ANNUAL REPORT IMPEXMETAL S.A. FOR 2016
IMPEXMET POLISH FINANCIAL SUPERVISION AUTHORITY Annual report R 2016 (according to 82 para. 1 of the Minister of Finance Regulation of 19 February 2009 - Journal of Law No. 33, item 259). for the issuers of securities dealing with production, construction, trade or services for financial year 2016 covering the period from 1 January 2016 to 31 December 2016 including financial statements in line with: IAS/IFRS in currency: PLN thousand (short name of issuer) submitted on: 23 March 2017 IMPEXMETAL S.A. (issuer s full name) Metal (met) (sector as classified by WSE) 03-301 Warsaw (zip code) (place) Jagiellońska 76 (street) 022 658 60 00 - (phone) (fax) info@impexmetal.com.pl www.impexmetal.com.pl (e-mail) 525-00-03-551 011135378 TAX IDENTIFICATION NUMBER (NIP) NATIONAL REGISTER OF ECONOMIC UNITS (REGON) (www) Deloitte Polska Spółka z ograniczoną odpowiedzialnością S.k. (entity authorised to audit financial statements) SELECTED FINANCIAL DATA in PLN thousand 1.01. - 31.12.2016 1.01. - 31.12.2015 (number) in EUR thousand 1.01. - 31.12.2016 1.01. - 31.12.2015 I. Revenues from sale 1 004 907 1 053 576 229 656 251 763 II. Profit (loss) on operating activities 112 057 58 752 25 609 14 039 III. Profit (loss) before income tax 109 797 51 827 25 092 12 385 IV. Net profit (loss) 95 191 47 645 21 754 11 385 V. Net cash flow from operating activity 116 183 126 511 26 552 30 231 VI. Net cash flow from investment activity (161 061) (84 207) (36 808) (20 122) VII. Net cash flow from financial activity 46 558 (41 928) 10 640 (10 019) VIII. Total net cash flows 1 680 376 384 90 IX. Number of shares without treasury shares 7 737 800 as at 31.12.2016 and 7 210 000 as at 31.12.2015 X. Earnings (loss) net / diluted earnings (loss) net per ordinary share (in PLN/EUR) 192 262 200 192 790 000 192 262 200 192 790 000 0.50 0.25 0.11 0.06 XI. Weighted average of shares (in units) without treasury shares 192 673 782 192 790 000 192 673 782 192 790 000 XII. Earnings (loss) net / diluted earnings (loss) net per share / weighted average of shares (in PLN/EUR) 0.49 0.25 0.11 0.06 as at 31.12.2016 31.12.2015 31.12.2016 31.12.2015 XIII. Total assets 1 582 905 1 358 633 357 800 318 816 XIV. Long-term liabilities 170 255 108 971 38 484 25 571 XV. Short-term liabilities 349 561 314 178 79 057 73 725 XVI. Equity 1 063 089 935 484 240 300 219 520 XVII. Share capital 94 661 94 661 21 397 22 213 XVIII. Number of shares (in units) without treasury shares 192 262 200 192 790 000 192 262 200 192 790 000 XIX. Book value / diluted book value per share (in PLN/EUR) 5.53 4.85 1.25 1.14
Financial statements of Impexmetal S.A.
Financial statements for the year ended 31 December 2016, prepared in accordance with IFRSs as adopted by the European Union Table of contents PROFIT AND LOSS ACCOUNT... 5 STATEMENT OF COMPREHENSIVE INCOME... 5 STATEMENT OF FINANCIAL POSITION... 6 STATEMENT ON CHANGES IN EQUITY... 8 CASH FLOW STATEMENT FOR THE PERIOD BETWEEN 1 JANUARY AND 31 DECEMBER 2016 AND RESPECTIVELY FOR 2016... 9 EXPLANATORY NOTES TO THE FINANCIAL STATEMENTS PREPARED AS AT 31 DECEMBER 2016... 10 1. General information... 10 2. The list of International Financial Reporting Standards applied... 11 3. Statement by the Management Board on compliance of accounting principles... 12 4. Representation of the Management Board on the selection of financial statements... 13 5. Accounting principles applied... 13 6. Revenues from sale... 23 7. Business segments by industry and location... 23 8. Costs of products, goods and materials sold... 24 9. Other operating revenues... 24 10. Other operating expenses... 25 11. Financial revenues... 25 12. Financial expenses... 26 13. Income tax expense... 26 14. Management Board proposal on profit distribution... 27 15. Calculation of earnings per share... 27 16. Tangible assets... 28 17. Investment property... 30 18. Intangible assets... 31 19. Goodwill... 32 20. Investments in subsidiaries... 32 21. Financial assets available for sale... 35 22. Loans granted... 35 23. Receivables and other long-term assets... 36 24. Inventories... 36 25. Trade and other receivables... 37 26. Derivative financial instruments... 38 27. Other assets... 39 28. Cash and cash equivalents... 40 29. Initial (share) capital... 40 30. Treasury shares (negative value)... 42 31. Capital due to hedge accounting... 42 32. Revaluation reserve on long-term assets available for sale... 43 33. Revaluation reserve on pension and similar benefits... 43 34. Retained earnings... 43 35. Book value per share... 44 36. Provisions for liabilities on pension and similar benefits and other provisions... 44 37. Deferred income tax assets / liabilities... 46 38. Borrowings and loans as well as debt securities... 48 39. Trade and other liabilities... 50 40. Lease liabilities... 50 41. Other equity and liabilities... 51 42. Financial instruments... 51 43. Financial risk management and sensitivity analysis... 56 44. Transactions with related parties... 64 45. Explanations to cash flow statement... 66 46. Significant events regarding activities of the issuer... 67 47. Changes between data disclosed in these financial statements and date published in earlier financial statements, with impact on result and equity... 67 48. Significant events of previous years recognised in the financial statements for current period... 67 49. Changes in contingent receivables and payables... 68 50. Cyclical nature and seasonality of operations in current period... 68 51. Employment structure... 69 52. Contract with and remuneration of the entity authorised to audit financial statements... 69 53. Significant events occurring after the balance sheet date... 69 54. Approval of the financial statements... 70 page - 4 -
Financial statements for the year ended 31 December 2016, prepared in accordance with IFRSs as adopted by the European Union PROFIT AND LOSS ACCOUNT FOR THE PERIOD FROM 1 JANUARY TO 31 DECEMBER 2016 AND RESPECTIVELY FOR 2015 note 31/12/2015 Continuing operations Revenues from sales 970 067 975 799 Revenues from sales of goods and materials 34 840 77 777 Revenues from sales total 6 1 004 907 1 053 576 Production cost of the products sold 834 110 885 889 Value of goods and materials sold 31 367 74 121 Expenses of products, goods and materials sold 8 865 477 960 010 Profit (loss) from sales 139 430 93 566 Sales expenses 8 31 475 29 320 General administrative expenses 8 25 336 25 288 Other operating revenues 9 34 909 23 024 Other operating expenses 10 5 471 3 230 Profit (loss) from operating activity 112 057 58 752 Financial revenues 57 479 13 366 Financial expenses 59 739 20 291 Profit (loss) before income tax 109 797 51 827 Income tax 14 606 4 182 Net profit (loss) on continuing operations 95 191 47 645 Discontinued operations Net profit (loss) from discontinued operations - - Net profit (loss) 15 95 191 47 645 Basic / Diluted profit per ordinary share (in PLN) / weighted average of shares (in PLN/EUR) 15 0.49 0.25 STATEMENT OF COMPREHENSIVE INCOME FOR THE PERIOD FROM 1 JANUARY TO 31 DECEMBER 2016 AND RESPECTIVELY FOR 2015 Net profit (loss) note 95 191 47 645 Income in capital to be reclassified to financial result 33 821 (27 821) Hedging instruments of cash flows 31 780 (4 869) Valuation of assets available for sale and other assets 32 40 927 (29 430) Deferred income tax regarding income recognised in capital 13 (7 886) 6 478 Income in capital not to be reclassified to financial result 112 147 Valuation of pension and similar benefits 33 138 181 Deferred income tax regarding income recognised in capital 13 (26) (34) Income recognized in net capital 33 933 (27 674) Total comprehensive income 129 124 19 971 constitute their integral part. - 5 -
Financial statements for the year ended 31 December 2016, prepared in accordance with IFRSs as adopted by the European Union STATEMENT OF FINANCIAL POSITION COMPILED AS AT 31 DECEMBER 2016 AND RESPECTIVELY AS AT 31 DECEMBER 2015 ASSETS note 31/12/2015 Non-current assets Tangible fixed assets 16 340 259 280 901 Investment property 17 5 062 5 062 Intangible assets 18 2 055 1 130 Goodwill 19 2 122 2 122 Investments in controlled entities 20 628 609 538 434 Financial assets available for sale 21 106 910 60 992 Loans granted 22 96 756 92 711 Receivables and other long-term assets 23 740 - Total fixed assets 1 182 513 981 352 Current assets Inventory 24 231 857 209 233 Trade and other receivables 25 100 213 92 680 Loans granted 22 43 685 56 645 Derivative financial instruments 26 19 191 8 380 Financial assets available for sale 21-6 541 Income tax receivables - - Other assets 27 1 885 2 036 Cash and cash equivalents 28 3 561 1 766 Total current assets 400 392 377 281 TOTAL ASSETS 1 582 905 1 358 633 constitute their integral part. - 6 -
Financial statements for the year ended 31 December 2016, prepared in accordance with IFRSs as adopted by the European Union STATEMENT OF FINANCIAL POSITION (CONT.) note 31/12/2015 LIABILITIES AND EQUITY Equity Initial (share) capital 29 94 661 94 661 Own shares (negative value) 30 (25 960) (24 441) Supplementary capital due to share premium 28 576 28 576 Capital due to hedge accounting 31 (2 592) (3 263) Capital due to revaluation of assets available to sell 32 6 908 (26 242) Capital due to valuation of pension and similar benefits 33 296 184 Retained earnings, including: 34 961 200 866 009 Reserve capital 125 867 78 222 Net result of the current year 95 191 47 645 Total equity 35 1 063 089 935 484 Long-term liabilities and provisions for liabilities Bank loans and borrowings 38 99 724 40 432 Debt securities 38 16 000 28 000 Provisions for liabilities on pension and similar benefits 36 1 673 1 757 Deferred income tax liabilities 37 52 028 38 246 Other Liabilities 39 538 172 Other equity and liabilities 41 292 364 Total long-term liabilities and provisions 170 255 108 971 Short-term liabilities and provisions for liabilities Trade and other liabilities 39 151 986 143 446 Bank loans and borrowings 38 140 791 153 499 Debt securities 38 20 236 - Derivative financial instruments 26 23 863 13 621 Income tax liabilities 8 725 785 Provisions for liabilities on pension and similar benefits 36 1 366 1 200 Other short-term provisions 36 2 522 1 551 Other equity and liabilities 41 72 76 Total short-term liabilities and provisions 349 561 314 178 Total liabilities 519 816 423 149 TOTAL LIABILITIES AND EQUITY 1 582 905 1 358 633 constitute their integral part. - 7 -
Financial statements for the year ended 31 December 2016, prepared in accordance with IFRSs as adopted by the European Union STATEMENT ON CHANGES IN EQUITY FOR THE PERIOD FROM 1 JANUARY TO 31 DECEMBER 2016 AND RESPECTIVELY FOR 2015 note share capital treasury shares supplementary capital due to share premium capital due to hedge accounting capital due to revaluation of assets available to sell capital due to valuation of pension and similar benefits retained earnings total equity As at 1 January 2016 94 661 (24 441) 28 576 (3 263) (26 242) 184 866 009 935 484 Comprehensive income for 12 months of 2016 31-34 - - - 671 33 150 112 95 191 129 124 Share buy-back 30 - (1 519) - - - - - (1 519) As of 31 December 2016 94 661 (25 960) 28 576 (2 592) 6 908 296 961 200 1 063 089 note share capital treasury shares supplementary capital due to share premium capital due to hedge accounting capital due to revaluation of assets available to sell capital due to valuation of pension and similar benefits retained earnings total equity As at 1 January 2015 94 661 (24 441) 28 576 720 (2 404) 37 818 364 915 513 Comprehensive income for 12 months of 2015 31-34 - - - (3 983) (23 838) 147 47 645 19 971 Share buy-back 30 - - - - - - - - As of 31 December 2015 94 661 (24 441) 28 576 (3 263) (26 242) 184 866 009 935 484 (*) Treasure shares at acquisition price, purchased for redemption or resale, 7 737 800 shares as at 31.12.2016 and 7 210 000 shares as at 31.12.2015 Additional information on individual components of equity is provided in noted 29-34. constitute their integral part. - 8 -
