Consolidated Financial Statements
of the Magellan Group
prepared for the year ended on
31 December 2012
Consolidated Financial Statements
The consolidated financial statements of the Magellan Group 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 2011.
Selected financial information – consolidated financial statements
Selected CONSOLIDATED financial information PLN ‘000 EUR ‘000 From 01.01.2012 to 31.12.2012 / balance as at 31.12.2012 From 01.01.2011 to 31.12.2011 / balance as at 31.12.2011 From 01.01.2012 to 31.12.2012 / balance as at 31.12.2012 From 01.01.2011 to 31.12.2011 / balance as at 31.12.2011 Sales revenue 119 908 90 622 28 730 21 889
Profit on operating activities 45 305 38 591 10 855 9 321
Gross profit 45 829 38 266 10 981 9 243
Net profit 37 155 30 452 8 902 7 355
Net cash from operating activities (150 140) (209 235) (35 974) (50 539)
Net cash from investing activities (138) (2) (33) (0.5)
Net cash from financing activities 153 701 216 148 36 827 52 208
Change in net cash 3 423 6 911 820 1 669
Total assets 955 556 734 730 233 735 166 349
Non-current liabilities 280 818 201 641 68 690 45 653
Current liabilities 457 890 353 591 112 003 80 056
Equity 216 848 179 498 53 042 40 640
Share capital 1 954 1 954 478 442
Average number of shares 6 514 088 6 514 088 6 514 088 6 514 088
Earnings per share (in PLN/EUR)* 5.70 4.67 1.37 1.13
Diluted earnings per share (in PLN/EUR) 5.68 4.67 1.36 1.13
Book value per ordinary share (in PLN/EUR)** 33.29 27.56 8.14 6.24
(*) 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 4.1736; for the 12 months of 2011: EUR 1 = PLN 4.1401;
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 4.0882; as at 31 December 2011: EUR 1 = PLN 4.4168.
Łódź, 12 March 2013 Signatures
Krzysztof Kawalec Grzegorz Grabowicz Urban Kielichowski President of the Board Vice-President of the Board Member of the Board
TABLE OF CONTENTS
I. Consolidated statement of comprehensive income for the period from 1 January 2012 to 31 December 2012 ... 4
II. Consolidated statement of financial position as at 31 December 2012 ... 5
III. Consolidated statement of changes in equity for the period from 1 January 2012 to 31 December 2012 ... 7
IV. Consolidated statement of cash flows for the period from 1 January 2012 to 31 December 2012 ... 8
V. Notes ... 10
1. General information ... 10
2. Accounting principles (policy) ... 13
3. Seasonality and operating segments ... 31
4. Sales revenue ... 32
5. Portfolio financing costs ... 34
6. Costs of employee benefits ... 34
7. Other expenses ... 34
8. Other operating revenue and expenses ... 35
9. Financial revenue ... 35
10. Financial expenses ... 36
11. Income tax ... 36
12. Earnings per share ... 38
13. Property, plant and equipment ... 39
14. Intangible assets ... 41
15. Investments in associates measured using the equity method ... 42
16. Inventories ... 43
17. Loans and receivables and receivables under finance lease agreements ... 44
17.1 Ageing analysis of the portfolio of financial assets ... 45
17.2 Delinquencies by classes of financial instruments ... 46
17.3 Pledged assets ... 47
18. Current and other tax receivables ... 48
19. Other assets ... 48
20. Trade and other receivables ... 48
21. Cash and cash equivalents ... 49
22. Derivatives ... 49 23. Share capital ... 50 24. Treasury shares ... 51 25. Supplementary capital ... 51 26. Reserve capital ... 52 27. Retained earnings ... 52
28. Bank loans and credit facilities ... 53
29. Bond liabilities ... 59
30. Other financial liabilities ... 60
31. Lease liabilities ... 61
32. Trade liabilities ... 62
33. Other liabilities ... 62
34. Dividends paid and declared and other profit-sharing payments ... 63
35. Financial instruments ... 63
35.1 Financial instruments measured at amortized cost ... 63
35.2 Financial instruments measured at fair value ... 64
36. Risk management ... 65
36.1 Market risk ... 65
36.2 Credit risk ... 67
36.3 Liquidity risk ... 68
37. Related party transactions ... 69
37.1 Related party transactions ... 69
37.2 Remuneration of executive management ... 70
37.3 Share-based payments ... 71
