8. Borrowings and the management of liquidity and capital
Note 8.1 Capital management policy
Capital management in the Company is aimed at securing funds for business development and maintaining the appropriate level
of liquidity. To this end, the Management Board of the Company analyses ratios calculated on the basis of consolidated financial data.
In accordance with market practice, the Company monitors the Group’s capital, among others using ratios presented in the table below, which were calculated on the basis of data presented in the Consolidated Financial Statements of the KGHM Group for 2017:
Ratios: | Calculations: | 2017 | 2016 |
---|---|---|---|
Net Debt/EBITDA | relation of net debt to EBITDA | 1,3 | 1,6 |
Net Debt | borrowings, debt instruments and finance lease liabilities less free cash and short term investments with a maturity of up to 1 year | 6 577 | 7 262 |
EBITDA* | profit on sales plus depreciation/amortisation recognised in profit or loss and impairment losses on non-current assets | 5 144 | 4 477 |
Equity ratio | relation of equity less intangible assets to total assets | 0,5 | 0,4 |
Equity | assets of the Group after deducting all of its liabilities | 17 785 | 15 911 |
Intangible assets | identifiable non-cash items of assets without a physical form | 1 656 | 2 682 |
Equity less intangible assets | 16 129 | 13 229 | |
Total assets | sum of non-current and current assets | 34 122 | 33 442 |
*Adjusted EBITDA for the period of 12 months ended on the last day of the reporting period and does not include the EBITDA of the joint venture Sierra Gorda S.C.M.
In the management of liquidity and capital, the Group pays also attention to adjusted operating profit, which is the basis for calculating the financial covenants and which is comprised of the following items:
2017 | 2016 | |
---|---|---|
Profit on sales | 3 811 | 2 544 |
Interest on loans granted to joint ventures | 319 | 633 |
Other operating income and costs | (2 377) | (802) |
Adjusted operating profit* | 1 753 | 2 375 |
*Presented amount does not include impairment loss on interest in joint ventures and loans granted to joint ventures
In order to maintain financial liquidity and the creditworthiness to acquire external financing at an optimum cost, the Group aims to maintain the equity ratio, in the long-term, at a level of not less than 0.5, and the ratio of Net Debt/EBITDA at a level of up to 2.0.
Note 8.2 Equity
Accounting policies |
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Share capital is recognised at nominal value. Other reserves from measurement of financial instruments (Note 7.2 of accounting policies) arises from the measurement of cash flow hedging instruments and the measurement of available-for-sale financial assets less any deferred tax effect. Accumulated other comprehensive income consists of actuarial gains/losses on post-employment benefits less any deferred tax effect (Part 11 of the accounting policies). Retained earnings are a sum of profit for the current year and accumulated profits from previous years, which has not been paid out as dividends, but increased the reserve capital or was not distributed. |
Note 8.2.1 Share capital
As at 31 December 2017 and at the date of signing of these financial statements, the Company’s share capital, in accordance with the entry in the National Court Register, amounted to PLN 2 000 million and was divided into 200 000 000 shares, series A, fully paid, each having a face value of PLN 10. All of the shares are bearer shares. The Company has not issued preference shares. Each share grants the right to one vote at the general meeting. The Company does not have treasury shares. Subsidiaries do not have shares of KGHM Polska Miedź S.A.
In the years ended 31 December 2017 and 31 December 2016 there were no changes in either registered share capital or in the number of issued shares.
In 2017 there were no changes in the ownership of significant blocks of shares of KGHM Polska Miedź S.A.
In 2016, Nationale-Nederlanden Otwarty Fundusz Emerytalny (managed by Nationale-Nederlanden Powszechne Towarzystwo Emerytalne S.A.) exceeded 5% threshold in the total number of votes at the General Meeting of the Company.
