Interim Results

27th Feb 2008 09:55

Bank Pekao SA27 February 2008 BANK POLSKA KASA OPIEKI SPOLKA AKCYJNA Interim financial statements of the Bank Pekao S.A. Group for the fourth quarter of 2007 prepared according to the International Financial Reporting Standards Selected financial statements translated into EUR in PLN ths. in EUR ths. Position IV Quarters of IV Quarters of IV Quarters IV Quarters of 2007 2006 of 2007 2006 I. Net interest income 2 703 539 2 377 038 715 828 609 638 II. Net fee and commission income 2 209 535 1 899 235 585 028 487 096 III. Operating profit 2 481 083 2 112 953 656 927 541 908 IV. Profit before income tax 2 633 959 2 203 812 697 405 565 210 V. Net profit (loss) 2 164 481 1 789 697 573 099 459 003 VI. Net profit (loss) attributable to equity 2 157 482 1 787 506 571 246 458 441 holders of the Company VII. Net profit (loss) attributable to minority 6 999 2 191 1 853 562 interest VIII. Net cash from operating activities 8 204 691 2 323 710 2 172 392 595 961 IX. Net cash used in investing activities (4 620 657) 1 844 235 (1 223 432) 472 990 X. Net cash from financing activities 4 257 987 (1 201 829) 1 127 406 (308 232) XI. Net increase / decrease in cash and cash 7 842 021 2 966 116 2 076 367 760 718 equivalents XII. Total assets 123 802 029 67 703 688 34 562 264 17 671 666 XIII. Amounts due to the Central Bank 1 485 921 2 045 278 414 830 533 848 XIV. Amounts due to other banks 8 863 601 2 009 976 2 474 484 524 634 XV. Amounts due to customers 90 113 225 51 793 583 25 157 238 13 518 893 XVI. Minority interest 80 507 16 744 22 475 4 370 XVII. Equity attributable to the Company's equity 14 538 210 8 875 883 4 058 685 2 316 737 holdersXVIII. Share capital 261 867 166 808 73 106 43 539 XIX. Number of shares 261 866 657 166 808 257 261 866 657 166 808 257 XX. Book value per share (in PLN/EUR) 55,52 53,21 15,50 13,89 XXI. Diluted book value per share (in PLN/EUR) 55,48 53,17 15,49 13,88 XXII. Earnings per 1 ordinary share (in PLN/EUR) 12,28 10,72 3,25 2,75XXIII. Diluted earnings per 1 ordinary share (in 12,27 10,71 3,25 2,75 PLN/EUR) XXIV. Paid dividend per share (in PLN/EUR) 9,00 7,40 2,31 1,84 XXV. Capital adequacy ratio 11,63 16,51 x x XXVI. Risk weighted assets (*) 90 751 150 38 265 425 - 9 987 840XXVII. Core funds (Tier I) (*) 10 555 079 6 506 824 - 1 698 378XXVIII. Supplementary funds (Tier II) (*) - (15 141) - (3 952) (*) Data as at 31st December 2007 are disclosed in accordance with the Resolution 2/2007 KNB. In items I - VI is disclosed total profit from continuing and discontinued operations Summary PAGE 2 Accounting principles adopted in the preparation of the quarterly report...................... 5 3 Financial statements.......................................................................... 6 4 Additional information........................................................................ 14 4.1 Integration of Bank Pekao S.A. with separated part of Bank BPH S.A............................ 14 4.2 The Group..................................................................................... 15 4.3 Results achieved in 2007 and factors which influenced these results............................20 4.3.1 Results of the Group.......................................................................... 20 4.3.2 The structure of the net profit............................................................... 23 4.3.3 Achievements of Bank Pekao S.A................................................................ 25 4.3.4 Achievements of subsidiaries.................................................................. 26 4.4 Segment reporting............................................................................. 27 4.5 Adjustments for provisions, deferred tax provision and assets................................. 28 4.6 Write-offs for revaluation of assets.......................................................... 28 4.7 Information on contingent assets and liabilities.............................................. 29 4.8 Post balance sheet events..................................................................... 29 4.9 Seasonality or cyclical nature of the Bank's activity......................................... 30 4.10 Issuance, redemption and repayment of debt securities......................................... 30 4.11 Dividend paid................................................................................. 30 4.12 Effects of changes in the Group's structure................................................... 31 4.13 The position of the Management Board regarding the possibility of achieving previously published forecasts........................................................................... 31 4.14 The information about the shareholders owning at least 5% of the total number of votes at the General Meeting of Bank Pekao S.A...................................................... 31 4.15 The Issuer's shares held by the Management and Supervisory Board Members...................... 32 4.16 Pending litigations........................................................................... 32 4.17 Claims regarding the resolutions of the Bank's Shareholders Meetings.......................... 33 4.18 Assessment of the financial credibility of Bank Pekao S.A..................................... 34 4.19 Changes in the Management Board of the Bank................................................... 34 4.20 Transactions of related entities.............................................................. 35 4.21 Factors which will affect the results of at least the next quarter............................ 35 1 Summary Legal merger completed On 29th November 2007 the legal integration of Bank Pekao S.A. with the part ofBank BPH S.A. transferred as an organized part of enterprise was completed. Thenewly merged Bank Pekao S.A. has become the leading bank in Poland and thebiggest bank in Central and Eastern Europe in terms of market capitalization. Bank Pekao S.A. now provides services for around 5 million clients, includingover 250 thousand small and medium enterprises and over 15 thousand corporateclients, with a network of over 1,000 outlets and 3,000 ATMs in Poland withfurther free access to 13,000 ATMs Europe wide. Results for the 2007 year Bank Pekao S.A. Group is reporting a net profit attributable to equity holdersof PLN 2,157.5 million for the year ended 31st December 2007 and was 20.9%higher on a comparative basis* than in 2006. If we consider the net profitgenerated up to the spin-off date by the organized part of the enterprisetransferred to Bank Pekao S.A. (recognised through equity) the total net profitof Bank Pekao S.A. Group would have amounted to PLN 3,551 million. The increase in net profit was due to an increase in commercial activity whichtranslated into higher revenue, particularly fee and commission income andinterest income, with operating costs under control and a lower cost of risk. • In 2007, the Group's total income amounted to PLN 5,368.7 million,9.5% higher on a comparative basis* than in the previous year. The main growthdriver in this period was fee and commission income, which amounted PLN 2,166.6million and increased primarily due to commissions on investment products. Theestimated growth on a comparative basis* would have amounted to 12.7%. Anotherimportant factor influencing the total growth in income was net interest income.The estimated growth on a comparative basis* would have amounted to 7.9% mainlyas a result of increasing volumes offsetting the impact of a lower yield on theportfolio of debt securities. • In 2007, the Group noted a continued positive trend in the results ofits business activity, with successful sales of key products: mutual funds, PLNmortgage loans and consumer loans "Express Loan". The value of mutual fundsincreased by 23.4% compared with the end of 2006. Sales of PLN mortgage loans inthe network of former Bank Pekao S.A. was 30.8% higher than in 2006 contributingto a growth in the stock of 52.0% in 2007. The Bank continued its policy ofoffering PLN mortgage loans. The stock of "Express Loans" in 2007 in the formerBank Pekao S.A. network increased by 16.8% in 2007. • Total overhead costs (including depreciation) in 2007 amounted to PLN2,733.5 million, with an estimated growth on a comparative basis* amounting to5.2%. Overhead costs were kept under control, the increase was mainly due to thecosts of the integration (estimated costs of circa PLN 202.3 million) and alsoexpansion in the Ukrainian market. In 2007, the Group's cost / income ratioestimated excluding costs of integration amounted to 47.1% and on a comparativebasis* was an estimated 2.0 p.p. lower than in 2006. • In 2007, impairment losses on loans and advances amounted to PLN 177.3million and estimated on a comparative basis* were 25.9% lower than in theprevious year, benefiting from effective credit risk management and a positivemacroeconomic situation. At the end of 2007, the ratio of impaired receivablesto total receivables amounted to 7.8%, compared to 8.9% (estimated on acomparative basis*) at the end of 2006. • At the end of 2007, savings of the Group's clients (customer deposits,structured certificates of deposits and mutual funds) amounted to PLN 117,189.4million, of which savings of individual clients amounted to PLN 67,201.1 millionand corporate deposits amounted to PLN 49,988.3 million. Estimated growth insavings of the Group's clients (customer deposits and mutual funds) on acomparative basis* would have amounted to 6.0%. • The volumes of Group's loans as at the end of 2007 amounted to PLN73,845.2 million, of which corporate loans amounted to PLN 49,608.9 million andretail loans amounted to PLN 24,236.3 million. Estimated growth on a comparativebasis* would have amounted to 9.8%. The growth was driven by increase inmortgage loans, consumer loans and corporate loans. * Growth on a comparative basis estimated as described in paragraph 4.3 2 Accounting principles adopted in the preparation of the quarterly report Interim consolidated financial report of Bank Pekao S.A. Capital Group and theseparate financial report of Bank Pekao S.A. were prepared in accordance withthe International Financial Reporting Standards (IFRS), issued by InternationalAccounting Standards Council. Presented report fulfils the requirements of the International AccountingStandard IAS 34 related to the interim financial reporting and the Council ofMinisters' Ordinance of 19 October 2005 on current and periodical informationprovided by the securities' issuers. The consolidated financial report of the Group and enclosed financial report ofthe Bank were prepared with respect to the accounting principles applied forassets and liabilities valuation and calculation of the financial resultdescribed in the Mid-year consolidated financial report of Bank Pekao S.A.Capital Group for the 1st half of 2007 published on 18 September 2007.Additionally in 4th quarter 2007 Bank and the Group introduced the accountingstandards which comprised instruments hedging the future