Annual Report R 2011 (year)

Transcription

1 POLNA corrected Polish Financial Supervision Authority Annual Report R 2011 (year) (pursuant to Art. 82 section 1 item 3 of the Regulation of the Minister of Finance of 19 th February 2009 Journal of Laws Dz. U. No. 33, item 259) (for issuers of securities conducting production, construction, commercial or service business activity) For the financial year 2011, covering the period from 1 st January 2011 until 31 st December 2011 including a financial statement complying with IFRS in: PLN (currency) Date of issue: 20 th March 2012 POLNA SA (full issuer's name) POLNA (abbreviated issuer's name) Electrical engineering (ele) (sector by Warsaw's Stock Exchange's classification) Przemyśl (postal code) (town) Obozowa 23 (street) (number) (telephone) (fax) sekretariat@polna.com.pl ( ) (website) (NIP: Tax Identification Number) (REGON: National Business Registry Number) PKF Audyt Sp. z o.o., ul. Elbląska 15/17, Warsaw (entity authorized to conduct the audit)

2 SELECTED FINANCIAL DATA In PLN thousand In EUR thousand I. Net income from products, goods and materials sales II. Cost of products, goods and materials sold III. Gross profit (loss) from sales IV. Profit (loss) from operating activity V. Gross profit (loss) VI. Net profit (loss) VII. Net cash flow from operating activity VIII. Net cash flow from investment activity IX. Net cash flow from financial activity X. Total net cash flow XI. Total assets XII. Fixed assets XIII. Current assets XIV. Fixed assets allocated for disposal XV. Equity XVI. Long-term liabilities XVII. Short-term liabilities XVIII. Share capital XIX. Number of ordinary shares (in pieces) XX. Profit (loss) per ordinary share (in PLN/EUR) 0,62 0,29 0,15 0,07 XXI. Book value per share (in PLN/EUR) 14,26 15,64 3,23 3,95 CONTENTS OF THE REPORT File Opinia i raport biegłego rewidenta.pdf Oświadczenie Zarządu o rzetelności sporządzenia spraw. fin..pdf Oświadczenie Zarządu w sprawie podmiotu do badania spraw. fin. List Prezesa Zarządu do Akcjonariuszy.pdf Description Opinion and report of the entity authorized to audit financial statements from the audit of the annual financial statement The Management Board s declaration of reliable preparation of the financial statement The Management Board s statement concerning the entity authorized to audit financial statements Letter of the President of the Management Board to Shareholders

3 Sprawozdanie finansowe za 2011 r..pdf Sprawozdanie Zarządu za 2011 r..pdf Annual financial statement The Management Board s report from the issuer s activity SIGNATURES OF ALL THE MEMBERS OF THE MANAGEMENT BOARD Date Full name Title/Function Signature 2012/03/20 Andrzej Piszcz President of the Management Board 2012/03/20 Piotr Woś Member of the Management Board SIGNATURE OF THE PERSON AUTHORIZED TO KEEP ACCOUNT BOOKS Date Full name Title/Function Signature 2012/03/20 Bożena Polak Chief Accountant Proxy

4 PKF INDEPENDENT STATUTORY AUDITOR S OPINION AND REPORT concerning a financial statement of POLNA Spółka Akcyjna in Przemyśl for the period from 01/01/2011 to 31/12/2011 The opinion includes 3 pages. The supplementary report includes 11 pages. Independent statutory auditor s opinion and report supplementing the opinion from the audit of financial statement for the accounting year finishing on 31 st December 2011.

5 POLNA Spółka Akcyjna Opinion from the audit of financial statement for the accounting year finishing on 31 st December 2011 INDEPENDENT STATUTORY AUDITOR S REPORT For the General Shareholders Meeting of POLNA Spółka Akcyjna We have conducted an audit of the attached financial statement of POLNA Spółka Akcyjna having its seat in Przemyśl, at ul. Obozowa 23 ( the Company ) including the financial standing statement prepared as of 31 st December 2011, a profit and loss account and a total income statement, a statement of changes in equity and a cash flow statement for the accounting year finishing on that day, as well as additional information on the adopted accounting principles and other explanatory notes. Responsibility of the Management Board and the Supervisory Board The Management Board of the Company is responsible for the accuracy of accounting books as well as preparation and accurate presentation of this financial statement in conformity to the International Financial Reporting Standards approved by the European Union, as well as to requirements concerning issuers of securities admitted to official stock exchange listing and other applicable regulations, and for preparing a statement from the Company s activity. The Management Board of the Company is also responsible for internal auditing, which is regarded to be necessary for the prepared financial statements to be free of inaccuracies occurring as a result of intentional actions or mistakes. Pursuant to the Accounting Act of 29 th September 1994 (Journal of Laws Dz. U. of 2009, No. 152, item 1223 as amended), (the Accounting Act ), the Management Board of the Company and members of the Supervisory Board are obliged to ensure that the financial statement and the statement from activity meet the requirements provided for in the Act. Responsibility of the Statutory Auditor Our task, on the basis of the conducted audit, is to express our opinion on this financial statement and the accuracy of accounting books constituting the basis for its preparation. The audit of financial statement was conducted in accordance with the provisions of Article 7 of the Accounting Act, national standards of financial review issued by the National Council of Statutory Auditors in Poland and the International Financial Reporting Standards. Those regulations oblige us to act in conformity to ethics principles and to plan and conduct the audit in such a way as to achieve reasonable certainty that the financial statement and accounting books constituting the basis for its preparation are free of significant inaccuracies. The audit is done by applying procedures aimed at obtaining the auditing evidence concerning the amounts and information disclosed in the financial statement. The selection of auditing procedures depends on our judgment, including evaluation of risk of a significant inaccuracy of the financial statement occurring as a result of intentional actions or mistakes. Evaluating the risk, we take into

6 account the internal audit related to preparation and reliable presentation of the financial statement in order to plan the auditing procedures which are appropriate in the given circumstances, not in order to express our opinion on the efficiency of internal audit in the entity. The audit also includes evaluation of appropriateness of the applied accounting policy, reasonableness of estimations made by the Management Board and evaluation of the general presentation of financial statement. We are convinced that the auditing evidence gathered by us constitutes sufficient and proper basis for expressing our opinion of the audit. We believe that the attached financial statement of POLNA Spółka Akcyjna presents reliably and clearly the financial and property standing of the audited Company as of 31 st December 2011, as well as its financial result and cash flow for the accounting year finishing on that day, in all the important aspects, in conformity to the International Financial Reporting Standards approved by the European Union and the requirements concerning issuers of securities admitted to official stock exchange listing, conforms to the legal regulations and provisions of the Company s Charter affecting the content of the financial statement, and was prepared on the basis of accounting books kept correctly in all the important aspects. Other issues What is more, following the requirements of the Accounting Act, we find that the statement from the Company s activity takes into consideration, in all important aspects, the information referred to in Article 49 of the Accounting Act and the Regulation of the Minister of Finance of 19 th February 2009 on current and periodic information published by issuers of securities and the conditions for regarding information required by the law of a non-member state as equivalent (Journal of Laws Dz. U. of 2009, No. 33, item 259) and it conforms to the information included in the financial statement. Alicja Kruk Statutory auditor no key statutory auditor conducting the review on behalf of PKF Audyt Sp. z o.o., entity authorized to audit financial statements no. 548 ul. Elbląska 15/ Warszawa Katowice, 20 th March 2012 Entity entered into the list of entities authorized to audit financial statements with the no District Court for the Capital City of Warsaw, XII Economic Division of the National Court Register with the KRS no

7 Report supplementing the opinion from the audit of financial statement of POLNA Spółka Akcyjna in Przemyśl for the period from 01/01/2011 to 31/12/2011 The supplementary report includes 11 pages. Report supplementing the opinion from the audit of financial statement for the accounting year finishing on 31 st December 2011.

8 POLNA Spółka Akcyjna Report supplementing the opinion from the audit of financial statement for the accounting year finishing on 31 st December Table of contents 1. General part of the report 1.1. Identification data of the audited entity Company s name Company s registered seat Registration in the National Court Register Ownership structure and related parties Manager of the entity 1.2. Identification data of the key statutory auditor and the entity authorized to audit financial statements Identification data of the key statutory auditor Identification data of the entity authorized to audit financial statements 1.3. Information on the financial statement for the previous accounting year 1.4. The scope of work and responsibility 2. Analytical part of the report 2.1. Financial standing statement 2.2. Profit and loss account and total income statement 2.3. Selected financial ratios 3. Detailed part of the report 3.1. Accuracy of the applied accounting system 3.2. Introduction to the financial statement, additional information and explanations to it 3.3. Statement from the Company s activity 3.4. Information on the opinion of the statutory auditor 3.5. Information on significant breeches of law

9 1. General part of the report 1.1. Identification data of the audited entity Company s name POLNA Spółka Akcyjna Company s registered seat Przemyśl, ul. Obozowa Registration in the National Court Register Register court: District Court in Rzeszów, XII Economic Division of the National Court Register Date: 12/02/2002 Registration number: KRS REGON (Business Registry Number): NIP (Tax Identification Number): The main object of the audited Company s activity is: metal founding, production of hydraulic and pneumatic drive equipment, production of other pumps and compressors, production of other cocks and valves, processing and utilization of waste other than dangerous, recycling of raw materials from sorted materials, wholesale trade of other machines and equipment, non-specialized wholesale trade, wholesale trade of waste and scrap Ownership structure and related parties As of the day 20/03/2012, the ownership structure of the Company s share capital, amounting to PLN 9,823 thousand, is the following: Name of the Shareholder Number of shares Zbigniew Jakubas with subsidiaries Number of votes (%) Nominal value of shares (PLN thousand) ,3% ,3% POLNA S.A ,3% ,3% Others < 5% ,4% ,4% Share in the initial capital (%)

10 Implementing the provisions of resolutions of the General Shareholders Meeting, the Management Board is realizing the Share Buy-back Programme. In 2011, 472,130 shares with the nominal value PLN 1,794 thousand were bought for the price PLN 5,179 thousand. On 13/03/2012, the General Shareholders Meeting adopted resolutions on redemption of 472,130 own shares and lowering the share capital by PLN 1,794 thousand. As of the end of the period under examination, the audited Company: - is not a subsidiary; - is not an associated company; - is not a holding company for other entities; - is not a significant investor Manager of the entity The function of the entity s manager is performed by the Management Board. On 31 st December 2011, the Management Board of the Company was composed of: Mr Andrzej Piszcz President of the Management Board Mr Piotr Woś Member of the Management Board Until 20/06/2011, the Management Board was composed of Mr Miroslav Kozlovski President of the Management Board Mr Andrzej Piszcz Member of the Management Board Vice-President On its session on 20/06/2011, the Supervisory Board appointed the Management Board in the following composition: Mr Andrzej Piszcz President of the Management Board Mr Władysław Wojtowicz Member of the Supervisory Board delegated to perform the duties of the Vice-President of the Management Board temporarily, in the period from 21/06/2011 until 20 th September Because Mr Władysław Wojtowicz submitted a resignation from performing the function of the Vice-President of the Management Board, on 2/09/2011 the Supervisory Board appointed Mr Piotr Woś to perform the function of a Member of the Management Board Identification data of the key statutory auditor and the entity authorized to audit financial statements Identification data of the key statutory auditor Full name: Alicja Kruk Number in the register: 10574

11 Identification data of the entity authorized to audit financial statements Company: PKF Audyt Sp. z o.o. Registered seat: Warszawa Address: ul. Elbląska 15/17, Warszawa Registration number: KRS Register court: District Court for the Capital City of Warsaw, XII Economic Division of the National Court Register Share capital: PLN 80,000 NIP (Tax Identification Number): PKF Audyt was entered into the list of entities authorized to audit financial statements with the number 548. The audit of financial statement was conducted in accordance with the agreement of 2 nd June 2011, concluded on the basis of Resolution No. 9/2011 of the Supervisory Board of 14 th May 2011, regarding selection of the entity authorized to audit the financial statement. The audit of financial statement was conducted in the period from 21/02/2012 to 20/03/2012. The key statutory auditor and PKF Audyt Sp. z o.o. meet the requirement of being independent from the audited Company within the meaning of Article 56 section 3 and 4 of the Act of 7 th May 2009 on statutory auditors and their self-governance, audit firms authorized to audit financial statements and public oversight (Journal of Laws Dz. U. No. 77, item 649) Information on the financial statement for the previous accounting year The financial statement prepared as of 31 st December 2010 and for the period finishing on that day was audited by Kancelaria Porad Finansowo-Księgowych dr Piotr Rojek Sp. z o.o and received the opinion of the statutory auditor without any objections. The financial statement was approved on 20/06/2011 by the General Shareholders Meeting, which decided that the profit for the previous accounting year, amounting to PLN 752 thousand, should be fully allocated to increase the supplementary capital The financial statement was submitted in the Register court on 15/07/2011 and published in Monitor Polski B (Official Gazette of the Government of the Republic of Poland) no of 19/10/2011.

12 1.4. The scope of work and responsibility This report was prepared for the General Shareholders Meeting of POLNA Spółka Akcyjna with its registered seat in Przemyśl, at ul. Obozowa 23, and concerns the financial statement including financial standing statement as of 31 st December 2011, profit and loss account and total income statement, statement of changes in equity and cash flow statement for the accounting year finishing on that day as well as supplementary information on the adopted accounting principles and other explanatory information. The audited entity prepares their financial statements in conformity to the International Financial Reporting Standards approved by the European Union, on the basis of the decision of the General Meeting of 30/06/2008. The audit of the financial statement was conducted in accordance with the provisions of Article 7 of the Accounting Act, national standards of financial review issued by the National Council of Statutory Auditors in Poland and the International Financial Reporting Standards. The Management Board of the Company is responsible for the accuracy of accounting books, preparation and accurate presentation of this financial statement in conformity to the International Reporting Standards approved by the European Union, as well as to requirements concerning issuers of securities admitted to official stock exchange listing and other binding regulations, as well as for preparation of a statement from activity. Our task, on the basis of the conducted audit, was to express our opinion and prepare a supplementary report concerning this financial statement and the accuracy of accounting books constituting the basis for its preparation. On the day of issuing this report, the Management Board of the Company submitted a declaration of reliability and clarity of the financial statement presented for the audit and lack of events having a significant influence on the data disclosed in the financial statement for the year under examination. During the audit of the financial statement, the Management Board of the Company submitted all the declarations, explanations and information required by us and gave us access to all the documents necessary to express the opinion and prepare the report. The scope of the planned and performed work was not limited in any way. The scope and manner of the conducted audit results from the working documentation prepared by us, kept in the seat of PKF Audyt Sp. z o.o.

