Chairman of the Management Board Piotr Mikrut

Transcription

1 Ladies and Gentlemen In spite of the fact that the Polish construction sector was the only one in Central Europe not experiencing a crash, last year was not an easy one for Polish businesses. The first months of 2010 revealed the difficult situation the industry was facing. In addition, unfavourable weather conditions - low temperatures and flooding - effectively limited the activities of businesses in the construction industry, thus affecting the fall in the order dynamic and negative mood on the property market, undoubtedly influencing the paint and varnish market in Poland. In spite of the difficulties and turmoil on the market, Śnieżka achieved good financial results in The sales dynamic stood at a level of 101%. The Group's net sales revenue was 531.7m zł, operating profit 62.3m zł, and net profit 48.2m zł. The business results are also satisfactory on the two largest foreign markets, namely Ukraine, which saw a 1.8% growth in sales, and Belarus, where the growth in sales was 8.6% compared to The major factor affecting Śnieżka's export sales was the economic situation on the main foreign markets. The end of 2010 brought an economic recovery and improvement in confidence both in construction and the economy as a whole, and also hope that 2011 will be better. This will be the first post-crisis year, but the forecasts are optimistic. A further gradual improvement in market conditions is predicted. GDP will continue to grow, reaching between 4 and 4.5 % by the end of the year. Also forecast is a slight fall in unemployment and an increase in the average nominal salary in the national economy. Building industry entrepreneurs are also predicting a higher growth rate for the sector compared to 2010, which is of significance for the paint and varnish market. Last year we consistently implemented the Company's adopted marketing strategy. We met our customer's expectations by constantly increasing our product offer, applying innovative technology and improving the quality of products offered through research. The decision taken in 2009 to make quantitative changes to the brands in the Company's portfolio resulted in early 2010 in the launching of new brands - VIDARON for wood protecting and decorating products, FOVEO TECH for heating systems and BESTON for silicones and foams. The long-term strategy of building competent brands, known as the multibranding strategy, has allowed a group of products to be offered with a strictly defined area of use, with varied positioning and aimed at various market sectors, making it easier to reach the target customer. As well as launching new brands, the previous product offer was also expanded. The key Śnieżka product, Barwy Natury emulsion in ready colours, appeared in new square packaging in 2010, and in new, better quality graphics. Its palette was also enriched, with 10 new colours introduced. The MAGNAT brand's palette was also increased by 5 colours. The MAGNAT brand portfolio also expanded to include a base of satin emulsions and the MAGNAT Style line of wall decorations included 5 new products. New products also appeared in the Vidaron line, expanded to include protective/decorative lazure and wood putty, while the Beston line was joined by varnish layer cleaner saw a continuation of Corporate Social Responsibility actions. As part of the fourth "Coloured Pitch - School Premiership" scheme, we contributed a multifunctional sports pitch to the Primary School in Kaznów Kolonia, and renovated a hospital in Wrocław as part of the "Children's World in Colour" programme. Since 2005 we have run our own "Your Chance" foundation, one of whose main aims is the Stipendium Assistance Programme for talented young people from poor families. We also help sports clubs and organisations in our region in difficult financial situations. We look at

2 the environment with genuine concern. We make every effort to ensure that production does not damage the beautiful terrain of southern Poland even slightly. We are working to reduce the number of volatile organic compounds in our products. In accordance with our dividend policy, the General Shareholders' Meeting passed a resolution in 2010 to pay out the dividend for the previous year. This stood at 1.60 zł, over 18.5% more than the year before. The Company allocated a total sum of 21,685, zł to the dividend. Our aim is to pay out an ever larger dividend as the group's profits increase. Our actions are noticed and appreciated. This is confirmed by the numerous prizes and distinctions awarded to the company by independent experts, and by those whose opinion is most important for the company - the consumers. The best reward for us is the satisfaction of customers in response to the quality of our products. The awards received concern various aspects of the company's business - they are an expression of recognition for the financial results, trust, reference for the brand and also social commitment. The awards given in 2010 included the Consumer Laurel and Discovery of the Year for the Vidaron brand, Premium Brand High Brand Reputation, Premium Brand High Company Reputation and Pearl of the Polish Economy. The company was also among the most valuable Polish brands in the annual ranking published by the Rzeczpospolita newspaper. The Company is currently in a stable market position with good prospects for future growth. We are sure that despite the external conditions not always being favourable, economic success can be achieved by consistently implementing the development strategy. I hope that you are satisfied with the results of our work so far. I wish to emphasise that we will make every effort to ensure the strategy adopted continues to be implemented consistently. It is important for us to meet the high demands of our Customers, Business Partners, Employees and Shareholders. I wish to extend my heartfelt thanks to all those who create our company and those who contribute to its development. On behalf of the Management Board I thank the Individual and Institutional Shareholders, Employees and Co-workers. I particularly wish to thank all the members of the Supervisory Board. Thanks to their commitment and trust we can realise all our planned enterprises effectively. Welcome to the Annual Report for It contains detailed information about the Company, its activities in 2010, financial results and all other information significant for the Company's development. Chairman of the Management Board Piotr Mikrut

3 Opinion of an independent statutory auditor For the Shareholders Meeting, Supervisory Board and Management of the ŚNIEŻKA Paint and Varnish Factory I. We have conducted an examination of the attached consolidated financial report for the capital group whose parent company is ŚNIEŻKA Paint and Varnish Factory S.A. based in Lubzin 34 A, consisting of: introduction to consolidated financial report, consolidated statement of the financial standing drawn up as of 31st December 2010, which on the assets and liabilities side shows an amount of 366,762,000 PLN; statement of total income for the period from 1 January to 31 December 2010 showing total income of 47,911,000 złotys and net profit of 47,516,000 złotys; consolidated cash flow statement for the turnover year from January 1st 2010 to December 31st 2010 indicating an increase in cash resources of 9,565,000 złotys; statement of changes in consolidated equity capital indicating an increase in equity in the period from 1 January to 31 December 2010 of 23,681,000 złotys; additional explanatory information The parent company's manager is responsible for preparing the financial report and report on the Capital Group's activity in line with the applicable legislation. The manager of the entity or members of the supervisory board or other body supervising the parent company are obliged to ensure that the financial statement and the report on the capital group's activities meet the requirements of the Accountancy Act of 29 September 1994 (Journal of Laws 2009 no. 152, item 1223; as amended), henceforth referred to as the Accountancy Act. Our task was to review and express an opinion on this financial statement's consistency with the capital group's accounting policy, and whether it clearly and reliably presents, in all its essential aspects, the entity's material and financial situation as well as the capital group's financial result. 1

4 II. The examination of the report was conducted according to the provisions of: 1) section 7 of the Accountancy Act, 2) the national financial reviewing standards issued by the National Council of Statutory Auditors in Poland, The examination of the consolidated financial report was planned and performed in such a manner that would enable the obtaining of a rational certainty, permitting the expression of an opinion on the report. In particular the examination involved checking the propriety of the accounting policy applied and checking mostly randomly the bases of the figures and information contained in the consolidated financial statement, and also an overall evaluation of the consolidated financial statement. We consider that the examination provided a sufficient basis for the expression of an authoritative opinion. III. In our opinion, the consolidated financial report examined, including the numerical information and verbal clarifications: a) presents reliably and clearly all information relevant to the evaluation of the asset and financial situation of the Capital Group for the day of the 31 December 2010, as also its financial result for the financial year from 1 January 2010 to 31 December 2010, b) was drawn up according to the International Accounting Standards (IAS), International Financial Reporting Standards (IFRS) and the associated interpretations announced in the form of ordinances of the European Commission, and in the extent not regulated by these Standards - conforms to the requirements of the Accounting Act and the executive regulations issued on its basis; c) is in accord with the legal regulations and Company Statute affecting the content of the consolidated financial report. IV. The report on the Capital Group's activities is complete in the meaning of article 49, section 2 of the Accounting Act and the information contained therein arising from the examined financial report is consistent with it. On behalf of ReVision Rzeszów Józef Król Sp. z o.o. in Rzeszów: Elżbieta Pudło 2

5 The Group's Chartered Auditor Key Chartered Auditor Entered on the Register of Chartered Auditors as number 9950 The company is entered on the list of entities authorised to audit financial statements under the number 3510, Rzeszów, 19 April 2011 Stamp of the authorised entity 3

6 ŚNIEŻKA Spółka Akcyjna Capital Group Report on the examination of the consolidated financial statement for turnover year 1 January to 31 December 2010 Report by the statutory auditor for the Shareholders Meeting, Supervisory Board and Management of ŚNIEŻKA Spółka Akcyjna Paint and Varnish Factory for the financial period from 1 January to 31 December 2010 This report, supplementing the opinion, was produced in connection with the examination of the consolidated financial statement of the ŚNIEŻKA S.A. Capital Group based in Lubzin 34 a The examination covered the consolidated financial statement including: introduction to consolidated financial report, consolidated statement of the financial standing drawn up as of 31st December 2010, which on the assets and liabilities side shows an amount of 366,762,000 PLN; statement of total income for the period from 1 January to 31 December 2010 showing total income of 47,911,000 złotys and net profit of 47,516,000 złotys; consolidated cash flow statement for the period from 1 January 2010 to 31 December 2010 indicating an increase in cash resources of 9,565,000 złotys; statement of changes in consolidated equity capital for the period from 1 January 2010 to 31 December 2010 indicating an increase in consolidated equity capital of 23,681,000 złotys; additional explanatory information The consolidated financial statement was signed by the Company Management Board and the person responsible for keeping the ledgers on This report should be read along with the opinion of the statutory auditor for the Company's Shareholders of concerning the consolidated financial statement described above. This report contains 18 successively numbered pages and consists of the following parts: ReVision Rzeszów Józef Król Sp. z o.o. 3

7 ŚNIEŻKA Spółka Akcyjna Capital Group Report on the examination of the consolidated financial statement for turnover year 1 January to 31 December 2010 Page I. General Part 3 II. Detailed part of the report 15 On behalf of ReVision Rzeszów Józef Król Sp. z o.o. in Rzeszów: Elżbieta Pudło The Group's chartered auditor Key chartered auditor Entered on the Register of Chartered Auditors as number 9950 The company is entered on the list of entities authorised to audit financial statements under the number 3510, Rzeszów, 19 April 2011 GENERAL PART I. Data Identifying the Parent Company ReVision Rzeszów Józef Król Sp. z o.o. 4

8 ŚNIEŻKA Spółka Akcyjna Capital Group Report on the examination of the consolidated financial statement for turnover year 1 January to 31 December Śnieżka Paint and Varnish Factory Spółka Akcyjna, henceforth referred to as the Company, conducts its business on the basis of: the Commercial Companies Code; the Freedom of Business Act; the Company Statute The Company has its headquarters at Lubzin 34 a. 10.The company was founded after being established by physical persons on The deed of foundation was drawn up in the form of notary act Rep. A nr 121/98 of The notary act was prepared at the Notary Office in Dębica by the Notary Piotr Sumara. Rzeszów Regional Court, 5th Commercial Division, issued a decision to enter the Company on the Commercial Register as no. RHB The company is included on the company register as KRS The Company has the following numbers: tax ID number NIP and company statistical ID REGON ) During the period examined the Company's core business was: production of chemical products; production of paints, varnishes, adhesives and solvents; other activity indicated in section 3 of the National Court Register. 4) The Company's authorities are: The Shareholders Meeting, Supervisory Board and Management Board. 5) During the period investigated, the Management Board had the following members: Piotr Mikrut President of the Management Board Witold Waśko Vice President of the Management Board Joanna Wróbel Lipa Member of the Management Board Walentyna Ochab Member of the Management Board ReVision Rzeszów Józef Król Sp. z o.o. 5

9 ŚNIEŻKA Spółka Akcyjna Capital Group Report on the examination of the consolidated financial statement for turnover year 1 January to 31 December ) During the period investigated, the Supervisory Board consisted of the following: Stanisław Cymbor Chairman Jerzy Pater Jakub Bentke Stanisław Mikrut Zbigniew Łapiński Anna Pater from 21 June ) The Company's share capital as of stood at 13,550,676 zł consisting of 13,550,676 shares with a nominal value of 1.00 zł each. II Information on Entities of the Capital Group On balance sheet day ŚNIEŻKA S.A. capital group includes the following entities: Hadrokor Sp. z o.o. PROXIMAL Sp. z o.o. Powder Paint and Varnish Factory Śnieżka Group Farbud Sp. z o.o. Śnieżka Ukraina Sp. z o.o. SOOO Śnieżka BEL POL Sp. z o.o. Śnieżka Sp. z o.o. in Wistowa Śnieżka Romania S.R.L. Plastbud Sp. z o.o. IP Solution Sp. z o.o. TM Investment Sp. z o.o. Basic information about subsidiaries: Name of entity (indicating legal form) Hadrokor Sp. z o.o. ReVision Rzeszów Józef Król Sp. z o.o. 6

10 ŚNIEŻKA Spółka Akcyjna Capital Group Report on the examination of the consolidated financial statement for turnover year 1 January to 31 December 2010 headquarters Włocławek, ul. Smocza 19 registration court core Business type of domination method of consolidation percent of owned share capital 51,09% share of total voting rights in General Shareholders' Meeting 51,09% Toruń District Court, 7th Commercial Division, KRS production and sale of paints and varnishes and other chemical products subsidiary complete method Name of entity (indicating legal form) headquarters registration court core Business PROXIMAL Sp. z o.o. Powder Paint and Varnish Factory Śnieżka Group Lubzina 34 a Gdańsk - Północ Regional Court, 8th Commercial Division, KRS property rental type of domination method of consolidation subsidiary percent of owned share capital 100% share of total voting rights in General Shareholders' Meeting 100% complete method Name of entity (indicating legal form) FARBUD Sp. z o.o. headquarters Lublin, ul. Stefczyka 30 registration court core Business type of domination method of consolidation Lublin District Court, 9th Commercial Division, KRS Retail and wholesale; subsidiary percent of owned share capital 80,93% share of total voting rights in General Shareholders' Meeting complete method 80,93% ReVision Rzeszów Józef Król Sp. z o.o. 7

11 ŚNIEŻKA Spółka Akcyjna Capital Group Report on the examination of the consolidated financial statement for turnover year 1 January to 31 December 2010 Name of entity (indicating legal form) headquarters registration court core Business type of domination method of consolidation Śnieżka Ukraina Sp. z o.o. Jaworów, ul. Prywokzalna 1a District State Administration in Jaworów, registration book 518, ID code production of paints, varnishes, solvents, adhesives, wholesale and retail of construction materials subsidiary percent of owned share capital 81,27% share of total voting rights in General Shareholders' Meeting complete method 81,27% Name of entity (indicating legal form) SOOO Śnieżka BEL POL Sp. z o.o. headquarters Żodino, ul. Suchogriadskaja 9 Interior Ministry of the Belarusian Republic, registration court Unified State Register nr production of paints, varnishes, solvents, core Business wholesale and retail of construction materials, transportation by lorry type of domination method of consolidation percent of owned share capital 88% share of total voting rights in General Shareholders' Meeting 88% subsidiary complete method Name of entity (indicating legal form) headquarters registration court core Business type of domination method of consolidation Śnieżka Sp. z o.o. in Wistowa Wistowa, ul. Sriljciw 1b Kałuska District Leasing Administration, code manufacture of paints and lacquers, subsidiary complete method ReVision Rzeszów Józef Król Sp. z o.o. 8

12 ŚNIEŻKA Spółka Akcyjna Capital Group Report on the examination of the consolidated financial statement for turnover year 1 January to 31 December 2010 percent of owned share capital 74% share of total voting rights in General Shareholders' Meeting 74% Name of entity (indicating legal form) Śnieżka Romania S.R.L headquarters Bucharest, ul. Maresal Piłsudski losef 2 registration court core Business type of domination method of consolidation Bucharest District Court J40/18766/2006 Retail and wholesale; subsidiary complete method percent of owned share capital 80% share of total voting rights in General Shareholders' Meeting 80% Name of entity (indicating legal form) headquarters registration court core Business type of domination method of consolidation Pustków 164 b Plastbud Sp. z o.o. Rzeszów District Court, 12th Commercial Division, KRS production and sale of paints and varnishes associated company property right method percent of owned share capital 10,07% share of total voting rights in General Shareholders' Meeting 10,07% Name of entity (indicating legal form) IP Solutions Sp. z o.o. headquarters Brzeźnica 18 registration court core Business type of domination method of consolidation Rzeszów District Court, 12th Commercial Division, KRS trade mark management subsidiary complete method percent of owned share capital 100% ReVision Rzeszów Józef Król Sp. z o.o. 9

13 ŚNIEŻKA Spółka Akcyjna Capital Group Report on the examination of the consolidated financial statement for turnover year 1 January to 31 December 2010 share of total voting rights in General Shareholders' Meeting 100% Name of entity (indicating legal form) headquarters Brzeźnica 18 registration court core Business type of domination method of consolidation percent of owned share capital share of total voting rights in General Shareholders' Meeting TM Investment Sp. z o.o. Rzeszów District Court, 12th Commercial Division, KRS trade mark management subsidiary complete method 5% - directly; 95% - indirectly through IP Solutions Sp. z o.o. 5% - directly; 95% - indirectly through IP Solutions Sp. z o.o. III. Information on the Consolidated Financial Statement for the Previous Period The consolidated financial statement of the ŚNIEŻKA S.A. Capital Group for the period from to was approved by Resolution 6 of the General Meeting of Shareholders on The approved financial statement for the previous year was published in the Official Journal of the Republic of Poland B 2390 item of 3 December The ŚNIEŻKA S.A. Capital Group's financial statement was examined by Moore Stephens J.Król Sp. z o.o. of Rzeszów who expressed no reservations. IV. Information on the Investigation Conducted ReVision Rzeszów Józef Król Sp. z o.o. was chosen as auditor by Supervisory Board resolution Nr II/25/2010 of 14 May ReVision Rzeszów Józef Król Sp. z o.o. 10

14 ŚNIEŻKA Spółka Akcyjna Capital Group Report on the examination of the consolidated financial statement for turnover year 1 January to 31 December 2010 The investigation was conducted on the basis of contract 01/10 signed on between the Company as the Orderer and Moore Stephens Józef Król Sp. z o.o. based in Rzeszów ul. Bp. J. Pelczara 6c/8, as the Contractor, during the period February-April 2011 with breaks. During the investigation the parent company provided the data requested and the information and explanations required to conduct the investigation, and informed of significant events which took place between the balance sheet day and the day the declaration was submitted. The financial statements of the Polish-based subsidiaries for 2009 were investigated by: Farbud Sp. z o.o. based in Lublin reviewed by Biuro Biegłego Rewidenta Sp. z o.o. in Lublin entered on the list of entities authorised to audit financial statements under the number 1805, Hadrokor Sp. z o.o. based in Włocławek reviewed by Firma Biegłych Rewidentów Sp. z o.o. in Toruń entered on the list of entities authorised to audit financial statements under the number 164, PROXIMAL Sp. z o.o. based in Lubzin reviewed by ReVision Rzeszów J.Król Sp. z o.o. Sp.K. of Rzeszów entered on the list of entities authorised to audit financial statements under the number 691, The financial statements of the foreign based subsidiaries for 2010 were investigated by: Śnieżka Ukraina Sp. z o.o. based in Javorova, Ukraine reviewed by PP AF GLOBAL AUDYT in Kharkov entered on the list of entities authorised to audit financial statements in Ukraine as number 3746, Śnieżka - BELPOL Sp. z o.o. based in Zhodino, Belarus reviewed by Vladimir K. Konstantynovich Shagray entered on the list of entities authorised to audit financial statements in Belarus as number (auditor's certificate), and by ReVision Rzeszów Józef Król Sp. z o.o. 11

15 ŚNIEŻKA Spółka Akcyjna Capital Group Report on the examination of the consolidated financial statement for turnover year 1 January to 31 December 2010 Valentyna Antonovna Voronchenko entered on the list of entities authorised to audit financial statements in Belarus as number (auditor's certificate), Śnieżka Romania Sp. z o.o. based in Savinesti, Romania reviewed by the auditor's office AURA CONSULTING SRL in Piatra Neamt entered on the list of entities authorised to audit financial statements in Romania under the number The foreign company Śnieżka based in Wistowa was not subject to auditing due to not meeting the requirements of art. 64 of the Accountancy Act. The auditors reviewing the entities expressed no reservations. ReVision Rzeszów Józef Król Sp. z o.o. 12

16 ŚNIEŻKA Spółka Akcyjna Capital Group Report on the examination of the consolidated financial statement for turnover year 1 January to 31 December 2010 V. DESCRIPTION OF THE ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENT Statement of the financial situation on A B End of present period in thou. zł End of last period in thou. zł A-B Structure A Structure B Assets A. Fixed assets , , ,00 46,16 50,40 Intangible assets 1 894, ,00 625,00 0,52 0,41 Goodwill of subsidiaries 67,00 67,00 0,00 0,02 0,02 Property, plant and equipment , , ,00 39,75 42,51 Investment property , ,00-530,00 4,49 5,43 Long-term financial assets 2 551, , ,00 0,70 1,35 Long-term receivables 0,00 0,00 Assets from deferred taxes 2 513, ,00 364,00 0,69 0,69 B. Current assets , , ,00 53,84 49,58 Inventory , , ,00 19,70 20,57 Short-term receivables from supplies and services , , ,00 27,70 25,61 Receivables from current income tax 2 513,00 70, ,00 0,69 0,02 Other short-term receivables 3 516, ,00-74,00 0,96 1,15 Other short-term financial assets 1 701,00 577, ,00 0,46 0,18 Cash and equivalents , , ,00 4,34 2,04 C. Assets intended for sale 0,00 73,00-73,00 0,00 0,02 Total assets , , ,00 100,00 100,00 ReVision Rzeszów Józef Król Sp. z o.o. 13

17 ŚNIEŻKA Spółka Akcyjna Capital Group Report on the examination of the consolidated financial statement for turnover year 1 January to 31 December 2010 Statement of the financial situation on A End of present period in thou. zł B End of previous period in thou. zł A-B Structure A Structure B Liabilities A. Equity capital , , ,00 58,68 61,20 Stated capital , ,00-3,00 3,69 4,33 Own shares 0,00-89,00 89,00 0,00-0,03 Supplementary capital , , ,00 41,12 43,38 Revaluation reserve capital 37,00 37,00 0,00 0,01 0,01 Reserve capital 0,00 0,00 0,00 0,00 0,00 Exchange gain (loss) on consolidation , ,00 Non-distributed financial result , , ,00 14,32 16,78 Non-controlling capital 9 020, ,00 B. Liabilities and reserves for liabilities , , ,00 41,32 38,80 Long term liabilities , , ,00 3,56 1,95 Short term liabilities , , ,00 37,76 36,85 Total liabilities , , ,00 100,00 100,00 ReVision Rzeszów Józef Król Sp. z o.o. 14

18 ŚNIEŻKA Spółka Akcyjna Capital Group Report on the examination of the consolidated financial statement for turnover year 1 January to 31 December 2010 Statement of total revenue (calculated version) for the financial period 1 January to 31 December 2010 A B A-B End of present period in thou. zł End of previous period in thou. zł Sales revenue , , ,00 Own sales costs , ,00 20,00 Gross profit (loss) on sales , , ,00 Cost of sales , ,00 752,00 General administrative expenses , , ,00 Other operating revenue 5 210, ,00 522,00 Other operating costs 5 811, ,00 876,00 Profit / (loss) on operating activities , ,00 719,00 Financial revenue 1 004,00 668,00 336,00 Financial costs 4 958, , ,00 Net profit (loss) share of subsidiaries and 397,00 381,00 16,00 affiliates consolidated by equity method Profit / (loss) before tax , , ,00 Income tax , , ,00 Net profit (loss) , , ,00 ReVision Rzeszów Józef Król Sp. z o.o. 15

19 ŚNIEŻKA Spółka Akcyjna Capital Group Report on the examination of the consolidated financial statement for turnover year 1 January to 31 December 2010 VI. PRESENTATION OF THE MATERIAL AND FINANCIAL SITUATION, FINANCIAL RESULT AND PROFITABILITY OF THE GROUP The investigated capital group's economic activity, financial result for the turnover year and material and financial situation compared to the previous period are characterised by the following ratios: Unit Present period Previous period Activity indexes total asset productivity Sales revenue average state of assets productivity of fixed Sales revenue assets average fixed assets 1,56 1,63 3,25 3,43 equity capital productivity Sales revenue average equity capital 2,61 2,88 receivables turnover average receivables x 365 days ratio Sales revenue days inventory turnover ratio average state of inventory x 365 days cost of operating activities days Profitability ratios net profit margin net profit / loss Sales revenue % 8,94 8,07 profit / loss on sales gross profit margin Sales revenue % 33,80 33,12 total asset profitability net profit / loss total assets % 12,96 13,56 return on equity net profit / loss equity capital % 22,08 22,16 16

20 ŚNIEŻKA Spółka Akcyjna Capital Group Report on the examination of the consolidated financial statement for turnover year 1 January to 31 December 2010 Financing ratios debt margin total long- and short-term liabilities total liabilities 0,41 0,39 liability turnover rate average state of short-term liabilities x 365 days cost of operating activities days equity to fixed assets ratio equity capital + reserves fixed assets sustainability of equity capital + reserves + long-term liabilities financing ratio total liabilities 1,35 1,25 0,58 0,59 Liquidity ratios current ratio total current assets short-term liabilities 1,43 1,35 Quick ratio total current assets - inventory short-term liabilities 0,90 0,79 DETAILED PART I. Principles Applied for Consolidating the Financial Statements The Capital Group's consolidated financial statement was prepared in accordance with the International Financial Reporting Standards in the version approved by the European Union and, in the scope not regulated by the above standards, in accordance with the Accountancy Act of 29 September 1994 (Journal of Laws of 2009 no. 152, item 1223; as amended) and the executive regulations issued on its basis and in accordance with the requirements of the Ordinance of the Minister of Finance of 19 February 2009 regarding current and periodic information to be submitted by issuers of 17

21 ŚNIEŻKA Spółka Akcyjna Capital Group Report on the examination of the consolidated financial statement for turnover year 1 January to 31 December 2010 securities (Journal of Laws 33, item 259) implemented in a consistent and continuous manner. All the companies belonging to the Capital Group, including the parent company, prepare their financial statements in accordance with the International Financial Reporting Standards in the form approved by the EU. The consolidated financial statement of the ŚNIEŻKA S.A. Capital Group was prepared on the basis of the financial statements of the constituent companies of the Capital Group and arranged such that the group formed a single entity. The parent company and subsidiaries were consolidated by the complete method, while investments in associated entities were shown according to the property rights method. During the consolidation, the appropriate exclusions were made with regard to mutual receivables and liabilities, income and expenditure regarding operations conducted between entities covered by the consolidation, contained in the values of assets and liabilities subject to consolidation. In addition, the values of stocks and shares held by the parent company in the capital of subsidiaries were also subject to exclusion. The sum of the profit margins included in the assets of consolidated entities was also excluded. The scope of the data presented in the notes to the consolidated financial statement is based on the International Financial Reporting Standards in the version approved by the European Union and, in the scope not regulated by the above standards, in accordance with the Accountancy Act of 29 September 1994 (Journal of Laws of 2009 no. 152, item 1223; as amended) and the executive regulations issued on its basis and in accordance with the requirements of the Ordinance of the Minister of Finance of 19 February 2009 regarding current and periodic information to be submitted by issuers of securities (Journal of Laws 33, item 259). 18

22 ŚNIEŻKA Spółka Akcyjna Capital Group Report on the examination of the consolidated financial statement for turnover year 1 January to 31 December 2010 The capital group's stated capital is the parent company's stated capital. The state of equity capital shown on the consolidated balance sheet is consistent with the consolidation documentation. The financial data concerning equity capital is presented in notes in the additional information and explanations to the consolidated financial statement. The basis for preparing the consolidated financial statement was the consolidation documentation drawn up on the basis of the Finance Ministry Ordinance of 25 September 2009 regarding the detailed principles for preparation of consolidated financial statements of capital groups other than banks and insurance companies (Journal of Laws nr 169, item 1327), covering in particular: the financial statements of the entities covered by the consolidation; a list of amendments and exclusions made during consolidation; II. Explanatory Information In accordance with the International Financial Reporting Standards, the ŚNIEŻKA S.A. Capital Group has prepared additional information including an introduction to the consolidated financial statement and additional information and explanations. The additional information presents all the data completely and reliably. III Changes in consolidated equity capital The statement of changes in consolidated equity capital properly presents the increase in equity capital, has been properly prepared and indicates the proper relationship with the consolidated balance sheet and consolidated profit and loss account. IV Consolidated cash flow account The consolidated cash flow account was prepared by: 19

23 ŚNIEŻKA Spółka Akcyjna Capital Group Report on the examination of the consolidated financial statement for turnover year 1 January to 31 December 2010 totalling the relevant items of the cash flow accounts of the subsidiaries included in the consolidated financial statement. making consolidation amendments consisting of excluding cash flow between entities included in the consolidated financial statement. V Management's Report on the Capital Group's Activities The Board of Management of the Parent Company prepared its report into the Capital Group's activities which is complete in the understanding of art. 49 para. 2 of the Accountancy Act and takes into consideration the Ordinance of the Minister of Finance of 19th February 2009 regarding current and periodic information to be submitted by issuers of securities and the conditions for recognition as equivalent of the information whose disclosure is required under the laws of a state which is not an EU member state (Journal of Laws 2009, no. 33, item 259) and the information contained therein arising from the examined financial report conform with it. The information included in the report on activities is consistent with the information included in the Capital Group's financial statement examined for VI. Declaration by the Management of the Parent Company The Management of the parent company ŚNIEŻKA S.A. submitted a declaration about the complete inclusion of data in the account books, a list of all the contingent liabilities and information about significant events occurring after the balance sheet day, 20

24 ŚNIEŻKA CAPITAL GROUP ANNUAL CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM 1 JANUARY 2010 TO 31 DECEMBER 2010 LUBZINA, 28 MARCH 2011

