AmRest Holdings N.V.

Condensed Consolidated Financial Statements 
as at and for the quarter ended 31 March 2006 

Table of contents:
		Page	
Consolidated income statement		3	
Consolidated balance sheet		4	
Consolidated statement of cash flows		5	
Statement of changes in consolidated equity		6	
Selected notes to the consolidated financial statements 		7	

Consolidated income statement
For the quarter ended 31 March 

in thousands of Polish złoty	Three months ended 31 March 2006	Three months ended 31 March 2005	
			
Restaurant sales	133,167	106,434	
			
Restaurant expenses:			
Cost of food	(44,929)	(36,545)	
Direct marketing expenses	(7,406)	(4,719)	
Direct depreciation and amortization expenses	(9,413)	(6,831)	
Payroll and employee benefits	(25,720)	(20,455)	
Continuing franchise fees 	(7,890)	(6,347)	
Occupancy and other operating expenses	(23,407)	(18,945)	
Total restaurant expenses	(118,765)	(93,842)	
			
Gross profit on sales	14,402	12,592	
			
General and administrative (G&A) expenses	(7,936)	(8,026)	
Depreciation and amortization expense (G&A)	(491)	(332)	
Other operating income/(expense), net	668	1,044	
Gain/(loss) on the disposal of fixed assets	(89)	(31)	
Impairment gain/losses	-	(151)	
IPO expenses	-	(1,255)	
Profit from operations	6,554	3,841	
			
Finance costs	(627)	(2,310)	
Financing  income	128	321	
Share of profit of associates	200	57	
Net profit before tax	6,255	1,909	
			
Income tax expense	(934)	(259)	
			
Net profit/(loss)	5,321	1,650	
Attributable to:			
Minority interests	4	-	
Shareholders of the parent	5,317	1,650	
			
Net profit for the quarter	5,321	1,650	
			
Basic profit per share in Polish złoty	0,39	0,17	

Consolidated balance sheet
As of 31 March 2006 and 31 December 2005

in thousands of Polish złoty	2006		2005		
 Assets 					
 Property, plant and equipment, net 	172,567		171,358		
 Intangible assets	20,205		21,045		
 Investments 	783		574		
 Other non-current assets	19,878		19,750		
 Deferred tax assets 	11,027		11,530		
 Total non-current assets 	224,460		224,257		
					
 Inventories	5,985		5,973		
 Trade and other receivables 	9,879		13,463		
 Income tax receivable	2,447		5,281		
 Other current assets 	2,810		2,380		
 Cash and cash equivalents	24,358		31,575		
 Assets held for sale	3,219		3,219		
 Total current assets 	48,698		61,891		
 Total assets 	273,158		286,148		
					
 Equity 					
 Issued capital 	519		519		
 Share premium 	218,640		218,640		
 Retained deficit 	(94,986)		(117,198)		
 Current year net profit 	5,317		22,212		
 Cumulative translation adjustment 	(1,776)		(614)		
 Equity attributable to shareholders of the parent 	127,714		123,559		
 Minority interests	24		20		
 Total equity 	127,738		123,579		
					
 Liabilities 					
 Interest-bearing loans and borrowings 	59,981		80,440		
 Employee benefits	842		791		
 Provisions	5,291		4,690		
 Deferred tax liabilities	1,137		1,263		
 Other non-current liabilities 	2,145		2,168		
 Total non-current liabilities 	69,396		89,352		
					
 Interest-bearing loans and borrowings 	23,210		18,321		
 Trade and other accounts payable 	52,814		54,896		
 Income tax payable	-		-		
 Total current liabilities 	76,024		73,217		
 Total liabilities 	145,420		162,569		
 Total equity, minority interests and liabilities 	273,158		286,148		

Consolidated statement of cash flows
For the quarter ended 31 March  

in thousands of Polish złoty 	2006	 	2005		
					
Cash flows from operating activities					
Profit before tax 	6,255		1,909		
Adjustments for:					
Share of profit of associates	(200)		(57)		
Amortization	1,412		492		
Depreciation 	8,492		6,671		
Interest expense, net	1,594		1,983		
Unrealized foreign exchange (gain)/loss	1,178		2,857		
(Gain)/loss on disposal of fixed assets	89		31		
Impairment losses	-		151		
					
