2. Operating segments
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
| 2017 | 2016 | |
|---|---|---|
| Electrolytic copper (kt), of which: | 522.0 | 535.6 |
| - electrolytic copper from own concentrates (kt) | 358.9 | 375.9 |
| Silver (t) | 1 218.1 | 1 191.1 |
| C1 unit cash cost of payable copper production from own concentrate (USD/lb)* | 1.52 | 1.30 |
*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
| 2017 | 2016 | |
|---|---|---|
| Sales revenue | 16 024 | 15 112 |
| Cost of sales, selling costs and administrative expenses* | (12 889) | (12 517) |
| Depreciation/amortisation recognised in profit or loss | (1 035) | ( 956) |
| EBITDA | 4 160 | 3 551 |
| Adjusted EBITDA | 4 160 | 3 551 |
| Profit/(loss) for the period | 1 323 | (4 085) |
| including: (recognition)/reversal of impairment losses on non-current assets | (940) | (6 197) |
*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
| 2017 | 2016 | |
|---|---|---|
| Loss for the period | 1 323 | (4 085) |
| [-] Current and deferred income tax | (831) | ( 710) |
| [-] Depreciation/amortisation recognised in profit or loss | (1 035) | ( 956) |
| [-] Finance income/(costs) | 1 033 | ( 541) |
| [-] Other operating income and costs | (2 004) | (5 429) |
| [=] EBITDA | 4 160 | 3 551 |
| [=] Adjusted EBITDA | 4 160 | 3 551 |
| 2017 | 2016 | |
|---|---|---|
| Profit on sales | 3 125 | 2 595 |
| [-] Depreciation/amortisation recognised in profit or loss | (1 035) | ( 956) |
| [=] EBITDA | 4 160 | 3 551 |
| [=] Adjusted EBITDA | 4 160 | 3 551 |
Segment assets and liabilities
| 2017 | 2016 | |
|---|---|---|
| Assets | 30 947 | 30 100 |
| Liabilities | 13 691 | 14 200 |
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 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
| 2017 | 2016 | |
|---|---|---|
| Copper | 12 127 | 10 490 |
| Copper in concentrate* | (6) | 202 |
| Silver | 2 447 | 2 596 |
| Silver in concentrate** | 86 | 574 |
| Gold | 556 | 556 |
| Services | 142 | 93 |
| Other | 672 | 601 |
| TOTAL | 16 024 | 15 112 |
* Value of payable copper less processing premium (TC), copper refining premium (RCCu) and other deductions impacting the value of concentrate, apart from the silver refining premium.
** value of payable silver less the silver refining premium (RcAG). The negative value in 2017 was a result of final settlement of sales realised in 2016.
Sales revenue – geographical breakdown reflecting the location of end clients
| 2017 | 2016 | |
|---|---|---|
| Europe | ||
| Poland | 4 134 | 3 790 |
| Germany | 2 147 | 2 283 |
| The United Kingdom | 1 776 | 1 607 |
| Czechia | 1 358 | 1 172 |
| France | 990 | 599 |
| Switzerland | 765 | 616 |
| Hungary | 652 | 500 |
| Italy | 411 | 288 |
| Austria | 255 | 192 |
| Romania | 101 | 57 |
| Slovakia | 86 | 69 |
| Slovenia | 68 | 53 |
| Denmark | 68 | 139 |
| Sweden | 50 | 5 |
| Bulgaria | 16 | 79 |
| Belgium | 6 | 36 |
| Spain | 4 | 139 |
| Other countries (dispersed sale) | 92 | 78 |
| North America | ||
| The United States of America | 443 | 641 |
| Other countries (dispersed sale) | 1 | 1 |
| Australia | ||
| Australia | - | 127 |
| Asia | ||
| China | 2 159 | 1 485 |
| Turkey | 268 | 134 |
| India | 156 | 159 |
| Singapore | 3 | 676 |
| South Korea | - | 208 |
| Other countries (dispersed sale) | 14 | 112 |
| Africa | 1 | 1 |
| TOTAL | 16 024 | 15 112 |
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
| | 2017 | 2016 |
|---|---|---|
| Cash expenditures on mining and metallurgical assets | 1 970 | 2 585 |
| Cash expenditures on other property, plant and equipment and intangible assets | 21 | 19 |