Lotos

Integrated Annual Report 2014

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29. Employee benefit obligations

PLN ’000 Note Dec 31 2014
 		 Dec 31 2013
(restated)		 Jan 31 2013
(restated)
Non-current obligations        
Post-employment benefits 29.1 41,510 32,741 26,286
Length-of-service awards and other benefits 29.1 143,941 118,684 103,576
Total 29.1 185,451 151,425 129,862
Current obligations        
Post-employment benefits 29.1 3,681 3,869 6,201
Length-of-service awards and other benefits 29.1 11,716 11,966 9,553
Bonuses, awards and unused holidays   51,520 71,547 77,934
Salaries and wages payable   17,121 16,591 16,283
Total   84,038 103,973 109,971
Total obligations   269,489 255,398 239,833

29.1 Obligations under length-of-service awards and post-employment benefits

In accordance with the Group’s remuneration systems, the Group employees are entitled to post-employment benefits upon retirement. Length-of-service awards are paid after a specific period of employment. Therefore, based on valuations prepared by professional actuary firms or based on own estimates, the Group recognises the present value of obligations under length-of-service awards and post-employment benefits. The table below provides information on the amount of the obligations and reconciliation of changes in the obligations during the reporting period.

PLN ’000  Note Post-employment benefits Length-of-service awards and other benefits Total
Jan 1 2014   32,808 130,650 163,458
Current service cost   1,206 9,289 10,495
Cost of discount 9.6; 29.3 1,251 5,103 6,354
Past service cost   47 362 409
Benefits paid   (1,840) (12,575) (14,415)
Actuarial (gain)/loss under profit or loss 29.3 - 29,953 29,953
Actuarial (gain)/loss under other comprehensive income 29.3 8,850 - 8,850
Dec 31 2014   42,322 162,782 205,104
including:        
non-current   38,723 150,586 189,309
current   3,599 12,196 15,795
Obligations under length-of-service awards and post-employment benefits at foreign companies (1)   4,832 - 4,832
Reclassification to liabilities directly associated with assets held for sale (or disposal groups) 17 (1,963) (7,125) (9,088)
Dec 31 2014 29.2 45,191 155,657 200,848
including:        
non-current   41,510 143,941 185,451
current   3,681 11,716 15,397
PLN ’000  Note Post-employment benefits Length-of-service awards and other benefits Total
Jan 1 2013   32,018 113,129 145,147
Current service cost   1,804 17,277 19,081
Cost of discount 9.6; 29.3 1,158 4,980 6,138
Past service cost   (152) (793) (945)
Benefits paid   (2,206) (11,236) (13,442)
Actuarial (gain)/loss under profit or loss 29.3 - 7,680 7,680
Actuarial (gain)/loss under other comprehensive income 29.3 225 - 225
Dec 31 2013   32,847 131,037 163,884
including:        
non-current   29,132 119,033 148,165
current   3,715 12,004 15,719
Obligations under length-of-service awards and post-employment benefits at foreign companies (1)   3,802 - 3,802
Deconsolidation (LOTOS Tank Sp. z o.o.)   (39) (387) (426)
Dec 31 2013 29.2 36,610 130,650 167,260
including:        
non-current   32,741 118,684 151,425
current   3,869 11,966 15,835

(1) Given the different nature of pension plans operated by the Group's foreign companies – LOTOS Exploration and Production Norge AS and the companies of the AB LOTOS Geonafta Group – and their negligible effect on the Group's obligations under length-of-service awards and post-employment benefits, such companies' obligations are presented separately as Obligations under length-of-service awards and post-employment benefits at foreign companies.

29.2 Present value of future employee benefit obligations

(PLN ’000) Note Present value of future employee benefit obligations
Dec 31 2014 29.1 200,848
Dec 31 2013 29.1 167,260
Dec 31 2012   145,616
Dec 31 2011   131,801
Dec 31 2010   107,829

Present value of future employee benefit obligations is equal to their carrying amount.

29.3 Total cost of future employee benefit payments charged to profit or loss

PLN ’000 Note year ended
Dec 31 2014		 year ended
Dec 31 2013
Items recognised in profit or loss:   51,960 35,593
Length-of-service awards, retirement and other post-employment benefits 9.2 45,606 29,455
  - current service cost   10,495 19,081
  - past service cost   409 (945)
  - effect of foreign operations   4,749 3,639
  - actuarial (gain)/loss 29.1 29,953 7,680
Cost of discount 9.6; 29.1 6,354 6,138
Items recognised in other comprehensive income:   8,933 188
Actuarial (gain)/loss 29.1 8,850 225
Effect of foreign operations   83 (35)
Deconsolidation (LOTOS Tank Sp. z o.o.)   - (2)
Total comprehensive income   60,893 35,781

29.4 Actuarial assumptions

The table below presents the key assumptions adopted by the actuary as at the balance-sheet date to calculate the amount of the obligation.

