Operating and financial results

Selected operating and financial data of the KGHM Polska Miedź S.A. Group

Selected operating and financial data of the KGHM Polska Miedź S.A. Group

Revenues of the KGHM Group in 2019 were PLN 2,197 million higher (+11%) than in the same period of the previous year; the revenues of KGHM Polska Miedź S.A. increased by PLN 1,926 million. The increase was driven mainly by the increased volume of copper (+8%) and silver (+13%) sales, but also a more favourable exchange rate coupled with lower prices of copper. At the Group EBITDA level, contributions included higher operating results of KGHM Polska Miedź S.A. (+PLN 203 million, +6%), Sierra Gorda (+PLN 27 million, +4%) and other Group companies in Poland (PLN 40 million, +20%). The Group posted a consolidated net result of PLN 1,421 million.

In 2019, the KGHM Group recorded an increase in payable copper production compared to 2018 by 11% to 702 thousand tonnes. The Group also achieved record high production of silver at 1,417 tonnes, up 18% from the production achieved in 2018 (1,205 tonnes).

Production and sales performance in 2019
Compared to the assumed annual targets

 
Stable and safe financial standing of the KGHM Group

¹⁾ Sum of costs of extraction, flotation and metallurgical processing per cathode, including costs of the support function and cathode sales costs, adjusted by the value of inventories of semi-finished products and production in progress less the value of anode slimes, divided by the production volume of electrolytic copper from own concentrate
²⁾ Capital expenditures on property, plant and equipment – excluding expenditures on development work - uncompleted; other expenditures, including loans – acquisition of shares and investment certificates of subsidiaries and loans granted, excluding the purchase of investment certificates related to restructuring of FIZAN funds in 2019
³⁾ adjusted EBITDA for the 12 month period, ending on the last day of the reporting period, excluding EBITDA of the joint venture Sierra Gorda S.C.M.
⁴⁾ The Net Debt/EBITDA ≤ 2 level results from the Financial Liquidity Policy adopted by the Company and does not represent KGHM’s budgetary assumption for 2019.

Debt of the KGHM Group at the end of Q4 2019

 Main factors affecting interest-bearing debt in 12M 2019

In 2019, capital expenditures on property, plant and equipment amounted to PLN 2,475 million and were 16% higher than in the previous year. Together with expenditures incurred on uncompleted development work, capital expenditures amounted to PLN 2,481 million.

Capital expenditures of KGHM Polska Miedź S.A. after 4 quarters of 2019

 
Main projects financed after 4 quarters of 2019

Deposit Access Program

• In the maintenance and development category, individual projects were systematically implemented in the group of mining projects (48.1 km of mining excavations were made), shaft projects (GG-1 shaft sinking has reached a depth of 1099.3 meters), air-conditioning and energy-mechanical projects.

Copper concentrate roasting installation

• The installation has been successfully commissioned and incorporated in the core production line of the Głogów Copper Smelter and Refinery. Since the commencement of the installation’s continuous operation (in January 2019), 79 thousand tonnes of roasted ore has been produced.

RCR furnace in the Legnica Copper Smelter and Refinery

• The RCR furnace with associated installations has been built and brought on-line. The guarantee parameters have been achieved. The RCR furnace operates in the core production line of the Legnica Copper Smelter and Refinery. The copper scrap processing in the RCR furnace allowed the Legnica Copper Smelter and Refinery to achieve in 2019, for the first time in its history, the total processing of scrap and copper-bearing materials in anode and RCR furnaces at the level of 26 thousand tonnes.

Development of the Żelazny Most Tailings Storage Facility

• The individual stages of the construction project of the southern quarters of the facility were executed on schedule (In December 2019, the overall material progress of the project was at 59%). The work was also under way on building the tailings segregation and compacting station (the overall material progress of the project was 49% in December 2019).

Program to adapt the technological installations to the requirements of BAT Conclusions

• Projects under this program are implemented in the Głogów Copper Smelter and Refinery and in the Legnica Copper Smelter and Refinery. In 2019, hermetic sealing of the conveyor belt system in Głogów and modernization of the dedusting system in shaft furnaces in Legnica were completed. Gas desulphurisation installation for the Kaldo furnace was started up for testing in the Głogów Smelter and Refinery.

Environmental investments and environmental fees

Investment activities comprised projects related to the replacement of equipment and maintaining mine production, as well as development projects.

Projects related to the replacement of equipment aimed at maintaining production equipment in an undeteriorated condition, represent 36% of total expenditures incurred.

Structure of expenditures on the replacement of equipment

Projects related to maintaining mine production aimed at maintaining mine production on the level set in approved Production Plan (development of infrastructure to match mine advancement) represent 31% of total expenditures incurred.

Structure of expenditures on maintenance

Development projects aimed at increasing production volume of the core business, implementation of technical and technological activities optimising the use of existing infrastructure, maintenance of production costs and adaptation of the company’s operations to changes in standards, laws and regulations (adaptation and environmental projects) represent 33% of total expenditures incurred.

Structure of expenditures on development

Szczegółowe informacje na temat realizacji głównych projektów znajdują się w rozdziale 2, Nasza Strategia, niniejszego Raportu Zintegrowanego.

Production results of the KGHM Polska Miedź S.A. Group

Production of payable copper by the Group (reflecting the 55% interest in Sierra Gorda) amounted to 702 thousand tonnes, or one of the highest annual production results in the last ten years. The increase in the Group’s production compared to 2018 by 11% was due to the segment KGHM Polska Miedź S.A. as a result of its higher availability of production lines, including that of the concentrate roasting installation, and to Sierra Gorda S.C.M. as a result of higher extraction and processing of higher copper-grade ore. On the other hand, geological conditions (lower copper content in ore mined in the Sudbury Basin and in the Franke mine) were the main reasons for the decrease in production in the KGHM INTERNATIONAL LTD. segment.

Metal production

• Overrun of the electrolytic copper production plan in KGHM Polska Miedź S.A. driven by increased availability of core production lines, including the correct operation of copper concentrate roasting plant.
• Higher-than-planned production of electrolytic copper by KGHM Polska Miedź S.A. driven by increased availability of core production lines, including proper operation of the copper concentrate roasting plant.
• Increase in the production of payable copper by the Sierra Gorda mine as a result of higher extraction and processing of ore and higher copper content in ore.

Production results KGHM Polska Miedź S.A

Production results  Sierra Gorda

Production results KGHM INTERNATIONAL

Structure of consolidated sales revenue

The geographic and product structure of the consolidated sales revenue of the Group are presented in the following charts. In accordance with the adopted principle of consolidation by the equity method, sales revenue do not include revenues of the segment Sierra Gorda S.C.M.

C1 unit cost in the Group

in the Group.

Production results of KGHM Polska Miedź S.A

The main goals set by the Management Board in terms of production and occupational health and safety for 2019 were:

•  optimal utilisation of the resource base and of the production capacity of the Company, and
• optimisation of Cu content in ore and concentrate.

The goals set required completion or continuation of the following actions

in mining	expanding mining operations within the Deep Głogów (Głogów Głęboki-Przemysłowy) area, improvement of the ore extraction technology, greater mining efficiency and improved occupational health and safety, by: adapting the geometry of mining systems to local geological and mining conditions improving the efficiency of technological and active methods of limiting the threat of rock bursts and of other associated natural threats, proper barren rock management in mining areas (selective extraction, siting of rock, mechanical ore mining), a greater scope of work with respect to identifying gas-related threats and the use of new technical solutions and means of prevention to counteract this threat, commencing work related to assessing the Retków copper ore deposit in the Grodziszcze area, continued work on connecting the T/W-169 tunnel network with the projected sub-shaft area  of the GG-1 shaft, construction of the GG-1 shaft, shaft sinking has reached a depth of 1099.3 meters, commencement of construction of the central air conditioning station at the GG-1 shaft, advancement of Stage 1 of the Project „Construction of the GG-2 shaft” – an agreement was signed with the Gmina (municipality) of Żukowice and work related to planning commenced, maintaining the efficiency of mining vehicles in an assortment required to execute production tasks, and     realisation of the planned scope of mine development and access work using the commissioning system at the level of 61.3 thousand running meters,
in ore processing	maintaining the production capacity of individual Concentrators Division Areas to process the amount and quality of ore supplied,      maintaining the production of concentrates in an amount and quality necessary for optimal use of the production capacity of the furnace sections of the smelters and refineries,      continuation at the Rudna Concentrator Division of separating the concentrate produced into two concentrates with varied organic carbon content,      mproving flotation technology,
in metallurgy	optimum utilisation of infrastructure enabled production targets to be fully met with respect to the main products, Metallurgy Development Program (MDP), with respect to: continued construction and assembly work on key technological links under the program’s component investment tasks, including the concentrate roasting installation, commencement of construction involving replacement of the roof of the tankhouse at the Głogów I Copper Smelter and Refinery, achievement of the targeted copper recovery level in the core flash furnace production line by implementing new technological solutions, such as improving the process of de-copperizing convertor slag,  increasing the availability of revolving–reverberatory furnaces at the Lead Section, resulting in high lead recovery alongside lower Pb content in charge materials,     increasing the role of recycling in production thanks to the start-up of the revolving-casting-refining (RCR) furnace for processing copper scrap at the Legnica Copper Smelter and Refinery in April 2019
in occupational health and safety	advancement, in line with the Company’s new strategy, of the Program to improve occupational health and safety in KGHM Polska Miedź S.A. “Think About the Consequences” to the year 2023, advancement of a Program to negate the most common safety hazards by using innovative technology, implementation of a uniform approach to communicating policies, the vision, mission and the golden principles with respect to OHS, constant monitoring of occupational hazards and execution of organisational and technical goals aimed at limiting occupational risks and accidents, continuous improvement of the occupational safety and hygiene management system by the Divisions of KGHM Polska Miedź S.A. and conceptualisation of the implementation of the new OHS ISO 45001:2018 standard, and commencing new organisational and research initiatives aimed at improving occupational health and safety, in particular in the Company’s mines.

