CONSOLIDATED MANAGEMENT REPORT ON ACTIVITIES OF GETBACK GROUP FOR 2014

Transcription

1 CONSOLIDATED MANAGEMENT REPORT ON ACTIVITIES OF GETBACK GROUP FOR 2014 Wrocław, dated

2 In accordance with by the provisions of the Accounting Act dated 29 September 1994 (Journal of Laws of 2013, item 330, consolidated text with subsequent amendments) the Management Board of the Company must ensure preparation of the annual consolidated report on Group s activities in the fiscal year, covering significant information on the economic and financial situation as well as evaluation of the results obtained and identification of risk factors and description of threats. This Report on activities of GetBack S.A. Group (hereinafter referred to as the Company ) covers the period between 01 January 2014 and 31 December 2014 I. BASIC PARENT COMPANY DATA (hereinafter referred to as the Company or Getback S.A.) Full name: Registered office: Place and date of registration: KRS: NIP: REGON: Tel.: (71) Fax: (71) Electronic mail address: Website address: GetBack Spółka Akcyjna Wrocław, Powstańców Śląskich street No. 2-4 District Court for Wrocław-Fabryczna in Wrocław, 6th Commercial Division of the National Court Register, registered on 14 March biurozarzadu@getbacksa.pl 1. Scope of business The core business activity of the Company, according to the information contained in the REGON register system is other financial service activities, except insurance and pension funding, not elsewhere classified (PKD Z). 2. Share capital structure - shareholders of the Company The share capital of the Company is PLN (four million PLN) and is divided into (twenty million) ordinary bearer shares of the following series: A - series ordinary bearer shares with a par value of PLN 0.20 each, B - series ordinary bearer shares with a par value of PLN 0.20 each, C - series ordinary bearer shares with a par value of PLN 0.20 each, D - series ordinary bearer shares with a par value of PLN 0.20 each. 2

3 Series A shares were acquired by three individuals at the nominal value of the shares. Series B shares were acquired at PLN 0.70 per each share and total price of PLN ,00 by LC Corp B.V. Share premium of PLN was recorded against supplementary capital before registration of the Company. Series C shares were acquired by two individuals and one entity at the nominal value of the shares. Series D shares were acquired at PLN 0.70 per each share and total price of PLN ,00 by LC Corp B.V. Share premium of PLN was recorded against supplementary capital before registration of the Company. Company s share capital was fully paid. Company's shares are ordinary bearer shares. Until the shareholders of the Company were: 1) LC Corp B.V. based in Amsterdam register with the Trade Register maintained by the Chamber of Trade in Amsterdam under number holding 60% of shares, 2) Merlya Holding Limited based in Nicosia registered in the registry of the Trade Ministry Dep. of Companies Register and Receivers of the Republic of Cyprus under number HE holding 19.3% of Company s shares, 3) Natural persons holding 20.7 % of Company s shares On the owner of 100% of Company s shares became IDEA EXPERT S.A. (100% of Idea Expert S.A. shares belongs to Idea Bank S.A.) based in Warsaw, entered into the register of entrepreneurs of the National Court Register maintained by the District Court for the Capital City of Warsaw in Warsaw, 13th Commercial Department, under KRS number The Company is a member of Idea Bank S.A. Group, which in turn belongs to Getin Holding S.A. Group. 3. Company s governing bodies Supervisory Board: The Supervisory Board of the Company is appointed for a 3-year term of joint office. Upon completion of the Annual Shareholders Assembly of the Company during which the financial statements of the Company for 2014 will be approved, the term of office of the members to the Supervisory Board will expire thus completing the third, i.e. the final year of the first terms of office for the Supervisory Board. The following persons were members of the Supervisory Board in 2014: 1) Radosław Stefurak - Chairman of the Supervisory Board in the period between and ; 2) Remigiusz Baliński - Vice-Chairman of the Supervisory Board in the period between and ; 3

