BRE Bank’s results on its core business in 2004 were better than expected. The result on banking operations was over PLN 1 billion, the best result in 5 years. This proves that BRE Bank has the structural capacity to generate high revenue on its core business. Despite this positive structure of the results and the Bank’s strong net interest and commission income, much better than in previous years, the net financial profit of 2004 was hit by the revaluation of the Bank’s selected assets and harmonisation with the International Financial Reporting Standards, whose planned implementation was disclosed in December 2004. After the adjustments introduced by the Management, the Bank reported a net loss of PLN 278.4 million in 2004. Net of the adjustments, BRE Bank would have closed the year at a pre-tax profit of approximately PLN 140.8 million. The year 2005 will bring a break-through to BRE Bank. The Management Board will strive to generate a pre-tax profit of approximately PLN 250 million. “It is very important to note that the large loss is a result of the Management’s new approach to the valuation of some assets and the harmonisation of the financial statements with the International Financial Reporting Standards. The main valuation adjustments include PTE Skarbiec-Emerytura (PLN 163 million), the real property of the Bank and Group companies (PLN 93 million), security of restructured loans (PLN 24 million), and the valuation of assets originating from the merger with PBR (PLN 39 million). The adjustments are a one-off operation and will not affect negatively the future capacity to generate profits. Net of the adjustments, BRE Bank would have closed 2004 at a pre-tax profit of PLN 140.8 million,” said Mr Slawomir Lachowski, President of BRE Bank.Asset revaluation: Transparency and investment in future results of the BankBusiness decisions taken by BRE Bank in December 2004 concerning the revaluation of selected assets of the Bank and adjustments to the International Financial Reporting Standards coupled with:actions taken to optimise the profitability of the Bank, including the performance of its corporate and investment banking business;improving financial results of the retail banking business line;rigorous cost regimehelp to significantly mitigate the risk of unplanned events which could have an adverse impact on the Bank’s operating results, already in 2005.The actions taken will also enhance the predictability of financial results and curb their volatility. BRE Bank will pursue its business target of at least 20 percent of ROE already in 2007. While the Bank strives to achieve this target, it is realistic to believe that the Bank’s performance indicators will raise significantly in the nearest future.“While we are not publishing an official projection, yet in the context of the 2004 developments and in anticipation of market expectations we have decided to publish our target key performance indicators. We want to ensure full transparency of the Bank’s business operation. We will pursue a pre-tax profit target approximating PLN 250 million in 2005, translating into ROE of approximately 12%. The corporate and investment banking business will contribute the largest share to the bottom line, but it must be noted that also the retail banking line is expected to generate a significant pre-tax profit exceeding PLN 31 million in 2005,” said President Slawomir Lachowski.Operating results of 2004Net of the adjustments related to the revaluation of assets and the harmonisation with IFRS, BRE Bank would have generated a pre-tax profit of PLN 140,8 million in 2004. Both the result on banking operations and the net interest and commission income were the strongest in the past 5 years of BRE Bank’s performance, and grew fast also when compared to 2003 when BRE Bank reported a profit. The result on banking operations was over PLN 1 billion for the first time since BRE Bank’s record-breaking year 1999; it was up 32% compared to 2003. The same upward trend was noted for net interest income (up 93%) and net commission income (up 24%). The Bank’s total assets grew PLN 2.2 billion year on year and stand at PLN 32.7 billion. It is particularly important that the Bank’s regulatory ratios have remained consistently strong: its solvency ratio was 11.8%. In addition, the Bank’s capital was effectively reinforced by the recent issue of subordinated bonds totalling EUR 100 million at par. The innovative operation was carried out under art. 127 of the Banking Law as amended in January 2005. The Banking Supervision Commission has already allowed the Bank to include funds raised in the issue under its supplementary capital.BRE Bank: a top five retail bankAt the end of 2004, BRE Bank’s retail banking business had a market share of over 7% in checking and savings accounts (with a total of 1.1 million accounts and nearly 1 million customers) and housing loans (over PLN 1,3 billion of granted mortgage loans in 2004). Four years after the launch of mBank and 3 years after the inception of MultiBank, BRE Bank has become a top five Polish retail bank both in terms of the number of accounts and housing loans. Late 2004 showed that 2005 will bring a break-through in the profitability of BRE Bank’s retail banking business. mBank closed 2004 at