAPITAL TWO OR MORE PROCEDURES INVOLVING LIABILITIES OR RECEIVABLES WHOSE TOTAL VALUE IS AT LEAST 10% OF THE ISSUER'S EQUITY CAPITAL INFORMATION ON THE TRANSACTIONS ENTERED INTO BY THE ISSUER OR ITS SUBSIDIARY WITH AFFILIATED COMPANIES, IF THESE TRANSACTIONS INDIVIDUALLY OR COLLECTIVELY ARE SIGNIFICANT AND WERE MADE ON CONDITIONS OTHER THAN MARKET CONDITIONS INFORMATION CONCERNING A LOAN OR CREDIT SURETY OR GUARANTEE ISSUED BY THE ISSUER OR THE ISSUER S SUBSIDIARY COMPANY OVERALL TO A SINGLE ENTITY OR THEIR SUBSIDIARY COMPANY, IF THE TOTAL VALUE OF THE EXISTING SURETIES OR GUARANTY CONSTITUTES IN EXCESS OF 10% OF THE ISSUER S EQUITY CAPITAL OTHER INFORMATION, WHICH IN THE ISSUER'S OPINION IS IMPORTANT TO ASSESS ITS HUMAN RESOURCES, PROPERTY, FINANCES, FINANCIAL RESULT AND THEIR CHANGES AS WELL AS INFORMATION, WHICH IS CRUCIAL IN THE ASSESSMENT OF THE ISSUER'S ABILITY TO FULFIL ITS OBLIGATIONS FACTORS, WHICH IN THE ISSUER S OPINION WILL AFFECT THE RESULTS ACHIEVED BY THEM IN VIEW OF AT LEAST THE NEXT HALF-YEAR ISSUER'S MAJOR AGREEMENTS REPRESENTATIONS OF THE ISSUER'S MANAGEMENT BOARD 19 2

3 1. INFORMATION ABOUT THE ENTITIES WHICH COMPRISE THE CAPITAL GROUP 1.1 PARENT COMPANY - PRESENTATION CORE BUSINESS ZPUE S.A. based in Włoszczowa (until 18 December 2006 the Company operated under the name Zakład Produkcji Urządzeń Elektrycznych B.Wypychewicz Spółka Akcyjna) was founded on the basis of a company contract confirmed by a notary act. The Company began operating on 7 January 1997 on the day it was first entered on the Commercial Register of the District Court in Kielce as no. RHB It was entered on the National Court Register on 27 November 2001 as KRS: The entity keeping the register is the District Court in Kielce, 10th Commercial Division of the National Court Register. According to the Polish Classification of Economic Activities, the Company's core business is manufacture of switchgear and controlgear (PKD Z). According to the classification adopted by the regulated market, the Company is categorised as a company from the electrical machinery industry. STRUCTURE OF THE GOVERNING BODIES The Company's authorities are: General Shareholders' Meeting, Supervisory Board and Management Board. SUPERVISORY BOARD As at 30 June 2011 the Supervisory Board of ZPUE SA Włoszczowa acted in the following composition: Chairman of the Supervisory Board Bogusław Wypychewicz, Vice Chair of the Supervisory Board Małgorzata Wypychewicz, Member of the Supervisory Board Henryka Grzybek, Member of the Supervisory Board Teresa Wypychewicz, Member of the Supervisory Board Czesław Wypychewicz, THE MANAGEMENT BOARD As at 30 June 2011, the Management Board of ZPUE S.A. Włoszczowa acted in the following composition: President of the Board Andrzej Grzybek, Member of the Board Stanisław Toborek, Member of the Board Mariusz Synowiec. PROXIES As of 30th June 2011, the Proxies of ZPUE S.A. were: Commercial proxy - Tomasz Stepien, Commercial proxy Krzysztof Jamróz, Commercial proxy Piotr Zawadzki, Commercial proxy Katarzyna Kusa, Commercial proxy Iwona Dobosz, Commercial proxy Kazimierz Grabiec, Commercial proxy Henryk Arkit, Commercial proxy Jerzy Banyś, Commercial proxy Krzysztof Prus. STATUTORY AUDITOR On 27th June 2011, the Supervisory Board of ZPUE S.A. in Włoszczowa, pursuant to the Resolution no. 5/2011 elected the auditor to review separate and consolidated financial statements for the first half of 2011 and examine the separate and consolidated financial statements for the financial year The entity elected to review the semi-annual financial statements and examine the annual financial statements is ECA Seredyński i Partnerzy Sp. z o.o. (formerly Europejskie Centrum Audytu Sp. z o.o.) based in Cracow, at ul. J.Supniewskiego 11, entered in the register of entities authorized to examine the financial statements under the number 3115, maintained by the National Board of Chartered Accountants. 3

