SEPARATE FINANCIAL STATEMENTS FOR 2016

Transcription

1 SEPARATE FINANCIAL STATEMENTS FOR 2016 Gdynia, 11 April 2017

2 CONTENTS These separate financial statements contain: I. SEPARATE STATEMENT OF FINANCIAL POSITION... 3 II. SEPARATE STATEMENT OF COMPREHENSIVE INCOME... 4 III. SEPARATE CASH FLOW STATEMENT... 5 IV. SEPARATE STATEMENT OF CHANGES IN EQUITY... 6 V. NOTES... 6 V.1. ABOUT THE COMPANY... 6 V.2. CORPORATE BODIES AS OF THE DATE OF THESE STATEMENTS... 7 V.3. BASIS FOR PREPARING THE FINANCIAL STATEMENTS AND STATEMENT OF COMPLIANCE WITH IFRS... 8 V.4. MAJOR EVENTS AFFECTING BEST IN V.5. MERGER WITH JOINTLY CONTROLLED SUBSIDIARIES... 9 V.6. LONG-TERM INVESTMENTS V.6.1. Investments in subsidiaries V.6.2. Investments in associates V.6.3. Investment real property V.7. LIABILITIES DUE TO LOANS, BORROWINGS, BONDS AND LEASES V.7.1. Reconciliation of debt V.7.2. Liabilities due to bonds issue V.7.3. Liabilities due to borrowings V.8. TRADE AND OTHER LIABILITIES V.9. CONTINGENT LIABILITIES V.10. OPERATING LEASE AGREEMENTS V.11. EQUITY AND EQUITY MANAGEMENT V Share capital and share premium movements V Share capital structure and shareholding of BEST V Capital management V.12. INCENTIVE PROGRAMMES V.13. TAXATION V Deferred tax assets and provisions V Income tax V.14. PP&E AND INTANGIBLE ASSETS V Property, plant and equipment V Intangible assets V.15. NOTES TO THE STATEMENT OF COMPREHENSIVE INCOME V Operating revenue V Operating expenses V Financial revenue V Financial expenses V Earnings (losses) per share V.16. NOTES TO THE CASH FLOW STATEMENT V Impairment of financial assets V Movement in investments in claims V.17. FINANCIAL INSTRUMENTS V Financial instruments by category (carrying values) V Revenues, expenses, profit and loss items recognised in the statement of comprehensive income, broken down into categories of financial instruments V Comparison of the fair value and the carrying value of financial instruments not measured at fair value V.18. FINANCIAL RISK ANALYSIS V Market risk V Liquidity risk V Credit risk V.19. TRANSACTIONS BETWEEN RELATED PARTIES V Information on remuneration for the members of the Management Board and the Supervisory Board of BEST V Information on the value of outstanding advances, loans, borrowings, guarantees and sureties granted to and agreements concluded with related persons (in particular managers and supervisors) V Information on transactions with subsidiaries V Information on transactions with other related parties V.20. INFORMATION ON PAID (OR DECLARED) DIVIDEND V.21. REMUNERATION FOR THE AUDITOR OF THE FINANCIAL STATEMENTS V.22. EVENTS AFTER THE BALANCE SHEET DATE... 44

3 I. SEPARATE STATEMENT OF FINANCIAL POSITION as of 31 December 2016 Assets Note Non-current assets 610, ,236 Intangible assets ,997 11,930 Property, plant and equipment ,868 7,850 Deferred tax assets ,415 8,384 Long-term investments, including: , ,726 investment real property 4,112 4,112 Trade and other receivables Other assets Current assets 14,184 37,576 Receivables from borrowings and bonds 0 11,864 Trade and other receivables 1,964 3,337 Corporate income tax receivables Cash and cash equivalents 10,687 21,330 Other assets 1,453 1,005 Total assets 624, ,812 Equity and liabilities Note Equity , ,060 Share capital ,328 20,966 Share premium 40,628 5,494 Other reserve capitals 2,482 1,177 Retained profits 120, ,423 Long-term liabilities 370, ,084 Liabilities due to loans, borrowings, bonds and leases , ,215 Other liabilities Deferred tax provision , Provisions for employee benefits Other equity and liabilities 0 1 Short-term liabilities 68, ,668 Liabilities due to loans, borrowings, bonds and leases , ,817 Trade and other liabilities ,114 7,844 Provisions for employee benefits 25 5 Other equity and liabilities 3 2 Total equity and liabilities 624, ,812 3

4 II. SEPARATE STATEMENT OF COMPREHENSIVE INCOME for the 12-month period ended 31 December 2016 (single-step) Note 01/01/ /01/2015 Operating revenue , ,258 Revenue from core operations 88, ,923 Other operating revenue Operating expenses ,670 38,210 Payroll and employee benefits 31,593 23,300 Depreciation/amortisation 3,990 3,035 Third party services 11,976 6,366 Taxes and fees 4,637 2,164 Other operating expenses 3,474 3,345 Operating profit 33,363 78,048 Financial revenue ,096 Financial expenses ,767 14,902 Profit (loss) before tax (52,984) 66,242 Income tax ,010 (3,669) Net profit (loss) (54,994) 69,911 Other net comprehensive income, including: (27) (62,480) Other items of net comprehensive income which have been or can be transferred to profit/loss: 0 (62,489) movement in gross financial assets available for sale 0 5,940 tax related to financial assets available for sale 0 (1,129) gross movement in financial assets available for sale, reclassified to current profit/loss 0 (83,087) tax related to assets reclassified to current period 0 15,787 Other items of net comprehensive income which will not be transferred to profit/loss: (27) 9 Total net comprehensive income (55,021) 7,431 Earnings (loss) per share from continued operations: ordinary (2.51) 3.35 diluted (2.50)

5 III. SEPARATE CASH FLOW STATEMENT for the 12-month period ended 31 December 2016 Operating cash flows Profit (loss) before tax Adjustments for: Note 01/01/ /01/2015 (52,984) 66,242 (32,433) (229,350) Depreciation/amortisation 3,990 3,035 Impairment of financial assets ,589 0 Interest and profit sharing 22,077 12,131 Result on investing activities (61) 147 Movement in receivables 1,447 2,572 Movement in liabilities 4,468 2,387 Movement in investments in claims (129,998) (251,083) Movement in provisions, inventory, and other assets, equity and liabilities (259) 66 Other items, net 1,314 1,395 Net cash from operating activities before tax (85,417) (163,108) Income tax paid (40) (40) Net cash from operating activities after tax (85,457) (163,148) Cash flow from investing activities Inflows from the sale, buyback or redemption of financial assets 11,860 38,723 Dividends received and profit sharing 43 2,268 Interest received on bonds and borrowings granted Acquisition of intangible assets, and property, plant and equipment (17,225) (8,499) Acquisition of financial assets 0 (40,873) Borrowings granted 0 (60) Other items, net (20) (11) Net cash from investing activities (5,085) (7,929) Cash flow from financing activities Inflows from the issue of debt securities 174, ,558 Inflows from borrowings raised 0 145,000 Net inflows from issue of shares 36,496 0 Redemption of debt securities (71,000) (24,678) Repayment of borrowings (36,500) (72,000) Payments due to lease (199) (111) Commissions and interest paid on financial liabilities (23,395) (15,512) Other items, net 0 (96) Net cash from financing activities 79, ,161 Movement in net cash (10,643) 15,084 Cash at the beginning of the period 21,330 6,246 Cash at the end of the period 10,687 21,330 5

6 IV. SEPARATE STATEMENT OF CHANGES IN EQUITY for the 12-month period ended 31 December 2016 Share capital Share premium Other reserve capitals Retained profits Total equity Equity as of 01/01/ ,966 5,494 1, , ,060 Total comprehensive income for the reporting period: - - (27) (54,994) (55,021) Financial result for the current period (54,994) (54,994) Other net comprehensive income - - (27) - (27) Contributions from and payouts to equity holders: 1,362 35,134 1,332-37,828 Issue of ordinary shares 1,362 35, ,496 Measurement of the incentive programme - - 1,332-1,332 Equity as of 22,328 40,628 2, , ,867 Equity as of 01/01/ ,966 5,494 62, , ,520 Total comprehensive income for the reporting period: - - (62,480) 69,911 7,431 Financial result for the current period ,911 69,911 Other net comprehensive income: - - (62,480) - (62,480) movement in the fair value of financial assets available for sale - - 5,940-5,940 movement in the fair value of financial assets reclassified to profit/loss - - (83,087) - (83,087) actuarial profit/loss from the measurement of employee benefits deferred income tax ,656-14,656 Contributions from and payouts to equity holders: - - 1,365-1,365 Measurement of the incentive programme - - 1,365-1,365 Settlement of the merger with subsidiaries - - (161) (95) (256) Equity as of () 20,966 5,494 1, , ,060 V. NOTES to the separate financial statements of BEST S.A. for 2016 V.1. ABOUT THE COMPANY BEST S.A. (referred to as BEST, the Company or the Issuer) is one of the largest enterprises in the debt recovery industry in Poland. Our corporate data: registered office: ul. Łużycka 8A, Gdynia Tax ID (NIP): KRS No.: Core business: managing claims for investment funds, commissioned debt recovery (monitoring of debt), investing in claims portfolios (through investment funds or the acquisition of other entities). The Company is the parent of BEST S.A. Capital Group (BEST Group), which actively invests in non-performing debts. 6

7 Presented below are our capital structure and percentage shares in jointly controlled entities and associates. Tekst Kancelaria Radcy Prawnego Rybszleger sp. k w likwidacji Tłumaczenie Kancelaria Radcy Prawnego Rybszleger sp. k in liquidation * jointly controlled entity ** associate V.2. CORPORATE BODIES AS OF THE DATE OF THESE STATEMENTS In May 2016, the Supervisory Board of BEST appointed Jacek Zawadzki, who had previously held the function of IT Division Director, to hold the function of Member of the Management Board beginning 1 July Therefore, as of the date of these statements, the composition of BEST s Management Board is as follows: Krzysztof Borusowski Marek Kucner Barbara Rudziks Jacek Zawadzki President of the Management Board Vice-President of the Management Board Member of the Management Board Member of the Management Board In January 2016, Krzysztof Kaczmarczyk was appointed Member of the Supervisory Board. In May 2016, Katarzyna Borusowska and Patrycja Kucner resigned from the Supervisory Board. In the same month, BEST s Ordinary General Meeting appointed Andrzej Klesyk and Mirosław Gronicki as Members of the Supervisory Board. Therefore, as of the date of these statements, the composition of BEST s Supervisory Board is as follows: Sławomir Lachowski Prof. Leszek Pawłowicz Prof. Pasquale Policastro Prof. Dariusz Filar Krzysztof Kaczmarczyk Andrzej Klesyk Mirosław Gronicki Chairman of the Supervisory Board Vice-Chairman of the Supervisory Board Member of the Supervisory Board Member of the Supervisory Board Member of the Supervisory Board Member of the Supervisory Board Member of the Supervisory Board 7

