UNCONSOLIDATED FINANCIAL STATEMENTS FOR A PERIOD FROM 1 JANUARY TO 31 DECEMBER 2007

Transcription

1 KOGENERACJA S.A. - Unconsolidated financial statements for the period from 1 January to 31 December 2007 POLISH FINANCIAL SUPERVISION AUTHORITY UNCONSOLIDATED FINANCIAL STATEMENTS FOR A PERIOD FROM 1 JANUARY TO 31 DECEMBER 2007 Prepared in accordance with International Financial Reporting Standards in Polish zloty (PLN) Zespół Elektrociepłowni Wrocławskich KOGENERACJA S.A. (full name of the issuer) KOGENERACJA S.A. (abbreviated name of the issuer) Other services (industrial sector in line with classification of Warsaw Stock Exchange) Wrocław (zip code) (location) Łowiecka 24 (street) (number) (071) (071) kogeneracja@kogeneracja.com.pl (telephone) (fax) ( ) (NIP) (REGON) (www)

2 KOGENERACJA S.A. - Unconsolidated financial statements for the period from 1 January to 31 December 2007 Table of contents A. BASIC FINANCIAL STATEMENTS... 4 I. BASIC UNCONSOLIDATED FINANCIAL STATEMENTS... 4 II. EXCHANGE RATES USED FOR TRANSLATION OF SELECTED FINANCIAL DATA... 4 B. UNCONSOLIDATED FINANCIAL STATEMENTS... 5 I. UNCONSOLIDATED INCOME STATEMENT... 5 II. UNCONSOLIDATED BALANCE SHEET... 6 III. UNCONSOLIDATED STATEMENT OF CASH FLOWS... 8 IV. UNCONSOLIDATED STATEMENT OF CHANGES IN EQUITY C. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS I. REPORTING ENTITY II. SIGNIFICANT ACCOUNTING POLICIES Statement of compliance Basis of preparation Foreign currency Property, plant and equipment Intangible assets Perpetual usufruct of land Investments Investment property Inventories Cash and cash equivalents Impairment losses Equity Interest-bearing loans, borrowings and debt securities Employee benefits Share-based payments Provisions Trade and other payables Revenue Costs Income tax Discontinued operations and non-current assets held for sale Information about operating segments Presentation and measurement of energy origin certificates and emission rights III. EXPLANATORY NOTES Assets held for sale and discontinued operations Other operating revenues Other operating expenses Costs of employees benefits Net financial income Income tax Income tax receivable and payable Property, plant and equipment Perpetual usufruct of land Intangible assets Investment property Investments in subsidiaries and associated companies Investments in joint ventures/jointly controlled entities Other investments Deferred tax Inventories Trade and other receivables Cash and cash equivalents

3 KOGENERACJA S.A. - Unconsolidated financial statements for the period from 1 January to 31 December Impairment losses Equity Earnings per share Liabilities resulting from loans, borrowings and other debt Employee benefits Share-based payments Provisions Trade and other payables Financial instruments Measurement of fair value Financial risk management Operating lease Finance lease Contingent liabilities Transactions with related parties Shareholders Accounting estimates and assumptions Subsequent events Prior period adjustments

4 KOGENERACJA S.A. - Unconsolidated financial statements for the period from 1 January to 31 December 2007 A. Basic financial statements I. Basic unconsolidated financial statements Basic figures from unconsolidated income statement PLN thousand EURO thousand I-XII 2007 I-XII 2006 I-XII 2007 I-XII Revenues Operating profit Profit before tax Net profit Basic figures from unconsolidated statement of cash flows 5. Net cash flow from operating activities Net cash flow used in investing activities (36 688) (77 440) (9 714) (19 861) 7. Net cash flow from financing activities (58 258) (38 292) (15 425) (9 821) Basic figures from unconsolidated balance sheet 31 December December December December Non-current assets Current assets Total assets Non-current liabilities Current liabilities Equity II. Exchange rates used for translation of selected financial data Balance sheet items - exchange rate as at ,5820 Profit & loss and cash flow items -average exchange rate from I-XII 2007 Balance sheet items - exchange rate as at Profit & loss and cash flow items -average exchange rate from I-XII ,7768 3,8312 3,8991 4

