PBG CAPITAL GROUP CONSOLIDATED FINANCIAL STATEMENT FOR THE PERIOD FROM 1 JANUARY 2006 TO 30 JUNE 2006

Transcription

1 Nazwa grupy kapitałowej: Grupa Kapitałowa PBG Okres objęty sprawozdaniem finansowym: [ ] Waluta sprawozdawcza: złoty polski (PLN) Poziom zaokrągleń: wszystkie kwoty wyrażone są w tysiącach złotych polskich (o ile nie wskazano inaczej) PBG CAPITAL GROUP CONSOLIDATED FINANCIAL STATEMENT FOR THE PERIOD FROM 1 JANUARY 2006 TO 30 JUNE 2006 DRAWN UP AS PER THE INTERNATIONAL FINANCIAL REPORTING STANDARDS ADOPTED BY THE EUROPEAN UNION

2 TABLE OF CONTENTS I. INTRODUCTION TO THE CONSOLIDATED FINANCIAL STATEMENT OF PBG CG 3 1. GENERAL INFORMATION 3 2. ADOPTED ACCOUNTING PRINCIPLES 6 II. CONSOLIDATED FINANCIAL STATEMENT OF PBG CG CONSOLIDATED BALANCE SHEET OFF-BALANCE SHEET ITEMS CONSOLIDATED PROFIT AND LOSS ACCOUNT CONSOLIDATED CASH FLOW STATEMENT STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY 21 III. NOTES TO THE FINANCIAL STATEMENT NOTES TO THE CONSOLIDATED BALANCE SHEET NOTES TO THE PROFIT AND LOSS ACCOUNT ADDITIONAL NOTES FINANCIAL INSTRUMENTS HEDGING FINANCIAL INSTRUMENTS LEASE OFF-BALANCE SHEET ITEMS (CONTINGENT LIABILITIES) EVENTS AFTER THE BALANCE SHEET DATE RELATED-PARTY TRANSACTIONS 105 2/108

3 I. INTRODUCTION TO THE CONSOLIDATED FINANCIAL STATEMENT COVERING THE PERIOD FROM 1 JANUARY 2006 TO 30 JUNE GENERAL INFORMATION 1.1. INFORMATION ABOUT THE PARENT COMPANY AND ITS CAPITAL GROUP Parent company The parent company of the Capital Group, PBG Spółka Akcyjna with its registered office in Wysogotowo near Poznań at ul. Skórzewska 35, Przeźmierowo, was established on 2 January 2004 by the Notarial Deed drawn up on 1 December The Company is registered in the National Court Register, entry no The Company operates in Poland as per provisions of the Code of Commercial Companies. PBG S.A. was established following the transformation of a limited liability company Technologie Gazowe Piecobiogaz Sp. z o.o. (resolution no. 1 of the Extraordinary General Meeting of Partners of Technologie Gazowe Piecobiogaz Sp. z o.o. of 1 December 2003). The Issuer s legal predecessor was established in 1997 by Mr. Jerzy Wiśniewski and Mrs. Małgorzata Wiśniewska. Company authorities: Board of Directors: Jerzy Wiśniewski President of the Board of Directors, Małgorzata Wiśniewska Vice President of the Board of Directors, Tomasz Woroch Vice President of the Board of Directors, Przemysław Szkudlarczyk Vice President of the Board of Directors, Tomasz Tomczak Vice President of the Board of Directors, Mariusz Łożyński Member of the Board of Directors. Supervisory Board: Maciej Bednarkiewicz Chairman, Wiesław Lindner Vice Chairman, Jacek Krzyżaniak Secretary, Dariusz Sarnowski member of the Supervisory Board Adam Strzelecki member of the Supervisory Board, Mirosław Dobrut member of the Supervisory Board. Core business of the Capital Group Core business of the parent company includes general construction works in the area of linear facilities: pipelines, power lines, traction lines, telecommunication lines transmission lines (Polish Classification of Economic Activities PKD 4521 C). The Capital Group is involved in transmission, distribution and trade of natural gas and heat, distribution of water and disposal of liquid waste, trade in materials and equipment in the gas, oil, water supply and sewage sectors, as well as transport of LNG in specialist transport vehicles. Changes in the composition of PBG S.A. is a parent company in the Capital Group. Composition of the Capital Group changed in H On 24 January 2006, the parent company PBG S.A. took over 65.87% stake in Hydrobudowa Śląsk S.A. with its registered office in Katowice at ul. Józefa Wolnego 4, Katowice. PBG S.A. financed the investment with proceeds from the issue of series E shares. The incorporation of Hydrobudowa Śląsk to will improve the Capital Group s project implementation potential and will enable the Group to carry out works in 3/108

