Opinion of the Management Board of Echo Investment SA on the article entitled "The High-Risk Zone is Expanding. Kolaja & Partners pinpoints companies in danger” by Katarzyna Latek, dated October 22, 2008, published in Puls Biznesu on October 22, 2008, where Echo Investment SA was enumerated among companies allegedly at risk of bankruptcy:

“Echo Investment S.A. and its subsidiaries are entirely capable of funding the currently executed investment projects.
While executing projects in all areas of activity, Echo Investment Capital Group finances these projects using cash derived from equity capitals, bank loans, issuance of debenture bonds.
Echo Capital Group’s liquidity ratios and debt ratios remain on steady levels, which is primarily due to the corporate investment funding policy and liquidity loss risk management policy.
Echo Investment Capital Group’s credibility on the financial market is supported the diversified structure of banks financing the operations of the entire Group.”

It also needs to be emphasized that the same article contains a piece of information confirming that the applied methodology should not be used in assessing Echo Investment: “Echo Investment is an example of a company for which Altman’s Z-score does not work properly. This developer earns most of its profits through restatement of the value of its property portfolio, which depends on the adopted investment cycle”.
Altman’s Z-score, which is the basis for Kolaja&Partners’ report, and the purpose of using this ratio in Polish conditions was also undermined by other companies mentioned in the report, which is evidenced in an article published by Puls Biznesu on October 23, 2008 - “Disputable Risk Level”.
Independent experts’ opinions are similar in tone:

Marcin Przasnyski, editor of StockWatch.pl site:
(EMBA New York University, Professor Altman’s student during 2005 to 2007)

“Altman’s Z-score should not be applied to Polish companies because it has been developed on the basis of datafrom developed markets, specifically the US market, and adapted to their specific conditions. Furthermore, it is only relevant for production companies, which Echo Investment S.A. is not. Of course we might calculate its value but we must not draw any false conclusions on this basis, or worse still – leap to judgments as grave as “bankruptcy threat”, because this must be viewed as a methodological error.

We must add that Z-score is commonly used as a credit rating tool. Its function is to evaluate companies’ credit ratings and to indicate the envisaged risk premium for investment in their bonds, while it has nothing in common with prices of shares. For emerging markets on which Echo operates, EM-score should be used as the appropriate measure (also referred to as the Z”-score), which is calculated in a different way and evaluated according to a different scale.

Analysis of Echo Investment’s financial data of the recent four quarters indicates that, regardless of its business model qualities, the company is in the safe credit rating zone. On the basis of analyzing its financial statements, I have no slightest doubt as to its good economic standing.

Arkadiusz Chojnacki, Espirito Santo, analyst dealing with Echo Investment’s S.A. shares:

"Altman’s Z-score is not the best way to determine a commercial property developer’s solvency level (which is the case for Echo Investment) – due to underestimated current assets to total assets ratio and underestimated value of sales to assets ratio (which still remains highly profitable). In the specific case of Echo, I can see no threats to its liquidity at the moment, primarily due to its good cash standing and stable cash flows on property lease. We also should not forget that the company finances its operations with short-term loans to a minor extent while using mainly long-term loans and bonds instead. The only risk I am able to distinguish in the medium term is a potential suspension or delay in development of certain projects (mainly the housing ones), which might arise as a consequence of difficulties/(high price) of contracting new debts. „

Piotr Zielonka, DM BH SA, analyst dealing with Echo Investment SA’s shares:

“Using a single ratio to try to evaluate liquidity of several hundred public companies, taking no account of the unique characteristics of individual companies’ operating fields, is not a reasonable idea. Echo Investment is a property developer exposed to the commercial and housing market. Obviously, with its huge project pipeline, the company is going to witness increasing debts. However, as soon as the projects are completed, profits from sales of apartments and revenues from lease rents in office and shopping projects will arise. During a period of the housing market slowdown, stable cash flow generated by commercial projects is of special importance. I can see no liquidity threats at the company. Probably, like most other companies, Echo Investment may face certain difficulties with contracting new loans, but I consider comments on potential loss of the company’s solvency to be exaggerated”.

In the opinion of the Management Board of Echo Investment SA, drafting and publishing of reports based on incorrect substantial grounds or on ratios misaligned to the realities of the Polish economy should not be taking place.
It is not only harmful for the image of companies covered by the report, but also primarily for their customers, investors and employees.

Piotr Gromniak
President of the Management Board
of Echo Investment SA