Integrated Annual Report of LOTOS Capital Group 2015

PLN '000	Note	Dec 31 2015	Dec 31 2014
Financial assets
Non-current financial assets
Other financial assets:	31.1	145,991	71,102
Security deposits receivable		20,458	20,631
Finance lease receivables	18.2	11,018	9,111
Shares		9,752	9,752
Oil and Gas Extraction Facility Decommissioning Fund (1)	32.4.1	31,794	30,911
Cash for work related to the removal of the MOPU from the YME field (2)	32.3.1; 32.4.1	69,453	-
Security deposit	32.4.1	3,176	-
Other receivables		340	697
Total		145,991	71,102
Current financial assets
Trade receivables	31.1	1,550,900	1,406,501
- including from related entities	36.1	12,219	23,318
Other financial assets:	31.1	672,466	1,260,931
Security deposits receivable		7,761	10,085
Deposits	32.4.1	85,519	31,432
Cash earmarked for the EFRA project	32.4.1	438,329	-
Cash for work related to the removal of the MOPU from the YME field (2)	32.3.1.; 32.4.1.	39,087	179,377
Cash for other capital expenditure commitments	32.4.1.	10,620	-
Settlements under joint operations (Norwegian fields) (3)		15,431	26,100
Security deposits (margins) related to the use of gas fuel distribution and transmission system		13,952	7,342
Restricted cash - issue of shares		-	996,939
Receivables under commodity swap settlement		49,208	-
Receivables under payment cards (service stations)		4,426	3,134
Other receivables		8,133	6,522
Total		2,223,366	2,667,432
Total financial assets		2,369,357	2,738,534
Non-financial assets
Non-current non-financial assets
Fees and commissions related to B8 project financing		-	23,839
Costs related to financing of the EFRA Project		48,568	-
Other		6,449	12,347
Total		55,017	36,186
Current non-financial assets
Value-added tax receivable		95,753	71,262
Property and other insurance		28,294	16,729
Prepayments for lease of railway locomotives		-	2,336
Excise duty on inter-warehouse transfers		31,015	36,661
Prepaid deliveries		13,607	9,457
Prepayments for IT services		7,141	4,617
Other		8,060	17,543
Total		183,870	158,605
Total non-financial assets		238,887	194,791
Total		2,608,244	2,933,325
including:
non-current		201,008	107,288
current:		2,407,236	2,826,037
- trade payables		1,550,900	1,406,501
- other		856,336	1,419,536

As at December 31st 2014, Restricted cash - issue of shares comprised cash proceeds from the issue of Series D shares in Grupa LOTOS S.A., deposited in a separate bank account of the Central Securities Depository of Poland (see Note 21) until the day of registration of the share capital increase.

The Company uses the issue proceeds to pursue the objectives indicated in the Prospectus approved by the Polish Financial Supervision Authority on November 7th 2014 (the “Prospectus”), including the construction of a delayed coking unit with auxiliary infrastructure (the “EFRA Project”) and development of the B-4 and B-6 gas fields by LOTOS Petrobaltic S.A. in collaboration with CalEnergy Resources Poland Sp. z o.o. (see “Use of proceeds from the offering” in the Prospectus).

Net of issue costs incurred in 2015, proceeds from the issue of Series D shares in the Company amounted to PLN 981.3m and are presented in the consolidated statement of cash flows under Proceeds from issue of Series D shares in Grupa LOTOS S.A.

The Company also notes that pursuant to the agreement for assistance in the form of non-public aid executed with the Minister of the State Treasury, acting as a representative of the State Treasury, the Company undertook to use PLN 535.0m from the Business Restructuring Fund, which had been allocated by the State Treasury to cover the Issue Price of the Offer Shares subscribed for by the State Treasury in exercise of its pre-emptive rights, to finance the EFRA Project. As at December 31st 2015, the funds were presented under Cash earmarked for the EFRA project. The funds are deposited in a separate bank account, which is reflected in the consolidated statement of cash flows under Cash earmarked for the EFRA project in cash flows from investing activities.

As at December 31st 2015 and December 31st 2014, the item Deposits included the Parent’s deposits designated for the overhaul shutdown of the refinery planned for 2017, deposits securing payments of interest under credit facilities contracted for the financing of the 10+ Programme, as well as for financing and refinancing of inventories, referred to in Note 27.1.

