Description of Financial Instruments
Financial Assets and Liabilities Held for Trading
The Group discloses derivative transactions with positive fair values under financial assets held for trading. Derivative transactions with negative fair values are disclosed under financial liabilities held for trading. Financial assets and liabilities held for trading include the following types of derivatives: forwards, futures, swaps, and options.
Fair value of full barrel swaps is established by reference to future cash flows connected with the transactions, calculated on the basis of the difference between the average market price and the transaction price. Commodity swaps are valued on the basis of a hypothetical offsetting position (closing transaction) with the use of the arithmetic mean of market quotations.
Fair value of futures contracts for carbon dioxide (CO2) allowances (EUA, CER) is established by reference to the difference between the market price, quoted by the European Climate Exchange (ECX) for the valuation date, and the transaction price.
Fair value of currency forwards is established by reference to future discounted cash flows connected with the transactions, calculated on the basis of the difference between the forward rate and the transaction price. The forward rate is calculated on the basis of the fixing rate quotations of the National Bank of Poland and the implied interest rate curve based on fx swaps. Apart from the above parameters used in the valuation of currency forwards, implied volatility is additionally taken into account in calculating the value of currency options.
Fair value of FRAs is established by reference to future discounted cash flows connected with the transactions, calculated on the basis of the difference between the forward rate and the transaction price. The forward rate is calculated on the basis of the zero-coupon interest rate curve.
Financial Assets Available for Sale
Non-current financial assets available for sale measured at fair value as at December 31st 2008 and December 31st 2007 include mainly shares and equity interests for which there is no active market.
Loans Advanced and Receivables
1. On September 23rd 2003 and April 8th 2004, Grupa LOTOS S.A. signed with Rafineria Nafty GLIMAR S.A. loan agreements for the financing of operating and investing activities, including, in particular, the Glimar Hydrocomplex investment project, for an aggregate amount of PLN 90m. By December 31st 2004, Grupa LOTOS S.A. had advanced PLN 48m to Rafineria Nafty GLIMAR S.A. under these agreements. Additionally, in connection with the Letter of Comfort signed by Grupa LOTOS S.A. on February 12th 2004 for Bank Przemysłowo-Handlowy S.A., the Company undertook commitments relating to the co-financing of the Glimar Hydrocomplex investment project and maintaining of an appropriate financial standing of Rafineria Nafty GLIMAR S.A. In the opinion of the Company’s Management Board, these commitments do not represent financial liabilities as at the balance-sheet date.
As at December 31st 2008 and December 31st 2007, assets under the advanced loans were fully covered by an allowance. As at December 31st 2008 and December 31st 2007, the Company had provisions of PLN 15,853 thousand for potential liabilities under these agreements (see Note 31).
On January 19th 2005, the District Court of Nowy Sącz declared Rafineria Nafty GLIMAR S.A. of Gorlice bankrupt. Upon consideration on March 11th 2008 of the petition for discontinuation of the bankruptcy proceedings, submitted by bankruptcy administrator Capricorn Sp. z o.o. of Nowy Sącz, the District Court of Nowy Sącz, Commercial Court Division V, decided to discontinue the bankruptcy proceedings pursuant to Art. 361.2 of the Bankruptcy and Recovery Law.
The decision issued by the District Court of Nowy Sącz, Commercial Court Division V, was appealed against to the Regional Court of Kraków, Appellate Commercial Division XII. On July 25th 2008, the Regional Court of Kraków, Appellate Commercial Division XII, issued a decision (court docket No. XII Gz 242/08) dismissing the appeals. Accordingly, the decision of the District Court of Nowy Sącz, Commercial Court Division V on discontinuation of the bankruptcy proceedings became final.
On December 1st 2008, Grupa LOTOS S.A. concluded an agreement with Podkarpacki Holding Budowy Dróg Drogbud Sp. z o.o. of Strzyżów concerning disposal of its shares in Rafineria Nafty GLIMAR S.A.
Under the agreement, Grupa LOTOS S.A. sold 9,520,000 shares in Rafineria Nafty GLIMAR S.A. with a par value of PLN 10 per share, representing 91.54% of the company’s share capital. The agreed transaction value was PLN 1,000 thousand. As at the agreement execution date, the carrying value of the shares in Grupa LOTOS S.A.’s accounting books was PLN 0.
2. On November 12th 2001 an agreement was concluded under which Petrobaltic S.A. granted a loan to Energobaltic Sp. z o.o. Petrobaltic S.A.’s receivables under the loan (including accrued interest) amounted to USD 7,764 thousand as at December 31st 2008 (USD 7,381 thousand as at December 31st 2007), which represented the equivalent of PLN 22,994 thousand (PLN 17,974 thousand as at December 31st 2007). On the basis of an analysis of the economic and financial standing of Energobaltic Sp. z o.o., performed based on the 2007 financial statements, and considering the projections for the following years and the related risk of a loss of liquidity in the event of failure of the measures taken by the Management Board of Energobaltic Sp. z o.o. to restructure the company’s indebtedness, i.e. to postpone the repayment of bank loans and shareholder loans, an impairment charge was made for the full value of the loan. An impairment charge was also made for the value of shares held in Energobaltic Sp. z o.o.
Financial Liabilities Valued at Amortised Cost
Financial liabilities valued at amortised cost include loans, overdraft facilities, and liabilities under finance lease.
None of the following economic events or situations requiring disclosure occurred at the Group during the reporting periods ended December 31st 2008 and December 31st 2007:
- The Group did not reclassify any financial assets (IFRS 7, Par. 12.),
- No collateral was established for the benefit of the Group on any class of assets, which would result in credit enhancements (IFRS 7, Par. 15.),
- The Group did not issue any instrument that contains both a liability and an equity component (IFRS 7, Par. 17.),
- The Group met all contractual provisions (IFRS 7, Par. 18.),
- Interest income in connection with impaired financial assets was recognised by the Group as immaterial (IFRS 7, Par. 20.d.),
- the Group does not apply hedge accounting; accordingly, changes in fair value of derivative instruments are charged to the income statement (IFRS 7, Par. 22.),
- The Group did not acquire any financial assets at a price different from their fair value (IFRS 7, Par.28.),
- The Group did not obtain any assets by taking possession of collateral held as security (IFRS 7, Par. 38.).
21.1. Carrying Value of Financial Instruments
Dec 31 2008 (audited) |
Note | Financial assets at fair value through profit or loss – held for trading | Loans and receivables | Financial assets available for sale | Financial liabilities at fair value through profit or loss – held for trading | Financial liabilities at amortised cost | Total |
---|---|---|---|---|---|---|---|
Shares: | - | - | 11,041 | - | - | 11,041 | |
- non-current | 19 | - | - | 9,917 | - | - | 9,917 |
- current | - | - | 1,124 | - | - | 1,124 | |
Prepayments for shares | 20 | - | 25,332 | - | - | - | 25,332 |
Decommissioning fund | 19 | - | 16,599 | - | - | - | 16,599 |
Loans: | 30 | - | - | - | - | - | - |
- non-current | - | - | - | - | - | - | |
- current | - | - | - | - | - | - | |
Derivative financial instruments | 20 | 302,304 | - | - | - | - | 302,304 |
Trade and other receivables: | - | 1,260,660 | - | - | - | 1,260,660 | |
- non-current | - | 9,152 | - | - | - | 9,152 | |
- current | - | 1,251,508 | - | - | - | 1,251,508 | |
Cash and cash equivalents | 24 | - | 712,801 | - | - | - | 712,801 |
Trade and other payables: | 33 | - | - | - | - | (1,260,855) | (1,260,855) |
- non-current | - | - | - | - | (4,916) | (4,916) | |
- current | - | - | - | - | (1,255,939) | (1,255,939) | |
Loans and borrowings: | 30 | - | - | - | - | (3,919,605) | (3,919,605) |
- non-current | - | - | - | - | (3,412,245) | (3,412,245) | |
- current | - | - | - | - | (507,360) | (507,360) | |
Financial liabilities: | 32 | - | - | - | (218,526) | (1,415) | (219,941) |
Lease liabilities: | 32 | - | - | - | - | (1,415) | (1,415) |
- non-current | - | - | - | (854) | (854) | ||
- current | - | - | - | - | (561) | (561) | |
Derivative financial instruments | 32 | - | - | - | (218,526) | - | (218,526) |
Total | 302,304 | 2,015,392 | 11,041 | (218,526) | (5,181,875) | (3,071,664) |
As at December 31st 2008, the Group held no financial assets whose terms would be renegotiated due to the possibility of default or impairment.
As at December 31st 2008, the Group did not hold any financial assets or liabilities measured at fair value through profit or loss whose components were initially recognised at fair value through profit or loss (fair value option).
As at December 31st 2008, the Group did not have any financial assets held to maturity.
As at December 31st 2008, the carrying value of the above classes of financial instruments corresponded to their fair value.
As at December 31st 2008, the carrying value of cash and cash equivalents, current trade receivables and payables and financial liabilities at amortised cost approximated their fair value. Long-term bank loans bear interest at floating rates, with interest payable in a short term.
As at December 31st 2008, the financial assets available for sale measured at fair value comprised mainly shares for which there was no active market.
Dec 31 2007 (audited) PLN ‘000 |
Note | Financial assets at fair value through profit or loss – held for trading | Loans and receivables | Financial assets available for sale | Financial liabilities at fair value through profit or loss – held for trading | Financial liabilities at amortised cost | Total |
---|---|---|---|---|---|---|---|
Shares: | - | - | 8,178 | - | - | 8,178 | |
- non-current | 19 | - | - | 8,093 | - | - | 8,093 |
- current | - | - | 85 | - | - | 85 | |
Prepayments for shares | 20 | - | 23,117 | - | - | - | 23,117 |
Decommissioning fund | 19 | - | 13,443 | - | - | - | 13,443 |
Loans: | 30 | - | 58 | - | - | - | 58 |
- non-current | - | 17 | - | - | - | 17 | |
- current | - | 41 | - | - | - | 41 | |
Derivative financial instruments | 20 | 96,099 | - | - | - | - | 96,099 |
Trade and other receivables: | - | 1,461,080 | - | - | - | 1,461,080 | |
- non-current | - | 12,668 | - | - | - | 12,668 | |
- current | - | 1,448,412 | - | - | - | 1,448,412 | |
Cash and cash equivalents | 24 | - | 924,995 | - | - | - | 924,995 |
Trade and other payables: | 33 | - | - | - | - | (1,222,473) | (1,222,473) |
- non-current | - | - | - | - | (3,774) | (3,774) | |
- current | - | - | - | - | (1,218,699) | (1,218,699) | |
Loans and borrowings: | 30 | - | - | - | - | (1,360,136) | (1,360,136) |
- non-current | - | - | - | - | (842,943) | (842,943) | |
- current | - | - | - | - | (517,193) | (517,193) | |
Financial liabilities: | 32 | - | - | - | (3,906) | (1,628) | (5,534) |
Lease liabilities: | 32 | - | - | - | - | (1,628) | (1,628) |
- non-current | - | - | - | - | (629) | (629) | |
- current | - | - | - | - | (999) | (999) | |
Derivative financial instruments | 32 | - | - | - | (3,906) | - | (3,906) |
Total | 96,099 | 2,422,693 | 8,178 | (3,906) | (2,584,237) | (61,173) |
As at December 31st 2007, the Group held no financial assets whose terms would be renegotiated due to the possibility of default or impairment.
