1 Financial Statements For the fiscal year commenced January 1, 2012 and ended December 31, 2012, on a comparative basis
2 Financial Statements For the fiscal year commenced January 1, 2012 and ended December 31, 2012, on a comparative basis Table of Contents Annual Report Statement of Income Statement of Other Comprehensive Income Statement of Financial Position Statement of Changes in Shareholders Equity Statement of Cash Flows Additional Information to the as required by Section 68 of the Listing Rules and Regulations of the Buenos Aires Stock Exchange Summary of Activity Independent Auditors Report Report of the Supervisory Committee
3 2012 Annual Report
4 In compliance with legal provisions and the by-laws, Tarjeta Naranja S.A. submits this Annual Report, together with the Statement of Financial Position, Statement of Income, Statement of Changes in Shareholders' Equity, Statement of Cash Flows and the corresponding notes and schedules, for the 18th fiscal year of the Company, ended December 31, FINANCIAL CONDITION (Information Presented in Thousands of Pesos) In 2012, Tarjeta Naranja continued consolidating its market position and achieved a sustained growth as a result of the strategies implemented. At fiscal year-end, consolidated Net Income amounted to AR$ 431,609, whereas Net Operating Income amounted to AR$ 2,635,248, representing a 43% increase as compared to 2011 and consolidating the positive trend in generating prior-year income. This year open accounts exceeded 2.3 million. Taking into consideration additional card holders, the Company has 3.4 million customers, whereas authorized cards total 6.3 million, including Tarjeta Naranja Visa, Tarjeta Naranja Mastercard and Tarjeta Naranja American Express. In addition, transactions increased by 17.5% and average consumption by open account increased by 22.5%, which accounts for the rise in fees payable to stores. Net Income from Services increased by 32.5% as compared to the prior year, whereas Net Income from Financing increased by 71%. The increase in the provision for credit losses is partly due to the application of International Financial Reporting Standards (IFRS), which implied a change in estimating the allowance for credit losses. Such change resulted in a decrease in the provision for credit losses for FY 2011 amounting to AR$ 96,867. Operating expenses increased by 51% as compared to the prior year. Some of the reasons for this change are the rise in labor costs, the increase in direct rate and tax expenses due to the related increase in turnover tax, and higher expenses related to the geographic expansion in the Province of Buenos Aires and the Autonomous City of Buenos Aires. The distribution of dividends, approved by the Company s Ordinary Shareholders Meeting held on April 11, 2012, amounted to AR$ 100,000. The Shareholders Equity amounted to AR$ 1,559,176 at year-end.
5 FINANCING Bank Loans New loans were obtained from several banks in the aggregate amount of AR$ 368 million. In turn, loans and checking account overdrafts were renewed in the aggregate amount of AR$ 187 million. Financial Loans A loan agreement was signed with Tarjetas Regionales amounting to AR$ 55 million. Notes ( Obligaciones Negociables ) Within the framework of the Global Program for the Issuance of Notes ( Obligaciones Negociables ), Class XVII, XVIII and XIX Notes ( Obligaciones Negociables ) were placed for AR$ 514 million. Financial Leases An Addendum to the Real Estate Lease Agreement was entered into with Banco de Galicia y Buenos Aires S.A. for AR$ 50 million, aimed at financing the construction of a new corporate building, which, together with the Addendum to the Real Estate Lease Agreement entered into on December 6, 2010 for AR$ 78.6 million, are part of a new transaction totaling AR$ million. Additionally, another Real Estate Lease Agreement was entered into with Banco Galicia to purchase seven plots of land located in the city of Córdoba, in the amount of AR$ 14.8 million. Hedging Transactions to Guarantee Exchange Rates At fiscal year-end, we have hedging transactions with a forward exchange rate set for amounts equivalent to the foreign currency debt. Available Credit Lines At fiscal year-end, we have a credit line available that has not been used related to a commitment signed with Banco Galicia for AR$ 100 million. CHANGES IN TARJETA NARANJA S.A. S CORPORATE STRUCTURE In February 2012, Dusner S.A. and Fedler S.A. transferred 480 shares, representing 20% of the capital stock of Tarjeta Naranja S.A. to its controlling company, Tarjetas Regionales S.A. Subsequently, Tarjetas Regionales S.A. transferred 24 shares to Tarjetas Cuyanas S.A., representing 1% of Tarjeta Naranja S.A. s capital stock. Accordingly, at fiscal year-end, Tarjetas Regionales owned 99% and Tarjetas Cuyanas owned the remaining 1% of Tarjeta Naranja S.A. s capital stock.
