FOTA S.A. CAPITAL GROUP. The Management Board s report on operations for the year ended on 31 December 2012

Transcription

1 The Management Board s report on operations Gdynia, 30 April 2013

2 Selected financial data SELECTED FINANCIAL DATA Consolidated financial statements thousand PLN thousand EUR Revenue 705, , , ,870 Profit (loss) on sales before tax 133, ,046 31,842 39,584 Profit (loss) on operations before tax (13,354) 23,926 (3,191) 5,809 Profit (loss) before tax (17,580) 10,382 (4,200) 2,521 Profit (loss) attributable to shareholders of the parent company (20,034) 2,145 (4,787) 521 Profit (loss) per share (PLN/EUR) (2.13) 0.23 (0.51) 0.06 Net operating cash flows (1,074) (16,088) (257) (3,906) Net investing cash flows (1,786) (9,581) (427) (2,326) Net financing cash flows (10,845) 29,757 (2,591) 7,224 Net cash flows (13,705) 4,088 (3,275) Dec Dec Dec Dec 2011 thousand PLN thousand EUR Total assets 407, ,879 99,697 99,819 Long-term liabilities 5,981 9,669 1,463 2,189 Short-term liabilities 277, ,407 29,776 32,649 Number of shares 9,416,000 9,416,000 9,416,000 9,416,000 Book value per share (PLN/EUR)

3 I. General information FOTA S.A. CAPITAL GROUP Parent Company The parent company of the Fota S.A. Capital Group ( Group, Capital Group ) is Fota S.A. ( Fota, Company, Parent Company ). Business name: Fota Spółka Akcyjna Registered office: Gdynia Address: Gdynia, ul. Stryjska 24 Phone: (+48) biuro@fota.pl WWW: The Parent Company was formed with the Notarial Deed of 29 August The Company is entered in the Register of Entrepreneurs of the National Court Register kept by the District Court Gdańsk-Północ in Gdańsk, 8 th Business Division of the National Court Register, with the no. KRS The Parent Company was assigned the statistical no. of REGON The term of the Parent Company and other entities being members of the Capital Group is unspecified. Activities The core activities of the Group include the sales and manufacturing of car spare parts, car accessories, and garage equipment. Composition of the Supervisory Board From 01 January to 31 December 2012, the Supervisory Board of Fota S.A. was composed of: - Lucjan Śledź President of the Supervisory Board - Bogdan Fota Vice-President of the Supervisory Board - Maciej Kozdryk Secretary of the Supervisory Board - Tomasz Żurański Member of the Supervisory Board - Aleksander Moroz Member of the Supervisory Board As at 01 January to 31 December 2012 and as at the date hereof, the composition of the Supervisory Board did not change. Composition of the Management Board of the Parent Company As at 31 December 2012, the Management Board was composed as follows: - Paweł Gizicki President of the Management Board - Radosław Wojtkiewicz Member of the Management Board - Wojciech Kotarski Member of the Management Board - Adrian Smeja Member of the Management Board

4 On 16 April 2012, the Supervisory Board recalled Karol Dudij from the position of a Member of the Management Board of Fota S.A. On 16 November 2012, the Supervisory Board appointed Wojciech Kotarski as a Member of the Management Board of the Company. On 21 December 2012, the Supervisory Board appointed Adrian Smeja as a Member of the Management Board of Fota S.A. On 2 April 2013, the Supervisory Board appointed Jakub Fota as a Member of the Management Board of Fota S.A. From 02 April 2013 to the date hereof, the composition of the Management Board of the Company did not change. Composition of the Capital Group Entity Registered office Activity Share of the Company in capital [%] Method of consolidation Fota S.A. Gdynia, Poland trade with car spare parts Parent Company Art-Gum Mazańcowice, trade with tyres 75.6 % Full Poland Autoprima Nitra, Slovakia trade with car spare parts 100.0% Full Słowacja Fota Ukraina Kiev, Ukraine trade with car spare parts 70.0% Full Expom Kwidzyn Nowy Dwór, manufacture and repair of 99.5 % Full Poland parts Automotosport Presow, Slovakia trade with car spare parts 100.0% Full Fota Cesko Cieszyn, Czech Republic does not conduct operating activities 100.0% Full As at 31 December 2012 and 31 December 2011, the share in the total number of votes held by the Company in its subsidiaries is equal to the share of the Company in the capital of these entities. On 26 October 2012, the Company made an agreement concerning the sale of share of AUTOPRIMA spol. s r.o. with the registered office in the Czech Republic ( Autoprima Czechy). Pursuant to the provisions of the agreement, Fota S.A. sold 100% of its shares of the company reflecting 80% of the share capital of the company, their nominal value being CZK 160,00 for PLN 1,00. This transaction is a consequence of the decision about the withdrawal of the Group from unprofitable activities in the Czech market and, as a result, the elimination of the negative influence of Autoprima Czechy on financial results of the Capital Group (ref. to note 15 hereof). Loss on the operational activities of Autoprima Czechy for 9 months of 2012 was PLN 3.2 M (PLN 4.8 M in 2011). In relation to the sale of the shares of Autoprima Czechy, the Company terminated a trade agreement and, as a consequence, withdrew the goods delivered to Autoprima Czechy worth app. PLN 1.3 M. The termination of the trade agreement automatically results with the establishment of securities of receivables due to Fota S.A. on assets of Autoprima Czechy in order to limit loss on the investment in this company. The Company holds a 39.2% share in Vessel Sp. z o.o. in liquidation bankruptcy with the registered office in Warsaw, concerning which bankruptcy proceedings is pending as at 30 April On 28 September 2011, the District Court for the Capital City of Warsaw in Warsaw issued a decision concerning the declaration of bankruptcy of VESSEL Sp. z o.o., including liquidation of property. Apart from the changes described above, from 01 January to 31 December 2012 no significant changes in the composition of the Capital Group took place.