Mining production

In 2019 extraction of ore (dry weight) amounted to 29.9 million tonnes, which was 0.4 million tonnes less than in 2018. 

Average copper content in extracted ore amounted to 1.50% and was higher than the level achieved in 2018 due to mining in regions with a higher copper ore content. The content of silver in the ore extracted was at a similar level of 48.7 g/tonne. 

As a result the volume of copper in extracted ore was lower than in 2018 by 2.7 thousand tonnes of Cu and amounted to 449.3 thousand tonnes.

The volume of silver in ore decreased by 15.5 tonnes and amounted to 1,455.9 t. In 2019, 29.9 million tonnes of ore (dry weight) were processed (364 thousand tonnes less than in 2018). 

The lower amount of ore extracted by the mines directly affected the amount of copper in concentrate, which was 398.9 thousand tonnes. The production of concentrate (dry weight) increased as compared to 2018 by 2.2 thousand tonnes, while the amount of silver in concentrate was lower than the amount produced in 2018 by 1%.

Mine production of KGHM Polska Miedź S.A.

	J.m.	2019	2018	Change (%)	IVQ'19	IIIQ'19	IIQ'19	IQ'19
Mined ore (wet weight)	mln t	31,4	31,8	(1,3)	7,4	8,1	7,9	8,0
Ore extraction (dry weight)	mln t	29,9	30,3	(1,3)	7,1	7,7	7,5	7,6
Copper grade	%	1,50	1,49	+0,7	1,49	1,51	1,51	1,50
Copper in ore	kt	449,3	452,0	(0,6)	105,0	116,9	113,9	113,5
Silver grade	g/t	48,7	48,6	+0,2	48,7	47,9	49,6	48,5
Silver grade	t	1 455,9	1 471,4	(1,1)	343,9	370,1	374,6	367,3
Production of concentrate (dry weight)	kt	1 763	1 761	+0,1	418	461	446	439
Copper in concentrate	kt	398,9	401,3	(0,6)	94,1	104,7	101,0	99,2
Silver content in concentrate	t	1 249,0	1 264,3	(1,2)	296,9	319,0	321,6	311,5

Smelting production

The production of electrolytic copper as compared to 2018 increased by 63.8 thousand tonnes, or by 13%. The higher production of electrolytic copper was the result of the on-going optimisation of charge materials, the higher availability of production lines and the proper operation of the concentrate roasting installation. By supplementing own concentrate with purchased metal-bearing materials in the form of scrap, copper blister and imported concentrate, existing production capacity was effectively used.

The production of other metallurgical products (silver, wire rod, OFE rod and round billets) derives from the level of electrolytic copper production and depends on the type of raw material used, and above all on market demand.

In comparison to 2018, the production of metallic gold increased by 20.5 koz t, or 25%, and metallic silver production was higher by 211.4 tonnes, closing the year at 1,400.2 tonnes. 

Metallurgical production of KGHM Polska Miedź S.A

	J.m.	2019	2018	Change (%)	IVQ'19	IIIQ'19	IIQ'19	IQ'19
Electrolytic copper, including:	kt	565,6	501,8	+12,7	137,9	141,0	144,9	141,7
- production from own concentrates	kt	418,3	385,3	+8,6	105,2	105,6	103,3	104,2
- production from purchased metal-bearing materials	kt	147,3	116,5	+26,4	32,8	35,3	41,6	37,5
Wire rod, OFE and CuAg rod	kt	266,1	266,4	(0,1)	56,0	74,3	68,2	67,6
Round billets	kt	14,9	15,8	(5,7)	3,7	4,4	2,8	4,0
Metallic silver	t	1 400,2	1 188,8	+17,8	382,3	313,3	383,6	321,0
Metallic gold	ktroz	103,7	83,2	+24,6	32,3	20,8	30,8	19,8
Refined lead	kt	30,1	30,1	-	8,0	6,7	7,8	7,6

Main production goals

The main goals set by the Management Board in terms of production and occupational health and safety for 2020 are a continuation of actions taken in 2019, i.e.

• optimal utilisation of the resource base and of the production capacity of the Company, and
• optimisation of Cu content in ore and concentrate

Key tasks in 2020

in mining	access and development work to intersect the deposit in the Deep Głogów mining area,     continuation of work related to exploration of the Retków copper ore deposit in the Grodziszcze area,      continuation of work related to prevention of gas-related threats (hydrogen sulphide and methane) and the use of new scientific solutions and means of prevention to counteract this threat,      continuation of work related to utilising the capacity of the input and output ventilation shafts in the interconnected mine ventilation system,      achieving a level of dilution of the extracted ore which is adequate to the deposit’s parameters,     continuation of the GG-1 shaft construction project,      continued construction of the central air conditioning system at the GG-1 shaft,      continuation of Stage 1 of the Project „Construction of the GG-2 shaft” – continuation of planning work, acquisition of legal title to land,      maintaining the efficiency of mining vehicles in an assortment required to execute production tasks,      realisation of the planned scope of mine development and access work using the commissioning system in 2020,
in ore processing	modernising the classification systems,      improving the energy performance of the machinery park in the Concentrators Division,     optimising the concentration process in terms of decreasing the impact of changes in ore quantity-quality parameters by applying the FloVis system,      continued separation of concentrate produced into two products with varied organic carbon content at the Rudna Concentrator Division,      optimising control of the milling units based on visual product parameters and a mill’s sound and vibration characteristics at the Concentrators Division (using the MillVis and ConVis systems),      modernising the carbonate removal installation in the flotation process of the Polkowice Concentrator,      optimising the milling, classification and flotation process,      maintaining the availability of the machine park and the production capacity of individual Concentra tors Division Areas to the amount of ore supplied,      maintaining the production of concentrates in an amount and quality necessary for optimal use of the production capacity of the smelters and refineries.
in metallurgy	minimising environmental impact by actions directed towards improving the effectiveness of the dedusting and hermetic sealing processes to decrease fugitive emissions,      maintaining recovery levels of copper and silver in metallurgical processes and the availability of metallurgical equipment,      improving the productivity of the flash furnace complex at the Głogów I Copper Smelter and Refinery as a result of testing of guarantee parameters for the concentrate roasting installation planned in the second half of 2020,      continuation of the investment in revitalising the tankhouse at Głogów I Copper Smelter and Refinery,      optimum management of semi-finished products between the metallurgical facilities.
in occupational health and safety	consistent implementation of the Program to improve occupational health and safety in KGHM Polska Miedź S.A. “Think About the Consequences”,      conducting pilot research into an anti-collision system for supporting operators (warning the machine’s operator of a potential collision with people or another machine) under a Program to negate the most common safety hazards by using innovative technology,      constant monitoring of occupational hazards and achieving organisational and technical goals aimed at limiting occupational risks and workplace accidents,      constant searching for new organisational and technical solutions aimed at improving occupational safety, in particular in the Company’s mines.      efficient implementation of the occupational safety and hygiene management system by the Divisions of KGHM Polska Miedź S.A. pursuant to the OHS ISO 45001:2018 standard, optimising health care for KGHM Polska Miedź S.A.’s employees, in particular after accidents at work,     efficient transposition of new European and domestic requirements with respect to OHS in the Company.

