FOTA S.A. FINANCIAL REPORTS FOR THE YEAR ENDED ON 31 DECEMBER 2012 WITH AN OPINION OF AN INDEPENDENT CHARTERED AUDITOR

Transcription

1 FOTA S.A. FINANCIAL REPORTS FOR THE YEAR ENDED ON 31 DECEMBER 2012 WITH AN OPINION OF AN INDEPENDENT CHARTERED AUDITOR Gdynia, 30 April 2013

2 FOTA S.A. Financial statements for the year ended on 2012 STATEMENT OF COMPREHENSIVE INCOME... 4 STATEMENT OF FINANCIAL POSITION... 5 STATEMENT OF CASH FLOWS... 6 STATEMENT OF CHANGES IN EQUITY... 7 ACCOUNTING PRINCIPLES AND ADDITIONAL EXPLANATORY NOTES General information Identification of the financial statements Composition of the Management Board of the Company Approval of the financial statements Investments of the Company Significant values based upon professional judgement and estimations Professional judgement Uncertainty of estimations Grounds for drawing up the consolidated financial statements Representation concerning conformity Measurement currency and financial statements currency Changes in applied accounting policies New standards and interpretations which have been published and approved by the EU but have not entered into life yet Adjustment for error Changes of estimations Significant accounting principles Translation of items expressed in foreign currencies Property, plant and equipment Investment properties Intangible assets Lease Impairment of non-financial non-current assets Costs of external financing Shares in subsidiaries and associates Financial assets Impairment of financial assets Assets recognized at amortized cost Financial assets recognized at cost Financial assets available for sale Inventories Trade and other receivables Cash and cash equivalents Interest-bearing bank loans, loans, and debt securities Trade liabilities and other liabilities Provisions Retirement gratuities Revenue Sales of goods and products Interest Dividends Income from lease (operating lease) Taxes Current tax Deferred tax Value added tax Net profit (loss) per share Operating segments Income and costs Other incomes Other costs

3 FOTA S.A. Financial statements for the year ended on Financial income Financial costs Costs according to types Costs of amortization and depreciation and revaluation write-offs recognized in profit or loss Costs of employee benefits Income tax Tax liabilities Reconciliation of effective tax rate Deferred income tax Social property and liabilities of the company s social benefits fund Profit (loss) per share Dividends paid and proposed for payment Property, plant and equipment Lease Operating lease liabilities the Company as a lessee Liabilities on account of finance lease contracts and lease contracts with purchase option Intangible assets Investments in subsidiaries and associates Other assets Other financial assets Other non-financial assets Employee benefits Employee benefit schemes Retirement benefits and other post-employment benefits Inventories Trade and other receivables Cash and cash equivalents Share capital, statutory reserve and other reserves Share capital Nominal value of shares Rights of shareholders Shareholders with significant shares Surplus from the sale of shares over their nominal value Other reserves Non-distributed profit (loss) and restrictions in the payment of dividends Interest-bearing bank loans and loans Provisions Trade and other liabilities Trade and other liabilities (short-term) Other financial liabilities Other non-financial liabilities Investment liabilities Contingent liabilities Cases in court Tax settlements Information concerning affiliates Entity with a significant influence on the Company Affiliate Conditions of transactions with affiliates Lendings to members of the Management Board and supervisory authorities Other transactions with the participation of members of the Management Board Salaries of the management Salaries paid or due to members of the Management Board and the Supervisory Board Information on remuneration of a chartered auditor or an entity authorized to examine financial statements Purposes and principles of financial risk management

4 FOTA S.A. Financial statements for the year ended on Liquidity risk Currency risk Interest rate risk Credit risk Financial instruments Fair values of separate classes of financial instruments Income, cost, profit, and loss items recognized in the profit and loss account divided into categories of financial instruments Interest rate risk Capital management Employment structure Events after the balance sheet date

5 FOTA S.A. Financial statements for the year ended on 2012 STATEMENT OF COMPREHENSIVE INCOME for the year ended on 2012 Continued activity Note Year ended on 2012 Year ended on 2011 Revenue 448, ,496 Own costs of sales (346,931) (370,777) Gross profit/(loss) on sales 101, ,719 Other income ,694 Costs of sales 14.5 (75,588) (78,516) Costs of general management 14.5 (24,915) (27,519) Other costs 14.2 (14,449) (3,224) Profit/(loss) on operating activity (13,446) (16,154) Financial incomes ,918 1,798 Financial costs 14.4 (23,429) (12,441) Profit/(Loss) before tax (30,957) 5,511 Income tax ,941 (1,193) Net profit/(loss) (25,016) 4,318 Net profit/(loss) for the business year (25,016) 4,318 Other net comprehensive income - - COMPREHENSIVE INCOME FOR THE PERIOD (25,016) 4,318 Profit per share (in zlotys/grosz per share) From continued and discontinued activity: 17 (2.66) 0.46 From continued activity: 17 (2.66)

