10.35.1. Revenue from contracts with customers

The basic principle of IFRS 15 is to recognise revenue at the moment of transfer of goods and services to the customer, in the value reflecting the price expected by the Group in exchange for the transfer of the goods and services. The principles are applied with the use of a five-step model:

• identification of contract with a customer;
• identification of performance obligation under the contract with the customer;
• transaction price determination;
• allocation of the transaction price to the particular performance obligation;
• recognition of revenue at the moment the performance obligation under the contract is completed.

The Group reflects a contract with the customer only if the following criteria are met:

• the parties entered into agreement (in writing, orally or in accordance with other established commercial practices) and are committed to perform their obligations;
• the Group is able to identify the rights of each of the parties regarding the goods or services which are to be transferred;
• the Group is able to identify the payment terms for the goods and services which are to be transferred;
• the agreement has an economic content (i.e. it may be expected that as a result of the contract, the risk, the distribution in time or the amount of future cash flows of the Group will change); and
• it is probable that the Group receives consideration which is due to it in exchange for the goods or services which will be transferred to the customer.

When assessing whether the receipt of the amount of consideration is probable, the Group considers only the ability and the intent of the customer to pay the consideration amount in due time. The amount of consideration which will be due to the Group may be lower than the price determined in the contract, if the consideration is variable, because the Group may offer a price discount to the customer.

At the moment of entering into contract, the Group assesses the goods or services committed in the contract with the customer and identifies as performance obligation every commitment to transfer to the customer the goods or services (or a bundle of goods or services) which may be separated or a group of separate goods or services which are basically the same and for which the transfer to the customer has the same characteristics.

The good or service committed are separate if the following conditions are jointly fulfilled:

• the customer may acquire benefits from the goods or services either directly or indirectly by relationship with other resources, which are easily accessible for the customer; and
• the commitment of the Group to transfer goods or services to the customer may be identified as separate in reference to other obligations specified in the contract.

When assessing whether the receipt of the amount of consideration is probable, the Group considers only the ability and the intent of the customer to pay the consideration amount in due time. The amount of consideration which will be due to the Group may be lower than the price determined in the contract if the consideration is variable, because the Company may offer a price discount to the customer.

Most products are manufactured according to individual customer requirements. However, they are created based on standards or specific industry requirements. Sales and deliveries are based on customer orders or long-term commercial contracts.

The Group does not carry out typical stock production, as production is carried out based on the aforementioned orders and contracts. The company sets payment terms individually with each customer. This is usually a bank transfer with payment term ranging from 14 to 120 days. The Group bases its decision on the credit limit granted by insurance companies. On a case-by-case basis, the Group independently assesses the customer’s financial standing and sometimes requires prepayment for the delivered product.

The execution of orders/contracts is based on Incoterms.

Most often, the Group offers products with delivery to the customer. Sales prices are known at the time of shipping, as determined based on the following formulas:

• Extruded Products Segment: fixed prices for a specific quantity and period or prices based on price formulas related to a market index, LME index, plus a fixed premium.
• Aluminium Systems Segment: fixed prices for a specific quantity and period are determined based on price lists with established discount system.
• Flexible Packaging Segment: revenue is based on transactions in which price varies depending on manufacturing cost calculation for the current macroeconomic assumptions and covering for the margin. In that way, the cost of material is included in the order price, despite the fact that a prearranged model of indexation for raw-materials prices does not apply to the relevant customer. At the same time, the Segment has established models of indexation for raw-material prices, which make prices fixed for a certain time, depending on the market changes in the prices of materials used in contracts for the specific customer.

The Group contractors do not have the right to return the purchased product or withdraw from the contract once the order has been confirmed. The Group provides its customers with high quality products and issues quality certificates. In the event of the delivery of material which does not comply with the order, the customer may file a complaint, which is then considered by the competent Group services. In the event that the customer’s complaint is acknowledged, the customer is entitled to a reimbursement of the money paid or re-delivery of defect-free goods.

In the case of the sales of goods, products, materials and waste, the contract contains only one performance obligation – the sale of the good in question. Revenue is recognised at a specific point in time, i.e. when the customer obtains control over the goods.

The services provided by the Group include mainly office space rental, energy and gas supply, and production. All the services are settled on a monthly basis.

As part of the analysis of the IFRS 15 guidelines, the Group considered the following aspects, among other things:

• variable prices – applicable if a customer is entitled to a discount in the event of early payment for deliveries; whereas for the ASS, also in the case of a discount on the scale of turnover realised – in such case revenue is adjusted for realised or estimated discounts;
• right of return – contracts concluded with customers do not provide for the right to return the delivered product as a result of a unilateral decision by the customer;
• warranties – the Group provides warranties for the products it sells, which is only an assurance to the customer that the product in question conforms to the specifications agreed upon by the parties, and a guarantee does not constitute an additional service. The Group products are quality checked by the customers at delivery or immediately thereafter, so there is no possibility of significant scale warranty returns between two accounting periods (the Group is only liable for the delivered product until the change of its physical and chemical properties, which means until the product is reworked). The scale of complaints received by the Group is negligible;
• the Group has no transactions covering the sale of a bundle of goods and services or a bundle of several services, provided at different times or prices. As regards the sale of goods, products, materials and waste as well as in the case of the provision of both production and non-production services (they are not stretched over time and are invoiced as soon as the object of the service is handed over to the customer, which is done systematically) and non-production services (invoiced systematically on a monthly basis), except for SSA construction services, the value of which is insignificant, i.e. approximately PLN 1,2 million in 2022. The Group has gradually been abandoning the provision of construction services in favour of finished products delivery;
• advances received from customers – they are used in very few cases of cooperation with customers with unreliable financial standing. In such situation, manufacturing and delivery of a product take place immediately after the advance payment is made by the customer, which means that the solution does not comprise a financing element;
• trade credit is a standard solution for the Group sales, hence there is no financing element – no need for price allocation on this account;
• after-sales services – there are no additional services or above-standard guarantees or consultancy that could result in the allocation of the sales price;
• the Group is a principal and not an agent in its sales contracts, despite the fact that it uses intermediaries in some sales areas;
• discounts granted by the Group on the scale of turnover realised are insignificant. Moreover, the Group adjusts its revenue adequately for the estimated discounts on that account.