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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
9. Income and expenses
9.1 Expenses by nature
| PLN ’000 | Note | Year ended Dec 31 2014 |
Year ended Dec 31 2013 (restated) |
|---|---|---|---|
| Depreciation and amortisation | 8 | 808,941 | 642,480 |
| Raw materials and consumables used | 24,734,942 | 24,219,317 | |
| - including exchange differences (1) | 31.3 | 65,110 | (76,694) |
| Services | 1,280,200 | 1,244,694 | |
| Taxes and charges | 179,710 | 171,720 | |
| Employee benefits expense | 9.2 | 681,865 | 670,817 |
| Other expenses by nature | 344,315 | 158,095 | |
| Merchandise and materials sold | 978,764 | 1,751,978 | |
| Total expenses by nature | 29,008,737 | 28,859,101 | |
| Change in products and adjustments to cost of sales | 67,003 | (444,875) | |
| Total | 29,075,740 | 28,414,226 | |
| including: | |||
| Cost of sales | 27,466,614 | 26,878,863 | |
| Distribution costs | 1,162,071 | 1,106,186 | |
| Administrative expenses | 447,055 | 429,177 |
(1) Exchange differences related to operating activities are recognised in cost of sales.
9.2 Employee benefits expense
| PLN ’000 | Note | Year ended Dec 31 2014 |
Year ended Dec 31 2013 (restated) |
|---|---|---|---|
| Current salaries and wages | 491,466 | 491,366 | |
| Social security and other employee benefits | 144,793 | 149,996 | |
| Length-of-service awards, retirement and other post-employment benefits | 29.3 | 45,606 | 29,455 |
| Total employee benefits expense | 9.1 | 681,865 | 670,817 |
| Change in products and adjustments to cost of sales | (20,579) | (8,209) | |
| Total | 661,286 | 662,608 | |
| including: | |||
| Cost of sales | 388,563 | 389,908 | |
| Distribution costs | 30,301 | 34,218 | |
| Administrative expenses | 242,422 | 238,482 |
9.3 Other income
| PLN '000 | Note | Year ended Dec 31 2014 |
Year ended Dec 31 2013 (restated) |
|---|---|---|---|
| Reversal of impairment losses on property, plant and equipment and other intangible assets: | - | 550 | |
| Reversal of impairment losses: | - | 57,214 | |
| - on property, plant and equipment related to exploration for and evaluation of crude oil and natural gas resources | - | 48,672 | |
| - on assets related to the B-4 and B-6 fields, transferred to Baltic Gas as a contribution in kind | 13.1.1 | - | 48,273 |
| - on other assets | - | 399 | |
| - on intangible assets related to exploration for and evaluation of crude oil and natural gas resources | - | 542 | |
| - on Norwegian exploration licences | - | 542 | |
| - on refinery and other property, plant and equipment: | - | 8,000 | |
| - Waterproofing Materials Production Plant assets | 13.2 | - | 8,000 |
| Impairment losses: | - | (56,664) | |
| - on property, plant and equipment related to production | - | (26,842) | |
| - on assets related to the B-28 field | 13.1.1 | - | (26,842) |
| - on property, plant and equipment related to development of crude oil and natural gas resources | - | (1,794) | |
| - on other assets | - | (1,794) | |
| - on intangible assets related to exploration for and evaluation of crude oil and natural gas resources | - | (4,744) | |
| - on Norwegian exploration licences | 15.1.1 | - | (4,744) |
| - on intangible assets related to development and production of crude oil and natural gas resources: | - | (7,943) | |
| - on Lithuanian assets | 15.1.2 | - | (7,943) |
| - on refinery and other property, plant and equipment: | - | (15,341) | |
| - on service stations | 13.2 | - | (11,912) |
| - on other assets | - | (3,429) | |
| Gain on disposal of non-financial non-current assets | 3,521 | - | |
| Grants | 30.2 | 1,889 | 2,075 |
| Provisions: | - | 2,900 | |
| - provision for deficit in CO2 emission allowances | 34 | - | (1,527) |
| - other provisions | - | (1,276) | |
| - reversal of provisions for retired refinery installations | 30.1 | - | 5,077 |
| - reversal of other provisions | - | 626 | |
| Remeasurement of estimated provision related to the offshore oil extraction facility in the YME field in Norway | - | 6,447 | |
| Compensation | 14,025 (1) | 7,970 | |
| Gain on sale of organised part of business | - | 379 | |
| Reimbursed excise duty | 896 | 6,143 (2) | |
| Other | 6,376 | 4,405 | |
| Total | 26,707 | 30,869 |
(1) Including PLN 7,927 thousand received as compensation in connection production stoppage in the Atla field (one of the Heimdal area assets).