13 2. Analytical part of the report 2.1. Financial standing statement ASSETS Fixed assets 31/12/2011 of the PLN % of the balance sheet total 31/12/2010 PLN thousand % balance sheet total Tangible fixed assets ,2% ,4% Other intangible assets 68 0,2% 15 0,0% Financial assets - 0,0% - 0,0% Deferred income tax assets 736 1,7% 813 1,7% 263S4 60,0% ,1% Current assets Supplies ,1% ,4% Trade receivables and other ,0% ,5% receivables, including: - receivables due for supplies ,6% ,1% and services - other receivables 174 0,4% 161 0,3% Income tax receivables 121 0,3% 26 0,1% Financial assets 16 0,0% 42 0,1% Loans - 0,0% - 0,0% Cash and cash equivalents ,4% ,8% Prepayments and accruals 72 0,2% 61 0,1% Assets classified as allocated for - 0,0% 434 0,9% sale ,0% ,9% TOTAL ASSETS % % EQUITY AND LIABILITIES Equity 31/12/2011 of the PLN % of the balance sheet total 31/12/2010 PLN thousand % balance sheet total Initial capital ,4% ,6% Own shares (5179) -11,8% - 0,0% Revaluation capital - 0,0% - 0,0% Other capitals ,6% ,7%

14 Retained profits - 0,0% - 0,0% Net profit (loss) ,7% 752 1,6% Long-term liabilities ,8% ,9% Loans and credits - 0,0% - 0,0% Deferred income tax provisions ,5% ,5% Long-term provisions for 818 1,9% 689 1,4% liabilities Leasing liabilities - 0,0% - 0,0% Other long-term liabilities - 0,0% - 0,0% Prepayments and accruals - 0,0% - 0,0% ,4% ,0% Short-term liabilities Liabilities due for supplies and ,1% ,2% services and other liabilities, including: - liabilities due for supplies ,6% ,5% and services - other liabilities ,5% ,8% Short-term loans and credits - 0,0% - 0,0% Current tax liabilities - 0,0% - 0,0% Leasing liabilities - 0,0% 327 0,7% Short-term provisions 755 1,7% 592 1,2% Prepayments and accruals - 0,0% 13 0,0% ,8% ,2% TOTAL EQUITY AND LIABILITIES , 0% ,0% In the period under examination, the balance sheet total decreased by PLN 3,681 thousand (i.e. by 8%) in relation to the previous year and amounted to PLN 43,950 thousand. The above-mentioned resulted from, among others: - On the side of assets: decrease of cash (by PLN 2,691 thousand) allocated for the buy-back of the Company s own shares; decrease of fixed assets (by PLN 1,781 thousand) as a result of calculated amortization; - On the side of equity and liabilities: decrease of equity (by PLN 3,568 thousand) mainly as a result of buy-back of own shares Profit and loss account and total income statement

15 Net income from products, goods and materials sales, including: Income from sales of products Income from sales of goods and materials Cost of products, goods and materials sold, including: 2011 PLN thousand % of income from sales 2010 PLN thousand % of income from sales ,0% % ,8% % 364 1,2% 318 1% ,8% % Production costs of products ,9% % sold Value of goods and materials 286 0,9% 276 1% sold Gross profit (loss) from sales ,2% ,4% Other operating income 603 1,9% 734 2,6% Costs of sales 300 1,0% 254 0,9% General and administrative ,5% ,9% costs Other operating expenses 789 2,5% ,1% Operating activity profit ,1% 618 2,2% (loss) Financial income 798 2,6% 412 1,5% Financial expenses 131 0,4% 184 0,7% Profit (loss) before tax ,3% 846 3,0% Income tax 343 1,1% 94 0,3% a) current tax 515 1,7% 287 1,0% b) deferred tax (172) -0,6% (193) -0,7% Net profit (loss) from ,2% 752 2,7% continued operations Net profit (loss) from - 0,0% - 0,0% discontinued operations Net profit (loss) ,2% 752 2,7% Other elements of total - 0,0% - 0,0% income Total income ,2% 752 2,7%

16 The value of income from the basic activity increased in relation to the previous year by 11%, and the respective costs (including costs of sales and general and administrative costs) increased by 10%. As a result of that, profitability of sales reached the level of 4.7% and was higher than the respective value in 2010 (3.6%). After consideration of results on other operating activity (PLN -186 thousand) and financial activity (PLN 667 thousand), the Company produced a gross profit higher by PLN 1,109 thousand than in the previous year. In 2011, the Company strengthened its export position, obtaining approx. 33% of its income on the international market (compared with 27% participation of export in income for 2010) Selected financial ratios Profitability of sales result on sales x 100% 4,7% 3,6% 8,9% net income 2. Profitability of equity net result x 100% 4,2% 1,9% 5,7% average equity position 3. Receivables turnover ratio average position of receivables due for supplies and services x 365 days net income 4. Liabilities turnover ratio average position of liabilities due for supplies and services x 365 days net costs 5. Debt ratio liabilities and provisions for liabilities x 100% 16,2% 15,1% 14,8% total assets 6. Liquidity ratio current assets 5,1 5,7 6,0 short-term liabilities A better net result and higher revenues caused an improvement in profitability ratios in comparison to the year The period of payment of liabilities is shorter by approx. 40 days from the date of payment of receivables. The entity still credits their recipients. The debt rate has remained on a similar level for the last three years.

17 3. Detailed part of the report 3.1. Accuracy of the applied accounting system The Company has up-to-date documentation describing the accounting principles adopted by the Management Board of the Company in accordance with the provisions of Article 10 of the Accounting Act. During the audit of financial statement, we randomly checked the accuracy of application of the accounting system. During the work we conducted, we did not find any significant irregularities regarding the accounting system which were not corrected and might have a significant impact on the examined financial statement, including irregularities concerning: - justification and continuity of the applied accounting principles (policy), - documenting economic operations, - reliability, correctness and verifiability of account books and relations between entries in the account books, - correctness of opening position of account books on the basis on balances of the approved financial standing statement for the previous period, - relations between entries, accounting documents and the financial statement, - justification of the applied methods of data access security and the system of processing them with the use of computer, - meeting the requirements for accounting documentation security and keeping account books and financial statements. Our audit was not aimed at expressing a comprehensive opinion on the functioning of this accounting system. The Company conducted an inventory of assets whose scope and time is determined in Article 26 of the Accounting Act. Inventory differences were recognized and cleared in the books of the period under examination Introduction to the financial statement, additional information and explanations to it Data included in the introduction to the financial statement, additional information and explanations to it were presented completely and correctly in all important aspects. The introduction and additional information and explanations constitute an integral part of the financial statement Statement from the Company s activity The statement from the Company s activity takes into consideration, in all important aspects, the information referred to in Article 49 of the Accounting Act and the Regulation of

18 the Minister of Finance of 19 th February 2009 on current and periodic information published by issuers of securities and the conditions for regarding information required by the law of a non-member state as equivalent (Journal of Laws Dz. U. of 2009, No. 33, item 259) and it conforms to the information included in the financial statement Information on the opinion of the statutory auditor On the basis of the conducted audit of the Company s financial statement prepared as of 31 st December 2011 and for the period finishing on that day, we issued out opinion without any objections Information on significant breeches of law As a result of the applied auditing procedures, we did not find any breeches of legal regulations or the Company s Charter. Alicja Kruk Statutory auditor no key statutory auditor conducting the review on behalf of PKF Audyt Sp. z o.o., entity authorized to audit financial statements no. 548 ul. Elbląska 15/ Warszawa Katowice, 20 th March 2012 PKF Audyt Sp. z o.o. OR Katowice <> Katowice, ul. Kościuszki 43 <> tel./fax/

19 DECLARATION OF THE MANAGEMENT BOARD OF THE COMPANY POLNA S.A. of reliability of the separate financial statement for the year 2011 The Management Board of POLNA S.A., composed of Andrzej Piszcz President of the Management Board and Piotr Woś Member of the Management Board, declare that to their best knowledge, the annual financial statement and comparable data were prepared on the basis of the International Financial Reporting Standards and truly, accurately and clearly reflect the Company s financial situation and its financial result. The statement of the Company s activity contains the true image of its development, achievements and standing, including the description of basic risks and threats. Piotr Woś Member of the Management Board Andrzej Piszcz President of the Management Board Przemyśl, 20 th March 2012

20 DECLARATION OF THE MANAGEMENT BOARD OF POLNA S.A. concerning the entity authorized to audit the separate financial statement for the year 2011 The Management Board of POLNA S.A. declares that the entity authorized to audit financial statements, auditing the annual financial statement, was chosen in accordance with legal regulations and that the entity and the statutory auditors conducting the audit met the conditions to issue an objective and independent opinion on the audited financial statement, pursuant to the applicable regulations and professional standards. Piotr Woś Member of the Management Board Andrzej Piszcz President of the Management Board Przemyśl, 20 th March 2012

21 Dear Shareholders, On behalf of the Management Board of POLNA S.A., I present to you the statement from economic activity of the Company for the year The year 2011 can be summarized as the period of continuing activities directed at enhancing the effectiveness of production processes, cost optimization and improvement of financial result. The results of the second half of the year show that the changes occurring in the Company are beginning to bear measurable economic fruit and allow for looking into the future with greater optimism. In 2011, we managed to significantly increase the income from sales (by over 11% in comparison to the previous year), which was accompanied by improvement of profitability and punctuality of supplies. There was also an increase in export, which now accounts for 1/3 of revenues from sales. Intensification of marketing activities, improvement of communication with Customers and closer cooperation with Suppliers have resulted in an increase of the level of orders and a better use of our manufacture potential. Guided by our Shareholders expectations and aiming at increasing the Company s goodwill, in 2011 we carried out some actions directed at acquisition and creating a group. After thorough analysis of a few entities, we decided to participate in the privatization process of Warszawskie Zakłady Mechaniczne PZL-WZM, and then, after the Minister of Finance withdrawing from negotiations and closing the privatization procedure of PZL-WZM without making a decision, POLNA S.A. participated in the privatization process of the company ARCHIMEDES S.A. in Wrocław. Finally, after the evaluation of all risk factors in quickly changing economic conditions, we decided to abort the plan of creating a group. Implementing the provisions of resolutions of the General Shareholders Meeting, we carried out a buy-back of the Company s own shares. In total, in 2011 POLNA S.A. purchased 472,130 own shares with the nominal value PLN 1,794.1 thousand, constituting % of the share capital. We spent PLN 5,179.3 thousand on that. Another buy-back shall be carried out in the year 2012, which will allow for allocating funds accumulated on the Company s supplementary capital, not paid out as dividend from profit generated in the previous years, in a way beneficial for the shareholders of the Company. Ahead of us is the year 2012, in which we are going to continue activities aimed at development of the Company. Those activities should translate in a positive way into the achieved financial results and strengthening the position of POLNA S.A. on the market. Presenting to you the report summarizing the activity of POLNA S.A. in the year 2011, I would like to wholeheartedly thank the Shareholders, Customers and Business Partners for the trust shown to us, and the Company s employees for their engagement in realization of the production tasks set for the year that has finished. Andrzej Piszcz President of the Management Board of POLNA S.A. Przemyśl, 20 th March 2012

22 SEPARATE ANNUAL REPORT FOR THE YEAR 2011 POLNA Spółka Akcyjna Separate annual financial statement for the year 2011 prepared in accordance with International Financial Reporting Standards Przemyśl, March 2012

23 Table of contents GENERAL INFORMATION AND INFORMATION CONCERNING THE ADOPTED ACCOUNTING PRINCIPLES (POLICY) 1. The registered name and seat, competent register court and registration number, the main object of activity of the issuer according to PKD (Polish Classification of Economic Activities) and indication of industry according to the classification adopted by the WSE. 2. The issuer s lifetime. 3. The reporting currency, accounting year, the time covered by the statement and approval of the statement to be published by the Management Board. 4. Composition of the Management Board and the Supervisory Board and changes in the reporting period. 5. Indication whether the financial statement and comparable financial data include aggregate data. 6. Indication whether the issuer is a holding company or a significant investor and whether they prepare consolidated financial statements. 7. Indication whether the financial statement was prepared after a merger of companies. 8. Indication whether the financial statement was prepared with the assumption of the issuer continuing their business activity in the foreseeable future and whether any circumstances exist which indicate a threat to continuation of their activity. 9. Declaration that the financial statements were subject to transformation so as to ensure data comparability. 10. Indication whether corrections were made in the presented financial statement or comparable data as a result of objections of the entities authorized to audit financial statements for the years for which the financial statement or comparable data were included in the report. 11. Description of the adopted accounting principles (policy), including methods of measurement of assets and liabilities, as well as income and expenses, of determining the

24 financial result and the way of preparing the financial statement and comparable data. 12. Average exchange rates of zloty in the periods covered by the financial statement with regard to EURO, established by the NBP. 13. Basic items of the financial standing statement (balance sheet), profit and loss account and cash flow statement, financial statement and comparable financial data, converted into euros, with indication of the principles assumed for making such a conversion. SEPARATE FINANCIAL STATEMENT 1. Financial standing statement 2. Statement of changes in equity 3. Total income statement 4. Cash flow statement OTHER EXPLANATORY INFORMATION 1. Explanatory notes 2. Information on financial instruments 3. Segments of activity 4. Contingent liabilities and receivables. 5. Liabilities due for the Budget or local government units resulting from obtaining the property right to buildings and structures. 6. Information on the issuer s transactions with related parties, concerning transfer of rights and obligations. Numbers concerning entities related with the issuer. 7. Average employment. 8. Significant events occurring after the end of the annual period, which were not reflected in the financial statement for the given annual period.

