Macroeconomics Monthly Report - Wirtualna Polskai.wp.pl/a/dibre/rmiesieczne/september_2005.pdfFood....

BRE Bank Securities

6 September 2005

Monthly Report BRE Bank Securities

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BRE Bank Securities

Periodic Report

Monthly Report September

Equity market Despite the anxieties, the economic growth remains high in the US. The number of companies, whose financial results exceeded expectations was close to a six-year record. Raw material companies are driving the Polish market, followed by banks. Macroeconomic data is in favour for the banks: the decline in interest rates and growth in wages and employment. From the companies Banks. Banks did not disappoint the investors that expected good results of the sector following 1H. All banks reported higher net profit than generated in the same period of the last year, mainly due to low write-offs for reserves and general expenses. We continue to wait for the agreement of the Polish supervisory bodies regarding the merger, despite the fact that the tender offer for shares of HVB and BA CA has already begun. Media. CR Media lowered the forecast of this year’s growth in the advertis-ing market (from 10.2% to 10.1%), raising the forecast for next year from 7.1% to 10.5% at the same time. In our forecasts, we assume that the ad-vertising market will grow by 12% this year and next year. In previous years CR Media has usually been too conservative with its estimates. Information Technology. Results of Comarch for the second quarter were a pleasant surprise on the level of sales. However, the higher sales did not translate into an improvement in profitability and growth in profits. The re-sults of Computerland and Emax were weaker than in the analogous period of the previous year. Prokom and Softbank reported results that exceeded the expectations. Construction. Polimex’s second quarter results were significantly better than we expected. Elektrobudowa also reported good results. The value of Polish commercial real estate transactions is growing, mainly due to foreign investment funds. Pharmaceuticals. The gross margins on sales of all distributors increased in relation to the previous quarter. Farmacol’s results confirmed the com-pany’s ability to control costs. PGF continues the process of restructuring Apteki Polskie and Cefarm Łódź. Torfarm effectively increases sales and works on improving profitability. Bioton improved profitability, due to the effects of scale and higher insulin sales. Food. Due to a reduction of costs in Poland and an improvement in the results of the Russian Megapack, Hoop generated profit in the second quar-ter slightly exceeding our expectations (profit generated in the first half of the year were close to our forecast for the entire year). Chemicals. PKN Orlen finally gained control over the Unipetrol group. The Czech Securities and Exchange Commission permitted conducting a tender offer for minority shares. Grupa Lotos purchased 39 petrol stations of the Esso chain, together with 14 properties. The value of the transaction amounted to PLN 278.5m. The quarterly results of both fuel companies slightly exceed our expectations and were largely determined by one-off events.

BRE Bank Securities does not rule out offering brokerage services to an issuer of securities being the subject of a recommendation. Information concerning a conflict of interest arising in connection with issuing a recommendation (should such a conflict exist) is located on the final page of this report.

Analysts:

Marta Jeżewska (+48 22) 697 47 37 Marta.Jeż[email protected]

Tomasz Mazurczak (+48 22) 697 47 35 [email protected]

Michał Marczak (+48 22) 697 47 38 [email protected]

Witold Samborski (+48 22) 697 47 36 [email protected]

Sławomir Sklinda (+48 22) 697 47 41 [email protected]

Andrzej Lis (+48 22) 697 47 42 [email protected]

Krzysztof Radojewski (+48 22) 697 47 01 [email protected]

Przemysław Smoliński (+48 22) 697 49 64 [email protected]

Macroeconomic Analysts (BRE Bank S.A.)

Janusz Jankowiak Akadiusz Grabarczyk Jacek Kotłowski Artur Ulbrich (+48 22) 829 01 66 www.brebank.com.pl

6 September 2005

WIG vs. indices in the region

Equity market Macroeconomics

Average daily trading (3-M)

Average P/E 2006

Average P/E 2005

WIG 31 706 16.5

16.2

PLN 637m

BRE Bank Securities

BRE Bank Securities

6 September 2005 2


Long Anticipation for the Adjustment

Equity Market

Hurricane Katrina can cause a temporary weakening of the economic growth in the United States. It could be unfavourable for equity markets, but not necessarily. The prosperity for US equities, as well as the relatively strong economic growth were largely connected with the situation on the real estate market, caused by record low interest rates. The damages caused by the hurricane could ease pressure on the growth in interest rates and continue the boom on the real estate market. A possible weakening of growth in the US will be more threatening for markets in Asia and South American than for Poland. Another wave of dollar weakening (which currently seems probable) will affect exporters selling to the US (in Poland, among others, this will weaken pa-per manufacturers). However, in a global context, the markets of Central Europe are the least threatened. If the hurricane’s damages actually eases pressure on the growth in interest rates (this view appears more justified than fears concerning increased inflation and higher rates), the influ-ence on equities markets could be positive. It is precisely the growth in long-term rates that is currently a threat to equity markets (de-leveraging the positions of hedging funds in equities, collapse of the real estate market). Another argument is how much longer the situation on the US real estate market can continue – and therefore drive consumption. Prices of houses have already significantly increased (growth of more than 10% this year), and the rate of savings fell to zero. Maintaining the growth in consumption is made more difficult, as the share of fixed expenditures (fuel) is grow-ing. In this situation, gradual rate hikes by the Fed could threaten real estate, and as a result economic growth will slow. However, in the last month, bond markets have again moved with mistrust to economic growth, which is based on fragile fundamentals and yields on treasuries have again fallen (see chart below).

Source: BRE Bank However, the economic growth in the US continues and the number of companies, the finan-cial results of which exceeded expectations was close to a six-year record. However, the strong situation on the Polish equity market also continues. Raw materials companies are driv-ing the market, followed by other large firms, including banks. Macroeconomic data are in fa-vour of the banks: decline in interest rates and growth in wages and employment. If these trends continue, it would be a strong forecast for the results of banks – many families in Po-land cannot afford a mortgage. The market currently wants to discount the growth in volumes more than a decline in margins. Expectations of parliamentary election results favourable for the market, could maintain positive trends on the equity market.

BRE Bank Securities

6 September 2005 3


Current recommendations of BRE Bank Securities S.A.

BPH PBK Suspended BZWBK Suspended GETIN Suspended HANDLOWY Suspended ING BSK Suspended KREDYT BANK Suspended MILLENNIUM Suspended PEKAO Suspended PKO BP Suspended AGORA Accumulate 74.00 2005-08-05 AMICA Hold 37.30 2004-12-14 BUDIMEX Under review COMARCH Under review COMPUTERLAND Hold 113.00 2004-12-17 ECHO INVESTMENT Under review ELEKTROBUDOWA Buy 35.00 2005-07-12 EMAX Under review FARMACOL Buy 34.50 2005-03-24 FORTE Buy 13.80 2005-03-18 HOOP Accumulate 14.50 2005-03-18 INDYKPOL Suspended JELFA Buy 70.00 2005-02-25 JUTRZENKA Accumulate 2004-12-17 KĘTY Hold 129.50 2005-08-04 KGHM Reduce 34.70 2005-08-08 KROSNO Under review LOTOS Hold 35.50 2005-09-05 MONDI Hold 51.00 2005-08-03 NETIA Under review 4.50 ORBIS Under review PGF Hold 50.40 2005-05-16 PKNORLEN Hold 58.90 2005-09-05 POLIMEX Buy 43.80 2005-06-30 PROKOM Under review SOFTBANK Accumulate 36.70 2005-09-02 TELEKOMUNIKACJA POLSKA Hold 19.50 2005-02-08 TORFARM Accumulate 46.00 2005-03-24 WAWEL Accumulate 120.00 2005-03-22

BRE Bank Securities

6 September 2005 4


Changes in recommendations within the last month

Recommendation Statistics

Company Recommendation Target price Date issued

KGHM Reduce 34.70 2005-08-08

LOTOS Accumulate 35.50 2005-08-08

LOTOS Hold 35.50 2005-09-05

PKNORLEN Accumulate 58.90 2005-08-29

PKNORLEN Hold 58.90 2005-09-05

POLMOS LUBLIN Accumulate 35.00 2005-08-22

SOFTBANK Accumulate 36.70 2005-09-02

All Issuers for which BRE Bank Securities S.A. has rendered services

Statistics Sell Reduce Hold Accumulate Buy Sell Reduce Hold Accumulate Buy

number 0 1 9 6 5 0 0 3 1 1

percentage 0.0% 4.8% 42.9% 28.6% 23.8% 0.0% 0.0% 60.0% 20.0% 20.0%

BRE Bank Securities

6 September 2005 5


Following July’s decision, it seems that the majority of the Monetary Policy Council have come to the conclusion that, in light of the uncertainty (including the methodology of data collection and processing), basic macroeconomic relationships should be employed when evaluating economic processes. There is no doubt that both components of the policy mix in Poland have become more restrictive during 1H. Therefore, the lower than expected rate of economic growth (2.4% of GDP in 1H) as well as the greater than expected decline in inflation become understandable in light of the increase in real interest rates, real zloty appreciation and a tighter fiscal policy. Moreover, it was clear from the Council’s communiqués, issued prior to August’s adjustments of inflationary projections that the rate of economic growth would remain below forecasts an-nounced in May’s report on inflation, and inflation would remain below target (defined as CPI of 2.5%) during the entire period of monetary policy implementation. Therefore, the Monetary Policy Council’s 25 base point reduction of interest rates as well as continuation of expansive monetary policy were in line with the balance of risk involving future inflation and economic growth. This decision also lead to the belief that the central bank will continue its policy of accommodation until the balance of risk changes significantly. It appears justified that the lower than possible rate of GDP growth and lack of inflationary pressure from the demand side in the medium term, in conjunction with the high probability of further zloty appreciation, should favour an accommodative monetary policy. However, market players have begun to have some doubts regarding this fact, following a series of statements made by members of the Monetary Policy Council in August, in which they ruled out the possi-bility of further rate cuts. On the other hand, the picture of the situation in the real terms, con-firmed by data from successive months as well as 1Q and 2Q results, still does not meet ex-pectations. Due to the lack of an anchor in the form of a schedule for joining ERM2 as well as contradic-tory plans declared by members of the Monetary Policy Council concerning the shape of monetary policy, there are significant problems with predicting the path that interest rates will take in the short term. The Monetary Policy Council may implement an active policy, which assumes significant rate volatility and with a goal is to lead the rate of economic growth to its potential level and inflation closer to the target, as quickly as possible. However, the Council may as well implement a passive policy, where the supply side is adapted to the demand side through the central bank permitting the inflation to remain below target for a longer period of time and, in extreme cases, even permitting deflation. This approach implies greater stability of rates and, in addition, testifies to the bank’s asymmetry in the perception of inflationary phe-nomena (to be above the target is worse than being below it – in other words, inflation is more dangerous than deflation). We believe that with the Council’s current perception of the balance of risk concerning future inflation and economic growth, the cautious accommodation scenario continues to be the most likely. Moreover, August’s adjustments of inflationary projections is only one of the factors con-sidered by members of the Monetary Policy Council. This means that, if the results of Septem-ber’s elections are favourable from the market’s point of view, and if supply shocks fade, the likelihood of the intervention rate falling a subsequent 50 base points to 4.25% (in two stages) by the end of the year, will still remain high.

Macroeconomics

BRE Bank Securities

6 September 2005 6


Macroeconomics Main Macroeconomic Indicators

Jul 04 Aug 04 Sep 04 Apr 05 May 05 Jun 05 Jul 05 Aug 05 Sep 05 GDP and Output GDP 4.9% 2.8% 3.5% Domestic demand 5.2% -0.3% 3.6% Private consumption 3.6% 1.5% 2.9% Gross fixed asset investments 4.3% 3.8% 7.1% Value added 4.6% 2.8% 3.3% in industry 7.3% 2.6% 4.1% in the construction sector -3.1% 10.8% 9.6% in the market services sector 4.5% 2.7% 2.9% Industrial production growth y/y 6.0% 13.7% 9.5% -1.1% 0.9% 6.9% 2.6% 4.5% Industrial production growth m/m -4.0% 1.8% 9.0% -0.4% -4.8% 9.0% -8.0% 3.7% Retail sales y/y 10.9% 9.6% 8.8% -14.4% 8.0% 10.5% 5.0% 6.3% Retail sales m/m 6.0% -1.5% 0.7% 2.0% 0.2% 4.6% 0.7% -0.3% Labor Market Average wages in enterprise sector (in PLN) 2428.12 2412.66 2439.59 2471.22 2423.92 2512.78 2506.55 2480 Wages growth m/m (CPI-adjusted) 1.3% -0.2% 1.1% -0.8% -2.2% 3.9% 0.0% -0.7% Wages growth y/y (CPI-adjusted) -1.0% 0.3% -0.6% -1.1% 0.5% 3.0% 1.9% 1.5% Employment m/m 0% -0.1% 0.1% 0.2% 0.1% 0.3% 0.0% 0.0% Employment y/y -0.7% -0.8% -0.6% 1.7% 1.6% 1.7% 1.8% 1.9% Unemployment rate 19.3% 19.1% 18.9% 18.8% 18.3% 18.0% 17.9% 17.7% Foreign Trade Current account (in US$) -903 307 -448 693 -874 272 74 Foreign trade in goods balance- payment basis (in US$) -596 -383 -422 -9 -460 36 -143 Exports – payment basis y/y (in US$) 22.7% 33.4% 28.5% 13.8% 18.5% 13.8% 19.0% Imports – payment basis y/y (in US$) 17.6% 33.3% 29.4% -2.8% 20.1% 9.7% 10.9% Current account (in EUR) -532 253 -383 647 -690 222 62 Foreign trade in goods balance- payment basis (in EUR) -486 -314 -345 107 -362 29 -118 Exports – payment basis y/y (in EUR) 13.8% 22.1% 18.0% 13.0% 12.0% 13.4% 21.1% Imports – payment basis y/y (in EUR) 9.1% 22.0% 18.9% -5.1% 13.5% 9.3% 12.9% Current account (% GDP) -2.5% -2.3% -1.8% -0.4% -0.4% -0.4% 0.3% Prices CPI m/m -0.1% -0.4% 0.3% 0.4% 0.3% -0.2% -0.2% -0.4% CPI y/y 4.6% 4.6% 4.4% 3.0% 2.5% 1.4% 1.3% 1.3% CPI annual average 2.1% 2.5% 2.8% 4.0% 4.0% 3.7% 3.5% 3.0% HICP y/y 4.7% 4.9% 4.7% 3.1% 2.2% 1.4% 1.5% 1.4% Net inflation y/y 2.3% 2.3% 2.4% 2.3% 1.5% 1.4% 1.4% 1.4% PPI m/m 0.2% 0.3% -0.1% 0.6% -0.2% 0.3% 0.2% 0.1% PPI y/y 8.6% 8.5% 7.9% 0.8% -0.5% 0.0% 0.0% -0.1% Money Aggregates Money supply (M3) 352.8 356.6 355.9 386.1 393.4 391.4 389.4 390.2 Money supply y/y 10.0% 13.2% 10.7% 10.4% 9.4% Cash in circulation 50.9 50.9 50.1 53.2 52.9 53.8 55.2 Total loans 260.3 263.7 264.8 279.5 285.5 282.0 283.3 Total household loans 109.2 111.3 112.4 123.8 130.0 125.7 128.7 Total corporate loans 122.6 124.1 123.8 125.8 126.1 125.9 125.6 Total deposits 296.6 300.7 300.3 323.1 329.6 325.4 325.3 Total household deposits 191.5 192.3 191.5 201.9 200.0 199.6 200.4 Total corporate deposits 74.0 76.7 76.5 82.2 83.9 85.7 83.6 Forex Rates US$/PLN rate (end of month) 3.6299 3.6816 3.5569 3.3143 3.3845 3.3518 3.3508 3.32 EUR/PLN rate (end of month) 4.3759 4.4465 4.3832 4.2694 4.1675 4.0392 4.0692 4.07 Interest Rates NBP intervention rate 6.00% 6.50% 6.50% 5.50% 5.50% 5.00% 4.75% 4.50% Lombard rate 7.50% 8.00% 8.00% 7.00% 7.00% 6.50% 6.25% 6.00% Deposit rate 4.50% 5.00% 5.00% 4.00% 4.00% 3.50% 3.25% 3.00% Mandatory reserves rate 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% WIBOR 3M 6.41% 7.00% 6.91% 5.40% 5.24% 4.70% 4.48% 4.56% Bond yield 2Y 7.68% 7.82% 7.06% 5.425% 5.114% 4.560% 4.645% 4.59% Bond yield 5Y 7.83% 7.64% 6.98% 5.626% 5.168% 4.660% 4.892% 4.76% Bond yield 10Y 7.50% 7.30% 6.74% 5.568% 5.125% 4.683% 4.910% 4.75%

Source: GUS, NBP, Eurostat, Reuters, BRE Bank SA

BRE Bank Securities

6 September 2005 7


United States– Growth & Inflation The Fed leaves a fairly narrow room for doubt to market players as regards its appraisal of the upside and downside balance of risks in the US economy. The description of the real sphere of the economy in the communiqué issued after the August meeting which, at one with the expectations, ended up in an increase of the Fed funds rate by a successive 25 basis points, is probably not overly optimistic („aggregate spending, despite high energy prices, appears to have strengthened since late winter, and labor market condi-tions continue to improve gradually”). Odds-on it is not too sublime either; but at least it is un-ambiguous. The GDP growth nearing 3.4 percent in the second quarter has been rooted on solid foundations of domestic demand (real growth by 5.8 percent). This growth would have been even higher, if not for a sharp drop of stocks, cutting some 2 percentage points off the GDP growth dynamics as a result of a fats declining imports. As a consequence, the American economy was able to develop at a sturdy pace in the first half of the year without an extra cost in the form of an increased trade deficit. The picture is made complete by adding the moder-ately rigorous fiscal policy (despite growing military costs).

Source: Reuters Most probably such makeup of macroeconomic conditions, particularly striking when con-trasted with a feeble demand in the European Union facilitated the recent appreciation of the dollar. The sustainability of this trend is a different matter altogether. A careful glance at the better balance of savings in the US economy which promotes the curbing of the trade deficit growth reveals that the savings of the private sector are not growing at all. It is hardly surpris-ing given such low market interest rates. If the public sector fails to generate such ample sav-ings in the future, the joy stemming from a curtailed trade deficit will not last long. Then, the US dollar is in for bad times again.

Source: Reuters No doubt the analysis of inflationary processes, run by the Fed, is more lucid and less contro-versial than the interpretation of phenomena taking place in the real sphere of the economy. When upgrading (after the revision of historic figures indeed indicating a - higher than previ-ously thought - presence of inflation in the economy) the forecast for its favorable core index PCE by 25 basis points on an annual basis up to 1.75-2.0 percent in Q4 2005 (instead of the former 1.5-1.75 percent), the Fed has unambiguously stated in its communiqué that the „core

GDP

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EUR/USD

1.15

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1.25

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1.35

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Macroeconomics Trends

BRE Bank Securities

6 September 2005 8


inflation has been relatively low in recent months and longer-term inflation expectations remain well contained, but pressures on inflation have stayed elevated”.

Such a balance of upside and downside risks for the future inflation and growth, combined with unaltered language code („the accommodation can be removed at a pace that is likely to be measured”) does not leave much room for maneuver to market players as regards deciphering Fed’s next move. Due to uncertainty accompanying the development of the situation in the real sphere of the economy, not all share the assessment of the balance of risks announced by the US Central Bank. Hence, the expectations as to the Fed funds rate at the end of this year fall within the brackets of 3.75�4.25 percent, and are even wider, considering the year 2006 (from 3.75 to 5.0 percent). In a sense this very uncertainty is the reason for still low market interest rates.

Source: Reuters In our view, over a relatively short time span, i.e. till the end of the year, we may expect that the growth of the Fed funds rate up to 4.25 percent and the ensuing unaffected assurances as regards removal of accommodation at a measured pace, drop of oil prices down to 60-63 dol-lars, decline of the unemployment rate below 5 percent, hike of the core PCE index above the record-high level of 2.2 percent and, last but not least, a lesser demand for American assets from Asian central banks would elevate 10Y bond yields above 5 percent. Euroland – No Growth & Inflation The balance of upside and downside risks for the future inflation and growth in the Euroland seems to be quite the reserve than in the United States. As regards the economic growth, the forecasts remain pessimistic. The Euroland develops at a rate of 1.2 percent, and the largest economies (Germany, Italy, France) are below the aver-age. Fragile domestic demand leads to a stagnation of production; for a long time yearly growth in production is close to 0-1 percent. Given the present dynamics of the real GDP and the bad condition of the labor market, even such low level of the potential GDP as in the Euro-land suffices as it seems to expand the output gap.

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2004 Q1 2004 Q2 2004 Q3 2004 Q4 2005 Q1 2005 Q2

Core PCECPI

10Y Treasuries

3.94

4.14.24.34.44.54.64.7

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Macroeconomics

BRE Bank Securities

6 September 2005 9


Source: Eurostat Some leading indices of the German economy, which are faring slightly better in recent times, do not translate into an improvement of consumer sentiment (let us not forget 10-percent un-employment and uncertainty accompanying earlier elections).

Source: ZEW, IFO Inflationary processes are under full control. The European Central Bank prompts from time to time of the risk carried by high liquidity and dynamic growth of the M3 aggregate. However, the facts are as follows: the CPI index is at present slightly above the 2�percent target only due to last year’s unfavorable base level and supply shocks in the form of high oil prices, while the index of base inflation which began to descend in the second quarter of 2002 is now stuck at below 2 percent since the early 2003 and has recently reached a record-low level of 1.4 per-cent.

Source: Eurostat The balance of upside and downside risks for the future inflation in the Euroland is, in our view, in both the cases closer to the downside and not the upside balance, as in the case of the United States. The problem is given the official enunciations, such assessment of the situation is not shared by the ECB. Bank representatives suggest to market players already now that they are in for increase rather than cut on the interest rates. We believe that such move would have been justified only in the case of a definite change in the balance of risks for the future inflation and growth. However, we do not expect such change in the Euroland, not only this year, but next year as well.

EMU industry output y/y

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98ZEW (LHS)IFO (RHS)

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HICP Core HICP

Macroeconomics

BRE Bank Securities

6 September 2005 10


The July 25 bps reduction of interest rates by the MPC coupled with adherence to the expan-sive bias in he monetary policy were coherent with the balance of risks for future inflation and growth. What’s more, this decision allowed us to expect the central bank to continue the ac-commodating policy as long as the balance of risks alters considerably. From that point of view, crucial information will undoubtedly be furnished in the quarterly update of inflationary projections to be prepared by the team of analysts of the National Bank of Poland (NBP). It is, however, right to add that the projection forms only one of the number of components that the MPC members take into consideration when in voting. Financial markets actors will meticu-lously analyze the successive, August-dated projection due to a change in the person super-vising that cyclical product on the part of the management board of the NBP. In lieu of Vice-President Krzysztof Rybiński, it is President Leszek Balcerowicz that is to take care of the pro-jection.

Miss Economy Following the decision taken in July, an opinion seemed to have been established amidst the majority of MPC members that in conditions of uncertainty (also concerning the methodology of collecting and processing statistics) it is basic macroeconomic interdependencies that should serve as the guiding light in accessing economic processes. It is beyond any doubt that in the first semi-annual period both elements of policy mix grew more restrictive in Poland. As a result of a growth in real interest rates, real appreciation of the exchange rate and more severe fiscal policy, the below-expectations rate of economic growth and above-expectations drop in inflation become understandable. It followed clearly from MPC communiqués issued prior to the August projection up-date that the period subject to the effects of monetary policy will witness the rate of growth at the level below the forecasts announced in the May inflation report, with the inflation remaining below the target (defined as CPI at the level of 2.5 percent). However, comparing the July communiqué with that published in June, it is apparent that the Council signaled conditional shifts in the balance of risks towards higher growth (slow-down in Q1 was transient) and higher inflation. Inasmuch as in June the Council claimed that „the bal-ance of risks for future inflation changed towards lower inflation”, in July „a risk of stronger inflationary pressure related to increased projections of oil and gas prices, that, however, may also lead to the weakening of economic growth” was emphasized. In July, progressing changes in the distribution of risks substantiated a smaller scale of rates’ reductions (25 in-stead of former 50 basis points) but were not significant enough to induce the MPC to aban-don rates cuts, nor even to turn the expansive bias into a neutral one. It seems justified that lower-than-potential rate of GDP growth and absence, in a medium term, of inflationary pressure from the supply side, should be conducive – against the backdrop of high likelihood of further appreciation of the zloty – to accommodating monetary policy. Market players became highly dubious about it following a long string of MPC members’ statements utterly ruling out the possibility of subsequent cuts in interest rates. On the other hand – the picture of the situation in the real sphere, as confirmed by successive monthly data, still falls short of expectations.

Stable Inflation, Real Sphere Still Doing Poor In the month of July, consumer prices dropped by 0.2% as compared to June, and reached the level of 1.3% y/y, this result being worse than the market expected (1.1% y/y), as was in-tensely highlighted in a few „hawkish” enunciations of MPC members.

Contribution to CPI m/m

-0.8%-0.6%-0.4%-0.2%0.0%0.2%0.4%0.6%0.8%1.0%

02 2

004

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OthersTransport Dwelling Clothing and footwear Alcoholic beverages, tobacco Food and non-alcoholic beverages

Macroeconomics Monetary Policy

BRE Bank Securities

6 September 2005 11


A fall in the annual inflation index was predominantly attributable to a drop in foodstuffs’ prices that proved lower than expected (1.7% m/m). Net inflation remained intact against June (1.4% y/y). In accordance with our projections, at the end of the year the CPI may stand at a lower level than the bottom limit of the inflationary target, i.e. 1.5% y/y. For the second consecutive month producer prices stood still as compared to the preceding year despite a considerable growth in fuel prices. An increase in the PPI index is generated chiefly in the mining and quarrying sector and, to a lesser extent, in manufacturing. In our assessment, inflation figures are slightly worse than expected but inflation continues to be below the target. However, quite a considerable deterioration was reported in factors re-lated to foodstuffs’ prices. What’s more, fuel prices do not cease growing dynamically. It is, however, worthy of note that the risk of occurrence of secondary shocks is low in Poland, as we were capable of learning last year. In the meantime, the real sphere figures are decidedly below expectations. In July, industrial output sold grew by 2.6% y/y, which translates into an 8.0% drop as compared to June. Hav-ing eliminated the effects of seasonal factors, output sold stood at the level of 4.7% y/y. In annual terms, a growth in production was reported in the following sectors: manufacturing of machinery and equipment – by 17.9%, rubber and plastic products – by 12.2%, other transport equipment – by 10.4%. Also construction and assembly production went up dynamically in July, though at slower a pace than in June; the growth amounted to 17.4% y/y.

