Report by the Supervisory Board of Echo Investment S.A.

Report by the Supervisory Board
of Echo Investment S.A.
on the results of:
- assessment of the individual financial statement of Echo Investment S.A. and
consolidated financial statement of Echo Investment Capital Group of 2007,
- assessment of the Management Report on the activity of Echo Investment SA and
Echo Investment Capital Group in 2007,
- assessment of the situation of Echo Investment SA and Echo Investment Capital
Group in 2007:
- assessment of Management Board conclusions on allocation of net profit of 2007
and net profit of the preceding years,
- work of the Supervisory Board of Echo Investment SA in 2007.
Report by the Supervisory Board of Echo Investment S.A. for 2007
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1.
Conclusions of assessment of the individual and consolidated financial statements,
Management Reports on the activities of the Company and Echo Capital Group in 2007,
and the situation of Echo Investment SA Company and Capital Group in 2007
The Supervisory Board of Echo Investment SA, acting pursuant to Article 382 paragraph 3 of the Code
of Commercial Partnerships and Companies, has evaluated:
a) the individual financial statement for the year 2007, including:
- individual balance sheet prepared as on December 31, 2007, where the balance total of
assets and liabilities is 1,310,030 thousand zlotys,
- individual profit and loss account for the period from January 1, 2006 to December 31,
2007, showing a net profit amounting to 54,893 thousand zlotys,
- individual cash flow statement for the period from January 1, 2007 to December 31,
2007, showing a balance increase in net cash balance of 25,800 thousand zlotys,
- individual statement of changes in equity for the period from January 01, 2007 to
December 31, 2007, showing an increase in equity by 54,893 thousand zlotys,
- additional information,
in regard of conformity with the books of accounts, records, and actual state of affairs;
b) Management Report on the operations of Echo Investment S.A. in 2007.
c) consolidated financial statement for 2007, including:
-
consolidated balance sheet prepared as on December 31, 2007, where the balance
amount of assets and liabilities is 3,538,948 thousand zlotys,
- consolidated profit and loss account for the period from January 01, 2007 to December
31, 2007, showing net profit for the shareholders of the dominant company amounting
to 319,039 thousand zlotys,
- consolidated cash flow statement for the period from January 01, 2007 to December 31,
2007, showing an increase in net cash of 103,252 thousand zlotys,
- consolidated statement of changes in equity for the shareholders of the dominant
company for the period from January 01, 2007 to December 31, 2007, showing an
increase in equity by 315,292 thousand zlotys,
- additional information,
in regard of conformity with the books of accounts, records, and actual state of affairs;
d) Management Report on the activity of Echo Investment Capital Group in 2007.
The Management Board of Echo Investment SA hired BDO Numerica S.A. auditor firm with its
registered seat in Warsaw to audit the individual and consolidated financial statements. The auditor firm
was represented by:
- Grażyna Maślanka, Chartered Accountant reg. no. 9375/7031
- dr Andre Helin, Chartered Accountant reg. no. 90004/502
The Supervisory Board has read the chartered accountants’ opinions and reports concerning the
individual and consolidated financial statements.
Having read the individual and consolidated financial statements, based on the chartered accountant's
opinion and report, the Supervisory Board hereby states that the data contained in the individual
financial statement of Echo Investment S.A. and in the consolidated statement of Echo Investment
Capital Group fairly and correctly describes the property and financial condition and reflect in a
transparent and fair manner all information significant for assessment of the result of business
operations, yield and cash flows during the audited period. The financial information contained in
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Report by the Supervisory Board of Echo Investment S.A. for 2007
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Management reports of the dominant company concerning the operations of Echo Investment S.A. and
Echo Investment Capital Group in 2007 has been taken directly from the audited financial statements
and conforms to the said statements. The statements have been prepared correctly in all substantial
aspects, i.e. in compliance with the accounting principles according to the International Financial
Reporting Standards and related interpretations published as regulations of the European Commission
and, with respect to issues not regulated by the said Standards, in accordance with the requirements and
provisions of the Accounting Act as of September 29, 1994 and secondary provisions issued on its basis,
and according to properly maintained books of accounts. The Statements conform to the legal
regulations and provisions of the Company Articles of Echo Investment SA to the extent affecting the
contents of the financial statement,
The following conclusions can be drawn from analysis of financial values and indicators presented in
the financial statements for 2007:
- Echo Capital Group earned a net profit of PLN 319 million, that being an increase by 15% in
comparison with the year 2006,
- the value of the Capital Group’s operating profit was PLN 399 million, nearly 5% more than in
2006. At the same time, revenues grew by 14.8%, to reach 382 million zlotys,
- there was an increase of the Company’s balance total by 269 million zlotys and the Capital Group’s
balance total by 799 million zlotys,
- cash on hand enables financing consecutive investment projects,
- the balance of the Capital Group’s financial obligations (debt) has increased but the debt ratios
remain on safe levels,
- the level of the Capital Group’s financial liquidity indicates its capability of expanding its land
property resource bank and accelerated growth in the coming years.
