MANAGEMENT REPORT ON THE OPERATIONS OF THE ŚNIEŻKA CAPITAL GROUP IN THE YEAR 2011

Transcription

1 MANAGEMENT REPORT ON THE OPERATIONS OF THE ŚNIEŻKA CAPITAL GROUP IN THE YEAR 2011

2 Contents 1. Basic information concerning the Śnieżka Capital Group Śnieżka Capital Group facts and figures Capital Group Details: Organizational or capital ties as of 31 December Major domestic and foreign investments Changes in the management of the company and the Salaries of managers and supervisors Agreements concluded between the issuer and managerial staff, providing for a compensation if such persons resign or are dismissed from their position without a valid reason or if they are recalled or dismissed as a result of a merger of the issuer by acquisition Number and nominal value of shares and stock held in the Company and its subsidiaries by managers and supervisors Purchase of treasury shares Agreements relating to potential changes in the shareholding structure of the Company Principles of drawing up the annual financial statements Description of the Capital Group s business Strategic objectives of the Capital Group Presentation of economic and financial data...22 Assets and financing Financial performance report assets (in PLN thousands) Sources of finance Evaluation of factors and extraordinary events affecting the result Core products, goods and services Target markets and sources of supply Information concerning key agreements concluded by the Company Key transactions concluded with subsidiaries Loans and borrowings concluded and terminated agreements Information concerning loans and guarantees granted and loans, sureties and guarantees obtained Financial assets management Evaluation of investment capacity Revenues from the issue of securities Commentary on the differences between the actual financial performance disclosed in the annual report and previously published forecasts for the year Other disclosures Risk and threat factors Significant factors affecting the Capital Group s growth Major research and development achievements Environmental issues...37 Page 2

3 3.5. Employment Information concerning the entity authorized to audit the financial statements Events with significant impact on the Company s operations Financial ratios Current and predicted financial situation Information concerning court proceedings pending The Parent Company s declaration of corporate governance Rules of corporate governance Waived rules of corporate governance Major characteristics of the issuer s business as regards systems of internal control and risk management applicable to the process of preparation of financial statements and consolidated financial statements Large shareholders Shareholders with special controlling rights Voting right restraints Restrictions on the transfer of security ownership The rules for appointing and dismissing managerial and supervisory staff and establishing and revoking their rights Amendments to the Articles of Association of the Parent Company Procedures and basic rights of the General Meeting; description of the rights of shareholders and ways of their exercising Composition of managing and supervising bodies, their committees, with changes and procedures Corporate Social Responsibility The major prizes and awards granted to Śnieżka in Summary Page 3

4 1. Basic information concerning the Śnieżka Capital Group 1.1. Śnieżka Capital Group facts and figures PLN >> Revenues from sales PLN >> Operating profit PLN >> Net profit PLN 1.27 >> Profit per share 1053 people >> employment as of 31 December Capital Group Details: The Capital Group comprises: Fabryka Farb i Lakierów Śnieżka S.A. (Paint and Varnish Company) Parent company Registered office: Lubzina 34 a pow. ropczycko - sędziszowski woj. podkarpackie Tel: Fax: Branches: 1. Lubzina 34 a Lubzina pow. Ropczycko-sędziszowski woj. Podkarpackie 2. ul. Dębicka Brzeźnica pow. dębicki woj. Podkarpackie 3. Pustków Pustków pow. dębicki woj. Podkarpackie Page 4

5 Company formation: The Company conducts its operations in accordance with its Articles of Association adopted by the Meeting of Shareholders and drawn up in the form of a Notarial Deed, Register A No. 121/98 supplemented with Deed No. 754/98 of The Company was registered in Section B of the Commercial Register by the District Court in Rzeszów, 5 th Commercial Division on under the number Moreover, the Company was entered in the National Court Register under the number on by the District Court in Rzeszów, 12 th Commercial Division of the National Court Register. The Company was registered in the Polish Central Office for Statistics and was assigned the following REGON Number: The Company was also registered for tax purposes, its NIP (tax number) being Company s business: Manufacture of paints, varnishes, solvents, adhesives, putty and resins, commercial and financial agency, domestic and international road transport services, freight forwarding, production of construction materials, construction, wholesale and retail sale excluding sale of vehicles, production of chemicals and chemical goods, research and development, hire and lease, etc. Share capital: As of 31 December 2011, the Company s share capital amounted to PLN and comprised shares, each worth PLN 1,00. Representation: Supervisory Board: Before 17 June 2011 the Supervisory Board comprised: Stanisław Cymbor Chairman Jerzy Pater Deputy Chairman Stanisław Mikrut Secretary Anna Pater Member Jakub Bentke Member Zbigniew Łapiński Member On 17 June 2011, the General Meeting of Shareholders appointed the Supervisory Board of the 6 th term consisting of: Stanisław Mikrut Chairman Jerzy Pater Deputy Chairman Stanisław Cymbor Secretary Anna Pater Member Dariusz Orłowski Member Zbigniew Łapiński Member Page 5

