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
prepared
and
presented
in
Polish
and
in
accordance with Polish legislation and the accounting principles and practices generally adopted in Poland.
The
accompanying
translation
has
not
been
reclassified
or
adjusted
in
any
way
to
conform
to
the
accounting
principles
generally
accepted
in
countries
other
than
Poland,
but
certain
terminology
current
in
Anglo-Saxon
countries
has
been
adopted
to
the
extent
practicable.
In
the
event
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discrepancies
in
interpreting
the
terminology,
the
Polish
language
version is binding.
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.
TRANSLATION ONLY
Independent Registered Auditor’s Report
To the Shareholders’ Meeting and the Supervisory Board of KGHM Polska Miedź Spółka Akcyjna
Report on the audit of financial statements
In our opinion, the accompanying annual 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 2021
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 opinion is consistent with our additional report to the Audit Committee issued on the date of this
report.
We have audited the annual financial statements of KGHM Polska Miedź S.A. which comprise:
•
the statement of financial position as at 31 December 2021
and the following prepared for the financial year from 1 January to 31 December 2021:
•
the statement of profit or loss
•
the statement of comprehensive income
•
the statement of changes in equity
•
the statement of cash flows; and
•
the notes comprising a description of the significant adopted accounting policies and other
explanations.
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 specific requ
irements regarding the statutory audit of public-intere
st entities
(the “EU Regulation”). Our responsibilities und
er NSA are further described in the Auditor’s respo
nsibilities
for the audit of the financial statements section of our repo
rt.
We believe that the audit evidence we have
obtained is sufficient and appropriate to provide
a basis for our
opinion.
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 financial statements in Pola
nd.
We have fulfilled our other ethical responsibil
ities in accordance with these requirements a
nd the IESBA
Code. During the audit, the key registered aud
itor and the registered audit firm remained inde
pendent of
the Company in accordance with the ind
ependence requirements set in the Act on R
egistered Auditors and
in the EU Regulation.
Our audit approach
•
The overall materiality threshold adopted for
the purposes of our audit was set at PLN
269 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 financial
statement of the Company for the period
ended 31 December 2021.
•
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 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.
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain
reasonable assurance whether the 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 financial statements.
Based on our professional judgement, we determined certain quantitative thresholds for materiality,
including the overall materiality for the 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 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 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 23 million, as well as misstatements below that amount that, in our view, warranted
reporting for qualitative reasons.
Key audit matters
Key
audit matters are those matters that, in our professional judge
ment, were of most significance
in our audit of the financial statements of the curren
t period. They include the most significant
identified risks of material misstatements, including the
identified risks of material misstatement
resulting from fraud. These matters were addressed in the
context of our audit of the financial
statements as a whole, and in forming our opinion
thereon,. We do not provide a separate opini
on
on these matters.
How our audit addressed the key audit matter
Recognition of revenues from
contracts with customers
In 2021, the Company recognized
revenues from contracts with customers in
the amount of PLN 24,618 million, which
were described in part 2 of the financial
statements.
The Company generates revenues mainly
from sales of copper (77.5%), silver
(16.2%) and gold (2.2%). 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 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 quantitative
and qualitative criteria, including agreeing 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;
•
conclude on the appropriateness of the Company’s Management Board’s use of the going
concern basis of accounting and, based on the audit evidence obtained, whether a material
uncertainty exists related to events or conditions that may cast significant doubt on the Company’s
ability to continue as a going concern. If we conclude that a material uncertainty exists,
we are required to draw attention in our auditor’s report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are
based on the audit evidence obtained up to the date of our auditor’s report. However, future
events or conditions may cause the Company to cease to continue as a going concern;
•
evaluate the overall presentation, structure and content of the financial statements, including
the disclosures, and whether the financial statements represent the underlying transactions and
events in a manner that achieves fair presentation
.
We communicate with the Audit Committee regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any significant deficiencies in internal control
that we identify during our audit.
We also provide the Audit Committee with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, actions
taken to eliminate threats or safeguards applied.
From the matters communicated to the Audit Committee, we determine those matters that were of
most significance in the audit of the financial statements of the current period and are therefore
the key audit matters. We describe these matters in our auditor’s report unless law or regulation
precludes public disclosure about the matter or when, in extremely rare circumstances, we determine
that a matter should not be communicated in our report because the adverse consequences of doing
so would reasonably be expected to outweigh the public interest benefits of such communication.
Other information, including the Report on the activities
Other information
Other information comprises a Joint Report on the Company’s and KGHM Polska Miedź S.A. Group’s
(“the Group”) activities for the financial year ended 31 December 2021 (“the Joint Report on
the activities”) and the corporate governance statement, which is separate part of the Joint Report on
the activities, and the separate report on non-financial information and separate consolidated report on
payments to public administration (“Consolidated report on payments to public administration”)
(together “Other Information”). Other information does not include the financial statements and our
auditor’s report thereon.
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 financial statements does not cover the Other Information.
In connection with our audit of the 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 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 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.
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 financial statements.
Moreover, based on the knowledge of the Company and the Group and their environment obtained
during our audit, we have not identified any material misstatements in the Joint Report on
the Company’s and Group’s activities and remaining Other information.
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 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 included in its Report on the activities, information on the preparation of a separate
report on non-financial information referred to in Article 44b para. 9 of the Accounting Act and that the
Company has prepared such a separate report.
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 2021
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 financia
l statements as at 31 December 2021 and the resul
t reports
for the year ended on that date, included in
the regulatory financial information (explan
atory note
No. 12.11), meet, in all material respects, the
requirements of Art. 44 paragraph 2a of the Ene
rgy Law.
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.
During the audited period, we provided to the Company, and its controlled entities in the European
Union, the following non-audit services which were not disclosed in the Report on the Company’s
activities or in the financial statements:
●
Certifying Service regarding the correct calculation of the value of the intensity of electricity
consumption, arithmetic average of incurred costs of electricity used for own needs and unit gross
added value determined in accordance with the guidelines contained in Article 52 para. 3
and Article 53 para. 2 and 3 of the Act on renewable energy sources of 20 February 2015,
and the Regulation of the Minister of Climate of 27 August 2020 o the method of calculating
the intensity of electricity consumption by industrial users;
●
Agreed-upon procedures for the verification of financial covenants in relation to selected loan
agreements concluded between KGHM Polska Miedź S.A. and the European Investment Bank;
●
Attestation Service in the scope of responsible supply chain for gold and silver in accordance with
LBMA responsible Gold Guidance and LBMA Responsible Silver Guidance;
●
Attestation Service in the scope of calculation of excise duty ratio in accordance with
requirements of Article 31d para. 8 of Excise Duty Act of 6 December 2008;
●
Attestation Service in the scope of including information required by the Polish Act on Public
Offerings in the Remuneration Report.
