Open Finance S.A. Group. Consolidated Financial Statements. for the year ended on 31 December prepared in accordance with

Transcription

1 Open Finance S.A. Group Consolidated Financial Statements for the year ended on 31 December 2012 prepared in accordance with International Financial Reporting Standards

2 CONTENTS I. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED ON 31 DECEMBER II. CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER III. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED ON 31 DECEMBER IV. CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED ON 31 DECEMBER V. GENERAL INFORMATION... 8 VI. BASIS FOR THE PREPARATION OF THESE FINANCIAL STATEMENTS AND IDENTIFICATION OF THE CONSOLIDATED FINANCIAL STATEMENTS VII. SIGNIFICANT FIGURES BASED ON PROFESSIONAL JUDGEMENT AND ESTIMATES VIII. ACCOUNTING POLICY Statement of compliance with International Financial Reporting Standards Currency of measurement and presentation Changes in accounting principles New standards and interpretations issued but not yet effective Consolidation principles Investments in subordinated entities Material accounting principles IX. OPERATING SEGMENTS X. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Revenue from intermediation Operating costs Other operating revenue Other operating costs Financial revenue Financial costs Income tax Tax liabilities Effective tax rate Deferred income tax Earnings per share (PLN per share) Business combinations Employee Benefit Funds and Related Liabilities Tangible fixed assets Financial leases Intangible assets Investments in subordinated entities Investment property Prepayments and accrued revenue, including accrued commission revenue (current assets) Other non-financial short-term and long-term assets Trade receivables Other receivables Cash and cash equivalents Share capital and other reserve capital Share capital Nottes from V to XIX to these consolidated financial statements as contained on pages 8 86 form an integral part of these 2 statements.

3 21.2 Shareholders in the parent company Supplementary capital fund Finance lease liabilities Operating leases Bonds issues Trade liabilities Liabilities arising from the acquisition of shares in Home Broker Nieruchomości S.A Other non-financial liabilities Accruals and deferred revenue, including accrued remuneration Provisions Contingent assets and liabilities Lawsuits Tax settlements Open Finance s incentive scheme XI. FINANCIAL INSTRUMENTS Fair values of different classes of financial instruments Net gains and losses broken down by financial instrument category, recognised in the statement of comprehensive income XII. ADDITIONAL EXPLANATIONS RELATING TO THE CASH FLOW STATEMENT XIII. TRANSACTIONS WITH RELATED PARTIES XIV. INFORMATION OF AUDITOR S FEES XV. OBJECTIVES AND PRINCIPLES OF FINANCIAL RISK MANAGEMENT XVI. CAPITAL MANAGEMENT XVII. EMPLOYMENT STRUCTURE XVIII. SIGNIFICANT EVENTS OCCURRING BETWEEN THE DATE OF THESE CONSOLIDATED FINANCIAL STATEMENTS AND THE DATE OF THEIR APPROVAL FOR PUBLICATION XIX. CORRECTIONS OF ERRORS IN THE PREVIOUS REPORTING PERIOD Nottes from V to XIX to these consolidated financial statements as contained on pages 8 86 form an integral part of these statements. 3

4 I. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED ON 31 DECEMBER 2012 CONTINUED OPERATIONS 1 Jan Dec Jan Dec.2011 Financial intermediation revenue X Operating costs X Gross profit on sales Oither operating revenue X Other operating costs X Operating profit Financial revenue X Share of the associate's profit X Financial costs X Impairment of Home Broker Nieruchomości S.A's goodwill X.9 ( ) - Gross profit Income tax X.7 (5 926) Net profit for the financial year attributable to shareholders in the parent company attributable to non-controlling shareholders - - Note Other comprehensive income - - Comprehensive income for the reporting period attributable to shareholders in the parent company attributable to non-controlling shareholders - - Net profit per share basic profit per share from profit for the period (PLN) X.8 2,3 1,7 diluted profit per share from profit for the period (PLN) X.8 2,3 1,7 Comprehensive income per share basic income per share (from profit for the period (PLN) 2,3 1,7 diluted income per share (from profit for the period (PLN) 2,3 1,7 As was described in more detail in Note V, the Group did not discontinue any of its operations in any of the financial years Nottes from V to XIX to these consolidated financial statements as contained on pages 8 86 form an integral part of these statements. 4

5 II. CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2012 Note 31 Dec Dec.2011 ASSETS Fixed Assets Tangible fixed assets X Intangible assets X Investment in an associate X Investment property X Deferred income tax assets X Other long-term accounts receivables X Other non-financial long-term assets X Current Assets Inventory X Trade receivables X Current income tax receivables Other short-term receivables X Prepayments and accrued revenue, including accrued commission revenue X Other non-financial short-term assets X Cash and cash equivalents X TOTAL ASSETS LIABILITIES AND EQUITY Equity Share capital X Other reserve capital X.21.3, X Retained earnings Long-term liabilities Provision for deferred income tax X Long-term provisions X Loans and financial lease liabilities (long-term liabilities) X.12,X Bonds issued (long-term liabilities) X Financial liabilities measured at fair value through profit or loss X Other long-term non-financial liabilities X Short-term liabilities Loans and financial lease liabilities (short-term liabilities) X.12,X Bonds issued (short-term liabilities) X Short-term provisions X Financial liabilities measured at fair value through profit or loss X Trade liabilities X Accruals and deferred revenue, including accrued remuneration X Current income tax liabilities Other short-term non-financial liabilities X Total liabilities TOTAL LIABILITIES AND EQUITY Nottes from V to XIX to these consolidated financial statements as contained on pages 8 86 form an integral part of these statements. 5

