Consolidated Half-Year Report PSr 2010 year

Transcription

1 GRAJEWO PSr 1/2010 POLISH FINANCIAL SUPERVISION AUTHORITY Consolidated Half-Year Report PSr 2010 year (prepared in accordance with Par and Par of the Regulation of the Minister of Finance dated February 19th Dz.U. No. 33, item 259) for issuers conducting manufacturing, construction, trade or services business for the 1st half of the financial year 2010, covering the period from January 1st to June 30th 2010, including condensed consolidated financial statements prepared in accordance with the IFRS currency: PLN and condensed non-consolidated financial statements prepared in accordance with the IFRS currency: PLN Date of filing: August 18th 2010 Pfleiderer Grajewo Spółka Akcyjna (full name) GRAJEWO (abbreviated name) (postal code) Wiórowa (street) (telephone number) grajewo@pfleiderer.pl ( ) (NIP Tax Identification Number) wood products (sector according to the Warsaw Stock Exchange s classification) Grajewo (registered office) 1 (number) (fax number) (web site) (REGON Industry Registration Number)

2 PLN 000 EUR 000 FINANCIAL HIGHLIGHTS 1 half cumulative / 2010 Jan 1-Jun half cumulative / 2009 Jan 1-Jun Condensed consolidated financial statements data 1 half cumulative / 2010 Jan 1-Jun half cumulative / 2009 Jan 1-Jun I. Sales revenue II. Operating profit/(loss) III. Profit/(loss) before tax IV. Net profit attributable to equity holders of the parent V. Net cash provided by (used in) operating activities VI. Net cash provided by (used in) investing activities VII. Net cash provided by (used in) financing activities VIII Total net cash flow IX. Total assets X. Liabilities XI. Non-current liabilities XII. Current liabilities XIII. Equity XIV. Share capital XV. Weighted average number of shares XVI. Diluted earnings per ordinary share (PLN/EUR)* -0,21-0,57-0,05-0,13 XVII. Book value per share (PLN/EUR) 11,14 10,42 2,69 2,54 Condensed financial statements data XVIII. Sales revenue XIX. Operating profit/(loss) XX. Profit/(loss) before tax XXI. Net profit/(loss) XXII. Net cash provided by (used in) operating activities XXIII. Net cash provided by (used in) investing activities XXIV. Net cash provided by (used in) financing activities XXV. Total net cash flow XXVI. Total assets XXVII. Liabilities XXXVIII. Non-current liabilities XXIX. Current liabilities XXX. Equity XXXI. Share capital XXXII. Weighted average number of shares XXXIII. Earnings per ordinary share (PLN/EUR)* 0,87 0,72 0,22 0,16 XXXIV. Book value per share (PLN/EUR) 10,61 9,73 2,56 2,37

3 PRESIDENT S LETTER TO SHAREHOLDERS In the first half of 2010, the Pfleiderer Grajewo Group reported sales revenue of PLN 621m, which represents an 11% increase relative to the corresponding period of The increase recorded in the second quarter alone was still stronger, exceeding 19%. The significant growth in sales revenue, driven chiefly by a sharp rise in the volume of furniture sold by Polish manufacturers to customers in Western Europe, suggests that the prevailing downtrend is likely to reverse. In the second quarter of 2010, as part of its portfolio diversification efforts, the Group launched the new MFP board for use in the construction industry. We expect that the product will ultimately emerge as a key component of our product mix, contributing to its improved profitability. A new product on the market, the MFP wood-based board has won the title of Odkrycie 2010 (Discovery of the Year), awarded by the Laur Konsumenta competition judging panel. In the first six months of 2010, prices of strategic raw materials, notably wood, adhesives and mazout, rose both year on year and relative to the prior half-year. The first six months of 2010, a period marked by cost pressures, were followed by deceleration in price rises, or in some cases even price declines, which in the second quarter contributed to a substantial year-on-year improvement in our financial performance. Although the second quarter of 2010 was a low season, the Group delivered a positive financial result for the period. Net loss for the first six months of the year, whose portion attributable to owners of the parent was PLN 10m (an over 62% year-on-year improvement), reflects chiefly a decline in operating profit/loss for the first quarter of 2010, higher interest expense under a newly executed syndicated loan, and day-to-day costs incurred in connection with the suspension of the MDF/HDF project in the Russian Federation. Given a considerable scarcity of MDF board supply on the Russian market, the Group is making strenuous efforts to resume the MDF/HDF plant construction in Russia. Currently, the Company is in the process of securing financing for the project, which is at an advanced stage of implementation. In the first half of 2010, the Group executed a PLN 700m syndicated loan agreement. The new debt was the cause of higher finance expenses reported in As at June 30th, the Company had satisfied the conditions stipulated under the loan agreement. Despite the lower currency risk exposure, the Group continues to be exposed to the effects of potential fluctuations in the exchange rates of the Polish złoty and the Russian rouble against the euro. A substantial increase in sales and further year-on-year improvement of the financial performance is expected in the second half of the year. However, due to recent changes in economic and market conditions, the Management Board again resolved to refrain from publishing a financial guidance for Yours faithfully, Wojciech Gątkiewicz President of the Management Board

4 Directors Report on the Operations of the Pfleiderer Grajewo Group in the period January 1st June 30th 2010 DIRECTORS REPORT on the Operations of the Pfleiderer Grajewo Group in the period January 1st June 30th

