The Comment of the Managing Board – 1998 year

In 1998 the Company fully effected its economic plan achieving the economic results forecast published in June 1998. The most significant events in the Company were connected with the continuation of projects concerning the creation of a structure of the capital group that had been initiated in 1997.

            Capital was increased by the total amount of 6 million zl un the two entities that had been purchased in the last quarter of 1997 as well as in the two that had been created earlier. Moreover, in December 1998, 5,5 million zl was invested in companies outside the capital group by purchasing shares of Gdańskie Przedsiębiorstwo Robót Drogowych SA entitling to 8% votes at the General Meeting of Shareholders as well as 8% of shares of  Rudoport SA.

            Current structure of the group as well as remaining capital ties of the Company are presented in the further paragraphs of statement.

            As the consequence of the above investments the structure of assets was subject of further changes. The participation of financial assets increased from 18% in 1997 to 33% at the end of 1998. Simultaneously, investing in fixed assets was continued increasing the value of working capital by 5,5 million zl. In general, fixed assets of the Company, in comparison with 1997, increased their balance sheet value by almost 17 million zl (increase by 43%).

            Following the analysis of the market and the macroeconomic conditions as well as based on the execution of the assumed strategy we consider the dynamics of the development of the Company to continue for the next few years. Also the basic indicators of the economic efficiency will not decrease.

            The financial results of the Company for 1998 were presented in the financial report drawn up in accordance with national accounting standards which covers the balance sheet, profit and loss account, cash flow and additional information.

The following were achieved in 1998 in comparis on with 1997:

1. increase in income on sales by 67% (from 115 million zl in 1997 to 192 million zl in 1998)
2. increase of net income by 52% (from 4,5 million zl in 1997 to 6,8 million zl in 1998)
3. increase of book value by 14%
4. increase of profit per share by 51,8%

Also the net profitability of assets was high (7,5%) as well as profitability of own capital (13%) including the share capital (68,1%).

            Main income on sales (85%) was from those sectors of economic activity that are traditional for the Company, i.e.: petrochemical oil refining industry, marine economy (mainly exports of steel structures to Scandinavia) and general construction industry (effected mainly in general contracting system). Approximately 15% of income concerned production services, trading, leasing and building and assembly work contracts in various sectors of industrial building industry.

            The balance sheet result of 6,8 million zl was achieved from operational activity of the Company supported by positive functioning leverage.

            Financial activity concerned solely the provision of economically optimal sources of financing the Company’s current activity (mainly by working credits and commercial bonds)as well as investment activity (mainly with own resources ~13 million zl increase by ~6 million zl remaining from the 1997 issue of shares and temporarily with commercial bonds ~3 million zl).

            In general, similarly to previous years, the Company achieved in 1998 better results and economic and financial relations than the average for the industry.