6 III. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED ON 31 DECEMBER 2012 for the year ended on 31 December 2012 Share capital Attributable to shareholders in the parent company Supplementary capital Other reserve capital Reserve capital appropriated for repurchase of own shares Share-based payments equity item Retained earnings Total equity Note As at 1 January 2012 X Net profit for the period Other comprehensive income Valuation of incentive program for key employees X Appropriation of reserve capital for repurchase of own shares - (15 687) Own shares repurchased - - (1 476) - - (1 476) Repurchase of own shares as part of the Option X (2 900) - - (2 900) Programme Distribution of profit (85 768) (14 647) - Transfer of 2011 net profit to supplementary capital (71 121) - - Distribution of 2011 net profit as dividend (14 647) (14 647) Dividend on own shares repurchased As at 31 December 2012 X Attributable to shareholders in the parent company for the year ended on 31 December 2011 Share capital Supplementary capital Other reserve capital Reserve capital appropriated for repurchase of own shares Share-based payments equity item Retained earnings Total equity Note As at 1 January 2011 X Net profit for the period Other comprehensive income Share issue X Valuation of incentive program for key employees X Distribution of profit (73 048) - - Transfer of 2010 net profit to supplementary capital (72 300) - - Transfer of previous years' undistributed profit (arising from changes to accounting principles) to supplementary capital (748) - As at 31 December 2011 X Nottes from V to XIX to these consolidated financial statements as contained on pages 8 86 form an integral part of these statements. 6

7 IV. CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED ON 31 DECEMBER 2012 Note 1 Jan Dec Jan Dec.2011 Cash flows from operating activities Net profit Total adjustments: (94 161) Depreciation/amortisation X.11,X.13, X Profit (loss) on investing activities (34 255) (1 982) Interest income - (2 085) Interest expense Change in trade receivables XII (38 901) Change in trade liabilities XII (488) Change in deferred income tax assets / provisions XII (16 889) (70) Change in other long-term receivables XII (1 160) (152) Change in other short-term receivables XII (1 336) (1 684) Change in other non-financial short-term assets XII Change in accruals and prepayments XII (907) (23 636) Change in financial liabilities measured at fair value through profit or loss X.26 ( ) - Change in other non-financial (short- and long-term) liabilities XII (44 254) Change in other non-financial long-term assets XII (473) 36 Change in provisions XII (136) Allowance for impairment of Home Broker Nieruchomości S.A.'s goodwill X Current income tax presented in the statement of comprehensive income X Income tax paid (10 072) (20 715) Current income tax presented in the statement of comprehensive income Net cash from operating activities Cash flows from investing activities Sale of tangible fixed assets and intangible assets Acquisition of tangible fixed assets (26 686) (9 130) Acquisition of intangible assets (40 730) (1 134) Acquisition of shares and increase in capital of the subsidiary Open Life X.14 (22 050) (9 596) Acquisition of short-term financial assets - ( ) Acquisition of the subsidiary Home Broker Nieruchomości S.A., less acquired cash X.9 - ( ) Disposal of short-term financial assets Expenditure on investment property (5 339) (693) Net cash from investing activities (86 993) ( ) Cash flows from financing activities Repayment of financial lease liabilities (731) (447) Proceeds from issue of bonds X Repayment of bond issue liabilities (2 657) - Dividend paid X.21.3 (14 647) - Own shares repurchased (4 376) - Interest paid (191) (99) Proceeds from issue of shares Net cash from financing activities Increase (decrease) in net cash and cash equivalents (33 641) Net exchange differences - - Opening balance of cash X Closing balance of cash X including cash not fully available - - Nottes from V to XIX to these consolidated financial statements as contained on pages 8 86 form an integral part of these statements. 7