5 Directors Report on the Operations of the Pfleiderer Grajewo Group in the period January 1st June 30th 2010 FINANCIAL HIGHLIGHTS Jan 1-Jun Jan 1-Jun Jan 1-Jun Jan 1-Jun Sales revenue 620, , , ,647 Operating profit/loss (2,005) 9,504 (501) 2,103 Pre-tax loss (18,163) (38,456) (4,536) (8,511) Net loss attributable to owners of the parent (10,476) (28,081) (2,616) (6,215) Net cash provided by/(used in) operating activities 1,793 25, ,607 Net cash provided by/(used in) investing activities (16,419) (114,568) (4,100) (25,356) Net cash provided by/(used in) financing activities 42,433 76,691 10,597 16,973 Total net cash flow 27,807-12,543 6,944-2,776 Basic loss per share (0.21) (0.57) (0.05) (0.06) (PLN / EUR) 0 Diluted loss per share (0.21) (0.57) (0.05) (0.06) (PLN / EUR) PLN 000 EUR 000 Jun Dec Jun Dec Total assets 1,994,969 1,872, , ,892 Liabilities 1,442,348 1,355, , ,970 Non-current liabilities 1,110, , , ,111 Current liabilities 331, ,225 80, ,859 Equity 552, , , ,922 Share capital 16,376 16,376 3,950 3,986 Number of shares 49,624,000 49,624,000 49,624,000 49,624,000 Book value per share (PLN / EUR)

6 Directors Report on the Operations of the Pfleiderer Grajewo Group in the period January 1st June 30th 2010 GENERAL INFROMATION The Pfleiderer Grajewo Group is composed of single-division enterprises. The Group s parent undertaking is Pfleiderer Grajewo S.A, which conducts its business in Grajewo, a town situated in north-eastern Poland. The parent undertaking, under its former name of Zakłady Płyt Wiórowych S.A. of Grajewo, was originally registered on July 1st 1994 by the District Court, Commercial Court of ŁomŜa, in the Commercial Register in Section B under entry No Subsequently, on May 9th 2001, it was registered by the District Court of Białystok, XII Commercial Division of the National Court Register, under entry No. KRS On September 18th 2002, the Management Board of Pfleiderer Grajewo S.A. received the decision of the District Court of Białystok on entering the Company s new name in the National Court Register. Accordingly, on September 18th 2002, the Company s former name was changed to Pfleiderer Grajewo S.A. The registered office of Pfleiderer Grajewo S.A. is situated at ul. Wiórowa 1, Grajewo, Poland. The Company shares are traded on the public market. In accordance with the Polish Classification of Business Activities, Pfleiderer Grajewo S.A. is registered under No Z. Below is presented a brief description of the other undertakings of the Pfleiderer Grajewo Group: Pfleiderer Prospan S.A. a joint-stock company entered into the Polish commercial register maintained by the District Court of Kalisz under No. RHB 1754, on September 23rd 1997, under the name of Zakłady Płyt Wiórowych Prospan S.A.; later, on September 17th 2001, registered at the District Court of Łódź-Śródmieście, XX Division of the National Court Register, under No. KRS REGON (Industry Identification Number): NIP (Tax Identification Number): Registered office: ul. Bolesławiecka 10, Wieruszów, Poland Pfleiderer OOO a limited liability company incorporated under the laws of the Russian Federation, registered on January 15th 2003 by the Interregional Inspection No. 3 of the Novgorod District of the Ministry of Duties and Taxes of the Russian Federation. Uniform Registration Number: NIP (Tax Identification Number): Registered office: 106 Tsentralnaya Street, Novgorod Oblast , the Russian Federation Pfleiderer MDF OOO a limited liability company incorporated under the laws of the Russian Federation, registered on September 11th 2007 by the Interregional Inspection No. 3 of the Novgorod District of the Ministry of Duties and Taxes of the Russian Federation. Uniform Registration Number: Tax Identification Number: Registered office: 106 Tsentralnaya Street, Novgorod Oblast , the Russian Federation. Silekol Sp. z o.o. a company entered into the National Court Register by the District Court of Opole, VIII Commercial Division of the National Court Register of Opole, under entry No. KRS on January 6th REGON (Industry Identification Number): NIP (Tax Identification Number): Registered office: ul. Mostowa 30 K, Kędzierzyn-Koźle, Poland Pfleiderer MDF Sp. z o.o. a company entered into the National Court Register by the District Court of Białystok, XII Commercial Division of the National Court Register in Białystok, under No. KRS on October 9th

7 Directors Report on the Operations of the Pfleiderer Grajewo Group in the period January 1st June 30th 2010 REGON (Industry Identification Number): NIP (Tax Identification Number): Registered office: ul. Wiórowa 1, Grajewo, Poland Jura Polska Sp. z o.o. a company entered into the National Court Register by the District Court of Katowice, Commercial Division of the National Court Register, under entry No. KRS on November 24th REGON (Industry Identification Number): NIP (Tax Identification Number): Registered office: ul. Wiórowa 1, Grajewo, Poland Unifloor Sp. z o.o. (in liquidation) company entered into the National Court Register by the District Court of Białystok, Commercial Division of the National Court Register, under entry No. KRS on June 29th REGON (Industry Identification Number): NIP (Tax Identification Number): Registered office: ul. Bolesławiecka 10, Wieruszów, Poland Pfleiderer Services Sp. z o.o. of Grajewo a company entered into the National Court Register by the District Court of Białystok, XII Commercial Division of the National Court Register in Białystok, under No. KRS on December 20th REGON (Industry Identification Number): NIP (Tax Identification Number): Registered office: ul. Wiórowa 1, Grajewo, Poland. As at December 31st 2007 the company s operations were suspended. Pfleiderer Grajewo S.A s, Pfleiderer Prospan S.A s, Pfleiderer MDF Sp. z o.o. s and Pfleiderer OOO s business consists in the manufacturing of wood products, manufacturing and veneering of chipboard, impregnation of paper, trading activities in Poland and abroad, provision of industrial services related to the Company s core business as well as other services based on the undertakings resources. The other companies provide services and raw materials to the Group undertakings. Information on the other undertakings business profiles and inclusion of the undertakings in consolidation is presented in the notes to the interim consolidated financial statements. As at June 30th 2010, the Management Board of Pfleiderer Grajewo S.A. was composed of: 1. Wojciech Gątkiewicz - President 2. Johann Bitzi - Vice President 3. Rafał Karcz - Member 4. Dariusz Tomaszewski - Member 5. Radosław Wierzbicki - Member On May 5th 2010, the Supervisory Board of Pfleiderer Grajewo S.A. appointed Mr Johann Bitzi as Vice- President of the Company s Management Board. Composition of the Supervisory Board as at June 30th 2010: 1. Paweł Wyrzykowski - Chairman 2. Hans H. Overdiek - Member 3. Michael Wolff - Member 4. Heiko Graeve - Member 5. Jan Woźniak - Member 4

