QUARTERLY REPORT containing the interim condensed financial statements for the first quarter of 2010

Transcription

1 FINANCIAL SUPERVISION AUTHORITY QUARTERLY REPORT containing the interim condensed financial statements for the first quarter of 2010 prepared in accordance with the International Accounting Standard 34 Interim Financial Reporting in the Polish currency (PLN) Zespół Elektrociepłowni Wrocławskich KOGENERACJA S.A. (full name of the issuer) KOGENERACJA S.A. (short name of the issuer) Other Services (sector as per Warsaw Stock Exchange classification) Wrocław (postal code) (place) Łowiecka 24 (street) (number) (071) (071) (phone) (fax) ( ) (NIP) (REGON) (www)

2 List of contents LIST OF CONTENTS... 2 A. FINANCIAL HIGHLIGHTS... 4 I. SELECTED CONSOLIDATED FIGURES... 4 II. SELECTED UNCONSOLIDATED FIGURES... 5 III. RATES USED FOR CONVERSION OF SELECTED FINANCIALS... 5 B. CONDENSED CONSOLIDATED CORE FINANCIAL STATEMENTS... 6 I. CONDENSED CONSOLIDATED PROFIT AND LOSS ACCOUNT AND CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Condensed consolidated profit and loss account Condensed consolidated statement of comprehensive income... 7 II. CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION... 8 III. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS IV. CONDENSED CONSOLIDATED STATEMENT OF MOVEMENTS IN EQUITY C. CONDENSED UNCONSOLIDATED FINANCIAL STATEMENTS I. CONDENSED UNCONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (KOGENERACJA S.A.) Condensed unconsolidated Profit and Loss Account of KOGENERACJA S.A) Condensed unconsolidated statement of comprehensive income (KOGENERACJA S.A.) II. CONDENSED UNCONSOLIDATED STATEMENT OF FINANCIAL POSITION (KOGENERACJA S.A.) III. CONDENSED UNCONSOLIDATED STATEMENT OF CASH FLOWS (KOGENERACJA S.A.) IV. CONDENSED UNCONSOLIDATED STATEMENT OF MOVEMENTS IN EQUITY (KOGENERCJA S.A.) V. NOTES TO THE INTERIM CONDENSED UNCONSOLIDATED FINANCIAL STATEMENTS General comments Accounting policies D. ADDITIONAL INFORMATION TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS I. GENERAL INFORMATION Key information on KOGENERACJA Group Control over the Group Organisation of the Group Companies covered by the consolidated financial statements Changes in the Group structure in the first quarter of II. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Compliance statement Basis of preparation of the financial statements Consolidation principles Foreign currencies Property, plant and equipment Intangible fixed assets Land held in perpetual leasehold Investments Investment properties Trade and other receivables Inventories Cash and cash equivalents Impairment Equity Interest-bearing bank debt, loans and debt securities Employee benefits Share based payments Provisions Trade and other payables Subsidies

3 21. Revenue Costs Income tax Segment reporting Discontinued operations and non-current assets held for sale Combinations of Group entities Recognition and measurement of energy origin certificates CO 2 emission rights III. NOTES Seasonality of business Exceptional items having material impact on the financial statements Significant changes in estimates Issue and repurchase of debt and equity securities and repayment of debt Costs by type Net financial costs Profit per share Dividend declared or paid Operating segments Provisions Impairment losses on financial assets Security established on the Group s assets Contingent receivables and liabilities Guarantees issued by KOGENERACJA S.A. or its Group companies in the first quarter of Litigations Related party transactions Unusual transactions between related parties IV. ANALYSIS OF GROUP PERFORMANCE AND THE PERFORMANCE DRIVERS Summary of key achievments and failures Factors affecting the Group s net profit in the first quarter of Factors that will affect KOGENERACJA s performance in the subsequent periods Other information relevant to the assessment of employment, property and financial position of the Group Management Board s opinion on the previously published projections V. OTHER INFORMATION INCLUDED IN THE QUARTERLY REPORT QS1/ Current reports published in the first quarter of Shares of the Company and its connected companies held by directors Quotation of the KOGENERACJA shares on Warsaw Stock Exchange Events occurring after the end of the reporting period Correction of an error from the previous years

4 A. Financial highlights I. Selected consolidated figures in EURO thousand Basic figures from consolidated income statement I-III 2010 I-III 2009 I-III 2010 I-III Revenues Revenue from compensation for PPAs Operating profit Profit before tax Net profit Net profit attributable to ordinary shareholders Net profit attributable to minority shareholders (328) (982) (83) (214) 8. Earnings per share 6,10 6,98 1,54 1,52 Basic figures from consolidated statement of cash flows 9. Net cash flow from operating activities Net cash flow used in investing activities (60 767) (66 023) (15 319) (14 355) 11. Net cash flow from financing activities (99 169) (85 877) (24 999) (18 671) Basic figures from consolidated statement of financial position 31 March December March December Non-current assets Current assets Total assets Non-current liabilities Current liabilities Equity attributable to ordinary shareholders Equity attributable to minority shareholders Equity Number of shares (in thousands) Book value and diluted book value per share (in PLN/EUR)

