SECO/WARWICK S.A. DIRECTORS REPORT ON THE COMPANY S OPERATIONS IN THE YEAR ENDED DECEMBER 31ST

Transcription

1 DIRECTORS REPORT ON THE COMPANY S OPERATIONS IN THE YEAR ENDED DECEMBER 31ST

2 The Management Board of SECO/WARWICK S.A. (the Company or the Issuer ) presents the Directors Report on the Company s operations in the period January 1st December 31st 2015, prepared in accordance with the Minister of Finance s Regulation on current and periodic information to be published by issuers of securities and conditions for recognition as equivalent of information whose disclosure is required under the laws of a non-member state, dated February 19th 2009 (consolidated text: Dz.U. of 2014, item 133) (the Regulation ). The financial statements of SECO/WARWICK S.A. were prepared in accordance with the International Financial Reporting Standards (IFRS) endorsed by the EU, and their scope is compliant with the Minister of Finance s Regulation on current and periodic information to be published by issuers of securities, dated February 19th 2009 (Dz. U. No. 33, item 259, as amended). The financial statements cover the period January 1st December 31st 2015 and the comparative period January 1st December 31st The presented financial statements are compliant with all the requirements of the International Financial Reporting Standards endorsed by the European Union and give a fair view of the Company s financial position and assets as at December 31st 2015 and December 31st 2014, as well as of its results and cash flows in the years ended December 31st 2015 and December 31st Introduction SECO/WARWICK S.A. (the Company or the Parent ) was entered in the Business Register of the National Court Register on January 2nd 2007, by virtue of a decision issued by the District Court of Zielona Góra, 8th Commercial Division of the National Court Register, under No. KRS The SECO/WARWICK Group s operations are divided into five core business segments corresponding to the product groups: vacuum furnaces (Vacuum), aluminium heat exchanger brazing systems (Controlled Atmosphere Brazing), aluminium heat treatment systems (Aluminium Process), atmosphere furnaces (Thermal), and equipment used for melting and vacuum casting of metals and specialty alloys (Melting). For detailed information on operating segments, see the consolidated financial statements of the SECO/WARWICK Group (Note 2 to the consolidated financial statements for the twelve months ended December 31st 2015). 2. Organisational and equity links between SECO/WARWICK S.A. and other entities; information on the Company s key domestic and foreign equity investments, including equity investments outside of its group of related entities; financing of the investments Table: As at December 31st 2015, the structure of the SECO/WARWICK Group was as follows: Company Parent SECO/WARWICK S.A. Registered office Świebodzin Business profile Holding company of the SECO/WARWICK Group. Holding equity interests and providing stgic management services Method of consolidation / accounting for equity interest N.A. Group s ownership interest N.A. Direct and indirect subsidiaries SECO/WARWICK EUROPE Sp. z o.o. Świebodzin Manufacture of metal heat treatment equipment Full 100% 2

3 SECO/WARWICK Corp. SECO/WARWICK of Delaware, Inc. SECO/WARWICK Rus Retech Systems LLC SECO/WARWICK Retech Thermal Equipment Manufacturing Tianjin Co., Ltd. Retech Tianjin Holdings LLC Meadville (USA) Manufacture of metal heat treatment equipment Full 100% Wilmington (USA) Moscow (Russia) Ukiah (USA) Holding company; registration of trademarks and patents, and granting licences for use of the trademarks and patents by SECO/WARWICK Corp. Distribution of the SECO/WARWICK Group s products Trade and services; manufacture of metallurgy equipment used for melting and vacuum casting of metals and specialty alloys Full 100% Full 100% Full 100% Tianjin (China) Manufacture of metal heat treatment equipment Full 90% (USA) A holding company Full 80% SECO/WARWICK Allied Pvt. Ltd. SECO/WARWICK GmbH OOO SCT SECO/WARWICK Germany GmbH SECO/WARWICK do Brasil Ltda. (Engefor Engenharia Indústria e Comércio Ltda) SECO/WARWICK France SECO/WARWICK Services Sp. z o.o. Mumbai (India) Manufacture of metal heat treatment equipment Full 75% Bedburg-Hau (Germany) Solnechnogorsk (Russia) Bedburg-Hau (Germany) Intermediation in the sale of furnaces and spare parts manufactured by SECO/WARWICK EUROPE Sp. z o.o., and provision of technical support to customers in Germany, Austria, the Netherlands, Switzerland, Liechtenstein and Slovenia Full 100% Provision of metal heat treatment services in Russia Equity 50% Provision of metal heat treatment services in Germany Full 100% Jundiaí (Brazil) Manufacture of metal heat treatment equipment Full 100% Roissy-en-Brie (France) Commercial and technical representation of SECO/WARWICK Europe in France, Frenchspeaking countries and their neighbouring countries Full 100% Świebodzin Repair and maintenance services Full 100% Changes in the composition of the SECO/WARWICK Group in the analysed period On April 8th 2015, SECO/WARWICK France of Roissy-en-Brie, France, was registered. The company s business comprises commercial and technical representation of SECO/WARWICK Europe Sp. z o.o. in France, French-speaking countries and their neighbouring countries. On November 2nd 2015, SECO/WARWICK Service GmbH of Bedburg-Hau, Germany, changed its name to SECO/WARWICK Germany GmbH. On December 9th 2015, SECO/WARWICK Services Sp. z o.o. of Świebodzin was established. The company s principal business is the provision of repair and maintenance services for equipment manufactured by SECO/WARWICK Europe Sp. z o.o. 3