a pre-tax profit while MultiBank came close to a positive EBITDA for 2004.mBank within 2004 reported a 40% increase in the number of customers and a 47% increase in the number of accounts in 2004. It is now the seventh largest retail bank in Poland by the number of checking and savings accounts. It currently has 1 million accounts of 784 thousand customers who have deposited over PLN 3.1 billion.MultiBank recorded an impressive dinamics in the number of accounts (170%), customers and deposits (up 164%), granted loans (up 187%), and sold credit cards (up 236%) in 2004. MultiBank has now 197 thousand customers who have deposited over PLN 702 million. In 2004, MultiBank granted Financial Plan mortgage loans worth PLN 1,069 billion, up 35% year on year and became a top five mortgage bank in Poland. MultiBank is also granting more loans to microenterprises: the growth rate was at a high 364% year on year.Corporate banking in 2004BRE Bank remained the number two bank servicing foreign trade transactions in 2004. The volume of the transactions grew 29% year on year and reached US$ 25.5 billion. The Bank also launched on a large scale its new state-of-the-art internet banking system iBRE available to corporate customers. The system will help to attract new SME clients. The Bank won 800 new SME customers in 2004. Importantly, these are not microenterprises but businesses carrying full books of account, an important source of the Bank’s present and future revenue. At present 2,200 clients use SME Packages Effect and Effect Plus.In 2004 all BRE Bank Group companies working with corporate customers reported excellent performance. The net profit of BRE Leasing grew four-fold year on year and reached PLN 10.1 million while the value of its leasing contracts grew 38% and crossed the mark of PLN 1.2 billion.The sales of the Intermarket Bank Group companies (factors) grew 25% in 2004 and stood at EUR 3.6 billion, compared to EUR 2.9 billion in 2003. The larger business volume ensured a higher net profit of the Group at EUR 6.9 million, compared to EUR 5.1 million in 2003. Polfactor moved up to the second position on the Polish market (21% market share); its net profit was PLN 6.7 million in 2004, up 120% year on year.Investment banking and other Group companiesIn 2004, BRE Bank was a leader on the debt market. It ranked second among arrangers of issues of corporate and bank debt maturing within more than 1 year. In January 2005, the Bank moved to number one in terms of issued short-term debt. BRE Bank Securities reported impressive growth in profitability: its net profit was PLN 8.7 million, up 274% year on year. BRE Bank Securities is the leader of the option market (40% market share) and the second largest trader in futures and forwards on the Warsaw Stock Exchange (12% market share).Assets under management of the companies of the SKARBIEC Asset Management Holding were PLN 2.5 billion at the end of 2004. Skarbiec TFI (investment fund) was the sixth largest market player in terms of assets under management (4.8% market share). Contrary to press reports, BRE Bank is not negotiating to sell its shares in TFI; in the context of the review of the assets of selected strategic investments, any speculation about the disposal of Skarbiec TFI would be premature.In 2004, the Holding reported a loss of PLN 20.1 million. The weak results of the Holding are a consequence of the revaluation of securities in the portfolio of a bond fund. At the end of 2004, PTE Skarbiec-Emerytura (pension fund) was the seventh largest market player in terms of assets under management (over PLN 2 billion). Its net profit was PLN 3.3 million; the fund had 567,400 members. BRE Bank is initiating a search for a strategic investor in PTE.Profitability in 2005In 2004, BRE Bank generated a pre-tax profit of approximately PLN 140 million net of asset revaluation adjustments. Actions taken by the Bank to optimise its profitability will help to improve on this result in 2005. BRE Bank expects to benefit from its presence on the promising retail banking market and from corporate services, including the SME and microenterprise segments. A combined focus on the growth of these two business lines coupled with profitable investment banking transactions (financial and money markets) will be the pillar of the Bank’s stable growth in 2005 and beyond. All of the Bank’s business lines will report profits. In addition, the retail banking business line which generated a loss of (PLN 26.7 million) in 2004 will report a pre-tax profit of approximately PLN 31 million in 2005 (contributing an additional PLN 60 million to the bottom line), which reinforces the outlook of the Bank’s profitability.“However, in 2005 the contribution of the retail banking business to the Bank’s annual results will remain low at approximately 12% compared to the target of a third of the net profit of the Bank in 2007. While BRE Bank is not publishing an official profit projection, yet it must be stressed that the Bank will work to achieve the pre-tax profit target of approximately PLN 250 million in 2005,” said BRE Bank’s CEO Slawomir Lachowski.In 2005, the Bank will try to achieve:- ROE: approximately 12%;- Cost/income ratio: approximately 68%;- Solvency ratio at the end of 2005: approximately 12% (Bank)