4 3) Maciej Szczechura Member of the Supervisory Board in the period between and ; 4) Stanisław Wlazło - Member of the Supervisory Board in the period between and ; 5) Jarosław Augustyniak - Member of the Supervisory Board in the period between and ; 6) Marcin Syciński - Member of the Supervisory Board in the period between and ; 7) Paweł Lejk - Member of the Supervisory Board in the period between and Management Board of the Company: The Management Board is appointed for the period of a 3-year s joint term of office. Upon completion of the Annual Shareholders Assembly of the Company during which the financial statements of the Company for 2014 will be approved, the term of office of the members to the Management Board will expire thus completing the third, i.e. the final year of the first terms of office for the Management Board. The following persons were members of the Management Board in 2014: 1) Konrad Kąkolewski - Member of the Management Board in the period between and , President of the Management Board in the period between and ; 2) Paweł Trybuchowski - Vice -President of the Management Board in the period between ; 3) Piotr Kaliszuk - Member of the Management Board in the period between and Mariusz Brysik became Company s proxy on His proxy is a joint commercial proxy with one member of the Management Board and is granted for unlimited period of time. Pursuant to par 7 section 2 of the Regulations of the Management Board, meetings of the Management Board are held at least once each week. In 2014 the Management Board adopted 57 resolutions, of which part was adopted by circulation, as provided for in par. 8 section 4 of the Regulations of the Management Board. 4

5 4. Registered office and place of activity of the Company The Company is based in Wrocław at. Powstańców Śląskich street No In 2014 the Company established the following new locations: - Documentation Processing Centre in Wrocław - an operating unit of the Company involved in processing and archiving of documentation; - Company s Office in Warsaw. 5. Structure of GetBack Capital Group The composition of GetBack Capital Group and the share of the parent Company in the share capital is as follows: - Kancelaria Prawna getback Mariusz Brysik sp. k % (limited partner): - getback Recovery SRL -100%: - Bakura sp. z o.o % of shares; - Bakura spółka z ograniczoną odpowiedzialnością spółka komandytowa - General partner - Bakura sp. z o.o.; Limited partner - Bakura sp. z o.o. S.K.A. the shareholder of which is getback SA; - getback lnvestments sp. z o.o % of shares; - Bakura spółka z ograniczoną odpowiedzialnością S.K.A - The shareholder is getback S.A; - easydebt Niestandaryzowany Sekurytyzacyjny Fundusz Inwestycyjny Zamknięty [Non-standardised Closed-end Securitisation Investment Fund] - 100% of investment certificate issued by the fund; - Open Finance Fundusz Inwestycyjny Zamknięty Aktywów Niepublicznych [Closed-End Non-Public Asset Investment Fund] - 100% of investment certificate issued by the fund; - OMEGA Wierzytelności Niestandaryzowany Sekurytyzacyjny Fundusz Inwestycyjny Zamknięty [Non-standardised Closed-end Securitisation Investment Fund] - 20% of investment certificate issued by the fund; 6. Employment at the Company In 2014 Getback S.A. hired 140 new employees and the employment at the Company at the end of 2014 was 238 employees. Kancelaria Prawna getback Mariusz Brysik S.K. employed 50 employees at the end of 2014 while GetBack Recovery SRL - 48 employees. The Company pursues the Remuneration Regulations which provide that apart from basic salary the employees are also entitles to: annual bonus, bonus based on results and discretionary bonus which can be granted depending on the position held, the place of employment within relevant business unit and the type of tasks performed. II. CORE ACTIVITY AND SIGNIFICANT EVENTS The Parent company conducts the operating activity consisting in collection of own receivables acquired from third parties, collection upon commission and collection of debt portfolios acquired in the scope of management of securitized debts of investment funds. 5

