Spis treści 1. PROFILE OF THE PARENT COMPANY General Information Toya S.A... 3

Transcription

1 DIRECTORS REPORT ON OPERATIONS OF TOYA S.A. GROUP DURING 6 MONTHS ENDED 30 JUNE 2012

2 Spis treści 1. PROFILE OF THE PARENT COMPANY General Information Toya S.A The Parent Company s Management Board and Supervisory Board Share capital Shareholders Shares held by managers and supervisors Shares held by members of the Parent Company s Management Board Shares held by members of the Parent Company s Supervisory Board Share option scheme ORGANISATION OF TOYA S.A. CAPITAL GROUP STATEMENT OF THE MANAGEMENT BOARD REGARDING THE POSSIBILITY TO REALIZE PREVIOUSLY PUBLISHED FORECASTS OF CURRENT YEAR RESULTS FACTORS AND EVENTS AFFECTING THE FINANCIAL RESULTS Comment on financial result The structure of assets and liabilities Assessment of the ability to cover liabilities DESCRIPTION OF MAIN RISKS AND HAZARDS AS WELL AS FINFLUENCING RESULT IN THE NEXT HALF YEAR Main risks and hazards Factors influencing result in the next half year INFORMATION CONCERNING SIGNIFICANT PROCEEDINGS TRANSACTIONS WITH RELATED ENTITIES GRANTED GUARANTEES AND SURETIES CONTINGENT LIABILITIES AND ASSETS INFORMATION ABOUT SIGNIFICANT EVENTS IN FIRST HALF OF I INFORMATION ABOUT SIGNIFICANT EVENTS AFTER 30 JUNE Significant resolutions of the Supervisory Board

3 1. PROFILE OF THE PARENT COMPANY 1.1 General Information Toya S.A. TOYA S.A. (hereinafter referred to as the Parent Company ) is a joint-stock company, established on the basis of the Commercial Companies Code. The Parent Company's registered office is in Wrocław, ul. Sołtysowicka TOYA S.A. was formed on the basis of a Notarial Deed drawn up on 17 November 1999 by Notary Public Jolanta Ołpińska at the Notarial Office in Wrocław (Rep. A No. 5945/99). Pursuant to a decision of 3 December 1999, the Parent Company was entered in the Commercial Register maintained by the District Court for Wrocław- Fabryczna, 6th Commercial Division, with the reference number RHB By virtue of a decision of 4 December 2001, the District Court for Wrocław-Fabryczna, 6th Commercial Division of the National Court Register, decided to enter the Parent Company in the Register of Businesses, with the reference number KRS The entry in the Register took place on 5 December The duration of the Parent Company is unlimited. As at the date of submission of the half year report, the Parent Company has 1 branch located in Nadarzyn. Until 10 August 2011, the Parent Company still formally owned a branch in Kryniczno, which was deleted from the National Court Register on that date. The Group s core business activities include import and distribution of industrial goods, including, in particular, hand and power tools for professional and DIY use. The Group distributes goods manufactured and supplied mainly by companies located in China. For many years, the Group has been implementing its strategy of expanding onto international markets. It focuses primarily on Central, Southern and Eastern Europe (Russia, Romania, Ukraine, Lithuania, Hungary, the Czech Republic, Germany, Belarus, the Balkan States and Slovakia). 1.2 The Parent Company s Management Board and Supervisory Board In first half of 2012 the Management Board worked in unchanged composition. As at 30 June 2012 and as per date of preparation of the consolidated half year report, the following persons were the members of the Parent Company s Management Board: - Grzegorz Pinkosz President of the Management Board - Dariusz Hajek Vice-President of the Management Board In first half of 2012 the Supervisory Board worked in unchanged composition. As at 30 June 2012 and as per date of preparation of the consolidated half year report, the following persons were the members of the Parent Company s Supervisory Board: - Piotr Mondalski President of the Supervisory Board - Jan Szmidt Vice-President of the Supervisory Board - Tomasz Koprowski Member of the Supervisory Board - Romuald Szałagan Member of the Supervisory Board 3

