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ORLEN Group 2016 Integrated Report

II nagroda specjalna w kategorii Raport Zintegrowany | Najlepszy raport on-line

Basic information

Capitals:  

5.1. Principal activity of the ORLEN Group
5.2. Principles of preparation of financial statements
5.3. Functional currency and presentation currency of financial statements and methods applied to translation of financial data for consolidation purposes
5.4. Accounting principles
5.5. Impact of IFRS amendments and interpretations on consolidated financial statements of the ORLEN Group

5.1. PRINCIPAL ACTIVITY OF THE ORLEN GROUP

Polski Koncern Naftowy ORLEN Spółka Akcyjna seated in Płock, 7 Chemików Street (“Company”, “PKN ORLEN”, “Issuer”, “Parent Company”) was founded by incorporation of Petrochemia Płock S.A. with Centrala Produktów Naftowych S.A., on 7 September 1999.

PKN ORLEN along with the entities forming the Capital Group of Polski Koncern Naftowy ORLEN S.A. (“ORLEN Group”, “Group”) is one of the biggest and most modern fuel and power companies in Central Europe, operating on the Polish, Lithuanian, Czech and German market. The Group also possesses entities located in Malta, Sweden, the Netherlands, Slovakia, Hungary, Estonia, Latvia, USA and Canada.

The core business of the ORLEN Group is crude oil processing, production of fuel, petrochemical and chemical goods, as well as, retail and wholesale of fuel products. The ORLEN Group conducts also exploration, recognition and extraction of hydrocarbons, and generates, distributes and trades of electricity and heat.

The activity of the ORLEN Group companies is also service-related activity: storage of crude oil and fuels, transportation, maintenance and overhaul services, laboratory, security, design, administrative, insurance and financial services. Additional information is presented in note 9.1.

Since 26 November 1999 PKN ORLEN shares are quoted on the main market of the Warsaw Stock Exchange (WSE) in the continuous trading system.

One of the subsidiaries of PKN ORLEN – Unipetrol a.s. is also present on the capital market. The shares are listed on the Stock Exchange in Prague.

5.2. PRINCIPLES OF PREPARATION OF FINANCIAL STATEMENTS

The consolidated financial statements have been prepared in accordance with accounting principles contained in the International Financial Reporting Standards (IFRS), comprising International Accounting Standards (IAS) as well as Interpretations of Standing Interpretation Committee (SIC) and the International Financial Reporting Standards Interpretations Committee (IFRIC), which were adopted by the European Union (EU) and entered in force till the end 2016. The Group adopted all IASs and IFRSs in accordance with their effective date.

The consolidated financial statements have been prepared on a historical cost basis, except derivatives, financial assets available for sale and investment properties, which have been measured at fair value. The foregoing financial statements have been prepared using the accrual basis of accounting except from the consolidated financial statement of cash flows.

The scope of consolidated financial statements is compliant with Minister of Finance Regulation of 19 February 2009 on current and periodic information provided by issuers of securities and conditions for recognition as equivalent information required by the law of a non-Member state (uniform text: Official Journal 2014, item 133, as amended Official Journal 2016, item 860) (“Regulation”)and covers the annual period from 1 January to 31 December 2016 and the comparative period from 1 January to 31 December 2015.

Presented consolidated financial statements present a true and fair view of the ORLEN Group’s financial position as at 31 December 2016, results of its operations and cash flows for the year ended 31 December 2016.

The consolidated financial statements have been prepared assuming that the ORLEN Group will continue to operate as a going concern in the foreseeable future. As at the date of approval of these consolidated financial statements, there is no evidence indicating that the ORLEN Group will not be able to continue its operations as a going concern. Duration of the Parent Company and the entities comprising the ORLEN Group is unlimited.

5.3. FUNCTIONAL CURRENCY AND PRESENTATION CURRENCY OF FINANCIAL STATEMENTS AND METHODS APPLIED TO TRANSLATION OF FINANCIAL DATA FOR CONSOLIDATION PURPOSES

The functional currency of the Parent Company and presentation currency of the foregoing consolidated financial statements is Polish Złoty (PLN). The data in the consolidated financial statements is presented in PLN million, unless is stated differently.

Translation in to PLN of financial statements of foreign entities, for consolidation purposes:

Foreign exchange differences resulting from the above recalculations are recognized in equity as foreign exchange differences on translating foreign operations.

