Consolidated annual financial statement for financial year ended BSC Capital Group

Transcription

1 Consolidated annual financial statement for financial year ended BSC Capital Group Consolidated annual financial statement for 31 December 2014 drawn up in accordance with International Financial Reporting Standards 1

2 Consolidated annual financial statement for financial year ended The Board of BSC Capital Group presents the consolidated financial statement for 12 months ended , containing: Selected financial data of BSC Capital Group ended Consolidated statement of profit and loss and other comprehensive income of BSC Capital Group ended Consolidated statement of financial situation of BSC Capital Group ended Consolidated financial statement of cash flow of BSC Capital Group ended Consolidated statement of changes in equity of BSC Capital Group ended Explanatory notes to the consolidated annual financial statement.9 Janusz Schwark Arkadiusz Czysz Andrzej Baranowski President of the Board Vice-president of the Board Vice-president of the Board Poznań,

3 I. SELECTED FINANCIAL DATA OF BSC CAPITAL GROUP FOR THE YEAR ENEDED SELECTED FINANCIAL DATA For the year ended Thousands PLN For the year ended For the year ended Thousands EUR For the year ended Net revenues from sales Profit (loss) from sales Profit (loss) from operating activities Profit (loss) before taxation Net profit (loss) Net profit (loss) attributable to shareholders of BSC Net cash flow from operating activities Net cash flow from investment activities Net cash flow from financial activities Total net cash flow Total assets/ liabilities Non-current assets Current assets Equities attributable to shareholders of BSC Total liabilities Long-term liabilities Short-term liabilities Number of shares (in thousands) Profit (loss) per one ordinary share (in PLN/ EUR) Book value per one share (in PLN/ EUR) Financial data converted into EUR currency according to the rates of: Exchange rate for conversion of balance Exchange rate for conversion of profit and loss account and cash flow

4 CONSOLIDATED STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME 12 months ended months ended Note Continued activity Revenues from sales including sales of goods Other operating revenues Total revenues from operating activity Change in the balance of products Consumption of materials Payroll and benefits External services Depreciation Cost of goods sold Other expenses Total operating expenses Profit (loss) on operating activities Financial revenues Financial expenses Profit (loss) before taxation Income tax Net profit (loss) from continued activity Discontinued activity Net loss from discontinued activity Net profit (loss) Attributable to: Shareholders of the parent entity Non-controlling shareholders Other comprehensive (net) income Total comprehensive income Attributable to: Shareholders of the parent entity Non-controlling shareholders 4

5 CONSOLIDATED STATEMENT OF FINANCIAL SITUATION Non-current assets For the year ended For the year ended For the year ended Note Tangible non-current assets 15 thousands PLN thousands PLN thousands PLN Intangible assets Deferred tax assets Other assets Total non-current assets Current assets Inventory Trade receivables Income tax receivables Other receivables Financial assets Monetary assets Other assets Total current assets Assets classified as held for sale Total assets

6 CONSOLIDATED STATEMENT OF FINANCIAL SITUATION For the year ended For the year ended For the year ended Note Equity 23 thousands PLN thousands PLN thousands PLN Share capital Supplementary capital Retained profits Capital attributable to shareholders of the parent entity Capital attributable to non-controlling shareholders - Total equity Long-term liabilities Credits and loans Debt securities Other financial liabilities Provision for deferred income tax Provision for retirement benefits Other provisions Future revenues - subsidies Total long-term liabilities Short-term liabilities Credits and loans Other financial liabilities Trade liabilities Income tax liabilities Other liabilities Other provisions Future revenues - subsidies Total short-term liabilities Liabilities directly connected with non-current assets held for sale Total payables Total liabilities

7 CONSOLIDATED STATEMENT OF CASH FLOW For the year ended For the year ended Net cash from operating activity Gross profit Depreciation Interest Currency conversion differences Result of investment activities Trade and other receivables change in the balance Inventory- change in the balance Other assets - change in the balance Trade and other liabilities - change in the balance Provisions - change in the balance Other accruals change in the balance Other adjustments - - Income tax - paid Net cash flow from operating activity Cash flow from investment activity Interest Inflows from sales of investments (bonds and shares) 35 - Inflows from sales of non-current and intangible assets Outflows for investment purchase (bonds and shares) - - Outflows for purchase of non-current assets and intangible assets Loans granted Net cash from investment activity Cash flow from financial activity Dividend paid and other payments to shareholders Net inflows from issuance of shares - - Repayment of bank credits and loans Payment of liabilities from financial leases Raising bank credits - - Interest Net cash from financial activity Increasing /(decreasing) net cash and cash equivalents Opening cash balance and cash equivalents Change in cash balance due to exchange differences - - Closing cash balance and cash equivalents

