The decision by the Board of the subsidiary ZRUG Zabrze SA on making of reserves and impairment charges

The Board STALPROFIL S.A. in Dąbrowa Górnicza informs that within the framework of implementation adopted by the Supervisory Board: "Action Plan of the Group STALPROFIL S.A., supporting the restructuring of the pipeline services" of which the Company informed in the current report 17/2016, which one stage is the merger of ZRUG Zabrze S.A. and Stalprofil S.A., in ZRUG Zabrze S.A. restructuring activities are carried out, aimed, inter alia, at reduction of general administrative expenses and the cost of unused production capacity (through reduction of employment by means of collective redundancies and liquidatation of unused production assets).
As part of the above activities, with participation of professional advisors, has been made an internal audit and review of the business risks associated with the activities of the company ZRUG Zabrze S.A. Following the accomplished audit, in-depth analysis of the legal and business were conducted, taking into account the current state of the existing risks in the company. Based on the results of this analysis and the current state of its knowledge, the Management Board of ZRUG Zabrze S.A. made on 12 October 2016 the decision on establishment of reserves and creation of write-downs, totaling 14 414 thousand PLN (before the tax effect).
Tied reserves and write-offs include:
1. Provisions for the costs associated with warranty repairs: 1 340 thousand PLN,
2. Provisions for existing and potential claims of subcontractors and associated costs: 6 218 thousand PLN (including the disputed claims by MONT-SPAW Firma Specjalistyczna Usług Spawalniczych Sp. z o.o.: 2 090 thousand PLN),
3. Provisions for the additional costs of completed contracts: 199 thousand PLN,
4. Provision for claim disputes with Deutsche Bank Poland S.A.: 5 650 thousand PLN,
5. Write-downs on receivables: 1 007 thousand PLN.
Of the amount of 14 414 thousand PLN for provisions and write-offs created, the amount of 12 951 thousand PLN is due to implementation of the completed project titled "Construction of the pipeline DN 700 Szczecin-Gdańsk, Phase II pipeline DN700 Karlino-Koszalin, Phase III pipeline DN700 Koszalin-Słupsk and Phase IV DN700 Słupsk-Wiczlino".
The Board of ZRUG Zabrze S.A. reserves that the values ​​presented above for provisions include anticipated and potential costs of repairs and the existing and potential claims of subcontractors, according to the state of knowledge and assessment on 12 October 2016. These risks are subject to ongoing evaluation. In the event of changes in the probability of these risks materialize or changes in their amounts, the creation of provisions may be increased or decreased.
The provisions and write-offs will affect the unit gross profit of ZRUG Zabrze S.A. and the consolidated gross profit of the STALPROFIL S.A. Group for the third quarter of 2016 by reducing the amount of gross financial results by the amount of provisions and write-offs created.
Detailed information on the creation of provisions and write-offs will be placed in the financial statements of the Group STALPROFIL S.A. for the third quarter of 2016 the publication of which is scheduled for 10.11.2016.
The Board of STALPROFIL S.A. intends to continue the implementation of the adopted "Action Plan of the STALPROFIL S.A. Group, to support the restructuring of the services pipeline" and maintains its positive assessment of the planned merger of STALPROFIL S.A. (Acquiring Company) and ZRUG Zabrze S.A. (Acquired Company), recommending at the same time shareholders of the Company voting at the Extraordinary General Meeting of STALPROFIL S.A. (held on 14 October 2016) for the resolution on the merger.
The provisions and write-offs made by ZRUG Zabrze S.A. prior to the merger with STALPROFIL S.A., will lower the financial result of the STALPROFIL S.A. Group for the third quarter of 2016. In the case of the merger of ZRUG Zabrze S.A. with STALPROFIL S.A., the value of the above provisions and write-offs will lower the equity of STALPROFIL S.A. through the position of "capital from mergers" without affecting the individual result of the issuer (in the balance sheet of STALPROFIL S.A. on the date of the merger, the formation of negative item "capital from mergers", representing the difference between the value of the shares of ZRUG Zabrze S.A., held by STALPROFIL S.A., and the value of net assets acquired from ZRUG Zabrze S.A.).