12. Other notes
Note 12.1 Related party transactions
The accounting policies and important estimates and assumptions presented in Note 10 are applicable to transactions entered into with related parties.
|Revenues from related parties||2016||2015|
|From joint ventures||23||18|
|Trade and other receivables from related parties||7 723||7 245|
|From subsidiaries||7 671||7 219|
|From joint ventures||52||26|
|Payables towards related entities||656||603|
|Towards joint ventures||37||65|
|Purchases from related parties||4 686||4 643|
|Purchase of products, merchandise and materials and other purchases from subsidiaries||4 632||4 573|
|Purchase of products, merchandise and materials from joint ventures||54||70|
In the current reporting period, no individual transactions were identified between the Company and the Polish Government and entities controlled or jointly controlled by the Polish Government, or over which the government has significant influence, which would be considered as significant in terms of unusual scope and amount.
The remaining transactions, which were collectively significant, between the Company and the government and with entities controlled or jointly controlled by the government, or on which the government has significant influence, were within the scope of normal, daily economic operations, carried out at arm’s length. These transactions concerned the purchase of materials and services to meet the needs of current operating activities (fuel, energy, transport services). In 2016, the turnover from these transactions amounted to PLN 568 million (in 2015: PLN 593 million), and, as at 31 December 2016, the unsettled balance of liabilities from these transactions amounted to PLN 289 million (as at 31 December 2015: PLN 235 million).
Note 12.2 Dividends paid
In accordance with Resolution No. 6/2016 of the Ordinary General Meeting of KGHM Polska Miedź S.A. dated 28 June 2016 regarding the dividend payout from prior years’ profits, setting the dividend date and the dividend payment date, the amount of PLN 300 million was allocated as a shareholder dividend, amounting to PLN 1.50 per share. The dividend date (the day on which the right to dividend is set) was set at 15 July 2016 with the dividend being paid in two instalments: 18 August 2016 – the amount of PLN 150 million (equal to PLN 0.75 per share) and 17 November 2016 – the amount of PLN 150 million (equal to PLN 0.75 per share). All shares of the Company are ordinary shares.
In accordance with Resolution No. 5/2015 of the Ordinary General Meeting of KGHM Polska Miedź S.A. dated 29 April 2015 regarding the appropriation of the Company’s profit for financial year 2014, the amount of PLN 800 million was allocated as a shareholder dividend, amounting to PLN 4.00 per share.
The dividend date (the day on which the right to dividend is set) was set at 27 May 2015 with the dividend being paid in two instalments:
18 June 2015 – PLN 2.00 per share and 19 October 2015 – PLN 2.00 per share. All shares of the Company are ordinary shares.
Note 12.3 Other assets
|Receivables not constituting financial assets are initially recognised at nominal value, and at the end of the reporting period they are measured in the amount due.|
Accounting policies concerning financial assets were described in Note 7.
|Other non-current non-financial assets||22||27|
|Other current assets||362||537|
|Other current financial assets||288||425|
|Cash pool receivables||157||302|
|Receivables due to guarantees granted||47||24|
|Receivables due to payments for letters of credit||26||18|
|Other current non-financial assets||74||112|
Note 12.4 Other liabilities
|Other financial liabilities are initially recognised at fair value less transaction cost, and at the end of the reporting period they are measured at amortised cost.|
|Other liabilities – non-current||229||198|
|Provision for decommissioning costs of mines and other technological facilities - current||9||19|
|Provision for disputed issues and court proceedings, and other provisions||76||50|
|provision for purchase of property rights due to cogeneration related to used electricity||51||55|
|charge for discharging of gases and dusts to the air||18||17|
|Other liabilities – current||621||594|
Note 12.5 Assets and liabilities not recognised in the statement of financial position
The value of contingent assets and liabilities and other liabilities not recognised in the statement of financial position were determined based on estimates.