4 The choice of entity authorised to examine financial statements was made in accordance with the Issuer's Statute as well as the applicable legislation and professional standards. ZPUE S.A. has been collaborating with ECA Seredyński i Partnerzy Sp. z o.o. since will be the fourth settlement period for which financial statements will be examined by the aforementioned auditor. The contract between the entities mentioned of 5 July 2011 was signed for a period of one year. The Parties to the contract agreed that the auditor's fee for the examination of separate and consolidated financial statements of ZPUE S.A. for the year 2010 would be net PLN 29 thousand, whereas for review of separate and consolidated financial statements for the first half of net PLN 18 thousand. The contract does not provide for payment for fiscal consultancy services or other types of services. Payment for the investigation of ZPUE S.A.'s financial statement for 2010 was 21,000 PLN net, and for the review of the half-yearly financial statement 11,500 PLN net. The contract between the entities mentioned for 2010 does not provide for payment for fiscal consultancy services or other types of services. On the basis of the Annex to this Agreement additional provision was made for the examination of the consolidated annual report of the ZPUE SA Capital Group, and therefore the value of the Agreement was increased by 6,000 PLN net. 1.2 SUBSIDIARY - PRESENTATION OF THE COMPANY CORE BUSINESS ZPUE Gliwice Sp. z o.o. based in Gliwice was established based on Articles of Association evidenced by a notarial act. The Company began operating on on the day it was first entered on the Commercial Register of the District Court in Gliwice as no. RHB It was entered on the National Court Register on as KRS: The entity keeping the register is the District Court in Gliwice, 10th Commercial Division of the National Court Register. According to the Polish Classification of Economic Activities, the Company's core business is manufacture of switchgear and controlgear (PKD Z). STRUCTURE OF THE GOVERNING BODIES The Company's authorities are: General Shareholders' Meeting, Supervisory Board and Management Board. SUPERVISORY BOARD As at 30 June 2011 the Supervisory Board ZPUE Gliwice sp. z o.o. acted in the following composition: Chairwoman of the Supervisory Board Małgorzata Wypychewicz, Vice Chair of the Supervisory Board Bogusław Wypychewicz, Member of the Supervisory Board Iwona Dobosz, Member of the Supervisory Board Katarzyna Kusa, Member of the Supervisory Board Krzysztof Jamróz, Member of the Supervisory Board Tomasz Stępień. THE MANAGEMENT BOARD As at 30 June 2011, the Management Board of Board ZPUE Gliwice Sp. z o.o in Gliwice acted in the following composition: President of the Board Damian Asztabski, Member of the Board Joanna Baran, Member of the Board Grzegorz Kalinowski, STATUTORY AUDITOR On 22 August 2011, the Supervisory Board of ZPUE Gliwice Sp. z o.o. in Gliwice, by Resolution No. 2/08/RN/2011 selected the entity authorized to audit the annual report for the year The entity selected to examine the annual report for 2011 is ECA Seredyński i Partnerzy Sp. z o.o. based in Kraków at ul. J. Supniewskiego 11, entered on the list kept by the National Chamber of Statutory Auditors of entities authorised to audit financial statements under the number The parties agreed that ZPUE Gliwice Sp. z o.o will pay 10,000 PLN for the examination of the financial statements for

5 2. DESCRIPTION OF THE ZPUE SA CAPITAL GROUP ORGANIZATION ZPUE SA CAPITAL GROUP STRUCTURE The organizational structure of the ZPUE SA Capital Group, as at is formed by ZPUE SA based in Włoszczowa and ZPUE Gliwice Sp. z o.o based in Gliwice. Parent Company: ZPUE S.A. took control of the company ZPUE Gliwice Sp. z o.o. on As of 30 June 2011, ZPUE S.A. owns 28 shares in the Przedsiębiorstwo Aparatów i Konstrukcji Energetycznych ZMER Sp. z o.o. in Kalisz, entitling it to 28 votes at the Partners Meeting, which constitutes 3.92% of the total number of votes. This entity is not, however, part of the ZPUE S.A. Capital Group and is not subject to consolidation. 3. INFORMATION ON THE FINANCIAL STANDING OF ZPUE S.A. CAPITAL GROUP 3.1 OVERVIEW OF BASIC ECONOMIC RATIOS The financial results of ZPUE SA Capital Group which arise from the business conducted in the first half of the 2011 look much better than those which the Group achieved in the previous year. Fixed assets as of 30 June 2011 totalled 147,1114,000 PLN, i.e. 13% more than on 30 June Meanwhile current assets at the end of the 1st half of 2011 stood at 143,561,000 PLN, namely around 17.5% higher than 30 June On 30 June 2011 the Company's equity capital stood at 149,476,000 PLN, indicating an increase of over 3.6% compared to the end of the first half of Long-term liabilities increased from the level of 17,755,000 PLN noted in the first half of 2011 to 3,873,000 PLN shown on 30 June During the period analysed, short-term liabilities and special funds increased to a sum of 107,024,000 PLN, in other words by 21.7% compared to the situation in June The largest shares in the assets structure were those of: short-term receivables (33.9% of the total assets as of 30 June 2011), tangible fixed assets and inventory (40.5% and 12.4% of the total assets respectively). On 30 June 2011 the items with the largest share in liabilities were: supplementary capital and short-term liabilities, with a share in liabilities of, respectively: 35.2% and 36.8%. The balance sheet sum on stood at 290,675,000 PLN. This represents an increase of over 15% compared to the end of Revenues from sales of products, goods, materials and services in the 1st half of 2011 amounted to 156,991,000 PLN, i.e. increased by 33.5% compared to the 1st half of Cost of sold products, goods and materials amounted to 128,259,000 PLN, i.e., increased by 34.6% compared to the situation in June 2010 More than 26% increase in operating profit is a result of cost optimization. Gross profit increased from 4,207,000 PLN in the 1st half of 2010 to 5,498,000 PLN in the past six months (an increase of 30.7%). Accordingly, profit after tax reached 4,372,000 PLN, i.e., increased by 29.7%. 3.2 PROFITABILITY RATIOS Presented below is an analysis of business performance indicators of ZPUE SA Capital Group and its ability to pay liabilities. Profitability ratios: Return on equity (ROE) = (net profit / equity) x 100% Return on assets (ROA) = (net profit / total assets) x 100% gross profit margin on sales = (gross profit / sales) x 100% net profit margin on sales = (net profit / sales) x 100% Profitability ratios determine the ability of the ZPUE SA Capital Group to generate profit. The higher the ratio, the better the Company's financial position. Profitability ratios calculated on the basis of the financial results of the ZPUE SA Capital Group were higher in the 1st half of 2011 than in the previous year, primarily due to higher profits, so the ratios are at a level that creates opportunities for further dynamic development of the group companies. 5