8 Directors Report on the Operations of the Pfleiderer Grajewo Group in the period January 1st June 30th 2010 On January 12th 2010, the General Shareholders Meeting appointed two new Members to the Supervisory Board of Pfleiderer Grajewo S.A.: Mr Heiko Graeve and Mr Jan Woźniak. Pfleiderer Grajewo S.A. s shareholder structure: Shareholder structure based on the latest notifications received from the company s shareholders Number of shares % of share capital held Number of votes at GM % of votes at GM Pfleiderer Service GmbH 32,308, % 32,308, % Aviva OFE Aviva BZ WBK 4,928, % 4,928, % ING OFE 2,639, % 2,639, % Other shareholders 9,747, % 9,747, % TOTAL 49,624, % 49,624, % Pfleiderer Grajewo S.A. is a subsidiary undertaking of Pfleiderer Service GmbH, which holds 65.11% of the shares in Pfleiderer Grajewo S.A. In the period January 1st June 30th 2010, the number of the Company shares held by its main shareholder, Pfleiderer Service GmbH, did not change 5

9 Directors Report on the Operations of the Pfleiderer Grajewo Group in the period January 1st June 30th 2010 Structure of the Group as at June 30th 2009: Unifloor Sp. z o.o. (in liquidation) Subsidiary undertaking Pfleiderer MDF OOO Subsidiary undertaking 100% 50% Pfleiderer Prospan S.A. Subsidiary undertaking 100% Jura Polska Sp. z o.o. Subsidiary undertaking 100% Pfleiderer Grajewo S.A. Parent undertaking 50% 84.19%* Pfleiderer MDF Sp. z o.o. Subsidiary undertaking 100% 50% Pfleiderer OOO Subsidiary undertaking Pfleiderer Services Sp. z o.o. Subsidiary undertaking Silekol Sp. z o.o. Subsidiary undertaking 1. The main shareholder of Pfleiderer Grajewo S.A. is Pfleiderer Service GmbH, which holds 65.11% of the Company shares % of shares in Pfleiderer MDF Sp. z o.o. is held by Pfleiderer Service GmbH % of shares in Silekol Sp. z o.o. is held by Pfleiderer Europe GmbH % of shares in Pfleiderer MDF OOO is held by Pfleiderer Schweiz AG. Parent undertaking Pfleiderer Grajewo S.A. holds 50% of shares and votes in subsidiary undertakings Pfleiderer MDF Sp. z o.o., Silekol Sp. z o.o., and Pfleiderer MDF OOO, but it exercises control over those undertakings as its has the power to govern their financial and operating policies through the right to appoint and remove from office a majority of their management board members. * Pfleiderer Grajewo S.A. holds a call option enabling it to repurchase the shares acquired by the EBRD at any time. EBRD holds a put option enabling it to sell the shares to Pfleiderer Grajewo S.A. if the financing agreements are breached or after June 19th Therefore, from the parent undertaking s point of view, Pfleiderer OOO is treated as a subsidiary undertaking wholly-owned by Pfleiderer Grajewo S.A. 6

