25.3.1 Trade receivables. Other loans and financial receivables
SIGNIFICANT ACCOUNTING PRINCIPLES
Financial receivables
Financial receivables, including trade receivables, are measured as at the date they arise at fair value, and then at amortised cost using the effective interest rate, including write-downs for expected credit loss.
The Group applies simplified methods of valuation of receivables measured at amortised cost if it does not distort information contained in the statement of financial position, in particular when the period until the payment of receivables is not long.
The Group does not monitor changes in the level of credit risk over the life of the instrument. The expected credit loss is estimated up to the maturity of the instrument. The companies apply the following principles for estimating and recognising impairment write-downs of other financial receivables:
- for receivables from significant customers covered by the credit risk assessment procedure, the companies estimate expected credit losses on the basis of the model used to assess this risk based on ratings allocated to particular business partners; ratings are assigned the likelihood of bankruptcy adjusted by the impact of CDS (credit default swap);
- for receivables from mass customers or customers not covered by the credit risk assessment procedure, the companies estimate expected credit losses on the basis of an analysis of the probability of incurring credit losses in the particular ageing ranges;
- in justified cases, the companies may assess the amount of a write-down on an individual basis.
Write-downs of receivables are recognised as other operating costs or financial costs, respectively. Long-term receivables are measured at current (discounted) value.
The ratios adopted for estimating expected losses calculated according to the provision matrix:
| 31 December 2023 | 31 December 2022 | |||
|---|---|---|---|---|
| Write-down amount | Write-down percentage | Write-down amount | Write-down percentage | |
| Receivables not overdue | 985 | 0.0 – 98.0/ 100 | 463 | 0.0 – 79.39/ 100 |
| Overdue <30 days | 5 | 0.0 – 1.1/ 100 | 8 | 0.0 – 79.39/ 100 |
| Overdue 30-90 days | 15 | 0.0 – 13.2/ 100 | 18 | 0.0 – 59.47/ 100 |
| Overdue 90-180 days | 41 | 100.0 | 28 | 100.0 |
| Overdue 180-360 days | 66 | 100.0 | 651 | 100.0 |
| Overdue >360 days | 1,122 | 100.0 | 275 | 100.0 |
| TOTAL FINANCIAL ASSETS | 2,234 | 1,443 | ||
The write-down relates to receivables written down according to the matrix and on an individual basis (100%). The Group does not have any significant items of receivables, overdue more than 90 days, that were not subject to a 100% write-down at the reporting date.
The ratios adopted for estimating expected losses calculated according to the key customers model:
| Rating level | 31 December 2023 | 31 December 2022 | ||
|---|---|---|---|---|
| Write-down amount | Write-down percentage | Write-down amount | Write-down percentage | |
|
Highest Highest AAA to AA- according to S&P and Fitch, and Aaa to Aa3 according to Moody’s |
– | – | – | – |
|
Medium-high A+ to A- according to S&P and Fitch and A1 to A3 according to Moody’s |
– | – | – | – |
|
Medium BBB+ to BBB- according to S&P and Fitch and Baa1 to Baa3 according to Moody’s |
<1 | 100.0 | <1 | 100.0 |
| TOTAL FINANCIAL ASSETS | <1 | <1 | ||
Trade receivables typically have payment terms of 14-21 weeks. In 2023, the Group waited on average 27 days for the payment of receivables. Trade receivables mainly relate to receivables for energy sold and distribution services provided. In the opinion of the management of the PGE Capital Group, there is no additional risk of non-payment of receivables above the level determined by the impairment write-down.
The PGE Capital Group mitigates and controls the credit risk related to trade transactions in accordance with uniform credit risk management principles implemented in all key companies of the PGE Capital Group. In the case of commercial transactions, which due to their high value may generate significant losses as a result of the counterparty’s default, a counterparty assessment is carried out prior to the transaction, taking into account a financial analysis, the counterparty’s credit history and other factors. Based on the assessment, the PGE Capital Group assigns an internal rating or uses a rating assigned by an independent reputable rating agency. Based on the rating, a limit is set for the counterparty. Entering into contracts that would increase exposures above set limits generally requires the establishment of security in accordance with the credit risk management principles in force in the PGE Capital Group. The level of used limits is monitored and reported on a regular basis, and in the event of material overruns, the units responsible for counterparty risk management are required to take action to eliminate them. The PGE Capital Group monitors on an ongoing basis the payment of receivables and applies early collection, taking into account deadlines resulting from the energy law and a high level of repayment of receivables with short overdue periods. It also cooperates with business intelligence agencies and debt collection companies.
