21st Feb 2006 11:51
Bank Pekao SA21 February 2006 BANK POLSKA KASA OPIEKI SPOLKA AKCYJNA Interim financial statements of the Bank Pekao S.A. Group for the fourth quarter of 2005 prepared according to the International Financial Reporting Standards 1 Summary 2 Accounting principles adopted in the preparation of the quarterly report 3 Consolidated pro forma report 4 Financial statements 5 Impact of changes in accounting principles on consolidated statements 6 Notes to the financial statements 6.1 The Group 6.2 Achievements of Bank Pekao S.A. 6.3 Achievements of subsidiaries 6.3.1 Pioneer Pekao TFI S.A. 6.3.2 Centralny Dom Maklerski Pekao S.A. (CDM) 6.4 Results achieved in 2005 and the factors which influenced these results 6.4.1 Results of the Group 6.4.2 The structure of the net profit 6.5 Segment reporting 6.6 Adjustments for provisions, deferred tax provisions and assets 6.7 Write-offs for revaluation of assets 6.8 Information on contingent assets and liabilities 6.9 Post balance sheet events 6.10 Seasonality or cyclical nature of the Bank's activity 6.11 Issuance, redemption and repayment of debt securities 6.12 Dividend paid 6.13 Effects of changes in the Group's structure 6.14 The position of the Management Board regarding the possibility of achieving previously published forecasts 6.15 The information about the shareholders owning at least 5% of the total number of votes at the General Meeting of Bank Pekao S.A. 6.16 The Issuer's shares held by the Management and Supervisory Board members 6.17 Pending litigations 6.18 Transactions of related entities 6.19 Loan or credit sureties and guarantees given 6.20 Other transactions concluded in the fourth quarter of 2005 6.21 Assessment of the Bank's financial credibility 6.22 Factors which will affect the results of at least the next quarter 1 Summary In this quarterly report for the fourth quarter of 2005 the Bank and the Grouppresent their results in accordance with the International Financial ReportingStandards (IFRS). The Group's consolidated financial statements and the Bank's individualfinancial statements fulfil the requirements of International AccountingStandard - IAS 34 "Interim Financial Reporting" and IFRS 1 "First Time Adoptionof International Financial Reporting Standards". In the preparation of the financial statements according to IFRS, the Groupapplied the admissible exemptions. The pro forma data for 2004 was prepared to ensure comparability of the results. In 2005, the net profit increased by 22.9% and amounted to PLN 1,534.9 million.2005 net profit was the best result achieved to date confirming continued growthin Group's profitability. In the fourth quarter alone the net profit of theGroup amounted to PLN 405.8 million. The increase in the net profit by PLN 286.0 million in 2005 compared with theprevious year was possible thanks to increased business activity whichtranslated into higher income, particularly interest income, stable operatingcosts and lower cost of risk. • Group's income amounted to PLN 4,413.3 million in 2005 and was by 8.7%higher than in the previous year, with interest income being higher by 10.0% andother income higher by 7.3%. • In 2005, the Group noted a continued positive trend in the results ofits business activity, with successful sales of key products: mutual funds, newconsumer loans "Express Loan", PLN mortgage loans and credit cards. The sales ofthe consumer loans was more than four times higher than in the previous year.The sales of PLN mortgage loans amounted to PLN 1,668.2 million contributing toa growth in the stock of 21.6%. The value of mutual funds increased by 48.0% andthe number of credit cards more than doubled compared with the end of 2004. • In 2005, total overhead costs including depreciation were kept undercontrol and amounted to PLN 2,346.4 million i.e. were only by 0.6% higher thanin the previous year. In 2005, the Group's cost / income ratio amounted to 53.2%and was by 4.3 p.p. lower than in the previous year. • In 2005, impairment losses on loans and advances amounted to PLN 237.5million and were 24.7% lower than in the previous year. This resulted primarilyfrom the effective credit risk management and improved macroeconomic situation.The ratio of non-performing loans to total loans decreased from 19.9% at the endof 2004 to 16.2% at the end of 2005 thanks to an increase in the volume ofperforming loans and the drop in the volume of non-performing loans. • Total savings of the Group increased by PLN 8,761.4 million (15.5%) in2005 resulting from both an increase in the savings of individual clients (ofPLN 3,969.7 million) and in corporate deposits (of PLN 4,791.7 million). Highdemand for mutual funds allowed for further increase in mutual funds assets byPLN 6,235.2 million in 2005 bringing the total retail savings above the PLN 45billion level confirming Group's significant market share. • In 2005, the loan portfolio increased by PLN 3,581.3 million primarilydue to acceleration in corporate lending, very successful sale of "Express Loan"and continued sale of PLN mortgage loans. 2 Accounting principles adopted in the preparation of the quarterly report The consolidated report of the Capital Group of Bank Pekao S.A. and the attachedseparate 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 InternationalFinancial Reporting Standard IFRS 1, which describes the requirements concerningfirst-time adoption of International Financial Reporting Standards and of theDecree of the Council of Ministers dated 19 October 2005 on current and periodicinformation submitted by the issuers of securities. The consolidated financial report of the Group and enclosed abbreviatedfinancial statements of the Bank has been prepared in accordance with theaccounting principles applied for the purpose of asset and liabilities valuationand measurement of the financial results as disclosed in the consolidated reportfor the first half of the year 2005 published on 13 September 2005. There wereno changes in the fourth quarter document in comparison to the above describedprinciples. The financial data presented in the report were prepared as comparative dataexcept for two areas related to IAS 39: calculation of specific provisionsrelated to impairment accounting and valuation at amortised cost using theeffective interest rate of receivables and loans. For the above mentionedfinancial assets, the Group has used the prospective approach. The Group hasvalued and recognised the related adjustments in the opening balance of 2005. Taking into consideration the usefulness of the financial report, the Group hasprepared pro-forma statements, which include balance sheet for 31.12.2004 andprofit and loss statement for four quarters of 2004. Pro-forma statementsapproximate the effect of adjustments related to the above mentioned IAS 39issues, i.e. impairment and valuation at amortised cost using effective interestrate. 