6 On 24 September 2012 the Parent Company obtained a permit from the Financial Supervision Authority to manage assets of securitization funds. On 13 February 2013, Getback S.A. concluded an agreement with Open Finance TFI S.A. to set up and manage the easydebt NS FIZ, which procures third party s debt on its own account. The holder of all investment certificates issued by the above mentioned fund is Getback S.A. On 12 December 2013 the Parent Company concluded an agreement with Open Finance TFI SA for management of part of the investment portfolio belonging to Open Finance Wierzytelności Detalicznych NS FIZ. In 2014 the Company concluded three more agreements for management of debt portfolios: - A commission agreement for managing part of the investment portfolio belonging to Open Finance Wierzytelności NS FIZ, concluded on between Open Finance TFI SA, Open Finance Wierzytelności NS FIZ and Getback S.A; - A commission agreement for managing the entire UNIVERSE NS FIZ investment portfolio, concluded on between ALTUS TFI S.A., UNIVERSE NS FIZ and Getback S.A.; - A commission agreement for managing the entire OMEGA NS FIZ investment portfolio, concluded on between ALTUS TFI S.A., OMEGA NS FIZ and Getback S.A.; The Parent Company meets all the requirements concerning the protection of personal data and protection of confidential information. In the scope of amicable collection, GetBack S.A. has a fully implemented and operating IT system supported by professional Call Centre solution. In terms of enforcing payments via courts and bailiffs, the Parent Company uses the services of its own Kancelaria Prawna (Law Firm) GetBack Mariusz Brysik sp. k. The law firm also conducts the preliminary selection of debt portfolios. This course of actions enables the Company to draft the optimal action plan and prioritize each individual case. The legal analysis conducted by the law firm enables to maximize the efficiency of cases that reached the enforcement proceedings stage while simultaneously limiting the costs of proceedings charged to clients as much as possible. In 2014 the Parent Company conducted the valuation (that is the analysis of the value of portfolios and recommendations for their purchase) and purchase of the following debt portfolios: debt portfolios with nominal value exceeding PLN 2.7 billion, evaluated by the Company for easydebt fund. Of the debt portfolios evaluated by the Company the nominal value of the debt actually purchased was approximately PLN 7.3 million debt portfolios with nominal value exceeding PLN 5.3 billion, evaluated by the Company for OFWD fund. Of the debt portfolios evaluated by the Company the 6

7 nominal value of the debt actually purchased was approximately PLN 2 billion. - 5 debt portfolios with nominal value exceeding PLN 500 million, evaluated by the Company for OFW fund. - 8 debt portfolios with nominal value exceeding PLN 1.8 billion, evaluated by the Company for the remaining investment funds. Of the debt portfolios evaluated by the Company the nominal value of the debt actually purchased was approximately PLN 1,2 billion. In contract award proceedings in 2014 participated by the Parent Company, the Parent Company was awarded contracts for purchase of 41 debt portfolios with nominal value exceeding PLN 4 billion. Significant events of 2014: - in March 2014 the Company acquired 100% of shares in GetBack Recovery SRL, thus becoming its owner; - in July 2014 the owner of Getback S.A. changed - 100% of Getback S.A. shares was acquired by Idea Expert S.A.; - in October 2014 subsidiaries of Getback S.A. sought to acquire a debt portfolio of nominal value amounting to PLN 1.6 billion; this debt portfolio was referred for management to OFWD NS FIZ for which Getback S.A. is the servicer; - in December Getback S.A. became the owner of investment certificates issued by OMEGA Wierzytelności NS FIZ of total issue value amounting to PLN 65.4 million (paid up to the total amount of PLN 35.1 million). The Group have been noticing dynamic increases in revenues as well as values of service portfolios purchased on their own account and ordered, becoming one of the main players on the Polish debt management market. 7

8 III. ECONOMIC AND FINANCIAL SITUATION OF THE COMPANY Selected financial data from the profit and loss statement of the Capital Group for 2014 (in PLN 000) Dynamics Revenues from sales % Operating expenses % Profit on sales % Other operating revenue % Other operating expenses % Operating income % Financial revenues % Financial expenses % Share in profit / (loss) of associates Gross profit % Income tax % Net profit % Attributable to shareholders of the parent company % Attributable to non-controlling interest