4 new areas, which so far have been outside of the core business of companies. Hydrobudowa Śląsk holds a strong market position in the south of Poland and has customer references and a proven track record of implementation of large-scale environmental investments, including hydro-technical projects. Another increase in share capital of Hydrobudowa Śląsk S.A. up by PLN 8,000,000 was registered by decision of the National Court Register dated 30 June 2006, following the issue of 800,000 series I shares at the nominal value of PLN 10 per share. Following the allocation, PBG S.A. took over 267,000 ordinary bearer shares series I. Before the allocation, PBG S.A. held 1,690,000 ordinary bearer shares series H issued by Hydrobudowa Śląsk S.A., representing 65.87% of share capital and 65.79% of the total vote. PBG S.A. currently holds the total of 1,957,000 ordinary shares of Hydrobudowa Śląsk S.A., and the share of PBG S.A. dropped to 58.15% of share capital and 58.10% of the total vote. On 30 May 2006, the parent company PBG S.A. acquired shares of the company KB GAZ S.A. with its registered office in Szczecin for the total price of PLN 1,644, ,700 shares taken over by PBG S.A. (PLN 100 per share) represent 100% of the company s share capital. Shares were sold by natural persons not related to PBG S.A. or its executives. All shares acquired by PBG S.A. are registered series A shares encumbered with a registered pledge for ING Bank Śląski S.A. No other encumbrance has been established on these shares. KB Gaz S.A. is a medium-sized construction company. It has been running its business activities since 1990, initially as a civil-law partnership, and after the transformation in 2000 as a joint stock company. Since its incorporation, the Company has been focusing on infrastructure investments connected with environmental protection, such as waterworks and wastewater systems, pumping stations and water treatment plants; low-, medium and high-pressure gas supply systems, as well as meter and regulator stations and gas boiler houses. PBG S.A. has no intention of changing the core business of KB Gaz S.A. As the preparation of the opening balance of KB Gaz S.A. is still in progress, the Board of Directors of PBG S.A. decided not to disclose results generated by KB Gaz for the month of June in the Q2 consolidated report of PBG S.A. These results will be presented in the consolidated statement for Q3 FY06. As at 30 June 2006, the was composed of: The Issuer PBG S.A., KRI spółka z o.o., Elwik spółka z o.o., ATG spółka z o.o., PGS spółka z o.o., METOREX spółka z o.o., INFRA spółka z o.o., Hydrobudowa Włocławek S.A., Hydrobudowa Śląsk S.A., KB Gaz S.A. PBG S.A. the parent company, ATG sp. z o.o. subsidiary covered by the consolidated financial statement, Elwik Sp. z o.o. subsidiary covered by the consolidated financial statement, PGS sp. z o.o. subsidiary covered by the consolidated financial statement, INFRA sp. z o.o. subsidiary covered by the consolidated financial statement, METOREX sp. z o.o. subsidiary covered by the consolidated financial statement, KRI sp. z o.o. - subsidiary covered by the consolidated financial statement, Hydrobudowa Włocławek S.A. subsidiary covered by the consolidated financial statement, Hydrobudowa Śląsk S.A. subsidiary covered by the consolidated financial statement, KB GAZ S.A. subsidiary not covered by the consolidated financial statement as at 30 June ATG Sp. z o.o. Registered office: ul. Kolejowa 13, Poznań Core business: wholesale of construction materials and sanitary equipment (PKD 51 53B) Registry court: Local Court in Poznań, XXI Commercial Division of the National Court Register, entry no.: KRS % of share capital held 100%, Share in the total vote at the AGM 100% 4/108

5 Elwik Sp. z o.o. Registered office: ul. Toruńska 21, Lubicz Core business: collection, treatment and distribution of water (PKD 41 00) Registry court: Local Court in Toruń, VII Commercial Division of the National Court Register, entry no.: KRS % of share capital held 76%, Share in the total vote at the AGM 76% PGS Sp. z o.o. Registered office: ul. Krotoszyńska, Odolanów Core business: freight transport by road in special-purpose vehicles (PKD A) Registry court: Local Court in Poznań, XXII Commercial Division of the National Court Register, entry no.: KRS % of share capital held 92.24%, Share in the total vote at the AGM 92,24% KRI Sp. z o.o. Registered office: ul. Serdeczna 8, Wysogotowo k/poznania, Przeźmierowo Core business: network distribution of gaseous fuels through mains (PKD B) Registry court: Local Court in Poznań, XXI Commercial Division of the National Court Register, entry no.: KRS % of share capital held 99.98%, Share in the total vote at the AGM 98.98% METOREX Sp. z o.o. Registered office: ul. Żwirki i Wigury 17A, Toruń, Core business: general construction of buildings and civil engineering works (PKD 4521), Registry court: Local Court in Toruń, VII Commercial Division of the National Court Register, entry no.: KRS % of share capital held 99.56%, Share in the total vote at the AGM 99.56% INFRA Sp. z o.o. Registered office: ul. Mehoffera 86, Warszawa, Core business: repairs of waterworks and sewerage systems, Registry court: Local Court of the Capital City of Warsaw, XX Commercial Division of the National Court Register, entry no.: KRS % of share capital held 99.75%, Share in the total vote at the AGM 99.75% HYDROBUDOWA WŁOCŁAWEK S.A. Registered office: ul. Płocka 164, Włocławek Core business: building of complete constructions or parts thereof; civil and hydroengineering (PKD 45 2) Registry court: Local Court in Toruń, VII Commercial Division of the National Court Register, entry no.: KRS % of share capital held 91.84%, Share in the total vote at the AGM 91.84% HYDROBUDOWA ŚLĄSK S.A. Registered office: ul. Józefa Wolnego 4, Katowice Core business: general construction of buildings and civil engineering works, n.e.c. (PKD 4521F) Registry court: Local Court in Katowice, VIII Commercial Division of the National Court Register, entry no.: KRS % of share capital held 58.15%, Share in the total vote at the AGM 58.10% 5/108

