RNS Number:4086B
Telekomunikacja Polska S.A.
30 July 2004
TELEKOMUNIKACJA POLSKA GROUP
INTERIM IFRS CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2004 AND 2003
INDEPENDENT AUDITOR'S REPORT
To the Shareholders of Telekomunikacja Polska S.A.
We have reviewed the consolidated balance sheet of Telekomunikacja Polska
Capital Group ("the Group") in which the parent company is Telekomunikacja
Polska S.A. ("the Company") as of 30 June 2004, and the related consolidated
profit and loss account, consolidated cash flows statement and statement of
changes in consolidated equity for the period of six months then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to issue a report on these consolidated
financial statements based on our review.
We conducted our review in accordance with the International Standard on
Auditing applicable to review engagements. This Standard requires that we plan
and perform the review to obtain moderate assurance about whether the financial
statements are free of material misstatement. A review is limited primarily to
inquiries of company personnel and analytical procedures applied to financial
data and thus provides less assurance than an audit. We have not performed an
audit and, accordingly, do not express an audit opinion.
Based on our review, nothing came to our attention that causes us to believe
that the consolidated financial statements do not present fairly, in all
material respects, the financial position of the Group as of 30 June 2004 and
the results of its operations and its cash flows for the period of six months
then ended in accordance with International Financial Reporting Standards.
Without modifying our report, we draw attention to the following:
1. As more fully explained in note 28 (c) to the attached consolidated
financial statements certain of the Company's tax settlements regarding Value
Added Tax may be questioned by the tax office. The maximum exposure in respect
of this matter, as estimated by the Company, amounts to PLN 53 million as at 30
June 2004. The consolidated financial statements do not include any provision in
this respect. The ultimate amount of the costs, that may be incurred by the
Company in respect of the above cannot be presently determined.
2. As more fully explained in note 28 (e) to the attached consolidated
financial statements a trading partner of the Company, Danish-Polish
Telecommunication Group, has filed a financial claim against the Company at an
arbitration court. The Company has made a provision in this respect, which
represents the Company's best estimate of the amounts that according to the
Company's Management Board are more likely than not to be paid. The parties are
negotiating the issue and the ultimate outcome of the proceeding cannot be
presently determined.
3. As more fully explained in note 29 (a) to the attached consolidated
financial statements on 26 October 2001 TP Internet Sp. z o.o. ("TPI"), a
subsidiary, issued a put option to the shareholders of Wirtualna Polska S.A. ("
WP") in which entity TPI has a majority interest. Under the terms of this
option, TPI is obliged to acquire all WP shares held by the minority
shareholders. In June and December 2003 TPI acquired shares owned by certain of
the minority shareholders for a price substantially lower than the original put
option exercise price. As at 30 June 2004 a provision was recorded by TPI for
the difference between the estimated fair value of the shares to be acquired and
the expected settlement price to be paid by TPI to the remaining minority
shareholders. The final purchase price and accordingly the amount of the related
impairment provision are dependent on the outcome of future negotiations between
TPI and the minority shareholders and may differ from the best estimates
included in the consolidated financial statements.
Ernst & Young Audit Sp. z o.o.
Warsaw, 29 July 2004
TELEKOMUNIKACJA POLSKA GROUP
INTERIM CONSOLIDATED BALANCE SHEETS
AT 30 JUNE 2004 AND 31 DECEMBER 2003
Note 30 June 31 December
2004 2003
unaudited audited
(in PLN millions)
ASSETS
Current assets
Cash and cash equivalents 8 1,968 1,818
Prepayments and advances 9 67 22
Receivables 10 2,538 2,694
Other financial assets 11 419 594
Current income taxes 2 251
Inventories 12 195 221
----- -----
Current assets 5,189 5,600
----- -----
Non-current assets
Prepayments and advances 9 14 18
Investments accounted for under equity method 2 3 10
Other financial assets 11 709 946
Property, plant and equipment 13 26,082 27,314
Intangible assets 14 2,736 2,602
Deferred tax assets 19 256 358
----- -----
Non-current assets 29,800 31,248
----- -----
Total assets 34,989 36,848
===== =====
EQUITY AND LIABILITIES
Current liabilities
Interest-bearing liabilities 15 2,869 3,510
Interest accrued on interest-bearing liabilities 145 193
Accrued expenses and other payables 16 2,957 3,551
Current income taxes 7 1
Provisions 17 534 760
Deferred income 18 293 272
----- -----
Current liabilities 6,805 8,287
----- -----
Non-current liabilities
Interest-bearing liabilities 15 9,983 11,894
Accrued expenses and other payables 16 1,559 1,428
Provisions 17 8 -
Deferred income 18 234 236
Deferred tax liabilities 19 433 272
----- -----
Non-current liabilities 12,217 13,830
----- -----
Minority interest 20 602 504
----- -----
Shareholders' equity
Common stock 21 4,200 4,200
Share premium 832 832
Fair value of cash flow hedges (67) (116)
Net unrealized gains on financial assets available 123 -
for sale
Retained earnings 10,277 9,311
----- -----
Shareholders' equity 15,365 14,227
----- -----
Total liabilities and shareholders' equity 34,989 36,848
===== =====
TELEKOMUNIKACJA POLSKA GROUP
INTERIM CONSOLIDATED PROFIT AND LOSS ACCOUNTS
FOR THE SIX MONTHS ENDED 30 JUNE 2004 AND 2003
3 months 6 months 3 months 6 months
ended 30
June
Note ended 30 June 2004 ended 30 June 2003
unaudited unaudited unaudited unaudited
(in PLN millions)
Revenue 22 4,600 9,202 4,571 9,063
Operating expenses:
Employee related expenses (693) (1,374) (756) (1,548)
Depreciation and amortisation (1,096) (2,153) (1,104) (2,227)
Payments to other operators (522) (1,011) (525) (1,000)
Purchased services (791) (1,541) (705) (1,336)
Raw materials and consumables (116) (229) (109) (221)
Goods purchased for resale (271) (616) (276) (488)
Work performed and capitalised 15 29 17 29
Other operating expenses, net 23 (283) (454) (324) (562)
----- ----- ----- -----
Total operating expenses (3,757) (7,349) (3,782) (7,353)
----- ----- ----- -----
Operating profit 843 1,853 789 1,710
Interest expense and other financial charges, net 24 (232) (584) (357) (612)
Foreign exchange gain / (loss), net 24 164 347 70 (514)
----- ----- ----- -----
Profit before income tax 775 1,616 502 584
Income tax 19 (155) (383) (241) (282)
----- ----- ----- -----
Profit after income tax before minority interest 620 1,233 261 302
Minority interest 20 (70) (99) (18) 29
----- ----- ----- -----
Net profit 550 1,134 243 331
===== ===== ===== =====
Net profit per share (in PLN) 0.39 0.81 0.17 0.24
----- ----- ----- -----
Weighted average common stock outstanding (millions) 1,400 1,400 1,400 1,400
===== ===== ===== =====
TELEKOMUNIKACJA POLSKA GROUP
INTERIM CONSOLIDATED CASH FLOW STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2004 AND 2003
6 months ended 30 June
2004 2003
unaudited unaudited
(in PLN millions)
Cash flows from operating activities
Net profit 1,134 331
Adjustments for:
Minority interest 99 (29)
Depreciation and amortisation 2,153 2,227
Foreign exchange (gains) / losses, net (256) 641
Interest and dividend charges, net 563 383
Loss on investment activities 79 86
Income tax on current year profit 383 282
Income tax paid (122) (331)
Other non-cash items, net 21 71
----- -----
Net cash flows from operating activities before changes in working 4,054 3,661
capital
Changes in working capital:
Decrease/(increase) in receivables, net of allowance 151 -
Decrease/(increase) in inventories 26 98
(Decrease)/increase in provisions (218) (92)
(Decrease)/increase in payables and other short-term liabilities 235 22
Decrease/(increase) in prepayments and advances (41) (45)
Increase in deferred income 19 20
----- -----
Net cash flows generated from operating activities 4,226 3,664
====== ======
Cash flows from investing activities
Proceeds from sale of property, plant, equipment and intangible assets 19 7
intangibles
Proceeds from sale of non-current financial assets - 2
Interest received - 1
Purchase of property, plant, equipment and intangible assets (1,675) (1,829)
Purchase of non-current financial assets (62) (4)
Proceeds from sale of short-term financial assets 31 (27)
Other cash flows applied in investing activities, net 111 (15)
----- -----
Net cash flows applied in investing activities (1,576) (1,865)
====== ======
Cash flows from financing activities
Proceeds from loans and borrowings 250 423
Issuance of short-term securities - 99
Interest received on derivative transactions 216 294
Repayment of loans and borrowings (1,961) (933)
Redemption of short-term securities (2) (200)
Interest paid (943) (1,038)
Dividends paid (156) (131)
Other cash flows applied in financing activities, net 96 (34)
----- -----
Net cash flows applied in financing activities (2,500) (1,520)
----- -----
Effects of exchange rate changes on cash and cash equivalents - 1
----- -----
Net (decrease)/increase in cash and cash equivalents 150 280
====== ======
Cash and cash equivalents at the beginning of the period 1,818 701
Cash and cash equivalents at the end of the period 1,968 981
====== ======
TELEKOMUNIKACJA POLSKA GROUP
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED 30 JUNE 2004 AND 2003
Common Share Change Net
in fair unrealized
stock premium Revaluation value gains on Retained Total
of cash financial shareholders'
(Note reserve flow assets earnings equity
21) hedges available
for sale
(Note
29)
(in PLN millions)
1 January 2003 4,200 832 2,311 (216) - 5,847 12,974
as previously reported -
audited
Change in accounting - - (2,311) - - 2,880 569
standards and accounting
policies*
1 January 2003 adjusted - 4,200 832 - (216) - 8,727 13,543
audited
Net profit for 6 months - - - - - 331 331
ended 30 June 2003
Effect of cash flow hedge - - - 55 - - 55
accounting
Dividends paid out of 2002 - - - - - (140) (140)
profit
----- ----- ----- ----- ----- ----- ------
30 June 2003 - unaudited 4,200 832 - (161) - 8,918 13,789
===== ===== ====== ====== ====== ====== ======
1 January 2003 4,200 832 2,311 (116) - 6,667 13,894
as previously reported -
audited
Change in accounting - - (2,311) - - 2,644 333
standards and accounting
policies*
1 January 2004 adjusted - 4,200 832 - (116) - 9,311 14,227
audited
Net profit for 6 months - - - - - 1,134 1,134
ended 30 June 2004
Revaluation of financial - - - - 123 - 123
assets
Effect of cash flow hedge - - - 49 - - 49
accounting
Dividends paid out of 2003 - - - - - (168) (168)
profit
----- ----- ----- ----- ----- ----- ------
30 June 2004 - unaudited 4,200 832 - (67) 123 10,277 15,365
===== ===== ===== ===== ===== ===== ======
*see Note 7
1. The Telekomunikacja Polska Group
Telekomunikacja Polska S.A. ("Telekomunikacja Polska" or "the Company"), a joint
stock company, was incorporated and commenced its operations on 4 December 1991.
With effect from this date, the Company assumed the telecommunications business
of Polska Poczta Telegraf i Telefon ("PPTiT"), its legal predecessor. The
Telekomunikacja Polska Group ("the Group") comprises Telekomunikacja Polska and
its subsidiaries (see Note 2).
The Group is the principal supplier of telecommunications services in Poland.
Telekomunikacja Polska obtained permit from the Telecommunications and Postal
Service Regulatory Office ("URTiP") for the provision of all telecommunications
services in Poland. On the basis of this permit, Telekomunikacja Polska provides
services, including fixed-line telephone services (including local calls and
long distance calls - domestic and international), Integrated Services Digital
Network ("ISDN"), voice mail, dial-up and fixed access to the Internet and Voice
over Internet Protocol ("VoIP"). Through its subsidiary, Polska Telefonia
Komorkowa-Centertel Sp. z o.o. ("PTK-Centertel"), the Group is one of Poland's
three DCS 1800 and GSM 900 mobile telecommunications providers and the country's
only NMT 450 mobile telecommunications provider. On 20 December 2000,
PTK-Centertel was granted a concession for third generation UMTS services. In
addition, the Group provides leased lines, radio-communications and other
telecommunications value added services, sells telecommunications equipment,
produces fibre optic cables and electronic phone cards and provides data
transmission, multimedia services and various Internet services.
Telekomunikacja Polska's registered office is located in Warsaw at 18 Twarda St.
The average number of employees in the Group in the six months ended 30 June
2004 and 2003 was 38,612 and 45,713 respectively.
The Telecommunications Act, which entered into force on 1 January 2001,
introduced a broad liberalisation of the telecom market in Poland, restricting
those activities for which a permit from the regulatory authorities is required
and authorising the provision of telecommunications services in specified forms
on the basis of a notification alone. The Telecommunications Act also imposed
certain legal obligations on telecommunications operators having a dominant or
significant position on the market. Among others, an operator with a dominant or
significant position on the market cannot refuse to connect a legally
constructed telecommunications network of another operator to its
telecommunications network. Additionally, the President of URTiP is entitled to
reject the tariffs or changes in tariffs proposed by significant or dominant
operators. Based on decisions issued by URTiP, Telekomunikacja Polska has a
dominant position on the domestic market for public telecommunications services
as well as on the domestic leased lines market and a significant position on the
domestic interconnect market. Based on decisions issued by URTiP, PTK-Centertel
has a significant position on the domestic market for public mobile
telecommunications services. Additionally, URTiP in conjunction with Office for
Protection of Competition and Customers ("OPCC") issued a decision, which is
currently being challenged by the Group, stating that PTK Centertel has a
significant position in the domestic interconnect market.
