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BRE Bank Securities

9 August 2005

Monthly Report BRE Bank Securities

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04-08-02 04-11-28 05-03-26 05-07-22

pkt

WIG BUX PX50

BRE Bank Securities

Periodic Report

Monthly Report August

Equity market Equity prices have been noting strong gains on world markets since May. This trend involves both mature and emerging markets. It coincides with the beginning of an increased influx of money to equity funds in the US and on emerging markets as well as with a trough in bond yield charts. From the companies Media. More than 9.3% growth in Gazeta Wyborcza advertising revenues (+10.3% of the entire daily and Internet segment), in comparison with 4.6% growth in 1Q, is a pleasant surprise in Agora’s quarterly results. The com-pany will introduce new book publishing projects on the market in the fall and begin buying back its own shares in August. Telecommunications. Due to a very good quarter for Centertel, TPSA sur-prised with higher sales revenues. Strong erosion of revenues from voice services continues in fixed-line telephony. The number of Neostrada users grew only by 95 thousand in relation to 162 thousand in 1Q 2005. Information technology. Softbank received an income tax refund for 1998-2002, which will boost the company’s result this year. Softbank signed an-other two contracts with banks for the installation of risk management sys-tems and plans to sign three more this year. The earlier announced acquisi-tion of Koma from Prokom also occurred in July. Prokom signed subse-quent contracts with PZU, including a new three-year servicing contract valued at PLN 200 mn. The company also confirmed the first of its planned savings and approved the payment of a dividend from 2004 net profit, the first in the company’s history. As a result of winning the arbitration proceed-ings, Emax is again a bidder in the tender for the system for monitoring the land border worth PLN 220 mn. Construction. July was yet another good contracting month for construc-tion companies listed in the WSE. What’s more, many investments are planned in industry and trade. CSO data for June, concerning sales of the construction-assembly sector and the manufacture of cement, indicate sec-tor recovery. Pharmaceuticals. Torfarm’s good quarterly results confirm assumptions that 2Q should be favourable for all pharmaceutical distributors. In 1H, Tor-farm increased sales by 20% in relation to the analogous period of the last year and improved the gross margin on sales. Bioton announced the first contracts have been signed with Poland’s east-ern neighbours. Polfa Tarchomin began the sale of human insulin. The preparation should be introduced on the refund list in September. At that time, it will cost as much as Bioton’s Gensulin. PKN Orlen. The company presented its new cost optimisation program - OPTIMA. Implementation of this program is to reduce costs PLN 1200 mn by the end of 2009. In addition, the Czech Securities and Exchange Com-mission rejected the company’s application to buyback minority shares of Unipetrol, Spolana and Paramo. The reason for this was most likely that the price offered was too low.

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

Analysts:

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

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

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

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

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

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

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

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

Macroeconomic analysts (BRE Bank S.A.)

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

9 August 2005

WIG vs. indices in region

Equity Market Macroeconomics

Average daily trading (3M)

Average P/E 2006

Average P/E 2005

WIG 30880 16.2

16.0

PLN 558 mn

BRE Bank Securities

BRE Bank Securities

9 August 2005 2


Force of the flows

Equity Market

Equity prices have been noting strong gains on world markets since May. This trend involves both mature and emerging markets and coincides with the beginning of an increased influx of money to equity funds in the US and on emerging markets as well as with a trough in bond yield charts.. Influx to equity funds (USD mn)

Source: EmergingPortfolio.com Fund Research At the turn of May and June, treasury bond yields in Europe and the US noted long-term mini-mums. Yields are currently growing. Favourable economic data in the US, subsequent in-creases by the Fed and a minimal revaluation in China exert pressure on further growth in rates. In such a situation, equities continue to appear as more attractive asset class than bonds. At the same time, risk free rates in models continue to remain at historically low levels. Yield on US 10-year bonds

Source: Bloomberg

BRE Bank Securities

9 August 2005 3


How much longer can the favourable situation for equities last: - until the growth in labour efficiency slows and corporate profits no longer justify further equity price gains? - until inflation increases, which will eventually spoil the investment climate through higher in-terest rates and higher uncertainty in the economy? - until global economic growth, driven by consumption in the US and investments in China, slows? Many scenarios can be invented. At present, none of those mentioned above constitutes an immediate threat. Moreover, global markets have some “hidden reserves,” such as the ex-pected growth in the purchasing power of China following possible subsequent strengthening of the juan, the increasingly stronger M&A wave (strong company balance sheets, low financ-ing costs) or a secondary influx of money to equity funds, when bond funds begin to present increasingly smaller results (low, slowly growing yields). In Poland, we expect an improvement in the dynamics of GDP and investments. Last month, the large growth in wages and salaries was a surprise. With the increasing employment, this bodes well for companies that depend on consumer demand and probably for banks as well. However, in 2H, exporters may again experience problems. Over the longer term, with GDP growth of approximately 4% and bond yields of about 5% the Polish economy will create a favourable environment for investing in equities in 2006. At present, the stock exchange seems to be discounting these future long-term prospects to a greater degree than the current financial results of companies, which in fact are proving to be less negative than expected.

Equity Market

BRE Bank Securities

9 August 2005 4


Current recommendations of BRE Bank Securities S.A.

Company Recommendation Target Price Date Issued

BPH PBK Suspended BZWBK Suspended GETIN Suspended HANDLOWY Suspended ING BSK Suspended KREDYT BANK Suspended MILLENNIUM Suspended PEKAO Suspended PKO BP Suspended AGORA Accumulate 74.00 2005-08-05 AMICA Hold 37.30 2004-12-14 BUDIMEX Under review COMARCH Under review COMPUTERLAND Hold 113.00 2004-12-17 ECHO INVESTMENT Under review ELEKTROBUDOWA Buy 35.00 2005-07-12 EMAX Under review FARMACOL Buy 34.50 2005-03-24 FORTE Buy 13.80 2005-03-18 HOOP Accumulate 14.50 2005-03-18 INDYKPOL Suspended JELFA Buy 70.00 2005-02-25 JUTRZENKA Accumulate 2004-12-17 KĘTY Hold 129.50 2005-08-04 KGHM Reduce 2005-03-03 KROSNO Under review

MONDI Hold 51.00 2005-08-03 NETIA Under review 4.50 ORBIS Under review PGF Hold 50.40 2005-05-16 PKNORLEN Buy 2005-05-18 POLIMEX Buy 43.80 2005-06-30 PROKOM Under review SOFTBANK Accumulate 36.50 2005-04-04 TELEKOMUNIKACJA POLSKA Hold 19.50 2005-02-08 TORFARM Accumulate 46.00 2005-03-24 WAWEL Accumulate 120.00 2005-03-22

LOTOS Accumulate 35.50 2005-08-08

BRE Bank Securities

9 August 2005 5


Changes in recommendations within the last month

Recommendation Statistics

Company Recommendation Target Price Date Issued

ELEKTROBUDOWA Buy 35.00 2005-07-12

AGORA Accumulate 74.00 2005-08-05

KĘTY Hold 129.50 2005-08-04

MONDI Hold 51.00 2005-08-03

LOTOS Accumulate 35.50 2005-08-08

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

Statistics Sell Reduce Hold Accumulate Buy Sell Reduce Hold Accumulate Buy

number 0 1 7 7 6 0 0 3 2 1

percentage 0.0% 4.8% 33.3% 33.3% 28.6% 0.0% 0.0% 50.0% 33.3% 16.7%

BRE Bank Securities

9 August 2005 6


China’s decision to modify and increase the flexibility of its financial regime, brought about by long-term pressure from abroad was long-awaited both by politicians and financial markets and was certainly the key event of the month, if not of the year. Naturally, no immediate effects should be expected from the 2.11% revaluation of the juan against the dollar, allowing daily fluctuations in the range of 0.3% and tying the exchange rate not only to the USD but to a bas-ket of currencies as well. However, the first step has been taken to change the exchange rate mechanism in China and - which is most important - this could play a significant role in restor-ing balance on a global scale. In regard to balancing risk, the Fed is currently placing a definitely greater emphasis on infla-tion than on growth. We expect the Fed fund rate to grow to 4.25% this year, and to reach 5% in 2006. Market rates should also grow, with 10-year bonds yielding approximately 5% in De-cember. The spread relative to the European curve will increase along the entire length, and not only at the long-term end, due to expectations concerning rate reductions by the European Central Bank. ECB will reduce rates, should a subsequent review of the economic growth rate in the euro zone push them below 1.3%. Due to uncertainty regarding the situation (including the methodology of collecting and proc-essing statistical data, where a particularly cautious approach should be employed), we be-lieve core macroeconomic relationships should be used to evaluate economic processes. In 1H, the restrictive nature of both components of the policy mix in Poland undoubtedly in-creased. The lower than expected rate of economic growth and a higher than expected decline in inflation are explainable in light of the growth in real interest rates, real appreciation of the PLN and the tighter fiscal policy. The lower than possible rate of GDP growth and a lack of inflationary pressure in the medium-term, in combination with a high likelihood of further PLN appreciation, mean that an accom-modative monetary policy can be expected. Although market players in Poland cannot predict the reaction of the Monetary Policy Council as a whole, they are able to predict the prefer-ences of individual Council members with relative ease. This is the reason for the differing opinions regarding the rate at which interest rates are expected to converge. The situation would be less complicated if Poland quickly joined ERM2. However, there is no hope left that Belka’s government will come to an agreement with the central bank in regard to the principles and the date of Poland joining the ERM2 mechanism. Works on a program of convergence to the euro will not begin until a new government is formed. Moreover, when this work will begin, and if it begins at all, still remains unknown, as declarations of the main pro-spective coalition partners diametrically differ in this regard. With the market lacking an “anchor” in the form of a schedule for joining ERM2, analysts are encountering major problems with predicting the course of monetary policy. It could be an ac-tive policy, which assumes fluctuating rates, where the goal is to get the rate of economic growth to the level of economic potential and inflation to the target level (defined as 2.5%) as quickly as possible. On the other hand, it could a passive policy, where adaptation of the sup-ply side to the demand side occurs as a result of the central bank permitting inflation to remain below target for a longer period of time and even, in extreme cases, permitting deflation.

Macroeconomics

BRE Bank Securities

9 August 2005 7


Macroeconomics Main Macroeconomic Indicators

May 04 Jun 04 Jul 04 Feb 05 Mar 05 Apr 05 May 05 Jun 05 Jul 05 GDP and Output GDP 6.1% 2.1% 2.5% Domestic demand 5.8% 1.1% 1.5% Private consumption 4.0% 1.7% 1.9% Gross fixed asset investments 3.9% 1.0% 4.3% Value added 5.6% 2.2% 2.4% in industry 12.9% 0.9% 1.6% in the construction sector -2.7% 5.3% 7.3% in the market services sector 4.9% 2.5% 3.0% Industrial production growth y/y 12.2% 15.8% 6.0% 2.3% -3.7% -1.1% 0.9% 6.8% 6.1% Industrial production growth m/m -6.7% 2.8% -4.0% -0.3% 10.2% -0.4% -4.8% 8.8% -4.7% Retail sales y/y 4.0% 8.6% 10.9% 2.4% -0.3% -14.4% 8.0% 10.5% 9.2% Retail sales m/m -20.6% 2.3% 6.0% -4.3% 18.0% 2.0% 0.2% 4.6% 4.8% Labor Market Average wages in enterprise sector (in PLN) 2353.56 2405.01 2428.12 2411.49 2480.50 2471.22 2423.92 2512.78 2486 Wages growth m/m (CPI-adjusted) -4.0% 0.8% 1.3% 1.2% 2.8% -0.8% -2.2% 3.9% -0.9% Wages growth y/y (CPI-adjusted) 1.0% -0.1% -1.0% -2.1% -1.2% -1.1% 0.5% 3.0% 1.3% Employment m/m 0.1% 0.1% 0% 0.2% 0.0% 0.2% 0.1% 0.3% 0.2% Employment y/y -1.1% -0.7% -0.7% 1.6% 1.6% 1.7% 1.6% 1.7% 1.9% Unemployment rate 19.6% 19.5% 19.3% 19.4% 19.3% 18.8% 18.3% 18.0% 17.8% Foreign Trade Current account (in US$) -750 -408 -903 172 91 693 -916 41

Foreign trade in goods balance- payment basis -297 -234 -596 75 -441 -9 -491 -57

Exports – payment basis y/y (in US$) 28.8% 40.1% 22.7% 26.4% 18.5% 13.8% 16.2% 3.6% Imports – payment basis y/y (in US$) 21.6% 38.8% 17.6% 24.9% 13.3% -2.8% 18.4% -0.1% Current account (in EUR) -416 -336 -532 132 67 647 -724 33

Foreign trade in goods balance- payment basis (in -248 -192 -486 57 -334 107 -386 -47

Exports – payment basis y/y (in EUR) 23.8% 35.0% 13.8% 23.2% 10.1% 13.0% 9.9% 2.5% Imports – payment basis y/y (in EUR) 16.8% 33.7% 9.1% 25.4% 5.3% -5.1% 11.9% -1.4% Current account (% GDP) -2.7% -2.6% -2.5% -1.4% -1.0% -0.4% -0.4% -0.2% Prices CPI m/m 1.0% 0.9% -0.1% -0.1% 0.1% 0.4% 0.3% -0.2% -0.2% CPI y/y 3.4% 4.4% 4.6% 3.6% 3.4% 3.0% 2.5% 1.4% 1.1% CPI annual average 1.5% 1.8% 2.1% 3.8% 4.0% 4.0% 4.0% 3.7% 3.5% HICP y/y 3.5% 4.3% 4.7% 3.5% 3.2% 3.1% 2.2% 1.4% 1.2% Net inflation y/y 2.0% 2.3% 2.3% 2.3% 2.4% 2.3% 1.5% 1.4% 1.4% PPI m/m 0.6% -0.2% 0.2% -0.3% 0.5% 0.6% -0.2% 0.3% 0.3% PPI y/y 9.6% 9.1% 8.6% 3.4% 2.2% 0.8% -0.5% 0.1% 0.2% Money Aggregates Money supply (M3) 347.6 353.3 352.8 372.4 380.2 386.1 393.4 391.3 389.8 Money supply y/y 9.4% 11.0% 10.0% 13.2% 10.7% 10.5% Cash in circulation 50.2 50.5 50.9 50.5 51.4 53.2 52.9 53.8 Total loans 261.0 262.3 260.3 267.4 272.5 279.5 285.5 282.0 Total household loans 108.0 108.8 109.2 115.1 117.9 123.8 130.0 125.7 Total corporate loans 125.0 124.9 122.6 123.1 124.0 125.8 126.1 125.9 Total deposits 294.6 298.0 296.6 313.8 320.4 323.1 329.6 325.4 Total household deposits 191.6 191.6 191.5 198.9 201.1 201.9 200.0 199.9 Total corporate deposits 71.4 75.3 74.0 78.4 82.2 82.2 83.9 85.7 Forex Rates US$/PLN rate (end of month) 3.8044 3.747 3.6299 2.9375 3.1485 3.3143 3.3845 3.3518 3.41 EUR/PLN rate (end of month) 4.6509 4.5422 4.3759 3.8859 4.0823 4.2694 4.1675 4.0392 4.11 Interest Rates NBP intervention rate 5.25% 5.75% 6.00% 6.50% 6.00% 5.50% 5.50% 5.00% 4.75% Lombard rate 6.75% 7.25% 7.50% 8.00% 7.50% 7.00% 7.00% 6.50% 6.25% Deposit rate 3.75% 4.25% 4.50% 5.00% 4.50% 4.00% 4.00% 3.50% 3.25% Mandatory reserves rate 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% WIBOR 3M 6.00% 6.05% 6.41% 6.11% 5.71% 5.40% 5.24% 4.70% 4.62% Bond yield 2Y 7.48% 7.40% 7.68% 5.348% 5.459% 5.425% 5.114% 4.560% 4.53% Bond yield 5Y 7.57% 7.48% 7.83% 5.553% 5.502% 5.626% 5.168% 4.660% 4.72% Bond yield 10Y 7.39% 7.25% 7.50% 5.487% 5.481% 5.568% 5.125% 4.683% 4.73%

BRE Bank Securities

9 August 2005 8


Chinese Breakthrough Unquestionably the Chinese decision, long-expected by politicians and financial markets, may be regarded as the highlight of the month, if not of the entire year. China finally yielded to an intense and enduring international pressure and decided to modify its forex regime and to make it more flexible. Naturally, there would be no fast effects of Yuan revaluation by 2.11 percent against the dollar, admitting 0.3 percent band of possible daily fluctuations and tying the exchange rate not only against the dollar, but against the basket of currencies. Revaluation on such a scale cannot bring about a reduction of the American trade deficit. This aspect of economic relations with China is blown up anyway. The share of China in American imports slightly exceeds 13 percent, and in exports 4 percent. Even if revaluation of the Yuan has the effect of reducing the American imports from China by half and increasing the exports to China, this would permit to curb the American deficit by not more than US$ b 29, i.e. 0.24 percent of the GDP. What’s more, to trigger such an “improvement”, the scale of Yuan re-valuation would have to reach not 2, but 25 percent, and in addition the currencies of China’s major competitors in exports to the American market would have to appreciate against the dollar just as the Yuan did.