5 Information on significant organizational and capital relationships As at 31 December 2012, Lucyna and Bogdan Fota were the owners of 6,500,000 shares of the Company, out of which 1,625,000 shares are privileged as to voting (2 votes per share). The total share in the share capital of the Company attributable to Lucyna and Bogdan Fota is 69.03% and the total share in the votes at the General Meeting is 73.59%. The Fota Group is related personally with Fota Ltd Sp. z o.o. and Fota Groblewski Sp. z o.o. through Bogdan Fota and members of the Fota family who are shareholders of these companies. The Management Board of the Company has no influence on activities taken by Fota Ltd Sp. z o.o. and Fota Groblewski Sp. z o.o.; therefore, these companies are not consolidated.

6 II. Activities of the Fota S.A. Capital Group 1. Information on basic products, goods, and services The Parent Company is one of the leading independent Polish distributors of spare parts for cars and lorries as well as garage equipment. The Company has an extensive distribution network in Poland which consists of the Logistics Centre in Łódź and branches located over the whole Polish territory. The Parent Company offers a wide range of spare parts for cars traded in the Polish market. The Company sells over 200,000 types of car parts from over 300 suppliers. The Company continuously improves the availability of the products included in its traditional offer and expands this offer with new articles at the same time. The Group cooperates with leading manufacturers who supply car manufacturers with original parts as well as independent distribution networks with parts of comparable quality. At the same time, the Group cooperates with many less known suppliers manufacturing cheaper good quality parts. Such a wide offer enables the Group to satisfy various needs which result from the age of used cars and wealth of users thereof. The offer of the Group includes goods with the Group's own brand KAGER. The KAGER brand includes car parts manufactured by leading producers of spare parts. They meet all safety requirements and quality norms binding in the European Union. Furthermore, the offer of the Group includes parts for older cars. A significant part of the offer for cars of this type is formed by goods offered with the RACER trademark. Art-Gum Sp. z o.o. is a company operating in the tyre industry. The number of tyres sold in the Polish market puts it in the leading position. Art-Gum has ensured its strong position by offering its clients a wide range of tyres by many reputed world manufacturers, including the INTERSTATE brand, for which the company holds exclusive rights in the Polish market. EXPOM Kwidzyn Sp. z o.o. is a manufacturing company. At present, the primary activities of the Company include the production and regeneration of electrotechnical goods for vehicles, i.e. starters, alternators, generators, and spare parts for them. 2. Markets FOTA S.A. Capital Group Apart from Poland, Fota S.A. Group is present in the Slovakian and Ukrainian markets. The trade offer of the foreign entities is addressed mainly at garages specializing in repairing cars and lorries and at individual clients. The Group has discontinued its activities in the Czech market by selling, on 26 October 2012, all shares held in AUTOPRIMA spol. s.r.o. with the registered office in the Czech Republic, the only entity in the Capital Group which conducted operations in the Czech market. Key clients of Art-Gum Sp. z o.o. include tyre service outlets and vulcanizing workshops; sales to these entities constitute nearly 90% of the total revenue. The entity also uses the Group synergy by distributing its products via Fota branches. Art-Gum cooperates with large sales networks as well. EXPOM clients in the Polish market include traders as well as individuals. New EXPOM clients in the field of sales of products include mainly wholesalers of agricultural equipment, enterprises dealing with renovations and repairs, and electromechanical companies. Main clients for repaired products include car accessory wholesalers, garages, and individuals.

7 The Group does not depend on one or more clients and suppliers. The Group is not formally related to any client or supplier. No share held by any client or supplier reaches at least 10% of total revenue of the Group. 3. Trade outlets (branches) The table below presents the number of the Groups branches as at 31 December Entity Own branches Agencies/partner branches Fota S.A Art-Gum Autoprima Słowacja 7-7 Automotosport 4-4 Fota Ukraina Expom Kwidzyn 1-1 Total Total The table below presents changes in the number of branches of the Parent Company in 2012 and January 2012 Closed Open Change from B to A Change from A to B 31 December 2012 Branch A 41 (6) - 12 (3) 44 Branch B (agencies) 54 (2) 3 (12) 3 46 Total 95 (8) January 2011 Closed Open Change from B to A Change from A to B 31 December 2011 Branch A (4) 41 Branch B (agencies) 55-2 (7) 4 54 Total Information on significant agreements Financing of the operations Detailed information on bank loans, including values of liabilities as at the balance sheet date, interest rates, maturity dates, and securities is presented in note 30 to the appended consolidated financial statements. From 01 January 2012 to 31 December 2012, the following changes took place which influenced the financing of the Group s operations:

8 On 27 July 2012, Art-Gum Sp. z o.o. with the registered office in Mazańcowice, a subsidiary, made annexes to two bank loan agreements with Bank Polska Kasa Opieki Spółka Akcyjna with the registered office in Warsaw. Pursuant to the provisions of the annexe to the agreement concerning an overdraft in a current account of 09 August 2010, the Bank granted the lender a borrowing limit of an unchanged amount of PLN 5 M with the repayment date of 31 July The annexe does not introduce any other significant changes to the agreement. Pursuant to the annexe to the bank loan agreement of 09 August 2010, the Bank granted the borrower a revolving working capital facility in the current account of an unchanged value of PLN 20 M with the repayment date of 31 July The annexe does not introduce any other significant changes to the agreement. On 30 July 2012, Fota S.A. made an annexe to the bank loan agreement with Bank Polska Kasa Opieki Spółka Akcyjna with the registered office in Warsaw. Pursuant to the provisions of the annexe to the agreement concerning an overdraft in a current account, the Bank granted Fota S.A. a borrowing limit (PLN, EUR, USD) up to the total of PLN 10 M. The loan is allocated for financing the current economic activities of the Company. The final repayment date has been determined as 31 July The annexe does not introduce any other significant changes to the agreement. On 31 August 2012, Fota S.A. made an annexe to the bank loan agreement with Bank Handlowy w Warszawie. Pursuant to the provisions of the annexe to the bank loan agreement, the Bank granted Fota S.A. an overdraft in the current account of PLN 25 M for 24 months with the final repayment date of 29 August The terms of the annexe provide for gradual amortization of the value of the borrowing limit to PLN 20 M, decrease in the Bank s margin, and the release of the security being the registered pledge on the inventories worth PLN 30 M. The loan is allocated for financing current economic activities of the Company. On 26 October 2012, as a part of agreements made by ART-GUM Sp. z o.o., a subsidiary, with Bank Polska Kasa Opieki S.A., a limit for derivative transactions was opened including spot and forward transactions up to PLN 500 k as a security against currency risk resulting from the commercial activities of the Company. The limit was granted until 31 July The Company established a security for the Bank being a power of attorney concerning a bank account and the representation concerning voluntary submission to enforcement proceedings. On 30 October 2012, Fota S.A. and Raiffeisen Polska S.A. made a technical annexe to the agreement of 07 August 2002 which extends the term of the borrowing limit of PLN 67.1 M until 04 December On 15 November 2012, Fota S.A. and Raiffeisen Bank Polska S.A. made an annexe to the agreement concerning a borrowing limit of 07 August 2002 which changes the final repayment date of the total borrowing limit of PLN 67.1 M to 30 April The total borrowing limit includes: a) the overdraft in the current account of up to PLN 9.0 M with the final repayment date of 04 December 2013, b) the revolving loan of PLN 37.0 M or the equivalent in other currencies (EUR, USD) with the final repayment date of 04 December 2013, c) factoring services of up to PLN 11.0 with the final repayment date of 28 February 2014, d) letters of credit with no advance coverage (PLN, USD, EUR) of up to PLN 5.0 M with the final repayment date of 30 April 2014, e) bank guarantees of up to PLN 3.0 M with the final validity date of 30 April 2014, f) commercial guarantees of up to PLN 6.0 M with the final validity date of 04 December 2013,

9 g) the limit for currency forward transactions, swap transactions, and currency option transactions of up to PLN 2.1 M or the equivalent in other currencies, with the final repayment date of 30 April The Annexe also contains provisions concerning the principles of cooperation, whose violation authorizes the Bank to reduce (amortize) the borrowing limits gradually. Interest rate on the bank loan is based on a one-month reference rate (WIBOR, EURIBOR, LIBOR) increased by the Bank s margin. The purpose of the loan is to finance the current activities of the Issuer. On 30 November 2012, Fota S.A. made an annexe to the agreement concerning working capital facility in a current account of PLN 20 M with Kredyt Bank S.A. with the registered office in Warsaw (Bank Zachodni WBK S.A. at present) which extends the term of the agreement until 01 December The annexe does not introduce any other significant changes to the agreement. The loan is allocated for the financing of the current activities of the Company. On 04 January 2013, Fota S.A. made an annexe to the agreement of 26 September 2007 concerning an overdraft in a current account with Bank Handlowy w Warszawie S.A. Pursuant to the provisions of the annexe, a provision was introduced into the agreement which states that in case of reducing the borrowing limits in a different bank, the Bank shall be authorized to reduce the overdraft by the same amount. The annexe does not introduce any other significant changes to the agreement. On 26 February 2013, Fota S.A. made an annexe to the agreement of 1 April 2010 with Kredyt Bank S.A. concerning the granting of a line for opening the company s own documentary credits with the possibility of financing from a revolving working capital facility. According to the provisions of the annexes, the Bank granted a line for opening documentary credits to 15 December 2013 to Fota S.A., with the line period until 31 July 2014, with the possibility of financing from the revolving working capital facility, and granted a revolving working facility for payments from documentary credits opened within the line specified above with the final payment date of 30 July Other significant conditions of the agreement have not changed. The purpose of the agreements is to finance the import of the goods. The total borrowing limit granted to the Company is USD 3.0 M. Other significant agreements The Parent Company does not have any information on any other agreements made between the shareholders. Fota S.A. also granted a loan to some agents for the purposes of developing a branch managed by an agent in the agent s area of activity. As at 31 December 2012, the balance of receivables on account of loans granted to agents was PLN 135 k (as at 31 December 2011, the balance was PLN 220 k). 5. Granted bank loans guarantees, loans, or other guarantees In the reporting period, the value of guaranteed bank loans and loans or guarantees granted by the Issuer or its subsidiaries to an entity or a subsidiary did not exceed the equivalent of 10% of the Issuer s equity. On 24 November 2012, Raiffeisen Bank Polska S.A., issued, at the request of Fota S.A., a bank guarantee of PLN 0.8 M, the beneficiary being the Customs Chamber in Łódź, in order to secure