8 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Share capital Opening balance Increase in capital Closing balance For the year ended For the year ended Supplementary capital Opening balance Distribution of retained profit Consolidated adjustments Issuance of shares Closing balance Retained profit Opening balance Payment of dividend Supplementary capital Consolidated adjustments - - Net financial result Closing balance Total equity Opening balance Closing balance

9 SELECTED EXPLANATORY NOTES 1. Basic information on the parent company BSC Drukarnia Opakowań Spółka Akcyjna ( the company,the parent entity, the parent company, the issuer ) runs their business activity as a joint-stock company set up by the notarial deed on 1 July1999 before the notary Piotr Kowanda (Rep. No: A 8000/1999) in Poznań. The registered office of the parent company is Poznań, ulica Żmigrodzka 37. The company is registered in Poland and at present entered the register of entrepreneurs, run by the District Court in Poznań at the number KRS The parent company was given the CRO Certificate (REGON) number: and received the Tax Identification Number (NIP) The basic fields of the parent entity s business activity are: Printing activity, Supporting graphic activity, Activity related to packing. As at the date of preparing the consolidated financial statement, the personnel of the Issuer s Board was as follows: Janusz Schwark the President of the Board, Andrzej Baranowski - Financial Vice-President of the Board, Arkadiusz Czysz - Commercial Vice-President of the Board. In the analyzed period there were no changes in the personnel of the parent entity Board. In the reporting period the personnel of the Issuer s Supervisory Board was as follows: Andrzej Borowiński, Hans Christian Bestehorn, Henrik Kehren, Hans Jurgen Katzer, Stephan Bestehorn, Marek Dietl. In the analyzed period there were no changes in the personnel of the parent entity Supervisory Board. As at the date of preparing the consolidated financial statement, the structure of the parent entity s shareholding was as follows: Number of shares Total nominal value of shares (in thousands PLN) Participation in the share capital Number of votes Participatio n in the votes on the Annual General Meeting Janusz Schwark % % Arkadiusz Czysz % % Colorpack Verpackungen mit System GmbH % % PKO BP Bankowy Otwarty Fundusz Emerytalny % % Aviva Investors Poland TFI S.A % % Norges Bank % % 9

10 ALTUS TFI S.A % % OTHERS % % Total % % 2. Information on the Capital Group BSC Drukarnia Opakowań S.A. the Capital Group ( the Group ) consists of the parent company BSC Drukarnia Opakowań S.A. and the subsidiary BSC Pharmacenter Sp. z o.o., where the parent company holds 100% shares. The time period of the subsidiary s activity is indefinite. The financial statement of BSC Pharmacenter Sp. z o.o. was prepared for the same reporting period as the financial statement of the parent company, with the application of consistent accounting principles. The basic activity of the Capital Group involves: Printing activity, Supporting graphic activity, Activity related to packing. 3. Functional currency and reporting currency This consolidated annual financial statement is prepared in the Polish zlotys (PLN). The Polish zloty is the functional and reporting currency of the Capital Group. The financial data was reported in thousands zlotys, unless it was reported with higher accuracy in specific situations. 4. The platform of International Financial Reporting Standards applied 4.1. CE declaration This consolidated annual financial statement was prepared in accordance with the International Financial Reporting Standards (IFRS) and interpretations related to them announced in the form of ordinance of the European Committee and in the scope which is not regulated in the Standards in accordance with the requirements of the Accounting Act and executive orders issued on its basis, and also with the order of the Minister of Finance dated 19 February 2009 on current and periodic information delivered by issuers of securities and conditions for recognizing information required by the law of a non-member state as equivalent (Journal of Laws of 2009, No.33, item 259, as amended) Changes in IFRS Status of approving new standards At present IFRS in the form approved by the EU do not significantly differ from the regulations accepted by the IASC (International Accounting Standards Committee), except for the following interpretations which, as at 20 March 2014 were not yet accepted for use: IFRS 9 Financial instruments and later amendments (the term is not yet determined). IFRS 9 requires that all financial assets within the scope of IAS 39 are measured according to the depreciated cost or fair value. Debt investments maintained within the business model aiming at achieving proper cash flow including determined payments of notional amounts and interest are measured according to depreciated cost at the end of consecutive accounting periods. Any other debt investments and capital investments are measured at fair value for those days. Additionally, changes in fair value of capital investment which are not held for trade may be demonstrated within other comprehensive income, however, in the income statement only dividend is recognized. That decision is irreversible. Concerning measurement of financial liabilities designated as at fair value through result, IFRS 9 requires that any changes in fair value of financial liabilities allotted for changes of credit risk of that liability are demonstrated in other comprehensive income, unless that demonstration causes accounting mismatch. Changes in fair value allotted for credit risk of the financial liability are not brought forward to the result in consecutive accounting years. In accordance with IAS 39, all the amount of fair value of financial liability designated as at fair value through result was brought forward to the result. 10