4 On December 28th 2015, SECO/WARWICK S.A. sold a 100% interest in SECO/WARWICK GmbH of Bedburg-Hau (Germany) and a 99% interest in SECO/WARWICK RUS of Moscow (Russia) to SECO/WARWICK Europe sp. z o.o. SECO/WARWICK Group s structure as at December 31st 2015: Composition of the SECO/WARWICK Group as at the date of issue of this Report On March 30th 2016, SECO/WARWICK S.A. acquired 1,550,000 shares in SECO/WARWICK Allied Private Limited of Maharashtra (India). Following the acquisition, the Parent holds a total of 1,632,014 shares representing 98% of the subsidiary s share capital. Between December 31st 2015 and the issue date of this Report, there were no other changes in the composition of the SECO/WARWICK Group. For information on key domestic and foreign investments (financial instruments, intangible assets and real estate), see Notes to the full-year sepa financial statements of SECO/WARWICK S.A. No equity investments were made outside the group of related entities. 3. Changes in significant management policies at SECO/WARWICK S.A. and its Group In the reporting period, there were no changes in significant management policies at SECO/WARWICK S.A. or the Group. 4. Amount of remuneration, bonuses and benefits, benefits under share-based incentive and bonus schemes, including schemes based on bonds with pre-emptive rights, convertible bonds or subscription warrants, paid, payable or potentially payable MANAGEMENT BOARD Members of the Management Board receive remuneration based on their respective employment contracts. Severance or compensation payments are governed by the Labour Code. The amount of remuneration payable to the Management Board members is defined in resolutions passed by the Company s Supervisory Board on January 12th 2012, December 13th 2012 and December 5th

5 Table: Remuneration to members of the Management Board of SECO/WARWICK S.A. for 2015 (PLN 000) MANAGEMENT BOARD Total remuneration for the period Paweł Wyrzykowski President of the Management Board 1,056 Wojciech Modrzyk Vice-President of the Management Board (1) 393 Jarosław Talerzak Vice-President of the Management Board 451 Wojciech Peret Member of the Management Board (2) 30 Total 1,930 (1) Remuneration to Mr Wojciech Modrzyk for the period January 1st December 3rd 2015 for serving on the Company s Management Board. (2) Remuneration to Mr Wojciech Peret for the period December 3rd December 31st 2015 for serving on the Company s Management Board. SUPERVISORY BOARD The Supervisory Board members are entitled to monthly remuneration in the amount specified by the General Meeting, payable on or before the 15th day of the month following the month for which the remuneration is due. The remuneration covers all expenses related to the performance of duties of a Supervisory Board member. Supervisory Board members are not entitled to severance payments. Table: Remuneration to members of the Supervisory Board of SECO/WARWICK S.A. for 2015 (PLN 000) Name and surname Remuneration Andrzej Zawistowski, including: for his service as Chairman of the Supervisory Board under agreement for advisory services (1) 77 Jeffrey Boswell, including: for his service as Member of the Supervisory Board - - under employment contract (2) 127 James A. Goltz, including: for his service as Member of the Supervisory Board - - under employment contract (3) 716 Dr Gutmann Habig 28 Henryk Pilarski 54 Witold Klinowski, including: for his service as Member of the Supervisory Board 42 - under agreement for advisory services (4) 156 Zbigniew Rogóż (5) 17 Marcin Murawski (6) 26 Total 1,363 (1) Under a service agreement between SECO/WARWICK S.A. and Mr Andrzej Zawistowski, who conducts business activities under the name USŁUGI DORADCZE Andrzej Zawistowski. The agreement of July 2nd 2012 is for the provision of technical and product development advisory services. (2) Under an employment contract between SECO/WARWICK Corp. and Mr Jeffrey Boswell. (3) Under an employment contract between Retech Systems LLC and Mr James A. Goltz. 5

6 (4) Under an agreement for the provision of technical and product development advisory services of October 3rd 2013, executed between SECO/WARWICK EUROPE Sp. z o.o. and Mr Witold Klinowski. (5) Mr Zbigniew Rogóż was removed from his position of member of the Supervisory Board by Resolution No. 26 of the General Meeting of May 26th (6) Mr Marcin Murawski was appointed as member of the Supervisory Board by Resolution No. 33 of the General Meeting of May 26th Agreements between SECO/WARWICK S.A. and its management staff, providing for compensation in the event of resignation or removal from office without a good reason or following acquisition of SECO/WARWICK S.A. by another company Employment contracts between the Company and its management staff do not provide for any compensation in the event of resignation or removal from office. Any severance or compensation payments are governed by the Labour Code, and the employment contracts do not contain any other specific provisions in this respect. Similarly, the contracts do not provide for severance payments in the event of removal from office or termination of contract caused by acquisition of SECO/WARWICK S.A. by another company. 6. Par value and number of SECO/WARWICK shares and shares in related entities held by the management and supervisory staff Jan Dec Number of S/W shares held Ownership interest % of total vote Decrease/ increase Number of S/W shares held Ownership interest % of total vote Total par value of shares (PLN) Management Board Paweł Wyrzykowski 154, % 1.44% 100, , % 2.37% 50,912 Wojciech Modrzyk (1) 25, % 0.24% 4, Jarosław Talerzak 25, % 0.24% 4,000 29, % 0.28% 5,912 Wojciech Peret (2) Supervisory Board Andrzej Zawistowski ,000 65, % 0.61% 13,000 Jeffrey Boswell 9, % 0.09% - 9, % 0.09% 1,955 Henryk Pilarski % % % % 2 Witold Klinowski James A. Goltz Zbigniew Rogóż (3) Marcin Murawski (4) Dr Gutmann Habig Commercial proxies Piotr Walasek 15, % 0.14% 4,000 19, % 0.18% 3,867 Katarzyna Kowalska Total 231, % 2.15% 177, , % 3.52% 75,647 6