6 KB GAZ S.A. Registered office: ul. Krasickiego 4, Szczecin Core business: general construction works in the area of linear facilities: pipelines, power lines, civil engineering works, n.e.c. (PKD 45 C) Registry court: Local Court in Szczecin, XI Commercial Division of the National Court Register, entry no.: KRS % of share capital held 100%, Share in the total vote at the AGM 100% The financial statement of the Issuer and Capital Group companies was drawn up based on the assumption that the Group remains a going concern in the foreseeable future. There are no circumstances indicating otherwise. Duration of the Issuer and the Capital Group companies: Unlimited. Reporting periods and format of the financial statement: The consolidated financial statement of the Capital Group covers the period between 1 January 2006 and 30 June 2006 and the comparative period between 1 January 2005 and 30 June BASIS OF THE FINANCIAL STATEMENT, REPORTING CURRENCY, AND APPROXIMATION OF AMOUNTS The consolidated financial statement of PBG S.A. Capital Group, covering the parent company and all subsidiaries, has been drawn up as per the International Financial Reporting Standards, version approved by the European Union, and in matters not provided for in the IFRS as per the Polish Accounting Act of 29 September 1994 and its implementing provisions, and is covered by IFRS 1 First-time Adoption of International Financial Reporting Standards. 2. ADOPTED ACCOUNTING PRINCIPLES 2.1. ACCOUNTING PRINCIPLES This financial statement is drawn up based on the historical cost principle, with the exception of measurement of certain fixed assets (investment property) and financial assets, which are carried at fair value as per IFRS. Significant accounting principles adopted by the Capital Group are presented in sections 2.2 to PRINCIPLES OF CONSOLIDATION The consolidated financial statement includes the financial statement of the parent company PBG S.A. and statements of subsidiaries controlled by the parent company, drawn up as at 30 June The term controlled means that the parent company has influence on the financial and operational policy of a subsidiary so as to obtain benefits from its activities. As at the acquisition date (date of taking control), assets and liabilities of a subsidiary are carried at their fair value. Any excess of the acquisition cost over fair value of acquired identifiable net assets of the subsidiary is recognised as goodwill under assets in the balance sheet. If the acquisition cost is lower than fair value of acquired identifiable net assets of the subsidiary, the difference is recognised as profit in the P&L account for the period when acquisition was made. Minority interests are carried at their corresponding fair value of net assets. If minority losses exceed minority interests in subsequent periods, equity of the parent company is reduced by the relevant amount. Any subsidiaries sold during the fiscal year are consolidated from the beginning of FY until the transaction date. Financial results of entities acquired during the year are recognised in the financial statement as of the acquisition date. 6/108

7 If necessary, financial statements of subsidiaries are adjusted to make sure that accounting principles adopted by the subsidiary are in line with the principles adopted by the parent company. The consolidated financial statement does not include any intercompany transactions, balances, revenues or expenses of related consolidated companies INVESTMENTS IN ASSOCIATES Associates are entities which are not controlled, but significantly influenced by the parent company (the parent company takes part in defining its financial and operational policy). Shares in associates are measured based on the equity method, Investments in associated companies are accounted for by the equity method of accounting except when classified as held for sale. Under this method, investments in associates are carried at cost as adjusted by post-acquisition changes in the Company s share of the net assets of the associate, less any impairment in the value of individual investments GOODWILL Goodwill on consolidation represents the excess of the cost of acquisition over the fair value of the Group s share of the identifiable assets and liabilities of a subsidiary, jointlyheld entity, or associate, as at the acquisition date. Goodwill is recognised as an element of assets and is tested for impairment at least annually. Any effects of goodwill impairment are immediately charged to the P&L account and cannot be reversed in subsequent periods. Intangible assets are recognised if it is probable that the future economic benefits that are attributable to the asset will flow to the enterprise and the cost of the asset (cost of acquisition or construction) can be measured reliably. Intangible assets are initially carried at cost (of purchase or construction). They are subsequently measured at cost less amortisation and total impairment losses. Intangible assets are amortised based on the straight-line method over their expected useful life. Useful life of the Capital Group s intangible assets is as follows: - Licenses 5 10 years - Software 1 5 years 2.5. INTANGIBLE ASSETS CONSTRUCTED BY THE CAPITAL GROUP COSTS OF R&D WORKS Costs of research works are not capitalised and are recognised directly in the P&L account as costs of the period in which they are incurred. Costs of development works are capitalised only when: - a specific project is implemented (such as new software or procedures); - it is likely that an element of assets will bring economic benefits in the future; - project-related costs can be estimated in a reliable way. Costs of development works are amortized on a straight line basis over the expected period of their economic useful life. If the element of assets constructed by the Group cannot be identified separately, costs of development works are recognised in the P&L account in the period in which they are incurred. 7/108