6 SIGNIFICANT EVENTS DURING FISCAL YEAR 2012 And why not now?! This was the motto that inspired the Company during 2012, raising a question and at the same time inviting to action. Being confident of the value implied by the fact of doing, David Ruda, Tarjeta Naranja s CEO, explained the sense of this phrase: When we do, we are; when we do, we project; when we do, we make a difference. We go through life doing, and doing is what makes each moment have sense. There are so many things to do, start, end, redo, modify, create! There are so many things that need some of our "doing"! What stops us? Why would we allow something to stop us? At Naranja, we are huge enthusiasts of doing; doing and letting others do! AND WHY NOT NOW?! Summer with Naranja s Presence With strong brand presence and exclusive benefits at the main tourist centers in the country, Naranja proposed a colorful summer. On January 27, Mar del Plata experienced the most important free show of the season at Varese beach, where 200,000 persons enjoyed the performance of the musician Vicentico and an impressive fireworks show. Likewise, Carlos Paz also had a fireworks show in front of San Roque lake, where the performance of Los Tipitos took place. Throughout the summer, Naranja was present at the main tourist centers, with a number of benefits such as three-installment and 0% interest rate plan (named Zeta ) at supermarkets and gas stations, as well as 20% discounts at the best restaurants. Second Year Along with Argentina s National Soccer Team As official sponsor of Argentina s National Soccer Team, Tarjeta Naranja supported the national team in all official friendly games and qualifying rounds for 2014 Brazil World Cup, which were played in Argentina and abroad. In order to consolidate the brand in Buenos Aires and reinforce its leadership in the rest of the country, the Company had brand presence in nine districts, developed promotions and special benefits for card holders and Merchants ( Comercios Amigos ), and was the exclusive means of payment in all presales of tickets through the Ticketek system. More Soccer Fields for Children This year, the Un Gol, un Potrero (One Goal, One Soccer Field) program, which is developed along with the sponsorship of Argentina s National Soccer Team, the purpose of which is to encourage this sport among children, provided 26 soccer fields for institutions throughout the country. In 2012, 2,076 soccer fields were enrolled and over 374,000 people voted through Facebook. This initiative consists in the fact that the Company will condition the sports area of public schools, neighborhood clubs and community centers all around Argentina for each goal made by Argentina s National Soccer Team in official games until 2014.
7 Financieramente Incorrectos (Financially Incorrect) Year 2012 was the beginning of the Financieramente Incorrectos (Financially Incorrect) communication campaign, which, through four TV commercials under the Somos así. Queremos más gente así (That s the way we are. We want more people like these) slogan, summarized the Company s wish to always give priority to the human viewpoint, think about people and do things happily. The first commercial called Manifesto reflected Naranja s origin and culture, showing the values that make the Company different and evidencing the joy and good nature both indoors and in customer service. Then, three commercials called testimonial were produced, where common people used the card to do "financially incorrect" things, i.e., thinking about the others. A huge head where people threw through the mouth and got released from that kept, a fleet of taxis with each tax driver's stamp on the roof and a vertical square in a building to raise awareness about the environmental care. Also, these three situations became real for people to enjoy them: Thus, the huge head was experienced in Palermo (Buenos Aires), hundreds of taxis drove with their slogans in the Autonomous City of Buenos Aires and Córdoba and seven public squares were built in parking areas in Córdoba, Rosario and Buenos Aires, joining the global Parking Day movement on becoming aware of green spaces care. This campaign could be appreciated on free-to-air and cable TV, the radio, the public road, in magazines, in newspapers, on highway signs, in digital actions, on social networks and at Tarjeta Naranja s branches throughout the country. New Corporate Headquarters In March, the new corporate building began being constructed in Córdoba, in front of Suquía River, at the heart of the city and in a highly-growing area. The covered 18,800 square meter-project will give rise to more than 1,200 permanent job positions in two buildings: One with a basement and 12 floors, and the other is a three-level one. Both real estate excavations and foundations were completed at fiscal year-end. Basements 1 and 2, the first and second floors of the main building were completed, whereas a 70% progress has been made in the second building. In the aggregate, the complete work reached a 30% progress in The corporate building will be added to others that Naranja has on the same block, giving rise to a complex that will gather 2,000 employees and becoming an icon of the city for its scale, design and geographic location. It is expected to be opened in Tarjeta Naranja Abroad Nearly more than one year after its inception, Tarjeta Naranja Perú has already opened nine branches in Lima, employs 386 people and has 33,491 active cards with 22,241 account statements. This landing is part of the international business strategy of the brand and takes place through an association with Banco de Crédito del Perú (BCP), the main private bank in that country. In turn, in the Dominican Republic, it was resolved to sell Tarjeta Naranja Dominicana S.A. s right related to customers to Banco Múltiple León S.A. (holder of the remaining 50% interest in Tarjeta Naranja Dominicana S.A. s capital stock). Thus, operations were discontinued and the company in that country began being liquidated.