As at December 31st 2007, the Group did not hold any financial assets or liabilities measured at fair value through profit or loss whose components were initially recognised at fair value through profit or loss (fair value option).
As at December 31st 2007, the Group did not have any financial assets held to maturity. As at
December 31st 2007, the carrying value of the above classes of financial instruments corresponded to their fair value.
As at December 31st 2007, the carrying value of cash and cash equivalents, current trade receivables and payables and financial liabilities at amortised cost approximated their fair value. Long-term bank loans bear interest at floating rates, with interest payable in a short term.
As at December 31st 2007, the financial assets available for sale measured at fair value comprised mainly shares for which there was no active market.
The methods and assumptions used to measure the fair value of the financial instruments held by the Group are described in Note 10 and Note 21.
21.2. Items of Income, Expenses, Gains and Losses Disclose
in the Income Statement by Categories of Financial Instruments
Year ended Dec 31 2008 (audited) PLN ‘000 |
Financial assets/ liabilities at fair value through profit or loss – held for trading |
Loans and receivables | Financial assets available for sale | Financial liabilities at amortised cost | Total |
---|---|---|---|---|---|
Interest income/(expense) | - | 50,486 | - | (48,565) | 1,921 |
Foreign exchange gains/(losses) | - | (76,897) | - | (591,642) | (668,539) |
(Recognition)/reversal of impairment charges | - | (27,931) | - | - | (27,931) |
Gains/(losses) on fair value measurement and realisation | (247,237) | - | - | - | (247,237) |
Gains/(losses) on disposal | - | - | 1,027 | - | 1,027 |
Total | (247,237) | (54,342) | 1,027 | (640,207) | (940,759) |
Year ended Dec 31 2008 (audited) PLN ‘000 |
Financial assets/ liabilities at fair value through profit or loss – held for trading | Loans and receivables | Financial assets available for sale | Financial liabilities at amortised cost | Total |
---|---|---|---|---|---|
Interest income/(expense) | - | 41,205 | - | (28,182) | 13,023 |
Foreign exchange gains/(losses) | - | (71,414) | - | 11,239 | (60,175) |
(Recognition)/reversal of impairment charges | - | 5,976 | - | - | 5,976 |
Gains/(losses) on fair value measurement and realisation | 122,473 | - | - | - | 122,473 |
Gains/(losses) on disposal | 2,188 | - | 2,710 | - | 4,898 |
Total | 124,661 | (24,233) | 2,710 | (16,943) | 86,195 |
21.3. Financial Risk Management
The Company is exposed to financial risk, including chiefly:
- market risk (risk related to the prices of raw materials and petroleum products, risk related to prices of carbon allowances, currency risk, interest rate risk),
- market risk (risk related to the prices of raw materials and petroleum products, risk related to prices of carbon allowances, currency risk, interest rate risk),
- credit risk related to financial and trade transactions.
The Financial Risk Management Committee (“FRMC”) operating within the Parent Undertaking is responsible for the supervision and coordination of the financial risk management process at Grupa LOTOS S.A. In order to ensure the efficiency and operational security of this process, the following areas have been distinguished: financial transaction area (front-office), risk analysis and control area (middle-office), and transaction documentation and settlement area (back-office).
The key objectives sought to be achieved through financial risk management are as follows:
- maximising the result on market risk management at the assumed risk level,
- stabilising cash flows,
- ensuring short-term financial liquidity,
- supporting the activities related to the arrangement of financing for investment activities.
In order to achieve these objectives, documents have been prepared and approved at appropriate decision-making levels at the Parent Undertaking. These documents specify the necessary framework for effective and secure functioning of the financial risk management process, including principally:
- methodology for quantifying exposures to particular risks (risk mapping),
- acceptable financial instruments,
- method of assessing financial risk management,
- limits within risk management,
- reporting method,
- credit limits for counterparties in financial transactions.
The Parent Undertaking monitors all managed market risks on an ongoing basis. Opening a position with respect to risks which do not arise as part of Grupa LOTOS S.A.’s core activity is prohibited. The Company uses liquid derivatives which it is able to value by applying commonly applied valuation models. The valuation of the underlying position and derivatives is performed based on market data received from reliable providers.
The Group does not apply hedging accounting; accordingly, any change in the fair value of derivatives is charged to the income statement.
Risk Related to Prices of Raw Materials and Petroleum Products
The concept for the management of risk related to prices of raw materials and petroleum products covers the period until the end of 2010, by which time also the 10+ Programme is to have been completed. The main objective of the management concept is to increase the probability of generating cash flows guaranteeing safe financing of investment projects under the 10+ Programme.
The risk management concept provides for maximum hedge ratios for the underlying position, decreasing each year relative to a current budget year. Within the framework of accepted limits and guidelines, the Financial Risk Management Committee adopts decisions defining the limits and volumes of hedging transactions.
The basic risk map is created by converting the map of price indices used in trade contracts into the map of indices for which there exist liquid markets of derivatives. Such conversion takes into account relevant statistical relations between base indices and market indices. The converted map serves a basis for defining the model of the refining margin. The margin is defined as the difference between the value of indices representing products sold, weighted by the share of particular indices in a barrel, and the index representing raw materials purchased.
As at December 31st 2008, the estimated underlying refining margin position stood at (in barrels):
Period | Underlying position |
---|---|
Q1 2009 | 9,930,140 |
Q2 2009 | 6,720,316 |
Q3 2009 | 9,894,993 |
Q4 2009 | 9,452,383 |
Q1 2010 | 11,805,410 |
Q2 2010 | 15,699,834 |
Q3 2010 | 15,569,563 |
Q4 2010 | 14,712,155 |
As at December 31st 2007, the estimated underlying refining margin position stood at (in barrels):
Period | Underlying position |
---|---|
Q1 2008 | 9,935,622 |
Q2 2008 | 9,475,025 |
Q3 2008 | 9,543,912 |
Q4 2008 | 9,658,366 |
Q1 2009 | 9,939,825 |
Q2 2009 | 6,629,920 |
Q3 2009 | 9,611,546 |
Q4 2009 | 10,395,482 |
Q1 2010 | 15,164,964 |
Q2 2010 | 15,869,788 |
Q3 2010 | 16,000,117 |
Q4 2010 | 16,698,049 |
In connection with concerns about the impact of the deepening economic slowdown on the refining margins market, in 2008 Grupa LOTOS S.A. continued to execute transactions to hedge its refining margins.
In addition, in order to minimise the basis risk related to the difference between the barrel structure in the executed hedging transactions and the barrel structure resulting from the updated production plans, the Company executed transactions aimed at adjusting the structure in the executed transactions to the currently planned structure.
Open refining margin transactions as at December 31st 2008:
Company | Type of transaction | Transaction execution date | Beginning of the valuation period | End of the valuation period | Number of barrels | Price (USD/barrel) |
Fair value as at Dec 31 2008 (PLN ‘000)(1) |
---|---|---|---|---|---|---|---|
Grupa LOTOS S.A. | Commodity swap | Mar 4 2008 | Jan 1 2009 | Mar 31 2009 | (500,001) | 8 | 1,773 |
Grupa LOTOS S.A. | Commodity swap | Mar 7 2008 | Jan 1 2009 | Mar 31 2009 | (999,999) | 8 | 4,110 |
Grupa LOTOS S.A. | Commodity swap | May 30 2008 | Apr 1 2009 | Jun 30 2009 | (501,000) | 12 | 7,881 |
Grupa LOTOS S.A. | Commodity swap | May 30 2008 | Jan 1 2009 | Mar 31 2009 | (999,999) | 10 | 11,366 |
Grupa LOTOS S.A. | Commodity swap | Jun 2 2008 | Jan 1 2009 | Mar 31 2009 | (501,000) | 10 | 5,472 |
Grupa LOTOS S.A. | Commodity swap | Jun 2 2008 | Jul 1 2009 | Sep 30 2009 | (501,000) | 14 | 9,601 |
Grupa LOTOS S.A. | Commodity swap | Jun 6 2008 | Jul 1 2009 | Sep 30 2009 | (999,999) | 14 | 17,504 |
Grupa LOTOS S.A. | Commodity swap | Jun 17 2008 | Apr 1 2009 | Jun 30 2009 | (500,001) | 10 | 5,570 |
Grupa LOTOS S.A. | Commodity swap | Jun 19 2008 | Jul 1 2009 | Sep 30 2009 | (500,001) | 13 | 7,716 |
Grupa LOTOS S.A. | Commodity swap | Jun 20 2008 | Jul 1 2009 | Sep 30 2009 | (499,998) | 13 | 7,715 |
Grupa LOTOS S.A. | Commodity swap | Sep 25 2008 | Jul 1 2009 | Sep 30 2009 | (500,001) | 12 | 8,338 |
Grupa LOTOS S.A. | Commodity swap | Oct 2 2008 | Apr 1 2009 | Jun 30 2009 | (500,001) | 11 | 7,687 |
Grupa LOTOS S.A. | Commodity swap | Oct 10 2008 | Apr 1 2009 | Jun 30 2009 | (500,001) | 10 | 6,206 |
Grupa LOTOS S.A. | Commodity swap | Oct 7 2008 | Apr 1 2009 | Jun 30 2009 | (500,001) | 10 | 6,354 |
(8,503,002) | TOTAL, including: | 107,293 | |||||
positive | 107,293 | ||||||
negative | - |
Open transactions adjusting the structure, as at December 31st 2008:
Company | Type of transaction | Transaction execution date | Beginning of the valuation period | End of the valuation period | Number of barrels | Price (USD/barrel) |
Fair value as at Dec 31 2008 (PLN ‘000)(1) |
---|---|---|---|---|---|---|---|
Grupa LOTOS S.A. | Commodity swap | Oct 8 2008 | Jan 1 2009 | Mar 31 2009 | 230,001 | (2) | (275) |
Grupa LOTOS S.A. | Commodity swap | Oct 9 2008 | Jan 1 2009 | Mar 31 2009 | 90,000 | (2) | (107) |
Grupa LOTOS S.A. | Commodity swap | Oct 13 2008 | Jan 1 2009 | Mar 31 2009 | (120,000) | (18) | (1,040) |
Grupa LOTOS S.A. | Commodity swap | Oct 29 2008 | Jan 1 2009 | Mar 31 2009 | 70,023 | 93 | (6,488) |
Grupa LOTOS S.A. | Commodity swap | Oct 29 2008 | Jan 1 2009 | Mar 31 2009 | (70,023) | 91 | 6,041 |
200,001 | TOTAL, including: | (1,869) | |||||
positive | 6,041 | ||||||
negative | (7,910) |
As at Dec 31 2008, positive fair value of commodity swaps was PLN 113,334 thousand.