cash flows. The Group appoints some instruments as hedging instruments against future highlyprobable cash flows, provided that criteria specified in IAS 39 have beensatisfied. At the moment of having a hedge established, the Group formally selects anddocuments the hedging relationship, the aim of risk management and the hedgingstrategy. Developed documentation contains identification of the hedgeinstrument, hedged position, nature of the hedged risk and the method of currentassessment of effectiveness of the given hedge instrument. Introduction of the hedge accounting caused a change in the way the fair valuechanges related to derivative financial instruments were reflected on thefinancial statements. The way in which changes of the fair value are reflected depends on whether thegiven derivative instrument is included in the portfolio meant for trading ormeant for hedging. Changes in the valuation of the fair value of derivativefinancial instruments included in the trade portfolio are related to changingbalances of the income statement. Changes in the valuation of the fair value of derivative financial instrumentsincluded in the cash flow hedging portfolio are related to: - directly to the item called "revaluation reserve" in its partproviding the effective hedging, - the income statement (P&L account) in its part providing ineffectivehedging. Amounts included in the "revaluation reserve" are transferred to the incomestatement in the period in which the hedged position affects the incomestatement. The Group stops using the accounting principles for hedging instruments when thehedging instrument expires or is sold. In such a case total profits or lossesgained on the hedge instrument, first included in the "revaluation reserve", ifthe hedging was effective, are continued to be included in the capital - untilthe projected transaction gets performed and its result is transferred to theincome statement. If conclusion of the projected transaction is regarded as unlikely, totalprofits or losses included in the "revaluation reserve" are transferred to theincome statement for the given period. Apart from the above change, accounting principles adopted by the Bank and theGroup were not changed. Financial data presented in the report was prepared in a way enabling itscomparability, except for comparative data of the presented historical periodsrelated to the merger transaction of Bank Pekao S.A. with Bank BPH S.A.,effected through Bank BPH S.A. demerger and transfer of part of its propertyto Bank Pekao S.A in the form of an organised enterprise; and except for thedata of UniCredit Bank Ltd resulting from the merger of the latter withKomercyjny Bank HVB Ukraina S.A. (acquired by Bank Pekao S.A. in the 1st quarter2007). 3 Financial statements CONSOLIDATED INCOME STATEMENT IV Quarter 2007 4 Quarters 2007 IV Quarter 2006 4 Quarters 2006 (in '000 PLN) period period period period from from from from 07-10-01 07-01-01 06-10-01 06-01-01 to 07-12-31 to 07-12-31 to 06-12-31 to 06-12-31 Continuing operations Interest income 1 482 081 4 659 821 1 022 738 3 846 525Interest expense (634 401) (1 953 366) (380 670) (1 467 207)Net interest income 847 680 2 706 455 642 068 2 379 318Fee and commission income 653 271 2 476 559 576 926 2 072 909Fee and commission expense (96 930) (309 924) (67 170) (216 999)Net fee and commission income 556 341 2 166 635 509 756 1 855 910Dividend income (1 823) 237 17 1 653Result on financial instruments at fair (33 341) 16 872 14 007 36 456valueResult on investment securities 21 251 37 958 20 898 86 224Foreign exchange result 112 082 332 533 63 137 255 569Other operating income 68 306 185 006 44 665 169 933Other operating expenses (28 190) (76 994) (56 038) (127 146)Net other operating income 40 116 108 012 (11 373) 42 787Net impairment losses on financial assets (44 727) (177 299) (61 657) (222 293)and net provisions for guarantees andcommitmentsOverhead costs (862 439) (2 733 543) (627 768) (2 347 007)Operating profit 635 140 2 457 860 549 085 2 088 617Share of profit (loss) of associates and 37 766 152 876 27 095 90 859joint venture entities valued at theequity methodProfit from continuing operations before 672 906 2 610 736 576 180 2 179 476income taxIncome tax expense from continuing (106 034) (464 367) (112 357) (408 881)operations Net profit from continuing operations 566 872 2 146 369 463 823 1 770 595 Discontinued operations Net profit from discontinued operations (1 378) 18 112 4 776 19 102 Net profit for the period from continuing 565 494 2 164 481 468 599 1 789 697and discontinued operations 1. Attributable to equity holders of the 561 826 2 157 482 467 495 1 787 506Company 2. Attributable to minority interest 3 668 6 999 1 104 2 191 Earnings per share from continuing anddiscontinued operations (in PLN per share) - basic for the period 12,28 10,72 - diluted for the period 12,27 10,71 Earnings per share from continuingoperations in PLN per share) - basic for the period 12,18 10,60 - diluted for the period 12,17 10,60 BALANCE SHEET (in PLN '000) 31.12.2007 31.12.2006ASSETS Cash and amounts due from Central Bank 5 082 829 3 573 882 Debt securities eligible for rediscounting at the 1 108 2 519 Central Bank Loans and advances to banks 17 382 149 10 395 551 Financial assets held for trading 2 828 802 2 050 828 Derivative financial instruments 1 951 239 526 643 Other financial instruments at fair value through 3 777 679 1 613 195 profit or loss Loans and advances to customers 63 968 279 32 352 315 Derivatives used for hedging 40 748 - Investment securities 17 723 210 12 999 469 1. Available for sale 17 136 320 12 574 059 2. Held to maturity 586 890 425 410 Non-current assets held for sale 514 8 784 Shares in subsidiaries 1 631 694 671 100 Shares in associates 56 530 51 092 Intangible assets 671 194 597 050 Tangible fixed assets 1 908 424 1 399 804 Investment property 55 730 49 916 Income taxes 348 046 274 824 1. Current tax assets - - 2. Deferred income tax assets 348 046 274 824 Other assets 1 853 358 409 783TOTAL ASSETS 119 281 533 66 976 755 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Amounts due to the Central Bank 1 485 921 2 045 278 Amounts due to other banks 7 291 689 1 926 999 Financial liabilities held for trading 491 382 203 408 Derivative financial instruments 1 701 434 504 194 Amounts due to customers 89 329 271 51 811 250 Derivatives used for hedging 30 337 - Debt securities in issue 2 071 535 12 Current income tax liabilities 57 397 201 631 Provisions for deferred income tax - - Provisions 361 998 221 012 Other liabilities 2 210 574 1 442 806 Total liabilities 105 031 538 58 356 590 Shareholders' equity Share capital 261 867 166 808 Profit for the year and retained earnings 2 000 572 1 728 539 Other capital and reserves 11 987 556 6 724 818TOTAL SHAREHOLDERS' EQUITY 14 249 995 8 620 165TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 119 281 533 66 976 755 Capital adequacy ratio 10,60 14,74 STATEMENT OF CHANGES IN EQUITY 2007 2006 (in PLN '000) period from period from 07-01-01 06-01-01 to to 07-12-31 06-12-31 Shareholders equity at the beginning of the period 8 620 165 8 196 258 a) adjustment due to fundamental errors - - Adjusted shareholders equity at the beginning of the 8 620 165 8 196 258 period 1. Share capital at the beginning of the period 166 808 166 482 a) Increase 95 059 326 - new shares issue 95 059 326 b) Decrease - - - redemptions - - 1. Share capital at the end of the period 261 867 166 808 2. Retained earnings (loss) from previous years at the 1 728 539 1 506 779 beginning of the period a) Increase - - - profit for previous year - - b) Decrease (1 728 539) (1 506 779) - appropriation to legal capital (15 000) - - appropriation to general banking risk fund (100 000) (70 000) - appropriation to reserve capital (109 611) (202 398) - dividends (1 503 928) (1 234 381) 2. Retained earnings (loss) at the end of the period - - 3. Other capital at the beginning of the period 6 724 818 6 522 997 a) Increase 5 619 675 313 126 - appropriation of net profit 224 611 272 398 - issue of shares under its' nominal value 5 390 713 34 851 - valuation of management options 4 351 5 877 b) Decrease (356 937) (111 305) - cost of shares' issues (96 414) - - valuation of securities available for sale (net) (212 879) (110 976) in which; gains and losses from valuation of securities available for sale (262 778) (136 979) provision for deferred income tax of the securities portfolio 49 899 26 003 valuation - financial instrument valuation (46 409) - - foreign exchange differences on branches abroad (1 235) (329) - other - - 3. Other capital at the end of the period 11 987 556 6 724 818 4. Net profit 2 000 572 1 728 539 Shareholders' equity at the end of the period 14 249 995 8 620 165 CASH FLOW STATEMENT IV Quarter 4 Quarters IV Quarter 4 Quarters 2007 2007 2006 2006 (in PLN '000) period from period from period from period from 07-10-01 07-01-01 06-10-01 06-01-01 to 07-12-31 to 07-12-31 to 06-12-31 to 06-12-31 Cash flow from operating activities - indirect method Net profit (loss) 479 124 2 000 572 401 539 1 728 539 Adjustments: 2 911 592 6 766 468 (1 614 183) 533 406 Depreciation 85 698 313 518 74 268 304 341 Foreign exchange differences 131 940 355 324 173 009 266 297 (Profit) loss on investing activities (35 065) (63 768) (28 831) (95 057) Impairment (2 002) - (191) (191) Interest and dividend (232 811) (1 080 149) (178 201) (950 082) Change in loans and advances to banks (1 190 352) (1 400 183) 564 761 (506 219) Change in financial assets as held for trading and (3 137 676) (2 942 458) 37 607 335 181 other financial instruments at fair value through profit or loss Change in derivative financial instruments (1 310 304) (1 424 596) (90 997) (27 353) Change in loans and advances to customers (29 894 340) (31 614 553) (614 612) (3 664 871) Change in investment securities available for sale 1 302 (2 939) (1 978) (2 760) Change in deferred income tax assets (65 217) (23 323) (46 369) (96 813) Change in other assets (1 689 866) (2 087 969) 24 219 (136 211) Change in amounts due to banks 1 930 196 4 805 333 (1 225 736) 27 966 Change in liabilities as held for trading 53 539 287 974 (832 581) (342 522) Change in derivative financial instruments 1 101 393 1 197 240 24 115 (103 495) Change in amounts due to customers 33 962 307 37 518 021 669 628 4 961 502 Change in debt securities in issue 2 134 139 2 134 139 - - Change in provisions 141 925 140 986 56 664 115 999 Change in other liabilities 1 296 172 1 178 172 (288 709) 218 761 Income tax paid (474 922) (907 742) (79 643) (238 930) Current tax 105 536 383 441 149 394 467 863 Net cash from operating activities 3 390 716 8 767 040 (1 212 644) 2 261 945 Cash flows from investing activities Investing activity inflows 11 687 673 41 131 413 12 427 101 44 089 664 Sale of subsidiaries and associates - - 120 036 120 036 Sale of investment securities 11 472 031 40 290 930 12 022 587 43 153 863 Sale of intangible assets and tangible fixed assets 407 700 (60) 1 206 Other investing inflows 215 