AmRest Holdings N.V.

Condensed Consolidated Financial Statements
as at and for the quarter ended June 30th 2006

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

Consolidated income statement
For the quarter ended 30 June 

in thousands of Polish złoty	six  months ended 
June-30 2006	three months ended 
June-30 2006	six  months ended 
June-30 2005	three months ended 
June-30 2005	
					
Restaurant sales	280 009	146 842	227 863	121 429	
					
Restaurant expenses:					
Cost of food	(94 470)	(49 541)	(76 851)	(40 306)	
Direct marketing expenses	(14 157)	(6 751)	(12 515)	(7 796)	
Direct depreciation and amortization expenses	(18 448)	(9 035)	(14 096)	(7 265)	
Payroll and employee benefits	(53 215)	(27 495)	(42 247)	(21 792)	
Continuing franchise fees 	(16 602)	(8 712)	(13 583)	(7 236)	
Occupancy and other operating expenses	(48 874)	(25 467)	(39 402)	(20 457)	
Total restaurant expenses	(245 766)	(127 001)	(198 694)	(104 852)	
					
Gross profit on sales	34 243	19 841	29 169	16 577	
					
General and administrative (G&A) expenses	(17 191)	(9 255)	(18 602)	(10 576)	
Depreciation and amortization expense (G&A)	(1 004)	(513)	(658)	(326)	
Other operating income/(expense), net	1 472	804	2 252	1 208	
Gain/(loss) on the disposal of fixed assets	2 122	2 211	(717)	(686)	
Impairment gain/(losses)	(1 404)	(1 404)	(911)	(760)	
IPO expenses			(1 937)	(682)	
Profit from operations	18 238	11 684	8 596	4 755	
					
Financing income	5 745	5 617	1 615	1 294	
Finance costs	(2 421)	(1 794)	(5 790)	(3 480)	
Share of profit of associates	346	146	99	42	
Net profit before tax	21 908	15 653	4 520	2 611	
					
Income tax expense	(2 957)	(2 023)	3 434	3 693	
					
Net profit	18 951	13 630	7 954	6 304	
Attributable to:					
Minority interests	42	38	24	24	
Shareholders of the parent	18 909	13 592	7 930	6 280	
					
Net profit for the period	18 951	13 630	7 954	6 304	
					
Basic and diluted earnings per share in Polish złoty	1,40	1,01	0,70	0,50	

Consolidated balance sheet
As of 30 June 2006 and 31 December 2005

in thousands of Polish złoty	2006		2005		
 Assets 					
 Property, plant and equipment, net 	184 872		174 141		
 Intangible assets	15 240		16 280		
Goodwill	22 644		4 765		
 Investments in associates	940		574		
 Other non-current assets	18 468		17 342		
 Deferred tax assets 	10 511		11 540		
 Total non-current assets 	252 675		224 642		
					
 Inventories	8 095		5 973		
 Trade and other receivables 	9 481		15 072		
 Income tax receivable	2 486		3 673		
 Other current assets 	5 622		4 788		
 Cash and cash equivalents	20 613		31 575		
 Assets held for sale	1 700		3 219		
 Total current assets 	47 997		64 300		
 Total assets 	300 672		288 942		
					
 Equity 					
 Issued capital 	519		519		
 Share premium 	218 834		218 640		
 Retained deficit 	(95 514)		(117 641)		
 Current year net profit 	18 909		22 127		
 Cumulative translation adjustment 	(3 337)		(574)		
 Equity attributable to shareholders of the parent 	139 411		123 071		
 Minority interests	62		20		
 Total equity 	139 473		123 091		
					
 Liabilities 					
 Interest-bearing loans and borrowings 	73 590		80 440		
 Employee benefits	825		791		
 Provisions	5 890		4 690		
 Deferred tax liabilities	1 012		1 263		
 Other non-current liabilities 	5 906		5 405		
 Total non-current liabilities 	87 223		92 589		
					
 Interest-bearing loans and borrowings 	9 362		18 321		
 Trade and other accounts payable 	64 614		54 941		
 Total current liabilities 	73 976		73 262		
 Total liabilities 	161 199		165 851		
 Total equity, minority interests and liabilities 	300 672		288 942		

Consolidated statement of cash flows
For the quarter ended 30 June  

in thousands of Polish złoty 	2006	 	2005		
					
Cash flows from operating activities					
Profit before tax 	21 908		4 520		
Adjustments for:					
Share of profit of associates	(346)		(99)		
Amortization	2 811		1 051		
Depreciation 	16 641		13 703		
Interest expense, net	2 212		4 307		
Unrealized foreign exchange (gain)/loss	(690)		(1 369)		
(Gain)/loss on disposal of fixed assets	(2 122)		717		
Impairment losses	1 404		911		
Equity–settled share based payments expenses	194		66		
					