9 Selected financial data from the balance sheet of the Capital Group as at (in PLN 000) Dynamics Fixed assets % Intangible fixed assets % Tangible fixed assets % Investments in affiliates Investments % Prepayments % Current assets % Short-term receivables % Short-term investments % Cash and cash equivalents % Prepayments % Total assets % Total equity % Equity (attributable to shareholders of the parent company) % Share capital % Supplementary capital % Net profit % Non-controlling interests Liabilities and provisions for liabilities % Long-term liabilities % Short-term liabilities % Deferred income tax provision % Total equity and liabilities % 2014 marked a very dynamic growth of the Parent company as well as the entire Group which is reflected in the increase of all items of the consolidated financial statements. Revenues from sales amounted to PLN thousand, which was higher than in 2013 by 358%. The net profit generated in 2014 was PLN thousand which means an increase by 439%. Also all items of the consolidated balance sheet recorded an increase. Fixed assets went up by 2 240% compared to 2013 which current assets - by 177%. The Company met all its financial liabilities on time. 9

10 IV. OTHER EVENTS THAT SIGNIFICANTLY INFLUENCED THE ACTIVITY OF THE UNIT THAT OCCURRED DURING THE FINANCIAL YEAR AS WELL AS AFTER THE END OF FINANCIAL YEAR UNTIL APPROVAL OF FINANCIAL STATEMENTS 1. External audits In 2014 the Parent Company was subject to three audits carried out by external institutions: - The Chief Labour Inspectorate conducted its audit between and ; focus area: Conformity with selected provisions of labour law and validity of employment; - The Inspector General for the Protection of Personal Data conducted its audit between and ; focus area: Conformity of data processing with regulations on personal data protection; - Tax Authority of Lower Silesia conducted its audit between and ; focus area: Corporate income tax for These audits did not find any irregularities resulting in the initiation of administrative proceedings. Other companies from the Group were not audited by external institutions. 2. Events occurring after the balance sheet date that could have a significant effect on the operation of the Capital Group. No significant events occurred after the balance sheet date that could have a significant effect on the operation of GetBack Capital Group. V FACTORS SIGNIFICANT TO THE GROUP S GROWTH AND GROWTH PROSPECTS 1. Debt trade market The debt management market in Poland, where the Group operates, still remains a dynamic and growing financial market sector. As reported by BIG InfoMonitor in its report, the total amount of overdue indebtedness of Poles is constantly increasing. Thus, the negative trend of debt growth has sustained almost unbroken for more than three years. Over the space of three years this amount has grown by as much as 27.8%. that is by PLN 9.04 billion and in 2014 amounted to nearly PLN 42 billion. It seems that the current economic situation in Poland should rather favour faster repayment of debts and at the same time the decrease in the level of total outstanding debt. Unfortunately, over the past 3 years, the number of high-risk clients has been almost invariably increasing. In 2014 this number exceeded 2.37 million, which means 6.2% of the country s population has overdue debt (increase by almost 2.5%). 10

11 Compared to previous year, the number of people with relatively low debt (up to PLN 5 thousand) went up. This group of the population accounts for almost 67 per cent of all overdue debt (up by 3 percentage points). Debt market in numbers: PLN BILLION 1,6% Total amount of overdue debt held by country s population The change in total overdue debt of the population in Q Number of high risk customers PLN ,2% Average, outstanding debt of high risk consumer Percentage of the population defaulting on their payment obligations The prospects for 2015 foresee further growth of the debt market. This growth will result from the following factors: Slowing down economic growth - results in negative repercussions on the level of income of the population - usually means an increase in the number of unemployed and at the same time slower rise of wages. As a result, the income situation of many households is deteriorating, leading to an increase in the number of people who are having trouble handling their obligations. Growing amount of total indebtedness of individuals who temporarily default on obligations towards bank, para-banks, telecommunications providers, B2C service providers. Increased amount of available capital allocated to purchase of debt portfolios by debt collection companies stimulates higher supply and regularity of transactions. Sale of debt portfolios to securitization funds - opening the market to retail investors who, by modelling on corporations, seek to earn on receivables due to their high rate of return. Favourable legislation changes, which removed the requirement to obtain debtor s consent for transfer of personal data in case of debt assignment (in 2005) as well as the Act of 2004 on investment funds which creates the opportunity to establish securitisation funds that invest in overdue debt. This law opened up the debt market for financial investors and thus caused capital inflows. 11

