POLNORD SA Raport Bieg Bego Rewidenta RS 2010 …The report on auditing the consolidated financial statements of POLNOR Capital Group for the financial year from January 1 st, 2010

Report

on Auditing the Consolidated Financial Statements

of POLNORD Capital Group

where POLNORD Spółka Akcyjna (Joint-stock Company) is the dominant entity

for the financial year

from January 1st, 2010 to December 31st, 2010

The report on auditing the consolidated financial statements of POLNOR Capital Group for the financial year from January 1st, 2010 to December 31st, 2010

BDO Sp. z o.o. 2/26

CONTENTS

I. GENERAL PART OF THE REPORT ............................................................................. 3

II. FINANCIAL ANALYSIS OF THE COMPANY .......................................................... 21

III. SPECIFIC PART OF THE REPORT ............................................................................. 26


BDO Sp. z o.o. 3/26

I. GENERAL PART OF THE REPORT

1. Data identifying the Dominant Entity

1.1. Name and legal status

POLNORD Spółka Akcyjna

1.2. Dominant Entity's Headquarters

The main headquarters of the Company is localised at 35/37 Śląska St., 81-310 Gdynia.

1.3. Activity pursued

In the audited period the core activity of POLNORD S.A. included construction and sale of residential and commercial real estate. POLNORD SA carried out property development projects both individually and through the intermediation of special purpose companies.

The actual scope of activities is consistent with data disclosed in the National Court Register.

1.4. Basis of the activity

POLNORD SA carries its activities pursuant to:

− Articles of Association drafted in the form of a notarial deed on 11 April 1991 (Repertory A No. 5331/1991) with subsequent amendments and

− the Code of Commercial Partnerships and Companies of 15 September 2000 (Journal of Laws No. 94 item 1037, with further amendments).

1.5. Registration in the Commercial Court

On September 5, 2001, the Company has been entered into the National Court Register at the District Court for Gdańsk-Północ in Gdańsk – 8th Department of the National Court Register under number KRS 0000041271.

1.6. Registration in the Tax Office and the Regional Statistical Office

Tax Identification Number (NIP) 583-000-67-67

Statistical Identification Number (REGON) 000742457

1.7. Share capital and equity of the Dominant Entity

Share capital of the Company as at 31.12.10, totalled PLN 44,436,772.00 and was divided into 22,218,386 shares of par value of PLN 2.00 each.


BDO Sp. z o.o. 4/26

The shareholders holding (directly or indirectly through the intermediation of subsidiaries) at least 5% of the general number of votes at the General Shareholders Meeting as at the end of 2009 and 2010 included:

As at 31 December 2009

Shareholder Shares

Equity share

Number Value (in PLN)

PROKOM INVESTMENTS SA 7,477,959 14,955,918 33.72%

Osiedle Wilanowskie Sp. z o.o. (subsidiary of Prokom Investments SA)

2,582,949 5,165,898 11.65%

Templeton Asset Management Ltd. 3,091,382 6,182,764 13.93%

Other shareholders in total 9,026,133 18,052,266 40.70%

TOTAL 22,178,423 44,356,846 100.00%

As at 31 December 2010

Shareholder Shares

Equity share




1,507,949 3,015,898 6.79%



TOTAL 22,218,386 44,436,772 100.00%

The value of share capital in 2010 was subject to change within the registered conditional share capital by 39,963 ordinary H shares in result of the exercise by persons authorised of the rights vested in them under subscription warrants granted within the Management Option Scheme.

In the period as of the balance-sheet date until the preparation of the financial statements, the value of share capital and its proprietary structure were subject to minor changes due to issuing, within the said period, 28,045 H Shares of the Polnord's Company in result of the exercise by persons authorised of the rights vested in them under subscription warrants granted within the Management Option Scheme. With regard to the above, the shareholders holding (directly or indirectly through the intermediation of subsidiaries) at least 5% of the general number of votes at the General Shareholders Meeting as at February 28, 2011, were as follows:

As at February 28, 2011

Shareholder Shares

Equity share




1,507,949 3,015,898 6.78%



TOTAL 22,246,431 44,492,862 100.00%


BDO Sp. z o.o. 5/26

The Company's equity as at December 31, 2010, also included:

- premium on shares PLN 954,083,000

- other reserves PLN 98,435,000

- retained profit PLN 43,214,000

In total, the equity as at December 31, 2010, was positive and amounted to PLN 1,140,169,000.

