I. Introduction to the financial statements
I.1. General Information
- General data:
- Polskie Sieci Elektroenergetyczne Spółka Akcyjna (hereinafter: PSE S.A., Company)
- Konstancin-Jeziorna, ul. Warszawska 165
- the corporate object of PSE S.A. is the provision of electricity transmission services in compliance with the required criteria for the secure operation of the Polish Power System (PPS).
- the main objectives of the activities of PSE S.A. include:
- provision of electricity transmission services,
- ensuring secure and economical operation of the Polish power system and effective management of tariff measures,
- ensuring interoperability of the Polish power system with other power systems with which it is connected,
- standing up to risks that surface in the Company’s environment and perfecting internal processes,
- increasing the organisational efficiency and building a Company based continuous improvement, which allows quality and productivity to be enhanced.
- authority keeping the register:
Polskie Sieci Elektroenergetyczne Spółka Akcyjna was established by the Notarial Deed of 17 February 2004 and entered in the National Court Register kept by the District Court, 19th Commercial Division, under number KRS 0000197596 on 03 March 2004.
- Duration of the Company: unlimited.
- Period covered by the financial statements: 01 January 2019 – 31 December 2019; however, the comparative data cover the period from 01 January 2018 to 31 December 2018.
- The financial statements have been prepared on a going concern basis. No circumstances exist that might prevent the Company from continuing as a going concern.
- The financial statements have been prepared in accordance with the provisions of the Act of 29 September 1994 on accounting (consolidated text of Journal of Laws of 2019, item 351, as amended), hereinafter referred to as the Accounting Act or the Act.
- All amounts are stated in Polish zlotys and groszes.
I.2. Overview of the accepted accounting principles (policies), including the methods of valuation of assets and liabilities, measurement of the financial results and the method of preparing the financial statements in so far as the Act provides the Entity with the right to choose.
1. Intangible assets
Intangible assets are the property rights acquired by the Company, included in the fixed assets, not classified as investments, suitable for economic use, with a foreseeable economic useful life longer than one year, intended for use for the purposes of the Company.
Valuation of intangible assets
At the date of acquisition, intangible assets are recognised at initial value, which is the purchase price or the cost of production.
The initial value of intangible assets is decreased by write-offs or depreciation charges made for the purpose of taking into account the diminution in their value due to use or passage of time.
At the balance sheet date, intangible assets are measured at acquisition price or production cost or the value resulting from the revaluation of fixed assets according to the regulations arising from the separate provisions, less any accumulated amortisation, as well as impairment write-offs.
The period and method of amortisation is determined as at the date intangible assets are put into use. The periods of on-balance sheet amortisation are determined by the units responsible for the management of the asset based on the expected economic useful life of intangible assets and are subject to periodic verification.
Impairment write-offs of intangible assets are determined for individual assets or groups of identical assets based on the determination of the permanent diminution in their value before their full armotisation — in the event of a cause leading to the diminution in value.
The level of impairment write-offs in respect of permanent impairment of value is determined by comparing the net selling price, thus the price possible to obtain for them, less the related costs, with the book value.
2. Tangible fixed assets
Tangible fixed assets are assets that meet the following conditions as at the date of recording:
- have a tangible form or are tangible property rights such as the right to perpetual usufruct of land,
- their expected economic useful life in a specific entity is longer than one year (12 months),
- are intended to be used for the purposes of the entity, including also for long-term use by other entities under rental or leasing contracts, provided that those contracts do not satisfy the definition of finance lease,
- are complete and suitable for use.
The asset is complete if it can perform the functions assigned to it, which means that it meets all the technical requirements (in engineering terms) and legal requirements for a specific category of fixed assets, and, in particular, contains all the components.
The component is an integral element of the fixed asset conditioning its use, which cannot be detached from it without a substantial detriment to the fitness of the fixed asset for use.
The component is linked physically or legally to the fixed asset.
Measurement of tangible fixed assets
As at the date of entry in the accounts, fixed assets are measured at acquisition price or production cost (or fair/market value if obtained free-of-charge).
