Our results

Property, plant and equipment

Accounting policy applied

Property, plant and equipment are measured at purchase price or production cost reduced by depreciation and impairment losses. The initial value of property, plant and equipment consists of their acquisition cost or cost of production, along with any import duties, non-refundable purchase taxes, less any rebates and discounts, plus any costs directly attributable to preparing the asset for its intended use and, if applicable, the costs of external financing, less any subsidies. Government grants are recognized as reduction of the assets’ value at the moment when it is reasonably certain that they will be obtained and that all the necessary conditions will be met.

Assets used based on a finance lease agreement (where all the risks and benefits are in principle transferred onto the Group) are treated as the Group’s assets and measured at fair value at the moment of purchase but not higher than the current value of minimum lease fees.

Fixed assets under construction are presented in the statement of financial position at the production cost reduced by recognized impairment losses.

An item of property, plant and equipment is removed from the statement of financial position at the moment of sale or when no economic benefits are expected from its use. When it is decided to derecognize an item of property, plant and equipment, its book value is recognized in the profit or loss of the period in which the decision was taken, except for rolling stock items, whose residual values, when it is decided to derecognize them, are recognized in the item of inventories.

Within rolling stock items, the Group identifies and separates all the material elements, or components, making up the given asset with different economic useful lives. Material rolling stock components distinguished by the Group comprise the main part of the rolling stock item and the repair / inspection part.

Repairs and inspections of rolling stock

Rolling stock undergoes maintenance operations at five levels. Detailed requirements for these operations are given in the Maintenance System Documentation, which is mandatory for each of the operated railroad vehicles. Rolling stock undergoes planned maintenance operations in accordance with repair cycles defined in the Maintenance System Documentation, depending on the permissible time and/or course of the vehicle’s operation.

After completing repair or modernization at level 4 and 5, a technical railworthiness certificate is issued. A technical railworthiness certificate confirms that the given rolling stock asset is allowed to be used until the next repair at level P4 or P5. An asset may be operated in the entire certificate validity period provided also that a P3 inspection is carried out halfway through the cycle. If no repair / inspection at levels P3, P4 and P5 is carried out, the rolling stock asset loses its operational capacity and cannot be used in rail transport. The Group considers periodic repairs and inspections at levels P3, P4 and P5 as the condition for continuous use of rolling stock asset item and at the moment of performing such a repair, if the criteria for its recognition are satisfied, the costs of the repair /inspection is recognized in the carrying amount of the rolling stock asset and are depreciated in the period between repairs. Other costs of ongoing maintenance and repairs for property, plant and equipment and costs of ongoing overhauls (which are costs of periodic P3, P4 or P5 repairs and inspections) are recognized on general principles as costs of the period in which they were carried out.

Residual value of rolling stock

The Group uses its own or leased locomotives and wagons for the needs of the conducted business activity and recognizes for them residual values separately. The residual value of rolling stock is measured based on prices of scrap of specific classes, taking into account disposal costs. The residual value is not depreciated within total initial value of a fixed asset but is subject to periodic verification.

The residual value is verified at the end of each financial year and is changed if the change thereto significantly affects the Group’s Consolidated Financial Statements.

Depreciation of property, plant and equipment

The Group applies straight-line depreciation. The value of property, plant and equipment subject to depreciation is distributed systematically over the period of operation. The initial value subject to depreciation for a given asset is determined after deducting its residual value.

Assets used under finance lease agreements are depreciated over their expected useful lives on the same basis as the Group’s owned assets. If it is not certain that the ownership will be transferred after the lease term, the assets are depreciated over the lease term or the estimated useful life of the fixed asset, whichever is shorter.

Freehold land and rights to perpetual usufruct of land are not subject to depreciation.

The estimated useful lives and depreciation methods are verified at the end of each reporting period, including prospective application of any changes to estimates.

