RAWLPLUG S.A. MANAGEMENT REPORT ON RAWLPLUG S.A.'S OPERATIONS FOR THE PERIOD 1 JANUARY - 31 DECEMBER 2016

Transcription

1 RAWLPLUG S.A. MANAGEMENT REPORT ON RAWLPLUG S.A.'S OPERATIONS FOR THE PERIOD 1 JANUARY - 31 DECEMBER 2016 Wrocław, 21 March 2017

2 CONTENTS 1. INFORMATION ABOUT THE COMPANY COMPANY OPERATIONS EQUITY TIES SHAREHOLDING STRUCTURE COMPANY AUTHORITIES MANAGEMENT BOARD SUPERVISORY BOARD SHARES HELD BY THE COMPANY'S MANAGEMENT BOARD OR SUPERVISORY BOARD MEMBERS TOTAL REMUNERATION AND PAY BONUSES PAID OR DUE TO BE PAID TO MANAGEMENT BOARD AND SUPERVISORY BOARD MEMBERS SHARE ISSUES INCENTIVE PROGRAMME CHANGES IN KEY MANAGEMENT PRINCIPLES INTERNAL AND EXTERNAL FACTORS SIGNIFICANT TO THE COMPANY'S DEVELOPMENT AND GROWTH PERSPECTIVES EXTERNAL FACTORS MACROECONOMIC SITUATION AND CONDITIONS IN THE CONSTRUCTION INDUSTRY EMPLOYMENT CONDITIONS AND PRICES OF PRODUCTS AND INTERMEDIATES IMPORTED FROM THE FAR EAST EXCHANGE RATES INTEREST RATES COMMODITY PRICES INTERNAL FACTORS SUSTAINABLE GROWTH STRATEGY GROWTH PERSPECTIVES GROWTH STRATEGY SEASONALITY OF SALES SUPPLY SOURCES INVESTMENTS AND R&D INVESTMENTS R&D PLANS FOR HUMAN RESOURCES RELATED-PARTY TRANSACTIONS INFORMATION ABOUT LOANS, SURETIES AND GUARANTEES GRANTED AND CREDIT FACILITIES RECEIVED INFORMATION ABOUT SURETIES AND GUARANTEES RECEIVED SIGNIFICANT AGREEMENTS INSURANCE AGREEMENTS CREDIT AGREEMENTS FINANCIAL RESULTS ASSET AND LIABILITY STRUCTURE REVENUE FROM SALES DOMESTIC SALES SALES IN FOREIGN MARKETS PRODUCT STRUCTURE OPERATING EXPENSES FINANCING ACTIVITIES /45

3 11.5. PROFITABILITY RATIOS LIQUIDITY RATIOS DEBT RATIOS PROGRESS VERSUS PREVIOUSLY PUBLISHED GUIDANCE FACTORS AND EXTRAORDINARY EVENTS HAVING AN IMPACT ON FINANCIAL RESULTS FINANCIAL MANAGEMENT FINANCIAL RISK MANAGEMENT EVENTS AFTER THE END OF THE REPORTING PERIOD ENTITY AUTHORISED TO AUDIT THE FINANCIAL STATEMENTS MATERIAL SETTLEMENTS RESULTING FROM COURT PROCEEDINGS STATEMENT ON APPLICATION OF CORPORATE GOVERNANCE STANDARDS Indication of the corporate governance standards to which the Issuer is subject, together with the location where the text concerning such principles is publicly available Information on the extent to which the Issuer diverged from the set of corporate governance standards, indication of those standards and reasons for their omission Description of the key features of the Issuer's internal control system and risk management system, as these relate to the process of preparing separate and consolidated financial statements Shareholders directly or indirectly holding significant stakes, together with the number of shares held by such entities, their share in capital, the number of votes carried by such shares and their share in the total number of votes at the general meeting Holders of securities with special control entitlements, together with description thereof Indication of any limitations relating to exercise of the right to vote, such as a limitation concerning exercise of voting rights by holders of a specified stake or number of votes, time limitations concerning exercise of voting rights - pursuant to which and with the Company's support the entitlements attached to securities are separated from ownership of such securities Indication of any limitations concerning transfer of securities ownership Description of principles concerning the appointment and dismissal of management personnel and their entitlements, in particular the right to make decisions on the issue or buyback of shares Description of the principles for amending the Company's articles of association Modus operandi of the general meeting, along with its main authorisations, a description of shareholder rights and the means of their exercise, in particular those resulting from the general meeting rules, if these were adopted, unless such information is not provided by the provisions of law Composition of the Issuer's Management Board, Supervisory Board, administrative authorities and their committees, along with changes over the past financial year /45