235 839 783 284 538 814 559 Investing activity outflows (13 544 870) (46 631 612) (9 394 159) (42 263 569) Purchase of subsidiaries and associates - (474 729) - (156 242) Purchase of investment securities (12 955 150) (45 358 810) (9 269 820) (41 842 058) Purchase of intangible assets and tangible fixed (98 148) (306 501) (124 339) (265 269) assets Other investing outflows (491 572) (491 572) - - Net cash used in investing activities (1 857 197) (5 500 199) 3 032 942 1 826 095 Cash flows from financing activities Financing activity inflows 5 357 440 5 389 358 - 35 177 Issue of ordinary shares 5 357 440 5 389 358 - 35 177 Financing activity outflows (56 905) (1 560 837) - (1 234 386) Redemption of debt securities (56 905) (56 909) - (5) Dividends and other payments to shareholders - (1 503 928) - (1 234 381) Net cash from financing activities 5 300 535 3 828 521 - (1 199 209) Total net cash flow 6 834 054 7 095 362 1 820 298 2 888 831 Net change in cash and cash equivalents 6 834 054 7 095 362 1 820 298 2 888 831 Cash and cash equivalents at the beginning of the 10 838 713 10 577 405 8 757 107 7 688 574 period Cash and cash equivalents at the end of the period 17 672 767 17 672 767 10 577 405 10 577 405 QUARTERLY INDIVIDUAL FINANCIAL REPORT INCOME STATEMENT IV Quarter 2007 4 Quarters 2007 IV Quarter 2006 4 Quarters 2006(in '000 PLN) period period period period from from from from 07-10-01 07-01-01 06-10-01 06-01-01 to 07-12-31 to 07-12-31 to 06-12-31 to 06-12-31 Interest income 1 381 032 4 393 906 1 004 031 3 779 648Interest expense (610 156) (1 913 241) (391 884) (1 499 156)Net interest income 770 876 2 480 665 612 147 2 280 492Fee and commission income 562 586 2 083 070 481 147 1 762 433Fee and commission expense (90 081) (281 225) (54 909) (187 324)Net fee and commission income 472 505 1 801 845 426 238 1 575 109Dividend income 65 243 184 595 170 620Result on financial instruments at fair value (30 695) 23 056 13 058 35 184Result on investment securities 21 278 37 330 20 898 86 224Foreign exchange result 110 880 328 420 62 164 253 159Other operating income 65 885 148 050 40 741 163 658Other operating expenses (22 254) (61 644) (52 479) (100 132)Net other operating income 43 631 86 406 (11 738) 63 526Net impairment losses on financial assets and (34 152) (121 444) (59 336) (207 639)net provisions for guarantees and commitmentsOverhead costs (782 171) (2 465 999) (559 462) (2 157 085)Operating profit 572 217 2 413 463 504 564 2 099 590Profit before income tax 572 217 2 413 463 504 564 2 099 590Income tax expense (93 093) (412 891) (103 025) (371 051) Net profit for the period 479 124 2 000 572 401 539 1 728 539 Earnings per share (in PLN per share) - basic for the period 11,39 10,37 - diluted for the period 11,38 10,36 BALANCE SHEET (in PLN '000) 31.12.2007 31.12.2006ASSETS Cash and amounts due from Central Bank 5 082 829 3 573 882 Debt securities eligible for rediscounting at the 1 108 2 519 Central Bank Loans and advances to banks 17 382 149 10 395 551 Financial assets held for trading 2 828 802 2 050 828 Derivative financial instruments 1 951 239 526 643 Other financial instruments at fair value through profit 3 777 679 1 613 195 or loss Loans and advances to customers 63 968 279 32 352 315 Derivatives used for hedging 40 748 - Investment securities 17 723 210 12 999 469 1. Available for sale 17 136 320 12 574 059 2. Held to maturity 586 890 425 410 Non-current assets held for sale 514 8 784 Shares in subsidiaries 1 631 694 671 100 Shares in associates 56 530 51 092 Intangible assets 671 194 597 050 Tangible fixed assets 1 908 424 1 399 804 Investment property 55 730 49 916 Income taxes 348 046 274 824 1. Current tax assets - - 2. Deferred income tax assets 348 046 274 824 Other assets 1 853 358 409 783TOTAL ASSETS 119 281 533 66 976 755 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Amounts due to the Central Bank 1 485 921 2 045 278 Amounts due to other banks 7 291 689 1 926 999 Financial liabilities held for trading 491 382 203 408 Derivative financial instruments 1 701 434 504 194 Amounts due to customers 89 329 271 51 811 250 Derivatives used for hedging 30 337 - Debt securities in issue 2 071 535 12 Current income tax liabilities 57 397 201 631 Provisions for deferred income tax - - Provisions 361 998 221 012 Other liabilities 2 210 574 1 442 806 Total liabilities 105 031 538 58 356 590 Shareholders' equity Share capital 261 867 166 808 Profit for the year and retained earnings 2 000 572 1 728 539 Other capital and reserves 11 987 556 6 724 818TOTAL SHAREHOLDERS' EQUITY 14 249 995 8 620 165TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 119 281 533 66 976 755 Capital adequacy ratio 10,60 14,74 STATEMENT OF CHANGES IN EQUITY 2007 2006 (in PLN '000) period from period from 07-01-01 06-01-01 to to 07-12-31 06-12-31 Shareholders equity at the beginning of the period 8 620 165 8 196 258 a) adjustment due to fundamental errors - - Adjusted shareholders equity at the beginning of the 8 620 165 8 196 258 period 1. Share capital at the beginning of the period 166 808 166 482 a) Increase 95 059 326 - new shares issue 95 059 326 b) Decrease - - - redemptions - - 1. Share capital at the end of the period 261 867 166 808 2. Retained earnings (loss) from previous years at the 1 728 539 1 506 779 beginning of the period a) Increase - - - profit for previous year - - b) Decrease (1 728 539) (1 506 779) - appropriation to legal capital (15 000) - - appropriation to general banking risk fund (100 000) (70 000) - appropriation to reserve capital (109 611) (202 398) - dividends (1 503 928) (1 234 381) 2. Retained earnings (loss) at the end of the period - - 3. Other capital at the beginning of the period 6 724 818 6 522 997 a) Increase 5 619 675 313 126 - appropriation of net profit 224 611 272 398 - issue of shares under its' nominal value 5 390 713 34 851 - valuation of management options 4 351 5 877 b) Decrease (356 937) (111 305) - cost of shares' issues (96 414) - - valuation of securities available for sale (net) (212 879) (110 976) in which; gains and losses from valuation of securities available for sale (262 778) (136 979) provision for deferred income tax of the securities portfolio 49 899 26 003 valuation - financial instrument valuation (46 409) - - foreign exchange differences on branches abroad (1 235) (329) - other - - 3. Other capital at the end of the period 11 987 556 6 724 818 4. Net profit 2 000 572 1 728 539 Shareholders' equity at the end of the period 14 249 995 8 620 165 CASH FLOW STATEMENT IV Quarter 4 Quarters IV Quarter 4 Quarters 2007 2007 2006 2006 (in PLN '000) period from period from period from period from 07-10-01 to 07-01-01 06-10-01 06-01-01 07-12-31 to 07-12-31 to 06-12-31 to 06-12-31 Cash flow from operating activities - indirect method Net profit (loss) 479 124 2 000 572 401 539 1 728 539 Adjustments: 2 911 592 6 766 468 (1 614 183) 533 406 Depreciation 85 698 313 518 74 268 304 341 Foreign exchange differences 131 940 355 324 173 009 266 297 (Profit) loss on investing activities (35 065) (63 768) (28 831) (95 057) Impairment (2 002) - (191) (191) Interest and dividend (232 811) (1 080 149) (178 201) (950 082) Change in loans and advances to banks (1 190 352) (1 400 183) 564 761 (506 219) Change in financial assets as held for trading and other (3 137 676) (2 942 458) 37 607 335 181 financial instruments at fair value through profit or loss Change in derivative financial instruments (1 310 304) (1 424 596) (90 997) (27 353) Change in loans and advances to customers (29 894 340) (31 614 553) (614 612) (3 664 871) Change in investment securities available for sale 1 302 (2 939) (1 978) (2 760) Change in deferred income tax assets (65 217) (23 323) (46 369) (96 813) Change in other assets (1 689 866) (2 087 969) 24 219 (136 211) Change in amounts due to banks 1 930 196 4 805 333 (1 225 736) 27 966 Change in liabilities as held for trading 53 539 287 974 (832 581) (342 522) Change in derivative financial instruments 1 101 393 1 197 240 24 115 (103 495) Change in amounts due to customers 33 962 307 37 518 021 669 628 4 961 502 Change in debt securities in issue 2 134 139 2 134 139 - - Change in provisions 141 925 140 986 56 664 115 999 Change in other liabilities 1 296 172 1 178 172 (288 709) 218 761 Income tax paid (474 922) (907 742) (79 643) (238 930) Current tax 105 536 383 441 149 394 467 863 Net cash from operating activities 3 390 716 8 767 040 (1 212 644) 2 261 945 Cash flows from investing activities Investing activity inflows 11 687 673 41 131 413 12 427 101 44 089 664 Sale of subsidiaries and associates - - 120 036 120 036 Sale of investment securities 11 472 031 40 290 930 12 022 587 43 153 863 Sale of intangible assets and tangible fixed assets 407 700 (60) 1 206 Other investing inflows 215 235 839 783 284 538 814 559 Investing activity outflows (13 544 870) (46 631 612) (9 394 159) (42 263 569) Purchase of subsidiaries and associates - (474 729) - (156 242) Purchase of investment securities (12 955 150) (45 358 810) (9 269 820) (41 842 058) Purchase of intangible assets and tangible fixed assets (98 148) (306 501) (124 339) (265 269) Other investing outflows (491 572) (491 572) - - Net cash used in investing activities (1 857 197) (5 500 199) 3 032 942 1 826 095 Cash flows from financing activities Financing activity inflows 5 357 440 5 389 358 - 35 177 Issue of ordinary shares 5 357 440 5 389 358 - 35 177 Financing activity outflows (56 905) (1 560 837) - (1 234 386) Redemption of debt securities (56 905) (56 909) - (5) Dividends and other payments to shareholders - (1 503 928) - (1 234 381) Net cash from financing activities 5 300 535 3 828 521 - (1 199 209) Total net cash flow 6 834 054 7 095 362 1 820 298 2 888 831 Net change in cash and cash equivalents 6 834 054 7 095 362 1 820 298 2 888 831 Cash and cash equivalents at the beginning of the period 10 838 713 10 577 405 8 757 107 7 688 574 Cash and cash equivalents at the end of the period 17 672 767 17 672 767 10 577 405 10 577 405 4 Additional information 4.1 Integration of Bank Pekao S.A. with separated part of Bank BPH S.A. On 29th November 2007 the relevant registry court made the following entriesinto the National Bank Registry: - information regarding Spin-off of Bank BPH S.A. by transferring partof its property to Bank Pekao S.A. - registration of Bank Pekao S.A. share capital increase by theissuance of 94,763,559 series I ordinary bearer shares with the nominal value ofPLN 1 each, taken up by Bank BPH S.A. shareholders in exchange for thetransferred part of Bank BPH S.A. - amendments to the Charter of Bank Pekao S.A. The decision of the Registry Court completed the legal integration of Bank PekaoS.A. with the transferred part of Bank BPH S.A. Assets of Bank BPH S.A.,separated in the Spin-off process, transferred to Bank Pekao S.A. The newly merged Bank Pekao S.A. has become the leading bank in Poland and thebiggest bank in Central and Eastern Europe in terms of market capitalization. Before the registration of the spin-off of Bank BPH S.A., Bank