7 Item Jan Item Dec Number of shares 10,737,837 Number of shares 10,737,837 Par value per share 0.20 Par value per share 0.20 Share capital 2,147, Share capital 2,147, (1) Mr Wojciech Modrzyk ceased to serve on the Management Board as of December 3rd (2) Mr Wojciech Peret was appointed member of the Management Board of SECO/WARWICK S.A. as of December 3rd (3) Mr Zbigniew Rogóż was removed from his position of member of the Supervisory Board by Resolution No. 26 of the General Meeting of May 26th (4) Mr Marcin Murawski was appointed as member of the Supervisory Board by Resolution No. 33 of the General Meeting of May 26th The Management Board of SECO/WARWICK S.A. (the Company ) announced that on February 18th 2015 it received, from the Chairman of the Supervisory Board and the President of the Management Board, Notifications under Art. 160 of the Act on Trading in Financial Instruments, concerning transactions in the Issuer shares. The Management Board of SECO/WARWICK S.A. (the Company ) announced that on August 3rd 2015 it received, from two Vice-Presidents of the Management Board and a Commercial Proxy, Notifications under Art. 160 of the Act on Trading in Financial Instruments, concerning transactions in the Issuer shares. By the issue date of this Report, members of SECO/WARWICK S.A. s Management and Supervisory Boards did not enter into any other transactions that would involve their holdings of Company shares. 7. Agreements (including agreements executed after the end of the reporting period) known to SECO/WARWICK S.A., which may result in changes in the proportions of shares held by the current shareholders and bondholders With a view to providing additional incentives to the Company s management staff to continue work on the development and consolidation of the SECO/WARWICK Group, and to further increase the value of SECO/WARWICK shares, on April 23rd 2015 the Supervisory Board approved the key objectives of the Incentive Scheme for members of the SECO/WARWICK Group s management staff (the Incentive Scheme ). General objectives of the Incentive Scheme of SECO/WARWICK S.A. The Incentive Scheme is effective for 2016, 2017 and The Incentive Scheme covers 995,750 Company shares which may be distributed to Eligible Persons. Scheme Participants include key members of the Group s management staff who are identified as Scheme Participants in the relevant resolution of the Supervisory Board, and in the period between February 1st 2015 and August 15th 2015 acquire with their own funds, in their own name and for their own account no less than 4,000 and no more than 11,500 Company shares. In the case of the President of the Management Board of SECO/WARWICK SA, the number of shares to be acquired is 100,000. In the case of the President of the Management Board of SECOWARWICK Europe, the largest company of the Group, the number of shares to be acquired is 35,000. The price per share is PLN 25. The number of acquired shares and the 3.5 multiple defines the number of potential options which may be granted under the Scheme subject to fulfilment of the conditions specified below. Shares for a participant s own account must be acquired no later than on August 15th 2015, and may not be sold before June 30th The persons specified in the Supervisory Board s resolution are to declare their intention to participate in the Incentive Scheme by August 31st Participants of the scheme will be assigned individual objectives and a joint objective, the achievement of which is a precondition for a Scheme Participant to become eligible for benefits under the Scheme. 7

8 Achievement of individual objectives is a pre-condition for acquiring rights to 15% of the options in each of the years 2016, 2017 and Achievement of the joint objective is a pre-condition for acquiring rights to 55% of the options in 2016, 2017 and Achievement of the Individual Objectives will be revised on the basis of the Company s audited financial information. Achievement of the Individual Objectives will be verified by the Audit Committee by April 30th of each consecutive financial year for the previous financial year. Achievement of the Joint Objective will be verified on the basis of the Company s audited financial information for all the financial years between 2016 and Achievement of the Joint Objective will be verified by the Audit Committee by April 30th If a Scheme Participant achieves the Individual Objectives or the Joint Objective, such participant will become eligible to acquire Company Shares in the number and on the terms and conditions specified in the Scheme Rules, and to obtain a Capital Bonus (the Option ). Options will vest in accordance with the provisions of agreements to be entered into between the Company and the individual Scheme Participants (the Option Agreement ). Rights under Options may not be transferred or encumbered. Such rights are attached to a Scheme Participant and expire upon his/her death. An Option entitles a Scheme Participant to purchase Shares at nominal price, in the number specified in the Option Agreement. An Option also entitles a Scheme Participant to receive from the Company annual payments whose amount will depend on the amount of dividend paid by the Company for a preceding financial year (the Capital Bonus ). The Capital Bonus for a given financial year will be calculated by July 31st of a given financial year, on the basis of a resolution on distribution of the Company s profit and the Company s audited financial information for the previous financial year, based on the following formula: where: PKt the Capital Bonus to be paid in a given financial year, Divt the amount of dividend to be paid in a given financial year, LA the total number of Company shares participating in dividend payment, LAUP the number of Company shares that a Scheme Participant is entitled to acquire in the exercise of an Option; Shares already delivered to a Scheme Participant are not taken into account in this calculation; The right to obtain the Capital Bonus expires on or before the last Distribution Date. Date of settlement of the acquisition by a Scheme Participant of Company Shares in the exercise of an Option (Distribution Date) o in the case of Scheme Participants other than the President of the Management Board, the Distribution Date will be: June 30th 2020 in respect of 33% of Shares receivable by a Scheme Participant, June 30th 2021 in respect of another 33% of Shares receivable by a Scheme Participant, and June 30th 2022 in respect of the remaining 33% of Shares receivable by a Scheme Participant; o in the case of the Management Board President, the Distribution Date will be August 31st 2019 in respect of all Shares receivable by him. The Supervisory Board determined the Individual Objectives and the Joint Objective for the Incentive Scheme Participants, the achievement of which is a precondition for a Scheme Participant to become eligible for benefits under the Scheme for the financial year The Objectives cover financial and operating ratios of the individual subsidiaries, the organisational units related to particular technologies, or the entire Group, depending on the position of a Scheme Participant. For the entire Group, the Individual Objective for the President of the Management Board, Chief Financial Officer and Chief Operating Officer at SECO/WARWICK S.A., the Parent, is the consolidated net profit of the Group. For 2016, the Objective is set at PLN 18m. 8