Financial statements for the year ended 31 December 2016, prepared in accordance with IFRSs as adopted by the European Union CASH FLOW STATEMENT FOR THE PERIOD BETWEEN 1 JANUARY AND 31 DECEMBER 2016 AND RESPECTIVELY FOR 2015 Cash flows from operating activities note constitute their integral part. 31/12/2015 Profit (loss) before income tax 109 797 51 827 Amortisation and depreciation 8 30 822 31 040 Net foreign exchange (gains)/losses (3 761) (681) Interest on financial liabilities 45 6 550 6 090 Interest and dividends 45 (37 434) (21 825) Profit/loss on investing activities 298 (343) Changes in working capital: Accounts receivable (increase)/reduction 45 (2 938) 56 826 Inventories (increase)/reduction (22 624) 1 798 Liabilities increase/(reduction) 45 34 296 8 486 Provisions and accruals 45 1 761 (6 501) Cash generated on operating profit 212 - Income tax (received)/paid 116 979 126 717 Net cash flow from operating activity (796) (206) Cash flows from investment activities 116 183 126 511 Inflows Components of tangible fixed assets Disposal of financial assets 131 3 416 Dividends received 2 438 14 755 Redemption of subsidiary shares 26 810 19 532 Interest received and repayment of loans granted 57 984 60 094 Disposal of bonds 11 500 26 217 Expenditures Acquisition of tangible fixed assets (82 121) (41 412) Purchase of financial assets 45 (89 603) (61 419) Subscription to subsidiary shares - (4 665) Loans granted 45 (42 200) (92 425) Acquisition of bonds (46 000) (8 300) Net cash flow from investment activity (161 061) (84 207) Cash flows from financial activities Inflows Borrowings and loans 152 984 70 674 Issue of debt securities 15 000 19 000 Expenditures Share buy-back 30 (1 519) - Repayment of loans and borrowings (106 517) (108 514) Redemption of debt securities (7 000) (17 000) Payment of liabilities arising from financial leases (136) (7) Interest paid (6 254) (6 081) Net cash flow from financial activity 46 558 (41 928) Total cash flow 1 680 376 Impact of exchange rate changes on balance sheet measurement of foreign cash 115 - Movement in cash and cash equivalents 1 795 376 Opening balance of cash and cash equivalents 28 1 766 1 390 Closing balance of cash and cash equivalents 28 3 561 1 766-9 -
Financial statements for the year ended 31 December 2016, prepared in accordance with IFRSs as adopted by the European Union EXPLANATORY NOTES TO THE FINANCIAL STATEMENTS PREPARED AS AT 31 DECEMBER 2016 1. General information Impexmetal S.A, hereinafter the Company, was established on 1 July 1995 in Warsaw as a result of transformation of a state-owned enterprise Centrala Importowo Eksportowa Impexmetal. The Company s registered seat is at Jagiellońska street No. 76, 03-301 Warsaw. The company is registered with the District Court for the capital city of Warsaw, 12th Commercial Division of the National Court Register under KRS number 0000003679. The Company s REGON (Business ID) is 011135378, NIP (tax ID) is 525-00-03-551. On 30 June 2008 a business combination took place with Aluminium Konin - Impexmetal S.A., a subsidiary The business combination of Impexmetal S.A. and Aluminium Konin Impexmetal S.A. occurred pursuant to Art. 492 1 point 1 of the Commercial Companies Code, in connection with Art 515 1 of the Commercial Companies Code, through the transfer of all assets of the acquired company (Aluminium Konin - Impexmetal S.A.) to the acquiring company (Impexmetal S.A.). Since 30 June 2008, as per the Polish Classification of Activity, Impexmetal is a joint stock company with a core business classified under code 24.42.B. The scope of Company s business activity includes: - aluminium and aluminium alloy goods production, - wholesale of metals and metal ores - wholesale of other intermediate products Impexmetal S.A. is the parent entity of Impexmetal Capital Group. The parent for Impexmetal S.A is Boryszew S.A. The Company may establish other companies with similar business profile in the country and overseas, join other companies as well as establish branches and representative establishments. Impexmetal S.A. shares have been traded on regulated market, Metal Industry sector (as per WSE classification) since 24 June 1997. The Company was established for an indefinite period of time. Financial statements Company s reporting period is calendar year These financial statements cover the period from 1 January to 31 December 2016. Comparable financial data cover the period from 1 January to 31 December 2015. Information included in this Report was prepared in accordance with the Ordinance of the Minister of Finance of 19 February 2009 on current and periodic information published by issuers of securities and conditions for recognising as equivalent the information required by the laws of a non-member state (original text: Journal of Laws No. 33 item 259 of 2009, consolidated text: Journal of Laws item 133 of 2014) and the International Financial Reporting Standards (IFRS) as established the International Accounting Standards Board (IASB) in the scope approved by the European Union. The financial statements have been prepared on the assumption that Impexmetal S.A. will continue as a going concern in the foreseeable future. The Company is not aware of any circumstances indicating a threat to the continuing operations. Separate financial statements for 2016 are joint statements of the headquarters and Zakład Aluminium Konin Impexmetal S.A. as the parent entity of Impexmetal Capital Group prepares and publishes consolidated financial statements. The time of preparation and publication is consistent with the time of preparation and publication of this report. The financial statements include: income statement, statement of comprehensive income, statement of financial position, statement of changes in equity and statement of cash flows. Cash flows from operating activities are determined using the indirect method, cash flows from financing and investing activities - using the direct method. - 10 -
Financial statements for the year ended 31 December 2016, prepared in accordance with IFRSs as adopted by the European Union 2. The list of International Financial Reporting Standards applied Changes to the existing standards were applied in the financial statement for the first time in 2016 In the current year the Company adopted new and revised standards and interpretations listed below, issued by the International Accounting Standards Board (IASB) and the Standard Interpretations Committee and approved for use in the European Union ("EU"), applicable to operations of the Company and effective for annual reporting periods beginning on 1 January 2016. Amendments to IFRS 10 Consolidated financial statements, IFRS 12 Disclosure of interests in in other entities and IAS 28 Investments in associates and joint ventures - Investment units: exemption from consolidation (effective for annual periods beginning on or after 1 January 2016), Amendments to IFRS 11 Joint Arrangements - reconciliation of acquisition of interest in joint operations - approved in the EU on 24 November 2015 (effective for annual periods beginning on or after 1 January 2016), Amendments to IAS 1 Presentation of financial reports The initiative regarding disclosures - approved in the EU on 18 December 2015 (effective for annual periods beginning on or after 1 January 2016), Amendments to IAS 16 "Property, Plant and Equipment" and IAS 38 "Intangible Assets" - Explanations on acceptable methods of depreciation - approved in the EU on 2 December 2015 (effective for annual periods beginning on or after 1 January 2016), Amendments to IAS 16 "Property, Plant and Equipment" and IAS 41 "Agriculture" - Agriculture: crops approved in the EU on 23 November 2015 (effective for annual periods beginning on or after 1 January 2016), Amendments to IAS 19 Employee benefits Certain benefit schemes: employee contributions - approved in the EU on 17 December 2014 (effective for annual periods beginning on or after 1 February 2015), Amendments to IAS 27 "Separate Financial Statements" - equity method in separate financial statements approved in the EU on 18 December 2015 (effective for annual periods beginning on or after 1 January 2016), Amendments to various standards Improvements to IFRS (2010-2012 cycle) - resulting from the annual improvement procedure of IFRS (IFRS 2, IFRS 3, IFRS 8, IFRS 13, IAS 16, IAS 24 and IAS 38) primarily with a view to removing inconsistencies and clarifying wording - approved in the EU on 17 December 2014 (effective for annual periods beginning on or after 1 February 2015), Amendments to various standards Improvements to IFRS (2012-2014 cycle) - amendments resulting from the annual improvement procedure of IFRS (IFRS 5, IFRS 7, IAS 19 and IAS 34) primarily with a view to removing inconsistencies and clarifying wording - approved in the EU on 15 December 2015 (effective for annual periods beginning on or after 1 January 2016). The aforementioned changes to the existing standards did not significantly impacted on the financial statements for 2016. New standards and amendments to the existing standards, which were already issued by the IASB and approved by the EU, but did not enter into force yet. By approving this financial statement, the following new standards and changes to the standards were issued by the IASB and approved for use in the EU, but they have not been entered into force yet: IFRS 9 Financial Instruments approved in the EU on 22 November 2016 (effective for annual periods beginning on or after 1 January 2018), IFRS 15 Revenues from agreements with customers and amendments to IFRS 15 Date of entry into force of IFRS 15 - approved in the EU on 22 September 2016 (applicable for annual periods beginning on 1 January 2018 or after that date). The entity has not decided for an early adoption of the above standards, amendments to standards and interpretations. According to the company s estimates, the above-mentioned standards, interpretations and amendments would have had no material effect on the financial statements, had they been applied as at the balance sheet date. The Company analyses the effects of the changes of the standards of IFRS 9 and 15, which will be effective from 1 January 2018. - 11 -
Financial statements for the year ended 31 December 2016, prepared in accordance with IFRSs as adopted by the European Union New standards and amendments to the existing standards issued by the IASB, but still not approved for use in the EU IFRS, as approved by the EU, do not differ significantly from the regulations adopted by the International Accounting Standards Board (IASB), except for the following standards, amendments to standards and interpretations that were not yet approved for application within the EU as at the date of publication of these financial statements: IFRS 14 Deferred balances on regulated activity (effective for annual periods beginning on or after 1 January 2016) - the European Commission chose not to initiate the process of approval of this interim standard for use in the EU until the final version of IFRS 14 is published, IFRS 16 Leasing (effective for annual periods beginning on or after 1 January 2019) Amendments to IFRS 2 Payments based on shares Classification and valuation based on shares (applicable to annual periods beginning on 1 January 2018 or after that date), Amendments to IFRS 4 Insurance agreements - Application of IFRS 9 Financial instruments with IFRS 4 Insurance instruments (applicable to annual periods beginning on 1 January 2018 or after that date, or at the time of the application of IFRS 9 Financial instruments for the first time), Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures - Sale or in-kind contribution of assets between an investor and its associated entity or joint venture as well as subsequent amendments (the effective date of the amendments has been postponed until the end of research on the equity method), Amendments to IFRS 15 Revenues from agreements with customers - Explanations to IFRS 15 Revenue from agreements with customers (applicable to annual periods beginning on 1 January 2018 or after that date), Amendments to IAS 7 Cash flow statement The initiative regarding disclosures (effective for annual periods beginning on or after 1 January 2017), Amendments to IAS 12 "Income Taxes" - Recognition of deferred income tax on unrealized losses (effective for annual periods beginning on or after 1 January 2017). Amendments to IAS 40 Investment properties - Transfer of the investment properties (applicable to annual periods beginning on 1 January 2018 or after that date), Amendments to various standards Amendments to IFRS (cycle of 2014-2016) - amendments to the procedure of annual improvements to IFRS (IFRS 1, IFRS 12 and IAS 28) focused mostly on the dissolution of discrepancies and the clarification of vocabulary (amendments to IFRS 12 apply to annual periods beginning on 1 January 2017 or after that date, and amendments to IFRS 1 and IAS 28 apply to annual periods beginning on 1 January 2018 or after that date). Interpretation of IFRIC 22 Foreign currency transactions and advance payments (applicable for annual periods beginning on 1 January 2018 or after that date). According to Company s estimates, the above-mentioned standards, interpretations and amendments would have had no material effect on the financial statements, had they been applied by the entity as at the balance sheet date. The EU still has not regulated hedge accounting for the portfolio of financial assets and liabilities, whose principals have not yet been approved by the EU. According to the Company s estimates, the application of hedge accounting for the portfolio of financial assets or liabilities under IAS 39 Financial Instruments: Recognition and Evaluation would not have a material impact on the financial statements if it had been approved for application by the EU as at the balance sheet date. 3. Statement by the Management Board on compliance of accounting principles The Management Board of Impexmetal S.A. represented by Ms Małgorzata Iwanejko, President of the Management Board and Mr Jan Woźniak, Member of the Management Board, hereby represents that in accordance with the best knowledge of the financial statements and comparable data were developed in accordance with applicable accounting principles and that the statements give a true and fair view of the financial position and the financial result of Impexmetal S.A. The Management Board confirms that the report on activities of Impexmetal S.A. presents a true picture of its development and accomplishments as well as its situation, including a description of fundamental threats and risk. - 12 -