25 9. Explanations concerning seasonality or cyclicity of the issuer s activities in the presented period. 10. Information on issuance, buy-back and paying off of debt and capital securities. 11. Information on paid-off (or declared) dividend, jointly and per share, divided into common shares and preference shares. 12. Indication of events occurring after the day as of which the financial statement was prepared, not included in the statement but likely to have a significant influence on the issuer s future financial results. 13. Presentation of financial statements with consideration of a cumulated inflation index over 100% in the period of the last three years of the issuer s activity.

26 GENERAL INFORMATION AND INFORMATION CONCERNING THE ADOPTED ACCOUNTING PRINCIPLES (POLICY) 1. The registered name and seat, competent register court and registration number, the main object of activity of the issuer according to PKD (Polish Classification of Economic Activities) and indication of industry according to the classification adopted by the WSE market. Company s name: Polna S.A. Seat: Przemyśl, ul. Obozowa 23 Register court: District Court in Rzeszów, XII Economic Division of the National Court Register (KRS), KRS number The Company s object of activity is: 24.5 Metal founding; Z Production of hydraulic and pneumatic drive equipment; Z Production of other pumps and compressors; Z Production of other cocks and valves; Z Processing and utilization of waste other than dangerous; Z Recycling of raw materials from sorted materials; Z Wholesale trade of other machines and equipment; Z Non-specialized wholesale trade; Z Wholesale trade of waste and scrap. The Company is classified as belonging to the electrical engineering industry. 2. The issuer s lifetime. The time of the Company s activity is unlimited. 3. The reporting currency, accounting year, the time covered by the statement and approval of the statement by the Management Board for publication. The reporting currency of this financial statement is Polish zloty, and all amounts are expressed in thousands of Polish zlotys (unless otherwise stated). The accounting year is a calendar year. The financial statement was prepared for the period from 1 st January 2011 to 31 st December The comparable financial data cover the previous year, i.e. the period from 1 st January 2010 to 31 st December The Management Board approved this financial statement for publication on 20/03/2012.

27 4. Composition of the Management Board and the Supervisory Board and changes in the reporting period. Until 20 th June 2011, the Management Board was composed of Mr Miroslav Kozlovski President of the Management Board Managing Director Mr Andrzej Piszcz Member of the Management Board Vice-President On its session on 20 th June 2011, the Supervisory Board appointed the Management Board in the following composition: Mr Andrzej Piszcz President of the Management Board Managing Director Mr Władysław Wojtowicz Member of the Supervisory Board delegated to perform the duties of the Vice-President of the Management Board temporarily, in the period from 21 st June 2011 until 20 th September Because Mr Władysław Wojtowicz submitted a resignation from performing the function of the Vice-President of the Management Board, on 2 nd September 2011 the Supervisory Board appointed Mr Piotr Woś to perform the function of a Member of the Management Board and Production Director for a joint 3-year term of office. The Supervisory Board of the Company had the following composition until 20 th June 2011: Mr Wiesław Piwowar Mr Adam Świetlicki vel Węgorek Mr Władysław Wojtowicz Mr Jarosław Iwaniec Ms Grażyna Kotar President, Vice-President, Secretary, Member, Member. On 20 th June 2011, the General Shareholders Meeting appointed the Supervisory Board for the next term of office in the following composition: Mr Wiesław Piwowar President, Mr Władysław Wojtowicz Vice-President, Ms Katarzyna Kieloch Secretary, Mr Grzegorz Hayder Member, Ms Elżbieta Opawska Member. 5. Indication whether the financial statement and the comparable financial data include aggregate data. The Company is not composed of any internal organizational units; the financial statement does not include aggregate data.

28 6. Indication whether the issuer is a holding company or a significant investor and whether it prepares consolidated financial statements. The Company does not prepare consolidated financial statements, is not a holding company or a significant investor with regard to other entities. 7. Indication whether the financial statement was prepared after a merger of companies. During the reporting period no merger of the Company with other entities took place. 8. Indication whether the financial statement was prepared with the assumption of the issuer continuing their business activity in the foreseeable future and whether any circumstances exist which indicate a threat to continuation of their activity. The financial statement was prepared with the assumption of the Company continuing their business activity. The Company is not planning to reduce or discontinue any fields of its activity. 9. Declaration that the financial statements were subject to transformation so as to ensure data comparability. The financial statement for the previous period was not subject to transformation so as to ensure data comparability, because no changes in the accounting principles (policy) occurred in Indication whether corrections were made in the presented financial statement or comparable data as a result of objections of the entities authorized to audit financial statements for the years for which the financial statement or comparable data were included in the report. No corrections resulting from auditors objections expressed in their opinions had to be made. 11. Description of the adopted accounting principles (policy), including methods of measurement of assets and liabilities, as well as income and expenses, of determining the financial result and the way of preparing the financial statement and comparable data The basis for preparing the financial statement. Since 1 st January 2009, pursuant to the Resolution of the Annual General Shareholders

29 Meeting No. 32/2008 of 30 th June 2008, POLNA S.A. has been preparing separate financial statements in compliance with the International Financial Reporting Standards accepted by the European Commission. The annual financial statement of POLNA S.A. was prepared in compliance with the International Financial Reporting Standards (IFRS). As for issues not regulated by the aforementioned standards, the statement was prepared in compliance with the Accounting Act of 29 th September 1994 and executive regulations issued on the basis of it. The information included in the report for the year 2011 was included in accordance with the Regulation of the Minister of Finance of February 19 th 2009 on current and periodical information made public by issuers of securities and on the conditions under which such information may be recognized as being equivalent to information required by the legal regulations of a state which is not a EU member state (Journal of Laws Dz. U. No. 33, item 259). The presented financial statement was prepared with consideration of the historical cost principle (adjusted by depreciation write-offs), with the exception of some fixed assets and financial instruments. The most important accounting principles applied by the entity are presented below in item Declaration of conformity. This financial statement was prepared in conformity to the International Financial Reporting Standards (IFRS) and in conformity to the International Accounting Standards (IAS) approved by the European Union. New standards, interpretations and changes to standards already published The following amendments to the existing standards published by the International Accounting Standards Council and approved by the EU shall come into force in the year 2011: Amendments to IAS 24 Related Party Disclosures Simplification of requirements concerning disclosures by entities related to the state and defining related parties precisely, applicable for annual periods beginning on 1 st January 2011 or later, Amendments to IAS 32 Financial Instruments: Presentation Classification of Rights Issues, applicable for annual periods beginning on 1 st February 2010 or later, Amendment to IFRS 1 First-time Adoption of International Financial Reporting Standards : Limited exemption for first-time adopters from presenting comparable data required by IFRS 7 for entities applying IFRS for the first time, applicable for annual periods beginning on 1 st July 2010 or later. Amendments resulting from review of IFRS (issued in May 2010) some

30 amendments are applicable for annual periods beginning on 1 st July 2010, and some, for annual periods beginning on 1 st January 2011, Amendments to IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction: prepaid contributions related to minimum funding requirements applicable for annual periods beginning on 1 st January 2011 or later, IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments, applicable for annual periods beginning on 1 st July 2010 or later. The above-mentioned standards, interpretations and amendments to standards did not affect significantly the accounting policy of the entity. Standards and interpretations already published but not yet in force As of the day of making this financial statement, the Company had not applied the following standards, amendments to standards and interpretations, which had been published and approved for application but had not been implemented yet. Amendments to IFRS 7 Financial Instruments: Enhancing disclosures about transfers of financial assets applicable for annual periods beginning on 1 st July 2011 or later approved by the EU on 22 nd November The Company decided not to take the possibility of earlier application of the aforementioned amendment to standard. In accordance with the entity s estimations, the above-mentioned amendment would not have significantly influenced the financial statement if the entity had applied them on the balance sheet day. Standards and interpretations adopted by IASB but not yet approved by EU Current IFRS in the form approved by the EU do not differ significantly from the regulations adopted by the International Accounting Standards Board (IASB), except for the following standards, amendments to standards and interpretations, which have not been approved for application as of the day of signing the statement: IFRS 9 Financial Instruments applicable for annual periods beginning on 1 st January 2013 or later, IFRS 10 Consolidated financial statement applicable for annual periods beginning on 1 st January 2013 or later, IFRS 11 Joint Arrangements applicable for annual periods beginning on 1 st January 2013 or later),

31 IFRS 12 Disclosure if Interests in Other Entities applicable for annual periods beginning on 1 st January 2013 or later, IFRS 13 Fair Value Measurement applicable for annual periods beginning on 1 st January 2013 or later, IAS 27 (amended in 2011) Separate Financial Statements applicable for annual periods beginning on 1 st January 2013 or later, IAS 28 (amended in 2011) Investments in Associates and Joint Ventures applicable for annual periods beginning on 1 st January 2013 or later, Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards: Severe Hyperinflation and Fixed Transition Dates Exemption applicable for annual periods beginning on 1 st July 2011 or later Amendments to IAS 1 Presentation of Financial Statements Presenting Comprehensive Income applicable for annual periods beginning on 1 st July 2012 or later, Amendments to IAS 12 Income Tax: Recovery of Underlying Assets applicable for annual periods beginning on 1 st January 2012 or later, Amendments to IAS 19 Employee Benefits amendments concerning Post-Employment Benefits applicable for annual periods beginning on 1 st January 2013 or later, IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine applicable for annual periods beginning on 1 st January 2013 or later. In accordance with the entity s estimations, the above-mentioned standards, interpretations and amendments to standards would not have significantly influenced the financial statement if the entity had applied them on the balance sheet day Detailed accounting principles. Tangible fixed assets (IAS 16) are shown at their acquisition price, production cost or revalued value reduced by amortization and possible write-offs for impairment. The acquisition price of fixed assets comprises the purchase price and all expenses directly related to the purchase and adaptation of the asset for use. As of the moment of transition to IAS, perpetual usufruct of land, as well as buildings and structures, were measured at their fair value determined by an expert as the realizable value. Amortization is calculated for all fixed assets, excluding land and fixed assets under construction, by estimated period of economic utility of those assets, using the straight-line method and the following annual amortization rates: - Buildings and structures %

32 - Machines and technical equipment % - Means of transport % - Other fixed assets %. Amortization rates reflect the period of economic utility of a fixed asset. They are verified by technical services at least once a year. When determining the utility period of an asset, the following are taken into consideration: expected usage of the asset, expected physical wear and tear depending on operating factors such as the number of shifts during which the asset is going to be used, renovation and conservation plan, protection and maintenance of the asset during stoppage, as well as technological and market loss of usefulness resulting from production changes or improvements or changes in demand for a given product for which the asset is used. Amortization of fixed assets with the initial value exceeding PLN 3,500 is calculated beginning from the month of putting the asset into service. Items with service life longer than one year and unitary value between PLN 1,000 and PLN 3,500 are entered into a fixed assets register and amortized on a one-off basis in the month of putting the asset into service. Items with service life longer than one year and unitary value not exceeding PLN 1,000 are written off to material consumption costs in the full initial value on the date of putting them into service. If there is evidence indicating the possibility of a fixed asset decreasing in value, the Company makes write-offs revaluing the asset to the level of its net selling price. Revaluation write-offs made on account of impairment are recognized in the profit and loss account. Fixed assets under construction are measured at the purchase price or production cost of the asset, increased by the costs directly related to their acquisition and production and possibly reduced by impairment charges. Intangible assets (IAS 38) purchased from other business entities are subject to activation at their acquisition price. Intangible assets are amortized with the straight-line method according to principles and rates taking into consideration their economical utility period, from the month following the acceptance of the intangible assets into service. Amortization of intangible assets may not be done for a period shorter than 2 years in the case of computer software licenses and copyrights and shorter than 5 years in the case of other titles. Costs of research (MSR 38) are charged to expenses in the profit and loss account on the day they are incurred. Expenditure for development works incurred within the framework of a given project is activated if it can be assumed that the amounts will be regained in the future. That expenditure is amortized within the period of three years. Expenditure for development works is verified regarding potential impairment if the occurring events

33 indicate that their carrying value may not be possible to regain. Long-term and short-term investments initially, financial assets or liabilities are measured at their fair value. In the case of instruments not qualified as measured in fair value by the financial result, the fair value is increased by costs of transactions which may be directly related to purchase or issuance of a financial asset or liability. Following the initial recognition, the Company measures financial assets in their fair value, with exceptions of: loans and receivables, instruments retained until their maturity dates and investments in capital instruments without quoted market prices from the active market and whose fair value cannot be reliably measured, as well as derivatives related to them, which have to be cleared by means of supplying capital instruments without quoted market prices. As for loans and receivables and instruments retained until their maturity dates, they are measured at amortized cost, applying the effective interest rate. A financial asset without a determined maturity date is measured in the cost amount. Materials and goods supplies (IAS 2) are measured at their acquisition price understood as purchase price of the supplies element due to the seller, without deductible VAT, increased by import tax, excess duty and customs duty and reduced by rebates and discounts. Expenses related to purchase of materials and goods, including costs of transport, handling charges and costs of sorting are summed up in the Purchase costs account. Those costs are cleared proportionally to the value of the supplies and materials consumption. To establish the outgoings of materials and goods supplies, the Company applies the FIFO method. As of the balance sheet day, the Company makes analyses of accumulation of supplies according to their age and makes write-offs revaluing the net worth of material supplies in accordance with the following formula: supplies over 2 years old writing off 100% of their value, supplies over 1 year old writing off 50% of their value, supplies over 6 months old writing off 10% of their value. Write-offs revaluing the supplies are included in the profit and loss account. Supplies of production in progress (IAS 2) are measured at their production costs, while supplies of final products (IAS 2) are measured at production costs not higher than their net selling price. Production costs include direct materials and labor costs, as well as proper mark-up of production costs established with the assumption of using the productive power to the usual extent. General and administrative costs, sales and distribution costs, other operating costs and unjustifiable indirect production costs (in particular, costs of unused production capacity and production losses) are not included in production costs. As of the balance sheet day, the Company makes analyses of accumulated supplies, considering their age, and makes write-offs revaluing the net value of supplies of production

34 in progress and final products, applying the same principles of establishing write-offs as in the case of materials. The write-offs revaluing supplies are recognized in the profit and loss account. Receivables due for supplies and services (IAS 39) are measured at the amount of the due payment (in accordance with the amounts initially invoiced), subject to the principles of conservative measurement. As of the balance sheet day, the Company makes revaluing write-offs for overdue receivables, taking into consideration the delay in payment: - over 3 months but up to 6 months: in the amount of 10% of their value, - over 6 months but up to 12 months: in the amount of 50% of their value, - over 12 months: in the amount of 100% of their value. Receivables difficult to collect, including receivables adjudged by a court claim, receivables from clients subject to composition or bankruptcy proceedings and interest on late deliveries are written off in 100% of their value. Receivables revaluation write-offs are recognized in the profit and loss account. As of the balance sheet day, receivables are increased by interest calculated from late payments. Receivables expressed in foreign currencies (IAS 21) are recognized at the average exchange rate established by the NBP for the given currency for the day preceding the day of the receivables arising, unless another exchange rate was established in the customs declaration or other document binding the entity. As of the payment day, the receivables are recognized at the buying rate of the bank in which the transaction is conducted. As of the balance sheet day, the receivables are converted in compliance with the average rate established for the given currency by the NBP for that day. The differences between rates are included in the profit and loss account. Cash (IAS 7) is measured at its nominal value. As for the cash accumulated on bank accounts, its nominal value also covers the interest calculated by the banks, constituting financial income. The Company calculates interest on open time deposits, presented in short-term liabilities. Operations expressed in foreign currencies are recognized in account books as of the day of their performance at the buying rate for selling the currency or at the selling rate for buying the currency established by the bank in which the operation is performed, whichever is applicable. Time deposits are measured at the initial rate of the currency inflow to the bank. Cash accumulated on a bank account is measured as of the balance sheet day at the average exchange rate of a given currency established by the NBP for that day. Positive and negative exchange differences are charged to income or financial costs, whichever is the case.