6 Management Board: Piotr Mikrut President of the Management Board since 31 March 2004, Witold Waśko Deputy President since 1 April 2005, Joanna Wróbel-Lipa Member of the Management Board since 18 December 2007, Walentyna Ochab was Member of the Management Board from 18 December 2007 until 5 May In 2011, the composition of the Management Board changed as follows: - On 5th of May, Ms Walentyna Ochab resigned of her function as the Member of MB, - on 6 May 2011 President of MB appointed Ms Joanna Wróbel-Lipa to be the Deputy President of the Management Board. HADROKOR Spółka z o.o. Subsidiary consolidated under the full method Registered office: Włocławek ul. Smocza 19 woj. kujawsko-pomorskie Tel Sales Fax info@hadrokor.com.pl Company formation: The Company was registered on in the District Court in Toruń, 7th Commercial Division of the National Court Register under the KRS No Company s business: Manufacture of paints, varnishes, solvents, etc. Wholesale and retail sale of construction materials, Research, development and design. Share capital: PLN comprising 828 shares, each worth PLN 1,000. In 2011 the value of the Company s share capital did not change. Page 6

7 Main shareholders of the Limited Liability Company: Fabryka Farb i Lakierów Śnieżka S.A % Daniel Sylwester Hadrowicz % Drozd Anna % Pełka Katarzyna % Other shareholders with less than 5% of shares. In 2011 there were no changes in the Company s shareholding structure. Representation Supervisory Board: Tadeusz Mieczysław Drozd Chairman Jarosław Kocik Deputy Chairman Daniel Sylwester Hadrowicz Secretary Jerzy Pater - Member Witold Waśko Member In 2011, there were no changes in the composition of the Supervisory Board. Management Board: Grzegorz Komorowski President of the Management Board since 1 January In 2011, there were no changes in the composition of the Management Board. Registered office: Yavoriv Prywokzalna 1A Lviv Oblast, Yavorivsky Raion Ukraine Śnieżka Ukraina Spółka z o.o. in Yavoriv - Subsidiary consolidated under the full method Directors tel./fax ; Marketing tel./fax ; marketing@sniezka.ua info@sniezka.ua Page 7

8 Company formation: The Company was registered on in the Ukraine s Unified State Register of Companies and Institutions under the number Company s business: Manufacture of paints, varnishes, solvents, adhesives, putty, etc. Wholesale and retail sale of construction materials. Main shareholders of the limited liability company: Since 5 March 2010 until present: Fabryka Farb i Lakierów Śnieżka S.A % Ilia S. Rojzen % Elwira L. Gołod % Żanna Kardasz % Piotr M. Pomiłujko % Natalia O. Gołod % In 2011 there were no changes in the Company s shareholding structure. Share capital: UAH 415,700 In 2011 the value of the Company s share capital did not change. Audit Committee: Jarosław Kocik - Chairman Ilia S. Rojzen - Member Walentyna Ochab - Member In 2011, there were no changes in the composition of the Audit Committee. Management Board (Directors): Jerzy Pietrzyk Managing Director from 12 February 2008 until 30 September Since 1 October 2011 Mr Marek Pawluś has been the Company s Managing Director. Page 8

9 Registered office: Śnieżka Spółka z o.o. in Vistova, Ukraine - Subsidiary consolidated under the full method Vistova Strilciw 1B Ivano-Frankivsk Oblast, Kalush Raion Ukraine Tel: Fax: Company formation: The Company was registered on in the Ukraine s Unified State Register of Companies and Institutions under the number Company s business: Manufacture of paints, varnishes, solvents, adhesives, putty, etc. Wholesale and retail sale of construction materials. Shareholders of the limited liability company: Shareholding structure until 29 April 2011: Fabryka Farb i Lakierów Śnieżka S.A % Śnieżka Ukraina Sp. z o.o. Yavoriv % On 29 April 2011, FFiL Śnieżka SA sold all of its shares in Śnieżka Sp. z o.o. in Vistova (74% share capital) to Śnieżka Ukraina Sp. z o.o. in Yavoriv, owner of 26% of shares in Śnieżka Sp. z o.o. in Vistova. Shareholding structure since 29 April 2011: Śnieżka Ukraina Sp. z o.o. Yavoriv % Share capital: Before 13 December 2011: UAH until 13 December 2011 Since 13 December 2011: Śnieżka Ukraina Sp. z o.o. UAH On 13 December 2011 the Extraordinary General Meeting of Shareholders in Śnieżka Sp. z o.o. in Vistova decided to reduce the share capital from UAH to UAH Page 9

10 Audit Committee: Walentyna Ochab - Chairman Ilia S. Rojzen - Member Jarosław Kocik - Member In 2011, there were no changes in the composition of the Audit Committee. Management Board (Directors): Wołodimir D. Lisnij Managing Director since Ludmiła M. Sołowiej Managing Director from until Registered office: Zhodino ul. Dorożnaja 3/1 Minsk Oblast Republic of Belarus ŚNIEŻKA - BELPOL Sp. z o.o. in Zhodino near Minsk - Subsidiary consolidated under the full method Tel: Fax: Company formation: The Company was registered on in the State Register of Legal Entities and Private Entrepreneurs of Belarus under the number On 1 September 2005 the Belarussian and Polish company Śnieżka Sp. z o.o. was renamed to Śnieżka BELOPOL Sp. z o.o. Company s business: Manufacture of paints, varnishes, solvents, etc. Wholesale and retail sale of construction materials, Road transport of heavy goods. Share capital: USD , ie. BYR In 2011 the value of the Company s share capital did not change. Shareholders of the limited liability company: Until 5 March 2012: Page 10