|Promissory notes receivables||268||270|
|Contingent liabilities||2 260||1 741|
|Guarantees, including:||1 773||1 275|
|a letter of credit granted to secure the proper performance of a long-term contract for the supply of electricity for the joint venture Sierra Gorda S.C.M.||575||536|
|guarantees granted to additionally secure the proper performance of lease agreements entered into by the joint venture Sierra Gorda S.C.M.||277||319|
|a guarantee securing the proper performance of future environmental obligations of the Company to restore the area following the conclusion of operations of the Żelazny Most tailings storage facility||96||64|
|guarantees granted to additionally secure the payment of short-term working capital facility drawn by joint venture Sierra Gorda S.C.M.||437||-|
|letters of credit securing the proper performance of future environmental obligations by KGHM INTERNATIONAL LTD. to restore the area following the conclusion of operations of the Robinson mine, Podolsky mine and the Victoria project and obligations related to proper performance of concluded agreements||387||324|
|a promissory note liability securing the proper performance of future environmental obligations of the Company to restore the area following the conclusion of operations of the Żelazny Most tailings storage facility||224||256|
|liabilities due to implementation of projects and inventions||91||91|
|Liabilities not recognised in the statement of financial position||126||130|
|liabilities towards local government entities due to expansion of the tailings storage facility||120||118|
|liabilities due to operating leases||6||12|
Note 12.6 Capital commitments related to property, plant and equipment and intangible assets
Capital commitments incurred in the reporting period, but not recognised in the statement of financial position, were as follows (as at 31 December of a given year):
|Capital commitments due to the purchase of:|
|property, plant and equipment||4 519||4 036|
|Total capital commitments||4 662||4 094|
Note 12.7 The right of perpetual usufruct of land
The Company obtained the right of perpetual usufruct of land mostly free of charge on the basis of laws in force. The land subject to perpetual usufruct is industrial area related to the core business activities, which also includes protective zones in which environmental quality standards have been exceeded as a result of the activities carried out.
Due to the nature of the use of the above-mentioned land, as at 31 December 2016 the Company has not determined fair values for these perpetual usufruct rights.
The table below contains information on future payments due to the right of perpetual usufruct of land.
|Under one year||9||9|
|From one to five years||36||36|
|Over five years||455||397|
|Total value of future contingent payments due to the right of perpetual usufruct of land||500||442|
The Company’s liabilities due to the right of perpetual usufruct of land, which were not recognised in the statement of financial position, were estimated on the basis of annual payment rates resulting from recent administrative decisions and the useful life of the land subject to this right.
Note 12.8 Employment structure
|White-collar employees||4 713||4 712|
|Blue-collar employees||13 463||13 443|
|Total (full-time equivalent)||18 176||18 155|
Note 12.9 Other adjustments to profit before income tax in the statement of cash flows
|Change in assets/(liabilities) due to derivatives||( 132)||558|
|Change in other receivables and liabilities||370||( 125)|
|Reclassification of other comprehensive income to profit or loss as a result of realisation of hedging derivatives||( 3)||( 482)|
|Interest on investment activity||( 374)||( 224)|
|Foreign exchange gains||( 129)||( 194)|
|Total||( 193)||( 430)|
Note 12.10. Remuneration of key managers
|Remuneration of members of the Management Board (in PLN thousands)||Period when function served in 2016||Period when function served in 2015||Current employee benefits 2016||Current employee benefits 2015||Benefits due to termination of employment 2016||Benefits due to termination of employment 2015||Total earnings in 2016||Total earnings in 2015|
|Members of the Management Board serving in the function|
Domagalski - Łabędzki
|Jacek Rawecki||03.02-31.12||-||1 300||-||-||-||1 300||-|
|Stefan Świątkowski||23.02-31.12||-||1 194||-||-||-||1 194||-|
|Piotr Walczak||15.03-31.12||-||1 112||-||-||-||1 112||-|
|Other Members of the Management Board*|
|Krzysztof Skóra||03.02-28.10||-||1 225||-||117||-||1 342||-|
|Mirosław Biliński||03.02-05.09||-||887||-||189||-||1 076||-|
|Herbert Wirth||01.01-03.02||01.01-31.12||1 372*||2 438||206||-||1 578||2 438|
|Jarosław Romanowski||01.01-03.02||01.01-31.12||1 307*||2 198||185||-||1 492||2 198|
|Marcin Chmielewski||01.01-03.02||01.01-31.12||1 247*||1 903||164||-||1 411||1 903|
|Jacek Kardela||01.01-03.02||01.01-31.12||1 268*||1 924||164||-||1 432||1 924|
|Mirosław Laskowski||01.01-15.03||01.02-31.12||1 728*||1 277||123||-||1 851||1 277|
|13 261||10 596||1 148||-||14 409||10 596|
* The amounts include remuneration during the period of employment termination.