38. Explanations to the statement of cash flows, including information on cash and cash equivalents ... 73
39. Contingent liabilities and assets ... 74
40. Staff ... 75
41. Agreements concluded with the entity authorized to audit financial statements ... 75
I. Consolidated statement of comprehensive income for the period
from 1 January 2012 to 31 December 2012
NOTE 01.01.2012 – 31.12.2012 01.01.2011 – 31.12.2011 PLN’000 PLN’000 Continuing operations Sales revenue 4 119 908 90 622
Value of goods sold (1 835) -
Portfolio financing costs 5 (50 705) (32 972)
Cost margin 67 368 57 650
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 45 305 38 591
Other operating revenue and expenses 8 1 269 74
Financial revenue 9 322 58
Financial expenses 10 (1 067) (457)
Profit before tax 45 829 38 266
Income tax 11 (8 674) (7 814)
Net profit on continuing operations 37 155 30 452
Net profit 37 155 30 452
Other net comprehensive income (136) 96
Exchange differences on translation of foreign
operations (136) 96
Comprehensive income for the reporting
period 37 019 30 548
Average number of shares in the period 6 514 088 6 514 088
Basic earnings per share (PLN/share) 12 5.70 4.67
Diluted earnings per share (PLN/share) 12 5.68 4.67
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 12–78 form an integral part hereof.
II. Consolidated statement of financial position as at 31 December 2012
Assets
NOTE Balance as at 31 December 2012 Balance as at 31 December 2011
PLN’000 PLN’000
Non-current assets
Property, plant and equipment 13 1 469 1 635
Intangible assets 14 523 640
Interest in associates 15 1 091 336 Deferred tax asset 11 1 979 2 236 Finance lease receivables 17 7 133 6 090 Loans and receivables 17 322 369 249 956
Total non-current assets 334 564 260 893
Current assets
Inventories 16 972 1 673
Trade and other receivables 20 739 1 564 Finance lease receivables 17 5 011 3 543 Loans and receivables 17 598 583 457 120 Current tax receivables 18 220 177 Other tax receivables 18 204 663
Other assets 19 2 893 148
Derivatives 22 22 24
Cash and cash equivalents 21 12 348 8 925
Total current assets 620 992 473 837
Total assets 955 556 734 730
Łódź, 12 March 2013
The accounting principles (policy) and notes to the consolidated financial statements on pages 12–78 form an integral part hereof.
Consolidated statement of financial position as at 31 December 2012
Equity and liabilities
NOTE Balance as at 31 December 2012 Balance as at 31 December 2011 PLN’000 PLN’000 Equity
Issued share capital 23 1 954 1 954 Treasury shares 24 (1 606) (2 992) Supplementary capital 25 176 425 148 070 Reserve capital 26 3 319 4 060 Exchange differences on translation
of subsidiaries (121) 15
Retained earnings 27 36 877 28 391
Total equity 216 848 179 498
Non-current liabilities
Bank loans and credit facilities 28 94 776 18 685 Bond liabilities 29 183 380 182 630 Other financial liabilities 30 208 326 Deferred tax liability 11 2 454 -
Total non-current liabilities 280 818 201 641
Current liabilities
Trade liabilities 32 536 -
Bank loans and credit facilities 28 187 605 119 348 Bond liabilities 29 195 336 186 477 Other financial liabilities 30 66 201 38 047 Current income tax liabilities 1 114 935
Derivatives 22 568 1 971
Other liabilities 33 6 530 6 813
Total current liabilities 457 890 353 591
Total liabilities 738 708 555 232
Total equity and liabilities 955 556 734 730
Łódź, 12 March 2013
The accounting principles (policy) and notes to the consolidated financial statements on pages 12–78 form an integral part hereof.
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
Share
capital Treasury shares
Supplemen tary
capital Reserve capital
Exchange differences
on
translation Retained earnings Total
PLN’000 PLN’000 PLN’000 PLN’000 PLN’000 PLN’000 PLN’000
Share
capital Treasury shares
Supplemen tary
capital Reserve capital
Exchange differences
on
translation Retained earnings Total
PLN’000 PLN’000 PLN’000 PLN’000 PLN’000 PLN’000 PLN’000
Łódź, 12 March 2013
The accounting principles (policy) and notes to the consolidated financial statements on pages 12–78 form an integral part hereof.
