Integrated Annual Report of LOTOS Capital Group 2015

PLN '000	Note	Dec 31 2015	Dec 31 2014
Non-current liabilities
Post-employment benefits	29.1	38,459	41,510
Length-of-service awards and other benefits	29.1	143,793	143,941
Total	29.1	182,252	185,451
Current liabilities
Post-employment benefits	29.1	4,224	3,681
Length-of-service awards and other benefits	29.1	12,184	11,716
Bonuses, awards and unused holidays		78,409	51,520
Salaries and wages payable		27,384	17,121
Total		122,201	84,038
Total liabilities		304,453	269,489

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 2015		40,359	155,657	196,016
Reclassification to liabilities directly associated with assets held for sale (or disposal groups)		1,963	7,125	9,088
Current service cost		2,488	12,929	15,417
Cost of discount	29.3; 9.6	1,031	4,027	5,058
Past service cost		(1,694)	(6,323)	(8,017)
Benefits paid		(2,916)	(12,497)	(15,413)
Actuarial (gain)/loss under profit or loss	29.2	-	(4,941)	(4,941)
Actuarial (gain)/loss under other comprehensive income	29.2	(712)	-	(712)
Dec 31 2015		40,519	155,977	196,496
including:
non-current		36,476	143,793	180,267
current		4,043	12,184	16,229
Obligations under length-of-service awards and post-employment benefits at foreign companies (1)		2,164	-	2,164
Dec 31 2015	29.2	42,683	155,977	198,660
including:
non-current		38,459	143,793	182,252
current		4,224	12,184	16,408

PLN '000	Note	Post-employment benefits	Length-of-service awards and other benefits	Total
Jan 1 2014		32,808	130,65	163,458
Current service cost		1,206	9,289	10,495
Cost of discount	9.6; 29.2	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	29.2	-	29,953	29,953
Actuarial (gain)/loss under other comprehensive income	29.2	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
Exchange differences on translating foreign operations		-	-	-
Reclassification to liabilities directly associated with assets held for sale (or disposal groups)		(1,963)	(7,125)	(9,088)
Dec 31 2014		45,191	155,657	200,848
including:
non-current		41,510	143,941	185,451
current		3,681	11,716	15,397

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

PLN '000	Note	Year ended Dec 31 2015	Year ended Dec 31 2014
Items recognised in profit or loss:		10,133	51,960
Length-of-service awards, retirement and other post-employment benefits	9.2	5,075	45,606
- current service cost		15,417	10,495
- past service cost		(8,017)	409
- effect of foreign operations		2,616	4,749
- actuarial (gain)/loss	29.1	(4,941)	29,953
Cost of discount	9.6; 29.1	5,058	6,354
Items recognised in other comprehensive income:		654	8,933
Actuarial (gain)/loss	29.1	(712)	8,850
Effect of foreign operations		1,366	83
Total comprehensive income		10,787	60,893

29.3 Actuarial assumptions

	Dec 31 2015	Dec 31 2014
Discount rate (%)	2.90%	2.70%
Expected inflation rate (%)	2.50%	2.50%
Employee turnover ratio (%)	2.33%	2.43%
Expected growth rate of salaries and wages (%) in the following year	0.00%	4.00%
Expected growth rate of salaries and wages (%) in the following years	2.50%	2.50%

• 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 2014, 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 2014: Life Expectancy Tables of Poland for 2013).
• 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 2.9%, i.e. reflecting the assumptions made at the corporate level (December 31st 2014: 2.7%, reflecting the assumptions made at the corporate level).

29.4 Termination benefits

In 2015, termination benefits and compensation payable in respect of non-compete obligation totalled PLN 6,939 thousand (2014: PLN 3,363 thousand).

In 2015, provisions for termination benefits totalled PLN 125 thousand (2014: PLN 69 thousand).

29.5 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	143,252	36,185	8,765	8,294	196,496
base + 1%	base	156,497	40,800	9,687	9,890	216,874
base - 1%	base	131,832	32,340	7,968	7,048	179,188
base	base + 0.5%	136,694	34,038	8,319	7,613	186,664
base	base - 0.5%	150,371	38,563	9,250	9,071	207,255

The tables below present 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 2016

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	11,267	2,071	689	327	14,354
base + 1%	base	12,660	2,471	787	439	16,357
base - 1%	base	10,092	1,751	606	247	12,696
base	base + 0.5%	10,647	1,902	646	285	13,480
base	base - 0.5%	11,946	2,262	736	378	15,322

Cost of discount projected for 2016

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	3,824	933	238	233	5,228
base + 1%	base	4,208	1,066	265	279	5,818
base - 1%	base	3,493	821	215	196	4,725
base	base + 0.5%	4,260	1,020	264	250	5,794
base	base - 0.5%	3,336	829	209	211	4,585

Total current service cost and cost of discount projected for 2016

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	15,091	3,004	927	560	19,582
base + 1%	base	16,868	3,537	1,052	718	22,175
base - 1%	base	13,585	2,572	821	443	17,421
base	base + 0.5%	14,907	2,922	910	535	19,274
base	base - 0.5%	15,282	3,091	945	589	19,907