In its operations the Group is exposed to currency risks related to:

  • trading in raw materials, petroleum products and other commodities,
  • investment cash flows,
  • cash flows from financing activities, including deposits and borrowings,
  • valuation of derivative instruments,
  • indexed to or denominated in a currency other than the functional currency.

Currency risk is managed by the Parent in line with the assumptions of the Grupa LOTOS S.A. Currency Risk Management Policy. Under the policy, exposure is understood as material positions exposed to currency risk, affecting liquidity within the management horizon when the risk arises. The central risk metric is Cash-Flow-at-Risk (CFaR), computed based on the CorporateMetrics™ methodology, with the CFaR value limit and the maximum hedge ratio being the key limits. The exposure management horizon is linked with the budget forecast horizon, which varies from three to six consecutive quarters depending on the time of the year.

The Group actively manages its currency exposure by optimising the expected values of cash flows and risk within applicable limits, taking into account expected market developments.

As USD is used in market price quotations for crude oil and petroleum products, it was decided that USD is the most appropriate currency for contracting and repaying long-term credit facilities as this would reduce the structural long position and, consequently, also the strategic currency risk.

The Group has a structural long position in USD (it benefits from a rise in the USD/PLN exchange rate) as its cash inflows dependent on the USD exchange rate (mainly revenue from sale of petroleum products) are higher than the corresponding cash outflows (e.g. on purchase of crude oil, credit facility repayments), and it has a short position in EUR resulting mainly from feedstock purchases and payments related to investing activities.

Open currency contracts as at December 31st 2021:

Type of contract Purchase/sale Contract settlement period  Currency pair (base/floating) Amount in base currency  Fair value measurement
Financial assets  Financial liabilities 
Currency spot Purchase  Jan 2022 USD/PLN 41.0
Currency spot Sale  Jan 2022 USD/PLN (19.5)
Currency forward Purchase  Jan 2022 USD/PLN 11.5 (0.2)
Currency forward Purchase  Jan Dec 2022  EUR/PLN 60.6 (1.8)
Currency forward Purchase  Apr Jul 2022 EUR/USD 125.0 (9.2)
Currency forward Sale  Sep 2022 USD/PLN (80.0) 1.5
Currency forward Sale  Feb 2022 EUR/PLN (1.3)
Currency swap Purchase  Jan Mar 2022  USD/PLN 260.0 (9.0)
Currency swap Purchase  Jan 2022 EUR/PLN 16.4 (0.5)
Currency swap Purchase  Jan Mar 2022  EUR/USD 50.4 0.3
Currency swap Sale  Jan Dec 2022  USD/PLN (489.7) 10.4 (6.7)
Currency swap Sale  Jan 2022 EUR/PLN (27.4) 1.3
Total  13.5  (27.4) 

Open currency contracts as at December 31st 2020:

Type of contract  Purchase/sale Contract settlement period  Currency pair (base/floating) Amount in base currency  Fair value measurement
Financial assets  Zobowiązania finansowe
Currency spot Purchase  Jan 2021 USD/PLN 29.5 1.0
Currency spot Purchase  Jan 2021 EUR/PLN 0.4
Currency forward Sale  Apr 2021  USD/PLN (0.5)
Currency swap Sale  Jan May 2021  USD/PLN (192.8) 18.3 (3.0)
Currency swap Sale  Jan Feb 2021  EUR/PLN (19.8) (3.2)
Total  19.3  (6.2) 

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