25 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) INTRODUCTION TO THE ANNUAL CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL INFORMATION 1.1. INFORMATION ON THE ISSUER S GROUP Full name of the business Fabryka Farb i Lakierów ŚNIEŻKA Spółka Akcyjna entity: Registered office Lubzina 34 a Branches: 1.Lubzina 34 a Lubzina Ropczycko Sędziszowski Poviat Podkarpackie Voivodship 2.Brzeźnica Brzeźnica Dębica Poviat Podkarpackie Voivodship 3.Pustków Pustków Dębica Poviat Podkarpackie Voivodship Register court District Court in Rzeszów, 12 th Commercial Division of the National Court Register National Court Register (KRS) KRS number Statistical Identification Number REGON Tax Identification Number (NIP) Paid-in share capital PLN 13,550,676 Issuer s core business, according to the Polish Classification of Business Activity Industry, according to the classification of the Warsaw Stock Exchange Manufacture of paints, varnishes, glues and solvents 2030Z Chemical industry The memorandum of association of Fabryka Farb i Lakierów Śnieżka S.A. was drafted on (notarial deed drafted by Piotr Sumara, deputy of Wojciech Królikowski, a civil law notary, running a civil laws notary s office in Dębica, repertory A, No. 121/98). The Company was established under the regulations of the Commercial Code. Starting from 1 January 2001, the Company has operated under the Commercial Companies Code. 2/2

26 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) Fabryka Farb i Lakierów Śnieżka S.A. is the parent company within the Capital Group and it compiles consolidated financial statements. The Capital Group does not include internal organisational units which compile their own financial statements. Parent company s representation: Supervisory Board of the Parent Company: Stanisław Cymbor Chairman Jerzy Pater Vice-Chairman Stanisław Mikrut Secretary Jakub Bentke Member Zbigniew Łapiński Member Anna Pater Member On 21 June 2010, the Ordinary General Stockholders Meeting of FFiL Śnieżka S.A. appointed Ms Anna Pater a member of the Supervisory Board, thus increasing the board s composition to 6 people. Management Board of the Parent Company: Piotr Mikrut President of the Management Board since 31 March 2004 to the present. Witold Waśko Member of the Management Board from 16 February 1998 to 31 March 2005, Vice-President of the Management Board from 1 April 2005 until now. Joanna Wróbel-Lipa Member of the Management Board from 18 December 2007 to the present. Walentyna Ochab Member of the Management Board from 18 December 2007 until now. In 2010, the composition of the Management Board did not change. 3/3

27 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) Graphic presentation of the organisational structure of the issuer s associates, including information on the type of relationships in the group as at C apital Gr oup F abr yka F arb i Lakier ów Śnieżka SA H adr okor Sp z o.o. in W łocławe k 51.09% share s Śnieżka Ukraina Sp z o.o in Y avor iv % shares Fabryka Farb i Lakie rów Proszkowyc h Proxim al Sp. z o.o. in Lubzina % shares Farbud Sp z o.o. in Lublin % share s Śnież ka Sp. z o.o. in W istow a % share s (dire ctly 74.00%, indir ectly 26.00% ) Śnież ka BEL- POL Sp. z o.o. in Zhodzina near M insk 88% shares IP Solutions Sp z o.o. in Br zeź nica 100% shares Śnież ka R om ania S.R.L. 80% shar es TM Investm ent Sp z o.o. in Brzeźnica 100% share s (d irec tly 5 %, in dir ec tly 95% ) C apital re lations PLA STBU D Sp z o.o. in Pustków % shar es 4/4

28 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) List of members of the Capital Group consolidated or accounted for using the equity method Name Registered office Business activity Hadrokor Sp. z o.o. Włocławek ul. Smocza 19 Manufacture and sales of paints and varnishes and other chemical products Fabryka Farb i Lakierów Proszkowych Lubzina 34a Lease of real property "Proximal" Sp. z o.o. - Grupa Śnieżka Farbud Sp. z o.o. Lublin ul. Stefczyka 30 Wholesale and retail sales Śnieżka-Ukraina Sp. z o.o. Yavoriv Prywokzalna 1A Manufacture of paints, varnishes, solvents, adhesives, fillers, etc.; wholesale and retail sales of building materials SOOO Śnieżka BEL-POL Sp. z o.o. Zhodino Dorozhnaya 3/1 Manufacture of paints, varnishes, solvents, wholesale and retail sales of building materials, heavy load transport by trucks Śnieżka Sp. z o.o. in Wistowa Wistowa ul. Sriljciw 1"b" Manufacture of paints and varnishes Śnieżka Romania S.R.L. Bucharest, ul. Maresal Piłsudski Iosef nr 2 Wholesale and retail sales Plastbud Sp z o.o. Pustków 164 B Manufacture and sales of paints and varnishes IP Solutions Sp. z o.o. Brzeźnica 18 Trademark management TM Investment Sp. z o.o. Brzeźnica 18 The company has just started its business, which will prospectively involve managing the capital group s assets Name Courts maintaining the respective registers % of capital % of votes** Hadrokor Sp. z o.o. District Court in Toruń, 7 th Commercial Division of the National Court Register, No. 51,09% 51,09% Fabryka Farb i Lakierów Proszkowych District Court Gdańsk-Północ in Gdańsk, 8 th Commercial Division of the National Court 100,00% 100,00% "Proximal" Sp. z o.o.- Grupa Śnieżka Register, No Farbud Sp. z o.o. District Court in Lublin, 11 th Commercial Division of the National Court Register, No. 80,93% 80,93% Śnieżka-Ukraina Sp. z o.o. Regional National Administration in Yavoriv, register book No. 518, identification code of 81,27% 81,27% business activity according to Ukraine s Common National Register of Businesses and Institutions SOOO Śnieżka BEL-POL Sp. z o.o. Foreign Ministry of Belarus, Common National Register of Legal Persons and 88% 88% Entrepreneurs, No Śnieżka Sp. z o.o. in Wistowa Kałuski Region Lease Administration, code % 74% Śnieżka Romania S.R.L. District Court in Bucharest, Reg. No. J40/18766/ % 80% Plastbud Sp z o.o. District Court in Rzeszów, 12 th Commercial Division of the National Court Register, No. 10,07% 10,07% IP Solutions Sp. z o.o. District Court in Rzeszów, 12 th Commercial Division of the National Court Register, No. 100,00% 100,00% TM Investment Sp. z o.o. District Court in Rzeszów, 12 th Commercial Division of the National Court Register, No. 5,00% 5,00% * issuer s share in a related company, ** issuer's share in the total number of votes. As at , the Issuer held shares indirectly in two entities: in Śnieżka Sp. z o.o. in Wistowa, 74% directly and 26% indirectly via Śnieżka Ukraina Sp. z o.o. in TM Investment Sp. z o.o. in Brzeźnica 5% directly and 95% indirectly via IP Solutions Sp. z o.o. APPLIED CONSOLIDATION METHODS: Hadrokor Sp. z o.o. Full consolidation method Fabryka Farb i Lakierów Proszkowych "Proximal" Sp. z o.o.- Grupa Śnieżka Full consolidation method Farbud Sp. z o.o. Full consolidation method Śnieżka-Ukraina Sp. z o.o. Full consolidation method SOOO Śnieżka BEL-POL Sp. z o.o. Full consolidation method Śnieżka Sp. z o.o. in Wistowa Full consolidation method Śnieżka Romania S.R.L. Full consolidation method Plastbud Sp z o.o. Equity method IP Solutions Sp. z o.o. not consolidated in 2010 TM Investment Sp. z o.o. not consolidated in 2010 In the consolidated statements, the parent company measures its shares in Plastbud Sp. z o.o. with the equity method, due to the volume of transactions between the investor (parent company) and the above-mentioned company. 5/5

29 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) Revenue of member companies of the Capital Group, without exclusions Revenue from the sale of products, goods and Financial Accumulated, NAME OF THE COMPANY materials revenue Total % of Śnieżka % total total TM Investment Sp. z o.o ,00 0,00 - IP Solutions Sp. z o.o ,03 0,02 0,02 FF i L Proszkowych PROXIMAL Sp. z o.o. - Grupa ,24 0,15 0,18 Śnieżka Śnieżka Sp. z o.o. in Wistowa ,20 0,79 0,97 Śnieżka Romania S.R.L ,30 0,85 1,82 Hadrokor Sp. z o.o ,12 2,05 3,86 SOOO Śnieżka BEL-POL Sp. z o.o ,74 3,76 7,62 Plastbud Sp. z o.o ,59 4,31 1 1,94 Farbud Sp. z o.o ,52 6,24 1 8,17 Śnieżka Ukraina Sp. z o.o. in Yavoriv ,90 1 6,31 3 4,49 Fabryka Farb i Lakierów Śnieżka S.A ,51 100,00 Total , ,00 100,00 Balance sheet totals of member companies of the Capital Group, without exclusions Accumulated, NAME OF THE COMPANY Balance sheet total % of Śnieżka % total total TM Investment Sp. z o.o. 2 0,00 0,00 0,00 Śnieżka Sp. z o.o. in Wistowa ,55 0,31 0,31 FF i L Proszkowych PROXIMAL Sp. z o.o. - Grupa ,90 0,50 0,80 Śnieżka Hadrokor Sp. z o.o ,35 0,75 1,55 Śnieżka Romania S.R.L ,38 0,76 2,31 SOOO Śnieżka BEL-POL Sp. z o.o ,09 1,15 3,47 Plastbud Sp. z o.o ,00 2,76 6,23 Farbud Sp. z o.o ,28 2,92 9,15 Śnieżka Ukraina Sp. z o.o. in Yavoriv ,74 5,94 1 5,08 IP Solutions Sp. z o.o ,61 2 9,64 4 4,72 Fabryka Farb i Lakierów Śnieżka S.A ,00 55,28 100,00 Total ,00 Financial results of member companies of the Capital Group, without exclusions Accumulated, NAME OF THE COMPANY Financial result % of Śnieżka % total total Śnieżka Romania S.R.L. (1.381) (3,84) (2,63) (2,63) Śnieżka Sp. z o.o. in Wistowa (203) (0,56) (0,39) (3,02) Hadrokor Sp. z o.o. (192) (0,53) (0,37) (3,39) TM Investment Sp. z o.o. (6) (0,02) (0,01) (3,40) IP Solutions Sp. z o.o ,30 0,20 (3,20) FF i L Proszkowych PROXIMAL Sp. z o.o. - Grupa 597 1,66 1,14 (2,06) Śnieżka Farbud Sp. z o.o ,76 1,21 (0,85) SOOO Śnieżka BEL-POL Sp. z o.o ,72 4,61 3,76 Plastbud Sp. z o.o ,98 7,53 11,29 Śnieżka Ukraina Sp. z o.o. in Yavoriv ,30 20,10 31,39 Fabryka Farb i Lakierów Śnieżka S.A ,00 68,61 100,00 Total ,00 100,00 6/6

30 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) Information on changes in the composition of the member companies subject to consolidation or measured with the equity method In the statements for the period , Fabryka Farb i Lakierów Proszkowych Proximal Sp. z o.o. Grupa Śnieżka is subject to full consolidation. Farbud Sp. z o.o., with its registered office in Lublin, is subject to full consolidation in the statements for the period Hadrokor Sp. z o.o., with its registered office in Włocławek, is subject to full consolidation in the statements for the period Śnieżka - BELPOL Sp. z o.o., with its registered office in Zhodzina, is subject to full consolidation in the statements for the period In the statements for 2003, this company was consolidated under the equity method. In 2006, FFiL Śnieżka S.A. increased its share in this company from 51% to 88%. Śnieżka Ukraina Sp. z o.o., with its registered office in Yavoriv, is subject to full consolidation in the statements for the period In 2006, FFiL Śnieżka S.A. increased its share in this company from 51% to 82.36%. In 2007, the share capital in Śnieżka Ukraina Sp. z o.o. was increased from UAH 413,600 to UAH 415,700. After registering the capital increase, FFiL Śnieżka S.A. held 81.94% shares in the Ukrainian company. In October 2007, FFiL Śnieżka sold 2.01% of shares in this company. In 2010, the parent company increased its share in the above-mentioned company to 81.27%. Śnieżka Sp. z o.o. in Wistowa is subject to full consolidation in the statements for the period In 2006, FFiL Śnieżka S.A. increased its holding of direct shares in this company from 45% to 74% and, together with indirect holding of shares via Śnieżka Ukraina Yavoriv, from 71% to 100%. Śnieżka Romania S.R.L. in Săvineşti in 2006, FFiL Śnieżka S.A. purchased 80% of shares in this company. In 2006, the company was not subject to consolidation, as it did not start its operations. From 2007 to 2010, the subsidiary was fully consolidated. Plastbud Sp. z o.o. is measured with the equity method in the statements for the period IP Solutions Sp. z o. o. was established in November FFiL "Śnieżka S.A. holds 100% shares in this company. At the end of 2010, the company was not consolidated. It will be consolidated for the first time in TM Investment Sp. z o. o. was established in November FFiL Śnieżka S.A. holds directly 5% of shares in this company, which combined with indirect shares held through IP Solutions Sp. z o.o., represents 100% of shares. At the end of 2010, the company was not consolidated. It will be consolidated for the first time in INFORMATION ON THE BASIS FOR COMPILING THE FINANCIAL STATEMENTS, REPORTING CURRENCY AND THE APPLIED ROUND-OFF The presented data of ŚNIEŻKA Capital Group for 2010 has been compiled in line with the International Accounting Standards, International Financial Reporting Standards, and related interpretations published in the form of the Regulations of the European Commission, hereinafter referred to as the IAS. The statements present financial data for the period in comparison to The financial statements were compiled according to the going concern principle. It is assumed that ŚNIEŻKA Capital Group will continue its operations in the foreseeable future. No threats to the continuity of operations were recorded in Risks and threats to the Group have been discussed in the management report of Śnieżka Capital Group. The reporting and operating currency in this financial statement is Polish zloty and all amounts are expressed in thousands of Polish zlotys (unless indicated otherwise). 7/7

31 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) 2. APPLIED ACCOUNTING PRINCIPLES The described accounting principles and methods have been introduced to be applied in the entire Capital Group. In certain companies of the Capital Group these may differ. This, however, does not have a material effect on the presentation of these statements. Consolidation principles The consolidated statements include the statement of the parent company ŚNIEŻKA S.A. and the statements of fully consolidated subsidiaries, and it presents the shares held in associates measured with the equity method. If a company was subject to consolidation in the course of the year, its financial result is included in the consolidation starting from the date of taking control or gaining a substantial influence. Subsidiaries Subsidiaries are entities controlled by the Company ŚNIEŻKA S.A. Control is exercised when ŚNIEŻKA S.A. holds, directly or indirectly via subsidiaries, more than half of the number of votes in a given company, unless it can be proved that such form of ownership does not imply exercising control. Control is also exercised when the Company can influence the financial and operating policy of a given company to obtain benefits from its activities. Subsidiaries are consolidated starting from the date when the Group took over control and they are no longer consolidated when the Group loses control over them. If more shares in a parent-controlled company are purchased, the difference between the cost of merger and net fair value of the purchased assets is recorded in the retained financial result. The financial result attributable to non-controlling interest, acquired by way of transaction of purchase of additional stakes of stock, is recorded as the result of the parent company for a given period. Financial statements of foreign entities Balance sheet items of foreign entities, including goodwill and adjustments of fair value resulting from consolidation, are converted according to the average NBP rate applicable on the balance sheet day. The Group s shares in foreign currency cash assets and liabilities in the financial statements of subsidiaries with their registered offices abroad are converted according to the average NBP exchange rate applicable on the balance sheet day. Non-cash items in foreign currencies are converted according to the purchase or sale rate applicable on the day of transaction. Income and costs of foreign currency transactions are converted using the NBP s average currency exchange rate for a given period. Capital is converted according to the rate applicable on the day when control was taken. Full consolidation method Full consolidation includes two stages: Stage I involves making material adjustments in separate statements of the parent company and subsidiaries, which are aimed at: achieving a uniform measurement of assets and liabilities and the register of economic operations used by subsidiaries; expressing separate financial statements of foreign subsidiaries in the Polish currency; adjusting the presentation of income, costs and inventories of products manufactured by the Group in the statements. Stage II involves summing up individual items of the balance sheet, profit and loss account and cash flow statement of the parent company and the subsidiaries after performing the following exclusions: value of the purchased shares held by the parent company in subsidiaries, including the portion measured according to the fair value of net assets of subsidiaries which corresponds to the parent company s share in subsidiaries, as at the day when control was taken; shares in the equity of subsidiaries, held by persons or entities not subject to consolidation, are recorded in liabilities of the consolidated balance sheet under the item "Capital attributable to noncontrolling interest, while recording in the profit and loss account the net financial result attributable to non-controlling interest under item "Profits (losses) attributable to non-controlling interest"; mutual receivables and liabilities; income and costs of economic transactions between entities subject to consolidation; profits or losses generated as a result of economic transactions between entities subject to consolidation, included in the value of assets subject to consolidation; dividends accrued or paid by subsidiaries to the parent company and other entities subject to consolidation. 8/8

32 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) Consolidation under the equity method In the consolidated statements, shares in associates are measured with the equity method. When applying this method, the item Shares in subsidiaries measured with the equity method is singled-out from fixed assets in the consolidated balance sheet to record shares in the purchase prices adjusted for consolidation differences determined and disclosed in the statements according to the principles laid down below. The adjusted purchase price is increased or decreased by increases or decreases of equity of subsidiary attributable to the parent company or other members of the capital group subject to consolidation which occurred starting from the day of gaining substantial influence or from the day of taking control or joint control until the balance sheet day, including decreases due to settlements with its owners. The above-mentioned amount is recorded in the consolidated profit and loss account under item Profit (loss) on shares in subsidiaries measured with the equity method. Any received payments from the profit generated by a company in which investments were made decrease the carrying value of such investments. Goodwill of associates is recognised at carrying value of the investment. Goodwill is not amortised and amortisation is not taken into consideration when specifying the investor s share in profits or losses of an associate. Since goodwill is not recognised separately, it is not tested for impairment. Impairment test is conducted for the carrying value of investments by comparing their recoverable value with the carrying value. Consolidation differences. A consolidation difference is subject to a full write-down in the following cases: the determined consolidation difference is not material for the consolidated statements; it resulted from the acquisition of new shares, which caused a change in the percentage share of the parent company in net assets of a subsidiary; an impairment of shares in a subsidiary to which the difference relates. Consolidation differences are subject to adjustment as a result of the dividend paid to the parent company by a subsidiary for the period preceding the day when control was taken. Consolidation documentation ŚNIEŻKA Group s consolidation documentation includes: Financial statements from related parties, including: primary (original) financial statements of related entities; financial statements of subsidiaries adapted to the accounting principles (policy) applied by the parent company; financial statements of subsidiaries converted into Polish currency; all adjustments and exclusions performed in the course of consolidation, necessary to compile consolidated financial statements; calculations of the fair value of net assets of subsidiaries; calculations of goodwill and negative goodwill, and allowances, including adjustment allowances; calculation of capital attributable to non-controlling interest, calculations of foreign exchange differences from the conversion of subsidiaries financial statements. Parent company s financial statement. Consolidation documents, including the consolidated and approved financial statement, are transferred to a permanent data carrier and archived with the parent company. Intangible assets Intangible assets are identifiable and non-cash portions of assets without a physical form. This category includes, among other things, software, patents, copyrights, recipes and licences. Intangible assets are measured according to the purchase or manufacturing cost, taking into account accumulated amortisation charges and impairment losses. Depreciation charges are performed by applying the straight-line method over an asset s useful life. Intangible assets with an indefinite useful life are not subject to amortisation. Useful life and amortisation method of intangible assets are verified every year. The calculation of amortisation charges is performed starting from the first day of the month following the month when an intangible asset was commissioned for use. Goodwill and negative goodwill Goodwill (positive and negative) represents the amounts generated in the course of purchasing shares in subsidiaries, associates and jointly controlled entities. It represents the difference between the cost of purchase and the fair value of purchased, identifiable net assets. Goodwill is disclosed as an item of assets and is subject to an impairment test at least once a year. Results of impairment are recorded in the profit and loss account and are not subject to reversal in the following periods. 9/9

33 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) The surplus of fair value of the acquired net assets of a subsidiary over the cost of merger is recorded in the financial result as at the day of acquiring control over a subsidiary. According to IFRS 3, as of the parent company excluded the negative goodwill identifiable in the balance sheet in earlier periods from the accounting books, while adjusting the opening balance of the retained result from the previous years. If more shares in a parent-controlled company are purchased, the difference between the cost of merger and net fair value of the purchased assets is recorded in the retained financial result. According to IFRS 3, goodwill and negative goodwill are not identified in the purchased stakes of stocks/shares of jointly controlled companies. Property, plant and equipment are maintained by the Group for use in the production process or when delivering goods and providing services, or assets to be handed over to use to other entities based on lease agreements or for administrative purposes. The abovementioned PP&E is recorded as an item of assets, if it is expected that it will be used for a period longer than one year and if it is likely that the Group will enjoy future economic benefits linked to an item of assets. PP&E is disclosed based on the purchase price or the adopted manufacturing cost, less accumulated amortisation charges and impairment losses. If an item of PP&E is composed of separate and material items with various useful lives, such items are regarded as separate items of PP&E. The PP&E register records data in volume and value terms and includes a division into groups. Items of PP&E or their material and separate parts are depreciated with the straight-line method over their useful life. Land is not subject to depreciation. Useful lives of PP&E for individual groups by types: Group 1 Buildings years Group 2 Structures years Group 3 Boilers and energy supply machinery 5-10 years Group 4 Machines and equipment 3-15 years Group 5 Machines, equipment and industry-specific apparatuses 5-10 years Group 6 Technical equipment 4-30 years Group 7 Means of transport 3-8 years Group 8 Tools, instruments, movables and equipment 5-15 years As at the balance sheet day, the Group determines whether there are indications of impairment of any PP&E item. If such indications are confirmed, the group estimates the recoverable value of a given asset. If the carrying value of PP&E is higher than the estimated recoverable value, the carrying value of such PP&E is subject to an impairment loss up to its recoverable value. The Group verifies useful lives and residual values of PP&E every year. PP&E under construction includes PP&E in the course of construction or assembly, and are disclosed according to the purchase price or manufacturing cost, less impairment losses. The main reason for the charges is the possibility that PP&E under construction may not yield benefits in the future. PP&E under construction are not subject to depreciation until construction is completed and PP&E are commissioned to use. Investment real property is disclosed under assets, when it is likely that the Group will gain future economic benefits from this property or when the purchase price or manufacturing cost of such property can be credibly measured (according to IAS 40, section 16). Investment real property is measured at purchase price or manufacturing cost, less accumulated depreciation charges and impairment losses, taking into account the transaction costs. Financial assets Financial assets include: shares, stocks, borrowings granted, derivatives and other long-term financial assets. Borrowings granted by the Group are measured at adjusted purchase price. However, if the difference between the measurement at adjusted purchase price and the measurement according to the payable amount is insignificant, borrowings are measured according to the payable amount. In the consolidated statements, shares and stocks held in associates are measured with the equity method (according to IAS 28, section 13). 10/10

34 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) Shares and stocks held in subsidiaries not subject to consolidation are measured at purchase price (according to IAS 27), less any impairment losses. Trade and other receivables. Given the insignificant difference between the measurement according to the adjusted purchase price and the payable amount, the Group measures receivables according to the payable amount (i.e. according to the historic value), less revaluation write-downs. Receivables expressed in foreign currencies are recorded according to the currency exchange rate as at the transaction day (average exchange rate published by the National Bank of Poland for a given currency at the last working day preceding the transaction day). In the balance sheet, the Group presents receivables due to current income tax under a separate entry. As at the balance sheet day, receivables expressed in foreign currencies are measured based on the closing rate. It has been adopted that for the Group this is the immediate exchange rate as at the balance sheet day (i.e. average NBP exchange rate for a given currency on the last working day preceding the balance sheet day), since the Group conducts financial transactions using the inter-bank market and the prices obtained by the Companies differ insignificantly from the rate published by the National Bank of Poland (the variation does not exceed 0.3%). Deferred tax assets Deferred tax assets (according to IAS 12) are recognised only when there is a possibility that future tax income will be available for which a given type of assets item can be realised. Deferred tax assets are subject to reduction, if it is not likely that the economic benefit they represent will be obtained. The amount of deferred income tax assets is determined based on the income tax rates applicable in the year when the tax obligation arises. Monthly dates for calculating and releasing deferred income tax assets are set. Inventories are the following assets (IAS 2, section 6): intended for sale in the course of normal business activity, (The Group presents these assets as finished products and goods.) Finished products are products manufactured by the Group. Goods are merchandise purchased by the entity for resale, assets in the course of production, intended for sale, (presented as semi-finished products in the Group s statements), assets in the form of materials used in the production process, for providing services and used in the selling and management process, (presented as materials in the Group s statement). They are measured (IAS 2, section 9.18) according to the purchase price or manufacturing costs not exceeding their realisable net sales prices as at the balance sheet day. The realisable net value is the estimated selling price for ongoing sales, less estimated finishing costs and costs necessary to conclude a sales transaction. Inventories are measured based on: Materials purchase price, whereby the outflow is measured according to average weighted method; Goods purchase price, whereby the outflow is measured according to average weighted method; Finished products registration price determined at the level of the planned product manufacturing cost, adjusted for increasing variations, leading to the actual manufacturing cost not exceeding the net sales price, whereby the outflow is measured according to the method of registration price adjusted for variations; Semi-finished products fixed book price established at a planned cost of product manufacture adjusted progressively by deviations, so that the actual cost of manufacture is achieved, whereas disposal is measured at the fixed price adjusted by deviations. Manufacturing costs of finished products and semi-finished products include a portion of fixed indirect costs. The remaining unjustified portion of indirect costs encumbers the costs of the period when these costs were borne. The division into the abovementioned parts is based on the level of use of normal production capacities. Revaluation write-downs are established for surplus and non-disposable inventories. The verification of inventory days is conducted regularly, on a quarterly basis. Revaluation write-downs set the book values of inventories at the level of their realisable net sales prices. Write-downs are determined based on separate criteria, taking into account the company s type of activity. The Group recognises advances on supplies in the Consolidated Statement of Financial Position under Inventory. Cash Domestic cash and cash equivalents comprise cash in hand and cash in bank, bank deposits and securities with a maturity date of up to three months. They are measured according to their nominal value. Assets and cash liabilities expressed in foreign currencies are revaluated on the balance sheet day according to the closing rate, i.e. immediate exchange rate as at the balance sheet day. It has been adopted that for the Group this is the average NBP exchange rate for a given currency on the last working day preceding the balance sheet day, since the Group conducts financial transactions using the inter-bank market and the prices obtained by the 11/11

35 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) Companies differ insignificantly from the rate published by the National Bank of Poland (the variation does not exceed 0.3%). All exchange rate gains or losses due to changes of exchange rates after the day of transaction are recognised in the profit and loss account. Fixed assets held for sale The Group classifies fixed assets (or a group of assets held for sale) as held for sale, if it is highly likely that their carrying value will be recovered by way of sale and not by their further use (according to IFRS 5, section 6). The Group measures fixed assets held for sale according to an amount lower than the carrying value and fair value, less sales costs (according to IFRS 5, section 15). In its balance sheet, the Group presents fixed assets held for sale and assets forming the group classified as held for sale separately from other assets. Also liabilities of businesses held for sale are presented in the balance sheet separately from other liabilities. Share capital is measured at its nominal value resulting from the company s statute. Supplementary capital is formed according to the Commercial Companies Code in domestic companies and according to the applicable laws in foreign companies. Ordinary stocks and registered stocks are presented as share capital. Reserve capital is measured according to the amount resulting from the passed resolutions and at the nominal value. Revaluation capital is formed from, among others, convertible bonds. Retained financial result includes the result from the current year and results from previous years. The financial result for the current year is determined based on the profit and loss account. Trade and other liabilities Given the insignificant difference between the measurement according to the adjusted purchase price and the payable amount, the Group measures liabilities according to the payable amount (cost including interest accrued). Liabilities expressed in foreign currencies are recorded on the day of transaction according to the average NBP exchange rate for a given currency on this day. As at the balance sheet day, liabilities expressed in foreign currencies are measured based on the closing rate, i.e. immediate exchange rate as at the balance sheet day. It has been adopted that for the Group this is the average NBP exchange rate for a given currency on the last working day preceding the balance sheet day, since the Group conducts financial transactions using the inter-bank market and the prices obtained by the Companies differ insignificantly from the rate published by the National Bank of Poland (the variation does not exceed 0.3 %). In addition to trade liabilities, the Group also records financial liabilities due to loans, lease, derivatives and the issue of debt securities convertible bonds (description in the section on financial instruments and lease). In the balance sheet, the Group presents liabilities due to the current income tax from legal persons under a separate entry. Provisions A provision is recognised, if the Group is obliged by law or past obligations and it is likely that fulfilling such obligation will involve an outflow of economic benefits from the Group. Material provisions are determined by discounting the expected future cash flow, based on the rate before taxation which reflects current market estimates of changes in money value over time and, where applicable, risk linked to a given item of liabilities. The provision for agreements which generate encumbrances is recognised, if the expected realisable Group s benefits from the agreement are lower than the unavoidable costs of fulfilling a contractual obligation. The Group divides provisions into long-term and short-term provisions. Provisions for employee benefits. Under the corporate code of remuneration, the Group s employees are entitled to retirement and annuity gratuities as well as posthumous and anniversary benefits as well as benefits due to unused holidays. These liabilities result from rights acquired by the employees in the current year and in the previous years. The value of the Group s liabilities due to severance pay is calculated by a licensed actuary. Corporate income tax provision The Group establishes provisions and assets (under IAS 12), in relation to temporary differences between the value of assets and liabilities disclosed in the accounting books and their tax value. The positive difference constitutes a statutory appropriation of the net result, as an income tax provision, while the negative difference decreases statutory appropriations of the result. The deferred income tax provision is established at the amount of income tax payable in the future, in relation to positive temporary differences, i.e. differences which will cause an increase of income tax base in the future. 12/12

