Opoczno SA Annual Report In Respect of the Year 2005

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Opoczno SA Annual Report In Respect of the Year 2005
Opoczno S.A. Annual Report In Respect of the Year 2005
27 march 2006
MANAGEMENT BOARD PRESIDENT’S LETTER
PAGE 2
SELECTED UNCONSOLIDATED 2004 & 2005 FINANCIAL DATA
PAGE 4
UNCONSOLIDATED FINANCIAL STATEMENTS
PAGE 6
THE OPOCZNO S.A. MANAGEMENT REPORT ON ACTIVITY
PAGE 33
MANAGEMENT BOARD’S STATEMENTS
PAGE 56
Raport Roczny Opoczno S.A. za rok 2005
-1-
27 marca 2006
The Letter of The President of Management Board
Management Board
President’s Letter
Opoczno S.A. Annual Report In Respect of the Year 2005
Opoczno S.A. Annual Report In Respect of the Year 2005
27 March 2006
-2-
27 March 2006
The Letter of The President of Management Board
Dear Shareholders
The past year 2005 was one in which we executed a number of significant changes, a period of breakthrough.
In March 2005 we acquired a majority share stake in „Dvarcioniu Keramika”, the largest producer of ceramic tiles in the
Baltic States, thus commencing the process of building out the modern Opoczno S.A. capital group.
One of the past year’s most significant events was Opoczno’s début on the Warsaw Stock Exchange. As we joined the
company of public listed companies we took on ourselves a number of obligations aimed at ensuring transparency of all
corporate information. I am of the opinion that quality of our information has been commensurate with expectations of our
shareholders.
In our view, the results the Opoczno Group registered in 2005 are not satisfactory. Sales revenue of the Opoczno Group
amounted to PLN 417.7 million compared to PLN 425. 9 million in 2004, with sales revenue of Opoczno S.A. reaching
PLN 366.5 million. Net profit the Opoczno Group achieved amounted to PLN 29.4 million compared to PLN 75.8 million in
2004, with net profit of Opoczno S.A. reaching PLN 24.7 million compared to PLN 75.8 million in 2004.
In spite of the fact that its financial results were not the highest, Opoczno S.A. maintained its position of leadership on the
domestic ceramic tiles market. The new tile collections launched in 2005 certainly contributed to that, with their modern
design and high quality that found acceptance with of our clients. Share of the new product sales in total Opoczno brand
sales stood at 17 per cent. and thus was threefold higher than in 2004 and fourfold higher than in 2003. The strong position
of Opoczno’s new collections was corroborated by the Grand Pearl in EU Ceramics 2005 awarded to the Company within
the framework of the prestigious competition of the Around Ceramic Tiles trade quarterly.
Driven by the target of improving the company’s condition, we have put in place a new Opoczno Group operational strategy,
with a medium term horizon. The strategy’s key objectives – by now under implementation – include rebuilding Opoczno’s
market value, increasing its sales growth and achieving higher realised margins. Other strategic assumptions include full
exploitation of the synergies achievable through management of the Opoczno Group as a whole and full market presence on
the top growth markets of Europe. In this effort we intend to lay particular stress on mastering to perfection the process of
launching new products and building a uniform portfolio of brands and collections addressed to the demanding clientele of
the European markets.
I am convinced that the actions we are undertaking will yield the early desired effects in the year 2006.
Mirosław Godlewski
President of the Management Board
Opoczno 24, March 2006
Opoczno S.A. Annual Report In Respect of the Year 2005
-3-
27 March 2006
Unconsolidated financial statements Opoczno S.A. for the year ended 31 December 2005
SELECTED UNCONSOLIDATED
2004 & 2005 FINANCIAL DATA
Opoczno S.A. Annual Report In Respect of the Year 2005
Raport Roczny Opoczno S.A. za rok 2005
27 March 2006
-4-
27 marca 2006
Selected Unconsolidated Financial Data
Selected Unconsolidated Financial Data
PLN thousand
Selected Financial Data
Current year
EURO thousand
Previous year
Current year
Previous year
period
period
period
period
01.01.2005
01.01.2004
01.01.2005
01.01.2004
31.12.2005
31.12.2004
31.12.2005
31.12.2004
386 466
425 851
96 057
94 252
Profit from operations
36 851
93 307
9 159
20 651
Profit before tax
29 776
93 924
7 401
20 788
Profit for the year
24 673
75 806
6 133
16 778
Net cash from operating activities
39 996
100 542
9 941
22 253
Net cash from investing activities
4 566
-31 828
1 135
-7 044
Net cash from financing activities
-66 240
-80 233
-16 464
-17 758
Net change in cash and cash equivalents
-21 678
-11 519
-5 388
-2 549
Total assets
462 739
477 658
119 887
117 102
88 932
2 301
23 041
564
Current liabilities
108 981
55 932
28 235
13 712
Shareholders’ equity
264 826
419 425
68 611
102 825
Share capital
164 500
164 500
42 619
40 329
16 450
16 450
16 450
16 450
1.50
4.61
0.37
1.02
16.10
25.50
4.17
6.25
Revenue from sales
Non-current liabilities
Number of ordinary shares (in thousand)
Earnings per share* (PLN / EUR)
Net book value per share** (PLN/ EUR)
(*) Earnings per share is calculated by dividing profit attributable to equity holders of the parent by number of shares
(**) Net book value is calculated by dividing total equity attributable to equity holders of the parent by number of shares
Selected financial data presented in the financial statements has been translated into EURO in the following way:
- income statement and cash flow statement figures using arithmetic average of exchange rates published by NBP
and ruling on the last day of each month during the year. For the year 2005 EURO 1 = 4.0233; for the year 2004
EURO 1 = 4.5182.
- balance sheet figures using the average exchange rates published by NBP and ruling on the last day of year. Exchange rate as at 31 December 2005 – EURO 1 = 3.8598; as at 31 December 2004 – EURO 1 = 4.0790.
Signatures:
Mirosław GODLEWSKI
President of the Management Board
Marek Sylwester WÓJCIKOWSKI
Vice President of the Management Board
Tomasz Wojciech DANKOWIAKOWSKI
Member of the Management Board
Marek Jerzy ŁYCYNIAK
Member of the Management Board
Opoczno, 24 March 2006
Opoczno S.A. Annual Report In Respect of the Year 2005
-5-
27 March 2006
Unconsolidated financial statements Opoczno S.A. for the year ended 31 December 2005
UNCONSOLIDATED FINANCIAL STATEMENTS
OPOCZNO S.A.
for the year ended 31 December 2005
Prepared in accordance with International
Financial Reporting Standards
as adopted by the European Union
Opoczno S.A. Annual Report In Respect of the Year 2005
Opoczno S.A. Annual Report In Respect of the Year 2005
27 March 2006
-6-
27 March 2006
Unconsolidated financial statements Opoczno S.A. for the year ended 31 December 2005
Contents
I. Profit and loss account ............................................................................................................................................................................................ - 8 II. Balance sheet........................................................................................................................................................................................................... - 9 III. Statement of changes in equity............................................................................................................................................................................. - 10 IV. Cash flow statement............................................................................................................................................................................................... - 11 V. Supplementary notes and other explanatory notes............................................................................................................................................. - 12 1. General information .................................................................................................................................................................................................. - 12 2. Applied accounting policies ...................................................................................................................................................................................... - 12 3. Reporting segments ................................................................................................................................................................................................. - 19 4. Acquisition of subsidiary........................................................................................................................................................................................... - 19 5. Other operating income ............................................................................................................................................................................................ - 19 6. Other operating expenses ........................................................................................................................................................................................ - 20 7. Personnel expenses ................................................................................................................................................................................................. - 20 8. Net financing (expense)/revenues............................................................................................................................................................................ - 20 9. Income tax expense ................................................................................................................................................................................................. - 20 10. Cash and cash equivalents .................................................................................................................................................................................... - 21 11. Investments ............................................................................................................................................................................................................ - 21 12. Trade and other receivables................................................................................................................................................................................... - 21 13. Inventories .............................................................................................................................................................................................................. - 22 14. Property, plant and equipment ............................................................................................................................................................................... - 22 15. Intangible assets..................................................................................................................................................................................................... - 23 16. Equity Investements ............................................................................................................................................................................................... - 24 17. Deferred tax............................................................................................................................................................................................................ - 24 18. Interest bearing loans ............................................................................................................................................................................................. - 24 19. Trade and other payables ...................................................................................................................................................................................... - 25 20. Share-based incentive schemes ............................................................................................................................................................................ - 25 21. Employee benefits .................................................................................................................................................................................................. - 28 22. Other reserves........................................................................................................................................................................................................ - 28 23. Bonds ..................................................................................................................................................................................................................... - 28 24. Shareholders’ equity............................................................................................................................................................................................... - 28 25. Earnings per share ................................................................................................................................................................................................. - 29 26. Financial instruments.............................................................................................................................................................................................. - 29 27. Operating leases .................................................................................................................................................................................................... - 30 28. Related party transactions...................................................................................................................................................................................... - 31 29. Contingencies......................................................................................................................................................................................................... - 31 30. Accounting estimates and judgements................................................................................................................................................................... - 31 -
Opoczno S.A. Annual Report In Respect of the Year 2005
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27 March 2006
Unconsolidated financial statements Opoczno S.A. for the year ended 31 December 2005
I. Profit and loss account
PLN’000
Note
Revenue from sales
from 01.01.2005
from 01.01.2004
to 31.12.2005
to 31.12.2004
386 466
425 851
-248 669
-248 807
137 797
177 044
5 103
6 239
Selling expenses
-24 688
-19 943
Administrative expenses
-64 513
-60 788
-16 848
-9 245
36 851
93 307
-7 075
617
29 776
93 924
-5 103
-18 118
24 673
75 806
Basic
1.50
4.61
Diluted
1.48
4.61
Cost of sales
Gross profit
Other operating income
Other operating expenses
5
6
Profit from operations
Net financing (expense)/revenues
8
Profit before tax
Income tax expense
9
Profit for the year
Earnings per share (PLN)
Opoczno S.A. Annual Report In Respect of the Year 2005
25
-8-
27 March 2006
Unconsolidated financial statements Opoczno S.A. for the year ended 31 December 2005
II. Balance sheet
PLN’000
Note
Current assets
31.12.2005
31.12.2004 (*)
183 697
231 544
6 663
8 746
11
3
76 309
12
85 586
80 268
1 176
1 568
13
90 269
64 653
279 042
246 114
Property, plant and equipment
14
261 189
243 719
Intangible assets
15
94
-
Equity investments
16
14 498
-
-
649
17
3 261
1 746
462 739
477 658
108 981
55 932
Cash and cash equivalents
10
Investments
Trade and other receivables
Income tax receivable
Inventories
Non-current assets
Other receivables
Deferred tax assets
Total assets
Current liabilities
Interest bearing loans
18
46 425
102
Trade and other payables
19
62 495
55 830
61
-
-
-
Dividends payable
Income tax payable
Non-current liabilities
Interest bearing loans
18
88 932
86 536
2 301
206
Bonds
23
3
-
Employee benefits
21
1 835
1 411
Deferred tax liabilities
17
442
684
Others reserves
22
116
-
Shareholders’ equity
Share capital
24
264 826
164 500
419 425
164 500
53 960
53 960
Share premium
Fixed assets revaluation reserve
Reserve capital
Other capital reserves
615
738
28 418
28 173
-
96 248
Additional capital reserves
20 107
-
Retained earnings
-2 774
75 806
462 739
477 658
Total liabilities and shareholders’ equity
(*) Restated as a result of the recognition of incentive schemes for executive managers (refer to note 20)
Opoczno S.A. Annual Report In Respect of the Year 2005
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27 March 2006
Unconsolidated financial statements Opoczno S.A. for the year ended 31 December 2005
III. Statement of changes in equity
PLN ‘000
Note
As at 31 December 2004 (as previously reported)
Recognition of incentive schemes for executive managers
20
As at 31 December 2004 (restated)
Profit for the year
Transfer
Appropriation of 2004 profit
Recognition of incentive schemes for executive managers
Dividend for shareholders
20
24
As at 31 December 2005
Share
capital
Fixed assets
revaluation
reserve
Share
premium
Other
capital
reserves
Reserve
capital
Additional
capital
reserves
Retained
earnings
Total
equity
164 500
53 960
738
28 173
96 248
-
75 980
419 599
-
-
-
-
-
-
-174
-174
164 500
53 960
738
28 173
96 248
-
75 806
419 425
-
-
-123
-
123
122
-
-96 248
20 107
-
24 673
-122
-27 148
-75 983
24 673
-7 041
-172 231
164 500
53 960
615
28 418
-
20 107
-2 774
264 826
164 500
53 960
-
78 380
-
-
45 916
342 756
-
-
863
-125
-
125
45 916
-96 248
96 248
-
75 806
-45 916
-
75 806
863
-
164 500
53 960
738
28 173
96 248
-
75 806
419 425
Twelve months ended 31 December 2005
As at 31 December 2003
Profit for the year
Revaluation of fixed assets
Transfer
Appropriation of 2003 profit
Reallocation of reserve capital for dividends
As at 31 December 2004
Opoczno S.A. Annual Report In Respect of the Year 2005
- 10 -
27 March 2006
Unconsolidated financial statements Opoczno S.A. for the year ended 31 December 2005
IV. Cash flow statement
PLN ‘000
Note
from 01.01.2005
from 01.01.2004
to 31.12.2005
to 31.12.2004
Cash flows from operating activities
Profit for the year
Adjustments for:
Depreciation and amortization
Foreign exchange (gains)/losses
Net interest
Change in employee benefits
Share-based incentive schemes
Gain on investment activity
Income tax expense
Other items
24 673
75 806
38 521
-406
6 437
598
-7 216
-988
5 103
-111
36 653
1 740
931
-174
174
-4 069
18 118
-
Operating profit before working capital changes
66 611
129 179
(Increase)/decrease in trade and other receivables
(Increase)/decrease in inventories
(Increase)/decrease in payables
Cash generated from operations
-12 960
-25 616
18 429
46 464
4 205
-9 480
-4 593
119 311
20
Income taxes paid
-6 468
-18 769
Net cash from operating activities
39 996
100 542
-59 126
2 178
-14 498
75 682
327
3
-46 006
2 523
11 652
3
4 566
-31 828
112 745
-143
-6 674
-172 171
3
-
-79 167
-123
-907
-36
Net cash from financing activities
-66 240
-80 233
Net change in cash and cash equivalents
Cash and cash equivalents at the beginning of the
period
Cash and cash equivalents at the end of the period
-21 678
-11 519
8 746
20 265
-12 932
8 746
Cash flows from investing activities
Purchases of property, plant and equipment
Disposal of property, plant and equipment
Acquisition of subsidiary
Disposal of investment
Interest received
Other items
4
Net cash from investing activities
Cash flows from financing activities
Drawing/(repayment) of loans
Financial lease payments
Interest paid
Dividend paid
Proceeds from the issue of bonds
Other items
Raport Roczny Opoczno S.A. za rok 2005
24
23
- 11 -
10
27 marca 2006
Unconsolidated financial statements Opoczno S.A. for the year ended 31 December 2005
V. Supplementary and other explanatory notes
1. General information
Opoczno S.A. (hereinafter referred to as “the Company”) was established through transforming a state
enterprise Zespół Zakładów Płytek Ceramicznych “Opoczno” according to the Commercialisation Deed of the State enterprise dated 29 October 1998. The Company was registered in the XX Commercial Department of the National Court Register in Łódź (KRS) under the number KRS 8086 on 20 April 2001.
As at 31 December 2005, the biggest shareholder of the Company, owning 48.4% of capital share, was Credit Suisse First
Boston Ceramic Partners (Poland) S.a.r.l., owned by funds managed by CSFB Private Equity and Enterprise Investors.
The main activity of the Company is the production and sale of ceramic tiles.
The average number of employees in Opoczno S.A. in 2005 amounted to 1,201 comparing to 1,157 in 2004.
The Company has its seat in Opoczno.
The financial statements as at 31 December 2005 were authorized for issue by the directors on 24 March 2006.
2. Applied accounting policies
Statement of compliance
The financial statements of Opoczno S.A. have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and in respect to matters that are not regulated by the above standards, in accordance with the accounting principles as set out in the Accounting Act dated 29 September 1994 (Official
Journal from 2002, No 76, item 694 with amendments) and respective bylaws and regulations and the requirements for
issuers of securities admitted to trading on an official stock-exchange listing market.
The Company prepared consolidated financial statements of Group in accordance with International Financial Reporting
Standards (IFRS) as adopted by the European Union (EU) and in respect to matters that are not regulated by the above
standards, in accordance with the accounting principles as set out in the Accounting Act dated 29 September 1994 (Official
Journal from 2002, No 76, item 694 with amendments) and respective bylaws and regulations and the requirements for
issuers of securities admitted to trading on an official stock-exchange listing market. These financial statements were authorized by the directors on 24 March 2006.
The accounting policies and methods of measurement applied by the Company in preparation of the financial statements are
the same as these applied in the most recent annual financial statements prepared for the year ended 31 December 2004,
except for the changes in policies resulting from changes in IFRS as described below.
The changes in IFRSs, which came into force on 1 January 2005 did not result in substantial changes to the accounting
principles applied by the Company, except for IFRS 2 Share-based payments – refer to note 20.
The Company has not used the possibility of earlier adoption of new Standards and Interpretations already published and
adopted, or awaiting adoption, by the European Union, which will come into force after the balance sheet date. These
standards and interpretation are presented below:
Standard/
Interpretation
as adopted by EU
Nature of impending change in
accounting policy
Possible impact
statements
IFRS 6 Exploration for
and
Evaluation
of
Mineral
Resources
(including
resulting
changes to IFRS 1,
IAS 16 and IAS 38)
The Standard includes a requirement to distinguish between
tangible and intangible assets that
are used in the exploration for and
evaluation of mineral resources,
and specifies the level at which
impairment testing should be
carried out.
The Company does not have any
operations that would be affected by
the new Standard.
1 January 2006
IFRS
7
Financial
Instruments:
Disclosures
The Standard will require increased disclosure in respect of
the Group’s financial instruments.
It supersedes IAS 30 Disclosures
in the Financial Statements of
Banks and Similar Financial
Institutions and is applicable to all
The Company considers that the
significant additional disclosures
required will relate to its financial
risk management objectives, policies and processes.
1 January 2007
Opoczno S.A. Annual Report In Respect of the Year 2005
- 12 -
on
financial
Effective date for
periods
beginning on or after
27 March 2006
Unconsolidated financial statements Opoczno S.A. for the year ended 31 December 2005
entities that prepare financial
statements in accordance with
IFRSs.
Amendment to IFRS 6
Exploration for and
Evaluation of Mineral
Resources and IFRS 1
First-time Adoption of
International Financial
Reporting Standards
The amendment clarifies that a
first-time adopter of IFRSs for a
period beginning before 1 January
2006 that applies IFRS 6 voluntarily need not apply the disclosure,
recognition and measurement
requirements of IFRS 6 to the
comparative information included
in its first IFRS financial statements. Alternatively, IFRS 6 may
be applied in the comparative
period.
These amendments are not relevant
to the Company’s operations as the
Company is not a first-time adopter
of IFRSs and does not have any
operations that would be affected by
the amendment.
1 January 2006
Amendment to IAS 1
Presentation of Financial
Statements
–
Capital Disclosures
As a complimentary amendment
arising from IFRS 7 (see above),
the Standard will require increased
disclosure in respect of the Company’s capital.
This amendment will require significantly more disclosures regarding
the capital structure of the Company.