5 II. Selected unconsolidated figures Basic figures from unconsolidated income statement in EURO thousand I-III 2010 I-III 2009 I-III 2010 I-III Revenues Operating profit Profit before tax Net profit Basic figures from unconsolidated statement of cash flows 5. Net cash flow from operating activities Net cash flow used in investing activities (57 665) (64 856) (14 537) (14 101) 7. Net cash flow from financing activities (80 559) (70 848) (20 308) (15 404) Basic figures from unconsolidated statement of financial position 31 March December March December Non-current assets Current assets Total assets Non-current liabilities Current liabilities Equity III. Rates used for conversion of selected financials Statement of financial position items - average exchange rate announced by NBP as at 31 March 2010 Statement of comprehensive income and cash flows items - arithmetic average of average exchange rates announced by NBP as at the end of each mont of the period from 1 January to 31 March 2010 Statement of financial position items - average exchange rate announced by NBP as at 31 March 2009 Statement of comprehensive income and cash flows items - arithmetic average of average exchange rates announced by NBP as at the end of each mont of the period from 1 January to 31 March ,8622 3,9669 4,1082 4,5994 5

6 B. Condensed consolidated core financial statements I. Condensed consolidated profit and loss account and condensed consolidated statement of comprehensive income 1. Condensed consolidated profit and loss account For the period ended 31 March st quarter of st quarter of 2009 For period from 1 January 2010 to 31 March 2010 For period from 1 January 2009 to 31 March 2009 I. Revenues II. Revenue from compensation for PPAs III. Cost of sales ( ) ( ) IV. Gross profit on sales V. Other operating income VI. Selling expenses (1 834) (2 412) VII. Administrative expenses (7 669) (8 520) VIII. Other operating expenses (2 313) (2 736) IV. Operating profit X. Finance income XI. Finance expenses (6 784) (8 079) XII. Net finance costs (5 039) (6 441) (profit/loss on financial activities) XIII. Impairment losses on goodwill - - XIV. Profit before taxation - - XV. Impairment losses on goodwill XVI. Income tax (22 981) (26 318) XVII. Share of profit of equity accounted investees - 27 XVIII. Net profit Net profit attributable to ordinary shareholders Net profit attributable to minority shareholders (328) (982) 6

7 2. Condensed consolidated statement of comprehensive income For the period ended 31 March st quarter of st quarter of 2009 For period from 1 January 2010 to 31 March 2010 For period from 1 January 2009 to 31 March 2009 Net profit Other comprehensive income - - Total comprehensive income Total comprehensive income attributable to ordinary shareholders Total comprehensive income attributable to minority shareholders (328) (982) 7

8 II. Condensed consolidated statement of financial position As at 31 March March December 2009 current period previous period ASSETS I. Non-current assets 1. Property, pland & equipment Intangible fixed assets, including: goodwill on related parties Perpetual usufruct of land Investment property Long-term receivables Long-term investments in subsidiaries, associates and jointly controlled entities Other long-term investments Deferred tax assets Total non-current assets II. Current assets 1. Inventories Biological assets Current investments Income tax receivables Trade and other receivables Cash and cash equivalents Total current assets Total assets

9 31 March December 2009 current period previous period EQUITY AND LIABILITIES I. Equity 1. Share capital Share premium Revaluation reserves Other capital reserves Retained earnings Equity attributable to ordinary shareholders Minority interest Total equity II. Liabilities I) Non-current liabilities 1. Loans, borrowings and debt securities Employee benefit liabilities Deferred income Deferred tax liability Total non-current liabilities II) Current liabilities 1. Loans, borrowings and debt securities Other short-term financial liabilities Income tax liabilities Trade and other liabilities Employee benefit liabilities Short-term provisions Total current liabilities Total liabilities Total equity and liabilities

10 III. Condensed consolidated statement of cash flows For the period ended 31 March 2010 For period from 1 January 2010 to 31 March 2010 For period from 1 January 2009 to 31 March 2009 A. Cash flows from operating activities I. Net profit for the period II. Adjustments 1. Depreciation and amortization (Gain)/loss on investing activities (3) (Gain)/loss on sale of property, plant and equipment Interest and dividends Income tax expense Profit from investments in subsidiaries and associates - (27) III. Operating profit Change in receivables Change in inventories Change in short-term and other liabilities, except for loans and borrowings (12 522) Change in employee benefit liabilities (3 335) (4 488) IV. Net cash flows from operating activities Income tax paid (16 709) (2 247) 2. Other adjustments (24) 671 V. Net cash from operating activities

