The accounting policies of Lion Capital and its subsidiaries are developed based on the International Financial Reporting Standards adopted by the European Union and ASF Norm no. 39/2015 for the approval of the Accounting Regulations compliant with the International Financial Reporting Standards.
The Group is a parent company and its subsidiaries.
Parent Company is an entity that controls one or more entities. Regardless of the nature of its involvement in an invested entity, the company must determine whether it is a parent company by assessing whether it has control over the invested entity.
Subsidiary is an entity controlled by the Company.
Control: The Company controls an entity in which it has invested when it is exposed to or has rights to variable returns based on its participation in the entity and has the ability to influence those returns through its authority over the invested entity.
Continuing Assessment of Control: The Company’s control over an invested entity is assessed by evaluating whether it possesses the following elements in entirety: (a) authority over the invested entity, (b) exposure or rights to variable returns based on its participation in the invested entity, and (c) ability to use its authority over the invested entity to influence the investor’s return.
Consolidation of an Invested Entity should commence on the date when the investor obtains control and should cease when the investor loses control.
Joint Control exists when the Company, along with another investor, needs to act jointly to coordinate relevant activities because no investor can coordinate activities without collaboration.
Minority Interest represents equity in a subsidiary that cannot be attributed directly or indirectly to a parent company.
Investment Entity is an entity that:
(a) obtains funds from one or more investors with the aim of providing investment management services to these investor(s),
(b) commits to its investor(s) that its primary business objective is investing funds solely for returns from capital appreciation and/or investment income, and
(c) measures and evaluates the performance of its investments based on fair value.
The management of the Company must analyze and determine if it meets the criteria for classification as an investment entity and conclude that these criteria comply with IFRS 10 “Consolidated Financial Statements.” If management concludes that the criteria are met, the Company will apply the applicable provisions for investment entities, starting from the date when the information supporting the fulfillment of the criteria became available.
Associate Entities are those companies in which the Company can exert significant influence, but not control, over financial and operational policies.
Interest Held in Another Entity refers to contractual and non-contractual involvement that exposes an entity to the variability of outcomes from the performance of the other entity. An interest in another entity can be demonstrated through ownership of equity or debt instruments, as well as other forms of participation (provision of funds, liquidity support, improvement of credit terms, and guarantees).
Joint Arrangement is a common commitment under which the parties with joint control have rights to the net assets of the arrangement. A joint arrangement can be either a joint venture or a joint operation.
Joint Venture in a Joint Arrangement is a party that holds joint control over the joint arrangement.
Party to a Joint Arrangement is an entity that participates in a joint arrangement, regardless of whether that party holds joint control over the arrangement.
Key Management Personnel refers to individuals who hold the authority and responsibility to plan, direct, and oversee an entity’s activities, either directly or indirectly. This includes any directors, whether executive or non-executive, of the entity.
Affiliate Party is an individual or entity that is associated with the reporting entity, which is responsible for preparing its financial statements.
Close Family Members of an individual are those family members from whom an expectation of influence or being influenced by the person can be reasonably assumed, in relation to their connection with the entity.
A Transaction with an Affiliate Party constitutes the transfer of resources, services, or obligations between a reporting entity and an affiliate party, regardless of whether a charge or fee is involved.
Significant Influence refers to the ability to participate in making financial and operational policy decisions of the invested entity, without exerting full control or joint control over these policies.
A Joint Commitment is an agreement in which two or more parties share joint control and involves the following characteristics: it is binding on the parties, and two or more parties are granted joint control over the commitment. A joint commitment can be either a joint operation or a joint venture.
Participant in a Joint Venture is a party involved in a joint venture who shares joint control over the joint venture.
Party to a Joint Commitment refers to an entity participating in a joint commitment, regardless of whether that party holds joint control over the commitment.
These accounting policies apply to Lion Capital SA (“the Company”), the new name as of March 24, 2023, of Societatea de Investiții Financiare Banat-Crișana established under Law no. 133/1996 through the reorganization and transformation of Fondul Proprietății Private Banat-Crișana, a joint-stock company operating under Law 31/1990 and Law no. 297/2004, and its subsidiaries included in the scope of consolidation.
The Company’s objectives include financial investments to maximize shareholder value in compliance with current regulations, managing investment portfolios, exercising associated rights, risk management, and auxiliary activities as per prevailing regulations.
The Company’s shares have been listed on the Bucharest Stock Exchange since November 1, 1999.
The accounting policies are developed based on: (i) International Financial Reporting Standards adopted by the European Union (“IFRS”); (ii) Standard no. 39/2015 issued by the Financial Supervisory Authority of the Financial Instruments and Financial Investments Sector, applicable to authorized, regulated, and supervised entities by the Financial Supervisory Authority of the Financial Instruments and Financial Investments Sector (“Standard”); (iii) Accounting Law no. 82 of 1991, reissued (“Law”).
Accounting is conducted in Romanian.
The currency used for accounting is the Romanian Leu (RON) or the Leu and foreign currency (for foreign currency transactions).
The objective of these accounting policies is to establish principles, bases, conventions, rules, and specific accounting treatments applied by the Group, ensuring that the financial statements, both individual and consolidated, provide relevant and credible information regarding the financial position, performance, and cash flows of the Company and the Group.
The accounting rules and treatments in the accounting policies comply with national legislation as a whole.
In the absence of a specific IFRS applicable to a transaction, event, or condition, management must use professional judgment to develop and apply an accounting policy that results in information that is relevant to economic decision-making needs and is reliable in reflecting the financial position, financial performance, and cash flows of the entity.
In exercising the aforementioned professional judgment, the Group’s management must refer to and consider the applicability, in decreasing order, of the following sources: (a) IFRS provisions addressing similar and related issues, and (b) definitions, recognition criteria, and measurement concepts for assets, liabilities, income, and expenses from the Framework.
Accounting ensures the chronological and systematic recording, processing, publishing, and retention of information about the financial position and performance of the Group, as well as cash flow. Accounting entries are based on supporting documents prepared in accordance with the regulations of the Ministry of Public Finances and other specific documents based on the needs, in compliance with the prevailing legal provisions. Document preparation and circulation follow the company’s internal procedures.
