2.4 Changes in the scope of consolidation and structure of PZU Group

2.4.1 The sale of PZU Lithuania shares

On 2 February 2015, a share purchase agreement for the sale of PZU Lithuania shares was signed, under which Gjensidige Forsikring ASA with the registered office in Oslo (Norway) acquired 1,761,941 ordinary registered shares with the nominal value of EUR 28,96 each, representing a total of 99.879% of the share capital of PZU Lithuania.

The share of sales was conditional on the meeting of the following conditions precedent:

• lack of objection of the Bank of Lithuania regarding the purchase of shares in PZU Lithuania by the purchaser (the condition was met on 13 August 2015);
• consent of the Latvian and Estonian antitrust authorities or a written confirmation that such consent is not required (PZU received confirmations that such consent is not required on 25 May 2015 and 14 May 2015, respectively);
• consent of the Lithuanian Competition Council (On 7 April 2015, PZU was informed that this condition was fulfilled).
• completion of the process of separating assets and liabilities of PZU Lithuania related to the operations carried out by the branches of PZU Lithuania in Latvia and Estonia to PZU Group (the condition was met on 23 June 2015);
• consent of the Bank of Lithuania on the early repayment by PZU Lithuania of a subordinated loan granted to PZU Lithuania by PZU (the consent in question was granted on 15 July 2015 and the loan was repaid on 16 July 2015;
• consent of the Norwegian Financial Supervision Authority for the purchase of the shares in PZU Lithuania by the purchaser (on 14 May 2015, PZU was informed that this condition was fulfilled);
• waiver of the preemptive right by the minority shareholder of PZU Lithuania (holding 0.121% of the share capital) in relation to the shares of PZU Lithuania in favor of PZU (the condition was met on 30 September 2015);
• consent of the Lithuanian government commission for the purchase of the shares in PZU Lithuania by the purchaser or a written confirmation that such consent is not required (on 14 May 2015, PZU was informed that this condition was fulfilled).

Closing of the sale of shares of PZU Lithuania and a loss of control took place on 30 September 2015, and since that day the consolidation of PZU Lithuania has not been continued.

The payment for the shares of PZU Lithuania made on the date of closing the transaction amounted to EUR 65,966 thousand (in accordance with the NBP’s exchange rate from the day preceding the date of the transaction: PLN 279,921 thousand), which included:

• EUR 54,000 thousand of the price offered, and
• EUR 11,966 thousand of the estimated amount of compensation for net assets (the difference between the estimated value of net assets and the notional value of net assets).

On 17 February 2016, the price of acquisition was adjusted by the difference between the estimated amount of compensation for net assets and the actual amount of compensation for net assets (determined on the basis of the closing balance sheet prepared by the buyer and accepted by PZU). As a result of the adjustment, the purchase price was lowered by EUR 349 thousand (in accordance with the NBP's exchange rate of 31 December 2015: PLN 1,488 thousand).

In addition, the price will be adjusted by 4 payments made every 6 months, each in the amount of 1.5% of the amount of excess capital calculated as the difference between the actual equity of PZU Lithuania determined in accordance with the requirements of the Bank of Lithuania and the required PZU Lithuania capital calculated in accordance with the provisions of law and regulations binding PZU Lithuania.

The profit from the sale of PZU Lithuania shares is recognized in the consolidated statement of profit or loss under "Net result on realization and impairment losses on investments".

The reduction of cash balance of PZU Group by PLN 11,277 thousand is recognized under "decrease in cash inflows from sale of units and due to changes in the consolidation scope" in the consolidated cash flow statement.

2.4.2 Establishment of Towarzystwo Ubezpieczeń Wzajemnych Polski Zakład Ubezpieczeń Wzajemnych

On 3 November 2015, PFSA approved the establishment of TUW PZUW, which was registered in the National Court Registered on 20 November 2015 and since that date has been subjected to consolidation.

PZU is the sole founder of TUW PZUW and held 100% of the share capital of TUW PZUW, i.e. 249,000 shares of TUW PZUW of nominal value of PLN 100 each. The share capital of TUW PZUW amounts to PLN 24,900 thousand. PZU also covered the organizational fund of TUW PZUW in the amount of PLN 950 thousand.