36 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) Lease Lease agreements under which the Group bears the entire risk and gains all benefits from the ownership of PP&E are classified as finance lease agreements. PP&E purchased by way of finance lease is disclosed in the current value of minimum lease fees, less accumulated depreciation charges and impairment losses. Lease fees are allocated to financial costs and decrease of unpaid liabilities balance to obtain a constant periodic interest rate in relation to unpaid liabilities balance. Financial costs are posted directly in the profit and loss account (according to IAS 17, section 25). In the case of insufficient certainty that the lessee will obtain an ownership title by the end of the lease period, a given item of assets is depreciated over the shorter period: lease period or use period. Each year, the Group conducts analyses whether to perform an impairment test of PP&E subject to lease and it verifies the useful life of PP&E. Accruals These are liabilities due to goods or services which have been received/performed but have not yet been paid for, invoiced or formally agreed upon with the supplier, together with the amounts due to employees. Although at times it is necessary to estimate the amount or date of payment of accruals, the level of uncertainty is generally significantly lower than for provisions. Accruals presented in the balance sheet are divided into short-term and long-term. Deferred income The Group presents asset subsidies in the financial statements under Deferred income, which is systematically recognised as revenue over the useful life of an asset. This revenue increases the balance of Accruals in the Group s statement of financial position. Financial instruments The principles of classifying (grouping) financial instruments in Śnieżka Capital Group: 1. Financial assets held for trade include: derivatives with a positive fair value on the measurement day, e.g. swap contracts, foreign exchange options, forwards, etc., assets purchased to obtain economic benefits resulting from short-term changes in prices and variations of other market factors, or short duration of the purchased instrument (i.e. up to 3 months), ex. stocks purchased by way of public trading, stock rights purchased by way of public trading, etc., other purchased financial assets, irrespective of the intention of the contract, if they constitute a part of a portfolio of similar financial assets, which is highly likely to generate economic benefits in the shortterm, borrowings granted and equity receivables which the company intends to sell in the short-term. 2. Borrowings granted and equity receivables include, irrespective of their maturity (payment), financial assets formed as a result of disbursement of cash directly to the other party to an agreement; this category also includes bonds and debt securities purchased in exchange for disbursed cash, if the concluded agreement clearly states that the seller has not lost control over the issued financial instruments. 3. The group of financial assets held to maturity includes assets that meet all of the following requirements: The financial asset must have a clearly defined maturity date for the repayment of the nominal value; The agreement whose subject is a given item of financial assets clearly specifies the right to receive economic benefits on specific dates and in a pre-determined amount; At the time of purchase, the entity expresses the intent to hold such financial asset until maturity; The Group can hold such asset until its maturity. 4. The group of financial assets available for sale includes financial assets that do not meet the conditions for qualifying for one of the other three groups. 5. The group of financial liabilities held for trade includes derivatives with a negative fair value on the measurement day, ex. swap contracts, foreign exchange options, etc., and short-term securities (investment bills of exchange, commercial bills, etc.) issued by the company. 6. The group of other financial liabilities includes short-term financial liabilities that are not classified as held for trade: bank loans and convertible bonds issued by the entity. Liabilities due to the issue of debt securities in the form of convertible bonds are measured according to the procedure specified in IAS 32, taking into account the market price of the loan. At the time of initial disclosure, the fair value of an item of liabilities is the current value of the future cash flow resulting from an agreement and discounted according to the interest rate applicable at that time on the market to the instruments of similar loan characteristics with no swap option. The embedded option to swap a liability for stock constitutes a capital instrument. The fair value of an option is composed of its value over time and its intrinsic value. 13/13

37 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) Derivative financial instruments Swap and forward transactions as well as options are disclosed in the financial statement as financial assets or financial liabilities, according to the fair value and the measurement model of the bank where the transaction was concluded. Assets and liabilities items within a single bank are disclosed as per balance. Changes in the fair value of financial instruments are included in other costs or financial income in the profit and loss account in the period when these changes occurred. Embedded financial instruments According to IAS 39, section 10.13, the Group recognises embedded derivatives and analyses them for materiality (purchase and sale agreements concluded in foreign currency, IAS 39 WS C.7). If the embedded derivatives prove to be material, they are presented as other short-term financial assets. Contingent liabilities A contingent liability is: - a potential obligation resulting from events in the past which may be confirmed at the moment of occurrence or non-occurrence of one or more potential, future events that are partially beyond the entity s control, - a present obligation resulting from events in the past that is not disclosed in the statements because the fulfilment of the obligation is not likely to involve an outflow of cash bearing economic benefits or the liability cannot be credibly measured. The Group s contingent liabilities include, e.g. guarantees, sureties and bills of exchange to third parties under concluded agreements. The Group does not recognise contingent liabilities in the financial statements. Operating segments Segment reporting classifies operating segments at the level of the Group s operations: - which are involved in business activity yielding potential revenue and costs, - whose results are regularly reviewed by the main body that is responsible for operating decisions in the entity and uses the results when deciding on the allocation of resources and assessing the operating segment s results, and - for which separate financial data is available. The Group decided that the geographical segment shall be its operating segment subject to disclosure. The areas of operation of the segments are: Poland, Ukraine, Belarus, Russia, Moldova, Romania and other. Definitions of a segment s revenue, expenses, assets and liabilities relate to the balance sheet items which can be directly assigned to that segment. Methods of determining the financial result The financial result is determined in the profit and loss account by applying the accrual and prudence principles, after decreasing gross profit by the accrued income tax and write-downs due to the provision for temporary income tax differences. Sales revenue Income from the sale of goods, after being decreased by the amount of the goods and services tax, reductions and discounts, is recognised (according to IAS 18, section 14) when: the group has transferred to the purchaser substantial risk and benefits from the ownership title to goods (IAS 18, sections 15, 16 and 17); the group is no longer permanently engaged in managing the sold goods, and it does not exercise actual control over them; the amount of revenue can be credibly measured; there is a probability that the Group will obtain economic benefits from the transaction (IAS 18, section 18), and costs incurred and costs to be incurred by the Group in connection with the transaction can be credibly measured. Income from the sale of services is recognised when the result of a transaction involving the provision of services can be credibly estimated (according to IAS 18, section 20). Income from the abovementioned transactions is recorded based on the level of progress of the transaction as at the balance sheet day. If the result of a transaction involving the provision of services cannot be credibly estimated, income from the transaction is recorded up to the amount of costs borne which the entity expects to recover (IAS 18, section 26). In the profit and loss account, the Group presents the following separately: revenue from sales of products this item includes revenue from the sale of finished products and services, 14/14

38 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) revenue from sales of goods this item includes revenue from the sale of merchandise, according to the definition of inventory, revenue from sales of materials this item includes revenue from the sale of materials, according to the definition of inventory. Cost of sales At the time of sale of inventory (products, goods and materials), the carrying value of inventory is recorded as the cost of the period when the respective revenue is recorded (IAS 2, section 34). The purchase price or the cost of manufacturing the inventory, recorded as the cost of the period (according to the principle for measuring inventory in the Group), includes cost directly taken into consideration when measuring sold inventory, non-assigned indirect manufacturing costs and extraordinary manufacturing costs of inventory (IAS 2, section 38). The costs of services linked to a given transaction are recorded in the period when the respective revenue is recorded. The costs of sale are decreased by the received cash bonuses. In the profit and loss account, the Group presents the following separately: manufacturing cost of products sold this item includes costs of manufacturing products and services sold, value of goods sold this item includes the value of merchandise sold, according to the definition of inventory, value of materials sold this item includes the value of materials sold, according to the definition of inventory. Selling costs Selling costs are costs borne by the Group in connection with selling activities. General administrative costs These costs act as a register of general administrative expenses, i.e. costs linked to maintaining the company s administrative structure, organisation and the company as a whole. Other operating revenue Operating revenue is recognised in the period to which it refers. This is revenue not directly linked to the Group s operating activities, in particular: revenue from disposal of non-financial fixed assets, other revenue. Other operating expenses Operating expenses are recognised in the period to which they refer. These are costs not directly linked to the Group s operating activities, in particular: value of non-financial fixed assets sold; other expenses. In the profit and loss account, the result on the disposal of non-financial fixed assets is disclosed as the difference of revenue and costs, under the profit or loss entry, respectively. Financial revenue Financial revenue includes revenue from financial operations, in particular: revenue generated as a result of other businesses use of the Group s interest-bearing assets, dividends and licence fees, foreign exchange gains, profit on the disposal of derivatives, revaluation of the fair value of derivatives. Financial costs Financial costs include costs of financial operations, in particular: borrowing costs (according to IAS 23, sections 4 and 5), revaluation of bonds, foreign exchange losses, revaluation of the fair value of derivatives. In the profit and loss account, the foreign exchange differences are presented according to the result, under the profit or loss entry, respectively. 15/15

39 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) Income tax The income tax disclosed in the profit and loss account comprises both the current and deferred tax. Income tax is recorded in the profit and loss account. The current tax is the expected tax obligation due to taxable income for a given year, calculated using tax rates applicable or passed as at a given balance sheet day, and adjustments of tax from previous years. Current portion of liabilities due to income tax is calculated according to tax regulations. The deferred tax is calculated using the balance sheet method, taking into account temporary differences between the value of assets and liabilities determined for accounting purposes and the value determined for tax purposes. The recognised deferred tax amount is based on the expected method of realisation of the carrying value of assets and liabilities, using tax rates applicable or passed as at the balance sheet day. Selected financial data of the Capital Group in thousands of PLN in thousands of EUR I. Net revenues from sales of products, goods and materials II. Operating profit (loss) III. Gross profit (loss) IV. Net profit (loss) Net profit (loss) attributable to stockholders of the parent company Net profit (loss) attributable to non-controlling interest V. Comprehensive income for the period Comprehensive income for the period, attributable to stockholders of the parent company Comprehensive income for the period, attributable to non-controlling interest VI. Net operating cash flow VII. Net investment cash flow (25.734) (23.320) (6.428) (5.372) VIII. Net financial cash flow (5.153) (53.776) (1.287) (12.388) IX Total net cash flows (4.699) (1.083) X Total assets X. Liabilities and provisions for liabilities XII. Long-term liabilities XII. Short-term liabilities XV. Equity Equity attributable to stockholders of the parent company Equity attributable to non-controlling interest XV. Share capital XVI. Number of stocks XVII. Earnings (loss) per ordinary stock (in PLN/EUR) 3,51 3,13 0,88 0,72 - Earnings (losses) per ordinary stock, attributable to stockholders of the parent company 3,36 3,01 0,84 0,69 XVIII. Diluted earnings (losses) per ordinary stock (in PLN/EUR) 3,51 3,10 0,88 0,71 - Diluted earnings (losses) per ordinary stock, attributable to stockholders of the parent company 3,36 2,97 0,84 0,68 XIX. Book value per stock (in PLN/EUR) 15,88 14,13 4,01 3,44 XX. Diluted book value per stock (in PLN/EUR) 15,88 13,98 4,01 3,40 XXI. Declared or paid dividend per stock (in PLN/EUR) - 1,60-0,39 The above data has been calculated according to the following principles: Individual balance sheet items are converted into Euro according to the average Euro exchange rate, as at the balance sheet day, determined by the National Bank of Poland. Individual items of the profit and loss account are converted into Euro at a rate calculated as an arithmetic mean of the average Euro exchange rates determined by the National Bank of Poland as on the last day of each full month of the financial year. Euro exchange rate Date Average exchange rate over the period (increasing) Exchange rate on the last day of the period /16

40 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT Assets Note as at FIXED ASSETS Intangible assets Goodwill of subsidiaries Property, plant and equipment Investment real property Long-term financial assets: 5/ investments in associates that are accounted for using the equity method investments in non-consolidated subsidiaries and jointly-controlled entities other investments Long-term receivables - - Deferred income tax assets CURRENT ASSETS Inventory Trade receivables Receivables due to the current portion of income tax Other short-term receivables Other short-term financial assets Cash and cash equivalents Fixed assets classified as held for sale TOTAL ASSETS Liabilities as at EQUITY Equity attributable to stockholders/shareholders of the parent company Share capital Supplementary capital Revaluation reserve Equity stocks/shares 12 - (8 Reserve capital Foreign exchange differences on conversion of subsidiaries 12 (10.729) (11.124) Retained earnings Equity attributable to non-controlling interest LIABILITIES Long-term liabilities Long-term loans and borrowings Other long-term financial liabilities Other long-term liabilities - - Deferred income tax provision Provisions for liabilities against employee benefits Other long-term provisions Short-term liabilities Short-term loans and borrowings Other short-term financial liabilities Trade liabilities Liabilities due to income tax currently payable Other short-term liabilities Short-term provisions Accruals Liabilities related to fixed assets classified as held for sale - - TOTAL LIABILITIES /17

41 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the period from to Classification by function Note for the period Continued operations Sales revenue Revenue on sale of products Revenue on sale of goods Revenue on sale of materials Cost of sales (cost of products, goods and materials sold) Manufacturing cost of products sold Value of goods sold Value of materials sold Gross profit (loss) on sales Selling costs General administrative costs Other operating revenue Other operating expenses Operating profit (loss) Financial revenue Financial costs Share in net profit (loss) of subsidiaries measured with the equity method Profit (loss) before tax Income tax Net profit (loss) on continued operations Discontinued operations - - Net loss on discontinued operations Net profit (loss) Other items of comprehensive income Foreign exchange differences on conversion of foreign operations 395 (1.482) Other items of comprehensive income (net) 395 (1.482) Comprehensive income for the period Net profit (loss), of which for: stockholders of the parent company non-controlling interest Comprehensive income for: stockholders of the parent company non-controlling interest Net earnings (losses) per ordinary stock: on continued operations 27 - basic 3,36 3,01 - diluted 3,36 2,97 on continued and discontinued operations - basic diluted /18

42 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) Statement of changes in consolidated equity (fund) I. Equity (fund) at the beginning of the period (OB) previously reported results of changes in the accounting principles (policy) - I.a. Equity (fund) at the beginning of the period (OB) restated Share capital (fund) at the beginning of the period Changes in share capital (3) (296) a) increase (due to) - b) decrease (due to) redemption of shares (stocks) Share capital (fund) at the end of the period Called-up share capital at the beginning of the period Changes in called-up share capital - a) increase (due to) - b) decrease (due to) Called-up share capital at the end of the period - 3. Equity shares (stocks) at the beginning of the period (89) (3.433) 3.1. Changes in equity shares (stocks) 89 (3.344) a) increase 89 - b) decrease Equity shares (stocks) at the end of the period - (89) 4. Legal reserve and share premium at the beginning of the period Changes in legal reserve and share premium a) increase (due to) distribution of profit (above statutorily required minimum amount) b) decrease (due to) redemption of equity stocks consolidation adjustments Legal reserve and share premium at the end of the period Revaluation reserve at the beginning of the period Revaluation reserve at the beginning of the period, after adjustments Changes in revaluation reserve Revaluation reserve at the end of the period Other reserve capitals (funds) at the beginning of the period Changes in other reserve capitals (funds) Other reserve capitals (funds) at the end of the period - 7. Foreign exchange differences on conversion of subsidiaries (10.729) (11.124) 8. Retained earnings at the beginning of the period Profit brought forward at the beginning of the period adjustments for fundamental errors - - results of changes in the accounting principles (policy) Profit brought forward at the beginning of the period, after adjustments Changes in profit brought forward (38.261) (39.639) a) increase (due to) - consolidation adjustments - b) decrease (due to) transfer to legal reserve and share premium payment of dividend payment of promoter certificates consolidation adjustments Profit brought forward at the end of the period Loss brought forward at the beginning of the period - - results of changes in the accounting principles (policy) Loss brought forward at the beginning of the period, after adjustments Changes in loss brought forward Loss brought forward at the end of the period Profit (loss) brought forward at the end of the period Net profit/loss a) net profit b) net loss - c) appropriations from profit Retained earnings at the end of the period Equity attributable to non-controlling interest at the beginning of the period Changes in equity attributable to non-controlling interest a) increases (due to) profit attributable to non-controlling interest b) decreases (due to) other adjustments Equity attributable to non-controlling interest at the end of the period II. Equity (fund) at the end of the period (CB) restated III. Equity (fund) after proposed distribution of profit (coverage of loss) /19

43 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) Consolidated cash flow statement Operating cash flow Profit before tax Adjustments: Depreciation/amortisation of PP&E and intangible assets Impairment losses on property, plant and equipment - - (Profit) loss on sales of property, plant and equipment (14) (244) (Profit) loss on sales of financial assets available for sale - Profit (loss) on measurement of investment real property at fair value - - (Profit) loss on changes in the fair value of financial assets disclosed at fair value - - (Profit) loss on changes in the fair value of financial assets disclosed at fair value (41) 159 Foreign exchange differences (2.508) (4.348) Unpaid interest (15) (23) Share in (profit) loss of associates (397) (381) Write-down on negative goodwill - Interest received (916) (979) Calculated dividend - Other adjustments - Operating cash flow before changes in working capital Movements in inventory (7.571) (140) Movements in receivables (46.477) Movements in liabilities (8.481) Movements in provisions 290 (173) Movements in prepayments and accruals Cash generated by operating activities Interest paid Income tax paid (15.280) (15.085) Net operating cash Investment cash flow Expenses related to acquisition of intangible assets (1.519) (484) Proceeds from sales of intangible assets - Expenses related to acquisition of property, plant and equipment (26.069) (28.454) Proceeds from sales of property, plant and equipment Expenses related to acquisition of investment real property - Proceeds from sales of investment real property - Expenses related to acquisition of financial assets available for sale - Proceeds from sales of financial assets available for sale - Expenses related to acquisition of financial assets held for trading (borrowings) (10) - Proceeds from sales of financial assets held for trading (borrowings) Expenses related to acquisition of subsidiaries (less the acquired cash) (467) (142) Proceeds from sales of subsidiaries Proceeds from government subsidies received - Long-term borrowings granted (70) - Received repayments of borrowings granted - Interest received Dividends received - Net cash used in investing activity (25.734) (23.320) Financial cash flow Net proceeds from issue of stocks - Purchase of equity stocks (89) (4.022) Proceeds from issue of debt securities - Redemption of debt securities - Proceeds from loans and borrowings raised Repayment of loans and borrowings (9.460) (37.235) Repayment of liabilities under finance lease (228) (261) Other proceeds foreign exchange differences - Interest (3.913) (4.218) Other expenses foreign exchange differences - Dividends paid (23.223) (19.404) Net financial cash (5.153) (53.776) Net increase (decrease) in cash and cash equivalents (4.699) Cash and cash equivalents at the beginning of the period Movements in cash and cash equivalents due to foreign exchange differences Foreign exchange differences (42) (78) Cash and cash equivalents at the end of the period /20

44 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS COMPILED FOR THE PERIOD FROM TO NOTE 1 GEOGRAPHICAL OPERATING SEGMENTS GEOGRAPHICAL SEGMENTS FINANCIALS FOR THE PERIOD BETWEEN and Item Segments Total Poland Ukraine Belarus Moldova Russia Romania Other Financial performance of geographical segments in the period between and Total revenues Segment revenue Segment profit/loss Non-attributed costs Other operating revenue Other operating expenses Net loss on sales of discontinued operations - Operating profit Financial revenue Financial costs Share in net profits (losses) of subsidiaries measured with the equity method 397 Profit before tax Income tax Net profit (loss), of which for: stockholders of the parent company: non-controlling interest: Item Total Poland Ukraine Belarus Moldova Russia Romania Other Other information on geographical segments for the period between and Total separate assets Trade receivables Investments in other entities Non-assigned assets of the entity Total separate liabilities Trade liabilities Non-assigned liabilities of the entity Total Item Poland Ukraine Belarus Moldova Russia Romania Other - Financial performance of geographical segments in the period between and Total revenues Segment revenue Segment profit/loss (1.536) Non-attributed costs Other operating revenue Other operating expenses Net loss on sales of discontinued operations - Operating profit Financial revenue 668 Financial costs Share in net profits (losses) of subsidiaries measured with the equity method 381 Profit before tax Income tax Net profit (loss), of which for: stockholders of the parent company: non-controlling interest: Item Total Poland Ukraine Belarus Moldova Russia Romania Other Other information on geographical segments from to Total separate assets Trade receivables Investments in other entities Non-assigned assets of the entity Total separate liabilities Trade liabilities Non-assigned liabilities of the entity The Capital Group divided its operations into geographical segments according to IFRS 8 Operating Segments. The areas of operation of the segments are: Poland, Ukraine, Belarus, Russia, Moldova, Romania and other. The basis for determining transfer prices between the segments is provided by market prices. 21/21

45 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) NOTE 2 INTANGIBLE ASSETS INTANGIBLE ASSETS from to Goodwill Patents and R&D costs Other intangible Total Item licences assets Net carrying value as at Increases of balance due to purchase Decreases of balance due to disposal Impairment losses Depreciation/amortisation Foreign exchange differences - (2) - - (2) Other movements Net carrying value as at Net carrying value as at Increases of balance due to purchase Decreases of balance due to disposal Impairment losses Reversal of revaluation allowances Depreciation/amortisation Foreign exchange differences - (1) - - (1) Other movements Net carrying value as at Balance as at Gross carrying value Sum of previous amortisation/depreciation and revaluation allowances Net carrying value Balance as at Gross carrying value Sum of previous amortisation/depreciation and revaluation allowances Net carrying value Balance as at Gross carrying value Sum of previous amortisation/depreciation and revaluation allowances Net carrying value Balance as at Gross carrying value Sum of previous amortisation/depreciation and revaluation allowances Net carrying value INTANGIBLE ASSETS a) Intangible assets, including: costs of completed R&D acquired concessions, patents, licences and similar assets, including: *software other intangible assets b) intangible assets in the course of development c) advances on intangible assets 1 Total intangible assets Expenditures on intangible assets in the course of development from to amounted to PLN 1,518 thousand. In 2010, the Capital Group released the revaluation allowance for intangible assets created in 2009 and established a new allowance for intangible assets amounting to PLN 2 thousand. 22/22

46 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) NOTE 3 PROPERTY, PLANT AND EQUIPMENT PROPERTY, PLANT AND EQUIPMENT from to Land, buildings Machines and Means of Other PP&E Total and structures equipment transport Net carrying value as at Increases of balance due to purchase Decreases of balance due to disposal Depreciation/amortisation Foreign exchange differences (558) (106) (73) (21) (758) Other movements (97) - Net carrying value as at Net carrying value as at Increases of balance due to purchase Decreases of balance due to disposal Assets held for sale restated Assets held for sale Depreciation/amortisation Foreign exchange differences Other movements 5 28 (7) - 26 Net carrying value as at Balance as at Gross carrying value Value of fixed assets held for sale Sum of previous amortisation/depreciation and revaluation allowances Net carrying value Balance as at Gross carrying value Value of fixed assets held for sale Sum of previous amortisation/depreciation and revaluation allowances Net carrying value Balance as at Gross carrying value Value of fixed assets held for sale Sum of previous amortisation/depreciation and revaluation allowances Net carrying value (1) Balance as at Gross carrying value Value of fixed assets held for sale - Sum of previous amortisation/depreciation and revaluation allowances Net carrying value PROPERTY, PLANT AND EQUIPMENT a) PP&E, including: land (including the right of perpetual usufruct of land) buildings, premises, civil and maritime engineering structures plant and machinery means of transport other PP&E b) PP&E under construction c) advances on PP&E under construction Total property, plant and equipment In the period between and , the Group did not create impairment losses on property, plant and equipment. An impairment test was conducted for the Group's assets in the reporting period. The test did not identify impairment of any asset. Useful lives of property, plant and equipment and intangible assets as well as their residual values were verified. As a result of the verification, decision was made to extend useful lives for certain PP&E, mainly machinery and equipment. The changed useful lives, including the value of depreciation charges, shall apply as of 1 January As at , the pledge on PP&E due to securing bank loan liabilities amounts to PLN 71,106 thousand. Expenditures on PP&E under construction from to were PLN 27,497 thousand, of which: capital expenditures on the erection of buildings and structures amounted to PLN 10,193 thousand, expenditures on machinery and equipment amounted to PLN 14,043 thousand, means of transport PLN 2,660 thousand, and other PP&E PLN 601 thousand. Capital expenditures were funded from current assets of the individual Companies. 23/23

47 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) NOTE 4 INVESTMENT REAL PROPERTY As at , Śnieżka S.A. Group holds the following investment real properties: in Chojnice, Pomeranian Voivodship, comprising land, perpetual usufruct of land, buildings and structures. As at , value of the real property is PLN 13,380 thousand. Revenues on rents from the above-mentioned real properties in 2010 amounted to PLN 1,152 thousand. in Biała Podlaska, Podlaskie Voivodship, comprising perpetual usufruct of land and buildings. As at , value of the real property is PLN 3,080 thousand. Revenues on rents from the above-mentioned real properties in 2010 amounted to PLN 358 thousand. NOTE 5 INVESTMENTS HELD IN ASSOCIATES, SUBSIDIARIES AND OTHER ENTITIES As at , the Group s investments in the form of shares are as follows: in the associate Plastbud Sp. z o.o. value of shares measured with the equity method as at is PLN 1,503 thousand. in other entities: 0.14% of shares in Podkarpacki Bank Spółdzielczy; as at , the carrying value of these shares amounts to PLN 10 thousand, 7% of shares in Patio Sp. z o.o.; as at , the carrying value of these shares amounts to PLN 7 thousand. in non-consolidated subsidiaries as at : 100% shares in IP Solutions Sp. z o.o. As at , the company's capital is not registered in the court; for this reason, an allowance for the total value of the shares has been created. Registration was made on 19 January The company will be consolidated for the first time in % directly held shares in TM Investment sp. z o.o., with a carrying value of PLN 5 thousand as at IP Solutions Sp. z o.o. holds 95% shares in TM Investment Sp. z o.o. Spółka TM Investment Sp. z o.o. will be consolidated for the first time in Additional information on the associate is included in the table below. INVESTMENTS HELD IN ASSOCIATES from to Name of associate Company s registered Carrying value of shares Percentage of shares Percentage of votes held office as at held Plastbud Sp. z o.o. Pustków ,07% 10,07% INVESTMENTS HELD IN ASSOCIATES from to , continued Name of associate Value of assets Value of liabilities Value of revenue Net profit / loss Consolidation method Plastbud Sp. z o.o equity method NOTE 6 FINANCIAL ASSETS FINANCIAL ASSETS AS AT Item as at Other financial assets Other long-term financial assets investments in associates consolidated with the equity method investments in non-consolidated subsidiaries and jointly-controlled entities 5 - other investments: borrowings other investments Other short-term financial assets borrowings granted to related entities borrowings granted to other entities /24

48 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) FINANCIAL INSTRUMENTS COMPARISON OF CARRYING VALUES AND FAIR VALUES AS AT Item Carrying value as at Fair value as at Borrowings granted Borrowings with variable interest rate Borrowings with fixed interest rate receivables Total financial instruments financial assets Due to the short realisation period, the value of financial assets and liabilities corresponds to their fair value. The difference between the measurement of financial assets and liabilities at the payable amount and measurement at the adjusted purchase price is insignificant. The principles of assigning financial assets to individual categories in the Capital Group and additional information on financial assets are included in Note 31. NOTE 7 INVENTORY INVENTORY as at Item as at Materials Work in progress Finished products Goods Advances on supplies Total inventory, including carrying value of inventory securing liabilities The Group does not recognise inventory at fair value. The principles for measuring inventory have been described in the accounting policy presented in the Introduction. The value of inventory recognised as cost in the period comprises the value of inventory sold in this period. In 2010, it amounted to PLN 334,377 thousand. In 2010, the revaluation allowance on inventory amounting to PLN 2,217 thousand was reversed and a new allowance, amounting to PLN 1,817 thousand, was created. The Group verifies the usefulness of inventories every quarter. Tangible elements of current assets (inventories) are subject to a revaluation allowance: by bringing the value of inventories to the price realisable as of the balance sheet date which guarantees their clearance at a lower price, when an inventory asset controlled by the Group is likely not to bring a significant part or all anticipated economic benefits in the future. NOTE 8 TRADE RECEIVABLES, RECEIVABLES DUE TO INCOME TAX CURRENTLY PAYABLE AND OTHER RECEIVABLES TRADE RECEIVABLES, RECEIVABLES DUE TO INCOME TAX CURRENTLY PAYABLE AND OTHER RECEIVABLES as at Item as at Trade receivables: of which from related parties of which from other entities Write-downs on trade receivables Receivables due to the current portion of income tax Other receivables of which from related parties - 39 of which from other entities Write-downs on other receivables - - Total receivables, including long-term short-term /25

49 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) Total trade receivables falling due as of the balance sheet date Up to 1 month Between 1 and 3 months Between 3 and 6 months Between 6 and 12 months Over 12 months - 42 Overdue Total gross trade receivables: Write-downs Total net trade receivables: Receivables falling due up to 12 months Receivables falling due over 12 months - - Total trade receivables overdue Up to 1 month Between 1 and 3 months Between 3 and 6 months Between 6 and 12 months Over 12 months Write-down Overdue gross trade receivables Overdue net trade receivables Receivables are written down taking into account the probability of their payment, applying the following rules: the debt to be claimed in court is written down obligatorily, the doubtful debt whose collection in the next 6 months is very unlikely, the debt overdue over 180 days, and a 100% repayment is very unlikely according to an economic and financial analysis of the debtor's standing, as regards receivables insured with an insurance company, an entity recognises write downs on receivables that equal 5% of their value in the cases described in the 3 points above. The entity manager decides on the write-down value upon becoming acquainted with the value of receivables and the debtors' debt service ability. Write-downs on trade receivables Item Write-downs on receivables as at the beginning of the period increases decreases Write-downs on receivables as at the end of the period Average debtor days in 2010 were 80.5 days. NOTE 9 CASH AND CASH EQUIVALENTS Cash comprises cash in hand, cash in bank and commercial papers. CASH AND CASH EQUIVALENTS as at Item as at Cash in bank Cash in hand Other cash assets Total cash NOTE 10 FIXED ASSETS CLASSIFIED AS HELD FOR SALE As a result of applying IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, the Group classifies fixed assets under the above items due to the fact that the carrying value of these assets will be recovered mostly via a sales transaction and not further use. As at , property located in Stobierna (Dębica Gmina), comprising land of a total value of PLN 73 thousand, was cancelled from this group. This asset was reclassified to Property, plant and equipment because, as at the balance sheet day, it is known that the property will be sold in a period longer than one year from the balance sheet day. As at , the Group does not hold any assets classified under Fixed assets held for sale. 26/26