4 - Piotr Wojciechowski Member of the Supervisory Board. - Dariusz Górka Member of the Supervisory Board - Grzegorz Maciąg Member of the Supervisory Board 1.3 Share capital As at 30 June 2012 and as per date of publication of this consolidated half year report, the share capital of the Parent Company amounted to PLN ,20 and comprised shares with par value of PLN 0,1 each. On 27 March 2012, the Management Board of Toya S.A. acting pursuant to an authorization granted under 7 points 5-7 of the Company s Articles of Associations adopted a resolution concerning an increase of the share capital by issuing E series shares within authorized capital and a resolution concerning the exclusion of subscription right for new E series shares by existing shareholders. The share capital was increased from PLN thousand to PLN thousand, by way of issue of ordinary bearer series E shares with par value of PLN 0,1 and issue price of PLN 0,1 per share. The share capital was increased in order to offer shares to Supervisory Board Members in a private subscription. Persons entitled to subscribe for series E shares are exclusively the Supervisory Board Members (or entities indicated by them) listed in the Resolution No. 10 of the Ordinary General Shareholders Meeting dated 23 May 2011 concerning the remuneration of the Supervisory Board members. On 18 May 2012 the increase of share capital was registered by the Court. After 30 June 2012 the Company took actions to grant shares to the Management Board members and key employees participating in the Motivation Program. Details were discussed in note 21 regarding events subsequent to the end of reporting period. 1.4 Shareholders The Parent Company s shareholders as at the date of submission of the annual report: Number of shares Number of votes Stake (%) Jan Szmidt ,55% Tomasz Koprowski ,52% Romuald Szałagan ,58% Piotr Wojciechowski ,74% Generali OFE ,40% Other ,21% TOTAL % 4

5 1.5 Shares held by managers and supervisors Shares held by members of the Parent Company s Management Board Members of the Parent Company s Management Board held no shares in the Company. The General Meeting adopted a resolution on introducing an Incentive Scheme, as described in note 9.2 of the interim condensed consolidated financial statements under which members of the Parent Company s Management Board may be granted subscription warrants which entitle them to subscribe for shares in the Parent Company. Until 30 June 2012 subscription warrants have not been granted. Members of the management Board are entitled to receive subscription warrants. After balance sheet date actions were taken to grant subscription warrants to Entitled Persons, including members of the Management Board see point Shares held by members of the Parent Company s Supervisory Board The number of shares in the Parent Company s share capital held by Members of the Supervisory Board as at the day of submission of this report and changes since the date of submission of the last quarter report (consolidated report for first quarter of 2012 submitted on 15 May 2012) according to the information received by the Parent Company is reflected in the following table: Number of shares as per 15 May 2012 Increase / decrease Number of shares as per 29 August 2012 Jan Szmidt Tomasz Koprowski Romuald Szałagan Piotr Wojciechowski Piotr Mondalski Grzegorz Maciąg TOTAL The increase of number of held shares by members of the Supervisory Board presented in the above table result from exercise of options granted to them based on the Ordinary General Shareholders Meeting resolution 23 May 2011 regarding the rules for remuneration of the Supervisory Board members. The rules for the remuneration of Supervisory Board members, including shares options available to authorized Supervisory Board Members are described in note 9.1 of the interim condensed consolidated and stand-alone financial statements Share option scheme Share option scheme for the Parent Company s Supervisory Board By virtue of resolution No 10 of 23 May 2011, the Ordinary General Shareholders Meeting adopted the rules of remuneration of the Supervisory Board members of the Parent Company. In accordance with the 5

