MANAGEMENT BOARD S REPORT ON THE ACTIVITY OF POLNORD SA CAPITAL GROUP FOR THE FIRST HALF OF 2010

Transcription

1 MANAGEMENT BOARD S REPORT ON THE ACTIVITY OF POLNORD SA CAPITAL GROUP FOR THE FIRST HALF OF 2010 GDYNIA, AUGUST 2010

2 TABLE OF CONTENTS I. GENERAL INFORMATION... 4 II. CAPITAL GROUP'S CHARACTERISTICS CAPITAL GROUP'S COMPOSITION EFFECTS OF CHANGES IN THE GROUP S STRUCTURE, INCLUDING MERGERS, ACQUISITIONS OR DIVESTMENTS OF MEMBERS OF THE COMPANY S GROUP, LONG-TERM INVESTMENTS, RESTRUCTURING AND DISCONTINUATION OF OPERATIONS THE COMPANIES COVERED BY CONSOLIDATION COMPANIES EXCLUDED FROM CONSOLIDATION RULES OF PREPARING CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED REPORT ON FINANCIAL CONDITION (BALANCE-SHEET) (EXCERPTS) CONSOLIDATED INCOME STATEMENT (EXCERPTS) REVENUES AND FINANCIAL RESULTS BY SEGMENTS ASSESSMENT OF FINANCIAL ASSETS MANAGEMENT OF THE CAPITAL GROUP DIFFERENCES BETWEEN FINANCIAL RESULTS AND THE LAST PUBLISHED FORECAST FACTORS AND EVENTS, PARTICULARLY OF EXTRAORDINARY NATURE, WHICH SIGNIFICANTLY AFFECT THE FINANCIAL RESULTS INFORMATION ABOUT THE DISTRIBUTED (OR DECLARED) DIVIDENDS MATERIAL EVENTS REPORTED AFTER THE FINANCIAL STATEMENTS DATE III. COMPANY'S AUTHORITIES, SHAREHOLDING STRUCTURE AUTHORITIES OF POLNORD SA SHARES OF THE COMPANY AND SHARES AND INTERESTS IN COMPANIES FROM THE POLNORD CAPITAL GROUP, HELD BY THE MANAGEMENT BOARD AND SUPERVISORY BOARD MEMBERS AS OF AND AS OF THE DAY OF APPROVAL OF THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY FOR THE FIRST HALF OF SHAREHOLDERS HOLDING AT LEAST 5% OF THE GENERAL NUMBER OF VOTES AT THE GENERAL MEETING OF THE COMPANY IV. CAPITAL GROUP'S BUSINESS ACTIVITY CORE PRODUCTS, GOODS AND SERVICES MAIN SALES MARKETS DEVELOPMENT PROJECTS INCLUDED IN THE INCOME STATEMENT LAUNCHED PROJECTS EVENTS AND AGREEMENTS MATERIAL TO THE COMPANY S ACTIVITY LOAN OR BORROWING GUARANTEES OR SURETIES GRANTED BY POLNORD SA AND ITS SUBSIDIARIES IF TOTAL VALUE OF THE EXISTING GUARANTEES OR SURETIES EQUALS AT LEAST 10% OF THE EQUITY OF POLNORD SA CHANGES IN CONTINGENT LIABILITIES OR CONTINGENT ASSETS LITIGATIONS PENDING BEFORE COURT, RELEVANT ARBITRATION AUTHORITIES, OR PUBLIC ADMINISTRATION AUTHORITIES INFORMATION ON ONE OR MORE TRANSACTIONS BETWEEN POLNORD SA OR ITS SUBSIDIARY AND RELATED ENTITIES, IF INDIVIDUALLY OR JOINTLY SUCH TRANSACTIONS ARE SIGNIFICANT OR HAVE BEEN EXECUTED ON TERMS OTHER THAN ARM S LENGTH OTHER INFORMATION SIGNIFICANT TO ASSESSMENT OF THE PERSONNEL, ECONOMIC AND FINANCIAL STANDING, FINANCIAL RESULT AND CHANGES THERETO, AS WELL AS INFORMATION SIGNIFICANT TO ASSESSMENT OF THE GROUP S ABILITY TO MEET ITS LIABILITIES

3 11. NOTES ON SEASONAL AND CYCLICAL NATURE OF THE GROUP S OPERATIONS ISSUE, REPURCHASE, AND REPAYMENT OF NON-EQUITY AND EQUITY SECURITIES V. DEVELOPMENT PROSPECTS MATERIAL RISKS AND THREATS FACTORS WHICH WILL AFFECT THE FINANCIAL RESULTS OF THE GROUP IN THE PERSPECTIVE OF AT LEAST THE NEXT QUARTER

4 I. GENERAL INFORMATION POLNORD SA is the Parent Company in the POLNORD Group. Full name (company): POLNORD Spółka Akcyjna Registered Office: Gdynia, ul. Śląska 35/37 KRS (National Court Register) number: NIP (tax identification number): REGON (statistical registration number): Polish Classification of Activities (PKD) (2007): 4110 Z development and sale of real estates The core business of the POLNORD Capital Group is construction and sale of residential and commercial property. POLNORD SA delivers development projects either independently or through special purpose vehicles. Unless the context requires otherwise, the terms used in the contents of these Financial Statements for the 2010 H1, such as 'the Company', 'POLNORD', 'the Parent Company', or other terms of similar meaning and any variations thereof, refer to POLNORD SA, whereas 'the Group', 'the POLNORD Group', or other terms of similar meaning and any variations thereof, refer to the Capital Group including POLNORD SA and entities subject to consolidation. II. CAPITAL GROUP'S CHARACTERISTICS 1. Capital Group's composition As at 30 June 2010, the Group, where POLNORD SA is the parent company, included the following subsidiaries, jointly controlled entities and associates: No. Company name % Registered Nominal value of of capital/ office shares (PLN) votes 1. POLNORD - ŁÓDŹ I Sp. z o.o. Łódź 2,750, % 2. POLNORD - ŁÓDŹ II Sp. z o.o. Łódź 50, % 3. POLNORD - ŁÓDŹ III Sp. z o.o. Łódź 50, % 4. POLNORD WARSZAWA - WILANÓW I Sp. z o.o. Warsaw 50, % 5. POLNORD WARSZAWA - WILANÓW II Sp. z o.o. Warsaw 50, % 6. POLNORD WARSZAWA - WILANÓW III Sp. z o.o. Warsaw 25,144, % 7. POLNORD WARSZAWA WILANÓW IV Sp. z o.o. Warsaw 700, % 8. CENTRUM HANDLOWE WILANÓW Sp. z o.o. Warsaw 97,739, % 9. PD DEVELOPMENT Sp. z o. o. Gdańsk 50, % 10. OSIEDLE TĘCZOWY LAS PD DEVELOPMENT Sp. z o.o. Gdańsk 5,000, % S.K.A. 11. POLNORD - BALTIC CENTER Sp. z o.o. Gdańsk 50, % 12. POLNORD - APARTAMENTY Sp. z o.o. Gdańsk 50, % 4