50 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) NOTE 11 SHARE CAPITAL SHARE CAPITAL as at Item as at Number of stocks Nominal value (PLN per stock) 1 1 Share capital MOVEMENTS IN SHARE CAPITAL from to Item for the period to to Share capital as at the beginning of the period Share capital increases in the period - Share capital decreases in the period 3 Share capital as at the end of the period Pursuant to article 360 of the Commercial Companies Code and the resolution no. 8/2010 ZWZA of regarding the redemption of equity stocks, the Issuer s General Stockholders Meeting decided to decrease the Company s share capital from PLN 13,554 thousand to PLN 13,551 thousand. The decrease in capital was made through the redemption of 2,911 series F equity stocks amounting to PLN 2,911. As at , the share capital of FFiL Śnieżka S.A. is composed of 13,550,676 stocks with a nominal value (in PLN) of PLN 1 per stock. The structure of the share capital by type of preference and limitations related to a given group of stocks has been presented in the table below: type of limitation of type of the stock number of series/issue at par right to dividend as series/issue stocks type of preference rights stocks value registration date of series A registered right to 5 votes at the ,00 RHB KRS 1998 General Meeting, right to appoint a Supervisory Board member series B registered right to 5 votes at the ,00 RHB KRS 1998 General Meeting series C bearer , series D bearer , series E bearer , series F bearer , Total Entities (stockholders) holding directly and indirectly at least 5% of the Company s share capital and at least 5% of the total votes at the General Meeting, with the total number of stocks of 13,550,676 and the total number of votes of 15,550,676: Stockholder Number of stocks held % of the share capital Number of votes Share in overall number of votes at the GSM (%) Jerzy Pater* of which directly ,76 1, ,63 5,36 Stanisław Cymbor** of which directly ,76 1, ,63 5,36 Piotr Mikrut Rafał Mikrut directly , ,49 directly , ,06 AMPLICO OFE , ,13 27/27

51 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) *Jerzy Pater holds the Issuer s stocks indirectly via PPHU Elżbieta i Jerzy Pater Sp. z o.o. ( PPHU Elżbieta i Jerzy Pater Sp. z o.o. holds 2,375,000 stocks of the Issuer, giving the holder 17.53% share in the share capital and 15.27% share in the total votes at the General Stockholders Meeting). **Stanisław Cymbor holds the Issuer s stocks indirectly via PPHU Iwona i Stanisław Cymbor Sp. z o.o. ( PPHU Iwona i Stanisław Cymbor Sp. z o.o. holds 2,375,000 stocks of the Issuer, giving the holder 17.53% share in the share capital and 15.27% share in the total votes at the General Stockholders Meeting). NOTE 12 OTHER CAPITAL MOVEMENTS IN OTHER CAPITAL from to Item supplementa ry capital revaluation reserve Equity stocks/share s reserve capital Foreign exchange differences on conversion of subsidiaries Retained earnings Equity attributable to noncontrolling interest As at (3.433) - (9.642) Increases from to from profit distribution (over statutory minimum value) net profit/loss for the current year purchase of equity stocks for redemption consolidation adjustments profit attributable to non-controlling interest Decreases from to purchase of equity stocks for redemption reclassification to supplementary capital dividend paid Consolidation adjustments exchange rate differences payment of founder certificates As at (89) - (11.124) As at (89) - (11.124) Increases from to from profit distribution (over statutory minimum value) net profit/loss for the current year redemption of equity stocks exchange rate differences profit attributable to non-controlling interest Decreases from to reclassification to supplementary capital dividend paid consolidation adjustments payment of founder certificates As at (10.729) Total Pursuant to the Ordinary General Stockholders Meeting held on 21 June 2010, the Issuer s 2009 net profit, amounting to PLN 36,793 thousand, was distributed as follows: payment of dividend - 21,686 payment of founder certificates reclassification to supplementary capital - 14,372 PLN 21,686 thousand was allotted to dividend from profit for 2009, which accounts for PLN 1.60 per stock. The same amount is attributed to ordinary and preference stocks, since preference of the issuer's stocks relates only to the number of votes. The right to dividend was established on 5 July 2010 and the dividend was paid on 19 July Pursuant to the obligation imposed on joint stock companies, the entity created a supplementary capital up to the amount of 1/3 of the share capital, by allotting 8% of net profit annually. In addition, the entity optionally contributes a specific portion of net profit for a given financial year to increase the supplementary capital in a given year. Retained earnings include the result from the current year and results from previous years. Equity attributable to non-controlling interest is presented under equity in the consolidated financial statements, which constitutes the portion of profit or loss and net profit/loss on the operations and net assets of a subsidiary, which may be attributed to the shares not held (directly or indirectly via subsidiaries) by the parent. NOTE 13 EQUITY STOCKS In 2010, the Company did not continue to repurchase equity stocks. 28/28

52 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) NOTE 14 PROVISIONS As of , the Group holds a provision for deferred income tax, due to temporary gains that will bring about a future increase in the tax base, and a provision for retirement, disability, service anniversary and posthumous gratuities and for unused annual leave. PROVISIONS from to Item Deferred income tax provision Provision for employee benefits Total Provisions as at Provisions established Provisions used (18.961) (189) (19.150) Provisions released - - Provisions as at including: - short-term provisions long-term provisions Provisions as at Provisions established Provisions used (18.885) - (18.885) Provisions released - - Provisions as at including: - short-term provisions long-term provisions NOTE 15 TRADE LIABILITIES, LIABILITIES DUE TO INCOME TAX CURRENTLY PAYABLE AND OTHER LIABILITIES Trade liabilities are settled on a regular basis, observing the payment dates indicated in invoices received from suppliers. Average creditor days in 2010 were 51.1 days. TRADE LIABILITIES, LIABILITIES DUE TO INCOME TAX CURRENTLY PAYABLE AND OTHER LIABILITIES from to as at Item Trade liabilities of which from related parties of which from other entities Other liabilities from entities - - Other liabilities from entities due to taxes, customs duties, insurance and other due to remunerations received advances on supplies other Liabilities due to tax currently payable Total liabilities, including long-term short-term NOTE 16 OTHER FINANCIAL LIABILITIES The principles of assigning financial liabilities to individual categories in Śnieżka Capital Group and additional information on financial liabilities are included in Note 31. OTHER FINANCIAL LIABILITIES from to as at Item Other financial liabilities due to lease other financial liabilities - - Other financial liabilities, including long-term short-term /29

53 NOTE 17 LOANS AND BORROWINGS Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) LOANS AND BORROWINGS from to Item Liabilities as at Interest rate Costs in 2010 Liabilities as at Loans X Loan taken with Pekao S.A. O/Dębica M WIBOR/1M LIBOR margin Loan taken with Pekao S.A. O/Włocławek 345 1M WIBOR + margin Loan taken with PKO BP O/Rzeszów M WIBOR/1M LIBOR margin Loan taken with Citibank Handlowy O/Kraków M WIBOR + margin Loan taken with PBS O/Dębica 368 1M WIBOR + margin Loan taken with BPH O/Dębica - 1M WIBOR + margin Loan taken with ING Bank Śląski O/Katowice M WIBOR + margin Loan taken with PKO BP O/Rzeszów - 1M WIBOR + margin Loan taken with ING Bank Śląski O/Lublin - 1M WIBOR + margin Loan taken with Kredyt-Bank S.A.O/Lublin M WIBOR + margin Loan taken with Kredyt-Bank S.A.O/Lublin - 1M WIBOR + margin Loan taken with Moskowskoje otd. OAO "Bielinsbjestbank" 630 fixed interest rate Minsk Borrowings Total loans and borrowings The bank s margin for interest-bearing loans differs depending on the lender at approx. 0-2%. MATURITY FOR LOANS AND BORROWINGS from to as at Item Short-term loans and borrowings Long-term loans and borrowings Total loans and borrowings LOANS AND BORROWINGS BY CURRENCY from to as at as at Item FX value PLN value FX value PLN value PLN USD BYR Total loans and borrowings X X NOTE 18 LEASE LIABILITIES UNDER FINANCE LEASE AGREEMENTS from to Future minimum fees under finance lease agreements as at as at gross lease current minimum fees gross lease current minimum fees investments investments Payable up to 1 year Payable between 1 to 5 years Payable over 5 years Total future minimum fees under finance lease agreements Financial costs Current value of minimum fees under finance lease agreements LEASE AGREEMENTS Conclusion date Lessor: Raiffeisen Leasing Polska SA Party Subject of the agreement Material terms and conditions Operating lease agreement for a forklift truck Toyota 7FGF Net purchase price PLN 60, Term of agreement 49 months Lessor: Raiffeisen Leasing Polska SA Operating lease agreement for a paint mixer. Net purchase price PLN 59, Term of agreement 59 months Lessor: Raiffeisen Leasing Polska SA Operating lease agreement for a truck FIAT PANDA VAN 1,1 Net purchase price PLN 27, Term of agreement 35 months 30/30

54 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) Lessor: Raiffeisen Leasing Polska SA Lease agreement for a passenger car Skoda Roomster Net purchase price PLN 44, Term of agreement 35 months Lessor: Raiffeisen Leasing Polska SA Lease agreement for a passenger car Peugeot 207 Net purchase price PLN 32, Term of agreement 35 months Lessor: Raiffeisen Leasing Polska SA Lease agreement for a passenger car Peugeot 207 Net purchase price PLN 32, Term of agreement 35 months Lessor: Raiffeisen Leasing Polska SA Operating lease agreement for a truck FIAT PANDA VAN 1,1 Net purchase price PLN 24, Term of agreement 35 months Lessor: SG Equipment Leasing Polska Lessor: Raiffeisen Leasing Polska SA Operating lease agreement for a forklift truck KOMATSU MWP 16-1R Operating lease agreement for a truck FIAT SCUDO Net purchase price PLN 13, Term of agreement 32 months Net purchase price PLN 54, Term of agreement 36 months Lessor: Raiffeisen Leasing Polska SA Operating lease agreement for a passenger car FORD GALAXY Net purchase price PLN 49, Term of agreement 36 months Lessor: Raiffeisen Leasing Polska SA Operating lease agreement for shelf racks Net purchase price PLN 59, Term of agreement 36 months NOTE 19 INCOME TAX INCOME TAX from to Main elements of tax burden: for the period Statement of comprehensive income Income tax currently payable Burden due to income tax currently payable Adjustments regarding current income tax brought forward - 1 Deferred income tax (84) Related to occurrence and reversal of temporary differences (84) Related to reduced income tax rates - - Tax burden disclosed in the statement of comprehensive income CORPORATE INCOME TAX FOR THE PERIOD BETWEEN AND No. Item Value 1. Revenue and profit recorded Consolidation adjustments Non-taxable revenue and tax-free revenue Taxable revenue that does not constitute accounting revenue Total taxable revenue Costs and losses recorded Consolidation adjustments Non-deductible costs and losses Temporarily non-deductible costs and losses Taxable costs that do not constitute accounting costs Total tax costs Profit/loss Deductions on income donations Tax base /24/25% tax Tax deductions Tax payable disclosed in tax returns /31

55 NOTE 20 DEFERRED INCOME TAX Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) Deferred income tax recognised in the statement of comprehensive income constitutes the difference between the deferred income tax provisions and assets as at the end and beginning of reporting periods. DEFERRED INCOME TAX from to Item Balance as at profit and loss account for the period to to Deferred income tax provisions - depreciation of PP&E for accounting purposes slower than tax amortisation surplus of fair value over carrying value of PP&E (47) (47) - interest on borrowings granted, calculated, not paid (5) - receivables due to re-invoiced services 8 21 (13) 21 - PP&E leased 8 11 (3) (57) - dividend payable, not paid - - (273) - other 8 20 (12) (1) Deferred income tax provisions (120) Deferred tax assets - write downs on receivables write-downs on inventories (72) 17 - lease liabilities 9 (9) (56) - provision for retirement benefits (10) - loan interest calculated, not paid 3 17 (14) (8) - foreign exchange losses resulting from measurement for balance sheet purposes 390 (390) (1.295) - bonuses for the customers, calculated, not paid (15) - unrealised margin on inventories depreciation of PP&E for tax purposes slower than accounting amortisation costs of auditing the balance sheet (2) - costs of remunerations and social security (462) - costs settled over time (10) 60 - revaluation allowance on shares provision for loss deduction (147) (132) - other exchange rate differences resulting from different exchange rates for measurement of statements of foreign operations - - (28) (99) Deferred tax assets (1.904) Deferred income tax burden X (84) NOTE 21 ACCRUALS ACCRUALS from to Item Negative goodwill - 2. Other accruals Long-term Short-term Auditing of the balance sheet Bonus for the Management Board Accrued income Total accruals as at Accruals are liabilities payable for goods or services received/provided but not paid, invoiced or formally arranged with the supplier, plus amounts payable to employees. Although at times it is necessary to estimate the amount or date of payment of accruals, the level of uncertainty is generally significantly lower than for provisions. The Group presents asset subsidies in the financial statements under Deferred income, which are systematically recognised as revenue over the useful life of an asset. This revenue increases the balance of Accruals in the Group s statement of financial position. NOTE 22 SALES REVENUE IN THE REPORTING PERIOD Pursuant to IAS 18, revenue from the sales of products, goods, materials and services less VAT, deductions and discounts is recognised at the moment of transfer of material risk and benefits resulting from their ownership to the buyer. 32/32

56 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) Domestic sales for the Group include sales of individual Group members in the country, and export sales include export sales for each Group member. SALES REVENUE from to for the period Item to to Sales of products of which domestic sales of products of which export sales of products of which domestic sales of services of which export sales of services Sales of goods and materials of which domestic sales of goods of which export sales of goods of which domestic sales of materials of which export sales of materials Total sales revenue of which from related entities NOTE 23 COSTS BY TYPE Pursuant to requirements of IAS 1, the costs incurred by the Group presented by type are as follows: COSTS BY TYPE for the period Item to to Costs by type Depreciation/amortisation including depreciation of property, plant and equipment including amortisation of intangible assets Consumption of materials and energy Third-party services Taxes and fees Remunerations Social security and other benefits Other costs by type Movements in inventories, products and prepayments and accruals (2.595) Own work capitalised (974) 333 Costs of sales (negative value) (66.310) (65.558) General administrative costs (negative value) (50.586) (46.956) Manufacturing cost of products sold NOTE 24 OTHER OPERATING REVENUE AND COSTS OTHER OPERATING REVENUE AND COSTS Item for the period to to Operating revenue Profit on sales of non-financial fixed assets Subsidies - Other operating revenue: Compensations Reversed write-down on receivables Reversed write-down on inventories Legal costs reimbursed Received VAT recovery Surplus arising from inventory taken Other Operating expenses Loss on sales of non-financial fixed assets 8 - Revaluation of non-financial assets: Write-down on inventories Write-down on receivables Other operating expenses: Donations Compensations, penalties, fines Fees related to pursuing claims Costs related to eliminating losses resulting from fortuitous events Provision for retirement benefits Remitted receivables Non-culpable shortages in assets Other Net operating revenues (expenses) (601) (247) 33/33

57 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) NOTE 25 FINANCIAL REVENUE AND EXPENSES Realised exchange rate differences attributable to FX derivatives are presented in the financial revenue or costs under profit or loss from sales of investments accordingly. Unrealised exchange rate differences are also recognised in the financial revenue or costs as a revaluation of investments. Other exchange rate differences are presented as other financial revenue or costs. FINANCIAL REVENUE AND COSTS Item for the period to to Financial revenue Interest Foreign exchange differences - Profit on sales of investments Profit on sales of FX derivatives - Financial costs Interest Loss on sales of FX derivatives - - Foreign exchange differences Revaluation of fair value of derivatives Other - Net financial revenue (costs) (3.954) (7.208) NOTE 26 PROFIT/LOSS ON DISCONTINUED OPERATIONS In the reporting period, the Group s entities did not discontinue any operations. NOTE 27 EARNINGS PER STOCK Earnings per ordinary stock are calculated by dividing the net profit by the average number of ordinary stocks over the course of a financial year. CONSOLIDATED EARNINGS PER STOCK FOR THE PERIOD FROM TO Profit for the period to to Consolidated net profit for a given year for the purposes of calculating earnings per stock Diluted number of ordinary stocks: Interest on convertible bonds (after taxes) - - Consolidated profit recognised for the purposes of calculating diluted earnings per stock Number of stocks issued for the period to to Weighted average stocks recognised for the purposes of calculating earnings per stock Diluted potential number of ordinary stocks: Stock options - - Convertible bonds - - Weighted average ordinary stocks (for the purposes of calculating diluted - - earnings per stock) Continued operations for the period to to Consolidated net profit for a given year Excluded loss on discontinued operations - - Consolidated net profit on continued operations, after exclusion of profit/loss on discontinued operations Diluted number of ordinary stocks: Interest on convertible bonds (after taxes) Consolidated profit on continued operations recognised for the purposes of calculating diluted earnings per stock, after exclusion of profit/loss on discontinued operations NOTE 28 BUSINESS COMBINATIONS No business combinations occurred in the presented reporting period. 34/34

58 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) NOTE 29 IFRS 7 INFLUENCE OF CURRENCY RISK AND INTEREST RATE RISK Pursuant to IFRS 7, the Group presents the carrying value of assets and liabilities in foreign currencies as of , and the influence of currency risk and interest rate risk on the value of assets and liabilities. As of the balance sheet date, liabilities against a loan in PLN and USD constituted the greatest amount. Interest rate risk FX risk +50 bp PLN +50 bp USD/EUR -50 bp PLN -50 bp USD/EUR + 5% -5% Carrying value in foreign currency, in thousands Carrying value in thousands of PLN Profit Profit Profit Profit As at Assets Cash: USD 501, ,91 7,43-7,43 74,30-74,30 EUR 2 032, ,12 40,24-40,24 402,41-402,41 BYR , ,28 13,32-13,32 133,21-133,21 UAH , ,93 47,27-47,27 472,75-472,75 RON 254,50 235,11 11,76-11,76 11,76-11,76 Receivables: USD 2 654, ,80 393,44-393,44 EUR 219,60 869,68 43,48-43,48 UAH 523,88 194,99 9,75-9,75 RON 3 465, ,97 160,05-160,05 FX borrowings granted: USD 2 553, ,35 37,84-37,84 378,37-378,37 EUR 200,00 792,06 3,96-3,96 39,60-39,60 Derivatives - - Financial liabilities Loans in PLN ,27-235,79 235,79 Loans in USD , ,73-226,75 76, , ,54 Trade liabilities: UAH 2 262,01 841,92-42,10 42,10 RON BYR , ,76 EUR 2 765, ,81-547,59 547,59 Total increase/decrease -300,72 150,47-738,11 738,11 Calculations presented in the table were made with assumed changes in foreign exchange rates by + / - 5% and in interest rates by + / - 50 bp. NOTE 30 POST BALANCE SHEET EVENTS On 9 February 2011, a sales agreement was concluded between Śnieżka Sp. z o.o. in Wistowa (Seller) and Śnieżka-Ukraina Sp. z o.o. (Buyer) for the following PP&E: buildings, in the amount of UAH 4,310,404.80; plots, in the amount of UAH 1,566, In addition, on 24 February 2011, the same parties concluded an agreement for the sale of machinery and equipment in the amount of UAH 1,443, As a result of these transactions, Śnieżka-Ukraina Sp. z o.o acquired the operating activities of Śnieżka Sp. z o.o. in Wistowa. On 14 March 2011, the Company received information from AMPLICO Powszechne Towarzystwo Emerytalne S.A., dated 11 March 2011, that its AMPLICO Otwarty Fundusz Emerytalny (later referred to as OFE ) exceeded 10% of the overall number of votes in Fabryka Farb i Lakierów Śnieżka S.A. The 10% threshold was exceeded as a result of a transaction of purchase of the Company s stocks on Directly before the change in the share, OFE held 1,540,481 ordinary bearer stocks of a total of 13,550,676 stocks, which represent 11.37% of the Company's share capital and are vested with 1,540,481 votes at the General Meeting, representing 9.90% of the overall votes at the Company s General Meeting. Currently, OFE holds 1,710,696 ordinary bearer stocks of a total of 13,550,676 stocks, which represent 12.62% of the Company's share capital and are vested with 1,710,696 votes at the General Meeting, representing 11.00% of the overall votes at the Company s General Meeting. 35/35

59 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) NOTE 31 INFORMATION ON FINANCIAL INSTRUMENTS The table below presents the classification of financial instruments. FINANCIAL INSTRUMENTS COMPARISON OF CARRYING VALUES AND FAIR VALUES AS AT Carrying value as at Fair value as at Item Borrowings granted Borrowings with variable interest rate Borrowings with fixed interest rate receivables Total financial instruments financial assets Bank loans and borrowings: Loans and borrowings with variable interest rate Loans and borrowings with variable interest rate Liabilities due to finance lease and lease agreements Total financial instruments financial liabilities Details of instruments classified in individual groups: Financial assets held for trading Financial assets held for trading are derivatives: FX options and FX forward and swap contracts held at fair value. None occurred as of the end of the period. Granted borrowings and equity receivables As at the balance sheet date , the borrowings granted and measured at amount payable amount to PLN 2,727 thousand. These include: borrowing granted by the Issuer to Bawa Sp. z o.o. PLN 1,004 thousand borrowing granted by the Issuer to Diana Sp. z o.o. PLN 1,643 thousand borrowing granted by the Issuer to IP Solutions Sp. z o.o. PLN 10 thousand borrowing granted by Farbud Sp. z o.o. to P.T.H.U. GO-TRANS Maciej Samonek PLN 70 thousand Since the difference between the measurement at the adjusted purchase price and the measurement at the payable amount is insignificant, borrowings are measured according to the payable amount. No financial assets held to maturity occurred. No financial assets available for sale occurred. Other financial liabilities Other financial liabilities include: short-term bank loans, disclosed at amount payable of PLN 92,508 thousand 36/36

60 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) Loan liabilities Liabilities due to loans and borrowings Entity name and legal form Contractual amount of loan/borrowing thousand currenc s of PLN y Outstanding loan/borrowing amount thousan currenc ds PLN y Bank Pekao S.A. O/Dębica PLN PLN Bank BPH S.A. O/Dębica PLN - PLN Bank PKO BP S.A. O/Rzeszów PLN PLN Bank PKO BP S.A. O/Rzeszów PLN - PLN Podkarpacki Bank Spółdzielczy O/Dębica 500 PLN 368 PLN ING Bank Śląski S.A. O/Katowice PLN Outstanding loan/borrowing amount by instalments shortterm long-term t date Repaymen Securities Repaymen Other -{} PLN CITI BANK HANDLOW Y S. A. O/Kraków PLN PLN Bank Pekao S.A. O/Włocławek 500 PLN 345 PLN PLN 9,015 thousand, inventory of 8,000 thousand, transfer of the above PP&E and inventory, capped mortgage of up to PLN 9,500 thousand on real property in Pustków along with assignment of rights under insurance policy, authorisation to use the company s current accounts in Pekao PLN 14,490 thousand, register pledge on finished products PLN 5,046 thousand, transfer of ownership of the above PP&E and inventory, assignment of receivables from Chemal sp z o.o. in the amount of PLN 4,000 thousand, authorisation to use the company s current accounts in BPH right of perpetual usufruct and real property in Brzeźnica up to PLN 10,000 thousand, plus assignment of rights under an insurance policy right of perpetual usufruct and real property in Brzeźnica up to PLN 10,000 thousand, plus assignment of rights under an insurance policy Authorisation to use the company s current account in PBS, sola blank bill of exchange receivables from entities holding insurance policy for trade loan, issued by TU EULER HERMES S.A. (HEBAN,CHEMIK, BAWA,CHEMAL-MRÓZ, PROMESA), plus assignment of rights PLN 250 thousand on perpetual usufruct of real property in Chojnice and the related ownership title to a part of a building Mortgage on a property located in Brzeźno of up to PLN 250 thousand, assignment of rights under an insurance policy for the property, sola blank bill of exchange Loan for financing ongoing operations, either in PLN or convertible currencies. As at , the loan liability amounts to PLN 23,457 thousand and USD 709 thousand. Loan for financing ongoing operations, either in PLN or convertible currencies. Working capital facility, either in PLN or convertible currencies. Working capital loan Working capital overdraft facility Renewable facility for repayment of loans in other banks. As at , the loan liability amounts to USD 8,683 thousand. Working capital overdraft facility. As at , the loan liability amounts to PLN 780 thousand and USD 5,920 thousand. Overdraft facility to finance ongoing operations Capped mortgage on a property located in Lublin amounting to PLN 6,500 thousand, assignment of rights under an insurance policy for Kredyt Bank the property, sola blank bill of S.A.o/Lublin PLN PLN exchange Investment loan OAO "Bielinwiestbank" Overdraft limit for funding O/Moskwa -Minsk BYR 630 PLN Mortgage on real property continuing operations. Total loans and borrowings X X PLN X X X Risks In connection with financial instruments, the capital group may be exposed to the following risks: risk of changes in short-term interest rates applied both to variable interest rate borrowings granted by the Parent and variable interest rate debt towards banks (interest rates for loans and borrowings are based in major part on 1M WIBOR), credit risk of default in the repayment of borrowings granted to debtors, risk related to the measurement of FX derivatives which might materially affect the group s financial performance in a short-term perspective. 37/37

61 NOTE 32 CONTINGENT LIABILITIES Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) As at , the sureties granted by the Capital Group were as follows: Agreement of surety granted to Farbud Sp. z o.o. based in Lublin, amounting to PLN 190 thousand blank bills of exchange. Agreement of surety granted to Benmar Sp. z o.o. based in Białystok, amounting to PLN 5,000 thousand as collateral for a loan agreement. As at , FFiL Śnieżka S.A. has also a contingent liability to Bank Handlowy w Warszawie S.A. due to a surety for the Paylink agreement amounting to PLN 11,364.8 thousand. All sureties were granted based on the resolutions of the Management Board of Fabryka Farb i Lakierów Śnieżka S.A. approved by the Supervisory Board. Other contingent liabilities of Farbud Sp. z o.o. are sola bills of exchange amounting in total to PLN 7,889 thousand: PLN 6,500 thousand of collaterals for own loans of Farbud Sp. z o.o., PLN 1,389 thousand of collaterals for the liabilities of Farbud Sp. z o.o. NOTE 33 EXPLANATIONS REGARDING SEASONAL AND CYCLICAL NATURE OF OPERATIONS The business of the Śnieżka S.A. Capital Group experiences seasonality, which consists of a considerable growth in demand, and consequently in product sales in Q2 and Q3 of each financial year. In wintertime, however, the sales drop by as much as 70% compared to the summer months. The share in sales in percent in Q2 and Q3 fluctuates around 65% and 75% of the total annual sales. NOTE 34 ASSUMED ESTIMATES In the Capital Group s opinion, the estimates applied do not carry a significant risk that would bring about material adjustments in the carrying amount of assets and liabilities in the next financial year. NOTE 35 INFORMATION CONCERNING THE ISSUE, REDEMPTION AND REPAYMENT OF DEBT SECURITIES AND EQUITY SECURITIES. In 2010, FFiL Śnieżka S.A. redeemed 2,911 equity stocks purchased in 2009 for redemption and did not continue the repurchase of equity stocks in NOTE 36 INFORMATION ON RELATED ENTITIES The ŚNIEŻKA Capital Group is composed of: Fabryka Farb i Lakierów Proszkowych Proximal Spółka z o.o. - Grupa Śnieżka, based in Lubzina, holding % shares FARBUD Sp. z o.o. in Lublin 80.93% shares HADROKOR Sp. z o.o. in Włocławek 51.09% shares Śnieżka - BELPOL Sp. z o.o. in Zhodzina near Minsk 88% shares Śnieżka Romania S.R.L. in Savinesti 80% shares Śnieżka Ukraina Sp. z o.o. in Yavoriv % shares Śnieżka Sp. z o.o. in Wistowa 100 % shares IP Solutions Sp. z o. o. in Brzeźnica 100 % shares TM Investment Sp. z o.o. in Brzeźnica 100% shares (5% directly and 95 % indirectly via IP Solutions Sp. z o.o. in Brzeźnica) Capital relations also include: Plastbud Sp. z o.o. in Pustków 10.07% shares (also Plastbud Sp. z o.o. holds a 56.67% share in Anser Ukraina LTD, purchased from Śnieżka Ukraina Sp. z o.o. in Yavoriv) Type of transactions concluded with related entities 38/38

62 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) Fabryka Farb i Lakierów Proszkowych Proximal Sp. z o.o. Grupa Śnieżka, based in Lubzina, is currently involved in the lease of real property located in Bytów, Pomeranian Voivodship. Mutual transactions include the lease of the above-mentioned real property. Farbud Sp. z o.o. is involved in the wholesale and retail sale of Śnieżka products in the Lublin region. Hadrokor Sp. z o.o. in Włocławek FFiL Śnieżka purchases merchandise manufactured by the company under the Śnieżka brand. Plastbud Sp. z o.o. in Pustków is a producer of pigments sold under the Śnieżka brand. Mutual transactions include trading in raw materials, materials and goods. SOOO Śnieżka BEL-POL Sp. z o.o. purchases raw materials and materials for production of paints and solvents from FFiL Śnieżka Śnieżka Sp. z o.o. in Wistowa produces paints and varnishes in Ukraine. Its products are sold under the Śnieżka brand. Mutual transactions include trading in raw materials, materials and products. Śnieżka Romania S.R.L. in Savinesti is a distributor of Śnieżka products in Romania. Śnieżka - Ukraina Sp. z o.o. in Yavoriv is one of the producers of paints and varnishes in Ukraine. Its products are sold under the Śnieżka brand. Mutual transactions include trading in raw materials and materials. IP Solutions Sp. z o. o. in Brzeźnica manages trademarks. FFiL Śnieżka S.A. pays a license fee for using trademarks owned by IP Solutions Sp. z. o.o. TM Investment Sp. z o. o. in Brzeźnica is starting business. It will manage the capital group s assets. Transactions between related parties are concluded at arm s length. The Issuer granted short-term borrowings to related parties. As of , the borrowings granted were as follows: to Hadrokor Sp. z o.o. PLN 600 thousand to Śnieżka Romania: EUR 200 thousand, of which, as at , EUR 200 thousand was used, and the borrowing value at the end of the period was PLN 794 thousand, according to the average NBP rate, PLN 1,000 thousand, debt as at was PLN 825 thousand, PLN 700 thousand, debt as at was PLN 700 thousand. to Śnieżka Ukraina Sp. z o.o. in Yavoriv USD 2,000 thousand, whose value as at the end of the period, according to the average exchange rate of NBP, was PLN 5,995.8 thousand. The Issuer concluded licence agreements for using trademarks of Fabryka Farb i Lakierów Śnieżka S.A. with the following companies: Śnieżka Ukraina Sp. z o.o. in Yavoriv SOOO Śnieżka - BELPOL Sp. z o.o. in Zhodzina Śnieżka Ukraina Sp. z o.o. in Wistowa The Issuer s revenue in this respect in 2010 amounted to: from Śnieżka Ukraina Sp. z o.o. in Yavoriv PLN 852 thousand from SOOO Śnieżka - BELPOL Sp. z o.o. in Zhodzina PLN 262 thousand from Śnieżka Sp. z o.o. in Wistowa PLN 31 thousand Sales by FFiL "Śnieżka" S.A. in 2010 to: sales of products sales of services other sales sales of goods sales of total sales materials Fabryka Farb i Lakierów Proszkowych Proximal Sp. z o.o. - Grupa Śnieżka Farbud Sp.z o.o Hadrokor Sp. z o.o Plastbud Sp. z o.o SOOO Śnieżka BEL-POL - Belarus Śnieżka Sp. z o.o.- Wistowa Snieżka Romania Sp. z o.o Śnieżka Ukraina Sp. z o.o Total Mutual receivables and liabilities as at receivables liabilities Fabryka Farb i Lakierów Proszkowych Proximal Sp. z o.o. - Grupa Śnieżka 1 3 Farbud Sp.z o.o Hadrokor Sp. z o.o Plastbud Sp. z o.o SOOO Śnieżka BEL-POL - Belarus Śnieżka Romania in Savinesti IP Solutions Sp. z o. o. in Brzeźnica ** Śnieżka Ukraina Sp. z o.o Total /39

