ALMA MARKET S.A. CONSOLIDATED FINANCIAL STATEMENT FOR THE YEAR ENDED 31 DECEMBER Krakow, 15 March

Transcription

1 ALMA MARKET S.A. CONSOLIDATED FINANCIAL STATEMENT FOR THE YEAR ENDED 31 DECEMBER Krakow, 15 March

2 INDEX TO THE CONSOLIDATED FINANCIAL STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2010 I. INTRODUCTION TO THE CONSOLIDATED FINANCIAL STATEMENT OF ALMA MARKET S.A. CAPITAL GROUP GENERAL INFORMATION LEGAL BASIS CONSOLIDATED TOTAL INCOME STATEMENT CONSOLIDATED STATEMENT OF THE FINANCIAL POSITION CONSOLIDATED STATEMENT ON CHANGES IN EQUITY CONSOLIDATED CASH FLOW STATEMENT II. NOTES TO THE FINANCIAL STATEMENTS ACCOUNTING PRRINCIPLES APPLIED TO PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENT FOR THE YEAR ENDED 31 DECEMBER FINANCIAL RISK FACTORS AND FINANCIAL RISK MANAGEMENT MARKET RISK MANAGEMENT CHANGES IN THE STRUCTURE OF THE CAPITAL GROUP EXPLANATION SALES REVENUES TOTAL OPERATING COSTS REVENUES/COSTS FROM INVESTMENTS OTHER OPERATING REVENUES/COSTS FINANCIAL REVENUES/COSTS INCOME TAX DEFERRED INCOME TAX PROFIT PER SHARE INFORMATION ON BUSINESS SEGMENTS PROPERTY, PLANT AND EQUIPMENT INVESTMENT PROPERTY INTANGIBLE ASSETS FINANCIAL ASSETS FINANCIAL ASSETS AVAILABLE FOR SALE TRADE RECEIVABLES AND OTHER RECEIVABLES THE MATURITY STRUCTURE OF FINANCIAL ASSETS REGISTER OF FINANCIAL ASSETS EXPOSED AT CREDIT RISK CASH AND CASH EQUIVALENTS INVENTORIES SHARE CAPITAL ATTRIBUTABLE TO COMPANY SHAREHOLDERS EQUITY STATUTORY RESERVE CAPITAL TO COVER LOSSES REVALUATION RESERVE IN RESPECT OF HYPERINFLATION INFLUENCE CAPITAL FROM THE SHARE PREMIUM (AGIO) RETAINED EARNINGS CHANGES IN EQUITY RECOGNISED AS OTHER COMPONENTS OF TOTAL INCOME LOANS AND BORROWINGS TRADE LIABILITIES AND OTHER LIABILITIES LIABILITIES AND BORROWINGS LIQUIDITY RISK FINANCIAL LIABILITIES CURRENCY RISK MANAGEMENT LOYALTY SCHEME-DESCRIPTION AND VALUATION PROVISIONS FOR OTHER LIABILITIES AND CHARGES CONTINGENT LIABILITIES TRANSACTIONS WITH RELATED ENTITIES OFF BALANCE SHEET LIABILITIES OFF BALANCE SHEET ASSETS NET CASH INFLOWS FROM OPERATING ACTIVITIES

3 I. INTRODUCTION TO THE CONSOLIDATED FINANCIAL STATEMENT OF ALMA MARKET S.A. CAPITAL GROUP 1. GENERAL INFORMATION Alma Market S.A. is the dominant Company in a Group. At the balance sheet date, it consisted of: Krakowski Kredens Tradycja Galicyjska Sp. z o.o % of shares, Alma Development Sp. z o.o. 100% of shares, Paradise Group Sp. z o.o % of shares, AM1 Sp. z o.o. 100% of shares, AM2 Sp. z o.o. 100% of shares, Flor Sp. z o.o. 100% of shares, Kraków 1- AM1 Spółka z ograniczoną odpowiedzialnością spółka komandytowa (limited liability partnership) 99,5% of shares (contribution), Kraków 2 - AM1 Spółka z ograniczoną odpowiedzialnością spółka komandytowa (limited liability partnership) 99,5% of shares (contribution), Tarnów- AM1 Spółka z ograniczoną odpowiedzialnością spółka komandytowa (limited liability partnership) 99,5% of shares (contribution),, Nowy Targ- AM1 Spółka z ograniczoną odpowiedzialnością spółka komandytowa (limited liability partnership) 99,5% of shares (contribution), Flor Spółka z ograniczoną odpowiedzialnością spółka komandytowa (limited liability partnership) 99,5% of shares (contribution). Krakchemia S.A. 50% of shares All related entities are included in the consolidated financial statement. Parent Company: ALMA MARKET SA commenced activity on 2 January 1991 under the name F.H. KrakChemia SA as a result the transformation of the state-owned chemical enterprise Przedsiębiorstwo Handlu Chemikaliami Chemia in Krakow. The Company was formed based on a Notarial Deed drawn up on 21 December 1990 at the Notary Public s Office of Paweł Błaszczyk in Warsaw and registered with Rep. A No. X-2112/90. On 22 June 2001 the District Court for Kraków-Śródmieście in Kraków, 11th Business Department of the National Court Register entered the Company into the Register of Businesses with the number KRS On 20 May 2004 the District Court for Kraków-Śródmieście in Kraków, 11th Business Department of the National Court Register entered the change in the name of the Parent Company: ALMA MARKET SA. Company name: Alma Market Spółka Akcyjna Seat/address: Kraków, ul. Pilotów 6 tel. +48 (12) fax. +48 (12) info@almamarket.pl Statistical Identification Number (REGON) : Tax Identification Number (NIP) : National Registration Court (KRS) : Equity capital covered in cash : PLN ,00 Auditor in 2010 : Kancelaria Biegłych Rewidentów KONTO Sp. z o.o. The Board of Directors: Supervisory Board: Chairperson - Jerzy Mazgaj President of Supervisory Board - Barbara Mazgaj Vice Chairperson - Mariusz Wojdon Vice President of Supervisory Board - Andrzej Wyrobiec Vice Chairperson - Małgorzata Moska Secretary of Supervisory Board - Wojciech Mazgaj Supervisory Board Member Supervisory Board Member - Gwidon Wójcik - Anna Wyroba - 3 -

