Management Board Report for the year ended 31 December Empik Media & Fashion S.A.

Transcription

1 Warsaw, 21 March 2014 Management Board Report for the year ended 2013 Empik Media & Fashion S.A.. Maciej Szymański President of the Management Board. Dariusz Stolarczyk Member of the Management Board Michał Grom Member of the Management Board Strona 1 z 31

2 Introduction This report should be read in conjunction with the stand-alone and consolidated financial statements for the year ended Empik Media & Fashion S.A. as a capital group. Direct and indirect subsidiaries, joint subsidiaries and affiliates of Empik Media & Fashion S.A.: Name Location Activity 2013 EMF GROUP EMF S.A % share % share % share % share Subsidiaries EMPiK Sp. z o.o. Poland Books, newspapers and multimedia retail sales network; photography sales points and language schools Empik Assets Sp. z o.o. (1) Poland Management of assets and trademarks E-Commerce Services Sp. z o.o. (16) Poland Online sales Cenzora Enterprises Ltd Cyprus Company holding 100% of shares in Fashion Look Sp. z o. o Mataro Investments Sp. z o.o. (19) Poland Investment vehicle Polperfect Sp. z o.o. (1) Poland Distributor of Polish and international press Empik Internet Sp. z o.o. (1) Poland Non-operating company Optyk Express Sp. z o.o. (1) Poland Non-operating company Fashion Look Sp. z o.o. (13) Poland Trading in clothing and other franchised products Flamongi Holdings Limited (1) Cyprus Investment vehicle Virtualo Sp. z o.o. (1) Poland Preparation and distribution of digital content to online bookstores e-muzyka S.A. (17) Poland Technical support for partners operating on the multimedia distribution market Gry-on line S.A. (18) Poland Interactive entertainment market Gandalf Sp. z o.o. Poland Online sale of textbooks Grupa Wydawnicza Foksal Sp. z o.o. (24) Poland Publishing EMF Development Sp. z o.o. Poland Providing services in regard to maintenance and the development of the sales networks of other Group companies Empik Media Fashion Loyalty Poland Providing services in regard to the operation of the loyalty programme Services Sp. z o.o. for other Group companies EDL Sp. z o.o.(1) Poland Book, press, and multimedia retail network Empik Ukraine LLC(1) Ukraine Non-operating company Strona 2 z 31

3 1. Empik Media & Fashion S.A. as a capital group (cont.). Name Location Activity 2013 EMF GROUP EMF S.A % share % share % share % share Biblioteka Akustyczna Sp. z o.o. (21) Poland Publishing of e-books Learning Systems Poland Sp. z o.o. (1) Poland Operator of language schools LSP Master Sp. z o.o. (2) Poland Holder of license for an integrated school management and language teaching system LSS Learning Switzerland GmbH (2) Switzerland Operator of language schools The Island Learning School Malta Limited (2) Operator of language schools Speak Up Ybanci Egitim Merkezi Cyprus Limited Sirketi (2) Operator of language schools Wedgewood Holdings Ltd (2) Cyprus Investment vehicle holding 100% of shares in LSR Akker Sp. z o.o. (2) Poland Operator of language schools Learning Systems Ukraine, the Ukraine Operator of language schools Limited Liability Company (2) Study Master, the Limited Liability Ukraine Operator of language schools in Ukraine Company (2) ANO "OC" Speak Up (20) Russia Network of language schools in Russia Learning Systems Russia the Limited Russia Holder of license for an integrated school management and language Liability Company (14) teaching system Smyk Sp. z o.o. Poland Children s megastores network Kids International Sp. z o.o.(3) Poland Operator of children s stores network Prolex Services Limited (3) Cyprus Investment vehicle holding 100% of shares in Smyk-Rus Limited Smyk-Rus Limited (7) Russia Operator of children s megastores network Strona 3 z 31

4 1. Empik Media & Fashion S.A. as a capital group (cont.). Name Location Activity 2013 EMF GROUP EMF S.A % share % share % share % share Madras Enterprises Limited (3) Cyprus Investment vehicle holding 100% of shares in Paritet Smyk LLC, the Group holds 90% of shares, however due to the put option, it consolidates 100% Paritet Smyk LLC (4) Ukraine Operator of children s megastores network, the Group holds % of shares, however due to the put option, it consolidates 100% Smyk Cocuk Giyim Oyuncak ve Turkey Operator of children s megastores network Aksesuarlari (3) Spiele Max AG (22) Germany Operator of children s megastores network Smyk All for Kids SRL (3) Romania Operator of children s megastores network registered on November 2009 Smyk Global Assets Sp. z o.o. (15) Poland Management of assets and trademarks Smyk Global Assets GmbH Switzerland Management of assets and trademarks of Smyk Group Mexvet Enterprises Limited (3) Cyprus Investment vehicle SPX Holding GmbH (3) Germany Investment vehicle holding 100% of shares in Spiele Max AG BEDI - Beteiligungs und Germany Operator of children s megastores network Dienstleistungs GmbH Optimum Distribution Sp. z o.o. (19) Poland Wholesale trading of selected cosmetics, optical products and sportswear in Poland Wholesale trading of selected cosmetics, optical products and Optimum Distribution CZ&SK Czech s.r.o. Republic sportswear in the Czech Republic and Slovakia LuxPol Invest S.à r.l Luxembourg Investment vehicle holding 49% of shares in EPCD Sp. z o.o Amersport Sp. z o.o. Sp. k. (9) Poland Trading in sportswear and athletic gear Amersport Group Sp. z o.o. Poland Trading in sportswear and athletic gear Poland 1 Development Sp. z Poland Trading in sportswear and athletic gear o.o.(9) Soul Sp. z o.o. (10) Poland Trading in sportswear and athletic gear Strona 4 z 31