6 approved scheme, three members of the Parent Company s Supervisory Board, appointed by the Shareholders Meeting of the Parent Company on 14 February 2011, are entitled to remuneration for serving as members of the Supervisory Board during a three-year term ( ) in the form of shares in the Group s parent company. According to the articles of association of Toya S.A., the term of office of the Supervisory Board is three years from the date of appointment. It expires no later than on the day of the General Meeting which approves the financial statements for the last full financial year of the term of office. Pursuant to the adopted scheme: a) Three members of the Supervisory Board (Piotr Mondalski, Dariusz Górka and Grzegorz Maciąg or entities indicated by them) will receive payment in the form of a right to acquire the Company shares in an aggregate number equal to 0.75% of all the Company shares registered on the date when the offer to acquire the share is made, of which Piotr Mondalski will have the right to acquire 0.35% of such shares, whereas Dariusz Górka and Grzegorz Maciąg will each have the right to acquire 0.2% of the shares. The shares will be acquired in three tranches: the first tranche between 1 December 2011 and 30 April 2012 (the tranche has been realized, see point 1.5.2), the second between 1 December 2012 and 30 April 2013, and the third between 1 December 2013 and 30 April the offered shares are not acquired by the eligible persons as stated above, they will be offered to them in next tranches. b) The remaining four members of the Supervisory Board (the existing shareholders) will not be entitled to any remuneration for serving as members of the Supervisory Board. c) The Management Board will offer the shares to the Supervisory Board members at their par value (i.e. PLN 0.1). d) Each of the Supervisory Board members may decide to collect their remuneration in cash, up to the maximum amount of PLN 7 thousand a month. If a Supervisory Board member decides to collect a portion of their remuneration in cash, the number of shares offered to them by the Management Board will be reduced accordingly. Following the approved rules of remuneration of the Supervisory Board members, for the first year of service entitled members of the Supervisory Board or entities indicated by them were granted with ordinary bearer series E shares with par value of PLN 0,1 and issue price of PLN 0,1 per share. On 18 May 2012 the increase of share capital was registered by the Court. Detailed information concerning valuation and recognition in the consolidated financial statements is presented in note 9.1 of the consolidated financial statements. Information on the employee stock option scheme A management incentive scheme has been introduced at the Parent to create incentive mechanisms which ensure long-term growth of the Company's value and a steady increase of net profit, as well as contribute to stable management staff. Based on Resolution No. 2 of the Extraordinary General Shareholders Meeting of 8 February 2011, approving the rules of the incentive scheme for the Parent's management staff and key employees, and Resolution No. 11 of the Ordinary General Shareholders Meeting of 23 May 2011 Toya S.A. launched an incentive scheme which will be implemented over four consecutive financial years: The incentive scheme is addressed to members 6

7 of the Management Board and key employees of the Parent, selected annually by the Supervisory Board. Under the scheme, its participants will be entitled to acquire in aggregate up to 2,243,430 Series A registered subscription warrants carrying the right to acquire Series D ordinary bearer shares with a par value of PLN 0.10 per share and an aggregate par value of PLN thousand. Detailed information on the terms under which the options are granted is presented in note 9.2 of the financial statements. According to the Supervisory Board Resolution dated 8 November 2011, modified by the Resolution dated 29 may 2012, as at 30 June 2012 there are 22 eligible persons, which may be granted with share options in total. Within this number, shares options are to be exercised by Eligible Persons for year After 30 June 2012 the Company took actions to grant shares to the Management Board members and key employees participating in the Motivation Program. Details were discussed in note 10 regarding events subsequent to the end of reporting period 7

8 2. ORGANISATION OF TOYA S.A. CAPITAL GROUP As at the date of publication of the consolidated half year report, the Group comprised the following entities: Entity name Registered office Business profile Type of equity link % of shares and votes held Link establishm ent date Method of consolidation / recognition as at the end of the reporting period Toya S.A. Wrocław, Poland Distribution of tools and power tools, developer operations, servicing golf courses Parent Company Not applicable Not applicable Not applicable Toya Romania S.A. Bucharest, Romania Distribution of tools and power tools Subsidiary November 2003 Full consolidation method Toya Golf & Country Club Sp. z o.o.(*) Wrocław, Poland Leisure, sports, real estate trading the company is dormant Subsidiary November 2008 Full consolidation method Yato China Trading Co., Ltd (**) Shanghai, China Distribution of tools and power tools Co-subsidiary June 2008 Equity method (*) In November 2008, the Parent Company established Toya Golf & Country Club Sp. z o.o., acquiring 1,000 shares in the new entity with a par value of PLN 50 per share. All shares were paid up with cash contribution. By virtue of a resolution adopted by the shareholders on 21 January 2011, Toya Golf & Country Club Sp. z o.o. was put in liquidation. (**) In June 2008, the Parent Company and Saame Tools (Shanghai) Import & Export Co., Ltd China established a joint venture under the name Yato China Trading Co., Ltd. The Parent Company acquired 51% of shares in the share capital, while the remaining 49% was acquired by Saame Tools (Shanghai) Import & Export Co., Ltd China. All shares were paid up with cash contribution. Although the Company holds 51% of shares and voting rights in Yato China Trading Co., Ltd., it does not control the company in accordance with the articles of association of the joint venture, material operational and financial decisions must be made unanimously by the partners. There were no changes in the structure of the Group in first half of STATEMENT OF THE MANAGEMENT BOARD REGARDING THE POSSIBILITY TO REALIZE PREVIOUSLY PUBLISHED FORECASTS OF CURRENT YEAR RESULTS The Management Board of Toya S.A. has not published forecasts of the results of the Company or the Group for