On the other hand, retail sales figures were worse than expected, the reported nominal growth equaled 5.0%, i.e. a mere 3.2% growth in real terms. Deteriorated sales results were attribut-able, first and foremost, to a fall in sales of cars and to lower-than-expected sales of food-stuffs. Undoubtedly, under no circumstances do figures from the real sphere of the economy reveal a dynamic bounce of domestic demand whose growth did not exceed 1.5 percent in the first semi-annual period of the year. Business tendency indices testify to moderate optimism. According to the surveys of the Cen-tral Statistical Office (GUS), in August the general business climate in manufacturing was at the level of +13, i.e. slightly higher than in July (+12). Reduction in the orders’ portfolio in Au-gust was triggered off predominantly by lower foreign demand but, according to GUS „in forth-coming months entrepreneurs expect the portfolio of orders and production to expand to reach the scale projected one month before”. The month of August saw also an improvement of busi-ness tendency in construction – up to +23 (from +19 in July), but business tendency in trade stood still and remained at the July level (-6). According to GUS, in the first half of the year the net financial result of enterprises went down to PLN b 24,864 from PLN b 30,864 in the corresponding period of the preceding year. In Q2 alone, financial result totaled PLN b 13.8, that figure being slightly below expectations. As compared to Q1, both costs and revenues grew. However, in the entire semi-annual period sales were by approx. 10% lower than last year. At the same time, the structure of inventories changed for the benefit of raw materials and semi-finished products, to the detriment of goods. In our opinion, this may herald slightly higher production in the future but the signal is still so weak that far-reaching caution should be exercised in projecting the bouncing production in Q3. The more so because exporters’ situation is deteriorating – profit was reported by approx. 70.3% exporters against 78.6% last year, which is attributable to the appreciation of zloty against both EUR and USD in the preceding year. Situation on the labor market is changing for the better at a very slow pace. True, the growth in average wages and salaries in the enterprises’ sector was higher than we expected (3.2% y/y). However, this is accompanied by an evident discrepancy between figures on gross wages and salaries and wages and salaries net of payments from profit (went up only by 2.5%). Judg-

Macroeconomics

Sold industrial output

-12%

-8%

-4%

0%

4%

8%

12%

16%

20%

24%

04 2

001

07 2

001

10 2

001

01 2

002

04 2

002

07 2

002

10 2

002

01 2

003

04 2

003

07 2

003

10 2

003

01 2

004

04 2

004

07 2

004

10 2

004

01 2

005

04 2

005

07 2

005

y/y y/y trend

źródło: GUS

BRE Bank Securities

6 September 2005 12


ing from June figures, the acceleration of growth in wages and salaries may have seemed to be of incidental nature but presently more wariness needs to be maintained in formulating that sort of thesis. To be sure, it will be possible to draw more precise conclusions following the presentation by GUS of detailed data as broken down into sectors. Employment in the enter-prises’ sector remained virtually unchanged as compared to June, and grew by 1.8% in annual terms. A slight fall was reported in the unemployment rate – from 18.0% down to 17.9%. GDP in Q2 In accordance with GUS figures, in Q2 the gross domestic product rose by 2.8%. What’s more, the GDP for Q1 was not corrected, while the seasonally adjusted GDP fell by 0.2% as com-pared to Q1. GDP growth by 2.8% y/y came nearly in line with market expectations and slightly higher than we had projected (2.6%). It should be pointed that nearly the entire growth is attributable to exports (7.7% y/y dynamics in the conditions of imports at the level of 0.1%). In annual terms, domestic demand shrank by 0.3%, which translates into the first ever fall since Q1 2002. Therefore, net export’s contribution amounted to 3.1% in Q2 (1.0% in the pre-ceding quarter). The deterioration of domestic demand results, first and foremost, from a fall in inventories (gross accumulation diminished by 8.1% in Q2), while investments boosted by 3.8% y/y (BRE forecast – 4.0%), and individual consumption augmented by 1.5% y/y. In Q2 a growth of the annual dynamics of value added was reported in industry (2.6% against 0.9% in Q1), construction (10.8% against 5.3%) as well as in market services (2.7% against 2.5%). It was exclusively the annual dynamics of non-market services that experienced a decline from 2.3% down to 1.8%. Data published today indicate that internal demand in the Polish economy is very weak, with exports invariably acting as the driving force of growth. According to our projection, GDP will go up by 3.5% in Q3, and by 3.2% in the entire year. And, as it seems, these projections are rather optimistic as July figures published to date and leading indicators indicate stagnation rather than the hastening of economic growth. Surely, with present poten-tial of the economy (BRE estimates - 4.5%-5.2% annually) it would be difficult to deem the 3% rate of economic growth an outstanding achievement of the economic policy.

Better Below or Above the Target? In the absence of an anchor, i.e. a schedule for joining the ERM 2 that the market would be familiar with, and in the light of contradictory intentions concerning the shape of monetary pol-icy that MPC members declare, we encounter serious problems in anticipating the course the path of short-term interest rates will take. The MPC may pursue an active policy providing for high volatility of rates and aimed at making economic growth reach its potential as soon as possible and bringing the inflation close to the target (defined at 2.5 percent.); the Council might just as well follow a passive policy, whereby the supply and demand sides are adjusted by leaving, without an objection of the central bank, inflation much below the target for a longer span or, in an extreme case, by consenting to deflation. Such an approach implies a higher stability of rates and, at the same time, testifies to central bank’s asymmetry in perceiving infla-

Macroeconomics

Contribution do GDP growth(demand side)

-4%

-2%

0%

2%

4%

6%

8%

Q1

2002

Q2

2002

Q3

2002

Q4

2002

Q1

2003

Q2

2003

Q3

2003

Q4

2003

Q1

2004

Q2

2004

Q3

2004

Q4

2004

Q1

2005

Q2

2005

priv consum public consumfixed capital form inventoriesnet export

Contribution do GDP growth(supply side)

-4%

-2%

0%

2%

4%

6%

8%

Q1

2002

Q2

2002

Q3

2002

Q4

2002

Q1

2003

Q2

2003

Q3

2003

Q4

2003

Q1

2004

Q2

2004

Q3

2004

Q4

2004

Q1

2005

Q2

2005

others market services construction industry

BRE Bank Securities

6 September 2005 13


tionary phenomena (being above the target is worse than below the target, or in other words, inflation is more menacing than the deflation). The decision taken in July, i.e. a reduction of lower a scale than previously, seems to suggest that, in the setting of present distribution of risks for future inflation and growth, the majority of the MPC members will incline towards the cautious accommodation option. With a beneficial – from the market point of view - result of September elections, and in the case of the fading away of demand shocks, it still translates into high likelihood of a drop in intervention rate by the end of the year down to 4.25 percent.

Macroeconomics

Fiscal Policy

2005 Deficit – Below the Plan Budget execution as at July 2005

Source: MF In accordance with MF figures, a budget surplus of over PLN b 1 was reported in July, thus allowing to bring the deficit down, after 7 months, to slightly below 50% of the annual plan. The surplus was generated owing to high revenues from virtually all categories of taxes. Direct taxes receipts exceeded 10 billion and were by far the highest this year (except for January when funds from the end of the preceding year were shifted). How to account for VAT revenues in excess of the planned level, though the rate of economic growth and, particularly, the dynamics of domestic demand, fall much below expectations? In our view, it relates to changes in the consumption structure, to the detriment of food enjoying preferential tax rates, and to the benefit of goods and services taxed with the basic VAT rate. Hence, even in the setting of low domestic demand, revenues from consumption taxes may be relatively high.

Source: MF

Indirect tax revenues(b PLN)

0

2

4

6

8

10

12

14

01 02 03 04 05 06 07 08 09 10 11 12

20042005

REVENUES 101706,4 58,2% Indirect taxes 66017,0 56,4% Corporate income tax 8918,8 60,7% Personal income tax 12378,1 52,4% Income of state units financed from the budget 9321,2 70,4% of which: income from customs duty 705,2 45,3% Other income 5071,3 82,2% EXPENDITURES 119158,8 56,8% of which: Interest payment of domestic debt 11392,2 54,3%

Interest payment of foreign debt 2995,6 52,3% Pension Fund subventions 8691,5 61,0% Social Security Fund subven-tions 14119,9 75,8%

Local governments subventions 21602,5 66,8% DEFICIT -17453,4 49,9%

BRE Bank Securities

6 September 2005 14


Expenditure is kept on a tight rein. In may and June, the costs of domestic debt servicing were high but they experienced a considerable fall in the month of July. The deficit was supposed to shoot up in August, the month on which the disbursement of one-off additional payments for retirement and disability pensioners falls. The Budget Act appropri-ates PLN b 1.3 for that purpose. Latest estimates of costs of that operation are slightly higher and reach PLN b 1.5 (i.e. approx. 4% of the planned deficit). The prevailing majority of these funds is to be paid out in August although we do not rule out that the process will draw out to cover September. Preliminary estimates reveal however that after August the actually incurred deficit only slightly surpassed 50% percent of the annual plan. According to the MF projections, at the year-end PIT, CIT and VAT receipts should be by PLN b 2-3 higher than planned. However, excise duty income will be lower. With higher divi-dend revenues and lower expenditure on domestic debt servicing (low interest rates) and for-eign debt servicing (strong zloty), budget standing as at the beginning of the second half of the year does look good.

Source: MF The level of state deficit at the end of the year may differ from what it would follow from higher revenues. The problem is we do not know what amount the MF will additionally decide to ap-propriate for the Social Security Fund (FUS) and farmers’ pension organization (KRUS). As per latest estimates, this year these institutions’ needs may be by PLN b 2.7 and PLN m 600 higher, respectively. Press reports on planned PLN b 1.5 increase in subsidies for FUS con-firm that budget expenditure will be higher in that period. Yet, even with raised amount of sub-sidies, generating the state budget deficit by PLN b 2-3 below the plan (35 billion) is, in our opinion, prejudged. In certain circumstances, it would even be possible to end with state budget deficit below PLN b 30.

Electoral Prodigality Despite much controversy of constitutional and systemic nature, the President has signed a bill vesting miners with the entitlement to retirement pension after 25 years of work. What’s more, the bill provides for the extension – until the end of 2007 - of the right of groups of pro-fessionals working in arduous conditions. All these privileges were to expire at the end of 2006 and, therefore, the bill will not bring about changes in next year’s budget. However, from 2007 on, costs begin to mount in a snowballing fashion. The estimates for the first year amount to PLN b 1 and, subsequently, go up like lightning to top PLN b 4 in 2008, PLN b 6 in 2009 and PLN b 6-7 in 2010, reaching as much as PLN b 10 at the end of the next decade. The cumu-lated cost of the bill to be undertaken in the forthcoming 15 years equals, according to the Min-istry of Labor and Social Policy, PLN b 93. It is our belief that the implementation of the provisions of that bill is absolutely out of the ques-tion as it would not only make public finances fall into ruin but would also breach upon core principles that lay at the foundation of the pension system reform in Poland. The only reason-able way out is for the new parliament to pass a bill on bridge pensions, repealing special privi-leges for miners. Also, it would be best if the legislative initiative were launched by the stepping-down president in October. Passing the bill on bridge pensions should turn into one of covenants of the coali-

100 000

110 000

120 000

130 000

140 000

150 000

I 200

4

III 20

04

V 2004

VII 200

4

IX 2004

XI 200

4

I 200

5

III 20

05

V 2005

2.5

3.0

3.5

4.0

4.5

5.0

Foreign debt (mln PLN) USD/PLN EUR/PLN

Macroeconomics

BRE Bank Securities

6 September 2005 15


tion contract between the Civic Platform (PO) and the Law and Justice (PiS) parties. The point is that the draft submitted by the President does not have to be consulted in the Tri-Lateral Commission and incorporating a provision on bridge pensions to the coalition contract would cut short speculations on the attitude that Law and Justice party has assumed in respect of the issue of special pension privileges to be financed with budget funds. Unlike the bill on earlier retirement, the bill on reimbursement of VAT on construction materials brings about pejorative financial effects for the next year’s budget. In that case, the Minister of Finance was by far more vigorous in exerting the President’s veto than in the case of the min-ing bill. And his efforts were crowned with success. But the joy of the minister in charge of the elaboration of draft budget for 2006 was a flash in the pan as Włodzimierz Cimoszewicz, can-didate for presidency and Sejm Speaker, decided to convene an additional Sejm meeting to consider the President’s veto. In line with expectations, in the setting of pre-electoral fever, the veto was repealed. In such circumstances, the Minister of Finance was faced with two solutions: to raise next year’s deficit by PLN b 3-4 or to make up for lost revenues by increasing excise tax on fuels. Both manners of solving the problem are bad. The former would translate into an increase in borrowing needs, difficulty remaining within the reins of the Excessive Deficit Procedure (EDP) and higher market interest rates. We wish to point out that the lower the execution of this year’s deficit, the worse the next year’s deficit, growing up not only in nominal terms but also – which cannot be ruled out – in relation to the GDP, would be perceived from the point of view of market players, which would carry us away from satisfying the fiscal criterion of convergence. The latter of plausible ways out would reinforce fiscal pressure, tax-triggered inflationary im-pulse (in conditions of excise tax on fuels increased by 25 grosze/liter, average annual inflation will be by 0.3 percentage points higher) and impair chances for the reduction of short interest rates by the MPC. In the setting of not-too-dynamic economic growth, raising taxes on already expensive fuels does not call for a fuller macroeconomic commentary. Within the framework of electoral campaign, politicians treated us with a fall in revenues of the next year’s budget and multiplication of expenditures for many forthcoming years. By a stroke of luck, the lion’s share of those irresponsible initiatives is still revocable. Yet, not everything may be retracted and, therefore, the financial consolidation has become even more arduous. More imposing are the challenges for the future government. Maximum Curb on Treasuries’ Supply At the end of July, the Ministry of Finance confirmed the sale of several hundred of million of EURO on the market, suggesting at the same time that similar operations may be conducted in the future. The reason behind that operation? Assembling funds for the redemption of OK0805 bonds (August 12) that required a little less than PLN b 7. The liquidity deposit grew from June’s PLN b 7.5 to nearly PLN b 15 at the end of July. Interventions of the Ministry of Finance on the foreign exchange that we had expected failed, quite understandably, to arouse enthusiasm in the National Bank of Poland (NBP). All this year’s foreign issues have so far generated approx. EUR b 8. And it’s not the end of the story. We are facing an issue in the USA to be launched at the beginning of September. In our opin-ion, if the problems triggered off by Sejm’s generosity do not put the market in a bad mood, the scale of the issue may exceed USD b 1.5. We also believe that once the budget’s “liquidity cushion” is brought down to around zero at the year-end, subsequent large foreign issues – even approximating to EUR b 5 – may be expected. On top of that, we anticipate new private placement issues on the domestic market, this time, however, denominated in EUR. Maximum curbing of supply of PLN-denominated debt securi-ties seems now the MF-preferred strategy to maintain prices on the debt market at levels that would be appealing from the budget’s viewpoint. Simultaneously, such large foreign issues financing domestic expenditures of the budget, addi-tionally supported by considerable inflow of FDI, offer a solid foundation for the appreciation of the zloty.

Macroeconomics

BRE Bank Securities

6 September 2005 16


Macroeconomics EUROMONITOR

4 convergence criteria

The blue area is delineated by the Maastricht criteria, the line within means

that the criteria have been met.

Spread against interest rates in the Euroland

Deviation of the nominal currency rate from the current value

Poland

Source: MF, GUS, Reuters, Eurostat, EC, BRE Bank S.A.

Inflation

Interest rates

Deficit

Public debt

Criteria area

Degree of adjustment

Source: Reuters, BRE Bank SA

0.4

1.4

2.4

3.4

4.4

5.4

01-0

3

04-0

3

07-0

3

10-0

3

01-0

4

04-0

4

07-0

4

10-0

4

01-0

5

04-0

5

07-0

5

2Y

5Y

10Y


-25%

-20%

-15%

-10%

-5%

0%

5%

01-0

204

-02

07-0

210

-02

01-0

304

-03

07-0

310

-03

01-0

404

-04

07-0

410

-04

01-0

504

-05

07-0

5

EUR/PLN

The Czech Republic

Source: MF, CNB, CSO, Reuters, Eurostat, EC, BRE Bank SA

Inflation

Interest rates

Deficit

Public debt


-0.7

-0.4

0.0

0.4

0.7

01-0

3

04-0

3

07-0

3

10-0

3

01-0

4

04-0

4

07-0

4

10-0

4

01-0

5

04-0

5

07-0

52Y

5Y

10Y


-25%

-20%

-15%

-10%

-5%

0%

5%

01-0

204

-02

07-0

210

-02

01-0

304

-03

07-0

310

-03

01-0

404

-04

07-0

410

-04

01-0

504

-05

07-0

5

EUR/CZK

Hungary

Source: MF, HNB, Reuters, Eurostat, EC, BRE Bank SA

Inflation

Interest rates

Deficit

Public debt


0.5

1.5

2.5

3.5

4.5

5.5

6.5

7.5

8.5

9.5

10.5

01-0

3

04-0

3

07-0

3

10-0

3

01-0

4

04-0

4

07-0

4

10-0

4

01-0

5

04-0

5

07-0

5

3Y

5Y

10Y


-25%

-20%

-15%

-10%

-5%

0%

5%

01-0

204

-02

07-0

210

-02

01-0

304

-03

07-0

310

-03

01-0

404

-04

07-0

410

-04

01-0

504

-05

07-0

5

EUR/HUF

Since May 1, 2004, the reference values for monetary criteria are calculated for EU-25 countries. Explanations: First column: Figures concerning debt and deficit of the public sector relate to the year 2004. The quoted values have been calculated according to ESA 95 meth-

odology and published by Eurostat. In accordance with a decision of the European Council the costs of the pension system reform are sub-tracted from the value of deficit for Poland (and Hungary).

Figures concerning the inflation (HICP) and long-term interest rates are quoted as of the end of July 2005. Interest rates have been calculated as mean daily yield (1 Y) for T-bonds with a 10-year maturity date (semi-annual capitalization). The reference

countries include Denmark, Finland and the Netherlands (instead of Sweden). Second column: T-bond yields are quoted for Hungary and the IRS rate for Poland, the Czech Rep. and the Euroland.

BRE Bank Securities

6 September 2005 17


Macroeconomics 4 CONVERGENCE CRITERIA

CRITERION POLAND THE CZECH REP. HUNGARY

Interest rates 5.58% 5.78% 3.85% 7.25% Inflation 2.3% 3.5% 1.9% 4.5% Deficit 3.0% 4.8% 3.0% 4.5% Debt 60.0% 43.6% 37.4% 57.6% ERV 8.33% 4.59% 2.90% ERV max 10.92% 6.29% 9.98% ERV min 7.28% 3.65% 2.90% Explanations: Upper lines – description at the preceding page. Lower lines:

ERV (Exchange Rate Volatility) is a measure of exchange rate volatility applied by the EMI and the ECB in the convergence reports. The measure is calculated on the basis of daily exchange rates of the last 20 days of the month. The quarterly figure is the mean for 3 months.

• The ERV (forecast) of the last quarter (June – August 2005) as well as maximum and minimum values of the quarterly ERV of the last eight periods have been quoted. The ERV is interpreted as a standard deviation of the annual exchange rate in the next year, assuming that the rate volatility does not change versus the pre-sent rate. Forex stability of a currency is reflected by its lowest possible value.

YIELD CURVE

POLAND THE CZECH REP. HUNGARY

Source: Reuters, BRE Bank

0%

2%

4%

6%

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

PLNEUR


0%

2%

4%

6%

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

CZKEUR


0%

2%

4%

6%

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

HUFEUR

EMU/USA


0

1

2

3

4

5

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2025

2045

BundsUS Treasuries


-1.2

-0.8

-0.4

0

0.4

0.8

lut-0

0

sie-

00

lut-0

1

sie-

01

lut-0

2

sie-

02

lut-0

3

sie-

03

lut-0

4

sie-

04

lut-0

5

sie-

05

Spread 10Y Bundsvs. 10Y US


0

0.2

0.4

0.6

0.8

1

1.2

sty

99

lip 9

9

sty

00

lip 0

0

sty

01

lip 0

1

sty

02

lip 0

2

sty

03

lip 0

3

sty

04

lip 0

4

sty

05

lip 0

5

Spread 2Y/5YBunds

Explanations:

Curves based on quotations as at August 26, 2005.

BRE Bank Securities

6 September 2005 18


Banking Sector New player in the sector – competition on the way EFG Eurobank, the third largest bank in Greece in terms of assets, plans to open 200 branches in Poland during the next three years. The first are to start activity at the beginning of 2006. The bank plans to designate several dozen millions of euro on investments. The Greeks decided to open the branches in Poland after failing to acquire another bank in Greece. Eurobank is known for working quickly and effectively. In the course of 15 years – mainly due to mergers and acquisitions – it has become the third largest bank in Greece. The bank has already invested in Romania, Bulgaria and Serbia. Initially, it will offer loans and payment cards. In Greece, it operates as a universal bank, having 18% share in the market of consumer loans, 12.7% share in the market of mortgage loans and 13% share in the market of corporate loans. The bank has already begun searching for employees and is looking for both management level staff and employees of lower levels. The registration of the “EFG Bank” Internet address in Poland could suggest that the bank will operate under this name in Poland. In this way, the Greek bank would avoid a conflict with Eurobank, already present on the Polish market. Based on the Greek bank’s approach, it appears that it wants to make an immediate and ag-gressive entry onto the Polish market. From information concerning EFG Eurobank’s invest-ments in Romania, Bulgaria and Serbia, the markets the bank has entered through acquisi-tions of existing banks, we know that if the bank decides to enter a market, it does it very rap-idly. Initial information about the bank’s moves in Poland indicate this may be the case here as well. It can be seen that the bank wants to take advantage of what rapidly developing Pol-ish market offers. Competition is considerable, but a player that has experience in rendering services for retail clients and has been successful both on its domestic market and in other countries has every opportunity to be successful also in Poland. This means more competition on the market of retail services in Poland. Demand for housing loans remains high In the second quarter of this year banks granted PLN 6.2 bn of housing loans, out of which 85% were loans for individual clients. As a result, indebtedness in banks increased to PLN 42.7 bn (individual client debt totals PLN 37.7 bn). Competition increases and banks battle for clients In the first half of 2005, banks spent more than PLN 190m on advertisement. Therefore, the expenditures of banks on advertising increased by 17%. ING Bank Śląski spent the most (PLN 26.259m), followed by Bank BPH (PLN 19.117m) and GE Money Bank (PLN 14.788m). Anti-usury law The president signed the anti-usury bill. The law amends the civil code and the law on con-sumer credit as well as limits the admissible amount of interest to four-fold the amount of NBP’s lombard rate (currently 6.25%). Therefore the interest rate of credit cannot exceed 25%. Financial institutions opposed to the bill. As stated earlier they intend to appeal to the Polish Constitutional Tribunal. On the other hand, they have already began to plan what they will do if the law go into effect. Other than setting an upper limit on the amount of interest, the law also introduces an upper limit on costs connected with granting loans. Costs cannot ex-ceed 5% of the loan value. As loan costs cannot be increased, costs that are not directly con-nected with loans will increase (e.g., the price of setting collateral and the insurance pre-mium). The law will mainly affect banks that grant expensive cash loans and sell credit cards with high interest rates. In our opinion, financial institutions will manage to by-pass the law. As they stress, the law contains numerous loopholes. It will, however, complicate their activities.

PKO BP Representatives of the bank stated that a new strategy for 2006-2008 will be presented before the end of the year. However, based on statements of the bank’s president and press re-leases, we already know some of these plans. The strategy will certainly contain plans involv-ing a strategic alliance with Poczta Polska and plans of foreign expansion. Letter of intent with Poczta Polska The largest Polish retail bank signed a letter of intent with Poczta Polska concerning coopera-tion in order to create a strategic alliance of the two firms in the future. Poczta Polska intends

Financial Sector

BRE Bank Securities

6 September 2005 19


to broaden its financial offer with the assistance of PKO BP. The post office adopted a devel-opment strategy for financial services and mediation. After signing the letter of intent at the beginning of August, the governing authorities of each institution appointed a team of experts, which in two months time will prepare a report on the possibilities of joint cooperation and finding synergies. Therefore, further information can be expected in October. Poczta has 75% of Bank Pocztowy’s shares, the remaining are owned by PKO BP. Bank Pocztowy will be re-sponsible for preparing the postal facilities to service banking products. The attitude of the Bank Pocztowy’s president is also not without significance. He wants to introduce major changes to the bank’s activity and create the largest retail network in Poland using postal branches. Plans include creating 3.5 thous outlets by the end of 2007. Plans concerning the future strategic alliance will undoubtedly be included in the bank’s new strategy. However, changes should not be expected to be seen next year. We treat this mat-ter carefully, as plans to create financial service outlets require the appropriate infrastructure, among others, an IT system. Currently, even PKO BP does not have modern IT infrastructure and is facing the implementation of an integrated IT system. The second aspect is the cost of the entire venture, which at present with limited information is difficult to estimate. Such inten-tions of the two firms are a long-term venture and measurable effects will not be visible for 3-4 years. Acquisition of banks abroad Last month the information concerning PKO’s plans to expand abroad also appeared in press. The bank is interested in buying or participating in the privatisation of banks in Central and Eastern Europe. According to press releases and statements of the president, the bank eyes Romania, Bulgaria and Serbia. No specific plans concerning possible purchases has yet been announced, but it is known that the bank has negotiated on participation in the privatisation of 2 banks in Romania. However, representatives of the Romanian government did not agree to participate in privatisation as the bank is controlled by the State Treasury. The bank is cur-rently checking in other countries whether the fact that 50% of its shares are held by the State Treasury would be problem. Press speculation that the Minister of the Treasury and the Minis-ter of Finance wanted a state-owned company to receive a capital injection with PKO BP shares was denied. This information appeared precisely in connection with the acquisition plans. If this capitalisation occurred, following November’s payment of premium shares for individual investors, who purchased shares of PKO BP in the public offering and held them for a year (1 share for every 20 owned), the bank would formally become a private bank, al-though the state would still be the largest shareholder. This would be a political decision. Therefore, in light of the approaching elections, possible changes would have limited chance of being accepted. Following 1H 2005 results Net profit in 2Q 2005, which totalled PLN 467m (4.78% higher than in 2Q 2004) was higher than investors expected. In 1H 2005, the bank earned a net PLN 882.8m (i.e., 3.02% more than in 1H 2004). Net interest income for 1H totalled PLN 1767m (up 1% in comparison with 1H 2004), and fee and commission result PLN 576m (down 19.5% in comparison with 1H 2004). The decline in net fee and commission income in comparison with 1H 2004 results from the introduction of International Accounting Standards. As usual, the bank did not disap-point in terms of the volumes dynamics. Loans at the end of June 2005 totalled PLN 41.25 bn and were up 12.3% in comparison with June 2004. At the press conference the bank’s president stated that PKO BP’s profit for 2005 will be bet-ter than in 2004 and the bank will again report the highest results in the sector.