10 Directors Report on the Operations of the Pfleiderer Grajewo Group in the period January 1st June 30th 2010 The remuneration of the management staff of the Group, including bonuses, paid and payable for the reporting period was PLN 1,685 thousand. The managerial contract concluded with Wojciech Gątkiewicz, President of the Management Board, provides for compensation payable in the event of early termination of the contract by the Company. Under the contract, the amount of the compensation is PLN 2,556 thousand less the sum of fixed monthly salaries received by Wojciech Gątkiewicz from the Pfleiderer Grajewo Group companies during the life of the contract. Wojciech Gątkiewicz is not entitled to receive the compensation if the grounds for terminating the managerial contract by the Company are either material non-performance or improper performance of the contract. 1. Number of Pfleiderer Grajewo S.A. Shares Held by the Management Staff of Pfleiderer Grajewo S.A. As at the publication date of this report the holdings of the Management Board members were as follows: - Mr Wojciech Gątkiewicz, President of the Management Board, held 3,000 Company shares (as at March 31st 2010: 2,500 shares; the 500 additional shares were acquired on July 2nd 2010); - Mr Johann Bitzi, Vice-President of the Management Board, did not hold any Company shares; - Mr Rafał Karcz, Member of the Management Board, held 3,472 Company shares; - Mr Dariusz Tomaszewski, Member of the Management Board, held 4,108 Company shares; - Mr Radosław Wierzbicki, Member of the Management Board, held 2,000 Company shares. Mr Paweł Wyrzykowski, Chairman of the Supervisory Board, held 4,080 Company shares. Other members of Pfleiderer Grajewo S.A. s Supervisory Board did not hold any shares in the Company. 2. Use of Bank Loans On March 16th 2010, Pfleiderer Grajewo S.A., the parent undertaking and its subsidiaries Pfleiderer Prospan S.A. and Silekol Sp. z o.o. ( the Subsidiaries ) executed a PLN 700,000,000 credit facility agreement with a bank syndicate. The syndicate comprised Bank PEKAO S.A. as the syndication agent ( the Agent ), Bank Zachodni WBK S.A., BRE Bank S.A., Fortis Bank Polska S.A. and Bank Gospodarki śywnościowej S.A. ( the Banks ). The credit facility extended to the Company under the agreement is split into two tranches: - Tranche A in the amount of PLN 530,000,000, in the form of a non-revolving loan to be used to repay the outstanding debt under loans owed by the Company and the Subsidiaries to the Banks; - Tranche B in the amount of PLN 170,000,000, in the form of a working capital revolving facility to be used to repay the outstanding debt under loans owed by the Company and the Subsidiaries to the Banks and to finance the Company s day-to-day operations. Repayment of the credit facility is secured with a number of instruments, including: - mortgages over the real estate owned by the Company and the Subsidiaries, on which production facilities are located; - pledge over the assets owned by the Company and the Subsidiaries (pledge over a business); - financial and registered pledge over the Company s shares in the Subsidiaries; the pledge covers 100% of the shares in Pfleiderer Prospan S.A. and 50% of the shares in Silekol Sp. z o.o.; - financial and registered pledge over the Company s and the Subsidiaries bank accounts; - assignment by way of security of the Company s plant and equipment intended to be used for the purpose of the MDF project in Russia. 7

11 Directors Report on the Operations of the Pfleiderer Grajewo Group in the period January 1st June 30th 2010 Additionally, as a condition attached to the credit facility, after the credit facility is made available an agreement creating a pledge over Pfleiderer Grajewo S.A. s shareholding in Pfleiderer MDF OOO is to be executed and the scope of security to be created over Pfleiderer MDF OOO s assets is to be agreed. Under the agreement, the Subsidiaries will be jointly and severally liable for the liabilities assumed by the Company as the borrower. As a result of the new credit facility agreement, all the existing credit facility agreements concluded by the Company and the Subsidiaries with the Banks were terminated and paid up in full with proceeds from the new credit facility. Moreover, Pfleiderer OOO of Russia was advanced an investment loan by the European Bank for Reconstruction and Development, repayable in instalments by October 11th The original loan amount was EUR 35m. The amount outstanding under the loan as at June 30th 2010 was EUR 15.7m. In addition, Pfleiderer OOO finances its working capital with a bank loan in the form of an overdraft facility at ZAO RaiffeisenBank, which falls due in September As at June 30th 2010, the amount outstanding under this facility was RUB 51.4 m. Furthermore, in performance of the agreement with the European Bank for Reconstruction and Development, in Q2 2007, Pfleiderer OOO issued, and the EBRD acquired, new shares worth EUR 7m. The agreement provides for the Bank s equity involvement until June 19th Thereafter, the shares will be sold to Pfleiderer Grajewo S.A. Pfleiderer Grajewo S.A. has a call option enabling it to repurchase the shares held by the Bank at any time. The Bank has a put option over the shares, whereby it may sell the shares to the Company if the financial agreements executed between the Company, Pfleiderer OOO and the Bank are breached, or if there is a risk that the shares might not be repurchased at the expected date. The annual finance expenses relating to the transaction, resulting from the difference between the purchase price and the selling price of the shares, will be equal to the interest expense on the loan advanced by the Bank. As at June 30th 2010, the amount of loans contracted by Pfleiderer MDF Sp. z o.o. was PLN 294m. On June 30th 2010, Pfleiderer MDF Sp. z o.o. executed an annex to the agreement, extending the term of the working capital facility until July 31st On July 30th 2010, a new annex was signed, extending the term of PLN 57m credit facility by three years, until June 30th As at June 30th 2010, Pfleiderer Prospan S.A. and Silekol Sp. z o.o. did not have any amounts outstanding under bank loans. For information on the interest rates applicable to the loans, please refer to Section 11 of the consolidated financial statements. As at June 30th 2010, the amount outstanding under the bank loans taken out by the Group totalled PLN 1,017m. As at June 30th 2010, the Group companies did not have any loans other than those described above. 3. Material Related-Party Transactions in H Information on material transactions executed with related parties in H is provided in Note 16 in the Supplementary Notes to the Group s annual consolidated financial statements. In 2010, the Group did not conclude any related-party transactions other than on arms length basis. 4. Management of the Pfleiderer Grajewo Group s Financial Resources in H In H1 2010, Pfleiderer Grajewo S.A. financed its operations mainly with bank loans, supplemented with issues of notes to Pfleiderer Prospan S.A. and Silekol Sp. z o.o. 8