Financial statements for the year ended 31 December 2016, prepared in accordance with IFRSs as adopted by the European Union According to 1.14.b of Regulation of the Minister of Finance of 25 May 2016, amending the regulation on current and periodic information provided by issuers of securities and the conditions for recognizing as equivalent information required by the laws of a non-member state, the Management Board of the Company developed a statement on the activity of the Company and Capital Group in the form of one document. 4. Representation of the Management Board on the selection of financial statements The Management Board of Impexmetal S.A. represent that Deloitte Polska Spółka z ograniczoną odpowiedzialnością Sp.k., performing the audit of the financial statements for 2016 was selected in accordance with legal regulations and that Deloitte Polska Spółka z ograniczoną odpowiedzialnością Sp.k., as well as statutory auditors performing this audit met the conditions to issue an impartial and independent opinion on the audit of the financial statements in accordance with applicable regulations and professional standards. 5. Accounting principles applied Basis for preparation The adopted accounting principles conform with the International Financial Reporting Standards within the scope of regulation (EC) no. 1606/2002 of the European Parliament and of the Council of 19 July 2002 concerning application of the International Financial Reporting Standards with subsequent amendments. The financial statements are based on historical cost concept, except for revaluation of some fixed assets and financial instruments Most significant accounting principles applied by the Company are presented below. Foreign currency Transactions denominated in foreign currencies are translated to functional currency at the moment of initial recognition: - at the actual exchange rate, i.e. at the rate of purchase or sale of currencies applied by the bank which provides the services to the Company - in case of sale or purchase of currencies, - in case of other transactions, including receipt of receivables and payment of liabilities in foreign currencies, at the average exchange rate for relevant currency determined by NBP as at the date of the transaction. The exchange rate prevailing on the date of the transaction is the average NBP exchange rate announced on the last working day preceding the transaction. As at the balance sheet date, foreign-currency assets and liabilities are converted at the average exchange rate of the National Bank of Poland (NBP) applicable on the balance sheet date. Non-monetary assets and liabilities are measured at fair value and denominated in foreign currency are valuated according to the average exchange rate set by the National Bank of Poland on the date of setting the fair value. The selected financial data in the initial part of the report were presented in EUR according to 91 para. 1 of the Minister of Finance Regulation of 19 February 2009 (original text: Journal of Laws No. 33 item 259 of 2009, consolidated text: Journal of Laws item 133 of 2015). Balance sheet items were translated at the exchange rate of the last day of the reporting period and income statement items as well as cash flow statement items - at the average rate of the period. Average EUR exchange rate in the period EUR exchange rate the last day of the period 1.01-31.12.2016 4.3757 4.4240 1.01-31.12.2015 4.1848 4.2615 Taxation Mandatory charges to the earnings include current income tax and deferred income tax. Current income tax is calculated in accordance with current tax laws using the tax rate applicable in relevant fiscal year. - 13 -
Financial statements for the year ended 31 December 2016, prepared in accordance with IFRSs as adopted by the European Union Deferred income tax is determined using tax rates and laws that are expected to apply when the asset is realised and the liability is settled, based on tax rates and tax laws that were effective as at the reporting date. It is calculated using the balance sheet method, as income tax payable/accrued for settlement in the future in relation to temporary differences between the carrying amounts of assets and liabilities and their corresponding tax values. Deferred tax liability is recognised for all positive taxable temporary differences, while the deferred tax asset is recognised if there is a possibility to settle the asset in the future. The Company also recognises deferred tax assets on tax losses due for settlement. Assets and liabilities for deferred income tax are recognised as a surplus in the balance sheet assets or liabilities. The value of a deferred tax asset item is analysed as at each balance date, and if expected future tax profits are not be sufficient to utilise the asset item or its part, the deferred tax asset is respectively adjusted. Deferred tax is recognized in the income statement for relevant period, as income tax expense, except when it relates to items recognised directly in equity and presented in other accumulated comprehensive income, in which case the deferred tax is recognised and presented in the item it concerns. In 2016 calculation of current and deferred income tax was done using a 19% tax rate. Costs of external financing Costs of external financing directly attributable to the acquisition or construction of asset items which require a longer period of time to be fit for use, are added to the cost of manufacture of such assets, up to the moment of putting these assets into use. Income from investments earned from short-term investment of borrowed funds and associated with the formation of fixed assets reduce the value of capitalised costs of external financing. Any other expenses of external financing are recognised directly in income statement in the period in which they occurred. Tangible assets Tangible fixed assets are assets that are held for use in the production process or supply of goods or services or for administrative purposes, which are expected to be used for longer than one year in respect of which there is a likelihood that the Company will obtain future economic benefits associated with the asset and whose value can be determined reliably. Fixed assets also include fixed assets under construction and advances for fixed assets. Fixed assets are recognised in the balance sheet at the price of purchase or cost of manufacturing less depreciation and impairment write-offs. The carrying value is compared to the value of future flows generated by these assets if value impairment premises are identified. Purchase price or manufacturing costs of fixed asset items include: purchase price with import duties and non-refundable taxes on purchase less discounts and rebates, any other directly attributable costs incurred in order to adjust an asset item to the location and conditions necessary for its commissioning in accordance with the intentions of the Company, estimated costs of disassembling and disposal of asset item as well as costs incurred on modernisation of asset item location, when such modernisation is mandatory to the Company. Tangible fixed assets under construction are recognised at purchase price or at total costs directly associated with their production less value impairment write-offs. The value of fixed assets under construction is increased by non-deductible tax on goods and services and interest and fees on loans for the financing charged for the duration of the investment, as well as foreign exchange differences, if they are an adjustment to interest associated with the financing. Tangible fixed assets under construction are not subject to amortisation until completion of construction and commissioning. The amortised value is the value, which is either a purchase price or cost of production of specific asset item, reduced by the final value of this asset item. The final value of the asset is the amount, which according to the forecast the company could currently obtain taking into consideration the age and state at the end of its life (after deducting the estimated selling costs). The initial value is redeemed after deducting its residual value from the time the asset is available for use for a specified period of economic usability, using the straight-line depreciation method and the following average depreciation periods: Buildings, premises, civil and water engineering structures - between 10 and 40 years Technical equipment and machines - between 3 and 25 years Vehicles - between 4 and 25 years Other tangible fixed assets - between 4 and 28 years; At the end of each financial year, the Company reviews the useful life of fixed assets. If the expected useful life of an asset is significantly different from previous estimates, the depreciation period varies starting the next year. - 14 -
Financial statements for the year ended 31 December 2016, prepared in accordance with IFRSs as adopted by the European Union Amortisation of an asset item ends in the month, in which the asset is classified as held for sale (in accordance with IFRS 5 Fixed Assets held for sale and discontinued operation) or in the month in which that asset item is no longer disclosed, taking into consideration the earlier of these dates. Assets held under finance leases and leasehold improvements are depreciated over their useful lives, respectively, as own assets, but not longer than the duration of the contracts. Gains or losses arising from the sale, liquidation or cessation of the use of fixed assets are defined as the difference between sales revenue and the net value of these fixed assets and are recognized in the profit and loss account. After initial recognition, assets are valued at historical cost, net of amortization allowances and permanent impairment charges. Fixed assets used by the Company were valued as at 1 January 2004 at fair value, which is considered as adjusted historical cost. Leasing Lease is classified as finance lease, if the terms of the agreement essentially transfer all potential benefits and risks from ownership to the lessee. All other leasing agreements are considered operating lease. Assets utilised on the basis of a financial lease agreement are treated as Company s assets and are valued according to their fair value as of the moment of recognition, but not higher than the current value of minimum leasing fees. The resulting liability to the lessor is recognised in the balance sheet, financial lease liabilities item. Lease payments are divided into interest and principal portions so that the interest rate of remaining liability is a fixed value. Financial expenses are recognised directly in the income statement. Payments under operating leases are charged to the profit and loss account in the Production cost of products, goods and materials in a systematic manner, reflecting the timing of the benefits derived by the Company. Investment property Investment property is the property (land, building or a part of building or both) considered by the Company as source of rental income and/or is held by the Company due to the expected appreciation in value. For valuation of investment property, the Company applies the fair value method, and in its determination at the end of the reporting period, uses appraisers and own estimates. Profits and loss on the change of investment real property fair value are recognized in the income statement in the period in which they occurred. Intangible assets Intangible assets are valued at purchase price or production cost (for completed R&D projects) less accumulated depreciation charges reflecting their useful lives and less accumulated write-offs due to value impairment. The initial value is redeemed from the time the asset is available for use using the straight-line depreciation method and the following average depreciation periods: Computer software - between 5 and 10 years Completed R&D projects - between 5 and 10 years Other intangible assets - between 5 and 10 years Amortisation ends in the month, in which relevant intangible asset item is classified as held for sale (in accordance with IFRS 5 Fixed Assets held for sale and discontinued operation) or in the month in which the asset is no longer disclosed, taking into consideration the earlier of these dates. R&D project costs are depreciated using the straight line method over their estimated economic useful life. R&D costs are capitalized only when: a specific project is being implemented (such as new technology), it is probable that the asset will generate future economic benefits, there is technical and financial opportunity to complete the work, products can be sold, market for relevant product exists, utility is provided for the entity, in the case of works carried out for its own needs, it is possible to reliably determine the costs. Research costs are not capitalized and are presented in the income statement as an expense in the period in which they are incurred. The Company recognises impairment write-offs on intangible assets in case of an impairment in accordance with IAS 36 Impairment of Assets. Similarly, in the absence of reasons indicating impairment, charges recognised earlier are reversed. - 15 -