1 January 2007
Amendment to IAS 19
Employee Benefits –
Actuarial Gains and
Losses, Group Plans
and
Disclosures
(including
resulting
changes to IAS 1, IAS
24 and IFRS 1)
The amendment includes an
option for actuarial gains and
losses to be recognised in full as
they arise, outside of the income
statement in a statement of
recognised income and expense.
The Company does not have any
employee benefit plans that will be
affected by the amendment.
1 January 2006
Amendment to IAS 39
Financial Instruments:
Recognition
and
Measurement – Cash
Flow Hedge Accounting of Forecast Intragroup Transactions
The amendment allows the foreign
currency risk of a highly probable
forecast intragroup transaction to
qualify as a hedged item if certain
criteria are met.
This amendment is not relevant to
the Company’s operations, as the
Company does not have any intragroup transactions that would
qualify as a hedged item in the
financial statements.
1 January 2006
Amendment to IAS 39
Financial Instruments:
Recognition
and
Measurement – The
Fair Value Option
(including
resulting
changes to IAS 32 and
IFRS 1)
The amendment restricts the
designation of financial instruments as “at fair value through
profit or loss”.
The Company believes that this
amendment should not have a
significant impact on the classification of financial instruments, as the
Company should be able to comply
with the amended criteria for the
designation of financial instruments
at fair value through profit or loss.
1 January 2006
Amendment to IAS 39
Financial Instruments:
Recognition
and
Measurement
and
IFRS 4 Insurance
Contracts – Financial
Guarantee Contracts
The amendment requires guarantees that are not insurance contracts to be measured at fair value
upon initial recognition.
The Company issues financial
guarantees to guarantee the indebtedness of the subsidiary. The
Company treats the guarantee
contract as a contingent liability until
such time as it becomes probable
that the Company will be required to
make a payment under the guarantee.
1 January 2006
Amendment to IAS 21
The
Effects
of
Changes in Foreign
Exchange Rates – Net
Investment
in
a
Foreign Operation
The amendment clarifies in which
circumstances a loan may form
part of a reporting entity’s net
investment in a foreign operation,
and the currency in which such an
item may be denominated.
The Company currently has no
items comprising net investments in
foreign operations that will be
affected by the amendment.
1 January 2006
IFRIC 4 Determining
whether an Arrangement contains a Lease
(including
resulting
changes to IFRS 1)
IFRIC 5 Rights to
Interests arising from
Decommissioning,
Restoration
and
The Interpretation requires certain
arrangements to be accounted for
as a lease even if they are not in
the legal form of a lease.
The Company has not yet completed its analysis of the impact of
the new Interpretation.
1 January 2006
The Interpretation deals with funds
created for the purpose of settling
decommissioning
and
similar
expenses.
IFRIC 5 is not relevant to the Company’s operations.
1 January 2006
Opoczno S.A. Annual Report In Respect of the Year 2005
- 13 -
27 March 2006
Unconsolidated financial statements Opoczno S.A. for the year ended 31 December 2005
Environmental Rehabilitation Funds (including
resulting
changes to IAS 39)
IFRIC 6 Liabilities
arising from Participating in a Specific
Market
–
Waste
Electrical and Electronic Equipment
The Interpretation deals with
obligations arising from the European Union Directive regulating
the collection, treatment, recovery
and environmentally sound disposal of waste equipment.
IFRIC 6 is not relevant to the Company’s operations.
1 December 2005
Standard/
Interpretation
awaiting
endorsement by EU
Nature of impending change in
accounting policy
Possible impact
statements
Effective date for
periods
beginning on or after
IFRIC 7 Applying the
Restatement
Approach under IAS 29
Financial Reporting in
Hyperinflationary
Economies.
The Interpretation contains guidance on how an entity would
restate its financial statements
pursuant to IAS 29 in the first year
it identifies the existence of hyperinflation in the economy of its
functional currency.
IFRIC 7 is not relevant to the Company’s operations.
1 March 2006
IFRIC 8
IFRS 2
of
The Interpretation clarifies that the
accounting standard IFRS 2
Share-based Payment applies to
arrangements where an entity
makes share-based payments for
apparently nil or inadequate
consideration.
IFRIC 8 is not relevant to the Company’s operations as the Company
has not entered into any sharebased payments arrangements for
apparently nil or inadequate consideration.
1 May 2006
IFRIC 9 Reassessment of Embedded
Derivatives
The Interpretation clarifies that the
treatment of an embedded derivative is assessed by the entity when
the entity first becomes a party to
the contract, and that reassessment is prohibited unless there is a
change in the terms of the contract
that significantly modifies the cash
flows that otherwise would be
required under the contract.
The Company has not yet completed its analysis of the impact of
the new Interpretation.
1 June 2006
Scope
on
financial
Basis of preparation
The financial statements are presented in Polish Zloty (PLN), rounded to the nearest thousand.
The preparation of financial statements in conformity with IFRSs requires management to make judgments, estimates and
assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The
estimates and associated assumptions are based on historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of
assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The
estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized
in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future
periods if the revision affects both current and future periods
The financial statements have been prepared under the historical cost convention, except the following assets and liabilities
stated at their fair values: derivative financial instruments and financial instruments at fair value through profit or loss; and
land and buildings stated at revalued amounts.
Foreign currency transactions
Foreign currency transactions are translated to PLN at exchange rates prevailing at the date of the transactions, set either
by the National Bank of Poland (“NBP”) or customs authorities, as appropriate. Monetary assets and liabilities denominated
in foreign currencies at the balance sheet date are translated to PLN at the foreign exchange rate binding at that date.
Gains and losses arising on translation are recognized in profit or loss.
Derivative financial instruments
Opoczno S.A. Annual Report In Respect of the Year 2005
- 14 -
27 March 2006
Unconsolidated financial statements Opoczno S.A. for the year ended 31 December 2005
Derivative financial instruments (forward currency contracts and options) are recognised at their fair value. Changes in fair
value are recognised as financial revenues or expenses.
The fair value of forward currency contracts is calculated as the discounted difference between foreign currency cashflows
translated into PLN at forward rates specified in the agreement and foreign currency cashflows translated into PLN at forward rates as at the valuation date.
The Company uses, to a limited extent forward contracts in order to hedge against foreign exchange risk. Derivative financial
instruments that do not qualify for hedge accounting are recognized and presented as financial instruments at fair value
through profit or loss.
Property, plant and equipment
(i)
Owned assets
Items of property, plant and equipment (except for land and buildings) are stated at cost less accumulated depreciation
(see below) and impairment losses (refer to note ‘Impairment’).
Cost includes the actual purchase price of an asset (e.g. the amount the amount due to the seller, without deductible tax on
goods and services and excise duty), legal and public charges (in case of import) as well as direct purchasing costs of
bringing an asset to a usable condition, including costs of transport, as well as loading, unloading and storage. Rebates,
discounts and other similar price reductions and refunds reduce cost of an asset. The construction cost of fixed assets and
fixed assets under construction includes all costs incurred in the construction, assembly, installation and improvement
process up to the date when the asset is brought into use (or up to the balance sheet date if the asset was not brought into
use yet). The cost comprises also non-deductible value added tax and excise tax. The construction cost, if required, comprises also the initial estimate of the costs of dismantling and removing the item and restoring the site.
Land and buildings are stated at revalued amounts less accumulated depreciation and impairment losses. The amount
arising on revaluation is allocated to the revaluation reserve.
(ii)
Leased assets
Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance
leases.
(iii)
Depreciation
Depreciation is determined using the straight line method to write off each asset over its estimated useful life taking into
account the estimated selling price on the asset’s retirement date (residual value). The accuracy of useful lives, methods of
depreciation and residual values of assets are reviewed annually.
The estimated useful lives are as follows:
Buildings
Plant and equipment
Furniture and fixtures
25-40 years
4-20 years
1-6 years
Freehold land is not depreciated.
(iv)
Subsequent costs
Expenditure on repairs or maintenance of property, plant and equipment is recognised as an expense when incurred.
Expenditure incurred on the improvement of tangible fixed assets is capitalised to property, plant and equipment only when
it increases the future economic benefit embodied in the item of property, plant and equipment.
Intangible assets
Intangible assets are stated at cost less accumulated amortization (see below) and impairment losses (refer to note ‘Impairment’).
Amortisation is charged on a straight-line basis over the estimated useful lives of intangible assets, unless such lives are
indefinite.
Intangible assets with an indefinite useful life (e.g. trademarks) are stated at cost less any accumulated impairment losses.
These assets are tested annually or more often for impairment – in cases when any events or changes indicate that the
asset may be impaired.
Opoczno S.A. Annual Report In Respect of the Year 2005
- 15 -
27 March 2006
Unconsolidated financial statements Opoczno S.A. for the year ended 31 December 2005
(i)
Emission rights
Pollution emission rights granted are initially stated at purchase price.
The Company applies a 3-year settlement period for pollution emission rights granted. The Company raises a provision for
the costs of pollution emissions when emitted. In accordance with the settlement period applied the Company raises provision for the costs of emissions based on the carrying values of emission rights held, if anticipated pollution emission in the
settlement period does not exceed the volume of emission rights held. If the Company’s pollution emission in the first and/or
in the second year exceeds the number of emission rights granted for these years, the Company does not raise a provision
for missing rights, if in the second and/or in the third year of the applied settlement period a reduction in pollution emission is
planned, which will cause actual emissions to be lower than the volume of emission rights held by the Company. However, if
the anticipated emission in the settlement period exceeds the number of emission rights held the Company raises a provision for emission costs, based on the market value of the of missing rights, for the particular year from the moment actual
emissions exceed the volume of emission rights granted for the particular year.
The sale of excess emission rights being in Company’s possession is recognized in the income statement during the period
in which the rights were sold. The profit or loss on sale is included in other operating income or other operating expenses.
Equity investments in subsidiaries
Equity investments in subsidiaries are stated at cost less impairment losses (refer to note ‘Impairment’).
Financial assets at fair value through profit or loss
Financial assets measured at fair value through profit or loss, apart from derivative financial instruments, include units in
investment funds. The fair value of the units in investment funds is their current market value. The effect of the increase or
decrease of the value of the units is presented as financial revenue or expenses appropriately.
Financial assets at fair value through profit or loss are recognized / derecognized by the Company on the date it commits to
purchase / sell the instruments.
Trade and other receivables
Receivables are stated at amortised cost less impairment losses (refer to note ‘Impairment’).
Inventories
The cost of inventories includes expenditure incurred in acquiring the inventories, processing them and bringing them to their
existing location and condition. In the case of finished goods and work-in-progress, cost includes an appropriate share of
overheads based on normal operating capacity.
Production materials, merchandise and finished goods are valued using the weighted average method.
Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the
ordinary course of business less any estimated costs of completion and selling expenses.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances on hand and with banks and short-term deposits with primary maturity
date not exceeding 3 months.
Bank overdrafts that are repayable on demand and form an integral part of the Company’s cash management are included
as a component of cash and cash equivalents for the purposes of the statement of cash flows.
Loans receivable
Loans receivable are carried at amortised cost. Loans receivable comprise of treasury and commercial bonds purchased
from a bank with an irrevocable put option (buy-sell-back transaction).
Impairment
Opoczno S.A. Annual Report In Respect of the Year 2005
- 16 -
27 March 2006
Unconsolidated financial statements Opoczno S.A. for the year ended 31 December 2005
The carrying amounts of the Company’s assets, other than inventories (refer to note ‘Inventories’) and deferred taxes (refer
to note ‘Taxation’) are reviewed at each balance sheet date or more often to determine whether there is any indication of
impairment. If any such indication exists, the asset's recoverable amount is estimated. An impairment loss is recognised
whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses
are recognised in the income statement.
A provision for impairment of trade and other receivables is established when there is objective evidence that the Company
will not be able to collect all amounts due according to the original terms of the receivable. If there is objective evidence that
an impairment loss on receivables carried at amortized cost has been incurred, the amount of the loss is measured as the
difference between the asset’s carrying value and the present value of estimated future cash flows discounted at the effective interest rate. The amount of the loss is recognized in the income statement.
The recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset which
does not generate largely independent cash flows, the recoverable amount is determined for the cash-generating unit to
which the asset belongs.
Dividends
Dividends are recognized in the period in which they are declared.
Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at their fair value, less attributable transaction costs. Subsequent to initial
recognition, interest-bearing borrowings are stated at amortised cost using the effective interest rate.
Employee benefits
(i)
Jubilee awards and retirement awards
The Company does not have its own retirement benefit plan. It contributes only to the state social system,
transferring a required percentage of gross salary. The cost is expensed as incurred.
In accordance with Company’s remuneration regulations, employees at the Company are entitled to jubilee awards after
specified periods of service. Due to the changes in the collective labour agreement dated 31 March 2003 the Company is
only liable to pay these awards till the end of 2005.
Based on the existing regulations the Company is obliged to pay retirement award in the amount defined in Labour Law
(Official Journal from 1998, No 21, item 94 with subsequent amendments). In addition, in accordance with Collective Labour
Agreement the retirement award is increased depending on an employee’s service period for the Company. The minimum
retirement award is determined by the terms of the Labour Law being in force at the moment of payment. The maximum
retirement award amount may equal four and a half times the employee’s basic remuneration in the month of retirement.
The liability resulting from retirement awards is calculated based on assessment of employee’s remuneration level in the
period in which he reaches retirement age and based on an assessment of the value of the retirement award in future.
These payments are discounted to their present value. The discount rate is the return on debt securities as at the balance
sheet date. The retirement awards liability is recognized proportionally to the employee’s expected service period.
The calculation is performed by an authorized actuary using the projected unit credit method. Employee turnover is estimated based on historical data and expectations with regards to the future level of employment.
The change in the value of the obligation for the year is recognised in the income statement.
(ii)
Share-based incentive schemes
Selected members of the management and supervisory boards of Opoczno S.A. participate in share-based incentive
schemes established by the Company and Credit Suisse First Boston Ceramic Partners (Poland) S.a.r.l. (hereinafter referred
to as “CSFBCP”).
The share option program established by the Company allows entitled persons to acquire the Company’s shares. The fair
value of share options granted is recognized in the income statement with a corresponding entry in additional capital reserves. The fair value is measured at grant date and spread over the period during which the persons become unconditionally entitled to the options. The fair value of share options granted is measured using the Black-Scholes model, taking into
account the terms and conditions upon which the options were granted. The amount recognized as an expense is adjusted
to reflect the actual number of share options that vest except where forfeiture is only due to share prices not achieving the
threshold for vesting.
Opoczno S.A. Annual Report In Respect of the Year 2005
- 17 -
27 March 2006
Unconsolidated financial statements Opoczno S.A. for the year ended 31 December 2005
Under the incentive schemes established by CSFBCP the entitled persons were granted share appreciation rights entitling
them to receive cash payments due to the increase of the Company’s shares value. The fair value of share appreciation
rights is estimated based on intrinsic value taking into account the probability of occurrence of the condition for payment.
After the initial recognition, the fair value of share appreciation rights is remeasured on each balance sheet date and on the
day of share appreciation rights settlement. Changes in the fair value of share appreciation rights are recognized in the
income statement with a corresponding entry to additional capital reserves.
Provisions
A provision is recognised when the Group has an obligation as a result of a past event, and it is probable that an outflow of
economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting
the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and,
where appropriate, the risks specific to the liability.
(i)
Site restoration
In accordance with the Group’s environmental policy and applicable legal requirements relating to the Group’s obligation to
restore the mine, the provision for restoration of land is recognized in the period when the land is explored.
Trade and other payables
Trade and other payables are stated at amortised cost.
Borrowing costs
Borrowing costs are recognised as an expense in the period in which they are incurred except for borrowing costs relating to
assets under construction, which are capitalised up to the moment of bringing the asset into use.
Net financial revenues and expenses
Net financial expenses comprise interest payable on borrowings, interest receivable on funds invested and trade accounts
receivable, foreign exchange gains and losses, and gains and losses on hedging instruments that are recognised in the
income statement.
Revenue from sales
Revenue from sales of goods is recognised in the income statement when the significant risk and benefits resulting from
ownership are transferred from the Company to the buyer. Revenue from sales includes outstanding and received amounts
net of value added tax, rebates and discounts granted.
Other operating revenue and expenses
Other operating revenue and expenses comprise items not directly relating to the main activity of the Company. They
include, among others: gains and losses on non-current asset disposals, impairment allowances for non-monetary assets,
provisions raised and released, penalties and claims, donations received and remitted.
Operating lease payments
Payments made under operating leases are recognized in the income statement on a straight-line basis over the term of the
lease. Lease incentives received are recognized in the income statement as an integral part of the total lease expense.
Finance lease payments
Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The
finance charge is allocated to each period during the lease term using the effective interest rate method.
Taxation
Opoczno S.A. Annual Report In Respect of the Year 2005
- 18 -
27 March 2006
Unconsolidated financial statements Opoczno S.A. for the year ended 31 December 2005
Income tax in the income statement comprises current and deferred tax.
Current tax is the expected tax payable on the taxable income for the year determined in accordance with
binding tax law. Current tax includes accruals for adjustments in relation to prior years, if any.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of
deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and
liabilities, using tax rates enacted or substantially enacted at the balance sheet date.
The Group recognises deferred tax assets only if it is probable that future taxable profits will be available against which the
Group can utilise the benefits therefore.
Deferred tax relating to items charged directly to equity is also charged to equity.
3. Reporting segments
A segment is a distinguishable component of the Company that is engaged in either providing products or services (business
segment), or in providing products or services within a particular economic environment (geographic segment), which is
subject to risks and rewards that are different than those of other segments.
The Company is engaged in providing its products in one business segment: ceramic tiles. Approximately 83.5% of the
Company’s sales are made in the European Union (mainly Poland and Lithuania).
All the Company’s assets are located in Poland.
4. Acquisition of subsidiary
On 22 April 2005 the Company took over effective control of AB Dvǎrcionių Keramika following the acquisition of 60.25% of
the shares in the subsidiary.
The purchase agreement for AB Dvǎrcionių Keramika shares includes an option for sale and purchase of additional shares.
According to the agreement, during the period from 1 May 2006 to 1 May 2009, on the demand of one of the shareholders of
AB Dvǎrcionių Keramika, Opoczno S.A. is obligated to acquire in one transaction 17.97% of the shares and after 1 May
2009 Opoczno S.A. has a right to demand from this shareholder to sell these shares in one transaction. The option exercise
price will be based on EBITDA and net debt less loans from Opoczno S.A. to be determined on the option exercise date.
The initial value of the option amounts to zero. The fair value of the option cannot be reliably measured due to the fact that
the low liquidity of AB Dvǎrcionių Keramika shares don’t allow them to be considered as traded on an active market as well
as due to other non-market conditions influencing the value of the option, which causes significant variability in the range of
reasonable fair values estimates.