3 Consolidated pro forma report CONSOLIDATED PRO FORMA IV Quarters cumulative IV Quarters cumulative (current year) (previous year)INCOME STATEMENT (in PLN ths.) from 1 Jan 2005 from 1 Jan 2004 to 31 Dec to 31 Dec 2004 2005 PRO FORMAI. Interest income 3 871 774 3 721 052II. Interest expense (1 521 350) (1 550 999)III. Net interest income 2 350 424 2 170 053IV. Fee and commission income 1 770 087 1 644 565V. Fee and commission expense (183 103) (163 115)VI. Net fee and commission income 1 586 984 1 481 450VII. Dividend income 348 9VIII. Result on financial instruments at fair value 64 961 55 662IX. Result on investment securities 74 153 14 076X. Foreign exchange result 265 398 289 018XI. Other operating income 284 976 307 495XII. Other operating expenses (213 941) (258 814)XIII. Net other operating income 71 035 48 681XIV. Impairment losses on financial assets and (237 477) (315 648)provisions for guarantees and commitmentsXV. Overhead costs (2 346 404) (2 333 437)XVI. Operating profit 1 829 422 1 409 864XVII. Share of profit of associates 44 177 36 157XVIII. Profit before income tax 1 873 599 1 446 021XIX. Income tax expense (338 747) (197 094)XX. Net profit (loss) 1 534 852 1 248 9271. Attributable to equity holders of the Company 1 537 712 1 252 4602. Attributable to minority interest (2 860) (3 533) as at as atCONSOLIDATED BALANCE SHEET PRO FORMA (in PLN ths.) 31 Dec 2005 31 Dec 2004 AssetsI. Cash and balances with Central Bank 3 574 811 3 939 275II. Debt securities eligible for rediscounting at 6 106 8 768the Central BankIII. Loans and advances to banks 6 966 026 5 961 477IV. Financial assets as held for trading 2 502 366 3 195 771V. Derivative financial instruments 499 290 503 482VI. Other financial instruments at fair value 1 781 317 1 336 721through profit or lossVII. Loans and advances to customers 28 223 730 25 749 048VIII. Net investment in the finance lease 745 891 547 324IX. Investment securities 14 490 772 15 036 457 1. Available for sale 11 902 898 10 106 484 2. Held to maturity 2 587 874 4 929 973X. Investments in associated undertakings 167 863 124 662XI. Intangible assets 645 496 631 925XII. Tangible fixed assets 1 442 204 1 541 828XIII. Investment property 113 869 102 869XIV. Income taxes 182 180 127 339 1. Current tax assets 886 13 131 2. Deferred income tax assets 181 294 114 208XV. Other assets 630 035 729 487T o t a l a s s e t s 61 971 956 59 536 433 LiabilitiesI. Amounts due to the Central Bank 1 950 710 2 151 743II. Amounts due to other banks 1 997 045 1 332 557III. Financial liabilities as held for trading 558 973 590 119IV. Derivative financial instruments 607 689 623 683V. Other financial liability at fair value through - -profit or lossVI. Amounts due to customers 46 847 877 45 821 645VII. Debt securities in issue 4 23 205VIII. Other liabilities 1 465 494 1 060 370IX. Current income tax liabilities 6 173 256X. Provisions for deferred income tax 5 982 1 221XI. Provisions 109 283 100 613T o t a l l i a b i l i t i e s 53 549 230 51 705 412 EquityCapital and reserves attributable to the Company's 8 407 290 7 812 245equity holdersXII. Share capital 166 482 166 482XIII. Retained earnings (15 817) 85 929XIV. Other capital and reserves 8 256 625 7 559 834 Minority interest 15 436 18 776T o t a l e q u i t y 8 422 726 7 831 021T o t a l e q u i t y a n d l i a b i l i t i e s 61 971 956 59 536 433 4 Financial statements The below presented shortened consolidated financial report of the Group andshortened financial report of the Bank and accompanying comparative figures wereprepared applying the same accounting principles for both periods. Theexceptions from the above are two areas of IAS 39: measurement of impairment andmeasurement of amortized cost using effective interest method for loans andadvances. The Group applied the adjustments pertaining to the above areas of IAS39 prospectively as of 01.01.2005. CONSOLIDATED IV Quarter IV Quarters IV Quarter IV Quarters (current year) cumulative (previous cumulative (current year) year)(previous year)INCOME STATEMENT (in PLN ths.) period from period from period from period from 05-10-01 to 05-01-01 to 04-10-01 to 04-01-01 to 05-12-31 05-12-31 04-12-31 04-12-31I. Interest income 947 907 3 871 774 1 005 770 3 765 843II. Interest expense (350 036) (1 521 350) (437 708) (1 550 999)III. Net interest income 597 871 2 350 424 568 062 2 214 844IV. Fee and commission income 491 940 1 770 087 455 585 1 719 637V. Fee and commission expense (52 385) (183 103) (42 322) (163 115)VI. Net fee and commission income 439 555 1 586 984 413 263 1 556 522VII. Dividend income 2 348 - 9VIII. Result on financial instruments at fair value 8 688 64 961 32 401 55 662IX. Result on investment securities 5 163 74 153 6 252 14 076X. Foreign exchange result 55 075 265 398 62 734 289 018XI. Other operating income 89 881 284 976 102 991 307 495XII. Other operating expenses (60 468) (213 941) (82 771) (258 814)XIII. Net other operating income 29 413 71 035 20 220 48 681XIV. Impairment losses on financial assets and (47 534) (237 477) (96 150) (354 069)provisions for guarantees and commitmentsXV. Overhead costs (609 457) (2 346 404) (607 520) (2 333 437)XVI. Operating profit 478 776 1 829 422 399 262 1 491 306XVII. Share of profit of associates 9 141 44 177 5 720 36 157XVIII. Profit before income tax 487 917 1 873 599 404 982 1 527 463XIX. Income tax expense (82 166) (338 747) (87 763) (213 005)XX. Net profit (loss) 405 751 1 534 852 317 219 1 314 4581. Attributable to equity holders of the Company 406 071 1 537 712 317 899 1 317 9912. Attributable to minority interest (320) (2 860) (680) (3 533) Net profit (loss) 1 537 712 1 317 991Weighted average number of ordinary shares 166 481 687 166 261 457Earnings per 1 ordinary share (in PLN per share) 9,24 7,93Weighted average number of ordinary shares for 166 558 940 166 261 457diluted earningsDiluted earnings per 1 ordinary share (in PLN per 9,23 7,93share) as at as atCONSOLIDATED BALANCE SHEET (in PLN ths.) 31 Dec 2005 31 Dec 2004 AssetsI. Cash and balances with Central Bank 3 574 811 3 939 275II. Debt securities eligible for rediscounting at the 6 106 8 768Central BankIII. Loans and advances to banks 6 966 026 5 961 477IV. Financial assets as held for trading 2 502 366 3 195 771V. Derivative financial instruments 499 290 503 482VI. Other financial instruments at fair value through 1 781 317 1 336 721profit or lossVII. Loans and advances to customers 28 223 730 26 219 531VIII. Net investment in the finance lease 745 891 547 324IX. Investment securities 14 490 772 15 036 457 1. Available for sale 11 902 898 10 106 484 2. Held to maturity 2 587 874 4 929 973X. Investments in associated undertakings 167 863 124 662XI. Intangible assets 645 496 631 925XII. Tangible fixed assets 1 442 204 1 541 828XIII. Investment property 113 869 102 869XIV. Income taxes 182 180 97 769 1. Current tax assets 886 13 131 2. Deferred income tax assets 181 294 84 638XV. Other assets 630 035 729 488T o t a l a s s e t s 61 971 956 59 977 347 LiabilitiesI. Amounts due to the Central Bank 1 950 710 2 151 743II. Amounts due to other banks 1 997 045 1 332 557III. Financial liabilities as held for trading 558 973 590 119IV. Derivative financial instruments 607 689 623 683V. Other financial liability at fair value through - -profit or lossVI. Amounts due to customers 46 847 877 45 821 645VII. Debt securities in issue 4 23 205VIII. Other liabilities 1 465 494 1 060 370IX. Current income tax liabilities 6 173 256X. Provisions for deferred income tax 5 982 1 222XI. Provisions 109 283 349 066T o t a l l i a b i l i t i e s 53 549 230 51 953 866 EquityCapital and reserves attributable to the Company's 8 407 290 8 004 705equity holdersXII. Share capital 166 482 166 482XIII. Retained earnings (15 817) 194 274XIV. Other capital and reserves 8 256 625 7 643 949 Minority interest 15 436 18 776T o t a l e q u i t y 8 422 726 8 023 481T o t a l e q u i t y a n d l i a b i l i t i e s 61 971 956 59 977 347 Capital adequacy ratio 19,47 21,71Book value 8 407 290 8 004 705Number of shares 166 481 687 166 481 687Book value per share ( in PLN per share) 50,50 48,08Diluted numebr of shares 166 543 189 166 481 687Diluted book value per share (in PLN per share) 50,48 48,08 CONSOLIDATED STATEMENT OF CHANGES IV Quarters IV Quarters IN SHAREHOLDERS' EQUITY cumulative cumulative period from period from (in PLN ths.) 05-01-01 to 04-01-01 to 05-12-31 04-12-31 Shareholders equity at the beginning of the period 8 004 705 7 286 544a) adjustment related to IFRS/IAS introduction (192 460) -b) change of consolidation method - -c) adjustment due to fundamental errors - -Adjusted shareholders equity at the beginning of the period 7 812 245 7 286 5441. Share capital at the beginning of the period 166 482 166 122a) Increase - 360 - new shares issue - 360b) Decrease - - - redemptions - -1. Share capital at the end of the period 166 482 166 4822. Earnings from previous years at the beginning of the period 1 512 265 914 221a) adjustment related to IFRS/IAS introduction (192 460) -b) change