11 Fabryka Farb i Lakierów Śnieżka S.A % Anatolij Szeleg - 12 % On 5 March 2012 Fabryka Farb i Lakierów Śnieżka SA acquired 12% of shares in its subsidiary, Śnieżka Belpol Sp. z o.o. in Zhodino (Belarus). The shares were purchased from the previous shareholder, Mr Anatolij Szeleg. At the same time, Śnieżka SA sold 1% of its shares in Śnieżka Belpol Sp. z o.o. to Mr Anatolij Niewmierzyckij. The shareholding structure since 5 March 2012: Fabryka Farb i Lakierów Śnieżka S.A % Anatolij Niewmierzyckij % Representation Audit Committee: Jarosław Kocik - Chairman Walentyna Ochab - Member Anatolij A. Szeleg - Member On 30 March 2012 the Meeting of Shareholders of ŚNIEŻKA-BELPOL Sp. z o.o. decided that no Audit Committee should be appointed for the subsequent period. Instead of the Audit Committee, Mr Jarosław Kocik was appointed as the Company s Auditor. Management Board (Directors): Anatolij Niewmierżyckij Director In 2011 there were no changes in the Company s Directors. SNIEZKA ROMANIA Sp. z o.o. in Savinesti, Piatra Neamt, Romania Subsidiary consolidated under the full method. Registered office: Savinesti Aleea Parcului 1, Neamt County Romania Tel./Fax: office@sniezka.ro Company formation: On 30 August 2006, SNIEZKA ROMANIA S.R.L. (a limited liability company) was formed with its registered office in Bucharest, Maresal Josef Pilsudski Nr 2. The Company was Page 11

12 registered on 21 November 2006 in the relevant Commercial Register under the No Company s business: Manufacture of paints, varnishes, solvents, etc., wholesale and retail sales of construction materials, road transport of heavy goods. Share capital: RON In 2011 the value of the Company s share capital did not change. Shareholders of the limited liability company: Fabryka Farb i Lakierów Śnieżka S.A. 80 % Andrei Zamfirescu - 10 % Viorica Baston - 10 % In 2011 the value of the Company s share capital did not change. Representation Censor s Board: Jarosław Kocik Chairman - Censor Witold Waśko - Censor Aurelia Strat - Censor In 2011 there were no changes in the composition of the Company s Board of Censors. Management Board (Directors): Andrei Zamfirescu General Manager since the day of incorporation. Viorica Baston Sales Director from the day of incorporation until 29 August On 29 August 2011 the Extraordinary Meeting of Shareholders appointed Mr Andrei Zamfirescu as the Company s Administrator. Fabryka Farb i Lakierów Proszkowych PROXIMAL Sp. z o.o. Śnieżka Group in Lubzina Subsidiary consolidated under the full method. Registered office: Lubzina 34 a pow. ropczycko - sędziszowski woj. podkarpackie Page 12

13 Tel Fax: Company formation: The Company was registered on in the District Court in Rzeszów, 12th Commercial Division of the National Court register under the KRS No On 21 June 2006, by way of a resolution of the Extraordinary Meeting of Shareholders, the Company s name was changed to Fabryka Farb i Lakierów proszkowych Proximal Sp. z o.o. Grupa Śnieżka. The Company s registered office was changed on 30 September 2010 by way of a resolution of the Extraordinary Meeting of Shareholders. Company s business: - real estate management Share capital: PLN comprising 4850 shares, each worth PLN 500. Shareholders of the limited liability company: Fabryka Farb i Lakierów Śnieżka S.A % In 2011 the value of the Company s share capital did not change. Representation: Supervisory Board Stanisław Cymbor - Chairman Stanisław Mikrut - Member Jarosław Kocik - Secretary In 2011, there were no changes in the composition of the Supervisory Board. Management Board: Lucyna Gajdek President of the Management Board since 1 August IP SOLUTIONS Sp. z o. o. in Brzeźnica unconsolidated subsidiary (to be consolidated under the full method next year). Registered office: Brzeźnica Brzeźnica 18 pow. Dębica woj. podkarpackie Page 13

14 Tel Company formation: The Company was registered on 21 December 2010 in the District Court in Rzeszów, 7th Commercial Division of the National Court Register under the KRS No Company s business: - management and administration of the protection rights to trademarks of the issuer, Share capital: PLN comprising shares, each worth PLN 50. Shareholders of the limited liability company: Fabryka Farb i Lakierów Śnieżka S.A % Representation: Supervisory Board not appointed Management Board: Witold Waśko President of the Management Board since 21 December TM INVESTMENT Sp. z o.o. in Brzeźnica unconsolidated subsidiary (to be consolidated under the full method next year). Registered office: Brzeźnica Brzeźnica 18 pow. Dębica woj. podkarpackie Tel Company formation: The Company was registered on 22 December 2010 in the District Court in Rzeszów, 12th Commercial Division of the National Court Register under the KRS No Company s business: - management and administration of the protection rights to trademarks of the issuer. Page 14

15 Share capital: Until 20 September 2011: PLN comprising 100 shares, each worth PLN 50. Since 20 September 2011: PLN comprising shares, each worth PLN 50. Shareholders of the limited liability company: IP Solutions Sp. z o.o shares, each worth PLN 50, Fabryka Farb i Lakierów Śnieżka S.A. 100 shares, each worth PLN 50. Representation: Supervisory Board not appointed Management Board: Joanna Wróbel - Lipa President of the Management Board since 15 December II. Capital ties also concern the following Companies consolidated under the equity method in relation to the value of transactions contracted with the parent company: Plastbud Sp. z o.o. in Pustków 10.07% of shares Page 15