5 KOGENERACJA S.A. - Unconsolidated financial statements for the period from 1 January to 31 December 2007 B. Unconsolidated financial statements I. Unconsolidated income statement For the year ended 31 December 2007 Note For period from 1 January 2007 to 31 December 2007 current period For period from 1 January 2006 to 31 December 2006 previous period I. Revenues II. Cost of sales ( ) ( ) III. Gross profit on sales IV. Other operating revenues V. Selling expenses (587) (766) VI. Administrative expenses (6 710) (8 379) VII. Other operating costs 3 (11 180) (8 807) VIII. Operating profit IX. Finance income X. Finance expenses (2 000) (5 781) XI. Net finance revenues/(costs) (profit/loss on financial activities) XII. Profit before taxation XIII. Income tax 6 (9 244) (6 654) XIV. Net profit

6 KOGENERACJA S.A. - Unconsolidated financial statements for the period from 1 January to 31 December 2007 II. Unconsolidated balance sheet As at 31 December 2007 Note 31 December December 2006 current period previous period ASSETS I. Non-current assets 1. Property, pland & equipment Intangible fixed assets Perpetual usufruct of land Investment property Long-term receivables Long-term investments in subsidiaries, associates and jointly controlled entities 12, Other long-term investments Total non-current assets II. Current assets 1. Inventories Short-term investments Income tax receivables Trade and other receivables Cash and cash equivalents Total current assets Total assets

7 KOGENERACJA S.A. - Unconsolidated financial statements for the period from 1 January to 31 December 2007 Note 31 December December 2006 current period prevoius period EQUITY AND LIABILITIES I. Equity Share capital Share premium Other capital reserves Retained earnings Total equity II. Liabilities I) Non-current liabilities 1. Loans, borrowings and debt securities Employee benefit liabilities Deferred income Deferred tax liability Total non-current liabilities II) Current liabilities 1. Loans, borrowings and debt securities Income tax liabilities Trade and other liabilities Employee benefit liabilities Provisions Total current liabilities Total liabilities Total equity and liabilities

8 KOGENERACJA S.A. - Unconsolidated financial statements for the period from 1 January to 31 December 2007 III. Unconsolidated statement of cash flows For the year ended 31 December 2007 For period from 1 January 2007 to 31 December 2007 For period from 1 January 2006 to 31 December 2006 A. Cash flows from operating activities I. Net profit for the period II. Adjustments 1. Depreciation and amortization Changes in debt allowances (1 559) - 3.(Profit)/loss on investing activity (5 763) (Profit)/loss on disposal of non-current assets Interest and dividends (29 792) (17 980) 6. Income tax expense III. Operating profit Change in receivables (38 619) 2. Change in inventories (1 787) (601) 3. Change in short-term and other liabilities, except for loans and borrowings (16 079) Change in employee benefit liabilities IV. Net cash flows from operating activities Income tax paid (148) (120) 2. Other adjustments 510 (990) V. Net cash from operating activities B. Cash flows from investing activities I. Investment inflows Proceeds from disposal of intangible and tangible fixed assets Proceeds from disposal of financial assets Dividends received Interest received Other proceeds II. Investment outflows (70 142) ( ) 1. Purchases of intangible and tangible fixed assets (68 516) (57 344) 2. Purchases of financial assets (1 626) (57 862) 3. Other disbursements - (439) III. Net cash used in investing activities (36 688) (77 440) 8

9 KOGENERACJA S.A. - Unconsolidated financial statements for the period from 1 January to 31 December 2007 For period from 1 January 2007 to 31 December 2007 Za okres od 1 stycznia 2006 r. do 31 grudnia 2006 r. C. Cash flows from financing activities I. Financial inflows Proceeds from loans and borrowings II. Financial outflows (71 638) (63 220) 1. Dividends and other payments to shareholders (27 565) (11 920) 2. Repayment of bank loans and other loans (43 338) - 3. Redemption of debt securities - (50 000) 4. Interest paid (735) (1 300) III. Net cash from financing activities (58 258) (38 292) 264 (43 293) D. Total net cash flows 264 (43 293) E. Balance sheet change in cash and cash equivalents F. Cash and cash equivalents at the beginning of the financial year G. Cash and cash equivalents at the end of the financial year

10 KOGENERACJA S.A. - Unconsolidated financial statements for the period from 1 January to 31 December 2007 IV. Unconsolidated statement of changes in equity For the year ended 31 December 2006 Share capital Share premium Other capital reserves Retained earnings TOTAL equity Equity as at 1 January Dividends adopted to shareholders (11 920) (11 920) Net profit for the period Other - - (820) (273) (1 093) Equity as at 31 December For the year ended 31 December 2007 w PLN thousand Share capital Share premium Other capital reserves Retained earnings TOTAL equity Equity as at 1 January Dividends adopted to shareholders (27 565) (27 565) Profit distribution (9 544) - Net profit for the current period Share-based payments ACT 2007 (IFRS 2) Equity as at 31 December