35 Fixed assets allocated for sale (IFRS 5) are included in the financial statement in an amount lower than their carrying value or fair value reduced by costs of sale. Assets may only be included in this group if the company is actively looking for a buyer and there is a high probability that the assets will be disposed of within one year from the date of their inclusion in the group. Liabilities due for supplies and services are shown in the payable amount (IAS 39). The due amount is increased by interest for the delay in payment in the case of receiving an interest note from the creditor. Liabilities expressed in a foreign currency are recognized in the account books as of the day of arising, at the average exchange rate established for the given currency by the NBP for the day preceding the day of issuing the purchase invoice, unless another exchange rate was established in the customs declaration or other document binding the entity. As of the payment day, the liabilities are recognized at the selling rate established by the bank in which the transaction is conducted. As of the balance sheet day, the liabilities are converted in compliance with the average rate established for the given currency by the NBP for that day. Positive and negative exchange differences arising are charged to financial income or costs, whichever is the case. Financial liabilities (IAS 39) are entered into the books with the date of conducting or clearing the transaction at the acquisition price. As of the balance sheet day, the financial liabilities (credits or contracted loans) are measured at an adjusted acquisition price, i.e. the price they were contracted at, reduced by repayments of the initial capital and properly adjusted by an accumulated amount of the discounted difference between the initial value and the value as of the maturity date, calculated with the use of effective interest rate. The differences arising due to revaluation of financial liabilities with the use of the adjusted acquisition price are charged to income or financial costs, whichever is applicable. Collateral financial liabilities (currency options) are measured at the fair value on the basis of appraisal made by the bank. Financial leasing liabilities (IAS 17) as of the agreement execution day are shown at the net value of the object of leasing and reduced by the capital part of the leasing charge, calculated with the use of internal rate of return. The fixed asset in question is classified as the Company s own property and is subject to amortization within the predicted utility period. Prepayments and accruals of expenses refer to expenses incurred in the future periods, including subscriptions, insurances, the social fund, real property tax and perpetual usufruct of land. Those expenses are included in the month of issuing the invoice and then charged

36 into expenses in the utility period, until the date of transferring them fully to the financial result. Prepayments and accruals lasting longer than one year are treated as fixed assets, and others, as current assets. In the case of impairment, they are charged to other costs at a one-off basis. The Company makes provisions (IAS 19, IAS 37) for the risks known to it, losses that may occur and effects of other events. They are measured at least as frequently as on every balance sheet day at a reasonable, estimated value. Financial effects of the provisions are classified as other operational costs or financial costs, as applicable, depending on the circumstances the future liabilities are related to. The Company includes provisions for liabilities in conformity to IAS 19 Employee benefits, with respect to retirement gratuities, employees leaves, seniority awards and death benefits on the basis of actuarial reports. In accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets, the Company establishes provisions for warranty repairs, bonuses and gratuities for the Management Board members and for costs of balance sheet audits. Equity capitals are included in accounting books divided into their kinds and in accordance with the principles resulting from legal regulations and provisions of the Company s Charter. Equity capitals include: - initial (share) capital shown in the nominal value of registered shares, conforming to the Company s Charter and the entry in the National Court Register, - revaluation capital concerning changes in the fair value of assets, - other capitals, including: - supplementary capital created in compliance with the Code of Commercial Companies Article 396, from profit in accordance with the Charter and from measurement of shares for employees, - reserve capital allocated for buy-back of the Company s own shares retained profits, including previous years profit that has not been distributed or loss that has not been covered, net profit / loss the financial result of the current year. In the case of changes of accounting principles which significantly affect previous years results, providing that the effects of those changes can be credibly established, the difference arising out of the transformation of statements for the previous years shall be charged to retained profits. If in a given accounting year, or before the approval of the financial statement for that year, a fundamental error is found having occurred in the previous years, as a result of which the statements for that year or the previous years cannot be regarded as reliable and clearly presenting the financial and property standing of the Company, the amounts of corrections

37 of the errors shall be charged to equity capital as the item retained profits. Income (IAS 18) is recognized in such a value as the Company is likely to obtain economic profits related to a given transaction and providing that the amount of the income may be reasonably measured. Income from sales of products and goods is recognized if the significant risk and benefits arising out of the property rights to the products and goods have been transferred for the buyer. Income from sales of services is included after the service has been completely performed. Income due for lease of premises is recognized in monthly installments as of the last day of each month. Interest revenues are recognized successively as accrued. Costs are included in accordance with the principle of proportionality to profits. Costs are registered with respect to their kinds in section 4 and moved to the where they arise in section 5 on a running basis. At the end of an accounting period, costs from section 4 are transferred to the account Current year s financial result. Segments of activity (IFRS 8) the division into operational segments results from the management and internal reporting structure. The Company has adopted a reporting system based on industry segments and geographical segments. In the industry segment, it conducts the activity in the following assortment groups: industrial automatics, heat engineering automatics, central lubrication, hydraulic control systems, casts, laboratory equipment, other products (services) and goods and materials. In the geographical segment, the division into domestic and export sales was adopted. Within export sales, sales to EU countries and sales to countries outside the EU were singled out. The Company presents the income received and expenses generated by individual segments. The industry and geographical segments mentioned above are presented on the level of net profit from sales. The results of activity if individual segments are systematically reviewed by the main body responsible for operational decision-making within the Company. The Company in not able to separate the carrying value of assets and liabilities concerning particular segments, hence it does not ascribe them to the particular segments. Income tax (IAS 12) constitutes an encumbrance of gross financial result and covers current tax and deferred tax. Current income tax is the amount determined on the basis of tax regulations, which is calculated from taxable income for a given period. Current income tax is included as a liability in the amount in which it has not been paid. If the amount paid so far due to current income tax exceeds the amount to be paid, the

38 difference is included as receivables. Deferred tax is calculated with the use of the balance sheet method. Deferred tax reflects the net tax effect of temporary differences between the carrying value of an asset or liability and its tax value. Assets and liabilities due to deferred income tax are calculated with the use of the binding tax rates predicted for the following years, in which the temporary differences are expected to be realized at the tax rates announced or established for the balance sheet day. Deferred income tax assets concerning tax on negative temporary differences, as well as unused tax losses, are only recognized if sufficient tax base from which those differences may be deducted is likely to appear in the future. Deferred income tax provisions are made regardless of the time when they are to be realized. Deferred income tax assets and provisions are not discounted and they are classified in the Balance sheet as fixed assets or long-term liabilities, whichever is the case. Total income statement covers the financial result of the period included in the profit and loss account and profits and losses not charged to the financial result of the period directly but shown in the equity. Profit and loss account is made in a spreadsheet version and a comparative version. The financial result is established with the application of major accounting principles: the memorial, proportionality of profits and costs, caution, continuity and relevance. Net profit per share for each period is calculated by dividing the net profit for a given period by the weighted average number of shares in the given reporting period. Diluted net profit per share means a necessity to adjust the net profit and the average weighted number of shares by effects of all diluting potential ordinary shares, whereas potential ordinary shares should be treated as diluting if their conversion to ordinary shares would reduce the net profit for a single ordinary share provided that the effect would continue. Due to the fact that no potential ordinary shares occur, the diluted profit per share equals net profit per share. Cash flow statement is made with the indirect method Important estimations and evaluations Preparing a financial statement in accordance with IFRS requires making estimations, evaluations and assumptions which affect the adopted principles and the presented values of assets, liabilities, revenues and expenses. The estimations and assumptions related to

39 them are based on historical experience and various other factors regarded as significant. Actual results may differ from the assumed estimated values. Estimations and assumptions underlying them are subject to ongoing verification. A change in estimated values is recognized in the period in which the verification occurred if it concerns that period only, or in the current period and in future periods if the change concerns both the current period and future periods Economic utility periods of fixed tangible assets Amortization rates are determined on the basis of expected economic utility periods of tangible assets. The Company verifies the periods at the end of each annual reporting period. As of the end of 2011, economic utility periods of fixed assets were reviewed, resulting in extending utility periods of some fixed assets Deferred tax assets The Company recognizes deferred tax assets on the basis of the assumption that in the future a tax profit will be obtained to enable using them. Deterioration of tax results in the future might make this assumption unjustifiable. 12. Average exchange rates of zloty in the periods covered by the financial statement with regard to euro, established by the NBP. For the needs of balance sheet measurement, the following euro exchange rates were assumed: Position as of Position as of 31/12/ /12/2010 Euro exchange rate binding on the last day of the period: PLN PLN For the needs of result measurement, the following euro exchange rates were assumed: For the period For the period 01/01/ /01/ /12/ /12/2010 Average euro exchange rate in the period*: PLN PLN *Calculated as the arithmetic mean of the exchange rates binding on the last day of each month in a given period. The lowest euro exchange rate in the period 01/01/ /12/2011 amounted to PLN (12/01/2011, average NBP rate, Table 007/A/NBP/2011).

40 The lowest euro exchange rate in the period 01/01/ /12/2010 amounted to PLN (06/04/2010, average NBP rate, Table 066/A/NBP/2010). The highest euro exchange rate in the period 01/01/ /12/2011 amounted to PLN (14/12/2011, average NBP rate, Table 241/A/NBP/2011). The highest euro exchange rate in the period 01/01/ /12/2010 amounted to PLN (07/05/2010, average NBP rate, Table 088/A/NBP/2010). 13. The main items of the financial standing statement (balance sheet), profit and loss account and cash flow statement, financial statement and comparable financial data, converted into euro, with indication of the principles assumed for making such a conversion. The main items of the financial standing statement converted into euro: DETAILED LIST Position as of Position as of Total assets Fixed assets Current assets Fixed assets allocated for disposal Total equity and liabilities Equity Long-term liabilities Short-term liabilities The following euro exchange rates, established by the NBP, were used to convert the data of financial standing statement: - as of 31/12/2011 PLN as of 31/12/2010 PLN The main items of the profit and loss account converted into euro: DETAILED LIST For the period For the period Net income from products, goods and materials sales Cost of products, goods and materials sold Gross profit (loss) from sales Gross profit (loss) from operating activity Gross profit (loss) Net profit (loss)

41 The main items of the cash flow statement converted into euro: DETAILED LIST For the period For the period Net cash flow from operating activity Net cash flow from investment activity Net cash flow from financial activity Total net cash flow The following euro exchange rates, established by the NBP, were used to convert the data of profit and loss account and cash flow statement: - for the period from 01/01/2011 to 31/12/2011 PLN for the period from 01/01/2010 to 31/12/2010 PLN SEPARATE FNANCIAL STATEMENT 1. Statement of financial standing ASSETS Note Position as of Position as of I. I. Fixed assets Tangible fixed assets Other intangible assets Financial assets Deferred income tax assets II. II. Current assets Supplies Trade receivables and other receivables, including: receivables due for supplies and services Income tax receivables Financial assets Cash and cash equivalents Prepayments and accruals III. Fixed assets allocated for disposal TOTAL ASSETS EQUITY AND LIABILITIES I. I. Equity Initial capital

42 Own shares Other capitals Net profit (loss) II. II. Long-term liabilities Deferred income tax provisions Long-term provisions for liabilities III. Short-term liabilities Liabilities due for supplies and services and other liabilities, including: liabilities due for supplies and services other liabilities Leasing liabilities Short-term provisions Prepayments and accruals TOTAL EQUITY AND LIABILITIE Book value Number of shares (in pieces) Book value per share (in PLN) 14,26 15,64 Diluted book value per ordinary share equals book value per ordinary share. 2. Statement of changes in equity Initial Own Revaluation Other Retained Equity items Total capital shares capital capitals profits Balance as of 01/01/ Adjusted balance Net profit for the period Total profit and loss recognized within the period Purchase of own shares Use of the reserve capital for the buy-back of own shares Increasing the supplementary capital for the buy-back of own shares Balance as of 31/12/ Equity items Initial capital Own shares Revaluation capital Other capitals Retained profits Total