8 The Dominican Republic was the first landing abroad and in 2007 gave rise to the Company s international platform, currently focused on Peru s development. Major Expansion in Buenos Aires During 2012, Tarjeta Naranja increased its presence in the Autonomous City of Buenos Aires (CABA as per its initials in Spanish) and Greater Buenos Aires (GBA as per its initials in Spanish), by adding eight new branches: in the neighborhoods of Pompeya, Villa Devoto, Mataderos and La Paternal in the Autonomous City of Buenos Aires, whereas it opened branches in the districts of San Francisco Solano, Villa Ballester, Laferrere and Wilde in Greater Buenos Aires. Naranja s presence was also expanded in the Province of Buenos Aires, especially in the Atlantic Coast as from the merger of Tarjeta MIRA S.A., a member of the Tarjetas Regionales Group. This process contributed to the opening of nine new branches in the districts of Azul, Olavarría, Balcarce, Dolores, Miramar, Villa Gesell, Coronel Suárez and Mar del Plata. At fiscal year-end, Tarjeta Naranja s coverage is 7 branches in the Autonomous City of Buenos Aires, 26 in Greater Buenos Aires and 17 stores in the rest of the province, totaling 436,761 account statements and a team of 1,227 employees for the whole area. Increasingly more Branches in the Rest of the Country The Company continued with its expansion plan, also opening branches in the rest of the country. To be closer to its customers, it opened new stores in Termas de Río Hondo (Santiago del Estero), Gualeguay (Entre Ríos), Clorinda (Formosa), Monteros (Tucumán), Virasoro (Corrientes) and Mina Clavero (Córdoba). Likewise, it added more points of sale to its network in the districts of Joaquín V. Gonzalez, Cafayate and Güemes (Salta) and Ituzaingó (Corrientes). At fiscal year-end, Tarjeta Naranja has a network of 209 service centers, which includes 159 branches and 50 points of sale throughout the national territory. Miércoles Naranja (Naranja Wednesdays) Tarjeta Naranja distinguishes itself for having a dynamic business management that provides its card holders with better benefits on an ongoing basis. In 2012, the 20% discount and installment-plan promotion was launched on Wednesdays, along with large national brands. Over 50 firms from different industries took part therein. Simultaneously, during the year near 10,000 promotions were implemented in Merchants ("Comercios Amigos") throughout the country, which included discounts and interest-free installment plans for card holders in all industries. Cadena de Amigos (Chain of Friends) During July and August, more than 9,000 new customers were added through a Cadena de Amigos (Chain of Friends) promotion, which consisted in inviting card holders to introduce friends for the latter to obtain their Tarjeta Naranja cards. The benefit was that AR$ 150 was credited to each card holder s account statement for each friend introduced thereby.
9 Ideas Naranja (Naranja Ideas) For the purposes of open innovation, Ideas Naranja (Naranja Ideas) was launched in November. The initiative has arisen to listen to customers ideas, know their opinions and include them in the Company's improvements. The How would you like that a company would recognize your continuance as customer over time? question was launched through two web sites, one for employees and another open to the whole community. In 19 days 5,255 ideas were received and eight winners were chosen in December. Naranja Store Towards year-end, Naranja Store, Tarjeta Naranja s exclusive online store was launched for its card holders to be able to buy products from subscribed Merchants ( Comercios Amigos ) from where they are located. The development arose for the dual purpose of offering products to customers throughout the country quickly and easily and originating higher revenues for stores subscribed to the system. Accordingly, the brand continues being ranked as leader in terms of innovation. Other Outstanding Products During the year, the Company strengthened other products and services, achieving a sharp growth in results arising from a planned business management. Insurance: Tarjeta Naranja, through several insurance companies, makes a wide personal insurance coverage available to its customers, which this year reached 2 million policies subscribed to the automatic card debit. This represented a 20% increase in stock, as compared to Cell Phone Services: The service whereby card holders may control their transactions and make queries through SMS increased by 33% the number of customers who use it, reaching 1,014,035 people. Virtual Cell Phone Top-ups: 300,000 cell phone top-ups were reached per month, which entailed a 100% increase as compared to the prior fiscal year. Convivimos Magazine The issue of national circulation and distribution by subscription to Tarjeta Naranja s card holders doubled the number of subscribers in 2012, reaching a monthly circulation of 330,449 magazines. This result was achieved as a consequence of a strong promotion campaign throughout the country. Naranja by Benito Fernández In Naranja s viewpoint, the uniform represents much more than work clothes; it reflects each employee s spirit and commitment towards the Company. Accordingly, the renowned designer Benito Fernández was asked to make the uniforms for the spring-summer season. In four months, 25,000 clothes were produced with exclusive fabrics and prints to be worn by the employees from all branches in the country. The designer will also be with the Company in the next winter season.