11 KOGENERACJA S.A. - Unconsolidated financial statements for the period from 1 January to 31 December 2007 C. Notes to the unconsolidated financial statements I. Reporting entity Zespół Elektrociepłowni Wrocławskich KOGENERACJA S.A. is listed company registered in Poland. The company s headquater is situated in Wrocław, 24 Łowiecka St. Company was registered in District Court for Wroclaw-Fabryczna, VI Commercial Department of the National Court Register on 19 of February 2001 with KRS Tax Office and Provincial Statistical Office registration numbers of the Company: NIP number: REGON: At 31 December 2007, the Management Board of the Company comprised following members: Denis Bretaudeau - President of the Management Board, Michael Kowalik - Member of the Management Board, Mariusz Misiak - Member of the Management Board, Krzysztof Wrzesiński - Member of the Management Board. The business activities include the following: production of electricty and heat, wholesales and retail sales of electricity, heat, power industry products and services. The Company carries out its business operations through production plants in Wrocław and Siechnice (next to Wrocław). II. Significant accounting policies 1. Statement of compliance The annual unconsolidated financial statements have been prepared in accordance with the International Financial Reporting Standards which were approved by the European Union, hereinafter referred to as the EU IFRSs, and, to the extent not regulated in the EU IFRSs, in accordance with the requirements set in the Accounting Act of 29 September 1994 (Journal of Laws of 2002, no. 76, item 694, as amended) and the secondary regulations issued under this Act. The EU IFRSs containing all the International Accounting Standards, International Standards of Financial Reporting and the relevant Interpretations, except for the below mentioned Standards and Interpretations which are pending to be approved by the European Union, and Standards and Interpretations which were approved by the European Union but have not been enacted yet. The Company did not use the possibility of applying the new Standards and Interpretations which have been published and approved by the European Union and will take effect after the reporting date. In addition, as at the balance sheet date, the Company has not completed its analysis of the impact of the new Standards and Interpretations effective after the balance sheet date for the period the Standards and Interpretations would be applied for the first time. 11

12 KOGENERACJA S.A. - Unconsolidated financial statements for the period from 1 January to 31 December 2007 Standards and Interpretations approved by EU Standard/Interpretation approved by EU [IAS 8.31(a), 8.31(c)] Nature of impending change in accounting policy [IAS 8.31(b)] Possible impact on financial statements [IAS 8.31(e)] Effective for annual periods beginning on or after IFRS 8 Operating Segments The Standard requires segment disclosure based on the components of the entity that management monitors in making decisions about operating matters. Operating segments are components of an entity about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company expects the new Standard to significantly alter the presentation and disclosure of its operating segments in the consolidated financial statements. 1 January 2009 Standards and Interpretations waiting for EU approval Standard/Interpretation waiting for EU approval [IAS 8.31(a), 8.31(c)] Nature of impending change in accounting policy [IAS 8.31(b)] Possible impact on financial statements [IAS 8.31(e)] Effective for annual periods beginning on or after Revised IAS 23 Borrowing Costs The revised Standard will require the capitalization of borrowing costs that relate to assets that take a substantial period of time to get ready for use or sale. The Company has not yet completed its analysis of the impact of the revised Standard. 1 January 2009 Revised IAS 1 Presentation of Financial The revised Standard requires information in financial statements to be aggregated on the basis of shared characteristics and introduces a statement of comprehensive income. Items of income and expense and components of other comprehensive income may be presented either in a single statement of comprehensive income with subtotals, or in two separate statements (a separate income statement followed by a statement of comprehensive income). The Company is currently evaluating whether to present a single statement of comprehensive income, or two separate statements. 1 January 2009 IFRIC 12 Service Concession The Interpretation provides guidance to private sector entities on certain recognition and measurement issues that arise in accounting for public-to-private service concession arrangements. The Company has not yet completed its analysis of the impact of the revised Standard. 1 January