4 Subsidiaries: 1. Name: Krakowski Kredens Tradycja Galicyjska Spółka z ograniczoną odpowiedzialnością (limited liability) Seat/address: Kraków, ul. Pilotów 6 Statistical Identification Number (REGON) : Tax Identification Number (NIP) : National Registration Court (KRS) : Shareholders : Alma Market S.A. owns 100% of shares Equity capital fully paid-up : PLN ,00 Auditor in 2010 : Kancelaria Biegłych Rewidentów KONTO Sp. z o.o. Dominant area of business activity : retail and wholesale trade of foodstuff under the own label The company was registered 6 October 2006 in Warsaw. The dominant area of business activity of Krakowski Kredens Tradycja Galicyjska Sp. z o.o. subsidiary in Alma Market SA Capital Group is launching and promotion of Krakowski Kredens brand products as well as developing chain of brand s points-of-sale. 2. Name: Alma Development Spółka z ograniczoną odpowiedzialnością (limited liability) Seat/address: Kraków, ul. Pilotów 6 Statistical Identification Number (REGON) : Tax Identification Number (NIP) : National Registration Court (KRS) : Shareholders : Alma Market S.A. owns 100% of shares Equity capital fully paid-up : PLN ,00 Auditor in 2010 Dominant area of business activity : Kancelaria Biegłych Rewidentów KONTO Sp. z o.o. : auxiliary, back office activities supporting the entities belonging to the Group and other not related entities, in the property and real estate management and lease as well as in the realization of developing projects 3. Name: Paradise Group Spółka z ograniczoną odpowiedzialnością (limited liability) Seat/address: Kraków, ul. Jodłowa 33 Statistical Identification Number (REGON) : Tax Identification Number (NIP) : National Registration Court (KRS) : Shareholders : Alma Market S.A. owns 100% of shares Equity capital fully paid-up : PLN ,00 Auditor in 2010 : Kancelaria Biegłych Rewidentów KONTO Sp. z o.o. Dominant area of business activity : retail trade and distribution of upmarket products. 4. Name: AM1 Spółka z ograniczoną odpowiedzialnością (limited liability) Seat/address: Kraków, ul. Pilotów 6 Statistical Identification Number (REGON) : Tax Identification Number (NIP) : National Registration Court (KRS) : Shareholders : Alma Market S.A. owns 100% of shares Equity capital fully paid-up : PLN 5 000,00 Auditor in 2010 Dominant area of business activity 5. Name: AM2 Spółka z ograniczoną odpowiedzialnością (limited liability) Seat/address: Kraków, ul. Pilotów 6 : Kancelaria Biegłych Rewidentów KONTO Sp. z o.o. : lease and management of the properties (both owned and leased ones). Managing the Group's real estate projects. Statistical Identification Number (REGON) : Tax Identification Number (NIP) : National Registration Court (KRS) : Shareholders : Alma Market S.A. owns 100% of shares Equity capital fully paid-up : PLN 5 000,00 Auditor in 2010 Dominant area of business activity : Kancelaria Biegłych Rewidentów KONTO Sp. z o.o. : lease and management of the properties (both owned and leased ones). Managing the Group's real estate projects - 4 -

5 6. Name: Flor Spółka z ograniczoną odpowiedzialnością (limited liability) Seat/address: Kraków, ul. Pilotów 6 Statistical Identification Number(REGON) : Tax Identification Number (NIP) : National Registration Court (KRS) : Shareholders : Alma Market S.A. owns 100% of shares Equity capital fully paid-up : PLN 5 000,00 Auditor in 2010 Dominant area of business activity : Kancelaria Biegłych Rewidentów KONTO Sp. z o.o. : lease and management of the properties (both owned and leased ones). Managing the Group's real estate projects 7. Name: Kraków 1- AM1 Spółka z ograniczoną odpowiedzialnością spółka komandytowa (limited liability partnership) Seat/address: Kraków, ul. Pilotów 6 Statistical Identification Number (REGON) : Tax Identification Number (NIP) : National Registration Court (KRS) : Owners : Alma Market S.A. owns 99,5% of shares (contribution) Equity capital fully paid-up : PLN ,00 Auditor in 2010 : Kancelaria Biegłych Rewidentów KONTO Sp. z o.o. Dominant area of business activity : property lease and developer activities 8. Name: Kraków 2- AM1 Spółka z ograniczoną odpowiedzialnością spółka komandytowa (limited liability partnership) Seat/address: Kraków, ul. Pilotów 6 Statistical Identification Number (REGON) : Tax Identification Number (NIP) : National Registration Court (KRS) : Owners : Alma Market S.A. owns 99,5% of shares (contribution) Equity capital fully paid-up : PLN ,00 Auditor in 2010 : no Dominant area of business activity : property lease and developer activities 9. Name: Tarnów- AM1 Spółka z ograniczoną odpowiedzialnością spółka komandytowa (limited liability partnership) Seat/address: Kraków, ul. Pilotów 6 Statistical Identification Number (REGON) : Tax Identification Number (NIP) : National Registration Court (KRS) : Owners : Alma Market S.A. owns 99,5% of shares (contribution) Equity capital fully paid-up : PLN ,00 Auditor in 2010 : Kancelaria Biegłych Rewidentów KONTO Sp. z o.o. Dominant area of business activity : property lease and developer activities 10. Name: Nowy Targ- AM1 Spółka z ograniczoną odpowiedzialnością spółka komandytowa (limited liability partnership) Seat/address: Kraków, ul. Pilotów 6 Statistical Identification Number (REGON) : Tax Identification Number (NIP) : National Registration Court (KRS) : Owners : Alma Market S.A. owns 99,5% of shares (contribution) Equity capital fully paid-up : PLN ,00 Auditor in 2010 : Kancelaria Biegłych Rewidentów KONTO Sp. z o.o. Dominant area of business activity : property lease and developer activities 11. Name: Flor Spółka z ograniczoną odpowiedzialnością spółka komandytowa (limited liability partnership) Seat/address: Kraków, ul. Pilotów 6 Statistical Identification Number (REGON) : Tax Identification Number (NIP) : National Registration Court (KRS) : Owners : Alma Market S.A. owns 99,5% of shares (contribution) Equity capital fully paid-up : PLN ,00 Auditor in 2010 : no Dominant area of business activity : property lease and developer activities - 5 -