16 Structure of the Capital Group as at 31 December 2011: Capital Group G r u p a k a p ita ło w a Hadrokor Sp. z o.o. in Włocławek 51.09% H a d r o k o r S p z o.o. w e W ł o c ła w k u 5 1,0 9 % F a b r y k a F a r b i L a k ie r ó w Ś n ieżk a S A Śnieżka Ukraina Sp. z o.o. in Yavoriv 81.27% shares Ś n ieżk a U k r a in a S p z o.o w J a w o r o w ie 8 1,2 7 % u d z ia łó w Fabryka Farb i Lakierów Proszkowych Proximal Sp. z o.o. in Brzeźnica % F a b r y k a F a r b i L a k ie r ó w P r o s z k o w y c h P r o x im a l S p. z o.o. w B r z eźn ic y 1 0 0,0 0 % IP SOLUTIONS Sp. z o.o. in Brzeźnica 100% shares I P S O L U T I O N S S p. z o.o. w B r z eźn ic y % u d z ia łó w Ś n ieżk a S p. z o.o. w W is to w e j 1 0 0,0 0 % u d z ia łó w (p oś r e d n io ) Śnieżka Sp. z o.o. in Vistova % shares (indirectly) Ś n ieżk a B E L -P O L Śnieżka BEL-POL Sp. z o.o. in Zhodino near Minsk 88% shares 8 8 % u d z ia łó w S p z o.o. w Ż o d in o k o ło M iń s k a Śnieżka Romania Sp. z o.o. 80% shares S n ie z k a R o m a n ia S p. z o.o. 8 0 % u d z ia łó w Capital ties P o w ią z a n ia k a p ita ło w e TM TINVESTMENT M I N V E S T M ESp. N T z So.o. p z o.o. in Brzeźnica w B r z eźn ic y 100% % shares u d z ia łó(directly w (b e z p oś0.003%, r e d n io indirectly 0,0 0 3 % %), p oś r e d n io 9 9,0 0 7 % ) T M PI LN AV SE TS BT UM D E N T S S p. z o.o. w BP ur zs eźn tk o wic ie y 15 0 %,0 7 u% d z ia u dłó zw ia łó w PLASTBUD Sp. z o.o. in Pustków 10.07% shares 1.3. Organizational or capital ties as of 31 December ŚNIEŻKA Capital Group comprises: ŚNIEŻKA UKRAINA Sp. z o.o. in Yavoriv 81.27% shares ŚNIEŻKA Sp. z o.o. in Vistova, Ukraine 100% shares held indirectly via Śnieżka Ukraina Sp. z o.o. HADROKOR Sp. z o.o. in Włocławek 51.09% shares ŚNIEŻKA - BELPOL Sp. z o.o. in Zhodino near Minsk 88% shares SNIEZKA ROMANIA Sp. z o.o. in Savinesti, Romania 80% shares. IP SOLUTIONS Sp. z o.o. in Brzeźnica, % shares, TM INVESTMENT Sp. z o.o. in Brzeźnica, % shares (0.003 % held indirectly, %; held indirectly), Fabryka Farb i Lakierów Proszkowych PROXIMAL Spółka z o.o. Grupa Śnieżka with its registered office in Lubzina. FFiL Śnieżka SA holds % shares in this company. There are also capital ties with Plastbud Sp. z o.o. in Pustków 10.07% shares. Page 16

17 Cooperation with the subsidiaries and companies of the capital group: Śnieżka Ukraina Sp. z o.o. in Yavoriv is one of Ukraine s manufacturers of paints and putty and the main distributor of products made by FFiL Śnieżka SA in Brzeźnica. The products are sold under the Śnieżka brand name. The company has a significant manufacturing capacity and its own network of customers. Śnieżka Sp. z o.o. in Vistova was one of Ukraine s manufacturers of solvent-based paints. At the beginning of 2011 its production assets and operating activities were transferred to Śnieżka Ukraina Sp. z o.o. in Yavoriv. HARDROKOR Sp. z o.o. in Włocławek manufactures high-quality anticorrosive products solder under the Śnieżka brand name and under its own brand. It has its own manufacturing capacity, technologies, skilled and experienced staff, as well as its own market. Hardrokor s products enriched Śnieżka s offer and extended the number of Śnieżka s industrial customers. ŚNIEŻKA - BELPOL Sp. z o.o. in Zhodino near Minsk is one of Belarus manufacturers of putty, paints and varnishes. The products manufactured by the Company are sold under the Śnieżka brand name. The Company has developed a network of its own wholesale and retail clients. SNIEZKA ROMANIA Sp. z o.o. in Savinesti, Romania in 2011 the company s core business consisted in distribution of Sniezka s products in the Romanian market. Currently, the Company is being liquidated. IP SOLUTIONS Sp. z o.o. in Brzeźnica currently holds a majority stake in TM Investment Sp. z o.o. In 2011 the Company s core operations consisted in management of trademarks. TM INVESTMENT Sp. z o.o. in Brzeźnica the Company s business consists in licensing Group s subsidiaries to use trademarks. Fabryka Farb i Lakierów Proszkowych PROXIMAL Sp. z o.o. Śnieżka Group, with its registered Office in Brzeźnica cooperated with Fabryka Farb i Lakierów Proszkowych PROXIMAL Sp. z o.o. to rent real property, including for the use of the parent company. Moreover, cooperation was held with the following equity-related companies: Plastbud Sp. z o.o. in Pustków production of Colorex pigments and pigments for the Śnieżka colouring system. The Company also supplies certain raw materials and goods Major domestic and foreign investments On 29 April 2011, FFiL Śnieżka SA sold the 74% share in Śnieżka Sp. z o.o. with its registered office in Vistova, Kalush Raion, Ivano-Frankovsk Oblast, the nominal value of which amounted to UAH (seven milion one hundred fifty-two thousand six hundred and three 96/100 hryvnias), for the price of UAH (four milion forty thousand Ukrainian hryvnias, which on the date the contract in question was being notarized amounted to EUR (three hundred forty-two thousand eight hundred seventy-one and 31/100 Euro). The shares were acquired by Śnieżka Ukraina Sp. z o.o. in Yavoriv, who had already owned 26% shares in the Company in question. Page 17

