The Katowicki Holding Węglowy S.A. Capital Group

Transcription

1 prepared in accordance with International Financial Reporting Standards approved by the European Union together with the Independent Statutory Auditors Opinion

2 Table of contents CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME... 5 CONSOLIDATED STATEMENT OF FINANCIAL POSITION... 7 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED STATEMENT OF CASH FLOWS ACCOUNTING POLICIES AND NOTES General information Composition of the Group Composition of the Parent Company s Management Board Authorization of consolidated financial statements Going concern Basis of preparing consolidated financial statements Statement of compliance Functional and presentation currency of consolidated financial statements Significant values based on professional judgment and accounting estimates Changes in estimates Changes to applied accounting policies New standards and interpretations that have been issued but are not yet effective Fundamental error adjustment Significant accounting policies Basis of consolidation Shares Foreign currency translation Property, plant and equipment Capitalized costs of preparatory works Investment property Intangible assets Goodwill Impairment of non-financial long-term assets Borrowing costs Financial assets Impairment of financial assets Embedded derivatives Derivatives and hedge accounting Inventories Trade and other receivables Cash and cash equivalents Non-current assets held for sale Issued capital Provisions Share-based payments Distribution of profit for employee purposes and special funds Loans and borrowings Trade payables and other financial liabilities Other non-financial liabilities Company Social Fund Emission rights Leases Income tax Revenue Costs Other operating income and expenses Finance income and finance costs Earnings per share The accounting policies and notes to the consolidated financial statements form an integral part thereof 2

3 prepared in accordance with IFRS (in thousands of PLN) Statement of cash flows Segment reporting Revenues and expenses Revenues from sales Other operating income Other operating expenses Finance income and share in the profit/ (loss) of associates measured using the equity method Finance costs and share in the profit/ (loss) of associates measured using the equity method Costs by type Depreciation/amortization charges, impairment write-downs and costs of operating leases recognized in the statement of comprehensive income Employee benefit expenses Income tax Income tax expense Reconciliation of effective tax rate Deferred income tax Social assets, liabilities to the Company s Social Fund and other special funds Property, plant and equipment Capitalized costs of preparatory works Non-current assets held for sale Leases Liabilities under operating leases the Group as lessee Receivables under operating leases the Group as lessor Liabilities under finance leases and hire-purchase contracts Liabilities under finance leases and hire-purchase contracts Investment property Intangible assets Perpetual usufruct right to land Non-current investments (shares) Shares Investments in associates measured using the equity method Investments in other entities Inventory Cash and cash equivalents Other assets Other financial assets Other non-financial non-current assets Other non-financial short-term assets Other liabilities (non-financial) Liabilities under bond issues Prepayments and accruals Deferred income and government grants Accrued expenses Employee benefits Earnings per share Dividends paid and declared Issued capital and other capital Issued capital Nominal value of shares Shareholder rights Significant shareholders Reserve capital Other reserves Retained earnings/ (accumulated losses) and restrictions on dividend payment

4 prepared in accordance with IFRS (in thousands of PLN) 34. Movement in provisions Description of significant reasons for provisions Investment commitments Contingent liabilities and liabilities secured promissory notes Tax settlements Related party transactions Associates and other related parties Material transactions with the State Treasury companies Remuneration of certified auditor Loans granted to Management Board members Other transactions with Management Board members Emoluments paid or payable to the members of the Group s Management or Supervisory Boards Financial instruments Carrying amount and fair value of financial instrument, by class and category Income, cost, profit and loss items recognized in finance income and finance costs, by instrument category Description of material items in individual classes of financial instruments Financial assets/liabilities measured at fair value through profit or loss Financial assets available for sale Financial assets held to maturity Trade and other receivables Interest-bearing financial liabilities Security for the repayment of liabilities and contingent liabilities Description of other forms of security to ensure liabilities repayment Financial risk management policies and objectives Interest rate risk Foreign exchange risk Commodity price risk Credit risk Maximum exposure to credit risk Concentration of credit risk Credit quality of the Group s financial assets Time structure of the Group s receivables and revaluation charges Liquidity risk Market risk sensitivity analysis FX risk sensitivity analysis Interest rate risk sensitivity analysis Capital management Employment structure Events after the reporting date

5 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Continuing operations Sale of finished goods, goods for resale, raw materials and services Note 31 December December 2011 (comparative data) 3,971,082 4,220,292 Revenue from sale ,971,082 4,220,292 Cost of sales ,441,268-3,646,185 Gross profit/(loss) 529, ,107 Selling and distributing costs ,153-92,621 Administrative expenses , ,929 Other operating income , ,011 Other operating expenses ,909-80,174 Operating profit/(loss) 78, ,394 Finance income ,417 83,198 Finance costs , ,756 Share in profit/(loss) of an associate and a joint venture accounted for using the equity method 15.4, , Profit/(loss) before tax -40, ,933 Income tax ,020-34,610 Net profit/(loss) from continuing operations -39, ,323 Discontinued operations Profit (loss) for the financial year on discontinued operations - - Net profit/(loss) for the financial year -39, ,323 Other comprehensive income not subject to reclassification to profit and loss -106, ,312 Financial assets available for sale ,424 Income tax on other comprehensive income ,981 Actuarial gain/(loss) on provisions for post-employment benefits , ,344 Income tax on other comprehensive income ,073 26,475 Total comprehensive income for the period -146,803-6,989 Attributable to equity holders of the Company -146,803-6,989 Attributable to non-controlling interests - - Earnings/(loss) per share (in PLN) Basic, for profit (loss) for the year attributable to equity holders of the parent Artur Trzeciakowski Tadeusz Skotnicki Robert Łaskuda Mariusz Korzeniowski Roman Łój Vice President of the Management Board, Economics and Finance Vice President of the Management Board, Labor Vice President of the Management Board, Production Vice President of the Management Board, Market and Commerce President of the Management Board 5