6 FOTA S.A. Financial statements for the year ended on 2012 STATEMENT OF FINANCIAL POSITION as at 2012 Note 31 December Non-current assets Property, plant and equipment 19 35,444 38,574 Intangible assets 21 12,209 13,167 Investments in subsidiaries 22 18,986 23,986 Other financial assets 23-6,367 Deferred income tax ,227 10,285 82,866 92,279 Current assets Inventories , ,916 Trade and other receivables 26 68,686 66,208 Other non-financial assets Other financial assets 23 2,659 2,571 Cash and cash equivalents 27 4,666 18, , ,932 TOTAL ASSETS 316, ,311 EQUITY AND LIABILITIES Equity Issued capital ,832 18,832 Own shares 28.1 (40) - Surplus from the sales of shares over their nominal value ,477 70,477 Other reserves ,046 56,728 Retained profit/(retained loss) 28.4 (25,016) 4,318 Total equity 125, ,355 Long-term liabilities Interest-bearing borrowings 29-1,221 Other financial liabilities ,865 4,720 Provisions ,944 6,020 Short-term liabilities Trade and other liabilities ,145 91,788 Current part of interest-bearing borrowings 29 95,930 97,079 Other financial liabilities ,501 11,794 Other non-financial liabilities ,686 8, , ,936 Total liabilities 191, ,956 TOTAL EQUITY AND LIABILITIES 316, ,311 5

7 FOTA S.A. Financial statements for the year ended on 2012 STATEMENT OF CASH FLOWS for the year ended on 2012 Operating cash flows Year ended on 31 December 2012 Year ended on 31 December 2011 Profit/(loss) before tax (30,957) 5,511 Adjustments: 36,030 (5,586) Amortisation and depreciation 5,999 5,939 (Profit)/loss on investments 15,875 (1,040) (Increase)/decrease in receivables (6,269) (5,152) (Increase)/decrease in inventories 27,834 (5,602) Increase/(decrease) in liabilities (13,316) (3,479) (Incomes from)/costs of interest 5,907 5,759 Movements in provisions - 10 Income tax paid - (2,021) Net operating cash flows 5,073 (75) Investing cash flows Sales of property, plant and equipment and intangible assets Purchase of property, plant and equipment and intangible assets (2,908) (5,049) Sales of investments in subsidiaries - 15 Purchase of investments in subsidiaries (1) (956) Interest received Repayment of lendings Lendings (780) (2,210) Net investing cash flows (3,305) (7,768) Financing cash flows Purchase of own shares (40) - Finance lease in-flows - 5,208 Finance lease payments (1,952) (1,215) In-flows from borrowings - 18,741 Repayment of borrowings (7,566) (1,831) Interest paid (6,203) (6,006) Other (1) (318) Net financing cash flows (15,762) (14,579) Net movement in cash and cash equivalents (13,994) 6,736 Opening cash 18,660 11,924 Closing cash 4,666 18,660 6

8 STATEMENT OF CHANGES IN EQUITY for the year ended on 2012 Issued capital Own shares Surplus from the sales of shares over the nominal value Other reserves Retained profit/retained loss Total equity As at 1 January ,832-70,477 56,728 4, ,355 Profit/(loss) for the period (25,016) (25,016) Translation differences on revaluation Total comprehensive income (25,016) (25,016) Purchase of own shares - (40) (40) Distribution of retained profit - - 4,318 (4,318) - As at ,832 (40) (70,477) 61,046 (25,016) 125,299 for the year ended on 2011 Issued capital Surplus from the sales of shares over the nominal value Other reserves Retained profit/retained loss Total equity As at 1 January ,832 70,477 70,157 (13,429) 146,037 Profit/(loss) for the period ,318 4,318 Translation differences on revaluation Total comprehensive income 18,832 70,477 70,157 4, ,355 Distribution of retained profit - - (13,429) 13,429 - As at ,832 70,477 56,728 4, ,355 7