Hospitals that cooperate under the TUW PZUW model obtain a possibility to disperse risk as a part of mutual relations suited to the nature of a given group of medical companies, and thus decrease the expenses related to insurance premium. Acting in TUW PZUW as a founding member, PZU will grant to the hospitals, participants in TUW PZUW, support in active risk management and building recommendations on limitations to the risk incurred, e.g. by means of a comprehensive cooperation within medical risk assessment.

2.4.3 Changes in the scope of consolidation of investment funds

The assumptions made by PZU Group upon consolidation of investment funds have been presented in Note 6.1.1.

Due to the fact that PZU Group lost its control over PZU Fundusz Inwestycyjny Zamknięty Forte, the consolidation was ceased on 30 June 2015. It resulted in a reduction of cash balance of PZU Group by PLN 215,307 thousand (in "decrease in cash inflows from purchase of units and due to changes in the consolidation scope" line in the consolidated cash flow statement). After ceasing the consolidation of the investment fund, the participation units in fund of PZU Group are recognized in consolidated financial statements instead of the assets and liabilities of the investment fund.

Due to gaining control over the PZU Sejf+ fund, the fund has been subjected to consolidation since 30 September 2015. It resulted in an increase in cash balance of PZU Group by PLN 1,164 thousand (under "increase in cash balance from purchase of units and due to changes in the consolidation scope" of consolidated cash flows statement) in the consolidated cash flow statement. After the consolidation of the investment fund, its assets and liabilities are recognized in consolidated financial statements instead of the participation units in fund of PZU Group.

In addition, the following newly-established funds have been subjected to consolidation: PZU Fundusz Inwestycyjny Zamknięty Surowcowy (since 3 September 2015) and PZU Fundusz Inwestycyjny Zamknięty Akcji Focus (since 10 December 2015).

2.4.4 Acquisition of shares in EMC Instytut Medyczny SA

On 17 April 2015, PZU FIZ AN BIS 2 entered into a contract providing for the acquisition of 325,124 newly issued shares in EMC (series I) with the nominal value of PLN 4.00 per share and the issue price of PLN 15.80 per share. The total purchase price for the new shares amounted to PLN 5,137 thousand.

On 9 July 2015, the capital increase of EMC was registered, as a result of the issuance of 1,265,822 shares with a nominal value of PLN 4.00 per share and the issue price of PLN 15.80 per share. In accordance with the above mentioned final contract, PZU FIZ AN BIS 2 acquired 325,124 shares (constituting 25.685% of new issue) As a result of the capital increase, PZU FIZ AN BIS 2 has a total of 3,760,762 shares representing 28.31% of the share capital, which entitles it to 25.44% of votes at the General Meeting of Shareholders of EMC.

2.4.5 Combinations of entities under common control

On 26 March 2015, 27 March 2015 and 30 September 2015, an agreement of sale of CM Medica, Prof-Med and Elvita shares between PZU FIZ AN BIS 2 and PZU Zdrowie SA.

On 2 September 2015, the General Meeting of Shareholders of Armatura Kraków SA adopted a decision on the legal merger of Armatura Kraków SA (the acquirer) with Armaton SA (the acquiree), whose sole shareholder was Armatura Kraków SA. The acquisition took place by transferring all the assets of the acquiree to the acquirer.

Both mergers were registered in the National Court Register on 30 September 2015.

The above mentioned transactions did not affect the consolidated financial statements.

2.4.6 Business combinations

Business combination transactions are accounted for using the acquisition method in accordance with IFRS 3 "Business Combinations". Among others, this requires identifying the acquirer, determining the acquisition date, recognizing and measuring the identifiable assets acquired, liabilities assumed measured at fair value as at the acquisition date and any non-controlling interest in the acquiree, as well as recognizing and measuring goodwill.

Detailed accounting policies concerning the settlement of the acquisition transactions are presented in Note 5.4.

Acquisition of insurance companies is part of the development strategy pursued by PZU Group, with international expansion and strengthening the position of PZU in Poland at its core. The goodwill recognized in the consolidated financial statements is an outcome of the planned achievement of value added resulting from synergy in the area of operations, IT solutions, and offer for Clients. A strong position of the acquired companies on the local markets is another argument in favor of the recognition of goodwill. Moreover, in the case of Link4, as a result of using additional brand in Poland, it is planned to attract new Clients and perform services up-selling.