Balance as at 1 January 2012 1 954 (2 992) 148 070 4 060 15 28 391 179 498
Comprehensive income for the period - - - - (136) 37 155 37 019
Share-based payments - - - 1 221 - - 1 221
Share buyback - (906) - - - - (906)
Executive share option scheme - 2 292 (314) (1 962) - - 16
Profit distribution - - 28 669 - - (28 669) -
Balance as at 31 December 2012 1 954 (1 606) 176 425 3 319 (121) 36 877 216 848
Balance as at 1 January 2011 1 954 - 123 530 3 328 (81) 22 479 151 210
Comprehensive income for the period - - - - 96 30 452 30 548
Share-based payments - - - 732 - - 732
Share buyback - (2 992) - - - - (2 992)
Profit distribution - - 24 540 - - (24 540) -
IV. Consolidated statement of cash flows for the period from 1 January
2012 to 31 December 2012
Note 01.01.2012 – 31.12.2012 01.01.2011 – 31.12.2011 PLN’000 PLN’000 Cash flows from operating activities
Gross profit in the financial period 45 829 38 266
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 13 961 813 (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 (213 874) (226 205) Increase/(decrease) in financial liabilities 28, 29, 30, 31, 38 27 230 (11 546) Increase/(decrease) in trade liabilities 32 536 - Increase/(decrease) in other liabilities
and provisions and other assets 33, 38 (3 071) 3 549 Measurement of an executive share option
scheme 37.3 1 221 732
Other (57) (92)
Net cash from operating activities (150 140) (209 235)
Cash flows from investing activities
Dividend from associates 190 263 Proceeds from sale of property, plant
and equipment 13 73 23
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 28 288 616 156 331 Repayment of credit facilities and loans 28 (142 668) (111 668) Proceeds from bond issues 29 262 497 317 366 Bond buyback 29 (253 394) (142 723) Payment of finance lease liabilities (404) (415)
Interest paid (56) (50)
Other proceeds 16 299
Net cash from financing activities 153 701 216 148
Net increase/(Decrease) in cash and cash
Cash and cash equivalents
at the beginning of the financial year 21 8 925 2 014
Cash and cash equivalents at the end
of the financial year 21 12 348 8 925
Łódź, 12 March 2013
The accounting principles (policy) and notes to the consolidated financial statements on pages 12–78 form an integral part hereof.
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 1998. 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 0000263422. 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 0000007178. 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.
1.1. 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 0000361997:
– legal form: joint stock company;
– share capital: PLN 8,500,000.00, fully paid-up; – registered office: Łódź, al. Piłsudskiego 76; – REGON: 100 907 116;
– registered in the National Court Register by the District Court for Łódź-Śródmieście in Łódź, under number KRS 0000361997;
– 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: 287 92 387;
– Tax Identification Number (NIP): CZ28792387;
– registered in the Commercial Register kept by the Municipal Court in Prague, Division C, Ref. 124667;
– 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 200,000.00. 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 200,000.00 to CZK 700,000.00 was recorded. The aforementioned increase in the share capital was effective from 10 September 2012. 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: 44 414 315;
– Tax Identification Number (NIP): SK2022706950;
– registered in the Commercial Register kept by the Regional Court in Bratislava I under number 55250/B;
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.
1.2. 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 2016.
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.
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 2012. 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 2012. 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 Magellan Group companies after the end of the reporting period.
1.1. 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 2013.
The Management Board of Magellan S.A., the parent, recommends that the separate net profit for 2012 totaling PLN 33,320,000.00 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 2012. Pursuant to Resolution No. 11/2012 of the General Shareholders’ Meeting of 9 May 2012, the entire net profit of PLN 28,669,000.00 was allocated to the supplementary capital.
2. Accounting principles (policy)
Basis for preparation of the financial statementsThese 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 2013. 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.
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 2013.
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 2012.
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
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
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 2012. 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.
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.
Rental income
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
2012 31 December 2011
CZK 0.1630 0.1711
EUR 4.0882 4.4168
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 December 2011 Year ended 31
CZK 0.1661 0.1682
EUR 4.1736 4.1401
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.
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
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.
Depreciation is calculated according to the straight line method over the estimated useful life of an asset:
buildings and structures – 40 years;
machines and equipment – from 2.5 to 10 years;
vehicles – from 3 to 5 years (used vehicles initially recognized in the taxpayer’s records are depreciated over a period of at least 30 months);
other fixed assets – up to 5 years.