Pekao SA obtainedall the consents and permissions required for the continuation of contracts withclients that were taken over. Both banks also concluded relevant agreements toensure undisturbed and continuous performance of services for the clients duringthe so-called interim period, i.e. until the completion of the operational andIT integration of units taken over from Bank BPH SA (Pekao 285) with Bank PekaoSA. In order to effectively manage the operational risk during the operationalintegration process, detailed analysis were carried out, the purpose of whichwas to identify areas of risk and to develop the best methods of its management.The adopted strategy of managing the operational risk, that included thenecessary plans and procedures of monitoring and support, was aimed at ensuringa high level of process security and undisturbed continuity of providingservices for all clients as well as reducing the identified areas of operationalrisk. To date, the migration has already been completed in a few areas, including: - the provision of brokerage services for Pekao 285 clients, who usedthe brokerage services of the Bank BPH SA before the Spin-off Day (servicesperformed by Bank Pekao SA Brokerage House acting as an operational unit of theBank's Head Office), - custody services, - treasury operations area, - human resources management area, - investments and expenses management (unified ERP system). During the interim period clients will be progressively migrated within thebranches that have been transferred over (Pekao 285) from Bank BPH SA IT systemsto Bank Pekao SA IT systems. The migration of customers within the firstbranches began in January 2008 and is being carried out as a "Roll-out" ofgroups of branches: as a consequence the migration of clients and change oftheir bank accounts numbers is being conducted gradually. The migration ispreceded by a unification of procedures, installation of new terminals andapplications that are parts of the IT-operational system and by intensivetrainings of employees from the branches that have been taken over (Pekao 285). 4.2 The Group Bank Pekao S.A. Capital Group as at 31st December 2007 consists of Bank PekaoS.A. as the parent entity and 26 subsidiary entities. The following entities are included in the consolidated financial report as at31st December 2007: Company's name Core activity % of shareholder's Consolidation share capital / method voting power Group parent company Bank Pekao S.A. Banking - - Subsidiaries entities consolidated full method UniCredit Bank Ltd. (d. Bank Pekao Banking 100,00 full (Ukraina) Ltd.) Centralny Dom Maklerski Pekao S.A. Brokerage 100,00 full Pekao Fundusz Kapita(3)owy Sp. z o.o. Financial 100,00 full Pekao Leasing Sp. z o. o. Leasing 100,00 full Pekao Faktoring Sp. z o.o. Financial 100,00 full Pekao Pioneer Powszechne Towarzystwo Financial 65,00 full Emerytalne S.A. Drukbank Sp. z o.o. Not operating 100,00 full Centrum Kart S.A. Financial support 100,00 full Pekao Financial Services Sp. z o. o. Financial services 100,00 full BPH Bank Hipoteczny S.A. (*) Banking 100,00 full BPH PBK Leasing S.A. Leasing 80,10 full Finanse plc (*) Financial brokerage 100,00 full Indirect subsidiaries - subsidiaries of full BPH PBK Leasing BPH Leasing S.A. Leasing 80,10 full BPH Auto Finanse S.A.. Car leasing 80,10 full and fleet management Indirect subsidiary - subsidiary of full UniCredit Bank Ltd Bank Pekao S.A. Consulting, hotel and 99,99 full transport services Final Holding Sp. z o. o. Holding management 100,00 non- consolidated BPH Real Estate S.A. Real estate 100,00 non- consolidated Centrum Us(3)ug Ksiegowych Sp. z o.o. Accountant services 100,00 non- consolidated PBK Property Sp. z o. o. (In liquidation) Real estate 100,00 non- consolidated Centrum Bankowooeci Bezpooeredniej Call centre 98,00 non- consolidated Sp. z o. o. Indirect subsidiaries - subsidiaries of Final Holding Sp. z o. o. PBKL S.A. (In liquidation) Not operating 84,51 / 84,79 non- consolidated Final S.A. Metal industry 99,82 / 99,84 non- consolidated Indirect subsidiary - subsidiary of PBK Property Spolka z o.o. FBP Media Sp. z o. o. Real estate 100,00 non- consolidated Indirect subsidiaries - subsidiaries of BPH Real Estate S.A. Metropolis Sp. z o. o. Real estate - venture 100,00 non- consolidated capital Jana Kazimierza Development Sp. z o. o. Real estate - venture 100,00 non- consolidated capital Entities associated with the Bank Pekao S.A. Central Poland Fund LLC Financial brokerage 53,19 equity Xelion. Doradcy Finansowi Sp. z o.o. Supporting, financial 50,00 equity and insurance Pioneer Pekao Investment Management S.A. Financial brokerage 49,00 equity Pirelli Pekao Real Estate Sp. z o.o Real estate 25,00 equity management Krajowa Izba Rozliczeniowa S.A. Clearing house 34,44 equity Biuro Informacji Kredytowej S.A. Credit information 30,70 equity services CPF Management Financial brokerage 40,00 non valuated under equity method Bankowe Doradztwo Podatkowe Sp. z o. o. Tax advisory 74,00/48,68 non valuated under equity method Polish Banking System S.A.. (In In liquidation 48,90 non valuated under liquidation) equity method PPP Budpress Sp. z o. o. (In liquidation) In liquidation 36,20 non valuated under equity method (*) - Percentage shares in entities which make up Pekao S.A. Capital Group atthe General Shareholder Meeting/General Partner Meeting are the following: - Final Holding Sp. z o. o. - a subsidiary of Bank Pekao S.A. - has 0.04 % sharein equity of BPH Bank Hipoteczny S.A. Total share of the Group in BPH BankHipoteczny S.A. equity is 100%, - Final Holding Sp. z o. o. - a subsidiary of Bank Pekao S.A. - has 0.02 %share in equity of Finanse plc. Total share of the Group in Finanse plc equityis 100%. As at 31st December 2007 the composition of the Capital Group has changedcompared to the information presented as at 30th September 2007. The changeswere evoked mainly by the merger transaction between the organised part of anenterprise of Bank BPH S.A. with Bank Pekao S.A. Resulting from this transactionBank Pekao S.A. has acquired share in the equity of the following subsidiariesand affiliated companies: Subsidiary entities: BPH Bank Hipoteczny S.A., BPH PBK Leasing S.A., Final Holding Sp. z o. o., BPHReal Estate S.A., Centrum Us(3)ug Ksiegowych Sp. z o.o., PBK Property Sp. z o.o., Centrum Bankowooeci Bezpooeredniej Sp. z o. o., Finanse plc, BPH LeasingS.A., BPH Auto Finanse S.A., PBKL S.A., Final S.A., FBP Media Sp. z o. o.,Metropolis Sp. z o. o., Jana Kazimierza Development, Sp. z o. o., Asset S.A.(liquidated in fourth quarter 2007). Affiliated entities: Bankowe Doradztwo Podatkowe Sp. z o. o., Polish Banking System S.A., PPPBudpress Sp. z o. o. Moreover, resulting from the same transaction share in Krajowa IzbaRozliczeniowa S.A. (KIR S.A. - National Clearing House) increased by 11.48 ppand share in Biuro Informacji Kredytowej S.A. (BIK S.A. - Credit Bureau)increased by 15.75 pp. Acquisition of the additional 15.75 % shares in BiuroInformacji Kredytowej S.A. resulted in reclassification of this company asaffiliated entity valued following equity method. In fourth quarter 2007 the process of liquidation of SARL Pekao Immobilier BankPekao subsidiary company in which the latter had 100% shares was completed andsimilarly completed was the process of liquidation of Asset S.A. whose 100%ownership belonged to Bank Pekao S.A., subsidiary company of Final Holding Sp. z o. o.. As at 31st December 2007 the participation of the Group in subsidiary andassociated entities not included in the consolidation nor the equity method wasrecognized at the acquisition cost. Financial results of these companies is notmaterial for the l consolidated report of the Group. Change in the structure of the Group related to the Integration and discontinuedoperations a) Integration of Bank Pekao S.A. with Bank BPH S.A. On 29th November 2007 the integration of Bank Pekao S.A. with Bank BPH S.A. waseffected, through the spin-off of Bank BPH S.A. and transferring a part of BankBPH S.A. property in a form of an organized part of enterprise to Bank Pekao S.Ain exchange for series I shares of Bank Pekao S.A. As a result of the above transaction, Bank Pekao S.A. share capital wasincreased by the amount of 94,763,559 PLN, through the issuance of 94,763,559bearer shares of series I with a nominal value of 1.0 PLN each. The above shares were acquired by the shareholders of Bank BPH S.A. in exchangefor that part of Bank BPH S.A. property transferred to Bank Pekao S.A. The share, allocation ratio, i.e. the proportion in which Bank BPH S.A.shareholders acquired Bank Pekao S.A. shares is 1:3.3. That is, each BPH S.A. shareholder received 3.3 shares of Bank Pekao S.A.series I issue for each BPH S.A. share, while retaining their existing holdingof Bank BPH S.A. shares. The number of series I shares allotted to each BPH S.A. shareholder wasestablished by multiplying the number of BPH S.A. shares held by thatshareholder in their securities account on the reference day, i.e. 7th December2007 by 3.3 and rounding the product down to the nearest whole number.. Each BPH S.A. shareholder that on the reference day held such number of BPH S.A.shares, that when multiplied by 3.3 resulted in a fractional number, which wasrounded down do the nearest whole number received a supplementary cash paymentfrom Bank Pekao S.A. The value of one share of Bank Pekao S.A. of series I established for thepurposes of supplementary cash payments was 256.69. The said value was established based on the average market price of Bank PekaoS.A. shares during the period of 30 subsequent days in which quotations wereheld, preceding the reference day which was selected to be 7th December 2007; inother words, from 30 sessions held from 30th October 2007 through 6th December2007. The average market price was an arithmetic average calculated from average dailyprices weighted by traded volumes. Resulting from the above transaction Bank Pekao S.A. acquired 5,010 series Ishares of the face value of 1.0 PLN each, which account for 0.0019 % of theshare capital. Bank may not exercise voting rights on these shares. Above mentioned shares may be sold by Bank Pekao S.A. to any chosen entity. Cost of the merger Number of shares Nominal value / purchase Purchase (Acquisition) (acquisition) price (PLN) cost In '000 PLN Series I issue 94,763, 559 1.0 94,764 Acquired shares 5,010 256.69 1,286 Furthermore, Bank Pekao S.A. incurred costs relating to the issue of series Ishares amounting to PLN 336 thousand were recognized as a decrease of "supplementary capital". The integration transaction was classified as a business combination undercommon control and was recognized in the financial statements at book value,in accordance with the accounting policy applied within Unicredit Group. The acquiring company recognized the assets and liabilities of the acquiredcompany at their current book value, adjusted only if it was necessary tostandardise the accounting principles of the acquired entity. As a result of thetransaction