8 V. GENERAL INFORMATION Grupa Kapitałowa Open Finance S.A. (Open Finance S.A. Group) comprises Open Finance S.A. ( Company, Open Finance ) and its subsidiaries. The parent company of the Open Finance S.A. Group with its registered office in Warsaw, Poland, at the address of ul. Domaniewska 39, was incorporated on 30 January 2004 for an indefinite period of time. On 25 February 2004, it was registered under number with the National Court Register. The legal basis for the parent company s operation is its Articles of Association executed before a notary public on 30 January 2004 (as later amended). The parent company is registered for statistical purposes under (REGON) number The parent company s objects, as specified in its Articles of Association, are as follows: to provide other financial intermediation services, to provide loans in other forms, financial service activities, except insurance and pension funding. The parent company s Management Board As at 31 December 2012 and as at the date of approval of these consolidated financial statements, the Management Board of Open Finance consisted of the following individuals: 1. Krzysztof Spyra President of the Management Board, 2. Wojciech Gradowski Member of the Management Board 3. Krzysztof Sokalski Member of the Management Board No changes were made to the composition of the Management Board during the twelve-month period ended on 31 December 2012 and until the date of approval of these consolidated financial statements. The parent company s Supervisory Board As at 31 December 2012 and as at the date of approval of these consolidated financial statements, the Supervisory Board of Open Finance consisted of the following individuals: 1. Leszek Czarnecki, PhD Chairman of the Supervisory Board, 2. Remigiusz Baliński Deputy Chairman of the Supervisory Board, 3. Dariusz Niedośpiał Member of the Supervisory Board, 4. Jarosław Augustyniak Member of the Supervisory Board, 5. Marek Kaczałko Member of the Supervisory Board, During the twelve-month period ended on 31 December 2012, the following changes were made to the composition of the Supervisory Board: on 6 September 2012, the Company s General Meeting elected Leszek Czarnecki, PhD, as a Member of the Supervisory Board, and Mr Krzysztof Tymoszyk resigned as a Member of the Supervisory Board. On 21 September 2012, Leszek Czarnecki, PhD, was elected as the Chairman of the Supervisory Board and Mr Remigiusz Baliński became the Deputy Chairman of the Supervisory Board. No changes were made to the composition of the Supervisory Board of Open Finance until the date of approval of 8

9 these financial statements. These consolidated financial statements for the year ended on 31 December 2012 were approved for publication by the parent company s Management Board on 27 February The Open Finance S.A. Group is controlled by Leszek Czarnecki, PhD, holding, as at 31 December 2012 and as at the date of approval of these consolidated financial statements, directly and indirectly through subsidiaries (i.e. Getin Noble Bank S.A. and LC Corp B.V), 54.38% of the total number of shares in the parent company. As at the end of each of the reporting periods, the following subsidiaries were part of the Open Finance S.A. Group: Company Name Status Registered Office Core Business Open Finance TFI S.A. Home Broker Nieruchomości S.A. subsidiary subsidiary Warszawa, Domaniewska 39 Warszawa, Domaniewska 39A investment fund management real estate agency services Percentage Share of Company's Capital 31 Dec Dec % 0% 100% 100% - shares through Home Broker Nieruchomości S.A. HB Doradcy Finansowi Sp. z o.o. Sp. k-a HB Doradcy Finansowi Sp. z o.o. HB Finance Sp. z o.o. subsidiary subsidiary subsidiary Warszawa, Domaniewska 39A Warszawa, Domaniewska 39A Warszawa, Domaniewska 39A financial intermediation 100% 100% management consulting 100% 100% financial intermediation 100% 0% On 18 August 2011, the Annual General Meeting of Home Broker Nieruchomości S.A. and the Annual General Meeting of Home Broker Nieruchomości S.A. adopted resolutions on a reverse merger of the two companies, i.e. a transaction whereby a subsidiary takes over its parent company by transferring all the assets of the acquiree to the acquirer in exchange for new shares issued by the acquirer to the shareholders in the acquiree. On 2 January 2012, the District Court for the City of Warsaw, the 13th Division of the National Court Register, registered the reverse merger of Home Broker Nieruchomości S.A. and Home Broker Nieruchomości S.A. On 19 September 2012, Home Broker Nieruchomości S.A. acquired 99% of the shares in Trinity Shelf Companies sp. z o.o. from Gisella Investments sp. z o.o. for the price of PLN 14.9 thousand, and HB Doradcy Finansowi sp. z o.o. acquired 1% of the shares in Trinity Shelf Companies sp. z o.o. for the price of PLN 0.1 thousand. On 15 October 2012, the newly acquired company was renamed HB Finance sp. z o.o. On 19 October 2012, HB Doradcy Finansowi sp. z o.o. sp.k. was registered as a limited joint-stock partnership. The entity authorised to represented the company following its conversion is the limited partner, HB Doradcy Finansowi sp. z o.o. On 22 February 2012, a new subsidiary of Open Finance, namely Open Finance TFI S.A., was registered with the National Court Register. The share capital of Open Finance TFI S.A. is PLN 5,000 thousand and is divided into 5,000,000 A-series ordinary shares with the nominal value of PLN 1.00 each. Open Finance acquired 100% of the shares in the new company and paid in cash for all of them. On 9 October 2012, permission was given by the Polish Financial Supervision Authority to Open Finance TFI S.A. to pursue the business of establishing and managing investment funds, including the business of intermediation in the sale and repurchase of the shares (participation units) in such funds, representing such funds in dealing with third parties and in the business of collective management of a securities portfolio. On 22 February 2012, an Extraordinary General Meeting of Open Life TUŻ S.A. resolved to increase the company s share capital by PLN 30,000 thousand. On 24 February 2012, the Management Board of Open Life TUŻ S.A. signed an agreement to take shares in the increased share capital, in the amount of PLN 14,700 thousand. The increase in the share capital of Open Life TUŻ S.A. was registered with the National Court 9