Getin Fiolet acquired Getin Holding announced that it agreed to pay PLN 3.5m for a 60% stake in Fiolet, Łódź-based company. The company is specialised in loan intermediary. Fiolet has been alreasy selling Getin’s products, mainly mortgage loans. Getin signed also a letter of intent concerning the purchase of 70% of a financial intermadiary - Open Finance. The company is owned by LC Corp. At the same time Getin Holding sold shares of RB Export, another intermediary, specializing mainly in insurance. They were sold for TU Europa (also owned by Leszek Czarnecki). TU Europa has a total of 800 shares, corre-sponding to 80% of votes at the General Meeting.

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Financial results of Getin Bank The 1H net profit of Getin Bank, a subsidiary of Getin Holding S.A., totalled PLN 38.237m, which is 47% more than in the same time last year. Following the first half of the year, Getin Bank’s balance of granted loans amounted to PLN 2.824 bn, and deposits reached PLN 3.889 bn. Total assets are valued at PLN 5.702 bn. Following 1H 2005, ROE totalled 18.9%, and the solvency ratio 15.2%. The bank maintained its forecast of results for this year, which includes a net profit of PLN 81m. Negotiations to purchase WBC Negotiations involving Getin Bank’s purchase of WBC are in the final phase. WBC sharehold-ers comprise 12 Polish banks. PKO BP informed (that owns 25.15% of WBC’s shares) that the negotiations should be concluded in October appeared earlier. Therefore, it is not pre-cisely known when the decision will be taken. However, it appears very probable that the transaction will be finalised.

Kredyt Bank Following 1H 2005 results The bank’s results were significantly better than market expectations. Net profit forecasts for 2Q ranged from PLN 83m to PLN 93m, while the bank announced a consolidated net profit of PLN 139m. The net profit in 2Q was higher than the 1Q result. The bank reported a net profit of PLN 233.16m for 1H, up almost five-fold in comparison with 1H 2004 (PLN 47.48m). The positive reserves and a positive effective tax rate had impact on the results. Net interest income, which was up 8.34% (2Q05/2Q04), was a surprise. In comparison with 1Q, it was up 9.71%. The bank noted a 46.61% decline in net fee and commission income. However, if we compare this result with the 1Q result, the drop is only by 5.19% (2Q05/1Q05). The bank explains the lower commission income in 2005 by the introduction of International Financial Reporting Standards. Costs continue to fall. In comparison with 2Q 2004, they plunged 20.31% in 2Q 2005. This lowered the cost/income ratio to 74.7%, which means a 9.7 p.p. improvement in relation to the year before. However, this ratio remains one of the highest on the market. It is an opportunity for further cuts, as it shows that the bank is consistently conducting restructuring. The bank’s net result was mainly influenced by the positive balance of reserves, which amounted to PLN 22m in 2Q 2005 (in 1Q it totalled almost PLN 27m). However, creating a tax asset had the greatest influence on the net result and increased the gross result by almost PLN 40m. This will mean a larger effective tax rate in the future, which in the bank’s case has been lower than the statutory rate for several quarters. Due to the one-off effect of this opera-tion, it is better to consider the bank’s results on the gross level. The gross result was similar to the 1Q 2005 result. Results for 2Q strengthened our opinion that the bank has overcome its worst problems and the future looks optimistic. However, the upturn is not yet sufficient to decidedly change the bank’s situation. Kredyt Bank must improve sales of its products. Together with further cost cutting, of which the bank can do much more, it could provide an opportunity to improve the results. Organisational changes Kredyt Bank and Warta opened their first joint branch, which provides banking and insurance services. KBC Securities has a desk there, where investors can submit orders during a trad-ing session. Warta will be in more than 20 Kredyt Bank branches across Poland by the end of the year. Opening these branches is a part of the bank’s strategy calling for the development of cross-selling, using companies comprising the group. This is a good news for the bank, which makes effort to increase sales, and more attractive offer could attract new clients. Sale of Stocznia Północna shares Kredyt Bank sold its entire stake of Stocznia Północna shares, corresponding to 27.2% of capital and votes at the GMS. The stake of more than 90 thousand shares was sold for PLN 12.7m. The transaction has a neutral influence on the results of Kredyt Bank.

Financial Sector

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Handlowy Results following 1H 2005 Net profit for the first half of 2005 totalled PLN 315m, and increased by 18% compared to the same period of the last year. In 2Q 2005, the PLN 176m net profit was up 27% in comparison with 1Q 2005 (PLN 138m), and 1.6% in comparison with 2Q 2004 (PLN 174m). The bank’s results beat market expectations. Net interest income also improved, up 5.2% over 1Q 2005 as net fee and commission income did, up 10% over the previous quarter. Profit on banking activity increased by 12% over the previous quarter. The positive balance in the value of pro-vision movements also contributed to the higher profit on banking activity. These were the two main factors contributing the bank’s better than expected result. However, the difference pro-vision movements may not be maintained in the future if the bank notes a growth in the vol-ume of loans in future quarters. At the end of 2Q ROE was 12.5%, and the solvency ratio 12.9%. The bank’s goal is to achieve a solvency ratio between 10 and 12%. During the presentation of results, the bank’s representative brought up the issue of a divi-dend for 2005. In order to reduce the solvency ratio, the bank had previously decided on a dividend of more than 100% of net profit for 2004. The president is currently indicating that this may not be repeated. This does not yet mean a payment of dividend smaller than 100% of net profit for 2005. If the bank manages to simulate a growth in the volume of assets to such a level that the solvency ratio will fall, the dividend will be smaller. However, a high divi-dend will still be possible if a solvency ratio of 10-12% is not achieved through a growth in the volume of assets. Downsizing to improve efficiency Bank Handlowy intends to layoff as many as 530 employees by the end of the year. This is almost 10% of its workforce. The layoffs will mainly involve employees servicing small firms. The planned reductions are justified by the efficiency increase. The terms of the layoffs have already been agreed upon with the trade unions. According to initial estimates, this could gen-erate savings of about PLN 45m, while reserves for severance packages could total approxi-mately PLN 25m.

ING BSK Following 1H 2005 results The ING BSK Group noted a 2Q 2005 net profit of PLN 122.586m, which is 24.10% higher (from PLN 99.778m) over the same period of the previous year. The bank’s results were in line with analysts’ expectations. In the first half of 2005 net profit totalled PLN 258.248m, up 62.47% y/y. Comparing half-year results it can be seen that 1Q results largely contributed to this growth. ING expects the positive trends in operating results to continue. It was stressed that the bank’s share in the market of corporate loans increased to 5.51%, while retail loans continue to be the source of the decline in the volume of loans. The bank’s share in the market fell to 2.47%. As in the first quarter, the positive cost of risk (PLN 24.2m) had an influence on the positive result. The solvency ratio amounted to 17.44%. The bank does not intend to keep the ratio so high. Next year, the management board will recommend including PLN 31.1m to the dividend, created as a result of dissolving reserves for loans formerly considered lost. The possibility of increasing the planned dividend for 2005 by PLN 31.1m was a good news. Despite paying part of the net profit for 2005, the bank will also pay an additional amount, originating from the item: unallocated profit from previous years. At the beginning of 2005 the bank valuated the loan portfolio, in the off-balance sheet register, at PLN 44.1m. After dis-counting, the result was PLN 38.4m and this amount was booked in assets in correspondence with the unallocated profit from previous years. The bank will propose paying out this amount, less tax liabilities (PLN 7.3m), as a portion of the dividend for 2005. At the end of June the solvency ratio was 17.44%. The bank wants to lower this level, which indicates the payment of a larger dividend.

BPH – Pekao merger Increasingly more information appeared in August connected with the merger of UniCredito and HVB. A consequence of the merger of these two banks will be the likely merger of BPH and Pekao. UniCredito’s call for HVB shares began on Friday, 26 August and will continue until 10 October. It is known that the banks managed to obtain the agreement of all appropri-

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ate organs having an influence on the decision concerning the possibility of a merger of the two banks. Despite statements of UniCredito representatives that they would try to conduct the call for BPH shares at the same time, details concerning the call for the Polish bank are not yet known. However, UniCredito representatives said that they will present the details after the banking supervisor and the Securities and Exchange Commission express their agreement to the merger. On 12 June 2005, the management boards of UniCredito and HVB officially announced infor-mation about the merger. The agreement the two banks concluded included information that the merger would occur through a call to HVB shareholders to swap their shares for shares of Unicredito Italiano. Initial parity of exchange was also set. For 1 HVB share, shareholders will receive 5 UniCredito shares. Other than the parity of exchange connected with the call for HVB shares, parities concerning the exchange of BA CA and BPH shares were also estab-lished. For 1 BPH share, shareholders will receive 33.13 UCI shares, and for 1 BA CA share, 19.92 UCI shares. These parities have not changed and are part of the current call for shares of HVB and BA CA. For investors not interested in the share swap, a cash offer was presented. Initially, for 1 BA CA share they wanted to offer EUR 70.4 and for 1 BPH share EUR 123.5. Prices were estab-lished as the average exchange rate from the last six months. Later, information appeared that UniCredito could raise the offer for buying BPH and BA CA shares from minority share-holders who did not want to participate in an swap of shares. In conjunction with the increase in the listings of the Polish bank, the average price of the shares also went up, which is used to define the minimum price for the call. When the plans to acquire Germany’s HVB Group were announced, information was released that the price of a BPH share will be established at EUR 123.58 (i.e., almost PLN 500). The share price at that time was PLN 560. As the price increased, the average used to calculate the offer for a BPH share also increased. In the case of Bank Austria, the price was initially EUR 70.4 per share. This price then grew to EUR 79.6 and the call was announced at this price. UCI will also probably increase the cash offer for BPH shares. Meanwhile newspapers are writing about the possible costs connected with the merger of the two banks in Poland. According to experts, the cost of merging the two banks could reach EUR 11-19m. One of the firms that will receive the greatest remuneration will be probably the lead advisor (a consulting firm or investment bank). Lawyers and firms specialising in person-nel management will also participate in the merger. It is currently difficult to estimate how much this will cost. Costs will depend on what the owners of Pekao and BPH (i.e., UniCredito and HVB) have already agreed to. UniCredito still has not received permission for a call for BPH shares. The Securities and Ex-change Commission is aware that the decision has a major influence on the Polish economy. In addition, the press has reported that according to their sources the banking and securities commissions would like UniCredito to transfer its regional headquarters for Central and East-ern Europe from Vienna to Warsaw. From the beginning Vienna was mentioned as the site for the regional headquarters and Erich Hampel, BA CA current president, is to become the re-sponsible for CEE region. The call for shares of BPH, and as a consequence the merger of Pekao (where UCI is the principal shareholder) and BPH will mainly result in a change to the ranking of the largest bank in Poland and a reduction in employment. There will, of course, be additional consequences. Despite the fact that the announcement of the tender offer was planned in all countries at the same time, the call for HVB began on Friday, the call for BA CA on Monday, and we still have no details concerningPoland.

BPH Number of clients using online banking up The number of clients using the online Sez@m system exceeded 400 thous. 325 thous of this number are individual clients, the rest are corporate clients. This means that 25% of the bank’s individual clients and 40% of corporate clients are using online banking. BPH also wants to develop its online corporate services. Currently, 1600 of the bank’s corporate clients use BusinessNet services. BPH hopes to increase this number to 2-2.3 thous by the end of the year.

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BPH president on investment loan demand During one of the press conferences, the bank’s president stated that he expects an increase in investments in the second half of 2005. Initially firms will finance them from accumulated deposits, and only later take out loans. The information about the small increase in investment demand has been known for about 2 months. The scenario presented by the president is inline with the general trend on the market.

Pekao Following 1H 2005 results The bank noted a net profit of PLN 725.4m in 1H 2005, which is up 18.3% in comparison with the same period of the previous year (PLN 613m). ROE at the end of June was 18.7%. Net profit for 1Q totalled PLN 330.5m. The 2Q net profit amounts to PLN 394.9m. Market consen-sus concerning 2Q net profit was PLN 348-358m. Such good results were achieved due to higher income, stabile costs and small reserves. Revenues were up 7.5% (to PLN 2144m) in 1H 2005 over the same period in 2004. Net inter-est income PLN 1127m, net fee and commission income PLN 748m, and other income PLN 270m contributed to this fact Operating costs increased only by 0.4%, which is the result be-low inflation. This shows that the next time Pekao is able to control its expenditures. The cost/income ratio fell by 3.8 p.p. y/y, amounting to 53.8% at the end of June 2005. In an environment of declining interest rates, the 9.8% growth in net interest income in 2Q 2005, from PLN 536m to PLN 589m (2Q05/2Q04) was not expected. On a six-month pros-pect, the growth was 6.2% (PLN 1061m in 1H04 to PLN 1127m in 1H05). Pekao was less exposed to falling interest rates, due to the dollar deposits and the activity of investment funds, but a smaller dynamics was expected in this area. The increase in the net interest mar-gin to 4.2% (1H04 –3.8%) was justified by the influx of dollar deposits and the positive effect of growing interest rates in the US. The vice president stressed that the loans, which the bank granted 2 years ago, contained fixed interest rates as part of a promotion for the first two years. With rates falling on the market, this acted like a safety buffer.

BZ WBK Following 1H 2005 results In the first half of 2005 the BZ WBK Group generated a net profit of PLN 280.6m, which was by 13.4% higher than in the same period of 2004. Group companies earned almost 20% of gross profit (PLN 351.3m for 1H 2005). In the first half of the year encumbrances from re-serves declined to PLN 16.7m. The bank also achieved very good FX results on provision changes (PLN 118m). Net interest income remain virtually unchanged (PLN 433.1m; 0.51% change). Net fee and commission income increased (PLN 312.27m, 3.5% change). Net profit for 2Q totalled PLN 161.6m and was earned due to low costs of reserves and dividends – PLN 47.397m (in 2004 the dividend from Commercial Union was booked in the first quarter). The cost/income ratio is systematically falling (from 63.26% in mid-2004 to 61.1% in mid-2005). Annualised ROE was 17.6% in mid-2005. The goal of a 20% ROE at the end of the year could be difficult to achieve as the adoption of international accounting standards in-creased own funds and the solvency ratio grew to 17%. Therefore, the bank could pay a divi-dend from profit for 2005 higher than 40%. The bank’s income from other operating activity contributed to the results. Information from the balance sheet was not as optimistic as the results. While the bank did note a 5.2% in-crease in consumer loans, demand for corporate loans remained too low. The portfolio of mortgage loans grew slowly (0.6% y/y), but the bank’s president assured at the meeting that June was unusually successful in this regard and he hopes that the trend will continue.

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Information Technology According to Teleinfo 500, Polish IT market grew 14% last year to USD 4.15 bn (approximately PLN 15.5 bn). Expenditures on software (PLN 4.9 bn) and services (PLN 3.2 bn) have an in-creasingly greater share in the structure of the market, and currently together exceed expendi-tures on hardware (PLN 7.3 bn). Last year, the IT sector was one of the main beneficiaries of the economic recovery mainly due to Poland's accession to the EU and corresponding EU subsidies. The boom on the market should continue this year. Polish market is slowly coming to resemble mature markets, in which expenditures on software and services significantly exceed those on hardware. According to IDC and Context, PC sales in Poland increased approximately 30% in the first half of the year, while full-year forecasts predicted growth of some 16% (to 1.54m units). The first half of the year is usually weaker than the second half. This result exceeds forecasts significantly, the more so as major tenders in the public sector (including a tender for Internet labs in schools) were delayed. Notebook sales noted the fastest growth (more than 2-fold growth to 91 thous units in 2Q05). The high dynamics of PC sales could encourage other firms to enter this market. Tenders for setting up computer labs in schools, valued at PLN 1.5 bn (including 75% from EU funds), have been postponed. Several weeks ago, the Ministry of Education and Sport selected 10 bidders for the second stage of the tender. According to Puls Biznesu, these bidders include Computerland, Comarch, Emax, Comp Rzeszów, Softbank (through Koma) and Prokom (through ABG Ster-Projekt). In our opinion, announcing the winner and signing the contract is a long way off. Subsequent tenders are being contested, and the financing deadline for 2005 is 20 December. Meeting the deadline this year is practically impossible, which means the major-ity of the above amounts will have to be utilized in 2006. The main beneficiaries of these types of contracts are primarily hardware suppliers.

Comarch Quarterly results Comarch’s results at the level of sales were a pleasant surprise. However, higher sales did not translate into an improvement in profitability and growth in profits. The growth in costs, mainly resulting from last year’s increase in employment continues to encumber the company's results. High net profit stems from a one-off deferred tax asset booked in this quarter (PLN 5.74m). Resultant write-offs will encumber the company’s net profit in subsequent quarters. On 31 July 2005, Comarch’s order portfolio was more than 20% larger in relation to last year, which in our opinion bodes well for the second half of the year.

No cost restructuring The cost restructuring planned by the management board was not reflected in results for 2Q. In our forecasts, we assumed a small growth in sales (+6% y/y) with higher profitability. Actual sales were decidedly higher, while profitability fell a few percentage points. High net profit was due to the one-off deferred tax asset booked in this quarter (PLN 5.74m). Resultant write-offs will encumber the company’s net profit in subsequent quarters. This operation is of non-cash character and results from the adoption of IFRS and has no influence on the company’s cash flows. Excluding this event, Comarch’s net profit would have amounted to PLN 2.4m. Plans for 2H05 In relation to last year, Comarch’s management board expects an approximate 20% improve-ment in full-year results. From the perspective of the company’s backlog, which grew 21% in relation to last year (from PLN 243m to PLN 294m – as of 31 July), we believe that at the level

IT Sector

Consolidated quarterly results of Comarch

Source: Comarch, data according to IFRS, F - forecast of BRE Bank Securities

(PLN m) 2Q2005 2Q2004 dynamics 1H2005 1H2004 dynamics 2005F 2004 Revenues 101.9 69.4 47% 175.9 135.8 30% 342.9 330.0 EBITDA 5.7 6.1 -7% 9.8 13.2 -26% 37.7 26.1 margin 5.6% 8.9% 5.6% 9.7% 11.0% 7.9% EBIT 2.9 3.6 -19% 4.5 8.1 -45% 26.7 18.0 Gross profit 2.5 2.1 16% 3.6 6.0 -41% 26.9 10.3 Net profit 8.1 2.6 218% 9.2 6.2 49% 24.1 11.4

dynamics 4%

44%

48% 161% 111%

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of sales this is doable and we expect Comarch to exceed our current revenue forecast (we based our forecast on statements of the management board, envisaging smaller expansion and focusing on improving profitability, which however, did not occur). The company's situation with respect to profitability may appear unsettling. Both the four-quarter trailing gross margin on sales and the operating margin are characterized by downward trends (the former since the fourth quarter of 2003, the latter since 3Q04). Significantly in-creased costs of employment have contributed to this fact. Last year Comarch hired about 400 people, and 100-150 are to be employed this year (in 2Q05 the company hired 35 people). In our opinion, the planned improvement in profitability (the management board expects margins at the operating level to improve to 5%) has little chance of becoming a reality, mainly due to the continually increasing costs of employment. These costs will only be seen in full in this year’s results (last year, people were hired during the entire year). This year’s increase in em-ployment, although decidedly smaller than last year, will exert pressure on margins in the short term as well. Therefore, we do not expect margins to improve until next year at the earliest, if the company maintains the current dynamics of revenues and the growth in employment is reflected in the productivity of the newly hired employees. New contracts The company will deliver its proprietary data communications network management system to Polskie Sieci Elektroenergetyczne for PLN 4.6m. This contract, which is significant for Co-march, with a large share of propriety software and prospects for servicing the system for many years is good news for the company. The company won the tender for delivering and installing a data warehouse for Enion, a firm created from the merger of electricity distributors. The value of the tender was PLN 7.3m, of which approximately 30% will be farmed out to a subcontractor. This is more good news for the Kraków-based company, particularly as Comarch does not have significant experience in this area. Therefore, the necessity of cooperating with a subcon-tractor, which will receive some PLN 2.1m.

Computerland Results for 2Q05 in line with expectations In accordance with our expectations, Computerland’s results for 2Q were weaker than in the analogous period last year. As we expected, the company noted a significant decline in reve-nues and operating profit. Due to lower financial costs, net profit was up slightly in relation to results (according to IFRS) for 2Q 2004. The company expects results to improve in the second half of the year, mainly due to the better situation in the public administration and utilities. Currently 14 tenders with a combined value of PLN 740m are being conducted in these sectors. In our opinion, the long decision-making proc-ess and the pre-election period will delay an improvement in revenues from these sectors.

No surprises Revenues of PLN 157m for 2Q 2005 were in line with our expectations, and simultaneously sig-nificantly lower than in the second quarter of last year, during which the company concluded a major contract worth several dozen million zlotys. Computerland noted an equally high drop at the operating level, which mainly results from slumping sales (the operating margin was almost identical: 5.2% in 2Q05 compared to 5.1% in 2Q04). The growth in net profit is the effect of lower financial costs noted this year, to which contributed the earlier redemption of convertible bonds in 4Q04.

IT Sector

(PLN m) 2Q2005 2Q2004 dynamics 1H2005 1H2004 dynamics 2005F dynamics Revenues 157.0 210.6 -25% 309.8 362.7 -15% 837.0 13% EBITDA 14.5 17.1 -15% 27.6 31.0 -11% 79.4 6% margin 9.3% 8.1% 8.9% 8.5% 9.5% EBIT 8.1 10.7 -25% 16.2 18.3 -12% 54.4 9% Gross profit 4.9 4.9 1% 10.5 10.1 4% 39.7 82% Net profit 3.8 3.4 12% 7.2 6.6 10% 32.2 133%

2004 742.2

75.0 10.1%

50.0 21.8 13.8

Consolidated quarterly results of Computerland

Source: Computerland, all data according to IFRS (excluding full year 2004 - PAS), F - forecast of BRE Bank Securities

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Plans for 2H In 2H 2005 Computerland expects the situation to improve in public administration and utilities. The company is currently competing in 14 tenders in these sectors with a combined value of PLN 740m, among others, the Agency for the Restructuring and Modernisation of Agriculture (ARiMR) tender and tenders connected with the Schengen Agreement. We believe the ap-proaching parliamentary elections will slow the decision-making process in public administration, which could mean a lack of settlements in on-going tenders. Another problem is the numerous protests in tenders submitted by rejected bidders. This can be seen in the tender for the land border control system, in which Computerland is participating. After the Public Procurement Office's arbitrage decision Emax was allowed to re-enter this tender. Seeing the positive out-come of the Emax protest, another 3 consortia filed their own protests. In regard to foreign expansion, Computerland announced that it is on 7 shortlists in tenders an-nounced by several banks in Russia. First of these tenders, worth PLN 20m, is to be decided this October. Despite a quite positive picture described by Computerland, we are concerned that our forecast, assuming revenues of PLN 837m, will not be met. Following 1H 2005, sales totalled PLN 309m, which means that the company must generate revenues of approximately PLN 527m in the sec-ond half of the year, or more than PLN 260m each quarter. It is important to note that the back-log has not changed in relation to last year and amounts to about PLN 300m, which means that the company will still have to win additional revenues. At the level of net profit, Computerland will certainly not meet our forecast of PLN 32m. In turn, the management board is sticking to its net profit forecast of PLN 27m, but a final decision con-cerning a forecast adjustment is to be made within the next two months. Considering the weak first half of the year, lingering tenders and the unchanged backlog in relation to the previous year, in our opinion, chances that the forecasts will be cut back are pretty high. IT for schools of higher learning Computerland and Prokom are participating in a tender to computerise four schools of higher learning. The common IT system is to cost PLN 70m. Other firms participating in the tender are Oracle, Siemens and SAP (the latter two in a consortium with Prokom). The tender is to be de-cided before the end of the year. There is significant interest from other schools and this will certainly not be the only contract of this type. Other than long-term clients, this tender will give the winner valuable references. Two of the country’s largest firms as well as global rivals on the market of ERP systems are compet-ing for the mentioned contract. According to Puls Biznesu, the prices proposed by Oracle and the Prokom-Siemens-SAP consortium are similar. Moreover, price is only one of the criteria in evaluating an offer. Therefore, predicting the winner is practically impossible now. Subsequent acquisitions Efekt Software acquired a software producer for city halls and other local government bodies. The transaction price was not disclosed. Efekt is to strengthen the position of the Computerland Group on the IT solutions market for local governments, estimated by the company at PLN 200m annually for the next 2-3 years. There is no data concerning the historic results of the acquired company. The company will rein-force the activity of Aram, the centre of competence in the field of IT solutions for the central administration in the Computerland Group. Contract with ARiMR A consortium in which Computerland is participating signed a contract with the Agency for the Modernisation and Restructuring of Agriculture (ARiMR) to monitor farms in 4 voivodships. This monitoring will be conducted in randomly selected farms using the geographic information sys-tems of the consortium members. The purpose is to verify the applications for receiving direct subsidies. The gross value of the contract is PLN 23.6m and will be conducted for a two-year period. The participation of Computerland itself in the revenues of the consortium was not re-vealed. The consortium subcontractor will be Techmex, which will receive PLN 20m gross for its services. This is a major contract for Computerland in this new area of company activity (GIS systems). Group restructuring The Computerland Group will simplify its organisational structure as the dominant entity has incorporated two subsidiary companies: Centrum Informatyki Energetyki and Computerland Mielec. Due to the merger, Computerland intends to limit administrative costs (among others, by liquidating the management boards of the subsidiary companies). Moreover, simplification of the structure will facilitate access to the products of these companies for all clients of the Group.