The residual value, useful life and depreciation method of assets are verified on an annual basis and if necessary adjusted as of the beginning of the following financial year.
Fixed assets and fixed assets under construction are tested for impairment if there is an indication that an asset may be impaired; however, if used, fixed assets under construction are tested for impairment as at the end of each reporting period. The effects of impairment of fixed assets and fixed assets under construction as well as costs of depreciation of fixed assets are charged to operating expenses.
As at the end of the reporting period, fixed assets are measured at cost less depreciation and impairment losses, if any. Investments in progress are related to fixed assets under construction or assembly and are recognized at cost less impairment losses, if any. Fixed assets under construction are not depreciated until their construction is completed and until they are commissioned.
Depreciation is not recognized until the fixed asset has been commissioned.
Fixed assets used based on lease, rental or similar agreements, classified as the Company’s assets, are depreciated over the useful life of the assets, if there is reasonable certainty that the entity will obtain the title to the assets before the end of the lease term. Otherwise, the asset is depreciated over the shorter of the lease term or useful life.
Intangible assets
Intangible assets include those assets of the Group which do not have physical substance, are identifiable, can be reliably measured and will result in an inflow of economic benefits to the entity. Intangible assets are initially recognized at cost.
Intangible assets are amortized based on rates reflecting the estimated useful lives of the assets. The Group does not have any intangible assets with an indefinite useful life. The entity amortizes intangible assets with a definite useful life based on the straight line method. Useful lives of intangible assets:
software licenses – 2 to 4 years.
Intangible assets are tested for impairment if there is an indication that an asset may be impaired; however, if used, intangible assets are tested for impairment as at the end of each reporting period. The effects of impairment of intangible assets as well their amortization are charged to operating expenses.
As at the end of the reporting period intangible assets are measured at cost less valuation allowance and any impairment losses.
Amortization is not recognized until the intangible asset has been commissioned.
Intangible assets used based on lease, rental or similar agreements, classified as the entity’s assets, are amortized over their useful life if there is reasonable certainty that the entity will obtain the title to the assets before the end of the lease term. Otherwise, the asset is amortized over the shorter of the lease term or useful life.
Impairment of property, plant and equipment and intangible assets, excluding goodwill
At the end of each reporting period, the Group reviews the carrying amounts of its non-current and intangible assets in order to determine whether there is any objective evidence of impairment. If there are such indications, the recoverable amount of the asset is estimated in order to determine the possible impairment loss.
Where the asset does not generate cash flows which to a significant extent are independent of the cash flows generated by other assets, the analysis is carried out for the group of assets generating cash flows to which the asset has been allocated. Where a reasonable and consistent basis of allocation can be identified, the Company’s non-current assets are allocated to individual cash flow generating units, or to the smallest groups of cash flow generating units for which a reasonable and consistent allocation basis can be identified.
Intangible assets with indefinite useful lives are tested for impairment annually and additionally whenever there is an indication that the asset may be impaired.
The recoverable amount is the higher of: the fair value less cost to sell or value in use corresponding to the present value of projected future cash flows discounted using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the asset.
If the recoverable amount of an asset (or cash generating unit) is lower than its carrying amount, the carrying amount of the asset (or cash generating unit) is reduced to its recoverable amount. The impairment loss is recognized promptly as a cost of the period in which it was identified, except for situations where the asset’s value has been restated (in which case the impairment reduces the earlier restatement).
If the impairment loss is subsequently reversed, the net value of the asset (or cash generating unit) is increased to the new estimated recoverable amount, which may not exceed the carrying amount of the asset which would be determined had an impairment loss of the asset (or cash generating unit) not been recognized in prior years. Reversal of the impairment loss is recognized immediately in the statement of comprehensive income, unless the value of the asset has been restated, in which case the reversal of impairment is treated as a revaluation reserve increase.
Inventories
The Group has inventories due to purchasing vehicles to be fitted with specialist medical equipment – ambulances. The vehicles will be sold or leased.
Inventories are measured at the lower of cost or realizable value. The realizable value is the estimated sales price of inventories less any costs necessary to make the sales transaction.
Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, when it is probable that fulfillment of the obligation will result in an outflow of economic benefits and the amount can be reliably estimated.
The amount recognized as a provision is the best estimate of the amount required to fulfill the present obligation as at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the estimated cash flows required to fulfill the present obligation, the carrying amount corresponds to the present value of such cash flows.
