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Report of the Supervisory Board of Echo Investment S.A. on the results of:

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Report of the of Echo Investment S.A. on the results of: - assessment of the separate financial statements of Echo Investment S.A. and the consolidated financial statements of the Echo Investment Capital
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Report of the of Echo Investment S.A. on the results of: - assessment of the separate financial statements of Echo Investment S.A. and the consolidated financial statements of the Echo Investment Capital Group in assessment of the Management Report of Echo Investment S.A. and of the Echo Investment Capital Group for assessment of the position of Echo Investment S.A. and of the Echo Investment Capital Group in review of the Management Board s requests concerning the distribution of net profit for work of the of Echo Investment S.A. in 2013 Conclusions from the assessment of the separate and consolidated financial statements, management reports of the Company and of the Echo Investment Capital Group for 2013, and the position of the Company and of the Echo Investment Capital Group in 2013 Acting pursuant to article 382 section 3 of the Commercial Companies Code, the of Echo Investment S.A. assessed the following: a) separate financial statements for 2013, comprising: - separate balance sheet as of 31 December 2013, with total assets, equity and liabilities amounting to PLN 1,538,756 thousand; - separate profit and loss account for the period from 1 January 2013 to 31 December 2013, with revenue amounting to PLN 249,261 thousand, gross profit amounting to PLN 62,889 thousand and net profit amounting to PLN 60,663 thousand; - separate cash flow statement for the period from 1 January 2013 to 31 December 2013, showing a balance sheet increase in net cash of PLN 6,920 thousand; - separate statement of changes in equity for the period from 1 January 2013 to 31 December 2013, with an increase in equity amounting to PLN 26,967 thousand; - notes; as regards the compliance with the books, documents and the factual status; b) management report of Echo Investment S.A. for 2013; c) consolidated financial statements for 2013, comprising: - consolidated balance sheet as of 31 December 2013, with total assets, equity and liabilities amounting to PLN 6,224,411 thousand; - consolidated profit and loss account for the period from 1 January 2013 to 31 December 2013, with revenue amounting to PLN 527,870 thousand, gross profit amounting to PLN 319,292 thousand and net profit amounting to PLN 331,158 thousand; - consolidated cash flow statement for the period from 1 January 2013 to 31 December 2013, showing a balance sheet increase in cash of PLN 45,825 thousand; - consolidated statement of changes in equity for the period from 1 January 2013 to 31 December 2013, with an increase in equity amounting to PLN 333,812 thousand; - notes; as regards the compliance with the books, documents and the factual status; d) management report of the Echo Investment Capital Group for For auditing the separate and consolidated financial statements, the Management Board of Echo Investment S.A. employed the auditing company Pricewaterhouse Coopers Sp. z o. o., with its registered office in Warsaw, represented by the Statutory Auditor Piotr Wyszogrodzki, reg. no The familiarised itself with the statutory auditors opinions and reports on the separate and consolidated financial statements. The confirms that the data included in the separate financial statements of Echo Investment S.A. and in the consolidated financial statements of the Echo Investment Capital Group present a true and fair view of the Capital Group's economic and financial position. In addition, the financial statements and the management report include all information that is material for assessing business performance and profitability, and for identifying all risks. The also confirms that the financial information included in the parent company's management report of Echo Investment S.A. and of the Echo Investment Capital Group was derived directly from the audited financial statements and is consistent with them. The has based its statements on the separate and consolidated financial statements, and on the content of the statutory auditor's opinion and report. REPORT OF THE SUPERVISORY BOARD OF ECHO INVESTMENT S.A. 2 The opinion of the statutory auditor confirms that the statements have been prepared, in all material respects, in accordance with the accounting principles resulting from the International Financial Reporting Standards and related interpretations published as regulations of the European Commission, and to the extent not regulated by the Standards, as required by the provisions of the Polish Accounting Act of 29 September 1994, the secondary legislation for the Act and according to correctly maintained accounting books. In addition, the statements comply with the provisions of the Statute of Echo Investment S.A. Following the analysis of the profit and loss account for 2013, the states that the Capital Group's profit, compared to 2012, decreased by 11% and amounted to PLN million. The increase in the fair value of real property is due to the measurement of new developments, the applied changed yields and operating income, and the weakening of the Polish zloty compared to the euro. Combined with a high gross sales profit, this allowed the Capital Group to generate an operating profit of PLN 497 million. The operating result is exceptionally good, even when the effect of exchange rates on the fair value is accounted for. The consolidated profit was negatively affected by the result of financing activities (financial