63 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) **Receivables for FFiL Śnieżka S.A. from IP Solutions Sp. z o.o. is a result of a contribution by FFiL Śnieżka S.A. of rights to trademarks to IP Solutions Sp. z o.o. in exchange for shares. This is the VAT value on the above transaction. purchase of purchase of purchase of purchase of capital purchase of total Purchasing by FFiL "Śnieżka" S.A. in 2010 from: services goods packaging expenditure materials purchasing Farbud Sp.z o.o Hadrokor Sp. z o.o Fabryka Farb i Lakierów Proszkowych Proximal Sp. z o. o. - Grupa Śnieżka Plastbud Sp. z o.o Śnieżka Ukraina Sp. z o.o Śnieżka Romania in Savinesti IP Solutions Sp. z o.o. in Brzeźnica Total NOTE 37 EXPLANATIONS REGARDING CASH FLOWS Operating cash flows include cash effects of such operations and events which are presented when determining the profit/loss on sales of products, goods and materials. Investment cash flows include: outflows and inflows on PP&E items sold, i.e. PP&E, intangible assets, financial deposits, borrowings granted and repaid plus benefits, exchange rate differences on financial instruments (gains and losses), shares purchased (long-term instruments), dividend received. Financial cash flows refer to obtaining and repayment of own and foreign financing sources, commitment being short-term loans and finance lease (long and short-term) plus appropriate exchange rate differences and interest paid. NOTE 38 OTHER INFORMATION REQUIRED FOR THE GROUP. 1. Liabilities towards the state budget or local self-government bodies with respect to obtaining ownership title to buildings and structures The Group's companies have no such liabilities. 2. Capital expenditure incurred and planned for the next 12 months from the balance sheet date, including for financial fixed assets; expenditure incurred and planned for environmental protection should be disclosed separately In 2010, capital expenditure amounted to PLN 29,482 thousand, including: for property, plant and equipment PLN 27,497 thousand, for intangible assets PLN 1,518 thousand, for long-term financial assets PLN 467 thousand. The planned capital expenditures for the next 12 months amount to PLN 44,632 thousand, including: for property, plant and equipment PLN 32,610 thousand, for long-term financial assets PLN 12,022 thousand. In the planned capital expenditures, the planned expenditures on protecting the natural environment account for PLN 1,460 thousand. 3. Average employment at the Group by groups of professionals. Item Average employment in 2010 Average employment at the Group in the year (Management Board excluded) Including direct labour 316 Total /40

64 Fabryka Farb i Lakierów Śnieżka S.A. Annual consolidated financial statements prepared according to IFRS approved by the European Union for the period from 1 January 2010 to 31 December 2010 (all figures in tables are provided in thousands of PLN, unless indicated otherwise) 4. Information on the value of due advances, loans, borrowings, guarantees, sureties or other agreements imposing an obligation of payments to the Issuer, granted by the Issuer to managers and supervisors As at , the Issuer has no due borrowings granted to managers and supervisors. 5. Information on material events related to previous years and recognised in the financial statements for the current period In 2010, no such events occurred. 6. Proceedings pending before court, competent arbitration authority or public administration authority, including any information on the proceedings concerning the Issuer s or its subsidiary s liabilities or claims whose value equals at least 10% of the Issuer s equity. There are no proceedings whose value accounts for at least 10% of the issuer s equity. The Company appealed against the decision of the Office of Competition and Consumer Protection of 28 December 2009 regarding anti-monopoly proceedings against Fabryka Farb i Lakierów Śnieżka S.A. in Lubzina, as a result of which the Office imposed a PLN (in words: eight hundred and fifty-four thousand, five hundred and thirty-one zloty) fine on Fabryka Farb i Lakierów Śnieżka S.A. in Lubzina. 41/41

65 MANAGEMENT REPORT OF ŚNIEŻKA CAPITAL GROUP FOR 2010 Śnieżka Capital Group s 2010 Management Report Page 1

66 Śnieżka Capital Group PLN 531,699 thousand >> Sales revenue PLN 62,226 thousand >> Operating profit PLN 47,516 thousand >> Net profit PLN 3.51 >> Earnings per stock 1,038 people >> Employment as at 31 December ,0 Total sales Operating profit 60,4 61,5 62,2 65,0 500,0 52,1 55,0 400,0 42,1 43,8 45,0 35,0 300,0 200,0 11,5 381,4 411,7 474,0 522,8 526,2 531,7 25,0 15,0 100,0 288,1 5, ,0 Śnieżka made its debut on the Warsaw Stock Exchange (WSE) in 2003 and since that time it has increased the dividend it pays to the stockholders, corresponding to 25-50% of the generated profit; in 2004, it amounted to 42 grosz per stock and in 2010 it amounted to PLN 1.60 per stock, totalling nearly PLN 22 million. Due to regular payment of high dividends, Śnieżka has been included in the WIGdiv index introduced in early 2011, encompassing 30 companies from the WIG20, mwig40 and swig80 indices with the highest dividends. Śnieżka Capital Group s revenues and profits since 2004 have been the result of many years of effort by over one thousand employees, skilled management and consistency in pursuing the adopted strategy. Even in 2010, which was a tough year for the whole economy and for the construction industry in particular, Śnieżka Group managed to grow revenue and net profit. Another bright point in Śnieżka s finances is the cash flow: large investments in PP&E funded by cash flows generated only on operating activity. Śnieżka Capital Group s 2010 Management Report Page 2

67 1. Introduction to the Capital Group s consolidated Management Report for Strategic objectives of the Capital Group Paints and varnishes market in Economic situation in Poland in Impact of the economic situation on the Capital Group s performance in Sales and orders on hand Sales dynamics Production Research and development Supply policy Environmental impact Investments Employees Finance Basic risks and threats related to operations on the market of paints and varnishes Declaration on corporate governance Additional information Summary Śnieżka Capital Group s 2010 Management Report Page 3

68 1. Introduction to the Capital Group s consolidated Management Report for 2010 Capital Group s corporate data: The Capital Group is composed of: I. Fabryka Farb i Lakierów Śnieżka S.A. parent company Office of the Company s Management Board: Lubzina 34 a Ropczycko Sędziszowski Poviat Podkarpackie Voivodship exchange: fax: Company s incorporation: The Company operates on the basis of a Statute passed by the Stockholders Meeting, drafted in the form of a Notarial Deed, Repertory A, No. 121/98, complemented by Deed No. 754/98 of The entry into the commercial register was performed by the District Court in Rzeszów, 5 th Commercial Department, on , under Commercial Register No. 1818, Section B, whereas the Company s registration in the National Court Register under number was on with the District Court in Rzeszów, 12 th Commercial Division of the National Court Register. The Company was registered in the Central Statistical Office and received the Statistical Identification Number (REGON) , as well as in the records of the tax office and received the Tax Identification Number (NIP) Company s business: Manufacture of paints, varnishes, solvents, adhesives, putty compounds, resins, trade and finance agency, domestic and international road transport, shipment, manufacture of construction materials, construction, wholesale and retail sale, except for trade in vehicles, manufacture of chemicals and chemical products, scientific research and development, lease, rent, etc. Branches: 1. Lubzina 34 a Lubzina Ropczycko Sędziszowski Poviat Podkarpackie Voivodship 2. Brzeźnica Brzeźnica Śnieżka Capital Group s 2010 Management Report Page 4

69 Dębica Poviat Podkarpackie Voivodship 3. Pustków Pustków Dębica Poviat Podkarpackie Voivodship 4. In the 10 months of 2010, the manufacture of powder paints and varnishes was located in the facilities of PROXIMAL in Bytów. In November 2010, the manufacture of powder paints was relocated to the facilities of the Company s Branch in Lubzina. Share capital: As at 31 December 2010: PLN 13,550,676, 13,550,676 stocks with a nominal value of PLN 1. On 21 June 2010, the General Stockholders Meeting, based on article 359 of the Commercial Companies Code, redeemed a total of 2,911 series F ordinary bearer equity stocks amounting to PLN 2,911. This redemption was a voluntary redemption. The legal basis for the redemption was 6, section 8 of the Company s Statute and articles 359 and 360 of the Commercial Companies Code. The stocks were redeemed by way of decreasing the share capital pursuant to article of the Commercial Companies Code. The stocks were redeemed on pure profit. 2,911 series D stocks were redeemed at PLN each. The share premium of the series F stocks, amounting to PLN 87,446.44, was covered from the supplementary capital. Company s representation: Supervisory Board: Stanisław Cymbor Chairman of the Supervisory Board Jerzy Pater Vice-Chairman of the Supervisory Board Stanisław Mikrut Secretary of the Supervisory Board Anna Pater Member of the Supervisory Board Jakub Bentke Member of the Supervisory Board Zbigniew Łapiński Member of the Supervisory Board On 21 June 2010, the Ordinary General Stockholders Meeting expanded the Supervisory Board s composition and appointed Anna Pater as Supervisory Board member. Management Board: Piotr Mikrut President of the Management Board since 31 March 2004 to the present. In 1995, Piotr Mikrut graduated from the AGH University of Science and Technology in Krakow (Management Faculty) with distinction. He started his professional career as the Manager of the Marketing Division in CHEMAL s.c., which was later transformed into Fabryka Farb i Lakierów ŚNIEŻKA S.A. He worked with this company between 1995 and Since 1997, he fulfilled the function of the President of the Management Board of PPHU 2M Sp. z o.o., in which he was also one of the shareholders. 2M s business consists in import and distribution of top quality paints manufactured in the United States by United Śnieżka Capital Group s 2010 Management Report Page 5

70 Gilsonite Labolatories under the brands: DRYLOK, ZAR. In 2009, he was honoured with Ernst & Young's Entrepreneur of the Year title. Witold Waśko Vice-President of the Management Board since 1 April 2005 to the present. Witold Waśko has university education (MSc in engineering) and he graduated from the Rzeszów University of Technology (specialisation: aeronautics). Witold Waśko also completed a post-graduate programme in accounting and finance at the Małopolska University of Marketing and Management. In 2009, he passed an exam and was awarded the title of a certified auditor. In the course of his professional career, he participated in various courses, such as: a budgeting course organised by Nord Controling, a financial planning course organised by Pator, a quality management course and an HR management course. Witold Waśko started his professional career as a Technical Consultant with WSK PZL Mielec and later worked as an accountant and IT specialist with P.P.H.U. Chemal s.c. Between 1994 and 1998, he worked as the Finance Director in Fabryka Farb i Lakierów Chemal s.c. Between 1998 and 2003 he worked in the Company as the Economic Director and a Management Board Member. Joanna Wróbel-Lipa Member of the Management Board since 18 December 2007 to the present. Joanna Wróbel-Lipa has higher education and she graduated from the University of Economics in Katowice (specialisation: Management and Marketing). From June 2003 to October 2004, she participated in a post-graduate programme The Advanced Certificate in Marketing run by the Institute for Business Development. She started her professional career in May 2000 with FFiL ŚNIEŻKA S.A. as a Marketing Specialist. From August 2003 to December 2004, she fulfilled the function of the Marketing Division Manager and from January 2005 to July 2006 she worked as Deputy Trade Director for Marketing. In August 2006, Joanna Wróbel-Lipa became the Trade Director and fulfilled the function of a Proxy. Walentyna Ochab Member of the Management Board since 18 December 2007 to the present. Walentyna Ochab has university education in economy and she graduated from the Economic Faculty of the Lviv Institute for Commerce and Economy (programme: Trade Economics and Management). Walentyna Ochab s professional career: Social Security Office in Dębica, Zakład Tworzyw Sztucznych Erg w Pustkowie S.A., Marketing Specialist, from 1998 to the present FFiL Śnieżka SA, initially Export Specialist, later Export manager, and from 1 July 2004 Foreign Partnership Director. From 25 August 2004, she has fulfilled the function of a Proxy. In December 2007, she was appointed a Member of the Management Board of FFiL Śnieżka S.A. In 2010, the composition of the Company s Management Board did not change. II. FARBUD Spółka z o.o. fully consolidated Subsidiary Office of the Company s Management Board: Lublin ul. Stefczyka 30 tel.: or 64 fax: Śnieżka Capital Group s 2010 Management Report Page 6

71 Company s incorporation: The Company was registered on in the District Court in Lublin, 11 th Commercial Division of the National Court Register, under KRS number Company s business: Wholesale and retail sale of construction materials Renting office and warehouse space Share capital: PLN 1,510,000 divided into 1,510 shares of PLN 1,000 each. In 2010, the Company s share capital remained unchanged. Shareholders of the limited liability company: Fabryka Farb i Lakierów Śnieżka S.A % Jerzy Samonek % In 2010, the composition of the Company s group of shareholders did not change. Company s representation: Supervisory Board: Stanisław Cymbor Chairman Jerzy Pater Member Jarosław Kocik Secretary In 2010, the composition of the Supervisory Board did not change. Management Board: Jerzy Samonek President of the Management Board Ewa Samonek Deputy President of the Management Board In 2010, the composition of the Company s Management Board did not change. Śnieżka Capital Group s 2010 Management Report Page 7

72 III. HADROKOR Spółka z o.o. fully consolidated Subsidiary Office of the Company s Management Board: Włocławek ul. Smocza 19 Kujawsko-Pomorskie Voivodship Head Office Sales Division fax info@hadrokor.com.pl Company s incorporation: The Company was registered on in the District Court in Toruń, 7 th Commercial Division of the National Court Register, under KRS number Company s business: Manufacture of paints, varnishes, solvents, etc. Wholesale and retail sale of construction materials R&D and projects. Share capital: PLN 828,000 divided into 828 shares of PLN 1,000 each. In 2010, the Company s share capital remained unchanged. 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 a 5% of share. In 2010, the composition of the Company s group of shareholders did not change. Company s representation Supervisory Board: Tadeusz Mieczysław Drozd Chairman Jarosław Kocik Vice-Chairman Daniel Sylwester Hadrowicz Secretary Śnieżka Capital Group s 2010 Management Report Page 8

73 Jerzy Pater Member Witold Waśko Member In 2010, the composition of the Supervisory Board did not change. Management Board: Grzegorz Komorowski President of the Management Board since 1 January 2011 to the present. Management Board Member from 23 January 2009 to 31 December Robert Bąk President of the Management Board from 23 January 2009 to 31 December Maciej Umiński Vice-President of the Management Board from 1 June 2010 to 31 December IV. Śnieżka Ukraina Spółka z o.o. in Yavoriv fully consolidated Subsidiary Office of the Company s Board of Directors: Yavoriv ul. Prywokzalna 1A Lviv district, Yavoriv region Ukraine Board of Directors tel./fax ; Marketing Division tel./fax ; marketing@sniezka.ua info@sniezka.ua Company s incorporation: The Company was registered on in Ukraine s Common National Register of Businesses and Institutions under the number Company s business: Manufacture of paints, varnishes, solvents, adhesives, fillers, etc. Wholesale and retail sale of construction materials Shareholders of the limited liability company: By 5 March 2010: Fabryka Farb i Lakierów Śnieżka S.A % Śnieżka Capital Group s 2010 Management Report Page 9

74 Ilia S. Rojzen % Elwira L. Gołod % Żanna Kardasz % Walera P. Bondar % Igor P. Bondar % Piotr M. Pomiłujko % Natalia O. Gołod % From 5 March 2010 until now: Fabryka Farb i Lakierów Śnieżka S.A % Ilia S. Rojzen % Elwira L. Gołod % Żanna Kardasz % Piotr M. Pomiłujko % Natalia O. Gołod % On 5 March 2010, FFiL Śnieżka S.A. purchased 1.34% shares in Śnieżka-Ukraina Sp. z o.o. with registered office in Yavoriv from the existing Shareholders. Share capital: UAH 415,700 In 2010, the Company s share capital remained unchanged. Controlling Committee: Jarosław Kocik Chairman Ilia S. Rojzen Member Walentyna Ochab Member In 2010, the composition of the Controlling Committee did not change. Management (Board of Directors): Jerzy Pietrzyk General Director from 12 February 2008 to the present. In 2010, the composition of the Company s Board of Directors did not change. V. Śnieżka Spółka z o.o. in Wistowa, Ukraine fully consolidated Subsidiary Office of the Company s Board of Directors: Wistowa ul. Strilciw 1B Iwano-Frankowski district, Kałuski region Ukraine tel: Śnieżka Capital Group s 2010 Management Report Page 10

75 fax: Company s incorporation: The Company was registered on in Ukraine s Common National Register of Businesses and Institutions under the number Company s business: Manufacture of paints, varnishes, solvents, adhesives, fillers, etc. Wholesale and retail sale of construction materials Shareholders of the limited liability company Fabryka Farb i Lakierów Śnieżka S.A % Śnieżka Ukraina Sp. z o.o. Yavoriv % In 2010, the structure of the Company s share capital remained unchanged. Share capital: UAH 9,665, In 2010, the Company s share capital remained unchanged. Controlling Committee: Walentyna Ochab Chairman Ilia S. Rojzen Member Jarosław Kocik Member In 2010, the composition of the Controlling Committee did not change. Management (Board of Directors): Wołodimir D. Lisnij General Director from to the present. Ludmiła M. Sołowiej General Director from to Krzysztof Wieczorkiewicz Deputy Director from to VI. ŚNIEŻKA - BELPOL Sp. z o.o. in Zhodzina near Minsk fully consolidated Subsidiary Office of the Company s Board of Directors: Zhodzina ul. Dorożnaja 3 m.1 Minsk district Belarus Śnieżka Capital Group s 2010 Management Report Page 11

76 tel: fax: Company s incorporation: The Company was registered on in Belarus National Register of Legal Persons and Private Entrepreneurs under the number On 1 September 2005, Białorusko-Polska Śnieżka Sp. z o.o. changed its name to Śnieżka BELPOL Sp. z o.o. Company s business: Manufacture of paints, varnishes, solvents, etc. Wholesale and retail sale of construction materials Heavy load transport by trucks. Share capital: USD 124,500, i.e. BYR 260,279,500 In 2010, the Company s share capital remained unchanged. Shareholders of the limited liability company: Fabryka Farb i Lakierów Śnieżka S.A % Anatolij Szeleg - 12 % In 2010, the structure of the Company s share capital remained unchanged. Company s representation Controlling Committee: Jarosław Kocik Chairman Walentyna Ochab Member Anatolij A. Szeleg Member In 2010, the composition of the Company s Controlling Committee did not change. Management (Board of Directors): Anatolij Niewmierżyckij Director In 2010, the composition of the Company s Board of Directors did not change. VII. ŚNIEŻKA ROMANIA Sp. z o.o. in Săvineşti, Piatra Neamt Voivodship, Romania fully consolidated Subsidiary Office of the Company s Board of Directors: Savinesti Śnieżka Capital Group s 2010 Management Report Page 12

77 Aleea Parcului 1, Neamt district Romania tel./fax: Company s incorporation: On 30 August 2006, the Company was established under the name ŚNIEŻKA ROMANIA S.R.L. (limited liability company), having its registered office in Bucharest, at Maresal Piłsudski Iosef No. 2. The company was registered on 21 November 2006 in the respective Commercial Register under the number Company s business: Manufacture of paints, varnishes, solvents, etc.; wholesale and retail sales of building materials, heavy load transport by trucks. Share capital: RON 863,950. In 2010, the Company s share capital remained unchanged. Shareholders of the limited liability company: Fabryka Farb i Lakierów Śnieżka S.A. 80 % Andrei Zamfirescu - 10 % Viorica Baston - 10 % In 2010, the structure of the Company s share capital remained unchanged. Company s representation Board of Censors: Jarosław Kocik Chairman, Censor Witold Waśko Censor Aurelia Strat Censor The composition of the Company s Board of Censors did not change in Management (Board of Directors): Andrei Zamfirescu General Director since the Company s registration until now Viorica Baston Sales Director since the Company s registration until now. In 2010, the composition of the Company s Board of Directors did not change. Śnieżka Capital Group s 2010 Management Report Page 13

78 VIII. Fabryka Farb i Lakierów Proszkowych PROXIMAL Sp. z o.o. Śnieżka Group in Lubzina fully consolidated Subsidiary Office of the Company s Management Board: Until 30 September 2010: Bytów ul. Leśna 5 Poviat: Bytowski Voivodship: Pomorskie From 1 October 2010: Lubzina 34 a Ropczycko Sędziszowski Poviat Podkarpackie Voivodship tel.: fax: Company s incorporation: The Company was registered on in the District Court in Rzeszów, 12 th Commercial Division of the National Court Register, under KRS number By way of a resolution of the Extraordinary Shareholders Meeting of 21 June 2006, the Company s name was changed to Fabryka Farb i Lakierów Proszkowych Proximal Sp. z o.o. Grupa Śnieżka. By way of a resolution of the Extraordinary Shareholders Meeting of 30 September 2010, the Company s registered office was changed. Company s business: - real property management Share capital Until 16 November 2010: PLN 3,100,000 divided into 6,200 shares of PLN 500 each. From 16 November 2010: PLN 2,425,000 divided into 4850 shares of PLN 500 each. On 14 June 2010, FFiL Śnieżka S.A. sold 1,350 shares in Fabryka Farb i Lakierów Proszkowych PROXIMAL Sp. z o.o. Grupa Śnieżka with registered office in Bytów for PLN 1,500,012 (in words: one million, five hundred thousand and twelve). The purchaser was PROXIMAL Sp. z o.o. in Bytów, which purchased these shares to redeem them in accordance with the provisions of the Act of 15 September 2000 Commercial Companies Code. On 16 November 2010, the sale and redemption were recorded by the District Court Gdańsk Północ, 8 th Commercial Division of the National Court Register. Shareholders of the limited liability company: Fabryka Farb i Lakierów Śnieżka S.A % Śnieżka Capital Group s 2010 Management Report Page 14

79 In 2010, the structure of the Company s share capital remained unchanged. Company s representation: Supervisory Board Stanisław Cymbor Chairman Stanisław Mikrut Member Jarosław Kocik Secretary In 2010, the composition of the Supervisory Board did not change. Management Board: Lucyna Gajdek President of the Management Board from 1 August 2010 to the present. Alicja Wizner President of the Management Board from 1 August 2009 to 31 July IX. SOLUTIONS Sp. z o.o. in Brzeźnica non-consolidated Subsidiary (fully consolidated in the following financial year). Office of the Company s Management Board: Brzeźnica Brzeźnica 18 Dębica Poviat Podkarpackie Voivodship tel.: Company s incorporation: The Company was registered on in the District Court in Rzeszów, 12 th Commercial Division of the National Court Register, under KRS number Company s business: - management and administration of protection rights to the issuer s trademarks Share capital Until 22 December 2010: PLN 5,000 divided into 100 shares of PLN 50 each. From 22 December 2010: PLN 105,000 divided into 2,100 shares of PLN 50 each. On 22 December 2010, the share capital was increased in IP SOLUTIONS Sp. z o.o. by PLN 100,000 (one hundred thousand zloty), i.e. by 2,000 (two thousand) shares of PLN 50 (fifty zloty) each, to the total amount of PLN 105, (one hundred and five thousand zloty) by way of the acquisition by Fabryka Farb i Lakierów Śnieżka Spółka Akcyjna of 2,000 shares in Śnieżka Capital Group s 2010 Management Report Page 15

80 the increased capital of IP SOLUTIONS Sp. z o.o. in exchange for a non-cash contribution with a total value of PLN 159,200,000, including rights to the following groups of trademarks: Shareholders of the limited liability company: Fabryka Farb i Lakierów Śnieżka S.A % Company s representation: Supervisory Board Not appointed Management Board: Witold Waśko President of the Management Board from 21 December 2010 to the present. X. TM INVESTMENT Sp. z o.o. in Brzeźnica non-consolidated Subsidiary (fully consolidated in the following financial year). Office of the Company s Management Board: Brzeźnica Brzeźnica 18 Dębica Poviat Podkarpackie Voivodship tel.: Company s incorporation: The Company was registered on in the District Court in Rzeszów, 12 th Commercial Division of the National Court Register, under KRS number Company s business: - management and administration of protection rights to the issuer s trademarks Share capital PLN 5,000 divided into 100 shares of PLN 50 each. Shareholders of the limited liability company: IP SOLUTIONS Sp. z o.o % Fabryka Farb i Lakierów Śnieżka S.A % Company s representation: Supervisory Board Śnieżka Capital Group s 2010 Management Report Page 16

81 Not appointed Management Board: Joanna Wróbel - Lipa President of the Management Board from 15 December 2010 to the present. XI. Equity relationships relate also to the following companies consolidated with the equity method in connection with the volume of trade with the parent company: Plastbud Sp. z o.o. in Pustków 10.07% of shares The Capital Group s structure as at 31 December 2010 is as follows: Capital Group Fabryka Farb i Lakierów Śnieżka SA H adrokor Sp z o.o. in W ł ocław ek 51.09% share Śnieżka Ukraina Sp z o.o in Yavoriv 81.27% share Fabryka Farb i Lakierów Proszkow ych Proximal Sp. z o.o. in Bytów w holly owned Farbud Sp z o.o. in Lublin 80.93% share Śnieżka Sp. z o.o. in Vistova w holly owned (directly 74.00%, indirectly 26.00% ) Śnieżka BEL-PO L Sp z o.o. in Żodino near M insk 88% share IP SOLUTIONS Sp. z o.o. in Brzeźnica wholly owned Capital relations Sniezka Romania S.R.L. 80% share PLASTBUD Sp z o.o. in Pustków 10.07% share TM INVESTMENT Sp. z o.o. in Brzeźnica wholly owned (directly 5%, indirectly 95%) Śnieżka Capital Group s 2010 Management Report Page 17

82 Related entities with mutual trading with the parent company in 2010 exceeding the equivalent of EUR 500,000 in thousands of PLN Item Sales Purchase Plastbud Sp. z o.o ,466 Śnieżka Ukraina Sp. z o.o. Yavoriv 35, FARBUD Sp. z o.o. 10, HADROKOR Sp. z o.o ,364 Śnieżka BELPOL Sp. z o.o. 5,016 0 Śnieżka Romania SRL 3, In addition, the equivalent of EUR 500,000 was exceeded in relation to trade between Śnieżka Ukraina Sp. z.o.o. in Yavoriv and Śnieżka Sp. z o.o. in Wistowa: Item Sales Purchase Śnieżka Ukraina Sp. z o.o. vs. Śnieżka Wistowa Sp. z o.o. 1,728 3,252 Cooperation with related entities being members of the Capital Group: FARBUD Sp. z o.o. is one of the major wholesalers and distributors of Śnieżka s products in the Lublin region. Śnieżka Ukraina Sp. z o.o. in Yavoriv is one of the producers of water-based paints and fillers in Ukraine and the main distributor of FFiL Śnieżka S.A. products in Brzeźnica. Its products are sold under the Śnieżka brand. It has a considerable output potential and its own network of customers. Śnieżka Sp. z o.o. in Wistowa was a manufacturer of solvent paints in Ukraine, whose production assets and operating business were relocated in early 2011 to Śnieżka Ukraina Sp. z o.o. in Yavoriv. HADROKOR Sp. z o.o. in Włocławek is a producer of high quality anti-corrosive products sold under its own brand and Śnieżka brand, complementing its range of products. It offers its own output potential, technology, highly experienced staff and its own market. Adding Hadrokor products to the Śnieżka s range of products supplemented it with new important items not offered by Śnieżka and made it possible to extend the group of recipients with industrial customers. ŚNIEŻKA - BELPOL Sp. z o.o. in Zhodzina near Minsk is one of the putty, paint and varnish producers in Belarus. Its products are sold under the Śnieżka brand. It has its own network of wholesale and retail customers. ŚNIEŻKA ROMANIA Sp. z o.o. in Săvineşti, Romania distributor of Śnieżka products on the Romanian market. IP SOLUTIONS Sp. z o.o. in Brzeźnica the Company s business is licensing the use of trademarks to related companies within the Capital Group. TM INVESTMENT Sp. z o.o. in Brzeźnica the Company is in an initial phase of development. Fabryka Farb i Lakierów Proszkowych PROXIMAL Sp. z o.o. Grupa Śnieżka based in Brzeźnica partnership with Fabryka Farb i Lakierów Proszkowych PROXIMAL Sp. z o.o. involves the lease of real property for the needs of the Parent Company. Śnieżka Capital Group s 2010 Management Report Page 18