11 Detailed analysis of the influence of the new standard on the Group s statement is not yet complete. Nevertheless the Board does not expect that the application of the IFRS 9 might have any significant influence on the financial liabilities or assets. The amendments to IAS 19 Employment benefits Programs of specified benefits: employee premiums (effective with reference to annual periods starting on or after 1 July 2014) Minor changes concern the scope of application of the standard to premium from employees or third parties paid in aid of programs of certain benefits. The aim of the amendments is to simplify settlement of premiums which do not depend on the number of working years (e.g. Employee premiums calculated as a constant percentage of remuneration). The Board forecast that the above mentioned amendments will not have a significant influence on the amounts demonstrated in the separate financial statement of the Group. Interpretation of IFRIC 21 Levies (effective for annual periods beginning on or after 1 January 2014) IFRIC 21 is the interpretation of IAS 37 Provisions, contingent liabilities and contingent assets. IAS 37 determines the criteria of recognizing the liability, one of which is the current obligation requirement resulting from past occurrences (so called obliging occurrence). The interpretation clarifies that the occurrence creating the liability to pay a levy is the activity which is subject to levy defined in the appropriate legal regulations. The Board forecast that the above mentioned amendments will not have a significant influence on the amounts demonstrated in the separate financial statement of the Group. IFRS 14 Regulatory deferral accounts (effective for annual for periods beginning on or after 1 January 2016) The aim of this standard is increasing the comparability of financial statements of entities engaged in the activity which is the subject to price regulation. New and amended IFRS Since 1 January 2013 the Group has applied the following standards and interpretations: - IFRS 1 (amendment) First-time adoption of IFRS - effective date: for annual periods beginning on or after 1 January 2013 (the amendment approved by the European Committee). The amendment will not have a significant influence on the consolidated financial statement. The amendment to IFRS 1 allows entities adopting IFRS for the first time to recognize, as at the date of the adoption, the loans received from the state on preferential conditions in accordance with one of the two methods selected by the entity: according to the value resulting from the accounting rules applied to date or according to the value resulting from retrospective application of proper standards requiring special recognition of the governmental aid in the financial statement (IAS 20 and IFRS 9 or IAS 39) provided that there was information enabling adequate measurement as at the date of the loan recognition. Amendments to IFRS 1, IAS 1, IAS 16, IAS 32, IAS 34 resulting from The Project of annual amendments: series which come into effect for annual periods beginning on 1 January 2013 (the amendments approved by the European Committee). Apart from the amendments of presentation rules resulting from IAS 1, the amendments of the standards will not have a significant influence on the financial statement. The amendments of the standards include: IFRS 1 First-time adoption of IFRS : regulation of conduct in the case when the company used IFRS and then adopted other accounting rules and later adopted IFRS again. According to the amendment, the adoption may take place either on the basis of IFRS 1 or IAS 8. IFRS 1 First-time adoption of IFRS : according to the amendment, while adopting IFRS the company may use the value of the activated costs of external financing established in accordance with the earlier applied accounting policy. After this date IAS 23 must be applied. IAS 1 Presentation of financial statements : the amendment involves renouncing the requirement of placing notes to the third balance which is presented in the statement in case of changes of accounting or presentation rules. IAS 1 Presentation of financial statements : it was specified that the entity may present additional periods or days (beside the ones required by the standard) in the financial statement but the entity does not have to present them when to all elements of the statement (for example the entity may 11

