MANAGEMENT REPORT FOR THE ACTIVITY SOFIA COMMERCE PAWNSHOPS JSC

Transcription

1 MANAGEMENT REPORT FOR THE ACTIVITY OF SOFIA COMMERCE PAWNSHOPS JSC FOR March 2017

2 This report has been prepared respectively with the requirements of Art. 33, Para. 3 of the Accountancy Act; Art. 100 of the Public Offering of Securities Act; Regulation N2 of the Financial Supervision Commission; Para. 7 of the Public Offering of Securities Act (POSA) and Annex 10 to Art. 32, Para 1, item 2, art. 35, Para 1, item 2, art. 41, Para 1, item 2. PAGE 1 FROM 36

3 CONTENT: I. GENERAL INFORMATION FOR SOFIA COMMERCE PAWNSHOPS JSC 3 1.Corporate status: Mission and values Society and membership in organizations Summary of Organizational structure... 7 ІI. DEVELOPMENT OF THE ACTIVITY AND CONDITION OF "SOFIA COMMERCE PAWNSHOPS JSC Development of the company Liquidity Rentability Capital resources Results from the activity ІIІ. ALL IMPORTANT EVENTS OCCURRING AFTER THE DATE OF THE ANNUAL FINANCIAL STATEMENT ІV. IMPORTANT RESEARCHES AND DEVELOPMENTS V. POSSIBLE FUTURE PROGRESS OF THE COMPANY VI. INFORMATION FOR THE ACQUISITION OF OWN SHARES REQUIRED BY THE ORDER OF ART. 187E OF THE COMMERCE LAW VII. PRESENCE OF BRANCHES OF THE COMPANY VIII. FINANCIAL INSTRUMENTS USED BY THE COMPANY IX. INFORMATION PURSUANT TO ANNEX 10 OF ORDINANCE NO. 2 OF THE FSC DATED 17 SEPTEMBER X. CORPORATE GOVERNANCE STATEMENT UNDER THE PUBLIC OFFERING OF SECURITIES ACT XI. INFORMATION PURSUANT TO ANNEX 11 OF ORDINANCE NO. 2 OF FSC DATED 17 SEPTEMBER XII. INFORMATION UNDER ART. 247, PARAGRAPH 2 OF THE COMMERCE ACT PAGE 2 FROM 36

4 I. General information for Sofia Commerce Pawnshops JSC 1. CORPORATE STATUS: Sofia Commerce Pawnshops JSC is a joint-stock company with an ID number [EIK] in the Commercial Register at the Registry Agency, domiciled in the city of Sofia and having its registered office at floor 3, 74 Ralevitza Street, region of Manastirski Livadi, 1404, Sofia with tell: and site: Sofia Commerce Pawnshops JSC is the only one joint-stock company, whose shares are traded in Bulgarian Stock Exchange. The Company operates the biggest chain of pawn shops in Bulgaria, which provide a loan against a pledge of movable property. At the beginning of 2017 the company owns over 119 pawnshops in the whole country. There are over 150 people, working at the Company s structure. During its years of development, Sofia Commerce Pawnshops JSC acquires experience and professionalism in the non-banking market of Bulgaria. Sofia Commerce Pawnshops JSC is the only one public company of pawnshops in Bulgaria, whose bonds are offered freely at the Bulgarian Stock Exchange. Each PAGE 3 FROM 36

5 pawnshop of SOFCOM accepts wide range of movables for security, such as jewelry, valuables, televisions, video equipment, music devices, expensive household appliances,etc. 2. MISSION AND VALUES Sofia Commerce Pawnshops JSC is striving to become the largest and most successful chain of pawnshops, not only in Bulgaria, but also on the Balkan Peninsula. The company wants to be one of the leading companies on the Bulgarian Stock Exchange, through hybrid financial instruments, which bring guaranteed yield. 3. VISION Every citizen of Bulgaria has access to easy, risk-free financing near him. 4. SOCIETY AND MEMBERSHIP IN ORGANIZATIONS Association of Pawnbrokers in Bulgaria Bulgarian Stock Exchange - Sofia AD Central Depository AD Financial Supervision Commission PAGE 4 FROM 36

6 5. SUMMARY OF 2016 Despite the intensified competition and the factor of the variable and restless environment of international financial markets, Sofia Commerce Pawnshops JSC still continues to report good financial results in 2016 and to justify the trust of clients and contractors. The company still remains the largest chain of pawnshops in the country with investments of Bulgarian capital. For another year Sofia Commerce Pawnshops JSC is still with an established reputation of a loyal partner, who precisely fulfill its commitments and of a serious public company, that responds correctly in time of the dynamically changing environment. The management has continued to focus on balanced moderate risk growth to keep maintaining high quality service and search for new markets. Sofia Commerce Pawnshops JSC has continued to implement the American and European management model. A number of studies have been achieved for optimizing and improving the internal and external communication in the company and also for consolidation of the brand on the Bulgarian market. Some of the campaigns conducted in 2016: PR initiatives A new corporate identity Optimizing the internal processes In 2016, the Company prepared a new strategy for the exterior and interior of each store, as well as changing the whole corporate identity. The Company policy has changed and new values have been imposed. PAGE 5 FROM 36

