KGHM Polska Miedź S.A.

Quarterly Report • Mar 22, 2023

SEPARATE STATEMENT OF PROFIT OR LOSS SEPARATE STATEMENT OF COMPREHENSIVE INCOME SEPARATE STATEMENT OF CASH FLOWS SEPARATE STATEMENT OF FINANCIAL POSITION SEPARATE STATEMENT OF CHANGES IN EQUITY Note 4.1 Expenses by nature Note 4.2 Other operating income/(costs) Note 4.3 Finance income/(costs) Note 4.4 Reversal / recognition of impairment losses on assets in the statement of profit or loss Note 5.1 Income tax in the statement of profit or loss Note 5.2 Other taxes and charges Note 5.3 Tax assets and liabilities Note 6.1 Subsidiaries Note 6.2 Receivables due to loans granted Note 7.1 Financial Instruments Note 7.2 Derivatives Note 7.3 Other financial instruments measured at fair value Note 7.4 Other non-current financial instruments measured at amortised cost Note 7.5 Financial risk management Note 7.5.1 Market risk Note 7.5.1.1 Principles and techniques of market risk management As part of the realisation of the strategic plan to hedge the Company against market risk, in 2022 strategies hedging the planned revenues from copper sales were implemented. Seagull hedging strategies were entered into for the period from January 202... In 2022, the Company did not implement any hedging strategies on the silver market. The condensed tables of open derivatives transactions held by the Company on the copper and silver markets as at 31 December 2022, entered into as part of the strategic management of market risk, are presented below (the hedged notional in the present... Hedging against silver price risk – open derivatives as at 31 December 2022 The condensed tables of open derivatives transactions held by the Company on the copper and silver markets as at 31 December 2021, entered into as part of the strategic management of market risk, are presented below (the hedged notional in the present... Hedging against silver price risk – open derivatives as at 31 December 2021 An analysis of the Company’s sensitivity to the risk of changes in copper, silver and gold prices in the years 2021-2022 Note 7.5.1.3 Risk of changes in foreign exchange rates As part of the realisation of the strategic plan to hedge the Company against market risk, in 2022 the following were purchased: put options on the currency market for USD 205 million of planned sales revenues with maturities from April 2022 to Decemb... In addition, as part of on-going management of the currency risk, short-term forward sale transactions were entered into for the planned current cash flows, aimed at hedging against risk connected with USD/PLN rate fluctuations. Forward transactions w... As a result, as at 31 December 2022 the Company held an open position on the currency market for the notional amount of USD 2 955 million (USD 1 050 million as at 31 December 2021), and Cross Currency Interest Rate Swap (CIRS) transactions for the not... Hedging against currency-interest rate risk connected with the issue of bonds with a variable interest rate in PLN – open derivatives as at 31 December 2022 and as at 31 December 2021 Note 7.5.1.4 Interest rate risk As at 31 December 2022 the Company had CIRS transactions (Cross Currency Interest Rate Swap) with maturities falling in June 2024 and June 2029, in the notional amount of PLN 2 billion, hedging both the sales revenues in the currency, as well as the ... Note 7.5.1.5 Impact of hedge accounting on the financial statements Note 7.5.2 Credit risk Note 7.5.2.1 Credit risk related to cash, cash equivalents and bank deposits Weighed by amount of deposits. Impairment losses on cash and cash equivalents were determined individually for each balance of a given financial institution. External bank ratings were used to measure credit risk. The analysis determined that these assets have a low credit risk at ... Note 7.5.2.2 Credit risk related to derivatives transactions For many years, the Company has been cooperating with a large number of customers, which affects the geographical diversification of trade receivables. The majority of sales go to EU countries. Loans granted measured at amortised cost Note 8.1 Capital management policy Note 8.2 Equity Note 8.2.1 Share capital Note 8.2.2 Changes of other equity items in the period Note 8.3 Liquidity management policy Note 8.3.1 Contractual maturities for financial liabilities Financial liabilities arising from derivatives are calculated at their intrinsic values excluding the discount effect. ** Liabilities of KGHM Polska Miedź S.A. towards the Group companies within the cash pooling’s credit limit. *** Other current financial liabilities due to the return of cash deposits towards all participants in cash pooling which presented a positive balance at the end of the reporting period. Note 8.4 Borrowings Note 8.4.1 Net debt Note 8.4.2 Net debt changes Currency risk and interest rate risk are related to borrowings. A description of exposures to financial risks may be found in Note 7.5. Reconciliation of cash flows recognised in net debt change to the statement of cash flows Note 8.5 Cash and cash equivalents Note 8.6 Liabilities due to guarantees granted Note 9.1 Mining and metallurgical property, plant and equipment and intangible assets Note 9.1.1 Mining and metallurgical property, plant and equipment– fixed assets under construction Note 9.1.2 Expenses related to mining and metallurgical assets Note 9.2 Other property, plant and equipment and intangible assets Note 9.3 Depreciation/amortisation Note 9.4 Provision for decommissioning costs of mines and other technological facilities Note 9.5 Capitalised borrowing costs Note 9.6 Lease disclosures – the Company as a lessee Note 9.7 Non-current assets held for sale and liabilities associated with them Note 10.1 Inventories Note 10.2 Trade receivables Note 10.3 Trade and similar payables Note 10.4 Changes in working capital Note 11.1 Employee benefits liabilities Note 11.2 Changes in liabilities related to future employee benefits programs Note 12.1 Related party transactions Note 12.2 Dividends paid Note 12.3 Other assets Note 12.4 Other liabilities Note 12.5 Assets and liabilities not recognised in the statement of financial position Note 12.6 Capital commitments related to property, plant and equipment and intangible assets Note 12.7 Employment structure Note 12.8 Other adjustments in the statement of cash flows Note 12.9. Remuneration of key managers Note 12.10 Remuneration of the entity entitled to audit the financial statements and of entities related to it (in PLN thousands) Note 12.11 Disclosure of information on the Company’s activities regulated by the Act on Energy Note 12.11.1 Introduction Note 12.11.2 Description of regulated activities Note 12.11.3 Basic principles of regulatory accounting Note 12.11.4 Detailed principles of regulatory policy – methods and principles governing the allocation of assets, liabilities, equity, costs and revenues Note 12.12 Information on the impact of COVID-19 and the war in Ukraine on the Company’s operations PREVENTIVE ACTIONS IN THE COMPANY Note 12.13 Risks and hazards associated with climate change Note 12.14 Subsequent events SEPARATE STATEMENT OF PROFIT OR LOSS Note 13.1 Expenses by nature Note 13.2 Other operating income/(costs) Note 13.3 Finance income/(costs) POLISH FINANCIAL SUPERVISION AUTHORITY Annual report RR 2022 (in accordance with § 60 sec. 1 point 3 of the Decree regarding current and periodic information) for issuers of securities involved in production, construction, trade or services activities for the financial year 2022 comprising the period from 1 January 2022 to 31 December 2022 containing the separate financial statements according to International Accounting Standards in PLN. Publication date: 22 March 2023 KGHM Polska Miedź Spółka Akcyjna (name of the issuer) KGHM Polska Miedź S.A. (name of the issuer in brief) 59 – 301 (postal code) M. Skłodowskiej – Curie (street) (+48) 76 7478 200 (telephone) ir@kghm.com (e-mail) 6920000013 (NIP) G30CO71KTT9JDYJESN22 (LEI) Mining (issuer branch title per the Warsaw Stock Exchange) LUBIN (city) 48 (number) (+48) 76 7478 500 (fax) www.kghm.com (www) 390021764 (REGON) 23302 (KRS) PricewaterhouseCoopers Polska Spółka z ograniczoną odpowiedzialnością Audyt Sp.k. (auditing company) SELECTED FINANCIAL DATA in PLN mn in EUR mn 2022 2021 2022 2021 I. Revenues from contracts with customers 28 429 24 618 6 064 5 378 II. Profit on sales 3 966 4 104 846 897 III. Profit before income tax 4 996 6 716 1 066 1 467 IV. Profit for the period 3 533 5 169 754 1 129 V. Other comprehensive income 902 263 192 57 VI. Total comprehensive income 4 435 5 432 946 1 186 VII. Number of shares issued 200 000 000 200 000 000 200 000 000 200 000 000 VIII. Earnings per ordinary share 17.67 25.85 3.77 5.65 IX. Net cash generated from operating activities 1 791 1 963 382 429 X. Net cash used in investing activities ( 1 629) ( 607) ( 347) ( 133) XI. Net cash used in financing activities ( 506) ( 2 091) ( 108) ( 457) XII. Total net cash flow ( 344) ( 735) ( 73) ( 161) XIII. Non-current assets 36 707 34 671 7 827 7 538 XIV. Current assets 11 288 8 787 2 407 1 910 XV. Total assets 47 995 43 458 10 234 9 448 XVI. Non-current liabilities 10 311 9 707 2 199 2 110 XVII. Current liabilities 8 009 7 911 1 708 1 720 XVIII. Equity 29 675 25 840 6 327 5 618 Average EUR/PLN exchange rate announced by the National Bank of Poland 2022 2021 Average exchange rate for the period 4.6883 4.5775 Exchange rate at the end of the period 4.6899 4.5994 Exchange rates are the arithmetical average of the current average exchange rates announced by the National Bank of Poland on the last day of each month respectively of 2022 and 2021 Polish Financial Supervision Authority This report is a direct translation from the original Polish version. In the event of differences resulting from the translation, reference should be made to the official Polish version. SEPARATE FINANCIAL STATEMENTS FOR 2022 Lubin, March 2023 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 2 Table of contents SEPARATE STATEMENT OF PROFIT OR LOSS ................................................................................................................................................... 3 SEPARATE STATEMENT OF COMPREHENSIVE INCOME ................................................................................................................................... 3 SEPARATE STATEMENT OF CASH FLOWS ......................................................................................................................................................... 4 SEPARATE STATEMENT OF FINANCIAL POSITION .......................................................................................................................................... 5 SEPARATE STATEMENT OF CHANGES IN EQUITY ............................................................................................................................................ 6 PART 1 – General information ......................................................................................................................................................................... 7 PART 2 – Operating segments and information on revenues .................................................................................................................... 11 PART 3 – Impairment of assets ..................................................................................................................................................................... 18 PART 4 – Explanatory notes to the statement of profit or loss ................................................................................................................. 23 Note 4.1 Expenses by nature ............................................................................................................................................................................................ 23 Note 4.2 Other operating income/(costs) ....................................................................................................................................................................... 24 Note 4.3 Finance income/(costs) ...................................................................................................................................................................................... 25 Note 4.4 Reversal / recognition of impairment losses on assets in the statement of profit or loss ................................................................... 25 PART 5 – Taxation ........................................................................................................................................................................................... 26 Note 5.1 Income tax in the statement of profit or loss................................................................................................................................................ 26 Note 5.2 Other taxes and charges ................................................................................................................................................................................... 30 Note 5.3 Tax assets and liabilities .................................................................................................................................................................................... 30 PART 6 – Investments in subsidiaries ........................................................................................................................................................... 32 Note 6.1 Subsidiaries ......................................................................................................................................................................................................... 32 Note 6.2 Receivables due to loans granted ................................................................................................................................................................... 34 PART 7 – Financial instruments and financial risk management .............................................................................................................. 38 Note 7.1 Financial Instruments ........................................................................................................................................................................................ 38 Note 7.2 Derivatives ........................................................................................................................................................................................................... 45 Note 7.3 Other financial instruments measured at fair value .................................................................................................................................... 49 Note 7.4 Other non-current financial instruments measured at amortised cost ................................................................................................... 50 Note 7.5 Financial risk management............................................................................................................................................................................... 51 PART 8 – Borrowings and the management of liquidity and capital ......................................................................................................... 73 Note 8.1 Capital management policy .............................................................................................................................................................................. 73 Note 8.2 Equity .................................................................................................................................................................................................................... 74 Note 8.3 Liquidity management policy ........................................................................................................................................................................... 77 Note 8.4 Borrowings .......................................................................................................................................................................................................... 80 Note 8.5 Cash and cash equivalents ............................................................................................................................................................................... 84 Note 8.6 Liabilities due to guarantees granted ............................................................................................................................................................. 85 PART 9 – Non-current assets and related liabilities.................................................................................................................................... 87 Note 9.1 Mining and metallurgical property, plant and equipment and intangible assets .................................................................................. 87 Note 9.2 Other property, plant and equipment and intangible assets .................................................................................................................... 92 Note 9.3 Depreciation/amortisation ............................................................................................................................................................................... 94 Note 9.4 Provision for decommissioning costs of mines and other technological facilities ................................................................................. 94 Note 9.5 Capitalised borrowing costs ............................................................................................................................................................................. 95 Note 9.6 Lease disclosures – the Company as a lessee ............................................................................................................................................... 96 Note 9.7 Non-current assets held for sale and liabilities associated with them ..................................................................................................... 97 PART 10 – Working capital ............................................................................................................................................................................. 98 Note 10.1 Inventories ......................................................................................................................................................................................................... 98 Note 10.2 Trade receivables ............................................................................................................................................................................................. 99 Note 10.3 Trade and similar payables .......................................................................................................................................................................... 100 Note 10.4 Changes in working capital........................................................................................................................................................................... 101 PART 11 – Employee benefits ...................................................................................................................................................................... 103 Note 11.1 Employee benefits liabilities......................................................................................................................................................................... 104 Note 11.2 Changes in liabilities related to future employee benefits programs ................................................................................................. 105 PART 12 – Other notes ................................................................................................................................................................................. 108 Note 12.1 Related party transactions ........................................................................................................................................................................... 108 Note 12.2 Dividends paid ................................................................................................................................................................................................ 109 Note 12.3 Other assets .................................................................................................................................................................................................... 109 Note 12.4 Other liabilities ............................................................................................................................................................................................... 110 Note 12.5 Assets and liabilities not recognised in the statement of financial position ....................................................................................... 110 Note 12.6 Capital commitments related to property, plant and equipment and intangible assets ................................................................. 110 Note 12.7 Employment structure .................................................................................................................................................................................. 111 Note 12.8 Other adjustments in the statement of cash flows ................................................................................................................................. 111 Note 12.9. Remuneration of key managers ................................................................................................................................................................. 112 Note 12.10 Remuneration of the entity entitled to audit the financial statements and of entities related to it ............................................ 114 Note 12.11 Disclosure of information on the Company’s activities regulated by the Act on Energy ................................................................ 114 Note 12.12 Information on the impact of COVID-19 and the war in Ukraine on the Company’s operations.................................................. 121 Note 12.13 Risks and hazards associated with climate change ............................................................................................................................... 123 Note 12.14 Subsequent events ...................................................................................................................................................................................... 