9 ACCOUNTING PRINCIPLES AND ADDITIONAL EXPLANATORY NOTES 1. General information The financial statements of Fota S.A. cover the year ended on 2012 and include comparative data for the year ended on Fota S.A. ( Fota, Company ) was formed with the Notarial Deed of 29 August The registered office of the Company is located in Gdynia at ul. Stryjska 24. The Company is entered in the Register of Entrepreneurs of the National Court Register kept by the District Court Gdańsk-Północ in Gdańsk, 8 th Business Division of the National Court Register, with the no. KRS The Company was assigned the statistical no. of REGON The term of the Company is unspecified. The primary activity of the Group is selling and manufacturing spare parts and accessories for vehicles and garage equipment. 2. Identification of the financial statements The Company has drawn up the financial statements for the year ended on 2012, which were approved for publication on 30 April Composition of the Management Board of the Company As at 2012, the Management Board was composed as follows: Paweł Gizicki President of the Management Board Radosław Wojtkiewicz Member of the Management Board Wojciech Kotarski Member of the Management Board Adrian Smeja Member of the Management Board. On 16 April 2012, the Supervisory Board recalled Karol Dudij from the position of a Member of the Management Board On 16 November 2012, the Supervisory Board appointed Wojciech Kotarski as a Member of the Management Board. On 21 December 2012, the Supervisory Board appointed Adrian Smeja as a Member of the Management Board. On 2 April 2013, the Supervisory Board appointed Jakub Fota as a Member of the Management Board. 4. Approval of the financial statements These financial statements were approved for publication by the Management Board of the Company on 30 April Investments of the Company The Company has made investments in the following subsidiaries and associates: Entity Registered office Activities Percentage share of the company in capital 8

10 Art-Gum Autoprima Słowacja Automotosport Expom Fota Cesko Autoprima Czechy Fota Ukraina Vessel Mazańcowice, Poland Nitra, Slovakia Presov, Slovakia Kwidzyn, Poland Cieszyn, Czech Republic Prague, Czech Republic Kiev, Ukraine Warsaw, Poland trade with tyres 75.6% 75.6% trade with car spare parts 100.0% 100.0% trade with car spare parts 100.0% 100.0% manufacture and repair of parts 99.5% 99.5% does not conduct operating 100.0% 100.0% activities trade with car spare parts % trade with car spare parts 70.0% 70.0% does not conduct operating activities 39.2% 39.2% As at 2012 and 2011, the share in the total number of votes held by the Company in its subsidiaries and associates was equal to the share of the Company in the capital of these entities. On 26 October 2012, the Company entered into the agreement concerning the sale of shares of AUTOPRIMA spol. s r.o. with the registered office in the Czech Republic ( Autoprima Czechy ). Under the provisions of the agreement, Fota S.A. sold 100% of shares held in the company reflecting 80% of the share capital of the company, the nominal value being CZK 160,000, for PLN 1,000. This transaction is a consequence of the decision made by the Group concerning the withdrawal from unprofitable activities in the Czech market and, as a result, the elimination of the negative effect of Autoprima Czechy on the financial result of the Capital Group. Loss on operating activities of Autoprima Czechy for the period of the 9 months in 2012 was PLN 3.2 M (PLN 4.8 M for the 9 months in 2011). In relation to the sale of shares of Autoprima Czechy, the Company terminated the sales agreement and, as a consequence, withdrew the goods delivered to Autoprima Czechy worth app. EUR 1.3 M. The termination of the sale agreement results with the establishment of securities for receivables due to Fota S.A. on the property of Autoprima Czechy in order to limit loss on investments in this company. Apart from the above, there were no other changes in the composition of the Group from 1 January to Significant values based upon professional judgement and estimations 6.1. Professional judgement In the process of applying accounting policies to issues presented below, professional judgement of the management was of the greatest importance, apart from accounting estimations. Due rebates, discounts and other payments depending on the purchase volume Contracts with suppliers of goods provide for rebates and discounts which depend on the purchase volume in the relevant settlement period. The level of rebates due to the Company may be determined as a percentage of purchases made, which changes depending on the purchase volume. Based on the current sales and purchases predictions, the Company estimates the value of due rebates and discounts at the end of each reporting period. Due rebates and discounts reduce the value of inventories they pertain to. In the part pertaining to the goods already sold, they adjust the 9

11 cost of goods sold. FOTA S.A. CAPITAL GROUP Classification of lease agreements The Group classifies lease as operating or finance based on the assessment within what scope risks and benefits from the possession of the leased object are attributable to the lessor and the lessee. This assessment is based upon the substance of each transaction Uncertainty of estimations Below, the basic assumptions concerning future are discussed as well as other key sources of uncertainty as at the balance sheet date, which are related to a high risk of a significant adjustment of the carrying amounts of assets and liabilities in the following financial year. Impairment of non-current assets As long as there are justified reasons, the Company performs tests concerning the impairment of non-current assets. This requires that the value in use be estimated of the cash-generating units which these non-current assets belong to. The estimation of the value in use consists in the determination of future cash flows generated by the cash-generating unit and requires that a discount rate be determined to be used in order to calculate the current value of these flows. Revaluation write-offs on current assets As at each balance sheet date, the Company updates write-offs on inventories and receivables. The Company estimates the value of a write-off on inventories, separately for each index, taking the following criteria into account: goods rotation, transaction frequency, and goods type. Principles for revaluation write-offs on trade receivables are based on the aged receivables period. In addition, in justified cases the Company recognizes revaluation write-offs on other receivables, in particular on justified amounts due from agents with which the Company terminated cooperation agreements as a result of a glaring breach of agreements binding the parties. Deferred tax asset The Group recognizes a deferred tax asset based on the assumption that in future a tax profit will be obtained which will enable the use of this asset. The deterioration of tax results in future could result in the fact that this assumption would become unjustified. Fair value of financial instruments Fair value of financial instruments for which there is no active market is measured using suitable measurement methods. When choosing suitable methods and assumptions, the Group uses professional judgement. Amortization and depreciation rates Amortization and depreciation rates are determined based on the predicted useful economic life of property, plant and equipment and intangible assets. The Company verifies the adopted periods of useful economic life each year, based upon current estimations. 7. Grounds for drawing up the consolidated financial statements 10