neither goodwill nor negative goodwill were recognized.Resulting from the application of book value accounting, comparative datarelating to the presented historical periods was not re-stated. Net assets acquired as a result of the transaction are the following (in PLNthousand ): Item name Amount as at 29.11.2007 Assets Cash and amounts due from Central Bank 600 203 Financial assets as held for trading 1 332 420 Receivables due from banks 4 746 404 Receivables due from customers 29 555 375 Other financial assets 13 482 613 Tangible fixed assets 527 486 Intangible assets 51 967 Other assets 1 551 566 Total assets 51 848 034 Liabilities Amounts due to banks 4 575 420 Amounts due to customers 36 666 216 Debt securities in issue 2 128 124 Provisions 430 196 Financial liabilities as held for trading 899 887 Other liabilities 1 816 167 Total equity 5 332 024 Total equity and liabilities 51 848 034 Due to the migration of part of the financial data pertaining to Pekao285, tothe IT environment of Bank Pekao SA before 31st December 2007, it is notpossible, for practical reasons, to disclose the profit or loss of the overtakenentity included in the financial result of Bank Pekao S.A. for the period fromthe acquisition until 31st .December 2007. Had the transaction been performed on 1st January 2007, the combined profitbefore tax of the merged entity would amount to PLN 4 379 703 thousand(including profit of discontinued operations) and the net result PLN 3 550 805thousand. Financial Highlights of the Combined Pekao Group for the year 2007 The financial highlights presented below were prepared only for illustrativepurposes as a simple addition of the results of the Pekao Group for twelvemonths of 2007 and the results of the separated part of Bank BPH S.A. (Pekao285)in the period from 1st January 2007 until the Spin-Off Date, excluding theeffect of intercompany transactions. (PLN million) 2007 Net interest income 4,298.1 Fee and commissions income 2,926.1 Other income 1,106.0Total income 8,330.2Costs (3,811.5)Net operating income 4,518.8 Net provisions (315.2) Share of net profit of associates 152.9Profit before tax 4,356.5 Tax (810.8)Net profit from continuing operations 3,545.7 Income after tax from discountinued operations 18.1Net profit incl. income after tax from discountinued operations 3,563.8 Minority interests (13.0)Net profit excluding minorities 3,550.8 b) Assets held for sale and discontinued operations According to IFRS 5 "Fixed assets held for sale and discontinued operations",the Group segregated within the balance sheet item called "Fixed assets held forsale" the fixed assets and fixed assets included in the group held for saleconnected with discontinued operations, which as at 31st December 2007 met therelevant requirements of IFRS 5 related to classification of fixed assets heldfor sale. As at 31 December 2007 an organised part of Pekao S.A. Central Brokerage Houseenterprise operations connected with investment banking (CDM MIB) was classifiedas discontinued operations and fixed assets held for sale. The organised partof the enterprise was purchased on behalf of and for UniCredit CAIB Polska S.A. Additionally, Bank's fixed assets identified for disposal were also classifiedas held for sale. Non-current assets and corresponding liabilities held for sale (in PLNthousand): Item name Assets and liabilities Other fixed assets CDM MIB Financial assets held for trading 7 199 -Loans and advances due from customers 373Investment securities available for sale 723 -Intangible assets 1 -Tangible fixed assets 463 7 136Other assets 49 174 - Total assets 57 932 7 136 Financial liabilities held for trading 19 -Amounts due to customers 31 120 -Other liabilities 24 067 -Provisions 85 - Total liabilities 55 291 - Income statement from discontinued IV Quarter 2007 4 Quarters 2007 IV Quarter 2006 4 Quarters 2006operations of CDM MIB (in '000 PLN) period period period period from 07-10-01 from 07-01-01 from 06-10-01 from 06-01-01 to 07-12-31 to 07-12-31 to 06-12-31 to 06-12-31 Interest expense (648) (2 916) (570) (2 280)Fee and commission income 3 753 47 332 13 614 54 453Fee and commission expense (642) (4 432) (2 782) (11 128)Dividend income - 120 24 97Result on financial instruments at fair (119) 265 42 168valueOther operating income 7 11 - -Other operating expenses (45) (49) - -Overhead costs (3 564) (17 108) (4 243) (16 974)Operating profit (1 258) 23 223 6 085 24 336Profit from discontinued operations (1 258) 23 223 6 085 24 336before income taxIncome tax expense (120) (5 111) (1 309) (5 234) Net profit from discontinued operations (1 378) 18 112 4 776 19 102 4.3 Results achieved in 2007 and factors which influenced these results As a result of the integration of Bank Pekao S.A. with Bank BPH S.A., performedin a way of the spin-off of Bank BPH S.A. by transferring a part of Bank BPHS.A. property in a form of an organized part of enterprise to Bank Pekao S.A.,financial data presented in the financial statements for the year 2007 comprise,since the date of the integration, the results of the united Bank and acquiredcompanies. In order to assure better comparability of dynamics of the main components ofthe profit and loss statement as well as main balance sheet items, indicativeinformation concerning estimated growth of those positions, on a comparativebasis, has been presented in this paragraph. For the purpose of those estimations, the results for the year 2006 wererecalculated by including estimation of the results of hypothetical integrationof Bank Pekao S.A. and separated part of Bank BPH S.A. in the period from 30thNovember 2006 to 31st December 2006. Furthermore, costs related to integrationwere excluded from the results of the year 2006 and 2007, with the intention tobetter reflect the dynamics of business activity of the Bank and the Group. It should therefore be emphasised, that information presented as "the estimatedgrowth on a comparative basis" in the Additional Information should be treatedas indicative. 4.3.1 Results of the Group As from 30th November 2007, the results of the Group include results of the partof Bank BPH S.A. transferred in a form of an organized part of enterprise toBank Pekao S.A. and are not fully comparable with the results of the year 2006. The Group's net profit attributable to equity holders generated in 2007 amountedto PLN 2,157.5 million and was PLN 370.0 million higher than in 2006. Theestimated growth on a comparative basis would have amounted to 20.9%. The increase in the net profit was possible through an increased commercialactivity that translated into higher revenue, particularly fee and commissionincome and interest income, with operating costs under control and lower cost ofrisk. The results confirm the high efficiency of the Pekao Group. Return on averageequity (ROE) increased from 21.1% in 2006 to 23.7% (the estimated value on acomparative basis) in 2007. The good results of Bank Pekao S.A. and fully consolidated subsidiaries wereaccompanied by positive results of the Group's associates. The consolidated profit and loss account for the year 2007 and the year 2006 ispresented below: (PLN million) 2007 2006Net interest income * 2,729.2 2,387.7Fee and commission income 2,166.6 1,855.9Dividend income 0.3 1.7Trading income / FX gains 364.6 369.8Other operating income / cost net 108.0 42.8Total income 5,368.7 4,657.9Overhead costs (including depreciation) (2,733.5) (2,347.0)Operating income 2,635.2 2,310.9Impairment losses on loans and advances (177.3) (222.3)Share in net profit (loss) of the associates 152.9 90.9Pre-tax profit 2,610.8 2,179.5Tax charge (464.4) (408.9)Net profit from continued operations 2,146.4 1,770.6Net profit from discontinued operations 18.1 19.1Net profit 2,164.5 1,789.7 Attributable to equity holders of the Company 2,157.5 1,787.5 Attributable to minority interest 7.0 2.2 * Including income on SWAP transactions. The Group's income In 2007, the Group's total income amounted to PLN 5,368.7 million, PLN 710.8million higher than in the previous year. The estimated growth on a comparativebasis would have amounted to 9.5%. The key growth driver in this period was fee and commission income, whichamounted to PLN 2,166.6 million, PLN 310.7 million higher than in 2006. Theestimated growth on a comparative basis would have amounted to 12.7% primarilydriven by commissions on investment products. Another important factor influencing the total income growth was net interestincome, that amounted to PLN 2,729.2 million and was PLN 341.5 million higherthan in 2006. The estimated growth on a comparative basis would have amounted to7.9% mainly as a result of increasing volumes allowing to offset the impact of alower yield on the debt securities portfolio. The Group's overhead costs (including depreciation) Total overhead costs (including depreciation) in 2007 amounted to PLN 2,733.5million, with an estimated growth on a comparative basis amounting to 5.2%. (PLN million) 2007 2006Overhead costs (including depreciation) (2,733.5) (2,347.0)- Personnel costs (1,392.8) (1,203.4)- Non-personnel costs (1,005.0) (825.2)- Depreciation (335.7) (318.3) Overhead costs were kept under control, the increase was mainly due to the costsof the integration and also expansion in the Ukrainian market. Total overheadcosts incurred in 2007 in relation to integration activities are estimated atthe level of circa PLN 202.3 million. In 2007, the Group's cost / income ratio estimated excluding costs ofintegration amounted to 47.1% and on a comparative basis was estimated 2.0 p.p.lower than in 2006. As at the end of 2007, the Bank had 20,636 employees (of which 6,614 employeestransferred from Bank BPH S.A.), compared to 14,362 as at the end of December2006. The Group had 22,926 employees, (of which 6,984 employees transferred from BankBPH S.A. and companies consolidated under full method), compared to 15,647 as atthe end of December 2006. The increase in the number of employees insubsidiaries is mainly a result of expansion in Ukrainian market (including alsothe effect of consolidation of HVB Ukraine). Impairment losses on loans and advances In 2007, impairment losses on loans and advances amounted to PLN 177.3 millionand were PLN 45.0 million lower than in the previous year (on a comparativebasis the estimated decrease was 25.9%), benefiting from the effective creditrisk management and a good macroeconomic situation. (PLN million) 31.12.2007* 31.12.2006Gross receivables** 74,347.9 36,444.3 not impaired 68,585.3 32,153.2 impaired 5,762.6 4,291.1Impairment losses (4,852.8) (3,830.2)Interest 218.6 133.2Total net value 69,713.7 32,747.3 * Including results of the part of Bank BPH S.A. transferred in a form of anorganized part of enterprise to Bank Pekao S.A. ** Including debt securities eligible for rediscounting at the Central Bank, netinvestment in the finance lease, non quoted securities and BSB transactions. At the end of 2007, the ratio of impaired receivables to total receivablesamounted to 7.8% compared to 8.9% at the end of 2006 (estimated based