Estimates of selected factors with material bearing on LOTOS Group’s consolidated performance in Q4 2014.
Report no. 6/20152015-02-03

Considering the dynamic developments in the macroeconomic environment, related chiefly to the fall of crude oil prices and, consequently, prices of refining products, as well as the strengthening of the US dollar, in particular against the Polish złoty, the Management Board of Grupa LOTOS S.A. presents estimates of selected factors with a bearing on the consolidated performance of the LOTOS Group.

1.    Inventory write-downs in the downstream segment 

Following a significant decline in prices of crude oil and refining products, the Company has recognised an impairment loss on inventories to adjust their carrying amount, given the difference between their production cost and net realisable value, in accordance with IAS 2.

The estimated value of write-downs at the level of reported consolidated EBIT (according to IFRS) is ca. PLN 0.4bn, and adversely affects the reported consolidated EBIT.

2.    Remeasurement of financial liabilities under debt denominated in foreign currencies 

Remeasurement of the subisdiaries of LOTOS Group’s debt denominated in foreign currencies may reach ca. PLN 0.51bn, which, given the use of hedging accounting policies, will add an estimated PLN 0.27bn to finance costs thus adversely affecting profit or loss.

3.    Estimated LIFO effect 

Given the weighted average cost method of raw materials and semi-products valuation used (according to IFRS) applied by the LOTOS Group and the prevailing strong downward trend in crude prices, the LIFO effect expected by the Management Board (i.e. the estimated difference between the valuation of inventory used based on the IFRS methodology and the valuation of inventory used based on the LIFO methodology (for description of the methodology, see Current Report No. 29/2006)) was approximately PLN 0.8bn (LIFO-based EBIT is higher than the reported EBIT).

The LIFO effect described above includes the estimated inventory write-downs discussed in Section 1 above and has been reduced by the estimated amount of theoretical LIFO-based write-downs of PLN 0.1bn.

The data and information presented above are estimates only and may differ from data which will be published in the annual 2014 consolidated financial statements of the LOTOS Group.

The legal basis for the publication of this Current Report is Art. 56.1.1 of the Act on Offering – Inside Information.