5 1. Empik Media & Fashion S.A. as a capital group (cont.) Name Location Activity 2013 EMF GROUP EMF S.A % share % share % share % share Smyk All for Kids Czech s.r.o. Czech Trading in clothing and children s goods (previously Soul Shop s.r.o.) (26) Republic Amersport Ukraine LLC (11) Ukraine Trading in sportswear and athletic gear Amersport Russia LLC (11) Russia Trading in sportswear and athletic gear Ultimate Fashion Sp. z o.o. (1) Poland Franchise network of Esprit, River Island, etc Fashion US Sp. z o.o. Poland Trading in clothing and other franchised products Ultimate Fashion International Sp. z Poland Wholesale trading in clothes, footwear and other selected products o.o. Fashion US Sp. z o.o.sp. k. (23) Poland Trading in clothing and other franchised products Licomp EMPiK Multimedia Sp. z Poland Distributor of interactive entertainment software o.o. (27) Empik Digital Sp. z o.o. Poland Publishing, advisory, HR, IT, and telecommunications services East Services S.A. Switzerland Advisory services Cyprus Maratex Limited (5) Investment vehicle holding shares in B4 S.A., CJSC Maratex and OOO Maratex K B4 SA (6) Switzerland Investment vehicle holding shares in Daughter Enterprise Maratex Daughter Enterprise Maratex Ukraine Franchise network of Esprit etc CJSC Maratex (6) Russia Franchise network of Esprit, River Island, etc LLC Maratex K (6) Russia Franchise network of Esprit, River Island, etc Weromex LTD (2) Cyprus Investment vehicle holding 20% of shares in LSU Wolmex Enterprises Ltd (6) Cyprus Investment vehicle Esprentino Trading Ltd Cyprus Investment vehicle ESP Fashion PL Sp.z o.o. (28) Poland Investment vehicle Ivrea Holdings Sp. z o.o. (29) Poland Investment vehicle Manerbio Investments Sp. Z o.o. (30) Poland Investment vehicle Moncalvo Holdings Sp. z o.o. (31) Poland Investment vehicle Robbio Investments Sp. z o.o. (32) Poland Investment vehicle Pelican 5 Sp. z o.o. (33) Poland Investment vehicle Skylark 1 Sp. z o.o. (34) Poland Investment vehicle Falcon 4 Spółka z o.o. SKA (35) Poland Investment vehicle Strona 5 z 31

6 1. Empik Media & Fashion S.A. as a capital group (cont.). Joint subsidiaries RI Fashion Sp. z o.o. (23) Poland Trading in clothing and other franchise products Venetian Fashion Netherlands (6) Netherlands Investment vehicle holding shares in LLC Venice Fashion and LLC Venice Fashion K LLC Venice Fashion (25) Russia Trading in clothing and other franchised products LLC Venice Fashion K (25) Russia Trading in clothing and other franchised products LLC Italian Fashion (25) Ukraine Trading in clothing and other franchised products Waterview Fashion B.V Netherlands Investment vehicle River Island Rus LLC Russia Trading in clothing and other franchised products Affiliates EPCD Sp. z o.o. (8) Poland Distribution of selected cosmetics in Poland EPCD Cz&SK s.r.o. (12) Czech Distribution of selected cosmetics in the Czech Republic and Slovakia Republic EPCD SRL. (12) Romania Distribution of selected cosmetics in Romania Speak Up LLC Russia Operator of language schools Speak Up Kiev LLC Ukraine Operator of language schools Speak Up Ukraine LLC Ukraine Operator of language schools NTG Network Toys Germany GmbH Germany Trading in clothing and athletic gear Strona 6 z 31

7 1. Empik Media & Fashion S.A. as a capital group (cont.). (1) Subsidiaries of EMPiK Sp. z o.o. (16) Company created as a result of the division of Empik Sp. z (31) The company was acquired on 20 December o.o. (2) Subsidiaries of Learning Systems Poland Sp. z o.o. (17) The Company holds 65.61% of shares, however due to the (32) The company was acquired on 20 December put option held, it consolidates 80.25%. (3) Subsidiaries of Smyk Sp. z o.o. (18) The Group holds 51% of shares, however due to the put option held, it consolidates 100%. (33) The company was acquired on 20 December 2013 by Empik Assets and then sold to EMF on (4) Subsidiary of Madras Enterprises Limited (19) All shares in Optimum Distribution Sp. z o.o. were contributed in kind to Mataro Investments Sp. z o.o. (34) The company was acquired on 20 December 2013 by Empik Assets. (5) The Group holds 71.28% of shares. Prior to the cancellation of the put option in September 2012, the Group had (20) Subsidiary of Learning System Russia. (35) The company was acquired on 20 December 2013 by Empik Assets. consolidated 100% in that entity. (6) Subsidiaries of Maratex Limited (21) The Group holds 76.06% of shares, however due to the put option held, it consolidates 100%. (7) Subsidiary of Prolex Service Limited. The Group holds (22) Subsidiary of SPX Spiele Management GmbH. 100% of shares. (8) Affiliate of LuxPol Invest S.a.r.l. It was sold on 18 December (23) Subsidiary of Ultimate Fashion Sp. z o.o (9) Subsidiaries of Optimum Distribution Sp. z o.o. (24) The Group holds 78.4% of shares, but consolidates 100% due to the construction of the put option. (10) Subsidiaries of Poland 1 Development Sp. z o.o. (25) Subsidiaries of Venetian Fashion Netherlands. (11) Subsidiaries of Amersport Sp. z o.o. Sp. k. (26) An 90% subsidiary of Smyk Sp. z o.o. and a 10% subsidiary of Kids International Sp. z o.o. (12) Subsidiaries of EPCD Sp. z o.o. (27) The company was sold on 20 September (13) Companies, in which Cenzora Enterprises Ltd is a (28) The company was established on 2 September 2013 and shareholder. registered with the National Court Register on 9 October (14) Companies, in which Wedgewood Holdings is a shareholder. (29) The company was acquired on 20 December (15) An 80% subsidiary of Smyk Sp. z o.o., and a 20% subsidiary of Kids International Sp. z o.o. (30) The company was acquired on 20 December Strona 7 z 31

