TRANSLATORS’ EXPLANATORY NOTE
The
English
content
of
this
report
is
a
free
translation
of
the
registered
auditor’s
report
of
the
below-mentioned
Polish
Company.
In
Poland
statutory
accounts
as
well
as
the
auditor’s
report
should
be
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and
presented
in
Polish
and
in
accordance with Polish legislation and the accounting principles and practices generally adopted in Poland.
The
accompanying
translation
has
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been
reclassified
or
adjusted
in
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way
to
conform
to
the
accounting
principles
generally
accepted
in
countries
other
than
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but
certain
terminology
current
in
Anglo-Saxon
countries
has
been
adopted
to
the
extent
practicable.
In
the
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interpreting
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PricewaterhouseCoopers Polska spółka z ograniczoną odpowiedzialnością Audyt sp. k., ul.
Powstańców Śląskich 9, 53-332 Wrocław, Poland;
T: +48 (71) 366 1200, F: +48 (71) 366 1201,
PricewaterhouseCoopers Polska spółka z ograniczoną odpowiedzialnością Audyt sp. k.
is entered into the National Court Register maintained by the District Court for
the Capital City of Warsaw, under KRS number 0000741448, NIP 113-23-99-979. The seat of the Company is in Warsaw at Polna 11.
Independent Registered Auditor’s Report
To the Shareholders’ Meeting and the Supervisory Board of KGHM Polska Miedź Spółka Akcyjna
Report on the audit of separate financial statements
In our opinion, the accompanying annual separate financial statements:
•
give a true and fair view of the financial position
of KGHM Polska Miedź S.A. (the “Company”)
on a standalone basis as at 31 December 2022
and the Company’s financial performance an
d the cash
flows for the year then ended in accordance
with the applicable International Finan
cial Reporting
Standards as adopted by the European Uni
on and the adopted accounting pol
icies,
•
comply in terms of form and content with the laws applicable to the Company and the Company’s
Articles of Association,
•
have been prepared on the basis of properly maintained books of account in accordance with
the provisions of Chapter 2 of the Accounting Law of 29 September 1994 (the “Accounting Act”).
Our o
pinion is consistent with our additiona
l report to the Audit Committee issued on the date o
f this report.
What we have audited
We have audited the annual separate financial statements of KGHM Polska Miedź S.A. which
comprise:
•
the separate statement of financial position as at 31 December 2022
and the following prepared for the financial year from 1 January to 31 December 2022:
•
the separate statement of profit or loss,
•
the separate statement of comprehensive income,
•
the separate statement of changes in equity,
•
the separate statement of cash flows; and
•
the notes com
prising a description of the significant adopted
accounting policies and other explanatio
ns.
Basis for opinion
We conducted our audit in accordance with
the National Standards on Auditing in
the wording of
the International Standards on Auditing as ado
pted by the resolution of the National Co
uncil of Statutory
Auditors (“NSA”) and pursuant to the Law of 11 May 2017 on
Registered Auditors, Registered Audit
Companies and Public Oversight (the “Law on
Registered Auditors”) and the Regulation
(EU)
No. 537/2014 of 16 April 2014 on speci
fic requirements regarding the statutory audit of public-i
nterest
entities (the “EU Regulation”). Our responsibilitie
s under NSA are further described in the Aud
itor’s
responsibilities for the audit of the separate finan
cial statements section of our report.
We believe that the audit evidence we have
obtained is sufficient and appropriate to provide
a basis for our
opinion.
2
Independence
We are independent of the Company in accord
ance with the International Code of Ethics for Pro
fessional
Accountants (including International Indepe
ndence Standards) issued by the International E
thics Standards
Board for Accountants (“IESBA Code”) as adopted by resolutio
n of the National Council of Statutory
Auditors and other ethical requirements that are rele
vant to our audit of the separate financial statemen
ts in
Poland. We have fulfilled our other ethical respo
nsibilities in accordance with these requ
irements and the
IESBA Code. During the audit, the key registered aud
itor and the registered audit firm remained
independent of the Company in accordan
ce with the independence requireme
nts set in the Act on
Registered Auditors and in the EU Regulatio
n.
•
The overall materiality threshold adopted for
the purposes of our audit was set at PLN
340
million
,
which represents 4.5% of
the arithmetic average of pre-tax profit from
the last three financial years, adjusted for
the effect of the tax on the extraction of
certain minerals recognized by
the Company
.
