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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
19. Inventories
| PLN ’000 | Dec 31 2014 |
Dec 31 2013 (restated) |
Jan 1 2013 (restated) |
|---|---|---|---|
| Finished goods | 1,184,960 | 1,755,310 | 1,800,560 |
| Semi-finished products and work in progress | 556,424 | 671,636 | 751,935 |
| Merchandise | 223,540 | 284,497 | 256,875 |
| Materials | 1,952,205 | 3,017,441 | 3,153,657 |
| Total | 3,917,129 | 5,728,884 | 5,963,027 |
| including inventories measured: | |||
| at cost | 469,201 | 5,722,868 | 5,957,532 |
| at net realisable value | 3,447,928 | 6,016 | 5,495 |
Inventories are measured at the lower of cost or cost less write-downs to net realisable value less costs to sell.
Following a decline in prices of crude oil and refining products, the Group recognised a write-down on inventories as at December 31st 2014 to reflect their net realisable value (see Note 19.1).
As at December 31st 2014, the value of inventories serving as collateral for the Parent's liabilities under the inventory refinancing and financing facility discussed in Note 27.1 was PLN 3,330,652 thousand (December 31st 2013: PLN 5,032,009 thousand).
19.1 Change in inventory write-downs
| PLN ’000 | Year ended Dec 31 2014 |
Year ended Dec 31 2013 (restated) |
|---|---|---|
| At beginning the period | 2,919 | 1,407 |
| Recognised | 451,551 (1) | 2,651 |
| Exchange differences on translating foreign operations | 1 | - |
| Used | (892) | (265) |
| Reversed | (170) | (874) |
| At end of the period | 453,409 | 2,919 |
| including: | ||
| Finished goods | 200,340 | 311 |
| Semi-finished products and work in progress | 40,913 | 2 |
| Merchandise | 5,834 | 68 |
| Materials | 206,322 | 2,538 |
(1) Following a decline in prices of crude oil and refining products, the Group recognised a PLN 450,891 thousand write-down on inventories to adjust their carrying amount to net realisable value in accordance with IAS 2.
The effect of revaluation of inventories is taken to cost of sales.
19.2 Mandatory stocks
The Group maintains mandatory stocks as required by the following acts:
- Act on Stocks of Crude Oil, Petroleum Products and Natural Gas, and on the Rules to be Followed in the Event of Threat to National Fuel Security or Disruptions on the Petroleum Market of February 16th 2007 (Dz.U. of 2007, No. 52, item 343, dated March 23rd 2007, as amended).
- Regulation of the Minister of Economy, Labour and Social Policy, on fuel stocks at power utility companies, dated February 12th 2003 (Dz.U. No. 39, item 338, as amended).
These regulations define the rules for creating, maintaining and financing stocks of crude oil, petroleum products and fuels at power utility companies.
The Group’s mandatory stocks include crude oil, petroleum products (liquid fuels), LPG and coal. In the downstream segment, mandatory stocks are maintained mainly by the Parent. As at December 31st 2014, the carrying amount of mandatory stocks was PLN 2,243,655 thousand (December 31st 2013: PLN 4,250,530 thousand).
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)