The Management Board’s operations in 2007 focused on strengthening the Company’s position on the
Polish real estate market and exercising its business development strategy in Central and Eastern
Europe.
New subsidiaries were established for purposes of carrying out developer activity in Poland, Romania,
Hungary and Ukraine.
In 2007, the Capital Group continued execution of its current investment projects and business plans,
and has gained new projects in all segments of its activity. The assumed strategic goals, important in the
perspective of further growth and strengthening the company’s position on the real estate market, have
been achieved, including the following particular achievements:
- the structure of real estate portfolio was altered through sale of four commercial establishments
in Lodz and Kielce to Catalyst Capital fund. Proceeds from sales of these projects, amounting to
approx. 250 million zlotys, will be allocated to financing implementation of investment plans,
- about 75 thousand square meters of space for rent and for sale have been put in operation. The
largest commercial project in the history of Echo Capital Group, namely the Pasaż Grunwaldzki
of Wroclaw, was completed,
- business in Central and Eastern Europe has been expanded through purchase of immovable
property in Brasov, Romania, designed for building an advanced multifunctional commercial
project,
- seven new Polish markets were gained in the following cities: Gdansk, Lodz, Kalisz, Katowice,
Koszalin, Slupsk and Wroclaw,
- 17 land purchase transactions were successfully executed, enabling development of more than
400 thousand square meters of space for sale and rent.
In the opinion of the Supervisory Board, the present experience on the real estate market and the
financial standing of Echo Investment Capital Group enable effective entry and development on
consecutive new markets in Central and Eastern Europe. The Capital Group is well prepared to
capitalize on its current position for further growth on the real estate market.
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Report by the Supervisory Board of Echo Investment S.A. for 2007
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The Supervisory Board hereby states that ethical business and corporate governance principles were
followed at Echo Investment SA in 2007 in accordance with the “Good Practices in Public Companies
2005” applied by the Company.
The Company communicates the opinion of the Management Board of Echo Investment S.A. on
compliance with Corporate Governance in the form of current reports, which are also published at
www.echo.com.pl in the section dedicated to investor relations.
In 2007, the Company’s activity was well recognized on the real estate market in Poland. The “Crystal
Developer of 2007” award granted to the Company was a means of appreciation of the Company’s
valuable contribution to the development of Polish real estate market and carrying out its business in
accordance with most elaborate business standards. In addition, the Company was awarded in “Client
Service Quality” category in New Houses and Apartment Dwellers’ Poll, and received the title of
“Friendly Employer of 2006”.
The Management Board’s activities in the field of investor relations in 2007 have led to more extensive
coverage of the Company with analytic reports, consequently leading to enlargement of the group of
shareholders. At present, analytic reports about the Company are prepared and published by 15 Polish
and international brokerage houses. The Supervisory Board recommends continuation and expansion of the
Company’s relations with the capital market through:
- frequent individual or group meetings with representatives of the capital market,
- regular meetings with foreign investors and analysts (roadshow),
- cyclical presentations of quarterly financial results,
- meetings and cooperation with current and prospective analysts of the Company’s shares in Poland
and abroad,
- active participation in conferences and seminars,
- interviews given to professional and financial media,
- participation in expert discussion panels.
2. Report on the works of the Supervisory Board in 2007
In 2007, the Supervisory Board of Echo Investment SA was acting in compliance with its Regulations,
the Company Articles, the “Good Practices in Public Companies 2005” adopted by the Company, and
valid rules of the law, while focusing on the Company’s reasonable interest and benefit of its
Shareholders.
In 2007, members of the Supervisory Board, particularly including the Chairman and the Deputy
Chairman, maintained regular contact with members of the Management Board of the Company while
engaging in frequent consulting sessions regarding specific areas of the Company’s activity.
The Supervisory Board was exercising regular supervision over the activity of the Company in all areas.
The range of these duties included:
- analysis and assessment of current financial results and periodical financial statements of the Company,
- analysis of data received from the Management Board concerning the Company’s operations,
- approval of obligations being contracted by the Company and agreements being signed with respect of
the Company’s business.