6 prepared in accordance with IFRS (in thousands of PLN) Mariusz Poczęty Chief Accountant 6

7 prepared in accordance with IFRS (in thousands of PLN) CONSOLIDATED STATEMENT OF FINANCIAL POSITION ASSETS Note At At At 31 December December 2011 (comparative data) 1 January 2011 (comparative data) Non-current assets Property, plant and equipment 18 3,959,245 3,793,043 3,925,787 Capitalized costs of preparatory works , , ,518 Investment property 22 68,284 66,369 69,328 Intangible assets ,879 11,759 11,313 Perpetual usufruct right to land , , ,420 Long-term trade and other receivables 44, Other shares 24 12,821 13,311 13,208 Other financial assets ,177 37,346 47,561 Deferred tax assets ,705 8,944 10,163 Other long-term non-financial assets ,876 5,469 5,023,066 4,709,843 4,886,086 Current assets Inventories , , ,966 Current tax assets 10,333 3,738 13,374 Trade and other receivables 44, , , ,304 Other shares ,633 Other financial assets , Cash and cash equivalents , ,717 99,241 Other current non-financial assets ,942 53,244 48, , , ,349 Non-current assets classified as held for sale 20 8,723 3,824 12,862 TOTAL ASSETS 5,954,081 5,351,215 5,563,297 7

8 prepared in accordance with IFRS (in thousands of PLN) EQUITY AND LIABILITIES Note At At At 31 December 1 January 31 December (comparative (comparative data) data) Equity attributable to equity holders of the parent Issued capital , , ,148 Capital from valuation of employee benefits , , ,806 Reserve capital , , ,509 Other reserves , , ,330 Retained earnings/accumulated losses , , ,831 Non-controlling interests Total equity 2,035,900 2,222,004 2,265,624 Non-current liabilities Interest-bearing financial liabilities 21.3, , , ,528 Non-current provisions 34 1,038, , ,613 Deferred tax liability ,445 36,777 42,716 Non-current deferred income and government grants , , ,341 Non-current trade and other liabilities ,053 9,706 18,589 Other non-current non-financial liabilities 28 15,992 1, ,181,778 1,294,312 1,222,947 Current liabilities Current portion of interest-bearing financial liabilities 21.3, , , ,824 Provisions , , ,330 Current income tax liability Deferred income and government grants ,997 14,627 8,097 Accruals ,777 7,316 6,603 Trade and other payables ,032 1,013,787 1,002,460 Other current non-financial liabilities , , ,245 Liabilities directly associated with non-current assets classified as held for sale 1,736,403 1,834,899 2,074, Total liabilities 3,918,181 3,129,211 3,297,673 TOTAL EQUITY AND LIABILITIES 5,954,081 5,351,215 5,563,297 8

9 prepared in accordance with IFRS (in thousands of PLN) Artur Trzeciakowski Tadeusz Skotnicki Robert Łaskuda Mariusz Korzeniowski Roman Łój Vice President of the Management Board, Economics and Finance Vice President of the Management Board, Labor Vice President of the Management Board, Production Vice President of the Management Board, Market and Commerce President of the Management Board Mariusz Poczęty Chief Accountant 9

10 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 31 December 2012 Issued capital Capital from valuation of employee benefits Reserve capital Other reserves Retained earnings/accumul ated losses Total Noncontrolling interests Total equity At 1 January , , , , ,554 2,255,657-2,255,657 Opening balance adjustment ,652-33, ,652 At 1 January , , , , ,901 2,222,004-2,222,004 Profit/loss for the year ,913-39, ,913 Other comprehensive income , , ,890 Total comprehensive income for the year , , ,803 Appropriation of profits from previous years , , , Absorption of loss from previous years ,476-1, Dividend (including payment from profit to the State Treasury) ,783-7, ,783 Equity-settled employee benefits - -31, , ,519 Other changes in equity - - 7, , At 31 December , , , , ,006 2,035,900-2,035,899 10