10 The Brand with the Highest Number of Fans in the Sector Tarjeta Naranja's official site on Facebook reached 555,585 fans this year. The brand was ranked among the national ones with the highest number of followers on the network and was ranked first among companies engaged in the financial industry. Through Facebook, Twitter, Blog and YouTube, community questions, queries and claims were answered online and several contents about products and services, promotions, general interest, institutional and Naranja culture matters were published, among others. During 2012, Naranja was distinguished by the prestigious global consulting firm Socialbakers for its work on social networks as one of the five brands with best performance in the global financial industry. According to this award, the Company stands out for its dedication and commitment towards audiences, in addition to encouraging two-way communication and prompt responses. Less than two years after it joined social networks, Tarjeta Naranja shows an exponential growth on this media. Quality with Warmth at Every Time The Customer s Experience initiative was developed during 2012 and will continue during next year for the purpose of ensuring that the card holder enjoys a unique and different experience in every contact with Tarjeta Naranja. This includes relationships at points of contact providing personalized services, as well as alternative channels. We primarily worked on the four most valuable attributes of service: Resolution, suitability, responsiveness and warmth, fostering developments in all directions to establish the concept in all its activities and continue consolidating the Company's leadership in this regard. Better Services for Merchants ( Comercios Amigos ) At Tarjeta Naranja, Merchants ( Comercios Amigos ) receive person-to-person services. Therefore, the "Attendants to Stores Project started in 2011, which establishes a frequent visit to stores concentrating 80% of the Company's revenues. During 2012, 44 districts joined this initiative, thus covering a total amount of 68, which entails that almost 10,000 Merchants ( Comercios Amigos ) throughout the country are included in this program. As from July 2012, the digital Merchants ( Comercios Amigos ) settlement was implemented. This option, which is available through Naranja s web services, materialized for the purpose of improving the service to subscribed establishments. The Company where Young People Want to Work for Tarjeta Naranja was chosen among the ten Companies of Young People s Dreams in 2012 ( Empresas de los Sueños de los Jóvenes 2012 ). This election is made based on a survey to 10,000 university and recently graduated students in Argentina conducted by the specialized consulting firm Cía. de Talentos. This makes it become one of the most desired organizations to work for by young people, where they expect to find professional development possibilities, ongoing challenges and good market image, among other variables. This award is an acknowledgment to Naranja s efforts to keep an excellent work environment and is a consequence of a work philosophy sustained over time, where employees are an essential part of the organizational life. In 2012, the number of employees continued growing, increasing the total headcount to 4,422 people, 9% more than in As we were engaged in managing talents and offering development opportunities, 96 internal contests were carried out, which ended in 200 promotions. At the same
11 time, 2,855 face-to-face training courses were taught, most of which were under the charge of over 420 in-house trainers of the Company. Change in Structure Due to the Company s growth and management needs, changes in the management team were made. The Business Division was united with the Regional Division and two Business Subdivisions were authorized, whereas the Marketing Division became Senior Management. The Management Subdivision was created in the Operations Division, Human Resources became Senior Management and the Internal Communication, Personnel Management and Social Responsibility areas were added thereto. The Collection Subdivision was created in the Institutional Relations Division. Reengineering of Customers ABM Process To reduce the terms of delivery of the card to new customers, changes in the New Accounts, Closed Accounts and Modification of Customers ( Alta, Baja y Modificación de Clientes ) process have been implemented. The option to deliver the card at the branch was added and, to keep a better communication, customers added the notice of approval of the opening and follow-up of the card account through SMS and . Commitment to Quality In order to meet its commitment to quality, during 2012 the Company continued working on achieving the strict standards applied to all its operations, improving processes, cycles and measurements. Since 2005, Tarjeta Naranja has certified all its processes under ISO 9001:2008 standard. It certified them again on three occasions (2005, 2008 and 2011), which ensures the best quality of service to card holders and Merchants ( Comercios Amigos ) in every place in the country where the Company operates. New System to Manage Customers in Arrears In 2012, the Company began operating with a new system to manage customers in arrears, becoming the only one that has ICS (Internet Collection System), a world-class arrears management software package. With this implementation, it manages to provide IT support to the whole telephone operation of payables in early arrears related to accounts that have not yet been allocated to lawyers and improves the quality of customer service, even in a critical process such as Collections. Additionally, it allows optimizing time and productivity.