12 These financial statements have been drawn up according to the historical cost principle, with the exception of derivatives, which are measured at the fair value. These financial statements have been drawn up in zlotys (PLN); all amounts are provided in thousands PLN, except where stated otherwise. These financial statements have been drawn up with the assumption that the Company is able to continue as a going concern in predictable future. Loan agreements made by the Company include obligations of the Company to maintain specific financial indices on levels agreed with individual banks. In relation to financial results obtained by the Company for 2012, this requirement was not met in the case of some indices, what enables the banks financing the activities of the Company to change the margin, start the amortization of borrowing limits, or terminate loan agreements. As presented in Note 29, short-term liabilities of the Company on account of bank loans are PLN 95,930,000, with the maturity date before The fact that it may be impossible to extend loan agreements for future periods may pose a significant risk to the ability of the Company to continue as a going concern. In February 2013, the Management Board of Fota S.A. adopted a strategy aiming at the improvement of the efficiency of the Company s operating activities and the change of its strategic position. As a part of this strategy, the Company intends to conduct projects with the goal to improve the standard of current clients service and to present its offer to new groups of clients. The planned activities aimed at the improvement of client service standards include, among other things, changes in the approach to the construction of the offer and in the allocation of the offer on the level of a sale facility. Presenting the offer to new clients is related, among other things, to the development of the offer and the change of sales facilities format. The Company has taken multidirectional activities in order to obtain additional capital for the conduct of the prepared projects. The adopted package of activities also includes the reorganization of the existing sales network, including the liquidation of some sales facilities at the initial stage of the reorganization. The Company regularly assesses its divisions in terms of effective use of available resources and abilities to generate expected levels of results. Based on this effectiveness assessment, in February 2013 the Management Board of the Company decided to close some divisions. The capital released as a result will be allocated for the conduct of the prepared projects in other sales facilities. The main result of this process is supposed to be a better allocation (i.e. one that ensures higher returns) of the existing resources of the Company Representation concerning conformity These financial statements have been drawn up in conformity with the International Financial Reporting Standards ( IFRSs ) and the IFRSs approved by the EU. As at the approval date for publication, taking into account the process of introducing IFRSs in the EU and the activity conducted by the Company, there are no differences between the IFRSs which have entered into force and the IFRSs approved by the EU concerning the accounting policies applied by the Company. IFRSs contain standards and interpretations accepted by the International Accounting Standards Committee ( IASC ) and the International Financial Reporting Interpretations Committee ( IFRIC ). 11

13 7.2. Measurement currency and financial statements currency Polish zloty is the operating currency of the Company and the reporting currency of these consolidated financial statements. 8. Changes in applied accounting policies The accounting policies applied to these financial statements for the year ended on 2012 are consistent with those applied to the consolidated financial statements of the Company for the year ended on 2011, with the exception of the application of the following changes to standards and new interpretations in effect for one-year periods starting of 1 January 2012: Changes resulting from IFRS modifications The following new or modified standards and interpretations issued by the International Accounting Standards Committee or the International Financial Reporting Interpretations Committee have been in effect since 1 January 2012: Modifications of IFRS 1 Significant hyperinflation and deletion of fixed time periods Modifications of IAS 12 Deferred tax: recoverability of assets forming the grounds for the determination of deferred tax Modifications of IFRS 7 Disclosures transfer of financial assets The application of the modifications listed above did not influence the Group s financial situation or result; the only consequences included modifications in applied accounting policies, possible extension of the scope of essential disclosures, or modifications of used terminology. 9. New standards and interpretations which have been published and approved by the EU but have not entered into life yet New standards, modifications in current standards, and interpretations approved by the European Union ( EU ): IFRS 10 Consolidated financial statements (binding from 1 January 2013 or after this date in EU applied, at the latest, to one-year periods starting on 1 January 2014 or after that date), IFRS 11 Joint arrangements (binding from 1 January 2012 or after this date in the EU applied, at the latest, to one-year periods starting on 1 January 2014 or after that date), IFRS 12 Disclosure of interests in other entities (binding from 1 January 2012 or after this date in the EU applied, at the latest, to one-year periods starting on 1 January 2014 or after that date), IFRS 13 Fair value measurement (binding from 1 January 2013 or after this date), IAS 27 Separate financial statements (version from 2011) (binding from 1 January 2012 or after this date in the EU applied, at the latest, to one-year periods starting on 1 January 2014 or after that date), IAS 28 Investments in associates and joint ventures (version from 2011) (binding from 1 January 2012 or after this date in the EU applied, at the latest, to one-year periods starting on 1 January 2014 or after that date), Modifications to IAS 1 Presentation of financial statements: presentation of components of other comprehensive incomes (binding from 1 July 2012 or after that date), Modifications to IFRS 7 Financial instruments: disclosures: offsetting financial assets and 12