•
We have audited the annual separate
financial statement of the Company for
the period ended 31 December
2022.
•
Recognition of revenues from contracts with
customers,
•
Assessment of the recoverability of
investments in shares of subsidiaries,
•
Assessment of the recoverability of loans
granted to the KGHM International LTD.
Group and Future 1 Sp. z o. o.,
•
Fair value measurement of derivatives and
hedge accounting.
As part of designing our audit, we determined materiality and assessed the risks of material
misstatement in the separate financial statements. In particular, we considered where the Company’s
Management Board made subjective judgements; for example, in respect of significant accounting
estimates that involved making assumptions and considering future events that are inherently
uncertain. As in all of our audits we also addressed the risk of management override of internal
controls, including among other matters, consideration of whether there was evidence of bias that
represented a risk of material misstatement due to fraud.
3
Materiality
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain
reasonable assurance whether the separate financial statements are free from material misstatement.
Misstatements may arise due to fraud or error.
They are considered material if, individually or in
aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of the separate financial statements.
Based on our professional judgement, we determined certain quantitative thresholds for materiality,
including the overall materiality for the separate financial statements as a whole, as set out in the table
below. These, together with qualitative considerations, helped us to determine the scope of our audit
and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements,
if any, both individually and in aggregate on the separate financial statements as a whole.
Overall Company
materiality
4.5% of the arithmetic average of pre-tax profit from the last three
financial years, adjusted for the amount of tax on the extraction of
certain minerals.
Rationale for
the materiality
benchmark applied
We have adopted pre-tax profit as the basis for determining
materiality, because in our opinion this measure is commonly used to
assess the Company's operations by users of separate financial
statements and is a generally accepted benchmark. We adopted
the arithmetic average of the last three years due to the volatility of
the financial result. We have adjusted the impact of the extraction tax
on certain minerals recognized by the Company due to the fact that
this fee is not dependent on the results achieved by the Company.
We assumed significance at the level of 4.5% because based on our
professional judgment it is within the acceptable quantitative
thresholds of materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our
audit above PLN 29 million, as well as misstatements below that amount that, in our view, warranted
reporting for qualitative reasons.
4
Key audit matters
Key
audit matters are those matters that, in our professional judge
ment, were of most significance
in our audit of the separate financial statemen
ts of the current period. They include the most
significant identified risks of material misstatements, includ
ing the identified risks of material
misstatement resulting from fraud. These matters were addressed in th
e context of our audit of
the separate financial statements as a whole, an
d in forming our opinion thereon. We do no
t provide
a separate opinion on these matters.
How our audit addressed the key audit matter
Recognition of revenues from contracts
with customers
In 2022
the Company recognized revenues
from contracts with customers in the amount of
PLN
28 429 million,
which were described in
part 2 of the separate financial statements.
The Company generates revenues mainly
from sales of copper
(78,1%), silver (15,3%)
and gold (2,3%).
Revenues are recognized
when the Company meets the obligation to
perform the service in the form of transferred
good or services with simultaneous acquisition
of control over this asset by the buyer.
Revenue is recognized at an amount equal to
the transaction price representing
the consideration for the goods and services
provided, including the pricing formulas used.
Bearing in mind the importance of revenues item
in the separate financial statements of
the Company, as well as the susceptibility of
the item to the risk of misstatement, we
recognized that this is a key matter for our audit.
Our testing procedures included in particular:
•
determining whether, in relation to
the previous audited year, there were
changes to the internal control system or
the principles adopted by the Group in terms
of recognizing revenue from contracts with
customers and identifying the moment of
passing control over the good or service
provided, and understanding of any changes
in the above-mentioned scope,
•
analysis of the conditions contained
in significant sales contracts,
•
conducting, on a selected sample, efficiency
tests of selected internal controls, important
for determining the correct moment of
revenue recognition and the correct value of
revenues from contracts with customers,
•
analysis
of trends in recognized revenues from
contracts with customers and explanation of
unusual events and one-off transactions,
•
conducting tests of details on a selected
sample, the selection of which used quantita
tive
and qualitative criteria, including agreei
ng price
rates and quantities used on issued sales
invoices to contracts with customers, delivery
documents and payment documents,
•
confirmation of selected sales transactions
directly with the Company's customers,
•
verification, on a selected sample, of revenue
recognition in the proper reporting period,
taking into account Incoterms and other terms
and conditions of contracts concluded with
the Company's customers,
8
●
verification of disclosures in the separate
financial statements in terms of meeting
the requirements of the standards
.
