9.1 Revenue

Revenue is recognised when the Group satisfies (or is in the process of satisfying) a performance obligation by transferring a promised good or service to a customer (which is when the customer obtains control of that good or service). In the statement of comprehensive income, revenue from contracts with customers is recognised as revenue from the Group’s day-to-day activities (i.e., revenue from sales of products, services, merchandise and materials), less value added tax (VAT), excise tax, fuel surcharge, emission fee and adjusted by the result from the settlement of instruments hedging future cash flows.

Contracts with customers are presented in the Group’s statement of financial position as a contract asset or a contract liability, depending on the relationship between the Group’s performance and the customer’s payment. Only the Group’s unconditional rights to receive consideration are presented on a separate basis as trade receivables (e.g., where an invoice has been issued to a customer or where it received another legal title requiring it to make payment by a specified deadline). Conditional rights (where the passage of time is not the only condition for payment) are presented as contract assets. If several obligations arise under a single contract with respect to which both contract assets and contract liabilities have been recognised, such assets and liabilities are presented in net amounts in the statement of financial position.

There is no significant financing element in the Group’s contracts with customers.

Based on its analysis of sales contracts, the Group has identified an agency model, mainly in the area of base oil sales by LOTOS Oil to target customers. In other transactions, the Group acts as principal.

The liability in respect of the Group’s loyalty scheme, NAVIGATOR, arises at the time of sale of goods and services at its own and partner stations for each individual sales transaction and consists in the accrual of points that give entitlement to discounts on future purchases. The calculation of the value of the points-related liability accruing under the scheme is based on such variables as the percentage of customers’ participating in the scheme, the percentage of redemption of rewards (points redeemed in exchange for rewards), and the share of individual rewards in the total offering. The Group determines the maximum pool of points to be spent on rewards by scheme participants during the term of the scheme and estimates the value of the total catalogue of rewards by calculating purchase prices (market value) of the rewards as well as prices of individual rewards expressed in points, and by forecasting the share of individual rewards that will be actually delivered to scheme participants in exchange for redeemed points. On this basis, the Group calculates the full cost of the scheme, including assumed prices of the rewards, which is recognised as income deferred until the points are redeemed.

The Group, under the terms of its contracts, undertakes to supply to its customers mainly refinery products and energy commodities, i.e., crude oil and natural gas. Under these contracts, the Group acts primarily as a principal, except where it acts as an agent in export sales of base oils.

Transaction prices in contracts with customers are not subject to any restrictions. There are no contracts that would provide for material discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties or other similar obligations. The Group does not identify revenue for which the receipt of payment is contingent and, accordingly, does not present the line item Assets under contracts with customers.

For the vast majority of the Group’s contracts with customers, consideration is based on a fixed transaction price. Contracts with variable consideration are recognised by the Group as revenue in the amount of consideration, which is highly probable that no significant reversal of previously recognised revenue will be required. As a result, the Group does not recognise revenue until uncertainty regarding receipt of remuneration ceases to exist, in particular in relation to the customers’ rights to discounts, bonuses and penalties.

Contract warranties are warranties that provide a customer with assurance that the related product complies with agreed-upon specifications. Contract warranties do not consist in the provision of a separate service to the customer.

The Group sells mainly on a deferred payment basis. In the Refining and Marketing segment sales are also made with no deferred payment terms (for cash). In most contracts with customers, payment terms not do not exceed 30 days. Payment is usually due upon delivery of the goods or after completion of the service.

In the supply of goods, where there is a transfer of control to the customer and benefits are satisfied at a point in time, customers are billed and revenue recognised after each delivery. If a customer simultaneously receives and consumes the benefits of provided goods or services, then the supply of such goods and services is recognised over time.

The Group recognises revenue for the satisfaction of a performance obligation at a given time in accordance with the INCOTERMS delivery terms (CPT, DAP, DDP, EXW, FCA).