8 2. Shareholders. As at the date of preparation of this report for the year ended 2013, the main shareholders of Empik Media & Fashion S.A. were: The main shareholders of EMPiK Media & Fashion S.A. Number of shares Shareholding % Number of votes % share of votes at the General Meeting As at the date of preparation of this report Empik Centrum Investments S.à r.l % % Bookzz Holdings Limited % % ING Otwarty Fndusz Emerytalny % % 1 Empik Centrum Investments Sarl together with its subsidiaries 2 Bookzz Holding Limited together with its subsidiaries including Empik Investments II Sarl holding 11,443,800 shares which constitutes % of the total number of shares The Company is controlled by Penta Investments Limited and Eastbridge S.à.r.l. acting on the basis of an agreement within the meaning of Article of the Act on Public Offerings and the Conditions for Introducing Financial Instruments to Organized Trading and on Public Companies, holding a total of 80,739,853 of the Company s shares which constitutes 76.40% of the total number of shares of Empik Media & Fashion S.A Bookzz Holdings Limited with its registered office in Cyprus is a subsidiary of Penta Investments Limited with its registered office in Jersey, which holds 100% of shares in Bookzz Holdings Limited. Empik Centrum Investments S.à.r.l. is a subsidiary of Eastbridge S.à.r.l., which holds 100% of shares of Empik Centrum Investments S.à.r.l. 3. Employee compensation and benefit expenses. Year ended PLN 000 PLN Wages, salaries and social insurance charges Share options granted (5 900) Employee compensation and benefit expenses include the result of the valuation of the share-based incentive scheme in the amount of PLN 5,900 thousand (a positive effect on the financial result); in 2012: a cost of PLN 20,443 thousand. Share-based incentive schemes Options for shares are granted to selected Management Board members and employees significant for the Group ("Entitled Persons ). Share-based incentive schemes As part of the programmes, the following rights to take up shares were granted: a) incentive scheme for the President of the Management Board, Mr Maciej Szymański, with the characteristics of a cash-settled transaction, as part of which the issue of 2,250,000 free-of-charge subscription warrants in years is planned, entitling the holder to take up shares in years ; the price for taking up one share was determined at PLN (not in thousands). The weighted-average fair value of the options granted during the period as part of the incentive scheme for Mr Szymański, determined using the valuation formula established in the option programme, totalled PLN 5.79 (not in thousands) per option. The most important output data for the valuation model were the EBITDA Strona 8 z 31

9 estimates and the Group s net debt which, in the opinion of the Management Board, will be achieved in upcoming financial years. The value of the incentive scheme for Mr Szymański was determined at PLN 13,017 thousand. As at 31 December 2013, the total cost of the incentive scheme for Mr Szymański recognised and presented in liabilities was PLN 8,190 thousand. a) incentive scheme for Mr Jacek Bagiński, with the characteristics of a cash-settled transaction, as part of which the issue of 1,750,000 free-of-charge subscription warrants in years is planned, entitling the holder to take up shares in years ; the price for taking up one share was determined at PLN (not in thousands). The weighted-average fair value of the options granted during the period as part of the incentive scheme for Mr Bagiński, determined using the valuation formula determined in the option programme, totalled PLN 5.79 (not in thousands) per option. The most important output data for the valuation model were the EBITDA estimates and the Group s net debt which, in the opinion of the Management Board, will be achieved in upcoming financial years. The value of the incentive scheme for Mr Bagiński was determined at PLN 10,125 thousand. As at 31 December 2013, the total cost of the incentive scheme for Mr Bagiński recognised and presented in liabilities was PLN 6,370 thousand. All of the abovementioned options are exercised under the condition of providing services to the Company on the date of the exercise of subscription warrant rights. In 2013, the company did not issue any warrants that were due to the abovementioned employees. 4. Organisation and management structure of the Company. (i) Legal basis The terms for the creation and operation of the Company are specified in the Commercial Companies Code. In accordance with the Act dated 30 March 2012 on repealing the act on national investment funds and their privatisation as well as the amendment of several other acts, in the first half of 2013, the Company changed its business name from NFI Empik Media & Fashion S.A. to Empik Media & Fashion S.A. The business activity of the Company is described in detail in the Articles of Association of Empik Media & Fashion S.A. The governing bodies of the Company are: the General Meeting of Shareholders, the Supervisory Board and the Management Board. 5. Operations of the Company. In 2004, a fundamental change of direction took place in the operations of Empik Media & Fashion S.A. (former name NFI Empik Media & Fashion S.A.). Following a decision to revitalize the company s activities, the Management Board and the Management Company CA IB Fund Management S.A. entered into negotiations completed on 16 March 2004 by reaching an agreement with Bank Austria Creditanstalt AG with its registered office in Vienna, Eastbridge S.a.r.l. with its registered office in Luxembourg, EMPIK Centrum Investments S.A. (ECI) with its registered office in Luxembourg, and Domy Towarowe Centrum S.A. (DTC) with its registered office in Warsaw. Under the agreement, new strategic investors contributed to the company the shares which they held in the trading subsidiaries, in exchange for shares issued by the company and, partially, through an exchange for the treasury shares. In effect, Empik Media & Fashion S.A. became one of the largest companies listed on the Warsaw Stock Exchange, operating a leading, independent retail and wholesale stores network in the consumer goods sector in Poland, and in Central and Eastern Europe. The Company s core activity is to provide, for the benefit of its subsidiaries, advisory services relating to their business activities and management as well as to undertake activities in order to secure financing for the EMF Group companies. Strona 9 z 31