6 Table 1: Performance indicators of ZPUE SA Capital Group Details 1st half of st half of 2011 return on equity (ROE) 2.34% 2.92% return on assets (ROA) 1.34% 1.50% Gross profit margin 3.58% 3.50% Net profit margin 2.87% 2.78% 3.3 LIQUIDITY RATIOS Liquidity ratios: current ratio = (current assets / current liabilities) Quick liquidity ratio = (current assets - inventories / current liabilities) Liquidity ratios measure the degree to which short-term liabilities are covered with assets. They indicate the ability of ZPUE SA Capital Group companies for meeting these liabilities. In the 1st half of 2011, both the current ratio and quick ratio of ZPUE SA Capital Group decreased compared to the 1st half of previous year. The value of these ratios is at a level indicating the company's proper financial situation. So this means that companies do not have problems with the current settlement of their liabilities. Table 2: Liquidity ratios of ZPUE SA Capital Group Details 1st half of st half of 2011 Current ratio Quick ratio DEBT RATIOS Debt ratios: debt-to-assets ration = (total liabilities / total assets) equity to debt ratio = (total liabilities / equity) Debt ratios indicate the share of foreign equity in financing of company operations. They also inform of the company's debt. In the 1st half of 2011, the ZPUE SA Capital Group reported little change in debt ratios relative to those presented in the 1st half of Foreign capital involvement in financing the companies changed slightly. Balance between equity and foreign capital is at a safe level and does not involve any major financial risk. Table 3: Debt ratios of ZPUE S.A. Capital Group Details 1st half of st half of 2011 Debt-to-assets ratio Equity to debt ratio DESCRIPTION OF SIGNIFICANT RISKS AND DANGERS The business activities of the ZPUE SA Capital Group are exposed to the following risks: 4.1 RISK RELATING TO THE OPERATION OF COMPANIES Risks associated with the seasonality of sales ZPUE SA Capital Group Companies operate in the power industry subject to typical seasonality in investment. Directly or indirectly through wholesaler, the main customers for the products offered by ZPUE S.A. and ZPUE Gliwice Sp. z o.o. are utilities, private investors and electrical contractors, whose activities contribute to the expansion and upgrading of power grid and electrical systems. Investments in this area are usually made from the second quarter of the year, so in the early months of the calendar year the demand for the company's products may decrease. Consequently, sales revenue of the first quarter is at a relatively low level compared to the value obtained in the second half of the year. 6

7 Risks associated with dependence on major suppliers Both ZPUE SA and ZPUE Gliwice Sp. z o.o. cooperate with many suppliers with an established position in the market that provide group companies with raw materials and goods. Procurement policy introduced in the Group entails diversification of suppliers, while minimizing the prices of goods and raw materials necessary for production. Based on similar principles of the Group Companies decide on the choice of service providers. However, in the case of trade policy changes by the providers, their financial problems or a deterioration in the competitiveness of their offer, there is a risk of negative impact on the financial results achieved by the ZPUE SA Capital Group. Risks associated with inventory In view of the fact that the Group companies operate in capital-intensive industry, where the production cycle is quite long and manufactured goods are of high value, the Group Companies must maintain inventories at a suitable level. Mismatch of stocks to market demand carries the risk of potential loss of revenue (low stocks or out of stock), or freezing working capital (slow rotation of materials, and too much stocks). Maintaining excessive inventory during time of high price fluctuations could be the reason for a revaluation of inventories to bring them to market prices lower than warehouse prices. The risk associated with receivables Receivables from deliveries and services account for over 41.9% of total assets - as at Despite a rational debt management policy, there is a risk of losses caused by the inability to recover the receivables, especially in a market downturn and deteriorating financial liquidity of major customers of products offered by ZPUE S.A. and ZPUE Gliwice Sp. z o.o. Companies minimize the risk associated with receivables through individual credit limits determined for each customer, along with specific dates of payment. ZPUE SA Capital Group continuously monitors repayment of debts and ability of its customers to pay. With the active cooperation of financial and legal services, and direct sales by the representative, contacts with clients are quickly established to facilitate timely settlement of liabilities. In case of a delay in payment by customers, appropriate recovery procedures are undertaken appropriate for the project. An important part of debt management policy is cooperation with the insurance company Towarzystwo Ubezpieczeniowe Coface Poland Sp. z o.o., which provides a comprehensive and integrated solutions for the protection of commercial transactions. 4.2 RISKS RELATING TO THE EXTERNAL ENVIRONMENT Risks associated with the macroeconomic situation having impact on the results of the ZPUE SA Capital Group. The financial situation of the ZPUE SA Capital Group is influenced by the economic situation in Poland and abroad. The financial result of group companies is affected by many macroeconomic factors, among which are such as: GDP growth, inflation, unemployment rate and the amount of personal income of the population, state fiscal and monetary policy, but most of all - investments. The amount of investment in the energy sector is highly correlated with the demand for goods produced by ZPEU SA and ZPUE Gliwice Sp. z o.o. There is a risk that the financial results can be reduced in the event of an economic downturn and the decline of investment in industry or application of such a state economic policy, which would adversely affect the market position of group companies. Risks associated with changing market trends Rapid change in demand for products of the ZPUE SA Capital Group Companies may adversely affect the financial performance. There is also a risk that foreign competitors of ZPUE S.A. and ZPUE Gliwice Sp. z o.o. will increase production capacity will grow faster than demand for such products, which could translate into limited opportunities in the achievement of the forecast sales. Group companies minimize the risk of market saturation through ongoing monitoring of sales volumes achieved, testing market demand and by flexible product range. The risks associated with legislative changes Frequent changes of legislation, including: regulations and interpretations of tax laws, commercial law, labour law, social security and the lack of unequivocal interpretation are the risks for both the ZPUE SA Capital Group as well as the recipients of the Company's products. Consequently, the constantly changing legislation may have a direct impact on the deterioration of financial results. Risks arising from increased competition Electrical equipment market is characterized by advanced technology, and therefore the competition among the entities operating on the market is small. ZPUE SA Capital Group is a leader on the domestic market, but the company is somewhat exposed to the risk of new competitors coming into play. Also, the strengthening of the Polish currency, which lowers the prices of foreign competitors, could result in price adjustments and thereby 7

