12/2010: Report of the Supervisory Board on the business activity of Wawel S.A. for 2009

The Management Board of Wawel S.A. presents under the Code of Best Practices of WSE listed Companies, the report of the Supervisory Board on the business activity in 2008, assessment of Company’s condition made by the Supervisory Board and the assessment of the internal control system and risk management system as well as the assessment of the Supervisory Board's operation (adopted. By Supervisory Board).

A. Report of the Supervisory Board on the business activity of Wawel S.A. for 2009

I. Scope of the activity of the Supervisory Board

The report of the Supervisory Board’s activity covers the period from 01.01.2009 to 31.12.2009, when the Supervisory Board of VII tenure was run in the following content:

1. Eugeniusz Małek Chairman of the Supervisory Board

2. Nicole Richter Vice-chairman of the Supervisory Board

3. Paweł Bałaga Secretary of the Supervisory Board

4. Hermann Opferkuch Member of the Supervisory Board

5. Andrzej Szwarc Member of the Supervisory Board

On 16.06.2009 The Ordinary General Meeting of Shareholders of Wawel S.A. elected the Company’s Supervisory Board for the next tenure and determined the number of the members of the Supervisory Board to be 6 persons.

The Supervisory Board composition as of 31.12.2009 is as follows:

1. Hermann Opferkuch Chairman of the Supervisory Board

2. Eugeniusz Małek Vice-chairman of the Supervisory Board

3. Paweł Bałaga Secretary of the Supervisory Board

4. Nicole Richter Member of the Supervisory Board

5. Christoph Köhnlein Member of the Supervisory Board

5. Paweł Tomasz Brukszo Member of the Supervisory Board

The Supervisory Board pursuant to the provisions of the Commercial Companies Code and the Articles of Association performed the permanent control over the Company’s activity. The member of the Supervisory Board stayed in touch with the Management Board and performed their tasks as through the meetings as through the direct contacts and working meetings with the Management Board.

In 2009 the Supervisory Board undertook the activities, which in particular were connected with the further Company's development and the market position strengthening. The main goal was to increase the sale and improvement of products quality.

During the meetings held in 2009 the following issues were discussed:

- the issues related to the operation of “ŁAGOSZCZI” Spółka Akcyjna Otwarta, seated in Ivano-Frankivsk in Ukraine.

- Sales results

- Financial plans,

- Advertising and promotion campaigns,

- Periodical analysis of the financial condition,

- election of the statutory auditor carrying out the financial statements' audit,

II. Assessment of Company’s business activity

In 2009 as the most important events which the Management of the Company faced were deemed as follows:

1) Product quality improvement,

2) Keeping the proper finance liquidity,

3) Optimization of employment in the Company.

As a result of taken actions the satisfying the indicated goals was reflected in the following achievements:

1) The dynamic of the sale incomes, in comparison to the previous year, was achieved at the level 123%,

2) In the analyzed period the positive financial result in the amount 32,051 k PLN was achieved,

3) During 2009 the Company was capable to settle the liabilities on a current basis. It should be assumed, that the liquidity rates as of 31.12.2009 achieved the satisfying level (the current liquidity rate was 2.46 and the fast liquidity rate was 2.02).

4) As of 31.12 2009. The Company did not have any credit agreements. Till the beginning of August 2009 the Company used the credit at the current account with the debt limit up to 3 m PLN, however on 6th August 2009 the credit was fully repaid, and the credit agreement was closed.

III. The report of the Supervisory Board on the financial statement for 2009 and the report of the Management Board on business activity in 2009

The Management Board presented to the Supervisory Board the financial statement for the year 2009, which consist of, in particular:

- Report of the financial situation prepared for 31.12.2009, which presents in the assets and liabilities the sum of 250,913 k PLN,

- Report of the total incomes for the period from 01.01.2009 to 31.12.2009 which presents the net profit amounting to 32,051 k PLN,

- Specification of the changes in the equity for the fiscal year from 01.01.2009 to 31.12.2009, showing the increase of equity by 17,053 k PLN,

- Cash flow statement for the period from 01.01.2009 to 31.12.2009 indicating the increase in the pecuniary assets by the amount of 9,418 k PLN,

- explanatory notes together with additional information,

Together with the report of the statutory auditor Roedl Audit Sp. z o.o. on the auditing the above documents and the statutory auditor’s opinion.