6 . 12. Name: Krakchemia Spółka Akcyjna (public listed company) Seat/address: Kraków, ul. Płk. Dąbka 10 Statistical Identification Number (REGON) : Tax Identification Number (NIP) : National Registration Court (KRS) : Shareholders : Alma Market S.A. (majority shareholder) owns 50% of shares; minority shareholders are the following: Piecka Sławomir (15% of shares) OFE PZU Złota Jesień (9,5% of shares) and the remaining minority shareholders (owning less than 5% of shares each) who own in total 25,5% of shares Equity capital fully paid-up : PLN ,00 Auditor in 2010 : Kancelaria Biegłych Rewidentów KONTO Sp. z o.o. Dominant area of business activity : wholesale trade The role of Alma Market SA within the capital Group and changes in the Group structure Alma Market SA is the Parent Company in the Capital Group. In 2010 ALMA MAKET S.A. acquired 100% shares in Flor Sp. z o.o. and 99,5% of shares (contribution) in KRAKÓW 2 AM1 Spółka z ograniczoną odpowiedzialnością Spółka komandytowa, and in Flor Spółka z ograniczoną odpowiedzialnością Spółka komandytowa. Structure of subsidiaries covered by consolidated financial statement has changed compared to the corresponding period of the prior year. Comparability of results due to the structure of subsidiaries is maintained; consequently, consolidated financial statement does not have to contain the comparable Group's results due to its structure. The Group is engaged in wholesale and retail trading. The dominating business segment of operations of Alma Market SA is retail trade, whereas the dominating segment of the subsidiary Krakowski Kredens Sp. z o.o. retail and wholesale trade, Krakchemia SA is wholesale trade, Paradise Group Sp. z o.o. retail and wholesale trade. Alma Development Spółka z o.o., Spółki AM1 Sp. z o.o., AM2 Sp. z o.o., Flor Sp. z o.o., Kraków 1-AM1 Spółka z ograniczoną odpowiedzialnością spółka komandytowa, Kraków 2-AM1 Spółka z ograniczoną odpowiedzialnością spółka komandytowa, Tarnów- AM1 Spółka z ograniczoną odpowiedzialnością spółka komandytowa, Nowy Targ - AM1 Spółka z ograniczoną odpowiedzialnością spółka komandytowa and Flor Spółka z ograniczoną odpowiedzialnością spółka komandytowa, were also established in order to carry out auxiliary supporting actions in real estate management for the benefit of the entities belonging to the Group. Basic accounting principles adopted in preparation of the consolidated financial statement for 2010 Consolidated financial statement has been based on the memorial principle and assumption that the Companies belonging to the Group will continue their business activities in the foreseeable future. Main accounting principles adopted by the Companies belonging to the Capital Group are the following: 1. The adopted financial year corresponds to the calendar year. 2. During the financial year there are interim financial periods, which match up to: A quarter and a half-year interim when assets and liabilities are valued and the financial results are calculated in accordance with adopted accounting policy. 3. Profit and loss account is prepared along with functional layout. 4. Cash flow is prepared in line with the indirect method. 5. According to the adopted accounting, policy the Company applies the methods described in IAS/IFRS, as well as the rule of reliable and functional presentation of the financial statement. 6. Currency PLN. 7. Evidence and settlement of costs, rules related to organizing and conducting inventory taking, rules related to valuation of assets and liabilities, adopted procedures and data protection principles due for software applied by the Parent Company - are regulated by the separate unified instructions - "Accounting Policy" - 6 -

7 8. Rules on preparing, circulation as well as control of accounting documents are set in the distinct operating instructions issued by the Boards of the Companies belonging to the Group. Annual financial statements of every company belonging to the Group were prepared based on accounting policies and calculation methods, which were adopted for the preparation of the previous financial statement. Preparing the consolidated financial statements in accordance with IAS/IFRS required adopting some assumptions and estimates, which had an impact both on the presented values of assets and liabilities, and on the presented income and expenses for the said reporting period. Accounting principles applied for assumptions and during preparation of the financial statement are in details described in the financial statement. Despite the fact that the estimates and assumptions were made in accordance with the Management Board s best knowledge of the current events and operations, the actual results of the future events may differ from the assessments. New accounting standards and IFRIC interpretations as well as amendments to the standards: IFRS 9 Financial Instruments (introduction of the new requirements) They concern classification and valuation of the financial liabilities. The above requirements were adopted in October 2010 and will be in force since 1 January 2013 or after this date. The earlier application of the said amendments will be allowed. Amendments to IFRIC 1 "First-time Adoption of International Financial Reporting. According to this change, the entities applying IFRS for the first time are not obliged to release the comparative information as stated by IFRS 7. The above amendments were adopted in January 2010 and will be in force as regards annual reporting periods starting from 1 July 2010 or afterwards. The earlier application of the said amendments will be allowed. The Group applies the said standard to the financial statements for 2011 and later. IFRS 7 Financial Instruments: information release - the change concerns the transfer of the financial assets. The above requirements were adopted in October 2010 and will be in force since 1 January 2011 or after this date. The Group applies the said standards to the financial statements for 2011 and later. Amendments to IAS 32 Financial Instruments: Disclosure and Presentation concern the classification of the preemptive rights. The Group applies the said standard to the financial statements for 2011 and later. Amendments to IAS 24 "Related Party Disclosures". They concern simplification of the requirements imposed on the entities related to the State. Moreover, it defines precisely the term "related parties". The above amendments are in force as regards annual reporting periods starting from 1 July 2011 or afterwards. The Group will apply the said standard to the financial statements for 2011 and later. IFRIC 14: "IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction it specifies the prepayments connected with the minimal financing requirements. The Group will apply the said standard to the financial statements for 2011 and later. IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments. Effective date is 1 July Interpretation is applied to the reporting periods starting after the said date. The Group will apply the said standard to the financial statements for 2011 and later. IAS 27 Consolidated and Separate Financial Statements. Amendments to IAS 27 and IFRS 1 concern valuation of investments in the affiliated entities and subsidiaries when IFRS are applied for the first time. According to the said amendments, there is no obligation to estimate the investment costs retrospectively or to apply the cost method according to IAS 27. Remaining standards and amendments to the existing standards and interpretations were not adopted in EU. Among them, the most important are amendments to IAS and MSSF issued on 10 May 2010, which includes the changes of: IFRS 1 First-time Adoption of International Financial Reporting Standards IFRS 3 Business Combinations IFRS 7 Financial Instruments: Disclosures IAS 1 Presentation of Financial Statements IAS 34 Interim Financial Reporting - 7 -