11 31 December 2011 Issued capital Capital from valuation of employee benefits Reserve capital Other reserves Retained earnings/accumul ated losses Total Noncontrolling interests Total equity At 1 January , , , , ,744 2,280,537-2,280,537 Opening balance adjustment - -14,913-14, ,913 At 1 January , , , , ,831 2,265,624-2,265,624 Profit/loss for the year , , ,323 Other comprehensive income , , , ,312 Total comprehensive income for the period (comparative data) ,443 1,454-6, ,989 Appropriation of profits from previous years - - 1,975 22,707-24, Absorption of loss from previous years ,384-5, Dividend (including payment from profit to the State Treasury) ,433-32, ,433 Equity-settled employee benefits - -4, , ,190 Other changes in equity , , At 31 December 2011 (comparative data) 300, , , , ,901 2,222,004-2,222,004 Artur Trzeciakowski Tadeusz Skotnicki Robert Łaskuda Mariusz Korzeniowski Roman Łój Vice President of the Management Board, Economics and Finance Vice President of the Management Board, Labor Vice President of the Management Board, Production Vice President of the Management Board, Market and Commerce President of the Management Board Mariusz Poczęty Chief Accountant 11

12 CONSOLIDATED STATEMENT OF CASH FLOWS Note 31 December December 2011 (comparative data) Cash flows from operating activities Profit/(loss) before tax -40, ,933 Adjustments for: Share of profit of associates and joint ventures accounted for using the equity method 24-1, Depreciation and amortization , ,918 Settlement of costs of preparatory work , ,847 Net interest and dividends 57,135 41,239 (Profit)/loss on investing activity 2,447 27,941 (Increase)/decrease in receivables -113,246 44,764 (Increase)/decrease in inventories -111,700-4,569 Increase/(decrease) in liabilities, except for loans and borrowings -98,230-82,840 Change in prepayments and accruals -19,003-7,292 Movement in provisions -19, ,368 Income tax paid -15,988-1,573 Measurement of the employee share incentive scheme -31,519-4,190 Other (1) 22,002 18,781 Net cash from operating activities 541, ,494 Cash flows from investing activities Proceeds from sale of property, plant and equipment, intangible assets, perpetual usufruct right to land and investment property Purchase of property plant and equipment, intangible assets, perpetual usufruct right to land and investment property 18,186 37, , ,599 Expenditures for preparatory work , ,167 Proceeds from sale of investment property - - Purchase of investment property - - Proceeds from sale of other financial assets 4,326 14,827 Purchase of other financial assets -10,000-2,874 Acquisition of a subsidiary, net of acquired cash - - Dividends received 2,555 1,110 Interest received Repayment of loans granted - - Loans granted - - Other Net cash from investing activities -986, ,252 12

13 Note 31 December December 2011 (comparative data) Cash flows from financing activities Proceeds from issues of shares - - Payment of finance lease liabilities -129, ,296 Proceeds from loans and borrowings and bond issue 1,115, ,591 Repayment of loans and borrowings -425, ,055 Dividends paid to equity holders of the parent (including payment from profit) -7,470-29,255 Interest paid -72,365-44,747 Other 3,728 - Net cash from financing activities 483, ,762 Net increase/(decrease) in cash and cash equivalents 39,231 23,480 Net foreign exchange rate differences 32-3 Cash and cash equivalents, opening balance ,667 99,187 Cash and cash equivalents, closing balance , ,667 (1) including movement in other financial assets (long-term) by the cash of the Mine Decommissioning Fund Artur Trzeciakowski Tadeusz Skotnicki Robert Łaskuda Mariusz Korzeniowski Roman Łój Vice President of the Management Board, Economics and Finance Vice President of the Management Board, Labor Vice President of the Management Board, Production Vice President of the Management Board, Market and Commerce President of the Management Board Mariusz Poczęty Chief Accountant 13

14 ACCOUNTING POLICIES AND NOTES 1. General information The Katowicki Holding Węglowy S.A. Capital Group ( Group ) consists of Katowicki Holding Węglowy S.A. ( parent company, Company, Parent Company, KHW ) and its subsidiaries (see note 2). The Group s consolidated financial statements comprise the financial data for the year ended 31 December 2012 and the comparative data for the year ended 31 December The parent company is entered in the register of entrepreneurs of the National Court Register kept by the District Court in Katowice, 8th Commercial Division of the National Court Register, under file number KRS The parent company was granted the following statistical number: REGON The parent company and the Capital Group companies have an unlimited period of operation. The Group s core business activities comprise: 1. hard coal mining 2. trading in solid fuels (hard coal), 3. production of heat, 4. managing real estate under agreement. The operations are conducted on the basis of appropriate licenses granted to the Group entities. The Company is controlled by the State Treasury of the Republic of Poland. The consolidated financial statements of the Katowicki Holding Węglowy S.A. Capital Group prepared for the year ended 31 December 2012 according to the principles set forth in the Accounting Act of 29 September 1994 (hereinafter Accounting Act ), have been audited by Deloitte Polska spółka z ograniczoną odpowiedzialnością Sp. k. (formerly: Deloitte Audyt sp. z o.o.) with its registered office in Warsaw. The auditor issued a qualified opinion with emphasis of matter on these financial statements dated 20 March The qualification related to an increase in revaluation reserve in shareholders equity as a result of recognition of perpetual usufruct right to land in the statement of financial position. The emphasis of matter related to the financial liquidity of the parent and its subsidiary, KWK Kazimierz- Juliusz sp. z o.o. The consolidated financial statements of the Katowicki Holding Węglowy S.A. Capital Group prepared for the year ended 31 December 2012 in accordance with the accounting policies set forth in the Accounting Act of 29 September 1994 (hereinafter Accounting Act ) were authorised by the Company's Management Board, and authorised and given a positive opinion by the Company's Supervisory Board, and submitted to the Shareholders Meeting for approval. On 13 June 2013, the General Shareholders Meeting adopted resolution no. 1 in the form of a notarial deed, file ref. A. 4202/2013, approving the consolidated financial statements of the Katowicki Holding Węglowy S.A. Capital Group prepared for the year ended 31 December 2012 in accordance with the policies set forth in the Accounting Act of 29 September

