6. Effect of final accounting for the acquisition of UAB Manifoldas and change of information presented in previous reporting periods, change of accounting policies and correction of errors
Change in comparative data relating to the final accounting for the acquisition of shares in UAB Manifoldas by AB LOTOS Geonafta
On September 27th 2012, AB LOTOS Geonafta concluded an agreement for purchase of 50% of shares in UAB Manifoldas from a natural person. On November 28th 2012, after clearance from the Lithuanian anti-trust authority was obtained and other contractual conditions were fulfilled, AB LOTOS Geonafta acquired a 50% interest in UAB Manifoldas.
The acquisition price of the 50% of shares in UAB Manifoldas comprised the base purchase price of PLN 101,773 thousand and the amount of PLN 7,899 thousand being the difference between UAB Manifoldas's receivables and liabilities.
Following the transaction, as at December 31st 2012 AB LOTOS Geonafta, a company of the LOTOS Petrobaltic Group, held a 100% interest in UAB Manifoldas.
AB LOTOS Geonafta is the parent of another group (the AB LOTOS Geonafta Group), composed of:
- UAB Manifoldas (fully consolidated, 100% of shares held by AB LOTOS Geonafta),
- UAB Genciu Nafta (fully consolidated, 100% of shares held by AB LOTOS Geonafta),
- UAB Minijos Nafta (consolidated with proportionate method, 50% of shares held by AB LOTOS Geonafta).
Given the fact that prior to November 28th 2012 AB LOTOS Geonafta held 50% of shares in UAB Manifoldas, the transaction described above, within the meaning of IFRS 3 Business Combinations, is accounted for as a business combination achieved in stages (step acquisition). In the case of a step acquisition, the acquirer remeasures its previously held equity interest in the acquiree at its combination-date fair value and recognises the resulting gain or loss in the statement of comprehensive income.
The business combination of November 28th 2012 (“purchase date”, “acquisition date” or “combination date”) was initially accounted for as at December 31st 2012. In accordance with IFRS 3 Business Combinations, a business combination must be finally accounted for within a year from the acquisition date. The transaction was finally accounted for retrospectively in the consolidated financial statements; accordingly, the comparative data was adjusted to reflect the fair value measurement of the acquired net assets. Finally determined values and their effect on the comparative data for the date of assuming control, that is November 28th 2012, are presented below.
|PLN ’000||Initial determination of acquisition-date fair value
November 28th 2012
|Final determination of acquisition-date fair value
November 28th 2012
|Effect of final accounting for the acquisition|
|Consideration paid (fair value as at the date of acquiring 50% of shares in the acquiree) (A)||109,672||109,672||-|
|Wartość godziwa 50% udziałów jednostki Combination-date fair value of the acquirer’s previously held 50% equity interest in the acquiree (B)||109,672||109,672||-|
|Equity interest in the acquiree||100%||100%|
|Assets and liabilities of the acquiree:|
|Non-current assets, including:||213,184||217,274||4,090|
|Property, plant and equipment||35,121||35,121||-|
|Current assets, including:||45,095||45,596||501|
|Cash and cash equivalents||13,713||13,713||-|
|Total acquired assets||258,279||262,870||4,591|
|Non-current liabilities, including:||30,414||31,102||688|
|Deferred tax liabilities||26,659||27,347||688|
|Other liabilities and provisions||3,755||3,755||-|
|Total assumed liabilities||38,935||39,623||688|
|Acquired net assets (C)||219,344||223,247||3,903|
|Interest in acquired net assets||219,344||219,344||-|
|Gain on bargain purchase (C-A-B)||-||3,903||3,903|
(A) Represents the fair value of the payment for 50% of shares in UAB Manifoldas acquired on November 28th 2012.
(B) Represents the fair value of the 50% interest in the consolidated net assets of UAB Manifoldas previously held by AB LOTOS Geonafta (before November 28th 2012).
(C) Represents the acquisition-date fair value of identifiable net assets of UAB Manifoldas.