|Remuneration of members of the Supervisory Board (in PLN thousands)||Period when function served in 2016||Period when function served in 2015||Current employee benefits 2016||Current employee benefits 2015||Current benefits due to service in 2016||Current benefits due to service in 2015||Total earnings in 2016||Total earnings in 2016|
|Members of the Supervisory Board serving in the function|
|Wojciech Andrzej Myślecki||07.12-31.12||-||-||-||9||-||9||-|
|Other Members of the Supervisory Board|
|Bogusław Stanisław Fiedor||01.01-18.01||01.01-31.12||-||-||5||102||5||102|
|493||481||1 018||1 395||1 511||1 876|
Note 12.11 Remuneration of the entity entitled to audit the financial statements and of entities related to it in PLN thousands
|From the contract for the review and audit of financial statements, including due to:||-||970|
|audit of annual financial statements||-||618|
|review of financial statements||-||352|
|From other contracts||-||2 430|
|Other companies of the PricewaterhouseCoopers Group in Poland – from other contracts||-||33|
|Deloitte Polska Spółka z ograniczoną odpowiedzialnością Sp. k.|
|From the contract for the review and audit of financial statements, including due to:||817||-|
|audit of annual financial statements||551||-|
|review of financial statements||256||-|
|Other assurance services||10||-|
|Other Companies from Deloitte Polska Group - from other contracts||1 250||-|
Note 12.12 Disclosure of information on the Company’s activities regulated by the Act on Energy
Note 12.12.1 Introduction
KGHM Polska Miedź S.A. meets the definition of an “energy enterprise” under the Act on Energy.
Pursuant to article 44 of the Act on Energy, the Company is required to prepare, on the basis of the Company’s accounting records, information about its regulated activities. The scope of information concerning regulated activities, pursuant to article 44 of the aforementioned Act, constitute the Company’s business activities in:
- distribution of electricity;
- distribution of gaseous fuels; and
- trade in gaseous fuels.
Note 12.12.2 Description of regulated activities
KGHM Polska Miedź S.A. conducts the following types of energy-related activities:
- Distribution of electricity – an activity which consists of distributing the electricity, used to meet the needs of clients conducting business activities;
- Trade in gaseous fuels – an activity which consists of trading in nitrogen-enriched natural gas and is conducted to meet the needs of clients engaged in business activities; and
- Distribution of gaseous fuels – an activity which consists of distributing nitrogen-enriched natural gas by utilising the distribution grids located in the Legnica and Głogów municipalities in order to meet the needs of clients conducting business activities.
Note 12.12.3 Basic principles of regulatory accounting
Regulatory accounting is a specific type of accounting, if compared to the accounting carried out in accordance with the Accounting Act of 29 September 1994, conducted by an entrepreneur for its regulated activities including energy activities.
In addition to the accounting policies which were described in the financial statements and were the basis for the keeping of the accounting records and for preparation of the Company’s financial statements, KGHM Polska Miedź S.A. applies the following accounting policies for the purposes of regulatory accounting:
The allocation of particular revenue and costs is made in accordance with a given assets’ intended purpose and utilisation of assets to meet the needs of a specified type of activity or service, with the causality principle governing the recognition of items of revenue and costs in specified types of activity and with the principle of consistency between recognition by types of activity of items of revenue and costs, which stems from the fact that these items reflect different aspects of the same events.
Objectivity and non-discrimination principle
The allocation of assets, liabilities, equity, revenue and costs is done objectively and is not aimed at making profits or incurring losses.
Continuation and comparability principle
The methods and principles used in preparing the report on regulatory accounting are applied in a continuous manner. This report was prepared using the same principles for the current and comparable periods.
Transparency and consistency principle
The methods applied in preparing the report on regulatory accounting are transparent and consistent with the methods and principles applied in other calculations performed for regulatory purposes and with the methods and principles applied in preparing the financial statements.