8 lower margins on products manufactured by Group companies. However, a flexible pricing policy and a clear superiority in technical and technological solutions used in the production minimizes the risk resulting from increased competition. 5. LIST OF THE EFFECTS OF CHANGES TO THE STRUCTURE OF THE BUSINESS ENTITY, INCLUDING BUSINESS ENTITIES CONSOLIDATION, TAKE OVER OR SALE OF THE CAPITAL GROUP S ENTITIES, LONG-TERM INVESTMENTS, DIVISION, RESTRUCTURE AND CEASING BUSINESS OPERATIONS. Not applicable in 1st half of THE POSITION OF THE BOARD CONCERNING THE POSSIBILITY OF EARLY ACHIEVEMENT OF THE PREVIOUSLY RELEASED FORECASTS FOR THE YEAR 2011 The Management Board of ZPUE SA has not published the financial forecasts for the year LIST OF SHAREHOLDERS WHO EITHER DIRECTLY OR INDIRECTLY OWN IN EXCESS OF 5% OF THE OVERALL NUMBER OF VOTES AT THE GENERAL MEETING Shareholders holding directly or indirectly through subsidiaries, at least 5% of the total vote at the General Shareholders' Meeting of ZPUE SA at the date of the report, i.e. 31 August 2011 are Małgorzata and Bogusław Wypychewicz. Table 08: Shareholders holding at least 5% of the votes at the General Shareholders' Meeting as at Shareholder Number and type of shares % of shares Number of voting rights % voting rights Bogusław 360,000 A series registered privileged shares 36.90% 1,815, % Wypychewicz 15,720 ordinary bearer shares Małgorzata Wypychewicz 239,990 A series registered privileged shares 13,346 ordinary bearer shares 24.88% 1,213, % 8. OWNERSHIP OF ISSUER S SHARES OR RIGHTS THERETO (OPTIONS) BY THE PERSONS IN MANAGERIAL AND SUPERVISORY POSITIONS AT THE ISSUER S COMPANY 8.1 SHARES OF THE COMPANY OWNED BY MEMBERS OF THE SUPERVISORY BOARD Statement of changes in ownership of shares and preference rights (options) by the member of Supervisory Board as at , and changes in ownership of shares in the period since the last periodic report, i.e. from , is presented in the table below. Table 5: Shares held by members of the Supervisory Board. Shareholder Number and Type of Shares (as of Number and Type of Shares (as of ) Bogusław Wypychewicz Małgorzata Wypychewicz Henryka Grzybek 360,000 A series registered preference shares and 15,720 ordinary bearer shares. 239,990 registered privileged shares 13,346 ordinary bearer shares 10 registered privileged shares 100 ordinary bearer shares 360,000 registered privileged shares 14,701 ordinary bearer shares 239,990 registered privileged shares 13,346 ordinary bearer shares 10 registered privileged shares 100 ordinary bearer shares Teresa Wypychewicz Does not hold any Company's shares. Does not hold any Company's shares. Czesław Wypychewicz Does not hold any Company's shares. Does not hold any Company's shares. 8.2 SHARES OF THE COMPANY OWNED BY MANAGEMENT 8

9 Changes in ownership of shares, allocated shares and preference rights (options) by managers as at , and changes in ownership of shares in the period since the last periodic report, i.e. from , are presented in the table below. Table 6: Shares held by members of the Management Board. Shareholder Number and Type of Shares (as of Number and Type of Shares (as of ) Andrzej Grzybek 1,000 ordinary bearer shares 1,000 ordinary bearer shares Stanisław Toborek 331 ordinary bearer shares 331 ordinary bearer shares Mariusz Synowiec Does not hold any Company's shares. Does not hold any Company's shares. Table 7. Shares held by Proxies Shareholder Number and Type of Shares (as of Number and Type of Shares (as of ) Piotr Zawadzki 4,678 ordinary bearer shares 4,678 ordinary bearer shares Tomasz Stępień 3,734 ordinary bearer shares 3,734 ordinary bearer shares Henryk Arkit 160 ordinary bearer shares 160 ordinary bearer shares Members of the Management Board and the Supervisory Board ZPUE SA do not have a stake in ZPUE Gliwice Sp. z o.o. 9. INFORMATION ON LEGAL PROCEEDINGS BEFORE A COURT, AUTHORITY RESPECTIVE FOR ARBITRATION PROCEEDINGS OR A PUBLIC ADMINISTRATION AUTHORITY 9.1 PROCEDURES INVOLVING LIABILITIES OR RECEIVABLES OF THE ISSUER OR HIS SUBSIDIARY, WHOSE VALUE IS AT LEAST 10% OF THE ISSUER'S EQUITY CAPITAL 9.2 TWO OR MORE PROCEDURES INVOLVING LIABILITIES OR RECEIVABLES WHOSE TOTAL VALUE IS AT LEAST 10% OF THE ISSUER'S EQUITY CAPITAL No procedures involving liabilities or receivables whose total value is at least 10% of the issuer's equity capital have been initiated, brought to an end or pending against the parent company ZPUE S.A. and the subsidiary ZPUE Gliwice Sp. z o.o. 10. INFORMATION ON THE TRANSACTIONS ENTERED INTO BY THE ISSUER OR ITS SUBSIDIARY WITH AFFILIATED COMPANIES, IF THESE TRANSACTIONS INDIVIDUALLY OR COLLECTIVELY ARE SIGNIFICANT AND WERE MADE ON CONDITIONS OTHER THAN MARKET CONDITIONS Transactions with affiliates entered into by the issuer and its subsidiaries are typical and routine transactions entered into in line with the market principles between affiliates. The nature and terms of the conducted transactions stem from the current operating activity pursued by the Company or its subsidiary. 11. INFORMATION CONCERNING A LOAN OR CREDIT SURETY OR GUARANTEE ISSUED BY THE ISSUER OR THE ISSUER S SUBSIDIARY COMPANY OVERALL TO A SINGLE ENTITY OR THEIR SUBSIDIARY COMPANY, IF THE TOTAL VALUE OF THE EXISTING SURETIES OR GUARANTY CONSTITUTES IN EXCESS OF 10% OF THE ISSUER S EQUITY CAPITAL Information on loan or credit sureties are included in additional explanatory notes the Financial Statements. 12. OTHER INFORMATION, WHICH IN THE ISSUER'S OPINION IS IMPORTANT TO ASSESS ITS HUMAN RESOURCES, PROPERTY, FINANCES, FINANCIAL RESULT AND THEIR CHANGES AS WELL AS INFORMATION, WHICH IS CRUCIAL IN THE ASSESSMENT OF THE ISSUER'S ABILITY TO FULFIL ITS OBLIGATIONS AWARDS, DISTINCTIONS In 1st half of 2011, ZPUE S.A. was awarded: 9