As at Dec 31 2008, negative fair value of commodity swaps was PLN (7,910) thousand.
Open refining margin transactions as at December 31st 2007:
Type of transaction | Type of transaction | Transaction execution date | Beginning of the valuation period | End of the valuation period | Number of barrels | Price (USD/barrel) |
Fair value as at Dec 31 2007 (PLN ‘000) (1) |
---|---|---|---|---|---|---|---|
Grupa LOTOS S.A. | Commodity swap | Nov 9 2007 | Jan 1 2008 | Mar 31 2008 | (1,040,000) | 9 | 1,638 |
Grupa LOTOS S.A. | Commodity swap | Nov 9 2007 | Apr 1 2008 | Jun 30 2008 | (750,000) | 9 | 347 |
Grupa LOTOS S.A. | Commodity swap | Nov 12 2007 | Jan 1 2008 | Mar 31 2008 | (990,000) | 9 | 1,776 |
Grupa LOTOS S.A. | Commodity swap | Nov 12 2007 | Jan 1 2008 | Mar 31 2008 | (999,999) | 9 | 1,526 |
Grupa LOTOS S.A. | Commodity swap | Nov 13 2007 | Apr 1 2008 | Jun 30 2008 | (490,000) | 9 | 429 |
Grupa LOTOS S.A. | Commodity swap | Nov 13 2007 | Apr 1 2008 | Jun 30 2008 | (799,998) | 9 | 273 |
Grupa LOTOS S.A. | Commodity swap | Nov 13 2007 | Apr 1 2008 | Jun 30 2008 | (129,999) | 9 | 92 |
Grupa LOTOS S.A. | Commodity swap | Nov 14 2007 | Apr 1 2008 | Jun 30 2008 | (620,000) | 9 | 362 |
Grupa LOTOS S.A. | Commodity swap | Nov 14 2007 | Apr 1 2008 | Jun 30 2008 | (90,000) | 9 | 53 |
Grupa LOTOS S.A. | Commodity swap | Nov 20 2007 | Apr 1 2008 | Jun 30 2008 | (510,000) | 9 | 295 |
Grupa LOTOS S.A. | Commodity swap | Nov 21 2007 | Apr 1 2008 | Jun 30 2008 | (609,999) | 9 | 356 |
Grupa LOTOS S.A. | Commodity swap | Nov 21 2007 | Jul 1 2008 | Sep 30 2008 | (500,001) | 9 | (63) |
Grupa LOTOS S.A. | Commodity swap | Nov 22 2007 | Jul 1 2008 | Sep 30 2008 | (246,000) | 9 | 29 |
Grupa LOTOS S.A. | Commodity swap | Nov 27 2007 | Apr 1 2008 | Jun 30 2008 | (700,002) | 10 | 835 |
Grupa LOTOS S.A. | Commodity swap | Dec 13 2007 | Jul 1 2008 | Sep 30 2008 | (500,001) | 9 | (307) |
Grupa LOTOS S.A. | Commodity swap | Dec 20 2007 | Jul 1 2008 | Sep 30 2008 | (999,999) | 9 | (370) |
(9,975,998) | TOTAL, including: |
7,271 | |||||
positive | 8,011 | ||||||
negative | (740) |
1) Fair value of commodity swaps is established by reference to future cash flows connected with the executed transactions, calculated on the basis of the difference between the average market price and the transaction price.
Total refining margin position as at December 31st 2008:
Period | Underlying position | Transaction position | Total position | Hedge ratio |
---|---|---|---|---|
Q1 2009 | 9,930,140 | (3,000,999) | 6,929,141 | 30% |
Q2 2009 | 6,720,316 | (2,501,004) | 4,219,312 | 37% |
Q3 2009 | 9,894,993 | (3,000,999) | 6,893,994 | 30% |
Q4 2009 | 9,452,383 | - | 9,452,383 | 0% |
Q1 2010 | 11,805,410 | - | 11,805,410 | 0% |
Q2 2010 | 15,699,834 | - | 15,699,834 | 0% |
Q3 2010 | 15,569,563 | - | 15,569,563 | 0% |
Q4 2010 | 14,712,155 | - | 14,712,155 | 0% |
2009 | 35,997,832 | (8,503,002) | 27,494,830 | 24% |
2010 | 57,786,962 | - | 57,786,962 | 0% |
Total refining margin position as at December 31st 2007:
Period | Underlying position | Transaction position | Total position | Hedge ratio |
---|---|---|---|---|
Q1 2008 | 9,935,622 | (3,029,999) | 6,905,623 | 30% |
Q2 2008 | 9,475,025 | (4,699,998) | 4,775,027 | 50% |
Q3 2008 | 9,543,912 | (2,246,001) | 7,297,911 | 24% |
Q4 kw 2008 | 9,658,366 | - | 9,658,366 | - |
Q1 2009 | 9,939,825 | - | 9,939,825 | - |
Q2 2009 | 6,629,920 | - | 6,629,920 | - |
Q3 2009 | 9,611,546 | - | 9,611,546 | - |
Q4 kw 2009 | 10,395,482 | - | 10,395,482 | - |
Q1 2010 | 15,164,964 | - | 15,164,964 | - |
Q2 2010 | 15,869,788 | - | 15,869,788 | - |
Q3 2010 | 16,000,117 | - | 16,000,117 | - |
Q4 2010 | 16,698,049 | - | 16,698,049 | - |
2008 | 38,612,925 | (9,975,998) | 28,636,927 | 26% |
2009 | 36,576,773 | - | 36,576,773 | - |
2010 | 63,732,918 | - | 63,732,918 | - |
Risk Related to Prices of Carbon Dioxide (CO2) Emmission Allowances
The risk related to prices of CO2 allowances is managed in line with the assumptions set forth in The Strategy for Managing the Risk Related to Prices of CO2 Allowances by Grupa LOTOS S.A. The period covered by the management is determined by the individual phases of the Kyoto protocol; currently, it is the period until the end of 2012.
A position limit is defined based on the number of allowances granted for a given phase. The position in a given phase comprises the aggregate of positions for individual years within the phase. The maximum loss limit is defined based on the Group’s equity.
Depending on the market situation and allowances granted, the Grupa LOTOS S.A. maintains an appropriate position in carbon allowances by entering into financial transactions or changing the underlying position.
The basic risk map includes the allowances granted and the CO2 emissions planned for a given phase, which can be reliably determined both with respect to the existing installations and the installations which are planned to be constructed.
Underlying CO2 allowances position as at December 31st 2008 stood at:
Period | EUA | CER | TOTAL |
---|---|---|---|
Phase II (2008-2012) | 40,238 | 114,000 | 154,238 |
Underlying CO2 allowances position as at December 31st 2007 stood at:
Period | EUA | CER | TOTAL |
---|---|---|---|
Phase I (2005-2007) | 11,645 | - | 11,645 |
Phase II (2008-2012) | - | - | - |
In connection with concerns that the prices of CO2 emission allowances might increase and due to uncertainty as to the number of allowances to be granted for the installations constructed under the 10+ Programme, the Company maintained a long position in CO2 allowances.
Open CO2 allowances transactions as at December 31st 2008:
Company | Type of transaction | Transaction execution date | Transaction settlement date | No, of CO2 allowances | Price (EUR/tonne) | Fair value as at Dec 31 2008 (PLN ‘000) (2) |
---|---|---|---|---|---|---|
Grupa LOTOS S.A. | EUA Futures | Dec 3 2008 | Dec 17 2009 | 1,000 | 16 | (0) |
Grupa LOTOS S.A. | EUA Futures | Dec 3 2008 | Dec 17 2009 | 3,000 | 16 | (1) |
Grupa LOTOS S.A. | EUA Futures | Dec 3 2008 | Dec 17 2009 | 1,000 | 16 | 1 |
Grupa LOTOS S.A. | EUA Futures | Dec 3 2008 | Dec 17 2009 | 1,000 | 16 | 1 |
Grupa LOTOS S.A. | EUA Futures | Dec 3 2008 | Dec 17 2009 | 4,000 | 16 | 2 |
Grupa LOTOS S.A. | EUA Futures | Dec 3 2008 | Dec 17 2009 | 1,000 | 16 | - |
Grupa LOTOS S.A. | EUA Futures | Dec 3 2008 | Dec 17 2009 | 1,000 | 16 | - |
Grupa LOTOS S.A. | Futures EUA | Dec 3 2008 | Dec 17 2009 | 20,000 | 16 | 5 |
Grupa LOTOS S.A. | EUA Futures | Dec 3 2008 | Dec 17 2009 | 1,000 | 16 | - |
Grupa LOTOS S.A. | EUA Futures | Dec 3 2008 | Dec 17 2009 | 2,000 | 16 | - |
Grupa LOTOS S.A. | EUA Futures | Dec 3 2008 | Dec 17 2009 | 1,000 | 16 | - |
Grupa LOTOS S.A. | EUA Futures | Dec 3 2008 | Dec 17 2009 | 5,000 | 16 | 1 |
Grupa LOTOS S.A. | EUA Futures | Dec 3 2008 | Dec 17 2009 | 30,000 | 16 | 4 |
Grupa LOTOS S.A. | EUA Futures | Dec 3 2008 | Dec 17 2009 | 10,000 | 16 | 1 |
Grupa LOTOS S.A. | EUA Futures | Dec 3 2008 | Dec 17 2009 | 1,000 | 16 | - |
Grupa LOTOS S.A. | EUA Futures | Dec 3 2008 | Dec 17 2009 | 2,000 | 16 | - |
Grupa LOTOS S.A. | EUA Futures | Dec 3 2008 | Dec 17 2009 | 4,000 | 16 | - |
88,000 | TOTAL, including: | 14 | ||||
positive | 15 | |||||
negative | (1) |
Open CO2 allowances transactions as at December 31st 2007:
Company | Type of transaction | Transaction execution date | Transaction settlement date | No, of CO2 allowances | Price (EUR/tonne) | Fair value as at Dec 31 2007 (PLN ‘000) (2) |
---|---|---|---|---|---|---|
Grupa LOTOS S.A. | EUA Futures | May 31 2007 | Dec 17 2009 | 10,000 | 23 | (16) |
Grupa LOTOS S.A. | EUA Futures | May 31 2007 | Dec 17 2009 | 10,000 | 23 | (16) |
Grupa LOTOS S.A. | EUA Futures | May 31 2007 | Dec 17 2009 | 10,000 | 23 | (16) |
Grupa LOTOS S.A. | EUA Futures | Jun 13 2007 | Dec 18 2008 | 5,000 | 23 | (16) |
Grupa LOTOS S.A. | EUA Futures | Jun 13 2007 | Dec 18 2008 | 5,000 | 23 | (16) |
Grupa LOTOS S.A. | EUA Futures | Jun 13 2007 | Dec 18 2008 | 5,000 | 23 | (16) |
Grupa LOTOS S.A. | EUA Futures | Jun 14 2007 | Dec 18 2008 | 25,000 | 24 | (130) |
Grupa LOTOS S.A. | EUA Futures | Jun 14 2007 | Dec 18 2008 | 5,000 | 24 | (25) |
Grupa LOTOS S.A. | EUA Futures | Jun 19 2007 | Dec 18 2008 | 10,000 | 22 | 33 |
Grupa LOTOS S.A. | EUA Futures | Jun 19 2007 | Dec 18 2008 | 10,000 | 21 | 35 |
Grupa LOTOS S.A. | EUA Futures | Jun 19 2007 | Dec 18 2008 | 10,000 | 21 | 36 |
Grupa LOTOS S.A. | EUA Futures | Jun 19 2007 | Dec 18 2008 | 10,000 | 21 | 36 |
Grupa LOTOS S.A. | EUA Futures | Jun 19 2007 | Dec 18 2008 | 10,000 | 21 | 40 |
Grupa LOTOS S.A. | EUA Futures | Oct 23 2007 | Dec 18 2008 | 10,000 | 22 | 10 |
Grupa LOTOS S.A. | EUA Futures | Oct 23 2007 | Dec 18 2008 | 10,000 | 22 | 11 |
Grupa LOTOS S.A. | EUA Futures | Oct 31 2007 | Dec 18 2008 | 5,000 | 22 | 16 |
Grupa LOTOS S.A. | EUA Futures | Oct 31 2007 | Dec 18 2008 | 10,000 | 22 | 27 |
Grupa LOTOS S.A. | EUA Futures | Oct 31 2007 | Dec 18 2008 | 10,000 | 22 | 29 |
Grupa LOTOS S.A. | EUA Futures | Oct 31 2007 | Dec 18 2008 | 10,000 | 22 | 33 |
Grupa LOTOS S.A. | EUA Futures | Oct 31 2007 | Dec 18 2008 | 10,000 | 21 | 36 |
Grupa LOTOS S.A. | EUA Futures | Oct 31 2007 | Dec 18 2008 | 15,000 | 22 | 46 |
205,000 | TOTAL, including: | 137 | ||||
positive | 388 | |||||
negative | (251) |
2) Fair value of futures contracts for CO2 allowances (EUA, CER) is established by reference to the difference between the market price, quoted by the European Climate Exchange (ECX) for the valuation date, and the transaction price.