15 tthe Katowicki Holding Węglowy S.A. Capital Group prepared in accordance with IFRS (in thousands of PLN) 2. Composition of the Group The Group is composed of Katowicki Holding Węglowy S.A., as the parent company, and the following subsidiaries: No. 1. Entity Kopalnia Węgla Kamiennego "Kazimierz -Juliusz" sp. z o.o. Registered office Sosnowiec 2. "Katowicki Węgiel" sp. z o.o. Katowice Zakłady Energetyki Cieplnej S.A. ("ZEC SA") Elektrociepłownia Szopienice sp. z o.o.* Śląsko-Dąbrowska Spółka Mieszkaniowa" sp. z o.o. (**) Spółka Mieszkaniowa Mysłowice" sp. z o.o. Spółka Mieszkaniowa Kleofas" sp. z o.o. Spółka Mieszkaniowa Śląsk" sp. z o.o. Line of business Hard coal mining and processing Trading in solid fuels (black coal) Share in equity at 31 December 2012 Share in equity at 31 December % 100% 100% 100% Katowice Production of heat 100% 100% Katowice Production of heat 100% 100% Katowice Mysłowice Katowice Katowice Administration and management of housing resources Administration and management of housing resources Administration and management of housing resources Administration and management of housing resources 100% ** ** 100% ** 100% ** 100% 9. Przedsiębiorstwo Usługowe "HOLTUR" Sp. z o.o. Kołobrzeg *** Kołobrzeg Hotel and travel services 100% 100% Training and education 10. Spółka Szkoleniowa Sp. z o.o. *** Katowice activity *) KHW S.A. s indirect subsidiary, in which ZEC S.A. holds 100 % shares. 100% 100% **) On 29 February 2012, a merger was completed using the pooling of interests method. The acquiring company (acquirer) was Spółka Mieszkaniowa Kleofas Sp. z o.o. and the companies being acquired (acquirees) were Spółka Mieszkaniowa Mysłowice and Spółka Mieszkaniowa Śląsk. Spółka Mieszkaniowa Kleofas assumed the name Śląsko-Dąbrowska Spółka Mieszkaniowa sp. z o.o. with its registered office in Katowice. ***) Subsidiaries excluded from the consolidated financial statements due to the fact that the financial data of those entities were immaterial compared to the values presented in the Group s consolidated financial statements. In addition, the parent company holds shares in associates, which are recognized in these consolidated financial statements using the equity method. The list of associates together with the % held in their capital is presented in the table below. 15

16 tthe Katowicki Holding Węglowy S.A. Capital Group prepared in accordance with IFRS (in thousands of PLN) No. Entity Line of business Share in equity at 31 December 2012 Share in equity at 31 December Techniczno - Górnicza Spółka Akcyjna w (1) Production and trading 30.00% 30.00% Likwidacji Ośrodek Badań Środowiska EKOLAB Sp. z o.o. in Katowice STRZELEC" sp. z o.o. w likwidacji [in liquidation] in Jaworzynka (1) 4. SAG" sp. z o.o. in Katowice Testing work environment services Production and construction and mining services Production and sale of steel ropes 30.00% 30.00% 40.00% 40.00% 48.90% 48.90% 5. Przedsiębiorstwo CARBOMETAL" SA w likwidacji [in liquidation] (1) Scrap processing, trading in metals 49.00% 49.00% 6. Przedsiębiorstwo Organizacji Turystyki i Wypoczynku "SCORPION II" sp. z o.o. w likwidacji [in liquidation] (1) Hotel services, trade and recreation 40.00% 40.00% 1) entities in liquidation do not conduct business activity. The parent company does not have financial data of these entities. As at 31 December 2012 and as at 31 December 2011, the share in the total number of votes held by the Group corresponded directly to the interest held in the capital of those entities. 3. Composition of the Parent Company s Management Board As at the date of the preparation of these consolidated financial statements, the Parent Company s Management Board was composed of the following persons: Roman Łój President of the Management Board, Mariusz Korzeniowski Vice President of the Management Board, Robert Łaskuda - Vice President of the Management Board, Tadeusz Skotnicki - Vice President of the Management Board, Artur Trzeciakowski - Vice President of the Management Board. 4. Authorization of consolidated financial statements These consolidated financial statements of the KHW S.A. Capital Group do not constitute statutory financial statements subject to approval. The KHW S.A. s Management Board, with its decision expressed in Resolution no. 982/2013 adopted on 18 June 2013, determined and authorized the contents of these consolidated financial statements together with the accounting principles (policies) presented herein. 5. Going concern The attached consolidated financial statements of the KHW S.A. Capital Group prepared as at 31 December 2012 and for the year then ended show an excess of short-term liabilities, provisions and accruals over current assets (together with non-current assets classified as held for sale) of approx. PLN 805 million. In the prior financial year, the Group s net current liabilities totalled approx. PLN 1,194 million. 16