10 - a distinction at XIV International Power Industry Fair ENEX 2011 in Kielce for the medium voltage switchgear "Circuit-Breaker Bay Rotoblok VCB"; - "Laur Świętokrzyski" 2010 Award in the Regional Enterprise category awarded by the Head of Świętokrzyskie Province; - a gold medal at 2011 EXPOPWER International Power Industry Fair in Poznan for the medium voltage switchgear "Circuit-Breaker Bay Rotoblok VCB"; EMPLOYMENT As at in ZPUE S.A. Capital Group employed people. Blue-collar workers White-collar workers 287 Chart 1. The structure of employment according to the positions - as at Table 8: 2011 employment structure by manual and office positions in the 1st half of Blue-collar workers: foreman deputy foreman Concrete maker, reinforcement installer electrical installer automation engineer driver painter loader equipment fitter other fitters machinery and equipment operator qualified assistant maintenance employee finishing works technician welder locksmith fitter-welder plastic parts assembler cleaner warehouse operative Total: 38 employees 20 employees 69 employees 148 employees 44 employees 8 employees 17 employees 18 employees 136 employees 65 employees 117 employees 2 employees 28 employees 48 employees 7 employees 88 employees 76 employees 55 employees 4 employees 10 employees 998 employees White-collar workers: 10

11 The management board directors regional directors managers foremen product technologist specialists agent security employee Total: 6 employees 3 employees 4 employees 34 employees 13 employees 2 employees 167 employees 53 employees 5 employees 287 employees The employment structure is dominated by young people - age of more than 53% of employees did not exceed 35 years. Chart 2. Employment Structure by age. Table 9: The structure of employment by age as at Employee age Number of employees Structure [%] up to 25 years % from 25 to 35 years % from 35 to 50 years % more than 50 years % Total % Chart 3. Employment Structure by educational attainment. 11

12 Table 10. Employment structure by educational attainment as at item Education Number of employees Structure [%] 1. Higher % 2. Middle % 3. Basic vocational % 4. Primary 85 7% Total 1, % MARKETS, SOURCES OF SUPPLY, DEPENDENCE ON CUSTOMERS AND SUPPLIERS Table 10 presents the changes in groups of customers, which took place in 1st half of 2011, compared with 1st half of the previous year. In 1st half of 2011, there were changes in particular groups of customers, compared with 1st half of The share of sales to wholesalers increased from 26.9% to 36.6%, while the share of sales to energy companies decreased from 13.6% to 2.9%. The percentage share of sales to electrical contractors also decreased from 30.0% to 27.2%. 12

13 Chart 4. Structure of sales by customer group. Table 11: Sales Structure of ZPUE SA Capital Group in 1st half of 2011 and 1st half of 2010 by groups of customers. Share in sales for 1st half of Share in sales for 1st half of Details Energy contractors 30.0% 27.2% Wholesalers 26.9% 36.6% Utilities 13.6% 17.0% Investors 15.9% 16.3% Industry 13.6% 2.9% ZPUE S.A. Capital Group sales structure in the 1st half of 2011 by sales market was dominated by domestic sales, which totalled 143,606,000 PLN, constituting 91.5% of total sales. The value of direct exports reached 13,385,000 PLN and 8.5% of total sales. Exports were dominated by sales of container stations to the markets: Russian, Belarusian, Czech, Dutch, Slovak, Romanian, German, Hungarian, Belgian, Latvian and Ukrainian. Procurement policy is based on cooperation with suppliers of reliable, stable position. ZPUE SA Capital Group concluded agreements with the company's strategic suppliers, which govern the rights and obligations of both parties. In the 1st half of 2011, efforts were continued to reduce the cost of purchasing and maintain an appropriate level of material supply. Materials are purchased mainly in the domestic market but also on the European Union markets. ZPUE SA Capital Group Companies are not dependent, to a large extent, on any suppliers. SALES Both entities forming ZPUE SA Capital Group are manufacturers of electrical power devices for power transmission. Range of products includes: Container transformer stations medium voltage switchgear, low voltage switchgear, pole-mounted transformer stations medium voltage switch-disconnectors and disconnectors, power engineering structures 13