7 In order to benefit from the trend at online selling, the Company has created a project to improve the existing online web store, where all customers have direct access to the goods available at the individual stores of the company s chain in Bulgaria in order to reach even more consumers. The web address of the online store is: In order to be closer to its clients, Sofia Commerce Pawnshops JSC continues with the product: Long-distance pawnshop. This is a service for people who can t physically reach some of our stores. To do this, we provide a consultant, who works on a mobile pawnshop. PAGE 6 FROM 36

8 6. ORGANIZATIONAL STRUCTURE ІI. DEVELOPMENT OF THE ACTIVITY AND CONDITION OF "SOFIA COMMERCE PAWNSHOPS JSC 1. DEVELOPMENT OF THE COMPANY Sofia Commerce Pawnshops JSC is founded in 1993 and is operating on the domestic market. The company has over 20 years experience in the field of the financial intermediation and has a well established name in the industry. The company is managing over 110 pawnshops in Bulgaria. At the end of 2003 the company has opened 40 pawnshops, at the end of 2004 their total number is 62 and at the beginning of 2016 the company owns over 110 pawnshops in the whole country. The number of stores is monitored continuously and monthly. The Company is opening, closing and purchasing new stores in order to get larger market share and higher profits. PAGE 7 FROM 36

9 In 2005 Sofia Commerce Pawnshops JSC was transformed into a public company, and since 2007, its shares are traded on the Bulgarian Stock Exchange. The main revenues of the Company are formed by interest, fees and penalties on the granted loans. Year 2013 г г. 2015г г. Profit (in thousands of BGN) Amount of credits granted (BGN) For 2016 the Company has granted loans for the amount of BGN, which is an increase with nearly 4% than the previous year. PAGE 8 FROM 36

10 In the past 2016 the Company has started an optimization of its internal processes. The monthly market analysis continues, on the basis of which the Company continues to close down and opens new stores in order to maximize profits and consolidate profitable market positions. The accounting information system, which covers 100% of the pawnshops in the country, operates effectively in It has been updated and adjusted to optimize the analysis and control of each store. 2. LIQUIDITY The Company has generated sufficient amount of money in order to meet its cash needs. The cash flows, generated by the Company, depend on the amount of the granted loans, the interest condition on them, the degree of collectability and the possibility of realization, the value of the pledged property on uncollectible loans. The main ways for increasing the sales, for purchasing new stores and generating a larger cash flow are increasing the capacity of the granted loans through a PAGE 9 FROM 36

11 new pricing policy, building a corporate identity and with a strengthened online presence. Year Short-term assets (in thousands of BGN) Short-term liabilities (in thousands of BGN) Short-term receivables (in thousands of BGN) Finances (in thousands of BGN) Current obligations (in thousands of BGN) Coefficient of general liquidity 28,92 38,77 4, Coefficient of fast liquidity 28,92 38,76 3, Coefficient of immediate liquidity 17,36 16,26 1, Coefficient of absolute liquidity 17,36 16,26 1, Until the date of preparation of this report, the Company has not been exposed to price, credit, liquidity risk or cash flow risk. 3. RENTABILITY RENTABILITY INDICATORS: Year Financial result (in thousands of BGN) 868,00 667,00 805, Net Income (in thousands of BGN) 5056, , , Equity (in thousands of BGN) 11085, , , Liabilities (in thousands of BGN) 3380, , , Total Assets (in thousands of BGN) 14465, , , Coefficient of rentability of profits 0,17 0,13 0, PAGE 10 FROM 36

12 Coefficient of rentability of equity 0,08 0,06 0, Coefficient of rentability of liabilities 0,26 0,21 0, Coefficient of capitalization of assets 0,06 0,05 0,06 0,12 The Company has kept a proper rentability coefficient. COEFFICIENT OF RENTABILITY OF PROFITS: Year Profits (in thousands of BGN) Net financial result (in thousands of BGN) Coefficient of rentability 0,17 0,13 0,15 0,25 The coefficient of rentability gives information about the financial result, which is generated by one BGN income. PAGE 11 FROM 36

13 4. CAPIT AL RESOURCES From 31 June 2016 the amount of the capital of the Company is BGN. The Company has issued two classes of shares as follows: (two million four hundred thousand) number of ordinary, dematerialized, registered shares with voting rights at General Meeting of the Company. 180,000 of the voting shares are owned by Sofia Commerce Pawnshops JSC and pursuant to Art. 187a, Para. 3 of the Commercial Law, the Company can t pursuit voting rights on these shares until their transfer. Because of that the ordinary shares with voting rights are (two hundred and one thousand one hundred and fifty-four) number of preferred, registered, dematerialized shares entitled to one vote at the General Meeting of the Company. 3. The total amount of voting shares in the General Meeting of the Company is from total number of voting shares, issued by the Company. 5. RESULTS FROM THE ACTI VITY Revenue of Sofia Commerce Pawnshops JSC The revenue structure includes the following components: interest, tax and penalty income, income from the sales, income from sales of services and financial income. The breakdown by type of revenue is as follows: Structure of the revenue of Sofia Commerce Pawnshops JSC: Year Interest, tax and penalty income (in thousands of BGN) Income from the sales (in thousands of BGN) Income from sales of services (in thousands of BGN) Other profits (in thousands of BGN) Financial profits (in thousands of BGN) Total revenue (in thousands of BGN) PAGE 12 FROM 36

