Income and expenses – LOTOS Report 2017

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9.1 Expenses by nature
	Note	2017	2016
Depreciation and amortisation	8	844.3	1067.9
Raw materials and consumables used (1)		16933.1	14469.8
Services		1527.8	1503.9
Taxes and charges		506.7	456.8
Employee benefits expense	9.2	736.2	689
Other expenses by nature		254.4	247.7
Merchandise and materials sold		1386.1	859.9
Total expenses by nature		22188.6	19295
Change in products and adjustments to cost of sales		-292.2	-362.3
Total		21896.4	18932.7
including:
Cost of sales		20194.1	17215.7
Distribution costs		1252.3	1291.1
Administrative expenses		450	425.9

(1) Including PLN 4.8m of foreign exchange losses related to operating activities, recognised as cost of sales (2016: PLN 2.7m of foreign exchange gains), see Note 26.2.

9.2 Employee benefits expense
	Note	2017	2016
Current salaries and wages		560.7	526.1
Social security and other employee benefits		166.2	157.4
Length-of-service awards, retirement and other post-employment benefits	24.2	9.3	5.5
Total employee benefits expense	9.1	736.2	689
Change in products and adjustments to cost of sales		-3.1	-2.4
Total		733.1	686.6
including:
Cost of sales		439	414.9
Distribution costs		33.3	32.2
Administrative expenses		260.8	239.5

9.3 Other income
	Note	2017	2016
Gain on disposal of non-financial non-current assets and certificates of origin for electricity from cogeneration		-	13.2
Grants	25.2	16.8	5.7
Provisions:		24.6	59.6
- remeasurement of provision for costs of decommissioning of the offshore oil and gas extraction facilities in the Heimdal field		13,1	40.9
- remeasurement of provision for costs of decommissioning of the offshore oil and gas extraction facilities in the B-3 field		3,1	8.3
- remeasurement of provision for contingent payments − Sleipner assets acquisition agreement		0.3	27.7
- revaluation of estimated provision for future cost of removal of MOPU from the YME field		-	-8.9
- provision for deficit in CO2 emission allowances	27.2	-4.6	-8.7
- other provisions		12.7	0.3
Compensation		9.9	17.7
Reimbursed excise duty		1.6	3.7
Other		7.4	7.2
Total		60.3	107.1

The Group offsets similar transaction items in accordance with IAS 1 Presentation of Financial Statements, Sections 34 and 35. The Group discloses material items of income and expenses charged to profit or loss separately, as presented in the table above.

9.4 Other expenses
	Note	2017	2016
Impairment loss on property, plant and equipment and intangible assets:		83.6	156.4
Impairment losses		85.8	170.5
· oil and gas exploration and evaluation assets:	13.2.1	23.7	138.2
- Poland: Kamień Pomorski area		23,7	-
- Poland: the Gaz Południe licence area, including the B-21 field		-	64.8
- Norway: PL797 licence		-	5.8
- Norway: Utgard field assets		-	67.6
· oil and gas production assets: Lithuania: Girkalai, Auksoras, Vėžaičiai, Kretinga, Ablinga and Ližai fields	13.2.2	32.9	12.4
· refinery and other non-current assets:		29.2	19.9
- service stations	13.1.1	26.2	13.1
- ships		0.8	5.3
- other assets		2.2	1.5
Reversal of impairment losses:		-2.2	-14.1
·oil and gas production assets:	13.2.2	-	-11.9
- Norway: Heimdal production assets		-	-4.4
- Lithuania: Girkalai field		-	-7.5
· refinery and other non-current assets:		-2.2	-2.2
- service stations		-1.9	-2
- other assets		-0.3	-0.2

Gain on disposal of non-financial non-current assets		0.9	-

Loss on discontinued projects		0.7	12.7
- Norway: PL643, PL655 exploration licences	13.2.1	-	12.3
- Poland: Słupsk area	13.2.1	-	0.1
- other assets		0.7	0.3

Impairment losses on receivables:	15.1	2	1.6
- impairment losses		5.5	3.5
- reversal of impairment losses		-3.5	-1.9

Fines and compensation		8	1.2
Damage to property arising in ordinary course of business		1.6	2.1
Costs relating to the Polish National Foundation		-	29
Charitable donations		7.3	5.3
VAT expense	29.1	-	39.4
Other		16.9	3.1

Total		121	250.8

The Group offsets similar transaction items in accordance with IAS 1 Presentation of Financial Statements, Sections 34 and 35. The Group discloses material items of income and expenses charged to profit or loss separately, as presented in the table above.

9.5 Finance income
	Note	2017	2016
Dividends		4.2	2.4
Interest:		20.8	15.4
- on deposits	26.2	14.3	11.9
- on trade receivables	26.2	2.6	2.3
- other		3.9	1.2
Exchange differences:		107.9	7.8
- on bank borrowings	26.2	180.7	-73.5
- on translation of intercompany loans (1)	26.2	-99.2	64.7
- on realised foreign-currency transactions in bank accounts	26.2	35.5	12.2
- on intercompany notes (1)	26.2	-6	15.2
- on deposits and other cash	26.2	-7.1	-11.3
- other		4	0.5
Revaluation of financial assets:		314.1	-
- measurement of derivative financial instruments	26.2	196.7	-
- settlement of derivative financial instruments	26.2	117.4	-
Other		3	1
Total		450	26.6

(1) In accordance with IAS 21 Effects of Changes in Foreign Exchange Rates, foreign exchange gains and losses on intercompany foreign currency transactions are recognised in the Group’s net profit or loss.

9.6 Finance costs
	Note	2017	2016
Interest:		203.8	241.1
- on bank borrowings	26.2	114.2	150.4
- on non-bank borrowings	26.2	3.5	4
- on notes	26.2	15.6	4.2
- on finance lease liabilities	26.2	18.4	20.8
- discount related to provisions for oil production facilities and for site restoration, and other provisions	25.1	43.1	49.1
- cost of discount on employee benefit obligations	24.1; 24.2	5.8	5.1
- on liabilities to the state budget	29.1	1.7	6.3
- other		1.5	1.2
Revaluation of financial assets, including:		-	33.5
- measurement of derivative financial instruments	26.2	-	206.6
- settlement of derivative financial instruments	26.2	-	-173.1
Bank fees		18	19.2
Bank guarantees		0.1	5.7
Other		12.1	5.3
Total		234	304.8
The Group offsets similar transaction items in accordance with IAS 1 Presentation of Financial Statements, Sections 34 and 35. The Group discloses material items of income and expenses charged to profit or loss separately, as presented in the table above.

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