8 2.6. TANGIBLE FIXED ASSETS (PP&E) Land, buildings and structures used in the process of production and provision of goods and services, as well as for administrative purposes, are carried in the balance sheet at historical cost less accumulated depreciation and impairment losses. Construction in progress to be used for production, lease, or administrative purposes, is recognised in the balance sheet at the cost of construction less impairment losses. These assets are depreciated as of the date they are put into use, in line with principles adopted for the Group s PP&E. Plant and machinery, transport vehicles, and other PP&E are carried in the balance sheet at historical cost less accumulated depreciation and impairment losses. Depreciation is calculated for all PP&E, except for land and construction in progress, over the estimated period of their economic useful life and based on the straightline method, at the following annual depreciation rates: Item Annual depreciation rate group 0 land and perpetual usufruct of land - group I buildings and facilities 1.5% - 2.5% group II civil- and hydro-engineering structures 2 % - 10% group III boilers and power equipment 5% - 35% group IV general-purpose machinery and equipment 10% - 40% group V special-purpose machinery and equipment 10% - 35% group VI technical plant and equipment 7% - 25% group VII transport vehicles 10% - 46% group VIII tools, accessories, furniture 10% - 20% Any subsequent outlays are recognised in the carrying amount of an asset or are presented as a separate asset only if it is likely that this assets will bring economic benefits to the Group in the future and its costs can be reliably estimated. Any other costs incurred after the initial recognition, including costs of repairs or operation (use) are charged to the financial result of the period in which they were incurred, except for material costs of general overhauls, which are recognised in the carrying amount of this asset. The assets residual values and useful lives are reviewed and adjusted if appropriate at least annually. If the carrying amount of an asset exceeds its estimated residual value, the carrying amount is immediately written down to the residual amount. Construction in progress is carried in the total amount of all costs directly related to its acquisition or construction, including financing costs, less impairment losses. Construction in progress is not depreciated until finished and put into use. Any gain or loss arising on the sale/disposal or retirement of an asset is determined as the difference between the disposal proceeds and the net carrying amount of the asset and is immediately recognised in the P&L account LEASE Leases are classified as finance leases whenever the terms of the lease contract transfer substantially all the risks and potential rewards of ownership to the Capital Group. All other types of lease are treated as operating lease. Assets held under finance leases are recognised as assets of the Capital Group and carried at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. Lease payments are apportioned between finance charges (interest) and reduction of the outstanding liability (lease obliga- 8/108

9 tion) so as to achieve a constant rate of interest on the remaining balance of the liability. Rentals payable under operating leases are charged to the P&L account on a straightline basis over the term of the lease INVESTMENT PROPERTY Investment property is property held to earn rentals and/or held for capital appreciation. Investment property is carried at fair value as at the balance sheet date. Gains and losses resulting from changes in fair value of investment property are recognised in the P&L account for the period in which they are generated FIXED (NON-CURRENT) ASSETS AND NET ASSET GROUPS HELD FOR SALE Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable within one year after the re-classification and the asset (or disposal group) is available for immediate sale in its present condition IMPAIRMENT OF NON-CURRENT ASSETS At each balance sheet date, the Capital Group companies assess whether there are any objective indications that any assets (or group of assets) may be impaired. If such indications exist, the recoverable amount of the asset is estimated and an impairment loss is recognised, i.e. the difference between the recoverable amount and carrying amount of this asset. Recoverable amount is the higher of fair value less costs to sell and value in use. To analyse the impairment of assets, they are grouped at the lowest level possible where identifiable independent cash flows are generated (cash-generating unit). Irrespective of whether there are any indications that any assets may be impaired, the Capital Group tests all elements of its intangible assets with unspecified useful life for impairment on an annual basis. Any impairment loss is charged to the P&L account INVENTORIES Inventories are carried at purchase price (as costs of purchase are immaterial, purchase price is equal to price of acquisition) or actual manufacturing costs not higher that net selling price. Cost of inventories includes costs of all materials that enter directly into production, and in certain cases costs of salaries and reasonable amount of indirect costs. Inventories of raw materials and goods are measured based on the weighted average method. Net selling price equals the estimated price of sale less any costs necessary to finish the production process and bring inventories to sale or finding a buyer (i.e. costs of sale, marketing, etc.) BORROWING COSTS Borrowing costs directly related to acquisition or construction of assets are added to the cost of asset construction until this asset is ready for use. These costs are reduced by revenues from temporary investments of assets borrowed to construct this element of assets. 9/108

