21st Feb 2007 07:48
Bank Pekao SA21 February 2007 BANK POLSKA KASA OPIEKI SPOLKA AKCYJNA Interim financial statements of the Bank Pekao S.A. Group for the fourth quarter of 2006 prepared according to the International Financial Reporting Standards 1 Summary 32 Accounting principles adopted in the preparation of the quarterly report 43 Financial statement 54 Additional information 144.1 The Group 144.2 Achievements of Bank Pekao S.A. 154.3 Achievements of subsidiaries 154.3.1 Pioneer Pekao TFI S.A. 154.3.2 Centralny Dom Maklerski Pekao S.A. (CDM) 164.4 Results achieved in 2006 and the factors which influenced these results 164.4.1 Results of the Group 164.4.2 The structure of the net profit 184.5 Segment reporting 204.6 Adjustments for provisions, deferred tax provision and assets 214.7 Write-offs for revaluation of assets 214.8 Information on contingent assets and liabilities 214.9 Post balance sheet events 224.10 Seasonality or cyclical nature of the Bank's activity 224.11 Issuance, redemption and repayment of debt securities 224.12 Dividend paid 234.13 Effects of changes in the Group's structure 234.14 The position of the Management Board regarding the possibility of achieving previously published forecasts 234.15 The information about the shareholders owning at least 5% of the total number of votes at the General Meeting of Bank Pekao S.A. 234.16 The Issuer's shares held by the Management and Supervisory Board members 244.17 Pending litigations 244.18 Assessment of the financial credibility of Bank Pekao S.A. 254.19 Information about integration of Bank Pekao S.A. and Bank BPH S.A. 254.20 Transactions of related entities 264.21 Factors which will affect the results of at least the next quarter 27 1 Summary In this interim report the Bank and the Group presents their results inaccordance with the International Financial Reporting Standards (IFRS). The Group's consolidated financial statements and the Bank's individualfinancial statements fulfil the requirements of International AccountingStandard - IAS 34 "Interim Financial Reporting". Net profit of the Group in the fourth quarter of 2006 was the best quarterlyresult achieved to date and amounted to PLN 468.6 million. In 2006 the netprofit amounted to PLN 1,789.7 million, i.e. 16.6% higher than in 2005. The increase in the net profit was possible thanks to increased businessactivity which translated into higher income, particularly fee and commissionincome, with stable operating costs and lower cost of risk. • Group's income amounted to PLN 4,699.2 million in 2006 and was 6.5%higher than in the previous year, with interest income higher by 1.8% and otherincome higher by 11.8%. • In 2006, the Group noted a continued positive trend in the results ofits business activity, with successful sales of key products: consumer loans "Express Loan", PLN mortgage loans, mutual funds and credit cards. Sales of the "Express Loan" in 2006 were 22.5% higher than in the previous year reaching PLN2,073.4 million. Sales of PLN mortgage loans amounted to PLN 2,620.6 millioncontributing to a growth in the stock of 47.8% in 2006. The value of mutualfunds increased by 20.9% and the number of credit cards increased by 67.2%compared with the end of 2005. • In 2006, total overhead costs including depreciation were kept undercontrol and amounted to PLN 2,363.9 million, i.e. 0.7% higher than in theprevious year. In 2006 the Group's cost / income ratio amounted to 50.3% and was2.9 p.p. lower than in the previous year. • In 2006, impairment losses on loans and advances amounted to PLN 222.3million and were 6.4% lower than in the previous year. This resulted primarilyfrom the effective credit risk management and improved macroeconomic situation.The ratio of impaired receivables to total receivables decreased from 15.5% atthe end of 2005 to 11.8% at the end of 2006 (including also the effect ofwrite-off of impaired loans of PLN 557.7 million in the third quarter of 2006). • Savings of the Group's clients increased in 2006 by PLN 7,458.6million, i.e. by 11.4% resulting from an increase both in the savings ofindividual clients and in corporate deposits. The savings of retail clientsincreased by PLN 4,446.3 million in 2006 and exceeded the level of PLN 49billion. Corporate deposits increased by PLN 3,012.3 million in 2006. • In 2006, the gross loan portfolio grew by PLN 3,268.1 million, i.e. by9.8%. In comparable terms (excluding the above mentioned write-off of impairedloans) the gross loan portfolio grew by PLN 3,825.8, i.e. by 11.5%. This growthwas driven by successful sale of the "Express Loan", PLN mortgage loans andloans for SME, as well as an increase in the volume of corporate loans. 2 Accounting principles adopted in the preparation of the quarterlyreport The interim consolidated report of the Group of Bank Pekao S.A. and the standalone report of Bank Pekao S.A. were prepared in compliance with theInternational Financial Reporting Standards (IFRS), published by theInternational Accounting Standards Board. The presented report meets the requirements of the International AccountingStandard 34 related to interim financial reports and of the Decree of theCouncil of Ministers dated19th October 2005 year on current and periodic information submitted by theissuers of securities. The consolidated financial report of the Group and enclosed financial report ofthe Bank have been prepared in accordance with the accounting principles appliedfor the purpose of asset and liabilities valuation and measurement of financialresults, as disclosed in the interim consolidated financial statements and theinterim condensed financial statements of Bank Pekao S.A. for the period from1st January 2006 year to 30th June 2006 year, published on 12th September 2006year. There were no changes of accounting principles in the fourth quarter of2006 year in comparison to accounting principles applied for the preparation ofthe Group and the Bank Pekao S.A. for the first half of 2006 year. In this report the data have been presented to manner assuring comparability. 3 Financial statement CONSOLIDATED INCOME STATEMENT IV Quarter 4 Quarters 2006 IV Quarter 4 Quarters 2005 (in '000 PLN) 2006 period period 2005 period period from from 06-01-01 from from 05-01-01 06-10-01 to to 05-10-01 to to 05-12-31 06-12-31 06-12-31 05-12-31 Interest income 1 022 738 3 846 525 947 907 3 871 774Interest expense (381 240) (1 469 487) (350 036) (1 521 350)Net interest income 641 498 2 377 038 597 871 2 350 424Fee and commission income 590 540 2 127 362 491 940 1 770 087Fee and commission expense (69 952) (228 127) (52 385) (183 103)Net fee and commission income 520 588 1 899 235 439 555 1 586 984Dividend income 41 1 750 2 348Result on financial instruments at fair value 14 049 36 624 8 688 64 961Result on investment securities 20 898 86 224 5 163 74 153Foreign exchange result 63 137 255 569 55 075 265 398Other operating income 44 665 169 933 89 881 284 976Other operating expenses (56 038) (127 146) (60 468) (213 941)Net other operating income (11 373) 42 787 29 413 71 035Net impairment losses on financial assets and (61 657) (222 293) (47 534) (237 477)net provisions for guarantees and commitmentsOverhead costs (632 011) (2 363 981) (609 457) (2 346 404)Operating profit 555 170 2 112 953 478 776 1 829 422Share of profit (loss) of associates and joint 27 095 90 859 9 141 44 177venture entities valued at the equity methodProfit before income tax 582 265 2 203 812 487 917 1 873 599Income tax expense (113 666) (414 115) (82 166) (338 747) Net profit for the period 468 599 1 789 697 405 751 1 534 852 1. Attributable to equity