Risks related to the LOTOS Group’s strategy
The key material risks that may affect the LOTOS Group’s strategy implementation include:
Macroeconomic risk − the risk of changes in the macroeconomic environment, including oil prices, foreign exchange rates, crack spreads on refining products, and growth of Poland’s GDP. Adverse developments of any of these can significantly affect the feasibility of achieving our financial targets:
- Oil prices affect the LOTOS Group’s largest cost category. In the past,oil prices were negatively correlated with refining margins.
- Exchange rate movements (in particular, the USD/PLN exchange rate) are important because a large part of our cost base is denominated in USD, while revenue (from fuel sales in Poland) is generated in PLN.
- Changes in crack spreads on refining products may have a material adverse effect on our revenue in the worst-case scenario.
- A significant decline or slowdown of Poland’s GDP would directly affect the demand for the LOTOS Group’s products and its revenue.
Risk of a delay in the execution of key projects – the LOTOS Group is currently implementing a number of key projects, such as EFRA, B4B6, B8, YME, FGD and Langfjellet, whose impact on EBITDA is estimated at tens or hundreds of millions of Polish złoty. Any significant delay in the execution of those projects would have a tangible impact on the achievement of our strategic objectives (in particular EBITDA or CAPEX).
Chapter 7.4. Material agreements and court proceedings in 2016