14 In 2016 "Sofia Commerce - Pawnshops" AD revenues had decreased. The total revenue is BGN 5,405,000 compared to BGN 5465,000 for The coefficient of efficiency provides info on the expenses, which were spent in order to be achieved one BGN income. Coefficient of efficiency of revenue: Year Profits (in thousands of BGN) Expenses (in thousands of BGN) Coefficient of efficiency of revenue PAGE 13 FROM 36

15 6. Expenses of the Company Expenses of Sofia Commerce Pawnshops JSC Year Expenses (in thousands of BGN) Growth -0,15 0,10 0,10-0,13 PAGE 14 FROM 36

16 The structure of expenses includes the following components: material costs, external service costs, staff costs, amortization costs, other costs and financial costs. Structure of expenses of Sofia Commerce Pawnshops JSC Year Material costs (in thousands of BGN) External service costs (in thousands of BGN) Staff costs (in thousands of BGN) Amortization costs (in thousands of BGN) Other and also impartment of assets (in thousands of BGN) Financial costs (in thousands of BGN) Total expenses (in thousands of BGN) The expenses for external services were reduced, because of a renegotiation of better conditions. PAGE 15 FROM 36

17 Year Costs for duty assets under 700 BGN (in thousands of BGN) Other costs for materials (in thousands of BGN) Total costs for materials (in thousands of BGN) Telecommunication costs (in thousands of BGN) Costs for office rents (in thousands of BGN) Other costs (in thousands of BGN) Costs for security (in thousands of BGN) Costs for other professional services (in thousands of BGN) Cost for fees (in thousands of BGN) Total costs for external services (in thousands of BGN) Costs for staff s salaries (in thousands of BGN) Costs for social security (in thousands of BGN) Costs for obligations for staff s retirement (in thousands of BGN) Total costs for staff (in thousands of BGN) Indicators of financial autonomy and indebtedness: Year Equity (in thousands of BGN) Liabilities (in thousands of BGN) Coefficient of financial autonomy 3,28 3,52 3, Coefficient of indebtedness 0,30 0,28 0,32 0,04 PAGE 16 FROM 36

18 Analysis of financial and non-financial main indicators, associated with the economy activity of the Company, including information about questions with reference to ecology and employees. The information is presented in the annual financial statements and the additional explanations. The ratio Revenue/Expenses for 2016 has remained the same. The condition is illustrated in the following table and graphic: Year Revenue (in thousands of BGN) Expenses (in thousands of BGN) Coefficient of efficiency PAGE 17 FROM 36

19 ІIІ. ALL IMPORTANT EVENTS OCCURRING AFTER THE DATE OF THE ANNUAL FINANCIAL STATEMENT There aren t important events after the Annual Financial Statement. ІV. IMPORTANT RESEARCHES AND DEVELOPMENTS Due to its subject of performed activity, the Company does not do research or development work. V. POSSIBLE FUTURE PROGRESS OF THE COMPANY In 2017 "Sofia Commerce - Pawnshops" JSC will consider the global economic situation and the situation in the country. New financial instrument is not foreseen. The company will work mainly to optimize its activity and to maintain its expansion policy in Sofia and other cities. The Company will emphasize on new vision, employees training and imposing the new corporate identity. The optimization of the company's internal processes will continue in order to maximize the profits. PAGE 18 FROM 36

20 The planned economic policy for 2017 intends to conform the progress of the Company to the conjuncture of the market and the economic situation. It is planned pawnshops without perspective and with bad operational indicators to be closed and the opening of new ones to be restricted. The Company will supervise on the fastest possible realization of lost bets and for reducing all unnecessary costs. The overall ideology of the economic policy in 2016 will be subject to maximum optimization of the activity and preservation of the achieved market share participation. The entire ideology of the economic policy in 2017 will be subject of the maximum optimization of the activity and also keeping the already achieved market share. The Company will work towards purchasing already existing rival pawnshop chains in order to invest the funds, raised by the bond issue. New stores will be purchased. A serious international expansion of the Company in our neighboring countries is expected. A New Markets strategy is being created. It is possible competitive chains to be bought and the Company to be expanded in the form of a franchise. There is information about current projects in the Prospectus, published on the FSC website at on the "BULGARIAN STOCK EXCHANGE - Sofia" AD at as well as on the Company's website - VI. INFORMATION FOR THE ACQUISITION OF OWN SHARES REQUIRED BY THE ORDER OF ART. 187E OF THE COMMERCE LAW During the reporting period it was not performed. During previous reporting periods, the Company has repurchased a total of 180,000 ordinary shares. VII. PRESENCE OF BRANCHES OF THE COMPANY "SOFIA COMMERCE - PAWNSHOPS JSC has not created and registered branches in VIII. FINANCIAL INSTRUMENTS USED BY THE COMPANY Issue of preferred shares of shares with ISIN BG , which were transferred to the issue of dematerialized shares with ISIN BG of pieces. (the issue of ordinary shares) and deregistered. PAGE 19 FROM 36