10 All other borrowing costs are charged directly to the P&L account in the period in which they are incurred GOVERNMENT GRANTS Government grants are recognised in the financial statement and matched with costs to be compensated by these grants. Government grants to fixed assets are recognised in the balance sheet under the item government grants (short- or long-term) and written off to the P&L account over the expected period of their use FINANCIAL INSTRUMENTS (FINANCIAL RISK MANAGEMENT) Financial assets and liabilities are recognised in the Capital Group s balance sheet as at the date when the Group becomes a party to a binding contract. In the course of its operations, is exposed to many financial risks, for instance the currency risk. As part of their core business operations, the Capital Group companies conclude contracts denominated in foreign currencies (mostly in Euro). The currency risk management policy adopted by the Board of Directors is based on the principle of securing future cash flows arising from these contracts to reduce the impact of currency rate variations on the Capital Group companies. Currency risks are mainly hedged based on a natural mechanism, i.e. signing contracts with subcontractors in the contract currency to transfer these currency risks to subcontractors. If it is not possible, currency exposure is hedged on the financial market by using derivatives, currency forward transactions in particular. These financial instruments are carried at fair value. When hedging cash flows (if conditions set for the adoption of hedge accounting are satisfied), part of the profit or loss on a hedging instrument considered to be an effective hedge is charged directly to equity, and the ineffective portion is charged to the current year result TRADE AND OTHER RECEIVABLES Trade and other receivables are carried in the accounts at nominal value adjusted by relevant allowance for irrecoverable (doubtful) receivables. Trade receivables related to implemented construction contracts and advance payments made are classified as short-term receivables they are expected to be settled during the normal business cycle. Receivables arising from guarantee deposits and loans with the maturity date within 12 months are recognised as short-term receivables. Long-term receivables are discounted to their current value at effective interest rates if the time value of money has a significant impact of these receivables INVESTMENTS IN SECURITIES Investments in securities are classified as held for trading or available for sale and carried as at the balance sheet day at fair value. If securities are classified as held for trading, gains or losses resulting from changes in their fair value are recognised in the P&L account for the period. If securities are classified as available for sale, gains or losses resulting from changes in their fair value are charged directly to equity until the asset is sold or impairment is recognised. If this is the case, accumulated profits or losses previously recognised in equity are moved to the P&L account for the period FINANCIAL PAYABLES AND EQUITY INSTRUMENTS Financial payables and equity instruments are classified based on their economic content resulting from relevant contracts. Equity instrument is a contract giving the right of share in the Capital Group s assets less any payables. 10/108

11 2.18. BANK LOANS Interest-bearing bank loans are initially recorded at their cost equal to fair value of the consideration received less direct borrowing costs. After initial recognition, interestbearing loans and borrowings are subsequently measured at amortised cost using the effective interest method TRADE AND OTHER PAYABLES Trade and other payables are recognised at the current value of the expected amount payable as at the date when they occur, and subsequently carried at amortised cost. Trade payables related to implemented construction contracts and advance payments received are classified as short-term payables they are expected to be settled during the Capital Group s normal business cycle. Receivables arising from guarantee deposits with the maturity date within 12 months are recognised as short-term receivables. Long-term payables are discounted to their current value at effective interest rates if the time value of money is significant EQUITY INSTRUMENTS Equity instruments issued by the Capital Group companies are carried at the value of proceeds less direct costs of issue PROVISIONS Provisions are recognised for the Capital Group s actual (legal or constructive) obligations arising from past events, for which it is probable that an outflow of resources embodying economic benefits will be required, which can be reasonably estimated. The amount of provisions is reviewed as at each balance sheet date and adjusted to the current forecast amount. If the effect of the time value of money is material, the amount of provision is determined at the current amount of expected future expenses necessary to settle the obligation, and the discount rate is the estimated rate of return on risk-free deposits. Where discounting is used, the increase in the provision due to the passage of time is recognised as a borrowing cost. Provisions established by the Capital Group include in particular: - provision for liabilities - provision for warranty repairs and penalty payments - deferred tax provision. Provisions are made for future liabilities whose establishment is certain or most probable, and which can be reliably estimated, and in particular for: - any losses on business transactions in progress, including guarantees and sureties granted - results of legal proceedings in progress - holiday leaves - retirement severance payments. Provisions for costs of warranty repairs are recognised when products are sold, based on the Board s best estimate of the Group s future expenses required in the warranty period. Provisions for liabilities arising from penalties imposed on the Capital Group companies are recognised when the penalty is imposed (and a relevant notice is received). The amount of this provision equals the amount of the penalty. Under IAS 1 Presentation of Financial Statements, provisions are presented as long-term and short-term provisions in the balance sheet REVENUES FROM SALES Under IAS 18 Revenue, revenues from sales are recognised at fair value of the consideration received or receivable and represent amounts receivable for products, goods, and services provided in the normal course of business, net of discounts, Value-Added Tax and sale-related taxes (such as the excise tax). 11/108