To calculate depreciation, the Group applies the following economic useful lives for particular groups of non-current assets:

Data in ths. PLN

Buildings, premises and civil and water engineering facilities from 5 to 75 years
Technical machinery and equipmentfrom 2 to 40 years
Means of transport, including:
Freight cars:
-main part of a wagon,from 36 to 48 years
-periodic repairs of a wagon,from 4 to 6 years
-periodic inspections of a wagon, from 2 to 3 years
Locomotives:
- main part of a locomotive, from 24 to 45 years
- periodic repairs of a locomotive, from 4 to 8 years
- periodic inspections of a locomotive,from 2 to 4 years
Other means of transport from 2 to 25 years
Other fixed assets from 2 to 25 years

Impairment of property, plant and equipment

At each balance sheet date, the Group performs an analysis of balance sheet values of the owned non-current assets to determine if there are any indications of their impairment. If such indications of impairment are identified, the Group estimates the recoverable amount of the cash generating units or individual assets, to determine a potential related charge.

The recoverable amount is measured at the higher of following two values: fair value less cost to sell or value in use. Value in use is defined as the present value of estimated future cash flows discounted using a discount rate before tax. If the recoverable amount of a cash generating unit or individual asset is lower than its carrying amount, the latter is reduced to the recoverable amount. An impairment loss is charged to profit or loss.

Where an impairment loss is reversed, the net value of the asset is increased to the revised estimate of the recoverable amount, which, however, does not exceed the carrying amount of the asset that would have been determined had an impairment loss not been recognized in previous years. Reversal of impairment is charged immediately to profit or loss.

Significant values based on professional judgment and estimates

Economic useful lives of fixed assets

The Group estimates the economic useful lives of the individual fixed assets and intangible assets, and thus determines the depreciation rates for the items. The estimates are based on the expected economic useful lives of the assets. Depreciation or amortization rates may change in case of circumstances causing a change in the expected useful life, which in turn affects the value of the depreciation or amortization charges and the net carrying amount of the fixed assets and intangible assets in future periods. The verification of the useful lives of fixed assets conducted as at 31 December 2017 did not reveal the need to correct the previously applied depreciation rates.

Residual value of the rolling stock

As at 31 December 2017, the Group verified the residual value of its rolling stock. Following an increase in the market prices of scrap metal compared to the prices adopted by the Company for measurement of the residual value of rolling stock in previous periods, the Parent Company’s Management Board, having analyzed the impact of this change on the Separate and Consolidated Financial Statements for 2017 year, decided to reassess the residual value of rolling stock. As at 31 December 2017, as a result of the revaluation of the residual value, the Parent Company reversed a part of the impairment loss of the rolling stock without valid technical railworthiness certificates in the amount of PLN 27,414 thousand. The rolling stock is depreciated and is recognized in the residual value.

A significant impact on the measurement of the residual value of rolling stock is exerted by accepted prices of particular scrap metal classes. Below, a sensitivity analysis is presented showing a change to the amount of impairment charge for rolling stock without valid technical railworthiness certificates with a 5% increase / decrease of particular scrap metal classes. The sensitivity analysis has been conducted while retaining the other measurement parameters unchanged.

Data in ths. PLN

As at
31/12/2017
(audited)
Changes to scrap metal prices on the basis of which rolling stock is measured
+ 5%5%
Impairment loss for rolling stock without valid technical rail worthiness certificates111,432(19,183)20,298
 

Impairment of non-current assets

As at 31 December 2017, the Group performed impairment tests with respect to two cash generating units defined at the level of assets of the Parent Company and the AWT Group. The main indications of potential impairment of the Group’s selected assets were:

  • the market value of the Group’s net assets continued to be lower than their carrying amount,
  • the approval of the restructuring plan of the main AWT Group business partner, which had a major impact on projected cash flows, 

Impairment tests have been performed on cash generating units by determining their recoverable amount at the level of their value in use. 

PKP CARGO S.A.

The recoverable value of analyzed assets was determined on the basis of their estimated useful value using the net discounted cash flows method, in line with detailed financial projections developed for 2018-2027. In the opinion of the Parent Company’s Management Board, adopting financial projections for more than five years is reasonable because the property, plant and equipment used by the Parent Company have a considerably longer economic useful lives.

