The detailed accounting policy pertaining to settlement of acquisition transactions are presented in section 5.6.
The acquisition of entities providing medical services (in 2018 it was: Centrum Medyczne św. Łukasza sp. z o.o. and Specjalistyczny Zakład Opieki Zdrowotnej Multimed sp. z o.o.) is aimed at supplementing the insurance and health services offered by the PZU Group. Development of the medical service and health insurance offering is one of the core elements of the PZU Group strategy. Provision of some of the services in own centers will increase the PZU Group’s competitiveness in this market. The goodwill recognized in the consolidated financial statements is the effect of the planned increase of the scale of this business and the volume of services generated by health insurance, combined with improvement of the profitability of these services thanks to retaining some of the margin in the PZU Group.
2.4.1. Acquisition of shares in Pekao
On 8 December 2016 PZU, acting in a consortium with PFR signed the Pekao share purchase agreement (“SPA”) with UniCredit S.p.A. („Seller”, „UniCredit”).
On the closing date, i.e. on 7 June 2017, PZU directly acquired a stake in Pekao representing approximately 20% of the total number of votes and at the same time PFR directly acquired a stake in Pekao representing approximately 12.8% of the total number of votes.
As a result of this transaction PZU recognized that it acquired control over Pekao on 7 June 2017.
The price agreed by the Parties is PLN 123 per share, which entailed the total price of PLN 10,589 million for the whole stake to be acquired by PZU and PFR, of which the price for the stake to be acquired by PZU was PLN 6,457 million. The price also included payment for the acquired right to the dividend adopted by the Pekao Ordinary Shareholder Meeting held on 19 April 2017 in the amount of PLN 8.68 per share, i.e. PLN 456 million in total.
Final settlement of the Pekao acquisition
The settlement for the acquisition of the stake in Pekao on the date of obtaining control was made on the basis of the data prepared on 31 May 2017. No material differences in accounting data transpired between 31 May and 7 June 2017.
The consolidated financial statements contain the final fair value of the assets and liabilities acquired (in particular, of the loan portfolio). In the process of calculating goodwill:
no potential indemnification assets requiring recognition were identified.
The final settlement of the transaction is presented below on the basis of the fair value of the acquired assets and liabilities.
Assets | Carrying amount | Adjustment to fair value (preliminary settlement) | Adjustment – final settlement | Fair value | Comments |
Goodwill | 56 | (56) | - | - | The goodwill recognized in Pekao’s balance sheet was eliminated and it was recognized as part of the goodwill coming from the acquisition of shares in Pekao. |
Intangible assets | 544 | 1,450 | - | 1,994 |
New assets were identified: trade mark
|
Other assets | 192 | - | - | 192 | |
Property, plant and equipment | 1,403 | 253 | 51 | 1,707 | The property measured by Pekao at historical cost less accumulated depreciation and impairment losses was measured at fair value. |
Investment property | 25 | - | 2 | 27 | |
Entities measured by the equity method | 154 | 400 | - | 554 | The stakes in associates (PIM and Xelion), which Pekao measured using the equity method, were measured at fair value. |
Financial assets | 157,634 | (1,199) | - | 156,435 | |
Held to maturity | 4,507 | 22 | - | 4,529 | The assets measured by Pekao at amortized cost were measured at fair value. |
Available for sale | 22,168 | 151 | - | 22,319 | The equity instruments presented by Pekao at historical cost were measured at fair value and the measurement of some assets was done in a consistent manner in accordance with the models in operation in the PZU Group. |
Measured at fair value through profit or loss | 2,886 | - | - | 2,886 | |
Hedge derivatives | 325 | - | - | 325 | |
Loans | 127,748 | (1,372) | - | 126,376 | The loan portfolio was measured at fair value. |