14 financial liabilities (binding for one-year periods beginning on January 1, 2013 or after this date). Modifications to IAS 19 Employee benefits (binding from 1 January 2013 or after this date), Modifications to IAS 12 Income taxes: tax utilisation of assets (binding from 1 January 2012 or after this date in the EU applied, at the latest, to one-year periods starting on 1 January 2013 or after that date), Modifications to IFRS 1 First time adoption of International Financial Reporting Standards: significant hyperinflation and deletion of fixed time periods for entities adopting IFRS for the first time (binding from 1 July 2011 or after this date in the EU applied, at the latest, to oneyear periods starting on 1 January 2013 or after that date), Modifications to IAS 32 Financial instruments: disclosures: offsetting financial assets and financial liabilities (binding for one-year periods beginning on 1 January 2014 or after this date). The Company have not decided to apply any standard, interpretation, or modification which have been published but have not entered into effect yet. New standards, modifications to current standards, and interpretations which have not been approved by the European Union are as follows: Modifications to IFRS 9 Financial instruments: classification and measurement (binding from 1 July 2015 or after this date), Modifications resulting from the review of IFRSs (published in May 2012) (binding for oneyear periods beginning on 1 January 2013 or after this date), Modifications to IFRS 10, IFRS 11, and IFRS 12 Transitory provisions (binding for one-year periods beginning on 1 January 2013 or after this date), Modifications to IFRS 10, IFRS 12, and IAS 27 Investment entities (binding for one-year periods beginning on 1 January 2013 or after this date). The Management Board of the Company has not determined whether the introduction of the modifications to standards and interpretations listed above may influence the Company s financial situation and result and, if so, to what extent. However, the Management Board does not expect the introduction of the standards and interpretations listed above to have a significant influence on the accounting principles applied by the Company. 10. Adjustment for error In the year ended on 2012 and the year ended on 2011, the Company did not make any adjustments for errors. 11. Changes of estimations In the year ended on 2012 and the year ended on 2011, the Company did not change estimated values which have or will have a significant influence on the current period or future periods. 12. Significant accounting principles Translation of items expressed in foreign currencies Transactions expressed in currencies other than Polish zloty are translated into Polish zloty using the rate in effect on the transaction date. 13

15 As at the balance sheet date, financial assets and liabilities expressed in currencies other than Polish zloty are translated into Polish zloty using the average rate determined for the currency in question by the National Bank of Poland as at the end of the reporting period. Translation differences are recognized as financial incomes (costs) as appropriate or, in the cases determined in the accounting principles, they are recognized as assets. Non-financial assets and liabilities recognized at the historical cost expressed in foreign currencies are recognized at historical cost as at the transaction date. Non-financial assets and liabilities recognized at fair value expressed in foreign currencies are translated at the rate as at the date on which the fair value measurement was made. The following rates have been adopted for the balance sheet measurement: USD EUR Property, plant and equipment Property, plant and equipment are recognized at their cost reduced with depreciation and impairment write-offs. The initial value of property, plant and equipment includes their purchase price increased by all costs related directly to the purchase and the adaptation of an asset to the condition fit for use. The cost also includes the costs of replacing machine and device components as at the date when they were incurred if recognition criteria are met. Costs incurred after the commissioning of a property, plant and equipment item, such as the costs of maintenance and repairs, are brought to profit or loss as at the date when they were incurred. Upon purchase, property, plant and equipment are divided into components which are items of significant value and to which different useful economic lives can be assigned. The costs of major renovations are also recognized as a component. Depreciation is also calculated using the straight-line method over the estimated useful life of an asset in question, which is as follows: Type Buildings and constructions Machines and technical devices Office equipment Means of transport Computers Investments in third-party property, plant and equipment Period years 5-7 years 5-10 years 5 years years 10 years The final value, useful life, and depreciation method of property, plant and equipment are verified annually and adjusted with effect from the beginning of the business year if necessary. A property, plant and equipment item may be removed from the statement of financial position after sale or if no economic benefits from further use of such item are expected. All profit or loss resulting from the removal of an asset from the statement of financial position (calculated as a difference between possible net income from sale and the carrying amount of the asset in question) are recognized as profit or loss in the period in which they were removed. Started investments concern property, plant and equipment in construction or assembly and are recognized at the cost reduced with possible impairment write-offs. Property, plant and equipment in construction are not depreciated until the construction is completed and the asset is commissioned for use. 14

