“sofia commerce pawnshops” jsc 2016 · management report of “sofia commerce pawnshops”jsc...

MANAGEMENT REPORT

FOR THE ACTIVITY

OF

“SOFIA COMMERCE PAWNSHOPS” JSC

FOR 2016

27 March 2017

MANAGEMENT REPORT OF “SOFIA COMMERCE PAWNSHOPS”JSC FOR 2016

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This report has been prepared respectively with the requirements of Art. 33,

Para. 3 of the Accountancy Act; Art. 100 of the Public Offering of Securities

Act; Regulation N2 of the Financial Supervision Commission; Para. 7 of the

Public Offering of Securities Act (POSA) and Annex №10 to Art. 32, Para 1,

item 2, art. 35, Para 1, item 2, art. 41, Para 1, item 2.


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CONTENT:

I . GENERAL INFORMATION FOR “SOFIA COMMERCE PAWNSHOPS” JSC……3

1.Corporate status: ............................................................................................................. 3

2. Mission and values .......................................................................................................... 4

4. Society and membership in organizations .................................................................. 4

5. Summary of 2016 ............................................................................................................. 5

6. Organizational structure ................................................................................................. 7

ІI. DEVELOPMENT OF THE ACTIVITY AND CONDITION OF "SOFIA COMMERCE

PAWNSHOPS”JSC ..................................................................................................................... 7

1. Development of the company ..................................................................................... 7

2. Liquidity ............................................................................................................................. 9

3. Rentability ....................................................................................................................... 10

4. Capital resources .......................................................................................................... 12

5. Results from the activity ................................................................................................ 12

ІIІ. ALL IMPORTANT EVENTS OCCURRING AFTER THE DATE OF THE ANNUAL FINANCIAL

STATEMENT ............................................................................................................................... 18

ІV. IMPORTANT RESEARCHES AND DEVELOPMENTS ............................................................ 18

V. POSSIBLE FUTURE PROGRESS OF THE COMPANY ............................................................. 18

VI. INFORMATION FOR THE ACQUISITION OF OWN SHARES REQUIRED BY THE ORDER OF

ART. 187E OF THE COMMERCE LAW ...................................................................................... 19

VII. PRESENCE OF BRANCHES OF THE COMPANY ............................................................... 19

VIII. FINANCIAL INSTRUMENTS USED BY THE COMPANY ..................................................... 19

IX. INFORMATION PURSUANT TO ANNEX №10 OF ORDINANCE NO. 2 OF THE FSC DATED

17 SEPTEMBER 2003 ................................................................................................................. 20

X. CORPORATE GOVERNANCE STATEMENT UNDER THE PUBLIC OFFERING OF SECURITIES

ACT ........................................................................................................................................... 30

XI. INFORMATION PURSUANT TO ANNEX 11 OF ORDINANCE NO. 2 OF FSC DATED 17

SEPTEMBER 2003 ...................................................................................................................... 30

XII. INFORMATION UNDER ART. 247, PARAGRAPH 2 OF THE COMMERCE ACT ............... 34


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I. General information for “Sofia Commerce Pawnshops” JSC

1. CORPORATE STATUS:

”Sofia Commerce Pawnshops” JSC is a joint-stock company with an ID number [EIK]

131459062 in the Commercial Register at the Registry Agency, domiciled in the city of

Sofia and having its registered office at floor 3, 74 Ralevitza Street, region of

Manastirski Livadi, 1404, Sofia with tell: 0700 848 and site: www.sofcom.bg

“Sofia Commerce Pawnshops” JSC is the only one joint-stock company, whose

shares are traded in Bulgarian Stock Exchange. The Company operates the biggest

chain of pawn shops in Bulgaria, which provide a loan against a pledge of movable

property. At the beginning of 2017 the company owns over 119 pawnshops in the

whole country.

There are over 150 people, working at the Company’s structure. During its years of

development, „Sofia Commerce Pawnshops” JSC acquires experience and

professionalism in the non-banking market of Bulgaria.

„Sofia Commerce Pawnshops” JSC is the only one public company of pawnshops in

Bulgaria, whose bonds are offered freely at the Bulgarian Stock Exchange. Each

http://www.sofcom.bg/


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pawnshop of SOFCOM accepts wide range of movables for security, such as jewelry,

valuables, televisions, video equipment, music devices, expensive household

appliances,etc.

2. MISSION AND VALUES

“Sofia Commerce Pawnshops” JSC is striving to become the largest and most

successful chain of pawnshops, not only in Bulgaria, but also on the Balkan Peninsula.

The company wants to be one of the leading companies on the Bulgarian Stock

Exchange, through hybrid financial instruments, which bring guaranteed yield.

3. VISION

Every citizen of Bulgaria has access to easy, risk-free financing near him.

4. SOCIETY AND MEMBERSHIP IN ORGANIZATIONS

Association of Pawnbrokers in Bulgaria

Bulgarian Stock Exchange - Sofia AD

Central Depository AD

Financial Supervision Commission


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5. SUMMARY OF 2016

Despite the intensified competition and the factor of the variable and restless

environment of international financial markets, “Sofia Commerce Pawnshops” JSC

still continues to report good financial results in 2016 and to justify the trust of clients

and contractors.

The company still remains the largest chain of pawnshops in the country with

investments of Bulgarian capital. For another year “Sofia Commerce Pawnshops”

JSC is still with an established reputation of a loyal partner, who precisely fulfill its

commitments and of a serious public company, that responds correctly in time of the

dynamically changing environment.

The management has continued to focus on balanced moderate risk growth to

keep maintaining high quality service and search for new markets.

“Sofia Commerce Pawnshops” JSC has continued to implement the American and

European management model. A number of studies have been achieved for

optimizing and improving the internal and external communication in the company

and also for consolidation of the brand on the Bulgarian market.