CURRENCY Average exchange rate for the reporting period Exchange rate as at the end of the reporting period
  2016 2015 31/12/2016 31/12/2015
EUR/PLN 4.3648 4.1841 4.4240 4.2615
USD/PLN 3.9459 3.7717 4.1793 3.9011
CZK/PLN 0.1614 0.1534 0.1637 0.1577
CAD/PLN 2.9772 2.9532 3.0995 2.8102

5.4. ACCOUNTING PRINCIPLES

Significant accounting principles and significant values based on judgements and estimates are presented as a part of the specific explanatory notes to the consolidated financial statements. The Group applied the accounting principles consistently to all presented reporting periods.

The preparation of consolidated financial statements in accordance with IFRSs requires that the Management Board makes expert estimates and assumptions that affect the presented amounts. The estimates and related assumptions are based on historical expertise and other factors regarded as reliable in given circumstances and their effects provide grounds for professional judgment of the carrying amount of assets and liabilities which is not based directly on any other factors.

In the matters of considerable weight, the Management Board might base its judgments, estimates or assumptions on opinions of independent experts. The judgments, estimates and related assumptions are verified on a regular basis.

Selected accounting principles Note
Operating segments 6.1
Sales revenues 7.1.1
Costs 7.1.3
Income tax expenses (tax expense) 7.1.7
Property, plant and equipment 7.2.1
Exploration and extraction of mineral resources 7.2.1
Intangible assets 7.2.2
Impairment of property, plant and equipment and intangible assets 7.2.4
Inventories 7.2.5.1
Trade and other receivables 7.2.5.2
Trade and other liabilities 7.2.5.3
Net debt 7.2.6
Equity 7.2.7
Provisions 7.2.9
Financial instruments 7.3
Fair value measurement 7.3
Lease 7.4.2
Contingent assets and liabilities 7.4.4
Investments in subsidiaries, jointly controlled entities and associates 9.1

5.5. IMPACT OF IFRS AMENDMENTS ON CONSOLIDATED FINANCIAL STATEMENTS OF THE ORLEN GROUP

IFRSs announced and adopted by the European Union, not yet effective

IFRS 9 - Financial instruments

The Group has performed an initial analysis of the impact of the Expected Credit Loss model for credit risk assessment for undue receivables on 31 December 2016, and for historical data. Based on the results of the analysis, Group does not expect that the new standard will have a significant impact on its consolidated financial statements.

IFRS 15 - Revenue from contracts with customers

Group started the assessment process of the impact of the application of major assumptions of IFRS 15 "Revenue from contracts with customers" on the consolidated financial statements and has performed the initial analysis of a five-step model to determine when to recognize revenue. The model specifies that revenue should be recognized when (or as) an entity transfers control of goods or services to a customer at the amount to which the entity expects to be entitled. Depending on whether certain criteria are met, revenue is recognized over time, in a manner that depicts the entity’s performance or at a point in time, when control of the goods or services is transferred to the customer.

Initial analysis aim to identify significant contracts concluded in the framework of: wholesale, retail and mining activities, which could potentially contain elements affecting the timing of revenue recognition and their amount in the reporting period, in particular with regard to: long term contracts, multiple-element and combining contracts, significant elements of financing, variable consideration, discounts, applied penalties or bonuses in contracts.

In 2017 analysis of the impact of IFRS 15 will be extended to other types of contracts. The Group expects that the results of the full analysis of the impact of IFRS 15 on the Group data will be available in the second half in 2017.

Group, based on performed initial analysis, assesses that at initial application, i.e. for a period beginning on 1st January 2018, IFRS 15 may not have a significant impact on timing and amount of revenue recognized by the Group in its consolidated financial statements.

Standards adopted by International Accounting Standards Board (IASB), waiting for approval of EU

IFRS 16 - Lease

Bringing operating leases in consolidated statement of financial position will result in recognizing a new asset – the right to use the underlying asset – and a new liability – the obligation to make lease payments. The right-of-use asset will be depreciated and the liability accrues interest.

It is expected that the standard, when initially applied, may have a significant impact on the amounts of non-current assets and lease liabilities reported in the Group’s financial statements, in particular in respect of operating lease arrangements (rental) related mainly to petrol stations, means of transport and computer equipment as presented in the note 7.4.2.1. As at 31 December 2016 the Group does not have a reliable estimates of the influence of IFRS 16 on the consolidated financial statements, as it is during its analysis.

The Group intends to adopt new standards IFRSs listed above that are published by the International Accounting Standards Board, but not effective as at the date of publication of these financial statements, in accordance with their effective date.

Standards and Interpretations adopted by International Accounting Standards Board (IASB), waiting for approval of EU, which according to expectations will have no material impact on consolidated financial statements of the ORLEN Group


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