11 For period from 1 January 2010 to 31 March 2010 For period from 1 January 2009 to 31 March 2009 B. Cash flows from investing activities I. Investment inflows Proceeds from sale of intangible assets and property, plant and equipment Proceeds from disposal of financial assets (subsidiaries) Interest received Other proceeds 2 6 II. Investment outflows (62 336) (67 650) 1. Acquisition of intangible assets and property, plant and equipment (62 336) (48 467) 2. Acquisition of financial assets - (19 183) III. Net cash used in investing activities (60 767) (66 023) C. Cash flows from financing activities I. Financial inflows Proceeds from loans and borrowings Other financial inflows - 5 II. Financial outflows ( ) (86 676) 1. Dividends and other payments to shareholders - (1) 2. Repayment of loans and borrowings (27 672) (46 880) 3. Redemption of debt securities (70 683) (32 723) 3. Interest paid (6 847) (7 010) 4. Financial lease payments (319) (62) III. Net cash from financing activities (99 169) (85 877) D. Total net cash flows E. Balance sheet change in cash and cash equivalents F. Cash and cash equivalents at the beginning of the financial year G. Cash and cash equivalents at the end of the financial year

12 IV. Condensed consolidated statement of movements in equity For the period ended 31 March 2010 Share capital Share premium Revaluation reserves Other capital reserves Retained earnings Share capital attributable to ordinary shareholders Minority interest TOTAL equity Equity as at 1 January Other comprehensive income for 1st quarter of Net profit for the period (328) Total comprehensive income for 1st quarter of (328) Equity as at 31 March For the period ended 31 March 2009 (transformed data) Share capital Share premium Revaluation reserves Other capital reserves Retained earnings Share capital attributable to ordinary shareholders Minority interest TOTAL equity Equity as at 1 January (6) Other comprehensive income for 1st quarter of Net profit for the period (982) Total comprehensive income for 1st quarter of (982) Share-based payments ACT 2007 (IFRS 2) Equity as at 31 March (6)

13 C. Condensed unconsolidated financial statements In accordance with 83 section 1 of the Ordinance of the Finance Minister of 19 February 2009 ( Ordinance ) on current and periodic reports filed by the issuers of securities (Journal of Laws no. 33, year 2009, item 259), the quarterly unconsolidated report of KOGENERACJA S.A. is published as a part of the consolidated quarterly report of KOGENERACJA Group I. Condensed unconsolidated statement of comprehensive income (KOGENERACJA S.A.) 1. Condensed unconsolidated Profit and Loss Account of KOGENERACJA S.A) For the period ended 31 March st quarter of st quarter of 2009 For period from 1 January 2010 to 31 March 2010 For period from 1 January 2009 to 31 March 2009 I. Revenues II. Cost of sales ( ) ( ) III. Gross profit on sales IV. Other operating revenues V. Selling expenses (229) (329) VI. Administrative expenses (1 432) (1 674) VII. Other operating costs (1 421) (2 262) VIII. Operating profit IX. Finance income X. Finance expenses (1 899) (1 506) XI. Net finance revenues/(costs) (1 236) (155) (profit/loss on financial activities) XII. Profit before taxation XIII. Income tax (12 775) (15 796) XIV. Net profit Condensed unconsolidated statement of comprehensive income (KOGENERACJA S.A.) For the period ended 31 March st quarter of st quarter of 2009 For period from 1 January 2010 to 31 March 2010 For period from 1 January 2009 to 31 March 2009 Net profit Other comprehensive income - - Total comprehensive income

14 II. Condensed unconsolidated statement of financial position (KOGENERACJA S.A.) As at 31 March March December 2009 current period previous period ASSETS I. Non-current assets 1. Property, pland & equipment Intangible fixed assets Perpetual usufruct of land Investment property Long-term receivables Long-term investments in subsidiaries, associates and jointly controlled entities Other long-term investments Total non-current assets II. Current assets 1. Inventories Short-term investments Trade and other receivables Cash and cash equivalents Total current assets Total assets

15 31 March December 2009 current period previous period EQUITY AND LIABILITIES I. Equity 1. Share capital Share premium Other capital reserves Retained earnings Total equity II. Liabilities I) Non-current liabilities 1. Loans, borrowings and debt securities Employee benefit liabilities Deferred income Deferred tax liability Total non-current liabilities II) Current liabilities 1. Loans, borrowings and debt securities Income tax liabilities Trade and other liabilities Employee benefit liabilities Provisions Total current liabilities Total liabilities Total equity and liabilities