in acomparative basis). The ratio decreased due to increasing volumes of total loanswith reduced volumes of impaired loans (in comparable terms). Loans (PLN million) 31.12.2007* 31.12.2006Gross loans (principal)** 73,845.2 36,503.3 corporate (principal) 49,608.9 26,233.4 retail (principal) 24,236.3 10,269.9 * Including results of the part of Bank BPH S.A. transferred in a form of anorganized part of enterprise to Bank Pekao S.A. ** Including debt securities eligible for rediscounting at the Central Bank andnet investment in the finance lease, excluding non quoted securities and BSBtransactions. The volumes of Group's loans as at the end of 2007 amounted to PLN 73,845.2million, of which corporate loans PLN 49,608.9 million and retail loans PLN24,236.3 million. Estimated growth on a comparative basis would have amounted to 9.8%. The growthwas driven by increase in mortgage loans, consumer loans and corporate loans. Savings (PLN million) 31.12.2007* 31.12.2006Deposits (principal) 86,422.3 49,446.4 corporate (principal) 49,988.3 23,131.9 retail (principal) 36,434,0 26,314.5Structured Certificates of Deposits 2,049.6 0.0Pioneer Pekao TFI mutual funds 28,717.5 23,263.4 incl. distributed through the Group's 27,000.3 21,359.7networkTotal savings 117,189.4 72,709.8 incl. retail 67,201.1 49,577.9 * Including results of the part of Bank BPH S.A. transferred in a form of anorganized part of enterprise to Bank Pekao S.A. At the end of 2007, savings of the Group's clients (customer deposits,structured certificates of deposits and mutual funds) amounted to PLN 117,189.4million, of which savings of individual clients PLN 67,201.1 million andcorporate deposits PLN 49,988.3 million. Estimated growth of savings of the Group's clients (customer deposits and mutualfunds) on a comparative basis would have amounted to 6.0%. The growth was drivenby increase in retail savings and corporate deposits. 4.3.2 The structure of the net profit The structure of the net profit of the Group is shown in the following table: (PLN million) 2007 2006Net profit of Banku Pekao S.A. 2,000.6 1,728.5Entities consolidated under full methodCentralny Dom Maklerski Pekao S.A. 182.1 150.0Pekao Fundusz Kapita(3)owy Sp. z o.o.* 20.4 3.9Pekao Leasing Sp. z o.o. 16.9 11.1Pekao Financial Services Sp. z o.o. 15.3 10.6Pekao Pioneer PTE S.A. 13.6 10.3BPH PBK Leasing S.A.** 11.5 -Pekao Faktoring Sp. z o.o. 8.0 10.6Centrum Kart S.A. 4.3 0.3BPH Bank Hipoteczny S.A.** 0.6 -Drukbank Sp. z o.o. *** 0.2 0.0Pekao Access Sp. z o.o. **** (0.1) 0.5UniCredit Bank Ltd.***** (17.7) (16.7)Pekao Development Sp. z o.o. ****** - 6.5Entities valued under equity methodPioneer Pekao Investment Management S.A. 138.9 89.2Pirelli Pekao Real Estate Sp. z o.o.****** 13.2 4.4Krajowa Izba Rozliczeniowa S.A. 5.4 5.0Central Poland Fund LLC 0.0 (0.1)Xelion. Doradcy Finansowi Sp. z o.o. (6.6) (10.5)Exclusions and consolidation adjustments ****** (249.1) (216.1)Net profit (loss) of the Group attributable to equity 2,157.5 1,787.5holders * The result of the company includes valuation of entities under equity methodas well as the influence of sale of shares of Anica System S.A. ** The result of the company since 30th November 2007. *** The result does not include the effect of sale of shares of UniCredit BankLtd. inside the Group, **** The result of the company until it's sales 13th September 2007. ***** The result of the company for 2007 includes the result of UniCredit Bankand the result of Bank HVB Bank Ukraine S.A. since the beginning of the secondquarter up till the integration with UniCredit Bank. ****** Equity valuation of the subsidiary since the second quarter 2006 due tosale of 75% of shares which took place on 3rd April 2006. ******* Includes transactions within the Group, including dividends fromsubsidiaries for the year 2006 paid in 2007 (of which PLN 138.0 million fromCDM) and associates, opening balance amendments and net profit attributable tominority interest. The results of Bank Pekao S.A. The main items from the profit and loss account of the Bank for 2007 and 2006are as follows: (PLN million) 2007* 2006Net interest income** 2,503.4 2,288.9Non-interest income 2,497.5 2,175.4Total income 5,000.9 4,464.3Overhead costs (including depreciation) (2,466.0) (2,157.1)Operating income 2,534.9 2,307.2Impairment losses on loans and advances (121.4) (207.6)Pre-tax profit 2,413.5 2,099.6Net profit 2,000.6 1,728.5 * Including results of the part of Bank BPH S.A. transferred in a form of anorganized part of enterprise to Bank Pekao S.A. ** Including income on SWAP operations. The main items of the Bank's balance sheet at the 2007 in comparison with theend of 2006 are as follows: 31.12.2007* 31.12.2006Total gross loans in PLN million** 67,714.7 35,891.1Impaired receivables to total receivables in % 7.7 11.0Total deposits in PLN million** 85,640.2 49,472.2Total assets in PLN million 119,281.5 66,976.8Mutual funds distributed through the Bank's network in PLN 24,153.9 18,881.2millionCapital adequacy ratio in % 10.6 14.7 * Including results of the part of Bank BPH S.A. transferred in a form of anorganized part of enterprise to Bank Pekao S.A. ** The nominal value. The volumes of Bank's loans as at the end of 2007 amounted to PLN 67,714.7million, of which corporate loans PLN 44,370.6 million and retail loans PLN23,344.1 million. Estimated growth on a comparative basis would have amounted to 6.3%. The growthdriven by increase in mortgages, consumer loans and corporate loans. At the end of 2007, savings of the Bank's clients amounted to PLN 109,794.1million, of which savings of individual clients PLN 59,785.5 million andcorporate deposits PLN 50,008.6 million. Estimated growth on a comparative basiswould have amounted to 5.4%. 4.3.3 Achievements of Bank Pekao S.A. Bank Pekao S.A. is a universal, commercial bank, offering a full range ofbanking services to both individual and corporate clients, operating in Polandand abroad. Pekao Group's subsidiary financial institutions operate in banking,asset management, pension funds, brokerage, leasing and factoring markets. In 2007, there were intense actions undertaken connected to integration of BankPekao with separated part of Bank BPH S.A. Simultaneously furtherintensification of Bank's business activity continued. The continuous effortswere focused on offering key products, in particular PLN mortgage loans,consumer loans and mutual funds. The Bank continued its policy of offering PLNmortgage loans. Good performance in 2007 was primarily the result of those activities. Sales ofPLN mortgage loans in comparable terms i.e. performance only in the network offormer Bank Pekao S.A. was 30.8% higher than in 2006 contributing to a growth inthe PLN mortgages stock of 52.0% in 2007. The volume of the "Express Loan" in2007 in this part of Bank's network increased by 16.8% in 2007. Pioneer Pekao TFI S.A. mutual funds are distributed through the network of BankPekao S.A., CDM Pekao S.A. and Xelion. Doradcy Finansowi Sp. z o.o. Total assetsof Pioneer Pekao TFI S.A. mutual funds increased in 2007 by PLN 5,454.1 million(23.4%). The Pekao Group confirmed its leading position in the mutual fundsmarket - at the end of December 2007 market share of mutual funds managed byPPIM S.A. amounted to 21.3%. 31.12.2007 31.12.2006Total number of PLN current accounts (in thousand) * 4,179.7 3,054.4 of which packages 3,205.1 2,221.1Number of mortgage loans accounts (in thousand) 182.7 74.7Number of "Express Loans" accounts (in thousand) 679.7 328.4Payment cards (in thousand)** 3,873.1 2,744.6 Credit 508.8 244.8 Charge 191.9 211.9 Debit (including Maestro) 3,172.4 2,287.9 * 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. The Bank makes the superior physical distribution available to its clients, withthe most convenient network footprint countrywide. As a result of theintegration with separated part of Bank BPH S.A. this network has beenconsiderably expanded. Distribution network is supplemented with teams ofRelationship Managers and a network of Private Banking offices. The number ofcustomers using alternative distribution channels such as call centre andinternet banking platform is systematically growing. Pekao24 Service (for retailand SME clients) and PekaoBiznes24 (for corporate clients) facilitate themanagement of financial assets, and scope of services is being systematicallyextended. In the fourth quarter of 2007 additional services were implementedsuch as Pekao24Transfer for customers performing internet shopping, as well as10-days deposits with preferential interest rates. 31.12.2007 31.12.2006Total number of outlets (in items) 1,058 782Total number of ATMs (in items) 1,885 1,262Number of customers actively using Pekao24 (in thousand)Retail clients 865.1 707.6SME segment 36.0 33.7Number of customers actively using PekaoBiznes24 (in thousand) 9.3 6.1 4.3.4 Achievements of subsidiaries Pioneer Pekao TFI S.A. As at 31st December 2007, 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 28,717.5million and was higher by PLN 5,454.1 million compared with the end of 2006. Asat 31st December 2007, the Company had 1,270.4 thousand open accounts (anincrease by 30.3% in 2007). The net assets value of mutual funds under management of Pioneer Pekao TFI S.A.is presented in the table below: (PLN million) 31.12.2007 31.12.2006Net assets value of Pioneer Pekao TFI 28,717.5 23,263.4- bond and money market funds 4,550.5 5,584.7- equity funds 10,564.7 4,901.9- balanced funds 13,602.3 12,776.8 Centralny Dom Maklerski Pekao S.A. (CDM) In 2007 CDM (Central Brokerage House) provided the full scope of permittedbrokerage services excluding asset management. At the end of December 2007, CDM maintained over 149.7 thousand investmentaccounts and its market share amounted to 15.5%. CDM also offered on-line accessto investment accounts, allowing its customers to buy and sell all instrumentslisted on the Warsaw Stock Exchange and on the OTC market (CeTO) through theInternet. As at 31st December 2007, CDM maintained 26.4 thousand on-lineaccounts, 6.7 thousand more than at the end of 2006. In 2007 the Company achieved: - a 26.0% share in the bond trading volume at the Warsaw Stock Exchange, - a 7.1% share in the stock trading volume at the Warsaw Stock Exchange, - a 4.9% share in the futures trading volume at the Warsaw Stock Exchange. Consistent with the strategy of focusing Bank Pekao S.A. activities on retailbrokerage as part of the integrated service offer for Bank's retail customers,on the 28th January 2008 the Centralny Dom Maklerski Pekao S.A. (wholly ownedsubsidiary of the Bank) and UniCredit CA IB Polska S.A., signed the agreement onsale of part of enterprise of CDM conducting corporate brokerage and investmentbanking services. UniCredit Bank Ltd. On the 3rd September 2007 a legal and operational merger between UniCredit BankLtd. and JSCB HVB Bank Ukraine took place. The new bank that originated as aresult of that merger operates as UniCredit Bank Ltd. and continues itsoperations' development programme. As of 31st December 2007 UniCredit Bank pursues its activity through 42branches, providing services for over 86.8 thousand individual clients and over1.5 thousand corporate clients. At the same time the company expanded thenetwork of debit cards and consumer credits sales outlets, increasing its numberto 200 locations at the end of 2007. According to information provided by Bank Austria Creditanstalt AG (BA-CA), amember of UniCredit Group, BA-CA on 24th January 2008 completed on theacquisition of approximately 95% of the share capital of Ukrsotsbank from thegroup of investors represented by Interpipe Group. The structure of theUkrainian operations belonging to the UniCredit Group is currently beingassessed. 