10 Register on 30 March On 5 December 2012, an Extraordinary General Meeting of Open Life TUŻ S.A. resolved to increase the company s share capital by PLN 15,000 thousand. On 11 December 2012, the Management Board of Open Life TUŻ S.A. signed an agreement to take shares in the increased share capital, in the amount of PLN 7,350 thousand. The increase in the share capital of Open Life TUŻ S.A. was registered with the National Court Register on 31 January As at 31 December 2012 and 31 December 2011, the Company s share of the total number of voting rights in each of the companies was equal to the Company s share in the capital of each of the companies. The Group did not discontinue any operations in the 2012 financial year or the 2011 financial year. VI. BASIS FOR THE PREPARATION OF THESE FINANCIAL STATEMENTS AND IDENTIFICATION OF THE CONSOLIDATED FINANCIAL STATEMENTS The reported figures cover the Group s consolidated statement of financial position as at 31 December 2012, its consolidated statement of comprehensive income for the twelve-month period ended on 31 December 2012, i.e. from 1 January 2012 to 31 December 2012, its consolidated statement of changes in equity and its consolidated cash flow statement for the period from 1 January 2012 to 31 December The comparative figures cover the Group s consolidated statement of financial position as at 31 December 2011, its consolidated statement of comprehensive income for the twelve-month period ended on 31 December 2011, i.e. from 1 January 2011 to 31 December 2011, its consolidated statement of changes in equity and its consolidated cash flow statement for the period from 1 January 2011 to 31 December The above figures were audited by a statutory auditor. These consolidated financial statements have been prepared in accordance with the historical cost principle, except for investment properties and for the financial liabilities in respect of the contingent payment for the shares in Home Broker Nieruchomości S.A., which are measured through profit or loss. These consolidated financial statements are presented in the Polish currency (PLN) and all figures, unless otherwise stated, are expressed in. These consolidated financial statements have been prepared based on the assumption that the Group s companies will continue their operations in the foreseeable future, i.e. for a period of at least 12 months from the end of the reporting period, i.e. from 31 December As at the date of approval of these consolidated financial statements, no circumstances were identified which might threaten or significantly limit the continuity of the Group s operations VII. SIGNIFICANT FIGURES BASED ON PROFESSIONAL JUDGEMENT AND ESTIMATES Professional judgement and uncertainty of estimates In applying the accounting principles (policy) described below, of utmost significance was, in addition to accounting estimates, professional judgement of management. The estimated figures, including the accounting estimates, are reviewed periodically. The effect of all the expected events is taken into account with each change. Although the estimates are based on the best knowledge of the current conditions and of the Group s activities, the actual results may be different from the estimates. Closing ratio for financial products 10

11 The Group recognises commission income from the loan applications submitted (but for loans not yet paid out), applications for term deposits and savings plans (submitted but not yet processed) with other financial institutions based on a closing ratio. This ratio is based on historical data for the likelihood of a loan applied for being actually paid out, a term deposit or a saving plan realised This ratio is also used in determining the amount of provision for commission to be paid to the Group s advisers and to the Group s business partners in respect of such loans, term deposits and savings plans The Group periodically reviews its estimated closing ratios and, if any difference between the estimated ratio and the actual ratio is identified, the difference is recognised in accordance with IAS 8 Accounting policies, changes in accounting estimates and errors. The accounts receivable in respect of the supply of financial intermediation services (presented as accruals in the assets) amounted to PLN 62,826 thousand as at 31 December 2012 and PLN 79,276 thousand as at 31 December 2011). In estimating its revenue from savings products, the Group takes into account a contract termination ratio. The closing ratios used as the basis for estimating the above accounts receivables in respect of the supply of financial intermediation services are presented in Note X.16. The liabilities in respect of commission for financial advisers (presented as prepayments and accruals in the liabilities) amounted to PLN 17,972 thousand as at 31 December 2012 and PLN 35,654 thousand as at 31 December 2011). The closing ratios used by the Group are presented in Note X.16 The estimated revenue calculated based on the applications made (and the corresponding commission for financial advisers) and to be actually received during the following financial years is not significantly different from the Group s estimates. Provisions Based on quarterly figures for 2012, which confirm the growing trend in regular saving product termination, Open Life TUŻ S.A. estimated the expected costs of such early termination of contracts to be incurred by the Company in 2013 in connection with the sale of such products in As at 31 December 2012, provision was made for the potential costs of such termination, in the amount of PLN 4,600 thousand. Closing ratio for real estate agency services The Group recognises, based on a closing ratio, commission income in respect of its real estate agency services for transactions for which preliminary sale agreements exist but which are not finalised (i.e. the final sale agreements are yet to be executed before a notary public). The closing ratio is based on historical data for the likelihood of such a transaction being finalised. The ratio is also used in calculating the amount of provision for commission payable in respect of such transactions to the Group s advisers and business partners. The Group periodically reviews its estimated closing ratios and, if any difference between the estimated ratio and the actual ratio is identified, the difference is recognised in accordance with IAS 8 Accounting policies, changes in accounting estimates and errors. The accounts receivable in respect of the supply of the Group s real estate agency services (presented as accrued revenue in the assets) amounted to PLN 1,750 thousand as at 31 December 2012 and as at 31 December 2011 PLN thousand. The estimated revenue calculated based on the applications made (and the corresponding commission for financial advisers) and to be actually received during the following financial years is not significantly different from the Group s estimates. The liabilities in respect of commission for financial advisers (presented as prepayments and accruals in the liabilities) amounted to PLN 4,910 thousand as at 31 December 2012 and PLN 4,225 thousand as at 31 December The closing ratios used by the Group are presented in Note X