IT Sector

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In addition, the company announced the merger of two subsidiaries from the Computerland Group – Polsoft and Zeto Rodan. The purpose of the merger is to create a strong centre of com-petence for the capital market within the Group. In our opinion, this is a step in the right direc-tion, but in the short term, the main catalyst for Computerland’s shares will be the management board’s pronouncement relative to maintaining or possibly adjusting the forecast.

Emax

Results for 2Q Results of Emax for 2Q fell far short of our forecasts. While we expected a decline in the com-pany’s consolidated revenues in 2Q 2005 in relation to the same period last year (in 2Q 2004 PLN 88.3m, our forecast for 2Q 2005 PLN 82m, actual result PLN 80m), in the case of profitabil-ity, we expected a significant improvement. However, operating profit fell 84% y/y, from PLN 3.7m in 2Q 2004 to only PLN 0.6m in the April - June 2005 period. The smaller decline in net profit (20% y/y, from PLN 2.5m in 2Q 2004 to PLN 2.0m in 2Q 2005) results from higher financial revenues noted this year.

Weaker results for 2Q, better results for 1H 2005 2Q05 was a weaker quarter than the analogous period of last year at all levels of the income statement. Lower sales in 2Q05 (-9% y/y) resulted from the fairly high base in 2Q04, when the company completed several large projects. In turn, lower operating profit resulted directly from lower margin on sales (the gross margin on sales in 2Q05 was 4 percentage points lower than in 2Q04 and amounted to 10.4%). In comparison with the similar administrative costs and higher selling costs than in 2Q04 (the lower selling costs in 2Q04 largely result from a one-off release of the reserve for warranty repairs), the Group’s operating profit fell to only PLN 0.6m (84% drop y/y). Due to higher financial revenues resulting from zloty weakening in relation to the EUR and USD, which was reflected in financial instruments connected with the long-term contracts real-ised by Emax, net profit in 2Q05 totalled PLN 2.0m (a 20% drop y/y). Further plans of Emax Following results for 1H05, the company’s management board expects results to improve in the second half of the year. The company's strategy calls for increasing results some 20-25% in 2005-2006. The company’s current backlog amounts to PLN 256m (i.e., much more than last year when the company’s order portfolio was PLN 200m). The management board expects the majority of recently concluded contracts to be reflected in results for 3Q and primarily 4Q of this year. This includes the contracts with Poczta Polska, Panopa Logistik, Strabag and PSE Opera-tor. The company is waiting for the conclusion of several contracts in the public and commercial sectors with a combined value of several dozen million zlotys. Export plans assume obtaining approximately PLN 25m this year from foreign contracts (approximately PLN 4m after the first half of the year). Next year, export sales are expected to reach some 10% of the company’s total revenues. Following the first 6 months of this year, Emax Group's revenues accounted for 52% of our year-end revenues forecast and 8% of the net profit forecast. During the last several years the fourth quarter has been by far the company’s best quarter (accounting for as much as 40-50% of revenues). We believe this year will be no different. New shares traded A total of 556,450 Emax shares have just been admitted to stock exchange trading: 0.5m series A shares and 56,450 series E shares. In accordance with the owner’s statement, the series A shares (owned by BB Investment, the principal shareholder of Emax), will not be sold for a pe-riod of one year. However, series E shares, taken up by company management personnel in

IT Sector

(PLN m) 2Q2005 2Q2004 dynamics 1H2005 1H2004 dynmaics dynamics Revenues 80.0 88.3 -9% 149.1 132.3 13% -12% EBITDA 2.7 6.6 -60% 5.6 5.5 2% 10% margin 3.4% 7.5% 3.8% 7.3% EBIT 0.6 3.7 -84% 1.5 -0.2 n/a 36% Gross profit 2.8 2.6 8% 3.3 -1.2 n/a 115% Net profit 2.0 2.5 -20% 2.2 -1.9 n/a 207%

2004 327.2 33.8

10.3% 23.0 16.0 9.2

2005F 287 37.3

13.0% 31.3 34.4 28.2

Source: Emax, data according to IFRS, net profit excluding share of minority shareholders

Consolidated quarterly results

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2005 for PLN 52 per share, may soon reach the market. The number of series E shares is not so large that the market would have a problem absorbing them.

Prokom

Results for 2Q slightly better than forecasts Prokom’s results for 2Q 2005 were slightly better than our forecasts, although 1H results are much worse than those reported in the analogous period of the previous year. At the un-consolidated level, Prokom noted much higher revenues than in 1Q of this year (+53% q/q) and only somewhat weaker revenues than in the analogous period of last year (-6% y/y). At the oper-ating level, the result was identical to that noted one year earlier. The Group's consolidated revenues totalled PLN 355m (PLN 349m last year), operating profit PLN 29m (a PLN 1.6m loss in 2Q04) and net profit PLN 28.1m, including PLN 15.5m to share-holders of the dominant entity.

Consolidated results improve Consolidated revenues in 2Q05 were up 2% y/y. More than 70% of total Group's revenues were generated by Prokom Software (43.8%) and Softbank (27.6%). Please note the growing share of products in total Group's sales (from 62% in 1H04 to 71% in 1H05). With slightly higher consolidated revenues, Grupa Prokom noted decidedly higher profits in 2Q05 than in the analogous period of the previous year. Such a significant improvement in profits re-sulted from two extraordinary events: first, an income tax refund to Softbank SA (PLN 11.3m at the level of other operating revenues), second, the release of a reserve created for tax liabilities by the dominant entity (PLN 2.9m). It is worth mentioning that the net result noted in the second quarter of last year was largely encumbered by the revaluation of financial assets (Ster-Projekt), which increased financial costs more than PLN 20m. In semi-annual terms, the situation appears similar. With revenues virtually unchanged (a 2% decline y/y), profits at all levels improved substantially, mainly due to good 2Q results. Better 2H 2005 In the second half of the year we expect a significant improvement in Prokom’s results, both at the consolidated and non-consolidated levels. Newly signed contracts, among others with PZU, ZUS and Poczta Polska (as a Postdata subcontractor), the effects of which will be evident in the third quarter of this year, will have an influence on improving unconsolidated results. Moreover, planned savings, estimated by the company at PLN 80m annually (approximately PLN 40m in 2005), will significantly improve profitability. At the consolidated level, we expect a further positive contribution from Softbank (although we do not expect subsequent, extraordinary profits to be as spectacular), ABG Ster-Projekt and Comp Warszawa. New management board On 3 August 2005, the supervisory council appointed the current members of Prokom Software SA’s management board (Jarosław Chudziak, Tadeusz Dyrga, Piotr Mondalski, Krzysztof Kardaś and Maciej Wantke) to subsequent, individual terms of office. In connection with the ongoing term of office, Ryszard Krauze, Dariusz Górka and Marek Mondalski remain members of the Prokom Software S.A. management board. Moreover, the supervisory council appointed a new member to the management board - Grzegorz Maciąg. B. Stelmach, K. Wilski and T. Kij de-parted the board. The size of the management board declined from 11 to 9 members, but its composition, accord-ing to the company's communiqué, corresponds to the current organisational structure of the company and obligations connected with managing the Capital Group.

IT Sector

Consolidated quarterly revenues of Grupa Prokom

Source: Prokom, data according to IFRS

(PLN m) 2Q2005 2Q2004 dynamics 1H2005 1H2004 dynamics 2004 Revenues 355.2 348.9 2% 634.5 650.5 -2% 1573.3 EBITDA 47.6 19.5 144% 83.2 65.2 28% 169.8 margin 13.4% 5.6% 13.1% 10.0% 10.8% EBIT 29.0 -1.8 n/a 47.5 23.1 105% 72.6 Gross profit 29.2 -20.4 n/a 41.1 2.8 1351% 61.4 Net profit 15.5 -18.0 n/a 19.6 -5.0 n/a 41.6

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Effort to re-enter tender for border protection system The Prokom Software consortium as well as two other consortia, rejected on formal grounds from the tender for the eastern border protection system, worth PLN 220m, appealed this deci-sion to the court. Following the first stage, of the 12 bidders in the tender only Computerland remained. After the Emax protest, it was readmitted to the tender on a decision of the Office of Public Procurement. At that time we did not rule out subsequent protests from the other bidders whose bids were re-jected. The protests of the three mentioned consortia are to be considered by the end of Novem-ber. The Border Patrol plans to sign the contract by the end of this year, which in our opinion seems to be impossible in light of the above protests. Eastward expansion Prokom announced it purchased 50% of the shares in the Lithuanian firm IT UAB "Informaciniu projektu sistemos," specialising in IT solutions for the insurance sector. The company is a leader on this market in the Baltic countries. The transaction is valued at approximately PLN 3.5m. Prokom continues to expand outside the borders of the country. We believe this is a step in the right direction. As a result of the purchase, Prokom wants to build a base for further expansion into Eastern Europe. As we lack information about the results of the Lithuanian company, we cannot comment on the amount Prokom spent to buy the company. ABG Ster-Projekt results The company published financial statements, including the income statement for 1H 2005 and 2Q of ABG S.A. (pre-merger). For the first 6 months of the year revenues totalled PLN 34.5m and net profit PLN 6.7m, which gives a net margin of 19.5%. Revenues and profits concern con-tinued activity. The merger of ABG SA and Ster-Projekt will significantly change the financial statements of the new company. The pro forma income statement for 1H05, presenting the results ABG Ster-Projekt would have achieved if the merger occurred on 1 January 2005, shows revenues of PLN 161m, an EBIT of PLN 7.2m and a net profit of PLN 10.1m. The management board forecast year-end revenues of about PLN 300m and a net profit of PLN 20m. Following publication of 2Q results, the board does not rule out raising forecasts. Spin results and new strategy According to Parkiet, after the unsuccessful issue of shares, valued at about PLN 60 mn, as well as worse than expected results for 2Q05, Spin announced a change in the strategy including, among others, limiting acquisitions. The management board will present a new 2005 forecast in September. In 2Q05 revenues totalled PLN 37m, operating profit PLN 1.6m and net profit PLN 0.5m. Following 1H, Spin generated revenues of PLN 63.8m, an operating profit of PLN 6.1m and a net profit of PLN 3.9m. Earlier forecasts of the management board (revenues PLN 165m, net profit PLN 21m following 1H) will be reviewed. Following 1H05 the company met about 39% of the full-year revenue forecast and only 19% of the net profit forecast. Of the seven planned acquisitions, Spin finalised only one (the purchase of Optix from Prokom), and negotiations with the other firms were suspended. Spin finalised the purchase of 66% of Optix for PLN 16m. At the end of the year, the 57% of the holdings in Optix was valued in Prokom’s books at PLN 0.3m. In 2004, Optix generated a net profit of PLN 2 mn on sales of PLN 73m. Spin believes it will be able to utilise the resources of Optix better than Prokom, creating a data storage service centre based on those resources. Until we see specific results of this acquisition, it appears to be another element of Prokom’s policy to value its assets based on conducted transactions.

Softbank

Results for 2Q05 In accordance with our expectations, the Softbank Group improved 2Q results over last year. Despite a 9% y/y decline in consolidated revenues to PLN 79.5 mn, Group profits increased sig-nificantly. The decline in sales is mainly due to excluding results of the subsidiary company Ep-silio from consolidation. This company, sold in 4Q04, contributed approximately PLN 7.4m to Group consolidated revenues in 2Q04. Softbank’s operating profit in 2Q05 totalled PLN 17.5m and net profit PLN 15.4m. The high level of profits result from booking an extraordinary income tax refund in 2Q05 (PLN 11.3m).

IT Sector

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Hardware sales down, software sales up Softbank’s consolidated revenues fell 9% in 2Q05 in relation to 2Q04, which however partly re-sults from excluding Epsilio, sold in 4Q04. Adjusting revenues by Epsilio’s approximate PLN 7m in 2Q04, consolidated sales is virtually unchanged. The structure of sales improved with the in-creased share of software in total sales. This is due to the installation of the subsequent stage of the Central Register of Vehicles and Drivers (CEPiK) system (mainly proprietary software) as well as the delivery of software to PKO BP. The lower sales of hardware in 2Q05 primarily re-sults from the high base in 2Q04, the effect of the major hardware contract with PWPW. Despite a theoretic improvement in the structure toward products with a higher margin, the gross margin on sales fell from 32% in 2Q04 to 24% in 2Q05. The management board explains the approxi-mately 10 percentage point lower gross margin on goods (12.9% in 2Q05 in relation to 22.5% in 2Q04) by the high margin of the contract with PWPW, which was not repeated this quarter. The trailing four-quarter average gross margin has also fallen for two quarters (from 25.2% in 4Q04 to 23.0% in 2Q05), which is a result of the decline in margins both on products and goods. In semi-annual terms, Group revenues increased, but largely due to the first quarter of the year. Revenues (Epsilio adjusted) grew 16% from some PLN 150m in 1H04 to PLN 173.6m in 1H05. Sales to the banking-financial sector, which in 1H05 accounted for more than 79% of total sales (up from 58.5% in 1H04), continue to dominate. The decline in revenues from the public sector is again due to the high base in 1H04 (at that time Softbank concluded two large contracts with ARiMR and PWPW). CEPiK currently accounts for the predominant portion of sales to the public sector. Subsequent contract with PKO BP The company signed a contract with Bank PKO worth PLN 37.7m. The contract involves the delivery and installation of software and hardware for the ZORBA-3000 system. The installation is to be completed in the first half of 2006. Within the last 12 months, the company has signed a PLN 50.4 mn worth of contracts with PKO BP, which had not been announced in current reports. Until the installation of the new integrated IT system is completed, further investments to main-tain the current system can be expected. New Comp Rzeszów strategy in September The company announced it will unveil its new acquisition strategy in September. Among others, this is to include the acquisition of one of the larger Polish producers of software, supporting cor-porate management, as well as IT firms from other countries in Central and Eastern Europe. The company still intends to debut Asset Soft on the Warsaw Stock Exchange. Comp Rzeszów may raise its forecast of results in October (current forecast – sales PLN 200m, net profit PLN 20-23m). The acquisition of subsequent companies could require raising Comp Rzeszów’s capital. Based on the experiences of other Prokom Group companies with obtaining capital, Comp Rzeszów plans to present shareholders with a specific proposal for which funds from a possible issue would be designated.

IT Sector

Source: Softbank, data for 2004 adjusted by goodwill write-off

(PLN m) 2Q2005 2Q2004 dynamics 1H2005 1H2004 dynamics dynamics Revenues 79.5 89.6 -11% 176.2 164.5 7% 8% EBITDA 19.5 3.9 397% 26.3 6.8 289% -7% margin 24.5% 4.4% 14.9% 4.1% EBIT 17.5 0.9 1950% 22.0 1.0 2084% -7% Gross profit 16.0 -4.4 n/a 21.6 0.9 2273% 44% Net profit 15.4 -3.2 n/a 20.1 1.8 1012% 20%

2004 490.7

56.6 11.7%

45.8 30.4 36.3

2005F 530

52.5 9.9% 42.5 43.6 43.6

Consolidated quarterly results

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CR Media slightly lowered the forecast of this year’s advertising market growth (from 10.2% to 10.1%), simultaneously raising the forecast for next year from 7.1% to 10.5%. In our forecasts, we assume that the advertising market will grow by 12% this year and next year. In the previ-ous years CR Media has been usually too conservative in its estimates.

Agora

Reaction to the company 3Q warning At a conference with analysts, Agora presented its opinion on the current situation in the com-pany and what could happen in 3Q. The company announced an increase in costs connected with introducing new book titles (initial free titles, promotional campaign) as well as increased costs of preparing new projects, which caused a nervous reaction among investors. In our opin-ion, it was an overreaction. A weaker result in 3Q (costs of introducing new book titles to the market) will pave the way for a significant growth in sales revenues in 4Q, when the titles begin to bring revenues which, in our opinion, will make up for the weaker result in 3Q. More speculation on the tabloid “Gazeta Prawna" reported that a new national daily newspaper will appear on the market fol-lowing the elections. This will be a tabloid of Agora, among others the publisher of "Gazeta Wy-borcza." A team has already been assembled, which includes journalists from regional papers and national titles. Trial issues are currently being prepared. According to "Gazeta Prawna," the new daily will appear on the market with a print run of ca. 1 million copies. It will have a tabloid format – a large number of dynamic photographs and shorter texts. The paper is to contain a lot of positive news. The daily adds that, according to experts, it will be addressed more to women and to the younger reader with a secondary and higher education. Jerzy Wójcik, currently chief editor of the free daily "Metro" also published by Agora, is to be the chief editor of the project. This is a speculation of the newspaper, in our opinion however, very likely to be true. If the speculation is confirmed, the acquisition of SuperExpess, which will probably soon cease publi-cation, is highly unlikely. The press market The two largest publishers of the regional press, Polskapresse and Orkla Press Polska, are launching a joint marketing campaign. From 6 September, books from the “All-time books” col-lection will be included to 11 OPP newspapers and 6 Polskapresse dailies. The books will be sold together with the Tuesday editions of selected regional dailies of the two publishers for PLN 3.5 plus the price of the newspaper. The joint campaign will be supported by an advertis-ing campaign on television (TVP and Polsat), the radio and in newspapers. This is bad news for Agora. Considering the competitive price, this is a campaign that could threaten the book sales and quantity of sales of Gazeta Wyborcza. Two local competitors combining forces is also a threat and could be a signal that the local press will make an effort to recover readership posi-tion that it lost to the national press. We will follow the monthly data concerning the quantity of sold copies of individual titles and adjust forecasts if necessary. Prices of telecom services in Poland according to OECD According to a OECD report, telephone calls in Poland (in August 2004) are the most expen-sive among all OECD countries. Prices of fixed-line telephony calls (LLD, DLD, ILD, F2M) are three-times higher than the average for the 30 OECD countries. Only the Hungarian market is comparable with Poland. In our opinion, the main points of the report are correct, telecommuni-cation services in Poland are still expensive, but the scale of the problem is decidedly exagger-ated. OECD based its estimates on he purchasing power of a given country’s population. Using this method, almost all products and services in Poland will be more expensive than in coun-tries with a much higher GDP per capita. Development of UMTS and transferability of numbers Polkomtel will be expanding its UMTS network into subsequent cities (following Warsaw) begin-ning in September. These cities are: Gdansk-Gdynia-Sopot, Kraków, Katowice, Poznań and Wrocław. Polkomtel has not announced how much it has designated for expanding the network or the number of UNTS subscribers it obtained in Warsaw. Moreover, the president announced that operators will most likely not manage to introduce systems that make possible the transfer of mobile telephone number to another operator. The Regulatory Office of the Telecommunica-tions Industry and Post Office (URTiP) designated 10 October as the final deadline to imple-ment this feature. Expansion of the network is a consequence of the requirements imposed in the UMTS license. We interpret lack of information about the number of UMTS subscribers as slight interest from clients in the new technology (in comparison with Great Britain and Italy). Other operators should also begin expanding their networks this year. For Netia, this could

Media

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mean the necessity of building another infrastructure on a market where demand is limited. In the case of transferring telephone numbers, we can expect fines to be imposed on operators by URTiP.

Media

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TPSA Rebranding The marketing campaign for the Orange brand begins in September. The cost is estimated at PLN 100m, the half of which comprises advertising costs. Moreover, the operator has to change the appearance of some 1100 sales outlets. The operator has already bought the or-ange.pl domain, for which it paid EUR 200 thous. Centertel will pay 1.6% of annual revenues for using the new brand.

Netia

Frequency awarded Netia Mobile officially received a frequency yesterday making it possible to render UMTS ser-vices. The company will pay PLN 244m within 14 days to reserve the frequency. Yet here the first of the problems begin. We note the fact the reservation of the frequency covers the period 1 July 2006 to 31 December 2022, which means that the sale of services will not begin before the middle of next year. The number of mobile telephony subscribers (SIM cards) currently ex-ceeds 26m, which corresponds to penetration of 67%. According to our estimates, when Netia Mobile enters the market in a year penetration should reach 81% (31m subscribers). This means that the new operator will obtain subscribers with the lowest ARPU, moreover compet-ing with the three existing operators and can expect that the first MVNO will enter the market (usually with penetration of approximately 75%). In this situation, an opportunity for Netia Mo-bile is to acquire clients from the existing operators. We do not believe this is impossible, but Vodafone, Deutsche Telecom and Orange are, at least, the stiff competitors. Netia Mobile agreement and planned investments The company also concluded a Netia Mobile partnership agreement. Novator bought 70% of the shares and Netia will own the remaining 30%. The partners are obligated to contribute up to EUR 300 in proportion to their stakes in stock capital. At this stage, other than the above-mentioned payments to stock capital, Novator and Netia will pay a total of PLN 341.9m in order to cover the payments for reserving the UMTS frequency as well as initial operating expendi-tures. The company’s business plan calls for further financing of operating and investment ac-tivity through vendor financing and bank loans. Netia Mobile expects to invest more than EUR 650m in infrastructure. Based on information from the agreement and plans concerning invest-ments, there are no major surprises, other than some investors could be disappointed that a telecom hardware producer from China did not join the company (earlier speculation). Total planned investments are lower than initially assumed (EUR 1 bn), but it is difficult to say how much of this results from lower costs of procuring infrastructure (in part the company managed to negotiate more favourable prices) and how much from its scope. It should be stressed that planned investments are based on the assumption that domestic roaming agreements will be signed (lower investment expenditures, but also lower margins on connections). Division of authority and rules of mutual cooperation Netia will choose two of the five members of the supervisory board. Moreover, the agreement regulates issues connected with disposing of shares in the company. It also contains the stan-dard pre-emption right. Moreover, the parties may not dispose of holdings without the agree-ment of the partner for a period of three years. In the case of a conflict, Nowator has the right to buy back shares at market price plus a 10% premium. The agreement also regulates mutual relations between Netia and Netia Mobile (without giving details). We only know that Netia will be the company’s exclusive direct channel of sales to business clients. It should also be noted that Netia’s position in relations with business clients should not be overestimated. Netia cur-rently has a total of 150 thous business lines, of which the vast majority are dual ISDN chan-nels. Business plan According to Netia, the increased revenues from mobile telephony activity booked by Netia could reach PLN 100m in the first full year of activity and PLN 400m in the fifth year. The com-pany intends to acquire a 20% share in the market within 10 years. In regard to the first as-sumption (PLN 100m), this corresponds to an approximate 2% market share, and approximate 6% market share in the case of PLN 400m. These estimates are realistic, although in our opin-ion they are also ambitious. However, we believe that the key question is not about the reve-nues, which in Netia Mobile’s first year on the market (meeting forecasts) will account for ca. 10% of Netia’s consolidated revenues, but the question about the venture’s profitability. We point out that Centertel (supported by TPSA), while entered the GSM market – with low market penetration, high ARPU and revenues of PLN 1.5 bn – generated a net loss of almost PLN 700m.

Telecommunications

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Railway line investments in question? According to the Rzeczpospolita of 1 September, the draft state budget for 2006 does not in-clude any subsidies for PKP Polskie Linie Kolejowe, designated for the modernisation of the railway network. According to PKP PLK (operator of the national railway network) estimates quoted by the newspaper, the company requires subsidies of PLN 1 bn in 2006 in order to make the planned modernisation investments of PLN 4 bn (the remaining PLN 3 bn are to origi-nate from EU funds). PKP PLK estimates its purely replacement annual investment needs at PLN 2 bn. Modernisation of Poland’s main rail network (5,000 km among the 19,000 km man-aged by PKP PLK) would require expenditures of PLN 4 bn annually for the next 20 years. At the current stage of work on the budget it has not yet been determined whether the money for PKP PLK will be found in 2006. Poland not utilising the substantial resources available from EU assistance funds is an alternative, which in our opinion would be a big mistake. For this reason, we expect a positive settlement of this issue for PKP PLK.

Budimex

Kukuryki not threatened The company believes that the realisation of its contract with the Main Customs Office of Bela-rus for expansion of the Kukuryki border crossing with Poland is not threatened, although it requires obtaining additional administrative agreements. The EUR 14m contract (PLN 57m when concluded) is to be completed by February 2006. As the contract is not threatened, it has no influence on the company. PLN 114m for A6 section The company will build the Klucz-Kijewo section of the A6 route in North-Western Poland for PLN 114m. This is another significant contract, but margins for Budimex will probably be low, due to strong competition for road building contracts. Tender for renovation of Modlin airport PP Porty Lotnicze began the process of selecting the contractor to renovate the airport runway in Modlin near Warsaw, where an airport for discount airlines is to be established. Costs are estimated at PLN 95m. Budimex will be one of the main competitors for this contract. Work is scheduled to be completed in mid-2006. Despite the limited group of companies with references from similar projects in Poland (several firms), large margins on this type of contract should not be expected.

Echo Investment Foreign funds buy Polish shopping centres and office buildings According to Parkiet, quoting Jones Lang LaSalle, the value of commercial real estate transac-tions in Poland reached EUR 1.2 bn between January and July 2005. DZT, quoted by Parkiet, expects the value of transaction to reach EUR 2.5-2.8 bn this year. The corresponding figure was EUR 0.9 bn in 2004. Since Poland entered the EU the risk of investing in commercial real estate in Poland has de-clined, which has increased interest of foreign funds speculating in such investments. This is good news for commercial real estate developers (GTC, Echo).