83 Cooperation with entities related by capital: Plastbud Sp. z o.o. in Pustków produces pigment concentrates Colorex and colorants for Śnieżka s colour systems. In addition, it is a supplier of selected raw materials and products. The principles for presenting the financial statements have been included in the introduction to the annual statements of the Parent Company FFiL Śnieżka SA. for Strategic objectives of the Capital Group The main assumptions of the Śnieżka Capital Group s strategy consist in obtaining a leading position on the CEE market of paints and varnishes. The Group puts equal emphasis on continuously obtaining new sales markets for its products. To this end, the Parent Company constantly consolidates its high position in major markets, plans to expand into new markets and pursues active development in new market segments. The Parent Company will continue to enhance the quality of its products, primarily through using innovative technologies. The Capital Group will also expand its offer of products according to the current trends and the needs of demanding Customers. All planned activities are intended to enhance the positive image of the Group as well as its product brands and ultimately contribute to a further substantial increase in the value of the Capital Group Companies for the Stockholders and Shareholders. In 2010, the Capital Group acted dynamically to ensure top quality of products for its Customers in response to the changing market situation and customer preferences. The parent company implemented a new vision for managing its product portfolio. Multibranding strategy was adopted, involving the creation of strong groups of brands in the individual market segments. In addition, development measures were pursued, such as increasing the Group Companies production capacities and using innovative technologies in the production of certain groups of Śnieżka s products. The achievement of the above-mentioned strategic objectives and the immensely important continuous development of the sales network for Śnieżka s products are facilitated by: - establishing and consolidating friendly collaboration with the current domestic Trade Partners, - establishing closer partnerships with foreign counterparties, searching for new contacts in this area of business, - focusing on the development of an international Capital Group, whose goal is to expand both in geographical and product terms, - developing production, storage and technological capacities to meet the Capital Group s needs and growth plans. Plans for 2011 and the following years assume a sustainable continuation of already initiated measures and implementations. As regards gaining new markets, the strategy of the Capital Group assumes gradual introduction of its products to distribution channels in new geographical areas. At the moment the Parent Company exports its products mainly to CEE countries (Ukraine, Belarus, Russia, Moldova, Lithuania, Slovakia, Romania and Latvia). It should be emphasised that these markets are characterized by a significant potential in terms of population and economy, combined with significant investment needs, related in particular Śnieżka Capital Group s 2010 Management Report Page 19

84 to infrastructural development. The Parent Company forecasts a continued increase of its share in the current foreign markets. At the same time, the Capital Group will focus on development measures targeted at two groups of Customers: individual customers and contractors. The Parent Company will devote particular attention to consolidating its position among professionals. The Capital Group s expansion policy is linked directly to achieving all of the above objectives. The Parent Company s main objective in terms of foreign markets is to develop a professional sales network and supply it with the full range of products. The organisation of the production base in new countries requires careful economic planning and an in-depth knowledge of the specific nature of the new markets. It is important to learn about the market conditions, the applicable legal and tax regulations as well as potential requirements and restrictions on the local market. For this reason, the Group uses the invaluable assistance of local Partners, which has proved to be an effective solution. As a result of the recent global events, we are witnessing an economic slowdown on the financial markets. In spite of this fact, the Capital Group s Management Board guarantees that the adopted measures aimed at achieving the Group s main objective will be consistently implemented. A harmonious development in line with the adopted strategy will allow the Śnieżka Capital Group to achieve a leading position in a strongly competitive market environment. 3. Paints and varnishes market in 2010 Economic situation in Poland in 2010 In 2010, Poland s economic situation in comparison to the eurozone and countries from our region was good. Poland was the one EU member to record economic growth. A different response from the Polish economy to the crisis has confirmed that it develops in a sustainable way. In 2010, macroeconomic indicators improved significantly over Following the tough years of crisis 2008 and 2009, Polish economy slowly started to grow. As a result, after three quarters the GDP was 3.6% higher than in the analogous period in The main growth driver continues to be retail consumption, while economic growth is supported by increase in inventory. Consumption expenditures of households grew substantially in the initial 3 quarters of In addition, as a result of increase in individual consumption and replenishment of the inventory level, domestic demand was the main economic growth factor. This may testify to a further improvement in consumer sentiment as consumers are no longer plagued by the worries of the recent global economic crisis. External demand has lost its role of stimulus to the economy as it contributed less to growth. This was due to a sustained trend of import having higher dynamics than export. According to the initial data of the Central Statistical Office (GUS), in the initial eight months of 2010 the value of export calculated at current prices was EUR 75.0 billion and 20.6% higher compared to The value of import was EUR 82.4 billion and was higher by 19.8% year-on-year. The negative balance of the sale of goods was EUR 7.4 billion, i.e. EUR 812 lower than between January and August inflation measured with CPI was lower than in 2009 and amounted to 2.5%. At the same time, the prices of industrial production sold rose by 1.2% and the prices of construction and assembly production sold remained at a level similar to that from the previous year. Śnieżka Capital Group s 2010 Management Report Page 20

85 2010 saw an improvement in the job market situation. Following Q3 2010, average employment in the business sector was only 0.2% lower than a year earlier. At the end of September 2010, the number of registered jobless people was 1,813 thousand, while their number increased by 96.7 thousand year-on-year. The unemployment rate recorded in 2010 dropped to 11.5%, returning to the level from Q4 a year earlier. In 2010, there was an increase in gross expenditures on PP&E. Following a 6.4% drop in H1, the Gdańsk Institute for Market Economics estimated the increase in Q3 at 1.3%. From the perspective of Polish economy s development requirements and maintaining a stable pace of economic growth in the medium term, the growth dynamics of investments appear to be insufficient. The fastest growing sector in 2010 was the industry. Added value grew slightly slower in construction; the Institute estimated the growth at 6.2%. The growth rate in added value in market services was below expectations and can be estimated at 1.4%. Following Q3 2010, the FX market saw an appreciation of the Polish currency. This was due to a relatively favourable economic situation in comparison to other European countries and related to the growing interest of foreign investors in the domestic market. In 2010, the profitability ratio was still high, even slightly higher than in 2009 despite the fact that the Polish zloty was stronger than in The initial worries about the behaviour of foreign bank owners were not confirmed. The banks operating in Poland were capitalised by them. Thanks to a small number of mortgager loans and a relatively low share of bank loans in funding investments in the private sector, the Polish banking sector and, broadly speaking, the financial sector was not a crisis-generating factor. In 2010, the loan expansion was restored. Economists forecast 2011 to see a further gradual improvement of the economic situation but no economic boom is to be expected. GDP will continue to grow and at the end of 2011 it should reach a level between 4% and 4.5%. A small decrease in recorded unemployment is also forecast along with a slight increase in average nominal remuneration in the national economy. Capital expenditures on PP&E will grow at approx. 5-8%. A restrictive macroeconomic policy will be another contributor to the expected improvement in the economic situation. A decrease in budget deficit is expected in 2011, which means a tighter fiscal policy. Situation on the Polish construction market in 2010 Poland s construction sector was the only one in the Visegrad Group not to break down as a result of the global economic crisis, but it only witnessed a stagnation. Only in the early months of 2010 was there a decrease in production dynamics of construction businesses, bringing to light the tough situation faced by this industry. Following three quarters of 2010, construction and assembly production in the group of businesses with more than 9 employees decreased by 1.5% compared to an analogous period a year earlier. In spite of improving sentiment on the real property market, the condition of this sector in Q1 and Q still took its toll on the result, with unfavourable weather events, such as lower temperatures in Q1 and the flood in Q2, effectively hampering the activity of construction businesses. Śnieżka Capital Group s 2010 Management Report Page 21

86 The decrease in the sales of the construction and assembly production in the analysed period occurred in businesses which erect buildings (by 2.3%) as well as civil and water engineering structures (by 2.2%). A slight increase was recorded in specialised construction businesses (by 1.5% year-on-year). The prices of construction and assembly production dropped by 0.2% over the year. The sector s negative price dynamics, observed from the beginning of the year onwards, were largely due to a limitation on the activities of construction companies in relation to unfavourable weather conditions in the early two quarters of The overall business climate in the construction industry is still assessed negatively, in spite of a slight improvement over December a year earlier. In December 2010, the overall business climate in the construction industry was rated with % of businesses signalled an improvement, while 22% a deterioration. Other businesses considered that their situation remained unchanged. The greatest difficulties are faced by businesses struggling with weather conditions (this limitation was the most significant one to grow in importance over the year), employment costs and market competition. Insufficient demand is the barrier to see the most significant decrease in importance over the year. From the perspective of a manufacturer of paints and varnishes, the situation in the finishing and interior outfitting industry is important. According to the data published for 2010, 25 thousand less apartments were delivered for use than in 2009, i.e. a drop by approx. 16%. Developers once again introduce a global price cut for apartments because the demand continues to fall and schemes such as Rodzina na swoim (state-subsidised mortgage loans) fail because tighter criteria of state funding are introduced. According to the data of the Central Statistical Office, over the twelve months of 2010, the construction of 158,064 apartments was started, i.e. a 10.6% increase over 2009, and construction permits for 174,929 apartments were issued, i.e. a 2.2% decrease. The greatest share (51.9%) in the increase in new housing resources was attributable to individual investors. In spite of this fact, in 2010 they constructed 2.1% less apartments than a year earlier and obtained fewer construction permits. A substantial share in the overall number of apartments delivered for use was also attributable to developers, who delivered 53,225 apartments (i.e. 39.2% of the overall number of apartments delivered). The number of apartments delivered by developers is significant but lower by 26.4% than a year earlier. Over the twelve months of 2010, this group of investors started the construction of 63,015 apartments, i.e. 42.2% more than in The number of apartments for which construction permits were obtained increased as well to 68,581, i.e. by 8.2%. Apartments not delivered for use in 2010 will be delivered in the subsequent years, which is a good forecast for the paints and varnishes market. Over the twelve-month period of 2010, housing cooperatives delivered 29.1% fewer apartments than a year earlier. The number of construction permits obtained by housing cooperatives decreased by 5.0%. Over the twelve-month period of 2010, other investors (municipal, social, rent and corporate construction industries) delivered a total of 6,919 apartments, i.e. 18.1% fewer than a year earlier. In spite of the tough market conditions, the sentiment among construction companies is optimistic. Construction businesses forecast that the sector s growth rate in 2011 will be slightly higher than in In addition, large companies will attempt to get a head start by launching new and large housing projects, mainly in the economy sector. Smaller developers will slowly unfreeze subsequent investment stages halted in 2008 and will search for free market niches in the overall housing industry, which will positively affect the paints and varnishes market in Poland. Śnieżka Capital Group s 2010 Management Report Page 22

87 Economic situation on other construction markets of the Capital Group in 2010 The construction industry in Ukraine is undergoing a difficult period. The investments in this sector in 2009 dropped by 41.5% and the unfavourable trend continued through Q1 2010, when the decrease in construction investments reached 21%. Poor results in retail sales and construction have a major significance for the Ukrainian market of paints and varnishes. The Belarusian market of paints and varnishes is still a developing market and it was not stopped by the crisis in the region. Belarus has a centrally controlled economy and, being the most isolated market of all international financial markets, it suffered the least as a result of the financial crisis. Belarusian authorities actively support the development of the construction sector, in particular housing construction. Market size Significant manufacturers on the Polish paints and varnishes market are companies employing more than 49 people. According to certain estimates, smaller businesses (employing people) manufacture 10-15% of all paints and varnishes. Production in companies employing over 49 people decreased to approx. 912 thousand tons (a drop by nearly 15% over 2009). In the recent years, there has been a rapid increase in production in the paints and varnish market. However, the crisis and the weakened economic growth did not go unnoticed in this sector. It is estimated that in 2010 the market of paints and varnishes in Poland was worth around PLN 2 billion. The current average consumption of paint per person in Poland is 10 litres, while in Eastern European Countries it amounts to approx. 7 litres. EU s annual consumption is approx litres. Therefore, Śnieżka Capital Group forecasts a dynamic increase in the consumption of paints and varnishes in the market on which it operates and estimates that the size of this market will grow over the coming years. At present, the Group s Parent Company Śnieżka is the only company in the industry to be listed at the Warsaw Stock Exchange (2003) and the only one not controlled by foreign investors. The Ukrainian paints and varnishes market is estimated at 282 thousand tons. The market structure in quantity terms is as follows: 78-80% domestic production and 20-22% import. The main import countries are Germany (25%), Poland (15%), Estonia (9%), Turkey (7%) and United Kingdom (7%). The Belarusian paints and varnishes market is estimated at thousand tons with a total value of approx. USD 100 million. Approx manufacturers operate on the paints and varnishes market but only a few hold over 50% share in the market. Manufacturers of paints and varnishes. Market segmentation. According to estimates, Śnieżka ranks high domestically in decorative products in quantity terms (16%). The Parent Company is strongest in the emulsion products segment. Śnieżka s main competitors in Poland, apart from PPG (brands: Dekoral, Dekoral Professional, Domalux, Drewnochron and Cieszynka) and Akzo Nobel (brands: Nobiles, Śnieżka Capital Group s 2010 Management Report Page 23

88 Sadolin, Dulux and Hammerite) include Tikkurila (brands: Tikkurila, Beckers and Jedynka). According to estimates, these four companies control a total of 55-60% of the market. Śnieżka also has a strong market position in Ukraine and Belarus, where in some assortments it overtook other paint manufacturers. In the near future, this should result in strengthening the competitive advantage in the promising markets of these countries, which have been targeted for investment and intensive marketing expansion. There are a few dozen significant manufacturers on the Ukrainian paints and varnishes market. In 2010, a total of approx. 243 thousand tons were produced. The largest manufacturers of paints and varnishes in Ukraine are: Śnieżka Ukraina, ZIP and MGF. In quantity terms, Śnieżka holds the largest market share (19%) and is a clear leader. Śnieżka Group's percentage share in the manufacture of paints in Ukraine SNIEŻKA 19% OTHERS 81% Over the recent years, there has been a tendency of solvent products being replaced with emulsion products in Ukraine. The greatest development dynamics are seen in the emulsion and acrylic paint segment. Largest manufacturers in the Ukrainian emulsion paint segment: Śnieżka (38%), MFG (17%), ZIP (9%), Polifarb Ukraina (8%) and Kolorit (7%). Śnieżka is definitely the largest manufacturer and a clear leader in emulsion paints. Śnieżka Capital Group s 2010 Management Report Page 24

89 Śnieżka Group's share in the manufacture of water-soluble products in Ukraine POLIFARB UKRAINA 8% KOLORIT 7% CAPAROL 4% SNIEZKA 38% OTHERS 17% ZIP 9% MFG 17% Based on the analysis of the Ukrainian market, given a consumption of paint per person of approx. 6-7 litres and twice that level in the EU, a further market development is to be expected. It must be stressed that the market will pursue the level of approx. 370 thousand tons of in the coming years. Approx manufacturers operate on the Belarusian paints and varnishes market but only a few hold over 50% share in the market. The largest manufacturers of paints and varnishes are Lakokraska (Lida), MAV (Dzerzhinsk), Minsk Paint Factory (Minsk), Diskom (Caparol) (Brest) and Condor (Brest). We estimate Śnieżka Group s share in the Belarusian market at approx. 15%. Śnieżka Capital Group s 2010 Management Report Page 25

90 Śnieżka Group's share in the Belarusian paints and varnishes market Others 85% Śnieżka 15% The most popular industry enterprises in Romania are: POLICOLOR, FABRYO, KOBER and DEUTEK-DUFA, which together supply about 80% of the Romanian paint market in the decorative paint segment, whose annual value is estimated at EUR 200 million, and it continues to grow. It is estimated that the entire market of paints and varnishes in Romania will reach a value of approx. PLN 250 million over the next few years. 4. Impact of the economic situation on the Capital Group s performance in 2010 The external factors with the greatest impact on the Capital Group s situation in 2010 were the pessimistic sentiments related to the economic situation and sentiments in the construction markets. A higher-than-expected weakening of the economic situation and an increase in the value of zloty in 2010 had a negative effect on the Group s performance. An important factor affecting the Capital Group s 2010 performance consisted in unfavourable weather conditions. Low temperatures in Q1 and floods in Q2 resulted in a decrease in sales and contributed to a general downscaling of purchases planned by Customers. In spite of the unfavourable conditions and other market turmoil in 2010, the Capital Group generated good financial results and recorded sales dynamics of 101%. An increase in sales was recorded abroad too, where the Capital Group continues to consolidate by the year, with the sales dynamics of 104.5% and 108.6% in the Ukrainian and Belarusian markets respectively. Although the economic situation significantly affected the Group s 2010 performance, a rational finance policy resulted in good financial results. 5. Sales and orders on hand Development of the market offer 2010 saw important changes in the organisation of the Capital Group s product portfolio. The introduction of new brands, along with the restructuring of the existing portfolio, is part of a long-term strategy of building competent and strongly autonomous brands. With multibranding, the Parent Company managed to offer product groups with a specific area of Śnieżka Capital Group s 2010 Management Report Page 26

91 application, various positioning and targeted at various market segments, which facilitates reaching the target customer. In H1, the Capital Group launched the sale of a thermal insulation system under the new brand FOVEO TECH. At the same time, the product and colour offer in this group expanded and the necessary changes were introduced to product recipes. The new brand image, combined with a modified offer, will reach professionals, such as construction companies, architecture offices and contractors, more effectively. Another new brand offered for sale in the discussed period is VIDARON, including wood protection and decoration products. The brand s portfolio includes three product lines: for specialist wood protection, for protection and decoration, and for decoration. With this approach, the offer meets the needs of amateurs, hobbyists and professionals alike; all who seek safe products with high quality. In 2011, the sale under BESTON professional brand was launched, including silicones, various adhesives and foams, all intended to be used for construction, renovation and finishing work. The offer is targeted at construction businesses and individual users. In addition to the launch of sales under new brands, the existing offer was expanded. The key product of the ŚNIEŻKA brand emulsion in ready-to-use colours BARWY NATURY was introduced in 2010 in a square packaging and in a new, more appealing graphical design. In addition, the range of colours was expanded with 10 new colours. The new colours complement the existing colour range and are in line with the trends presented at international trade shows. The latest offer BARWY NATURY allows for easy combination of only the trendiest colours. The offer of the MAGNAT brand was expanded in 2010 as well. The colour offer of latex emulsion paint MAGNAT was expanded with 5 new colours, reflecting aesthetic trends in a globalised world, such as transculturalism and individualised approach to decoration. The offer of wall emulsion paints in ready-to-use colours is complemented with MAGNAT colouring system bases. In the discussed period, the sale of latex emulsion base was launched in satin gloss variant, which, in addition to a subtle decorative effect, ensures better utilitarian properties of the surface. The assortment was also expanded in the line of MAGNAT STYLE wall decorations. The existing collection of eight decoration systems was expanded with five more: Samum product imitating the structure of sand carried over by hot, desert wind on the wall, Lime Stucco product imitating polished stone with subtle hues, Intonaco giving a structure of fine-grained plaster to surfaces, Concrete imitating natural, raw construction concrete, and Metallico a perfect imitation of an opalescent metallic effect. The expanded offer of wall decoration systems allows the user to create unique spaces with varied aesthetic effects. To ensure brand diversity, the Parent Company complemented the MAGNAT brand with selfadhesive, velour wall decorations. They allow the user to create original effects in a simple way and complement the wall decoration offer MAGNAT STYLE. In industrial products, fire protection paints FLAMESORBER and powder paints, efforts were made to expand the offer (new product groups) and streamline sales and technical service. One of Śnieżka Group's key tasks consists in offering innovative and high quality products. Great importance is attached to adjusting their recipes to the applicable EU standards for Volatile Organic Compounds (VOC). As part of these efforts, the subsidiaries completed R&D work to adjust the recipes of the offered products to the applicable directives and included such products in their offer. Śnieżka Capital Group s 2010 Management Report Page 27

92 The subsidiary Hadrokor, besides products manufactured in partnership with the Parent Company, manufactures paints and sets for anti-corrosive protection intended for customers expecting specialist and professional anti-corrosive protection applications. An important area of the Company s R&D is the development of fire protection paints. Measures are undertaken to optimise the manufacture of specialist anti-corrosive paints. In 2010, Śnieżka - BELPOL continued to manufacture and sell loose putty compound Akryl-Putz, impregnants and gypsum plasters. A gypsum plaster Acryl Putz First and a ready-to-use putty compound Akryl-Putz Finish were introduced to the assortment also saw the launch of the production and sale of white emulsion paint. Farbud is a wholesaler of paints and varnishes and it distributes the products of Śnieżka and other manufacturers. The Parent Company s share in Farbud s revenue is over 31%. In 2010, Śnieżka-Ukraina produced and distributed water-soluble paints and loose putty compound Acryl-Putz. The Company also continued to distribute the parent company s products and goods. The Parent Company s share in revenue is over 25 %. Products manufactured by Śnieżka Ukraina as well as products imported from Poland can be found on the Ukrainian market. The company imports products from Poland and provides a comprehensive supply of distributors with the full assortment of products (irrespectively of the country of origin). The Ukrainian subsidiary switched from import to the sale of own products in the groups of emulsion products, putty compounds and phthalic products. In connection with the introduction of significant changes in 2010 in the organisation of the portfolio, changes were also made on the Ukrainian market, allowing for the multibranding strategy to be used. The offer was expanded with a thermal insulation system under the new brand FOVEO TECH and wood decoration products Vidaron. Śnieżka in Wistowa, Ukraine, produced and distributed white solvent paints (SUPERMAL) and operated as a wholesaler of products and goods of the Parent Company in The Parent Company s share in revenue was approx. 9 %. Śnieżka Romania is a distributor of paints and varnishes and in 2010 it acted as a wholesaler of Śnieżka s products. The Parent Company s share in the revenue of Śnieżka Romania was 100 %. Fabryka Farb i Lakierów Proszkowych Proximal with registered office in Lubzina did not run manufacturing as its operating business. Powder paints and varnishes continue to be manufactured by the parent company. IP SOLUTIONS based in Brzeźnica the company did not generate any material revenue in TM INVESTMENT based in Brzeźnica the company did not generate any material revenue in Sales dynamics In 2010, the sales of Śnieżka Capital Group reached PLN million, which accounts for a sales dynamics of % compared to that of The total sales dynamics of the Group s products were positive and reached 101.6%. Śnieżka Capital Group s 2010 Management Report Page 28

93 Sales of Śnieżka Capital Group in value terms (thousands of PLN) Item Dynamics Decorative products 345, , % Putty compounds 78,111 76, % Goods 96,070 98, % Materials 5,092 5, % Other revenue 6,918 6, % Total sales 531, , % The sales of Śnieżka Capital Group are dominated by decorative products and putty compounds. These products share is over 79% of overall sales and the total dynamics are 101.8% over The increase is due to the development of the Capital Group s market, pursuit of priorities in the marketing strategy and the effects of locating the manufacture of new products in this segment in Śnieżka Capital Group s subsidiaries. The third group with an 18% sales share was the group of merchandise. Parent Company s sales In 2010, the Parent Company generated PLN 413 million worth of sales, which represents a 100.3% growth dynamics in comparison to Parent Company s sales in value terms (thousands of PLN) according to product groups Item Dynamics Decorative products 285, , % Putty compounds 37,596 40,423 93% Other products 3,630 1, % Goods 58,260 57, % Other revenue 5,284 4, % Materials 22,984 21, % Total sales 413, , % Śnieżka Capital Group s 2010 Management Report Page 29

94 Sales growth dynamics at FFiL Śnieżka SA ,8% 106,5% 99,3% 102,0% Revenue on sales of products Other revenue Revenue on sales of goods Revenue on sales of materials In 2010, over 90% of the Parent Company s total sales comprised three groups: sale of decoration products (69%), merchandise (14%) and putty compounds (9%). Decoration products 69% Putty compounds 9% Other products 1% Sales on foreign markets Materials 6% Other revenue 1% Goods 14% The share of foreign markets in the Group s overall 2010 sales was 33.9%. The dynamics equalled 106.7% over The results of the Capital Group s activities on foreign markets are positive because, with an overall decline in market and manufacture of paints in areas where foreign operations are located, higher sales were generated, as shown by the sales results in Ukraine and Belarus. Śnieżka Capital Group s sales dynamics in individual countries, in thousands of PLN Geographical structure Sales value in PLN 2010/ dynamics POLAND 351, , % Other countries, 180, , % Śnieżka Capital Group s 2010 Management Report Page 30

95 including: UKRAINE 105, , % BELARUS 48,985 45, % RUSSIAN FEDERATION 8,892 6, % MOLDOVA 8,617 7, % ROMANIA 4,940 6, % OTHER 3,121 2, % In total: 531, , % Śnieżka Capital Group s 2010 sales in individual countries Romania 0.93% Other EU countries 0.59% Ukraine 19.86% Belarus 9.21% Poland 66.12% Russia 1.67% Moldova 1.62% In 2010, Śnieżka Group generated PLN million worth of sales in Ukraine, which represents a 104.5% dynamics in comparison to Sales in value terms expressed in Ukrainian hryvnias amounted to UAH million, which represents a 106.5% dynamics. Śnieżka Capital Group s 2010 Management Report Page 31

96 Śnieżka Capital Group s 2010 sales on the Ukrainian market in millions of UAH 255,5 272, In 2010, over 93% of total sales comprised two groups: sale of decoration products (67%) and putty compounds (16%). Share of product groups in sales on the Ukrainian market Putty compounds 16% Other 8% Decoration products 67% Goods 9% On the tough Ukrainian market, the Capital Group s Yavoriv-based Subsidiary did remarkably well. The sales dynamics of Śnieżka-Ukraina remains stable at a high level. In the 12-month period of 2010, the company s sale revenues reached nearly UAH 192 million, representing almost a 9% increase compared to the previous year. In 2010, approx. 70% of the total sales of Śnieżka-Ukraina comprised two product groups: decorative products and putty compounds. The third best group with more than 28% share was the sale of merchandise. Śnieżka Capital Group s 2010 Management Report Page 32

97 Sales comparison in Śnieżka-Ukraina from 2003 to 2010 in millions of UAH 176,01 191,57 153,33 114,55 78,30 87,15 58,06 38, Śnieżka s portfolio on the Belarusian market is based on two Śnieżka brands and Acryl Putz. More than one half of the products were exported to the Belarusian market. The offer was expanded with putty compounds Acryl Putz Start manufactured in Śnieżka Belpol. In 2010, the offer of the Belarusian company was expanded with gypsum plaster Acryl Putz First and ready-to-use putty compound Acryl Putz Finish. In 2010, Śnieżka Group generated over PLN 48.9 million worth of sales in Belarus, which represents a 108 % dynamics in comparison to Śnieżka Capital Group s 2010 sales on the Belarusian market in millions of PLN 45,1 48, In 2010, over 95% of total sales comprised two groups: sale of putty compounds (67%) and decoration products (28%). Śnieżka Capital Group s 2010 Management Report Page 33

98 Share of product groups in sales on the Belarusian market Decoration products 28% Goods 3% Other 2% Putty compounds 67% In spite of the apparently tough Belarusian market, Śnieżka Group manages well as a manufacturer. The results of the Zhodzina-based Belarusian subsidiary of the Capital Group look very promising. The sales dynamics of Śnieżka Belpol remain at a high level. In the 12- month period of 2010, the company s sale revenues reached nearly BYR 23.5 billion, representing almost a 49% increase compared to the previous year. Sales comparison in Śnieżka Belpol from 2003 to 2010 in billions of BYR 23,50 15,81 11,56 7,13 0,28 1,19 3,32 4, Parent Company s largest customers in 2010 in terms of domestic sales (in alphabetic order) Śnieżka Capital Group s 2010 Management Report Page 34

99 AB BECHCICKI Wrocław BENMAR Białystok CHEMAL Dębica CHEMIK HB Sp. z o.o. Spółka Komandytowa FARBUD Lublin HEBAN Kraków LEROY MERLIN MRÓZ CHEMAL Rzeszów SEWERA Katowice ZACISZE Warszawa The Parent Company signed trade agreements with its largest customers, laying down the terms of selling products and the terms of commercial partnership. Largest customers of the Subsidiary Śnieżka Ukraina Sp. z o.o.: ASKONA EPICENTR K HIMIEL Major customers of the Subsidiary Hadrokor: LAKMA WELDON KORMAL Largest customers of the Subsidiary in Belarus: DIESIATKA STROJ FIESTA VIVA DOMLUKS INVEST 7. Production The assortment of products and goods offered by the parent company can be categorised into five groups: water-soluble paints, solvent paints, powder paints, putty compounds, other, including: impregnants, adhesives, thermal insulation system, industrial paints. Śnieżka s production operations are run in four manufacturing branches at neighbouring locations: Brzeźnica, Pustków and Lubzina. P-1 branch in Brzeźnica is a division for water-soluble paints, impregnants and ready-to-use putty compounds. Its main profile is the already mentioned production of ready-to-use putty Śnieżka Capital Group s 2010 Management Report Page 35

100 compound, whose manufacture set the development direction by emphasising innovative interior finishing technologies. In addition, the facility manufactures more than 220 assortment items of high quality products. State-of-the-art technologies make the products safe and environment-friendly. Manufacturing facilities include equalisation units, putty compound mixing units and equalisation units for water-soluble varnishes. Product distribution and the package filling line are automated. Our professional packaging facilities are fitted with automatic cap feeders, cap fitting units and label printers. P-2 branch is located in Brzeźnica and is the most advanced branch in terms of process and technology, fitted with fully automatic facilities for dosing production raw materials and packaging finished products. Care for improving the quality of products, optimisation of costs and reducing the emissions of harmful substances into the natural environment are the focus of the manufacturing process. The branch manufactures oil, phthalic, nitro products, solvent adhesives, impregnants and chlorine rubber paints. The P-2 branch is equipped with dissolvers for pigment compounds, with storage hoppers located above them. In the grinder hall, there are ball grinders which prepare semi-finished products for the equalisation units. The division is fitted with a range of mixing units and storage vessels. It operates the largest and longest paint distribution line. A system of belt conveyers, packaging and labelling units is highly complex and precise.. P-3 branch in Pustków. It focuses on mass production of white emulsion paint, loose putty compound and a full range of thermal insulation products. The branch operates equalisation units for manufacturing emulsion paint and dissolvers for mixing the pigment compound. The emulsion production and raw material dosage process uses overhead lifts, screw conveyers, automatic water and resin dosage units. The use of automatic units and robots facilitating production allows for achieving extraordinarily high production outputs. Particular attention should be given to the line for emulsion paints and loose putty compound. Modern distributing units in the distribution line for emulsion paint, along with robots for receiving products, has taken a lot of the burden from the employees, while increasing the quantity of palletised products by more than ten per cent. The production of loose putty compounds takes place on a fully automated manufacturing line. Production raw materials are transported from three high-capacity storage vessels by means of conveyers. The line also includes a modern mixing unit with an automatic fourstation distribution unit. The Lubzina-based P-4 Branch manufactures coloured emulsion paints, which are widely known on the market and enjoy the reputation of high-quality paints. The products are manufactured in a wide range of colours and are intended for interior or exterior application. The most recognisable products manufactured by the P-4 Branch are: MAGNAT, Śnieżka BARWY NATURY, Kuchnia i Łazienka (Kitchen & Bathroom), Farby Fasadowe (Façade Paints) and Farby Silikatowe (Silicate Paints). These products are manufactured in dissolvers with cooling jackets and equalisation units with a modern design of the mixing system. Automatic dosage of water, resin and certain pigment compounds and colorants significantly facilitates and accelerates production processes. At the same time, it allows for archiving the dosed raw materials. Products are packaged using a semi-automatic package filling units, a stickering unit, a cap fitting unit and a product labelling printer. The distribution process involves only laying a package on the belt conveyer and collecting it from the final belt. All the other actions are automatic. One of the latest products manufactured in Lubzina are powder paints. Powder paints are environment-friendly products, they do not contain organic solvents and when applied, Śnieżka Capital Group s 2010 Management Report Page 36