4 1. INFORMATION ABOUT THE COMPANY 1.1. COMPANY OPERATIONS RAWLPLUG S.A. ("Company") was registered on 20 December 1999 in division B of the commercial register under no Currently, the Company is registered under KRS number The Company was founded by: Krystyna Koelner, Przemysław Koelner and Radosław Koelner. The Company's main economic activities of are: design, manufacture and sale, mostly through wholesale distribution channels, of products from the following assortment groups: construction fixings, hand tools and power tools, screws and related accessories EQUITY TIES Entities comprising RAWLPLUG Group as at 31 December 2016: RAWLPLUG S.A. -> Koelner - Tworzywa Sztuczne Sp. z o.o % -> Koelner Polska Sp. z o. o % -> FPiN Wapienica Sp. z o.o % 3,83% > 71,62% > -> Farmlord Trading Ltd - 100% > Meadowfolk Holdings Ltd - 100% 24,55% Koelner Rawlplug IP Sp. z o.o % -> Koelner Łańcucka Fabryka > -> Rawlplug Ltd - 100% Śrub Sp. z o.o % -> Koelner Hungária Kft - 51% -> Koelner CZ s.r.o % -> Koelner Deutschland GmbH - 100% > Stahl GmbH - 100% -> Rawlplug Middle East FZE - 100% > Rawlplug Building and Construction Material Trading LLC - 100% -> Rawlplug Ireland Ltd - 100% > Rawlplug Ireland (Export) Ltd* - 100% -> Koelner Vilnius UAB - 100% -> Rawl France SAS - 100% -> Koelner Centrum Sp. z o.o. - 51% -> Rawl Scandinavia AB - 100% -> Koelner Slovakia s.r.o % -> Koelner Ltd - 100% -> Koelner-Ukraine LLC * - 60% -> Koelner Trading KLD LLC* - 100% -> Koelner - Inwestycje Budowlane Sp. z o.o.* - 100% 1 % -> Koelner Kazakhstan Ltd* - 70% 99% > Rawlplug Portugal LDA *-100% -> Rawl Africa (Pty) Ltd* - 100% -> Koelner Romania SRL (w upadłości) - 100%** * companies not subject to consolidation as of 31 December 2016 (in accordance with IAS 1 point 31) ** company excluded from consolidation as of 30 June 2014 due to loss of control. On 13 January 2017, a ruling by the District Court in Bucharest (Romania) regarding the completion of a bankruptcy proceeding with respect to Koelner Romania SRL (under liquidation) became binding. The company was removed from the register of companies. 4/45

5 On 13 May 2016, the dissolution of subsidiary Koelner-Ukraine LLC (Ukraine) was registered in connection with a merger with subsidiary LeoTex Ltd pursuant to a decision regarding merger of 7 December 2015 by the General Meeting of Koelner-Ukraine LLC. On 29 July 2016, an Extraordinary General Meeting of LeoTex Ltd adopted a decision to change the company's name without changing its legal form, and change the company's registered office. On 1 August 2016, the company was registered under its new name, Koelner-Ukraine LLC. On 28 August 2016, a judgment by the Commercial Court in Zagreb (Croatia) concerning removal of subsidiary Koelner d.o.o. from the trade register became final. Because this company was immaterial, it was not subject to consolidation. It had not been operational since 1 January RAWLPLUG S.A. had created impairment losses on this subsidiary's assets in previous reporting periods. The liquidation of Koelner d.o.o. had no impact on the present separate results of the Company or the consolidated results of RAWLPLUG Group. On 29 August 2016, the Management Board of RAWLPLUG S.A. commenced a process intended to assess the options for bringing in a business partner for Fabryka Pił i Narzędzi Wapienica Sp. z o.o. The objective is to significantly increase the subsidiary's growth dynamics by fully utilising its resources, especially product knowledge. Working with a minority shareholder from the industry could help in achieving these objectives. The commencement of the process is not synonymous with a decision to sell a stake in FPiN Wapienica Sp. z o.o. Any such decisions will be made at a later time, once received offers are analysed in detail. In addition, the stake sale will be subject to the relevant resolutions being passed by RAWLPLUG S.A.'s authorities, which must consent to such a sale in accordance with the law and the Company's articles of association. On 22 September 2016, the Management Board of RAWLPLUG S.A. decided to suspend the activities of subsidiary Rawlplug Portugal LDA, based in Lisbon (Portugal). The decision to suspend the company's activities was motivated by unsatisfactory financial results and a failure to achieve its business objectives. The one-off costs of suspending the company's activities reached approx. EUR 200 thousand and were charged to RAWLPLUG Group's consolidated net result for the third quarter of On 22 September 2016, subsidiary Herco Fixing Ltd changed its name to Rawlplug Ireland (Export) Ltd, which was confirmed by a change of name certificate issued by the Companies Registration Office in Dublin (Ireland). On 12 October 2016, the Management Board of RAWLPLUG S.A. decided to announce its intention to: a) merge two subsidiaries of the Issuer, i.e. Cypriot company: FARMLORD TRADING LTD, based in Nicosia ("FARMLORD"), with Cypriot company: MEADOWFOLK HOLDINGS LTD, based in Nicosia ("MEADOWFOLK"), on the condition that: 1) the merger will consist of FARMLORD acquiring MEADOWFOLK, 2) taking into consideration the fact that FARMLORD remains the sole shareholder of MEADOWFOLK, the intended merger will not lead to an increase in FARMLORD's share capital, 3) as a result of the merger, transferred to FARMLORD will be (in words: five thousand) shares of: KOELNER ŁAŃCUCKA FABRYKA ŚRUB Sp. z o.o., based in Łańcut ("KŁFŚ"), 4) on 12 October 2016, the general meeting of FARMLORD and the general meeting of MEADOWFOLK adopted resolutions on the merger of FARMLORD and MEADOWFOLK, b) a cross-border merger of RAWLPLUG S.A. with RAWLPLUG S.A.'s subsidiary FARMLORD, subject to the following: 1) the merger will take place pursuant to art of the Act of 15 September Commercial Companies Code (consolidated text: Polish Journal of Laws of 2016, item 1578; "CCC") through the acquisition of Farmlord by RAWLPLUG S.A., taking into account the simplifications referred to in art in 5/45