On 22 May 2003, the Polish Parliament amended the Telecommunications Act. The
amendments entered into force on 1 October 2003. These changes are intended to
both further liberalise Polish telecommunications regulations and align the
Polish telecommunications market with European Union ("EU") standards. The new
amendments introduce numerous changes, including full carrier pre-selection,
number portability, an obligation to disclose by operators the results of
operations of various types of telecommunications networks and businesses and an
obligation to unbundle the local loop to allow access to other service
providers. A new Telecommunication Act has been passed by the Polish Parliament
and currently is in the process of the President's approval. Its provisions
should implement a new set of 2002 EU Directives into Polish law. It is expected
that the new act will enter into force in the third quarter of 2004.
2. Entities of the Group
As at 30 June 2004 and at 31 December 2003, the Group comprises Telekomunikacja
Polska and the following subsidiaries and affiliates:
Entity Location Scope of activities Share capital
owned by the Group
30 June 31
December
2004 2003
PTK- Centertel Sp. z o.o. Warsaw, Poland Construction and operation of mobile 66.00% 66.00%
telecommunications networks and services.
TP EmiTel Sp. z o.o. Krakow, Poland Radio diffusion, radio communication, data 100.00% 100.00%
transmission, teleinformatics and lease of
technical infrastructure.
TP DITEL S.A. Warsaw, Poland Maintenance of subscribers' database, 100.00% 100.00%
production and distribution of telephone
directories.
OTO Lublin Sp. z o.o. Lublin, Poland Production of fibre optic cables and 100.00% 100.00%
electronic phone cards.
Incenti S.A. Warsaw, Poland Data transmission, lease of 51.00% 51.00%
telecommunications infrastructure and
distribution of IT equipment.
Otwarty Rynek Warsaw, Poland Data transmission and operation of 100.00% 100.00%
Elektroniczny S.A. e-commerce platform, teleinformatics,
software, databases and data processing.
TP Sircom Szkolenia i Warsaw, Poland Hotel services, training facilities. 100.00% 100.00%
Rekreacja Sp. z o.o.
TP Edukacja i Wypoczynek Warsaw, Poland Hotel services, training facilities. 100.00% 100.00%
Sp. z o.o.
TP Internet Sp. z o.o. Warsaw, Poland Internet services, data transmission and 100.00% 100.00%
multimedia.
("TP Internet")
- Parkiet Media S.A Warsaw, Poland Publications on capital markets and 99.45% 99.45%
economy.
- Wirtualna Polska S.A. Gdansk, Poland Internet portal and database services, 80.46% 80.46%
("WP") in a state of software and advertising services.
insolvency***
- Sklep Wirtualnej Gdansk, Poland Company in liquidation. 100.00% 100.00%
Polski S.A.
in liquidation*
- Contact Center Sp. z. Warsaw, Poland Call center services. 100.00% -
o.o.*
- Becomo S.A.* Krakow, Poland Internet services, software and computer 77.13% 77.13%
systems advisory, advertising services.
- Analizy Finansowe Sp. Warsaw, Poland Publishing of marketing and financial 100.00% 100.00%
z o.o.* analysis periodicals.
TP Invest Sp. z o.o. Warsaw, Poland Advisory and consulting services provided 100.00% 100.00%
to the Group entities and owner's
supervision of investment portfolio.
- Prywatne Sieci Warsaw, Poland Construction of teletechnical network. 100.00% 100.00%
Telekomunikacyjne S.A.
- Tel - Arp Sp. z o.o. Warsaw, Poland Publishing and advertising services. 100.00% 100.00%
- Telefon 2000 Sp. z Warsaw, Poland Design and development of 95.38% 95.38%
o.o. telecommunications systems.
- Telefony Podlaskie Sokolow Local fixed-line telecommunications 55.11% 55.11%
S.A. Podlaski, operator.
Poland
- Telefony Opalenickie Opalenica, Local fixed-line telecommunications 25.00% 25.00%
S.A.** Poland operator.
- Radomska Wytwornia Radom, Poland Manufacturing of telephones. 25.09% 25.09%
Telekomunikacyjna S.A.
in a state of
insolvency**
- TP TelTech Sp. z o.o. lodz, Poland Monitoring of alarm signals, servicing 100.00% 100.00%
local networks.
TP MED Sp. z o.o.* Warsaw, Poland Medical and health care services. 100.00% 100.00%
Pracownicze Towarzystwo Warsaw, Poland Development and management of employee 100.00% 100.00%
Emerytalne Telekomunikacji pension fund.
Polskiej S.A.*
TPSA Finance B.V. Amsterdam, Financial and investment operations. 100.00% 100.00%
The
Netherlands
TPSA Eurofinance B.V. Amsterdam, Financial and investment operations. 100.00% 100.00%
The
Netherlands
TPSA Eurofinance France Paris, France Financial and investment operations. 99.96% -
S.A. (previously RAPP28
S.A.)
* subsidiaries excluded from consolidation due to immateriality of the balances
involved
** companies accounted for under the equity method
***subsidiary excluded from consolidation from April 2004 (see additional
description below)
As at 30 June 2004, the voting power held by the Group was equal to the Group's
interest in the share capital of all of its subsidiaries, except for Becomo
S.A., where the Group had an interest in share capital of 77.13% and voting
rights of 74.95%.
On 6 January 2004, TP Internet set up a new subsidiary, Contact Center Sp. z
o.o.. The share capital of Contact Center Sp. z o.o. amounts to PLN 50 thousand
and is divided into 100 shares at a nominal value of PLN 500 each. The scope of
activities of Contact Center Sp. z o.o. includes call center services. The
subsidiary has not started any trading activities yet.
On 6 February 2004, TPSA Finance B.V. acquired 1,268 shares constituting 49.9%
of the share capital of RAPP28 S.A. and TPSA Eurofinance B.V. acquired 1,268
shares constituting 49.9% of the share capital of RAPP28 S.A. from Cogecom S.A.,
a subsidiary of France Telecom S.A. The sale price was fixed at the nominal
value of EUR 15 per each share. RAPP28 S.A. changed its name to TPSA Eurofinance
France S.A. on 11 June 2004. The change was registered on 28 June 2004, together
with registration of an increase in the share capital of TPSA Eurofinance France
S.A. As a result, TPSA Finance B.V. holds a 49.98% interest in the share capital
of TPSA Eurofinance France S.A. and TPSA Eurofinance B.V. holds a 49.98%
interest in the share capital of TPSA Eurofinance France S.A.
On 28 February 2004, Management of Wirtualna Polska S.A. filed for bankruptcy of
WP due to its insolvency. On 9 April 2004, the District Court in Gdansk, 20th
Commercial Department, declared WP bankrupt (bankruptcy with liquidation). On 22
April 2004 the decision declaring the bankruptcy of WP became final and valid.
On 27 April 2004 the Court issued a decision changing the decision of 9 April
2004 by declaring the bankruptcy of WP with a possibility of a composition
arrangement (bankruptcy with the settlement). As a result of these decisions,
the Group ceased to exercise control over WP and excluded this entity from
consolidation from that date.
The revenues and net loss of WP for the period ended 9 April 2004 amounted to
PLN 8 million and PLN 6 million, respectively. In the six months ended 30 June
2003, the revenues and net loss of WP amounted to PLN 15 million and PLN 14
million, respectively. As at 31 March 2004 and 31 December 2003, the net assets
of WP were negative and amounted to PLN 20 million and PLN 14 million,
respectively. In the second quarter of 2004 the Group recorded a gain of PLN 20
million as result of excluding WP from consolidation.
3. The Management Board of the Company
The Management Board of the Company at the date of authorisation of these
consolidated financial statements was as follows:
Marek Jozefiak - President of the Management Board,
Pierre Hamon - Deputy CEO - Board Member - Marketing and Customer Service,
Roger de Bazelaire - Board Member - Finance,
Bruno Duthoit - Board Member - Investments,
Konrad Kobylecki - Board Member - Technology,
Wojciech Roman - Board Member - Human Resources.
On 29 April 2004 Pierre Hamon and Konrad Kobylecki were appointed Board Members.
At the same time Bertrand Le Guern ended his term of office as a Member of the
Management Board.
4. Authorisation of the financial statements
These consolidated financial statements were authorised for issuance by the
Management Board on 29 July 2004.
5. Basis for preparation
The Group maintains its accounting records in accordance with the accounting
principles and practices obligatory to enterprises in Poland. These consolidated
financial statements were prepared based upon the Group's accounting records and
include a number of adjustments (see Note 32) in order to present the
consolidated financial position, results of operations and cash flows in
accordance with International Financial Reporting Standards ("IFRS"). IFRS
comprise standards and interpretations approved by the International Accounting
Standards Board ("IASB") and the International Financial Reporting
Interpretations Committee ("IFRIC").
In 2003, IASB issued IFRS No. 1 "First-time Adoption of International Financial
Reporting Standards" ("IFRS 1"). IFRS 1 requires that an entity's first IFRS
financial statements are the first annual financial statements in which the
entity adopts all IFRS, by an explicit and unreserved statement in those
financial statements of compliance with IFRS. IFRS 1 requires the Group to
prepare its IFRS financial statements as if it is a first-time adopter as the
Group's financial statements in prior periods did not have an explicit and
unreserved statement of compliance with IFRS, owing to non implementation of
International Accounting Standard ("IAS") 29 "Financial Reporting in
Hyperinflationary Economies" and the inclusion of revaluations of fixed assets
which did not meet the requirements of IAS 16 "Property, Plant and Equipment".
The Group implemented IFRS 1 as of January 2003 as required by this standard.
The effects of adopting IFRS 1 by the Group are presented in Note 7.
At the date of preparation of these consolidated financial statements the Group
has elected to apply the amended IAS 32 "Financial Instruments: Disclosure and
Presentation"("IAS 32") and IAS 39 "Financial Instruments: Recognition and
Measurement" ("IAS 39") before their effective date as described in Note 7.
The consolidated financial statements have been prepared under the historical
cost convention, except for the fair value applied to the certain items of
property, plant and equipment and derivative financial instruments and
available-for-sale financial assets.
The preparation of financial statements in conformity with IFRS requires the use
of estimates and assumptions that affect the amounts reported in the financial
statements and notes thereto. Although these estimates are based on management's
best knowledge of current events and actions, actual results may differ from
those estimates.
These consolidated financial statements are prepared in millions of Polish zloty
("PLN").
6. Statement of accounting policies
(a) Principles of consolidation
The consolidated financial statements include all material subsidiaries that are
controlled by Telekomunikacja Polska (see Note 2).
Control is presumed to exist when Telekomunikacja Polska owns, directly or
indirectly through its subsidiaries, more than half of the voting rights of a
given entity, unless it can be clearly demonstrated that such ownership does not
constitute control. Control is also exercised where the Group has power to
govern the financial and operating policies of an entity. Subsidiaries are
consolidated from the date on which control is transferred to the Group and
cease to be consolidated from the date on which control is transferred out of
the Group.
All significant inter-company balances and transactions have been eliminated on
consolidation. The consolidated financial statements are prepared using uniform
accounting policies for similar transactions and other events in similar
circumstances.
(b) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand and all highly
liquid deposits and commercial papers with an original maturity of three months
or less.
For the purposes of the consolidated cash flow statements, cash and cash
equivalents consist of cash and cash equivalents as defined above, net of
outstanding bank overdrafts.
(c) Trade and other receivables
Trade receivables are carried at original invoice amount less an allowance for
any uncollectible amounts. An estimate for doubtful debts allowance is made
based on historical collection patterns or alternatively having regard to the
age of the receivable balances. Bad debts are written off when identified.
(d) Inventories
Inventories are stated at the lower of acquisition cost (on a weighted average
basis) and net realisable value, except for mobile handsets sold in promotional
offers. Inventories of mobile handset sold in promotional offers are stated at
the lower of cost or probable net realisable value, taking into account future
revenues expected from subscriptions. The Group provides for slow-moving or
obsolete inventories, including mobile handsets offered on promotional terms
both under the pre-paid and subscription packages, based on inventory turnover
ratios and current marketing plans.
(e) Investments
All investments are initially recognized at cost, being the fair value of the
consideration given and including acquisition charges related to the investment.
After initial recognition, investments at fair value through profit or loss and
available-for-sale are measured at fair value. Gains or losses on investments at
fair value through profit or loss are recognized in the profit and loss account
in the period of the change in their fair value. Gains or losses on investments
available-for-sale are recognized as a separate component of equity until an
investment is sold, collected or otherwise disposed of or until an investment is
determined to be impaired, at which time the cumulative gain or loss previously
reported in equity is included in the profit and loss account.
Other investments that are intended to be held-to-maturity are subsequently
measured at amortised cost using the effective interest rate method. Amortised
cost is calculated by taking into account any discount or premium on
acquisition, over the period to maturity. For investments carried at amortised
cost, gains and losses are recognised in the profit and loss account when the
investments are derecognised or impaired.
For investments that are actively traded in organized financial markets, fair
value is determined by reference to stock exchange quoted market bid prices at
the close of business on that balance sheet date. Fair values for unlisted
equity securities are estimated using applicable price/earnings or price/cash
flow ratios modified to reflect the specific circumstances of the issuer. Equity
securities for which fair values cannot be measured reliably are recognized at
cost less impairment.
(f) Investments accounted for under the equity method
Investments accounted for under the equity method are measured on initial
recognition at cost. The Group's share in post acquisition profits or losses of
affiliates is recognized in the income statement and its share in
post-acquisition movements in affiliate's equity is recognized in reserves.
Affiliates are entities in which the Group has between 20% and 50% of the voting
rights, or over which the Group has significant influence, but which it does not
control. When the Group's share of losses in an affiliate equals or exceeds its
interest in the affiliate, the Group does not recognise further losses, unless
it has incurred obligations or made payments on behalf of the affiliate.
(g) Property, plant and equipment
Property, plant and equipment are stated at historical cost or fair value less
accumulated depreciation.
