Commentary by the Management Board of TORPOL S.A. to the recommendations of 18 April 2023

Commentary by the Management Board of TORPOL S.A. to the recommendations of 18 April 2023

On 18 April 2023, the Company’s Management Board recommended that the Company’s net profit for 2022 in the amount of PLN 183.3 million should be used to allocate PLN 650,000 to the Company’s Social Benefits Fund (ZFŚS) and to increase the reserve capital by PLN 182.65 million, whereas the Company’s Supervisory Board positively evaluated the aforementioned recommendation presented by the Management Board of the Company. The Supervisory Board gave the positive evaluation upon having analysed the Company’s financial and liquidity situation, and also, the current and projected market situation of the industry, in which the Company operates, as well as the industry’s outlook.

Each of the Company’s positions on the distribution of profit for the previous financial year is preceded by a detailed analysis of, inter alia, the Company’s current and projected micro- and macroeconomic, liquidity and financial situation, the Company’s current and projected level of indebtedness, the current market situation and prospects of the industry in which the Company operates, the current and projected cost of obtaining debt financing and market opportunities for securing such financing, the Company’s investment and operational needs, as well as the Company’s development plans. At the same time, we would like to point out that the aforementioned premises were comprehensively presented in the Company’s position on the proposed profit distribution, published on 24 October 2022 (see, current report No. 38/2022) [Position Statement].

We would like to clearly emphasise that in the last 6-7 months since the publication of the Position Statement, the premises underlying it have not ceased to exist; on the contrary, they have increased in importance and therefore remain relevant and crucial for the Company. In the Position Statement, the Company presented in detail the current and forecast market situation and the key risks that could materially and adversely affect the deterioration of its financial position, prospects or opportunities for further development, in particular:

  • the state of continued freezing of the transfer of funds from the EU to Poland, which has a direct negative impact on the supply of announced proceedings and orders in the industry in which the Company operates,
  • the situation related to the war in Ukraine, which has been going on for over a year as a result of the military aggression by Russia and the risks related to the escalation of hostilities and the negative impact of further sanctions of an economic nature, disrupting the supply chain of strategic raw materials, causing an unpredictable and above-average increase in prices,
  • investment plans of PKP Polskie Linii Kolejowe S.A. and Centralny Port Komunikacyjne sp. z o.o. within the railway component, including plans for investments in high-speed rail,
  • the Company’s financial needs related to the introduction of new technologies and the possibility of implementing projects by the Company in foreign railway infrastructure markets,
  • the record level of inflation in the country for over 26 years and the high level of interest rates, which directly impact the increase in the cost of obtaining external financing and the cost of running day-to-day operations.

At the same time, the Company emphasises that it still intends to be a dividend-paying company, but the implementation of the policy adopted in this area now requires ensuring the Company’s financial stability in the near term and the possibility of its further development. In the opinion of the Company’s Management Board, TORPOL remains a stable, long-term investment, while the projected market circumstances are unpredictable and currently do not allow to make distributions from the generated profit while maintaining an appropriate level of projected liquidity, allowing to limit negative factors on the cost side and to maintain operational continuity and economic efficiency. In view of the above, the Company also has no plans in the current situation to undertake any acquisition activities or to repurchase and redeem shares or any similar.

We would also like to emphasise that the recommendation of the Company’s Management Board regarding the distribution of profit, which has received a positive opinion from the Company’s Supervisory Board, is not binding on the Shareholders. The final decision on the dividend and its amount will be made by the Shareholders at the Ordinary General Meeting on 24 May 2023.

Ref. current report No. 15/2023 of 18 April 2023 on the recommendation of profit distribution for 2022.