Working capital changes:					
(Increase)/decrease in receivables	6,419		(1,061)		
(Increase)/decrease in inventories	(13)		(371)		
(Increase)/decrease in other assets	(558)		(148)		
Increase/(decrease) in payables and other liabilities 	(1,791)		(5,646)		
Increase/(decrease) in other provisions and employee benefits	652		2		
					
Income taxes paid	(1,126)		(787)		
Interest paid	(888)		(706)		
Other 	123		46		
Net cash provided by operating activities 	21,638		5,366		
					
Cash flows from investing activities					
Acquisition of subsidiaries, net of cash acquired	-		(177)		
Proceeds from the sale of property, plant and equipment 	-		581		
Acquisition of property, plant and equipment	(10,230)		(7,358)		
Acquisition of intangible assets	(398)		(511)		
Acquisition of investment in related parties	(10)		-		
Loans granted  	-		(119)		
Net cash used in investing activities	(10,638)		(7,584)		
					
Cash flows from financing activities					
Proceeds from borrowings	3,922		2,732		
Repayment of borrowings	(21,941)		(954)		
Net cash provided by/(used in) financing activities	(18,019)		1,778		
					
Net change in cash and cash equivalents	(7,019)		(440)		
Cash and cash equivalents, beginning of period	31,575		11,486		
Effect of foreign exchange rate movements	(198)		23		
Cash and cash equivalents, end of period	24,358		11,069		

Consolidated statement of changes in equity 

in thousands of Polish złoty
	Attributable to shareholders
of the parent	

Minority interest	

Total	
	
Share capital	
Share premium	
Accumulated deficit 	
Translation reserve	
Total			
								
As at 1 January 2005	373	138,773	(121,747)	141	17,540	36	17,576	
								
Retrospective application of IFRS 2 (note b)	-	-	4,549	-	4,549	-	4,549	
								
As at 1 January 2005 (restated)	373	138,773	(117,198)	141	22,089	36	22,125	
								
Translation reserve	-	-	-	2,393	2,393	-	2,393	
								
Profit for the period (restated)	-	-	1,650	-	1,650	-	1,650	
								
As at  31 March 2005 (restated)	373	138,773	(115,548)	2,534	26,132	36	26,168	

As at 1 January 2006	519	218,640	(94,986)	(614)	123,559	20	123,579	
								
Translation reserve	-	-	-	(1,162)	(1,162)	-	(1,162)	
								
Profit for the period	-	-	5,317	-	5,317	4	5,321	
								
As at 31 March 2006	519	218,640	(89,669)	(1,776)	127,714	24	127,738	

Selected Notes to the Financial Statements

(a)	information on the Activities of the AmRest Group
Amrest Holding N.V. (the “Company”) was established in October 2000 in the Netherlands, where it has its registered office. 
On April 27th 2005, shares of AmRest Holding N.V. were floated on the Warsaw Stock Exchange (“WSE”).
As at March 31st 2006, the largest shareholder in the Company was International Restaurants Investments, LLC (“IRI”) of the U.S. with a 39.54% equity interest. IRI is wholly owned by American Retail Concepts, Inc. of the U.S. (“ARC”). 
The principal activity of the Company, conducted through its subsidiaries, is to operate Kentucky Fried Chicken (KFC) and Pizza Hut franchised restaurants in Poland and the Czech Republic and “Ice*Land” ice cream outlets in Poland and “Rodeo Drive” and “Freshpoint”. The existing restaurants, which were contributed to the joint venture at its inception, are operated under a Master Franchise Agreement (the “Master Franchise Agreement”), dated October 6th 2000, with YUM! Restaurants International Switzerland, Sarl (YRIS), a subsidiary of YUM!. 
New restaurants opened subsequent to the Master Franchise Agreement, are operated under separate franchise agreements with YRIS on substantially the same terms as the Master Franchise Agreement (all such franchise agreements together with the Master Franchise Agreement are referred to as the “Franchise Agreements”). Each Franchise Agreement has a term of ten years, with an option for renewal by the Company for a further ten years, subject to certain conditions being met as described in the agreements.
In accordance with earlier arrangements, December 31st 2005 was the date of expiry of the Development Agreement concluded on September 25th 2003 with the franchisor, KFC International Holdings (KFCIH), and Pizza Hut International, LLC (PHILLC), subsidiaries of YUM!. Under the Agreement, The Company had the right and obligation to develop new KFC and Pizza Hut outlets in Poland and the Czech Republic. Provided that the Company was in compliance with its obligations under the Development Agreement, the Company had a right of first refusal in relation to any new KFC or Pizza Hut restaurant in Poland and the Czech Republic proposed to be developed by the franchisor or in respect of which the franchisor proposes to grant franchise rights. 
The parties agreed that in line with the current strategy of YUM!, which does not provide for similar agreements on stable markets such as Poland and the Czech Republic, it is not necessary to sign a new agreement. At the same time, YUM! undertook to notify the Company of its entering into a similar agreement with another franchisee at least six months before its first KFC or Pizza Hut restaurant is opened in Poland or in the Czech Republic. During this period, the Company has the right to present its opinion on the issue. YUM! has stated that at present it has no plans to conclude agreements with other prospective franchisees in Poland or the Czech Republic or to open new restaurants by itself.