14 enclosures and metering cable boxes Container transformer stations are the key product of ZPUE SA Capital Group. They are used for medium and low voltage power transmission. Enclosures these stations are made of concrete or aluminium. An important product range is also medium and low voltage switchgear, which is part of transformer station equipment. Switchgear is used for power transmission, it provide protection against short circuits and power surges. Sales ZPUE S.A. Capital Group in the 1st half of 2011 reached 156,991,000 PLN. Sales consisted of the following groups: product sales and services 123,493,000 PLN (78.7% of Company sales) and the sale of goods and materials 33,498,000 PLN (21.3%). Chart 5. Product range structure of the total sales in the 1st half of Table 12: Sales Structure of ZPUE SA Capital Group in 1st half of 2010 and 1st half of item Details 1st half of st half of 2011 Share Value of sales (thousands Value (thousands PLN) Share of sales PLN) I. Sales of products and services 79, % 123, % II. Sales of goods and materials 30, % 33, % TOTAL SALES 109, % 156, % The value of total sales increased in the 1st half of 2011 compared to the previous year by 43.6%. The sales structure also saw minor changes. Sales of products and services in 1st half of 2011 increased by 55.8% in comparison to 1st half of Also, the percentage of sales of products and services increased from 72.5% to 78.7% in the structure of the total sales for the 1st half of Between 1st half of 2010 and 1st half of 2011, the percentage share of goods and materials sold in the total sales decreased insignificantly from 27.5% to 21.3%. Five main operating segments are distinguished in the sales of ZPUE SA Capital Group, namely: pole-mounted transformer stations and parts and components of overhead lines, container transformer stations and medium and low voltage switchgear, enclosures and metering cable boxes, assembly services, other services. Table 13: ZPUE S.A. Capital Group core operating segments. For the period from to

15 Pole-mounted transformer stations and parts and components of overhead lines Container transformer stations and medium and low voltage switchgear Enclosures and metering cable boxes Assembly services Other services Exclusions Total consolidated Revenue 12,911 81,818 8,441 21,884 2,195-3, ,493 Costs 9,946 63,651 7,121 20, ,547 98,167 Result 2,965 18,167 1,320 1,809 1, ,326 Table 14: ZPUE S.A. Capital Group core operating segments. For the period from to Pole-mounted transformer stations and parts and components of overhead lines Container transformer stations and medium and low voltage switchgear Enclosures and metering cable boxes Assembly services Other services Exclusions Total consolidated Revenue 12,887 59,863 8,003 8,180 1,323-3,512 86,744 Costs 9,375 45,794 6,520 8, ,444 67,210 Result 3,512 14,069 1, , FACTORS, WHICH IN THE ISSUER S OPINION WILL AFFECT THE RESULTS ACHIEVED BY THEM IN VIEW OF AT LEAST THE NEXT HALF-YEAR The major factors which could influence the financial situation of ZPUE SA Capital Group over the next six months at least include: the market conditions in the electrical power industry - depending on the investments carried out by power plants and direct investors, the sales revenue achieved by Capital Group Companies will reach a higher or lower value; exchange rate fluctuations (mainly the euro) which affect the mark-up on export sales and operating costs. fluctuations in the WIBOR and EURIBOR reference rates, based on which interest on credit is calculated, which may cause a rise or fall in financial costs. 14. ISSUER'S MAJOR AGREEMENTS In the 1st half of 2011, the Management Board of ZPUE S.A. in Włoszczowa entered into the following agreements which fulfil the criteria of significant agreements: On 14 January 2011 the Management Board of ZPUE S.A. published the value of booked turnover with AREVA T&D Sp. z o.o. in Mikołów. Major turnover from the purchase of electrical equipment (including distribution, oil-filled, and cast-resin transformers) during the period from 14 April 2010 to the day of the statement's publication was 11,638,000 PLN, thus the turnover between the companies exceeded 10% of the issuer's equity capital (current report ). 25 January 2011 the Management Board of ZPUE S.A. received information of the total repayment of investment credit by Elektromontaż-1 Katowice S.A. The credit was granted on the conditions stipulated in credit agreement no. K of 18 November 2008 signed between Bank Zachodni WBK based in Wrocław and Elektromontaż-1 Katowice S.A. for a sum of 2,305,000 PLN (two million three hundred and five thousand złotys). As a result of the full repayment of the credit in question, the surety for said liability of 2,882, PLN (two million eight hundred and eighty two thousand złotys), which was granted on 18 November 2008 by the Management Board of ZPUE S.A. Włoszczowa to Elektromontaż -1 Katowice S.A. based in Katowice, expired. (Current Report No. 4/2011) Information regarding confirmation of a subsidy for ZPUE S.A.'s project entitled "Series of Air-insulated MV Compact Switchgear" as part of the Innovative Economy Operational Programme, Action was published on the website of the Polish Agency for Enterprise Development, i.e. 15