12 present only the additional balance without any additional comprehensive income statement), still in the additional information the entity must present notes to this additional period or day. IAS 16 Property, plant and equipment : removal of the inconsistency which allowed some addressees of IAS 16 to believe that spare parts must be classified as reserves. According to the amended standard, they must be recognized as fixed assets or reserves in accordance with general criteria defined for assets in IAS 16. IAS 32 Financial instruments: presentation : it was specified that the tax effects of payments to the owners and costs of capital transactions should be recognized in accordance with IAS 12. IAS 34 Interim financial reporting : unification of requirements concerning disclosure of information on assets and liabilities of IFRS 8 segments. IFRS 13 Fair value measurement IFRS 13 defines fair value as a price which can be achieved while disposing an asset component or paid in order to assign a liability in a common-law transaction in the main (or the most favorable) market on the measurement date and according to the current market conditions. According to IFRS 13 the fair value is the starting price, regardless of the fact whether the price is directly observable or estimated by the use of another measurement technique. Moreover, IFRS 13 contains broad requirements concerning disclosure of information. IFRS 13 requires a prospective application from 1 January The standard also provides transitional regulations thanks to which it is not necessary to perform disclosure concerning the periods previous to that where the Standard was applied for the first time (that is in comparative data). According to the transitional regulations, the Group did not perform any new disclosures required by IFRS 13 for the comparative period for the year Apart from performing additional disclosures, applying IFRS 13 did not have any significant influence on the amount demonstrated in the consolidated financial statement. The above IFRS did not have a significant influence on the Entity. - IFRS 7 (amendment) Financial instruments: disclosures effective date: for annual periods beginning on or after 1 July The amendment introduces additional disclosures concerning transfer of financial assets, both these which result in being removed from the balance and these which cause the matching liability to arise. Amendments to IAS 1 Presentation of financial statements Presentation of components of other comprehensive income The Company made a change in the nomenclature in the case of profit and loss statement and other comprehensive income. The income tax concerning the other comprehensive income components is allocated according to the same rules but the amendments do not change the possibility of presenting the items of other comprehensive income before or after taxation. The amendments were applied prospectively, so the presentation of other comprehensive income components was modified in order to reflect these changes. The application of the amendments to IAS 1 does not cause other than the above mentioned presentation changes (that is, it does not have any influence on the result in the profit and loss account, other comprehensive income or on the sum of comprehensive income). IAS 12 (amendment) Income tax - effective date: for annual periods beginning on or after 1 January The amended standard regulates the way of calculating deferred income tax in cases when the tax law differently treats regaining the value of investment property by using it (rents) and selling it, and the entity does not have plans concerning selling it. The amendment to IAS 12 causes withdrawal of the interpretation of SIC 12 because its regulations were included in the standard. The change will not have any significant influence on the financial statement. Amended IAS 19 (2011) "Employee benefits" - Amendments to accounting benefits after employment period IAS 19 (2011) changes the way of recognizing programs of specific benefits. The most significant change concerns recognizing changes in liabilities arising from specific benefits and program assets. The amendments require recognizing the changes in liabilities arising from specific benefits and fair value of program assets the moment they arise. The amendment thereby eliminates corridor approach accepted by the previous version of IAS 19 and it speeds up recognizing the costs of past employment. Any actuarial profits and losses are immediately recognized in other comprehensive income in order to recognize net retirement liabilities or assets in the consolidated statement on the financial situation. That enables reflecting the full value of deficiency or surplus of the program. Moreover, the costs of interest and expected return on program assets from the previous version of IAS 19 are replaced in IAS 19 (2011) with 12

13 net interest which is calculated by application of discount rate to assets or liabilities from net specific benefits. On account of the fact that the Group owns only provisions for retirement bonus which is treated as other long-term employment benefits, the amendments to IAS 19 did not have any influence on the values recognized in the profit and loss account or other comprehensive income. IFRS 1 (amendment) First-time adoption of IFRS - effective date: for annual periods beginning on or after 1 July To date IFRS 1 made the possibility of using some exemptions or exclusions conditional on whether the transaction took place before or after 1 January The IFRS 1 amendment concerns replacing that date with the date of application of IFRS. Moreover, the change of rules of conduct were introduced in the case when the entity operated in the period of severe hyperinflation, when price indexes were out of reach and there was no stable foreign currency. The standards and interpretations effective in the version published by International Accounting Standards Committee (IASC) but not approved by the European Union are presented below in the point concerning the standards and interpretations which did not come to effect. In this financial statement the voluntary earlier application of the standard or interpretation was not performed. The new published standards and interpretations of IFRIC published by the International Accounting Standards Committee (IASC) are presented below. Still, they are not binding in the current reporting period. As at the date of preparing this separate financial statement new or amended standards and interpretations binding for annual periods after the year 2013 were published: The five standards set concerning consolidation, joined arrangements and disclosure concerning interests in other entities: IFRS 12 Disclosure of interests in other entities will require the disclosure of greater amount of information on consolidated and unconsolidated entities in which the entity is engaged. The aim of IFRS 12 is delivering information so that the users of financial statements could evaluate the control base, restrictions imposed on consolidated assets and liabilities, exposition to risk resulting from engagement in structural unconsolidated entities and engagement of non-controlling shareholders in operations of consolidated entities. IAS 27 Separate financial statements (amended in 2011). Requirements concerning separate financial statements have not been changed and are included in the amended IAS 27. Other parts of IAS 27 are replaced by IRFS 10. IAS 28 Investments in associated and joint ventures (amended in 2011). IAS 28 was amended as a result of publishing IFRS 10, IFRS 11 and IFRS 12. In June 2012 IFRS 10, IFRS 11 and IFRS 12 were amended in order to deliver explanations concerning transitional provisions. All standards of The five standards set and further amendments are effective for annual periods starting on or after 1 January 2014 with the possibility of application earlier provided that all the five standards are implemented simultaneously. The Board of the Company expects adopting the five standards set in consolidated financial statements for the annual period starting on 1 January Applying these standards should not have a significant influence on the amounts demonstrated in consolidated financial statements. With reference to the amendments to IFRS 10 of October 2012 Investment entities the Group shall not take advantage of the exemption from consolidation provided for investment entities as the Group does not run this kind of activity. Amendments to IAS 32 Financial instruments -presentation offsetting assets and financial liabilities The amendments clarify the rules of offsetting and they focus on four main areas (a) clarification what having executable right to perform set-offs is; (b) simultaneous performing set-offs and settlements; (c) offsetting provisions; (d) accounting unit for the purpose of set-offs. The amendments to IAS 32 are effective on 1 January The Board forecast that the above mentioned amendments will contribute to the increase in the scope of disclosures in relation to the offset assets and financial liabilities. 13