The acquisition price or production cost representing the initial value of a fixed asset include the total costs which are in causal relationship with its acquisition, including construction, incurred from the date of the decision to acquire the asset, including the date of the documented start of its construction until the date of documented consideration of its completeness and fitness for use.
To the initial value of the tangible fixed asset does not include the costs that are not in causal relationship with the acquisition or production of the fixed asset (e.g. sanction charges).
In particular, the initial value of the asset does not include:
- the general administrative expenses, with the exception of reasonable maintenance costs of the units participating in the construction of fixed assets,
- the costs of training employees of the entity in operation of the newly acquired fixed asset, except where these costs are included in the purchase price of the fixed asset in a manner that prevents their determination or reliable measurement,
- the costs incurred in connection with the change of the location of the asset, or reorganisation of a part or all of the operations of the entity (the costs of relocation of fixed assets to new places of use) — such costs are in direct relationship with a change of location or reorganisation of the entity, and not with the construction of the fixed asset,
- the costs incurred prior to the date of the documented decision to acquire the asset or before the start of its construction,
- the costs of marketing activities, which aim to ensure that economic benefits are derived from the asset after its construction, regardless of the period in which they are incurred.
The acquisition price or the cost of production of a fixed asset does not include the costs that the Company will have to pay in the future in connection with the liquidation of the asset after the end of its useful life, or in connection with the rehabilitation of the land on which the asset was located.
The initial value of the fixed asset is increased by expenditure related to work performed for its improvement (conversion, extension, upgrading reconstruction) causing an increase in the value in use after the improvement is completed, in relation to its value at the time it was put into use, measured by the period of use, production capacity, product quality, operating expenses and other measures. Improvements of fixed assets in use can apply both to own and third-party assets. The improvement amount must exceed PLN 3,500 net.
Replacement of a component of a fixed asset, other than repair or maintenance, reduces the gross value of the fixed asset by the existing gross value of the component and reduces the existing accumulated depreciation of the fixed asset by the accumulated depreciation of the component. At the same time, the new component is shown in the records of fixed assets at acquisition price, cost of production or net book value plus the costs directly related to the adaptation of the component so as to make it fit for use, including the costs of transport as well as loading and unloading. If the attached component has been shown is the records of assets at gross value, the accumulated depreciation of the fixed asset must be reduced by the existing accumulated depreciation of the attached component.
All other expenses on the repair and maintenance of the fixed asset are charged to the profit and loss account in the period in which they are incurred.
In the course of the financial year, the initial value of fixed assets is reduced by depreciation or amortization made in order to take account of the diminution of their values, resulting from the use or the passage of time.
At the balance sheet date, tangible fixed assets are measured at purchase price or production cost or the reassessed value in the case of revaluation of fixed assets according to the regulations arising from the separate provisions, plus any costs of improvements, less the accumulated depreciation and impairment write-offs.
The period and method of depreciation is determined as at the date the tangible fixed asset is put into use. The periods of balance sheet depreciation are established by the units responsible for the management of the asset based on the expected economic useful life of the fixed asset.
The Company carries out systematic verification of the applicable periods and rates of depreciation of tangible fixed assets and components, at the end of each reporting period at the latest. The revised rates apply starting from the new financial year.
The permanent diminution in value of fixed assets occurs when there is a high probability that an asset controlled by the Company will not generate a significant part or all of the anticipated economic benefits in the future.
In such a case, the Company makes an impairment write-off, bringing the book value of the asset to the realisable value.
Fixed assets used under rental or lease contracts, or other contracts of a similar nature, included in the assets of the entity are depreciated over the term of the contract or over economic useful life of the asset, whichever is shorter.
3. Tangible fixed assets under construction
This item includes tangible fixed assets under construction, installation or improvements of an existing fixed asset classified as non-current asset.
The acquisition price and cost of production of tangible fixed assets under construction include the totality of their costs incurred by the Company for the period of construction, assembly, adaptation and improvement until the balance-sheet date or the date they are put into use.
4. Long-term and short-term investments
Investments are assets owned by the Company in order to achieve the economic benefits resulting from the growth of their value, revenues in the form of interest, dividends (share in profit) and other benefits, including commercial transactions.
