10.1.1.1.2 Impairment testing of assets covered by the remedies

As a result of the conditional agreements for the sale of LOTOS assets (see Note 2.1), as at December 31st 2021 the Group analysed the indications of impairment of the assets covered by the remedies.

The analysis identified the need to test for impairment some of the assets, i.e., the assets of LOTOS Terminale S.A., LOTOS Infrastruktura S.A. and RCEkoenergia Sp. z o.o. (jointly “logistics assets”) and refining assets, in order to assess their value in use.

Given the conditional nature of the sale agreements, the value of the tested assets was measured using the scenario method, i.e., taking into account the estimated value in use of the assets generated in the course of the LOTOS Group’s day-to-day operations (the “base-case scenario”) and at the value in use resulting from estimating future cash flows taking into account the execution of final asset sale agreements and other agreements governing future cooperation with the investors (the “transaction scenario”). The asset value-in-use forecast was developed using the most current financial projections, and the scenarios were assigned appropriate weights based on an assessment of the likelihood of their occurrence.

The key macroeconomic assumptions adopted to assess the value of the assets include forecasts of foreign exchange rates, inflation, oil and natural gas prices and cracks, based on current market scenarios. In this respect, the detailed forecast period includes forecasts until 2026. Beyond 2026, it is assumed that macroeconomic fundamentals are not volatile in the long term, and continue at the 2026 level, taking into account the impact of inflation on the price level. For logistics assets, the assumptions take into account the current trading conditions and rules of settlement applied with respect to utilities and services, adjusted for inflation.

The pre-tax discount rates used were estimated using the CAPM method and taking into account the nature of the tested assets. The rates are:

• 6,40% – LOTOS Terminals S.A.
• 5,80% – LOTOS Infrastruktura S.A.,
• 7,37% – RCEkoenergia Sp. z o.o.,
• 8,85% – Refining assets.

No impairment losses were recognised in respect of the refining assets. Given the significant impact of the transaction scenario on the test results, a need to recognise PLN 127.0m impairment losses on the logistics assets of: LOTOS Terminale S.A. and RCEkoenergia Sp. z o.o. was identified. The value in use of the impaired tested assets, net of the impairment losses, is PLN 20.8m.

The results of the tests are mainly sensitive to the assumed discount rate and projected EBITDA. A 0.5 pp change in the discount rate results in a +/- PLN 8m change in the test result. A 5% change in the projected annual EBITDA of the companies with impaired assets results in a PLN +/- 7m change in the test result.