1.8 Management Board of the Dominant Entity

As at 01.01.10, the Management Board of the company comprised:

- Mr. Wojciech Ciurzyński President of the Management Board

- Mr. Michał Świerczyński Deputy President of the Management Board

- Mr. Andrzej Podgórski Deputy President of the Management Board

- Mr. Piotr Wesołowski Deputy President of the Management Board

In 2010, the composition of the Company's Management Board did not change.

In the period from the balance-sheet data until drafting of the financial statements, the following changes in the Management Board's composition took place:

- on January 19, 2011, under the Supervisory Board's resolution no. 2/2011, Mr. Wojciech Ciurzyński was dismissed from the performed function – the resolution was adopted on the basis of the resignation tendered personally by the President of the Management Board, from his position;

- on January 19, 2011, under the resolution no. 3/2011 of the Supervisory Board, Mr. Bartosz Puzdrowski was appointed as the Management Board's President.

As at the day of issuing the opinion and report on auditing the financial statements for the financial year 2010, the composition of the Management Board of the Company was as follows:

- Mr. Bartosz Puzdrowski President of the Management Board

- Mr. Michał Świerczyński Deputy President of the Management Board

- Mr. Andrzej Podgórski Deputy President of the Management Board

- Mr. Piotr Wesołowski Deputy President of the Management Board

2. Information on entities included in the Capital Group

2.1. Dominant Entity

The financial statement of POLNORD S.A. was drafted as at 31 December 2010 and covered the period from 1 January 2010 to 31 December 2010.


BDO Sp. z o.o. 6/26

The financial statements were audited by BDO Sp. z o.o., under the supervision of statutory auditor Krystyna Sakson (no. 7899) and an opinion without reservations was issued with regard to them.

Balance sheet total PLN 1,645,512 thousand

Profit and loss figure PLN 43,214 thousand

Equity increase PLN 24,959 thousand

Cash balance decrease PLN 351 thousand

Income on sales PLN 100,068 thousand

2.2. Subsidiaries

The financial statements of most subsidiaries were drafted in accordance with accounting principles (policy) stemming from the International Financial Reporting Standards and the relevant interpretations published in the form of regulations of the European Commission, and within the scope not covered by these Standards – pursuant to the Accounting.

Financial statements of remaining subsidiaries were drafted in line with regulations stemming from the Accountancy Act, while relevant adjustments and reshaping in accordance with IAS/MSSF principles were accounted for in the consolidated financial statements for the purposes of consolidation of the Capital Group.

All the financial statements cover the period from 01.01.10 to 31.12.10, unless it is indicated otherwise.

As at 31 December 2010 the Company controlled (individually or together with other entities) the following subsidiaries or co-subsidiaries which were directly covered by the consolidated financial statement:

1. POLNORD ŁÓDŹ I Sp. z o.o.

Registered Office: Łódź

Scope of activities: property development and investment activities

Consolidation method: full

Ownership structure: 100% POLNORD S.A.

Period covered with the financial statements: 1 January 2010 – 31 December 2010

Auditor: BDO Sp. z o.o.

Audit opinion: without reservations with an explanatory note

The opinion from the audit of POLNORD ŁÓDŹ I Sp. z o.o. contains explanation of the following wording:


BDO Sp. z o.o. 7/26

"With no reservations notified as regards the correctness and reliability of the above financial statements, we draw the attention to the financial loss disclosed in the examined financial statements in the amount of PLN (405,048.99). The total value of loss for the examined period in combination with the cumulated financial results of the Company for previous years exceeds the total of supplementary capital and reserves as well as a half of the share capital value, resulting in a negative equity in the amount of PLN (1,086,043.04).

Pursuant to provisions contained in art. 233 of the Act of September 15, 2000 of the Commercial Companies Code (JoL of 2000 no. 1037 with further amendments), the Company's Management Board is obligated to immediately summon the Meeting of Shareholders in order to adopt a resolution as regards further existence of the Company.

On February 6, 2011, the owner of POLNORD-ŁÓDŹ I Sp. z o.o. Company presented a statement, wherein it declared readiness to grant financial support to the company in the period up to 12 months as of December 31, 2010. The declaration is aimed at ensuring going concern of the Company in the same size. Taking the above shareholder declaration into account, the Management Board of the Company decided that there were no indications of going concern of the company being threatened, and presented its position in the Management Board's Report of the Company's activity."