Responsibility of the Management and Supervisory Board for the separate financial
statements
The Management Board of the Company is responsible for the preparation of the annual separate
financial statements that give a true and fair view of the Company’s financial position and results of
operations, in accordance with International Financial Reporting Standards as adopted by
the European Union, the adopted accounting policies, the applicable laws and the Company’s Articles
of Association, and for such internal control as the Management Board determines is necessary to
enable the preparation of separate financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the separate financial statements, the Company’s Management Board is responsible
for assessing the Company’s ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis of accounting unless
the Management Board either intends to liquidate the Company or to cease operations,
or has no realistic alternative but to do so.
The Company’s Management Board and members of the Supervisory Board are obliged to ensure
that the separate financial statements comply with the requirements specified in the Accounting Act.
Members of the Supervisory Board are responsible for overseeing the financial reporting process.
Auditor’s responsibility for the audit of the separate financial statements
Our objectives are to obtain reasonable assurance about whether the separate financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue
an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with the NSA will always detect
a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in aggregate, they could reasonably be expected to influence
economic decisions of users taken on the basis of these separate financial statements.
The scope of the audit does not include an a
ssurance on the Company’s future profitability nor
the efficiency and effectiveness of the Company’s Manage
ment Board conducting its affairs, now or in future.
As part of an audit in accordance with NSA, we exercise professional judgement and maintain
professional scepticism throughout the audit. We also:
•
identify and assess the risks of material misstatement of the separate financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations,
or the override of internal control
,
•
obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the Company’s internal control
,
10
Other information, including the Report on the activities
Other information
Other information comprises a
:
•
joint report on the activities of the Company’s and the KGHM Polska Miedź S.A. Group’s.
(“the Group”) in which KGHM Polska Miedź S.A. is the parent company, for the financial year
ended December 31, 2022 ("the joint Report on activities"), together with a statement on
the application of corporate governance and a statement of the Company and the Group on non-
financial information referred to in art. 49b sec. 1 and art. 55 sec. 2b of the Accounting Law,
which are separate parts of this joint Report on activities,
•
consolidated report on payments to public administration,
other documents comprising the Annual Report for the financial year ended 31 December 2022
(together "Other information").
Other information does not include the separate financial statements and our auditor’s report thereon.
We
obtained the Annual Report before the
date of this audit report, except for the Report of
the Supervisory Board on the results of the assessment
of the separate financial statements,
and the Statement of the Supervisory Board regarding
the Audit Committee, which will be availabl
e after
this date.
Responsibility of the Management and Supervisory Board
The Management Board of the Company is responsible for the preparation of the Other Information in
accordance with the law.
The Company’s Management Board and the members of the Supervisory Board are obliged to ensure
that the Joint Report on the Company’s and Group’s activities, along with its separate parts,
the separate Report on non-financial information of the Company and the Group and Consolidated
report on payments to public administration complies with the requirements of the Accounting Law.
Registered auditor’s responsibility
Our opinion on the separate financial statements does not cover the Other Information.
In connection with our audit of the separate financial statements, our responsibility is to read the Other
Information and, in doing so, consider whether the Other Information is materially inconsistent with
the information in the separate financial statements, our knowledge obtained in our audit, or otherwise
appears to be materially misstated. If, based on the work performed, we identified a material
misstatement in the Other Information, we are obliged to inform about it in our audit report.
In accordance with
the requirements of the Law on the Registered Auditors, we are also obliged to issue an opinion on
whether the Joint Report on the activities has been prepared in accordance with the law and is
consistent with information included in annual stand-alone and consolidated separate financial
statements.
Moreover, we are obliged to issue an opinion on whether the Company and the Group provided
the required information in its corporate governance statement and to inform whether the Company
prepared a separate report on non-financial information.
Statement on the Other information
We declare, based on the knowledge of the Company and the Group]and its environment obtained
during our audit, that we have not identified any material misstatements in the joint Report on
the operations of the Company and the Group and the remaining Other information which we obtained
before the date of this audit report.