of consolidation method - -2. Adjusted earnings from previous years at the end of the period 1 319 805 914 221a) Increase 7 379 309 460 - merger of leasing companies - 309 435 - other 7 379 25b) Decrease (1 343 001) (1 029 407) - appropriation to general banking risk fund - (172 267) - appropriation to other reserve capital (277 518) (92 301) - appropriation to reserve capital - (17 291) - dividend (1 065 483) (747 548) - other - -2. Earnings from previous years at the end of the period (15 817) 194 2743. Other capital and reserves at the beginning of the period 6 325 958 6 206 201a) adjustment related to IFRS/IAS introduction - -b) change of consolidation method - -3. Adjusted other capital and reserves at the beginning of the period 6 325 958 6 206 201a) Increase 397 278 488 174 - appropriation of net profit 277 518 281 859 - share premium on issue of new shares - 23 137 - merger of leasing companies - 57 981 - valuation of securities available for sale (net) 107 867 126 839 - employee share option proceeds 11 893 4 800 - foreign exchange differences on subordinated companies - (6 465) - release of provisions for restructuring fund - 23b) Decrease (4 323) (368 417) - foreign exchange differences on subordinated companies (736) - - merger of leasing companies - (356 973) - foreign exchange differences on valuation of foreign branches - (921)for the previous years - sale of fixed assets - (5) - other (3 587) (10 518)3. Other capital and reserves at the end of the period 6 718 913 6 325 9584. Net profit 1 537 712 1 317 991II. Shareholders' equity at the end of the period 8 407 290 8 004 705III. Minority interest at the beginning of the period 18 776 21 378a) Decrease (3 340) (2 602) - net profit (2 860) (3 533) - other (480) 931IV. Minority interest at the end of the period 15 436 18 776Total equity 8 422 726 8 023 481 CONSOLIDATED STATEMENT IV Quarter IV Quarters IV Quarter IV Quarters OF CASH FLOW (current year) cumulative (previous cumulative (current year) year) (previous year) (in PLN ths.) period from period from period from period from 05-10-01 to 05-01-01 to 04-10-01 to 04-01-01 to 05-12-31 05-12-31 04-12-31 04-12-31 A. Cash flow from operating activities - indirectmethod I. Net profit (loss) 406 071 1 537 712 317 899 1 317 991Adjustments: (1 522 361) (2 141 362) (3 387 524) (4 213 877)Deprecition 79 536 318 551 83 245 321 135Share of profit of associates (9 141) (44 177) (5 720) (36 157)Foreign exchange differences 23 647 (125 405) 420 436 570 960(Profit) loss on investing activities (11 655) (81 769) (25 582) (34 233)Impariment (972) (972) 19 868 27 287Interest and dividend (204 366) (867 149) (261 048) (951 797)Change in loans and advances to banks (307 431) (837 651) 908 363 293 255Change in financial assets as held for trading and 393 574 248 809 (799 024) (1 763 530)other financial instruments at fair value throughprofit or lossChange in derivative financial instruments 84 751 4 192 (118 492) (245 658)Change in loans and advances to customers (1 351 096) (2 472 020) (244 285) (1 200 904)Change in net investment in the finance lease (72 828) (198 567) (22 679) 33 754Change in investment securities available for sale (2 608) (2 608) (32 141) (32 141)Change in deferred income tax assets 28 481 (78 266) 13 662 (44 866)Change in other assets 429 545 112 073 245 556 399 696Change in amounts due to banks (1 281 445) 463 455 (1 359 521) (685 020)Change in liabilities as held for trading (12 065) (31 146) 62 994 590 119Change in derivative financial instruments and (88 685) (15 994) 200 318 184 451other financial liabilitiy at fair value throughprofit or lossChange in amounts due to customers 1 256 353 1 026 232 (1 812 218) (1 470 024)Change in debt securities in issue - - - -Change in provisions 15 156 8 670 (9 439) (43 919)Change in other liabilities (422 514) 414 729 (559 301) (176 140)Income tax paid (114 651) (408 634) (184 287) (224 374)Carrent tax 46 053 426 285 91 771 274 229Net cash from operating activities (1 116 290) (603 650) (3 069 625) (2 895 886) B.Cash flows from investing activitiesInvesting activity inflows 25 350 441 51 059 881 5 822 834 23 885 365Sale of shares in associates 3 400 3 400 29 691 61 540Sale of shares in subsidiaries, net of cash - - - -disposedSale of investment securities 25 107 012 50 464 495 5 527 062 23 208 507Proceeds from sale of intangible assets and 8 444 11 723 (3 823) -tangible fixed assetsOther investing inflows 231 585 580 263 269 904 615 318Investing activity outflows (25 637 217) (49 565 113) (4 192 094) (20 546 601)Purchase of associates (2) (25 002) 23 (126)Purchase of subsidiaries, net of cash acquired - - - -Purchase of investment securities (25 546 562) (49 278 226) (4 134 241) (20 291 524)Purchase of intangible assets and tangible fixed (90 653) (261 885) (55 928) (253 003)assetsOther investing outflows - - (1 948) (1 948)Net cash used in investing activities (286 776) 1 494 768 1 630 740 3 338 764 C. Cash flows from financing activitiesFinancing activity inflows 2 4 4 491 165 776Proceeds from loans and advances from other banks - - - -Proceeds from other loans and advances - - - -Issue of debt securities 2 4 25 090 142 279Increase of subordinated liabilities - - - -Issue of ordinary shares - - - 23 497Sale of own shares - - - -Other financing inflows - - (20 599) -Financing activity outflows - (1 088 688) (527 336) (1 380 130)Repayments of loans and advances from other banks - - - -Repayments of other loans and advances - - - -Redemption of debt securities - (22 479) (525 066) (630 312)Decrease of subordinated liabilities - - - -Other financial liabilities - - - -Payments of financial lease liabilities - - - -Dividends and other payments to shareholders - (1 065 483) - (747 548)Other than payments to shareholders expenditures - - - -due to appropriation of profitPurchase of own shares - - - -Other financing outflows - (726) (2 270) (2 270)Net cash from financing activities 2 (1 088 684) (522 845) (1 214 354) D. Total net cash flow (A.III+/-B.III+/-C.III) (1 403 064) (197 566) (1 961 730) (771 476)E. Net change in cash and cash equivalents (1 403 064) (197 566) (1 961 730) (771 476)F. Cash and casch equivalents at the beginning of 8 481 924 7 276 426 9 238 156 8 047 902the periodG. Cash and casch equivalents at the end of the 7 078 860 7 078 860 7 276 426 7 276 426period (F+/- D) QUARTERLY INDIVIDUAL FINANCIAL REPORT IV Quarter IV Quarters IV Quarter IV Quarters (current year) cumulative (previous year) cumulative (current year) (previous year) INCOME STATEMENT (in PLN ths.) period from period from period from period from 05-10-01 to 05-01-01 to 04-10-01 to 04-01-01 to 05-12-31 05-12-31 04-12-31 04-12-31 I. Interest income 932 182 3 814 563 992 017 3 705 863II. Interest expense (357 313) (1 563 907) (460 375) (1 591 139)III. Net interest income 574 869 2 250 656 531 642 2 114 724IV. Fee and commission income 418 600 1 513 310 393 804 1 512 065V. Fee and commission expense (44 724) (154 615) (36 643) (142 227)VI. Net fee and commission income 373 876 1 358 695 357 161 1 369 838VII. Dividend income (1) 96 746 - 41 081VIII. Result on financial instruments at fair value 9 403 64 871 29 049 46 645IX. Result on investment securities 4 433 74 153 6 252 13 569X. Foreign exchange result 54 176 263 026 59 872 284 094XI. Other operating income 36 168 104 459 40 244 129 976XII. Other operating expenses (16 113) (70 857) 4 476 (80 547)XIII. Net other operating income 20 055 33 602 44 720 49 429XIV. Impairment losses on financial assets and (49 034) (234 267) (107 587) (340 172)provisions for guarantees and commitmentsXV. Overhead costs (555 080) (2 165 330) (550 500) (2 152 088)XVI. Operating profit 432 697 1 742 152 370 609 1 427 120XVII. Profit before income tax 432 697 1 742 152 370 609 1 427 120XVIII. Income tax expense (74 472) (302 736) (82 660) (190 208)XIX. Net profit (loss) 358 225 1 439 416 287 949 1 236 912 as at as atBALANCE SHEET (in PLN ths.) 31 Dec 2005 31 Dec 2004 AssetsI. Cash