2. POLNORD ŁÓDŹ II Sp. z o.o.








The opinion from the audit of POLNORD ŁÓDŹ II Sp. z o.o. contains explanation of the following wording:

"With no reservations notified as regards the correctness and reliability of the above financial statements, we draw the attention to the financial loss disclosed in the examined financial statements in the amount of PLN (6,202,026.09). The total value of loss for the examined period in combination with the cumulated financial results of the Company for previous years exceeds the total of supplementary capital and reserves as well as a half of the share capital value, resulting in a negative equity in the amount of PLN (11,855,023.93).



BDO Sp. z o.o. 8/26

On February 6, 2011, the owner of POLNORD-ŁÓDŹ II Sp. z o.o. Company presented a statement, wherein it declared readiness to grant financial support to the company in the period up to 12 months as of December 31, 2010. The declaration is aimed at ensuring going concern of the Company in the same size. Taking the above shareholder declaration into account, the Management Board of the Company decided that there were no indications of going concern of the company being threatened, and presented its position in the Management Board's Report of the Company's activity."

3. POLNORD ŁÓDŹ III Sp. z o.o.








The opinion from the audit of POLNORD ŁÓDŹ III Sp. z o.o. contains explanation of the following wording:

"With no reservations notified as regards the correctness and reliability of the above financial statements, we draw the attention to the financial loss disclosed in the examined financial statements in the amount of PLN (271,502.10). The total value of loss for the examined period in combination with the cumulated financial results of the Company for previous years exceeds the total of supplementary capital and reserves as well as a half of the share capital value, resulting in a negative equity in the amount of PLN (3,172,749.96).


On February 6, 2011, the owner of POLNORD-ŁÓDŹ III Sp. z o.o. Company presented a statement,

wherein it declared readiness to grant financial support to the company in the period up to 12

months as of December 31, 2010. The declaration is aimed at ensuring going concern of the

Company in the same size. Taking the above shareholder declaration into account, the Management

Board of the Company decided that there were no indications of going concern of the company

being threatened, and presented its position in the Management Board's Report of the Company's

activity."

4. PD DEVELOPMENT Sp. z o.o.

Registered Office: Gdańsk



BDO Sp. z o.o. 9/26





Audit opinion: without reservations

5. POLNORD WARSZAWA – WILANÓW I Sp. z o.o.

Registered Office: Warsaw







The opinion from the audit of POLNORD Warszawa - Wilanów I Sp. z o.o. contains explanation of the following wording:

"With no reservations notified as regards the correctness and reliability of the above financial statements, we draw the attention to the financial loss disclosed in the examined financial statements in the amount of PLN (2,514) thousand, which exceeds the total of supplementary capital and reserves as well as a half of the share capital value, resulting in a negative equity in the amount of PLN (1,152) thousand.


On February 6, 2011, the owner of POLNORD Warszawa – Wilanów I Sp. z o.o. Company presented a

statement, wherein it declared readiness to grant financial support to the company in the period up

to 12 months as of December 31, 2010. The declaration is aimed at ensuring going concern of the




activity." 6. POLNORD WARSZAWA – WILANÓW II Sp. z o.o.





BDO Sp. z o.o. 10/26





The opinion from the audit of POLNORD Warszawa - Wilanów II Sp. z o.o. contains explanation of the following wording:

"With no reservations notified as regards the correctness and reliability of the above financial statements, we draw the attention to the financial loss disclosed in the examined financial statements in the amount of PLN (1,973) thousand. The total value of loss for the examined period in combination with the cumulated financial results of the Company for previous years exceeds the total of supplementary capital and reserves as well as a half of the share capital value, resulting in a negative equity in the amount of PLN (4,203) thousand.


On February 6, 2011, the owner of POLNORD Warszawa – Wilanów II Sp. z o.o. Company presented a

statement, wherein it declared readiness to grant financial support to the company in the period up

to 12 months as of December 31, 2010. The declaration is aimed at ensuring going concern of the




activity."

7. POLNORD WARSZAWA – WILANÓW III Sp. z o.o.








8. Osiedle Tęczowy Las PD DEVELOPMENT Sp. z o.o. S.K.A.










9. POLNORD – BALTIC CENTER Sp. z o.o.








10. POLNORD – APARTAMENTY Sp. z o.o.








The opinion from the audit of POLNORD - APARTAMENTY Sp. z o.o. contains explanation of the following wording:

"With no reservations notified as regards the correctness and reliability of the above financial statements, we draw the attention to the fact that the total value of result for the examined period amounts to PLN 1,535 thousand which in combination with accumulated losses from previous years exceeds the total of supplementary capital and reserves as well as a half of the share capital value, resulting in a negative equity in the amount of PLN (159) thousand.