The initial cost of property, plant and equipment comprises its purchase price
and any directly attributable costs of bringing the asset to its working
condition and location for its intended use. Expenditures incurred after
property, plant and equipment have been put into operation, such as repairs,
maintenance and overhaul costs, as well as costs of cabling within customers'
premises are charged to the profit and loss account in the period in which the
costs are incurred. In situations when it may be clearly demonstrated that the
expenditures have resulted in an increase in the future economic benefits
expected to be obtained from the use of an item of property, plant and equipment
beyond its originally assessed standard of performance, the expenditures are
capitalised as an additional cost of property, plant and equipment.
The Group has revalued certain property, plant and equipment and used their fair
value as deemed cost as at 1 January 2003, which is the date of transition to
IFRS under IFRS 1 (see Note 7 for further information).
Telekomunikacja Polska received certain property, plant and equipment from
Public Telephone Committees (Spo(3)eczne Komitety Telefonizacji - "SKT"). This
infrastructure is recorded in the books as fixed assets at the acquisition costs
of these assets with a corresponding entry in liabilities. Sales of services to
SKT members are recorded as revenues and corresponding amounts are deducted from
liabilities.
Property, plant and equipment are depreciated over their useful lives. Upon
their withdrawal from use or sale, the cost (or revalued amount) of assets
disposed and the related accumulated depreciation are removed from the books of
account, and any resulting gains or losses are taken to the profit and loss
account.
Property, plant and equipment are depreciated using the straight-line method,
except for part of telecommunications and other equipment, for which the
declining balance method is used.
Depreciation periods are as follows:
Buildings 40 years
Duct, cable and other outside plant 22 years
Telephone exchanges and other plant and equipment 5-22 years
Computer equipment 3 years
Vehicles and other 4-8 years
The Company has commenced a project of reassessment of the useful lives of
property, plant and equipment. This project has not been completed as at the
date of preparation of these financial statements. The Company is not able to
estimate the effect, if any, of the above reassessment on the net carrying
amount of property, plant and equipment as at 30 June 2004 and on the
depreciation charge for the six months ended 30 June 2004.
Construction-in-progress represents property, plant and equipment under
construction and is stated at cost. This comprises the cost of construction or
acquisition of property, plant and equipment and other direct costs.
Construction-in-progress is not depreciated until the relevant assets have been
completed and placed into operational use.
(h) Intangible assets
(1) Goodwill
Goodwill represents the excess of the costs of acquisition over the fair value
of identifiable net assets of a subsidiary, affiliate or joint-venture at the
date of acquisition. Goodwill is amortised on a straight-line basis over its
useful life up to a presumed maximum of 20 years.
(2) Research and development
Research and development costs are generally expensed as incurred. In the six
months ended 30 June 2004 and 2003 research and development costs recognised in
the profit and loss account amounted to PLN 32 million and PLN 28 million,
respectively. Development expenditure incurred on an individual project is
carried forward when its future recoverability can reasonably be regarded as
assured. Any expenditure carried forward is amortised over the period of
expected future sales from the related project. The amortisation begins when the
projects are commercially implemented.
(3) Computer software
Costs associated with developing or maintaining computer software programmes are
recognised as an expense as incurred. Costs that are directly associated with
identifiable and unique software products controlled by the Group and which will
probably generate economic benefits exceeding the related costs, beyond one
year, are recognised as intangible assets. Software is amortised using the
straight-line method over their useful lives, not exceeding a period of 5 years.
(4) Concessions and other intangibles
Expenditure on acquisition of telecommunication concessions and other intangible
assets is capitalised and amortised using the straight-line method over their
useful lives. Amortisation begins when the related technology is commercially
implemented. The concessions are amortised over the remaining period of
concession. Other intangibles are amortised over their useful lives not
exceeding 5 years.
The Company has commenced a project of reassessment of the useful lives of
intangibles. This project has not been completed as at the date of preparation
of these financial statements. The Group is not able to estimate the effect, if
any, of the above reassessment on the net carrying amount of intangibles as at
30 June 2004 and on the amortisation for the six months ended 30 June 2004.
(i) Impairment of non-current assets
Property, plant and equipment and other non-current assets, including goodwill,
intangible assets and financial assets are reviewed for impairment losses
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. An impairment loss is recognized for the amount by which
the carrying amount of the asset exceeds its recoverable amount, which is the
higher of an asset's net selling price and value in use. For the purpose of
assessing impairment, assets are grouped at the lowest levels for which there
are separable identifiable cash flows ("cash-generating unit").
(j) Interest-bearing liabilities
Interest-bearing liabilities are recognised initially at their cost, being the
fair value of the consideration received. Transaction costs are included in the
initial measurement of these financial liabilities. After initial recognition,
interest-bearing liabilities are measured at amortised cost, except for
financial liabilities designated as hedged items, which are subject to
measurement under the hedge accounting provisions as described in Note 6(s).
(k) Provisions
A provision is recognised when the Group has a present legal or constructive
obligation as a result of a past event, it is probable that an outflow of
resources embodying economic benefits will be required to settle the obligation
and a reliable estimate may be made of the amount of the obligation. Provisions
are reviewed at each balance sheet date and adjusted to reflect the current best
estimate. Where the effect of the time value of money is material, the amount of
the provision is the present value of the expenditures expected to be required
to settle the obligation. When discounting is used, the increase in the carrying
amount of a provision reflecting the passage of time is recognised as a
financial expense.
Restructuring provisions comprise employee termination payments and are
recognised in the period in which the Group becomes legally or constructively
committed to payments.
(l) Deferred income
Investment contributions received in cash as contributions to the cost of
network construction or constructed telephone infrastructure from local
authorities (further referred to as "grants") are deferred and amortised to
other operating revenue over the life of the assets to which the investment
contributions relate. Deferred income also includes deferred revenues from
subscriptions relating to future periods and the sale of telephone cards in the
"prepaid" fixed line and mobile telephony systems.
(m) Leases
Finance leases, which transfer to the Group substantially all the risks and
benefits incidental to ownership of the leased item, are capitalised at the
inception of the lease at the fair value of the leased property or, if lower, at
the present value of the minimum lease payments. Lease payments are apportioned
between the finance charges and reduction of the lease liability so as to
achieve a constant rate of interest on the remaining balance of the liability.
Finance charges are charged directly in the profit and loss account. If there is
no reasonable certainty that the Group will obtain ownership by the end of the
lease term, capitalised leased assets are depreciated over the shorter of the
estimated useful life of the asset or the lease term. In other cases capitalised
leased assets are depreciated over their economic useful lives.
Leases where the lessor retains substantially all the risks and benefits of
ownership of the asset are classified as operating leases. Operating lease
payments are recognised as an expense in the income statement on a straight-line
basis over the lease term.
(n) Revenue recognition
(1) Revenue from sale of services and goods
Revenue, net of value added tax ("VAT"), rebates and discounts, from the sale of
services and goods is recognised when:
a) the amount of revenue may be reliably measured,
b) it is probable that the economic benefits associated with the
transaction will flow to the enterprise,
c) the stage of completion of the transaction at the balance sheet date
may be reliably measured, and
d) the costs incurred for the transaction and the costs to complete the
transaction may be reliably measured.
Revenue earned from interconnect charges to other telecommunication operators is
not netted off with interconnect costs paid by the Group to other operators.
Revenue earned from connecting subscribers to the network is recognised upon the
activation of the service. The Group leases lines to its customers. Lease income
is recognised as revenue on a straight-line basis over the lease term.
Revenue from activation fees for prepaid services is recognised upon the
activation of the service. Revenues from the sale of telephone cards in the "
prepaid" fixed line and mobile telephony systems are deferred and recognised
when earned.
The total arrangement consideration on contracts with multiple
revenue-generating activities in mobile telephony is allocated to each separate
unit of accounting (mobile handset and the service) based on their relative fair
values. The revenue from the sale of mobile handsets is recognised upon
activation of the service. The revenue from the sale of phone services is
recognised over the period of the contract.
(2) Interest
Interest income is recognised as the interest accrues, taking into account the
effective yield on assets.
(3) Dividends
Dividends are recognised when the Group's right to receive the payment is
established.
(o) Operating expenses
Operating expenses are charged in the period to which they relate.
Discounts on mobile handsets sold on promotional terms are recognised at the
moment of sale and activation of the service in accordance with the best
practices in the telecommunications industry.
In line with Polish business practice, the shareholders are allowed to
distribute profits in order to increase the Social Fund established for the
welfare of the Company's employees. The Group allocates part of its net profit
to the Social Fund. Final authorisation of the profit distribution to the Social
Fund is given after the year end during the General Shareholders' Meeting, when
the annual profit available for distribution is approved. In the financial
statements prepared under IFRS such distributions are recognised as an operating
expense of the period to which the profit to be distributed relates.
(p) Borrowing costs
Borrowing costs are expensed in the profit and loss account as incurred.
(q) Jubilee awards, retirement bonuses and other post-employment
benefits
Certain employees of the Group are entitled to jubilee awards and retirement
bonuses. Jubilee awards are paid to employees upon completion of a certain
number of years of service whereas retirement bonuses represent one-off payments
paid upon retirement in accordance with the Group's remuneration policies. Both
items vary according to the employee's average remuneration and length of
service. Jubilee awards and retirement bonuses are not funded. In accordance
with the Collective Bargaining Agreement with its employees the Company is
obliged to make additional annual contributions to the Social Fund in respect of
its retired employees. The Group is also obliged to provide certain additional
post-employment benefits to its retired employees. An independent actuary
estimates the net present value of the obligations mentioned above. Accrued
obligations are those future discounted payments, adjusted by employee attrition
rates, which were earned by the employees up to the balance sheet dates.
Demographic and attrition profiles are based on historical data. A valuation of
obligations as at 30 June 2004 was performed using a discount rate of 6% and a
wage increase rate of 3%.
(r) Foreign currency transactions
Transactions denominated in foreign currencies are recorded in the functional
currency of the Group (Polish zloty) at the following exchange rates:
1) the bid or offer rates used by the bank where the transaction is
conducted - to record transactions involving the sale or purchase of foreign
currencies and settlements of receivables or liabilities; or
2) the average exchange rates as quoted by the National Bank of Poland ("
NBP") on the day of the transaction, unless a different rate has been determined
on an appropriate document.
Monetary assets and liabilities denominated in foreign currencies are translated
at the balance sheet date at the average rate quoted by the NBP as at that date.
Any gains or losses arising from a change in exchange rates subsequent to the
date of recognition of the transaction are presented as foreign exchange gains
or losses in the profit and loss account.
The Group translates for the purpose of consolidation the monetary assets and
liabilities in the financial statements of foreign subsidiaries at the current
average NBP exchange rates prevailing at the balance sheet date. Non-monetary
items are translated using the historical rates. Profit and loss account items
are translated using average rates for the reporting period.
(s) Derivative financial instruments
Swap, forward and option contracts are valued at fair values and presented as
financial assets or financial liabilities in the balance sheet. Fair value is
calculated using the net present value of future cash flows related to these
contracts, quoted market forward interest rates, quoted market forward foreign
exchange rates or, if quoted forward foreign exchange rates are not available,
forward rates calculated based on spot foreign exchange rates using the interest
rate parity method.
Except when contracts qualify as hedges, changes in the fair value of financial
instruments are recognised as other financial income / expenses in the profit
and loss account in the period of the change. When contracts qualify as fair
value hedges, related gains and losses offset symmetrically the effects on the
net profit or loss of the change in the fair value of the hedged items. A gain
or loss on the hedged item attributable to the hedged risk is included in the
net profit or loss for the period.
When contracts qualify as cash flow hedges, the portion of the gain or loss on
the hedging instrument that is determined to be an effective hedge is recognised
in equity. The ineffective portion is immediately recognised in the profit and
loss account. The amounts that have been recognised in equity are included in
the profit and loss account in the same period during which the hedged firm
commitment or forecasted transactions affect the profit and loss account or
enter into the initial measurement of the acquisition cost or other carrying
amount of the non-monetary asset or liability as appropriate.
The Group entities enter into contracts which do not constitute financial
instruments but which include embedded derivatives. These instruments primarily
relate to purchase contracts for equipment and services denominated in foreign
currencies.
Embedded derivatives are separated from the host contracts and accounted for as
derivatives if all of the following conditions are met:
- the economic characteristics and risks of the embedded derivative are
not closely related to the economic characteristics and risks of the host
contract,
- a separate instrument with the same terms as the embedded derivative
would meet the definition of a derivative, and
- a hybrid instrument is not measured at fair value with changes in the
fair value reported in the net profit or loss.
Embedded derivatives are measured at fair value.
(t) Income tax
The corporate income tax charge is based on profit for the period and takes into
account deferred taxation. Deferred tax is calculated using the liability
method. Under the liability method the expected tax effects of temporary
differences are determined using enacted tax rates and reported either as
liabilities for tax payables or assets representing future reductions in tax
charges. Temporary differences are the differences between the carrying amount
of assets or liabilities in the balance sheet and their taxable base. The
calculation of deferred tax also includes tax losses from previous years, which
according to tax regulations may decrease taxable profits. The net deferred tax
liabilities or assets are included under non-current liabilities or non-current
assets, respectively. Deferred tax liabilities and deferred tax assets are
presented net if the entities constituting the Group have a legally enforceable
right to offset the recognised amounts.
Deferred tax assets are only recognised on temporary differences provided it is
probable they will be realised.
The Group recognises a deferred tax asset for all deductible temporary
differences arising from investments in subsidiaries and affiliates to the
extent that it is probable that:
a) the temporary differences will reverse in the foreseeable future; and
b) taxable profit will be available against which the temporary
differences can be utilised.
The carrying amount of a deferred tax asset is reviewed at each balance sheet
date and it is reduced to the extent that it is no longer probable that
sufficient taxable profits will be available to allow the benefit of part or all
of that deferred tax asset to be utilised.
(u) Net profit per share
The net profit per share for each period is calculated by dividing the net
profit for the period by the weighted average number of shares outstanding
during that period. The Group does not present diluted profit/loss per share, as
there are no dilutive instruments issued.
