5. Operating segments

The Parent Entity and the KGHM INTERNATIONAL LTD. (a subgroup) have a fundamental impact on assets and the generation of revenues in the KGHM Polska Miedź S.A. Group. The activities of KGHM Polska Miedź S.A. are concentrated on the mining industry in Poland, while those of the KGHM INTERNATIONAL LTD. Group are concentrated on the mining industry in the countries of North and South America. The profile of activities of the majority of remaining subsidiaries of the KGHM Polska Miedź S.A. Group differs from the main profile of activities of the Parent Entity.

In the adopted model for managing the Group's structure, and also taking into account the principles of IFRS 8, as well as the usefulness of the information to users of the financial statements, five operating segments were identified which are analysed in detail by management bodies. The identified operating segments are simultaneously reporting segments:

  • KGHM Polska Miedź S.A. – this segment comprises KGHM Polska Miedź S.A.
  • KGHM INTERNATIONAL LTD. - this segment comprises companies of the KGHM INTERNATIONAL LTD. Group
  • Sierra Gorda project - this segment comprises the joint venture Sierra Gorda S.C.M.
  • resource base development – this segment comprises companies involved in the exploration for and evaluation of minerals resources, intended to carry out mining
  • support of the core business – this segment comprises companies directly related to the core business of the Parent Entity*
  • other segments includes companies of the Group not related to the mining industry

* in the reporting period and in the comparable periods KGHM Metraco S.A. was classified to the segment “support of the core business” due to its significant share in securing supplies of copper scrap for KGHM Polska Miedź S.A.

Fermat 1 S. á r. l., Fermat 2 S. á r. l., Fermat 3 S. á r. l. and 0929260 B.C.U.L.C were founded within the holding structure created to acquire KGHM INTERNATIONAL LTD. These companies’ scope of activities include: foundation, development, management and exercise of control over other companies within this structure. These companies do not conduct operating activities which could impact the financial results achieved by individual segments. Because of this they were not classified to any of the aforementioned segments and data concerning these companies was included in the column “Consolidation adjustments and adjustments of segments to consolidated amounts”.

The arrangement of the KGHM Polska Miedź S.A. Group by segment is presented in the following diagram.

Segments’ results are measured by: Profit/(loss) for the period and operating profit plus depreciation/amortisation (EBITDAlexicon.png).

KGHM

Internal reports on the results of the Group are prepared monthly in a condensed form, and quarterly in an expanded scope. The Management Board of the Parent Entity is the body which performs regular reviews of the internal financial reports of the whole Group for purposes of making major investment decisions, as it is the body which is responsible for allocating resources within the Group.

Inter-segment transaction prices are set under arm’s length conditions, similarly as in relations with parties external to the Group.

For the period from 1 January to 31 December 2013
KGHM
Polska Miedź S.A.
KGHM INTERNATIONAL LTD.Projekt
Sierra Gorda
***
Rozwój
bazy zasobowej
Wsparcie
głównego ciągu technologicznego
Pozostałe
segmenty
Korekty
wynikające
z wyceny zgodnie
z MSSF3
Korekty
konsolidacyjne
Ogółem
Sales revenue 18 579 3 364 - 1 5 174 2 880 - (5 888) 24 110
Inter-segment sales revenue 278 - - - 4 481 1 111 - (5 870) -
External sales revenue 18 301 3 364 - 1 693 1 769 - (18) 24 110
Total costs of products, merchandise and materials sold (13 970) (3 287) - (5) (5 159) (2 859) (218) 5 982 (19 516)
Depreciation/Amortisation (768) (536) - (1) (137) (79) (176) 117 (1 580)
Operating profit/(loss) 4 208* 212* - (4) 87* 11* (218) 76 4 372
Profit/(loss) before income tax 4 196 56 - (4) 80 2 (159) 64 4 235
Income tax expense (1 138) (26) - (16) (18) 1 43 (48) (1 202)
Profit/(loss) for the period 3 058* 30* - (20) 62* 3* (116) 16 3 033
As at 31 December 2013
Segment assets, including: 29 038 11 270 7 381 484 2 647 2 365 2 655 (21 375) 34 465
Investments accounted for using the equity method 32 1 488** - - - 2 2 198 - 3 720
Liabilities 5 740 3 652 5 828 33 1 234 573 1 101 (6 760) 11 401
Other informationFor the period from 1 January to 31 December 2013
Capital expenditures on property, plant and equipment 2 357 577 3 551 87 277 100 - (3 563) 3 386
EBITDA
(operating profit plus depreciation/amortisation)
4 976 748 224
% of sales to KGHM Polska Miedź S.A. 82%
Production and cost data
Payable copper (kt) 565.2 100.8
- including from purchased copper-bearing materials (kt) 134.8 -
Nickel (kt) - 4.7
Molybdeum (kt) - 0.6
Silver (t) 1 161.1 2.6
Gold (koz t) 34.3 53.2
Platinum (koz t) - 13.3
Palladium (koz t) - 31.8
C1 cash cost of copper in concentrate production
(USD/lb) ****
1.78 2.15