revenue - financial expenses), where interest on loans and bonds is the most significant item. In 2013, this balance amounted to minus PLN 154 million, which means an 11% decrease compared to The weakening of the PLN to EUR exchange rate resulted in foreign exchange gains/losses on the measurement of loans in foreign currencies as well as on the measurement and realisation of FX hedging instruments (forwards). In 2013, they amounted to minus PLN 22 million, compared to PLN 141 million in 2012, when PLN became stronger compared to EUR. The analysis of the balance sheet reveals that the Company's balance sheet total increased by PLN 120 million, while the Echo Investment Capital Group's balance sheet total increased by PLN 771 million. The liabilities of the Echo Investment Capital Group increased by 15%, but after offsetting tax liabilities (VAT) against the higher tax receivables the liabilities would decrease by 1%. Combined with a simultaneous increase in cash, this indicates that there is no liquidity risk, which is confirmed by the analysis of the Echo Investment Capital Group's financial ratios. The ratios have remained at safe levels and confirm the Group's good financial standing, as shown in the table below: DEBT AND LIQUIDITY RATIOS Overall indebtedness ratio (total liabilities/total assets) Debt to equity ratio (total liabilities/equity) Current ratio (current assets/short-term liabilities) Quick ratio ((current assets - inventory)/short-term liabilities) 55.0% 54.8% 123.9% 122.9% In 2013, the Echo Investment Capital Group implemented its strategic objective, i.e. long-term and stable growth of goodwill. We continue our efforts to build a dynamic and modern organisation, ensuring high-margin investments in the office, shopping centre and housing segments, as well as effective management of the project portfolio. In 2013, the Group implemented the following projects: - shopping centres: Galeria Veneda in Łomża, Galeria Amber in Kalisz and the expansion of Galeria Sudecka in Jelenia Góra, - office developments: Q22 in Warsaw, Park Rozwoju in Warsaw, stages I and II, Aquarius Business Park, stages I and II, West Gate in Wrocław, A4 Business Park in Katowice, stages I and II, and Tryton in Gdańsk, - hotels: Novotel in Łódź, - housing developments: in Krakow Hortus and Bronowicka 42; in Łódź Osiedle Jarzębinowe; in Poznań Pod Klonami, Kasztanowa Aleja and Osiedle Jaśminowe; in Warsaw Nowy Mokotów; in Wrocław Grota 111 and plots with house designs in Dyminy near Kielce Osiedle Południowe. In 2013, the Group also focused on continuing the preparation of other investments for implementation. This allowed the Group to start investments and plan projects to be launched in These projects are presented in the table below. 3 REPORT OF THE SUPERVISORY BOARD OF ECHO INVESTMENT S.A. PROJECTS TO BE IMPLEMENTED IN 2014 SEGMENT CITY STREET PROJECT NAME offices Katowice Francuska A4 (stage III) offices Krakow Opolska (stage I) offices Łódź Piłsudskiego Aurus (stage I) offices Warsaw Beethovena (stage I) offices Warsaw Taśmowa (stage I) offices Wrocław Plac Grunwaldzki Plac Grunwaldzki apartments Kielce Solidarności Zielone Tarasy apartments Krakow Czarodziejska apartments Łódź Okopowa Osiedle Jarzębinowe (stage II) apartments Poznań Sowińskiego (stages I and II) apartments Warsaw Konstruktorska Nowy Mokotów (stage II) The Company continues to optimise property development processes. The Management Board closely monitors the developments on the real estate market and decides to implement specific projects on an individual basis, based on current market analyses. To minimise the risk of unfavourable market changes, large projects are implemented in several stages. In 2013, the Group focused on commercialising projects, which resulted in high lease ratios of the commercial developments in Łomża and Kalisz, and of the office developments: Aquarius Business Park in Wrocław, A4 Business Park in Katowice and Park Rozwoju in Warsaw. In 2013, the Company monitored the market to obtain more investment land, leading to the purchase of a plot of land for an office development in Wrocław in ul. Sucha and plots of land for housing developments in Krakow (Kościuszki and Rydla) and in Poznań (Jackowskiego). The Company still intends to watch the market to find prime locations for property development projects. The Company's Management Board does not preclude the purchase of completed projects in attractive locations to increase their profitability. A large land reserve allowing for the implementation of projects in all segments provides the Group with very good growth perspectives, and the partially completed preparation works will allow for the launch of further developments in the coming years. By 2020, the Group plans to launch 26 office developments (GLA of approx. 400 thousand sq. m), 6 shopping centres (GLA of over 150 thousand sq. m) and 25 housing developments (over 2,700 apartments) on the land held. 1. SUPERVISORY BOARD REPORT FOR 2013 In 2013, the of Echo Investment S.A. operated in accordance with its Rules and Regulations, the Company s Statute, the Code of Best Practice for WSE Listed Companies, as adopted by the Company, and the applicable laws, while keeping in mind the legitimate interest of the Company and its Shareholders. In 2013, the members of the, in particular the Chairman and the Vice-Chairman, maintained constant contact with the members of the Company s Management Board and discussed with them the individual areas of the Company's operations. The constantly supervised all of the Company's operations. Such supervisory activities included: - analysing and assessing the Company's current financial performance and periodic financial statements, - analysing information provided by the