8 IFRIC 13 Customer Loyalty Programs The suggested amendments are of no influence on the financial data presented by the Group. 2. LEGAL BASIS The financial statement for 2010 was prepared as at 31 December 2010 by Alma Market S.A. (Parent Company) based on International Financial Reporting Standards approved by European Union and valid as at the day of the financial statement preparation. The consolidated financial statement is considered approved by the Board in the day, when all members of the Company Board of Directors sign it. Consolidated financial statement should be analyzed jointly with the individual financial statement. It assures obtaining the entire picture of both economic situation and financial results of Alma Market (as the Parent Company and as the capital group). Both individual and consolidated financial statements were included into individual and consolidated reports, which are displayed on the website

9 CONSOLIDATED TOTAL INCOME STATEMENT for 12 months Note Revenues on sales Cost of sold merchandises and materials 6 ( ) ( ) Gross profit/loss Sales and marketing costs 6 ( ) ( ) Administrative expenses 6 (17 753) (20 544) Revenues/costs on investments Other operating revenues/costs (22 328) Operating profit/loss (49 490) Financial costs/revenues 9 (13 687) (12 953) Profit/loss before tax (62 443) Income tax 10 (1 068) Net profit/loss (57 970) Other components of total income: Revaluation of tangible assets (plant, property and equipment) Revaluation of financial assets available for sale (1 762) Deferred income tax concerning other components of total income (1 248) TOTAL other components of income (net) Total income Net profit/loss attributable to: Shareholders of a Parent Company (59 055) Minority shareholders Profit/loss on continued activity per share attributable to Parent Company s equity holders during the financial period (in PLN per share) basic 12 1,69 (10,88) - diluted 12 1,63 (10,49) Total income attributable to: Shareholders of a Parent Company Minority shareholders Earning per share attributable to: Parent Company s equity holders during the financial period (in PLN per share) basic 1,75 7,88 - diluted 1,69 7,60-9 -

10 CONSOLIDATED STATEMENT OF THE FINANCIAL POSITION ASSETS Fixed assets Note Property plant and equipment Investment properties Intangible assets Assets due to deferred tax Financial assets Financial assets available for sale Trade receivables and other receivables Total financial assets Total fixed assets Current assets Inventories Financial assets Trade receivables and other receivables Receivables due to current income tax - 70 Cash and cash equivalents Total financial assets Total current assets TOTAL ASSETS EQUITY Equity attributable to the Company shareholders Equity attributable to the minority shareholders Total equity LIABILITIES Long-term liabilities Financial liabilities Loans and borrowings Liabilities due to security collateral Total financial assets Deferred income tax liabilities Provisions for other liabilities and charges Total long-term liabilities Short-term liabilities Financial liabilities Trade liabilities and other liabilities Liabilities due to current income tax Loans and borrowings Other financial liabilities in their fair value settled through the financial result Financial liabilities total Provisions for other liabilities and charges Total short-term liabilities Total liabilities TOTAL EQUITY AND LIABILITIES

11 CONSOLIDATED STATEMENT ON CHANGES IN EQUITY Share capital Statutory capital to cover losses Revaluation of the capital results of hyperinflation Surplus capital from the sale of shares (agio) Retained earnings Changes in equity from other total income Note Total capital attributable to shareholders Total capital attributable to minority shareholders Total equity (37 106) January (37 106) Total revenue for the period from to (59 055) Share issuance (5) - - (5) - (5) Other increases/decreases during the reporting period (1 872) Changes during the reporting period (5) (56 694) December January Total revenues for the period from to Other increases/decreases during the reporting period (2 492) (191) - (191) Changes during the reporting period (2 158) December

12 CONSOLIDATED CASH FLOW STATEMENT For 12 months Note Cash flow from operating activities Cash inflows from operating activities Income tax paid (1 740) (1 159) Net cash flow from operating activities Cash flow from investing activities Purchase of property plant and equipment (12 644) (52 837) Revenues from the sale of property, plant and equipment Purchase of intangible assets (723) (617) Revenues from investment property Purchase of investment property Cash flow from investing activities (1 496) - Purchase of financial assets in subsidiary - - Inflows from the sale of financial assets - - Purchase of financial assets available for sale (406) (3 756) Loans granted to the third parties (non-related) - - Interest received Dividends received 1 1 Net cash flow from investing activities (48 187) Cash flows from financial activities Borrowings and bank loans received Repayment of liabilities due to leasing (329) (139) Repayment of liabilities due to rent of investment property (543) (523) Repayment of borrowings and bank loans (33 685) (18 415) Interest paid (13 887) (13 064) Other financial expenses (431) (645) Net cash flows from financial activities (12 507) (10 449) Net increase/(decrease) of cash, cash equivalents and bank overdraft on current account during the reporting period Balance of cash, cash equivalents and bank overdraft on current account at the beginning of the reporting period Balance of cash, cash equivalents and bank overdraft on current account at the end of the reporting period (18 583) (21 646) 17.5 (3 662) (18 583)