21 Ordinary shares allowed for trading on the Regulated Market of "BSE-Sofia" AD, the ISIN code of the issue is BG currently pieces. A new issue of preferred shares allowed for trading on the Regulated Market of "BSE- Sofia" AD, the ISIN code of the issue is BG currently pieces. Issue convertible bonds with ISIN BG vhave been paid at the date of payment and deregistered. IX. INFORMATION PURSUANT TO ANNEX 10 OF ORDINANCE NO. 2 OF THE FSC DATED 17 SEPTEMBER Information given in value and quantity indicators about the main categories of goods, products and/or services provided, indicating their share in the sales revenues of the issuer and the changes that have occurred during the accounting year. This information is provided in Chapter I and Chapter II of the current management report. 2. Information about significant deals. No significant deals have been made during Information about deals concluded between the issuer and related parties during the reporting period, proposals for such deals as well as deals that are outside of the Company s usual activity or significantly deviated from the market conditions on which the issuer or its subsidiary is a part with indication of the value of the deal and any additional information about the assessment needed for the impact on the financial position of the issuer. There are no deals, that have been concluded between the issuer and related parties during the reviewed period. In 2016, no proposals were made in order to enter into related party transactions or ones that significantly are deviated from the market conditions on which the Company is a part. Until 1 st of January 2016, the Company holds one investment in a financial asset (shares). The investment has been acquired in December 2015 on an active market, which is why the Company has assumed that its acquisition cost is a good PAGE 20 FROM 36

22 approximation of its fair value as of 31 st December In February 2016, the Company sold this investment at a price similar to its balance amount. As of 31 st December 2016 The Company has no investments in securities traded on an active market. 4. Information about events and indicators with an unusual nature for the issuer, that have a material impact on its activities and its realized revenues and expenses; impact assessment on results in the current year. On 8 th April 2016 a regular Annual General Meeting of the Shareholders was held, on which the shareholders decided that the issue of preferred shares would be transformed into ordinary shares and that the two issues would be duly merged without changing the capital. On 2 nd August 2016 successfully completed a procedure for public offering of shares from the capital increase of Sofia Commerce Pawnshops JSC. There were subscribed and paid shares of preferred, registered, dematerialized shares entitled to one vote at the General Meeting of the Company, with nominal value of the shares - BGN 1, issuing - BGN 5. The preferred shares of the Company grant to their holders a right to a cumulative, guaranteed, fixed dividend amounting to 12% of the issue value of the preferred share on an annual basis for a period of 5 years. The issue of convertible bonds issued by the Company (ISIN BG ) were duly paid at maturity ( ) and de-registered. As of 27 th December 2016, the issue of shares with ISIN code BG , stock exchange code 6SOA, issued by Sofia Commerce - Pawnshops JSC, are traded on the Standard segment, on the BSE Main Market. From the same date, the Board of Directors of BSE - Sofia JSC has registered IP South Market JSC as a market maker for the issue of shares issued by Sofia Commerce Pawnshops JSC - Sofia, ISIN code: BG , BSE Code: 6SOA, with a term of the contract: 1 (one) year. On the issuer s management opinion, the mentioned events have had a positive effect on the Company s performance over the reviewed period. 5. Information about off-balance-sheet transactions - nature and business purpose, indication of the financial impact of transactions on the business, if the risk and benefits of those transactions are material to the issuer and if disclosure of such information is material to the assessment of the financial position of the issuer. In 2016, there are no transactions to be carried out off-balance sheet by the Company. The Company has no conditional engagements. PAGE 21 FROM 36

23 6. Information about shareholding of the issuer, its main investments in the country and abroad (in securities, financial instruments, intangible assets and real estate) as well as investments in share securities outside its economic group and the sources/ways of financing. The issuer has no subsidiaries. 7. Information about the loan contracts, concluded by the issuer, its subsidiary or parent company in the capacity of borrowers, including loan terms and conditions, including the payment deadlines, as well as information on guarantees and commitments. In 2016, the Company did not enter into transactions as a borrower. 8. Information about the borrowing contracts, concluded by the issuer, its subsidiary or parent company in the capacity of lenders, including lending of guarantees of any kind, including related parties, with specific terms, including the final terms for paying and the purpose for which they were granted. The activity of the Company is providing of short-term loans against consideration (interest and charges). Loans are granted under contracts against a pledge of movable property. As of 31 st December 2016, the activity is carried out in 112 stores around the country (on 31 st December 2015 they were 119) and the employees, working at the Company are 153 (on 31 st December 2015 they were 173). 9. Information about the use of funds from the committing of new issue of securities during the reporting period. The offering of the new issue of preferred shares was carried out with the purpose of raising capital for the potential acquisition of specific stores with attractive location of competitive chains of pawnshops in Bulgaria (without planning to acquire competing companies). In addition, the funds will be used to extend the loan portfolio of the Company. The allocation of funds planned under the Prospectus is: 82 % for potential acquisition of competitive stores in Bulgaria; 18 % cash turnover for expanding the credit portfolio. PAGE 22 FROM 36