12 Directors Report on the Operations of the Pfleiderer Grajewo Group in the period January 1st June 30th 2010 As at June 30th 2010, the par value of the parent undertaking s debt under notes in issue totalled PLN 263m, while as at the same date its debt under bank loans was PLN 676m. The amount includes a loan from Pfleiderer Service GmbH in the amount of PLN 21m. Pfleiderer MDF OOO financed the construction of a plant in Russia with loans advanced to it by Pfleiderer Grajewo S.A. and Pfleiderer AG. As at June 30th 2010, the debt outstanding under the loans advanced to Pfleiderer MDF OOO by Pfleiderer AG amounted to PLN 111.7m. Pfleiderer MDF Sp. z o.o. was advanced a loan by Pfleiderer Service GmbH in the amount of PLN 23.9m. The loan is subordinated to an investment loan taken out at PKO BP S.A., and will be repaid (principal and interest) once the bank loan has been fully repaid. As at June 30th 2010, the Group s net debt under loans and borrowings amounted to PLN 1.174m. For detailed information on all liabilities under loans and borrowings as well as contingent liabilities and security as at June 30th 2010, see Note 11 and Note 15, respectively, of the interim condensed financial statements of the Group of August 18th Financial Instruments Overview of the Financial Instruments a) Forward Transactions Forward transactions included purchase of foreign currency at a predetermined rate. In 2010, Pfleiderer Grajewo S.A. used forward contracts to hedge the currency risk related to business transactions (sales of products, purchases of raw materials, capital expenditure in foreign currencies). b) Guarantees, Sureties and Security Provided by the Group As at June 30th 2009, the Group had the following contingent liabilities and provided the following security: 1. Mortgage over Real Estate and Registered Pledge over Plant and Equipment A mortgage over real estate and a registered pledge over plant and equipment serve as security for a PLN 242,034 thousand investment loan granted to Pfleiderer MDF Sp. z o.o., a member of the Pfleiderer Group, by PKO Bank Polski S.A. on January 15th It is a special purpose loan contracted to finance the construction of a new MDF board production plant in Grajewo. The mortgage secures liabilities up to PLN 356,860 thousand. The registered pledge secures liabilities up to PLN 450,000 thousand and has been created over a floating group of assets owned by Pfleiderer MDF Sp. z o.o. (floating charge). The pledge is updated on a quarterly basis to take account of any changes in the company s movable property (plant and equipment, vehicles). As at June 30th 2010, the Group s debt under the investment loan totalled PLN 239,627 thousand. 2. Mortgage over Real Estate Located at ul. Wiórowa, Grajewo A mortgage of up to PLN 80,000 thousand created over the real estate located at ul. Wiórowa, Grajewo, on which the MDF plant is situated, serves as security for a multi-purpose credit facility for the total amount of PLN 65,000 thousand, granted to Pfleiderer MDF Sp. z o.o., a member of the Pfleiderer Group, by PKO Bank Polski S.A. on August 29th As at June 30th 2010, the Group s debt under the multi-purpose credit facility totalled PLN 54,271 thousand. As at June 30th 2010, Pfleiderer Grajewo S.A., the parent undertaking, granted surety in respect of a blank promissory note issued by 3Spare Sp. z o.o. for the benefit of Bank BGś, for the amount of up to PLN 35,624 thousand. The maximum amount of the blank promissory note, as specified in the promissory note 9

13 Directors Report on the Operations of the Pfleiderer Grajewo Group in the period January 1st June 30th 2010 declaration, is PLN 35,624 thousand. The abovementioned surety relates to an investment loan advanced by Bank BGś S.A. to 3Spare Sp. z o.o. As at June 30th 2009, 3Spare s debt under the loan advanced by Bank BGś S.A. stood at PLN 15,661 thousand. On March 25th 2010, Pfleiderer Grajewo S.A. ( the Company ) and its subsidiaries Pfleiderer Prospan S.A. and Silekol Sp. z o.o. ( the Subsidiaries ) executed security agreements and documents granting security with respect to the debt arising under the credit facility agreement concluded on March 16th 2010 with Bank PEKAO S.A., Bank Zachodni WBK S.A., BRE Bank S.A., Fortis Bank Polska S.A. and Bank Gospodarki śywnościowej S.A. ( the Banks ). In order to secure the Banks claims under the credit facility agreement, on March 25th 2010 the Company and the Subsidiaries executed documents and agreements whereby in particular: contractual blanket security mortgages were created over the Company s and the Subsidiaries real estate on which production facilities are located; registered pledges were created over the assets owned by the Company and the Subsidiaries; registered and financial pledges were created over amounts credited to bank accounts; assignment of rights by way of security was made; the Company s interest in joint ownership of plant and equipment intended to be used for the purposes of the MDF project in Russia was assigned by way of security; financial and registered pledges were created over the Company s shares in the Subsidiaries; the pledge covers 100% of the shares in Pfleiderer Prospan S.A. and 50% of the shares in Silekol Sp. z o.o. (the value of the pledged shares in Pfleiderer Prospan S.A. and the pledged shares in Silekol Sp. z o.o., as disclosed in the Company s accounting books, stands at PLN 470,155 thousand and PLN 23,343 thousand, respectively). The Company holds 2,462,136 ordinary registered shares in Pfleiderer Prospan S.A. with the aggregate par value of PLN 246,213,600, representing 100% of the company s share capital and 100% of the total vote at its General Shareholders Meeting. The Company holds 22,700 shares in Silekol Sp. z o.o. with the aggregate par value of PLN 22,700,000, representing 50% of the company s share capital and 50% of the total vote at its General Shareholders Meeting. Furthermore, on March 25th 2010 the Company, the Subsidiaries and the Banks signed a creditors agreement with the European Bank for Reconstruction and Development ( EBRD ), which is providing financing to Pfleiderer OOO of Russia (a subsidiary of the Company) under credit facility agreement of December 27th Under the creditors agreement, the parties agreed upon the scope of the security to be created over the Company s and the Subsidiaries assets. In connection with the aforementioned creditors agreement, Pfleiderer Prospan S.A. and Silekol Sp. z o.o. joined the following agreements executed on December 28th 2005 between Pfleiderer Grajewo S.A. and the EBRD: (a) the guarantee agreement securing EBRD s claims under the credit facility extended to Pfleiderer OOO and (b) the put/call option agreement concerning Pfleiderer OOO shares In order to secure EBRD s claims under the guarantee agreement and the put/call option agreement, on March 25th 2010 the Company and the Subsidiaries executed agreements and documents whereby: contractual blanket security mortgages were created over the Company s and the Subsidiaries real estate on which production facilities are located; registered pledges were created over the assets owned by the Company and the Subsidiaries (pledge over a business); In addition, in H1 2010, the following agreements were executed to provide security for the benefit of the EBRD with respect to a loan advanced to Pfleiderer OOO pursuant to the agreement of December 27th 2005: 1. On April 30th 2010, an agreement was executed for the establishment of a pledge for the benefit of the EBRD over movable assets owned by Pfleiderer OOO, a subsidiary of Pfleiderer Grajewo S.A. 10