10 6. Related-party transactions. The Company is controlled by Penta Investments Limited and Eastbridge S.à.r.l. acting on the basis of an agreement within the meaning of Section of the Act on Public Offering, Conditions Governing the Introduction of Financial Instruments to Organised Trading, and Public Companies, holding a total of 80,739,853 of the Company s shares which constitutes 76.40% of the total number of shares of Empik Media & Fashion S.A. Empik Centrum Investments S.A. and its subsidiaries, Eastbridge S.à.r.l. and its subsidiaries, Penta Investments Limited and its subsidiaries, direct and indirect subsidiaries of EMF and affiliates of EMF as well as companies controlled by members of the management staff are considered to be related parties for the purposes of preparing the stand-alone financial statements. A. Transactions with subsidiaries of Empik Media & Fashion S.A. Transactions with subsidiaries pertain to loans which EMF granted to its subsidiaries for which it obtained compensation equal respectively to WIBOR or EURIBOR plus 2.0 to 5.5 percentage points of margin, or compensation in the amount of 11%. Empik Media & Fashion S.A. took up bonds issued by its subsidiaries, charging an arrangement fee for the organisation of the bonds issue in the amount of 0.22% to 0.40% of the value of the issue. These bonds have a floating interest rate of WIBOR plus margin of 2 to 3.3 percentage points. The redemption date of bonds falls in EMF provided business and management advisory services to its subsidiaries, and granted and received loans to and from its related parties. It also obtained remuneration for granted guarantees (guarantees granted primarily to contracting parties of subsidiaries). Empik Media & Fashion S.A. made IT systems available to its subsidiaries on the basis of sublicense agreements (recognised as long-term and short-term finance lease receivables). The values of the subjects of these agreements arise out of the expenditures incurred for the given IT system. The duration of these agreements was determined in regard to the expected period for the use of the given IT system, which is from 5 to 15 years. The Company obtains revenues from interest discounted during the term of the agreement at a 2.9% rate per annum. Strona 10 z 31

11 6. Related-party transactions (cont.). Long-term receivables as at PLN 000 PLN Intragroup receivables from acquired bonds Madras Enterprises Limited Total Long-term loans CJSC Maratex CJSC Maratex - revaluation write-down (77 000) - EDL Sp. z o.o Maratex Limited Total Other long-term receivables (finance lease) EMPiK Sp. z o.o Smyk Sp. z o.o Optimum Distribution Sp. z o.o Ultimate Fashion Sp. z o.o Ultimate Fashion Sp. z o.o. - revaluation write-down (4 574) - Learning Systems Poland Sp. z o.o Total Total long-term receivables from related parties Short-term receivables as at PLN 000 PLN Intragroup receivables from acquired bonds Smyk Sp. z o.o EMPiK Sp. z o.o Ultimate Fashion Sp. z o.o Ultimate Fashion Sp. z o.o. - revaluation write-down (77 510) - Optimum Distribution Sp. z o.o Madras Enterprises Limited Learning Systems Poland Sp. z o.o E-Commerce Services Sp. z o.o Licomp EMPiK Multimedia Sp. z o.o Total Dividend receivables Smyk Sp. z o.o LuxPol Invest S.à.r.l East Services S.A Total Strona 11 z 31

12 6. Related-party transactions (cont.). Short-term receivables as at PLN 000 PLN Short-term loans, including cash pool Smyk Sp. z o.o Smyk GmbH Smyk Global Assets Sp. z o.o. 2 - Smyk All for Kids Czech s.r.o Ultimate Fashion Sp. z o.o Ultimate Fashion Sp. z o.o. - revaluation write-down (38 128) - Fashion Look Sp. z o.o Ultimate Fashion International Sp. z o.o Ultimate Fashion International Sp. z o.o. - revaluation write-down (5 968) - Kids International Sp. z o.o Learning Systems Poland Sp. z o.o Maratex Limited Maratex Limited - revaluation write-down (83 125) - CJSC Maratex CJSC Maratex - revaluation write-down (10 384) - Cenzora Enterprises Ltd Cenzora Enterprises Ltd - revaluation write-down (36 953) - Prolex Services LTD Grupa Wydawnicza Foksal Sp. z o.o Empik Media Fashion Loyalty Services Sp. z o.o Amersport Sp. z o.o. Sp. k Poland 1 Development Sp.z o.o Biblioteka Akustyczna Sp. z o.o. 4 - EDL Sp. z o.o Fashion US Sp. z o.o Fashion US Sp. z o.o. - revaluation write-down (8 062) - Mexvet Enterprises Limited 3 - Akker Sp. z o.o Madras Enterprises Limited 64 - Soul Sp. z o.o. 1 - LSS Learning Switzerland GmbH Total Short-term lease receivables EMPiK Sp. z o.o Smyk Sp. z o.o Optimum Distribution Sp. z o.o Ultimate Fashion Sp. z o.o Ultimate Fashion Sp. z o.o. - revaluation write-down (466) - Learning Systems Poland Sp. z o.o Total Strona 12 z 31

