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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
16. Equity-accounted joint ventures
The Group holds interests in equity-accounted joint ventures, which include:
- Joint venture agreement between Grupa LOTOS S.A. and BP Europe SE on joint operations related to supply of aviation fuel through LOTOS - Air BP Polska Sp. z o.o.
- Agreement on cooperation between LOTOS Petrobaltic S.A. and CalEnergy Resources Poland Sp. z o.o. with respect to development and production of gas and condensate reserves from the B-4 and B-6 fields in the Baltic Sea, performed through special purpose vehicles Baltic Gas spółka z ograniczoną odpowiedzialnością i wspólnicy sp.k. and Baltic Gas Sp. z o.o. (general partner).
- Joint venture set up for the purpose of oil exploration and production operations in Lithuania, operated in the form of UAB Minijos Nafta.
For key information on equity-accounted joint ventures, see Note 2.
| The Group’s ownership interest ownership interest | Carrying amount of (PLN ’000) |
|||||
|---|---|---|---|---|---|---|
| Dec 31 2014 | Dec 31 2013 | Jan 1 2013 | Dec 31 2014 | Dec 31 2013 | Jan 1 2013 | |
| Downstream segment | ||||||
| LOTOS-Air BP Polska Sp. z o.o. | 50.00% | 50.00% | - | 14,551 | 14,419 | - |
| Upstream segment (LOTOS Petrobaltic Group) | ||||||
| Baltic Gas Sp. z o.o. | 49.99% | 49.99% | - | 12 | 7 | - |
| Baltic Gas spółka z ograniczoną odpowiedzialnością i wspólnicy sp.k. (1) | 62.40% | 81.68% | - | 51,433 | 51,796 | - |
| UAB Minijos Nafta | 49.99% | 49.99% | 49.98% | 33,603 | 63,576 | 85,214 |
| Total | 99,599 | 129,798 | 85,214 | |||
(1) The ownership interests as at December 31st 2014 were determined based on the value of contributions made by individual partners relative to the sum of all contributions:
- Baltic Gas Sp. z o.o. (general partner) 0.001%, (December 31st 2013: 0.002%),
- LOTOS Petrobaltic S.A. (limited partner) 62.403% (December 31st 2013: 81.693%),
- CalEnergy Resources Poland Sp. z o.o. (“CalEnergy”) (limited partner) 37.596% (December 31st 2013: 18.305%).
The Group’s indirect ownership interest in Baltic Gas spółka z ograniczoną odpowiedzialnością i wspólnicy sp. k. (jointly-controlled entity) is 62.40% (December 31st 2013: 81.68%).
| PLN ’000 | The Group's share in the companies' net profit or loss | |
|---|---|---|
| Year ended Dec 31 2014 |
Year ended Dec 31 2013 |
|
| Downstream segment | ||
| LOTOS - Air BP Polska Sp. z o.o. | 185 | (488) |
| Upstream segment (LOTOS Petrobaltic Group) | ||
| Baltic Gas Sp. z o.o. | (25) | (15) |
| Baltic Gas spółka z ograniczoną odpowiedzialnościąi wspólnicy sp.k. (1) | (711) | (505) |
| UAB Minijos Nafta | (23,914) (2) | (17,123) |
| Total | (24,465) | (18,131) |
(1) In the partnership agreement, the shares of each of the partners in the profit or loss of Baltic Gas Sp. z o.o.
i wspólnicy sp.k. were defined as follows:
- Baltic Gas Sp. z o.o. holds a 0.001% share in profit and a 100% share in loss,
- LOTOS Petrobaltic S.A. holds a 50.9995% share in profit and
- CalEnergy holds a 48.9995% share in profit.
Accordingly, for IFRS purposes, Baltic Gas Sp. z o.o. i wspólnicy sp.k is an entity jointly controlled by the Group (equity-accounted joint arrangement under IFRS 11; see Note 2 to the consolidated financial statements for 2013).
(2) Including an impairment loss on the interest in UAB Minijos Nafta of PLN 21,983 thousand (LTL 18,118 thousand), see Note 16.1.