In December 2005, the Company signed a Development Agreement with PHILLC, a subsidiary undertaking of YUM!, concerning the development and construction of Pizza Hut restaurants in Ukraine. The term of the agreement is three years.
These consolidated financial statements of the Company for the three months ended March 31st  2006 include data on the Company and its subsidiaries (hereinafter referred to jointly as the “Group”) and on the Group’s equity interests in affiliates.
As at March 31st 2006, the Group included the following subsidiaries:

Company	
City and country of incorporation	

Principal activity	

Parent company	Ownership interest and  voting rights	
Date of effective control 	
American Restaurants  Sp. z o.o.	Wrocław, Poland	Operating Pizza Hut and KFC restaurants in Poland	AmRest Holdings N.V.	100.00 %	December
2000	
American Restaurants s.r.o. 	Prague, Czech Republic	Operating Pizza Hut and KFC restaurants in the Czech Republic 	AmRest Holdings N.V.	100.00 %	December
2000	
International Fast Food Polska Sp. z o.o. 	Wrocław, Poland	No current activities	American Restaurants Sp. z o.o.	100.00 %
	January
2001	
Pizza Hut s.r.o. 	Prague, Czech Republic	No current activities	American Restaurants s.r.o.
American Restaurants Sp. z o.o.	99.973%
0.027%	December
2000	
Fried Chicken s.r.o. (former miklik’s food s.r.o.)	Prague, Czech Republic	No current activities	Pizza Hut s.r.o.	100.00%	May
2005	
Grifex I Sp. z o.o.	Wrocław, Poland	Operation of a children’s activity centre in Warsaw which includes a  KFC restaurant	American Restaurants Sp. z o.o.	48.00 %	September
2003	
Galeria Arka Sp. z o.o.	Warsaw, Poland	Lessee of space where a restaurant is to be opened	American Restaurants Sp. z o.o.	100.00 %
	March
2005	
Amrest Ukraina t.o.w.	Kiev, Ukraine	Established to develop and operate Pizza Hut restaurants in the Ukraine	American Restaurants Sp. z o.o.	100.00 %
	December 2005	

As at March 31st 2006, the Group included the following associated companies, consolidated with the equity method:

Company	
City and country of incorporation	

Principal activity	

Parent company	Ownership interest and  voting rights	
Date of initial investment	
Worldwide Communication Services LLC 	Nevada, USA	Marketing activity for  the Group	American Restaurants Sp. z o.o.	33.33 %
	October
2003	
Global Communication Services Sp. z o.o. in liquidation	Warsaw, Poland	A dormant company	Worldwide Communication Services LLC	33.33 %	May
2002	
Synergy Marketing Partners Sp. z o.o.	Warsaw, Poland	Marketing activity for  the Group	Worldwide Communication Services LLC.	26.66%	May
2002	
Red 8 Communications Group Sp. z o.o.	Warsaw, Poland	Marketing activity for  the Group	Worldwide Communication Services LLC	17.33%	May
2002	
Synergy Marketing Partners s.r.o.	Prague,  Czech Republic	Marketing activity for  the Group	Synergy Marketing Partners Sp. z o.o.	24.00%	Incorporated in February 2005	
SCM Sp. z o.o.	Chotomów, Poland	Delivery services for restaurants operated by the Group	American Restaurants Sp. z o.o.	45.00%	April 
 2005	

The Group’s corporate offices are located in Wrocław, Poland. The restaurants operated by the Group are located throughout Poland and the Czech Republic. 
(b)	
Statement on the Accounts’ Compliance with the International Financial Reporting Standards
These consolidated financial statements were prepared in accordance with the International Financial Reporting Standards (the “IFRS”) and their interpretations adopted by the International Accounting Standards Board (the “IASB”) in the form approved for application on the territory of the European Union by virtue of the IFRS Regulation (the European Commission 1606/2002). 