holders of the 467 495 1 787 506 406 071 1 537 712Company2. Attributable to minority interest 1 104 2 191 (320) (2 860) Earnings per share (in PLN per share) - basic for the period 10,72 9,24 - diluted for the period 10,71 9,23 CONSOLIDATED BALANCE SHEET (in '000 PLN) 31.12.2006 31.12.2005 Assets Cash and amounts due from Central Bank 3 577 924 3 574 791 Debt securities eligible for rediscounting at the Central 2 519 6 106 Bank Loans and advances to banks 10 506 153 6 966 026 Financial assets as held for trading 2 391 371 2 502 366 Derivative financial instruments 533 366 499 290 Other financial instruments at fair value through profit or 1 613 196 1 781 317 loss Loans and advances to customers 31 778 127 28 223 730 Net investment in the finance lease 966 607 745 891 Investment securities 13 000 067 14 490 772 1. Available for sale 12 574 657 11 902 898 2. Held to maturity 425 410 2 587 874 Assets of disposal group classifield as held for sale 8 784 167 366 Investments in associated undertakings 207 254 167 814 Intangible assets 608 884 645 457 Tangible fixed assets 1 445 460 1 441 141 Investment property 52 670 61 259 Income taxes 305 885 182 180 1. Current tax assets 1 491 886 2. Deferred income tax assets 304 394 181 294 Other assets 705 421 516 450Total assets 67 703 688 61 971 956 Liabilities and Shareholders' equity' Liabilities Amounts due to the Central Bank 2 045 278 1 950 710 Amounts due to other banks 2 009 976 1 997 043 Financial liabilities as held for trading 211 373 558 973 Derivative financial instruments 504 200 607 689 Amounts due to customers 51 793 583 46 847 877 Debt securities in issue 3 4 Liabilities directly associated with assets classified as - 39 663 held for sale Current income tax liabilities 202 148 5 621 Provisions for deferred income tax - 1 Provisions 223 943 108 727 Other liabilities 1 820 557 1 432 922 Total liabilities 58 811 061 53 549 230 Shareholders' equity Capital and reserves attributable to the Company's equity 8 875 883 8 407 290holders Share capital 166 808 166 482 Other capital and reserves 7 028 137 6 718 913 Prior and current year profits 1 680 938 1 521 895 Minority interest 16 744 15 436 Total Shareholders' equity 8 892 627 8 422 726Total liabilities and Shareholders' equity 67 703 688 61 971 956 Capital adequacy ratio 16,51 19,47Book value 8 875 883 8 407 290Number of shares 166 808 257 166 481 687Book value per share ( in PLN per share) 53,21 50,50Diluted numebr of shares 166 941 439 166 558 940Diluted book value per share (in PLN per share) 53,17 50,48 CONSOLIDATED STATEMENT OF CHANGES 2006 2005IN SHAREHOLDERS' EQUITY from 1 Jan 2006 from 1 Jan 2005 (in '000 PLN ) to 31 Dec 2005 to 31 Dec 2006Shareholders equity at the beginning of the period 8 422 726 8 023 481a) adjustment related to IFRS/IAS introduction - (192 460)Adjusted shareholders equity at the beginning of the period 8 422 726 7 831 0211. Share capital at the beginning of the period 166 482 166 482a) Increase 326 - - new shares issue 326 -b) Decrease - - - redemptions - -1. Share capital at the end of the period 166 808 166 4822. Earnings from previous years at the beginning of the period 1 521 895 1 512 265a) adjustment related to IFRS/IAS introduction - (192 460)2. Adjusted earnings from previous years at the end of the 1 521 895 1 319 805perioda) Increase 31 226 1 761 - other (included settlement of sale of Pekao Development 31 226 1 761shares in 2006)b) Decrease (1 659 689) (1 337 383) - appropriation to general banking risk fund (70 000) - - appropriation to other reserve capital (346 418) (271 900) - appropriation to legal capital (8 890) - - dividend (1 234 381) (1 065 483)2. Earnings from previous years at the end of the period (106 568) (15 817)3. Other capital and reserves at the beginning of the period 6 718 913 6 325 958a) Increase 463 415 393 691 - appropriation of net profit 425 308 271 900 - share premium on issue of new shares 32 230 - - valuation of securities available for sale (net) - 107 867 - employee share option proceeds 5 877 11 893 - other - 2 031b) Decrease (154 191) (736) - valuation of securities available for sale (net) (110 976) - - foreign exchange differences on subordinated companies (329) (736) - foreign exchange differences on subordinated companies (10 635) - - other (32 251) -3. Other capital and reserves at the end of the period 7 028 137 6 718 9134. Net profit 1 787 506 1 537 712Shareholders' equity at the end of the period 8 875 883 8 407 290Minority interest at the beginning of the period 15 436 18 776a) Changes: 1 308 (3 340) - net profit 2 191 (2 860) - other (883) (480)Minority interest at the end of the period 16 744 15 436Total equity 8 892 627 8 422 726 CONSOLIDATED STATEMENT OF CASH FLOW IV Quarter 2006 4 Quarters 2006 IV Quarter 4 Quarters 2005 Cumulative 2005 Cumulative(in '000 PLN) from 1 Oct 2006 from 1 Jan 2006 from 1 Oct from 1 Jan 2005 2005 to 31 Dec 2006 to 31 Dec 2006 to 31 to 31 Dec 2005 Dec 2005Cash flow from operating activities - indirectmethodNet profit (loss) 467 495 1 787 506 406 071 1 537 712Adjustments: (1 536 612) 807 282 (934 000) (1 553 001)Deprecition 77 557 318 365 83 876 322 891Share of profit of associates (27 095) (90 859) (9 141) (44 177)Foreign exchange differences 162 218 255 663 23 647 (125 405)(Profit) loss on investing activities (50 617) (99 486) (11 655) (81 769)Impariment (1 178) (12 708) (972) (972)Interest and dividend (177 648) (781 114) (204 366) (867 149)Change in loans and advances to banks 621 483 (439 868) 280 950 (249 270)Change in financial assets as held for trading and 2 854 279 116 393 574 248 809other financial instruments at fair value throughprofit or lossChange in derivative financial instruments (97 714) (34 076) 84 751 4 192Change in loans and advances to customers (537 893) (3 550 810) (1 351 096) (2 472 020)Change in net investment in the finance lease (94 884) (220 716) (72 828) (198 567)Change in investment securities available for sale 805 45 (2 608) (2 608)Change in deferred income tax assets (49 736) (97 702) 28 481 (78 266)Change in other assets 11 398 19 413 425 185 107 713Change in amounts due to banks (1 196 521) 107 501 (1 281 447) 463 453Change in liabilities as held for trading (872 211) (347 600) (12 065) (31 146)Change in derivative financial instruments and other 24 126 (103 489) (88 685) (15 994)financial liabilitiy at fair value through profit orlossChange in amounts due to customers 662 909 4 945 706 1 256 353 1 026 232Change in debt securities in issue - - - -Change in provisions 57 252 115 216 14 600 8 114Change in other liabilities (116 486) 317 777 (421 956) 415 287Income tax paid (97 253) (283 083) (114 651) (408 634)Carrent tax 162 022 509 991 46 053 426 285Net cash from operating activities (1 069 117) 2 594 788 (527 929) (15 289)Cash flows from investing activitiesInvesting activity inflows 12 329 886 43 866 610 25 350 441 51 059 881Sale of subsidiaries and associates - - 3 400 3 400Sale of investment securities 12 044 680 43 153 895 25 107 012 50 464 495Sale of intangible assets and tangible fixed assets - 8 809 8 444 11 723Other investing inflows 285 206 703 906 231 585 580 263Investing activity outflows (9 418 872) (42 156 177) (25 637 217) (49 565 113)Purchase of subsidiaries and associates - - (2) (25 002)Purchase of investment securities (9 269 820) (41 842 058) (25 546 562) (49 278 226)Purchase of intangible assets and tangible fixed (149 373) (314 119) (90 653) (261 885)assetsOther investing outflows 321 - - -Net cash used in investing activities 2 911 014 1 710 433 (286 776) 1 494 768Cash flows from financing activitiesFinancing activity inflows - 32 556 2 4Issue of debt securities - - 2 4Issue of ordinary shares - 32 556 - -Financing activity outflows 1 (1 234 385) - (1 088 688)Redemption of debt securities 1 (4) - (22 479)Dividends and other payments to shareholders - (1 234 381) - (1 065 483)Other financing outflows - - - (726)Net cash from financing activities 1 (1 201 829) 2 (1 088 684)Total net cash flow 1 841 898 3 103 392 (814 703) 390 795Net change in cash and cash equivalents 1 841 898 3 103 392 (814 703) 390 795Cash and casch equivalents at the beginning of the 8 928 715 7 667 221 8 481 924 7 276 426periodCash and cash equivalents at the end of the period 10 770 613 10 770 613 7 667 221 7 667 221 QUARTERLY INDIVIDUAL FINANCIAL REPORT INCOME STATEMENT IV Quarter 4 Quarters 2006 IV Quarter 4 Quarters 2005 (in '000 2006 period period 2005 period periodPLN) from from 06-01-01 from from 06-10-01 to to 05-10-01 to 05-01-01 to 06-12-31 06-12-31 05-12-31 05-12-31 Interest income 1 004 031 3 779 648 932 182 3 814 563Interest expense (391 884) (1 499 156) (357 313) (1 563 907)Net interest income 612 147 2 280 492 574 869 2 250 656Fee and commission income 481 147 1 762 433 418 600 1 513 310Fee and commission expense (54 909) (187 324) (44 724) (154 615)Net fee and commission income 426 238 1 575 109 373 876 1 358 695Dividend income 595 170 620 (1) 96 746Result on financial instruments at fair value 13 058 35 184 9 403 64 871Result on investment securities 20 898 86 224 4 433 74 153Foreign exchange result 62 164 253 159 54 176 263 026Other operating income 40 741 163 658 36 168 104 459Other operating expenses (52 479) (100 132) (16 113) (70 857)Net other operating income (11 738) 63 526 20 055 33 602Net impairment losses on financial assets and (59 336) (207 639) (49 034) (234 267)net provisions for guarantees and commitmentsOverhead costs (559 462) (2 157 085) (555 080) (2 165 330)Operating profit 504 564 2 099 590 432 697 1 742 152Profit before income tax 504 564 2 099 590 432 697 1 742 152Income tax expense (103 025) (371 051) (74 472) (302 736) Net profit for the period 401 539 1 728 539 358 225 1 439 416 Earnings per share (in PLN per share) - basic for the period 10,37 8,65 - diluted for the period 10,36 8,64 BALANCE SHEET (in '000 PLN) 31.12.2006 31.12.2005 Assets Cash and amounts due from Central Bank 3 573 882 3 573 613 Debt securities eligible for rediscounting at the Central 2 519 6 106 Bank Loans and advances to banks 10 388 827 7 000 770 Financial assets held for trading 2 050 828 2 217 887 Derivative financial instruments 533 367 499 290 Other financial instruments at fair value through profit 1 613 195 1 781 317 or loss Loans and advances to customers 32 352 315 28 727 143 Investment securities 12 999 469 14 490 374 1. Available for sale 12 574 059 11 902 500 2. Held to maturity 425 410 2 587 874 Non-current assets held for sale 8 784 37 650 Shares in subsidiaries 671 100 514 666 Shares in associates 51 092 42 234 Intangible assets 597 050 636 048 Tangible fixed assets 1 399 804 1 422 389 Investment property 49 916 58 170 Income taxes 274 824 152 008 1. Current tax assets - - 2. Deferred income tax assets 274 824 152 008 Other assets 409 783 285 547Total assets 66 976 755 61 445 212 Liabilities and Shareholders' equity Liabilities Amounts due to the Central Bank 2 045 278 1 950 710 Amounts due to other banks 1 926 999 1 993 601 Financial liabilities held for trading 203 408 545 930 Derivative financial instruments 504 194 607 689 Amounts due to customers 51 811 250 46 849 748 Debt securities in issue 12 17 Current income tax liabilities 201 631 4 427 Provisions for deferred income tax - - Provisions 221 012 105 013 Other liabilities 1 442 806 1 191 819 Total liabilities 58 356 590 53 248 954 Shareholders' equity Share capital 166 808 166 482 Profit for the year and retained earnings 1 728 539 1 506 779 Other capital and reserves 6 724 818 6 522 997 Total Shareholders' equity 8 620 165 8 196 258Total liabilities and Shareholders' equity 66 976 755 61 445 212 Capital adequacy ratio 14,74 17,95 STATEMENT OF CHANGES IN EQUITY 2006 2005 (in '000 PLN) from 1 Jan 2006 from 1 Jan 2005 to 31 Dec 2006 to 31 Dec 2005 Shareholders equity at the beginning of the period 8 196 258 7 896 096 a) adjustment related to IFRS/IAS introduction - (192 460) Adjusted shareholders equity at the beginning of the 8 196 258 7 703 636 period 1. Share capital at the beginning of the period 166 482 166 482 a) Increase 326 - - new shares issue 326 - b) Decrease - - 1. Share capital at the end of the period 166 808 166 482 2. Retained earnings (loss) from previous years at the 1 506 779 1 602 824 beginning of the period a) adjustments related to IFRS/IAS introduction - (192 460) 2. Adjusted retained earnings (loss) from previous years 1 506 779 1 410 364 at the beginning of the period a) Increase - - b) Decrease (1 506 779) (1 343 001) - appropriation to general banking risk fund (70 000) - - appropriation to reserve capital (202 398) (277 518) - dividends (1 234 381) (1 065 483) 2. Retained earnings (loss) at the end of the period - 67 363 3. Other capital at the beginning of the period 6 522 997 6 126 790 a) Increase 313 126 396 693 - appropriation of net profit 272 398 277 518 - issue of shares under its' nominal value 34 851 - - valuation of securities available for sale; in - 107 282 which: gains and losses from valuation of securities available for sale - 130 707 provision for deferred income tax - (23 425) - valuation of management options 5 877 11 893 b) Decrease (111 305) (486) - valuation of securities available for sale; in (110 976) - which: gains and losses from valuation of securities available for sale (136 979) - provision for deferred income tax 26 003 - - foreign exchange differences on branches abroad (329) (486) 3. Other capital at the end of the period 6 724 818 6 522 997 4. Net profit 1 728 539 1 439 416 Shareholders' equity at the end of the period 8 620 165 8 196 258 CASH FLOW STATEMENT IV Quarter 4 Quarters 2006 IV Quarter 2005 4 Quarters 2005 2006 cumulative cumulative(in '000 PLN) from 1 Oct from 1 Jan 2006 from 1 Oct 2005 from 1 Jan 2005 2006 to 31 to 31 Dec 2006 to 31 Dec 2005 to 31 Dec 2005 Dec 2006Cash flow from operating activities - indirect methodNet profit (loss) 401 539 1 728 539 358 225 1 439 416Adjustments: (1 356 871) 790 718 (825 773) (1 012 177)Depreciation 74 268 304 341 76 172 300 855Foreign exchange differences 173 009 266 297 23 293 (125 087)(Profit) loss on investing activities (28 831) (95 057) (11 498) (81 686)Impairment (191) (191) 1 426 8 056Interest and dividend (178 201) (950 082) (204 365) (963 612)Change in loans and advances to banks 708 761 (362 219) 284 973 229 092Change in financial assets as held for trading and 37 607 335 181 396 603 276 720other financial instruments at fair value throughprofit or lossChange in derivative financial instruments (97 721) (34 077) 84 751 4 191Change in loans and advances to customers (571 326) (3 621 585) (1 475 199) (2 661 255)Change in investment securities available for sale (1 978) (2 760) (3 638) (3 638)Change in deferred income tax assets (46 369) (96 813) 26 039 (78 897)Change in other assets 100 969 (59 461) 336 440 180 947Change in amounts due to banks (1 225 736) 27 966 (1 294 632) 441 772Change in liabilities as held for trading (832 581) (342 522) 12 453 107 711Change in derivative financial instruments 24 115 (103 495) (88 685) (15 994)Change in amounts due to customers 669 628 4 961 502 1 326 295 989 384Change in debt securities in issue - - - -Change in provisions 56 664 115 999 14 646 9 392Change in other liabilities (288 709) 218 761 (297 004) 