5 13. PROKOM - PROJEKT Sp. z o.o. Warsaw 100, % 14. LUBLIN PROPERTY I Sp. z o.o. Lublin 50, % 15. POLNORD INŻYNIERIA Sp. z o.o. Warsaw 50, % 16. POLNORD SZCZECIN I Sp. z o.o. Szczecin 50, % 17. POLNORD SOPOT II Sp. z o.o. Warsaw 50, % 18. POLNORD - INVEST Sp. z o. o. Warsaw 11,867, % 19. POLNORD - OSKAR Sp. z o. o. PUBLISHING HOUSE Gdańsk 50, % 20. STROJ-DOM ZAO Saratów % (Russia) 21. POMORSKIE BIURO PROJEKTÓW GEL Sp. z o. o. Sopot 226, % 22. POLNORD-KOKOSZKI Sp. z o.o. Gdańsk 1,500, % 23. PLP DEVELOPMENT GROUP ZSA Novosibirsk 1,103, % (Russia) 24. FADESA POLNORD POLSKA Sp. z o.o. Warsaw 8,134, % 25. FPP POWSIN Sp. z o.o. * Warsaw 2,474, % 26. OSIEDLE INNOVA Sp. z o.o. * Warsaw 3,454, % 27. SKARBIEC NIERUCHOMOŚCI 3 Sp. z o.o. ** Warsaw 17, % 28. SKARBIEC NIERUCHOMOŚCI 3 Sp. z o.o. S.K.A. ** Warsaw 5,000, % 29. HYDROSSPOL Sp. z o.o. under liquidation Gdańsk 15, % * indirect subsidiary controlled through FADESA POLNORD POLSKA Sp. z o.o. ** indirect subsidiary controlled through PROKOM PROJEKT Sp. z o.o. 5

6 Below a scheme of the Capital Group as at is presented: Lublin Property I Centrum Handlowe Polnord Łódź I Sp. z o.o. Sp. z o.o. Wilanów Sp. z o.o. 100% of shares 100% of shares 100% of shares Polnord Szczecin I Polnord - Invest Polnord Łódź II Sp. z o.o. Sp. z o.o. Sp. z o.o. 100% of shares 100% of shares 100% of shares Polnord Inżynieria Polnord - Wydawnictwo Polnord Łódź III Sp. z o.o. Sp. z o.o. Oskar Sp. z o.o. 100% of shares 100% of shares 100% of shares Polnord Warszawa PD Development Stroj Dom ZAO (Russia) Wilanów I Sp. z o.o. Sp. z o.o. 100% of shares 100% of shares 100% of shares Polnord Warszawa Osiedle Tęczowy Las PD Pomorskie Biuro Wilanów II Sp. z o.o. Development Sp. z o.o. SKA Projektów GEL Sp. z o.o. 100% of shares 100% of shares 90.22% of shares Polnord Warszawa Polnord - Baltic Center PLP Development Group Wilanów III Sp. z o.o. Sp. z o.o. ZSA (Russia) 100% of shares 100% of shares 50% of shares Polnord Warszawa Wilanów IV Sp. z o.o. Polnord Apartamenty Sp. z o.o. Polnord -Kokoszki Sp. z o.o. 100% of shares 100% of shares 50% of shares Fadesa Polnord Polska Hydrosspol Sp. z o.o. in Polnord Sopot II Sp. z o.o. Sp. z o.o. liquidation 100% of shares 49% of shares 30% of shares Prokom Projekt Sp. z o.o. FPP Powsin Sp. z o.o. 100% of shares 100% of shares Skarbiec Nieruchomośći 3 Osiedle Innova Sp. z Sp. z o.o. o.o. 34% of shares 100% of shares Skarbiec Nieruchomośći 3 Sp. z o.o. SKA 33.33% of shares 6

7 2. Effects of changes in the Group s structure, including mergers, acquisitions or divestments of members of the Company s group, long-term investments, restructuring and discontinuation of operations In 2010 H1, the following changes in equity relations between POLNORD SA and other entities were recorded: - on , the Company purchased 1,500 shares with par value of PLN 1,000 each in Polnord-Kokoszki Sp. z o.o., constituting 50% share in share capital - on the Company purchased 100% shares in share capital of Stroj-Dom ZAO Company in Russia, whose capital comprises 100 shares with par value of RUB 100 each, - on Polnord SA incorporated a company under the name Centrum Handlowe Wilanów Sp. z o.o. with the registered office in Warsaw, with share capital of 10, in which it took up 100% of shares. On , the share capital of Centrum Handlowe Wilanów Sp. z o.o. was increased to the amount of PLN 97,739, After the balance sheet date, i.e. on , Polnord SA, it disposed in favour of Globe Trade Centre SA, 50% of shares in the share capital of Centrum Handlowe Wilanów Sp. z o.o. 3. The companies covered by consolidation Apart from POLNORD SA, the following companies were directly included into the consolidation for the period from 01 January 2010 to 30 June 2010: a) full consolidation: POLNORD - ŁÓDŹ I Sp. z o.o. POLNORD - ŁÓDŹ II Sp. z o.o. POLNORD - ŁÓDŹ III Sp. z o.o. POLNORD WARSZAWA - WILANÓW I Sp. z o.o. POLNORD WARSZAWA - WILANÓW II Sp. z o.o. POLNORD WARSZAWA - WILANÓW III Sp. z o.o. POLNORD WARSZAWA - WILANÓW IV Sp. z o.o. CENTRUM HANDLOWE WILANÓW Sp. z o.o. PD Development Sp. z o.o. Osiedle Tęczowy Las PD DEVELOPMENT Sp. z o.o. SKA POLNORD - BALTIC CENTER Sp. z o.o. POLNORD - APARTAMENTY Sp. z o.o. PROKOM - Projekt Sp. z o.o. Lublin Property I Sp. z o.o. POLNORD Inżynieria Sp. z o.o. POLNORD Szczecin I Sp. z o.o. POLNORD Sopot II Sp. z o.o. POLNORD - INVEST Sp. z o.o. POLNORD - Wydawnictwo Oskar Sp. z o.o. Pomorskie Biuro Projektów GEL Sp. z o.o. Stroj-Dom ZAO. b) proportional method: Polnord-Kokoszki Sp. z o.o. 7

