Annual Report 2005

Basis of consolidation Subsidiaries The consolidated financial statements incorporate the financial statements of the Company and reporting entities (including special-purpose entities) controlled by the Company (“subsidiaries”). The need for control arises if the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date when control ceases. The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the subsidiary, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair values at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 “Non-current assets held for sale and discontinued operations”, which are recognised and measured at fair value less costs to sell. Goodwill arising on acquisition is initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in the statement of profit and loss. Goodwill is initially recognised as an asset and is subsequently measured at cost less any accumulated impairment loss. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the business combination. The impairment of goodwill is tested annually or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of the goodwill and then to other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. On disposal of a subsidiary, the attributable amount of goodwill is included in the profit or loss on disposal. All intra-group transactions, balances, unrealised profits or losses from transactions have been eliminated on consolidation. Minority interest of other investors in the net assets of consolidated subsidiaries are identified separately from the ŽP Group’s equity therein. Minority interests represent the other investors’ proportionate share of the fair value at the acquisition date of the assets and liabilities of the relevant subsidiary, adjusted for the minorities’ share of subsequent profits and losses. Loss applicable to minority interests in excess of the minorities’ interest in the subsidiary’s equity is accounted for along with the Group’s interest except for the amount that represents contractual liability of minority shareholders and may represent an additional investment to cover losses. Minority interest is presented as a separate item in equity. Certain subsidiaries have not been consolidated as their impact on consolidation has been assessed as not material. List of consolidated subsidiaries in the Group is as follows: 90.14 85.00 99.00 95.00 51.00 67.00 68.00 52.58 97.98 100.00 100.00 99.80 100.00 100.00 66.00 63.14 85.00 99.00 95.00 48.45 42.24 68.00 33.20 51.47 100.00 100.00 99.80 95.57 100.00 - 90.14 85.00 99.00 95.00 48.45 60.39 68.00 47.40 97.98 100.00 100.00 99.80 100.00 100.00 66.00 Czech Republic Switzerland Czech Republic Italy Italy Germany Poland Czech Republic Slovakia Slovakia Slovakia Slovakia Slovakia Slovakia Slovakia ŽÏAS, a.s. Pipex (International) AG ŽP Tažírny trub Svinov, spol. s r.o. PIPEX ITALIA S.P.A. TS STEEL PIPE & FITTINGS S.r.l. ZDAS SGS GmbH Slovrur sp.z o.o. ŠKODA TS a.s. Tále, a.s. ŽP-Gastroservis, s.r.o. ŽP BYTOS, s.r.o. ŽP Šport, a.s. ŽP-Invest s.r.o. Nadácia Železiarne Podbrezová ŽP PRAKO s.r.o. For details on changes in the Group during current reporting period see Note 6. (c) (l) Principal activity 63.14 85.00 99.00 95.00 51.00 67.00 68.00 52.58 51.47 100.00 100.00 99.80 95.57 100.00 - 2004 2005 2004 2005 Country of incorporation Name Effective ownership % Voting rights % NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2005 (in thousand SKK) Consolidated financial statements Annual Report 2005 Železiarne Podbrezová 51 Machinery production Trading activities Steel pipe production Trading activities Trading activities Trading activities Trading activities Machinery production Leisure Catering services Apartment management Sport events Investment company Foundation Production of steel flanges for pipes