Investments include long-term investments and short-term investments. Classification of investments in fixed assets or current assets depends on the criterion of time. Investments that are due and payable or intended for disposal within 12 months of the balance sheet date or from the date of their establishment, issuing or acquisition, or which represent monetary assets, are classified as short-term investments.
Valuation of long-term investments
Long-term investments are recognised on the balance sheet date at the price of purchase or acquisition, if the transaction execution and settlement costs are not material, adjusted by investment impairment write-offs. Creation of an investment impairment write-off results from permanent diminution in value of the investment in a situation where there is a high probability that a long-term investment will not generate economic benefits in the future.
Valuation of short-term investments
Short-term investments are recognised in the books as at the date of acquisition or production at the acquisition or purchase price, if the transaction execution and settlement costs are not material.
Under the lease contract, one of the parties to the contract (the lessor) hands over to the other party (the lessee) fixed assets or intangible assets for paid use or also for deriving benefits for a definite time.
Classification of a lease contract is made at the time of commencement of the lease.
If the lease contract meets at least one of the conditions listed in Article 3(4) of the Accounting Act, foreign fixed assets or intangible assets put into use under the contract are classified as the lessee’s fixed assets and the lessee depreciates the assets, with a corresponding entry under financial liabilities.
Inventory (materials) are tangible current assets purchased for own consumption, suitable for sale and goods purchased for resale in an unprocessed state.
Records of inventories are kept in the balance sheet as records by volume and value and reconciled with the data of the relevant synthetic accounts at the end of each reporting period.
The value of materials consumed gradually is expensed in full when delivered for use.
Certain types of materials, e.g., fuel, administrative and office materials, cleaning agents, minor purchases for representation and advertising purposes, water and food purchased in quantities to meet the current demand of the Company, are written off as operating expenses immediately after their purchase, excluding records by volume and value.
As at the balance-sheet date, inventories are carried at the lower of the cost of acquisition or the cost of production and the net selling price adjusted by any inventory impairment write-off.
Inventory impairment write-offs are made on the basis of an analysis of the balance of inventories, taking into account:
- balance of inventories,
- turnover of inventories,
- usefulness of inventories,
- value of inventories remaining idle during the year,
- rate of economic depreciation.
Impairment write-offs of tangible current assets (materials) made in connection with their diminution in value and resulting from bringing about net selling prices instead of purchase prices or production costs are included in other operating expenses.
Materials and goods are measured during the financial year at actual acquisition prices.
Inventory depletion is measured during the year by way of detailed identification of the actual prices of those items which relate to specific projects, irrespective of the date of their purchase.
Advances for deliveries are measured at nominal value, i.e. at the value of the amounts provided to suppliers towards orders placed.
7. Receivables and payables
At the balance sheet date, receivables and claims of the Company are measured at the amount of the due payment, increased by default interest and decreased by impairment write-offs expressing the likely reduction of receivables, taking into account the level of security interests held. Non-financial receivables overdue, redeemed, or declared non-collectible debts are excluded from the books.
Impairment write-offs of receivables fall within other operating expenses or financial expenses, depending on the nature of the receivables subject to impairment.
The Company’s long-term receivables include receivables, with the exception of those classified as financial assets and trade receivables with maturity longer than one year from the balance sheet date.
At the balance sheet date, payables are measured at the amount due. The amount due includes the nominal value of the payables, as well as the accrued interest owed to the counterparty.
The nominal value of payables in respect of loans and borrowings is increased by the accrued interest and increased or decreased by accrued exchange rate differences.
8. Foreign exchange differences
At the balance sheet date, assets and liabilities denominated in foreign currencies are measured at the average exchange rate established for the currency concerned by the National Bank of Poland.
Exchange differences arising from the valuation, as at the balance sheet date, of assets and liabilities denominated in foreign currencies with the exception of long-term investments and those arising in respect of the payment of the receivables and payables in foreign currencies, as well as on the sale of currencies, are included in financial revenues or expenses, as appropriate, and in justified cases - in the purchase price of goods, as well as the purchase price or production cost of fixed assets, tangible fixed assets under construction or intangible assets.