5. Other operating income
01.01.2005
31.12.2005
PLN'000
Gain on fixed assets disposed
Sales of services
Reversal of inventory allowances
Reversal of fixed assets allowances
Reversal of accounts receivable allowances
Contractual penalties and compensations received
Waiver of tax liabilities
Other operating income
Total
Opoczno S.A. Annual Report In Respect of the Year 2005
- 19 -
01.01.2004
31.12.2004
88
2 322
1 191
400
314
136
157
3 616
304
100
177
123
652
588
1 174
5 103
6 239
27 March 2006
Unconsolidated financial statements Opoczno S.A. for the year ended 31 December 2005
6. Other operating expenses
01.01.2005
31.12.2005
PLN'000
Donations
Cost of services sold
Increase in employee benefits obligation
Provision for mine restoration
Inventory allowance
Accounts receivables allowance
Cost of initial public listing of the Company’s shares
Contractual penalties and compensations paid
Scrapping of current assets
Other operating expenses
Total
01.01.2004
31.12.2004
-553
-2 294
-865
-116
-2 113
-348
-7 019
-1 037
-1 382
-1 121
-638
-3 612
-201
-711
-1 078
-913
-754
-1 338
-16 848
-9 245
7. Personnel expenses
PLN'000
Note
01.01.2005
31.12.2005
01.01.2004
31.12.2004
-45 102
7 216
-14 518
-865
-40 555
-174
-14 446
-201
-53 269
-55 376
01.01.2005
31.12.2005
01.01.2004
31.12.2004
Interest expense
Interest income
Net gain/(loss) on foreign exchange differences
Gain on loans receivable
Gain on disposal of available for sale financial assets
Profit on financial assets at fair value through profit or loss
Revaluation of available for sale financial assets
Revaluation of forward currency contracts
Other financial (expenses)/revenues
-6 842
435
-1 012
32
195
117
-1 041
716
-1 613
1 896
676
1 537
-1 550
-4
Total
-7 075
617
01.01.2005
31.12.2005
01.01.2004
31.12.2004
-6 855
-18 375
-5
-8
-6 860
-18 383
Share-based incentive schemes
Compulsory social security
Increase in employee benefits obligation
Share-based incentive schemes
20
Total
8. Net financing (expense)/revenues
PLN'000
9. Income tax expense
(a) Recognised in the Income Statement
PLN'000
Current tax expense
Current year
Prior years
Deferred taxation
Origination and reversal of timing differences
1 757
265
Income tax expense in income statement
-5 103
-18 118
Opoczno S.A. Annual Report In Respect of the Year 2005
- 20 -
27 March 2006
Unconsolidated financial statements Opoczno S.A. for the year ended 31 December 2005
(b) Reconciliation of effective tax rate
PLN’000
Pre-tax profit
01.01.2005
31.12.2005
01.01.2004
31.12.2004
29 776
93 924
Corporate income tax
Permanent differences
19%
-1,9%
-5 657
554
19%
0,3%
-17 846
-272
Total
17,1%
-5 103 19,3%
-18 118
01.01.2005
31.12.2005
01.01.2004
31.12.2004
-
-174
(c) Deferred tax charged to equity
PLN’000
Relating to revaluation of land and buildings
10. Cash and cash equivalents
PLN'000
31.12.2005
31.12.2004
Cash in hand
Cash at bank
Cash and cash equivalents
Bank overdrafts
45
6 618
20
8 726
6 663
-19 595
8 746
-
Cash and cash equivalents in the cash flow statement
-12 932
8 746
Cash and cash equivalents include the Social Fund bank account amounting to PLN 295 thousand and Liquidation of the
Mining Plant Fund amounting to PLN 23 thousand (as at 31 December 2004 – PLN 161 thousand and PLN 20 thousand
respectively), which are designated for use by the funds.
11. Investments
PLN'000
31.12.2005
31.12.2004
Loan receivable
Available for sale financial assets
Financial assets at fair value through profit or loss
3
9 943
66 366
-
Total
3
76 309
31.12.2005
31.12.2004
Trade receivables
Prepayments
VAT receivable
Receivable from the sale of fixed assets
Other receivables
76 924
655
4 466
811
2 730
64 089
8 975
2 835
1 678
2 691
Total
85 586
80 268
12. Trade and other receivables
PLN'000
Trade receivables as at 31 December 2004 are presented net of allowances for doubtful debts amounting to PLN 1,972
thousand (as at 31 December 2004 - PLN 2,345 thousand).
Opoczno S.A. Annual Report In Respect of the Year 2005
- 21 -
27 March 2006
Unconsolidated financial statements Opoczno S.A. for the year ended 31 December 2005
Other receivables at the year end are presented net of allowances for doubtful debts amounting to PLN 223 thousand (as at
31 December 2004 - PLN 384 thousand).
13. Inventories
PLN'000
31.12.2005
31.12.2004
Raw materials
Semi-finished goods
Merchandise
Finished goods
28 304
3 114
5 000
53 850
23 736
2 468
3 166
35 283
Total
90 268
64 653
Inventories are stated at net value, decreased by allowances in the amount of PLN 1,591 thousand (as at 31 December
2004 – PLN 879 thousand).
Inventories with a carrying amount of PLN 40,000 thousand (as at 31 December 2004 – PLN 0 thousand) were subject to
pledge as security for the bank overdraft.
14. Property, plant and equipment
(a)
Property, plant and equipment movements
PLN'000
Land &
buildings
Plant &
equipment
owned
Assets
under
construction
Other
Total
Cost / revalued amount
As at 1 January 2005
177 128
328 442
28 562
28 238
562 370
Additions
400
339
-
55 860
56 599
Transfers
Disposals
9 354
-1 439
63 644
-5 430
8 618
-567
-81 616
-
-7 436
185 443
386 995
36 613
2 482
611 533
As at 1 January 2005
-46 037
-255 413
-17 201
-
-318 651
Depreciation charge
-5 380
-28 366
-4 775
-
-38 521
950
5 375
503
-
6 828
-50 467
-278 404
-21 473
-
-350 344
As at 1 January 2005
131 091
73 029
11 361
28 238
243 719
As at 31 December 2005
134 976
108 591
15 140
2 482
261 189
As at 31 December 2005
Depreciation
Disposals
As at 31 December 2005
Carrying amounts
Opoczno S.A. Annual Report In Respect of the Year 2005
- 22 -
27 March 2006
Unconsolidated financial statements Opoczno S.A. for the year ended 31 December 2005
PLN'000
Plant &
equipment
owned
Land &
buildings
Assets
under
construction
Other
Total
Cost / revalued amount
As at 1 January 2004
173 499
327 429
19 673
533
521 134
Additions
-
431
-
51 452
51 883
Transfers
2 611
12 004
9 082
-23 697
-
Revaluations
1 066
-
-
-
1 066
-48
-11 422
-193
-50
-11 713
177 128
328 442
28 562
28 238
562 370
-40 866
-239 310
-13 421
-
-293 597
Additions
-5 203
-27 477
-3 973
-
-36 653
Disposals
32
11 374
193
-
11 599
As at 31 December 2004
-46 037
-255 413
-17 201
-
-318 651
Carrying amounts
As at 1 January 2004
132 633
88 119
6 252
533
227 537
As at 31 December 2004
131 091
73 029
11 361
28 238
243 719
Disposals
As at 31 December 2004
Depreciation
As at 1 January 2004
(b)
Security
As at 31 December 2005 items of property, plant and equipment with a carrying amount of PLN 228,952 thousand were
subject to registered pledge as security for bank loans and guarantees given.
(c)
Fixed assets under finance lease
As at 31 December 2005 the net book value of assets held under finance lease amounted to PLN 649 thousand (as at
31 December 2004 – PLN 379 thousand).
(d)
Total financial costs capitalized in the period
Total financial costs capitalized to fixed assets during the year of 2005 amounted to PLN 585 thousand (as at
31 December 2004 PLN 0 thousand).
15. Intangible assets
PLN’000
Other
Cost
As at 1 January 2005
Additions
Transfers
Disposals
94
-
As at 31 December 2005
94
Depreciation
As at 1 January 2005
Additions
Disposals
-
As at 31 December 2005
-
Opoczno S.A. Annual Report In Respect of the Year 2005
- 23 -
27 March 2006
Unconsolidated financial statements Opoczno S.A. for the year ended 31 December 2005
Carrying amounts
As at 1 January 2005
-
As at 31 December 2005
94
16. Equity Investements
PLN'000
% of capital
share
31.12.2005
AB Dvǎrcionių Keramika
ODM sp. z o.o. in liquidation
Polkwarc sp. z o.o. in liquidation
Other in liquidation
14 498
60
3
16
14 577
(79)
14 498
Impairment loss
Carrying amount
78,22 *
60
31
<1
(*) Including 17.97% of shares resulting from obligation to purchase these shares (refer to note 4)
17. Deferred tax
(a)
Recognised deferred tax assets and liabilities
The deferred tax assets and liabilities are attributable to the following items:
Assets
PLN'000
31.12.2005
Liabilities
31.12.2004
31.12.2005
31.12.2004
Property, plant and equipment
Inventories
Receivables
Investments
Loans
Payables
302
134
10
22
2 793
76
167
188
1 315
144
32
234
32
174
3
458
49
-
Total
3 261
1 746
442
684
(b)
Unrecognised deferred tax assets
The Company has not recognized deferred tax asset resulting from allowances for receivables due to the low probability of
the utilization of the asset for income tax purposes. The total unrecognized deferred tax assets described above amounts to
PLN 375 thousand (as at 31 December 2004 – PLN 519 thousand).
18. Interest bearing loans
PLN'000
31.12.2005
Non-current liabilities
Secured bank loans
Finance lease
Current liabilities
Current portion of secured bank loans
Bank overdrafts
Current portion of finance lease
Opoczno S.A. Annual Report In Respect of the Year 2005
- 24 -
31.12.2004
86 217
-
319
206
86 536
206
26 646
19 595
184
102
46 425
102
27 March 2006
Unconsolidated financial statements Opoczno S.A. for the year ended 31 December 2005
19. Trade and other payables
PLN'000
Trade payables
Accruals
Prepayments received
Social security payables
Fair value of forward contracts
Liabilities due to fixed assets purchases
Special funds liabilities
Deferred income
Wages and salaries
Other payables
Total
31.12.2005
31.12.2004
41 795
5 231
3 056
4 235
1 086
853
4 073
2 166
28 599
4 046
822
2 717
1 550
13 716
1 141
821
2 114
304
62 495
55 830
20. Share-based incentive schemes
During the year ended 31 December 2005 selected members of management and supervisory boards of Opoczno S.A.
participated in incentive schemes established by Credit Suisse First Boston Ceramic Partners (Poland) S.a.r.l. (‘CSFBCP’)
(refer to points (i) and (iii) below) and incentive schemes established by the Company (refer to points (ii) and (iv) below).
(a)
Description of incentive schemes
(i)
Shareholder’s scheme
Till 31 December 2004 the members of the Board of Directors participating in the scheme vested all 508,500 nontransferable bonus units with a nominal value of USD 5.83 each, which were granted under incentive scheme established by
CSFBCP during 2000-2001.
In accordance with the scheme, each vested bonus unit entitles the participants to receive a one-off payment from CSFBCP
amounting to the difference between (i) the average share price, for which CSFBCP sells its shares till the number of these
shares held in Opoczno S.A. decreases below 10% of the total share capital of the Company and (ii) the nominal value of
the bonus unit. The participants are entitled to demand payment for bonus units when the number of shares held by
CSFBCP decreases below 10% of the total number of shares.
On 12 April 2005, in respect of two members out of four participating in the scheme, the conditions regarding payment for
the vested units were modified. In accordance with those modifications, the payment resulting from 400,000 bonus units
granted will be made when the number of the Company’s shares held CSFBCP is equal or lower than 49% of the total
number of shares. After each subsequent sale transaction these participants will be entitled to receive payments in the
proportion of the bonus units equal to the proportion of sold shares in relation to the total number of shares held by CSFBCP
on 15 March 2005. When the number of shares held by CSFBCP falls below 10% of the total number of the Company’s
shares, the participants in the modified scheme will be entitled to receive a payment for all bonus units for which they have
not yet received payment. The nominal value of the unit was also changed from USD 5.83 to PLN 22.16.
(ii)
Company’s incentive scheme
In terms of the scheme established on 17 December 2004, 500,000 non-transferable bonus units were created, of which
50,000 units were granted till 31 December 2004 and an additional 280,000 units were granted during the first quarter of
2005. There were different vesting dates for the granted units falling due during the period from 30 September 2005 to 31
December 2007. The nominal value of each unit as of the date of establishing the scheme amounted to PLN 26.30.
Each unit vested by the participant represented a conditional claim towards the Company for a one-off payment of an
amount being the difference between the average price for which CSFBCP sells all its shares in the Company and the
nominal value of the bonus units on the date, on which CSFBCP sells the last share it holds.
On 12 April 2005 this scheme was replaced by the majority shareholder’s additional scheme (refer to point (iii) below).
(iii)
Shareholder’s additional scheme
In terms of the majority shareholder’s additional scheme, four management and supervisory board members vested 230,000
bonus units with a nominal value of PLN 26.30.
The disbursements in relation to bonus units will be performed when the number of shares in the Company held by the
majority shareholder equals or is lower than 20% of the total number of shares of the Company. On fulfilment of this condi-
Opoczno S.A. Annual Report In Respect of the Year 2005
- 25 -
27 March 2006
Unconsolidated financial statements Opoczno S.A. for the year ended 31 December 2005
tion, persons participating will be entitled to demand payment for the percentage of bonus units equal to the proportion of
sold shares in relation to the total number of shares held by the majority shareholder on 15 March 2005. The amount of the
payment for each unit will equal the difference between (i) the average share price for which the majority shareholder sells
its shares till the time the number of shares held decreases below 20% of the total share capital of the Company (including
the sales transaction that results in such a decrease of the shares held by the shareholder) and (ii) the nominal value of the
bonus unit.
After each subsequent sales transaction, the participants will be entitled to receive payment for a further percentage of the
bonus units. The percentage will equal the proportion of sold shares in the individual transaction in relation to the total
number of shares held by the majority shareholder on 15 March 2005r.
(iv)
Company’s share option scheme
Under this scheme created by the Company, five persons of prime importance to the Company’s activity will have a right to
subscribe and acquire in total of up to 152,000 Series C Shares and 152,000 Series D Shares.
The right to acquire Series C Shares will be granted to the owners of Series A Bonds and the right to acquire Series D
Shares, to the owners of Series B Bonds, that the participants will acquire for a nominal price of 1 grosz each (see note 23).
Participants will be entitled to subscribe for and acquire Series C Shares during the first period of exercise of the options,
lasting from 23 June 2006 to 23 June 2007, and Series D Shares during the second period of exercise of the options, lasting
from 23 June 2007 to 23 June 2008.
The acquisition of the shares will be conditional upon payment by the entitled persons of the issue prices set at PLN 62.00
(for the Series C Shares) and PLN 68.20 (for the Series D Shares).
The right to acquire the bonds and consequently subscribe for the Series C and D Shares will be conditional upon remaining
in service with the Company for the entire period from the date of joining the scheme until the date preceding the first period
of exercising of the options – with regards to Series C shares, and the second period of exercising of the options – with
regards to Series D shares.
The number and weighted average exercise prices of share options are as follows:
Weighted
average
exercise
prices
31.12.2005
PLN
65.10
65.10
Outstanding at the beginning of the period
Granted on 12.04.2005
Forfeited
Number of
options
31.12.2005
304 000
(56 000)
Granted on 15.09.2005
Outstanding at the end of the period
65.10
65.10
56 000
304 000
Exercisable at the end of the period
-
-
The weighted average contractual life of the share options is 2.1 years.
(b)
Fair value and assumptions used to value the share options
The fair value of services received in return for share options granted is measured by reference to the fair value of share
options at the grant date based on the Black-Scholes model. Expectations of early exercise (the first possible date) are
incorporated into the model. Other assumptions are as follows:
Granted on 12.04.2005
Fair value at measurement date (PLN)
Share price (PLN)
Exercise price (PLN)
Expected volatility (%)
Weighted average expected option life period (years)
Expected dividends
Risk-free interest rate
Opoczno S.A. Annual Report In Respect of the Year 2005
32.18 / 31.16
90.00
62.00 / 68.20
25
2.8
5.41% / 5.34%
- 26 -
27 March 2006
Unconsolidated financial statements Opoczno S.A. for the year ended 31 December 2005
Granted on 15.09.2005 r.
Fair value at measurement date (PLN)
Share price (PLN)
0.90 / 2.38
44.00
Exercise price (PLN)
Expected volatility (%)
Weighted average expected option life period (years)
Expected dividends
Risk-free interest rate
(c)
62.00 / 68.20
32
2.4
4.39%/4.24%
Share appreciation rights settled in cash
The number of share appreciation rights settled in cash and their weighted average nominal values:
Outstanding at the beginning of the period
Granted
Forfeited
Exercised
Outstanding at the end of the period
Weighted
average
nominal
values
31.12.2005
PLN
18.22
26.30
26.30
22.16
23.79
Number of
bonus units
31.12.2005
558 500
510 000
-330 000
-204 000
534 500
Weighted
average
nominal
values
31.12.2004
PLN
21.81
21.42
18.22
Number of
bonus units
31.12.2004
372 500
186 000
558 500
The share appreciation rights outstanding as at 30 June 2005 with an entitlement to cash payments have a nominal value in
the range of PLN 19.51 to PLN 26.30.
The increase in incremental fair value granted as a result of replacing the Company’s incentive scheme with the majority
shareholder’s additional scheme, being the difference between the fair values of the plans on 12 April 2005, amounted to
PLN 7,208 thousand.
The fair value of share appreciation rights is estimated based on the intrinsic value taking into account the probability of
occurrence of the condition for payment, being the sale of a specified number of shares by CSFBCP.
It is impracticable to estimate the fair value of the bonus units vested by the executive managers at each reporting date
preceding the effective date of IFRS 2, taking into account the probability of occurrence of the condition for payment, being
the sale of a specified number of shares CSFBCP. Consequently, the Company estimated the fair value of the bonus units
vested in 2000-2001 by the executive managers as of the effective date of IFRS 2 for the first time, being 1 January 2005.
The fair value of share appreciation rights as at 1 January 2005 amounting to PLN 27,148 thousand was recorded as additional capital reserves with a corresponding entry to retained earnings.
(d)
Incentive scheme costs recognised in profit and loss account and their carrying amount
PLN’000
Note
Share options
Fair value of share appreciation rights granted
Fair value of share appreciation rights forfeited
Effect of changes in fair value of share appreciation rights
Net effect on personnel expenses
7
Carrying amount of share options
Carrying amount of share appreciation rights
Opoczno S.A. Annual Report In Respect of the Year 2005
- 27 -
01.01.2005
31.12.2005
01.01.2004
31.12.2004
-3 730
-14 476
3 721
21 701
174*
-
7 216
174*
31.12.2005
3 730
16 377
20 107
31.12.2004
174*
174*
27 March 2006
Unconsolidated financial statements Opoczno S.A. for the year ended 31 December 2005
(*) The Company accounted for the amounts resulting from recognition of the Company’s scheme (refer to point (ii) above)
retrospectively in the financial statements as at 31 December 2005 adjusting the opening balance of retained earnings with a
corresponding adjustment to the liability for employee benefits of PLN 174 thousand. The Company restated the balance sheet
prepared as at 31 December 2004 accordingly.
21. Employee benefits
PLN’000
31.12.2005 31.12.2004
Jubilee awards
Retirement awards
Share-based incentive schemes
Total
1 835
-
254
983
174
1 835
1 411
22. Other reserves
Other provisions of PLN 116 thousand relate to the estimated future costs of mine restoration.
23. Bonds
On 24 June 2005, in accordance with the Company’s option scheme (refer to note 22 (iv) above), the Company issued 304,000
of unsecured, interest free and dematerialized registered bonds with a nominal and issuing value of 1 grosz each and preemptive rights in two series:
• 152,000 Series A bonds each with a right to subscribe for 1 ordinary bearer Series C share, and
• 152,000 Series B bonds each with a right to subscribe for 1 ordinary bearer Series D share, jointly called „Bonds”.
The Bonds with a total value of PLN 3,040 are held by Dom Maklerski Banku Handlowego S.A. seated in Warsaw. Bank
Handlowy acts as a trustee and will sell the Bonds exclusively to the persons participating in the option scheme.