The purchase of shares in Alior Bank allowed PZU Group to grow in the new area outside of the traditional scope of insurance activity – in bank services. The goodwill recognized in the consolidated financial statements is an outcome of the fact that it is a dynamically growing entity, with a high degree of commercial and technological advancement, which will be used by PZU Group as a platform for the consolidation of the Polish banking sector. It is a crucial step in establishing a banking group operating within PZU Group.

Acquisition of entities rendering health care services (in 2015: Rezo-Medica sp. z o.o., Centrum Medyczne Gamma sp. z o.o., Medicus w Opolu sp. z o.o., Nasze Zdrowie sp. z o.o.) is aimed at complementing health insurance offered by PZU Group. Development of healh care services and health insurance offer s one of the main components of the PZU Group’s strategy. Implementation of part of the services in own facilities boost the competitiveness of PZU Group at this market. The goodwill recognized in the consolidated financial statements is an outcome of the planned growth of this service segment and of the volume of services generated by health insurance, whilst improving rentability of these services due to retaining part of the margin in PZU Group.

2.4.6.1 Acquisition of Alior Bank

Under the preliminary share purchase agreement signed on 30 May 2015 concerning the sale of the shares of Alior Bank, PZU acquired 17,818,473 shares of Alior Bank from Alior Lux S.à.r.l. & Co. S.C.A ("Seller 1") and 500,000 shares of Alior Bank from Alior Polska sp. z o.o. ("Seller 2"), i.e. 18,318,473 shares in total, representing 25.19% of both the share capital of Alior Bank and the total number of votes at the General Meeting of Shareholders of Alior Bank.

Upon fulfilling the provisions stipulated in the share purchase agreement, the shares of Alior Bank were acquired by PZU in three installments:

• first installment: 6,744,900 shares of Seller 1 and 500,000 shares of Seller 2;
• second installment: 7,244,900 shares of Seller 1;
• III tranche: 3,828,673 shares of Seller 1.

Price per share amounted to PLN 89.25 and the acquisition cost of the shares amounted to PLN 1,634,924 thousand in total.

The transaction will be settled upon fulfillment of the following conditions precedent, which at the same time constitute conditions precedent to the implementation of individual installments (the first three points refer only to the first installment):

• lack of objection of PFSA regarding PZU's acquisition of shares in Alior Bank (on 6 October 2015, PFSA found no grounds to object to the acquisition);
• consent of the President of Office of Competition and Consumer Protection or the consent being considered granted (On 6 August 2015, PZU was informed that this condition was fulfilled);
• consent of the Ukrainian anti-thrust authority (on 2 September 2015, PZU was informed that the consent in question was granted);
• no violations of declarations and warranties made by the parties (the condition was met on 9 October 2015);
• lack of unauthorized services defined in the agreement, which have not been adequately compensated (the condition was met on 9 October 2015);
• lack of substantially negative change defined in the agreement (the condition was met on 9 October 2015);
• lack of infringement of the commitments agreed upon during the transitional period from the date of signing of the agreement until the date of the subsequent installment (the condition was met on 9 October 2015);
• Alior Bank's acquisition of the organized part of Seller 2's company, which includes the property listed in points a) – d) of resolution No. 27/2017 of the General Meeting of Shareholders of Alior Bank of 25 May 2015 (the condition was met on 31 July 2015).

On 12 October 2015, the acquisition of the first installment was settled, and on 18 December 2015 – the second installment transaction was finalized. Payment per each installment amounted to PLN 646,607 thousand (PLN 1,293,214 in total). In the period between 12 October 2015 and 18 December 2015, PZU Group did not control Alior Bank but had significant influence over it, as a result of which it was considered an associate. As a result of the acquisition of the second installment, PZU Group obtained control over Alior Bank, which therefore has been consolidated since 18 December 2015. Also, the following subsidiaries of Alior Bank have been consolidated: Alior Services sp. z o.o, Centrum Obrotu Wierzytelnościami sp. z o.o., Alior Leasing sp. z o.o., Meritum Services ICB SA, Money Makers SA, New Commerce Services sp. z o.o. Summary of control analysis has been presented in Note 6.1.1.1.