353 009Income tax paid (79 643) (238 930) (83 928) (377 430)Current tax 149 394 467 863 50 085 394 293Net cash from operating activities (955 332) 2 519 257 (467 548) 427 239Cash flows from investing activitiesInvesting activity inflows 12 307 065 43 969 628 25 350 103 51 115 931Sale of subsidiaries and associates - - 3 400 3 400Sale of investment securities 12 022 587 43 153 863 25 107 006 50 447 356Sale of intangible assets and tangible fixed assets (60) 1 206 8 360 11 300Other investing inflows 284 538 814 559 231 337 653 875Investing activity outflows (9 394 159) (42 263 569) (25 634 681) (49 542 734)Purchase of subsidiaries and associates - (156 242) (5 307) (30 307)Purchase of investment securities (9 269 820) (41 842 058) (25 546 563) (49 268 354)Purchase of intangible assets and tangible fixed (124 339) (265 269) (82 811) (244 073)assetsNet cash used in investing activities 2 912 906 1 706 059 (284 578) 1 573 197Cash flows from financing activitiesFinancing activity inflows - 35 177 - 17Issue of debt securities - - - 17Issue of ordinary shares - 35 177 - -Financing activity outflows - (1 234 386) - (1 088 688)Redemption of debt securities - (5) - (22 479)Dividends and other payments to shareholders - (1 234 381) - (1 065 483)Other financing outflows - - - (726)Net cash from financing activities - (1 199 209) - (1 088 671)Total net cash flow 1 957 574 3 026 107 (752 126) 911 765Net change in cash and cash equivalents 1 957 574 3 026 107 (752 126) 911 765Cash and cash equivalents at the beginning of the 8 757 107 7 688 574 8 440 700 6 776 809periodCash and cash equivalents at the end of the period 10 714 681 10 714 681 7 688 574 7 688 574 Selected financial statements translated into EUR: in PLN ths. in EUR ths. Position 4 Quarters of 4 Quarters of 4 Quarters of 4 Quarters of 2006 2005 2006 2005Net interest income 2 377 038 2 350 424 609 638 584 203Net fee and commission income 1 899 235 1 586 984 487 096 394 448Operating profit 2 112 953 1 829 422 541 908 454 707Profit before income tax 2 203 812 1 873 599 565 210 465 687Net profit (loss) 1 789 697 1 534 852 459 003 381 491Net profit (loss) attributable to equity holders of 1 787 506 1 537 712 458 440 382 202the CompanyNet profit (loss) attributable to minority interest 2 191 (2 860) 562 (711)Net cash from operating activities 2 594 788 (15 289) 665 484 (3 800)Net cash used in investing activities 1 710 433 1 494 768 438 674 371 528Net cash from financing activities (1 201 829) (1 088 684) (308 232) (270 595)Net increase / decrease in cash and cash 3 103 392 390 795 795 925 97 133equivalentsTotal assets 67 703 688 61 971 956 17 671 666 16 055 743Amounts due to the Central Bank 2 045 278 1 950 710 533 848 505 391Amounts due to other banks 2 009 976 1 997 043 524 634 517 395Amounts due to customers 51 793 583 46 847 877 13 518 893 12 137 385Minority interest 16 744 15 436 4 370 3 999Equity attributable to the Company's equity holders 8 875 883 8 407 290 2 316 737 2 178 167Share capital 166 808 166 482 43 539 43 132Number of shares 166 808 257 166 481 687 166 808 257 166 481 687Book value per share ( in zl/EUR per share) 53.21 50.5 13.89 13.08Diluted book value per share (in zl/EUR per share) 53.17 50.48 13.88 13.08Earnings per 1 ordinary share (in zl/EUR per share) 10.72 9.24 2.75 2.3Diluted earnings per 1 ordinary share (in zl/EUR 10.71 9.23 2.75 2.29per share)Paid dividend per share (in zl/EUR per share) 7.4 6.4 1.84 1.42Capital adequacy ratio 16.51 19.47 x xRisk weighted assets 38 265 413 31 277 925 9 987 840 8 103 509Core funds 6 506 824 6 142 646 1 698 378 1 591 442Supplementary funds (15 141) 96 872 (3 952) 25 098 4 Additional information 4.1 The Group Bank Pekao S.A. Capital Group as at 31st December 2006 consists of Bank PekaoS.A as the parent entity and 12 subsidiary entities. During the fourth quarterof 2006 there were no changes in the structure of the Group in comparison to thestructure presented as at 30th September 2006. The following entities are included in the consolidated financial report as at31st December 2006: No Name of company Core activity % of Status Consolidation shareholder's method share capital 1. Bank Pekao S.A. banking - parent - 2. UniCredit Bank Ltd. ( before Bank banking 100.00 subsidiary full Pekao (Ukraina) Ltd. ) 3. Centralny Dom Maklerski Pekao S.A. brokerage 100.00 subsidiary full 4. Pekao Fundusz Kapitalowy Sp. z financial 100.00 subsidiary full o.o. 5. Pekao Leasing Sp. z o.o. leasing 100.00 subsidiary full 6. Pekao Faktoring Sp. z o.o. financial 100.00 subsidiary full 7. Pekao Pioneer Powszechne financial 65.00 subsidiary full Towarzystwo Emerytalne S.A. 8. Drukbank Sp. z o.o. no activities 100.00 subsidiary full performed 9. Centrum Kart S.A. financial 100.00 subsidiary full10. Pekao Financial Services Sp. z financial 100.00 subsidiary full o.o.11. Pekao Access Sp. z o.o. consulting 55.26 subsidiary full12. BDK Consulting Sp. z o.o. consulting, hotels, 99.99 subsidiary full transportation13. SARL Pekao Immobilier real estate 100.00 subsidiary non- consolidated managementSARL Pekao Immobilier was not consolidated with the use of the full method, due to immateriality of it'sfinancial data in comparison to the size of the operations of the whole Group. Company in consolidatedfinancial statement was recognized at the cost of purchase.Other listed below exposures of the Group constitute investments in the associated entities and are recognizedin the consolidated report of the Group with the use of the equity method. Company CPF Management due toimmateriality of it's financial data was recognized at the cost of purchase. 1. Anica System S.A. information 33.84 / 13.49 subsidiary equity technology 2. Central Poland Fund LLC financial 53.19 subsidiary equity intermediary 3. Xelion. Doradcy Finansowi Sp. z auxiliary, 50.00 subsidiary equity o.o. financial and insurance 4. Pioneer Pekao Investment financial 49.00 subsidiary equity Management S.A. intermediary 5. Pirelli Pekao Real Estate Sp. z o. real estate 25.00 subsidiary equity o. management 6. Krajowa Izba Rozliczeniowa S.A. chamber of 22.96 subsidiary equity settlement 7. CPF Management mutual funds 40.00 subsidiary not valuated management-does not under equity operate method During the fourth quarter of 2006 a disposal transaction of shares of twosubsidiary entities took place: 37.50 % shares of Hotel Jan III Sobieski Spolkaz.o.o. and 23.81% shares of Fabryka Sprzetu Okretowego "Meblomor" S.A. The effect of disposal of shares of subsidiary entities is as follows (PLNths.): Revenues 44 570Balance sheet value of shares (including cost of sales) 47 209Loss on sale 2 639 4.2 Achievements of Bank Pekao S.A. Commercial activity The performance in 2006 was primarily the result of a further development inBank's business activity. The key success factor was the increased sales pace,particularly in consumer loans, PLN mortgage loans and mutual funds. In 2006, sales of the "Express Loan" ("Pozyczka Ekspresowa") were 22.5% higherthan in 2005 with total sales reaching PLN 2,073.4 million, of which PLN 628.2million sold in the fourth quarter alone. In 2006, the sales of mortgage loans amounted to PLN 2,620.6 million (57.1%higher compared to 2005) with PLN 906.5 million of mortgage loans sold in thefourth quarter alone. The Bank continued its policy of offering PLN mortgageloans. In 2006 the volume of loans for SME has also increased (by 32.5%) which resultedfrom significant growth of sale of those loans. The Pekao Group confirmed its leading position in the mutual funds market - atthe end of December 2006 market share of mutual funds managed by PPIM S.A.amounted