in PLN millions, unless otherwise stated

Operating segments

Based on the analysis of the Company’s organisational structure, its system of internal reporting and the applied management model, it was determined that the Company’s activity constitutes a single operating and reporting segment, which may be defined as “Production of copper, precious metals and other metallurgical products”.

The core business of the Company is the production of copper and silver. Production is a fully integrated process, in which the end-product of one stage is the half-finished product used in the next stage. Copper ore extracted in the mines is transported to concentrators where the enrichment process is carried out. As a result of this process, copper concentrate is produced, which is then supplied to the metallurgical plants where it is smelted and fire refined into copper anodes, which is then subjected to electrolytic refining into copper cathodes. From these cathodes wire rod and round billets are produced. Anode slimes, which arise from the process of copper electrorefining, is a raw material used to produce precious metals. Lead-bearing dust which is generated from the smelting processes is used to produce lead. Nickel sulphate and copper sulphate are recovered from the processing of used electrolyte. Gases generated from the smelting furnaces are used to produce sulphuric acid. Economic use is also made of smelter slags, which are sold as road-building materials.


Settlements between organisational units are carried out based on measurement of production at cost, and as a result the internal organisational units (i.e. mines, concentrators, metallurgical plants) in the production cycle do not generate profit on sales.

The financial data prepared for management accounting purposes is based on the same accounting policies which are used to prepare the financial statements. The Management Board of the Company – being responsible for allocating resources and for the financial results of the Company, regularly reviews internal financial reports for purposes of making major operational decisions.

The organisational structure of KGHM Polska Miedź S.A. has 11 Divisions, including: mines, concentrators, metallurgical  plants and the Head Office. The Head Office carries out sales of the Company’s basic products, i.e. electrolytic copper cathodes, round billets, wire rod and silver, and support functions, particularly including the management of financial assets, centralised finance and accounting services, marketing, legal and other services.
The Management Board of the Company assesses a segment’s performance based on Adjusted EBITDA and the profit or loss for the period. The manner of calculating Adjusted EBITDA and EBITDA is presented in the table “Reconciliation of Adjusted EBITDA”.

Production of main products


20162015
Electrolytic copper (kt), of which:535,6574,3
- electrolytic copper from own concentrates (kt)
375,9420,5
Silver (t)1 191,11 283,2
C1 unit cash cost of payable copper production from own concentrate (USD/lb)*1,301,47

*C1 cost reflects ore mining and processing costs, transport costs, the minerals extraction tax, administrative expenses during the mining phase and smelter treatment and refining charges (TC/RC) less by-product value.

Segment financial results


20162015
Sales revenue15 11215 939
Cost of sales, selling costs and administrative expenses*(12 517)
(12 655)
Depreciation/amortisation recognised in profit or loss
( 956)( 875)
EBITDA3 5514 159
(Recognition)/reversal of impairment losses on non-current assets recognised in cost of sales, selling costs and administrative expenses
-( 4)
Adjusted EBITDA3 5514 163
Loss for the period(4 085)(2 788)
including:
(recognition)/reversal of impairment losses on non-current assets
(6 197)(5 272)

*Cost of products, merchandise and materials sold plus selling costs and administrative expenses.
Reconciliation of “EBITDA” and “Adjusted EBITDA” (which are not defined in IFRSs) with “Profit/(loss) for the period” (which is defined in IFRSs) and “Profit on sales” is presented in  the following tables:

Reconciliation of Adjusted EBITDA


20162015
Loss for the period(4 085)(2 788)
[-] Current and deferred income tax( 710)( 850)
[-] Depreciation/amortisation recognised in profit or loss( 956)( 875)
[-] Finance income/(costs)( 541)( 158)
[-] Other operating income and costs(5 429)
(5 064)
[=] EBITDA3 5514 159
[-] (Recognition)/reversal of impairment losses on non-current assets recognised in cost of sales, selling costs and administrative expenses-( 4)
[=] Adjusted EBITDA3 5514 163

20162015
Profit on sales2 5953 284
[-] Depreciation/amortisation recognised in profit or loss( 956)( 875)
[=] EBITDA3 5514 159
[-] (Recognition)/reversal of impairment losses on non-current assets recognised in cost of sales, selling costs and administrative expenses-( 4)
[=] Adjusted EBITDA3 5514 163

Segment assets and liabilities


20162015
Assets
30 10033 120
Liabilities
14 20012 841


Accounting policies
Sales revenue is recognised at the fair value of the consideration received or receivable less VAT. In the case of metals sales, mainly copper and silver products, for which the price is set after the date of recognition of a given sale in the accounts, revenues are accounted for based on the forward prices from the date of sale. Sales revenue is adjusted by the  gain or loss on the settlement of derivatives hedging future cash flows.
The Company recognises sales revenue when:
  • the significant risk and rewards of ownership of the merchandise, finished goods and materials have been transferred to the buyer;
  • the Company ceases to be permanently involved in the management of the sold products to the extent associated with this function for inventories to which it has ownership rights, nor has effective control over those items;
  • the amount of revenue can be measured reliably;
  • it is probable that the Company will obtain economic benefits associated with the transaction; and
  • the costs incurred or to be incurred by the Company in connection with the transaction can be measured reliably.
Revenue is recognised when the risks and rewards of ownership of the products have been transferred, and this moment is agreed with a counterparty in the sales agreement, usually by choosing an Incoterm that is agreed upon by both parties and which applies to a given transaction. Incoterms are a set of international rules governing terms of sale and their application is widely accepted in the world. For example, they define the moment of transfer of the risk for the condition of products at different locations within the transport process.

The Incoterms most frequently used by the Company are:
CIF, CFR (maritime transport) – recognition of revenues takes place when merchandise is loaded on a ship in a port of loading;
DAP – recognition of revenues takes place when merchandise is delivered to be at the buyer’s disposal, at a location selected by the buyer;
FCA – recognition of revenues takes place when the merchandise is delivered to a carrier designated by the buyer.

Sales revenue – breakdown by products

 20162015
Copper
10 49012 498
Silver
2 5962 394
Gold
556373
Copper concentrate
776-
Services
9386
Other
601588
TOTAL
15 11215 939

Sales revenue – geographical breakdown reflecting the location of end clients

 20162015
Europe
Poland
3 7903 677
Germany
2 2832 827
The United Kingdom
1 6071 426
Czechia
1 1721 319
Switzerland
616480
France
599617
Hungary
500650
Italy288525
Austria
192253
Spain
1391
Bulgaria
7911
Slovakia
6969
Romania
5788
Slovenia5339
Belgium
36120
Other countries (dispersed sale)
88160
North America
The United States of America
641651
Other countries (dispersed sale)
11
Australia
Australia127115
Asia
China
1 4852 496
Singapore
67693
South Korea
20863
Turkey
134176
India
15974
Other countries (dispersed sale)
1126
Africa
12
TOTAL
15 11215 939

Main customers

In the period from 1 January 2016 to 31 December 2016 and in the comparable period the revenues from no single contractor exceeded 10% of the sales revenue of the Company.

Non – current assets – geographical breakdown 

The property, plant and equipment of KGHM Polska Miedź S.A. are located in Poland.

Cash expenditures on property, plant and equipment and intangible assets 

 
2016
2015
Cash expenditures on mining and metallurgical assets
2 585
2 442
Cash expenditures on other property, plant and equipment and intangible assets
19
39