9. Classification of financial instruments
Financial instruments are recognised and measured in accordance with the Regulation of the Minister of Finance of 12 December 2001 on detailed rules for the recognition, valuation methods, the scope of disclosure and presentation of financial instruments. The above valuation principles do not apply to financial instruments excluded from the aforementioned Regulation, including, in particular: shares in subordinated entities, rights and obligations under lease and insurance contracts, trade receivables and payables, and financial instruments issued by the Company as its capital instruments.
Division of financial instruments
Financial assets are divided into:
- financial assets held for trading,
- loans granted and own receivables,
- financial assets held to maturity,
- financial assets available for sale,
Financial liabilities are divided into:
- financial liabilities held for trading,
- other liabilities.
Provisions are liabilities whose due date or amount are not certain. The Company creates them for certain or probable future obligations, whose value can be reliably charged to other operating or financial expenses. Provisions for retirement and similar benefits are an exception, and they are charged to operating activities.
Provisions in the balance sheet are divided into:
- provision for deferred income tax,
- provision for retirement and similar benefits, broken down into:
- other provisions, broken down into:
The division criterion is the date on which the liability arises:
- within 12 months of the balance sheet date,
- after 12 months of the balance sheet date.
The provision for deferred income tax is recognised not less often than once a quarter in the amount of income tax payable in the future, in respect of positive timing differences, i.e. differences that will increase taxable income in the future.
Provisions for retirement and similar benefits are recognised in the amount of probable future obligations to employees arising by law, material to the Company’s result of operations , including: retirement severance pay, disability and death allowances, jubilee awards and other similar benefits. Provisions for retirement and similar benefits are cost provisions recorded under accruals charged to operating expenses, presented in the financial statements under the item "Provisions for retirement and similar benefits" broken down into long-and short-term.
Other provisions are created by the Company in the financial statements when all of the following conditions are met:
- the Company is under an existing obligation (legal or customary) resulting from past events,
- it is likely that meeting of the obligation will cause the necessity of the outflow of funds — transfer of economic benefits,
- a reliable estimate of the amount of the obligation can be made.
11. Contingent liabilities — off-balance sheet
Contingent liabilities of the Company include the potential obligation to perform services, the occurrence of which us conditional upon the occurrence of certain events.
12. Prepayments and accruals
Prepayments are used for recording expenses incurred during the reporting period, but relating to future periods.
The activation of costs is conditional upon yielding economic benefits for the entity in future periods. Prepayments can be included in the balance sheet if they meet the conditions of the assets criterion specified in the Accounting Act.
- long-term prepayments applicable to future reporting periods and lasting longer than 12 months after the balance sheet date,
- short-term prepayments applicable to future reporting periods and lasting no longer than 12 months after the balance sheet date.
Write-offs for prepayments are made according to the passage of time or the volume of the benefits under the prudence principle.
Short-term prepayments include:
- prepaid rents and leases,
- property tax,
- premiums for non-life insurance,
- subscriptions accounted for over time,
- write-offs for the Company Social Benefits Fund,
- costs of research and development projects (until completed),
- expenditure under projects financed from aid-funds.
Long-term prepayments include:
- deferred tax assets,
- other prepayments.
Accrued expenses are used to record provisions for costs that, in whole or in part, relate to the current period or previous periods and which have been reliably estimated.
Accrued revenues are accounted for under the prudence principle.
Accrued revenues include, in particular:
- the equivalent of funds received or receivable from counterparties in respect of performances that will be provided in the following reporting periods,
- cash received to finance the acquisition or construction of fixed assets and development projects, in so far as they do not increase equity pursuant to other regulations, e.g. grid connection charges,
- negative goodwill,
- grants and subsidies.
In accordance with the matching principle, the fees collected by the Company for connection to the transmission grid are included in accrued revenues.
Long-term, accruing revenues include negative goodwill.