43 Balance as of 01/01/ Adjusted balance Net profit for the period Total profit and loss recognized within the period Distribution of profit for 2009 and of retained profits Balance as of 31/12/ Total income statement A. PROFIT AND LOSS ACCOUNT Net income from products, goods and materials sales, including: Note For the period For the period I. Net income from sales of products Net income from sales of goods and materials II Cost of products, goods and materials sold, B. including: I. Production costs of products sold II. Value of goods and materials sold C. Gross profit (loss) from sales I. Other income II. Costs of sales III. General and administrative costs IV. Other expenses D. Operating activity profit (loss) I. Financial income II. Financial expenses F. Gross profit (loss) G. Income tax I. a) current tax II. b) deferred tax H. Net profit (loss) TOTAL INCOME STATEMENT For the period For the period

44 I. Net profit (loss) II. Other elements of total income 1. Results of measurement and transfer of salable financial assets (net amount) - - III. Total comprehensive income Net profit (loss) Number of ordinary shares (in pieces) Profit (loss) per ordinary share (in PLN) 0,62 0,29 Diluted net profit per ordinary share equals net profit per ordinary share. IV. Cash flow statement Detailed list A. Operating activity cash flow For the period For the period I. Profit (loss) before tax II. Total adjustments Intangible assets amortization Revaluation write-offs for impairment of tangible fixed assets Tangible fixed assets amortization Profit (loss) from sales of tangible fixed assets Profits (losses) due to change in the fair value of financial assets 25 2 Profits (losses) due to exchange rate differences Interest expenses 6 24 Interest received III. Cash from operating activity before recognition of changes in the working capital Change in supplies position Change in receivables position Change in short-term liabilities position except credits and loans Change in prepayments and accruals position (except deferred tax assets) Change in provisions position (except deferred tax provision) IV. Cash generated in operating activity Income tax paid V. Net cash from operating activity B. Investment activity cash flow

45 Detailed list For the period For the period Expenditure for acquisition of intangible assets Expenditure for acquisition of tangible fixed assets Inflow from sales of fixed tangible assets 102 Interest received Net cash from investment activity C. Financial activity cash flow Purchase of own shares Repayment of interest on credits and loans - -1 Repayment of financial leasing liabilities Interest paid Commissions on credits -3-3 Net cash from financial activity D. Total net cash flow (A.+B.+C.) E. Balance sheet change in net cash position, including: change in position of cash from exchange differences F. Opening balance of cash G. Closing balance of cash (E.+F.) OTHER EXPLANATORY INFORMATION 1. Explanatory notes Note 1 TANGIBLE FIXED ASSETS Position as of Position as of a) fixed assets, including: land (including perpetual usufruct of land) buildings, premises and civil and water engineering objects machines and technical equipment means of transport other fixed assets Total tangible fixed assets As of the day of preparing the financial statement, tangible fixed assets did not constitute collateral for the Company s liabilities. The value of tangible fixed assets was adjusted by revaluation write-offs for the total amount of PLN 3 thousand. Revaluation write-offs refer to the buildings and structures position an old porter s lodge, which is allocated for demolition due to poor technical condition. Amortization of tangible fixed assets used for production or services provided was recognized in the profit and loss account as cost of products sold in the amount of PLN 2,033

46 thousand, and amortization of other tangible fixed assets was recognized in general and administrative costs in the amount of PLN 276 thousand. CHANGES IN TANGIBLE FIXED ASSETS FOR THE PERIOD FROM 01/01/2011 TO 31/12/2011 Wyszczególnienie Land (including perpetual usufruct of land) Buildings and structures Technical equipment and machines Means of transport Other fixed assets Total a) opening gross value b) increases (due for) purchase returning of fixed assets allocated for disposal to use manufactured at our own expense c) decreases (due for) liquidation d) gross closing value e) opening amortization value increases within the period decreases within the period f) closing amortization value g) opening revaluation writeoffs value increases within the period decreases within the period h) closing revaluation writeoffs value i) net value as of 31/12/ In the year 2011, the Company incurred investment expenditure of PLN 483 thousand, and the investment expenditure planned for the year 2012 amounts to PLN 2,346 thousand. KINDS OF EXPENDITURE Expenditure incurred in 2011 Expenditure incurred in 2012 Purchase and improvement of fixed assets production machines and equipment Purchase of fixed assets non-production machines Modernization of buildings and structures Purchase of computers Instrumentation and equipment Tools Purchase of a car for the marketing department 112 -

47 KINDS OF EXPENDITURE Expenditure incurred in 2011 Expenditure incurred in 2012 Other investment expenditure (intangible assets) Total expenditure CHANGES IN TANGIBLE FIXED ASSETS FOR THE PERIOD FROM 01/01/2010 TO 31/12/2010 Detailed list Land (including perpetual usufruct of land) Buildings and structures Technical equipment and machines Means of transport Other fixed assets Total a) opening gross value b) increases (due for) purchase improvement c) decreases (due for) liquidation sales fixed assets allocated for disposal d) gross closing value e) opening amortization value increases within the period decreases within the period f) closing amortization value g) opening revaluation writeoffs value increases within the period decreases within the period h) closing revaluation writeoffs value i) net value as of 31/12/ Note 2 OTHER INTANGIBLE ASSETS Position as of Position as of a) expenditure for development works - - b) purchased concessions, licenses, patents and other assets of the kind, including: computer software Total intangible assets The value of other intangible assets was adjusted by revaluation write-offs amounting to PLN 37 thousand due to lack of acceptance report of software for the foundry s production process.

48 As of the day of preparing the financial statement, other intangible assets did not constitute any collateral of the Company s liabilities. Amortization of intangible assets, amounting to PLN 29 thousand, is recognized in the profit and loss account in general and administrative costs. CHANGES IN OTHER INTANGIBLE ASSETS FOR THE PERIOD FROM 01/01/2011 TO 31/12/2011 Costs of developme nt works Purchased concessions, patents, licenses and similar values, including: Detailed list Computer Total software a) gross opening value b) increases (due for) purchase c) decreases (due for) d) gross closing value e) opening amortization value increases within the period decreases within the period f) closing amortization value g) opening revaluation write-offs value increases within the period decreases within the period h) closing revaluation write-offs value i) net value as of 31/12/ CHANGES IN OTHER INTANGIBLE ASSETS FOR THE PERIOD FROM 01/01/2010 TO 31/12/2010 Costs of developme nt works Purchased concessions, patents, licenses and similar values, including: Detailed list Computer Total software a) gross opening value b) increases (due for) purchase c) decreases (due for) d) gross closing value e) opening amortization value increases within the period

49 Costs of developme nt works Purchased concessions, patents, licenses and similar values, including: Detailed list Computer Total software - decreases within the period f) closing amortization value g) opening revaluation write-offs value increases within the period decreases within the period h) closing revaluation write-offs value i) net value as of 31/12/ Note 3 FINANCIAL ASSETS Position as of Position as of Long-term investments, including: shares or stocks in other entities Long-term investments revaluation write-offs Financial assets - - Long-term shares / stocks worth PLN 26 thousand were subject to a 100% revaluation write-off. That amount covers shares in companies whose recovery is doubtful. Note 4 SUPPLIES Position as of 31/12/2011 Valuation at purchase price / production cost Write-offs revaluing supplies opening value Reversals of supplies revaluation write-offs shown as decreases of those writeoffs in the period Revaluation write-offs of supplies shown as costs in the period Write-offs revaluing supplies closing value Write-offs revaluing supplies closing value Closing carrying value of supplies Materials Intermediate products and production in progress Final products Goods Total supplies

50 Position as of 31/12/2010 SUPPLIES Valuation at purchase price / production cost Write-offs revaluing supplies opening value Reversals of supplies revaluation write-offs shown as decreases of those writeoffs in the period Revaluation write-offs of supplies shown as costs in the period Write-offs revaluing supplies closing value Write-offs revaluing supplies closing value Closing carrying value of supplies Materials Intermediate products and production in progress Final products Goods Total supplies On the day of making the financial statement, supplies did not constitute any collateral of the Company s liabilities. Note 5 TRADE RECEIVABLES AND OTHER RECEIVABLES Position as of Position as of a) from affiliated units - - b) receivables from other units due for deliveries and services, with payback period: over 12 months due for other taxes, customs duties and social insurances other receivables Total net trade receivables and other receivables c) write-offs revaluing receivables Total gross trade receivables and other receivables CHANGE IN POSITION OF WRITE-OFFS REVALUING TRADE RECEIVABLES AND OTHER RECEIVABLES Position as of Position as of Opening position a) increases (due for) overdue receivables receivables adjudged by the court 29 5

51 CHANGE IN POSITION OF WRITE-OFFS REVALUING TRADE RECEIVABLES AND OTHER RECEIVABLES Position as of Position as of receivables in bankruptcy proceedings doubtful receivables from employees 80 - b) decreases (due for) overdue receivables receivables adjudged by the court receivables in bankruptcy proceedings 2 - Closing position For receivables overdue more than 3 months, interest and receivables subject to legal, composition or bankruptcy proceedings, the Company makes revaluation write-offs for their impairment. GROSS TRADE RECEIVABLES AND OTHER RECEIVABLES (CURRENCY STRUCTURE) Position as of Position as of a) in the Polish currency b) in foreign currencies (according to currencies and converted to PLN) B 1. unit/currency thousand/eur PLN thousand B 2. unit/currency thousand/usd PLN thousand Total trade receivables and other receivables RECEIVABLES DUE FOR DELIVERIES AND SERVICES Position as of Position as of a) timely b) overdue up to 1 month c) overdue over 1 month and up to 3 months d) overdue over 3 months and up to 6 months e) overdue over 6 months and up to 1 year f) overdue over 1 year Total (gross) receivables due for supplies and services g) write-offs revaluing receivables due for supplies and services Total (net) receivables due for supplies and services Receivables payment periods up to 3 months are connected with normal sales course of the Company. As of the end of 2011, disputable receivables amount to PLN 356 thousand. Overdue receivables concern supplies and services. As of the day of preparing the financial statement, receivables did not constitute any collateral of the Company s liabilities.

52 Note 6 SHORT-TIME FINANCIAL ASSETS Position as of Position as of Financial assets allocated for trade (shares) according to acquisition price Write-offs revaluing opening value of financial assets Recognition in the period of revaluation write-offs for impairment Reversal of revaluation write-offs for impairment in the period - 13 Write-offs revaluing closing value of financial assets Financial assets allocated for trade (shares) according to fair value Note 7 CASH AND CASH EQUIVALENTS Position as of Position as of a) cash in the cashbox b) cash on bank accounts c) other cash and cash equivalents, including: deposits Total cash and cash equivalents CASH AND CASH EQUIVALENTS (CURRENCY STRUCTURE) Position as of Position as of a) in the Polish currency b) in foreign currencies (according to currencies and converted to PLN) B 1. unit/currency thousand/eur PLN thousand B 2. unit/currency thousand/usd PLN thousand Total cash and cash equivalents Note 8 PREPAYMENTS AND ACCRUALS Position as of Position as of Subscriptions 8 10 Insurances Advance payments for services not performed Total prepayments and accruals 72 61

53 Note 9 Detailed list Technical equipment and machines Means of transport Total a) opening value b) increases (due for) c) decreases (due for): sale returning to use b) closing value c) opening value of revaluation write-offs increases within the period decreases within the period d) closing value of revaluation write-offs e) value after recognition of revaluation write-offs as of 31/12/ CHANGES IN FIXED ASSETS ALLOCATED FOR DISPOSAL FOR THE PERIOD 01/01/ /12/2010 Detailed list Technical equipment and machines Means of transport Total a) opening value b) increases (due for) c) decreases (due for) d) gross closing value e) opening amortization value increases within the period decreases within the period f) closing amortization value g) closing net value without write-offs h) opening value of revaluation write-offs increases within the period decreases within the period h) closing value of revaluation write-offs i) net value as of 31/12/ Note 10 SHARE CAPITAL (STRUCTURE) SHARE CAPITAL (STRUCTURE)

54 Series (emiss ion) Type of share Type of share preference Restriction of right to shares Number of shares Worth of series/ emission (nominal value) Way of covering capital Date of registratio n Right to dividends (from the date) A Bearer no no Cash B Bearer no no Cash C Bearer no no Cash D Bearer no no Cash E Bearer no no Cash F Bearer no no Cash Total number of shares Total share capital Nominal value of one share = PLN 3.80 INITIAL CAPITAL NUMBER OF SHARES ISSUED Position as of Position as of A ordinary bearer shares B ordinary bearer shares C ordinary bearer shares D ordinary bearer shares E ordinary bearer shares F ordinary bearer shares Number of shares issued as of the day In the reporting period, no changes in the share capital occurred. The Company possesses its own shares. Information on purchase of own shares was issued in The Management Board s Report from the Company s Activity in 2011 in the chapter Basic economic and financial numbers of the Company and the factors having a significant influence on the economic activity and the results obtained, section 6 Purchase of own shares. According to the issuer s knowledge, the composition of share ownership holding at least 5% of the total number of the votes at an GSM is the following: Shareholder Number of shares Share in the share capital (%) Number of votes at GSM Share in the total number of votes at GSM (%) Zbigniew Jakubas with related parties , ,34 POLNA S.A. (own shares) , ,26

55 In the structure of significant blocks of shares there were changes in comparison with the structure made public in the Quarterly Report for the 3 rd quarter 2011 on 14/11/2011. Mr Zbigniew Jakubas with related parties lowered their share ownership (Current Report No. 91/2011 of 22/12/2011). Over the 4 th quarter 2011, POLNA S.A. increased their block of shares up to 472,130 pieces. On 13 th March 2012, EGM adopted resolutions on redemption of 472,130 own shares and lowering the share capital. The redemption of the shares shall occur at the moment of the lowering of share capital being registered by the competent court. Note 11 OTHER CAPITALS Position as of Position as of Supplementary capital (by kind) created pursuant to Article 396 of the Code of Commercial Companies, from profit pursuant to the Company s Charter Other supplementary capital (by kind) from measurement of employee shares Reserve capital Other capitals jointly Pursuant to the Code of Commercial Companies, the Company makes obligatory write-offs from profit for the supplementary capital, whose aim is to cover potential (future) or actual losses amounting to at least 8% of the profit for a given accounting year, until the value of supplementary capital equals at least 1/3 of the registered share capital. The supplementary capital created that way is not subject to distribution; it can only be used to cover a loss shown in the financial statement. The reserve capital, amounting to PLN 2,820 thousand, is allocated for the buy-back of the Company s own shares. In 2011, the Company spent PLN 5,179 thousand on the buy-back of own shares. Note 12 LONG-TERM AND SHORT-TERM Position as of Position as of Long-term provisions for retirement benefits and similar benefits provisions for retirement benefits provisions for seniority awards provisions for death benefits Other long-term provisions - - Total long-term provisions