7. Effect of adopting new accounting standards and changes in
accounting policies.
As a result of adopting IFRS 1, these consolidated financial statements include
the following adjustments to net assets and net profits for prior reporting
dates:
Net assets Net assets Net assets Net profit Net profit
as at as at as at for 6 months for 12 months
ended ended
1 January 30 June 31 December
30 June 31 December
2003 2003 2003 2003
2003
(in PLN millions)
Data previously reported 12,974* 13,336** 13,894* 447** 960*
(a) Effect of adoption
of IFRS 1
1. Revaluation of property, 626 559 541 (67) (85)
plant and equipment
2. Recognition of perpetual 298 297 327 (1) 29
usufruct rights
(b) Expensing of (182) (274) (395) (92) (213)
borrowing costs incurred
(c) Embedded (173) (129) (140) 44 33
derivatives
----- ----- ----- ----- -----
Data adjusted 13,543 13,789 14,227 331 724
===== ===== ===== ===== =====
* as reported in the financial statements for the year ended 31 December 2003
- audited
** as reported in the financial statements for the six months ended 30 June
2003 - unaudited
The amounts of the adjustments include an effect of deferred tax.
(a) Effect of adoption of IFRS 1
As explained in Note 5, the Group implemented IFRS 1 at 1 January 2003. IFRS 1
requires that the Group recognizes all assets and liabilities that meet the
recognition criteria of IFRS and measure these assets in accordance with each
IAS. At the same time the revaluation reserve recognised in the shareholders'
equity prior to the transition date was transferred to the retained earnings.
1) Revaluation of property, plant and equipment
IFRS 1 allows that an entity may elect to measure an item of property, plant and
equipment at the date of transition to IFRS at its fair value and use that fair
value as it deemed cost at that date.
As it was not possible for the Group to determine the historical costs of
certain assets adjusted for hyperinflation as required by IAS 29, the Group
established a deemed cost for its property, plant and equipment in
Telekomunikacja Polska by measuring them at their fair values.
2) Recognition of perpetual usufruct rights
In accordance with the Framework for the Preparation and Presentation of
Financial Statements prepared by the IASB, an asset is a resource controlled by
an enterprise as a result of past events and from which future economic benefits
are expected to flow to the enterprise. Perpetual usufructs assumed by the
Company from PPTiT meet this definition of an asset. However, they were not
recognized in previous periods as the historical cost of these assets could not
be reliably determined. In accordance with IFRS 1, the Group determined the fair
values as deemed costs of all of its significant perpetual usufructs and
recorded these values as at 1 January 2003.
(b) Expensing of borrowing costs incurred
IAS 23 "Borrowing Costs" ("IAS 23") allows that certain borrowing costs that are
attributable to the acquisition, construction or production of certain assets
are either:
- expensed in the period in which they are incurred ("benchmark
treatment"); or
- are capitalized as part of the cost of that asset ("alternative
treatment").
In the prior periods, the Group used the alternative treatment. In the second
quarter of 2004, the Group decided to change its accounting policy in this
respect and to use the benchmark treatment as explained above (see Note 5). The
amounts presented for the prior periods were adjusted.
(c) Embedded derivatives
In December 2003, the IASB revised the existing standard IAS No. 32 "Financial
Instruments: Disclosure and Presentation" ("IAS 32") and IAS No. 39 "Financial
Instruments: Recognition and Measurement" ("IAS 39"). The Group adopted the
revised IAS 32 and IAS 39 on 1 January 2004 at the same time when adopting IFRS
1. The revised IAS 39 has extended the situation where foreign currency embedded
derivatives are classified as closely related to the economic risks of the host
contract. Under the revised definition, an embedded foreign currency derivative
in a host contract, under certain circumstances, is also closely related to the
host contract when the currency is commonly used in contracts to purchase or
sell non-financial items in the economic environment in which the transaction
takes place. The Group entities have reviewed their purchase contracts for
equipment and services denominated in foreign currencies in which embedded
derivatives were recognised in prior years and made appropriate adjustments to
comply with the revised IAS 32 and IAS 39.
8. Cash and cash equivalents
30 June 31 December
2003
2004
unaudited audited
(in PLN millions)
Cash on hand 2 1
Current bank accounts 102 168
Overnight deposits 547 401
Deposits up to 3 months 539 1,195
Securities with a maturity of less than 3 months 773 50
Other 5 3
---- ----
Total 1,968 1,818
===== =====
As at 30 June 2004 and 31 December 2003 cash and cash equivalents include PLN 35
million and PLN 930 million denominated in foreign currencies, respectively. As
at 31 December 2003, balances denominated in foreign currencies primarily
consisted of USD deposits held by TPSA Finance B.V.
The concentration of credit risk relating to cash and cash equivalents is
limited as the Group primarily places its cash in a few, high credit quality
institutions.
In accordance with Polish Law, the Group's entities registered in Poland
administer a Social Fund on behalf of their employees. The contributions paid to
the Social Fund are deposited in separate bank accounts held in the name of
various Group entities. As at 30 June 2004 and 31 December 2003, cash earmarked
for the Social Fund amounted to PLN 77 million and PLN 59 million, respectively.
9. Prepayments and advances
Prepayments and advances primarily consist of advances to the Social Fund,
commissions paid for unutilized bank loans, prepayments for information
technology services and the costs of unactivated mobile phones maintained in
dealership network of PTK-Centertel.
10. Receivables
30 June 31 December
2003
2004
unaudited audited
(in PLN millions)
Trade receivables 3,063 3,193
Tax receivables 27 12
Social Fund loans to employees 96 92
Other receivables 89 92
----- -----
Subtotal 3,275 3,389
Less allowance for bad debts (737) (695)
----- -----
Total 2,538 2,694
===== =====
Trade receivables relate primarily to billings for telecommunications services.
Credit terms of typical sales are approximately 22 days. Tax receivable balances
comprise mainly of recoverable VAT on capital purchases.
As at 30 June 2004 and 31 December 2003 total receivables include PLN 210
million and PLN 253 million of receivables denominated in foreign currencies,
respectively.
The concentration of credit risk relating to trade receivables is limited due to
the large number of customers comprising the Group's customer base and their
dispersion, principally in Poland.
11. Other financial assets
30 June 31 December
2003
2004
unaudited audited
(in PLN millions)
Investments available for sale 274 128
Investments at fair value through profit or loss 3 6
Swap contracts 822 1,355
Forward foreign exchange contracts 16 -
Embedded derivatives 6 16
Investments held to maturity 7 35
----- -----
Total 1,128 1,540
Less current portion (419) (594)
----- -----
Non-current portion 709 946
===== =====
Investments available-for-sale principally consist of the Group's interest in
satellite organisations. These investments are not listed on any stock exchange.
12. Inventories
30 June 31 December
2004 2003
unaudited audited
(in PLN millions)
Cables, engineering inventory and other materials 64 59
Goods for resale 147 185
----- -----
Subtotal 211 244
Less allowance for obsolete inventory (16) (23)
----- -----
Total 195 221
===== =====
As at 30 June 2004 and 31 December 2003, goods for resale include mobile
handsets with a value of PLN 62 million and PLN 91 million, respectively.
13. Property, plant and equipment
Land, Telephone Vehicles Construction Total
buildings, exchanges and
duct, cable other plant and and other in progress
and other equipment
outside
plant
(in PLN millions)
Cost or revalued amount
1 January 2003 as previously reported - 19,351 24,700 927 2,096 47,074
audited
Change in accounting standards and (4,600) (10,666) (425) (150) (15,841)
accounting policies*
1 January 2003 adjusted - audited 14,751 14,034 502 1,946 31,233
Additions 170 934 10 143 1,257
Transfers 16 127 6 (150) (1)
Disposals (38) (347) (20) (7) (412)
----- ----- ----- ----- -----
30 June 2003 - unaudited 14,899 14,748 498 1,932 32,077
===== ===== ===== ===== =====
1 January 2004 as previously reported - 19,875 26,564 906 2,139 49,484
audited
Change in accounting standards and (4,625) (10,748) (431) (196) (16,000)
accounting policies *
1 January 2004 adjusted - audited 15,250 15,816 475 1,943 33,484
Additions 418 908 16 (488) 854
Transfers 80 132 5 (218) (1)
Disposals (68) (258) (47) (10) (383)
----- ----- ----- ----- -----
30 June 2004 - unaudited 15,680 16,598 449 1,227 33,954
===== ===== ===== ===== =====
Accumulated depreciation
1 January 2003 as previously reported - 5,173 13,543 728 13 19,457
audited
Change in accounting standards and (5,009) (11,114) (581) (13) (16,717)
accounting policies *
1 January 2003 adjusted - audited 164 2,429 147 - 2,740
Charge for the period 413 1,524 49 22 2,008
Impairment charge (8) 23 4 16 35
Transfers 5 (5) - - -
Disposals (29) (294) (17) - (340)
----- ----- ----- ----- -----
30 June 2003 - unaudited 545 3,677 183 38 4,443
===== ===== ===== ===== =====
1 January 2004 as previously reported - 5,982 15,833 773 205 22,793
audited
Change in accounting standards and (5,017) (11,060) (576) 30 (16,623)
accounting policies *
1 January 2004 adjusted - audited 965 4,773 197 235 6,170
Charge for the period 418 1,496 63 - 1,977
Impairment charge 32 23 - 3 58
Transfers 165 - (1) (164) -
Disposals (49) (239) (40) (5) (333)
----- ----- ----- ----- -----
30 June 2004 - unaudited 1,531 6,053 219 69 7,872
===== ===== ===== ===== =====
Net book value
30 June 2003 - unaudited 14,354 11,071 315 1,894 27,634
===== ===== ===== ===== =====
Net book value
30 June 2004 - unaudited 14,149 10,545 230 1,158 26,082
===== ===== ===== ===== =====
* see Note 7
The line "transfers" includes transfers between construction-in-progress and
other categories of property, plant and equipment and transfers between
categories of property, plant and equipment.
As at 30 June 2004 and 31 December 2003, property, plant and equipment pledged
as security for loans or bank guarantees had a carrying value of approximately
PLN 1 million and PLN 2 million, respectively.
International Accounting Standard 36 "Impairment of assets" requires that the
recoverable amount of an asset should be estimated whenever there is an
indication that the asset may be impaired and an impairment loss should be
recognised whenever the carrying amount of an asset exceeds its recoverable
amount. The Group has identified certain indicators, including market
liberalisation and other regulatory and economic changes in the Polish
telecommunications market, that could act as triggering factors for the
potential impairment of assets. Where possible, the recoverable amount was
estimated for individual assets. The recoverable amount of such assets was
determined at their net selling price or their value in use. If it was not
possible to estimate the recoverable amount of the individual asset, the Group
identified the cash-generating unit ("CGU") to which the asset belongs. The
recoverable amount of a CGU was determined as its value in use being the present
value of estimated future cash flows expected to arise from the continuing use
and the residual value of a CGU from its disposal at the end of its useful life.
For the purpose of the impairment test, the entire fixed network, the entire
mobile network and the entire radio diffusion network were treated as separate
cash-generating units.
The Group does not insure a significant portion of its assets against, for
instance, property damage, natural catastrophes, environmental contamination or
loss of profits. Accordingly, the Group would not receive any compensation in
the event of the loss of or damage to any such assets or interruptions in their
operations. The Group is currently reviewing its insurance policy for its
assets. Telekomunikacja Polska, in partnership with an international broker, is
currently negotiating an insurance programme covering property and business
interruption insurance, which should be in place in the second half of 2004.
14. Intangible assets
DCS 1800 Software Goodwill Total
concession GSM 900 UMTS and other
concession concession intangibles
(in PLN millions)
Cost
1 January 2003 as previously reported - 349 382 1,748 1,389 139 4,007
audited
Change in accounting standards and (19) (2) (115) (21) - (157)
accounting policies *
1 January 2003 adjusted - audited 330 380 1,633 1,368 139 3,850
Additions - - - 151 15 166
Transfers - - - 1 - 1
Disposals - - - (11) - (11)
----- ----- ----- ----- ----- -----
30 June 2003 - unaudited 330 380 1,633 1,509 154 4,006
===== ===== ===== ===== ===== =====
1 January 2004 as previously reported 352 382 1,941 1,731 222 4,628
-
audited
Change in accounting standards and (19) (2) (308) (18) - (347)
accounting policies *
1 January 2004 adjusted - audited 333 380 1,633 1,713 222 4,281
Additions 1 - - 321 - 322
Transfers - - - 1 - 1
Disposals - - - (38) - (38)
----- ----- ----- ----- ----- -----
30 June 2004 - unaudited 334 380 1,633 1,997 222 4,566
===== ===== ===== ===== ===== =====
Accumulated amortisation
1 January 2003 as previously reported 113 74 - 942 97 1,226
-
audited
Change in accounting standards and (6) - - (13) - (19)
accounting policies *
1 January 2003 adjusted - audited 107 74 - 929 97 1,207
Charge for the period 12 13 - 173 21 219
Impairment charge - - - 36 36
Disposals - - - (10) - (10)
----- ----- ----- ----- ----- -----
30 June 2003 - unaudited 119 87 - 1,092 154 1,452
===== ===== ===== ===== ===== =====
1 January 2004 as previously reported - 138 101 - 1,243 222 1,704
audited
Change in accounting standards and (6) - - (19) - (25)
accounting policies *
1 January 2004 adjusted - audited 132 101 - 1,224 222 1,679
Charge for the period 11 13 - 152 - 176
Impairment charge - - - 8 - 8
Disposals - - - (33) - (33)
----- ----- ----- ----- ----- -----
30 June 2004 - unaudited 143 114 - 1,351 222 1,830
===== ===== ===== ===== ===== =====
Net book value
30 June 2003 - unaudited 211 293 1,633 417 - 2,554
===== ===== ===== ===== ===== =====
Net book value
30 June 2004 - unaudited 191 266 1,633 646 - 2,736
===== ===== ===== ===== ===== =====
* see Note 7
Mobile concessions held by PTK-Centertel include concessions for rendering
mobile telephony services using the following technologies:
- NMT 450 - obtained free of charge, expires 2016,
- DCS 1800 - acquired in 1997, expires 2012,
- GSM 900 - acquired in 1999, expires 2014,
- UMTS - acquired in 2000, expires 2023.