Elektrobudowa Kruelta gets capital injection Elektrobudowa provided a PLN 3.4m capital injection for the subsidiary company Kruelta, a joint venture with Tavrida, the Russian producer of switchgear components, and maintains a 51% share in its capital. The so far Elektrobudowa product sales on the Russian market have occurred through the me-diation of Kruelta, in which Elektrobudowa owns 51% stake, and the Russian firm Tavrida owns 49% of the shares. The switchgears are largely manufactured at Elektrobudowa’s Konin plant, their final assembly (using the switches manufactured by Tavrida) takes place in Russia and the products are sent to clients from there. Elektrobudowa describes its presence on the Rus-sian market as testing the conditions on this market as well as the stability of the level of or-ders. Significant time has also been spent on the preparation of products for the Russian mar-ket (different than Polish: technical requirements and client expectations, the necessity of ob-taining Russian certificates, preparation of documentation and catalogues in Russian).

Construction

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Kruelta’s products are offered across Russia through the sales network of Tavrida (22 technical and trade centres) as well as exhibiting at fairs and sector conferences along with the products of Tavrida. Participation in fairs is a minor encumbrance for Elektrobudowa and Kruelta, as the majority of the burden is borne by Tavrida, which includes Kruelta’s products when exhibiting its own products at fairs. At present, after operating in Russia for two and a half years, Elektro-budowa has a stable flow of orders from that country. Due to the limited production capacity of Elektrobudowa’s Konin production plant as well as to the necessity of shortening the time be-tween receiving an order and delivering it, the company is planning to build a switchgear plant in Russia. The plant will be built by Kruelta at a cost of ca. PLN 10m. One third of the invest-ment’s cost will be covered from credit and the remaining portion from raising the capital of Kruelta by the current partners in proportion to their currently held stakes. Elektrobudowa’s cash contribution in creating a new factory amounts to PLN 3.4m. We do not believe this amount exceeds the financial possibilities of Elektrobudowa. Elektrobudowa’s switchgears are sold in Russia mainly to firms from the petroleum sector. The company believes it has a good position as a supplier for the operator of the Yukos’ deposits, and is participating in many tenders valued at several million USD. In addition, Elektrobudowa is starting together with Polimex in a tender for the realisation of an undisclosed, major indus-trial investment, that for Elektrobudowa would be the source of one of the largest orders in the company’s history. According to Elektrobudowa, planned export sales of switchgears will total PLN 25m this year, and could reach PLN 50m in the future. Our knowledge of the Russian switchgear market is too limited to evaluate the chances for Elektrobudowa’s planned investment to succeed. However, the investment in the switchgear plant will be the subsequent stage of the company entrance on this market, preceded by some experience, with a limited commitment of resources. For this reason we believe the risk con-nected with this investment is not too excessive. Other than selling products to Russia, Elektrobudowa also exports its switchgears to Belarus, where annual sales total ca. USD 2-3m. The growth in the share of exports in Elektrobudowa’s total sales exposes the company at a greater foreign currency risk. Contracts in Russia have been largely settled in USD, but the share of rouble contracts is growing. Despite this, we find positive Elektrobudowa’s strategy of broadening sales markets with a relatively small commitment of funds. ELB consolidated results slightly better than unconsolidated results Consolidated results for 2Q, apart from Elektrobudowa comprising two companies, including Russia’s Kruelta, were slightly better than unconsolidated results initially estimated by the com-pany at the end of July:

Source: Company, calculations of BRE Bank Securities, consolidated, IAS These results are in line with our expectations and we see no reason to adjust our forecast. Shopping centre for PLN 11.6m The company will build a shopping centre for Junimex within the course of seven months. The contract is valued at PLN 11.6m. Elektrobudowa normally obtains low margins on this type of contracts for standard construction works.

Polimex-Mostostal Siedlce

Naftoremont has PLN 5m contract with Lotos Naftoremont, a subsidiary of ZREW, signed a contract with Grupa Lotos for the electrical, me-chanical and building works in the construction of a new petroleum desulphurisation installa-tion. The contract is valued at PLN 4.9m.

(PLN m) 2Q2005 2Q2004 dynamics 1H2005 1H2004 dynamics Revenues 79.7 64.2 24% 124.7 102.9 21% EBITDA 5.3 5.0 4% 4.3 5.5 -22% margin 6.6% 7.8% 3.4% 5.3% EBIT 3.8 3.4 11% 1.7 2.3 -29% Gross profit 4.3 2.9 45% 2.3 1.6 49% Net profit 3.1 3.0 3% 1.6 1.1 53%

Construction

BRE Bank Securities

6 September 2005 36


Polimex expected subsequent contracts with Lotos, and Naftoremont is the main contractor of works for Rafineria Gdańska in the Polimex Group. Therefore, in our opinion, this information is very modest confirmation of Polimex’s forecast.

PRInż acquisition possible through capital increase Puls Biznes announced that Polimex may take up shares of PRInż’s new issue worth approxi-mately PLN 20m and corresponding to more than a 60% share in capital in order to gain control over it. According to the magazine, this solution is supported by NCC, one of the main PRInż shareholders with a 48% stake. Polimex states that it is interested in acquiring PRInż only if it gains complete control over the company. The possibility for Polimex to take up shares of the new issue does not change the fact that, in order to avoid long court cases, the agreement of the three current shareholders (apart from NCC - Mostostal Zabrze and BGŻ) is necessary for the transaction to go forward. PXM sales high, profits better than last year’s Polimex’s results were substantially better than those reported last year, despite a stronger zloty and higher steel prices. This year’s results compared with last year’s pro forma results (i.e., those that the Polimex-Mostostal Siedlce Group would have achieved if the Polimex-Mostostal merger had occurred prior to 1 January 2004) are presented in the table below. Fol-lowing the first half of the year Polimex’s results exceed our estimates by PLN 10m on the level of operating profit and PLN 5m on the net profit level.

Source: Company, consolidated, IAS, 2004 – consolidated pro forma if the Polimex-Mostostal merger had occurred prior to 1 January 2004, F – forecast of BRE Bank Securities PXM sales and margins beat our expectations Polimex’s 1H 2005 sales were by 5% higher than our forecast, and EBITDA by 19% higher. In relation to the consolidated pro forma result in 1H 2004, the Polimex Group noted a very sub-stantial improvement. The PLN/EUR exchange rate, much less favourable than in 1H 2004 (average exchange rate in 1H 2005 was 4.08 PLN/EUR, against 4.73 one year earlier), clearly had no negative impact on the company. In three of the four core segments of activity (excluding the power sector), margins obtained by the Polimex-Mostostal Siedlce Group in 1H 2005 were higher than in 2004, and better in the chemicals and production segments than those achieved in 2003, when the EUR exchange rate was significantly higher than in 1H 2005.

Gross profit on sales margin by segments of Polimex-MS activity

Source: Company, consolidated, IAS, 2004 - consolidated pro forma if the Polimex-Mostostal merger had occurred prior to 1 January 2004, 2003 and 2005F - estimates and forecasts of BRE Bank Securities based on a modified sector divi-sion We believe that the level of margins achieved by Grupa Polimex in the first half of the year could indicate a greater than previously assumed resistance to changes in the EUR/PLN ex-change rate over the longer term. In particular, the level of margins in production and chemicals (i.e., segments with a relatively large share of exports), shows Polimex has a significant ability to pass on clients the unfavourable changes in exchange rates over the longer term. The de-cline in steel prices played a role in the very good margins noted on production. Improvement of results despite PLN 6m of probably reversible write-offs The company made write-offs of PLN 4m on accounts receivable from the contract with DH Opolanin, where according to the company, the collateral is secure as well as PLN 2m of Lib-

(PLN m) 1H2005F 1H2005 1H2004 dynamics 2005F 2004 dynamics Revenues 779.3 814.6 648.0 26% 1805.9 1706.2 6% EBITDA 45.5 54.1 49.0 10% 99.7 104.8 -5% margin 5.8% 6.6% 7.6% 5.5% 6.1% EBIT 29.7 39.7 34.0 17% 67.4 72.6 -7% Gross profit 24.9 37.8 27.4 38% 59.7 64.1 -7% Net profit 17.0 22.4 17.7 27% 41.9 45.7 -8%

1H2005 2005F 2004 2003 Average 13.1% 11.8% 11.6% 14.4% Chemicals 13.3% 7.8% 10.9% 12.7% Power 10.7% 8.8% 10.9% 13.0% Construction 6.8% 10.6% 5.1% 13.6% Production 22.8% 15.7% 23.2% 21.0%

Construction

BRE Bank Securities

6 September 2005 37


yan accounts receivables, which throughout the history of Polimex have always been paid, sooner or later. The positive influence of one-off events in 2Q amounted to PLN 5.8m (payment of accounts receivable from two German companies as well as the sale of Baumann-Mostostal holdings and shares of Naftobudowa).

Solid order portfolio The value of the order portfolio for 2005 (including already realised sales) on 30 June 2005 totalled PLN 1.4 bn, PLN 0.6 bn for 2007 and PLN 0.4 bn for 2007. We do not have information concerning the value of this portfolio based on pro-forma data, but according to the company it was significantly smaller. Bright prospects for power sector Grupa Polimex is completing works at the Żerań thermal electric power plant. The company submitted a bid for the modernisation of the carbon-based products department at coke pro-ducer Koksownia Przyjaźń (estimated value: PLN 400m), and is starting in a number of other tenders. The work at Koksownia Przyjaźń, within the framework of an already concluded con-tract for building a new coke oven battery, is stabilising the situation in this segment of Polimex’s activity. The traditional area of ZREW’s specialisation, renovations in the Polish power generating sec-tor, is an important segment of Grupa Polimex activity. According to ZREW, demand for ser-vices in this segment gradually increases. The company’s human resources are fully utilised and it is training new employees (they will not be considered productive until 2006). ZREW’s order portfolio in this portion of activity is currently greater than last year. However, ZREW’s margins on this type of activity in 2005 are expected to be similar to last year’s. Sales of industrial services currently account for approximately 30% of Grupa ZREW’s total sales. In the last nine months since we spoke with the company, it has not obtained any new contracts of this type. Several such contracts are currently being negotiated and could be final-ised by the end of this year. Service contracts for industry are concluded for a number of years (usually 10) and contain a mechanism whereby fees for rendering services in the initial period of the contract gradually decline to a level significantly lower than the costs borne by the client if it rendered the services itself. Rendering services on such principles can be profitable for ZREW, if it is able to lower costs significantly in relation to that of the client performing the or-dered work, or if the company is able to generate substantially higher sales based on the same resources. The sale of renovation services outside Poland remains a less important part of ZREW’s activ-ity. A barrier to the development of this type of activity, despite a cost advantage, is the lower degree of trust to ZREW than to the local service providers on those markets. Export sales of renovation services are expected to total about PLN 20m. Renovating and building transformers is another margin type of activity conducted by ZREW. Despite the evaluation from 9 months ago, when the company evaluated this market to have limited prospects, in 2005 sales will be substantially higher than one year ago. According to ZREW, one of the transformer suppliers withdrawing from the Polish market will be the reason for the improvement in the situation. According to Polimex information, Sefako’s situation is also good: in the first half of the year this company met more than half of the year’s sales plan and 3/4 of the year’s net profit plan. Production capacity is almost fully utilised. Chemicals – eyeing Lotos Polimex hopes to participate in the realisation of Grupa Lotos’ huge investment programme, to be the contractor for 2 large PKN Orlen fuel tanks and will start as a member of a consortium in a very large tender for the modernisation of one of Lukoil’s larger refineries. Biprokwas is expected to complete work, valued at PLN 20m, in Iranian chemical plants in the third quarter. Manufacture of steel products for construction – capacity must be expanded Production capacity is fully utilised at the Siedlce galvanising plant. Several steps are planned to increase sales: transferring a portion of production (grates) to Ukraine, building a new galva-nising plant in Silesia within the next 2 years (if Gazobudowa acquisition occurs, the plant will be built on its site) and expanding production capacity at the Siedlce plant (in 2006). Utilisation of capacity at the galvanising plant in Dębica is also gradually increasing.

Construction

BRE Bank Securities

6 September 2005 38


Due to the very good margins and high level of sales, profits of the production department achieved in 1H are higher than the profits planned by Polimex for the entire year.

Construction – only larger orders The company changed its policy of acquiring orders for the construction segment and limits orders to projects with a value of at least PLN 20m. The purpose of introducing the change is to improve margins and to limit the risk of managing a large number of contracts.

Takeover targets: Gazobudowa and PRInż In regard to Gazobudowa, the benefits package remains to be negotiated. According to the company, the initial demands of the trade unions are very extravagant. It is difficult to say how long negotiations will continue.

The conflict in PRInż between the current principle shareholders continues. Polimex has al-ready fully evaluated PRInż’s situation, has a long-term plan for its development and currently believes that the takeover transaction is quite safe. According to Polimex, the gross margins obtained by PRInż in road construction are not as bad as the margins Budimex obtains on this type of activity.

Construction

BRE Bank Securities

6 September 2005 39


Grupa Kęty Macro factors vs, results

Macroeconomic factors are not favourable for the company. Zloty strengthening against the euro lowers the profitability of exports and exerts an influence on increasing product imports from Germany. Higher prices of aluminium lower the EBITDA margin. According to information received from the management board, current weakening of the euro against the zloty has not yet caused a reduction of zloty prices of products on the domestic market. This could occur, if the current relation of exchange rates continues for several weeks. In the first two months of the third quarter, on the side of costs, the average zloty procurement price of aluminium in creased, although the weakening of the USD at the end of the month lowered the mentioned price to the average level noted in the first and second quarters, which is of course favourable for the company. The factor connected with the purchase of aluminium affects Kęty’s results with a two-month delay.

Finalising one of the planned acquisitions can have a positive influence on the stock price. The management board believes that two of the projects could be finalised in September. The com-pany’s former acquisitions have created value for shareholders.

Macroeconomic factors influencing company results

Source: LME, NBP

KGHM

New budget KGHM raised this year’s net profit forecast to PLN 1.92m (previous forecast: PLN 943m) and revenue forecast to PLN 7.22 bn (previous forecast: PLN 5.94 bn). Moreover, the management board declared that an annual payment of up to 30% of net profit will be recommended if no “unexpected circumstances” occur. We interpret this information as neutral. On the level of revenues, the new forecast of the management board is convergent with the forecast of BRE Bank Securities. The company expects to generate a PLN 89m higher net profit, which largely results from the higher unit cost of production, assumed by us in the model. The company also presented forecasts concerning future investment expenditures and prices of copper. KGHM estimates that the annual average copper price will be by 17% lower in 2006 than this year. In the course of two years investments will grow from PLN 660m to PLN 986m. In our opinion, the company’s announced dividend policy could be disappointing, as it means that following the record year of 2005 investors can expect a maximum dividend of PLN 576m, while the company currently has no debt. We will comment more thoroughly after analyzing the presented data.

2005 2004 1Q 2Q Jul/Aug (avg) current 1Q 2Q PLN/USD 3.07 3.27 3.35 3.18 3.8 3.9 Aluminium (USD) 1 898 1 795 1 823 1 847 1 656 1 695 Aluminium (PLN) 5 831 5 875 6 105 5 873 6 328 6 597 PLN/EURO 4.03 4.13 4.07 3.97 4.8 4.7 EURO/USD 1.31 1.26 1.21 1.25 1.25 1.21

Metals

Previous forecast Current forecast BRE Bank Securities

forecast Revenues (PLN m) 5936 7217 7212 Net profit (PLN m) 943 1920 1831 Annual average price of copper (USD/t) 2550 3200 3181* Annual average price of silver (USD/kg) 187 222 251 Annual average USD/PLN exchange rate 3.3 3.3 3.2 Copper production (tons ‘000) 552 552 542 Silver production (tons) 1219 1230 1280 Total unit cost of production (PLN/t) 7180 7450 7587

Source: BRE Bank Securities, *SPOT price

Detailed assumptions concerning the budget and BRE Bank Securities’ forecast

BRE Bank Securities

6 September 2005 40


Metals KGHM – influence of investments on cost reductions The company will invest PLN 3.95 bn in 2005-2009. This amount includes, among others, pro-jects that will allow reduce costs of copper production. The company provided details concern-ing three investment projects and their influence on costs. These investments are: the moderni-sation of the mills (pyrometallurgy technology), which will cost PLN 870m, expansion of electri-cal power capacity (PLN 900m) and hydraulic transport (PLN 150m). Total investments con-nected with the mentioned projects amount to PLN 1.92 bn. The management board estimates that the savings resulting from these investments will total PLN 150m. Considering the amount of copper sales, this gives PLN 273 per tonne of metal produced. This accounts for 3.6% of the unit cost of copper production that the company forecasts for 2005. This amount is the equiva-lent to the influence on the unit cost of wage increases in 2005 alone. This also means that with an annual wage hike of 2.5%, after four years the cost effect of the investment will be con-sumed by employees – if the company does not change the policy concerning employment and wage systems. Situation on copper market In August, inventories on the three most important raw materials exchanges grew 38.2 thous tonnes, mainly due to the increase on the LME (+34.6 thous tonnes). However, the turn of Au-gust and September has already seen inventories fall back 5.4 thous tones in the course of two weeks, which could mean that the earlier growth was the effect of seasonality of demand. With-weak demand on a global scale, the supply of the red metal is still surprisingly low in relation to earlier forecasts. In July, Chile supplied the market with 12% less copper than the year before, which was largely due to an earthquake and strikes. The miners’ strike in the Asarco mines continues. In August, the average price of copper in 3-month contracts was 3 485 USD/t (i.e., by 8.5% higher than in 2Q). From the beginning of the year the copper production (3M) amounted to 3 253 USD/t.

0,0

20,0

40,0

60,0

80,0

100,0

120,0

140,0

160,0

04-12-30 05-02-19 05-04-11 05-06-01 05-07-22

ty s. ton Shanghay Comex LME

60

80

100

120

140

160

180

2004-12-30 2005-02-24 2005-04-21 2005-06-23 2005-08-19

ty s. ton

2800

3000

3200

3400

3600

3800

4000USD/t

Zapasy łacznieCena (spot)

Copper inventories level on COMEX, LME, Szanghay vs. Copper price (spot) on LME

Source: LME, COMEX, SME

‘000 tons ‘000 tons

Total stocks Price (spot)

BRE Bank Securities

6 September 2005 41


Chemical Sector Refining Sector

The last month was another period of record high oil prices. At the beginning of September, a barrel of Brent cost more than USD 66. The growth in prices of Russian Ural, favourable for refineries in Central and Eastern Europe was significantly lower, due to which the differential increased significantly, exceeding 6 USD/bbl. The strong growth in petrol prices in the last week is a consequence of hurricanes in the Gulf of Mexico and the reduced supply of this fuel on the US market. In our opinion, this is only a temporary situation, resulting from the consider-able imbalance in the supply and demand for fuels. In the long term, we expect petrol prices of 400 USD/ton with a Brent price of 40 USD/bbl.

PKN Orlen

2Q results The volume of petroleum processing in the second quarter of this year remained similar to the volume noted in the same period of the last year, or slightly above 3m tonnes. This is less than in the first quarter of this year, and the decline mainly results from the renovation shutdown of BOP. As a result of the growth in fuel prices as well as the continuing high prices of petrochemi-cal products, the company’s revenues exceeded the levels noted in the second quarter of last year (PLN 7.5 bn) and the first quarter of this year (PLN 6.8m), reaching PLN 8.4 bn.

Prices of oil (USD/bbl) and refining products (USD/ton)

Source: Bloomberg

25

35

45

55

65

2004-04-01 2004-07-01 2004-10-01 2005-01-01 2005-04-01 2005-07-01

URAL NWE BRENT

200

700

2004-04-01 2004-07-01 2004-10-01 2005-01-01 2005-04-01 2005-07-01

ON PET ROL HEAT ING OIL

2Q 2005 consolidated results of PKN Orlen (excluding Unipetrol)

(PLN m) 2Q2005 2Q2004 dynamics 1H2005 1H2004 dynamics 2005F 2 004 dynamics Reveues 8 400.6 7473 12.4% 15 205 13813.1 10.1% 35 031.6 30565.0 14.6%

EBITDA 920.6 913.4 0.8% 2006.7 1737.9 15.5% 4 209.5 3984.0 5.7%

EBIT 640.0 586.7 9.1% 1431.3 1070.5 33.7% 2 983.6 2750.0 8.5% margin 7.6% 7.9% -3.0% 9.4% 7.7% 21.5% 8.5% 9.0% -5.3% Gross profit 913.0 693.0 31.7% 1682.9 1142 47.4% 2885.0 3016 -4.3% Net profit 698.1 550.6 26.8% 1316.1 880.2 49.5% 2305.8 2396 -3.8%

Source: BRE Bank Securities / PKN Orlen

BRE Bank Securities

6 September 2005 42


Chemical Sector The company presented a small, but pleasant surprise in regard to the EBIT result of particular segments. In the refining sector, it amounted to PLN 800m and was by 38% higher y/y (PLN 215m). Moreover, the petrochemical segment, despite the renovation shutdown, generated an operating profit of PLN 205m. The result of the retail segment, PLN 62m, was also a pleasant surprise.

However, it should noted that in case of valuating inventories by the LIFO method, the result on the EBIT level would have been PLN 400m lower. The influence of the above effect was the highest in the company’s history, although the quarterly increase in petroleum prices did not reach a record level. In addition, due to the renovation of the polyolefin installation, the majority of transactions was probably concluded at the beginning of the quarter, when macroeconomic conditions were more favourable than at the end of last quarter. Moreover, a large portion of the retail sector’s result was due to the revaluation of Orlen Deutschland’s assets (approximately PLN 61m).

The EBIT result was reduced by the value of a reserve (about PLN 376m), created due to pos-sible problems in finalising the Unipetrol acquisition transaction. Eliminating the influence of the created reserve and the revaluation of Orlen Deutschland’s assets, the operating result would have been PLN 955m, or PLN 102m above our forecast (PLN 853m following the adjustment by Unipetrol’s contribution - PLN 40m). This difference is mainly caused by the LIFO effect, which was higher than forecast.

The negative influence of the above-described reserve was offset to some degree by the inclu-sion of unrealised profit (PLN 240m) from Unipetrol’s debt purchased with a discount to book value. The dividend from Polkomtel (PLN 83m gross), booked last quarter, largely compen-sated for the decline in petrochemical production.

Summarising, PKN Orlen generated a net profit of PLN 698m in 2Q, excluding the influence of Unipetrol, which corresponds to a 27% y/y growth (PLN 148m) and is in accordance with our forecast of PLN 690m. Despite the significant influence of one-off events, in our opinion, 2Q results are good and slightly exceed our expectations. At the same time, it is important to re-member that the results given by PKN Orlen do not include the influence of Unipetrol, which since 1 June 2005 has been subject to mandatory consolidation by the full method. In our fore-casts, the influence of Unipetrol on estimated results was relatively limited and on the level of EBIT and net profit amounted to PLN 40m and PLN 30m, respectively.

Regained control over Czech Unipetrol On 16 August PKN Orlen again filed a motion (the first was rejected) to the Czech Securities and Exchange Commission (SEC) to express agreement for conducting a tender offer for the shares of Unipetrol, Spolana and Paramo, which would allow it to regain control over the Czech holding. Thirteen days later the SEC issued a permission to conduct a tender offer for the mi-nority shares of Unipetrol (139CZK/share – 4CZK more than in the offering), Spolana (155CZK/share – unchanged) and Paramo (978CZK/share – unchanged), and PKN Orlen began pur-chasing the shares on 31 August. This means that at the General Meeting of Shareholders, scheduled for 6 September, PKN Orlen would be able to block the unfavourable proposed changes in the statute. This information allowed the market to remove the risk, connected with losing control over Unipetrol, from the stock price. Unipetrol president steps down Unipetrol’s president submitted his resignation. Marek Mroczkowski (currently a member of Unipetrol’s supervisory board) will be a president until a new president is selected. The presi-dent was expected to step down and therefore it has no influence on company’s stock price. Participation in tender for Turkey’s Tupras A consortium of PKN Orlen and Zorlu Holding are short-listed (together with a Shell and Koc Holding AS consortium as well as Indian Oil Corporation in a consortium with Calik Enerji Sanayii ve Ticaret AS). The market value of the Turkish monopolist’s capital is approximately USD 3.8 bn, which means the purchase of a 51% stake in the consortium, in which PKN owns 50%, could cost up to USD 1 bn. Tupras is a monopolist on the market of petroleum processing and an annual capacity of 28m tonnes (two times more than PKN Orlen). PKN Orlen has not yet published information concerning the potential effects of synergy or benefits from restructur-ing the Turkish refinery.

BRE Bank Securities

6 September 2005 43


Chemical Sector New brand for economy class petrol stations At the turn of September and October the company will present the new name and logo of the economy chain of petrol stations. Several dozen stations are to be created under the new brand by the end of the year. Introducing a new brand for stations with a lower standard and smaller product offer is in line with the strategy relative to the retail sector and the general trend in the retail sales of fuels. Privatisation of chemical sector The subsidiary company Anwil is on the short list of investors (together with Germany’s PCC and Sweden’s Yara) in the privatisation of ZA Kędzierzyn and ZA Tarnów. According to press speculation, Anwil was to establish a consortium with Yara, which was to increase the chances of winning the tender. Better results of both nitrogen processing companies are to a large ex-tent due to favourable macroeconomic conditions. These companies are significantly indebted to PGNiG (ZA Tarnów PLN 95m and ZA Kędzierzyn PLN 213m). Due to the lack of information concerning the amount of planned investments, it is difficult to evaluate the long-term influence of the transaction on PKN Orlen’s results. Vertical integration in Anwil’s operating segment would be a potential effect of synergy. Participation in tender for Możejki refinery The spokesman of Yukos confirmed the intends to sell 53% of the holdings in Lithuania’s Może-jki refinery. In accordance with the statements of PKN Orlen’s spokesman, the company is par-ticipating in the tender for the refinery. However, considering the fact that Russian companies (Lukoil and TMK BP) are also interested in acquiring a share of Yukos, we believe that Orlen’s chances of winning the tender are slim.