8 V.3. BASIS FOR PREPARING THE FINANCIAL STATEMENTS AND STATEMENT OF COMPLIANCE WITH IFRS These separate financial statements were prepared in accordance with the International Financial Reporting Standards (IFRS), as adopted by the European Union. The statements cover the 12-month period from 1 January 2016 to 31 December 2016 and data for the comparable reporting period. In the current reporting period, according to the amendments to IAS 1 Presentation of Financial Statements, effective from 1 January 2016, we introduced changes in the presentation of data. In particular, the purpose of the amendments to IAS 1 was to improve the usefulness of financial statements by allowing the exclusion of immaterial data from disclosures, even if other IFRS require such disclosures, the aggregation or disaggregation of data as well as the optimisation of the presentation of notes and of the applied accounting policy. Therefore, we verified our disclosures and focused on the presentation of data which is material from the perspective of our business activity. Our accounting principles for recognising the respective items of the statements are presented in the detailed notes to those ite ms rather than in a collective note. The remaining amendments to the IFRS which are effective as of 1 January 2016 have not materially affected our accounting policy. In addition, we introduced accounting principles for new transactions in the reporting period: Mergers of jointly controlled entities pooling of interests Incentive programmes settled with phantom shares classification as share-based payments settled in cash For details, see note 5.5 For details, see note 5.12 In these statements, we have not decided to adopt the amendments to the IFRS before their effective dates. In particular, we have analysed the effect of the following standards on our statements: Standard Main amendments and effective date Expected effect on our financial statements MSSF 9 Financial Instruments MSSF 15 Revenue from Contracts with Customers IFRS 16 Leases The standard introduces a single model with only two categories of financial assets: measured at fair value and measured at amortised cost. The classification is performed at initial recognition and depends on the adopted model for managing financial instruments and on the characteristics of contractual cash flows from these instruments. When performing a fair value measurement, profits and losses are recognised in the financial result or in other comprehensive income. IFRS 9 introduces a new model for writedowns: the expected credit losses model. Effective date: 1 January The fundamental principle of this standard is to recognise revenue upon the transfer of goods or services to a customer in the amount of the transaction price. All goods or services sold in packages which can be separated as part of a given package should be recognised separately. In addition, all discounts and rebates on the transaction price should be allocated to individual package elements. According to IFRS 15, costs incurred to obtain and secure a contract should be recognised and settled over time, during the period in which a customer consumes that contract s benefits. Effective date: 1 January The standard introduces the recognition of lease transactions as assets and liabilities due to payment obligations, thus cancelling the classification into operating and finance lease, and introduces a single model for the recognition of leases by the lessee in the accounting books. Effective date: 1 January Currently, we do not expect a change in the classification of financial assets which would result in a change of the adopted measurement model in the separate financial statements. No material influence on our financial statements. In our business activity, we lease premises under lease agreements, which, according to the applicable laws, are recognised as operating lease. According to IFRS 16, we will be obliged to recognise assets and liabilities on account of such agreements in the financial statements. The value of the minimum future fees on account of operating lease is PLN 6,391 thousand, representing an estimate of how our liabilities and assets would have increased if the standard had been adopted as of the balance sheet date. Introducing that change will affect the financial liabilities and, consequently, the debt ratios. Currently, we estimate that the remaining published amendments and the new standards not included in the above table will not materially affect our statements. Preparing financial statements requires making certain estimates and assumptions which influence the values of the presented items. This means that real results may differ from the results estimated and presented in the statements. Material assumptions adopted for estimates and judgments are presented in the notes to the respective items for which material estimates and judgments have been made, as presented below: Item Investments in associates Investment real property Incentive programmes 5.12 Deferred tax assets and provisions Property, plant and equipment Intangible assets Note Unless indicated otherwise, all amounts presented in the statements are rounded to PLN thousands. The Polish zloty is our functional and presentation currency. 8

9 In the opinion of BEST s Management Board, there are no factors which could be a significant threat to our going concern status. Therefore, these separate financial statements have been prepared on a going concern basis. V.4. MAJOR EVENTS AFFECTING BEST IN 2016 The most important events in 2016 were: BEST s merger with its subsidiaries, further indirect investments in claims by purchasing the investment certificates of BEST Capital FIZAN, a write-down on investment in Kredyt Inkaso S.A., redemptions and issues of bonds, and the partial repayment of a borrowing granted by the Members of the Management Board, the issue of series D shares, tests of SIGMA, an integrated system for settlements and claims management (allowing us to finally adopt this proprietary system at the beginning of 2017). V.5. MERGER WITH JOINTLY CONTROLLED SUBSIDIARIES ACCOUNTING POLICY IFRS 3 Business Combinations does not apply to the combinations of jointly controlled entities. According to the provisions of IAS 8 items 10-12, we settle the combinations of jointly controlled entities using the pooling of interests method, which involves summing the combined companies assets, equity and liabilities, as well as revenues and expenses as of the day of combination, once uniform measurement methods and mutual exclusions have been applied. Exclusion applies to the share capital of a company whose assets have been transferred to another company or of companies which, as a result of a combination, have been deregistered. Following the exclusion, the respective items of equity are adjusted for the difference between the sum of assets, and equity and liabilities. The following are also subject to exclusion: 1) mutual receivables, liabilities and similar settlements of the merging companies, 2) revenues and expenses of economic operations between the merging companies in the financial year before the merger, 3) profits or losses on economic operations before the merger of the companies accounted for in the value of the assets, equity and liabilities subject to the merger. When settling the combinations of jointly controlled entities, we use the consolidated financial statements as the source of data on the assets and liabilities in the acquired subsidiaries. The pooling of interests is based on the assumption that the entities participating in the combination, before and after the transaction, are controlled by the same shareholders. Thus, the statements are prepared in such a way as if the entities participating in the combination had already been combined on the date when control was asserted over them. 9

10 On 22 April 2016, BEST (acquiring company) merged with the subsidiaries Gamex sp. z o.o., Actinium Inwestycje sp. z o.o. (formerly: Actinium Inwestycje sp. z o.o. S.K.A.) and Gamex lnwestycje sp. z o.o. (acquired companies). The merger was performed according to Article item 1 of the Commercial Companies Code (merger by acquisition), i.e. by transferring all assets of the acquired companies to BEST. As a result of the merger, our assets, equity and liabilities decreased by PLN 115,856 thousand and our financial result increased by PLN 853 thousand, mainly as a result of eliminating mutual claims and liabilities. The effect of the merger on our equity was small and amounted to PLN 2,268 thousand, in particular on account of recognising the acquired companies profits. In the consolidated financial statements of BEST Group, the merger with the acquired companies was already settled in 2015, i.e. on the day when control was asserted over each company. Before the merger, we held 100% of interests in the acquired companies share capital. The main assets of those companies were 29.43% of shares in the share capital of Kredyt Inkaso S.A. and receivables from us of PLN 118,126 thousand. As a result of the merger, we became a direct shareholder of Kredyt Inkaso S.A. and, as of the date of these statements, we hold 32.99% of its shares. Restated data In connection with the merger with the acquired companies, we the comparable data for Effect of adjustments on the separate statement of financial position as of : Published data Adjustment Restated data ASSETS Non-current assets, including: 650,435 (117,199) 533,236 Deferred tax assets 8,464 (80) 8,384 Long-term investments 621,845 (117,119) 504,726 Current assets, including: 36,291 1,285 37,576 Receivables from borrowings and bonds 11,899 (35) 11,864 Trade and other receivables 3,343 (6) 3,337 Corporate income tax receivables Cash and cash equivalents 20,044 1,286 21,330 Total assets 686,726 (115,914) 570,812 EQUITY AND LIABILITIES Equity, including: 201,645 1, ,060 Other reserve capitals 1,338 (161) 1,177 Retained profits 173,847 1, ,423 Short-term liabilities, including: 280,997 (117,329) 163,668 Liabilities due to loans, borrowings, bonds and leases 273,147 (117,330) 155,817 Trade and other liabilities 7, ,844 Total equity and liabilities 686,726 (115,914) 570,812 10

11 Effect of adjustments on the separate statement of comprehensive income for the period from 01/01/2015 to : Published data Adjustment Restated data Operating revenues, including: 116,268 (10) 116,258 Revenue from core operations 115,933 (10) 115,923 Operating expenses, including: 38, ,210 Payroll and employee benefits 23, ,300 Third party services 6, ,366 Taxes and fees 2, ,164 Operating profit 78,091 (43) 78,048 Financial revenue 3, ,096 Financial expenses 16,692 (1,790) 14,902 Profit before tax 64,491 1,751 66,242 Income tax (3,749) 80 (3,669) Net profit 68,240 1,671 69,911 Total net comprehensive income 5,760 1,671 7,431 Effect of adjustments on the separate cash flow statement for the period from 01/01/2015 to : Published data Adjustment Restated data Profit before tax 64,491 1,751 66,242 Adjustments for: (344,526) 115,176 (229,350) Interest and profit sharing 13,921 (1,790) 12,131 Movement in receivables 2, ,572 Result on the contribution of investment certificates to a subsidiary (83,923) 83,923 0 Movement in investments in claims (284,120) 33,037 (251,083) Net cash from operating activities before tax (280,035) 116,927 (163,108) Income tax paid 0 (40) (40) Net cash from operating activities after tax (280,035) 116,887 (163,148) Borrowings granted (95) 35 (60) Net cash from investing activities (7,964) 35 (7,929) Inflows from borrowings raised 261,900 (116,900) 145,000 Commissions and interest paid on financial liabilities (16,872) 1,360 (15,512) Other items, net 0 (96) (96) Net cash from financing activities 301,797 (115,636) 186,161 Movement in net cash 13,798 1,286 15,084 Cash at the beginning of the period 6,246-6,246 Cash at the end of the period 20,044 1,286 21,330 11