16 on 3 March The value of the subsidy is 2,609, PLN (two million six hundred and nine thousand two hundred and sixty five złotys). The value of the investment in the above mentioned project is estimated at 4,773, PLN (four million seven hundred seventy-three thousand four hundred Polish Zlotys), therefore the value of grants received is 58.42% compared to the qualified value, i.e. 4,466, PLN (four million four hundred thousand sixty six five hundred Polish Zlotys). The aim of the project is to develop a design for a compact MV switchgear with the required dielectric strength after using dried air based on tests involving reduced discharges from the current rails of the switchgear, from the switching gear, whilst retaining the existing dimensions of the SF6 gas-insulated switchgear. The project is planned for completion in the third quarter of Detailed information on the conditions for granting the subsidy will be reported after the agreement is signed with the institution providing this type of support. The Management Board of ZPUE S.A. considers the information to be significant due to the importance of the investment mentioned, which will allow the product offer to be expended and sales income to be increased over the coming years. (Current Report No. 5/2011) On 10 March, 2011 to ZPUE SA received a signed Appendix No. 12 to the Agreement for multi-currency credit line 2040/030/04 of (current report 31/2010) signed between ZPUE S.A. and Bank Zachodni WBK S.A. in Wrocław. The Parties decided to amend and supplement the conditions of the Credit Agreement as follows, i.e. increase the available limit of the credit line by 5,000, PLN (five million złotys) to 15,000, PLN (fifteen million złotys). The remaining conditions of this Agreement do not differ from those generally applied in such agreements. (Current Report No. 6/2011) On 14 March 2011, ZPUE SA signed with Alior Bank SA a Cash Transfer Agreement (deposit), pursuant to which ZPUE S.A. has granted STOLBUD Włoszczowa S.A. based in Włoszczowa a property surety on the payment of liabilities, to a sum of 6,000, PLN. (six million złotys) towards Alior Bank S.A., arising from Credit Agreement U for credit in the current account. The Management Board of ZPUE S.A. issued the surety in the form of a deposit paid for the period from 14 March 2011 to 9 March To safeguard ZPUE S.A.'s receivables from the property surety issued to STOLBUD Włoszczowa S.A., which consists of the main receivable, interest receivables and other potential charges, STOLBUD Włoszczowa S.A. will establish the Issuer an ordinary mortgage of up to 6,340, PLN. (read: six million three hundred and forty thousand złotys). (Current Report No. 7/2011) - On 20th April 2011, an Annex to the Investment Credit Agreement no of in Polish currency (current report 33/2010) was executed between ZPUE S.A. and Powszechna Kasa Oszczędności Bank Polski S. A. based in Warsaw. Taking into account the changes made based on the present Annex, the conditions for the Credit Agreement in question are as follows: 1. the Agreement is valid for the period up to 31 March 2016; 2. the total sum of credit granted, allocated for financing/refinancing the investment project involving introducing a triple-function medium voltage isolator switch designed for switchgear used in the transformer stations and paintshop construction, to a sum of 23,065, PLN (read: twenty three million sixty five thousand two hundred złotys), in the usage currencies, i.e.. in Polish currency and EUR; 3. the deadline for using the credit is 31 March 2012; 4. the interest on the credit is dependent on the WIBOR 1M reference rate increased by the bank's mark-up; 5. the bank's receivables arising from the present Agreement are safeguarded by: a). an ordinary mortgage and a joint capped rate mortgage on the property and a transfer of the monetary receivables from the property insurance agreement; b). a joint capped rate mortgage on the fixed assets purchased which are the subject of the investment, and a transfer of the monetary receivables from the insurance agreement; c). transfer of ownership 'with a precedent condition' of the fixed assets which are the subject of the investment until a pledge is established; d). a declaration of being subject to bank enforcement procedures; e). a blank bill of exchange along with a bill of exchange declaration; f). deduction clause for accounts held in the Bank; g). a transfer of receivables from the contract for subsidising the project to the Bank; h). power of attorney for the account to which the subsidy is transferred; i). aval. 6. The credit activation conditions for the above amount are: - establishing the safeguards mentioned above, and submitting and paying for an application to change the content of the mortgage entry; - granting irrevocable power of attorney for PKO BP S.A., to withdraw money from the current account totalling 50% of the sums paid in for subsidies for payment of investment credit; 16

17 - in the event that an auxiliary account is opened to service the subsidies, activation of the increased credit amount is conditional on documentation of an indication for the account in question to settle subsidies in the notice that receivables have been transferred to the Implementing Institution, and the granting of power of attorney to PKO BP S.A. to collect the money paid in for subsidies for payment of investment credit; - documentation by the borrower of costs incurred at a level not lower than 10% of the net value of the investment; - the submission by the borrower of the audited statements for 2010 with the rating allocated based on them being no worse than that established at the analysis stage of the credit application. The credit will be used based on agreements, invoices and refunded invoices or paid contracts. (Current Report 8/2011) On 20th April 2011, an Investment Credit Agreement no for the amount of PLN 850, (eight hundred and fifty thousand zlotys) was executed. The credit mentioned has been granted for the period from 20 April 2011 to 31 December The credit will be made available on a oneoff basis between 1 December 2011 and 31 December The credit may be used in Polish currency or EUR. The interest on the credit is dependent on the WIBOR 1M reference rate increased by the bank's markup. The purpose of the money acquired from the credit transaction is to finance and refinance investments involving: redeveloping technology and the metal sheeting storehouse, purchase of computers and furnishing the office. The bank's receivables arising from the present Agreement are safeguarded by: a). a joint mortgage on the property and a transfer of the monetary receivables from the property insurance agreement; b). a declaration of being subject to bank enforcement procedures; c). a borrower blank bill of exchange along with a bill of exchange declaration; d). deduction clause for accounts held in PKO BP S.A. The credit activation conditions are: 1). establishment of the safeguards and submitting and paying for the mortgage entry application; 2). documentation by the borrower of costs incurred at a level not lower than 20% of the net value of the investment. The credit will be used based on agreements, invoices and refunded invoices or paid contracts. The remaining conditions of Agreement do not differ from those generally applied in such agreements. (Current Report No. 9/2011) - On 20th April 2011, the Management Board of ZPUE S.A. entered into the Agreement no. DU/18/UZ/53/2011 and the Agreement no. DU/18/UZ/53/2011 with EnergiaPro Spółka Akcyjna based in Wrocław. In accordance with the provisions of the first of the Contracts mentioned, the Issuer undertakes to carry out for the Orderer the task of supplying remote controlled MV connections. The full switch-disconnector system delivery comprises: pole mounted MV switch-disconnector, switch-disconnector remote control cabinet, auxiliary transformer, structures and necessary accessories for the switch-disconnector system. The total value of the Contract is 2,045, PLN net (2,515, PLN gross). The subject of the contract shall be executed within 12 months of its being signed. Deliveries will be made successively in the requested amounts based on separate orders submitted in writing or by fax by the Orderer's Units, within 45 calendar days of the order being placed. For each order executed, the Contractor undertakes to supply a VAT invoice to the Orderer's relevant Unit no later than 7 calendar days from the date when the order is executed. Payment for the deliveries made is settled within 30 days of the invoice being received. The Orderer reserves the possibility to extend the validity period of the Agreement in circumstances which could not have been predicted before execution of the agreement commenced, if execution of the agreement during its validity period does not exceed 70% of the value of the agreement Safeguarding of the proper implementation of the agreement totalling 125, PLN, constituting 5% of the total price stated in the offer in the form of an insurance guarantee. In accordance with the second of the Contracts mentioned, the Issuer undertakes to carry out for the EnergiaPro S.A. the task of supplying 20/0.4 kv 630 kva prefabricated internally operated transformer stations and additional accessories. The total value of the Contract is 5,657, PLN net (6,958, PLN gross). Execution of the subject of the Contract will take place successively in the requested amounts based on separate orders submitted in writing or by fax by the Orderer's Units, for a period of 12 months from the signing of the contract. Orders will be executed within 28 days of being placed by fax or in writing. The Orderer reserves the possibility to change the amount of the subject of the contract in individual assortments, with the provision that the value of the contract may not decrease by more than 30% of the value of the contract. However the Contractor is not entitled to any remuneration or compensation for the decrease in quantity and value of the subject of the contract. 17