Sales

In 2019, KGHM Polska Miedź S.A. recorded an 8-percent increase in sales of copper products, which amounted in total to 557.0 thousand tonnes, compared to 514.4 thousand tonnes in 2018. In 2019, there was a substantial increase in sales of copper cathodes to 275.7 thousand tonnes, or by 29% compared to 2018. There were no sales of copper in concentrate. Sales of copper wire rod and OFE rod remained at a similar level, which in 2019 amounted to 267.4 thousand tonnes.  

Sales of metallic silver also rose in 2019 and amounted to 1,393 tonnes, meaning a 21-percent increase compared to 2018. In 2019 there were no sales of silver in concentrate. Gold sales in 2019 amounted to 101.4 thousand troy ounces, which likewise means a substantial increase compared to 2018 (+21%).  

Volume of sale of main products of KGHM Polska Miedź S.A

	J.m.	2019	2018	Change (%)	IVQ'19	IIIQ'19	IIQ'19	IQ'19
Cathodes and cathode parts	kt	275,7	214,3	+28,7	73,4	63,8	71,4	67,1
Copper wire rod and OFE rod	kt	267,4	264,6	+1,1	65,6	67,3	70,2	64,3
Payable copper in concentrate	kt	-	22,3	×	-	-	-	-
Other copper products	kt	13,9	13,2	+5,3	3,3	3,7	3,2	3,7
Total copper and copper products	tkt	557,0	514,4	+8,3	142,3	134,8	144,8	135,1
Metallic silver	t	1 392,8	1 146,8	+21,5	363,7	323,3	380,5	325,3
Payable silver in concentrate	t	-	80,6	×	-	-	-	-
Metallic gold	ktroz	101,4	83,8	+21,0	32,7	18,0	30,4	20,3
Refined lead	kt	30,0	30,5	(1,6)	8,3	6,6	7,3	7,8

 

Total revenues from contracts with customers of KGHM Polska Miedź S.A. in 2019 amounted to PLN 17,683 million, an increase of 12% compared to 2018, when revenues reached PLN 15,757 million. Sales revenue includes the recognition of adjustments due to derivatives and hedging transactions in the amount of PLN 245 million in 2019 (compared to PLN 125 million in 2018), settled under transactions involving the sale of cathodes and cathode parts, wire rod and silver.

Revenues from copper sales rose by 9% in 2019 and amounted to PLN 13,474 million (compared to PLN 12,342 million in 2018). In 2019, there were no revenues from sales of copper in concentrate. 

Revenues from metallic silver sales in 2019 were also higher (+33%) and amounted to PLN 2,789 million compared to PLN 2,101 million in 2018. In 2019, KGHM Polska Miedź S.A. did not achieve revenues from sales of silver in concentrate.   The increase in sales of metallic gold resulted in higher revenues in this regard by 43%, or PLN 543 million, compared to PLN 381 million in 2018.

Wzrost wolumenu sprzedaży złota metalicznego zaowocował wzrostem przychodów z tego tytułu o 43% do poziomu 543 mln PLN, wobec 381 mln PLN w 2018 r.

Revenues from contracts with customers of KGHM Polska Miedź S.A. (in PLN million)

	2019	2018	Change (%)	IVQ'19	IIIQ'19	IIQ'19	IQ'19
Cathodes and cathode parts	6 533	5 097	+28,2	1 739	1 477	1 650	1 667
Copper wire rod and OFE rod	6 611	6 525	+1,3	1 612	1 647	1 747	1 605
Payable copper in concentrate(1	-	400	×	-	-	-	-
Other copper products	330	320	+3,1	77	87	75	91
Total copper and copper products	13 474	12 342	+9,2	3 428	3 211	3 472	3 363
Metallic silver	2 789	2 101	+32,7	785	690	694	620
Payable silver in concentrate (2	-	141	×	-	-	-	-
Metallic gold	543	381	+42,5	186	104	151	101
Refined lead	247	262	(5,7)	71	56	57	63
Other goods and services	394	345	+14,2	121	84	85	105
Merchandise and materials	236	185	+27,6	42	74	56	64
Total sales revenue	17 683	15 757	+12,2	4 633	4 219	4 515	4 316

¹⁾ value of payable copper less treatment charges (TC), Cu refining charges (RcCu) and other deductions impacting the value of Cu concentrate (apart from the Ag refining premium)
²⁾ alue of payable silver less the Ag refining premium (RcAg)

Geographical breakdown of sales

In 2019, KGHM Polska Miedź S.A. earned most of its revenues from domestic sales, which amounted to 25% of total revenues. Amongst KGHM’s other customers, the largest came from China (14%), Germany (14%), the United Kingdom (12%) and Czechia (8%).

The following chart shows the geographic structure of revenues in 2019. Sales revenue includes the result from the settlement of hedging instruments.

Sales revenue of KGHM Polska Miedź S.A. by market

Costs

The Company’s cost of sales, selling costs and administrative expenses (cost of products, goods and materials sold plus selling costs and administrative expenses) in 2019 amounted to PLN 15,291 million and was 14% higher as compared to 2018. The Company’s cost of sales, selling costs and administrative expenses were substantially affected by the change in inventories (change in 2019: PLN +369 million; in 2018: PLN -236 million) and was mainly due to the higher amount of own concentrate processed.

Total expenses by nature in 2019 as compared to 2018 were higher by 9%, mainly due to higher consumption of purchased metal-bearing materials (a higher amount by 29 thousand tonnes and a higher price by 1%) as well as a lower minerals extraction tax due to a change from 1 July 2019 in the calculation formula resulting from a change in the law.

Expenses by nature of KGHM Polska Miedź S.A. (in PLN million)

	2019	2018	Change (%)	IVQ’19	IIIQ’19	IIQ’19	IQ’19
Depreciation of property, plant and equipment and amortisation of intangible assets	1 298	1 173	+10,7	335	330	319	314
Employee benefits expenses	3 594	3 324	+8,1	936	948	871	839
Materials and energy, including:	6 196	5 312	+16,6	1 540	1 515	1 550	1 591
- purchased metal-bearing materials	3 778	3 040	+24,3	890	900	996	992
- electrical and other energy	939	803	+16,9	255	255	195	234
External services	1 767	1 649	+7,2	486	458	434	389
Taxes and charges, including:	1 917	2 083	(8,0)	424	427	543	523
- minerals extraction tax	1 520	1 671	(9,0)	328	326	446	420
Other costs	124	92	+34,8	50	14	39	21
Total koszty rodzajowe	14 896	13 633	+9,3	3 771	3 692	3 756	3 677

Expenses by nature, excluding purchased metal-bearing materials and the minerals extraction tax, amounted to PLN 9,598 million and were higher as compared to the corresponding period of 2018 by PLN 676 million, mainly due to:

• labour costs (+PLN 270 million) – due to an increase in remuneration and a higher provision for the annual bonus,     
• cost of materials and energy consumed (+PLN 146 million) - mainly due to higher energy purchase prices and to the lack of the previous support in the form of yellow certificates due to own electricity production due to natural gas
• depreciation /amortisation (+PLN 125 million) - an increase due to investments advanced in prior periods,     
• external services (+PLN 118 million) mainly due to an increased scope of realised transport services and costs of mine development work.

The structure of expenses by nature in 2019 is presented below. As compared to the prior year, they were at a very similar level.

Structure of expenses by nature in 2019

The Company’s operating costs are decisively impacted by the costs of electrolytic copper production (prior to decrease by the value of by-products), whose share is about 93%.

Cost of producing copper in concentrate - C1 (unit cash cost of producing payable copper in concentrate, reflecting costs of ore extraction and processing, transport costs, the minerals extraction tax, administrative costs during the mining stage, and smelter treatment and refining charges (TC/RC), less the value of by-products) was as follows: in 2018, 1.85 USD/lb and in 2019, 1.74 USD/lb. The cost was impacted by a weakening in the PLN as compared to the USD, higher silver and gold prices and a lower minerals extraction tax.

 

The pre-precious metals credit unit cost of copper production from own concentrate (unit cost prior to decrease by the value of anode slimes containing among others silver and gold) was higher than that recorded in 2018 by 1,445 PLN/t (6%), alongside a lower minerals extraction tax (-273 PLN/t) and higher production from own concentrate by 33 thousand tonnes of Cu (9%). The increase in unit cost was affected mainly by higher costs of labour, energy, depreciation and amortisation and third party services.