Materiality principle (feasibility principle)
The Company permits certain simplifications in measurement, recognition and allocation of items of assets, liabilities, equity, revenue and costs as long as it does not significantly distort the true picture of the financial position and assets presented in the financial statements on regulated activities.
Note 12.12.4 Detailed principles of regulatory policy – methods and principles governing the allocation of assets, liabilities, equity, costs and revenues
The Company prepares financial information on its regulated activities by overlapping the regulated activities’ structure with the Company’s organisational structure. The Company applies, in a continuous manner, various methods for the allocation of revenue, costs, assets and liabilities to specific types of regulated activities. The following methods were used:
- specific (direct) identification method – applied if a direct identification of value is possible, for example the level of revenue from certain activities,
- direct allocation method (e.g. the purchase cost of production fuel) – this method is applied if there is a direct cause-and-effect relationship between the consumed resource and the corresponding cost,
- indirect allocation method on the basis of a predetermined allocation key, this method is used among others, to allocate cost in a situation where no direct cause-and-effect relationship between the utilised resource and the cost item exists and there is a need to use a cost driver (an allocation key) which enables linkage of items with their respective cost. The most commonly used allocation keys are:
- revenue key – value of revenue is the allocation key;
- production key – production units are the allocation key;
- power key – the installed power of machines and equipment is used for the allocation of indirect costs;
- cost key – the value of costs is the allocation key;
- mixed keys, which combine elements of several different keys; and
- other keys appropriate for a specific case.
In the statement of financial position of KGHM Polska Miedź S.A. for the current and comparable periods, the following items of assets of regulated activities were recognised:
- Fixed assets;
- 2.Fixed assets under construction;
- Trade receivables.
Other items of assets in the Company’s statement of financial position were allocated to other activities due to the lack of a link between these items and regulated activities, or because the share of these items in regulated activities is immaterial.
The identification and allocation of specific items of fixed assets to regulated activities takes place when these items of fixed assets are brought into use. Based on the key consumption for energy carriers, being the quantitative share in sales of the energy carrier in the total volume of the purchased energy carrier less losses, the percentage in the carrying amount of fixed assets used in the energy activities is established.
|Share =||Volume of energy carriers sold externally in the reporting period x 100%|
|Total volume of purchased energy carrier for the reporting period – losses|
Fixed assets under construction
The allocation of fixed assets under construction to regulated activities is achieved by the detailed identification of expenditures on fixed assets under construction which are related to regulated activities, based on the analysis of accounting records. The remaining expenditures on fixed assets under construction are recognised in other activities of the Company.
The Company recognises the full amount of deferred tax assets due to other deductible temporary differences under other activities, due to their immaterial share in regulated activities.
Allocation of receivables in specific types of regulated activities is done on the basis of detailed identification of revenues from specific types of regulated activities, by analysing the Company’s accounting records with respect to unsettled sales invoices. The remaining amount of trade receivables is recognised in other activities. The Company recognises the full amount of other receivables (i.e. apart from trade receivables) in other activities due to their immaterial share in regulated activities.
Equity and liabilities
In the statement of financial position, the following items were recognised in equity and liabilities for the current and comparable periods with respect to regulated activities:
I. Non-current liabilities:
- Deferred tax liabilities;
- Future employee benefits liabilities.
II. Current liabilities:
- Future employee benefits liabilities.
Other items of liabilities were recognised by the Company in other activities, due to their immaterial share in regulated activities.
The Company allocates equity to regulated activities as an item offsetting the assets and liabilities.
Deferred tax liabilities
With respect to regulated activities, deferred tax liabilities were identified arising from taxable temporary differences between the depreciation of property, plant and equipment and intangible assets for tax purposes and their carrying amount.
The allocation of deferred tax liabilities due to the depreciation of property, plant and equipment and the amortisation of intangible assets, with respect to regulated activities, is performed through the use of indicators set for property, plant and equipment and intangible assets.
The Company allocates all deferred tax liabilities arising from other taxable temporary differences to other operating activities.
Non-current and current liabilities due to future employee benefits
Liabilities due to future employee benefits are allocated to individual types of regulated activities using a revenue key through the indirect allocation method.