4.4 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 presented below include data coveringcontinuing operations. The net profit and the balance sheet data informationcovering discontinued operations are presented in financial statements and point4.2 b) and relate to corporate banking activity. Information on main segments' results for 2007*: (PLN million) Retail Corporate Treasury and Total Group activity activity Investment activityExternal interest income 1,381.2 1,736.0 1,542.7 4,659.9External interest expense 408.7 1,160.0 384.7 1,953.4Net external interest income 972.5 576.0 1,158.0 2,706.5Internal interest income 1,402.1 1,322.4 (2,724.5) 0.0Internal interest expense 670.4 1,204.0 (1,874.4) 0.0Net internal interest income 731.7 118.4 (850.1) 0.0Net interest income 1,704.2 694.4 307.9 2,706.5Non interest income 2,038.6 535.3 88.3 2,662.2Total income 3,742.8 1,229.7 396.2 5,368.7 Allocated assets 32,925.5 39,676.6 42,924.5 115,526.6Unallocated assets 8,275.4Total assets 123,802.0 Allocated liabilities 51,293.4 41,680.2 10,486.1 103,459.7Unallocated liabilities 20,342.4Total liabilities 123,802.0 * Including results of the part of Bank BPH S.A. transferred in a form of anorganized part of enterprise to Bank Pekao S.A. Information on main segments' results for 2006*: (PLN million) Retail Corporate Treasury and Total Group activity activity Investment activityExternal interest income 1,024.3 1,375.7 1,446.5 3,846.5External interest expense 339.4 868.4 259.4 1,467.2Net external interest income 684.9 507.3 1,187.1 2,379.3Internal interest income 1,228.1 956.1 (2,184.2) 0.0Internal interest expense 445.1 958.2 (1,403.3) 0.0Net internal interest income 783.0 (2.1) (780.9) 0.0Net interest income 1,467.9 505.2 406.2 2,379.3Non interest income 1,747.6 418.3 112.7 2,278.6Total income 3,215.5 923.5 518.9 4,657.9 Allocated assets 12,854.4 21,853.8 28,284.0 62,992.3Unallocated assets 4,711.4Total assets 67,703.7 Allocated liabilities 31,768.4 19,637.8 4,828.8 56,235.1Unallocated liabilities 11,468.6Total liabilities 67,703.7 * Methodology comparable with methodology of 2007, data different than publishedfor 2006 due to changes in allocation of revenues by segment. The methodologyapplied by the Bank in allocation of interest income/expense between segments isbased on the application of market interest rates to segment product volumes,pricing for liquidity, term to maturity and currency structure. 4.5 Adjustments for provisions, deferred tax provision and assets (PLN million) Group Bank Pekao S.A. 31.12.2007 31.12.2006 31.12.2007 31.12.2006 Total provisions 366.7 223.9 362.0 221.0 of which: provisions for off-balance sheet 186.2 112.7 186.2 112.6 liabilities provisions for liabilities to employees 123.4 69.2 121.9 68.0 other provisions 57.1 42.0 53.9 40.4Provision for deferred tax 0.3 0.0 0.0 0.0Deferred tax assets 414.6 304.4 348.0 274.8 4.6 Write-offs for revaluation of assets (PLN million) Group Bank Pekao S.A. 2007 2006 2007 2006Total (177.3) (222.3) (121.4) (207.6) for loan receivables (153.4) (128.5) (96.6) (114.4) for off-balance sheet liabilities (19.3) (93.4) (19.2) (93.3) other (4.6) (0.4) (5.6) 0.1 4.7 Information on contingent assets and liabilities (PLN million) 31.12.2007 31.12.2006 Contingent liabilities granted and received 64,325.0 27,588.5 Liabilities granted: 38,716.8 19,117.1 Financial 34,264.5 16,801.8 Guarantees 4,452.2 2,315.3 Liabilities received: 22,608.2 8,471.4 Financial 2,199.5 635.3 Guarantees 20,408.7 7,836.1 Financial derivatives 298,579.7 76,540.1 currency transactions 109,653.5 28,929.9 interest rate transactions 188,215.7 46,301.7 securities transactions 710.5 1,308.5 Other 173.0 11,287.9Total off-balance sheet items 377,567.7 115,416.5 4.8 Post balance sheet events Agreement on sale of corporate brokerage part of Centralny Dom Maklerski PekaoS.A. (CDM) On the 28th January 2008 the Centralny Dom Maklerski Pekao S.A. (wholly ownedsubsidiary of the Bank) and UniCredit CA IB Polska S.A., signed the agreement onsale of part of enterprise of CDM conducting corporate brokerage and investmentbanking services for the price of PLN 450 million, subject to final adjustmentsbased on audited 2007 economic results. The organized part of the business,which is the subject of the sale, generates about 12% of CDM net profit. Transaction is in line with the strategy of focusing Bank Pekao S.A. on theretail brokerage as part of the integrated service offer for Bank's retailcustomers. Increasing the share capital of UniCredit Bank Ltd. (former Bank Pekao (Ukraine)Ltd.) On the day 4th February 2008 the National Bank of Ukraine registered theamendments to the Articles of Association of UniCredit Bank Ltd. covering theincrease of share capital of UniCredit Bank Ltd. by the amount of UAH109,834,200, comprising the equivalent of PLN 52,281,079.20 in keeping with theNBP table of exchange rates of 4th February 2008. On the day of 3rd September 2007 the Extraordinary General Meeting of UniCreditBank Ltd. adopted a conditional resolution (conditional to the consent of theNational Bank of Ukraine NBU) on increasing the share capital of UniCredit BankLtd. by the amount of UAH 109,834,200, comprising the equivalent of PLN61,221,583.08 in keeping with the NBP table of exchange rates of 3rd September2007. The increase in the share capital of UniCredit Bank Ltd. was a consequence ofthe merger between UniCredit Bank Ltd. and JSCB HVB Bank Ukraine (100%-ownedsubsidiaries of Bank Pekao S.A.) and take-up by Bank Pekao S.A. of 109,834,200newly created shares in UniCredit Bank Ltd. with the par value of 1 UAH/share inthe share capital of UniCredit Bank Ltd., totalling UAH 109,834,200, in returnfor 1,098,342 stocks of JSCB HVB Bank Ukraine with the par value of 100 UAH/stock, with the total par value of UAH 109,834,200. At the moment of registration by the National Bank of Ukraine NBU of relevantamendments to the Articles of Association of the Bank concerning capitalincrease, the share capital of UniCredit Bank Ltd. has been increased from UAH543,673,470 to the amount of UAH 653,507,670. Bank Pekao S.A. currently holds shares in UniCredit Bank Ltd. of the totalnominal value of UAH 653,507,670, comprising 100% of share capital of UniCreditBank Ltd., carrying 100% of votes at the General Meeting of Shareholders inUniCredit Bank Ltd. 4.9 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. 4.10 Issuance, redemption and repayment of debt securities Issuance of bonds of Bank Pekao S.A. On the basis of Resolution No. 6 of the Bank's Extraordinary General Meetingdated 25th July 2003 on the issue of registered bonds under an incentiveprogramme, the Bank issued registered A and B series bonds with pre-emptiverights to take up the Bank's F series shares as well as registered C and Dseries bonds with pre-emptive rights to take up the bank's G series shares. All the pre-emptive rights to take up F series shares pursuant to theimplementation of the right of priority ensuing from the A and B series bondswere executed. Bank acquired 69,028 registered series C bonds from Pekao Faktoring Sp. Z o.o.,for the purpose of redemption, and the total of 237,993 series C bonds fromeligible persons, upon the request thereof for early redemption, pursuant to theimplementation of the right of priority to take up the Bank's shares ensuingfrom the bonds, for the purpose of redemption thereof. The issue price of G series share amounts to PLN 123.06. The execution of the pre-emptive rights to take up G series share can beexercised in respect of C series bonds - from 1st January 2008 to 31st December2012 and in respect of D series bonds - from 1st January 2009 to 31st December2012. D series bonds could be purchased from the Trustee agent by eligible personsuntil 30th December 2008. The bonds that will not be sold by the Trustee agent by 30th December 2008, willbe purchased on 31st December 2008 by the Bank for the purpose of redemption atthe nominal value. Issuance of bonds of Joint Stock Commercial Bank HVB Bank Ukraine On 24th January 2006 HVB Ukraine issued 79,000 bonds of total face value79,000,000 UAH. The purpose of this issue was to acquire the funds for financingthe development of the lending activity. In the issue HVB Ukraine offered bondswith put option, common, interest bearing, registered, with discount to the facevalue. For the first two years the coupon interest was fixed at 8.8% p.a. andthe interest rate for the next two years is 10.35% p.a. Structured Certificates of Deposits Structured Certificates of Deposits are investment products for Bank's clientsthat are an alternative for traditional banks' deposits. The total value ofBank's liabilities due to that ground (principal) amounted to PLN 2,049.6million at the end of 2007. In Bank's balance sheet there are 45 issues ofStructured Certificates of Deposits in PLN, Euro and USD with the maximummaturity date set at 8th March 2011. Liabilities with the date of maturity in2008, 2009, 2010 and 2011 account for 27.4%, 41.6%, 19.4% and 11.6% of totalliabilities, respectively. 4.11 Dividend paid Pursuant to Resolution No. 8 of the Ordinary General Meeting of Bank Pekao S.A.dated 26th April 2007, PLN 9.00 per one share was appropriated for the paymentof dividend for 2006, i.e. 21.6% higher compared to the dividend for 2005 (PLN7.40 per one share). The ex-dividend date was 16th May 2007 and the date ofdividend payment - 1st June 2007. All the Bank's shares are ordinary shares. 4.12 Effects of changes in the Group's structure The changes in the Group's structure are described in section 4.2. 4.13 The position of the Management Board regarding the possibility ofachieving previously published forecasts The Bank has not published the forecast of financial results for 2007. 