10 any amounts resulting from customs debts, taxes, and other customs charges arising from 10 April 2010 to 30 November On 04 June 2012, Raiffeisen Bank Polska S.A., issued, at the request of Fota S.A., a bank guarantee of PLN 1 M, the beneficiary being BP Eurpa SE Spółka Europejska Oddział w Warszawie in order to guarantee prompt payments of liabilities arising from the guarantee date to 31 December In December 2012, Raiffeisen Bank Polska S.A., issued, at the request of Fota S.A., bank guarantees totalling at PLN 6 M within the limit granted to Fota S.A., the beneficiary being the supplier of batteries in order to secure prompt payments. As at 31 December 2012, the Group did not have any other significant contingent liabilities. 6. Characteristics of external and internal factors significant for the development of the Group and description of prospects for the development of activities Significant factors with an influence on the net result of the Group from 01 January to 31 December 2012 include: increased price competition in the domestic and foreign markets of spare parts and tyres, which has an adverse effect on gross return on sales; resignation from the unprofitable activities in the Czech market through the sales of shares and writing down of assets due from Autoprima Czechy; reduced gross profitability of the Parent Company as a result of the optimization of inventories, the reduction of purchases, and, as a result, reduced purchase bonuses; reduced costs of sales and costs of management resulting from activities taken with the aim at reducing costs as a consequence of activities taken in the first quarter of 2012; revaluation of assets as a result of ending the cooperation with agents who committed a glaring breach of cooperation contracts; limitation of debt levels to suppliers; fluctuations in the currency market. Factors influencing the results of the Group in the following periods include, most of all: the ability to obtain additional capital for the carrying out of strategic projects; activities with the aim at the reorganization of the sales network and the concentration of activities on selected units; the continuation of financing the Company s activities by banks; the discontinuation of unprofitable activities in the Czech market; changes in the principles of managing the central offer and the offer of divisions and the intensification of activities aiming at increasing the availability in division warehouses; completion of activities planned in order to limit costs of activities; changes in work organization, including principles of remuneration, in order to increase the efficiency of sales power and teams responsible for product management; optimization of the course of key business processes and the ensuring of a proper operation of IT systems;

11 modification of procedures aiming at the increase in the efficiency of the internal control system and the increase in the efficiency of current assets management; fluctuations of the rate of PLN to currencies used in settlements with suppliers of goods offered by the Group. In February 2013, the Management Board of Fota S.A. adopted a strategy aiming at the improvement of the efficiency of the Company s operating activities and the change of its strategic position. As a part of this strategy, the Company intends to conduct projects with the goal to improve the standard of current clients service and to present its offer to new groups of clients. The planned activities aimed at the improvement of client service standards include, among other things, changes in the approach to the construction of the offer and in the allocation of the offer on the level of a sale facility. Presenting the offer to new clients is related, among other things, to the development of the offer and the change of sales facilities format. The Company has taken multidirectional activities in order to obtain additional capital for the conduct of the prepared projects. To this purpose, agreements with a financial consultant and an investment consultant have been made. The adopted package of activities also includes the reorganization of the existing sales network, including the liquidation of some sales facilities at the initial stage of the reorganization. The Company regularly assesses its divisions in terms of effective use of available resources and abilities to generate results on expected levels. Based on this effectiveness assessment, the Management Board of the Company decided to close some divisions. The capital released as a result will be allocated for the conduct of the prepared projects in other sales facilities. The main result of this process is supposed to be a better allocation, i.e. one that ensures higher returns, of the existing resources of the Company. 7. Assessment of factors and untypical events with the influence on the result on operations for the business year with the determination of the extent of their influence on the reached result Events which had a significant influence on the result on the Group s operations in 2012 were onetime events (app. PLN 10.1 M) related to the termination of contracts with agents who committed a glaring breach of cooperation principles and, as a consequence, a necessary revaluation write-offs recognized on the Company s assets, and the withdrawal from the Czech market through the sales of all shares held in AUTOPRIMA spol. s.r.o. with the registered office in the Czech Republic. 8. Description of significant hazardous factors and risks Risk related to bank loans The activities of the Group are financed, to a significant extent, with funds from bank loans. Shortterm liabilities of the Group on account of bank loans as at 31 December 2012 were PLN 121,914,000. Most bank loan agreements made by the Group are short-term. A possible inability to extend bank loan agreements or other significant limitations of the availability of the financing may have adverse effects on the Company s ability to continue as a going concern. Bank loan agreements contain obligations of the Company/Group to maintain specific financial ratios on levels agreed upon with individual banks. In relation to the financial results reached by the Company/Group for 2012, this requirement was not met in case of some ratios; this authorizes the

