Risk management

The corporate risk management process established in the Corporate Risk Management Policy in the KGHM Group aims at ensuring that key risks are identified, assessed and analysed, and on the basis of these assessments appropriate Risk Response Plans are prepared and Corrective Actions are implemented which provide for the limitation of threats and realisation of assumed business goals and will support identification of opportunities to gain competitive advantage.

Individual risk management is defined in separate and detailed regulations of Group's companies. KGHM Polska Miedź S.A., as part of its activities, dynamically manages market risk, credit risk, financial liquidity and random incidents risk.

More details on corporate risk management can be found in the Report on the Group's activities for 2023 (pages 53-68).

Corporate Risk Management Policy

Corporate Risk Management Policy at KGHM Polska Miedź S.A. Capital Group – it is a document describing an approach, defining basic principles and establishing Corporate Risk Management Policy at KGHM Polska Miedź S.A. Capital Group.

A comprehensive approach to risk management is aligned with our growth strategy, efforts in operational effectiveness improvement and sustainable and corporate responsible business implementation.  It was designed to help our Company in building resilient corporate structure.

The goals of risk management:

  • ensuring the creation and protection of shareholders value through establishment of integrated framework that supports identification, assessment, risk analysis and implementation of key risks responses
  • protection of our employees’ health and safety, natural environment and our brand reputation
  • supporting realization of business goals by implementing early warning tools on threats and opportunities 
  • providing strong input for decision making at all levels of the organization
  • developing a risk conscious organization that will continually strive at excellence

Market risk

Market risk management

Market risk is understood as the possible negative impact on the Company's results, stemming from changes in the market prices of commodities, exchange rates and interest rates, as well as the prices of debt securities, participation units in investment funds and the share prices of publically traded companies.

The Management Board is responsible for market risk management at KGHM Polska Miedź S.A. and for adherence to policy in this regard. The main body involved in realising the market risk management process is the Market Risk Committee, which makes recommendations to the Management Board in this area. 

The Company actively manages the market risk to which it is exposed.  In accordance with the applied policy, the goals of the market risk management process are:

  • to reduce volatility in the financial results
  • to increase the probability of achieving budget assumptions
  • to decrease the probability of the loss of liquidity
  • to keep the Group in a good financial condition
  • to support the process of accomplishing the strategy and of making decisions with respect to investments, taking into consideration the sources of financing these investments

All of the goals of market risk management should be considered as a whole, with their realisation being determined mainly by the internal situation and market conditions.

The primary technique for market risk management at KGHM Polska Miedź S.A. is the use of hedging strategies involving derivatives. Apart from this, natural hedging is also used.

The means adopted most often are the instruments securing financial flows that meet the effectiveness criteria as provided for in the hedge accounting policies. Effectiveness of the securing financial instruments adopted by the Parent Entity in the accounting period is monitored and assessed on current basis.

The Parent Entity quantifies the market risk’s size that it is exposed to, and attempts to express it with a compliant and joint measure. The developed simulations (among others, analyses of scenarios, stress-testing and backtesting), and the calculated risk measures support the market risk management process in the Capital Group. The adopted risk measurements are mainly based on mathematical and statistical modeling deriving from the historical and current market data on risk factors, and they consider the current exposure to market risk (among others EaR).

Detailed information with respect to market risk management may be found in the:

 

Liquidity risk

KGHM Polska Miedź S.A. actively manages financial liquidity

Liquidity risk management at KGHM Polska Miedź S.A. Capital Group is aimed at minimising undesirable impact of financial factors on financial liquidity, on short-term and mid-term result, and building a long-term value of the Group.

Capital management is aimed at maintaining continuous financial liquidity in each period. The Company actively manages the liquidity risk to which it is exposed. This risk is understood as the inability to pay financial liabilities on time and to gain resources to finance activities.

Financial liquidity management is conducted in accordance with "Financial Liquidity Management Policy”, adopted by the Management Board. The document describes in a comprehensive manner the process of managing financial liquidity of the Company, based on best practice for such procedures and instruments.

The basic principles resulting from this document are:

  • investment of financial surpluses in safe financial instruments
  • limits for individual financial investment categories
  • concentration limits of resources for financial institutions
  • assuring appropriate financial sources

Detailed information with respect to liquidity risk management may be found in the:

 

Credit risk

Credit risk management

Credit risk is defined as the risk that assumes the possibility of Company's counterparties not being able to meet their contractual obligations. KGHM Polska Miedź S.A. is exposed to credit risk mainly in three areas, related to:

  • trade receivables
  • cash and cash equivalents and bank deposits
  • derivative transactions

The Management Board is responsible for credit risk management in the Company and for adherence to policy in this regard. The main body involved in realising activities in this respect is the Credit Risk Committee.

Trade receivables

An indispensable component of the credit risk management process carried out in the Company is the on-going monitoring of the receivables’ status and the internal reporting system. The Company limits its exposure to credit risk related to receivables from recipients by evaluating and monitoring of the financial condition of its customers, setting credit limits and using debtor security. Buyer’s credit is only provided to proven, long-term customers, while sale of products to new customers is mostly based on prepayments or trade financing instruments that transfer the whole credit risk to the financial institutions. To secure its receivables, the Company uses various forms of security and has entered into a receivables insurance contract.

Cash and cash equivalents and bank deposits

Credit risk related to bank deposits is monitored on on-going basis through analyzing credit ratings of financial institutions that the Company cooperates with, and reduction in concentration of resources in particular institutions.

The Company deposits periodically unallocated cash in accordance with the requirements to maintain financial liquidity and limit risk and in order to protect capital and maximise interest income in accordance with the „Financial Liquidity Management Policy” adopted by the Management Board.

Derivative transactions

While derivative transactions enable a reduction in the level of market risk, they result in the exposure to credit risk related to financial institutions. Derivative transactions are entered into with financial institutions with medium-high and medium ratings issued by the leading international rating agencies. Credit risk related to derivative transactions is monitored through an analysis of credit ratings and limited by the strive for a diversified composition while introducing the security strategies.

Detailed numerical data with respect to credit risk are presented in the:

 

Risk of random events

Management of negative random incidents risk and shaping insurance security

Random incident risk is understood as the probability of random incident occurrence that may consequently generate losses in Company's assets. The source of these incidents may be environmental or social.

In order to eliminate the threats and minimise material losses connected with the occurrence of risk, KGHM Polska Miedź S.A. is actively involved in activities encompassing the entirety of commercial insurance, both property and individual insurance.

KGHM Polska Miedź S.A. is a company with high degree insurance awareness. In a steady and systematic way, the Company engages in a variety of activities in the course of its business enabling the identification, evaluation and management of risks associated with random incidents. This is of key importance in assuring long-term safety of the Company’s operations.

KGHM Polska Miedź S.A. Group has a diversified structure, both organisational and territorial. Consequently, the process of managing random incidents risk has been appropriately cascaded to various organisational levels enabling an effective and efficient mitigation of risk.

The Company’s Central Office, together with the Divisions and Subsidiaries of the Capital Group, is engaged in procedural activities related to the management of random incidents risk, including among others:

  • Identification of risks associated with negative random incidents
  • Description and evaluation of risk – reflecting the possible negative impact and the probability of its occurrence
  • Risk-related activities – understood as the selection and implementation of resources aimed at controlling/limiting risk or its transfer (insurance)
  • Registration of property, financial and life insurance policies
  • Registration of damage

Realisation of the above actions has been described in detail by the Management Board of the Company in the "Principles for the identification of random incidents risk and the shaping of insurance security at KGHM Polska Miedź S.A. Group”.