ANNUAL STATEMENT OF PAINTS AND VARNISHES PLANT ŚNIEŻKA SA WITH ITS SEAT IN LUBZINA FOR 2013

Transcription

1 ANNUAL STATEMENT OF PAINTS AND VARNISHES PLANT ŚNIEŻKA SA WITH ITS SEAT IN LUBZINA FOR 2013

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3 1. Principle information about FFiL Śnieżka SA with its seat in Lubzina 1.1. Paints and Varnishes Plant Śnieżka SA facts and figures Paints and Varnishes Plant Śnieżka SA recorded the following financial results in 2013 as regards sales and profit: revenues of FFiL Śnieżka SA in 2013 amounted to PLN 468 m, i.e. a 99% dynamics compared to the same period of the previous year, operating profit amounted to PLN 27.3 mln (105 % dynamics compared to 2012 ), net profit in 2013 amounted to PLN 21.9 m, (100 %) (compared to the previous year) Table 1. Financial highlights of FFiL Śnieżka SA between 2012 and 2013 Report revenue dynamics Sales revenues PLN million % Sales results PLN million % EBITDA PLN million % EBIT PLN million % NET profit PLN million % Financial report Balance sheet total PLN million % Fixed assets PLN million % Current assets PLN million % Equity PLN million % Liabilities and reserves PLN million % Financial ratios Earning per share (EPS) PLN % Dividend per share (DPS) PLN % Price Earning ratio(p/e) % Current ratio % Quick ratio % Return on assets (ROA) % 6% 6% 97% Return on Equity (ROE) % 15% 15% 102% Liability ratio % 56% 52% 108% Sustainability of financing % 62% 64% 97% Production outcome Production of paints and varnishes Million l/kg % Other data Market value of company equity PLN million % Investments in material PLN million % Capital investments PLN million % Employment ratio Persons % Strona 3

4 Organizational and capital relationships The Capital Group and capital relationships as at 31 December Graph 1 Organization structure FFiL Śnieżka SA Śnieżka-Ukraina Sp. z o.o. Yavoriv 82.52% shares In Śnieżka BelPol Wspólna Sp. z o.o. in Zhodino near Minsk 99.00% shares Śnieżka Sp. z o.o in Wistowa 100% shares (indirectly) TM Investment Sp. z o.o. In Brzeźnica 100% shares Sniezka EastTrade Sp. z o.o. in Moscow 100% shares Hadrokor Sp. z o.o. in liquidation in Włocławek 51.09% shares Plastbud Sp. z o.o. in Pustków 10.07% shares Collaboration with related entities and comprising the Capital Group: Śnieżka Ukraina Sp. z o.o. in Yavoriv is one of the manufacturers of paints and putties in Ukraine and the main distributor of FFiL Śnieżka SA products. Its products are sold under Śnieżka and Otto farbe brands. It has a considerable output potential as well as its own network of customers, Strona 4

5 Śnieżka Sp. z o.o. in Wistowa - the Company s production assets and operating activity have been transferred to Śnieżka Ukraina Sp. Z o.o. in Yavoriv. The company is being put in the last stage of liquidation process, Sniezka EastTrade Sp. z o.o. in Moscow the company s scope of activities in 2013 was to arrange promotional and marketing support on the Russian market, Hadrokor Sp. z o.o. in liquidation in Włocławek - On 3 July 2013 the Extraordinary Assembly of Partners of Hadrokor Sp. z o.o., adopted a resolution to go into liquidation. The products manufactured by the company have been transferred to FFiL Śnieżka SA, as a result the liquidation of the subsidiary did not affect the amount of consolidated revenues generated by the Śnieżka Capital Group. Śnieżka - BelPol Wspólna Sp. z o.o. in Zhodino near Minsk is one of the manufacturers of putties, paints and varnishes in Belarus. Its products are sold under Śnieżka brand. It has its own network of wholesale and retail customers, TM Inwestment Sp. z o.o. in Brzeźnica the company s scope of activities is granting licences to use trademarks by related companies within the Capital Group. The company creates new trademarks and development strategies for product groups. Moreover, collaboration with capital related entities concerned the following companies: Plastbud Sp. z o.o. in Pustków - manufacturing colouring compounds COLOREX and colorants for Śnieżka s tinting systems. In addition, it supplies various raw materials and products Core domestic and foreign investments On 23 May 2013 Sniezka EastTrade Sp. z o.o., a subsidiary was registered at the Revenue Office in Moscow. Shares amounting to RUR (say: one hundred thousand RUR) have been wholly taken up by FFiL Śnieżka SA. The company arranged promotional and marketing support on the Russian market. On 3 July 2013 the Extraordinary Assembly of Partners of Hadrokor Sp. z o.o. based in Włocławek, adopted a resolution to go into liquidation. The products manufactured by the company have been transferred to FFiL Śnieżka SA, as a result the liquidation of the subsidiary did not affect the amount of consolidated revenues generated by the Śnieżka Capital Group. On 26 August 2013 the share capital of consolidated subsidiary was increased to the Issuer - Śnieżka-BelPol Wspólna Sp. z o.o. based in Zhodino, Belarus from initial USD to USD (say: four hundred and twenty-four thousand, five hundred US dollars) by making additional contributions. Hence, the share capital of the Company was increased by amount of USD (say: three hundred thousand US dollars). All business partners covered the shares of the increased share capital of Śnieżka BelPol Wspólna Sp. z o.o. in proportion to current amount of their shares in the company s capital. FFiL Śnieżka SA with its registered seat in Lubzina entered into possession of shares amounting to USD (say: two hundred and ninetyseven thousand US dollars). Mr Anatolij M. Niewmierżycki acquired shares in the total amount of USD (say: three thousand US dollars). The aforementioned capital increase was registered at the competent district court on 2 September As a result of the capital increase, the structure of shareholders of Śnieżka BelPol Wspólna Sp. z o.o, after amendments, is as follows: Strona 5