On 11 March 2016, the acquisition of the III tranche of Alior Bank's shares was settled. The payment for the III tranche amounted to PLN 341,709 thousand. As a result of acquiring three installments, PZU directly possesses as of 14 March 2016 18,318,473 shares of Alior Bank representing 25.19 % of Alior Bank's share capital and votes at the General Meeting of Shareholders of Alior Bank. In addition, through investment funds controlled by PZU, it indirectly held 4.0284 % of the share capital of Alior Bank and the total number of votes at the General Meeting of Shareholders of Alior Bank.

The costs related to acquisition of Alior Bank shares attributable to statement of profit and loss amounted to PLN 2,307 thousand. Due to the fact that these costs were connected with the project ongoing at the same time, the disclosed amount is the best possibile estimation of their allocation to the transaction of acquisition of Alior Bank shares.

Provisional purchase price allocation for Alior Bank

Acquisition of significant influence

In the period between 12 October 2015 and 18 December 2015, Alior Bank was treated as an associate measured using the equity method. The results of this valuation are presented in the table below:

Acquisition of control

The settlement of the acquisition of shares of Alior Bank as at the acquisition date was accounted for on the basis of the accounting data prepared as at 31 December 2015. There were no significant differences in the accounting data between 18 December 2015 (the acquisition date) and 31 December 2015.

The share of PZU Group in the financial profit of Alior Bank for this period have been recognized together with the the gains/ losses resulting from the equity method for the period from 12 October to 18 December 2015 and reported in “Share in net results of entities measured using the equity method” of the consolidated statement of profit or loss.

Due to the following facts:

• the price for the III tranche has been agreed and is not subject to changes irrespective of market conditions;
• the III tranche is irrevocably connected with the previous ones that give PZU Group control over Alior Bank;
• non-controlling interest attributed to the shares in the III tranche deos not meet the definition of equity component in accordance with IFRS 32 point 23;

PZU Group included also the III tranche in the settlement of the acquisition of Alior Bank by way of:

• including the consideration transferred for both the II and the III tranches in the calculation of goodwill – PLN 988,316 thousand;
• calculating the carrying amount of non-controlling interest on the assumption that the III tranche shares are owned by PZU (70.78%);
• recognizing the liability to make the payment for the III tranche in the amount of PLN 341,709 thousand.

During the goodwill calculation, the carrying amounts of assets and liabilities of Alior Bank have been remeasured to fair value and new intangible assets have been identified that had not been hitherto recognized by the company as assets.

To the date of the publication of these consolidated financial statements, the purchase price allocation for Alior Bank has not been completed. Reliable and accurate calculation of fair value requires a large volume of data and appropriate measurements. It made impossible to finnish this process in the short period of time between the acquisition date and the date of the publication of the consolidated financial statements. Therefore, PZU Group decided to include a provisional purchase price allocation, in which:

• as to the fair value of the loans portfolio, the fair value reported in consolidated financial statements of Alior Bank Group as at 31 December 2015 was used;
• the liability arising from unfavorable valuations of lease agreements, customer relations (other than included in the core deposits intangible (“CDI”));
• the analysis of the potential property, plant, equipment and intangible assets fair value measurement has not been finalized;
• valuation of off-balance sheet liabilities has not been reported.

The final settlement will be presented after the process of identifying and calculating the fair value of the acquired assets, liabilities and off-balance liabilities is completed, which should not take place later than the date of the publication of the interim condensed consolidated financial statements of PZU Group for the first half of 2016.

 

An increase of cash balance of PZU Group by PLN 2,089,579 thousand is recognized under “increase in cash inflows due to the acquisition of entities and changes in the scope of consolidation” line in the consolidated cash flow statement.

As at the day of acquiring control over Alior Bank, PZU Group performed remeasurement (in accordance with IFRS 3 point 32(a) (iii) and 42) of equity interest held at Alior Bank prior to the acquisition date to the fair value, and recognized the resulting loss in the statement of profit or loss under "Net result on realization and impairment losses on investments":

2.4.6.2 Final settlement of Link4 shares acquisition

On the basis of the share purchase agreement signed on 17 April 2014, PZU acquired from Royal & Sun Alliance Insurance plc (RSA) 111,354,305 registered shares in Link4 that represent 100% of share capital of Link4 and 100% of votes at the General Meeting of Shareholders of Link4 ("Link4 Shares") with a nominal value of PLN 1.00 each.