(2) Including PLN 1,673 thousand under reimbursed excise duty on intra-Community supplies of heavy fuel oil, and PLN 3,634 thousand of excise duty on consumption of electricity and fuel additives reimbursed due to exemption from excise duty under Art. 47.1.1 of the Excise Duty Act.
The Group offsets similar transaction items pursuant to IAS 1 – Presentation of Financial Statements, sections 34 and 35. The Group discloses material items of income and expenses charged to profit or loss separately, as presented in the table above.
9.4 Other expenses
| PLN '000 | Note | Year ended Dec 31 2014 |
Year ended Dec 31 2013 (restated) |
|---|---|---|---|
| Impairment loss on property, plant and equipment and other intangible assets: | 806,141 | - | |
| Impairment losses: | 806,562 | - | |
| - on property, plant and equipment related to exploration for and evaluation of crude oil and natural gas resources | 31.853 | - | |
| - on assets related to the B-27 field | 13.1.1 | 29,914 | - |
| - on assets related to the B-28 field | 13.1.1 | 1,939 | - |
| - on property, plant and equipment related to development of crude oil and natural gas resources | 578.448 | - | |
| - on assets related to the YME field | 13.1.2 | 578,448 | - |
| - on property, plant and equipment related to production | 48,562 | - | |
| - on Heimdal assets | 13.1.3 | 45,854 | - |
| - on Lithuanian assets | 13.1.3 | 2,708 | - |
| - on intangible assets related to exploration for and evaluation of crude oil and natural gas resources | 14.439 | - | |
| - on Heimdal assets | 15.1.1 | 13,823 | - |
| - on other Norwegian licences | 15.1.1 | 616 | - |
| - on intangible assets related to development and production of crude oil and natural gas resources: | 100.604 | - | |
| - on Lithuanian assets | 15.1.2 | 100,604 | - |
| - on refinery and other property, plant and equipment: | 32.656 | - | |
| - on service stations | 13.2 | 15,765 | - |
| - on assets related to bitumen production unit at the LOTOS Asfalt Branch in Jasło | 13.2 | 15,893 | - |
| - on other assets | 998 | - | |
| Reversal of impairment losses: | (421) | - | |
| - on refinery and other property, plant and equipment | (421) | - | |
| Loss on disposal of non-financial non-current assets | - | 1,863 | |
| Loss on discontinued projects | 11,935 (1) | 1,236 | |
| Impairment losses on receivables: | 18.1; 31.3 | 13,078 | 6,012 |
| - impairment losses | 15,928 | 7,291 | |
| - reversal of impairment losses | (2,850) | (1,279) | |
| Provisions: | 4,761 | - | |
| - provision for deficit in CO2 emission allowances | 34 | 2,784 | - |
| - reversal of provision for deficit in CO2 emission allowances | 34 | (1,527) | - |
| - other provisions | 8,935 | - | |
| - reversal of other provisions | (5,431) | - | |
| Fines and compensation | 1,512 | 1,277 | |
| Property damage incurred during ordinary course of business | 1,041 | 2,516 | |
| Cost brought forward | 567 | 2,947 | |
| Charitable donations | 1,067 | 2,483 | |
| Other | 5,760 | 4,346 | |
| Total | 845,862 | 22,680 |
(1) Of which PLN 5,937 thousand relates to the Sambia W field (the Baltic Sea) and PLN 5,772 thousand relates to the Zvaginai well (Lithuania).