Source: People’s Bank of China Modification of the forex regime immediately after announcing the decision has weakened the dollar against non-Asian currencies and raised the yield of American bonds. It comes as no surprise, since players on the global financial market are widely convinced that the structure of hard currency reserves must correspond more or less with the structure of the new Chinese foreign currency basket. Although this issue is a debatable one, it is difficult to fight the convic-tion of the market. Since, according to unofficial data, at present the ratio of the dollar to the China’s hard cur-rency reserves, the value of which is estimated at over US$ b 700, reaches 65 percent, while the ratio of the euro to these reserves is a mere 20 percent, according to investors there is much room of 25 up to 45 percent for sales of the dollar. But would that happen? It is nor known. First – we do not know the composition of the basket and – secondly - the structure of reserves need not be closely related to the composition of the basket.

Source: Reuters

China foreign reserves (b USD)

0100200300400500600700800

Q12001

Q32001

Q12002

Q32002

Q12003

Q32003

Q12004

Q32004

Q12005

10Y US yields

4.15

4.20

4.25

4.30

20-0

7 00

:05

20-0

7 05

:30

20-0

7 09

:50

20-0

7 14

:00

20-0

7 18

:10

20-0

7 23

:00

21-0

7 03

:55

21-0

7 08

:30

21-0

7 12

:40

21-0

7 16

:50

21-0

7 21

:00

22-0

7 02

:05

22-0

7 06

:35

22-0

7 10

:45

22-0

7 14

:55

22-0

7 19

:05

25-0

7 00

:45

25-0

7 06

:25

PBoCh decision

Macroeconomics Trends

BRE Bank Securities

9 August 2005 9


However, would the “Chinese effect” continue to bring the American bond prices down, as it did in the beginning? This cannot be certain. Theoretically, the global financial markets may be expected to be less liquid due to the gigantic surplus at the Chinese C/A account which is nearing 6 percent of the GDP and deceleration in the growth of hard currency reserves. This should undermine demand for American assets. In such case, some of the Greenspan’s puz-zle (“conundrum” low rates) would have been resolved. On the other hand, it is not certain whether the capital flooding China would not intensify in anticipation of the successive revaluation of the Yuan. Then the surplus on the C/A account would inflate even further and demand for American bonds would under such conditions de-cline very slowly, retaining yields at low levels. No doubt, the first step on the path leading towards a change of the forex regime in China - which by all means is the key issue – may be an essential element of reinstating balance on a global scale. Fed –Towards Inflation The manner in which the American central bank “leads” market players, which are still divided in assessment of the upside and downside balance of risks for inflation and growth, is indeed a perfect one. Successive monthly figures can sway the market towards one side or another, but when Greenspan speaks, investors listen. When standing before the congress committee and assessing the condition of the economy, the Fed gave a bright vision of development of the macroeconomic conditions in the United States. („Our baseline outlook for the U.S. economy is one of sustained economic growth and contained inflation pressures. In our view, realizing this outcome will require the Federal Re-serve to continue to remove monetary accommodation.”). In its forecast, updated versus the February’s version, the Fed indicated the growing inflation indexes (mainly core PCE up from 1.75 to 2 percent for years 2005-2006), electric energy prices, growing salaries, unit labor costs, or decline of the unemployment rate (to 5 from 5.25 percent) and has placed a definitely greater weight in the balance of risks upon inflation than growth (though the GDP forecast for 2005 has been reduced from 3.75 percent to 3.5 per-cent).

Source: Bear Stearns Under these conditions, the Fed may be expected to go on with successive interest rate in-creases up to the level of 4.25 percent at the year end and 5 percent in 2006. Market interest rates should also go up. 10-year bonds may reach a yield of some 5 percent in December. Spread to the European curve will open up along the entire length of the curve, not only at its long end, on account of expectations for interest rate reduction by the European Central Bank.

USA forecasts

0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%

Q12005

Q22005

Q32005

Q42005

Q12006

Q22006

Q32006

Q42006

GDP Core CPI Core PCE

Macroeconomics

BRE Bank Securities

9 August 2005 10


Source: Reuters ECB– Towards Growth The balance of upside and downside risk in the Euroland is different than in the United States, as it leans towards low growth accompanied by low inflation. Successive wave of reviewed growth forecasts (not more than 1.2 percent this year) placed the real GDP below the already low potential level for the Euroland (approx. 2 percent ).

Source: Eurostat, BRE CPI forecasts for 2005 fall within the 1.6-1.8 percent brackets, whilst in the case of year 2006 are even below 1.5 percent despite high fuel prices. The inflation projection of the ECB team of analysts points towards 0.9-2.1 percent. The core inflation does not exceed 1.5 percent already.

Source: Eurostat, BRE None of macroeconomic indicators (apart from increase of borrowings) looks promising at the moment. Trends in foreign trade (fall of export in the second quarter by 0.6 percent coupled with a drop of import by 1.6 percent) depict a low level of demand in the Euroland. Also trend-heralding indices do not indicate any breakthrough. The situation is not made any better by the discussion recurring from time to time on the rationality of exit from the Euroland by some countries.

Spread 10Y Treasuries vs Bunds

0.5

0.6

0.7

0.8

0.9

1.0

03-0

1-05

17-0

1-05

31-0

1-05

14-0

2-05

28-0

2-05

14-0

3-05

28-0

3-05

11-0

4-05

25-0

4-05

09-0

5-05

23-0

5-05

06-0

6-05

20-0

6-05

GDP in EMU

0.0%

0.5%

1.0%

1.5%

2.0%

2001 2002 2003 2004 2005 2006

CPI in EMU

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

2001 2002 2003 2004 2005 2006

Macroeconomics

BRE Bank Securities

9 August 2005 11


We are of an opinion that the overly restrictive monetary policy is not the main problem of the Euroland. The European economy nurtures serious problems of a structural nature. Inflexibility of the labor market, older and older population, high taxes, not reformed and costly social se-curity system - these elements are much more serious and have a greater importance for a sustainable growth than interest rate cut by 0.5 percent by the ECB. Nonetheless, if the ECB will be forced to once again reduce the growth forecast in the third quarter below 1.3 percent for 2005, and the euro – as we project – will remain strong versus the dollar, the ECB will most probably cut the base interest rate. It may take place in Septem-ber or in November (in October the ECB meeting will be held in Athens and the bank has never before made such a decision during a visit meeting). We believe that an earlier date means a cut by 25 points, and the autumn date increases the probability of a more aggressive cut, by some 50 basis points.

Macroeconomics

Monetary Policy

Wavering Market The Monetary Policy Council turned aggressive and reestablished the easy monetary policy bias, cutting interest rates by 50 basis points once again after two months, that is in June 2005. Even so, the market expectations for interest rate cuts increased quite moderately. Anyway, not high enough to discount Poland’s ERM2 accession in the prices. Changes in the balance of risks between future inflation and growth are now coherent with the bias which advocates a higher probability of interest rate cuts than increases. Two months ago, when the Council cut the rates by 50 points, at the same time changing the bias from expansive to neutral (which we have criticized), it must have evaluated the economic situation and the inflation path differently than in June. When it restricted the bias in April, the Council intended to slow down what it believed were excessive expectations of interest rate cuts which caused a rapid strengthening of the zloty and a fast rise of prices at the debt market. A different evaluation of the balance of risks became justified in June in view of GDP figures for Q1, projections for Q2 as well as inflation forecasts. According to our projections, GDP will grow by not more than 3.2-3.3 percent in 2005; at the same time inflation will remain below the NBP target until the end of 2006, even falling to 0.8-0.9 percent at the end of 2005. Given this balance of risks, interest rate cut and reversal to an easy bias would no doubt be adequate to the macroeconomic conditions and arouse no objections. If the Council’s decision were ad-dressed solely to companies, there would be no problem at all. More often than not, the problem lies in the reaction of the financial market to the Council’s decisions. The market has a more down-to-earth interpretation of the relaxation of the bias which accompanies the aggressive cut. For investors it means a greater scale of interest rate cuts once again discounted in prices. For the Council, the change of the bias implies merely a dif-ferent perception of the balance of probability between interest rate cuts and increases. Conse-quently, despite all reassurances that there is no mechanical association between relaxation of the bias and an interest rate cut, and despite reservations that a “better assessment of the scale of the expected improvement of economic activity” enabling an identification of the “scale and duration of monetary policy adjustment” may only be possible in a few months’ time, expectations related to short interest rates hit even 4.0 percent immediately after the June’s decision of the MPC, while market rates slid to a historic minimum of 4.20-4.30 percent. The spread against the market rates in the Euroland has grown very narrow, since it reached 50 points. It seemed that the market begins to discount the Czech convergence scenario in Poland despite absence of information on the date of ERM2 entry. This would have been rea-sonable since given the German bunds slightly below 3 percent and the anticipated reduction of the ECB repo rate to 1.50 percent, demand for Polish Treasuries should remain – and in-deed remained – huge. Furthermore, the drop of rates art the short end of the curve was also boosted by those members of the MPC who openly suggested the need for a deep repo rate reduction by as much as even 150 points.

BRE Bank Securities

9 August 2005 12


Source: GUS, BRE However, the disturbingly low level of market interest rates rose after successful output figures in June. According to the Central Statistical Office (GUS), industry output increased by 6.8% y/y. After seasonal adjustment, the sold output totaled 3.9% versus w June 2004. These figures were only slightly above the market consensus, but members of the Council promoting a mod-erate easing of the monetary policy immediately joined in the game. Their stance has been supported by figures on a surprisingly high growth of average salary in the corporate sector. According to GUS figures, the average salary in the corporate sector equaled PLN 2,512.78, which means a growth by 4.5% y/y (much above expectations, both those of the market as well as ours, i.e. 2.3%). It was the highest growth of nominal salaries in the corporate sector since August 2004. Given the drop of annual inflation in June to 1.4%, the real salaries were on the rise for a second month in a row and increased by as much as 3%. Furthermore, employment in the corporate sector has also improved as compared to May by 0.3%, which gives a growth of 1.7% per annum. It is obvious that in the near future we may expect a steady and stable growth of salaries, which should translate into a growth of consumption. Active or Passive Council? The awareness that the group of promoters of smaller interest rate reductions, more favorably perceiving the growth prospects and less optimistic as regards inflation now numbers at least 3 MPC members (including the President armored with his casting vote) has effectively cooled down the expectations of the market for a 50 point cut in July, replacing it with a moderate 25 basis points. The longer end of the curve stabilized quite quickly at a level of 4.60-4.80 per-cent. The difficulty in formulating an unambiguous evaluation of the GDP growth rate in the second half of the year still remains the basic problem in the Polish economy. However, the inflation path projections are not a problem. There is no demand pressure and monetary aggregates remain under control. In June the dynamics of M3 money supply totaled 10.7% on an annual basis. Deposits in non-monetary financial institutions fell to their previous level after a hike in May caused by flotation of Lotos shares at the stock exchange. The value of deposits and receivables of households also fell as compared to May (by 0.1% and 3.3% respectively). The level of corporate borrowing also de-clined slightly (by 0.1%). The annual dynamics of this index remains a bit over zero (0.8%). However, another change of methodology has been introduced: beginning from June, the NBP excluded outstanding and unpaid interest from the “receivables” category. Hence, it is becom-ing more and more difficult to draw solid conclusions on the basis of June figures. To recapitulate: in the absence of an anchor in the form of ERM2 accession timetable, which the markets would have been well familiar with, analysts encounter serious problems when attempting to anticipate the likely course of the monetary policy. It might be an active policy, involving major interest rate changes aimed at a growth rate approaching the potential level as soon as possible and at inflation around the target (defined at 2.5 percent); yet it may well be a passive policy, where adjustment of the supply side to the demand side takes place as a result of inflation sanctioned by the central bank to remain significantly below the target for a long time, or even - in the extreme scenario - as a result of deflation accepted by the bank.

Macroeconomics Contribution to CPI m/m

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

01 2

004

02 2

004

03 2

004

04 2

004

05 2

004

06 2

004

07 2

004

08 2

004

09 2

004

10 2

004

11 2

004

12 2

004

01 2

005

02 2

005

03 2

005

04 2

005

05 2

005

06 2

005

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

BRE Bank Securities

9 August 2005 13


Source: GUS, BRE At present market participants encounter elementary difficulties with tracing the reaction func-tion of the MPC as a whole, though indicating preferences of individual Council members no longer poses any problems. Hence, there are divergences in the evaluation of the anticipated interest rate path in Poland.

MCI Still High

Source: GUS, BRE Despite reductions of interest rates from the end of April till the end of June, the MCI indicates that the monetary policy has tightened. It is a result of a fast drop of the inflation, greatly exceeding the reduction of the interest rates, which translated into a hike of the real interest rate. Furthermore, the zloty has slightly gained in strength. A major question - also for the Council - is how the zloty would perform after the elections in September? In our assessment, at the end of the year we may expect PLN/EUR exchange rate at some 3.8, which means some 7-8% increase in the value of the Zloty versus the July level. Given this scenario, the monetary policy must be accommodating, though the issue of the scale and dates of interest rate reductions would remain unresolved.

0%

1%

2%

3%

4%

5%

Q1 2005 Q2 2005 Q3 2005 Q4 2005GDP (y/y) CPI (y/y)GDP (y/y) (forecast) CPI (y/y) (prognoza)

Macroeconomics

-1.3

-1.2

-1.1

-1.0

06 1

995

12 1

995

06 1

996

12 1

996

06 1

997

12 1

997

06 1

998

12 1

998

06 1

999

12 1

999

06 2

000

12 2

000

06 2

001

12 2

001

06 2

002

12 2

002

06 2

003

12 2

003

06 2

004

12 2

004

06 2

005

-10%

-5%

0%

5%

10%

15%

20%

25%

MCI (reverted)production (y/y 3M MAVG)

russiancrisis

EU accession

BRE Bank Securities

9 August 2005 14


SEMI-TRANSPARENCY Pursuant to Article 16.3 of the Act on the National Bank of Poland, decisions of the Monetary Policy Council shall be made in the form of resolutions. Article 16.4 reads: “positions of the Council members taken in a vote shall be published in the official gazette “Monitor Sądowy i Gospodarczy” after the lapse of 6 weeks, but not later than 3 months after the date of the reso-lution.” Why then the Council’s position as regards the monetary policy bias, which signals the most likely direction of interest rate changes, was not adopted by way of a resolution, but as a “vote on a motion”? Neither the Act on the National Bank of Poland nor the Council’s Rules contain any explication of this issue. This issue is far from being irrelevant, as according to the NBP the change of bias made with-out a resolution need not be published together with the results of the interest rate voting. The implications of this casuistic legalism passed unnoticed until recently. Yet, recently matters turned from bad to worse. The “Monitor Sądowy i Gospodarczy” gazette has recently published the results of the Council’s April voting which produced greater than expected interest rate cut accompanied by a sudden tightening of the bias. However, the ga-zette only sheds light on how the members voted on the issue of the interest rates and gives no information on the bias voting, which is more relevant to us at the moment. In order to find out what majority supported the April shift from an expansive to a neutral bias the market must wait until the end of August, when the voting results will be published in the “Inflation report”. To put it briefly, a part of the monetary policy decision has been disclosed as it was passed in a form of a resolution; the other part would remain under wraps for 4 months as a “vote on a motion.” The matter becomes even more attention-grabbing considering that the 50 bp interest rate cut in June was accompanied – as we all know - by a reinstatement of the expansive bias. The results of this equally intriguing vote will also be published in August. Hence, in August the markets will learn about the both the April and June votes, which swung the bias in a pendu-lum-like motion. It seems that due to the legal interpretation adopted by the NBP, some public information is revealed to market participants and some later. What is the point? It is more difficult to antici-pate the outcome of at least two successive Council meetings in July and August. Besides, a more fundamental issue with a wider perspective remains wooly. Well, the monetary policy bias has been designed as an instrument of better communication with the financial market. It was to impart greater transparency to the Council’s actions. How then should we take in this internal procedure which thanks to legal fiddling permits to publish only a part of the information valuable to the markets and puts off substantially the disclosure of the other part of the information on how the MPC members voted on the most likely direc-tion of the monetary policy? The most appropriate label would be semi-transparency. Until recently, despite unrelenting requests from the markets, the central bank was unwilling to publish in advance the dates of Monetary Policy Council meetings scheduled for the year. Eventually, this unconquerable fortress has given in and nothing went awry, except for the fact that things have turned a bit more normal now. How about unveiling yet another relic of secrecy? As long as the monetary policy bias exists, let’s ensure that the results of voting on this guide of monetary policy direction are available on the same terms and conditions as the information concerning voting on the interest rates. For this, there is even no need to change the procedure for monetary bias decisions. It is sufficient for the NBP to publish the results of the monetary policy bias vote on its Website at the same time as it publishes the results of the interest rate vote in the “Monitor Sądowy i Gospodarczy” gazette. Alas, this tool seems not too demanding to avoid charges of being semi-transparent, is it?