12 V.6. LONG-TERM INVESTMENTS Investments in subsidiaries: 459, ,321 BEST Capital FIZAN s investment certificates 457, ,366 Interests, contributions and shares 1,867 1,955 Investments in associates shares of Kredyt Inkaso S.A. 106, ,293 Investment real property 4,112 4,112 Total 570, ,726 The long-term investments account for 91% of the balance sheet total. V.6.1. Investments in subsidiaries ACCOUNTING POLICY The investments in subsidiaries are measured at the price of purchase, less any impairment losses. BEST Capital FIZAN s investment certificates 01/01/ ,366 Increases: 130,000 acquisition of series F certificates 39,000 acquisition of series G certificates 31,000 acquisition of series H certificates 50,000 acquisition of series I certificates 10, ,366 In 2016, we acquired new series of the investment certificates of BEST Capital FIZAN with a total value of PLN 130 million. As a result, our direct share in that fund increased from 99.53% at the end of 2015 to 99.63% at the end of We hold the remaining voting rights in the fund indirectly, through BEST TFI S.A. In 2016, we generated revenues from the payout of the yield from BEST Capital FIZAN of PLN 49.6 million. Interests, contributions and shares BEST TFI S.A. (Investment Fund Company) 1,712 1,712 BEST Nieruchomości Sp. z o.o. (BEST Nieruchomości) BEST Capital (CY) Ltd. in liquidation (BEST Capital CY) 0 88 Kancelaria Radcy Prawnego Rybszleger Sp. k. (Law Firm) Actinium sp. z o.o. in liquidation (Actinium) 6 6 Total 1,867 1,955 12

13 At the end of 2016, the value of interests in subsidiaries decreased by PLN 88 thousand in connection with the liquidation of BEST Capital, having its registered office in Cyprus. As a consequence of the above changes, our participation in the subsidiaries as of 31 December 2016 was as follows: Entity Year of incorporation Registered office Register number Number of interests, shares or certificates held Direct share in the total number of votes BEST Capital FIZAN 2014 Gdynia, Poland ,223, % Investment Fund Company 2007 Gdynia, Poland ,700, % BEST Nieruchomości 2000 Gdynia, Poland % Law Firm 2011 Gdynia, Poland not applicable 90% Actinium 2013 Gdynia, Poland % V.6.2. Investments in associates ACCOUNTING POLICY An associate is an entity on which an investor exerts material influence. Material influence means the power to participate in decisions on financial and operational policy of the entity in which an investment was made, but it does not consist in exercising control or joint control over the policy of that entity. Material influence If we hold, directly or indirectly (e.g. through subsidiaries), 20% or more of the voting rights in an entity, we assume that we exert material influence on that entity, unless it can be clearly demonstrated otherwise. On the other hand, if we hold, directly or indirectly, less than 20% of voting rights in an entity, we assume that we do not exert material influence on that entity, unless such influence can be clearly demonstrated. The fact that another investor holds a controlling stake or a significant portion of interests does not preclude the possibility that we may exert material influence on another entity. The investments in associates in the separate statements are measured at the price of purchase, less any impairment losses. Impairment losses At the end of each reporting period, we verify whether there are objective indications of impairment of investments in associates. If such indications exist, we perform an impairment test and determine the recoverable value of our investment. If the carrying value of an investment in an associate is higher than the recoverable value, we recognise an impairment loss in the financial expenses. On the other hand, if we recognised a write-down in previous periods and there are objective indications that the reasons for which the write-down was recognised have discontinued or if there are indications that the value of the write-down has decreased, we revaluate the recoverable value of an investment. If the new recoverable value is higher than the carrying value, we increase the carrying value of an asset to the amount of the recoverable value. The carrying value of an asset which was increased due to reversal of the impairment loss should not exceed the carrying value which would have been determined if the impairment loss on such an asset had not been recognised in previous periods. We recognise the amount of a reversed impairment loss in the financial result as financial revenue. MATERIAL ESTIMATES AND JUDGMENTS Our investments in associates are the shares of Kredyt Inkaso S.A. Since the plans to take control of that entity have not been successfully implemented and the expected synergies have not been achieved, we identified indications for impairment of that investment. Therefore, we performed an impairment test and estimated the recoverable value of the shares of Kredyt Inkaso at PLN 25 per share based on the transaction price for which WPEF VI Holding V.B.V., in September 2016, purchased more than 60% of that entity s shares. Considering that the transaction was concluded near the balance sheet date and on an active market, we believe that it gives an accurate account of that investment s recoverable value as of the balance sheet date. 13

14 Shares of Kredyt Inkaso S.A. (Kredyt Inkaso): 106, ,293 purchase price value 171, ,293 Impairment losses (64,590) 0 number of shares 4,268,134 4,268,134 Last year, we made an indirect investment in claims by purchasing 32.99% of shares in Kredyt Inkaso with a view to achieve synergies and create value for the shareholders. The total purchase cost amounted to PLN million, i.e. approx. PLN per share. Soon after the purchase of the share s, we initiated a process aimed at achieving a merger with BEST. Consequently, the balance sheet items of claims, other assets and liabilities of BEST would have been increased by the corresponding values recognised previously in Kredyt Inkaso s statements. However, the merger was not successful because in January 2016 Kredyt Inkaso terminated the partnership agreement, citing an inability to agree on a share exchange rate. The termination of the agreement and further actions of Kredyt Inkaso revealed a conflict of interests among that company s shareholders. In August 2016, WPEF VI Holding V. B.V., a subsidiary of Waterland Private Equity Investments (Waterland), announced a tender offer for the shares of Kredyt Inkaso as a result of which it purchased 61.16% of that company s shares for up to PLN 25 per share. As a result, in August 2 016, we performed an impairment test and, based on internal analyses, the available market data and probable scenarios, we measured our investment at PLN million. Since that value was lower than the previously recognised carrying value, we recognised a write-down of PLN 18.5 million in financial expenses. Due to the fact that, by December 2016, we did not execute our plans to take control of Kredyt Inkaso, we assumed that a merger was no longer the most likely scenario. Therefore, we re -analysed the indications for impairment and revaluated the recoverable value of that investment at PLN 25 per share based on the transaction price for which Waterland purchased Kredyt Inkaso s shares on 6 September That value does not account for the effects of a potential merger. We recognised the difference between the previous carrying value and the estimated recoverable value in financial expenses. Total write-downs in 2016 on the investment in Kredyt Inkaso in the separate financial statements amounted to PLN 64.6 million. The price of Kredyt Inkaso s shares as of the balance sheet date was PLN per share. V.6.3. Investment real property ACCOUNTING POLICY Investment property is real property (land, a building or a part of a building or both) which we treat as a source of revenue from rent or keep due to an increase in its value, or both, and such real property is not: used during production, deliveries of goods, provision of services or administrative activities; or held for sale as part of the entity s normal business. Investment property is recognised in the assets only if: future economic benefits which the entity is to receive in relation to the real property are probable; and its purchase price or manufacturing cost can be reliably measured. The current maintenance costs of investment property are recognised in the statement of comprehensive income when incurred, and charged to operating expenses. Investment property is initially measured at purchase price or manufacturing cost. The initial measurement takes into consideration the costs of performing the transaction. After the initial recognition, we measure the investment property at fair value, and recognise the measurement result in other operating revenues or expenses. The fair value of investment property is the price for which the property could be transferred on market conditions between interested and well-informed parties. When estimating fair value, we exclude prices inflated or deflated due to specific transaction conditions or circumstances, such as unusual forms of financing the purchase or sale and leaseback, other specific conditions or licenses granted by one of the parties which are associated with the sale in any way. MATERIAL ESTIMATES The fair value of the investment real property has been determined based on an appraisal study prepared by an independent appraiser. 14

15 Investment property purchase price 2,834 2,819 Fair value measurement 1,278 1,293 Total 4,112 4,112 V.7. LIABILITIES DUE TO LOANS, BORROWINGS, BONDS AND LEASES ACCOUNTING POLICY We classify liabilities incurred due to loans, borrowings, bonds and leases into the category of financial liabilities. Upon initial recognition in the accounting books, they are measured at fair value, less transaction costs incurred by the purchase date (such as commissions and interest paid in advance). In the subsequent periods, liabilities due to loans, borrowings, bonds and leases are measured at the amortised cost, using the effective interest rate method. Liabilities due to bonds issue 387, ,526 Liabilities due to borrowings 36,503 73,002 Liabilities due to finance lease Total, including: 425, ,032 long-term (1 to 5 years) 368, ,215 short-term (up to 1 year) 57, ,817 We apply a business model which involves, in particular, BEST obtaining funding and investing in claims using the structures of investment funds which directly purchase claims portfolios, leading to an increase in financial debt. At the same time, at the level of the separate financial statements, the effect of our investments is deferred until our indirect investments in claims have been sold, bought back or exchanged. Therefore, our operating efficiency should be analysed based on consolidated data. V.7.1. Reconciliation of debt Bonds Borrowings received Lease agreements Debt as of 01/01/ ,526 73, ,032 Movements on account of cash flows: 81,675 (38,050) (222) 43,403 Financing received 174, ,497 Repayment of principal amount (71,000) (36,500) (199) (107,699) Interest and commissions paid (21,822) (1,550) (23) (23,395) Cashless movements: 20,713 1, ,679 Lease agreements concluded Interest accrued 20,502 1, ,076 Other movements Debt as of 387,914 36, ,114 Total 15

16 Bonds Borrowings received Lease agreements Debt as of 01/01/ , ,544 Movements on account of cash flows: 114,211 72,161 (115) 186,257 Financing received 153, , ,558 Repayment of principal amount (24,678) (72,000) (111) (96,789) Interest and commissions paid (14,669) (839) (4) (15,512) Cashless movements: 13, ,231 Lease agreements concluded Interest accrued 14, ,900 Other movements (221) 0 (36) (257) Debt as of 285,526 73, ,032 Total V.7.2. Liabilities due to bonds issue 01/01/ /01/2015 New issues (nominal value), including: 174,655 New issues (nominal value), including: 153,770 L2 series 40,000 K3 series 35,000 L3 series 50,000 K4 series 20,000 P series 4,655 L1 series 60,000 Q1 series 20,000 M series 15,000 Q2 series 10,000 N series 17,000 R1 series 50,000 O series 6,770 Redemptions (nominal value), including: (71,000) Redemptions (nominal value), including: (24,678) G series (39,000) H series (10,000) M series (15,000) I series (14,678) N series (17,000) Total 129,092 Total 103,655 In 2016, based on the second prospectus as part of the public bonds issue programme of 2014, we issued two new series of bonds, L2 and L3, with a total nominal value of PLN 90 million, thus realising the full value of the issue under that programme of PLN 300 million. In October 2016, the Polish Financial Supervision Authority approved another public issue prospectus for BEST s bonds with a nominal value of up to PLN 200 million, and we allotted the first series of bonds under that prospectus, i.e. series R1 bonds with a nominal value of PLN 50 million. By the publication date of these statements, we allotted another two series of bonds, R2 and R3, with a total nominal value of PLN 90 million. Under the programme, we can issue an additional PLN 60 million worth of bonds. Furthermore, as part of private offerings, we issued series P, Q1 and Q2 bonds with a total nominal value of PLN 34.7 million in We use the funds raised from the issue and the growing inflows from the repayment of debts to further the development of BEST Group by actively investing in new claims portfolios. 16