8 PLP Development Group Z.S.A. Fadesa Polnord Polska Sp. z o.o. FPP Powsin Sp. z o. o. Osiedle Innova Sp. z o. o. Skarbiec Nieruchomości 3 Sp. z o. o Skarbiec Nieruchomości 3 Sp. z o. o. SKA 4. Companies excluded from consolidation In the consolidated financial statements, HYDROSSPOL Sp. z o.o. in liquidation, a company that had discontinued its operations was not included. Financial data of this company are insignificant from the perspective of the consolidated financial statements. 5. Rules of preparing consolidated financial statements This semi-annual condensed consolidated financial statements have been prepared on a historical cost basis, except for investment property and derivative financial instruments which are recognised at their fair value. The financial statements do not include any items which would be measured using any other method under any principles adopted by the Group. The consolidated financial statements are presented in thousands of Polish zloty, unless specified otherwise. Certain information and disclosures, which in accordance with the International Financial Reporting Standards approved by the European Union ("EU") are usually presented along with the annual consolidated financial statements, which were either condensed or excluded in accordance with IAS 34 "Semi-annual financial reporting"(ias 34). The presented semi-annual condensed consolidated balance sheet, semi-annual condensed consolidated income statement, semi-annual condensed consolidated statement of total income, semi-annual condensed consolidated cash flow statement and semi-annual condensed consolidated statement of movements in equity were not subject to the inspection by a statutory auditor, but they were subject to a review of an independent statutory auditor. These semi-annual condensed consolidated financial statements do not cover all the information and disclosures required in the case of annual consolidated financial statements and should be read jointly with the consolidated financial statements of the Group drafted in accordance with IFRS for the financial year ended on December 31 st, The consolidated financial statements have been prepared based on an assumption that the Group s companies will continue as a going concern. As at the date of approval of the financial statements, there are no circumstances indicating any threat to continuity of operations of the Group s companies. The principles of preparing consolidated financial statements have been set out in detail in the Consolidated Financial Statements for the first half of 2010, in the section entitled "Additional Information and Explanation. 8

9 6. Consolidated Report on Financial Condition (Balance-sheet) (excerpts) Item Share in assets/ liabilities Share in assets/ liabilities (kpln) (kpln) Fixed assets, including: % % Investment property % % Goodwill % % Current assets, including: % % Provisions % % Pecuniary means % % Total assets % % Equity, including: % % Initial capital % % Share premium % % Exchange rate differences on recalculation of foreign entity 164 0% 21 0% Other reserves in capitals % % Retained profit/ uncovered loss % % Long term liabilities, including: % % Interest bearing bank loans, borrowings and debt securities % % Short term liabilities, including: % % Liabilities due to deliveries and services % % Current long term portion of bank loans and borrowings % % Short term revolving credits % % Other short term credits and borrowings % % Advance payments received % % Total liabilities % % Total liabilities and equity % % Fixed assets of the Group as at constituted 24% of total assets and increased by PLN 34,100 thousand when compared to The most significant change took place under the item "Investment Property", where the Group records land and buildings, where the real property are not utilised in manufacturing, deliveries of goods, provision of services nor they are earmarked for sale within the regular activity of the Group. The item is described in more 9

10 detail in the Semi-annual condensed consolidated financial statements, in Additional information and explanations. Current assets as at totalled PLN 1,652,660 thousand. The most important change in value was under item "Pecuniary means", which increased from PLN 59,112 thousand to PLN 176,938 thousand. The equity of the Group increased by the amount of PLN 26,184 thousand mainly due to the generated net profit. Total liabilities of the Group run at the level of PLN 1,011,922 thousand of which PLN 791,735 thousand were constituted by financial liabilities. It should be noted that net financial liabilities (financial liabilities decreased by balance of pecuniary means) decreased in 2010 H1 by PLN 43,999 thousand (from the level of PLN 658,796 thousand as at up to the level of PLN 614,797 thousand as at ). 7. Consolidated income statement (excerpts) Item (kpln) 2010 H H1 Change in % Revenues from sales ,0% Prime cost of sales ,0% Gross profit (loss) on sales ,5% Investment property revaluation ,9% Result on sales of investment property Costs of sales ,6% Costs of general administration ,5% Other operating revenues ,3% Other operating costs ,1% Gross profit (loss) on operating activity ,0% Financial revenues ,9% Financial costs ,4% Profit on disposal of subsidiary Gross profit (loss) ,5% Income tax ,2% Net profit (loss) on continued activity ,5% Net profit (loss) on discontinued activity ,2% Net profit (loss) for the financial year ,7% In 2010 H1, the Polnord Group worked out net profit in the amount of PLN 25,642 thousand and achieved revenues from sales at the level of PLN 96,348 thousand. Revenues from sales the Polnord Group generated almost in total from the sales of residential and service premises (PLN 92,464 thousand, i.e. 96%). Nine residential projects localised in Warsaw, Tricity and Olsztyn contributed to the revenues from sales in 2010 H1. Gross profit on operating activity went up on the analogical period of the preceding year, from the level of PLN 25,081 thousand to PLN 29,595 thousand. The activities undertaken by 10