Working capital changes:					
(Increase)/decrease in receivables	7 136		79		
(Increase)/decrease in inventories	(733)		251		
(Increase)/decrease in other assets	(1 880)		(7 583)		
Increase/(decrease) in payables and other liabilities 	6 122		(3 000)		
Increase/(decrease) in other provisions and employee benefits	(1 745)		(1 340)		
					
Income taxes paid	(1 673)		2 648		
Interest paid	(913)		(3 406)		
Other 	(204)		394		
Net cash provided by operating activities 	48 122		11 850		
					
Cash flows from investing activities					
Acquisition of subsidiaries, net of cash acquired	(20 235)		(6 581)		
Proceeds from the sale of property, plant and equipment 	2 615		1 938		
Acquisition of property, plant and equipment	(22 488)		(16 282)		
Acquisition of intangible assets	(1 081)		(3 604)		
Acquisition of investment in related parties	(10)		-		
Net cash used in investing activities	(41 199)		(24 529)		
					
Cash flows from financing activities					
Proceeds from borrowings	5 643		154 344		
Proceeds from issuance of shares	-		77 866		
Repayment of borrowings	(23 144)		(212 402)		
Net cash provided by/(used in) financing activities	(17 501)		19 808		
					
Net change in cash and cash equivalents	(10 578)		7 129		
Cash and cash equivalents, beginning of period	31 575		11 486		
Effect of foreign exchange rate movements	(384)		13		
Cash and cash equivalents, end of period	20 613		18 628		

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 	
								
Change in accounting policies 	-	-	4 549	-	4 549	-	4 549	
								
Correction of accounting treatment for lease agreement ( note (d))	-	-	(440)	-	(440)	-	(440)	
								
As at 1 January 2005 (restated)	373	138 773	 (117 638)	141	21 649	36	21 685	
								
Share-based payments liabilities assumed by shareholders	-	528	-	-	528	-	528	
								
Equity-settled share based payments	-	66	-	-	66	-	66	
								
Translation reserve	-	-	-	(644)	(644)	-	(644)	
								
Profit for the period 	-	-	7 930	-	7 930	24	7 954	
								
Issuance of shares	146	77 720	-	-	77 866	-	77 866	
								
As at  30 June 2005 (restated)	519	217 087	(109 708)	(503) 	107 395	60	107 455	

As at 1 January 2006	519	218 640	(95 514)	(574) 	123 071	20	123 091	
								
Equity-settled share based payments	-	194	-	-	194	-	194	
								
Translation reserve	-	-	-	(2 763)	(2 763)	-	(2 763) 	
								
Profit for the period	-	-	18 909	-	18 909	42	18 951	
	 	 	 	 				
As at 30 June 2006	519	218 834	(76 605)	(3 337) 	139 411	62	139 473	

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 June 30th 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, as well as “Ice*Land”, “Rodeo Drive” and “Freshpoint” ice cream outlets in Poland. 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 six months ended June 30th 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 June 30th 2006, the Group included the following subsidiaries: 

Company	
City and country of incorporation	

Core business	

Parent undertaking	Ownership interest and total vote	
Date of effective control 	
American Restaurants Sp. z o.o.	Wrocław, Poland	Operation of Pizza Hut and KFC restaurants in Poland	AmRest Holdings N.V.	100.00 %	December
2000	
American Restaurants s.r.o. 	Prague, Czech Republic	Operation of 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 operations conducted currently	American Restaurants Sp. z o.o.	100.00 %	January
2001	
Pizza Hut s.r.o. 	Prague, Czech Republic	No operations conducted currently	American Restaurants s.r.o.
American Restaurants Sp. z o.o.	99.973%
0.027%	December
2000	
Kentucky System, Kft	Budapest, Hungary	Operation of Pizza Hut and KFC restaurants in Hungary	American Restaurants Sp. z o.o.	100.00%	June 30
2006	
Fried Chicken s.r.o. (former miklik’s food s.r.o.)	Prague, Czech Republic	No operations conducted currently	Pizza Hut s.r.o.	100.00%	May
2005	
Grifex I Sp. z o.o.	Wrocław, Poland	Operation of a children’s entertainment centre in Warsaw and 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 Ukraine	American Restaurants Sp. z o.o.	100.00 %
	December 2005	

As at June 30th 2006, the Group included the following affiliates, consolidated with the equity method:

Company	
City and country of incorporation	

Core business	

Parent undertaking	Ownership interest and total vote	
Initial investment	
Worldwide Communication Services LLC	Nevada, USA	Marketing services for the Group	American Restaurants Sp. z o.o.	33.33 %
	October
2003	
Global Communication Services Sp. z o.o. in liquidation	Warsaw, Poland	No operations conducted currently	Worldwide Communication Services LLC	33.33 %	May
2002	
Synergy Marketing Partners Sp. z o.o.	Warsaw, Poland	Marketing services for the Group	Worldwide Communication Services LLC.	26.66%	May
2002	
Red 8 Communications Group Sp. z o.o.	Warsaw, Poland	Marketing services for the Group	Worldwide Communication Services LLC	17.33%	May
2002	
Synergy Marketing Partners s.r.o.	Prague, Czech Republic	Marketing services 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, the Czech Republic and Hungary.