Some of these mobile concessions require PTK-Centertel to fulfil certain
conditions, including number of subscribers and coverage of the network by a set
deadline. If these conditions are not met, the concessions may be withdrawn. The
concession for UMTS requires PTK-Centertel to launch UMTS services from 1
January 2006, based on the decision by URTiP. Management believes that all
significant requirements as stipulated in the telecommunication concessions were
met as at 30 June 2004.
Telekomunikacja Polska's rights to provide telecommunications services are based
on a permit granted free of charge on the basis of the Telecommunications Act.
The permit expires in 2026.
15. Interest - bearing liabilities
Note 30 June 31 December
2003
2004
unaudited audited
(in PLN millions)
Bank borrowings (a) 3,220 5,074
Bonds (b) 9,632 10,330
----- -----
Total 12,852 15,404
Less: short-term portion (2,869) (3,510)
----- -----
Long-term portion 9,983 11,894
===== =====
As at 30 June 2004, the maturity of non-current interest-bearing liabilities was
as follows:
(in PLN millions)
unaudited
12 months ended 30 June:
2006 3,047
2007 2,512
2008 361
2009 2,997
Thereafter 1,066
-----
Total 9,983
=====
The amounts presented in the above schedule of debt repayments include the
effect of the application of hedge accounting principles in the valuation of
hedged items (see Note 6(s)).
(a) Bank borrowings
Bank borrowings analysed by currency are as follows:
30 June 31 December
2003
2004
unaudited audited
(in PLN millions)
Polish zloty 436 1,873
Euro - hedged portion* 1,122 634
Euro - non-hedged portion 1,424 2,302
U.S. dollar - hedged portion* 25 29
U.S. dollar - non-hedged portion 213 236
----- -----
Total 3,220 5,074
===== =====
* includes the fair value adjustments to the items being hedged (Note 29)
Bank loans denominated in Polish zloty are subject to floating interest rates
linked to WIBOR, except for a loan granted by the European Investment Bank, the
interest rate in respect of which is regulated by that bank. The weighted
average annual interest rate on Polish zloty denominated loans amounted to 6.2 %
p.a. and 6.8 % p.a. in the six months ended 30 June 2004 and 2003, respectively.
Bank loans denominated in Polish zloty have maturities ranging from 2005 to
2012.
As at 30 June 2004 and 31 December 2003, 78.8% and 76.6% of bank loans
denominated in foreign currencies were subject to floating interest rates.
Floating interest rates on loans granted by the International Bank for
Reconstruction and Development and the European Investment Bank, are regulated
by these financial institutions.
Bank loans denominated in foreign currencies are subject to the following
effective interest rates:
30 June 31 December
2003
2004
unaudited audited
Less than 3% p.a. 78.2% 75.7%
Between 3% and 5% p.a. 18.0% 20.4%
Over 5% p.a. 3.8% 3.9%
----- -----
100.0% 100.0%
===== =====
Bank loans denominated in foreign currencies have maturities ranging from 2006 -
2021.
As at 30 June 2004 and 31 December 2003, bank loans amounting to PLN 317 million
and PLN 361 million, respectively, were subject to government guarantees. As at
30 June 2004 and 31 December 2003, loans collateralised by specific assets of
the Group amounted to approximately PLN 1 million and PLN 2 million,
respectively.
The Company is a party to certain bank borrowings which require the Company to
maintain certain financial ratios. All financial ratio covenants are based on
consolidated financial statements and the required ratio of net debt to EBIDTA
is 3.0. For purposes of the calculation, net debt is calculated as
interest-bearing liabilities decreased by cash and cash equivalents and certain
financial assets, and EBITDA is calculated as operating profit excluding
impairment charges and provisions made plus depreciation and amortisation. Based
on management calculations, the Group met all financial covenants included in
bank borrowing agreements. Management believes that the risk of the Group
breaching the covenants included in the bank borrowing agreements in the period
of twelve months from 30 June 2004 is remote.
Based on the arrangements made with banks, the Group has unused bank loan
facilities amounting to PLN 2,499 million, as at 30 June 2004. The unused loan
facilities are subject to floating interest rates based on WIBOR and EURIBOR and
are designated to finance current operating activity and general corporate
targets.
(b) Bonds
As at 30 June 2004, bonds issued by Telekomunikacja Polska (denominated in PLN)
and its subsidiaries, TP Finance B.V. (denominated in USD) and TP Eurofinance
B.V. (denominated in EUR), are as follows:
Series Nominal value Issue price Interest rate Issue date Redemption date
(in millions)
A 800 USD 789 USD 7.750% 10 December 1998 10 December 2008
B 400 EUR 395 EUR 6.125% 27 October 1999 27 October 2004
C 100 EUR 101 EUR 6.125% 22 December 1999 27 October 2004
D 475 EUR 470 EUR 6.500% 13 March 2000 13 March 2007
E 500 EUR 495 EUR 6.625% 1 March 2001 1 March 2006
1 300 PLN 297 PLN 7.250% 9 December 2002 12 December 2005
The redemption of the bonds issued by TPSA Finance B.V. and TPSA Eurofinance
B.V. is guaranteed by the Company.
Bonds analysed by currency are as follows:
30 June 31 December
2003
2004
unaudited audited
(in PLN millions)
Polish zloty 297 294
Euro - hedged portion * 5,758 6,129
Euro - non-hedged portion 883 1,029
U.S. dollar - hedged portion * 2,694 2,878
U.S. dollar - non-hedged portion - -
----- -----
Total 9,632 10,330
===== =====
* includes the fair value adjustments to the items being hedged (Note 29)
16. Accrued expenses and other payables
30 June 31 December
2003
2004
unaudited audited
(in PLN millions)
Trade payables 1,774 2,276
Capital expenditure payables 81 361
Concessions payable 962 978
Jubilee awards, retirement bonuses and other post-employment 461 463
benefits
Accrued expenses 404 381
Social security and taxes 466 252
Salaries and wages 100 119
Swap contracts 203 65
Forward contracts 6 13
Embedded derivatives - 1
Deposits and contract guarantees 25 30
Other payables 34 40
----- -----
Total 4,516 4,979
Less: short-term portion (2,957) (3,551)
----- -----
Long-term portion 1,559 1,428
===== =====
Accrued expenses and other payables include PLN 1,440 million and PLN 1,375
million of amounts denominated in foreign currencies as at 30 June 2004 and 31
December 2003, respectively. The primary foreign currency payable as at 30 June
2004 and 31 December 2003 relates to the acquisition of the UMTS concession and
amounted to EUR 212 million and EUR 206 million, respectively.
Payment terms for trade and other capital expenditure payables are variable
depending on contract terms.
During the six months ended 30 June 2004 and 2003, the total amount of jubilee
awards and retirement bonus payments amounted to PLN 19 million and PLN 10
million, respectively.
17. Provisions
30 June 31 December 2003
2004
unaudited audited
(in PLN millions)
Restructuring provision 38 249
Provision for tax risk (see Note 28(c)) 54 62
Provision for litigation and other claims 450 449
----- -----
Total 542 760
Less: short-term portion (534) (760)
----- -----
Long-term portion 8 -
===== =====
The changes in the provisions for the six months ended 30 June 2004 and 2003 are
detailed in the following table:
Restructuring Provision for Provision for Total
provision tax risk litigation and
other claims
(in PLN millions)
1 January 2003 - audited 334 116 266 716
Additions - 3 146 149
Discount 9 - - 9
Utilisation (250) - - (250)
----- ----- ----- -----
30 June 2003 - unaudited 93 119 412 624
====== ====== ====== ======
1 January 2004 - audited 249 62 449 760
Additions 25 1 18 44
Discount 5 - - 5
Utilisation (241) - - (241)
Released - (9) (17) (26)
----- ----- ----- -----
30 June 2004 - unaudited 38 54 450 542
====== ====== ====== ======
The restructuring provision as at 30 June 2004 mainly represents the amount of
compensation and other benefits for 1 thousand employees scheduled to terminate
employment in 2004 and 2005 under the employment-restructuring programme related
to planned changes in the organisation of the accounting function in the
Company.
18. Deferred income
30 June 31 December
2003
2004
unaudited audited
(in PLN millions)
Grants 248 257
Prepaid services 252 219
Other 27 32
----- -----
Total 527 508
Less: short-term portion (293) (272)
----- -----
Long-term portion 234 236
===== =====
Changes in grants were as follows:
6 months ended 30 June
2004 2003
(in PLN millions)
Beginning of period - audited 257 265
Net amounts received - 14
Amortisation (9) (11)
----- -----
End of period - unaudited 248 268
===== =====
19. Income tax
6 months ended 30 June
2004 2003
unaudited unaudited
(in PLN millions)
Current income tax 261 495
Deferred tax change* 166 (191)
Less: Deferred tax charged to equity (44) (22)
----- -----
383 282
===== =====
* Deferred tax change for the six months ended 30 June 2004 includes PLN 97
million related to timing difference between the preparation of the IFRS
consolidated financial statements for 2003 and the filing of Corporate Income
Tax declaration for 2003.
The income tax on the Group's profit before tax differs from the theoretical
amount that would arise using the tax rate enacted in Poland as follows:
6 months ended 30 June
2004 2003
unaudited unaudited
(in PLN millions)
Profit before income tax 1,616 584
----- -----
Statutory tax rate 19% 27%
Income tax calculated at statutory rate 307 158
Expenses not subject to income tax 48 148
Change in valuation allowance 23 (26)
Other 5 2
----- -----
Income tax expense for the period 383 282
===== =====
Expenses not subject to income tax consist of certain expense items, which,
under Polish tax law, are specifically determined as non-tax deductible. The
valuation allowance relates mainly to those tax losses, which are expected to
expire before being realised and temporary differences, which based on the
Group's management assessment would not be utilised for tax purposes.
Deferred income tax assets are recognized for tax losses carried forward to the
extent that realisation of the related tax benefit through future taxable
profits is probable. The Polish tax system has restrictive provisions for
grouping of tax losses for multiple legal entities under common control, such as
those of the Group. Thus, each of the Group's subsidiaries may only utilise its
own tax losses to offset taxable income in subsequent years. A valuation
allowance is recorded for deferred tax assets related to losses the realisation
of which is not probable. Tax losses incurred in 1999 and subsequent years are
permitted to be utilised over 5 consecutive years with a 50% utilisation
restriction for each annual tax loss.
Tax losses incurred by subsidiaries prior to 30 June 2004 expire as follows:
(in PLN millions)
unaudited
year of expiration:
2004 2
2005 332
2006 1,172
2007 214
2008 162
2009 63
-----
Total 1,945
=====
During the six months ended 30 June 2004 PTK-Centertel utilised PLN 601 million
of its tax losses reported in 1999-2001.
The net deferred tax liabilities/(assets) consist of the following:
30 June 31 December
2003
2004
unaudited audited
(in PLN millions)
Deferred tax liabilities:
Excess of book over tax value 788 775
of property, plant and equipment and intangibles
Accrued income 375 355
Unrealised foreign exchange gains 116 89
Prepaid interest 161 161
Revaluation of financial assets 29 -
Embedded derivatives 1 3
----- -----
1,470 1,383
Offsetting deferred tax liabilities and deferred tax assets (1,037) (1,111)
----- -----
Deferred tax liabilities after offsetting 433 272
----- -----
Deferred tax assets:
Unrealised foreign exchange losses (262) (278)
Accrued expenses (379) (459)
Unused tax losses of subsidiaries carried forward (370) (454)
Jubilee awards, retirement bonuses and other post-employment (88) (88)
benefits
Excess of tax over book value (277) (227)
of property, plant and equipment and intangibles
Bad debt provision (140) (132)
Deferred revenue (48) (41)
Restructuring provision (7) (47)
Other (5) (3)
----- -----
(1,576) (1,729)
Valuation allowance 283 260
Offsetting deferred tax assets and deferred tax liabilities 1,037 1,111
----- -----
Deferred tax assets after valuation allowance and after offsetting (256) (358)
----- -----
Net deferred tax assets 177 (86)
===== =====
Deferred tax liabilities on prepaid interest relates to interest paid by the
Company in December 2003 in the amount of PLN 833 million to its subsidiary TPSA
Finance B.V. in respect of interest due on bonds issued by the Company in 1998.
The interest on these bonds was initially scheduled to be paid from 2005 through
2008. In accordance with tax regulations in Poland, interest is deductible for
corporate tax purposes when it is paid.
20. Minority interest
6 months ended 30 June
2004 2003
(in PLN millions)
Beginning of period as previously reported - audited 634 634
Change in accounting standards and accounting policies * (130) (63)
Beginning of period, adjusted - audited 504 571
Minority share in net result for the period 99 (29)
Minority share in other changes in shareholders' equity (1) (1)
----- -----
End of period - unaudited 602 541
===== =====
* see Note 7
21. Shareholders' equity
As at 30 June 2004, the share capital of the Company amounted to PLN 4,200
million and was divided into 1,400 million fully paid ordinary bearer shares of
PLN 3 each. No changes were made in the number of shares in the six months ended
30 June 2004.
The ownership structure of the share capital as registered as at 30 June 2004
was as follows:
Nominal value
% of votes (in PLN millions)
France Telecom S.A. (Cogecom S.A.) 33.93 1,425
Kulczyk Holding S.A. (Tele-Invest S.A. and Tele-Invest II S.A.) 13.57 570
Bank of New York 11.54 485
State Treasury 3.87 162
Other shareholders 37.09 1,558
----- -----
Total 100.00 4,200
===== =====
Cogecom SA, a subsidiary of France Telecom SA, is the parent company of
Telekomunikacja Polska and has the right to dismiss and appoint the majority of
the members of the Management Board of Telekomunikacja Polska.