Macroeconomics

BRE Bank Securities

9 August 2005 15


Macroeconomics Fiscal Policy

Budget at Midpoint and Still Decent Budget Execution till June 2005

Source: MF In accordance with MF figures, in June budget execution reached 52.9% of the annual plan. Hence, the last month’s surplus reported by the Ministry (attributable to the payment of NBP profit), has not been not confirmed. However, the monthly deficit was negligible (PLN m 225). In mid-year, both revenues and expenditure were realized in approx. 50%. As regards revenues, basic trends have remained unchanged for a few months. Favorable proceeds from CIT indicate an opportunity to generate a surplus (though in June alone the proceeds were low which is attributable to the reimbursement of overpaid taxes for 2004). Indirect tax proceeds are also up to the mark, though attention should be pointed to a more significant desegregation of data – proceeds from VAT are advantageous, besides – as we have been reporting for a long time – economic acceleration expected to occur in the second half of the year should constructively impact VAT receipts. However, proceeds from the ex-cise tax are below the expected level, and no improvement should be anticipated to be re-ported by the year-end. Budget expenditure remains under control though high costs of interest payment of domestic debt incurred in the last two months arrest attention (May – PLN b 3.7, June – PLN b 2.8), which results from the redemption of bonds. For the time being, the concern that a growth rate of below 4% may pose a real threat to the budget prove unfounded, and if the growth is reported to accelerate in the second half of the year and budget revenues from VAT are higher, the curbing of the state budget deficit by PLN b 1.5-2 at the end of the year should turn out to be plausible. Ultimately, it will depend upon the government that may (like in the preceding year) make a decision to transfer an additional subvention to the Social Security Fund (FUS) and farmers’ pension organization (KRUS), thereby preventing, at the expense of the budget deficit, the deficit of the public finances sector from augmenting. The budget remains highly liquid. For the consecutive time we draw special attention to large funds derived by the MF through foreign issues (this year – EUR b 6.25, CHF b 1.9, JPY b 75, and USD b 1 announced for September), that may be beneficial in curbing domestic supplies in the event market conditions deteriorate, simultaneously supporting the Zloty in case the MF wants to sell foreign currencies on the market just as it did late July.

REVENUES 86419.0 49.5% Indirect taxes 55869.7 47.8%

Corporate income tax 7462.4 50.8%

Personal income tax 10448.1 44.2% Income of state units financed from the budget 7762.7 58.6%

of which: income from customs duty 603.9 38.8%

Other income 4876.1 79.0% EXPENDITURE 104934.9 50.0% of which: Interest payment of domestic debt 10843.8 51.7%

Interest payment of foreign debt 2671.1 46.7%

Pension Fund subventions 7557.2 53.0% Social Security Fund subven-tions 12639 67.8%

Local governments subventions 19006.3 58.7%

DEFICIT -18515.9 52.9%

BRE Bank Securities

9 August 2005 16


Last Year’s Profits June budget performance is to a large extent impacted by the transfer of the NBP profit that, ultimately, equaled PLN m 4168, this figure being by nearly PLN m 500 lower than provided for in the act. It should, however, be noted that the amount that the budget failed to get from the NBP, will be recuperated later on in the year with a surplus due to favorable business trends prevailing last year. In August and September, significant income from dividend for the State Treasury’s involvement in joint-stock companies will credit the budget account. Following a battle over the level of payments (as striven for by the Minister of Treasury), in the end proceeds from the dividend from the four largest companies with a major shareholding of the State Treasury will, in our assessment, exceed PLN b 1.2 (throughout the year, the budget was scheduled to acquire nearly PLN m 500). Dividend from the remaining companies may reach PLN m 200-300 in total, hence we expect total dividend proceeds to be exceeded by PLN b 1.

Source: Ministry of the Treasury, companies Similarly, transfer of profits of state enterprises and companies wholly owned by the State Treasury are running at a higher level than anticipated. Nearly the entire revenue amount planned for the current year had been generated by the month of May (also a little less than PLN m 500). Considering that in the preceding years this category of revenues was realized throughout the 12 months of the year, also in that case income as at the end of the year may be anticipated to be higher than planned. Besides, non-tax income are benefiting from highly advantageous conditions prevailing at the debt market. Owing to exceptionally low interest rates applicable this year, in bids longer (coupon) bonds are fetching prices of upwards PLN 1000 for the MF, thus generating current budget revenues. To quote an example, the budget „earned” PLN 217 on a current basis on a recent offer of 10Y bonds (1.8 billion bonds sold at an average price of PLN 1120.67). Privatization proceeds are still low and may be expected to improve once Polmos Białystok (over PLN b 1) is sold but, all in all, it’s a long way before the planned amount of proceeds is reached. Major privatization projects scheduled for the current year comprise of Enea and Kozienice Power Plant. Presumably, the sale of „left-overs” – e.g. TP S.A. will continue, but one should not count that funds derived from that sale will push this year’s proceeds up con-siderably. Low progress in privatization will curb the scale of drop in the borrowing needs of the budget or will force the Minister of Finance to set-off the loss with more active forms of sale of “non-working state assets”.

Transfers from the EU – Positive, Yet Low Nearly since the very first day of its membership in the EU, Poland has remained a beneficiary of EU funds. As anticipated, a negative balance is reported in individual months (the first month of membership, the beginning of the current year), yet the cumulated balances are posi-tive (a year ago – EUR b 1.5 net, in the first 5 months of the current year - EUR b 1).

Source: MF

Macroeconomics

Company Dividend for the budget (PLN m) Payment date

KGHM 177.1 August 2 PZU 390.1 August 5 PKO BP 557.5 September 1

Orlen 46.7 September 1 46.3 December 1

-600-400-200

0200400600800

1 000

Jan-0

4

Mar-04

May-04

Jul-0

4

Sep-04

Nov-04

Jan-0

5

Mar-05

May-05

EU transfers (mln EUR)Membership paymentNet transfers

BRE Bank Securities

9 August 2005 17


At this point, attention should be drawn to the relentlessly poor absorption of EU funds. The amount scarcely exceeding EUR m 500 that was transferred to Poland under Structural Funds in 2005 (by May) represents but advance payments. Very low is the percentage of funds that have already been cleared with domestic entities. Yet, it is worthy of remembering that this in not a circumstance that would upset the MF as, in a short run, these funds increase the liquid-ity of the budget. Even less money poured in from the Cohesion Funds – as little as EUR m 350 from the begin-ning of Poland’s membership in the EU. As we have recently reported, the majority of these funds will be converted into Zloty on the market and, therefore, should impact the appreciation of the Polish currency. This, however, will be a delayed effect. On the other hand, funds for direct subsidies for farmers – over EUR m 600 since the begin-ning of the year are inflowing more abundantly. These funds are regularly transferred to their recipients and, hence, no wonder that the annual dynamics of farmers’ banking deposits con-siderably accelerated in November 2004, and has fluctuated around 100% since the beginning of the year.

The Parliament Ends Just As Usual Right before the end of the tenure, members of the Parliament are attempting, with abandon and without any embarrassment, to spoil public finances. Works on the amendment of the act on old-age and disability pensions that will extend the period preceding the early retirement by 2 years (from the end of 2006 to 2008) are coming to an end. Virtually, there is at least one year left for the adoption of an act governing that issue but in that case members of the Parliament came to the conclusion that people should “be ensured social peace”. In other words, it’s not bad that the government is working on its own draft act (on which the Trilateral Commission is currently preparing an opinion), it’s not bad that the costs of that act amount to billions of Zloty annually, it’s important to recall oneself to the memory of the public before the elections. Another legislative act within the framework of the pension system – allowance for old-age and disability pensioners to be disbursed in years in which benefits are not valorized – has already been signed by the President – benefits (PLN b 1.3) will be paid out in August and September. Construction relief meant to offset an increase in VAT rate on construction materials will not leave budget revenues unaffected. We can hope that the President will veto unreasonable acts and will do so early enough as to prevent the stepping-down Parliament from abolishing them. Then, all those harmful pieces of legislation will end up in a rubbish bin. A debate over motions for the dismissal of Minister Gronicki turned into yet another parliamen-tary show. Unpleasantly surprising was in that case the position of deputies of the Civic Plat-form (PO), who collectively and without a moment’s hesitation supported the motion to dismiss the Minister despite a discreditable justification (on account of „liquidation of the Polish Zloty and Polish monetary authority”). The Minister got a knock from the Civic Platform for, among others, the rejection by the Sejm of acts reforming the Social Security Fund (FUS) and farm-ers’ pension organization (KRUS) (let us remind – acts provided for in the Hausner’s plan were rejected among others by votes cast by the Civic Platform) or for the introduction of a 50% PIT rate (original idea of deputies).

Macroeconomics

BRE Bank Securities

9 August 2005 18


Voting on Minister Gronicki’s dismissal

Source: Sejm Long Time-Limit – Multitude of Unknowns Naturally, in the long run the fiscal policy is dependent upon the results of parliamentary elec-tions. The incumbent Finance Minister has for several months focused exclusively on current issues: next year’s budget, organization of foreign issues (in June Poland issued 50Y EUR-denominated bonds). Works carried out in the Ministry of Finance on the strategy of entering the Euro land are of no major significance as of now. We assume that although the Civic Platform and Law and Justice parties explicitly distanced themselves from the draft of next year’s budget prepared by the outgoing Finance Minister, it will however form a basis for the budget to be adopted by the new parliament. We expect that the draft will provide for a state budget deficit of approx. PLN b 31 and for a further drop in borrowing needs. Declarations on the deficit made by present opposition in the course of electoral campaign are of no worth. Tax reform (both parties to form the future coalition declare their desire to bring taxes down) is undoubtedly necessary but no concepts concerning adjustments to be made on the expenditures side have been put forward so far. In no way can the announced freezing of the nominal deficit of the state budget, or especially the sharp reduction of the deficit, be treated seriously, if politicians remain silent on the deficit of the public finances sector. Future parties forming the coalition are divided not only by the issue of the linear tax. In the light of electoral declarations, market players cannot even dream of a predictable strategy of Poland’s entry into the Euro land. We uphold an opinion that we have already voiced previously: for the purposes of assessment of a government to be formed following September elections, it is the months at the turn of the first and second quarters of next year that will be of crucial significance, the months to witness the beginning of works on macroeconomic assumptions of the 2007 budget.

Macroeconomics

Club/Circle No. of voting

persons For Against Abstaining

votes

Social Democratic Alliance (SLD) 131 0 131 0

Civic Platform (PO) 55 55 0 0 Law and Justice (PiS) 44 44 0 0 Polish Peasants’ Party (PSL) 34 33 0 1

independent. 25 8 11 6 Social Democratic Party of Poland (SDPL)

31 0 31 0

Self-Defense (Samoobrona) 28 28 0 0 League of Polish families (LPR) 23 23 0 0 Economic Alliance (SG) 6 0 6 0

Labor Union (UP) 11 0 8 3 Conservative-Peasants’ (KL) 3 1 1 1

right wing circles 13 13 0 0

Total 404 205 188 11

BRE Bank Securities

9 August 2005 19


Macroeconomics EUROMONITOR

4 convergence criteria The blue area is delineated by the Maastricht criteria, the line within means that the criteria have been

met.

Spread against interest rates in the Euroland

Deviation of the nominal currency rate from the current value

Poland

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

Inflation

Interest rates

Deficit

Public debt

Criteria area

Degree of adjustment

Source: Reuters, BRE Bank SA

0.4

1.4

2.4

3.4

4.4

5.4

01-0

3

04-0

3

07-0

3

10-0

3

01-0

4

04-0

4

07-0

4

10-0

4

01-0

5

04-0

5

07-0

5

2Y

5Y

10Y


-25%

-20%

-15%

-10%

-5%

0%

5%

01-0

204

-02

07-0

210

-02

01-0

304

-03

07-0

310

-03

01-0

404

-04

07-0

410

-04

01-0

504

-05

07-0

5

EUR/PLN

The Czech Republic

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

Inflation

Interest rates

Deficyt

Public debt


-0.7

-0.4

0.0

0.4

0.7

01-0

3

04-0

3

07-0

3

10-0

3

01-0

4

04-0

4

07-0

4

10-0

4

01-0

5

04-0

5

07-0

5

2Y

5Y

10Y


-25%

-20%

-15%

-10%

-5%

0%

5%

01-0

204

-02

07-0

210

-02

01-0

304

-03

07-0

310

-03

01-0

404

-04

07-0

410

-04

01-0

504

-05

07-0

5

EUR/CZK

Hungary

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

Inflation

Interest rates

Deficyt

Public debt


0.5

1.5

2.5

3.5

4.5

5.5

6.5

7.5

8.5

9.5

10.5

01-0

3

04-0

3

07-0

3

10-0

3

01-0

4

04-0

4

07-0

4

10-0

4

01-0

5

04-0

5

07-0

5

3Y

5Y

10Y


-25%

-20%

-15%

-10%

-5%

0%

5%

01-0

204

-02

07-0

210

-02

01-0

304

-03

07-0

310

-03

01-0

404

-04

07-0

410

-04

01-0

504

-05

07-0

5

EUR/HUF

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

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

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

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

BRE Bank Securities

9 August 2005 20


Macroeconomics 4 CONVERGENCE CRITERIA

CRITERION POLAND THE CZECH REP. HUNGARY Interest rates 5.76% 6.04% 4.01% 7.50%

Inflation 2.3% 4.0% 2.2% 5.3%

Deficit 3.0% 4.8% 3.0% 4.5%

Debt 60.0% 43.6% 37.4% 57.6%

ERV 10.75% 5.64% 5.62%

ERV max 10.92% 6.29% 9.98%

ERV min 7.28% 3.65% 4.24% Explanations: Upper lines – description at the preceding page. Lower lines:

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

The ERV (forecast) of the last quarter (March – May 2005) as well as maximum and minimum values of the quarterly ERV of the last eight periods have been quoted.

The ERV is interpreted as a standard deviation of the annual exchange rate in the next year, assuming that the rate volatility does not change versus the present rate. Forex stability of a currency is reflected by its lowest possible value.

YIELD CURVE

POLAND THE CZECH REP. HUNGARY

Source: Reuters, BRE Bank

0%

2%

4%

6%

8%

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

PLNEUR


0%

2%

4%

6%

8%

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

CZKEUR


0%

2%

4%

6%

8%

10%

12%

14%

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

HUFEUR

EMU/USA


0

1

2

3

4

5

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2025

2045

BundsUS Treasuries


-1.2

-0.8

-0.4

0

0.4

0.8

lut-0

0

sie-

00

lut-0

1

sie-

01

lut-0

2

sie-

02

lut-0

3

sie-

03

lut-0

4

sie-

04

lut-0

5

Spread 10Y Bundsvs. 10Y US


0

0.2

0.4

0.6

0.8

1

1.2

sty

99

lip 9

9

sty

00

lip 0

0

sty

01

lip 0

1

sty

02

lip 0

2

sty

03

lip 0

3

sty

04

lip 0

4

sty

05

lip 0

5

Spread 2Y/5YBunds

Explanations:

Curves based on quotations as at July 22, 2005.

BRE Bank Securities

9 August 2005 21


According to IDC data, the Polish market of IT services grew by 28.6% in 2004 to EUR 1.1 bn. This year’s forecasts assume 14.6% growth, and 14.8% growth in 2006. Due to the declining profitability of hardware and software sales, IT services have an increasingly greater share in the structure of the Polish IT market. High market growth in 2004, connected with Poland’s accession to the European Union, is largely due to using EU funds for IT investments. The growing share of services in the structure of the IT market is in line with global trends. The Polish software market is valued at approximately USD 750 mn and accounts for 20% of the entire IT market in Poland. Companies are increasing expenses for software and IT ser-vices at the expense of hardware, which is in line with trends observed on mature markets. According to PMR and SITSI Poland Market Analysis and Trends, the domestic software mar-ket will note double digit growth in the years ahead. The structure of the Polish IT market differs somewhat from that of mature markets. Domestic firms play an important role, outpacing many international players with strong positions on other markets. For comparison, in countries of the “old” EU, there is room for only 1-2 local firms among the more than a dozen largest players. In Poland, as on other world markets, major software suppliers are the local branches of such international corporations as Microsoft, Ora-cle and IBM.

Comarch

BZ WBK Group entities increase commitment BZ WBK AIB Towarzystwo Funduszy Inwestycyjnych and BZ WBK AIB Asset Management increased their stakes of Comarch shares last month. Following the conducted transactions, TFI owns 10.19% of the company’s shares and 5.05% of GMS votes. BZ WBK AIB Asset Man-agement owns 12.75% shares, which corresponds to 6.32% of GMS votes. Record quarter for Interia In 2Q, with revenues of PLN 10.7 mn (34% growth y/y), Interia generated a net profit of more than PLN 1 mn (last year the company noted a PLN 0.83 mn loss). Advertising revenues grew by more than 50% in 1H. According to Interia’s president, as a rule 2Q is a better quarter than 1Q, and 3Q is weaker than 4Q. In 3Q the company’s management board expects weaker re-sults due to lower advertising revenues during the holidays. The portal expects to generate a year-end net profit of PLN 1 mn. Interia’s president announced that the company is currently preparing a communications platform offer as well as a service for the distribution of multimedia content. The company obtained funds for these ventures (approx. PLN 4.5 mn) from the issue of shares conducted in March. This is also good news for Comarch, which owns 49.95% of Interia shares, if only due to the fact that subsequent capital injections for the portal will become increasingly less likely. The number of web surfers increases According to SMG/KRC data as many as 8.4 mn people aged 15 to 75 used the Internet in 2Q 2005 (28.3% of the population). This ratio is growing dynamically. In 2Q 2004, this figure was 24.46%. According to research conducted by Megapanel PBI/Gemius, more than 5 mn web surfers visited Interia’s site in May, which gives the portal 4th place in the ranking. Onet.pl, the most popular portal has an almost 75% share.

Computerland

Top level changes approved by GMS The company’s EGMS, convened on 15 July, adopted amendments to the Memorandum of Association. The most important change is the introduction of the position of Computerland Group President, currently held by Tomasz Sielicki. Company president is Michał Danielewski, formerly Chief Executive. The second major change is the introduction of a principle for remov-ing individual items from the agenda of the GMS, which is in line with the corporate governance code. These changes were announced earlier and come as no surprise to the market.