17 tthe Katowicki Holding Węglowy S.A. Capital Group prepared in accordance with IFRS (in thousands of PLN) In order to assess whether the going concern assumption made for the KHW S.A. Capital Group is reasonable, it is crucial to assess the financial standing of the parent company, i.e. KHW S.A., and for this reason this note discusses mainly the absence of threat to the continued activity of the KHW Group by focusing mainly on KHW S.A. The statutory financial statements of the parent company and various analyses carried out in the area of management accounting, which form the basis of business activities taken by the Company s Management Board (including management of identified risk areas), are prepared on the basis of the provisions of the Accounting Act. Therefore, the economic and financial data presented in this note, including those concerning presentation of net current liabilities and overdue liabilities of the parent company, were prepared on the basis of the KHW S.A. s separate financial data prepared as at 31 December 2012 according to the regulations set forth in the Accounting Act. The separate statement of financial position of the parent prepared as at 31 December 2012 shows an excess of current liabilities, provisions and accruals over current assets of approx. PLN 625 million. In the previous financial year, the parent company s net current liabilities and equity amounted to approx. PLN 1,110 million. The development of this ratio for the parent company in individual financial years, compared to the prior year, is presented in the following table: At 31 December PLN million Net current liabilities 625 1,110 1,276 1, Change of balance x In addition, in individual financial years, the parent company reported overdue payables towards suppliers, which are presented in the table below. At 31 December PLN million 2012 *) Overdue liabilities Change of balance x *) Interest liabilities The level of the above ratios at the reporting date, compared to that at the end of prior reporting period, shows a definite improvement as regards its current financial liquidity. The overdue liabilities reported at the end of the current financial year relate only to interest notes. They are subject to systematic negotiations with a view to their write-off or reduction. The key factors that had positive impact on the assessment of the parent company's financial standing and that point to financial standing stabilization are discussed below: - utilization of external sources of finance, - plans prepared for Secured bonds issue program A significant impact on the improvement of the parent company s financial liquidity had the completion of the first ever in Poland the medium-term program of external financing in the black coal mining industry in the form of secured bonds issue. This program was based on 17

18 tthe Katowicki Holding Węglowy S.A. Capital Group prepared in accordance with IFRS (in thousands of PLN) the conclusion of the Covered Bond Issue Program Agreement in August 2012 with a group of 5 banks. The total par value of the Issue Program was set at PLN 1,025 million, and was divided as follows: (a) term part (up to PLN 750 million) earmarked for: - refinancing the Company s loan liabilities (Tranche A up to PLN 325 million), - and financing the investment program and refinancing liabilities (Tranche B up to PLN 425 million), (b) and renewable, working capital part (up to PLN 275 million) earmarked for financing the Company s current needs (Tranche C). - The par value of one bond is PLN 10 thousand. The bonds bear interest as of the issue date at 3-month WIBOR rate plus margin. - The following redemption dates were set for the coupon bonds issued under the Program: Tranche A and B up to 5 years of the date of the first bonds issue. Tranche C 3-month redemption (with the possibility of multiple bond issue during the term of the Program). The maximum financing term was set at 5 years of the date of the first issue, i.e. from 12 October These are registered bonds with limited transferability, issued in PLN under the Polish law. They are secured by: - joint mortgage on selected non-production real properties, - registered pledge, - sureties granted by subsidiaries. The details of the collaterals are presented in note of these financial statements. In the period from 12 October to 31 December 2012, 26 series of Tranche A bonds were issued and 26 series of Tranche B bonds with the total par value of PLN 749 million. The table below shows a summary of the issue. [PLN million] Issue date Tranche Number of series Par value A B The first tranche of PLN 324 million was issued on 12 October The funds received from the issue were earmarked in full for the repayment of financial debt under loans. This enabled the parent company to change its financing structure from short-term to mediumor long-term. The second tranche for PLN 425 million was issued on 27 November 2012 and the funds raised from the issue were allocated in accordance with the terms and conditions of the agreement for: 18