16 III. Condensed unconsolidated statement of cash flows (KOGENERACJA S.A.) For the period ended 31 March 2010 For period from 1 January 2010 to 31 March 2010 For period from 1 January 2009 to 31 March 2009 A. Cash flows from operating activities I. Net profit for the period II. Adjustments 1. Depreciation and amortization (Gain)/loss on investing activity (Gain)/loss on disposal of non-current assets Interest and dividends Income tax expense III. Operating profit Change in receivables Change in inventories Change in short-term and other liabilities, except for loans and borrowings (17 636) (4 625) 4. Change in employee benefit liabilities (2 084) (2 676) IV. Net cash flows from operating activities Income tax paid (6 744) (4 442) 2. Other adjustments V. Net cash from operating activities B. Cash flows from investing activities I. Investment inflows Proceeds from disposal of intangible and tangible fixed assets Proceeds from disposal of financial assets subsidiaries Interest received Other proceeds II. Investment outflows (59 878) (67 808) 1. Acquisition of intangible and tangible fixed assets (59 378) (49 808) 2. Acquisition of financial assets: - (18 000) -other entities - (18 000) III. Net cash used in investing activities (57 665) (64 856) 16

17 For period from 1 January 2010 to 31 March 2010 For period from 1 January 2009 to 31 March 2009 A. Cash flows from operating activities I. Net profit for the period II. Adjustments 1. Depreciation and amortization (Gain)/loss on investing activity (Gain)/loss on disposal of non-current assets Interest and dividends Income tax expense III. Operating profit Change in receivables Change in inventories Change in short-term and other liabilities, except for loans and borrowings (17 636) (4 625) 4. Change in employee benefit liabilities (2 084) (2 676) IV. Net cash flows from operating activities Income tax paid (6 744) (4 442) 2. Other adjustments V. Net cash from operating activities B. Cash flows from investing activities I. Investment inflows Proceeds from disposal of intangible and tangible fixed assets Proceeds from disposal of financial assets subsidiaries Interest received Other proceeds II. Investment outflows (59 878) (67 808) 1. Acquisition of intangible and tangible fixed assets (59 378) (49 808) 2. Acquisition of financial assets: - (18 000) -other entities - (18 000) III. Net cash used in investing activities (57 665) (64 856) 17

18 IV. Condensed unconsolidated statement of movements in equity (KOGENERCJA S.A.) For the period ended 31 March 2010 Share capital Share premium Other capital reserves Retained earnings Share capital attributable to ordinary shareholders Equity as at 1 January Other comprehensive income for 1st quarter of Net profit for the period Total comprehensive income for 1st quarter of Equity as at 31 March For the period ended 31 March 2009 Share capital Share premium Other capital reserves Retained earnings Share capital attributable to ordinary shareholders Equity as at 1 January Other comprehensive income for 1st quarter of Net profit for the period Total comprehensive income for 1st quarter of Share-based payments ACT 2007 (IFRS 2) Equity as at 31 March

19 V. Notes to the interim condensed unconsolidated financial statements 1. General comments In the opinion of the Management Board, Zespół Elektrociepłowni Wrocławskich KOGENERACJA S.A. disclosed in the notes to the interim consolidated financials statements of the KOGENERACJA Group all the relevant information required for proper assessment of the financial position and performance of the Company for the period from 1 January 2009 to 31 March 2010, so the condensed stand-alone interim financial statements of Zespół Elektrociepłowni Wrocławskich KOGENERACJA S.A. should be read together with the consolidated interim financial statements. 2. Accounting policies The accounting policies relevant to these condensed stand-alone interim financial statements comply with the policies applied to the stand-alone financial statements for the previous financial year, i.e. from 1 January to 31 December 2009, as presented in the notes to the stand-alone annual financial statements of Zespół Elektrociepłowni Wrocławskich KOGENERACJA S.A. for the financial year ended 31 December D. Additional information to the interim condensed consolidated financial statements I. General information 1. Key information on KOGENERACJA Group The parent company of the KOGENERACJA Group ( Group ) is Zespół Elektrociepłowni Wrocławskich KOGENERACJA S.A. (KOGENERACJA S.A., Parent, Company ), joint stock company registered in Poland. having its registered office in Wrocław at ul. Łowiecka 24. The Company operates from premises located in Wrocław and Siechnice (near Wrocław). The Parent Company is registered with the District Court for Wrocław-Fabryczna, VI Economic Division of the National Court Register on 19 February 2001, under no. KRS The Company's tax and statistical numbers are: NIP: REGON: At 31 March 2010, the Management Board of the parent company consisted of the following persons: Denis Bretaudeau - Management Board President Andrzej Siennicki. - Management Board Member Roman Traczyk - Management Board Member Krzysztof Wrzesiński - Management Board Member The core business of the Parent Company and its consolidated subsidiaries is: production of electricity and heat; trade in electric energy, heat, energy products and services, distribution of heat; repair and installation of energy and industrial equipment; gardening production and food processing, economic use of combustion waste and supply of biomass for production of energy from renewable sources; production of construction mixes based on cement, aggregates and side products of hard coal combustion for road construction (road bases, stabilisers); logistics and storage services. 19