9 8. Control systems for employee stock option plans The Scheme is overseen by the Supervisory Board and the Management Board of SECO/WARWICK S.A. Its detailed rules were approved by the Supervisory Board on April 23rd Share buybacks On October 30th 2014, the Extraordinary General Meeting resolved to approve a buyback of up to 1.5m shares (up to 13.97% of the share capital) at a price of not less than PLN 10 and not more than PLN 27.50, for a total amount of not more than PLN 41.75m. The buyback was announced on February 3rd On February 13th 2015, the Company acquired 1,073,783 own shares, representing 10% of its share capital. The average price per share was PLN 25. The acquisition was financed from an investment credit facility granted by mbank S.A. of Warsaw. Under the facility agreement, the Bank granted a PLN 26,845 thousand investment credit to the Company, repayable by January 31st Discussion of key financial and economic data contained in the full-year financial statements and of factors and events, including non-recurring ones, with a material effect on the Company s operations and profits earned or losses incurred in the financial year; discussion of development prospects in a period covering at least the next financial year STATEMENT OF COMPREHENSIVE INCOME Since 2013, SECO/WARWICK S.A. has oped as a holding company. The Company s primary source of revenue is the provision of services to the Group companies covered by a CSA agreement (Management Services Agreement) and income from licensing fees (License Agreement). In 2015, revenue from sales to the Group companies amounted to PLN 12.1m (PLN 11.9m in 2014). In 2015, despite dividends received from the subsidiaries in the amount of PLN 25.1m, the Company posted a net loss of PLN 37.4m, which resulted primarily from impairment losses on equity interests in foreign companies, amounting to PLN 48m. In 2015, the ROE ratio was -25.9% (2014: -7.9%). STATEMENT OF FINANCIAL POSITION Given the nature of the Company s business and its position within the Group, the significance of and movements in certain ratios could be interpreted differently for the Company and the Group. As at the end of 2015, the Company s non-current to current assets ratio was 4.4 (2014: 6.7), which is normal considering its business profile the Company s non-current assets include equity interests in other Group companies, and its cash requirements are met from sales of products and, periodically, from dividends received. The equity to liabilities ratio was 2.7 (7.0 in 2014), which demonsts that the Company is almost entirely independent of external financing. The ratio deteriod due to an increase in the Company s debt level. All of the Company s non-current assets were covered by equity. The current and quick ratios were at 2.1 (1.6 in 2014) (with its current business profile, the Company holds no inventories), while the cash ratio (cash to current liabilities) was 0.6 (0.6 in 2014). The Company s debt ratios changed significantly: the total debt ratio is 27% (12% in 2014), and the long-term debt ratio is 25% (6% in 2014). The change is due to a long-term loan granted to the Company for the acquisition of its own shares. Presented below are the Company s selected efficiency indicators: - the average collection period lengthened from 356 days to 442 days. This long collection period results from the nature of the Company s business and the adopted invoicing policy (invoices are issued to the subsidiaries on a quarterly basis). - the average payment period lengthened from 562 to 526 days on the back of lower current liabilities. The asset turnover ratio and current asset turnover ratio stood at 0.2 and 0.4, respectively. These values (broadly unchanged on the previous year s figures), following from the role of SECO/WARWICK S.A. as a holding company, are considered healthy. 9