56 LONG-TERM AND SHORT-TERM Position as of Position as of Short-term provisions for retirement benefits and similar benefits provisions for retirement benefits provisions for seniority awards provisions for annual leaves provisions for death benefits Other short-term provisions provisions for expenses connected with the balance sheet audit provisions for warranty repairs provisions for bonus for the Management Board provisions for termination pays for the Management Board other provisions 6 14 Total short-term provisions Provisions are created when the Company is encumbered with a present liability resulting from past events and fulfillment of the liability is likely to necessitate an outflow of funds; besides, the amount of the liability can be reliably estimated. Employee benefits The Company pays benefits in favor of its employees. The basis for measurement of provisions for future employee benefits is regulations of labor law, remuneration regulations and other binding agreements between the employer and employees. The provision estimation was made with consideration of obligatory encumbrance of the employer resulting from the legal obligations as of the day of provision estimation (e.g. old age pension contributions and disability pension contributions). The actuarial measurement of retirement benefits was made as of 31/12/2011. Assumptions of the measurement: Mortality rate table of 2010, prepared by the Central Statistical Office (GUS), Probability of retirement 0.25% Model of mobility of the Company s employees the Multiple Decrement Model Technical interest rate 5.5% Default retirement age 60 years old for women, 65 years old for men. The following general classification of employee benefits, occurring in Poland, was adopted: Benefits payable after finishing work retirement, disability and death benefits Other long-term benefits seniority awards Short-term benefits unused annual leaves In the case of post-employment benefits and other long-term benefits, the Projected Unit

57 Credit Method was used to establish the provision. For all benefits, it was assumed that rights to benefits are acquired in a linear way over the period for which a given benefit is classified. Calculation of the provision for future liabilities was made for persons employed in the Company in accordance with the position for 31/12/2011. The provision does not cover persons who will be hired after that day nor any changes in the principles for benefit payments that may arise in the future. It was assumed that men and women retire at the default retirement age. Provisions were made for: Retirement and disability benefits long-term and short-term, Seniority awards long-term and short-term, Death benefits long-term and short-term, Unused annual leaves short-term. Short-term provisions are allocated for benefits payable within the nearest 12 months, and long-term provisions, for benefits payable within a longer period. Other provisions are created for the following titles: Changes in reserves positions Value of provisions as of 01/01/2011 Expenses connected with the balance sheet audit, Warranty repairs, Bonuses for the Management Board Termination pays for the Management Board Other provisions (product fee, environmental fee etc.) Long-term reserves For retirement benefits and similar benefits For retirement benefits and similar benefits For expenses connected with balance sheet audit Short-term reserves For warranty repairs For bonuses for the Management Board For termination pays for the Management Board Other reserves Created Used Released Value of provisions as of 31/12/ Total

58 Changes in reserves positions Value of provisions as of 01/01/2010 Long-term reserves For retirement benefits and similar benefits For retirement benefits and similar benefits Short-term reserves For expenses connected with balance sheet audit For warranty repairs For bonuses for the Manageme nt Board For termination pays for the Management Board Other reserves Created Used Released Value of provisions as of 31/12/ Total Note 13 LEASING LIABILITIES Position as of Position as of Long-term - - Short-term Total leasing liabilities As of the day of preparing this statement, the Company has no leasing agreements. Note 14 LIABILITIES DUE FOR SUPPLIES AND SERVICES AND OTHER LIABILITIES Position as of Position as of a) due for related parties - - b) due for other entities, including: for supplies and services, with the maturity period: up to12 months due for taxes, customs duties, insurances and other benefits due for remunerations others Total liabilities due for supplies and services and other liabilities LIABILITIES DUE FOR SUPPLIES AND SERVICES AND OTHER LIABILITIES (CURRENCY STRUCTURE) Position as of Position as of

59 LIABILITIES DUE FOR SUPPLIES AND SERVICES AND OTHER LIABILITIES (CURRENCY STRUCTURE) Position as of Position as of a) in the Polish currency b) in foreign currencies (according to currencies and converted to PLN) b1. unit/currency thousand/eur 5 11 PLN thousand Total liabilities due for supplies and services and other liabilities Note 15 PREPAYMENTS AND ACCRUALS Position as of Position as of Prepayments and accruals of income, including: - 13 Income from advance payments for supplies - 13 Note 16 NET INCOME FROM PRODUCT SALES SUBJECT STRUCTURE KINDS OF ACTIVITY) For the period For the period Income from sales of products and intermediate products Income from sales of services Total net income from product sales NET INCOME FROM PRODUCT SALES (TERRITORIAL STRUCTURE) For the period For the period Domestic Export Total net income from product sales The Company gives warranties for the manufactured products for the period of 24 months, and for services provided, for the period of 6 months. Note 17 NET INCOME FROM SALES OF GOODS AND MATERIALS (SUBJECT STRUCTURE KINDS OF ACTIVITY) For the period For the period Sales of materials Sales of goods Total net income from sales of goods and materials

60 NET INCOME FROM SALES OF GOODS AND MATERIALS (TERRITORIAL STRUCTURE) For the period For the period Domestic Export - 28 Total net income from sales of goods and materials In 2011, income from the company PRE-VENT GmbH Germany exceeded 10% of the total income from sales. Note 18 PRODUCTION COST OF THE PRODUCTS SOLD For the period For the period Costs by type: a) amortization b) materials and power consumption c) outsourcing d) taxes and other charges e) remunerations f) social insurances and other benefits g) other expenses by type (due for) business trips advertising costs others Total costs by type Change in position of supplies, products and prepayments and accruals Costs of production for the entity s own needs (negative value) Sales costs (negative value) General and administrative costs (negative value) Production costs of products sold Note 19 OTHER INCOME For the period For the period Profit from disposal of non-financial fixed assets - - Subsidies - - Other income, including:

61 OTHER INCOME For the period For the period a) reversal of revaluation write-offs, including: tangible fixed assets supplies receivables fixed assets allocated for disposal 75 - b) release of provisions - - c) income from sales of waste and containers d) inventory surpluses 27 - e) income from materials and products scrapping f) remaining other income Total other income The reversals of write-offs revaluing tangible fixed assets and fixed assets allocated for disposal were done at the moment of selling those assets (previously covered by a write-off). The reversals of write-offs revaluing supplies were done as a result of management or liquidation of the supplies previously covered by a given write-off. The reversals of write-offs revaluing receivables were done at the moment of recovering the receivables or at the moment of finishing or discontinuance of legal, bankruptcy and composition proceedings. Note 20 OTHER EXPENSES For the period For the period Loss from disposal of non-financial fixed assets Creation of provisions - - Creation of revaluation write-offs, including: tangible fixed assets intangible assets supplies receivables fixed assets allocated for disposal Other expenses, including: a) costs related to sales of waste and containers 4 27 b) costs of scrapping of materials, production in progress and products c) compensations, penalties and fines paid 3 16 d) costs of discontinued investments 20 - e) inventory shortages 15 - f) the remaining other expenses 30 40

62 For the For the OTHER EXPENSES period period Total other expenses Making revaluation write-offs concerning supplies results from moving some supplies to the group of a longer accumulation period, whereas making write-offs revaluing receivables concerns receivables of low recoverability, whose reclaim often requires court or execution services intervention. Making revaluation write-offs concerning fixed assets allocated for disposal was related to failure to sell them in the assumed time. Note 21 FINANCIAL INCOME For the period For the period Dividends and participation in profits - - Interest, including: interest on funds accumulated on bank accounts interest on receivables Profit from disposal of investments - 34 Revaluation of investments - - Other financial income, including: a) excess of positive exchange differences over negative exchange differences b) profit from revaluation of financial liabilities 19 - Total financial income Note 22 FINANCIAL COSTS For the period For the period Interest, including: interest on liabilities interest on credits interest on leasing agreements 3 21 Loss from disposal of investments - - Revaluation of investments 25 2 Other financial costs, including: a) excess of negative exchange differences over positive exchange differences b) losses from financial instruments 41 -

63 FINANCIAL COSTS For the period For the period c) costs of revaluation of financial liabilities 19 - d) remaining other financial costs Total financial costs Note 23 INCOME TAX For the period For the period Corporate income tax recognized in the tax declaration for the period Deferred tax Total tax Tax encumbrance revealed in the profit and loss account INCOME TAX EXPLANATION OF DIFFERENCES BETWEEN TAX CALCULATED ACCORDING TO THE BINDING RATE AND THE DISCLOSED TAX For the period For the period Profit before tax Income tax according to the rate binding during the period (19%) Income tax concerning previous years included in the current - - reporting period Permanent differences Other differences Deductions from income (the amount of loss from previous years) Tax effect of differences Income tax The average effective tax rate (tax encumbrance / income before tax) DEFERRED INCOME TAX ASSETS 26,34% 33,92% Position as of Position as of Write-offs revaluing materials Write-offs revaluing production in progress Write-offs revaluing products Write-offs revaluing receivables 24 3 Write-offs revaluing short-term financial assets 10 5 Write-offs revaluing intangible assets 7 7 Write-offs revaluing fixed tangible assets Provisions for employee benefits and other benefits Negative exchange differences 4 2 Unpaid social insurance benefits Leasing liabilities - 65

64 DEFERRED INCOME TAX ASSETS Position as of Position as of Losses from the previous years - 75 Total deferred income tax assets Write-offs revaluing deferred income tax assets - - Net deferred income tax assets DEFERRED INCOME TAX PROVISIONS Position as of Position as of Difference between the current tax value and the book value of fixed assets Interest on receivables 5 1 Positive exchange differences 11 3 TOTAL Note 24 PROFIT PER SHARE For the period For the period Net profit Weighted average number of ordinary shares Profit per ordinary share (PLN/piece) 0,62 0,29 Note 25 The net profit for the year 2010, amounting to PLN 752 thousand, was allocated for increasing the supplementary capital. In the year 2011, the Company achieved a profit of PLN 1,612 thousand. The Management Board suggests that the produced net profit be allocated for other capitals (supplementary capitals). 2. Information on financial instruments Information concerning financial instruments was presented in The Management Board s Report from the Company s Activity in 2011 in the chapter Basic economic and financial numbers of the Company and the factors having a significant influence on the economic activity and the results obtained, section 5 Information on financial instruments. 3. Segments of activity In accordance with the requirements of IFRS 8, operating segments are identified on the basis of internal reports concerning those elements of the Company which are regularly verified by the individuals making decisions on allocating resources to a given segment and assessing the segment s financial result. The primary criterion of segment classification is the industry division, i.e. division into assortment groups, which is the following:

65 For the period 01/01/ /12/2011 Detailed list Automatic control engineering Heat Engineering Products and half-finished products Services Goods Central Lubrication equipment Hydraulic Control systems Laboratory equipment Foundry And materials Non Classified items Total Income Domestic Export, including: To EU countries To countries beyond EU Total income Expenses Domestic Export, including: To EU countries To countries beyond EU Total expenses Segment s result Domestic Export, including: To EU countries To countries beyond EU Segment s result Other income Other expenses Operating activity profit (loss) Financial income Financial expenses Profit before tax

66 Detailed list Automatic control engineering Heat Engineering Products and half-finished products Services Goods Central Lubrication equipment Hydraulic Control systems Laboratory equipment Foundry And materials Non Classified items Income tax Net profit Assets capitals and liabilities Assets Capitals Liabilities Other information Investment expenditure for tangible fixed assets - Investment expenditure for intangible assets - Amortization of tangible fixed assets - Amortization of intangible assets - Write-offs revaluing nonfinancial assets For the period 01/01/ /12/2010 Detailed list Automatic control engineering Heat Engineering Products and half-finished products Services Goods Central Lubrication equipment Hydraulic Control systems Laboratory equipment Automatic control engineering And materials Non Classified items Income Domestic Export, including: To EU countries To countries beyond EU Total Total

67 Detailed list Automatic control engineering Heat Engineering Products and half-finished products Services Goods Central Lubrication equipment Hydraulic Control systems Laboratory equipment Automatic control engineering And materials Non Classified items Total income Expenses Domestic Export, including: To EU countries To countries beyond EU Total expenses Segment s result Domestic Export, including: To EU countries To countries beyond EU Segment s result Other income Other expenses Operating activity profit (loss) Financial income Financial expenses Profit before tax Income tax Net profit Assets capitals and liabilities Assets Capitals Liabilities Other information Total

68 Detailed list Investment expenditure for tangible fixed assets - Investment expenditure for intangible assets - Amortization of tangible fixed assets - Amortization of intangible assets - Write-offs revaluing non-financial assets Automatic control engineering Heat Engineering Products and half-finished products Services Goods Central Lubrication equipment Hydraulic Control systems Laboratory equipment Automatic control engineering And materials Non Classified items Total

69 Besides, for the needs of internal management, the financial reporting system makes it possible to identify financial results according to the territorial criterion. Detailed list For the period For the period Value Share % Value Share % Change % Total income from product sales, 100, including: % ,0% 11,1% - Domestic ,8% ,6% 2,2% - Export, including: ,2% ,4% 34,6% - Internal delivery of goods to EU ,9% ,6% 41,9% - Export beyond EU ,3% ,8% 0,2% - Income from sales of goods and 100,0 364 materials, including: % ,0% 14,5% - Domestic ,0% ,2% 25,5% - Export ,8% - 4. Contingent liabilities and receivables CONTINGENT LIABILITIES AND RECEIVABLES Position as of Position as of Contingent liabilities In favor of other entities (due for) guarantees and warranties granted collateral of credits and loans a blank bill of exchange collateral of contracts a blank bill of exchange collateral of liabilities due for goods delivered a blank bill of exchange collateral of leasing a blank bill of exchange liabilities due for entrusted material Contingent receivables - - Total of off-balance sheet items Liabilities due for the Budget or local government units resulting from obtaining the property right to buildings and structures. The Company does not have any liabilities due for the Budget or local government units resulting from obtaining the property right to buildings and structures. 6. Information on the issuer s transactions with related parties, concerning transfer of rights and obligations. Numbers concerning entities related to the issuer.