16.1 Change in shareholdings in equity-accounted joint ventures
Downstream segment
LOTOS – Air BP Polska Sp. z o.o.
| PLN ’000 | Year ended Dec 31 2014 |
Year ended Dec 31 2013 |
|---|---|---|
| At beginning the period | 14,419 | - |
| Acquisition price | - | 14,907 |
| Share in net profit/(loss) | 185 | (488) |
| Share in other comprehensive income/(losses), net (actuarial losses on post-employment benefits) | (30) | - |
| Share in losses on intra-Group transactions | (23) | - |
| At end of the period | 14,551 | 14,419 |
Upstream segment (LOTOS Petrobaltic Group)
Baltic Gas Sp. z o.o.
| PLN ’000 | Year ended Dec 31 2014 |
Year ended Dec 31 2013 |
|---|---|---|
| At beginning the period | 7 | - |
| Consolidation | - | 5 |
| Share capital increase | 30 | 20 |
| Sale of shares | - | (3) |
| Share in net loss | (25) | (15) |
| At end of the period | 12 | 7 |
On April 10th 2014, the share capital of Baltic Gas Sp. z o.o. was increased from PLN 45 thousand to PLN 105 thousand, i.e. by PLN 60 thousand, through the issue of 1,200 new shares with a par value of PLN 50 per share. All new shares were paid for in cash and acquired by the company’s existing shareholders, i.e. LOTOS Petrobaltic S.A. and CalEnergy. LOTOS Petrobaltic S.A. acquired 600 shares with a total par value of PLN 30 thousand. The expenditure of PLN 30 thousand, representing the cash contribution made by LOTOS Petrobaltic S.A., has been disclosed in the consolidated statement of cash flows from investing activities under Cash contributions − equity-accounted joint ventures. The share capital increase was registered on May 27th 2014.
Baltic Gas Sp. z o.o. i wspólnicy sp.k.
| PLN ’000 | Note | Year ended Dec 31 2014 |
Year ended Dec 31 2013 |
|---|---|---|---|
| At beginning the period | 51,796 | - | |
| Consolidation | - | 5 | |
| Contributions made: | - | 52,296 | |
| - contribution of assets for the development of B-4 and B-6 fields | - | 51,700 | |
| - cash contribution | - | 428 | |
| - unpaid contribution | - | 168 | |
| Share capital increase | 2 | 348 | - |
| Share in net loss | (711) | (505) | |
| At end of the period | 51,433 | 51,796 |
In 2014, the expenditure on cash contributions made to Baltic Gas Spółka z ograniczoną odpowiedzialnością i wspólnicy sp.k. totalled PLN 309 thousand, of which PLN 168 thousand was attributable to contributions made in 2013. The expenditure on these cash contributions was presented in the statement of cash flows from investing activities under Cash contributions − equity-accounted joint ventures. As at December 31st 2014, the Group recognised PLN 207 thousand in liabilities under an increase in the contributions in 2014.
UAB Minijos Nafta
| PLN ’000 | Year ended Dec 31 2014 |
Year ended Dec 31 2013 (restated) |
|---|---|---|
| At beginning the period | 63,576 | 85,214 |
| Dividends paid | (7,280) | (6,098) |
| Share in net loss: | (23,914) | (17,123) |
| - share in net loss of joint venture | (1,931) | (17,123) |
| - impairment loss on interests held in joint venture | (21,983) | - |
| Exchange differences on translating foreign operations | 1,221 | 1,583 |
| At end of the period | 33,603 | 63,576 |
The interest held in UAB Minijos Nafta (the AB LOTOS Geonafta Group) were tested for impairment as at December 31st 2014. The Group determined the recoverable amount of the tested assets as their value in use measured using the discounted future cash flows method.
The key assumptions underlying computation of the recoverable amount of the tested assets are consistent with the assumptions used to compute the recoverable amount of the Lithuanian production licences held by companies of the AB LOTOS Geonafta Group (AB LOTOS Geonafta (Girkaliai, Kretinga and Nausodis fields), UAB Manifoldas (Vėžaičiai, Ližiai and Ablinga fields)) tested for impairment as at December 31st 2014, see Note 15.1.2.
Following the impairment tests, the Group recognised an impairment loss on the interest held in UAB Minijos Nafta for a total amount of PLN 21,983 thousand (LTL 18,118 thousand). The impairment loss on the interest held in UAB Minijos Nafta was disclosed in the consolidated statement of comprehensive income under Share in net profit/loss of equity-accounted joint ventures.