14 Directors Report on the Operations of the Pfleiderer Grajewo Group in the period January 1st June 30th On April 29th 2010, a mortgage was established for the benefit of the EBRD over real estate owned by Pfleiderer OOO, a subsidiary of Pfleiderer Grajewo S.A., on which a production facility is located. The mortgage was established pursuant to a mortgage agreement of April 26th On April 30th 2010, a pledge established for the benefit of the EBRD over the equity interest held by the Company in Pfleiderer OOO was registered. The pledge was established over one share in Pfleiderer OOO s share capital, representing % of the company s share capital and conferring the right to % of the total vote at Pfleiderer OOO s General Shareholders Meeting. The pledge was established pursuant to a pledge agreement of April 26th Financial Risks Related to the Company s Operations a) Objectives and Methods of Financial Risk Management Adopted by the Pfleiderer Grajewo Group Companies The Group manages all types of risk described below which may have a significant effect on its operations in the future. In its risk control measures, the Group focuses on the following risk types: - credit risk - currency risk - liquidity risk. The objective behind credit risk management is to reduce the Company s losses which may follow from customers insolvency. This risk is mitigated through insurance of receivables and non-recourse factoring. The objective of currency risk management is to minimise losses arising out of unfavourable changes in foreign exchange rates. The Group monitors its currency position from the point of view of cash flows rather than profit or loss. To manage the currency risk, it first relies on natural hedging and where necessary uses forward contracts. The time horizon adopted for position monitoring and hedging transactions is up to 12 months. The objective of financial liquidity management is to protect the Group against insolvency. This objective is pursued through regular projection of debt levels in a five-year horizon, and arrangement of appropriate financing sources. b) Credit Risk Transactions which expose the Pfleiderer Grajewo Group companies to credit risk concern trade receivables. The credit risk related to trade receivables is limited, as the customer base is very wide and the risk is highly diversified. Therefore, the credit risk concentration is insignificant. Moreover, the Group maintains a strict receivables management policy, whereby the risk of customer insolvency is mitigated through the use of trade credit insurance and recourse factoring. In 2010, approx. 85% of the Group s trade receivables were secured in this way. In the event of insolvency of customers who have insurance coverage, the compensation is paid by the insurer. Each customer of the Company has a trade credit limit (usually it corresponds to the insurance limit). c) Interest Rate Risk The Group holds funds in bank accounts and has liabilities under bank loans. The interest rate risk is related to interest payments under loans with floating interest rates. The Group does not hedge the interest rate risk. d) Currency Risk As at the date of these financial statements, currency risk under foreign-currency loans is borne only by Pfleiderer OOO of Russia (in connection with a euro-denominated loan) and by Pfleiderer MDF OOO (in connection with euro-denominated intra-group loans). Pfleiderer Grajewo S.A. is also exposed to the EUR/PLN currency risk, in connection with a EUR 5m loan received from Pfleiderer Germany. However, this position is offset with a long EUR/PLN position in that company, resulting from the excess of exports over imports, and therefore the currency risk is in this case largely eliminated. The other companies are not subject to currency 11

15 risk under foreign-currency loans. Directors Report on the Operations of the Pfleiderer Grajewo Group in the period January 1st June 30th 2010 Foreign currency transactions relate both to purchases of raw materials and sale of goods. Therefore, in the event of any exchange rate fluctuations the resulting foreign exchange gains and losses are offset to some extent. Furthermore, the Group makes investment expenditure in foreign currencies, and therefore it monitors its foreign currency positions on an ongoing basis and hedges open positions first, through natural hedging (that is through carefully selecting currencies for contracts), and second, through forward transactions. The Group monitors its currency risk exposure in terms of cash flows rather than profit or loss. Furthermore, Pfleiderer Grajewo S.A. is exposed to currency risk resulting from RUB denominated loans extended to Pfleiderer OOO and Pfleiderer MDF OOO. Currently, the Company does not hedge these positions. e) Price Risk Given the nature of their production business and the standard market practice, the Group companies do not hedge against changes in prices of raw materials and products on commodity markets. Selling prices of products are flexible and may change depending on, for instance, changes in prices of raw materials. f) Risk of Material Cash-Flow Disruptions The Group companies are protected against any material cash-flow disruptions as they have credit facilities of very high amounts available to them at any time. Material cash-flow disruptions are also unlikely due to customer diversification. All extraordinary expenditure is always planned well ahead and accounted for in the liquidity management process. g) Financial Liquidity Risk As at June 30th 2010, the Pfleiderer Grajewo Group had debt under loans in the amount of PLN 1,017m; concurrently, it had unused credit facilities (mostly long-term credit limits) of PLN 83m. In addition, the Group holds cash in the amount of PLN 59m. On March 16th 2010, the Group executed a PLN 700,000 thousand credit facility agreement with a bank syndicate. Pursuant to the agreement, on March 31st 2010 the Group repaid PLN 582,483 thousand of the bank loans disclosed as at the reporting date. While the new financing will drive up finance expenses in 2010 and in subsequent years, the financial covenants it includes are much less stringent and it will provide the Pfleiderer Grajewo Group with liquidity over the next four years. The new credit facility agreement provides for a variable bank margin linked to the ratio of net financial debt to EBITDA. The availability of the credit facilities depends on meeting the ratios set by the banks, based on consolidated financial data. The principal ratios are: financial debt to EBITDA, total equity to total assets, current assets to current liabilities, debt-service coverage ratio, EBITDA for The Group analyses the ratios on an ongoing basis and, based on its short-term plans, analyses the risk of failure to meet the ratios. The level of and exposure to currency, credit and interest rate risks have not changed significantly from their respective values disclosed in the Group s most recent annual report (for 2009) Performance Forecast Given the current economic climate, the Group will refrain from publishing its forecast for 2010 until the market volatility subsides and the Polish market of furniture manufacturers becomes more stable. 12