6 connection with art of the CCC, allowing an exemption from the obligation to audit the merger plan and issue an opinion by a statutory auditor, 2) taking into consideration the fact that RAWLPLUG S.A. remains the sole shareholder of Farmlord, the intended merger will not lead to an increase in RAWLPLUG's share capital, 3) as a result of the intended merger, (in words: five thousand) shares of KŁFŚ will be transferred to RAWLPLUG, 4) the merger will take place following the acquisition of MEADOWFOLK by FARMLORD, as referred to in letter a) above, 5) the merger plan referred to in art of the CCC and the management board report referred to in art of the CCC will be published in the form of a current report on the date at which they are prepared. The mergers referred to in letters a) and b) are justified to the extent that holding company activities, for which Meadowfolk and Farmlord had been formed, can presented by successfully undertaken by RAWLPLUG S.A. As a result, activities intended to simplify the Group's structure, which includes, among others, Meadowfolk, Farmlord and RAWLPLUG, are justified. The operation is purely technical. The above streamlining will result in synergies by decreasing the total costs of the above companies, increasing the effectiveness of the business and better use of resources by the companies being merged. On 8 November 2016, subsidiary Koelner Kiev Ltd (Ukraine) was removed from the state register of legal entities maintained by Ukraine's Justice Ministry. The company had not been engaged in sales activities since 1 January The company's liquidation did not have a material impact on RAWLPLUG Group's consolidated result. The liquidation of Koelner Kiev Ltd was the final step in a process of ownership changes that covered the three Ukrainian companies affiliated with RAWLPLUG S.A., i.e. Koelner Kiev Ltd, Koelner-Ukraine LLC and LeoTex Ltd. Ultimately, one only Ukrainian company remains within RAWLPLUG Group (Koelner-Ukraine LLC), with RAWLPLUG S.A. holding a 60% stake in it. Because of its immateriality, the company is not subject to consolidation. On 15 November 2016, subsidiary Koelner Bulgaria EOOD (Bulgaria) was removed from the Register of Companies maintained by the Registry Agency at the Justice Ministry. The company's activities were being reduced since 30 June 2016 in connection with a decision made by the Management Board of RAWLPLUG S.A. regarding a change of the business model in Bulgaria and commencement of cooperation with independent distributors in that market SHAREHOLDING STRUCTURE RAWLPLUG S.A.'s shareholding structure as at 1 January 2016: Shareholder Number of shares % in share capital Number of votes at the general meeting % of votes at the general meeting Amicus Poliniae Sp. z o.o PKO BP BANKOWY PTE NATIONALE NEDERLANDEN PTE (formerly ING PTE) Radosław Koelner Other TOTAL /45

7 RAWLPLUG S.A.'s shareholding structure as at 31 December 2016: Shareholder Number of shares % in share capital Number of votes at the general meeting % of votes at the general meeting Amicus Poliniae Sp. z o.o PKO BP BANKOWY PTE NATIONALE NEDERLANDEN PTE Radosław Koelner Quercus TFI S.A Other TOTAL There are no limitations on the exercise of RAWLPLUG S.A.'s voting rights. The Company is not aware of any agreements pursuant to which there may be a change in the proportions of shares held by the current shareholders COMPANY AUTHORITIES MANAGEMENT BOARD Composition of the Company's Management Board as at 1 January 2016: Radosław Koelner Piotr Kopydłowski - President - Member, responsible for finance The composition of the Company's Management Board did not change in SUPERVISORY BOARD Composition of RAWLPLUG S.A.'s Supervisory Board as at 1 January 2016 and 31 December 2016: Krystyna Koelner Tomasz Mogilski Wojciech Heydel Janusz Pajka Zbigniew Pamuła Zbigniew Stabiszewski Zbigniew Szczypiński - Chairperson - Deputy Chairperson - Member - Member - Member - Member - Member 7/45

8 SHARES HELD BY THE COMPANY'S MANAGEMENT BOARD OR SUPERVISORY BOARD MEMBERS As per the Company's knowledge, at 31 December 2016 members of RAWLPLUG S.A.'s Management Board and Supervisory Board held shares as follows: Management Board As at 31 December 2016 Radosław Koelner - President Piotr Kopydłowski - Member, responsible for finance Supervisory Board As at 31 December 2016 Krystyna Koelner - Chairperson Tomasz Mogilski - Deputy Chairperson Wojciech Heydel - Member - Janusz Pajka - Member - Zbigniew Pamuła - Member - Zbigniew Stabiszewski - Member - Zbigniew Szczypiński - Member 360 The nominal amount of one share in RAWLPLUG S.A. is PLN TOTAL REMUNERATION AND PAY BONUSES PAID OR DUE TO BE PAID TO MANAGEMENT BOARD AND SUPERVISORY BOARD MEMBERS Remuneration paid or due to be paid to Management Board members (in PLN 000s): Management Board Radosław Koelner 742 including roles at subsidiaries, associates and jointly controlled entities 270 Piotr Kopydłowski - Member, responsible for finance 506 including roles at subsidiaries, associates and jointly controlled entities 158 Remuneration paid or due to be paid to Supervisory Board members (in PLN 000's): Supervisory Board Krystyna Koelner - Chairperson 27 Tomasz Mogilski - Deputy Chairperson 152 Wojciech Heydel - Member 22 Janusz Pajka - Member 14 Zbigniew Pamuła - Member 14 Zbigniew Stabiszewski - Member 22 Zbigniew Szczypiński - Member 22 As at 31 December 2016, there were no agreements entered into between RAWLPLUG and management board members providing for compensation in the event of resignation or dismissal without valid cause or in the event of dismissal or redundancy as a result of the Company's merger. 8/45