13 KOGENERACJA S.A. - Unconsolidated financial statements for the period from 1 January to 31 December 2007 Standard/Interpretation waiting for EU approval [IAS 8.31(a), 8.31(c)] Nature of impending change in accounting policy [IAS 8.31(b)] Possible impact on financial statements [IAS 8.31(e)] Effective for annual periods beginning on or after IFRIC 13 Customer Loyalty Programmes The Interpretation explains how entities that grant loyalty award credits to customers who buy other goods or services should account for their obligations to provide free or discounted goods or services ( awards ) to customers who redeem those award credits. Such entities are required to allocate some of the proceeds of the initial sale to the award credits and recognise these proceeds as revenue only when they have fulfilled their obligations. The Company does not expect the Interpretation to have any impact on the consolidated financial statements. 1 July 2008 IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their interactions The interpretation addresses 1) when refunds or reductions in future contributions should be regarded as available in accordance with paragraph 58 of IAS 19; 2) how a MFR might affect the availability of reductions in future contributions; and 3) when a MFR might give rise to a liability. The Company has not yet completed its analysis of the impact of the new Interpretation. 1 January 2008 No additional liability need be recognised by the employer under IFRIC 14 unless the contributions that are payable under the minimum funding requirement cannot be returned to the company. IFRS 3 (Revised) Business Combinations The scope of the revised standard has been broadened (some business combinations excluded from the previous version of the standard have not been excluded from the scope of the revised IFRS 3). A definition of a business has been altered in order to be more precise. The definition of contingent liabilities capable of being recognised in the business combination has been narrowed. Transaction costs are no longer included in the cost of the combination. Rules of recognition of contingent consideration have been modified (to fair value measurement). Non-controlling (minority) interest may be measured at fair value. The Company has not yet completed its analysis of the impact of the revised standard. 1 July

14 KOGENERACJA S.A. - Unconsolidated financial statements for the period from 1 January to 31 December 2007 Standard/Interpretation waiting for EU approval [IAS 8.31(a), 8.31(c)] Nature of impending change in accounting policy [IAS 8.31(b)] Possible impact on financial statements [IAS 8.31(e)] Effective for annual periods beginning on or after Amendments to IAS 27 Consolidated and Separate Financial Statements In relation with the revised IFRS 3 (above), the changes introduced to IAS 27 include the following: -changed definition of non-controlling (minority) interest; The Company has not yet completed its analysis of the impact of the amendments. 1 July regulation of recognition and measurement of transactions with noncontrolling interest while retaining control; -changed recognition and measurement of loss of control; Amendments to IFRS 2 Share based payments The amendments introduce guidance on accounting for non-vesting conditions. The Company has not yet completed its analysis of the impact of the amendments. 1 January 2009 Amendments to IAS 32: Financial Instruments - Presentation and IAS 1: Presentation of Financial Statements Puttable Financial Instruments and Obligations Arising on Liquidation The amendments provide an exemption to the principle otherwise applied in IAS 32 for the classification of some puttable financial instruments as equity. The amendments require certain financial instruments that represent a residual interest in the net assets of an entity, which would otherwise be classified as financial liabilities, to be classified as equity, if both the financial instrument and the capital structure of the issuing entity meet certain conditions. Amendments to IAS 32 and IAS 1 are not relevant to the Company s operations as the Company has not issued any puttable financial instruments. 1 January 2009 The interpretation IFRIC 11 Group and Treasury Share Transactions effective for annual periods beginning on or after 1 March 2007 was applied in regard to the introduced shares distribution by EDF Group. The policy and the details regarding the programme are described in the note 27 Share-based payments. 14