Revenues from sales
Following an analysis of revenues in terms of their allocation to individual types of regulated activities, the Company identified groups of operations which met the following conditions:
- revenues from the sale of electricity – distribution;
- revenues from the sale of nitrogen-enriched natural gas – distribution; and
- revenues from the sale of nitrogen-enriched natural gas – trade.
Revenues from sales are allocated to individual types of regulated activities using the individual identification method.
Following an analysis of costs in terms of their allocation to individual types of regulated activities, the following types of operating costs were identified:
- costs of electricity distribution services and the distribution of natural gas;
- the value of the sold merchandise related to trade in natural gas; and
- administrative expenses associated with electricity sold.
Costs of sales, selling costs and administrative expenses are allocated to separate types of regulated activities based on the Company's account of the actual costs.
The amount of income tax presented in the statement of profit or loss for individual types of regulated activities is set as a multiple of the financial result and the effective tax rate. The amount of current income tax decreases or increases deferred income tax, which is calculated from the difference between the carrying amount and the taxable amount of the respective assets of regulated activities.
Statement of financial position pursuant to article 44 of the Act on Energy
|2016||Company in total||Principal activities||Energy activities, of which:||Electricity||Gas|
|Property, plant and equipment||14 456||14 394||62||61||-||1|
|Deferred tax assets||140||140||-||-||-||-|
|Other non-current assets||10 467||10 467||-||-||-||-|
| ||25 594||25 532||62||61||-||1|
|Inventories||2 726||2 726||-||-||-||-|
|Other current assets||1 104||1 104||-||-||-||-|
| ||4 506||4 503||3||3||-||-|
|TOTAL ASSETS||30 100||30 035||65||64||-||1|
|EQUITY AND LIABILITIES|
|Equity||15 900||15 839||61||60||-||1|
|Deferred tax liabilities||-||( 3)||3||3||-||-|
|Employee benefits liabilities||1 683||1 682||1||1||-||-|
|Provisions for decommissioning costs of mines and other technological facilities||761||761||-||-||-||-|
|Other non-current liabilities||6 801||6 801||-||-||-||-|
| ||9 245||9 241||4||4||-||-|
|Employee benefits liabilities||628||628||-||-||-||-|
|Other current liabilities||4 327||4 327||-||-||-||-|
| ||4 955||4 955||-||-||-||-|
|TOTAL LIABILITIES||14 200||14 196||4||4||-||-|
|TOTAL EQUITY AND LIABILITIES||30 100||30 035||65||64||-||1|
|2015|| Company in total||Principal activities||Energy activities, of which:||Electricity||Gas|
|Property, plant and equipment||13 078||13 047||31||30||-||1|
|Deferred tax assets||141||141||-||-||-||-|
|Other non-current assets||14 622||14 622||-||-||-||-|
| ||28 406||28 375||31||30||-||1|
|Inventories||2 601||2 601||-||-||-||-|
|Trade receivables||1 000||998||2||1||1||-|
|Other current assets||1 113||1 113||-||-||-||-|
| ||4 714||4 712||2||1||1||-|
|TOTAL ASSETS||33 120||33 087||33||31||1||1|
|EQUITY AND LIABILITIES|
|Equity||20 279||20 249||30||28||1||1|
|Deferred tax liabilities||-||( 2)||2||2||-||-|
|Employee benefits liabilities||1 803||1 802||1||1||-||-|
|Provisions for decommissioning costs of mines and other technological facilities||873||873||-||-||-||-|
|Other non-current liabilities||5 080||5 080||-||-||-||-|
| ||7 756||7 753||3||3||-||-|
|Employee benefits liabilities||577||577||-||-||-||-|
|Other current liabilities||4 508||4 508||-||-||-||-|
| ||5 085||5 085||-||-||-||-|
|TOTAL LIABILITIES||12 841||12 838||3||3||-||-|
|TOTAL EQUITY AND LIABILITIES||33 120||33 087||33||31||1||1|
Statement of profit or loss pursuant to article 44 of the Act on Energy
| 2016||Company in total||Principal activities||Energy activities, of which:||Electricity||Gas|
|Sales revenue||15 112||15 088||24||12||10||2|
|Cost of sales||(11 630)||(11 615)||( 15)||( 6)||( 9)||-|
|Gross profit||3 482||3 473||9||6||1||2|
|Selling costs and administrative expenses||( 887)||( 887)||-||-||-||-|
