Stand-alone financial statements for the year ended 31 December NFI Empik Media & Fashion S.A.

Transcription

1 Stand-alone financial statements for the year ended 31 December 2010 NFI Empik Media & Fashion S.A.

2 Introduction Narodowy Fundusz Inwestycyjny Empik Media & Fashion Spółka Akcyjna (hereinafter NFI Empik Media & Fashion S.A., the Fund, the Company or NFI EMF ), a company incorporated under the laws of Poland, with its registered office located at ul. Marszałkowska 104/122, Warsaw, is the parent entity of the NFI Empik Media & Fashion Capital Group (hereinafter the Group ). NFI Empik Media & Fashion S.A. was entered into the Register of Business Entities by the XII Commercial Division of the National Court Register under number The business of the Company is the management of holdings, and the management and direction as well as consulting in connection with the conducting of business activities. The Fund is controlled by EMPiK Centrum Investments S.A. (incorporated under the laws of Luxembourg) which owns 60.15% of NFI Empik Media & Fashion S.A s shares. The ultimate parent entity publishing the financial statements is Eastbridge S.a.r.l. (a company incorporated under the laws of the Luxembourg). NFI Empik Media & Fashion S.A. continues to operate under specific laws governing the activities of National Investment Funds. The shares of NFI Empik Media & Fashion S.A. are listed on the Warsaw Stock Exchange. These stand-alone financial statements were prepared to comply with the Warsaw Stock Exchange reporting requirements. They should be read in conjunction with the consolidated financial statements for the financial year ended 31 December 2010, published together with these stand-alone financial statements and are available at the Company s registered office at ul. Marszałkowska 104/122 in Warsaw and on website These stand-alone financial statements were approved by the Management Board of NFI Empik Media & Fashion S.A. on 18 March Maciej Szymański President of the Management Board Jacek Bagiński Member of the Management Board. Dariusz Stolarczyk Member of the Management Board Fabian Kampa Member of the Management Board Małgorzata Koc Person assigned to provide Bookkeeping Notes on pages 8 to 58 are an integral part of these stand-alone financial statements 2

3 Table of contents Stand-alone statement of comprehensive income... 4 Stand-alone statement of financial position... 5 Stand-alone statement of changes in equity... 6 Stand-alone cash flow statement... 7 Notes to the stand-alone fiancial statements... 8 Notes on pages 8 to 58 are an integral part of these stand-alone financial statements 3

4 Stand-alone statement of comprehensive income for the financial year ended 31 December 2010 Year ended Note 31 December December PLN 000 PLN transformed Sales of services Employee compensation and benefit expenses 4 (3 421) (16 061) Other operating income Other operating expenses 6 (11 465) (18 681) Amortisation, depreciation and impairment write-offs 7 (1 056) (953) Other income, net Profit from operating activities Financial expenses 9 (27 965) (23 070) Profit before income tax Income tax 10 (261) - Net profit Other comprehensive income Cash flow hedges (79) - Other comprehensive income, net (79) - Comprehensive income for the financial year Basic profit per share attributable to the equity holders of the Company (not in thousands) Diluted profit per share attributable to the equity holders of the Company (not in thousands) Notes on pages 8 to 58 are an integral part of these stand-alone financial statements 4

5 Stand-alone statement of financial position as at 31 December 2010 ASSETS As at Note 31 December December December PLN 000 PLN 000 PLN transformed Non-current assets Property, plant and equipment Intangible assets Investments in subsidiaries Investments in affiliates Intragroup receivables from purchased bonds Long-term loans granted Long-term loans granted to subsidiaries Financial lease receivables Financial assets available for sale Current assets Short-term loans granted Short-term loans granted to subsidiaries Intragroup receivables from purchased bonds Dividend receivables Financial lease receivables Trade and other receivables Derivative financial instruments Cash and cash equivalents Total assets EQUITY AND LIABILITIES Equity attributable to the Company s equity holders Share capital Other reserves Retained earnings ( ) LIABILITIES Long-term liabilities Borrowings Short-term liabilities Borrowings 21, Trade and other payables 22, Dividend liabilities Total liabilities Total equity and liabilities Notes on pages 8 to 58 are an integral part of these stand-alone financial statements 5

6 Stand-alone statement of changes in equity for the year ended 31 December 2010 Note Share capital Supplementary capital Retained earnings Other reserve capital Total 000 PLN 000 PLN 000 PLN 000 PLN 000 PLN As at 1 January ( ) Comprehensive income Net profit for the financial period, transformed Transactions with owners Share capital increase Share-based incentive scheme - value of services provided shares exercised (6 664) - As at 1 January 2010, transformed Comprehensive income Net profit for the financial period Cash flow hedges (79) (79) Transactions with owners Share capital increase Dividend paid (19 767) (19 767) Allocation of profit to supplementary capital (88 754) - Share-based incentive scheme - - value of services provided (5 540) (5 540) - shares exercised (5 329) - As at 31 December Notes on pages 8 to 58 are an integral part of these stand-alone financial statements 6