15 KOGENERACJA S.A. - Unconsolidated financial statements for the period from 1 January to 31 December Basis of preparation These unconsolidated financial statements are presented in Polish zloty, which is the Company s functional currency. All financial information presented in Polish zloty has been rounded to the nearest thousand. The unconsolidated financial statements are prepared in accordance with the same rules (the Accounting Policy) and calculating methods as in the previous unconsolidated financial statements. The unconsolidated financial statements were prepared based on the historical cost, except for the assets and liabilities measured at fair value: derivative financial instruments, financial assets available for sale, financial instruments at fair value through income statement. For the financial statements to be drawn up in accordance with the EU IFRSs, the Management Board has to give its opinions, make assessments and assumptions which influence the accepted policies and presented values of assets, liabilities, revenue and expenses. Estimates and relevant assumptions are based on the historical experience and other factors which are deemed reasonable under given circumstances, and their results give a basis for an opinion to be issued as to the balance sheet value of the assets and liabilities which cannot be directly inferred from other sources. The actual value may differ from the estimated value. Estimates and relevant assumptions are regularly reviewed. Changes in the accounting estimates are disclosed in the period in which the estimate was changed or in the current and future periods if the change made in the estimate refers to both the current period and future periods. Opinions given by the Management Board based on the EU IFRSs which are of vital importance for the unconsolidated financial statements, and estimates to which a serious risk of changes in the next years is attached have been presented in note 35. Accounting policy rules specified below were applied to all periods disclosed in the unconsolidated financial statements, in view of the reclassification adjustments made for prior periods, which were described in note Foreign currency Transactions in foreign currencies are translated to Polish zloty at exchange rates at the dates of the transactions at the buying or selling rate of the currency as at the transaction date, applied by the bank which provides services to the entity. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to Polish zloty at the NBP exchange rate at that date. Foreign currency differences arising from settlements of transactions in foreign currencies and balance sheet valuation, monetary assets and liabilities are recognised in the income statement. Non-monetary assets and liabilities denominated in foreign currencies that are measured at historical cost are retranslated to Polish zloty at the NBP exchange rate at the date of transaction. Non-monetary balance sheet items denominated in foreign currencies that are measured at fair value are retranslated to Polish zloty at the NBP exchange rate at the date that the fair value was determined. 4. Property, plant and equipment a. Company s own property, plant and equipment Property, plant and equipment are accounted for at their purchase price or production cost, less depreciation and impairment losses. The purchase price comprises the purchase price of an asset (i.e. amount payable to the seller, less deductible taxes: VAT and excise tax), public charges and fees (in the case of imported assets) and costs directly attributable to the asset being acquired and made fit for use, including transport costs and loading, unloading and storage costs. Discounts, volume rebates and other similar reductions and returns decrease the purchase price of the asset. Costs of production of a noncurrent asset or fixed assets under construction comprise all the costs incurred by the entity during construction, assembly, adjustment and improvement of such asset until the asset is made available for use (or until the reporting date if the asset is not yet available for use), including non-deductible VAT and excise tax. Production costs also comprise, if so required, the initial measurement of costs relating to the property, plant and equipment being disassembled, removed and restored to the original condition. Property, plant and equipment revaluated by the Company in accordance with IAS 29 Financial Reporting in Hyperinflationary Economies are stated at corrected purchase price reflecting the fair value at the revaluation date corrected with the relevant hyperinflation indices. 15

16 KOGENERACJA S.A. - Unconsolidated financial statements for the period from 1 January to 31 December 2007 Property, plant and equipment items constructed for future use as investment property are accounted for as property, plant and equipment, and measured at the cost of production until the construction is completed. Then, they will be reclassified as investment property. If a given property, plant and equipment item comprises individual, significant components of various useful lives, such components are treated as separate assets. Borrowing costs are recognized as an expense in the period in which they are incurred. b. Property, plant and equipment used under leases Leases in terms of which the Company assumes substantially all the risks and rewards of ownership of property, plant and equipment are classified as finance leases. Properties occupied by the owner and acquired by finance lease is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments, and subsequently, it is decreased by depreciation (see below) and impairment losses (see Description of significant accounting policies, point 12). c. Subsequent costs The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. d. Depreciation Items of property, plant and equipment, or their major and separate components, are depreciated on a straight-line basis over their estimated useful lives and in view of the net sale price expected to be paid upon liquidation for the remaining part of the asset (residual value). Land is not depreciated. The Company assumes the following useful lives for individual property, plant and equipment categories: Group 1 Buildings 1,5 % - 2,5 % Group2 Constructions 1,5 % - 4,5 % excluding: 211 internal technological networks wires 5,0 % - 10,0 % Group 3 Kettles and Power machines 1,5 % - 7,0 % Group 4 Machinery and equipment 10,0 % - 18,0 % excluding: 491 computer sets 20,0% - 30,0 % Group 5 Special branch machinery and equipment 14,0 % - 18,0 % excluding: 580 Loading machines 20,0 % Group 6 Technical equipment 4,5 % - 20,0 % Group 7 Vehicles 7,0 %- 14,0 % Group 8 Tools, devices, movables and equipment 14,0 % - 20,0 % excluding: Electronic equipment 25,0 % Correctness of useful lives, depreciation methods and residual values of property, plant and equipment (unless insignificant) is reviewed by the Company annually. 16