6 o FFiL Śnieżka SA 99% shares at the total amount of USD , o Mr Anatolij M. Niewmierżycki 1% shares at the total amount of USD On 14 November 2013 the Extraordinary Assembly of Shareholders of FFiL Śnieżka SA with its registered seat in Lubzina, adopted a resolution on merger of FFiL Śnieżka SA with its registered seat in Lubzina (Acquiring Company), IP Solutions Sp. z o.o. with its registered seat in Brzeźnicy (Acquired Company I) and FFiLP Proximal Sp. z o.o. Snieżka Group with its registered seat in Lubzina (Acquired Company II) by: transferring the total assets of Acquired Company I and Acquired Company II to Acquiring Company (merger by acquisition), dissolution of Acquired Company I and Acquired Company II without carrying out a liquidation process. The merger was conducted pursuant to Art KSH i.e. without increasing the share capital of FFiL Śnieżka SA and without amendments to the Articles of Associations of FFiL Śnieżka SA, as well as in accordance with mutual Merger Plan, agreed on 20 September 2013 between the Management of FFiL Śnieżka SA, IP Solutions Sp. z o.o. and FFiLP Proximal Sp. z o.o. Śnieżka Group. Moreover, the Extraordinary Assembly of Shareholders of FFiL Śnieżka SA consented to the plan as of 20 September 2013, stipulating merger procedures of FFiL Śnieżka SA with its registered seat in Lubzina (Acquiring Company), IP Solutions Sp. z o.o. with its registered seat in Brzeźnicy (Acquired Company I) and FFiLP Proximal Sp. z o.o. Snieżka Group with its registered seat in Lubzina (Acquired Company II). Due to the fact that the Acquiring Company was the sole shareholder of Acquired Company I and Acquired Company II, the merger referred to in item 1, was carried out by small claims track with restrictions resulting in the fact that the Acquiring Company is a public company. On 23 December 2013 the aforementioned merger was registered at the District Court in Rzeszów, 12 th Commercial Division KRS. 23 December 2013 shall be deemed as the day of merger. On 31 March 2014 the Extraordinary Assembly of Partners of Hadrokor Sp. z o.o. company in liquidation with its registered seat in Włocławek, adopted a resolution on approval the financial report as at the day to close the Company s books of accounts and grant a vote of acceptance to the Company Management. On 31 March 2014 a motion was put forward to the competent District Court in Toruń, 7 th Commercial Division KRS to delete the Company from the Register of Entrepreneurs Amendments to management principles both the Company and the Śnieżka Capital Group In 2013 FFiL Śnieżka SA (Acquiring Company) took over subsidiaries: IP Solutions Sp. z o.o. (Acquired Company I) and Proximal Sp. z o.o. Śnieżka Group (Acquired Company II) which were dissolved the very same year. The merger was carried out pursuant to Art Strona 6

7 item 1, Code of Commercial Companies, i.e. by transferring the total assets of Acquired Company I and Acquired Company II to Acquiring Company (merger by acquisition) and dissolution of Acquired Company I and Acquired Company II without carrying out liquidation proceedings. In July 2013 the Extraordinary Assembly of Partners of Hadrokor Sp. z o.o. in Włocławek, adopted a resolution to put Hadrokor Sp. z o.o. company into liquidation (FFiL Śnieżka SA subsidiary). A motion to commence liquidation proceedings was put forward to the District Court in Toruń. Production of major products, which had been manufactured by the company, was transferred to FFiL Śnieżka SA, as a result the company s liquidation did not affect significantly the amount of consolidated revenues generated by the Śnieżka Capital Group. Merger and dissolution of subsidiaries contributed to facilitation of ownership structure and enabled to consolidate the Śnieżka Group in terms of concentration on conducting core operation activities by FFiL Śnieżka SA, which previously had been divided into other subsidiaries. Merger by acquisition, in the long run, allows to optimize revenues of merging companies and facilitate functionality of the Group, both from the economic, organizational and legal point of view. In particular, as a result of merger, administrative costs have been diminished, including expenses incurred in the process of management and reporting. Additionally, the merger has increased transparency of the Śnieżka Capital Group structure Remuneration policy with regard to the management and supervisory bodies Table 2. Remuneration of the Management Board members of the Company ( in PLN 000) Remuneration and bonuses in 2013 Income from subsidiaries in 2013 Remuneration and bonuses in 2012 Income from subsidiaries in 2012 Piotr Mikrut Waśko Witold Wróbel-Lipa Joanna Total Table 3. Remuneration of the Supervisory Board members of the Company ( in PLN 000) Remuneration and bonuses in 2013 Income from subsidiaries in 2013 Remuneration and bonuses in 2012 Income from subsidiaries in 2012 Cymbor Stanisław Łapiński Zbigniew Mikrut Stanisław Orłowski Dariusz Pater Anna Pater Jerzy Total Strona 7