to 23.5%. Key commercial indicators: 31.12.2006 31.12.2005 ChangeTotal number of PLN current accounts (in thousand) * 3,054.4 3,019.2 35.2 of which packages 2,221.1 2,176.9 44.2Number of mortgage loans accounts (in thousand) 74.7 60.3 14.4Number of "Express Loans" accounts (in thousand) 328.4 166.6 161.8Number of mutual fund registers (in thousand)** 828.9 665.3 163.6Payment cards (in thousand)*** 2,744.6 2,673.8 70.8 Credit 244.8 146.4 98.4 Charge 211.9 269.2 (57.3) Debit (including Maestro) 2,287.9 2,258.2 29.7Total number of outlets (in items) 782 778 4Total number of ATMs (in items) 1,262 1,244 18 * number of accounts including accounts of pre-paid cards ** sold in Bank's network *** the number of cards is calculated according to the definition used byinternational payment organizations Visa and MasterCard 4.3 Achievements of subsidiaries 4.3.1 Pioneer Pekao TFI S.A. As at 31st December 2006, the net assets value of mutual funds under managementof Pioneer Pekao TFI S.A., a company managed by Pioneer Pekao InvestmentManagement S.A. (in which the Bank holds a 49% share), amounted to PLN 23,263.4million and was higher by PLN 4,025.9 million compared with the end of 2005. Asat 31st December 2006, the Company had 975.0 thousand open accounts (an increaseby 21.0% in 2006). The net assets value of mutual funds under management of Pioneer Pekao TFI S.A.is presented in the table below: (PLN million) 31.12.2006 31.12.2005 ChangeNet assets value of Pioneer Pekao TFI 23,263.4 19,237.5 4,025.9- bond and money market funds 5,584.7 9,308.0 (3,723.3)- equity funds 4,901.9 1,586.5 3,315.4- balanced funds 12,776.8 8,343.0 4,433.8 4.3.2 Centralny Dom Maklerski Pekao S.A. (CDM) In 2006 CDM provided the full scope of services (permitted to brokerage houses),excluding asset management. In 2006 the Company achieved: - a 37.5% share in the bond trading volume at the Warsaw StockExchange, - a 12.5% share in the stock trading volume at the Warsaw StockExchange, - a 7.2% share in the futures trading volume at the Warsaw StockExchange. At the end of December 2006 CDM maintained 145.2 thousand investment accountsand its market share was 16.0%. CDM offered also on-line access to investmentaccounts, allowing its customers to buy and sell all instruments listed on theWarsaw Stock Exchange and on the OTC market (CeTO) through the Internet. As atthe end of December 2006 CDM maintained 19.7 thousand on-line accounts, i.e. a4.4 thousand increase in comparison with the end of 2005. 4.4 Results achieved in 2006 and the factors which influenced theseresults 4.4.1 Results of the Group In the fourth quarter of 2006 the Group achieved another quarterly record netprofit which amounted to PLN 468.6 million. Net profit of the Group in 2006 amounted to PLN 1,789.7 million, i.e. 16.6%higher than in the previous year. The increase in the net profit was possible thanks to increased businessactivity which translated into higher income, particularly fee and commissionincome, with stable operating costs and lower cost of risk. The results of the fourth quarter are confirming growing efficiency of the BankPekao S.A. Group. Good results of Bank Pekao S.A. were accompanied by positive results of theGroup's companies. The consolidated profit and loss account for 2006 and 2005 is presented below: (PLN million) 2006 2005 ChangeNet interest income * 2,385.5 2,343.5 1.8%Fee and commission income 1,899.2 1,587.0 19.7%Dividend income 1.7 0.3 xTrading income 114.4 146.1 (21.7%)FX income 255.6 265.4 (3.7%)Other operating income / cost net 42.8 71.0 (39.7%)Total income 4,699.2 4,413.3 6.5%Overhead costs (including depreciation) (2,363.9) (2,346.4) 0.7% Personnel (1,216.0) (1,203.0) 1.1% Non-personnel (829.0) (820.5) 1.0% Depreciation (318.9) (322.9) (1.2%)Operating income 2,335.3 2,066.9, 13.0%Impairment losses on loans and advances (222.3) (237.5) (6.4%)Share in net profit (loss) of the associates 90.8 44.2 105.4%Pre-tax profit 2,203.8 1,873.6 17.6%Tax charge (414.1) (338.7) 22.3%Net profit 1,789.7 1,534.9 16.6% Attributable to equity holders of the Company 1,787.5 1,537.7 16.2% Attributable to minority interest 2.2 (2.9) x * including income on SWAP transactions. The Group's income In 2006, the Group's income amounted to PLN 4,699.2 million and was by PLN 285.9million (6.5%) higher than in the comparable period of the previous year. The growth in income was due to the development of business activity, supportedby pro-sales activities relating to the key products of both the Bank and theother Group companies. The main growth driver in this period was fee andcommission income, which increased by 19.7%, primarily thanks to commissions oninvestment products and loans. In 2006 interest income was PLN 42.0 million higher than last year, amongothers, as a result of improving asset mix which was driven by increasing shareof loans. This contributed to offsetting the impact of declining interest ratesin the market. The Group's overhead costs (including depreciation) Overhead costs (including depreciation) in 2006 remained under control andamounted to PLN 2,363.9 million, i.e. were 0.7% higher compared with theprevious year. In 2006, the Group's cost / income ratio amounted to 50.3% and was by 2.9 p.p.lower than in the previous year. As at the end of 2006, the Bank had 14,362 employees (a reduction of 456employees compared with the end of 2005), and the Group had 15,647 employees(295 employees less than at the end of 2005). Impairment losses on loans and advances In 2006, impairment losses on loans and advances amounted to PLN 222.3 millionand were 6.4% lower than in the previous year. This resulted primarily from theeffective credit risk management and improved macroeconomic situation. The ratioof impaired receivables to total receivables(1) decreased from 15.5% at the endof 2005 to 11.8% at the end of December 2006 as a result of an increase in thetotal volume of receivables and a decrease in the volume of impaired receivables(including also the effect of the write-off in the third quarter of 2006 of PLN557.7 million of impaired loans). Loans In 2006 the gross loans portfolio grew by PLN 3,268.1 million, i.e. by 9.8%. (PLN million) 31.12.2006 31.12.2005 ChangeGross loans (principal)* 36,503.3 33,235.2 9.8% corporate (principal) 26,233.4 25,058.2 4.7% retail (principal) 10,269.9 8,177.0 25.6% * including debt securities eligible for rediscounting at the Central Bank andnet investment in the finance lease, excluding non quoted securities and BSBtransactions. In the third quarter of 2006 the Management Board of Bank Pekao S.A. decided towrite off the balance sheet the loans and advances that fulfill the followingcriteria: lack of expected future recoveries and full coverage of the balancesheet exposure with the allowance accounts. Loans of the notional value of PLN557.7 million have been written off. Savings Savings of the Group's clients increased by PLN 7,458.6 million, i.e. by 11.4%in 2006 resulting from an increase both in the savings of individual clients andin corporate deposits. The savings of retail clients increased by PLN 4,446.3 in 2006 as a result ofincrease in deposits (by PLN 420.4 million) and in mutual funds (by PLN 4,025.9million). At the end of December 2006 total retail savings exceeded the level of PLN 49billion. Corporate deposits increased in 2006 by PLN 3,012.3 million. (PLN million) 31.12.2006 31.12.2005 ChangeDeposits (principal) 49,446.4 46,013.7 7.5% corporate (principal) 23,131.9 20,119.6 15.0% retail (principal) 26,314.5 25,894.1 1.6%Pioneer Pekao TFI mutual funds 23,263.4 19,237.5 20.9% incl. distributed through the Group's 21,359.7 18,009.2 18.6%networkTotal savings 72,709.8 65,251.2 11.4% incl. retail 49,577.9 45,131.6 9.9% 4.4.2 The structure of the net profit The structure of the net profit of the Group is shown in the following table: (PLN million) 2006 2005Net profit of Bank Pekao S.A. 1,728.5 1,439.4Entities consolidated under full methodCentralny Dom Maklerski Pekao S.A. 150.0 92.5Pekao Leasing Sp. z o.o. 11.1 0.8Pekao Financial Services Sp. z o.o. 10.6 13.1Pekao Faktoring Sp. z o.o. 10.6 9.6Pekao Pioneer PTE S.A. 10.3 8.1Pekao Development Sp. z o.o. * 6.5 30.2Pekao Fundusz Kapitalowy Sp. z o.o.