124 PART 13 - Quarterly financial information of KGHM Polska Miedź S.A. .................................................................................................. 126 SEPARATE STATEMENT OF PROFIT OR LOSS................................................................................................................................................................ 126 Explanatory notes to the statement of profit or loss ............................................................................................................................... 127 Note 13.1 Expenses by nature ....................................................................................................................................................................................... 127 Note 13.2 Other operating income/(costs) .................................................................................................................................................................. 128 Note 13.3 Finance income/(costs).................................................................................................................................................................................. 129 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 3 SEPARATE STATEMENT OF PROFIT OR LOSS from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Part 2 Revenues from contracts with customers 28 429 24 618 Note 4.1 Cost of sales (23 157) (19 441) Gross profit 5 272 5 177 Note 4.1 Selling costs and administrative expenses (1 306) (1 073) Profit on sales 3 966 4 104 Note 4.2 Other operating income, including: 2 172 4 273 fair value gains on financial assets measured at fair value through profit or loss 631 1 070 reversal of impairment losses on financial instruments 213 807 Note 4.2 Other operating costs, including: ( 873) (1 185) impairment losses on financial instruments ( 7) ( 4) Note 4.3 Finance income 148 70 Note 4.3 Finance costs ( 417) ( 546) Profit before income tax 4 996 6 716 Note 5.1 Income tax expense (1 463) (1 547) PROFIT FOR THE PERIOD 3 533 5 169 Weighted average number of ordinary shares (million) 200 200 Basic/diluted earnings per share (in PLN) 17.67 25.85 SEPARATE STATEMENT OF COMPREHENSIVE INCOME from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Note 8.2.2 Profit for the period 3 533 5 169 Note 8.2.2 Measurement of hedging instruments net of the tax effect 1 354 ( 297) Other comprehensive income which will be reclassified to profit or loss 1 354 ( 297) Note 8.2.2 Measurement of equity financial instruments at fair value through other comprehensive income, net of the tax effect ( 79) 17 Note 8.2.2 Actuarial gains/(losses) net of the tax effect ( 373) 543 Other comprehensive income, which will not be reclassified to profit or loss ( 452) 560 Total other comprehensive net income 902 263 TOTAL COMPREHENSIVE INCOME 4 435 5 432 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 4 SEPARATE STATEMENT OF CASH FLOWS from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Cash flow from operating activities Profit before income tax 4 996 6 716 Note 9.3 Depreciation/amortisation recognised in profit or loss 1 434 1 363 Interest on investment activities ( 268) ( 289) Other interest 61 120 Dividends income ( 29) ( 37) Profits on the disposal of shares and investment certificates ( 1) ( 25) Note 6.2 Fair value (gains)/losses on financial assets measured at fair value through profit or loss ( 600) (1 029) Note 3.2 Note 9.1 Impairment losses on non-current assets 6 202 Note 6.1 Note 6.2 Reversal of impairment losses on non-current assets ( 213) (1 762) Exchange differences, of which: ( 231) 28 from investment activities and cash ( 410) ( 310) from financing activities 179 338 Change in provisions for decommissioning of mines, liabilities related to employee benefits and other provisions ( 2) ( 29) Change in other receivables and liabilities other than working capital ( 165) 66 Change in assets and liabilities due to derivatives ( 351) (1 861) Note 7.2 Reclassification of other comprehensive income to profit or loss due to the realisation of hedging derivatives 492 2 030 Note 12.8 Other adjustments 114 7 Exclusions of income and costs, total 247 (1 216) Income tax paid (1 575) ( 707) Note 10.4 Changes in working capital, including: (1 877) (2 830) change in trade payables transferred to factoring ( 55) (1 154) Net cash generated from operating activities 1 791 1 963 Cash flow from investing activities Note 9.1.2 Expenditures on mining and metallurgical assets, including: (2 689) (2 381) paid capitalised interest on borrowings ( 173) ( 112) Expenditures on other property, plant and equipment and intangible assets ( 42) ( 26) Expenditures due to acquisition of shares and investment certificates ( 375) ( 38) Expenditures on financial assets designated for decommissioning of mines and other technological facilities - ( 24) Loans granted ( 23) ( 20) Advances granted on property, plant and equipment and intangible assets ( 40) ( 28) Proceeds from disposal of equity instruments measured at fair value through other comprehensive income - 53 Proceeds from disposal of shares and redemption of investment certificates 367 46 Dividends received 29 37 Proceeds from financial assets designated for decommissioning of mines and other technological facilities 26 - Note 7.5.2.5 Proceeds from repayment of loans granted (principal) 1 066 1 675 Interest received on loans granted 34 95 Other 18 4 Net cash used in investing activities (1 629) ( 607) Cash flow from financing activities Proceeds from borrowings 605 205 Proceeds from cash pooling - 76 Proceeds from derivatives related to sources of external financing 130 36 Note 8.4.2 Repayment of received borrowings ( 352) (1 889) Repayment of lease liabilities ( 44) ( 51) Interest paid, including due to: ( 117) ( 89) Note 8.4.2 borrowings ( 116) ( 80) Expenditures due to derivatives related to sources of external financing ( 89) ( 79) Dividends paid to shareholders of the Company ( 600) ( 300) Expenditures on cash pooling ( 40) - Other 1 - Net cash used in financing activities ( 506) (2 091) NET CASH FLOW ( 344) ( 735) Exchange differences on cash and cash equivalents ( 3) ( 68) Cash and cash equivalents at beginning of the period 1 332 2 135 Note 8.5 Cash and cash equivalents at end of the period, including: 985 1 332 restricted cash 14 14 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 5 SEPARATE STATEMENT OF FINANCIAL POSITION As at 31 December 2022 As at 31 December 2021 ASSETS Mining and metallurgical property, plant and equipment 21 091 19 744 Mining and metallurgical intangible assets 1 251 1 093 Note 9.1 Mining and metallurgical property, plant and equipment and intangible assets 22 342 20 837 Other property, plant and equipment 104 98 Other intangible assets 51 60 Note 9.2 Other property, plant and equipment and intangible assets 155 158 Note 6.1 Investments in subsidiaries, other than loans granted 3 701 3 691 Note 6.2 Loans granted, including: 8 763 8 249 measured at fair value through profit or loss 3 233 2 959 measured at amortised cost 5 530 5 290 Note 7.2 Derivatives 714 595 Note 7.3 Other financial instruments measured at fair value through other comprehensive income 483 581 Note 7.4 Other financial instruments measured at amortised cost 432 506 Financial instruments, total 10 392 9 931 Note 12.3 Other non-financial assets 117 54 Non-current assets 36 707 34 671 Note 10.1 Inventories 7 523 5 436 Note 10.2 Trade receivables, including: 620 600 trade receivables measured at fair value through profit or loss 455 467 Note 5.3 Tax assets 312 301 Note 7.2 Derivatives 796 254 Note 7.1 Cash pooling receivables 588 498 Note 12.3 Other financial assets 322 289 Note 12.3 Other non-financial assets 142 77 Note 8.5 Cash and cash equivalents 985 1 332 Current assets 11 288 8 787 TOTAL ASSETS 47 995 43 458 EQUITY AND LIABILITIES Note 8.2.1 Share capital 2 000 2 000 Note 8.2.2 Other reserves from measurement of financial instruments (395) (1 670) Note 8.2.2 Accumulated other comprehensive income (702) (329) Note 8.2.2 Retained earnings 28 772 25 839 Equity 29 675 25 840 Note 8.4.1 Borrowings, lease and debt securities 5 000 5 180 Note 7.2 Derivatives 719 1 133 Note 11.1 Employee benefits liabilities 2 394 2 040 Note 9.4 Provisions for decommissioning costs of mines and other technological facilities 1 233 811 Deferred tax liabilities 705 290 Note 12.4 Other liabilities 260 253 Non-current liabilities 10 311 9 707 Note 8.4.1 Borrowings, lease and debt securities 1 124 382 Note 8.4.1 Cash pooling liabilities 321 360 Note 7.2 Derivatives 434 888 Note 10.3 Trade and similar payables 2 819 2 613 Note 11.1 Employee benefits liabilities 1 365 1 130 Note 5.3 Tax liabilities 1 061 1 291 Provisions for liabilities and other charges 110 98 Note 12.4 Other liabilities 775 1 149 Current liabilities 8 009 7 911 Non-current and current liabilities 18 320 17 618 TOTAL EQUITY AND LIABILITIES 47 995 43 458 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 6 SEPARATE STATEMENT OF CHANGES IN EQUITY Share capital Other reserves from measurement of financial instruments Accumulated other comprehensive income Retained earnings Total equity As at 1 January 2021 2 000 (1 390) ( 872) 20 988 20 726 Transactions with owners - dividend - - - ( 300) ( 300) Profit for the period - - - 5 169 5 169 Note 8.2.2 Other comprehensive income - ( 280) 543 - 263 Total comprehensive income - ( 280) 543 5 169 5 432 Reclassification of the result on disposal of equity instruments measured at fair value through other comprehensive income - - - ( 18) ( 18) As at 31 December 2021 2 000 (1 670) ( 329) 25 839 25 840 Note 12.2 Transactions with owners - dividend - - - ( 600) ( 600) Profit for the period - - - 3 533 3 533 Note 8.2.2 Other comprehensive income - 1 275 ( 373) - 902 Total comprehensive income - 1 275 ( 373) 3 533 4 435 As at 31 December 2022 2 000 ( 395) ( 702) 28 772 29 675 PLN 18 million due to reclassification of the result on disposal of equity instruments measured at fair value through other comprehensive income was recognised in other comprehensive income. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 7 PART 1 – General information Note 1.1 Corporate information KGHM Polska Miedź S.A. (“the Company”) with its registered office in Lubin at 48 M.Skłodowskiej-Curie Street is a joint stock company registered at the Regional Court for Wrocław Fabryczna, Section IX (Economic) of the National Court Register, entry no. KRS 23302, on the territory of the Republic of Poland. KGHM Polska Miedź S.A. has a multi-divisional organisational structure, comprised of a Head Office and 10 divisions: 3 mines (Lubin Mine Division, Polkowice-Sieroszowice Mine Division, Rudna Mine Division), 3 metallurgical plants (Głogów Smelter/Refinery, Legnica Smelter/Refinery, Cedynia Wire Rod Division), the Concentrator Division, the Tailings Division, the Mine-Smelter Emergency Rescue Division and the Data Center Division. The shares of KGHM Polska Miedź S.A. are listed on the Warsaw Stock Exchange. The Company’s principal activities include: – the mining of copper and non-ferrous metals ores; and – the production of copper, precious and non-ferrous metals. KGHM Polska Miedź S.A. carries out copper ore mining activities based on concessions given for specific mine deposits, and also based on mining usufruct agreements and mine operating plans. KGHM Polska Miedź S.A. is a parent entity of the KGHM Polska Miedź S.A. Group (“Group”). The separate financial statements were prepared under the assumption of continuing as a going concern during a period of at least 12 months from the end of the reporting period in an unaltered form and business scope, and there are no reasons to suspect any intentional or forced discontinuation or significant limitation of its current activities. As at the date of signing of the financial statements the Management Board of the Company is not aware of any facts or circumstances that may cast doubt about the going concern in the foreseeable future. The COVID-19 pandemic and the war in Ukraine did not have a direct, negative impact on individual aspects of the Company’s business activities. There were neither production stoppages or slowdowns nor any reductions in the scope of services provided. However the COVID -19 pandemic, in particular the pandemic situation in China, and Russia’s aggression against Ukraine were reflected in the increased inflation pressure. In 2022, prices of technological materials, energy, fuels and services increased significantly, which influenced the level of costs generated by the Company. On the other hand, the uncertainty as to the future global economic situation resulted in the weakening of the PLN and the increase in PLN- denominated copper prices, which translated into an increase in revenues from sales. As a result, the achieved EBITDA was at a level similar to the EBITDA achieved in 2021. The production and financial results of individual segments were presented in the Management Board’s report on the activities of KGHM Polska Miedź S.A. and of the KGHM Polska Miedź S.A. Group in 2022. Detailed information on the Company’s operations during the pandemic and the on-going armed conflict in Ukraine in 2022 was presented in Note 12.12 of this report. Declaration by the Management Board on the accuracy of the prepared separate financial statements The Management Board of KGHM Polska Miedź S.A. declares that according to its best judgement the annual separate financial statements for 2022 and the comparable data have been prepared in accordance with accounting principles currently in force, and give a true, fair and clear view of the financial position of KGHM Polska Miedź S.A. and the profit for the period of the Company. The Management Board’s report on the activities of KGHM Polska Miedź S.A. and of the KGHM Polska Miedź S.A. Group in 2022 presents a true picture of the development and achievements, as well as the condition, of KGHM Polska Miedź S.A. and the KGHM Polska Miedź S.A. Group, including a description of the basic exposures and risks. The separate financial statements were authorised for issue and signed by the Management Board of the Company on 21 March 2023. Note 1.2 Basis of preparation These separate financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union, on the basis of historical cost, except for financial instruments classified as measured at fair value. These financial statements are the separate financial statements of KGHM Polska Miedź S.A. pursuant to IAS 27. In order to fully understand the financial position and results of the Company’s activities as the Parent Entity of the Group, these separate financial statements should be read jointly with the annual consolidated financial statements of the KGHM Polska Miedź S.A. Group for the year ended on 31 December 2022. These financial statements are available at the Company’s website www.kghm.com from the dates indicated in the regulatory filing on publication dates for the Company’s annual report and the Group’s consolidated annual report for 2022. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 8 The accounting policies described in this note and in individual notes were applied by the Company in a continuous manner for all presented periods. Note 12.11 of these separate financial statements contains information on the Company’s activities regulated by the Act on Energy, pursuant to article 44 section 2 of the Act dated 10 April 1997. For a greater understanding of the data recognised in the financial statements, the accounting policy and important estimates, assumptions and judgments are presented in individual, detailed notes as in the table below. As compared to the period ended on 31 December 2021, there were no significant changes to the measurement methods. Changes in estimates as at 31 December 2022 as compared to the aforementioned period arise from changes in assumptions as a result of changes in business circumstances and/or other variables. Note Title Amount recognised in the financial statements Accounting policy Important estimates, assumptions and judgements 2022 2021 2 Revenues from contracts with customers 28 429 24 618 x x 5.1 Income tax in the statement of profit or loss (1 463) (1 547) x 5.1.1 Deferred income tax in the statement of profit or loss (203) (152) x x 5.3 Tax assets 312 301 x 5.3 Tax liabilities (1 061) (1 291) x 6.1 Investments in subsidiaries 3 701 3 691 x x 6.2 Loans granted 8 785 8 366 x x 7.2 Derivatives 357 (1 172) x x 7.3 Other financial instruments measured at fair value 483 581 x x 7.4 Other non-current financial instruments measured at amortised cost 432 506 x x 8.2 Equity (29 675) (25 840) x 8.4 Borrowings (6 445) (5 922) x 8.5 Cash and cash equivalents 985 1 332 x 8.6 Labilities due to guarantees granted (1 609) (1 236) x x 9.1 Mining and metallurgical property, plant and equipment and intangible assets 22 342 20 837 x 9.2 Other property, plant and equipment and intangible assets 155 158 x 9.4 Provision for decommissioning costs of mines and other facilities (1 261) (824) x x 9.6 Lease disclosures – the Company as a lessee 681 585 x x 10.1 Inventories 7 523 5 436 x x 10.2 Trade receivables 620 600 x x 10.3 Trade and similar payables (3 005) (2 800) x x 10.4 Changes in working capital (1 877) (2 830) x x 11.1 Employee benefits liabilities (3 759) (3 170) x x 12.3 Other assets 581 420 x 12.4 Other liabilities (1 035) (1 402) x * Amounts include data on long-term and short-term loans. In the statement of financial position short-term loans are recognised in the item “other financial assets”. ** Amounts include data on non-current and current provisions for decommissioning costs of mines and other technological facilities. In the statement of financial position, current provisions for decommissioning costs of mines and other technological facilities are recognised in the item “provisions for liabilities and other charges”. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 9 Note 1.3 Foreign currency transactions and the measurement of items denominated in foreign currencies The financial statements are presented in Polish zloty (PLN), which is both the functional and presentation currency of the Company. At the moment of initial recognition, foreign currency transactions are translated into the functional currency: • at the actual exchange rate applied, i.e. at the buy or sell exchange rate applied by the bank in which the transaction occurs, in the case of the sale or purchase of currencies and the payment of receivables or liabilities, whereby on 1 January 2022, a change was introduced in KGHM Polska Miedź S.A. concerning foreign exchange rates applied to measure currency sales and purchase transactions as well as payments of receivables and liabilities (including in the measurement of transactions involving the receipt, granting or repayment of borrowings) on the Company’s currency bank accounts. To translate these transactions to the functional currency, an average exchange rate prevailing on the date of the transaction is used, and the prevailing rate on the date of the transaction is the average NBP exchange rate from the last working day preceding the transaction date. Any change in the applied exchange rates is, pursuant to IAS 8, a change in estimates, and its impact is recognised prospectively for periods beginning on or after 1 January 2022; • at the average exchange rate set for a given currency, prevailing on the date of the transaction for other transactions. The exchange rate prevailing on the date of the transaction is the average NBP rate announced on the last working day preceding the transaction date. At the end of each reporting period, foreign currency monetary items are translated at the closing rate prevailing on that date. Foreign exchange gains or losses on the settlement of foreign currency transactions, and on the measurement of foreign currency monetary assets and liabilities (other than derivatives), are recognised in profit or loss. Foreign exchange gains or losses on the measurement of foreign currency derivatives are recognised in profit or loss as a fair value measurement, provided they do not represent a change in the fair value of the effective cash flow hedge. In such a case, they are recognised in other comprehensive income in accordance with hedge accounting policies. Foreign exchange gains or losses on non-monetary items, such as equity instruments classified as financial assets measured at fair value through other comprehensive income, are recognised in other comprehensive income. Foreign exchange gains or losses on monetary items measured at fair value through profit or loss (e.g. loans granted measured at fair value) are recognised as a part of the fair value measurement. Note 1.4 Impact of new and amended standards and interpretations Amendments to standards applied for the first time in the separate financial statements for 2022: • Amendments to IFRS 3 on references to the Conceptual Framework, • Amendments to IAS 16 on proceeds prior to the intended use of an item of property, plant and equipment, • Amendments to IAS 37 on cost of fulfilling onerous contracts, • Annual amendments to IFRS 2018-2020 – amendments to IAS 41, IFRS 1, IFRS 9. Up to the date of publication of these separate financial statements, the aforementioned amendments to the standards were adopted for use by the European Union. In the Company’s opinion, the amendments to the standards will be applicable to the Company’s activities in the scope of future economic operations, transactions or other events, towards which the amendments to the standards will be applicable. In particular, the application of amendments to IAS 16 on proceeds prior to the intended use of an item of property, plant and equipment will result in a change in the Company’s accounting policy in this regard. In accordance with the current policy, the Company decreased expenditures by the amount of revenues achieved before an item of property, plant and equipment was brought into use, which incidentally took place during shaft sinking. Pursuant to the amendments, revenues from sales of products manufactured while an asset is brought to the desired location and condition (e.g. test production), together with associated costs, should be recognised in profit or loss for the period. Transitional provisions on the implementation of these amendments are applied retrospectively to items of property, plant and equipment brought into use on or after the beginning of the earliest presented period. The Company applied amendments to IAS 16 from 1 January 2022. With respect to the application of transitional provisions, the Company did not identify significant items of property, plant and equipment that would be subject to adjustments on or after 1 January 2021. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 10 Note 1.5 Published standards and interpretations, which are not yet in force and were not applied earlier by the Company Published standards and interpretations which are not yet in force, adopted for use by the European Union: • IFRS 17 Insurance contracts and amendments to IFRS 17 published in 2020 and 2021, effective on or after 1 January 2023. • Amendments to IAS 1 and Practice Statement 2 on disclosures of accounting policies, effective on or after 1 January 2023. In this standard, the requirement to disclosure the entity’s „significant” accounting policies was replaced by the requirement to disclose „material” accounting policies. Information on accounting policies is material if considered together with other information contained within the financial statements, it could reasonably influence decisions made by their main users on the basis of these financial statements. • Amendments to IAS 8 on the introduction of a definition of accounting estimates, effective on or after 1 January 2023. Pursuant to the amended standard, accounting estimates are monetary amounts in financial statements that are subject to measurement uncertainty. The introduction of this definition will help entities in distinguishing between amendments to accounting policies and amendments to accounting estimates. • Amendments to IAS 12 on deferred tax related to assets and liabilities arising from a single transaction, effective on or after 1 January 2023. This standard introduces clarifications to paragraphs 15 and 24 that the recognition exemption on deferred tax related to assets and liabilities does not apply to transactions in which equal amounts of deductible and taxable temporary differences arise on initial recognition. In the Company’s opinion, the first application of the aforementioned change will not have a significant impact on the separate financial statements. Published standards and interpretations which are not yet in force, awaiting the adoption for use by the European Union: • IFRS 14 Regulatory deferral accounts, effective on or after 1 January 2016, however the European Commission has decided not to launch the endorsement process of this interim standard and to wait for the final standard. • Amendments to IFRS 10 and IAS 28 on the sale or contribution of assets between an Investor and its Associate or Joint Venture (date of entry into force was not specified). • Amendments to IFRS 16 on lease liabilities in a sale and leaseback, effective on or after 1 January 2024. • Amendments to IAS 1 on classification of liabilities as current or non-current (including changes due to deferral of effective date), effective on or after 1 January 2024. The standard introduces changes clarifying conditions necessary to recognise financial liabilities as non-current. Such recognition will be possible only if the entity has the unconditional right to defer settlement of a liability for over 12 months after the reporting date and at the same time the entity’s intent as to the early repayment will not have an impact on this recognition. If the amendments to IAS 1 were applied by the Company in these separate financial statements, the presentation of borrowings as at 31 December 2022 would not change. • Amendments to IAS 1 on non-current liabilities with covenants, effective on or after 1 January 2024. The amendments aim to clarify that covenants, whose conditions have to be met by an entity after the reporting date, and which refer to the rights of an entity to defer settlement of a liability by at least twelve months from the end of the reporting period, do not have an impact on the classification of liabilities as current or non-current at the end of the reporting period. However, it will be necessary to disclose information on such covenants in notes to the financial statements in order to allow users of financial statements to understand the risk that a particular liability may become due in the period of 12 months from the end of the reporting period. In such a situation, the Standard requires the disclosure of a description of a covenant’s conditions, the amount of liabilities it is related to and facts and circumstances, if they occur, indicating the occurrence of risk that an entity may not meet the conditions of the covenant within the deadline indicated after the end of the reporting period. The Company intends to apply all of the amendments at their effective dates, except for IFRS 17, which will not have an impact on the Company’s separate financial statements, in the Company’s opinion as at 31 December 2022, the other amendments to the standards will be applicable to its activities in the scope of future economic operations, transactions or other events, towards which the amendments to the standards are applicable, while the Amendments to IAS 1 and Practice Statement 2 on accounting policies (principles) presented in the financial statements will not have a significant impact on the scope of accounting policies which will be disclosed by the Company in the financial statements published for the reporting periods beginning after 1 January 2023. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 11 PART 2 – Operating segments and information on revenues Operating segments Based on an analysis of the Company’s organisational structure, its system of internal reporting and the management model, it was determined that the Company’s activity constitutes a single operating and reporting segment, which may be defined as “Production of copper, precious metals and other metallurgical products”. The core business of the Company is the production of copper and silver. Production is a fully integrated process, in which the end-product of one stage is the half-finished product used in the next stage. Copper ore extracted in the mines is transported to concentrators where the enrichment process is carried out. As a result of this process, copper concentrate is produced, which is then supplied to the metallurgical plants where it is smelted and fire refined into anode copper. Then, during the process of electrolytic refining, the anode copper is converted into copper cathodes, which are a commercial product, or a material to produce wire rod. Anode slimes, which arise from the process of copper electrorefining, is a raw material used to produce precious metals. Lead-bearing dust which is generated from the smelting processes is used to produce lead. Nickel sulphate and copper sulphate are recovered from the processing of used electrolyte. Gases generated from the smelting furnaces are used to produce sulphuric acid. Economic use is also made of smelter slags, which are sold as road-building materials. Settlements between organisational units are carried out based on measurement of production at cost, and as a result the internal organisational units (i.e. mines, concentrators, metallurgical plants) in the production cycle do not generate profit on sales. The financial data prepared for management accounting purposes is based on the same accounting policies which are used to prepare the financial statements. The Management Board of the Company, which is responsible for allocating resources and for the financial results of the Company, regularly reviews financial reports in the process of making major operational decisions. The organisational structure of KGHM Polska Miedź S.A. has the Head Office and 10 Divisions, including: mines, concentrators and metallurgical plants. The Head Office carries out sales of the Company’s basic products, i.e. electrolytic copper cathodes, wire rod and silver, and support functions, particularly including the management of financial assets, centralised finance and accounting services, marketing, legal and other services. The Management Board of the Company assesses a segment’s performance based on Adjusted EBITDA and the profit or loss for the period. The manner of calculating Adjusted EBITDA is presented in the table “Reconciliation of Adjusted EBITDA”. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 12 Production of main products from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Electrolytic copper (kt), of which: 586.0 577.6 - electrolytic copper from own concentrates (kt) 381.5 381.4 Silver (t) 1 298.4 1 332.2 C1 unit cash cost of production of payable copper in own concentrate (USD/lb) 2.38 2.26 C1 unit cash cost of production of payable copper in own concentrate (PLN/lb) 10.62 8.73 C1 cost reflects ore mining and processing costs, transport costs, the minerals extraction tax, administrative expenses during the mining phase and smelter treatment and refining charges (TC/RC) less by-product value. C1 cost was calculated using the average exchange rate by the NBP (arithmetical average of daily quotations per the NBP’s tables). Segment financial results from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Total revenues from contracts with customers, including: 28 429 24 618 Revenues from sales, for which the sales price is set after the date of recognition of the sales (M+ principle), of which: 21 767 19 837 settled 21 045 18 952 unsettled 722 885 Cost of sales, selling costs and administrative expenses (24 463) (20 514) Depreciation/amortisation recognised in profit or loss (1 434) (1 363) (Recognition)/reversal of an impairment loss on non-current assets, recognised in cost of sales, selling costs and administrative expenses - ( 7) Adjusted EBITDA 5 400 5 474 Profit for the period, including: 3 533 5 169 reversal/(recognition) of impairment losses on non-current assets 207 1 560 Cost of products, merchandise and materials sold plus selling costs and administrative expenses. from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Total revenues from contracts with customers, of which: 28 429 24 618 in factoring 8 677 8 575 not in factoring 19 752 16 043 from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Revenues from contracts with customers, of which: 28 429 24 618 transferred at a certain moment 27 986 24 262 transferred over time 443 356 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 13 Reconciliation of “Adjusted EBITDA” (which is not defined in IFRSs) with “Profit/(loss) for the period” (which is defined in IFRSs) and “Profit on sales” is presented in the following tables: Reconciliation of Adjusted EBITDA from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Profit for the period 3 533 5 169 [–] Current and deferred income tax (1 463) (1 547) [–] Depreciation/amortisation recognised in profit or loss (1 434) (1 363) [–] Finance income and (costs) ( 269) ( 476) [–] Other operating income and (costs) 1 299 3 088 [–] (Recognition)/reversal of an impairment loss on non-current assets, recognised in cost of sales, selling costs and administrative expenses - ( 7) [=] Adjusted EBITDA 5 400 5 474 from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Profit on sales 3 966 4 104 [–] Depreciation/amortisation recognised in profit or loss (1 434) (1 363) [–] (Recognition)/reversal of an impairment loss on non-current assets, recognised in cost of sales, selling costs and administrative expenses - ( 7) [=] Adjusted EBITDA 5 400 5 474 * The Company defines adjusted EBITDA as profit/loss for the period pursuant to IFRS, excluding income tax (current and deferred), finance income and (costs), other operating income and (costs), depreciation/amortisation and recognition/reversal of impairment losses on property, plant and equipment included in the cost of sales, selling costs and administrative expenses. Segment assets and liabilities As at 31 December 2022 As at 31 December 2021 Assets 47 995 43 458 Liabilities 18 320 17 618 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 14 Accounting policies Revenues arising from ordinary operating activities of the Company, i.e. revenues from sales of products, merchandise and materials, are recognised in the statement of profit or loss as revenues from contracts with customers. The Company generates its revenues mainly from the sale of: copper, silver and gold. Other, smaller streams of revenues arise from the sale of services (including distribution of electricity, other utilities and IT services) and other products, merchandise and materials (including refined lead, sulphuric acid, heat and electricity as well as other production waste). The Company recognises revenue from contracts with customers when the Company satisfies a performance obligation by transferring a promised good or providing a service to a customer, which is when the customer obtains control of that asset, i.e. the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset, as well as the ability to prevent other entities from directing the use of, and obtaining the benefits from, the asset. Since in every case, following the shipment of the promised good and transferring control over it, the Company has an unconditional right to consideration from the customer, and the only condition of receiving it is time lapse, the Company recognises the consideration from contracts with customers as receivables and therefore the Company does not recognise contractual assets. The Company recognises as a performance obligation every contractual promise to transfer to a customer a good or provide a service that is distinct, or a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer. For each performance obligation, the Company deter mines (based on contractual terms), whether the obligation will be performed over time or at a specified moment. In particular, in contracts for the sale of copper, silver and gold, every measurement unit of a transferred good (e.g. 1 tonne of copper or 1 kg of silver) is a separate performance obligation. Therefore, for every sale or transfer of goods, constituting a multiplication of a measurement unit of a transferred product, which is realised at the same time, the Company fulfils its performance obligation and at the same time recognises revenues. Apart from contracts for supplying goods with transport services, there are no other contracts including more than one performance obligation. The attribution of transaction prices to individual performance obligations are made on the basis of unit sale prices. In trade contracts in which the performance obligation is met at a specified time, t he Company uses various payment conditions , including prepayments of up to several days before delivery and deferred payments of up to 120 days, although the deferred payments do not concern sale transactions of silver and gold. P ayment dates depend on the evaluation of the recipient’s credit risk and the possibility of securing receivables. The consideration bec omes due depending on contractual conditions, that is prior to the realisation of the delivery (prepayment) or after the Company meets its performance obligation. If the Company receives payment from the customer before it meets its performance obligation, it recognises it as contractual payables. However, in the case of deferred payments terms, the Company recognises due consideration from the customer as a receivable only after the transfer of promised products to the customer and the issuance of the invoice. Revenues from sales of other services, such as distribution of utilities, rentals, leases, sharing IT systems and other are recognised over time by the Company as it meets its obligations, as the customers simultaneously receive and gain economic benefits arising from the Company’s performance and the Company has an uncond itional right to consideration. Revenues from contracts with customers are recognised in the amount of the transaction price, consisting of the amount of consideration to which – in accordance with the Company’s expectations – it will be given in return for the transfer of promised goods or services to the customer, excluding consideration collected on behalf of third parties. The transaction price also reflects the effects of the time value of money if a contract with a customer contains a significant financing element, which is determined based on the contractual payment terms, regardless of whether the promise of financing is explicitly stated in the contract. In determining whether a financing component is significant for a given agreement, all of the facts and circumstances are taken into consideration, including the eventual difference between the promised consideration and the cash selling price of the promised goods and services, as well as the total impact of the following two factors: (i) the estimated period from the moment an entity transfers the promised goods or services to a customer to the moment the customer pays for these goods or services, and (ii) prevailing interest rates on a given market. The Company did not identify significant financing components in sales transactions to customers realised in 2022 and 2021. In the case of copper and silver products sales transaction for which the price is set after the date of recognition of a given sale, at the moment of initial recognition of a transaction an adjustment of revenues from sales is made, arising from the difference between the forward price of a metal expressed in USD from the date of recognition of a sale in the period corresponding to the period of settlement of the transaction, and the price from provisional invoice. This adjustment brings the amount of the transaction to the expected amount as a transaction price at the moment of initial recognition. This only concerns cases where the change in transaction price arises from a change in the metal’s price. For these types of variable revenues, the limitation of IFRS 15 on recognising variable consideration only to the amount in respect of which it is highly probable that a reversal will not be recognised, is not applicable. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 15 Changes to the accounted amount after the moment of recognition do not impact the revenues from sales but are fair value gains/losses on measurement of receivables pursuant to the accountin g policies presented in Note 10.2. Sales revenue is adjusted for the gain or loss on the settlement of future cash flow hedging derivatives, in accordance with the general principle that the portion of gain or loss on a derivative hedging instrument that is determined to be an effective hedge is recognised in the same position of profit or loss in which the gain or loss on the hedged item is recognised at the moment when the hedged item affects profit or loss Important estimates, assumptions and judgments The Company recognises revenues from the sale of products, merchandise and materials in profit or loss once, when the performance obligation is satisfied (in particular in accordance with the applied INCOTERMS principles).In the majority of contracts, control is transferred to the customer after delivery of the goods, which is also understood as delivery of the goods to the carrier or to a designated place (DAP, FCA and EX WORKS bases). In other contracts, control is transferred to the customer at the moment it is handed over to the carrier and loaded aboard a ship (CFR, CIF, CPT and CIP bases). In these contracts, the Company is also obliged to organise a shipping service. In these cases, the obligation to sell goods and the obligation to provide a shipping service are treated as separate services promised in the contract. With respect to transport services, the Company acts as a principal, as it has control over the service before its completion. Revenues from sales of other services, such as distribution of utilities, rentals, leases, sharing IT systems and other are recognised over time by the Company as it meets its obligations, as the customers simultaneously receive and gain economic benefits arising from the Company’s performance and the Company has an unconditional right to consideration. As at 1 January 2022, the balance of trade payables due to contracts with customers amounted to PLN 5 million and was wholly recognised in revenues for 2022. As at 31 December 2022, the balance of trade payables due to contracts with customers amounted to PLN 9 million. In 2022, the Company recognised an adjustment to revenues on performance obligations realised in 2021 in the amount of PLN 19 million, which arose due to the final determination of sales price in 2022. In 2021, the Company recognised revenues on performance obligations realised in 2020 in the amount of PLN 58 million, which arose due to the final determination of sales price in 2021. If the Company has remaining performance obligations as at the end of the reporting period that are unsatisfied, it is necessary to disclose the transaction price allocated to these obligations (IFRS 15.120). The Company uses a practical approach and does not disclose performance obligations that are part of contracts with initial period of one year or less. Moreover, the Company has several long-term contracts, the price of which is based mainly on variable consideration that the Company does not include in estimating the transaction price. Revenues from contracts with customers – breakdown by products from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Copper 22 207 19 079 Silver 4 341 3 990 Gold 649 548 Lead 295 271 Services 174 143 Merchandise 232 181 Waste and production materials 132 96 Other 399 310 TOTAL, including: 28 429 24 618 Impact of derivatives and hedging transactions on revenues from contracts with customers ( 182) (1 651) in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 16 Sales revenue – geographical breakdown reflecting the location of end customers from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Europe Poland 7 157 5 896 Germany 5 502 3 702 Italy 2 319 1 999 Czechia 2 250 1 804 The United Kingdom 1 676 1 283 Hungary 1 408 1 123 France 896 790 Switzerland 790 589 Austria 541 428 Romania 138 255 Slovenia 129 147 Slovakia 178 123 Belgium 51 17 Bulgaria 29 36 Denmark 27 43 Bosnia and Herzegovina 23 - Estonia 14 19 Finland 7 - Sweden 5 19 The Netherlands 7 3 Other countries (dispersed sale) 3 1 North America The United States of America 997 1 361 Canada 50 16 South America 7 8 Australia 787 1 020 Asia China 2 146 2 875 Thailand 437 463 Vietnam 231 336 Turkey 282 123 Malesia 72 47 Taiwan 69 - South Korea 67 54 Japan 64 - Hong Kong 15 - Philippines - 4 Other countries (dispersed sale) - 1 Africa 55 33 TOTAL 28 429 24 618 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 17 Main customers