24 As far as they were recorded, the minimum number of shares was subscribed to a successful subscription - more than 200,000 shares, the proceeds will be used in compliance with the Prospectus for the acquisition of competitive stores in Bulgaria. Currently the management of the Company is in the process of considering potential stores to expand its chain. 10. An analysis of the ratio between the financial results, published in the financial statement for the financial year and the previously published forecasts of those results. The company has not published forecasts of the financial results. 11. Analysis and evaluation of the policy regarding the management of the financial resources, indicating the possibilities for servicing the obligations, the possible threats and measures that the issuer has taken or is about to take for their elimination. The company generates sufficient cash to meet its cash needs. The cash flows generated by the Company depend on the volume of the granted loans, the interest rate on them, the degree of collectability and the realization, the value of the pledged property on uncollectible loans. The main ways to increase sales and to generate a larger cash flow are increasing the capacity of the granted loans through a new pricing policy, building a corporate identity and strengthened online presence. Year: Short-term assets (in thousands of BGN) Short-term liabilities (in thousands of BGN) Short - term receivables (in thousands of BGN) Cash (in thousands of BGN) Current obligations (in thousands of BGN) Total liquidity ratio 28,92 38,77 4, Rapid liquidity ratio 28,92 38,76 3, PAGE 23 FROM 36

25 Immediate liquidity ratio 17,36 16,26 1, Absolute liquidity ratio 17,36 16,26 1, Until the date of preparation of this document, the Company has not been exposed to price, credit, liquidity risk or cash flow risk. 12. Assessment of the possibilities for realization of the investment intentions with indication of the amount of available funds and reflection of possible changes in the structure of financing of this activity On the opinion of the Company's management, the cash turnover is sufficient to cover Company s current needs. As far as the minimum number of shares has been subscribed, in order for the subscription to be successful - more than 200,000 shares, the proceeds will be used in accordance with the Prospectus for the acquisition of competitive stores in Bulgaria. Currently the management of the Company is in the process of considering potential stores to expand its chain. The Company strives to optimize the implementation of the goals and strategies, which have been set, while preserving the rate of return of the capital. In short and medium term, the Company does not expect a change in the structure of financing its activities. 13. Information about changes during the reporting period in the main management principles of the issuer and its economic group. In 2016 there were no changes in the Company's main management principles. 14. Information about the main characteristics of the internal control system and risk management system, applied by the issuer in the process of preparing the financial statements. The financial statements of the Company are prepared respectively with the Bulgarian legislation and the applicable international accounting standards. PAGE 24 FROM 36

26 Due to legislative changes in 2016, public interest entities under 1 (22) (a) of the Supplementary Provisions of the Accountancy Act (what the Company stands for) include in their activity report a corporate management statement with content according to Art. 100n, Para. 8 of the Public Offering of Securities Act, which is presented as a separate report, published together with this activity report. The reports are certified by an independent auditor, who confirms their accordance with the Bulgarian legislation and the applicable accounting standards and presents a declaration with content under Art. 100n, Para. 4, item 3 of POSA. In regard to the risk management system, bets are valued at a reduced cost and taken as such only highly liquid, with the propose of quickly selling, in case of nonserviced loans. In the course of its usual business, the company is exposed to various financial risks, the most important of which are: market risk (including currency risk, fair value risk and price risk), credit risk, liquidity risk and interest-bond cash flow risk. Because of this the risk management is focused on the difficulties in predicting the financial markets and achieving minimization of the potential negative effects, which may affect the financial results and the condition of the Company. Financial risks are currently identified, measured and monitored using different control mechanisms, established for determining adequate prices for the Company's products and loan capital. Company risk management is currently conducted by the Financial and Accounting Department according to the policy, determined by the Board of Directors, which has developed the general principles of general financial risk management, on the basis of which were made procedures for the management of the specific risks such as currency, price, interest, credit and liquidity. The various types of risks to which the company is exposed in the course of its business operations and the approach taken to manage those risks are described below. Loans are guaranteed only with liquid bets - black goods, precious metal products. Price risk The price risk may be expressed in unfavorable changes in the prices of the services, offered by the company and in the change in the amount of the expenses for the activity. Due to the specificity of the company's activity, price risk is directly related to the interest rates the company provides for loans (the cost of the loan) and their dynamics. Another manifestation of the price risk is related to a change in the amount of the expenses for carrying out the activity. In particular, there is a minimal risk of rising costs at a faster rate than revenue. PAGE 25 FROM 36