10 11. Assessment of factors and non-recurring events with a bearing on the Group s results for the financial year; the extent to which such factors or non-recurring events affected the results In 2015, SECO/WARWICK S.A. recognised impairment losses on equity interests in SECO/WARWICK Allied (PLN 13.8m), SECO/WARWICK Corporation (PLN 21.8m), and Retech Systems (PLN 12.4m). The impairment losses presented in the financial statements of SECO/WARWICK S.A. for the 2015 financial year totalled PLN 48m. 12. Information on the Company s markets, broken down into domestic and foreign markets, on the Company s supply sources for production materials, goods and services, including information on dependence, if any, on any single customer or supplier, or a group of customers or suppliers, and where the share of a single customer or supplier in total revenue equals or exceeds 10% the company name of such customer or supplier, its share in total sales or purchases, and its formal links with SECO/WARWICK S.A. Following the organisational changes introduced in 2013, the key customers of SECO/WARWICK S.A. s management services are the Company s subsidiaries. 13. Agreements significant to the Company s business, including shareholder agreements known to the Company, insurance, partnership or cooperation agreements In Current Report No. 10/2015, the Management Board of SECO/WARWICK S.A. announced that on February 3rd 2015 it executed a credit facility agreement with mbank S.A. of Warsaw. Under the agreement, the Bank granted a PLN 41,250,000 investment credit facility to the Borrower. The facility was contracted to finance the repurchase of up to 1,500,000 Company s own shares under the share buyback programme established pursuant to resolution No. 5 of the Company s Extraordinary General Meeting of October 30th As at December 31st 2015, the total amount drawn down under the facility was PLN 26,844,575, and the final repayment date is January 31st In 2015, SECO/WARWICK S.A. did not enter into any other significant insurance, partnership or cooperation agreements. Likewise, the Company has no knowledge of any significant shareholder agreements. 14. Related-party transactions concluded by SECO/WARWICK S.A. or its subsidiaries other than arm s length transactions In 2015, SECO/WARWICK S.A. and its subsidiaries did not enter into any transactions with related entities other than transactions executed on an arms length basis. 15. Information on agreements on borrowings and other debt instruments executed or terminated in the financial year, including at least information on the types, amounts and interest s, as well as currencies and repayment dates Table: SECO/WARWICK S.A. s outstanding borrowings as at December 31st 2015 Borrowing amount Lender PLN 000 Foreign currency (USD) ( 000) Repayment date mbank S.A. 26,845 - Jan Bank Handlowy 6,156 1,578 Apr Total: 33,001 1,578 x Security Interest Type mortgage, SECO/WARWICK EUROPE Sp. z o.o. s surety under civil law, hold on securities mortgage of up to USD 3,750 thousand, SECO/WARWICK EUROPE Sp. z o.o. s surety under civil law variable variable Investment overdraft facility Investment overdraft facility 10

11 For more detailed information on SECO/WARWICK S.A. s liabilities under bank borrowings see Note 22 to the Sepa Financial Statements of SECO/WARWICK S.A. As at the end of 2015, SECO/WARWICK S.A. had no liabilities under other debt instruments. In 2015, no agreement concerning bank borrowings or other debt instruments was terminated. 16. Sureties and guarantees issued and received in the financial year, including in particular sureties and guaranties issued to related entities Contingent liabilities under guarantees issued amounted to PLN 28,280 thousand as at the end of 2015, and to PLN 25,804 thousand as at the end of The guarantees were issued in respect of: PBG performance bond guarantee SBLC standby letter of credit Table: Sureties advanced by the Parent, SECO/WARWICK S.A. Company Bank Surety in respect of Currency Dec Amount (PLN) S/W ALLIED Pvt. Ltd. Union Bank of India Guarantee and credit facility INR 258,200 15,234 RETECH Systems HSBC BANK USA Guarantee and credit facility USD 16,000 (1) 62,418 RETECH Systems HSBC BANK USA Guarantee and credit facility USD 5,500 (1) 21,456 S/W Retech HSBC BANK USA Guarantee and credit facility USD 2,750 10,728 TOTAL 109,836 (1) The amount drawn by Retech Systems under the available guarantee and credit facilities as at December 31st 2015 was USD 2,141 thousand. In Current Report No. 17/2015 the Management Board of SECO/WARWICK S.A. announced that on February 24th 2015 the Company provided a corpo performance bond in respect of the obligations of its subsidiary SECO/WARWICK Europe sp. z o.o., for the benefit of ECOTITANIUM of France. Table: Sureties received by the Parent, SECO/WARWICK S.A. Company Bank Surety in respect of Currency Dec Amount (PLN) S/W EUROPE CITI Bank Handlowy Investment facility USD 3,600 14,044 S/W EUROPE mbank S.A. Investment facility PLN 26,845 26,845 TOTAL 40, Information on loans advanced in the financial year, in particular loans to related entities, including at least information on the types, amounts and interest s, as well as the currencies and repayment dates No loans were advanced to Management Board or Supervisory Board members in On August 11th 2015, SECO/WARWICK S.A. advanced a USD 420 thousand loan to its subsidiary, SECO/WARWICK Corporation. The loan amount in PLN was PLN 1,600 thousand. In 2015, SECO/WARWICK S.A. did not advance loans to any non-related parties. 11

12 18. Assessment (and grounds for the assessment) of financial resources management, including in particular an assessment of the Company s ability to repay its liabilities, as well as an identification of threats, if any, and measures used or intended to be used by the Company to mitigate such threats; feasibility of planned investments, including equity investments, in view of the funds available to the Group; possible changes in the financing of the investments In 2015, the Company repaid its liabilities under the credit facilities contracted to finance investing activities in a timely manner. As at December 31st 2015, the outstanding debt under investment facilities was PLN 33,001 thousand. As at December 31st 2015, the Company had no overdraft debt outstanding. As at December 31st 2014, the outstanding debt under an investment facility was PLN 9,505 thousand. As at the same date, the Company had no debt outstanding under overdraft facility. The current and quick ratios were at 2.1 (with its current business profile, the Company holds no inventories), while the cash ratio (cash to current liabilities) was 0.6, which is a very good result. The funds and credit facilities available to the Company were sufficient to finance investments and capital expenditure planned for and executed in In the Management Board s opinion, as at the end of the reporting period there was no threat of the Company s failure to meet its liabilities. The table below presents the liquidity ratios of SECO/WARWICK S.A. LIQUIDITY RATIOS Dec Dec Current ratio Quick ratio Cash ratio Issue of securities and use of issue proceeds by SECO/WARWICK S.A. No such events occurred in Explanation of discrepancies between the financial results disclosed in the annual report and the previously released forecasts for the year, if any The SECO/WARWICK Management Board did not publish any forecasts for 2015 concerning the Company s or the Group s financial performance. 21. Description of material risk factors and threats, including information on the degree of the Company s exposure to such risks or threats In 2015, SECO/WARWICK S.A.'s activities were limited to performing the functions of a holding company and providing management services and support to the Group companies. The relevant risk factors and the Group-wide financial risk management policy are described in detail in the consolidated report Currency risk Its active international presence and a broad geographical reach require the Company to enter into transactions denominated in foreign currencies. Some of the Company's borrowings and other financial liabilities are also denominated in foreign currencies. This exposes the Company to the risk of exchange fluctuations. Foreign-currency financial assets and liabilities translated into PLN using the closing exchange prevailing at the reporting date: 12