24. Shareholders’ equity
(a)
Share capital
The share capital of the Company is divided into 16,450,000 ordinary shares with a nominal value of PLN 10 each. All
shares have been paid up as at 31 December 2005. The holders of ordinary shares are entitled to receive dividends as
declared from time to time and are entitled to one vote per share at shareholders meetings of the Company.
Additionally, on 15 March 2005, the Ordinary Shareholders Meeting approved a resolution for the conditional increase in
share capital, with the exclusion of subscription rights for existing shareholders, for an amount not higher than PLN 3,040
thousand through the issue of 304,000 ordinary bearer shares with a nominal value of PLN 10 each, which will be offered to
bond holders (refer to note 23).
(b)
Share premium
The share premium arose from the surplus of the shares issue price in excess of their nominal value.
(c)
Revaluation reserve
The revaluation reserve arose from the revaluation surplus, decreased by deferred tax, on revaluation of non-current tangible assets. This is transferred to reserve capital as the revalued asset is depreciated by the Company.
(d)
Reserve capital
Reserve capital of PLN 28,046 thousand was created on transformation of the state enterprise Zespół Zakładów Płytek
Ceramicznych “Opoczno” w Opocznie according to the Commercialisation Deed of the State enterprise dated 29 October
1998. Subsequently it was increased by profit appropriations and transfers from the revaluation reserve.
In terms of the provisions of the Commercial Companies Code (Official Journal from 2000, No 94, item 1037 with amendments), reserve capital up to the amount of 1/3 of the share capital may only be used to cover losses reported in the financial
statements.
Opoczno S.A. Annual Report In Respect of the Year 2005
- 28 -
27 March 2006
Unconsolidated financial statements Opoczno S.A. for the year ended 31 December 2005
(e)
Other capital reserves
On 10 December 2004 the Company Shareholders resolved to create other capital reserves by transferring
PLN 96,248 thousand from reserve capital for the payment of dividends.
(f)
Dividends paid and proposed
On 15 March 2005 General Meeting of Opoczno S.A. resolved to pay out a dividend to the Company’s shareholders in the
amount of PLN 172,231 thousand, which consisted of: PLN 75,983 thousand deriving from the profit for 2004 and
PLN 96,248 deriving from other capital reserves created for this purpose. Until 31 December 2005 dividends paid amounted
to PLN 172,171 thousand.
(g)
Additional capital reserves
Additional capital reserves represent the fair value of incentive schemes for selected members of the management and
supervisory boards of Opoczno S.A (refer to note 20).
25. Earnings per share
(a)
Basic earnings per share
Basic earnings per share were calculated by dividing the profit attributable to equity holders of the Company for the period by
the weighted average number of issued shares outstanding for the year.
Earnings per share calculation
01.01.2005
31.12.2005
01.01.2004
31.12.2004
Profit attributable to equity holders of the Company (PLN’000)
Weighted average number of shares
Earnings per share (PLN)
24 673
16 450 000
1,50
75 806
16 450 000
4,61
(b)
Diluted earnings per share
Diluted earnings per share were calculated by dividing the profit attributable to equity holders of the Company for the period
by the weighted average number of issued shares and shares resulting from the granted options outstanding for the year.
01.01.2005
31.12.2005
01.01.2004
31.12.2004
24 673
75 806
Weighted average number of shares
Share options
16 450 000
207 233
16 450 000
-
Weighted average diluted number of shares
16 657 233
16 450 000
1,48
4,61
Earnings per share calculation
Profit attributable to equity holders of the Company (PLN’000)
Diluted earnings per share (PLN)
26. Financial instruments
(a)
Credit risk
Trade receivables may involve credit risk for the Company.
Credit risk relating to trade accounts receivable is mitigated, since the client portfolio of the Company is very wide. Thus the
concentration of credit risk is not significant. Moreover, receivables relating to sales of tiles to distributors are insured.
(b)
Interest rate risk
The interest rate risk relates to the interest cash flows on bank loans, which in the majority are subject to variable interest
rates, and to a lesser extend, to interest cash flows on cash deposits also being subject to variable interest rates. The
Company also held short-term investments, which were sold in 2005 (mainly buy-sell-back transactions based on fixed
interest rate) which incurred risk related to their fair value.
The Company does not hedge against interest rate risk.
Effective interest rate and maturity analysis:
Opoczno S.A. Annual Report In Respect of the Year 2005
- 29 -
27 March 2006
Unconsolidated financial statements Opoczno S.A. for the year ended 31 December 2005
In respect of income–earning financial assets and interest-bearing financial liabilities, the following table indicates their
effective interest rates at the balance sheet date and maturity periods:
As at 31.12.2005
6 663
6 663
-
-
-
More
than
5 years
-
4,9%-6,9%
-112 863
-13 382
-13 264
-26 528
-59 689
-
5% - 6,6%
-19 595
-19 595
-
-
-
-
Note
Effective
interest rate
Cash and cash equivalents
10
1%-1,5%
Secured bank loans – floating rate (PLN)
18
Bank overdrafts (PLN)
18
Financial lease
18
11%-11,1%
PLN’000
Total
Total
6 months
or less
6-12
months
1-2
years
2-5
years
-503
-90
-94
-176
-143
-
-126 298
-26 404
-13 358
-26 704
-59 832
-
6 months
or less
6-12
months
1-2 years
As at 31.12.2004
More
than
5 years
Note
Effective
interest rate
Loans originated
11
6,50%
9 943
9 943
-
-
-
-
Financial assets available for sales
11
3%-6%
66 366
66 366
-
-
-
-
PLN’000
Total
2-5
years
Cash and cash equivalents
10
5%-5,5%
8 746
8 746
-
-
-
-
Financial lease
18
11%-11,5%
-308
-51
-51
-206
-
-
84 747
85 004
-51
-206
-
-
Total
(c)
Currency risk
Currency risk is related to the sales and purchases denominated in foreign currencies.
During 2005 the Company used short term forward contracts to a limited extent in order to hedge the Company against
currency risk. As at 31 December 2005 the Group did not have any unrealized forward currency purchase contracts.
Due to the fact that the Group does not apply hedge accounting policies all changes in the forward contract fair values are
charged to the income statement.
(d)
Fair values
Fair values of the financial assets and liabilities as at 31 December 2005 and 31 December 2004 approximate their book
values, with the exception of an option for sale and purchase of additional shares in AB Dvǎrcionių Keramika. The fair value
of this option cannot be reliably measured (refer to note 4).
27. Operating leases
(a)
The Company as a lessee
The Company leases passenger cars under operating lease. Operating lease agreements are signed for 3 year periods
subject to notice period of 1 month. Future minimum lease payments under non-cancellable lease agreements are as
follows:
PLN’000
Less than 1 year
Between 1 and 5 years
Total
(b)
31.12.2005
95
95
31.12.2004
89
89
The Company as a lessor
The Company leases fixed assets located in Opoczno (‘Śląsk’ production line and real estate of the ‘Paszkowice’ and
‘Chełsty’ mines).
Opoczno S.A. Annual Report In Respect of the Year 2005
- 30 -
27 March 2006
Unconsolidated financial statements Opoczno S.A. for the year ended 31 December 2005
Lease revenues in the year 2005 amounted to PLN 4,231 thousand (PLN 5,206 thousand in 2004). Future minimum lease
receipts relating to non - cancellable lease agreements in force as of 31 December 2005 due within 12 months amount to
PLN 2,353 thousand (these agreements have 6 and 12 months termination periods).
28. Related party transactions
(a)
The Company entities
There were no transactions between the Company and Credit Suisse First Boston Ceramic Partners (Poland) S.a.r.l., as well
as companies in the following groups: Credit Suisse First Boston IPG (Zug), Credit Suisse First Boston (Bermuda) Limited
and Polish Enterprise Investors, except for the share based incentive schemes established by Credit Suisse First Boston
Ceramic Partners (Poland) S.a.r.l. (refer to note 20) and the dividend payment amounting to PLN 170,195 thousand.
In the period from 22.04.2005-31.12.2005 the Company made sales of PLN 2,189 thousand to its subsidiary - AB Dvǎrcionių
Keramika, made purchases of PLN 3,248 thousand and issued a guarantee of LTL 10,000 thousand (equivalent to PLN
11,179 thousand based on the average NBP rate effective on 31 December 2005) to the bank, as a security over a credit
agreement concluded by this subsidiary.
(b)
Remuneration paid or payable to Directors and Supervisory Board Members of the Company
Total remuneration (including salary, awards and other monetary and non-monetary benefits) paid to Directors and Supervisory Board Members amounted to:
01.01.2005
31.12.2005
915
5 542
2 451
01.01.2004
31.12.2004
553
3 655
2 102
8 908
6 310
31.12.2005
31.12.2004
Management Board Members
Former Management Board Members
1 193
5 033
13 881
174
-
Total
20 107
174
PLN’000
Supervisory Board Members
Management Board Members
Proxy
Total
The amount accrued in relation to share-based incentive schemes is as follows:
PLN’000
Supervisory Board Members
29. Contingencies
As at 31 December 2005 and 31 December 2004 the Company was a party to a guarantee agreement up to the amount of
PLN 3,479 thousand valid until 29 October 2006 and issued by PKO BP as security for the Company’s liabilities resulting
from delivery of a raw material.
Additionally as at 31 December 2005 the Company issued a guarantee of LTL 10,000 thousand (equivalent to PLN 11,179
thousand based on the average NBP rate effective on 31 December 2005) to the bank, as a security over a credit agreement
concluded by its subsidiary - AB Dvǎrcionių Keramika.
30. Accounting estimates and judgements
Accounting estimates relating to share-based incentive schemes
The members of the management and supervisory boards participate in incentive schemes in the form of share appreciation
rights settled in cash established by CSFBCP. The fair value of share appreciation rights settled in cash is estimated based
on the intrinsic value taking into account the probability of occurrence of the condition for payment, being the sale of a
specified number of the Company’s shares by CSFBCP (refer to note 20). As at the balance sheet date the Company
assessed this probability of sale of a specified number of shares by CSFBCP at 95%. The Company reassesses the above
probability at each reporting date. Consequently any change in the probability assessment may significantly influence future
reported results of the Company.
Opoczno S.A. Annual Report In Respect of the Year 2005
- 31 -
27 March 2006
Unconsolidated financial statements Opoczno S.A. for the year ended 31 December 2005
Signatures
Mirosław GODLEWSKI
President of the management board
Marek Sylwester WÓJCIKOWSKI
Vice President of the management board
Tomasz Wojciech DANKOWIAKOWSKI
Member of the management board
Marek Jerzy ŁYCYNIAK
Member of the management board
Opoczno, 24 March 2006 r.
Opoczno S.A. Annual Report In Respect of the Year 2005
- 32 -
27 March 2006
Jednostkowe sprawozdanie finansowe
THE OPOCZNO S.A. MANAGEMENT REPORT
ON ACTIVITY IN RESPECT OF THE YEAR 2005
Opoczno S.A. Annual Report In Respect of the Year 2005
27 March 2006
Raport roczny Opoczno SA za rok 2005
27 marca 2006 r
- 33 -
Opoczno S.A. Management Report on Activity
Contents
I. Legal status and characteristics of OPOCZNO S.A. ............................................................................................................................................ - 35 I.1. General information ................................................................................................................................................................................................ - 35 I.2. Corporate Governing Bodies.................................................................................................................................................................................. - 35 I.3. Opoczno S.A. shareholding structure..................................................................................................................................................................... - 36 II. Company’s financial condition............................................................................................................................................................................... - 37 II.1. Product offer .......................................................................................................................................................................................................... - 37 II.2. Sales and markets................................................................................................................................................................................................. - 38 II.3. Sourcing ................................................................................................................................................................................................................ - 39 II.4. Employment........................................................................................................................................................................................................... - 39 II.5. Environmental performance .................................................................................................................................................................................. - 40 II.6. Capital expenditures.............................................................................................................................................................................................. - 40 II.7. Research and development .................................................................................................................................................................................. - 41 II.8. Financial standing.................................................................................................................................................................................................. - 41 II.8.1. Company Financial Statements ......................................................................................................................................................................... - 41 II.8.2. Information on drawn loans ................................................................................................................................................................................ - 44 II.8.3. Information on granted loans, suretyships and guarantees ............................................................................................................................... - 44 II.8.4. Ratio analysis ..................................................................................................................................................................................................... - 44 III. Additional information............................................................................................................................................................................................ - 46 III.1. Information on relations of organisation or capital existing between the Company and any other entity ............................................................ - 46 III.2. Information on agreements of significance to the Company’s activities .............................................................................................................. - 46 III.3. Description of transactions with related entities, whenever value of a single transaction or a series of transactions concluded by the respective
related entity in the course of the business year to date in PLN is equivalent to EUR 500, 000 ................................................................................ - 47 III.4. Appropriation of proceeds from securities issues................................................................................................................................................. - 47 III.5. Discussion of the differences between the annual report results and the earlier published year 2005 results forecasts.................................... - 47 III.6. Assessment of financial management, with detailed discussion of the ability to service and external debts ...................................................... - 47 III.7. Assessment of feasibility of the investment plan implementation ........................................................................................................................ - 48 III.8. Assessment of the factors and extraordinary events having an impact on the year 2005 result, with quantification of the impact of such factors
and extraordinary events .............................................................................................................................................................................................. - 48 III.9. Description of external and internal factors significant for development of the Company, with description of the Company’s development
prospects ...................................................................................................................................................................................................................... - 48 III.10. Changes in the rules followed in management of the Company’s business...................................................................................................... - 49 III.11. Changes in the composition of the Company managing and supervisory bodies in the course of the past accounting year, the rules of
appointment and discharge of managers, particularly in respect of decisions on share issues and buy-backs.......................................................... - 49 III.12. Agreements executed by and between the Company and its managers that provide for any compensation in case of resigning or discharge
from a position without a valid reason or whenever a recall or discharge takes place as a result of the Company’s merger through the takeover... - 50 III.13. Salaries, bonuses or benefits, paid or due to the members of the management and the supervisory body ..................................................... - 50 III.14. Information on value of outstanding loans, suretyships and guarantees of members of the management and supervisory bodies, being the basis
of liabilities towards the Company................................................................................................................................................................................ - 52 III.15. Number and nominal value of Company shares and other Capital Group entities held by members of management and supervisory bodies- 52 III.15.1. Status of ownership of Company shares by members of management and supervisory bodies ................................................................... - 52 III.15.2. Status of ownership of rights to shares (share options) by members of management and supervisory bodies............................................. - 53 III.16. Shareholders with at least 5% of votes at the Company’s general shareholders’ meeting – held directly or indirectly, via subsidiaries, with
indication of the number of shares held by those entities, their percentage share in the share capital, the number of votes arising from the shares and
the percentage share in total number of votes at general shareholders’ meeting at the date of submitting report ..................................................... - 53 III.17. Information on agreements known to the Company that can lead to a shift in the holdings of the existing shareholders and bondholders .... - 54 III.18. Specification of all holders of securities that vest special rights of control of the Company, with description of such rights............................. - 54 III.19. Information on the system for monitoring employee share programmes........................................................................................................... - 54 III.20. Limitations on transfer of ownership rights to securities issued by the Company and limitations to exercise of voting rights arising from the
Company shares .......................................................................................................................................................................................................... - 54 III.21. Information on the entity authorised to audit the Financial Statements ............................................................................................................. - 54 -
Opoczno S.A. Annual Report In Respect of the Year 2005 - 34 -
27 March 2006
Opoczno S.A. Management Report on Activity
I. Legal status and characteristics of OPOCZNO S.A.
I.1. General information
Opoczno Spółka Akcyjna ( “OPOCZNO S.A.”, the “Company”) is the dominant entity of the Opoczno Spółka Akcyjna capital
group (“Opoczno S.A. Group”), with its principal place of business in Opoczno at 5 Przemysłowa street.
The Company was formed as a result of transformation of a state-owned enterprise operating under the name Zespół
Zakładów Płytek Ceramicznych „Opoczno” in Opoczno by virtue of the Corporatisation Deed dated 29 October 1998 and
was inscribed into the commercial registry on 13 November 1998 under number RHB 1107; on 20 April 2001 the Company
was registered again in the Commercial Registry of the National Court Registry under the number 0000008086.
The main activity of the Company is the production and sale of ceramic tiles.
On 22 April 2005, the Company took over control of Dvǎrcionių Keramika, a leading ceramic tiles producer in the Baltic
States.
I.2. Corporate Governing Bodies
In the period of 1 January 2005 to 31 December 2005, functions of the Company’s supervisory body were performed by the
Supervisory Board, with the following composition:
•
Zbigniew Prokopowicz – Supervisory Board Chairman
•
Bożena Korneta – Supervisory Board Secretary
•
Piotr Augustyniak – Supervisory Board Member (from 15 September 2005)
•
Zbigniew Bodnar Supervisory Board Member (from 25 November 2005)
•
Marian Czakański – Supervisory Board Member (from 15 September 2005)
•
Adam Górecki – Supervisory Board Member (from 15 September 2005)
•
Maciej Grelowski – Supervisory Board Member (from 15 September 2005)
•
Aleksander Kacprzyk – Supervisory Board Member (until 15 September 2005)
•
Zbigniew Koćmiel – Supervisory Board Member
•
Jerzy Krok – Supervisory Board Member (from 15 September 2005)
•
Jan Kryjak – Supervisory Board Member
•
Zbigniew Sadura – Supervisory Board Member
•
Krzysztof Sobolewski – Supervisory Board Member (until 15 September 2005)
•
Ryszard Wojtkowski – Supervisory Board Member
•
Heath Zarin – Supervisory Board Member (until 15 September 2005)
On 15 September 2005 Mr. Heath Zarin and Mr. Jan Kryjak submitted their resignations from the Opoczno S.A. Supervisory
Board membership.
On 15 September 2005, the General Shareholders Meeting of the Company set the number of the Company Supervisory
Board members at 12 persons, and at the same time the participation of representatives of the Company employees in the w
Supervisory Board, pursuant to provisions of the Company Charter, was increased to four persons.
On the same day, the General Shareholders Meeting recalled Mr. Aleksander Kacprzyk and Mr. Krzysztof Sobolewski from
the composition of the Supervisory Board, and subsequently appointed Mmrs: Marian Czakański, Adam Górecki, Maciej
Grelowski, Jerzy Krok, Jan Kryjak and Piotr Augustyniak to the composition of the Company Supervisory Board.
Pursuant to the Company Charter, 25 November 2005, the Company employees chose their fourth representative to the
Company Supervisory Board, in the person of Mr. Zbigniew Bodnar.
In the period from 1 January 2005 do 31 December 2005 the Company was under management of the Management Board
with the following membership:
•
Sławomir Frąckowiak – President of the Management Board (until 8 November 2005)
•
Tomasz Dankowiakowski – Management Board Member (from 20 April 2005)
•
Grzegorz Oglęcki – Management Board Member
•
Marek Łycyniak – Management Board Member (from 28 October 2005)
•
Waldemar Skwara – Management Board Member (until 20 April 2005)
•
Marek Wójcikowski – Vice President of the Management Board
Waldemar Skwara submitted his resignation on 20 April 2005, and on 20 April 2005 the Supervisory Board appointed
Tomasz Dankowiakowski in his place.
In 28 October 2005 the Supervisory Board adopted a resolution on the matter of expansion of the number of the Company
Management Board members to 5 persons. On the same day the Supervisory Board appointed Mr. Marek Łycyniak to the
Company Management Board as a Management Board Member with responsibility for sales and development of the distribution network.