11 the Polnord Group (e.g. launching six new development projects in the first half of the present year) should therefore make it possible for the Company to maintain that positive trend. The gross profit from operating activity should be positively influenced by the following factors: (i) growing demand for residential premises manifesting itself with higher volumes of sold finished flats, (ii) premises from the new offer to be commissioned in 2011 are characterised by fairly lower costs of development, ensuring better profitability. In 2010 H1, the Polnord Group finalised a transaction of sale of the office building developed within the Wilanów Office Park project for the total amount of PLN 77,840 thousand (the above sale is described in more detail in section IV. 5). The said transaction made it possible for the Polnord Group to generate PLN 25,865 thousand of profit, which is recorded under the "Result of sales of investment property" item. Moreover, the result for the first half of the year was influenced by the revaluation of investment property (described in more detail in the semi-annual condensed consolidated financial statements under Additional Information and Explanations.) Significant growth in financial revenues when compared to the first half of 2009 was influenced by, inter alia, exchange rate differences connected with borrowings granted for the purposes of implementation of projects in Russia. In result of the events described above the net profit of the Polnord Group for the first half of 2010 went up by 70% on the first half of 2009 and totalled PLN 25,642 thousand. 8. Revenues and financial results by segments 11

12 9. Assessment of financial assets management of the Capital Group Profitability indicators RATIO FORMULA 2010 H H1 Gross profit margin on operating activity (in %) Gross profit on operating activity Revenues from sales x % 24.22% Net profit margin (in %) Net profit Net profit from sales x % 14.59% Liquidity ratios RATIO FORMULA 2010 H Current liquidity Current assets Short term liabilities Quick ratio Current assets - inventories Short term liabilities Indebtedness indicators RATIO FORMULA 2010 H General indebtedness level (%) Liabilities in total Assets in total x % 44.3% Assets coverage with equity (%) Equity Assets in total x % 55.7% 10. Differences between financial results and the last published forecast The forecast of results of the Capital Group for 2010 was not published. 11. Factors and events, particularly of extraordinary nature, which significantly affect the financial results In 2010 H1, there were no factors or events of extraordinary character with influence on presented financial results within the POLNORD Capital Group. 12. Information about the distributed (or declared) dividends The General Shareholders Meeting of the Company, by means of the resolution 9/2010 of , decided to earmark for dividend the amount of PLN 19,089,722.72, which accounts for 0.86 grosz per one share. 12

13 The number of shares covered with the dividend totals 22,197,352. The record date was determined for The dividend was paid up in Material events reported after the financial statements date Due to the dividend passed by the 19th General Shareholder Meeting in in the amount of PLN 19,089,722.72, constituting 30% of the net profit of the Company in the Consolidated Financial Statements for 2009, the price of conversion of Q shares of the Company handed over in return of convertible bonds is decreased from PLN to PLN ("Conversion Price"). Given the current Conversion Price, the number of Q shares issued in return for one convertible bond totals shares (whereon the Company informed in the current report no. 29/2010 of ). On , Polnord and Globe Trade Centre SA ("GTC") concluded the agreement, under which GTC purchased from Polnord 50% of shares in the share capital of Centrum Handlowe Wilanów Sp. z o.o. company, in which Polnord held 100% of shares (whereon the company informed in the current report no. 34/2010 of ). CH Wilanów is the owner of a real estate property with the area of 7.5 hectare, located in the Wilanów district in Warsaw, where the parties plan to construct one of the most modern shopping centres in Europe. According to Polnord and GTC's estimates, the costs of the project execution shall equal ca. EUR 170 million, while the value thereof shall exceed EUR 250 million. The execution of this project shall ensure the partners a high rate of return on the investment. The date of commencement of construction works depends on the Office of the Capital City of Warsaw that is to issue all necessary administrative decisions. III. COMPANY'S AUTHORITIES, SHAREHOLDING STRUCTURE 1. Authorities of POLNORD SA Supervisory Board The General Shareholders Meeting of the Company held on elected the Supervisory Board for another 3-year term of office. Into the composition of the Supervisory Board of the Company the following persons were appointed: 1) Ryszard Krauze, 2) Tomasz Buzuk, 3) Maciej Grelowski, 4) Bartosz Jałowiecki, 5) Marek Modecki, 6) Barbara Ratnicka-Kiczka, 7) Wiesław Walendziak, 8) Rafał Juszczak, 9) Andre Spark. Except from Mr Rafał Juszczak and Mr Andre Spark, remaining persons acted as members of the Supervisory Board during the last term of office. 13

14 Management Board As at , the composition of the Management Board of POLNORD SA was as follows: 1) Wojciech Ciurzyński - President of the Management Board 2) Andrzej Podgórski - Deputy President of the Management Board 3) Piotr Wesołowski - Deputy President of the Management Board 4) Michał Świerczyński - Deputy President of the Management Board Until the day of approval of the condensed consolidated financial statements for 2010 H1, the composition of the Management Board did not change. 2. Shares of the Company and shares and interests in companies from the POLNORD Capital Group, held by the Management Board and Supervisory Board Members as of and as of the day of approval of the Condensed Consolidated Financial Statements of the Company for the first half of The following members of the Management Board and the Supervisory Board of the Company were owners of POLNORD SA shares: Type of occupation Number of held shares (amount) Wojciech Ciurzyński - President of the Management Board 2,447 Andrzej Podgórski - Deputy President of the Management Board, 1,523 Marek Modecki - Member of the Supervisory Board 1,700 According to the information possessed by the Company, other persons included into the composition of managing and supervisory bodies of POLNORD SA do not hold any shares of the Company. Within the Management Options Scheme realised at the Company, the Management members are the holders of subscription warrants convertible to H shares of POLNORD SA: Type of occupation Number of held H share issue price Term of execution of rights warrants (conversion price) (PLN) of warrants (amount) Wojciech Ciurzyński President of the Management Board 147, Piotr Wesołowski - Deputy President of the Management Board 21, When compared to data as at , as at the day of approval of the Condensed Consolidated Financial Statements for 2010 H1, the shares and subscription warrants owned by the above mentioned shareholders were not subject to movements. 14