On February 6, 2011, the only shareholder of Polnord - Apartamenty Sp. z o.o. Company presented a statement, wherein it declared readiness to grant financial support to the company in the period up to 12 months as of December 31, 2010. The declaration is aimed at ensuring going concern of the Company in the same size. Taking the above shareholder declaration into account, the Management Board of the Company decided that there were no indications of going concern of the company being threatened, and presented its position in the Management Board's Report of the Company's activity."

11. PROKOM – PROJEKT Sp. z o.o.








12. POLNORD – Warszawa Wilanów IV Sp. z o.o.








13. POLNORD – SOPOT II Sp. z o.o.










The opinion from the audit of POLNORD - SOPOT II Sp. z o.o. contains explanation of the following wording:



On February 6, 2011, the owner of POLNORD SOPOT II Sp. z o.o. Company presented a statement, wherein it declared readiness to grant financial support to the company in the period up to 12 months as of December 31, 2010. The declaration is aimed at ensuring going concern of the Company in the same size. Taking the above shareholder declaration into account, the Management Board of the Company decided that there were no indications of going concern of the company being threatened, and presented its position in the Management Board's Report of the Company's activity."

14. POLNORD LUBLIN I Sp. z o.o. (formerly LUBLIN PROPERTY I Sp. z o.o.)

Registered Office: Lublin







The opinion from the audit of LUBLIN PROPERTY I Sp. z o.o. contains explanation of the following wording:

"With do reservations notified as regards the correctness and reliability of the examined financial statements, we draw the attention on the assumption adopted by the Management Board of the Company on preparation of the financial statements in respect of going concern in the foreseeable future despite the negative value of equity as at December 31, 2010. The total of previous years losses and net losses for the year under examination disclosed in the balance-sheet of the Company exceeds the amount of reserves and a half of the share capital, resulting in a negative equity in the amount of PLN (673) thousand.




On February 6, 2011, the only shareholder of Polnord Lublin I Sp. z o.o. Company presented a statement, wherein it declared readiness to grant financial support to the company in the period up to 12 months as of December 31, 2010. The declaration is aimed at ensuring going concern of the company in the same size. Taking the above shareholder declaration into account, the Management Board of the Company decided that there were no indications of going concern of the company being threatened, and presented its position in the Management Board's Report of the Unit's activity."

15. POLNORD – INVEST Sp. z o.o.


Scope of activities: renting office premises






16. POLNORD – WYDAWNICTWO OSKAR Sp. z o.o.


Scope of activities: publishing house




Audit opinion: not audited

17. POMORSKIE BIURO PROJEKTÓW GEL Sp. z o.o.

Registered Office: Sopot

Scope of activities: design services


Ownership structure: 90.22% POLNORD S.A.





18. PLP DEVELOPMENT GROUP Z.S.A.

Registered Office: Novosibirsk / Russia


Consolidation method: proportional



Audit opinion: audit pending (opinion and report until March 18, 2011)

19. POLNORD – SZCZECIN I Sp. z o.o.

Registered Office: Szczecin







The opinion from the audit of POLNORD – SZCZECIN I Sp. z o.o. contains explanation of the following wording:



On February 6, 2011, the owner of POLNORD SZCZECIN I Sp. z o.o. Company presented a statement, wherein it declared readiness to grant financial support to the company in the period up to 12 months as of December 31, 2010. The declaration is aimed at ensuring going concern of the Company in the same size. Taking the above shareholder declaration into account, the Management Board of the Company decided that there were no indications of going concern of the company being threatened, and presented its position in the Management Board's Report of the Company's activity."

20. POLNORD – INśYNIERIA Sp. z o.o.




Scope of activities: engineering and installation works






The opinion from the audit of POLNORD - InŜynieria Sp. z o.o. contains explanation of the following wording:

"With no reservations notified as regards the correctness and reliability of the above financial statements, we draw the attention to the fact that the total value of result for the examined period amounts to PLN 149,168.67 thousand which in combination with accumulated losses from previous years exceeds the total of supplementary capital and reserves as well as a half of the share capital value, resulting in a negative equity in the amount of PLN (553,300.86) thousand.


On February 6, 2011, the owner of POLNORD INśYNIERIA Sp. z o.o. Company presented a statement, wherein it declared readiness to grant financial support to the company in the period up to 12 months as of December 31, 2010. The declaration is aimed at ensuring going concern of the Company in the same size. Taking the above shareholder declaration into account, the Management Board of the Company decided that there were no indications of going concern of the company being threatened, and presented its position in the Management Board's Report of the Company's activity."