14 Amendments to IAS 36 Impairment of assets Recoverable Amount Disclosures for Non-Financial Assets (effective for annual periods beginning on or after 1 January 2014), The amendments to IAS 36 in a minor scope concern disclosure of information on recoverable amount of assets which were subjects to impairment and in the situation when the recoverable amount is based on the fair value less disposal costs. While preparing IFRS 13 Fair Value Measurement, the IASC decided to change IAS 36 so as to introduce the requirement of disclosure of information on recoverable amount of assets which were subjects to impairment. The current amendments clarify the IASC s original intention that the scope of the disclosures is limited only to the recoverable amount of assets which were subjects to impairment and when the recoverable amount is based on the fair value less disposal costs. The Board forecast that the above mentioned amendments will not have a significant influence on the amounts demonstrated in the consolidated financial statement of the Group. The amendments to IAS 39 Financial Instruments: Recognition and Measurement Novation of derivatives and continuation of hedge accounting (effective for annual periods beginning on or after 1 January 2014) The amendments in a little scope enable using hedge accounting in the case of novation of derivative (designated as hedge instrument) so that the central contracting party becomes its party, provided that specified conditions are fulfilled. The Board forecast that the above mentioned amendments will not have a significant influence on the amounts demonstrated in the financial statement of the Group. The Company intends to implement the above mentioned regulations on the dates provided for application by the standards or interpretations. 5. Accounting principles applied 5.1. Principles of consolidation Acquisitions of companies and the individual parts of the activity are accounted for with the purchase method, except the merges under the common control which are accounted for with the pooling of interest method. The cost of merging companies is valued in the aggregated fair value of the assets transferred, born or acquired liabilities and capital instruments issued by the Group in return for taking control over the acquired entity, increased by the costs directly connected with merging economic entities. Identifiable assets, liabilities and contingent liabilities of the acquired entity which meet the requirements of recognition in accordance with the IFRS 3 Merging economic entities are recognized at fair value as at the day of acquisition, except non-current assets (or disposable groups) classified as held for sale in accordance with the IFRS 5 Non-current assets held for sale and discontinued activity recognized and measured at fair value decreased by selling costs. The goodwill resulting from the acquisition is recognized in assets and initially recognized after cost as the amount of acquisition expenses exceeding the Group s participation in the net fair value identifiable recognized assets, liabilities and contingent liabilities. If, after revaluation, the Group s participation in the net fair value of identifiable assets, liabilities and contingent liabilities of the acquired entity exceeds the cost of merging the economic entities, the surplus is immediately recognized in the financial result The subsidiaries mean the entities controlled by the parent company. It is acknowledged that the control takes place when the parent company can influence the financial and operating policy of the subsidiary in order to gain profit from its activity. The financial results of the subsidiaries purchased or sold during the year are recognized in the consolidated financial statement from/until the moment of their effective purchase or sale. In corresponding cases in the financial statements of the subsidiaries, corrections are made in order to align the accounting principles applied by one entity with the principles applied by the remaining entities of the Group. Any transactions, balances, revenues and costs existing between the consolidated and related entities undergo full consolidation elimination. The minority shares in the net assets (excluded the goodwill) of the consolidated subsidiaries are recognized separately from the Group s equity. The minority shares include the values of the shares as at the date of merging economic entities and minority shares in the changes in equity, starting from the date of the merging. The losses assigned to the minority shares exceeding the participation in the initial capital of the entity are 14