The Group recognised identifiable intangible assets representing licences held by UAB Manifoldas, under which the licensee has the right to operate crude oil fields in the Republic of Lithuania. The value of the licences was measured at PLN 181,815 thousand (LTL 152,747 thousand), taking into consideration tax effect of PLN 27,272 thousand (LTL 22,912 thousand), computed at the 15% tax rate applicable in the Republic of Lithuania.
The fair value of licences identified in the business combination was measured with the excess earnings method subject to the prudent valuation principle. Based on the Group’s current geological expert analyses of the reserves, confirmed by reports of independent experts, as well as current estimated production levels and credible projections of oil market prices used in calculation, the fair value of the licences measured as at the day of final accounting for the acquisition of UAB Manifoldas was slightly higher than initial estimates. As a result, the Group disclosed a surplus of fair value of the acquired net assets over the price paid and recognised a gain on bargain purchase.
The Group recognised a gain on bargain purchase of PLN 3,903 thousand (LTL 3,279 thousand) and presented it in the statement of comprehensive income as an adjustment to comparative data under Effect of accounting for step acquisition of control (GK AB LOTOS Geonafta). The calculation of the adjustment of comparative data in the statement of financial position is presented in the table below.
|PLN ’000||Effect of final accounting for the acquisition||Adjustment to amortisation of intangible assets and its tax effect||Adjustment to exchange differences on translating foreign operations||Adjustment in the statement of financial position as at December 31st 2012|
|Equity and liabilities|
|Exchange differences on translating foreign operations||-||-||(24)||(24)|
|Deferred tax liabilities||688||19||(3)||704|
Change in the Group’s accounting policies following application of the amended IAS 19 Employee benefits, and other presentation changes related to employee benefits
The Group applied the amended IAS 19 Employee Benefits in its 2013 financial statements and restated the relevant data for the comparative period ended December 31st 2012. The restatement involved disclosure of actuarial gains/losses on measurement of certain post-employment benefits in other comprehensive income. These changes, reflected in Retained earnings, had no effect on the presentation in the statement of financial position or in the statement of changes in equity, and their impact on the statement of comprehensive income was immaterial.
Starting from 2013, the Group recognises the cost of discount on its employee benefit obligations in finance costs rather than in operating profit/loss, as was the case earlier. The Group's comparative data in the statement of comprehensive income for 2012 was adjusted accordingly. As a result, the finance costs rose and the operating profit/loss increased by PLN 6,544 thousand.
The Group reclassified some of its costs (amortisation/depreciation, overhauls, real property tax) previously recognised as administrative expenses, into cost of sales. The Group's comparative data for the year ended December 31st 2012 was restated accordingly. As a result, administrative expenses decreased by PLN 17,481 thousand, while cost of sales increased by the same amount.
In the statement of financial position, the Group changed the presentation of selected receivables and payables, previously disclosed under Trade receivables/payables. Following these changes, comparative data was restated – Trade receivables as at December 31st 2012 decreased by PLN 7,523 thousand, while Other current assets as at that date increased by the same amount, and by PLN 4,293 thousand as at January 1st 2012. Trade payables as at December 31st 2012 declined, while Other provisions and liabilities rose by PLN 4,309 thousand as at December 31st 2012 and by PLN 9,483 thousand as at January 1st 2012.
The Company offset prepayments with corresponding property insurance liabilities, as a result of which the presented comparative data as at December 31st 2012 and January 1st 2012 was restated. In the statement of financial position, Other current assets and Other liabilities and provisions decreased by PLN 33,503 thousand as at December 31st 2012 and by PLN 26,588 thousand as at January 1st 2012.
In the statement of comprehensive income, the Group applied uniform rules for the presentation of gains and losses in Other income/expenses. Gains and losses on disposal of non-financial non-current assets, impairment losses and reversal of impairment losses on property, plant and equipment, other intangible assets and receivables, as well as the recognition and release of provisions are presented on a net basis, under Other income / expenses. The change was applied also to the comparative data.