Some of the campaigns conducted in 2016:

PR initiatives

A new corporate identity

Optimizing the internal processes

In 2016, the Company prepared a new strategy for the exterior and interior of each

store, as well as changing the whole corporate identity. The Company policy has

changed and new values have been imposed.


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In order to benefit from the trend at online selling, the Company has created a

project to improve the existing online web store, where all customers have direct

access to the goods available at the individual stores of the company’s chain in

Bulgaria in order to reach even more consumers.

The web address of the online store is: http://vtora-upotreba.org/

In order to be closer to its clients, „Sofia Commerce Pawnshops” JSC continues with

the product: Long-distance pawnshop. This is a service for people who can’t

physically reach some of our stores. To do this, we provide a consultant, who works

on a mobile pawnshop.

http://vtora-upotreba.org/


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6. ORGANIZATIONAL STRUCTURE

ІI. DEVELOPMENT OF THE ACTIVITY AND CONDITION OF "SOFIA

COMMERCE PAWNSHOPS”JSC

1. DEVELOPMENT OF THE COMPANY

“Sofia Commerce Pawnshops” JSC is founded in 1993 and is operating on the

domestic market. The company has over 20 years experience in the field of the

financial intermediation and has a well established name in the industry.

The company is managing over 110 pawnshops in Bulgaria.

At the end of 2003 the company has opened 40 pawnshops, at the end of 2004 their

total number is 62 and at the beginning of 2016 the company owns over 110

pawnshops in the whole country.

The number of stores is monitored continuously and monthly. The Company is

opening, closing and purchasing new stores in order to get larger market share and

higher profits.


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In 2005 “Sofia Commerce Pawnshops” JSC was transformed into a public company,

and since 2007, its shares are traded on the Bulgarian Stock Exchange.

The main revenues of the Company are formed by interest, fees and penalties on

the granted loans.

Year 2013 г. 2014 г. 2015г. 2016 г.

Profit (in thousands of BGN) 5056 5230 5465 5405

Amount of credits granted (BGN) 55648938 55695119 58997427 59877885

For 2016 the Company has granted loans for the amount of 5 9877885 BGN, which is

an increase with nearly 4% than the previous year.


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In the past 2016 the Company has started an optimization of its internal processes.

The monthly market analysis continues, on the basis of which the Company

continues to close down and opens new stores in order to maximize profits and

consolidate profitable market positions.

The accounting information system, which covers 100% of the pawnshops in the

country, operates effectively in 2016. It has been updated and adjusted to optimize

the analysis and control of each store.

2. LIQUIDITY

The Company has generated sufficient amount of money in order to meet its cash

needs.

The cash flows, generated by the Company, depend on the amount of the

granted loans, the interest condition on them, the degree of collectability and

the possibility of realization, the value of the pledged property on uncollectible

loans.

The main ways for increasing the sales, for purchasing new stores and generating

a larger cash flow are increasing the capacity of the granted loans through a


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new pricing policy, building a corporate identity and with a strengthened online

presence.

Year 2013 2014 2015 2016

Short-term assets (in thousands of BGN) 12610 10856 12327 9060

Short-term liabilities (in thousands of BGN) 436 280 3034 332

Short-term receivables (in thousands of BGN) 5042 6298 7411 5742

Finances (in thousands of BGN) 7568 4554 4261 3318

Current obligations (in thousands of BGN) 436 280 3034 332

Coefficient of general liquidity 28,92 38,77 4,06 27.29

Coefficient of fast liquidity 28,92 38,76 3,85 27.29

Coefficient of immediate liquidity 17,36 16,26 1,40 9.99

Coefficient of absolute liquidity 17,36 16,26 1,40 9.99

Until the date of preparation of this report, the Company has not been exposed to

price, credit, liquidity risk or cash flow risk.

3. RENTABILITY

RENTABILITY INDICATORS:

Year 2013 2014 2015 2016

Financial result (in thousands of BGN) 868,00 667,00 805,00 1296

Net Income (in thousands of BGN) 5056,00 5230,00 5465,00 5152

Equity (in thousands of BGN) 11085,00 11458,00 9785,00 9972

Liabilities (in thousands of BGN) 3380,00 3253,00 3124,00 446

Total Assets (in thousands of BGN) 14465,00 14711,00 12909,00 10418

Coefficient of rentability of profits 0,17 0,13 0,15 0.25


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The Company has kept a proper rentability coefficient.

COEFFICIENT OF RENTABILITY OF PROFITS:

The coefficient of rentability gives information about the financial result, which is

generated by one BGN income.

Coefficient of rentability of equity 0,08 0,06 0,08 0.13

Coefficient of rentability of liabilities 0,26 0,21 0,26 2.9

Coefficient of capitalization of assets 0,06 0,05 0,06 0,12

Year 2013 2014 2015 2016

Profits (in thousands of BGN) 5056 5230 5465 5152

Net financial result (in thousands of

BGN)

868

667

805

1296

Coefficient of rentability 0,17 0,13 0,15 0,25


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4. CAPITAL RESOURCES

From 31 June 2016 the amount of the capital of the Company is 2 601 154 BGN.

The Company has issued two classes of shares as follows:

1. 2 400 000 (two million four hundred thousand) number of ordinary,

dematerialized, registered shares with voting rights at General Meeting of the

Company. 180,000 of the voting shares are owned by “Sofia Commerce –

Pawnshops” JSC and pursuant to Art. 187a, Para. 3 of the Commercial Law,

the Company can’t pursuit voting rights on these shares until their transfer.

Because of that the ordinary shares with voting rights are 2 220 000.

2. 201 154 (two hundred and one thousand one hundred and fifty-four) number

of preferred, registered, dematerialized shares entitled to one vote at the

General Meeting of the Company.

3. The total amount of voting shares in the General Meeting of the Company is 2

421 154 from total 2 601 154 number of voting shares, issued by the Company.