Negative goodwill is recognised and recorded by the Company in the accounts in connection with the merger or acquisition of a business or its organised part. It is the surplus of the fair value of the net assets of the acquired company above the acquisition price. The acquisition price is the price at which the entity (or its organised part) was acquired.
Negative goodwill is accounted for in equal instalments (written off as other operating income) for a period constituting a weighted average of the economic useful life of acquired, depreciable tangible fixed assets and amortisable intangible assets.
Grants and subsidies are recognised at their fair value where there is reasonable assurance that the grant will be received and all conditions for obtaining the grant will be met. If a grant or subsidy applies to a cost item, then it is deferred in the balance sheet and amortised systematically in a revenue item so as to match the costs the grant concerned is intended to compensate.
If the grant or subsidy is intended to finance the acquisition or production of an asset, then it is deferred in the balance sheet and recognised as revenue over the depreciation period of the asset.
- initial capital — share capital reflecting the par value of shares,
- supplementary capital, created to cover potential losses,
- reserve capital, created to cover specific losses and expenses,
- revaluation reserve, created in accordance with the Accounting Act or other specific provisions,
- profit (loss) brought forward, which includes also the effects of errors and effects of changes in accounting policy,
- current year net profit (loss),
- net profit written off during the financial year (negative value)
Initial (share) capital at the balance sheet date is shown in the amount stated in the deed or articles of association and entered in the court register (KRS) listed in the National Court Register and reflecting the par value of shares.
Supplementary capital of the Company is created:
- from contributions and share premiums,
- from profit for distribution.
The use the supplementary capital is specified by the Company’s Articles of Association.
Revaluation reserve is designed to record the effects of the valuation of assets of the entity, i.e.:
- to reflect in market prices or otherwise determined fair value of investments held as current assets,
- derivatives included in current assets, which meet hedge accounting conditions. Other reserve capital is created and used for specifically designated purposes on the basis of the provisions of the Company’s Articles of Association.
In accordance with the currently applicable Regulation (EC) No 714/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the network for cross-border exchanges in electricity (and repealing Regulation (EC) No 1228/2003), the Company creates and recognises in other reserve capitals the special purpose fund intended for the purposes specified by the above Regulation. The fund is created from the Company’s net profit. The value of the fund is the difference between gross revenue from the provision of transmission capacity for cross-border exchange, determined as the sum of revenues from the cross-border exchange capacity on parallel and non-parallel connections, reduced by mandatory charges (including taxes).
The method of creating and using the fund is specified in the document “Special Purpose Fund Rules" approved by the General Meeting of the Company.
Reduction in the fund takes place after completion and settlement of the investment financed from the fund by resolution of the General Meeting of the Company.
Recognition of the use of the fund is based on a resolution of the General Meeting of the Company to reduce the value of the fund and increase the supplementary capital by the amount specified in the resolution.
Profit or loss brought forward reflects the undistributed profit or loss carried over from previous years which is pending decision of the General Meeting, as well as the effects of adjustments to the accounting policy and errors regarding previous years, and revealed in the current financial year.
Write-offs on net profit during financial year (negative value) are advance payments on account of expected profits paid during the financial year under specific provisions. They are accounted for in the books in the next financial year after the approval of the financial statements.
14. Company Social Benefits Fund
The Act of 4 March 1994 (as amended) on the company social benefits fund provides that the Company Social Benefits Fund is created by employers employing at least 20 employees in terms of full-time equivalents. The Company creates such a fund and makes periodic write-offs in the amounts provided for in the Act on collective labour agreements. The purpose of the Fund is to finance social activities. The balance of the fund is the accumulated revenue of the Fund less any non-recoverable expenditure from the Fund.
In the balance sheet, the Company separately recognises the Fund’s balance and the Fund’s assets (loan receivables, funds in a separate bank account).
15. Revenues, expenses, financial result
Revenues and expenses are recognised on accrual basis, i.e. in the periods they apply to, regardless of the date on which a payment is received or made.
The financial result is determined on the basis of the profit and loss account drawn up in the comparative format, in the form of Appendix 1 to the Accounting Act.
Konstancin-Jeziorna, 27 March 2020