** 3.9 (0.4)Pekao Access Sp. z o.o. 0.5 0.5Centrum Kart S.A. 0.3 2.6Drukbank Sp. z o.o. *** 0.0 0.0UniCredit Bank Ltd. / Bank Pekao (Ukraine) Ltd. in Luck***/**** (16.7) 0.3Entities valued under equity methodPioneer Pekao Investment Management S.A. 89.2 51.9Krajowa Izba Rozliczeniowa S.A. 5.0 6.7Pirelli Pekao Real Estate Sp. z o.o. **** 4.4 -Central Poland Fund LLC (0.1) (4.0)Xelion. Doradcy Finansowi Sp. z o.o. (10.5) (11.4)Exclusions and consolidation adjustments***** (213.9) (105.0)Net profit (loss) of the Group 1,789.7 1,534.9 * equity valuation of the subsidiary since the II quarter 2006 due to sale of75% of shares which took place on 3rd April 2006. Net profit presented equals toI quarter 2006 result, ** the result of the company includes the valuation of associates based onequity method, *** the result of UniCredit Bank Ltd. includes the share of Bank through itssubsidiary Drukbank Sp. z o. o., **** change in the name of the company, ***** Bank's share in net result for II, III and IV quarter 2006, ****** includes transactions within the Group, including dividends fromsubsidiaries and associates and opening balance amendments. The results of Bank Pekao S.A. The main items from the profit and loss account of the Bank are as follows: (PLN million) 2006 2005 ChangeNet interest income* 2,288.9 2,243.7 2.0%Non-interest income 2,175.4 1,898.0 14.6%Total income 4,464.3 4,141.7 7.8%Overhead costs (including depreciation) (2,157.1) (2,165.3) (0.4%)Operating income 2,307.2 1,976.4 16.7%Impairment losses on loans and advances (207.6) (234.3) (11.4%)Pre-tax profit 2,099.6 1,742.1 20.5%Net profit 1,728.5 1,439.4 20.1% * including income on SWAP operations The main items of the Bank's balance sheet at the end of 2006 in comparison withthe end of 2005 are as follows: 31.12.2006 31.12.2005 ChangeTotal gross loans in PLN million* 35,891.2 32,748.7 9,6%Impaired receivables to total receivables in % 11.0 14.7 (3.7 p.p.)Total deposits in PLN million* 49,472.2 46,062.3 7,4%Total assets in PLN mil. 66,976.8 61,445.2 9,0%Mutual funds sold in Bank's network in PLN million 18,881.2 15,539.0 21,5%Capital adequacy ratio in % 14.7 18.0 (3.3 p.p.) * the nominal value 4.5 Segment reporting Segment reporting of the Pekao Group covers following areas: - Retail banking area - full-range of banking activity related toretail clients and small and micro companies with annual turnover not exceedingPLN 10 million, and also income of companies consolidated under the full methodand assigned to retail activity, - Corporate banking area - full-range of banking activity related tomedium and large companies, and also income of companies consolidated under thefull method and assigned to corporate activity, - Treasury and Investment activities area - Bank's involvement oninter-bank market, in debt securities and capital investments in companies,which are not a part of other segments, and also income of companiesconsolidated under the full method and assigned to this activity. Information on main segments' results for 2006: (PLN ths.) Retail Corporate Treasury and Total Group activity activity Investment activityExternal interest income 1,035,816 1,364,184 1,446,525 3,846,525External interest expense 359,319 855,276 254,891 1,469,487Net external interest income 676,496 508,908 1,191,634 2,377,038Internal interest income 1,266,132 942,018 (2,208,150) 0Internal interest expense 443,171 954,509 (1,397,680) 0Net internal interest income 822,961 (12,491) (810,470) 0Net interest income 1,499,457 496,417 381,164 2,377,038Non interest income 1,808,885 403,818 109,486 2,322,189Total income 3,308,342 900,235 490,650 4,699,227 Allocated assets 13,003,842 21,296,294 28,474,587 62,774,723Unallocated assets 4,928,965Total assets 67,703,688 Allocated liabilities 32,467,354 18,504,268 4,950,170 55,921,792Unallocated liabilities 11,781,896Total liabilities 67,703,688 Information on main segments' results for 2005: (PLN ths.) Retail Corporate Treasury and Total Group activity activity Investment activityExternal interest income 919,762 1,529,542 1,422,471 3,871,774External interest expense 420,656 964,890 135,805 1,521,350Net external interest income 499,106 564,652 1,286,666 2,350,424Internal interest income 1,385,229 963,377 (2,348,606) 0Internal interest expense 449,568 996,943 (1,446,511) 0Net internal interest income 935,661 (33,565) (902,096) 0Net interest income 1,434,767 531,087 384,571 2,350,424Non interest income 1,508,597 448,298 105,984 2,062,879Total income 2,943,363 979,385 490,555 4,413,303 Allocated assets 10,025,388 20,335,357 26,818,459 57,179,204Unallocated assets 4,792,752Total assets 61,971,956 Allocated liabilities 30,616,214 17,399,394 3,136,426 51,152,035Unallocated liabilities 10,819,921Total liabilities 61,971,956 4.6 Adjustments for provisions, deferred tax provision and assets (PLN million) Group Bank Pekao S.A. 31.12.2006 31.12.2005 31.12.2006 31.12.2005Total provisions 223.9 108.7 221.0 105.0 of which: provisions for off-balance sheet 112.7 20.3 112.6 20.3liabilities provisions for liabilities to employees 69.2 66.0 68.0 65.0 other provisions 42.0 22.4 40.4 19.7Provision for deferred tax 0.0 0.0 0.0 0.0Deferred tax assets 304.4 181.3 274.8 152.0 4.7 Write-offs for revaluation of assets (PLN million) Group Bank Pekao S.A. 2006 2005 2006 2005Total (222.3) (237.5) (207.6) (234.3) for loan receivables (125.2) (237.3) (111.2) (224.7) for off-balance sheet liabilities (93.4) 0.2 (93.3) 0.2 for financial assets (3.7) (0.4) (3.1) (9.8) 4.8 Information on contingent assets and liabilities (PLN ths.) 31.12.2006 31.12.2005 Contingent liabilities granted and received 27,588,457 15,994,786 Liabilities granted: 19,117,047 12,404,368 financial 16,801,746 10,990,273 guarantees 2,315,301 1,414,095 Liabilities received: 8,471,410 3,590,418 financial 635,350 457,353 guarantees 7,836,060 3,133,065 Financial derivatives 76,540,128 65,182,224 currency transactions 28,929,919 25,795,810 interest rate transactions 46,301,739 38,548,574 securities transactions 1,308,470 837,840 Other 11,287,931 6,615,255Total off-balance sheet items 115,416,516 87,792,265 4.9 Post balance sheet events Share capital increase of the Bank Since the beginning of the 2007 until the day of submitting this report sharecapital of the Bank has been increased by the total amount of PLN 199,533 as aresult of issue of 199,533 series F ordinary bearer shares. The share capital ofthe Bank amounts currently to PLN 167,007,790 and is divided into: - 137,650,000 series A ordinary bearer shares with nominal value of PLN 1.00(one) each, - 7,690,000 series B ordinary bearer shares with nominal value of PLN 1.00(one) each, - 10,630,632 series C ordinary bearer shares with nominal value of PLN 1.00(one) each, - 9,777,571 series D ordinary bearer shares with nominal value of PLN 1.00(one) each, - 373,644 series E ordinary bearer shares with nominal value of PLN 1.00(one) each, - 526,103 series F ordinary bearer shares with nominal value of PLN 1.00(one) each, - 359,840 series H ordinary bearer shares with nominal value of PLN 1.00(one) each. The total number of votes at the Bank's General Shareholders Meeting under allissued shares is 167,007,790. The increase was conducted as a result ofregistration on buyers accounts of 199,533 series F ordinary bearer sharesissued within the conditional share capital increase on the base of ResolutionNo. 