The presentation of financial statements is based on liquidity within the financial position statement and a presentation of revenues and expenses according to their nature in the comprehensive income statement. This approach is taken considering that these presentation methods offer more credible and relevant information than those that would have been presented under other methods permitted by IAS 1 “Presentation of Financial Statements.”
Financial statements are prepared in accordance with the structure provided by IFRS, based on the fair value convention for financial assets and liabilities. Fair value is recognized through the profit and loss account or through other components of comprehensive income. Other financial assets and liabilities, as well as non-financial assets and liabilities, are presented at amortized cost, revalued amount, or historical cost.
The methods used for fair value measurement are outlined in the accounting policies.
The preparation of financial statements in accordance with IFRS involves the use of estimates, judgments, and assumptions by management, based on historical experience and other reasonable factors within the context of these estimates. The outcomes of these estimates form the basis for judgments concerning the carrying amounts of assets and liabilities that cannot be obtained from other sources of information. The underlying estimates and assumptions are periodically reviewed. Revisions to accounting estimates are recognized in the period in which the estimate is revised, if the revision only impacts that period, or in the period in which the estimate is revised and in future periods if the revision affects both the current period and future periods.
Significant judgments made by management in the application of IFRS that have a substantial impact on financial statements, as well as estimates involving a significant risk of material adjustment in the next year, are disclosed in the Notes.
IFRS provisions are applied when recording transactions related to the correction of accounting errors.
Correction of errors identified in the accounting, related to prior periods, is charged against retained earnings. Correction of errors related to prior financial years does not result in the modification of the financial statements for those years; they remain as originally published.
When making corrections in the accounting, which concern errors belonging to the current financial year, inaccurately recorded accounting entries are rectified before the approval of financial statements. This is done by reversing the wrong accounting entry (by recording in red or with a minus sign or by using the inverse recording method) and simultaneously recording the correct entry.
Change in Accounting Policies:
Adopted accounting policies are applied consistently to all periods presented in the consolidated financial statements.
A change in accounting policy is required only if the change is mandated by an IFRS or results in financial statements that provide reliable and more relevant information about the effects of transactions, other events, or conditions on the financial position, financial performance, or cash flows of the Company.
Continuity of Operations:
Financial statements are prepared using the going concern principle, which assumes that the Group will be able to utilize assets and fulfill obligations during operational activities.
Subsidiaries are entities under the control of the Company. Control exists when the Company is exposed to or has rights to variable returns based on its involvement with the entity and has the ability to influence those returns through its authority over the investee. In assessing control, potential or convertible voting rights that are exercisable at the reporting date are also considered.
The financial statements of subsidiaries are included in the consolidated financial statements from the commencement of control until its cessation. The accounting policies of subsidiaries have been amended to align them with those of the Group.
The list of subsidiaries included in the consolidation scope is presented in the consolidated financial statements’ note.
b) Associated Entities
These are companies in which the Company can exert significant influence but not control over financial and operational policies.
The Group accounts for investments in associated entities in the same manner as in its individual financial statements (pursuant to Article 11 of the International Accounting Standard IAS 27 “Separate Financial Statements”).
In accordance with IFRS (IAS 28, paragraph 9), the Company may lose its significant influence over entities in which it has invested when it loses the ability to participate in decisions regarding financial policies and operational control of the entity. This can occur, for instance, when the associated entity comes under government control, judicial control, administration, or regulatory oversight.
Regarding associated entities undergoing bankruptcy/insolvency/dissolution proceedings, it can be concluded that the Company has lost significant influence over these invested entities, and as a result, they are excluded from the consolidation scope.
Settlements and transactions within the Group, as well as unrealized profits arising from transactions within the Group, are entirely eliminated from the consolidated financial statements.
When an entity becomes an investment entity, it ceases to consolidate its subsidiaries as of the date of the change in status, unless a subsidiary is required to continue being consolidated in accordance with paragraph 32 of IFRS 10, i.e., if the subsidiary provides services related to the investment activities of the investment entity. Both in consolidated and individual financial statements, the fair value differences of the interests in subsidiaries removed from the consolidation scope will be recognized in the income statement.
On the date the company determines that it meets the classification criteria as an investment entity, it will remove from the consolidation scope those subsidiaries that do not provide services related to investment activities, as follows:
– It will derecognize the assets and liabilities of the former subsidiary from the consolidated statement of financial position.
– It will recognize any residual investment in the former subsidiary at its fair value when control is lost, and subsequently account for these investments and amounts owed to or from the former subsidiary in accordance with relevant IFRSs. That fair value should be considered the fair value at the initial recognition of a financial asset under IFRS 9 or, if applicable, the cost at the initial recognition of an investment in an associated entity or joint venture.
– It will recognize the gain or loss associated with the loss of control attributable to the former majority interest.
a) Transactions in Foreign Currency
Foreign currency-denominated operations are recorded in Romanian Leu (RON) using the official exchange rate in effect on the transaction settlement date. When preparing the consolidated statement of financial position, monetary assets and liabilities held in foreign currency are translated into the functional currency at the exchange rate prevailing on that specific day.
Gains or losses arising from monetary items are calculated based on the difference between the amortized cost expressed in the functional currency at the beginning of the reporting period (adjusted for effective interest and payments during the period), and the amortized cost in the foreign currency, which is then converted into the functional currency using the closing exchange rate for the period.
Non-monetary assets and liabilities denominated in foreign currency and valued at fair value are translated into the functional currency using the exchange rate applicable on the date the fair value was determined.
Settlement gains or losses resulting from exchange rate differences are recognized in the profit and loss statement, except in cases where these differences arise from the translation of securities classified as measured at fair value through other comprehensive income. In such instances, they are included in the reserve arising from changes in the fair value of those financial instruments. Similarly, when exchange rate differences originate from the translation of securities classified as measured at fair value through profit and loss, they are presented as gains or losses on fair value.
b) Accounting for Hyperinflation Effects
According to IAS 29 (“Financial Reporting in Hyperinflationary Economies”), the financial statements of an entity whose functional currency is that of a hyperinflationary economy should be presented in terms of the current purchasing power of the currency as of the date of preparing the consolidated statement of financial position. This means that non-monetary items are restated by applying the general price index at the date of acquisition or contribution.