9 1.5. SHARE ISSUES Not applicable INCENTIVE PROGRAMME The Company does not have any share-based incentive programmes CHANGES IN KEY MANAGEMENT PRINCIPLES RAWLPLUG S.A.'s accounting principles are not expected to change. 2. INTERNAL AND EXTERNAL FACTORS SIGNIFICANT TO THE COMPANY'S DEVELOPMENT AND GROWTH PERSPECTIVES 2.1. EXTERNAL FACTORS MACROECONOMIC SITUATION AND CONDITIONS IN THE CONSTRUCTION INDUSTRY Domestic demand in the construction and fixing industry was unstable in A decent first half of the year was followed by a slowdown, with some market segments recording declines in the year's second half. However, numerous sales-intensifying efforts were undertaken in this period. The key activities included: new quality in merchandising and a point-of-sale system for RAWLPLUG products. Merchandising activities were commenced in 2015 and entered the implementation phase in 2016, covering nearly 500 counterparties, which led to growth in sales at clients covered by the project by over 20%. The next development area was the launch of implementation of a point-of-sale system for RAWLPLUG products as a very important element of building a premium brand on wholesale and retail markets. This project supplemented the offering and caused faster sales growth, which in this product segment reached 13%. As a result of the above activities, consisting of promoting own brands, outside brands were gradually reduced in the sales offering. Compared to the previous year, third-party brand sales declined by 11%, however this reduction was fully offset by own-brand sales growth, which additionally positively contributed to margins. As a result of on-going activities, sales on the domestic market (only in the construction and fixings industry) grew by 4.1% y/y, which should be considered a huge success given the unstable demand and changes in the product portfolio. The above sales-intensifying activities will be continued in 2017 and will help to reinforce the Group's market position, improve its competitiveness and build excellent relations with business partners. Good conditions prevailed on export markets in This was particularly visible in Western European and Middle Eastern markets as well as in new markets such as Asia and Australia, where double-digit sales growth was recorded. This growth was driven entirely by RAWLPLUG brand products, which positively affected margins and confirmed that the brand is the key growth driver for RAWLPLUG S.A.'s and RAWLPLUG Group's exports. Among Western European countries, major sales growth was recorded in Sweden, Ireland and England. These are very demanding and highly competitive markets however RAWLPLUG products are being really well received over there. In German-speaking countries, promotional activities for highly processed products are translating into increasing interest in RAWLPLUG S.A.'s offering on the part of potential clients. RAWLPLUG S.A.'s products of high technical 9/45

10 parameters, confirmed by ETA approvals, are able to compete with the largest players on the chemical, mechanical and light fixings market. Perspectives for developing cooperation in this region are very promising. In the case of Eastern Europe, responsible for most of the growth was the Hungarian market, which has seen stable development for a number of years and is generating very good financial results. The second market in which sales were dynamically expanding was Slovakia. Markets in the former USSR region were an exception due to political and economic turmoil and oil price falls; the situation there remains difficult. The Russian construction market continues to reel from the crisis, which manifests in strongly reduced investments in the industry. An additional factor limiting growth in this region is the fact that local demand is focused on lower-priced products rather than those of higher quality, as well as a gradual expansion of Russian-made products. This last factor is constituting an increasingly significant market barrier however due to the fact that RAWLPLUG Group has a production facility in Kaliningrad this also creates a huge opportunity for development of the Russian subsidiary, Koelner Trading KLD LLC. Therefore, the existing machine park is expected to be expanded in This will make it possible to expand the sales offering by locally-made products and will significantly improve cost effectiveness, thus reinforcing RAWLPLUG Group's competitive position in the region. Ukraine is in a more difficult situation, with the construction market there being in a slump. The most important reason is the military activity in the country's east, which is where Ukraine's industry is located, as well as a very difficult state budget situation, which has limited construction and infrastructural investments to a record low, alongside a decline in the local currency's purchasing power. In addition, difficult access to credit financing and its high cost are hurting businesses (86 banks in Ukraine disappeared over the past two years). However despite these adverse conditions, Koelner-Ukraine LLC is generating profits. This is due to an optimisation of the company's structure, strict cost control and use of opportunities in certain market segments. The repair industry in DIY and Trade sales channels can be an example, which thanks to cash transfers sent by Ukrainian employees working abroad is effectively defending itself against recession EMPLOYMENT CONDITIONS AND PRICES OF PRODUCTS AND INTERMEDIATES IMPORTED FROM THE FAR EAST At the beginning of 2016, significant hikes in the prices of the key commodities that RAWLPLUG S.A. procures, which was followed by declines towards the end of the first and start of the second quarter. However, these prices did not come back to the previous levels and currently are higher than before the hikes. These increases had a negative impact on margins in successive quarters, however on the other hand they were offset by a stronger PLN vs USD (the main procurement stream is in USD) as well as the introduction of higher sales prices for select assortment. An additional factor helping to maintain margins is continued sales of highly processed products, which have higher margins EXCHANGE RATES In terms of global cash flows, RAWLPLUG S.A. is exposed to EURUSD. Given the specific nature and territorial scope of its operations, the Company has an excess of EUR (sales mostly in EUR) and a shortage of USD (imports from the Far East). Despite the fact that the current volume of conversion from EUR to USD is relatively small (about EUR 600 thousand a month), forward contracts are being used in order to hedge currency items. In 2016, RAWLPLUG S.A. realised four forward contracts worth a total of EUR/USD thousand. After settling these transactions, RAWLPLUG S.A. posted an aggregate gain of PLN 442 thousand, which was recognised as finance income in the statement of profit and loss. As at 31 December 2016, RAWLPLUG S.A. had one outstanding forward contract, which was valued at PLN 127 thousand as of 31 December 2016, and was recognised in finance income. 10/45