12 Rates and method for depreciation of tangible fixed assets and amortisation of intangible assets As at the last day of each reporting period, the parent company s management participate in the process of determining amortisation and depreciation rates on the basis of the estimated useful lives of its tangible fixed assets and intangible assets. Every year the Group reviews the estimated useful lives. The estimated useful lives are presented on pages 20 and 22. Databases The databases purchased by the Group are classified as intangible assets if they meet the criteria for being so classified. In particular, the Group assesses the existence of future economic benefits related to the use of its databases. Such benefits are assessed on the basis of historical and expected revenue from the sale of services to customers included in such databases. The Group reviews the period and method of amortising such intangible assets (customer databases) at least at the end of each financial year. Any change identified of the review is recognised as a change of estimated values in accordance with IFRS 8. An analysis of the accounting implications, an assessment of the economic content and selection of the settlement method for the acquisition of Home Broker Nieruchomości S.A., together with its subsidiaries On 30 September 2011, Open Finance S.A. entered into four conditional agreements to acquire shares in Home Broker Nieruchomości S.A. In order to determine the accounting effects of the transactions, the parent company s management board carried out an analysis of the terms and conditions of the agreements. The analysis revealed that all the agreements should be treated as a single transaction. In particular, it is important that all the agreements were entered into on the same day, which in fact makes it impossible to determine the order in which the agreements were entered into if they were treated as separate transactions. Taking into account the capital between Home Broker Nieruchomości S.A. (the acquiree) and Open Finance (the acquirer) both before and after the transaction, the contemplated transaction is, in the opinion of the parent company s management board, a combination of jointly controlled companies. Based on an analysis of the economic reasons for the transaction involving the purchase of Home Broker Nieruchomości S.A. and the fact of the arm s length basis of the transaction, Open Finance s management considered the transaction as having economic value and, therefore, adopted the acquisition method for the purpose of accounting for the transaction. For the purpose of accounting for the transaction in 2011, the Group used approximate amounts of the position not yet accounted for in 2011 and finally accounted for the position in The effects of the accounting are disclosed below. Determination of the fair value of the net assets acquired in a transaction to acquire Home Broker Nieruchomości S.A. Professional judgement of the parent company s management was applied to determine of the fair value of the individual assets and liabilities acquired in a transaction to acquire Home Broker Nieruchomości S.A. In the opinion of the parent company s management, the book amounts of the individual assets and liabilities of the acquiree best reflected the fair value of the assets and liabilities as at the time of accounting for the transaction. All adjustments to the fair values of the acquired assets and liabilities resulting from the parent company s management becoming aware of events existing as at the date of the acquisition but were not known to the the parent company s management will, during the measurement period (i.e. at least 12 months from the settlement date) be recognised in goodwill. The only such identified adjustment regarding the acquisition of assets was related to customer databases, which were measured at PLN 6,794 thousand as at the date of purchase 12

13 (described in Note X.9). Trademark and goodwill The trademark and goodwill are tested for impairment on an annual basis. The identified impairment loss is recognised in profit or loss. As at 31 December 2012, the impairment tests revealed impairment of the goodwill recognised as a result of the transaction involving the acquisition of Home Broker Nieruchomości S.A. (Note X.13). Classification of leases The Group classifies leases as either finance or operating, based on its assessment of the extent to which the benefits and risks of ownership are transferred to the lessor and the lessee. Such assessment is based on the economic content of each transaction. Impairment of accounts receivable in respect of the supply of goods and services and in respect of security deposits The value of trade receivables and security deposit receivables is impaired on the basis of an analysis of individual balances of the receivables. The following is recognised by the Group as evidence of impairment of accounts receivable in respect of the supply of goods and services and in respect of security deposits: the counterparty failing to meet the deadline for payment, the debtor having considerable financial difficulties, it becoming highly probable that the debtor will enter bankruptcy or other financial reorganisation, bankruptcy proceedings.pending against the debtor. All the evidence of impairment is analysed at least as at the end of each reporting period. The identified impairment loss is recognised in profit or loss. The changes of impairment losses in respect of trade receivables are described in Note X.18. Deferred tax The Group recognises a deferred income tax asset based on the assumption that it will in the future achieve profit before tax and will be able to use the asset. If the Group s future results deteriorate, this assumption may be illegitimate. Calculations of the deferred income tax assets are presented in Note X.7.3. Provisions for disability/retirement severance pay The provision for disability/retirement severance pay is calculated actuarially by an independent actuary, as the current value of the Group s future amounts due to its employees, taking into account the number of employees and pay rates as at the date of revaluation. The provision for disability/retirement severance pay is updated annually. The calculation of the provision is based on a number of assumptions as to macroeconomic conditions, the Group s personnel turnover rates, the risk of death and other assumptions. Information on the estimated amounts of severance pay is presented in Note X.29. Uncertainty of estimates - Open Life TUŻ S.A. (an associate) Classification of insurance contracts according to IFRS 4 The Group s insurance company applies the guidelines contained in IFRS 4 regarding the classification of its products as insurance contracts falling within the scope of IFRS 4 or as investment contracts. A contract meets 13