Total CO2 allowances position as at December 31st 2008 stood at:
EUA position | CER position | |||||
---|---|---|---|---|---|---|
Period | Underlying | Transaction | Total | Underlying | Transaction | Total |
Phase II (2008-2012) |
40,238 | 88,000 | 128,238 | 114,000 | - | 114,000 |
Total CO2 allowances position as at December 31st 2007 stood at:
EUA position | CER position | |||||
---|---|---|---|---|---|---|
Period | Underlying | Transaction | Total | Underlying | Transaction | Total |
Phase I (2005-2007) |
11,645 | - | 11,645 | - | - | - |
Phase II (2008-2012) |
- | 205,000 | 205,000 | - | - | - |
Currency Risk
Currency risk is managed in line with the assumptions stipulated in The Strategy of Currency Risk Management at Grupa LOTOS S.A. The period covered by currency risk management is determined according to individual budget years.
Limits are established for aggregate positions, such as the total and global gross positions, which are determined by reference to net positions in the particular currencies. Position and maximum loss limits are expressed as percentages of Grupa LOTOS S.A.’s equity.
The base map of net currency positions takes into account principally the volumes and price formulae for purchases of raw materials and sales of products, investments, loans denominated in foreign currencies, as well as valuation of derivatives. The map is then presented in a single currency to enable management of aggregate positions.
The basic currency of Grupa LOTOS S.A.’s operating market is USD. This currency is used in market price quotations for crude oil and petroleum products. Consequently, Grupa LOTOS S.A. has a structurally long position in USD on its operating activity. For this reason it has been decided that USD is the most appropriate currency for contracting and repaying long-term loans to finance the 10+ Programme, as such an approach contributes to reducing the structurally long position, and consequently to reducing the strategic currency risk.
Under the agreement on the financing of the 10+ Programme, Grupa LOTOS S.A. has the obligation to maintain a specified level of the hedge ratio for the currency risk (EUR/USD and USD/PLN) which arises in connection with the fact that the currency in which the investment projects are financed is different from the currencies in which project execution contracts are denominated. The obligation to maintain a specified level of the hedge ratio is connected with the necessity to guarantee that the loan amounts disbursed, denominated in USD, will be sufficient to finance the investment expenditure irrespective of the situation on the currency markets. This obligation remains binding only with respect to payments under the 10+ Programme projects execution contracts to be made by mid-2011.
At the end of 2008, the revised underlying position which could be subject to risk management was determined on the basis of the planned drawdowns under the loan to finance the 10+ Programme and the project execution contracts, and thus related exclusively to the hedging required under loan agreements.
The estimated underlying currency position as at December 31st 2008 stood at:
Period | USD | EUR |
---|---|---|
2009 | 596,635,901 | (368,983,750) |
The estimated currency position as at December 31st 2007 stood at:
Period | USD | EUR |
---|---|---|
2008 | 1,412,625,827 | (416,912,999) |
In connection with its obligation to meet by a specific deadline the hedge ratio prescribed in the loan agreement and due to the significant risk of depreciation of the euro against the dollar, the Parent Undertaking decided to purchase EUR/USD call options. Once the scenario of depreciation of the euro against the dollar became reality in Q4 2008, Grupa LOTOS S.A. decided to hedge its EUR/USD exchange rate risk by means of buying forward contracts and closing the options. As a result, the Company achieved a much economic effect than it would have achieved if it had hedged the risk by entering into forward contracts by the contractual deadlines.
Open currency transactions as at December 31st 2008:
Company | Type of transaction |
Transaction execution date | Transaction settlement date | Currency pair | Amount in base currency | Rate | Amount in quote currency | Fair value as at Dec 31 2008 (PLN ‘000)(3) |
---|---|---|---|---|---|---|---|---|
Grupa LOTOS S.A. | Currency forward | Oct 1 2008 | Feb 10 2009 | EUR/USD | (18,800,000) | 1.4 | 26,647,120 | 623 |
Grupa LOTOS S.A. | Currency forward | Oct 1 2008 | Mar 5 2009 | EUR/USD | (8,000,000 | 1.4 | 11,335,200 | 254 |
Grupa LOTOS S.A. | Currency forward | Oct 3 2008 | Mar 5 2009 | EUR/USD | 7,000,000 | 1.4 | (9,708,300) | 397 |
Grupa LOTOS S.A. | Currency forward | Oct 6 2008 | Mar 5 2009 | EUR/USD | 3,500,000 | 1.4 | (4,755,170) | 491 |
Grupa LOTOS S.A. | Currency forward | Oct 7 2008 | Mar 5 2009 | EUR/USD | 10,000,000 | 1.4 | (13,580,000 | 1,421 |
Grupa LOTOS S.A. | Currency forward | Oct 8 2008 | Feb 13 2009 | EUR/USD | (7,000,000) | 1.4 | 9,608,200 | (694) |
Grupa LOTOS S.A. | Currency forward | Oct 9 2008 | Feb 13 2009 | EUR/USD | (3,000,000) | 1.4 | 4,134,000 | (249) |
Grupa LOTOS S.A. | Currency forward | Oct 14 2008 | Feb 2 2009 | EUR/USD | 7,000,000 | 1.4 | (9,637,600) | 617 |
Grupa LOTOS S.A. | Currency forward | Oct 15 2008 | Feb 2 2009 | USD/PLN | (10,000,000) | 2.6 | 25,735,500 | (3,973) |
Grupa LOTOS S.A. | Currency forward | Oct 20 2008 | Feb 11 2009 | USD/PLN | (4,000,000) | 2.7 | 10,620,000 | (1,275) |
Grupa LOTOS S.A. | Currency forward | Oct 27 2008 | Feb 13 2009 | EUR/USD | 450,000 | 1.2 | (560,835) | 213 |
Grupa LOTOS S.A. | Currency forward | Oct 29 2008 | Apr 30 2009 | USD/PLN | (22,000,000) | 2.9 | 62,733,000 | (3,155) |
Grupa LOTOS S.A. | Currency forward | Oct 30 2008 | Feb 11 2009 | EUR/PLN | 3,000,000 | 3.5 | (10,513,800) | 2,026 |
Grupa LOTOS S.A. | Currency forward | Oct 30 2008 | Apr 30 2009 | USD/PLN | 10,000,000 | 2.7 | (26,800,000) | 3,118 |
Grupa LOTOS S.A. | Currency forward | Oct 30 2008 | Apr 30 2009 | USD/PLN | 5,000,000 | 2.7 | (13,402,500) | 1,556 |
Grupa LOTOS S.A. | Currency forward | Nov 3 2008 | Feb 4 2009 | USD/PLN | (1,300,000) | 2.8 | 3,612,635 | (252) |