7 Stand-alone cash flow statement for the year ended 31 December 2010 Year ended 31 December 2010 Year ended 31 December PLN 000 PLN Profit from operating activities before income tax Adjustments for: Amortisation, depreciation and impairment write-offs Financial expenses, net Gains on interests, commissions and corporate guarantees granted (43 809) (32 205) Gains on valuation of derivative financial instruments Gain on disposal of shares in affiliates - (17 766) Loss on disposal of property, plant and equipment 16 - Dividend income (1 054) ( ) Share-based incentive scheme (5 622) Income tax paid (261) - Revaluation write-down of receivables 29 - Other, including currency exchange gains/losses on loans granted (1 207) (238) Operating profit before working capital changes (3 233) (4 057) Changes in working capital: Trade and other receivables (59 213) (4 890) Trade and other payables Net cash flows from operating activities (1 101) (8 835) Purchase of property, plant and equipment (43) (628) Purchase of intangible assets (23 532) (8 572) Interest received Purchase of investments and investment vehicles (55 882) (28 381) Dividend received Loans granted (74 054) (58 498) Bonds purchased/ Inflows from the redemption of bonds ( ) Repayment of loans granted Inflows from disposal of investments Net cash flows from investing activities Inflows from share issues Repayment of loans to related parties (18 470) (10 000) Inflow from borrowings Inflows from bond issues Repayment of borrowings (7 424) (30 282) Redemption of bonds - (1 555) Interest paid (25 726) (21 609) Net cash flows from financing activities (63 388) Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the period (18 592) (43 038) Currency exchange gains/losses on valuation of cash and cash equivalents (274) (1 750) Increase (Decrease) in cash and cash equivalents Cash and cash equivalents at the end of the period (18 592) including: Cash at the bank Current account overdraft (59 277) (64 886) Notes on pages 8 to 58 are an integral part of these stand-alone financial statements 7

8 1 Accounting principles Basis for preparation Translation of foreign currency items Segment reporting Investments in subsidiaries and affiliates Intangible assets Property, plant and equipment Impairment of non-financial assets Financial assets The accounting of derivative financial instruments Leases Cash and cash equivalents Share capital Trade payables Borrowings Deferred and current income tax Employee benefits Provisions Revenue recognition Dividend distribution Financial Risk Management Financial risk factors Capital risk management Fair value assessment Critical accounting estimates and judgments Employee compensation and benefit expenses Other operating income Other operating expenses Amortisation, depreciation and impairment write-offs Other income, net Financial expenses Income tax Earnings per share Property, plant and equipment Intangible assets Investments in subsidiaries Financial instruments by category Derivative financial instruments Long-term loans granted Trade and other receivables Cash and cash equivalents Share capital Borrowings Trade and other payables Deferred income tax Related party transactions Remuneration of the Management and Supervisory Boards Guarantees granted Contingent liabilities and future liabilities Events after the balance-sheet date

9 1 Accounting principles 1.1 Basis for preparation These stand-alone financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) approved by the European Union, and also comply with the IFRS published by the International Accounting Standards Board. The accounting principles that form the basis for preparing these financial statements for the year ended 31 December 2010, comply with all applicable International Financial Reporting Standards as adopted by the EU, published and legally binding as at the date of preparing the financial statements. The amounts presented in these financial statements are given in thousands of PLN. (i) Accounting books and financial reporting The preparation of financial statements in conformity with IFRS requires the use of certain assumptions and estimates. It also requires the Management to exercise its judgment in the process of applying the accounting principles. The reporting areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the stand-alone financial statements are disclosed in Note 3. (ii) Accounting principles The stand-alone financial statements were prepared according to the historical cost principle, modified by the revaluation of financial assets designated for sale as well as financial assets and liabilities (taking into account derivative financial instruments) valued according to fair value with profits or losses indicated in the income statement. Comparable data Changes of the comparable data arising from amendments to IFRS 3 Business Combinations. As a result of amendments to IFRS 3 regulations concerning recognition of costs directly related to acquisitions, the NFI EMF Company changed the comparable data presented in these financial statements with regard to statement of financial position as at 31 December Expenditures for future acquisition transactions, which as at 31 December 2009 were presented in the category Trade and other receivables in the amount of PLN 946,000 were charged to the financial result for the financial period from 1 January 2009 to 31 December