12 banks financing the activities of the Company to change the margin, start the amortization of borrowing limits, or terminate the agreements. Risk related to competition In the market of car spare parts distribution, there is a strong competition, mainly on the part of the leading entities and many small distributors concentrated in local markets and market niches. Furthermore, the process of increasing the total number of selling outlets of car spare parts results in the risk of a temporary reduction of prices by entities which intend to increase their market share. Efforts to attract new clients will increase the competition and, as a consequence, the pressure to ensure a more and more attractive offer for clients. Risk related to changes of the suppliers policy to the Group The Group s offer includes car spare parts from over 350 suppliers. In relation to the great number of orders placed by the Group, some key suppliers grant bonuses to the Group for the completion of purchase plans which influence financial results of the Group significantly. Diversification of purchases may reduce the levels of bonuses granted for the completion of purchase plans. There is a risk that the policy of the suppliers to the Group will change, what will consist in the change of the distribution strategy in the Polish market by introducing new distributors, change of the bonus policy, or termination of the cooperation with Fota S.A. Risk related to distribution channels A great majority of the sales of the Group is directed to garages and car shops which operate in local markets. There is a risk that the garages will not adapt to technological changes in car construction and new legal regulations, in particular those related to environmental protection. The Group has supported the development of garages for a long time, through the organization of trainings and cooperation in the purchases of equipment. The other possible direction of changes is the establishment of a network of independent garages gathered around a spare parts manufacturer. In the opinion of the Management Board of the Company, the development of this distribution channel is limited due to no possibility of a comprehensive supply of clients with parts by one manufacturer. Vehicle manufacturers aim at the development of original parts distribution through dealer networks, reducing prices significantly and introducing loyalty programmes. At the same time, they include parts of comparable quality with competitive prices to their offers. Higher costs of functioning of authorized dealers reduce their competitiveness in the repair market significantly as compared to independent garages. Risk of the involvement of the Company in subsidiaries In relation to the involvement of the Company in operations on markets other than Poland through its subsidiaries, risk related to the operations of these entities in the local markets should be taken into account, in particular risk related to local economic conditions, market conditions, and the possibility of reaching by the companies a sufficient scale of operations which enables the

13 generation of positive financial results. A failure to reach a sufficient scale of operations in the local markets may have a significant influence on the financial results of the Capital Group. Risk of leaving of key employees and agents managing branches of the Group Financial results obtained by the Group depend, to a great extent, on the competences, experience, and dedication of its key employees and agents. For the stability of human resources, it is significant to implement programmes with the goal to motivate and increase the loyalty of key employees to entities being members of the Group. At the same time, there is a risk that agents managing Fota branches will start competitive activities. The Group contains this risk by financial attractiveness and security of contracts made with agents. Internal control system Due to the scope and manner of the conducted activities, the assets of the Group are dispersed territorially. Their security depends on, among other things, an efficient internal control system. Possible weaknesses of an internal control systems or gaps in its functioning may have an influence on the value of the Group s assets and, as a consequence, on financial results. If any gaps in the control system are determined, the Management Board of the Parent Company takes actions to eliminate them. 9. Information on pending proceedings concerning liabilities or receivables of Fota S.A. or its subsidiaries As at the date of these financial statements, entities being members of the Group are parties to many court cases in which they act as plaintiffs. In 2012, none of the following were pending before a court, a body appropriate for arbitration proceedings, or a governmental administration body: proceedings concerning liabilities or receivables of the Company or its subsidiaries of the value of at least 10% of the equity of the Company; two or more proceedings concerning liabilities or receivables of the Company or its subsidiary of the total value of at least 10% of equity of the Company. In case of overdue trade receivables, the entities being members of the Group take debt collection activities, including court debt collection. Receivables in court are included in a revaluation writeoff. The Company also conducts debt collection activities and, in required cases, appropriate legal activities related to claims to agents who managed Fota S.A. branches with whom the Company decided to terminate cooperation as a result of identified breaches of the agreements. 10. Information on making by the Issuer or its subsidiary of one transaction or many transactions with affiliates if they are significant as a single transaction or in total and if they were made on conditions other than market conditions In the reporting period, the Company or its subsidiary did not make transactions with affiliates on conditions which significantly differ from market conditions. 11. Description of the use by the Company of income from issues of securities

14 In the year ended on 31 December 2012, Fota S.A. did not issue securities. 12. Changes in basic principles of managing the business establishment Key changes in the principles of managing the business establishment of the Parent Company in 2012 concerned: the organizational scheme and responsibilities of members of the Management Board concerning functional areas, organization of work and remuneration principles of employees of the Sales Department, organization of work and remuneration principles of employees of the Department of Assortment Management and Purchases.