12 2. Risk factors 1. Risk associated with macroeconomic market conditions The Group s activity and the level of financial results achieved by it depend, directly and indirectly, on macroeconomic variables, such as, e.g. economic growth rate, unemployment rate, inflation, interest rate level as well as fiscal and monetary policy. On the one hand, economic slowdown results in higher supply of jeopardised receivables which means drop of their prices, on the other hand, however, lower debt collection is observed. In turn, there is an improvement in receivable collection with the increase of their purchase price in the periods of economic growth. In order to limit the occurrence of the aforementioned risk, the Company, prior to taking decision on the purchase of a new receivable portfolio, performs a detailed study of the portfolio quality in terms of ability to perform effective debt collection at particular stages of economic cycle each time. 2. Risk of statutory interest rate change The statutory interest rate determined pursuant to the Regulation of the Council of Ministers has a direct impact on Group's revenues from outstanding and overdue liabilities. New interest rate of 8% was introduced on 17 December 2014 (Journal of Laws of 22 December 2014, item 1858). Between 2008 and 17 December 2014, the statutory interest rate was 13% and remained unchanged despite low inflation. A change of the interest rate may impact on the reduction of potential revenues of the Group from statutory interest. 3. Risk of competitors activities The Group operates on a market that has been dynamically growing for a few years and is now spearheaded by a number of dominant entities. A peculiar feature of the market is the financial advantage of large entities that are backed by shareholders with considerable financial resources. These entities have so far focused on the commissioned collection segment, with the debt portfolio purchase segment and collection on their own account being of secondary importance for them. It cannot be excluded, however, that the situation will change and such entities will shift their focus to debt purchasing. Recently, the activity of Group s competitors in the scope of capital acquisition in the public market can be observed. Increase in competitor capital may cause the prices of debt portfolios offered on the market to rise. The Group analyses the on-going changes in the debt collection market on a regular basis in order to ensure possibly the most advantageous competitive position and its experience and knowledge of the market enables it to effectively compete with other entities. In addition, the Group continuously takes actions aiming to increase the competitive advantage in terms of costs and effectiveness. 12

13 4. Risk associated with operation of judicature and debt enforcement The Group seeks receivables from conducted activity also in court proceedings. Unjustified delays, occurring on the site of the judicature, can result in unexpected postponements of dates of final resolutions of pending debt enforcement proceedings in the court. The institution of Electronic Proceedings by Writ of Payment (EPU), operating since 2010, also called e-court, facilitated the court issue of payment orders and, thus, sped up the moment of revenue disclosure by the Group and resulted in cost decrease. However, in relation to the multiplicity of cases brought to the E-Court, there is a risk that the period of expectation for a payment order issued in the electronic writ-of-payment proceedings can be, in practice, the same as in a normal mode. Fears that the facilitation of procedures by introduction of the e-court institution can lead the Group s clients to take attempts of debt enforcement on their own proved to be wrong. No decreased supply of debt portfolios in the debt collection market could be observed. For portfolios with higher average face values of singular cases, an appeal from the request to pay made by an indebted person results in that the proceedings conducted in a traditional manner before court takes place according to the place of residence or seat of an indebted person. If, therefore, the Company purchased portfolios with higher nominal values of singular cases, it would lead to consequences in the form of increase of own costs. The Group, taking advantage from the possibility of selection of the enforcement body conducting the proceedings, under currently effective law, shall attempt to cooperate with selected court enforcement officers through which the risk of lengthiness of enforcement procedures is limited. 5. Risk associated with potential introduction of limitations on the sale of debts and licencing of the debt collection business The activities of the Group depend on its ability to purchase debt portfolios divested by their original owners. Any potential limitations or prohibitions concerning the sale of debts by their original owners might considerably impact the activities of the Group. In the past, there have been ineffective attempts to introduce such limitations as regards consumer debt trading. According to the knowledge of the Company, the legislator does not currently plan to introduce such limitations, but the risk of their introduction cannot be excluded for the future. 6. Risk related to consumer bankruptcy On 31 December 2014 the Act amending the Bankruptcy and Restructuring Act, the Act on the National Court Register and the Act on court fees in civil law proceedings of 29 August 2014 (Journal of Laws of 2014, item 1306) became effective; the amending act changed the consumer bankruptcy regulations, originally introduced in The latest amendment considerably extends the range of cases in which consumers may declare bankruptcy. Declaration of bankruptcy is, however, a time-consuming, highly formal 13