27 Credit risk Credit risk is typical for each credit lending company due to the specific nature of its activity. Preliminary customer surveys through the established database as well as through organized access to other similar databases, creditworthiness analysis, current solvency control and borrower development limit and control the degree of credit risk of the Company. Liquidity risk Liquidity risk refers to the risk that the company may not have sufficient funds to meet its obligations or to meet increased demand for its services. The company strives to provide external sources of funding - bank loans, refinancing or debt securities issuance. Regularly tracking market trends allows timely management responses and effective solutions to meet increased demand. Cash flow risk Cash flow risk refers to fluctuations in the amount of future cash flows, generated by the Company's operations. For Sofia Commerce Pawnshops JSC there is no significant cash flow risk at the reporting date. 15. Information about changes in management and supervisory management during the reporting financial year. There have been no changes in management and supervisory management in Information about the amount of remuneration, rewards and/or benefits of each member of the management and supervisory management for the accounting financial year paid by the issuer and its subsidiaries, regardless of whether they were included in the issuer's costs or are coming from distribution of profits including: Amounts received and non-monetary remuneration Contingent or deferred wages arising during the year, even if the remuneration is due at a later date Amount due from the issuer or its subsidiaries for the payment of pensions, retirement compensations or other similar compensations In 2016, the remuneration received in total by the members of the Board of Directors is BGN 597,000 - gross remuneration. PAGE 26 FROM 36

28 For the reporting period, the General Meeting of Shareholders of Sofia Commerce Pawnshops JSC has defined a constant remuneration, which has been paid as follows: To Mrs. Irena Todorova Vacheva, as executive member of the Board of Directors of the Company, has been paid a remuneration of BGN 63,000; To Mr. Todor Angelov Vachev, as the Chairman of the Board of Directors of the Company, has been paid a remuneration of BGN 60,000. In his capacity of expert at financial and economic analyzes appointed under a labor contract, Mr. Todor Vachev has received BGN 390,000. Mr. Vladimir Delchev Vladimirov, as an independent member of the Board of Directors of the Company, has been paid a remuneration of BGN 84, Information about the shares of the issuer held by the members of the management and supervisory management, procurators and senior management, including the shares held by each of them individually and as a percentage of the shares of each class, as well as options provided by the issuer on its securities - the type and size of the securities on which the options are set, purchase price, if any, and term of options. Todor Angelov Vachev - Chairman of the Board of Directors of the Issuer holds directly 19.73% and indirectly (through his daughter Irena Todorova Vacheva, which owns 3.3% and through his son Chavdar-Angel Todorov Vachev, who holds 3.96%) a total of 26, 98%. The ratio of the shares held to the total number of preferred and ordinary shares (2,601,154) is 24.90%. Irena Todorova Vacheva - Executive Director of the Issuer - holds directly 3.3% and indirectly (through her father Todor Angelov Vachev, who owns 19.73% and brother- Chavdar-Angel Todorov Vachev, who holds 3.96%) - a total of 26.98%. The ratio of the shares held to the total number of preferred and ordinary shares (2,601,154) is 24.90%. The Company did not provide the members of the Board of Directors with options on its securities. There are no employee participation arrangements in the issuer's capital, including through issuance of shares, options or other securities of the issuer. Members of the Board of Directors of the Company do not have rights other than the right of each shareholder to acquire shares and bonds of the Company. 18. Information about the arrangements known to the company (including after the end of the financial year), as a result of which in the future there may be changes in the relative share of shares or bonds held by current shareholders or bondholders. There are not any known arrangements by the Company. PAGE 27 FROM 36

29 19. Information about pending court, administrative or arbitration proceedings concerning liabilities or receivables of the issuer amounting to at least 10 percent of its equity; if the total value of the liabilities or receivables of the issuer in all initiated proceedings exceeds 10 per cent of its own capital, information shall be presented for each case separately. Until 31 st December 2016, the Company does not have any pending litigation, administrative or arbitration proceedings concerning liabilities or receivables of at least 10 per cent of its own capital. 20. Information about the Investor Relations Director, including telephone and correspondence address: Investor Relations Director: Yasena Evgenieva Zasheva Address: Sofia, Dianabad, bl. 58, atelier 6, Phone: Changes in the share price of the Company Preference shares SOFIA COMMERCE Source: data from Info stock ( This issue of preferred shares matures on a prospectus on 20 th April 2016 and has merged with the issue of ordinary shares of the Company. PAGE 28 FROM 36

30 Ordinary shares SOFCOM2 Source: data from Info stock ( Ordinary shares of the company are traded on BSE - Sofia on For the reporting period the price of ordinary shares ranges between BGN 5.10 and BGN 3.12 per share. Preference shares - a new 2016 issue - 6SOP Source: data from Info stock ( PAGE 29 FROM 36