7 of the Extraordinary General Shareholders Meeting of the Bank conducted on25th July 2003 on contingent increase of the statutory capital, exclusion ofthe pre-emptive rights on the series F and G shares of the Bank and amendment tothe Statute of the Bank. Bank's conditional share capital increase have been registered by WarsawDistrict Court, XIX Economic Division of the National Court Registry on 17thSeptember 2003, which was reported by Bank in current report 107/2003 dated 19thSeptember 2003. 4.10 Seasonality or cyclical nature of the Bank's activity The demand for the financial services offered by the Bank is stable, and so theimpact of seasonal changes is immaterial. Due to the nature of the Bank'sactivity, it is not subject to seasonal or cyclical changes. 4.11 Issuance, redemption and repayment of debt securities Issuance of registered bonds with pre-emptive rights to take up the Bank's F andG shares The Bank issued 415 thousand registered A series bonds and 415 thousandregistered B series bonds with pre-emptive rights to take up the Bank's F seriesshares, and 415 thousand registered C series bonds and 415 thousand registered Dseries bonds with pre-emptive rights to take up the Bank's G series shares. 1,660 of the Bank's registered bonds were allocated to Pekao Faktoring (theBank's subsidiary) acting as the Trustee, and registered in the Bonds Registerof Centralny Dom Maklerski Banku Pekao S.A. The Bonds were issued on the basis of Resolution No. 6 of the Bank'sExtraordinary General Meeting dated 25th July 2003 on the issue of registeredbonds under an incentive programme. Each Bond entitles to take up 1 ordinary bearer share of the Bank. The nominal value of one bond is PLN 0.01. The issue price of one bond is equalto its nominal value. The bonds do not bear interest. The bonds are not secured. The issue price of F series shares amounts to PLN 108.37, and of G series sharesPLN 123.06. All the pre-emptive rights to take up F series shares pursuant to theimplementation of the right of priority ensuing from the A series bonds wereexecuted. B series bonds were available for purchase until 30th December 2006. Bonds of the other series will be available for purchase from the Trustee by theeligible persons in the following periods: - C series bonds in the period from the 31st day after the date of theGeneral Shareholders' Meeting, approving financial statements for the financialyear 2006 until 30th December 2007. - D series bonds in the period from the 31st day after the date of theGeneral Shareholders' Meeting, approving financial statements for the financialyear 2007 until 30th December 2008. As at the day of submitting this report, the Bank acquired 120,159 registeredseries B bonds from Pekao Faktoring Sp. z o.o., for the purpose of redemption,and the total of 199,533 series B bonds from eligible persons, upon the requestthereof for early redemption, pursuant to the implementation of the right ofpriority to take up the Bank's shares ensuing from the bonds, for the purpose ofredemption thereof. All Bonds which are not sold off by the Trustee by 30th December 2007 and 2008shall be acquired by the Bank on 31st December 2007 and 2008 respectively to beredeemed at their nominal value. The execution of the pre-emptive rights to take up F and G series shares can beexercised in the following periods: - in respect of B series bonds - from 1st January 2007 to 31st December2010, - in respect of C series bonds - from 1st January 2008 to 31st December2012, - in respect of D series bonds - from 1st January 2009 to 31st December2012. 4.12 Dividend paid Pursuant to Resolution No. 8 of the General Meeting of Bank Pekao S.A., PLN 7.40per one share was appropriated for the payment of dividend for 2005, i.e. 15.6%higher compared to the dividend for 2004 (PLN 6.40 per one share). Theex-dividend date was determined at 19th May 2006 and the date of dividendpayment at 2nd June 2006. All the Bank's shares are ordinary shares. 4.13 Effects of changes in the Group's structure In the fourth quarter of 2006 there were no significant changes in the Group'sstructure. 4.14 The position of the Management Board regarding the possibility ofachieving previously published forecasts The Bank has not published the forecast of financial results for 2006. 4.15 The information about the shareholders owning at least 5% of the totalnumber of votes at the General Meeting of Bank Pekao S.A. The shareholders of Bank Pekao S.A. owning directly or indirectly through theirsubsidiaries at least 5% of the total number of voting rights at the GeneralMeeting of Bank Pekao S.A. are as follows: Shareholder's name # of shares Share in share # of shares Share in share and votes at capital and total and votes at capital and total the General number of votes at the General number of votes at Meeting the General Meeting Meeting the General Meeting 31st December 2006 31st December 2005UniCredito Italiano S.p.A. 88,121,725 52.83% 88,121,725 52.93%Other shareholders 78,686,532 47.17% 78,359,962 47.07%Total 166,808,257 100.00% 166,481,687 100.00% In the year 2006 share capital of the Bank has been increased by the totalamount of PLN 326,570 as a result of issue of series F ordinary bearer shares. Since the beginning of the 2007 until the day of submitting this report sharecapital of the Bank has been increased by the total amount of PLN 199,533 as aresult of issue of 199,533 series F ordinary bearer shares. The share capital ofthe Bank amounts currently to PLN 167,007,790. The share of UniCredito ItalianoS.p.A. in the share capital and the total number of votes at the General Meetingamounts to 52.77% while the share of other shareholders stands for 47.23%. 4.16 The Issuer's shares held by the Management and Supervisory Boardmembers According to the Bank's knowledge, as at the date of submitting this report themembers of the Bank's management and supervisory bodies held 65,768 shares ofBank Pekao S.A. All these shares were held by members of the Bank's management. The Bank Pekao S.A. Capital Group is running an incentive programme in the formof management stock options. The Programme covers the Management Board of theBank, the remaining managerial staff, key employees for realisation of Bank'sstrategy, as well as employees of subsidiaries. As at the date of submitting this report 9 people participating in the incentiveprogramme for 2003 have not yet executed the right to take up the Bank's 95,308shares ensuing from the bonds of which 72,160 can be taken up by the management. The incentive programme for 2004 includes 44 persons for a total 691,921 shares,391,348 of which will be able to be purchased by the management. 