13 As at As at As at As at Liabilities Dec Dec Dec Dec in foreign currency in PLN in foreign currency in PLN EUR USD 1,875 6,157 3,486 12,227 As at As at As at As at Assets Dec Dec Dec Dec in foreign currency in PLN in foreign currency in PLN EUR 1,063 4,529 1,136 4,841 USD 753 2,938 2,849 9, Foreign currency sensitivity analysis The Company is mainly exposed to foreign currency risk related to EUR and USD. Presented below is a sensitivity analysis for financial assets and liabilities, showing the effect of movements in the EUR/PLN exchange on the Company s profit or loss and other comprehensive income. Exchange at Dec % - 10% Exchange increase in decrease in exchange exchange USD EUR Assumptions: Exchange at Dec exchange at reporting date Dec % increase in exchange - 10% decrease in exchange Exchange + 10% increase in exchange - 10% decrease in exchange USD EUR Effect on equity Effect of USD Effect of USD Effect of EUR Effect of EUR Period ended Period ended Period ended Period ended Dec Dec Dec Dec ASSETS Increase in exchange Decrease in exchange 10% %

14 LIABILITIES AND BORROWINGS Increase in exchange Decrease in exchange TOTAL Increase in exchange Decrease in exchange 10% ,223-0, % 731 1,223 0,4 2 10% % Effect on profit/loss Effect of USD Effect of USD Effect of EUR Effect of EUR ASSETS Increase in exchange Decrease in exchange LIABILITIES AND BORROWINGS Increase in exchange Decrease in exchange TOTAL Increase in exchange Decrease in exchange Period ended Period ended Period ended Period ended Dec Dec Dec Dec % % % ,223-0, % 731 1,223 0,4 2 10% % The currency risk exposure changes over the year, depending on the volume of transactions executed in foreign currencies. Nevertheless, the above sensitivity analysis is considered to be representative of the Company s exposure to foreign currency risk Interest risk The Company holds interest-bearing liabilities. Therefore, it is exposed to interest risk. In the financial year 2015, the total amount of interest on the Company's liabilities was PLN 1,044 thousand. The risk assessment is presented based on a 1% increase/decrease in interest s. Effect on profit/loss before tax Effect on equity Effect on profit/loss before + 1%/- 1% + 1%/- 1% Effect on equity Year ended Dec Year ended Dec Leasing liabilities +/- 5 +/- 5 +/- 3 +/- 3 Other financial liabilities at amortised cost +/ / /- 95 +/

15 21.3 Capital management The primary objective behind the Company's capital management is to maintain good credit rating and safe capital ratios, in order to support the Company's operations and enhance its shareholder value. The Company manages its capital structure and modifies it in response to changes in the economic environment. To maintain or adjust its capital structure, the Company may make changes regarding dividend distributions, return capital to the shareholders or issue new shares. During the year ended December 31st 2015, no changes were made to capital management objectives, policies and processes. In monitoring its capital, the Company uses the leverage ratio calculated as net debt divided by total equity plus net debt. The Company s net debt includes interest-bearing borrowings and other debt instruments and finance lease liabilities, less cash and cash equivalents. Equity includes convertible preference shares and equity attributable to equity holders of the parent, less capital reserve from unrealised net gains. The gearing ratio at end of the year was as follows: Dec Dec PLN 000 PLN 000 Debt 33,453 9,804 Cash and cash equivalents -7,569-9,474 Net debt 25, Equity 126, ,968 Net debt to equity 20.52% 0.19% 21.4 Liquidity risk Liquidity risk is the risk that the Company may face problems with meeting its financial liabilities. Liquidity risk is managed by projecting future cash flows, analysing the relation of liquid assets to cash flows, monitoring liquidity ratios based on items of the statement of financial position and ensuring constant access to various sources of financing at the level of the individual members of the Company. The Company also manages its liquidity risk by maintaining available unused credit facilities which serve as a liquidity reserve securing solvency and financial flexibility. The Company considers its bank borrowings as financial instruments that may potentially lead to a concentration of liquidity risk as the Company enters into cooperation with selected financial institutions only (see Note 22). As at December 31st 2015, current bank borrowings represented 69% of total current liabilities (December 31st 2014: 26%). The table below presents the Company s financial liabilities by maturity as at December 31st 2015 and December 31st 2014, based on contractual undiscounted payments. Dec Interest-bearing bank and other borrowings Payable on demand up to 1 year 1 5 years Over 5 years Total as at Dec ,215 8,785-33,001 Trade payables Other liabilities 1, ,343 TOTAL 25, ,927 15