12 Sale of goods is recognised when goods are delivered and ownership rights are passed to the buyer. Revenues from long-term contracts are recognised in proportion to the stage of completion of works, provided that reliable estimate of the result on the contract is possible. Stage of completion of works is defined as the share of costs incurred to complete the task in the total planned cost. If the contract result cannot be estimated reliably, any revenues related to this contract are recognised only up to the amount of actual incurred costs whose recovery is probable. Revenues received for undelivered goods or serviced are carried in the balance sheet as deferred income. Revenues from interest are accrued on a time basis, by reference to the principal amount outstanding and at the effective interest rate. Revenues from dividends are recognised when the shareholder's right to receive a dividend is established. AS the Group has adopted the accrual basis, all costs of a reporting period are charged to the P&L account, irrespective of their actual date of settlement. Costs incurred but not related to the period are recognised in assets, and costs incurred and related to the period are recognised in liabilities CURRENCY TRANSACTIONS In the financial statements of the Capital Group s companies, transactions denominated in foreign currencies are converted at the exchange rate as at the transaction date. As at the balance sheet date, monetary assets and liabilities in foreign currencies are converted at the exchange rate set by the company s bank as at this date. Foreign exchange gains or losses are charged directly to the P&L account, unless these gains or losses arise from measurement of non-monetary assets and liabilities, in which case changes in fair value are charged directly to equity. Assets and liabilities of foreign companies denominated in foreign entities are converted to the reporting currency at the exchange rate as at the balance sheet date. Revenues and costs recognised in financial statements of foreign entities are converted at average exchange rates from all months of the fiscal year COSTS OF FUTURE RETIREMENT BENEFITS In the case of defined benefit schemes, the cost of providing benefits are determined using the Projected Unit Credit Method, with actuarial valuations carried out at each balance sheet date. Actuarial gains and losses are recognised in total in the period in which they occur. Past service cost is recognised immediately to the extent that the benefits are already vested; otherwise they are amortised on a straight-line basis over the average period until the benefits become vested. The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised past service cost, and as reduced by the fair value of the assets of the retirement benefit plan. Any excess of assets over liabilities resulting from this calculation is recognised in assets in the balance sheet, limited to past service cost, plus the present value of available refunds and reductions in future contributions to the plan TAXES Obligatory reductions of financial result include current tax and deferred tax. 12/108

13 Current tax liabilities are measured based on the tax result (tax base) for the fiscal year. Tax gains (losses) are different from book net gains (losses), as taxable revenues and tax deductible expenses in subsequent years as well as items of revenues and expenses which will never become taxable are eliminated. Tax liabilities are measured based on tax rates adopted for the current fiscal year. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred income tax provision is established for all taxable temporary differences. Deferred tax assets are recognised to the extent it is probable that future taxable profits will be available against which deductible temporary differences can be utilised. Tax assets or liabilities are not recognised if the temporary difference arises from goodwill or initial recognition of another asset or liability in a transaction which does not affect tax result or book result. Deferred income tax provision is recognised for all temporary differences arising from investments in subsidiaries, associates, and joint ventures, unless the Group is able to control the timing of reversal of the temporary difference and it is probable that the reversal will not occur in the foreseeable future. The carrying amount of deferred tax assets should be reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available in the future to allow the benefit of part or all of that deferred tax asset to be utilised. Deferred income tax is calculated at tax rates that are expected to apply to the period when the asset is realised or the liability is settled. Deferred income tax is recognised in the P&L account, except to the extent that the tax arises from items recognised directly in equity. If this is the case, deferred tax is also recognised directly in equity EQUITY-SETTLED SHARE-BASED PAYMENTS Share-based payments (equity instruments payment scheme) is available for the Issuer s Board members and employees, Board members and employees of other Capital Group companies, as well as natural persons and partners of partnerships which are parties to fixed-term co-operation contracts signed with the Issuer. Payments are settled in equity instruments ordinary bearer shares of the company PBG S.A. issued under Resolution of the General Meeting of Shareholders No 4 of 10 March 2004 (330,000 shares). Eligible Persons will acquire shares from the Underwriter at the issue price of PLN 1 per share plus the costs of the Underwriter s financing of share acquisition. The share-based scheme is measured at fair value at the date of grant. The fair value is expensed on a straight-line basis over the vesting period (i.e. starting on the date of grant until and ending when all employees become fully entitled to the award). Fair value recognised in expenses is also adjusted based on the Group's estimates as to potential future exercise of rights to equity instruments. SEGMENT REPORTING BUSINESS AND GEOGRAPHICAL SEGMENTS The Capital Group operates within one business and geographical segment. PBG S.A. Capital Group runs its business in the territory of Poland on the construction market, specialising in design, construction, upgrade, and operation of: LPG, natural gas, and crude oil mining facilities Steel pipelines and transport facilities for natural gas, crude oil, and water LNG facilities Infrastructure for industrial facilities, housing construction, and roads/highways. 13/108