16.2 Condensed financial information on equity-accounted joint ventures
Statement of comprehensive income
| PLN ’000 | LOTOS – Air BP Polska Sp. z o.o. |
Baltic Gas Sp. z o.o. |
Baltic Gas Sp. z o.o. i wspólnicy sp.k. |
UAB Minijos Nafta |
|---|---|---|---|---|
| Year ended Dec 31 2014 | ||||
| Revenue | 478,279 | - | - | 57,212 |
| Cost of sales | (457,504) | - | (626) | (47,228) |
| Gross profit/(loss) | 20,775 | - | (626) | 9,984 |
| Distribution costs | (15,849) | - | - | (1,088) |
| Administrative expenses | (4,347) | (50) | (615) | (14,488) |
| Net other income/(expenses) | 56 | - | (123) | (148) |
| Operating profit/(loss) | 635 | (50) | (1,364) | (5,740) |
| Net finance income/(costs) | (137) | - | (58) | 289 |
| Pre-tax profit/(loss) | 498 | (50) | (1,422) | (5,451) |
| Income tax expense | (129) | - | - | 1,076 |
| Net profit/(loss) | 369 | (50) | (1,422) | (4,375) |
| Amortisation and depreciation | (779) | - | (626) | (10,900) |
Statement of comprehensive income
| PLN ’000 | LOTOS – Air BP Polska Sp. z o.o. |
Baltic Gas Sp. z o.o. |
Baltic Gas Sp. z o.o. i wspólnicy sp.k. |
UAB Minijos Nafta |
|---|---|---|---|---|
| year ended Dec 31 2013 | ||||
| Revenue | 19,478 | - | - | 76,354 |
| Cost of sales | (19,103) | - | (530) | (68,810) |
| Gross profit/(loss) | 375 | - | (530) | 7,544 |
| Distribution costs | (1,108) | - | (1,120) | |
| Administrative expenses | (388) | (30) | (479) | (9,614) |
| Net other income/(expenses) | (3) | - | - | (37,022) |
| Operating loss | (1,124) | (30) | (1,009) | (40,212) |
| Net finance income/(costs) | (36) | - | - | (640) |
| Pre-tax loss | (1,160) | (30) | (1,009) | (40,852) |
| Income tax expense | 184 | - | - | 6,606 |
| Net loss | (976) | (30) | (1,009) | (34,246) |
| Amortisation and depreciation | (126) | - | (530) | (27,170) |
Statement of financial position
| PLN ’000 | Note | LOTOS – Air BP Polska Sp. z o.o. |
Baltic Gas Sp. z o.o. |
Baltic Gas Sp. z o.o. i wspólnicy sp.k. |
UAB Minijos Nafta |
|---|---|---|---|---|---|
| Dec 31 2014 | |||||
| Non-current assets | 11,598 | 1 | 97,869 | 122,455 | |
| Current assets, including: | 37,046 | 25 | 7,596 | 13,401 | |
| Cash and cash equivalents | 6,220 | 9 | 3,375 | 2,791 | |
| Total assets | 48,644 | 26 | 105,465 | 135,856 | |
| Non-current liabilities | 5,081 | - | - | 18,031 | |
| Current liabilities | 27,888 | 2 | 23,859 | 5,889 | |
| Total liabilities | 32,969 | 2 | 23,859 | 23,920 | |
| Net assets | 15,675 | 24 | 81,606 | 111,936 | |
| 50% | 49.99% | * | 49.99% | ||
| Share of net assets | 7,838 | 12 | 51,433 | 55,968 | |
| Impairment loss on shares | - | - | - | (22,365) | |
| Fair value measurement | 6.736 (1) | - | - | - | |
| Elimination of intra-Group transactions | (23) | - | - | - | |
| Interest in joint ventures | 16 | 14,551 | 12 | 51,433 | 33,603 |
Statement of financial position
| PLN ’000 | Note | LOTOS – Air BP Polska Sp. z o.o. |
Baltic Gas Sp. z o.o. |
Baltic Gas Sp. z o.o. i wspólnicy sp.k. |
UAB Minijos Nafta |
|---|---|---|---|---|---|
| Dec 31 2013 | |||||
| Non-current assets | 12,013 | 1 | 67,750 | 127,458 | |
| Current assets, including: | 27,213 | 15 | 3,032 | 29,420 | |
| Cash and cash equivalents | 4,327 | 10 | 740 | 15,694 | |
| Total assets | 39,226 | 16 | 70,782 | 156,878 | |
| Non-current liabilities | 5,186 | - | - | 23,282 | |
| Current liabilities | 18,675 | 2 | 7,975 | 6,444 | |
| Total liabilities | 23,861 | 2 | 7,975 | 29,726 | |
| Net assets | 15,365 | 14 | 62,807 | 127,152 | |
| 50% | 49.99% | * | 49.99% | ||
| Share of net assets | 7,683 | 7 | 51,796 | 63,576 | |
| Fair value measurement | 6.736 (1) | - | - | - | |
| Interest in joint ventures | 16 | 14,419 | 7 | 51,796 | 63,576 |
* For IFRS purposes, Baltic Gas Sp. z o.o. i wspólnicy sp.k is an entity jointly controlled by the Group (equity-accounted joint arrangement under IFRS 11); see Note 16 above.
(1) PLN 6,736 thousand gain on fair value measurement of a retained interest in a previously controlled entity as at the date of loss of control (see Note 2 to consolidated financial statements for 2013).
For information on transactions with joint ventures in which the Group holds interests, see Note 36.1.
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)