On 8 November the Supervisory Board recalled Mr. Sławomir Frąckowiak from the position of the President of the Management Board of OPOCZNO S.A., and at the same time appointed Mr. Mirosław Godlewski to that position, and set 1 January
2006 as the date of commencement of by Mr. Mirosław Godlewski of the obligations arising from his work contract.
On the same day, the Supervisory Board adopted a resolution on the matter of committing to Mr. Marek Wójcikowski, Management Board Member, the function of the Vice President of the Management Board of OPOCZNO S.A.
Opoczno S.A. Annual Report In Respect of the Year 2005 - 35 -
27 March 2006
Opoczno S.A. Management Report on Activity
Also, on 7 February 2006 Mr. Grzegorz Oglęcki submitted his resignation from performance of the function of the Company
Management Board Member.
I.3. Opoczno S.A. shareholding structure
According to the notifications received by the Company pursuant to art. 147 of the Law on the Public Trading of Securities
(current art, 69 of the law on public offer and conditions of introduction financial instruments in to organized turnover system
and on public companies), the following shareholders held at least 5% of total number of votes at the General Shareholders’
Meeting, as at the date of submitting this report:
As at 22.04.2005
(Prospectus publication
date)
As at 27.03.2006
(the 2005 Report publication
date)
Number of
shares and
votes at the
GSM
Participation in the
share
capital and
total
number of
votes at the
GSM
Credit Suisse First Boston Ceramic Partners (Poland) S.á.r.1)
Generali Open Pension Fund 2)
Other shareholders
16,255,471
194,529
98.82%
1.18%
7,965,181
823,110
7,661,709
48.42%
5.00%
46.58%
Total
16,450,000
100%
16,450,000
100%
Shareholders
Number of
shares and
votes at the
GSM
Participation
in the share
capital and
total number
of votes at
the GSM
1) As per a notification received by the Company on 28 June 2005 .
2) As per a notification received by the Company on 23 March 2006 .
In conjunction with the public offering of the Company shares opened on 2 June 2005 and closed on 23 June 2005, the
Introducing Entity, i.e. Credit Suisse First Boston Ceramic Partners (Poland) S.á.r.l., divested 8,290,290 shares that constituted approximately 50.4% of the share capital, which entitled to exercise of 8,290,290 votes representing approximately
50.4% of the total number of votes at the Company General Shareholders Meeting.
Opoczno S.A. Annual Report In Respect of the Year 2005 - 36 -
27 March 2006
Opoczno S.A. Management Report on Activity
II. Company’s financial condition
II.1. Product offer
As at the end of 2005, Opoczno SA had active product portfolio of over one hundred collections, falling into four groups
targeted at different distribution channels:
I. Opoczno brand collection – offer addressed to the entire market;
II. Primacer brand collection – offer of less expensive wall tiles for the traditional market and the Do-It-Yourself supermarket chains (DIYs);
III. GresTeQ brand collection – offer of less expensive unglazed and glazed greses addressed to for the traditional
market, DIYs and exports;
IV. Private Label collections – offers for respective DIYs.
The Company brings together the most comprehensive product range under the Opoczno brand. Portfolio of that brand is
comprised of 90 collections: wall and floor tiles, glazed and unglazed greses. Within each segment The Company offers
designs in all of the key format groups (wall tiles: 10x10 to 30x45; greses: 29.7x29.7, 29.7x59.8 to 45x45; floor tiles: 30x30 to
35x35), as addressed to respective consumer groups. In addition to the base tiles, the respective collections also include
decors (including structural, cut, hand decorated with gold and platinum). We frequently offer a number of decors of different
formats for the respective collections. This permits creation of individual surface arrangement solutions.
Wall collections (53 collections) – for tiling bathroom and kitchen walls. The requirements and tastes of even the most
discerning consumers are served by the rich selection of designs and formats of these tiles. Majority of the offer is concentrated in the average-sized formats: 25x35 and 22.5x30. One major group is comprised of 12 collections in the 10x10 cm
format, especially designed for kitchen walls. All of the wall tile collections are complemented by corresponding floor tiles –
stoneware or gres.
Glazed gres collections (20 collections) – for tiling floors or walls, both externally and externally. The current world trends
promote overlaying the walls with greses. For such arrangements rectangular tiles in the 29.7x59.8 format are the best. Also,
arrangements made with square tiles in the 33.3x33.3 cm format find ever more enthusiasts on our market. In response of
the world trends, the Opoczno brand offers a number of collections in that technology, with recommendation for wall application. All the tiles of that group are frost resistant.
Stoneware or terrazzo collections (12 collections) – for tiling floors. These are mostly for indoor applications. Collections in
this category are offered in the 30x30 and 35x35 cm formats. Two collections meet the parameters of frost resistance and
well suited for outdoor applications.
Unglazed gres collections (5 collections) – two design categories are offered within that technology: the salt and pepper
greses and mass designed greses. Tiles of this type have industrial and commercial space applications, and are for tiling
floors and walls in places subjected to high-intensity foot traffic. Designer gres collections under the Opoczno brand – in 3
formats and 7 colours – represent a higher-end offer. Tiles in that technology are offered in the polished and satin finish.
Primacer is a brand of inexpensive collections of wall tiles in the 20x25 format for tiling indoor walls. These tiles are frequently used in finishing of public building projects. At the end of the year 2005, this line included 1 collection.
The GresTeQ brand brings together tiles produced in the gres porcellanato technology, in the glazed an unglazed variety.
Similar to the Primacer brand wall tiles, these greses are frequently used in finishing public buildings. These tiles are frost
resistant. At the end of 2005, the offer included 1 lazed gres and 5 unglazed gres collections.
Collection offered under private brands – collections offered under own brands of individual construction market chains. The
offer comprises wall collections in the 20x25 cm format, floor tiles, stoneware tiles in the 30x30 cm format, glazed and
unglazed gres in the 29.7x29.7 cm format.
In the subsequent years we will continue the process of the product portfolio refreshing began in 2005. The implemented
novelties are a response to changes taking place in the market:
•
the growing shares of the glazed gres segment;
•
the new technologies of decorating tiles and decors;
•
openness of consumers to new design trends, development of new formats and tiles surfaces.
The portfolio development process will concentrate on the key formats within the Opoczno brand. The Company will be
introducing new formats, in response to market demand. We will be developing the product categories with the highest sales
potential, which are going to increase the average sales price.
The product portfolio development plan includes implementation of tens of new tile designs for wall tiles and glazed gres
porcellanato tiles. The Company will be offer to customers the highest quality collections inspired by nature, architecture,
international travel and the newest trends.
Company will offer to customers, dedicated collection for retail construction market chains. There is planned expanding offer
of chipper gres tiles under GresTeQ brand competitive not only in price but in quality and technical parameters too.
The product portfolio management process will be improved. This will be possible through:
•
building permanent relations with the best Italian and Spanish providers of new designs and their selection based
on experience previous collaboration (best designs, timeliness in fulfilment of obligations, etc.);
•
screening of new design firms;
•
creation of a library of over 100 pre-selected new collection designs, which will constitute a base for future implementations;
•
consultation of new collections with selected dealers at the concept design stage (searching for new designs) and
the implementation stage (assessment of prototype tiles / decors);
•
concentration of new collection implementations in the 1st quarter of the year, in order to maximise their sales in the
high season (Q2 and Q3);
Opoczno S.A. Annual Report In Respect of the Year 2005 - 37 -
27 March 2006
Opoczno S.A. Management Report on Activity
broader outsourcing of deliveries of the technologically advanced decors, in order to further upgrade design of new
collections.
•
II.2. Sales and markets
Opoczno realises 96.7% of its revenue through sales of ceramic tiles and decors. The table below presents structure of
Opoczno sales by its key product groups:
Structure of sales revenue by group of products
Items
2005
PLN ‘000
2004
%
Change
PLN ‘000
PLN ‘000
Gres tiles
146,188
37.8%
146,446
34.4%
-0.2%
Wall tiles
124,282
32.2%
144,325
33.9%
-13.9%
Floor tiles
54,350
14.1%
74,671
17.5%
-27.2%
Ceramic decors
48,813
12.6%
46,858
11.0%
4.2%
12
0.0%
1,.074
0.3%
-98.%
373,645
96.7%
413,374
97.1%
-9.6%
12,821
3.3%
12,477
2.9%
2.8%
386,466
100.0%
425,851
100.0%
-9.2%
Biscuit
Sales of ceramic tiles and decors
Other activities
Sales of ceramic tiles and decors
The revenue Opoczno realised in 2005 in the gres ceramic tiles segment reached a level close to that achieved in 2004, it
however, registered a revenue decline in the ceramic wall and floor tiles segment (by 13.9% and 27.2% respectively).
In 2005 the Company expanded its offer by launching 15 new collection, each in 2-3 colour schemes, aligned with the
current design trends and based on the latest technologies of applying decorative elements, particularly in the ceramic wall
and floor tiles segment. The offer was well received by both domestic and foreign customers, and the new collection
launches reach satisfactory sales results in Q4 2005.
The Company sells its products and goods both on the domestic and foreign market; the table below presents structure of
sales revenue by key sales directions:
Structure of sales revenue by key directions
Items
2005
PLN ‘000
Domestic sales
including: ceramic tiles and decors
International sales
including: ceramic tiles and decors
Total sales revenues
291,088
280,837
95,378
92,808
386,466
2004
%
75.3%
72.7%
24.7%
24.0%
100.0%
Change
PLN ‘000
353,064
PLN ‘000
82.9%
-17.6%
341,739
80.2%
-17.8%
72,787
17.1%
31.0%
16.8%
29.6%
100.0%
-9.3%
71,635
425,851
The sales revenue realised in 2005 reached PLN 386,466 thousand, the 75.3% of which was generated on the domestic
market, and 24.7% on foreign markets, which represents substantial growth in sales achieved on foreign markets, compared
to a year earlier (from PLN PLN 72,787 thousand in 2004 to PLN 95,378 thousand in 2005).
In 2005 revenue on sales of ceramic tiles and decors reached PLN 373,645 thousand, which represented 96.7% of total
revenue. Remaining revenue the Company generated came from sales of services (primarily rent and lease revenue), semifinished products (clay) and materials; in 2005 these revenues reached total of PLN 12,821 thousand, or 2.8% growth
compared to the level of equivalent sales in 2004.
The Company achieved most of its international sales within the region of Eastern Europe, including Russia and the Newly
Independent States (NIS countries). Sales realised in those market represented 66.6% of international sales. The table
below presents geographic structure of Opoczno’s revenue from sales of ceramic tiles and decors:
Opoczno S.A. Annual Report In Respect of the Year 2005 - 38 -
27 March 2006
Opoczno S.A. Management Report on Activity
Geographic structure of the Company’s revenue on sales of ceramic tiles and decors
Items
2005
PLN ‘000
Domestic sales
2004
%
Change
PLN ‘000
PLN ‘000
280,837
75.2%
341,739
82.7%
-17.8%
280,837
75.2%
341,739
82.7%
-17.8%
92,808
24.8%
71,635
17.3%
29.6%
Eastern Europe*
61,783
16.5%
53,391
12.9%
15.7%
Baltic States
14,277
3.8%
10,126
2.4%
41.0%
Central Europe
15,828
4.2%
7,339
1.8%
115.7%
920
0.2%
779
0.2%
18.1%
373,645
100.00%
413,374
100.00%
-9.6%
Polish market
Foreign sales
Germany and Western Europe
Sales of ceramic tiles and decors
* the Region of Eastern Europe includes Russia and the former NIS countries
II.3. Sourcing
Key sources of supply include the suppliers of the basic raw materials and energy carriers used in the ceramic tile production
process.
The Company uses raw materials that fall into seven basic categories:
• plastic materials (e.g. clays, kaolin, bentonite, silt);
• non-plastic materials (feldspar, sand, talcum, limestone, magnesite);
• fluidizers;
• pigments and glazes;
• frit;
• ancillary materials (ceramic rollers, flint stone and alubite grinders); and
• other.
The Company has a well-developed and diversified supplier base for all of its basic raw materials. In each product category
the Company cooperates with 5-20 suppliers, and – as a result – is not dependant on any of them. The agreements are
executed for annual and semi-annual periods or on delivery-by-delivery basis. Irrespective of contract effectiveness period,
conditions of each include specification of volumes, delivery dates as well as physical and chemical parameters, which a
given material needs to meet in order to acceptable to the Company.
Additionally, for the purpose of securing continuity and consistent quality of supply, the Company executed a number of long
term agreements with counterparties deemed of particular importance for the Company’s business. These counterparties are
suppliers of frit, kaolin, feldspar grit and clay.
Also, substantial part of the plastic materials the Company uses comes from own clay deposits: Chełsty” and “Paszkowice”.
Means of energy, including natural gas and electrical energy, represents another basic production cost element. The sole
supplier of natural gas to the Company is Polskie Górnictwo Naftowe and Gazownictwo S.A. (“PGNiG” – Polish Oil and Gas
Company); pursuant to currant law regulation and lack of alternative suppliers of gas, Company is depended on one source
of supply. In sourcing electrical energy, the Company uses the right to regulated third party access to the transmission
network, as implemented on the electricity market in Poland and providing buyers with unconstrained choice of suppliers.
Currently, the Company purchases electrical energy from an independent supplier and pays transmission fees to a local
distribution company.
In the year 2005, the share of none of the Company’s suppliers exceeded 10% of total operating costs. The only supplier in
respect of which the Company could be said to be dependent on is PGNiG (though in no year in the period of 2004-2005 did
its share exceed 10% of total operating costs), which is the sole source of natural gas supply, which the Company primarily
uses in the tile firing furnaces.
II.4. Employment
Average employment in the Company in the year 2005 stood at 1,201 full-time job equivalents and increased by 44 full-time
job equivalents compared to average employment in the year 2004, this increase in average employment was driven primarily by commissioning of a new technological line in the Mazowsze Manufacturing Plant.
As at the end of 2005 the Company employed 1,212 persons, which represented an increase of 2.6% compared to a year
earlier. In the course of 2005, majority of the employees (over 95%) were employed on unspecified time agreement basis.
The Company executes specified time agreements and employs on trial basis the newly employed staff, this with the aim of
testing their competences on a given job position.
The table below presents employment structure by the respective employee groups.
Opoczno S.A. Annual Report In Respect of the Year 2005 - 39 -
27 March 2006
Opoczno S.A. Management Report on Activity
Employment structure by employee groups
Items
31.12.2005
Persons
31.12.2004
[%]
persons
[%]
Direct production employees
666
55.0%
615
52.1%
Other employees being physical workers
226
18.6%
217
18.4%
Other employees being non-physical workers
320
26.4%
349
29.5%
1,212
100.0%
1,181
100.0%
Total
Average employee salary in the Company, excluding one-off severance payments and one-off bonuses stood at PLN 2,869
(at PLN 2,864 as average for the year 2004). In addition to base pay and statutory pay components, employees received
bonus pay linked to performance against adopted targets.
Training represented an important item of personnel costs. In the year 2005 training expenses amounted to PLN 596 thousand. The following were the main types of training: English language courses; work safety and hygiene for staff superintendents; qualification upgrading courses; marketing, sales, promotion and advertising courses; labour law and social insurance
courses; Lean Manufacturing (World Class Manufacturing) courses; environmental protection and logistics management
courses.
II.5. Environmental performance
Opoczno S.A. has fulfilled all of its obligations arising from the natural resource use permits granted to it and has remained
in compliance with the limits awarded to it in respect of:
•
technological water intake;
•
allowed gas and particulate matter emissions from the sources located within its plants;
•
allowed noise issued to the environment;
•
production of hazardous and other waste.
In particular, Opoczno S.A. monitors air emissions and other emissions to the environment, incompliance with conditions
defined in permits and decisions issued to it. In addition, all of the Opoczno S.A. manufacturing plants are compliant with the
best available environmental technologies. The Company introduced a number of technological and organisational solutions
limiting detrimental impact on the environment. The mentioned technological solutions include: equipping of all of the
particulate emission sources with high efficiency dust arresting installations; technological effluent pre-treatment in mechanical treatment installations; use of recycled water for production purposes; use of closed cooling water systems; use of the
state-of-the-art technologies and application of production waste. The mentioned organisational solutions limiting detrimental
impact on the environment include implementation by the Company in 2005 of the environment management system compliant with the PN-EN ISO 14001 standard. The work on the said environment management system involved development of
a system policy, in line with which Opoczno S.A. will maintain compliance with all of the statutory environmental regulations
and work further on upgrading the system. In conjunction with implementation of the environment management system, the
Company identified important aspects of environmental impact (adequate procedures were defined via the identification
method) and introduced a waste management system involving broad-based waste segregation. The system includes
control of hazardous substances and waste. Within the environment management system respective environmental issues
are reviewed through a system of internal and external audits, allowing for early detection of potential environmental threats.
The implemented system was audited by Det Norske Veritas Poland, a certifying institution, in September 2005. As a result
of the certification audit and the decision taken by the auditors of the certifying institution, the Company’s management
systems obtained certificates of compliance of with respective standards, which included:
Quality assurance and management system (ISO 9001:2000), a reissued certificate;
Environmental management system (ISO 14001:2004), a new certificate;
Work safety and hygiene management system (PN-N 18001:2004), a new certificate; and
Work safety and hygiene management system (OHSAS 18001:1999) - international specification), a new certificate.
In 2005 the Company also commissioned a new boiler house with gas-fired burners on site of the Śląsk manufacturing
facility, which is going to contribute to overall reduction of pollutant emissions.
II.6. Capital expenditures
In 2005 the Company incurred capital expenditures in an amount of PLN 55,860 thousand.
The main capital expenditure projects in the year 2005 involved completion of expansion of the Mazowsze Manufacturing
Plant’s production capacities (a project started in 2004) and commissioning of the third and fourth technological line dedicated to production of ceramic floor, gres and wall tiles manufactured in the monoporose technology. As a result of that
investment the Company increased its production capacities by 4 million sqm of tiles per annum. Within the same Mazowsze
Manufacturing Plant project, the Company also commissioned a line for production of cut mosaic, which expands the available range of decors and attractiveness of the Company’s offer in general.
Another important expenditure relating to logistics involved upgrading the finished goods pallet based distribution system in a
line including screening plant to finished goods stores and on to lorry loading.
Opoczno S.A. Annual Report In Respect of the Year 2005 - 40 -
27 March 2006
Opoczno S.A. Management Report on Activity
In 2005 substantial funds were also spent on purchase of display furniture, installation of displays at sales outlets and
distribution of the Company’s products. As a result, the Company’s product range is better presented, which is of particular
importance in the process of launching new collections.
The investments executed in 2005 were funded out of operating cash flow and bank loans.
In 2006, the Company plans a capital expenditure budget that will be significantly lower than that implemented in 2005. The
key tasks scheduled for implementation in 2006 include: modernisation of the existing technological lines (to increase
operational efficiency or implement new decorative applications) and further installation of display furnishings on the distributors’ premises.
II.7. Research and development
Adjustment to new technologies and optimisation of productivity in the manufacturing process were the key objectives the
Company has pursued in its research and development activity (R&D). Execution of R&D projects take place primarily with
employment of own resources, particularly the in-house Technology and Development Laboratory.
The key R&D projects the Company implemented independently included:
•
Development of a new milled stone mass composition,
•
Development of a terrazzo mass composition based on own recycled materials,
•
Development of glaze compounds for gres tiles,
•
Research and testing under manufacturing conditions of new fluidizers for masses and glazes; and
•
Development of paste and glaze compositions for the tintometric system.
Also, certain R&D topics had been commissioned with external research units, including:
•
Research into attenuation of electromagnetic field in ceramic tiles.