5. RESULTS FROM THE ACTI VITY

Revenue of “Sofia Commerce – Pawnshops” JSC

The revenue structure includes the following components: interest, tax and penalty

income, income from the sales, income from sales of services and financial income.

The breakdown by type of revenue is as follows:

Structure of the revenue of “Sofia Commerce – Pawnshops” JSC:

Year 2013 2014 2015 2016

Interest, tax and penalty income (in thousands

of BGN)

5039

5210

5435

5096

Income from the sales (in thousands of BGN) 0 1 0 0

Income from sales of services (in thousands of

BGN)

1

0

0

7

Other profits (in thousands of BGN) 16 19 30 49

Financial profits (in thousands of BGN) 0 0 0 253

Total revenue (in thousands of BGN) 5056 5230 5465 5405


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In 2016 "Sofia Commerce - Pawnshops" AD revenues had decreased. The total

revenue is BGN 5,405,000 compared to BGN 5465,000 for 2015.

The coefficient of efficiency provides info on the expenses, which were spent in order

to be achieved one BGN income.

Coefficient of efficiency of revenue:

Year 2013 2014 2015 2016

Profits (in thousands of BGN) 5056 5230 5465 5405

Expenses (in thousands of BGN) 4076 4470 4557 3973

Coefficient of efficiency of revenue 0.81 0.85 0.83 0.74


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6. Expenses of the Company

Expenses of “Sofia Commerce – Pawnshops” JSC

Year 2013 2014 2015 2016

Expenses (in thousands of

BGN)

4076 4470 4557 3973

Growth -0,15 0,10 0,10 -0,13


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The structure of expenses includes the following components: material costs, external

service costs, staff costs, amortization costs, other costs and financial costs.

Structure of expenses of “Sofia Commerce – Pawnshops” JSC

Year 2013 2014 2015 2016

Material costs (in thousands of BGN) 104 94 65 71

External service costs (in thousands of BGN) 684 664 611 542

Staff costs (in thousands of BGN) 2986 3021 2628 2923

Amortization costs (in thousands of BGN) 49 47 47 44

Other and also impartment of assets (in

thousands of BGN)

225 259 393 69

Financial costs (in thousands of BGN) 28 385 813 324

Total expenses (in thousands of BGN) 4076 4470 4557 3973

The expenses for external services were reduced, because of a renegotiation of

better conditions.


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Year 2013 2014 2015 2016

Costs for duty assets under 700 BGN (in thousands of

BGN)

32 38 23 25

Other costs for materials (in thousands of BGN) 72 56 42 46

Total costs for materials (in thousands of BGN) 104 94 65 71

Telecommunication costs (in thousands of BGN) 98 87 68 30

Costs for office rents (in thousands of BGN) 365 373 308 271

Other costs (in thousands of BGN) 17 25 38 2

Costs for security (in thousands of BGN) 69 65 52 77

Costs for other professional services (in thousands of

BGN)

114 108 142 156

Cost for fees (in thousands of BGN) 21 6 3 8

Total costs for external services (in thousands of

BGN)

684 664 611 542

Costs for staff’s salaries (in thousands of BGN) 2703 2751 2405 2707

Costs for social security (in thousands of BGN) 269 257 208 201

Costs for obligations for staff’s retirement (in

thousands of BGN)

14 13 15 15

Total costs for staff (in thousands of BGN) 2986 3021 2628 2923

Indicators of financial autonomy and indebtedness:

Year 2013 2014 2015 2016

Equity (in thousands of BGN) 11085 11458 9785 9972

Liabilities (in thousands of BGN) 3380 3253 3124 446

Coefficient of financial autonomy 3,28 3,52 3,13 22.36

Coefficient of indebtedness 0,30 0,28 0,32 0,04


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Analysis of financial and non-financial main indicators, associated with the economy activity

of the Company, including information about questions with reference to ecology and

employees.

The information is presented in the annual financial statements and the additional

explanations.

The ratio Revenue/Expenses for 2016 has remained the same. The condition is

illustrated in the following table and graphic:

Year 2013 2014 2015 2016

Revenue (in thousands of BGN) 5056 5230 5465 5405

Expenses (in thousands of BGN) 4076 4470 4557 3973

Coefficient of efficiency 1.24 1.17 1.20 1.36


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ІIІ. ALL IMPORTANT EVENTS OCCURRING AFTER THE DATE OF THE

ANNUAL FINANCIAL STATEMENT

There aren’t important events after the Annual Financial Statement.

ІV. IMPORTANT RESEARCHES AND DEVELOPMENTS

Due to its subject of performed activity, the Company does not do research or

development work.

V. POSSIBLE FUTURE PROGRESS OF THE COMPANY

In 2017 "Sofia Commerce - Pawnshops" JSC will consider the global economic

situation and the situation in the country. New financial instrument is not foreseen.

The company will work mainly to optimize its activity and to maintain its expansion

policy in Sofia and other cities.

The Company will emphasize on new vision, employees training and imposing the

new corporate identity.

The optimization of the company's internal processes will continue in order to

maximize the profits.


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The planned economic policy for 2017 intends to conform the progress of the

Company to the conjuncture of the market and the economic situation.

It is planned pawnshops without perspective and with bad operational indicators to

be closed and the opening of new ones to be restricted. The Company will supervise

on the fastest possible realization of lost bets and for reducing all unnecessary costs.

The overall ideology of the economic policy in 2016 will be subject to maximum

optimization of the activity and preservation of the achieved market share

participation.

The entire ideology of the economic policy in 2017 will be subject of the maximum

optimization of the activity and also keeping the already achieved market share.

The Company will work towards purchasing already existing rival pawnshop chains in

order to invest the funds, raised by the bond issue. New stores will be purchased.