13 6. Related-party transactions (cont.). Short-term receivables as at PLN 000 PLN Trade receivables EMPiK Sp. z o.o E-Commerce Services Sp. z o.o Smyk-Rus Limited Smyk Sp. z o.o Smyk Cocuk Giyim Oyuncak ve Aksesuarlari SPX Spiele Management GmbH 26 - Fashion Look Sp. z o.o Optimum Distribution Sp. z o.o Optimum Distribution CZ&SK s.r.o Amersport Sp. z o.o. Sp. k. - 1 Ultimate Fashion Sp. z o.o Ultimate Fashion Sp. z o.o. - revaluation write-down (6 229) - Ultimate Fashion International Sp. z o.o Learning Systems Poland Sp. z o.o EMF Development Sp.z o.o Daughter Enterprise Maratex Daughter Enterprise Maratex - revaluation write-down (4 789) - CJSC Maratex CJSC Maratex - revaluation write-down (15 147) - Maratex Limited Maratex Limited - revaluation write-down (5 553) - LLC Maratex Kaliningrad LLC Maratex Kaliningrad - revaluation write-down (5 691) - Licomp EMPiK Multimedia Sp. z o.o Madras Enterprises Limited Grupa Wydawnicza Foksal Sp. z o.o Empik Media Fashion Loyalty Services Sp. z o.o Empik Digital Sp. z o.o. (previously Vidisa Sp. z o.o.) 23 3 Mataro Investments Sp. z o.o Biblioteka Akustyczna Sp. z o.o. - - Total Total short-term receivables from related parties Total Strona 13 z 31

14 6. Related-party transactions (cont.). Short-term liabilities as at Short-term loans, including cash pool 000 PLN 000 PLN EMPiK Sp. z o.o Empik Assets Sp. z o.o Optimum Distribution Sp. z o.o Smyk Sp. z o.o Smyk Global Asstes GMBH Kids International Sp. z o.o Mexvet Enterprises Limited - 28 East Services S.A Ultimate Fashion Sp. z o.o Fashion Look Sp. z o.o Fashion US Sp. z o.o E-Commerce Services Sp. z o.o LuxPol Invest Sarl Licomp EMPiK Multimedia Sp. z o.o Soul Sp. z o.o EMF Development Sp. z o.o Learning Systems Poland Sp. z o.o Pol Perfect Sp. z o.o Empik Digital Sp. z o.o.(previously Vidisa Sp. z o.o.) 23 - Total Intragroup liabilities from issued bonds Empik Assets Sp. z o.o Gandalf Sp. z o.o Total Trade payables Smyk Sp. z o.o EMF Development Sp. z o.o. - 9 EMPiK Sp. z o.o Ultimate Fashion Sp. z o.o. 5 - Empik Assets Sp. z o.o E-Commerce Services Sp. z o.o Total Total short-term liabilities to related parties Total Strona 14 z 31

15 6. Related-party transactions (cont.). Year ended Revenues Expenses 000 PLN 000 PLN 000 PLN 000 PLN EMPiK Sp. z o.o Empik Assets Sp. z o.o Gandalf Sp. z o.o Ultimate Fashion Sp. z o.o Ultimate Fashion International Sp. z o.o Fashion Look Sp. z o.o Fashion US Sp. z o.o Smyk Sp. z o.o SPX Spiele Management GmbH Grupa Wydawnicza Foksal Sp. z o.o Optimum Distribution Sp. z o.o Licomp EMPiK Multimedia Sp. z o.o Optimum Distribution CZ&SK s.r.o Esprit GmBH Poland 1 Development Sp. z o.o Madras Enterprises Limited LuxPol Invest S.à r.l East Services S.A Maratex Limited CJSC Maratex Amersport Sp. z o.o. Sp. k Empik Digital Sp. z o.o Empik Media Fashion Loyalty Services Sp z o.o. - - EMF Development Sp. z o.o EDL Sp. z o.o e-muzyka S.A Mataro Investments Sp. z o.o E-Commerce Services Sp. z o.o Learning Systems Poland Sp. z o.o Biblioteka Akustyczna Sp. z o.o Year ended Revenues Expenses 000 PLN 000 PLN 000 PLN 000 PLN Main revenues and expenses Interest from loans Fees from granted loans Interest from acquired/issued bonds Consulting and advisory services IT and logistics services Financial intermediary services Revenues from guarantees granted Lease revenue Dividends Re-invoicing Other In addition: Interest from cash pool Strona 15 z 31

16 6. Related-party transactions (cont.). B. Transactions with other related parties of Empik Media & Fashion S.A. Sales and financial income, net Year ended Net sales - affiliates entity with joint control entities controlled by Penta Investments and Eastbridge Purchase of services Year ended PLN 000 PLN - entities controlled by Penta Investments and Eastbridge 21 - Management fee payable to Eastbridge S.a.r.l Remuneration of management staff Year ended PLN 000 PLN Employee salaries and other short-term benefits Costs of purchasing services from entities controlled by members of management staff Employee share-based incentive scheme remuneration (5 899) Balances of statements as at the balance-sheet date were as follows: PLN 000 PLN Receivables from related parties - entity with joint control entities controlled by Penta Investments and Eastbridge affiliated entity (receivables arising from granted loans) Liabilities to related parties - entity with joint control entities controlled by Penta Investments and Eastbridge Strona 16 z 31