J.P. Morgan Chase increases commitment J.P. Morgan Chase Co. announced that it owns 378 thousand of Computerland shares. The stake accounts for 5.48% of equity and corresponds to an equal percentage of GMS votes. The fund is the subsequent financial investor to exceed the 5% threshold in the IT firm. Pioneer Pekao IM, PZU, OFE NN, and OFE Commercial Union also own large stakes. President Tomasz Sielicki remains Computerland’s largest shareholder with a 10.5% stake. The fact that long-term financial investors are increasing their holdings is a positive phenome-non. It is worth to note that not so long ago J.P. Morgan Chase was one of the major share-

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holders of Computerland’s prime competitor, Prokom. Gospodarczy Bank Wielkopolski tender for IT system Only Computerland and Comp Rzeszów remained on the short list in the tender to provide a centralised IT system for Gospodarczy Bank Wielkopolski (GBW). IBM and Epsilio have been eliminated from the tender. The value of the contract is estimated at PLN 20 mn PLN in the bank itself and at PLN 50 mn in Spółdzielcza Grupa Bankowa, led by GBW (more than 160 cooperative banks). The results of the tender are expected to be announced at the end of the year. Comp Rzeszów has an undoubtedly stronger position and greater experience on the market of cooperative banks, and therefore is more likely to win the tender. However, should Computer-land (which offers Flexcube - a well-known product of the Indian firm I-flex Solutions) win the tender, this could significantly weaken the position of Comp Rzeszów, specialising in installa-tions for cooperative banks. Tetra facing delay again Michał Kleiber, the Minister of Science, expressed his doubts as to whether Tetra should be built within the framework of offset. In the opinion of the Minister, conducting a tender and fi-nancing the investment as part of a long-term government program is worth considering. In such case, tender proceedings could take as long as two years. Despite earlier doubts concerning Tetra and delays in this program, no plans were voiced to remove this project from offset. This would be bad news for both Prokom and Computerland as 1) the project would be delayed even more (at least 2 years), 2) the price would probably be lower and 3), most important, Prokom and/or Computerland would first have to win that tender. Computerland services software in employment offices Based on a contract concluded with the Ministry of Economy and Labour, valued at PLN 18 mn, Computerland will service the PULS system, supporting the management of employment offices, for 3 years. PULS is an integrated IT system designed by Computerland, currently in-stalled in more than 90% of employment offices at all organisational levels in Poland. This is a subsequent contract for servicing proprietary software. High margins associated with this type of contract, fully compensate for its relatively low value. KGHM tender for IT system Computerland, HP, Oracle, Prokom and Spin submitted offers to install a system supporting the management of the production line (mainly deposits) and the delivery chain in KGHM Polska Miedź. The value of the project is estimated at PLN 40 - 60 mn and at more than PLN 100 mn including hardware and integration work. The provider is to be selected in 4Q 2005 and installa-tion work is to be completed within 3 years. It is currently difficult to say which of the two companies has a greater chance to win the tender as both Computerland and Prokom have not yet installed such a system.

Emax

System for monitoring land border still within reach The company won the Office of Public Procurement’s arbitration proceedings, as a result of which the Emax consortium can again participate in the tender for the system for monitoring the European Union’s eastern border. The value of the tender is estimated at PLN 220 mn. Following the first stage of the tender, only Computerland remains from the group of 12 entities that submitted offers. This is the second time Emax has filed a complaint (following the first, the company was permitted to rejoin the tender, but was excluded from it shortly afterwards). Pre-dicting who will win the tender is currently like trying to read tea-leaves (it cannot be ruled out that other entities have also filed complaints), therefore we have not included revenues from this contract in forecasts either for Computerland or Emax.

Prokom

Subsequent contracts with PZU During the last month Prokom has signed several contracts with PZU, among others, a PLN 46.6 mn contract for the delivery of hardware necessary to launch Insurer, a centralised data processing system, as well as the installation of a system for the management of IT services, based on a framework contract from 2004. The value of the latter contract is PLN 4 mn. In the last 12 months, Prokom has concluded contracts worth PLN 152 mn with PZU. This con-firms that PZU intends to develop Prokom’s Insurer system. Over the longer term, this could be

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more profitable for Prokom than installing CSC’s Exceed system. Servicing contract extended PZU and Prokom extended the contract signed in 2000 concerning IT services for the insurer, worth approximately PLN 200 mn net. As part of this contract, Prokom is to render “IT, opera-tional, technical and post-guarantee” services for the Insurer and FKX systems until 30 Sep-tember 2008. This is good news but it should come as no surprise to the market. The first servicing contract of this type was concluded in 2000, and a subsequent one in 2002. The new contract is con-nected with the expiration of the previous contract. The value of the present contract was in-creased in relation to the previous contracts (approximately PLN 70 mn annually – previously about PLN 30 mn in accordance with the contract from 2000 and approximately PLN 60 mn - during the first year - in the contract from 2002). Prokom to be Postdata’s subcontractor for Polish Post Prokom signed a PLN 72 mn contract with Postdata, for the construction (as a Postdata sub-contractor) of the e-Poczta system for Polish Post. This news only confirms information pub-lished earlier by Puls Biznesu concerning a breakthrough in the Office of Public Procurement approving the agreements between Polish Post and Postdata. No extra tax payments for 2001 The company need not make any additional payments for 2001 taxes. The arrears were esti-mated at more than PLN 32 mn plus interest. The Voivodship Administrative Court in Warsaw rendered the decision of the Revenue Office Inspectorate as void for procedural reasons. This is a good news for the company despite the amount of savings being relatively small for Prokom, and the period involved was some time ago. Planned savings are materialising In accordance with an annex to the agreement signed with Prokom Investments involving the lease of an office building, the rates for office space leased by Prokom Software declined on 1 July 2005. Estimated savings are to total approximately PLN 5 mn annually. Cost savings planned by Prokom and estimated by the management board at PLN 70-80 mn annually are slowly materialising (half of this amount to be saved in 2005). However, the rate of further cost cuts remains an unknown. Dividend from 2004 profit approved Prokom shareholders adopted a resolution concerning the payment of a dividend from 2004 profit. The payment of a dividend was proposed at the previous GMS by the company’s minor-ity shareholders. Due to a difference of opinions concerning the dividend, the GMS was post-poned until 29 July 2005. Following the consultations, the company’s two principal sharehold-ers, Ryszard Krauze and Prokom Investments, approved the dividend payment plan proposed by financial investors. The dividend is to constitute 10% of net profit (PLN 3.47 mn), which cor-responds to PLN 0.25 per share. Rights to the dividend will be established on 22 August and the payment will occur on 3 October. This is the first dividend in the company’s history. Its value is symbolic (dividend yield of 0.2%) and its purpose is primarily to show that Prokom Software’s principal shareholders (Mr. Krauze and his company Prokom Investments) have begun to take the opinion of minority shareholders into consideration. ABG Ster-Projekt registered The court registered the increase in Ster-Projekt’s capital through an issue of 46.9 mn shares for ABG shareholders. The company’s capital currently comprises of 64.4 mn shares. The change in the company’s name to ABG Ster-Projekt was also registered. In connection with the merger, Prokom assumed 20 mn of new ABG Ster-Projekt shares for hitherto existing ABG shareholders. Following the transaction, Prokom owns a 34% stake in the new company. As a result of the merger between ABG and Ster-Projekt, the number of management board mem-bers increased from three to five and three members of the supervisory council resigned. In our opinion, ABG’s acquisition of Ster-Projekt will be a source of benefits for hitherto existing Ster-Projekt shareholders. ABG signs major contract with ARiMR The company signed a contract for the delivery of computer hardware to the Agency for the Restructuring and Modernisation of Agriculture (ARiMR). The value of the contract is PLN 70.7 mn. Despite the substantial value, the margin on this type of contract rarely exceeds several per-cent. According to statements by the management board, the company intends to limit the

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number of low-margin contracts and focus on those characterised by greater profitability. Spin contract with NFZ Spin signed a PLN 3.7 mn contract for the delivery of computer hardware and software with the National Health Fund (NFZ). The total value of contracts concluded by Spin with the National Health Fund in the last 12 months amounted to PLN 17 mn. This is a small, low-margin contract. However, the growing value of subsequent contracts shows that NFZ is becoming a regular Spin client. Purchase of Optix postponed Spin signed an annex to the preliminary conditional agreement involving the purchase of a 66% stake in the company Optix from Prokom. According to the agreement, Spin was to pay an ad-ditional PLN 11.6 mn (on top of the PLN 5 mn paid earlier) by the end of June 2005. The annex postpones the final payment until the end of December 2005. The transaction was probably postponed due to the lack of funds to purchase Optix. Spin planned to issue shares worth PLN 60 mn at the end of April, but the issue was not conducted as investors were discouraged by Spin’s plans to acquire other Prokom subsidiaries. Comp Warszawa maintains forecasts Following 1H, company’s revenues amounted to PLN 34 mn and net profit to PLN 5.1 mn. In 2Q 2005, Comp noted a consolidated net profit of almost PLN 2 mn (against a PLN 2.67 mn loss in the previous year). Group revenues amounted to PLN 18.04 mn in relation to PLN 13.09 mn one year ago. For comparison, company revenues in 2004 amounted to PLN 62 mn and net profit to PLN 6.7 mn. The president of Comp Warszawa, Jacek Papaj, maintained the PLN 10 mn consolidated profit forecast for 2005 with revenues of PLN 95 mn. Following the first six months of the year, Comp met 36% of this year’s revenue forecast and 51% of the net profit forecast. Comp intends to acquire at least three companies by the end of the year. The company can spend PLN 30-40 mn on acquisitions, using funds obtained from the June’s issue of share (approximately PLN 24 mn) and bank loans. According to the company, the current backlog corresponds to 75% of this year’s revenue fore-cast, which bodes well for 2H, especially that 4Q is usually the best quarter of the year for the sector. Currently we see no threat to meeting the 2005 forecast, both in terms of revenues and net profit.

Softbank

New contracts The company will install risk management systems in Raiffeisen Bank Polska and BISE. The company’s management board expects subsequent contracts of this type, which are very profit-able (profit of several PLN mn from sales of PLN 12-19 mn). In addition, Softbank’s president announced that other contracts of this type will be signed by the end of the year. Softbank is realising its plans to develop activity in new areas, outside PKO BP. Following Aus-tria’s Raiffeisen Zentralbank, other banks have decided to install Softbank’s system. Successful installations in smaller banks may attract interest from the largest institutions. Income tax refund for 1998-2002 Softbank received an income tax refund of PLN 3.19 mn for 2000-2001. The company is still waiting for an income tax refund for 1999 (PLN 0.16 mn plus interest). In addition, Softbank has filed a request for a PLN 7.9 mn income tax refund. The entire amount will boost the company’s 2005 net profit. This is extremely good news for the company. This issue has been somewhat forgotten by the market and the resolution should improve Softbank’s listings even more. The above mentioned refund will substantially improve the company’s 2005 result. Acquisition of Koma Softbank acquired 100% of Koma shares from Prokom and private shareholders in exchange for 1.094 mn shares of the new issue. This information is in line with earlier announcements and has already been discounted by the market. Koma is to be merged with Softbank Serwis, a Softbank subsidiary, to create a Re-gional Servicing Centre for Grupa Prokom and its clients. Despite the develop of activity, the merger is to provide significant cost savings. In our opinion, the company’s plans in this area appear reasonable.

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Comp Rzeszów installation for BOŚ The company will implement an Internet banking system for corporate clients in BOŚ. The value of the contract has not been disclosed. The system is to be launched in January 2006. This is a positive information for Comp Rzeszów as this is a subsequent installation project conducted by the company for Bank Ochrony Środowiska. It is still not known when Softbank will purchase the additional 2.5% of Comp Rzeszów shares necessary to consolidate the com-pany by the equity method.

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Agora 2Q results Gazeta Wyborcza A positive element of results is the more than 9.3% increase of advertising revenues of Gazeta Wyborcza (+10.3% of the entire segment of daily newspapers and Internet), in comparison with the 4.6% growth in 1Q. Daily newspapers, the revenues of which increased by 16.5% in comparison with 2Q 2004 took advantage of the recovery in the automobile, trade, telecommu-nications and finance sectors as well as the shift in a portion of advertising budgets from televi-sion (a weekly break in broadcasting commercials following the death of Pope John Paul II). This effect will not be repeated in 3Q. However, we believe that due to economic recovery the dynamics of 6-7% is probable. Moreover, the press is benefiting (although to a smaller extent than outdoor advertising and TV) from expenditures connected with the election campaign. Book publishing In 2Q, revenues from book publishing amounted to PLN 49 mn (our forecast: PLN 47.7 mn), which is PLN 14 mn less than that reported in 1Q. The decline is due to the encyclopaedia series coming to an end (11 volumes sold in 1Q, 8 in 2Q) as well as to the smaller number of titles from the classics of literature series (9 in 1Q, 6 in 2Q). Moreover, sales of each succes-sive title are smaller (see June’s detailed analytical report). In 3Q, we expect these revenues to fall to PLN 22 mn (-23% in relation to 2Q 2004, 13 titles from the classics of literature se-ries). Our forecasts do not include new publishing projects, already announced by the com-pany (details 8 September). The two series comprising fairy tales for children and travelling series will be enclosed to Gazeta Wyborcza. We do not expect the new publishing effort to repeat the huge success noted by the encyclopaedia, but their appearance should allow to raise the 2H forecast of revenues in this area. AMS The biggest disappointment in AMS’s quarterly results is on the level of quarterly revenues. In comparison with the previous year the company’s sales grew only 6.2% as opposed to our expectations of 15%. Despite the low revenues, the EBITDA result is only by PLN 2 mn lower than our forecast, which is due to conducted restructuring and the 4.2% reduction in costs per panel (mainly advertising campaign costs). In our opinion, among all segments of the group, AMS will benefit to the largest extent on the one-off growth in advertising expenditures con-nected with the elections in the third quarter of this year. Outdoor advertising has the lowest cost and is an effective mean of supporting a television campaign.

Magazines Even though we believe that the prospects for the magazine segment are not particularly bright (very strong competition, low margins now and in the future), revenues in the second quarter were a pleasant surprise. With the departure of the titles Wiedza i Życie and City Magazyn and the addition of Logo and Poradnik, second quarter revenues were down only by PLN 1.2 mn in relation to the analogous period of the previous year (our forecast of PLN -5 mn). The segment’s EBITDA result closed on a level of PLN 1 mn (in line with our forecast) in relation to a loss reported last year (PLN –4.7 mn), mainly due to additional costs of restructur-ing and costs of introducing Avanti on the market. We do not expect a significant improvement in the segment’s results in subsequent quarters, although as the entire advertising market magazines will show a growth in revenues of at least 5%. Radio The revenues of radio stations increased by 8.7% in relation to 2Q 2004, in comparison with a 28% growth in the first quarter. In our opinion, the lower dynamics is due to a low base effect in 1Q 2004 as well as the fact that advertising was halted during the mourning period following the death of Pope John Paul II. The EBITDA result was the biggest disappointment in the radio segment. In our forecasts, we expected an operating profit before amortization of PLN 3 mn, while the stations reported a loss of PLN 0.9 mn. Despite the lower dynamics of revenues, it is due to the growth in costs of wages and salaries and advertising. In the case of the former, this is the one-off effect of paying employee bonuses (June), therefore in the third quarter we ex-pect costs to decrease in this area. We also expect Agora to lay out a vision for the segment and an idea for its recovery in its prepared strategy.