101 according to manufacturers and distributors, they do not release any substances. They are also considered to be some of the best products for modern and environment-friendly coating solutions. The Lubzina Branch operates two lines for manufacturing powder paints, including state-ofthe-art extrusion units, mixing units, grinders and sifters. Modern and comprehensive facilities translate into year-by-year increase in production and work efficiency, improving working conditions and quality and ensuring adequate quality of the manufactured products. The paints and varnishes market is characterised by strong seasonal variations. Therefore, it is vital that the Company uses its production capacities in a flexible manner by easily transferring them between the assortment groups. Continuous improvement of the effectiveness and working conditions is a result of the implemented investments and the progressing automation of the production processes. In order to adjust the production cycle to international standards, the Quality Assurance System ISO 9001 was implemented in the Parent Company in Annual audits conducted by auditors from KEMA, a certification agency, confirm that the standards of planning and implementing the processes linked to meeting the production requirements comply with the applicable standards. The high quality of products is also confirmed by the generated sales results and a very low complaint rate, not exceeding 0.02%. Production facilities outside the Parent Company are located in: Hadrokor in Włocławek, where anti-corrosive, fire-protective paint and other products of this Company are manufactured, Śnieżka Ukraina in Yavoriv, where emulsion paints, fillers, acrylic water-soluble products, impregnants and, starting from the following year, solvent paints are manufactured, ŚNIEŻKA - BELPOL, where putty compounds, gypsum plaster, impregnants and, starting from the next year, emulsion paints are manufactured. The paints and varnishes market is characterised by strong seasonal variations. Therefore, it is vital that the Group uses its production capacities in a flexible manner by simply moving them within the assortment groups. 8. Research and development In 2010, the Parent Company carried out a wide range of R&D works aimed at developing new products and continuous improvement of the quality of the already manufactured products. As part of these works, the Company works closely with numerous laboratories of concerns and suppliers of production raw materials as well as with independent science and research institutes. Given Śnieżka group s structure, the Company also supervises products manufactured by subsidiaries in Poland, Ukraine and Belarus. These activities are aimed at: - ensuring high quality products, - reducing raw material costs, - protecting the environment. The good quality of the parameters of Śnieżka s products was confirmed by the Building Research Institute (ITB), which issues technical approvals and certificates for new products, as well as by the Gliwice branch of the Institute for Plastics and Paints Industry (IPTiF) and the Wood Technology Institute (ITD) in Poznań, both of the latter carrying out tests on Śnieżka s products that cannot be carried out in the in-house laboratory for lack of specialised Śnieżka Capital Group s 2010 Management Report Page 37

102 equipment. If necessary, samples of the company s products are tested in laboratories of the foreign partners of Śnieżka. Śnieżka systematically invests in high technologies and innovative solutions, and attaches great importance to the quality of its products. Tangible proof of the Company s commitment is that in December 2007 the Quality Control Laboratory of FFiL Śnieżka SA received the accreditation of the Polish Centre for Accreditation (PCA), which confirms the top standard of the Laboratory's services and works. Śnieżka is currently the only Polish manufacturing company in the industry with an accredited quality control laboratory. 9. Supply policy The Capital Group s supply policy was aimed at satisfying all of group companies needs with regard to the supply of raw materials and technical materials necessary for proper operation. One important element of the purchasing policy was to establish stable relations with suppliers. This being said, the Parent Company still looks for new suppliers, both at home and abroad, to diversify its supply sources, reduce costs and supply time. The purchasing policy is focused on achieving benefits in the form of lower purchasing costs, while ensuring high quality and continuity of supplies. The companies of the Capital Group signed supply agreements which specify the terms of partnership with all of the large suppliers of raw materials and semi-finished products. Main suppliers in 2010 Fillers Group Titanium white Gypsum Resins and dispersion agents Solvents Defoaming agents Thickening agents Pigments Poisons Packaging Supplier Mikrogram Orzesze, Piotrowice Zawichost, Omya Poland, Warsaw, Z.Ch. Police, Huntsman Tioxide, England, Du-Pont Belgium, Precolor Czech Republic Nowy Ląd Niwnice, BPB Formula Spolchemia Sokolov, Synthos Oświęcim, LERG- Pustków, Dow Chemicals, Poland, Warsaw, Donauchem Poznań, Chemolak Smolice, Cortex Chemicals Tarnów, Bayer, MITSUI&CO Brenntag Kędzierzyn-Koźle, Solvent Płock, ZAK Kędzierzyn Koźle, Neste, Poland,Warsaw Krahn Poznań, Byk-Chemie, Germany, Byk Cera Holandia, Keyser &Mackey Łódź, Elementis Specialites, Germany Herkules, Poland, Warsaw, Shin Etsu SE Tyloze GMBH, Germany, Dow Chemicals, Poland, Warsaw Plast-bud Pustków, Standard Lublin, Zachem Bydgoszcz, Ferrocolor Częstochowa, ABC Kolor Piotrków Trybunalski, Precolor, Czech Republic, Syntesia Bayer Lanxess, Warsaw, Thor, Germany Jokey Plastik Kędzierzyn Koźle, PTS Grzyb Straszęcin, Replast A.Szkotak Dębica, PTS-Klabacha Pustków, Opakofarb Włocławek, Can-Pack, Plast Śnieżka Capital Group s 2010 Management Report Page 38

103 System Rzeszów, Obal-Vogel&Noot, Slovakia 10. Environmental impact The member companies of the Śnieżka Capital Group are chemical sector businesses manufacturing coating preparations, paints, varnishes and binders by the mixing pigments, resins and solvents, thus they can be classified as businesses having a considerable impact on the environment. Bearing that in mind, all investments and undertakings are carried out in consultation with environmental protection authorities. Environmental Protection Aspects are a part of the Parent Company factory s quality management system and one of the main goals of the Management Board s policy, with particular attention and support being devoted to pro-environment actions. A similar system is currently being implemented in the subsidiary Hadrokor. The Parent Company adopted the strategy of continuously improving the quality of its products, while minimising the use of technologies that pose a threat to the natural environment or semi-finished products based on hazardous substances. The whole production of Śnieżka s Factory is divided into three locations: Plant in Brzeźnica, Pustków and Lubzina, and their environmental impact is substantial. Includes the following: - emission of pollutants into the air in the analysed year, a decrease in VOC emissions of 2 to 33% was recorded, - disposal of water and rain water, after pre-treatment, into the soil the defined background values were not exceeded, i.e. substances and oil-derived hydrocarbons, ether extract and overall suspension, - waste production all production waste and accompanying waste was delivered to disposal, reuse or processing, excluding storage, to businesses competent in this area, - packaging and waste packaging management as part of fulfilling the obligations under the respective act in the analysed year, the obligation to recycle and recover packaging introduced to the market was fulfilled through recovery organisation, with the use of own waste packaging at the level of a few per cent. In 2010, the Parent Company fulfilled the obligation to calculate and make the environmental impact payment in relation to the emission of gas and dust into the air and the emission of waste water into the soil, based on the respective lists sent to the Marshal s Office and the Inspectorate for Environmental Protection in Rzeszów. The production facility of Śnieżka s factory has the respective sector-specific permits defining the environmental impact and approved by all State Administration Authorities, as required by the law. Self-tests are performed to fulfil some of the conditions for correct operation of the Plants. In 2010, waste water disposed of into the soil, VOC emissions as well as soil and water environment were analysed and tested. The results of these analyses have not revealed any values in excess of the thresholds adopted for the emitted substances. The companies of the Śnieżka Capital Group continue to work together with Polish State Supervisory Bodies and similar bodies abroad as they comply with the requests and recommendations of these bodies. The correctness of operations in terms of the environmental impact and counteracting major industrial faults as well as REACH and ADR compliance is confirmed by the audits conducted by external Inspectors of State Bodies in the Parent Company in March and April of Śnieżka Capital Group s 2010 Management Report Page 39

104 11. Investments Capital expenditures in 2010 On 5 March 2010, FFiL Śnieżka S.A. purchased 1.34% shares in Śnieżka-Ukraina Sp. z o.o. with registered office in Yavoriv for 1,065, (in words: one million, sixty-five thousand and two hundred) Ukrainian hryvnias. After this purchase, FFiL Śnieżka S.A. holds 81.27% share in the Subsidiary s share capital. The mentioned transaction was registered in the respective Commercial Register on 11 March On 14 June 2010, FFiL Śnieżka S.A. sold 1,350 shares in Fabryka Farb i Lakierów Proszkowych PROXIMAL Sp. z o.o. Grupa Śnieżka with registered office in Bytów for PLN 1,500,012 (in words: one million, five hundred thousand and twelve zloty). The purchaser was PROXIMAL Sp. z o.o. in Bytów, which purchased these shares to redeem them in accordance with the provisions of the Act of 15 September 2000 Commercial Companies Code. On 16 November 2010, the sale and redemption were recorded by the District Court Gdańsk Północ, 8 th Commercial Division of the National Court Register. IP SOLUTIONS Sp. z o.o., with registered office in Brzeźnica, was registered on 21 December 2010 in the District Court in Rzeszów, 12 th Commercial Division of the National Court Register, under KRS number FFiL Śnieżka S.A. holds a 100% share in the company s share capital. TM INVESTMENT Sp. z o.o., with registered office in Brzeźnica, was registered on 22 December 2010 in the District Court in Rzeszów, 12 th Commercial Division of the National Court Register, under KRS number The Company s shareholders are: IP SOLUTIONS Sp. z o.o. 95% share, and FFiL. Śnieżka S.A., holding a 5% share in the company s share capital. On 22 December 2010, the share capital was increased in IP SOLUTIONS Sp. z o.o. by PLN 100,000 (one hundred thousand zloty), i.e. by 2,000 (two thousand) shares of PLN 50 (fifty zloty) each, to the total amount of PLN 105, (one hundred and five thousand zloty) by way of the acquisition by Fabryka Farb i Lakierów Śnieżka Spółka Akcyjna of 2,000 shares in the increased capital of IP SOLUTIONS Sp. z o.o. in exchange for a non-cash contribution with a total value of PLN 159,200,000, including rights to the following groups of trademarks: Beston Foveo Tech Magnat Śnieżka Śnieżka Acryl Putz Śnieżka Barwy Natury Śnieżka Eko Śnieżka Supermal Vidaron Razem Total Śnieżka Capital Group s 2010 Management Report Page 40

105 The surplus of PLN 159,100,000 (in words: one hundred and fifty-nine million, one hundred thousand zloty) over the nominal value of the shares acquired by the Company was posted as the supplementary capital of IP SOLUTIONS Sp. z o.o. Construction and purchase of PP&E in the Capital Group in 2010: 1. The directions for investments implemented from 2008 to 2010 are presented in the diagram below (data in thousands of PLN): performance 2009 performance 2008 performance Storage space and Machinery Means of transport Other infrastructure In 2010, the total expenditures for PP&E and intangible assets in the Śnieżka Capital Group amounted to PLN 29,070 thousand. 1. Investments in the course of execution and those completed in 2010 can be categorised as follows: Expansion of warehouse space with equipment, Expansion of production capacities and adaptation of process lines to new products, replacement and modernisation of machinery along with production buildings, Modernisation and expansion of infrastructure roads and sites, sewer system, modernisation of electric power supply, phone network, water, gas and IT installations in individual companies, etc., Other means of transport, information and advertising boards, technical security, analyses and studies for development and current operations, monitoring and research support facilities. 2. Purpose of investment measures: Satisfying the growing market demand for Śnieżka-branded products, Extending the range of products, Enhancing product quality, Improving the warehousing system and distribution of goods on the wholesale and retail markets, Better customer service, Increasing the efficiency of production facilities by automating the production processes, Śnieżka Capital Group s 2010 Management Report Page 41

106 Purchasing PP&E and land for the future development of the plants, Adjusting the Company s operations to the introduced domestic and European legislation, Protecting natural environment through limiting the emission of harmful substances into the atmosphere and limiting soil pollution, Improving the security of the Group plants electric power supply. Capital expenditures in 2010 were mainly used to reorganize processes which hampered the Capital Group s operation or limited its capacity to satisfy a market demand. It was necessary to continue to improve customer service, as the market is becoming increasingly competitive and the customers more demanding. Therefore, it was necessary to reorganize warehouse management by creating sufficient storage space to meet modern storage and product distribution standards. The changing market trends required us to adapt the production lines to meet new requirements and develop our production capacity. Efficient management of our business is also supported by a constantly modernised IT system. When implementing every investment, special care is taken to meet project-specific environment protection requirements and comply with domestic and EU legal regulations. Projects that involve environment protection include limiting the emission of pollutants into the atmosphere, pre-treating process water in as well as sealing off production processes to limit dispersed emissions. As far as the production process is concerned, substantial expenditures are made to modernise production facilities and automate production processes. This results in enhanced product quality, higher output and repeatability of product parameters as well as optimised manufacturing costs. Systematic investments in R&D and monitoring facilities allowed us to create research conditions that ensure efficient development of products, R&D projects and more effective monitoring of products and raw materials. In the next few years, the main directions of investment will be retained, i.e.: Modernisation of production lines Modernisation of storage management and the distribution of products Adjusting the Company s infrastructure to changing requirements Developing IT facilities in the Company Introducing new products. Taking into consideration the Capital Group s current production capacities, it can be stated that a potential failure to carry out some of the planned investment tasks will not significantly affect the Group s operations. This may result in the need to change work organisation in production teams and teams distributing products to customers. The preparation of the investments in terms of legal and technical aspects allows for the assumption that the execution of the investment plan will be unobstructed. 12. Employees The Capital Group s personnel policy is linked to its strategic goals: it aims at a rational growth of employment, while introducing small changes to the Group Companies organisational structure and automating production processes. In 2010, the Group s employment increased from 1,032 (status as at ) to 1,038 people at the end of This is linked to the increase of employment in the Belarusian subsidiary and justified by, among other things, growing efficiency. Average employment throughout 2010 amounted to 1,051 people (excluding the Management Board). Average employment in individual months was varied: it started to increase from March and then it decreased in September. Śnieżka Capital Group s 2010 Management Report Page 42

107 This is primarily linked to the seasonal nature of the paints and varnishes industry and affects mainly production and warehouse personnel. In 2010, nearly 10% increase in average remuneration was recorded in the Capital Group s Companies. Work efficiency In 2010, an increase in work efficiency was recorded both in terms of sales value and efficiency per labourer. Item Dynamics Sale of products, in thousand PLN % Average annual employment (excluding the % Management Board) Including direct labour % Overall efficiency in terms of sales value % Efficiency per 1 labourer % The potential of our personnel is one of the most important factors contributing to the Group s success. Our goals include employing direct production personnel with vocational and secondary education as well as raising the qualifications of employed white-collar workers. In the Capital Group s structure, employees with secondary and vocational education prevail, which is linked to the production-oriented nature of the Group Companies business. There is a tendency for personnel to raise their qualifications. Therefore, there are more people with a university degree. This trend is likely to continue over the following years. 13. Finance Assets and asset financing Statement of financial position assets (in thousands of PLN) Assets Structure Structure Balance of Rate of changes changes FIXED ASSETS % % % Intangible assets % % % Goodwill of subsidiaries 7 0.0% % 0 0.0% Property, plant and equipment % % % Investment real property % % % Long-term financial assets % % % - investments in associates measured with the equity method % % % - investments in non-consolidated subsidiaries and jointlycontrolled entities 5 0.0% 0 0.0% 5 - other investments % % % Long-term receivables 0 0.0% 0 0.0% 0 Deferred income tax assets % % % CURRENT ASSETS % % % Inventory % % % Trade receivables % % % Receivables due to the current portion of income tax % % % Other short-term receivables % % % Other short-term financial assets % % % Cash and cash equivalents % % % Fixed assets classified as held for sale 0 0.0% % % TOTAL ASSETS % % % In the audited period, the consolidated balance sheet total of the capital group increased by PLN 53.8 million (17.2% in percentage terms). Fixed assets increased by PLN 11.6 million, Śnieżka Capital Group s 2010 Management Report Page 43

108 which is a 7.3% increase over The Group recorded a 49.3% increase in intangible assets as a result of the execution of the respective investment plans. A substantial change can be seen in long-term financial assets, which in the audited period decreased by PLN 1.7 million, i.e. 39.5% in percentage terms. The decrease is due to reclassification of borrowings granted from long-term to short-term, which is reflected in other short-term financial assets. Similarly to the previous years, high capital expenditures are made (PLN 27.6 million), which are nearly double the amount of amortisation/depreciation in the Group. The Group s current assets in the audited period increased by PLN 42.3 million. This is mainly due to a substantial increase in trade receivables by PLN 21.4 million. In addition, the increase in current assets was effected by the surplus of income tax paid in the amount of PLN 2.4 million, increase in cash by PLN 9.6 million and increase in short-term borrowings. The PLN 7.8 million increase in inventory is a result of increase in the size of operations and strategic securing of raw material supplies by the parent company and its subsidiaries. Coverage of assets Statement of financial position liabilities (in thousands of PLN) Liabilities Structure Structure Balance of Rate of changes changes EQUITY % % % Equity attributable to stockholders and shareholders of the parent % % % Share capital % % % Supplementary capital % % % Revaluation reserve % % 0 0.0% Equity stocks/shares 0 0.0% % % Reserve capital 0 0.0% 0 0.0% 0 Foreign exchange differences on conversion of subsidiaries % % % Retained earnings % % % Minority interest % % % LIABILITIES % % % Long-term liabilities % % % Long-term loans and borrowings % 0 0.0% Other long-term financial liabilities % % % Other long-term liabilities 0 0.0% 0 0.0% 0 Deferred income tax reserve % % % Provisions for liabilities against employee benefits % % % Other long-term provisions 0 0.0% 0 0.0% 0 Short-term liabilities % % % Short-term loans and borrowings % % % Other short-term financial liabilities % % % Trade liabilities % % % Liabilities due to income tax currently payable 0 0.0% % % Other short-term liabilities % % % Short-term provisions % % % Accruals % % % Liabilities related to fixed assets classified as held for sale 0 0.0% 0 0.0% 0 TOTAL LIABILITIES % % % The 12.4% increase in equity is a result of an increase in supplementary capital and good financial performance of the Group. The 24.8% positive change dynamics is also visible in liabilities, which increased by PLN 30.1 million due to the PLN 6.9 million increase in longterm liabilities, while the remaining portion of PLN 23.1 million is the increase in short-term liabilities. The loan debt level in the reporting period increased by PLN 20.6 million. In 2010, the average loan level increased mainly due to the growth of current assets not financed by increased liabilities. The security for loan agreements usually involves PP&E, inventory and assignments of receivables. As at , the company s total debt includes a foreign currency loan in USD to the amount of USD 15.3 million, which serves to secure the equities of subsidiaries in Ukraine and Belarus. Śnieżka Capital Group s 2010 Management Report Page 44

109 Income situation Abbreviated statement of comprehensive income (in thousands of PLN) From to Profitability From to Profitability Change Rate of changes Continued operations Sales revenue % Revenue on sale of products % Revenue on sale of goods % Revenue on sale of materials % Own cost of sales (cost of sales of products, goods and materials) % Manufacturing cost of products sold % Value of goods sold % Value of materials sold % Gross profit (loss) on sales % % % Selling costs % General administrative costs % Other operating revenue % Other operating expenses % Profit (loss) on operating activities % % % Financial revenue % Financial costs % Share in net profit (loss) of subsidiaries measured with the equity method % Profit (loss) before tax % % % Income tax % Net profit (loss) on continued operations % % % Discontinued operations Net loss on discontinued operations Net profit (loss) % % % Other components of comprehensive income Foreign exchange differences on conversion of foreign undertakings Other components of comprehensive income (net) % % % Comprehensive income for the period % % % Net profit (loss), of which for: % % % - stockholders of the parent company non-controlling interest Comprehensive income for: % % % - stockholders of the parent company non-controlling interest Net earnings (losses) per ordinary stock: on continued operations - basic diluted on continued and discontinued operations - basic diluted 0 0 Sales revenue The total net sales revenue in 2010 amounted to PLN million, which represents a PLN 5.5 million increase in comparison to the previous year. The sales revenue primarily includes revenue from the sale of products. Their share in the income structure in 2010 was 81%, which is comparable to that of the previous year. The product sales dynamics was 102%, which is a PLN 7.7 million increase compared to The remaining share of income (19%) comes from the sale of goods and materials as well as from other sales. The manufacturing cost dynamics remain at a level comparable to 2009, which combined with higher sales income dynamics positively affected the sales margin. Operating profit/loss In 2010, the operating profit amounted to PLN 62.2 million, in comparison to PLN 61.5 million in In spite of the 7.7% increase in general administrative expenses, the Group Śnieżka Capital Group s 2010 Management Report Page 45

110 managed to maintain its operating profitability at the 2009 level thanks to the 11.1% increase in other operating revenue. Result on financial activities The 2010 balance of financial operations was negative and it decreased the operating result by PLN 4 million. In the previous year, the balance was also negative and it amounted to PLN 7.2 million. Financial revenues in value terms grew slightly by PLN 0.3 million, while financial costs in 2010 decreased over 2009 by PLN 2.9 million. The balance of FX differences was negative and amounted to PLN 1.6 million; a year earlier it was also negative and amounted to PLN 4.1 million. Net profit The Group generated net profit higher by PLN 5.1 million, which represents 111.9% dynamics compared to The increase in the result was possible thanks to lower manufacturing costs, reduction of financial costs and surplus income tax. Net profitability amounted to 8.9%, which is 0.8 percentage point higher compared to the previous period. In 2011, the Group plans to continue the positive sales revenue and net profit trend, which is presented by the diagram below, and to maintain all positive trends visible in the statement of comprehensive income. Comparison of overall sales and net profit trends between 2004 and 2010 Total sales and net profit in millions of PLN from 2004 to ,0 500,0 400,0 300,0 200,0 100,0 0,0 47,5 42,5 36,6 35,0 31,6 31,9 33,0 522,8 526,2 531,7 474,0 381,4 411,7 288, ,0 45,0 40,0 35,0 30,0 25,0 20,0 15,0 10,0 5,0 0,0 Śnieżka Capital Group s 2010 Management Report Page 46

111 Abbreviated cash flow statement (in thousands of PLN) Item Net operating cash flow Net investment cash flow Net financial cash flow Total net cash flow Cash and cash equivalents at the beginning of the period Adjustments on foreign exchange differences Cash and cash equivalents at the end of the period The Group generates positive operating cash flows and negative investment and financial cash flows. Negative investment cash flows are caused by PP&E expenditures. In turn, negative financial cash flows are due to the repayment of loans and borrowings, redemption of equity stocks and payment of dividend. Financial situation Financial liquidity ratios Content Current liquidity ratio Quick liquidity ratio Debtor days* Inventory days* Creditor days* current assets short-term liabilities current assets - inventories short-term liabilities average balance of receivables * 365 sales revenue average balance of inventory * 365 own cost of sale average balance of liabilities * 365 own cost of sale * The ratios were calculated based on average values of receivables, inventories and liabilities from 5 periods (OB + 4 quarters of the analysed year). In 2010, the Group had no problems with regular repayment of its debt. The liquidity analysis at the end of the period shows that the Group s financial position is sound. This is confirmed by liquidity ratios remaining within the safe range. Debtor days increased slightly by 0.7 days, while creditor days by 2.1 days. This is proof that the Group is using trade loans to a grater extent while granting them less frequently. Śnieżka Capital Group s 2010 Management Report Page 47

112 Debt ratios Overall debt Equity to assets ratio Profit to interest ratio Equity to fixed assets ratio Balance sheet rule of thumb Content liabilities total assets equity + provisions total assets gross result + interest interest equity + provisions fixed assets equity fixed assets 41% 39% 58% 61% % 120% 122% 116% Debt ratios are at safe levels comparable to the previous year. The indicators were positively affected by a PLN 5.1 million increase in net profit in the analysed period. Group equity to assets ratio is 126%, while the profit to interest ratio increased by 3 points in comparison to Assets profitability ratios Content Productivity of assets Productivity of current assets Return on equity (ROE) Return on current assets Return on assets (ROA) sales revenue total assets sales revenue current assets net profit average equity balance net profit average balance of current assets net profit average balance of assets % 26.1% 24.1% 22.1% 13.5% 12.5% The decrease in the productivity of assets and working capital is due to a substantial increase in assets (PLN 53.8 million) with a slower growth in sales revenue (PLN 5.5 million) compared to a year earlier. Investments in assets in the following periods should bring measurable benefits, which will reverse this trend. Favourable profitability ratios are due to increase in net profit. Market ratios Content Book value per stock Financial result per stock equity number of stocks net profit number of stocks Śnieżka Capital Group s 2010 Management Report Page 48

113 The higher book value and the financial result per stock are due to an increase in net profit compared to The Management Board of Śnieżka Capital Group did not publish any forecasts for 2010 regarding sales revenue and financial results. 14. Basic risks and threats related to operations on the market of paints and varnishes Risk related to the macroeconomic situation The macroeconomic results of the Polish economy and its growth rate have a material influence on the purchasing power of Polish consumers as regards the Company s products, tendency to embark on new projects and carrying out repairs by retail customers. They are basically related to the GDP growth and interest rates. In spite of the crisis, the situation of the Polish economy was good in the previous year. Macroeconomic indicators improved over 2009 levels. After three quarters of 2010, the GDP was 3.6% higher than in the analogous period in Consumption expenditures of households grew as well, which may testify to a further improvement in consumer sentiment as consumers are no longer plagued by the worries of the recent global economic crisis also saw an improvement in the job market situation. For a production company, an improvement of the economic situation translates directly into the market s capacity to absorb more of its products. The increase in construction investments and demand for construction sector services significantly affect the sales potential of the Company s products. The forecast increase in GDP and further improvement of the economic situation in the following year should be positive for the sector where Polish Companies of the Capital Group operate. We forecast 2011 to be much better than the last year. There is a major risk in Ukraine relating to the macroeconomic situation. According to World Bank s estimates, Ukrainian economy grew by 4.3% in Positive trends have been recorded in a half of the economy s sectors. A major improvement has been seen in industry, agriculture and wholesale trade. However, some sectors are still experiencing recession. This is true for retail trade, where a 2.6% decrease has been recorded. One of the reasons is inflation, which has remained at a high double-digit level for several years. There is a major risk in Belarusian market relating to the centralised management of the economy. This is particularly evident in schemes which favour Belarusian manufacturers in public procurements, while significantly limiting the accessibility of imported goods. Retail trade is governed by recommendations for a specified share of imported goods. Another important risk is Belarus dependence on Russia, particularly in relation to the prices of crude oil and natural gas. Russia has made Belarus completely dependent on its supplies and may drastically affect the direction and growth rate of Belarusian economy by manipulating the prices of these raw materials. Risk factors include also high insolvency risk due to poorer liquidity of the state financial sector and the dominant role of the state in shaping the economy. Many Belarusian entrepreneurs struggle with limited access to funding sources, which often prevents them to expand as planned or to reach their full growth potential. In connection with the improvement of the economic situation on Western markets, towards the beginning of 2011 a stabilisation is also expected in Romania. The main factors determining the country s economic growth from previous years, such as consumption, Śnieżka Capital Group s 2010 Management Report Page 49

114 construction and foreign investment, have been reduced. Poorer access to loans and borrowings, increase in debt funding costs and decrease in foreign investment result in difficulties in funding the current account deficit. Competition risk The level of competition in the paints and varnishes industry in Poland is still very high, the market is concentrated and its major part is still in the hands of a few companies. One most important element in building a competitive advantage is to make use of the power of the held brands and to further strengthen their position, mostly with promotional and advertising activities. Similarly to its competitors, Śnieżka continues to expand its promotional and marketing activities year by year. It is still the brand that plays a significant role while making purchase decisions; that is why further actions of competitive companies, focusing mainly on promoting their own brands, should be expected. The economic crisis has not resulted in a major downscaling of promotional efforts. The main market players compete not only in terms of promotions and marketing but also in area of the offered products. For this reason, the Parent Company is committed to the quality of its products and uses innovative technologies to be able to successfully compete against other manufacturers and to meet the needs of the most demanding Customers. A similar situation can be observed on the markets in Belarus, Ukraine and Romania. These markets are still being shaped and are the place of the competitive struggle of both significant and strong manufacturers from Europe and local companies, looking for, not without success, the highest share in the domestic market. Construction market risk Despite the fact that the economic crisis did not affect this sector to the expected extent, this has been a tough year for the construction industry. The greatest difficulties are faced by businesses struggling with weather conditions (this limitation was the most significant one to grow in importance over the year), employment costs and market competition. Insufficient demand is the barrier to see the most significant decrease in importance over the year. In spite of the tough market situation in the construction sector, 2011 forecasts are optimistic. It is estimated that large companies will execute large housing projects, while smaller developers will slowly continue to execute the individual investment phases and will search for free market niches in the overall housing industry, which will positively affect the paints and varnishes market in Poland. In Ukraine, Romania and Belarus the risk in question looks similar. At the moment, it is difficult to estimate the scale of the impact of the global economic crisis on the level of investments and construction markets in these countries as well as in Poland. Distribution channel risk Sales by the Parent Company were mostly based on a traditional distribution model (plant wholesaler shops construction companies final customer). In 2010, strong competition between the construction market manufacturers, also in terms of distribution channels, has created a situation where businesses to struggle to win individual process links. DIY stores, where the Company's range of products is broadening, hold a stronger position on the market of paints and varnishes. Last year, the Company continued business cooperation Śnieżka Capital Group s 2010 Management Report Page 50