14 the definition of an insurance contract only if the insured event may result in the insurance company having to pay considerable amounts of additional compensation under any scenario, excluding those which lack economic content (i.e. they do not have any noticeable impact on the economics of the transaction), i.e. when the contract carries a significant insurance risk. In order to assess whether a contract transfers a significant insurance risk, it is necessary to analyse the cash flows related to the product concerned under different scenarios and to estimate the probability of their occurrence. Such an assessment contains an element of subjective judgement, which materially affects the applied accounting principles. Based on the analysis, the Company s Management Board has found that the Company offers products which do not transfer a significant insurance risk (these include certain products with a guaranteed rate of return and certain products offered in the form of a capital fund) and, as such, they do not meet the definition of an insurance contract as defined by IFRS 4 and have been classified, for the purposes of these separate financial statements, as investment contracts measured in accordance with the requirements of IAS 39, i.e. depending on the structure and classification of the product, according to amortised cost or fair value. Recognition of the difference in the measurement of financial assets and liabilities relating to investment contracts at initial recognition In the measurement of the financial assets and liabilities arising from the conclusion of investment contracts and classified as financial instruments measured at fair value through profit or loss, there will be a difference, at the time of concluding an investment contract and at the initial recognition of the resulting financial assets and liabilities, between the measured values of such assets and liabilities due to different types of flows recognised in the measurement of such instruments. The Company applies professional judgement with regard to the recognition of the difference in the measured value of such assets and liabilities, determining which part of the difference should be recognised on a one-off basis in the profit and loss account (the so-called first-day result ) and which part should be recognised as deferred revenue and amortised gradually in the profit and loss account in subsequent reporting periods. This decision is based on an analysis of the scope of the services provided and on the economic content of the fees charged by the Company in connection with a given investment contract, as well as an analysis of the measurement techniques used in the measurement of the resulting financial assets and liabilities related to the investment contract. In particular, the decision depends on which part of the fees the Company is entitled to charge under its investment contract should be treated as consideration for the services provided during the term of the insurance contract (such as asset management services, administrative services provided after the conclusion of the insurance contract, liquidation etc.). This part of the Company s remuneration (and the corresponding costs) is recognised in the balance sheet as deferred revenue and is gradually amortised in the profit and loss account as different services are provided during the term of the investment contract. In addition, the recognition of the full or partial difference as first-day result depends on the level of the accounting fair value hierarchy at which the techniques used in measuring the financial assets and liabilities related to the investment contract are classified. Where a financial asset or a financial liability related to an investment contract is measured at fair value using measurement techniques classified, in accordance with IAS 39, at Level III of the fair value hierarchy (i.e. measurement using models not based only on observable market data), it is impossible to recognise the first-day result), so the full difference between the price of the financial 14

15 asset or liability at its initial recognition is treated over time in proportion to the costs of the services provided during the term of the investment contract. Fair value of financial instruments In the case of financial assets and liabilities recognised at fair value in the balance sheet and for which an active market is not identified, the asset or liability is measured using commonly used measurement models based on, above all, variables observable on the market. In choosing appropriate methods and assumptions, the Company applies professional judgement. Some of such variables, e.g. the performance of future interest rates, variation parameters, correlations, require professional judgement. Such models and variables are reviewed on a regular basis. A change of such models and/or variables in such models might affect accounting estimates regarding such measurement. Given the fact in the case of financial liabilities arising as a result of concluding investment contracts, there is no active market for such financial instruments, and that it is usually difficult to find similar observable market transactions regarding the same financial instrument (i.e. without modifying and repacking them), the Company applies, for the purposes of recognising and measuring its financial liability towards the insured persons and its business partners, models that involving measurement at fair value. Such models are based on the following: the measurement of financial assets arising from financial instruments resulting from the conclusion of investment contracts, adjusted, using the discounted cash flow methods, by additional future negative cash flows for the customer expected in connection with a financial liability and which do not occur in relation to a financial asset, and that part of future investment contract maintenance costs directly related to a given product whose value at the time of concluding the contract is not certain, because if the investment contract is terminated by the customer within a specified period of the date of its conclusion, the business partner will not be entitled to the full amount of consideration and a specified part will be deducted. The fair value of the future investment contract maintenance costs directly related to the contract (financial liabilities towards business partners) which are certain will not be refunded to the insurance company, irrespective of the term of the insurance contract. the discount rate for the measurement of future cash flows. In addition, in accordance with IAS 39, a financial liability measured at fair value through profit or loss is measured at a value not lower than the amount payable to the other party on demand, discounted as of the first day on which the amount may be due. Provisions for life insurance In relation to insurance contracts, the Company makes provision for life insurance. The value of the provision is equal to the value of the liabilities resulting from the insurance contracts concluded by the Company and is determined as the difference between the current value of expected payments under the contracts and the current value of expected premiums, using the net premium method. Life insurance provisions are determined using the actuarial prospective method, which involved determining the amount of provision for each new insurance contract separately, based on specified statistical data. The assumptions used in calculating provisions for life insurance are determined separately for different insurance products at the time of determining the premiums and launching the product on the market. The adequacy of the assumptions is reviewed periodically. 15