19 tthe Katowicki Holding Węglowy S.A. Capital Group prepared in accordance with IFRS (in thousands of PLN) - financing the Investment Program for in the total amount of PLN million - refinancing of debt arising from investment liabilities in the total amount of PLN million - and refinancing the remaining debt in the amount of PLN million. Raising medium-term finance significantly improved the structure of financing of the parent company and allowed for better matching of assets and liabilities of KHW S.A., operating in the capital-intensive industry with long return periods, and provided stable financing for the investment program. As a result of the issue of the Tranche A and Tranche B secured bonds, the parent company improved the balance between the maturity of liabilities and the longterm nature of assets, which reduced the KHW S.A. s business risk in the mid-term. The funds raised in the bonds issue program facilitated not only the repayment of overdue debt but also ensured fluent servicing of current liabilities, which had direct impact on the Company s credit capacity and strengthened its negotiation position with counterparties. The implemented change of the financing structure had also impact on: - attainment of the parent company s strategic objectives, which require significant capital expenditures, - limitation of the parent company s business risk through ensuring med-term sources of finance, - improvement of business relations with the parent s creditors through the repayment of overdue debt and shortening of the maturity dates of current liabilities, - reducing the parent company s operating expenses through significant reduction of the risk of cooperation for the parents potential suppliers(lower cost of purchases). The balance of liabilities under the secured bonds issue program is presented in note 44.1, and the borrowing costs in the part not capitalized to the initial cost of the fixed assets (pursuant to IAS 23) are recognized under appropriate line items of the statement of comprehensive income. As at the date of the preparation of these consolidated financial statements, the parent company of the KHW S.A. Capital Group satisfies all the covenants defined in the bonds issue agreement and consequently there are no instances of default which could constitute the basis for demanding earlier redemption of the bonds. Significant reduction of overdue liabilities As stated at the beginning, the parent company reported overdue liabilities towards its suppliers. In connection with the secured bond issue process (discussed in more detail in the previous section of this note) and in connection with the executed, until October 2012, policy of negotiation of creditor terms and conditions and repayment schedules, the overdue liabilities were reduced to PLN 6 million (compared to PLN 73 million at the end of the prior year). Utilization of finance in the form of bank loans In 2012, the parent company used the available loan facilities in the total amount of PLN 324 million. The whole debt was refinanced on 12 October 2012 using the funds raised from the 19

20 tthe Katowicki Holding Węglowy S.A. Capital Group prepared in accordance with IFRS (in thousands of PLN) issue of secured bonds, as described in more detail in the section on the secured bonds Program. Continuation of issuance of coal bonds Since 2009, the parent company has implemented a coal bonds issue program, addressed mainly to coal buyers or financial investors named by them. The benefits under bond redemption are of non-cash nature, which means that the bonds issued are redeemed through coal supplies. After executing the secured bonds issue program agreement, the parent company was authorized to issue coal bonds only until the date of the first bonds issue up to the total maximum amount of the issue program, i.e. up to PLN 900 million, without the right to extend the term of the program or bonds maturity. Under this program, in 2012 the parent company issued coal bonds with the par value of PLN million, which, after deducting discount costs and issue fees, secured funds in the amount of PLN million. The funds raised in this form were spent by the parent company for the repayment of trade payables (in the amount of PLN million) and investment liabilities (in the amount of PLN 95.5 million). The details of the bonds debt are presented in note 28. Prepayments Apart from the above external sources of finance, in 2012 the parent company raised an additional finance in the form of cash advances in the total net amount of PLN 90 million, of which PLN 64.5 million was settled with coal supplies in the same year. In 2012, coal deliveries in the amount of PLN 50 million were executed thus settling the advances received in previous years. The cash advance liability reported at the reporting date in the amount of PLN 25.5 million will be covered by coal deliveries executed in Finance leases In 2012, the parent company continued to finance purchases of property, plant and equipment in the form of financial leases. In H2 2012, the company abandoned its existing practice of the purchase of fixed assets together with financing. To optimize the costs and increase flexibility of purchases, a lease facility agreement was signed for the purchase of specific fixed assets up to the total amount of PLN 80 million. More information on finance leases is presented in note 21 to these consolidated financial statements. 20

21 tthe Katowicki Holding Węglowy S.A. Capital Group prepared in accordance with IFRS (in thousands of PLN) Forecast economic and financial results for 2013 The parent company's Management Board prepared the 2013 Technical and Economic Plan for the Capital Group s mining entities, which received a positive opinion of the Supervisory Board. Its key assumptions are presented below1. Item Unit Value Mining ton 12,770,200 Progress of headings m 66,265 Average headcount FTEs 18,485 Mining output per employee t/ employee 716 Coal sales ton 12,665,085 - share of exports *) % 6.3 Average calorific value of the coal sold kj/kg 23,638 Revenues from coal sales PLN million 4,088 Cost of coal sold PLN million 3,789 Gross profit/ (loss) before tax PLN million Operating profit/ (loss) PLN million 300 Net profit/ (loss) PLN million 125 Due and payable liabilities PLN million - Capital expenditures PLN million 599 *) direct and indirect exports The assumptions adopted for this document take into account the business environment in which the parent company and KWK Kazimierz-Juliusz sp. z o.o. operated over the past couple of years. The key assumption made in designing the production of the KHW S.A. Capital Group s mines in 2013 was continuation of the modernization of the basic coal face and heading equipment to improve the reliability and reduce the failure rate of the installed equipment and improve occupational safety and health (OSH). In addition, the ventilation structure of the mines will be simplified through liquidation of redundant workings, which will reduce ventilation and fire hazards. Actions will be taken to extend the effective working time through, among others, construction and expansion of the existing systems of transport for the miners, materials and equipment, and air conditioning installation systems. The 2013 coal sales plan assumes, with regard to the volume and price levels, the performance of the agreements signed with strategic customers and the necessity to ensure deliveries to the existing coal buyers. 1 The 2013 Technical and Economic Plan prepared in accordance with the Accounting Act was not audited by the auditor of these consolidated financial statements. 21