10 1.1 Basis for preparation (cont.) ASSETS after change approved As at 31 December December 2009 change 000 PLN 000 PLN 000 PLN Total non-current assets Trade and other receivables (946) Total current assets (946) Total assets (946) EQUITY AND LIABILITIES Equity attributable to the Company s equity holders Retained earnings (946) Total equity attributable to the Company s equity holders (946) LIABILITIES Total long-term liabilities Total short-term liabilities Total liabilities Total equity and liabilities (946) FINANCIAL RESULTS Other operating expenses (18 681) (17 735) (946) Profit from operating activities (946) Net profit (946) Standards, amendments and interpretations effective in 2010 Improvements to IFRS 2009 On 16 April 2009, the International Accounting Standards Board issued Improvements to IFRS 2009, a collection of amendments to 12 standards. The improvements include changes to presentation, recognition and valuation as well as terminological and editing changes. The effective date for the majority of amendments is for annual periods beginning on 1 January The Company implemented the improvements to IFRS in accordance with the interim provisions. This change did not have an impact on these financial statements. IFRS 3 (Amendment) Business Combinations On 10 January 2008, the International Accounting Standards Board issued an amendment to IFRS 3 that is prospectively effective for business combinations with an acquisition date in the financial year beginning on or after 1 July The changes introduced include the possibility to recognise non-controlling interest either at fair value or at their share in fair value of identifiable net assets, revaluation of shares previously held in an acquired entity to fair value, with the difference to be recognised in an income statement, and additional guidelines for the use of the acquisition method, which includes treating the transaction costs as cost for the period in which they were incurred. The Company applied the standard amended as described above from the moment it became effective, i.e. as of 1 January 2010, as the Company s financial year is a calendar year. This change was taken into account in these financial statements. 10

11 1.1 Basis for preparation (cont.) IAS 27 (Amendment) Consolidated and Separate Financial Statements On 10 January 2008, the International Accounting Standards Board issued an amendment to IAS 27 that is effective for annual periods beginning on or after 1 July The standard requires that the consequences of transactions with non-controlling interest be directly recognised in equity, provided that the parent entity retains control over its subsidiary. The standard further specifies the manner of recognition if the entity loses control over its subsidiary, i.e. it requires that any investment retained in that subsidiary be measured at its fair value and the difference be recognised in the income statement. The Company applied the standard amended as described above from the moment it became effective, i.e. as of 1 January 2010, as the Company s financial year is a calendar year. This change did not have an impact on these financial statements. Amendments to IFRS 2 Share-based Payments On 18 June 2009, the International Accounting Standards Board issued the amendments to IFRS 2 Share-based Payments that are effective for annual periods beginning on or after 1 January The amendments clarify the recognition of cash-settled share-based payment transactions within the capital group. The amendments clarify the scope of IFRS 2 and provide the guidance on joint application of IFRS 2 and other standards. The amendments also incorporate guidance previously included in interpretation of IFRIC 8 and IFRIC 11. The Company implemented the amendments to IFRS 2 as of 1 January This change did not have an impact on these financial statements of the Company. Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards On 23 July 2009, the International Accounting Standards Board issued an amendment to IFRS 1 First-time Adoption of International Financial Reporting Standards that is effective for annual periods beginning on or after 1 January The amendments introduce further exemptions from valuation of assets as at the first-time adoption of IFRS for oil and gas companies. The Company applied the amendments to IFRS 1 as of 1 January This change did not have an impact on these financial statements. IFRIC 17 Distributions of Non-cash Assets to Owners On 27 November 2008, the International Financial Reporting Interpretations Committee issued an interpretation of IFRIC 17 that is effective for annual periods beginning on or after 1 July This interpretation provides guidance on the moment of recognition of dividend, its valuation and on when an entity should recognise the difference between the value of dividend and the carrying amount of the assets distributed. The Company implemented IFRIC 17 as of 1 January It currently does not affect the financial statements of the Company. IFRIC 18 Transfers of Assets from Customers On 29 January 2009, the International Financial Reporting Interpretations Committee issued an interpretation of IFRIC 18 that is effective for annual periods beginning on or after 1 July This interpretation provides guidance on the recognition of a transfer of assets from customers; namely, the interpretation clarifies the circumstances in which the definition of an asset is met, the identification of the separately identifiable services (services in exchange for the asset transferred), the recognition of revenue and the recognition of cash from customers. The Company implemented IFRIC 18 as of 1 January It currently does not affect the financial statements of the Company. 11