14 The Capital Group is also involved in trade activities, including supply of materials and equipment necessary to construct complete facilities used in the gas, oil, heating, water supply and sewage sectors. Two subsidiary companies have different core business: elwik sp. z o.o. sewerage and waterworks system in the municipality of Lubicz, KRI sp. z o.o. distribution of gaseous fuels, and PGS sp. z o.o. road transport of LNG. However, the share of revenues generated from activities other than the Group s core business (which could be classified as a separate segment under IAS 14) in the Group's total sales is immaterial (see the table below); as a result, the Capital Group's activities are covered by one business segment construction, and one geographical segment Poland. Activity type Revenues Share from sales* in revenues Construction, including: % - Construction services % - Trade in building materials % Waterworks and sewerage systems % Distribution of gaseous fuels % Total % * data in PLN 000 for H1 FY06 BUSINESS COMBINATIONS Detailed information on new entities in the Capital Group, including calculation of their goodwill as at the acquisition date, is presented in Note 2 to the balance sheet item: Intangible assets. 14/108

15 II. CONSOLIDATED FINANCIAL STATEMENT FOR THE PERIOD FROM 1 JANUARY 2005 TO 30 JUNE 2005 SELECTED FINANCIAL DATA in PLN 000 in EUR I. Net revenues from sales of products, goods and materials II. Operating profit (loss) III. Profit (loss) before tax IV. Net profit (loss), including: profit of shareholders of the parent company profit of minority shareholders V. Net cash from operations VI. Net cash used in investments VII. Net cash from financial activity VIII. Total assets IX. Liabilities and provisions for liabilities X. Long-term payables XI. Short-term payables XII. Equity XIII. Equity of shareholders of the parent company XIV. Minority interests XV. Share capital XVI. Number of shares as at the balance sheet date XVII. Profit (loss) per ordinary share (EPS) (in PLN/EURO) from continued operations ordinary profit diluted profit from continued and discontinued operations ordinary profit diluted profit XVIII. Book value per share BVPS (in PLN/EURO) XIX. Diluted book value per share (in PLN/EURO) XX. Dividend per share declared or paid (in PLN/EURO) Reporting currency of this consolidated financial statement is PLN, and all amounts are presented in PLN '000 (unless indicated otherwise). Conversion of financial statements of Capital Group companies into the reporting currency was not necessary. Average exchange rates of PLN a) net revenues from sales of products, goods and materials, operating profit, profit before tax and net profit, as well as net cash flows from operations, net cash flows from investments, net cash flows from financial activity, and total net cash flows for H1 FY06 were calculated at the average exchange rate of EURO arithmetic average of exchange rates set by the National Bank of Poland as at month end in each month of the period, i.e. : PLN a) net revenues from sales of products, goods and materials, operating profit, profit before tax and net profit, as well as net cash flows from operations, net cash flows from investments, net cash flows from financial activity, and total net cash flows for H1 FY05 were calculated at the average exchange rate of EURO arithmetic average of ex- 15/108

16 change rates set by the National Bank of Poland as at month end in each month of the period, i.e. : PLN c) total assets, liabilities and provisions for liabilities, long-term payables, short-term payables, and share capital as at 30 June 2006 were calculated at the average exchange rate of EURO as at 30 June 2006, i.e. PLN d) total assets, liabilities and provisions for liabilities, long-term payables, short-term payables, and share capital as at 30 June 2006 were calculated at the average exchange rate of EURO as at 30 June 2006, i.e. PLN Exchange rate as at the period end Average exchange rate (arithmetic average of exchange rates as at the last day of each month in the period) Highest exchange rate in the period Lowest exchange rate in the period Current period H1 FY06 Comparative period H1 FY Table Table 122/A/NBP/ /A/NBP/ Table 36/A/NBP/2006 Table 466/A/NBP/ /108