Financial results of the KGHM Polska Miedź S.A. Group

Increase in revenues and EBITDA in the KGHM Group with a lower profit

Group revenues higher by PLN 2.2 billion

• Increase in all segments of the Group – the most significant one in KGHM Polska Miedź S.A. (+12%)
• Impact of increased copper, gold and silver sales volume and a more favourable exchange rate with lower prices of copper

Net result lower by PLN 237 million

• Deterioration in the operating result and a lower result as regards the share in the results of joint ventures accounted for using the equity method

Statement of profit or loss

Financial results of the Group (in PLN million)

	2019	2018	Change (%)	IVQ'19	IIIQ'19	IIQ'19	IQ'19
Revenues from contracts with customers	22 723	20 526	+10,7	5 854	5 641	5 740	5 488
Cost of sales, selling costs and administrative expenses	(20 268)	(17 935)	+13,0	(5 627)	(4 818)	(5 074)	(4 749)
Profit on sales	2 455	2 591	(5,2)	227	823	666	739
Profit or loss on involvement in joint ventures	9	328	(97,3)	(77)	(17)	21	82
Other operating income and (costs)	186	308	(39,6)	(564)	720	(167)	197
Finance income / (costs)	(528)	(761)	(30,6)	112	(554)	94	(180)
Profit/loss before income tax	2 122	2 466	(13,9)	(302)	972	614	838
Income tax expense	(701)	(808)	(13,2)	57	(276)	(196)	(286)
Profit/loss for the period	1 421	1 658	(14,3)	(245)	696	418	552
Adjusted EBITDA(1	5 229	4 972	+5,2	1 117	1 380	1 278	1 454

¹⁾ Adjusted EBITDA = profit on sales + depreciation/amortisation (recognised in profit or loss) + impairment loss (-reversal of impairment losses) on non-current assets recognised in cost of sales, selling costs and administrative expenses) according to part 2 of the consolidated financial statements – together with Sierra Gorda S.C.M.

Main factors impacting the change in profit or loss of the Group

Item	Impact  on change of profit or loss (in PLN million)	Description
Revenues from contracts with customers	+2 197	An increase in revenues mainly due to an increase in revenues of KGHM Polska Miedź S.A. (PLN 1,926 million) and KGHM INTERNATIONAL LTD. (PLN +228 million).
Cost of sales, selling costs and administrative expenses	(2 333)	The increase in costs in the consolidated result was mainly comprised of higher costs in KGHM Polska Miedź S.A. (by PLN 1,831 million) and higher costs in KGHM INTERNATIONAL LTD. (by PLN 170 million)
Profit or loss on involvement  in joint ventures	(319)	The change in profit/loss on involvement in joint ventures from PLN 328 million to PLN 9 million was due to:  a decrease in gains due to reversal of allowances for impairment of loans granted to joint ventures by PLN 627 million,   a lower share of losses of joint ventures accounted for using the equity method by PLN 224 million,   higher interest income on loans granted to joint ventures by PLN 84 million.
Other operating income and (costs)	(122)	The decrease in the result on other operating activities from PLN 308 million to PLN 186 million was mainly due to:  lower foreign exchange gains on the measurement of assets and liabilities other than borrowings by PLN 422 million,   a higher result on the recognition and reversal of losses due to impairment of fixed assets under construction and intangible assets not yet available for use by PLN 207 million,   a lower negative balance of provisions recognised and released by PLN 69 million.
Finance income / (costs)	+233	The change in finance income and costs from PLN -761 million to PLN -528 million was mainly due to: lower foreign exchange losses on the measurement and realisation of borrowings by PLN 385 million,   higher interest costs on borrowings by PLN 97 million,   a lower result on the measurement and realisation of derivatives by PLN 33 million
Income tax	+107	The lower tax expense results from lower profit before income tax as well as a negative adjustment of tax for prior years in the amount of PLN 160 million in 2019.

Change in profit/loss in 2019

Cash flows

Cash flow of the Group (in PLN million)	2019	2018	Change (%)	IVQ'19	IIIQ'19	IIQ'19	IQ'19
Profit / (loss) before income tax	2 122	2 466	(13,9)	(302)	972	614	838
Depreciation/amortisation recognised in profit or loss	1 920	1 796	+6,9	562	437	468	453
Share of losses of joint  ventures accounted for using the equity method	438	662	(33,8)	269	106	63	-
Gains due to the reversal of allowances for impairment of loans granted to joint ventures	(106)	(733)	(85,5)	(106)	-	-	-
Interest on loans granted to  joint ventures	(341)	(257)	+32,7	(86)	(89)	(84)	(82)
Other interest	244	109	×2,2	138	7	52	47
Impairment losses on  non-current assets	51	69	(26,1)	51	-	-	-
Exchange differences	184	(36)	×	294	(157)	103	(56)
Change in employee benefits  provisions and liabilities	114	244	(53,3)	137	37	(68)	8
Change in other receivables and liabilities	(176)	20	×	171	(57)	(218)	(72)
Change in derivatives	(31)	(121)	(74,4)	(33)	52	(31)	(19)
Other adjustments	(84)	42	×	(29)	(55)	(2)	2
Exclusions of income and costs, total	2 213	1 795	+23,3	1 368	281	283	281
Income tax paid	(410)	(802)	(48,9)	(76)	(77)	(191)	(66)
Changes in working capital	1 123	367	×3,1	1 567	(299)	373	(518)
Net cash generated from operating activities	5 048	3 826	+31,9	2 557	877	1 079	535
Expenditures on  mining and metallurgical assets	(2 872)	(2 609)	+10,1	(807)	(649)	(691)	(725)
Expenditures on other property, plant and equipment and intangible assets	(360)	(266)	+35,3	(111)	(61)	(58)	(130)
Expenditures on financial assets designated for decommissioning of mines and other technological facilities	(293)	(26)	×11,3	(1)	-	(203)	(89)
Acquisition of newly-issued shares of  joint ventures	(439)	(666)	(34,1)	(267)	(109)	(63)	-
Proceeds from financial assets  designated for decommissioning of mines and other technological facilities	335	9	×37,2	67	-	202	66
Other	(14)	19	×	(6)	(3)	(6)	1
Net cash  used in investing activities	(3 643)	(3 539)	+2,9	(1 125)	(822)	(819)	(877)
Proceeds from borrowings	4 730	2 276	×2,1	333	972	280	3 145
Proceeds from the issue of debt financial instruments	2 000	-	×		-	2 000	-
Repayments of borrowings	(7 746)	(2 100)	×3,7	(1 364)	(1 358)	(1 957)	(3 067)
Repayment of lease liabilities	(52)	(10)	×5,2	(9)	(19)	(16)	(8)
Interest paid on borrowings	(239)	(119)	×2,0	(122)	(9)	(54)	(54)
Other	(1)	19	×	(7)	5	1	-
Net cash generated from/(used in)  financing activities	(1 308)	66	×	(1 169)	(409)	254	16
Net cash flow	97	353	(72,5)	263	(354)	514	(326)
Exchange differences	(38)	18	×	5	(4)	2	(41)
Cash and cash equivalents at the beginning of the period	957	586	+63,3	748	1 106	590	957
Cash and cash equivalents at the end of the period	1 016	957	+6,2	1 016	748	1 106	590

Net cash generated from operating activities in 2019 amounted to PLN 5,048 million and was mainly comprised of profit before income tax of PLN 2,122 million, increased by adjusted depreciation/amortisation in the amount of PLN 1,920 million, the change in working capital in the amount of PLN 1,123 million and the adjustment in share of losses of joint ventures accounted for using the equity method of PLN 438 million. Cash generated from operating activities was mainly decreased by interest on loans granted to joint ventures of PLN -341 million, the change in other receivables and liabilities of PLN -176 million and income tax paid in the amount of PLN -410 million. 

Net cash used in investing activities in 2019 amounted to PLN -3,643 million and mainly comprised expenditures on property, plant and equipment and intangible assets in the amount of PLN 3,232 million, expenditures on the acquisition of newly-issued shares of joint ventures in the amount of PLN 439 million and expenditures on financial assets designated for mine decommissioning and other technological facilities in the amount of PLN 293 million. Proceeds from investing activities were mainly derived from proceeds from financial assets designated for mine decommissioning and other technological facilities in the amount of PLN 335 million.