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TPSA

Results for 2Q It is difficult to evaluate unambiguously the results of TPSA for 2Q. On the one hand, thanks to Centertel’s excellent quarter the company’s high sales revenues were a surprise (consensus: PLN 4.4-4.5 mn). On the other hand, the somewhat higher net result and EBIT than expected (consensus: PLN 420-440 mn) largely result from lengthening the amortisation period of fixed assets (lowering amortisation PLN 123 mn in relation to 1Q 2005). The strong erosion of reve-nues from voice services continues in fixed-line telephony. The number of Neostrada users grew only by 95 thousand in relation to 162 thousand in 1Q 2005. Moreover, Centertel’s grow-ing revenues and EBITDA in the consolidated report are shown without excluding minority shareholders (France Telecom owns a 34% stake), which significantly obscures the actual picture of the company from the investors point of view. It is also important to remember that for TPSA’s minority shareholders, the improving results of Centertel mean a higher cost of purchasing the share currently owned by France Telecom. Revenues In 2Q, TPSA’s consolidated revenues amounted to PLN 4.601 bn (i.e. by 0.2% more than in the previous year). Revenues are a pleasant surprise mainly thanks to Centertel, that 2Q was a record quarter in terms of sales and EBITDA. In annual terms, Centertel achieved a 15.7% growth in revenues (in consolidation, revenues are 19% higher than last year), primarily due to the rapidly growing number of subscribers (+614 thousand) as well as growth in ARPU (up PLN 2 in relation to 1Q 2005). In fixed-line telephony, revenues from traditional voice services continue to fall sharply (-23.4%), which is the result of competitive activities (drop in market share and calling charges). The dynamics of the decline is in line with our expectations. We expect the dynamics to remain unchanged for the next 2-3 quarters. Revenues from data transmission are growing slightly slower than we expected (+5.5% in relation to 1Q 2005, our forecast assumes 8-9% growth), mainly due to the decline in the dynamics of revenues growth from broadband access to the Internet (smaller number of Neostrada users). Revenues from dialup access to the Internet fell by PLN 52 mn in annual terms. During the same period, revenues from broadband access to the Internet increased by PLN 132 mn, which gives a net effect of PLN 80 mn. Considering the general opinion that data transmission is to offset falling revenues of fixed-line telephony in future, the PLN 80 mn growth (1.7% of consolidated revenues) with low market saturation and still relatively weak competition (to grow after the local loop opens) appears to contradict this theory. Subscribers In 2Q, the number of main lines in fixed line telephony declined by 57 thousand in relation to 2Q 2004 and it has been the first decline for at least three years. The company has shown a growth in this area so far, thanks to the growing number of digital lines (ISDN, ADSL, SDI). It currently appears that the growth in digital lines has slowed to a level which no longer offsets the decline in the number of standard (analogue) lines. The lack of further growth in the case of ISDN lines is due to competition from DSL, with prices for the service that are not very en-couraging. In future, it can be expected that ISDN will be superseded by broadband access. In the forecast for quarterly results, we pointed out the expected slowdown in the number of new Neostrada users to 110 thousand quarterly (in relation to 160-180 thousand in previous quar-ters). According to the operator’s quarterly report, this number increased only by 95 thousand and it is due to the increased cost of the service at the client’s part, in connection with the in-creased VAT (currently 22%) as well as the activities of the competition. Centertel can chalk up 2Q as a successful quarter. The number of users (SIM cards) grew in this period 614 thousand, of which 67% accounted for pre-paid subscribers. As results from unofficial data from Polkomtel (520 thousand net connections), the April-June period was very successful for the entire sector. For TPSA, this also means greater pressure on fixed-line te-lephony revenues. Mobile telephony The strong side of the company’s results is Centertel, which with a 15.7% growth in revenues achieved an EBITDA of PLN 612 mn (i.e., PLN 43 mn higher than in 1Q and PLN 63 mn in relation to 2Q 2004). The dynamics growth in revenues (in comparison with the dynamics in 1Q 2005) results from the growing number of users. In y/y terms, the decline in ARPU in 2Q is identical to the one of the first three months of the year. We point your attention to the fact that TPSA consolidates Centertel with the full method, and therefore does not exclude minority shareholders on the level of revenues and EBITDA. This is

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important as the investors' positive view of results is based precisely on the mobile operator's results. Until the stake is purchased from France Telecom, an analysis of financial statements will not accurately reflect the situation in the company from the point of view of TP's minority shareholders. For example, in annual terms, the PLN 215 mn growth in Centertel’s revenues actually means a growth of only PLN 144 mn (difference: PLN 71 mn, 1.5% of consolidated revenues) for TP's financial investors. Amortisation In 2Q 2005, amortisation declined to PLN 982 mn in relation to PLN 1 105 mn in the first quar-ter of the year. This had a significant influence on EBIT and net profit reported by the com-pany. TPSA extended the amortisation period of telephone exchanges and other telecommuni-cations equipment.

Netia Without acquisitions – revenues erosion We expect Netia’s 2Q results to be determined by the erosion in traditional voice services (-1% y/y), the stabilisation in revenues from indirect services (preselection) as well as by the growth in sales in the areas of data transmission and line leasing. Together with the increasing pene-tration of mobile telephony, we expect a successive decline in the number of direct subscribers (-0.5 thousand), and we do not expect the company to boast of obtaining major corporate cli-ents (growth in this area). In 2Q 2005, Netia began rendering services connected with prese-lection in local calls. In this period, we expect their appearance to offset the influence of losing revenues from DLD and ILD, which has been observed for two quarters, and not have an influ-ence on increasing revenues. We also expect the company to maintain the EBITDA margin on a level of almost 39%. We do not see additional costs that could result in it falling in the near term. The company no longer taking goodwill write-offs from consolidation will have an influence on the net result in relation to last year (PLN 5 mn).

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Central Land Register delayed Parliamentary commissions halted work on the government’s project of amending the geodesic and cartographical law. Therefore, the legal basis for introducing an integrated land registration system will not be ready for at least the next six months (until after the elections, when a new project will appear and be adopted). For construction firms and developers, rejection of the project means that the prospects for better access to information about real estate will be postponed (i.e., continuing of an unfavour-able situation for conducting investments). Cement sales significant in June According to data of the Cement Producers Association quoted by Gazeta Wyborcza, cement sales in Poland grew by 10% in June. However, in the entire first half of the year sales were still by 12% lower than one year ago. Along with data concerning the 30% growth in constructing production in June, there is also other data concerning growth in construction. Considering the collapse in cement sales follow-ing the VAT hike last year, in our opinion, too much weight should not be placed to this data.

Budimex

Weak preliminary results for 2Q Preliminary financial data for 1H 2005: sales of PLN 1067 mn (against PLN 791 mn in the pre-vious year), gross profit of PLN 3.5 mn (against PLN 9.1 mn), net profit for Budimex’s share-holders of PLN 0.2 mn (in comparison with PLN 4.3 mn in 1H 2004). The operating loss in 1H 2005 amounted to PLN 11.6 mn, but due to complete hedging for the currency risk, it was com-pensated by the valuation of hedging instruments, shown in the result on financial activity. Therefore, in order to evaluate Budimex’s situation, we believe it is better to look at gross profit than on operating profit. Our forecast for 1H: sales of PLN 929 mn, gross profit of PLN 9.2 mn and net profit of PLN 5.2 mn. Weaker than expected by us Budimex’s results reflect low margins on contracts realised in 1H, that was announced by president Michałowski in a recent interview. Company sales are growing but mainly thanks to increasing sales of road construction services, with its character-istic small margins. Cautious forecast of results In an interview for Parkiet on 22 July, president Michałowski announced a 20% growth in Budi-mex’s sales in 2005, an order portfolio at the end of the year similar to last year’s (PLN 2.5 bn) and reaching “at least a small profit” this year. President Michałowski believes that counter to the CSO data, growth on the construction market has slowed and that winning road construc-tion contracts requires accepting very low margins. During the next several years Budimex will place a strong emphasis on developer activity in the segment of apartments. Sales of apart-ments are to increase from PLN 90 mn in 2004 to PLN 150 mn in 2005 and PLN 400 mn in several years time. Budimex is conducting negotiations regarding the acquisition of a company engaged in building railway lines. The forecasts of Budimex are more cautious than our forecasts for this year. Contracts: housing estate for PLN 93 mn, school for PLN 45 mn, hotel for EUR 24 mn The company signed a PLN 93 mn contract with the firm Turret to build a housing estate in Warsaw by the end of January 2007. This is a significant (non-road construction) contract for Budimex and provides an opportunity for the company to earn higher than average margins. Budimex will also build the Music Education Centre in Krakow for PLN 45 mn. The company also signed a preliminary contract to build a hotel-service centre in Russia for EUR 24 mn. Possible slowdown in motorway construction According to Gazeta Prawna, the probable future government coalition partners (PO and PiS) want to reject the licensing system of building motorways and building them by the state. MPs of these parties also plan to review already concluded licensing contracts in regard to the risk to the state. In our opinion, the planned changes could slow the construction of motorways in Poland, which could have a negative impact on firms engaged in their construction, and among WSE compa-nies - mainly on Budimex. The complete resignation from awarding new licenses for building and operating motorways would mean a smaller commitment of private capital in the construc-tion of motorways.

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Airport investments According to Parkiet daily, Polish airports are currently selecting contractors for investments worth PLN 160 mn, necessary for servicing the rapidly growing passenger traffic (38% growth following the first 5 months of 2005). Among Polish construction companies, Budimex has the best references in airport develop-ment. However, the company will be forced to compete with foreign firms that have even better references, and in the case of smaller projects with Polish firms as well. Major motorway tender opened On 8 July, the General Directorate of Domestic Roads and Motorways announced a tender for constructing and operating the section of the A1 motorway from Stryków (near Łódź) to Pyr-zowice (in Upper Silesia). This section has a length of 181 km. This will be one of the largest contracts for building and operating a motorway in Poland (the cost of constructing 1 km is approximately EUR 2.5-5.0 mn). The extended length of the sec-tion involving the tender is a surprise (GDDKiA earlier announced a tender for the Stryków-Częstochowa section, a length of 120 km). Budimex will probably participate in this tender, but it is difficult to evaluate its chances as numerous consortia involving the largest European con-struction firms will also start in the tender.

Echo Investment Contract with a new shopping centre anchor in Kielce Echo concluded a contract with Pergranso for a lease of a part of planned shopping centre in Kielce. Pergranso will run a Leclerc hipermarket in the leased location. The 30-year contract is valued at EUR 21.6 mn. Obtaining the anchor provides Echo with the basis to launch construction of the new shopping centre.

Elektrobudowa

Results for 2Q similar to last year’s The company announced initial results for the first half of the year: sales of PLN 125 mn, and net profit of PLN 1.2 mn. This means that if these data do not include adjustments for 1Q data, Elektrobudowa’s 2Q results are: sales of PLN 80 mn and net profit of PLN 2.8 mn, and would be a major improvement in sales for 2Q and a 10% decline in net profit in this period. Such results would be more or less in line with our expectations and would not require adjusting our forecasts for Elektrobudowa.

Source: Elektrobudowa, estimates of BRE Bank Securities based on company’s data, unconsolidated, IAS, 2004 – data according to Polish standards

Desulphurization installation in Bełchatów for PLN 19 mn The contract with Rafako is scheduled to be completed by March 2007. This is an important contract due to the specialistic character of the work. Lotos office building for PLN 30 mn In a consortium with Allcon, Elektrobudowa will build the Grupa Lotos office building, within a 12-month period, for approximately PLN 30 mn. The contract announced by the company as likely, was obtained. Elektrobudowa to build a Tesco in Bolesławiec The company concluded a PLN 12.4 mn contract to build a Tesco in Bolesławiec. The sched-uled completion date is November 2005. The contract is quite large, but involves regular construction works. Therefore, it is difficult to expect Elektrobudowa to generate a substantial profit on it. Tesco is acknowledged by contrac-tors as an exceptionally demanding client, which increases the threat of bearing higher than initially planned costs by the contractors.

(PLN mn) 2Q2005 2Q2004 dynamics

Revenues 80.2 65.0 23%

Net profit 2.8 3.1 -10%

Construction

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Construction Bonds for management board – taken up The company issued 249,096 bonds with a nominal value and issue price of PLN 0.01. Each bond carries the right to take up one C series share at an issue price of PLN 21.1 in September 2006. The company upheld the forecast for 2005: sales of PLN 305 mn and net profit of PLN 7.2 mn. The issue of bonds is an element of the incentive program for the management board of Elek-trobudowa, in accordance with the company’s previous statements. Gdańsk Transport to order PLN 600 mn of work from subcontractors According to Parkiet daily, Gdańsk Transport Company, the builder and future operator of the section of the A1 motorway from Gdansk to Torun, plans to employ subcontractors for an auxil-iary work, such as power, lighting and land melioration work. The value of the work designated for subcontractors is estimated at about PLN 600 mn. The subcontractors will not build the road itself (Skanska will do this), but could earn significant sums on the auxiliary work. Among others, an opportunity for Elektrobudowa as a contractor is the power and lighting work. Other firms could be contractors of the engineering work (building bridges and viaducts).

Polimex-Mostostal Siedlce

ZREW announces an improvement in results In his interview for Parkiet, president Rychter announced that ZREW will achieve better results than last year, both in regard to 2Q and the entire year. The company is realising a major con-tract (PLN 40 mn) with Elektrociepłownie Warszawskie (renovation of a turbine for Elektrocie-płownia Żerań) and will participate as a Polimex subcontractor in the construction of a new coke oven battery for Koksownia Przyjaźń (ZREW’s share in the PLN 410 mn contract was not disclosed). ZREW is also preparing for the acquisition of 4 subsequent service companies, servicing power plants and industrial firms. These statements are confirmation of the healthy development of the Polimex Group in the power segment this year.

Selection of contractors for Lotos investment underway On 28 July, Lotos and Lockheed Martin announced the beginning of the initial selection of con-tractors for the Comprehensive Technological Development Program of Grupa Lotos. With an investment of this size (almost PLN 4 bn over a several-year period) among publicly traded companies contractors could include not only Polimex and Elektrobudowa, whose chances we have already written about, but other construction firms as well. Koksownia Przyjaźń – tender for PLN 400 mn Koksowania Przyjaźń announced a tender for the modernisation of the Coal Derivative Produc-tion Department. The investment is scheduled to run from the end of 3Q 2005 to the end of 1Q 2008. The value of the tender is of ca. PLN 400 mn. In our opinion, among publicly traded compa-nies, Polimex-Mostostal Siedlce, Energomontaż Południe and Elektrobudowa have an opportu-nity to participate in the realisation of this project. Foreign firms will be strong competitors for the role of general contractor. New management board member Zygmunt Artwik, formerly director of Polimex’s Zakład Energetyki, was appointed to the man-agement board of Polimex. Mr. Artwik has substantial experience in the energy sector (Połaniec and Kozienice power plants) as well as in Megadex. This appointment is a reflection of the growing significance of the power sector for the activity of Grupa Polimex-Mostostal Siedlce.

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Grupa Kęty Segment revenues Consolidated sales revenues amounted to PLN 176.7 mn in 2Q (i.e., by 19.4% less than in the analogous period of the previous year). After the company changed the method of booking Flexpol for 2004 (including it in consolidation by the full method), data for 2Q 2005 and 2004 are not comparable. Eliminating Flexpol’s revenues from the report for 2Q 2004, the com-pany’s consolidated revenues fell approximately by 9% (y/y) in the mentioned quarter. The negative dynamics of consolidated revenues is primarily the result of low sales in the Seg-ment of Extruded Products (SEP). In the entire first half of the year revenues in this segment declined by 18.3%. The drop was even greater in 2Q (-22%) and partly resulted from the high comparable base of 2Q 2004 – the effect of Poland’s entry to the EU, and partly from the de-cline in prices and increased competition from imported products. In the presentation for inves-tors the company places considerable emphasis on the first of these elements. However, we note that segment revenues on the domestic market (1H 2005) are only by 3% higher than in the analogous period of 2003. In the case of export sales the growth amounts to 3.7%. We also note that segment sales in 2Q are almost by 4% lower in comparison with 2Q 2003, which suggests that the weaker quarter in this area is not only the effect of the higher base in 2004. The Segment of Flexible Packaging (SFP) is achieving much better sales revenues. In 2Q, revenues were by 13.8% higher than in 2Q 2004. The dynamics of growth for the entire first half of the year is 8.6%. In terms of volume, quarterly sales are up by 13%, mainly due to the 38% growth in export sales. Among the three segments, SFP shows the highest dynamics of revenue growth (+11%) in comparison with the first half of 2003. As in the case of SEP, the company reported a drop in revenues in the Segment of Aluminium Systems (SAS) in comparison with the previous year. In relation to 2Q 2004, revenues were down by 3% in relation to 2Q 2004, and by 10% for the entire first half of the year. In compari-son with the first half of 2003, segment revenues are up by 6.8%. Also as in the case of SEP, segment sales in the second quarter are down by 8.2% in comparison with the second quarter of 2003. What will the key 3Q show The improvement in the economic situation is a factor allowing the company to increase the volume of sales. We expect Kęty to break the negative dynamics of revenues from previous quarters (forecast: +7%). As July and the first days of August show, macroeconomic factors in 3Q are changing to the company’s disadvantage (pressure on margins). The average price of aluminium is currently by 4.6% higher than the average price in 2Q, which after including zloty weakening in relation to the USD results in the cost of aluminium being 6% higher for the com-pany. Moreover, the zloty is strengthening in relation to the EUR (+1.5%). Acquisitions We see potential growth in valuation in acquisitions. The management board announced that two of the three planned acquisitions should be finalised in 3Q (combined revenues of approxi-mately PLN 300 mn). After knowing the details of the transactions, we will review the target price. In regard to previous acquisitions, the management board has created value for share-holders.

KGHM

Results for 2Q

Revenues With the high prices of copper and zloty weakening in relation to the USD, the company’s re-sults are disappointing. Analysts expected revenues ranging from PLN 494 to 580 mn, with the average being at the level of PLN 542 mn. The lower revenues in comparison with our forecast (PLN 2 bn) are entirely due to the lower volume of sales (134 thousand tons in relation to the forecast of 144 thousand tons). Therefore, the volume of sales for 1H is by 3.6% lower than that noted in the previous year. The company will most likely not meet the year-end forecast of 550 thousand tons. It is also important to note the fact that KGHM sold copper with an 11% premium in relation to the average price on the London Metals Exchange (spot). The natural transport premium to prices from the LME is 4-5%. The volume of silver sales was down by 22%, to 300 tons.

Metals

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Metals Costs The weaker result on operating activity is also due to the higher unit cost of copper production. In comparison with 2Q 2004, the result increased by 22.6% (+PLN 1.43 thousand) to PLN 7.78 thousand per ton (i.e., USD 2.37 thous per ton). It will be recalled that the strip mines are pro-ducing cathodes at average prices of USD 1-1.2 thousand per ton. The growth in the produc-tion costs of KGHM is due to factors outside its control, such as the higher procurement cost of copper scrap (approximate 2% growth in UCCP), as well as to the growth of costs of wages and salaries (9.25% increase in base rates, additional payments for Sundays and holidays for 2004 and 2005 as well as to the higher annual bonus for profit earned), costs of materials used and mining preparatory work. The company noted a profit of PLN 31.5 mn on financial activity. Copper inventories Inventories of copper on metals exchanges grew during the last month. Their level increased by 14 thousand tons in the course of two weeks. Inventories are increasing not only in Shang-hai (monthly change: +10.7 thousand tons), but also on the LME (monthly change: +8.3 thou-sand tons). Inventories continue to fall on the Comex (monthly change: -5.2 thousand tons). In an interview granted to Bloomberg, a Goldman Sachs analyst forecasts that the surplus of supply over demand on the copper market will amount to as much as 485 thousand tons next year, which means the current growth in prices is completely unjustified. We have adopted such a scenario of events in our forecast, which is reflected in our recommendation.