15 On the deadline lapsed for the exercise the rights stemming from the subscription warrants held by members of the Supervisory Board of the Company, that is Mr Wiesław Walendziak and Ms Barbara Ratnicka - Kiczka. 3. Shareholders holding at least 5% of the general number of votes at the general meeting of the Company As at June 30th, 2010, at least 5% of the total number of votes at the General Meeting of Shareholders was held by the following shareholders: Number of shares/ Par value % No. Shareholder votes (items) of shares of capital/ votes 1. PROKOM Investments SA in Gdynia % Osiedle Wilanowskie Sp. z o.o. in Gdynia (a subsidiary of Prokom Investments SA) Templeton Asset Management Ltd. in Singapore* % % 4. Other shareholders in total % IN TOTAL % *) Customers and funds managed by Templeton Asset Management Ltd. with the registered seat in Singapore From among shares owned by customers and funds managed by Templeton Asset Management Ltd., more than 5% in the share capital and general number of votes in the Company is owned by FTIF Templeton Eastern Europe Fund. Changes in the shareholding structure composition in the first half of 2010: In 2010 H1, in result of issuing within the registered conditional share capital of 18,929 H shares of the Company and following the exercise of rights by authorised persons under 18,929 subscription warrants issued within the MO Scheme, the shareholding of the above shareholders in the general number of votes has changed slightly. Until the day of approval of the semi-annual condensed consolidated financial statements for 2010 H1, the composition of the shareholders did not change. IV. CAPITAL GROUP'S BUSINESS ACTIVITY 1. Core products, goods and services The main source of revenues of the Group is sales of residential premises. Distribution of sales revenues of the Capital Group is presented below: First half of 2010 First half of 2009 Income source sales share sales share (in kpln) (in %) (in kpln) (in %) 15

16 First half of 2010 First half of 2009 Income source sales share sales share (in kpln) (in %) (in kpln) (in %) 1. Sales of residential premises , ,7 2. Construction of industrial and commercial premises 872 0,9 0 0,0 3. Sales of plots land 495 0, ,9 4. Other , ,4 In total , ,0 2. Main sales markets The main area of activity of POLNORD Capital Group in 2010 H1 was Poland. The Capital Group's activity on the domestic market was conducted primarily in Warsaw, Olsztyn and Tricity, while the export activity covered Russian market via PLP Development Group ZSA. company. Income from sales by market area is presented in the following table: First half of 2010 First half of 2009 sales share sales share (in kpln) (in %) (in kpln) (in %) Poland 94, , Export (Russia) 1, , In total 96, , Development projects included in the income statement Below development projects are presented along with the number of commissioned premises which were accounted for in the financial result of the Group for 2010 H1: 16

17 No/Project 1(Gdańsk, Wilanowska Srebrzysta Rogalińska Podkowa V name and St.) (build. location Usable - Kowale) 1 i 2) (sq.m.) area q.m.)number of flats Developing company Polnord Share (%) of Commissioning term Premises until delivered 2010 H1 and result included until into the financial 2010 H1 sold, Premises to be 2 Apartamenty (Gdynia, (Gdańsk, Kamienica Osiedle TWiejska Wita pod Albatros Stwosza Wrzosem (Olsztyn, Tęczowy St.) Las (Stage St.) St.) (amount) (sq. m.) delivered 50% IV IVQ IQ 152 (amount) 4 ** 4 City (Łódź, Park Żeligowskiego (Stage I) St.) I) IIQ Rzeczypospolitej Królewskie Wilanowa Osiedle Apartamenty Polnord Las Tęczowy IIIQ IQ Przedmieście Av.) Klimczaka St.) II100% IVQ II) III) Nieruchomości Polnord Wilanów Skarbiec W-wa I 333% Kryształ (Warszawa Ostoja Wilanów Wilanów, w (Stage Klimczaka IV) * Fadesa IVQ IVQ IIIQ / Łódź 10 *** whole for these stage premises V includes preliminary 297 premises agreements St.) Fadesa IQ 2009IQ (28,498 were UA) signed 3531 planned 1 228Fadesa 190Fadesa term 927 of accomplishment Polnord 2013 QII. 49% II-IIIQ IQ The table below presents the information on the number of residential premises sold by the Polnord Group within individual projects as well as offers of the Group as at , in split into commissioned projects and projects in development. 17

18 No. Wilanowska Project V name and location Usable (Gdańsk, Rogalińska St.) (sq.m.)number area of flats Developing company Polnord Share (%) of Commissioning term to Premises annulment) sold H (net - after Offer as at (Gdańsk, Srebrzysta Kamienica Apartamenty - Wita Kowale) pod Podkowa Albatros Stwosza Wrzosem (build. St.) 1 i 2) COMMISSIONED PROJECTS 32 6 (Gdynia, (Olsztyn, Osiedle City (Łódź, Park Żeligowskiego TWiejska Tęczowy (Stage I) St.) Wilanowa Las St.) (Stage St.) I) % IV IQ Polnord 4 Apartamenty 100% IVQ IIQ Królewskie Przedmieście Klimczaka Rzeczypospolitej St.) Osiedle 60 Apartamenty Polnord IQ Las Tęczowy IIIQ Av.) IIIQ II) III) Polnord Wilanów W-wa III 100% IVQ Nieruchomości Skarbiec 3 33% IVQ Łódź Kryształ 11 9 (Warszawa Ostoja Wilanów Wilanów, w (Stage Klimczaka IV) * Fadesa 225Fadesa Polnord 49% IVQ 2008/IQ St.) Fadesa 190Fadesa 927 Polnord 49% II-IIIQ IQ Sopocka (Sopot, (Gdańsk Srebrzysta City Park Łokietka - Rezydencja (Stage Kowale) Podkowa II) St.) (build. 3) PROJECT IN DEVELOPMENT 31 (Łódź, Dobry (Warszawa Ostoja Dom Żeligowskiego Wilanów Wilanów, w (Stage Klimczaka Kazachska St.) Apartamenty Polnord IVQ Ku Słońcu S (Stage I) VI) ** (Szczecin, Ku Słońcu Os. Jabłoniowa Jabłoniowa (build. St.) No. 1 i 2) St.) Polnord 272Fadesa 87 Polnord Sopot II II 100% 49% IIQ IQ 2011 (planned) Polnord Wilanów W-wa I IIIQ 21 Łódź (Gdańsk, (Olsztyn, Ostoja Osiedle Innova T Tęczowy Myśliwska 12 (Wrocław, Jesionowa (Stage Las St.) (Stage St.) I) St.) II) Polnord 222Polnord 229 Szczecin Kokoszki I 100% 50% IIQ/IVQ IVQ 2011 (planned) Apartamenty Polnord 100%IIIQ2011/IIQ2012 (planned) ** The whole stage V VI comprises premises TOTAL253 (28,498 (30,815 UA) UA) planned - planned completion Osiedle 236Fadesa 666 Las Tęczowy 593 Polnord 49% IVQ2011 IQ 2013 (planned) term term IIQ IQ The Polnord Group executes also the "Wilanów Office Park" in the Wilanów District. Within the investment, under the concluded preliminary lease agreement, works are conducted with an 18