The 2005 financial statements were restated to meet the requirements imposed by individual standards, following the application of the standards effective since January 1st 2005 

As at December 31st 2004, the Group disclosed negative goodwill of PLN 4,549 thousand following from previous years’ acquisitions. The application of IFRS 3 caused derecognition of negative goodwill as at January 1st 2005, and an increase in the value of non-current assets and retained earnings of PLN 4,549 thousand. The application of IFRS 3 did not affect the opening balance of retained deficit as at January 1st 2004. 

The application of IFRS 3, IFRS 36 (updated in 2004) and IFRS 38 (updated in 2004) resulted in a change of the Company’s accounting policy with respect to goodwill and negative goodwill. Prior to these standards’ effective date, goodwill and negative goodwill were amortised on a straight-line basis over their estimated useful economic lives. 
Starting from January 1st 2005, the Group discontinued amortisation of goodwill and negative goodwill. The value of cumulative goodwill amortisation as at December 31st 2004 was derecognised, and the value of goodwill was decreased by the same amount. The balance-sheet value of negative goodwill as at January 1st 2005 was derecognised, and a relevant adjustment was made to the value of retained deficit as at beginning of the period; and 

Starting from the year ended December 31st 2005, each year and upon the occurrence of any signs of impairment, goodwill will be tested for impairment. 

 (c)	Seasonality of Production and Markets

In the case of the AmRest Group, the seasonality of sales and inventories is not significant, which is typical for restaurant business.

The restaurants record the lowest sales in the first quarter, which is attributable primarily to fewer operating days (February) and fewer people dining out. The next quarter in terms of sales is the second quarter, in which the restaurants achieve better results thanks to improving weather and a positive effect of the beginning of the holiday season in June. The highest sales are achieved at the end of the third and at the beginning of the fourth quarter. Very good performance in the third quarter is attributable to the increased tourist traffic. Autumn is traditionally a season when people tend to dine out more frequently, which translates into higher sales. An important time in the last three months of the year is the pre-Christmas period, when particularly high sales are reported by the restaurants situated in shopping centres. 

(d)	Non-Recurring Events with a Bearing on the Financial Performance

No material non-recurring events took place during the period covered by these financial statements.

(e)	Form of Presentation of these Consolidated Financial Statements and Type and Value of Changes in the Applied Estimates

Amounts in these consolidated financial statements are presented in the Polish złoty (PLN), rounded off to full thousands. These financial statements were prepared based on the historical cost convention, except financial assets and liabilities (including derivative instruments) which are subject to measurement at fair value through profit or loss.

The preparation of financial statements in compliance with the International Financial Reporting Standards requires the Management Board to make certain assumptions, judgments and estimates, which are reflected in the applied accounting policies and affect the value of assets and liabilities, revenues and expenses disclosed in these financial statements. The estimates and the related assumptions, which are made on the basis of experience and various factors deemed relevant in given circumstances, are the basis for valuation of the assets and liabilities which do not directly result from other sources. Actual results may differ from the estimates.

Estimates and their underlying assumptions are reviewed on an on-going basis. Any adjustments of the accounting estimates are recognised in the period in which the adjustments were made, on condition that they concern this period only, or in the period in which they were made and in the future periods, if they concern both the current and future periods.

The most significant estimates and assumptions concern the valuation of property, plant and equipment, intangible assets, including goodwill, revaluation allowances for accounts receivable and inventories, and adjustment to the valuation of deferred tax assets. During the period covered by these financial statements, there were no material changes in the value of estimates disclosed in the previous reporting periods.
Except for those presented above in Section (b), the accounting policies have been applied consistently in all periods presented in these consolidated financial statements. The accounting policies were applied consistently by all members of the Group.

 (f)	Issue, Redemption and Repayment of Debt and Equity Securities

During the period covered by these financial statements, no debt or equity securities were issued, redeemed or repaid.

(g)	Dividend Payment

No dividends were paid during the period covered by these financial statements.

(h)	Segment Reporting 
Geographical Segments

The operations of the Group’s restaurants are managed centrally. However, the restaurants operate in two principal geographical areas: Poland and the Czech Republic. 
Breakdown of the Group’s revenue into geographical segments is based on the geographical location of customers. Breakdown of the Group’s assets into geographical segments is based on the geographical location of the Group’s assets.
Inter-segment pricing is determined on an arm's length basis. 