12 1.1 Basis for preparation (cont.) Standards, amendments, and interpretations that are not yet effective and were not adopted by the Company In these financial statements, the Company decided not to implement the following published standards or interpretations ahead of the date of their entry into force: Amendments to IAS 32 Classification of Rights Issues On 8 October 2009, the International Accounting Standards Board issued the amendments to IAS 32 Classification of Rights Issues that are effective for annual periods beginning on or after 1 February The amendments pertain to the accounting of rights issues (rights, options, warrants), denominated in a currency other than the functional currency of the issuer. The amendments require that, in fulfilling the specified conditions, the rights issue be classified as equity regardless of in which currency the price to exercise the right is denominated. The Company will implement the amendments to IAS 32 as of 1 January The amendments currently do not affect the financial statements of the Company. Amendments to IAS 24 Related-Party Transactions On 4 November 2009, the International Accounting Standards Board issued the amendments to IAS 24 Relatedparty transactions that are effective for annual periods beginning on or after 1 January The amendments simplify the requirements regarding the disclosure of information by parties related to state institutions and also specify the definition of a related party. The Company will implement the amendments to IAS 24 as of 1 January It currently does not affect the financial statements of the Company. IFRS 9 Financial Instruments Part 1: Classification and Measurement IFRS 9, issued by the International Accounting Standards Board on 12 November 2009, replaces the requirements of IAS 39 applicable to classification and measurement of financial assets. In October 2010, requirements for the classification and measurement of financial liabilities were added to IFRS 9. The new standard is effective for annual periods beginning on or after 1 January The standard introduces one model with only two classifications of financial assets: measured at amortised cost and measured at fair value. The classification is made as the initial recognition date and is based on the financial instrument business model applied by the entity as well as on the characteristics of contractual cash flows from the instruments. Most of the requirements for the classification and measurement of financial liabilities were carried forward to IFRS 9 unchanged from IAS 39. The key difference is the requirement that an entity recognises in other comprehensive income the effects of changes to own credit risk arising from financial liabilities that are designated to be measured at fair value through profit or loss. The Company will implement IFRS 9 as of 1 January It currently does not affect the financial statements of the Company. As at the date of these financial statements, IFRS 9 is still to be approved by the European Union. Amendments to IFRS 1 First Time Adoption of International Financial Reporting Standards. On 28 January 2010 the International Accounting Standards Board issued the amendments to IFRS 1 Limited release form the presentation of comparable information in accordance with IFRS 7 for entities adopting the IFRS for the first time that are effective for annual periods beginning on or after 1 July The amendments introduce additional releases for entities adopting the IFRS for the first time pertaining to the disclosure of information required by the amendments to IFRS 7 issued in March 2009 in the scope of valuation to fair value and liquidity risk. The Company will implement IFRS 1 as of 1 January It currently does not affect the financial statements of the Company. 12

13 1.1 Basis for preparation (cont.) Amendments to IFRS 7 Transfers of Financial Assets In October 2010, the International Accounting Standards Board issued the amendments to IFRS 7 Transfers of Financial Assets that are effective for annual periods beginning on or after 1 July The amendments require additional disclosures pertaining to the risk arising from transfer of financial assets. The required disclosures include the description, by class of asset, of the nature of the transferred assets, carrying amount, the nature of risk and rewards pertaining to financial assets transferred to another entity that are not derecognised by the entity. The required disclosures also include information allowing users to determine the amount of any possible associated liability as well as the relationship between the given financial asset and the relevant liability. If the financial assets have been derecognised but the entity is still exposed to some risks and rewards associated with the transferred asset, additional disclosure is required in order to allow users to understand the effects of such risk. The Company will implement the amendments to IFRS 7 as of 1 July It currently does not affect the financial statements of the Company. As at the date of these financial statements, the amendments to IFRS 7 are still to be approved by the European Union. Recovery of Underlying Assets - amendments to IAS 12 In December 2010, the International Accounting Standards Board issued the amendments to IAS 12 Recovery of Underlying Assets that are effective for annual periods beginning on or after 1 January The amendments pertain to measurement of deferred tax liabilities and assets arising from investment property measured at fair value in accordance with IAS 40 Investment Property, and introducing a rebuttable presumption that the value of the investment property will be recovered entirely through sale. The presumption can be rebutted if the investment property is held within a business model whose objective is to consume substantially all of the economic benefits of the investment property over time, rather than through sale. SIC 21 Income Taxes Recovery of Revalued Non-Depreciable Assets, which concerns similar issues pertaining to non-depreciable assets measured using the revaluation model in IAS 16 Property, Plant and Equipment, has been incorporated in IAS 12 following the exclusion of the requirements pertaining to investment properties measured at fair value. The Company will implement the amendments to IAS 12 as of 1 January It currently does not affect the financial statements of the Company. As at the date of these financial statements, the amendments to IFRS 12 are still to be approved by the European Union. Severe hyperinflation and removal of fixed dates for first-time adopters of IFRSs Amendments to IFRS 1 In December 2010, the International Accounting Standards Board issued amendments to IFRS 1 Severe hyperinflation and removal of fixed dates for first-time adopters of IFRSs that are effective for annual periods beginning on or after 1 July The severe hyperinflation amendment provides an additional exemption for an entity that resumes presenting or intends to present for the first time its financial statements in accordance with IFRSs after a period when the entity was subject to severe hyperinflation. The exemption allows an entity to elect to measure assets and liabilities at fair value and use that fair value as the deemed cost of such assets and liabilities in the opening IFRS statement of financial position. The IASB also amended IFRS 1 to exclude references in respect to determined dates to one exception and one exemption in respect to financial assets and liabilities. The first amendment requires the first-time adopters of IFRSs to prospectively apply the IFRS derecognition requirements as at the date of transition to IFRSs instead of as at 1 January The second amendment pertains to financial assets or liabilities measured at fair value at initial recognition when the fair value is determined with the use of valuation measures due to the lack of an active market and allows the guidelines to be applied prospectively as at the date of transition to IFRS instead of a fixed date of 25 October 2002 or 1 January This means that the first-time adopters of IFRSs are not required to determine the fair value of financial assets and liabilities prior to the date of transition to IFRSs. IFRS 9 was also amended to account for the above amendments. The Company will implement the amendments to IFRS 1 as of 1 January It currently does not affect the financial statements of the Company. As at the date of these financial statements, the amendments to IFRS 1 are still to be approved by the European Union. 13