12 System and Technology Improvements During 2012, we continued working on technological updating, systems modernization and development of applications improvements in order to support the Company s growth. The speed of online equipment was improved as a result of a new server, which allowed duplicating the processing amount of users and transactions at the same time. In addition, the implementation of a new system infrastructure for the call center was completed, enabling the migration of the calls from card holders and Merchants ( Comercios Amigos ) to AVAYA technology. This allowed significantly increasing the service capacity, among other functionalities. We continued working on the Core Processing System Modernization Project, according to the planned strategy for development and implementation in stages. The number of releases increased from 12 to 14 and the first seven ones reached an advanced stage at fiscal year-end. Corporate Social Responsibility For Tarjeta Naranja social responsibility means that we all always have something to give. Therefore, it proposes itself to seek better ideas and initiatives for the solidary attitude to grow and reach its maximum expression in everyday facts. In this respect, we continued adding the contribution of employees, card holders, Merchants ( Comercios Amigos ) and suppliers, along with the Company s support. The result of actions carried out in each program is as follows: Aporte Solidario (Solidary Contribution) Program: Thanks to this initiative, card holders donated, through their debits, more than AR$ 27,000,000 to 240 non-profit organizations. Apadrinando Comedores (Support for Community Kitchens) Program: During 2012, the program reached 177 volunteers, 35 community kitchens and 3,243 children benefited throughout Argentina. Apadrinando Escuelas (Support for Schools) Program: New schools, volunteers and sponsors were added. At year-end, 336 schools were given assistance, out of which 182 were sponsored by Merchants ( Comercios Amigos ) and 154 by Naranja. Solidarity Missions: Eighty-eight missions were carried out to meet specific needs in different areas of Argentina. These were carried out by company volunteers. Awards and Recognitions During 2012, Tarjeta Naranja was recognized by prestigious institutions and publications in Argentina. It was included in the 33 rd place in the The 100 Companies with the Best Reputation in Argentina ( Las 100 empresas con mejor reputación del país ) ranking published by Clarín Newspaper and made by MERCO, being among the most recognized companies by the public opinion. Ámbito Financiero newspaper included Tarjeta Naranja in the 67 th place in its Company Reputation Ranking" ( Ranking de Prestigio de Empresas ), Apertura Magazine placed it among The 100 Best Ones in terms of Image for the Decade ( Las 100 mejores en imagen de la década ) and Mercado Magazine included it in the 12 th place in the The 100 Best Companies in the Country ( Las 100 mejores empresas del país ) ranking. Throughout the year, the Company and its CEO, David Ruda, had wide coverage and positive impact for different matters on the most distinguished media in Argentina. In advertising, Tarjeta Naranja received two Lápiz de Oro awards, the first in the interior category for the commercial Cortá Vos and the second in the media mix category for "Taxis" of the "Financially Incorrect" campaign. In addition, as mentioned in the preceding paragraphs, the
13 Company was recognized for the Companies of Young People s Dreams in 2012 ( Empresas de los Sueños de los Jóvenes 2012 ) and Socially Devoted awards of Socialbakers global ranking. 2013: Let s Join Together Again For the year that is about to begin, Tarjeta Naranja proposes its employees, card holders and Merchants ("Comercios Amigos") to reassess teamwork to face the ongoing challenges and changes imposed by the context. In the words of its CEO, David Ruda, "we recover the concept of teaming, reunification, which means being together, combining ideas and adding projects so that everything may go better for all of us. And if the need to change arises from this relationship, then don't be afraid. Let s change! In this context, and for everyone to listen thereto, we want to shout: Give me your hand, it is necessary for us to join together again! PROJECTIONS AND OUTLOOK FOR 2013 New branches, mainly in the Autonomous City of Buenos Aires, are expected for We hope to consolidate the market presence and share in the Province of Buenos Aires and the Autonomous City of Buenos Aires, and continue being the leader in the provinces. CODE ON CORPORATE GOVERNANCE UNDER GENERAL RESOLUTION No. 606/12 OF THE ARGENTINE NATIONAL SECURITIES COMMISSION (C.N.V.) A Schedule with the report on the degree of compliance with the Code on Corporate Governance is presented, in compliance with the provisions set forth in Subsection a.1) of Section 1 of Chapter XXIII PERIODIC REPORTING SYSTEM of technical regulations (N.T. 2001, as amended).