21. POLNORD – KOKOSZKI Sp. z o.o.





Period covered with the financial statements: 1 April 2010 – 7 December 2010


22. Centrum Handlowe Wilanów Sp. z o.o.


Scope of activities: development activity

Consolidation method: full (until the day of shares disposal, that is until 02.08.2010)



equity method (until the day of shares disposal)


Period covered with the financial statements: 1 May 2010 – 31 December 2010


23. STROJ DOM ZAO

Registered Office: Saratov / Russia




Period covered with the financial statements: 21 April 2010 – 31 December 2010


24. FADESA POLNORD POLSKA Sp. z o.o.








Moreover, the consolidation has also covered companies in which POLNORD S.A. holds shares in an indirect manner, namely through the intermediation of:

1. FADESA POLNORD POLSKA Sp. z o.o. in which POLNORD S.A. holds 49% of capital

a) FPP POWSIN Sp. z o.o.




Ownership structure: 100% Fadesa Polnord Polska Sp. z o.o.




b) Osiedle Innova Sp. z o.o.






Ownership structure: 100% Fadesa Polnord Polska Sp. z o.o.




2. PROKOM - PROJEKT Sp. z o.o. in which POLNORD S.A. holds 100% of capital

a) SKARBIEC NIERUCHOMOŚCI 3 Sp. z o.o.




Ownership structure: 34% PROKOM – Projekt Sp. z o.o.

b) SKARBIEC NIERCHOMOŚCI 3 Sp. z o.o. S.K.A.




Ownership structure: 33% PROKOM – Projekt Sp. z o.o.

2.3. Companies excluded from consolidation

The dominant entity performed in 2010 the exclusion of obligation of covering with consolidation the HYDROSSPOL Sp. z o.o. company under liquidation, which discontinued its activity. Financial data of this company are insignificant from the perspective of the consolidated financial statements.

3. Data identifying the audited consolidated financial statement

The audit covered the consolidated financial statement of POLNORD Capital Group drafted for the period from 01.01.10 to 31.12.10, which includes:

- consolidated statement of financial position prepared as at December 31st, 2010, recording a total of PLN 2,140,775 thousand under assets and liabilities;

- consolidated income statement for the period from January 1st, 2010, to December 31st, 2010, recording net profit amounting to PLN 51,562 thousand,

- consolidated statement of total revenues for the period from January 1st, 2010 up to December 31st, 2010 showing total revenues in the amount of PLN 51,099 thousand;

- consolidated statement of movements in equity for the financial year starting January 1st, 2010, and ending December 31st, 2010, recording an increase in equity by the amount of PLN 32,837 thousand;

- consolidated cash flow statement for the period from January 1st, 2010, to December 31st 2010, recording an increase in the net cash balance by the amount of PLN 6,988 thousand;



- additional information and explanations – featuring the adopted accounting standards, notes to the consolidated financial statements and explanatory notes on off-balance sheet positions.

as well as the Report of the Dominant Entity's Management Board on activity of the Capital Group in 2010.

4. Data identifying the authorised entity and the statutory auditor carrying out the audit

The audit of the consolidated financial statements of POLNORD Capital Group with the registered office in Gdynia for the financial year 2010 was conducted by BDO Sp. z o.o. with the registered in Warsaw, 12 Postępu St., an entity authorised to audit financial statements, entered to the register of the National Chamber of Statutory Auditors under no. 3355.

The statutory auditor was selected by the Supervisory Board of the Company subject to the examination, on the basis of a resolution no. 9/2010 dated 08.07.10.

The examination was conducted on the basis of the audit agreement concluded on 30.07.10 by key statutory auditor Krystyna Sakson (no. 7899).

We hereby declare that BDO Sp. z o.o., its Management Board as well as the statutory auditor along with the team examining described financial statements fulfil requirements as regards expressing unbiased opinion on the statements under examination - pursuant to art 56, 3 and 4 of the Act on Statutory Auditors and their Self-Government, Entities Authorised to Audit Financial Statements and Public Supervision (JoL of 2009, no. 77, item 649).

During the audit, the Dominant Entity rendered required data to the auditor and provided information and explanations necessary to conduct the examination, and also informed on lack of important events occurring after the balance-sheet date, until the day of making the statement.

The statutory auditor was not restrained in selection of relevant examination methods.