19 aim of developing the office building to be leased to Pol Aqua SA. The planned term of commissioning of the building is 2010 Q4/2011 Q1. 4. Launched projects In 2010 H1, the Group launched the execution of the following projects: -"Dobry Dom" (Warsaw, Kazachska St.) Within the "Dobry Dom" project, Polnord Warszawa Wilanów I company, a 100% subsidiary of Polnard, develops a residence and service building with the usable area of 10,496 sq.m. (155 premises). The execution of the project was launched in February 2010, and it is to be finished in 2011 Q3. The project is developed on a real property with the area of 8,440 sq. m. localised in Warsaw, in Miasteczko Wilanów - "Ku Słońcu" Stage I (Szczecin, Ku Słońcu St.) In March 2010, Polnord Szczecin I Sp. z o.o. company, a 100% subsidiary of Polnord, launched execution of the 1st Stage of the investment, within which 222 premises will be developed with the total area of 12,277 sq.m. The completion of works is planned for 2011 Q4. The whole project provides for the development, on a real property with total area of 37,543 sq.m., of 800 residential premises and 30 utility premises with the total area of approx. 40,000 sq.m. -"Osiedle Jabłoniowa" Stage II, build. 1 and 2 (Gdańsk, Przywidzka St.) Within the project (2nd Stage, build. 1 and 2), Polnord Kokoszki Sp. z o.o. company, in which Polnord holds 50% of shares, intends to erect a residential development estate of multi-family houses with the usable area of 7,274 sq.m. (137 premises). The execution of the project was launched in March 2010, and it shall be finished in 2011 Q2 (build. 1) and 2011 Q4 (build. 2). - "Ostoja Myśliwska (Gdańsk, Myśliwska St.) Within the project, Polnord Apartamenty Sp. z o.o. company, a 100% subsidiary of Polnord) intends to develop 229 premises with total area of 13,770 sq.m.. The completion of the first stage of the investment with the usable area of approx. 6,400 sq.m. is planned for 2011 Q3. The whole project should be finished in 2012 Q2. - "Osiedle Tęczowy Las 2nd Stage, build. 1 (Olsztyn, Tęczowy Las St.) The project is executed by a special purpose vehicle, Osiedle Tęczowy Las PD Development Sp. z o.o. SKA. Within the 2nd Stage, 139 premises with total usable area of 6,751 sq.m. shall be developed. In the building no. 1, whose development shall be completed in 2011 Q2, there will be 57 residential premises with total usable area of 2,514 sq.m., while in the building 2, 82 residential premises shall be developed with the total usable area of 4,237 sq. m. - "Osiedle Innova" (Wrocław, Jesionowa St.) The project is developed by Osiedle Innova Sp. z o.o. company, a 49% co-subsidiary of Polnord (indirect subsidiarity through Fadesa Polnord Polska Sp. z o.o., where POLNORD SA holds 49% of shares). In 2010 H1 the execution of the 1st stage of the investment shall be launched (236 premises, 15,156 sq.m. of usable area). Execution of the whole investment is divided into five stages. 5. Events and agreements material to the Company s activity In H1 2010, the following significant events occurred within the Group: 19

20 on , POLNORD SA concluded an agreement on transfer of perpetual usufruct of land ("Transfer Agreement") of the total area of 19,232 m2, located on the terrain of Miasteczko Wilanów in Warsaw ("Property") with Podkarpacki Fundusz Nieruchomości Sp. z o.o. with the register office in Rzeszów ("Buyer") a 100% subsidiary of Asseco Poland SA. The conclusion of the Transfer Agreement with regard to non-exercising the pre-emption right by the Commune of the Capital City of Warsaw, finalised the transaction of disposal of the developer project at the preliminary stage of execution, comprising the Property, legally valid construction permit and rights stemming from the agreement concluded with an architectural studio (hereinafter jointly referred to as "Developer Project"). The parties set the total price for the Development Project at mpln 77.8 net. More detailed information is presented in the Current Report no. 9/2010 of On , the results of architectural and urban competition were announced as regards the development of the northern promontory of Wyspa Spichrzów. The competition was organised at the beginning of February 2010 by POLNORD SA who, via negotiations, was selected by the City of Gdańsk as the investor who will develop, with participation of the City, this unique localisation. The first award was granted to Biuro Architektoniczne MAT Sp. z o.o. seated in Gdańska. The competition was organised in result of the agreement concluded on by the City of Gdańsk and POLNORD SA in the scope of the development of northern promontory of Wyspa Spichrzów. To that aim, the City of Gdańsk and POLNORD SA shall establish a joint venture in which the City shall take a 49%, and POLNORD SA 51% stake. More detailed information is contained in the Current Report no. 81/2009 of In July 2010, The City of Gdańsk approved the urban and architectural concept of development of the northern promontory of Wyspa Spichrzów. 6. Loan or borrowing guarantees or sureties granted by POLNORD SA and its subsidiaries if total value of the existing guarantees or sureties equals at least 10% of the equity of POLNORD SA In 2010 H1, POLNORD SA granted sureties to one entity. The amount of the sureties exceeded 10% of the share capital of the Company and totalled PLN 132,700 thousand. Term of validity No. Company Subject of guarantee Amount in kpln From To 1 Polnord Warszawa - Wilanów IV Sp. z o.o. credit with PKO BP SA in the amount of mpln Polnord Warszawa - Wilanów IV Sp. z o.o. credit with PKO BP SA in the amount mpln The aforementioned guarantees were granted to companies fully controlled by POLNORD SA. Moreover, after the balance-sheet date: - on , Polnord SA guaranteed repayment of the loan of Polnord Szczecin I Sp. z o.o., its full subsidiary ("Special Purpose Vehicle"), which the Special Purpose Vehicle raised with the 20