14 1.1 Basis for preparation (cont.) Improvements to IFRS 2010 On 6 May 2010 the International Accounting Standards Board issued the Improvements to IFRS 2010 which amend 7 standards. The improvements contain changes in presentation, recognition, and valuation as well as contain terminological and editorial changes. Most of the amendments are effective for annual periods beginning on 1 January The Company will apply the improvements to the IFRS in accordance with the interim provisions, this change did not have an impact on these financial statements of the Company. As at the date of these financial statements, the improvements to IFRS 2010 are still to be approved by the European Union. Amendments to IFRIC 14 Prepayments of a Minimum Funding Requirement On 26 November 2009, the International Financial Reporting Interpretations Committee issued the amendments to the interpretation of IFRIC 14 that are effective for annual periods beginning on or after 1 January This interpretation contains guidelines regarding the recognition of earlier prepayments to cover minimum funding requirements as assets in the entity making the payments. The Company will implement the amendments to IFRIC 14 as of 1 January It currently does not affect the financial statements of the Company. IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments On 26 November 2009, the International Financial Reporting Interpretations Committee issued the interpretation of IFRIC 19 that is effective for annual periods beginning on or after 1 July This interpretation clarifies the accounting principles applied in situations in which, as a result of the renegotiation by an entity of the terms of its debt, the liability is settled through the issue of equity instruments to the creditor. The interpretation requires the valuation of equity instruments at fair value and the recognition of a profit or loss in the amount of the difference between the book value of the liability and the fair value of the equity instrument. The Company will implement IFRIC 19 as of 1 January It currently does not affect the financial statements of the Company. 14

15 1.2 Translation of foreign currency items (i) Functional and presentation currency The financial information is presented in Polish zloty (PLN), which is the functional and presentation currency of NFI Empik Media & Fashion S.A. Functional currency is the currency of the primary economic environment in which the Company operates. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign currency exchange gains and losses resulting from the settlement of such transactions, and from the balance-sheet valuation of monetary assets and liabilities, denominated in foreign currencies, are recognised in the income statement, except when deferred in other comprehensive income when qualified as cash flow hedges. Currency translation differences for the valuation of non-cash financial assets and liabilities, which are valued at fair value through profit or loss, are recognised in the financial results. Currency translation differences from the valuation of non-cash assets such as equity instruments classified as available for sale are recognised in other comprehensive income. The applied foreign currency exchange rates are as follows: Year ended Year ended Currency 31 December December 2009 Closing rate Average rate Closing rate Average rate EUR USD CZK UAH RUB Segment reporting The Management Board of NFI EMF regularly reviews current management reports with regard to operating results as well as the validity of allocating investment expenditures. However, in the NFI EMF business structure, the Management Board does not identify operating segments. 15