15 III. FOTA S.A. CAPITAL GROUP Material, financial, and profit-related situation of the Capital Group 1. Financial result of the Fota S.A. Capital Group The table below presents selected data from the consolidated statement of comprehensive income : [in thousands PLN] Year ended on 31 Dec 2012 Year ended on 31 Dec 2011 Difference Difference % Revenue 705, ,528 (22,803) -3.1% Own costs of sales (572,461) (565,482) (6,979) 1.2% Profit on sales before tax 133, ,046 (29,782) -18.3% Gross margin on sales (%) 18.9% 22.4% -3.5% Costs of sales (102,515) (106,351) 3, % Costs of ordinary management (30,417) (34,052) 3, % Profit on sales ,643 (22,311) -98.5% Margin on sales (%) 0.0% 3.1% -3.1% Other operating activities (13,686) 1,283 (14,969) -1,166.7% Profit (loss) on operating activities (13,354) 23,926 (37,280) % EBIT (%) -1.9% 3.3% -5.2% Financial activities (4,226) (13,544) 9, % Profit/(loss) before tax (17,580) 10,382 (27,962) % % -2.5% 1.4% -3.9% Income tax 5,550 (2,736) 8, % Net profit/(loss) on continued activities (12,030) 7,646 (19,676) % % -1.7% 1.0% -2,8% Discontinued activities (8,497) (5,246) (3,251) 62.0% Net profit/(loss) (20,527) 2,400 (22,927) % % -2.9% 0.3% -3.2% EBITDA (4,739) 32,739 (37,478) % EBITDA (%) -0.7% 4.5% -5.2% In 2012, net revenue on the continued activities of the Group was PLN M and decreased by PLN 22.8 M (3.1%) as compared to These results were influenced significantly by the reduced sales of spare parts recorded by the Parent Company (8.6%). This reduction was partly compensated with the increased sales of tyres by Art Gum, 9.0% year to year. Consolidated gross margin in 2012 was PLN M and decreased by PLN 29.8 M (18.3%) as compared to The Group recognized a decrease of gross profitability by 3.5 pp, what was the result of the reduced return on sales of tyres as well as of spare parts. This reduction is a result of increased price pressure in the Polish markets and in markets abroad. Costs of sales of the Group in 2012 decreased by PLN 3.8 M (3.6%) as compared to The increase of the costs of sales in the first quarter of 2012 by PLN 2.6 M as compared to the analogical period of 2011 was compensated with the reduction of costs by PLN 6.4 M in the next 3

16 quarters as compared to the analogical period of The costs of ordinary management were lower as compared to 2011 by PLN 3.6 M (10.7%). In 2012, the Group recognized a loss on operating activities of PLN 13.3 M. This loss was, to a great extent, a result of one-time events (app. PLN 10.1 M) related to the termination of contracts with agents who committed a glaring breach of cooperation rules and, as a consequence, to the necessary revaluation write-offs on the Company s assets. The cleaned result on continued operating activities for 2012 was PLN -3.2 M. The result on continued operating activities for 2011 was PLN 23.9 M and included PLN 4.2 M of net income on account of a settlement made with Chartis Europe. The consolidated EBITDA for 2012 was PLN -4.7 M, while in the comparable period in 2011, the consolidated EBITDA was PLN 32.7 M. The Group s EBITDA cleaned of onetime events for 2012 was PLN 5.4 M. In 2012, the Group recorded a net loss on financial activities of PLN 4.2 M (2011: PLN 13.5 M). Net costs of interest were PLN 7.1 M and were higher by PLN 0.5 M as compared to In 2012, the Group recognized net positive translation differences of PLN 3.6 M (2011: negative translation differences were PLN 1.3 M). In 2012, the Group generated a consolidated net loss on continued activities of PLN 12.0 M. In 2011, net profit of the Group was PLN 7.6 M. Consolidated net result for 2012 includes the result on the discontinued activities of PLN -8.5 M, including loss on the operations of Autoprima Czechy of PLN 3.5 M (2011: 5.1 M) and the result of the deconsolidation of that company (PLN -5.0 M). [thousands PLN] Year ended on 31 Dec 2012 Influence of onetime events Year ended on 31 Dec 2012 (cleaned) Revenue 705, ,725 Profit on sales before tax 133, ,264 Profit on sales Other operating activities (13,686) 10,099 (3,587) Profit/(loss) on operating activities (13,354) 10,099 (3,255) Financial activities (4,226) (4,226) Profit/(loss) before tax (17,580) 10,099 (7,481) Income tax 5,550 (4,985) 565 Profit/(loss) on continued activities before tax (12,030) 5,114 (6,916) Discontinued activities (8,497) 8,497 - Net profit/(loss) (20,527) 13,611 (6,916) % -2.9% -1.0% EBITDA (4,739) 10,099 5,360 EBITDA (%) -0.7% 0.8% The table below presents selected data from the consolidated statement of financial situation as at 31 December 2012:

17 [thousands PLN] 31 Dec Dec 2011 Difference Difference % ASSETS Non-current assets Property, plant and equipment and intangible assets 65,285 70,089-4, % Other non-current assets 17,900 11,911 5, % Current assets 83,185 82,000 1, % 20% 19% Inventories 228, ,950-26, % Trade receivables 85,914 78,335 7, % Cash and cash equivalents 8,607 22,286-13, % Other current assets 1,364 3,192-1, % 324, ,763-34, % 80% 81% Assets held for trading % TOTAL ASSETS 407, ,879-33, % EQUITY AND LIABILITIES Equity 123, ,785-21, % 30% 33% Long-term liabilities Interest-bearing borrowings 2,412 4,239-1, % Other financial liabilities 3,194 5,033-1, % Provisions % 5,981 9,669-3, % 1% 2% Short-term liabilities Trade liabilities 137, ,399-4, % Interest-bearing borrowings 121, ,414 5, % Other financial liabilities 6,848 12,015-5, % Other short-term liabilities 11,408 15,579-4, % 277, ,407-8, % 68% 65% Liabilities related to assets held for trading % TOTAL EQUITY AND LIABILITIES 407, ,879-33, %