17 Liabilities due to bonds issue as of : Series code Nominal value of bonds Nominal interest rate Issue date Maturity Value from measurement short-term long-term Total K1 45,000 WIBOR 3M % 30/04/ /04/2018 2,415 42,563 44,978 K2 50, % 30/10/ /10/2018 2,913 47,067 49,980 K3 35,000 WIBOR 3M % 10/03/ /03/2019 1,704 32,833 34,537 K4 20,000 WIBOR 3M % 10/03/ /03/2020 1,014 18,815 19,829 L1 60,000 WIBOR 3M % 28/08/ /08/2020 3,099 56,634 59,733 L2 40,000 WIBOR 3M % 04/03/ /03/2020 2,134 37,169 39,303 L3 50,000 WIBOR 3M % 10/05/ /05/2020 2,542 46,723 49,265 O 6,770 WIBOR 3M % 30/12/ /12/ ,388 6,705 P 4,655 WIBOR 3M % 27/01/ /07/ ,398 4,635 Q1 20,000 WIBOR 3M % 30/06/ /01/ ,812 19,811 Q2 10,000 WIBOR 3M % 29/07/ /03/ ,357 9,854 R1 50,000 WIBOR 3M % 10/11/ /04/2021 2,516 46,768 49,284 Total 391,425 20, , ,914 Liabilities due to bonds issue as of : Series code Nominal value of bonds Nominal interest rate Issue date Maturity Value from measurement short-term long-term Total G 39,000 WIBOR 3M + 4,70% 28/11/ /05/ , ,953 K1 45,000 WIBOR 3M % 30/04/ /04/2018 2,493 42,166 44,659 K2 50, % 30/10/ /10/2018 3,010 46,703 49,713 K3 35,000 WIBOR 3M % 10/03/ /03/2019 1,764 32,527 34,291 K4 20,000 WIBOR 3M % 10/03/ /03/2020 1,048 18,710 19,758 L1 60,000 WIBOR 3M % 28/08/ /08/2020 3,198 56,386 59,584 M 15, % 07/09/ /03/ , ,163 N 17,000 WIBOR 3M % 09/09/ /09/ , ,751 O 6,770 WIBOR 3M % 30/12/ /12/ ,339 6,654 Total 287,770 82, , ,526 V.7.3. Liabilities due to borrowings Lenders Granted on Maturity Interest rate Value as of Members of the Management Board of BEST S.A. September 2015 December % 36,503 In September 2015, BEST concluded borrowing agreements with two Management Board members for the total amount of PLN 73 million and an annual interest rate of 3.50%. In February 2016, BEST concluded addenda to the borrowing agreements, allowing a part of the principal amount to be repaid earlier. In March 2016, BEST repaid PLN 36.5 million, which accounts for a half of the borrowings granted. the date of these statements, according to the addenda to the borrowing agreements signed with the Management Board Members in March 2017, the repayment deadline of the remaining portion of the borrowings was extended to 31 December

18 V.8. TRADE AND OTHER LIABILITIES ACCOUNTING POLICY Trade and other liabilities are measured at amortised cost using the effective interest rate method. We apply simplified methods of measuring liabilities if this does not cause a distortion of information included in the financial statements. In particular, short-term liabilities are measured upon initial recognition and in the subsequent period in the amount payable. Trade liabilities, including: 3,792 3,029 Liabilities related to investments in PP&E and intangible assets Liabilities due to taxes and contributions to statutory employee insurance 1,544 1,015 Liabilities due to employee benefits 6,401 3,550 Other liabilities Total 11,796 7,844 long-term (1 to 5 years) short-term (up to 1 year) 11,114 7,844 V.9. CONTINGENT LIABILITIES In March 2016, together with BEST Capital FIZAN, BEST I NSFIZ and BEST II NSFIZ (borrowers), we concluded a revolving loan agreement of up to PLN 24 million with Bank Zachodni WBK S.A. The loan may be used by every borrower. BEST granted a surety for the repayment of the liabilities of the other borrowers, and established the following collaterals for the bank s claims: a registered pledge on 26,277,373 series E investment certificates of up to PLN 36 million, a blank bill of exchange, an aval for the blank bills of exchange issued by BEST Capital FIZAN, BEST I NSFIZ and BEST II NSFIZ, and a statement on submission to enforcement proceedin gs. By the balance sheet date, the full loan was used by BEST Capital FIZAN, which made regular repayments for that liability. V.10. OPERATING LEASE AGREEMENTS ACCOUNTING POLICY A lease under which a major portion of risks and benefits from the possession remains with the lessor is operating lease. In particular, we classify rent agreements for office and storage space, and for parking places as operating lease agreements. Using the straight line method, we recognise benefits from special promotional offers as a decrease of the costs of fees for using the object of lease. Value of minimum payments under irrevocable agreements: up to 1 year 1, to 5 years 4, Total 6,391 1,467 18

19 V.11. EQUITY AND EQUITY MANAGEMENT ACCOUNTING POLICY We recognise equity in the accounting books, broken down by type and according to the principles defined by law and statute. Share capital is disclosed in the nominal value, in an amount consistent with our statute and the entry into the National Court Register, following adjustments to account for hyperinflation. Called-up unpaid capital contributions are recognised as called-up capital. Share premium is supplementary capital from the surplus on the issue of shares above their nominal value. Other reserve capitals are capitals on account of other items, including in particular: from the surplus of the measurement of financial assets available for sale, in connection with the measurement of incentive schemes based on equity instruments, from actuarial profit and loss in connection with provisions created for employee benefits on account of retirement and disability benefits. Retained profit/loss includes profits/losses from previous years which were allocated to supplementary capital or to cover profits from subsequent years, and the result of the current reporting period. Share capital 22,328 20,966 Share premium 40,628 5,494 Other reserve capitals 2,482 1,177 Retained profits 120, ,423 current result (54,994) 69,911 previous years result 175, ,607 settlement of the merger with subsidiaries 0 (95) Total equity 185, ,060 V Share capital and share premium movements 01/01/2016 Opening balance: 26,460 Share capital 20,966 Share premium 5,494 Increase due to issue of series D shares 36,496 Share capital nominal value of shares issued 1,362 Share premium: 35,134 surplus of issue price over nominal price 35,138 costs of share capital increase (4) Closing balance, including: 62,956 Share capital 22,328 Share premium 40,628 19

20 In March 2016, we increased the share capital from PLN 20,853,220 to PLN 22,216,177 by issuing 1,362,957 series D ordinary bearer shares with an issue price of PLN per share. The shares were acquired for cash by the Members of BEST s Management Board. For details, see note V Share capital structure and shareholding of BEST Authorised share capital 22,216 20,854 Hyperinflation adjustment Total share capital 22,328 20,966 BEST s shareholders as of 31 December 2016: Shareholders: BEST s management and supervisory personnel: Number of shares held Share of shares held in the share capital (%) Number of votes vested with shares held Share of votes held in the total number of votes at the GSM (%) Krzysztof Borusowski* 18,429,840 82,96 25,149, Marek Kucner 3,213,353 14,46 3,213, Barbara Rudziks 53,216 0,24 53, Other shareholders 519,768 2,34 519, Total 22,216, ,936, * of which 1,680 registered shares with a 5:1 voting preference BEST s shareholders as of 31 December 2015: Shareholders: BEST s management and supervisory personnel: Number of shares held Share of shares held in the share capital (%) Number of votes vested with shares held Share of votes held in the total number of votes at the GSM (%) Krzysztof Borusowski* 17,160,236 82,29 23,880, Marek Kucner 3,120,000 14,96 3,120, Barbara Rudziks 53,216 0,26 53, Other shareholders 519,768 2,49 519, Total 20,853, ,573, * of which 1,680 registered shares with a 5:1 voting preference 20

21 V Capital management We manage our capital in such a way so as to achieve our business goals and ensure a sustainable growth of BEST Group s value. Our main goal in the coming years is to fully use the potential of BEST, our subsidiaries and jointly controlled entities to increase BEST Group s value. One very important element in capital management is managing BEST Group s debt ratios. Net financial debt / Equity Full net financial debt less Investment surplus / Full cash EBITDA Net debt / Financial assets permitted value % 75% actual value* % 56% * based on consolidated data In the event that the above ratios are exceeded, our bondholders may demand an early redemption of our bonds or the loan agreements of the Group companies may be violated. the date of these financial statements, such covenants were not violated. We manage those ratios at the level of the consolidated results. For more information on the ratios, see note to the consolidated financial statements of BEST Group for V.12. INCENTIVE PROGRAMMES ACCOUNTING POLICY Currently, we run incentive programmes for the Members of the Management Board which, according to IFRS 2 Share-based Payment, meet the definition of: share-based payments settled with equity instruments, or share-based payments settled with cash. Share-based payments settled with equity instruments Share-based payments settled with equity instruments include incentive programmes for the Members of the Management Board based on share options or subscription warrants which, upon the programme s realisation, entitle the holder to settle considerations and services with BEST s shares. The fair value of services provided by BEST s Management Board in exchange for such instruments is recognised as the cost of remuneration and reserve capital respectively. The amount of share-based payments is measured using the indirect method, i.e. by recognising the awarded equity instruments at fair value. Share-based payments settled with cash Share-based payments settled with cash include incentive programmes for the Members of the Management Board based on phantom shares which, upon the programme s realisation, entitle the holder to settle considerations and services in cash. The fair value of the liability due to granting phantom shares is recognised as the costs of remunerations and liabilities respectively. The amount of share-based payments is measured using the indirect method, i.e. by recognising it in the fair value of the liability. MATERIAL ESTIMATES The fair value of the awarded equity instruments is estimated based on the Black- Scholes-Merton model. On each reporting date, we verify previous estimates regarding the measurement of incentive programmes. The influence of a possible change in previous estimates is recognised in the statement of comprehensive income as the costs of remunerations, corresponding to the reserve capital. The fair value of the liability due to the programme settled with phantom shares is estimated based on the programme's value and according to its terms. By the time the liability is settled, at the end of each reporting period and on the settlement date, we measure the liability at the fair value and recognise any differences in the costs of remunerations. 21