13 II. NOTES TO THE FINANCIAL STATEMENTS 1. ACCOUNTING PRRINCIPLES APPLIED TO PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2010 Consolidations Related entities Related entities are any entities, in which the Group has an influence over their financial and operating policy. It is usually connected with possessing the majority of total voting rights in the executive bodies. While judging whether the Group controls the said entity, potential voting rights are also taken into account. Subsidiaries are subject to the entire consolidation starting from the day of acquiring the control by the Group. The subsidiary is excluded from consolidation starting from the day, when the Group's control over it expires. Consolidated financial statement encompasses the financial data of all subsidiaries. The subsidiary fulfilling the criteria of an asset available for sale according to IRFS 5 is presented in line with the said IFRS. Consolidated financial statement is prepared based on unified accounting principles in relation to similar transaction conducted under similar circumstances. Investments in the entity, which is neither a subsidiary nor the related party, are recognized according to IAS 39 Financial Instruments: Recognition and Measurement" as the part of financial assets. Investments in related parties are recognized in the consolidated financial statement based on the equity method in line with provisions of IAS 28. Mergers and acquisitions The Company accounts for the acquisition of subsidiaries under the purchase method (including acquisition of related entities by the parent company). Purchase of net assets including the third party s good will acquired in exchange of the company s shares/equity (e.g. organized part of the enterprise) is recognized by the Company as the merger in line with IFRS 3. The acquisition cost is determined at the fair value of the assets transferred, equity instruments issued and liabilities occurred or taken over as at the date of transfer, increased by the costs directly related to the acquisition. Cost of acquisition is allocated to the identifiable assets acquired. Identifiable liabilities and contingent liabilities taken over because of a business combination are initially measured at fair value as at the date of their acquisition, irrespective of the amount of the potential minority interests. Group of assets classified as available for sale according to IFRS 5 are an exemption. They are recognized in their fair value diminished by the cost of their preparation to sale. The excess of the acquisition cost over the fair value of the Company s share in identifiable net assets acquired is disclosed as goodwill. If the acquisition cost is lower than the fair value of net assets of the subsidiary acquired, the difference is recognized directly in the profit and loss account. Until total clearance of the initial recognition, the changes in the fair value of the net assets over acquisition costs will be recognized according to IAS 16,17,2,38,39,40. The Company assumes that the adjustments of estimated values, resulting from the end of an initial settlement are recognized within 12 months starting from the acquisition day. Any other adjustments of estimated values after the period of 12 months the Company recognizes as the correction of the mistake in line with IAS 8. Consolidating procedures According to IAS 27, the consolidated financial statement is prepared by adding the relevant positions of financial statements presented by the companies belonging to the Group. Intra-group transactions, balances and unrealized gains are eliminated on consolidation. Unrealized losses are also eliminated, unless the transaction proves the losses in value of the transferred asset. Accounting principles applied by the subsidiaries were changed (where necessary) to comply with the accounting principles applied by the Group and the Parent Company. Plant, property and equipment Property, plant and equipment are valued at cost of purchase or manufacture net of accumulated depreciation, taking into consideration impairment write-downs. Write downs are settled taking into account the residual value of the fixed asset at the last day of its usage, unless the estimated value is immaterial

14 Manufacturing costs include expenses directly connected with the manufacture of the said assets, Its installment, financing costs as well as costs of disassembly, renovation and removal of the other assets item, that are indispensable due to installation and exploiting of the said fixed asset. The software or the operating system controlling the machine, which would not work properly without the said software, are treaded as integral part of the said fixed asset. Later expenses incurred in order to increase the utility of an asset, its part's replacement or its maintenance are recognized in the balance sheet value of the said asset or are recognized where appropriate as the separate fixed asset only when the cost of the said position may be measured with no doubts. Sub ledger records relating to property, plant and equipment are maintained in terms of volume and value. Property, plant and equipment are counted in accordance with the rules specified in the Accounting Act. Since 1 January 2009, the value of immovable property (classified as plant, property and equipment) is displayed and verified by the Companies belonging to the Group in the following way: 1. The initial value as at the recording day is based on the purchase price (i.e. cost of purchase increased by the costs directly linked to the transaction) or the manufacturing cost (cost estimated on the closing date of the construction and augmented by its adjustment to use). The Companies assume that the incurred costs reflect the fair value of the said properties. 2. Fair value of the land (or perpetual usufruct of the land) is estimated based on the current prices of the similar properties on the active market, adjusted if necessary by differences in character, localization, or the state of the assets. If the above information is not available, the alternative methods of estimation are used, e.g. the prices on the less active markets have been recently taken into account. 3. The fair value of buildings and buildings under construction, from which the Companies benefit (due to the trading activities which are carried there) is valued with the revenue method based on the future discounted cash flows. 4. The fair value of the properties is periodically verified. Lands, buildings and buildings under construction, according to par.31 of IAS 16 are valued and revalued at least every five years. Revaluations are carried regularly enough to assure that the book value equals to the fair value, which would be estimated at the reporting day January 2009, if the value of immovable property was increased due to revaluation, the said increase is added directly to the equity as the surplus from revaluation. In case when the value of the property was decreased due to revaluation it constitutes the direct cost of the said period. 6. reporting day (when the new fair values are estimated and the following revaluation is conducted) if the previous surplus from the revaluation of property was included in the Company's equity, the increases are still included in the Companies' equity, meanwhile the decreases are set off with the previous surplus, until it is entirely settled. The remaining decreases are set as the cost of the said period. If the previous difference from revaluation was recognized as the cost of the period, the increases from revaluation will be recognized as the current revenue until the value of the previously recognized costs. 7. For the said groups of assets belonging to plant, property and investments, which are displayed in the revaluated values/amounts, accumulated depreciation as at revaluation day is eliminated from the gross book value of the asset, meanwhile the net book value is adjusted to the revaluated value. 8. According to the provisions of IAS 16 and IAS 8, the Companies do not present in the comparative way the influence of changes in the accounting policy i.e. introduction for the first time the principle of revaluation of land, buildings and buildings under construction (constituting a part of the plant, property and equipment). 9. Surplus from revaluation classified as the equity is transferred to the retained earnings in the value equal to depreciation on the surplus from revaluation in the quarters and in the moment of sale or scrapping of the revalued asset. Depreciation is charged on a straight-line basis at rates reflecting the assessed periods in use of the respective assets, or separately for every component of plant, property or equipment, according to the following groups: - Buildings and structures years - Other fixed assets 2 15 years The Companies belonging to the Group recognize the depreciation in the month when the said item of fixed assets is available for use. The assets residual values and useful lives are reviewed on a yearly basis, and adjusted if appropriate, at each balance sheet date