18 The table below contains selected data from the consolidated statement of cash flows of the Group : [in thousands PLN] Year ended on 31 Dec 2012 Year ended on 31 Dec 2011 Difference Difference % Operating net cash flows (1,074) (16,088) 15,014-93% Investing net cash flows (1,786) (9581) 7,795-81% Financing net cash flows (10,845) 29,757 (40,602) -136% Movement in cash (13,705) 4,088 (17,793) -435% Opening cash 22,399 18,311 Closing cash 8,694 22, Explanation of differences between the financial results recognized in the annual statement and predictions of results for the year published beforehand The Management Board of Fota S.A. did not publish predictions of results of the Parent Company and the Capital Group. 3. Assessment and justifications concerning the management of financial resources (payment of liabilities) In the opinion of the Management Board, the Group manages available financial resources in the rational and optimum manner. As a part of financial resources management, the Group uses bank loans, finance lease agreements, lease agreements with purchase option, factoring, cash, and shortterm deposits. The main purpose of these instruments is to obtain funds for the operations of the Group and to pay financial liabilities to suppliers promptly. The Group also has other financial instruments, such as trade receivables and liabilities, which arise directly during the operations of the Group. The main risk for the payment of liabilities identified by the Company is the risk related to no continued financing of the Group s operations by financial institutions. The Group prevents this risk by conducting negotiations with banks concerning continued financing for the Company. 4. Assessment of possibilities of reaching investment goals The planned investment outlays of the Group in 2013 are app. PLN 3.5 M. They include outlays related to the development of the functionalities of the integrated IT system and other systems supporting the activities of the Company and outlays for additional equipment of establishments and employees of Fota S.A., including without limitation means of transport and computer and office equipment. The completion of adopted investment plans depends on the availability of the financing.

19 IV. FOTA S.A. CAPITAL GROUP Information on managing and supervising persons 1. Value of remuneration, bonuses, and benefits received by supervising and managing persons (including those received from subsidiaries) Detailed information concerning values of remuneration, bonuses, and benefits received by supervising and managing persons, including those received from subsidiaries, are presented in note 36.7 to the consolidated financial statements. 2. Total number and nominal values of shares of the issuer and shares in subsidiaries held by managing and supervising persons The shareholding structure of Fota S.A. shares by supervising persons as at 31 December 2012: Bogdan and Lucyna Fota 6,500,000 shares of the nominal value of PLN 13,000,000 (62,500 series A shares; 1,625,000 series B1 shares; 4,812,500 series B2 shares). The shareholding by managing persons as at 31 December 2012: President of the Management Board of Fota S.A. (the obligated person did not consent to the publication of personal data) 17,579 shares of the nominal value of PLN 35,158 (series B2 shares) Member of the Supervisory Board of Fota S.A. (the obligated person did not consent to the publication of personal data) 7,287 shares of the nominal value of PLN 14,574 (series B2 shares) From 31 December 2012 to the date of these statements, no changes in the above shareholding took place. Shares are also held by people closely related to persons supervising and managing the Company (within the meaning of art. 160 (2) of the Act of 29 July 2005 concerning financial instruments trade): Person no. 1 4,335 ordinary bearer shares purchased on 22 November Person no ordinary bearer shares purchased on 25 October Person no. 3 1,025 ordinary bearer shares purchased on 28 November From 31 December 2012 to the date of these statements, no changes in the above shareholding took place. Except for the above, the Company does not have any information concerning shares in subsidiaries held by managing and supervising persons. 3. Agreements made between the Company and managing and supervising persons providing for a compensation in case of resignation or recalling from the held position Based on a resolution of the Supervisory Board, the President of the Company has the right to receive a gratuity of gross PLN 138,000 in case he is recalled from the function of the President of the Management Board of FOTA S.A. The gratuity will be paid in six equal monthly instalments on

20 condition that the beneficiary refrain from starting competitive activities in this period. The Company has not made any agreements with managing and supervising persons providing for a compensation in case of resignation or recalling from the held position. 4. Information on the control system of employee share schemes No employee share schemes operate in the Company.

21 V. Representation about the applied corporate governance principles This representation was drawn up based on 91 (5) (4) of the Regulation of the Minister of Finance of 19 February 2009 concerning current and periodic information disclosed by security issuers and the conditions of recognizing information required with legal regulations of non-member states as equivalent (Dziennik Ustaw No. 23, item 259). 1. Identification of the principles of corporate governance In 2012, FOTA S.A. applied corporate governance principles presented in the appendix to the Resolution of the Stock Exchange Board no. 20/1287/2011 of 19 October 2011 titled Good Practice of WSE-listed Companies, which were subsequently modified with the Resolution of the Stock Exchange Board no. 19/1307/2012 of 21 November These principles are available on 2. Identification of principles which the Company has resigned from The Company applies most of principles listed in the document specified above as a whole, except for the principles described below, which are not applied permanently or temporarily or which are applied in a limited scope: Principle I.1 The Company should conduct a transparent and efficient information policy, using traditional methods as well as modern technologies and the latest communication tools, ensuring the speed, safety, and effective access to information. Using these methods to the greatest possible extent, the Company should, in particular: maintain a website with a scope and manner of presentation based on the model investor relation portal available on naszmodel.gpw.pl/; ensure proper communication with investors and analysts, also using modern Internet communication techniques; enable the transmission of the General Meeting using the Internet, record the course of the General Meeting, and publish it on its website. The Company conducts a transparent and efficient information policy, which ensures proper communication with investors and analysts, using traditional communication methods; therefore, the Company has resigned from transmitting and recording the General Meeting using the Internet, recording the deliberations of the General Meeting, and publishing it on the Company s website. The introduction of these solutions would be related with costs which are unnecessary, in the opinion of the Company. If shareholders are more interested in using these means of communications, the Management Board does not exclude the possibility of using them. Principle I.5 The Company should implement a remuneration policy and principles of determination of this policy. The remuneration policy should, in particular, describe the form, structure, and level of remuneration due to members of the supervising and managing bodies. When determining the remuneration policy concerning members of supervising and managing bodies of the company, the company should apply the recommendations of the European Commission of 14 December 2004 concerning the fostering an