and amounts due from Central Bank 3 573 613 3 935 112II. Debt securities eligible for rediscounting at the Central 6 106 8 768BankIII. Amounts due from banks 7 000 770 5 956 598IV. Financial assets held for trading 2 217 887 2 939 203V. Derivative financial instruments 499 290 503 481VI. Other financial instruments at fair value through profit or 1 781 317 1 336 721lossVII. Loans and advances to customers 28 727 143 26 533 709VIII. Investment securities 14 490 374 15 028 457 1. Available for sale 11 902 500 10 098 484 2. Held to maturity 2 587 874 4 929 973IX. Shares in subsidiares 550 096 544 801X. Shares in joint-ventures - -XI. Shares in associates 42 234 28 690XII. Intangible assets 636 048 617 982XIII. Tangible fixed assets 1 422 767 1 520 209XIV. Investment property 60 012 48 556XV. Income taxes 152 008 66 966 1. Current tax assets - 11 009 2. Deferred income tax assets 152 008 55 957XVI. Other assets 285 547 463 194Total assets 61 445 212 59 532 447 LiabilitiesI. Amounts due to the Central Bank 1 950 710 2 151 743II. Amounts due to other banks 1 993 601 1 350 796III. Financial liabilities held for trading 545 930 438 219IV. Derivative financial instruments 607 689 623 683V. Other financial liabilities at fair value through profit or - -lossVI. Amounts due to customers 46 849 748 45 860 364VII. Debt securities in issue 17 23 205VIII. Other liabilities 1 191 819 844 266IX. Current income tax liabilities 4 427 -X. Provisions for deferred income tax - -XI. Provisions 105 013 344 075Total liabilities 53 248 954 51 636 351 EquityXII. Share capital 166 482 166 482XIII. Retained earnings 67 363 365 912XIV. Other capital and reserves 7 962 413 7 363 702T o t a l e q u i t y 8 196 258 7 896 096T o t a l e q u i t y a n d l i a b i l i t i e s 61 445 212 59 532 447 Capital adequacy ratio 17,95 20,65 STATEMENT OF CHANGES IV Quarters IV Quarters IN SHAREHOLDERS' EQUITY cumulative cumulative period from period from (in PLN ths.) 05-01-01 to 04-01-01 to 05-12-31 04-12-31 I. Shareholders equity at the beginning of the 7 896 096 7 250 712perioda) adjustment related to IFRS/IAS introduction (192 460) -b) adjustment due to fundamental errors - -I.. Adjusted shareholders equity at the beginning 7 703 636 7 250 712of the period1. Share capital at the beginning of the period 166 482 166 122a) Increase - 360 - new shares issue - 360b) Decrease - - - redemptions - -1.2. Share capital at the end of the period 166 482 166 4822. Retained earnings (loss) from previous years at the beginning of the 1 602 824 1 285 727perioda) adjustment related to IFRS/IAS introduction (192 460) -2. Adjusted retained earnings (loss) from previous years at the beginning 1 410 364 1 285 727of the perioda) Increase - - - adjustment related to IFRS/IAS introduction - - - others - -b) Decrease (1 343 001) (919 815) - appropriation to general banking risk fund - (172 267) - appropriation to reserve capital (277 518) - - appropriation from earnings to reserve capital - - - dividends (1 065 483) (747 548) - other - -2. Retained earnings (loss) at the end of the 67 363 365 912period3. Other capital at the beginning of the period 6 126 790 5 798 863 - adjustment related to IFRS/IAS introduction - -3.Adjusted other capital at the beginning of the 6 126 790 5 798 863perioda) Increase 396 693 328 848 - appropriation of net profit 277 518 172 267 - share premium on issue of new shares - 23 137 - valuation of securities available for sale 107 282 127 252(net) - foreign exchange differences on branches - 1 369abroad - employee share option proceeds 11 893 4 800 - release of provisions for restructuring fund - 23 - other - -b) Decrease (486) (921) - foreign exchange differences on branches (486) -abroad - foreign exchange differences on valuation of foreign branches for the - (921)previous years3. Other capital at the end of the period 6 522 997 6 126 7904. Net profit 1 439 416 1 236 912II. Shareholders' ecquity at the end of the period 8 196 258 7 896 096 CASH FLOW IV Quarter IV Quarters IV Quarter IV Quarters (current cumulative (previous cumulative year) (current year) year) (previous year) STATEMENT (in PLN ths.) period from period from period from period from 05-10-01 to 05-01-01 to 04-10-01 to 04-01-01 to 05-12-31 05-12-31 04-12-31 04-12-31 A. Cash flow from operating activities - indirectmethod I. Net profit (loss) 358 225 1 439 416 287 949 1 236 912Adjustments: (1 325 550) (1 511 954) (3 773 192) (4 430 720)Deprecition 73 892 298 575 76 695 298 685Foreign exchange differences 23 293 (125 087) 427 677 578 021(Profit) loss on investing activities (11 498) (81 686) (7 669) (15 591)Impariment 1 426 8 056 41 751 16 158Interest and dividend (204 365) (963 612) (245 126) (950 836)Change in loans and advances to banks (214 804) (270 685) 394 473 180 634Change in financial assets as held for trading and 396 603 276 720 (749 663) (1 656 226)other financial instruments at fair value throughprofit or lossChange in derivative financial instruments 84 751 4 191 (118 491) (248 188)Change in loans and advances to customers (1 475 199) (2 661 255) (215 620) (1 219 932)Change in investment securities available for sale (3 638) (3 638) (34 868) (34 868)Change in deferred income tax assets 26 039 (78 897) 19 393 (39 944)Change in other assets 338 720 183 227 145 433 466 142Change in amounts due to banks (1 294 632) 441 772 (1 426 154) (706 546)Change in liabilities as held for trading 12 453 107 711 22 894 438 219Change in derivative financial instruments and other (88 685) (15 994) 200 318 184 451financial liabilitiy at fair value through profit orlossChange in amounts due to customers 1 326 295 989 384 (1 699 590) (1 408 654)Change in debt securities in issue - - - -Change in provisions 14 646 9 392 16 016 (33 215)Change in other liabilities (301 985) 348 028 (596 797) (330 626)Income tax paid (83 928) (377 430) (104 678) (197 674)Carrent tax 55 066 399 274 80 814 249 270Adjustments on equity due to IFRS - - - -Net cash from operating activities (967 325) (72 538) (3 485 243) (3 193 808) B.Cash flows from investing activitiesInvesting activity inflows 25 350 103 51 115 931 5 660 150 24 032 025Sale of shares in associates 3 400 3 400 46 107 93 107Sale of shares in subsidiaries, net of cash disposed - - - -Sale of investment securities 25 107 006 50 447 356 5 361 005 23 319 405Proceeds from sale of intangible assets and tangible 8 360 11 300 2 039 5 300fixed assetsOther investing inflows 231 337 653 875 250 999 614 213Investing activity outflows (25 634 681) (49 542 734) (4 112 028) (20 561 287)Purchase of associates (5 307) (30 307) (61 702) (61 851)Purchase of subsidiaries, net of cash acquired - - - -Purchase of investment securities (25 546 563) (49 268 354) (3 985 559) (20 260 963)Purchase of intangible assets and tangible fixed (82 811) (244 073) (62 847) (236 525)assetsOther investing outflows - - (1 920) (1 948)Net cash used in investing activities (284 578) 1 573 197 1 548 122 3 470 738 C. Cash flows from financing activitiesFinancing activity inflows - 17 (10 087) 45 976Proceeds from loans and advances from other banks - - - -Proceeds from other loans and advances - - - -Issue of debt securities - 17 22 479 22 479Increase of subordinated liabilities - - - -Issue of ordinary shares - - - 23 497Sale of own shares - - - -Other financing inflows - - (32 566) -Financing activity outflows - (1 088 688) (512 758) (1 260 306)Repayments of loans and advances from other banks - - - -Repayments of other loans and advances - - - -Redemption of debt securities - (22 479) (510 512) (510 512)Decrease of subordinated liabilities - - - -Other financial liabilities - - - -Payments of financial lease liabilities - - - -Dividends and other payments to shareholders - (1 065 483) - (747 548)Other than payments to shareholders expenditures due - - - -to appropriation of profitPurchase of own shares - - - -Other financing outflows - (726) (2 246) (2 246)Net cash from financing activities - (1 088 671) (522 845) (1 214 