Net cash used in financing activities in 2019 amounted to PLN -1,308 million and mainly comprised proceeds from borrowings in the amount of PLN 4,730 million, proceeds from the issue of debt financial instruments of PLN 2,000 million, repayments of borrowings in the amount of PLN 7,746 million and interest paid in the amount of PLN 239 million.

After reflecting exchange differences on cash and cash equivalents, in 2019 cash and cash equivalents increased by PLN 59 million and at 31 December 2019 amounted to PLN 1,016 million.

Cash flow in 2019

Assets

Consolidated assets (in PLN million)

	31.12.2019	31.12.2018	Change (%)	30.09.2019	30.06.2019	31.03.2019
Mining and metallurgical property, plant and equipment	19 498	17 507	+11,4	19 221	18 632	18 126
Mining and metallurgical intangible assets	1 966	1 657	+18,6	1 826	1 715	1 654
Other property, plant and equipment	2 829	2 789	+1,4	2 968	2 945	2 930
Other intangible assets	155	224	(30,8)	155	155	287
Joint ventures accounted for using the equity method	-	4	×	4	4	4
Loans extended to joint ventures	5 694	5 199	+9,5	5 796	5 327	5 389
Derivatives	124	320	(61,3)	162	258	250
Other financial instruments  measured at fair value	448	541	(17,2)	428	463	520
Other financial instruments measured at amortised cost	656	716	(8,4)	783	751	757
Deferred tax assets	157	309	(49,2)	236	223	452
Other non-financial assets	142	109	+30,3	115	108	108
Non-current assets	31 669	29 375	+7,8	31 694	30 581	30 477
Inventories	4 741	4 983	(4,9)	5 338	5 277	5 444
Trade receivables	688	799	(13,9)	758	723	1 011
Tax assets	571	417	+36,9	415	288	312
Derivatives	293	301	(2,7)	363	324	140
Other financial assets	280	273	+2,6	457	420	286
Other non-financial assets	151	132	+14,4	326	326	258
Cash and cash equivalents	1 016	957	+6,2	748	1 106	590
Current assets	7 740	7 862	(1,6)	8 405	8 464	8 041
TOTAL ASSETS	39 409	37 237	+5,8	40 099	39 045	38 518

At the end of 2019, total assets in the consolidated statement of financial position amounted to PLN 39,409 million and were higher as compared to 31 December 2018 by PLN 2,172 million.

Non-current assets as at 31 December 2019 amounted to PLN 31,669 million and were higher by PLN 2,294 million compared to the end of 2018. The increase in non-current assets was mainly due to property, plant and equipment and intangible assets by PLN 2,271 million and loans granted to joint ventures assets of PLN 495 million. Compared to the end of 2018, the main decreases were in derivatives, by PLN 196 million and in deferred tax assets by PLN 152 millio

Current assets decreased by PLN 122 million, mainly due to a decrease in the value of inventories by PLN 242 million and in trade receivables by PLN 111 million. Compared to the end of 2018, the main increases were in tax assets by PLN 154 million and cash and cash equivalents by PLN 59 million.

Change in assets in 2019 (in PLN million)

Equity and liabilities

Consolidated equity and liabilities (in PLN million)

	31.12.2019	31.12.2018	Zmiana (%)	30.09.2019	30.06.2019	31.03.2019
Share capital	2 000	2 000	-	2 000	2 000	2 000
Other reserves from measurement of financial instruments	(738)	(444)	+66,2	(767)	(468)	(682)
Accumulated other comprehensive income other than from measurement of financial instruments	1 954	2 005	(2,5)	1 845	1 897	1 906
Retained earnings	16 894	15 572	+8,5	17 137	16 442	16 124
Equity attributable to shareholders of the Parent Entity	20 110	19 133	+5,1	20 215	19 871	19 348
Equity attributable to non-controlling interes	92	92	-	95	93	93
Equity	20 202	19 225	+5,1	20 310	19 964	19 441
Borrowings, lease and debt securities	7 525	6 878	+9,4	7 795	7 910	6 867
Derivatives	183	162	+13,0	395	127	171
Employee benefits liabilities	2 613	2 447	+6,8	2 573	2 649	2 534
Provisions for decommissioning costs of mines and other facilities	1 774	1 564	+13,4	1 944	1 712	1 593
Deferred tax liabilities	445	498	(10,6)	422	404	587
Other liabilities	631	598	+5,5	623	598	603
Non-current liabilities	13 171	12 147	+8,4	13 752	13 400	12 355
Borrowings, lease and debt securities	348	1 071	(67,5)	1 346	1 050	1 795
Derivatives	91	43	×2,1	66	47	55
Trade and similar payables	2 766	2 053	+34,7	1 656	1 882	1 917
Employee benefits liabilities	1 150	1 044	+10,2	1 124	1 036	891
Tax liabilities	433	349	+24,1	530	453	678
Provisions for liabilities and other charges	222	271	(18,1)	148	162	265
Other liabilities	1 026	1 034	(0,8)	1 167	1 051	1 121
Current liabilities	6 036	5 865	+2,9	6 037	5 681	6 722
Non-current and current liabilities	19 207	18 012	+6,6	19 789	19 081	19 077
TOTAL EQUITY AND LIABILITIES	39 409	37 237	+5,8	40 099	39 045	38 518

Equity as at 31 December 2019 amounted to PLN 20,202 million and was higher by PLN 977 million than at the end of 2018, mainly due to an increase in retained earnings by PLN 1,322 million.

Non-current liabilities of the KGHM Polska Miedź S.A. Group as at 31 December 2019 amounted to PLN 13,171 million and were higher by PLN 1,024 million compared to the end of 2018, mainly due to an increase in liabilities due to non-current borrowings by PLN 647 million, provisions for decommissioning costs of mines and other facilities by PLN 210 million and employee benefits liabilities by PLN 166 million.

Current liabilities of the KGHM Polska Miedź S.A. Group as at 31 December 2019 amounted to PLN 6,036 million and were higher by PLN 171 million compared to the end of 2018, mainly due to an increase in trade and similar payables by PLN 713 million alongside a decrease in borrowings and other sources of financing by PLN 723 million.

Change in equity and liabilities in 2019 (in PLN million)

Contingent assets and liabilities due to guarantees granted

As at 31 December 2019, the Group held contingent assets due to guarantees granted in the amount of PLN 630 million, which mainly related received guarantees for the proper performance of agreements in the amount of PLN 356 million and promissory notes receivables in the amount of PLN 120 million.

As at 31 December 2019 the Group held liabilities due to guarantees and letters of credit in the amount of PLN 2,470 million and promissory notes payables of PLN 144 million.

The most important items are collateral securing liabilities:

Sierra Gorda S.C.M.:

•     a letter of credit in the amount of PLN 522 million, granted to secure the obligations due to a long-term contract for the off-take of electricity,     
• corporate (financial) guarantees in the amount of PLN 60 million, granted to secure the payments from lease agreements entered into,     
• corporate (financial) guarantees in the amount of PLN 803 million securing the repayment of short-term working capital facilities,     
• a corporate guarantee in the amount of PLN 627 million, 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 loan drawn by the joint venture Sierra Gorda S.C.M.,     
• a corporate guarantee in the amount of PLN 34 million, securing claims arising from the obligation to restore post-mining terrain following mine closure.

other Group entities, including the Parent Entity:

• guarantees in the amount of PLN 190 million, securing proper performance by DMC Mining Services (UK) Ltd. and DMC Mining Services Ltd. of a contract for sinking shafts under a project underway in the United Kingdom,     
• a guarantee in the amount of PLN 179 million, securing the proper performance of future environmental obligations of the Parent Entity to restore the area, following the conclusion of operations of the Żelazny Most tailings storage facility,     
• guarantees and letters of credit in the total amount of PLN 23 million, securing the proper performance of agreements entered into by the Parent Entity and companies in the Group.

Financial results of KGHM Polska Miedź S.A

Sales revenue of KGHM Polska Miedź S.A.

Sales revenue achieved in 2019 were PLN 1,926 million (+12%) higher than those in 2018 as a result of:

• higher sales volume (copper by 8% and silver by 14%)
• more favourable USD/PLN exchange rate (+6%) and silver prices (+3%) alongside with worse copper prices (-8%)

EBITDA and net financial results of KGHM Polska Miedź S.A

Increase in unit EBITDA with an accompanying decrease in net financial result

• EBITDA 6% above the 2018 result due to a higher volume of copper sales and more favourable exchange rate (increase in revenue).
• The net result of PLN 761 million (-38%) was lower than in 2018 due to impairment – impairment loss recognised on shares and investment certificates in subsidiaries in 2019 (-PLN 460 million), while in 2018 such impairment loss was reversed (+PLN 355 million)

Statement of profit or loss

The Company recorded a profit for 2019 in the amount of PLN 1,264 million, or PLN 761 million (-38%) lower than in the prior year.