18 Remuneration is paid by separate invoices issued for each order executed. The Orderer undertakes to pay the Contractor for the completed subject of the contract a gross sum by bank transfer within 30 days of receipt of the invoice. The Orderer reserves the possibility to extend the validity period of the Agreement for a maximum of 6 months in circumstances which could not have been predicted before execution of the agreement commenced, if execution of the agreement during its validity period does not exceed 70% of the value of the agreement The Parties have also allowed in both contracts for the possibility to apply contractual penalties, whose conditions do not differ from those generally applied in such agreements. The contract in question provides for the possibility for the Orderer to charge a contractual penalty of 0.5% of the value of the ordered part of a given delivery for each day of delay due to untimely execution of that part of the subject of the contract or untimely correction of a defect discovered on delivery. Furthermore the Parties have allowed for the possibility of charging the party by whose fault the other party withdraws from the agreement, with the penalty of 20% agreed gross contractual remuneration. The contract additionally stipulates the Contractor's total compensatory responsibility which is, regardless of the legal basis of the compensation sought, limited to 100% of the gross remuneration. Pursuant to the provisions of the agreements in question, the Contractor is responsible for damage caused by his action or negligence. In the event that the penalties stipulated in the contracts do not cover the damage arising from failure to deliver at the established time, the Orderer may seek supplementary damages. In addition, the Parties have reserved a clause in both Contracts the intention of which is that the Orderer may terminate the contract with immediate effect if he discovers that the Contractor is executing an order without due care, in breach of the applicable legislation or not in accordance with conditions contained in the present agreement. The remaining conditions of this Agreement do not differ from those generally applied in such agreements. (Current Report No. 10/2011) - On 21st April 2011 working capital credit Agreement no ŁD for the sum of 15,000, PLN (read: fifteen million złotys) was signed between ZPUE S.A., as the borrower, and Kredyt Bank S.A. based in Warsaw as the lender. The credit indicated will be issued for use from 27 April 2011 until 26 April 2012, and on 27 April 2011 the Bank will put a sum of 10,000, PLN (ten million złotys) at the Borrower's disposal. The remaining sum will be activated 90 days after the credit agreement is signed, or at an earlier written request by the Borrower. The final repayment date for the credit is 27 April The interest rate on the credit is variable The interest on the credit consists of the WIBOR O/N reference rate increased by the bank's mark-up. The purpose of the money acquired from the credit transaction is to finance running business. Execution of the Borrower's obligations from the Agreement is safeguarded by: 1. a blank bill of exchange issued by the Borrower; 2. registered pledges on commercial receivables; 3. contractual mortgage on property along with a cession of rights from the insurance policy. The credit activation conditions are: 1. submission of a declaration of being subject to execution proceedings by the Borrower in the scope of obligations arising from the Agreement; 2. submitting copies of the articles of incorporation and current extract from the National Court Register (KRS); 3. submitting to the Bank certification that the Borrower has no arrears in tax payments or social security contributions; 4. payment by the Borrower of commission and payments due as defined in the Agreement; 5. establishing the safeguards towards the Bank stipulated in the Agreement. The remaining conditions of this Agreement do not differ from those generally applied in such agreements. (Current report No 11/2011). 15. REPRESENTATIONS OF THE ISSUER'S MANAGEMENT BOARD The Management Board of ZPUE SA Włoszczowa hereby declares that according to its best knowledge, the semi-annual consolidated financial statements and comparative figures have been prepared in accordance with applicable accounting principles and present reliably and clearly the financial position of the ZPUE SA Capital Group and its financial result. In addition, the Management Board states that its report on the Company's activities presents a true picture of its development, achievements and situation, including a description of the main risks and dangers. 18

19 The Management Board of ZPUE SA Włoszczowa hereby declares that the entity authorized to audit financial statements, which reviewed the semi-annual consolidated financial statements, has been selected in accordance with the law and the entity, as well as the auditors who performed the review meet the conditions for issuing an impartial and independent opinion on the reviewed semi-annual financial statements in accordance with applicable regulations and professional standards. Włoszczowa, 31 August 2011 President of the Management Board Member of the Management Board Member of the Management Board Andrzej Grzybek Stanisław Toborek Mariusz Synowiec 19