17 KOGENERACJA S.A. - Unconsolidated financial statements for the period from 1 January to 31 December Intangible assets a. Other intangible assets Other intangible assets that are acquired by the Company are measured at purchasing costs less amortisation (see below) and impairment losses (see Description of significant accounting policies, point 12). Expenditure on internally generated goodwill or brands is recognised in a income statement as incurred. b. Subsequent expenditure Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is recognised in profit or loss as incurred. c. Amortisation Intangible assets are amortised on a straight-line basis over their estimated useful lives, unless it has not been specified. Goodwill and intangible assets that have indefinite useful lives are reviewed at each reporting date to determine whether there is any indication of impairment. Other intangible assets are amortised as at the day they were made available for use. The estimated useful lives are as follows: Computer software 2 8 years Patents and trademarks years Capitalised development expenditures 5 7 years 6. Perpetual usufruct of land Perpetual usufruct of land received on the basis of administrative decision is measured as nil value. Perpetual usufruct of land acquired from third parties is measured at purchase price less depreciation. 7. Investments a. Investment in bonds and capital instruments Financial instruments held for trading are classified as financial instruments measured at fair value through profit or loss. Any gains or losses relating to such investments are recognised in an income statement. If the Company assumes to hold the Treasury Bonds until the due date, the bonds are measured on the balance sheet at amortised cost less impairment losses (refer to Description of significant accounting policies, point 12) Other financial instruments owned by the Company are classified as available for sale and are presented at fair value. All profits and losses resulting from valuation of those financial instruments at fair value are recognised directly in share capital, except for impairment losses, or as foreign exchange profit in case of monetary positions such as bonds. When such investments are excluded from the balance sheet, the cumulated profits and losses recognised previously in share capital are recognised in income statement. In case of interest-bearing investments, the cumulated interest calculated based on the effective interest rate are recognised in income statement. Fair value of the financial instruments, classified as measured at fair value through financial result or available for sale, is measured at current offered price as at the balance sheet date. The financial instruments, classified as measured at fair value through profit and loss or available for sale, are recognized / derecognized by the Company as at the date of acquisition / sales date. Securities hold until the due date recognized / derecognized are presented at the day of transfer to / by the Company. Shares in subsidiaries and associated companies are measured at purchase price less impairment losses (refer to Description of significant accounting policies, point 12). 8. Investment property Investment property is property held either to earn rental income or for capital appreciation or for both. Investment property is initially measured at its purchase price taking into account transaction costs. For the purpose of initial classification, the Company chose the purchase price model, referred to in paragraph 56 of International Accounting Standard no. 40 ( Investment property ). 17

18 KOGENERACJA S.A. - Unconsolidated financial statements for the period from 1 January to 31 December Trade and other receivables Trade and other receivables are measured at the required amount of payment less allowances (refer to Allowances, point 12). 10. Inventories Inventories are measured at the lower of cost and net realizable value, considering any inventory allowances. The net realizable value is the selling price estimated in the ordinary course of business activity less the estimated costs of completion and the estimated selling costs. Disbursement of materials (coal, biomass) is measured in accordance with the weighted average method. Acquisition price or production cost of other inventories is determined based on first in first out method. Acquisition price includes purchase price increased by the direct purchase costs and bringing an asset to a usable condition or trading. 11. Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits. The balance of cash and cash equivalents shown on the statement of cash flows comprises the above mentioned cash and cash equivalents, decreased by bank overdrafts if they are included as an integral part of cash management. 12. Impairment losses The balance sheet value of the Company s assets other than inventories (refer to Description of significant accounting policies, point 10) or deferred tax assets (refer to Description of significant accounting policies, point 21) is reviewed at each reporting date to determine whether there is any indication of impairment. If such premises are fulfilled, the Company estimates the recoverable amount of individual assets. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, the recoverable amount is estimated at each reporting date. An impairment loss is recognised if the balance sheet amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the balance sheet amount of any goodwill allocated to the units and then to reduce the balance sheet amount of the other assets in the unit (group of units) on a pro rata basis. If a decrease in the fair value of available-for-sale financial assets has been directly reflected in the revaluation capital and objective premises of decrease in value of this asset occur, the accumulated losses previously recognised in the revaluation capital are recognised in profit or loss even if a financial asset has not been excluded from the balance sheet. The amount of the accumulated impairment losses recognised in profit or loss represents the difference between the purchase price and the current fair value less any impairment losses previously recognised in profit or loss for a given financial asset. a. Calculation of recoverable amount The recoverable amount of held-to-maturity investments and receivables measured at adjusted purchase price (amortised cost) is measured at the current value of the estimated future cash-flows discounted at the original effective interest rate. Short-term receivables are not discounted. The recoverable amount of other assets is the greater of: its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For assets which do not generate independent cash-flows, the value in use is measured for the smallest identifiable cash-generating unit to which a given asset belongs. 18