330) D. Total net cash flow (A.III+/-B.III+/-C.III) (1 251 903) 411 988 (2 459 966) (937 400)E. Net change in cash and cash equivalents (1 251 903) 411 988 (2 459 966) (937 400)F. Cash and casch equivalents at the beginning of the 8 440 700 6 776 809 9 236 775 7 714 209periodG. Cash and casch equivalents at the end of the 7 188 797 7 188 797 6 776 809 6 776 809period (F+/- D) Selected financial statements translated into EUR: in PLN ths. in EUR ths. SELECTED FINANCIAL DATA IV Quarters IV Quarters IV Quarters IV Quarters IV Quarters IV Quarters cumulative cumulative cumulative cumulative cumulative cumulative from 1 Jan from 1 Jan from 1 Jan from 1 Jan from 1 Jan from 1 Jan 2005 2004 2004 2005 2004 2004 to 31 to 31 to 31 to 31 to 31 to 31 Dec 2005 Dec 2004 Dec 2004 PRO Dec 2005 Dec 2004 Dec 2004 PRO FORMA FORMA I. Net interest income 2 350 424 2 214 844 2 170 053 584 203 490 205 480 291II. Net fee and commission 1 586 984 1 556 522 1 481 450 394 448 344 500 327 885incomeIII. Operating profit 1 829 422 1 491 306 1 409 864 454 707 330 067 312 041IV. Profit before income tax 1 873 599 1 527 463 1 446 021 465 687 338 069 320 044V. Net profit (loss) 1 534 852 1 314 458 1 248 927 381 491 290 925 276 421VI. Net profit (loss) 1 537 712 1 317 991 1 252 460 382 202 291 707 277 203attributable to equityholders of the CompanyVII. Net profit (loss) (2 860) (3 533) (3 533) (711) (782) (782)attributable to minorityinterestVIII. Net cash from operating (603 650) (2 895 886) x (150 039) (640 938) xactivitiesIX. Net cash used in 1 494 768 3 338 764 x 371 528 738 959 xinvesting activitiesX. Net cash from financing (1 088 684) (1 214 354) x (270 595) (268 769) xactivitiesXI. Net increase / decrease (197 566) (771 476) x (49 105) (170 749) xin cash and cash equivalentsXII. Total assets 61 971 956 59 977 347 59 536 433 16 055 743 14 703 934 14 595 840XIII. Amounts due to the 1 950 710 2 151 743 2 151 743 505 391 527 517 527 517Central BankXIV. Amounts due to other 1 997 045 1 332 557 1 332 557 517 396 326 687 326 687banksXV. Amounts due to customers 46 847 877 45 821 645 45 821 645 12 137 385 11 233 549 11 233 549XVI. Minority interest 15 436 18 776 18 776 3 999 4 603 4 603XVII. Equity attributable to 8 407 290 8 004 705 7 812 245 2 178 167 1 962 418 1 915 235the Company's equity holdersXVIII. Share capital 166 482 166 482 166 482 43 132 40 814 40 814XIX. Number of shares 166 481 687 166 481 687 166 481 687 166 481 687 166 481 687 166 481 687XX. Book value per share ( in 50,50 48,08 13,08 11,79PLN / EUR per share)XXI. Diluted book value per 50,48 48,08 13,08 11,79share (in PLN/EUR per share)XXII. Capital adequacy ratio 19,47 21,71 x x x xXXIII. Earnings per 1 9,24 7,93 x 2,30 1,76ordinary share (in PLN / EURper share)XXIV. Diluted earnings per 1 9,23 7,93 x 2,29 1,76ordinary share (in PLN / EURper share)XXV. Declared or paid 6,40 4,50 1,42 1,01dividend per share (in PLN /EUR per share) 5 Impact of changes in accounting principles on consolidated statements As at 31 December 2004 in PLN ths. Net equity according to PAS 7 903 625Adjustments:1/ subsidiary shares valuation (12 518)2/ total recognized sell-bay-back and buy sell-back (501)3/ change in fixed assets 144 3414/ change in consolidation rules 3 5295/ accrued fees adjustment (15 819)6/ valuation of investment property (1 338)7/ adjustment of deferred tax (16 614)total adjustments 101 080Net equity according to IAS 8 004 705 As at 01 January 2005 Net equity according to PAS 7 903 625Adjustments:1/ subsidiary shares valuation (12 518)2/ previous results from loans provisions adjustment (222 030)3/ total recognized sell-bay-back and buy sell-back (501)4/ change in fixed assets 144 3415/ change in consolidation rules 3 5296/ accrued fees adjustment (15 819)7/ valuation of investment property (1 338)8/ adjustment of deferred tax 12 956total adjustments (91 380)Net equity according to IAS 7 812 245 Net result disclosed for the year 2004 1 343 001 Adjustments: (25 010) 1/ inclusion of share based payments according to IFRS 2 (4 800)2/ recognition of adjustments related to financial assets and liabilities due to (689)sell-buy-back and buy-sell-back transactions.3/ adjustment to due to the revaluation of some fixed assets and property rights (3 913)4/ adjustment due to amortisation of fees and commissions over time (15 819)5/ adjustments related to the revaluation of equity investments (17 329)6/ deferred tax correction related to the introduction of IFRS 17 540 Net result after transition to IFRS/* 1 317 991 (*) Without changes due to amortized cost measurement of loans and advences using EIR and without changes relating to impairment of loans and advences 6 Notes to the financial statements 6.1 The Group Bank Pekao S.A. Capital Group at day 31.12.2005 consists of Bank Pekao S.A. asthe parent entity and 16 subsidiaries. In the fourth quarter of 2005 there wereno changes in the structure of the Group in comparison to the structurepresented in the 3rd quarter of 2005. A number of associated companies reported in consolidated financial statementsunder equity method has changed as a result of sale of shares in associatedcompany "Grupa Inwestycyjna NYWIG S.A." in the fourth quarter of 2005. The following entities are included in the consolidated financial report at31.12.2005: No Name of company Core activity % of Status Consolidation shareholder's method share capital 1. Bank Pekao S.A. banking - parent - 2. Bank Pekao (Ukraina) Ltd. banking 100.00 subsidiary full 3. Centralny Dom Maklerski brokerage 100.00 subsidiary full Pekao S.A. 4. Pekao Fundusz Kapitalowy Sp. financial 100.00 subsidiary full z 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 full 10. Pekao Financial Services Sp. financial 100.00 subsidiary full z o.o. 11. Pekao Development Sp. z o.o. real estate 100.00 subsidiary full management 12. Pekao Access Sp. z o.o. consulting 55.26 subsidiary full 13. BDK Consulting Sp. z o.o. consulting, 99.99 subsidiary full hotels, transportation The companies listed below were not consolidated, due to the insignificant size of their operations incomparison to the size of the operations of the whole Group. Companies that were not consolidated, in theconsolidated financial statements are recognized at the cost of purchase established on 01.01.2004 14. Fabryka Maszyn manufacturing of 86.68 subsidiary non-consolidated w Janowie Lubelskim Sp. z o.o. spare parts to building machinery 15. Pekao Immobilier s.a.r.l. real estate 100.00 subsidiary non-consolidated management 16. Nowe Ogrody Sp. z o. o. real estate 98.00 subsidiary non-consolidated managament and sale Other listed below exposures of the Group constitute investments in the associated entities and are recognizedin the consolidated report of the Group using the equity method. Companies that were not revalued, wererecognized in the consolidated financial report at cost established on 01.01.2004. Companies were not revalueddue to the immateriality of the financial results of these companies. 