14 Schedule: Report on the Degree of Compliance with the Code on Corporate Governance Compliance Full Partial Noncompliance Report or Explain PRINCIPLE I. MAKE THE RELATIONSHIP TRANSPARENT AMONG THE ISSUER, THE GROUP HEADED THEREBY AND/OR OF WHICH IT IS A MEMBER AND ITS RELATED PARTIES Recommendation I.1: Ensure the disclosure by the Management Body X From a business viewpoint, Tarjeta Naranja S.A. is controlled by Tarjetas Regionales S.A., a member of Grupo Financiero Galicia S.A. This structure allows taking advantage of significant synergies. All business of the applicable relationships with group companies, whether policies to the Issuer s relationship with the group headed thereby and/or of which it is permanent or occasional in nature, are built under normal and usual market conditions. In accordance with professional accounting standards and as suggested by the best practices, the Company reports related party transactions in notes to the financial statements. The a member and its information disclosed includes the significant related parties. transactions performed with shareholders and managers under usual market conditions. Pursuant to the Company s Code of Ethics, Tarjeta Naranja considers the transparency of information as the basic principle that shall govern its relationship with shareholders, thus ensuring that the information reported to them, the appropriate markets and to said markets regulatory bodies, is true and complete. Said information shall accurately reflect the Company s financial condition and results of its operations, and shall be reported within the terms specified and in compliance with the other requirements set forth in the applicable standards and general principles of market operations as well as those related to good corporate governance assumed by the Company. Recommendation I.2: Ensure the existence of mechanisms that would prevent conflicts of interests. X Tarjeta Naranja has a Code of Ethics, which establishes the patterns of behavior related to business objectivity and the identification of possible conflicts of interests. In addition, the Company s Code of Ethics sets forth the duty to avoid acting on behalf of the Company in those situations that pose any type of personal interest or where either the person involved or his/her close relatives may personally benefit from a business opportunity in which the Company may be involved. Neither is it allowed to perform business or professional activities at the same time than those carried out for the Company, which in any way may compete with any of the Company s businesses. In the event any conflict of interest arises due to employment reasons or of any other kind, the facts shall be reported with no delay to the appropriate Manager.
15 Recommendation I.3: Prevent the misuse of inside information. X Additionally, those who may have any influence on Tarjeta Naranja s business decisions (or any of their close relatives) may not have a significant financial interest; for example, as a shareholder or administrator, in any of Tarjeta Naranja S.A. s suppliers, without the prior written consent by Tarjeta Naranja S.A. s Board of Directors. Pursuant to the Code of Ethics and the Confidentiality Agreement signed by any member of the organization upon joining the Company, such member agrees not to state, disseminate, disclose or report to third parties the information he/she may obtain or be provided to perform his/her duties and not to use it for his/her own benefit. Tarjeta Naranja s employees or those contracted thereby, such as in the cases of external audits or consulting firms, shall refrain from using confidential information for their own benefit and/or for the benefit of third parties (by virtue of the provisions set out in the Code of Ethics and, generally, in the contracts executed therewith). This includes the fact that the employees shall refrain from transferring confidential information to another person who then trades Tarjeta Naranja S.A. s securities, including call or put options on such securities, as well as from trading securities of any other Company whose value could be affected by Tarjeta Naranja s decisions that have not been released to the public yet, as well as call or put options on such securities. PRINCIPLE II. LAY THE BASIS FOR A SOUND MANAGEMENT AND SUPERVISION OF THE ISSUER Recommendation II. 1: Ensure that the X Management Body assumes the management and supervision of the Issuer and its strategic orientation II Approved strategic plan, management goals and annual budgets X The Board of Directors annually reviews, submits for discussion and approves the strategic plan from which the management goals arise, as well as it approves the annual budget. This is entered into the Minutes of the approved by the Board of Directors' meetings. The Committee for Management Body. Information Integrity monthly follows up the approved plans and, if appropriate, the Board of Directors determines the necessary adjustments. II Policy on investments and financing approved by the Management Body. X There is a policy on investments and financing approved by the Board of Directors.