According to information published in France Telecom's Financial Report for
2003, the following contractual obligations which may result in changes in the
proportions of shares held by the existing shareholders:
a) Following the sale by the Polish government in 2000 and 2001 of shares
in the Company, the consortium created by France Telecom and Kulczyk Holding has
held 47.5% of the Company since October 31, 2001. The Polish government has
undertaken that if it sells its shares in the Company as part of a public offer,
it will grant a priority purchase right to the consortium in relation to 10% of
the Company's capital.
b) The Shareholders' Agreement between France Telecom and Kulczyk Holding
contains the following provisions regarding the disposal of shares:
* France Telecom has pre-emptive rights with respect to any transfer of
ownership of the Company 's shares by Kulczyk Holding,
* France Telecom has a call option enabling the purchase from Kulczyk
Holding of its initial investment in 10% of the shares in the Company and
further investment in 3.57% of the shares, exercisable after July 2006 or
earlier, in the event of a change of control or a breach of obligations by
Kulczyk Holding,
* Kulczyk Holding has a put option allowing it to sell its initial
investment in 10% of the shares in the Company and a further investment in 3.57%
of the shares, exercisable until January 2007. In addition, the banks that
financed the purchase of the Company's shares by Kulczyk Holding may also, under
certain conditions, demand that France Telecom purchase all the shares retained
by them as collateral.
On 27 July 2004, France Telecom and Kulczyk Holding announced that they have
reached an agreement to bring forward the exercise of the Tele-Invest S.A. and
Tele-Invest II S.A. put option in accordance with the Investment' Agreements.
Upon realization the agreement will allow to transfer to France Telecom the
ownership of the 13.57% of the shares held by Kulczyk Holding in the Company.
Following the exercise of the put options, France Telecom will directly control
47,50% of the shares in Telekomunikacja Polska.
Apart from the above, the Company has no information regarding other valid
agreements that may result in changes in the proportions of shares held by the
existing shareholders.
22. Revenue
3 months 6 months 3 months 6 months
ended 30 June 2004 ended 30 June 2003
2003
unaudited unaudited unaudited unaudited
(in PLN millions)
Fixed line telephony services: 2,725 5,591 3,064 6,171
Subscriptions, connections and similar charges 1,027 2,035 993 1,994
Traffic revenues 1,613 3,374 1,921 3,927
Payphone revenues 45 87 68 96
Other 40 95 82 154
Mobile telephony services 945 1,839 736 1,398
Interconnect revenues: 445 829 388 728
LTOs and other licensed domestic operators 74 132 46 94
Mobile telephony operators 261 495 206 367
International incoming traffic 110 202 136 267
Leased lines 96 190 97 195
Radio communications 83 167 83 167
Data transmission 209 398 127 245
Sales of goods and other 97 188 76 159
----- ----- ----- -----
Total 4,600 9,202 4,571 9,063
===== ===== ===== =====
Revenues are generated mainly in the territory of Poland. Approximately 2.9% and
3.0% of the total revenues for the six months ended 30 June 2004 and 2003,
respectively, were received from entities which are not domiciled in Poland,
mostly from interconnect services.
23. Other operating expenses, net
3 months 6 months 3 months 6 months
ended 30 June 2004 ended 30 June 2003
2003
unaudited unaudited unaudited unaudited
(in PLN millions)
Gain on disposal of non financial fixed assets 2 11 (1) 2
(Impairment charge) / Reversal of impairment charge, net, on:
- property, plant and equipment and intangible assets (38) (66) (90) (102)
- receivables (102) (217) (135) (234)
- other (7) (2) 14 8
Release of provision for tax risk 3 3 - -
Increase in restructuring provision (25) (25) - -
Increase in provision for litigation and other claims (18) (18) - -
Donations received 5 10 5 11
Fines and penalties receivable 32 65 38 73
Other operating revenue 44 130 32 64
Property taxes, non-recoverable VAT and other charges (127) (258) (123) (266)
Donations (1) (3) - -
Other operating expenses (51) (84) (64) (118)
----- ----- ----- -----
Total (283) (454) (324) (562)
===== ===== ===== =====
24. Financial income and charges, net
3 months 6 months 3 months 6 months
ended 30 June 2004 ended 30 June 2003
2003
unaudited unaudited unaudited unaudited
(in PLN millions)
Interest income 34 43 57 80
Income from derivative transactions 110 165 85 279
Release of provisions 20 23 - -
Other financial income 32 56 12 26
----- ----- ----- -----
Interest revenues and other financial revenue 196 287 154 385
Interest expense (302) (633) (351) (712)
Costs from derivative transactions (41) (122) (37) (84)
Increase in provisions 3 (1) (121) (149)
Commissions and other financial charges (88) (115) (2) (52)
----- ----- ----- -----
Total interest expense and other financial charges (428) (871) (511) (997)
Interest expense and other financial charges, net (232) (584) (357) (612)
===== ===== ===== =====
Foreign exchange gains / (losses), net 164 347 70 (514)
===== ===== ===== =====
In the six months ended 30 June 2004 and 2003, interest expense included
non-cash discounting losses related to the valuation of the restructuring
provision and the concessions payable, amounting to PLN 25 million and PLN 48
million, respectively.
On 1 January 2004, the Group changed the foreign exchange rates used for the
valuation of balances denominated in foreign currencies. According to IFRS, the
effect of this change is treated as a change in estimate, and is included in the
determination of the net profit or loss for the period of the change (see Note
32(d)). In the six months ended 30 June 2004 the change mentioned above resulted
in a decrease in net financial income and charges by PLN 122 million affecting
the following items:
- the foreign exchange gains increased by PLN 190 million,
- the net income from derivative transactions decreased by PLN 70
million,
- the interest expense decreased by PLN 2 million.
25. Commitments
(a) Operating lease commitments
Lease commitments mainly relate to the lease of buildings, land, computer
equipment and vehicles. Lease costs recognised in the consolidated profit and
loss account in the six months ended 30 June 2004 and 2003 amounted to PLN 50
million and PLN 56 million, respectively. The majority of the above mentioned
agreements is denominated in foreign currencies; some of the above agreements
are indexed with price indices applicable for a given currency. Future minimum
lease payments under non-cancellable operating leases, with a term of more than
one year as at 30 June 2004, were as follows:
(in PLN millions)
unaudited
12 months ended 30 June:
2005 99
2006 134
2007 167
2008 152
2009 141
Thereafter 231
-----
Total minimum lease payments 924
=====
(b) Capital commitments
Capital commitments contracted for at the balance sheet date but not recognised
in the financial statements were as follows:
30 June 31 December
2003
2004
unaudited audited
(in PLN millions)
Property, plant and equipment 603 543
Intangibles 200 250
----- -----
Total 803 793
===== =====
Amounts contracted to be payable within 12 months from the balance 743 723
sheet date
===== =====
Capital commitments represented mainly purchases of telecommunication network
equipment, billing systems, a customer relationship management system and other
software.
(c) Agreement with Danish-Polish Telecommunication Group ("DPTG")
Refer to Note 28(e).
26. Related party transactions
As at 30 June 2004, France Telecom S.A. ("France Telecom"), via its subsidiary
company Cogecom S.A., owned 33.93% of shares of the Company (see Note 21). In
addition, France Telecom via its subsidiary France Telecom Mobiles
International, as the minority shareholder, indirectly owns 34% of the shares of
PTK-Centertel. The Group provides and receives interconnect services from France
Telecom on normal commercial terms. In the six months ended 30 June 2004 and
2003, the Group purchased services from France Telecom amounting to PLN 63
million and PLN 28 million, respectively, and sold services amounting to PLN 15
million and PLN 9 million, respectively. Furthermore, in the six months ended 30
June 2004 France Telecom did not provide free of charge services to the Company
in significant amounts. In the six months ended 30 June 2003 France Telecom
provided free of charge services to the Company worth PLN 23 million. In the six
months ended 30 June 2004 the Group acquired the shares of Eurofinance France
S.A (previously RAPP28 S.A.) from Cogecom S.A. (see Note 2). Apart from the
above transactions, the Group did not execute any significant purchase or sales
transactions with Cogecom S.A. in the six months ended 30 June 2004 and 2003.
On 15 June 2004 Telekomunikacja Polska and France Telecom signed an agreement,
which concerned granting Telekomunikacja Polska the license for using France
Telecom's trademark. The trademark is used in the logo introduced by
Telekomunikacja Polska in June 2004. The royalty for using the trademark amounts
to 0.06% of the Company's turnover and of those of its subsidiaries, which will
be granted sublicenses by Telekomunikacja Polska.
On 17 June 2004, Telekomunikacja Polska and Equant Polska Sp. z o.o. (a
subsidiary of France Telecom through Equant N.V.) signed a general agreement
under which Equant Polska Sp. z o.o. is to render services in favour of
Telekomunikacja Polska concerning the IP VPN platform implementation in Poland.
The total value of the services to be rendered under the agreement and related
specific agreements will not exceed the equivalent of EUR 2 million. The
consideration will be calculated on the basis of the working time of the expert
assigned to render the services.
As at 30 June 2004, Tele-Invest S.A. together with Tele-Invest II S.A,
subsidiaries of Kulczyk Holding S.A., owned 13.57% of shares of the Company (see
Note 21). The Group did not execute any significant purchase or sales
transactions with Tele-Invest S.A. or Tele-Invest II S.A. in the six months
ended 30 June 2004 and 2003.
As at 30 June 2004 and 31 December 2003, the Group's receivables from France
Telecom amounted to PLN 16 million and PLN 12 million, respectively, while the
Group's payables to France Telecom amounted to PLN 64 million and PLN 30
million, respectively.
Total remuneration and bonuses (cash and benefits in kind) paid or payable by
Telekomunikacja Polska to the Company's Management Board members in the six
months ended 30 June 2004 and 2003 amounted to approximately PLN 5 million and
PLN 5 million, respectively.
The remuneration of the Company's Supervisory Board members in the six months
ended 30 June 2004 and 2003 amounted to PLN 0.4 million and PLN 0.4 million,
respectively.
In the six months ended 30 June 2004 and 2003, the Company paid to the members
of the Management Board compensation and termination indemnities, including
compensation under non compete clauses, amounting to PLN 0.5 million and PLN 0.9
million, respectively. In the six months ended 30 June 2004 and 2003, the
Company did not pay any significant amounts in compensation and termination
indemnities, including compensation under non-compete clauses, to the members of
the Supervisory Board of the Company.
In the six months ended 30 June 2004 and 2003, Telekomunikacja Polska's
subsidiaries and affiliated companies did not pay any significant amounts of
remuneration or bonuses (cash and benefits in kind) to the members of the
Management Board or to the members of the Supervisory Board members of
Telekomunikacja Polska.
27. Segment reporting
The Group operates in two major reportable segments, fixed line
telecommunications and mobile telecommunications. The two segments are strategic
business units, each of which offers a different service.
Telekomunikacja Polska operates in the fixed line telecommunications sector
where it provides local, long distance domestic and international public
telephony services. In addition, Telekomunikacja Polska provides leased lines,
radio-communication and other telecommunications value added services.
Mobile telecommunications services are provided by PTK-Centertel, a provider of
NMT 450, DCS 1800 and GSM 900 mobile telecommunications in Poland.
Other operations relate to the businesses of other companies of the Group. Other
operations do not fulfil the conditions for reportable segments under
International Accounting Standard No. 14 "Segment Reporting".
The Group operates in one geographical segment, the territory of the Republic of
Poland.
The accounting policies are uniform for all segments. Transactions between
segments take place on an arm's length basis. These transactions are eliminated
on consolidation.
Basic financial data on the business segments is presented below:
Fixed line Mobile Other Eliminations Consolidated
telecommunications telecommunications
30 June 2004 - unaudited
Segment assets 33,658 6,961 383 (6,272) 34,730
Investments accounted for - - 3 - 3
using the equity method
Deferred tax assets 8 272 2 (26) 256
Total assets 33,666 7,233 388 (6,298) 34,989
Segment liabilities 16,964 5,544 252 (4,171) 18,589
Deferred tax liabilities 441 - - (8) 433
Total liabilities 17,405 5,544 252 (4,179) 19,022
31 December 2003 - audited
Segment assets 35,060 7,085 501 (6,166) 36,480
Investments accounted for - - 10 - 10
using the equity method
Deferred tax assets 8 351 4 (5) 358
Total assets 35,068 7,436 515 (6,171) 36,848
Segment liabilities 19,555 6,041 281 (4,032) 21,845
Deferred tax liabilities 278 - - (6) 272
Total liabilities 19,833 6,041 281 (4,038) 22,117
6 months ended 30 June 2004 - unaudited
Sales: 6,844 2,668 114 (424) 9,202
inter-segment 87 271 66 (424) -
external 6,757 2,397 48 - 9,202
Depreciation and 1,731 399 24 (1) 2,153
amortisation
Operating result 1,450 475 (76) 4 1,853
Net profit / (loss) 1,003 283 (97) (55) 1,134
Impairment charge on 46 - 12 - 58
property, plant and
equipment
Impairment charge on (5) - 13 - 8
intangible assets
Capital expenditure 919 252 5 - 1,176
Net cash flow from:
operating activities 3,519 696 12 (1) 4,226
investing activities (903) (500) (116) (57) (1,576)
financing activities (2,244) (367) 52 59 (2,500)
6 months ended 30 June 2003 - unaudited
Sales: 7,262 2,074 113 (386) 9,063
inter-segment 61 273 52 (386) -
external 7,201 1,801 61 - 9,063
Depreciation and 1,823 349 56 (1) 2,227
amortisation
Operating result 1,560 286 (137) 1 1,710
Net profit / (loss) 370 (39) (235) 235 331
Impairment charge on 35 - - - 35
property, plant and
equipment
Impairment charge on - - 36 - 36
intangible assets
Capital expenditures 1,005 394 24 - 1,423
Net cash flow from:
operating activities 3,157 (1) (10) 3,664
518
investing activities (1,433) (341) (53) (38) (1,865)
financing activities (1,467) (115) 15 47 (1,520)
28. Contingencies
(a) Issues related to incorporation of Telekomunikacja Polska
Telekomunikacja Polska was established as a result of the transformation of the
state-owned organisation PPTiT into two entities - the Polish Post Office and
Telekomunikacja Polska. During the transformation process and transfer of
ownership rights to the new entities, certain items of property and other assets
that are currently under Telekomunikacja Polska's control were omitted from the
documentation recording the transfer and the documentation relating to the
transformation process is incomplete in this respect. This means that
Telekomunikacja Polska's rights to certain properties may be questioned.
