Consolidated Financial Statements of the Magellan Group prepared for the year ended on 31 December 2012 with auditor s opinion

Transcription

1 Consolidated Financial Statements of the prepared for the year ended on 31 December 2012 with auditor s opinion

2 Consolidated Financial Statements The consolidated financial statements of the for the 12 months ended 31 December 2012 have been prepared in line with International Financial Reporting Standards as endorsed by the EU. The consolidated financial statements include comparable data for the 12 months ended 31 December Selected financial information consolidated financial statements PLN 000 EUR 000 Selected CONSOLIDATED financial information From to / balance as at From to / balance as at From to / balance as at From to / balance as at Sales revenue Profit on operating activities Gross profit Net profit Net cash from operating activities ( ) ( ) (35 974) (50 539) Net cash from investing activities (138) (2) (33) (0.5) Net cash from financing activities Change in net cash Total assets Non-current liabilities Current liabilities Equity Share capital Average number of shares Earnings per share (in PLN/EUR)* Diluted earnings per share (in PLN/EUR) Book value per ordinary share (in PLN/EUR)** (*) Earnings per ordinary share have been calculated by dividing the net profit attributable to the shareholders of the parent by the number of shares (**) The book value per share has been calculated by dividing equity attributable to the shareholders of the parent by the number of shares Selected financial information presented in the financial statements has been translated into the euro as follows: items in the statement of comprehensive income and statement of cash flows have been translated at the exchange rate being the arithmetic mean of the average exchange rates published by the National Bank of Poland (NBP) and effective as at the last day of each month of the year; for the 12 months of 2012 the exchange rate was: EUR 1 = PLN ; for the 12 months of 2011: EUR 1 = PLN ; items in the statement of financial position have been translated at the average exchange rate published by NBP and effective as at the end of the reporting period; the exchange rate as at 31 December 2012 was: EUR 1 = PLN ; as at 31 December 2011: EUR 1 = PLN Łódź, 12 March 2013 Signatures Krzysztof Kawalec Grzegorz Grabowicz Urban Kielichowski President of the Board Vice-President of the Board Member of the Board 2

3 TABLE OF CONTENTS Consolidated Financial Statements for the period from 1 January 2012 to 31 December 2012 I. Consolidated statement of comprehensive income for the period from 1 January 2012 to 31 December II. Consolidated statement of financial position as at 31 December III. Consolidated statement of changes in equity for the period from 1 January 2012 to 31 December IV. Consolidated statement of cash flows for the period from 1 January 2012 to 31 December V. Notes General information Accounting principles (policy) Seasonality and operating segments Sales revenue Portfolio financing costs Costs of employee benefits Other expenses Other operating revenue and expenses Financial revenue Financial expenses Income tax Earnings per share Property, plant and equipment Intangible assets Investments in associates measured using the equity method Inventories Loans and receivables and receivables under finance lease agreements Ageing analysis of the portfolio of financial assets Delinquencies by classes of financial instruments Pledged assets Current and other tax receivables Other assets Trade and other receivables Cash and cash equivalents Derivatives Share capital Treasury shares Supplementary capital Reserve capital Retained earnings Bank loans and credit facilities Bond liabilities Other financial liabilities Lease liabilities Trade liabilities Other liabilities Dividends paid and declared and other profit-sharing payments Financial instruments Financial instruments measured at amortized cost Financial instruments measured at fair value Risk management Market risk Credit risk Liquidity risk Related party transactions Related party transactions Remuneration of executive management Share-based payments Explanations to the statement of cash flows, including information on cash and cash equivalents Contingent liabilities and assets Staff Agreements concluded with the entity authorized to audit financial statements Post balance sheet events

4 I. Consolidated statement of comprehensive income for the period from 1 January 2012 to 31 December NOTE Continuing operations Sales revenue Value of goods sold (1 835) - Portfolio financing costs 5 (50 705) (32 972) Cost margin Consumption of materials and supplies (634) (496) Costs of employee benefits 6 (13 195) (11 517) Amortization/depreciation (961) (813) Costs of advisory services (1 252) (1 167) Other expenses 7 (6 021) (5 066) Profit on operating activities Other operating revenue and expenses Financial revenue Financial expenses 10 (1 067) (457) Profit before tax Income tax 11 (8 674) (7 814) Net profit on continuing operations Net profit Other net comprehensive income (136) 96 Exchange differences on translation of foreign operations (136) 96 Comprehensive income for the reporting period Average number of shares in the period Basic earnings per share (PLN/share) Diluted earnings per share (PLN/share) During the reporting period and during the comparable period the Company did not discontinue any operations. Łódź, 12 March 2013 The accounting principles (policy) and notes to the consolidated financial statements on pages form an integral part hereof. 4