Grupa LOTOS S.A. | Currency forward | Nov 3 2008 | Jan 16 2009 | EUR/USD | 25,000,000 | 1.3 | (31,455,250) | 11,081 |
Grupa LOTOS S.A. | Currency forward | Nov 3 2008 | Feb 4 2009 | EUR/PLN | 1,100,000 | 3.6 | (3,928,705) | 668 |
Grupa LOTOS S.A. | Currency forward | Nov 4 2008 | Jan 14 2009 | EUR/USD | 25,000,000 | 1.3 | (31,456,250) | 11,089 |
Grupa LOTOS S.A. | Currency forward | Nov 4 2008 | Feb 12 2009 | EUR/USD | 20,000,000 | 1.3 | (25,526,000) | 7,679 |
Grupa LOTOS S.A. | Currency forward | Nov 4 2008 | Feb 12 2009 | EUR/USD | 6,000,000 | 1.3 | (7,657,800) | 2,304 |
Grupa LOTOS S.A. | Currency forward | Nov 4 2008 | Mar 16 2009 | EUR/USD | 25,000,000 | 1.3 | (31,409,250) | 11,009 |
Grupa LOTOS S.A. | Currency forward | Nov 4 2008 | Mar 17 2009 | EUR/USD | 25,000,000 | 1.3 | (31,408,000) | 11,009 |
Grupa LOTOS S.A. | Currency forward | Nov 12 2008 | Apr 15 2009 | EUR/USD | 30,000,000 | 1.2 | (37,425,000) | 13,857 |
Grupa LOTOS S.A. | Currency forward | Nov 12 2008 | Apr 20 2009 | USD/PLN | (20,000,000) | 3 | 60,524,000 | 623 |
Grupa LOTOS S.A. | Currency forward | Nov 12 2008 | May 15 2009 | EUR/USD | 30,000,000 | 1.2 | (37,416,300) | 13,759 |
Grupa LOTOS S.A. | Currency forward | Nov 12 2008 | May 20 2009 | USD/PLN | (15,000,000) | 3 | 45,474,000 | 411 |
Grupa LOTOS S.A. | Currency forward | Nov 12 2008 | Jun 15 2009 | EUR/USD | 30,000,000 | 1.3 | (37,789,500) | 12,544 |
Grupa LOTOS S.A. | Currency forward | Nov 12 2008 | Jun 19 2009 | USD/PLN | (15,000,000) | 3 | 45,480,000 | 284 |
Grupa LOTOS S.A. | Currency forward | Nov 19 2008 | Feb 11 2009 | USD/PLN | (17,000,000) | 3.1 | 52,450,100 | 1,853 |
Grupa LOTOS S.A. | Currency forward | Nov 20 2008 | Jul 16 2009 | EUR/USD | 5,000,000 | 1.2 | (6,246,250) | 2,226 |
Grupa LOTOS S.A. | Currency forward | Nov 20 2008 | Jul 16 2009 | EUR/USD | 10,000,000 | 1.2 | (12,492,500) | 4,453 |
Grupa LOTOS S.A. | Currency forward | Nov 20 2008 | Jul 17 2009 | USD/PLN | (15,000,000) | 3.1 | 46,605,000 | 1,260 |
Grupa LOTOS S.A. | Currency forward | Nov 20 2008 | Aug 12 2009 | USD/PLN | (15,000,000) | 3.1 | 46,627,500 | 1,181 |
Grupa LOTOS S.A. | Currency forward | Nov 20 2008 | Aug 13 2009 | EUR/USD | 25,000,000) | 1.2 | (31,238,750) | 11,058 |
Grupa LOTOS S.A. | Currency forward | Nov 20 2008 | Sep 11 2009 | USD/PLN | (5,000,000) | 3.1 | 15,550,000 | 364 |
Grupa LOTOS S.A. | Currency forward | Nov 20 2008 | Sep 16 2009 | EUR/USD | 20,000,000 | 1.2 | (24,997,000) | 8,791 |
Grupa LOTOS S.A. | Currency forward | Nov 20 2008 | Oct 9 2009 | USD/PLN | (5,000,000) | 3.1 | 15,557,500 | 339 |
Grupa LOTOS S.A. | Currency forward | Nov 20 2008 | Oct 16 2009 | EUR/USD | 15,000,000 | 1.3 | (18,772,500) | 6,490 |
Grupa LOTOS S.A. | Currency forward | Nov 20 2008 | Nov 16 2009 | EUR/USD | 10,000,000 | 1.3 | (12,516,500) | 4,285 |
Grupa LOTOS S.A. | Currency forward | Nov 20 2008 | Dec 16 2009 | EUR/USD | 25,000,000 | 1.3 | (31,292,500) | 10,618 |
Grupa LOTOS S.A. | Currency forward | Dec 9 2008 | Dec 11 2009 | USD/PLN | 23,500,000 | 3.1 | (72,885,250) | (966) |
Grupa LOTOS S.A. | Currency forward | Dec 9 2008 | Dec 11 2009 | EUR/USD | (2,500,000) | 1.3 | 3,195,000 | (873) |
Grupa LOTOS S.A. | Currency forward | Dec 18 2008 | Jan 7 2009 | USD/PLN | (35,000,000) | 2.8 | 99,455,300 | (4,230) |
Grupa LOTOS S.A. | Currency forward | Dec 18 2008 | Jan 8 2009 | USD/PLN | (30,000,000) | 2.8 | 85,244,400 | (3,640) |
Grupa LOTOS S.A. | Currency forward | Dec 18 2008 | Jan 9 2009 | USD/PLN | (25,000,000) | 2.8 | 71,092,000 | (2,988) |
Grupa LOTOS S.A. | Currency forward | Dec 29 2008 | Jan 15 2009 | EUR/USD | 50,000,000 | 1.4 | (71,345,150) | (2,789) |
Grupa LOTOS S.A. | Currency spot | Dec 31 2008 | Jan 5 2009 | USD/PLN | 2,000,000 | 3 | (5,942,720) | (19) |
Grupa LOTOS S.A. | Currency spot | Dec 31 2008 | Jan 5 2009 | EUR/USD | (1,000,000) | 1.4 | 1,403,780 | (15) |
Grupa LOTOS S.A. | Currency forward | Dec 31 2008 | Jan 14 2009 | USD/PLN | 11,100,000 | 3 | (33,029,160) | (114) |
Grupa LOTOS S.A. | Currency forward | Dec 31 2008 | Jan 14 2009 | EUR/PLN | 3,800,000 | 4.2 | (15,903,000) | (36) |
Grupa LOTOS S.A. | Currency forward | Dec 31 2008 | Jan 15 2009 | USD/PLN | 22,000,000 | 3 | (65,250,900) | (6) |
Grupa LOTOS S.A. | Currency forward | Dec 31 2008 | Jan 15 2009 | USD/PLN | 7,000,000 | 3 | (20,778,100) | (19) |
Grupa LOTOS S.A. | Currency forward | Dec 31 2008 | Mar 16 2009 | USD/PLN | 21,400,000 | 3 | (63,868,300) | (20) |
Grupa LOTOS S.A. | Currency spot | Dec 31 2008 | Jan 2 2009 | USD/PLN | (2,000,000) | 3 | 5,940,000 | 19 |
Grupa LOTOS S.A. | Currency spot | Dec 31 2008 | Jan 2 2009 | EUR/USD | 1,000,000 | 1.4 | (1,404,000) | 15 |
TOTAL, including: |
134,672 | |||||||
positive | 159,985 | |||||||
negative | (25,313) |
Company | Type of transaction | Transaction execution date | Transaction settlement date | Currency pair | Amount in base currency | Rate | Amount in quote currency | Premium settlement date | Premium (PLN ‘000) |
Fair value as at Dec 31 2008 (PLN ‘000)(4) |
---|---|---|---|---|---|---|---|---|---|---|
Grupa LOTOS S.A. | Call option | Aug 8 2008 | Feb 12 2009 | EUR/USD | 50,000,000 | 1.6 | (79,500,000) | 12,08,2008 | (1,563) | 384 |
Grupa LOTOS S.A. | Call option | Aug 11 2008 | Feb 13 2009 | EUR/USD | 100,000,000 | 1.6 | (159,000,000) | 13,08,2008 | (2,900) | 815 |
Grupa LOTOS S.A. | Call option | Aug 11 2008 | Mar 5 2009 | EUR/USD | 60,000,000 | 1.6 | (95,400,000) | 09,09,2008 | (666) | 1,192 |
Grupa LOTOS S.A. | Call option | Oct 20 2008 | Mar 9 2009 | EUR/USD | (60,000,000) | 1.6 | 95,400,000 | 22,10,2008 | 438 | (1,192) |
Grupa LOTOS S.A. | Call option | Oct 27 2008 | Feb 13 2009 | EUR/USD | (15,000,000) | 1.6 | 23,850,000 | 29,10,2008 | 85 | (122) |
Grupa LOTOS S.A. | Call option | Nov 4 2008 | Feb 12 2009 | EUR/USD | (50,000,000) | 1.6 | 79,500,000 | 07,11,2008 | 329 | (385) |
Grupa LOTOS S.A. | Call option | Nov 4 2008 | Feb 13 2009 | EUR/USD | (85,000,000) | 1.6 | 135,150,000 | 07,11,2008 | 600 | (692) |
TOTAL, including: |
(3,677)(5) | - | ||||||||
positive | 1,452 | 2,391 | ||||||||
negative | (5,129) | (2,391) |
(5) As at December 31st 2008, the option premium was presented in net value under derivative financial instruments (see Note 20).
