Info: 800 190 911 / cc.info@impel.pl
search... RSS

REPORT OF THE SUPERVISORY BOARD OF IMPEL S.A. ON THE SUPERVISION OF THE OPERATIONS OF IMPEL S.A. TOGETHER WITH A BRIEF ASSESSMENT OF THE COMPANY'S SITUATION, TAKING ACCOUNT OF THE INTERNAL CONTROL AND RISK MANAGEMENT SYSTEMS - 2014

 

1. OPERATIONS OF THE SUPERVISORY BOARD IN 2014.

 

The Supervisory Board of Impel S.A. operates pursuant to the provisions of the Polish Code of Commercial Partnerships and Companies, the Company’s Articles of Association, and the Rules of Procedure for the Supervisory Board of Impel S.A. Pursuant to the Articles of Association, the Supervisory Board consists of at least five and not more than nine members.

 

In 2014, the Supervisory Board of Impel S.A. operated initially with the following composition:

  1. Krzysztof Obłój – Chairman of the Supervisory Board,
  2. Andrzej Malinowski – Vice-Chairman of the Supervisory Board,
  3. Piotr Pawłowski,
  4. Piotr Urbańczyk,
  5. Edward Laufer.

 

On 11 August 2014, at the meeting of the Extraordinary General Meeting, the Shareholders holding preferred shares and being present at the GM, pursuant to Art. 385 section 1 of the Polish Code of Commercial Partnerships and Companies and Art. 16 section 2.2a of the Company’s Articles of Association, extended the composition of the Supervisory Board and appointed Mr. Józef Biegaj Member of Impel S.A. Supervisory Board. As at 31 December 2014 and the date of submitting this report, the composition of the Supervisory Board was as follows:

  • Krzysztof Obłój - Chairman of the Supervisory Board,
  • Andrzej Malinowski – Vice-Chairman of the Supervisory Board,
  • Piotr Urbańczyk,
  • Piotr Pawłowski,
  • Edward Laufer,
  • Józef Biegaj.

 

In 2014, the Supervisory Board held 4 meetings and adopted 14 resolutions. The meetings of the Supervisory Board concerned control and supervision over the Company's current activities. The Supervisory Board gave opinions on current and planned activities of the Company on the basis of documents and information submitted by the Management Board. As in previous years, the Supervisory Board's priorities included:

  • fulfillment of the statutory obligations of corporate supervision - in particular, assisting the Management Board in market analysis, formulation of a plan for further development, and formulation of strategic objectives of the Management Board,
  • analysis of the financial performance and cost structure of Impel S.A. and individual companies of the Impel Group, as well as the results isolated within the composition of the Group, Business Units, and Product Lines.

 

In 2014, the operations of the Supervisory Board included:

  • analysis of the market and competition;
  • analysis of customer satisfaction;
  • analysis of the main contracts and customers;
  • analysis of the operation of business units and product lines;
  • analysis of the integration of units after the acquisition
  • analysis of implementation of key business projects and investments;
  • analysis of companies which have not reached the assumed results;
  • giving opinions on financial plans – the Supervisory Board approved the Impel Group’s Financial Plan for 2014 and conducted ongoing analysis of its implementation;
  • analysis of the dynamics of business risks for 2014;
  • analysis of disputes;
  • communication process and implementation of disclosure obligations resulting from the public nature of Impel S.A.;
  • changes in accounting policies of the Impel Group;
  • evaluation of financial statements and reports on operations - the Supervisory Board assessed the financial statements of Impel S.A. and the Impel Group and the Management Board's Reports on operations of the Company and the Group in 2014;
  • giving opinion on the matters submitted the General Shareholders Meeting for consideration – the Supervisory Board gave an opinion on the agenda and the draft resolutions of the Ordinary General Meeting of Impel S.A.

 

The Supervisory Board, and after the appointment of the Audit Committee, the Audit Committee met with the auditor of the Group, Ernst & Young in order to discuss issues related to the interim and annual reviews of financial statements. In addition to the above, the Supervisory Board analysed the Group's guidelines and strategic priorities, the functioning of foreign companies within the Group, potential changes in the law in force affecting the Company’s situation as well as the service quality policy and the human resources policy.

Until 17 October, the Board was the Audit Committee in gremio based on a document specifying the activities of the Board acting as the Audit Committee entitled "Rules for exercising by the Supervisory Board of Impel S.A. the supervision over the financial reporting processes, internal audit, risk management and financial audit in the Company as a part of the fulfillment of the tasks of the audit committee arising from Art. 86.7 of the Act on Statutory Auditors and Their Self-Governing Organization, Entities Authorized To Audit Financial Statements and on Public Oversight" adopted by the Board on 19 December 2013.