In the period from 1 January to 31 December 2022 and in the comparable period, revenues from no single customer exceeded 10% of the sales revenue of the Company. Non – current assets – geographical breakdown The property, plant and equipment of KGHM Polska Miedź S.A. are located in Poland. Cash expenditures on property, plant and equipment and intangible assets from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Cash expenditures on mining and metallurgical assets (2 689) (2 381) Cash expenditures on other property, plant and equipment and intangible assets ( 42) ( 26) in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 18 PART 3 – Impairment of assets Note 3.1 Impairment losses on assets as at 31 December 2022 Pursuant to IAS 36, as at 31 December 2022 the Company assessed the occurrence of indications of impairment of the Company’s assets. Key non-current assets of the Company were subjected to the analysis, including shares in subsidiaries. As a result of the performed evaluation, no indications of impairment of these assets were identified. Because of the Company’s market capitalisation remaining below the level of its net assets for a significant part of 2022, this area was subjected to a further analysis. Assessment of the risk of impairment of assets of KGHM Polska Miedź S.A. in the context of the market capitalisation of KGHM Polska Miedź S.A. In 2022, a general deterioration in sentiment was seen in stock markets due to the substantial uncertainty as to the development of the global macroeconomic situation in reaction to the start of the armed conflict in Ukraine and the tangible consequences of the COVID-19 (coronavirus) pandemic. As a result, stock market indices, amongst others, suffered greatly. In 2022, the share price of KGHM Polska Miedź S.A. fell by 9% compared to the share price at the end of 2021, and as at 31 December 2022 it amounted to PLN 126.75. During the same period the WIG and WIG 20 indices fell respectively by 17% and 21%. As a result, the Company’s market capitalisation fell from PLN 27 880 million to PLN 25 350 million, which means that as at 31 December 2022 it remained 15% below the level of the Company’s net assets. As at 15 March 2023, the Company’s share price amounted to PLN 113.30 and as a result, the market capitalisation amounted to PLN 22 660 million and was 24% lower than the level of the Company’s net assets. Due to the fact that, during a significant part of the reporting period, the Company’s market capitalisation remained below the carrying amount of its net assets, in accordance with IAS 36 Impairment of assets, the Management Board of KGHM Polska Miedź S.A. conducted an analysis to determine whether any area of KGHM Polska Miedź S.A.’s activities could be impaired. The analysis of the assets located in Poland indicated that not all of the factors which affect the market capitalisation of KGHM Polska Miedź S.A. are factors which are related to the conducted economic activities. The drop in share prices affected companies in the majority of sectors, in different economies, and reflected investor uncertainty as to the future. In particular, the armed conflict in Ukraine caused withdrawal of foreign investors from areas bordering the war zone, which can be seen not only in the situation on the Warsaw stock exchange, but also on exchanges in the region, such as in Czechia, Slovakia and Hungary, and also had a significant impact on the weakening of the PLN versus the USD. From the point of view of the Company’s operations, the key factor influencing the level of market capitalisation is the copper price. In December 2021, the average price of copper amounted to 9 550 USD/t, and following the initial continuation of the upward trend in the first months of 2022 it recorded a significant decline. The minimum was recorded in July 2022, when the average copper price was at the level of 7 530 USD/t. But over time, as reassuring information as to the demand for this metal kept coming, prices returned to the trend observed at the start of the year and in December 2022 the average price for copper amounted to 8 367 USD/t. The share prices of companies involved in the mining and processing of copper are strongly correlated with the price of this metal. It should be pointed out that in the case of the Polish assets, of significance are PLN-expressed metals prices, which are also affected by the USD/PLN exchange rate. Fluctuations in the price of copper related to the turbulence on the financial markets, whose origins may often be found not only in macroeconomics but also in broadly understood geopolitics, are usually to a large extent offset by changes in the USD/PLN exchange rate, which additionally remains under the influence of the armed conflict in Ukraine. Despite the continued uncertainty in the economic environment, KGHM Polska Miedź S.A. maintains full operational capacity and consistently advances planned production and sales targets. The financial results achieved by the Company significantly exceed the budget targets, which is also a result of conducted optimisation initiatives and cost discipline applied in response to macroeconomic conditions. As a result of the assessment, it was judged that there was no relation between the fall in the share price of KGHM Polska Miedź S.A. both in terms of the activities of KGHM Polska Miedź S.A. in Poland as well as abroad. The Company realises production and sales targets in Poland as well as abroad. Consequently, there were no indications identified suggesting the risk of impairment of the Polish and international production assets, therefore there were no tests for impairment conducted for these assets as at 31 December 2022. Due to the uncertainty and the significant volatility of basic economic parameters, including metals prices and currency exchange rates, and dynamic development of the pandemic situation in Poland and globally, and its impact on the economic situation, the Company is continuously monitoring the global situation. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 19 Note 3.2 Impairment losses on assets as at 31 December 2021 Assessment of the risk of impairment of assets of KGHM Polska Miedź S.A. in the context of the market capitalisation of KGHM Polska Miedź S.A. The Company’s share price as at 30 December 2021 amounted to PLN 139.40 and was 24% lower compared to the price as at 30 December 2020. At the end of 2021 WIG and WIG 20 indices were higher than on 30 December 2020 respectively by 22% and 14%. As a result, the Company’s market capitalisation decreased from PLN 36 600 million to PLN 27 880 million, which means that on 31 December 2021 it was at a level 7% higher than the net value of the Company’s assets. Moreover, during 2021 the Company’s market capitalisation was higher than net assets. The Company continuously monitors the global situation as to its potential impact on KGHM Polska Miedź S.A. TESTING FOR THE IMPAIRMENT OF THE VALUE OF SHARES IN FUTURE 1 SP. Z O.O. KGHM Polska Miedź S.A. is involved in Future 1 Sp. z o.o. in the form of loans granted in the amount of PLN 3 548 million as well as shares. The value of the shares in Future 1 Sp. z o.o. is presented at cost less impairment losses and as at 30 June 2021, before the recognition of the results of impairment testing, amounted to PLN 1 101 million, including PLN 4 770 million at cost and PLN 3 669 million - the impairment loss. In the reporting period (that is as at 30 June 2021), due to indications of the possibility of changes in the recoverable amount of shares in the company Future 1 Sp. z o.o., the Company performed impairment testing of these shares. Future 1 Sp. z o.o. is a holding company through which the Company holds shares in KGHM INTERNATIONAL LTD. (main assets are: the Victoria project in the pre-operational phase, the Robinson mine and less significant CGU Sudbury) and provides financing for the KGHM INTERNATIONAL LTD. Group and Sierra Gorda S.C.M. The key indications to perform impairment testing were: • a change in market forecasts of commodities prices, • the decision to commence the process of preparing to sell some of the assets located in CGU Sudbury (this does not include the Victoria project in the pre-operational phase, which remains within the KGHM INTERNATIONAL LTD. Group), • a change in technical and economic parameters for the KGHM INTERNATIONAL LTD. Group’s CGU Sudbury mine assets in terms of production volumes, planned operating costs and capital expenditures during the life of a mine. The main indications that the recoverable amount may be high er than the carrying amount, with the consequent justification for the reversal of previously recognised impairment losses, were increases in the price paths of copper and gold. The main indications that the recoverable amount may be lower than the carrying amount, with the consequent necessity for the recognition of an additional impairment loss, were as follows: • a decrease in the price paths for nickel, • a change in technical and economic parameters of assets of the CGU Sudbury, among others the deferment of re-commencement of production, lower expected production volume, an increase in the expected capital expenditures during the life of a mine. For the purpose of estimating the recoverable amount, in the conducted test the fair value of the CGU was measured using the DCF method (the method of discounted cash flows). The same method was used in prior years. The fair value measurement was classified to the level 3 of the fair value hierarchy. Basic macroeconomic assumptions adopted for cash flow estimation – metal prices Price paths were adopted on the basis of long-term forecasts available from financial and analytical institutions. A detailed forecast is being prepared for the period 2022-2026, while for the period 2027-2031 a technical adjustment of prices was applied between the last year of the detailed forecast and 2032, from which a long-term metal price forecast is used as follows: • for copper – 7 000 USD/t (3.18 USD/lb); • for gold – 1 500 USD/oz; • for nickel – 7.25 USD/lb. Other key assumptions used for cash flow estimation Assumption Sierra Gorda Victoria Sudbury Robinson Mine life / forecast period 22 14 14 7 Level of copper production during mine life (kt) 3 752 249 43 358 Level of nickel production during mine life (kt) - 221 23 - Level of gold production during mine life (koz t) 1 017 157 27 263 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 20 Average operating margin during mine life 42.6% 62% 27% 43% Capital expenditures to be incurred during mine life [USD million] 1 487 1 530 157 410 Key factors responsible for modification of the technical and economic assumptions Sudbury The inclusion in production of copper and precious metals mineralisation zones (“700 Zone” and “PM Zone”) and exclusion of a nickel zone (“Intermain Orebody”). Deferment of re-commencement of the Levack mine up to 2027 and a decrease of the production volume. Results of the test performed as at 30 June 2021 are presented in the following table: Test elements PLN million Discounted future cash flows of the KGHM INTERNATIONAL LTD. Group less by all of liabilities (including the repayment of loans towards KGHM Polska Miedź S.A.) 1 937 Recoverable amount of other assets 214 Recoverable amount of investment in KGHM INTERNATIONAL LTD. (Enterprise value) after the repayment of liabilities towards KGHM Polska Miedź S.A. due to loans granted 2 151 Less receivables due to return payment to capital of Future 1 Sp. z o.o. (40) Carrying amount of shares in Future 1 Sp. z o.o. (before the test for impairment) 1 101 Recoverable amount of shares in Future 1 Sp. z o.o. (test result) 2 111 Reversal of impairment loss on shares in Future 1 1 010 The reversal of the impairment loss on the shares in the amount of PLN 1 010 million was recognised in the statement of financial position in other operating activities (Note 4.2). Sensitivity analysis of the recoverable amount of the shares of Future 1 Sp. z o.o. determined that the key assumptions adopted for the impairment testing were the assumed price paths and discount rates. The assumptions regarding the price paths and discount rate were adopted while taking into account the professional judgement of the Management Board as to the performance of these amounts in the future, and was reflected in the estimated recoverable amounts. For the purposes of monitoring the risk of impairment of the tested assets in subsequent periods, the following determinations were made: • discount rates – adoption at a level higher by 1 percentage point would result in a reversal of the impairment loss in the total amount of PLN 792 million, and at a level lower by 1 percentage point would result in a reversal of the impairment loss in the total amount of PLN 1 261 million, • price paths for copper – the adoption of prices at a level lower by 0.1 USD/lb would result in a reversal of the impairment loss in the amount of PLN 717 million, and at a level higher by 0.1 USD/lb would result in a reversal of the impairment loss in the amount of PLN 1 321 million. • price paths for nickel – the adoption of prices at a level lower by 0.45 USD/lb would result in a reversal of the impairment loss in the amount of PLN 925 million, and at a level higher by 0.45 USD/lb would result in a reversal of the impairment loss in the total amount of PLN 1 095 million. In the second half of 2021, assumptions adopted for estimating cash flows to perform impairment testing of the shares of Future 1 Sp. z o.o. as at 30 June 2021 for main CGUs did not change significantly, and therefore the Company did not identify any indications of changes in the recoverable amount of shares of Future 1 Sp. z o.o. as at 31 December 2021 and did not estimate the recoverable amount of the shares of Future 1 Sp. z o.o. for the second time. As at 31 December 2021, the value of shares amounted to PLN 2 111 million. On 22 February 2022, the sale of the 45% share in the company Sierra Gorda S.C.M. by Sumitomo Metal Mining Co., Ltd. and Sumitomo Corporation to South32, the Australian mining group with its registered head office in Perth was concluded. The transaction was completed on the basis of sales agreements concluded on 14 October 2021. Due to a number of factors, such as the lack of knowledge about the details of the negotiation process, the valuation assumptions made by the buyer and seller, and the fact that shares of Sierra Gorda S.C.M. are not listed, it is not justifiable to assess in the consolidated financial statements the value of loans by directly referring to the transaction price from the sale of the 45% interest in Sierra Gorda S.C.M. (i.e. participation in equity and loan receivables) by the seller following the end of the reporting period. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 21 Nevertheless, the Company made an additional comparison of the carrying amount of its own involvement in the joint venture Sierra Gorda S.C.M. (i.e. receivables due to a loan and investments in equity instruments) in order to verify that the total carrying amount does not differ substantially from the value that would result from the transaction price, taking into account: (i) limitations as to the Company’s ability to obtain full knowledge of the process of reaching the transaction price, and (ii) differences in the applied discount rates for future expected cash flows obtainable from the JV (i.e. the effective interest rate for loan measurement according to IFRS 9, versus the rate of return expected by the investor in the valuation of the transaction price). In the opinion of the Management Board, the value of loans estimated by the Company and presented in the consolidated financial statements, which in the current holding structure are recognised as fair value of shares in Future 1 Sp. z o.o. in the separate financial statements, does not differ significantly from the value that would be determined by reference to the transaction price. The Company continuously monitors the global situation and its impact on activities of the KGHM INTERNATIONAL LTD. Group and will perform re-measurement of involvement in Future 1 Sp. z o.o. if there are any significant changes. TESTING FOR THE IMPAIRMENT OF THE VALUE OF SHARES IN “ENERGETYKA” SP. Z O.O. KGHM Polska Miedź S.A. has receivables from the company “Energetyka” sp. z o.o. in the form of return payments to capital and shares. In the current reporting period, due to indications of the possibility of changes in the recoverable amount, impairment testing of the equity involvement in shares of “Energetyka” sp. z o.o. was perfor med. The key indications to perform impairment testing in the current reporting period were the following: a significant increase in prices of CO 2 emissions rights and worse than expected economic results by a given asset, including the impairment of the value of the investment in shares of WPEC S.A. (a subsidiary of the company “Energetyka” sp. z o.o.). The carrying amount of shares of “Energetyka” sp. z o.o. as at 31 December 2021 amounted to PLN 299 million. For the purpose of estimating the recoverable amount, in the conducted test the value in use of the shares was measured using the DCF method, i.e. the method of discounted cash flows. Basic assumptions adopted for impairment testing Assumption Level adopted in testing Detailed forecast period 2022-2031 Operating margin range during the detailed forecast period -0.43% - +2.07% Capital expenditures during the detailed forecast period PLN 313 million Discount rate 3.80% (real rate after taxation) Growth rate following the forecast period 0% data is presented after taxation, despite the measurement model of value in use. The application of data before taxation does not have a significant impact on the recoverable amount. The recoverable amount of the enterprise was calculated on the basis of the value in use of net assets of the enterprise, with the adopted forecast period of 10 years. Extension of the forecast period is justified mainly by the significant and long- term impact of expected changes in the regulatory environment. Moreover, in the detailed forecast period it is necessary to present the impact of incurred capital expenditures, the increase in their amounts in the first forecast period (for the years 2022/2023) and the lack of necessity to incur them in similar amounts in subsequent years. The approved Budget of the Company for the years 2022 – 2026, adjusted due to significant changes in prices of CO 2 emissions rights and energy which took place recently, is the basis for the preparation of forecasts of revenues and costs, The adopted level of capital expenditures in the forecast period concerns mainly modernisation and replacement tasks. As the result of the aforementioned assumptions and with due prudence, the estimated EBIT will increase in the period 2022 – 2024 from the level of -PLN 3 million to PLN 17 million, while from 2025 to 2032 EBIT will be at the yearly level of PLN 16 million. As a result of the impairment testing of the shares of “Energetyka” sp. z o.o., the recoverable amount of shares was determined to be at the level of PLN 117 million, which was lower than the carrying amount of the tested assets, which was the basis for recognising an impairment loss in the amount of PLN 182 million. The measurement of shares of “Energetyka” sp. z o.o. indicated a significant sensitivity to the adopted level of discount rates and a moderate sensitivity to a change in EBIT which is a basis used to determine the residual value. The following table presents the impact of changes of these parameters on the measurement. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 22 Sensitivity analysis of the recoverable amount of shares of “Energetyka” sp. z o.o. Recoverable amount for a given discount rate lower by 1 pp per test higher by 1 pp Discount rate 3.80 % (test) 241 117 45 Recoverable amount for a given EBIT in residual period lower by 5% per test higher by 5% EBIT in the residual period of PLN 16 million PLN ( test) 102 117 132 In order to monitor the risk of impairment of assets in subsequent reporting periods, it was determined that the recoverable amount would be equal to the carrying amount of the assets if the discount rate were to fall by 1.31 percentage point or EBIT were to increase by 60.2%. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 23 PART 4 – Explanatory notes to the statement of profit or loss Note 4.1 Expenses by nature from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Note 9.3 Depreciation of property, plant and equipment and amortisation of intangible assets 1 504 1 435 Note 11.1 Employee benefits expenses 4 832 4 249 Materials and energy, including: 13 687 10 242 purchased metal-bearing materials 8 859 7 132 electrical and other energy 1 921 1 230 External services, including: 2 238 1 884 transport 328 278 repairs, maintenance and servicing 699 569 mine preparatory work 617 510 Note 5.2 Minerals extraction tax 3 046 3 548 Note 5.2 Other taxes and charges 487 398 Advertising costs and representation expenses 80 63 Property and personal insurance 39 35 Reversal of write down of inventories ( 52) ( 20) Write down of inventories 13 41 Other costs 21 26 Total expenses by nature 25 895 21 901 Cost of merchandise and materials sold (+) 449 339 Change in inventories of products and work in progress (+/-) (1 665) (1 562) Cost of products for internal use (-) ( 216) ( 164) Total cost of sales, selling costs and administrative expenses, including: 24 463 20 514 Cost of sales 23 157 19 441 Selling costs 173 156 Administrative expenses 1 133 917 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 24 Note 4.2 Other operating income/(costs) from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Gains on derivatives, of which: 268 323 Note 7.1 measurement 108 209 Note 7.1 realisation 160 114 Exchange differences on measurement and realisation of assets and liabilities other than borrowings 500 511 Interest on loans granted and other financial receivables 348 304 Fees and charges on re-invoicing of bank guarantees costs securing payments of liabilities 31 68 Reversal of impairment losses on financial instruments measured at amortised cost, including: 213 807 Note 6.2 loans 213 752 Fair value gains on financial assets measured at fair value through profit or loss, including: 631 1 070 Note 6.2 loans 601 1 056 Reversal of impairment losses on shares in subsidiaries - 1 010 Dividends income 29 37 Profit on disposal of shares in subsidiaries 2 25 Release of provisions 12 22 Refund of excise tax for previous years 1 5 Overpayment of property tax 25 8 Other 112 83 Total other operating income 2 172 4 273 Losses on derivatives, of which: ( 490) ( 768) Note 7.1 measurement ( 116) ( 141) Note 7.1 realisation ( 374) ( 627) Impairment losses on financial instruments measured at amortised cost ( 7) ( 4) Fair value losses on financial assets measured at fair value through profit or loss, including: ( 87) ( 63) loans - ( 9) Financial support granted to municipalities ( 100) - Impairment losses on shares and investment certificates in subsidiaries - ( 182) Provisions recognised ( 16) ( 58) Donations granted ( 53) ( 29) Losses on disposal of property, plant and equipment (including costs associated with disposal of fixed assets) ( 22) ( 13) Compensations, fines and penalties paid and costs of litigation ( 28) ( 6) Impairment losses on fixed assets under construction and intangible assets not yet available for use ( 6) ( 5) Other ( 64) ( 57) Total other operating costs ( 873) (1 185) Other operating income / (costs) 1 299 3 088 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 25 Note 4.3 Finance income/(costs) from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Note 7.1 Gains on derivatives - realisation 130 70 Result of the settlement of a transaction hedging against interest rate risk due to the issue of bonds with a variable interest rate 18 - Total finance income 148 70 Interest on borrowings including: ( 48) ( 92) leases ( 10) ( 8) Fees and charges on external financing ( 30) ( 28) Exchange differences on measurement and realisation of borrowings ( 179) ( 338) Losses on derivatives, of which: ( 149) ( 80) Note 7.1 measurement - ( 1) Note 7.1 realisation ( 149) ( 79) Unwinding of the discount effect ( 11) ( 8) Total finance costs ( 417) ( 546) Finance income /(costs) ( 269) ( 476) Note 4.4 Reversal / recognition of impairment losses on assets in the statement of profit or loss from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Reversal of impairment losses on assets recognised in: cost of sales, of which: 52 20 reversal of write-down of inventories 52 20 other operating income, of which: 213 1 820 reversal of impairment losses on shares in subsidiaries - 1 010 reversal of allowance for impairment of loans measured at amortised cost 213 752 reversal of allowance for impairment of trade receivables - 3 reversal of allowance for impairment of other financial receivables - 52 reversal of allowance for impairment of other non-financial receivables - 3 Reversal of impairment losses, total 265 1 840 Impairment losses on assets recognised in: cost of sales, of which: 13 48 impairment losses on property, plant and equipment and intangible assets - 7 write-down of inventories 13 41 other operating costs, of which: 13 199 impairment losses on fixed assets under construction and intangible assets not yet available for use 6 13 impairment losses on shares in subsidiaries - 182 allowance for impairment of trade receivables - 3 allowance for impairment of other financial receivables 7 1 Impairment losses, total 26 247 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 26 PART 5 – Taxation Note 5.1 Income tax in the statement of profit or loss Accounting policies Income tax recognised in profit or loss comprises current income tax and deferred income tax. Current income tax is calculated in accordance with current tax laws. Income tax from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Current income tax 1 228 1 414 Note 5.1.1 Deferred income tax 203 152 Current tax adjustments for prior periods 32 ( 19) Income tax 1 463 1 547 In 2022, KGHM Polska Miedź S.A. paid income tax in the amount of PLN 1 575 million (in 2021: PLN 707 million) to the appropriate tax office. In 2021 as well as in 2022, income tax advances were incurred by the Company using the simplified formula, that is in the fixed amount calculated on the basis of income achieved in 2020 – for the advances in 2022, and on the basis of income achieved in 2019 - for the advances in 2021. The difference between the amount of tax paid by the Company in 2022 and the amount of tax paid in 2021 arises mainly from the additional income tax paid in 2022 in the amount of PLN 826 million due to the annual settlement of income tax for 2021, performed as at 30 June 2022. The table below presents an identification of differences between income tax from profit before tax and the income tax calculated according to the principles resulting from the Corporate Income Tax Act: Reconciliation of effective tax rate from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Profit/(loss) before tax 4 996 6 716 Tax calculated using a rate of 19% 949 1 276 Tax effect of non-taxable income, including: ( 104) ( 494) reversal of allowances for impairment of loans granted to subsidiaries ( 94) ( 294) Tax effect of expenses not deductible for tax purposes, including: 589 794 minerals extraction tax 579 674 impairment losses on shares in subsidiaries and allowances for impairment of loans 1 40 Tax adjustments for prior periods 32 ( 19) Current tax from settlement of the Tax Group ( 3) ( 10) Income tax in profit or loss: 29.28% for 2022, 20.03% for 2021 1 463 1 547 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 27 Note 5.1.1 Deferred income tax Accounting policies Important estimates, assumptions and judgments Deferred tax is determined using tax rates and tax laws that are expected to be applicable when the asset is realised or the liability is settled based on tax rates and tax laws that have been enacted or substantively enacted at the end of the reporting period. Deferred tax liabilities and deferred tax assets are recognised for temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, with the exception of temporary differences arising from initial recognition of assets or liabilities in transactions ot her than business combinations, which do not have an impact either on profit/(loss) before tax nor on the taxable profit/(tax loss) at the moment they are concluded. Deferred tax assets are recognised if it is probable that taxable profit will be available against which the temporary differences and unused tax losses can be utilised. Deferred tax assets and deferred tax liabilities are offset if the Company has a legally enforceable right to set off current tax assets and current tax liabilities, and if the deferred tax assets and deferred tax liabilities relate to income taxes levied on the Company by the same taxation authority. The assessment of probability that deferred tax assets will be realised with future tax income is based on the Company’s budget. The Company recognises deferred tax assets in its accounting books to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilised. Maturities of deferred tax assets/(deferred tax liabilities) As at 31 December 2022 As at 31 December 2021 Maturity over the 12 months from the end of the reporting period, net ( 808) ( 666) Maturity of up to 12 months from the end of the reporting period, net 103 376 from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Deferred tax at the beginning of the period, of which: ( 290) ( 81) Deferred tax assets 1 482 1 554 Deferred tax liabilities (1 772) (1 635) Deferred tax in the period: ( 415) ( 209) Recognised in profit or loss ( 203) ( 152) Recognised in other comprehensive income ( 212) ( 57) Deferred tax at the end of the period, of which: ( 705) ( 290) Deferred tax assets 1 280 1 482 Deferred tax liabilities (1 985) (1 772) in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 28 Deferred tax assets and liabilities Credited/(Charged) As at 31 December 2021 Credited/(Charged) As at 31 December 2022 Deferred tax assets As at 1 January 2021 profit or loss other comprehensive income profit or loss other comprehensive income Accrued and unpaid interest on borrowings 43 ( 20) - 23 ( 3) - 20 Provision for decommissioning of mines and other technological facilities 239 ( 67) - 172 - - 172 Measurement of forward transactions other than hedging instruments as understood by hedge accounting 31 38 - 69 ( 27) - 42 Difference between the depreciation rates of property, plant and equipment for accounting and tax purposes 59 2 - 61 4 - 65 Future employee benefits 540 ( 2) ( 126) 412 - 87 499 Equity instruments measured at fair value 103 - - 103 - 18 121 Allowances for impairment/reversal of allowances for impairment of loans 40 ( 31) - 9 ( 6) - 3 Re-measurement of hedging instruments 234 - 70 304 - ( 291) 13 Lease liabilities 55 13 - 68 20 - 88 Short-term accruals for remuneration 85 16 - 101 10 - 111 Liability related to the fixed fee due to setting mining usufruct 32 4 - 36 - - 36 Recognition/reversal of other impairment losses on assets 14 3 - 17 ( 11) - 6 Other 79 29 ( 1) 107 ( 3) - 104 Total 1 554 ( 15) ( 57) 1 482 ( 16) ( 186) 1 280 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 29 (Credited)/Charged As at 31 December 2021 (Credited)/Charged As at 31 December 2022 Deferred tax liabilities As at 1 January 2021 profit or loss profit or loss other comprehensive income Measurement of forward transactions other than hedging instruments as understood by hedge accounting 34 15 49 ( 10) - 39 Re-measurement of hedging instruments - - - - 26 26 Difference between the depreciation rates for accounting and tax purposes, including: 1 162 72 1 234 87 - 1 321 difference between the depreciation rates of leases for accounting and tax purposes 54 15 69 19 - 88 Accrued and unpaid interest on loans 291 ( 43) 248 50 - 298 Measurement of financial assets at fair value 35 50 85 ( 7) - 78 Difference between the carrying amount and tax base of expenditures on fixed assets under construction and intangible assets not yet available for use 101 26 127 51 - 178 Other 12 17 29 16 - 45 Total 1 635 137 1 772 187 26 1 985 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 30 Note 5.2 Other taxes and charges The following table presents the minerals extraction tax incurred by the Company. Presentation in the statement of profit or loss from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Basis for calculating tax Tax rate from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Minerals extraction tax, of which: 3 046 3 548 tax rate calculated for every reporting period 2 951 95 3 238 310 tax recognised in cost of sold products tax recognised in inventories - copper 2 650 3 012 Amount of copper in produced concentrate, expressed in tonnes - silver 396 536 Amount of silver in produced concentrate, expressed in kilograms * In accordance with conditions specified by the Act dated 2 March 2012 on the minerals extraction tax and the Act dated 24 February 2022 on amending the Act on personal income tax, Act on Vocational and Social Rehabilitation and Employment of Persons with Disabilities and the Act on the minerals extraction tax, which decreased the tax rates by approx. 30% from January to November 2022. In 2022, tax rates for copper ranged from PLN 5 136.69 to PLN 8 657.15 and for silver from PLN 352.90 to PLN 453.03 (in the comparable period for copper they ranged from PLN 4 926.27 to PLN 9 629.78, while for silver from PLN 369.76 to PLN 449.38). The minerals extraction tax is calculated from the amount of copper and silver in produced concentrate and depends on the prices of these metals as well as on the USD/PLN exchange rate. The tax increases costs of basic products and is not deductible for corporate income tax purposes. Other taxes and charges: from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Royalties 122 116 Excise tax 5 6 Real estate tax 231 214 Other taxes and charges 129 62 Total 487 398 Including costs of surrender of CO 2 emission allowances in the amount of PLN 56 million. Note 5.3 Tax assets and liabilities Accounting policies Tax assets comprise current income tax assets and the settlement related to VAT. Assets not representing financial assets are initially recognised at nominal value and are measured at the end of the reporting period at the amount due. Tax liabilities comprise the Company’s liabilities towards the Polish Tax Office arising from the corporate incom e tax, including due to the withholding tax, personal income tax and liabilities towards Customs Chamber due to the minerals extraction tax and the excise tax. Liabilities not representing financial liabilities are measured at the amount due. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 31 Tax assets As at 31 December 2022 As at 31 December 2021 VAT receivables 312 301 Tax liabilities As at 31 December 2022 As at 31 December 2021 Current corporate income tax liabilities 601 838 Other tax liabilities 460 453 Tax liabilities 1 061 1 291 Tax authorities may audit accounting books and tax settlements during the 5 years since the end of the year in which the tax declarations were submitted and charge the Company with an additional tax together with penalties and interest. In the Management Board’s opinion, there are no circumstances indicating the possibility that significant tax liabilities may occur. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 32 PART 6 – Investments in subsidiaries Note 6.1 Subsidiaries Accounting policies Important estimates, assumptions and judgments In the financial statements of the Company, subsidiaries are those entities which are directly controlled by the Company. Investments in subsidiaries are measured at cost plus any granted non-returnable increases in share capital, including for the coverage of losses presented in the financial statements of a subsidiary and as a result of discounting interest- free returnable payments, less any impairment losses. Pursuant to IAS 36, impairment is measured by comparing the ca rrying amount with the higher of the following amounts: • fair value, decreased by costs to sell; and • value in use. The Company controls an entity if it simultaneously: • has power over the entity it invested in; • is exposed to variable returns or has rights to them; and • can use its power over the entity to affect the amount of its returns. In the Company’s opinion, power over individual entities recognised as subsidiaries is exercised through ownership of the majority of the total number of votes in th e governing bodies of such entities. Important estimates, assumptions and judgments related to the assessment of the risk of impairment were presented in part 3 of these financial statements. 2022 2021 As at 1 January 3 691 2 848 Acquisition of shares and increases in share capital, of which: 375 38 KGHM Centrum Analityki sp. z o.o. 7 - Cuprum Zdrowie sp. z o.o. (formerly Cuprum Nieruchomości sp. z o.o.) 368 - KGHM ZANAM S.A. - 38 Reversal of impairment losses on Future 1 Sp. z o.o. - 1 010 Impairment losses - of which: - ( 182) "Energetyka" sp. z o.o. - ( 182) Repurchase of investment certificates of KGHM VII FIZAN ( 365) ( 31) Other decreases - 8 As at 31 December 3 701 3 691 As at 30 June 2022, the Company performed impairment testing of investment certificates of KGHM VII FIZAN, which did not indicate any impairment (there was no change in the recoverable amount). As a result of repurchase of investment certificates of KGHM VII FIZAN, as at 31 December 2022 the Company did not hold any other certificates in Closed-End Non- Public Investment Funds (Fundusz Inwestycji Zamkniętych Aktywów Niepublicznych, FIZAN). The balance of impairment losses on the investments as at 31 December 2022 amounted to PLN 3 232 million (as at 31 December 2021: PLN 3 272 million). The decrease in the balance of investment losses was a result of the repurchase of certificates and the liquidation of KGHM VII FIZAN, which the impairment losses concerned. A more detailed description may be found in Part 3. Change in the balance of impairment loss on the investment in subsidiaries is presented in the following table. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 33 2022 2021 As at 1 January 3 272 4 117 Impairment losses, of which: - 182 "Energetyka" sp. z o.o. - 182 Reversal of impairment losses, of which: - (1 010) Future 1 Sp. z o.o. - (1 010) Repurchase of investment certificates of KGHM VII FIZAN ( 40) ( 5) Other decreases - ( 12) As at 31 December 3 232 3 272 The balance of impairment losses on the investments as at 31 December 2022 and as at 31 December 2021 by individual investments in subsidiaries Is presented in the following table The most significant investments in subsidiaries (direct share) Entity Head Office Scope of activities Carrying amount of shares/investment certificates as at 31 December 2022 as at 31 December 2021 FUTURE 1 Sp. z o.o. Lubin management and control of other companies, including the KGHM INTERNATIONAL LTD. Group 2 111 2 111 KGHM VII FIZAN Wrocław cash investing in securities, money market instruments and other property rights - 365 CUPRUM Zdrowie Sp. z o.o. (formerly Cuprum Nieruchomości sp. z o.o) Wrocław management of assets in the form of, among others, companies conducting spa activities 376 7 KGHM Metraco S.A. Legnica trade, agency and representative services 335 335 "Energetyka" sp. z o.o. Lubin generation, distribution and sale of electricity and heat 117 117 As at 31 December 2022 and as at 31 December 2021, the % of share capital held as well as the % of voting power in the above-mentioned subsidiaries was 100%. * In 2021 (third quarter), within the fund structure, a reorganisation was performed within the Group with respect to portfolio companies of the KGHM VI FIZAN Fund and the KGHM VII FIZAN Fund, which arose from the need to adjust the structure of the Funds’ investment portfolios to the statutory requirements. As a result of these actions, the KGHM VI FIZAN and KGHM VII FIZAN Funds were merged, whereas KGHM VI FIZAN was the acquired fund and KGHM VII FIZAN was the acquiring fund. As a result of this merger, the carrying amount of the investments in KGHM VII FIZAN as at 31 December 2021 increased to the amount of PLN 365 million (an increase by PLN 110 million). As at 31 December 2022 As at 31 December 2021 Energetyka sp. z o.o. 388 388 MCZ S.A. 14 14 KGHM Metraco S.A. 86 86 Zagłebie Lubin S.A. 81 81 Future 1 2 663 2 663 KGHM VII FIZAN - 40 Total 3 232 3 272 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 34 The process of reorganisation of the KGHM VII FIZAN Fund’s portfolio companies was continued in 2022. The Extraordinary Shareholders’ Meeting of the direct subsidiary CUPRUM Nieruchomości sp. z o.o. increased the entity’s share capital by the amount of PLN 368 million. All of the shares in the increased share capital were acquired by KGHM Polska Miedź S.A. At the same time, the name of the company was changed from CUPRUM Nieruchomości sp. z o.o. to CUPRUM Zdrowie sp. z o.o. Subsequently, sales transactions were concluded by KGHM VII FIZAN to the company CUPRUM Zdrowie sp. z o.o. of shares in all of the Fund’s portfolio companies, including four spa companies: Uzdrowiska Kłodzkie S.A. - Grupa PGU, Uzdrowisko Połczyn Grupa PGU S.A., Uzdrowisko Cieplice Sp. z o.o. - Grupa PGU, Uzdrowisko Świeradów - Czerniawa Sp. z o.o. – Grupa PGU. KGHM VII FIZAN acquired from KGHM Polska Miedź S.A., on the Company’s demand, the Fund’s Investment Certificates for the amount of PLN 367 million and on 19 September 2022 the Investor’s Meeting of KGHM VII FIZAN adopted a resolution of the dissolution of the Fund. The liquidation of the Fund was completed on 22 November 2022 and on 20 December 2022 the KGHM VII FIZAN Fund was removed from the Register of Funds. Note 6.2 Receivables due to loans granted Accounting policies The Company classifies loans granted to individual categories using the following policies: Loans measured at amortised cost – to this category, the Company classifies loans that met two conditions: they are in a business model whose objective is to collect contractual cash flows due to holding assets, and have passed the SPPI (solely payments of principal and interest) test, that is they are maintained in order to collect the principal amount and interest. They are initially recognised at fair value adjusted by costs directly associated with the loan and are measured at the end of the reporting period at amortised cost using the effective interest rate method, including impairment calculated using the model of expected credit losses on the basis of discounted cash flows. POCI loans –the Company classifies as POCI, at the moment of initial recognition, financial assets that are credit-impaired due to high credit risk at the moment they are granted or if the loans were purchased at a significant discount. POCI loans are measured at the end of the reporting period at amortised cost using the effective interest rate adjusted by the credit risk, including impairment calculated using the model of expected credit losses (ECL) on the basis of discounted cash flows in the horizon of the expected repayment of the loan. The loss allowance for ECL is calculated on the basis of expected credit losses during the whole life of the instrument. Accumulated changes to the expected credit losses are recognised as an increase or a reversal of an already recognised loss allowance for expected credit losses. Currently presented POCI loans are loans granted (not acquired). Classification was set due to the implementation of IFRS 9 in 2018 due to the recognised impairment at the moment of initial recognition. The loans measured at fair value through profit or loss – to this category, the Company classifies loans that did not pass the SPPI (solely payments of principal and interest) test. The fair value of these loans is set at present value of future cash flows, including the change of market risk and credit risk factors during the loans’ life. Financial assets, for which the Company has to calculate the expected credit losses pursuant to IFRS 9, are classified to one of three degrees of a model of impairment. Classification to individual degrees of impairment model is at the level of a single financial instrument (a single exposure). To the degree 2, the Company classifies financial instruments with an identified significant increas e in credit risk, understood as a significant increase in probable default in the remaining time of the instrument as compared to the date of its initial recognition, but there were no objective indicators of impairment. The expected credit losses for the degree 2 are estimated during the entire life of these instruments. If at the end of the reporting period the analysis proves that for a given financial instrument, since the day of its initial recognition, there was not a significant increase in credit risk and no default status was granted , the instrument is classified to the degree 1 of a model of impairment. For exposures classified to the degree 1, the expected credit losses are estimated in a horizon