No separate salaries and audit committees existed within the Supervisory Board of the Company during
the financial year 2007. Regarding all issues in such committees’ ranges of competence, the Supervisory
Board of Echo Investment SA was acting and taking decisions on a joint basis. The Supervisory Board is
composed of members having relevant knowledge and competence in this respect.
The composition of the Supervisory Board changed in 2007.
On May 29, 2007 the Ordinary General Meeting of Shareholders of Echo Investment SA passed a
resolution no. 18, whereunder it decided to appoint 6 new members of the Supervisory Board for the next
term of office (combined 3-years’ term of office). In addition, on the basis of resolutions passed in respect
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Report by the Supervisory Board of Echo Investment S.A. for 2007
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of appointment of the Supervisory Board for the new joint term of office, on May 29, 2007 the Ordinary
General Meeting of Shareholders of Echo Investment SA appointed the following persons as supervisors:
- Wojciech Ciesielski,
- Mariusz Waniołka,
- Robert Oskard,
- Karol Żbikowski,
- Tomasz Kalwat,
- Andrzej Majcher.
Compared to the Supervisory Board for the previous term of office, Mr. Andrzej Majcher is a new
member.
Mr. Kamil Latos, who had been a Member of the Supervisory Board of Echo Investment SA until May
29, 2007, resigned from applying to a post for the next term of office.
During the meeting of June 11, 2007 the Supervisory Board of Echo Investment SA, acting pursuant to
paragraph 1 clause 2 of the Regulations of the Supervisory Board of Echo Investment SA, enacted
resolutions on election of Chairman and Deputy Chairman of the Supervisory Board of Echo Investment
SA. Mr. Wojciech Ciesielski was elected Chairman and Mr. Andrzej Majcher was elected Deputy
Chairman of the Supervisory Board of Echo Investment SA. Both functions are held as from June 11,
2007.
As on December 31, 2007, composition of the Supervisory Board was as follows:
Wojciech Ciesielski, Chairman of the Supervisory Board,
Andrzej Majcher, Deputy Chairman of the Supervisory Board,
Mariusz Waniołka, Member of the Supervisory Board,
Robert Oskard, Member of the Supervisory Board,
Karol Żbikowski, Member of the Supervisory Board,
Tomasz Kalwat, Member of the Supervisory Board.
In 2007, the Supervisory Board passed 27 resolutions in the course of performing its duties, regarding
issues arising out of the Polish Code of Commercial Partnerships and Companies, and the Company
Articles of Echo Investment S.A.
3. Opinion of the Supervisory Board on distribution of profits for 2007 and preceding years
The Supervisory Board has acquainted itself with the motions of the Management Board of Echo
Investment S.A. concerning exclusion of the following values from distribution to shareholders:
- net profit earned by Echo Investment S.A. in 2007,
- net profit earned by Echo Investment S.A. during the preceding years as a consequence of
changing the terms of accounting policy by the Company, i.e. implementation of the International
Accounting Standards,
and decided to allocate the above mentioned earnings in their entirety to supplementary capital for
financing daily operations of Echo Investment SA.
The Supervisory Board accepts the Management Board’s opinion and intends to communicate this
information to the General Meeting of Shareholders.
4. Requests of the Supervisory Board to the General Meeting of Shareholders
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Report by the Supervisory Board of Echo Investment S.A. for 2007
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The Supervisory Board hereby requests the General Meeting of Shareholders to:
a. approve of the Management report on the operations of Echo Investment S.A. in 2007,
b. approve of the individual financial statement of Echo Investment S.A. for 2007,
c. approve of the Management report on the operations of Echo Investment Capital Group
in 2007,
d. approve of the consolidated financial statement of Echo Investment Capital Group for
2007,
e. pass a resolution on exclusion of net profits earned by Echo Investment S.A. in 2007
from distribution to shareholders and allocating these profits in their entirety to
supplementary capital for financing current operations of Echo Investment S.A.,
f. pass a resolution on exclusion of net profits earned by Echo Investment S.A. during the
preceding years from distribution to shareholders and allocating these profits in their
entirety to supplementary capital for financing current operations of Echo Investment
S.A.,
g. grant a vote of acceptance to members of the Management Board confirming the
discharge of their duties in 2007.
Chairman of the Supervisory Board
Wojciech Ciesielski
______________________
Deputy Chairman of the Supervisory Board
Andrzej Majcher
______________________
Members of the Supervisory Board:
Mariusz Waniołka
______________________
Robert Oskard
______________________
Karol Żbikowski
______________________
Tomasz Kalwat
______________________
Kielce, May 12, 2008
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