A serious international expansion of the Company in our neighboring countries is

expected. A “New Markets” strategy is being created. It is possible competitive

chains to be bought and the Company to be expanded in the form of a franchise.

There is information about current projects in the Prospectus, published on the FSC

website at www.fsc.bg, on the "BULGARIAN STOCK EXCHANGE - Sofia" AD at

http://bse-sofia.bg/, as well as on the Company's website - www.sofcom.bg.

VI. INFORMATION FOR THE ACQUISITION OF OWN SHARES REQUIRED

BY THE ORDER OF ART. 187E OF THE COMMERCE LAW

During the reporting period it was not performed. During previous reporting periods,

the Company has repurchased a total of 180,000 ordinary shares.

VII. PRESENCE OF BRANCHES OF THE COMPANY

"SOFIA COMMERCE - PAWNSHOPS” JSC has not created and registered branches in

2016.

VIII. FINANCIAL INSTRUMENTS USED BY THE COMPANY

Issue of preferred shares of 400 000 shares with ISIN BG1200002068, which were

transferred to the issue of dematerialized shares with ISIN BG1100053054 of 2 000 000

pieces. (the issue of ordinary shares) and deregistered.

www.fsc.bg

http://bse-sofia.bg/

www.sofcom.bg


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Ordinary shares allowed for trading on the Regulated Market of "BSE-Sofia" AD, the

ISIN code of the issue is BG1100053054 - currently 2 400 000 pieces.

A new issue of preferred shares allowed for trading on the Regulated Market of "BSE-

Sofia" AD, the ISIN code of the issue is BG1200002167 - currently 201 154 pieces.

Issue convertible bonds with ISIN BG2100021133vhave been paid at the date of

payment and deregistered.

IX. INFORMATION PURSUANT TO ANNEX №10 OF ORDINANCE NO . 2 OF THE FSC

DATED 17 SEPTEMBER 2003

1. Information given in value and quantity indicators about the main categories of

goods, products and/or services provided, indicating their share in the sales revenues

of the issuer and the changes that have occurred during the accounting year.

This information is provided in Chapter I and Chapter II of the current management

report.

2. Information about significant deals.

No significant deals have been made during 2016.

3. Information about deals concluded between the issuer and related parties during the

reporting period, proposals for such deals as well as deals that are outside of the

Company’s usual activity or significantly deviated from the market conditions on

which the issuer or its subsidiary is a part with indication of the value of the deal and

any additional information about the assessment needed for the impact on the

financial position of the issuer.

There are no deals, that have been concluded between the issuer and related

parties during the reviewed period.

In 2016, no proposals were made in order to enter into related party transactions or

ones that significantly are deviated from the market conditions on which the

Company is a part.

Until 1st of January 2016, the Company holds one investment in a financial asset

(shares). The investment has been acquired in December 2015 on an active market,

which is why the Company has assumed that its acquisition cost is a good


PAGE 21 FROM 36

approximation of its fair value as of 31st December 2015. In February 2016, the

Company sold this investment at a price similar to its balance amount.

As of 31st December 2016 The Company has no investments in securities traded on

an active market.

4. Information about events and indicators with an unusual nature for the issuer, that

have a material impact on its activities and its realized revenues and expenses;

impact assessment on results in the current year.

On 8th April 2016 a regular Annual General Meeting of the Shareholders was held, on

which the shareholders decided that the issue of preferred shares would be

transformed into ordinary shares and that the two issues would be duly merged

without changing the capital.

On 2nd August 2016 successfully completed a procedure for public offering of shares

from the capital increase of “Sofia Commerce – Pawnshops” JSC. There were

subscribed and paid shares of 201 154 preferred, registered, dematerialized shares

entitled to one vote at the General Meeting of the Company, with nominal value of

the shares - BGN 1, issuing - BGN 5.

The preferred shares of the Company grant to their holders a right to a cumulative,

guaranteed, fixed dividend amounting to 12% of the issue value of the preferred

share on an annual basis for a period of 5 years.

The issue of convertible bonds issued by the Company (ISIN BG2100021133) were

duly paid at maturity (13.12.2016) and de-registered.

As of 27th December 2016, the issue of shares with ISIN code BG1100053054, stock

exchange code 6SOA, issued by “Sofia Commerce - Pawnshops” JSC, are traded on

the Standard segment, on the BSE Main Market. From the same date, the Board of

Directors of BSE - Sofia JSC has registered “IP South Market” JSC as a market maker

for the issue of shares issued by “Sofia Commerce – Pawnshops” JSC - Sofia, ISIN

code: BG1100053054, BSE Code: 6SOA, with a term of the contract: 1 (one) year.

On the issuer’s management opinion, the mentioned events have had a positive

effect on the Company’s performance over the reviewed period.

5. Information about off-balance-sheet transactions - nature and business purpose,

indication of the financial impact of transactions on the business, if the risk and

benefits of those transactions are material to the issuer and if disclosure of such

information is material to the assessment of the financial position of the issuer.

In 2016, there are no transactions to be carried out off-balance sheet by the

Company. The Company has no conditional engagements.


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6. Information about shareholding of the issuer, its main investments in the country and

abroad (in securities, financial instruments, intangible assets and real estate) as well

as investments in share securities outside its economic group and the sources/ways of

financing.

The issuer has no subsidiaries.

7. Information about the loan contracts, concluded by the issuer, its subsidiary or parent

company in the capacity of borrowers, including loan terms and conditions, including

the payment deadlines, as well as information on guarantees and commitments.

In 2016, the Company did not enter into transactions as a borrower.

8. Information about the borrowing contracts, concluded by the issuer, its subsidiary or

parent company in the capacity of lenders, including lending of guarantees of any

kind, including related parties, with specific terms, including the final terms for paying

and the purpose for which they were granted.

The activity of the Company is providing of short-term loans against consideration

(interest and charges). Loans are granted under contracts against a pledge of

movable property.