5. Information about the financial statements for the previous year

The basis of the opening of accounting books were consolidated financial statements prepared for the period from January 1st, 2009 to December 31st, 2009, examined by BDO Sp. z o.o, and provided with the audit opinion with no reservations, and the following explanation:

"Without filing any reservations as regards correctness and reliability of the audited consolidated financial statements, we draw attention to the item 13.3 and 21 of additional information and explanations to the financial statements, concerning investment properties. The Dominant Entity included to the investment properties the land in Dopiewiec n/Poznań, purchased by way of transfer of the ownership to an affiliated company on October 28, 2009, in result of the execution of the Investment Agreement of March 2009.



Concluding the investment agreement, Polnord S.A. planned the execution of a development project on this property, not taking however any binding decision in this scope. As at the day of purchase of the property, due to a review of investment plans of POLNORD S.A. which do not provide for a launch of the a/m project in a foreseeable period of time, the Dominant Entity classified this property as an investment property held to grow its value. In line with the Company's policy in the scope of investment properties, Polnord S.A. appraised the real property in Dopiewiec up to the fair value, and the revaluation surplus totalling mPLN 59.9 was accounted for in the income statement for the audited period.

The consolidated financial statements of the Company for the period from January 1st, 2009 to December 31st, 2009 as well as the Management Board's Report on activity of the Group for the financial year 2009 were approved by way of Resolution no. 5/2009 of the General Shareholders Meeting held on 30.06.10, prepared in the form of notarial deed Rep. A no. 3311/2009.

The consolidated financial statements for the year 2009 have been submitted to the National Court Register within the deadlines specified in the relevant legal provisions. The consolidated financial statements of the Group for the year 2009 were submitted to publication in "Monitor Polski B" on 23.09.10.



II. FINANCIAL ANALYSIS OF THE COMPANY

The table below shows selected figures from the statement of financial condition, from the income statement expressed in round thousands of PLN as well as basic financial indicators, as compared to the corresponding figures for the previous year. The analysis presented herebelow has been prepared on the basis of the Group’s balance sheet data without taking inflation indicators into consideration.

1. Basic figures from the income statement

Type of occupation 2010 2010/2009 dynamics 2009

2009/2008 dynamics 2008

Income on sales 180,264 81.46% 221,282 91.19% 242,651

Costs of sold merchandise and products 144,356 81.10% 177,999 133.60% 133,232

Gross result on sale 35,908 82.96% 43,283 39.56% 109,419

Revaluation of investment property 63,231 53.30% 118,625 658.59% 18,012

Result on sales of investment property 24,332 - - - -

Costs of sale and general management 68,163 120.61% 56,517 94.63% 59,722

Result on sale 55,309 52.5% 105,391 155.7% 67,709 Result on remaining revenues and operating costs (7,178) 1483.06% (484) 2.55% (18,957)

Result of financial activity (10,246) 53.15% (19,275) -268.60% 7,176

Profit on subsidiary sale 43,246 12986.79% 333 - -

Share in the associate’s profit (53) - - - -

Goodwill loss write-off (8,000) - - - -

Gross financial result 73,077 85.01% 85,965 153.71% 55,928

Income tax 19,048 89.42% 21,303 169.27% 12,585

Net financial result on continued activity 54,029 83.56% 64,662 149.19% 43,343 Net profit/loss on abandoned business activities (2,467) 240.02% (1,028) 71.44% (1,439)

Net profit/loss 51,562 81.03% 63,634 151.86% 41,904



2. Basic figures from the statement of financial condition

ASSETS 31.12.2010

% of the balance

sheet sum 31.12.2009

% of the balance

sheet sum 31.12.2008

% of the balance

sheet sum

Fixed assets 727,555 34.0% 478,016 23.6% 299,143 16.6%

Property, plant and equipment 18,722 0.9% 16,794 0.8% 17,662 1.0%

Investment property 395,926 18.5% 264,319 13.1% 68,425 3.8%

Intangible assets 862 - 270 - 373 -

Investments in subsidiaries, jointly controlled entities and associates - - - - 37 -

Investments in associates measured using the equity method 69,633 3.3% - - - -

Financial assets 50,123 2.3% 29,036 1.4% 47,101 2.6%

Deferred tax assets 27,836 1.3% 26,295 1.3% 25,280 1.4%

Long-term accounts receivable 32,144 1.5% 1,000 - 176 -

Goodwill 131,983 6.2% 139,983 6.9% 139,986 7.8%

Other fixed assets 326 - 319 - 103 -

Current assets 1,413,220 66.0% 1,544,220 76.4% 1,499,587 83.1%

Inventories 1,212,234 56.6% 1,300,613 64.3% 1,339,490 74.2%

Trade and other receivables 52,643 2.5% 47,002 2.3% 46,597 2.6%

Other short-term financial assets 70,240 3.3% 105,759 5.2% 46,569 2.6%

Accounts receivable for VAT, other taxes, duties, insurance and other 7,280 0.3% 15,861 0.8% 20,973 1.2%