Financial statements for the year ended 31 December 2016, prepared in accordance with IFRSs as adopted by the European Union At the end of each financial year, the Company reviews the useful life of intangible fixed assets. If the expected useful life of an asset is significantly different from previous estimates, the depreciation period varies starting the next year. Recognition of the intangible asset ceases at the time of disposal or when future economic benefits from its use and subsequent disposal are not expected. Gains or losses arising from the sale, liquidation or cessation of the use of intangible fixed assets are defined as the difference between sales revenue and the net value of these intangible assets and are recognized in the profit and loss account. Impairment loss for tangible and intangible fixed assets As on each balance date, the Company reviews the net values of tangible and intangible fixed assets in order to verify if premises exist that would suggest any loss of value of these assets. Should such premises be found, the retrievable value of an asset is estimated in order to determine a potential write-off. If a given asset does not generate any cash flows which would be substantially independent from cash flows generated by other assets, the analysis is performed for the group of assets generating cash flows to which such asset belongs. In case of intangible assets with undefined usability period, the loss of value test is carried out when premises for potential loss of value exist. The retrievable value is the higher of the two following values: fair value less sales costs or usable value. The latter corresponds to the current value of the estimated future cash flows expected by the Company from the assets, discounted at the discount rate which takes into account the current money value in time and the asset-specific risk. If the retrievable value is lower than the balance sheet value of an asset (or a cash flow generating unit), the balance sheet value of the asset or unit is written-down to the retrievable value. The amount of impairment loss is recognised as a cost for the period. When the loss of value is subsequently reversed, the net value of the asset (or cash flow generating unit) is increased to the new estimated retrievable value, however not higher than the balance sheet value of the asset which would have been determined had the loss of value of the asset/cash flow generating unit not been recognized in the previous years. The amount of impairment loss reversal is recognised in the income statement. Goodwill Goodwill is recognised when the acquisition cost of an entity is higher than the fair value of identifiable elements of assets and liabilities of the unit as of the day of acquisition or purchase of the investment. Goodwill is recognised in the balance sheet as an asset and is tested annually for impairment. A potential loss of value is recognised in the profit and loss account and is not subject to reversal in future periods. At sale of a subsidiary, associate or joint venture, the part of goodwill allocated to any such undertaking is included in the calculation of the result on sale. If at the time of acquisition, the fair value of net assets acquired exceeds the cost of the merger, the resulting surplus is recognized in profit or loss on that day. The Company also recognises goodwill resulting from combination with a subsidiary. Investments in subsidiaries The balance sheet item Investments in Subsidiaries relates to shares in subsidiaries, jointly controlled entities and associates, not classified as held for sale. In accordance with IAS 27, point 38a, assets are recognized at purchase cost. Financial assets Financial investment is any asset in the form of cash, equity instrument issued by other entities as well as a contract (agreement) based right to receive financial assets or the right to exchange financial instruments with another entity under favourable conditions. Based on the timeliness criterion, the Company recognises long and short term financial assets. When the deadline for disposal of long-term financial assets becomes less than one year, these assets are reclassified to short-term investments. Because of the nature and purpose, the Company qualifies financial assets into the following categories: - measured at fair value through profit or loss, - borrowings and receivables, - financial assets available for sale, - financial assets held to maturity. Classification into the above categories is performed at the initial recognition of financial assets. Financial assets measured at fair value through profit or loss - this category includes financial assets held for trading. A financial asset is included in this category, if it is purchased primarily for short-term sale. Derivative instruments are also classified as held for trading, unless they are used hedging accounting. These assets are classified as current assets. - 16 -
Financial statements for the year ended 31 December 2016, prepared in accordance with IFRSs as adopted by the European Union Loans and receivables are financial assets with determined or determinable payments, not classified as derivative instruments, not traded on an active market. They are included into current assets as long as their maturity date does not exceed 12 months after the balance sheet date. Financial assets available for sale are those do not constitute derivative instruments designated for this category or are not classified in any other category. They are included into non-current assets unless the Management Board intends to sell them within 12 months after the balance sheet date. Financial assets held to maturity - are financial assets which are not derivative instruments with determined or determinable payments and fixed maturity, where the Company has a strong intention and is able to hold such assets to maturity. Investments are recognised on the purchase date and are excluded from the records on the date of sale, if the agreement requires delivering them within the time set by a specific market and their initial value is estimated at fair value increased by transactions costs, excluding those assets, which are classified as financial assets initially measured at fair value through profit and loss. The rules of valuation in later period depend on the group to which individual assets were qualified. Financial assets held for trade, assets available for sale derivative instruments except hedging derivatives being assets are recognised at fair value. Financial assets held for trade derivative instruments which are not hedging derivatives - recognised at fair value through profit and loss are disclosed at fair value and the resulting profits or losses are recognised in the income statement. Net profit or loss recognised in the income statement includes dividends or interest generated by a specific financial asset. Financial assets held for sale profits and losses arising from changing the fair value are recognised directly in the equity as revaluation reserve, excluding impairment loss, interest calculated using the effective interest rate and gains and losses on exchange rates differences of the financial assets originating from these assets in accordance with amortised cost, recognised directly in the income statement. If the investment is disposed of or determined to be impaired, the cumulative profit or loss previously recognised in revaluation reserve is included in the profit or loss in the particular reporting period. Dividends from equity instruments available for sale are recognised in profit and loss when the Company obtains the right to receive them. Derivatives used as hedging instrument - the policy of their subsequent recognition is presented in the section on hedge accounting below. Borrowings and receivables are recognised at amortised cost using the effective interest rate. Investments held to maturity are recognised at amortised cost using the effective interest rate. Investments in equity instruments, which do not have market price quotation on the active market and which fair value cannot be reliably measured are recognised at the purchase price. Hedge accounting (hedging) The Company applies hedge accounting of cash flows related to the income from sales denominated in EUR and the cost of purchasing aluminium in order to minimize the effects of the risk of changes in aluminium prices and exchange rate changes. Prior to the designation of a hedging relationship, the Company defines a risk management policy and prepares documentation, which covers: identification of the hedged item and the hedging instrument, the hedged risk characteristics and the type of hedge accounting, the purpose of the use of the hedging instrument and the method of measuring effectiveness. Changes in the fair value of derivatives selected to hedge the cash flows in such part in which they operate as effective hedge are charged against or credited towards the equity and disclosed in other comprehensive income. Changes in the fair value of derivatives for cash flow hedging in such part in which they do not operate as effective hedge are recognized as financial profits or costs of a reporting period. Effective portion of the hedge recognised directly in equity is transferred to profit and loss account in the period in which the realization of the hedged item occurs and its value is adjusted (revenues from sales or production cost). If the forecast hedged transaction results in the recognition of a non-financial asset or liability, the gains and losses which are an effective part of cash flow hedges remain in equity until the hedged items are realized in the financial result. The Company discontinues the use of hedge accounting if a hedge instrument expires, is sold, terminated or executed or if it does not comply with the hedge accounting criteria. If this happens, the cumulative profits or loss on that hedge instrument recognised in equity remain as capital items until the hedged transaction is executed. If the hedged transaction - 17 -