Assets | Carrying amount | Adjustment to fair value (preliminary settlement) | Adjustment – final settlement | Fair value | Comments |
Deferred tax assets | 867 | (67) | (10) | 790 | The deferred tax on the adjustments made to fair value was assessed. |
Receivables | 2,542 | (16) | - | 2,526 | Receivables were measured at fair value. |
Cash and cash equivalents | 4,981 | - | - | 4,981 | |
Assets held for sale | 48 | (2) | - | 46 | Property held for sale was measured at fair value. |
Total assets | 168,446 | 763 | 43 | 169,252 |
Liabilities | Carrying amount | Adjustment to fair value (preliminary settlement) | Adjustment – final settlement | Fair value | Comments |
Provisions for employee benefits | 381 | 40 | - | 421 | The provision for employee holidays was measured at fair value. |
Other provisions | 249 | 46 | - | 295 | A fair value measurement of provisions was made. |
Deferred tax liability | 5 | - | - | 5 | |
Financial liabilities | 141,297 | 43 | - | 141,340 | Liabilities measured at amortized cost were measured at fair value. |
Other liabilities | 4,990 | 66 | - | 5,056 | |
Total liabilities | 146,922 | 195 | - | 147,117 |
Net assets | Carrying amount | Adjustment to fair value (preliminary settlement) | Adjustment – final settlement | Fair value | Comments |
Net assets attributable to the holders of Pekao | 21,509 | 568 | 43 | 22,120 | Impact exerted by the foregoing revaluations on the net asset value attributable to the holders of Pekao |
Non-controlling interest | 15 | - | - | 15 | |
Total net assets | 21,524 | 568 | 43 | 22,135 |
In the settlement of the acquisition, the PZU Group reduced the consideration transferred by PLN 456 million, which was the price for the right to receive a dividend payable from profits earned by Pekao before the date of acquisition; on the date of PZU’s obtaining control that amount was presented as a receivable, and it was received on 6 July 2017.
Goodwill calculation | Preliminary settlement | Adjustment – final settlement | Final settlement |
Consideration transferred | 6,001 | - | 6,001 |
Cash transferred | 6,457 | - | 6,457 |
Adjustment by an amount forming the price for the right to receive the dividend | (456) | - | (456) |
Value of non-controlling interests (80.00% of the fair value of Pekao’s net assets) | 17,662 | 34 | 17,696 |
Fair value of the Pekao’s identifiable net assets | (22,077) | (43) | (22,120) |
Goodwill | 1,586 | (9) | 1,577 |
Goodwill will not reduce taxable income.
2.4.2. Purchase of other companies
On 9 January 2018, PZU Zdrowie SA acquired 360 shares in Centrum Medyczne św. Łukasza sp. z o.o. representing 100% of the share capital and 100% of the votes at the shareholder meeting with a par value of PLN 600 each.
Since the date of obtaining control, i.e. 9 January 2018, Centrum Medyczne św. Łukasza sp. z o.o. has been consolidated.
On 31 December 2018, Elvita acquired 500 shares in Specjalistyczny Zakład Opieki Zdrowotnej Multimed sp. z o.o. representing 100% of the share capital and 100% of the votes at the shareholder meeting with a par value of PLN 1 thousand each.
Since the date of obtaining control, i.e. 31 December 2018, Specjalistyczny Zakład Opieki Zdrowotnej Multimed sp. z o.o. has been consolidated.
Settlement of the acquisition
Fair value of acquired assets as at the time of obtaining control | Preliminary settlement |
Financial assets | 7 |
Receivables | 2 |
Other assets | 2 |
Total assets | 11 |
Liabilities | 3 |
Fair value of acquired net assets | 8 |
Fair value of the payment made – cash | 33 |
Goodwill | 25 |
Goodwill will not reduce taxable income.
Consolidated profit and loss account taking into account acquired entities
The table below presents the amounts of revenues and profits of the PZU Group, taking into account the financial data of acquired subsidiaries (Centrum Medyczne św. Łukasza sp. z o.o. and Specjalistyczny Zakład Opieki Zdrowotnej Multimed sp. z o.o.) calculated as if the beginning of the year was the acquisition date for all the combinations effected during the year.