On 17 October 2014, since the Board’s composition was extended to six members, the Supervisory Board appointed the Audit Committee. The Committee was appointed with the following composition:

  • Piotr Urbańczyk – Chairman of the Committee,
  • Edward Laufer – Member of the Committee,
  • Józef Biegaj – Member of the Committee.

The Committee started its regular meetings and one of the first tasks was to develop the Rules of the Audit Committee and its work plan and reporting to the Supervisory Board.

 

2. BRIEF ASSESSMENT OF THE COMPANY’S SITUATION, TAKING ACCOUNT OF THE INTERNAL CONTROL AND RISK MANAGEMENT SYSTEMS

 

I. COMPANY’S FINANCIAL SITUATION AND MARKET POSITION

 

In the opinion of the Supervisory Board at the end of 2014 the situation of Impel S.A. and the Impel Group was good. There are no risks to the continuation of the Company's and Group's operations.

 

COMPANY’S FINANCIAL SITUATION:

 

I.1 Operating activities

 

Revenue from sales and subsidies amounted to PLN  1,722,541,000 and was higher by PLN  121,961,000, i.e. by 7.6% as compared to 2013. The result on sales amounted to PLN  47,919,000 and despite the changes which took place in 2014 concerning the amount of subsidies to remunerations of persons with disabilities and the increase in minimum wages, it maintained its level similar to the previous year’s.

 

Profitability on sales expressed as the ratio of the result on sales to revenues from sales and subsidies decreased from 3.05% in 2013 to 2.78% in 2014.

 

Other operating revenues amounted to PLN  23,342,000 and increased by PLN  6,194,000, i.e. by 36.1% as compared to 2013, while other operating expenses decreased. Such economic relations caused the improvement of the result on other operating activities by PLN 12,290,000 as compared to 2013. The main reason for the improvement was the profit from the disposal of fixed assets which amounted to PLN 9,233,000.


The effect of other operating activities improved the result which at the operating level totalled PLN 53,109,000.

 

I.2 Net result

Financial activity decreased the financial result by PLN 13,076,000, i.e. by PLN 948,000 less as compared to 2013. The decrease of interest rates stopped the increase of interest expense related to the increase of the debt. The gross result, taking into account the financial activity, amounted to PLN 40,033,000. This result was subject to income tax of PLN 7,624,000. The Impel Group ended the year 2014 with the net result of PLN 31,701,000, by PLN 14,472,000 higher than in 2013. 

 

In the opinion of the Supervisory Board, the results achieved in 2014 should be considered as positive. Revenues and net profit increased. However, due to the deterioration of the profitability ratio of sales, the Supervisory Board notices the need for ongoing monitoring of profitability and cost structure so that the Group does not lose its ability to generate positive financial results due to conduct of core activity at very low profitability with additional rising other operating and financial expenses. In particular, the Supervisory Board advised the Management Board to prioritise improvement of margins on contracts and to avoid accepting contracts that were becoming virtually unprofitable as a result of price wars in the various market segments (especially the segments dominated by public tenders or very high bargaining power of purchasers).

 

I.3 Financial cash flows and liquidity

In 2014, the operations of the Group resulted in an increase in net cash by PLN 3,400,000. Cash flows from operating activity totalled PLN  50,601,000 and were slightly higher as compared to 2013. Investing activities caused a reduction in cash by PLN 25,837,000 - significantly less as compared to 2013, when the activity had totalled PLN 43,015,000. The decrease was primarily affected by higher revenues – an increase of PLN 13,278,000 and capital expenditures lowered by PLN 3,900,000. The structure of capital expenditures significantly changed. In 2013, the expenditure on the acquisition of intangible assets and property, plant and equipment dominated - PLN 39,053,000 and on shares – PLN 8,569,000. In 2014, the acquisition of intangible assets amounted to PLN 29,407,000. Another important item was the expenditure on loans which amounted to PLN 16,402,000.  

 

On balance, in 2014, the financial activities lowered cash by PLN 21,364,000. The contracted loans provided PLN 45,330,000. At the same time, PLN 36,588,000 was repaid. However, significant expenses associated with the repayment of interest and lease obligations caused negative result of cash flows.

 

I.4 Balance sheet structure

The share of equity in financing of total assets slightly increased. At the end of 2014 it amounted to 36.9%, in comparison with 2013, when it had amounted 35.1%. Non-current assets were fully financed with non-current components of the financing structure such as equity, reserve funds and non-current liabilities. In 2014, the company used short-term financing to a greater extent. That situation resulted predominantly from the increased demand for current assets being the result of sales revenue growth. Working capital expressing the difference between current assets and current liabilities is positive and amounts to PLN 62,104,000 as at 31 December 2014.