8 As of 31 December 2013 the members of management and supervisory bodies had no overdue amount of granted loans by the Company Contracts concluded with the management bodies stipulating compensations in the event of their resignation or dismissal without providing serious reasons or their dismissal or recalling followed by merger or takeover The Company concludes regular contracts of employment with the management bodies and does not envisage any special compensations in the event of their resignation or dismissal. As a result of dismissal or recalling followed by merger or takeover, no additional compensations are paid Number and nominal value of Company s shares as well as shares in related companies acquired by the management and supervisory bodies The management and supervisory bodies acquire no shares in related companies. The number of Issuer s shares acquired by the management and supervisory bodies as of 31 December Members of the Management Board Piotr Mikrut shares of nominal value of PLN Witold Waśko shares of nominal value of PLN 198 Members of the Supervisory Board Jerzy Pater shares of nominal value of PLN , including direct number of shares, of nominal value of PLN Stanisław Cymbor shares of nominal value of PLN , including direct number of shares, of nominal value of PLN Stanisław Mikrut shares of nominal value of PLN Changes in the Company s share capital As of 31 December 2013 equity amounted to PLN comprising shares of the nominal value of PLN 1. On 3 June 2013 the General Assembly of Shareholders decreased the share capital of the company from PLN (say: thirteen million five hundred and fifty thousand, six hundred and seventy-six Polish Zloty) to PLN (say: twelve million six hundred and seventeen thousand, seven hundred and seventy-eight Polish Zloty). The capital decrease was followed by redemption of own shares, Series F, amounting to items, of PLN value (say: nine hundred and thirty-two thousand, eight hundred and ninety-eight). The capital decrease was a result of acquiring own shares of Series F by the Company, in order to redeem them by virtue of Resolution No. 4/2012 of Extraordinary Assembly of FFiL Shareholders, which was held in Lubzina on 2 April 2012, on consent of the Management Board to acquire its own shares to be redeemed. Strona 8

9 The amendment was registered at the District Court in Dębica on 18 July 2013 (Court Register: RZ.XII NS-REJ.KRS/011170/13/436) Agreements regarding prospective amendments to the structure of shares There are no agreements, according to the Company s which would affect the amendments to shares of FFiL Śnieżka SA 1.9. Employee share scheme In 2013 no employee share schemes were in operation Principles for preparation the annual financial report The process of financial report preparation is based on International Accounting Standards, International Financial Reporting Standards, accompanied by interpretations published in the form of European Commission regulations, the Accounting Act (in area not covered by IAS) as well as internal procedures stipulating interim reports provided to Warsaw Stock Exchange. The annual financial report for 2013 was carried out in accordance with IFRS, assuming that the Company is to continue its business activities in a foreseeable period of time. 2. Specific core activity of FFiL Śnieżka SA 2.1. Strategic objectives of the Company The long-term development strategy of the Company is to become a market leader in the market of paints and varnishes, both in Central and Eastern Europe, paying special attention to the following countries: Poland, Ukraine, Belarus, Moldavia and Russia. The Company will carry out its strategy by further accommodating its offers to consumers demands on local markets of the aforementioned countries. The development strategy of the Company envisages a particular activity within the following three areas enhancement of goods delivered by the Company to chains of construction supermarkets (DIY), both in Poland as well as Ukraine and Russia, further development of programmes to create a chain of stores and partnership stores of Śnieżka, including key foreign markets, capital investments associated with potential canvassing opportunities in Central and Eastern Europe Moreover, the Company intends to increase its potential by winning new markets as well as developing the following portfolio brands: Śnieżka, Magnat, Vidaron, Foveo-Tech, Beston, Proximal. Within the strategy, the Company is also interested in organic development and increased capital investments. The Company has also set the following objectives: building solid and friendly rapport with both business partners, employees, shareholders as well as consumers, based on mutual trust and understanding. The Company still strives to provide Strona 9

10 support for its business partners, distributors and retailers in the area of IT, marketing and training, by demonstrating, that thanks to close cooperation, a strong position of the company can be built. The Management of the Company conforms that the objectives set forward will be carried out in accordance with the current consistency. Harmonious development, based on the adopted strategy, will allow the Company to achieve a leading position on the key markets Review of financial figures Table 3. Key items in the report of comprehensive income (in PLN 000) Detailed list (in PLN 000) 2013 profitability 2012 profitability Change 2012 Change rate Sales revenue ( 5 257) 99% Prime cost of sale ( ) 94% Gross profit / (loss) on sales % % % Selling costs % General administrative expanses % Other operating revenue % Other operating expenses % Operating profit / (loss) % % % Financial revenue (2 212) 63% Financial costs (772) 84% Gross profit / (loss) % % (92) 100% Income tax (28) 99% Net profit / (loss) % % (64) 100% EBITDA (EBIT + depreciation) % Sales revenue of the Company in 2013 amounted to PLN , i.e. a decrease of PLN and dynamics of 99% compared to the previous year. Sales revenue comprises mainly revenues from sales of products. As a result, their share in the revenue structure in 2013 accounted for 84%, the dynamics of sales growth amounted to 101.3%, i.e. an increase of PLN , compared to Other revenue (16.5%) comprises sales of products and materials. Within the sales structure the domestic sales predominates (78%), whereas export constitutes 22%. The graph below presents the aforementioned data. Sales analysis according to revenue category accounts for 74% of sales result in sales of decorative products, the second significant group comprises chemical products which amounts to 14%. Graph 1. Sales structure by countries in 2013 Strona 10