16 1.4 Investments in subsidiaries and affiliates (i) Subsidiaries and affiliates The following companies are direct and indirect subsidiaries and affiliates of NFI Empik Media & Fashion S.A.: NFI EMF GROUP NFI EMF S.A. Name Location Activity 31 December December December December 2009 % share % share % share % share Subsidiaries EMPiK Sp. z o.o. Poland Books, newspapers and multimedia retail network; photography sales points and language schools EMPiK Technologies Sp. z o.o. (1) Poland Retail trading of IT products Empik Assets Sp. z o.o. (1) Poland Management of assets and trademarks E-Commerce Services Sp. z o.o. (18) Poland Online sales Cenzora Enterprises Ltd Cyprus Special purpose company holding 14% of shares in Magalla Holdings Limited, the owner of the company with bookstore network in Ukraine, and shares in Fashion Look Sp. z o. o Polperfect Sp. z o.o. (1) Poland Distributor of Polish & international newspapers and magazines EMPiK Beauty Sp. z o.o.- Empik Poland Management of Empik.com Internet (1) Optyk Express Sp. z o.o. (1) Poland Non-operating company Fashion Look Sp. z o.o. (14) Poland Trading in wear and other franchised products Flamongi Holdings Limited (1) Cyprus Investment vehicle Virtualo Sp. z o.o. (1) Poland Preparation and distribution of digital content to online bookstores Learning Systems Poland Sp. z o.o. (1) Poland Operator of language schools LSP Master Sp. z o.o. (2) Poland Holder of license for an integrated school management and language teaching system Wedgewood Holdings Ltd (2) Cyprus Investment vehicle holding 100% of shares in LSR Learning Systems Ukraine, the Ukraine Operator of language schools Limited Liability Company (2) ANO "OC" Speak Up Russia Network of language schools in Russia Learning Systems Russia the Limited Russia Holder of license for an integrated school management and language Liability Company (16) teaching system

17 1.4 Investments in subsidiaries and affiliates (cont.) Name Location Activity NFI EMF GROUP NFI EMF S.A. 31 December December December December 2009 % share % share % share % share Subsidiaries Smyk Sp. z o.o. Poland Children s mega-stores network Kids International Sp. z o.o.(3) Poland Operator of children s stores network Prolex Services Limited (3) Cyprus Investment vehicle holding 100% of shares in Smyk-Rus Limited Smyk-Rus Limited (7) Russia Operator of children s mega-stores network Madras Enterprises Limited (3) Cyprus Investment vehicle holding 100% of shares in Paritet Smyk LLC, the Group holds 90% of shares, however due to the put option, it consolidates 100% Paritet Smyk LLC (4) Ukraine Operator of children s mega-stores network, the Group holds 90% of shares, however due to the put option, it consolidates 100% Smyk Ukraine LLC (3) Ukraine Logistics and other support services for Paritet Smyk LLC Smyk Cocuk Giyim Oyuncak ve Turkey Operator of children s mega-stores network Aksesuarlari (3) Spiele Max AG (3) Germany Operator of children s mega-stores network Smyk All for Kids SRL (3) Romania Operator of children s mega-stores network Smyk Global Assets Sp. z o.o. (17) (19) Poland Management of assets and trademarks Optimum Distribution Sp. z o.o. Poland Wholesale trading of selected cosmetics, optical products and sportswear in Poland Optimum Distribution CZ&SK s.r.o. Czech Republic Wholesale trading of selected cosmetics, optical products and sportswear in the Czech Republic and Slovakia LuxPol Invest S.a.r.l Luxembourg Investment vehicle holding 80% of shares in EPCD Sp. z o.o EPCD Sp. z o.o. (8) Poland Distribution of selected cosmetics in Poland EPCD Cz&SK s.r.o. (12) Czech Distribution of selected cosmetics in the Czech Republic and Republic Slovakia EPCD SRL. (12) (19) Romania Distribution of selected cosmetics in Romania Amersport Sp. z o.o. (9) Poland Trading in sportswear and athletic gear Poland 1 Development Sp. z o.o. (9) Poland Trading in sportswear and athletic gear