Grupa LOTOS 2Q results The company closed the second quarter with a net profit of PLN 89m. This result does not in-clude the profit earned by Petrobaltic, whose sales for a consecutive quarter were included in the inventories of the consolidated capital group. The renovation shutdown exerted a negative influence on the company’s performance (as a result of the renovation annual processing ca-pacity increased to 6m tonnes). This was offset to some extent by extraordinary events: the sale of holdings in Naftoport and a tax refund in the first quarter. Excluding the contribution of Petrobaltic (we expected PLN 35m on the net level) from our forecasts, in the consolidated result the company earned a net profit PLN 15m higher than we expected, mainly due to the greater influence of these events than we estimated.

In the second quarter, the company processed 778 thous tonnes of oil (i.e., 300 thous tonnes less than in the first quarter of the year). This is directly connected with the 47-day renovation shutdown, the majority of which occurred in the first quarter. We are unable to evaluate whether the structure of yields changed due to the lack of comparable data. In 2Q of this year, the company produced: 195 thous tonnes of petrol; 283.2 thous tonnes of diesel fuel; 108.7 thous tones of light heating oil; 44.9 thous tonnes of aviation fuel as well as 102.8 thous tonnes of heavy heating oil. The 17.3% y/y growth in the value of sales primarily results from the in-crease in fuel prices, although in connection with the shutdown an increase was noted in the share of goods, characterised by lower margins.

2Q consolidated results of Grupa Lotos (excluding Petrobaltic)

Source: BRE Bank Securities / Grupa Lotos * Forecast including Petrobaltic ** No comparable data

(PLN m) 2Q2005 2Q2004 dynamics 1H2005 1H2004 dynamics 2005F* 2004** dynamics Revenues 2 146.0 1829.2 17.3% 3 631.9 3318.8 9.4% 8 558 n/a n/a EBITDA 174.5 128.8 35.5% 322.2 295.5 9.0% 782 n/a n/a EBIT 114.2 82.9 37.8% 198.4 202.3 -1.9% 528 n/a n/a margin 5.3% 4.5% 17.4% 5.5% 6.1% -10.4% 6.2% n/a n/a Gross profit 111.8 85.0 31.5% 196.1 187.7 4.5% 554 n/a n/a Net profit 88.6 56.2 57.7% 141.3 137.0 3.1% 402 n/a n/a

BRE Bank Securities

6 September 2005 44


Chemical Sector The lower (than our forecast) EBIT and EBITDA (estimated at PLN 147m and PLN 210m, re-spectively) are mainly due to excluding the results of Petrobaltic, entire production of which was placed in the inventories of Grupa Lotos and only after its processing or sale in the form of a raw material form outside the capital group, will it be shown in the consolidated income state-ment. We estimate the influence of Petrobaltic on second quarter results (after excluding the share of minorities) at PLN 35m. The sale of holdings in Naftoport, the book value of which was PLN 7.7m, had a positive impact on the results. We estimate income from the transaction at PLN 33m. Because of an over pay-ment of taxes in the first quarter, the effective tax rate in the last three months was 11.7%.

Higher production of aviation fuel The company signed a contract with Naftoremont, concerning the expansion of the Merox in-stallation, which will increase the production of aviation fuel from 24 to 30 tonnes per hour. Due to monopoly of Petrolot (a company in which PKN Orlen owns a 51% stake and LOT owns 49%), almost the whole production was designated for foreign markets. The planned de-monopolisation of the domestic market will increase local sales characterised by a higher mar-gin than export sales. ESSO stations purchased The Grupa Lotos’ report from 24 August includedinformation that the company purchased 39 petrol stations together with 14 properties designated for building new stations. The value of the transaction was PLN 278.5m, PLN 250.7m of which is the net purchase price of the 39 stations (PLN 6.4m per station). Moreover, GL is obligated to purchase the current assets. Comparing the value of the transaction with the price PKN Orlen paid for the stations in Germany, the amount GL paid could seem high. However, considering the much higher average annual sales of the Esso stations, higher retail margins in Poland, the significant growth in GL’s production capacity in May of this year (from 4.5 to 6m tonnes annually), as well as the significant interest in purchasing stations of other petrol station chains, we believe this transaction (although fairly expensive) is economically justified. Change in supervisory board Cezary Nowosad will replace Katarzyna Dawidczyk, who is stepping down from her position of chairman of the supervisory board. Market reaction to this news was neutral.

BRE Bank Securities

6 September 2005 45


Pharmaceutical Manufacturers and Distributors Pharmaceutical Market

Sales of medicines weak in July According to IMS Health data, the pharmaceutical market entirely stopped growing in July, increasing only by 0.1% in relation to July 2004. This translated into the dynamics of market growth in the first seven months of the year falling to 8.4%. Demand from hospitals slumped in July – their purchases fell by 2% in relation to the analogous month of the previous year. How-ever, hospital purchases during the first seven months of the year grew by 11%. According to IMS, the decline in hospital purchases is a symptom of their financial crisis. July usually is not a good month in terms of drug sales. Therefore, the sales result comes as no surprise. This effect can also be enhanced by the exceptionally high sales the previous month. Despite the weak month, representatives of wholesalers are counting on a good sec-ond half of the year. In turn, they evaluate the financial situation of hospitals as good, and fur-ther business with this group of clients as promising.

PMR forecasts for pharmaceutical market According to PMR, drug sales in 2005-2007 will gradually increase at a rate of 5% annually, while the segment of generics will grow faster, about 7% annually (the market of original medi-cines will grow by 1.5%). The moderate growth is due to the government’s policy of reducing refund expenditures. One of the representatives of a pharmaceutical wholesaler has another opinion. He believes that Poland’s joining the EU and greater patent protection as well as the increasing affluence of society, gives the possibility in Poland to increase sales of expensive new preparations, and therefore to market growth in terms of value.

Who other than hospitals will benefit from maximum drug prices? The Ministry of Health will set maximum prices on 118 expensive medicines. Pharmaceutical firms will not be able to sell these medicines to hospitals above this price. This is to reduce hospital costs approximately PLN 100m. The government intends to reduce expenditures on medicines, proved by lowering the refund limit (among others, for insulin) at the beginning of the year. The MH moves are a response to the price policy employed by pharmaceutical concerns. Some preparations from this list are cheaper in Germany and Switzerland. It is difficult to estimate the benefits of this for pharma-ceutical distributors, but it appears that it is more positive than negative. Cheaper medicines are sold in greater quantities, but they also have relatively higher storage costs. Pharmacies earn higher margins on them because the retail margin is digressive. One of the representa-tives of a pharmaceutical wholesaler evaluates the financial situation of hospitals as very good. Moreover, the act on hospital restructuring will bring positive results and allow some hospitals to regain financial liquidity. Other than the hospitals themselves, wholesalers selling to hospi-tals, such as PGF and Farmacol, should benefit the most from this move.

PGF

Results for 2Q PGF is still burdened by the effects of restructuring and consolidating new entities. Therefore, in 1H 2005, despite the slight increase in the gross margin on sales, the operating profit margin fell to 1.7% from 2.3% in the analogous period of the previous year. The dynamics of sales in 1H was lower than the growth noted by the entire market. The high level of debt was the reason which downgraded the company’s credit rating. The negative effects of merging Apteki Polskie and Cefarm Łódź (together about 200 pharma-cies) into the group are still evident in 1H. The consolidation of these entities will continue to have a negative impact on this year’s result. However, the investment should increase the real-ised margin as retail margins are higher. We are currently reviewing our forecasts and recommendation for PGF.

BRE Bank Securities

6 September 2005 46


Pharmaceutical Manufacturers and Distributors

Farmacol

2Q results The company presented very good consolidated results for 2Q, which translated into an im-provement in results for the first half of the year. For the first six months of the year Farmacol increased sales by almost 10%, to PLN 1.5 bn against PLN 1.37 bn in the same period of the previous year. Net profit increased in this period to PLN 30.8m against PLN 25.6m in 1H 2004. The net margin increased to 2.05% from 1.87% in the analogous period of 2004. Sales increase was higher than market growth, and the margin remains high (up in relation to 1Q 2005, which was encumbered by the change in the refund list). The company remains the leader in terms of sales efficiency.

Source: Farmacol We are currently reviewing our forecasts and recommendation for Farmacol.

Torfarm Results for 2Q Results for 2Q turned out to be slightly worse on the level of revenues and better on the level of net profit than our expectations. The difference in revenues to a large extent results from the change in principles of presenting bonuses received from suppliers and granted to clients. After standardising data, the company noted an almost 18% growth in sales in 2Q 2005 relative to the analogous period of 2004, and 20% growth in 1H 2005 relative to 1H 2004. Moreover, Tor-farm increased the realised gross profit margin to 0.83% in 2Q. Change in principles of presenting premiums and bonuses The principles of presenting premiums and bonuses received from suppliers and granted to clients changed in 2Q 2005. Currently, they reduce, the value of sold goods and materials as well as sales revenues of goods and materials of core operating activity, respectively. Previ-ously, they were presented in other operating activity. This change has an influence on the gross/net sales margin, but has no influence on the net financial result and shareholders’ eq-uity.

(PLN m) 2Q 2005 2Q 2004 dynamics 1H 2005 1H 2004 dynamics Revenues 960,9 887.3 8.3% 1958.4 1818.5 7.7% Gross profit on sales 89,0 81.2 9.6% 183.6 168.2 9.1% margin on sales 9.26% 9.15% 9.37% 9.25% EBIT 11.5 19.6 -41.3% 33.3 41.3 -19.4% EBIT margin 1.2% 2.2% 1.7% 2.3% Net profit 9.7 13.5 -28.1% 25.9 31.4 -17.7% Net profit margin 1.0% 1.5% 1.3% 1.7%

(PLN m) 2Q 2005 2Q 2004 dynamics 1H 2005 1H 2004 dynamics Revenues 735.9 675.5 8.9% 1500.6 1365.8 9.9% Gross profit on sales 64.5 54.5 18.3% 126.0 115.3 9.3% margin on sales 8.8% 8.1% 8.4% 8.4% EBIT 17.1 15.4 11.3% 36.2 32.0 13.2% EBIT margin 2.3% 2.3% 2.4% 2.3% Net profit 15.6 13.6 15.4% 30.8 25.6 20.6% Net profit margin 2.1% 2.0% 2.1% 1.9%

Consolidated quarterly results of PGF

Source: PGF

Consolidated quarterly results of Farmacol

BRE Bank Securities

6 September 2005 47


Pharmaceutical Manufacturers and Distributors Data for 2Q 2005, together with data from the analogous period of the previous year, adjusted for the needs of presentation, is presented below. Quarterly result of Torfarm

Sales and profitability up The company increased the gross margin on sales in 2Q 2005 to 6.5% (5.7% in the analogous period of 2004) after noting a lower margin in 1Q in connection with changes in the refund list. As a result, the company managed to increase the margin for 1H to 6%. The lower profit on the operating level than the result noted last year results from the costs of introducing the MultiApteka system, the purpose of which is coordinating marketing activities between the producer, distributor and pharmacy. In 1H 2005, the balance of expenditures con-nected with this project, lowering the result on operating activity, totals PLN 2.2m. The manage-ment board forecasts that the revenues and costs of this project will be balanced in 2H. Consid-ering the significant interest in the programme and the degree of its implementation, there is no indication that the board’s forecast will not be met. Factors with an extraordinary character on the side of financial revenues and financial costs, the positive balance of which is approximately PLN 1m, also exerted an influence on the net result. Even considering these factors, the net margin is higher than in the analogous period of the previous year. We are currently updating our forecasts for Torfarm.

Bioton Higher insulin sales Results for 2Q exceed our expectations, primarily due to higher sales revenues of insulin. In 2Q, insulin sales totalled PLN 25.3m against PLN 10m in the analogous period of the previous year and PLN 7.7.m in 1Q 2005. Due to the higher insulin sales, revenues in 1H 2005 totalled PLN 68.5m against PLN 49.8m in 1H 2004. Financial revenues from exchange differences of PLN 4.3m had an influence on the period’s net result. In our opinion, meeting forecast will largely depend on the result of registering finished forms in Russia and winning the tender for the delivery of insulin to that market. Sales of insulin higher and antibiotics stable Sales of insulin on the Polish market generated revenues of PLN 15m, and PLN 10m originates from export sales, mainly to Egypt and Russia (substance). However, sales of antibiotics were slightly higher than our forecast of almost PLN 16m. Sales of Bioton by segments

Source: Bioton

(PLN m) 2Q 2005 2Q 2004 dynamics Insulin 25.3 10 153.2% Antibiotics 16 12.2 30.8% Services 0.8 0.5 63.8% Goods 2.1 3.5 -39.4% Total 44.2 26.2 68.6%

Source: Torfarm

(PLN m) 2Q 2005 2Q 2004 dynamics 1H 2005 1H 2004 dynamics Revenues 346.6 294.3 17.8% 711.3 590.1 20.5% Gross profit on sales 22.4 16.8 33.5% 43.0 34.1 26.0% margin on sales 6.5% 5.7% 6.0% 5.8% EBIT 1.7 1.2 46.4% 2.8 3.8 -26.8% EBIT margin 0.49% 0.39% 0.39% 0.64% Net profit 2.9 1.6 83.2% 4.2 4.1 1.8% Net profit margin 0.83% 0.54% 0.59% 0.70%

BRE Bank Securities

6 September 2005 48


Pharmaceutical Manufacturers and Distributors Higher margins on all levels Due to higher insulin sales, on which Bioton generates higher margins, the company’s overall margin increased both in relation to the analogous period of the previous year and in relation to 1Q 2005. It should be noted that in 1H 2005 the company generated revenues of PLN 4.3m from exchange differences, which boosted the period’s result.

Forecasts for 2005 Forecasts for 2005 are ambitious and the 2Q result increases the probability that forecasts will be met. Following 1H, 44.5% of the forecast has been met in regard to sales, 18.3% relative to operating profit and 31% relative to net profit (15.7% excluding financial revenues from ex-change differences). Company sales in the segment of antibiotics are characterised by signifi-cant seasonality. Therefore, the fourth quarter is the best quarter of the year. Last year follow-ing 1H, the company had generated 38.5% of total sales and 22.2% of operating profit for the entire year. This year’s figures are lower, but the forecast is not threatened. In our opinion, the result of registering finished forms in Russia and winning the tender for the delivery of insulin on that market will be important elements determining whether the forecast will be met. New oral insulin drug In August, Parkiet announced that Warsaw’s Pharmaceutical Institute is working on a generic oral insulin drug, which probably will be soon manufactured by Bioton. The original drug is cur-rently available in Poland, but the generic is to be 50% cheaper. The information contains no specifics, only general information. At present, the company is conducting a series of tests on new preparations. Oral insulin drugs are only a supplemental therapy for diabetics – insulin is the most important drug and the company is currently focusing its activity on it.

(PLN m) 2Q 2005 2Q 2004 dynamics 1H 2005 1H 2004 dynamics 2005F 2004 dynamics Revenues 44.2 26.2 68.6% 68.5 49.8 37.5% 151.9 129,3 17,5% gross profit on sales 23.2 12.9 79.2% 34.9 23.9 46.0% 47 33,1 42,0% margin on sales 52.4% 49.3% 50.9% 47.9% 5.90% 6.00% EBIT 7.0 1.9 262.4% 6.8 4.4 54.7% 32.1 19.7 63% EBIT margin 15.9% 7.4% 9.9% 8.8% 21.1% 15.2% Net profit 7.6 -2.1 468.9% 8.7 -1.3 785.7% 26.9 8.4 222% Net profit margin 17.2% - 12.7% - 17.7% 6.5%

Consolidated quarterly results of Bioton

Source: Bioton, BRE Bank Securities

BRE Bank Securities

6 September 2005 49


Hoop

Excellent 2Q results Hoop’s results in 2Q exceeded our expectations, although we expected them to improve signifi-cantly in the second quarter. Hoop’s profits were incomparably better than last year’s. The key sources of the improvement were the growth of domestic sales and the reduction of costs con-nected with them, as well as Megapack’s improved performance. The company has already earned profits In the first half of this year similar to forecasted by us for the entire year. Hoop – results for 2Q 2005

Consolidated sales up better than expected Hoop sales in 2Q were up 10% over the same period of the last year, while we forecasted a modest 4% growth. Despite our expectations, sales revenues on the Polish market improved (15% growth) and involved all of Hoop’s main product groups: carbonated beverages (up 11%), non-carbonated beverages (up 8%) and mineral water (up 30%). Modest temperatures in June did not negatively impact domestic sales. However, revenues from the Russian market remained unchanged, despite a substantial in-crease in the volume of production and almost full utilisation of production capacity. The reason for this is the change in the profile of Megapack’s production, from the production of mainly alcoholic beverages in 2004 to bottling services of non-alcoholic beverages (mainly for Pep-siCo) in 2005. In bottling non-alcoholic beverages Megapack books only the fee for the bottling services as its revenues, while the entire value of the product was included as revenues in the production of alcoholic beverages (simultaneously, costs of raw materials were included in costs). Costs of domestic activity decreased With domestic sales of products up 14.3%, Hoop’s costs of manufacturing them increased only by 8.7%, selling costs were up 0.9% and administrative costs were down 25.7%. The company is realising its plans to cut costs significantly, among others, through downsizing. Hoop’s gross profit on sales from Polish activity alone increased from PLN 0.5m in 2Q 2004 to PLN 10.7m in 2Q 2005. Lower advertising costs in Russia boost Megapack profits Despite the better utilisation of production capacity, according to our estimates, Megapack’s gross profit on sales was lower than in the same period of the last year (because the growth of gross profit on sales of the Polish business was higher than the consolidated gross profit on sales). The reason for this could be the lower unit margin obtained on bottling non-alcoholic beverages for PepsiCo than on contracts realised one year ago. However, Megapack’s contri-bution to Hoop’s consolidated net result in 2Q was positive and significantly better than one year ago (plus PLN 3.5m in 2Q 2005 against minus PLN 2.8m in 2Q 2004). The source of the improvement was better utilisation of capacity as well as Hoop’s planned significant reduction in advertising expenditures in Russia. Sales of Hoop’s own brands are also growing quickly in Russia. EUR debt has negative impact on profit The balance of financial revenues and financial costs of Grupa Hoop was negative in 2Q (- PLN 3.1m), against plus PLN 0.4m one year earlier. The source of this change was the ab-sence of zloty strengthening against the euro in 2Q 2005 that was observed in the same period last year. With debt in EUR, PLN strengthening had a positive influence on results last year. According to the company’s initial estimates following July, the third quarter should not bring a collapse in results.

Food Sector

(PLN m) 2Q2005F 2Q2005 2Q2004 dynamics 1H2005 1H2004 dynamics 2005F 2004 dynamics Revenues 150.0 177.1 161.5 10% 270.0 262.8 3% 528.9 501.1 6% EBITDA 15.0 22.9 14.5 57% 29.1 20.9 39% 51.7 32.1 61% margin 10.0% 12.9% 9.0% 10.8% 8.0% 9.8% 6.4% EBIT 6.5 15.3 4.4 248% 13.4 3.8 252% 16.3 -1.2 Gross profit 4.1 12.2 1.9 541% 7.9 -1.3 6.9 -14.1 Net profit 3.6 8.3 1.3 540% 4.1 0.4 1053% 5.6 -10.3 Source: Company, F - forecast of BRE Bank Securities, consolidated, IAS, net profit excluding share of minorities

BRE Bank Securities

6 September 2005 50


Mondi

Further drop of paper prices Paper prices on the European market continued to fall during the last month. In prices ex-pressed in EUR, the price of fluting noted the biggest decline (-1.9%), while reported the small-est drop (-0.7%). Including the EUR/PLN exchange rate, the price declines were –2.9% and –1.6%, respectively. In 3Q, the average price of kraftliner in PLN is by 6.6% lower than in 2Q 2005 and by 12% lower than in the analogous period of the previous year Prices of fluting noted even bigger declines, falling by 8.8% and 18%, respectively. The company has been hit hard in recent weeks, as in addition to the decline in paper prices, the zloty has strengthened against the euro. EUR strengthening against the USD, which in-creases the profitability of paper imports from the dollar zone (USA, Brazil), is also unfavour-able for the sector in Europe.

Orbis

Hotel Europejski dispute comes to an end Orbis signed an agreement with the company Hotel Europejski w Warszawie SA (HESA), which ends the long running dispute over the right to the real estate. As a result of the agreement, Orbis is obligated to pay HESA compensation of PLN 35.38m (including VAT). Simultaneously, Orbis loses the Hotel Europejski to HESA. The compensation is covered by reserves created for this purpose. The company did not publish the revenues and profits generated by the hotel, which is impor-tant in the context of the decline in revenues and EBITDA in the third quarter of this year. Ac-cording to our estimates, the hotel generates annual revenues of some PLN 17m. We base this estimate on the following assumptions: ADR equal to PLN 225 (20% above the average for the chain), and attendence rate of 55% (8 percentage points above the average for the chain). We adopted higher ratios than for the entire chain because of the hotel’s location (Warsaw, near old town). Assuming a 25% margin on sales, this gives an amount of PLN 4.3m, which in-creases the results on the level of gross profit on sales. This corresponds to 1.6% of the group’s consolidated result. This is not a good news but it should not have a significant influ-ence on the stock price. In our opinion, current EUR weakening against the PLN could have a greater significance – particularly considering that this is the period of strong growth in tourist traffic in hotels. Porty Lotnicze invests in hotels Port Hotel, a subsidiary company of Porty Lotnicze, announced that it intends to build 10-11 hotels located at airports within the next 5 years at a cost of approximately PLN 300m. Consid-ering the amount of the planned investments and the number of facilities, it would appear these will be small, economy hotels, mainly two-star hotels located at smaller airports. The company stated that it also plans to build a four-star facility (probably in Kraków). Considering the invest-ment’s deadline as well as its scale, the information, although negative, should not have a sig-nificant influence on Orbis’ stock price. Orbis Transport development The management board of Orbis Transport forecasts revenues to increase this year to PLN 135-140m and believes that 2005 and 2006 should be record years for the company in this regard. Poles travelling to work in Great Britain and other EU-15 countries has a large influence on the growth in revenues. The management board also does not rule out a debut on the War-saw Stock Exchange, which could occur in 2007. Orbis Transport generated revenues of PLN 109m In 2004, which means the revenue forecast is 24-28% higher than the previous year. Increased passenger traffic undoubtedly has a positive impact on sales, but higher fuel prices should also be kept in mind, which the company passed on to the client and that is reflected in revenues, as well as in the operating costs. The second reason for the growth in revenues is group’s expansion with additional PKS companies, consolidated by Orbis and which should result in annual data being incomparable.

Krosno

Weak consolidated results Krosno’s 2Q performance was weak, both at the unconsolidated and consolidated levels. Sales fell not only in relation to 2Q04 (-12%), but also in comparison to the weak first quarter of the year (-3%). At the operating level, due to subsidiary companies, profit totalled PLN 2.4m in comparison to the PLN 1m loss from the unconsolidated report. The decline in domestic de-mand as well as zloty strengthening relative to the USD and EUR were main reasons for the weaker result.

Other Sectors

BRE Bank Securities

6 September 2005 51


No surprises following non-consolidated results We are not surprised by Krosno’s weak consolidated results. Lower than expected unconsoli-dated performance prepared the market for poor consolidated results. As in the case of non-consolidated results, zloty strengthening in relation to the USD (approximately 16% y/y accord-ing to average NBP rates) and EUR (about 12% y/y) exerted a considerable negative influence on the decline in sales revenues. Due to the fact that more than 65% of revenues originates from exports, zloty strengthening has a big impact on the level of sales. Interestingly, exports calculated in USD increased in comparison to last year. In 1H04, exports generated about USD 32m, and approximately USD 33.9m in the first half of this year. Lower sales, lower profits Consolidated sales revenues fell 12% y/y in 2Q05. Not only did revenues fall, but gross profit on sales fell even more, which is due to settling the majority of revenues in foreign currencies, while manufacturing costs are settled in PLN. The Group’s operating level is worth mentioning. In the non-consolidated report, Krosno noted a PLN 1m loss, while in the consolidated report subsidiary companies contributed to the signifi-cant increase in the result to PLN 2.4m in the black. Margins fall Lower margins can be seen at all levels of the income statement. The gross margin on sales fell to the lowest level in more than 2 years (22% in 2Q05, 25% trailing for the last four quar-ters). A similar situation can be seen on the operating and net levels. At the operating level, profit in annual terms dropped 75% (from PLN 9.4m in 2Q04 to PLN 2.4m in 2Q05) and 69% on the net level (PLN 1.8m vs. PLN 5.9m). Assuming that the likelihood of the zloty strengthening relative to the USD and EUR is, significantly greater in the medium term than its weakening, this does not bode well for subsequent quarters. What to expect in 2H... Following the first half of the year, revenues fell 11% (PLN 175.5m), and net profit dropped 58% (to PLN 4.7m). In 2H05, we expect results to improve, but we do have doubts whether the company will be able to offset the effect of the weak 1H. The company’s management board forecasts a 10% improvement on this year in relation to last year’s results, which corresponds to revenues of PLN 440m and net profit of PLN 22m at the consolidated level. Results for the first quarter are nothing to boast about. The situation was to improve in the second quarter, but this did not happen and places the year-end forecast into question. Looking at results to date and the gap to fill to meet the full-year forecast, 2H05 would have to be the best in the com-pany’s history. In our opinion, macroeconomic conditions will not significantly improve (we do not expect significant zloty weakening, and a rapid recovery in domestic demand looks very unlikely).