11 In 2013 the greatest sales group of products were water-based products, whose sales value was 55%. Another group was solvent products with a 38% value, whereas the value of other products was 7%. Comparison of sales values with relation to the previous year is also favourable, finally a 3% growth was reported. The sales analysis shows that the value of sold water-based products in 2013 amounted to PLN 212m and was higher of 1% compared to the previous year. The value of solvent products amounted to PLN 148m and was also higher of 1% compared to the previous year, whereas the sales value of other products amounted to PLN 26m, i.e. a 8% increase compared to Sales of goods amounted to PLN 56m and was decreased by 7%, compared to the previous year. Sales of materials amounted to PLN 21m and was lower of 21% compared to the previous year, whereas other sales (services) amounted to PLN 4.8 and decreased by 14% compared to Sales value comparison of products and goods with relation to the previous year in particular groups is as follows: quantitative sales of water-based products amounted to 47 million litres and decreased by 3% compared to the previous year, sales of solvent products amounted to 12 million litres with 98% dynamics. Sales of other products amounted to 25 million l/kg and increased by 24% compared to Quantitative sales of materials amounted to 7.4million l/kg and decreased by 4% compared to The Issuer does not disclose quantitative sales of materials and services due to various units (tones, litres, items) insignificance data, which does not affect the core activity of the Issuer. A significant impact on the amount of operational costs has sales costs of products, goods and materials. In 2013 they comprised the total costs of 69%. Since 2012 a pace of changes in manufacturing costs of sold products, goods and materials amounted to 94% in 2013, which had a positive impact on obtained gross sales profit, an increase of PLN and dynamics of 110% was reported compared to the previous year. A pace of increased manufacturing costs was lower than sales revenue increase of 5%, which contributed to sales profitability of (+3.6%). Lower prices of raw materials and more favourable exchange rates contributed to this. In comparison with 2012 sales costs increased by 12% and general costs by 6% which was a result of adopted strategy of the company in this area. Strona 11

12 In 2013 the total costs by type increased by PLN , mainly due to the following: increase of depreciation by 18%, which went up by 7.5% compared to the previous year, the total value of fixed assets put to use, increase of employee benefits by 6%. The most significant influence was triggered by changes in remuneration policies, depending on achieved effects, increase of third-party services by 16%, which principally resulted from increase of transportation services (increase of product sales) and marketing operations. The graph below presents a structure of costs by type: Graph 2. A structure of costs by type in 2013 Operating profit in 2013 amounted to PLN , compared to 2012 which was PLN , i.e. a growth of PLN and dynamics of 105% compared to the previous year. The balance on financial operations in 2013 was negative and decreased the operating profit by PLN , whereas in the previous year the balance amounted to plus PLN (the most substantial item in the previous year was exchange gains of PLN , whereas in 2013 the exchange gains amounted to PLN Dividend revenues occurred in financial revenues whose value in 2013 amounted to PLN , i.e. is a result of dividend payment strategy from subsidiaries disclosing profit. Simultaneously, the Company obtains interest on loans from related subsidiaries being at the initial stage of development, partly financing the said companies. Financial costs in 2013 decreased by PLN compared to 2012, mainly due to lower interest on loans and borrowings. Strona 12

13 Graph 1 Financial ratios Ratios were calculated in accordance with the methodology presented in Appendix A. The increased balance of loans and borrowings impacted the debt ratio, whereas the sustainability of the financial structure decreased, mainly due to increase of long-term liabilities in the structure of financing sources. The Company generated lower net profit which accounted for PLN , compared to Despite continuity of the new marketing strategy the change is insignificant, which impacted the increase of sales costs. Net profitability amounted to 4.7% and is higher of 0.1% in comparison with the previous year. In 2014 the Company strives to boost sales profitability and face actively all potential risks which might impact the plan execution. Graph 2 Return ratios Ratios were calculated in accordance with the methodology presented in Appendix A. Strona 13

14 Both return on assets (ROA) and return on equity ratios (ROE) remained on the same level as year before. Changes in basic liquidity ratios are presented in the graph below. Graph 3 Liquidity ratios Ratios were calculated in accordance with the methodology presented in Appendix A. Liquidity ratios constitute the relation of current assets or their more liquid part to short-term liabilities. An increase of cash had a significant impact on liquidity ratios, hence, despite an increase of average assets balance, the total value of cash remained on the same level as year before. The business activities of the Company are characterized by the following ratios: Table 4 Capital market ratios Details change share price at the end of the period 45,0 39,4 114% Market value of the Share market value x number of % Company* shares P/E (annualized profit) Market value per share/ earning 26,0 23,4 111% per share P/BX Market value per share/ accounting value 4,1 3,5 119% An increase of share prices by the end of 2013 had a significant influence on capital market ratios in 2013, which is presented by the graph below: Graph 4 Śnieżka quotations Strona 14