As of 31st December 2016, the activity is carried out in 112 stores around the country

(on 31st December 2015 they were 119) and the employees, working at the

Company are 153 (on 31st December 2015 they were 173).

9. Information about the use of funds from the committing of new issue of securities

during the reporting period.

The offering of the new issue of preferred shares was carried out with the purpose of

raising capital for the potential acquisition of specific stores with attractive location

of competitive chains of pawnshops in Bulgaria (without planning to acquire

competing companies).

In addition, the funds will be used to extend the loan portfolio of the Company. The

allocation of funds planned under the Prospectus is:

82 % for potential acquisition of competitive stores in

Bulgaria;

18 % cash turnover for expanding the credit portfolio.


PAGE 23 FROM 36

As far as they were recorded, the minimum number of shares was subscribed to a

successful subscription - more than 200,000 shares, the proceeds will be used in

compliance with the Prospectus for the acquisition of competitive stores in Bulgaria.

Currently the management of the Company is in the process of considering potential

stores to expand its chain.

10. An analysis of the ratio between the financial results, published in the financial

statement for the financial year and the previously published forecasts of those results.

The company has not published forecasts of the financial results.

11. Analysis and evaluation of the policy regarding the management of the financial

resources, indicating the possibilities for servicing the obligations, the possible threats

and measures that the issuer has taken or is about to take for their elimination.

The company generates sufficient cash to meet its cash needs. The cash flows

generated by the Company depend on the volume of the granted loans, the

interest rate on them, the degree of collectability and the realization, the value of

the pledged property on uncollectible loans.

The main ways to increase sales and to generate a larger cash flow are increasing

the capacity of the granted loans through a new pricing policy, building a corporate

identity and strengthened online presence.

Year: 2013 2014 2015 2016

Short-term assets (in thousands of BGN) 12610 10856 12327 9869

Short-term liabilities (in thousands of BGN) 436 280 3034 331

Short - term receivables (in thousands of BGN) 5042 6298 7411 5742

Cash (in thousands of BGN) 7568 4554 4261 3318

Current obligations (in thousands of BGN) 436 280 3034 331

Total liquidity ratio 28,92 38,77 4,06 27.37

Rapid liquidity ratio 28,92 38,76 3,85 27.37


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Immediate liquidity ratio

17,36

16,26

1,40

10.02

Absolute liquidity ratio

17,36

16,26

1,40

10.02

Until the date of preparation of this document, the Company has not been exposed

to price, credit, liquidity risk or cash flow risk.

12. Assessment of the possibilities for realization of the investment intentions with

indication of the amount of available funds and reflection of possible changes in the

structure of financing of this activity

On the opinion of the Company's management, the cash turnover is sufficient to

cover Company’s current needs. As far as the minimum number of shares has been

subscribed, in order for the subscription to be successful - more than 200,000 shares,

the proceeds will be used in accordance with the Prospectus for the acquisition of

competitive stores in Bulgaria. Currently the management of the Company is in the

process of considering potential stores to expand its chain.

The Company strives to optimize the implementation of the goals and strategies,

which have been set, while preserving the rate of return of the capital.

In short and medium term, the Company does not expect a change in the structure

of financing its activities.

13. Information about changes during the reporting period in the main management

principles of the issuer and its economic group.

In 2016 there were no changes in the Company's main management principles.

14. Information about the main characteristics of the internal control system and risk

management system, applied by the issuer in the process of preparing the financial

statements.

The financial statements of the Company are prepared respectively with the

Bulgarian legislation and the applicable international accounting standards.


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Due to legislative changes in 2016, public interest entities under § 1 (22) (a) of the

Supplementary Provisions of the Accountancy Act (what the Company stands for)

include in their activity report a corporate management statement with content

according to Art. 100n, Para. 8 of the Public Offering of Securities Act, which is

presented as a separate report, published together with this activity report.

The reports are certified by an independent auditor, who confirms their accordance

with the Bulgarian legislation and the applicable accounting standards and presents

a declaration with content under Art. 100n, Para. 4, item 3 of POSA.

In regard to the risk management system, bets are valued at a reduced cost and

taken as such only highly liquid, with the propose of quickly selling, in case of non-

serviced loans.

In the course of its usual business, the company is exposed to various financial risks,

the most important of which are: market risk (including currency risk, fair value risk

and price risk), credit risk, liquidity risk and interest-bond cash flow risk.

Because of this the risk management is focused on the difficulties in predicting the

financial markets and achieving minimization of the potential negative effects,

which may affect the financial results and the condition of the Company. Financial

risks are currently identified, measured and monitored using different control

mechanisms, established for determining adequate prices for the Company's

products and loan capital.

Company risk management is currently conducted by the Financial and Accounting

Department according to the policy, determined by the Board of Directors, which

has developed the general principles of general financial risk management, on the

basis of which were made procedures for the management of the specific risks such

as currency, price, interest, credit and liquidity.

The various types of risks to which the company is exposed in the course of its

business operations and the approach taken to manage those risks are described

below.

Loans are guaranteed only with liquid bets - black goods, precious metal products.

Price risk

The price risk may be expressed in unfavorable changes in the prices of the services,

offered by the company and in the change in the amount of the expenses for the

activity. Due to the specificity of the company's activity, price risk is directly related

to the interest rates the company provides for loans (the cost of the loan) and their

dynamics. Another manifestation of the price risk is related to a change in the

amount of the expenses for carrying out the activity. In particular, there is a minimal

risk of rising costs at a faster rate than revenue.


PAGE 26 FROM 36

Credit risk

Credit risk is typical for each credit lending company due to the specific nature of its

activity. Preliminary customer surveys through the established database as well as

through organized access to other similar databases, creditworthiness analysis,

current solvency control and borrower development limit and control the degree of

credit risk of the Company.