In addition, as the regulations concerning the transformation of PPTiT are
unclear, the division of certain responsibilities of PPTiT may be considered to
be ineffective, which may result in joint and several liability in respect of
Telekomunikacja Polska's predecessor's obligations existing at the date of
transformation.
The share premium in the equity of Telekomunikacja Polska includes an amount of
PLN 713 million which in accordance with the Notary Deed dated 4 December 1991,
relates to the contribution of the telecommunication business of PPTiT to the
Company. As the regulations relating to the transformation of PPTiT are somewhat
unclear, the division of certain rights and obligations may be considered to be
ineffective. As a result, the share premium balance may be subject to changes.
(b) Environmental risk
The Group believes that its activities in respect of telecommunication services
do not pose a serious threat to the environment. The Group's business does not
engage in any production process which creates a significant threat to rare or
non-renewable resources, natural resources (water, air, etc.) or to
biodiversity.
The Group activities generate "non-household" waste for which recycling is
closely controlled, such as: waste electronic equipment, electronics at
end-of-life, batteries and storage cells, cables and treated wooden poles.
Since 1998 the Company has implemented action plans aimed at the limitation of
its impact on the environment and at achieving compliance with Polish
regulations on environment protection. In 2002 the Company was a subject to an
environmental audit which confirmed its conformity with Polish laws and pointed
achievements in the field of limiting the impact on environment. To achieve
improvements in the area of environmental protection the Group has established
teams for monitoring purposes. The teams' objectives are to control the
infrastructure and devices, monitor emission levels and provide training in the
area of environmental protection. Additionally, they are responsible for
ensuring conformity with regulations.
Following recent developments in the environmental protection law the Company
initiated studies to determine whether the new regulations, particularly in the
context of European Union accession, could have impact on its financial
statements. As at the date of preparation of these consolidated financial
statements these studies have not been completed.
(c) Tax contingent liability
Tax settlements, together with other areas of legal compliance (e.g. customs or
foreign exchange law) are subject to review and investigation by a number of
authorities, which are entitled to impose severe fines, penalties and interest
charges. The lack of reference to well-established regulations in Poland results
in a lack of clarity and integrity in the regulations. Frequent contradictions
in legal interpretations both within government bodies and between companies and
government bodies create uncertainties and conflicts. These facts create tax
risks in Poland that are substantially more significant than those typically
found in countries with more developed tax systems.
The tax authorities may examine the accounting records up to five years after
the end of the year in which the final tax payments were to be made.
Consequently, the Group may be subject to additional tax liabilities, which may
arise as a result of additional tax audits. Telekomunikacja Polska and certain
of its subsidiaries were subject to audits by the tax office in respect of taxes
paid. Certain of these audits have not yet been finalised. The Group believes
that as at 30 June 2004 an adequate provision has been recorded for known and
quantifiable risks in this regard.
In 2001, the tax authorities conducted an audit of VAT settlements in the
Company for 1996. As a result of the audit, in 2001, the Company paid PLN 72
million of penalties and recorded a provision of PLN 135 million. The Company
appealed against that decision and, in 2002, the tax authorities repaid to the
Company PLN 50 million and PLN 14 million of penalty interest. In 2002, the
Company released all amounts previously provided for that matter. There is also
a possibility that the tax office may question the Company's other tax
liabilities in this respect. The maximum exposure estimated by the Company
amounted to PLN 53 million as at 30 June 2004. The Group has not recorded any
provision for that matter as management believes that the risk of any additional
charges in regards to that matter is remote.
As at 30 June 2004, the provision for additional tax liabilities which may
result from tax audits to be paid by the Group in regards to periods prior to
that date amounted to PLN 54 million (see Note 17).
(d) Investigations by URTiP and OPCC
A number of investigative proceedings concerning the Group are currently
underway at URTiP and OPCC. According to the Telecommunication Act, the
President of URTiP may impose on a telecommunication operator a penalty of up to
a maximum amount of 3% of the operator's prior year's revenue, if the operator
does not fulfil certain requirements of the Telecommunication Act.
According to the amended Act on Consumer Protection and the Prevention of
Monopolistic Practices, which came into force on 1 May 2004, in case of
non-compliance with its regulations, the President of OPCC is empowered to
impose on an entity penalties of up to a maximum amount of EUR 50 million for
refusal to provide requested information or up to a maximum amount 10 % of an
entity's prior year's revenue for the breach of the law.
As at the date of preparation of these consolidated financial statements there
were six decisions issued by URTiP and OPCC imposing penalties on the Company.
The Company has already appealed against those decisions. Several investigations
concerning the Group are still at the explanatory stage. As at 30 June 2004, the
provision in respect of the matters referred to above amounted to PLN 47
million.
(e) Dispute with DPTG
On the basis of agreements signed in 1991 between PPTiT, the Company's
predecessor, and the Danish Great Northern Telegraph Company, a predecessor of
DPTG, a fibre optical link called North-South Link ("NSL") connecting the
northern and southern Polish borders, with a total length of 1,500 km, was
commissioned and constructed. The total cost of the investment was estimated at
DKK 210 million and was shared between the parties. The share of PPTiT was DKK
84 million whilst DPTG paid an amount of DKK 126 million. Ownership rights to
this investment were transferred to Telekomunikacja Polska on commissioning and
DPTG was granted 14.8% of the net profit from the cable during a period of 15
years starting as at the day on which the first part of the cable was
commissioned, i.e. from 16 November 1993. Net profit is calculated as income
from long-distance and international traffic transmitted via this link based on
agreed usage fees per minute less maintenance costs, depreciation and income
tax. Telekomunikacja Polska is responsible for the maintenance of the cable. For
purposes of the net profit calculation, the parties agreed that annual
maintenance costs would amount to 7% of the cable cost as adjusted for
inflation, limited to 5%, denominated in Special Drawing Rights (SDR).
Telekomunikacja Polska is required to maximise the data flow through the cable.
DPTG's share in the net profit from the link for the six month periods ended 30
June 2004 and 2003 amounted to PLN 26 million and PLN 20 million, respectively
and was recognised as a cost by the Company.
On 22 March 2001, DPTG requested termination or re-negotiation of the contract
as the traffic accounted for by the Company had been decreasing since 1999. As
the Company did not accept the suggested terms of termination or the
re-negotiation of the agreement, DPTG claimed for arbitration under the terms of
the agreement, in June 2001.
On 5 November 2002, DPTG filed a motion with the arbitration court in which it
demanded that the Company pay an estimated amount of EUR 280 million. As at the
date of preparation of these consolidated financial statements, the arbitration
court proceeding was still pending. Irrespective of the arbitration court
proceeding, the parties are in the process of negotiating a settlement. The
Group recorded a provision in this respect, which represents Telekomunikacja
Polska's best estimate of the amount which is more likely than not to be paid.
The information regarding the amount of the provision required to be disclosed
by International Accounting Standard No. 37 "Provisions, Contingent Liabilities
and Contingent Assets" is not presented on the grounds that it could prejudice
the outcome of the litigation.
(f) Contract withdrawal
In April 2002, the Company withdrew from a contract with one of its suppliers.
Under this contract, in order for the Company to withdraw, it must be able to
prove that the project is not financially viable. The outstanding value of the
contract amounts to PLN 32 million.
If justification for withdrawal from the contract is insufficient, the Company
may incur losses in this respect. No provision was recorded in this respect, as
Management believes that the probability of any charges to be incurred by the
Company is remote.
(g) Claim from Antillephone N.V. and Antelcom N.V.
In January 2004, the Company was informed that Antillephone N.V. and Antelcom
N.V. filed a claim against the Company for compensation amounting to PLN 264
million for alleged unfair competition in the audiotex market. On 20 January
2004, the Company replied to the claim. No provision was recorded in this
respect as at 30 June 2004, as management believes that the claim is
unjustified.
(h) Pia Piasecki SA claims
The Company concluded a contract with PIA Piasecki SA ("PIA Piasecki") for the
design and construction of its headquarters - the Twarda Tower building. As the
terms of the contract were not met due to a delay in the performance of the
work, in the middle of 2002, the Company lodged a claim on the basis of a bank
guarantee for the performance of the contract, amounting to a total of PLN 17
million.
In December 2002, PIA Piasecki claimed arbitration and demanded from the Company
an amount of PLN 111 million as compensation for the claim made on the basis of
the bank guarantee as well as for losses related to the completion of the
contract. The Company filed a cross-petition against PIA Piasecki on 2 July
2003. Irrespective of the above court proceeding, PIA Piasecki filed for
bankruptcy. In June 2003, the court declared PIA Piasecki as insolvent.
No provision was recorded in this respect, as management believes that the
probability of any charges to be incurred by the Company is remote.
(i) Claim from Polskie Centrum Sprzedazy Bezpooeredniej S.A. ("PCSB S.A.")
In June 2002, PCSB S.A. filed a legal claim against PTK-Centertel for PLN 64
million as a penalty for damages under the terms of a contract signed between
the parties. PCSB S.A. did not provide PTK-Centertel with any documents
supporting the alleged damages nor concerning PTK-Centertel's alleged
non-compliance with the conditions of the contract. As at 30 June 2004 the
amount of the claim decreased to PLN 12 million.
According to management, the claim is unjustified and, therefore no provision
was recorded in this respect as at 30 June 2004.
(j) Claim from a former PTK-Centertel employee
In September 2003, PTK-Centertel was requested by one of its former employees to
pay PLN 80 million in respect of a claim relating to the name rights of
PTK-Centertel's brand "Idea". No provision was recorded in this respect, as
management believes that the probability of any charges to be incurred by
PTK-Centertel is remote.
(k) Options
Contingent liabilities related to options are described in Note 29.
(l) Other contingent liabilities
Apart from the above mentioned, the Group is a party to a number of legal
proceedings related to its operational activities. The Group believes that
adequate provisions have been recorded for known and quantifiable risks in this
respect.
29. Financial instruments
The fair value of cash and cash equivalents, receivables, short-term financial
assets and current loans, borrowings and other payables approximates the
carrying amounts reported in the balance sheet due to the relatively short-term
maturity of these financial instruments. The fair value of non-current financial
assets as well as loans, borrowings and other payables with variable interest
rates approximates their carrying amounts. The carrying amount of the
telecommunication concession payable approximates its fair value. As at 30 June
2004 and 31 December 2003 the fair value of non-current loans, borrowings and
other payables with fixed interest rates, including telecommunication
concessions payable, amounted to PLN 12,248 million and PLN 13,263 million,
respectively (carrying amount: PLN 11,171 million and PLN 12,237 million,
respectively).
The Group entities enter into contracts which do not constitute financial
instruments but which include embedded derivatives. These instruments primarily
relate to purchase contracts for equipment and services denominated in foreign
currencies.
The Group uses currency and interest rate swaps to mitigate its exposure against
foreign currency fluctuations on debt denominated in foreign currencies or to
mitigate its exposure against interest rates fluctuations. Additionally, the
Group uses option and forward contracts to mitigate its exposure against foreign
currency risk. The Group classifies some of its derivatives (interest rate
swaps) as non-hedging for accounting purposes due to the fact that not all of
the formal requirements in respect to the documentation of hedge accounting were
met.