As per IAS 29, an economy is considered hyperinflationary if, among other factors, the cumulative inflation rate over a three-year period exceeds 100%.
The sustained decrease in the inflation rate and other factors related to the economic environment characteristics of Romania indicate that the economy whose functional currency has been adopted by the Group has ceased to be hyperinflationary, with effect on financial periods beginning on January 1, 2004. Therefore, the provisions of IAS 29 have been adopted in the preparation of consolidated financial statements until December 31, 2003.
Thus, the values expressed in the current measuring unit as of December 31, 2003, are treated as the basis for the reported accounting values in the consolidated financial statements and do not represent assessed values, replacement costs, or any other measurement of the current value of assets or prices at which transactions would occur at this time.
For the purpose of preparing consolidated financial statements, the Group has adjusted the following items to be expressed in the current measuring unit as of December 31, 2003:
– Share capital and items of a reserve nature;
– Available-for-sale financial assets evaluated at cost, for which there is no active market and for which credible determination of fair value is not possible.
The Group classifies held financial instruments into the following categories:
c) Cash and Cash Equivalents
Cash includes cash on hand and at banks, and demand deposits.
Cash equivalents are short-term, highly liquid financial investments that are readily convertible to cash and are subject to an insignificant risk of value change.
In preparing the consolidated statement of cash flows, cash and cash equivalents comprise: actual cash, current bank accounts, and deposits with an initial maturity of less than 90 days, net of authorized overdrafts.
d) Financial Assets and Liabilities
Financial instruments, as per IFRS 9, include the following:
• Investments in equity instruments (e.g., shares);
• Investments in debt instruments (e.g., bonds, loans);
• Trade receivables and other receivables;
• Cash and cash equivalents;
• Derivative financial instruments;
• Investments in subsidiaries, associates, and joint ventures – depending on the provisions of IFRS 10/IAS 27/IAS 28.
The Group classifies held financial instruments in accordance with IFRS 9 “Financial Instruments” into financial assets and financial liabilities.
The Group classifies financial assets as measured at amortized cost, fair value through other comprehensive income, or fair value through profit or loss based on:
(a) the entity’s business model for managing financial assets, and
(b) the contractual cash flow characteristics of the financial asset.
• Represents how an entity manages its financial assets to generate cash flows: collection, sale of assets, or both.
• Determined factually, considering their evaluation and performance reporting methods, existing risks and their management, and management’s compensation approach (based on fair value or cash flows associated with these investments).
Held for Collection Model
• Managed to generate cash flows by collecting the principal and interest over the instrument’s lifetime.
• No need to hold until maturity.
• Categories of sale transactions compatible with this model: those due to increased credit risk, infrequent or immaterial sales, or sales close to the instrument’s maturity.
• Accounting treatment of these assets (assuming SPPI criterion is met and fair value option is not chosen) is at amortized cost (using the effective interest rate method; interest, impairment gains or losses, and exchange rate differences are recognized in profit and loss).
Held for Collection and Sale Model
• Managed to generate cash flows from collection and sale (complete) of assets.
• Sales are frequent and of high value compared to the previous model, without a specified threshold for inclusion in this model.
• The purpose of these sales can be: managing current liquidity needs, maintaining a certain yield structure, or optimizing the entity’s balance sheet decisions (matching the duration of financial assets with that of financial liabilities).
• Accounting treatment of these assets (assuming SPPI criterion is met and fair value option is not chosen) is at fair value through other comprehensive income (using the effective interest rate method; interest, impairment gains or losses, and exchange rate differences are recognized in profit and loss / changes in fair value of these instruments are recognized in other comprehensive income, amounts recognized in other comprehensive income are recycled through profit and loss upon derecognition).
Other Business Model
• Assets managed to realize cash flows through selling.
• Collection of cash flows associated with these investments is incidental, not the purpose of holding them.
• Assets whose performance is managed and reported based on their fair value.
• Debt instruments acquired for selling in the near future, intended for short-term profit, or derivative instruments.
• Accounting treatment is at fair value through profit and loss.
The SPPI (Solely Payments of Principal and Interest) test contains criteria that assess the extent to which the cash flow structure of a debt instrument aligns with the pattern of a basic lending arrangement (interest largely reflects the time value of money and credit risk).
There are several indicators signaling cases where held debt instruments should be measured at fair value through profit and loss:
• Non-standard interest rate;
• Presence of leverage effect;
• Hybrid instruments (incorporating an embedded derivative).
There are also indicators that, although they might suggest fair value measurement, can, under certain circumstances, be consistent with the SPPI criterion, and the respective assets can continue to be recognized at amortized cost:
• Existence of an early repayment or extension option of the asset’s term;
• Non-recourse assets that ensure debt repayment;
• Contractually linked instruments.
Financial Assets Measured at Fair Value Through Profit or Loss (FVTPL)
A financial asset shall be measured at fair value through profit or loss, except if it is measured at amortized cost or at fair value through other comprehensive income.
Financial Assets Measured at Fair Value Through Other Comprehensive Income (FVOCI)
A financial asset, such as debt instruments, shall be measured at fair value through other comprehensive income if both of the following conditions are met:
(a) The financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and
(b) The contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of the principal amount and interest on the principal amount outstanding.
The Group can make an irrevocable election at initial recognition for certain investments in equity instruments that would otherwise be measured at fair value through profit or loss to present subsequent changes in fair value in other comprehensive income (in accordance with paragraphs 5.7.5 and 5.7.6 of IFRS 9 – Financial Instruments).
Financial Assets Measured at Amortized Cost
A financial asset shall be measured at amortized cost if both of the following conditions are met:
(a) The financial asset is held within a business model whose objective is to hold financial assets for the purpose of collecting contractual cash flows, and
(b) The contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of the principal amount and interest on the principal amount outstanding.
They are measured at amortized cost, except for financial liabilities classified at fair value through profit or loss.
Financial assets and liabilities are recognized when the Company becomes a contractual party to the terms of the respective instrument. When the Company initially recognizes a financial asset, it must classify it according to paragraphs 4.1.1-4.1.5 (at amortized cost, at fair value through profit or loss, or at fair value through other comprehensive income) of IFRS 9 and measure it in accordance with paragraphs 5.1.1-5.1.3 (a financial asset or financial liability is measured at its fair value plus or minus transaction costs, directly attributable to the acquisition or issuance of the asset or liability).