18 On 9 May 2011, FFiL Śnieżka sold 50 shares in FARBUD Sp. z o.o. with its registered office in Lublin for the amount of PLN (four hundred eighty-four thousand seven hundred fifty zloty). The shares were purchased by FARBUD Sp. z o.o. in Lublin which purchased the shares for redemption in accordance with provisions of the Code of Commercial Companies Act of 15 September On 20 July 2011, the Extraordinary Meeting of Shareholders of Śnieżka-Ukraina Sp. z o.o. in Yavoriv agreed to reduce the share capital of Śnieżka Sp. z o.o. with its registered office in Vistova, Kalush raion, Ivano-Frankovsk oblast Ukraine, the nominal value of which amounted to UAH (nine million six hundred sixty-five thousand six hundred and eighty-one) hryvnias to UAH (three million nine hundred sixty-five thousand six hundred and eighty-one). The reduction was proposed by Śnieżka Ukraina Sp. z o.o. in Yavoriv, which holds 100% shares in the Company in question. On 20 September 2011 an agreement was contracted between FFiL Śnieżka SA (Buyer) and IP Solutions Sp. z o.o. (Seller), the issuer s subsidiary. The former acquired 95% of shares in TM Investment Sp. z o.o. with its registered office in Brzeźnica, also the issuer s subsidiary, for the total amount of PLN On 20 September 2011 TM Investment Sp. z o.o, the issuer s subsidiary had its share capital increased from PLN (five thousand zlotys) by the amount of PLN (one hundred sixty-eight million five hundred fifty-three thousand), i.e. by (three million three hundred seventy-one thousand sixty) shares, each worth PLN 50 (fifty zlotys), that is to the amount of PLN (one hundred sixty-eight million five hundred fifty-eight thousand). After the increase, the company s share capital comprises (three million three hundred seventyone thousand one hundred and sixty) shares, each worth PLN 50 (fifty zlotys). Shares in the increased share capital of TM Investment Sp. z o.o. were subscribed for by IP Solutions Sp. z o.o. with its registered office in Brzeźnica, taking up (three million three hundred seventy-one thousand sixty) shares, each worth PLN 50 (fifty zlotys), amounting to PLN (one hundred sixty-eight million five hundred fifty-three thousand). The company made a contribution-in-kind in exchange for all of the abovementioned assets constituting an enterprise within the meaning of Art. 551 of the Civil Code; the value of the company operating under the name IP Solutions Sp. z o.o. was PLN (one hundred sixty-eight million five hundred fifty-three thousand zlotys) as shown by accounting records of the company as of The company s assets include: a) tangible fixed assets amounting to PLN 4 000, including property, plant and equipment, b) short-term receivables amounting to PLN , including trade receivables and other receivables, c) short-term investment amounting to PLN , including loans granted and cash in hand and at bank, d) other current assets amounting to PLN , including protected trademark rights covering the following groups of trademarks: Beston, Foveo Tech, Magnat, Śnieżka, Vidaron, Otto Farbe, Senseo. The above assets are encumbered with short-term liabilities amounting to PLN TM Investment Sp. z o.o. will use the acquired assets to manage and administer protection rights to the issuer s trademarks. As a result of the increase in share capital, the shareholding structure in TM Investment Sp. z o.o. changed as follows: Page 18