The change in fair value of cash flow hedges charged to equity is presented
below:
6 months ended 30 June
2004 2003
(in PLN millions)
Beginning of period - audited (116) (216)
The effective part of the gain/loss on hedging instrument (98) 370
The amounts transferred to the profit and loss account 160 (293)
Deferred tax effect (13) (22)
----- -----
End of period - unaudited (67) (161)
===== =====
Forward contracts and currency and interest rate swaps are presented below:
Type of Hedged Notional value Interest Maturity Fair value
instrument item
(1) (millions) (PLN millions)
Receive Pay Receive Pay Financial Financial
Asset Liability
30 June 2004
Fair value hedge
CCIRS(4) Bank 7 USD 25 PLN 1.25% 6M WIBOR-3.11% 2008 - (7)
borrowings
CCIRS Bonds 800 USD 3,157 PLN 7.75% to 7.86436% 6M WIBOR+1.75% to 2008 - (149)
6M WIBOR+5.60%
CCIRS(5) Bank 119 EUR 505 PLN 3M EURIBOR 3M WIBOR-1.345% to 2006 - 18 (18)
borrowings 3M WIBOR+1.56% 2008
CCIRS Bonds 585 EUR 2,466 PLN 6.5625% to 6M WIBOR+1.59% to 2006 - 240 -
6.6875% 6M WIBOR+3.88% 2007
IRS Bonds 200 PLN 200 PLN 7.25% 6M WIBOR+1.71% 2005 3 -
Cash flow hedge
CCIRS(6) Bank 125 EUR 596 PLN 3.81% or 3M 4.52% to 7.81% 2005 - 8 (23)
borrowings EURIBOR 2008
CCIRS Bonds 695 EUR 2,666 PLN 6.125% to 6.6875% 10.43% to 15.25% 2004 - 429 (4)
2007
CCS Other 3 EUR 13 PLN 0.8% PLN 1 mln 2008 - (1)
quarterly
IRS Bank 416 PLN 416 PLN 3M WIBOR-0.17% 6.89% to 6.99% 2012 - (1)
borrowings
Trade
CCIRS - 99 EUR 359 PLN 4.7% or 3M 12.48% or 3M WIBOR 2005 - 86 -
EURIBOR 2012
CCS - 5 EUR 19 PLN - 6.69% 2007 2 -
IRS - 2,166 PLN 2,166 PLN 3M WIBOR to 6M 6.28% to 6.95% 2007- 36 -
WIBOR 2008
FRA - 70 PLN 70 PLN - 5.81% 2005 0 -
NDF - 294 PLN 60 EUR - - 2004 16 -
NDF - 60 EUR 281 PLN - - 2004 - (6)
FWD - 26 EUR 121 PLN - - 2004 0 (0)
Total of fair value
Swap contracts 822 (203)
Forward contracts 16 (6)
Total 838 (209)
31 December 2003
Fair value hedge
CCIRS(2) Bank 7 USD 28 PLN 1.25% 6M WIBOR-3.11% 2008 - (4)
borrowings
CCIRS Bonds 800 USD 3,157 PLN 7.75% to 7.86436% 6M WIBOR+1.75% to 2008 22 (40)
6M WIBOR+5.60%
CCIRS(3) Bank 133 EUR 561 PLN 3M EURIBOR 3M WIBOR-1.345% to 2006 - 57 -
borrowings 3M WIBOR+1.56% 2008
CCIRS Bonds 585 EUR 2,466 PLN 6.5625% to 6M WIBOR+1.59% to 2006 - 512 -
6.6875% 6M WIBOR+3.88% 2007
IRS Bonds 200 PLN 200 PLN 7.25% 6M WIBOR+1.71% 2005 - (2)
Cash flow hedge
CCIRS Bonds 675 EUR 2,571 PLN 6.125% to 6.625% 13.77% to 15.25% 2004 - 563 -
2007
CCS Other 4 EUR 16 PLN 0.8% PLN 1 mln 2008 1 -
quarterly
Trade
CCIRS - 274 EUR 1,056 PLN 4.645% to 6.3% 12.10% to 14.96% 2004 - 192 -
2012
or 3M EURIBOR to or 3M WIBOR to 6M
6M EURIBOR+1.95% WIBOR+2.38%
CCS - 15 EUR 59 PLN - 6.37% to 6.69% 2007 1 -
CCS - 103 EUR 129 USD - - 2004 7 -
CCS - 346 PLN 92 USD - - 2004 - (5)
IRS - 1,234 PLN 1,234 PLN 3M WIBOR 6.35% to 6.95% 2008 - (14)
FWD - 822 PLN 177 EUR - - 2004 - (13)
Total of fair value
Swap contracts 1,355 (65)
Forward contracts - (13)
Total 1,355 (78)
(1) CCIRS - cross currency interest rate swap, CCS - cross currency swap, IRS -
Interest rate swap, FWD - currency forward,
FRA - forward rate agreement, NDF - non-deliverable forward
(2) Interest is calculated based on notional amounts of USD 26 million and PLN
97 million as modified by the payment schedule
(3) Interest is calculated based on notional amounts of EUR 282 million and PLN
1,206 million as modified by the payment schedule
(4) Interest is calculated based on notional amounts of USD 25 million and PLN
94 million as modified by the payment schedule
(5) Interest is calculated based on notional amounts of EUR 234 million and PLN
999 million as modified by the payment schedule
(6) Interest is calculated based on notional amounts of EUR 185 million and PLN
872 million as modified by the payment schedule
In addition, as at 30 June 2004 and 31 December 2003, the Group was a party to
the following put and call option arrangements:
(a) Put and call options issued to/acquired from the shareholders of WP
On 26 October 2001, TP Internet issued a put option to the minority shareholders
of WP ("WP minority shareholders"). Under the terms of this option, TP Internet
is obliged to acquire all shares of WP held by the WP minority shareholders. As
at the date of signing the option agreement, the WP minority shareholders owned
2,235,002 shares of WP. This put option may be exercised from 1 June 2005 to 1
June 2006 if the monthly average number of unique users of the WP Internet
portal exceeds 3,000,000 in the twelve-month period prior to the exercise date
of this option. The exercise price for this put option is indexed to the number
of unique users of the WP portal in the period preceding the exercise date. The
maximum exercise price of this put option was agreed to be USD 66.40 per share.
The option can also be exercised earlier if the Company or any of its
subsidiaries launch a competitive internet portal.
TP Internet also acquired a call option issued by the WP shareholders to acquire
the WP shares held by the WP minority shareholders. The option is exercisable
from 1 June 2005 to 1 June 2006. The exercise price for this call option is
indexed to the number of unique users of the WP internet portal in the period
preceding the exercise date on terms similar to those of the put option
described in the preceding paragraph. Under the terms of this agreement, two
shareholders of WP are entitled to retain up to 5% of all shares of WP and these
shares are not subject to this call option.
In 2003, TP Internet acquired 1,361,517 shares from the WP minority shareholders
and as a result all options related to these shares expired. As at 30 June 2004,
WP minority shareholders owned the remaining 873,485 shares of WP which were
subject to the put and call options.
In 2003, the Group recorded a provision for the difference between the expected
purchase price to be paid by TP Internet and the estimated fair value of the
shares held by the WP minority shareholders. The amount of the provision has not
been separately disclosed, in accordance with IAS 37, as in the opinion of the
Company's Management such disclosure could seriously prejudice TP Internet's
position in its future discussions with the WP minority shareholders. However,
the final purchase price and accordingly the amount of the related provision
depend on the outcome of these future discussions and may differ from the best
estimates included in these financial statements.
On 9 December 2003, certain of the WP minority shareholders called for an
earlier exercise of their put option as in their opinion, the Company had
launched a competitive internet portal. Management of TP Internet believes that
there are no grounds for an earlier exercise of the put option.
On 9 April 2004, the District Court in Gdansk declared Wirtualna Polska bankrupt
due to its insolvency (see Note 2).
In 2004, WP minority shareholders filed a claim against Wirtualna Polska S.A.,
TP Internet, Prokom Internet S.A. and Transcontinental Fund Ltd. The claim
amounts to PLN 61 million and relates to the sale of WP shares by Prokom
Internet S.A. and Transcontinental Fund Ltd to TP Internet, based on an
agreement signed on 23 December 2003. No provision was recorded in this respect
as at 30 June 2004, as management believes that the claim is unjustified.
30. Supplementary cash flow information
In the six months ended 30 June 2004 and 2003, the Group reported no significant
non-cash transactions.
31. Liquidity risk
As at 30 June 2004, the Group reported net current liabilities amounting to PLN
1,616 million. Management of the Company believes that this situation does not
create a significant liquidity risk to the Group in the foreseeable future. In
the six months ended 30 June 2004, the net cash inflows from the Group's
operating activities amounted to PLN 4,226 million. Additionally, based on
arrangements made with banks, the Group has unused bank loan facilities
amounting to PLN 2,499 million as at 30 June 2004. The Group is also a party to
certain bank borrowing agreements, which require the Group to maintain certain
financial ratios (see Note 15(a)).
32. Transformation for IFRS purposes
Except for foreign subsidiaries (see Note 2) the Group maintains accounts in
accordance with the accounting principles and practices employed by enterprises
in Poland, as required by the Accounting Act. The financial statements set out
above include certain adjustments not reflected in the Company's consolidated
financial statements as at 30 June 2004 and comparative financial data as at 30
June 2003 and 31 December 2003, prepared under Polish Accounting Standards
(PAS), to present these financial statements in accordance with IFRS.
The adjustments to the consolidated financial statements prepared under PAS are
set out below:
Net profit Net profit Net assets Net assets Total assets Total assets
for 6 months for 6 months
ended 30 ended 30 as at as at as at as at
June 2004 June 2003
30 June 31 December 30 June 31 December
2003
2004 2004 2003
(in PLN millions)
Consolidated PAS* 1,152 456 14,555 13,425 35,235 37,033
(a) Capitalisation 3 (1) (35) (35) (45) (46)
of borrowing costs
(b) 15 (84) (236) (251) (1,138) (1,224)
Telecommunications
concessions
(c) Distribution (1) (12) (15) (43) - -
from profit for the
benefit of employees
and for special funds
(d) Change in 101 32 - (98) - 129
estimates
(e) Revaluation of (110) (113) 865 973 866 973
property, plant and
equipment
(f) Recognition of (3) (2) 400 403 - -
perpetual usufruct
(g) Deferred tax (23) 54 (169) (147) 71 (17)
effects
(h) Other - 1 - - - -
----- ----- ----- ----- ----- -----
Consolidated IFRS 1,134 331 15,365 14,227 34,989 36,848
===== ===== ===== ===== ===== =====
* restated as a result of the amendment to the Accounting Act effective from 1
January 2004
(a) Capitalisation of borrowing costs
According to PAS, only the costs of borrowings financing the construction of
specifically identified assets during their construction period may be
capitalised. In the absence of such borrowings or in cases where the
construction of specifically identified assets has been completed, borrowing
costs are expensed. Under IFRS, borrowing costs are expensed in the profit and
loss account as incurred (see also Note 7).
(b) Telecommunications concessions
According to PAS, telecommunications concessions are reported in the financial
statements at cost less accumulated amortisation, whilst long-term liabilities
arising from future payments for these concessions are reported at nominal
value. Under IFRS, such concessions and related liabilities are initially
recorded at the present value of all future cash flows. Interest and foreign
exchange differences related to this liability, as well as the financial costs
of borrowings used for financing the concessions, are expensed as incurred.
(c) Distribution from profit for the benefit of employees and for
special funds
In line with Polish business practice, shareholders are allowed to distribute
profits for the benefit of a Company's employees and to increase the Social Fund
set up for the welfare of employees as well as increase funds created for
specific purposes. In the IFRS financial statements such distributions are
recognised as an operating expense of the period to which the profit
distribution relates.
(d) Change in estimates
Until 31 December 2003, the entities of the Group translated assets denominated
in foreign currencies using the lower of the two: the average daily bid exchange
rate of the entity's principal bank or the average exchange rate announced by
the National Bank of Poland ("NBP") and liabilities denominated in foreign
currencies using the higher of the two: the average daily offer exchange rate of
the entity's principal bank or the average exchange rate announced by the NBP at
the balance sheet date. According to the amended Polish Accounting Act, items
denominated in foreign currencies are translated as at the balance sheet date
using the average exchange rate announced by the NBP starting from 1 January
2004.
Under PAS, changes in the accounting policy for the valuation of balances
denominated in foreign currencies at the balance sheet date are reported
retrospectively as an adjustment to the opening balance of retained earnings.
According to IFRS, the effect of the change of foreign exchange rates used for
the valuation of balances denominated in foreign currencies at the balance sheet
date is treated as a change in estimate, and is included in the determination of
the net profit or loss for the period of the change.
(e) Revaluation of property, plant and equipment
As described in Note 7, the Group has revalued certain property, plant and
equipment and used its fair value as deemed cost as at 1 January 2003, which is
the date of transition to IFRS under IFRS 1. Under PAS, the Group last revalued
its fixed assets at 1 January 1995 to reflect the effects of inflation by
applying price indices determined by the Central Statistical Office for
individual groups of assets.
(f) Recognition of perpetual usufruct
As described in Note 7, in the second quarter of 2004 the Group recognised the
fair value of perpetual usufructs. Under IFRS, retained earnings have been
increased by the value of these assets. Depreciation of these assets impacts the
profit and loss account. Under PAS, the value of these assets has been
recognised in deferred income and is amortised to other operating revenue which
offsets the impact of depreciation of these assets on the profit and loss
account. Under PAS, recognition of perpetual usufruct is not subject to deferred
tax.
(g) Deferred tax effects
The deferred tax balances have changed as a consequence of adjusting the
financial statements prepared in accordance with PAS, by the items detailed
above.
In addition, the captions of consolidated financial statements prepared in
accordance with PAS and IFRS may differ significantly. The scope of disclosures
for consolidated financial statements according to PAS differs from the scope of
disclosures under IFRS.
33. New accounting pronouncements
In December 2003, the IASB revised 13 existing International Accounting
Standards. The new revised standards should be applied for annual periods
beginning on or after 1 January 2005. The Group is currently reviewing the
practical implications of the revised standards.
In February 2004, the IASB issued IFRS 2 "Share-based Payment" ("IFRS 2"). The
new standard should be applied for annual periods beginning on or after 1
January 2005 and applied retrospectively to issues before November 2002 and not
vested as at 1 January 2004. The new standard will not significantly impact the
accounting policies used by the Group.
In March 2004, the IASB issued IFRS 3 "Business Combinations" ("IFRS 3"). The
new standard should be applied for annual periods beginning on or after 1 March
2004. The issuance of the new standard will not significantly impact the
accounting policies used by the Group. IFRS 3 should be applied to the
accounting for business combinations for which the agreement date is on or after
31 March 2004.
In March 2004, the IASB issued IFRS 4 "Insurance Contracts" ("IFRS 4"). The new
standard should be applied for annual periods beginning on or after 1 January
2005. The new standard issued will not significantly impact the accounting
policies used by the Group.
In March 2004, the IASB issued IFRS 5 "Non-current Assets Held for Sale and
Discontinued Operations" ("IFRS 5"). The new standard should be applied for
annual periods beginning on or after 1 January 2005. The Group is currently
reviewing the practical implications of the revised standard.
34. Subsequent events
(a) Issuance of bonds
On 5 July 2004, TPSA Eurofinance France S.A. issued bonds with a total nominal
value of EUR 300 million, a total issue price of EUR 297.5 million, a fixed
interest rate of 4.625% p.a. and maturity date on 5 July 2011. The redemption of
the bonds issued by TPSA Eurofinance France S.A. is guaranteed by the Company.
The net proceeds of the issue of the bonds will be used primarily for
refinancing of the Group's existing debt.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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