22 Measurement of the incentive programme settled with subscription warrants, recognised in reserve capitals: 2,697 1,365 charged to the costs of remunerations for the current period 1,332 1,365 charged to the costs of remunerations for previous periods 1,365 0 Measurement of the incentive programme settled with phantom shares, recognised in liabilities: 1,160 0 charged to the costs of remunerations for the current period 1,160 0 Total 3,857 1,365 Programmes settled with subscription warrants Programme I Award date 16/12/2015 Entitled persons Modification of the programme in the reporting period and its effect on the programme s measurement Members of BEST s Management Board Krzysztof Borusowski Marek Kucner Barbara Rudziks In particular, the modification involved the following: change of the number of warrants and grouping into tranches: A for 2015: up to 108 thousand B1 for 2016: up to 210 thousand (previously: 180 thousand) B2 for 2017: up to 210 thousand (previously: 180 thousand) B3 for 2018: up to 210 thousand (previously: 180 thousand) change of the exercise price for tranche B from PLN 1 to PLN per share The modification did not result in a change of the estimate value of the programme. The programme s value could have changed only as a result of an increase of the programme s fair value after the modification. Given that the value of the modified programme is lower than the value of the original programme as of the modification date, that change is not accounted for according to IFRS 2. Entitlement conditions Fulfilment of the respective KPI percentage level specified separately for (the KPI for have not yet been specified), as confirmed by the Supervisory Board based on audited financial statements and other documents. The Supervisory Board may adjust the KPI for any extraordinary and one-time events. If the fulfilment of the KPI is below 85%, no warrants will be granted for a given period (the warrants are transferred to a reserve to be used in the next programme period). Continuity of employment Entitlement period From 16/12/2015 to: for tranche A: 12 months from the date when the KPI fulfilment for 2015 is confirmed (the KPI fulfilment was confirmed in March 2016) for tranche B: 12 months from the date when the KPI fulfilment for 2018 is confirmed or a resolution is adopted on not awarding the tranche B3 warrants (the KPI fulfilment will be confirmed in 2019, once the financial statements for 2018 have been audited by a statutory auditor) Max. life for tranche A: until 31/12/2017 for tranche B: until 31/12/2020 Programme settlement method The programme will be settled by exercising a warrant at a price specified in the terms of the programme. 22

23 Programme II Award date 02/11/2016 Entitled persons Jacek Zawadzki Member of the Management Board Entitlement conditions Fulfilment of the respective KPI percentage level specified separately for (the KPI for have not yet been specified), as confirmed by the Supervisory Board based on audited financial statements and other documents. The Supervisory Board may adjust the KPI for any extraordinary and one-time events. If the fulfilment of the KPI is below 85%, no warrants will be granted for a given period (the warrants are transferred to a reserve to be used in the next programme period). Continuity of employment Entitlement period Max. life until 31/12/2020 Programme settlement method From 02/11/2016 to the expiry of a 12-month period from the date when the KPI fulfilment for 2018 is confirmed or a resolution is adopted on not awarding the tranche C3 warrants (the KPI fulfilment will be confirmed in 2019, once the financial statements for 2018 have been audited by a statutory auditor) The programme will be settled by exercising a warrant at a price specified in the terms of the programme. Number of warrants (in thousands) Warrants at the beginning of the period (01/01/2016) 648 Change during the period as a result of the modification of Programme I (decrease) (540) increase 630 Change in the period new Programme II 30 Warrants remaining at the end of the period () 768 Warrants exercisable at the end of the period ()* 0 * At the end of the period, there are warrants awarded for the KPI fulfilment for 2015, but they cannot be exercised on that date due to the required holding period. No warrants expired or were exercised in the reporting period. In connection with the KPI fulfilment for 2015, in March 2016 we offered to the entitled persons the acquisition of a total of 108 thousand series A subscription warrants. All offers were accepted. Therefore, a total of 108 thousand serie s A subscription warrants were issued and acquired, vested with the right to acquire 108 thousand series C shares with a nominal value of PLN 1 each. Every entitled manager acqu ired 36 thousand warrants. In the following years, the issue of a total of 630 thousand series B subscription warrants is planned as part of Programme I, vested with the right to acquire series E shares for an issue price of PLN per share, while Programme II provides for the issue of a total of 30 thousand series C subscription warrants, vested with the right to acquire series F shares for an issue price of PLN per share. Input data for the measurement model Programme I market value of shares PLN exercise price PLN 1 annual risk-free interest rate 2.19% share price fluctuation 71.2% duration of options in years 5.05 max. number of warrants as of the award date 648 thousand max. value per warrant as of the award date PLN Programme modification in 2016: max. number of warrants 738 thousand exercise price for tranche B PLN max. value per warrant after the modification* PLN weighted average exercise price per warrant after the modification PLN * Since the maximum value of a single warrant following the modification is lower than on the granting date, the modification does not change the value of the whole programme estimated based on the data as of the award date in

24 Input data for the measurement model Programme II market value of shares PLN exercise price PLN annual risk-free interest rate 2.50% share price fluctuation 58.1% duration of options in years 4.16 max. number of warrants as of the award date 30 thousand max. value per warrant as of the award date PLN weighted average exercise price per warrant PLN In the measurement models for Programmes I and II: The share price fluctuation has been calculated based on the prices of our shares from 22 May 2015 (i.e. the day when BEST joined the Liquidity Support Programme and switched from double fixing to continuous trading) to the day preceding the programme award date. The dividend is not accounted for because we are not planning to pay a dividend due to a liability resulting from the terms of issue of our bonds. Programme realised with phantom shares Award date 21/03/2016 Entitled persons Members of BEST s Management Board Entitlement conditions Fulfilment of the KPI specified separately for (the KPI for have not yet been specified), as confirmed by the Supervisory Board based on audited financial statements. The Supervisory Board may adjust the KPI for any extraordinary and one-time events. Continuity of employment Entitlement period Max. life Programme settlement method From 21 March 2016 to the end of the holding period, which is 6 months from the day when an offer to purchase the phantom shares was accepted. Offers to purchase phantom shares for each financial year of the programme will be made to the Management Board Members based on a resolution of the Supervisory Board on awarding phantom shares, once the KPI fulfilment for a given year has been verified based on data from the audited financial statements. Any phantom shares under which an entitled person fails to exercise their right to receive a monetary consideration expire upon the Supervisory Board s resolution on awarding phantom shares for the next financial year. The phantom shares awarded for each financial year entitle the holder to receive a phantom consideration after the expiry of the holding period. The phantom consideration will be determined by multiplying the awarded phantom shares and the price of BEST s shares, representing the arithmetical average share price at the end of each trading day at GPW during the holding period. The value of the programme in each financial year will be calculated with the following formula: WP = [1% x (consolidated net profit of BEST Group + Full Cash EBITDA)] x 50%. The total number of phantom shares awarded to all programme participants in a given financial year of the programme is calculated by dividing the programme s value by the price of BEST s shares, representing the arithmetical average share price at the end of each trading day at GPW in the last three full months from the day when the Supervisory Board adopts a resolution verifying whether the share award conditions have been fulfilled, rounded down to the nearest integer. 24

25 V.13. TAXATION V Deferred tax assets and provisions ACCOUNTING POLICY In connection with temporary differences between the value of assets, and equity and liabilities disclosed in the accounting books and their tax value, and the tax loss deductible in the future, we create a provision and determine the amount of deferred income tax assets. Deferred income tax assets are determined in the amount of income tax recoverable in the future due to negative temporary differences, which in the future will result in reducing the income tax base and recoverable tax loss. Deferred income tax assets from negative temporary differences and unused tax losses are recognised only if it is possible that in the future there will be a taxation base sufficient enough to deduct such differences. A deferred income tax provision is created in the amount of income tax payable in the future due to positive temporary differences, i.e. differences which will result in an increase in the income tax base in the future. Deferred income tax assets and provisions are not discounted and are classified as non-current assets or long-term liabilities in the statement of financial position. The deferred income tax provision and assets are determined taking into account the income tax rate applicable in the year in which the tax obligation arises. the reporting date, we verify and revaluate the amount of the recognised assets and provisions. At the time of the verification, we also assess the possibility of realising previously non-recognised deferred tax assets, and recognising the previously non-recognised deferred tax asset to the extent to which it is likely that the future taxable income will allow the deferred income tax asset to be realised. When presenting the deferred income tax, we offset deferred income tax assets against deferred income tax provisions only if: we hold an enforceable legal title for the offsetting, the deferred tax assets and provisions pertain to income tax imposed by the same tax authority. MATERIAL JUDGMENTS 31 December 2016, we did not recognise a deferred tax asset on a portion of the tax loss for 2015 and on the full tax loss for 2016 because of the uncertainty of estimates concerning the amount of future taxable income that will allow us to realise negative temporary differences. The potential asset on that account amounts to PLN 28,954 thousand. Deferred tax assets, including: 10,678 10,417 Deferred tax assets subject to offsetting 10,678 10,417 Deferred income tax provision, including: 4,991 2,727 Deferred tax provision subject to offsetting 3,263 2,033 Deferred tax provision not subject to offsetting 1, Deferred tax assets after offsetting 7,415 8,384 Deferred tax provision after offsetting 1,

26 Deferred tax assets before offsetting: tax losses provisions liabilities due to employee benefits Temporary negative difference on account of: liabilities, except trade liabilities receivables other items Total 01/01/2016 9, ,417 Increases , ,029 Decreases 0 0 1, ,768 9, ,678 01/01/2015 5, ,495 Increases 4, , ,026 Decreases ,104 9, ,417 Tax loss asset: Year in which a tax loss was incurred Value of the tax loss for which an asset has been recognised Value of the tax loss asset Tax loss expiry date , /12/ ,831 4,908 31/12/ ,013 4,562 31/12/2020 The possibility to settle non-capitalised tax losses for 2015 of PLN 77,663 thousand and for 2016 of PLN 74,725 thousand expires in 2020 and 2021 respectively. Deferred tax provision before offsetting: PP&E and intangible assets receivables from bonds other receivables investment certificates and interests Temporary positive difference on account of: investment property financial liabilities and assets financed with them 01/01/2016 1, ,727 Increases 2, ,233 3,434 Decreases ,100 1,170 4, ,991 01/01/ , ,129 Increases 1, , ,416 Decreases , ,818 () 1, ,727 Total 26

