Impairment of shares in subsidiaries
In point 18
of the additional information and
explanations to the separate
financial statements,
the Company disclosed information on
impairment tests of its shares in subsidiaries,
including in Enea Wytwarzanie Sp. z o.o., Enea
Elektrownia Połaniec S.A., Enea Ciepło Sp. z o.o.
and Lubelski Węgiel Bogdanka S.A. This note
disclosed test results, assumptions used to
calculate the value in use and an analysis of
sensitivity of the calculations to a reasonably
expected change in the key assumptions used in
the calculation of the recoverable amount of
subsidiaries.
As at 31 December 2022, the carrying amount
of Investments in subsidiaries, associates and
jointly controlled entities amounted to PLN 10
604 million, which accounts for 49% of the
Company's assets. In 2022, following the
impairment tests the Company reversed
impairment loss recognized in the prior periods
in relation to shares of Enea Wytwarzanie Sp.
z o.o. in the amount of PLN 1 020 million.
At the end of the reporting period, in
accordance with IAS 36 “Impairment of
Assets”, the Company’s Management Board
analyses
the indicators of impairment, and in
case of existing indicators, impairment tests
are carried out as at the reporting date
.
Calculation of the recoverable amount involves
a number of assumptions and judgements to
be made by the Management Board of the
Company, including the strategy of the
Company, financial plans and cash flow
projections for subsequent years, as well as
macroeconomic and market assumptions
(mainly concerning electricity prices, fuel
prices, prices of CO
2
emission allowances, the
support system for renewable energy sources
and the power market).
Considering the materiality of these items in the
financial statements, as well as the sensitivity of
the results of the aforementioned test to the
assumptions made, we have conducted an
extensive analysis of this matter
and considered it
as key audit matter.
Our procedures included, without limitation, the
following:
•
understanding and assessing the process of
identifying evidence of impairment of assets;
•
verifying the mathematical correctness and
methodological consistency (using internal valuation
specialists from PwC) of the valuation model based
on discounted cash flows developed by the
Company's Management Board;
•
critical assessment of assumptions and estimates
made by the Company's Management Board to
determine the recoverable amount of non-current
assets, including but not limited to:
- the period of future cash flow projections and the
level of revenues, operating margin and
expenditures necessary to maintain operations in
the unchanged scope assumed therein,
- the discount rate applied (based on the weighted
average cost of capital),
- the marginal growth rate after the projection
period if such rate was used in the calculation of
the recoverable amount;
•
assessing the analysis of sensitivity of assumptions
that may affect the valuation result, carried out by
the Management Board;
•
critical assessment of data relating to jointly
controlled entities, including in particular information
on net assets related to these companies;
•
assessing the accuracy and completeness and
disclosures in the separate financial statements.