4.17 Pending litigations In the fourth quarter of 2006 the number of the legal proceedings in courts,appropriate bodies of arbitration or public administration bodies, concerningthe liabilities of the Group was 372. The total value of them was PLN 781.7million. The number of legal proceedings concerning the receivables was 2.833 attotal value of PLN 1,106.9 million. The legal proceedings involving the largest amounts in receivables groupinclude: - The action brought by Bank Pekao S.A., Paris branch against LA HUPPEregarding the vindication of the loan receivables. The value of the subject oflitigation amounts to EUR 23.6 million. The proceedings were instituted onDecember 23rd, 1998. - The statement of claims for the payment brought by Bank Pekao S.A.against Salomon Industries S.A. and Pekao Leasing Sp. z o.o. (mainintervention). The value of the subject of litigation amounts to PLN 67.4million. The proceedings were instituted on January 23rd, 2006. - The statement of claims for the payment brought by Bank Pekao S.A.against Royal Grant S.A. and Pekao Leasing Sp. z o.o. (main intervention). Thevalue of the subject of litigation amounts to PLN 53.5 million. The proceedingswere instituted on January 23rd, 2006. According to the issuer's opinion any single proceeding that was in progress incourts, appropriate bodies of arbitration or public administration bodies in thefourth quarter of 2006, as well as all the proceedings together do not createany threat to financial liquidity of the Bank. 4.18 Assessment of the financial credibility of Bank Pekao S.A. As at 31st December of 2006, Bank Pekao S.A. had the following financialcredibility ratings: Fitch RatingsLong-term rating (IDR) AShort-term rating F1Individual rating B/CSupport rating 1Outlook of IDR Positive Standard and Poor'sLong-term rating A-Short-term rating A-2Outlook Stable Moody's Investors Service Ltd. (The Bank has not ordered Moody's rating)Long-term deposit rating A2Short-term deposit rating Prime-1Financial strength COutlook Stable 4.19 Information about integration of Bank Pekao S.A. and Bank BPH S.A. On 12th November 2006 the Management Board of Bank Pekao S.A passed a resolutionon the intention to integrate Bank Pekao S.A. with Bank BPH S.A., in a way ofBank BPH S.A.'s spin-off by transfer of a part of Bank BPH S.A.'s property in aform of a organised part of enterprise to Bank Pekao S.A., in exchange of sharesof Bank Pekao S.A., which will be taken up by the shareholders of Bank BPH S.A. On 15th November 2006 the Supervisory Board of Bank Pekao S.A. have accepted andManagement Boards of Bank Pekao S.A. and Bank BPH S.A. have signed the "Spin-offPlan". On 31st January 2007 Bank Pekao S.A. and Bank BPH S.A. filed a joint requestwith the Banking Supervision Commission for a consent to the spin-off of BankBPH S.A. by transferring part of Bank BPH's assets to Bank Pekao S.A. inconsideration for shares issued by Pekao to Bank BPH S.A. existing shareholders. As a result of the Spin-Off, Bank Pekao S.A. will be the largest bank in Polandby assets and will be in a position to capture synergies and strengthen itsposition as one of the leading financial institutions in the Polish market witha strong, well structured and stable balance sheet and high growth potential. Itwill offer a superior client service platform for Polish and internationalclients in Poland, and will be supported by best practice management systems. Financially, sustainable effects of the integration process are expected in manyareas of Bank's business activity, resulting in revenue synergies as well ascost savings. 4.20 Transactions of related entities In 2006, the Bank and its subsidiaries have not concluded any transactions withrelated entities other than typical and routine transactions whose aggregatevalue exceeded the equivalent of EUR 500 thousand. In 2006, the Bank and its subsidiaries did not give any sureties or guaranteesin respect of loans or advances to any single entity or a subsidiary of thatentity, as a result of which the total value of the existing sureties andguarantees would equal 10% of the Bank's equity. Intention to acquire the shares of Joint-Stock Commercial Bank HVB Bank Ukrainein Kiev On 29th November 2006 Bank Pekao S.A. announced its intention to acquire up to100% of shares in the Joint-Stock Commercial Bank HVB Bank Ukraine, with itsseat in Kiev, Ukraine (HVB Bank Ukraine). The total nominal value of the sharesis UAH 109,834,200. The HVB Bank Ukraine shares will be acquired, based on an assignment agreementto be concluded with UniCredito Italiano S.p.A. (UCI), as a result of Bank PekaoS.A.'s entering into UCI's rights under Share Purchase Agreement of September12th, 2006 between UCI as the purchaser and Bayerische Hypo- und Vereinsbank AGas the seller, regarding 1,098,342 ordinary shares in HVB Bank Ukraine. The acquisition of the HVB Bank Ukraine shares will take place after allcorporate authorizations have been obtained and all legal requirements underUkrainian and Polish laws have been satisfied. The intention to acquire the shares in HVB Bank Ukraine is in line with BankPekao S.A.'s strategy of reinforcing its presence on the Ukrainian market, andcomplies with Resolution No. 20/KNB/06 of the Banking Supervision Commissiondated April 5th, 2006, regarding a permit to vote the shares at Bank BPH S.A.'sGeneral Meeting. Sale of shares of Jan III Sobieski by Bank Pekao S.A. On 31st October 2006 the Bank concluded an agreement with Europa Hawk S.a.r.l.with its seat in Luxemburg (as the Purchaser) on the sale of shares of Hotel JanIII Sobieski limited liability company by virtue of which the Bank sold toPurchaser 142,876 shares of face value equal to PLN 540 for each share,constituting 49.398% of Hotel Jan III Sobieski limited liability company capitaland carrying the right to 49.398% of votes at the Hotel Jan III Sobieski GeneralMeeting of Shareholders for the total price of EUR 11,135,697.00. The net book value of the sold share in the Bank's books is equal to PLN45,922,418.23. The sold assets has been classified as short-term investment. The Bank shall hold no shares of Hotel Jan III Sobieski limited liabilitycompany following the aforementioned transaction. Sale of significant assets by Pekao Fundusz Kapitalowy Sp. z o.o. On 28th December 2006, Pekao Fundusz Kapitalowy Sp. z o.o. (PFK) subsidiary ofthe Bank divested of to Meblomor S.A. seated in Czarnkow (Meblomor), 44,768shares of Meblomor with the par value of PLN 10 each share, and comprising a23.81% stake in the Company's share capital, and carrying 23.81% of votes on theGeneral Meeting of Meblomor for the price amounting in total PLN 1,287,080.Meblomor has acquired above-mentioned shares for their redemption. The net book value of the sold share in Meblomor is equal to PLN 1,287,080. Soldassets had the character of long-term investment. In the result of this transaction, PFK and the Bank indirectly does not have anyshare in Meblomor company. 4.21 Factors which will affect the results of at least the next quarter Bank Pekao S.A. and its subsidiaries mainly run their business on the territoryof Poland which therefore makes Bank's results dependent on economic developmentof the country and economic trends. Polish economy expands at high rate due to both strong internal demand andexport. It is expected, that these positive trends observed in economydevelopment will continue in the next quarters. High growth rate have impacted inflation so far in very limited way, howeverthere is expectation of interest rate increases in Poland during current year. Fast economic growth makes favourable conditions for banking activities. Fastgrowth rate in retail loans, growth of corporate customers loans and in thelevel of savings is observed. Improvement in corporate financial situation aswell as continuation in declining unemployment decrease the costs of creditrisk. It is expected that all above trends will continue also in the nextquarters. -------------------------- (1) loans and advances to customers, debt securities eligible for rediscountingat the Central Bank and net investment in the finance lease This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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