20 The interim condensed consolidated financial statements for the period ended 31 March 2010 include financial statements of the Parent and its subsidiaries ( the Group ) and represent the Group's share in net assets of associates and joint-ventures for the period ending 31 March The ultimate parent is EdF Group, France. 2. Control over the Group (in accordance with 87 section 7 point 5 of the Ordinance) Below is a list of the shareholders holding directly or indirectly through subsidiaries at least 5% of the total voting power at the General Meeting of KOGENERACJA S.A. No. of ordinary bearer shares % of share capital change of % number of votes at in the period the GSM at the report filing date % of votes at the GSM presented in the prior quarter report EC Kraków S.A , ,74 EDF International S.A , ,67 EnBW A.G , ,59 OFE PZU "Złota Jesień" , ,78 Legg Mason TFI S.A , ,17 OFE ING , ,34 20

21 3. Organisation of the Group (in accordance with 87 section 7 point 2 of the Ordinance) a. Group structure Graphic structure of the Group and KOGENERACJA s share in the net worth of its individual subsidiaries and associates as well as its other ties through subsidiaries are presented in the chart below. As at 31 March 2010 KOGENERACJA S.A. 98,40% EC Zielona Góra S.A. Subsidiaries 100% Renevis Sp. z o.o. Ekotrakt Sp. z o.o. 100% 100% ZEC Hurt Sp. z o.o. Energokrak Sp. z o.o. 12,40% Everen Sp. z o.o. Associates 100% Term Hydral Sp. z o.o. 51,0% PPO Siechnice Sp. z o.o. LEGEND: KOGENERACJA s shares Subsidiaries shares Even though KOGENERACJA S.A. does not have any capital ties with Everen Sp. z o.o. the company is reported as an associate because the two entities carry out material transactions with each other. 21

22 b. Subsidiaries The tables below show the percentage share in the share capital of the Group subsidiaries and the nominal value of the shares held by KOGENERACJA S.A. as at and As at 31 March 2010 Share capital Number of shares Nominal value of a share No of shares held by KOGENERACJA S.A. (directly) Number of shares Nominal value of shares % of capital EC Zielona Góra S.A ,40 Renevis Sp. z o.o ,00 ZEC Hurt Sp. z o.o ,00 Z.C. Term Hydral Sp. z o.o ,00 PPO Siechnice Sp. z o.o ,00 Ekotrakt Sp. z o.o.* As at 31 March 2009 Share capital Number of shares Nominal value of a share No of shares held by KOGENERACJA S.A. (directly) Number of shares Nominal value of shares % of capital EC Zielona Góra S.A ,87 VKN Polska Sp. z o.o.** ,00 PPO Siechnice Sp. z o.o ,00 ZEC Service Sp. z o.o ,83 ZEC Sp. z o.o ,69 Ekotrakt Sp. z o.o Diagpom Sp. z o.o *) On 1 April 2010, the District Court in Wrocław registered the merger of Renevis Sp. z o.o. and Ekotrakt Sp. z o.o. **) On 16 September 2009, VKN Polska Sp. z o.o. was renamed as RENEVIS Inżynieria Środowiska Sp. z o.o., short name: Renevis Sp. z o.o. 22

23 The tables below show the Company s indirect shares in the individual companies as at and As at 31 March 2010 Shares of KOGENERACJA S.A. Direct share in % EC ZG Renevis PPO ZEC Hurt Term Hydral 98,40 100,00 51,00 100,00 100,00 TOTAL direct and indirect share in % Ekotrakt Sp. z o.o. subsidiaries share 100,00 indirect share , ,00 As at 31 March 2009 Shares of KOGENERACJA S.A. Direct share in % EC ZG VKN PPO ZEC Service ZEC 99,87 100,00 51,00 43,83 18,69 TOTAL direct and indirect share in % Ekotrakt Sp. z o.o. ZEC Diagpom Sp.z o.o. ZEC Sp. z o.o. subsidiaries share 100,00 indirect share , ,00 subsidiaries share 78,00 indirect share ,19-34,19 subsidiaries share 72,83 indirect share 18,69 72, ,42 c. Associates The tables below show the Company s indirect and direct shares and the overall stake in the individual companies as at and As at 31 March 2010 Shares of KOGENERACJA S.A. Direct share in % EC ZG Renevis PPO ZEC Hurt Term Hydral 98,40 100,00 51,00 100,00 100,00 TOTAL direct and indirect share in % Energokrak Sp. z o.o. subsidiaries share indirect share 12, ,40 As at 31 March 2009 Shares of KOGENERACJA S.A. Direct share in % EC ZG Renevis PPO ZEC Service ZEC 99,87 100,00 51,00 43,83 18,69 TOTAL direct and indirect share in % Energokrak Sp. z o.o. ZEC Hurt Sp. z o.o. ECeAuto Sp. z o.o. subsidiaries share indirect share 12, ,40 subsidiaries share 1,04 33,40 indirect share 43,00-1,04-14,64-58,68 subsidiaries share 21,81 indirect share - 21, ,78 d. Ultimate parent The ultimate parent is EdF Group, France. 23