115 with Leroy Merlin, OBI, MGI Polska Sp. z o.o. (owner of the BricoMarche chain), Nomi and Praktiker chains. The partnership with various distribution channels (both traditional and innovative ones, such as DIY) is aimed at diversifying the distribution channels and minimising the risk related to excessive dependence on one distribution channel. The DIY channel is only starting to develop in Belarus but it is developing very dynamically in Ukraine. At the moment, we estimate that the risk in question is not that material for the countries where the Group s companies do manufacturing business, as in Poland. Risks and threats related to the control of debt This threat is decisively affected by the lack of funds in final customers and consumers, high costs of running business and, consequently, lower profit and margin on paint products. The Company constantly monitors punctual payments from customers. Therefore, the Parent Company estimates this risk to be small. If the Customer delays payment of an established threshold amount, suspending deliveries of the Company s products is a standard procedure. Another factor that motivates contractors is the insuring of amounts receivable at T.U. Euler Hermes. The insurance covers all significant domestic customers, i.e. customers with a turnover exceeding PLN 100 thousand. The Parent Company also holds other forms of securing receivables, which additionally influence the trade loan limit established by Hermes. In most situations, the main Customers are secured with bills of exchange and mortgages on real property. This security is each time verified by the insurer because it is used as a basis for specifying the trade loan limit. In addition, the Parent Company successfully applies an additional bonus for making earlier payments. These measures are very effective, which is confirmed by the absence of new debt recovery proceedings in 2010 or the write-off of receivables which would have occurred in the mentioned period. The Parent Company s policy for monitoring risk and threats related to the control of debt brings notable benefits and will be continued in the years to come. However, in countries such as Belarus, Ukraine or Romania, the risk related to receivables control increases together with the sales increase. In 2010, there was a noticeable trend of the economic situation affecting the ability to repay debt in Ukraine, Belarus and Romania. However, it is minimised by promoting immediate payment sales and an audit system for new customers. In addition, the Capital Group s companies systematically verify distributors, and unreliable contractors are eliminated from the group of direct customers. In the most difficult cases, provisions against receivables are created. FX risk FX risk plays a significant role in the business of the Śnieżka Capital Group. The Parent Company and foreign companies import raw materials used for production mainly from Western Europe; therefore, their liabilities are denominated in EUR. On the other hand, the Parent Company exports its products to the countries of Eastern Europe (Ukraine, Belarus, Moldova, Russia), in which settlements are made mainly in USD. Consequently, the Company is exposed to the risk resulting from the change of the EUR/USD exchange rate and the relation of both currencies to the Polish zloty. The most advantageous scenario for the Parent Company is the EUR/USD rate as low as possible, which decreases the costs of raw materials and maximises export inflows. Śnieżka Capital Group s 2010 Management Report Page 51

116 The Group constantly analyses FX risk. At present, the parent company uses a foreign currency loan in USD amounting to USD 15.3 million, which secures the held capital in subsidiaries in Ukraine and Belarus and minimises disadvantageous foreign exchange differences on export proceeds. In 2010, companies of the Capital Group did not conclude hedging transactions in the form of derivatives, such as options, forward, future or swap contracts, and are not using such practice at the moment. Due to the high level of financing with bank loans, the parent company is also exposed to the interest rate risk. Using a loan denominated in USD makes it possible to decrease interest rate due to the lower LIBOR USD in comparison with WIBOR. The FX rates situation in Ukraine has stabilised. However, it is still being monitored and the Capital Group responds fast to any changes. A specific situation can be observed in the Belarusian FX market, where there is major risk of devaluation of the Belarusian ruble. Belarusian ruble was devalued in January 2009 by approx. 20% in relation to the Russian ruble, dollar and euro. At present, the Belarusian central bank denies any speculation and claims it has no intention to conduct a major devaluation of the national currency. However, the decrease in FX reserves and the deepening trade deficit do not make the ruble seem stable. The Capital Group has undertaken actions which are to secure the Group against the significant influence of different scenarios of developments on the Belarusian currency market. Risk of the Parent Company s involvement in Ukraine and other Eastern European markets. The main foreign trade countries Ukraine, Russian, Belarus and Moldova are characterised by a high political risk and periodic currency and customs restrictions. The situation seems to be most serious in Ukraine. With a developed black economy in 2010, GDP grew 4.1% over 2009, when it decreased by 14%. Following the breakdown and 50% shrinkage of the construction sector in 2009, there was another drop in construction works by 5.4%. Expenditures on finishing works dropped below the overall market trend by 9.8%. The retail sales sector has recorded a 7.8% increase compared to 2009 sales transactions in this sector were mainly made in western and central Ukraine. The payment reliability of Ukrainian businesses decreased significantly. Construction and trade in construction materials were high risk businesses. Belarus is the only country in the region which has suffered to the least extent, due to its isolation from financial markets. Belarus is the last centrally managed European economy. Belarusian counterparties are reliable in the repayment of their debt. Any delays in payment mainly result from temporary financial liquidity problems and not from reluctance to repay debt. A serious problem for many Belarusian entrepreneurs is the limited access to sources of funding. The basic risk related to transactions in Belarus is the political risk. Other risk factors include high insolvency risk due to lack of transparency in the market, reduced liquidity of the state financial sector, the state's dominant role in the economy (politicised decisions), slow privatisation and reduced state capital expenditures in the context of rising price of crude oil. A major risk factor is Belarus dependence on Russia, which significantly affects the directions and growth rate of Belarusian economy. The Management Board of the Capital Group is undertaking adequate adaptation and protective measures in Belarus and Ukraine. Russia s economic environment for private business is approaching European standards. However, it continues to suffer poor transparency. Black economy and undisclosed sources of funding still play an important role in the economy. There are no mechanisms in place to Śnieżka Capital Group s 2010 Management Report Page 52

117 prevent unreliable entrepreneurs from running business. There are difficulties in conducting court and debt recovery proceedings. To minimise commercial and political risk, the parent company uses an insurance instrument for commercial transactions offered by KUKE S.A. The insurance covers risks relating to insolvency of counterparties (commercial risk) and the export risk related to a given country (political risk). Risk related to changes in Polish and foreign tax systems Tax risk is a specific type of business risk. Identification, analysis and minimising this risk should be key elements of managing a company to protect the tax payer from overdue tax, interest, penalty fees and other fiscal sanctions. Tax risk is affected by external factors, unstable and inconsistence tax laws, varying tax law interpretations and court decisions, fiscalism of tax authorities, as well as internal factors of the company, such as lack of properly qualified staff for tax settlements, absence of formalised and precise tax procedures and correctly structured tax functions in IT systems. There are a number of inconsistencies between the interpretations of the Minister of Finance and decisions of administrative courts, resulting in the inability to foresee tax consequences for specific transactions. There is a need for constant monitoring of changes in tax regulations and to respond to them quickly through adjusting internal tax procedures. Tax authorities interpretations of tax regulations may differ from the tax base calculated by the tax payer and materially affect the company s financial situation. Therefore, the company may be forced to abandon profitable undertakings to ensure safety in terms of compliance with tax regulations. Risk connected with changes in tax systems of such countries as Ukraine or Belarus is difficult to estimate although currently it should be estimated as quite high; that is why the Parent Company systematically monitors changes in the area of tax legislation of the abovementioned countries. Ukraine s new Tax Code adopted earlier this year, changes in classifying revenue and costs and new VAT and income taxation rules pose a threat due to chaotic implementation. There has been no large number of significant executive orders and implementation acts published to regulate the environment for the new Code. Hopefully, following the chaotic period, the new tax environment will be more transparent and friendly for tax payers, including entities from Śnieżka Capital Group. Ukraine s partnership with the International Monetary Fund and requirements related to working together with the IMF give hope for the mitigation of risks, including tax risk, and the risk of doing business in this country. This risk is low in Romania due to its membership in the European Union. Risk of the increase of raw material prices A similar, significant level of supply risk can be observed in all countries where the Group Companies conduct manufacturing operations: a) unfavourable price changes (in particular, the purchase of raw materials related to the price of crude oil) b) FX risk (this risk occurs at the time of a significant increase in exchange rates) c) limitations on the volume of supplies (due to unexpected increase in demand). To summarise all of the above risks, 2010 was a tough year in terms of the availability of raw materials and raw material prices. This is confirmed by the varying prices of raw materials and problems in their availability over the last year. The increase in the prices of raw Śnieżka Capital Group s 2010 Management Report Page 53

118 materials in individual sectors over the last 12 months varied from 5 to 30%. Raw materials experiencing a significant increase in prices are whites, phthalic resins, styrene-acrylic dispersion agents, plastic and metal packaging. One positive development is that the strengthening of the domestic currency positively affects the prices of imported raw materials. Crude oil prices also seem to have stabilised recently. Two factors greatly affected the Ukrainian paints and varnishes market: increase in raw material prices and changes in the tax code. The first significant price increase in raw materials for production occurred in 2010 and was additionally accompanied by the unavailability of key raw materials on the Ukrainian and European market. In this year, there is a higher risk of another major increase in the prices of raw materials, which will consequently lead to further price increases for paints and varnishes. Risk of default in planned investments. The main investment tasks connected with the development of production capacity, improvement of warehouse management and goods distribution, development of the company's infrastructure and tasks related to environmental protection have been largely completed. The potential failure to implement some investment tasks resulting mostly from a changing development strategy for the Capital Group as well as the market situation and the Group's environment, bears no risk of limited production capacity, lower quality of products or problems in the operation of the Śnieżka Group. Other risks of the Capital Group s poorer financial performance As a result of the transfer of trademarks as a contribution to the subsidiary IP Solutions, in 2011 and in the following years, the Parent Company will be charged with licence fees, whose 2011 planned level is PLN 11,783 thousand. The fees will decrease the Company s separate financial result but will not affect Śnieżka Capital Group s consolidated result. The Company s 2011 financial performance may be affected by a court ruling on the Company s appeal against the decision of the Office of Competition and Consumer Protection of 28 December 2009 regarding anti-monopoly proceedings against Fabryka Farb i Lakierów Śnieżka S.A. in Lubzina, as a result of which the Office imposed a PLN thousand fine on Fabryka Farb i Lakierów Śnieżka S.A. 15. Declaration on corporate governance 1. Fabryka Farb i Lakierów Śnieżka S.A. is governed by a set of corporate governance rules as defined in the document Code of Best Practice for WSE Listed Companies, that constitutes an attachment to resolution no. 17/1249/2010 of the Board of the Warsaw Stock Exchange of 19 May Corporate governance rules are available at 2. The issuer did not abandon any of the practices in In connection with expanding the composition of the Company s Supervisory Board to 6 people, an Audit Committee was appointed in the Company. 3. Major characteristics of the issuer s enterprise as regards systems of internal control and risk management applicable to the process of preparation of financial statements Śnieżka Capital Group s 2010 Management Report Page 54

119 and consolidated financial statements are as follows: The process of preparation of financial statements is based on the International Accounting Standards, International Financial Reporting Standards, related interpretations published as regulations of the European Commission, Accounting Act (as regards the issues not regulated by the IAS) and internal procedures for preparation of interim stock exchange reports. As regards internal control in the Company, the position of an internal auditor was created, and the companies from the Capital Group are supervised by the Corporate Governance Office. 4. Holders of significant blocks of stocks have been presented in chapter 16 of this Report. 5. Stockholders with special control powers include: pursuant to the issuer s statute, series A stocks authorise to the appointment of a Member of the Supervisory Board in such a way that each 25,000 stocks authorise to appoint 1 Member of the Supervisory Board. As at the date of this Report, holders of series A stocks included: Stanisław Cymbor Jerzy Pater Stanisław Mikrut 33,334 series A stocks 33,334 series A stocks 33,333 series A stocks 6. No limitations in the execution of the voting rights exist at the Company. 7. Limitations on the transfer of rights to the issuer s securities are attributable to the holders of registered preference stocks in FFiL Śnieżka S.A. Any disposal of such registered preference stocks or their conversion to bearer stocks requires a prior offer to buy stocks made to all holders of series A stocks by the stockholder interested in their disposal or conversion to bearer stocks. 8. Rules for appointing and dismissing managers, and their scope of powers within the Company: pursuant to the statute, the Supervisory Board appoints the President of the Management Board and, at his/her request, other members of the Management Board, and dismisses individual Board members. The decision to issue or redeem stocks requires the consent of the General Stockholders Meeting. 9. Any amendments to the Company's statute or articles of association require the consent of the General Stockholders Meeting. 10. The manner of operation of the General Stockholders Meeting has been defined in the Regulations of the General Stockholders Meeting available at the issuer's website. Rights of the stockholders and the manner of their execution have been described in the Company's Statute. The composition and changes in the composition of the issuer s managing and supervisory bodies have been described in part 1 of this Report. 16. Additional information Total number and par value of the Issuer s stocks (shares) and stocks and shares in the Issuer s related parties held by managers and supervisors (separately for each person) as at 31 December The number of the Issuer s stocks held by managers and supervisors: Śnieżka Capital Group s 2010 Management Report Page 55

120 Managers Piotr Mikrut 1,254,166 stocks of a par value of PLN 1,254,166 (unchanged) Witold Waśko 198 stocks of a par value of PLN 198 (unchanged) Walentyna Ochab 615 stocks of a par value of PLN 615 (unchanged) Supervisors Jerzy Pater 2,541,667 stocks of a par value PLN 2,541,667, including directly 166,667 stocks of a par value PLN 166,667. Stanisław Cymbor 2,541,667 stocks of a par value PLN 2,541,667, including directly 166,667 stocks of a par value PLN 166,667. Stanisław Mikrut 33,333 stocks of a par value PLN 33,333. Identification of stockholders holding, directly or indirectly through their subsidiaries, at least 5% of the total votes at the General Stockholders Meeting of Fabryka Farb i Lakierów Śnieżka S.A. as at 31 December 2010, including the number of stocks held by such entities, their percentage in the share capital, resulting number of votes and their percentage in the total number of votes at the General Stockholders Meeting Entities (stockholders) holding, directly and indirectly, at least 5% of the Company s share capital and at least 5% of the total number of votes at the General Stockholders Meeting: Stockholder Number of stocks held Share in the share capital (%) Number of votes Share in overall number of votes at the GSM (%) Jerzy Pater* of which directly Stanisław Cymbor** of which directly directly Piotr Mikrut directly Rafał Mikrut AMPLICO OFE *Jerzy Pater holds the Issuer s stocks indirectly via PPHU Elżbieta i Jerzy Pater Sp. z o.o. ( PPHU Elżbieta i Jerzy Pater Sp. z o.o. holds 2,375,000 stocks of the Issuer, giving the holder 17.53% share in the share capital and 15.27% share in the total votes at the General Stockholders Meeting) **Stanisław Cymbor holds the Issuer s stocks indirectly via PPHU Iwona i Stanisław Cymbor Sp. z o.o. ( PPHU Iwona i Stanisław Cymbor Sp. z o.o. holds 2,375,000 stocks of the Issuer, giving the holder 17.53% share in the share capital and 15.27% share in the total votes at the General Stockholders Meeting) Śnieżka Capital Group s 2010 Management Report Page 56

121 In 2010, the following changes took place in the ownership structure of the Issuer s substantial blocks of stocks: The Management Board of FFiL Śnieżka S.A. received information from AMPLICO PTE S.A., dated 12 August 2010, that AMPLICO Otwarty Fundusz Emerytalny (later referred to as OFE ) exceeded 5% in the overall number of votes in Fabryka Farb i Lakierów Śnieżka S.A. The 5% threshold was exceeded as a result of a transaction of purchase of the Company s stocks on 6 August Directly before the change in the share, OFE held 762,789 ordinary bearer stocks of a total of 13,553,587 stocks, which represent 5.63% of the Company's share capital and are vested with 762,789 votes at the General Meeting, representing 4.90% of the overall votes at the Company s General Meeting. Currently, OFE holds 797,454 ordinary bearer stocks of a total of 13,553,587 stocks, which represent 5.88% of the Company's share capital and are vested with 797,454 votes at the General Meeting, representing 5.13% of the overall votes at the Company s General Meeting. Total remuneration, awards or benefits (pecuniary, in-kind or any other form) paid or payable for 2009 to the Issuer s managers and supervisors at the Issuer s enterprise, irrespective of whether recognised as costs or resulting from profit distribution, and for the issuer being a parent or a significant investor separate information on the remuneration and awards received for holding positions in the authorities of subsidiaries, jointly controlled entities and associates. Remuneration received in 2010 in thousands PLN Company s Management Board Managers Remuneration Dividend paid Total Remuneration in related parties Piotr Mikrut , , , , Witold Waśko Joanna Wróbel-Lipa Walentyna Ochab Total 1, , , , , , Supervisory Board Managers Remuneration Dividend paid Total Remuneration in related parties Jakub Bentke Stanisław Cymbor Zbigniew Łapiński Stanisław Mikrut Jerzy Pater Śnieżka Capital Group s 2010 Management Report Page 57

122 Anna Pater Total 1, , , , , , Remuneration payable in 2010 in thousands of PLN Company s Management Board Managers Remuneration Dividend paid Total Remuneration in related parties Piotr Mikrut Witold Waśko Joanna Wróbel-Lipa Ms Walentyna Ochab - - Total 1, , , , , , Supervisory Board Managers Remuneration Dividend paid Total Remuneration in related parties Jakub Bentke Stanisław Cymbor Zbigniew Łapiński Stanisław Mikrut Jerzy Pater Anna Pater Total 1, , , , , , As at , the managers and supervisors have no borrowing liabilities to the Company. In subsidiaries Śnieżka Capital Group s 2010 Management Report Page 58

123 In thousands of PLN Company Managers In subsidiaries Śniezka Ukraina Jerzy Pietrzyk Śnieżka Wistowa Ludmiła Sołowiej 69.0 Śnieżka Wistowa Krzysztof Wieczorkiewicz 60.4 BELPOL Białoruś A.M. Niewmierżyckij 88.6 BELPOL Białoruś A.A. Szeleg SNIEZKA Romania Viorica Baston SNIEZKA Romania Andrei Zamfirescu F. F. i L. P. PROXIMAL Alicja Wizner 12.1 F. F. i L. P. PROXIMAL Lucyna Gajdek 8.6 Hadrokor Maciej Umiński 92.6 Hadrokor Robert Bąk Hadrokor Grzegorz Komorowski Farbud Jerzy Samonek Farbud Ewa Samonek TOTAL In thousands of PLN Company Supervisors In subsidiaries Hadrokor Daniel Hadrowicz 45.0 Hadrokor Tadeusz Drozd 45.0 Hadrokor Jerzy Pater 15.0 Hadrokor Witold Waśko 15.0 Hadrokor Jarosław Kocik 15.0 Farbud Stanisław Cymbor 12.0 Farbud Jerzy Pater 3.0 Farbud Jarosław Kocik 3.0 Sniezka Romania Aurelia Strat 11.7 Sniezka Romania Witold Waśko 11.7 Sniezka Romania Jarosław Kocik 11.7 TOTAL In other subsidiaries, supervisors were not paid any remuneration for holding their positions. Remunerations of managers and supervisors in subsidiaries do not include remuneration for working for the Parent Company. Borrowings granted 1. On 31 December 2010 an annex was signed to a borrowing agreement dated 29 January 2004 concluded with HADROKOR Sp. z o.o. in Włocławek, pursuant to which the borrowing repayment date was changed. Borrowing amount: PLN 600,000. Debt as at amounts to PLN 600,000. Borrowing repayment date: by Śnieżka Capital Group s 2010 Management Report Page 59

124 2. Borrowing agreements concluded with Śnieżka Romania SRL with registered office in Savinesti: - On 19 February 2007, a borrowing agreement in the amount of EUR 100,000 was concluded for the period ending As a result of the annexes to the agreement, its terms were amended and, currently, the borrowing amount is EUR 200,000, to be repaid by As at , the debt amounted to EUR 200, On 1 February 2008, a second borrowing agreement was concluded with Śnieżka Romania SRL, in the amount of PLN 1,000,000, to be repaid by 31 January As a result of the annexes to this agreement, the repayment date was extended to As at , the debt amounted to PLN 825, On 30 April 2009, a third borrowing agreement was concluded in the amount of PLN 700,000. To be repaid by As a result of the annexes to this agreement, the repayment date was extended to As at , the debt amounted to PLN 700, On 15 October 2007, a borrowing agreement was concluded between FFiL Śnieżka S.A. and Śnieżka-Ukraina Sp. z o.o. in Yavoriv. The borrowing amounted to USD 3 million. The borrowing was granted as a revolving facility with the option of raising multiple loans by 14 October The repayment date was extended by an annex to As of , the debt amounted to USD 2,000, On 16 August 2005, a borrowing agreement was concluded with BAWA Sp. z o.o. amounting to PLN 1,000,000 to be repaid by 31 March PLN 500,000 were disbursed in July 2007 and the remaining PLN 500,000 in February On 12 February 2008, an annex was signed pursuant to which the repayment date was extended to 31 March As at , the debt amounted to PLN 1,000, On 18 August, 2008, a borrowing agreement was concluded with Diana Sp. Z o.o. based in Podwołoczysko (Ukraine), amounting to USD 700,000, to be repaid by 21 July The repayment date was extended by an annex to As at , the debt amounted to USD 544, Guarantees and sureties granted by Śnieżka As of , the sureties granted by Fabryka Farb i Lakierów Śnieżka S.A. are as follows: Agreement of surety granted to Benmar Sp. z o.o. based in Białystok, amounting to PLN 5,000 thousand as collateral for a loan agreement. Contingent liability towards Bank Handlowy S.A. w Warszawie S.A. due to surety of a Paylink agreement in the amount of PLN 11,365 thousand. Agreement of surety granted to Farbud Sp. z o.o. based in Lublin, amounting to PLN 190 thousand blank bills of exchange. All sureties were granted based on the resolutions of the Management Board of Fabryka Farb i Lakierów Śnieżka S.A. approved by the Supervisory Board. Other contingent liabilities of Farbud Sp. z o.o. are bills of exchange amounting in total to PLN 7,889 thousand: PLN 6,500 thousand of collaterals for own loans of Farbud Sp. z o.o., Śnieżka Capital Group s 2010 Management Report Page 60

125 PLN 1,389 thousand of collaterals for the liabilities of Farbud Sp. z o.o. Loans raised by Śnieżka Bank Loan amount in thousands of PLN Conclusion date Repayment date Debt as at in thousands of PLN Pekao S.A PKO BP PKO BP Bank BPH SA Bank Handlowy w Warszawie S.A. Podkarpacki Bank Spółdzielczy ING Bank Śląski SA Total Loans raised by subsidiaries (apart from borrowings taken from the Parent Company) ŚNIEŻKA - BELPOL Sp. z o.o. Zhodzina, Belarus Bank Loan amount in thousands of PLN Conclusion date Repayment date Debt as at in thousands of PLN BZ "Moskwa Mińsk" Borrowings Total FARBUD Sp. z o.o. Lublin Bank Loan amount in thousands of PLN Conclusion date Repayment date Debt as at in thousands of PLN Kredyt Bank Borrowings Total HADROKOR Sp. z o.o. Włocławek Bank Loan amount in thousands of PLN Conclusion date Repayment date Debt as at in thousands of PLN Pekao S.A Śnieżka Capital Group s 2010 Management Report Page 61

126 Borrowings Total Information on the agreement concluded with an entity authorised to audit financial statements On 16 June 2010, the Parent Company concluded an agreement with Revision -Rzeszów Józef Król Sp.z o.o. for auditing the financial statements for 2010: - separate half-yearly statements - consolidated half-yearly statements - separate annual statements - consolidated annual statements The completion dates are to be agreed. The total fee for auditing the financial statements for 2010 amounts to net PLN 70,000 plus 22% VAT, including for: - review of the separate half-yearly financial statements PLN 15,000 - review of the consolidated half-yearly financial statements PLN 10,000 - preliminary audit of the financial statements PLN 5,000 - end audit of the separate financial statements PLN 20,000 - annual audit of the consolidated financial statements PLN 20,000. The Parent Company did not conclude any other agreements with Revision - Rzeszów Józef Król Sp. z o.o. or pay any remuneration other than for the services indicated. The financial statements for 2009 were audited by MOORE STEPHENS Józef Król Sp. z o.o., based on an Agreement dated 15 June 2009, including the audit of separate and consolidated annual financial statements, and the remuneration for the audit amounted to net PLN 70,000 plus VAT, including for: - review of the separate half-yearly financial statements PLN 15,000 - review of the consolidated half-yearly financial statements PLN 10,000 - preliminary audit of the financial statements PLN 5,000 - end audit of the separate financial statements PLN 20,000 - auditing of the consolidated financial statements PLN 20,000. Major prizes and awards for Śnieżka in 2010: 2010 has brought Śnieżka recognition for the consistent implementation of its development strategy and for maintaining its leading position among the most dynamic and effective companies in Poland. Śnieżka s Strong Image Social projects by FFiL Śnieżka were awarded at the 6th edition of the Strong Image PR contest. FFiL Śnieżka received two main awards. At the national level, the company was awarded for the execution of the Colourful Fields or the School Premier League project and in the Śnieżka Capital Group s 2010 Management Report Page 62

127 Podkarpackie edition it was honoured for its overall achievements in the field of social activity. The final of the Strong Image contest, held annually for six years, takes place during one of the largest events in the industry the Public Relations Congress. The purpose of the contest is to promote activities that, except for their PR standards, are of social significance. The winners are selected from companies notable for their activity in this field. Prizes are awarded by a committee comprised of first-class public relations specialists practitioners, scientists and representatives of social organisations. Śnieżka Polish Flagship Product 2010 Śnieżka was among the prize-winners and, having obtained a very high indication rate (40%), it became the Polish Flagship Product During the meeting, the results of a survey by TNS OBOP that determined the Polish products that are the most recommended abroad were announced. The respondents stated which Polish products and brands Poles are proud of, which ones we can show off and which of them are actually used. The 2 nd Polish Product Forum Buy Our Domestic Products was held under the patronage of the Ministry of Economy. The event was organised by the Dajesz Pracę.PL Foundation and the new partner and co-organiser was DEMO Effective Launching. Śnieżka resistant to crisis Once again, Fabryka Farb i Lakierów Śnieżka S.A. was among Poland s largest businesses. It improved its position on the 500 List by 15 positions. The 500 List is prepared annually by one of the most respected national daily newspapers Rzeczpospolita. The journalists develop the ranking based on press releases submitted to their editorial office, on surveys including the basic financial data and on financial statements. Śnieżka a High Reputation Brand FFiL Śnieżka S.A. has confirmed its high reputation once more. In a brand study PremiumBrand 2010, it ranked 6 th among all of the awarded brands, which is the highest position among other brands in the industry. PremiumBrand is the only project in Poland certifying the reputation of brands and companies and has been conducted since The most recent survey was carried out in late April and early May Its methodology allowed the surveying of brands in terms of 5 reputationrelated dimensions: references, media climate, social commitment and the brand as an employer. Śnieżka Capital Group s 2010 Management Report Page 63

128 Złoty Laur Konsumenta for Śnieżka (Consumer's Golden Laurel) FFiL Śnieżka S.A. was awarded the Consumer s Golden Laurel 2010 and the Discovery of the Year title for Vidaron brand. In the sixth edition of the Consumer s Laurel programme, FFiL Śnieżka S.A. once again received the Consumer s Golden Laurel in the Paints category, defeated all competitors and enjoyed the highest appreciation among customers in the industry. Moreover, this year s edition of the competition saw the VIDARON brand which belongs to FFiL Śnieżka S.A. winning the title Discovery of the Year The Discovery of the Year title is awarded to new products that have attracted positive attention of consumers. Consumer Laurel is the largest consumer project in the country and is intended to award the most popular products and brands in a few hundred categories each year. Products that enjoy the highest degree of customer recognition are revealed by a nation-wide survey. Śnieżka a High Reputation Company Fabryka Farb i Lakierów Śnieżka S.A. won the third edition of the PremiumBrand study for companies listed at the stock exchange. The business environment for the third time acknowledged FFiL Śnieżka S.A.'s high reputation by awarding it the statuette and the PremiumBrand Stock Exchange 2010 certificate. The aim of the PremiumBrand Stock Exchange research is to select companies that enjoy the best reputation among the domestic institutional investors. The title of the High Reputation Company 2010 was awarded based on surveys conducted in a group of institutional investors. The assessment covers those issuers whose stocks are listed at the Warsaw Stock Exchange. The methods, prepared by the MAISON Research House, include examining companies in 4 dimensions, set in the establishment survey. These are: business orientation, opinions on the management, reliability in business relationships and the image. Śnieżka Pearl of the Polish Economy 2010 FFiL Śnieżka S.A. was awarded in the Large Pearls category in the 8 th edition of the ranking Pearls of the Polish Economy. The ranking is an initiative of the English-language economic monthly, Polish Market. Companies considered to be Pearls of the Polish Economy are the most profitable and best performing entities, while their financial standing is subject to expert assessment of the Institute of Economic Sciences (INE) of the Polish Academy of Sciences (PAN). Śnieżka was awarded for the consistent implementation of its corporate policy and strategy and the leading position among the most dynamic and effective Polish enterprises. Śnieżka Capital Group s 2010 Management Report Page 64

129 Investor relations The Company operates a website for investor relations at in Polish and in English, where you can find all kinds of corporate news, financial information, current and period reports and presentations. Contact for the investor relations section: Anna Szymaszek Phone (014) Mobile (0507) Fax (014) anna.szymaszek@sniezka.com Ryszard Stachnik Phone (014) Mobile (0507) Fax (014) ryszard.stachnik@sniezka.com Śnieżka s foundation Your Opportunity Being one of the largest enterprises in the region, FFiL Śnieżka S.A. makes both an economic and a social impact locally. Mindful of their social responsibilities, the corporate bodies established a foundation which, over the recent years, has become an important nongovernment organisation in the region. Śnieżka Capital Group s 2010 Management Report Page 65