Closing of the acquisition of Link4 and obtaining control took place on 15 September 2014 and since that day Link4 has been subjected to consolidation. The payment for the shares of Link4 made on the date of closing the transaction amounted to EUR 93,886 thousand (in accordance with the NBP’s exchange rate from the day preceding the date of the transaction – PLN 393,917 thousand).

On 11 March 2015, the final settlement of the transaction was prepared. Due to the difference between the final value of net assets and their notional value, RSA paid PZU the resulting difference in the amount of EUR 2,070 thousand. The final payment amounted to EUR 91,816 thousand (PLN 385,378 thousand, including PLN 6,897 thousand in settlements acquired between Link4 and RSA).

The settlement of the acquisition of shares of Link4 was accounted for on the basis of accounting data of the company prepared as at 31 August 2014. There were no significant differences in the accounting data between 31 August 2014 and 15 September 2014 (the acquisition date).

During the calculation of goodwill, the carrying amounts of assets and liabilities of Link4 have been remeasured to fair value and new intangible assets have been identified that had not been hitherto recognized by the company.

The company’s goodwill will not decrease the taxable income.

2.4.6.3 Final settlement of Lietuvos Draudimas AB shares acquisition

Pursuant to the share purchase agreement signed on 17 April 2014, Lietuvos Draudimas AB PZU acquired from RSA 805,432 ordinary registered shares in the company Lietuvos Draudimas AB, which represent 99.98% of share capital of Lietuvos Draudimas AB ("Lietuvos Draudimas AB shares") and 99.98% of votes at the General Meeting of Shareholders of Lietuvos Draudimas AB, with a nominal value of LTL 50.00 each.

Closing of the acquisition of Lietuvos Draudimas AB and obtaining control took place on 31 October 2014 and since that day Lietuvos Draudimas AB has been subjected to consolidation. The payment for the Lietuvos Draudimas AB shares made on the date of closing the transaction amounted to EUR 191,012 thousand (in accordance with the NBP’s exchange rate from the day preceding the date of the transaction: PLN 807,598 thousand).

On 3 June 2015, the final settlement of the transaction was prepared. Due to the difference between the final value of net assets and their notional value, RSA paid PZU the resulting difference in the amount of EUR 279 thousand. The final purchase price amounted to EUR 190,733 thousand (PLN 806,446 thousand).

The settlement of the acquisition of Lietuvos Draudimas AB shares was accounted for on the basis of accounting data of the company prepared as at 31 October 2014.

During the calculation of goodwill, the carrying amounts of assets and liabilities of Lietuvos Draudimas AB have been remeasured to fair value and new intangible assets have been identified that had not been hitherto recognized by the company.

The company’s goodwill will not decrease the taxable income.

2.4.6.4 Purchasing of Aquaform SA shares

On 15 January 2015, a share purchase agreement for the sale of Aquaform SA shares was concluded between Saniku SA and Shower Star B.V. (Sellers) and PZU's subsidiaries: Armatura Kraków SA and Armatoora SA (Buyers). Pursuant to that agreement, Armatura Kraków SA and Armatoora SA purchased 8,421,053 shares in the Aquaform SA company, with a nominal value of PLN 0.38 per share.

Under the share purchase agreements signed on 31 May 2015 and 14 May 2015, concerning the sale of shares of Aquaform SA, a subsidiary of PZU, Armatura Kraków SA acquired from non-controlling interest an additional portion of shares in the amount of 1,578,947 in Aquaform SA.

PZU has also become an indirect owner of Aquaform Badprodukte GmbH, Aquaform Romania SRL, Aquaform Ukraine TOW, and Morehome.pl sp. z o.o. – subsidiaries of Aquaform SA.

Purchase of Aquaform is connected with realization of strategy that consists in expansion of product segments offered by Grupa Armatura and acquisition of new outlets.

The purchase price of the controlling interest consists of a fixed price of EUR 5,300 thousand and an additional price which constitutes 6.5% of the total sales value exceeding EUR 24,000 thousand obtained by Aquaform SA on markets in Germany, Austria, Switzerland, France, the Netherlands and Luxembourg in the years 2015–2017.

The total purchase price for shares of non-controlling interest amounted to PLN 3,620 thousand. As per the sales budgets, the value of additional payment was estimated at PLN 150 thousands.

The total share of Armatura Kraków SA and Armatoora SA in the share capital of Aquaform SA amounts to 100%, which translates into 100% votes in the General Meeting of Shareholders.