31 The preferred stock price varies between BGN 5.00 and BGN 4.70 per share. As of 27 th December 2016, the issue of shares with ISIN code BG , stock exchange code 6SOA, issued by Sofia Commerce - Pawnshops JSC, are traded on the Standard segment, on the BSE Main Market. From the same date, the Board of Directors of BSE - Sofia JSC has registered IP South Market JSC as a market maker for the issue of shares issued by Sofia Commerce Pawnshops JSC - Sofia, ISIN code: BG , BSE Code: 6SOA, with a term of the contract: 1 (one) year. X. CORPORATE GOVERNANCE STATEMENT UNDER THE PUBLIC OFFERING OF SECURITIES ACT Due to legislative changes in 2016, public interest entities under 1 (22) (a) of the Supplementary Provisions of the Accountancy Act (what the Company stands for) include in their activity report a corporate governance statement with content according to Art. 100n, para. 8 of the Public Offering of Securities Act, which is presented as a separate report published together with this activity report. Sofia Commerce Pawnshops JSC complies to the principles of the National Corporate Governance Code (established in 2007 and approved by the National Corporate Governance Commission, as amended in February 2012 and April 2016) and carries out its activities in accordance with its ordinances. Compliance with the Code is subject to the "comply or explain" principle, which means that the Code's recommendations are respected and when there is a deviation or non-compliance, the management explains the reasons for it. By decision 461 dated , the Deputy Chairperson of the FSC, in charge of the Investment Activity Supervision Division, approved the NCGC as a corporate governance code under Art. 100n, para. 7, item 1 in relation to para. 8, item 1 of POSA. "Sofia Commerce - Pawnshops" JSC will observe the principles of the National Corporate Governance Code (established in 2007 and endorsed by the National Corporate Governance Commission, as amended in February 2012 and April 2016) and will operate in accordance with its ordinances. XI. INFORMATION PURSUANT TO ANNEX 11 OF ORDINANCE NO. 2 OF FSC DATED 17 SEPTEMBER Structure of the company's capital, including securities not admitted to trading on a regulated market in the Republic of Bulgaria or another Member State, indicating the different classes of shares, rights and obligations pertaining to each of the classes of shares and the share of the total capital, which makes up each class PAGE 30 FROM 36

32 By 31 December 2016, the share capital was paid in full and amounted to BGN thousand, divided into two classes: 1) 92.27% of the capital is distributed to (two million and four hundred thousand) ordinary, registered, dematerialized shares with voting rights at the General Meeting of the Company. 180,000 of the voting shares are owned by Sofia Commerce Pawnshops JSC and on the grounds of Art. 187a, Para. 3 of the Commercial Law the Company shall not exercise the right to vote on these shares until their transfer. In view of this, ordinary voting shares are ) 07.73% of the capital is distributed in (two hundred and one thousand one hundred and fifty-four) preferred, registered, dematerialized shares entitled to one vote at the General Meeting of the Company. The preferred shares of the Company grant to their holders a right to a guaranteed, fixed dividend amounting to 12% of the issue value of the preferred share on an annual basis for a period of 5 years. The dividend on preference shares is cumulative, so even if it is not paid during the due year, it is due to the shareholders, as on the date of conversion into ordinary shares, the Company is obliged to pay all cumulated and unpaid dividends. 2. Restrictions on the transfer of securities such as restrictions on the holding of securities or the need to obtain approval from the company or other shareholder. There are no restrictions on the transfer of the securities, incl. restrictions on the possession of securities or the need to obtain approval from the Company or other shareholder. 3. Information about the direct or indirect holding of 5 percent or more of the voting rights in the Company's General Meeting, including details of the shareholders, the size of their shareholding and the way in which the shares are held ( ) Todor Angelov Vachev - directly 19.73% and indirectly (through his daughter Irena Todorova Vacheva, who owns 3.3% and through his son Chavdar-Angel Todorov Vachev, who owns 3.96%) - a total of 26.98%. The ratio of the shares held to the total number of preferred and ordinary shares (2,601,154) is 24.90%. Irena Todorova Vacheva - directly 3.3% and indirectly (through her father Todor Angelov Vachev who owns 19.73% and brother-chavdar-angel Todorov Vachev, who holds 3.96%) - a total of 26.98%. The ratio of the shares held to the total number of preferred and ordinary shares (2,601,154) is 24.90%. PAGE 31 FROM 36

33 Chavdar-Angel Todorov Vachev - directly owns 3.96% (through his father Todor Angelov Vachev, who owns 19.73% and through his sister - Irena Todorova Vacheva - 3.3%) - a total of 26.98%. The ratio of the shares held to the total number of preferred and ordinary shares (2,601,154) is 24.90%. Kaloyan Ivanov Lenkov %. The ratio of the shares held to the total number of preferred and ordinary shares (2,601,154) is 13.81%. Chavdar Hristov Gerasimov %. The ratio of the shares held to the total number of preferred and ordinary shares (2,601,154) is 14.22%. Sofia Commerce Pawnshops JSC, Sofia - 7.5%, pcs. redeemed ordinary shares that do not have voting rights in the GA's decisions. The ratio of the shares held to the total number of preferred and ordinary shares (2,601,154) is 6.92%. ID ELANA HIGH FOUNDATION FUND JSC, Sofia, 4 Kuzman Shapkarev str. /Pop Andrew/, - 6,56%, 13,200 pcs. preferred shares from the issue of preferred shares of "Sofia Commerce - Pawnshops" JSC. The ratio of the shares held to the total number of preferred and ordinary shares (2,601,154) is 0.51%. SOUTH MARKET MAXIMUM FUND, Plovdiv, 92 Vasil Aprilov Blvd % pcs. preferred shares from the issue of preferred shares of "Sofia Commerce - Pawn Shops" JSC, the ratio of the shares held to the total number of preferred and ordinary shares (2,601,154) is 0.77%. VESELIN TANEV DYAKOV - 12,35%, pcs. preferred shares from the issue of preferred shares of "Sofia Commerce - Pawnshops" JSC; The ratio of the shares held to the total number of preference shares and ordinary shares (2,601,154) is 0.96%. PLAMEN FERDINAN VESELINOV %, ordinary pieces shares, the ratio of the sum of preferred and ordinary shares to the total amount of shares of the company, which is pcs. is 12.08%. 4. Details of shareholders with special control rights and a description of these rights. The Company has no shareholders with special control rights. 5. The control system for exercising the right to vote in cases where employees of the company are also its shareholders and when the control is not directly exercised by them PAGE 32 FROM 36