Liquidity risk

Liquidity risk refers to the risk that the company may not have sufficient funds to meet

its obligations or to meet increased demand for its services. The company strives to

provide external sources of funding - bank loans, refinancing or debt securities

issuance. Regularly tracking market trends allows timely management responses and

effective solutions to meet increased demand.

Cash flow risk

Cash flow risk refers to fluctuations in the amount of future cash flows, generated by

the Company's operations. For “Sofia Commerce – Pawnshops” JSC there is no

significant cash flow risk at the reporting date.

15. Information about changes in management and supervisory management during the

reporting financial year.

There have been no changes in management and supervisory management in 2016.

16. Information about the amount of remuneration, rewards and/or benefits of each

member of the management and supervisory management for the accounting

financial year paid by the issuer and its subsidiaries, regardless of whether they were

included in the issuer's costs or are coming from distribution of profits including:

Amounts received and non-monetary remuneration

Contingent or deferred wages arising during the year, even if the

remuneration is due at a later date

Amount due from the issuer or its subsidiaries for the payment of pensions,

retirement compensations or other similar compensations

In 2016, the remuneration received in total by the members of the Board of Directors

is BGN 597,000 - gross remuneration.


PAGE 27 FROM 36

For the reporting period, the General Meeting of Shareholders of “Sofia Commerce –

Pawnshops” JSC has defined a constant remuneration, which has been paid as

follows:

To Mrs. Irena Todorova Vacheva, as executive member of the Board of

Directors of the Company, has been paid a remuneration of BGN

63,000;

To Mr. Todor Angelov Vachev, as the Chairman of the Board of

Directors of the Company, has been paid a remuneration of BGN

60,000. In his capacity of expert at financial and economic analyzes

appointed under a labor contract, Mr. Todor Vachev has received

BGN 390,000.

Mr. Vladimir Delchev Vladimirov, as an independent member of the

Board of Directors of the Company, has been paid a remuneration of

BGN 84,000.

17. Information about the shares of the issuer held by the members of the management

and supervisory management, procurators and senior management, including the

shares held by each of them individually and as a percentage of the shares of each

class, as well as options provided by the issuer on its securities - the type and size of

the securities on which the options are set, purchase price, if any, and term of options.

Todor Angelov Vachev - Chairman of the Board of Directors of the Issuer holds

directly 19.73% and indirectly (through his daughter Irena Todorova Vacheva, which

owns 3.3% and through his son Chavdar-Angel Todorov Vachev, who holds 3.96%) –

a total of 26 , 98%. The ratio of the shares held to the total number of preferred and

ordinary shares (2,601,154) is 24.90%.

Irena Todorova Vacheva - Executive Director of the Issuer - holds directly 3.3% and

indirectly (through her father Todor Angelov Vachev, who owns 19.73% and brother-

Chavdar-Angel Todorov Vachev, who holds 3.96%) - a total of 26.98%. The ratio of

the shares held to the total number of preferred and ordinary shares (2,601,154) is

24.90%.

The Company did not provide the members of the Board of Directors with options on

its securities. There are no employee participation arrangements in the issuer's

capital, including through issuance of shares, options or other securities of the issuer.

Members of the Board of Directors of the Company do not have rights other than the

right of each shareholder to acquire shares and bonds of the Company.

18. Information about the arrangements known to the company (including after the end

of the financial year), as a result of which in the future there may be changes in the

relative share of shares or bonds held by current shareholders or bondholders.

There are not any known arrangements by the Company.


PAGE 28 FROM 36

19. Information about pending court, administrative or arbitration proceedings

concerning liabilities or receivables of the issuer amounting to at least 10 percent of its

equity; if the total value of the liabilities or receivables of the issuer in all initiated

proceedings exceeds 10 per cent of its own capital, information shall be presented for

each case separately.

Until 31st December 2016, the Company does not have any pending litigation,

administrative or arbitration proceedings concerning liabilities or receivables of at

least 10 per cent of its own capital.

20. Information about the Investor Relations Director, including telephone and

correspondence address:

Investor Relations Director: Yasena Evgenieva Zasheva

Address: Sofia, Dianabad, bl. 58, atelier № 6,

Phone: 0897963214

E-mail: [email protected]

21. Changes in the share price of the Company

Preference shares – SOFIA COMMERCE

Source: data from Info stock (http://www.infostock.bg/infostock/control/graphics/SOFCOM)

This issue of preferred shares matures on a prospectus on 20th April 2016 and has

merged with the issue of ordinary shares of the Company.

http://www.infostock.bg/infostock/control/graphics/SOFCOM)


PAGE 29 FROM 36

Ordinary shares – SOFCOM2

Source: data from Info stock (http://www.infostock.bg/infostock/control/graphics/SOFCOM2)

Ordinary shares of the company are traded on BSE - Sofia on 27.06.2007. For the

reporting period the price of ordinary shares ranges between BGN 5.10 and BGN 3.12

per share.

Preference shares - a new 2016 issue - 6SOP

Source: data from Info stock (http://www.infostock.bg/infostock/control/graphics/6SOP)

http://www.infostock.bg/infostock/control/graphics/SOFCOM2)

http://www.infostock.bg/infostock/control/graphics/6SOP)


PAGE 30 FROM 36

The preferred stock price varies between BGN 5.00 and BGN 4.70 per share.

As of 27th December 2016, the issue of shares with ISIN code BG1100053054, stock

exchange code 6SOA, issued by “Sofia Commerce - Pawnshops” JSC, are traded on

the Standard segment, on the BSE Main Market. From the same date, the Board of

Directors of BSE - Sofia JSC has registered “IP South Market” JSC as a market maker

for the issue of shares issued by “Sofia Commerce – Pawnshops” JSC - Sofia, ISIN

code: BG1100053054, BSE Code: 6SOA, with a term of the contract: 1 (one) year.