15 Table 5 Cash flows Details ( in PLN 000) change Net operating cash Net cash used in investment activities Nest cash from financing activities Net increase (decrease) in cash and cash equivalents The analysis of cash flows indicates that the Company generates positive cash flows from operating activities. An increase of 18% of depreciation as well as similar to the previous year net profit impacted the above. Cash used in investment activities in 2013 amounted to PLN (-) and covered mainly net expenses on acquisition of fixed assets and intangible assets in the amount of PLN (-) Items which positively impacted the cash used in investment activities is dividend obtained from subsidiaries in the amount of PLN (+) as well as inflows from sales of tangible fixed assets PLN (+) The item covers inflow from selling the property in Bytów. In 2013 cash used in financial activities amounted to PLN (-) and covered mianly expenses associated with dividend payments, PLN (-) , i.e. a growth of PLN , compared to the previous year. Inflows and expenses on loans and borrowings played a significant role, whose balance in the amount of PLN (+) , influenced positively the cash from operating activities. As a result of the aforementioned events, an increased balance of cash by PLN was reported in Finance and asset s situation On 23 December 2013 there was a merger of FFiL Śnieżka SA (Acquiring company) with subsidiaries: IP Solutions Sp. z o.o. (Acquired Company I) and FFiLP Proximal Sp.z o.o. Grupa Śnieżka (Acquired Company II). The financial statement for comparable periods were adjusted as if the merger occurred on 1 January 2012, in order to provide possibility to compare the information between the periods. All implemented changes which influenced the statements, are included in item 6 of the financial statement. The balance sheet total as of 31 December 2013 amounted to PLN , i.e. an increase of PLN , compared to the previous year. Strona 15

16 Table 6. Fixed and current assets Assets (in PLN 000) 2013 structure 2012 structure Changes dynamics to 2012 Fixed assets % % % Intangible assets % % % Tangible fixed assets % % % Long-term investment property % % (510) 96% Other long-term financial assets % % % Long-term receivables % % (248) 89% Deferred tax assets - 0% - Current assets % % % Inventory % % % Short-term trade receivables % % % Income tax receivables - 0% % (3 619) Other short-term receivables % % (967) 85% Other short-term financial assets 480 0% % (2 752) 15% Cash and cash equivalents % % % Fixed assets classified as held for sale 102 0% % (2 833) 3% Total Assets % % % Current asset value amounts to PLN A growth of PLN was reported in i.e. a 4% increase compared to the previous year. A significant item which influenced the increase of current assets was cash, whose balance at the end of 2013 increased by PLN compared to the previous year. Another item which significantly contributed to the increase of assets, was the increased balance of trade short-term receivables by PLN , which was followed by increase of sales in IV quarter of The Company attaches special importance to inventory reduction and as a result the level of inventory by the end of 2013, despite expanding a variety of products, increased by PLN compared to the end of 2012, and amounted to PLN The level of other short-term receivables was diminished by PLN compared to the previous year, which was mainly followed by VAT receivables. Other shortterm financial assets were decreased of PLN , due to decrease of short-term loans. Fixed assets - carrying amount is PLN and has increased by PLN compared to the balance as at 31 December 2012, i.e. a 2% growth. Changes result form the increase of net tangible and intangible fixed assets by PLN , mainly due to incurred investment expenses which accounted for PLN as well as adopted to investment utilization to total amount of PLN , at depreciation of (PLN ). Other long-term financial assets of PLN carrying amount, were increased by PLN , i.e. 9% compared to the previous year, the growth was followed mainly due to increase of shares by the Company in subsidiaries (PLN ) and increase of granted long-term loans (PLN ). Long-term receivables (the carrying amount of PLN ) decreased by PLN , since a partial repayment of granted loan to Spółki Śnieżka BelPol Wspólna Sp. z o.o occurred. The value of long-term investment properties was decreased by PLN , due to impairment write-off. Whereas, the balance of fixed assets available for sale is lower of PLN compared to the previous year, the said decline is for the sake of financial data Strona 16

17 comparability, due to recognition the Proximal company in the financial statement of FFiL Śnieżka SA. Consequently, the ratio of asset turnover maintained on the same level as year before, and other ratios of asset utilization, related to revenues, were below the expected values. Graph 5 Assets effectiveness ratios Ratios were calculated in accordance with the methodology presented in Appendix A. Sources of covering the assets In 2013 the share capital determined a strategic source of asset financing and its share in the balance sheet total amounted to 44%. In the report period the Company took advantage of additional financing sources in the form of bank loans and borrowings - their level increased of PLN compared to Collateral of loan agreements are usually fixed assets, inventory and assignment of receivables. The company makes use of services of a leading bank, Pekao S.A., moreover, the company concluded loan agreements with ING Bank Śląski, DNB NORD, PKO BP. Interest is calculated in accordance with WIBOR rate plus the bank s margin. Loan and borrowing charges in 2013 burdened the financial result in the amount of PLN , i.e. lower of PLN compared to the previous year. The total debt of the company as at 31 December 2013 included a loan of USD 13.1m, which is to hedge share capital of the Company s subsidiaries in Ukraine and Belarus. At the end of the year there were also leasing liabilities which amounted to PLN Strona 17