14 procedure that requires the applying individual to meet a number of conditions, such as listing and estimating their entire assets of the debtor. This will discourage some potential consumers seeking bankruptcy. The nature of the bankruptcy order which is announced publicly (in the Court and Economic Monitor) may also have a similar deterring effect. Declaring bankruptcy does not, as a rule, void all obligations of the bankrupt. They will have to regularly pay off some of them as defined in the debt repayment schedule. The Group companies or the fund, as a creditor, shall have the impact on the content of the payment plan of a bankrupt and bankrupt s fulfilment of due payment of his liabilities. It can lead to positive results since, thus, we achieve the probability of payment of at least part of our liabilities. There is also high probability that, due to many details of the regulation and status of society s legal awareness, the amendment of the act will not be known by a large number of consumers. The amendments to the Act shall not apply to liquid debtors. Therefore, the situation of our solvent debtors will not be subject to change. There is a general risk that, in case of announcement of consumer s bankruptcy, the final amount of debt payment by the debtor can turn out to be lower than in case of debt enforcement conducted by the Group, however, the December amendment, in our opinion, does not result in significant increase of the risk concerning the operation of the Company and securitisation funds. 7. Risk associated with conducting activity under the Polish Financial Supervision Authority s [PFSA] authorisation Activities related to managing securitized debts of a securitization fund require a permit issued by the Financial Supervision Authority which may be revoked if the conditions specified in legal regulations are not met. For this purpose, the fulfilment of official-legal requirements as well as observance of effective legal regulations are monitored on a regular basis. 8. Risk of improper evaluation of debt portfolios offered on the market The level of revenue which the Capital Group derives from purchased debt portfolios depends on proper evaluation of quality and economy of individual portfolios to determine the likelihood of effective collection of debts from debtors. An erroneous evaluation of portfolio quality may make the financial results achieved by the Group deviate from the originally projected level. The prices of packages offered for sales in the market depend on the range of such factors as, e.g. type of debtor, debt parameters, type of liability, term of debt, earlier debt enforcement actions or competitive price offers from other participants of the market for a given package. Due to the difference of the debt packages offered in the market, there is a risk of incorrect valuation of a given package and the process of recovery of the receivables from acquired debts is generally a long-lasting process. In case of packages of new type, in which the Group companies are slightly less experienced, the risk is increased. 14

15 The experience of the Group companies and members of the Company s Management Board, in the scope of acquisition of debt portfolios from different segments, owned rich database of receivables from the market as well as the knowledge of the industry enables the Group to minimise the increased risk. 9. Risk associated with increased costs of activity A rise in the following cost items will have a potential influence on increasing the costs of Group s activities: (i) costs of the justice system; (ii) execution and bailiff fees; (iii) costs of legal services and remuneration of employees, (iv) cost of debt and debtor registers, (v) administrative, telecommunications and postal cost in debt recovery. The increase of any of the above costs may negatively impact the Group's growth dynamics and results from Group s activities. 10. Risk resulting from unclear interpretation of legal regulations in Romania or change of these regulations One of the Group s companies operates in Romania. In addition, it is not possible to rule out that the Group can conduct activity also in the other countries in the future. In case of the Group, negative consequences can particularly lead to changes in the scope of widely understood economic, commercial and tax law, including these concerning the enforcement activity, consumer bankruptcy as well as tax exemptions and investment fund privileges. The aforementioned regulations are also subject to various interpretations and can be applied in the ununiformed manner. The Company is unable to guarantee that its interpretation of the legal provisions in Romania, which are applicable to the activity of the Company will not be challenged in the future. The Company is also unable rule out that any legislative changes directly concerning the debt enforcement activity or having negative impact on performance of such activity will not be introduced to the jurisdictions in which the Company currently conducts or will conduct its activity. The changes in the law regulating the activity of the Company or incorrect interpretation of regulations by the Company can result in imposing civil-law, administrative or penal sanctions on the Company, may result in the necessary change of Company s best practices, adverse administrative or court decisions against the Company as well as may expose the Company to compensatory liability, result in unanticipated costs, in particular, associated with changes of Company s activity to adapt to legal requirements. The occurrence of any of the above events may have a significantly adverse impact on the operations, financial situation or results of the Group. 11. Foreign currency risk Currency risk means that charges in currency exchange rates will affect Group results or the value of financial instruments it holds. The Group does not use financial instruments to hedge against exchange rate risk. Cash deposits obtained in foreign currency are reinvested in the purchase of debt portfolios in this currency. 15