After initial recognition, the entity must measure financial assets in accordance with paragraphs 4.1.1-4.1.5 of IFRS 9 at:
a) Amortized cost;
b) Fair value through other comprehensive income; or
c) Fair value through profit or loss.
After initial recognition, the entity must measure financial liabilities in accordance with paragraphs 4.2.1-4.2.2 of IFRS 9. Thus, the Group will classify all financial liabilities at amortized cost, except for:
a) Financial liabilities measured at fair value through profit or loss;
b) Financial liabilities arising when the transfer of a financial asset does not meet the conditions for derecognition;
c) Financial guarantee contracts, measured at the higher of the provision for losses (section 5.5 of IFRS 9) and the initially recognized amount minus cumulative income (recognized under IFRS 15);
d) Commitments to provide a loan at an interest rate below market value, measured at the higher of the provision for losses (section 5.5 of IFRS 9) and the initially recognized amount minus cumulative income (recognized under IFRS 15);
e) Contingent consideration recognized by an acquirer in a business combination to which IFRS 3 applies.
Amortized Cost Measurement
The amortized cost of a financial asset or financial liability is the value at which the financial asset or financial liability is measured after initial recognition, minus principal repayments, plus or minus cumulative amortization using the effective interest method for each difference between the initial value and the maturity value, and minus any reduction (directly or through the use of an adjustment account) for impairment or irrecoverability.
The effective interest rate is the rate that exactly discounts future cash payments and receipts over the expected life of the financial instrument, or where appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. In calculating the effective interest rate, the entity must estimate cash flows, taking into account all contractual conditions of the financial instrument, but excluding future losses from changes in credit risk. The calculation includes all fees and points paid or received by the contracting parties that are integral to the effective interest rate, transaction costs, and all other premiums and discounts.
Fair Value Measurement
Fair value represents the price that would be received in the sale of an asset or paid to settle a liability in a transaction conducted under normal conditions between participants in the principal market on the valuation date, or in the absence of a principal market, in the most advantageous market to which the Group has access on that date.
The Group measures the fair value of a financial instrument using quoted prices in an active market for that instrument. A financial instrument has an active market if quoted prices are readily and regularly available for that instrument. The Group measures instruments quoted in active markets using the closing price.
A financial instrument is considered quoted in an active market when quoted prices are readily and regularly available from an exchange, a dealer, a broker, an industry association, a pricing service, or a regulatory agency, and these prices reflect actual and regular transactions conducted under objective market conditions.
Under the category of shares quoted in an active market, all shares listed on the Stock Exchange or on the alternative market with frequent trading activity are included (e.g., at least 30 trades in the 30-day trading period prior to the valuation date. The criteria for establishing an active market must be set to ensure a stable portfolio of shares measured at cost/fair value from one reporting period to another). The market price used to determine fair value is the closing price on the last trading day before the valuation date.
Fund units are valued based on NAV/S, calculated by the fund manager using closing quotes for quoted financial instruments. In cases where the Group observes that there is no active market for a fund’s holdings, it refers to the fund’s publicly available financial statements or the net asset value. The net asset value is used to obtain an adjusted NAV used to value fund units in the Group’s financial statements.
Government bonds are valued based on the market quotation available on Bloomberg for the respective issuance, multiplied by the unit nominal value.
In the absence of a quoted price in an active market, the Group employs valuation techniques. The fair value of non-traded financial assets in an active market is determined by authorized appraisers within the Company’s valuation department.
Valuation techniques include methods based on the use of observable input data, such as the quoted price of an identical item held by another party as an asset, on a market that is not active, and for assets for which observable prices are not available, valuation techniques based on discounted cash flow analysis and other commonly used valuation methods by market participants, including the method of comparing with similar instruments with observable market prices, or the method of a percentage of net assets of these entities, adjusted with a discount for minority holding and a discount for illiquidity, using as much market information as possible and relying as little as possible on company-specific information. The Company uses valuation techniques that maximize the use of observable data and minimize the use of unobservable data.
Valuation techniques are consistently applied.
The value obtained using a valuation model is adjusted for a number of factors, as valuation techniques do not credibly reflect all the factors considered by market participants when entering into a transaction. Adjustments are recorded to reflect risk models, differences between bid and ask prices, liquidity risks, and other factors. The Group’s management believes that these adjustments are necessary to present a faithful measure of the fair value of financial instruments held at fair value in the statement of financial position.
(iv) Impairment Identification and Assessment
The Group must recognize a provision for expected credit losses related to a financial asset that is assessed under paragraph 4.1.2 or 4.1.2A of IFRS 9 (debt instruments measured at amortized cost or at fair value through other comprehensive income), a lease receivable, a commitment to lend, and a financial guarantee contract.
The Group applies impairment provisions to recognize the provision for expected losses related to financial assets measured at fair value through other comprehensive income (debt instruments meeting the criteria of paragraph 4.1.2A of IFRS 9 – assets held for the purpose of collecting cash flows and sales, with cash flows representing exclusively principal repayments or interest payments). The provision thus determined is recognized in other comprehensive income and does not reduce the carrying amount of the financial asset in the statement of financial position.
At each reporting date, the Group assesses the provision for expected credit losses of a financial instrument at an amount equal to:
– The expected credit losses over the next 12 months, if the credit risk has not increased significantly since initial recognition;
– The expected credit losses over the entire lifetime, if the credit risk has increased significantly since initial recognition.
The Group recognizes in profit or loss, as a gain or loss from impairment, the value of expected, recognized, or resumed losses imposed to adjust the provision for losses to the reporting date, up to the level prescribed by the provisions of IFRS 9.
The Group evaluates the expected credit losses of a financial instrument so that it represents:
– A fair value, resulting from weighting multiple possible outcomes according to their associated probabilities;
– The time value of money;
– Reasonably available information without undue cost or effort as of the reporting date.
The Company may assume that the credit risk for a financial instrument has not increased significantly since initial recognition if the financial instrument is considered to have low credit risk at the reporting date. A financial instrument is considered to have low risk if:
– The debtor has a high capacity to fulfill the obligations associated with contractual cash flows in the near term;
– Unfavorable changes in the economic and business environment can, but not necessarily, reduce the debtor’s ability to fulfill its obligations.