The collection period for trade receivables in the ordinary course of business is 7−35 days.
As at December 31st 2015, the Group’s receivables of PLN 20,845 thousand (December 31st 2014: PLN 31,676 thousand) were assigned by way of security for the Group’s liabilities.

For a description of the financial instruments, see Note 7.23. For a description of objectives and policies of financial risk management, see Note 32.

For currency risk sensitivity analysis of financial assets, see Note 32.3.1.

For interest rate risk sensitivity analysis of financial assets, see Note 32.4.1.

The maximum credit risk exposure of financial assets is presented in Note 32.6.

18.1 Change in impairment losses on receivables

PLN '000	Year ended Dec 31 2015	Year ended Dec 31 2014
At beginning of period	177,694	175,293
Recognised	8,599	18,077
Exchange differences on translating foreign operations	-	12
Used	(3,766)	(11,222)
Reversed	(10,920)	(4,604)
Other	33	138 (1)
At end of period	171,640	177,694

The amounts resulting from recognition or reversal of impairment losses on receivables are presented under other income or expenses (the principal portion) and under finance income or costs (the default interest portion). In the statement of comprehensive income, recognised and reversed impairment losses on receivables are presented on a net basis under: Other income/expenses (in accordance with the adopted accounting policy the Group offsets corresponding items of Other income and Other expenses in line with Section 34 and 35 of IAS 1 Presentation of Financial Statements).

Recognised impairment losses included PLN 8,094 thousand in respect of the principal (2014: PLN 15,928 thousand) and PLN 505 thousand in respect of interest (2014: PLN 2,149 thousand).

Reversed impairment losses included PLN 10,021 thousand in respect of the principal (2014: PLN 2,850 thousand) and PLN 899 thousand in respect of interest (2014: PLN 1,754 thousand).

In 2015, the Group disclosed the recognised and reversed impairment losses on the principal under Other expenses, in the amount of PLN 1,927 thousand, including: PLN 8,094 thousand under recognised impairment losses, and PLN 10,021 thousand under impairment loss reversal (see Note 9.3).

In 2014, the Group disclosed the recognised and reversed impairment losses on the principal under Other expenses in the amount of PLN 13,078 thousand, including: PLN 15,928 thousand under recognised impairment losses, and PLN 2,850 thousand under impairment loss reversal (see Note 9.4).

The table below presents aging of past due receivables for which no impairment losses were recognised:

PLN '000	Dec 31 2015	Dec 31 2014
Up to 1 month	26,123	41,973
From 1 to 3 months	707	5,752
From 3 to 6 months	359	956
From 6 months to 1 year	1,262	385
Over 1 year	358	24
Total	28,809	49,090

No impairment losses were recognised on past due receivables because they are secured against credit risk with a mortgage, pledge, insurance policy, bank guarantee or surety.

As at December 31st 2015 and December 31st 2014, the share of trade receivables from the Group’s five largest customers as at the end of the reporting period was approximately 32% and 25%, respectively, of total trade receivables (individually: 1%–11%). In the Group’s opinion, with the exception of receivables from the above-mentioned customers, there is no material concentration of credit risk. The Group’s maximum exposure to credit risk as at the end of the reporting period is best represented by the carrying amounts of those instruments.

18.2 Finance lease receivables

The Group has developed and operates the “LOTOS Family” Franchise Programme, which defines the procedures for managing service stations. The Group has entered into franchise agreements with entities operating service stations at their own risk and for their own account (Partners). Receivables under franchise agreements represent mainly expenditure on the design of DOFO service stations operated by dealers under agreements executed for periods from 5 to 10 years.

PLN '000	Minimum lease payments		Present value of minimum lease payments
	Dec 31 2015	Dec 31 2014	Dec 31 2015	Dec 31 2014
Up to 1 year (1)	5,608	4,429	5,568	4,394
From 1 to 5 years	10,940	8,951	10,862	8,881
Over 5 years	157	232	156	230
Total	16,705	13,612	16,586	13,505
Less unrealised finance income	(120)	(107)	-	-
Present value of minimum lease payments	16,585	13,505	16,586	13,505
including:
non-current			11,018	9,111
current			5,568	4,394