Closing of the acquisition of Aquaform SA and obtaining control took place on 15 January 2015 and since that day Aquaform SA and its subsidiaries have been subjected to consolidation.

The settlement of the acquisition of shares of Aquaform SA was accounted for on the basis of accounting data of the company prepared as at 31 December 2014. There were no significant differences in the accounting data between 31 December 2014 and 15 January 2015 (the acquisition date).

Gain on bargain purchase has been recognized in the consolidated statement of profit or loss under "Other operating income".

2.4.6.5 Acquisition of shares in health care companies

Rezo-Medica sp. z o.o.

On 23 April 2015, CM Medica acquired 2,000 shares in Rezo-Medica sp. z o.o., representing 100% of the share capital of Rezo-Medica sp. z o.o. and 100% of votes at the General Meeting of Shareholders, with a nominal value of PLN 500 each.

Since the acquisition date, which is 23 April, 2015 Rezo-Medica sp. z o.o. has been subjected to consolidation.

Centrum Medyczne Gamma sp. z o.o

On 29 July 2015, the Extraordinary General Meeting of Shareholders of Gamma adopted a resolution to increase the company's share capital by issuing 29,278 shares with a nominal value of PLN 50 each. All shares were acquired by PZU FIZ AN BIS 2 and the increase in share capital was registered on 8 September 2015. As a result of the issue, PZU's share in the share capital and votes at the General Meetings of Shareholders of Gamma increased to 54.95%.

On 25 November 2015, the Extraordinary General Meeting of Shareholders of Gamma adopted a resolution to increase the company's share capital by issuing 7,423 shares with a nominal value of PLN 50 each. All shares were acquired by PZU FIZ AN BIS 2 and the increase in share capital was registered on 2 December 2015. As a result of the issue, PZU's share in the share capital and votes at the General Meetings of Shareholders of Gamma increased to 60.46%.

Since the acquisition date, which is 8 September 2015, Gamma has been subjected to consolidation.

Nasze Zdrowie sp. z o.o.

On 26 August 2015, PZU Zdrowie SA acquired 152 shares in Nasze Zdrowie sp. z o.o., representing 100% of the share capital and 100% of votes at the General Meeting of Shareholders, with a nominal value of PLN 329 each.

Since the acquisition date, which is 26 August 2015, Nasze Zdrowie sp. z o.o. has been subjected to consolidation.

Medicus w Opolu sp. z o.o.

On 22 September 2015, PZU Zdrowie SA acquired 13,412 shares in Medicus w Opolu sp. z o.o., representing 100% of the share capital of Medicus w Opolu sp. z o.o. and 100% of votes at the General Meeting of Shareholders, with a nominal value of PLN 100 each.

Since the acquisition date, which is 22 September 2015, Medicus w Opolu sp. z o.o. has been subjected to consolidation.

Purchase price allocation for health care companies

The settlement of the acquisition of shares in subsidiaries was carried out based on data of these entities collected on 30 April 2015 (Rezo-Medica sp. z o.o.), 31 August 2015 (Centrum Medyczne Gamma sp. z o.o. and Nasze Zdrowie sp. z o.o.), and 30 September 2015 (Medicus w Opolu sp. z o.o.). There were no significant differences in the accounting data between the data based on which the purchase price allocation was finalized and the data as at the respective acquisition dates.

During the calculation of goodwill, the carrying amounts of property, plant and equipment have been remeasured to fair value.

The company's goodwill will not decrease the taxable income.

2.4.6.6 Financial data of the acquired entities

The following table presents financial data of the entities acquired in 2015 and included in the consolidated statement of profit or loss. The data have been prepared in accordance with IFRS and they are for the period in which the companies were controlled by PZU Group.

As a result of assumptions made as to the settlement of the purchase of Alior Bank on the basis of the data prepared as at 31 December 2015, the data from Alior Bank statement of profit or loss will be recognized in consolidated statement of profit or loss of PZU Group as of 1 January 2016. As a result, the table does not include Alior Bank data.

 

2.4.6.7 Consolidated statement of profit or loss, including acquired entities

The following table presents incomes and profits of PZU Group, including the financial data of the acquired subsidiaries calculated as if the acquisition date for all combinations performed throughout the year was the beginning of the financial year.