19 KOGENERACJA S.A. - Unconsolidated financial statements for the period from 1 January to 31 December 2007 b. Reversal of impairment losses Impairment losses on securities held till due date and receivables measured at amortised cost are reversed if the consecutive increase of recoverable amount can be objectively assigned to the events after the recognition date of the impairment loss. Impairment losses on investments in capital instruments classified as available for sale are not reversed through financial result. If the fair value of debt instruments classified as available for sale increases and the increase is objectively attributable to an event which occurred after the impairment loss was recognised, the previously recognised impairment loss is reversed with the reversal amount shown in profit or loss. Impairment losses on goodwill are not reversed. In other cases impairment losses are reversed if the terms used to estimate the recoverable amount have changed. Impairment losses are reversed only up to the balance sheet value of an asset, less depreciation/amortisation which would be recognised if the impairment loss was not disclosed. 13. Equity a. Dividends Dividends are recognised as liabilities in the period in which a resolution on the dividends was adopted. 14. Interest-bearing loans, borrowings and debt securities Upon initial recognition loans, borrowings and debt securities are measured at their fair value, less expense incurred to obtain loans or borrowings. After initial recognition, loans, borrowings and debt securities are subsequently measured at amortised cost, in accordance with the effective interest rate method. 15. Employee benefits a. Defined contribution plans A company which employs employees is obliged, also under the applicable law, to deduct and forward employee pension contributions. These benefits are covered by the state programme under IAS 19, and have the characteristics of defined contribution plans. Thus the Company s obligation for each period is measured at the contribution amounts to be paid in a given year. b. Defined benefit plans pension benefits The Company is obliged, under applicable law, to pay pension benefits in the amount set in the labour code and collective labour agreements. The Company s obligations to pay pension benefits are calculated through assessing the employee s salary in the period in which the employee will reach the retirement age and estimating the amount of the future pension benefit. The benefits are discounted to the current value. The discount rate is calculated based on the market rate of return on State Treasury bonds at the reporting date. The obligation to pay pension benefits is recognised proportionally to the prospective period in which the employee will perform work. The calculation is made by an authorised actuary with application of the forecast individual pension right method. The circulation of employees is estimated based on historical data and future employment level forecasts. c. Other long-term employee benefis jubilee bonuses The amount of the employee s jubilee bonuses granted by the Company depends on the length of the emlopyee s period of service during the employment in the Company and the employee s salary at the jubilee bonus s grant date. Liabilities due to jubilee bonuses are calculated through estimation of future employee s salary at the date of achievement of pensionable age and estimation of the level of the future jubilee award. Those bonuses are discounted to the present value. 19

20 KOGENERACJA S.A. - Unconsolidated financial statements for the period from 1 January to 31 December 2007 Discount rate is achieved on the basis of market rate of return from the Treasury Bonds as at the balance sheet date. The liability due to jubilee bonuses is recognized proportionally in the period of estimated employment of particular employee. The calculation of the jubilee bonuses is performed by an authorized actuary based on projected unit credit method. Employees rotation is estimated based on historical data and forecasted future employment. d. Other long-term employee benefits energy equivalents Provision for energy equivalents for pensioners is created in accordance to Additional Protocol No. 14 dated 3 October 2005 to the Collective Labour Agreement for Power Industry Employees. In accordance with Appendix 6 point 7 of Additional Protocol No. 14, the pensioners that at the date of achievement of the pensionable age benefited the discounts on purchased energy obtain the right to energy equivalent since 1 January 2006 amounting to kwh x 80% of energy price, variable transmission fee and 100% of fixed transmission fee and subscription fee according to the one-zone tariff for households. Persons granted with allowances and pre-pensionable benefits and entitled widows and orphans are entitled to those benefits in accordance to the same regulation. Provision for energy equivalents for pensioners is calculated based on actuary method. e. Provision for accrued statutory holidays The amount of the provision for accrued statutory holidays represents the product of the number of days-off proportionally assigned to a given period and the daily rate of the equivalent for accrued statutory holidays increased by mark-up. The provision is used up in the amount of the equivalent for the holidays taken by the reporting date plus mark-up. The provision is written back to the extent the provision amount exceeds the amounts actually paid. The provisions is created, used and reversed against a separate ledger of costs by type adjusting payroll costs. f. Annual bonuses The annual bonuses are provided for in the period they relate to. The provision for annual bonuses is created on a monthly basis in amount of 8,5% of salaries increased by social benefits. The provision is used in the month of payment and in amount increased by social benefits. The provision is reversed to the extent the provision amount exceeds the amounts actually paid. The provisions is created, used and reversed against a separate ledger of costs by type adjusting payroll costs. g. Target bonuses The target bonuses are provided for in the period they relate to and in amount of expected bonus increased by social benefits. Provision is used in month of payment and in amount increased by social benefits. The provision is created, used and reversed against a separate ledger of costs by type adjusting payroll costs. 16. Share-based payments Recognition and presentation method of share-based payment programme is disclosed in IFRS 2 ( Share-based payments ) and Interpretation IFRIC 11. The Standards require presentation as increase of equity and costs of employee benefits. Sharebased payments are presented at fair value (market value) at the grant date. The increase of equity and costs is accounted for proportionally over the vesting period. Recognition of share-based payments shall decrease of financial result and increase in other capital reserves. 17. Provisions A provision is recognised if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect of the time value of money is of relevance, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. a. Litigations A provision for claims against the Company (litigations) is made if it is probable that an obligation arises in connection with pending court or out-of-court dispute as a result of a decision unfavourable to the Company being issued by the court or other appropriate authority. When making the provision, future obligations, plus possible interest due, and costs of litigation are taken into account. 20