Presented below are the key assumptions affecting the estimate of the value in use of the tested cash generating units:

a) throughout the entire period of the detailed projection, the compound annual growth rate (CAGR) of freight revenue will amount to 1.6% in real term,

b) throughout the entire period of the detailed projection, CAPEX expenditures will achieve annual average operating revenue of 14% in real term,

c) the after-tax weighted average capital cost (WACC) level will be at 5.71% in real terms,

d) after the detailed projection period, the growth of future cash flows was assumed at 0.0% in real terms. 

Because the recoverable amount determined as a result of the test exceeded the carrying amount of the tested non-current assets as at 31 December 2017, the Parent Company recognized no impairment loss for the assets.

The sensitivity analysis was conducted for key assumptions of the model testing the impairment of indices such as WACC and the future cash flows increase ratio after the detailed projection period. A change of WACC by +/- 0.3 p.p. and the increase ratio of future cash flows after the detailed projection period by +/- 0.3 p.p. does not cause the need to recognize an impairment charge for the assets.

AWT GROUP

The recoverable value of analyzed assets was determined on the basis of their estimated useful value using the net discounted cash flows method, in line with detailed financial projections developed for 2018-2027. In the opinion of the Group, adopting financial projections for more than five years is reasonable because the property, plant and equipment used by the AWT Group have a considerably longer period of economic life.

The key assumptions affecting the estimation of the value in use of the tested cash flows generation center were as follows:

a) the cash flows generation center was considered as the entirety of assets owned by the AWT Group, used mainly to service customers on the Czech railway market,

b) the volume of loads transported for an essential customer was assumed to be on the level of planned coal extraction, considering also plans to close down specific mines in 2023,

c) the after-tax weighted average capital cost (WACC) level was assumed as 5.63% in real terms (including a specific risk premium relating to the main customer),

d) the increase of remunerations in the residual period was on the level of 0.15% in real terms; no increase was assumed for other parameters.

Because the recoverable amount determined as a result of the test was not materially different from the carrying amount of the tested non-current assets owned by the AWT Group, the Group did not revalue the impairment loss for the assets as at 31 December 2017, which as at that date amounted to PLN 33,327 thousand.

Presented below is the change of estimated amount of impairment loss as at 31 December 2017 when changing only the following key parameters and keeping the other assumptions on a fixed level:

Data in ths. PLN

AWT GROUP
- 0.3 p.p.+0.3 p.p.
WACCno charge60,677
Increase after the detailed projection period24,997(25,830)

Change in the balance of property, plant and equipment

Data in ths. PLN

Year ended 31/12/2017
(audited)
LandBuildings, premises and civil and water engineering facilitiesTechnical machinery and equipmentMeans of transportOther
non-current assets
Fixed assets under constructionTotal
Gross value       
As at 1 January 2017 (audited)162,389742,757381,5635,925,51239,88944,2747,296,384
Increases / (decreases):       
Purchase-----552,400552,400
Financial lease--2,3501,508--3,858
FX differences resulting from translation of financial statements of foreign entities(74)(925)(151)(3,539)(12)38(4,663)
Settlement of fixed assets
under construction
(3,482)24,03826,995503,8481,889(553,288)-
Grants-----(2,195)(2,195)
Sales(955)(705)(1,200)(4,464)(152)-(7,476)
Liquidation-(5,364)(2,780)(293,392)(384)(80)(302,000)
Other(686)(2,395)(877)(4,298)(1,798)114(9,940)
As at 31 December 2017 (audited)157,192757,406405,9006,125,17539,43241,2637,526,368
Accumulated depreciation       
As at 1 January 2017
(audited)
-167,999241,4311,953,60631,223-2,394,259
Increases / (decreases):       
Depreciation expenses-34,79332,785486,3412,660-556,579
FX differences
resulting from translation
of financial statements
of foreign entities
-(62)(20)(159)(3)-(244)
Sales-(249)(906)(3,873)(152)-(5,180)
Liquidation-(3,502)(2,626)(241,814)(370)-(248,312)
Other-(3,283)(37)(4,102)(1,748)-(9,170)
As at 31 December 2017 (audited)-195,696270,6272,189,99931,610-2,687,932
Accumulated impairment       
As at 1 January 2017 (audited)2,3801,924317194,48682,460201,575
Increases / (decreases):       
Recognition of impairment loss-----248248
Reversal of impairment loss---(27,414)--(27,414)
FX differences resulting from translation of financial statements of foreign entities(2)--(2,022)--(2,024)
Sales---(49)--(49)
Liquidation-(1,560)-(20,242)-(80)(21,882)
As at 31 December 2017 (audited)2,378364317144,75982,628150,454
Net value       
As at 1 January 2017 (audited)160,009572,834139,8153,777,4208,65841,8144,700,550
including financial lease--8,633319,689--328,322
As at 31 December 2017 (audited)154,814561,346134,9563,790,4177,81438,6354,687,982
including financial lease--10,796253,155--263,951