70 No such transaction occurred. 7. Average employment The average employment in full-time jobs was as follows: Detailed list Position as of Position as of Total employment, including: white-collar workers blue-collar workers Significant events occurring after the end of the annual period, not included in the financial statement for the given annual period. After the balance sheet day, no events occurred which might have influence on changing the financial result of the Company. 9. Explanations concerning seasonality or cyclicity of the issuer s activities in the presented period. In the year 2011, neither seasonality nor cyclicity of the issuer s activity occurred. 10. Information on issuance, buy-back and paying off of debt and capital securities. In the period from the beginning of the year until the balance sheet day, the Company did not issue any shares and did not buy back or pay off any debt or capital securities. In the second half of the year 2011, the Company conducted buy-back of its own shares. Information on the buy-back of shares was presented in Note 12 to this statement. 11. Information on paid-off (or declared) dividend, jointly and per share, divided into common stocks and preference stocks. The Company did not pay off and did not declare the payment of any dividends. 12. Indication of events occurring after the day as of which the financial statement was prepared, not included in the statement but likely to have a significant influence on the issuer s future financial results. After the day as of which the financial statement was prepared, there did not occur any events not included in the statement but likely to have a significant influence on the issuer s

71 future financial results. 13. Presentation of financial statements with consideration of accumulated inflation rate over 100% within the period of the last three years of the issuer s activity. Due to the fact that the accumulated average annual inflation rate within the last 3 years of the Company s activity has remained below 100%, the financial statements and comparable financial data are not corrected with a suitable inflation rate. Bożena Polak Piotr Woś Andrzej Piszcz Chief Accountant Member President of the Management Board of the Management Board Przemyśl, 20 th March 2012

72 POLNA SPÓŁKA AKCYJNA Management Board s Report from the Company s Activity in 2011 Przemyśl, March 2012

73 TABLE OF CONTENTS BASIC INFORMATION ABOUT THE COMPANY 1. Name and registered seat 2. Composition of the Management Board and the Supervisory Board and changes in the report period 3. Legal form 4. The Company s capitals 5. The Company s shareholders 6. The object of activity BASIC ECONOMIC AND FINANCIAL NUMBERS OF THE COMPANY AND THE FACTORS HAVING A SIGNIFICANT INFLUENCE ON THE ECONOMIC ACTIVITY AND THE RESULTS OBTAINED 1. The Company s finances 2. Basic information on the markets, products and goods 3. Basic sources of materials, goods and services supply 4. Description of significant risk factors and threats 5. Information of financial instruments 6. Purchase of own shares ANNUAL REPORT CONCERNING THE APPLICATION OF CORPORATE GOVERNANCE IN THE YEAR Indication of the corporate governance set of principles which the issuer is subject to and the place where the text of that set of principles is available for the public 2. Indication of the corporate governance principles which were not applied or applied in a limited scope. 3. Description of the main characteristics of the internal control and risk management systems used in the issuer s company with reference to the process of preparing financial statements. 4. Indication of shareholders holding directly or indirectly considerable blocks of shares and indication of number of shares held by those entities, their percentage participation in the share capital, number of votes resulting from that and their percentage participation in the total number of votes at the General Shareholders Meeting. 5. Indication of holders of any securities giving special control rights and description of those rights. 6. Indication of any limitations concerning exercising the right to voting, such as limitation of exercising the right to voting by holders of a specified portion or number of votes, time limitations or provisions stating that, at the Company s collaboration, capital rights

74 concerning securities are separate from the securities held. 7. Indication of any limitations concerning transfer of property rights to the issuer s securities. 8. Description of principles concerning appointing and revoking managing persons and their rights, in particular the right to take the decision of emission or purchase of shares 9. Description of rules of changing the issuer s Charter or Articles of Association. 10. The General Shareholders Meeting s mode of activity and its basic powers, as well as description of the shareholders rights and the way of exercising them, in particular the principles resulting from the rules of General Shareholders Meeting, if such rules have been adopted, unless the information referring to the above-mentioned issues arise directly from legal regulations. 11. The personal composition of the managing and supervisory bodies of the issuer and their committees, changes occurring in them in the last accounting year and description of the bodies activity. OTHER INFORMATION 1. Agreements important for the Company s activity 2. Staff and staff benefits 3. Investments and investment plans, evaluation of the possibility of capital investments realization 4. Research and development, new products 5. Environment protection 6. Other information LIST OF TABLES Table 1. Changes in fixed assets, in PLN thousand Table 2. Structure of tangible fixed assets, in PLN thousand Table 3. Changes in current assets, in PLN thousand Table 4. Amount and structure of equity, in PLN thousand Table 5. Changes in long-term liabilities, in PLN thousand Table 6. Changes in short-term liabilities, in PLN thousand Table 7. Net income from sales and equalized to it, in PLN thousand Table 8. Costs of operating activity, in PLN thousand Table 9. Financial results, in PLN thousand Table 10. Financial ratios Table 11. Products, goods and materials sales divided into groups, in PLN thousand Table 12. Products sales divided into geographical areas, in PLN thousand Table 13. Terms and conditions of the credit agreement Table 14. The Management Board s remuneration in 2011, in PLN Table 15. The Management Board s remuneration in 2010, in PLN Table 16. The Supervisory Board s remuneration in 2011, in PLN

75 Table 17. The Supervisory Board s remuneration in 2010, in PLN BASIC INFORMATION ABOUT THE COMPANY 1. Name and registered seat POLNA S.A Przemyśl, ul. Obozowa 23 tel. no. 16/ fax no.: 16/ Composition of the Management Board and the Supervisory Board and changes in the report period Until 20 th June 2011, the Management Board was composed of Mr Miroslav Kozlovski President of the Management Board Managing Director Mr Andrzej Piszcz Member of the Management Board Vice-President On its session on 20 th June 2011, the Supervisory Board appointed the Management Board in the following composition: Mr Andrzej Piszcz President of the Management Board Managing Director Mr Władysław Wojtowicz Member of the Supervisory Board delegated to perform the duties of the Vice-President of the Management Board temporarily, in the period from 21 st June 2011 until 20 th September Because Mr Władysław Wojtowicz submitted a resignation from performing the function of the Vice-President of the Management Board, on 2 nd September 2011 the Supervisory Board appointed Mr Piotr Woś to perform the function of a Member of the Management Board and Production Director for a joint 3-year term of office. On 20 th June 2011, the General Shareholders Meeting appointed the Supervisory Board for the next term of office in the following composition: Mr Wiesław Piwowar President, Mr Władysław Wojtowicz Vice-President, Ms Katarzyna Kieloch Secretary, Mr Grzegorz Hayder Member, Ms Elżbieta Opawska Member. 3. Legal form The Company is a public limited company, quoted on the main market of the Warsaw Stock Exchange in the fixed quotation system, conducting activity pursuant to the Commercial Companies Code, registered on 12/02/2002 by the District Court in Rzeszów, XII Economic

76 Division of the National Court Register, with the KRS number , managing a firm with the registered business name POLNA S.A. in Przemyśl. 4. The Company s capitals As of 31 st December 2011, the Company s equity capitals reached the value of PLN 36,851 thousand. The share capital amounted to PLN 9,823 thousand and was divided into 2,585,026 shares of nominal value PLN 3.80 each, including: - 564,010 series A shares, - 168,412 series B shares, - 81,000 series C shares, - 19,000 series D shares, - 1,664,844 series E shares, - 87,760 series F shares. 5. The Company s shareholders According to the Company s knowledge, the Company s share ownership on the day of issuing the annual report was the following: Shareholder Number % of share of shares capital Zbigniew Jakubas with Subsidiaries ,34% Other shareholders ,40% POLNA S.A. (own shares)*) ,26% Total ,00% *) On 13 th March 2012, EGM adopted resolutions on redemption of 472,130 own shares and lowering the share capital. The redemption of the shares shall occur at the moment of the lowering of share capital being registered by the competent court. 6. The object of activity In accordance with Art. 7 of the Charter, the Company s object of activity is: 24.5 Metal founding; Z Production of hydraulic and pneumatic drive equipment; Z Production of other pumps and compressors; Z Production of other cocks and valves; Z Processing and utilization of waste other than dangerous; Z Recycling of raw materials from sorted materials; Z Wholesale trade of other machines and equipment; Z Non-specialized wholesale trade; Z Wholesale trade of waste and scrap.

77 BASIC ECONOMIC AND FINANCIAL NUMBERS OF THE COMPANY AND THE FACTORS HAVING A SIGNIFICANT INFLUENCE ON THE ECONOMIC ACTIVITY AND THE RESULTS OBTAINED 1. The Company s finances Since 1 st January 2009, pursuant to the Resolution of the Annual General Shareholders Meeting No. 32/2008 of 30 th June 2008, POLNA S.A. has been preparing separate financial statements in compliance with the International Financial Reporting Standards approved by the European Commission. For reliable and clear presentation of the firm s financial and property standing, the Company applies the principles included in the Company s accounting policy and described in the first part of the separate annual financial statement for the year 2011 supplementary information on the adopted accounting principles (policy). The book records system is computerized. The Company has a company account scheme and a list of accounting books. The adopted scheme of synthetic and analytic accounts allows for grouping data in sections necessary to make financial statements. The system enables us to obtain current information on the results of economic activity and the financial standing. The presented data for the previous periods (presented above) have been transformed so as to retain the comparability principle Financial standing statement The Company s financial standing statement as of 31 st December 2011 was closed with the amount of PLN 43,950 thousand. The Company s net assets (book value) amounted to PLN 36,851 thousand, which means PLN for one share. Assets Fixed assets At the end of the year 2011, fixed assets amounted to PLN 26,364 thousand and constituted 60.0% of the Company s assets. Changes in the amount and structure of individual fixed assets in the accounting period are illustrated by the following tables. Table 1. Changes in fixed assets, in PLN thousand Detailed list Value Participation Value Participation (%) (%) Change % Total fixed assets, including: ,0% ,0% -6,4% Tangible fixed assets ,0% ,0% -6,5% Other intangible assets 68 0,3% 15 0,1% 353,3% Deferred income tax assets 736 2,8% 813 2,9% -9,5% In the year 2011, the total value of total fixed assets decreased by 6.4% in comparison to the end of the previous year. The value of fixed assets depends on tangible fixed assets (97.0%),

78 which decreased by 6.5%, mainly as a result of amortization. The increase in other intangible assets (by PLN 53 thousand) was connected with purchase of computer software. Deferred income tax assets decreased by PLN 77 thousand in comparison to the end of 2010, mainly due to repayment of leasing liabilities and clearance of a loss from the previous years. Table 2. Structure of tangible fixed assets, in PLN thousand Detailed list Value Participation Value Participation (%) (%) Change % Total fixed tangible assets, including: ,0% ,0% -6,5% - land (including perpetual usufruct of land) ,3% ,9% - - buildings and structures ,4% ,1% -3,9% - technical equipment and machines ,1% ,8% -10,4% - means of transport 331 1,3% 262 1,0% 26,3% - other fixed assets ,9% ,2% -13,2% In 2011, there was a decrease in tangible fixed assets by PLN 1,781 thousand in comparison with the end of the year The Company s property is mostly buildings and structures (48.4%) as well as machines and equipment (39.1%). The greatest decrease in tangible fixed assets was noted in the group of technical equipment and machines (by PLN 1,159 thousand) and was caused by amortization and a low level of investment expenditure. Current assets At the end of the year 2011, current assets reached the amount of PLN 17,586 thousand and constituted 40.0% of the value of the Company s assets. In the year 2011, there was a decrease of the current assets value by 7.6% in comparison to the end of the year The most valuable items of current assets are cash and cash equivalents (38.4%), trade receivables and other receivables (32.6%) and supplies (27.8%). The greatest decrease in the value of current assets was observed in the item cash and cash equivalents (by PLN 2,691 thousand), which was related to allocation of funds to buy-back of own shares. The greatest value-based and percentage-based increase in current assets (by PLN 905 thousand, i.e. by 22.7%) was noted in the item supplies as regards materials and production in progress. The increase in materials by PLN 633 thousand was related to purchase of a greater amount of materials (for favorable prices) in the 4 th quarter of 2011 with consideration of the needs of the 1 st quarter of The increase in supplies of production in progress is related to manufacture of a bigger number of sub-assemblies and

79 recurrent elements in order for improving order fulfillment punctuality. Table 3. Changes in current assets, in PLN thousand Detailed list Participation Value Value % Participation % Change % Total current assets, including: ,0% ,0% -7,6% Supplies, including: ,8% ,9% 22,7% - materials ,6% ,2% 32,6% - production in progress ,1% ,9% 15,8% - final products 358 2,0% 353 1,9% 1,4% - goods 1 0,0% 1 0,0% 0,0% Trade receivables and other receivables ,6% ,7% 4,8% - due for supplies and services ,6% ,9% 4,7% - other receivables 174 1,0% 161 0,8% 8,1% Income tax receivables 121 0,7% 26 0,1% 365,4% Financial assets 16 0,1% 42 0,2% -61,9% Cash and cash equivalents ,4% ,6% -28,5% Prepayments and accruals 72 0,4% 61 0,3% 18,0% Fixed assets allocated for disposal At the end of 2010, fixed assets allocated for disposal amounted to PLN 434 thousand. During the year 2011, assets with book value of PLN 208 thousand were sold, assets with value of PLN 117 thousand were returned to use, and write-offs revaluing fixed assets allocated for disposal were increased by PLN 109 thousand. The latter was connected with failure to sell the assets within 1 year. That item did not occur as of the end of Equity and liabilities Equity As of the end of 2011, equity constituted 83.8% of the total sum of equity and liabilities and amounted to PLN 36,851 thousand. Changes in the value and structure of the capitals are presented in the following table. Table 4. Amount and structure of equity, in PLN thousand Detailed list Participation Value Value % Participation % Change % Total equity, including: ,0% ,0% -8,8% Initial capital ,7% ,3% - Own shares ,1% Other capitals ,0% ,8% 2,5% Net profit (loss) ,4% 752 1,9% 114,4% The decrease of equity by 8.8% in relation to the year 2010 was influenced by the buy-back

80 of own shares for the amount of PLN 5,179 thousand. Long-term and short-term liabilities Long-term liabilities amounted to PLN 3,674 thousand and constituted 8.4% of the total equity and liabilities position. Changes in the value and structure of individual elements of that item are presented in the following table. Table 5. Changes in long-term liabilities, in PLN thousand Detailed list Participation Value Value % Participation % Change % Total long-term liabilities, including: ,0% ,0% -3,2% Deferred income tax provisions ,7% ,8% -8,0% Long-term provisions for liabilities ,3% ,2% 18,7% In the period under consideration, there was a decrease (by 3.2%) of long-term liabilities in comparison to the end of the year The decrease (by 8.0%) occurred in the item deferred income tax provisions and was related to reduction of the difference between the current tax value and the book value of fixed assets. The increase in long-term liabilities was observed in provisions for liabilities (by 18.7%) and resulted from an actuarial measurement of employee provisions. Short-term liabilities amounted to PLN 3,425 thousand and constituted 7.8% of the total equity and liabilities. The changes and structures of particular elements in that item are presented in the following table. Table 6. Changes in short-term liabilities, in PLN thousand Detailed list Participation Value Value % Participation % Change % Total short-term liabilities, including: ,0% ,0% 0,2% 1. Due for other units, including: ,0% ,3% -5,1% 1.1. Liabilities due for supplies and ,0% ,7% 7,4% services and other liabilities, including: - due for supplies and services ,6% ,1% 33,8% - other liabilities ,4% ,6% -15,9% 1.2. Leasing liabilities ,6% -100,0% 1. Short-term provisions ,0% ,3% 27,5% 2. Prepayments and accruals ,4% -100,0% Short-term liabilities remained on a similar level in comparison to the end of the year 2010.