X. CORPORATE GOVERNANCE STATEMENT UNDER THE PUBLIC OFFERING OF

SECURIT IES ACT

Due to legislative changes in 2016, public interest entities under § 1 (22) (a) of the

Supplementary Provisions of the Accountancy Act (what the Company stands for)

include in their activity report a corporate governance statement with content

according to Art. 100n, para. 8 of the Public Offering of Securities Act, which is

presented as a separate report published together with this activity report.

“Sofia Commerce – Pawnshops” JSC complies to the principles of the National

Corporate Governance Code (established in 2007 and approved by the National

Corporate Governance Commission, as amended in February 2012 and April 2016)

and carries out its activities in accordance with its ordinances. Compliance with the

Code is subject to the "comply or explain" principle, which means that the Code's

recommendations are respected and when there is a deviation or non-compliance,

the management explains the reasons for it.

By decision № 461 dated 30.06.2016, the Deputy Chairperson of the FSC, in charge of

the Investment Activity Supervision Division, approved the NCGC as a corporate

governance code under Art. 100n, para. 7, item 1 in relation to para. 8, item 1 of

POSA. "Sofia Commerce - Pawnshops" JSC will observe the principles of the National

Corporate Governance Code (established in 2007 and endorsed by the National

Corporate Governance Commission, as amended in February 2012 and April 2016)

and will operate in accordance with its ordinances.

XI. INFORMATION PURSUANT TO ANNEX 11 OF ORDINANCE NO . 2 OF FSC DATED

17 SEPTEMBER 2003

1. Structure of the company's capital, including securities not admitted to trading on a

regulated market in the Republic of Bulgaria or another Member State, indicating the

different classes of shares, rights and obligations pertaining to each of the classes of

shares and the share of the total capital , which makes up each class


PAGE 31 FROM 36

By 31 December 2016, the share capital was paid in full and amounted to BGN 2 601

thousand, divided into two classes:

1) 92.27% of the capital is distributed to 2 400 000 (two million and four hundred

thousand) ordinary, registered, dematerialized shares with voting rights at the

General Meeting of the Company. 180,000 of the voting shares are owned by

“Sofia Commerce – Pawnshops” JSC and on the grounds of Art. 187a, Para. 3

of the Commercial Law the Company shall not exercise the right to vote on

these shares until their transfer. In view of this, ordinary voting shares are 2

220 000.

2) 07.73% of the capital is distributed in 201 154 (two hundred and one thousand

one hundred and fifty-four) preferred, registered, dematerialized shares

entitled to one vote at the General Meeting of the Company. The preferred

shares of the Company grant to their holders a right to a guaranteed, fixed

dividend amounting to 12% of the issue value of the preferred share on an

annual basis for a period of 5 years. The dividend on preference shares is

cumulative, so even if it is not paid during the due year, it is due to the

shareholders, as on the date of conversion into ordinary shares, the Company

is obliged to pay all cumulated and unpaid dividends.

2. Restrictions on the transfer of securities such as restrictions on the holding of securities

or the need to obtain approval from the company or other shareholder.

There are no restrictions on the transfer of the securities, incl. restrictions on the

possession of securities or the need to obtain approval from the Company or

other shareholder.

3. Information about the direct or indirect holding of 5 percent or more of the voting

rights in the Company's General Meeting, including details of the shareholders, the

size of their shareholding and the way in which the shares are held (31.12.2016)

Todor Angelov Vachev - directly 19.73% and indirectly (through his daughter

Irena Todorova Vacheva, who owns 3.3% and through his son Chavdar-Angel

Todorov Vachev, who owns 3.96%) - a total of 26.98%. The ratio of the shares

held to the total number of preferred and ordinary shares (2,601,154) is

24.90%.

Irena Todorova Vacheva - directly 3.3% and indirectly (through her father

Todor Angelov Vachev who owns 19.73% and brother-Chavdar-Angel

Todorov Vachev, who holds 3.96%) - a total of 26.98%. The ratio of the shares

held to the total number of preferred and ordinary shares (2,601,154) is

24.90%.


PAGE 32 FROM 36

Chavdar-Angel Todorov Vachev - directly owns 3.96% (through his father

Todor Angelov Vachev, who owns 19.73% and through his sister - Irena

Todorova Vacheva - 3.3%) - a total of 26.98%. The ratio of the shares held to

the total number of preferred and ordinary shares (2,601,154) is 24.90%.

Kaloyan Ivanov Lenkov - 14.90%. The ratio of the shares held to the total

number of preferred and ordinary shares (2,601,154) is 13.81%.

Chavdar Hristov Gerasimov - 15.41%. The ratio of the shares held to the total

number of preferred and ordinary shares (2,601,154) is 14.22%.

“Sofia Commerce – Pawnshops” JSC, Sofia - 7.5%, 180 000 pcs. redeemed

ordinary shares that do not have voting rights in the GA's decisions. The ratio

of the shares held to the total number of preferred and ordinary shares

(2,601,154) is 6.92%.

“ID ELANA HIGH FOUNDATION FUND” JSC, Sofia, 4 Kuzman Shapkarev str. /Pop

Andrew/, - 6,56%, 13,200 pcs. preferred shares from the issue of preferred

shares of "Sofia Commerce - Pawnshops" JSC. The ratio of the shares held to

the total number of preferred and ordinary shares (2,601,154) is 0.51%.

SOUTH MARKET MAXIMUM FUND, Plovdiv, 92 Vasil Aprilov Blvd. - 9.94% 20 000

pcs. preferred shares from the issue of preferred shares of "Sofia Commerce -

Pawn Shops" JSC, the ratio of the shares held to the total number of preferred

and ordinary shares (2,601,154) is 0.77%.