If it is probable that the economic benefits required for the settlement of the provision, in part or in whole, can be recovered from a third party, the receivables are recognized as an asset, provided that the probability of recovery is sufficiently high and a reliable measurement is possible.
As part of the “guarantee" product, the Group guarantees the payment of liabilities to hospital suppliers. Such liabilities are recognized as off-balance sheet liabilities in the amounts of unused limits of potential exposure resulting from active agreements. When the guarantee is used and the liability is paid for the supplier, the Company recognizes the amounts as financial assets.
Onerous contracts
Current liabilities arising from onerous contracts are recognized and measured as provisions. An onerous contract is a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received.
Financial assets
General terms
Investments which are financial instruments are recognized when they are acquired at the initial amount equal to the fair value increased by the transaction costs, except for those assets which are classified as financial assets measured at fair value through profit or loss.
Financial assets are classified to the following categories:
financial assets measured at fair value through profit or loss;
financial assets held to maturity;
financial assets available for sale;
loans and receivables.
Financial assets are classified upon initial recognition, depending on the nature and designation of the financial assets.
1. Financial assets measured at fair value through profit or loss include in particular financial assets held for trading. These are assets which have been acquired or which originated in order to earn profit on short-term (up to three months) price changes and financial assets which, irrespective of the reason for their acquisition, represent a group of assets which has recently been used to derive benefits from price fluctuations.
2. Financial assets held to maturity are financial assets with determined or determinable payments and fixed maturity, which the Group intends to and is able to hold to maturity,
other than loans and receivables. The assets are recognized at amortized cost, taking into account impairment, and the revenue – using the effective interest rate.
3. Financial assets available for sale include all financial assets which have not been classified as loans and receivables, financial assets held to maturity and financial assets measured at fair value through profit or loss. Assets available for sale include in particular interest in other entities which are not subordinated entities, which the Group does not hold for sale in the short term. Those assets are measured at fair value and the profits and losses resulting directly from changes in the fair value are recognized in other comprehensive income.
4. Loans and receivables which have not been designated as measured at fair value through profit or loss are classified as loans and receivables. In particular, they include receivables acquired under receivables financing agreements, factoring and debt refinancing agreements as well as originated loans and receivables resulting from guarantees given by the Group. They are measured at amortized cost by reference to the effective interest rate, taking into account the impairment. Interest income and fees are recognized at the effective interest rate under revenue from the provision of services in the statement of comprehensive income. During the reporting periods presented in these financial statements, the Group held only financial assets classified as loans and receivables as well as derivative financial instruments measured at fair value through profit or loss.
A financial asset is derecognized from the statement of financial position only when the rights to cash flows from the asset have expired or the Group has transferred an asset which meets the criteria for derecognition from the statement of financial position to another entity.
Effective interest method
It is the method of calculating the amortized cost of a financial asset and allocation of interest income over a period of time. The effective interest rate is the rate that discounts estimated future cash flows until the forecast maturity date of the financial asset or, when justified, during a shorter period – to the net book value of the asset.
Portfolio with no agreed repayment schedule
Under agreements entered into with the original creditors, the Group purchases principal and interest receivables at a discount or collects and additional fee from the creditor.
Purchased receivables are classified as loans and receivables and recognized initially at fair value. When standard due dates, in line with the market practice for similar transactions, are applied, the face value of receivables (including fee, if any) is their fair value.
The Group reviews its portfolio with no agreed repayment schedule as at the end of the reporting period. Assets acquired before the delay allowed by the procedures adopted by the Group (corresponding to the average asset turnover) are regarded as irregular assets and measured at face value less the outstanding initial discount/fee. The profit earned on the discount/fee for such assets is recognized in proportion to the receivables paid. This simplification is the effect of the inability to determine a reliable effective interest rate for this class of financial assets. It does not exert any significant effect on the Group’s financial statements.
Assets acquired later than the average turnover of the portfolio are measured using the effective interest method. It has been assumed that their maturity corresponds to the average turnover of the portfolio. It has also been assumed that the portfolio with no agreed repayment schedule generates interest income at a rate equal to the average interest rate for the portfolio of financial assets.