17 7. Financial risk management. Financial risk factors The Company s activities expose it to a variety of financial risks: market risk (including the risk of changes in currency exchange rates, fair value adjustments or cash flow changes resulting from interest rate variations as well as price risk), credit risk and liquidity risk. The Company s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Company s financial results. The Company uses financial instruments to hedge certain risk exposures. The Company s Management Board has introduced general principles of risk management as well as policies relating to particular issues, such as: currency exchange risk, interest rate risk, credit risk, use of derivatives and other financial instruments as well as liquidity surplus investment. Market risk (i) Currency exchange risk Empik Media & Fashion S.A. is subject to risks related to the fluctuating currency exchange rates arising from transactions concluded in currencies that are not the functional currency of the Company, primarily in EUR. Currency exchange risk results from future trade transactions, recognised assets and liabilities (including loans granted to subsidiaries and liabilities incurred under bank credit facilities). Short-term EUR receivables total PLN 2,041 thousand and mainly constitute loans granted to related parties. Shortterm EUR liabilities total PLN 29,088 thousand. In order to secure its exposure to the currency exchange risk, the Company places currency deposits denominated in EUR, and concludes hedging transactions used to settle receivables and liabilities denominated in foreign currencies. Had PLN appreciated/depreciated by 3% against EUR, with other variables held constant, as at 2013, the net profit as well as Company s equity for the year ended 2013 would have been PLN 811 thousand (as compared with PLN 242 thousand in 2012) higher/lower, mainly due to currency exchange gains /losses resulting from recalculation of receivables and borrowings expressed in EUR. (ii) Interest rate risk For the Company, interest rate risk is connected with long-term debt instruments denominated in PLN and EUR. Floating rate borrowings and debt securities expose the Company to the risk of a change in cash flows as a result of a change in interest rates. The Company analyses the level of interest rate risk and evaluates the potential influence of such changes on the Company s financial result on a current basis. A simulation of various scenarios is performed, including the aspects of refinancing, extension of existing items, alternative financing and hedges. On the basis of such scenarios, the Company calculates the influence of specific changes of interest rate on the financial result. The scenarios are prepared for liabilities and receivables that are the largest interest-bearing items. In the case of the Company, interest rate risk is also connected with granted loans and taken up bonds with floating interest rates, in which the floating interest rates expose the Company to the risk of a change in cash flows. As at the balance-sheet date, granted loans and taken up bonds with floating interest rates totalled PLN 583,563 thousand, while received bank credit facilities and issued securities totalled PLN 939,524 thousand. The abovementioned amounts of receivables and liabilities are indicated in total values, including accrued interest, as the interest rate risk pertains to the total settlement balance. The Company s strategy is to provide financing under conditions which will compensate the risk in the form of interest. Granted loans and taken up bonds have interest rates of WIBOR or EURIBOR plus margin, which depends on the financial condition of the borrower, the period and amount of financing, and the amount of the margin applied in the case of similar transactions on the market. The Company analyses the level of interest rate risk and evaluates the potential influence of such changes on the Company s financial result on an ongoing basis. Strona 17 z 31

18 Had, as at 2013, the interest rate of granted and received borrowings amounted annually to 1.5 base points above/below the current level with the other parameters remaining unchanged, the net profit and the equity of EMF for the year ended 2013 would have been PLN 5,339 thousand below/above the current level, mainly as a result of higher/lower financial costs from issued bonds and received credit facilities compensated by income from granted loans and taken-up bonds (for 2012, the result would have been PLN 2,461 thousand above/below the reported data mainly as a result of higher/lower financial income and expenses from granted loans and received borrowings). (iii) Share price risk The Company is not exposed to share price risk, because investments in subsidiaries whose shares are listed on the Stock Exchange are not classified as assets available for sale and are valued at their purchase prices. Credit risk There is a credit risk in the case of cash and cash equivalents, derivative financial instruments, deposits at banks and financial institutions, trade and other receivables, loans granted, and dividend receivables. In Empik Media & Fashion S.A., credit risk occurs primarily in regard to agreements for loans granted to subsidiaries as well as acquired bonds issued by these entities. In the opinion of the Management Board, the credit risk is minimal. The Management Board does not identify any significant risk of the impairment of long-term and short-term receivables from non-related entities nor cash and cash equivalents in bank accounts. Regarding cash and cash equivalents, they are maintained in bank accounts in reputable banks. Receivables from related parties under granted loans are mostly secured with the guarantees of institutions with a reliable financial situation or with a pledge on the debtor's assets. Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities and use of trade supplier payment terms. Due to the dynamic nature of the underlying businesses, the Company aims at maintaining financing flexibility by keeping committed credit lines open. The management monitors current predictions relating to the Company s liquidity based on estimated cash flows. The Company has safe access to both working capital, including a credit line, and the financial resources not utilised by the companies of the Empik Media & Fashion S.A. Capital Group. It has also issued bonds under its Mid-Term Notes programme. An analysis of the repayment dates of credit facilities was presented in Note 23 to the stand-alone financial statements. Strona 18 z 31