22 appropriate regime for the remuneration of directors of listed companies (2004/913/EC), complemented with the recommendations of the European Commission of 30 April 2009 (2009/385/EC). The Company has a remuneration policy; however, it does not include the determination of remuneration of members of the bodies. Remuneration of members of the Company s bodies is related to the scope of tasks and responsibilities resulting from the held position; it reflects the size of the company, its financial results, and does not differ from market rates. The total value of remuneration of members of the bodies and individual remuneration of each member is disclosed in the annual report. The remuneration of members of the Supervisory Board was specified in a resolution of the General Meeting. The remuneration and other principles of employment of members of the Management Board are specified by the Supervisory Board. They are determined individually. Principle I.9 WSE recommends that public companies and their shareholders ensure a balanced share of women and men in performing the management and supervisory functions in business establishments, what strengthens creativity and innovation of economic activities conducted by companies. The Company may not definitely declare that it will ensure balanced share of representatives of both sexes in the management and supervisory functions in the Company. Basic criteria of selecting people performing the management and supervisory functions are the competences and skills of a candidate which guarantee their ability to perform the entrusted function properly. Principle I.12 The Company should provide the shareholders with the possibility of participating in the General Meeting using means of electronic communication, consisting in: (i) the transmission of the General Meeting in real time, (ii) two-way communication in real time, which includes the possibility for the shareholders to speak during the General Meeting while being in a different place than the place where the General Meeting is held, (iii) exercising the right to vote during the General Meeting in person or by proxy. The implementation of the solutions listed above would be related to costs which are, in the opinion of the Company, unnecessary because of, among other things, the shareholding structure. If shareholders are more interested in using these means of communication, the Management Board does not exclude the possibility of using them. Principle II.1.2a Publishing the information on the share of women and men in the Management Board and the Supervisory Board of the Company in a two-year period, annually, in the fourth quarter, on a website. The Company has resigned from this principle as a consequence of resigning from the principle I.9. Principle II.2 The Company ensures that its website operates also in English, at least within the scope specified in part II.1. The Company ensures that its website operates in English in part. The Company thinks it is unnecessary to ensure that its website operates in English within the scope required by the above

23 principle because it would result in high costs. If English-speaking shareholders are more interested, the Management Board does not exclude a wider or full application of the principle II.2. Principle II.6 and Principle III.3 Members of the Management Board should participate in the General Meeting so as to ensure the provision of substantial answers to questions asked during the Meeting. Members of the Supervisory Board should participate in the General Meeting so as to ensure the provision of substantial answers to questions asked during the Meeting. The presence of all members of the Management Board and the Supervisory Board was not always possible and will not always be possible due to technical reasons and due to their current responsibilities resulting from the operating activities of the Company. Therefore, 5 (3) of the rules of the General Meeting states that representatives of the Supervisory Board and the Management Board should be present at the General Meeting. Principle III.8 With regard to the tasks and functioning of committees operating in the Supervisory Board, Appendix I to the Recommendation of the European Commission of 15 February 2005 on the role of non-executive directors ( ) should be applied. Since there are no committees in the present structure of the Supervisory Board, the Company does not apply the recommendations contained in Appendix I to the Recommendation of the European Commission. If committees are formed, this recommendation will be applied as a whole. In 2012, the Supervisory Board of the Company was composed of 5 people, i.e. the minimum number of people provided for a public company. In such a case, the responsibilities of an audit committee may be performed by the Supervisory Board. The Company s articles of association provide for a possibility of forming an audit committee. At present, due to the fact that the Supervisory Board is composed of 5 people, based on the resolution of the Supervisory Board no. 1 of 29 October 2009, the responsibilities of the audit committee are performed by all members of the Supervisory Board. 3. Description of the main properties of the internal control system and the risk management system operating in the issuer s business establishment in relation to the process of drawing up financial statements and consolidated financial statements The internal control system and its efficiency in the process of drawing up financial statements and periodic reports prepared and published by security issuers are the responsibilities of the Management Board. In order to secure the correctness, reliability, and consistency of financial statements with legal regulations in effect, the Company uses elements of the internal control system and the risk management system. The internal control system is based on: organization rules of the Company, accounting policy, integrated ERP IT system. The elimination of risk related to the process of drawing up financial statements is based on: activities of the Management Board, which is responsible for full identification of risk and adoption of accounting policies applied in the Company,