Total currency position of the Parent Undertaking as at December 31st 2008 stood at:
Period | USD/PLN position | EUR/PLN position | ||||
---|---|---|---|---|---|---|
Underlying | Transaction | Total | Underlying | Transaction | Total | |
2009 | 596.635.901 | (598.067.105) | (1.431.204) | (368.983.750) | 372.550.000 | 3.566.250 |
Open currency transactions as at December 31st 2007:
Company | Type of transaction | Transaction execution date | Transaction settlement date | Currency pair | Amount in base currencyj | Rate | Amount in quote currency | Fair value as at Dec 31 2007 (PLN ‘000)(3) |
---|---|---|---|---|---|---|---|---|
Grupa LOTOS S.A. | Currency forward | Dec 6 2007 | Jan 7 2008 | EUR/USD | 20,000,000 | 1.5 | (29,218,000) | 496 |
Grupa LOTOS S.A. | Currency forward | Dec 6 2007 | Jan 10 2008 | EUR/USD | 10,000,000 | 1.5 | (14,559,220) | 370 |
Grupa LOTOS S.A. | Currency forward | Dec 7 2007 | Jan 11 2008 | EUR/PLN | 8,500,000 | 3.6 | (30,449,040) | 5 |
Grupa LOTOS S.A. | Currency forward | Dec 10 2007 | Jan 14 2008 | EUR/USD | 20,000,000 | 1.5 | (29,390,200) | 83 |
Grupa LOTOS S.A. | Currency forward | Dec 10 2007 | Jan 14 2008 | EUR/USD | 20,000,000 | 1.5 | (29,388,200) | 88 |
Grupa LOTOS S.A. | Currency forward | Dec 10 2007 | Jan 17 2008 | EUR/USD | 40,000,000 | 1.5 | (58,766,120) | 208 |
Grupa LOTOS S.A. | Currency forward | Dec 14 2007 | Jan 11 2008 | EUR/PLN | (8,500,000) | 3.6 | 30,654,400 | 200 |
Grupa LOTOS S.A. | Currency forward | Dec 14 2007 | Jan 18 2008 | USD/PLN | (30,000,000) | 2.5 | 74,577,000 | 1,501 |
Grupa LOTOS S.A. | Currency forward | Dec 14 2007 | Jan 22 2008 | USD/PLN | (30,000,000) | 2.5 | 74,580,000 | 1,498 |
Grupa LOTOS S.A. | Currency forward | Dec 19 2007 | Feb 4 2008 | USD/PLN | (30,000,000) | 2.5 | 75,483,000 | 2,375 |
Grupa LOTOS S.A. | Currency forward | Dec 19 2007 | Feb 4 2008 | USD/PLN | (18,000,000) | 2.5 | 45,199,800 | 1,336 |
Grupa LOTOS S.A. | Currency forward | Dec 19 2007 | Feb 6 2008 | USD/PLN | (50,000,000) | 2.5 | 125,740,000 | 3,887 |
Grupa LOTOS S.A. | Currency forward | Dec 19 2007 | Feb 27 2008 | USD/PLN | (40,000,000) | 2.5 | 100,600,000 | 3,055 |
Grupa LOTOS S.A. | Currency forward | Dec 19 2007 | Feb 27 2008 | USD/PLN | (20,000,000) | 2.5 | 50,320,000 | 1,547 |
Grupa LOTOS S.A. | Currency forward | Dec 19 2007 | Feb 15 2008 | EUR/PLN | (25,000,000) | 3.6 | 90,527,500 | 856 |
Grupa LOTOS S.A. | Currency forward | Dec 19 2007 | Feb 29 2008 | EUR/PLN | (50,000,000) | 3.6 | 181,092,500 | 1,694 |
Grupa LOTOS S.A. | Currency forward | Dec 19 2007 | Feb 29 2008 | USD/PLN | (48,000,000) | 2.5 | 120,816,000 | 3,754 |
Grupa LOTOS S.A. | Currency forward | Dec 19 2007 | Jan 16 2008 | EUR/USD | 50,000,000 | 1.4 | (72,035,000) | 3,714 |
Grupa LOTOS S.A. | Currency forward | Dec 19 2007 | Jan 16 2008 | EUR/USD | 50,000,000 | 1.4 | (72,006,000) | 3,784 |
Grupa LOTOS S.A. | Currency forward | Dec 19 2007 | Jan 9 2008 | EUR/USD | 50,000,000 | 1.4 | (72,034,,250) | 3,701 |
Grupa LOTOS S.A. | Currency forward | Dec 19 2007 | Jan 25 2008 | EUR/USD | 50,000,000 | 1.4 | (71,989,000) | 3,846 |
Grupa LOTOS S.A. | Currency forward | Dec 19 2007 | Feb 11 2008 | EUR/USD | 50,000,000 | 1.4 | (72,044,750) | 3,724 |
Grupa LOTOS S.A. | Currency forward | Dec 19 2007 | Feb 19 2008 | EUR/USD | 40,000,000 | 1.4 | (57,596,000) | 3,066 |
Grupa LOTOS S.A. | Currency forward | Dec 19 2007 | Feb 20 2008 | EUR/USD | 50,000,000 | 1.4 | (72,030,000) | 3,747 |
Grupa LOTOS S.A. | Currency forward | Dec 19 2007 | Feb 28 2008 | EUR/USD | 40,000,000 | 1.4 | (57,606,000) | 3,032 |
Grupa LOTOS S.A. | Currency forward | Dec 19 2007 | Jan 23 2008 | EUR/USD | 40,000,000 | 1.4 | (57,570,000) | 3,125 |
Grupa LOTOS S.A. | Currency forward | Dec 19 2007 | Feb 29 2008 | EUR/PLN | 25,000,000 | 3.6 | (90,562,500) | (863) |
Grupa LOTOS S.A. | Currency forward | Dec 19 2007 | Feb 29 2008 | USD/PLN | 24,000,000 | 2.5 | (60,434,400) | (1,903) |
Grupa LOTOS S.A. | Currency forward | Dec 19 2007 | Jan 29 2008 | EUR/USD | 20,000,000 | 1.4 | (28,794,600) | 1,545 |
Grupa LOTOS S.A. | Currency forward | Dec 20 2007 | Feb 22 2008 | USD/PLN | (50,000,000) | 2.5 | 126,620,000 | 4,700 |
Grupa LOTOS S.A. | Currency forward | Dec 20 2007 | Jan 8 2008 | USD/PLN | (30,000,000) | 2.5 | 75,762,000 | 2,701 |
Grupa LOTOS S.A. | Currency forward | Dec 20 2007 | Feb 28 2008 | EUR/PLN | (45,000,000) | 3.6 | 162,851,850 | 1,398 |
Grupa LOTOS S.A. | Currency forward | Dec 20 2007 | Feb 8 2008 | USD/PLN | (32,000,000) | 2.5 | 80,849,600 | 2,857 |
Grupa LOTOS S.A. | Currency forward | Dec 20 2007 | Feb 8 2008 | USD/PLN | (25,000,000) | 2.5 | 63,057,500 | 2,126 |
Grupa LOTOS S.A. | Currency forward | Dec 20 2007 | Feb 14 2008 | EUR/PLN | (7,000,000) | 3.6 | 25,328,800 | 221 |
Grupa LOTOS S.A. | Currency forward | Dec 20 2007 | Feb 14 2008 | USD/PLN | (20,000,000) | 2.5 | 50,452,000 | 1,698 |
Grupa LOTOS S.A. | Currency forward | Dec 20 2007 | Feb 29 2008 | EUR/USD | 20,000,000 | 1.4 | (28,745,400) | 1,654 |
Grupa LOTOS S.A. | Currency forward | Dec 21 2007 | Jan 28 2008 | EUR/PLN | (50,000,000) | 3.6 | 180,997,500 | 1,742 |
Grupa LOTOS S.A. | Currency forward | Dec 21 2007 | Feb 21 2008 | EUR/PLN | (20,000,000) | 3.6 | 72,480,000 | 733 |
Grupa LOTOS S.A. | Currency forward | Dec 21 2007 | Jan 31 2008 | EUR/USD | 50,000,000 | 1.4 | (71,930,000) | 4,003 |
Grupa LOTOS S.A. | Currency forward | Dec 21 2007 | Feb 25 2008 | USD/PLN | (50,000,000) | 2.5 | 124,073,300 | 2,163 |
Grupa LOTOS S.A. | Currency forward | Dec 27 2007 | Feb 26 2008 | USD/PLN | (50,000,000) | 2.5 | 124,075,500 | 2,162 |
Grupa LOTOS S.A. | Currency forward | Dec 27 2007 | Jan 7 2008 | EUR/PLN | (10,000,000) | 3.6 | 36,096,000 | 271 |
Grupa LOTOS S.A. | Currency forward | Dec 27 2007 | Feb 13 2008 | EUR/USD | 50,000,000 | 1.4 | (72,452,250) | 2,735 |
Grupa LOTOS S.A. | Currency forward | Dec 28 2007 | Jan 9 2008 | EUR/PLN | (10,000 000) | 3.6 | 36,055,890 | 229 |
Grupa LOTOS S.A. | Currency spot | Dec 28 2007 | Jan 2 2008 | EUR/PLN | (3,500,000) | 3.6 | 12,607,000 | 70 |
TOTAL, including: | 84,934 | |||||||
positive | 87,700 | |||||||
negative | (2,766) |
3) Fair value of currency forwards is established by reference to future discounted cash flows connected with the transactions, calculated on the basis of the difference between the forward rate and the transaction price. The forward rate is calculated on the basis of the fixing rate quotations of the National Bank of Poland and the implied interest rate curve based on fx swaps (for 2007, the zero-coupon interest rate curve was used).
4) Apart from the parameters used in the valuation of currency forwards, implied volatility is additionally taken into account in calculating the value of currency options.
Total currency position of the Parent Undertaking as at December 31st 2007 stood at:
Period | USD/PLN position | EUR/PLN position | ||||
---|---|---|---|---|---|---|
Underlying | Transaction | Total | Underlying | Transaction | Total | |
2008 | 1,412,625,827 | (1,467,154,990) | (54,529,163) | (416,912,999) | 474,500,000 | 57,587,001 |
Companies from the LOTOS Group entered into transactions with a view to hedging their revenue from export sales, generated in the euro.