18 Table 7. Sources for financing assets ( in PLN 000) Liabilities and equity 2013 structure 2012 structure Change dynamics to 2012 Equity % % (9 975) 93% Share capital % % (933) 93% Called up share capital - 0% (28 920) -9% % Supplementary capital % % (38 544) 75% Revaluation capital - 0% - 0% - Shares/ own shares - 0% - 0% - Other reserve capital - 0% - 0% - Undistributed financial result % % % Liabilities % % % Long-term liabilities % % % Long-term loans and borrowings % % % Other long-term liabilities 126 0% 416 0% (290) 30% Deferred income tax provision % % (108) 96% Provision for employee benefits % % % Short-term liabilities % % % Short-term loans and borrowings % % % Trade and other liabilities % % (8 335) 78% Income tax liabilities % - 0% Other short-term liabilities % % % Short-term provisions 288 0% 242 0% % Accruals 170 0% 325 0% (155) 52% Total liabilities and equity % % % Significant changes regarded the following items of liabilities and equity: Equity, the carrying amount as at 31 December 2013 amounted to PLN , and decreased by PLN compared to 2012, mainly due to decrease of supplementary capital of PLN , - the main reason was redemption of own shares PLN (-) and dividend payment PLN (-) The net financial result which amounted to PLN in 2013, significantly increased the equity, however, the merger of subsidiaries Spółek Proximal and IP Solutions decreased the undistributed financial result by PLN (-) to amount of PLN , which finally contributed to a 5% increase of PLN , compared to the previous year. Liabilities, the carrying amount as at 31 December 2013 amounted to and increased by PLN , i.e. 9%, compared to the previous year. An increase of liabilities is a result of increase of loan and borrowing liabilities (long and short-term) and it is associated with decrease of supplier loans. The carrying amount of trade and other liabilities amounted to PLN i.e. decreased by PLN The value of other short-term liabilities increased by PLN , mainly due to increase of VAT tax liabilities. Change in equity value contributed to decrease of all the equity to fixed assets other assets. Only the short-term liabilities ratio to current assets maintained on the same level as year before. Strona 18

19 Graph 6 Assets financing ratios Ratios were calculated in accordance with the methodology presented in Appendix A. Stipulated financial standing The financial plan of the Company for 2014 stipulates an increase of the balance sheet total. Planned net profit is to be allocated to finance investments and current assets, and the rest to dividend payment. In 2014 the Company strives to execute the financial strategy by financing fixed assets to equity, whereas trade creditors and interest debt to current assets. The Company is fulfilling its obligations and as a result of credit capacity, does not see any real obstacles to perform its obligations in the future. Neither does the Company have or stipulate any financial issues in 2014 to execute investments, including capital ones. Own resources of the Company as well as concluded agreements with the banks, allow to finance safely all planned investments stipulated for Overview of factors and events of non-recurring nature having a material bearing on the financial result Macroeconomic situation Macroeconomics situation on target markets of the Company plays a key role as far as sales results are concerned. In accordance with the data provided by the Central Statistical Office, the GDP grew by 1.6% compared to the same period of 2012, and the data for the IV quarter indicate an economic growth which is expected to maintain in coming months of The economic situation affects directly the construction market. Commencement of new Strona 19

20 construction investments in 2013 was affected by prolonged winter, which withheld construction actions, not to mention fears of developers and individual investors. In 2013 the number of commissioned flats decreased of 1.5% compared to the previous year. By contrast, there was an increase of 4.6% in residential housing, whereas the number of commissioned and for rent flats fell down by 8.3%. The number of new flats and issued building permits is crucial for development of the construction sector, where the Company operates. New orders associated with budget implementation of the European Union for years , planned simplification of obtaining building permits or government project A flat for young couples can be a stimulating factor for development of construction market. Improved situation, which was recorded in IV quarter of 2013 along with prospective 2014 year allow to speculate that the coming months will revive the construction sector. The Company faced a very difficult situation in Ukraine whose economy still suffers from serious slowdown. According to the government data the GDP remained at the same level as year before, at the same time, the forecast of international analysts indicate lower value of the aforementioned ratio compared to the previous year. Undoubtedly, the above events were triggered by unemployment, increasing public debt, currency weakening, and a poor standard of life. Unfavourable economic situation affected also the bottom line of the construction market. According to official data, the total value of performed works decreased by 14,5% compared to The political crisis in Ukraine is also a vital problem, whose overcoming seems to be the most important condition, so that Ukraine can go ahead with development. As a result of lower consumption of paints per capita, provided that the situation is stabilized and reforms are established, in the long run the Company can benefit from sales on Ukraine s market. For the Belarus economy, 2013 year was a period of economic slowdown (according to official data the GDP increased of 0.9% compared to the previous year). In the aforementioned period, the Company dealt with decrease of production activity, increase of inflation rate and debt and debit balance of foreign trade. In 2013 the situation in residential housing sector improved by 17.6%. Situation in the sector of paints and varnishes Situation in the sector of paints and varnishes is associated with the condition of the whole market. According to estimate, in 2013 the Company recorded relatively low consumption of paints on Polish market. One of the factors which influenced this sector was the prolonged winter, which resulted in shortening the period of renovation and construction season. Additionally, the period mentioned above was affected by pressure on prices, both from the manufactures and distributors point of view. Despite the unfavourable conditions, the Company managed to maintain the profit margin at the spectacular level. Another strategic market, i.e. Ukraine, the Company faced an explicit deterioration of economic growth in construction market. Unstable macroeconomic situation, lower purchasing power by consumers, contributed to unfavourable impact on sales strategy performed by the Company. Strona 20

