Financial Income and Expenses

Financial income of the Group amounted to PLN 14.1 million in 2012, a decrease of PLN 0.3 million compared to PLN 14.4 million in 2011. Financial income mainly includes interest on bank deposits, financial income from investments in Treasury bonds, and a surplus of positive fx differences. Interest income from bank deposits amounted to PLN 10.7 million in 2012  and PLN 4.1 million in 2011. Financial income from held Treasury bonds amounted to PLN 2.1 million in 2012 and PLN 3.5 million in 2011. The surplus of positive fx differences over negative fx differences was PLN 6.3 million in 2011. The fx differences balance was negative (PLN 1.0 million) in 2012 and it was recognized under financial expenses. The volatility of positions in fx differences in 2012 and their impact on the results were mitigated by hedging accounting applied by WSE (as of January 1, 2012).

Financial income of the Group stood at PLN 3.2 million both in Q4 2012 and in Q3 2012 compared to PLN 1.8 million in Q4 2011.

The Group’s total financial expenses were PLN 17.8 million in 2012 compared to PLN 0.4 million in 2011. The expenses were significantly higher in 2012 than in 2011 mainly due to WSE’s interest cost of debt service in respect of a bond issue, which amounted to PLN 15.5 million in 2012 compared to PLN 0.2 million in 2011. The negative fx differences were PLN 1.0 million in 2012.

Financial expenses amounted to PLN 4.5 million both in Q4 2012 and in Q3 2012 compared to PLN 0.2 million in Q4 2011. The expenses were significantly lower in Q4 2011 than in Q4 2012 mainly due to the short interest-bearing period in Q4 2011 relating to series A bonds issued on December 23, 2011.

In December 2011 and February 2012, WSE issued bonds with a total nominal value of PLN 245.0 million. The bonds of both series are due for redemption on January 2, 2017. The bonds bear interest at a floating rate equal to WIBOR 6M + 1.17%, interest is paid semi-annually. Due to the bond issue, the interest cost of debt service at PLN 3.9 million was a significant contributor to the financial expenses of the Group in Q4 2012. The interest cost of debt service was the same also in Q3 2012.

The total cost of the bond offering of WSE was PLN 2.2 million and it is charged to the Company’s financial expenses on a straight-line basis from the issue date of series A bonds (December 23, 2011) until the redemption date of series A and B bonds (January 2, 2017). The unsettled amount decreases the Company’s liabilities under the bond issue. The cost of the offering added PLN 0.4 million to the financial expenses of the Group in 2012 and PLN 0.1 million in Q4 2012.

As of January 1, 2012, WSE applies hedging accounting. Hedging covers cash flows under the agreement concerning the delivery of a new trading system (UTP), the acquisition of licences, and the acquisition of warranties in the first year after implementation. The Company has decided to designate cash held in euro for the above purpose as a hedging instrument. As of January 1, 2012, fx differences on the balance-sheet valuation of such cash are recognized in equity instead of net financial income. The fx differences recognized in equity were negative PLN 1.7 million in Q3 2012 and negative PLN 0.2 million in Q4 2012.

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