Key items of the statement of profit or loss of KGHM Polska Miedź S.A. (in PLN million)

	2019	2018	Change (%)	IVQ’19	IIIQ’19	IIQ’19	IQ’19
Revenues from contracts with customers	17 683	15 757	+12,2	4 633	4 219	4 515	4 316
- adjustment to revenues due to hedging transactions	245	125	+96,0	75	93	43	34
Cost of sales, selling costs and administrative expenses	(15 291)	(13 460)	+13,6	(4 216)	(3 577)	(3 907)	(3 591)
Profit on sales	2 392	2 297	+4,1	417	642	608	725
Other operating income and (costs)	39	1 149	(96,6)	(977)	564	73	379
- exchange differences on assets and liabilities other than borrowings	168	386	(56,5)	(340)	492	(127)	143
- interest on loans granted and other financial receivables	272	244	+11,5	60	80	66	66
- dividend income	37	239	(84,5)	-	-	37	-
- provisions (recognised)/released	(39)	(150)	(74,0)	(78)	1	37	0
-  measurement and realisation of derivatives	(122)	(136)	(10,3)	(65)	(29)	(9)	(19)
- fees and charges on re-invoicing of costs of bank guarantees securing the payment of liabilities	31	53	(41,5)	(19)	22	9	19
- (recognition)/reversal of impairment losses on financial instruments	102	270	(62,2)	3	(3)	7	95
- (recognition)/reversal of impairment losses on shares and investment certificates in subsidiaries	(460)	355	×	(460)	-	-	-
- Fair value gains/(losses) on financial assets measured at fair value through profit or loss	84	(63)	×	(53)	(5)	62	80
- other	(34)	(49)	(30,6)	(25)	6	(9)	(5)
Finance income / (costs)	(504)	(774)	(34,9)	117	(548)	100	(173)
- exchange differences on borrowings	(209)	(592)	(64,7)	265	(532)	165	(107)
- interest on borrowings	(183)	(127)	+44,1	(108)	5	(43)	(37)
- fees and commissions on  bank and other loans	(49)	(23)	×2,1	(26)	(10)	(7)	(6)
- measurement and realisation of derivatives	(22)	11	×	(4)	(1)	(5)	(12)
- unwinding of the discount effect	(41)	(43)	(4,7)	(10)	(10)	(10)	(11)
Profit/loss before income tax	1 927	2 672	(27,9)	(443)	658	781	931
Income tax	(663)	(647)	+2,5	44	(222)	(249)	(236)
PROFIT/LOSS FOR THE PERIOD	1 264	2 025	(37,6)	(399)	436	532	695
Depreciation/amortisation recognised in profit or loss	(1 220)	(1 119)	+9,0	(327)	(307)	(312)	(274)
Adjusted EBITDA1	3 619	3 416	+5,9	751	949	920	999

¹ Adjusted EBITDA = profit/(loss) on sales + depreciation/amortisation (recognised in profit or loss) + impairment loss (-reversal of impairment losses) on non-current assets (recognised in cost of sales, selling costs and administrative expenses)

Main reasons for the change in profit/(loss) of KGHM Polska Miedź S.A.

Item	Impact  on change of profit or loss (in PLN million)	Description
Increase in revenues from contracts  with customers by PLN 1,806 million  (excluding the impact of  hedging transactions in the amount of  PLN +120 million)	+1 393	An increase in revenues due to a higher volume of sales of copper (+42.6 kt, +8%), silver (+165 t, +13%) and gold (+18 koz t, +21%).
	+1 029	An increase in revenues from sales of main products (Cu, Ag, Au) due to a more favourable average annual USD/PLN exchange rate (a change from 3.61 to 3.84 USD/PLN).
	(717)	A decrease in revenues due to lower prices of copper (-523 USD/t, -8%) alongside higher prices of gold  (+125 USD/oz t, +10%) and silver (+0.50 USD/oz t, +3%).
	+101	An increase mainly in other revenues from sales, including revenues from the sale of merchandise and materials  (+PLN 51 million) and an increase the amount from the fair value measurement of receivables from M+ type sales (+PLN 17 million).
An increase in cost of  sales, selling costs and  administrative expenses 1) (-PLN 1,831 million)	(738)	Higher consumption of purchased metal-bearing materials by 29 thousand tonnes of copper at a comparable purchase price
	(605)	Utilisation of inventories (change in 2019: +PLN 369 million; in 2018: -PLN 236 million) due to higher processing of own concentrate.
	(488)	Including an increase in other expenses by nature by PLN 549 million, mainly due to a change in costs: employee benefits (-PLN 270 million), energy and energy factors (-PLN 136 million), depreciation/amortisation (-PLN 125 million) and external services (-PLN 118 million) alongside a lower minerals extraction tax (+PLN 151 million).
Impairment losses (recognised)/reversed on shares and investment certificates in subsidiaries	(815)	Change in the balance of impairment losses recognised/ reversed on shares in subsidiaries from PLN +355 million in 2018 to PLN -460 million in 2019.
Impairment losses (recognised)/reversed  on financial instruments	(168)	Change in the balance of impairment losses recognised/ reversed on financial instruments from +PLN 270 million in 2018 to +PLN 102 million in 2019.
Dividend income	(202)	A decrease in dividend income from PLN 239 million to PLN 37 million.
Impact of exchange differences  (+PLN 165 million)	(218)	A change in the result due to exchange differences from measurement of assets and liabilities other than borrowings – in other operating activities.
	+383	A change in the result due to exchange differences on the measurement of borrowings (presented in finance costs).
Fair value gains/(losses) on financial assets measured at fair value through profit or loss	+147	An improvement in fair value gains/losses on financial assets measured at fair value through profit or loss, from PLN -63 million to PLN +84 million.
Impact of derivatives and hedging transactions (+PLN 101 million)	+120	A change in adjustments to revenues from contracts with customers due to the settlement of hedging transactions from PLN 125 million to PLN 245 million.
	+14	A change in the result due to the measurement and realisation of derivatives in other operating activities, from PLN -136 million to PLN -122 million.
	(33)	A change in the result due to the measurement and realisation of derivatives in finance activities, from PLN +11 million to PLN -22 million.
Provisions (recognised)/released (+PLN 111 million)	+55	A decrease in provisions recognised, from PLN -162 million to PLN -107 million.
	+56	An increase in provisions released, from PLN 12 million to PLN 68 million.
Change in the balance of income and costs due to interest on borrowings (-PLN 76 million)	+28	An increase in income due to interest on loans granted.
	(56)	Higher interest costs on borrowings.
	(22)	A decrease in income related to fees and commissions on re-invoicing of costs of bank guarantees securing the payment of liabilities
	(26)	Higher fees and commissions on borrowings.
Increase in income tax	(16)	The increase in income tax results from an increase in current income tax by PLN 65 million, alongside an increase in deferred income tax by PLN 111 million and a negative adjustment of current tax for prior periods by PLN -160 million.

¹⁾ Cost of products, goods and materials sold plus selling costs and administrative expenses

 

Cash flows

Cash flows of KGHM Polska Miedź S.A. (in PLN million)