A research topic being implemented in collaboration with the Academy of Mining and Metallurgy and the Occupational
Medicine Institute. Its phase one was realised in 2005 and it is being continued in the year 2006.
•
Researching the possibility of milling masses in rotational-vibration mills.
A topic implemented in collaboration with the Academy of Mining and Metallurgy (The St. Staszic Scientific Association).
•
abrasion resistance increasing qualities of glass and crystal glaze.
A topic implemented in collaboration with the Academy of Mining and Metallurgy – to be continued in the year 2006.
II.8. Financial standing
II.8.1. Company Financial Statements
Balance sheet
As at 31 December 2005, balance sheet with total assets and total liabilities and equity of Opoczno S.A. amounted to
PLN 462,739 thousand, which represented a decrease by PLN 14,919 thousand or 3.1% compared to the same balance
sheet footing as at 31 December 2004.
Long term assets, being the main item on the assets side, constituted 60.3% of total assets, as compared to 51.5% as at 31
December 2004.
Shareholders’ equity capital funds, being the dominant item on the liabilities side, constituted 57.2% of total liabilities, as at
31 December 2005, as compared to 87.8%, which the same capital funds represented as at 31 December 2004.
In the process of comparing balances of individual balance sheet items, as at the end of December 2005 and as at the end
of 2004, the following should be noted:
- increase in long term assets by 13.4%, to PLN 279,042 thousand, primarily and effect of an increase in tangible fixed
assets and intangible fixed assets by PLN 17,564 thousand and an increase in financial fixed assets by PLN 14,498 thousand. The increase in fixed assets occurred primarily as a result of the capital expenditures incurred in expansion of the
Mazowsze Manufacturing Plant, whereas the increase in financial fixed assets is connected with acquisition of shares in AB
„Dvǎrcionių Keramika”;
- decrease in long term assets by PLN 47,847 thousand or 20.7%, down to PLN 183,697 thousand; reduction in the working
capital occurred as a result of reduction in the in the balance of cash and short term investments and an increase in the
balance of receivables and inventories; cash and short term investments decreased by PLN 78,389 thousand, primarily as a
result of dividends paid to the Company’s shareholders. Inventories in the Company increased by PLN 25,616 thousand,
which occurred primarily as a result of achievement of the lower than forecast sales revenues, mainly on the domestic
market, and build up of inventories of finished goods;
- increase in short and long term liabilities, by total of PLN 139,680 thousand, up to PLN 197,913 thousand; the increase in
the balance of external financing sources occurred primarily as a result of loans drawn in the year 2005;
- decrease in equity capital by PLN 154,599 thousand, down to PLN 264,826 thousand, which resulted primarily from payment of dividends to the Opoczno S.A. shareholders.
Profit and loss account
Revenue from sales
In 2005 the Company’s sales revenue amounted to PLN 386.5 million, which in comparison to PLN 425.9 million in 2004 and
PLN 366.8 million in 2003, represented a decline of 9.2% and growth of 5.4% respectively.
Revenue from core activities (i.e. sales of ceramic tiles and decors) stood at PLN 373.6 million in 2005, PLN 413.4 million in
2004 and PLN 360.9 million in 2003, which represented respectively 96.7%, 97.1% and 98.4% of the Company’s sales
revenues and constituted a decline of 9.6% and growth of 3.5% respectively.
In 2005 the Company also registered substantial growth in revenue realised on foreign markets, by 31.0% and 94.6%
compared to the years 2004 and 2003 respectively.
Opoczno S.A. Annual Report In Respect of the Year 2005 - 41 -
27 March 2006
Opoczno S.A. Management Report on Activity
The general decline in sales revenue was primarily an effect of lower revenue achieved on the domestic market. The
Company did not register any substantial sales increases in Q4 2005, in spite of the home renovation tax benefit expiring at
the end of that period. With the aim of improving sales results in the future, the Company is currently finalising certain
organisational and structural changes, initiated in Q4 2005, leading to development of a new strengthened sales and marketing organisation. The Company also expects that new collections implemented at the end of the year 2005, and well received by the market, will achieve effective sales levels in 2006.
Cost of sales
Cost of sales incurred by Opoczno in 2005 amounted to PLN 248.7 million, compared to PLN 248.8 million incurred in 2004
and to PLN 233.8 million in 2003, which represents a decline of 0.1% and an increase of 6.4% respectively; with cost of
sales of ceramic tiles and decors in 2005 of PLN 237.3 million, compared to PLN 237.6 million in 2004 and to PLN 229.6
million in 2003, which represents a decline of 0.2% and an increase of 3.4% respectively.
In 2005, the Company’s capacity utilisation was lower than a year earlier, which contributed to increased costs of unutilised
capacities, are reflected in cost of sales. Also, the same year saw a shift in the product mix (with increased share of glazed
gres tiles and new collections), which contributed to increased cost of raw materials, and ultimately of to increased cost of
sales. In its effort to reduce production costs, the Company implemented a raw material use optimisation programme involving reformulation of recipes and optimisation of the number of suppliers, and expanded its World Class Manufacturing
Programme (originally implemented in the Pomorze Manufacturing Plan) to subsequent Opoczno plants.
Gross profit from sales
The Company’s gross profit from sales was PLN 137.8 million, compared to PLN 177.0 million in 2004 and PLN 133.0 million
in 2003, which represents a decline of 22.2% and an increase of 3.6% respectively.
Gross profit margin stood at 35.7% in 2005, at 41.6% in 2004 and at 36.3% in 2003, which represents a margin decline of
5.9 and 0.6 percentage points respectively.
Other operating income
Other operating income of Opoczno in 2005 reached PLN 5.1 million, compared to PLN 6.2 million achieved in 2004 and to
PLN 8.6 million in 2005, which represents a decline of 18.2% and 41.0% respectively. The Company realised the income
primarily on sale of services and release of provisions against slow moving inventories. In the years 2004 and 2003 the
Company also realised income on write-down of property tax liabilities, and in 2003 additionally on reduction of liability on
account of employee benefits, which was mainly an effect of the terms the Company successfully negotiated with the trade
unions.
Selling expenses
In 2005 Opoczno incurred selling expenses of PLN 24.7 million, compared to PLN 19.9 million in 2004 and to PLN 10.2
million in 2003, which represents increases of 23.8% and 141.1% respectively.
Selling expenses the Company incurred in 2005 included in particular: one-off and periodic bonuses paid to distributors,
costs of pallets and pallet turnover, costs of transport (freight) and costs of insurance of trade receivables. The increase that
occurred in that cost category was driven primarily by an increase in one-off and periodic bonuses and costs of pallets and
pallet turnover.
General and administrative expenses
In 2005 the Company incurred administrative expenses (before recognition of impact of the incentive schemes and of
changes in the Management Board composition) of PLN 68.8 million, compared to PLN 60.6 million it incurred in 2004
(before recognition of impact of the incentive schemes) and to PLN 56.1 million in 2003, which represents a 13.4% and a
22.6% increase respectively.
The Company’s administrative expenses included primarily: general management and administration expenses, and marketing and trade-marketing activities expenses. Administrative expenses increased in 2005 primarily as a result of costs the
Company incurred in undertaking activities relating to potential acquisitions on foreign markets, primarily on the Russian
market, and higher costs of advisory and consulting services relating to implementation of corporate logistics and human
resource management projects, with the higher marketing and trade-marketing activities expenses incurred in introducing
new collections to the market and installation of new displays.
Also, in 2005 the Company administrative expenses included: the effect of revaluation of the incentive scheme vested by the
shareholder in 2000 and of the additional incentive scheme vested by the shareholder in 2005 in an amount of PLN 10.9
million (cost side change) and a recognition of the portion of the Company share option plan at fair value applicable to the
same period in an amount of PLN 3.7 million (income side change). Also, the Company administrative expenses of 2005
were charged with an expense relating to changes in the Management Board composition in an amount of PLN 3.0 million.
Other operating expenses
In 2005 the Company incurred other operating expenses (before Opoczno S.A. Initial Public Offering expenses) amounting
to PLN 9.8 million, compared to PLN 9.2 million incurred in 2004 and to PLN 7.6 million in 2003, which represents an increase of 6.3% and 28.9% respectively.
Increase in other operating expenses occurring in 2005, compared to the periods of reference, arises primarily from: upward
adjustment in value of inventories; adjustment in the provision against retirement and disability pension benefits, as at their
actuarial valuation of 31 January 2005; the provision against land re-cultivation and a mine closure; and the benefit calculated on account of anti-competition clause in relation to changes in the Management Board composition.
Opoczno S.A. Annual Report In Respect of the Year 2005 - 42 -
27 March 2006
Opoczno S.A. Management Report on Activity
Also in 2005 the Company recognised in its other operating expenses the costs of the Opoczno S.A. Initial Public Offering in
an amount of PLN 7.0 million.
Profit from operations
In 2005 the Company achieved profit from operations of PLN 36.9 million, compared to PLN 93.3 million in 2004 and to PLN
67.7 million in 2003, which represents a decline of 60.5% and 45.6% respectively.
Operating margin stood at 9.5% in 2005, which represents a margin decline of 12.4 and of 8.9 percentage points in comparison to the operating margins of 2004 and 2003 respectively.
It was primarily the marketing and trade-marketing activities expenses incurred in 2005, which represented an increase of
over 25% and 40% on the same category compared to the periods of reference, that reduced the profit from operations and
the operating margin. The Company incurred extra costs relating to optimisation projects, restructuring of the sales organisation and recruitment process, whereas its display installation investments undertaken in 2005 are expected to have a positive impact on the sales results of 2006.
Net financing expense/revenue
In 2005 the Company incurred net financing expense of PLN 7.1 million, compared to net financing revenue of PLN 0.6
million in 2004 and net financing expense of PLN 3.3 million in 2003.
The substantial increase in net financing expense arose from interest expense on the bank loans the Company had drawn in
2005.
Income tax expense
Income tax expense posted by Opoczno in respect of the year 2005 stands at PLN 5.1 million, compared to PLN 18.1 million
in 2004 and PLN 18.6 million in 2003.
The Company’s effective tax rate was 17.1% in 2005, 19.3% in 2004 and 28.8% in 2003. The lower effective tax rate in 2005
and 2004 compared to the year 2003 arose from reduction of the statutory tax rate. The factors that effected the effective tax
rate realised in 2005 included primarily: recognition of the Company financial result after adjustment for the balance sheet
value of its incentive schemes in an amount of PLN 10.9 million (recognised as an item not included in the tax bases); the
Company share option scheme in an amount of PLN 3.7 million (not a tax-deductible expense); and other cost that are not
recognised as tax-deductible in a permanent way in an amount of PLN 4.3 million. Total effect of these transactions is that of
increasing pre-tax profit against the tax base by PLN 2.9 million.
Net profit for the period
In 2005 the Company achieved net profit of PLN 24.7 million, compared to profit of PLN 75.8 million achieved in 2004 and of
PLN 45.9 million in Q3 2005, which represents a decline of 67.5% and of 46.3% respectively.
Statement of cash flows
The key sources providing Opoczno S.A. with financial liquidity include equity cash funds, cash from operating activities and
loan proceeds. As at the beginning of 2005, the Company held cash funds of PLN 8,746 thousand. As a result of business
activities executed in the course of the year 2005, the cash balance decreased to PLN 6,663 thousand.
Operating activities
Net cash flow from operating activities in the year 2005 amounted to PLN 39,996 thousand and were PLN 60,546 thousand
lower than net cash flow from operating activities in the year 2004. The decline in value of the net cash flow from operating
activities resulted primarily from lower net profit generated in the discussed period and higher balance of inventories.
Investing activities
In 2005 net cash flow from investing activities amounted to PLN 4,566 thousand, compared to negative net cash flow of
PLN 31,828 thousand in 2004. In the period under discussion, Opoczno S.A. spent PLN 59,126 thousand for acquisition of
tangible fixed assets and PLN 14,498 thousand for acquisition of a subsidiary entity. The positive cash flows from investing
activities were achieved through sale of short term financial assets from placement activities, in an amount of PLN 75,682
thousand.
Financing activities
Financing activities of Opoczno S.A. included proceeds and disbursements relating to drawing and repayment of bank loans,
and payment of related interest, and disbursements relating to payment of dividends by the Company to its shareholders.
Net cash flows from financing activities of the Company were negative and amounted to PLN 66,240 thousand.
Total change in net cash flows in the year 2005 was negative and reached PLN 21,678 thousand. As at the end of 2005, the
Company held an overdraft facility in an amount of PLN 19,595 thousand.
Opoczno S.A. Annual Report In Respect of the Year 2005 - 43 -
27 March 2006
Opoczno S.A. Management Report on Activity
II.8.2. Information on drawn loans
As at 31 December 2005 indebtedness of Opoczno S.A. on account of drawn long and short term loans stood at
PLN 132,961 thousand, including:
• A working capital loan up to a limit of PLN 75,000 thousand, with indebtedness as at the date of preparation of these
Financial Statements amounting to PLN 64,840 thousand. The outstanding debt balance includes principal of PLN 64,831
thousand and interest accrued as at 31 December 2005 (payable on 31 January 2006), in an amount of PLN 9 thousand.
The loan is being repaid in equal monthly instalments of PLN 1,271 thousand each. Interest on the loan stands at a rate of
WIBOR 1M + bank’s profit margin;
• An investment loan up to a limit of PLN 52,612 thousand, with indebtedness as at the date of preparation of these Financial Statements amounting to PLN 47,921 thousand. The outstanding debt balance includes principal of PLN 47,914 thousand and interest accrued as at 31 December 2005 (payable on 31 January 2006), in an amount of PLN 6 thousand. The
loan is being repaid in equal monthly instalments of PLN 940 thousand. Interest on the loan stands at a rate of WIBOR 1M +
bank’s profit margin;
• An overdraft facility up to a limit of PLN 50,000 thousand, with indebtedness as at this balance sheet date amounting to
PLN 19,697 thousand. The outstanding debt balance includes principal of PLN 19,595 thousand and interest accrued as at
31 December 2005 (payable on 2 January 2006), in an amount of PLN 102 thousand. The loan is being repaid on current
basis. The loan repayment date falls on 14 March 2006. Interest on the loan stands at a rate of WIBOR 1M + bank’s profit
margin;
The working capital and the investment loan are secured with registered pledges on fixed assets of the “Mazowsze” Manufacturing Plant valued at PLN 71,288 thousand, a mortgage valued at PLN 140,000 thousand, power of attorney to a bank
account, a statement of submission to collection and assignment of rights to an insurance policy on the abovementioned
assets.
The overdraft facility is secured with a registered pledge on fixed assets of the “Śląsk” and the “Pomorze” Manufacturing
Plants valued at PLN 29,000 thousand, a pledge on marketable goods valued at PLN 40,000 thousand, power of attorney to
a bank account, a statement of submission to collection and assignment of rights to an insurance policy on the abovementioned assets.
Al the loans of the Company were drawn at the PKO BP bank, the Piotrkow Trybunalski branch.
Other debt is connected with lease liability in amount 503 thousand PLN.
II.8.3. Information on granted loans, suretyships and guarantees
As at 31 December 2005, the Company was not a party to any loan agreement.
Opoczno S.A is a party to a bank guarantee agreement executed between the Company and PKO BP. On the basis of the
abovementioned agreement, the PKO BP bank granted a guarantee up to an amount of PLN 3,479 thousand, valid until 29
October 2006, securing the Company’s payables arising from a frit delivery agreement.
As at 31 December 2005, the Company was a party (as a guarantor) to a loan guarantee up to an amount of PLN 10,000
thousand LTL (or PLN 11,179 thousand, in translation into Polish zlotys at average NBP rate of 31 December 2005) provided to AB „Hansabankas”, of which the Company informed in its current report 39/2005 Parties to the agreement jointly
resolved that should as a result Dvǎrcionių Keramika’s default on any term of the Loan Agreement the Bank call upon the
company to pay any amount, as at the date of provision by Opoczno S.A. of such a benefit, the paid amount shall be
deemed a loan amount granted to „Dvǎrcionių Keramika” by Opoczno S.A. Such a loan shall be repaid by „Dvǎrcionių
Keramika” within 12 months of the date of it being granted (i.e. being the date on which the company provides the Bank with
the benefit). This agreement was concluded with its validity spanning the validity of the loan pledge being its subject and
came into effectiveness as at the date of issuance by Opoczno S.A. of the Loan Repayment Guarantee for the benefit of the
Bank.
On the basis of the abovementioned loan pledge agreement, on 7 September 2005 the company issued for the benefit of the
Bank the Loan Repayment Guarantee (“Guarantee”) No. 05-58538-LA1, being a loan security, in an amount of EUR 13,032
thousand (equivalent of PLN 51,013 thousand, as translated at average National Bank of Poland rate fixed for 7 September
2005) against a loan drawn by „Dvǎrcionių Keramika” on the basis of the Loan Agreement, with its proceed to be used for
refinancing of financial obligations (including, among others, a loan in an amount of LTL 10,000 thousand granted by Opoczno S.A. on the basis of the agreement of 10 March 2005) and financing of current operations.
In the Guarantee Opoczno S.A. committed on irrevocable and unconditional basis to immediate payment to the Bank, at its
first request, of any sum or sums not exceeding in total the amount of LTL 10,000 thousand, at being served by the Bank
with the first written payment request notice, should „Dvǎrcionių Keramika” default on the Loan Agreement obligations, and
the demanded sum should fall due to the Bank from „Dvǎrcionių Keramika” and remain unpaid by „Dvǎrcionių Keramika”.
The granted Guarantee shall remain valid until full repayment of the loan to the Bank and to fulfilment by „Dvǎrcionių
Keramika” of all its obligations vis-à-vis the Bank, as defined under the Loan Agreement, or until such time as in the Bank
provides Opoczno S.A. with a statement releasing the latter from all obligations and financial liability defined in
II.8.4. Ratio analysis
Comprehensive analysis of the economic and financial condition of the Opoczno S.A. was performed with application of ratio
analysis, which measures effectiveness of its business activity and its ability to regulate its obligations.
Opoczno S.A. Annual Report In Respect of the Year 2005 - 44 -
27 March 2006
Opoczno S.A. Management Report on Activity
Ratio analysis
No.
Ratio
Unit
period of
1.01.2005 to
31.12.2005
period of
1.01.2004 to
31.12.2004
1
Profitability of sales
%
35.7%
41.6%
2
Operating profitability
%
9.5%
21.9%
3
Net profitability
%
6.4%
17.8%
4
ROA
%
5.3%
15.9%
5
ROE
%
9.3%
18.1%
6
Liquidity ratio, I
no.
0.06
1.52
7
Liquidity ratio, II
no.
0.86
2.98
8
Liquidity ratio, III
no.
1.69
4.14
9
Receivables turnover
days
80
68
10
Inventories turnover
days
131
94
11
Debt ratio
%
42.8%
12.2%
12
Debt to equity ratio
%
74.7%
13.9%
13
Long term debt ratio
%
19.2%
0.5%
14
Fixed assets coverage ratio
no.