16 The basic assumptions in calculating provisions for life insurance relate to the frequency of occurrence of certain events (death rate, incidence of a particular disease, occurrence of accidents), as well as rates of return on the investment, discount rates, plus early termination/withdrawal ratios and costs. The Company s assumptions regarding the death rates/disease incidence rates/life expectancy rates with respect to the insured persons are based on publicly available statistics, such as Polish Life Expectancy Tables ( PLET ) or the Company s own statistics based on historical data for each group of products in the Company s portfolio. With regard to investment contracts, the provision for life insurance is created for the risk of death, if the forecast payment to be made in the event of death is higher than the amount of the liability arising from the measurement of the contract at fair value. Provision adequacy tests Based on an analysis and extrapolation of trends in death rates, accident rates, termination rates and the expected service costs and the costs of processing payments, the Company regularly tests the adequacy of the assumptions used by it in calculating the amount of provision for life insurance, including the technical rates used by the Company. If in the future the Company identifies evidence of a potential decrease in the profitability of the assets to be used to make payments under insurance contracts, the Company revises its assumptions and accordingly corrects the amounts of technical insurance provisions. VIII. ACCOUNTING POLICY 1. Statement of compliance with International Financial Reporting Standards These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ) and the IFRS endorsed by the European Union (collectively referred to as IFRS-EU or IFRS ). As at the date of approval of these consolidated financial statements for publication, taking into account both the continuing process of implementing IFRS within the European Union and the Company s activities, no differences exist between the IFRS in effect and the IFRS endorsed by the European Union with regard to the Group s accounting principles IFRS-EU comprise standards and interpretations accepted by the International Accounting Standards Board ( IASB ) and the International Financial Reporting Interpretations Committee ( IFRIC ). The Group first applied IFRS-EU in the preparation of its Consolidated Historical Financial Information for the year ended on 31 December 2009 and for the purposes of a prospectus. The Company adopted IFRS-EU on 1 January Therefore, this set of consolidated financial statements is another set of financial statements prepared in accordance with IFRS-EU. The accounting principles applied by the Group are described in Note VIII.7 to these consolidated financial statements. 2. Currency of measurement and presentation The currency of measurement and presentation used by the parent company, its subsidiaries and its associate and applicable to these consolidated financial statements is the Polish zloty (PLN). 3. Changes in accounting principles Below is a list of the new or amended IFRS standards and interpretations published by IFRIC which the Group applied in the reporting year. The accounting principles (policies) applied in the preparation of these financial statements are consistent with 16