5 II. Consolidated statement of financial position as at 31 December 2012 Assets NOTE December 2012 December 2011 Non-current assets Property, plant and equipment Intangible assets Interest in associates Deferred tax asset Finance lease receivables Loans and receivables Total non-current assets Current assets Inventories Trade and other receivables Finance lease receivables Loans and receivables Current tax receivables Other tax receivables Other assets Derivatives Cash and cash equivalents Total current assets Total assets Łódź, 12 March 2013 The accounting principles (policy) and notes to the consolidated financial statements on pages form an integral part hereof. 5

6 Consolidated statement of financial position as at 31 December 2012 Equity and liabilities NOTE Balance as at 31 December 2012 December 2011 Equity Issued share capital Treasury shares 24 (1 606) (2 992) Supplementary capital Reserve capital Exchange differences on translation of subsidiaries (121) 15 Retained earnings Total equity Non-current liabilities Bank loans and credit facilities Bond liabilities Other financial liabilities Deferred tax liability Total non-current liabilities Current liabilities Trade liabilities Bank loans and credit facilities Bond liabilities Other financial liabilities Current income tax liabilities Derivatives Other liabilities Total current liabilities Total liabilities Total equity and liabilities Łódź, 12 March 2013 The accounting principles (policy) and notes to the consolidated financial statements on pages form an integral part hereof. 6

7 III. Consolidated statement of changes in equity for the period from 1 January 2012 to 31 December 2012 Equity attributable to the shareholders of the parent Exchange Share capital Treasury shares Supplemen tary capital Reserve capital differences on translation Retained earnings Total Balance as at 1 January (2 992) Comprehensive income for the period (136) Share-based payments Share buyback - (906) (906) Executive share option scheme (314) (1 962) Profit distribution (28 669) - December (1 606) (121) Exchange Share capital Treasury shares Supplemen tary capital Reserve capital differences on translation Retained earnings Total Balance as at 1 January (81) Comprehensive income for the period Share-based payments Share buyback - (2 992) (2 992) Profit distribution (24 540) - December (2 992) Łódź, 12 March 2013 The accounting principles (policy) and notes to the consolidated financial statements on pages form an integral part hereof. 7

8 IV. Consolidated statement of cash flows for the period from 1 January 2012 to 31 December 2012 Note Cash flows from operating activities Gross profit in the financial period Adjustments Income tax paid 11 (5 783) (7 902) (Profit)/Loss on investing activities 38 (9) 13 Interest paid and dividends received 38 (134) (213) Share in the profit of associates (1 061) (305) Amortization/depreciation of non-current assets (Increase) in trade and other receivables 20, 38 (1 227) (4 672) (Increase) in inventories (701) (1 673) (Increase) in loans and receivables 17, 38 ( ) ( ) Increase/(decrease) in financial liabilities 28, 29, 30, 31, (11 546) Increase/(decrease) in trade liabilities Increase/(decrease) in other liabilities and provisions and other assets 33, 38 (3 071) Measurement of an executive share option scheme Other (57) (92) Net cash from operating activities ( ) ( ) Cash flows from investing activities Dividend from associates Proceeds from sale of property, plant and equipment Payments to acquire property, plant and equipment 13 (401) (288) Net cash from investing activities (138) (2) Cash flows from financing activities Acquisition of treasury shares 24 (906) (2 992) Proceeds from credit facilities and loans Repayment of credit facilities and loans 28 ( ) ( ) Proceeds from bond issues Bond buyback 29 ( ) ( ) Payment of finance lease liabilities (404) (415) Interest paid (56) (50) Other proceeds Net cash from financing activities Net increase/(decrease) in cash and cash equivalents

9 Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the financial year Łódź, 12 March 2013 The accounting principles (policy) and notes to the consolidated financial statements on pages form an integral part hereof. 9