16 7. Court Proceedings Directors Report on the Operations of the Pfleiderer Grajewo Group in the period January 1st June 30th 2010 There are no court, arbitration or administrative proceedings pending with respect to any liabilities or claims of the Group companies, whose value would represent 10% or more of the Company s equity. 8. Events Subsequent to the Balance-Sheet Date On June 30th 2010, Pfleiderer MDF Sp. z o.o. signed an annex under which the term of a working capital facility was extended until July 31st Subsequently, on July 30th 2010, another annex was signed providing for an extension of PLN 57m credit facility by three years, that is until June 30th Management Board of Pfleiderer Grajewo S.A. Grajewo, August 18th 2010 and Pfleiderer Prospan S.A. Wojciech Gątkiewicz President of the Management Board Johann Bitzi Vice-President of the Management Board Rafał Karcz Member of the Management Board, Chief Financial Officer Dariusz Tomaszewski Member of the Management Board, Sales Director Radosław Wierzbicki Member of the Management Board, Chief Operating Officer 13

17 PFLEIDERER GRAJEWO GROUP INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD JANUARY 1ST JUNE 30TH 2010

18 PFLEIDERER GRAJEWO GROUP CONTENTS MANAGEMENT BOARD S STATEMENT 3 INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4 Interim Condensed Consolidated Statement of Comprehensive Income for the Period January 1st June 30th Interim Condensed Consolidated Statement of Changes in Equity for the Period January 1st June 30th Interim Condensed Consolidated Statement of Financial Position as at June 30th Interim Condensed Consolidated Statement of Cash Flows for the Period January 1st June 30th Notes to the Interim Condensed Consolidated Financial Statements for the Period January 1st June 30th 10 Supplementary Notes to the Interim Condensed Consolidated Financial Statements for the Period January 1st June 30th

19 PFLEIDERER GRAJEWO GROUP MANAGEMENT BOARD S STATEMENT In compliance with the requirements laid down in the Regulation of the Minister of Finance on current and periodic information to be published by issuers of securities and on conditions for recognising as equivalent information required by the laws of a non-member state, dated February 19th 2009 (Dz. U. of 2009, No. 33, item 259), the Management Board of Pfleiderer Grajewo S.A., the parent undertaking, represents that to the best of its knowledge the interim condensed consolidated financial statements and the interim condensed separate financial statements for the period January 1st June 30th 2010 and the comparative data, have been prepared in compliance with the applicable accounting standards and give a fair and clear view of the assets, financial standing and financial results of the Pfleiderer Grajewo Group and Pfleiderer Grajewo S.A., respectively, and that the interim Directors Report on the operations of the Pfleiderer Grajewo Group and the interim Directors Report on the operations of Pfleiderer Grajewo S.A. gives a fair view of the development, achievements and standing of the Group and Pfleiderer Grajewo S.A., respectively, including a description of the key risks and threats. The Management Board of Pfleiderer Grajewo S.A., the parent undertaking, represents that the qualified auditor of financial statements who reviewed the interim condensed consolidated financial statements of the Pfleiderer Grajewo Group and the interim condensed separate financial statements of Pfleiderer Grajewo S.A. was appointed in compliance with applicable laws, and that both the auditing firm and the qualified auditors who performed the review meet the conditions required to issue an impartial and independent review report on the interim condensed consolidated financial statements and the interim condensed separate financial statements, in accordance with the applicable laws and professional standards. Wojciech Gątkiewicz President of the Management Board Johann Bitzi Vice-President of the Management Board Rafał Karcz Member of the Management Board Chief Financial Officer Dariusz Tomaszewski Member of the Management Board Sales Director Radosław Wierzbicki Member of the Management Board Chief Operating Officer Grajewo, August 18th