As far as the Company’s is aware, as at 31 December 2017 and as at the date of signing of these financial statements, the Company’s shareholder structure was as follows:
shareholder | number of shares/votes | total nominal value of shares | percentage held in share capital/total number of votes |
---|---|---|---|
State Treasury | 63 589 900 | 635 899 000 | 31,79% |
Nationale-Nederlanden Otwarty Fundusz Emerytalny | 10 104 354 | 101 043 540 | 5,05% |
Other shareholders | 126 305 746 | 1 263 057 460 | 63,16% |
Total | 200 000 000 | 2 000 000 000 | 100,00% |
Note 8.2.2 Changes of other equity items
Note | Other reserves from measurement of financial instruments | Accumulated other comprehensive income | Retained earnings | |||||
---|---|---|---|---|---|---|---|---|
Other reserves from measurement of available-for-sale financial assets | Other reserves from measurement of cash flow hedging financial instruments | Total other reserves from measurement of financial instruments | Reserve capital created in accordance with the Commercial Partnerships and Companies Code, art. 396 | Reserve capital created from profit in accordance with the Company’s Statutes | Profit/(loss) from previous years | |||
As at 1 January 2016 | 7 | ( 110) | ( 103) | ( 342) | 660 | 20 852 | (2 788) | |
Dividends paid | - | - | - | - | - | ( 300) | - | |
Covering the loss by reserve capital | - | - | - | - | - | (2 788) | 2788 | |
Total comprehensive income, of which: | 41 | ( 134) | ( 93) | 99 | - | - | (4 085) | |
Loss for the year | - | - | - | - | - | - | (4 085) | |
Other comprehensive income | 41 | ( 134) | ( 93) | 99 | - | - | - | |
Fair value gains after prior impairments | 51 | - | 51 | - | - | - | - | |
7.2 | Impact of effective cash flow hedging transactions entered into | - | ( 162) | ( 162) | - | - | - | - |
7.2 | Amount transferred to profit or loss due to the reclassification of hedging instruments | - | ( 3) | ( 3) | - | - | - | - |
11.2 | Actuarial gains on post-employment benefits | - | - | - | 122 | - | - | - |
5.1.1 | Deferred income tax | ( 10) | 31 | 21 | ( 23) | - | - | - |
As at 31 December 2016 | 48 | ( 244) | ( 196) | ( 243) | 660 | 17 764 | (4 085) |
Note | Other reserves from measurement of financial instruments | Accumulated other comprehensive income | Retained earnings | |||||
---|---|---|---|---|---|---|---|---|
Other reserves from measurement of available-for-sale financial assets | Other reserves from measurement of cash flow hedging financial instruments | Total other reserves from measurement of financial instruments | Reserve capital created in accordance with the Commercial Partnerships and Companies Code, art. 396 | Reserve capital created from profit in accordance with the Company’s Statutes | Profit/(loss) from previous years | |||
As at 1 January 2016 | 48 | (244) | (196) | ( 243) | 660 | 17 764 | (4 085) | |
Dividends paid | - | - | - | - | - | (200) | - | |
Transfer to reserve capital | - | - | - | - | - | (4 085) | 4 085 | |
Total comprehensive income, of which: | 30 | ( 308) | 338 | (105) | - | - | 1 323 | |
Profit for the year | - | - | - | - | - | - | 1 323 | |
Other comprehensive income | 30 | ( 308) | 338 | (105) | - | - | - | |
Fair value gains after prior impairments | 37 | - | 37 | - | - | - | - | |
7.2 | Impact of effective cash flow hedging transactions entered into | - | 397 | 397 | - | - | - | - |
7.2 | Amount transferred to profit or loss due to the reclassification of hedging instruments | - | ( 16) | ( 16) | - | - | - | - |
11.2 | Actuarial gains on post-employment benefits | - | - | - | (130) | - | - | - |
5.1.1 | Deferred income tax | (7) | (73) | (80) | 25 | - | - | - |
As at 31 December 2017 | 78 | 64 | ( 142) | ( 348) | 660 | 13 479 | 1 323 |
Based on the Act of 15 September 2000 the Commercial Partnerships and Companies Code, the Company is required to create reserve capital for any potential (future) or existing losses, to which no less than 8% of a given financial year’s profit is transferred until the reserve capital has been built up to no less than one-third of the registered share capital. The reserve capital created in this manner may not be employed otherwise than in covering the loss reported in the financial statements.
As at 31 December 2017 the statutory reserve capital in the Company amounts to PLN 660 million, and is recognised in retained earnings in reserve capital item created in accordance with the art. 396 of Commercial Partnerships and Companies Code. Information related to dividends paid may be found in Note 12.2.