19 8. Financial standing of the Company. (i) Selected financial data: 000 PLN 000 EUR SELECTED FINANCIAL DATA Year ended 2013 Year ended 2012 Year ended 2013 Year ended 2012 I. Net sales II. Profit (loss) from operating activities ( ) (55 193) (92 028) (13 224) III. Loss(profit) before income tax ( ) ( ) ( ) (35 670) IV. Net loss/(profit) ( ) ( ) ( ) (35 707) V. Net cash flows from operating activities (27 068) (23 895) (6 449) (5 725) VI. Net cash flows from investing activities (74 336) (17 711) VII. Net cash flows from financing activities (72 030) (17 259) VIII. Total net cash flows (44 861) (10 689) SELECTED FINANCIAL DATA As at 2013 As at 2012 As at 2013 As at 2012 IX. Total assets X. Liabilities and provisions for liabilities XI. Long-term liabilities XII. Short-term liabilities XIII. Equity XIV. Share capital XV. Number of shares XVI. Profit/(loss) per one ordinary share (in PLN) XVII. Diluted profit/(loss) per one ordinary share (in PLN) XVIII. Book value per share (in PLN) XIX Diluted book value per share (in PLN) As at 2013, the total number of the Company's shares was 105,676,378. The nominal value of one share is PLN 0.10 (not in thousands). (ii) Statement of financial position as at As at 2013, the value of assets was PLN 1,255,613 thousand. The most important asset items are described below. Investments in subsidiaries amounted to PLN 605,415 thousand (PLN 664,361 thousand as at 2012). The PLN 58,946 thousand drop in the value of investments resulted mainly from the revaluation of the value of shares in the "Fashion" segment companies and the write-off of the entire value of investment in Maratex Ltd, Ultimate Fashion International Sp. z o.o. and Cenzora Enterprises Ltd. companies totalling PLN 39,673 thousand. The total value of loans granted was PLN 213,521 thousand. They were all classified as short-term. A significant part of this value is composed of loans granted to subsidiaries (PLN 203,468 thousand). Detailed information regarding the entities to which the loans were granted has been presented in Note 26 to the stand-alone financial statements for the year ended Strona 19 z 31

20 8. Financial standing of the Company (cont.). The total value of intragroup receivables from acquired bonds is PLN 370,042 thousand, of which PLN 3,100 thousand constitutes long-term receivables. Detailed information regarding the entities from which bonds were acquired has been presented in Note 26 to the stand-alone financial statements for the year ended As at 2013, cash and cash equivalents totalled PLN 33,387 thousand (PLN 111,064 thousand as at 31 December 2012). As at 2013, the total value of liabilities totalled PLN 989,095 thousand (PLN 910,317 thousand as at 2012), of which PLN 152,686 thousand was classified as long-term (PLN 332,542 thousand as at 2012). Liabilities are mainly composed of PLN 939,524 thousand of borrowings received, of which PLN 138,112 thousand was classified as long-term. Detailed information regarding borrowings received and bonds issued has been presented in Note 23 to the stand-alone financial statements for the year ended As at 2013, the net value of assets totalled PLN 266,518 thousand (PLN 705,428 thousand as at 31 December 2012); the net value of assets per share was PLN 2.52, and the share capital totalled PLN 326,053 thousand. (iii) Statement of comprehensive income for the year ended Sales include advisory, financial intermediation, and IT services provided mainly to subsidiaries. In the year ended 2013, the remuneration of the President and Members of the Management Board of the Company was respectively: PLN (2,926) thousand (cost decrease as a result of the decrease of the employee shares valuation) and PLN 10,042 thousand (including the President of the Management Board: PLN (4,651) thousand and Members of the Management Board: PLN (1,248) thousand of the share-based remuneration; in both cases the decrease resulted from the decrease in the valuation of the employee shares). In the year ended 2012, the remuneration of the President and Members of the Management Board of the Company together with the costs of the share-based incentive scheme was, respectively, PLN 14,488 thousand and PLN 10,073 thousand (including PLN 20,443 thousand of share-based remuneration). In 2013, the Company recorded a net loss of PLN 438,910 thousand, which resulted mainly from investment revaluation write-offs and a loss of the value of receivables totalling PLN 427,811 thousand. The Company recorded a net loss of PLN 149,026 thousand in the same period of last year. (iv) Cash flow statement for the financial year ended In 2013, net cash obtained from operating activities was negative and amounted to PLN 27,068 thousand. In 2012, this value was also negative and amounted to PLN 23,895 thousand. The decrease in this value resulted from a higher involvement of working capital. In 2013, cash flows from investing activities were negative and amounted to PLN 74,336 thousand. These cash flows for 2012 were positive and totalled PLN 119, 475 thousand. This change resulted mainly from loans granted (including cash pool) and, as a result, generated net outflows of PLN 157,836 in Cash flows from financing activities were positive and amounted to PLN 56,543 thousand, whereas in 2012 they were negative and amounted to PLN 72,030 thousand. Positive cash flows achieved in 2013 resulted mainly from credits and loans-related inflows (PLN 201 million) and bond issues (PLN 198 million). Strona 20 z 31