Receivables for income tax 5,390 0.3% 479 - 1,893 0.1%

Prepayments and accruals 13,293 0.6% 15,394 0.8% 12,907 0.7%

Cash and cash equivalents 52,140 2.4% 59,112 2.9% 31,158 1.7%

Assets classified as assets for sale - - 245 - 5,664 0.3%

TOTAL ASSETS 2,140,775 100.0% 2,022,481 100.0% 1,804,394 100.0%



LIABILITIES

Equity 1,159,507 54.2% 1,126,670 55.7% 934,046 51.8%

Long-term liabilities 621,197 29.0% 449,069 22.2% 509,852 28.3%

Bank loans with interest, other loans and debt securities 556,568 26.0% 403,877 20.0% 486,684 27.0%

Provisions 762 - 266 - 316 -

Other liabilities 3,501 0.2% 453 - 2,436 0.1%

Provisions for deferred income tax 60,366 2.8% 44,473 2.2% 20,416 1.1%

Short-term liabilities 360,071 16.8% 446,742 22.1% 359,986 20.0%

Trade and other liabilities 32,184 1.5% 30,192 1.5% 91,177 5.1%

Current long-term part of bank loans, borrowings and debt securities 103,308 4.8% 149,326 7.4% 15,437 0.9%

Short-term revolving loans - - 14,840 0.7% 16,277 0.9% Other short-term loans and borrowings 110,291 5.2% 149,865 7.4% 99,205 5.5%

Liabilities due to VAT, other taxes, duties, social insurance and other 1,661 0.1% 1,620 0.1% 1,018 0.1%

Liabilities for income tax 463 - 603 - 838 -

Received advance payments 62,162 2.9% 48,794 2.4% 86,978 4.8%

Other financial liabilities - - 11,550 0.6% 16,106 0.9%

Prepayments and accruals 2,123 0.1% 4,490 0.2% 9,679 0.5%

Provisions 47,879 2.2% 35,462 1.8% 23,271 1.3%

Liabilities related to assets classified as assets for sale - - - - 510 -

TOTAL EQUITY AND LIABILITIES 2,140,775 100.0% 2,022,481 100.0% 1,804,394 100.0%



3. Basic financial indicators

2010 2009 2008

Liquidity ratios

Liquidity ratio I

total current assets 3.9 3.5 4.2

short-term liabilities

Liquidity ratio II

total current assets - provisions 0.6 0.5 0.4

short-term liabilities

Activity ratios

Receivables repayment rate in days

average balance of trade receivables *) x 365 83 78 36

income on sales

Provision dynamics in days

average balance of provisions*) x 365 3177 2707 3670

costs of sold merchandise and products

Profitability indicators

Net return on sales

net financial result 28.6% 28.8% 17.3%

income on sales

Gross return on sale

result on sale 30.7% 47.6% 27.9%

income on sales

Return on assets


assets in total

Capital profitability


equity

Indebtedness ratios

Liabilities repayment rate in days

average balance of trade liabilities *) x 365 74 119 240

costs of sold merchandise and products

Indebtedness ratio

liabilities and provisions for liabilities 45.8% 44.3% 48.2%

liabilities in total

Shares efficiency

Book value per one share in PLN

equity 0.05 0.05 0.05

number of shares

*) average balance of receivables, inventories and liabilities is calculated as arithmetical mean of the item

value at opening and closing balance



4. Interpretation of the indicators and the Capital Group’s general business standing

In the period under examination, POLNORD Capital Group worked-out a positive net financial result in the amount of PLN 51,562 thousand.

The basic source of profit generated by the Capital Group in the period under examination were revenues from sale of land, industrial and commercial facilities construction and sales of apartments. A substantial part of revenues was obtained by the Group due to the revaluation executed as at the balance-sheet date in respect of the owned investment real property, in accordance with the fair value valuation model in the amount of PLN 63,231.

Current assets constitute 66% of the balance-sheet total and when compared to the balance as at December 31, 2009, the share decreased nearly by 10%. The high level of current assets in the Group is caused by accounting for land designated for future investments in the item "Inventories – merchandise". In 2010, commodities (land included) constituted almost 74% of the overall value of inventories. When analysing the value of assets of the Company, one may not an increase of their share in the balance structure by nearly 10% when compared to the preceding year, which is caused inter alia by the increase in investment real estate value, value of investment in associates valuated with the equity method and financial assets.