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Chemicals Refinery sector

In the past month we have observed both a growth in prices of oil and refining products. In the past week the price for a barrel of Brent was more than USD 60. The growth in the prices of petrol was relatively higher, while prices of diesel and heating oil remaining rather steady.

Grupa LOTOS

Realisation of CTDP In order to realise the Comprehensive Technological Development Program (CTDP), a contract was signed with Shell Global Solutions International for the delivery of technology and technical consulting services. The CTDP program will cost PLN 3.2 bn, of which the company itself will pay PLN 1.2 bn, and outside financing of the program is to be provided by EBRD and EIB. In addition, president Olechnowicz plans to use funds accumulated in the course of the IPO for the realisation of the investment. The company also received USD 15 mn from Lockheed Mar-tin Corporation within the framework of offset.

Subsequent investments underway The company is conducting a number of smaller modernisation investments this year (among them, a modern fuel terminal for tankers, installations for the production of asphalts), the cost of which is estimated at approximately PLN 360 mn. Moreover, the consortium of Allcon and Elek-trobudowa signed a contract with Grupa Lotos to build its new office complex. The value of the investment was initially established at PLN 30 mn, but this can still change.

2530354045505560

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

URAL NWE BRENT

200

300

400

500

600

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

ON PETROL HEATING OIL

Proices of petroleum (USD/bbl) and refining products (USD/ton)

Source: Bloomberg

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Chemicals PKN Orlen

Further cost optimisation — OPTIMA Program The management board presented its cost reduction programme “Optima,” which is expected to save PLN 1200 mn by 2009 through a reduction of operating costs and lower investments. The introduced program involves not only PKN Orlen, but also includes group’s subsidiary com-panies. The program does not currently include the recently acquired company Unipetrol. It is not known how much costs will decrease after including the Czech company in the program. The main sources of the planned savings in the new programme are production and logistics (PLN 125 mn), organisational improvement and centralisation of the procurement chain (PLN 100 mn), as well as improvement in the efficiency of the retail segment (PLN 190 mn). More-over, the management board of PKN Orlen announced that it is able to conduct the planned investment program at a cost lower by PLN 600 mn than initially planned without reducing the scale of investments. The program to reduce operating costs, launched two years ago, will be completed by the end of this year. Savings from this program are estimated at PLN 800 mn. Problems with Unipetrol minority shareholders On 18 July, the Czech Securities and Exchange Commission rejected PKN Orlen’s request for permission to announce a call for shares of Unipetrol, Paramo and Spolana. The commission justified its decision based on the confirmed irregularities in the valuation of the companies by the Czech expert selected by PKN Orlen in accordance with Czech regulations. For the Polish company, the lack of permission to announce calls within the required deadline (25 July 2005) means losing the possibility of exercising the voting right resulting from its stakes in the compa-nies Unipetrol and Spolana. In response to the decision of the Securities and Exchange Com-mission, the management board of PKN Orlen stated it would not appeal the decision of the Commission or immediately file new, adjusted applications for permission to announce calls for shares. According to our estimates, this could be up to PLN 300 mn more than the earlier of-fered amount. Possible higher price for Unipetrol Thanks to the good results of Unipetrol for the first half of 2005, PKN Orlen will be forced to pay more than the CZK 13.05 bn that it has paid so far. The price of Unipetrol could increase as much as by 15%, if the company’s results turn out to be better than those achieved last year. The better results are mainly due to Chemopetrol, a company Orlen wants to shed, preferring to focus on refining, wholesale and logistics activity. Development in sector of self-service petrol stations PKN Orlen plans to open a chain of self-service petrol stations located near large shopping centres. The first such station, of the 60-station chain, is to open by the end of this year. There-fore, competition in this segment of the market will increase and Orlen will be pitted against the Finnish firms Neste and St1. The planned investment as well as the modernisation of existing petrol stations is expected to cost the concern PLN 480 mn in 2005, and following its comple-tion the company plans to have a 30% share in the retail market. We believe that the goal is ambitious, particularly considering the aggressive plans of other retail distributors. Agreement with trade unions The management board came to an agreement with the trade unions regarding planned layoffs. However, a new problem for the company appeared, as the severance offered to employees was so attractive that approximately 670 employees, rather than the planned 300, want to take advantage of it. The proposed program of voluntary departure offers a minimum of PLN 50 thousand plus PLN 4 thousand for each year of working in the company for each employee.

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Pharmaceutical Manufacturers and Distributors Pharmaceutical sales in 1H 2005

According to PharmaExpert, pharmaceutical sales between January and June 2005 increased by 3.5%, which is a smaller level of growth than the one noted last year (3.8%). The group of refundable drugs noted a larger growth of 4.2% (1.9% the previous year) than the group of over-the-counter drugs. It is important to add that the National Health Fund spent PLN 123 mn more on drug refunds from January to June than the previous year, despite the introduction of less expensive preparations to the list. In annual terms, according to IMS Health data, pharma-ceutical sales in pharmacies increased by 8.8% in 1H 2005 comparing to the analogous period of the previous year. During the same period, expenditures of hospitals on pharmaceuticals increased by 13.2%. Total growth of the entire market was of 8.3% in 1H. IMS Health estimates that the year-end dynamics will reach 5.9%. Among others, the segment of antibiotics noted strong growth in 1H 2005. Two issues are important to note in evaluating pharmacy market growth: • the change of the refund list at the beginning of the year, which induced some patients to

stock up on medicines before the reduction in refund limits – this also had an impact on the results of pharmaceutical distributors,

• promotions employed by some pharmacies (refundable drugs for PLN 0.01). Greatly simplified, it can be stated that some pharmaceuticals were given to patients without charge, but the NHF paid for this – contributing to the substantial growth in sales of re-fundable medicines. Therefore, this segment of the market noted the largest growth – 10.3%. The size of this segment is estimated at 57% of the entire pharmacy market.

ParaIlel imports of pharmaceuticals

In July, seven Polish firms owned permissions for the parallel import of pharmaceuticals. The first references to this topic appeared some time ago. At present, only small pharmaceutical distributors are interested in this, while companies listed on the stock exchange have not re-quested a permissions for such imports. This situation should continue until the influence of parallel imports begins to be noticed on the market. This will not be a rapid process and will probably take several years. Not surprisingly, pharmaceutical manufacturers are against such practise as market research indicates that a consequence of the growth and intensification of parallel imports entails reductions by manufacturers of up to 20% in prices of pharmaceuticals. Considering the fact that prices of pharmaceuticals in Poland are high comaring to the EU aver-age as well as the scale of the phenomenon in the entire European Union – approximately EUR 2 bn annually, it can be assumed that in the longer term this process will exert an influence on the market of pharmaceutical distributors through reductions in margins. The scale of this proc-ess will certainly increase when the larger players enter the game.

Bioton

Forecasts maintained for 2005 On 30 June, the company maintained its forecast of financial results for 2005: sale revenues of PLN 154 mn, EBIT of PLN 37 mn, and net profit of PLN 28 mn. The latest forecast was pub-lished in February 2005. Since then, rumours have appeared that net profit this year could reach as much as PLN 35 mn. Information about the forecast being maintained was partly negative and was treated as such by investors (it dampens market expectations concerning a higher financial result this year). At the end of June 2005, Bioton’s share in the insulin market was approximately 17%, a share that should reach about 20% by the end of the year. Insulin from Polfa Tarchomin On 7 July, Polfa Tarchomin announced the introduction of human insulin to the market. The management board justified the delay in introducing the preparation by the prolonged registra-tion process. The management board hopes to acquire a 10% share of the domestic human insulin market within the course of two years. In our opinion, the expectations of the Polfa Tar-chomin management board are very optimistic, as the product has no cost advantage over Bioton’s insulin (it will cost the same after being placed on the refund list, expected to be in September 2005). This means that obtaining market share could be a long-term and arduous process. The results of the fourth phase of research, that are to be completed by the end of September will play the key role. This process will determine the quality of the preparation, which in turn will determine the preparation’s future on the market. Despite all the information about the appearance of a domestic competitor (Polfa Tarchomin is part of PHF, owned by the State Treasury) on the market of human insulin, there have been no negative repercussions for Bioton. The company controlled 17% of the market in June. Bioton’s management board esti-mates that it will have a 20-25% share by the end of the year. The appearance of a new player will certainly contribute to intensifying competition on the insulin market and in the long term could have an influence on the market situation.

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Contracts from the East On 18 July, the company announced that it had received an order for the delivery of "Gensulin" in vials to the Belarusan market as part of a tender the company won. The delivery accounts for 50% of the order and has a value of approximately USD 500 000 (40% of the tender volume). Delivery of the subsequent 50% will be realised in September of this year. Several days later the company announced that it received, through the mediation of the firm “Teva,” an order from the Kyrgyz Ministry of Health worth approximately USD 290 thousand for the delivery of "Gensulin" in refills and vials, to be realised in August 2005. In our opinion, this information should be already discounted in share prices. In accordance with what we wrote in the special report, we believe that the current share price discounts total success on foreign markets. In connection with the above, this information should already be included in the price.

Torfarm

Results for 2Q were slightly worse on the level of revenues and better on the level of net profit than our expectations. The difference in revenues largely results from the change in principles of presenting bonuses received from suppliers and granted to clients. After standardising the data, the company noted an almost 18% growth in sales in 2Q 2005 comparing to the analo-gous period of the previous year, and in semi-annual terms, the growth was 20%. Moreover, the company increased the net profit margin in 2Q to 0.83%. In connection with the above and con-sidering the fact that 4Q is usually the best quarter of the year, the company should be in a po-sition to meet our profit forecast for this year of PLN 10.7 mn (on revenues of PLN 1.49 bn with a net margin of 0.7%). This corresponds to a current P/E 2005 valuation of 9.2 and a 20% dis-count to PGF and Farmacol. In our forecasts, we assume a 10% discount due to the lower mar-gin resulting from the lack of a company-owned retail sales network .

Change in principles of presenting premiums and bonuses Beginning in 2Q 2005, a change occurred in the principles of presenting cash premiums and bonuses received from suppliers and granted to clients. Currently, they respectively decrease the value of sold goods and materials as well as revenues from the sale of goods and materials of core operating activity. Previously they were shown in other operating activity. This change has an influence on the gross and net sales margins, but no influence on the net financial result and share equity. Data for 2Q 2005, together with data from the analogous period of the previous year adjusted for the needs of presentation are presented below .

Source: BRE Bank Securities, company *adjusted, **attempted standardisation

Higher sales and higher profitability The company increased the gross margin on sales in 2Q to 6.5% (5.7% in the analogous pe-riod of the previous year) after noting a lower margin in 1Q, in connection with changes on the refund list. As a result, it managed to increase the margin in the entire first half of the year to 6%. Lower profit on the operating level than the result from the previous year results from the costs of instituting the MultiApteka system, the goal of which is coordinating the marketing ac-tivities between the manufacturer, distributor and pharmacy. In 1H 2005, the balance of expen-ditures connected with this project encumbering the result on operating activity amounted to PLN 2.2 mn. The management board forecasts that in 2H the revenues and costs of this project will be balanced. Considering the significant interest in the program and the degree of its imple-mentation, there are no indications that the forecast of the board will not be met.

(PLN mn) 2Q 2005 2Q 2004* dynamics 1H 2005 1H 2004* dynamics 2005F 2004** dynamics Revenues 346.6 294.3 17.8% 711.3 590.1 20.5% 1496.2 1238.3 20.8% Gross profit on sales 22.4 16.8 33.5% 43.0 34.1 26.0% 87.6 74.2 18.1% sales margin 6.5% 5.7% 6.0% 5.8% 5.,9% 6.0% EBIT 1.7 1.2 46.4% 2.8 3.8 -26.8% 11.0 6.8 61.7% EBIT margin 0.49% 0.39% 0.39% 0.64% 0.7% 0.5% Net profit 2.9 1.6 83.2% 4.2 4.1 1.8% 10.7 9.2 17.0% net profit margin 0.83% 0.54% 0.59% 0.70% 0.7% 0.7%

Pharmaceutical Manufacturers and Distributors

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Pharmaceutical Manufacturers and Distributors Finally, factors with an extraordinary character on the side on financial revenues and finan-cial costs, the positive value of which amounts to about PLN 1 mn, also had an influence on the net result. Even including these factors, net profitability is higher than in the analogous period of the previous year. In 2H 2005, we expect a further improvement in profitability in connection with the following factors: • undertaking activities aimed at increasing sales efficiency – a consequence of which is a

slight increase in market share while maintaining a double-digit dynamics of sales growth,

• the MultiAptekaSystem program reaching the threshold of profitability, • the consistent implementation of the strategy to further increase sales.

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9 August 2005 39


Hoop Busko Zdrój a target? The vice president of Hoop expressed interest in the project of the Busko Zdrój health resort to establish a joint venture with a sector investor to produce and sell mineral water. The announcement of Busko Zdrój is not specific in regard to seeking a partner from the bever-age sector that would contribute to the production assets and know-how concerning the market of mineral water. Such an investment would broaden Hoop’s product portfolio with water con-taining a high level minerals. Busko estimates the investment expenditures required at PLN 5-6 mn, and this is only expenditures on production assets. However, we believe that as long as Hoop does not completely stabilise the situation with the current business, broadening activity into another area carries the risk of further dispersion of management resources.

Krosno Pull out from Ukraine’s Huta Sławuta definite The company pulled out of the investment in the Ukrainian glass mill in Sławuta. The with-drawal was mentioned earlier when Krosno announced plans concerning a huge investment program in Huta Tarnów Unconsolidated results for 2Q Krosno’s unconsolidated results are disappointing. Sales fell not only in relation to 2Q 2004 (-20%), but also in comparison to the weak 1Q of this year (-16%). On the operating level, the company reported a loss of PLN 1 mn, in relation to a PLN 6 mn operating profit noted one year earlier. The positive net result was achieved only due to profit on financial activity. The decline in domestic demand as well as zloty strengthening against the USD and the EUR also had an influence on the weaker results. Zloty strengthening against the USD (ca. 16% y/y according to average NBP exchange rates) and the EUR (ca. 12% y/y) exerted a substantial negative influence on the decline in sales revenues. Due to the fact that more than 70% of revenues originate from exports, zloty strengthening has a significant influence on the level of sales. It is important to note that ex-ports calculated in USD remained unchanged from that noted year before. In 1H 2004, this was approximately USD 25.2 mn, and about USD 25.3 mn in the first half of this year. These num-bers suggest that foreign demand for Krosno’s products remained unchanged relative to 2004. Cumulatively in 1H, sales fell by 20% y/y from PLN 165.5 mn to PLN 133.2 mn. Assuming even similar revenues as in 2004 (PLN 320 mn), in the second half of the year the company would have to generate quarterly sales of more than PLN 90 mn. Despite the expected improvement of the situation in the second half of the year, these would be the best quarters in the com-pany’s history. Following 1H, the net profit fell by 67% from PLN 7.5 mn in 1H 2004 to PLN 2.5 mn in 1H 2005. In our opinion, following two weak quarters, the company will be unable to meet this year’s fore-cast (in 2H, the company would have to note an average quarterly net profit of about PLN 5.8 mn to match the 2004 result). Regarding the second half of the year... The company’s management board forecasts revenues of PLN 440 mn and a net profit of PLN 22 mn on the consolidated level for this year. Results of the first quarter are nothing to boast about. The situation was to improve in 2Q. As it can be seen, on the consolidated level, the situation regressed even in relation to the weak 1Q 2005. As unconsolidated sales account for about 80% of total Group revenues, results can be expected to worsen on the consolidated level. This places the year-end forecast in question, despite the fact that the management board expects 2H to be better than 1H. Looking at the results to date and the gap in the year-end forecast, 2H 2005 would have to generate record high results. In our opinion, macroeco-nomic conditions will not fundamentally improve (we do not expect significant zloty weakening, a rapid recovery in domestic demand or increase in foreign demand). The third quarter, tradi-tionally the best quarter of the year, will certainly be better than the second quarter, but we doubt whether it will be good enough to balance the effect of the weak first half of the year. Moreover, the planned increase in prices of natural gas, which is an important item in the com-pany’s costs, will have a negative impact on profitability beginning in 3Q 2005. In our opinion, the increase in prices of oil this year (translating into a growth in prices of natural gas with a nine-month delay) will contribute to subsequent increases in prices of raw materials and will have an even greater negative influence on margins in 2006. Gas accounts for approximately 30% of the Group’s materials and energy consumption costs.

Other Sectors

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Forecast under review We are currently reviewing our forecast for Krosno. Based on an initial analysis of non-consolidated results for the first half of the year, the PLN 440 mn of revenues forecast by the management board does not appear realistic. Moreover, growing prices of gas will exert pres-sure on margins achieved by the company.