10 V. Notes 1. General information The Magellan Capital Group (the Group ) comprises Magellan S.A. (the parent", Company ) as well as its subsidiaries and associates (see: Composition of the Capital Group). Magellan S.A., the parent, was established based on a notarized deed of 5 January The Company s registered office is located in Łódź at al. Piłsudskiego 76. The Company has been entered in the register of entrepreneurs kept by the District Court, XX Division of the National Court Register in Łódź, under number KRS The duration of the parent and the companies in the Capital Group is unlimited. Magellan S.A. is a financial institution which offers financial products and services to entities operating in the medical market and to local government entities. The Company is constantly broadening the range of its services, which consist in financing current and investing operations of the medical and local government sector. Magellan S.A. provides tailored financial services which enable medical market and local government entities to manage their funds and core business in an optimal and effective way. On 1 October 2007, the Company s shares were admitted to trading on the main market of the Warsaw Stock Exchange. As at 31 December 2012, Polish Enterprise Fund IV, L.P. was the majority shareholder of the Company with 67.74% interest in its share capital. Polish Enterprise Fund IV L.P. is represented by Enterprise Investors Sp. z o.o. with its registered office in Warsaw, entered in the Register of Entrepreneurs of the National Court Register kept by the District Court for the capital city of Warsaw, XIX Business Division of the National Court Register, under number KRS The Capital Group is represented in Poland by the parent, Magellan S.A., and its subsidiary MEDFinance S.A.; in the Czech Republic by MedFinance Magellan s.r.o., a subsidiary; and in Slovakia by Magellan Slovakia s.r.o Composition of the Capital Group Composition of the Capital Group as at 31 December 2012: o Magellan S.A. parent; o MEDFinance S.A. subsidiary; o MedFinance Magellan, s.r.o. subsidiary; o Magellan Slovakia, s.r.o. subsidiary; o Kancelaria P. Pszczółkowski i Wspólnik Spółka Komandytowa associate; o Kancelaria Prawnicza Karnowski i Wspólnik Spółka Komandytowa associate. Subsidiaries 1. MEDFinance S.A. MEDFinance S.A., with Magellan S.A. as the sole shareholder, was registered on 30 July 2010 by the District Court for Łódź-Śródmieście in Łódź, XX Division of the National Court Register, under number KRS : legal form: joint stock company; share capital: PLN 8,500,000.00, fully paid-up; registered office: Łódź, al. Piłsudskiego 76; REGON: ; Tax Identification Number (NIP): ; 10

11 registered in the National Court Register by the District Court for Łódź-Śródmieście in Łódź, under number KRS ; 100% of shares held by Magellan S.A. The core business of MEDFinance S.A. is end-to-end financing of investments carried out by entities operating in the medical market. Management Board of MEDFinance S.A.: Grzegorz Grabowicz President of the Management Board; Radosław Moks Vice-President of the Management Board. Supervisory Board of MEDFinance S.A.: Urban Kielichowski Chairman of the Supervisory Board; Krzysztof Kawalec Member of the Supervisory Board; Dariusz Prończuk Member of the Supervisory Board; Marek Wójtowicz Member of the Supervisory Board. 2. MedFinance Magellan s.r.o. On 25 April 2007, the Municipal Court in Prague registered MedFinance Magellan s.r.o. with Magellan S.A. as the sole shareholder: legal form: limited liability company; share capital: CZK 700,000.00, fully paid-up; registered office: Prague, Šárecká 1451/33; REGON: ; Tax Identification Number (NIP): CZ ; registered in the Commercial Register kept by the Municipal Court in Prague, Division C, Ref ; holder of 100% of shares in the limited liability company: Magellan S.A. As at the end of the comparative period, the share capital amounted to CZK 200, Pursuant to a decision of the Municipal Court in Prague of 6 September 2012, an increase in the share capital of MedFinance Magellan, s.r.o., from CZK 200, to CZK 700, was recorded. The aforementioned increase in the share capital was effective from 10 September Magellan S.A. continues to be the sole shareholder following the increase in the share capital of the subsidiary. The core business of MedFinance Magellan s.r.o. is provision of financial services to entities in the Czech healthcare market. Composition of the Management Board: Rafał Skiba. Composition of the Supervisory Board of MedFinance Magellan s.r.o.: Krzysztof Kawalec Member of the Supervisory Board; Grzegorz Grabowicz Member of the Supervisory Board; Urban Kielichowski Member of the Supervisory Board. 3. Magellan Slovakia s.r.o. On 4 November 2008, the Regional Court in Bratislava registered Magellan Slovakia s.r.o. with Magellan S.A. as the sole shareholder: legal form: limited liability company; share capital: EUR 6,500.00, fully paid-up; registered office: Bratislava, Zochova 5; REGON: ; Tax Identification Number (NIP): SK ; registered in the Commercial Register kept by the Regional Court in Bratislava I under number 55250/B; holder of 100% of shares in the limited liability company: Magellan S.A. 11