Data in ths. PLN

Year ended
31/12/2016
(audited)
LandBuildings, premises and civil and water engineering facilitiesTechnical machinery and
equipment
Means of transportOther non-current assetsFixed assets  under constructionTotal
Gross value       
As at 1 January 2016 (audited)153,323735,423362,9045,441,61139,28330,3326,762,876
Increases / (decreases):       
Purchase-----521,727521,727
Financial lease---3,302-(93)3,209
FX differences resulting from translation of financial statements of foreign entities4894,2751,42030,3126544437,005
Reclassified from assets held for sale8,3075,830-94,688--108,825
Settlement of fixed assets
under construction
3197,80424,210467,2241,416(500,973)-
Grants-----(5,407)(5,407)
Sales(49)(1,620)(3,957)(7,239)(93)-(12,958)
Liquidation-(8,955)(3,011)(104,302)(704)(1,669)(118,641)
Other--(3)(84)(78)(87)(252)
As at 31 December 2016 (audited)162,389742,757381,5635,925,51239,88944,2747,296,384
Accumulated depreciation       
As at 1 January 2016 (audited)-129,544215,8381,508,84328,717-1,882,942
Increases / (decreases):       
Depreciation expenses-39,41231,787503,0953,315-577,609
FX differences resulting from translation of financial statements of foreign entities-2252503,18713-3,675
Reclassified from assets held for sale-1,647-41,234--42,881
Sales-(577)(3,635)(5,285)(88)-(9,585)
Liquidation-(2,252)(2,806)(97,429)(656)-(103,143)
Other--(3)(39)(78)-(120)
As at 31 December 2016 (audited)-167,999241,4311,953,60631,223-2,394,259
Accumulated impairment       
As at 1 January 2016 (audited)7518,809317147,79982,502160,186
Increases / (decreases):       
Recognition of impairment loss133335-34,992--35,460
Reversal of impairment loss---(10,046)--(10,046)
Foreign exchange differences resulting from translation of financial statements of foreign entities1--357--358
Reclassified from assets held for sale1,495--22,451--23,946
Utilization of impairment loss-(7,220)-(1,067)-(42)(8,329)
As at 31 December 2016 (audited)2,3801,924317194,48682,460201,575
Net value       
As at 1 January 2016 (audited)152,572597,070146,7493,784,96910,55827,8304,719,748
including financial lease--12,427346,493--358,920
As at 31 December 2016 (audited)160,009572,834139,8153,777,4208,65841,8144,700,550
including financial lease--8,633319,689--328,322
 

As at 31 December 2017 and 31 December 2016, the value of the rolling stock owned by the Parent Company without valid technical railworthiness certificates was PLN 349,697 thousand and PLN 267,659 thousand, respectively.

A technical railworthiness certificate is issued immediately after performing level P4 or P5 maintenance activities and upon entering new and modernized vehicles into service. Rolling stock without valid technical railworthiness certificates is treated by the Parent Company:

a) As a backup from which additional resources can be drawn to increase freight turnover following P4 and P5 level repairs,

b) As a necessary set of rail vehicles to be rotated in the maintenance process. Performing a P4 or P5 level repair lasts from 30 to 90 days depending on vehicle type. To prevent a decrease in the number of operated wagons and locomotives with a valid technical railworthiness certificate, it is necessary to have a larger pool of vehicles so that a vehicle whose technical railworthiness certificate expires can be replaced at least on the same day with another that has been repaired and had a technical efficiency certificate issued.