1. Anica System S.A. IT 33.84 / 13.49 co-subsidiary equity 2. Central Poland Fund LLC financial 53.19 subsidiary equity intermediary 3. Xelion. Doradcy Finansowi Sp. auxiliary, 50.00 subsidiary equity z o.o. financial and insurance 4. Pioneer Pekao Investment financial 49.00 subsidiary equity Management S.A. intermediary 5. Krajowa Izba Rozliczeniowa S.A. chamber of 22.96 subsidiary equity settlement 6. Hotel Jan III Sobieski Sp. hotel 37.50 subsidiary equity z o.o. 7. Fabryka Sprzetu Okretowego manufacturing of 23.81 subsidiary equity "Meblomor" S.A. ship equipment 8. CPF Management mutual funds 40.00 subsidiary not valuated under equity management-dose not method operate 9. Pracownicze Towarzystwo management of 39.56 subsidiary not valuated under equity Emerytalne "Nowy Swiat" S.A. employee pension method fund 6.2 Achievements of Bank Pekao S.A. Commercial activity The Group's good performance in 2005 was primarily the result of a furtherdevelopment in its business activity. The key success factor was the increasedsales efficiency, particularly in the areas of consumer loans, PLN mortgageloans and mutual funds. Sales of the "Express Loan" in 2005 were more than four times higher than in theprevious year reaching PLN 1,692.5 million. In 2005, the sales of PLN mortgage loans amounted to PLN 1,668.2 millioncontributing to a growth in the stock of 21.6%. The Bank continued its policy ofselling mortgage loans in PLN only. The Pekao Group confirmed its leading position in the mutual funds market -total assets of mutual funds reached the level of PLN 19.2 billion as at the endof 2005 with market share amounting 31.4%. Thanks to continued activities aimedat tailoring the Bank's offer to the needs of its clients, the sales of mutualfunds were very satisfactory again. The assets of the mutual funds sold in theGroup's network increased by 51.9% compared with the end of 2004 and amounted toPLN 18.0 billion as at the end of 2005. The results of the market activities in 2005 include: 31.12.2005 31.12. 2004 Change Total number of PLN current accounts 3,019.2 3,038.2 (19.0)(in thousand) * of which packages 2,176.9 2,149.6 27.3Number of mutual fund registers (in 665.3 434.9 230.4thousand)Payment cards (in thousand)** 2,673.8 2,582.5 91.3 Credit 146.4 71.6 74.8 Charge 269.2 294.0 (24.8) Debit (including Maestro) 2,258.2 2,216.9 41.3Total number of outlets (in items) 778 782 (4)Total number of ATMs (in items) 1,244 1,211 33 * Number of accounts including accounts of pre-paid cards ** The number of cards is calculated according to the definition used byinternational payment organizations Visa and MasterCard 6.3 Achievements of subsidiaries 6.3.1 Pioneer Pekao TFI S.A. As at the end of 2005, the net asset value of Pioneer Pekao TFI S.A., a companymanaged by Pioneer Pekao Investment Management S.A. (in which the Bank holds a49% share), amounted to PLN 19,237.5 million and was higher by PLN 6,235.2million compared with the end of 2004. As at 31 December 2005, the Company had805.5 thousand open accounts (an increase by 41.3% during 2005). The net asset value of Pioneer Pekao TFI S.A. mutual funds is presented in thetable below: (PLN million) 31.12.2005 31.12.2004 ChangeNet assets value of Pioneer Pekao TFI 19,237.5 13,002.3 6,235.2- bond and money market funds 9,351.9 6,353.5 2,998.4- equity funds 1,586.5 1,074.8 511.7- balanced funds 8,299.1 5,574.0 2,725.1 As at 31 December 2005 the net value of Pioneer Pekao TFI S.A. assets acquiredthrough Bank Pekao S.A., CDM Pekao S.A. (the Central Brokerage House of PekaoS.A.) and Xelion. Doradcy Finansowi Sp. z o.o. amounted to PLN 18,009.2 million(93.6% of total assets), compared with PLN 11,857.2 million at the end of 2004(91.2%). 6.3.2 Centralny Dom Maklerski Pekao S.A. (CDM) In 2005, CDM provided the full scope of services (permitted to brokeragehouses), excluding asset management. In 2005, the Company achieved: - a 31.4% share in the bond trading volume at the Warsaw Stock Exchange (35.6% in 2004); - a 12.7% share in the stock trading volume at the Warsaw Stock Exchange (13.9% in 2004); - a 9.1% share in the futures trading volume at the Warsaw Stock Exchange (8.7% in 2004). At the end of 2005, CDM maintained 141.1 thousand investment accounts and itsmarket share was 16.5%. CDM also offered on-line access to investment accounts,allowing its customers to buy and sell all instruments listed on the WarsawStock Exchange and on the OTC market (CeTO) through the Internet. As at the endof 2005, CDM maintained 19.5 thousand on-line accounts. 6.4 Results achieved in 2005 and the factors which influenced these results 6.4.1 Results of the Group In order to ensure that the data for 2005 and 2004 is comparable, previous yearprofit and loss account data was adjusted and is presented as pro forma data inthis paragraph. In 2005, the net profit increased by 22.9% and amounted to PLN 1,534.9 million.2005 net profit was the best result achieved to date confirming continued growthin Group's profitability. In the fourth quarter alone the net profit of theGroup amounted to PLN 405.8 million. The increase in the net profit by PLN 286.0 million in 2005 compared with theprevious year was possible thanks to increased business activity whichtranslated into higher income, particularly interest income, stable operatingcosts and lower cost of risk. Apart from the good results of the Bank Pekao S.A., the results of the Group'scompanies, which were better than in the previous year, contributed to theimprovement in the overall Group result. The consolidated profit and loss account for 2005 in comparison with 2004 ispresented below: (PLN million) 2005 2004 Change pro forma Net interest income * 2,343.5 2,129.7 10.0%Fee and commission income 1,587.0 1,481.4 7.1%Dividend income 0.3 0.0 xResult on financial instruments at fair value 71.9 96.0 (25.1%)Result on investment securities 74.2 14.1 426.2%FX income 265.4 289.0 (8.2%)Other operating income / cost net 71.0 48.7 45.8%Total income 4,413.3 4,058.9 8.7%Overhead costs (including depreciation) (2,346.4) (2,333.4) 0.6% Personnel (1,203.0) (1,155.6) 4.1% Non-personnel (820.5) (856.1) (4.2%) Depreciation (322.9) (321.7) 0.4%Operating income 2,066.9 1,725.5 19.8%Impairment losses on loans and advances (237.5) (315.6) (24.7%)Share in net profit (loss) of the associates 44.2 36.1 22.4%Pre-tax profit 1,873.6 1,446.0 29.6%Tax charge (338.7) (197.1) 71.8%Net profit 1,534.9 1,248.9 22.9% Attributable to equity holders of the Company 1,537.7 1,252.5 22.8% Attributable to minority interest (2.9) (3.5) (17.1%) *Including income on SWAP transactions. The Group's income In 2005, the Group's income amounted to PLN 4,413.3 million and was by PLN 354.4million (8.7%) 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 factors included interest income as wellas fee and commission income. Interest income grew by 10.0 % mainly due to an increase in volumes and betterspreads resulting, among others, from an increase in the loan portfolio whichhad a positive effect on the asset structure. Fee and commission income increased by 7.1% mainly thanks to an increase inmutual fund business activity and lending, including "Express Loan" and PLNmortgage loans. The Group's overhead costs (including depreciation) Overhead costs (including depreciation) in 2005 remained under control andamounted to PLN 2,346.4 million, i.e. were only 0.6% higher compared with theprevious year. In 2005, the Group's cost / income ratio amounted to 53.2% and was by 4.3 p.p.lower than in the previous year. As at the end of 2005, the Bank had 14,818 employees (a reduction of 473employees compared with the end of 2004), and the Group had 15,937 employees (areduction of 471 employees). Impairment losses on loans and advances In 2005, impairment losses on loans and advances amounted to PLN 237.5 millionand were by 24.7% lower than in the previous year. This resulted primarily fromthe effective credit risk management and improved macroeconomic situation. Theratio of non-performing loans to total loans decreased from 19.9% at the end of2004 to 16.2% at the end of 2005 as a result of an increase in the volume ofperforming loans and a simultaneous decrease in the volume of non-performingloans. Loans In 2005, the gross loans portfolio grew by PLN 3,581.3 million, i.e. by 12.1%(in terms of a nominal exposure). This growth was due to: - the growth in the volume of corporate loans of PLN 2,181.2 million (by 9.5%); - the growth in the volume of retail loans of PLN 1,400.1 million (by 20.7%). (PLN million) 31.12.2005 31.12.2004*Gross loans (principal) 33,235.2 29,653.9 corporate (principal) 25,058.2 22,877.0 retail ** (principal) 8,177.0 6,776.9 * Information adjusted compared to the published previously to assure comparability due to the extension of consolidation. ** The item includes retail loans in Bank Pekao S.A. Savings Savings of the Group's clients increased by PLN 8,761.4 million i.e. by 15.5% in2005 resulting from both an increase in