19 IP Solutions Sp. z o.o shares, each worth PLN 50, Fabryka Farb i Lakierów Śnieżka S.A. 100 shares, each worth PLN 50. On 7 December 2011 FFiL Śnieżka SA sold 104 shares in FARBUD Sp. z o.o. with its registered office in Lublin for the amount of PLN (one million eight thousand two hundred and eighty zlotys). The shares were purchased by FARBUD Sp. z o.o. in Lublin which purchased the shares for redemption in accordance with provisions of the Code of Commercial Companies Act of 15 September On 7 December 2011, FFiL Śnieżka sold 1068 shares in FARBUD Sp. z o.o. with its registered office in Lublin for the amount of PLN (two million three hundred eighty-one thousand two hundred and sixty zlotys). The shares were bought by Mr Jerzy Samonek, one of the Company s shareholders. As a result of this transaction, FARBUD Sp. z o.o. with its registered office in Lublin has ceased to be a capital-tied company. On 13 December 2011 the Extraordinary Meeting of Shareholders of Śnieżka Sp. z o.o. in Vistova, Ukraine, reduced the share capital of Śnieżka Sp. z o.o. in Vistova, Kalush raion, Ivano-Frankovsk oblast, Ukraine, from the nominal value of UAH (nine million six hundred sixty-five thousand six hundred and eightyone) hryvnias to UAH the amount of UAH (three million nine hundred sixty-five thousand six hundred and eighty-one Ukrainian hryvnias) for the purpose of revaluation of the shares. As of the date this report was drawn up, the reduction of the capital had not been registered in the Ukrainian Register due to procedural reasons. On 5 March 2012 Fabryka Farb i Lakierów Śnieżka SA acquired 12% of shares in its subsidiary, Śnieżka Belpol Sp. z o.o. in Zhodino (Belarus). The shares were purchased from Mr Anatolij Szeleg, the company s shareholder, for the amount of USD (equal to PLN in accordance with the exchange rate announced by the National Bank of Poland on 5 March 2012). These assets were paid for with the issuer s own resources. Furthermore, Śnieżka SA sold its 1% share in Śnieżka Belpol Sp. z o.o. to Mr Anatolij Niewmierżycki for the amount of USD (equal to PLN in accordance with the exchange rate announced by the NBP on 5 March 2012). As a result of the above mentioned transaction, the shareholding structure in Śnieżka Belpol Sp. z o.o. changed as follows: Śnieżka SA 99.00%, Anatolij Niewmierżycki 1.00% Changes in the management of the company and the. In 2011, there were changes in the management of the : the distribution of products on the Romanian market was transferred from Śnieżka Romania Sp. z o.o. to Śnieżka S.A. In longer term, Śnieżka Romania Sp. z o.o. will be sold or liquidated. Presently, products are exported to Romanian distributors by the Polish company. In 2011, Farbud Sp. z o.o., a distribution company, was sold to the minority shareholder. The Company is no longer part of the. As regards the Ukrainian market, after the sale of the assets of Śnieżka Sp. z o.o. with its registered office in Vistova to Page 19

20 Śnieżka-Ukraina Sp. z o.o. in Yavoriv, there are plans to sell or to liquidate Śnieżka Sp. z o.o. in Vistova which no longer conducts its operations. This means that there will be only one subsidiary left in the Ukrainian market - Śnieżka - Ukraina Sp. z o.o Salaries of managers and supervisors Salaries of the members of the Management Board of the parent company in 2011 (PLN, in thousands) Name Term of office Salaries and incentives Other benefits Total Income from subsidiaries Mikrut Piotr Waśko Witold Wróbel-Lipa Joanna Ochab Walentyna Total Salaries of the members of the Supervisory Board of the parent company in 2011 (PLN, in thousands) Name Term of office Salaries and incentives Other benefits Total Income from subsidiaries Bentke Jakub Cymbor Stanisław Łapiński Zbigniew Mikrut Stanislaw Orłowski Dariusz Pater Anna Pater Jerzy Razem As of , the Company s managers and supervisors do not have any loan liabilities towards the Company. Page 20

21 1.7. Agreements concluded between the issuer and managerial staff, providing for a compensation if such persons resign or are dismissed from their position without a valid reason or if they are recalled or dismissed as a result of a merger of the issuer by acquisition The Company concludes standard employment contracts with managerial staff which do not provide for any compensation if such persons resign or are dismissed from their position. Moreover, no extra compensation is paid to managerial staff if such persons are dismissed as a result of a merger of acquisition Number and nominal value of shares and stock held in the Company and its subsidiaries by managers and supervisors. As of 31 December 2011, the share capital amounts to PLN and comprises shares, each worth PLN 1. Managerial and supervisory staff do not hold any shares in subsidiaries. Number of Issuer s shares held by managers and supervisors as of 31 December Managers Piotr Mikrut shares, worth PLN Witold Waśko shares worth PLN 198. Supervisors Jerzy Pater shares worth PLN , including shares held directly and worth PLN Stanisław Cymbor shares worth PLN , including shares held directly and worth PLN Stanisław Mikrut shares, worth PLN Purchase of treasury shares On 2 April 2012, the Extraordinary General Meeting of Shareholders in Fabryka Farb i Lakierów ŚNIEŻKA S.A. with its registered office in Lubzina made a resolution to authorize the Company s Management Board to purchase treasury shares with the purpose of their redemption. The General Meeting authorized the Management Board to purchase treasury shares for redemption and to take any action necessary to acquire same shares. The Company will purchase treasury shares in accordance with the following terms: a) The Company will acquire up to shares. At first, the shares will be purchased on the Warsaw s Stock Exchange by way of a call for subscription for shares pursuant to Art. 72 para. 1 of Public Offerings and Conditions of Introducing Financial Instruments to Organised Trading and on Public Companies of 29 July 2005, and after this procedure is implemented, shares can be purchased on both the regulated and non-regulated markets. Page 21

22 b) the maximum purchase price for a share will be PLN 34 (thirty four zlotys); c) the maximum sum earmarked for the purchase is PLN (fifty three million five hundred thousand zlotys); d) the shares will be purchased until 31 December The Purchase will be financed with current assets of the Company. Acting with the Company s interest in mind, the Company s Management Board may: 1) finalize the Purchase of treasury shares before the date referred to in para. 2(d) or 2) resign of purchasing its treasury shares. The Company s Management Board is authorized to take decisions and any actions with the purpose of purchasing treasury shares Agreements relating to potential changes in the shareholding structure of the Company. In 2011, no agreements were made that could affect the shareholding structure of the Company. In March 2012, the Company s Management Board announced its intention to purchase treasury shares to redeem up to 10% of the total number of votes. If the shares are purchased and redeemed, changes in the shareholding structure are certain to follow Principles of drawing up the annual financial statements The Company prepares its Financial Statements in accordance with the International Financial Reporting Standards (IFRS). The IFRS include standards and interpretations accepted by the International Accounting Standards Board (IASB) and the International Financial the International Financial Reporting Interpretations Committee (IFRIC). The 2012 financial statements were prepared in accordance with IFRS on the assumption that the Company will continue as a going concern in the foreseeable future. 2. Description of the Capital Group s business 2.1. Strategic objectives of the Capital Group The main objective of the Śnieżka Group s long-term development strategy for the following years is to achieve the leading position in the sector of decorative paints in the markets of Poland, Ukraine and Belarus. The Companies of the Capital Group will strive to realize this objective by continuing to cater for the needs observed on the local markets. As important for achieving this leading position in the domestic and East European markets of paint and varnishes will be promoting the growth of sales in the modern distribution channels. The s development strategy provides for a particularly intense activity in the following three areas: - increased participation of Śnieżka s products in the modern distribution channel, ie. home improvement retailer chains, both in Poland and in Ukraine and Russia. Page 22