21 bank PKO BP SA ( Bank ) under the loan agreement signed on The surety (repayment) was granted up to the amount of PLN 137,958, valid until 30 December The Bank granted to the Special Purpose Vehicle a loan in the amount of PLN 91,972 thousand, earmarked for partial financing of the 1 st and 2 nd stage of development project entitled "Ku Słońcu in Szczecin, - on , Fadesa Polnord Polska Sp. z o.o., a co-subsidiary in whom Polnord holds 49% of shares ( Fadesa ), granted a surety to FPP Powsin Sp. z o.o. (a 100% subsidiary of Fadesa). The subject of surety are credit liabilities stemming from the credit agreement concluded with Bank Polska Kasa Opieki SA in the total amount of PLN 148,279.8 thousand. The surety (repayment) was granted up to the amount of PLN 192,763.8 thousand, valid until 30 December The amount of the above sureties granted to a single entity exceeded 10% of the Company's equity. 7. Changes in contingent liabilities or contingent assets As at 30 June 2010, conditional liabilities arising from guarantees granted by POLNORD SA to subsidiaries totalled PLN 347,085, compared to PLN ,000 as at 31 December In the first half of 2010, the decrease in liabilities was due mainly from the lapse of granted sureties for credit liabilities in the total amount of PLN 200,950 thousand, with simultaneous granting sureties by the Company to a subsidiary in the amount of PLN thousand. As at , POLNORD SA disposed of sureties in the amount of PLN 7,000 thousand. As at June 30 th, 2010, conditional liabilities of the Capital Group amounted to PLN 2,237,000, compared to PLN 13,520,000 as at December 31 st, As at , guarantees granted to the Group totalled PLN 20,240, Litigations pending before court, relevant arbitration authorities, or public administration authorities In the first half of 2010, there were no litigation proceedings conducted before court, the relevant arbitration authorities or public administration authorities, in relation to liabilities or receivables of POLNORD SA or its subsidiaries, with the total value representing minimum 10% of POLNORD SA's equity. 9. Information on one or more transactions between POLNORD SA or its subsidiary and related entities, if individually or jointly such transactions are significant or have been executed on terms other than arm s length Not applicable. 10. Other information significant to assessment of the personnel, economic and financial standing, financial result and changes thereto, as well as information significant to assessment of the Group s ability to meet its liabilities This information is provided in items IV and V. 11. Notes on seasonal and cyclical nature of the Group s operations Considering the fact that the real estate development projects are measured based on the completed contract method under the IAS 18, the amount of income from sales of apartments depends on dates of completing the housing development projects and handing over the apartments to buyers. Following the change of the accounting policy in 2009 for measurement of real estate development contracts, 21

22 the Group no longer applies the percentage of completion method (IAS 11), and therefore, the financial statements as of 2009 do not reflect the progress of construction works and advance sales of premises. 12. Issue, repurchase, and repayment of non-equity and equity securities Share issues In 2010 H1 the Company issued, within the registered conditional share capital, 18,929 H shares Issue as a result of exercising the rights under 3,505 subscription warrants issued within the Management Options Scheme by authorised persons Bearer date Type bonds Limit (mpln) 10, Debt mpln 10,0 as at in 3Q104Q101Q112Q11 10,0 Capital 3Q114Q11 repayments schedule 1Q122Q123Q124Q Bond issues As at , the indebtedness due to all the issued bonds was as follows: Bonds convertible 327,6 327, Bearer Bearer Bearer 25,0 10,0 25,0 10,0 25,010, Bearer Bearer 40,0 40,0 5, Bearer bonds 75,0 75,0 40,0 42,1 42,1 75,0 into shares 110,0 10,5 327,6 110,0 10,5 10,0 25,010,0 125,5 110,0 10,5157,1 42,1 The debt of the Group as at due to all the issued bonds totalled PLN million. In 2010 the redemption term for bonds totalling mpln 10 falls. In 2012, the bonds of total value of mpln 160.5, of which mpln constitute the value of bonds convertible into shares, should be redeemed. The above amount constitutes the par value of bonds issued by the Company and convertible to shares, which should be redeemed within such time limits, provided that no bonds are converted into Q shares. If the holders will exercise the right to convert a part or all the convertible bonds held, the said amount to be repaid that constitutes the par value of the convertible bonds, shall be accordingly lower or may not occur at all. In 2013 the redemption term for bonds totalling mpln falls. Debt due to loans The debt due to loans of companies from the Group as at along with the repayment schedule is as follows: 22