27 V Income tax ACCOUNTING POLICY Corporate income tax includes: current portion representing our actual obligation, measured for the amounts expected to be paid to tax authorities using tax rates and tax law legally binding as of the reporting date, deferred portion representing the difference between a change in the balance of deferred income tax provisions and assets. The deferred portion of the income tax pertaining to operations settled through capital is recognised in other net comprehensive income. Income tax in the statement of comprehensive income: 01/01/ /01/2015 Current income tax 0 0 Deferred income tax 2,010 (3,669) Total 2,010 (3,669) Total deferred income tax: 01/01/ /01/2015 Tax on negative temporary differences: (244) (365) occurred in the period (2,013) (1,469) reversed in the period 1,769 1,104 Tax on positive temporary differences: 2,264 (13,403) occurred in the period 3,434 18,416 reversed in the period (1,170) (31,819) Total tax on temporary differences 2,020 (13,768) Tax on temporary differences from tax loss (16) (4,557) settled in the period 0 0 asset recognised (16) (4,557) Total deferred tax recognised in profit or loss 2,010 (3,669) Total deferred tax recognised in reserve capital (6) (14,656) 27

28 Reconciliation between the effective rate and the statutory tax rate applicable in Poland: 01/01/ /01/2015 Gross profit (loss) before tax (52,984) 66,242 Tax on gross result at the statutory tax rate applicable in Poland (19%) (10,068) 12,587 Tax effect of permanent differences, including on account of: 12,083 (15,990) dividends received 0 (410) tax costs not recognised in the result (14,756) (14,756) non-capitalised tax losses 14,198 14,756 impairment loss on associate 12,272 0 contributions made 0 (15,945) other differences Adjustment of temporary differences from previous years (5) (13) Settlement of the combination of subsidiaries non-taxable result 0 (253) Income tax recognised in profit or loss 2,010 (3,669) Effective tax rate (4%) (6%) V.14. PP&E AND INTANGIBLE ASSETS Property, plant and equipment Expenditures on SIGMA Other intangible assets 01/01/2016 7,850 6,774 5,156 19,780 Purchases 5,840-2,652 8,492 Capitalised costs of software developed with own work - 8,770 (43) 8,727 Liquidations (144) - - (144) Accumulated depreciation/amortisation (2,678) - (1,312) (3,990) 10,868 15,544 6,453 32,865 In 2014, the Management Board of BEST decided to start the development of SIGMA, a proprietary, integrated management and debt servicing system. In December 2016, the system was successfully tested, and in early January 2017 it was finally commissioned to use for 10 years. Total 28

29 V Property, plant and equipment ACCOUNTING POLICY In property, plant and equipment, we classify tangible assets which fulfil the following criteria: They are held to be used for administrative purposes, in the process of providing services, to be released to other entities on the basis of a lease agreement. They will be used for a period longer than one year. Property, plant and equipment include: real property i.e. own land, buildings, premises representing a separate property (other than those kept for investment purposes), plant and machinery, vehicles and other movable tangible assets, improvements in third party tangible assets, tangible assets under construction and not commissioned to use. In property, plant and equipment, we also classify system software which allows equipment to operate and the value of a unique utility supporting the management of the operation of equipment, purchased together with such equipment, if the licence terms for that software prevent it from being used with other equipment. The initial value of property, plant and equipment is its purchase price or manufacturing costs increased by costs related to their adaptation to use incurred by the date of commissioning for use. Borrowing costs related directly to the purchase or manufacturing of the adapted asset constitute an element of the purchase price or manufacturing cost of a tangible asset. The initial value of property, plant and equipment is increased by the costs of replacement of their main components and the improvement resulting in increasing their value in use. The costs of renovation, service and maintenance are recognised as costs of the period in the statement of comprehensive income. the reporting date, property, plant and equipment is disclosed in the statement of financial position in their purchase price or manufacturing costs, less depreciation and the total sum of impairment losses. PP&E (except for land, which is not depreciated) are depreciated in accordance with the determined plan, by applying the straight-line method throughout the useful economic life, taking into consideration the residual value. Depreciation/amortisation begins in the month in which an asset is commissioned to use and ends not later than when the value of depreciation and write-offs equals its initial value, it is designated for liquidation, sale or when a shortage is identified. Low-value PP&E items with an initial value not exceeding PLN 500 are charged to the costs of activities on a one time basis, in the month of their commissioning to use, and are not included in the records of property, plant and equipment. Property, plant and equipment under construction or not commissioned to use are disclosed at the purchase price or the manufacturing cost, and are not depreciated until the completion of construction and the commissioning to use. An item of PP&E can be derecognised from the statement of financial position once it is sold or when no economic benefits are expected from further use of such an asset. All profits or losses resulting from the derecognition of a tangible asset from the balance sheet are recognised in the statement of comprehensive income in the period in which the derecognition took place. PP&E used under finance lease agreements The principles of amortising/depreciating assets subject to finance lease and the principles of recognising impairment losses on assets under finance lease are consistent with the principles applied for assets owned by BEST. These assets are amortised/depreciated throughout the estimated period of use, taking into consideration their residual value. MATERIAL ESTIMATES The estimated useful economic lives of property, plant and equipment are between 2 and 15 years, including in particular: investments in third party tangible assets 5-15 years, plant and machinery 3-10 years, other tangible assets, including: 2-15 years, furniture: 15 years, company cars: 5 years. The periods of use of property, plant and equipment are verified on an annual basis and are subject to change if the currently estimated periods of use are other than previously projected. Each year, we verify the adopted residual values of property, plant and equipment. The abovementioned changes in estimates are recognised prospectively. 29

30 Buildings and structures 1,745 1,089 Technical equipment and machines 6,591 4,721 Means of transport, including: 1,480 1,306 cars under finance lease secured with blank bills of exchange Other PP&E PP&E under construction Total 10,868 7,850 Property, plant and equipment movements in the period: INITIAL VALUE Buildings and structures Technical equipment Means of transport Other PP&E PP&E under construction 01/01/2016 6,776 10,440 1,751 1, ,758 Increases 1,112 3, ,406 9,615 Decreases 2, ,775 7,003 5,844 13,444 1,996 1, ,370 01/01/2015 6,755 10,273 1,163 1, ,509 Increases ,393 3,295 Decreases ,046 6,776 10,440 1,751 1, ,758 Total ACCUMULATED DEPRECIATION/AMORTISATION 01/01/2016 5,687 5, , ,908 Increases 456 1, ,678 Decreases 2, ,084 4,099 6, , ,502 01/01/2015 5,129 5, , ,591 Increases 558 1, ,195 Decreases ,687 5, , ,908 NET VALUE 1,745 6,591 1, ,868 1,089 4,721 1, ,850 30

31 V Intangible assets ACCOUNTING POLICY In intangible assets, we classify assets which do not have a physical form and fulfil the following criteria: They can be separated from the entity and sold, transferred, licensed or provided for paid use to other entities. They result from contracts or other legal titles. Intangible assets include primarily: licences for computer software, costs of development works, intangible assets not commissioned to use, other intangible assets. We do not include in intangible assets system software which allows equipment to operate and the value of a unique utility supporting the management of the operation of equipment, purchased together with such equipment, if the licence terms for that software prevent it from being used with other equipment. The initial value of the purchased intangible assets is their purchase price plus costs related to preparing them for use (implementation costs) and borrowing costs directly related with the acquisition of intangible assets, incurred by the date of commissioning to use. The purchase price of intangible assets is increased in particular by the value of non-deductible VAT included in the price of the purchased intangible assets or in the price of services related to the purchase. Except for the costs of development works which fulfil the criteria of capitalisation, other intangible assets developed by us are not capitalised but are recognised in the financial result in the period in which these costs were borne. An intangible asset arising from development works is recognised only if the entity can demonstrate: that it is technically capable of completing the intangible asset so that it can be sold or used, that it intends to complete the intangible asset as well as to use it or sell it, that it is able to use or sell the intangible asset, the manner in which the intangible asset will generate probable future economic benefits, the availability of adequate technical, financial and other resources which serve to complete the development works and to use or sell the intangible asset, the ability to reliably measure expenditures incurred during the development works that can be attributed to that intangible asset. The costs of development works of a given intangible asset are the sum of expenditures incurred after the date when that intangible asset representing development works for the first time met the criteria for recognition. These costs are primarily social security contributions of employees involved in the implemented project and the costs of external services related to the development of the intangible asset. By the end of the development works and the decision regarding the commissioning to use, capitalised costs of development works are recognised as intangible assets under development and are not amortised. They are annually subject to obligatory impairment tests. Expenditures on research are recognised as a cost when incurred. All expenditures we have incurred to maintain and service computer software are recognised in the statement of comprehensive income when incurred. Intangible assets are amortised based on an amortisation plan, using the straight-line method throughout their useful economic life. Depreciation/amortisation begins in the month in which an asset is commissioned to use and ends not later than when the value of depreciation and write-offs equals its initial value, it is designated for liquidation, sale or when a shortage is identified. The basis for the calculation of amortisation is the initial value less residual value. It is assumed that the residual value of intangible assets equals zero, with possible exceptions for specific cases. Low-value intangible assets with an initial value not exceeding PLN 500 are charged to the costs of activities on a one-time basis, in the month of their commissioning to use. MATERIAL ESTIMATES The estimated useful economic lives of intangible assets range from 3 to 10 years, in particular: licences for standard computer software: 5 years, integrated SIGMA system: 10 years. Periods of use of intangible assets are verified on an annual basis and are subject to change if the currently estimated periods of use are other than previously projected. The abovementioned changes in estimates are recognised prospectively. 31

32 Intangible assets commissioned to use 4,769 4,085 Capitalised costs of development works SIGMA 15,544 6,774 Intangible assets not commissioned to use 1,684 1,071 Total 21,997 11,930 Capitalised costs of development works represent the expenditures on SIGMA, a new operating system to support the claims management process. SIGMA was commissioned to use in January Intangible assets movements in the period: INITIAL VALUE Intangible assets commissioned to use Capitalised costs of development works SIGMA Intangible assets not commissioned to use 01/01/2016 7,115 6,774 1,071 14,960 Increases 2,039 8,770 1,569 12,378 Decreases ,154 15,544 1,684 26,382 01/01/2015 4,460 2, ,920 Increases 2,655 3,939 1,833 8,427 Decreases 0 0 1,387 1,387 7,115 6,774 1,071 14,960 Total ACCUMULATED DEPRECIATION/AMORTISATION 01/01/2016 3, ,030 Increases 1, ,335 Decreases , ,385 01/01/2015 2, ,153 Increases Decreases , ,030 NET VALUE 4,769 15,544 1,684 21,997 4,085 6,774 1,071 11,930 32