22 tthe Katowicki Holding Węglowy S.A. Capital Group prepared in accordance with IFRS (in thousands of PLN) Summary I. PARENT COMPANY The key business objectives of the parent company assumed for 2013 focus on the maintaining of profitability of sales of coal and of the production with high quality parameters, as well as the development of a more favourable structure of sales in terms of the coal range mix and buyers. In 2013, the parent company intends to continue measures aimed at optimizing the organizational structure of the mines, to improve management efficiency, optimize headcount and reduce fixed costs and, ultimately, create the combined mine. II. Subsidiaries The net current liabilities ratio, as referred to at the beginning of this note, determined for the Group s consolidated financial statements is also affected by the excess of the value of short-term liabilities, provisions and accruals over current assets of the subsidiary KWK Kazimierz - Juliusz sp. z o.o., which as at 31 December 2012, pursuant to the provisions of the Accounting Act, amounted to approx. PLN 40.6 million (as at 31 December 2011, according to PAS, it amounted to approx. PLN 22 million). The above net current liabilities ratio shows that the subsidiary s situation as regards its current financial liquidity is rather difficult. The financial standing of the subsidiary results mainly from the change of the existing long-wall system to sublevel caving system, which translated into significant reduction of the production level (approx. 132,560 tons less than the production in 2011). Despite significant difficulties associated with the reduction of the production output in connection with the change of the mining system, the measures taken by the Company s Management Board to eliminate the negative consequences of the events that occurred in mainly as regards mining, sales and cost optimization, made it possible in 2012 to earn a net profit of PLN 3.4 million and to maintain an optimum headcount level without group redundancies. These measures also included preparation of the 2013 Technical and Economic Plan, taken into account in the Technical and Economic Plan prepared by the parent company for the Capital Group's mining segment. In accordance with the Company s operating strategy for 2013, the capital expenditures planned (covered from own founds) will focus primarily on the tasks associated with opening the mining front and replacement and modernization of the machinery of fundamental importance for the operations and further development of the mine. The Company s efforts in the years to come will focus on maintaining a stable market position through coal sales tailored to the customer needs, improving production processes, applying new technical and organizational solutions increasing productivity, optimizing production costs and earning profits as well as maintaining profitability, liquidity and financial credibility. In 2012, KWK Kazimierz-Juliusz obtained a license to mine coal until 2021 and a license to explore the Jan Kazimierz deposit (deposit of the former Jan Kanty mine). Currently, works associated with execution of the exploration drill hole in the Jan Kazimierz deposit are under way and negotiations are conducted to secure external financing for this project. In light of the existing actions in this area, there is a real possibility to extend the life of the mine, which creates the prospects of stabilizing the financial standing and the possibility of the company s development in the future. Other subsidiary companies of the KHW SA Group covered by these consolidated financial statements also prepared their budgets and detailed activity plans for In 2013, the subsidiaries: Zakłady Energetyki Cieplnej S.A. and the coal trading company Katowicki Węgiel sp. z o.o. will continue to perform the strategic functions in the KHW SA Capital 22

23 tthe Katowicki Holding Węglowy S.A. Capital Group prepared in accordance with IFRS (in thousands of PLN) Group. In 2012, the reorganization process of the housing companies was completed. On 29 February 2012, the Registry Court registered the merger of the former independent housing companies solely owned by KHW S.A. into a single company under the name Śląsko- Dąbrowska Spółka Mieszkaniowa sp. z o.o. with its registered office in Katowice (the transaction is described in note 2). The conditions of operations of the parent company and of other entities covered by these consolidated financial statements that were presented in this note, together with the measures to be taken next year, prove that there is no threat to the going concern of all Group entities in the period of at least 12 months of the reporting date, i.e. after 31 December Consequently, these consolidated financial statements have been prepared based on the assumption that all entities of the KHW S.A. Capital Group will continue as going concerns without any material changes to the scope of their business for the period of at least one year from the reporting date and do not include any adjustments that would be necessary had this assumption been unreasonable. 6. Basis of preparing consolidated financial statements These consolidated financial statements were prepared under the historical cost convention, except for financial assets available for sale, derivative instruments and trade financial instruments. These consolidated financial statements are presented in thousands of Polish zloty (PLN thousand) unless specified otherwise. Due to the rounding off, the data presented in the notes may differ from the data presented in individual line items of the financial statements. 7. Statement of compliance These consolidated financial statements were prepared in accordance with International Financial Reporting Standards ( IFRS ) and in accordance with the IFRSs adopted by the European Union. At the date of the authorisation of these consolidated financial statements, in light of the current process of IFRS endorsement in the European Union and the nature of the Group s activities, there is no difference between the IFRSs that have become effective and the IFRSs endorsed by the European Union. IFRSs comprise standards and interpretations accepted by the International Accounting Standards Board ( IASB ) and the International Financial Reporting Interpretations Committee ( IFRIC ). The Group entities keep their books of account in accordance with the accounting policy (principles) set forth in the Accounting Act of 29 September 1994 (the Accounting Act ) with subsequent amendments, and regulations issued based on this Act ( Polish Accounting Standards, PAS ). The consolidated financial statements comprise adjustments that are not included in the books of account of individual Group entities, introduced to prepare these consolidated financial statements in accordance with IFRS. 8. Functional and presentation currency of consolidated financial statements The functional currency of the parent company and of other Group entities included in these consolidated financial statements and the presentation currency of these consolidated financial statements is Polish zloty. 23