23 Borrower DZ Bank Bank Polska SA overdraft revolving Type facility Limit (mpln) 25,0 19,0 57,0 Without Debt weighed interest 25,0 19,0 as at 48,0 with (not shares)) 3Q104Q101Q112Q113Q114Q111Q122Q123Q124Q12after Repayment 25,0 schedule 19,0 48, Polnord o.o. (Srebrzysta Polnord SA BRE SA investment investment (land) (land) 18,4 0,4 3,4 18,4 0,4 3,4 0,4 3,46,1 6,1 6,1 Polnord o.o. (Apartamenty (City Podkowa) Albatros) Sp. z II Sp. z o.o. Nordea Nordea Bank Bank Park) SA SA Polska Polska 25,0 3,5 25,0 3,5 5,2 0,7 2,8 investment (land) 10,7 9,04,0 1,22,0 4,02,0 4,04,0 34,2 development 18,7 3,8 0,0 3,8 18,7 Wilanów Polnord Invest IV III Warszawa I Sp. z Sp. o.o. z o.o. PKO BPH BP Bank 44,9 44,9 Łódź Polnord Bank investment (land) 44,8 4,0 44,8 4,0 6,5 0,1 0,10,10,10,10,1 6,5 0,10,10,1 44,80,1 2,9 Polnord (Rezydencja Sopot SA Łokietka) Szczecin II Sp. z o.o. o.o. I Sp. z PKO PKO BP BP SA BOŚ 92,0 25,6 148,5 25,6 0,0 investment (land) 77,5 77,5 72,4 59,425,6 FPP FADESA POLSKA Powsin POLNORD Sp. Sp. z o.o. z o.o PEKAO SA 22,5 55,0 16,7 development investment (land) 35,0 21,1 35,0 0,0 32,583,9 83,931,1 31,1139,0 139,029,7 29,757,6 57,60,1 35,0 Debt weighed 10,7 32,546,9 46,931,1 31,1108,7 108,729,7 29,728,3 28,30,1 44,934,3 34,393,3 34,356,7 VAT with Polnord: weighed h not share of 424,0 557,2 43,3 216,4 283,7 107,6 136,9 VAT SA development Hipoteczny Bank Zachodni WBK SA Investment development 10,0 development 42,5 VAT 3,8 development 129,1 VAT 3,6 development 23,5 development 365,7 Development 1 40,8 Development 2 51,3 The gross credit debt of the Group as at run at the level of mpln 424, while along with the debt stemming from the issued bonds it totalled mpln The net debt (after including the monies in the accounts totalling mpln 176.9) amounted to mpln which constituted 49.8% of the Group's equity. Polnord SA finances its ongoing activity inter alia with overdraft facilities and a revolving credit, that are renewed each year by the Company. Until the date of approval of the Statements, the Company annexed repayment of all the said credits by one year as well as increased the credit limit up to the amount of mpln 57 with DZ Bank Polska SA. The credits incurred by companies of the Group for the purposes of realisation of development projects are repaid from inflows from sales of residential and service premises. 23

24 In accordance with the presented table, in the second half of 2010, the companies of the Group have to repay the amount of mpln In 2011, the Group should return to banks the amount of mpln (including mpln 92 of liabilities due to revolving credits of Polnord SA, which, as it was said above, are annexed every year), while in mpln V. DEVELOPMENT PROSPECTS 1. Material risks and threats The main threats of material significance to activities of the Company and POLNORD Capital Group include: banking sector policy towards developers. The banks, in significant part, influence the number of launched projects with their decisions related to granting financing to development projects. POLNORD SA, leveraging funds from issues of shares and bonds, may realised the strategy of the Company and has the possibility to launch new development projects. the banking sector s policy towards natural persons in the area of mortgage credits. The increase in mortgage crediting is of key importance for the market stabilisation. Prolonged strict requirements of banks with regard to creditability of borrowers, collateral and bank margins, may decrease the effective demand for apartments With the beginning of 2010, the conditions of granting mortgage credits were slowly mitigated, which means their broader availability. The Banks lowered price of credits, and renewed granting credits up to the amount of 100% of value of properties. On the other side however, the Polish Financial Supervision authority, taking into account the safety of banking sector, issued a T Recommendation in February The aim of the T Recommendation is improvement of the risk management quality at the banks while at the same time preventing excessive indebtedness of borrowers. The new recommendation defines the level of creditability inter alia by way of determination of the proportion of credit instalments to the monthly income as the main determinant of the credit amount, which may possibly negatively impact the borrowers' creditability. apartments prices level. the main factor that guarantees success of realised investments is sales of completed development projects (apartments, houses) at the assumed prices that ensure the developer's planned margin. There is a risk that the Company will not sell all of its investments at the assumed prices. Lately, the Company is observing a stabilisation of the apartment prices level and a recovery on the flat sale market. the oversupply of flats stemming from the flats developed and not sold in 2009 as well as development projects being implemented may limit the Group's revenues. a possibility of a loss of qualified subcontractors due to their insolvency stemming from bad financial condition. The aforementioned phenomena cause a restriction of availability of services and therefore may drive an increase in the Company's operating costs. leveragin terrain for future development projects. When acquiring land for new investments, it cannot be ruled out that even despite earlier analyses during implementation there may occur unexpected factors delaying the project completion and significantly reducing the cost of land. This may substantially impact the costs of realised projects. unstable tax system. 24

25 One of the characteristics of the Polish tax system is its instability. Tax regulations change very frequently. What is more, tax authorities are taking into account not only tax law regulations but also tax interpretations issued by other authorities or provided in court rulings. Such interpretations, decisions of other revenue authorities or courts are often not unanimous in terms of the line of solutions and they vary depending on the time and place of issue of such interpretation or decision. Therefore, the amounts quoted in financial statements may change following control by tax authorities. The Company may need to pay additional taxes of substantial value, together with interest and penalties. obtaining the required administrative decisions. In order to be effective in the real estate development sector, it is necessary to obtain administrative permits, licences or decisions required to execute construction projects. There is a risk that inability to obtain the relevant administrative decisions or their annulment when projects are in progress may hinder the ability to either continue or complete the real estate development projects. macro-economic factors. A possible secondary global economic downturn, the consequences of which would be by far more severe for Poland that of the previous one, resulting in drastic decelleration of the economic growth, increase of unemployment, would lead to a drop in demand for products offered by the Company. 2. Factors which will affect the financial results of the Group in the perspective of at least the next quarter The key factors which may affect the Group s financial standing include: - economic condition of residential market, - availability of external sources of financing for development companies, - availability of mortgage credits for natural persons, - apartments prices level, - timely, on-schedule execution of development projects and timely commissioning, - amendments in legal and tax regulations of possible influence onto the demand on the market of products offered by the Company. In 2010, the Company and the Capital Group have the following priorities: - efficient and cost effective launch of the execution of new development projects, - raise the level of sales to 800 residential premises, - adjustment of the Group's offer to the effective demand by offering less spacious flats (with the area up to 75 sq. m.), meeting the requirements of the "Family at their own" government programme. - maximise use of its own bank of land - ensuring the continuity and best possible development projects financing conditions on the market. The strategy of the Company and POLNORD Capital Group provides for further dynamic growth of the operating activity (development activity). The Company, through its special purpose vehicles, has already launched on the substantial part of the owned land, of new development projects, both residential and commercial. Thanks to the launching of further development projects within 2 nearest years a leap increase of the offer is planned, that would enable significant growth in revenues from and profit on the operating activity. 25