|Profit on sales||2 595||2 586||9||6||1||2|
|Other operating income and costs||(5 429)||(5 429)||-||-||-||-|
|Finance costs||( 541)||( 541)||-||-||-||-|
|Profit/(Loss) before income tax||(3 375)||(3 384)||9||6||1||2|
|Income tax expense||( 710)||( 706)||( 4)||( 4)||-||-|
|Profit/(loss) for the period||(4 085)||(4 090)||5||2||1||2|
| 2015||Company in total||Principal activities||Energy activities, of which:||Electricity||Gas|
|Sales revenue||15 939||15 918||21||8||11||2|
|Cost of sales||(11 809)||(11 792)||( 17)||( 6)||( 11)||-|
|Gross profit||4 130||4 126||4||2||-||2|
|Selling costs and administrative expenses||( 846)||( 846)||-||-||-||-|
|Profit on sales||3 284||3 280||4||2||-||2|
|Other operating income and costs||(5 064)||(5 064)||-||-||-||-|
|Finance costs||( 158)||( 158)||-||-||-||-|
|Profit/(Loss) before income tax||(1 938)||(1 942)||4||2||-||2|
|Income tax expense||( 850)||( 847)||( 3)||( 2)||-||( 1)|
|Profit/(loss) for the period||(2 788)||(2 789)||1||-||-||1|
Note 12.13 Subsequent events after the reporting period
Changes in the composition of the Management Board of the Company
On 3 February 2017, Jacek Rawecki submitted his resignation from the function of First Vice President of KGHM Polska Miedź S.A. The Supervisory Board of KGHM Polska Miedź S.A., following its meeting on 3 February 2017, adopted a resolution on the appointment of Rafał Pawełczak as a Vice President of the Management Board of KGHM Polska Miedź S.A.
Increase in the amount of available overdraft facility
On 1 February 2017, pursuant to the annex to the credit agreement with Bank Handlowy S.A. in Warsaw, the amount available from the overdraft facility was increased from PLN 80 million to PLN 100 million. Interest on the facility is based on WIBOR/LIBOR plus a margin. The facility’s maturity date expires on 12 October 2018.
Repayment of the credit
On 30 January 2017, the Company repaid an instalment in the amount of USD 100 million, which was drawn under the Unsecured, Revolving Syndicated Credit Facility.
Extension of the deadline for repayment of the working capital facility
On 4 January 2017, the Company extended the period of availability of the USD 80 million credit line in ING Bank Śląski S.A. to 24 January 2018. Interest on the facility is based on LIBOR/EURIBOR plus a margin.
On 23 January 2017, the Company extended the deadline for repayment of the working capital facility in the amount of USD 100 million in Bank Gospodarstwa Krajowego to 2 February 2018. Interest on the facility is based on LIBOR plus a margin.
On 14 February 2017, the Company extended the period of availability of the credit line of USD 50 million in Bank Zachodni WBK S.A. to 28 February 2018. Interest on the credit line is based on LIBOR plus a margin.
Extension of a corporate guarantee
On 13 February 2017, the Company extended the period of validity of a corporate guarantee in the amount of USD 63 million, which secures repayment of a short-term working capital facility granted by a bank to Sierra Gorda S.C.M. The guarantee expires on 18 February 2018.
Obtaining a permit for an open-pit mine development
On 4 March 2017, Stk'emlúpsemc te Secwépemc Nation announced their rejection of the publicly-reviewed development plan of KGHM AJAX MINING INC. to build a mine. In the opinion of the Company’s Management Board, despite the rejection it is possible, at the current stage of the project, to continue the process of obtaining the relevant permits aimed at developing the open-pit mine. The projected cash flows, which were taken into account in the impairment testing of the Ajax project as at 31 December 2016, are realistic and are the best reflection of the achievable plans.
2016 targets versus achievements and expected economic situation of the Company in 2017
On 15 March 2017, the Supervisory Board of the Company approved KGHM Polska Miedź S.A.’s Budget for 2017 as presented by the Management Board (detailed information on the adopted budget may be found in the Management Board’s Report on the Activities of KGHM Polska Miedź S.A. and KGHM Polska Miedź S.A. Group in 2016, in section 7.5).