21 By contrast, the situation in the sector of paints and varnishes in Belarus was stable, which allowed to achieve a growth in sales dynamics. All core markets covered by the Company are characterized by lower consumption of paints per capita compared to Western Europe. It provides further opportunities for development within key geographical areas with special attention to eastern markets, where the Company still see opportunities of boosting sales, despite unstable economic situation 2.5. Core products, goods and services Development of the market offer The area, which is continuously developed by the Company, is the market offer. Not only does the Company strive to implement new products but also to improve those, which are available on the market. Essential part of the Company s market offer are wall paints under Śnieżka brand. In the discussed period, two new emulsion products were released onto the market in white colour: Śnieżka Modern White as well as Śnieżka Vernissage and a base for tinting system - Śnieżka Kitchen-Bathroom with silver additive. For the season of 2014 new colour proposals were prepared, supplementing the offer of Śnieżka Barwy Natury, where 11 new colours appeared. Simultaneously, research was carried out to develop a palette of Śnieżka Satynowa (Satin) colours, which was extended of 19 colours. The new colour offer of the brand will be available during the season of By developing an offer of products designed to substrate preparation, there was a launch of Śnieżka Acryl-Putz Regular, a new dolomite putty, complementing the portfolio of ready-to-use products. As regards the development of Vidaron portfolio, two new products went on sales: oil and stain varnish for wood. Essential changes took also place within the market offer of Magnat brand. Magnat Ceramic a ceramic paint for indoors in ready-to-use colours, was released onto the market. The new product is characterized by high coat durability as well as stain resistance, it replaced the matt emulsion, which was withdrawn from sales. Magnat Ceramic emulsion is a high quality paint and at the same time complies with strict environmental requirements, which was proved by awarding the paint the Ecolabel Certificate. As a result of conducted research and development operations in 2013, a formula of acrylic plaster TA 11, sold under Foveo Tech brand, was improved. Thus, users can gain a new product which facilitates plaster application and contains lower content of volatile organic compounds. Additionally, a new product with Teflon surface protector went on sales a polymer plaster of higher durability and improved cleaning properties of the coat. In the reported period, the Company also carried out research on development of powder paints under Proximal brand. A new line of products was designed with additive of precious metals which prevent from bacteria development on the painted coating. The paints underwent tests in accordance with JIS Z and ISO standards, in independent microbiology laboratory. The paints are especially recommended to be applied in hospital equipment, devices in chemical laboratories and air condition systems such as ventilators and electronic devices. Marketing activities in 2013 Strona 21

22 For the season of 2013, several advertising campaigns were launched whose aim was to support sales of the key brands. In the event of Śnieżka Satynowa (Satin), there was a followup of activities commenced in 2012, by taking advantage of the very same commercial spot. The TV campaign began in April 2013 and was supplemented by press and Internet activities. The Company conducted also activities whose purpose was to support sales of Snieżka Nature products an emulsion in ready-to-use colours designed for foreign markets. In this respect, television commercial campaigns were conducted both in Ukraine and Belarus. In order to support the sales of Vidaron brand, an advertising campaign was carried out in Poland, which commenced in March Television was the main medium of the campaign, supplemented also by press and Internet activates. The brand was also advertised on foreign markets such as Ukraine, Belarus and Moldavia. In the discussed period, there were also conducted activities to promote Śnieżka Acryl-Putz brand. The creative concept of Śnieżka Acryl-Putz. W gładzeniu mistrz jest tylko jeden! ( Śnieżka Acryl-Putz. There is only one master in smoothening walls ) takes advantage of a famous KSW sportsman image - Mamed Khalidow. The advertisement conducted via the medium of television, press and the Internet commenced in April Apart from Poland, the supporting activities were also carried out on Ukrainian and Belarus markets. Due to implementation of a new product to the offer Maganat Ceramic, an advertising campaign was prepared which highlighted unique properties of the product, such as stain resistance. A commercial promoting a slogan Plamoodporność gwarantowana albo zwrot pieniędzy,( Stain resistance guaranteed or full money refund ), was conducted by making use of national broadcast stations, the Internet and local newspapers Target markets Polish market generates the most important part of revenues for the Company and Śnieżka is one of the leading manufacturers of paints. In 2012 the estimate share of the Company on the market of decorative paints amounted to app. 16%, whereas with reference to 2013, the Management of the Company recorded an insignificant growth of market shares. FFiL Śnieżka SA is still one of the key manufacturers of emulsion paints. The main competitors of the Company on Polish market are as follows: PPG Deco Polska sp. z o.o., Akzo Nobel Decorative Paints sp. z o.o. oraz Tikkurila Polska SA. FFiL Śniezka SA sells its products through various distribution channels. The Company takes advantage of traditional channels (wholesale retail shops), delivers products directly to retailers (international and domestic DIY chains) or directly to end customers (in the event of industrial products). Both individual customers as well as professionals can be found among consumers of the Company s products. The most strategic area on the construction market for the Company is still renovation sector which generates considerable sales turnover. Though, the Company takes up various actions to enhance its shares on the market of new investments, which according to the Management of the Company ought to result in notable benefits achieved by the Company. On Polish market in 2013 the sales of the Company amounted to PLN 365 m, i.e. a 99% dynamics compared to the previous year. Apart from Poland, Ukraine is also a key market, where the Company has a very strong position, outperforming other competitors in certain paint categories. The market share is estimated to tonnes and the biggest share constitutes water-based paints. Taking into consideration distribution channels of the products, a traditional model plays a predominant role (manufacturer wholesale shop), however, the importance of DIY stores is on the increase systematically. Strona 22