81 The increase was noted in the group of liabilities due for supplies and services (by 33.8%), which was related to a significant engagement of material purchases for the needs of the 1 st quarter of The increase in the provisions item (by 27.5%) referred to provisions for employee benefits, as well as other provisions, i.e. ones for the Management Board bonus, for termination pays for the Management Board and for warranty repairs. The decrease in other liabilities referred to liabilities due for taxes, customs duties, insurances and other benefits. Besides, in 2011, the Company made a full repayment of leasing liabilities. That item does not occur as of the end of the year Profit and loss account Income from sales Net income from sales and equalized to it amounted to PLN 31,524 thousand in the year 2011 and increased by 8.8% in comparison to the year Table 7. Net income from sales and equalized to it, in PLN thousand Detailed list Change % Net income from sales and equalized to it, including: ,8% - income from sales of products and services ,1% - income from sales of materials and goods ,5% - change in position of products ,1% - costs of manufacturing products for the Company s own needs ,6% The increase of income from sales resulted mainly from a significant increase (by PLN 3,062) of income from sales of products and services. Other income Other income in the year 2011 amounted to PLN 603 thousand and referred to other income. In that group, the following had a significant importance: adjustments of write-offs revaluing non-financial assets, amounting to PLN 466 thousand (supplies: amounting to PLN 307 thousand, receivables: amounting to PLN 64 thousand, and fixed assets: amounting to PLN 95 thousand). Apart from that, other income mostly included: income from sales of waste and packages, amounting to PLN 42, inventory surpluses with the value of PLN 27 thousand and income from materials and products scrapping, in the amount of PLN 20 thousand. Financial income Financial income for the year 2011 amounted to PLN 798 thousand. That value was mostly

82 made up of interest on funds accumulated on bank accounts (together with interest on receivables) in the amount of PLN 473 thousand as well as positive exchange rate differences amounting to PLN 306 thousand. Costs of operating activity Costs of operating activity incurred in the year 2011 amounted to PLN 30,050 thousand and were higher by 7.5% in comparison to Table 8. Costs of operating activity, in PLN thousand Detailed list Participation Value % Participation Value % Change % Total costs of operating activity, including: ,0% ,0% 7,5% Amortization ,8% ,5% -12,3% Materials and power consumption ,5% ,3% 5,6% Outsourcing ,8% ,8% 7,2% Taxes and other charges 739 2,4% 761 2,7% -2,9% Remunerations ,6% ,0% 19,7% Social insurances and other benefits ,1% ,4% 20,4% Other costs by type 542 1,8% 615 2,2% -11,9% Value of goods and materials sold 286 1,0% 276 1,0% 3,6% Other costs In the period under examination, other costs amounted to PLN 789 thousand and were lower by 30.5% than in the previous year. The level of other costs was mostly influenced by: a loss from disposal of non-financial fixed assets PLN 114 thousand, revaluation of nonfinancial assets PLN 456 thousand, including: fixed assets allocated for disposal PLN 184 thousand, receivables in the amount of PLN 195 thousand, supplies PLN 77 thousand, as well as costs of scrapping of materials, production in progress and products, amounting to PLN 147 thousand. Financial costs Financial costs in 2011 amounted to PLN 131 thousand and were lower by 28.8% than the costs in The costs included: revaluation of investments PLN 25 thousand, interest on leasing agreements and liabilities amounting to PLN 8 thousand, losses from financial instruments 41, costs resulting from revaluation of financial liabilities PLN 19 thousand and commissions connected with securities trade amounting to PLN 35 thousand, as well as bank commissions for PLN 3 thousand.

83 Financial results Financial results of the Company in individual segments of its activity are the following. Table 9. Financial results, in PLN thousand Detailed list Change % Profit / loss from sales ,7% Profit / loss from operating activity ,4% Gross profit / loss ,1% Net profit / loss ,4% As for the basic activity, in 2011 the Company noted a profit from sales amounting to PLN 1,474 thousand, i.e. by 44.7% higher than in 2010 (PLN 1,019 thousand). From other activity, in 2011 the Company noted a loss amounting to PLN 186 thousand (income: PLN 603 thousand, costs: PLN 789 thousand). In the previous year, the loss from other activity amounted to PLN 401 thousand. The Company s financial activity in 2011 resulted in a profit of PLN 667 thousand (income: PLN 798 thousand, costs: PLN 131 thousand), mainly due to interest on funds accumulated on bank accounts and positive exchange rate differences. In the previous year, the Company had a profit from financial activity amounting to PLN 228 thousand. From overall activity in 2011, the Company achieved a net profit of PLN 1,612 thousand and it was over twice as big as the net profit for the previous year (by PLN 860 thousand). 1.3 Ratio analysis Financial ratios illustrate the Company s standing over the last two years. Table 10. Financial ratios Detailed list Profitability of sales profit (loss) from sales / income from sales and equalized to it 4,7% 3,5% EBIT profitability profit (loss) from operating activity / income from sales and equalized to it 4,1% 2,1% EBITDA profitability profit (loss) from operating activity + amortization / income from sales and equalized to it 11,5% 11,3% Net profitability of sales net profit (loss)/ income from sales and equalized to it 5,1% 2,6% Return on equity (ROE) net profit (loss)/ equity capital 4,4% 1,9% Return on assets (ROA) net profit (loss)/ total assets 3,7% 1,6% Current liquidity ratio current assets / short-term liabilities 5,1 5,6 Quick ratio current assets supplies / short-term liabilities 3,7 4,4 Supplies cycle (in days) supplies x number of days in the period / costs of operating activity 59 52

84 Detailed list Cycle of recovering receivables due for deliveries and services (in days) receivables due for deliveries and services x number of days in the period / income from sales and equalized to it Cycle of payment of liabilities due for deliveries and services (in days) liabilities due for deliveries and services x number of days in the period / costs of operating activity Total debt ratio total liabilities / total assets 16,2% 15,1% Debt to equity ratio total liabilities / equity 19,3% 17,8% Ratio of coverage of fixed assets with equity (golden balance sheet rule) equity / fixed assets 139,8% 143,5% Ratio of coverage of fixed assets with constant capital (golden bank rule) equity + long-term liabilities / fixed assets 153,7% 157,0% The results of ratio analysis show a good economic and financial standing of the Company in the year All profitability ratios were positive and much higher than in the previous year. Liquidity ratios are still on a high level but they were improved in comparison to the year The Company lowered the excess liquidity by decreasing the possessed cash, which they spent on purchase of own shares (PLN 5,179 thousand). The value of cash as of the end of 2011 is still high (PLN 6,754 thousand). Pursuant to EGM resolutions of 13 th March 2012, the Company is going to continue buy-back of own shares, which will further improve liquidity ratios. The ratios of the Company s debt are on a safe level. The Company virtually uses its own resources to cover its needs. The golden balance sheet rule and golden bank rule are observed: equity and constant capitals fully cover the fixed assets. As a result of systematic control and preventive actions concerning supplier and recipient management, ratios of efficiency concerning receivables and liabilities were improved. 2. Basic information on the markets, products and goods Description of the Company s basic sources of activity POLNA S.A. has in its offer a few products groups of various assortments. The leading group is automatic control engineering products (including regulatory valves, pneumatic actuators or steam desuperheaters). Apart from those, the Company manufactures heat engineering products (direct action regulators, net filters, needle valves and gauge valves), casts and central lubrication equipment. The following table and chart present the participation of individual assortment groups in revenues from product sales. Table 11. Products sales divided into groups, in PLN thousand Detailed list Total income from products sales, including: Year 2011 Structure [%] Year 2010 Structure [%] Change 2011/2010 Value % ,0% ,0% ,1%

85 Detailed list Year Structure Year Structure Change 2011/ [%] 2010 [%] Value % Automatic control engineering ,5% ,8% ,5% Heat engineering ,0% ,9% ,5% Central lubrication equipment ,4% ,8% ,4% Hydraulic control equipment 593 1,9% 541 2,0% 52 9,6% Laboratory equipment ,6% ,5% ,2% Casts ,5% ,6% ,4% Others 632 2,1% 657 2,4% -25-3,8% Income from sales of materials and goods Total income from sales of products, goods and materials ,0% ,0% 46 14,5% ,0% ,0% ,1% In 2011, the Company obtained income from sales of products, goods and materials on the level of PLN 31,108 thousand; that amount was higher by 11.1% than in the previous year. In all assortment groups except laboratory equipment and other income, significant increases of income from sales were observed. The increase of income level was mostly caused by improvement in organization of manufacture and more effective marketing activities. Automatic control engineering products (increase by 10.5%) This group includes regulatory valves together with pneumatic actuators, butterflies and steam desuperheaters. They are used as actuators in automatic engineering and automatic control systems for regulation of media flow. A wide scope of material manufactures and construction versions allows for the valves to be used in many braches of industry, such as chemical industry, heat and power industry, paper-making and food industries, smelting and mining. Manufacturing various construction versions of the offered products, resulting in adjustment to customers individual needs in a relatively short time of order fulfillment, is

86 the Company s strength. In 2011, the Company obtained income at the level of PLN 20,439 thousand from sales of products in the automatic control engineering group, which means an increase by 10.5% in comparison to the previous year. The share of this group in the structure of income from sales amounts to 66.5% and is comparable to the previous year. Heat engineering equipment (increase by 13.5%) The greatest participation in this group is different versions of direct action regulators. Regulators are designed for regulation of required pressure, difference of pressures or flow in a technological system connected with the outlet of regulator s valve. They are used in heating systems, industrial processes with flow of cold and hot water, steam, air and non-flammable gases. They are mainly sold for heat plants, heat and power plants and boiler plants. In 2011, income from sales amounting to PLN 2,472 thousand was obtained in that group, which meant 13.5% of increase in relation to the previous year. Central lubrication equipment (increase by 21.4%) This group includes loading pumps, metering pumps. The pumps are designed for lubrication of friction pairs in machines and devices by means of metering distributors. They are recommended for use in highly-loaded machines and devices, with a big number of lubrication points distributed at considerable distances from each other and requiring intensive lubrication, e.g. machines and devices in ironworks, steelworks and non-ferrous metals smelting plants, in strip mines, plants manufacturing building materials, sugar factories, cement plants and other facilities with similar equipment and working conditions. In 2011, that group was characterized by the greatest increase in sales in comparison to the previous year, amounting to 21.4%. As regards the value, income from sales of central lubrication equipment amounted to PLN 1,953 thousand. Hydraulic control equipment (increase by 9.6%) That group mostly includes hydraulic distribution valves, as well as distributors designed for hydraulic systems of construction machines. The main recipient of those products is the Huta Stalowa Wola S.A. steelworks. Sales of those devices depends on the demand for construction machines produced by HSW. In 2011, sales of equipment in this group amounted to PLN 593 thousand, which meant an increase by 9.6% in comparison to the previous year. Laboratory equipment (decrease by 11.2%) As part of this product group, water distillers and redistillers are manufactured in the Company. They are mostly designed for use in laboratories, pharmacies and hospitals. New

87 technologies used in that area (such as reversed osmosis) and other solutions designed by the competition (glass distillation apparatuses) make our products slowly disappear from the market. That is confirmed by the decrease of income from sales observed in this product group. The obtained level of income from sales in this product group is PLN 1,115 thousand, which is 11.2% less than in Casts (increase by 20.4%) As part of its activity, the Company manufactures casts made of grey cast iron and spheroidal cast iron, and in a limited scope also of cast carbon steel. In 2011, some actions were carried out aimed at obtaining a bigger number of orders for casts manufactures. The effect of those actions is a considerable increase of income from sales in that assortment group. In 2011, the Company obtained income from sales of casts in the amount of PLN 3,540 thousand, which was an increase in comparison to the previous year by 20.4%. Areas of sale The following table and chart present income from sales divided into geographical areas. Table 12. Products sales divided into geographical areas, in PLN thousand Detailed list Year 2011 Structure [%] Year 2010 Structure [%] Change 2011/2010 Value % Total income from products sales, including: 100,0% ,0% ,1% Domestic ,8% ,6% 442 2,2% Export, including: ,2% ,4% ,6% - Internal delivery of goods to EU ,8% ,6% ,9% - Export beyond EU ,3% ,8% 3 0,2%