34 Beyond the limitations of Art. 220 of the Commercial Act and the requirements of the Ordinance on the minimum content of power of attorney for representation of a shareholder in the General Meeting of the Company whose shares were subject to public offering, Sofia Commerce Pawnshops JSC does not have a special control system in the exercise of the voting right in cases where the employees of the company are also its shareholders and when the control is not exercised directly by them. 6. Limitations on voting rights, such as limitations on the voting rights of shareholders with a certain percentage or number of votes, the time limit for the exercise of voting rights or systems where, with the cooperation of the company, the financial rights attaching to the shares are separated from the ownerships of stocks There are no restrictions on voting rights. The deadlines for exercising voting rights are in accordance with the provisions of the Public Offering of Securities Act. 7. Agreements between shareholders who are known to the company and which may result in restrictions on the transfer of shares or voting rights. The Company does not have information on agreements between shareholders that may result in restrictions on the transfer of shares or voting rights. 8. The ordinances on the appointment and dismissal of the members of the management of the Company and on the amendments and additions to the Statute. "Sofia Commerce - Pawnshops" JSC has a one-tier management system. The management of the Company is the General Meeting of Shareholders and the Board of Directors. The Board of Directors of the Company is elected by the General Meeting for a period of 5 (five) years, the first Board of Directors being elected for a term of three (three) years. Members of the Council may be re-elected without restrictions. Upon the expiry of their term of service, the members of the Board of Directors shall continue to perform their functions, until the General Assembly elects a new Board. According to the Company's Articles of Association, the Board of Directors is elected by a simple majority of the capital presented to the General Meeting of Shareholders. Members of the Council may be re-elected without restrictions. Upon the expiry of their term of service, the members of the Board of Directors shall continue to perform their functions until the General Assembly elects a new Board. PAGE 33 FROM 36

35 The Articles of Association shall be amended by the General Meeting by a majority of 2/3 of the voting shares represented at the General Meeting. The rules are detailed in the Articles of Association of the Company, which are published in the electronic file of the Company in the Commercial Register - enabling all third parties to get acquainted with it. 9. The powers of the management of the Company, including the right to take decisions on the issuance and redemption of shares of the Company. The powers of the Board of Directors are described in Art. 36 of the Articles of Association of the Company and are related to the current management of the activity. At present, the Board of Directors is empowered by a GMS decision of concerning the calendar years 2016 and 2017, whereby up to 3% of the voting shares (preferred and ordinary) within the calendar year, but not more than 10% in total. The decision was entered in the Commercial Register on During previous reporting periods, the Company carried out redemption of a total of 180,000 ordinary shares and, on the grounds of Art. 187a, Para. 3 of the Commercial Law the Company shall not exercise the right to vote on these shares until their transfer. By decision of the General Meeting of Shareholders dated April 8, 2016, the Board of Directors has the power to issue shares and bonds. XII. INFORMATION UNDER ART. 247, PARAGRAPH 2 OF THE COMMERCE ACT 1. Information on the remuneration received collectively during the year by the members of the boards. In 2016 the remuneration received in total by the members of the Board of Directors amounted to BGN 597,000 - gross remuneration. 2. Information on the company's shares and bonds acquired, held and transferred by members of the Board during the year. In 2016 there were no acquired and transferred shares and bonds from the members of the Board of Directors of the Company. 3. Information on the rights of board members to acquire shares and bonds of the Company PAGE 34 FROM 36

36 The Articles of Association of the Company do not provide for special rights of the members of the Board of Directors in the acquisition of shares and bonds of the Company. 4. Information on the participation of board members in commercial companies as unlimited liability partners, the holding of more than 25 per cent of the capital of another company and their participation in the management of other companies or cooperatives such as procurators, managers or board members. During the reviewed period, the members' shares in commercial companies were as follows: Company: Type of connectivity: Emotion Ltd. Irena Vacheva - manager and owner of capital "KARATE-PERFECT Todor Vachev - registered as a sole trader TODOR VACHEV" ST. "HOLDING BULGARIAN Vladimir Vladimirov - Executive Director since STATE RAW" EAD Information about the contracts under Art. 240b of the Commercial Code concluded during the year. In 2016 there are no contracts between the Company and the members of the Board of Directors or persons related to them under Art. 240b of the Commercial Law. 6. Planned economic policy over the next year, including expected investment and staff development, expected return on investment and company development as well as transactions, that are essential to the Company's operations. At present, the management of the Company is in the process of considering potential stores to expand its chain. The management continues the monthly market analysis, on the basis of which the Company continues to close and opens new stores in order to maximize profits and consolidate profitable market positions. Irena Vacheva /C.E.O of Sofia Commerce Pawnshops JSC/ PAGE 35 FROM 36