Financial statements for the year ended 31 December 2016, prepared in accordance with IFRSs as adopted by the European Union is not executed, cumulative net result recognized in equity is immediately transferred to the income statement for relevant period. Financial asset impairment loss At the end of each reporting period the Group assesses whether there is an objective evidence indicating an impairment of a financial asset or a group of financial assets. Financial assets a group of financial assets are impaired when there is an objective evidence that the events, which happened after the initial recognition of a particular asset, have negatively affected the estimated future cash flow. For financial assets recognised at amortised historical cost, the impairment loss amount constitutes the difference between the carrying amount and the present value of estimated cash flow discounted using the initial effective interest rate. Carrying amount of the financial asset is directly reduced by an impairment loss write-down. If in the subsequent period the impairment loss amount is reduced and the reduction can be objectively related to an event, which happened after the impairment loss initial recognition date, the impairment loss is reversed through the income statement. Reversal of the carrying value of investment as at the impairment date is carried out to the extent corresponding to the amortised historical cost which would have been recognised if the impairment loss never happened. This applies to all assets, excluding equity instruments held for sale. In this case, the increase of the fair value after impairment loss is recognised directly in equity. Inventories Inventories are tangible current assets of the Company for use in the ordinary course of business or for sales. Inventories at the Company include: - materials and raw materials for production, provision of services or for internal use, - semi-products and work in progress, - finished products manufactured or processed by the entity, fit for sale (products, services), - goods purchased for sale. Receipts of inventories are recognised based on the following rules: - materials, raw materials and goods at the purchase price; in the case of basic materials and raw materials, the purchase price is determined on the basis of fixed prices (standard costs), adjusted for deviations from the purchase price, - finished products and work in progress at production cost determined at the level of standard cost, adjusted for deviation, determined in the allocation process. Issues of inventories are recognised based on the following rules: - basic materials and raw materials - based on FIFO - other materials and goods - based on weighted average prices, - finished products and work in progress at production cost determined at the level of standard cost, adjusted for value deviations, determined in the allocation process. Manufacturing cost includes costs in direct connection with the product plus justified part of manufacturing overheads attributable to production of this product. Inventory valuation as at the balance sheet day: Inventories of finished products and work in progress are recognised at acquisition price or production cost not higher than the realisable net sales price. If the value of inventories according to the cost of manufacturing is higher than the value of the net selling price the surplus is charged to product manufacturing costs. The net selling price corresponds to the estimated selling price less all costs necessary to complete the manufacture and sale. Inventories of finished goods and work in progress are assessed for suitability and sales opportunities. Goods and materials that are in stock are evaluated for their use in the production or sale and impairment is recognised. The Company makes impairment charges to other operating expenses on all inventories that are slow-moving for unjustified reasons. Trade and other receivables Receivables are recognised in the books of accounts at fair value as they occur. Receivables outstanding at the reporting date are recognized at amortised cost. Payment of receivables denominated in foreign currencies is recognized in the accounts after conversion respectively according to the average NBP exchange rate on the last business day preceding the inflow or outflow. The resulting exchange rate differences are recognised in financial revenues and costs. Unsettled foreign currency receivables are translated to PLN as at the balance sheet date - respectively at the average NBP rate on that date. - 18 -
Financial statements for the year ended 31 December 2016, prepared in accordance with IFRSs as adopted by the European Union The Company carries out analysis of receivables assessing the risks associated with repayment of these debts. In case receivables with questionable recoverability write-offs are recognised. Short-term receivables are disclosed in the balance sheet at net value (upon deduction of their impairment write-offs). The decision to recognise a write-off is based on individual analysis of relevant customers and reflects the probability of recovery. Recognition of write-off on receivables result from a comparison of asset carrying value and present value of future cash inflows. If the carrying value of receivable exceeds the current value of revenue, the write-off is charged to costs of relevant period. Impairment losses are classified as other operating costs or financial costs. If the reason for a receivable impairment writeoff of ceases, for instance when such receivable is recovered, the equivalent of the whole or relevant part of the previous impairment write-off is recognised respectively as other operating income or financial income. Cash and cash equivalents Cash and cash equivalents recognised in the balance sheet cover cash in bank and on hand as well as short-term highly liquid assets of original maturity that does not exceed three months, easily convertible to certain amounts of cash and exposed to minor risk of value change. Cash is disclosed in the books at the nominal value. Sale and purchase of foreign currencies is valued at the date of carrying out the transaction suitably at the buying or selling exchange rate of currencies (actual exchange rate) used by the bank, whose services are used by the Company. Inflows and outflows of foreign currencies on payments of receivables and liabilities are valued at the average NBP exchange rate on the day preceding the transaction date. Cash denominated in foreign currencies is valued as at the balance sheet date at the average exchange for respective currency applicable for that date, determined by the National Bank of Poland. Cash disbursement in foreign currency is determined by using the FIFO method. Other assets Other short-term assets in Company s balance sheet constitutes prepayments. Prepayments include costs attributable to future reporting periods and are capitalised and then transferred to the cost of subsequent reporting periods suitably with the passage of time. When assigning costs to prepayments, their future economic benefits are analysed each time. Prepayments are divided into long-term and short-term prepayments, in accordance with the cost accounting period. In determining write-offs on prepayments, the accrual basis, prudence, relevance, matching costs to relevant revenues are taken into account. Equity Equity is recognised in books of accounts broken down into types and in accordance with principles specified by law and Company s Articles of Association. The Company's equity includes share capital, supplementary capital from the issuance of shares above their nominal value (share premium), other accumulated comprehensive income and retained earnings, including reserve capital. Share capital is recognized at nominal value, calculated in accordance with the articles of association of the Company and the entry in the court register, after adjustments for hyperinflation, estimated in accordance with IAS 29. Treasury shares and outstanding share capital contributions are deducted from the equity of the entity. Share premium capital is generated by the surplus of share issue price over the nominal share price less costs incurred due to share issue. Other accumulated comprehensive income includes income and costs related to instruments hedging future cash flows in the amount corresponding to the proportion of effective hedging, income and costs related to the valuation of assets available for sale, and income and costs related to the valuation of pension and similar benefits, as well as tax consequences relating to the income and expenses from revaluation recognised directly in equity. Retained earnings include: - undistributed profit or loss brought forward, - supplementary capital recognised in accordance with legal regulations and Company s Articles of Association, - reserve capital recognised at discretion of the owners, - current period financial result, - other. The total comprehensive income item in the statement on changes in equity includes profit or loss for the period as well as other comprehensive income for the reporting period. - 19 -
Financial statements for the year ended 31 December 2016, prepared in accordance with IFRSs as adopted by the European Union Bank loans, borrowings and other financial liabilities Interest-bearing loans (including overdrafts and factoring) are measured at amortized cost. Financial expenses, including premiums payable on settlement or redemption, and direct costs of borrowings are recognized in the profit and loss account using the effective interest rate, increasing the book value of the instrument with regard to repayments made during the current period. Derivative instruments are measured at fair value through profit and loss, except hedging instruments. Hedging derivatives are measured at fair value according to the principles of hedge accounting as described in previous sections. If a reliable fair value cannot be determined, financial liabilities are held at the initial value. Other financial liabilities, including debt securities, such as bonds issued, are valued at adjusted acquisition cost using the effective interest rate. Provisions Provisions are recognises when the Company has a present obligation (legal or constructive) as a result of past events and it is more likely than not that an outflow of resources will be required to settle the obligation and that an amount has been reliably estimated, when at the same time the amount or maturity of such obligation remains uncertain. The following provisions are particularly recognised by the Group: - provisions for liabilities on pension and similar benefits, which include provisions for long-service benefits, retirement benefits and payment in lieu of holidays - other provisions, which include provisions for severance pay and layoffs, as well as reserve for liabilities to employees related to bonuses. Reserves for long-service benefits as well as retirement and pension benefits are valued as at the reporting date by an independent actuary on the basis of the internal regulations of the Company, current market data and demographic information (interest rate, rate of labour mobility, mortality rate, wage growth rate). Holiday provision employees of the Company are entitled to holiday according to the Labour Code regulations. The costs of employees holiday are recognised on accrual basis. Employee holiday liability is determined based on the difference between the actual status of employees holiday usage and the status, which would result from holiday usage proportional to the passage of time. Restructuring provision is recognised only when the Group announced a detailed and formal restructuring plan to all interested parties. Provisions for severance payments to laid-off workers are recognised when a decision about lay-offs is made. Trade payables and other liabilities Trade liabilities are liabilities due to supply of goods or services that were received / provided, invoiced or officially agreed with the supplier. Trade liabilities item also includes prepayments received for deliveries as well as accruals. Accrued expenses are liabilities payable for goods and services that were received/provided, but were not paid, invoiced or officially agreed with the supplier. Accruals are recognised by the Company at the amount of probable liabilities resulting from services provided to the Company by counterparties and employees, if the amount of liabilities attributable to the current period is known or can be estimated in a reliable manner. Other liabilities include primarily liabilities arising from current operations of the Company in addition to trade liabilities, i.e. payroll and other current employee benefits, public liabilities for taxes, customs and social insurance (with the exception of liabilities from income taxes, which are presented as a separate item in the statement of financial position). Liabilities are recognised in the books of accounts at fair value as they occur. Payables outstanding at the reporting date are recognised at amortised cost. Payment of liabilities denominated in foreign currencies is recognized in the accounts after conversion respectively according to the average NBP exchange rate on the last business day preceding the inflow or outflow. The resulting exchange rate differences are recognised in financial revenues and costs. Unsettled foreign currency payables are translated to PLN as at the balance sheet date - respectively at the average NBP rate on that date. Other equity and liabilities Other liabilities include deferred income and government grants. Accrued income is recognised prudently and includes the equivalent of amounts received or receivable from customers for services that will be performed in future reporting periods. - 20 -