21 In accordance with the cash flow statement, 2013 recorded a drop in cash and cash equivalents balance of PLN 44,861 thousand compared with On the basis of the generated revenues and cash flows, the Company is able to settle its liabilities. (v) Anticipated financial standing of the Company The Company plans to improve significantly its financial standing in Its financial condition in 2013 was negatively impacted by the factors described in point 9 below. 9. Critical factors and material events affecting the Company s activities and financial results. (i) Write-downs made in connection with discontinued operations in the Fashion segment During the fourth quarter of 2013, a strategic evaluation of the development prospects of the individual segments of the EMF Capital Group was performed. The negative results of the fashion segment which recognised a loss in the current financial year, as well as the lack of any prospects for the development of a business model that could bring significant profits, convinced the Company s Management Board to decide to discontinue business activities related to the sale of clothing and shoes using the franchise model, as well as to take steps aimed at selling the assets of this segment (shares in companies engaged in the abovementioned business activity and / or their operating assets). The purpose of this was to limit the Group s business risk by discontinuing operations whose results mainly depended on factors that are beyond the control of the Management Board (such as the preparation of appropriate collections by the Franchisors as well as weather conditions). Currently, the Management Board of EMF is conducting negotiations with a range of offerors that are interested in purchasing the assets of the liquidated segment. Cooperation was also established with companies that operate in the M&A consulting sector for the purpose of expanding the range of entities that could be interested in making the Company an offer in the abovementioned regard. In the opinion of the Management Board, these activities should bring measureable results in the next 12 months in the form of the generation of cash from the sale of the assets of the Fashion segment. As a result of the abovementioned decisions, the shares held by EMF in companies that belong to the fashion segment as well as the receivables from these entities were covered by revaluation write-downs totalling PLN 409,511 thousand. Of this, the write-down regarding shares totals PLN 39,673 thousand while the write-down regarding receivables totals PLN 369,838 thousand. The write-down pertained to the assets held in the following companies: Ultimate Fashion Sp. z o.o., Fashion US Sp. z o.o. Sp. k., Ultimate Fashion International Sp. z o.o., Cenzora Enterprises Ltd, Fashion Look Sp. z o.o., Maratex Limited, Daughter Enterprise Maratex, CJSC Maratex, LLC Maratex K. (ii) Test for impairment of investment in Optimum Distribution CZ&SK s.r.o., a subsidiary As at 2013, shares in Optimum Distribution CZ&SK s.r.o. were tested for impairment, resulting in a write-down of PLN 18,300 thousand on the shares. Strona 21 z 31

22 10. Material agreements concluded in (i) Borrowings On 31 October 2013, an agreement amending and consolidating the agreement signed on 29 April 2011 by and between Bank Polska Kasa Opieki S.A. and EMF (subsequently amended on 30 December 2013) was concluded. These changes resulted in, among others, the extension of the availability of short-term lines of credit until 30 September 2014, and the removal of Fashion Look Sp. z o.o. from among the borrowers. On 17 June 2013, a credit facility agreement was concluded between Bank Zachodni WBK S.A. ( Bank ) and PZU FIZ AN BIS 1 as the Lenders and EMF and its subsidiaries, i.e. Empik Sp. z o.o., Learning Systems Poland Sp. z o.o., Optimum Distribution Sp. z o.o., Smyk Sp. z o.o., E-Commerce Services Sp. z o.o. as the Borrowers, and Empik Assets Sp. z o.o. and Smyk Global Assets GmbH as the guarantors, for the total amount of PLN 300 million ( Credit Facility ). Under the agreement, the Group: received a new line of credit totalling PLN 200 million designated for the financing of the Group s business activity (including the financing or refinancing of capital expenditures). This Credit Facility is repaid in 12 equal quarterly instalments from 31 October 2013 until 31 July amended the current credit facility agreement for PLN 100 million concluded on 27 March 2013 between Bank Zachodni WBK S.A. and EMF and its subsidiaries in such a manner that the purpose of the credit facility, the repayment schedule, and the list of companies that are parties to the agreement were amended in the manner specified above. On 27 March 2013, an agreement for a multi-purpose line of credit was concluded between Bank Zachodni WBK S.A. ( Bank ) as the Lender and EMF and its subsidiaries, i.e. Empik Sp. z o.o., Learning Systems Poland Sp. z o.o., Optimum Distribution Sp. z o.o., Smyk Sp. z o.o., Ultimate Fashion Sp. z o.o., and E-Commerce Services Sp. z o.o. as the Borrowers, and Empik Assets sp. z o.o. and Smyk Global Assets GmbH as the Guarantors. Pursuant to the abovementioned agreement, the Bank, as part of the limit in the total amount of PLN 70 million ( Limit ), enabled the Borrowers to use the following bank products: a current account overdraft facility (PLN, USD, EUR), letters of credit, and bank guarantees. The limit is available until 27 March On 29 March 2013, an agreement for a multi-purpose line of credit was concluded between BNP Paribas S.A. ( Bank ) and EMF and its subsidiaries, i.e. Empik Sp. z o.o., E-Commerce Services Sp. z o.o., Smyk Sp. z o.o., Ultimate Fashion Sp. z o.o., and Learning Systems Poland Sp. z o.o. as the Borrowers. Pursuant to the agreement, the Bank, as part of the limit totalling PLN 40 million ( Limit ), enabled the Borrowers to use the following bank products: a current account overdraft facility of up to PLN 30 million, letters of credit, or bank guarantees of up to PLN 10 million. The limit is available until 29 March On 13 April 2012, EMF, its subsidiaries: Empik Sp. z o.o., Smyk Sp. z o.o., E-commerce Services Sp. z o.o. Ultimate Fashion Sp. z o.o., Learning Systems Poland Sp. z o.o., Optimum Distribution Sp. z o.o., Amersport Sp. z o.o., Fashion Look Sp. z o.o., and Empik Assets Sp. z o.o. as the Borrowers and Raiffeisen Bank Polska Spółka Akcyjna as the Bank signed a debt limit agreement. Pursuant to this agreement, the Bank, as part of the debt limit totalling PLN 103 million ( Limit ), enabled the Borrowers to use the following bank products: a current account overdraft (PLN, USD, EUR), letters of credit, bank guarantees, reverse factoring, currency futures, exchange transactions, and currency options. On the basis of an amendment concluded on 12 February 2013, the availability period of the limit was extended until 30 September 2014, and Spiele Max Aktiengesellschaft was added to the borrowers. The credit facility is secured by registered pledges on current accounts, bank enforcement titles, declarations of being subject to enforcement, agreements for the acceptance of closed payments in selected sales locations, as well as assignments of receivables arising from agreements regarding the acceptance of payments using payment cards in selected sales locations. Strona 22 z 31