16 12.3. Investment properties Investment properties are recognized at cost taking transaction costs into account. After initial recognition, the value of investment properties is reduced with depreciation and impairment writeoffs. Investment properties are removed from the statement of financial position in case of sale or permanent withdrawal of an investment property from use if no future profits from the sale of the property are expected. All profit and loss resulting from the removal of the investment property from the statement of financial position are recognized as profit or loss in the period when the property was removed. Assets are transferred to investment properties only when the method of the use t has changed what has been confirmed with the end of using the asset by the owner or by entering into an operating lease contract. If an asset used by the owner-the Company becomes an investment property, the Company applies principles described in the section Property, plant and equipment until the date when the method of use of the property changed Intangible assets Intangible assets purchased in a separate transaction or manufactured (if they meet recognition criteria for R&D costs) are measured upon initial recognition at their cost. The purchase price of intangibles purchased in a business combination transaction equals their fair value as at the combination date. After initial recognition, intangibles are recognized at their cost reduced by amortization and impairment write-offs. Outlays for intangible assets manufactured by the Company, with the exception of outlays for R&D eligible for capitalisation, are not eligible for capitalisation and are recognized as costs of the period when they were made. The Company defines whether the useful economic life of intangible assets is determined or not determined. Intangible assets with determined useful life are amortized over the useful life and tested for impairment each time when there is an indication of impairment. The period and method of amortization of intangible assets with determined useful life are verified at least at the end of each business year. Changes in the expected useful life or the expected method of consuming economic profits from an asset in question are recognized by changing the period or the method of amortization as appropriate and are treated as changes of estimates. Amortization write-offs on intangible assets with determined useful economic life are recognized as profit or loss in the category which reflects the function of an intangible asset in question. Intangible assets with non-determined useful economic life and intangible assets which are not used are tested for impairment annually in relation to separate assets or on the level of a cash generating unit. Useful economic lives are verified annually and, if necessary, are adjusted with effect from the beginning of a business year. Below, principles are presented which are applied to intangible assets of the Company: Software Other (including trademarks) Useful life 5-15 years 3-17 years Applied amortization method 5-15 years; straight-line method 3-17 years; straight-line method 15

17 Manufactured by the Company or acquired Verification for impairment Acquired Annual assessment whether there are indications of impairment Acquired Annual assessment whether there are indications of impairment Profit or loss from the removal of intangible assets from the statement of financial position are measured at the difference between net income from sales and the carrying amount of an asset in question and recognized as profit or loss as at the date when the assets were removed from the statement of financial position Lease Finance lease agreements which transfer virtually all risk and benefits resulting from the possession of the leased object to the Company are recognized in the statement of financial position as at the date of starting the lease at the lower of fair value of the leased property, plant and equipment item and the current value of minimum lease payments. Lease payments are divided into financial costs and the reduction of balance of lease liability in the manner which makes it possible to obtain the whole interest rate on the liability still to be paid. Financial costs are recognized as profit or loss unless capitalization requirements are met. Property, plant and equipment used based on finance lease agreements are depreciated over the shorter of estimated useful life of the asset and the lease period. Lease agreements based on which the lessor keeps virtually all risk and benefits resulting from the possession of the leased objects are recognized as operating lease agreements. Lease payments on account of operating lease and further lease instalments are recognized as operating costs and taken to profit or loss using the straight-line method over the lease period. Contingent lease payments are recognized as cost in the period when they become due Impairment of non-financial non-current assets As at each balance sheet date, the Group assesses whether there is an indication that any nonfinancial non-current asset could have been impaired. If it is determined that there is such an indication or in case it is necessary to conduct the annual impairment test, the Group estimates the recoverable value of the asset in question or the cash-generating unit which the asset in question belongs to. The recoverable value of an asset or a cash-generating unit equals fair value reduced by costs of selling this asset or cash-generating unit, or its value in use depending on which of them is higher. The recoverable value is determined for separate assets unless the asset in question does not generate, on its own, cash in-flows which are, in majority, independent from those generated by other assets or groups of assets. If the carrying amount of an asset is higher than its recoverable value, the asset is impaired and a write-off is recognized down to the determined recoverable value. When estimating value in use, the predicted cash flows are discounted to their current value using the discount rate before tax results which reflects current market estimation of money value in time and the risk typical of the asset in question. Impairment write-offs of assets used in continued activities are recognized in these categories of costs which reflect the function of the impaired asset. As at each balance sheet date the Group assesses whether there is any indication that an impairment write-off recognized in previous periods regarding an asset in question is unnecessary or whether it should be reduced. If there is such indication, the Group estimates the recoverable value of this 16