9 4. FACTORS AND EVENTS AFFECTING THE FINANCIAL RESULTS 4.1 Comment on financial result Revenues and profitability of TOYA Group continuing and discontinued operations (PLN 000) 6 months ended 30 June Continuing operations Revenues from sales Gross profit from sales Operating profit Profit before tax Net profit from continuing operations Discontinued operations Net profit from discontinued operations In first half of 2012, sales revenues from continuing operations amounted to PLN 204,629 thousand and were lower by 1,7% from the sales revenues achieved in first half of Slightly lower gross profit on sales by PLN 784 thousand (2%) in analyzed period of 2012 as compared to the same period in 2011 resulted from lower sales volume. Realized sales margin did not changed significantly. The operating profit was lower by PLN 2,502 thousands as compared to first half of 2011 mainly as a result of an increase in distribution costs and higher negative foreign exchange differences. Administration expenses in first half of 2012 were lower as compared to the same period of In order to raise the necessary working capital, the Group uses mainly short-term bank loans. Given the significant impact of financial costs associated with these loans on the financial result, the Group negotiates the terms of loan agreements on a yearly basis so as to maximally reduce the corresponding costs. Rational management of working capital enabled to reduce financial costs by PLN 641 thousands as compared to the first half of The net profit on continuing operations in first half of 2012 r. decreased by PLN thousands, that is by 15% as compared to the first 6 months of

10 Profit margins for continuing operations Key: 6 months ended 30 June Sales profit 34,4% 34,6% Operating profit 14,6% 16,7% Pre-tax profit 12,9% 14,7% Net profit 10,2% 11,8% Sales profit margin the ratio of gross profit to sales revenues Operating profit margin the ratio of operating profit to sales revenues Pre-tax profit margin the ratio of pre-tax profit to sales revenues Net profit margin the ratio of net profit from continuing operations to sales revenues. For TOYA S.A. the sales profit margin is the key indicator of the Group s market competitiveness, which has decisive impact on its financial position. Analysis of this ratio for first half of 2012 shows that the sales profit in this period decreased slightly that is by 0.2 percentage points as compared to first half of Cash flows of the Group (PLN 000) 6 months ended 30 June Continuing operations Cash flows from operating activity (3 295) Cash flows from investment activity (1 299) (1 659) Cash flows from financial activity Net change in cash continuing operations Opening balance of cash and cash equivalents Closing balance of cash and cash equivalents In first 6 months of 2012 the Group recorded positive cash flows from operating activities, amounting to PLN thousands. In first half of 2012, the Group did not undertake any significant investment activities. Cash outflows during that period were mainly connected with renovation of office building and development of new functionality of ERP system. During analyzed 6 months period the Group generated positive cash flows from financial activity, primarily due to the increase of its credit exposure by PLN 2,690 thousand as compared to 31 December It directly related to the increased demand for working capital in second quarter of 2012 characterized by the increased customers activity. 10

11 The liquidity of TOYA S.A. Capital Group during the analysed period remained at the right level. The Group's net working capital was positive, covering the demand arising from the volume of sales revenues. The Group did not finance tangible fixed assets with short-term liabilities and was able to settle short-term liabilities on time. Liquidity ratios for continuing operations Current liquidiy ratio 2,08 1,27 Quick liquidity ratio 0,73 0,48 Key: Current liquidity ratio the ratio of current assets to short-term liabilities Quick liquidity ratio the ratio of current assets less inventories to short-term liabilities The value of the current liquidity ratio and quick liquidity ratio increased as compared to Both ratios remained at a very safe level. 4.2 The structure of assets and liabilities The structure of assets of TOYA S.A. Capital Group (PLN 000) Non-current assets Intangible assets Tangible fixed assets Investments in jointly controlled entities valued using equity method Current assets Inventory Trade and other receivables % asset structure of TOYA S.A. Capital Group 11