In assessing low credit risk for issuers, real guarantees are not taken into account. Also, financial instruments are not considered low risk solely because they have a lower risk than other instruments issued by the debtor or compared to the prevailing credit risk in the geographic region or jurisdiction in which it operates.
The Group uses both external credit risk ratings and internal assessments consistent with generally accepted definitions of credit risk in assessing credit risk.
The Group recognizes a financial asset when the rights to receive cash flows from that financial asset have expired or when the Group has transferred the contractual cash flow rights related to that financial asset in a transaction where it has transferred significantly all the risks and rewards of ownership.
Any interest in transferred financial assets retained by the Group or created for the Group is recognized separately as an asset or liability.
The Group recognizes a financial liability when the contractual obligations have been settled or when the contractual obligations are cancelled or expire.
The derecognition of financial assets and liabilities is accounted for using the weighted average cost method.
If the Group reclassifies financial assets in accordance with paragraph 4.4.1 of IFRS 9 (as a result of a change in its business model for managing its financial assets), all affected financial assets will be reclassified. Financial liabilities cannot be subsequently reclassified after initial recognition.
The Group applies the reclassification of financial assets prospectively from the reclassification date. Any gains, losses, or interest recognized prior to reclassification are not restated.
In the event of a reclassification, the Group follows these steps:
– When reclassifying an asset from the amortized cost category to fair value through profit or loss category, the fair value is determined as of the reclassification date. The difference between amortized cost and fair value is recognized in profit or loss.
– When reclassifying an asset from fair value through profit or loss category to amortized cost category, the fair value at the reclassification date becomes the new gross carrying amount.
– When reclassifying an asset from the amortized cost category to fair value through other comprehensive income category, the fair value is determined as of the reclassification date. The difference between amortized cost and fair value is recognized in other comprehensive income without adjusting the effective interest rate or expected credit losses.
– When reclassifying an asset from fair value through other comprehensive income category to amortized cost category, the reclassification is done at the fair value of the asset as of the reclassification date. Amounts previously recognized in other comprehensive income are removed in relation to the fair value of the asset, without affecting the income statement. The effective interest rate and expected credit losses are not adjusted as a result of the reclassification.
– When reclassifying an asset from fair value through profit or loss category to fair value through other comprehensive income category, the asset continues to be measured at fair value.
– When reclassifying an asset from fair value through other comprehensive income category to fair value through profit or loss category, the financial asset continues to be measured at fair value. Amounts previously recognized in other comprehensive income are reclassified from equity to the income statement as a reclassification adjustment (according to IAS 1).
(vii) Gains and Losses
Gains or losses resulting from a change in the fair value of a financial asset or financial liability that is not part of a risk management relationship are recognized as follows:
a) Gains or losses arising from financial assets or financial liabilities classified as fair value through profit or loss are recognized in profit or loss;
b) Gains or losses arising from a financial asset measured at fair value through other comprehensive income are recognized in other comprehensive income.
When the asset is derecognized, the cumulative gains or losses previously recognized in other comprehensive income:
– are reclassified from equity to profit or loss for debt instruments;
– are transferred within retained earnings for equity instruments (shares).
Upon impairment or derecognition of financial assets and financial liabilities measured at amortized cost, as well as through the amortization process of such assets, the Company recognizes a gain or loss in the income statement.
For financial assets recognized using settlement date accounting, any change in the fair value of the asset to be received during the period between the trade date and the settlement date is not recognized for assets recorded at cost or amortized cost (except for impairment losses). However, for assets measured at fair value, the change in fair value must be recognized in profit or loss or equity, as appropriate.
(e) Other Financial Assets and Liabilities
Other financial assets and liabilities are measured at amortized cost using the effective interest method.
(f) Property, Plant and Equipment
(i) Recognition and Measurement
Property, plant, and equipment recognized as assets are initially measured at cost. The cost of an item of property, plant, and equipment includes the purchase price, including any non-refundable taxes, net of any trade discounts and any costs that can be directly attributed to bringing the asset to the location and condition necessary for it to be used in the intended manner by management, such as: employee costs directly attributable to the construction or acquisition of the asset, site preparation costs, initial delivery and handling costs, installation and assembly costs, professional fees.
The company classifies property, plant, and equipment into the following classes of assets of the same nature and with similar uses:
– Land and buildings;
– Technical installations and transportation equipment;
– Other installations, machinery, and furniture.
(ii) Measurement after Recognition
After recognition as an asset, items of property, plant, and equipment classified as land and buildings, whose fair value can be reliably measured, are carried at a revalued amount. This revalued amount is the fair value at the date of revaluation minus any subsequent accumulated depreciation and any accumulated impairment losses. Other property, plant, and equipment are measured at cost less accumulated depreciation and any impairment losses.
Revaluations are carried out regularly to ensure that the carrying amount does not differ significantly from what would be determined using fair value at the end of the reporting period.
If an item of property, plant, and equipment is revalued, then the entire class of property, plant, and equipment to which that item belongs is subjected to revaluation.
If the carrying amount of an asset is increased as a result of a revaluation, the increase is recognized in other comprehensive income and accumulated in equity as a revaluation surplus.
However, the increase will be recognized in profit or loss to the extent that it reverses a decrease in the revaluation of the same asset previously recognized in profit or loss.
If the carrying amount of an asset is decreased as a result of a revaluation, this decrease is recognized in profit or loss.
However, the reduction will be recognized in other comprehensive income to the extent that the revaluation surplus for that asset has a credit balance. Transfers from the revaluation surplus to retained earnings are not made through profit or loss.
(iii) Subsequent Costs
Subsequent costs related to property, plant, and equipment are evaluated based on the general recognition criteria for property, plant, and equipment described in section (i) Recognition.
The costs of daily maintenance (“repair and maintenance expenses”) related to property, plant, and equipment are not capitalized; they are recognized as expenses in the period in which they are incurred. These costs mainly consist of labor and consumable expenses and may include the cost of low-value components.
