Estimates of selected factors with material bearing on LOTOS Group’s consolidated performance
Report no. 9/20162016-02-10

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 0.23bn, and affects the reported consolidated EBIT.

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

Remeasurement of (increase in) the LOTOS Group’s debt denominated in foreign currencies will reach ca. PLN 0.20bn, which, given the use of hedging accounting policies, will add an estimated PLN 0.07bn to finance costs thus adversely affecting profit or loss.

3. Estimated LIFO effect

Given the weighted average cost method of measuring raw materials and semi-products 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 measurement of inventory used based on the IFRS methodology and the measurement of inventory used based on the LIFO methodology (for description of the methodology, see Current Report No. 29/2006)) was approximately PLN 0.025bn (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 0.44bn.

The data and information presented above are estimates only and may differ from data which will be published in the Q4 2015 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 Public Offering, Conditions Governing the Introduction of Financial Instruments to Organised Trading, and Public Companies, dated July 29th 2005.