11
If we identify a material misstatement in [list the elements of the Annual Report which were not
obtained by the date of this report, we are obliged to inform the Parent Company’s Supervisory Board
of this fact.
Opinion on the Joint Report on the activities
Based on the work we carried out during our audit, in our opinion, the Joint Report on the Company’s
and Group’s activities
:
•
has been prepared in accordance with the requirements of Article 49 of the Accounting Act para.
70 and 71 of the Regulation of the Minister of Finance dated 29 March 2018 on current and
periodical information submitted by issuers of securities and conditions for considering
as equivalent the information required under the legislation of a non-Member State (“Regulation
on current information”)
,
•
is consistent with the information in the stand-alone and the consolidated separate financial
statements
.
Opinion on the corporate governance statement
In our opinion, in its corporate governance statement, the Company and the Group included
information set out in para. 70.6 (5) of the Regulation on current information. In addition,
in our opinion, information specified in paragraph 70.6 (5)(c)–(f), (h) and (i) of the said Regulation
included in the corporate governance statement are consistent with the applicable provisions of
the law and with information included in the stand-alone and the consolidated separate financial
statements
.
Information on non-financial information
In accordance with the requirements of the Act on the Registered Auditors, we confirm that
the Company has prepared a statement on non-financial information referred to in Article 49b(1) and
Article 55(2b) of the Accounting Act as a separate section of the Report on the operations.
We have not performed any assurance work relating to the separate report on non-financial
information and we do not provide any assurance with regard to it.
Report on other legal and regulatory requirements
Opinion on the requirements of Article 44 of the Energy Law
The Company's Management Board is responsible for preparing regulatory financial information in
accordance with the requirements of Art. 44 of the Energy Law of 10 April 1997 ("Energy Law").
In accordance with the requirements of art. 44 of the Energy Law, it is our responsibility to examine
the regulatory financial information and issue the opinion required by the Energy Law.
Regulatory financial information is presented in note 12.11 of the additional information. Our audit did
not include an assessment of whether the information required for disclosure by this law is sufficient to
ensure equal treatment of recipients and to eliminate cross-subsidization between activities.
In our opinion, the relevant items of the statement of financial position as at 31 December 2022
and the result statements for the year ended on that date, included in the regulatory financial
information (explanatory note No. 12.11), prepared separately for each business activity meet,
in all material respects, requirements referred to in art. 44 section 2 of the Energy Law, as regards
ensuring equal treatment of recipients and eliminating cross-subsidization between these activities.
In our
opinion, the relevant items in the separate
financial statements as at 31 December 2022 an
d the
result reports for the year ended on that date, includ
ed in the regulatory financial information (e
xplanatory
note No. 12.11), meet, in all material respe
cts, the requirements of Art. 44 paragraph 2a of the En
ergy Law.
12
Statement on the provision of non-audit services
To the best of our knowledge and belief, we declare that the non-audit services we have provided to
the Company and its subsidiaries are in accordance with the applicable laws and regulations in Poland
and that we have not provided any non-audit services prohibited under Article 5(1) of the EU
regulation and Article 136 of the Law on Registered Auditors.
Non-audit services that we provided to the Company and its subsidiaries in the audited period are
listed in note 2.15 in the joint Report on activities. In addition, in the audited period, we provided
the following non-audit services to the Company and its controlled entities in the European Union,
which were not disclosed in the joint Report on the activities of the Company and the Group or in
the separate and consolidated separate financial statements:
●
Attestation service regarding the report on the use of a special-purpose subsidy received
pursuant to Art. 648 - 660 of the Homeland Defense Act of March 11, 2022 in the company
subsidiary Nitroerg S.A.
We have been appointed to audit the annual separate financial statements of the Company by
the Resolution of the Supervisory Board of
22 October 2021
for the period of three years,
i.e. 2022-2024. We have been auditing the Company’s separate financial statements without
interruption since the financial year ended 31 December 2019, i.e. for 4 consecutive years.
The Key Registered Auditor responsible for the audit on behalf of PricewaterhouseCoopers Polska
spółka z ograniczoną odpowiedzialnością Audyt sp.k., a company entered on the list of Registered
Audit Companies with the number 144., is Rafał Matusiak.
Wrocław, 21 March 2023 r.