10.13. Inventories

The purchase price or generation cost of an item of inventories covers for the costs of purchase, costs of conversion and other costs of bringing inventories to their present location and condition.

Measurement of the particular categories of inventories is made :

• for materials and trade goods – at purchase prices,
• for finished goods and work in progress – at the cost of direct materials and workmanship as well as the appropriate surcharge for the indirect production costs determined assuming the normal utilisation of the production capacity, except for the cost of third-party finance.

The value of outgoing materials, trade goods, finished products and work in progress is determined on the ‘first-in first-out’ (FIFO) basis.

Net realisable value is the estimated selling price in the ordinary course of business less the costs of completion and the estimated costs necessary to make the sale. Inventories are accounted for in the balance sheet less the recognised write-downs. Inventories are valued at the lower of cost or net realisable value. The FIFO method is applied to outgoing materials measurement. Net realisable value is the estimated selling price in the ordinary course of business less the costs of completion and the estimated costs necessary to make the sale. Inventories are accounted for in the balance sheet less the recognised write-downs.

As at the balance sheet date, the Group compares the value of the particular inventories with their realisable sales prices, less the costs of closing the sales.

For damaged or non-rotating inventories (specifically for longer than 6 months), which have lost their commercial or useful characteristics, write-downs are made based on individual assessment of the particular items. While estimating the value of the required write-downs for such inventories, the realisable value is taken into account, which in most cases is the net sales price of aluminium scrap (as regards the EPS and the ASS). The inventories of the EPS and the ASS are mainly aluminium products, or products with several-dozens share of aluminium in the total value. The inventories of the FPS are mainly plastics (including granulates), paper, aluminium foil, and inks/adhesives needed to manufacture plastic packaging and BOPP films.

For other inventory items, their realisable net sales price post the balance-sheet date is considered. The net realisable sales price is the estimated sales price in the ordinary course of business less the estimated costs of finishing and the estimated costs necessary to close the sales. If the price is lower than the value of the inventories determined at the cost of purchase/manufacturing, write-downs updating their value are recognised. The realisable sales price less the costs of finishing and the estimated costs of closing the sales for the particular product assortment is determined as at the valuation date on the basis of completed or confirmed sales orders and estimated production costs.

The estimates of net realisable value are based on the most reliable evidence available to us when making the estimations. The estimates also take into account price and costs fluctuations which refer directly to the events occurring post the end of the period, to an extent in which the events confirm the conditions present at the end of the period. The above is made on the assumption that the inventories will be sold during regular business.

The Group operates mainly on B2B model, basically commencing production as a response to customer orders. Therefore, the assumption of sales during regular business and the estimates of the net realisable sales prices are highly probable. Moreover, the inventories turnover ratio is 2-3 months, whereas the inventories of the Group are mainly aluminium or aluminium-based products and plastic products, which do not degrade.