12 The core business of Magellan Slovakia s.r.o. is provision of financial services to entities in the Slovak healthcare market. Composition of the Management Board: Rafał Skiba; Ladislav Valabek. Composition of the Supervisory Board: Krzysztof Kawalec Member of the Supervisory Board; Grzegorz Grabowicz Member of the Supervisory Board; Urban Kielichowski Member of the Supervisory Board. Associates As at 31 December 2012 and 31 December 2011, Magellan S.A. was a Limited Partner in: Kancelaria P. Pszczółkowski i Wspólnik Spółka Komandytowa (law firm). The Partners give priority to the legal services provided to Magellan S.A. During the period, the Company was a major client of the law firm and had a material effect on the operational and financial policy of the entity. The entity is considered an associate. Kancelaria Prawnicza Karnowski i Wspólnik Spółka Komandytowa (law firm) with its registered office in Łódź. During the period, the Company was a major client of the law firm and had a material effect on the operational and financial policy of the entity. The entity is considered an associate Composition of the managing bodies of the parent Management Board of Magellan S.A. Composition of the Management Board of Magellan S.A. as at 31 December 2012: Krzysztof Kawalec President of the Management Board, CEO; Grzegorz Grabowicz Vice-President of the Management Board, CFO; Urban Kielichowski Member of the Management Board, COO. Rafał Karnowski serves the role of the Commercial Proxy of the Company and may enter into legal transactions on its behalf acting jointly with at least one member of the Management Board of Magellan S.A. As the term of office of the Management Board of Magellan S.A. expired, on 29 May 2012 the Supervisory Board appointed the existing members for another, joint, four-year term of office, which began on 2 July 2012 and will expire on 2 July Supervisory Board of Magellan S.A. Composition of the Supervisory Board of Magellan S.A. as at 31 December 2012: Dariusz Prończuk Chairman of the Supervisory Board; Marek Kołodziejski Vice-Chairman of the Supervisory Board; Krzysztof Burnos Member of the Supervisory Board; Sebastian Król Member of the Supervisory Board; Piotr Krupa Member of the Supervisory Board; Jacek Owczarek Member of the Supervisory Board; Marek Wójtowicz Member of the Supervisory Board; Karol Żbikowski Member of the Supervisory Board. 12

13 Composition of the Supervisory Board of Magellan S.A. by 8 May 2012: Dariusz Prończuk Chairman of the Supervisory Board; Marek Kołodziejski Vice-Chairman of the Supervisory Board; Bogusław Grabowski Member of the Supervisory Board; Sebastian Król Member of the Supervisory Board; Piotr Krupa Member of the Supervisory Board; Jacek Owczarek Member of the Supervisory Board; Marek Wójtowicz Member of the Supervisory Board; Karol Żbikowski Member of the Supervisory Board. On 9 May 2012, pursuant to resolutions of the General Shareholders Meeting of the Company, the then members of the Supervisory Board of Magellan S.A. were dismissed due to expiry of the term of their office. At the same time, the General Shareholders Meeting appointed new members of the Supervisory Board for a joint, three-year term of office which began on 9 May Pursuant to Resolution No. 40/2012 of the General Shareholders Meeting, the Supervisory Board of the Company consists of eight members. Mr. Bogusław Grabowski was dismissed from the position of Member of the Supervisory Board of Magellan S.A., whereas Mr. Krzysztof Burnos was appointed to that position as of 9 May The remaining Members of the Supervisory Board were reappointed for the next term. There were no changes in the composition of the Management Boards and Supervisory Boards of the companies after the end of the reporting period Approval of the financial statements The Group s consolidated financial statements for the year ended 31 December 2012 were approved for publication by the Management Board on 12 March The Management Board of Magellan S.A., the parent, recommends that the separate net profit for 2012 totaling PLN 33,320, be allocated to the supplementary capital. The consolidated financial statements for 2011 were approved by Resolution No. 10/2012 of the General Shareholders Meeting of Magellan S.A. of 9 May Pursuant to Resolution No. 11/2012 of the General Shareholders Meeting of 9 May 2012, the entire net profit of PLN 28,669, was allocated to the supplementary capital. 2. Accounting principles (policy) Basis for preparation of the financial statements These consolidated financial statements of the Magellan Capital Group have been prepared for the year ended 31 December 2012 in PLN 000, unless in certain situations the information is more precise. The Polish zloty (PLN) is the functional and presentation currency of the financial statements of the Group. These consolidated financial statements have been prepared on the assumption that the Group companies will continue as a going concern in the foreseeable future, for at least 12 months of the date of publication of these financial statements, that is to say of 12 March As at the date of preparation of the consolidated financial statements and as at the date of their approval for publication there were no circumstances indicating a threat to the Group s ability to continue as a going concern. 13