16 12. The risk associated with financial instruments held by the Company The main financial instruments used by the Group include investment certificates, issued bonds, trade liabilities and credit on current account. The Group also holds financial assets such as trade receivables, cash and short-term deposits that arise directly in the course of activities of the Group. The main risks resulting from financial instruments used by the Group include the interest rate risk, cash flows, liquidity risk and credit risk. - interest rate risk The risk relating to liabilities due to debt securities issue is not a threat to the Group s regular business. In the reporting period the Company did not secure any planned transactions within the scope of interest rate risk hedging with use of any hedging derivative instruments. - credit risk Credit risk is the risk that the Capital Group sustains a loss when its client or the other party to the financial instrument defaults on its contractual obligations. Credit risk is related mainly to purchased debt portfolios and liabilities attributed to services provided by the Group. - interest rate risk The Group is financed by third party capital obtained by taking out a credit on current account as well as by issuing short-term and long-term bonds. - liquidity risk The Group monitors the risk of loss or disruption of financial liquidity using a tool for periodical liquidity planning. This tool provides for the maturity deadlines of financial assets, projected cash flows from the operating activity as well as projected flows of interest and principal repayment arising from issued bonds. 13. Risk of lack of purchase of new debt packages The financial results being achieved by the Group depend both on debt collection activities related to currently possessed debt packages as well as those related to new debt packages. Due to activities of competing entities or a decision of the Company as a result of evaluations of debt portfolios offered on the market it may occur that the Capital Group will not purchase new debt portfolios for a longer time. This may lead to temporary scaling down of Group activities. 14. Risk of losing key employees, employee turnover and recruitment In providing its services, the Group utilizes the knowledge, skills and experience of its employees. Persons of key importance for activities of the Group are Management Board members who take strategic decisions, as well as other employees, including primarily those in charge of individual organizational units. Any loss of a key person may have a temporarily adverse impact on Group s activities and its performance. 16

17 15. Risk associated with human resource management The majority of the personnel in Group companies are persons employed in operating positions. These are employees performing tasks that do not require specialist education, such as a call centre operator or data administrator. As competition increases, debt collection costs might have to be lowered by increasing work efficiency of individual employees without compensating them with higher salaries. In relation to the aforementioned, there is a risk that the operations staff could leave the Company which could result in weakening of the organisational structure on which the Group's activity is based which could result in lack of stability of its operations and require obtaining new employees with increased salary levels. In consequence, this could lead to an increase of expenses and affect the development dynamics and operating results of the Group. 16. Risk of stoppage in activities and failure of IT system In its activities, the Group utilizes advanced IT systems based on modern technologies that allow it to automate processes and maximize efficiency. If failure or loss of devices or software occurs, the Group might be exposed to stoppage in operational activities resulting in lack of access to required data, which may have a negative impact on Group results in the short term. In its operations the Group uses a program dedicated to effective management of processes related to debt collection. IT system failure risk should be minimised due to the fact that the main IT system is a system managed autonomously by the Group, therefore removal of any related failures can be performed within a relatively short period of time, within the Company's own scope, without need for engagement of any third parties. Furthermore, following technological changes, the Group keeps implementing new technological solutions. Concurrently, due to the on-going back-up system employed for data on the back-up server (data back-up) and the fact that the employees cannot copy or delete data from the IT system or data bases, the data loss risk is minimised. The Company pursues a business continuity plan. 17. Risk of technological stoppage at main partners Conducting its business, the Group uses services of entrepreneurs providing postal and telephone services as well as third party services. The reliability of their systems allows the Group to automate its processes and maximize efficiency. In case of standstills, strikes, failures or loss of hardware or software by the above service providers, the Group companies could be exposed to a standstill in its operations resulting in lack of access to debtors, court and court enforcement institutions, debtor registers or other data that could affect the Group's results. In order to minimise this risk, the Group uses several telecommunication service providers. 17