11 In measuring balance sheet items, the Management Board aims to balance out foreign-currency items through natural hedging in as far as practicable INTEREST RATES Given the substantial share of bank borrowing in RAWLPLUG S.A.'s financing structure, interest rates have a direct impact on financial performance. The most recent interest rate change in Poland took place on 5 March 2015, and no further moves are expected in the coming months COMMODITY PRICES RAWLPLUG S.A.'s key commodity is plastic pellets. Its prices in 2016 were in an up-trend, following the prices of crude oil INTERNAL FACTORS The organisation has been properly prepared for fully efficient operations. Product portfolio analysis, focus on those product groups that enable maximum competitive advantages, alongside deployment of management solutions for sales and marketing (merchandising, POS system for RAWLPLUG) - these are the main tasks which will be continued in The changes introduced in recent years concerning a better organisation of sales, production and marketing allow RAWLPLUG S.A. to achieve optimal efficiency and maximise its potential. Substantial capital expenditures on machinery have increased productivity, which is translating into better product availability, higher price competitiveness and a more modern product offering. RAWLPLUG S.A. aims to reinforce its image as a supplier of best-in-class products for the building industry through a new marketing strategy as well as an improved product portfolio and an upgraded and harmonised packaging system. This is a subsequent step towards our strategic objective of becoming a first-choice supplier SUSTAINABLE GROWTH STRATEGY Sustainable development is one of the pillars of RAWLPLUG S.A.'s and RAWLPLUG Group's activities therefore the Company is constantly working on implementing solutions and systems aligned with its strategy in this area. Responsible business constitutes the basis for planning RAWLPLUG S.A.'s and the Group's new activities and guidance during improving existing processes, thanks to which RAWLPLUG S.A. enjoys the trust of its business partners and respect of its clients. As part of RAWLPLUG S.A.'s and RAWLPLUG Group's sustainable growth strategy, we systematically implement sustainable solutions in the area of management, CSR, environmental protection and logistics. Key events in 2016, by area: Management - communication with stakeholders Publication of the 2015 sustainable development report. This annual report summaries sustainable development activities undertaken by RAWLPLUG Group. It presents the Group's achievements, objectives and long-term plans. The report is available at sustainable.rawlplug.com. It shows 11/45

12 how diligently the Group is pursuing its key environmental goal - lowering its carbon footprint. In 2015, converted into EUR 1 of revenue, carbon footprint was reduced by 7.5% from Participation of the CEO of RAWLPLUG S.A., Radosław Koelner, in a discussion panel at the Polish Economic Forum - PEF in London, which is the largest foreign-based event dedicated to the Polish economy. The forum is organised by LSE SU Polish Business Society - an association of Polish students at the London School of Economics and Political Science (LSE). The main theme in the session featuring the CEO of RAWLPLUG S.A. was the use of potential of Polish companies in the current stormy times. Verification and update of growth strategy for RAWLPLUG Group has verified and updated its strategic document. Achievement of goals to date was summaries, outdated goals were removed and new ones were discussed. The Group's overriding goal is sustainable development, which will be carried out through the following strategic objectives: continued international expansion, internal efficiency improvements and innovations. Draft of RAWLPLUG's Corporate Communications Strategy, which is intended to support the implementation of RAWLPLUG's Development Strategy , including through projects meant to improve internal and external communications. All of the objectives included in the strategic document are intended to achieve the main assumptions of the growth strategy. Corporate Social Responsibility (CSR) initiatives "31st Workshop for Construction Designers" Koelner Polska Sp. z o.o., a member of RAWLPLUG Group, was the key partner of the 31st Workshop for Construction Designers, which is a cyclical event for designers, contractors and construction oversight personnel. The event, organised by the Katowice branch of the Polish Association of Construction Engineers and Technicians, is the largest nationwide event of its type in the industry. The 'Dream Furniture 2016' initiative The GLOBUS brand, belonging to RAWLPLUG Group, once again was involved in the "Dream Furniture 2016" initiative, organised by meble.pl. The special award sponsored went to an interior design student at the Eugeniusz Geppert Academy of Fine Arts in Wrocław. Renovation of Lone Mother's Home in Hyliczki As part of support for students of Warsaw-based technical universities who are renovating the Lone Mother's Home in Chyliczki under the Workcamp programme, the Group once again provided fixings and tools for renovation work. Grants for Children's University pupils In September 2016, RAWLPLUG S.A. for the second time funded grants to the Children's University for employees' kids in Wrocław. In the coming academic year, they will participate in activities aimed at developing knowledge and passion for science. Co-financing for a trip of the Polish national team in Ultimate Frisbee to the world championship 2016 The Group financed some of the costs of Poland's national ultimate frisbee team travel to London for World Ultimate & Guts Championships Nearly 3000 players from 39 countries participated in the competition. Funding for another edition of Association of Children's Friends summer camps RAWLPLUG S.A. also provided funding for camps organised by the Association of Children's Friends in Wrocław. Nearly 500 school-age kids spent their summer by the sea. 12/45