the savings of individual clients and incorporate deposits. The savings of retail clients increased by PLN 3,969.7 million in 2005. Highdemand for mutual funds allowed for further increase in mutual funds assets byPLN 6,235.2 million in 2005 bringing the total retail savings above the PLN 45billion level confirming Group's significant market share. Corporate deposits increased by PLN 4,791.7 million in 2005. (PLN milllion) 31.12.2005 31.12.2004Deposits (principal) 46,013.7 43,465.0 corporate (principal) 20,119.6 15,327.9 retail (principal) 25,894.1 28,137.1Bank's bonds (principal) 0.0 22.5Pioneer Pekao TFI mutual funds 19,237.5 13,002.3 incl. sold in the Group's network 18,009.2 11,857.2Total savings 65,251.2 56,489.8 incl. retail 45,131.6 41,161.9 6.4.2 The structure of the net profit The structure of the net profit of the Group is shown in the following table: (PLN million) 2005 2004 pro formaNet profit of Bank Pekao S.A. 1,439.4 1,171.4Net profit (loss) of entities consolidated under full method 157.7 114.2Centralny Dom Maklerski Pekao S.A. 92.5 77.7Pekao Development Sp. z o.o. 30.2 7.6Pekao Financial Services Sp. z o.o. 13.1 8.8Pekao Faktoring Sp. z o.o. 9.6 6.6Pekao Pioneer PTE S.A. 8.1 5.6Pekao Leasing Sp. z o.o 0.8 1.2Centrum Kart S.A. 2.6 0.9Drukbank Sp. z o.o. 0.5 (1.7)Pekao Fundusz Kapitalowy Sp. z o.o.* (0.4) (0.2)Pekao Access Sp. z o.o. 0.5 0.9Bank Pekao (Ukraina) Ltd. in Luck 0.2 (1.5)Pekao Uslugi Korporacyjne S.A. - 8.3Net profit (loss) of entities valued under equity method 43.2 37.1Pioneer Pekao Investment Management S.A. 51.9 36.5Krajowa Izba Rozliczeniowa S.A. 6.7 7.2Grupa Inwestycyjna Nywig S.A. 0.0 0.1Central Poland Fund LLC (4.0) 0.9Xelion. Doradcy Finansowi Sp. z o.o. (11.4) (11.1)Trinity Management Sp. z o.o. - 6.3NFI Jupiter S.A. - (2.8)Exclusions and consolidation adjustments** (105.4) (73.8)Net profit of the Group 1,534.9 1,248.9 * The result of the company includes the valuation of associates based on equitymethod ** Include transactions within the Group, including dividends from subsidiariesand associates. The results of Bank Pekao S.A. Net profit of the Bank in 2005 amounted to PLN 1,439.4 million and was higher by22.9% than in the previous year. The main items from the profit and loss account of the Bank in 2005 incomparison with 2004 pro forma are as follows: (PLN million) 2005 2004 Change pro formaNet interest income* 2,243.7 2,029.6 10.5%Non-interest income 1,898.0 1,769.9 7.2%Total income 4,141.7 3,799.5 9.0%Overhead costs (including depreciation) (2,165.4) (2,152.1) 0.6%Operating income 1,976.4 1,647.4 20.0%Impairment losses on loans and advances (234.3) (301.7) (22.3%)Pre-tax profit 1,742.1 1,344.9 29.5%Net profit 1,439.4 1,171.4 22.9%Cost / Income ratio 52.3% 56.6% (4.5 p.p.) * Including income on SWAP operations. The main items of the Bank's balance sheet at the end of 2005 in comparison withthe end of 2004 are as follows: 31.12.2005 31.12.2004 ChangeTotal gross loans (principal) in PLN million* 32,748.7 29,284.4 3,464.3Non-performing loans to total loans in %** 15.5 18.7 (3.2 p.p.)Total deposits + own bonds (principal) in PLN million* 46,013.7 43,688.0 2,325.7Total assets in PLN mil. 61,445.2 59,532.4 1,912.8Mutual funds sold in Bank's network in PLN million 15,539.0 10,208.7 5,330.3Capital adequacy ratio in % 18.0 20.7 (2.7 p.p.) * the nominal value **according to the comparable methodology 6.5 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 2005: (PLN million) Retail banking Corporate Treasury and Total area banking area Investment banking areaInterest income 1,387.8 409.2 553.5 2,350.5Non-interest income 1,502.6 415.0 145.2 2,062.8Total income 2,890.4 824.2 698.7 4,413.3 6.6 Adjustments for provisions, deferred tax provisions and assets (PLN million) Group Bank Pekao S.A. 31.12.2005 31.12.2004 31.12.2005 31.12.2004 pro forma pro formaTotal provisions 109.3 100.6 105.0 95.6 of which: provisions for off-balance sheet 20.3 16.3 20.3 16.3liabilities provisions for liabilities to 66.1 67.7 65.0 66.5employees other provisions 22.9 16.6 19.7 12.8Provision for deferred tax 6.0 1.2 0.0 0.0Deferred tax assets 181.3 114.2 152.0 85.5 6.7 Write-offs for revaluation of assets (PLN million) Group Bank Pekao S.A. 2005 2004 2005 2004 pro forma pro formaTotal (237.5) (315.6) (234.3) (301.8) for loan receivables (237.3) (295.7) (224.7) (277.2) for off-balance sheet liabilities 0.2 (3.2) 0.2 17.7 for financial assets (0.4) (16.7) (9.8) (42.2) 6.8 Information on contingent assets and liabilities CONSOLIDATED OFF-BALANCE SHEET ITEMS (in PLN ths.) 31.12.2005 31.12.2004I. Contingent liabilities granted and received 15 626 063 15 754 946 1. Liabilities granted: 12 035 645 11 461 112 a) financial 10 621 550 10 518 643 b) guarantees 1 414 095 942 469 2. Liabilities received: 3 590 418 4 293 834 a) financial 457 353 779 858 b) guarantees 3 133 065 3 513 976II. Financial derivatives 65 182 224 39 995 723 a) currency transactions 25 795 810 16 870 592 b) Interest rate transactions 38 548 574 22 379 833 c) securities transactions 837 840 745 298III. Other 6 615 255 8 339 224TOTAL OFF-BALANCE SHEET ITEMS 87 423 542 64 089 893 6.9 Post balance sheet events Share capital increase of the Bank On 16 January 2006 share capital of the Bank was increased by the total amountof PLN 186,755 and on 6 February 2006 by PLN 5,169 as a result of issue of total191,924 series F ordinary bearer shares. The share capital of the Bank amountscurrently to PLN 166,673,611 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, - 191,924 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. Total number of votes at the Bank's General Shareholders Meeting under allissued shares is 166,673,611. The increase was conducted as a result ofregistration on buyers accounts of 191,924 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 on25 July 2003 on contingent increase of the statutory capital, exclusion of thepre-emptive rights on the series F and G shares of the Bank and amendment to theStatute of the Bank. 6.10 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. 6.11 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 25 July 2003 on the issue of registeredbonds under an incentive programme. Each Bond entitles to take up 1 ordinary bearer share of the Bank: - 1 A series bond entitles taking up 1 F series share; - 1 B series bond entitles taking up 1 F series share; - 1 C series bond entitles taking up 1 G series share; - 1 D series bond entitles taking up 1 G series share. The nominal value of one bond is PLN 0.01.The total value of the issued A, B, Cand D series bonds amounts to PLN 16,600. 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 seriesshares PLN 123.06. In current reports No. 3/2006 and 18/2006, the Management Board of the Bankinformed of the acquisition by the Bank of 88,430 registered series A bonds fromPekao Faktoring Sp. z o.o., for the purpose of redemption, and the total of191,924 series A bonds from eligible persons, upon the request thereof for earlyredemption, pursuant to the implementation of the right of first refusal totake-up the Bank's shares ensuing from the bonds, for the purpose of redemptionthereof. The period of acquisition of series A bonds from the Trustee by eligible personslasted from 6 May until 30 December 2005. Bonds of the other series will be available for purchase from the Trustee by theeligible persons in the following periods: - B series bonds in the period from the 31st day after the date of the GeneralShareholders' Meeting, approving financial statements for the financial year2005 until 30 December 2006. - C series bonds in the period from the 31st day after the date of the GeneralShareholders' Meeting, approving financial statements for the financial year2006 until 30 December 2007. - D series bonds in the period from the 31st day after the date of the GeneralShareholders' Meeting, approving financial statements for the financial year2007 until 30 December 2008. All Bonds which are not sold off by the Trustee by 30 December 2006, 2007 and2008 respectively shall be acquired by the Bank on 31 December 2006, 2007 and2008 respectively to be redeemed 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 A series bonds - from 1 January 2006 to 31 December 2010; - in respect of B series bonds - from 1 January 2007 to 31 December 2010; - in respect of C series bonds - from 1 January 2008 to 31 December 2012; - in respect of D series bonds - from 1 January 2009 to 31 December 2012. 