The Supervisory Board did not raise any reservations to the documents above.

The Supervisory Board states that the financial statement of Wawel S.A for 2009 was drawn up pursuant to the law, in particular the Accounting Act and contains the full and sufficient report on the Company’s business activity in 2009.

The Supervisory Board was familiar with the motions of the Management Board concerning the assignation of the profit achieved by the Company in 2009 and the Supervisory Board complies with the request of the Management Board on the division of the worked profit in the following manner:

- For the dividend - 14,997,550.00 PLN.

- For the reserve capital amounting to 17,053,487.66 PLN,

IV. Summary

The correct and satisfying sale results, positive financial result and proper balance structure reflected in the economic rates allows the Supervisory Board to make a positive assessment the activity of the Management Board and apply for the confirmation for the Management Board of Wawel S.A.

B. The Supervisory Board Wawel S.A. assessment of the Company’s condition in 2009 including the assessment of the internal control system and important risk management system (part III, art. 1, par. 1 of the Code of the Best Practice for WSE listed Companies).

The Supervisory Board assesses positively the situation of Wawel S.A. in 2009 and the financial result achieved in 2009 is deemed to be satisfying.

Making the comparable analysis in 2008-2009 there should be stated that the results achieved by the Company in 2009 are much better than those in 2008.

In August 2009 the Company totally repaid the credit at the current account, and the credit agreement was closed. The Supervisory Board assesses positively the fact that the Company does not have any debts, and its operating activity is financed by the Company’s equity.

The Supervisory Board positively assesses the continuance of the further changes process in the field of product. It concerns in particular the activities aimed at limitation of the assortment list with the reference to the products with low volume of sale, at the same supporting and developing the leading products. Concurrently to those actions the seasonal and occasional offers are being marketed, which have a positive influence on perception of the products and brand of Wawel among the consumers.

Assessment of the internal control system and important risk management.

The internal control system of Wawel S.A. consists of several procedures and internal regulations (ordinances, internal regulations, internal manuals, scope of duties for the relevant units etc.)

Additionally the Management Board personally engages at the individual levels of the internal regulations to the proper functioning the all control system and on a current basis controls its functioning.

In the opinion of the Supervisory Board the risk management system in Wawel S.A. covers all the risks being significant for the Company.

C. Work assessment of the Supervisory Board Wawel S.A. prepared pursuant to the Code of the Best Practice for WSE listed Companies.

Pursuant to the part III, art. 1, par. 2 of the Code of the Best Practice for WSE listed Companies, the Supervisory Board puts in the assessment of its work in 2009 to the shareholder’s information.

The meetings of the Supervisory Board were held as the general meeting and as circuit meetings. Always the required by law quorum was preserved.

In the whole past reporting period the relevant members of the Board were in touch with the Management Board, and on a current basis discussing and consulting the particular issues related to the business activity. The important element of these contacts of the Supervisory Board with the Management Board is the fact that the Vice-Chairman of the Supervisory Board is a person working every day in the Company's seat office.

The Supervisory Board of Wawel S.A. consists of two representatives of the main shareholder i.e. Hosta International AG, one member working at the Company and three independent members including the Secretary. The Supervisory Board includes the persons who have very good knowledge of the branch where the Company conducts its business activity and they have proper qualifications.

In structure of the Supervisory Board committee for nominations and committee for remunerations were not selected whose tasks and functioning are specified in the Appendix No. I to the Directive of the European Commission of 15th February 2005 on non-executive directors role (…)” (par. III.8 of the Code of Best Practices for WSE Listed Companies).

However, on 28.10.2009 the Supervisory Board of the Company (elected by the GMS on 16.06.2009 for the new tenure in 6-person composition), within its structure appointed the Audit Committee for which the following individuals were appointed:

1) Christoph Köhnlein – Chairman,
2) Nicole Richter,
3) Paweł Tomasz Brukszo.

The Supervisory Board of the previous tenure (working in 5-person composition till 16.06.2009) performed the functions of the Audit Committee collectively, as it consisted of the minimum required by the law number of the members (par. III.7 of the Code of the Best Practice for WSE listed Companies). Moreover the functioning of the Supervisory Board fulfills the requirements of the other rules of the Code of the Best Practice for WSE Listed Companies.

The Supervisory Board performed its duties according to the provisions of the Commercial Companies Code and the Articles of Association.