	2019	2018	Change (%)	IVQ'19	IIIQ'19	IIQ'19	IQ'19
Profit / (loss) before income tax	1 927	2 672	(27,9)	(443)	658	781	931
Depreciation/amortisation recognised in profit or loss	1 220	1 119	+9,0	327	307	312	274
Exchange differences	200	181	+10,5	89	86	11	14
Other adjustments	188	(1 000)	×	1 007	(178)	(474)	(167)
Exclusions of income and costs, total	1 608	300	×5,4	1 423	215	(151)	121
Income tax paid	(465)	(710)	(34,5)	(70)	(74)	(258)	(63)
Changes in working capital	973	553	+75,9	1 293	(228)	381	(473)
Net cash generated from operating activitie	4 043	2 815	+43,6	2 203	571	753	516
Expenditures on mining and metallurgical assets	(2 294)	(1 884)	+21,8	(584)	(456)	(465)	(789)
Expenditures on other property, plant and equipment and intangible assets	(72)	(23)	×3,1	(8)	(6)	(2)	(56)
Expenditures on the acquisition of investment certificates and shares in subsidiaries	(430)	(10)	×43,0	(2)	(37)	-	(391)
Loans granted	(445)	(682)	(34,8)	(273)	(109)	(63)	-
Proceeds from the redemption of investment certificates	404	-	×	-	13	-	391
Dividends received	37	239	(84,5)	-	27	10	-
Other	(54)	(39)	+38,5	(8)	(11)	(11)	(24)
Net cash used in investing activities	(2 854)	(2 399)	+19,0	(875)	(579)	(531)	(869)
Proceeds from borrowings	4 669	2 257	×2,1	293	953	280	3 143
Proceeds from the issue of debt financial instruments	2 000	-	×	-	-	2 000	-
Repayments of borrowings	(7 726)	(2 073)	×3,7	(1 358)	(1 352)	(1 951)	(3 065)
Interest paid	(228)	(152)	+50,0	(121)	(8)	(51)	(48)
Other	20	(80)	×	41	22	(98)	55
Net cash generated from/(used in)  financing activities	(1 265)	(48)	×26,4	(1 145)	(385)	180	85
Net cash flow	(76)	368	×	183	(393)	402	(268)
Foreign exchange gains/(losses) on  cash and cash equivalents	(35)	25	×	(4)	4	(3)	(32)
Cash and cash equivalents  at the beginning of the period	627	234	×2,7	337	726	327	627
Cash and cash equivalents at the end of the period	516	627	(17,7)	516	337	726	327

Net cash generated from operating activities in 2019 amounted to PLN +4,043 million and mainly comprised profit before income tax in the amount of PLN 1,927 million adjusted among others by depreciation/amortisation in the amount of PLN +1,220 million, less income tax paid in the amount of PLN -465 million and the change in working capital in the amount of PLN +973 million. 

Net cash used in investing activities in 2019 amounted to PLN -2,854 million and mainly comprised net expenditures on mining and metallurgical property, plant and equipment and intangible assets in the amount of PLN -2,294 million and loans granted of PLN -445 million. Expenditures on the acquisition of investment certificates and shares in subsidiaries in the amount of PLN -430 million were almost entirely offset by proceeds from the redemption of investment certificates in the amount of PLN +404 million.

Net cash used in financing activities during the same period amounted to PLN -1,265 million and mainly comprised proceeds from borrowings in the amount of PLN +4,669 million and from the issue of bonds, PLN +2,000 million alongside repayments of borrowings of PLN -7,726 million and interest paid in the amount of PLN -228 million. 

After reflecting exchange gains/losses on cash and cash equivalents, in 2019 cash and cash equivalents decreased by PLN 111 million and amounted to PLN 516 million. 

Assets, equity and liabilities

Assets of KGHM Polska Miedź S.A. (in PLN million)

	31.12.2019	31.12.2018	Change (%)	30.09.2019	30.06.2019	31.03.2019
Mining and metallurgical property,  plant and equipment	18 092	16 382	+10,4	17 769	17 359	16 922
Mining and metallurgical  intangible assets	651	576	+13,0	628	616	649
Other property, plant and equipment	103	92	+12,0	89	89	90
Other intangible assets	61	52	+17,3	47	48	50
Investments in subsidiaries	2 946	3 510	(16,1)	3 405	3 415	3 377
Financial instruments, including	8 200	7 453	+10,0	8 218	7 709	7 768
- loans granted	7 217	6 262	+15,3	7 273	6 641	6 623
- derivatives	123	319	(61,4)	162	257	249
Deferred tax assets	-	9	×	12	-	93
Other non-financial assets	58	24	×2,4	34	27	28
Non-current assets	30 111	28 098	+7,2	30 202	29 263	28 977
Inventories	3 783	4 102	(7,8)	4 329	4 362	4 484
Trade receivables	243	310	(21,6)	242	206	540
Tax assets	435	275	+58,2	336	222	171
Derivatives	291	300	(3,0)	363	323	139
Cash pooling receivables	335	247	+35,6	464	403	285
Other financial assets	221	242	(8,7)	389	348	221
Other non-financial assets	54	49	+10,2	126	194	117
Cash and cash equivalents	516	627	(17,7)	337	726	327
Current assets	5 878	6 152	(4,5)	6 586	6 784	6 284
TOTAL ASSETS	35 989	34 250	+5,1	36 788	36 047	35 261

As at 31 December 2019, total assets amounted to PLN 35,989 million, or an increase as compared to the end of 2018 by PLN 1,739 million, or by 5%, mainly due to increases in the following items:

• property, plant and equipment and intangible assets by PLN 1,805 million, including mining and metallurgical property, plant and equipment by PLN 1,710 million, arising from the realisation of investments – expenditures on property, plant and equipment and intangible assets in 2019 amounted to PLN 2,481 million,
• non-current financial instruments by PLN 747 million, including mainly loans granted (+PLN 955 million) alongside a lower amount of derivatives (-PLN 196 million),
• tax assets by PLN 160 million,
• cash pooling receivables by PLN 88 million,
• alongside a decrease in the value of investments in subsidiaries by PLN 564 million as well as inventories by PLN 319 million, including mainly half-finished products and work in progress (-PLN 472 million) alongside an increase in finished products (+PLN 111 million).

W zestawieniu poniżej zaprezentowano wartości bilansowe na dzień 31 grudnia 2019 r. kapitałów oraz zobowiązań.

Equity and liabilities of KGHM Polska Miedź S.A. (PLN million)

	31.12.2019	31.12.2018	Change (%)	30.09.2019	30.06.2019	31.03.2019
Share capital	2 000	2 000	-	2 000	2 000	2 000
Other reserves from  measurement of financial instruments	(698)	(307)	×2,3	(730)	(437)	(552)
Accumulated other  comprehensive income	(622)	(593)	+4,9	(616)	(713)	(645)
Retained earnings	19 209	17 945	+7,0	19 608	19 172	18 640
Equity	19 889	19 045	+4,4	20 262	20 022	19 443
Borrowings, lease and debt securities	7 215	6 758	+6,8	7 525	7 652	6 637
Derivatives	131	68	+92,6	324	52	84
Employee benefits liabilities	2 363	2 235	+5,7	2 347	2 425	2 311
Provisions for decommissioning costs of mines and other technological facilities	1 119	980	+14,2	1 270	1 099	982
Other non-current liabilities	277	199	+39,2	191	201	193
Non-current liabilities	11 105	10 240	+8,4	11 657	11 429	10 207
Borrowings, lease and  debt securities	275	1 035	(73,4)	1 290	996	1 740
Cash pooling  liabilities	130	80	+62,5	80	50	135
Derivatives	60	13	×4,6	29	14	19
Trade payables	2 460	1 920	+28,1	1 439	1 610	1 631
Employee benefits  liabilities	890	783	+13,7	841	770	696
Tax liabilities	258	233	+10,7	424	360	516
Provisions for liabilities and other charges	158	190		82	87	190
Other current  liabilities	764	711	+7,5	684	709	684
Current liabilities	4 995	4 965	+0,6	4 869	4 596	5 611
Non-current and current liabilitie	16 100	15 205	+5,9	16 526	16 025	15 818
TOTAL EQUITY AND LIABILITIE	35 989	34 250	+5,1	36 788	36 047	35 261

There was an increase in equity and liabilities, mainly due to increases in the following items:

• equity by PLN 844 million, including with respect to the profit for 2019 in the amount of PLN 1,264 million,
• trade payables (+PLN 540 million),
• employee benefits liabilities (+PLN 235 million),
• an increase in provisions for decommissioning costs of mines and other technological facilities (+PLN 139 million)
• alongside a decrease in borrowings, lease and debt securities by PLN 303 million, mainly due to: cash flows (-PLN 1,437 million), changes in accounting policies – implementation of IFRS 16 (+PLN 511 million), accrued interest (+PLN 381 million) and exchange differences (+PLN 214 million).

Contingent assets and liabilities due to guarantees granted

At the end of 2019, contingent assets amounted to PLN 731 million and related mainly to promissory notes receivables (PLN 347 million) and guarantees received by the Company (PLN 256 million). 

At the end of 2019, liabilities due to guarantees granted amounted to PLN 2,813 million and due to promissory notes payable PLN 16 million, including:

• a security for the performance of contracts entered into by Sierra Gorda S.C.M. in the amount of PLN 2,046 million,
• a security for the costs of restoring the areas of the Robinson mine, Podolsky mine and the Victoria project, PLN 375 million (USD 90 million, CAD 12 million),
• a security for the proper performance by DMC Mining Services (UK) Ltd. and DMC Mining Services Ltd. of a contract for sinking shafts under a project underway in the United Kingdom in the amount of PLN 190 million (USD 50 million),
• a security for the proper performance by KGHM Polska Miedź S.A. of future environmental obligations to restore the area, following the conclusion of operations of the Żelazny Most tailings storage facility in the amount of PLN 179 million.