The Group offsets similar transaction items pursuant to IAS 1 – Presentation of Financial Statements, sections 34 and 35. The Group discloses material items of income and expenses charged to profit or loss separately, as presented in the table above.
9.5 Finance income
| PLN '000 | Note | Year ended Dec 31 2014 |
Year ended Dec 31 2013 (restated) |
|---|---|---|---|
| Dividend received | 1,103 | 840 | |
| Interest: | 19,096 | 17,358 | |
| - on trade receivables | 31.3 | 6,349 | 5,995 |
| - on finance lease receivables | 31.3 | 166 | 193 |
| - on cash | 31.3 | 1,249 | 1,264 |
| - on deposits | 31.3 | 9,360 | 8,413 |
| - other | 1,972 | 1,493 | |
| Revaluation of financial assets: | - | 112,861 | |
| - valuation of derivative financial instruments | 31.3 | - | 55,148 |
| - settlement of derivative financial instruments | 31.3 | - | 57,713 |
| Other | 1,541 | 4,100 | |
| Total | 21,740 | 135,159 |
The Group offsets similar transaction items pursuant to IAS 1 – Presentation of Financial Statements, sections 34 and 35. The Group discloses material items of income and expense charged to profit or loss separately, as presented in the table above.
9.6 Finance costs
| PLN '000 | Note | Year ended Dec 31 2014 |
Year ended Dec 31 2013 (restated) |
|---|---|---|---|
| Interest: | 202,503 | 202,921 | |
| - on borrowings | 31.3 | 141,584 | 151,874 |
| - on non-bank borrowings | 31.3 | 9,576 | 575 |
| - on notes | 31.3 | 3,373 | 423 |
| - on trade payables | 31.3 | 87 | 53 |
| - on finance lease liabilities | 31.3 | 12,142 | 16,132 |
| - on factoring arrangements | 7,400 | 11,823 | |
| - on other financial liabilities | 31.3 | - | 125 |
| - discount related to provisions for oil production facilities and for land reclamation, and other provisions | 30.1 | 20,426 | 15,023 |
| - cost of discount on employee benefits obligations | 29.1; 29.3 | 6,354 | 6,138 |
| - other | 1,561 | 755 | |
| Exchange differences: | 307,020 | 115,489 | |
| - on borrowings | 31.3 | 222,455 | (8,142) |
| - on translation of intra-Group borrowings (1) | 31.3 | 68,284 | 119,223 |
| - on realised foreign-currency transactions in bank accounts | 31.3 | 16,530 | (7,330) |
| - on notes (1) | 31.3 | 43,698 | 15,767 |
| - on cash | 31.3 | (11,564) | 3,516 |
| - on cash blocked in bank accounts (2) | 31.3 | (37,630) | (15,075) |
| - on investment commitments | 31.3 | 4,675 | 7,563 |
| - on other financial assets and liabilities | 31.3 | (3,062) | (33) |
| - other | 3,634 | - | |
| Revaluation of financial assets, including: | 197,849 | - | |
| - valuation of derivative financial instruments | 191,271 | - | |
| - settlement of derivative financial instruments | 6,578 | - | |
| Bank fees | 17,287 | 19,349 | |
| Other | 3,323 | 4,545 | |
| Total | 727,982 | 342,304 |
(1) According to IAS 21 – The Effects of Changes in Foreign Exchange Rates, foreign exchange gains and losses on intra-group foreign currency transactions are recognised in the Group's net profit or loss.
(2) This relates to funds held in an escrow account in connection with the agreement on removal of the defective MOPU from the YME field, to which LOTOS Exploration and Production Norge AS is a party; for more information on the agreement, see Note 35.1.
The Group offsets similar transaction items pursuant to IAS 1 – Presentation of Financial Statements, sections 34 and 35. The Group discloses material items of income and expenses charged to profit or loss separately, as presented in the tables above.
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)