23 The Ukrainian market is operated both by international chain stores (Leroy Merlin, Praktiker, Obi), and domestic entities such as Epicentr and Nowa Linia, which play a dominant role. The Company focuses its activities on systematic offer development, paying explicit attention to DIY stores. This market is characterized by lower paint consumption per capita, relatively lower than in Poland and other Western Europe countries, which in the long run after the political and economic situation is stabilized, the Company can benefit from sales of paints and varnishes on the Ukrainian market. In 2013 FFiL Śnieżka SA recorded sales revenue in the amount of PLN 39m, i.e. a 86% dynamics, compared to the previous year. Another key market from the Company s point of view is Belarus, where the Company has a leading position as far as wall putties are concerned. It s another eastern market with an average paint consumption per capita, which allows to look beyond optimistically and plan further development sales by the Company. Śnieżka carries out sales of its products through distributors, whom it has cooperation agreements with. The Company s products are available in a traditional sales form (retailers), which is dominant as well as in local DIY stores. Actions conducted on Belarus market are focused on broadening the product offer and numeric distribution. In 2013 the Company recorded sales revenue of PLN 33m on the Belarus market, i.e. a 125% dynamics, compared to the previous year. The Company conducts sales activities of its products in Russia. It s mainly sales concentrated on Kalinigrad and Moscow regions and Southern parts of Russia. The market value of paints in Russia is estimated to tonnes. The Company s offer comprises oil-alkyd paints, putties as well as emulsion products and wood preservatives which are sold through local distributors. The Company s plans for the near future, stipulate both distribution and product development by making access locally, as well as new distribution channels DIY stores. In order to implement the aforementioned plans effectively, Śnieżka Capital Group established Śnieżka EastTrade Sp. z o.o. with its registered seat in Moscow, which provides advertising and promotional support to distributors. FFiL Śnieżka SA exports also its products to Moldavia, Hungary, Romania, Armenia and other countries. In 2013 the Company s sales onto other markets amounted to PLN 15m, i.e. a 87% dynamics, compared to the previous year Sources of supply FFiL Śnieżka SA within its activities takes advantage of many raw materials and technical materials which are necessary to provide an appropriate course of operations. The Company takes advantage of many sources of supply, liaising with domestic and foreign entities. The Company concluded supply agreements with all core suppliers which stipulate cooperation terms and conditions. At the same time, the Company is still searching for new suppliers in order to diversify sources of supply, optimize costs and reduce delivery times. An offer analysis is conducted within the confines of optimization activities, in each possible case, in order to ensure the most cost-effective procurement conditions of raw materials, technical materials or equipment. Currently, none of the suppliers in transactions with Śnieżka generate more than 10% of total sales revenues. To analyse 2013 year in terms of procurement of raw materials and technical materials, it s necessary to emphasize a stable situation as regards their accessibility and prices Information on significant agreements of the Company s activities Strona 23

24 None of suppliers and customers of the Company reached at least 10% of sales revenues Information on material transactions with related entities on terms other than at arm s length All transactions with related entities were concluded at arm s length Information on incurred and terminated loans and borrowings W 2013 roku Spółka zawarła następujące aneksy/umowy kredytowe: w dniu 17 stycznia 2013 roku z bankiem PKO BP S.A. aneks do umowy kredytu w formie limitu kredytowego wielocelowego z dnia roku. Aneks wydłuża termin wykorzystania kredytu w wysokości 20,0 mln PLN do dnia 18 stycznia 2014 roku, w dniu 28 marca 2013 roku aneks do umowy z Podkarpackim Bankiem Spółdzielczym wydłużający kredyt w wysokości 0,5 mln PLN do dnia 27 marca 2014 roku, aneks do Umowy o Kredyt w Rachunku Bieżącym z dnia 10 czerwca 2005 roku z Bankiem Handlowym w Warszawie SA zawarty w dniu 20 lutego 2013 roku. Aneks wydłuża termin wykorzystania kredytu w wysokości PLN do dnia 20 lutego 2015 roku, aneks do Umowy kredytu obrotowego ze zróżnicowanym oprocentowaniem w zależności od waluty wykorzystania kredytu z dnia roku z bankiem PKO BP S.A. Aneks opatrzony datą 23 grudnia 2013 roku wydłuża termin wykorzystania kredytu do dnia 31 grudnia 2014 roku, kwota dostępnego limitu kredytowego to 10 mln PLN, aneksy do umów kredytowych z Bankiem DnB NORD Polska S.A. Aneksy datowane na 8 stycznia 2013 roku umożliwiają korzystanie z kredytu w wysokości do 9 mln PLN oraz do 4 mln USD do dnia 17 stycznia 2014 roku, aneks do umowy kredytu z bankiem Pekao SA z dnia 12 grudnia 2013 roku, umożliwia korzystanie z kredytu w wysokości do 30 mln PLN do dnia 18 grudnia 2014 roku Informacja o udzielonych pożyczkach i poręczeniach oraz otrzymanych pożyczkach, poręczeniach i gwarancjach Loan agreements on 24 June 2013 an annex to the loan agreement was concluded between Śnieżka SA (lender) and Śnieżka - BelPol Wspólna Sp. z o. o. (borrower) in the amount of PLN The annex allows to use the loan till 30 June 2016, on 4 July 2013 an annex to the loan agreement was concluded between Śnieżka SA (borrower) and the Issuer s subsidiary - TM Investment Sp. z o.o. with its seat in Brzeźnica (lender). The annex increased the loan amount to PLN 45m (from PLN 35m), the loan payment falls on 31 December On 23 August 2013 an annex to the loan agreement was concluded between Śnieżka SA (lender) and Śnieżka Ukraina Sp. z o.o. (borrower) in the amount of USD The annex will allow to use the loan till 15 October Strona 24