15 allocated to the Group s shares, except for the cases of binding liability and the minority shareholders ability to make additional investments in order to cover the losses. The goodwill arising at the acquisition results from the excess of the entity acquisition cost, occurring as at the date of the acquisition, over the Group s share in the net fair value of identifiable assets, liabilities and contingent liabilities of the subsidiary, associated or of a common undertaking recognized as at the date of acquisition. The goodwill is initially recognized as asset after cost and then measured according to the cost decreased by the cumulated impairment loss. For the purpose of impairment testing, the goodwill is allocated to the Group s individual units generating cash flows which should benefit from the synergy being the result of the merge. The entities generating cash flows, where the goodwill is allocated to, are tested on impairment dates once a year or more often if it can be reliably assumed that the impairment occurred. If the recoverable value of the unit which generates cash flows is lower than its carrying value, the impairment loss is first allocated in order to reduce the carrying amount of the company allocated to that center and then to the remaining assets of that unit in proportion to the carrying value of the entity s individual assets. The impairment loss recognized for the goodwill is not reversed over the succeeding period. At the moment of sale of the subsidiary or a company under common control, the due part of the goodwill is incorporated in calculating profit/ loss on sales Recognizing sales revenue Revenues from sales are recognized in fair value payment received or payable less the expected discounts, customers refunds and similar reductions, including tax on goods and services and VAT services and other taxes connected with sales, except for excise duty Sales of goods Revenues from sales are recognized after all the following conditions are met: and significant risk and advantages resulting from the goods ownership rights are transferred from the Group to the buyer; The managerial post is assigned by the Group at the extent usually connected with the ownership right and effective control over the goods sold; Possibility of performing reliable measurement of revenues; Probability that the entity gains economic advantages connected with the transaction; Possibility of performing reliable measurement of expenses incurred or expected in relation to the transaction Interest and dividend revenues Dividend revenues are recognized when the right of shareholders to receive payment is set. Income revenues are recognized cumulatively according to the time of occurrence by referring to the amount of unpaid capital and incorporating effective interest rate, that is the interest rate effectively discounting future cash inflows estimated for the expected period of usage of the definite asset to the net carrying value of that asset Leasing Lease is classified as financial lease if within the concluded contract, it transfers substantially all the risks and rewards resulting from ownership to the lessee. All other leases are classified as operating leases. Revenues from operating leases are recognized in the income statement over the lease period on a straight-line basis. Initial direct expenses, incurred at negotiation and/ or while gaining operating lease are added to the carrying amount of the leased asset and recognized over the lease period on a straight-line basis. The assets used on finance lease agreement basis are recognized as the Group s assets and they are measured at their fair value at the moment of purchase, but not higher than the present value of the minimal lease charge. The liability to the lesser occurring from that is demonstrated in the report on the financial situation in the item concerning liabilities from financial leasing. 15

16 Lease payments are divided into interest part and reduction of lease liability in such the way that the interest rate from the rest of the liability is constant. The financial expenses are recognized directly in the income statement, unless they can be directly assigned to the corresponding assets then they are capitalized in accordance with the Group s accounting principles concerning the liability charges presented below in item 3.6. Contingent leasing payments are recognized over the period of incurring them. Operating lease payments are recognized in the income statement over the lease period on a straight-line basis, unless another systematic basis is more representative of the time pattern of consumption of the economic benefits from the lease of a definite asset. Contingent payments connected with operating lease are recognized as expenses over the time of incurring them Foreign currency Transactions carried out in the currency different from the functional currency are recognized at the exchange rate of the currency as at the transaction date. As at the balance sheet date the assets and cash liabilities denominated in foreign currency are calculated in accordance with the exchange rate on that day. The assets and liabilities at fair value and denominated in foreign currency are measured in accordance with the exchange rate as at the day of setting the fair value. Non-cash items are measured in accordance with the historical cost Costs of external financing The costs of external financing directly connected with purchase or generating the assets demanding longer period of time to make them useable are included in the expenses of generating such the assets until the assets are basically ready for the intended usage or sales. Revenue from investment gained as a result of short-term investing the raised external funds allotted directly to finance the purchase or to generate assets reduce the external financing expenses being the subject to capitalization Subsidies Subsidies are not recognized until becoming certain that the Group meets the necessary conditions and is granted the subsidies. Subsidies whose substantial condition is purchase or generating non-current assets by the Group are recognized in the statement of financial situation in the item of accruals and recognized in the income statement systematically over the expected period of economic usage of the assets. The remaining subsidies are systematically recognized in the revenues over the period necessary to compensate the expenses which the subsidies were supposed to compensate. The subsidies receivable as the compensation of expenses or loss already incurred as a form of direct financial support for the Group without incurring future costs are recognized in the income statement over the period when they are receivable Costs of employee benefits Short-term employee benefits including payments of certain contributions to the schemes are recognized over the period when the Group received the objective benefit from an employee and in the case of distribution of bonus when the following conditions are met: The entity is apportioned with expected legal or usual liability to carry out payment as a result of past events and Reliable measurement of the liability is possible In the case of benefits such as compensated absence, employee benefits are recognized as cumulated paid absences the moment of performing the work which increases entitlements to future compensated absences. In the case of non-cumulated compensated absences, the benefits are recognized on occurrence. In the post-employment period benefits in the form of specific benefit plans (retirement allowances) and other long-term benefits are set by the projected unit credit method with actuary measurement method performed for every balance sheet day. Actuarial gain or loss are recognized in entirety in the comprehensive income statement. The costs of the past employment are recognized immediately to the extent that they concern benefits already vested and in the other cases they are amortized on a straight-line basis over the average period after which the benefits are vested. 16