 

I.5 Dividends

According to the decision of the Ordinary General Meeting of 28 June 2014 all net profit for the period from 1 January to 31 December 2013 was allocated to the reserve capital.

Pursuant to the Resolution of the Management Board of the Impel S.A. of 26 February 2015, the Management Board recommended the payment of a dividend for 2014 of PLN 1.50 per share, i.e. in the total amount of PLN 19,297,765.50. The Supervisory Board assesses that the dividend payment in the amount proposed by the Management Board will not adversely affect the Company's financial position and its ability to continue its further development.

 

COMPANY'S MARKET SITUATION:

 

The Impel Group is a leading provider of services for institutions and enterprises, the only one listed on the Warsaw Stock Exchange. In the year 2014, the Group achieved the sales targets at a level higher by about PLN 127 million compared to the year 2013. The Group achieved the higher sales growth mainly thanks to strategic business unit operating the Facility Management. Revenues from this unit demonstrate a constant growth trend which is accompanied by gradual improvement of implementing EBIT margin.

 

II. INTERNAL CONTROL SYSTEM

 

II.1 Internal control.

The system of internal control is based primarily on supervision performed by superiors in accordance with the organizational structure of the group. Depending on the business decisions to be taken, their type, and value, the decision-taking level of the organizational structure increases. The quality of is strengthened by SAP, an integrated IT system.   

 

II.2 Preparation of financial statements

The system of internal control and its effectiveness in the process of preparation of financial statements is the responsibility of the Corporate Management Board (the Management Board of Impel S.A.).

 

In the process of financial reporting the Company’s effective internal audit and risk management systems operate by way of:

  • rules set down in the Impel Group’s internal procedures and the scope of reporting, accountability in respect of drawing up periodical reports and financial statements, including assurance of their quality and correctness, approval and publication;
  • regular reviews of the published financial statements by an auditor.

 

With respect to financial reporting, one of the primary elements of control of the process of drawing up and the correctness of the published financial statements is their verification by an independent external auditor. Semi-annual and annual reports of the Group’s undertakings are subject to evaluation by an auditor. The financial statements of the Group’s major undertakings for the year 2014 were audited by Ernst&Young Audyt Polska Sp. z o.o. S.K. based in Warsaw.

 

The books of accounts of the Group’s respective undertakings are kept by the Accounting Centre operating within Impel Business Solutions Sp. z o.o., which renders accounting and bookkeeping services for Impel S.A. and other Group’s undertakings. As part of the Centre there operate respective accounting departments responsible for making settlements for the companies belonging to respective Business Units. The rule of double checking of posted business transactions and the uniform accounting procedures used for the posting of identical business transactions were also introduced. The books of accounts of the Impel Group’s undertakings are kept in accordance with the uniform accounting principles (accounting policy) based on IFRS, internal procedures for provision of the service, and accounting principles adopted by the Impel Group.

 

III. RISK MANAGEMENT SYSTEM

 

The Corporate Management Board (Management Board of Impel S.A.) is responsible for managing risk relevant for the Impel Group, whereas at the level of Business Units such responsibility is assumed by their respective Management Boards. As part of building the Impel Group’s strategy the following main areas of risk were diagnosed. These areas generally have not changed as compared to the previous years:

 

III.1 Commercial risk – including a threat of selling contracts with too low margins, which would not ensure a satisfactory profitability. Currently, the President of the Management Board responsible for Commercial Issues deals with the monitoring of this area and takes relevant steps. In connection with the adopted strategic priorities for the Group’s development in 2015, the Group wants to continue the high rate of sales growth and, concurrently, to improve the profitability through synergies, new technologies and new markets, including foreign markets.

 

III.2 Operating risk - including a risk of incurring costs which are higher than those anticipated in calculations for contracts, as a result of e.g. price rises during the execution of a contract. The monitoring and reduction of this type of risk is the responsibility of the President of the Management Board at the level of Impel S.A., and of respective Presidents at the level of Business Units and Product Lines. The Group operates on the basis of the approved budget. In the course of a year the Management Board analyses current financial results comparing them to the adopted budget, making use of the management reporting employed in the Group.

 

III.3 Financial risk – threats connected, among others, with ensuring the funds for the Impel Group’s operation and development and the safe liquidity ratios. The monitoring and counteracting of this type of risk are assigned to the Vice-President of the Management Board responsible for Finance. At the level of Impel S.A. the financial functions are performed by a dedicated Financial Centre.