18 18. Risk of loss or disclosure of data of indebted persons When acquiring debt portfolios from original portfolio owners the Group companies also acquire detailed personal details of individual debtors; such personal details are subject to protection under the act of 29 August 1997 with subsequent amendments on personal data protection. Processing of data bases including personal data is performed under the principles and with consequences resulting from the aforementioned act. In relation to the management of particular issues associated with debt collection by the employees of the Group companies, a potential risk exists of unauthorised disclosure of personal data by, e.g. illegal activity of an employee associated with copying data with the use of modern technologies (such as a camera in a mobile phone, copying of data) or risk of data loss due to system failure. It must be emphasised that the Group companies employees do not have access to the personal data regarding debtors in a paper form, and all data input in the IT systems and data bases of the Company are secured against copying. As regards the IT systems, the data bases possessed by the Group are subject to on-going back-ups on the back-up servers. 19. Risk of proceedings filed against Group s companies In connection with its business activity, the Group may be exposed to initiation of civil proceedings against them (including group, administrative, arbitration or other proceedings, in particular by clients, contractors or employees). The parties initiating the proceedings against the Group may request payment of significant amounts or other fulfilment of filed claims, which can influence the ability to conduct activity by the Group and its subsidiaries and the amount of potential costs, arising from such proceedings, can be uncertain for significant periods of time. The Group s defence costs in potential, future proceedings can also be significant. It is also possible that negative information actions are initiated against the Group, associated with pending proceedings, which may harm Group s good name regardless of the fact whether the pending proceedings are justified and what their result will be. 20. Risk associated with transactions with affiliates Group Companies enter into transactions with affiliates. According to the Company's opinion, transactions with related entities were arm's length transactions according to the Polish fiscal law. In case of potential challenging of the conditions of transactions with related entities by the tax authorities, there is, however, risk of negative fiscal consequences for the Group. Within the period covered by the consolidated financial statements the tax authorities did not challenge the taxation basis specified by the Company and did not impose any sanctions or procedures provided for by the fiscal law on the Company. 18

19 VI. SUMMARY The core activity of the Group companies involves collection of consumer outstanding debt acquired from third parties on Group companies own account, collection upon commission and collection of debt portfolios acquired in the scope of management of securitised debts of investment funds. Due to effective debt management as well as strict control of the operating costs, the financial position of the Group in 2014 was assessed as very good. An important element of the operation strategy, besides paying attention to the proper effectiveness of debt collection operations, is also the close monitoring of both operational and administrative costs as well as financial costs. The Group has met so far and still meets its obligations towards the State Budget, financial institutions, bondholders and other contractors on time. The Management Board of the Company believes that objectives for 2014 were achieved. As part of the research and development work, the Group implemented 10 IT projects aimed at optimisation and automation of processes and integration of applications used for debt collection activities. This fact was reflected in the consolidated balance sheet - showing the net value of completed research and development projects of PLN The Group did not purchase its own shares and has no branch offices. In 2015 the Group will continue to improve its position in the market of receivable management, also for the benefit of closed-end funds, by way of, among other things, acquisition of large debt portfolios, with construction of consortium and use of innovative manners of conducting transactions of debt portfolio purchase which allow of cost, legal and tax optimisation. In the scope of development plans, the Group intends to develop experience in debt collection service concerning the debtor who is a consumer receiving a product/service with delayed payment date - B2C debtor, including receivables secured with mortgage as well as obtain experience in the field of debt collection from debtors in the business sector. The current and projected financial position of the Group ensures further development of the Group companies as well as continuity of financing. VII. STATEMENT OF THE MANAGEMENT BOARD The Management Board of GetBack Spółka Akcyjna hereby represents that the going concern of GetBack S.A. remains unthreatened. Drafted in: Wrocław, on Konrad Kąkolewski Paweł Trybuchowski Piotr Kaliszuk - President of the Management Board - Vice-President of the Management Board - Member of the Management Board 19