Balance sheet measurement of the portfolio with an agreed repayment schedule
A portion of the portfolio of financial assets has an agreed repayment schedule. It may be agreed with the debtor upon agreement execution or in the form of a separate annex. Once the annex has been executed, the Group – aware of the maturity of receivables set out in the agreed repayment schedule – calculates the effective interest rate for the restructured debt. From then on, revenue is recognized using the effective interest method, by taking into account interest accrued by reference to the contractual rate as well as deferral of the discount/fee.
Balance sheet measurement of assets subject to court proceedings
In accordance with the procedures applied in the Group, court proceedings are instituted in order to recover assets where the delinquency exceeds the acceptable period. Instigation of court proceedings with respect to assets is a stage of the recovery of receivables and does not indicate a threat to the repayment of the asset.
As at the end of the reporting period, the Group measures assets subject to court proceedings at amortized cost. In line with IAS 39, in the event of changes in the estimated schedule of future payments, the Company measures the financial asset using the original effective interest rate. The difference between the value of future cash flows discounted using the original effective interest rate and the carrying amount of the asset is recognized on a one-off basis in the statement of comprehensive income as revenue from the provision of services.
Once court proceedings have been instituted, interest accrued from the purchase date of the asset to the claim date as well as revenue due to refund of court fees are recognized as accrued revenue. The Company applies the effective interest rate to recognize revenue related to the settlement of the discount/fee with respect to the assets purchased over the average turnover period as well as interest accrued from the claim date to the measurement date.
Lease liabilities
A lease is classified as a finance lease if it transfers substantially all the risks and rewards incident to ownership to the lessee. All other leases are classified as operating leases.
Assets used under finance lease agreements are treated as the Group’s assets and are measured at the lower of the fair value upon acquisition or the present value of the minimum lease payments. The resulting liability to the lessor is presented in the statement of financial position under other financial liabilities.
Lease payments include interest expense and a reduction of the lease liability, so that the interest rate on the outstanding liability is fixed. Financial expenses are charged directly to financial expenses in the statement of comprehensive income.
Finance lease receivables
Assets under finance leases are presented in the statement of financial position as receivables in the amount equal to the net lease investment, divided into a long-term and short-term portion. Under finance lease agreements, the lessor transfers all the risks and rewards incident to ownership and therefore the lease payments due are regarded as repayment of the principal and financial revenue, which constitutes reimbursement of the invested funds and remuneration for services. Financial revenue is recognized in a way that reflects the fixed rate of return on the net lease investment in the period.
As at the inception of the lease, the lessor recognizes in its assets the gross lease investment value, which is the total of lease payments and the residual value of the leased asset resulting from the agreement. As at the end of the reporting period, lease receivables are presented as the difference between the gross lease investment value and the unrealized financial revenue.
Collateral for financial assets
While entering into contracts, the Group evaluates the credit risk inherent in the transaction. The debtor’s scoring, the history of cooperation and the current exposure level serve as the basis for risk assessment. Higher-risk assets require collateral, which may take the form of assignment under the contract between the hospital and the National Health Fund, collateral on tangible assets, movable property and a blank promissory note.
Trade receivables
Trade receivables are recognized in the initially billed amounts, less impairment losses. The impairment loss is estimated when the recovery of the full amount is not probable.
When the effect of the time value of money is material, the value of receivables is determined by discounting the projected future cash flows to the present value, using the amortized cost method. If the discounting method has been applied, increases in the value of receivables due to the passage of time are recognized as financial revenue.
Receivables in foreign currencies are recognized and measured as at the end of the reporting period on such terms as set out in "Foreign currency transactions".
Impairment of financial assets
Financial assets are tested for impairment as at the end of each reporting period. Financial assets are impaired when there are objective indications that the events which took place after the initial recognition of an asset have had an adverse effect on the future cash flows related to the asset. In the case of financial assets measured at amortized cost, the impairment loss is the difference between the carrying amount and the present value of the expected future cash flows discounted using the original effective interest rate.
The carrying amount of a financial asset is decreased by the impairment loss. If in the subsequent period, the impairment loss is decreased and the decrease may be objectively linked to an event which took place after the recognition of impairment, the impairment loss is reversed and recognized in the statement of comprehensive income under sales revenue in the amount of the reversal of the carrying amount of the investment as at the date of impairment, so that it does not exceed the amortized cost which would be recognized had impairment not occurred. This applies to all assets except for equity instruments available for sale, in the case of which the increase in the fair value which occurs after impairment is recognized directly in other comprehensive income.