16 Dec Interest-bearing bank and other borrowings Payable on demand up to 1 year 1 5 years Over 5 years Total as at Dec ,970 5,534-9,505 Trade payables 4, ,251 Other liabilities 5, ,062 TOTAL 13,266 5,551-18,818 The maturity structure of liabilities is presented in Note Credit risk SECO/WARWICK S.A. considers its trade receivables and loans advanced to be financial assets that may potentially lead to a concentration of credit risk. However, the Company's credit risk exposure is limited because, being a holding company, its principal business relationships are with related entities. The Company defines its exposure to credit risk as the total amount of outstanding receivables and monitors the balances owed by each company on a regular basis. As at December 31st 2015, receivables from the Company's largest trading partner represented 49% of total net trade receivables. The credit risk relating to the Company's other financial assets, including loans, arises from the potential failure by the other party to an agreement to pay amounts owed, and the maximum exposure to this risk equals the carrying amount of those assets. The age structure of receivables is presented in Note 16 and the value of loans advanced in Note 17 to financial statements of SECO/WARWICK S.A. 22. Statement of compliance with corpo governance rules by SECO/WARWICK S.A. in 2015 a. Identification of the set of corpo governance rules followed by the Parent of the SECO/WARWICK Group and place where the text of the rules is publicly available In 2015, SECO/WARWICK S.A. complied with the Code of Best Practice for WSE-Listed Companies. The Code of Best Practice for WSE-Listed Companies is available at: and at: The Company did not observe any corpo governance rules going beyond the requirements stipulated by Polish law. b. Scope of non-compliance with the set of corpo governance rules referred to above, specification of the rules not complied with, and explanation of why they were not complied with and how the Company intends to eliminate the effects (if any) of non-compliance with a given rule or measures it intends to take to reduce the risk of noncompliance with a given rule in the future In 2015, SECO/WARWICK S.A. applied all corpo governance principles set forth in the Code of Best Practice for WSE- Listed Companies, except for the principle defined in Section IV.10, which recommends that listed companies enable shareholders to participate in General Meetings via electronic means of communication. The reason for the non-compliance is technical constraints and high potential cost of adapting the existing system to fit the purpose. The Company does not apply the above principle or recommendations related to it. The Management Board of SECO/WARWICK S.A. would like to note that the Company s Articles of Association do not contain provisions that would allow shareholders to speak at the General Meeting from a location other than the venue of the Meeting using electronic means of communication, as permitted under the Polish Commercial Companies Code. 16

17 c. Main characteristics of SECO/WARWICK S.A. s systems of internal control and risk management with respect to preparation of financial statements and consolidated financial statements The Management Board of the Parent is responsible for the Group s internal control system and its effectiveness in the process of preparation of periodic reports and financial statements prepared and published in accordance with the Regulation on current and periodic information to be published by issuers of securities of February 19th The main objective of the Group s internal control system applied to financial reporting is to ensure adequacy, reliability, and accuracy of financial information presented in periodic reports and financial statements. The Group s effective internal control and risk management system applied to financial reporting was developed based on: Clear division of responsibilities and organisation of work in the financial reporting process subsection 1; Precise definition of the scope of the Group s financial reporting subsection 2; Regular reviews of the Group s performance, based on the financial reporting system used by the Group subsection 3; Requirement to submit financial statements for approval prior to their publication subsection 4; Audit/review of financial statements by an external auditor subsection 5; 1. Clear division of responsibilities and organisation of work in the financial reporting process Responsibility for the preparation of the Group s financial statements, current management reports, and periodic financial reports lies with the Parent s Financial Department, headed by the Chief Financial Officer. Financial statements of the SECO/WARWICK Group are prepared by the staff of the Parent s Financial Department, based on financial data contained in the financial and accounting system, as approved by the Chief Financial Officer, and on other additional data provided by designated employees from other departments in the Group. Prior to being handed over to an external auditor, complete financial statements are reviewed by the Head of the Accounting Department and then by the Chief Financial Officer. Periodic reports of the Group are prepared by the staff of the Financial Department, based on financial data contained in the financial and accounting system, as approved by the Chief Financial Officer, and on other additional data provided by designated employees. Prior to being handed over to an external auditor, complete periodic reports are reviewed by the Head of the Accounting Department and then by the Chief Financial Officer. 2. Precise definition of the scope of the Group s financial reporting The Group reviews its stgy and business plans annually, in cooperation with its senior and middle management. Based on the outcome of the review, the Group carries out a budgeting process covering all areas of its operations. During the year, the Parent s Management Board analyses current financial performance and compares it against the adopted budget in accordance with the management reporting system adopted by the Group and based on the Group s accounting policies (International Financial Reporting Standards), taking into account the format and level of detail of the financial data presented in periodic financial statements of the SECO/WARWICK Group. The accounting policies applied to statutory reporting are included in the budgeting process and in the Group s management reporting system. The Group makes every effort to ensure that the financial statements, periodic reports, and other reports presented to investors are based on consistently applied accounting policies. 3. Regular reviews of the Group s performance, based on the financial reporting system used by the Group Financial data used to prepare financial statements and periodic reports is sourced from the financial and operational reports prepared by the SECO/WARWICK Group. Relevant performance data is supplied by the Group subsidiaries on a monthly basis. The data is analysed by the management board of the holding company and then discussed during conference calls with the subsidiaries management boards. Any errors revealed during the analysis are corrected immediately in accordance with the adopted accounting policies. 17