21 KOGENERACJA S.A. - Unconsolidated financial statements for the period from 1 January to 31 December 2007 b. Onerous contracts A provision for onerous contracts is recognised when the expected benefits to be derived by the Company from a contract are lower than the unavoidable cost of meeting its obligations under the contract. c. Tax provision Tax provision is created in regard to the potential risk of arising of liabilities or tax arrears. 18. Trade and other payables Trade and other payables are measured at amortised cost. 19. Revenue a. Sales of finished goods/merchandises Revenue from sale of finished products and merchandises are recognised in profit or loss if a significant risk and benefits related to their ownership have been transferred to the buyer. b. Sales of services Proceeds from revenues are recognised in profit or loss, in proportion to transactions realised at the reporting date. c. Sales of rent services Sales revenues of rental services of investment property are recognized in the profit and loss on a straight-line basis over the period of the rental agreement. 20. Costs a. Payments under operating leases Payments under the Company s operating leases are recognised in profit or loss, on a straight-line basis, over the lease period. Special promotions are recognised in profit or loss together with lease costs. b. Payments under finance lease Lease payments are divided into a portion which is deemed finance expense and a portion decreasing the liability. The portion which is deemed finance expense is assigned to specific periods during the lease term, in accordance with the effective interest rate method. c. Net finance expenses Net finance expense comprises interest due on the debt, determined at an effective interest rate, interest due on cash invested by the Company, payable dividends, gains and losses on exchange differences and gains and losses on hedging instruments which are recognised in a income statement. Interest income is recognised in a income statement on an accrual basis, in accordance with the effective interest rate method. Income on dividend is recognised in a income statement when the Company acquires the right to receive dividends. A portion of finance lease payment which is deemed finance expense is recognised in a income statement in accordance with the effective interest rate method. 21. Income tax Income tax recognised in a income statement comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. 21

22 KOGENERACJA S.A. - Unconsolidated financial statements for the period from 1 January to 31 December 2007 Deferred tax is recognised using the balance sheet method, providing for temporary differences between the balance sheet amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. No provision is made for the following temporary differences: goodwill whose amortisation is not deemed deductible costs for taxation purposes, initial recognition of assets or liabilities that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will avail the deferred tax assets to be realised. Deferred tax assets are reduced to the extent that it is no longer probable that the taxable income to be achieved will allow to fully or partly utilise the deferred income tax asset. Such reductions are adjusted upwards to the extent that it is probable that sufficient taxable income will be obtained. 22. Discontinued operations and non-current assets held for sale Directly before the reclassification of non-current assets held for sale, the valuation of assets (or all assets and liabilities representing a group of assets held for sale) is updated in accordance with the relevant EU IFRSs. Subsequently, non-current assets or the group held for sale are recognised at the lower of: balance sheet value or fair value less costs incurred to sell as at the day of initial classification. Impairment recognised in the initial classification as held for sale, is recognised in a income statement, even if the group held for sale was previously subject to restatement whose effects were reflected in the equity. This also applies to gains and losses resulting from subsequent value adjustments. A discontinued operation is a component of the Company s business that represents a separate major line of business or geographical area of operations, or is a subsidiary acquired exclusively with a view to resale. Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale. Non-current assets which are to be no longer used may also be recognised as discontinued operations. 23. Information about operating segments The Company operates within single business segment, i.e. production of electricity and heating. The Company makes all of its revenues on the territory of Poland. 24. Presentation and measurement of energy origin certificates and emission rights Energy origin certificates are measured initially at fair value. Emission rights are measured initially at acquisition price. As at the balance sheet date the energy origin certificates are measured at fair value and emission rights are valued at acquisition price not higher than market value as at the balance sheet date. The provision for expenses in regard to energy origin certificates and emission rights is created as at the balance sheet date if the Company is not able to provide for redemption purposes enough energy origin certificates and emission rights. The provision is based on the market value of energy origin certificates or emission rights as at the balance sheet date. 22