33 V.15. NOTES TO THE STATEMENT OF COMPREHENSIVE INCOME V Operating revenue ACCOUNTING POLICY Operating revenue includes revenue from core operations and other operating activities. Revenue from core operations includes primarily amounts due from clients from the sale of services, less the applicable VAT. Statutory revenue from the sale of services includes mainly fees for: managing claims of investment funds, commissioned collection, administrative and office services, maintaining accounting books and sublease of office space. In addition, our revenue from core operations includes profits from investments in claims, in particular profits from the sale or redemption of investment certificates (indirect investments in claims) as well as from the repayment or sale of the acquired claims (direct investments in claims). Other operating revenue Other operating revenue are mainly amounts due from services provided outside of our core operations, the value of reversed write-downs on receivables, profit from the sale of non-current assets, penalty payments received, subsidies, revenue from the balance sheet measurement and sale of investment property. 01/01/ /01/2015 Revenue from core operations 88, ,923 Other operating revenue Total 89, ,258 Revenue from core operations: 01/01/ /01/2015 Management of claims of securitisation funds 36,370 29,265 Profit from investment certificates and sale of claims, including: 49,834 84,123 Profit from certificates, including: 49,552 84,115 (1) profit from the redemption of the certificates of BEST II NSFIZ (2) contribution of the certificates of BEST II NSFIZ and BEST III NSFIZ 0 83,923 (a) value of shares acquired in exchange for the contribution 0 116,850 (b) purchase cost of contributed certificates 0 (32,927) (3) yield payout from BEST Capital FIZAN 49,552 0 Profit on sale of claims Commissioned collection 1,871 1,995 Other Total 88, ,923 Currently, we operate only in the territory of Poland and do not generate any revenue abroad. Our core operations are not cyclical or seasonal in nature. 33

34 V Operating expenses ACCOUNTING POLICY Operating expenses include costs by type related to our services, enforcing of the acquired claims and other operating expenses. Operating expenses are presented as follows: payroll and employee benefits, depreciation/amortisation, third-party services, taxes and charges, other operating expenses. In particular, other operating expenses include costs incurred due to: consumption of materials and energy, business trips, representation, advertising, insurance, losses on the sale of non-current assets, value of liquidated assets, shortages of non-current assets, donations made, the value of write-downs on receivables, contractual penalties, fines, damages, results of the balance sheet measurement of investment property and the value of investment property sold. In 2016, our operating expenses amounted to PLN 55.7 million, up by PLN 17.5 million (46%) over the previous year. The largest increase in terms of value is a result of increased costs of remunerations and benefits for the employees. Payroll and employee benefits: 01/01/ /01/2015 Payroll, including: 26,574 19,389 current remuneration for the Members of the Management Board and the Supervisory Board 2,729 1,733 costs of incentive programmes 2,492 1,365 Social security contributions 3,996 3,001 Employee benefits 1, Total 31,593 23,300 The increase in the costs of employment is a result of higher costs of labour, but also a higher number of employees. Number of employees: White-collar workers Blue-collar workers 8 7 Total

35 V Financial revenue ACCOUNTING POLICY Financial revenue is revenue due from financial operations, in particular due to: the result on the sale of interests, shares and other securities, dividends received, bank interest receivable, interest receivable on borrowings granted, the surplus of FX gains over FX losses and the reversal of impairment losses on financial assets. 01/01/ /01/2015 Measurement of financial receivables at amortised cost Interest on deposits Dividends and profit sharing 0 2,211 Profit from the liquidation of BEST Capital Ltd., based in Cyprus 94 0 Other 2 1 Total 420 3,096 V Financial expenses ACCOUNTING POLICY Financial expenses are the incurred costs of financial operations, in particular: interest, commissions and discounts due to financial liabilities, losses on the sale of interests, shares and other securities, costs of the impairment of financial assets such as shares, interests and other securities, the surplus of FX losses over FX gains, losses on profit sharing in partnerships and dividends returned. 01/01/ /01/2015 Measurement of financial liabilities at amortised cost 22,076 14,900 Impairment loss on investment in Kredyt Inkaso 64,589 0 Other Total 86,767 14,902 35

36 V Earnings (losses) per share ACCOUNTING POLICY Earnings (losses) per share amount to a net profit (loss) divided by the weighted average number of shares. Diluted earnings (losses) per share for each period are calculated by dividing net earnings (losses) for a given period by the projected weighted average number of shares. The weighted average number of diluting shares takes into account the diluting effect related to incentive programmes settled with equity instruments which are convertible into BEST s shares. 01/01/ /01/2015 Net profit (loss) (54,994) 69,911 Weighted average number of ordinary shares (in thousands) 21,915 20,853 Weighted average number of diluting shares (in thousands) 89 0 Basic earnings (losses) per share (in PLN/share) (2.51) 3.35 Diluted earnings (losses) per share (in PLN/share) (2.50) 3.35 V.16. NOTES TO THE CASH FLOW STATEMENT ACCOUNTING POLICY We present our cash flow statement using the indirect method. Considering that our core business also involves investing in claims by purchasing investment certificates or by acquisitions, the inflows and expenditures related to such investments and their implementation are disclosed in the operating cash flows. V Impairment of financial assets 01/01/ /01/2015 Impairment loss on Kredyt Inkaso charged to financial expenses 64,589 0 For more information on the write-down on Kredyt Inkaso, see note V Movement in investments in claims 01/01/ /01/2015 Movement in investments in funds which invest in claims (130,000) (79,675) Movement in investments in interests and shares of entities which invest in claims 2 (171,518) Settlement of the merger with subsidiaries Total In 2016, we acquired for cash the investment certificates of BEST Capital FIZAN with a value of PLN 130,000 thousand. (129,998) (251,083) 36

37 V.17. FINANCIAL INSTRUMENTS ACCOUNTING POLICY Financial instruments are grouped into the following categories: financial assets available for sale, financial assets or liabilities measured at fair value through profit/loss, investments held to maturity, borrowings and receivables, financial liabilities measured at amortised cost. Currently, we hold financial instruments classified as borrowings and receivables, and financial liabilities measured at the amortised costs. Borrowings and receivables In this category, we include: borrowings granted, trade receivables, other receivables, cash and cash equivalents. Borrowings granted Borrowings granted are recognised in the statement of financial position upon the payout of the funds to the borrower. Upon initial recognition in the accounting books, they are measured at fair value increased by transaction costs which may be directly attributed to a given financial asset. In subsequent periods, receivables from borrowings are measured at the amortised cost with the use of the effective interest rate. Trade and other receivables Trade and other receivables are initially recognised at the fair value. After initial recognition, these receivables are measured at the amortised cost, using the effective interest rate, taking into account impairment losses. Trade receivables maturing in less than 12 months from the date when the receivable arises are not discounted. Cash and cash equivalents Cash disclosed in the statement of financial position includes cash in bank and cash in hand, short-term deposits with an original maturity of up to 3 months, and cash equivalents held as of the balance sheet date. Financial liabilities measured at amortised cost Financial liabilities are recognised on the date when a transaction is concluded. In this category, we include: Financial liabilities due to interest These are liabilities due to loans, borrowings, bonds and leases. Upon initial recognition, they are measured at the fair value, less transaction costs incurred upon the purchase (primarily commissions and interest paid in advance). In subsequent periods, the measurement is performed at the amortised cost. Trade liabilities These are trade liabilities and other financial liabilities. Upon initial recognition, they are measured at the fair value. In subsequent periods, the measurement is performed at the amortised cost. We apply simplified methods of measuring liabilities if this does not cause a distortion of information included in the financial statements. In particular, short-term liabilities are measured upon initial recognition and in the subsequent periods in the amount payable. V Financial instruments by category (carrying values) Financial assets 12,721 36,657 Financial assets held for sale 0 1 Borrowings and receivables, including: 12,721 36,656 borrowings granted and receivables 2,034 15,326 cash and cash equivalents 10,687 21,330 Financial liabilities measured at amortised cost: 428, ,311 Financial trade liabilities 3,851 3,279 Financial liabilities due to interest 425, ,032 Currently, we do not hold any financial instruments which qualify for measurement at the fair value. All financial instruments are measured at the amortised cost. 37

38 V Revenues, expenses, profit and loss items recognised in the statement of comprehensive income, broken down into categories of financial instruments For the year ended 31 December 2016 liabilities measured at amortised cost assets available for sale Financial liabilities/assets borrowings and receivables Interest revenues/(expenses) (22,076) (21,752) Foreign exchange gains/losses (12) (12) (Creation)/reversal of write-downs - - (21) - (21) Profit/(loss) on fair value measurement and realisation (sale, redemption, buyback, exchange) cash Total Total (22,088) (21,504) For the year ended 31 December 2015 () liabilities measured at amortised cost assets available for sale Financial liabilities/assets borrowings and receivables Interest revenues/(expenses) (14,900) (14,016) Foreign exchange gains/losses (2) (2) (Creation)/reversal of write-downs Profit/(loss) on fair value measurement and realisation (sale, redemption, buyback, exchange) cash Total - 75, ,179 Total (14,902) 75, ,169 38

39 V Comparison of the fair value and the carrying value of financial instruments not measured at fair value Fair value Carrying value Fair value Carrying value Financial liabilities due to bonds issue 391, , , ,526 Financial liabilities due to bonds issue, for balance sheet purposes, were measured at amortised cost, taking into account the incurred expenses directly related to the issue and the effective interest rate. The fair value of bonds quoted in an active market and comparable data was estimated on the basis of the transaction price as of the balance sheet date, plus interest accrued. The fair value of other unquoted bonds was estimated by discounting future cash flows with an interest rate taking account of the margin and WIBOR on the balance sheet date. The carrying amounts of other financial instruments approximate their fair values because they include short-term receivables and liabilities. V.18. FINANCIAL RISK ANALYSIS We are exposed to financial risks, including primarily: market risk, liquidity risk, credit risk. The following disclosures pertain in particular to financial instruments classified into the respective categories according to IAS 39 Financial Instruments. The risk analysis accounts for our investments in the investment certificates of our subsidiaries and the investment in our associate because those items make up more than 90% of our balance sheet total and are also exposed to financial risks. V Market risk FX risk Due to the fact that we hold only short-term foreign exchange liabilities and repay them regularly, the foreign exchange risk is not material. Interest rate risk Interest rate risk exposures include cash (deposits in bank) and financial liabilities due to interest. We analysed the sensitivity of those items to a change of base interest rates by 1 pp. The carrying value of individual items was assumed as value at risk. In the case of cash, we do not specifically hedge against interest rate risk because we use mainly short-term deposits maturing in less than 3 months. We do not deposit cash for investment purposes, but only in order to improve current liquidity, and therefore a change in base interest rates does not have a significant influence on our financial results. We do not specifically hedge against the risk of an increase in financial liabilities due to an increase in borrowing costs, but we constantly monitor any changes of interest rates in order to take appropriate actions in the event that they increase. We also issue bonds with a fixed interest rate, which are not exposed to the interest rate risk. The effect of a 1% increase in interest rates on the financial result and equity after tax for the above-mentioned category of financial assets and liabilities is presented below. The analysis excluded financial liabilities with a fixed interest rate which are not sensitive to changes of interest rates. Sensitivity analysis from the perspective of the effect on cash flows Carrying value as of Increase in interest rates by 1 pp Decrease in interest rates by 1 pp Cash and cash equivalents 10, (107) Financial liabilities due to interest sensitive to interest rate changes 338,631 (3,386) 3,386 Effect before tax (3,279) 3,279 Tax (19%) 623 (623) Effect after tax (2,656) 2,656 39