17 Employee benefit liabilities are recognized as cost, unless they constitute the cost of generating asset components. Termination benefits are recognized as liability and cost when the Group is demonstrably committed to: Terminate employment with the employee or a group of employees before the normal retirement date, or provide termination benefits as a result of an offer placed by the company encouraging voluntary redundancy Taxation The Group s income tax includes current income tax and deferred tax. Current income tax is calculated on the basis of tax result (tax base) of the definite financial year. Tax related profit (loss) differs from the net balance profit (loss) by the exclusion of non-taxable revenues and costs which are not income costs. Tax liabilities are calculated on the basis of tax rates binding in the definite financial year. Deferred tax is calculated with balance method as tax payable or recoverable in the future based on the differences between carrying amounts of assets and liabilities and corresponding tax values used for calculating tax base. Deferred tax reserve is generated from all taxable temporary gains but deferred tax asset is recognized to the amount that it is possible to reduce the future tax related profit by the recognized deductible temporary loss and tax related losses or tax concessions that the Group may use. The item of assets or deferred tax reserve does not occur when the temporary difference arises from original goodwill recognition or from original recognition of another asset or liability in the transaction which does not influence either tax result or accounting result. The value of deferred tax assets is analyzed as at every balance sheet day and when the expected future tax related gains are not sufficient for recovering the asset or its part, it is written off. The deferred tax is calculated with the use of tax rates which will apply the moment the asset is recovered or when a liability is required. Current and deferred tax are demonstrated in the costs or revenues in the income statement, except when it concerns the items recognizing or directly charging the equity as, in that case, the tax is recognized directly in the equity (other comprehensive incomes in the comprehensive income statement) or when it results from the original accounting of economic entities combination. In the case of economic entities merge, tax consequences are considered while calculating the goodwill or while determining the value of the acquirer s participation in the net fair value of identifiable assets, liabilities and contingent liabilities of the acquired entity exceeding the acquisition cost Tangible non-current assets Tangible non-current assets include tangible fixed assets and expenditure on tangible fixed assets under construction which the entity intends to use in their activity and for administrative purposes over the period longer than one year, which in the future will contribute to economic benefits inflow to the entity. Expenditure on tangible fixed assets include investments and expenses incurred for the future deliveries of machines, devices and services connected with generating expenditure on tangible fixed assets (advances). Tangible fixed assets include significant specialized components functioning as a part of the tangible fixed assets. Tangible fixed assets and tangible fixed assets under construction are originally recognized at the purchase price or the cost of generating. Tangible fixed assets under construction generated for the purposes of production, lease or administrative purposes or for purposes not defined yet are demonstrated in the statement of financial situation at manufacturing cost less impairment loss. The manufacturing cost includes payments and, for certain assets, the costs of external financing capitalized in accordance with the accounting principles of the Group. Depreciation concerning those non-current assets starts on the date of using them, in accordance with principles for the Group s other non-current assets. Depreciation of tangible fixed assets is performed at the rates reflecting the expected period of usage. The estimates of the period are audited yearly. For the purposes of depreciation of tangible fixed assets a straight line depreciation method is used. The usage periods for individual tangible fixed assets are as follows: 17

