6. Equity Method Valuation of Associates
6.1. Condensed financial information on equity-accounted associates
in PLN m
| Dec 31 2012 | Dec 31 2011 | |
|---|---|---|
| EUROPOL GAZ S.A. | ||
| PGNiG Group’s ownership interest* | 49.74% | 49.74% |
| Core business | Transmission of natural gas | Transmission of natural gas |
| Key financial data | ||
| Total assets | 4,852 | 5,005 |
| Total liabilities | 1,192 | 1,430 |
| Revenue | 1,244 | 1,121 |
| Net profit/(loss) | 103 | 30 |
| Gas-Trading S.A. | ||
| PGNiG Group’s ownership interest | 43.41% | 43.41% |
| Core business | Trade | Trade |
| Key financial data | ||
| Total assets | 42 | 43 |
| Total liabilities | 2 | 2 |
| Revenue | 42 | 44 |
| Net profit/(loss) | (1) | (1) |
* Including a 48% direct interest and 1.74% held indirectly through GAS-TRADING SA.
6.2. Net carrying amount of interests in equity-accounted associates
in PLN m
| Dec 31 2012 | Dec 31 2011 | |
|---|---|---|
| SGT EUROPOL GAZ S.A. | ||
| Valuation of interests using equity method* | 1,528 | 1,474 |
| Cost | 38 | 38 |
| Share in change in equity | 1,566 | 1,512 |
| Impairment losses | (811) | (931) |
| Net carrying amount of investment | 755 | 581 |
| GAS-TRADING S.A. | ||
| Valuation of interests using equity method | 15 | 16 |
| Cost | 1 | 1 |
| Share in change in equity | 16 | 17 |
| Impairment losses | - | - |
| Net carrying amount of investment | 16 | 17 |
| Total net carrying amount of investments | 771 | 598 |
* After adjustment to equity, made to ensure compliance with the Group's accounting policies. See Note 6.3.
6.3. Reconciliation of the value of interests in equity-accounted associates
in PLN m
| Period from Jan 1 – Dec 31 2012 | Period from Jan 1– Dec 31 2011 | |
|---|---|---|
| Net carrying amount of investments as at beginning of the period | 598 | 556 |
| Rounding-off | - | (1) |
| Valuation recognised in profit or loss, including: | 173 | 43 |
| Valuation of SGT EUROPOL GAZ S.A. | 173 | 43 |
| Net carrying amount of investments as at end of the period | 771 | 598 |
The Parent estimated its equity interest in SGT EUROPOL GAZ S.A. on the basis of the value of the company’s equity as shown in its financial statements prepared as at December 31st 2012 in accordance with the Polish Accountancy Act, adjusted to reflect differences in the accounting policies applied within the Group and results on intercompany transactions. The differences in the accounting policies concerned the recognition of interest expenses in the net value of property, plant and equipment (until the end of 2008). Until the end of 2008, the Group applied the standard approach (in accordance with IAS 23) and did not recognise borrowing costs in the initial value of property, plant and equipment. As of the beginning of 2009, the Group capitalises borrowing costs in the value of property, plant and equipment, therefore the adjustment consists in continued elimination of these costs with respect to the previous years. Subsequently, the Parent tested its interest in SGT EUROPOL GAZ S.A. for impairment using the discounted cash flow method on the basis of information on the company's target net profit as indicated in the Inter-governmental Protocol dated October 29th 2010. The calculations were based on an assumption that SGT EUROPOL GAZ S.A.'s net profit in 2011-2021 will each year amount to PLN 21,000 thousand. Discounted cash flow includes all cash flows generated by SGT EUROPOL GAZ S.A., including cash flow related to the servicing of interest-bearing external financing (interest expenses and repayment of principal amounts of borrowings).
As at December 31st 2012, the Parent measured the value of its equity interest in jointly-controlled entity SGT EUROPOL GAZ S.A. using the equity method at PLN 1,566m . The company's value estimated as at the same date using the discounted cash flow method was PLN 755m.
Taking into account SGT EUROPOL GAZ S.A.'s actual current financial performance and improved operational stability, the Parent increased the net carrying amount to reflect the company’s current valuation of PLN 755m. As at the end of 2012, the difference in valuation relative to December 31st 2011 was PLN 174m and was recognised in the income statement for the current period under share in net profit/loss of equity-accounted entities.
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