  Dec 31 2014 Dec 31 2013
Discount rate (%) 2.70% 4.30%
Expected inflation rate (%) 2.50% 2.50%
Employee turnover ratio (%) 2.43% 2.49%
Expected growth rate of salaries and wages (%) in the following year 4.00% 0.00%
Expected growth rate of salaries and wages (%) in the following years 2.50% 2.76%
  • The employee attrition probability is based on the historical data on employee turnover at the Group and statistical data on employee attrition in the industry. The employee turnover ratios applied by the actuary were determined separately for men and women and broken down into nine age categories. The employee turnover ratio is now calculated on an average basis. 
  • The mortality and life expectancy ratios are based on the Life Expectancy Tables of Poland for 2013, published by the Polish Central Statistics Office (GUS), and assume that the Group’s employee population is representative of the average Polish population in terms of mortality (December 31st 2013: Life Expectancy Tables of Poland for 2012).
  • The changes resulting from amendments to the Act on Pensions and Disability Pensions from Social Security Fund (Pensions Act) were accounted for, in particular changes relating to the retirement age of women and men, including its extension over a defined period to 67 years for both women and men. The amendments to the Pensions Act resulted in a change in the operation of individual benefit plans, giving rise to additional past service costs.
  • It was assumed that employees would retire in accordance with the standard procedure, as prescribed by the Pensions Act, with the exception of employees who, according to the information provided by the Company, meet the conditions for early retirement entitlement.
  • Based on the historical data, it was assumed that in 60% of cases half of the full amount of death benefits is paid. 
  • The discount rate on future benefits was assumed at 2.7%, i.e. reflecting the assumptions made at the corporate level (December 31st 2013: 4.3%, the average yield of the lowest-risk long-term securities traded on the Polish capital market).

29.5 Termination benefits

In 2014, termination benefits and compensation payable in respect of non-compete obligation totalled PLN 3,363 thousand (2013: PLN 3,984 thousand).

In 2014, provisions for termination benefits totalled PLN 69 thousand  (2013: PLN 74 thousand).

29.6 Sensitivity analysis

The table below presents results of calculations for changed key actuarial assumptions: the salaries and wages growth rate and the discount rate.

Initial obligation balance
PLN ’000
Salaries and wages growth rate		 Discount rate Length-of-service awards Old-age and disability retirement severance payments Death benefits Social benefits fund Total (1)
base base 148,623 37,766 10,524 8,191 205,104
base + 1% base 163,597 42,695 11,656 9,813 227,761
base - 1% base 137,729 33,823 9,596 6,947 188,095
base base + 0.5% 142,855 35,599 10,013 7,517 195,984
base base - 0.5% 157,237 40,367 11,136 8,987 217,727

The table below presents results of calculations for changed key actuarial assumptions: the salaries and wages growth rate, medical care contributions, and the discount rate.

Current service cost projected for 2015
PLN ’000
Salaries and wages growth rate		 Discount rate Length-of-service awards Old-age and disability retirement severance payments Death benefits Social benefits fund Total (1)
base base 11,876 2,216 833 335 15,260
base + 1% base 13,371 2,638 954 448 17,411
base - 1% base 10,614 1,879 731 254 13,478
base base + 0.5% 11,209 2,038 780 292 14,319
base base - 0.5% 12,608 2,418 890 387 16,303
Cost of discount projected for 2015
PLN ’000
Salaries and wages growth rate		 Discount rate Length-of-service awards Old-age and disability retirement severance payments Death benefits Social benefits fund Total (1)
base base 3,737 926 267 215 5,145
base + 1% base 4,111 1,056 297 258 5,722
base - 1% base 3,413 816 242 181 4,652
base base + 0.5% 4,209 1,025 300 232 5,766
base base - 0.5% 3,210 809 231 192 4,442
Total current service cost and cost of discount projected for 2015
PLN ’000
Salaries and wages growth rate		 Discount rate Length-of-service awards Old-age and disability retirement severance payments Death benefits Social benefits fund Total (1)
base base 15,613 3,142 1,100 550 20,405
base + 1% base 17,482 3,694 1,251 706 23,133
base - 1% base 14,027 2,695 973 435 18,130
base base + 0.5% 15,418 3,063 1,080 524 20,085
base base - 0.5% 15,818 3,227 1,121 579 20,745

(1) Given the different nature of pension plans operated by the Group's foreign companies – LOTOS Exploration and Production Norge AS and the companies of the AB LOTOS Geonafta Group – and their negligible effect on the Group's obligations under length-of-service awards and post-employment benefits, such companies' obligations were not presented in the review.

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)

Financial information