(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 of the restaurant business.
The restaurants record the lowest sales in the first quarter of the year, which is attributable primarily to fewer operating days in 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

April 1st 2006 was the effective date of release from debt under signed loan waiver agreements, received on August 4th 2006 from the shareholder International Restaurants Investments, LLC (“IRI”). The agreements cover loans advanced in previous years in total amounts of USD 818 thousand and EUR 38 thousand as well as all accrued interest. These amounts also include long-term loans granted by Yum!. As of April 1st 2006, Yum! transferred its receivables under these loans onto IRI.

In 2006, the Group has found that a lease agreement covering one of the restaurants operated by the Group in the Czech Republic was erroneously disclosed as operating lease in previous years. Pursuant to the guidelines stipulated in IAS 17 – Leases, this agreement meets the criteria defining finance leases. Adjustments relating to a relevant change in accounting disclosure were presented in the statement of changes in equity.

Other than those described above, 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 mainly 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.
The operations of the Group’s restaurants represent a single business segment. The restaurants’ products and customers can be described in a similar way. Business risks and operating margins are similar for all types of operated restaurants.
Inter-segment pricing is determined on an arm's length basis.

Geographical segment data for the period ended June 30th 2006 and for the comparable period ended June 30th 2005.

	Poland	Czech Republic	Unallocated	Total	
					
six months ended June 30th 2006					
Revenue from external customers	200 530	79 479	-	280 009	
Net profit	13 613	3 752	1 544	18 909	
Segment assets	193 083	83 778	23 811	300 672	
Segment liabilities	54 090	98 675	8 434	161 199	
Depreciation/amortisation	13 734	5 718	-	19 452	
Fixed assets acquired	13 735	9 834	-	23 569	
Impairment losses	911	493	-	1 404	
					
three months ended June 30th 2006					
Revenue from external customers	104 351	42 491	-	146 842	
Net profit	8 488	3 002	2 102	13 592	
Segment assets	193 083	83 778	23 811	300 672	
Segment liabilities	54 090	98 675	8 434	161 199	
Depreciation/amortisation	6 812	2 736	-	9 548	
Fixed assets acquired	7 272	5 669	-	12 941	
Impairment losses	911	493	-	1 404	
					
	Poland	Czech Republic	Unallocated	Total	
					
six months ended June 30th 2005					
Revenue from external customers	163 416	64 447	-	227 863	
Net profit	6 189	1 076	665	7 930	
Segment assets	156 584	76 346	14 612	247 542	
Segment liabilities	43 461	92 118	4 508	140 087	
Depreciation/amortisation	10 455	4 299	-	14 754	
Fixed assets acquired	13 540	346	-	19 886	
Impairment losses	630	281	-	911	
					
three months ended June 30th 2005					
Revenue from external customers	86 663	34 766	-	121 429	
Net profit	4 038	151	2 091	6 280	
Segment assets	156 584	76 346	14 612	247 542	
Segment liabilities	43 461	92 118	4 508	140 087	
Depreciation/amortisation	5 310	2 281	-	7 591	
Fixed assets acquired	8 183	3 834	-	12 017	
Impairment losses	479	281	-	760	

The “unallocated” column relates to balances and transactions of AmRest Holdings N.V., AmRest Ukraine t.o.w., assets and liabilities of Kentucky System Kft., and amounts relating to income tax.

(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

Acquisition of Kentucky System Kft. (KS) by American Restaurants Sp. z o.o., a Subsidiary

June 30th 2006 saw the closing of acquisition of 100% of shares in Kentucky System, Kft. (KS), a limited liability company of Budapest, Hungary. Following the transaction, AmRest became the sole owner of 13 Pizza Hut restaurants and 4 KFC restaurants in Hungary. The purchase price amounted to USD 6,500,000.
The transaction marked another step in the strengthening of the AmRest Group’s market position in the Central and Eastern Europe and in the implementation of the Group’s strategy.

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.

(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 Ordinary Share

The basic and diluted earnings per ordinary share were computed as follows:
	Six months ended 
Jun 30 2006	Three months ended Jun 30 2006	Six months ended 
Jun 30 2005	Three months ended 
Jun 30 2005	
					
Net profit attributable to shareholders of the parent(PLN ‘000)	18 909	13 592	7 930	6 280	
					
Ordinary shares as at January 1st/April 1st	13 500 000	13 500 000	10 000 000	10 000 000	
Effect of shares issued	-	-	1 256 906	2 500 000	
Effect of stock options granted	25 399	25 399	- 	- 	
					
Weighted average number of ordinary shares as at June 30	13 525 399	13 525 399	11 256 906	12 500 000	
					
Basic and diluted earnings per share (PLN)	1,40	1,01	0,70	0,50	

The effect of potential new ordinary shares to be created under the options granted is slightly dilutive. This applies mainly to options granted in 2005.