4.14 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 2007 31st December 2006 UniCredito Italiano S.p.A. 155,433,755 59.36% 88,121,725 52.83%Other shareholders 106,432,902 40.64% 78,686,532 47.17%Total 261,866,657 100.00% 166,808,257 100.00% In 2007 the share capital of the bank has been increased by the total amount ofPLN 95,058,400 as a result of issue of 94,763,559 series I ordinary bearershares with nominal value of PLN 1.00 each, that have been taken up by Bank BPHS.A. shareholders in return for a part of Bank BPH S.A.'s property that havebeen transferred to Bank Pekao S.A. and the issue of 294,841 series F bearershares that have been taken up by participants of share option programme. Moreover since the beginning of the 2008 until the day of submitting this reportshare capital of the Bank has been increased by the total amount of PLN 237,993as a result of issue of 237,993 series G ordinary bearer shares that have beentaken up by participants of share option programme. The share capital of theBank amounts currently to PLN 262,104,650. The share of UniCredito ItalianoS.p.A. in the share capital and the total number of votes at the General Meetingamounts to 59.30% while the share of other shareholders amounts to 40.70%. 4.15 he 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 88,446 shares ofBank Pekao S.A. The table below presents the number of shares held by theManagement Board Members: As at the date of submitting the report Change For the fourth quarter For the third quarter Jan Krzysztof Bielecki 10,000 10,000 0Luigi Lovaglio 65,357 65,357 0Marian Wazynski 13,089 13,089 0Total 88,446 88,446 0 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. The persons who meet therequirements set in the Programme will be able to acquire the Bank's shares. As at the date of submitting this report the incentive programme for 2004includes 41 persons for a total 425,615 shares, 265,584 of which will be able tobe purchased by the management. The Members of the Supervisory Board did notparticipate in the management stock options programme. The table below presents the number of management stock options held by theManagement Board Members: As at the date of submitting the report Change For the fourth quarter For the third quarter Jan Krzysztof Bielecki 80,000 80,000 0Luigi Lovaglio 65,357 65,357 0Paolo Iannone 23,000 46,000 (23,000)Christopher Kosmider 23,000 46,000 (23,000)Marian Wazynski 28,227 28,227 0Total 219,584 265,584 (46,000) The Bank has also joined the UniCredit Group incentive program "Long-TermIncentive Plan 2007", based on offering the stock options and shares ofUniCredito Italiano S.p.A. to the selected key managers and employees of theUniCredit Group. 63 employees of Pekao Group, including 8 members of theManagement Board, are participating in this programme. 4.16 Pending litigations In the fourth quarter of 2007 the number of the legal proceedings in courts,appropriate bodies of arbitration or public administration bodies, concerningthe liabilities of the Group was 628. The total value of them was PLN 759.2million. The number of legal proceedings concerning the receivables was 2.854 attotal value of PLN 921.7 million. The value of legal proceedings concerning theliabilities of the Group in the fourth quarter of 2007 does not exceed 10% ofthe issuer's equity. 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 2007, as well as all the proceedings together do not createany threat to financial liquidity of the Bank. 4.17 Claims regarding the resolutions of the Bank's Shareholders Meetings On 14th of June 2007 Bank received from Bank's shareholder, who on the GeneralMeeting represented 50 votes, a plaintiff to the court to make invalidresolutions No. 10 and to repeal resolutions No. 4-9 and 11-18 of the AGM of26th April 2007. On 30th July 2007 Bank received a claim filled by the Bank's shareholder, who onthe General Meeting represented 1 vote, to overrule the resolutions No 11 of theOrdinary Shareholders Meeting of the Bank dated 26th April 2007. On 13th August 2007, the Bank received a claim filled by the Bank's shareholder,who on the General Meeting represented 1 vote to overrule the resolutions No. 4of the Extraordinary Shareholders Meeting of the Bank dated 27th April 2007 onthe integration of Bank with Bank BPH S.A. performed in way of Bank BPH S.A.spin - off by transferring a part of Bank BPH S.A. property in a form of anorganized part of enterprise to Bank. On 21st January 2008 Bank received a claim filled by the Bank's shareholder tooverrule the resolution No. 4 of the Extraordinary Shareholders Meeting of theBank dated 27th April 2007 on the integration of Bank with Bank BPH S.A.,performed in way of Bank BPH spin-off by transferring a part of Bank BPH S.A.property in a form of an organized part of enterprise to Bank. The Bank replied to the above mentioned claims, stating that each of thoseplaintiffs is groundless. On 18th June 2007 the Bank received the statement on dismissal of the Bankshareholder's motion dated 11th June 2007 for measure for conservation of aclaim for cancelling the resolution no. 5 of the Ordinary Shareholders Meetingof the Bank of 26th April 2007 through suspending the registration proceedings.On 20th June 2007 the Court received a complaint from the plaintiff against thestatement on dismissal of the motion for measure for conservation of the claim.On 17th December 2007 Bank received the decision of the Appeal Court in Warsawon the rejection of this complaint. Until the date of submitting this report the Bank has not received the summonsto cancel the resolution no. 5 of the Ordinary Shareholders Meeting of the Bankof 26th April 2007. 4.18 Assessment of the financial credibility of Bank Pekao S.A. As at 31st December 2007, 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 AShort-term rating A-1Outlook 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 Changes in the Management Board of the Bank On 26th April 2007, the Supervisory Board appointed the following Members of theManagement Board for the period of common term of office, lasting three years,beginning as of 27th April 2007: 1. Jan Krzysztof Bielecki as President, CEO,2. Luigi Lovaglio as Vice President, General Manager,3. Paolo Iannone as Member of the Management Board,4. Christopher Kosmider as Member of the Management Board,5. Marian Wazynski as Member of the Management Board. During the meeting on 14th November 2007 the Supervisory Board of the Bank PekaoS.A. appointed Przemys(3)aw Gdanski, Katarzyna Niezgoda and Grzegorz Piwowar tothe positions of Vice Presidents of the Management Board as of the Spin-off Day.At the same time the Supervisory Board appointed Luigi Lovaglio, Vice Presidentof the Management Board, General Manager to the position of First Vice Presidentof the Management Board, General Manager and Members of the Management Board -Paolo Iannone, Christopher Kosmider and Marian Wazynski to the positions of VicePresidents of the Management Board. Composition of the Management Board 31.12.2007 31.12.2006 1. Jan Krzysztof Bielecki 1. Jan Krzysztof Bielecki President of the Management Board, CEO President of the Management Board, CEO 2. Luigi Lovaglio 2. Luigi Lovaglio First Vice President of the Management Board, Vice President of the Management Board, COO General Manager 3. Przemys(3)aw Gdanski 3. Sabina Olton Vice President of the Management Board Vice President of the Management Board, Chief Accountant of the Bank 4. Paolo Iannone 4. Przemys(3)aw Figarski Vice President of the Management Board Member of the Management Board 5. Christopher Kosmider 5. Irene Grzybowski Vice President of the Management Board Member of the Management Board 6. Katarzyna Niezgoda 6. Paolo Iannone Vice President of the Management Board Member of the Management Board 7. Grzegorz Piwowar 7. Christopher Kosmider Vice President of the Management Board Member of the Management Board 8. Marian Wazynski 8. Marian Wazynski Vice President of the Management Board Member of the Management Board 4.20 Transactions of related entities In the fourth quarter of 2007, the Bank and its subsidiaries have not concludedany transactions with related entities other than typical and routinetransactions which aggregate value exceeded the equivalent of EUR 500 thousand. In the fourth quarter of 2007, the Bank and its subsidiaries did not give anysureties or guarantees in respect of loans or advances to any single entity or asubsidiary of that entity, as a result of which the total value of the existingsureties and guarantees would equal 10% of the Bank's equity. 4.21 Factors which will affect the results of at least the next quarter The Polish economy is expanding at high rate due to strong domestic demand,which creates favourable conditions for banking activities. Fast growth rate inretail loans and corporate customer loans is observed while the growth indeposits, though clearly higher than the national income, was still half lowerthan the growth in loans. Drop in prices on the stock market in the last monthsof 2007 has caused decrease of investment funds assets and outflow of savingsfrom those funds. Low level of investments in years 2000-2005 as well as high emigration for workto UE countries are the reasons of disproportion between the very fast growthrate of internal demand and substantially lower growth of supply possibilitiesof the economy. As a result the growth rate of work efficiency does not keep upwith high growth of wages and the foreign trade deficit deepens. Despite thedeepening deficit of balance of payment account the exchange rate of Polishzloty strengthened against EUR, and above all against USD that is growingweaker. These occurrences accompanied by increases of global prices of energyand food significantly increase the prices growth that will probably last in thefirst half of 2008. Fast inflation growth forced the Monetary Policy Council tostart in 2007 a series of interest rates increases that will continue in thefirst half of 2008. Disturbances on the international financial markets related to the crisis on theAmerican mortgage loans market are another negative occurrence that decreasesthe availability of foreign financing and also increase the risk of globaleconomy slow-down and deeper price drop on the stock market which in returnthreatens further outflow of savings from mutual funds. Disproportion betweengrowth rates of loans and deposits as well as growing discrepancies betweenmaturity of assets and liabilities will have negative impact on banks liquidity.The necessity of depository base extension in the conditions of a more difficultaccess to foreign financing will cause the growth of liabilities financingcosts. The growth is expected to decrease gradually in the following quarters, however,it will still remain at a high, 5% level. Credit action growth rate willgradually decline, but it will still remain at a two-digit number level.Household incomes growth will be favourable for their savings which will beplaced on deposits more often than in the previous months because of the pricesdrop on the stock market as well as the higher deposit rates. Strong income growth, PLN appreciation and higher interest rates will graduallydiminish enterprises efficiency and in the case of enterprises it will make theoccurrence of higher credit risk more probable. However, fast increase ofaverage households incomes will considerably balance the risk related to highercosts of debt service with a risk increase regarding households with incomeslower than average. This information is provided by RNS The company news service from the London Stock Exchange

---

Related Shares:

BPKD.L