Financial statements for the year ended 31 December 2016, prepared in accordance with IFRSs as adopted by the European Union Government grants for fixed assets for the acquisition of fixed assets and intangible assets are presented in the balance sheet as deferred income and amortized in the profit and loss account in the income over the expected useful life of the assets. The amounts included in deferred revenue gradually increase the amount of other operating income, proportionally to amortization of fixed assets or development costs funded from these sources. Contingent receivables and payables Contingent items are disclosed off-balance sheet as contingent receivables and payables. Contingent liabilities occur in case of a guarantee or surety, which may result in a liability in the consequences of the fulfilment of certain events. In offbalance sheet accounting, contingent receivables can be determined from individual customers, divided into domestic and foreign counterparts. Domestic and overseas contingent liabilities are the result of granted guarantees and sureties. Receivables and liabilities are denominated in both local and currency and foreign currencies. In addition, off-balance sheet items include the Company's perpetual usufruct of land acquired free of charge through administrative decisions. Revenues from sale As revenues from sale the Group recognises probable occurrence of economic benefits in the reporting period, of reliably specified value, in a form of increase of value of assets, or reduction of value of liabilities which will lead to the increase of equity in a manner other than contributions of owners. Sales revenues are recognised at the fair value of payments received or receivable and represent amounts receivable for products, goods and services provided in the normal course of business, net of trade discounts, goods and services tax and other taxes associated with sales. Revenues are recognised when significant risks and benefits resulting from the ownership right to goods are transferred to the purchaser. As the Company applies hedge accounting, revenues from sales of products are adjusted by the effective portion of changes in fair value of cash flow hedging instruments related to the sale of finished goods denominated in EUR. Revenues from services are recognised when services are performed and include the services included in core business and auxiliary activities. Costs As costs the Group recognises probable reductions of economic benefits in the reporting period, of reliably specified value, in a form of reduction of value of assets, or increasing of value of liabilities and reserves which will lead to the reduction of equity or increase of its deficit in a manner other than withdrawal of funds by shareholders or owners. The Company recognises the costs in accordance with the principle of matching revenues and expenses and the prudence principle. The Company's primary cost reporting format is the by-function variant. The Company recognises the following costs: - cost of sales, including costs of products sold, the value of services sold and the value of goods and materials sold; - selling costs, including costs of sale intermediation, trading expenses, costs of advertising and promotion, and distribution costs; - general administration costs, which include costs associated with management and administration of the Company. Manufacturing cost of finished goods, used for valuation of Company s products, includes direct manufacturing costs plus reasonable part of indirect manufacturing costs. Direct costs sold include direct materials, direct labour, energy and fuel. The justified part of indirect costs includes variable production overheads (indirect costs) and that part of fixed production overheads, which corresponds to the level of costs incurred under normal operating capacity. The normal level of production capacity utilisation is determined on the basis of the average production level of previous years and the planned production level taking into account the situation on the market of non-ferrous metals (budget), taking into account the need for repairs. For relevant financial sheet year a normative is issued in the form of a separate letter. As the Company applies hedge accounting, cost of sales is adjusted by the effective part of changes in fair value of cash flow hedging instruments related to the purchase of aluminium. Other operating revenues Other operating revenues include income directly related to the core business activities of the Company, which include: - 21 -
Financial statements for the year ended 31 December 2016, prepared in accordance with IFRSs as adopted by the European Union - gain on disposal of non-financial fixed assets (fixed assets, fixed assets under construction, intangible assets), - gain on disposal and valuation of investment real properties, - reversal of impairment write-offs on assets (receivables, inventories), in case when the reason for impairment writeoff ceases, - revenues from dividends and profit sharing, recognised with the right for their receipt, - release of provisions for liabilities recognised in previous periods, - gains on disposal of non-financial non-current and current assets, - stock count surplus of asset items, - reimbursement of paid court fees, penalties and indemnification received, - as well as other indirect revenue from the Company's operating activities. Income on dividends is recognized on the date of establishing the shareholders rights to receive the payment. Other operating expenses Other operating expenses involve costs directly related to the core business of the Company, which include: - loss on disposal of non-financial fixed assets (fixed assets, fixed assets under construction, intangible assets), - loss on disposal and valuation of investment real properties, - impairment write-offs on assets (receivables, inventories) - recognition of provisions for future liabilities except provisions for financial liabilities, - costs of disposal of non-financial non-current and current assets, - stock count shortage of asset items, - compensation, fines paid, court fees, - costs of disposal of fixed assets, - as well as other indirect costs of Company's operating activities. Financial revenues Financial revenues of the Company include: - accrued and received interest from investments, funds on current bank accounts and for the delay in payment, - profit on disposal of investments (shares and other securities), - release of impairment write-offs on financial assets, such as shares, borrowings, interest, - surplus of foreign exchange gains over losses, - profit on realisation and valuation of derivatives and the ineffective portion of hedging instruments, - release of provisions for financial liabilities, - other income on financial operations. Interest income is recognised on an accrual basis, in respect of the principal amount, in accordance with the effective interest rate. Financial expenses Financial expenses of the Company include: - interest on financial liabilities and other liabilities, including interest for default in payment, - loss on disposal of investments (shares and other securities), - impairment write-offs on financial assets, such as shares, borrowings, interest, - surplus of foreign exchange losses gains over gains, - losses from realisation and valuation of derivatives and the ineffective portion of hedging instruments, - recognition of provisions for financial liabilities, - loan, borrowing commission, - other costs of financial operations. Operating profit Operating profit is calculated after taking into account other operating income and expenses, but before taking into account financial income and expenses. Prime costs include all costs related to the activity of the Company, except for other operating and financial costs. Business segment Operating segments as components of the entity are distinguished, if such division occurs when making decisions on operational matters or when the internal reports used for decision-making and on-going analysis of business make such a distinction between operating segments. - 22 -
Financial statements for the year ended 31 December 2016, prepared in accordance with IFRSs as adopted by the European Union Estimates of the Management Board Preparation of financial statements in compliance with IFRS requires the Management Board to make professional judgements, estimates and assumptions that impact the adopted accounting principles and the presented value of assets, liabilities, revenues and costs. The estimates and the underlying assumptions are based on historical experience and other factors considered reasonable under given circumstances and the results of such estimates are the basis for professional judgement of the carrying value of assets and liabilities, which cannot be determined using other sources. Actual results may differ from the assumed estimated values. The estimates and the underlying assumptions are reviewed on an ongoing basis. A change in estimated values is recognized in the period in which the verification occurred if it concerns that period only, or in the current period and future periods, if the change concerns both the current period and future periods. The main accounting estimates and assumptions adopted refer to: - estimated useful life of the asset - the subject matter of the estimation is to determine the estimated useful life, which may be shortened or extended in use. The end value and amortisation/depreciation methods are verified by the Company once per fiscal year. The verification includes among others: economic useful life, end value of asset, expected method of consuming the economic benefits from an intangible asset, expected physical wear and tear estimated on the basis of the present average useful life, reflecting the speed of physical wear and tear and intensity of use etc., technical or market obsolescence, legal and other limitations to the use of the asset, expected use of the asset estimated under the expected production capacity or production size and other circumstances effecting the useful life of assets. - Impairment losses- are made if there are any external or internal indications of no possible recovery of the carrying amount of non-current assets. If the carrying amount assets exceeds the recoverable amount of the asset, the value of asset is lowered to the recoverable amount by the appropriate impairment and recognition of the costs in the profit and loss statement. - allowances of current assets (inventories and receivables), for inventories the allowance is estimated on the basis of the difference between net realizable amount and expected amount of future cash-flows. On the other hand estimate of accounts receivable write-off is the difference between the carrying value of given asset item and the current value of future cash flows discounted at the effective interest rate. - employee benefits and provisions for retirement benefits and similar- the current amount of benefits and provisions depend on many factors determined by actuarial methods. The assumptions adopted to establish the net amount (income) for the retirement benefit include the discount rate. Any and all changes of such assumptions shall affect the amount of retirement liabilities. The Company determines relevant discount rate at the end of each year. It is the interest rate applied to determine the present value of the estimated future outflows of cash assessed as necessary to meet the liabilities. - provisions for expected liabilities due to the business activities- they are established in the amount representing the best estimate of the expenditure required to settle the present obligation or substantiation of the future obligation as at the balance sheet day. - fixed assets and goodwill impairment test - such test is based on five-year discounted projected cash flows in line with the approved plans of the Management Board. The discount rate is calculated based on the WACC. The model for calculating the cost of equity uses CAPM valuation model and the average beta value for the industry. Estimated values of assets and liabilities have been presented in the numerical part of the report. 6. Revenues from sale Continuing operations 31/12/2015 Revenues from sales sale of products 955 495 967 587 Revenues from the sale of goods and materials 34 840 77 777 Revenues from services 14 572 8 212 Total revenues from sales 1 004 907 1 053 576 7. Business segments by industry and location Industrial segments In terms of segment management, Impexmetal S.A. is considered a single operational segment. As such Impexmetal S.A. does not prepare financial statements by segments. - 23 -
