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Financial information
The past year ushered in a series of challenges for the companies in the fuel sector. The decisions made by us have demonstrated that we are able to take rapid steps to adapt to a demanding environment and ensure the desired profitability for our projects.
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Segment performance
The segmental management model we have implemented enhances management efficiency, delivering cost and revenue synergies across the organization.
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Letter from the Vice-President of the Board
2014 ushered in a series of challenges for the companies in the fuel sector. The decisions made by the LOTOS Group have demonstrated that we are able to take rapid steps to adapt to a demanding environment and ensure the desired profitability for our projects.
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Business environment
The key factor that had a strong impact on both the global and Polish petroleum markets in 2014, with significant consequences for the LOTOS Group’s performance, was the price of crude oil, which also determined the price of petroleum products.
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Strategic objectives
The LOTOS Group’s Strategy is designed to strengthen our position as a strong, innovative and efficient business which plays a major role in ensuring national energy security.
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Business model
Our operations consist in crude oil production and processing, as well as wholesale and retail sale of petroleum products, among which are: fuels (unleaded gasoline, diesel oil and light fuel oil), heavy fuel oil, bitumens, aviation fuel, naphtha, propane-butane LPG and base oils.
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Risk and opportunities
At the LOTOS Group, we identify a range of diverse risks, which may affect all areas of our business. The key risks in terms of their impact on our operations are the financial risks as well as risks affecting the exploration and production area. In the analysis of the risks, we also factor in issues related to sustainable development.
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Key data 2014
With revenue of ca. PLN 28.5bn in 2014, we rank fourth in the group of 500 largest businesses in Poland.
← Statement Notes index
14. Goodwill
Goodwill is allocated to cash-generating units, as presented in the table below.
PLN ’000 | Dec 31 2014 | Dec 31 2013 |
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Goodwill arising on the acquisition of an organised part of business by LOTOS Paliwa Sp. z o.o.: | ||
- LOTOS Gaz S.A. (wholesale of fuels) | 10,009 | 10,009 |
- ESSO service stations network | 31,759 | 31,759 |
- Slovnaft Polska service stations network | 1,932 | 1,932 |
Total | 43,700 | 43,700 |
Goodwill arising on the acquisition of: | ||
- LOTOS Partner Sp. z o.o. | 1,862 | 1,862 |
- Energobaltic Sp. z o.o. | 1,126 | 1,126 |
Total | 2,988 | 2,988 |
Total goodwill | 46,688 | 46,688 |
As at December 31st 2014 and December 31st 2013, impairment tests of individual cash-generating units to which goodwill was allocated did not reveal any impairment indicators.
The Group determines the recoverable amount of cash-generating units based on their respective values in use, calculated on the basis of a five-year cash flow projection. The residual value for the discounted cash flows was calculated using the growing perpetuity formula. A fixed growth rate of 1% (2013: 1.84%) was used to extrapolate cash-flow projections beyond the five-year period. The extrapolation was based on a quantitative forecast of the fuel consumption growth rate in Poland in 2013–2021. The discount rate adopted for the calculation reflects net WACC of 6.13% (2013: 7.16%). Discounted cash flows calculated separately for each cash-generating unit were grossed up.
The most material factors affecting the estimated values in use of cash-generating units were: gross margin, discount rate, volumes forecast, projected market shares in the budget period and estimated growth rate beyond the forecast period.
The Group believes that no reasonably probable change in the key parameters identified above would result in goodwill impairment.
The Notes to the consolidated financial statements are an integral part of the statements.
(This is a translation of a document originally issued in Polish)