Costs of maintenance and repairs to property, plant, and equipment are recorded in the profit or loss account when they occur, while significant improvements made to property, plant, and equipment that increase their value or useful life, or significantly enhance their capacity to generate economic benefits, are capitalized.
Depreciation is calculated for the cost of the asset or another amount that substitutes for cost, minus the residual value. Depreciation is recognized in the profit or loss account using the straight-line method over the estimated useful life of the property, plant, and equipment, from the date they are available for use. This method reflects the most faithful way of allocating the consumption of economic benefits embodied in the asset.
The estimated useful lives for the current period and comparative periods are as follows:
Equipment, Technical Installations, and Machinery
Vehicles (means of transportation)
Furniture and Other Property, Plant, and Equipment:
These estimated useful lives indicate the period over which the respective assets are expected to be utilized and generate economic benefits for the company. The company calculates depreciation for these assets based on the straight-line method over their respective useful lives.
(v) Disposal of Property, Plant, and Equipment:
The carrying amount of a property, plant, or equipment item is derecognized (removed from the financial statements) upon disposal or when there is no expectation of future economic benefits from its use or disposal.
When property, plant, or equipment is disposed of or sold, it is removed from the balance sheet along with its accumulated depreciation. Any resulting gain or loss from such a transaction is included in the current income statement.
(g) Intangible Assets:
Intangible assets are initially recognized at cost. After initial recognition, an intangible asset is accounted for at cost minus its accumulated amortization and any accumulated impairment losses. (Note 3k)
(i) Subsequent expenditures
Subsequent expenditures are capitalized only if they enhance the future economic benefits embedded in the asset. Other expenses, including the impairment of internally generated goodwill and trademarks, are recognized in the income statement when incurred.
(ii) Amortization of Intangible Assets
Amortization is calculated for the asset’s cost or another value that substitutes the cost, minus the residual value. Amortization is recognized in the income statement using the straight-line method over the estimated useful life of the intangible assets, starting from the date they become available for use. This approach accurately reflects the anticipated consumption pattern of the economic benefits embedded in the asset.
The estimated useful life spans for the current period and comparative periods are as follows:
Other Intangible Assets
1- 5 years
Amortization methods, useful life spans, and residual values are reviewed at the end of each financial year and adjusted accordingly.
(h) Investment Property
An investment property is a real estate property (land, building, or part of a building) held by the Group primarily to earn rental income or for capital appreciation, or both, rather than for use in producing or supplying goods or services or for administrative purposes, or to be sold in the ordinary course of business.
An investment property shall be recognized as an asset if, and only if, it is probable that future economic benefits associated with the investment property will flow to the Group and the cost of the investment property can be reliably measured.
Initial Recognition Measurement
An investment property shall be measured initially at cost, including transaction costs. The cost of a purchased investment property comprises its purchase price and any directly attributable costs (e.g., legal fees for legal services, property transfer taxes, and other transaction costs).
Subsequent Measurement – Fair Value Model
Subsequent to initial recognition, all investment properties shall be measured at fair value, except when the fair value cannot be reliably determined on an ongoing basis.
In exceptional cases where, at the time of first acquisition of an investment property, there is clear evidence that the fair value of the investment property cannot be determined reliably on an ongoing basis, the Company measures that investment property using the cost model. The residual value of the investment property is assumed to be zero. All other investment properties are measured at fair value. If the Company has previously measured an investment property at fair value, it will continue to measure that investment property at fair value until disposal.
Gains or losses arising from changes in the fair value of investment properties are recognized in the profit or loss for the period in which they occur.
The fair value of investment properties shall reflect market conditions at the end of the reporting period.
Transfers into and out of the investment property category shall be made only when there is a change in use, evidenced by:
(a) Commencement of use by the Group – for transfers from the investment property category to the category of property, plant, and equipment used by the Group;
(b) Commencement of the process of development for sales – for transfers from the investment property category to the inventory category held for sale.
(c) Cessation of use by the Group – for transfers from property, plant, and equipment used by the Group to the investment property category;
(d) Commencement of an operating lease to another party – for transfers from inventory to the investment property category.
The carrying amount of an investment property is derecognized (removed from the statement of financial position) at the point of disposal or when the investment is permanently withdrawn from use, and no future economic benefits are expected from its disposal.
Gains or losses arising from the disposal or sale of an investment property should be recognized in the income statement in the period of retirement or disposal.
(i) Impairment of Non-Financial Assets
The carrying amount of the Group’s non-financial assets, other than deferred tax assets, is reviewed at each reporting date to identify any indications of impairment. If such indications exist, the recoverable amount of those assets is estimated.
An impairment loss is recognized when the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount.
A cash-generating unit is the smallest identifiable group that generates cash flows and is independent of other assets and asset groups. Impairment losses are recognized in the income statement.
The recoverable amount of an asset or a cash-generating unit is the higher of its value in use and its fair value less costs to sell. In determining the value in use, future cash flows are discounted using a pre-tax discount rate that reflects current market conditions and the specific risks of the asset.
Impairment losses recognized in previous periods are reviewed at each reporting date to assess whether they have decreased or no longer exist. An impairment loss is reversed if there is a change in the estimates used to determine the recoverable amount. However, a reversal is only recognized if the carrying amount of the asset does not exceed the carrying amount that would have been determined, net of accumulated depreciation and impairment, if no impairment loss had been recognized.
Property, plant, and equipment also include assets held under finance leases. As Lion Capital and portfolio companies assume the risks and benefits associated with ownership, these assets are capitalized at the lower of the present value of minimum lease payments and their fair value. The depreciation policy for leased assets will be consistent with that applied to owned depreciable assets. If it is not reasonably certain that ownership will be obtained by the end of the lease term, the asset will be fully depreciated over the shorter of the lease term or its useful life.
Simultaneously, a liability equivalent to the capitalized amount is recognized, and future lease payments are allocated between finance lease interest expense and principal (reduction of the outstanding liability).
All leases that are not classified as finance leases are treated as operating leases, and the related payments are recognized as expenses over the lease term.
Leases are classified as financial leases when the terms of the lease transfer the risks and rewards of ownership to the lessee. All other forms of leases are classified as operating leases.