VESELIN TANEV DYAKOV - 12,35%, 24 850 pcs. preferred shares from the issue

of preferred shares of "Sofia Commerce - Pawnshops" JSC; The ratio of the

shares held to the total number of preference shares and ordinary shares

(2,601,154) is 0.96%.

PLAMEN FERDINAN VESELINOV - 14.15%, 314 304 ordinary pieces shares, the

ratio of the sum of preferred and ordinary shares to the total amount of shares

of the company, which is 2 601 154 pcs. is 12.08%.

4. Details of shareholders with special control rights and a description of these rights.

The Company has no shareholders with special control rights.

5. The control system for exercising the right to vote in cases where employees of the

company are also its shareholders and when the control is not directly exercised by

them


PAGE 33 FROM 36

Beyond the limitations of Art. 220 of the Commercial Act and the

requirements of the Ordinance on the minimum content of power of attorney

for representation of a shareholder in the General Meeting of the Company

whose shares were subject to public offering, “Sofia Commerce – Pawnshops”

JSC does not have a special control system in the exercise of the voting right

in cases where the employees of the company are also its shareholders and

when the control is not exercised directly by them.

6. Limitations on voting rights, such as limitations on the voting rights of shareholders with

a certain percentage or number of votes, the time limit for the exercise of voting rights

or systems where, with the cooperation of the company, the financial rights attaching

to the shares are separated from the ownerships of stocks

There are no restrictions on voting rights. The deadlines for exercising voting

rights are in accordance with the provisions of the Public Offering of Securities

Act.

7. Agreements between shareholders who are known to the company and which may

result in restrictions on the transfer of shares or voting rights.

The Company does not have information on agreements between

shareholders that may result in restrictions on the transfer of shares or voting

rights.

8. The ordinances on the appointment and dismissal of the members of the

management of the Company and on the amendments and additions to the Statute.

"Sofia Commerce - Pawnshops" JSC has a one-tier management system. The

management of the Company is the General Meeting of Shareholders and

the Board of Directors. The Board of Directors of the Company is elected by

the General Meeting for a period of 5 (five) years, the first Board of Directors

being elected for a term of three (three) years. Members of the Council may

be re-elected without restrictions. Upon the expiry of their term of service, the

members of the Board of Directors shall continue to perform their functions,

until the General Assembly elects a new Board.

According to the Company's Articles of Association, the Board of Directors is

elected by a simple majority of the capital presented to the General Meeting

of Shareholders. Members of the Council may be re-elected without

restrictions. Upon the expiry of their term of service, the members of the Board

of Directors shall continue to perform their functions until the General

Assembly elects a new Board.


PAGE 34 FROM 36

The Articles of Association shall be amended by the General Meeting by a

majority of 2/3 of the voting shares represented at the General Meeting.

The rules are detailed in the Articles of Association of the Company, which are

published in the electronic file of the Company in the Commercial Register -

http://www.brra.bg, enabling all third parties to get acquainted with it.

9. The powers of the management of the Company, including the right to take decisions

on the issuance and redemption of shares of the Company.

The powers of the Board of Directors are described in Art. 36 of the Articles of

Association of the Company and are related to the current management of the

activity.

At present, the Board of Directors is empowered by a GMS decision of 29.06.2015

concerning the calendar years 2016 and 2017, whereby up to 3% of the voting

shares (preferred and ordinary) within the calendar year, but not more than 10% in

total. The decision was entered in the Commercial Register on 03.07.2015

During previous reporting periods, the Company carried out redemption of a total of

180,000 ordinary shares and, on the grounds of Art. 187a, Para. 3 of the Commercial

Law the Company shall not exercise the right to vote on these shares until their

transfer.

By decision of the General Meeting of Shareholders dated April 8, 2016, the Board of

Directors has the power to issue shares and bonds.

XII. INFORMATION UNDER ART. 247, PARAGRAPH 2 OF THE COMMERCE ACT

1. Information on the remuneration received collectively during the year by the

members of the boards.

In 2016 the remuneration received in total by the members of the Board of Directors

amounted to BGN 597,000 - gross remuneration.

2. Information on the company's shares and bonds acquired, held and transferred by

members of the Board during the year.

In 2016 there were no acquired and transferred shares and bonds from the members

of the Board of Directors of the Company.

3. Information on the rights of board members to acquire shares and bonds of the

Company

http://www.brra.bg/


PAGE 35 FROM 36

The Articles of Association of the Company do not provide for special rights of the

members of the Board of Directors in the acquisition of shares and bonds of the

Company.

4. Information on the participation of board members in commercial companies as

unlimited liability partners, the holding of more than 25 per cent of the capital of

another company and their participation in the management of other companies or

cooperatives such as procurators, managers or board members.

During the reviewed period, the members' shares in commercial companies were as

follows:

Company: Type of connectivity:

“Emotion” Ltd. Irena Vacheva - manager and owner of capital

"KARATE-PERFECT – Todor Vachev - registered as a sole trader

TODOR VACHEV" ST.

"HOLDING BULGARIAN Vladimir Vladimirov - Executive Director since

STATE RAW" EAD 14.02.2017

5. Information about the contracts under Art. 240b of the Commercial Code concluded

during the year.

In 2016 there are no contracts between the Company and the members of the

Board of Directors or persons related to them under Art. 240b of the Commercial

Law.

6. Planned economic policy over the next year, including expected investment and staff

development, expected return on investment and company development as well as

transactions, that are essential to the Company's operations.

At present, the management of the Company is in the process of considering

potential stores to expand its chain. The management continues the monthly market

analysis, on the basis of which the Company continues to close and opens new

stores in order to maximize profits and consolidate profitable market positions.

________________________________

Irena Vacheva

/C.E.O of “Sofia Commerce – Pawnshops” JSC/

“sofia commerce pawnshops” jsc 2016 · management report of “sofia commerce pawnshops”jsc...

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