Other Sectors Consolidated quarterly results

Source: Krosno, F - forecast of BRE Bank Securities

(PLN m) 2Q2005 2Q2004 dynamics 1H2005 1H2004 dynamics 2004 Revenues 86.4 98.5 -12% 175.5 197.0 -11% 397.3 EBITDA 7.2 12.6 -43% 16.5 24.3 -32% 52.6 margin 8.3% 12.8% 9.4% 12.3% 13.2% EBIT 2.4 9.4 -75% 7.5 18.0 -58% 40.2 Gross profit 1.9 7.2 -73% 5.4 13.6 -60% 24.7 Net profit 1.8 5.9 -69% 4.7 11.2 -58% 18.5

2Q2005F 93.0 11.2

12.0% 7.0 3.8 3.1

ING BSK The date of last recommendation's change SUSPENDEDPrice [PLN] 488.50 Market cap [PLN mn] 6 355 Valuation -

Book Value [PLN mn] 3 262 Free float [%] 20%

Year Interest incomeProfit on bank.

oper. Gross profit Net profit No of sh. P/E P/PBO* P/BV[PLN mn] [PLN mn] [PLN mn] [PLN mn] [mn]

2003 869 1 530 146 29 13 221.17 4.15 2.352004 822 1 584 353 366 13 17.35 4.01 2.03

2005P 822 1 640 435 423 13 15.03 3.87 1.932006P 875 1 695 485 470 13 13.53 3.75 1.77

*price/profit on banking operationsdynamics

[PLN mn] I Q'04 I-I Q'04 I Q'05 I-I Q'05 I Q'05/04Interest inc. 197 197 200 200 1.7%PBO 374 374 395 395 5.6%Gross profit 58 58 149 149 157.3%Net profit 44 44 118 118 171.0%Assets 29 508 36 323 23.1%Sharehold. equity 2 762 3 262 18.1%Deposits 21 067Credits 11 864

BETA (VIII '04 - VIII '0 0.40 Price change: 1 month 12%Max. 52 weeks 495.0 6 months 0%Min. 52 weeks 363.0 12 months 35%

GRUPA KREDYT BANKU The date of last recommendation's change SUSPENDEDPrice [PLN] 11.10 Market cap [PLN mn] 3 015 Valuation -




2003 723 1 393 -1 382 -1 567 211 -1.92 2.16 4.572004 635 1 321 194 185 272 16.28 2.28 2.07

2005P 662 1 381 217 206 272 14.67 2.18 1.812006P 683 1 466 252 238 272 12.67 2.06 1.58


[PLN mn] I Q'04 I-I Q'04 I Q'05 I-I Q'05 I Q'05/04Interest inc. 168 168 174 174 3.2%PBO 310 310 282 282 -8.8%Gross profit 24 24 98 98 312.8%Net profit 20 20 94 94 367.0%Assets 22 967 21 173 -7.8%Sharehold. equity 666 1 218 82.9%Deposits 14 863 14 079 -5.3%Credits


BPH PBK The date of last recommendation's change SUSPENDEDPrice [PLN] 619.00 Market cap [PLN mn] 17 775 Valuation -




2003 1 105 2 356 543 333 29 53.31 7.54 3.362004 1 278 2 842 980 792 29 22.43 6.25 3.00

2005P 1 405 2 887 1 061 879 29 20.21 6.16 2.882006P 1 535 3 070 1 119 932 29 19.08 5.79 2.71


[PLN mn] I Q'04 I-I Q'04 I Q'05 I-I Q'05 I Q'05/04Interest inc. 315 315 374 374 18.7%PBO 541 541 646 646 19.3%Gross profit 177 177 250 250 40.9%Net profit 137 137 200 200 45.9%Assets 44 364 52 082 17.4%Sharehold. equity 5 341 6 098 14.2%Deposits 29 746 34 605 16.3%Credits


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GRUPA PEKAO The date of last recommendation's change SUSPENDEDPrice [PLN] 165.00 Market cap [PLN mn] 27 496 Valuation -




2003 2 375 4 073 1 276 920 166 29.89 6.75 3.842004 2 260 4 135 1 513 1 343 167 20.47 6.65 3.48

2005P 2 185 4 231 1 624 1 376 167 19.98 6.50 3.352006P 2 213 4 447 1 761 1 490 167 18.45 6.18 3.17

*price/profit on banking operations

dynamics[PLN mn] I Q'04 I-I Q'04 I Q'05 I-I Q'05 I Q'05/04Interest inc. 525 525 515 515 -1.9%PBO 958 958 950 950 -0.9%Gross profit 340 340 434 434 27.5%Net profit 269 269 360 360 33.9%Assets 62 036 60 150 -3.0%Sharehold. equity 7 639 8 210 7.5%Deposits 290 539 85.7%Credits


GRUPA Banku Millennium The date of last recommendation's change SUSPENDEDPrice [PLN] 4.13 Market cap [PLN mn] 3 507 Valuation -




2003 558 953 -41 52 849 67.18 3.68 2.022004 588 1 464 352 241 849 14.58 2.40 1.76

2005P 649 1 190 291 237 849 14.79 2.95 1.762006P 702 1 125 189 155 849 22.66 3.12 1.83


[PLN mn] I Q'04 I-I Q'04 I Q'05 I-I Q'05 I Q'05/04Interest inc. 156 156 162 162 4.1%PBO 242 242 261 261 7.8%Gross profit 27 27 59 59 115.5%Net profit 20 20 45 45 125.5%Assets 20 843 20 641 -1.0%Sharehold. equity 1 755 1 871 6.6%Deposits 12 168 13 373 9.9%Credits


GRUPA BZ WBK The date of last recommendation's change SUSPENDEDPrice [PLN] 110.00 Market cap [PLN mn] 8 026 Valuation -




2003 829 1 636 261 130 73 61.79 4.91 3.162004 870 1 762 570 444 73 18.06 4.55 2.66

2005P 907 1 752 599 475 73 16.90 4.58 2.422006P 922 1 813 684 544 73 14.76 4.43 2.19


[PLN mn] I Q'04 I-I Q'04 I Q'05 I-I Q'05 I Q'05/04Interest inc. 220 220 218 218 -0.9%PBO 474 474 437 437 -7.8%Gross profit 151 151 157 157 3.7%Net profit 125 125 119 119 -4.7%Assets 24 158 28 398 17.6%Sharehold. equity 2 652 2 968 11.9%DepositsCredits

BETA (VIII '04 - VIII '0 1.05 Price change: 1 month -4%Max. 52 weeks 119.0 6 months 8%Min. 52 weeks 79.7 12 months 35%

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BANK HANDLOWY The date of last recommendation's change SUSPENDEDPrice [PLN] 58.80 Market cap [PLN mn] 7 683 Valuation -




2003 745 1 891 392 243 131 31.68 4.06 1.292004 899 1 918 477 416 131 18.45 4.00 1.25

2005P 840 1 973 527 479 131 16.05 3.89 1.522006P 759 2 020 541 489 131 15.71 3.80 1.44


[PLN mn] I Q'04 I-I Q'04 I Q'05 I-I Q'05 I Q'05/04Interest inc. 208 208 251 251 20.8%PBO 485 485 518 518 6.7%Gross profit 105 105 147 147 39.8%Net profit 81 81 119 119 46.1%Assets 33 365 33 376 0.0%Sharehold. equity 6 036 6 299 4.4%Deposits 17 448Credits 13 968

BETA (VIII '04 - VIII '0 0.34 Price change: 1 month 2%Max. 52 weeks 78.0 6 months -10%Min. 52 weeks 57.0 12 months -4%

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AGORA The date of last recommendation's change 05.08.2005 ACCUMULATEPrice [PLN] 68.00 Market cap [PLN mn] 3 860 Valuation 74.00

EV [PLN mn] 3902.9 Book Value [PLN mn] 1 049 Free float [%] 37%

Year Sales EBIT Gross profit Net profit Deprec. No of sh. P/E P/CE P/BV MC/S EV/EBDIT EBIT/EV[PLN mn] [PLN mn] [PLN mn] [PLN mn] [PLN mn] [mn]

2003 853.5 17.3 -5.0 7.2 123.2 56.8 536.04 29.60 3.62 4.52 27.78 0.002004 1001.1 95.7 78.3 71.3 110.9 56.8 54.13 21.18 3.43 3.86 18.89 0.03

2005P 1183.1 223.8 233.5 190.9 93.9 56.8 20.22 13.55 3.32 3.26 12.28 0.062006P 1215.8 241.9 242.8 197.7 89.8 56.8 19.52 13.42 3.30 3.17 11.77 0.07

Consolidated

Consolidated dynamics marginPLN mn' I Q'04 I Q'05 I-I Q'04 I-I Q'05 I Q'05/04 I-I Q'05Net sales 210.15 290.56 210.15 290.56 38.3%EBIT -6.65 51.98 -6.65 51.98 17.9%Gross profit -8.65 53.03 -8.65 53.03 18.3%Net profit -9.31 43.00 -9.31 43.00 14.8%Assets 1 362.54 1 510.40Equity 1 049.30 1 167.69

BETA (VIII '04 - VIII '05) 0.83 Price change: month -5%Max. 52 weeks 72.10 6 months 12%Min. 52 weeks 46.60 12 months 28%

AMICA The date of last recommendation's change 14.12.2004 HOLDPrice [PLN] 26.80 Market cap [PLN mn] 234 Valuation 37.30

EV [PLN mn] 428.4 Book Value [PLN mn] 276 Free float [%] 48%


2003 1011.7 15.2 -7.5 -3.5 51.2 8.7 4.91 0.84 0.23 7.17 0.032004 1256.8 57.6 44.6 34.3 54.0 8.7 6.84 2.65 0.84 0.19 4.21 0.12

2005P 1222.7 56.2 27.7 22.5 54.6 8.7 10.41 3.04 0.76 0.19 4.13 0.122006P 1262.6 62.2 34.6 28.0 54.6 8.7 8.36 2.83 0.70 0.19 3.61 0.15

dynamics marginPLN mn' I Q'04 I Q'05 I-I Q'04 I-I Q'05 I Q'05/04 I-I Q'05Net sales 257.65 250.35 257.65 250.35 -2.8%EBIT 17.50 10.02 17.50 10.02 -42.7% 4.0%Gross profit 14.40 10.61 14.40 10.61 -26.3% 4.2%Net profit 12.55 8.03 12.55 8.03 -36.0% 3.2%Assets 692.92 751.49Equity 249.08 312.33

BETA (VIII '04 - VIII '05) 0.37 Price change: month -11%Max. 52 weeks 39.40 6 months -11%Min. 52 weeks 26.80 12 months -29%

BUDIMEX The date of last recommendation's change under reviewPrice [PLN] 44.00 Market cap [PLN mn] 1 123 Valuation -



2003 2146.9 -15.3 -10.5 -38.3 30.5 25.5 2.19 0.52 57.322004 2160.6 -119.5 2.9 0.8 24.5 25.5 1404.16 44.40 2.26 0.52

2005P 2700.0 49.0 49.0 29.0 24.0 25.5 38.74 21.19 2.14 0.42 11.32 0.062006P 3000.0 70.0 70.0 42.0 24.0 25.5 26.75 17.02 1.98 0.37 8.23 0.09

Consolidated

Consolidated dynamics marginPLN mn' I Q'04 I Q'05 I-I Q'04 I-I Q'05 I Q'05/04 I-I Q'05Net sales 310.68 403.61 310.68 403.61 29.9%EBIT -3.65 -6.02 -3.65 -6.02 -1.5%Gross profit -2.88 0.82 -2.88 0.82 0.2%Net profit -4.95 0.17 -4.95 0.17 0.0%Assets 1 268.48 1 668.91Equity 501.75 501.30

BETA (VIII '04 - VIII '05) 0.33 Price change: month 0%Max. 52 weeks 54.00 6 months -10%Min. 52 weeks 41.10 12 months 0%

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COMARCH The date of last recommendation's change under reviewPrice [PLN] 58.80 Market cap [PLN mn] 396 Valuation -



2003 258.0 15.1 12.1 11.0 10.6 6.7 36.12 18.35 3.82 1.53 15.04 0.042004 330.0 18.2 15.0 16.1 8.0 6.7 24.57 16.41 3.36 1.20 15.33 0.05

2005P 342.9 26.7 26.9 24.1 11.0 6.7 16.41 11.27 2.70 1.15 10.22 0.072006P 384.1 31.2 32.3 29.0 11.0 6.7 13.64 9.89 2.25 1.03 8.60 0.09

dynamics marginPLN mn' I Q'04 I Q'05 I-I Q'04 I-I Q'05 I Q'05/04 I-I Q'05Net sales 66.38 74.02 66.38 74.02 11.5%EBIT 4.45 1.53 4.45 1.53 -65.6% 2.1%Gross profit 3.91 1.08 3.91 1.08 -72.3% 1.5%Net profit 3.62 1.26 3.62 1.26 -65.2% 1.7%Assets 132.38 264.14Equity 106.56 119.95

BETA (VIII '04 - VIII '05) 0.65 Price change: month 1%Max. 52 weeks 71.70 6 months -10%Min. 52 weeks 51.80 12 months -9%

COMPUTERLAND The date of last recommendation's change 17.12.2004 HOLDPrice [PLN] 96.60 Market cap [PLN mn] 672 Valuation 113.00



2003 582.4 31.1 18.1 8.6 23.1 6.8 76.09 20.64 3.62 1.12 11.07 0.052004 739.8 49.7 21.6 13.7 25.0 7.0 49.08 17.37 3.39 0.91 8.83 0.08

2005P 837.0 54.4 39.7 32.2 25.0 7.0 20.88 11.75 2.89 0.80 8.02 0.092006P 987.6 69.1 65.0 52.7 25.0 7.0 12.76 8.65 2.36 0.68 6.70 0.11

dynamics marginPLN mn' I Q'04 I Q'05 I-I Q'04 I-I Q'05 I Q'05/04 I-I Q'05Net sales 133.10 118.97 133.10 118.97 -10.6%EBIT 8.06 8.34 8.06 8.34 3.4% 7.0%Gross profit 5.43 6.01 5.43 6.01 10.6% 5.0%Net profit 4.08 4.66 4.08 4.66 14.2% 3.9%Assets 425.70 449.38Equity 195.65 210.32

BETA (VIII '04 - VIII '05) 0.63 Price change: month -6%Max. 52 weeks 128.00 6 months -20%Min. 52 weeks 89.80 12 months -15%

ECHO INVESTMENT The date of last recommendation's change under reviewPrice [PLN] 129.00 Market cap [PLN mn] 1 355 Valuation -



2003 312.4 78.6 42.6 28.7 20.9 10.5 47.13 27.29 3.98 4.34 21.89 0.042004 320.0 80.0 50.0 39.0 25.0 10.5 34.73 21.16 3.57 4.23 20.61 0.04

2005P 320.0 80.0 53.0 41.3 26.0 10.5 32.80 20.13 3.22 4.23 20.33 0.042006P

Consolidated

Consolidated dynamics marginPLN mn' I Q'04 I Q'05 I-I Q'04 I-I Q'05 I Q'05/04 I-I Q'05Net sales 72.86 57.18 72.86 57.18 -21.5%EBIT 63.21 93.40 63.21 93.40 47.8% 163.3%Gross profit 47.44 75.12 47.44 75.12 58.3% 131.4%Net profit 37.59 59.01 37.59 59.01 57.0% 103.2%Assets 1 815.75 1 966.06Equity 708.83 758.64

BETA (VIII '04 - VIII '05) -0.06 Price change: month 3%Max. 52 weeks 133.50 6 months 68%Min. 52 weeks 70.80 12 months 54%

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ELEKTROBUDOWA The date of last recommendation's change 12.07.2005 BUYPrice [PLN] 33.50 Market cap [PLN mn] 133 Valuation 35.00



2003 228.8 8.0 5.0 3.1 7.0 4.0 42.91 13.17 2.02 0.58 10.14 0.052004 278.1 9.7 6.9 4.5 6.2 4.0 29.56 12.43 1.93 0.48 9.35 0.07

2005P 300.0 11.0 10.4 7.5 7.0 4.2 18.76 9.70 1.82 0.47 8.39 0.072006P 340.0 13.4 12.9 9.5 7.0 4.2 14.81 8.53 1.77 0.41 7.29 0.09

dynamics marginPLN mn' I Q'04 I Q'05 I-I Q'04 I-I Q'05 I Q'05/04 I-I Q'05Net sales 38.49 44.96 38.49 44.96 16.8%EBIT -1.03 -2.23 -1.03 -2.23 -5.0%Gross profit -1.24 -2.03 -1.24 -2.03 -4.5%Net profit -1.88 -1.58 -1.88 -1.58 -3.5%Assets 125.24 143.76Equity 62.25 65.48

BETA (VIII '04 - VIII '05) 0.59 Price change: month 6%Max. 52 weeks 34.50 6 months 25%Min. 52 weeks 22.60 12 months 16%

EMAX The date of last recommendation's change under reviewPrice [PLN] 102.00 Market cap [PLN mn] 346 Valuation -



2003 222.8 24.5 17.1 10.5 5.1 3.4 32.88 22.14 4.75 1.55 12.02 0.072004 310.7 28.0 23.9 18.5 8.5 3.4 18.69 12.81 3.79 1.11 9.34 0.08

2005P 287.1 31.3 28.4 22.2 6.0 3.4 15.58 12.26 3.05 1.20 8.60 0.102006P 315.5 31.9 30.3 23.4 6.0 3.4 14.76 11.75 2.53 1.10 8.08 0.10

Consolidated

Consolidated dynamics marginPLN mn' I Q'04 I Q'05 I-I Q'04 I-I Q'05 I Q'05/04 I-I Q'05Net sales 44.04 69.09 44.04 69.09 56.9%EBIT -3.96 0.95 -3.96 0.95 1.4%Gross profit -3.81 0.52 -3.81 0.52 0.7%Net profit -4.42 0.21 -4.42 0.21 0.3%Assets 172.16 206.95Equity 68.54 82.86

BETA (VIII '04 - VIII '05) -0.04 Price change: month -1%Max. 52 weeks 111.50 6 months 3%Min. 52 weeks 87.70 12 months 6%

FARMACOL The date of last recommendation's change 06.09.2005 ACCUMULATEPrice [PLN] 35.60 Market cap [PLN mn] 833 Valuation 39.60



2003 2717.8 58.6 60.8 39.1 12.6 23.4 21.29 16.09 3.23 0.31 11.62 0.072004 2714.3 61.8 77.7 58.5 13.7 23.4 14.24 11.54 2.62 0.31 10.91 0.08

2005P 2982.3 71.4 75.9 58.4 14.9 23.4 14.26 11.36 2.44 0.28 9.31 0.092006P 3218.3 80.1 80.1 61.8 16.8 23.4 13.48 10.59 2.26 0.26 8.28 0.10

Consolidated

Consolidated dynamics marginPLN mn' I Q'04 I Q'05 I-I Q'04 I-I Q'05 I Q'05/04 I-I Q'05Net sales 690.32 764.66 690.32 764.66 10.8%EBIT 16.59 19.07 16.59 19.07 15.0% 2.5%Gross profit 17.28 20.58 17.28 20.58 19.1% 2.7%Net profit 12.00 15.19 12.00 15.19 26.5% 2.0%Assets 801.65 925.94Equity 274.03 332.78

BETA (VIII '04 - VIII '05) -0.04 Price change: month 10%Max. 52 weeks 36.00 6 months 12%Min. 52 weeks 27.70 12 months 15%

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FORTE The date of last recommendation's change 18.03.2005 BUYPrice [PLN] 10.60 Market cap [PLN mn] 257 Valuation 13.80



2003 348.4 25.3 19.4 12.6 13.2 17.3 14.62 7.13 1.59 0.53 5.45 0.122004 403.9 24.5 32.1 25.7 17.0 24.2 9.98 6.01 1.24 0.64 6.39 0.09

2005P 459.4 33.3 33.2 26.9 18.9 24.2 9.54 5.61 1.10 0.56 5.00 0.132006P 590.8 40.6 38.2 30.9 21.8 24.2 8.29 4.86 0.97 0.43 4.18 0.16



HOOP The date of last recommendation's change 18.03.2005 ACCUMULATEPrice [PLN] 12.50 Market cap [PLN mn] 162 Valuation 14.50



2003 351.6 20.0 10.6 5.0 22.9 13.0 32.44 5.81 1.54 0.46 5.65 0.082004 501.1 -1.2 -14.1 -10.3 40.0 13.0 5.46 1.84 0.32 5.30

2005P 528.9 16.3 6.9 5.6 35.4 13.0 28.83 3.96 1.73 0.31 5.60 0.062006P 554.9 19.0 10.6 8.6 35.8 13.0 18.84 3.66 1.60 0.29 4.72 0.07

Consolidated

Consolidated dynamics marginPLN mn' I Q'04 I Q'05 I-I Q'04 I-I Q'05 I Q'05/04 I-I Q'05Net sales 101.31 92.81 101.31 92.81 -8.4%EBIT 0.61 -1.00 0.61 -1.00 -1.1%Gross profit -2.03 -3.42 -2.03 -3.42 -3.7%Net profit 0.02 -3.49 0.02 -3.49 -3.8%Assets 453.09 416.17Equity 129.28 116.74


INDYKPOL The date of last recommendation's change SUSPENDEDPrice [PLN] 69.00 Market cap [PLN mn] 216 Valuation -



2003 555.4 29.5 17.2 11.7 16.2 3.1 18.49 7.73 3.37 0.39 6.82 0.092004 626.0 13.1 18.7 14.3 16.6 3.1 15.11 6.98 2.68 0.34 10.70 0.04

2005P 644.5 26.2 18.0 13.8 21.0 3.1 15.59 6.19 2.39 0.33 6.65 0.082006P 688.3 27.9 20.3 15.9 21.8 3.1 13.53 5.71 2.24 0.31 6.17 0.09

Consolidated

Consolidated dynamics marginPLN mn' I Q'04 I Q'05 I-I Q'04 I-I Q'05 I Q'05/04 I-I Q'05Net sales 131.23 150.36 131.23 150.36 14.6%EBIT 5.38 4.89 5.38 4.89 -9.2% 3.3%Gross profit 3.81 5.15 3.81 5.15 35.2% 3.4%Net profit 2.81 3.58 2.81 3.58 27.3% 2.4%Assets 239.05 281.43Equity 66.04 83.44

BETA (VIII '04 - VIII '05) -0.06 Price change: month 21%Max. 52 weeks 91.00 6 months 15%Min. 52 weeks 42.30 12 months -22%

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[PL

JELFA The date of last recommendation's change 25.02.2005 BUYPrice [PLN] 67.50 Market cap [PLN mn] 459 Valuation 70.00



2003 253.6 30.2 29.5 21.7 29.5 6.8 21.20 8.98 1.32 1.81 7.33 0.072004 274.1 15.3 12.5 9.6 27.9 6.8 47.81 12.24 1.36 1.67 10.98 0.03

2005P 277.9 20.8 19.4 15.7 31.5 6.8 29.24 9.72 1.28 1.65 8.99 0.042006P 291.5 28.5 27.4 22.2 30.7 6.8 20.71 8.69 1.20 1.57 7.43 0.06

dynamics marginPLN mn' I Q'04 I Q'05 I-I Q'04 I-I Q'05 I Q'05/04 I-I Q'05Net sales 47.34 49.45 47.34 49.45 4.5%EBIT 1.58 -8.99 1.58 -8.99 -18.2%Gross profit 2.42 -8.19 2.42 -8.19 -16.6%Net profit 1.88 -8.90 1.88 -8.90 -18.0%Assets 398.16 409.30Equity 348.49 329.55


JUTRZENKA The date of last recommendation's change 17.12.2004 ACCUMULATEPrice [PLN] 77.00 Market cap [PLN mn] 213 Valuation 48.00



2003 166.2 7.6 8.0 5.6 9.1 2.8 38.28 14.58 2.19 1.28 12.63 0.042004 182.1 9.6 10.2 8.2 8.7 2.8 26.11 12.64 2.05 1.17 11.20 0.05

2005P 180.9 8.7 9.3 7.6 7.4 2.8 28.20 14.28 1.97 1.18 12.29 0.042006P 188.1 9.9 10.7 8.6 7.8 2.8 24.68 12.98 1.85 1.13 10.66 0.05

Consolidated


BETA (VIII '04 - VIII '05) -0.03 Price change: month -1%Max. 52 weeks 79.50 6 months 79%Min. 52 weeks 38.80 12 months 87%

GRUPA KĘTY The date of last recommendation's change 04.08.2005 HOLDPrice [PLN] 138.50 Market cap [PLN mn] 1 278 Valuation 129.50



2003 740.2 85.5 84.6 69.7 36.0 9.2 18.33 12.09 3.45 1.73 10.89 0.062004 729.0 114.0 108.0 92.0 38.0 9.2 13.89 9.83 2.96 1.75 8.93 0.08

2005P 734.0 116.0 116.0 98.0 37.0 9.2 13.04 9.47 2.03 1.74 9.06 0.082006P 807.0 125.0 121.0 97.0 42.0 9.2 13.17 9.19 1.84 1.58 8.25 0.09

Consolidated

Consolidated dynamics marginPLN mn' I Q'04 I Q'05 I-I Q'04 I-I Q'05 I Q'05/04 I-I Q'05Net sales 199.29 166.15 199.29 166.15 -16.6%EBIT 27.50 19.55 27.50 19.55 -28.9% 11.8%Gross profit 28.39 20.62 28.39 20.62 -27.4% 12.4%Net profit 23.66 17.38 23.66 17.38 -26.6% 10.5%Assets 744.28 766.45Equity 501.89 561.21

BETA (VIII '04 - VIII '05) 1.00 Price change: month 3%Max. 52 weeks 149.00 6 months -1%Min. 52 weeks 104.00 12 months -2%90

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KGHM The date of last recommendation's change 08.08.2005 REDUCEPrice [PLN] 39.70 Market cap [PLN mn] 7 940 Valuation 34.70



2003 4740.8 357.9 569.3 411.6 295.8 200.0 19.29 11.22 1.98 1.67 14.31 0.042004 6158.0 1371.0 1447.0 1398.1 281.3 200.0 5.68 4.73 1.42 1.29 4.91 0.17

2005P 7212.0 1910.0 1978.0 1831.0 275.0 200.0 4.34 3.77 1.15 1.10 3.20 0.272006P 5404.0 520.0 629.0 697.0 332.0 200.0 11.39 7.72 1.02 1.47 7.47 0.08

dynamics marginPLN mn' I Q'04 I Q'05 I-I Q'04 I-I Q'05 I Q'05/04 I-I Q'05Net sales 1 562.05 1 671.46 1 562.05 1 671.46 7.0%EBIT 477.80 497.01 477.80 497.01 4.0% 29.7%Gross profit 461.65 553.94 461.65 553.94 20.0% 33.1%Net profit 411.80 523.02 411.80 523.02 27.0% 31.3%Assets 8 697.48 8 900.01Equity 3 334.23 5 702.69