24 4. Companies covered by the consolidated financial statements (in accordance with 87 section 7, point 2 of the Ordinance) KOGENERACJA S.A. Parent of the Group, as at 31 December 2009 included the following 6 subsidiaries in the consolidated financial statements: EC Zielona Góra S.A. subsidiary (full consolidation); Renevis Sp. z o.o. (previous name: VKN Polska Sp. z o.o.) subsidiary (full consolidation); ZEC Hurt Sp. z o.o. subsidiary (full consolidation); Z.C. Term Hydral Sp. z o.o. subsidiary (full consolidation); Przedsiębiorstwo Produkcji Ogrodniczej Siechnice Sp. z o.o. subsidiary (full consolidation); Ekotrakt Sp. z o.o. subsidiary (full consolidation); At the same time, the Company s financial statements for Q include: 2 subsidiaries and 1 associate accounted for using the equity method: ZEC Sp. z o.o. subsidiary (full consolidation for the period from 1 January to 31 March 2009); ZEC Service Sp. z o.o. subsidiary (full consolidation for the period from 1 January to 31 March 2009); On 30 June 2009, Kogeneracja sold its shares in ZEC Service. ECeAuto Sp. z o.o.; associate (equity method accounting for the period from 1 January to 31 March 2009). On 30 September 2009, the subsidiary EC Zielona Góra S.A. sold its shares in ECeAuto Sp. z o.o. 5. Changes in the Group structure in the first quarter of 2010 (in accordance with 87 section 7 point 3 of the Ordinance) On 15 March 2010, the court registered the share capital increase of Z.C. Term Hydral Sp. z o.o. by PLN 1,500 thousand. The resolution on increasing the Company s share capital from PLN 8,712 to PLN 10,212 thousand was adopted by the Extraordinary General Meeting on 7 December On the same day, KOGENERACJA S.A. signed the share acquisition statement whereby it undertook to take up the new shares by 15 December

25 II. Summary of significant accounting policies 1. Compliance statement 1. Compliance statement These consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standard 34 Interim Reporting and in accordance with the applicable accounting standard applicable to the interim reporting, as approved by the European Union, published and binding at the date of preparation of these consolidated interim financial statements. The provisions of the Accounting Act of 29 September 1994, Journal of Laws of 2002, no. 76 item 694, as amended and its supporting regulations were applied to the extent not covered by the foregoing standard. The International Financial Reporting Standards (EU IFRS) contain all the International Accounting Standards, International Financial Reporting Standards and their related Interpretations, except the Standards and Interpretations referred to below, which await EU approval and the Standards and Interpretations which have been approved by the EU but have not entered into force yet. 2. Basis of preparation of the financial statements Data in the condensed consolidated financial statements are expressed in PLN, which is the Group s functional and reporting currency. Data are rounded to full thousands. In these condensed consolidated financial statements the same accounting policies and calculation methods were used as in the previous annual consolidated financial statements, except the accounting policies and calculation methods pertaining to the income tax. The condensed consolidated financial statements have been prepared under the historical cost convention, except assets and liabilities measured at fair value:. derivatives, available-for-sale financial assets and financial assets measured at fair value through profit and loss. The preparation of this report in conformity with IFRS, requires management to make judgement, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. The accounting policies presented below were applied to all the periods presented in the consolidated financial statements. The presented accounting principles were used by all the Group companies directly in their accounting books or by making appropriate conversions from the data prepared in accordance with the Accounting Act and presented in the consolidation documentation. 3. Consolidation principles a. Subsidiaries Subsidiaries are all entities that are ultimately controlled by the Parent Company. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The existence and effect of potential voting rights that are exercisable or convertible at the end of the reporting period are considered when assessing whether the parent controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the parent. They are deconsolidated from the date that control ceases. 25