14 These consolidated financial statements have been prepared in accordance with the historical cost principle, except for derivatives which are measured at fair value. The Management Board of Magellan S.A. approved these consolidated financial statements for publication on 12 March Statement of compliance These consolidated financial statements have been prepared in line with International Financial Reporting Standards ( IFRS ) and IFRS endorsed by the European Union. As at the date of approval of these financial statements for publication, taking into account the IFRS implementation process in the EU and the Group s operations, as regards the accounting principles applied by the Group, the implemented IFRS do not differ from those endorsed by the EU. IFRS consist of standards and interpretations approved by the International Accounting Standards Board ( IASB ) and the International Financial Reporting Interpretations Committee ( IFRIC ). Changes in the Accounting Principles The accounting principles (policy) adopted for the preparation of these financial statements are consistent with those adopted for the preparation of the financial statements of the Group for the year ended 31 December 2011, except for changes to standards and new interpretations applicable to annual periods starting on 1 January Standards and interpretations applied for the first time in 2012 The following amendments to the existing standards issued by the International Accounting Standards Board and endorsed by the EU are effective as of 2012: Revised IFRS 7 Financial Instruments: Disclosures Transfers of Financial Assets, endorsed by the EU on 22 November 2011 (applicable to annual periods beginning on or after 1 July 2011). The aforementioned standards, interpretations and revised standards have not exerted a significant effect on the entity s accounting policy. Standards and interpretations published and endorsed by the EU, but not yet effective While approving these financial statements, the Group did not apply the following standards, revised standards and interpretations that had been published and endorsed for use in the EU, but which had not yet entered into force: IFRS 10 Consolidated Financial Statements, endorsed by the EU on 11 December 2012 (applicable to annual periods beginning on or after 1 January 2014); IFRS 11 Joint Arrangements, endorsed by the EU on 11 December 2012 (applicable to annual periods beginning on or after 1 January 2014); IFRS 12 Disclosure of Interests in Other Entities, endorsed by the EU on 11 December 2012 (applicable to annual periods beginning on or after 1 January 2014); IFRS 13 Fair Value Measurement, endorsed by the EU on 11 December 2012 (applicable to annual periods beginning on or after 1 January 2013); IAS 27 (2011) Separate Financial Statements, endorsed by the EU on 11 December 2012 (applicable to annual periods beginning on or after 1 January 2014); IAS 28 (2011) Investments in Associates and Joint Ventures, endorsed by the EU on 11 December 2012 (applicable to annual periods beginning on or after 1 January 2014); 14