12 Non-current assets / Assets % 12% 12% Intangible assets / Assets % 0% 0% Tangible fixed assets / Assets % 10% 10% Investments in jointly controlled entities valued using the equity method / Assets % 1% 1% % Current assets / Assets % 88% 88% Inventories / Assets % 57% 60% Trade and other receivables / Assets % 27% 25% The structure of liabilities of TOYA S.A. Capital Group (PLN 000) Equity per shareholders of the parent company Trade and other liabilities Short-term liabilities Long-term liabilities % liability structure of TOYA S.A. Capital Group Equity per shareholders of the parent company / Equity and Liabilities % 58% 53% Short-term liabilities / Equity and Liabilities % 42% 46% Long-term liabilities / Equity and Liabilities % 0% 0% Short-term liabilities / Liabilities % 100% 100% Long-term liabilities / Liabilities % 0% 0% 12

13 Ratios of return on equity, assets and current assets 6 months period ended 30 June Return on assets ratio (ROA) 6% 8% Return on equity ratio (ROE) 11% 27% Return on current assets ratio 7% 10% Key: Return on assets ratio (ROA) the ratio of net profit from continuing operations to total assets as at the end of the period Return on equity ratio (ROE) the ratio of net profit from continuing operations to equity as at the end of the period Return on current assets ratio the ratio of net profit from continuing operations to current assets as at the end of the period As at 30 June 2012, the Group s tangible fixed assets constituted 10% of total assets. Tangible fixed assets comprise primarily land, buildings and structures necessary for the Parent Company s commercial activity. There were no material changes in their structure during the analysed period. As at 30 June 2012, investments in jointly controlled entities valued using the equity method, included shares in Yato China Trading with value amounting to PLN 1,622 thousand. The structure of current assets of TOYA S.A. Capital Group, which as at 30 June 2012 constitute 88% of total assets, includes primarily inventories and trade and other receivables, which is typical to the business activity conducted by TOYA S.A. and its Capital Group. Both these items constituted, in total, 96% of current assets as at 30 June2012 and 97% as at 31 December TOYA S.A. Capital Group conducts efficient warehouse management by adjusting the stock levels to the customers demand. In first half of 2012, the Group slightly decreased its inventories as compared to the end of year 2011, in spite of significant extension of assortment. Equity structure and debt ratios Total debt ratio 42% 47% Equity debt ratio 74% 87% Long-term debt ratio 0% 0% Short-term debt ratio 42% 46% The ratio of coverage of fixed assets with equity and long-term liabilities Key: Total debt ratio the ratio of long- and short-term liabilities to total liabilities Equity debt ratio the ratio of long- and short-term liabilities to equity Long-term debt ratio the ratio of long-term liabilities to total liabilities Short-term debt ratio the ratio of short-term liabilities to total liabilities 479% 435% The ratio of coverage of fixed assets with equity and long-term liabilities the ratio of total equity and long-term liabilities to fixed assets

14 As at 30 June 2012, the main item in the Group s equity was retained earnings, amounting to PLN 64,368 thousand. Share capital amounted to PLN thousands as at 30 June The main sources of financing operations, in particular current assets, include equity and short-term financing primarily from bank loans. As at 30 June 2012, the Group financed 58% of its operations from equity. As at this date, the Group s short-term liabilities due to loans amounted to PLN 49,382 thousand. The Group did not have long-term liabilities due to loans. Group management effectiveness ratios 6 months ended 30 June Inventories turnover period (days) Receivables inflow period (days) Liabilities repayment period (days) Key: Inventories turnover period (days) the ratio of inventories as at the end of the period, multiplied by 180 days, to revenue from sales Receivables inflow period (days) the ratio of trade and other receivables as at the end of the period, multiplied by 180 days, to revenue from sales Liabilities repayment period (days) the ratio of trade and other liabilities as at the end of the period, multiplied by 180 days, to revenue from sales In the analysed period, the liabilities repayment period was shorter than the receivables inflow period. This means that the credit terms the Company extended to its customers were longer than those it received from its suppliers. It implies higher demand for financing working capital, which is typical of the industry in which TOYA S.A. conducts its commercial activity. The increase in inventories turnover period results from an expansion of the product range in the first half of 2012 as compared to the same period of Assessment of the ability to cover liabilities. At the moment, there are no events which may, according to the Management Board, have a negative effect on the Parent Company s or Group s ability to cover its liabilities. 14