Note 8.3 Liquidity management policy
The Management Board is responsible for financial liquidity management in the Company and compliance with adopted policy.
The Financial Liquidity Committee is a unit supporting the Management Board in this regard.
The management of financial liquidity is performed in accordance with the Financial Liquidity Management Policy (Policy) approved by the Management Board. This document describes in a comprehensive way the process of managing the Company's financial liquidity, indicating the best practice procedures and instruments. The basic principles resulting from this document are:
- assuring the stable and effective financing of the Company’s activities,
- investment of financial surpluses in safe financial instruments,
- limits for individual financial investment categories,
- limits for the concentration of funds in financial institutions,
- the investment level rating for banks, in which the funds are deposited, and
- effective management of working capital.
Under the process of liquidity management, the Company utilises instruments which enhance its effectiveness. One of the primary instruments used by the Company is the Cash Pool service, managed both locally in PLN, USD and EUR and internationally in USD.
The Cash Pool service is aimed at optimising the management of cash resources, enabling control of interest costs, the effective financing of current working capital needs and the support of short-term financial liquidity in the Group.
Note 8.3.1 Contractual maturities for financial liabilities
Financial liabilities – as at 31 December 2017
Financial liabilities | Contractual maturities from the end of the reporting period | Total (without discounting) | Carrying amount | ||
---|---|---|---|---|---|
up to 12 months | 1-3 years | over 3 years | |||
Borrowings | 970 | 1 212 | 5 137 | 7 319 | 7 008 |
Cash pool liabilities | 160 | - | - | 160 | 160 |
Trade payables | 1 719 | 17 | 365 | 2 101 | 1 882 |
Derivatives – currency contracts* | - | - | - | - | 24 |
Derivatives – Commodity contracts – metals* | 4 | - | - | 4 | 134 |
Other financial liabilities | 113 | 9 | 21 | 143 | 139 |
Total financial liabilities by maturity | 2 966 | 1 238 | 5 523 | 9 727 | |
Financial liabilities – as at 31 December 2016
Financial liabilities | Contractual maturities from the end of the reporting period | Total (without discounting) | Carrying amount | ||
---|---|---|---|---|---|
up to 12 months | 1-3 years | over 3 years | |||
Borrowings | 1 550 | 381 | 6 277 | 8 208 | 7 932 |
Trade payables | 1 372 | 33 | 351 | 1 756 | 1 542 |
Derivatives – Currency contracts* | 101 | - | - | 101 | 277 |
Derivatives – commodity contracts - metals * | - | - | - | - | 61 |
Other financial liabilities | 100 | 11 | 24 | 135 | 131 |
Total financial liabilities by maturity | 3 123 | 425 | 6 652 | 10 200 | |
*Financial liabilities arising from derivatives are calculated at their intrinsic values excluding the discount effect.
Note 8.4 Borrowings
Accounting policies |
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Liabilities arising from borrowings are initially recognised at fair value less transaction costs and are measured at amortised cost at the reporting date. Accrued interest is recognised in finance costs, unless it is capitalised in the value of property, plant and equipment or intangible assets. |
Note 8.4.1 Net debt
| 2017 | 2016 |
---|---|---|
Bank loans* | 4 265 | 4 785 |
Loans | 1 820 | 1 638 |
Total non-current liabilities due to borrowings | 6 085 | 6 423 |
Bank loans | 802 | 1 468 |
Loans | 121 | 41 |
Cash pool liabilities | 160 | - |
Total current liabilities due to borrowings | 1 083 | 1 509 |
Total borrowings | 7 168 | 7 932 |
Free cash and cash equivalents | 231 | 481 |
Net debt | 6 937 | 7 451 |
* Presented amounts include the preparation fee paid which decreases financial liabilities due to bank loans
Borrowings by currency (translated into PLN) and by type of interest rate
| 2017 | 2016 |
---|---|---|
USD/LIBOR* | 6 935 | 7 959 |
EUR/EURIBOR | 73 | - |
PLN/EURIBOR | 160 | - |
Total | 7 168 | 7 932 |
* presented amounts do not include the preparation fee paid which decreases financial liabilities due to bank loans
As at 31 December 2017 liabilities due to borrowing amounted to PLN 7 168 million, or USD 1 998 million, EUR 17 million and PLN 160 million (as at 31 December 2016 the debt amounted to PLN 7 932 million, or USD 1 904 million). The decrease in value of debt in PLN is a result of a lower USD/PLN exchange rate. The structure of debt was on a level similar to the one recorded in 2016. In the current part, under bilateral agreements in the amount of PLN 3 208 million signed with banks, the Company has a constant and ongoing access to working capital facilities and overdraft facilities with maturities of up to 2 years. As a result of the above, and that financing availability of these bilateral agreements is successively extended for subsequent periods, the Company considers the liquidity risk connected to the received short-term bank loans as low.