18 1.4 Investments in subsidiaries and affiliates (cont.) Name Location Activity NFI EMF GROUP NFI EMF S.A. 31 December December December December 2009 % share % share % share % share Subsidiaries Soul Sp. z o.o. (10) Poland Trading in sportswear and athletic gear Soul Shop s.r.o. (10) Czech Trading in sportswear and athletic gear Republic Amersport Ukraine (11) Ukraine Trading in sportswear and athletic gear Amersport Russia (11) Russia Trading in sportswear and athletic gear Ultimate Fashion Sp. z o.o. Poland Franchise operations of Wallis, Esprit, River Island, etc Ultimate Fashion International Poland Wholesale trading in clothes, footwear and other selected products Sp. z o.o. Licomp EMPiK Multimedia Sp. z o.o. Poland Distributor of interactive entertainment software EMF Investment Project Sp. z o.o. Poland Investment vehicle holding 48.33% of shares in HDS WP Sp. z o.o East Services S.A. Switzerland Advisory services Maratex Limited (5) Cyprus Investment vehicle holding shares of B4 S.A., ZAO Maratex and Baza Limited B4 SA (6) Switzerland Investment vehicle holding shares of ZAO Maratex and Baza Limited BAZA Limited (6) Ukraine Franchise operations of Peacock, Esprit etc ZAO Maratex (6) Russia Franchise operations of Esprit, Peacocks, River Island, etc OOO Maratex (6) Kaliningrad Franchise operations of Esprit, Peacocks, River Island, etc Affiliates Empik Cafe Sp. z o.o. (13) Poland Development of coffee bars network HDS WP Sp. z o.o. Poland Non-operating company Magalla Holdings Ltd (14) Cyprus Investment vehicle holding 100% of shares in Buk Investment LLC and 1 share in Bukva Closed Joint Stock Company Buk Investment LLC (15) Ukraine Investment vehicle holding shares of Bukva Closed Joint Stock Company Bukva Closed Joint Stock Company (15) Ukraine Operator of book stores network

19 1.4 Investments in subsidiaries and affiliates (cont.) (1) Subsidiaries of EMPiK Sp. z o.o. (8) Subsidiary of LuxPol Invest S.a.r.l. (15) Companies, in which Magalla Holdings Limited is a shareholder (2) Subsidiaries of Learning Systems Poland Sp. z o.o. (9) Subsidiaries of Optimum Distribution Sp. z o.o. (16) Companies, in which Wedgewood Holdings is a shareholder (3) Subsidiaries of Smyk Sp. z o.o. (10) Subsidiaries of Poland 1 Development Sp. z o.o. (17) An 80% subsidiary of Smyk Sp. z o.o., and a 20% subsidiary of Kids International Sp. z o.o. (4) Subsidiary of Madras Enterprises Limited (11) Subsidiaries of Amersport Sp. z o.o. (18) Company created as a result of the division of Empik Sp. z o.o. (5) The Group holds 69.66% of shares; however, due to the put (12) Subsidiaries of EPCD Sp. z o.o. (19) Companies established in 2010 option, it consolidates 100% (6) Subsidiaries of Maratex Limited (13) Affiliate of Empik Asset Sp. z o.o. (7) Subsidiary of Prolex Service Limited. The Group holds 75% of shares, however due to the put option, it consolidates 100% (14) Company, in which Cenzora Enterprises Ltd. is a shareholder (i) Subsidiaries Subsidiaries are those entities over which the Company has the power to govern the financial and operating policies, generally accompanying a shareholding of a majority of the total voting rights at the governing bodies. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Fund controls another entity. Investments in subsidiaries are recognised at cost (purchase price) less any potential accumulated impairment write-off. In regard to investments acquired before 31 December 2009, the transaction costs directly related to the acquisition of investments increased the purchase price. In regard to investments acquired after 1 January 2010 (prospectively), transaction costs are recognised once in the financial result when they are incurred by analogy to the requirements regarding recognising transaction costs in business combinations according to the amended IFRS 3. Transaction costs incurred in 2009 and pertaining to acquisitions that took place after 1 January 2010 were recognised as assets in the 2009 financial statements and next upon the application of the amended IFRS 3 from 1 January 2010 were moved to the 2009 financial result through a correction of the comparable data. (ii) Affiliates Affiliates are all entities over which the Fund has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the total voting rights at the governing bodies. Investments in affiliates are recognised at cost (purchase price) less impairment write-offs. 19

20 1.5 Intangible assets Computer software Acquired computer software licenses are capitalized in the balance-sheet on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised on a straight-line basis over their estimated useful lives of 2-10 years. 1.6 Property, plant and equipment Property, plant and equipment are stated at historical cost less subsequent depreciation and impairment write-offs. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Amortisation and depreciation is calculated using the straight-line method to write down the cost of each asset to its residual value over its estimated useful life as follows: Buildings Plant and equipment Other fixed assets 10 years 3 to 10 years 3 to 7 years The assets residual value and useful lives are reviewed annually at each balance sheet date. Where an asset s carrying amount is greater than its estimated recoverable amount, it is written down to its recoverable amount. The borrowing costs of a qualifying asset are activated as part of the purchase price or the production cost of that asset. Gains and losses on disposals of fixed assets are determined by comparing the disposal proceeds with the carrying amount and are recognised in the income statement. 1.7 Impairment of non-financial assets Assets that have an indefinite useful life are not subject to amortisation and are tested annually for possible impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and the value in use of an asset. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. 1.8 Financial assets NFI Empik Media & Fashion S.A. classifies its financial assets in the following categories: financial assets at fair value through profit or loss, loans and receivables, and financial assets available for sale. The classification depends on the purpose for which the financial assets were acquired. The Management Board specifies classification of financial assets before their initial recognition. Regular transactions pertaining to the acquisition or disposal of financial assets are recognised at the transaction date, i.e. at the date at which the Company undertakes to acquire or to dispose of the particular asset. 20

