6. Investments in subsidiaries and joint ventures
Note 6.1 Subsidiaries and joint ventures
Accounting policies |
|---|
| In the financial statements of the Company, subsidiaries are those entities which are directly controlled by the Company. In the financial statements, investments in subsidiaries, which are not classified as available for sale, are measured at cost plus any granted non-returnable payments, including for the coverage of losses presented in the financial statements of a subsidiary, less any impairment losses. Impairment is measured by comparing the carrying amount with the higher of the following amounts: - fair value, less costs to sell; and - value in use. The Company holds interest in joint ventures which are joint contractual arrangements, in which the parties sharing control have the right to the net assets of a given entity. Interest in joint ventures is initially recognised at cost, and as at the end of subsequent reporting periods it is recognised at cost, less impairment losses. |
| Part 3 Note 4.2 | As at 1 January | 2 002 | 6 858 |
| Acquisition of shares or of newly-issued shares | - | 4 | |
| Recognition of impairment losses * | (330) | (4 856) | |
| Recognition of impairment losses * | 1 368 | - | |
| Other | ( 27) | (4) | |
| As at 31 December | 3 013 | 2 002 |
*As at 31 December 2016, the Company recognised an impairment loss on the involvement in KGHM INTERNATIONAL LTD., understood as the total value of shares in the company Future 1 Sp. z o.o. and the value of loans granted to the companies Future 1 Sp. z o.o. and KGHM INTERNATIONAL LTD. There was an impairment loss on the shares in Future 1 Sp. z o.o. in the amount of PLN 4 770 million, and an impairment allowance on loans granted in the amount of PLN 1 130 million. Such a recognition of impairment losses is based on the assumption adopted at that time that equity instruments should be the first to which impairment rules are applied, and after that an allowance for impairment is applied to debt financial instruments.
In 2017 the Company engaged in reorganising the manner of financing the Group’s international investments, which aims to simplify the multi-level structure of financing the international assets in such a way as to make a Polish company – that is, KGHM Polska Miedź S.A. or its subsidiary Future 1 Sp. z o.o. – the direct creditor of subsidiaries operating internationally.
As part of this process, the Company conducted an in-depth analysis of streams of realisation of the recoverable amount of the investment in KGHM INTERNATIONAL LTD. within the Group’s structure (the Company considers the repayment of granted loans and dividend payments by subsidiaries as being such streams).
As the result of this analysis, as at 30 June 2017 the Company reallocated the impairment loss on international investments between the equity instruments and the debt instruments. As a result of the above, the carrying amount of shares in Future 1 Sp. z o.o. increased by PLN 1 368 million as compared to the carrying amount as at 31 December 2016 and the carrying amount of loans granted to Future 1 Sp. z o.o. and KGHM INTERNATIONAL LTD., after including the foreign exchange gains in the amount of PLN 272 million, decreased by PLN 1 096 million as compared to the carrying amount as at 31 December 2016 (Note 6.2).
In the next step of the reorganisation, the Group companies participating in this process entered into loan, direction payment and set-off agreements, on the basis of which a part of the intragroup balances were settled. The reorganisation was of a non-cash nature and did not have an impact on the profit for the period.
As at 31 December 2017, in accordance with IAS 36 Impairment of assets, the Company assessed the recoverable amount of the involvement in KGHM INTERNATIONAL LTD., understood as the total value of shares in the company Future 1 Sp. z o.o and the value of loans granted to Future 1 Sp. z o.o. and KGHM INTERNATIONAL LTD. As a result of the measurement of the recoverable amount of the aforementioned assets, the Company recognised an impairment loss on shares in Future 1 Sp. z o.o. in the amount of PLN 330 million and an allowance for impairment of loans granted to KGHM INTERNATIONAL LTD. in the amount of PLN 606 million.
The most significant investments in subsidiaries (direct share)
| Entity | Head Office | Scope of activities | Carrying amount of shares/investment certificates | |
|---|---|---|---|---|
| 2017 | 2016 | |||
| FUTURE 1 Sp.z o.o. | Lubin | management and control of other companies, including the KGHM INTERNATIONAL LTD. Group | 1 037 | - |
| "Energetyka" sp. z o.o. | Lubin | generation, distribution and sale of electricity and heat | 505 | 505 |
| KGHM Metraco S.A. | Legnica | trade, agency and representative services | 335 | 335 |
| KGHM I FIZAN | Wrocław | cash investing in securities, money market instruments and other property rights | 437 | 437 |
As at 31 December 2017 and as at 31 December 2016, the % of share capital held as well as the % of voting power in the above-mentioned subsidiaries was 100%.
Note 6.2 Receivables due to loans granted
| Accounting policies |
|---|
| Assets classified, in accordance with IAS 39, in the category of “loans and receivables” are initially recognised at fair value and are measured at the end of the reporting period at amortised cost using the effective interest rate method, including impairment. |
| 2017 | 2016 | |
|---|---|---|
| As at 1 January | 7 330 | 6 755 |
| Loans granted | 499 | 834 |
| Accrued interest | 298 | 374 |
| Reallocation of an allowance for impairment | (1 368) | - |
| Reallocation of an allowance for impairment Write-off of interest | (606) | (1 130) |
| Utilisation of an allowance for impairment due to writing-off the interest | (202) | - |
| Foreign exchange gains on the measurement of the reallocation of the allowance for impairment | 272 | - |
| Other exchange differences | (1 425) | 506 |
| Repayment of the loan | (19) | (5) |
| Other | - | ( 4) |
| Total changes | (2 349) | 575 |
| As at 31 December | 4 981 | 7 330 |
| of which: | ||
| non-current receivables | 4 972 | 7 310 |
| current receivables | 9 | 20 |
The most significant items are loans granted to the companies of the KGHM Polska Miedź S.A. Group, connected with the realisation of mining projects executed by indirect subsidiaries of KGHM Polska Miedź S.A. from the KGHM INTERNATIONAL LTD. Group.
Interest income on loans granted in 2017 amounted to PLN 300 million (in 2016: PLN 376 million) and was recognised in other operating income (Note 4.2).