18 asset. The impairment write-off recognized previously is reversed only when estimates applied to determine the recoverable value of the asset have changed from the recognition of the last impairment write-off. In such a case the carrying value of the asset is increased up to its recoverable value. The increased amount may not exceed the carrying amount of the asset which would be determined (after depreciation) if the impairment write-off was not recognized on this asset in previous years. The reversal of an impairment write-off is immediately recognized as income. After the reversal of an impairment write-off, the depreciation write-off on the asset in question is adjusted in the following periods in the manner which would make it possible to regularly write off the verified carrying amount of the asset reduced by the final value over the remaining period of use Costs of external financing Costs external financing are capitalized as a part of the cost of manufacturing property, plant and equipment, investment properties, and intangible assets. Costs of external financing include interest calculated using the effective interest method, financial liabilities under finance lease agreements, and translation differences in relation to external financing up to the amount of the interest cost adjustment. Income from investments earned as a result of short-term investments of obtained external funds allocated directly for financing of purchases reduce the value of costs of external financing subject to capitalization. All other costs of external financing are taken directly to profit or loss in the period when they were incurred Shares in subsidiaries and associates Shares in subsidiaries and associates are recognized at historical cost after the recognition of impairment write-offs Financial assets Financial assets are divided into the following categories: Held-to-maturity financial assets, Financial assets measured at fair value through profit or loss, Loans and receivables, Financial assets available for sale. Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments and fixed maturity that the Company has the positive intention and ability to hold to maturity, other than: designated upon initial recognition as at fair value through profit or loss, determined as available for sales, meeting the definition of loans and receivables. Financial assets held until maturity date are measured at the amortized cost using the effective interest method. Financial assets held until maturity date are qualified as long-term assets if their maturity exceeds 12 months following the balance sheet date. 17

19 A financial asset measured at fair value through profit or loss is an asset that meets either of the following conditions: a) it is classified as held for trading. A financial asset if qualified as held for trading if it is: acquired principally for the purpose selling in the near term, part of a portfolio of identified financial instruments that are managed together and for which there is a possibility of a earning profit in short term, a derivative, with the exception of derivatives included in hedge accounting and financial guarantee contracts, b) it was classified to this category upon initial recognition pursuant to IAS 39. Financial assets measured at fair value through profit or loss are measured at fair value, taking their market value as at the balance sheet date into account, with no regard to sale transaction costs. Changes in the values of these financial instruments are recognized in the statement of comprehensive income as financial incomes (profitable net changes of fair value) or costs (unprofitable net changes of fair value. If a contract includes one or more embedded derivatives, the whole contract may be qualified as a financial asset measured at fair value through profit or loss. This does not concern the cases when an embedded derivative has no significant influence on cash flows from the contract or when it is obvious without an analysis or after a superficial analysis that the separation of an embedded derivative would be prohibited if a similar hybrid instrument was considered first. Upon initial recognition, financial assets may be qualified to the category of assets measured at fair value through profit or loss if the following criteria are met: (i) such a qualification eliminates or significantly reduces a recognition or measurement inconsistency (an accounting mismatch); or (ii) the assets are a part of financial assets which are managed and evaluated on a fair value basis in accordance with a documented risk management strategy; or (iii) financial assets include embedded derivatives which should be recognized separately. As at 2012 and 2011, no financial assets were qualified to the category of assets measured at fair value through profit or loss. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are recognized as current assets if the maturity does not exceed 12 months following the balance sheet date. Loans and receivables with maturity over 12 months following the balance sheet date are recognized as non-current assets. Financial assets available for sale are non-derivative financial assets that are designated as available for sale or that are not classified as any of the three categories of assets listed above. Financial assets held for sale are recognized at fair value increased by transaction costs which may be directly attributable to the acquisition or issue of a financial asset. If there are no quotations in an active market and it is not possible to measure the fair value reliably using alternative methods, financial assets available for sale are measured at the purchase price adjusted with an impairment write-off. A positive and negative difference between the fair value of assets available for sale (if there is a market price determined in an active market or if the fair value may be determined in other reliable way) and their purchase price, after deferred tax, is recognized as other comprehensive income. Impairment of assets available for sale is recognized as a financial cost. The acquisition and sale of financial assets are recognized as at the transaction date. Upon initial recognition, financial assets are measured at fair value increased, in the case of an asset not qualified as measured at fair value through profit or loss, by transaction costs which may be directly attributable to the acquisition. A financial asset is removed from the statement of financial position if the Group has lost control over contractual rights forming a financial instrument in question; this is usually the case when the 18