Note 8.4.2 Net debt changes
As at 31 December 2016 | Cash flows | Accrued interest | Exchange differences | Other changes | As at 31 December 2017 | |
Liabilities due to borrowing | ||||||
Bank loans | 6 253 | (349) | 136 | (979) | 6 | 5 067 |
Loans | 1 679 | 543 | 56 | (337) | - | 1 941 |
Cash pool liabilities | - | 158 | 2 | - | - | 160 |
Total dept | 7 932 | 352 | 194 | (1 316) | 6 | 7 168 |
Free cash and cash equivalents | 481 | (250) | - | - | - | 231 |
Net dept | 7 451 | 6 937 |
As at 31 December 2015 | Cash flows | Accrued interest | Exchange differences | Other changes | As at 31 December 2016 | |
Liabilities due to borrowing | ||||||
Bank loans | 5 646 | 59 | 137 | 407 | 4 | 6 253 |
Loans | 1 176 | 359 | 42 | 102 | - | 1 679 |
Total dept | 6 822 | 418 | 179 | 509 | 4 | 7 932 |
Free cash and cash equivalents | 156 | 325 | - | - | - | 481 |
Net dept | 6 666 | 7 451 |
Currency risk and interest rate risk are related to borrowings. A description of exposures to financial risks may be found in Note 7.5.
Note 8.4.3 Detailed information concerning main sources of borrowings
As at 31 December 2017, the Company had open credit lines and an investment loan with a total balance of available financing in the amount of PLN 14 811 million, out of which PLN 7 029 million had been drawn (as at 31 December 2016 the Company had open credit lines and an investment loan with a total balance of available financing in the amount of PLN 15 483 million, out of which PLN 7 959 million had been drawn).
The structure of financing sources is presented below.
2017 | Amount drawn | 2016 | |
---|---|---|---|
Amount available | Amount drawn | ||
1. Unsecured, revolving syndicated credit facility in the amount of USD 2 500 million, obtained on the basis of a financing agreement concluded with a syndicate of banks in 2014 with a maturity of 9 July 2021. The funds acquired through this credit facility are used to finance general corporate purposes, including expenditures related to the continued advancement of investment projects. Interest on the credit facility is based on LIBOR plus a margin, depending on the net debt/EBITDA ratio. The credit facility agreement obliges the Company to comply with the financial covenant and non-financial covenants. As at 31 December 2017, during the reporting period and up to the date of authorising the financial statements for issue, there were no instances of violation of the covenants stipulated in the aforementioned agreement. | 8 703 | 3 483* | 4 809* |
2.Investment loans from the European Investment Bank for the total amount of PLN 2 900 million. 2.1 The investment loan in the amount of PLN 2 000 million, with three instalments drawn and the payback periods expiring on 30 October 2026, 30 August 2028 and 23 May 2029 and utilised to the maximum available amount. The funds acquired through this loan are used to finance Company investment projects related to modernisation of metallurgy and development of the Żelazny Most tailings storage facility. 2.2 The investment loan in the amount of PLN 900 million granted by the European investment Bank in December 2017 with a financing period of 12 years, and the availability of instalments for a period of 22 months from the date of signing. The loan can be used in the form of non-revolving instalments in PLN, EUR or USD, with either a fixed or variable interest rate of WIBOR, LIBOR or EURIBOR plus a margin. The funds acquired through this loan will be used to finance Company projects related to development and replacement projects at various stages of the production process. The loan agreements oblige the Company to comply with the financial and non-financial covenants. As at 31 December 2017, during the reporting period and up to the date of authorising the financial statements for issue, there were no instances of violation of the covenants stipulated in the aforementioned agreements. | 2 900 | 1 941 | 1 679 |
3.Other bank loans in the total amount of PLN 3 208 million, used for financing working capital and supporting the management of current financial liquidity. The Company holds lines of credit in the form of short-term and long-term credit agreements. These are working capital facilities and overdraft facilities with availability of up to 2 years. The maturities of these agreements are successively extended for subsequent periods. The funds under open lines of credit are available in PLN, USD and EUR, with interest based on variable WIBOR, LIBOR and EURIBOR plus a margin. | 3 208 | 1 605 | 1 471 |
14 811 | 7 029 | 7 959 |
*Presented amounts do not include the preparation fee which decreases financial liabilities due to bank loans
These sources ensure the availability of external financing in the amount of PLN 14 811 million. Funds available for use from these sources in the amount of PLN 7 782 million fully cover the medium and long-term liquidity needs of the Company and the Group.