16 II Policy on corporate governance approved by the Management Body. II Policy to select, evaluate and compensate firstclass managers approved by the Management Body. II Policy to assign responsibilities to first-class managers approved by the Management Body. X X X The Board of Directors is in charge of managing Tarjeta Naranja S.A., and approving and monitoring that the general policies and strategies are implemented, particularly: The strategic or business plan, as well as the annual management and budget goals; The policy on investments and financing; The policy on corporate governance; The policy on corporate social responsibility; Policies on risk monitoring and management and any other policy aimed at the regular monitoring of internal information and control systems; The development of ongoing training programs for directors and senior officers; The entity s Code of Ethics; The policies on personnel compensation, economic incentives and performance evaluations; The policy on selection of suppliers and their treatment, avoiding the concentration of activities and conflicts of interests; Senior Management s powers and responsibilities. Additionally, the Board of Directors monitors compliance with the internal control and the regulatory framework, and the entity's risk profile, analyzing management reports prepared for Senior Management. The Board of Directors considers that establishing an adequate internal control is essential to meet the goals defined. Accordingly, internal audit processes play a key role within the organization. The Human Resources Department sets policies on selection to fill vacancies at all organization levels, according to each position description. Internal contests, evaluations of potentials and external recruitments through specialized consulting firms are carried out to evaluate candidates and select them. Evaluations consider compliance with goals and qualitative aspects of each one s performance based on the required skills and corporate values. Compensation is established based on salary bands defined according to the responsibilities assigned to each of the positions. All these policies are approved by the Board of Directors. The issuer has position descriptions for all organization levels. The necessary skills for the performance in each position are described in such position descriptions, as well as the responsibilities assigned thereto. According to the position levels, descriptions are approved by each division and, in the case of descriptions of first-class manager positions, they are
17 II Supervision of succession plans of first-class managers approved by the Management Body. II Policy on Corporate Social Responsibility approved by the Management Body. II Policy on comprehensive risk management and internal control and fraud prevention approved by the Management Body. X X X approved by the Management Body. With the information about the evaluation process and an evaluation of potential performed by first-class human resources consulting firms, the Human Resources Division annually prepares a map of talents, where risk areas (as to positions and persons) to be covered and the most suitable successors for each case, as well as the potential of each of Tarjeta Naranja s Managers, are identified. With the successors identified, the skills required for each position defined by the Board of Directors and Senior Management and the results of evaluations, development plans are prepared in order to ensure that Tarjeta Naranja always has the necessary talents to guarantee the success of its management. The outcome of the process described above is finally submitted to and approved by the Board of Directors and translates into specific and personalized action plans. The policy on Corporate Social Responsibility is reviewed by the Board of Directors, which approves the actions to be performed in each fiscal year. It follows up the actions through the reports annually submitted by the Social Responsibility area. The policies implemented are mainly focused on the following aspects: Our community: Apadrinando Escuelas (Support for Schools); Apadrinando Comedores (Support for Community Kitchens); Missions; Aporte Solidario (Solidary Contribution); Un Gol, un Potrero (One Goal, One Soccer Field); actions carried out from the branches in the communities where we are; cultural actions. Environment: Biodegradable cards; paper recycling; eco-efficient paper; ecological bags; remanufactured toners and safe destruction of casings; recycling and final disposal of technological waste. Our Employees: Training; the Best Place to Work; work environment; personnel selection; honors and recognitions. Our Customers: Assured quality; means of contact and communication with our customers. Tarjetas Regionales, the controlling company, has a specific area for the risk analysis that supplements the analyses performed by the Issuer. Tarjeta Naranja has several committees reporting to the Board of Directors, such as the Audit Committee, the Control and Prevention of Money Laundering Committee and the Committee for Information