As far as the Company is aware, at the end of the reporting period the Company determined the probability of paying the amounts related to the contingent liabilities of Sierra Gorda S.C.M. as relatively low, and that of the remaining entities of the Group as low.

Other liabilities not recognised in the statement of financial position represent liabilities towards local government entities due to expansion of the tailings storage facility in the amount of PLN 107 million.

Selected indicators of GRI standards illustrating activities relating to ethical issues 

G205-3 – Confirmed incidents of corruption and actions taken

Recorded corruption cases ended in:	KGHM Polska Miedź  S.A. Group	KGHM Polska Miedź S.A.
disciplinary dismissal or punishment of employees	2	0
refusal to renew contracts with business partners due to breach of corruption rules	0	0
legal actions pertaining to corruption practices taken against the reporting organization or its employees in the reporting period	0	0
Total	2	0

Selected indicators of GRI standards illustrating activities relating to ethical issues 

GRI 102-8 - Total number of employees

Total number of employees  (head count)	Number of employees
	KGHM GROUP	KGHM POLSKA MIEDŹ S.A.
Total	34 329	18 536*

GRI 401-1 - New employee hires and employee turnover

New hires in 2019:	Total number of employees  (head count) broken  down to:	Number of employees (calculated in terms of persons)			Number of new hires			Rate of new employee hires (calculated in terms of persons
		KGHM GROUP		KGHM POLSKA MIEDŹ S.A.	KGHM GROUP	KGHM POLSKA MIEDŹ S.A.		KGHM GROUP	KGHM POLSKA MIEDŹ S.A.
	Total	34 329		18 536*	2 519	988		7,33 %	5,33 %
Employee departures  in 2019	Total number of employee departures (head count) broken down to:	Number of employees (calculated in terms of persons)			Number of employee departures (head count)			Percentage of  employee departures
		KGHM GROUP	KGHM POLSKA MIEDŹ S.A.		KGHM GROUP		KGHM POLSKA MIEDŹ S.A.	KGHM GROUP	KGHM POLSKA MIEDŹ S.A.
	Total	34 329	18 536*		2 570		952	7,48 %	5,14 %

GRI 403-2 Number of work-related accidents by gender

	KGHM GROUP		KGHM POLSKA MIEDŹ S.A.
	Women	Men	Women	Men
Total number of work accidents (incidents)	78	464	4	295
Number of fatal accidents  (incidents)	0	3	0	3
Number of severe accidents  (incidents)	0	3	0	2
Number of minor accidents  (incidents)	74	450	0	290
Total number of people  injured in accidents	531		299

GRI 404-1 Average hours of training per year per employee

	Total number of training hours
	TOTAL
	KGHM GROUP	KGHM Polska Miedź S.A.
Total number of training hours	575 861	431 949
Number of employees	34 329	18 536*
Average number of training hours	16,77	23,30

*  workers for whom KGHM Polska Miedź S.A. is the main place of employment (the total number of KGHM Polska Miedź S.A. employees as at 31 December 2019 was 18,539)

Selected indicators for 2019 illustrating activities in the area of social issues:

List of donations from the KGHM Polska Miedź Foundation for institutions and individuals in 2019, 
by areas

Area	Donations
	Kwota przyznana [PLN]	Liczba projektów/ liczba osób fizycznych
Donations for institutions	17 763 651,78	313
Health and safety	3 453 005,00	45
Science and education	2 422 608,56	56
Sports and recreation	3 266 227,33	88
Culture and tradition	8 621 810,89	124
Donations for individuals	1 194 825,18	169
Health care	1 187 691,18	168
Social assistance	7 134,00	1
Health Promotion and  Environmental Hazards Prevention  Program	1 285 513,00	616 (children)
TOTAL DONATION AMOUNT	20 243 989,96 PLN

A detailed list of donations granted to institutions is presented at http://www.fundacjakghm.pl/

Selected GRI Standards indicators for 2019 presenting actions in the area of environmental issues

G302-1 - Direct and indirect energy consumption within the organization

1	Total consumption of energy from renewables (own or purchased)  in Joules or a multiples thereof, broken down by type of raw material	Values (MWh)
		KGHM GROUP	KGHM POLSKA MIEDŹ S.A.
Non-renewable	coal	923 951,00	0,00
	natural gas	2 585 715,77	2 379 0006,19
	heating oil	10 107,98	0,00
	diesel fuel	264 089,27	0,00
Total	Diesel fuel	3 783 864,24	2 379 006,19
2	Total consumption of energy from renewables  (own or purchased)  in Joules or a multiples thereof, broken down by type of raw materia	Wartości (MWh)
		KGHM GROUP	KGHM POLSKA MIEDŹ S.A.
Renewable	biomass	51,00	0,00
	Biofuels	0,00	0,00
	wind energy	31,00	0,00
	solar energy	672,10	0,00
	geothermal energy	576,00	0,00
	Hydro energy	14,00	0,00
	Other (t)	4,70	0,00
Total	Total consumption	1 348,80	0,00
3	Total consumption of energy produced or purchased, by electricity, heat in Joules or multiples thereof	Values (MWh)
		KGHM GROUP	KGHM POLSKA MIEDŹ S.A.
	electricity	3 196 744,42	2 975 298,86
	heat (including consumption of steam, consumption of cooling energy)	513 092,97	260 650,44
Total	Energy consumption	3 709 837,39	3 235 949,30
4	Total energy sales: electricity, heat, cooling and steam, in Joules or multiples thereof	Values (MWh)
		KGHM GROUP	KGHM POLSKA MIEDŹ S.A.
	Total sales of electricity	474 459,15	389 166,33
	Total sales of heat (including: heat in steam, heat in water, cooling energy)	1 259 227,34	20 458,33
Total	Sales	1 733 686,49	409 624,66
5	Total energy consumption within the organization according to the formula	5 761 363,94	5 205 330,82

G305-2 – Indirect greenhouse gas emission

Indirect emissions, by source	Greenhouse gas emissions (tCO2e)
	KGHM GROUP	KGHM POLSKA MIEDŹ S.A.
Emissions resulting from electricity purchased for own needs	1 946 213,58	1 815 871,13
Emissions resulting from heat purchased for own needs	480 568,78	161 014,64**
Emissions resulting from heat purchased for own needs Emissions resulting from cooling energy or steam purchased for own needs	21 284,06
Total indirect emissions	2 448 066,43	1 976 885,77

** because of the provisions of Polish law associated with the obligation to prepare reports on a detailed breakdown of indirect emissions in Scope 2 by the end of the quarter of the year following the reporting year, detailed data on emission levels associated with the purchased heat, shown separately for the part related to cooling or steam will be known after this Report is published

G306-2 - Total weight of waste by type and disposal method

1	Re-use of waste	29 999,90	9 429,22	32,33	0,00
2	Recycling (including organic recycling,  e.g. composting)	4 913,91	2 931,56	102,68	28,90
3	Recovery (including recovery of energy)	19 906 853,66	19 794 336,14	146 177,15	130 319,82
4	Incineration (or use as fuel)	47,94	16,76	137,37	0,00
5	Storage in landfills	10 178 747,00	10 177 462,61	3 300,31	153 881,82
6	Dumping in deep wells	0,00	0,00	0,00	0,00
7	Storage on site	184 789,38	188 342,39	36 131,33	36 081,45
8	Other	2 182,02	203,16	288,00	35 037,51
	Total	30 470 177,52	30 329 367,56	331 359,35	311 636,34

G307-1 – Monetary value of fines and total number of non-financial sanctions for non-compliance 
with environmental laws and regulations

The evidence confirming the effectiveness of environmental initiatives and the reduced environmental impact of our activities is that there have been no non-financial sanctions imposed on the KGHM Polska Miedź S.A. Group and on the Parent Entity.

Information on administrative and court sanctions imposed on the organization for  non-compliance with environment protection regulations
	KGHM GROUP	KGHM Polska Miedź S.A.
Total value of fines for non-compliance with environmental laws and regulations [PLN]	357 940,00	0,00
Number of non-financial, administrative and judicial sanctions imposed on the organization for non-compliance with environmental legislation, including international declarations / conventions / treaties and national, regional and local laws, as well as voluntary arrangements with regulatory bodies that are considered binding	2	0