Assets held under financial leases are recognized as company assets at fair value at the commencement of the lease period or, if lower, at the present value of minimum lease payments. Liabilities arising from the lessor’s offering of assets for lease are included in the balance sheet as financial lease obligations. Lease payments are allocated between lease financing expenses and the reduction of the lease liability to achieve a constant periodic interest rate on the remaining balance of the liability in each period. Financing interest costs are recorded as an expense or income, except when they can be directly attributed to long-term assets, in which case they are capitalized in accordance with the company’s general borrowing cost policy.
Lease payments are divided between capital and interest components such that the interest related to the payment is recognized in the income statement over the lease term and represents a constant proportion of the outstanding balance of the payment. The capital portion reduces the payable amount to the lessor.
Leasing arrangements in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Lease payments for operating leases are recognized in the income statement as a straight-line expense over the lease term.
Inventory comprises assets held for sale in the ordinary course of business, work in progress that will be sold in the ordinary course of business, or materials and other supplies used in the production process or for rendering services.
Inventory is valued at the lower of cost and net realizable value. The cost of inventory includes all costs of acquisition and processing, as well as other costs incurred to bring the inventory to its present location and condition. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. The cost of inventory that is not normally interchangeable and of goods and services produced for and designated to specific orders is determined by specific identification of individual costs. For interchangeable inventory, the cost is determined using the “first in, first out” (FIFO) formula.
Inventory of consumable items should be reclassified as property, plant, and equipment under IFRS and depreciated over their estimated useful lives.
Finished goods inventory is recognized at standard cost.
(l) Impairment of Non-Financial Assets
The carrying amount of the Group’s non-financial assets, other than deferred tax assets, is reviewed at each reporting date to identify indications of impairment. If such indications exist, the recoverable amount of those assets is estimated.
An impairment loss is recognized when the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-generating unit is the smallest identifiable group that generates cash flows and is independent from other assets and groups of assets. Impairment losses are recognized in the profit and loss account.
The recoverable amount of an asset or a cash-generating unit is the higher of its value in use and its fair value less the costs to sell. To determine the value in use, future cash flows are discounted using a pre-tax discount rate that reflects current market conditions and specific risks associated with that asset.
Impairment losses recognized in previous periods are reviewed at each reporting date to determine whether they have decreased or no longer exist. An impairment loss is reinstated if there is a change in the estimates used to determine the recoverable amount. The impairment loss is reinstated only if the carrying amount of the asset does not exceed the carrying amount that would have been determined, net of depreciation and impairment, if the impairment loss had not been recognized.
Non-financial assets, other than goodwill, that have been impaired are reviewed for possible reversal of impairment at each reporting date.
(m) Investment Grants
Investment grants are recognized in the consolidated statement of financial position at their initial value when there is sufficient assurance that they will be received and that the Group will comply with the conditions attached to the grants. Grants received by the Group for investments in the acquisition of property, plant, and equipment are presented in the consolidated statement of financial position as liabilities and are recognized in the profit and loss account using the straight-line method over the useful lives of the related assets.
(n) Share Capital
Ordinary shares are recognized in share capital. The incremental costs directly attributable to an issuance of ordinary shares are deducted from equity, net of tax effects.
For the purpose of preparing the financial statements in accordance with IFRS, the Company has applied the provisions of IAS 29 “Financial Reporting in Hyperinflationary Economies” by adjusting the share capital to be expressed in the current unit of measure as of December 31, 2003.
(o) Provisions for Liabilities and Charges
Provisions are recognized in the statement of financial position when the Company has a present obligation as a result of a past event, it is probable that the settlement of economic resources will be required to extinguish the obligation, and a reliable estimate can be made of the obligation’s value. In determining the provision, future cash flows are discounted using a pre-tax discount rate that reflects current market conditions and the specific risks of the liability. The amount recognized as a provision represents the best estimate of the expenditure required to settle the current obligation at the end of the reporting period.
(p) Revenue from Sale of Goods and Rendering of Services
Revenue from the sale of goods and rendering of services is recognized net of trade discounts, value-added tax, and other sales-related taxes.
Revenue from the sale of goods is recognized when all of the following conditions are met:
• Significant risks and rewards of ownership have been transferred to the buyers.
• The Group no longer has managerial involvement or effective control over the goods sold to the extent typically associated with ownership.
• The amount of revenue can be reliably measured.
• It is probable that economic benefits associated with the transaction will flow to the Group.
• The costs incurred for the transaction can be reliably measured.
Revenue from a contract involving the rendering of services is recognized when it can be reliably estimated and in proportion to the completion of the contract. The outcome of a transaction can be reliably estimated when all of the following conditions are met:
• The value of the revenue can be reliably estimated.
• It is probable that economic benefits associated with the transaction will flow to the entity.
• The stage of completion of the transaction at the reporting date can be reliably assessed.
• The costs incurred for the transaction and the costs to complete the transaction can be reliably measured.
(q) Interest Income and Expenses
Interest income and expenses are recognized in the consolidated statement of profit or loss and other comprehensive income using the effective interest method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts over the expected life of the financial asset or liability (or, where applicable, a shorter period) to the carrying amount of the financial asset or liability.
(r) Dividend Income
Dividend income related to an equity instrument classified at fair value through other comprehensive income or at fair value through profit or loss is recognized in profit or loss when the entity’s right to receive those amounts is established, except when those amounts represent a substantial recovery of the investment cost, as per IFRS 9.
In the case of dividends received as an alternative to cash payment, when the dividends are in the form of additional shares, the dividend income is recognized at the cash amount that would have been received, corresponding to the increase in the relevant ownership interest. The Group does not recognize dividend income for shares received for free when they are distributed proportionally to all shareholders.
Dividend income is recorded at gross value, including dividend tax, which is recognized as a current expense in income tax.
(s) Rental Income
Rental income is generated from investment properties leased by the Group through operational lease contracts and is recognized in profit or loss on a linear basis over the entire duration of the contract.
(t) Recognition of Expenses
Expenses are recognized in the period they are incurred, and their recognition in the profit and loss account follows the principle of matching.
Operating Expenses are recognized in the profit and loss account in the period they are incurred.
Banking Commission Expenses are recorded when they occur.