18 Buildings and structures from 10 to 40 years, Machines and devices from 3 to 7 years, Means of transport from 5 to 7 years, Other tangible fixed assets from 3 to 10 years. Owned land is not depreciated. Tangible fixed assets and tangible fixed assets under construction are tested for impairment if there are indications that impairment may occur but as for tangible fixed assets under construction over the period of their realization, the potential impairment is defined for every balance sheet day. The effects of impairment of tangible fixed assets and tangible fixed assets under construction are recognized in the other operating expenses. Assets maintained on the basis of financial lease agreement are depreciated over the period of their expected economic usage according to the same rules as own assets. When there is no sufficient certainty that the Group receives the title deed by the end of the leasing period, the definite asset is remitted for the shorter of the two periods: the leasing period or the usage period. Tangible fixed assets and tangible fixed assets under construction which meet the criteria of being classified as held for sale or recognized in the group as held for sale are measured in accordance with the IFRS 5 Profits or loss from sales/ liquidation or discontinued usage of items of property are defined as the difference between revenues from sales and the carrying value of those items and they are recognized in the comprehensive income statement Intangible assets Intangible assets include the Group s assets not being of physical substance which are identifiable and reliably assessable, and which in the future will contribute to economic gains for the entity. Intangible assets are initially recognized at the purchase price or manufacturing cost. Intangible assets generated as a result of running development works are recognized in the statement of financial situation after the following conditions are met: From the technical point of view it is possible to complete the component of the intangible assets in the way that it is prepared for sale or use, It is possible to prove the intention of completing the component and its usage or sales, The component will be prepared for sales or usage, The method in which the component will generate future economic gains is known, Technical and financial measures necessary for accomplishment of development works and their usage and sales will be provided, It is possible to reliably calculate the costs incurred during the period of development works. The costs incurred during the research works and the costs which do not meet the above mentioned conditions are recognized as costs in the income statement on the date of incurring them. Amortization of intangible assets takes place according to the rates reflecting the expected period of their usage. The estimates of the usage period are verified yearly. The Group does not hold intangible assets of indefinite time of usage. For the purposes of depreciation of intangible assets of definite usage time the straight-line depreciation method is applied. The periods of usage for individual components of intangible assets are as follows: Software licences from 2 to 20 years, Development works 5 years, Trademarks 50 years, Property rights 5 years. Intangible assets are tested for impairment if there are indications that impairment may occur but as for intangible non-current assets, over the period of their realization the potential impairment is defined as at every balance sheet day. The effects of the impairment, intangible assets and depreciation are charged to the costs of basic activity. Intangible assets maintained on the basis of financial lease agreement are depreciated over the period of their expected economic usage under the same rules as own assets. When there is no sufficient certainty 18

19 that the Group receives the title deed by the end of the leasing period, the definite asset is remitted for the shorter of the two periods: the leasing period or the usage period. Intangible assets meeting the criteria of being classified as held for sale or recognized in the group as held for disposal are measured in accordance with the IFRS 5. Profits or loss from sales/ liquidation or discontinued usage of items of intangible assets are defined as the difference between revenues from sales and the carrying value of those items and they are recognized in the income statement. As at the balance date intangible assets are measured at the cost less capital allowances and potential permanent impairment losses Impairment of tangible and intangible assets and legal values excluding goodwill For every balance sheet day the Group reviews the carrying amounts of the non-current assets and intangible assets owned in order to check if there are any indications of their impairment. If the indications are recognized, the value of recoverable amount of a definite asset component is estimated in order to set a potential write off. In the situation when the asset component does not generate cash flows which are to a considerable extent independent of cash flows generated by other assets, the analysis is carried out for the group of assets generating cash flows where the definite asset component belongs. If a reliable and uniform allocation base is possible to be indicated, the components of the Group s non-current assets are allocated to the individual units generating cash flows or to the smallest groups of units generating such cash flows to whom a reliable and uniform allocation base can be assigned. For intangible assets of indefinite time of usage, the impairment tests are performed yearly and additionally when there are any indications of impairment. The recoverable value is set as the higher of the two values: fair value less sales costs or value in use. The latter corresponds to the carrying value of the estimate of future cash flows discounted with the discount rate before taxation incorporating the current market value of money in time and specific risks for the definite asset component. If the recoverable value is lower than the carrying value of the assets component (or of the unit generating cash flows), the carrying value of the component or unit is reduced to the recoverable amount. Impairment loss is immediately recognized as the cost of the period when it occurred). If the impairment loss is then reversed, the net value of the asset component (or a unit generating cash flow) is increased to the new estimated recoverable value but not exceeding the carrying value of the assets component which would be established if in the previous years the impairment loss of the assets component/ unit generating cash flows had not been recognized. The impairment reversal is immediately recognized in the income statement Inventory Inventory is the asset held for sale in the ordinary course of business, being in production held for sale and in the form of materials or supplies to be consumed in the production process or in the rendering of services. Inventory includes materials, goods, finished products and production in progress. Materials and goods are originally measured at purchase prices. As at the balance sheet date the measurement of materials and goods is performed on the prudent basis, that is, the categories are measured at purchase price or at the realizable sales value whichever is lower. Finished products and products in production are originally measured at the real cost of producing. As at the balance sheet date the measurement of materials and goods is made on the prudent basis Inventory of goods, materials and finished products are covered by the write down at the individual evaluation of realizable price as at the balance sheet date. Inventory expenses is made on the basis of detailed identification as for items that are segregated for specific projects and on the basis of first-in, first out method for the other inventory and it is recognized in cost of sales. Depreciations concerning inventory, resulting from prudent measurement and overstock values and their reversals are recognized in the other operating costs. 19