Integrated
Report 2022

10.15. Impairment of financial assets

In compliance with IFRS 9, the Company determines the expected credit losses (‘ECL’) related to debt instruments measured at amortised cost and at fair value through other comprehensive income, regardless of whether impairment indicators are present.

With regard to trade receivables within the EPS and FPS portfolios, the Group applies the simplified approach and measures the write-down for expected credit losses at an amount equal to the expected credit losses throughout the receivables lifetime, with the use of a provisions matrix. The Group uses its historical data regarding credit losses, adjusted in the respective cases on the basis of information regarding the future.

With regard to trade receivables within the ASS portfolio, due to its significant fragmentation and higher risk profile compared to the EPS and FPS segments, it is expected that the historical repayment rates of receivables may not represent the full image of the expected credit losses, to which the Group may be exposed. The risk of counterparty insolvency within the ASS segment is assessed based on the counterparty ratings assigned in accordance with the receivables insurance agreements availed of by the Group, or – if a respective counterparty is not covered by an insurance agreement as at the balance-sheet date – with the use of an internal scoring model. Based on such rating, the identified credit risk is transformed into a probability of default.

In accordance with IFRS 9 Financial Instruments, the expected credit loss is calculated in consideration of the estimates of potential refunds from the collaterals established (mainly receivables insurance agreements signed by the Company).

With regard to other financial assets, the Group measures the write-down for expected credit losses in the amount equal to 12-month expected credit losses. If the credit risk related to the respective financial instrument is much higher from the moment of the initial recognition, the Group measures the write-down for expected credit losses on account of the financial instrument at the amount equivalent to the expected credit losses throughout the lifetime.

The Group assesses that the credit risk related to the specific financial instrument is much higher from the date of its initial recognition, if the delay in payment exceeds 90 days.

At the same time, the Group assesses that default of a debtor takes place when the delay in payment exceeds 180 days.

The Group recognises write-downs of receivables in the part which is not covered with security or recoverable, for example for:

  • receivables overdue for up to 9 months;
  • litigated receivables;
  • contractors under liquidation or bankruptcy;
  • interest charged on untimely paid receivables.

For debtors whose financial standing does not ensure repayment of amounts due, and the receivables are overdue for longer than 6 months, the Segments recognise provisions ranging from 50% to 100% of the receivables value.

The Group procedure of measuring credit losses in the portfolio of other receivables is the following:

The first step of the procedure consists in defining the specific period for determining the percentage of trade receivables written down as uncollectible receivables (within the period of the recent few years). Further, the amount of lost receivables is determined for the analysed period. The default rate is the quotient of unpaid receivables to credited sales in the period. At the third step, the default rate from step two is applied to the actual receivables at the end of the period.

Compared with the preceding years, in the last 4 years there were two concurrent trends perceived: a major drop in the value of write-downs, and dynamic growth of sales. This resulted from effective debt-collection activities, as well as very good market situation. Considering the above (cyclical trend reversal and downgrade in the economic situation, also as a result of the war in Ukraine, and some payment problems among the customers), in order to maintain the rationality of calculations for 2022 and 2021, the correction ratio which increases the default rate by 4 has been introduced – before the above correction ratio has been introduced, the ratio equalled roughly 0.11% (2021: 0.0445%).

The first step of the procedure consists in defining the specific period for determining the percentage of trade receivables written down as uncollectible receivables broken down into domestic and export sales. At the second step, the amount of receivables due at the end of each time interval is determined, until the moment when the uncollectible receivables are written down. The default rate for each basket is the quotient of unpaid receivables within each interval to unsettled credited sales in the period. At the third step, the default rates from step two are applied to the actual receivables at the end of the period, for each of the time intervals. The Segment applies the following time intervals: current and overdue up to 30 days, overdue between 31 and 60 days, overdue between 61 and 90 days, overdue by over 90 days.

The ageing structure of receivables is determined with regard to domestic and foreign contractors. For those intervals the historic uncollectible receivables ratio is determined, and based on that a write-off for the expected credit losses on account of trade receivables is calculated.

For all ASS customers there is determined a level of unsecured receivables resulting from:

  • a balance higher than the granted level of insurance or the level resulting from other receivables security held;
  • a value corrected for deductible, which according to the provisions of the insurance contract will be covered from the Company’s own funds in the event of a indemnity payment (the level deductible within the insurance limit granted ranges from 5% to -20% depending on the insurer or the counterparty).

For such determined unsecured receivables rating is determined for each customer (between 1 and 10) and for each rating a probability of default is being set.

Ratings are prepared as follows:

  • for customers with receivables insurance granted – based on the insurer’s rating (current as at the date of analysis);
  • for customers with an insurance limit calculated as part of the self-protection measures – based on the Segment’s own assessment, taking into account the ageing structure of receivables as at the date of analysis.

The ratings granted by the Segment fall within the mid scale of ratings applied by insurance companies to customers without insurance granted, based on the Segment’s own assessment, in consideration of the receivables ageing structure as at the date of analysis.
Within the Segment’s own assessment (scoring) there are used ratings applied by insurance companies to determine the expected credit losses for the unsecured part of secured receivables. Depending on the insurer, ratings divide customers to 11 or 12 categories, where the highest category refers to customers of minimum risk level, and the lowest category to customers of the maximum risk level – in bankruptcy,

If a customer does not have a rating issued by an external institution, the Segment applies 2 to 3 mid categories to assess customers while determining scoring – the assigned risk falls within the acceptable or major risk ranges. Assignment to the specific category depends on the ageing structure of the respective customer’s amounts overdue as at the date of analysis – the higher the age, the lowest the scoring.

10.14. Financial assets
10.16. Trade and other receivables