Mondi

Following 2Q results The company and the paper sector are in the downward phase of the economic cycle. Due to the decline in prices of paper, 3Q will bring at least a further worsening in results, which means that (despite the current decline in prices) short-term investing in shares of Mondi does not ap-pear to be a very attract proposition. Based on a valuation employing the DCF model (PLN 51), which offsets the effect of the phase of the cycle in which the sector finds itself, the current valuation is attractive for long-term investors. It is important to note that, despite the difficult macroeconomic conditions, the company’s results, and primarily cash flow, indicate that Mondi could designate at least the equivalent of all of net profit for 2005 for the payment of a dividend for shareholders. Such a dividend implies a gross yield of 5.8%. In addition, shareholders will receive an option for a future, cyclical growth in paper prices. The weak results for 2Q 2005 were largely distorted by the change in the method of account-ing, resulting from the introduction of International Financial Reporting Standards. As a result, 2Q net profit was lowered by ca. PLN 19 mn, which is an adjustment of profits reported in 1Q 2005. With this in mind, an evaluation of the company’s financial situation should be based on annual and semi-annual results. With prices of paper falling (y/y –11%) and prices of wood by 21% higher, the company’s revenues for the first two quarters of this year amounted to PLN 642 mn and EBITDA to PLN 156 mn. An important factor influencing the 2Q result was the reduction in administrative costs to PLN 4.1 mn, from PLN 20-25 mn in the previous periods. We treat the scale of the reductions as extraordinary events, although we see the possibility of a permanent decline in costs of PLN 4-7 mn quarterly. In our opinion, quarterly results have a neutral influence on the company’s valuation. In the short-term, we see a risk connected with the current decline in paper prices, which will be re-flected in weaker results for 3Q. We do not expect a reversal of the negative trend in this regard until 2006. Despite the decline in margins, the company still generates high positive cash flow on operating activity, which with low indebtedness (approximately PLN 65 mn, following the payment of a PLN 200 mn dividend) in subsequent years, leads us to expect a payment for shareholders of at least all of net profit. In addition, the company should obtain financial re-sources this year from the sale of assets.

Orbis Before quarterly results Due to the seasonal growth in demand for hotel services, the second quarter is a substantially better period than the first three months of the year, when the company shows a loss on the EBIT level. Summarising the first half of the year, it can be stated that strong competition is the main reason for the lack of improvement in the company’s results. In our opinion, the decline in room prices, with the number of sold roomnights growing slowly, will result in Orbis’ revenues from hotel activity remaining on the level noted in 2Q 2004 (i.e., PLN 194 mn). This would be an improvement in relation to the negative dynamics from 1Q (-4.3%), which would mainly be due to PLN weakening against the euro (influence on average daily room rate). Our forecast of a 5.7% growth in consolidated revenues results from growing sales of tourist and transport ser-vices (broadening the group with subsequent PKS bus companies).

Other Sectors

ING BSK The date of last recommendation's change SUSPENDEDPrice [PLN] 435.00 Market cap [PLN mn] 5 659 Valuation -

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

Year Interest incomeProfit on bank.

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

2003 869 1 530 146 29 13 196.95 3.70 2.092004 822 1 584 353 366 13 15.45 3.57 1.80

2005P 822 1 640 435 423 13 13.38 3.45 1.722006P 875 1 695 485 470 13 12.04 3.34 1.58

*price/profit on banking operationsdynamics

[PLN mn] I Q'04 I-I Q'04 I Q'05 I-I Q'05 I Q'05/04Interest inc. 197 197 200 200 1.7%PBO 374 374 395 395 5.6%Gross profit 58 58 149 149 157.3%Net profit 44 44 118 118 171.0%Assets 29 508 36 323 23.1%Sharehold. equity 2 762 3 262 18.1%Deposits 21 067 0 0.0%Credits 11 864 0 0.0%

BETA (II '05 - VII '05) 0.36 Price change: 1 month 0%Max. 52 weeks 495.0 6 months 9%Min. 52 weeks 363.0 12 months 19%

GRUPA KREDYT BANKU The date of last recommendation's change SUSPENDEDPrice [PLN] 10.70 Market cap [PLN mn] 2 907 Valuation -




2003 723 1 393 -1 382 -1 567 211 -1.86 2.09 4.412004 635 1 321 194 185 272 15.70 2.20 1.99

2005P 662 1 381 217 206 272 14.14 2.11 1.752006P 683 1 466 252 238 272 12.22 1.98 1.53


[PLN mn] I Q'04 I-I Q'04 I Q'05 I-I Q'05 I Q'05/04Interest inc. 168 168 174 174 3.2%PBO 310 310 282 282 -8.8%Gross profit 24 24 98 98 312.8%Net profit 20 20 94 94 367.0%Assets 22 967 21 173 -7.8%Sharehold. equity 666 1 218 82.9%Deposits 14 863 14 079 -5.3%Credits 0 0 0.0%


BPH PBK The date of last recommendation's change SUSPENDEDPrice [PLN] 587.00 Market cap [PLN mn] 16 856 Valuation -




2003 1 105 2 356 543 333 29 50.56 7.15 3.192004 1 278 2 842 980 792 29 21.27 5.93 2.85

2005P 1 405 2 887 1 061 879 29 19.17 5.84 2.732006P 1 535 3 070 1 119 932 29 18.09 5.49 2.57


[PLN mn] I Q'04 I-I Q'04 I Q'05 I-I Q'05 I Q'05/04Interest inc. 315 315 374 374 18.7%PBO 541 541 646 646 19.3%Gross profit 177 177 250 250 40.9%Net profit 137 137 200 200 45.9%Assets 44 364 52 082 17.4%Sharehold. equity 5 341 6 098 14.2%Deposits 29 746 34 605 16.3%Credits 0 0 0.0%


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GRUPA PEKAO The date of last recommendation's change SUSPENDEDPrice [PLN] 154.00 Market cap [PLN mn] 25 663 Valuation -




2003 2 375 4 073 1 276 920 166 27.90 6.30 3.592004 2 260 4 135 1 513 1 343 167 19.10 6.21 3.25

2005P 2 185 4 231 1 624 1 376 167 18.65 6.07 3.122006P 2 213 4 447 1 761 1 490 167 17.22 5.77 2.96

*price/profit on banking operations

dynamics[PLN mn] I Q'04 I-I Q'04 I Q'05 I-I Q'05 I Q'05/04Interest inc. 525 525 515 515 -1.9%PBO 958 958 950 950 -0.9%Gross profit 340 340 434 434 27.5%Net profit 269 269 360 360 33.9%Assets 62 036 60 150 -3.0%Sharehold. equity 7 639 8 210 7.5%Deposits 290 539 85.7%Credits 0 0 0.0%


GRUPA Banku Millennium The date of last recommendation's change SUSPENDEDPrice [PLN] 3.78 Market cap [PLN mn] 3 210 Valuation -




2003 558 953 -41 52 849 61.49 3.37 1.852004 588 1 464 352 241 849 13.34 2.19 1.61

2005P 649 1 190 291 237 849 13.54 2.70 1.612006P 702 1 125 189 155 849 20.74 2.85 1.67


[PLN mn] I Q'04 I-I Q'04 I Q'05 I-I Q'05 I Q'05/04Interest inc. 156 156 162 162 4.1%PBO 242 242 261 261 7.8%Gross profit 27 27 59 59 115.5%Net profit 20 20 45 45 125.5%Assets 20 843 20 641 -1.0%Sharehold. equity 1 755 1 871 6.6%Deposits 12 168 13 373 9.9%Credits 0 0 0.0%


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




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

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


[PLN mn] I Q'04 I-I Q'04 I Q'05 I-I Q'05 I Q'05/04Interest inc. 220 220 218 218 -0.9%PBO 474 474 437 437 -7.8%Gross profit 151 151 157 157 3.7%Net profit 125 125 119 119 -4.7%Assets 24 158 28 398 17.6%Sharehold. equity 2 652 2 968 11.9%Deposits 0 0 0.0%Credits 0 0 0.0%


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BANK HANDLOWY The date of last recommendation's change SUSPENDEDPrice [PLN] 59.30 Market cap [PLN mn] 7 748 Valuation -




2003 745 1 891 392 243 131 31.95 4.10 1.302004 899 1 918 477 416 131 18.61 4.04 1.26

2005P 840 1 973 527 479 131 16.19 3.93 1.532006P 759 2 020 541 489 131 15.84 3.84 1.46


[PLN mn] I Q'04 I-I Q'04 I Q'05 I-I Q'05 I Q'05/04Interest inc. 208 208 251 251 20.8%PBO 485 485 518 518 6.7%Gross profit 105 105 147 147 39.8%Net profit 81 81 119 119 46.1%Assets 33 365 33 376 0.0%Sharehold. equity 6 036 6 299 4.4%Deposits 17 448 0 0.0%Credits 13 968 0 0.0%

BETA (II '05 - VII '05) 0.30 Price change: 1 month -24%Max. 52 weeks 78.0 6 months -7%Min. 52 weeks 57.0 12 months -4%

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AGORA The date of last recommendation's change 05.08.2005 ACCUMULATEPrice [PLN] 69.50 Market cap [PLN mn] 3 945 Valuation 74.00

EV [PLN mn] 3988.0 Book Value [PLN mn] 1 049 Free float [%] 37%

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

2003 853.5 17.3 -5.0 7.2 123.2 56.8 547.87 30.25 3.70 4.62 28.38 0.002004 1001.1 95.7 78.3 71.3 110.9 56.8 55.32 21.65 3.51 3.94 19.30 0.02

2005P 1183.1 223.8 233.5 190.9 93.9 56.8 20.66 13.85 3.39 3.33 12.55 0.062006P 1215.8 241.9 242.8 197.7 89.8 56.8 19.95 13.72 3.37 3.24 12.02 0.07

Consolidated

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

BETA (II '05 - VII '05) 0.89 Price change: month 7%Max. 52 weeks 72.10 6 months 23%Min. 52 weeks 46.60 12 months 44%

AMICA The date of last recommendation's change 14.12.2004 HOLDPrice [PLN] 29.50 Market cap [PLN mn] 258 Valuation 37.30

EV [PLN mn] 452.0 Book Value [PLN mn] 276 Free float [%] 48%


2003 1011.7 15.2 -7.5 -3.5 51.2 8.7 5.40 0.92 0.25 7.53 0.032004 1256.8 57.6 44.6 34.3 54.0 8.7 7.53 2.92 0.92 0.21 4.43 0.12

2005P 1222.7 56.2 27.7 22.5 54.6 8.7 11.46 3.34 0.84 0.21 4.34 0.122006P 1262.6 62.2 34.6 28.0 54.6 8.7 9.21 3.12 0.77 0.20 3.81 0.14

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

BETA (II '05 - VII '05) 0.44 Price change: month 3%Max. 52 weeks 40.00 6 months -5%Min. 52 weeks 27.10 12 months -25%

BUDIMEX The date of last recommendation's change under reviewPrice [PLN] 44.10 Market cap [PLN mn] 1 126 Valuation -



2003 2146.9 -15.3 -10.5 -38.3 30.5 25.5 2.20 0.52 57.492004 2160.6 -119.5 2.9 0.8 24.5 25.5 1407.35 44.50 2.27 0.52

2005P 2700.0 49.0 49.0 29.0 24.0 25.5 38.82 21.24 2.14 0.42 11.35 0.062006P 3000.0 70.0 70.0 42.0 24.0 25.5 26.81 17.06 1.98 0.38 8.25 0.09

Consolidated

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

BETA (II '05 - VII '05) 0.30 Price change: month -9%Max. 52 weeks 54.00 6 months -15%Min. 52 weeks 41.10 12 months -2%

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COMARCH The date of last recommendation's change under reviewPrice [PLN] 58.10 Market cap [PLN mn] 391 Valuation -



2003 258.0 15.1 12.1 11.0 10.6 6.7 35.69 18.14 3.77 1.51 14.85 0.042004 330.0 18.2 15.0 16.1 8.0 6.7 24.27 16.22 3.32 1.18 15.15 0.05

2005P 342.9 26.7 26.9 24.1 11.0 6.7 16.22 11.13 2.66 1.14 10.10 0.072006P 384.1 31.2 32.3 29.0 11.0 6.7 13.48 9.77 2.22 1.02 8.49 0.09

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


COMPUTERLAND The date of last recommendation's change 17.12.2004 HOLDPrice [PLN] 102.50 Market cap [PLN mn] 713 Valuation 113.00



2003 582.4 31.1 18.1 8.6 23.1 6.8 80.74 21.90 3.84 1.19 11.81 0.052004 739.8 49.7 21.6 13.7 25.0 7.0 52.07 18.43 3.59 0.96 9.38 0.07

2005P 837.0 54.4 39.7 32.2 25.0 7.0 22.16 12.47 3.07 0.85 8.53 0.082006P 987.6 69.1 65.0 52.7 25.0 7.0 13.54 9.18 2.50 0.72 7.14 0.10

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


ECHO INVESTMENT The date of last recommendation's change under reviewPrice [PLN] 124.00 Market cap [PLN mn] 1 302 Valuation -



2003 312.4 78.6 42.6 28.7 20.9 10.5 45.30 26.23 3.83 4.17 21.36 0.042004 320.0 80.0 50.0 39.0 25.0 10.5 33.38 20.34 3.44 4.07 20.11 0.04

2005P 320.0 80.0 53.0 41.3 26.0 10.5 31.53 19.35 3.10 4.07 19.83 0.042006P

Consolidated

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


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ELEKTROBUDOWA The date of last recommendation's change 12.07.2005 BUYPrice [PLN] 31.80 Market cap [PLN mn] 126 Valuation 35.00



2003 228.8 8.0 5.0 3.1 7.0 4.0 40.73 12.50 1.91 0.55 9.69 0.062004 278.1 9.7 6.9 4.5 6.2 4.0 28.06 11.80 1.83 0.45 8.93 0.07

2005P 300.0 11.0 10.4 7.5 7.0 4.2 17.81 9.21 1.73 0.45 7.99 0.082006P 340.0 13.4 12.9 9.5 7.0 4.2 14.06 8.09 1.68 0.39 6.94 0.09

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


EMAX The date of last recommendation's change under reviewPrice [PLN] 103.00 Market cap [PLN mn] 349 Valuation -



2003 222.8 24.5 17.1 10.5 5.1 3.4 33.21 22.36 4.79 1.57 12.13 0.072004 310.7 28.0 23.9 18.5 8.5 3.4 18.87 12.93 3.83 1.12 9.43 0.08

2005P 287.1 31.3 28.4 22.2 6.0 3.4 15.73 12.38 3.08 1.22 8.69 0.102006P 315.5 31.9 30.3 23.4 6.0 3.4 14.90 11.86 2.55 1.11 8.17 0.10

Consolidated

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

BETA (II '05 - VII '05) -0.11 Price change: month 2%Max. 52 weeks 111.50 6 months 6%Min. 52 weeks 87.70 12 months 1%

FARMACOL The date of last recommendation's change 24.03.2005 BUYPrice [PLN] 32.30 Market cap [PLN mn] 756 Valuation 34.50



2003 2717.8 58.6 60.8 39.1 12.6 23.4 19.31 14.60 2.93 0.28 10.53 0.082004 2714.3 61.8 77.7 58.5 13.7 23.4 12.92 10.47 2.37 0.28 9.89 0.08

2005P 2982.3 71.4 75.9 58.4 14.9 23.4 12.94 10.31 2.21 0.25 8.41 0.102006P 3218.3 80.1 80.1 61.8 16.8 23.4 12.23 9.61 2.05 0.23 7.49 0.11

Consolidated

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


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FORTE The date of last recommendation's change 18.03.2005 BUYPrice [PLN] 11.80 Market cap [PLN mn] 286 Valuation 13.80



2003 348.4 25.3 19.4 12.6 13.2 17.3 16.27 7.94 1.77 0.59 5.99 0.112004 403.9 24.5 32.1 25.7 17.0 24.2 11.11 6.69 1.38 0.71 7.09 0.08

2005P 459.4 33.3 33.2 26.9 18.9 24.2 10.62 6.24 1.22 0.62 5.56 0.112006P 590.8 40.6 38.2 30.9 21.8 24.2 9.23 5.42 1.08 0.48 4.65 0.14



HOOP The date of last recommendation's change 18.03.2005 ACCUMULATEPrice [PLN] 11.70 Market cap [PLN mn] 152 Valuation 14.50



2003 351.6 20.0 10.6 5.0 22.9 13.0 30.37 5.44 1.44 0.43 5.40 0.092004 501.1 -1.2 -14.1 -10.3 40.0 13.0 5.11 1.72 0.30 5.03

2005P 528.9 16.3 6.9 5.6 35.4 13.0 26.99 3.70 1.62 0.29 5.40 0.062006P 554.9 19.0 10.6 8.6 35.8 13.0 17.64 3.42 1.50 0.27 4.53 0.08

Consolidated

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


INDYKPOL The date of last recommendation's change SUSPENDEDPrice [PLN] 55.60 Market cap [PLN mn] 174 Valuation -



2003 555.4 29.5 17.2 11.7 16.2 3.1 14.90 6.23 2.72 0.31 5.90 0.112004 626.0 13.1 18.7 14.3 16.6 3.1 12.17 5.62 2.16 0.28 9.30 0.05

2005P 644.5 26.2 18.0 13.8 21.0 3.1 12.56 4.99 1.93 0.27 5.77 0.102006P 688.3 27.9 20.3 15.9 21.8 3.1 10.90 4.60 1.81 0.25 5.33 0.11