of 12 months. Balances with an identified, objective indication of impairment are included in the degree 3. At the end of the reporting period, no financial instrument was defaulted (criteria classifying to the degree 3) and therefore, the Company did not classify any of the loans granted to the degree 3. Important estimates, assumptions and judgments Failed SPPI test - The Company assumes that the solely payments of principal and interest (SPPI) test for loans granted is not passed if, among others, in the structure of financing the target recipient of funds, debt is changed at the last stage into an equity investment. Indications to classify the loan to the degree 2 of impairment model is the occurrence of one of the following: • for exposition of the borrower’s rating - at the level of Baa3 (per the Moody’s methodology or a corresponding one for the S&P/Fitch ratings) or better (investment rating) – a drop in the borrower’s rating by at least 5 levels, • for exposition of the borrower’s rating - at the level of Ba1 (per the Moody’s methodology or a corresponding one for the S&P/Fitch ratings) or worse (below investment rating) – a drop in the borrower’s rating by at least 3 levels, in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 35 • deterioration of operational cash flows forecasts of a borrower – in the time horizon of the exposure, which does not result in the impossibility of settling the liability arising from a given loan, • change in conditions of the loan due to the worsening financial position of the borrower, which has an impact of less than 1% of the value of the loan at the date of change ( a change in the conditions of the loan from reasons other than the worsening financial position of the borrower are not included in the assessment of occurrence of a given indication), • delay in the repayment of over 30 days (after the maturity date of interest or capital). Balances with an identified, objective indication of impairment are included in the degree 3. The Company recognises occurrence of at least one of the following events as an objective indication of default: • borrower’s rating at the level of Ca (per the Moody’s methodology or a corresponding one for the S&P/Fitch ratings) or lower, • deterioration of operational cash flows forecasts of a borrower – in the time horizon of the exposure, which results in the impossibility of settling the liability arising from a given loan, • change in conditions of the loan due to the worsening financial position of the borrower, which has an impact of more than 1% of the value of the loan at the date of change (a change in the conditions of the loan from reasons other than the worsening financial position of the borrower are not included in the assessment of occurrence of a given indication), • delay in the repayment of over 30 days (after the maturity date of interest or capital) – if at the date of analysis the loan was at stage 2 of calculating the allowance for impairment, • delay in the repayment of over 90 days (after the maturity date of interest or capital) – if at the date of analysis the loan was at stage 1 of calculating the allowance for impairment. In order to calculate expected credit losses (ECL), the Company uses, among others, the following parameters: • the borrower’s rating - is granted using internal methodology of the Company based on the Moody’s methodology. The Company granted loans mainly to subsidiaries, of which over 99% of borrowers were assigned ratings between A2 – Baa2 (in the comparable period: Baa1 – Baa3). • the curve of accumulated parameters of PD (parameter of probability of default, used to calculate the expected credit losses) for a given borrower is set on the basis of market sector quotations of Credit Default Swap contracts from the Reuters system, which quantify the market expectations as for the potential probability of default in a given sector and in a given rating. As at 31 December 2022, PD parameters for the adopted ratings were as follows: A2 to Baa2 ratings according to Moody’s (31 December 2022) Up to one year 0.69% - 1.39% 1-3 years 1.84% - 3.22% More than 3 years (at the date of loans’ maturity) 1.84% - 9.92% Baa1 to Baa3 ratings according to Moody’s (31 December 2021) Up to one year 0.76% - 1.15% 1-3 years 3.52% - 5.35% More than 3 years (at the date of loans’ maturity) 3.52% - 15.57% • the level of the LGD parameter (loss given default, expressed as the percentage of the amount outstanding) for the purposes of estimating expected credit losses for loans classified to the stage 1 and 2 is adopted at the level of 75% (based on estimations from Moody’s Annual Default Study: Corporate Default and Recovery Rates, 1920 – 2016). As at 31 December 2022 no decision was made whether to demand the repayment of loans with a contractual on- demand payment clause, including in the period of 12 months from the end of the reporting period, and no joint decision was made by the owners of Sierra Gorda S.C.M. in this regard. The Company classifies loans granted to one of the three following categories: 1. Measured at amortised cost, which were determined to be credit-impaired at the moment of initial recognition (POCI), 2. Measured at amortised cost, which were not determined to be credit-impaired at the moment of initial recognition, 3. Measured at fair value through profit or loss. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 36 Loans that at the last stage of cash flows between companies in the Future 1 Sp. z o.o. holding structure or KGHM INTERNATIONAL LTD. were transferred as loans to a joint venture Sierra Gorda S.C.M., advanced by the KGHM INTERNATIONAL LTD. Group, were classified as POCI loans (identified allowance for impairment due to a credit risk at the moment of granting). These loans, pursuant to contractual terms, are paid on demand, but not later than 15 December 2024 and at the end of the reporting period, presented as long-term loan receivables, since at the end of the reporting period no decision was made whether to demand the repayment of these loans, including in the period of 12 months from the end of the reporting period, and no joint decision was made by the owners of Sierra Gorda S.C.M. in this regard. The Company presents, in the category of loans classified as measured at fair value through profit or loss, loans that at the last stage of cash flows between companies in the Future 1 Sp. z o.o. holding structure or KGHM INTERNATIONAL LTD. were transferred mainly as increases in share capital of Sierra Gorda S.C.M. The maturity of these loans falls in December 2024. At the end of the reporting period, the Company performed a measurement of loans classified to level 3 of the fair value hierarchy (measured at fair value as well as at amortised cost (for disclosure purposes)) designated mainly for financing the joint venture Sierra Gorda S.C.M. The basis of measuring the level of recoverability of loans at the level of the separate financial statements of KGHM Polska Miedź S.A. is the estimation of cash flows generated by Sierra Gorda S.C.M and other significant international production assets, which are subsequently allocated by the Company in individual loans at various levels of the current financing structure. The estimate of cash flows generated by Sierra Gorda S.C.M. and other mines was determined on the basis of current forecasts of pricing paths of commodities and current mining plans. Other important assumptions used in the measurement of loans concern the following: • the probability of realisation of individual measurement scenarios, • the level of production, • the level of costs, • the level of capital expenditures, • the external financing of Sierra Gorda, • the form and level of financing Sierra Gorda by owners, • taxation at the level of Sierra Gorda S.C.M., • the distribution of cash, Future realisation, or not, of assumptions will depend on many macroeconomic, operational and financial factors, as well as agreements made between JV partners The expected repayments of loans were discounted using: • the effective interest rate adjusted by the credit risk, determined at the initial recognition of the loan pursuant to IFRS 9.B5.5.45 at the level of 3.69% - 6.64% - for loans measured at amortised cost • the market interest rate at the level of 5.87% - 9.75% - for loans measured at fair value. In the period from 1 January to 31 December 2022, the following was recognised: • gains on reversal of an allowance for impairment of loans granted classified as POCI in the amount of PLN 162 million (USD 37 million translated at exchange rates from the date of recognition of the reversal of an allowance for impairment); • for loans measured at fair value – an increase in fair value in the amount of PLN 600 million was recognised, of which the increase in the fair value due to measurement in the amount of PLN 337 million (USD 83 million) and exchange differences in the amount of PLN 263 million. The increase in the fair value of loans is mainly a result of an increase in expected future cash flows of Sierra Gorda S.C.M. estimated on the basis of current at the end of the reporting period forecasts of price paths of commodities. In the case of other loans measured at amortised cost, the Company calculated the allowance for impairment on the basis of the model of expected credit losses. as at 31 December 2022 as at 31 December 2021 Loans measured at amortised cost – gross amount 5 603 5 505 Allowances for impairment ( 51) ( 98) Loans measured at fair value 3 233 2 959 Total, including: 8 785 8 366 - long-term loans 8 763 8 249 - short-term loans 22 117 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 37 The most significant items are loans granted to companies of the KGHM Polska Miedź S.A. Group, which are connected with the realisation of mining projects executed by indirect subsidiaries of KGHM Polska Miedź S.A. from the KGHM INTERNATIONAL LTD. Group. Credit risk related to loans granted was described in Note 7.5.2.5. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 38 PART 7 – Financial instruments and financial risk management Note 7.1 Financial Instruments As at 31 December 2022 As at 31 December 2021 Financial assets: At fair value through other comprehensive income At fair value through profit or loss At amortised cost Hedging instruments Total At fair value through other comprehensive income At fair value through profit or loss At amortised cost Hedging instruments Total Non-current 483 3 238 5 962 709 10 392 581 2 969 5 796 585 9 931 Note 6.2 Loans granted - 3 233 5 530 - 8 763 - 2 959 5 290 - 8 249 Note 7.2 Derivatives - 5 - 709 714 - 10 - 585 595 Note 7.3 Other financial instruments measured at fair value 483 - - - 483 581 - - - 581 Note 7.4 Other financial instruments measured at amortised cost - - 432 - 432 - - 506 - 506 Current - 496 2 060 755 3 311 - 472 2 252 249 2 973 Note 10.2 Trade receivables - 455 165 - 620 - 467 133 - 600 Note 7.2 Derivatives - 41 - 755 796 - 5 - 249 254 Note 8.5 Cash and cash equivalents - - 985 - 985 - - 1 332 - 1 332 Cash pooling receivables - - 588 - 588 - - 498 - 498 Note 12.3 Other financial assets - - 322 - 322 - - 289 - 289 Total 483 3 734 8 022 1 464 13 703 581 3 441 8 048 834 12 904 * Receivables from companies within the KGHM Polska Miedź S.A. Group which indebted themselves in the cash pooling system. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 39 As at 31 December 2022 As at 31 December 2021 Financial liabilities: At fair value through profit or loss At amortised cost Hedging instruments Total At fair value through profit or loss At amortised cost Hedging instruments Total Non-current 19 5 223 700 5 942 77 5 386 1 056 6 519 Note 8.4 Borrowings, lease and debt securities - 5 000 - 5 000 - 5 180 - 5 180 Note 7.2 Derivatives 19 - 700 719 77 - 1 056 1 133 Other financial liabilities - 223 - 223 - 206 - 206 Current 188 4 401 280 4 869 199 3 466 848 4 513 Note 8.4 Borrowings, lease and debt securities - 1 124 - 1 124 - 382 - 382 Note 8.4 Cash pooling liabilities - 321 - 321 - 360 - 360 Note 12.4 Other liabilities due to settlement under cash pooling contracts ** - 29 - 29 - 25 - 25 Note 7.2 Derivatives 154 - 280 434 40 - 848 888 Note 10.3 Trade payables - 2 819 - 2 819 - 2 558 - 2 558 Note 10.3 Similar payables – reverse factoring - - - - - 55 - 55 Other financial liabilities 34 108 - 142 159 86 - 245 Total 207 9 624 980 10 811 276 8 852 1 904 11 032 * Liabilities of KGHM Polska Miedź S.A. towards the Group companies within the credit limit of the group of accounts participating in the cash pooling system. ** Other current liabilities towards participants in the cash pooling system to return, after the end of the reporting period, cash transferred by them which were not used by KGHM Polska Miedź S.A. for its own needs. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 40 Gains/(losses) on financial instruments from 1 January 2022 to 31 December 2022 Financial assets/liabilities measured at fair value through profit or loss Financial assets measured at amortised cost Financial liabilities measured at amortised cost Hedging instruments Total Note 4.2 Interest income - 348 - - 348 Note 4.3 Interest income/(costs) - - ( 90) 60 ( 30) Note 4.2 Foreign exchange gains/(losses) other than borrowings - 549 ( 49) - 500 Note 4.3 Foreign exchange losses on borrowings - - ( 179) - ( 179) Note 4.2 Fair value gains/(losses) on financial assets measured at fair value through profit or loss 544 - - - 544 Note 4.4 Reversal/(recognition) of impairment losses - 206 - - 206 Note 7.2 Revenues from contracts with customers - - - ( 182) ( 182) Note 4.2 Note 4.3 Gains on measurement and realisation of derivatives 398 - - - 398 Note 4.2 Note 4.3 Losses on measurement and realisation of derivatives ( 329) - - (310) ( 639) Note 4.3 Fees and charges on bank loans drawn - - ( 30) - ( 30) Other - - (11) (11) Total net gain/(loss) 613 1 103 ( 359) ( 432) 925 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 41 from 1 January 2021 to 31 December 2021 Financial assets/liabilities measured at fair value through profit or loss Financial assets measured at amortised cost Financial liabilities measured at amortised cost Hedging instruments Total Note 4.2 Interest income - 304 - - 304 Note 4.3 Interest costs - - ( 92) - ( 92) Note 4.2 Foreign exchange gains/(losses) other than borrowings - 1 056 ( 545) - 511 Note 4.3 Foreign exchange losses on borrowings - - ( 338) - ( 338) Note 4.2 Fair value gains/(losses) on financial assets measured at fair value through profit or loss 1 007 - - - 1 007 Note 4.4 Reversal/(recognition) of impairment losses - 803 - - 803 Note 7.2 Revenues from contracts with customers - - - (1 651) (1 651) Note 4.2 Note 4.3 Gains on measurement and realisation of derivatives 393 - - - 393 Note 4.2 Note 4.3 Losses on measurement and realisation of derivatives ( 848) - - - ( 848) Note 4.3 Fees and charges on bank loans drawn - - ( 28) - ( 28) Other - - ( 8) - ( 8) Total net gain/(loss) 552 2 163 (1 011) (1 651) 53 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 42 Fair value measurement Accounting policies Important estimates, assumptions and judgements Fair value is the price that would be received from selling an asset or would be paid for a transfer of a liability in an orderly transaction between market participants at the measurement date. For financial reporting purposes, a fair value hierarchy was estab lished that categorises the inputs into three levels. The fair value hierarchy levels are as follows: Level 1 Value is based on inputs from active markets, as they are seen as the most reliable source of data. Level 2 Value is based on inputs other than from active markets, which are nevertheless observable (unbiased, measurable). Level 3 Value is based on unobservable inputs, used when it is not possible to acquire data from the first two measurement levels. It includes all measurements based on subjective inputs. Transfer between levels of the fair value hierarchy takes place if there is a change of sources of input data used for fair value measurement, such as: • active market • lack of an active market, but there is observable data on the market, • subjective input data. It is acknowledged that transfers between levels of the fair value hierarchy take place at the end of the reporting period. Fair value reflects current estimates which may be subject to change in subsequent reporting periods due to a change in market conditions or due to other factors. There are many methods of measuring fair value, which may result in differences in fair values. Moreover, assumptions constituting the basis of fair value measurement may require estimating the changes in costs/prices over time, the discount rate, inflation rate or other significant variables. Certain assumptions and estimates are necessary to determine to which level of fair value hierarchy should a fair value of an instrument be classified. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 43 The fair value hierarchy of financial instruments As at 31 December 2022 As at 31 December 2021 fair value carrying amount fair value carrying amount Classes of financial instruments level 1 level 2 level 3 level 1 level 2 level 3 Loans granted measured at fair value - - 3 233 3 233 - 0 2 959 2 959 Loans granted measured at amortised cost - 143 5 409 5 552 - 224 5 340 5 407 Listed shares 386 - - 386 484 - - 484 Unquoted shares - 97 - 97 - 97 - 97 Trade receivables - 455 - 455 - 467 - 467 Other financial assets - 37 - 37 - 10 - 10 Derivatives - 357 - 357 - (1 172) - (1 172) Assets - 1 510 - 1 510 - 849 - 849 Liabilities - (1 153) - (1 153) - (2 021) - (2 021) Long-term bank and other loans - (2 387) - (2 387) - (2 669) - (2 656) Long-term debt securities (1 952) - - (2 000) (2 034) - - (2 000) Other financial liabilities - (34) - (34) - (159) - (159) Discount rate adopted for disclosure of fair value of loans granted measured at amortised cost. Loans granted measured at amortised cost Loans per impairment model As at 31 December 2022 carrying amount Loans per impairment model As at 31 December 2021 carrying amount discount rate discount rate level 2 level 3 level 2 level 3 2 nd degree (fixed interest rate) 6.92% x 55 1 st and 2 nd degree (fixed interest rate) 6.10% x 151 1 st degree (variable interest rate) 6.94% (Wibor 1M) x 88 1 st degree (variable interest rate) 1.70% (Wibor 1M) x 80 2 nd degree (fixed interest rate) x 5.87% 3 572 2 nd degree (fixed interest rate) x 2.29% 3 547 POCI (fixed interest rate) x 9.75% 1 837 POCI (fixed interest rate) x 8.00% 1 629 Total 5 552 Total 5 407 Real discount rate Real discount rate in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 44 Methods and measurement techniques used by the Company in determining fair values of each class of financial assets or financial liabilities. Level 1 Listed shares Shares are measured based on quotations from the Warsaw Stock Exchange and the TSX Venture Exchange in Toronto. Long-term debt securities Long-term debt securities are measured based on quotations from the Catalyst Market of the Warsaw Stock Exchange. Level 2 Long-term loans granted The fair value of loans measured at amortised cost was estimated on the basis of contractual cash flows (per the contract) using the model of discounted cash flows, including the borrower’s credit risk. IBOR current market interest rare acquired from the Reuters system is used in the discounting process. Unquoted shares Unquoted shares are measured using the adjusted net assets. Observable Input data other than the ones from the active market were used in the measurement (e.g. transaction prices of real estate similar to the one subjected to measurement, market interest rates of State Treasury bonds and term deposits in financial institutions, and the risk-free discount rate published by the European Insurance and Occupational Pensions Authority). Trade receivables Receivables arising from the realisation of sales under contracts which are finally settled using future prices were measured using forward prices, depending on the period/month of contractual quoting. Forward prices are from the Reuters system. For trade receivables transferred to non-recourse factoring, a fair value is assumed at the level of the amount of the trade receivables transferred to the factor (nominal value from the invoice) less interest, which are the factor’s compensation. Due to the short term between the transfer of receivables to the factor and their payment, fair value is not adjusted by the credit risk of the factor and impact of time lapse. Other financial assets/liabilities The fair value of receivables/payables due to the settlement of derivatives, whose date of payment falls two working days after the end of the reporting period was set per the reference price applied in the settlement of these transactions. Currency and currency-interest derivatives To determine the fair value of derivatives on the currency market and currency-interest transactions (CIRS), the forward prices from the maturity dates of individual transactions were used. The forward price for currency exchange rates was calculated on the basis of fixing and appropriate interest rates. Interest rates for currencies and the volatility ratios for exchange rates were taken from Reuters. The standard Garman-Kohlhagen model is used to measure options on currency markets. Metals derivatives To determine the fair value of derivatives on the commodity market, forward prices from the maturity dates of individual transactions were used. In the case of copper, official closing prices from the London Metal Exchange were applied, and with respect to silver and gold - the fixing price set by the London Bullion Market Association. Volatility ratios and forward prices for measurement of derivatives at the end of the reporting period were obtained from the Reuters system. Levy approximation to the Black-Scholes model was used for Asian options pricing on metals markets. Received long-term bank and other loans The fair value of bank and other loans is estimated by discounting the cash flows associated with these liabilities in timeframes and under conditions arising from agreements, and by applying current rates. Fair value differs from the carrying amount by the amount of the premium paid to acquire the financing. Level 3 Long-term loans granted The fair value of loans was estimated using the forecasted cash flows of international assets (Sierra Gorda S.C.M.), which pursuant to IFRS 13 are unobservable input data, and the fair value of assets determined using the same data is classified to level 3 of the fair value hierarchy. Detailed disclosures on the assumptions adopted for the measurement of loans were presented in Note 6.2, while the sensitivity of the fair value classified to level 3 for loans granted was presented in note 7.5.2.5. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 45 The Company does not disclose the fair value of financial instruments measured at amortised cost (except for long-term loans granted, long-term bank and other loans received and long-term debt securities) in the statement of financial position, because it makes use of the exemption arising from IFRS 7.29. There was no transfer in the Company of financial instruments between levels of the fair value hierarchy in the reporting period. Note 7.2 Derivatives Accounting policies Derivatives are classified as financial assets/liabilities measured at fair value through profit or loss, unless they have not been designated as hedging instruments. Purchases or sales of derivatives are recognised at the transaction date. Derivatives not designated as hedges, defined as trade derivatives, are initially recognised at fair value and at the end of the reporting period are measured at fair value, with recognition of the gains/losses on measurement in profit or loss. The Company applies hedge accounting for cash flows. Hedge accounting aims at reducing volatility in the Company’s net result, arising from periodic changes in the measurement of transactions hedging individual types of market risk to which the Company is exposed. Hedging instruments may be derivatives as well as bank and other loans in foreign currencies. The designated hedges mostly relate to the future sales transactions forecasted as assumed in the Sales Plan for a given year. These plans are prepared based on the production capacities for a given period. The Company estimates that the probability that transactions included in the production plan will occur is very high, as from the historical point of view sales were always realised at the levels assumed in Sales Plans. Future cash flows arising from interest on bonds issued in PLN also represent a hedged position. The Company may use natural currency risk hedging through the use of hedge accounting for bank and other loans denominated in USD, and designates them as positions hedging foreign currency risk, which relates to future revenues of the Company from sales of copper, silver and other metals, denominated in USD. Gains and losses arising from changes in the fair value of the cash flow hedging instrument are recognised in other comprehensive income, to the extent by which the change in fair value represents an effective hedge of the associated hedged item. In addition, as a cost of hedging, the Company recognises in other reserves from measurement of financial instruments a part of the change of the hedging instrument arising from changes in the time value of the option, the forward element and currency margin. The portion which is ineffective is recognised in profit or loss as other operating income or costs. Gains or losses arising from the cash flow hedging instrument are recognised in profit or loss as a reclassification adjustment, in the same period or periods in which the hedged item affects profit or loss. The Company ceases to account for derivatives as hedging instruments when they expire, are sold, terminated or settled, or when the goal of risk management for a given relation has changed. The Company may designate a new hedging relationship for a given derivative, change the intended use of the derivative, or designate it to hedge another type of risk. In such a case, for cash flow hedges, gains or losses which arose in the periods in which the hedge was effective are retained in accumulated other comprehensive income until the hedged item affects profit or loss. If the hedge of a forecasted transaction ceases to function because it is probable that the forecasted transaction will not occur, then the net gain or loss recognised in other comprehensive income is immediately transferred to profit or loss as a reclassification adjustment. If a hybrid contract has an underlying instrument, which is not a financial asset, the derivative is separated from the underlying instrument and is measured pursuant to rules for derivatives only, if (i) the economic characteristic and risk of the embedded instrument are not strictly related to the character of the host contract and its risks, (ii) a separate instrument, whose characteristics reflect the traits of the embedded derivative, would fulfil the conditions of the derivatives, and (iii) the combined instrument is not classified to financial assets measured at fair value, whose results of revaluation are recognised in other income or other operating costs in the reporting period. If an embedded derivative is separated, the underlying instrument is measured pursuant to appropriate accounting principles. The Company separates embedded derivatives in commodities transactions with settlement periods in the future, after the date of recognising a purchase invoice in the books up to the date of final settlement of the transaction. If a hybrid contract has an underlying instrument, which is a financial asset, the criteria for classification of financial assets are applied to the whole contract. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 46 Important estimates and assumptions Assumptions and estimates adopted for the measurement of fair value of derivatives were presented in Note 7.1, in point „Methods and measurement techniques used by the Company in determining fair values of each class of financial assets or financial liabilities” and in tables in Note 7.2. below. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 47 Derivatives – open items as at the end of the reporting period As at 31 December 2022 As at 31 December 2021 Type of derivative Financial assets Financial liabilities Total Financial assets Financial liabilities Total Non-current Current Non-current Current Non-current Current Non-current Current Hedging instruments (CFH), including: 709 755 (700) (280) 484 585 249 (1 056) (848) (1 070) Derivatives – Metals (price of copper, silver) Options – seagull (copper) 60 440 (36) (232) 232 299 89 (578) (837) (1 027) Options – collar (silver) - - - - - 11 97 - - 108 Options – seagull (silver) 5 50 (1) (3) 51 92 49 (14) - 127 Derivatives – Currency (USDPLN exchange rate) Options – collar 328 262 (88) (11) 491 1 5 (2) (6) (2) Options – seagull 1 3 (6) (34) (36) 20 9 (31) (5) (7) Derivatives – Currency-interest rate Cross Currency Interest Rate Swap CIRS 315 - (569) - (254) 162 - (431) - (269) Trade instruments, including: 5 41 (14) (118) (86) 6 3 (72) (39) (102) Derivatives – Metals (price of copper, silver, gold) Sold put option (copper) - - (13) (49) (62) - - (57) (6) (63) Purchased put option (copper) - 1 - - 1 - - - - - Purchased call option (copper) 4 32 - - 36 - - - - - QP adjustment swap transactions (copper) - - - (10) (10) - - - (5) (5) Sold put option (silver) - - (1) (1) (2) - - (10) (3) (13) Purchased put option (silver) - - - - - - 2 - - 2 Purchased call option (silver) - - - - - 1 - - - 1 QP adjustment swap transactions (gold) - 4 - (14) (10) - - - (2) (2) Derivatives – Currency (USDPLN exchange rate) Sold put option - - - (1) (1) - - (5) (2) (7) Purchased put option - - - - - 1 1 - - 2 Purchased call option 1 4 - - 5 4 - - - 4 Embedded derivatives (price of copper, silver, gold) Purchase contracts for metal-bearing materials - - - (43) (43) - - - (21) (21) Instruments initially designated as hedging instruments excluded from hedge accounting, including: - - (5) (36) (41) 4 2 (5) (1) - Derivatives – Currency (USDPLN exchange rate) Options – seagull - - (1) (4) (5) 4 2 (4) (1) 1 Derivatives – Metals (price of copper and silver) Options – seagull (silver) - - - - - - - (1) - (1) Options – seagull (copper) - - (4) (32) (36) - - - - - TOTAL OPEN DERIVATIVES 714 796 (719) (434) 357 595 254 (1 133) (888) (1 172) * Collar structures, i.e. purchased put options and sold call options were designated as hedging under seagull options structures (CFH – Cash Flow Hedging) in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 48 The table below presents detailed data on derivative transactions designated as hedging, held by the Company as at 31 December 2022. Open hedging derivatives Notional Average weighted price /exchange rate/interest rate Maturity settlement period Period of profit/loss impact copper [t] silver [mn ounces] currency [USD mn] CIRS [PLN mn] [USD/t] [USD/ounce] [USD/PLN] [USD/PLN, fixed interest rate for USD] Type of derivative from to from to Copper – seagulls 189 000 8 075 - 9 759 Jan‘23 - Dec‘23 Jan‘23 - Jan‘24 Silver – seagulls 4.20 26.00 - 42.00 Jan‘23 - Dec‘23 Jan’23 - Jan‘24 Currency – collars 2 640 4.58 - 5.78 Jan’23 - Dec’24 Jan’23 - Jan’25 Currency – seagulls 315 3.94 - 4.54 Jan‘23 - Dec‘23 Jan‘23 - Jan‘24 Currency – interest rate – CIRS 400 3.78 and 3.23% June ‘24 June ‘24 Currency - interest rate – CIRS 1 600 3.81 and 3.94% June ‘29 June ‘29 - July ‘29 * Collar structures, i.e. purchased put options and sold call options were designated as hedging under seagull options structures (CFH – Cash Flow Hedging). ** Settlements of interest payments are made periodically, on a half-year basis, until the moment of the realisation of the transaction. *** Reclassification of profits or losses on a cash flow hedging instrument from other comprehensive income to the statement of profit or loss takes place in the reporting period in which the hedged position impacts profit or loss (as an adjustment of a hedged position and to other operating income/costs for the settled hedging cost). However, the recognition of the result on the settlement of the transaction takes place on the date of its settlement. The table below presents detailed data on derivative transactions designated as hedging, held by the Company as at 31 December 2021. Open hedging derivatives Notional Average weighted price /exchange rate/interest rate Maturity - settlement period Period of profit/loss impact copper [t] silver [mn ounces] currency [USD mn] CIRS [PLN mn] [USD/t] [USD/ounce] [USD/PLN] [USD/PLN, fixed interest rate for USD] Type of derivative from to from to Copper – seagulls * 243 000 7 553-9 227 Jan‘22 - Dec‘23 Jan‘22 - Jan‘24 Silver – collars 6.60 26.36-55.00 Jan’22 - Dec’22 Jan’22 - Jan’23 Silver – seagulls 7.80 26.00-42.00 Jan‘22 - Dec‘23 Jan‘22 - Jan‘24 Currency – collars 240 3.85-4.60 July’22 - Dec’22 July’22 Jan’23 Currency – seagulls 630 3.94-4.54 Jan‘22 - Dec‘23 Jan‘22 - Jan‘24 Currency – interest rate – CIRS 400 3.78 and 3.23% June ‘24 June ‘24 Currency – interest rate – CIRS 1 600 3.81 and 3.94% June ‘29 June ‘29 - July ‘29 * Collar structures, i.e. purchased put options and sold call options were designated as hedging under seagull options structures (CFH – Cash Flow Hedging). ** Settlements of interest payments are made periodically, on a half-year basis, until the moment of the realisation of the transaction. *** Reclassification of profits or losses on a cash flow hedging instrument from other comprehensive income to the statement of profit or loss takes place in the reporting period in which the hedged position impacts profit or loss (as an adjustment of a hedged position and to other operating income/costs for the settled hedging cost). However, the recognition of the result on the settlement of the transaction takes place on the date of its settlement. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 49 The impact of derivatives and hedging transactions on the items of the statement of profit or loss and on the items of the statement of comprehensive income is presented below. Statement of profit or loss from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Revenues from contracts with customers (reclassification adjustment) (182) (1 651) Other operating income / (costs) (including the reclassification adjustment): (222) (445) realisation of derivatives (214) (513) measurement of derivatives (8) 68 Finance income / (costs): 41 (44) realisation of derivatives (19) (9) measurement of derivatives - (1) interest on borrowings (reclassification adjustment) 60 (34) Impact of derivatives and hedging instruments on profit or loss for the period (excluding the tax effect) (363) (2 140) Statement of other comprehensive income Measurement of hedging transactions (effective portion) 1 239 (2 431) Reclassification to revenues from contracts with customers due to realisation of a hedged item 182 1 651 Reclassification to finance costs due to realisation of a hedged item (60) 34 Reclassification to other operating costs due to realisation of a hedged item (settlement of the hedging cost) 310 379 Impact of hedging transactions (excluding the tax effect) 1 671 (367) TOTAL COMPREHENSIVE INCOME 1 308 (2 507) Amounts of income tax corresponding to individual items of other comprehensive income are presented in Note 8.2.2. Note 7.3 Other financial instruments measured at fair value Accounting policies The item “Other financial instruments measured at fair value” includes: shares (listed and unquoted) which were not acquired for trading purposes, for which the option of measurement at fair value through other comprehensive income was selected in order to limit the volatility of the result. These assets are initially recognised at fair value increased by transaction costs, and at the end of the reporting period they are measured at fair value with recognition of gains/losses from measurement in other comprehensive income. The amounts recognised in accumulated other comprehensive income are not transferred later to profit or loss, while accumulated gains/losses on a given equity instrument are transferred within equity to retained earnings at the moment an equity instrument ceases to be recognised. Dividends from such investments are recognised in profit or loss. The fair value of listed shares is calculated based on the closing price as at the end of the reporting period. The translations of shares expressed in a foreign currency is performed according to the accounting policies described in Note 1.3. Important estimates, assumptions and judgments The fair value of unquoted shares is calculated using the adjusted net assets method. The application of this method is due to the specific nature of the assets of companies whose shares are subject to measurement. Observable Input data other than ones fro m the active market were used in the measurement (e.g. transaction prices of real estate similar to the one subjected to measurement, market interest rates of State Treasury bonds and fixed- term deposits in financial institutions, and the risk-free discount rate published by the European Insurance and Occupational Pensions Authority). in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 50 As at 31 December 2022 As at 31 December 2021 Shares of listed companies (Warsaw Stock Exchange and TSX Venture Exchange) of which: 386 484 TAURON POLSKA ENERGIA S.A. 386 483 ABACUS MINING & EXPLORATION - 1 Unquoted shares 97 97 Other financial instruments measured at fair value 483 581 The measurement of listed shares is classified to level 1 of the fair value hierarchy (i.e. measurement is based on the prices of these shares listed on an active market at the measurement date), while of unquoted shares is classified to level 2 (i.e. measurement based on unobservable data). In 2022 as well as in 2021, there were no dividends from companies in which the Company had shares classified as other financial instruments measured at fair value. In 2022 there were no transfers of accumulated gain or loss within equity in respect of companies in which the Company holds shares classified as other financial instruments measured at fair value. In 2021, following the sale of shares of the company PGE EJ1 Sp. z o.o., the result on the sale of these shares was reclassified in the amount of PLN 18 million. Due to investments in listed companies, the Company is exposed to price risk. Changes in the listed share prices of these companies resulting from the current macroeconomic situation may have a significant impact on the level of other comprehensive income and on the accrued amount recognised in equity. The following table presents the sensitivity analysis of listed companies’ shares to price changes. As at 31 December 2022 Percentage change of share price As at 31 December 2021 Percentage change of share price 14% -14% 13% -13% Carrying amount Other comprehensive income Other comprehensive income Carrying amount Other comprehensive income Other comprehensive income Listed shares 386 54 (54) 484 58 (58) Sensitivity analysis for significant types of market risk to which the Company is exposed presents the estimated impact of potential changes in individual risk factors (at the end of reporting period) on profit or loss and other comprehensive income. Potential changes in share prices at the end of the reporting period were determined at the level of standard deviations from the WIG20 index for a period of 3 calendar years ended on the reporting date. Note 7.4 Other non-current financial instruments measured at amortised cost Accounting policies Important estimates, assumptions and judgements The item other non- current financial instruments measured at amortised cost includes financial assets designated to cover the costs of decommissioning mines (accounting policies with respect to the obligation to decommission mines are presented in Note 9.4) and other financial assets not classified to other items. Assets included, in accordance with IFRS 9, in the category “measured at amortised cost”, are initially recognised at fair value adjusted by transaction costs, which can be directly attributed to the purchase of these assets and measured at amortised cost at the end of the reporting period using the effective interest rate method, reflecting impairment. Sensitivity analysis of the risk of changes in interest rates of cash accumulated on a bank account of the Mine Closure Fund is presented in Note 7.5.1.4. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 51 As at 31 December 2022 As at 31 December 2021 Cash held in the Mine Closure Fund and Tailings Storage Facility Restoration Fund on separate bank accounts 356 382 Increases in share capital 41 79 Other financial receivables 35 45 Total 432 506 As of 15 July 2022, the Company changed the form of the Tailings Storage Facility Restoration Fund in the amount of PLN 98 million from a bank account to a bank guarantee. Details regarding revaluation of the provision for the decommissioning costs of mines and other technological facilities are described in Note 9.4. Note 7.5 Financial risk management In the course of its business activities the Company is exposed to the following main financial risks:  market risk: o commodity risk, o risk of changes in foreign exchange rates, o risk of changes in interest rates, o price risk related to investments in shares of listed companies (Note 7.3), • credit risk, and • liquidity risk (the process of financial liquidity management is described in Note 8). The Company’s Management Board manages identified financial risk factors in a conscious and responsible manner, using the Market Risk Management Policy, the Financial Liquidity Management Policy and the Credit Risk Management Policy adopted by the Company. Understanding the threats arising from the Company's exposure to risk and maintaining an appropriate organisational structure and procedures enable an effective achievement of tasks. The Company identifies and measures financial risk on an ongoing basis, and also takes actions aimed at minimising its impact on the financial position. The process of financial risk management in the Company is supported by the work of the Market Risk Committee, the Financial Liquidity Committee and the Credit Risk Committee. Note 7.5.1 Market risk The market risk to which the Company is exposed to is understood as the possible occurrence of negative impact on the Company's results arising from changes in the market prices of commodities, exchange rates and interest rates, as well as the share prices of listed companies. Note 7.5.1.1 Principles and techniques of market risk management The Company actively manages the market risk to which it is exposed. In accordance with the adopted policy, the goals of the market risk management process are as follows:  limit volatility in the financial result;  increase the probability of meeting budget targets;  decrease the probability of losing financial liquidity;  maintain the financial health of the Company; and  support the process of strategic decision making related to investing, including financing sources. The objectives of market risk management should be considered as a whole, and their realisation is determined mainly by the Company’s internal situation and market conditions. Actions and decisions concerning market risk management in the Company should be analysed in the context of the KGHM Polska Miedź S.A. Group’s global exposure to market risk. The primary technique used in market risk management is the utilisation of hedging strategies involving derivatives. Natural hedging is also used. Taking into account the potential scope of their impact on the Company’s results, market risk factors were divided into the following groups: in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 52 Group Market risk Approach to risk management Note 7.2 Group I – factors having the greatest impact on the Company’s total exposure to market risk Copper price A strategic approach is applied to this group, aimed at systematically building up a hedging position comprising production and revenues from sales for subsequent periods while taking into account the long- term cyclical nature of various markets. A h edging position may be restructured before it expires. Note 7.2 Silver price Note 7.2 USD/PLN exchange rate Note 7.2 Group II – other exposure to market risk Prices of other metals and merchandise This group is comprised of less significant risks, therefore it is tactically managed - on an ad-hoc basis, often taking advantage of favourable market conditions. Note 7.2 Other exchange rates Note 7.2 Interest rates The Company manages market risk by applying various approaches to particular, identified exposure groups. The Company considers the following factors when selecting hedging strategies or restructuring hedging positions: current and forecasted market conditions, the internal situation of the Company, the effective level and cost of hedging, and the impact of the minerals extraction tax. The Company applies an integrated approach to managing the market risk to which