0.95
1.70
Rules of ratio calculation:
Profitability of sales: profit from sales to sales revenue
Operating profitability: operating profit to sales revenue
Net profitability: net profit to sales revenue
ROA: net profit to total assets
ROE: net profit to equity
Liquidity ratio, I: short term financial assets to short term liabilities
Liquidity ratio, II: (short term financial assets – inventories) to short term liabilities
Liquidity ratio, III: short term assets to short term liabilities
Receivables turnover: total receivables to sales revenue x number of days in a period
Inventories turnover: total inventories to cost of sales x number of days in a period
Long term debt ratio: long term liabilities to total assets
Opoczno S.A. Annual Report In Respect of the Year 2005 - 45 -
27 March 2006
Opoczno S.A. Management Report on Activity
III. Additional information
III.1. Information on relations of organisation or capital existing between the Company
and any other entity
OPOCZNO Spółka Akcyjna, having its principal place of business in Opoczno at 5 Przemysłowa street (“OPOCZNO S.A.” or
“the Company”) is the dominant entity of the OPOCZNO S.A. capital group (“Opoczno S.A. Group”).
The Company was formed as a result of transformation of a state-owned enterprise operating under the name Zespół
Zakładów Płytek Ceramicznych „Opoczno” in Opoczno by virtue of the Corporatisation Deed dated 29 October 1998 and
was inscribed into the commercial registry on 13 November 1998 under number RHB 1107; on 20 April 2001 the Company
was registered again in the Commercial Registry of the National Court Registry under the number 0000008086.
Credit Suisse First Boston Ceramic Partners (Poland) S.á.r.l. holds 48.4% of shares providing it with the right to 48.4% of
votes on the Company General Shareholders Meeting, as per the notification received on 28 June 2005.
The existing relations of organisational and capital nature between Opoczno SA and other entities do not impact its business
in any significant way (with the exception of the relation with AB „Dvǎrcionių Keramika”, a subsidiary entity). The Company is
the dominant entity vis-à-vis three entities:
• AB „Dvǎrcionių Keramika”, having its principal place of business in Vilnius (Lithuania) – the Company holds 60.25% of
shares providing the right to execute 60.25% of votes at the General Shareholders Meeting;
• SIA „Dvǎrcionių Keramika”, a company in liquidation, having its principal place of business in Riga (Latvia) – the Company holds 100% of shares providing the right to execute 100% of votes at the General Shareholders Meeting though AB
„Dvǎrcionių Keramika”, the Company’s subsidiary entity; and
• „OMD” Sp. z o.o., a company in liquidation, having its principal place of business in Opoczno – the Company holds 60%
of shares providing the right to execute 60% of votes at the General Shareholders Meeting.
• The Company also has links with two associate entities:
• „POLKWARC” Sp z o. o., a company in liquidation, having its principal place of business in Częstochowa – the Company
holds 31% of shares providing the right to execute 31% of votes at the General Shareholders Meeting; and
• UAB „Baltios Keramika”, having its principal place of business in Druzu (Lithuania) – 30.61% of shares providing the right
to execute 30.61% of votes at the General Shareholders Meeting though AB „Dvǎrcionių Keramika”, the Company’s subsidiary entity.
III.2. Information on agreements of significance to the Company’s activities
Working capital loan agreement
On 9 March 2005, Opoczno S.A. executed a working capital loan agreement with Powszechna Kasa Oszczędności Bank
Polski S.A. The agreement relates to granting the Company a loan up to a limit of PLN 75,000 thousand, for the purpose of
financing general and administrative costs. The loan was utilised in March 2005. The loan interest is variable and equivalent
to the WIBOR rate for 1-month deposits plus the Bank’s margin. The loan will be paid back in 59 equal monthly instalments.
The first instalment the Company repaid on 31 May 2005. The date of repayment of the final loan instalment shall take place
on 8 March 2010.
Investment loan agreement
On 9 March 2005, Opoczno S.A. executed an investment loan with Powszechna Kasa Oszczędności Bank Polski S.A. Two
annexes were appended to the abovementioned agreement: annex 1 of 30 May 2005 and annex 2 of 30 August 2005. The
agreement relates to granting the Company a loan, for the purpose of financing and refinancing of net capital expenditures
relating to procurement and installation in the existing “Mazowsze” Manufacturing Plant of two technological lines for production of ceramic tiles. The original loan amount stood at PLN 65,000 thousand, with effectiveness period running until 30 May
2005 and repayment schedule of 59 equal instalments. Repayment of the final instalment shall take place on 8 March 2010.
Annex 1 amended the final effectiveness date to 30 August 2005 and the number of instalments to 56, without changing the
repayment date of the final instalment. Annex 2 reduced the original loan amount to PLN 52,612 thousand. The loan principal amount was reduced at the initiative of the Company in connection with final settlement of the “Mazowsze” Manufacturing Plant expansion project expenditures at a lower than projected level. The loan interest is variable and equivalent to the
WIBOR rate for 1-month deposits plus the Bank’s margin.
The working capital and the investment loan are secured with registered pledges on fixed assets of the “Mazowsze” Manufacturing Plant valued at PLN 71,288 thousand, a mortgage valued at PLN 140,000 thousand, power of attorney to a bank
account, a statement of submission to collection and assignment of rights to an insurance policy on the abovementioned
assets.
Overdraft facility agreement
On 15 March 2005, Opoczno S.A. executed an overdraft facility agreement with Powszechna Kasa Oszczędności Bank
Polski S.A. The agreement relates to granting the Company a credit facility in an amount of PLN 50,000 thousand, for the
purpose of financing current liabilities arising in the course of the Company’s business activity. The facility proceeds are
drawn at execution of non-cash and cash orders debited to the Company’s primary account with Powszechna Kasa
Oszczędności Bank Polski S.A. The credit facility is granted for a period of 15 March 2005 to 14 March 2006. The credit
facility interest is variable and equivalent to the WIBOR rate for 1-month deposits plus the Bank’s margin.
The overdraft facility is secured with registered pledges on fixed assets of the “Śląsk” and “Pomorze” Manufacturing Plants
valued at PLN 29,000 thousand, a pledge on marketable goods valued at PLN 40,000 thousand, power of attorney to a bank
Opoczno S.A. Annual Report In Respect of the Year 2005 - 46 -
27 March 2006
Opoczno S.A. Management Report on Activity
account, a statement of submission to collection and assignment of rights to an insurance policy on the abovementioned
assets.
On 14 March 2005, Opoczno S.A. executed an overdraft facility agreement No. 126240030-270-1/1/RB/2005 of 15.03.2005
with Powszechna Kasa Oszczędności Bank Polski S.A. (of which the Company informed in its Current Report 7/2006).
Subsequent annex provisions bind the parties to the agreement to extend the facility validity period to 13 March 2007. The
parties also agreed that the facility effectiveness period and the facility repayment period shall expire as at the date of
expiration of the lending period, i.e. on 13 March 2007. Also the fixed assets located in Opoczno’s “Śląsk” and “Pomorze”
Manufacturing Plants and secured with registered pledges were re-valued from PLN 29,000 thousand to PLN 23,488 thousand.
III.3. Description of transactions with related entities, whenever value of a single
transaction or a series of transactions concluded by the respective related entity in
the course of the business year to date in PLN is equivalent to EUR 500, 000
On 7 September 2005, the Company executed a loan guarantee agreement with AB „Dvǎrcionių Keramika” (Company’s
subsidiary). The said agreement had the objective of defining the terms and conditions of Opoczno S.A. granting a loan
guarantee in an amount of 10,000 thousand Lithuanian litas (equivalent to PLN 11,179 thousand translated at average rate
set by the National Bank of Poland in respect of 31 December 2005) to the benefit of AB "Hansabankas", having its principal
place of business at Savanoriu av.19, LT-03502, in Vilnius (Lithuania) ("Bank"), which would constitute a security against a
loan agreement No. 05-058538-IN/05-058549-KL of 07 September 2005 executed between AB „Dvǎrcionių Keramika” and
the Bank ("Loan Agreement "), of which the Management Board informed in its current report No. 39/2005.
Also, in the period of 22 April 2005 to 31 December 2005 the Company sold products and goods to its subsidiary AB „Dvǎrcionių Keramika” in an amount of PLN 2,189 thousand and purchased products and goods from the same entity in an
amount of PLN 3,248 thousand.
On 15 March 2005, the General Shareholders Meeting of OPOCZNO S.A. by way of its resolution No. 7 (Rep AN
1420/2005) decided to allocated to the dividend for the Company shareholders an amount of PLN 172,231 thousand (i.e.
PLN 10.47 per share), which included: PLN 75,983 thousand of net profit for the year 2004 and PLN 96,248 thousand
allocated from reserve capital fund formed for the said purpose on 10 December 2004; by 30 September 2005 total amount
of PLN 172,166 thousand was paid out.
On 16 March 2006, the Company paid out dividend due to the majority shareholder, being Credit Suisse First Boston
Ceramic Partners (Poland) S.á.r.l, in an amount of PLN 170,195 thousand.
In addition to the above events taking place in the year 2005, neither the Company nor any of its subsidiaries had executed
any other transactions with related entities, of value exceeding an amount in Polish złoty equivalent to EUR 500,000.
III.4. Appropriation of proceeds from securities issues
On 24 June 2005, in connection with introduction of the Company share option scheme (Note 23 to the Financial Statements), the Company issued a total of 304,000 unsecured, non interest bearing and dematerialised inscribed bonds bearing
nominal value and issue price of PLN 0.001, with priority vis-à-vis the Company’s shareholders, in two series:
•
152,000 series A, each with the right to subscribe toward 1 ordinary bearer shares of series C, and
•
152,000 series B bonds, each with the right to subscribe toward 1 ordinary bearer shares of series D, jointly referred to as the “Bonds”.
The bonds were taken up at total consideration of PLN 3,040 by Dom Maklerski Banku Handlowego S.A., with its principal
place of business in Warsaw. Bank Handlowy performs the function of a Trustee and shall divest the Bonds exclusively to
the participants of the share option scheme.
Proceeds from the issue increased the working capital available to the Company.
III.5. Discussion of the differences between the annual report results and the earlier
published year 2005 results forecasts
The Company did not publish any year 2005 results forecasts in respect of the Company on stand alone basis.
No difference exists between the stand-alone Company results published in the Q4 2005 Report and the results disclosed in
this annual report.
III.6. Assessment of financial management, with detailed discussion of the ability to
service and external debts
The year 2005 in which the Company achieved lower results in year-on-year terms. In addition to having generated lower
sales, the Company incurred substantial additional expenses of its stock market floatation, on account of the actual and
potential acquisitions on new markets and as a result of the changes that occurred in the composition of its Management
Board. In spite of the weaker results, the Company met its financial obligations in timely manner. In 2005 Opoczno paid
dividends to the shareholders in an amount of PLN 172,171 thousand, which came from: the year 2004 net profit funds
allocated for that purpose (by resolution of the Ordinary General Shareholders Meeting of 15 March 2005) in an amount of
PLN 75,983 thousand and a reserve capital fund formed for the same purpose (on 10 December 2004) in an amount of
Opoczno S.A. Annual Report In Respect of the Year 2005 - 47 -
27 March 2006
Opoczno S.A. Management Report on Activity
PLN 96,248 thousand. The remaining dividend amount of PLN 60 thousand, due as at 31 December, was deposited with a
court on 6 February 2006, in conjunction with a ruling of the Opoczno District Court the Company was served.
Through a combination of the unused portion of the overdraft facility, the controlled levels of operating expenses and investment expenditures, and the planned level of sales revenue, the Company’s liquidity is safeguarded to a sufficient degree.
Detailed discussion of the financial risk and market risk management is included in Note 26 to the Financial Statements.
III.7. Assessment of feasibility of the investment plan implementation
For the year 2006, the Company plans a substantially lower capital expenditure budget than that executed in 2005. Because
it completed in 2005 its capacity expansion programme, the Company has planned that the capital expenditure project for
the year 2006 to concentrate on modernisation of the existing technological lines (to increase operational efficiency or
introduce new decorative applications) and on providing its distributors with product display furnishings.
In the Management’s assessment, the Company has the financial capacity required for completion of the capital expenditure
projects it has planned for the year 2006.
Furthermore, expansion into foreign markets feature prominently in the Company’s development strategy. This aim is being
pursued through acquisition of existing entities or direct greenfield investments; in case of their implementation, these
projects will be financed with Company debt funding.
III.8. Assessment of the factors and extraordinary events having an impact on the
year 2005 result, with quantification of the impact of such factors and extraordinary
events
Aside of the events discussed in points II.8.1. and III.6., and the additional expenses arising from these events, no other
factors or events of extraordinary nature from the standpoint of the Company occurred in the year 2005.
III.9. Description of external and internal factors significant for development of the
Company, with description of the Company’s development prospects
External factors:
- Macroeconomic conditions and the political situation prevailing in Poland and countries in which the Group operates;
- Changes in legal regulations (particularly tax regulations), environmental requirements and the like;
- General economic growth, including in particular growth trends in the construction markets of the countries in
which the Capital Group operates;
- Seasonality in the construction market.
- Competition in the Polish ceramic tiles market arising from increases in manufacturing capacities of the domestic
producers and in imports;
- Competition on the Group’s export markets;
- The existing and potential import constraints and barriers in the Group’s key export markets;
- Existing and potential competition from finishing materials being substitutes to ceramic tiles;
- Existing and potential constraints and import barriers on the Group’s key export markets;
- Accessibility of the basic raw materials and possible fluctuations in their prices arising from their potential shortages;
- Possible fluctuations in prices of energy carriers (natural gas and crude oil in particular) and potential interruptions
in the supply of natural gas (the Group uses for technological purposes);
- Fluctuations in exchange rates of key currencies: US dollar, Euro and Lithuanian lita;
- Changes in the International Financial Reporting Standards (IFRS), changes and revisions in the International Accounting Standards (IAS) in respect to methods of valuation and presentation of respective components of financial
statements, and changes in interpretation of application of IAS effected by the International Accounting Standards
Board.
Internal factors:
- Fit between the current product offer and customers’ expectations and preferences;
- The Group’s ability to maintain/reduce operating costs at/from their current level;
- Progress in business integration of the AB „Dvǎrcionių Keramika” subsidiary;
Opoczno S.A. Annual Report In Respect of the Year 2005 - 48 -
27 March 2006
Opoczno S.A. Management Report on Activity
- Implementation of the Company’s strategic development plan involving expansion to foreign markets and potential
acquisitions;
- Company share price, as it impacts the fair value of incentive schemes vested by Credit Suisse First Boston Ceramic Partners (Poland) S.á.r.
Pursuant to the key assumptions of the adopted development strategy, the Company shall focus in the course of the next 12
months on activities aimed at strengthening the its position of leadership of the Polish ceramic tiles market and on dynamic
expansion in foreign markets.
Of crucial importance to building of strong competitive position of the Company on the Polish market will be effective management of the Company’s portfolio, involving systematic introduction to the market of collections that are both attractive and
well aligned with the current trends in tile design. The purpose in being served by the brand and collection lifecycle management process the Company has implemented. Also, the Company will be undertaking actions aimed at strengthening its
position in the key distribution channels (including particularly the commercial investments channel) and at increasing the
presence and quality of the Company product displays in the key retail points of sale.
On selected foreign markets, the Company will concentrate on building out its local sales structures, supporting development
and provision of services to the local distribution networks with application of marketing tools, which, in the Management’s
assessment, should enable further growth of sales and maintaining of the current rates of sales growth. The other significant
aspect of the strategic expansion into foreign markets involves acquisition of existing entities and direct greenfield investments.
III.10. Changes in the rules followed in management of the Company’s business
No significant changes in management of the Company’s business occurred in the year 2005.
III.11. Changes in the composition of the Company managing and supervisory bodies
in the course of the past accounting year, the rules of appointment and discharge of
managers, particularly in respect of decisions on share issues and buy-backs
Changes in composition of the managing and supervisory bodies of the Company in the course of the year 2005 are discussed in detail under point I.2. of this report.
The Management Board manages the Company's affairs and represents the Company in all court and out of court proceedings. The Management Board’s competences include all matters relating to management of the Company's affairs that are
not otherwise vested by either regulation of law or provisions of the Company Statute (further refereed to as Articles of
Association) with any other governing bodies of the Company.
The Management Board performs its activities pursuant to provisions of the Articles of Association, regulations of the generally applicable law, including the Commercial Companies Code, and the basis of internal regulations, particularly the Rules
and Regulations of the Management Board. The Rules and Regulations of the Management Board is adopted in the form of
a resolution of the Management Board and approved Supervisory Board.
Pursuant to provisions of the Articles of Association, whenever the Management Board is composes of more than one
member, the Company is represented by two Management Board members jointly or by one Management Board member
and the holder of a general commercial power of attorney (a procurator) jointly.
Pursuant to the Articles of Association, the Management Board of the Company consists of one to nine members, appointed
and dismissed by the Supervisory Board. The number of Management Board members is defined by the Supervisory Board
on the basis of a separate resolution. The Management Board members are appointed for an individual term of office lasting
three years.
If the Company employs on average in any year more than 500 employees, the Supervisory Board appoints to the Management Board one person elected by the Company employees. The Supervisory Board adopts the election regulations which
specify in detail the procedure for electing and dismissing the employee-elected Management Board member, as well as the
procedure for holding the by-elections. If no Management Board member is elected by the Company's employees, the
Management Board may still adopt valid resolutions. As at the date of this report preparation, the Management Board was
composed o four members.
Resolutions of the Management Board are required in all matters which are outside the scope of regular Company management.
Pursuant to the Rules and Regulations of the Management Board, resolutions of the Management Board are adopted by
absolute majority of the votes cast by the present members. The Management Board President has the casting vote in all
cases in which an equal number of votes have been cast for and against a resolution. Resolutions of the Management Board
are adopted at its convened meeting.
Pursuant to the Articles of Association, resolutions of the Management Board are required in the following matters:
•
•
•
•
implementing the organisational by-laws defining the organisation of the Company’s enterprise;
granting and revoking the right of a general commercial power of attorney;
contracting loans and credits;
granting credit guarantees and property warranties;
disposal and acquisition of fixed assets whose value exceeds the PLN equivalent of EUR 100,000;
The Management Board’s decision on the following matters requires the prior approval of the Supervisory Board:
Opoczno S.A. Annual Report In Respect of the Year 2005 - 49 -
27 March 2006
Opoczno S.A. Management Report on Activity
•
•
•
•
•
•
•
execution of loan agreements or other credit-type agreements (other than a trade credit agreement entered into in
course of ordinary management), the value of which, individually or in total, exceeds EUR 500,000 in any fiscal
year, or execution of loan agreements or credit-type agreements with the Company’s employees or members of its
governing bodies;
executing or ordering the execution of any guarantee or surety agreement;
establishment of a pledge, mortgage or any other encumbrance on any of the Company’s assets with book value in
excess of EUR 500,000;
sale or any other disposal or acquisition of assets with book value or market value in excess of EUR 500,000 individually or EUR 1,000,000 in total, in any fiscal year;
contracting any obligation exceeding the ordinary management in excess of EUR 500,000 individually or in total, in
any fiscal year;
cessation or material limitation of any statutory activity of the Company;
adoption or amendment of the Company’s annual budget or strategic plan;
payment to the Company shareholders of an advance against expected dividends.
Appointment of procurators calls for agreement of all of the Management Board members expressed in the form of a Management Board resolution. The procurator’s powers of attorney can be revoked by any Management Board member individually.
III.12. Agreements executed by and between the Company and its managers that
provide for any compensation in case of resigning or discharge from a position without a valid reason or whenever a recall or discharge takes place as a result of the
Company’s merger through the takeover
The agreement of employment executed with Dariusz Paweł Gutarowski, a Procurator (with the position of the Administration Director) provides that in the case of termination of the agreement of employment by the Company, the Company shall,
at the time of the work relationship cessation, pay a compensation on account of agreement of employment termination in an
amount equivalent to 12-fold amount of the monthly base pay due in respect of the final full calendar month of work performance.