15 5. DESCRIPTION OF MAIN RISKS AND HAZARDS AS WELL AS FACTORS INFLUENCING RESULT IN THE NEXT HALF YEAR 5.1 Main risks and hazards Macroeconomic situation The Group s economic standing is connected with the macroeconomic situation in Europe and GDP growth rate, which has considerable impact on demand for goods sold by the Group. As Polish economy is strictly linked to the global economy, the global economic situation can also impact the economic situation in Poland and the amounts of purchases made by domestic customers. Additional factors, such as the government s economic policy, decisions made by the National Bank of Poland and the Monetary Policy Council which affect money supply, interest rates and FX rates, the tax system, inflation and unemployment rate, can also affect, in the company s opinion, internal demand and the company's development. Competition The Polish market for distribution of industrial goods, which is the Group s main field of operation, is relatively highly dispersed in spite of the presence of three market leaders. Entities currently competing with the Group can take additional actions to intensify their development through aggressive pricing policy aimed at current, target or potential customers. Such actions may impede and slow down the increase in market share. Intense actions on the part of competition can also have negative effects on the Group s financial standing and financial results. The Group monitors the market it operates in and takes measures to maintain its competitive advantage. Changes in FX markets The Group s strict link with foreign suppliers and settlements made primarily in USD make the Group s financial results sensitive to changes in FX rates. The Group maintains a policy of fixed prices, updated only periodically to reflect developments in the market. However, in order to maintain fixed prices for products sold on the Polish market, the Parent Company may decrease the sales margin, which may have negative impact on financial performance. A part of the Group s sales revenues comes from export activity based on prices set in foreign currencies USD and EUR which to some extent protects the Company from adverse movements in exchange rates. However, due to the fact that the main currency used in trade with foreign customers is EUR, it is possible that in the future, FX fluctuations may still have negative impact on the Company's financial performance. To minimise this risk, the Parent Company concluded framework agreements with banks; however, the company did not carry out any transactions in derivatives in first half of

16 Interest rate movements The Company makes considerable use of external capital funding. An increase in interest rates could have negative influence on the servicing costs of funding and could impair the Group s profitability since the Parent Company has entered into loan agreements with floating interest rates in PLN. To minimise this risk, the Parent Company runs simulations of various scenarios in order to choose the optimal funding sources, taking into consideration refinancing, roll-over of the existing positions and alternative financing. Interpretation and application of legal regulations Changes in legislation and diverse interpretations of the law impede the Group s operations. Possible changes in legislation, in particular in tax, customs, labour and social insurance law, may have negative consequences for the Group s activity. Frequent changes in the interpretation of the tax law and lack of uniform practices of national fiscal authorities and courts in the application of tax legislation, including the areas of transactions and restructuring processes, are particularly burdensome. Such transactions involve the risk of third-party claims and proceedings of various state authorities. In addition, because of their complexity and inconsistent taxation practices, they are often the subject of disputes with tax authorities. The Parent Company exercises due care to ensure that these transactions are compliant with legislation in particular with the tax law. In spite of that, the risk of third-party claims, possible disputes with tax authorities or proceedings of various state authorities cannot be ruled out. Such claims, disputes or proceedings, as well as cases when fiscal authorities or courts and the Parent Company adopt different interpretations of tax regulations and different tax qualification of events and transactions in which the Parent Company participated, may have adverse impact on the Group and its financial performance. However, it should be noted that the Group takes measures to mitigate the effects of changes in law. The Parent Company uses external services of renowned law and tax firms, which facilitate its current operations. 5.2 Factors influencing result in the next half year The Group operations are slightly influenced by seasonality. The reasons for seasonality of sales revenue is mainly weather factor and as a result - lower demand in late autumn, winter and sometimes early spring. The other reason is tendency to minimize stock by company s distributors due to year end stock takes and lower activity in businesses using Company s tools in period with lower temperature outside The Group offers broad and complementary assortment as well as diversified distributions channels, and as a result is able to minimize the effect of the slowdown in the building industry. Forecasted high fuel price, reduction of availability of bank loans may have negative impact on the demand from the target customer group. Uncertainty on the financial markets in Poland and Europe will not be conductive to growth demand for goods offered by the Group. As a result the Group undertakes actions to reduce the negative effects of global macroeconomic trend. The effects of development of new distribution channels, particularly opening the new internet shop using the newest technical and marketing solutions should be seen in next quarters. Additionally the Group realizes public shares issue goals, introduces new products and assortment groups, which should 16