The credit risk on trade receivables on a geographical basis is presented in the table below:
| 31 December 2023 | 31 December 2022 | |||
|---|---|---|---|---|
| Balance of receivables | Share % | Balance of receivables | Share % | |
| Poland | 6,735 | 100% | 6,515 | 100% |
| Germany | 1 | 0 | 2 | 0 |
| TOTAL | 6,736 | 100% | 6,517 | 100% |
Ageing of receivables and impairment write-downs
As at 31 December 2023, some financial assets were subject to impairment write-downs. The table below presents changes in impairment write-downs for these classes of financial instruments:
| 2023 | Trade receivables | Other financial receivables | Bonds | Total financial assets |
| Write-down as at 1 January | (243) | (814) | (386) | (1,443) |
| Use of write-downs | 8 | 8 | 16 | |
| Reversal of write-downs | 99 | 48 | – | 147 |
| Creation of write-downs | (162) | (108) | (475) | (745) |
| Change in composition of CG | (222) | (16) | – | (238) |
| Other changes | 32 | (3) | – | 29 |
| Write-down as at 31 December | (488) | (885) | (861) | (2,234) |
| Value before impairment write-down | 7,224 | 4,919 | 861 | 13,004 |
| Net position value (book value) | 6,736 | 4,034 | – | 10,770 |
Most of the impairment write-downs of trade receivables relate to the Distribution and Railway Power Engineering segments. The total amount of impairment write-downs of trade receivables of these segment companies as at 31 December 2023 was PLN 475 million (in 2022, impairment write-downs in the Trade segment companies amounted to PLN 235 million).
The Group does not have any significant items of receivables that were significantly overdue as at the reporting date, but had not been written down.
| 2022 | Trade receivables | Other financial receivables | Bonds | Total financial assets |
| Write-down as at 1 January | (150) | (389) | (386) | (925) |
| Use of write-downs | 15 | 6 | – | 21 |
| Reversal of write-downs | 94 | 169 | – | 263 |
| Creation of write-downs | (206) | (600) | – | (806) |
| Other changes | 4 | – | – | 2 |
| Write-down as at 31 December | (243) | (814) | (386) | (1,443) |
| Value before impairment write-down | 6,760 | 3,380 | 386 | 10,526 |
| Net position value (book value) | 6,517 | 2,566 | – | 9,083 |
The ageing analysis of trade receivables, other loans and receivables, taking into account impairment write-downs, is presented below:
| 31 December 2023 | 31 December 2022 | |||||
|---|---|---|---|---|---|---|
| Gross | Write-downs | Net book value | Gross | Write-downs | Net book value | |
| Receivables not overdue | 11,269 | (985) | 10,284 | 9,466 | (463) | 9,003 |
| Overdue <30 days | 350 | (5) | 345 | 229 | (8) | 221 |
| Overdue 30-90 days | 145 | (15) | 130 | 92 | (18) | 74 |
| Overdue 90-180 days | 41 | (41) | – | 28 | (28) | – |
| Overdue 180-360 days | 66 | (66) | – | 651 | (651) | – |
| Overdue > 360 days | 1,133 | (1,122) | 11 | 283 | (275) | 8 |
| Total overdue receivables | 1,735 | (1,249) | 486 | 1,283 | (980) | 303 |
| Total financial assets | 13,004 | (2,234) | 10,770 | 10,749 | (1,443) | 9,306 |
As at 31 December 2023, more than 71% of the balance of overdue trade receivables and other loans and receivables for which no impairment write-downs had been made were related to the sales of energy to end users.