„Adjustment due to measurement in accordance with IFRS 3” – respecting adjustment to fair value due to final accounting for the acquisition of KGHM INTERNATIONAL LTD. at the consolidated level, including accumulated adjustments from the acquisition date to 31 December 2014 for an item in the consolidated statement of financial position and from 1 January to 31 December 2014 for an item of the consolidated statement of profit or loss.
* result analysed in a given segment
** Sierra Gorda S.C.M. accounted for using the equity method
*** 55% share of the Group in Sierra Gorda S.C.M.
**** C1 cash cost of copper production - cash cost of payable copperlexicon.png production, reflecting orelexicon.png mining and processing costs, minerals extraction tax, transport costs, administrative expenses during the mining phase, smelter treatment and refining charges (TC/RC) less by-product value.

For the period from 1 January to 31 December 2014
KGHM
Polska Miedź S.A.
KGHM INTERNATIONAL LTD.Sierra Gorda Project
***
Resource base developmentSupport of the core businessOther segmentsAdjustment due to measurement in accordance with IFRS 3Consolidation adjustmentsTotal
Sales revenue 16 633 2 229 - 1 4 667 2 475 - (5 513) 20 492
Inter-segment sales revenue 264 - - - 4 252 1 035 - (5 551) -
External sales revenue 16 369 2 229 - 1 415 1 440 - 38 20 492
Total costs of products, merchandise and materials sold (13 120) (2 388) - (4) (4 602) (2 478) (94) 5 547 (17 139)
Depreciation/Amortisation (818) (525) - (1) (163) (67) (58) (3) (1 635)
Operating profit/(loss) 3 545* 190* - (2) 86* 175* (94) (224) 3 676
Profit/(loss) before income tax 3 362 3 - (2) 82 167 (342) (172) 3 098
Income tax expense (948) 51 - (1) (19) (11) 359 (78) (647)
Profit/(loss) for the period 2 414* 54* - (3) 63* 156* 17 (250) 2 451
As at 31 December 2014
Segment assets, including: 32 312 15 376 12 003 631 2 901 2 201 2 720 (27 770) 40 374
Investments accounted for using the equity method 18 2 051** - - - 14 2 282 (2) 4 363
Liabilities 8 035 5 193 9 655 56 1 116 584 865 (10 660) 14 844
Other informationFor the period from 1 January to 31 December 2014
Capital expenditures on property, plant and equipment 2 416 771 3 343 170 170 100 - (3 330) 3 640
EBITDA
(operating profit plus depreciation/amortisation)
4 363 715 249
% of sales to KGHM Polska Miedź S.A. 86%
Production and cost data
Payable copper (kt) 576.9 86.0
- including from purchased copper-bearing materials (kt) 156.5 -
Nickel (kt) - 3.2
Molybdeum (kt) - 0.3
Silver (t) 1 256.0 1.9
Gold (koz t) 82.8 32.3
Platinum (koz t) - 10.9
Palladium (koz t) - 26.9
C1 cash cost of copper in concentrate production
(USD/lb) ****
1.82 2.26

„Adjustment due to measurement in accordance with IFRS 3” – respecting adjustment to fair value due to final accounting for the acquisition of KGHM INTERNATIONAL LTD. at the consolidated level, including accumulated adjustments from the acquisition date to 31 December 2013 for an item in the consolidated statement of financial position and from 1 January to 31 December 2013 for an item of the consolidated statement of profit or loss.
* result analysed in a given segment
** Sierra Gorda S.C.M. accounted for using the equity method
*** 55% share of the Group in Sierra Gorda S.C.M.
**** C1 cash cost of copper production - cash cost of payable copperlexicon.png production, reflecting orelexicon.png mining and processing costs, minerals extraction tax, transport costs, administrative expenses during the mining phase, smelter treatment and refining charges (TC/RC) less by-product value.

For the period
From 1 January 2014
to 31 December 2014
From 1 January 2013
to 31 December 2013
Poland 4 797 4 837
Germany 3 570 4 315
China 2 916 3 379
The United Kingdom 1 639 2 581
The Czech Republic 1 422 1 547
Canada 784 1 199
France 712 815
Italy 712 774
Hungary 596 733
The USA 587 1 144
Turkey 498 507
Switzerland 455 372
Australia 414 -
Austria 253 269
Japan 193 220
Belgium 183 158
Romania 142 173
Slovakia 107 142
Spain 61 3
Bulgaria 52 45
Netherlands 43 35
Finland 42 8
Slovenia 33 36
Bosnia and Herzegovina 29 36
South Korea 21 93
Russia 20 17
Ukraine 19 32
Denmark 1 110
Other countries (dispersed sale) 191 530
Total 20 492 24 110

Main customers

During the period from 1 January 2014 to 31 December 2014 and in the comparable period, the sales revenues from no single customer exceeded 10% of the revenues of the Group.

70.82% of the non-current assets (property, plant and equipment and intangible assets) of the Group are located in Poland. The remaining 29.18% of the non-current assets are located in: Canada – 16.60%; the USA – 6.32%; Chile – 2.56%; other countries – 3.70%.