Transaction Expenses are recognized along with the revenues from these operations, on the settlement date for listed securities or on the date of receipt of the last installment for the sale of unlisted securities. At the time of acquisition, the cost of securities is represented by the purchase cost, and at the balance sheet date, the purchase cost is adjusted to the value resulting from the evaluation of the securities.
Fees, Quotas, and Taxes Expenses are recognized at the time they occur.
Salary and Associated Contributions Expenses are recognized when they arise, following the principle of period independence.
(u) Employee Benefits
(1) Short-Term Benefits
Obligations related to short-term employee benefits are not discounted and are recognized in the statement of comprehensive income as the related service is provided.
Short-term employee benefits include wages, bonuses, and contributions to social security. Short-term employee benefits are recognized as an expense when the services are provided. A provision is recognized for amounts expected to be paid as short-term cash bonuses or profit-sharing arrangements if the Group has a legal or constructive obligation to pay those amounts as a result of past service provided by employees and the obligation can be reliably estimated.
(2) Defined Contribution Plans
The Group makes payments on behalf of its employees to the Romanian state pension system, health insurance, and unemployment fund as part of its normal activities. Additionally, the Group deducts and transfers to private pension funds the amounts with which employees have enrolled in an optional pension plan.
All employees of the Group are members and also have a legal obligation to contribute (through social contributions) to the Romanian state pension system (a defined contribution plan of the State). All related contributions are recognized in the profit or loss account when they are incurred. The Group has no additional obligations.
The Group is not engaged in any separate pension plans and consequently has no further obligations in this regard. The Group is not required to provide post-employment services to former or current employees.
(3) Long-Term Employee Benefits
The Group’s net obligation for long-term service benefits is represented by the value of future benefits that employees have earned in exchange for services rendered in the current period and prior periods. Within the group, based on the regulations of the current Collective Labor Agreement, individuals retiring at the statutory retirement age may receive a benefit upon retirement equivalent to five times the average net salary in the Group.
The Group’s net obligation for long-term benefits determined based on the Collective Labor Agreement is estimated using the projected unit credit method and recognized in the profit and loss account under the accrual accounting principle. Any surplus or deficit arising from changes in the discount rate and other actuarial assumptions is recognized as income or expense over the remaining service period of the participating employees in this plan.
(4) Share-Based Payment and Share Option Plans
According to IFRS 2, for equity-settled share-based payment transactions, the entity must measure the goods or services received and the corresponding increase in equity directly at the fair value of the goods or services received, except when the fair value cannot be reliably estimated. If the entity cannot reliably estimate the fair value of the goods or services received, it must measure them and the corresponding increase in equity indirectly, with reference to the fair value of the equity instruments granted.
In order to apply the provisions from the previous point to transactions with employees and other individuals who render similar services, the entity must measure the fair value of the services received by reference to the fair value of the equity instruments granted, as the reliable estimation of the fair value of the services received is generally not possible. The fair value of those equity instruments must be assessed at the grant date.
The granting of equity instruments can be conditional upon meeting specific vesting conditions. For instance, the grant of shares or stock options to an employee is typically subject to the employee remaining in the entity’s service for a specified period. Performance conditions might also be imposed, such as the entity achieving a specified increase in profit or a specified increase in the entity’s share price. Vesting conditions other than market conditions should not be taken into account when estimating the fair value of shares or share options at the valuation date. Instead, vesting conditions should be taken into account by adjusting the number of equity instruments included in the valuation of the transaction, so that ultimately, the recognized value for the goods or services received in exchange for the granted equity instruments should be based on the number of equity instruments that ultimately vest. Therefore, on a cumulative basis, no value is recognized for the goods or services received if the granted equity instruments do not vest due to failure to meet a vesting condition, such as an employee not completing the specified service period or a performance condition not being met.
(v) Borrowing Costs
The Group capitalizes borrowing costs for qualifying assets in accordance with IAS 23 “Borrowing Costs”, as revised.
(w) Income Tax
Income tax for the fiscal year includes both current and deferred tax. Current income tax encompasses the tax payable on current year’s earnings, including tax on recognized dividend income.
Income tax is recognized in profit or loss or in other comprehensive income if the tax relates to items recognized directly in equity.
Current tax represents the tax payable on profits earned during the current period, calculated based on the tax rates applicable at the balance sheet date and all adjustments related to prior periods.
Deferred tax is determined using the balance sheet method for those temporary differences that arise between the tax base of assets and liabilities and their carrying amounts as used in the consolidated financial statements.
Deferred tax is not recognized for the following temporary differences: initial recognition of goodwill, initial recognition of assets and liabilities arising from transactions that are not business combinations and do not affect either accounting or tax profits, and differences arising from investments in subsidiaries, provided these will not reverse in the foreseeable future. Deferred tax is calculated using tax rates expected to apply to the temporary differences when they reverse, based on the enacted or substantively enacted tax laws at the reporting date.
A deferred tax asset is recognized only to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilized, and such utilization can be carried out after offsetting against available carry forward tax losses and recoverable income taxes.
Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Additional taxes arising from dividend distribution are recognized at the same date as the dividend payment obligation.
Deferred tax assets and liabilities are presented on a net basis in the consolidated financial statements of the Group.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities relating to the same taxation authority and the same taxable entity or different taxable entities, and they intend to settle the current tax assets and liabilities on a net basis or the assets and liabilities will be realized simultaneously.
(x) Earnings Per Share
The Group presents both basic and diluted earnings per share for ordinary shares. Basic earnings per share is calculated by dividing the profit or loss attributable to ordinary shareholders of the Group by the weighted average number of ordinary shares outstanding during the reporting period. Diluted earnings per share is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares for the dilutive effects arising from potential ordinary shares.
Dividends are treated as a distribution of profit in the period when they have been declared and approved by the General Assembly of Shareholders. The profit available for distribution is the profit of the year as recorded in the financial statements prepared in accordance with the International Financial Reporting Standards adopted by the European Union.
Dividends not claimed for a period of three years and for which the right to request payment has lapsed are recorded in equity under “Other reserves”.
(z) Segment Reporting
A segment is a distinguishable component that provides certain products or services (business segment) or provides products and services in a specific geographical area (geographical segment) and is subject to different risks and rewards compared to other segments. From a management perspective, the real estate activities of some subsidiaries are treated as financial activities and have been included in the financial business segment.