13 Laboratory Night - dialogue with stakeholders On 8 November 2016, RAWLPLUG Group participated in the Laboratory Night event. This event featured open presentations at the Mechanical Laboratory for outside guests - mostly students and parents with children. They had an opportunity to obtain knowledge on the subject of fixings and modern research techniques applied by RAWLPLUG S.A.'s mechanical lab. Building relations between science and business - participation in 'Innovativeness Incubators' Developing cooperation with innovators and universities is in line with our growth strategy therefore RAWLPLUG Group has become involved in the Innovativeness Incubators project, launched in November by 3M Poland Sp. z o.o. During a discussion panel and numerous presentations, discussed were the most frequent barriers on the road to successful cooperation, ways of financing as well as the definition of innovation. The meeting was an opportunity to present the Group's offering related to internships, traineeships and other forms of cooperating with the world of science. RAWLPLUG Group's participation in dialogue meeting RAWLPLUG Group is involved in dialogue with stakeholders and together with 3M Poland Sp. z o.o. and other local business and scientific communities is deliberating on how to improve its positive impact on society in the coming years. Ideas for effective achievement of goals and building a sustainable development strategy were discussed at the meeting. Participation in Noble Box As part of the Noble Box campaign, RAWLPLUG Group provided mechanical and power tools necessary to renovate an apartment for a large family in need. Gold-plated fixings auctioned off for Great Orchestra of Christmas Charity At the initiative of subsidiary Koelner Łańcucka Fabryka Śrub Sp. z o.o., two 23.5-karat gold-plated construction fixings were given for auction. All proceeds from their sale went to the Great Orchestra of Christmas Charity. Financial support for rehabilitation centre At the initiative of subsidiary Koelner-Ukraine LLC, we participated in a charity event in support of rehabilitation centre Źródło, which helps children with paralysis, Down syndrome and other development diseases. All proceeds from the event went towards the needs of the centre and its patients. Sponsorships Promoting sporting activities amongst children and youth The Group is involved in promoting sporting activities amongst kids and youth by long-term support of the "Wrocław Loves Basketball" programme. The Group sponsors the basketball team WKS Śląsk Wrocław and professional volleyball league Orlen Liga as well as Plus Liga. In 2016, RAWLPLUG Group cooperated with the Lower Silesia-based Klub Avasatare Taekwon-Do, which has almost 100 members of all ages. Wishing to continue the club's successes and support its members' development, KOELNER - one of RAWLPLUG Group's four own brands - sponsored Avasatare Taekwon-Do. Children of RAWLPLUG S.A. employees were able to participate in a summer sports camp organised by Avasatare Taekwon-Do. Funding for dance group Fame Kids 13/45

14 The money was used for participation in WADF European Championships. The team won a total of six medals, including European Championship - 11 year old category Trio and European Championship - 11 year old category Showcase. Funding for trip for students of Gimnazjum nr 13 in Wrocław. The funds were used for a trip and participation in the finals of an international creative educational programme Destination Imagination in Knoxville, U.S. The Wrocław students won the "ASAP" category and the jury also appreciated their creativity in preparing costumes from the available materials. Environmental protection Car fleet replacement In continuously implementing solutions aimed at reducing CO2 emissions, RAWLPLUG Group places particular emphasis on its car fleet policy. In line with our environmental responsibility strategy, we replaced company cars for the Polish salesforce in This will have a direct impact on our target reduction of carbon footprint by 165 tonnes of CO{ut12 annually. In 2016, 50 cars with hybrid engines were introduced to the fleet. Ecological workshops for kindergarten pupils In September and October, RAWLPLUG Group held a series of ecological workshops in Wrocław-based kindergartens as part of its employee volunteering efforts. A total of 179 children participated in the workshops. Internal application - shared business travel RAWLPLUG Group employees received an application through which they can combine their business travel and send packages therefore reducing transport costs, fuel consumption and carbon footprint. Supply chain - focus on the client EasyFix PRO application. Highly regarded by specialists on the fixings market, the EasyFix application, which allows to design fixings using RAWLPLUG-branded products, has been expanded to PRO version. An improved interface makes it easier to use, while new functionalities allow for a wider range of calculations and simpler addition or review of data. Energy audits. In 2016, energy audits were carried out at the production facilities in Wrocław, Łańcut and Bielsko-Biała. They were intended to identify ways to even more effectively save electricity, which is currently a priority for large production sites in Poland. In a longer perspective, the Group is also attempting to obtain a White Certificate, which confirms that specified volumes of energy have been saved as a result of efficiency-improvement investments GROWTH PERSPECTIVES Key directions of the changes being continued are as follows: expansion of the product offering, improvement in the quality of distribution, along with effective sales support GROWTH STRATEGY The main strategic objective for 2016 was reinforcement of RAWLPLUG S.A.'s position in markets where we are already present. This strategy will be continued in 2017, meaning further activities aimed at strengthening the market position of RAWLPLUG Group's foreign companies through restructuring, introducing new high-margin products and 14/45