Open currency transactions as at December 31st 2008 stood at:
Company | Type of transaction | Transaction execution date | Transaction settlement date | Currency pair | Amount in base currency | Rate | Amount in quote currency | Fair value as at Dec 31 2008 (PLN ‘000) |
---|---|---|---|---|---|---|---|---|
LOTOS Asfalt Sp. z o.o. |
Currency forward | Jul 8 2008 | Jul 10 2009 | EUR/PLN | (3,000,000) | 3.3 | 9,984,000 | (2,623) |
LOTOS Asfalt Sp. z o.o. |
Currency forward | Dec 1 2008 | Jan 2 2009 | EUR/PLN | (155,000) | 3.8 | 595,510 | (51) |
LOTOS Asfalt Sp. z o.o. |
Currency forward | Dec 3 2008 | Jan 5 2009 | EUR/PLN | (388,000) | 3.8 | 1,491,860 | (128) |
LOTOS Asfalt Sp. z o.o. |
Currency forward | Dec 8 2008 | Jan 9 2009 | EUR/PLN | (305,000) | 3.9 | 1,182,333 | (91) |
LOTOS Asfalt Sp. z o.o. |
Currency forward | Dec 10 2008 | Jan 12 2009 | EUR/PLN | (168,000) | 4 | 665,112 | (36) |
LOTOS Asfalt Sp. z o.o. |
Currency forward | Dec 11 2008 | Jan 13 2009 | EUR/PLN | (250,000) | 4 | 992,750 | (52) |
LOTOS Asfalt Sp. z o.o. |
Currency forward | Dec 22 2008 | Jan 23 2009 | EUR/PLN | (469,000) | 4.1 | 1,925,949 | (35) |
TOTAL, including: | (3,016) | |||||||
positive | - | |||||||
negative | (3,016) |
Company | Type of transaction | Transaction execution date | Transaction settlement date | Currency pair | Amount in base currency | Rate | Amount in quote currency | Fair value as at Dec 31 2008 (PLN ‘000) |
---|---|---|---|---|---|---|---|---|
LOTOS Parafiny Sp. z o.o. |
Put option | Oct 16 2008 | Jan 28 2009 | EUR/PLN | 300,000 | 3.6 | 1,080,000 | 1 |
LOTOS Parafiny Sp. z o.o. |
Put option | Oct 16 2008 | Feb 25 2009 | EUR/PLN | 300,000 | 3.6 | 1,078,500 | 4 |
LOTOS Parafiny Sp. z o.o. |
Put option | Oct 16 2008 | Mar 27 2009 | EUR/PLN | 300,000 | 3.6 | 1,077,000 | 8 |
LOTOS Parafiny Sp. z o.o. |
Put option | Oct 16 2008 | Apr 28 2009 | EUR/PLN | 300,000 | 3.6 | 1,074,000 | 11 |
LOTOS Parafiny Sp. z o.o. |
Put option | Oct 16 2008 | May 27 2009 | EUR/PLN | 300,000 | 3.6 | 1,072,500 | 14 |
LOTOS Parafiny Sp. z o.o. |
Put option | Oct 16 2008 | Jun 18 2009 | EUR/PLN | 300,000 | 3.6 | 1,071,000 | 16 |
LOTOS Parafiny Sp. z o.o. |
Call option | Oct 16 2008 | Jan 28 2009 | EUR/PLN | (600,000) | 3.6 | 2,160,000 | (402) |
LOTOS Parafiny Sp. z o.o. |
Put option | Oct 16 2008 | Jan 28 2009 | EUR/PLN | (300,000) | 3.6 | 1,068,000 | (1) |
LOTOS Parafiny Sp. z o.o. |
Call option | Oct 16 2008 | Feb 25 2009 | EUR/PLN | (600,000) | 3.6 | 2,157,000 | (412) |
LOTOS Parafiny Sp. z o.o. |
Put option | Oct 16 2008 | Feb 25 2009 | EUR/PLN | (300,000) | 3.6 | 1,068,000 | (4) |
LOTOS Parafiny Sp. z o.o. |
Call option | Oct 16 2008 | Mar 27 2009 | EUR/PLN | (600,000) | 3.6 | 2,154,000 | (423) |
LOTOS Parafiny Sp. z o.o. |
Put option | Oct 16 2008 | Mar 27 2009 | EUR/PLN | (300,000) | 3.6 | 1,068,000 | (7) |
LOTOS Parafiny Sp. z o.o. |
Call option | Oct 16 2008 | Apr 28 2009 | EUR/PLN | (600,000) | 3.6 | 2,148,000 | (437) |
LOTOS Parafiny Sp. z o.o. |
Put option | Oct 16 2008 | Apr 28 2009 | EUR/PLN | (300,000) | 3.6 | 1,068,000 | (10) |
LOTOS Parafiny Sp. z o.o. |
Call option | Oct 16 2008 | 2009,05,27 | EUR/PLN | (600,000) | 3.6 | 2,145,000 | (448) |
LOTOS Parafiny Sp. z o.o. |
Put option | Oct 16 2008 | May 27 2009 | EUR/PLN | (300,000) | 3.6 | 1,068,000 | (13) |
LOTOS Parafiny Sp. z o.o. |
Call option | Oct 16 2008 | Jun 18 2009 | EUR/PLN | (600,000) | 3.6 | 2,142,000 | (457) |
LOTOS Parafiny Sp. z o.o. |
Put option | Oct 16 2008 | Jun 18 2009 | EUR/PLN | (300,000) | 3.6 | 1,068,000 | (15) |
TOTAL, including: | (2,575) | |||||||
positive | 54 | |||||||
negative | (2,629) |
Open currency transactions as at December 31st 2008 stood at:
Company | Type of transaction | Transaction execution date | Transaction settlement date | Currency pair | Amount in base currency | Rate | Amount in quote currency | Fair value as at Dec 31 2007 (PLN ‘000) |
---|---|---|---|---|---|---|---|---|
LOTOS Gaz S.A. |
Currency forward | Dec 3 2007 | Jan 4 2008 | USD/PLN | (100,000) | 2.8 | 282,720 | (39) |
LOTOS Gaz S.A. |
Currency forward | Dec 7 2007 | Jan 7 2008 | USD/PLN | (100,000) | 2.8 | 278,500 | (35) |
LOTOS Gaz S.A. |
Currency forward | Dec 21 2007 | Feb 21 2008 | USD/PLN | (100,000) | 2.8 | 283,080 | (40) |
LOTOS Gaz S.A. |
Currency forward | Dec 21 2007 | Jan 21 2008 | USD/PLN | (100,000) | 2.8 | 278,410 | (35) |
TOTAL, including: | (149) | |||||||
positive | - | |||||||
negative | (149) |
Interest Rate Risk
The base map of interest rate positions reflects the planned schedule of drawdowns and repayments under the loan extended to finance inventory and the implementation of the 10+ Programme. The interest rate risk is connected with the interest calculated on the basis of a floating rate (LIBOR USD). The structure of limits is based on the underlying’s nominal value hedge ratio. In a long-term perspective, a partial risk mitigation effect was achieved through the choice of a fixed interest rate for the SACE sub-tranche under the investment loan granted to finance the 10+ Programme.
The agreement on the financing of the 10+ Programme provides for the obligation to maintain a specified hedge ratio for the interest rate risk, i.e. the risk connected with the LIBOR USD floating interest rate on the loan to finance the 10+ Programme in the period until mid-2011. The obligation to maintain a specified level of the hedge ratio is connected with the necessity to guarantee that the loan amounts disbursed will be sufficient to finance the investment expenditure, including the costs of financing throughout the time of execution of the investment projects, irrespective of any changes in the interest rates prevailing on the market.
As at December 31st 2008, the estimated underlying interest rate position stood at (in USD):
Period | Underlying position |
---|---|
2009 | (1,465,046,833) |
2010 | (1,733,870,372) |
2011 | (1,752,351,666) |
2012 | (1,323,175,000) |
2013 | (1,240,750,000) |
2014 | (1,144,955,000) |
2015 | (1,032,745,000) |
2016 | (914,130,000) |
2017 | (791,805,000) |
2018 | (658,210,000) |
2019 | (508,060,000) |
2020 | (356,965,000) |
The underlying interest rate position as at December 31st 2007 was not identified, due to the fact that there was no management of the interest rate risk.
In connection with its obligation to maintain the hedge ratio prescribed in the loan agreement and given its intention to partly mitigate the interest rate risk which is not covered by mandatory hedges, Grupa LOTOS S.A. executed hedging transactions. However, due to the collapse of the financial markets in Q4 2008 and the anticipated further decline of the yield curve in the USD, the Company decided not to enter into further hedging transactions in order to benefit from a drop of interest rates on the unhedged portion of the risk.
Open interest rate transactions as at December 31st 2008:
Company | Type of transaction | Transaction execution date | Beginning of period | End of period | Nominal value (USD) | Company pays | Company receives | Fair value as at Dec 31 2008 (PLN ‘000)(6) |
---|---|---|---|---|---|---|---|---|
Grupa LOTOS S.A. | Interest rate swap (IRS) | May 9 2008 | Oct 15 2008 | Jun 30 2011 | 50,000,000 | 3.40% | LIBOR 6M | (5,912) |
Grupa LOTOS S.A. | Interest rate swap (IRS) | May 13 2008 | Oct 15 2008 | Jun 30 2011 | 50,000,000 | 3.60% | LIBOR 6M | (6,515) |
Grupa LOTOS S.A. | Interest rate swap (IRS) | May 16 2008 | Oct 15 2008 | Jun 30 2011 | 100,000,000 | 3.70% | LIBOR 6M | (13,494) |
Grupa LOTOS S.A. | Interest rate swap (IRS) | Jun 4 2008 | Jul 15 2009 | Jun 30 2011 | 122,000,000 | 4.10% | LIBOR 6M | (16,271) |
Grupa LOTOS S.A. | Interest rate swap (IRS) | Jun 4 2008 | Oct 15 2008 | Jun 30 2011 | 208,000,000 | 3.80% | LIBOR 6M | (30,172) |
Grupa LOTOS S.A. | Interest rate swap (IRS) | Jun 26 2008 | Jan 15 2009 | Jun 30 2011 | 100,000,000 | 4.30% | LIBOR 6M | (18,803) |
Grupa LOTOS S.A. | Interest rate swap (IRS) | Jun 27 2008 | Jul 15 2009 | Jun 30 2011 | 150,000,000 | 4.30% | LIBOR 6M | (22,190) |
Grupa LOTOS S.A. | Interest rate swap (IRS) | Sep 5 2008 | Oct 15 2008 | Jan 15 2013 | 100,000,000 | 3.80% | LIBOR 6M | (20,121) |
Grupa LOTOS S.A. | Interest rate swap (IRS) | Sep 16 2008 | Jan 15 2009 | Jan 15 2013 | 100,000,000 | 3.50% | LIBOR 6M | (17,678) |
Grupa LOTOS S.A. | Interest rate swap (IRS) | Sep 19 2008 | Jan 15 2009 | Jan 15 2013 | (100,000,000) | 4.00% | LIBOR 6M | 22 848 |
Grupa LOTOS S.A. | Interest rate swap (IRS) | Oct 7 2008 | Jan 15 2009 | Jan 15 2013 | 100,000,000 | 3.50% | LIBOR 6M | (17,333) |
Grupa LOTOS S.A. | Interest rate swap (IRS) | Oct 8 2008 | Jul 15 2011 | 1Jan 15 2013 | 100,000,000 | 4.20% | LIBOR 6M | (7,044) |
TOTAL, including: | (152,685) | |||||||
positive | 22,848 | |||||||
negative | (175,533) |
Company | Type of transaction | Transaction execution date | Beginning of period | End of period | Nominal value (USD) | Company pays | Company receives | Fair value as at Dec 31 2008 (PLN ‘000)(6) |
---|---|---|---|---|---|---|---|---|
Grupa LOTOS S.A. | Forward rate agreement (FRA) | 07.10.2008 | 15.01.2009 | 15.07.2009 | 100,000,000 | 2.50% | LIBOR 6M | (1,733) |
TOTAL | (1,733) |
5) Fair value of FRAs is established by reference to future discounted cash flows connected with the transactions, calculated on the basis of the difference between the forward rate and the transaction price. The forward rate is calculated on the basis of the zero-coupon interest rate curve.
Total interest rate position as at December 31st 2008 stood at:
Period | Underlying position | Fixed interest rate loans | Transaction position | Total position | Hedge ratio |
---|---|---|---|---|---|
2009 | (1,465,046,833) | 307,798,312 | 894,000,000 | (263,248,521) | 82% |
2010 | (1,733,870,372) | 401,860,932 | 980,000,000 | (352,009,440) | 80% |
2011 | (1,752,351,666) | 420,654 375 | 640,000,000 | (691,697,291) | 61% |
2012 | (1,323,175,000) | 401,678,125 | 300,000,000 | (621,496,875) | 53% |
2013 | (1,240,750,000) | 376,656,250 | - | (864,093,750) | 30% |
2014 | (1,144,955,000) | 347,575,625 | - | (797,379,375) | 30% |
2015 | (1,032,745,000) | 313,511,875 | - | (719,233,125) | 30% |
2016 | (914,130,000) | 277,503,750 | - | (636,626,250) | 30% |
2017 | (791,805,000) | 240,369,375 | - | (551,435,625) | 30% |
2018 | (658,210,000) | 199,813,750 | - | (458,396,250) | 30% |
2019 | (508,060,000) | 154,232,500 | - | (353,827,500) | 30% |
2020 | (356,965,000) | 108,364,375 | - | (248,600,625) | 30% |
To optimise the interest balance, the cashpooling service for the LOTOS Group members is used. The service consists in the application of favourable interest rates for debit and credit balances, which are subject to offsetting as at the end of each business day.