18 II Policy on ongoing training for the members of the Management Body and first-class managers. II.1.2 Other significant policies approved by the Management Body II.1.3 Policy intended for ensuring the availability of material information for the Management Body and a direct consultation way for managerial staff symmetrically for executive, external and independent members and in advance. X X Integrity, which ensure that financial internal control systems are sufficient, adequate and efficient, as well as the proper operation of the controls related to fraud detection, prevention of money laundering and the transparency of the entity s information. Thus, the Audit Committee quarterly supervises the progress of the annual audit plan, which, along with the Committee for Information Integrity, is intended to identify critical risks. During each meeting, the Audit Committee receives information from the internal audit department about the most significant events and the recommendations arising from its work, as well as the status of the recommendations issued in prior years, always for the sake of helping create an adequate control environment. In addition, the Prevention of Money Laundering and Funding of Terrorist Activities Committee meets every two months to show the results of controls and prevention of asset laundering, funding of terrorist activities and other illegal activities, in accordance with effective legal and administrative rules, in order to reduce and eliminate civil, criminal or commercial-type responsibilities for the organization. The Company s Directors and Managers are trained enough to perform duties in their positions. The training plans managed by Human Resources aimed thereat include subjects related to strategy, management, trends, among others. Additionally, if the position requires so, the necessary technical training courses are added for the several positions. N/A The Board of Directors meets at least once per month and, as required by any of the directors, it is in charge of Tarjeta Naranja S.A.'s general management and makes all the necessary decisions to fulfill said task. The members of the Board of Directors also take part, to a higher or lesser extent, in the committees created. Therefore, they are continuously informed about the entity s course of business and become aware of the decisions made by such bodies, which are transcribed into minutes. Additionally, the Board of Directors receives a monthly report prepared by the Chief Executive Officer, prepared by the Management Control area, the purpose of which is to report the material issues and events addressed at the different meetings held between him and Senior Management. The Board of Directors becomes aware of such reports, evidencing
19 so in minutes. II.1.4 Matters submitted for the Management Body s approval, accompanied by risk analyses and acceptable risk level. Recommendation II.2: Ensure an effective business management control. II.2.1 The Management Body verifies compliance with the annual budget and business plan. II.2.2 The Management Body verifies first-class managers' performance. Recommendation II.3: Report the Management Body s performance evaluation process and the related impact. II.3.1 Each member X X X X X The different processes have scorecards, whose indicators allow the different management divisions to monitor the Company's activity and risk. A compliance parameter, a slight excess range and an undesired excess range have been defined for each indicator. The last two have contingency plans associated therewith, which specify the actions to be taken upon excesses. The indicators that are included within an unacceptable range are reported to Management, together with the remediation plan to be followed to redress the situation. The management information is monthly submitted to the Committee for Information Integrity and the Board of Directors. Tarjetas Regionales, the controlling company, has a specific area for the risk analysis that supplements the analyses performed by the Issuer. Compliance with the annual budget and business plan is verified during the Board of Directors meetings held monthly by analyzing the management control report submitted by the Chief Executive Officer. The matters approved, as well as the changes introduced in planning, are entered into minutes. The Management Body generally verifies the first-class managers performance upon assessing compliance with the year s strategic plan. It individually validates the goals assigned to each of them and the qualitative aspects of the individual performance based on the required skills and corporate values. The Bylaws regulate the frequency of meetings, the
20 of the Management Body complies with the Corporate Bylaws and, as the case may be, with the Regulations governing the Management Body s operation. Specify the main guidelines set out in the Regulations. State the degree of compliance with the Corporate Bylaws and Regulations. II.3.2 The Management Body discloses the results of its performance considering the goals set at the beginning of the period, so that the shareholders may assess the degree of compliance with such goals, which contemplate both financial and nonfinancial aspects. Furthermore, the Management Body submits a diagnosis about the degree of compliance with the policies mentioned in Recommendation II, points II.1.1.and II.1.2. Recommendation II.4: That the number of external and independent members represents a significant proportion in the Management Body. II.4.1 The proportion of executive, external and X X X X appointment of the Chairman, the term of office, the scheme of valid sessions and guarantees granted by directors. Each director fully meets the provisions set out in the Company s Bylaws. At the Company, there are no Special Regulations governing the Management Body's operation, other than the provisions set out in the Corporate Bylaws. As established by the Companies Law, the results of the Board of Directors performance are approved by the shareholders at the Ordinary Shareholders' Meeting, along with the approval of the financial statements. The Board of Directors provides thorough explanations in its Annual Report and answers all the questions asked at the Shareholders' Meeting, but it refrains from expressing an opinion on its performance, by virtue of legal restrictions. The assessment is conducted by the shareholders at the Shareholders Meeting, taking as well into consideration the informed opinion of the Supervisory Committee. Tarjeta Naranja S.A. s Board of Directors is the highest management body of the Company. It is made up of eight non-independent Directors and five non-
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