21 1.8 Financial assets (cont.) The Company assesses at each balance sheet date whether there is evidence that a financial asset or a group of financial assets is impaired. If any such evidence exists for available for sale financial assets, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in income statement is removed from equity and recognised in the income statement. (i) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. Loans are classified respectively as Long-term loans or Short-term loans and the receivables as Trade and other receivables in the balance sheet. Receivables from acquired bonds are classified respectively as Long-term intragroup acquired bond receivables or Short-term intragroup acquired bond receivables. In accordance with the payment period, all receivables from dividends are classified as Short-term dividend receivables. Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less revaluation write-downs. Revaluation write-downs of receivables are established when there is objective evidence that the NFI Empik Media & Fashion S.A. will not be able to collect all amounts due according to the original terms of the agreement. The amount of the revaluation write-down is the difference between the asset s carrying amount and the net present value of estimated future cash flows, discounted at the effective interest rate. The amount of the write-down is recognised in the income statement. (ii) Financial assets available for sale Financial assets available for sale are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless the Management Board intends to dispose of the investment within 12 months of the balance sheet date. Investments are initially recognised at fair value plus transaction costs. Investments are de-recognised when the right to receive cash flows from the investments have expired or have been transferred and NFI Empik Media & Fashion S.A. has transferred substantially all risks and rewards of ownership. Financial assets available for sale are subsequently carried at fair value. Fair value adjustments of securities expressed in foreign currency and classified as financial assets available for sale divide into currency translation differences resulting from changes in the amortised cost of security and other changes in the securities carrying amount. Currency translation differences are recognised in gains and losses, while other changes in the carrying amount are recognised in other comprehensive income. Fair value adjustments of remaining monetary and non-monetary securities classified as available for sale are recognised in other comprehensive income. When securities classified as available for sale are sold or impaired, the accumulated fair value adjustments are recognised in the income statement as gains and losses from investment securities. (iii) Financial assets at fair value through profit or loss A financial asset is presented in this category if acquired principally for the purpose of selling in the short term or if so designated by the Management Board. Financial assets designated as at fair value through profit or loss at inception are those that are managed and valued at fair value, in accordance with a documented Company investment strategy. Information about these financial assets is provided internally on a fair value basis to the Company entity's key management personnel. The Company's investment strategy is to invest free cash resources in equity securities as part of the Company's long-term capital growth strategy. 21

22 1.8 Financial assets (cont.) Assets in this category are classified as current assets if they are either held for trading or are expected to be realised within 12 months of the balance sheet date. Financial instruments carried at fair value through profit or loss are initially recognised at fair value and transaction costs are expensed to the income statement. They are subsequently carried at fair value. Gains and losses arising from changes in the fair value of the financial instruments at fair value through profit and loss category are presented in the income statement within Other operating gains, net, in the period in which they arise. The fair values of quoted investments are based on current bid prices. If the market for a financial asset is non-active (and for unlisted securities), the Company establishes fair value by using valuation techniques. These include the use of recent arm s-length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and other appropriate means. 1.9 The accounting of derivative financial instruments Derivative financial instruments are initially recognised at fair value on the date a derivative contract is entered into and subsequently are re-measured at their current fair value. The method of recognising the resulting gain or loss is dependent whether the derivative is designated as a hedging instrument, and if so, on the nature of the item being hedged. On the date a derivative contract is entered into, the Company designates certain derivatives as either (i) a hedge of the fair value of recognised assets or liabilities (fair value hedge), or (ii) a hedge of highly probable forecast transactions (cash flow hedge). The Company documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as their risk management objective and strategy for undertaking hedge transactions. This process includes linking all derivatives designated as hedges to specific assets and liabilities or to specific firm commitments or forecast transactions. The Company also documents its assessment, both at the 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. (i) Fair value hedge Changes in the fair value of the derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the risk, from which the Company seeks to secure itself. The Company applied fair value hedging in the instance of a loan from a bank secured on the Zara put options. 22