15 Land is not depreciated. Rights to perpetual usufruct of land are recorded as plant, property and equipment in the same way as lands. Rights to perpetual usufruct used by the Company for its basic activities (retail trade) based on administrative decision are recognized in the offbalance sheet evidence. Rights to perpetual usufruct used by the Company for its investment activity are recognized in accordance with IAS 40 in their fair value as investment property. Economic lifetimes of assets and related to them depreciation rates are estimated and periodically verified. Due to the fast technological progress and the development of new technologies, especially for devices, the said estimations may be subject to significant changes. The Company Board increases the depreciation rates in case of shortening the economic lifetimes of assets (in relation to the initial assumptions). Impairment of assets Assets with an infinite economic lifetime are not depreciated, but each year they are tested in terms of potential impairment. Depreciable assets are reviewed for impairment whenever events or circumstances indicate the possibility that their carrying values may not be realizable. Impairment losses are recognized as the excess of carrying value over net realizable value of an asset. Realizable value is the higher of two amounts: fair value net of the costs of getting the assets ready for sale and their useful value. For the purpose of impairment reviews, assets are grouped at the lowest level enabling identification of separate cash flows (cash generating units), and then the valuation is conducted. Fair value is diminished by the costs of sale possible to be achieved by selling the asset on the free market and under the arms' length principle. Usable value is the current, estimated value of future cash flows, which are expected to be achieved. The Group estimates the fair value based on traditional approach; only in the reasonable cases it bases its estimations on expected future cash inflows. In the Group, all factors (both internal and external), which may lead to the loss in value of any asset, are carefully examined. Fixed assets classified as assets available for sale are subject to provisions of IFRS 5. Investment property 1. Under the provisions of IAS 40, investment properties comprise: - Investment properties owned by the Company due to its long term expected increase in value or when their future exploration is currently not defined; - Investment properties, where the Company intends to built commercial premises or housing units, which are planned to be subleased (operating lease); - Properties rented under the operating lease agreements, or currently not being explored by the Company but intended to be leased (operating lease); - Properties used by the Company based on lease agreements classified as financial lease agreement, which are intended to be subleased (operating lease); Building under construction or adjustments, which are to be reclassified into investment properties are not displayed in this position. Initial valuation as at the recognition day of the investment property is based on the purchase price (nominal price + costs directly related to transaction) or on manufacturing costs (estimated at the day of completing the construction and its adjustment to the use). Value of investment properties is displayed and verified by the Company in the following way: 1. The initial value as at the recording day is based on the purchase price (i.e. cost of purchase increased by the costs directly linked to the transaction) or the manufacturing cost (cost estimated on the closing date of the construction and its adjustment to the use). 2. As on the balance sheet day ending the fiscal year, all investment properties are valued in their fair value. The future transaction costs which may occur, the future investment expenses linked to development of the property as well as the future benefits resulting from the said augmentations are not taken into account while estimating of the fair value; 3. Fair value of the land (or perpetual usufruct of the land) is estimated based on the current prices of the similar properties on the active market. 4. The fair value of investment assets, which are subleased by the Companies belonging to the Group (including properties, which are possessed by the Company based on the lease agreements displayed as the financial lease), is valued quarterly taking into account future discounted cash flows. Value of the investment properties, which are to be subleased or have been subleased, is verified periodically

16 5. According to IFRS 8, the Company presents the influence of changes in accounting principles linked to the changes in valuation of investment properties in the comparative way. The financial data from the preceding periods are transformed according to the principles applied in the current period, as IAS 40 does not allow for the transition period in case when the model approach to valuation of investment property is applied. In line with the adopted assumptions, the fair value of all possessed investment properties in the comparable periods has been estimated, including properties, which were so far presented off-balance sheet. Verification of the fair value of the investment properties is conducted at least once a year as at the balance sheet date. If, during the fiscal year, some significant events affecting the fair value occurred, the verification of the fair value is done on the current basis, when the said events occurred. The changes are presented in interims by use of the methodology applied for the group of the investment properties. During the financial year, the companies may conduct by themselves and verify the fair value of investment properties based on the adapted valuation methodology. In principle, however the value of investment properties is verified at least once a year or estimated by the independent experts experienced in valuations of this kind. Changes in the fair value are recognized in the profit and loss account in the position revenues/costs from investments. Leasing Lease contracts where all risks and rewards following the transfer of ownership rights to the assets are transferred to a Company belonging to the Group (leaseholder ) are classified as finance leases, in line with the provisions of IAS 17. Lease contracts in which the Group Company acts as the lessee result in disclosing leased assets and the related liabilities in the Group balance sheet. Initially, (on the day of entering to the books) assets and liabilities are recognized at the lower of two amounts: the fair value of the leased assets as at the inception of the lease (if the value may be estimated) and amounts equivalent to the minimum lease payments as at the date of the inception of the lease. Lease payments are classified into decreases in the unpaid balance of the outstanding lease liabilities and financial costs. Financial costs are settled and disclosed in the income statement over the period of the lease contract. Leased assets are depreciated at rates reflecting the shorter of two periods: the assessed economic lifetime of those assets and the term of the lease. The other leased assets are displayed according to the provisions of relevant IAS. The assets under financial lease are depreciated according to the rules relevant to the plant, property and equipment. In case when there are reasonable doubts that the lessee will acquire the ownership right at the end of the leasing period the asset is depreciated during on of the two periods leasing period, or economic lifetime, whichever proves to be shorter. Other lease contracts in which the Group acts as the lessee are treated as operating leases. The respective lease payments are recognized as the costs in the income statement over the period of the lease. The Group, acting as lessor recognizes in its balance sheet the leased assets according to the character of these assets. Initial direct costs (if are material) occurred by lessor due to negotiations and actions taken in order to conclude the lease agreement they increase the balance sheet value of the leased item and are recognized as costs in the periods when the respective revenues due to leasing are gained. Company classifies transactions of sale and lease back in the moment when the leasing is initially entered into books. Further actions depend on previous classification. In case when the lease back is characterized as financial leasing, then all costs and revenues (in part, which exceeds balance sheet value of an asset) influence the value of leased subject and are written off during the period of lease. Only in case, when the transaction was conducted in the fair value, the sale of the leased asset is recognized immediately in the profit and loss account. In the remaining cases, both the loss and the profit on transaction are recognized on the straight-line method during the period of lease. Intangible assets Professional computer software. Purchased licenses in respect of computer software are valued at the amount of costs occurred in the purchase of specific software and preparing it for use net of accumulated amortization. Capitalized costs are amortized on a straight-line basis over the use period. The tangible assets include but are not limited to: purchased right resulting from contractual or legal title, software manufactured by use of own means, license or the item protected by copyrights. Intangible assets are recognized in register at the purchase price or at the manufacturing cost. Assets of unidentified economic lifetime are not subject to depreciation; however, they are tested annually with regard to the potential value losses. Intangible assets classified as assets held for sale are presented in the said balance sheet position and are subject to provisions of MSSF