18 The work on financial statements and periodic reports starts only after the results recorded in a closed month (reporting period) have been approved by the Chief Financial Officer. 4. Requirement to submit financial statements for approval prior to their publication Periodic reports and financial statements, once reviewed or audited by the auditor, are submitted to the members of the Parent s Supervisory Board. All members of the Supervisory Board are offered an opportunity to get acquainted with the financial statements or auditor s report. All queries can be discussed with Chief Financial Officer, who is available for this purpose to the members of the Supervisory Board. 5. Audit/review of financial statements by an external auditor In accordance with the applicable legal regulations, the SECO/WARWICK Group submits its financial statements for a review or audit, as appropriate, by a qualified external auditor. d. Shareholders holding, directly or indirectly, major holdings of shares Table: Shareholders holding directly or indirectly through subsidiaries 5% or more of the total vote at the General Meeting as at December 31st 2015: Shareholder Number of shares Ownership interest (%) Number of votes % of total vote at General Meeting SW Holding 3,387, % 3,387, % Spruce Holding Limited Liability Company (USA) 1,123, % 1,123, % SECO/WARWICK S.A. (1) 1,041, % 1,041, % Aviva Otwarty Fundusz Emerytalny Aviva BZ WBK 904, % 904, % Bleauhard Holdings LLC 637, % 637, % Nationale-Nederlanden Otwarty Fundusz Emerytalny 600, % 600, % Metlife OFE 577, % 577, % The data presented in the table is based on notifications received from the shareholders. (1) Treasury shares; the Company does not exercise voting rights in respect of treasury shares. Table: Shareholders holding directly or indirectly through subsidiaries 5% or more of the total vote at the General Meeting as at the date of release of this Report: Shareholder Number of shares Ownership interest (%) Number of votes % of total vote at General Meeting SW Holding 3,387, % 3,387, % Spruce Holding Limited Liability Company (USA) 1,123, % 1,123, % SECO/WARWICK S.A. (1) 1,041, % 1,041, % Aviva Otwarty Fundusz Emerytalny Aviva BZ WBK 904, % 904, % Bleauhard Holdings LLC 637, % 637, % Nationale-Nederlanden Otwarty Fundusz Emerytalny 600, % 600, % Metlife OFE 577, % 577, % The data presented in the table is based on notifications received from the shareholders. (1) Treasury shares; the Company does not exercise voting rights in respect of treasury shares. 18

19 From the date of issue of the Q report to the date of issue of the annual report for 2015, there were no changes in large holdings of Company shares. e. Holders of any securities that confer special control powers, and description of such powers SECO/WARWICK S.A. (Parent) has not issued any securities conferring special control powers with respect to SECO/WARWICK S.A. f. Restrictions on the exercise of voting rights such as restrictions on the exercise of voting rights by holders of a certain portion or number of votes, time limits for exercising voting rights, and provisions under which, with the Company s cooperation, the financial rights attaching to securities are sepad from the holding of the securities There are no restrictions at the Parent on the exercise of voting rights such as restrictions on the exercise of voting rights by holders of a certain portion or number of votes, time limits for exercising voting rights, or provisions under which, with the Company s cooperation, the financial rights attaching to securities are sepad from the holding of the securities. g. Restrictions on transferability of the Company securities Further to Current Report No. 29 published in 2013, in Current Report No. 12/2015 the Management Board of SECO/WARWICK S.A. announced that on February 5th 2015 it was notified of the execution by the following shareholders of the Company: (i) SW Holding sp. z o.o. ( SWH ), holding 3,387,139 Company shares as at the date of the report, (ii) Spruce Holding Limited Liability Company ( SHLLC ), holding 1,419,294 Company shares as at the date of the report, (iii) Bleauhard Holdings LLC ( BHLLC ), holding 743,456 Company shares as at the date of the report, (SWH, SHLLC and BHLLC jointly referred to as the Shareholders ) of a share lock-up agreement (the Agreement ). Pursuant to the Agreement, the Shareholders agreed not to dispose of, offer or pledge the following holdings of Company shares: (i) 3,387,139 Company shares held by SWH, (ii) 1,000,000 Company shares held by SHLLC, and (iii) 593,456 Company shares held by BHLLC. The lock-up restrictions imposed under the Agreement remain in effect until December 31st 2016, but they may expire before that date in certain circumstances agreed by the Parties in the Agreement. h. Description of the rules governing the appointment and removal from office of the management staff, and of their powers, including in particular the power to decide on an issue or buyback of shares The Parent s Management Board consists of two to seven members and is appointed and removed from office by the Supervisory Board, which has the power to appoint any number of Vice-Presidents. Members of the Management Board are appointed for a joint three-year term of office. The Management Board comprises the President of the Management Board, Vice-Presidents and members. When appointing the members of the Management Board, the Supervisory Board decides who will be appointed to the positions of the President and Vice-Presidents of the Management Board. The mandate of a member of the Management Board expires on the date of the General Meeting approving the report on the Management Board s operations, the statement of financial position and the statement of comprehensive income for the last full financial year in which the member held the office. Members of the Management Board may be re-appointed for another term of office. The Management Board may appoint one or more commercial proxies The Management Board has all powers to manage the Company s affairs other than those which fall within the exclusive scope of competence of the other governing bodies of the Company. The Management Board defines the overall organisation structure of the Company and the principles of its operation. For this purpose it may issue relevant rules and other internal regulations. Every member of the Management Board may, without a prior resolution of the Management 19