15 developing business via new distribution channels, such as DIY and OEM. At the same time, the Group aims to enter new markets, with a focus mainly on those outside Europe. To this end, implementing one of the main strategic assumptions, which is foreign expansion, a decision was made for subsidiary Rawlplug Middle East FZE to acquire a warehouse in the duty free zone (Jafza) in Dubai (UAE). The new warehouse is a key element of RAWLPLUG S.A.'s strategic development in the region comprising the Middle East, Africa, Indochina, Australia and Oceania. It will constitute a key logistics hub, directly servicing these regions. It will replace two warehouses that are currently being leased, which will allow for much better service on local markets and open up new sales directions from Dubai, as opposed to from Poland. The Dubai-based company's operating costs will be reduced as well and so will transport costs incurred by RAWLPLUG S.A. The investment was originally to be carried out in 2016 but due to the opportunity to acquire a very attractive property at a much better price it will be implemented in the third quarter of Other elements of the Group's strategy were the set up in 2016 of company Rawlplug Singapore PTE LTD., based in Singapore, and commencement of work intended to form a commercial company in China. These activities are in line with the main assumptions of RAWLPLUG S.A.'s expansion outside of Europe. The main strategic objective of RAWLPLUG S.A. and RAWLPLUG Group for 2017 is a consistent focus on technologically advanced product groups, where the Group has high production competences. The Group aims to distribute its products through all available sales channels, which will be operated by either RAWLPLUG S.A. or its subsidiaries, depending on local requirements. European markets continue to be Rawlplug S.A.'s key areas, however we are also expanding our activities in the Middle East, Australia, South America, Central and Eastern Asia and Africa. 3. SEASONALITY OF SALES Given the fact that the main customer group for RAWLPLUG S.A.'s products and goods for resale is the construction sector, sales are subject to seasonality. The Company generates the largest portion of its revenue in the third quarter, and the smallest share in the fourth. Considering that sales of hand tools and power tools - which are subject to lesser seasonality than construction fixings - are increasing their share in RAWLPLUG S.A.'s overall sales structure, the seasonality effect is decreasing. Seasonality of sales is characteristic for both Poland as well as RAWLPLUG S.A.'s foreign sales markets. 4. SUPPLY SOURCES The products and raw materials that the Company purchases are either low-processed (e.g. plastics, steel), mediumprocessed (e.g. bolts, screws, simple tools) or highly-processed (power tools). They are procured on an on-going basis from domestic, European and Asian (Taiwan, Malaysia, China) suppliers. No supplier has exclusive rights to any assortment. There is an alternative supplier for each product, resulting from the Company's long-term strategy, and none of the suppliers exceed 10% of overall procurement. 5. INVESTMENTS AND R&D 15/45

16 5.1. INVESTMENTS in PLN 000s 2016 Non-current non-financial assets, including: Machinery and equipment Buildings and structures Software 221 Land 183 Research and development 108 Means of transport 75 Other tangible assets 57 Non-current financial assets, including: Loans and borrowings granted TOTAL Capital expenditure on non-current non-financial assets in 2016 amounted to PLN thousand and mainly concerned expansion and upgrade of machinery and the modernisation of buildings and structures. Investments in the Company's financial assets, amounting to PLN thousand, included (in PLN 000s): long-term loan to Koelner Trading KLD LLC long-term loan to Amicus Poliniae Sp. z o.o long-term loan to Rawlplug Ireland Ltd (Export) long-term loan to Rawlplug Portugal Lda 286 long-term loan to Meadowfolk Holdings Ltd 40 long-term loan to Farmlord Trading Ltd 30 In 2016, the Company did not record any significant expenditures on environmental protection R&D RAWLPLUG Group's key achievements in R&D in 2016 include: development of technology for the process of direct injection of polypropylene copolymer with filling in the form of calcium carbonate, development of direct injection process technology for plastic granulate with closed-system recycling, launch of production lines for retail packaging with the use of automatic label application and simultaneous thermal transfer printing, launch of new research system allowing to perform research on resistance of mechanical and glued-in fixings to shredding, with range to 200kN, preparation of research programmes and launch of resistance machine dedicated to dynamic research within the range of up to 20kN, production implementation of ISOPLUG fixings for elements on building facades, 16/45

17 development and implementation for production of roof insulation fixings, technical approval for mechanical anchors with controlled turn tightening torque, technical approval for roof fixings K-GOK. production implementation of KWX fixings for elements on building facades, completion of prototyping phase for the R-TFIX-8S facade fixing for surface and in-depth assembly, completion of prototyping phase for the R-TFIX-8M facade fixing with thermal bridging value of 0.001W/K, completion of prototyping phase for seasonal hybrid chemical mixtures R-KER-II, seismic testing report for R-KEX-II epoxy resin, seismic testing report for R-KER-II epoxy resin, seismic testing report for R-HPT-II epoxy resin, development of technology for testing hydrogen embrittlement of mechanical fixings, ETA received for PSC chemical resin, ETA received for R-CAS-V chemical resin, IBDiM approval for chemical resins, national update of technical approval for R-XPT-A4 mechanical throughbolt PLANS FOR 2017 In 2017, RAWLPLUG S.A. plans about PLN thousand in capital expenditure. These will be mostly expenditures on: expansion of machinery construction, expansion and modernisation of buildings and structures intangible assets R&D, including planned expenditures on obtaining technical approvals IT expansion PLN 916 thousand, PLN thousand, PLN 605 thousand, PLN thousand, PLN 445 thousand, RAWLPLUG S.A.'s investments are financed using own funds and leasing. The Company is not planning any significant expenditures on environmental protection in HUMAN RESOURCES As at 31 December 2016, RAWLPLUG S.A. employed 422 people. The following table presents average employment for 2016, by work group: 17/45

18 No. of people Employment 2016 Direct production workers 155 Indirect production workers 106 Logistics employees 113 Sales force 21 Other 22 Total 418 The majority of the Company's staff have high school education. The Company's HR policy is based on promoting professional development and fostering a safe working environment. The Company aims to hire employees who have technical high school or university education. As an employer, RAWLPLUG S.A. does not discriminate and ensures equal treatment and employment conditions. The Company's incentive policy links pay with performance. 7. RELATED-PARTY TRANSACTIONS The table below presented transactions with related parties, including: net receivables, excluding loan receivables, as at 31 December 2016, liabilities, excluding loan liabilities, as at 31 December 2016, revenue for the period 1 January - 31 December 2016, covering revenue from sale of products, services, goods and materials, result on sale of property, plant and equipment, other operating revenues, dividend and interest income, together with income from guarantees and sureties granted, purchases for the period 1 January - 31 December 2016, covering procurement of goods, materials, services and property, plant and equipment, plus initial rent recorded in prepayments. The item also includes finance costs constituting interest on loans received and the cost of guarantees and sureties received. 18/45