20 PFLEIDERER GRAJEWO GROUP INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Interim Condensed Consolidated Statement of Comprehensive Income for the Period January 1st June 30th 2010 Note Jan 1 Jan 1 Apr 1 Apr 1 Jun Jun Jun Jun Continuing operations unaudited Continuing operations unaudited Continuing operations unaudited Continuing operations unaudited Sales revenue 620, , , ,719 Cost of sales (520,414) (468,489) (256,205) (223,533) Gross profit 100,190 90,201 58,569 40,186 Other income 4 4,423 22,890 (1,623) 3,910 Selling costs (39,693) (33,199) (19,750) (16,582) General and administrative expenses (56,971) (61,444) (27,076) (29,877) Other expenses (9,954) (8,944) (2,849) (5,658) Operating profit/loss (2,005) 9,504 10,517 (8,021) Finance income 27,208 6,364 11,023 8,880 Finance expenses (43,366) (54,324) (23,082) (22,707) Net finance expenses 4 (16,158) (47,960) (12,059) (13,827) Pre-tax loss (18,163) (38,456) (1,542) (21,848) Income tax (368) (1,591) (2,335) Net loss (17,377) (38,824) (3,133) (24,183) Other comprehensive income Exchange differences on translating subsidiary undertakings 22,387 2,957 17,600 (5,661) Exchange differences on net investments in subsidiary undertakings 30,298 (6,192) 25,252 (6,095) Effective portion of loss on fair-value measurement of hedging instruments, including corporate income tax 0 (5,244) 0 9,049 Total other comprehensive income for period 52,685 (8,479) 42,852 (2,707) Total comprehensive income for period 35,308 (47,303) 39,719 (26,890) Net loss attributable to: Owners of the parent (10,476) (28,081) 933 (14,898) Non-controlling interests (6,901) (10,743) (4,066) (9,285) Net loss (17,377) (38,824) (3,133) (24,183) Comprehensive income for period attributable to: Owners of the parent 36,422 (37,211) 38,998 (16,085) Non-controlling interests (1,114) (10,092) 721 (10,805) Comprehensive income for period 35,308 (47,303) 39,719 (26,890) Basic earnings/(loss) per share (PLN) (0.21) (0.57) 0.02 (0.30) Diluted earnings/(loss) per share (PLN) (0.21) (0.57) 0.02 (0.30) 4

21 PFLEIDERER GRAJEWO GROUP Interim Condensed Consolidated Statement of Changes in Equity for the Period January 1st June 30th 2010 Share capital Share premium account Statutory reserve funds Exchange differences on translating subordinated undertakings Exchange differences on net investments in subsidiary undertakings Retained earnings Total Noncontrolling interests Total Balance as at Jan , , ,518 (17,659) (19,484) 37, ,929 77, ,313 Comprehensive income for period Net loss (10,476) (10,476) (6,901) (17,377) Other comprehensive income Exchange differences on translating subordinated undertakings , ,600 5,787 22,387 Exchange differences on net investments in subsidiary undertakings , , ,298 Total other comprehensive income ,600 30, ,898 5,787 52,685 Total comprehensive income for period ,600 30,298 (10,476) 36,422 (1,114) 35,308 Transactions with owners disclosed in equity Transfer of 2009 net profit to statutory reserve funds , (20,211) Total transactions with owners disclosed in equity , (20,211) Balance as at Jun (unaudited) 16, , ,729 (1,059) 10,814 6, ,351 76, ,621 5

22 PFLEIDERER GRAJEWO GROUP Share capital Share premium account Statutory reserve funds Exchange differences on translating subordinated undertakings Exchange differences on net investments in subsidiary undertakings Cash flow hedges Retained earnings Total Noncontrolling interests Total Balance as at Jan , ,806 89,174 (8,434) , , , ,976 Comprehensive income for period Net loss (28,081) (28,081) (10,743) (38,824) Other comprehensive income Exchange differences on translating subordinated undertakings , , ,957 Exchange differences on net investments in subsidiary undertakings (6,192) 0 0 (6,192) 0 (6,192) Effective portion of loss on fair-value measurement of hedging instruments, including corporate income tax (5,244) 0 (5,244) 0 (5,244) Total other comprehensive income ,306 (6,192) (5,244) 0 (9,130) 651 (8,479) Total comprehensive income for period ,306 (6,192) (5,244) (28,081) (37,211) (10,092) (47,303) Transactions with owners disclosed in equity Transfer of 2008 net profit to statutory reserve funds , (44,344) Total transactions with owners disclosed in equity , (44,344) Balance as at Jun (unaudited) 16, , ,518 (6,128) (5,556) (5,244) 49, ,281 99, ,673 6

23 PFLEIDERER GRAJEWO GROUP Interim Condensed Consolidated Statement of Financial Position as at June 30th 2010 Note Jun unaudited Dec Assets Property, plant and equipment 6 1,212,894 1,170,923 Intangible assets 5,662 6,945 Goodwill 107, ,829 Investments in related undertakings Other non-current financial assets Deferred tax asset 9,582 8,110 Prepayments for property, plant and equipment 236, ,711 Government assistance receivable 7 16,572 8,579 Non-current assets 1,589,248 1,538,165 Inventories 8 176, ,863 Income tax receivable 321 2,097 Trade and other receivables 9 170, ,766 Other current financial assets Cash and cash equivalents 58,671 30,864 Current assets 405, ,731 Total assets 1,994,969 1,872,896 Equity and liabilities Share capital 16,376 16,376 Share premium account 289, ,806 Statutory reserve funds 153, ,518 Exchange differences on translating subordinated undertakings (1,059) (17,659) Exchange differences on net investments in subsidiary undertakings 10,814 (19,484) Retained earnings 6,685 37,372 Equity attributable to owners the parent , ,929 Non-controlling interests 76,270 77,384 Total equity 552, ,313 Liabilities Loans and borrowings 11 1,064, ,017 Non-current portion of finance lease liability Employee benefits payable 5,203 5,203 Provisions 2,628 2,552 Deferred tax liability 10,504 5,444 Deferred income under government assistance 27,263 21,955 Non-current liabilities 1,110, ,358 Loans and borrowings , ,630 Current portion of finance lease liability Income tax payable 1, Trade and other payables , ,387 Employee benefits payable 16,104 16,881 Deferred income under government assistance 2,434 1,876 Current liabilities 331, ,225 Total liabilities 1,442,348 1,355,583 Total equity and liabilities 1,994,969 1,872,896 7