KROSNO The date of last recommendation's change under reviewPrice [PLN] 8.55 Market cap [PLN mn] 216 Valuation -



2003 342.6 20.7 14.7 10.4 12.0 25.3 20.78 9.64 1.81 0.63 9.81 0.062004 397.0 40.0 24.5 18.6 13.0 25.3 11.63 6.84 1.60 0.54 6.21 0.12

2005P 445.6 35.9 28.1 22.1 24.2 25.3 9.76 4.67 1.35 0.49 6.44 0.092006P 502.7 59.6 48.5 38.7 28.0 25.3 5.59 3.24 1.09 0.43 4.31 0.16

Consolidated

Consolidated dynamics marginPLN mn' I Q'04 I Q'05 I-I Q'04 I-I Q'05 I Q'05/04 I-I Q'05Net sales 98.49 89.13 98.49 89.13 -9.5%EBIT 8.52 5.18 8.52 5.18 -39.2% 5.8%Gross profit 6.41 3.48 6.41 3.48 -45.7% 3.9%Net profit 5.31 2.90 5.31 2.90 -45.5% 3.2%Assets 307.55 408.90Equity 124.63 187.06

BETA (VIII '04 - VIII '05) -4.86 Price change: month -19%Max. 52 weeks 132.00 6 months -93%Min. 52 weeks 8.30 12 months -93%

LOTOS The date of last recommendation's change 08.08.2005 ACCUMULATEPrice [PLN] 37.10 Market cap [PLN mn] 4 218 Valuation 35.50



2003 8658.3 407.5 372.4 289.5 132.6 113.7 14.57 9.99 2.77 0.49 8.05 0.092004 11193.6 641.5 718.6 572.0 139.5 113.7 7.37 5.93 2.03 0.38 5.57 0.15

2005P 8558.2 528.1 554.2 401.6 253.5 113.7 10.50 6.44 1.06 0.49 4.76 0.142006P 8553.5 476.4 498.4 373.4 307.4 113.7 11.30 6.20 0.97 0.49 5.58 0.11

dynamics marginPLN mn' I Q'04 I Q'05 I-I Q'04 I-I Q'05 I Q'05/04 I-I Q'05Net sales 1 485.84 1 485.84EBIT 84.19 84.19 5.7%Gross profit 84.29 84.29 5.7%Net profit 52.75 52.75 3.6%Assets 5 023.27Equity 2 619.91

Max. 52 tyg. [PLN] 37.10 Price change: month 17%Max. 52 weeks 0.00 6 monthsMin. 52 weeks 0.00 12 months

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MONDI The date of last recommendation's change 03.08.2005 HOLDPrice [PLN] 46.80 Market cap [PLN mn] 2 340 Valuation 51.00



2003 1280.4 260.3 190.6 147.6 136.0 50.0 15.85 8.25 3.44 1.83 6.36 0.102004 1306.5 272.3 377.9 310.1 119.5 50.0 7.55 5.45 3.16 1.79 5.81 0.12

2005P 1250.4 162.9 168.6 136.6 110.5 50.0 17.13 9.47 3.37 1.87 8.52 0.072006P 1359.4 202.7 204.8 168.0 106.0 50.0 13.93 8.54 3.22 1.72 7.79 0.08

dynamics marginPLN mn' I Q'04 I Q'05 I-I Q'04 I-I Q'05 I Q'05/04 I-I Q'05Net sales 335.45 326.14 335.45 326.14 -2.8%EBIT 62.96 42.35 62.96 42.35 -32.7% 13.0%Gross profit 57.85 54.14 57.85 54.14 -6.4% 16.6%Net profit 44.78 44.68 44.78 44.68 -0.2% 13.7%Assets 1 610.82 1 540.85Equity 767.76 887.25

BETA (VIII '04 - VIII '05) 0.52 Price change: month 0%Max. 52 weeks 67.10 6 months 1%Min. 52 weeks 43.10 12 months -23%

NETIA The date of last recommendation's change under reviewPrice [PLN] 4.72 Market cap [PLN mn] 2 011 Valuation 4.50



2003 701.1 -840.1 -728.8 -729.1 268.4 345.0 0.79 2.322004 897.2 85.8 113.7 159.2 238.8 426.0 12.63 5.05 0.88 2.24 5.14 0.05

2005P 965.3 122.8 133.3 133.3 245.1 426.0 15.08 5.31 0.92 2.08 3.86 0.092006P 994.2 135.7 148.3 108.3 236.9 426.0 18.57 5.82 0.90 2.02 3.46 0.11

Consolidated

Consolidated dynamics marginPLN mn' I Q'04 I Q'05 I-I Q'04 I-I Q'05 I Q'05/04 I-I Q'05Net sales 207.18 216.38 207.18 216.38 4.4%EBIT 28.18 24.79 28.18 24.79 -12.0% 11.5%Gross profit 36.91 27.86 36.91 27.86 -24.5% 12.9%Net profit 36.68 23.11 36.68 23.11 -37.0% 10.7%Assets 2 882.41 2 634.47Equity 2 136.98 2 369.58


ORBIS The date of last recommendation's change under reviewPrice [PLN] 28.00 Market cap [PLN mn] 1 290 Valuation -



2003 811.0 55.0 68.0 47.0 87.5 46.1 27.45 9.59 1.07 1.59 11.00 0.042004 919.0 79.0 87.0 65.0 91.0 46.1 19.85 8.27 1.03 1.40 9.02 0.05

2005P 973.0 101.0 96.0 66.0 92.0 46.1 19.55 8.17 0.98 1.33 7.70 0.072006P 1038.0 113.0 96.0 79.0 91.0 46.1 16.33 7.59 0.95 1.24 6.32 0.09

Consolidated

Consolidated dynamics marginPLN mn' I Q'04 I Q'05 I-I Q'04 I-I Q'05 I Q'05/04 I-I Q'05Net sales 173.52 184.80 173.52 184.80 6.5%EBIT -15.08 -16.85 -15.08 -16.85 -9.1%Gross profit -12.28 -19.06 -12.28 -19.06 -10.3%Net profit -11.59 -19.52 -11.59 -19.52 -10.6%Assets 2 158.09 2 162.02Equity 1 527.62 1 565.88

BETA (VIII '04 - VIII '05) 0.41 Price change: month 10%Max. 52 weeks 28.00 6 months 27%Min. 52 weeks 20.70 12 months 19%17

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PGF The date of last recommendation's change 06.09.2005 HOLDPrice [PLN] 55.50 Market cap [PLN mn] 679 Valuation 58.10



2003 3568.7 73.4 64.7 36.8 16.6 12.2 18.45 12.70 4.13 0.19 9.20 0.092004 3947.3 60.9 63.7 50.0 20.4 12.4 13.76 9.78 3.60 0.17 10.46 0.07

2005P 3944.3 65.4 59.7 48.1 20.1 12.5 14.42 10.17 3.06 0.18 11.63 0.072006P 4178.6 73.3 69.0 55.6 21.6 12.6 12.60 9.08 2.65 0.17 10.55 0.07

Consolidated

Consolidated dynamics marginPLN mn' I Q'04 I Q'05 I-I Q'04 I-I Q'05 I Q'05/04 I-I Q'05Net sales 931.25 997.48 931.25 997.48 7.1%EBIT 21.70 21.76 21.70 21.76 0.3% 2.2%Gross profit 21.82 20.43 21.82 20.43 -6.4% 2.0%Net profit 17.32 15.98 17.32 15.98 -7.7% 1.6%Assets 480.55 1 273.36Equity 181.15 211.96

BETA (VIII '04 - VIII '05) -0.05 Price change: month 3%Max. 52 weeks 65.00 6 months -7%Min. 52 weeks 49.50 12 months -10%

PKN ORLEN* The date of last recommendation's change 29.08.2005 ACCUMULATEPrice [PLN] 60.90 Market cap [PLN mn] 26 047 Valuation 58.90



2003 24412.0 1267.0 1219.0 987.0 1207.0 427.7 26.39 11.87 2.74 1.07 11.47 0.042004 30565.0 2750.0 3016.0 2396.0 1219.0 427.7 10.87 7.21 2.23 0.85 7.17 0.10

2005P 35031.6 2983.6 2885.0 2305.8 1226.0 427.7 11.30 7.38 1.99 0.74 6.23 0.112006P 29369.1 2500.5 2528.0 2016.7 1275.2 427.7 12.92 7.91 1.87 0.89 6.93 0.10

Consolidated

Consolidated dynamics marginPLN mn' I Q'04 I Q'05 I-I Q'04 I-I Q'05 I Q'05/04 I-I Q'05Net sales 6 340.22 6 805.91 6 340.22 6 805.91 7.3%EBIT 527.46 807.54 527.46 807.54 53.1% 11.9%Gross profit 492.64 786.08 492.64 786.08 59.6% 11.5%Net profit 383.25 640.76 383.25 640.76 67.2% 9.4%Assets 13 012.43 21 144.26Equity 9 525.41 12 305.50


POLIMEX-MOSTOSTAL SIEDLCE The date of last recommendation's change 30.06.2005 BUYPrice [PLN] 45.30 Market cap [PLN mn] 666 Valuation 43.80



2003 1238.7 63.5 52.1 28.0 35.6 14.7 23.82 10.49 4.76 0.54 7.92 0.082004 1706.2 72.6 63.7 45.7 32.2 14.7 14.59 8.56 3.09 0.39 6.88 0.10

2005P 1805.9 67.4 59.7 41.9 32.2 14.7 15.92 9.00 2.72 0.37 7.24 0.092006P 1986.5 75.7 68.4 49.9 32.2 14.7 13.37 8.12 2.44 0.34 6.63 0.11

Unconsolidated data, 2003 - data not considering loss on internet assets

dynamics marginPLN mn' I Q'04 I Q'05 I-I Q'04 I-I Q'05 I Q'05/04 I-I Q'05Net sales 135.82 379.26 135.82 379.26 179.2%EBIT 6.96 16.82 6.96 16.82 141.6% 4.4%Gross profit 6.02 13.46 6.02 13.46 123.6% 3.5%Net profit 3.38 8.82 3.38 8.82 161.4% 2.3%Assets 350.59 1 024.70Equity 118.96 240.86


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POLMOS LUBLIN The date of last recommendation's change 22.08.2005 ACCUMULATEPrice [PLN] 32.20 Market cap [PLN mn] 146 Valuation 35.00



2003 304.8 10.9 8.7 6.4 2.0 3.0 15.20 11.60 2.64 0.32 5.90 0.142004 338.6 20.1 17.1 12.5 6.1 3.0 7.78 5.24 1.97 0.29 2.49 0.31

2005P 317.8 7.4 2.2 1.8 2.7 4.5 83.17 32.48 1.06 0.46 15.21 0.052006P 393.8 19.3 17.4 13.7 4.7 4.5 10.61 7.91 0.96 0.37 6.56 0.12


dynamics marginPLN mn' I Q'04 I Q'05 I-I Q'04 I-I Q'05 I Q'05/04 I-I Q'05Net sales 79.33 69.88 79.33 69.88 -11.9%EBIT 1.44 1.24 1.44 1.24 -13.9% 1.8%Gross profit 1.08 0.73 1.08 0.73 -31.9% 1.1%Net profit 0.78 0.07 0.78 0.07 -90.6% 0.1%Assets 89.43 196.39Equity 37.78 115.76

BETA (VIII '04 - VIII '05) 0.00 Price change: month -2%Max. 52 weeks 54.20 6 months -37%Min. 52 weeks 30.80 12 months

PROKOM SOFTWARE The date of last recommendation's change under reviewPrice [PLN] 117.00 Market cap [PLN mn] 1 625 Valuation -



2003 874.0 106.3 20.6 4.2 21.2 13.8 384.18 63.40 2.26 1.85 12.52 0.072004 900.0 71.8 31.3 25.4 25.0 13.9 63.99 32.25 2.20 1.81 18.34 0.04

2005P 1259.6 149.0 144.5 117.1 25.0 13.9 13.88 11.44 1.90 1.29 9.99 0.092006P 1394.0 166.9 166.4 134.8 25.0 13.9 12.06 10.17 1.64 1.17 8.54 0.10


dynamics marginPLN mn' I Q'04 I Q'05 I-I Q'04 I-I Q'05 I Q'05/04 I-I Q'05Net sales 181.98 111.91 181.98 111.91 -38.5%EBIT 31.53 9.37 31.53 9.37 -70.3% 8.4%Gross profit 24.53 3.05 24.53 3.05 -87.6% 2.7%Net profit 19.87 1.88 19.87 1.88 -90.5% 1.7%Assets 274.54 1 370.05Equity 739.34 764.64


SOFTBANK The date of last recommendation's change 02.09.2005 ACCUMULATEPrice [PLN] 33.70 Market cap [PLN mn] 706 Valuation 36.70



2003 344.7 5.6 -0.3 2.2 12.2 21.0 319.76 49.14 5.51 2.05 36.96 0.012004 488.0 46.4 24.8 30.5 10.8 21.0 23.15 17.10 4.45 1.45 12.69 0.06

2005P 517.0 48.7 48.7 47.6 12.0 25.2 17.82 14.24 2.69 1.64 13.66 0.062006P 693.3 72.7 75.5 70.0 16.1 25.2 12.12 9.85 2.51 1.22 8.51 0.10

Consolidated



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TORFARM The date of last recommendation's change 24.03.2005 ACCUMULATEPrice [PLN] 38.80 Market cap [PLN mn] 105 Valuation 46.00



2003 1099.0 8.4 10.4 7.5 1.8 2.0 10.35 8.34 2.85 0.07 11.03 0.072004 1309.1 7.4 12.8 10.1 2.5 2.7 10.45 8.38 1.54 0.08 14.11 0.05

2005P 1496.2 11.0 13.2 10.7 3.6 2.7 9.86 7.38 1.33 0.07 8.54 0.092006P 1684.0 14.1 14.3 11.6 3.5 2.7 9.10 6.99 1.16 0.06 7.09 0.11


BETA (VIII '04 - VIII '05) 0.00 Price change: month 8%Max. 52 weeks 46.00 6 months -8%Min. 52 weeks 32.30 12 months

TPSA The date of last recommendation's change 08.02.2005 HOLDPrice [PLN] 23.40 Market cap [PLN mn] 32 760 Valuation 19.50



2003 18309.0 2994.0 1443.0 925.0 4360.0 1400.0 35.42 6.20 2.36 1.79 6.33 0.062004 18564.0 3494.0 3065.0 2209.0 4195.0 1400.0 14.83 5.12 2.04 1.76 5.61 0.08

2005P 18676.0 3618.0 2448.0 1780.0 4058.0 1400.0 18.40 5.61 1.98 1.75 5.50 0.092006P 18486.0 3295.0 2372.0 1725.0 4052.0 1400.0 18.99 5.67 1.97 1.77 5.75 0.08

Consolidated

Consolidated dynamics marginPLN mn' I Q'04 I Q'05 I-I Q'04 I-I Q'05 I Q'05/04 I-I Q'05Net sales 4 588.00 4 441.00 4 588.00 4 441.00 -3.2%EBIT 1 009.00 964.00 1 009.00 964.00 -4.5% 21.7%Gross profit 836.00 657.00 836.00 657.00 -21.4% 14.8%Net profit 583.00 412.00 583.00 412.00 -29.3% 9.3%Assets 34 861.00 34 308.00Equity 16 145.00 16 531.00


WAWEL The date of last recommendation's change 22.03.2005 ACCUMULATEPrice [PLN] 125.00 Market cap [PLN mn] 187 Valuation 120.00



2003 165.9 8.1 7.9 5.0 5.1 1.5 37.44 18.57 3.94 1.13 14.18 0.042004 199.1 18.0 24.6 18.9 4.7 1.5 9.91 7.93 2.77 0.94 8.33 0.10

2005P 210.3 17.2 13.0 10.5 11.3 1.5 17.86 8.61 2.59 0.89 8.53 0.072006P 226.9 21.0 17.5 14.2 12.0 1.5 13.21 7.15 2.16 0.83 6.94 0.09

Consolidated



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Company Price NP 2004

Forecast ZN 2005

Forecast ZN 2006 P/E EV /

EBITDA P/E EV / EBITDA P/E EV /

EBITDA P/E EV / EBITDA PEG

IndustryAmica 27.80 34252 22500 28000 7.09 4.13 10.80 4.05 8.68 3.84 8.64 4.25 -0.74Apator 126.50 35360 28000 12.05 7.69 15.22 10.23 7.58Boryszew 15.65 78905 70600 70700 2.23 1.52 2.64 1.46 2.64 1.37 2.55 1.60 -0.27Cersanit 119.00 104805 119122 142000 15.10 9.61 13.28 8.82 11.14 7.22 15.65 9.70 0.92Dębica 76.00 94806 150000 11.06 6.76 6.99 5.64 17.19 8.56Duda 10.95 14094 39100 2.55 2.17 1.21 0.73 2.97 2.00Ekodrob 3.99 -3903 11.45 11.52Elzab 16.40 809 4559 25.37 2.56 4.50 2.60 39.40 2.68Forte 11.20 25706 26881 30932 7.54 5.99 9.87 4.78 8.58 4.00 11.49 6.32 -1.21Groclin 93.00 43304 43550 58000 11.81 8.28 11.75 7.84 8.82 6.03 13.36 8.45 0.75Hoop 12.80 -10324 5626 8608 8.21 29.78 5.11 19.46 4.82 8.66Hydrotor 21.70 3999 13.59 6.50 13.39 6.21Indykpol 69.50 12665 13830 15936 17.15 12.52 15.70 5.44 13.63 5.16 15.05 11.97 1.41Jelfa 67.20 9619 15700 22159 47.51 10.65 29.11 8.79 20.62 7.76 14.44 0.92Jutrzenka 79.00 8161 7555 8634 26.79 11.55 28.93 13.17 25.32 11.94 15.25 7.63 9.38Kęty 137.00 92420 98000 97000 15.57 9.45 14.68 9.40 14.83 8.61 16.88 10.02 6.36Krosno 8.55 18586 22140 38651 11.63 5.79 9.76 5.11 5.59 3.50 13.37 6.08 0.26Mennica 81.10 39388 13.53 8.22 12.75 7.94Mieszko 2.51 134 3900 6000 127.58 4.30 4.38 3.73 2.85 3.36 5.20 0.22Odlewnie 3.98 4355 4200Polifarb 7243 15312 16705Relpol 55.80 6115 9765 7.80 4.59 4.89 3.61 8.06 4.68Rolimpex 25280 28150 36000Ropczyce 20.50 10037 3846 9.41 5.20 24.55 7.68 12.42 5.90Sanok* 130.00 43348 10.18 5.98 11.92 6.09Sokołów 4.88 42154 38245 48257 11.60 7.75 12.78 5.47 10.13 5.02 15.97 8.02 1.66Wawel 125.00 18911 10496 14188 9.91 7.66 17.86 6.11 13.21 5.28 9.50 7.34 -0.74Wilbo 2.17 -1224 5000 7.97 7.03 3.27 6.91Wistil 199.00 5400 5500Wólczanka 33.80 2151 28.25 9.95 61.32 10.31Żywiec 502.00 276854 20.55 10.37 21.40 10.30

Wholesale & RetailEldorado 33.80 15006 18600 22000 14.95 6.43 12.06 5.48 10.19 4.33 17.09 6.49 0.71Farmacol 35.70 58523 58400 61800 4.76 11.05 14.30 9.68 13.52 8.62 13.54 10.52 -0.12Alma Market 24.00 19138 9532 4.03 2.75 8.10 4.00 3.96 2.86LPP 930.00 45782 64500 94800 34.60 22.09 24.56 14.68 16.71 9.80 32.93 20.48 0.79PGF 54.70 41362 48100 55600 16.18 8.72 13.91 7.83 12.04 7.06 16.89 8.64 1.02

Construction / Real EstateBudimex 43.90 757 29000 42000 38.65 15.35 26.69 11.92 224.15 2.30Echo 129.50 34119 41300 39.85 11.92 32.92 12.83 15.95 7.58Orbis 27.60 55989 66000 79000 22.71 7.38 19.27 6.59 16.10 6.23 29.17 7.53 1.21Polimex 45.60 42120 41900 49900 10.39 5.27 10.45 4.40 8.77 4.06 9.30 4.57 1.18

ITComarch 59.00 14086 24100 29000 28.17 15.47 16.78 10.72 13.94 9.58 33.40 17.24 0.67Computerland 96.50 13706 32200 52700 47.70 8.84 20.50 8.31 12.53 7.02 46.30 9.28 0.50Emax 102.00 9549 22200 23430 36.21 9.59 15.58 9.27 14.76 9.13 24.79 8.70 0.64Softbank 33.40 30484 43600 57500 22.95 12.23 16.05 13.33 12.17 11.21 21.63 10.99 0.61Sterprojekt 8.35 -43350 19300

TelcoNetia 4.62 159802 133300 108300 9.96 5.51 12.53 4.54 15.43 4.48 10.85 5.32 -0.51

BRE Securities forecastsIf BRE Securities forecasts are not available, an average of market forecasts is used

* data concerning year 2003 come from the period 07'2002-06'2003, and respectively for the year 2004

Selected Midcaps listed on WSE2004 2005 2006 last 4 quarters

BRE Bank Securities

6 September 2005


Institutional Sales and Research: Tomasz Mazurczak tel. (+48 22) 697 47 35 DISA Director [email protected] Strategic Analysis Michał Marczak tel. (+48 22) 697 47 38 DISA Deputy Director [email protected] Telecommunications, raw materials, metals, media, hotels Grzegorz Domagała tel. (+48 22) 697 48 03 DISA Deputy Director [email protected]

Sales:

Michał Skowroński tel. (+48 22) 697 49 68 [email protected] Emil Onyszczuk tel. (+48 22) 697 49 63 [email protected] Marzena Łempicka tel. (+48 22) 697 48 95 [email protected] Grzegorz Stępień tel. (+48 22) 697 48 62 [email protected] Dzielnicki Adrian tel. (+48 22) 697 48 82 [email protected] Joanna Niedziela tel. (+48 22) 697 48 54 [email protected] Aleksander Mazur tel. (+48 22) 697 48 69 [email protected]

Analysts: Witold Samborski tel. (+48 22) 697 47 36 Chief analyst Securities Broker [email protected] Construction, others Przemysław Smoliński tel. (+48 22) 697 49 64 Analyst [email protected] Jacek Borawski tel. (+48 22) 697 48 88 Senior Analyst [email protected] Technical Analysis Sławomir Sklinda tel. (+48 22) 697 47 41 Analyst [email protected] Chemicals Andrzej Lis tel. (+48 22) 697 47 42 Analyst [email protected] IT Krzysztof Radojewski tel. (+48 22) 697 47 01 Analyst [email protected] Pharmaceuticals Marta Jeżewska tel. (+48 22) 697 47 37 Analyst Marta.Jeż[email protected]

Dom Inwestycyjny BRE Banku S.A. ul. Wspólna 47/49 00-950 Warszawa skr. pocztowa 21 www.dibre.com.pl

BRE Bank Securities

6 September 2005


List of abbreviations and ratios contained in the report. EV – net debt + market value (EV – economic value) EBIT – Earnings Before Interest and Taxes EBITDA – EBIT + Depreciation and Amortisation PBA – Profit on Banking Activity P/CE – price to earnings with amortisation MC/S – market capitalisation to sales EBIT/EV – operating profit to economic value P/E – (Price/Earnings) – price divided by annual net profit per share ROE – (Return on Equity) – annual net profit divided by average equity P/BV – (Price/Book Value) – price divided by book value per share Net debt – credits + debt papers + interest bearing loans – cash and cash equivalents EBITDA margin – EBITDA/Sales Recommendations of BRE Bank Securities S.A. A recommendation is valid for a period of 6-9 months, unless a subsequent recommendation is issued within this period. Expected returns from individual recommendations are as follows: BUY – we expect that the rate of return from an investment will be at least 15% ACCUMULATE – we expect that the rate of return from an investment will range from 5% to 15% HOLD – we expect that the rate of return from an investment will range from –5% to +5% REDUCE – we expect that the rate of return from an investment will range from -5% to -15% SELL – we expect that an investment will bear a loss greater than 15% Recommendations are updated at least once every nine months. The present report expresses the knowledge as well as opinions of the authors on day the report was prepared. The present report was prepared observing principles of methodological correctness and objectivity, on the basis of sources avail-able to the public, which BRE Bank Securities S.A. considers reliable, including information published by issuers, shares of which are subject to recommendations However, BRE Bank Securities S.A., in no case, guarantees the accuracy and completeness of the report, in particular should sources on the basis of which the report was prepared prove to be inaccurate, incomplete or not fully consistent with the facts. BRE Bank Securities S.A. bears no responsibility for investment decisions taken on the basis of the present report nor for any dam-ages incurred as a result of investment decisions taken on the basis of the present report. Copying or publishing the present report, in full or in part, or disseminating in any way information contained in the present report requires the prior written agreement of BRE Bank Securities S.A. The present Monthly Report exclusively contains information previously published by BRE Bank Securities S.A. and only comprises a comprehensive presentation of unaltered data. The information, including recommendations, contained in the Monthly Report has been published in separate reports, the publication dates of which are located on page 3 of the Monthly Report. In connection with the above, BRE Bank Securities S.A. does not consider the Monthly Report to be a recommendation as under-stood in the Order of the Council of Ministers, dated 21 April 2004, in regard to information comprising recommendations concerning financial instruments or their issuers. Individuals who did not participate in the preparation of recommendations, but had or could have had access to recommendations prior to their publication, are employees of BRE Bank Securities S.A. authorised to access the premises in which recommendations are prepared, other than the analysts mentioned as the authors of the present recommendations. Strong and weak points of valuation methods used in recommendations: DCF – acknowledged as the most methodologically correct method of valuation; it consists in discounting financial flows generated by a company; its weak point is the significant susceptibility to a change of forecast assumptions in the model. Multiple – based on a comparison of valuation multipliers of companies from a given sector; simple in construction, reflects the cur-rent state of the market better than DCF; weak points include substantial variability (fluctuations together with market indices) as well as difficulty in the selection of the group of comparable companies.

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