26 b. Associates Associates are all entities over which the Group has significant influence but not control. The consolidated financial statements include the Group's share in the profits and losses of associates accounted for using the equity method of accounting from the moment of gaining significant influence until the date the influence ceases. When the Group s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. In such a case any additional losses are not recognised any more, except those arising from the Group's takeover of legal or equitable obligations or from payments made on behalf of the associate. c. Consolidation adjustments Inter-company balances and inter-company transactions as well as any resulting unrealised gains or losses and the Group s incomes and expenses are eliminated from consolidation. Unrealised gains arising from transactions with associates are eliminated to the extent of the Group's interest in the entity. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. 4. Foreign currencies Transactions expressed in foreign currency at the transaction date are presented in PLN using the exchange rates prevailing at the dates of the transactions in the bank the enterprise dealt with. Cash items of assets and liabilities expressed in foreign currency are translated at the end of the reporting period using the average NBP rate for the currency, prevailing at that day. FX differences arising from settlement of transactions in foreign currencies and balance sheet valuation of assets and liabilities expressed in foreign currency are recognised in the statement of comprehensive income. Non-cash items of assets and liabilities are measured at historical cost in a foreign currency are translated using the average NBP rate prevailing at the transaction date. Non-cash balance sheet items expressed in foreign currency measured at fair value are translated using the average NBP rate prevailing at the date of estimation of the fair value. 5. Property, plant and equipment a. Own items of property, plant and equipment Property, plant and equipment are measured at cost less depreciation and impairment. The cost of purchase includes the purchase price of an asset (i.e. the amount due to the seller less taxes: VAT and excise tax), legal charges (in the case of imports) and costs directly connected with purchase and preparation of the asset for use, including transport, loading, unloading and storage costs. Rebates, discounts and other reductions and recoveries reduce the purchase cost of the asset. Development cost of an asset (fixed asset under construction) includes overall costs incurred by the company during its development, installation, adaptation and improvement until such asset is brought in use (or until the end of the reporting period if the asset has not been brought in use yet). It also includes non-deductible VAT and excise tax. Where necessary, development cost also includes preliminary estimate of the disassembly and removal of the fixed asset and restoration of the original condition. Items of property, plant and equipment that were restated by the Group in accordance with IRS 29 Accounting for Hyperinflation are measured based on adjusted cost, which is fair value at the day of restatement adjusted using appropriate hyperinflationary indicators. In the EC Zielona Góra fixed assets were stated at fair value at the date of control-taking. Items of property, plant and equipment generated for future use as investment properties are included in property, plant and equipment and are stated based on development cost until completion of the development whereupon they are transferred to investment properties. Where an item of property, plant and equipment consists of separate and material components with different useful life, these components are treated as separate assets. Costs of external financing are recognised on as-incurred basis. b. Items or property, plant and equipment held under lease contracts Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease s commencement at the lower of the fair value of 26

27 the leased property and the present value of the minimum lease payments.. Then the value is reduced by depreciation (see below) and impairment (see Key accounting policies, point 13). c. Subsequent expenses Capitalisation will apply to subsequent expenses on the replaced elements of an item of the property, plant and equipment that can be reliably estimated and it is likely that the Group will derive economic benefits from the replacement. Other expenditures are recognised on an on-going basis in the statement of comprehensive income as expenses. d. Depreciation Items of property, plant and equipment or, where applicable, their material and separate components, are depreciated on the straight-line basis throughout their useful life, taking into account their residual value. Land is not depreciated. The Group assumes the following depreciation rates for individual categories of assets: Group 1 Buildings 1,5 % - 2,5 % Group 2 Structures 1,5 % - 4,5 % except: 211 lines of internal technological networks 5,0 % - 10,0 % Group 3 Boilers and power machinery 1,5 % - 7,0 % Group 4 Plant and equipment 10,0 % - 18,0 % except: 491 Computer sets 20,0% - 30,0 % Group 5 Specialist plant, equipment and devices 14,0 % - 18,0 % except: 580 Loaders 20,0 % Group 6 Technical equipment 4,5 % - 20,0 % Group 7 Means of transport 7,0 %- 14,0 % Group 8 Tools, devices, movables and equipment 14,0 % - 20,0 % except: Electronic devices 25,0 % The applied depreciation rates, depreciation methods and residual values of fixed assets (unless not insignificant) are reviewed by the Group on an annual basis. 6. Intangible fixed assets a. Goodwill All business combinations, excluding those which involve controlled entities, are settled using the acquisition method. With regard to acquisition occurring after 1 January 2004, goodwill is calculated as the excess of the cost of an acquisition over the fair value of the Group s share of the net identifiable assets of the acquired company at the date of acquisition. With regard to business combinations occurring before that date, goodwill is recognised on the basis of the assumed cost, which represents the amount posted in accordance with the Accounting Act of 29 September Classification and accounting approach to business combinations prior to January 2004 were not adjusted in the opening balance sheet prepared in line with EU IFRS as at 1 January On initial recognition, goodwill is carried at cost less any cumulated impairment. Goodwill is allocated to cash generating units and is not depreciated but is subject to annual impairment tests (see Key accounting policies, point 13). For business combinations where there is an excess of identifiable net assets over the acquisition price, the excess is directly recognised in statement of comprehensive income. 27