The analysis of assets structure shows that the business activity of the Group in 2010 was in 54% financed with the equity, and in 46% - with external capital. The fixed assets of the Capital Group under examination were covered in whole with the equity.

The assets profitability ratio decreased on the preceding year and amounted to 2.4%, which means that each PLN 100 of used fixed assets generated than PLN 2.4 of net profit. In the audited period we could also witness a decrease of return on equity to the level of 4.4%. The drop of both ratios took place in result of a decrease of the Group's financial result with simultaneous increase in the total of assets and equity.

In 2010 on preceding year, the level of financial liquidity of the Group increased, which was connected with the decrease in value of short-term liabilities. The Group's debt rate, when compared to the preceding year, increased by nearly 1.5 percentage points, which was a result of issuance of bonds by the Dominant Entity.

In the analysed period the receivable collection ratio was lengthened on the preceding period and at the same time, the time of liability settlement shortened. The values of these ratios indicate that the Group regulated its liabilities by 9 days faster at average than it collected its receivables. Changes in the ratios level in the period examination resulted from a significantly lower sale of land when compared to the preceding year.

In the examined financial year, the average period of maintaining inventories was lengthened to 3,177 days. Such a long period results from the specific character of the Capital Group’s basic activities that is property development works.



III. SPECIFIC PART OF THE REPORT

1. Advanced financial statement consolidation principles

The consolidated financial statement of the Capital Group where POLNORD SA is a dominant entity has been drafted in accordance with the International Accounting Standards, International Financial Reporting Standards and the relevant interpretations published in the form of regulations of the European Commission, and within the scope not covered by these Standards – pursuant to the Accounting Act and secondary legislation issued on the basis thereof, and on the basis of properly maintained accounting books.

The principles and methods of valuation of the specific items of assets, income and costs and financial data presentation adopted within the Capital Group were identical.

Financial statements of entities covered with the consolidated financial statement have been drafted as of the same balance sheet date as the financial statement of the dominant entity.

2. Notes to the consolidated financial statement

The POLNORD Capital Group drafted the additional information covering applied accountancy principles, notes to the financial statements as well as additional information and explanations in accordance with requirements stemming from International Financial Reporting Standards, and in the scope not regulated thereunder, pursuant to the requirements of the Accountancy Act (JoL of 2009, no. 152, item 1223 as further amended) and the secondary legislation published on such basis. The notes are complete and the figures featured therein are consistent with the remaining elements of the audited consolidated financial statement.

3. Consolidated statement of movements in equity

The consolidated statement of movements in equity was drafted correctly and demonstrates fair connection with the consolidated statement of financial condition and the consolidated income statement.

Data disclosed in the statement of changes in consolidated equity reflect the changes in the Company's capital in a correct and reliable way.

4. Consolidated cash flow statement

The consolidated cash flow statement was prepared correctly, with the use of indirect method and in accordance with accounting principles (policy) stemming from the International Financial Reporting Standards and the relevant interpretations published in the form of regulations of the European Commission, and within the scope not covered by these Standards – pursuant to the Accounting and secondary legislation thereto.

5. Report on the activities of the Capital Group drafted by the Management Board of the Dominant Entity



Pursuant to the requirements of Article 49 of the Accounting Act, the Commercial Companies Code and the Ordinance of the Minister of Finance on interim and periodic information provided by issuers of securities and conditions of accepting information required by the legal provisions binding in a country which is not an Member State as equivalent thereto (Journal of Laws of 2009 No. 33 item 259), the Management Board of the Dominant Entity prepared the Report on activity of the POLNORD Capital Group in the audited period.

The information contained in the report on activity of the Group are accordant to the information contained in audited consolidated financial statements.

6. Declaration of the Management Board of the Dominant Entity

The Management Board of the Dominant Entity POLNORD S.A. submitted a written declaration that no information was passed over of possible significant influence onto the audited consolidated financial statements that all contingent liabilities were disclosed and all important events related with POLNORD Capital Group occurring after the balance-sheet date notified.

Poznań, February 28, 2011.

BDO Sp. z o.o. ul. Postępu 12,

02-676 Warszawa Entity authorised to audit financial statements No. 3355

Person carrying out the audit and acting on behalf of BDO Sp. z o.o.:

Krystyna Sakson Key Statutory Auditor no. 7899 Member of the Management Board

Documents

POLNORD SA Raport Bieg Bego Rewidenta RS 2010 …The report on auditing the consolidated financial statements of POLNOR Capital Group for the financial year from January 1 st, 2010