15 Revised IFRS 1 First time Adoption of IFRS Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters, endorsed by the EU on 11 December 2012 (applicable to annual periods beginning on or after 1 January 2013); Revised IFRS 7 Financial Instruments: Disclosures Offsetting Financial Assets and Financial Liabilities, endorsed by the EU on 13 December 2012 (applicable to annual periods beginning on or after 1 January 2013); Revised IAS 1 Presentation of Financial Statements Presentation of Items of Other Comprehensive Income, endorsed by the EU on 5 June 2012 (applicable to annual periods beginning on or after 1 July 2012); Revised IAS 12 Income Taxes Deferred Tax: Recovery of Underlying Assets, endorsed by the EU on 11 December 2012 (applicable to annual periods beginning on or after 1 January 2013); Revised IAS 19 Employee Benefits improvements to the accounting for post-employment benefits, endorsed by the EU on 5 June 2012 (applicable to annual periods beginning on or after 1 January 2013); Revised IAS 32 "Financial Instruments: Presentation Offsetting Financial Assets and Financial Liabilities, endorsed by the EU on 13 December 2012 (applicable to annual periods beginning on or after 1 January 2014); IFRIC Interpretation 20 Stripping Costs in the Production Phase of a Surface Mine, endorsed by the EU on 11 December 2012 (applicable to annual periods beginning on or after 1 January 2013). Standards and interpretations adopted by IASB, but not yet endorsed by the EU At present, IFRS in the form endorsed by the EU do not differ significantly from the regulations adopted by the International Accounting Standards Board (IASB), except for the following standards as well as revised standards and interpretations which had not been adopted for use as at 12 March 2013: IFRS 9 Financial instruments (applicable to annual periods beginning on or after 1 January 2015); Revised IFRS 1 First-time Adoption of International Financial Reporting Standards Government Loans (applicable to annual periods beginning on or after 1 January 2013); Revised IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures mandatory effective date and transitional provisions; Revised IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities guidance on transitional provisions (applicable to annual periods beginning on or after 1 January 2013); Revised IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other Entities and IAS 27 Separate Financial Statements investment vehicles (applicable to annual periods beginning on or after 1 January 2014); Revised standards IFRS Improvements (2012) changes to standards resulting from the Annual Improvements process, published on 17 May 2012 (IFRS 1, IAS 1, IAS 16, IAS 32 and IAS 34) primarily with a view to removing inconsistencies and clarifying wording (applicable to annual periods beginning on or after 1 January 2013). The Group decided not to apply the aforementioned standards, revised standards and interpretations earlier. The Management Board believes that the above standards, interpretations and revised standards would not have had a significant effect on the financial statements if they had been adopted by the entity as at the end of the reporting period. The Group has undertaken to implement individual standards and interpretations which are not applicable yet, at their respective implementation dates. Some of the Group companies keep their accounting records in line with local GAAP. The consolidated financial statements contain adjustments which were not included in the accounting records 15

16 of the Group companies, the purpose of which was to ensure compliance of the financial statements of the entities with IFRS. Consolidation principles These consolidated financial statements include the financial statements of Magellan S.A. and the financial statements of its subsidiaries, prepared for the year ended 31 December The financial statements of the subsidiaries, including the adjustments made to ensure their compliance with IFRS, have been prepared for the same reporting period as the financial statements of the parent, in line with consistent accounting policies and based on consistent accounting principles for similar transactions and business events. Consolidation eliminations the balances of settlements between the Capital Group companies, unrealized gains and losses in the values of consolidated assets as well as revenue and expenses from transactions between the consolidated entities, have been eliminated in whole. All material balances and transactions between the Group companies, including unrealized gains on intra-group transactions, have been eliminated in whole. Unrealized losses are eliminated, unless they are indications of impairment. The subsidiaries are consolidated in the period from the date when the Group assumes control to the date when the control is no longer exercised. A parent controls an entity when it holds, directly or indirectly through its subsidiaries, more than a half of the voting rights in the entity, unless it can be evidenced that such interest is not tantamount to exercising control. Control is also exercised when the Company can control the financial and operational policy of the entity. 1. Subsidiary a subsidiary is an entity controlled by the Company. The Company controls another entity if it is able to control the financial and operational policy of that business entity to gain economic benefits from its operations. In order to determine whether the Company is able to control the financial and operational policy of another entity, existence of any voting rights which could be exercised or exchanged, is examined along with their effect. Financial data of a subsidiary are included in the consolidated financial statements as of the date of assuming control until the date when control is no longer exercised. 2. Associate an associate is an entity related to the Company, in which the Company has significant influence. The profit of the associate is shared by reference to the percentage interest of the Company. The associates of Magellan S.A. are non-corporate bodies and in accordance with the deed of incorporation of the limited partnership, share in the profits is recognized in the accounting records of Magellan S.A., as appropriate, and subject to tax on general terms. Shares are measured using the equity method. Recognition of revenue from the provision of services Revenue from the provision of services is recognized at the fair value of payment due or received, less expected discounts, returns and similar reductions. To revenue and gains the Group classifies economic benefits likely to occur in the reporting period, of a reliably estimated value, in the form of an increase in the value of assets or a decrease in the value of liabilities, resulting in an increase in equity or a decrease in the shortage of equity, other than contributions made by the shareholders. 16