23 - further construction and extension of the chain of retail stores in Poland (around 100 new shops in 2012), - capital investments relating to potential acquisitions in Central and Eastern Europe. Moreover, the Capital Group desires to develop its export by expanding to new markets, increasing the participation of industrial paints in the Group s sales and developing the portfolio of products offered as part of the multi-branding strategy under such brand names as Śnieżka, Magnat, Foveo Tech and Beston. As part of its development strategy, the Śnieżka Group is interested not only in organic growth but also in an increase in capital investments. Among the Group s objectives is the development of long-lasting, open and amicable relations both with its business partners, employees, shareholders as well as with it clients, based on mutual understanding and trust. The Company intends to continue to support its business partners, distributors and retailers with information, marketing and training activities, thus showing that close cooperation strengthens the Company s goodwill. The parent company s Management Board confirms that the goals defined by the Capital Group will be realized as consistently as they have been so far. Balanced growth, inscribed in the Group s strategy will allow the Capital Group to achieve a leading position on competitive markets Presentation of economic and financial data Comprehensive income statement, PLN thousand Continued operations Note 12 months ending December 31st, months ending December 31st, 2010 converted data Sales of products Sales of goods Sales of materials Sales revenues Cost of goods sold Gross profit (loss) on sales Other operating revenues Cost of sales General administrative expenses Other operating expenses Operating profit (loss) Financial revenues Financial expenses Share in profit of associates Loss due to hyperinflation Gross profit (loss) Income tax Page 23

24 Net profit (loss) on continued operations Discontinued operations Profit/(loss) on discontinued operations - - Net profit (loss) for the period Other comprehensive income Currency translation differences related to foreign entities Financial assets available for sale Cash flow hedging Share in other comprehensive income of associates Tax income on other comprehensive income* Other net comprehensive income COMPREHENSIVE INCOME FOR THE PERIOD Profit (loss) for: Shareholders of the parent Non-controlling shareholders Comprehensive income for: Shareholders of the parent Non-controlling shareholders Sales revenues In 2011 net sales revenues amounted to PLN mln, a 3.6% increase in comparison to the previous year. The majority of these revenues are made up by revenues from the sales of products. Its share in the structure of revenues in 2011 was 85% and was the same as in Sales of products grow at the rate of 3.8%, i.e. by PLN 17.3 mln. The remaining revenues are generated from the sales of goods and materials. As at the end of the period in question, the cost of goods sold grew by 8.4% which, paired with a slower growth of sales revenues, affected negatively the return on sales, which dropped from 33.8% to 30.7%. The profit on sales amounted to PLN 169 mln, a 5.9 % decrease in comparison to 2010, when it amounted to PLN The sales on domestic market dominate the sales structure, while foreign sales amount to 34%. The figure below shows the structure of sales. Other UE countries 1.30% Page 24

25 Poz. kraje UE 1,30% Ukraina Ukraine 21,52% 21.52% Białoruś Belarus 7,43% 7.43% Rosja 1,89% Russia 1.89% Poland Polska 66.24% 66,24% Mołdawia Moldova 1,62% 1.62% Operating profit/loss Operating profit in 2011 amounted to PLN 40.8 mln, as compared to the PLN 62.2 mln generated in The major factors contributing to the decrease in operating profit included reduction of gross sales revenues, increase in the cost of sales by 7.5% and the increase in comprehensive expenses by 3.8%. Financial profit/loss The result of financial activities in 2011 was a negative figure and reduced the operating result by PLN 18.7 mln. The value of financial revenues is similar to that in 2010 and financial expenses increased by PLN 14.8 mln, i.e. to PLN 19.7 mln, as compared to the previous year. The increase of financial expenses is mainly the result of an increase in negative exchange differences by PLN 7.1 mln, as compared to PLN 1.6 mln in 2010, as well as of the PLN 6.5 mln loss on sales of investments (exclusion of Farbud Sp. z o.o., a subsidiary in Lublin, from the consolidation). Net profit The Group s net profit was by PLN 29.2 mln lower than in This decrease resulted from a less favourable operating result and high financial expenses. In 2012 the Capital Group intends to increase its return on sales and to work to alleviate all the negative trends the consequences of which were disclosed in the comprehensive income report. Assets and financing Financial performance report assets (in PLN thousands) Page 25