17 BALANCE SHEET Note H (current 2005 (previous H (previous A s s e t s FIXED ASSETS Tangible fixed assets (PP&E) Goodwill Other intangible assets Investments in associates consolidated based on the equity method Other long-term financial assets Deferred income tax assets Long-term receivables: From related parties From other entities Other long-term assets CURRENT ASSETS Inventories Long-term contracts Short-term trade and other receivables From related parties From other entities Investments in associates consolidated based on the equity method Other short-term financial assets Other short-term assets Cash and cash equivalents Non-current assets classified as held for sale 0 0 TOTAL ASSETS L i a b i l i t i e s EQUITY Equity of shareholders of the parent company Share capital Treasury shares (negative amount) Reserve capital Revaluation reserve Other reserves Capital from measurement of hedging transactions Profit (loss) from previous years Net profit (loss) Minority interests LIABILITIES AND PROVISIONS FOR LIABILITIES Long-term payables 21; Long-term bank loans and credits Deferred income tax provision Long-term provisions Long-term payables under finance lease Other long-term payables Long-term government grants Short-term payables Trade and other payables Employee benefits Tax payables Short-term payables under finance lease Short-term bank loans and credits Short-term provisions Payables related to non-current assets classified as held for sale /108

18 Deferred income Short-term government grants TOTAL LIABILITIES Book value Number of shares as at the balance sheet date Book value per share BVPS (in PLN) Diluted number of shares Diluted book value per share (in PLN) OFF-BALANCE SHEET ITEMS Note H (previous 2005 (previous H (previous Contingent receivables From related parties: guaranties and sureties received... From other entities: guaranties and sureties received... Contingent liabilities In respect of related parties: guarantees and sureties granted In respect of other entities: guarantees and sureties granted Other: TOTAL OFF-BALANCE SHEET ITEMS PROFIT AND LOSS ACCOUNT Note H (current F u n c t i o n f o r m a t Continued operations Revenues from sales 26; Net revenues from sales of products 0 0 Net revenues from sales of services Net revenues from sales of goods Net revenues from sales of materials 0 0 Selling costs Costs of products sold 0 0 Costs of services sold Costs of goods sold Costs of materials sold 0 0 Gross profit (loss) on sales Costs of sales General administrative expenses Other operating revenues Other operating expenses Share in profits of related parties consolidated based on the equity method Restructuring costs 0 0 Operating profit (loss) Financial expenses (net of tax) 31; Profits/losses from investments in related parties Profit (loss) before tax Income tax Net profit (loss) from continued operations /108

19 Discontinued operations 0 0 Net loss from discontinued operations 0 0 Net profit (loss) Net profit, including: profit of shareholders of the parent company profit of minority shareholders Profit (loss) per ordinary share (in PLN): from continued operations ordinary profit diluted profit from continued and discontinued operations ordinary profit diluted profit CASH FLOW STATEMENT H (current Indirect method Cash flow from operations Net profit before tax Adjustments: Amortisation of intangible assets Goodwill impairment write-downs 0 0 Depreciation of PP&E Impairment write-downs of tangible fixed assets Foreign exchange gains (losses) Profit (loss) from sale of tangible fixed assets Profit (loss) from sale of financial assets available for sale Profit (loss) from valuation of real estate investments carried at fair value 0 0 Profit (loss) from subsequent measurement of fair value of financial assets carried at fair value Costs of interest Share in profits (losses) of associates Write-off of goodwill 0 0 Interest received Dividends received 0 0 Cash flow from operations before changes in working capital Change in inventories Change in receivables Change in payables Change in provisions Change in prepaid expenses, accruals and deferred income Other adjustments Cash generated in business operations Interest paid Income tax paid Net cash from operations Cash flow from investments Outflows acquisition of intangible assets Inflows sale of intangible assets 56 0 Outflows acquisition of tangible fixed assets Inflows sale of tangible fixed assets Outflows acquisition of real estate investments /108

20 Inflows sale of real estate investments Outflows acquisition of financial assets available for sale Inflows sale of financial assets available for sale Outflows acquisition of financial assets held for trading 0 Inflows sale of financial assets held for trading Outflows acquisition of subsidiaries (less cash received) Inflows sale of subsidiaries 0 0 Inflows from government grants received Loans granted Repayment of loans granted Interest received Other inflows Other outflows on investments Net cash used in investments Cash flow from financial activity Net inflows issue of shares Buy-back of treasury shares 0 0 Inflows issue of debt securities 0 0 Repayment of interest on bonds Redemption of debt securities 0 0 Inflows credits and loans incurred Repayment of credits and loans Repayment of interest on credits and loans Inflows from interest on deposits Repayment of finance lease payables Commissions on bank credits and loans Net cash flows from financial activity Increase (reduction) of net balance of cash and cash equivalents Opening balance of cash and cash equivalents Change in cash and cash equivalents foreign exchange differences Closing balance of cash and cash equivalents /108