20 instrument has been sold or when all cash flows attributable to the instrument in question are transferred to an independent third party Impairment of financial assets As at each balance sheet date, the Company assesses whether there is objective indication of the impairment of a given financial asset or a group of financial assets Assets recognized at amortized cost If there is objective indication that a loss was suffered from the impairment of loans and receivables measured at amortized cost, the impairment write-off is equal to the difference between the carrying amount of a financial asset and the current value of estimated future cash flows (excluding future losses from defaulted receivables which have not been suffered yet) discounted using the initial (i.e. determined upon initial recognition) effective interest rate. The carrying maount of an asset is reduced directly with an impairment write-off. The loss is taken to the profit or loss. Firstly, the Company assesses whether there is an objective indication of the impairment of separate financial assets which are significant individually and an indication of the impairment of financial assets which are not significant individually. If the performed analysis indicated that there is no objective indication of the impairment of an individually assessed financial asset, regardless from whether it is significant or not, the Company includes this asset to the group of financial assets with similar credit risk and assesses the impairment jointly for the group. Assets which are assessed in terms of impairment individually and for which an impairment write-off was recognized or for which it was determined that the current write-off would not be changed are not taken into account in joint impairment assessment of the group of assets. If an impairment write-off has decreased in the next period and this decrease may be objectively related to an event taking place after the write-off, the write-off recognized before is reversed. The later reversal of an impairment write-off is recognized as profit or loss within the scope in which the carrying amount of an asset does not exceed its amortized cost as at the reversal date Financial assets recognized at cost If there is an objective indication that a non-quoted capital instrument has been impaired, one which is not recognized at fair value because its fair value may not be reliably measured, or that a derivative has been impaired which is related and must be settled by the delivery of such a nonquoted capital instrument, the impairment write-off is determined as a difference between the carrying amount of the financial asset and the current value of estimated future cash flows discounted using the current market rate of return for similar financial assets Financial assets available for sale If there is an objective indication of an impairment of a financial asset available for sale, the difference between the acquisition price of this asset (reduced by all principal payments and amortization) and its current fair value, reduced by all previous impairment write-offs recognized as profit or loss, is booked out of equity and re-classified as profit or loss. Reversed impairment writeoffs of capital instruments qualified as available for sale may not be recognized as profit or loss. If the fair value of a debt instrument available for sale increases in the next period and this increase may be objectively related to an event which takes place after the recognition of an impairment write-off as profit or loss, the reversed write-off is recognized as profit or loss. 19

21 Inventories FOTA S.A. CAPITAL GROUP Inventories are measured at the lower of cost and net realisable value. The cost of each inventory comprises all costs of purchase, costs of conversion, and other costs incurred in bringing the inventories to their present location and conditions, in relation to the current and the preceding year, and is determined as follows: Materials at the acquisition price using the FIFO method, Goods at the acquisition price using the weighted average method. Net realisable value is an estimated sale price in ordinary economic activities reduced by the costs of finishing and estimated costs essential to perform the sale. Rebates, discounts, and other payments depending on the volume of purchase are recognized as the reduction of the purchase price regardless from the date of actual granting t on condition that the receipt t is firm. Principles of recognizing revaluation write-offs on inventories According to the adopted accounting policy, revaluation write-offs on inventories are recognized taking the following criteria into account: rotation (the ratio reflecting the period for which the current stock of goods is sufficient within a given index, based on sales levels within the last 12 months), class of the goods (the ratio determining the frequency and value of transactions on a given index within the last 12 months), assortment groups (grouping the assortment taking the loss of useful values with time into account) Trade and other receivables Trade receivables are recognized at initially invoiced amounts, taking write-offs for doubtful debts into account. Write-offs for debts are estimated when it becomes unlikely that the full debt will be collected. If the influence of the money value in time is significant, the value of receivables is determined by discounting predicted future cash flows to the current value, using the gross discount rate reflecting current market evaluations of money value in time. If the used method consists in discounting, the increase in receivables with time is recognized as financial income. Other receivables include, in particular, advance payments on account of future purchases of property, plant and equipment, intangible assets, and inventories. Advance payments are presented according to the nature of assets which they are related to, i.e. as non-current or current assets as applicable. As non-financial assets, advance payments are not discounted. Receivables from the state are presented as other non-financial assets, with the exception of corporate income tax receivables, which are a separate item in the statement of financial position Cash and cash equivalents 20