Management Board on the Company's operations, - approving the contracting of liabilities by the Company and the conclusion of contracts related to the Company s operations, - supervising administrative procedures related to the projects implemented by the Group. From 1 January to 29 May 2013, the acted in the following composition: Tomasz Kalwat On 29 May 2013, the Ordinary General Meeting appointed the for a new term of office in the following composition: REPORT OF THE SUPERVISORY BOARD OF ECHO INVESTMENT S.A. 4 In 2013, as part of its responsibilities, the held 4 meetings and passed 24 resolutions on matters regulated by the Commercial Companies Code and the Statute of Echo Investment S.A. Audit Committee of Echo Investment S.A. Pursuant to the provisions of the Rules and Regulations of the Audit Committee of 18 March 2010, the Audit Committee is a standing committee of the of Echo Investment SA. The Rules and Regulations of the Audit Committee are published on the website of Echo Investment SA in the tab devoted to investor relations: In the reporting period, from 1 January to 6 June 2013, the Audit Committee acted in the following composition: - Audit Committee - Audit Committee - Audit Committee. From 6 June to 31 December 2013, the tasks of the Audit Committee were entrusted to the in its full composition, according to article 86 section 3 of the Act of 7 May 2009 on statutory auditors and their professional association, entities authorised to audit financial statements and on public supervision. In 2013, the Audit Committee focused on: - monitoring the completeness and reliability of information presented in the periodic financial statements of the Company and of the Echo Investment Capital Group prior to publication, - monitoring problems, reservations and recommendations resulting from the audit/review of the financial statements, consulting the auditor, and reviewing financial information the financial statements of the Company and of the members of the Echo Investment Capital Group for completeness, accuracy and reliability, - verifying the compliance of the applied accounting principles with the applicable laws, - analysing material agreements concluded by the Company and by the Echo Investment Capital Group, - regularly monitoring the Company's and the Echo Investment Capital Group's budget, - ensuring regular participation of the Audit Committee's members in the meetings of the Management Board, the and in the General Shareholders' Meeting of Echo Investment, and answering the shareholders' questions about the work of the Audit Committee, - reviewing the effectiveness of the individual elements of the internal control system, such as financial reporting and IT security. Assessment of the internal control and risk management system of Echo Investment S.A. One of the tasks of the Audit Committee was to review the effectiveness of the internal control system. Based on its observations, the Audit Committee confirmed that the internal control system operates effectively and correctly. The Audit Committee defined the following as the main factors affecting the effectiveness of the control system: - defined and transparent organisational structure, - skills, know-how and experience of people involved in the internal control process, - supervision by the management over the system and regular evaluation of the Company s operations, - verification of financial statements by an independent statutory auditor. 5 REPORT OF THE SUPERVISORY BOARD OF ECHO INVESTMENT S.A. Automation facilitates the optimal and efficient operation of the control system, i.e.: - decision-making quotas, - supervision over employee quotas, independent of people assigning quotas, - configuration of bookkeeping accounts, - automated payments, - ekod system (electronic Document Circulation Sheet), approval of expenditures and initial posting, - IT systems: IFS and Archibus. A detailed description of the main features of the internal control and risk management systems applied in Echo Investment S.A. in the process of preparing financial statements and consolidated financial statements has been presented by the Management Board in the Statement on the application of corporate governance rules in SUPERVISORY BOARD'S POSITION ON THE DISTRIBUTION OF PROFIT The familiarised itself with the requests of the Management Board of Echo Investment S.A. to exclude the net profit of Echo Investment S.A. for 2013 from distribution among the shareholders and to allocate the entire net profit for the supplementary capital in order to finance the current operations of Echo Investment S.A. The approves the position of the Management Board and plans to inform the General Shareholders' Meeting about it. 3. REQUESTS OF THE SUPERVISORY BOARD TO THE GENERAL SHAREHOLDERS' MEETING The requests that the General Meeting of Shareholders: a) approve the management report of Echo Investment S.A. for 2013, b) approve the separate financial assessments of Echo Investment S.A. for 2013, c) approve the management report of the Echo Investment Capital Group for 2013, d) approve the consolidated financial statements of the Echo Investment Capital Group for 2013, e) adopt a resolution on excluding the net profit of Echo Investment S.A. for 2013 in the amount of PLN 60,663 thousand from distribution among the shareholders and on allocating the entire profit for the supplementary capital in order to finance the current operations of Echo Investment S.A., f) acknowledge the fulfilment of duties in 2013 by the members of the Management Board, g) acknowledge the fulfilment of duties in 2013 by the members of the. Kielce, 14 May 2014 Signatures: REPORT OF THE SUPERVISORY BOARD OF ECHO INVESTMENT S.A. 6
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