6.12 Dividend paid Pursuant to Resolution No. 8 of the General Meeting of Bank Pekao S.A., PLN1,065,482,796.80 of the Bank's profit for 2004 was appropriated for the paymentof dividend (PLN 6.40 per one share). The ex-dividend date was determined at 13May 2005 and the date of dividend payment at 1 June 2005. All the Bank's sharesare ordinary shares. 6.13 Effects of changes in the Group's structure In 2005 there were no significant changes in the Group's structure. 6.14 The position of the Management Board regarding the possibility ofachieving previously published forecasts The Bank has not published the forecast of financial results for 2005. 6.15 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 and Share in share capital # of shares and Share in share capital votes at the and total number of votes at the and total number of votes General Meeting votes at the General General Meeting at the General Meeting in Meeting in % % 31 December 2005 31 December 2004UniCredito Italiano 88,121,725 52.93% 88,121,725 52.93%S.p.A.Other shareholders 78,359,962 47.07% 78,359,962 47.07%Total 166,481,687 100.00% 166,481,687 100.00% On 16 January 2006 share capital of the Bank was increased by the total amountof PLN 186,755 and on 6 February 2006 by PLN 5,169 as a result of issue of191,924 series F ordinary bearer shares. The share capital of the Bank amountscurrently to PLN 166,673,611. The share of UniCredito Italiano S.p.A. in theshare capital and the total number of votes at the General Meeting amounts to52.87% while the share of other shareholders stands for 47.13% According to the information known by the Bank, as at the date of submittingthis report no significant changes were made in the shareholding structure. 6.16 The Issuer's shares held by the Management and Supervisory Board members According to the Bank's knowledge, as at the date of submitting this report themembers of the Bank's management and supervisory bodies held 10,000 shares ofBank Pekao S.A. All these shares were held by members of the Bank's management. The number of the Bank's shares held by the members of the management andsupervisory bodies has not changed since the date of submitting the previousquarterly report. An incentive programme in the form of management options is in force in the BankPekao S.A. Group. The programme covers the Management Board, other management,key employees implementing the Bank's strategy and selected employees of thesubsidiaries. As at the date of submitting this report, 41 people participate in the incentiveprogramme for the year 2003. The total number of shares offered under thisprogramme was 461,202, of which 253,271 shares will be offered to themanagement. The incentive programme for the year 2004 has 46 participants and the totalnumber of shares offered is 717,662, of which 391,348 shares will be offered tothe management. The change in the number of shares in the incentive programme for 2003 resultsfrom execution of pre-emptive right to acquire the Bank's shares that resultsfrom the bonds. As a result of this execution 34 persons acquired totally191,924 shares. The Bank was also informed that 23 persons participating in theprogramme sold 99,602 shares. 6.17 Pending litigations In the fourth quarter of 2005 the number of the legal proceedings in courts,appropriate bodies of arbitration or public administration bodies, concerningthe liabilities of the Group was 445. The total value of them was PLN 769.2million. The number of legal proceedings concerning the receivables was 3,152 attotal value of PLN 923.4 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 23, 1998. - The action in the course of proceedings brought by Pekao Leasing Sp.z o.o. against Salomon Industries S.A. The value of the subject of litigationamounts to PLN 67.4 million. The proceedings were instituted on December 15,2003. - The action in the course of proceedings brought by Pekao Leasing Sp.z o.o. against Royal Grant S.A. The value of the subject of litigation amountsto PLN 53.5 million. The proceedings were instituted on December 15, 2003. 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 2005, as well as all the proceedings together do not createany threat to financial liquidity of the Bank. 6.18 Transactions of related entities In 2005, 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. 6.19 Loan or credit sureties and guarantees given In 2005, 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. 6.20 Other transactions concluded in the fourth quarter of 2005 Registration of the share capital increase of Bank Pekao (Ukraina) Ltd. Upon registration by the National Bank of Ukraine of the relevant amendments toBank Pekao (Ukraina) Ltd.'s Articles of Association regarding the increase inthe share capital of Bank Pekao (Ukraina) Ltd., the share capital was increasedfrom UAH 33.0 million to UAH 41.2 million. Bank Polska Kasa Opieki S.A. currently holds shares in Bank Pekao (Ukraina) Ltd.of a total value of UAH 34.2 million, which constitutes 82.84% of the sharecapital of Bank Pekao (Ukraina) Ltd. and gives the right to 82.84% of the votesat the General Shareholders' Meeting of Bank Pekao (Ukraina) Ltd. The remaining 17.6% of the shares in the share capital of Bank Pekao (Ukraina)Ltd. totalling UAH 7.1 million are held by Drukbank Sp. z o.o. (a wholly-ownedsubsidiary of Bank Polska Kasa Opieki S.A.) and give the right to 17.16% of thevotes at the General Shareholders' Meeting of Bank Pekao (Ukraina) Ltd. Conclusion of agreement between Bank Pekao S.A. and Grupa Inwestycyjna NYWIG SA On 30 December 2005, the share sale agreement was concluded concerning the saleof GI NYWIG S.A. shares to Grupa Inwestycyjna NYWIG SA, by virtue of which theBank sold to GI NYWIG SA 1,230 registered shares privileged as to the share individend and to the distribution of property upon the winding-up of the Company,with the par value of PLN 300 each, comprising 24.6% of the share capital of GINYWIG S.A. and carrying 24.6% of votes at the General Meeting of Shareholders ofGI NYWIG S.A. for the overall price of PLN 3.4 million. In result to the transaction referred to above, the Bank now holds no shares ofGI NYWIG S.A. 6.21 Assessment of the Bank's financial credibility As at 31 December of 2005, Bank Pekao S.A. had the following financialcredibility ratings: Fitch RatingsLong-term rating AShort-term rating F1Individual rating CSupport rating 1Prospective rating Stable Standard and Poor's*Long-term rating local currency A-Long-term rating foreign currency A-Short-term rating A-2Prospective rating 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 CProspective rating Stable 6.22 Factors which will affect the results of at least the next quarter The predominant part of the assets of Bank Pekao S.A. and its subsidiaries islocated on the territory of Poland. Therefore, the results of the Bank will beinfluenced by the economic events occurring in this country and the worldwideevents that influence the domestic economy. The Group results may be impacted by trends in PLN and USD interest rates.Additional impact may come from further development of economic situation inPoland, including the level of investments having an effect on the corporatecustomers loan demand, changes in the level of employment and salaries, whichwill impact the level of retail savings, improvement of customerscreditworthiness and demand for loans. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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