III.13. Salaries, bonuses or benefits, paid or due to the members of the management
and the supervisory body
Salaries and bonuses paid or due to members of the management
Total value of the salaries of the Opoczno S.A. Management Board members (with exclusion of the benefits received by
Sławomir Frąckowiak in connection with termination of his relationship of employment; its value motioned for a release and
released from the public disclosure obligation) paid in the period of 1 January 2005 to 31 December 2005 amounted to
PLN 2,672 thousand. The table below presents the value of the salaries and bonuses the Company paid to the individual
members of the Management Board.
Salaries of the Management Board
Person
Year ended 31 December 2005
Period
PLN ‘000
Year ended 31 December 2004
Period
PLN ‘000
Sławomir Frąckowiak1)
01.01.2005 - 08.11.2005
1,302
01.01.2004 - 31.12.2004
1,322
Marek Wójcikowski
01.01.2005 - 31.12.2005
537
01.01.2004 - 31.12.2004
653
Tomasz Dankowiakowski
20.01.2005 - 31.12.2005
258
-
-
Marek Łycyniak
02.11.2005 - 31.12.2005
71
-
-
Grzegorz Oglęcki
01.01.2005 - 31.12.2005
504
08.01.2004 - 31.12.2004
492
-
-
01.01.2004 - 20.10.2004
1,188
Rafał Karski
Total
2,672
1) salary considerations less the benefits motioned for a release and released from the public disclosure obligation
3,655
Total value of salary considerations of the Management Board members include: base pay, bonuses, severance pay at
termination of agreement of employment, non-competition clause related compensation, and costs of insurance policies and
health care.
In the period of 1 January 2005 to 20 April 2005, the Company did not pay salaries to Waldemar Skwara, Management
Board Member.
Opoczno S.A. Annual Report In Respect of the Year 2005 - 50 -
27 March 2006
Opoczno S.A. Management Report on Activity
Waldemar Skwara was seconded by Jawer (Luxemburg) S.A. to render advisory services to Opoczno S.A. in the field of
financial unit management and entitled to reimbursement of incurred expenses on the basis of an service provision agreement dated 8 October 2002. On account of that agreement, in the period of 1 January 2005 to 31 December 2005 the
Company paid to Jawer (Luxembourg) S.A. total consideration in an amount of PLN 261 thousand.
Also, the Management Board members are parties to certain incentive schemes linked to the value of the Opoczno S.A.
share price and vested by the Company and Credit Suisse First Boston Ceramic Partners (Poland) S.á.r.l. Fair value of the
share option schemes established as at 31 December 2005 for the individual members of the Management Board is: Marek
Wójcikowski’s at PLN 2,982 thousand, Grzegorz Oglęcki’s at PLN 2,028 thousand, Tomasz Dankowiakowski’s at PLN 23
thousand and Waldemar Skwara’s (Management Board member until 20 April 2005) at PLN 2,428 thousand. In the case of
Sławomir Frackowiak (Management Board member until 8 November 2005), fair value of his share option scheme was
included in the motion for a release and released from the public disclosure obligation.
Salaries, bonuses or benefits, paid or due to the supervisory body members
Total value of the salaries of the Opoczno S.A. Supervisory Board members paid in the period of 1 January 2005 to 31
December 2005 amounted to PLN 915 thousand. The table below presents the value of the salaries and bonuses the
Company paid to the individual members of the Supervisory Board.
Salaries of the Supervisory Board members
Person
Year ended 31 December 2005
Period
Year ended 31 December 2004
PLN ‘000
Period
PLN ‘000
Zbigniew Prokopowicz
01.01.2005 - 31.12.2005
534
01.10.2004 - 31.12.2004
134
Zbigniew Bodnar
25.11.2005 - 31.12.2005
10
-
-
Marian Czakański
15.09.2005 - 31.12.2005
8
-
-
Adam Górecki
15.09.2005 - 31.12.2005
8
-
-
Maciej Grelowski
15.09.2005 - 31.12.2005
8
-
-
Zbigniew Koćmiel
01.01.2005 - 31.12.2005
101
21.04.2004 - 31.12.2004
68
Bożena Korneta
01.01.2005 - 31.12.2005
118
01.01.2004 - 31.12.2004
122
Jerzy Krok
15.09.2005 - 31.12.2005
8
-
-
Jan Kryjak
01.01.2005 - 31.12.2005
28
01.01.2004 - 31.12.2004
28
Zbigniew Sadura
01.01.2005 - 31.12.2005
72
21.04.2004 - 31.12.2004
49
Krzysztof Sobolewski
01.01.2005 - 15.09.2005
20
01.01.2004 - 31.12.2004
28
Christopher Adam
-
-
01.01.2004 - 01.10.2004
22
Witold Grzybowski
-
-
01.01.2004 - 21.04.2004
9
Józef Sadłoń
-
-
01.01.2004 - 21.04.2004
42
Zbisław Szymański
-
-
01.01.2004 - 21.04.2004
51
Total
915
553
Total value of salary considerations of the Supervisory Board members include: a salary for performance of functions in the
Supervisory Board, and in the case of the Supervisory Board members appointed by the employees also their agreement of
employment base pay, bonuses and costs of insurance policies.
Also, Zbigniew Prokopowicz is a party to certain incentive schemes linked to the value of the Opoczno S.A. share price and
vested by the Company and Credit Suisse First Boston Ceramic Partners (Poland) S.á.r.l. Fair value of the share option
schemes established as at 31 December 2005 for Zbigniew Prokopowicz is PLN 1,193 thousand.
Salaries of the procurators
Total value of the salaries of the Opoczno S.A. procurators paid in the period of 1 January 2005 to 31 December 2005
amounted to PLN 2,451 thousand. The table below presents the value of the salaries and bonuses the Company paid to the
individual procurators.
Opoczno S.A. Annual Report In Respect of the Year 2005 - 51 -
27 March 2006
Opoczno S.A. Management Report on Activity
Salaries of the procurators
Person
Year ended 31 December 2005
Period
Year ended 31 December 2004
PLN ‘000
Period
PLN ‘000
Arkadiusz Chmal
01.01.2005-31.12.2005
225
-
-
Zdzisław Dziedzic
01.01.2005-31.12.2005
227
01.01.2004-31.12.2004
238
Dariusz Gutarowski
01.01.2005-31.12.2005
334
01.01.2004-31.12.2004
376
Robert Iwan
12.07.2005-31.12.2005
109
-
-
Teresa Karkowska
01.01.2005-31.12.2005
115
01.01.2004-31.12.2004
107
Bogusław Korneta
01.01.2005-31.12.2005
262
01.01.2004-31.12.2004
250
Janusz Partyka
01.01.2005-31.12.2005
392
01.01.2004-31.12.2004
350
Zenon Przybylski
01.01.2005-31.12.2005
215
01.01.2004-31.12.2004
193
Włodzimierz Wrzosek
01.01.2005-31.12.2005
229
01.01.2004-31.12.2004
226
Piotr Żehaluk
01.01.2005-31.12.2005
343
21.10.2004-31.12.2004
49
Marianna Owczarska
-
-
02.05.2004-31.12.2004
217
Ferdynand Gacki
-
-
01.01.2004-01.10.2004
96
2,451
Total
2,102
Total value of salary considerations of the procurators include: base pay, bonuses, and costs of insurance policies and
health care.
Also, in the period of 22 April 2005 to 31 December 2005, Bogusław Korneta, on account of his performance of the function
of the Management Board Member in the AB „Dvǎrcionių Keramika” subsidiary, received salary consideration in an amount
of LTL 76 thousand, or PLN 85 thousand, as at average National Bank of Poland exchange rate of 31 December 2005.
Also, Dariusz Gutarowski is a party to a certain incentive scheme linked to the value of the Opoczno S.A. share price and
vested by Credit Suisse First Boston Ceramic Partners (Poland) S.á.r.l. Fair value of that share option scheme established
as at 31 December 2005 for Dariusz Gutarowski is PLN 1,373 thousand.
A certain former Management Board Member, which whom the Company terminated agreement of employment in 2003 also
participates in the incentive scheme linked to the value of the Opoczno S.A. share price and vested by Credit Suisse First
Boston Ceramic Partners (Poland) S.á.r.l. Fair value of that share option scheme established for that person as at 31 December 2005 is PLN 1,373 thousand.
III.14. Information on value of outstanding loans, suretyships and guarantees of
members of the management and supervisory bodies, being the basis of liabilities
towards the Company
As at the end of December 2005, the following persons were liable towards Opoczno S.A on account of outstanding loans:
•
•
•
•
Teresa Karkowska – a loan from the Corporate Social Benefits Fund granted to her husband Stanislaw Karkowski
in an amount of PLN 2,207, with repayment date set for May 2010 and 4% annual interest;
Bogusław Korneta – a loan from the Corporate Social Benefits Fund in an amount of PLN 37,332, with repayment
date set for February 2008 and 3% annual interest;
Arkadiusz Chmal – a loan from the Corporate Social Benefits Fund in an amount of PLN 609, with repayment date
set for July 2006 and 3% annual interest; and
Robert Iwan – a loan from the Corporate Social Benefits Fund in an amount of PLN 83,700, with repayment date
set for January 2007 and 3% annual interest.
III.15. Number and nominal value of Company shares and other Capital Group entities held by members of management and supervisory bodies
III.15.1. Status of ownership of Company shares by members of management and
supervisory bodies
As per information in the Company’s possession, at the date of disclosure of this annual report, the following persons being
members of the Opoczno S.A. management and supervisory bodies held the Company shares:
Opoczno S.A. Annual Report In Respect of the Year 2005 - 52 -
27 March 2006
Opoczno S.A. Management Report on Activity
Person
Function
Total number of
Nominal value of
shares held
shares held (PLN)
Zdzisław Jan Dziedzic
Procurator
691
6,910
Bogusław Wiesław Korneta
Procurator
328
3,280
Włodzimierz Wrzosek
Procurator
445
4,450
Dariusz Paweł Gutarowski
Procurator
5,328
53,280
Janusz Jerzy Partyka
Procurator
178
1,780
Piotr Stanisław Żehaluk
Procurator
178
1,780
Bożena Teresa Korneta
Supervisory Board Member
445
4,450
Zbigniew Sadura
Supervisory Board Member
178
1,780
As per information in the Company’s possession, non of the persons being members of the Opoczno S.A. management and
supervisory bodies held shares in any entities being subsidiaries or associates of the Company.
III.15.2. Status of ownership of rights to shares (share options) by members of management and supervisory bodies
As at the date of disclosure of this report in respect of the year 2005, the following persons being members of the Opoczno
S.A. management and supervisory bodies held rights to subscription and take-up of the Company shares:
Function
Balance as at
27.03.2006 (the 2005
report disclosure date)
Marek Sylwester Wójcikowski
Management Board Member
40,000 series C shares
40,000 series D shares
Grzegorz Oglęcki
Management Board Member
Tomasz Wojciech Dankowiakowski
Management Board Member
Zbigniew Prokopowicz
Supervisory Board Chairman
Person
28,000 series C shares
28,000 series D shares
28,000 series C shares
28,000 series D shares
15,000 series C shares
15,000 series D shares
Also, Sławomir Frąckowiak, discharged from the function of the President by the Supervisory Board on 8 November 2005,
retains the right to subscription and take-up of 41,000 series C shares and 41,000 series D shares.
III.16. Shareholders with at least 5% of votes at the Company’s general shareholders’
meeting – held directly or indirectly, via subsidiaries, with indication of the number of
shares held by those entities, their percentage share in the share capital, the number
of votes arising from the shares and the percentage share in total number of votes at
general shareholders’ meeting at the date of submitting report
According to the notifications received by the Company pursuant to art. 147 of the Law on the Public Trading of Securities
(current art, 69 of the law on public offer and conditions of introduction financial instruments in to organized turnover system
and on public companies), the following shareholders held at least 5% of total number of votes at the General Shareholders’
Meeting, as at the date of submitting this report:
As at 27.03.2006 (the 2005 report disclosure date)
Shareholder
Number of shares and
Participation in the share capital and
votes at the GSM
total number of votes at the GSM
Credit Suisse First Boston Ceramic Partners (Poland) S.á.r.l1)
Generali Open Pension Fund 2)
1)
7,965,181
48.4%
823,110
5.00%
As per a notification received by the Company on 28 June 2005.
Opoczno S.A. Annual Report In Respect of the Year 2005 - 53 -
27 March 2006
Opoczno S.A. Management Report on Activity
2)
As per a notification received by the Company on 23 March 2006.
III.17. Information on agreements known to the Company that can lead to a shift in
the holdings of the existing shareholders and bondholders
The Company in not in possession of any information on any agreement that can lead in the future to a shift in the holdings
of the existing shareholders and bondholders.
III.18. Specification of all holders of securities that vest special rights of control of the
Company, with description of such rights
The Company has not issued any securities vesting any special rights of control of the Company.
III.19. Information on the system for monitoring employee share programmes
Aside of the rights to shares arising from the Company share option scheme described in the Financial Statements (see
Note 20), the Company operates no other employee share programme.
III.20. Limitations on transfer of ownership rights to securities issued by the Company
and limitations to exercise of voting rights arising from the Company shares
Company shares
No limitations on transfer of ownership rights or exercise of voting rights in respect of the Company shares exist.
Bonds issued by the Company
In the framework of the Incentive Scheme, the Company issued series A and B bonds. The series A and B bonds were issue
purely for the purpose of enabling their holder to subscribe for and take up series C and D shares. The right to take up series
C shares shall be reserved to the holders of the inscribed Series A bonds, whereas the right to take up series D shares shall
be reserved to the holders of the inscribed Series B bonds.
The said bonds were taken up by the Trustee and can only be divested to specifically named Authorised Persons and
exclusively in the period of 22 June 2006 to 8 June 2007. None of the Authorised Persons shall have the right to sell the
series A and B bonds.
The conditions of acquisition of the bonds and of the subsequent subscription for the series C and D shares include: continued employment by the Company or provision of services to it on the basis of a separate agreement between the date of
adoption of Resolutions on the Incentive Scheme, or 15 March 2005, and the day directly preceding, as the case may be:
the First Option Exercise Period – in respect to the series C share; or the Second Option Exercise Period – in respect to the
series D share. The right to acquire the bonds shall be also retained by the Authorised Persons after termination of employment or cessation of provision of service, if the agreement on the basis of which a given Authorised Person provided their
work or services to the Company is terminated by the Company, as the case may be: in the case of an agreement of employment – at termination for reasons not being the fault of the employee, including for reasons not applicable to the employee or without notice, pursuant to article 53 of the Labour Code, or in the case of a civil law contract – without citation of a
valid reason in the meaning of article 746 of the Civil Code.
III.21. Information on the entity authorised to audit the Financial Statements
On 26 July 2005, Opoczno S.A. executed an agreement with KPMG Audyt Sp. z o.o., with principal place of business in
Warsaw, an entity chartered to carry our audits of financial statements, which provides for performance of: summary reviews of the half-year financial statements of the Company and the consolidated half-year financial statements of the Opoczno S.A. Group, prepared as at 30 June 2005, comparative data prepared as at 30 June 2004; and audits of the annual
financial statements of the Company and the consolidated annual financial statements of the Opoczno S.A. Group, prepared
as at 31 December 2005.
Total net fees due or paid on account of the abovementioned agreements amount to PLN 210 thousand. In the previous
fiscal year, KPMG Audyt Sp. z o.o. received fees in the amount of PLN 115 thousand.
Also, in 2005 KPMG Audyt Sp. z o.o. provided the Company with services relating to the listing of Opoczno S.A. on Giełda
Papierów Wartościowych w Warszawie (Warsaw Stock Exchange) and to accounting advisory. Total fees paid to KPMG
Audyt Sp. z o.o. in 2005 for services other than audit or review of financial statements amounted to PLN 1,342 thousand.
Opoczno S.A. Annual Report In Respect of the Year 2005 - 54 -
27 March 2006
Opoczno S.A. Management Report on Activity
Signatures:
Mirosław GODLEWSKI
President of the management board
Marek Sylwester WÓJCIKOWSKI
Vice President of the Management Board
Tomasz Wojciech DANKOWIAKOWSKI
Member of the Management Board
Marek Jerzy ŁYCYNIAK
Member of the Management Board
Opoczno, 24 March 2006
Opoczno S.A. Annual Report In Respect of the Year 2005 - 55 -
27 March 2006
Jednostkowe sprawozdanie finansowe
OPOCZNO S.A. MANAGEMENT BOARD’S
STATEMENTS
Opoczno S.A. Annual Report In Respect of the Year 2005
27 March 2006
Raport roczny Opoczno SA za rok 2005
27 marca 2006 r
- 56 -
Declaration by Management Board of Opoczno S.A.
Statement of the Opoczno S.A. Management Board
on compliance with the rules of corporate governance
The Opoczno S.A. Management Board declared that the Company complies with the rules of corporate governance, as
inscribed in the document entitled Best Practices in Public Companies 2005 – the rules of corporate governance for jointstock companies being issuers of shares, convertible bonds or bonds with pre-emptive rights, admitted to stock market
trading on a statutory market".
Signatures:
Mirosław GODLEWSKI
President of the Management Board
Marek Sylwester WÓJCIKOWSKI
Vice President of the Management Board
Tomasz Wojciech DANKOWIAKOWSKI
Member of the Management Board
Marek Jerzy ŁYCYNIAK
Member of the Management Board
Opoczno, 24 March 2006
Opoczno S.A. Annual Report In Respect of the Year 2005 - 57 -
27 March 2006
Declaration by Management Board of Opoczno S.A.
Declaration by the Management Board of Opoczno S.A.
on the accuracy of the prepared financial statements
for the year 2005
We confirm, to the best of our knowledge, that the unconsolidated financial statements have been prepared in accordance
with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and in respect to matters
that are not regulated by the above standards, in accordance with the accounting principles as set out in the Accounting Act
dated 29 September 1994 (Official Journal from 2002, No 76, item 694 with amendments) and respective bylaws and regulations and the requirements for issuers of securities admitted to trading on an official stock-exchange listing market.
These accompanying financial statements present fairly the financial position and financial performance of the Company and
that management report on the activities contains the fair presentation of the developments, achievements and situation of
the Company, including the description of the main risk and threats.
Signatures:
Mirosław GODLEWSKI
President of the Management Board
Marek Sylwester WÓJCIKOWSKI
Vice President of the Management Board
Tomasz Wojciech DANKOWIAKOWSKI
Member of the Management Board
Marek Jerzy ŁYCYNIAK
Member of the Management Board
Opoczno, 24 March 2006
Opoczno S.A. Annual Report In Respect of the Year 2005 - 58 -
27 March 2006
Declaration by Management Board of Opoczno S.A.
Declaration by the Management Board of Opoczno S.A.
regarding the entity entitled to audit
unconsolidated financial statements
in respect of the year 2005
The Opoczno S.A. Management Board states that the entity authorised to perform audits of financial statements, i.e. KPMG
Audyt Sp. z o.o. with principal place of business in Warsaw, auditing the Company’s annual financial statements was selected in compliance with regulations of law and that the same entity and the chartered accountants performing the audit of
the financial statements fulfilled the conditions required to expression of an objective and independent opinion on the audit,
pursuant to pertinent regulations of the state law.
.
Signatures:
Mirosław GODLEWSKI
President of the Management Board
Marek Sylwester WÓJCIKOWSKI
Vice President of the Management Board
Tomasz Wojciech DANKOWIAKOWSKI
Member of the Management Board
Marek Jerzy ŁYCYNIAK
Member of the Management Board
Opoczno, 24 March 2006
Opoczno S.A. Annual Report In Respect of the Year 2005 - 59 -
27 March 2006