Financial statements for the year ended 31 December 2016, prepared in accordance with IFRSs as adopted by the European Union Geographical segments The Company manufactures in Poland. Sales is primarily located in Poland as well as other European countries. The table below presents information on Company s sales markets, irrespective of the country of origin of the sold products and services. Revenues from sale 31/12/2015 Poland 482 522 503 166 Europe (excluding Poland) of which 516 943 544 015 - EU countries 447 655 479 201 - other non-eu European countries 69 288 64 814 Other destinations 5 442 6 395 Total revenues from sales 1 004 907 1 053 576 No single Company s customer accounted for 10% or more of total revenues of the entity in the period of 12 months ended on 31.12.2016 and 31.12.2015. 8. Costs of products, goods and materials sold note 31/12/2015 Value of goods and materials sold 31 367 74 121 Costs by type 936 275 945 874 Amortisation and depreciation 30 822 31 040 Consumption of materials and energy (*) 798 965 814 198 External services 29 400 24 042 Remuneration and employee benefits 41 121 38 103 Social security and other benefits 10 806 10 477 Taxes and charges 6 109 8 449 Trademark fees 15 053 15 277 Other 3 999 4 288 Total 967 642 1 019 995 Movements in inventories, prepayments and accruals (25 078) 2 615 Manufacturing cost of products for internal purposes (20 276) (7 992) Selling costs (31 475) (29 320) General and administrative costs (25 336) (25 288) Costs of products, goods and materials sold 865 477 960 010 (*) Including the effective part of the settlement of the security instruments in the amount of 11 998 thousand PLN in 2016, and respectively (11 285) thousand PLN in 2015. 9. Other operating revenues Damages received 482 40 note 31/12/2015 Dividends received and due 33 777 18 674 Gain on disposal of non-financial fixed assets 62 333 Revaluation of assets, of which: 6 199 - release of impairment write-off on trade receivables 25 6 8 - release of impairment write-off on inventories 24-191 Reversal of other provisions 351 2 497-24 -
Financial statements for the year ended 31 December 2016, prepared in accordance with IFRSs as adopted by the European Union Other operating income, of which: 231 1 281 - revenues from disposal of fixed assets 71 272 - subsidy from the National Fund for the Rehabilitation of Disabled 29 343 - grants (R&D projects) 25 25 - other grants - - Total 34 909 23 024 Dividends disclosed in other operating income regard investments in subsidiaries. 10. Other operating expenses note 31/12/2015 Recognition of provisions 518 280 Loss on disposal of non-financial fixed assets - 325 Revaluation of assets, of which: 747 121 - impairment write-off on receivables 25 747 121 - impairment write-off on inventories 24 - - Costs of damages and compensations 297 393 Other operating expenses, including: 3 909 2 111 - scrapping of finished products and materials 3 476 1 426 Total 5 471 3 230 Other operating expenses apart from scrapping finished products and materials include costs of stock take differences of materials and finished products as well as costs associated with disposal of fixed assets. 11. Financial revenues note 31/12/2015 Interest income 4 160 3 215 Profit on derivative financial instruments, of which 26 52 194 8 367 - profit from settlement of derivatives 44 673 3 380 - profit from valuation of derivatives 7 521 4 987 Excess of currency exchange rate gains - - Profit on sales of financial assets, of which: 59 18 - profit on sale of assets available for sale valued at fair value through other comprehensive income 32-18 Revaluation of financial assets, of which: 875 449 - reversal of impairment write-offs for interest on receivables 25 875 71 - reversal of impairment write-offs on borrowings - 378 Discounting - 972 Commissions received and due 191 345 Total 57 479 13 366 (*) The increase in the profits arising from the settlement of the derivative instruments concerned the Company's activity of intermediation in the conclusion of hedging for companies of the group, which started in the fourth quarter of 2015. - 25 -
Financial statements for the year ended 31 December 2016, prepared in accordance with IFRSs as adopted by the European Union 12. Financial expenses note 31/12/2015 Interest expense 6 223 5 741 Loss on sales of financial assets - 326 Loss on derivative financial instruments, of which: 26 52 173 8 487 - loss on settlement of derivatives 44 658 3 322 - loss on valuation of derivatives 7 515 5 165 Excess of currency exchange rate losses 292 5 149 Impairment write-off on interest 25 421 36 Bank commissions on loans and borrowings 420 360 Other financial costs 210 192 Total 59 739 20 291 (*) The increase in the losses arising from the settlement of the derivative instruments concerned the Company's activity of intermediation in the conclusion of hedging for companies of the group, which started in the fourth quarter of 2015. The main items of financial costs include interest on financing operational activity, loss from derivative financial instruments pertaining to broker s activity. In the period covered by the financial statement, the external financing costs were capitalized to the value of fixed assets in progress in the amount of 409 thousand PLN, in the comparable period there were no external financing costs that should be activated. 13. Income tax expense Income tax disclosed in the income statement Reconciliation of the effective tax rate 31/12/2015 Profit (loss) before income tax 109 797 51 827 Statutory tax rate 19% 19% Tax at statutory rate 20 861 9 847 Tax effect of permanent differences between profit / loss before tax and tax base (6 255) (5 665) Tax burden disclosed in the income statement 14 606 4 182 Current income tax 8 736 4 168 Deferred income tax 5 870 14 Effective tax rate 13,30% 8,07% Current income tax disclosed in the income statement 31/12/2015 Gross profit 109 797 51 827 Differences between gross profit (loss) and the income tax base, of which: (58 379) (26 797) - costs not deductible for income tax 5 815 6 567 - dividends excluded from revenues (32 071) (18 674) - other non - taxable revenues (31 893) (7 800) - taxable revenues not recognised in the period result 72 2 209 - share in loss of limited partnership 2 1 - other taxable revenues not recognised in the period result (304) (9 100) Profit /(Loss) 51 418 25 030-26 -
Financial statements for the year ended 31 December 2016, prepared in accordance with IFRSs as adopted by the European Union Exempt income (dividend from overseas entities) (1 706) - Exempt income (12) - Reconciliation of tax losses from previous years (3 738) (3 738) Profit /(Loss) after deductions 45 962 21 292 Tax rate 19% 8 733 4 045 Corrections of income tax for previous period 3 9 Income tax on dividends - 114 Current income tax disclosed in the income statement 8 736 4 168 Deferred income tax disclosed in the income statement note 31/12/2015 Temporary differences 5 870 14 Deferred income tax disclosed in the income statement 37 5 870 14 Deferred income tax disclosed in other comprehensive income on: note 31/12/2015 Valuation of hedge instruments 31 109 (886) Valuation of assets available for sale 32 7 777 (5 592) Valuation of pension and similar benefits 33 26 34 Deferred income tax disclosed in other comprehensive income 37 7 912 (6 444) 14. Management Board proposal on profit distribution Proposed distribution of profit for the reporting period The Management Board of the Company recommends to allocated the 2016 profit of PLN 95 191 090.52 to supplementary capital. Distribution of profit for previous reporting period On 15 June 2016 the General Meeting of Shareholders of Impexmetal S.A. allocated the 2015 net profit of the Company of PLN 47 645 thousand to supplementary capital. 15. Calculation of earnings per share Earnings per share for 2016 years was calculated as the ratio of net profit for 12 months ended 31 December 2016 and weighted average number of shares during that period. Weighted average number of shares during the period from 1 January to 31 December 2016 was 192 673 781.97 shares. Profit and weighted average number of ordinary shares used in the calculation of basic earnings per share: Net profit for the financial year period ended on period ended on 31/12/2015 From continuing operations 95 191 47 645 From discontinued operations - - Net profit for the financial year 95 191 47 645 Weighted average number of ordinary shares used in calculation of earnings per share (shares) 192 673 781.97 192 790 000-27 -
Financial statements for the year ended 31 December 2016, prepared in accordance with IFRSs as adopted by the European Union Earnings per share (in PLN) period ended on period ended on 31/12/2015 From continuing operations 0.49 0.25 From discontinued operations - - Total basic / diluted earnings per share 0.49 0.25 No dilution of shares occurred in the period of this report. 16. Tangible assets Tangible assets 31/12/2015 Tangible fixed assets 323 082 249 970 Tangible fixed assets under construction 8 235 9 655 Total fixed assets 331 317 259 625 Advances for tangible fixed assets 8 942 21 276 Total tangible fixed assets 340 259 280 901 Change in fixed assets for the period between 01.01.2015 and 21.12.2016 1. INITIAL OR PURCHASE VALUE land building s, premises and structure s technical equipment and machines vehicles other tangibl e fixed assets Total property, plant and equipment As at 31 December 2014 / 1 January 2015 1 783 65 910 496 927 8 133 16 932 589 685 a) additions (due to) - 11 487 5 510 833 4 049 21 879 - acquisition - 3 018 5 510 833 4 049 13 410 - other (includes fixed assets under construction) - 8 469 - - - 8 469 b) reductions (due to) - - 2 415 62 912 3 389 - disposal and liquidation - - 17 62 912 991 - other (includes fixed assets under construction) - - 2 398 - - 2 398 As at 31 December 2015 / 1 January 2016 1 783 77 397 500 022 8 904 20 069 608 175 a) additions (due to) - 21 439 83 631 3 442 2 666 111 178 - acquisition - 21 439 76 530 3 442 2 666 104 077 - other (includes fixed assets under construction) - - 7 101 - - 7 101 b) reductions (due to) 1 10 510 10 729 149 1 907 23 296 - disposal and liquidation 1 1 994 10 729 149 1 904 14 777 - other (includes fixed assets under construction) - 8 516 - - 3 8 519 As at 31 December 2016, of which: 1 782 88 326 572 924 12 197 20 828 696 057 - tangible fixed assets under construction - - 8 235 - - 8 235 2. DEPRECIATION As at 31 December 2014 / 1 January 2015-30 058 266 440 6 014 13 433 315 945 changes in fiscal year - 2 383 26 700 380 1 198 30 661 - amortisation for the period - - (17) (62) (823) (902) - disposal and liquidation - 34 - - - 34 As at 31 December 2015 / 1 January 2016-32 475 293 123 6 332 13 808 345 738 - amortisation for the period - 2 652 26 099 492 1 235 30 478 - disposal and liquidation - (1 500) (8 332) (149) (1 889) (11 870) - other - 7 66 19 8 100 As at 31 December 2016-33 634 310 956 6 694 13 162 364 446 3. LOSS OF VALUE As at 31 December 2014 / 1 January 2015-372 2 401 26 102 2 901-28 -
Financial statements for the year ended 31 December 2016, prepared in accordance with IFRSs as adopted by the European Union - additions - - - - - - - reductions - - - - 89 89 As at 31 December 2015 / 1 January 2016-372 2 401 26 13 2 812 - additions - - - - - - - reductions - 91 2 401 19 7 2 518 As at 31 December 2016-281 - 7 6 294 4. NET VALUE As at 1 January 2015 1 783 35 480 228 086 2 093 3 397 270 839 As at 31 December 2015 / 1 January 2016 1 783 44 550 204 498 2 546 6 248 259 625 As at 31 December 2016, of which: 1 782 54 411 261 968 5 496 7 660 331 317 - tangible fixed assets under construction - - 8 235 - - 8 235 The average depreciation period is - between 10 and 40 years between 3 and 25 years from 4 up to 25 years between 4 and 28 years; - BALANCE SHEET TANGIBLE ASSETS (OWNERSHIP STRUCTURE) Own 31/12/2015 330 516 259 393 Used under lease, rental or other agreement 801 232 Total balance-sheet fixed assets 331 317 259 625 The value of fixed assets used by the Company under lease, rental agreements as at 31 December 2016 was PLN 801 thousand As at 31 December 2016 fixed assets with the value of PLN 205 982 thousand constitute collateral for loans and sureties and, respectively, PLN 186 401 thousand as at 31 December 2015. As at 31 December 2016 the Company holds land in perpetual usufruct which remains in off-balance sheet, with the value of PLN 20 186 thousand and, respectively, PLN 20 133 thousand as at 31 December 2015. As at 31 December 2016 the Company did not recognise any impairment write-offs of fixed assets from continuing activities. Release of impairment write-off pertains to disposal of fixed assets. The Company carried out a sensitivity analysis of the applied usability periods of fixed assets. In case of a change of the useful life of depreciable assets, in the buildings and structures group by +/-10 years and in the remaining groups by +/-5 years, the impact of changes on the financial result would be as follows: a reduction in depreciation costs by PLN 14 million when extending the depreciation by 10 years in case of buildings and structures, and by 5 years for the other groups, or an increase in depreciation costs by PLN 60 million when shortening the period by 10 years for buildings and structures, and 5 years for the remaining groups (as at 31 December 2015 respectively: a decrease in depreciation of PLN 14 million or increase in depreciation costs by PLN 62 million). Investment outlays Outlays on non-financial non-current assets: 31/12/2015 Buildings and structures 6 401 11 568 Technical equipment and machines 91 725 4 646 Vehicles 2 781 1 203 Other fixed assets and intangible assets 2 360 1 856 Outlays on non-financial non-current assets, including: 103 267 19 273 Tangible fixed assets under construction 8 235 9 750 Outlays on environment protection: Modernisations - - Investment outlays 310 713 Total outlays on environment protection: 310 713 Outlays on buildings and structures pertain primarily to the expansion of the rolling mill. - 29 -