Geographical segment data for the period ended March 31st 2006 and for the comparable period ended March 31st 2005:

	Poland	Czech	Unallocated	Total	
					
three months ended 31 March 2006					
					
Revenue from external customers	96,179	36,988	-	133,167	
Net profit for the period	5,125	750	(558)	5,317	
Segment assets	177,379	81,466	14,313	273,158	
Segment liabilities	50,610	89,741	5,069	145,420	
Depreciation/amortization	6,922	2,982	-	9,904	
Fixed assets acquired	6,463	4,165	-	10,628	
					
	Poland	Czech	Unallocated	Total	
					
three months ended 31 March 2005					
					
Revenue from external customers	76,753	29,681	-	106,434	
Net profit for the period 	2,151	925	(1,426)	1,650	
Segment assets	143,732	68,036	5,647	217,415	
Segment liabilities	89,352	101,219	3,805	194,376	
Depreciation/amortization	5,145	2,018	-	7,163	
Fixed assets acquired	5,357	2,512	-	7,869	
Impairment losses	151	-	-	151	

The unallocated column relates to balances and transactions of AmRest Holdings N.V. and income tax related amounts.

(i)	Events Subsequent to the Balance-Sheet Date

No material events subsequent to the balance-sheet date occurred which are not disclosed in these financial statements.
(j)	Effects of Changes in the Group’s Structure

Establishing Amrest Ukraina t.o.w. by American Restaurants Sp. z o.o., a Subsidiary 

In December 2005, American Restaurants Sp. z o.o., a subsidiary, established Amrest Ukraina t.o.w. and acquired 100% of shares in the company. The registered office of Amrest Ukraina t.o.w. is in Kiev, Ukraine. The company was incorporated in order to supervise investment projects and operate restaurants in the Ukraine.

Liquidation of Global Communication Services Sp. z o.o.

On March 16th 2005, the Company commenced liquidation of Global Communication Services Sp. z o.o. The liquidation proceedings are pending and are to be completed by the end of June 2006
Increase in Equity Interest in SCM Sp. z o.o
On February 3rd 2006, American Restaurants Sp. z o.o., a subsidiary, acquired 10% of shares in SCM Sp. z o.o. with a par value of PLN 10,000. Following the acquisition, American Restaurants Sp. z o.o. increased its equity interest in SCM to 45% (compared to 35% as at December 31st 2005). 

(k)	Changes in Future and Contingent Liabilities
As in the previous reporting period, the Company’s future liabilities follow from the Franchise Agreements and Development Agreement discussed in Section (a).
The Franchise Agreements, discussed in Section (a), have a term of ten years each, the earliest of which commenced in 2000, and are renewable at the Company’s option for a further ten years in accordance with their terms. The initial fees paid are approximately USD 39,600 per restaurant and renewal fees are 50% of the initial fees, adjusted to reflect changes in the US Consumer Price Index during the term of the relevant franchise.
Under the Franchise Agreements, the Company, through its subsidiaries, must from time to time upgrade, modify, renovate or replace all or part of its restaurants or any of their fittings, fixtures or signage or any of the equipment, systems or inventory used in the restaurant in order to maintain compliance with the relevant franchisor’s then current standards. During each of the initial term and the renewal term, if any, the franchisor may not require more than two comprehesive refurbishments of all fittings, fixtures, signage, equipment, systems and inventory in the “front-of-house” area of each AmRest restaurant to then current standards and more than one comprehensive refurbishment of all fittings, fixtures, signage, equipment, systems and inventory in the “back-of-house” area of each restaurant. Individual franchise agreements signed after the Master Franchise Agreement do not contain this provision. The Company estimates the cost of upgrades at 1.5 percent of annual restaurant sales in future periods.

l)	Earnings per  Share
The basic and diluted earnings per share are calculated as follows:
	Three months ended Mar 31 2006	Three months ended Mar 31 2005	
			
Net profit attributable to shareholders of the parent (PLN ‘000)	5,321	1,650	
			
Ordinary shares as at January 1st	13,500,000	10,000,000	
Effect of shares issued	-	-	
Effect of stock options granted	-	-	
			
Weighted average number of ordinary shares as at Mar 31	13,500,000	10,000,000	
			
Basic and diluted earnings per share (PLN)	0.39	0.17	

The effect of potential new shares to be created under the options granted is antidilutive. Therefore, computation of the diluted earnings per ordinary share did not factor in the options granted to the Company employees.