17 offset clear weakening demand in some industries. The Group also works on increasing the attractiveness of offer to customers of retail networks and increasing of demand in this channel. The Group pays close attention to modern and innovative IT solutions. One of those is still improved SAP ERP system. Its functionality will be broaden by material management module. The implementation of this solution is one of the element of the optimization of working capital management, enables for fast reaction to changing trading economic situation and increases competitiveness of the Group. The other significant project under realization is the implementation of mobile version of CRM SAP application. It will enable the sales department more effective reaction to needs of customers. The group of sales representatives, contacting with tens of customers every day, needs to take fast and accurate business decisions in shortening period of time. The implementation will be performed both in Toya S.A. and in Toya Romania. The solution will use modern tablets and will enable the online access to stock lists, price lists, history of orders, invoices and receivables. It is the first implementation of such kind of solution in Poland. 6. INFORMATION CONCERNING SIGNIFICANT PROCEEDINGS As at 30 June 2012 the total value of proceedings in front of court, body appropriate for arbitration proceedings or in front of public administration bodies relating to Company s liabilities and receivables did not exceed the value of 10% of Parent Company s equity. 7. TRANSACTIONS WITH RELATED ENTITIES Transactions with related entities are concluded on arm's length terms in the course of the Group's day-to-day operations. These transactions have been presented in note 18 to the consolidated and stand-alone financial statements. 8. GRANTED GUARANTEES AND SURETIES CONTINGENT LIABILITIES AND ASSETS Parent Company and its subsidiary have not granted loan sureties or guaranties of at least 10% of Company s equity to one entity or its subsidiary. Apart of financial guarantees disclosed in note 17 to interim condensed consolidated financial statement, the Company does not have other contingent liabilities or assets. 9. INFORMATION ABOUT SIGNIFICANT EVENTS IN FIRST HALF OF 2012 Issue of shares series E On the basis of Ordinary General Shareholders Meeting resolution No 10 dated of 23 May 2011 regarding the rules for remuneration of the Supervisory Board members, the Management Board of Toya S.A. has taken actions to grant shares of the Parent Company to the entitled members of the Supervisory Board. On 27 March 2012, the Management Board of Toya S.A. acting pursuant to an authorization granted under 7 points 5-7 of the Company s Articles of Associations adopted a resolution concerning an increase of the share capital by issuing E series shares within authorized capital and a resolution concerning the exclusion of subscription right for new E series shares by existing shareholders. The share capital was 17

18 increased from PLN thousand to PLN thousand, by way of issue of ordinary bearer series E shares with par value of PLN 0,1 and issue price of PLN 0,1 per share. On 18 May 2012 the increase of share capital was registered by the Court. 10. I INFORMATION ABOUT SIGNIFICANT EVENTS AFTER 30 JUNE Significant resolutions of the Supervisory Board Granting of subscription warrants under the incentive Program On 16 July 2012, the Supervisory Board of the Parent Company adopted a resolution to grant stock options to Entitled Persons under the first tranche of the Incentive Program. The necessary condition for granting the first tranche of stock options to entitled persons was to achieve growth of the consolidated net profit reported in the consolidated Financial Statements of the TOYA Group for the year 2011 not less than 22% in relation to the consolidated net profit for 2010 ("the condition of profit"). As the TOYA Group in 2011 achieved 44.9% increase in consolidated net profit as compared to the previous year, the condition of the profit was fulfilled. Based on the above, the Supervisory Board has granted to 19 Entitled Persons stock options entitling to subscribe for a total of shares series D under the Subscription Warrants of series A, issued pursuant to Resolution No. 3 of the General Meeting of Shareholders on 8 February 2011 on the issue of subscription warrants of series A with the exclusion of the pre-emptive right to acquire shares. Until the date of publication of these interim condensed consolidated financial statements, shares series D have not been issued. Entitled Persons will be able to subscribe for shares series D by the way of realization of received subscription warrants. Grzegorz Pinkosz President of the Management Board Dariusz Hajek Vice-president of the Management Board Wroclaw, 29 August