40 31 December 2016, the net profit and equity would have changed by PLN (2,656)/2,656 thousand respectively if the intere st rates used for measuring bank deposits and financial liabilities had been higher/lower by 1 pp. Other price risk Another market risk exposure is the investment in the associate Kredyt Inkaso. In 2015, we purchased 32.99% of its shares, with the prospect of acquiring control of and merging with that company. We did not achieve that goal, leading to the investment s value being adjusted to PLN 107,703 thousand at the end of It is a long-term investment. In the case of a demand for cash and if the decision concerning this investment is changed, it may be difficult to quickly sell these assets. V Liquidity risk The main liquidity risk exposures are financial liabilities incurred by us to finance investments. At present, we use financing in the form of bonds issue, borrowings, loans and leases. 31 December 2016, the total value of financial liabilities due to interest amounted to PLN 425,114 thousand. The Company s Management Board makes rational investment decisions, allowing punctual servicing of financial liabilities. Before making an investment, we estimate in detail the volumes and dates of expected inflows and expenditures on an investment, and adjust repayment dates and amounts accordingly. We regularly manage claims which are invested by investment funds, significantly facilitating the process of planning and controlling cash flows. In 2015, BEST Group s structure changed in such a way that the certificates of securitisation funds are assets held directly by BEST Capital FIZAN, and BEST holds, directly and indirectly, 100% of BEST Capital FIZAN s certificates. Financial liquidity is managed at the level of BEST Group. We have an option to recover the funds directly committed to a fund through the redemption of certificates or the disbursement of profit. In 2016, we generated cash from the payout of the yield from BEST Capital FIZAN of PLN 49.6 million. Presented below is the maturity structure of financial instruments (liabilities): Financial trade liabilities 3,851 3,279 Financial liabilities due to interest 425, ,032 Total 428, ,311 long-term (1 to 5 years) 368, ,215 short-term (up to 1 year) 60, ,096 Since we repay our liabilities on time, we do not expect any problems in that regard. In the event of a violation of the terms of the incurred liabilities due to interest on the issue of bonds, BEST s bondholders may demand an early repayment of liabilities, which could adversely affect our liquidity. To mitigate that risk, we regularly analyse our debt ratios and have implemented an investment strategy to maintain them at safe levels. 40

41 V Credit risk Our main credit risk exposures are investments in investment certificates, trade receivables, cash and the investment in Kredyt Inkaso. The main risk factors for the purchaser of the investment certificates of a securitisation fund are primarily: incorrect measurement of claims portfolios, in spite of best efforts, deterioration of the economic situation and the insolvency of debtors, uncertainty as to the future value of claims, low liquidity of investment certificates and the fund s deposits, risks related to the fund s environment (legal, economic, etc). We minimise the risk associated with investments in investment certificates by investing only in certificates issued by the investment funds which are managed by entities from BEST Group. As a result, the value of the purchased portfolio is assessed before investment certificates are purchased. Next, the whole process of servicing the portfolio is closely monitored for efficiency. A securitisation fund does not guarantee the performance of the assumed investment objective and its participants must take into account the possibility of losing at least some of the deposited funds. The individual rate of return on investment of each participant depends on the date of purchase and date of sale (redemption) of the investment certificates. Due to the fact that we currently invest in the investment certificates of a non-public assets fund whose main assets are the investment certificates of securitisation funds that are not admitted to trading on a regulated market, it may be the case that, if cash is required, it may be difficult to sell the investment certificates. In addition, due to the homogeneous nature of investments in investment funds, risk concentration is possible. Due to the dispersion of claims representing investments, risk concentration is significantly reduced. The main clients for our services are financial institutions: securitisation funds and banks, which have adequate capital at their disposal and are supervised by the Polish Financial Supervision Authority (PFSA). In addition, our remuneration depends on the amount of claims we have managed to recover for our clients, which means that we are able to provide funds for our own remuneration. However, we constantly monitor the repayment of receivables and adjust payment dates to the current financial situation. To improve our current liquidity, we invest and keep our cash on bank accounts and deposits, which is why we believe that the credit risk of such exposures is not material. When the value of cash increases, we diversify our risk by investing cash in various banks. The credit risk is also indirectly associated with the investment in Kredyt Inkaso due to the nature of that company s business (investing in claims portfolios). Financial assets exposed to risk concentration: Receivables from BEST I NSFIZ s bonds 0 11,864 BEST Capital FIZAN s investment certificates 457, ,366 Total 457, ,230 balance sheet total 624, ,812 % of assets in the balance sheet total 73% 59% The above table contains information on main financial assets exposed to risk concentration (assets related to the business o f BEST Group funds), including investments in the investment certificates of subsidiaries which are not classified as financial instruments according to IAS 39. V.19. TRANSACTIONS BETWEEN RELATED PARTIES V Information on remuneration for the members of the Management Board and the Supervisory Board of BEST Remunerations for the members of BEST s Management Board and Supervisory Board in 2016 and a year earlier: 01/01/ /01/2015 Management Board 2,499 1,588 Supervisory Board Total 2,729 1,733 In addition to their remuneration, the Management Board Members participate in the incentive programmes realised in subscription warrants and phantom shares, whose costs in the current period amount to PLN 1.3 million and PLN 1.2 million respectively. In 2016, in connection with the KPI fulfilment for 2015, as part of the incentive programme, BEST s Management Board Members Krzysztof Borusowski, Marek Kucner and Barbara Rudziks each acquired 36 thousand series A subscription warrants, each vested with the right to acquire one series C share of BEST for an issue price corresponding to the nominal value. The warrants for the subsequent years will be vested with the right to acquire series E and F shares of BEST for an issue price of PLN per share. 41

42 For details on the incentive programmes, see note V Information on the value of outstanding advances, loans, borrowings, guarantees and sureties granted to and agreements concluded with related persons (in particular managers and supervisors) In September 2015, we concluded borrowing agreements with two Management Board members in the total amount of PLN 73 million and an annual interest rate of 3.50%. In February 2016, we concluded addenda to the borrowing agreements, allowing a part of the principal amount to be repaid earlier. In March 2016, we repaid PLN 36.5 million, which accounts for half of the borrowings granted. In September 2016 and March 2017 (after the balance sheet date), we concluded further addenda to the borrowing agreements to extend the repayment deadline to the end of The interest due and paid on those borrowings in 2016 amounted to PLN 1.6 million. 31 December 2016, outstanding borrowings amounted to PLN 36.5 million. In the same period, we concluded agreements for the acquisition of series D shares of BEST with Members of the Management Board. The shares will be acquired at an issue price of PLN per share as follows: Number of shares acquired Share issue price (PLN/share) Total value of shares Krzysztof Borusowski 1,269, ,000 Marek Kucner 93, ,500 In the reporting period, the Management Board Members participating in the incentive programme settled with subscription warrants, in connection with the KPI performance for 2015, accepted offers to purchase a total of PLN 108 thousand series A subscription warrants. V Information on transactions with subsidiaries In connection with the settlement of our merger with subsidiaries, the balance of settlements and transactions does not include transactions with the acquired entities because they have been eliminated from the statements for the current period and the comparable period. Presented in the table below is our balance of settlements with subsidiaries as of 31 December 2016 and 31 December 2015: Mutual settlements BEST s receivables from: ,471 trade 558 1,604 bonds acquired 0 11,864 other settlements BEST s liabilities due to: trade other settlements

43 Transactions in 2016 and in the previous year between BEST and its subsidiaries: Mutual transactions 01/01/ /01/2015 BEST s revenue from: 71, ,536 trade 21,333 16,645 dividends and profit sharing 0 2,211 financial receivables profit on redemption of certificates profit on contribution of investment certificates 0 83,923 yield payout from BEST Capital FIZAN 49,552 0 profit on sale of claims BEST s costs due to: trade return of profit shares 72 0 loss on sale of a car 28 0 Other transactions: 141, ,566 borrowing granted 0 60 borrowings repaid 0 60 bonds acquisition 0 40,873 bonds redemption 11,866 38,723 purchase of investment certificates 130, ,850 V Information on transactions with other related parties Our settlements with other related parties as of 31 December 2016 and 31 December 2015: Mutual settlements Settlements with the jointly controlled entity BEST III NSFIZ: BEST s trade receivables BEST s liabilities 0 1 Settlements with the associate Kredyt Inkaso: BEST s receivables from the joint payment of the liability of Kredyt Inkaso (in connection with the 2015 merger plan) Our transactions with BEST III NSFIZ in 2016 and in the corresponding previous year: Mutual transactions 01/01/ /01/2015 BEST s trade revenue 15,351 12,832 43

44 V.20. INFORMATION ON PAID (OR DECLARED) DIVIDEND In the period from 1 January to 31 December 2016, BEST did not pay or declare the payment of a dividend. In addition, in the terms of issue, we undertook that we would not pay any dividend by 10 March 2020 and by 1 March 2021 in excess of 50% of the Group s consolidated net profit generated from 1 January 2018 to date. V.21. REMUNERATION FOR THE AUDITOR OF THE FINANCIAL STATEMENTS Remuneration for: Due or paid for 2016 Due or paid for 2015 audit of annual separate financial statements other certification services, including review of separate financial statements V.22. EVENTS AFTER THE BALANCE SHEET DATE At the beginning of 2017, as part of our second public bonds issue programme, we allotted series R2 and R3 bonds with a total nominal value of PLN 90 million to investors. Both series are 4.5-year bonds with a variable interest rate equal to WIBOR 3M, plus a 3.3% margin. Together with the issue in October 2016 as part of our second programme, we have already placed bonds worth PLN 140 million. Under the programme, the can issue an additional PLN 60 million worth of bonds. The events referred to above are associated with a long-term financial plan of the Group to acquire new claims portfolios. 44

45 These statements were prepared and approved for publishing on 11 April Krzysztof Borusowski President of the Management Board of BEST S.A. Marek Kucner Vice-President of the Management Board of BEST S.A. Barbara Rudziks Member of the Management Board of BEST S.A. Jacek Zawadzki Member of the Management Board of BEST S.A. Signature of the person entrusted with bookkeeping: Anna Rokita Chief Accountant of BEST S.A. 45

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