17 Fixed assets held for sale Category fixed assets held for sale contains assets or groups of assets that are recognized in the financial statement at the balance sheet value or the fair value diminished by the cost of sales' preparation (in case when their carrying value is realized by sale rather than by current use), whichever value proves to be lower. The condition for including assets in this group is deciding by the Company about the sales of the assets, high probability of being able to sell the asset and also availability of the assets to immediate sales. The said group may contain intangible assets, property plant and equipment, amounts owed, shares and units in subsidiaries or related and associated parties, other financial assets of the Company. Profits and losses due to sale or liquidation of property plant and equipment are calculated as the difference between net revenues from the sale (if there occur some), and the balance sheet value of the assets sold. Discontinued operations Discontinued operations are recognized and disclosed in the financial statements only when a decision is made to sell, in accordance with a plan, a separate important operation of the Company and those assets, liabilities and financial results may be separated in terms of operations or in terms of financial reporting. Net profit or loss on discontinued operations and the profit or loss on their sale is disclosed separately in the income statement. Net cash flows, which may be attributed to discontinued operations, are presented separately in the cash flow statement. Inventories During the financial year, the inventories belonging to the Company are recognized by the cost of purchase or at the cost of manufacturing. The cost of purchase or the manufacturing cost contains the purchase price, freight, and insurance costs related to the purchase. In case where the freight costs are immaterial, the inventories are recognized at the purchase price, whereas the freight costs are recognized as current expenses. Once the inventory is sold its balance value is recognized as the cost of period where respective revenues are achieved. Cost of commodities sale is determined based on the weighted average (in the retail sale) or on the FIFO basis (in the wholesale trade) depending on the software applied for the quality-quantity evidence. In the future, unification of the cost of sale is planned. Therefore, new software is planned to be launched in the Companies belonging to the Group. The cost of materials is determined at a purchase price on a FIFO basis. Products are displayed AT their manufacturing costs. Cost of finished goods contains the cost of raw materials and the direct or indirect production costs (based on the typical production capacity). the reporting date inventories of traded goods according to the purchase value not exceeding the net value possible to obtain. Stocks of inventories are valued at the lower of purchase price and net realizable value. Net realizable value is the difference between the estimated selling prices applied in ordinary business activities and the estimated costs to completion and effective sale. If the cost (acquisition or purchase price) of inventories exceeds the net realizable value, the Companies of the Group record impairment losses. Such estimations and assumptions are made on the current basis by reckoning the updating write-downs on the value of goods inventory, bearing in mind that the Group, due to peculiarity of its business activity, suffers from commodities losses. Additional monthly write-downs on commodity losses are disclosed on the ongoing basis. Write downs are based on historical data, periodically verified and recognized as direct costs. Reversion of updating write-downs is recognized as decrease of cost in the period, when reversion was conducted. Financial assets The Group classifies its financial assets into four categories: financial assets designated at fair value through profit and loss account, loans and receivables, financial assets held to maturity and available-for-sale financial assets. The classification depends on the purpose for which a financial asset was purchased. The Board establishes the classification of its financial assets on initial recognition and verifies the classification at each reporting date. a) Financial assets designated at fair value through profit or loss This category has the following two sub-categories: financial assets held for trading and financial assets designated in their initial recognition to the valuation at fair value through profit or loss A financial asset is included in this category if it was acquired mainly for the purpose of

18 reselling it within a short period or was classified to this category by the Board. The derivative instruments are also treated as available-forsale, if they are not designated for hedging. Assets in this category as classified as current assets if they are held for trading or if their realization is expected within 12 months from the reporting date. b) Loans and receivables Originated loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are recorded in current assets with a separate identification of items maturing within more than 12 months from the reporting date. Loans and receivables with maturity not exceeding 12 months starting from the reporting date are included into fixed assets. Loans and receivables are recognized in the balance sheet as trade receivables and other receivables. Loans are initially recognized as at their fair value, and then they are valued at adjusted purchase price (depreciated cost) ob the basis of effective interest rate, diminishing it by updating write-downs. Trade receivables are initially recognized as at their fair value, and then they are valued at adjusted purchase price (depreciated cost) based on effective interest rate, diminishing it by updating write-downs. Valuation of the receivables is conducted every six months. Updating write-downs of trade receivables is created when there are clear evidences that the Company will not be able to receive the full amount due from the initial settlements. The write-down equals to the difference between the balance sheet value of the said asset and the current value of estimated future cash flows, discounted by the effective interest rate. The write-down is displayed in the profit and loss account. c) Financial assets held until maturity Investments held until maturity are presented at their adjusted purchase price (depreciated cost) by use of effective interest rate method. Financial assets included into this category are assets that are intended to be held by the Group Companies until their maturity days, moreover the said assets are about to bear fixed payments at fixed time. The said assets may not be classified to any other group. d) Available-for-sale financial assets Available-for-sale financial assets are non-derivative instruments, which were included in this category or were not classified elsewhere. They are recorded in non-current assets, unless the Group Companies' Management Boards intends to sell these investments within 12 months from the reporting date. Changes in the fair value of the other financial securities as well as non-financial securities treated as available for sale are recognized in the equity. If there is objective evidence on losses in value of the said asset, accumulated losses so far presented in equity are moved to profit and loss account. Regular purchase and sale of investments are recorded on the transaction date, i.e. on the date on which the Companies from the Group agree to purchase or sell an asset. In the initial recognition, the investments are shown at fair values plus transaction costs. In this way are presented all assets not recognized in the profit and loss account. Financial assets valued at their fair value through profit and loss account are initially recognized in their fair value, whereas transaction costs are transferred into profit and loss. The said financial assets are derecognized if the rights to receiving cash flows from the investments have expired or have been transferred and the Company of the Group transferred substantially all the risk and benefits of ownership. Available-for-sale financial assets and financial assets valued at fair value through profit or loss are subsequently carried at fair value. Originated loans, receivables, and investments held to maturity are stated at adjusted purchase price (depreciated cost) using the effective interest rate. Profits and losses arising from change of fair value of financial assets designated in financial statement in fair value through profit and loss, are presented in profit and loss account in position Other net profits and losses in the period, in which they arose. Income from dividends on financial assets recognized in fair value through financial result are presented in profit and loss account as other operating profit, at the moment of obtaining the right to receive the payment. Balance sheet value of an asset is adjusted by provisions