26 ASSETS Note December 31, 2011 December 31, 2010 January 1, 2010 converted data converted data Aktywa trwałe Tangible fixed assets Investment property Goodwill Intangible assets Investments in associates valued according to equity method Financial assets available for sale Other (long-term) financial assets Long-term receivables Deferred tax assets Current assets Inventories Trade and other receivables Income tax receivables Derivative financial instruments Other financial assets Other non-financial assets Cash and cash equivalents Fixed assets classified as held for sale TOTAL ASSETS In the reporting period the consolidated balance sheet total of the Capital Group decreased by PLN 9.2 mln and was 2.5% lower than at the end of The main factor behind this decrease was the decrease in the value of current assets by 5.3% to PLN 187 mln. Within the current assets, there was a significant reduction of trade receivables to the value of PLN 79 mln, i.e. by 24.7%. As compared to 2010, inventories increased by PLN 15.3 mln to the level of PLN 87.6 mln, i.e. by 21.2% which was related to the increase in sales revenues. Sources of finance Financial performance report liabilities (in PLN thousands) LIABILITIES Equity (attributable to shareholders of the parent) Share capital Share premium Treasury shares - - (89) Currency translation differences related to foreign entities (7 381) (10 729) (11 124) Other reserve capitals Supplementary capital Revaluation reserve Retained earnings/uncovered losses Capitals held by non-controlling shareholders Total equity Long-term liabilities Interest-bearing loans and borrowings Provisions Other liabilities Deferred income tax provision Short-term liabilities Trade and other liabilities Current portion of interest-bearing loans and borrowings Other financial liabilities Income tax liabilities Accruals and deferred income Provisions Liabilities directly related to fixed assets classified as held for sale Total liabilities TOTAL LIABILITIES Page 26

27 As at the end of 2011 the Group s equity decreased to PLN 210 mln, i.e. by 2.4%. Longterm liabilities dropped to PLN 2.6 mln as a result of repayment of long-term loans and a reduction of deferred income tax provision. The PLN 4.7 mln increase in short-term liabilities to the level of PLN mln is mainly the result of an increase in short-term trade liabilities. In the reporting period, short-term loans and borrowings remain at a comparable level as in the previous year and amount to PLN 86 mln. Abridged cash flow statement (in PLN thousand) Item Net operating cash flows Net investment cash flows Net financial cash flows Total net cash flows Cash and cash equivalents at the beginning of the period Adjustments due to foreign exchange differences Adjustments due to hyperinflation Cash and cash equivalents at the end of the period The Group generates positive cash flows from operating activities and negative cash flows from investing and financing activities. Negative investment cash flows result from expenditure on tangible fixed assets. The negative financial cash flows result, in turn, from repayment of loans and borrowings, redemption of treasury shares and the payment of dividend Evaluation of factors and extraordinary events affecting the result Macroeconomic situation The parent company conducts its operations mainly in Poland and as such is mainly affected by the domestic macroeconomic trends. The domestic macroeconomic situation bears a Page 27

28 direct influence on Śnieżka s financial results as there exists a positive correlation between an increase in the demand for goods and products offered by the Company and the economic growth. Over the last four years, Ukraine has become a country with many overlapping problems: low economic growth rate, growing foreign debt, deteriorating credit rating, low income of the population, migration. In financial terms, 2012 is a particularly difficult year for Ukraine; it is the year when many of Ukraine s debts, including those incurred with IMF, reach their maturity. The Ukrainian government intends to alleviate the results of increased gas prices on the domestic market with a scheme of social safety nets; they also hope that the IMF officials will change their position and will allow the restructuring of repayment of loan installments as well as release of new payments. The IMF loan is very favourable for Ukraine, much less expensive than credits granted by Russia. The IMF has clearly defined its scheme for Ukraine, dictating the increase in gas prices both for households and for the power sector. Why? Currently gas prices in Ukraine amount to around 15% of the Russian import prices. According to IMF these are the lowest prices in Europe. IMF expect that towards the end of April, representatives of Ukrainian government will present a realistic price increase scheme that will allow IMF to restructure the Ukrainian debt and to launch assistance schemes. The Ukrainians have already started a safety net scheme which involves rises in minimum wages. On 30 March 2012, the government announced its plan to liquidate 180 state enterprises and selected 63 businesses for privatization. After two devaluations in 2011, Belarus is in for a new wave of inflation. An increase in the prices of fuels and industrial production costs, resulting from a changed exchange rate of BYR, coupled with the government s intention to rise prices of public utility services and transport, has led to 2011 inflation ratio of around 109%. The authorities still try to support the socially-oriented economic model by assiting the economy with additional financial resources, rising wages in the public sector, and in this way they promote inflation. In reality, the remunerations are still decreasing. The government s intention to reduce support in the form of issue of shares is manifested in a decreased rate of growth of GDP, however, in a situation of economic crisis this decrease is not sufficient. For now, the authorities refrain from economic reforms and rather opt for tightening of internal economic policy, which means that the population will have to bear the effects of the crisis (official sources inform that the retirement age is to be increased). Situation in the sector of paints and varnishes The previous year was difficult for the paints and varnish market and the macroeconomic situation in Poland did not enhance domestic growth in the sector. The Central Office for Statistics informs that in 2011 the number of newly commissioned apartments was 3.5% lower than in the year before. The main problems faced by manufacturers of construction materials and paints were high prices of raw materials and an increase in the exchange rate of Euro in the second half of the year. Demand was also smaller due to difficulties with getting mortgage and personal loans. The 2011 data indicate that the value of home improvement store market in Poland increased by 3.8%, which means that the actual decrease was insignificant. Unstable situation on financial markets did not encourage consumers to make investment expenditures, including expenditures for renovations. Page 28