Liquidity Risk
The liquidity risk management process at the Group consists in monitoring the forecast cash flows, matching maturities of assets and liabilities, analysing working capital and maintaining access to various financing sources.
In the period covered by the budget, liquidity at the Parent Undertaking is monitored on an ongoing basis as part of the financial risk management. In the mid and long term, it is monitored as part of the planning process, which helps create a long-term financial strategy.
In the area of financial risk, in addition to an active management of market risk, the Parent Undertaking follows the following rules with respect to liquidity management:
- employs no margins with respect to trade in derivatives on the over-the-counter market,
- limits the possibility of an early termination of financial transactions,
- establishes limits for spot financial instruments of low liquidity,
- establishes credit limits for counterparties in financial transactions.
Note 24 presents additional free cash remaining at the Group’s disposal. Note 30 contains information on the contractual maturities of financial liabilities as at December 31st 2008 and December 31st 2007.
Credit Risk
Management of credit risk relating to counterparties in financial transactions consists in ongoing monitoring of credit exposure in relation to the limits granted. The counterparties must have an appropriate credit rating assigned by leading rating agencies or hold guarantees granted by institutions meeting the minimum rating requirement. The Group enters into financial transactions with well-established firms with good credit standing.
As at December 31st 2008, the concentration of credit risk with respect to a single counterparty in financial transactions did not exceed 3% of the Parent Undertaking’s balance-sheet total.
As regards management of credit risk relating to counterparties in trade transactions, all customers requesting trade credit undergo verification of their financial reliability, whose results determine the level of credit limits to be granted. Furthermore, due to the fact that the Group’s receivables are monitored on an ongoing basis, the risk of it holding uncollectible receivables is low.
Carrying values of financial assets represent the maximum credit exposure. The maximum credit risk exposure as at the balance-sheet date stood at:
PLN ‘000 | Dec 31 2008 | Dec 31 2007 |
---|---|---|
(audited) | (audited) | |
Shares: | 11,041 | 8,178 |
- non-current | 9,917 | 8,093 |
- current | 1,124 | 85 |
Prepayments for shares | 25,332 | 23,117 |
Derivative financial instruments | 302,304 | 96,099 |
Decommissioning fund | 16,599 | 13,443 |
Loans: | - | 58 |
- non-current | - | 17 |
- current | - | 41 |
Trade and other receivables: | 1,260,660 | 1,461,080 |
- non-current | 9,152 | 12,668 |
- current | 1,251,508 | 1,448,412 |
Cash and cash equivalents | 712,801 | 924,995 |
Total | 2,328,737 | 2,526,970 |
The aged analysis of past due financial assets as at December 31st 2008 and as at December 31st 2007 is shown in Note 23.
21.4. Sensitivity Analysis with Respect to Market Risk Related
to Fluctuations in FX Rates, Interest Rates, Prices of Carbon (CO2)
Allowances and Prices of Raw Materials and Petroleum Products
Below is presented an analysis of the Group’s sensitivity to currency risk as at December 31st 2008, along with the effect of such a risk on the financial performance, assuming a 4% increase or decrease in the USD/PLN and EUR/PLN currency exchange rates and constant levels of all other variables:
Dec 31 2008 (audited) PLN ‘000 |
Note | Carrying value in a foreign currency, translated into PLN as at the balance-sheet day | 4% increase in exchange rate, effect on year’s result |
4% decrease in exchange rate, effect on year’s result |
||
---|---|---|---|---|---|---|
USD | EUR | USD | EUR | |||
Trade and other receivables | 23 | 102,989 | 2,565 | 1,555 | (2,565) | (1,555) |
Financial assets – derivative financial instruments | 20 | 302,304 | (53,808) | 54,808 | 53,808 | (54,808) |
Cash and cash equivalents | 24 | 107,347 | 3,269 | 1,025 | (3,269) | (1,025) |
Trade and other payables | 33 | (230,745) | (2,613) | (6,616) | 2,613 | 6,616 |
Loans | 30 | (3,198,294) | (126,508) | (1,012) | 126,508 | 1,012 |
Financial liabilities – derivative financial instruments | 32 | (218,526) | (18,506) | 6,507 | 18,506 | (6,507) |
Total | (3,134,925) | (195,601) | 56,267 | 195,601 | (56,267) |
As at December 31st 2008, the Parent Undertaking held futures for the purchase of CO2 EU emission allowances (EUA), measured at fair value as at the balance-sheet date.
As at December 31st 2008, the financial assets related to positive valuation of the futures for the purchase of CO2 emission allowances amounted to PLN 15 thousand.
As at December 31st 2008, the financial liabilities related to negative valuation of those futures were PLN 1 thousand.
A change in the price of the CO2 emission allowances up by 10% or down (by 10%) could potentially lead to a change in the valuation of the fair value of financial assets and liabilities related to the futures for the purchase of CO2 emission allowances of PLN 584 (584) thousand.
As at December 31st 2008, the Parent Undertaking held OTC full barrel swaps, measured at fair value as at the balance-sheet date.
As at December 31st 2008, the financial assets related to positive valuation of the full barrel swap amounted to PLN 113,334 thousand
As at December 31st 2008, the financial liabilities related to negative valuation of the full barrel swap were PLN 7,910 thousand.
A change in the values of the indices included in the full barrel swap up by 10% or down (by 10%) could potentially lead to a change in the valuation of the fair value of financial assets and liabilities related to the full barrel swap recognised in the income statement of PLN (16,655) 16,655 thousand.
Below is presented an analysis of the Group’s sensitivity to currency risk as at December 31st 2007, along with the effect of such a risk on the financial performance, assuming a 1% increase or decrease in the USD/PLN and EUR/PLN currency exchange rates and constant levels of all other variables:
Dec 31 2007 (audited) PLN ‘000 |
Note | Carrying value in a foreign currency, translated into PLN as at the balance-sheet day | 1% increase in exchange rate, effect on year’s result |
1% decrease in exchange rate, effect on year’s result |
||
---|---|---|---|---|---|---|
USD | EUR | USD | EUR | |||
Trade and other receivables | 23 | 186,284 | 1,629 | 234 | (1,629) | (234) |
Financial assets – derivative financial instruments | 20 | 96,099 | (36,225) | 16,058 | 36,225 | (16,058) |
Cash and cash equivalents | 24 | 161,871 | 1,290 | 329 | (1,290) | (329) |
Trade and other payables | 33 | (715,476) | (6,794) | (361) | 6,794 | 361 |
Loans | 30 | (596,491) | (5,665) | (300) | 5,665 | 300 |
Financial liabilities – derivative financial instruments | 32 | (3,906) | 583 | 892 | (583) | (892) |
Total | (871,619) | (45,182) | 16,852 | 45,182 | (16,852) |
As at December 31st 2007, the Parent Undertaking held futures for the purchase of CO2 EU emission allowances (EUA), measured at fair value as at the balance-sheet date.
As at December 31st 2007, the financial assets related to positive valuation of the futures for the purchase of CO2 emission allowances amounted to PLN 388 thousand.
As at December 31st 2007, the financial liabilities related to negative valuation of those futures were PLN 251 thousand.
A change in the price of the CO2 emission allowances up by 1% or down (by 1%) could potentially lead to a change in the valuation of the fair value of financial assets and liabilities related to the futures for the purchase of CO2 emission allowances of PLN 165 (165) thousand.
As at December 31st 2007, the Parent Undertaking held OTC full barrel swaps, measured at fair value as at the balance-sheet date.
As at December 31st 2007, the financial assets related to positive valuation of the full barrel swap amounted to PLN 8,011 thousand.
As at December 31st 2007, the financial liabilities related to negative valuation of the full barrel swap were PLN 740 thousand.
A change in the value of the indices included in the full barrel swap up 1% or down (by 1%) could potentially lead to a change in the valuation of the fair value of financial assets and liabilities related to the full barrel swap recognised in the income statement of PLN 2,148 (2,148) thousand.
Below is presented an analysis of the Group’s sensitivity to interest rate risk as at December 31st 2008, assuming a 0.2% increase or decrease in the interest rate:
Dec 31 2008 (audited) PLN ‘000 |
Note | Carrying value | Change | |
---|---|---|---|---|
0.20% | -0.20% | |||
Borrowings | 19, 20 | - | - | - |
Decommissioning fund | 19 | 16,599 | 33 | (33) |
Cash and cash equivalents | 24 | 712,801 | 1,426 | (1,426) |
Loans and borrowings | 30 | (3,919,605) | (7,839) | 7,839 |
Lease liabilities | 32 | (1,415) | (3) | 3 |
Financial liabilities – derivative financial instruments (1) | 32 | (154,418) | 16,387 | (16,387) |
Total | (3,346,038) | 10,004 | (10,004) |
(1) Including interest rate swaps (IRS) and forward rate agreements (FRA).
As at December 31st 2008, the carrying value of financial assets and liabilities (borrowings, cash, financial liabilities under bank loans) which are sensitive to interest rate risk amounted to PLN (3,346,038) thousand net.
A change in interest rates up by 0.2% or down (by 0.2%) could potentially lead to a net change in the value of financial assets and liabilities as at December 31st 2008 of PLN 10,004 (10,004) thousand.
Below is presented an analysis of the Group’s sensitivity to interest rate risk as at December 31st 2007, assuming a 1% increase or decrease in the interest rate:
As at December 31st 2007, the net carrying value of financial assets and liabilities (borrowings, cash, financial liabilities under bank loans) which are sensitive to interest rate risk amounted to PLN (423,268) thousand.
A change in interest rates up by 1% or down (by 1%) could potentially lead to a net change in the value of financial assets and liabilities as at December 31st 2007 of PLN (4,232), 4,232 thousand net.
Dec 31 2008 (audited) PLN ‘000 |
Note | Carrying value | Change | |
---|---|---|---|---|
1% increase | 1% decrease | |||
Borrowings | 19,20 | 58 | 1 | (1) |
Decommissioning fund | 19 | 13,443 | 134 | (134) |
Cash and cash equivalents | 24 | 924,995 | 9,250 | (9,250) |
Loans and borrowings | 30 | (1,360,136) | (13,601) | 13,601 |
Lease liabilities | 32 | (1,628) | (16) | 16 |
Financial liabilities – derivative financial instruments | 32 | - | - | - |
Total | (423,268) | (4,232) | 4,232 |
As at December 31st 2007, the net carrying value of financial assets and liabilities (borrowings, cash, financial liabilities under bank loans) which are sensitive to interest rate risk amounted to PLN (423,268) thousand.
A change in interest rates up by 1% or down (by 1%) could potentially lead to a net change in the value of financial assets and liabilities as at December 31st 2007 of PLN (4,232), 4,232 thousand net.