17 Revenue from the provision of services This item includes revenue from discounts, fees and interest, determined at amortized cost as at the end of each reporting period. Interest income on the portfolio of assets includes interest received and accrued. Interest is accrued by distribution of the outstanding principal using the effective interest rate, which is the discount rate for future cash flows, over the estimated useful life of the financial assets. Revenue from fees or discounts under receivables financing, debt refinancing, factoring and originated loan agreements is recognized using the effective interest rate. Revenue from fees related to guarantees includes the initial and the operating fee. The initial fee is imposed for providing the supplier with a limit up to which the Group may be called for making payments for the debtor in case of default. The initial fee is deferred over the period proportional to the duration of the guarantee agreement, using the effective interest method. The operating fee is payable when the guarantee has been used and a payment has been made to the supplier by the Group. Once the guarantee is used, receivables are recognized in the Group s statement of financial position. The operating fee is recognized in the statement of comprehensive income under revenue from the provision of services as part of measurement using the effective interest method. Financial revenue under finance lease agreements is recognized in a way that reflects the fixed rate of return on the net lease investment for the period. Revenue from sales of goods Revenue from sales of goods is recognized when the delivery has been made, all rights to the goods have been transferred and all of the following conditions have been satisfied: the Group has transferred to the buyer the significant risks and rewards of ownership of the goods; the Group retains neither continuing management involvement to the degree usually associated with ownership nor effective control over the goods sold; the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the transaction will flow to the entity; the costs incurred or to be incurred in respect of the transaction can be measured reliably. Financial revenue Financial revenue includes interest on bank deposits and cash as well as shares in profits of other entities. Revenue from other financial assets is classified as revenue from other operations. Considering the nature of the Group s business, financial revenue from financial assets apart from those specified above is classified as financial revenue from core business. Financial revenue includes gains or losses resulting from restatement of the fair value of derivatives designated as economic hedges for the operational risk. As at the end of the reporting period, derivatives are measured at fair value which could be realized if the transactions had been settled in whole as at that date. Interest income earned on bank deposits is recognized by reference to the effective interest rate. 17

18 Rental income Consolidated Financial Statements for the period from 1 January 2012 to 31 December 2012 Revenue earned on subleasing office space is recognized using the straight line method over the term of the lease agreement. Foreign currency transactions Foreign currency transactions are translated into the Polish zloty by reference to the exchange rate effective as at the date of the transaction. As at the end of the reporting period, monetary assets and liabilities denominated in currencies other than the Polish zloty are translated into PLN by reference to the average exchange rate effective as at the end of the reporting period and determined for the currency by the National Bank of Poland. Exchange differences are recognized as financial revenue (expenses) or capitalized under assets, if so required by the accounting principles (policy). Non-monetary assets and liabilities recognized at historical cost in a foreign currency are recognized at the historical exchange rate effective as at the date of the transaction. Non-monetary assets and liabilities recognized at fair value in a foreign currency are translated by reference to the exchange rate effective as at the fair value measurement date. Exchange rates applied in the balance sheet measurement: Currency 31 December December 2011 CZK EUR The Czech koruna (CZK) and the euro (EUR) are the functional currencies of foreign subsidiaries, MedFinance Magellan s.r.o. and Magellan Slovakia s.r.o., respectively. As at the end of the reporting period, assets and liabilities of those foreign subsidiaries are translated into the presentation currency of the Group by reference to the exchange rate effective as at the end of the reporting period and their statements of comprehensive income are translated by reference to the weighted average exchange rate for the reporting period. The resulting exchange differences are recognized directly in equity as a separate item. Upon disposal of a foreign operation, the deferred accumulated exchange differences recognized in equity and related to the foreign operation are recognized in the statement of comprehensive income. Weighted average exchange rates for the reporting periods: Currency Year ended 31 December 2012 Year ended 31 December 2011 CZK EUR As at the end of the reporting period, foreign currency assets and liabilities were measured by reference to the average exchange rate determined for the currency by the National Bank of Poland as at that date. Exchange differences arising at the measurement date and upon payment of foreign currency receivables and liabilities are classified as other financial revenue or expenses. 18