The syndicated credit in the amount of USD 2 500 million, the investment loans in the amount of PLN 2 900 million, and other bank loans in the amount of PLN 3 208 million, are unsecured.
Note 8.5 Cash and cash equivalents
Accounting policies |
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Cash and cash equivalents includes mainly cash in bank accounts and deposits with original maturities of up to three months from the date of their placement (the same applies to the statement of cash flows). Cash is measured at nominal amount plus interest. |
| 2017 | 2016 |
---|---|---|
Cash in bank accounts | 37 | 62 |
Other financial assets with a maturity of up to 3 months from the date of acquisition - deposits | 197 | 420 |
Total | 234 | 482 |
Note 8.6 Contingent liabilities due to guarantees granted
Guarantees and letters of credit are an essential financial liquidity management tool of the Group, thanks to which the Group companies do not have to use their cash in order to secure their liabilities towards other entities. Information on contingent liabilities may be found in Note 12.5.
As at 31 December 2017, the Company held contingent liabilities due to guarantees and letters of credit granted in the total amount of PLN 2 280 million and due to promissory note liabilities in the amount of PLN 160 million.
The most significant items are contingent liabilities aimed at securing the following obligations:
Sierra Gorda S.C.M. – securing the performance of concluded agreements in the amount of PLN 1 740 million:
- a letter of credit of PLN 479 million granted as security for the proper performance of a long-term contract for the off-take of electricity (as at 31 December 2016 in the amount of PLN 575 million),
- PLN 174 million as corporate guarantees set as security on the payment of concluded lease agreements (as at 31 December 2016 in the amount of PLN 277 million)*,
- PLN 460 million as corporate guarantees securing repayment of short-term working capital facilities (as at
31 December 2016 in the amount of PLN 437 million)*, - PLN 627 million as a corporate guarantee securing repayment of a specified part of payment to guarantees set by Sumitomo Metal Mining Co., Ltd. and Sumitomo Corporation, securing repayment of a corporate credit drawn by the joint venture Sierra Gorda S.C.M. (granted in the first half of 2017).
Other entities:
- securing the restoration costs of the Robinson mine, the Podolsky mine and the Victoria project and obligations related to proper execution of concluded agreements in the amount of PLN 380 million (as at 31 December 2016 in the amount of PLN 387 million),
- securing the proper execution of future environmental obligations of the Company related to the obligation to restore terrain, following the conclusion of operations of the Żelazny Most tailings storage facility – PLN 160 million in the form of a bank guarantee (as at 31 December 2016 in the amount of PLN 96 million) and PLN 160 million in the form of an own promissory note (as at 31 December 2016 in the amount of PLN 224 million).
Based on knowledge held, at the end of the reporting period the Company assessed the probability of payments resulting from contingent liabilities related to:
- Sierra Gorda S.C.M. as low,
- Other entities of the Group as low.
* As part of the analysis of impact of IFRS 9 on the financial statements with respect to the financial guarantees granted to Sierra Gorda, in the Company’s opinion it is necessary to recognise the aforementioned guarantees in the accounting books as per paragraph 4.2.1 point c of IFRS 9. Detailed information may be found in Note 1.4.4 (e).