17 those applied in the preparation of the financial statements for 2011, except for the application of the following amendments and new interpretations effective for financial years beginning on or after 1 January 2012: Amendments to IFRS 7 Financial Instruments Disclosures: Transfer of Financial Assets effective for financial years beginning on or after 1 July The application of these amendments did not affect the Group s financial standing or its profit (loss) or the scope of information presented in the Group s financial statements, The Group did not choose to apply earlier any of the above standards, interpretations or amendments that have been published but are not yet effective. 4. New standards and interpretations issued but not yet effective. The following standards and interpretations were published by the International Accounting Standards Board ( IASB ) or the International Financial Reporting Interpretations Committee, but did not come into force (until the date of approval of these financial statements). The first phase of IFRS 9 Financial Instruments: Classification and Measurement effective for financial years beginning on or after 1 January 2015 not endorsed by EU until the date of approval of these consolidated financial statements. In subsequent phases, the International Accounting Standards Board will address hedge accounting and impairment. The application of the first phase of IFRS 9 will potentially have an impact on the classification and measurement of the financial assets of the Company. The Company will quantify that impact in conjunction with the other phases, when issued, to present a comprehensive picture. Amendments to IAS 19 Employee Benefits - effective for financial years beginning on or after 1 January 2013; Amendments to IAS 1 Presentation of Financial Statements: Presentation of Items of Other Comprehensive Income - effective for financial years beginning on or after 1 July 2012; Amendments to IAS 12 Income Taxes: Deferred Tax: Recovery of Underlying Assets effective for financial years beginning on or after 1 January 2012; in the EU, effective for financial years beginning on or after 1 January 2013; Amendments to IFRS 1 First time Adoption of International Financial Reporting Standards: Severe Hyperinflation and Removal of Fixed Dates for First time Adopters effective for financial years beginning on or after 1 July 2011; in the EU, effective for financial years beginning on or after 1 January 2013; IFRS 10 Consolidated Financial Statements effective for financial years beginning on or after 1 January 2013; in the EU, effective for financial years beginning on or after 1 January 2014; IFRS 11 Joint Arrangements effective for financial years beginning on or after 1 January 2013; in the EU, effective for financial years beginning on or after 1 January 2014; IFRS 12 Disclosure of Interests in Other Entities effective for financial years beginning on or after 1 January 2013; in the EU, effective for financial years beginning on or after 1 January 2014; Amendments IFRS 11, IFRS 11 and IFRS 12 Transitional provisions - effective for financial years beginning on or after 1 January 2013 not endorsed by the EU till the date of approval of these financial statements; IFRS 13 Fair Value Measurement - effective for financial years beginning on or after 1 January 2013; IFRS 27 Standalone Financial Statements effective for financial years beginning on or after 1 January 2013; in the EU, effective for financial years beginning on or after 1 January 2014; IFRS 28 Investments in Associates and Joint Arrangements effective for financial years beginning on or after 1 January 2013; in the EU, effective for financial years beginning on or after 1 January 2014;; IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine effective for financial years beginning on or after 1 January 2013; Amendments to IFRS 7 Financial Instruments Disclosures: Offsetting financial assets and financial liabilities effective for financial years beginning on or after 1 January 2013; Amendments to IAS 32 Financial instruments: presentation: Offsetting financial assets and liabilities effective for financial years beginning on or after 1 January 2014; Amendments to IFRS 1 First time Adoption of International Financial Reporting Standards: Government loans effective for financial years beginning on or after 1 January not endorsed by EU until the date of approval of these consolidated financial statementsł 17

18 Amendments resulting from a review of IFRS (published in May 2012) - effective for financial years beginning on or after 1 January not endorsed by EU until the date of approval of these consolidated financial statements; Amendments to IFRS 10, IFRS 12 and IAS 27: Investment entities (issued on 31 October 2012) - effective for financial years beginning on or after 1 January 2014 not endorsed by the European Union until the date of approval of these financial statements. The Management Board of the parent company does not expect the introduction of the above standards and interpretations to have a significant effect on the accounting principles (policy) applied by the Group, except for, potentially, IFRS 9. IFRS 9 is the first phase in IASB s work on replacing IAS 39 and covers the classification and measurement of financial assets. In subsequent phases, the International Accounting Standards Board will address hedge accounting and impairment. The application of the first phase of IFRS 9 will potentially have an impact on the classification and measurement of the financial assets of the Group. The Group will quantify that impact in conjunction with other phases, when issued, to present a comprehensive picture. Taking into account the Company s activities in 2012, its financial and economic standings, IFRS 13 will not have any material impact on the Company s financial statements. 5. Consolidation principles These consolidated financial statements cover the financial statements of Open Finance S.A. and the financial statements of its subsidiaries, in each case prepared for the year ended on 31 December. The financial statements of the subsidiaries are prepared for the same reporting periods as the parent company s statements, using consistent accounting principles and applying uniform accounting principles to similar transactions and events. To eliminate any discrepancies in the application of accounting principles, adjustments are made. All significant balances and transactions between the Group s entities, including unrealized profits arising from intra-group transactions, have been fully eliminated. Unrealised losses are eliminated unless they are evidence of impairment. A subsidiary of the Group is subject to consolidation from the date when the Group takes control of the subsidiary and ceases to be subject to consolidation on the date when such control ceases. The parent company controls a company if the parent company owns, indirectly or directly, through its subsidiaries, more than a half of the voting rights in the company unless it can be proved that such ownership does not mean that the parent company controls the company. The parent company controls a company also if the parent company can influence the financial and operating policies of that company. Changes in the parent company s ownership share that result in the parent company losing control of its subsidiary are recognised as equity transactions. In such cases, to reflect the changes in the parent company s relative share in the capital of its subsidiary, the Group adjusts the carrying amount of the controlling shares and non-controlling shares. All differences between the adjustment amount of the non-controlling shares and the fair value of the amount paid or received are recognised in equity and attributed to the owners of the parent company. 6. Investments in subordinated entities Investments in subordinated entities are measured using the equity method. A subordinated entity is an entity which the parent company directly or indirectly through its subsidiaries significantly controls and which is neither a subsidiary not a joint venture. The financial statements of associates are the basis for measuring the parent company s shares using the equity method. The financial year of an associate is the same as the financial year of the parent company. The Group s associates apply the accounting principles laid down in the applicable Act. Before calculating the Group s share of the net assets of its associates, adjustments are made to ensure that the financial figures presented by the associates comply with the International Financial Reporting Standards applied 18