19 Borrowing costs (portfolio financing costs) The financial expenses related to the financing of the portfolio of loans and receivables are recognized in the statement of comprehensive income under Portfolio financing costs". In 2012, the Group did not capitalize any borrowing costs. Classification of the portfolio financing costs to operating activities is to clearly separate the presentation of costs related to the core business from other costs incurred by the Group. As a result of the adopted presentation method, interest on loans taken out to finance the core business of the Group is not excluded from the operating activities in the statement of cash flows. The portfolio financing costs in the current and comparable period are accounted for at the amortized cost using the effective interest rate. Grants received If the grant is related to a cost item, it is recognized as revenue in proportion to the costs to be offset. If the grant is related to an asset, its fair value is recognized as deferred income and then gradually transferred to profit or loss in the form of equal annual installments over the estimated useful life of the related asset. Costs of employee benefits Costs of employee benefits include costs of salaries and wages payable on such terms as set out in employment contracts as well as costs of the executive share option scheme. Costs of social insurance and other benefits include benefits due to retirement, disability and accident insurance, along with payments to the guaranteed employee benefit fund and the labor fund as well as other benefits such as training and medical care and appropriations to the Company s Social Benefits Fund. Taxes The entity s income tax includes a current and deferred portion. Current tax The current tax expense is calculated based on the taxable profit/loss (tax base) for the financial year. The taxable profit/loss differs from the gross accounting profit/loss due to elimination of temporary differences, i.e. revenue and expenses taxable in the future reporting periods, and permanent differences which are not taxable in line with tax regulations. The current tax expense of the Capital Group companies is calculated by reference to the tax rates applicable in the financial year. Deferred tax Deferred tax is calculated using the balance sheet liability method as tax payable or refundable in the future, considering temporary differences between the carrying amounts of assets, equity and liabilities and the corresponding tax values. The deferred tax liability is recognized on all taxable temporary differences, whereas the deferred tax asset up to the amount of probable reduction of future taxable profits by recognized deductible temporary differences. The deferred tax asset or liability is not recognized with respect to temporary differences due to goodwill or initial recognition (apart from recognition following a business 19

20 combination) of another asset or liability in a transaction which has no effect on the taxable profit/loss and the accounting profit/loss. The deferred tax liability is recognized with respect to temporary tax differences due to investments in subsidiaries, associates and interests in joint ventures, unless the Company is able to control the reversal of the temporary difference and it is probable that in the foreseeable future the temporary difference will not be reversed. The deferred tax asset resulting from temporary differences in deductions related to such investments and shares is recognized in the period corresponding to the probable taxable profits which may be offset with temporary differences, if there is a probability of a reversal of the differences in the foreseeable future. The carrying amount of the deferred tax asset is reviewed as at each reporting period end and when the expected taxable profits are not sufficient for the recovery of the asset or its part, the amount is reduced as appropriate. Deferred tax assets and liabilities are measured by reference to the tax rates expected to be applicable in the period when the asset is realized or the liability derecognized, assuming tax rates (and tax regulations) effective as at the end of the reporting period or those certain to be effective as at the aforementioned date as the basis. Measurement of the deferred tax asset and liability reflects the tax implications of the way in which the entity expects to recover or settle the carrying amount of the assets and liabilities as at the day of preparation of the financial statements. The Group offsets its deferred tax assets and deferred tax liabilities only if it has an enforceable legal title to offset its current tax receivables with liabilities, whereas the deferred income tax is related to the same taxpayer and the same tax authority. Current and deferred tax for the current settlement period The current and deferred tax are recognized as expenses or revenue under income tax in the statement of comprehensive income, unless they are related to items directly crediting or debiting equity (when the tax is also charged to equity) or unless they are the effect of the initial recognition of business combinations. Property, plant and equipment Property, plant and equipment includes fixed assets and expenditure for fixed assets under construction which the entity intends to use in its operations and for administration purposes over a period longer than 1 year and which will generate economic benefits for the Company in the future. Expenditure for fixed assets includes incurred capital expenditure and expenses for future deliveries of machinery, equipment and services related to the manufacturing of fixed assets (advance payments). Fixed assets and fixed assets under construction are initially recognized at cost increased by all direct expenses related to the purchase and bringing the asset to the condition necessary for it to be capable of operating. The cost includes also cost of replacement of parts of machines and equipment when incurred, if the recognition criteria are met. Costs incurred after the date of commissioning, such as costs of maintenance and repair, are charged to profit or loss when incurred. 20