Consolidated

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

BETA (II '05 - VII '05) -0.14 Price change: month 5%Max. 52 weeks 98.00 6 months -12%Min. 52 weeks 42.30 12 months -42%

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JELFA The date of last recommendation's change 25.02.2005 BUYPrice [PLN] 63.00 Market cap [PLN mn] 428 Valuation 70.00



2003 253.6 30.2 29.5 21.7 29.5 6.8 19.79 8.38 1.24 1.69 6.82 0.072004 274.1 15.3 12.5 9.6 27.9 6.8 44.63 11.42 1.26 1.56 10.27 0.03

2005P 277.9 20.8 19.4 15.7 31.5 6.8 27.29 9.08 1.19 1.54 8.41 0.052006P 291.5 28.5 27.4 22.2 30.7 6.8 19.33 8.11 1.12 1.47 6.91 0.07

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

BETA (II '05 - VII '05) 0.45 Price change: month 5%Max. 52 weeks 65.00 6 months 12%Min. 52 weeks 50.70 12 months -4%

JUTRZENKA The date of last recommendation's change 17.12.2004 ACCUMULATEPrice [PLN] 74.40 Market cap [PLN mn] 206 Valuation -



2003 166.2 7.6 8.0 5.6 9.1 2.8 36.98 14.08 2.12 1.24 12.20 0.042004 182.1 9.6 10.2 8.2 8.7 2.8 25.23 12.21 1.99 1.13 10.81 0.05

2005P 180.9 8.7 9.3 7.6 7.4 2.8 27.25 13.80 1.90 1.14 11.84 0.052006P 188.1 9.9 10.7 8.6 7.8 2.8 23.85 12.54 1.79 1.09 10.25 0.05

Consolidated



GRUPA KĘTY The date of last recommendation's change 04.08.2005 HOLDPrice [PLN] 136.00 Market cap [PLN mn] 1 255 Valuation 129.50



2003 740.2 85.5 84.6 69.7 36.0 9.2 18.00 11.87 3.39 1.70 10.70 0.072004 729.0 114.0 108.0 92.0 38.0 9.2 13.64 9.65 2.90 1.72 8.78 0.09

2005P 734.0 116.0 116.0 98.0 37.0 9.2 12.80 9.29 2.00 1.71 8.91 0.092006P 807.0 125.0 121.0 97.0 42.0 9.2 12.94 9.03 1.81 1.55 8.11 0.09

Consolidated

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

BETA (II '05 - VII '05) 1.03 Price change: month 9%Max. 52 weeks 149.00 6 months -6%Min. 52 weeks 104.00 12 months -5%90

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KGHM The date of last recommendation's change 03.03.2005 REDUCEPrice [PLN] 39.30 Market cap [PLN mn] 7 860 Valuation -



2003 4740.8 357.9 569.3 411.6 295.8 200.0 19.10 11.11 1.96 1.66 14.19 0.042004 6158.0 1371.0 1447.0 1398.1 281.3 200.0 5.62 4.68 1.40 1.28 4.87 0.17

2005P 7457.4 2131.3 2075.6 1895.9 275.0 200.0 4.15 3.62 1.14 1.05 2.87 0.312006P 5223.0 520.0 459.0 653.0 312.0 200.0 12.04 8.15 1.01 1.50 7.55 0.08

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


KROSNO The date of last recommendation's change under reviewPrice [PLN] 9.50 Market cap [PLN mn] 240 Valuation -



2003 342.6 20.7 14.7 10.4 12.0 25.3 23.09 10.71 2.01 0.70 10.54 0.062004 397.0 40.0 24.5 18.6 13.0 25.3 12.92 7.60 1.78 0.60 6.67 0.11

2005P 445.6 35.9 28.1 22.1 24.2 25.3 10.85 5.19 1.50 0.54 6.84 0.092006P 502.7 59.6 48.5 38.7 28.0 25.3 6.21 3.61 1.21 0.48 4.58 0.15

Consolidated

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

BETA (II '05 - VII '05) 0.12 Price change: month -9%Max. 52 weeks 13.20 6 months -18%Min. 52 weeks 10.00 12 months -18%

MONDI The date of last recommendation's change 03.08.2005 HOLDPrice [PLN] 46.50 Market cap [PLN mn] 2 325 Valuation 51.00



2003 1280.4 260.3 190.6 147.6 136.0 50.0 15.75 8.20 3.41 1.82 6.32 0.102004 1306.5 272.3 377.9 310.1 119.5 50.0 7.50 5.41 3.14 1.78 5.77 0.12

2005P 1250.4 162.9 168.6 136.6 110.5 50.0 17.02 9.41 3.35 1.86 8.46 0.072006P 1359.4 202.7 204.8 168.0 106.0 50.0 13.84 8.49 3.20 1.71 7.74 0.08

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

BETA (II '05 - VII '05) 0.12 Price change: month 0%Max. 52 weeks 78.90 6 months 17%Min. 52 weeks 51.90 12 months -2%

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NETIA The date of last recommendation's change under reviewPrice [PLN] 4.58 Market cap [PLN mn] 1 951 Valuation 4.50



2003 701.1 -840.1 -728.8 -729.1 268.4 345.0 0.76 2.252004 897.2 85.8 113.7 159.2 238.8 426.0 12.26 4.90 0.85 2.17 4.96 0.05

2005P 965.3 122.8 133.3 133.3 245.1 426.0 14.64 5.16 0.89 2.02 3.70 0.092006P 994.2 135.7 148.3 108.3 236.9 426.0 18.02 5.65 0.88 1.96 3.30 0.11

Consolidated

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


ORBIS The date of last recommendation's change under reviewPrice [PLN] 25.40 Market cap [PLN mn] 1 170 Valuation -



2003 811.0 55.0 68.0 47.0 87.5 46.1 24.90 8.70 0.97 1.44 10.16 0.042004 919.0 79.0 87.0 65.0 91.0 46.1 18.01 7.50 0.93 1.27 8.31 0.06

2005P 973.0 101.0 96.0 66.0 92.0 46.1 17.73 7.41 0.89 1.20 7.08 0.072006P 1038.0 113.0 96.0 79.0 91.0 46.1 14.81 6.88 0.86 1.13 5.74 0.10

Consolidated

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


PGF The date of last recommendation's change 16.05.2005 HOLDPrice [PLN] 53.90 Market cap [PLN mn] 659 Valuation 50.40



2003 3568.7 73.4 64.7 36.8 16.6 12.2 17.92 12.34 4.01 0.18 8.98 0.092004 3947.3 60.9 63.7 50.0 20.4 12.4 13.37 9.49 3.50 0.17 10.21 0.07

2005P 3944.3 65.4 59.7 48.1 20.1 12.5 14.01 9.88 2.97 0.17 11.39 0.072006P 4178.6 73.3 69.0 55.6 21.6 12.6 12.24 8.82 2.57 0.16 10.34 0.07

Consolidated

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

BETA (II '05 - VII '05) -0.03 Price change: month -2%Max. 52 weeks 65.00 6 months -14%Min. 52 weeks 49.50 12 months -9%

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PKN ORLEN* The date of last recommendation's change 18.05.2005 BUYPrice [PLN] 55.80 Market cap [PLN mn] 23 866 Valuation -



2003 33720.9 1680.0 1529.0 1014.0 1109.0 427.7 23.54 11.24 2.61 0.71 9.56 0.062004 41311.0 3077.0 3214.0 2529.0 1178.0 427.7 9.44 6.44 2.10 0.58 6.11 0.12

2005P 29362.6 2502.7 2110.7 2055.7 1209.8 427.7 11.61 7.31 1.82 0.81 6.08 0.112006P 25470.4 1984.2 1866.8 1811.8 1208.5 427.7 13.17 7.90 1.85 0.94 7.09 0.09

Consolidated

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


POLIMEX-MOSTOSTAL SIEDLCE The date of last recommendation's change 30.06.2005 BUYPrice [PLN] 42.50 Market cap [PLN mn] 625 Valuation 43.80



2003 1238.7 63.5 52.1 28.0 35.6 14.7 22.35 9.84 4.47 0.51 7.50 0.092004 1706.2 72.6 63.7 45.7 32.2 14.7 13.69 8.03 2.90 0.37 6.49 0.11

2005P 1805.9 67.4 59.7 41.9 32.2 14.7 14.93 8.44 2.56 0.35 6.82 0.102006P 1986.5 75.7 68.4 49.9 32.2 14.7 12.54 7.62 2.29 0.31 6.25 0.11

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

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


PROKOM SOFTWARE The date of last recommendation's change under reviewPrice [PLN] 110.00 Market cap [PLN mn] 1 528 Valuation -



2003 874.0 106.3 20.6 4.2 21.2 13.8 361.20 59.61 2.12 1.74 11.77 0.072004 900.0 71.8 31.3 25.4 25.0 13.9 60.16 30.32 2.06 1.70 17.34 0.04

2005P 1259.6 149.0 144.5 117.1 25.0 13.9 13.05 10.75 1.78 1.21 9.43 0.092006P 1394.0 166.9 166.4 134.8 25.0 13.9 11.34 9.56 1.54 1.10 8.03 0.11

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

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

BETA (II '05 - VII '05) 1.23 Price change: month 6%Max. 52 weeks 176.00 6 months -16%Min. 52 weeks 87.10 12 months -35%50

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SOFTBANK The date of last recommendation's change 04.04.2005 ACCUMULATEPrice [PLN] 32.90 Market cap [PLN mn] 689 Valuation 36.50



2003 344.7 5.6 -0.3 2.2 12.2 21.0 312.17 47.97 5.38 2.00 36.01 0.012004 488.0 46.4 24.8 30.5 10.8 21.0 22.60 16.69 4.35 1.41 12.40 0.07

2005P 530.0 42.5 43.6 43.6 10.0 21.0 15.81 12.86 3.41 1.30 13.51 0.062006P 550.0 52.4 57.5 57.5 10.0 21.0 11.99 10.21 2.65 1.25 11.37 0.07

Consolidated



TORFARM The date of last recommendation's change 24.03.2005 ACCUMULATEPrice [PLN] 37.90 Market cap [PLN mn] 102 Valuation 46.00



2003 1099.0 8.4 10.4 7.5 1.8 2.0 10.11 8.15 2.79 0.07 10.86 0.082004 1309.1 7.4 12.8 10.1 2.5 2.7 10.21 8.18 1.51 0.08 13.86 0.05

2005P 1496.2 11.0 13.2 10.7 3.6 2.7 9.63 7.21 1.30 0.07 8.38 0.092006P 1684.0 14.1 14.3 11.6 3.5 2.7 8.89 6.83 1.14 0.06 6.95 0.12


BETA (II '05 - VII '05) Price change: month -1%Max. 52 weeks 46.00 6 months -14%Min. 52 weeks 32.30 12 months -22%

TPSA The date of last recommendation's change 08.02.2005 HOLDPrice [PLN] 23.10 Market cap [PLN mn] 32 340 Valuation 19.50



2003 18309.0 2994.0 1443.0 925.0 4360.0 1400.0 34.96 6.12 2.33 1.77 6.27 0.062004 18564.0 3494.0 3065.0 2209.0 4195.0 1400.0 14.64 5.05 2.01 1.74 5.55 0.08

2005P 18676.0 3618.0 2448.0 1780.0 4058.0 1400.0 18.17 5.54 1.96 1.73 5.44 0.092006P 18486.0 3295.0 2372.0 1725.0 4052.0 1400.0 18.75 5.60 1.95 1.75 5.69 0.08

Consolidated

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


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WAWEL The date of last recommendation's change 22.03.2005 ACCUMULATEPrice [PLN] 125.50 Market cap [PLN mn] 188 Valuation 120.00



2003 165.9 8.1 7.9 5.0 5.1 1.5 37.59 18.65 3.95 1.13 14.23 0.042004 199.1 18.0 24.6 18.9 4.7 1.5 9.95 7.96 2.78 0.95 8.36 0.09

2005P 210.3 17.2 13.0 10.5 11.3 1.5 17.93 8.64 2.60 0.90 8.55 0.072006P 226.9 21.0 17.5 14.2 12.0 1.5 13.27 7.18 2.17 0.83 6.97 0.09

Consolidated


BETA (II '05 - VII '05) 0.06 Price change: month 6%Max. 52 weeks 125.50 6 months 4%Min. 52 weeks 73.40 12 months 52%60

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

EBITDA P/E EV / EBITDA PEG

IndustryAmica 29.50 34252 22500 28000 7.53 4.27 11.46 4.18 9.21 3.97 9.17 4.39 -0.79Apator 125.00 35360 28000 11.91 7.60 15.04 10.10 7.49Boryszew 17.00 78905 70600 70700 2.42 1.65 2.87 1.59 2.87 1.49 2.77 1.74 -0.30Cersanit 121.50 104805 119122 142000 15.41 9.80 13.56 8.99 11.38 7.36 15.98 9.89 0.94Dębica 77.00 94806 150000 11.21 6.85 7.09 5.72 17.41 8.67Duda 12.25 14094 39100 2.85 2.41 1.35 0.81 3.33 2.22Ekodrob 4.10 -3903 -11.14 11.61 11.68Elzab 15.10 809 4559 23.36 2.35 4.15 2.39 36.27 2.46Forte 11.80 25706 26881 30932 7.95 6.33 10.40 5.06 9.03 4.22 12.10 6.68 -1.28Groclin 97.30 43304 43550 58000 12.36 8.64 12.29 8.18 9.23 6.29 13.98 8.82 0.79Hoop 11.70 -10324 5626 8608 -14.83 7.76 27.22 4.83 17.79 4.56 8.19Hydrotor 22.00 3999 13.78 6.60 13.58 6.30Indykpol 55.60 12665 13830 15936 13.72 10.41 12.56 4.52 10.90 4.29 12.04 9.94 1.13Jelfa 63.00 9619 15700 22159 44.54 9.99 27.29 8.24 19.33 7.28 13.54 0.86Jutrzenka 74.40 8161 7555 8634 25.23 10.86 27.25 12.38 23.85 11.22 14.36 7.17 8.83Kęty 136.00 92420 98000 97000 15.45 9.39 14.57 9.33 14.72 8.55 16.76 9.95 6.31Krosno 9.50 18586 22140 38651 12.92 6.24 10.85 5.51 6.21 3.78 14.85 6.56 0.29Mennica 73.00 39388 12.18 7.40 11.48 7.14Mieszko 2.68 134 3900 6000 136.22 4.36 4.68 3.79 3.04 3.41 5.28 0.24Polifarb 7.25 7243 15312 16705 45.41 7.63 21.35 6.35 19.57 6.04 8.74 0.87Relpol 60.00 6115 9765 8.39 4.83 5.25 3.80 8.66 4.93Rolimpex 12.40 25280 28700 33200 9.79 5.45 8.62 4.39 7.45 4.15 9.71 5.90 0.67Ropczyce 20.60 10037 3846 9.45 5.23 24.67 7.72 12.48 5.92Sanok* 122.50 43348 9.59 5.65 11.23 5.75Sokołów 4.98 42154 38245 48257 11.84 7.91 13.05 5.58 10.34 5.12 16.30 8.18 1.69Wawel 125.50 18911 10496 14188 9.95 7.69 17.93 6.13 13.27 5.30 9.53 7.38 -0.74Wilbo 2.20 -1224 5000 -29.12 8.06 7.13 3.30 6.98Wólczanka 33.00 2151 27.58 9.77 59.87 10.12Żywiec 506.00 276854 20.72 10.45 21.57 10.37

Wholesale & RetailEldorado 32.20 15006 18600 22000 14.24 6.12 11.49 5.22 9.71 4.12 16.28 6.18 0.68Farmacol 32.30 58523 58400 61800 4.30 10.00 12.94 8.76 12.23 7.80 12.25 9.52 -0.11Alma Market 24.80 19138 9532 4.17 2.84 8.37 4.13 4.09 2.95LPP 815.00 45782 64500 94800 30.33 19.41 21.52 12.90 14.65 8.61 28.86 18.00 0.69PGF 53.90 41362 48100 55600 15.94 8.59 13.71 7.72 11.86 6.96 16.64 8.52 1.00

Construction / Real EstateBudimex 44.10 757 29000 42000 1487.29 -11.85 38.82 15.42 26.81 11.98 225.18 2.31Echo 124.00 34119 41300 38.16 11.42 31.53 12.28 15.27 7.26Orbis 25.40 55989 66000 79000 20.90 6.80 17.73 6.06 14.81 5.74 26.85 6.93 1.11Polimex 42.50 42120 41900 49900 9.69 4.91 9.74 4.10 8.18 3.78 8.67 4.26 1.10

ITComarch 58.10 14086 24100 29000 27.74 15.24 16.52 10.56 13.73 9.43 32.89 16.98 0.66Computerland 102.50 13706 32200 52700 50.67 9.39 21.78 8.83 13.31 7.45 49.17 9.86 0.53Emax 103.00 9549 22200 23430 36.57 9.69 15.73 9.36 14.90 9.22 25.03 8.79 0.65Softbank 32.90 30484 43600 57500 22.61 12.04 15.81 13.13 11.99 11.05 21.30 10.83 0.61Sterprojekt 8.20 -43350 19300 -3.32 -7.71 7.45

TelcoNetia 4.58 159802 133300 108300 9.87 5.46 12.43 4.50 15.29 4.45 10.75 5.28 -0.50

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

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

Selected Midcaps listed on WSE2004 2005 2006 last 4 quarters

BRE Bank Securities

9 August 2005


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

Sales:

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

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

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

BRE Bank Securities

9 August 2005


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

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