On the basis of the current market information and the situation on the financial market the cost of credit is assessed, taking account of the financial plan for a given period and short-term forecasts. The monitoring of the risk of liquidity loss or imbalance is performed by means of a tool for periodical liquidity planning (for all undertakings and at each level of operation), taking into consideration the due dates/maturity dates of trade receivables/liabilities, investments and financial assets. Furthermore, the proper level of the balance sheet structure in the Impel Group is controlled, thus reducing the risk of losing creditworthiness in the event the required bank ratios are not met. The short-term cash flow planning, ongoing ratio analysis and monitoring of interest rates make it possible to identify quickly any negative deviations and undertake corrective actions.

 

III.4 Tax risk – the Group has a business entity specializing in providing financial advisory services. Tax advisors carry out periodic tax reviews, train the economic staff of the Group, and give opinions on important and unusual business transactions. This area is supervised by the Vice-President of the Management Board responsible for Finance.

 

III.5 Risk inherent in human resources management – the area is managed by HR Directors of Impel S.A. and Business Units subordinated directly to the appropriate members of the Management Board. The risk related to this area concerns mainly the acquisition and maintenance of employees and their development, under doubled pressure conditions. On one hand, the minimum wages and pay expectations are increasing, and on the other hand the company has to maintain the strictest pay discipline, as personnel expenses are the main costs, and the pressure to reduce prices for services does not relent.

 

III.6 Legal risk – changes in the legal environment, in particular with regard to effective costs of labour, have a significant impact on the functioning of the Group. The Legal Department monitors legislative changes informing in advance other - in particular operational – departments of the possible changes of the applicable laws in order to prepare for such changes.

 

III.7 Investment risk – including threats related to the investment process and acquisitions. The Vice-President of the Management Board of Impel S.A. responsible for Business Development takes care of minimising risk in this area. In addition, in Impel S.A. there operates an Investment Committee which analyses significant investments and provides advice on them.

 

The Group operates on the basis of the budget prepared under the direction of the Vice-President of the Management Board of Impel S.A. responsible for Business Development. The budget for each subsequent year is approved annually by the Management Board of Impel S.A. and presented to the Supervisory Board. In the course of a year the Management Board analyses current financial results by comparing them against the approved budget, using the management reporting system adopted in the Company. Upon each calendar month closing, middle-level and senior managers in the economic function, supervised by the Vice-President of the Management Board responsible for Business Development, analyse the Company’s financial results in comparison with budget assumptions.

 

The above risks are identified and monitored during the process of development and verification of the Impel Group’s strategy. To assess risks, the Group uses risk maps – a graphic representation of risk assessment – on the basis of which it analyses risks and assesses their effects. The identification, analysis, and assessment of strategic risks are periodically discussed at meetings of the Management Board of Impel S.A. and at meetings of the Supervisory Board of Impel S.A.

 

the Supervisory Board assessed the Company’s situation as stable in terms of its financial conditions. The Supervisory Board gave its favourable assessment of the internal control and risk management systems implemented in the Company. In the Supervisory Board’s opinion the system takes account of all identifiable and predictable risks significant for the Company.

 

3. CONCLUSION

 

Acting pursuant to the provisions of Art. 382.3 of the Polish Code of Commercial Partnerships and Companies and the Company’s Articles of Association, the Supervisory Board on the basis of the Audit Committee’s report and the auditor's opinion and report analyzed and assessed the following documents in respect of their compliance with the books and documents and the factual circumstances:

  • financial statements of Impel S.A. for the fiscal year 2014, including the statutory auditor’s opinion and report,
  • Directors’ report on the operations of Impel S.A. for the fiscal year 2014,
  • consolidated financial statements of the Impel Group for the fiscal year 2014, including the statutory
    auditor's opinion and report,
  • Directors’ report on the operations of Impel S.A. for the fiscal year 2014,
  • Management Board’s recommendation for the distribution of profit for the fiscal year 2014.

 

The above-mentioned financial statements for 2014 were audited by Ernst&Young Audyt Polska Sp. z o.o. S.K. based in Warsaw. The reports on the audit and the statutory auditors’ opinions, forming the synthesis thereof, were the main analytical material assessed by the Supervisory Board.

 

Thence, accepting the findings and assessments contained in the listed source materials and considering them as competent and exhaustive, the Supervisory Board stated that the financial statements for 2014 were drawn up, in all their material aspects, in compliance with the provisions of law in force, accounting principles and standards and factual circumstances disclosed in the books. The Supervisory Board recommends to the General Shareholders Meeting to approve the financial statements of Impel S.A. and the Impel Group for the fiscal year 2014.

 

The Supervisory Board analyzed also the Directors’ reports on the operations of Impel S.A. and the Impel Group for the fiscal year 2014. The Supervisory Board found out that the reports presented the business activities in a reliable manner and provided the basis for assessing the financial and asset position of the Company and its Group.

 

The Supervisory Board put forward a motion to the General Shareholders Meeting to acknowledge to the members of the Company’s Management Board the performance of their duties in the accounting year 2014.