19 in PLN 000s Revenues Procurement Receivables Liabilities Koelner - Tworzywa Sztuczne Sp. z o.o Fabryka Pił i Narzędzi Wapienica Sp. z o.o Koelner Centrum Sp. z o.o Koelner CZ s.r.o Koelner Romania SRL Koelner Hungária Kft Koelner Deutschland GmbH Koelner Vilnius UAB Rawlplug Middle East FZE Rawl Scandinavia AB Koelner Łańcucka Fabryka Śrub Sp. z o.o Rawlplug Ireland Ltd Rawl France SAS Rawlplug Ltd Stahl GmbH Amicus Poliniae Sp. z o.o Rawlplug Ireland (Export) Ltd Koelner Trading KLD LLC Farmlord Trading Ltd Koelner Rawlplug IP Sp. z o.o Meadowfolk Holdings Ltd Koelner - Inwestycje Budowlane Sp. z o.o Koelner-Ukraine LLC Koelner Polska Sp. z o.o Rawlplug Portugal Lda Rawl Africa (PTY) Ltd TOTAL /45

20 As at 31 December 2016, gross receivables concerning loans amounted to PLN thousand, including: PLN thousand from Amicus Poliniae Sp. z o.o., PLN thousand from Koelner Trading KLD LLC, PLN thousand from Rawlplug Ireland Ltd, PLN thousand from Rawlplug Middle East FZE, PLN thousand from Rawl Africa (Pty) Ltd, PLN 824 thousand from Rawlplug Ireland (Export) Ltd, PLN 768 thousand from Koelner Romania SRL (under liquidation) PLN 420 thousand from Rawlplug Portugal LDA, PLN 73 thousand from Meadowfolk Holdings Ltd. PLN 63 thousand from Farmlord Trading Ltd, In 2016, an impairment loss was recognised on a PLN 420 thousand loan issued to Rawlplug Portugal LDA and an impairment loss was reversed with regard to a PLN 180 thousand loan issued to Koelner Romania SRL (under liquidation) due to its partial repayment. As of 31 December 2016, the impairment loss recognised on the loan issued to Koelner Romania SRL (under liquidation) was PLN 768 thousand. Finance income on loan interest received during the period 1 January - 31 December 2016 was PLN thousand, including: PLN 795 thousand from Amicus Poliniae Sp. z o.o., PLN 182 thousand from Koelner Trading KLD LLC, PLN 90 thousand from Rawlplug Ireland Ltd, PLN 49 thousand from Rawlplug Middle East FZE, PLN 20 thousand from Rawl Africa (Pty) Ltd, PLN 9 thousand from Rawlplug Ireland (Export) Ltd, PLN 3 thousand from Rawlplug Portugal LDA, PLN 2 thousand from Farmlord Trading Ltd, PLN 2 thousand from Meadowfolk Holdings Ltd. As at 31 December 2016, loan and borrowing liabilities amounted to PLN thousand, including: PLN thousand towards Koelner - Tworzywa Sztuczne Sp. z o.o., PLN thousand towards Koelner Łańcucka Fabryka Śrub Sp. z o.o., PLN thousand towards Koelner Rawlplug IP Sp. z o.o., PLN thousand towards Stahl GmbH, PLN thousand towards FPiN Wapienica Sp. z o.o. PLN thousand to Koelner Polska Sp. z o.o., 20/45

21 Finance costs on loan interest paid during the period 1 January - 31 December 2016 was PLN thousand, including: PLN 592 thousand to Koelner - Tworzywa Sztuczne Sp. z o.o., PLN 431 thousand to Koelner Łańcucka Fabryka Śrub Sp. z o.o., PLN 365 thousand to Koelner Rawlplug IP Sp. z o.o., PLN 103 thousand to Fabryka Pił i Narzędzi Wapienica Sp. z o.o., PLN 64 thousand to Stahl GmbH, PLN 55 thousand to Koelner Polska Sp. z o.o., PLN 25 thousand to Koelner - Inwestycje Budowlane Sp. z o.o., PLN 9 thousand to Rawlplug Ltd. As at 31 December 2016, RAWLPLUG S.A. held contingent liabilities on sureties and guarantees granted to related parties in total amounting to PLN thousand. A detailed list is presented in the table below. Entity receiving the surety Beneficiary Surety / guarantee liabilities (in PLN 000s) Object of collateral Term of surety / guarantee Koelner Polska Sp. z o.o. Bank Handlowy w Warszawie S.A Credit agreement Koelner Łańcucka Fabryka Śrub Sp. z o.o. Bank Handlowy w Warszawie S.A Credit agreement Koelner Łańcucka Fabryka Śrub Sp. z o.o. Koelner Łańcucka Fabryka Śrub Sp. z o.o. FPiN Wapienica Sp. z o.o. FPiN Wapienica Sp. z o.o. Koelner Łańcucka Fabryka Śrub Sp. z o.o. Koelner Polska Sp. z o.o. Koelner Polska Sp. z o.o. Koelner Rawlplug IP Sp. z o.o. Koelner Polska Sp. z o.o. Suppliers ING Lease Polska Sp. z o.o. Raiffeisen Leasing Polska S.A. Bank Handlowy w Warszawie S.A. Raiffeisen Leasing Polska S.A. LeasePlan Fleet Management (Polska) sp. z o.o. Toyota Leasing Polska Sp. z o.o. Raiffeisen Leasing Polska S.A. Raiffeisen Leasing Polska S.A. supplies / services Leasing Leasing Koelner Rawlplug IP Sp. z o.o. Suppliers 16 Credit agreement from to from to Leasing Leasing 496 Leasing 349 Leasing 142 Leasing supplies / services from to from to from to from to /45