24 tthe Katowicki Holding Węglowy S.A. Capital Group prepared in accordance with IFRS (in thousands of PLN) 9. Significant values based on professional judgment and accounting estimates In the process of applying the Group s accounting policies, apart from accounting estimates, the most significant effect on the amounts recognized in the attached consolidated financial statements, including in the notes to the consolidated financial statements, had professional judgment of management. The assumptions underlying these estimates are based on the Management Board s best knowledge regarding current and future actions and events in individual areas. Detailed information about the adopted assumptions is presented in the appropriate notes to these consolidated financial statements. The key assumptions for the future and other main sources of uncertainty occurring as at the reporting date, which entail a significant risk of material adjustment to the carrying amount of assets and liabilities in the next financial year, are presented below. This note does not take into account the issues associated with a change of the accounting principles (policies), described in detail in note 11 to these consolidated financial statements. Impairment of assets The Group carried out impairment tests for the non-current assets of these cash generating units for which impairment indicators have been identified. This required estimation of their value in use. In addition, the Group carried out impairment tests for the cash generating units with the allocated intangible assets that require annual impairment testing. The test was carried out under the fixed assets impairment test. The Group does not have intangible assets with indefinite useful life. The estimation of the value in use consists in determining the future cash flows to be generated by the cash generating unit and requires determination of the discount rate to be used to calculate the present value of such cash flows. The particularly important assumptions pertain to coal prices, production volume and level of production costs. Depreciation/ amortization rates The depreciation/ amortization rates and charges are determined on the basis of the anticipated economic useful life of the given item of property, plant and equipment or intangible asset and estimates regarding residual value of property, plant and equipment. The Group revises, on an annual basis, the assumed periods of economic useful life, based on its current estimates. Measurement of provisions for employee benefits The provisions for employee benefits (provision for retirement benefits, jubilee bonuses, the supply of free coal to workers or coal allowance (deputat węglowy), compensation annuities and provision for contributions to the Company s Social Fund for future old age and disability pensioners) have been estimated using the actuarial methods. The assumptions adopted for that purpose are presented in note 34. Change of financial ratios underlying the adopted estimates, i.e. increase of the discount rate by +/- 1% and increase of the remuneration growth rate by +/- 1% caused a change in the balance of the provisions at each reporting date by the amounts presented in the table below. [PLN thousand] Discount rate increase by 1 p.p. -62,443-48,041 decrease by 1 p.p. 72,692 51,887 24

25 tthe Katowicki Holding Węglowy S.A. Capital Group prepared in accordance with IFRS (in thousands of PLN) [PLN thousand] Payroll increase by 1 p.p. 84,942 59,880 decrease by 1 p.p. -52,180-49,767 Valuation of the provision for future costs of mine closures and decommissioning fixed assets The provision is established based on the estimated expected costs of mine closure and rehabilitation of post-mine land. The estimation of the provision is based on the studies prepared on the basis of deposit mining forecasts (for mining facilities) and technical and economic analyses carried out in the Company. The provision is revaluated as at the reporting date. The key assumptions adopted to determine the value of the provision are: life of the mines depending on the mining activity conducted; adopted discount rate for the provision (consistent with the rate adopted for the actuarial measurement of the provisions for employee benefits). Components of deferred tax asset Deferred tax assets are measured using the tax rates that will be applied at the time of asset realization based on the tax regulations prevailing on the reporting date. The Group identifies the component of deferred tax assets based on the assumption that taxable profit will be available in the future that will allow the deferred tax asset to be utilized. Any deterioration of tax results in the future may render this assumption unreasonable. Classification of financial instruments Following the IAS 39 guidelines regarding financial instruments that are not derivatives, but have determined or determinable maturity dates, such assets are classified as financial assets held to maturity. With such judgment, one assesses the intentions and the possibility of keeping such investments to maturity. Fair value of financial instruments The fair value of financial instruments, for which no active market has been identified, is measured using adequate valuation techniques. In selecting appropriate methods and assumptions, the Group applies professional judgment. The method of fair value measurement of individual financial instruments is presented in note Capitalized costs of preparatory works The Group capitalizes and then settles the costs of the preparatory work for the mining activity conducted. Costs settlement depends on the planned and actual mining. Changes to the estimates in this respect are recognized prospectively. The details of the rules of capitalization and settlement of the costs of preparatory work are presented in note Impairment write-downs against receivables As at the reporting date, the Group assesses whether there is objective evidence of impairment of a component of receivables or a group of receivables. If the recoverable value of the asset is lower than its carrying amount, then the entity recognises an impairment write-down to the level of the present value of the expected cash flows. 25