28 b. Other intangible assets Other intangible assets acquired by the Group are recognized at purchase price less depreciation charge (see below) and impairment (see Key accounting principles, point 13). Key accounting policies, item 13). The spend on goodwill generated internally or trademarks is recognised in the statement of comprehensive income at the time it is incurred. c. Expenditure incurred at a later date Later expenditure on intangible assets is activated only if it increases future economic benefits related to a given asset. Other expenditures are recognised on as-incurred basis in the statement of comprehensive income. d. Depreciation / amortisation Intangible assets are depreciated on a straight line basis, taking account of their useful life unless it is unlimited. Goodwill and intangible assets with indefinite useful life are tested for impairment each time at the end of the accounting period. Other intangible assets are depreciated beginning from the day they are available for use. Estimated useful life is calculated as follows. Estimated useful life is calculated as follows: Computer software 2-8 years Patents and brand names years Capitalised costs of development work 5-7 years 7. Land held in perpetual leasehold Land held in perpetual leasehold (usufruct) acquired by virtue of an administrative decision are carried at nil value. Land held in perpetual leasehold acquired free of charge from a third party are carried at cost less depreciation. 8. Investments a. Bonds and equity investments Financial instruments held for trading are classified as financial instruments measured at fair value through profit and loss. Any profit or loss arising from these investments is recognized in the statement of comprehensive income. If the Group has an intention and is able to keep Treasury bonds and bills to maturity, then the bonds and bills are measured at amortised cost less impairment in the balance sheet (see Key accounting principles, point 13). Key accounting policies, item 13). Other financial instruments held by the Group are classified as available for sale and are recognized at fair value. Any gains or losses on these instruments being measured at fair value are recognized in equity, except for impairment and, for cash items such as bonds, gains and losses on foreign currency movements. If these investments are not included in the statement of financial position, the accumulated gains/losses previously recognized through equity are now recognised in the statement of comprehensive income. If these are interest-bearing investments, then the interest calculated using the effective interest rate method is recognised in statement of comprehensive income. The current bid price as at the end of the reporting period represents the fair value of financial instruments classified as measured at fair value through income statement or available for sale. Financial instruments classified as measured at fair value through income statement or available for sale are recognised/ excluded by the Group as at the date of their purchase/ disposal. Held-to-maturity securities are recognized/ excluded as at the day they are transferred to/by the Group. Investments in subsidiaries and associates are measured at cost adjusted for impairment (see Key accounting policies, item 13). 9. Investment properties Investment properties are held to earn income from rent, increase in their market value or both. Investment properties are initially carried at cost less transaction costs. 28

29 For the purpose of valuation on initial recognition the Group chose the cost model referred to in paragraph 56 of the IAS 40 Investment Properties. Investment properties are depreciated on a straight line basis throughout their useful life. The useful lives are reviewed annually. 10. Trade and other receivables Trade receivables are measured at their actual value less impairment charge (see Impairment of assets, point 13). 11. Inventories Inventory items are stated at the lower of cost or net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and the estimated costs necessary to make the sale. Disposal of fuel (coal, biomass) is measured using average weighted prices. Disposal of the remaining inventories is determined in line with the FIFO formula. The cost of purchase includes the price including the cost related directly to the purchase and bringing an inventory item to use/a saleable condition. Biological assets are measured at fair value less estimated sales costs and the profit/loss on sale are recognised in the statement of comprehensive income. The selling costs include all the costs that the company would need to incur to sell the assets, except transport costs and other costs incurred to bring the assets to the market. Vegetable plantings are carried at cost less impairment. 12. Cash and cash equivalents Cash and cash equivalents include cash at hand and demand deposits. The balance of cash and cash equivalents as recognised in the consolidated cash flow includes cash and cash equivalents less unpaid overdrafts which represent an integral part of the Group's cash management system. 13. Impairment Carrying value of the Group s assets other than inventories (see Key accounting policies, point 11) and deferred tax assets (see Key accounting policies, point 24) are tested for impairment at the end of the reporting period. If there is an indication of impairment, the recoverable amount of individual assets is estimated. The recoverable amount of goodwill, intangible assets with an undetermined useful life and intangible assets not yet available for use is estimated each time at the end of the reporting period. Impairment is recognized when the carrying amount of an asset or cash generating unit exceeds its recoverable amount. Impairment loss is recognised in the income statement. Impairment charges are recognised in the statement of comprehensive income. The impairment loss is allocated to reduce the carrying amount of the assets of the cash generating units in the following order: first, the carrying amount of any goodwill allocated to the cash generating unit (group of units) is reduced and then the carrying amounts of the other assets of the unit (group of units) is reduced on the pro rata basis. If the decrease in the fair value of financial assets available for sale was recognised directly through revaluation reserve and if there are objective indications of impairment, then the accumulated losses previously recognised in the revaluation reserve are recognised in the statement of comprehensive income even if the financial asset has not been removed from the balance sheet. The amount of accumulated impairment losses recognised in the statement of comprehensive income is the difference between the purchase cost and the current fair value less any impairment charges previously recognised in the income statement with regard to individual financial assets. 29