19 e) Cash and cash equivalents Cash and cash equivalents comprise cash in hand, cash in transit, bank deposits payable on demand and short-term investments with initial maturities of up to three months and high liquidity. In the cash flow statement, cash and cash equivalents also include the bank overdraft presented in current borrowings in the balance sheet. Cash and cash equivalents belonging to the Company Social Fund is excluded from and subsequently not recognized as cash and cash equivalent. (Adjustment in relation to 2007 and comparatively to 2006) f) Derivatives Identified derivatives are inbuilt into the lease agreements and are subject to resolutions of IAS 39 in light of IAS 17. Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently re-measured at their current fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group Company designates certain derivatives as either: - hedges of the fair value of recognized liabilities (fair value hedge); - hedges of a particular risk associated with a recognized liability or a highly probable forecast transaction (cash flow hedge); The Group documents, at the inception of the transaction, the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Group also records its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. The total fair value of a hedging derivative is classified as a non-current asset or long-term liability when the remaining hedged item is more than 12 months; it is classified as a current asset or short-term liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as a current asset or liability. Accruals and prepayments Prepayments include expenses or impairment of assets relating to periods following the period in which they occurred. In consequence, the costs of such later periods are increased. The costs are deferred only if they fulfill the definition of assets. Accruals are the adjustment of receivables for goods or services, which were received/provided but were not paid for, invoiced or officially agreed with the supplier, including future revenues and liabilities resulting from the current activities of the Company. Their value is estimated based on the applied accounting principles. Estimations are carried out to reflect the future financial consequences with no doubts. Accruals and prepayments include amounts due to employees. All positions are recognized at their fair value, both liabilities and receivables. Changes in estimated values are transferred to the current financial statement in the moment of the liability payment (on which previously accrual was created) or by carrying out new, more reliable calculations. Equity Equity comprises capitals established by the Company in accordance with the binding regulations, i.e. the respective acts and the Companies Memoranda of Association. Share capital is established in respect of shares taken up by the shareholders and is recognized at it s nominal value, in the amount constituting the product of the number of shares issued and appropriately paid up and the nominal value of one share as per the Parent Company s Memorandum of Association and the entry to the National Court Register. Share issue expenses occurred on the further share capital increases reduce equity to the amount of share premium, whereas the remaining amount is recognized as financial costs. The Group creates the capital from overestimation of assets due to hyperinflation and from estimation of assets at their fair value - capital from updating of value and under the provisions of IFRS 2. The profit not paid in the form of dividend as well as the capitals resulting from overestimation of value are included into reserve capital (proportionally to the change in fixed assets value and reclassified after the period when the revenues from overestimation of asset were realized)

20 Financial liabilities a) Borrowing Borrowings are recognized initially at fair value, decreased by transaction costs. Borrowings are subsequently stated at amortized cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the income statement over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group Company has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. b) Liabilities Liabilities are initially stated at fair value; subsequently they are stated at adjusted purchase price (amortized cost) by use of effective interest rate method. Liabilities are classified as current when they mature within a period of twelve months from the reporting date. Foreign currency transactions Foreign currency transactions are translated into the functional currency using the NBP official exchange rates due at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges. Outflows of the currencies from the current account are recognized in line with the FIFO rule. Translation differences on non-monetary financial assets and liabilities are reported as part of the fair value gain or loss. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognized in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets such as equities classified as available for sale are included in the available-for sale reserve in equity. Provisions Provisions are set up when the following conditions are met: - the Company has a current obligation (contractual or construed) resulting from past events; - it is probable that fulfilling the obligation will cause the outflow of funds embodying economic benefits; and - the funds required to meet the obligation may be reliably assessed. The provision covers accounts for future events, which may have an impact on the amount necessary to meet the obligation (if it is sufficiently probable that the said events will occur). The provisions are equal to the current value of funds, which are indispensable to fulfill the obligation. The funds are discounted by use of the interest rate before taxation. This interest rate reflects the current market estimations with regard to the value of money in time and the risk directly linked to the said item of assets. Increase in provisions due to the time is recognized as financial costs due to interests. The balances of provisions are verified as at each reporting date and adjusted to reflect a current the most appropriate estimate. Changes in provisions resulting from the adjustments are recognized in the account of the total income. Provisions are released when the outflow of funds embodying the economic benefits necessary to meet the obligation cease to be probable or when liabilities materialize that are related to the obligation in respect of which the provision was set up. Employees benefits The term "employees benefits" covers short-term employment benefits (including but not limited to: remunerations, paid leaves, bonuses, contributions in-kind) and long-term employees benefits, which include one-time retirement benefits. The Group Companies set the provisions on one-time retirement benefits according to the IAS 19. The said benefit plan defines an amount of pension benefit that an employee will receive on retirement. Estimations and assumptions are verified on the ongoing basis. They result from so far experience as well as other factors, including forecasts of the future events, which seem justified in the said state