Consolidated profit and loss account | 1 January – 31 December 2018 |
Gross written premiums | 23,470 |
Reinsurers’ share in gross written premium | (755) |
Net written premiums | 22,715 |
Movement in net provision for unearned premiums | (365) |
Net earned premiums | 22,350 |
Revenue from commissions and fees | 3,374 |
Net investment income | 11,679 |
Net result on realization of financial instruments and investments | (15) |
Movement in allowances for expected credit losses and impairment losses on financial instruments | (1,804) |
Net movement in fair value of assets and liabilities measured at fair value | 770 |
Other operating income | 1,713 |
Claims, benefits and movement in technical provisions | (14,980) |
Reinsurers’ share in claims, benefits and movement in technical provisions | 417 |
Net insurance claims and benefits paid | (14,563) |
Fee and commission expenses | (754) |
Interest expenses | (2,046) |
Acquisition expenses | (3,130) |
Administrative expenses | (6,609) |
Other operating expenses | (3,873) |
Operating profit | 7,092 |
Share of the net financial results of entities measured by the equity method | (1) |
Profit before tax | 7,091 |
Income tax | (1,719) |
Net profit, including: | 5,372 |
- profit attributable to the equity holders of the Parent Company | 3,217 |
- profit (loss) attributed to holders of non-controlling interest | 2,155 |
2.4.3. Changes to consolidation of mutual funds
Since control was gained over the PZU FIZ Akcji Focus fund, it is consolidated as of 1 April 2018.
In addition, the following newly-created funds, namely inPZU Inwestycji Ostrożnych, inPZU Obligacje Polskie are consolidated (as of 10 April 2018) while the following funds, namely inPZU Akcje Polskie, inPZU Akcji Rynków Rozwiniętych, inPZU Obligacji Rynków Rozwiniętych, inPZU Obligacji Rynków Wschodzących are consolidated (as of 10 May 2018).
On 24 December 2018 the liquidation of the PZU FIZ Aktywów Niepublicznych Witelo Fund was completed. The fund was consolidated until its liquidation date.
2.4.4. Transactions under joint control
On 24 April 2018 PTE PZU received the KNF’s decisions consenting to the acquisition of management of Pekao OFE and Pekao DFE. PZU PTE and Pekao PTE entered into a business transfer agreement on 18 May 2018 encompassing i.a. the operations of Pekao OFE and Pekao DFE, involving the management of Pekao OFE and Pekao DFE. The business was acquired effectively on 19 May 2018. According to KNF’s decision the date for commencing the winding up of Pekao OFE is 1 August 2018, while this process will end and the assets of Pekao OFE were merged with the assets of OFE PZU “Złota Jesień” on 12 October 2018. The winding up of DFE Pekao was in progress since 19 May 2018 was completed on 28 September 2018.
On 4 June 2018 the National Court Register registered PFS’s share capital increase in connection with the spin off (organizational, functional and financial) and the transfer of the branch of the PZU CO transfer agent (forming an organization part of a business) to PFS within the meaning of Article 530 § 2 of the Commercial Company Code. The transaction was executed on the basis of the agreement concluded on 16 March 2018 by and between PZU, Pekao, PFS and PZU CO and the spin off plan executed on 27 February 2018 by and between PZU CO (company being spun off) and PFS (acquiring company). PZU CO’s net asset value transferred to PFS on the date of the spin off was PLN 7 million. From the spin off date the transfer agent services rendered thus far by PZU CO are rendered by PFS.
On 6 September 2018, Elvita merged with NZOZ Trzebinia.
The transactions did not affect the consolidated financial statements.
2.4.5. Acquisition of an associate
On 15 November 2018 Alior Bank acquired, for PLN 4 million, 2,510 shares with the total par value of PLN 125,500, representing 20% shares in GTR Finanse sp. z o.o. (currently PayPo sp. z o.o.).