Financial statements for the year ended 31 December 2016, prepared in accordance with IFRSs as adopted by the European Union Planned outlays on non-financial non-current assets in the subsequent 12 months: 31/12/2015 Buildings and structures 150 2 673 Technical equipment and machines 64 405 75 604 Vehicles 1 170 6 845 Other fixed assets and intangible assets 7 430 - In total, including: 73 155 85 122 - on environmental protection - 600 The amount of planned investment outlays resulting from agreements as at 31 December 2016 is PLN 23 million. 17. Investment property 31/12/2015 Balance brought forward 8 011 8 011 Increases - - Decrease (2 949) (2 949) Total investment real properties 5 062 5 062 Investment real properties are properties for rent: Hotel Central and Klub Hutnik Club in Konin Reduction in investment real properties in 2015 pertains to the disposal of the recreational centre in Mikorzyn. Valuation of that investment real property was carried out by an independent expert and was the basis for its disclosure in the register as investment real property. As revaluations did not significantly deviate from the value adopted when reclassifying into investment real properties, for precautionary measures the original valuation was upheld and no further revaluation was made which would increase the value of the investment, as a precautionary measure, the valuation to increase the investment value was not carried out. The market value of the real property is determined by revenue approach, using the investment method, using simple capitalization method assuming the stable net operating income in the long prospectus and the comparative method was applied using the method of adjusted average price (estimation of the market value at the average prices of the similar real properties at the moment of appraisal). No change occurred in the valuation method during the year. The fair value hierarchy as at 31 December 2016 is as follows: Level 1 Level 2 Level 3 Fair value as at Investment property - - 5 062 5 062 Income from investment real properties amounted to PLN 219 thousand in 2016 and PLN 359 thousand in 2015. Direct operational expenses on investment real properties amounted to PLN 205 thousand in 2016 and PLN 460 thousand in 2015. As at 31 December 2016 investment real properties not constitute a guarantee of liabilities on loan obligation sureties (as at 31 December 2015 the value of real properties constituting a guarantee of liabilities on loan sureties was PLN 1 800 thousand). No restrictions exist on the right to sell an investment real property and transfer revenues and profits in this respect. All investment real properties are owned by the Company. - 30 -
Financial statements for the year ended 31 December 2016, prepared in accordance with IFRSs as adopted by the European Union 18. Intangible assets Change in intangible fixed assets in the period between 01.01.2015 and 21.12.2016 1. INITIAL OR PURCHASE VALUE R&D projects concessions, patents, licenses, software perpetual land usufruct right other intangible assets Intangible assets, total As at 1 January 2015 5 741 1 493-3 278 10 512 a) additions due to: - 45-100 145 - acquisition - 45-100 145 b) decreases - - - - - As at 31 December 2015 / 1 January 2016 5 741 1 538-3 378 10 657 a) additions due to: - 16-1 253 1 269 - acquisition - 16-1 253 1 269 b) decreases - 92 - - 92 - sale and liquidation - 92 - - 92 As at 31 December 2016, of which: 5 741 1 462-4 631 11 834 As at 1 January 2015 5 456 1 411-2 281 9 148 changes in fiscal year 76 52-251 379 - amortisation 76 52-251 379 As at 31 December 2015 / 1 January 2016 5 532 1 463-2 532 9 527 changes in fiscal year 76 (75) - 251 252 - amortisation 76 17-251 344 - sale and liquidation - (92) - - (92) As at 31 December 2016 5 608 1 388-2 783 9 779 3. LOSS OF VALUE As at 1 January 2015 - - - - - As at 31 December 2015 / 1 January 2016 - - - - - As at 31 December 2016 - - - - - 4. NET VALUE As at 1 January 2015 285 82-997 1 364 As at 31 December 2015 / 1 January 2016 209 75-846 1 130 As at 31 December 2016, of which: 133 74-1 848 2 055 The average depreciation period is between 5 and 10 years between 5 and 10 years - between 5 and 10 years - All components of intangible assets at the Company have specific periods of economic use. The net value of intangible assets for which government subsidies were received was PLN 133 thousand as at 31 December 2016 and PLN 209 thousand as at 31 December 2015. All intangible fixed assets are owned of the Company. Intangible assets depreciation disclosed in the income statement. In 2016 and 2015 no expenditure on research and development was recognized in expenses. - 31 -
Financial statements for the year ended 31 December 2016, prepared in accordance with IFRSs as adopted by the European Union 19. Goodwill 31/12/2015 Value at the beginning of the period 2 122 2 122 Additions / (reductions) - - Value at the end of the period 2 122 2 122 Loss of value in the period - - Net amount at the end of the period 2 122 2 122 The value of the company created in 2008 from the merger of Aluminium Konin Impexmetal S.A. and Impexmetal S.A., was allocated to a group of cash-generating units, which includes fixed assets of Zaklad Huta Aluminium Konin of PLN 331 317 thousand as at 31.12.2016 and PLN 259 625 thousand as at 31.12.2015. As at 31.12.2016 the Company conducted goodwill impairment tests based on five-year discounted projected cash flows; cash flows used for the tests conform with the approved plans of the Management Board. The model used: a discount rate in the amount of the weighted average cost of capital (WACC) at the level of 9.04% (9.49% in 2015), a risk-free rate at the level of 1.69% (based on 5-year State Treasury bonds, in 2015 2.22%). foreign exchange rates for EUR/PLN 4.30 and USD/PLN 3.90 (4.20 and 3.80 respectively in 2015). Since the cash flow forecast has been carried out for the period covered by the planning of the Management Board, the Company did not indicate the growth rate to extrapolate cash flow projections. The test showed no impairment of goodwill. The Management Board believes that if there were any justified and probable changes in the key assumptions on the basis of which the recoverable value was specified, the total carrying value of the Company would not exceed the total recoverable amount. The Company performed an analysis of sensitivity to the change of the key assumptions adopted, in order to determine the recoverable amount of fixed assets. Assuming fluctuations in the EUR/PLN exchange rate of +/- 10% and USD/PLN of +/-5%, and the weighted average cost of capital (WACC) of +/-20%, with the remaining factors invariant, the test showed no impairment of fixed assets and the goodwill assigned to them. 20. Investments in subsidiaries 31/12/2015 Value of shares in subsidiaries (gross) 822 709 765 413 Impairment write-offs on shares in subsidiaries (703) (782) Valuation to fair value recognised in comprehensive income (**) (27 392) (27 392) Difference in in-kind contribution (*) (166 005) (198 805) Total balance sheet value of shares (net) 628 609 538 434 (*) The difference between the value of Company assets made as contribution in kind and the value of received shares and stocks, per specific Companies is presented in the table titled Subsidiaries as at 31.12.2016. (**) Pertains to Alchemia S.A. as at the moment when 20% of share in initial capital was exceeded. Change of investments in subsidiaries 31/12/2015 Balance at the beginning of the period 538 434 294 373 Additions due to: 127 504 257 745 Subscription to SPV Lakme Sp. z o.o. shares - 4 000 Subscription to Eastside Capital Investments Sp. z o.o. shares - 13 720 Subscription to Impex-Invest Sp. z o.o. shares 37 300 500 Subscription/Acquisition of shares in SPV Impexmetal Sp. z o.o. 41 000 5 350 Acquisition of shares in ZM SILESIA S.A. 1 155 105 Acquisition/reclassification of shares in Alchemia S.A. 48 049 234 055 Subscription to Eastside Bis Sp. z o.o. shares - 10 Subscription to Impex Service Sp. z o.o. shares - 5 Reductions due to: (37 329) (13 684) - 32 -
Financial statements for the year ended 31 December 2016, prepared in accordance with IFRSs as adopted by the European Union In-kind contribution of SPV Lakme Sp. z o.o. shares - (13 680) Disposal of shares in Przedsiębiorstwo Automatyzacji I Pomiarów Altech Sp. z o.o. (29) - Liquidation of Baterpol S.A. i Wspólnicy Sp.K. (37 300) - Disposal of shares in Eastside Capital Investment Sp. z o.o - (4) Balance as at period end 628 609 538 434 Shares in subsidiaries held by the Company constitute as at 31.12.2016 collateral to loans received by the Company of PLN 23 000 thousand and as at 31 December 2015 of PLN 5 520 thousand (According to the value at which the shares were presented in the financial statements). The Company conducted share impairment tests of Hutmen based on discounted projected cash flows generated by Hutmen in 2017 2021, as well as based on the valuation of the company's financial assets (mainly shares in WM Dziedzice S.A.). The test for impairment of fixed assets' value used the weighted average cost of capital at the level of 11,5% compared to 11.97% for the previous year. The conducted test confirmed the recoverability of the investments held by the Company. Abbreviated financial information on associated entities as at 31.12.2016 entity name entity liabilities entity receivables entity assets entity revenues entity net profit (loss) Alchemia S.A. 192 871 154 567 764 294 596 127 (5 308) - 33 -
Subsidiaries as at 31.12.2016 subsidiary name (company) and its legal form FLT & Metals Ltd., Wielka Brytania S & I S.A., Szwajcaria Symonvit Limited, Cypr Walcownia Metali Dziedzice S.A. registered office Great West House, Great West Road, Brentford, Middlesex, TW8 9DF Route de Vallaire 1 1025 Saint-Sulpice Maximou Michailidi, 6, Maximos Plaza, Tower 3, 4th floor, Flat/Office 401, Lemesos, Limassol 3106, Cypr 43-502 Czechowice Dziedzice ul. Kaniowska 3 subsidiary s business type of relationship control/jointcontrol takeover date/significant influence acquisition date gross value of shares impairment write-offs difference in in-kind contribution (*) valuation to fair value Carrying value of shares (net) % of equity held share in total votes at the General Meeting trade Subsidiary 1974 4 941 - - 4 941 100,00% 100,00% trade Subsidiary 1989 8 653 - - 8 653 100,00% 100,00% trade Subsidiary 2012 6 - - 6 100,00% 100,00% manufacturing Subsidiary 2012 25 000 - - 25 000 26,78% 26,78% Zakłady Metalurgiczne Silesia S.A. 40-155 Katowice Al. Konduktorska 8 manufacturing Subsidiary 1997 56 583 - - 56 583 99,13% 99,13% Hutmen S.A. 03-301 Warszawa, ul. Jagiellońska 76 manufacturing Subsidiary 1997 2 612 - - 2 612 2,72% 2,72% FŁT Polska Sp. z o.o. 03-301 Warszawa, ul. Jagiellońska 76 trade Subsidiary 1998 1 473 - - 1 473 98,35% 98,35% Polski Cynk Sp. z o.o. 55-200 Oława, ul. Sikorskiego 2 trade Subsidiary 2009 99 732 - (69 611) 30 121 88,46% 88,46% SPV Lakme Investment Sp. z o.o. 03-301 Warszawa, ul. Jagiellońska 76 developer s activity Subsidiary 2012 0,1 - - 0,1 0,0042% 0,0042% Impex-invest Sp. z o.o. 03-301 Warszawa, ul. Jagiellońska 76 financial services Subsidiary 2012 46 746-103 767 150 513 100,00% 100,00% Eastside Capital Investments Sp. z o.o. 03-301 Warszawa, ul. Jagiellońska 76 financial activity Subsidiary 2012 81 829 - (67 917) 13 912 34,98% 34,98% Brassco Inc.,US.A. P O BOX 446 JERICHO, N.Y. 11735 trade Subsidiary 1992 703 (703) - - 94,34% 94,34% Remal Sp. z o.o. 62-510 Konin, ul. Hutnicza 1 Zakład Utylizacji Odpadów Sp. z o.o. 62-510 Konin, ul. Sulańska 11 repair services; services and production for metallurgical purposes environmental protection services Subsidiary 1995 160 - - 160 77,30% 77,30% Subsidiary 1997 8 600 - (2 911) 5 689 59,97% 59,97% SPV Impexmetal Sp. z o.o.. 03-301 Warszawa, ul. Jagiellońska 76 financial activity Subsidiary 2015 176 160 - (129 333) 46 827 99,99% 99,99% Eastside Bis Sp. z o.o. 03-301 Warszawa, ul. Jagiellońska 76 property management Subsidiary 2016 10 - - 10 0,00% 0,00% Impex Service Sp. z o.o. 62-510 Konin, ul Hutnicza 1 repair services Subsidiary 2016 5 - - 5 100% 100% Alchemia S.A. 03-301 Warszawa, ul. Jagiellońska 76 manufacturing Associated 2016 309 496 - - (27 392) 282 104 29,97% 29,97% 822 709 (703) (166 005) (27 392) 628 609 (*) differences in in-kind contribution, correction to acquisition price. - 34 -