it is exposed. This means a comprehensive approach to market risk, and not to each element individually. An example is the hedging transactions on the currency market, which are closely related to contracts entered into on the metals market. The hedging of metals sales prices determines the probability of achieving specified revenues from sales in USD, which represent a hedged position for the strategy on the currency market. The Company executes derivative transactions only if it has the ability to assess their value internally, using standard pricing models appropriate for a particular type of derivative, and which can be traded without significant loss of value with a counterparty other than the one with whom the transaction was initially entered into. In evaluating the market value of given instruments, the Company uses information obtained from leading information services, banks, and brokers. The Company's internal policy, which regulates market risk management principles, permits the use of the following types of instruments:  swaps;  forwards and futures;  options; and  structures combining the above instruments. The instruments applied may be, therefore, either of standardised parameters (publicly traded instruments) or non- standardised parameters (over-the-counter instruments). Primarily applied are cash flow hedging instruments meeting the requirements for effectiveness as understood by hedge accounting. The effectiveness of the financial hedging instruments applied by the Company in the reporting period is continually monitored and assessed (details in Note 7.2 Derivatives – accounting policies). The economic relationship between a hedging instrument and a hedged position is based on the sensitivity of the value of the position to the same market factors (metals prices, exchange rates or interest rates) and on matching appropriate key parameters of the hedging instrument and the hedged position (volume/notional amount, maturity date). The hedge ratio of the established hedging relationship is set at the amount ensuring the effectiveness of the relationship and is consistent with the actual volume of the hedged position and the hedging instrument. Sources of potential ineffectiveness of the relationship arise from a mismatch of the parameters of the hedging instrument and the hedged position (e.g. the notional amount, maturity, base instrument, impact of credit risk). When structuring a hedging transaction, the Company aims to ensure a maximal match between these parameters to minimise the sources of ineffectiveness. The Company quantifies its market risk exposure using a consistent and comprehensive measure. Market risk management is supported by simulations (such as scenario analysis, stress-tests, backtests) and calculated risk measures. The risk measures being used are mainly based on mathematical and statistical modelling, which uses historical and current market data concerning risk factors and takes into consideration the current exposure of the Company to market risk. One of the measures used as an auxiliary tool in making decisions in the market risk management process is EaR - Earnings at Risk. This measure indicates the lowest possible level of profit for the period for a selected level of confidence (for example, with 95% confidence the profit for a given year will be not lower than…). The EaR methodology enables the calculation of profit for the period incorporating the impact of changes in market prices of copper, silver and foreign exchange rates in the context of budget plans. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 53 Due to the risk of production cutbacks (for example because of force majeure) or failure to achieve planned foreign currency revenues, as well as purchases of metals contained in purchased materials, the Company has set limits with respect to commitment in derivatives:  up to 85% of planned, monthly sales volumes of copper, silver and gold from own concentrates, while: for copper and silver - up to 50% with respect to instruments which are obligations of the Company (for financing the hedging strategy), and up to 85% with respect to instruments representing the rights of the Company.  up to 85% of planned, monthly revenues from the sale of products from own concentrates in USD or of the monthly, contracted net currency cash flows in case of other currencies. For purposes of setting the limit, expenses for servicing the debt denominated in USD decrease the nominal amount of exposure to be hedged. These limits are in respect both of hedging transactions as well as of the instruments financing these transactions. The maximum time horizon within which the Company decides to limit market risk is set in accordance with the technical and economic planning process and amounts to 5 years, whereas in terms of interest rate risk, the time horizon reaches up to the maturity date of the long-term financial liabilities of the Company. With respect to the risk of changes in interest rates, the Company has set a limit of commitment in derivatives of up to 100% of the debt’s nominal value in every interest period, as stipulated in the signed agreements. Note 7.5.1.2. Commodity risk The Company is exposed to the risk of changes in the prices of the metals it sells: copper, silver, gold and lead. The price formulas used in physical delivery contracts are mainly based on average monthly quotations from the London Metal Exchange for copper and lead and from the London Bullion Market Association for silver and gold. The Company’s commercial policy is to set the price base for physical delivery contracts as the average price of the appropriate future month. The permanent and direct link between sales proceeds and metals prices, without similar relationships on the expenditures side, results in a strategic exposure. In turn, operating exposure is a result of possible mismatches in the pricing of physical contracts with respect to the Company’s benchmark profile, in particular in terms of the reference prices and the quotation periods. On the metals market, the Company has a so-called long position, which means it has higher sales than purchases. The analysis of the Company’s exposure to market risk should be performed by deducting from the volume of metals sold the amount of metal in purchased materials. The Company’s strategic exposure to the risk of changes in the price of copper and silver in the years 2021-2022 is presented in the table below. from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Net Sales Purchase Net Sales Purchase Copper [t] 344 065 564 969 220 904 365 705 561 495 195 790 Silver [t] 1 298 1 338 40 1 206 1 249 43 The notional amount of copper price hedging strategies settled in 2022 represented approx. 25% (44% in 2021) of the total sales of this metal realised by the Company (it represented approx. 42% of net sales 1 in 2022 and 67% in 2021). The notional amount of silver price hedging strategies settled in 2022 represented approx. 24% of the total sales of this metal realised by the Company (25% in 2021). As part of the realisation of the strategic plan to hedge the Company against market risk, in 2022 strategies hedging the planned revenues from copper sales were implemented. Seagull hedging strategies were entered into for the period from January 2023 to December 2023 for a total tonnage of 90 thousand tonnes. Moreover, an open hedging position on the copper market was restructured for the same period with a total tonnage of 12 thousand tonnes by raising the sold options’ strike price from a seagull structure entered into in 2020. In 2022, the Company did not implement any hedging strategies on the silver market. In 2022 QP adjustment swap transactions were entered into on the copper and gold markets with maturities of up to June 2023, as part of the management of a net trading position 2 . As a result, as at 31 December 2022 the Company held open derivatives positions for 193.5 thousand tonnes of copper (of which: 189 thousand tonnes came from strategic management of market risk, while 4.3 thousand tonnes came from the management of a net trading position) and 4.2 million troy ounces of silver. 1 Copper sales less copper in purchased metal-bearing materials. 2 Applied in order to react to changes in contractual arrangements with customers, non-standard pricing terms as regards metals sales and the purchase of copper-bearing materials. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 54 The condensed tables of open derivatives transactions held by the Company on the copper and silver markets as at 31 December 2022, entered into as part of the strategic management of market risk, are presented below (the hedged notional in the presented periods is allocated evenly on a monthly basis). Hedging against copper price risk – open derivatives as at 31 December 2022 Average weighted option strike price Average weighted premium Effective hedge price sold put option purchased put option sold call option Instrument/ option Notional hedge limited to copper price hedging participation limited to [tonnes] [USD/t] [USD/t] [USD/t] [USD/t] [USD/t] 1st half of 2023 seagull 18 000 5 200 6 900 8 300 (196) 6 704 seagull 6 000 6 000 6 900 10 000 (296) 6 604 seagull 15 000 6 000 9 000 11 400 (248) 8 752 seagull 10 500 6 700 9 286 11 486 (227) 9 059 seagull 45 000 6 000 8 120 9 120 (143) 7 977 2nd half of 2023 seagull 18 000 5 200 6 900 8 300 (196) 6 704 seagull 6 000 6 000 6 900 10 000 (296) 6 604 seagull 15 000 6 000 9 000 11 400 (248) 8 752 seagull 10 500 6 700 9 286 11 486 (227) 9 059 seagull 45 000 6 000 8 100 9 600 (172) 7 928 TOTAL 2023 189 000 Hedging against silver price risk – open derivatives as at 31 December 2022 Average weighted option strike price Average weighted premium Effective hedge price sold put option purchased put option sold call option Instrument/ option Notional hedge limited to silver price hedging participation limited to [mn ounces] [USD/ounce] [USD/ounce] [USD/ounce] [USD/ounce] [USD/ounce] 2023 seagull 4.20 16.00 26.00 42.00 (1.19) 24.81 TOTAL 2023 4.20 The condensed tables of open derivatives transactions held by the Company on the copper and silver markets as at 31 December 2021, entered into as part of the strategic management of market risk, are presented below (the hedged notional in the presented periods is allocated evenly on a monthly basis). in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 55 Hedging against copper price risk – open derivatives as at 31 December 2021 Average weighted option strike price Average weighted premium Effective hedge price Sold put option Purchased put option Sold call option Instrument/ option Notional hedge limited to copper price hedging participation limited to [tonnes] [USD/t] [USD/t] [USD/t] [USD/t] [USD/t] 1st half seagull 30 000 4 600 6 300 7 500 (160) 6 140 seagull 24 000 5 200 6 900 8 300 (196) 6 704 seagull 10 500 6 700 9 286 11 486 (227) 9 059 2nd half seagull 30 000 4 600 6 300 7 500 (160) 6 140 seagull 24 000 5 200 6 900 8 300 (196) 6 704 seagull 15 000 6 000 9 000 11 400 (248) 8 752 seagull 10 500 6 700 9 286 11 486 (227) 9 059 TOTAL 2022 144 000 1st half seagull 24 000 5 200 6 900 8 300 (196) 6 704 seagull 15 000 6 000 9 000 11 400 (248) 8 752 seagull 10 500 6 700 9 286 11 486 (227) 9 059 2nd half seagull 24 000 5 200 6 900 8 300 (196) 6 704 seagull 15 000 6 000 9 000 11 400 (248) 8 752 seagull 10 500 6 700 9 286 11 486 (227) 9 059 TOTAL 2023 99 000 Hedging against silver price risk – open derivatives as at 31 December 2021 Average weighted Option strike price Average weighted premium Effective hedge price sold put option purchased put option sold call option Instrument/ option Notional hedge limited to silver price hedging participation limited to [mn ounces] [USD/ounce] [USD/ounce] [USD/ounce] [USD/ounce] [USD/ounce] 2022 seagull 3.60 16.00 26.00 42.00 (0.88) 25.12 collar 6.60 - 26.36 55.00 (1.96) 24.40 TOTAL 2022 10.20 2023 seagull 4.20 16.00 26.00 42.00 (1.19) 24.81 TOTAL 2023 4.20 * As part of restructuration the strike price of sold call options was increased from 42 and 43 USD/ounce to 55 USD/ounce. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 56 An analysis of the Company’s sensitivity to the risk of changes in copper, silver and gold prices in the years 2021-2022 Financial assets and liabilities as at 31 December 2022 Value at risk Carrying amount 31 December 2022 Change in COPPER price [USD/t] Change in SILVER price [USD/ ounce] Change in GOLD price [USD/ ounce] 10 293 (+23%) 6 463 (-23%) 31.69 (+32%) 17.06 (-29%) 2 107 (+15%) 1 524 (-16%) Profit or loss Other comprehe nsive income Profit or loss Other comprehe nsive income Profit or loss Other comprehe nsive income Profit or loss Other comprehe nsive income Profit or loss Profit or loss Derivatives (copper) 161 161 (49) (1 026) 17 935 - - - - - - Derivatives (silver) 50 50 - - - - 2 (67) (17) 106 - - Derivatives (gold) (10) (10) - - - - - - - - (22) 29 Embedded derivatives (copper, silver, gold) (43) (43) (164) - 161 - - - - - (24) 27 Impact on profit or loss (213) - 178 - 2 - (17) - (46) 56 Impact on other comprehensive income - (1 026) - 935 - (67) - 106 - - Financial assets and liabilities as at 31 December 2021 Value at risk Carrying amount 31 December 2021 Change in COPPER price [USD/t] Change in SILVER price [USD/ounce] Change in GOLD price [USD/ounce] 11 614 (+19%) 7 495 (-23%) 30.52 (+31%) 16.55 (-29%) 2 122 (+17%) 1 523 (-16%) Profit or loss Other comprehen sive income Profit or loss Other comprehe nsive income Profit or loss Other comprehen sive income Profit or loss Other comprehe nsive income Profit or loss Profit or loss Derivatives (copper) (1 096) (1 096) (74) (1 770) 173 1 701 - - - - - - Derivatives (silver) 224 224 - - - - 9 (192) (39) 334 - - Derivatives (gold) - - - - - - - - - - (20) 20 Embedded derivatives (copper, silver, gold) (21) (21) (129) - 165 - (1) - 1 - (11) 11 Impact on profit or loss (203) - 338 - 8 - (38) - (31) 31 Impact on other comprehensive income - (1 770) - 1 701 - (192) - 334 - - In order to determine the potential changes in metals prices for purposes of sensitivity analysis of commodity risk factors (copper, silver, gold), the mean reverting Schwarz model (the geometrical Ornstein-Uhlenbeck process) was used. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 57 Note 7.5.1.3 Risk of changes in foreign exchange rates Regarding the risk of changes in foreign exchange rates, the following types of exposures were identified:  transaction exposure related to the volatility of cash flows in the base currency; and  exposure related to the volatility of selected items of the statement of financial position in the base (functional) currency. The transaction exposure to currency risk derives from cash flow-generating contracts, the value of which expressed in the base (functional) currency depend on future levels of exchange rates of the foreign currencies with respect to the base currency (for KGHM Polska Miedź S.A. it is the Polish zloty). Cash flows exposed to currency risk may possess the following characteristics:  denomination in the foreign currency – cash flows are settled in foreign currencies other than the functional currency; and  indexation in the foreign currency – cash flows may be settled in the base currency, but the price (i.e. of a metal) is set in a different foreign currency. The key source of transaction exposure to currency risk in the Company’s business operations are the proceeds from sales of products (with respect to metals prices, processing and producer margins). The Company’s exposure to currency risk also derives from items in the statement of financial position denominated in foreign currencies, which under the existing accounting regulations must be translated, upon settlement or periodic valuation, by applying the current exchange rate of the foreign currencies versus the base (functional) currency. Changes in the carrying amounts of such items between valuation dates result in the volatility of profit or loss for the period or of other comprehensive income. Items in the statement of financial position which are exposed to currency risk include in particular:  trade receivables and trade payables related to purchases and sales denominated in foreign currencies;  financial receivables due to loans granted in foreign currencies;  financial liabilities due to borrowings in foreign currencies;  cash and cash equivalents in foreign currencies; and  derivatives on metals market. As for the currency market, the notional amount of settled transactions hedging revenues from metals sales amounted to approx. 20% (in 2021: 28%) of the total revenues from sales of copper and silver realised by the Company in 2022. As part of the realisation of the strategic plan to hedge the Company against market risk, in 2022 the following were purchased: put options on the currency market for USD 205 million of planned sales revenues with maturities from April 2022 to December 2022, collar option structures on the currency market for USD 400 million of planned sales revenues with maturities from August 2022 to December 2022, and collar structures for USD 2 640 million with maturities from January 2023 to December 2024. In addition, as part of on-going management of the currency risk, short-term forward sale transactions were entered into for the planned current cash flows, aimed at hedging against risk connected with USD/PLN rate fluctuations. Forward transactions were settled in the third quarter of 2022. As a result, as at 31 December 2022 the Company held an open position on the currency market for the notional amount of USD 2 955 million (USD 1 050 million as at 31 December 2021), and Cross Currency Interest Rate Swap (CIRS) transactions for the notional amount of PLN 2 billion, hedging revenues from sales in the currency as well as the variable interest of issued bonds. The condensed table of open transactions in derivatives on the currency market as at 31 December 2022 is presented below (the hedged notional in the presented periods is allocated evenly on a monthly basis). Hedging against USD/PLN currency risk – open derivatives as at 31 December 2022 Notional Average weighted option strike price Average weighted premium Effective hedge price Instrument/ option sold put option purchased put option sold call option hedge limited to exchange rate hedging participation limited to [ USD mn] [USD/PLN] [USD/PLN] [USD/PLN] [PLN per USD 1] [USD/PLN] 2023 seagull 135.00 3.30 4.00 4.60 (0.00) 4.00 seagull 180.00 3.30 3.90 4.50 0.03 3.93 collar 660.00 - 4.48 5.48 (0.03) 4.45 collar 660.00 - 4.69 6.09 (0.05) 4.64 TOTAL 2023 1 635.00 2024 collar 660.00 - 4.48 5.48 (0.00) 4.48 collar 660.00 - 4.69 6.09 (0.01) 4.68 TOTAL 2024 1 320,00 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 58 Hedging against USD/PLN currency risk – open derivatives as at 31 December 2021 Hedging against currency-interest rate risk connected with the issue of bonds with a variable interest rate in PLN – open derivatives as at 31 December 2022 and as at 31 December 2021 Instrument/ option Notional Average interest rate Average exchange rate [PLN mn] [fixed interest rate for USD] [USD/PLN] VI 2024 CIRS 400 3.23% 3.78 VI 2029 CIRS 1 600 3.94% 3.81 TOTAL 2 000 As for managing currency risk, the Company applies natural hedging by borrowing in the currency in which it has revenues. As at 31 December 2022, following their translation to PLN, the bank loans and the investment loans which were drawn in USD amounted to PLN 3 435 million (as at 31 December 2021: PLN 2 980 million). The currency structure of financial instruments exposed to currency risk (changes in the USD/PLN, EUR/PLN and GBP/PLN exchange rates) is presented in the table below. An analysis for other currencies is not presented due to the immateriality. Financial instruments Value at risk as at 31 December 2022 Value at risk as at 31 December 2021 total PLN million USD million EUR million GBP million total PLN million USD million EUR million GBP million Trade receivables 337 52 23 - 282 36 21 8 Cash and cash equivalents 688 136 19 - 1 061 241 16 1 Loans granted 8 687 1 974 - - 8 169 2 012 - - Cash pooling receivables 588 134 - - 498 123 - - Other financial assets 80 18 - - 182 45 - - Derivatives 357 36 - - (1 172) 220 - - Trade and similar payables (767) (124) (48) - (834) (140) (58) - Borrowings (3 450) (780) (3) - (3 053) (734) (16) - Other financial liabilities (46) (8) (2) - (193) (42) (5) - * Transactions on the commodities market which are denominated in USD and translated to PLN at the exchange rate as at the end of the reporting period are presented in the item “derivatives”, in the column “USD million”, while the column “total PLN million” also includes the fair value of derivatives which are denominated solely in PLN. An analysis of the Company’s sensitivity to the currency risk as at 31 December 2022 and 31 December 2021 is presented in the tables on the next page. In order to determine the potential changes in the USD/PLN, EUR/PLN and GBP/PLN exchange rates for sensitivity analysis purposes, the Black-Scholes model (the geometrical Brownian motion) was used. Notional Option strike price Average weighted premium Effective hedge price Instrument/ option sold put option purchased put option sold call option hedge limited to exchange rate hedging participation limited to [ USD mn] [USD/PLN] [USD/PLN] [USD/PLN] [PLN per USD 1] [USD/PLN] 1 st half seagull 67.5 3.30 4.00 4.60 (0.01) 3.99 seagull 90 3.50 3.90 4.50 0.04 3.94 purchased put option 180 - 3.75 - (0.04) 3.71 2 nd half seagull 67.5 3.30 4.00 4.60 (0.01) 3.99 seagull 90 3.30 3.90 4.50 0.03 3.93 collar 240 - 3.85 4.60 (0.04) 3.81 TOTAL 2022 735 2023 seagull 135 3.30 4.00 4.60 (0.00) 4.00 seagull 180 3.30 3.90 4.50 (0.03) 3.93 TOTAL 2023 315 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 59 An analysis of the Company’s sensitivity to the currency risk in the years 2021-2022 Value at risk Carrying amount 31 December 2022 Change in USD/PLN exchange rate Change in EUR/PLN exchange rate Change in GBP/PLN exchange rate 5.03 (+14%) 3.91 (-11%) 5.18 (+10%) 4.48 (-5%) 6.05 (+14%) 4.71 (-11%) Financial assets and liabilities as at 31 December 2022 profit or loss other comprehensive income profit or loss other comprehensive income profit or loss profit or loss profit or loss profit or loss Trade receivables 337 620 33 - (26) - 11 (5) - - Cash and cash equivalents 688 985 85 - (66) - 9 (4) - - Loans granted 8 687 8 763 1 241 - (963) - - - - - Cash pooling receivables 588 588 84 - (65) - - - - - Other financial assets 80 1 237 11 - (9) - - - - - Derivatives 357 357 (3) (1 197) (6) 1 193 - - - - Trade and similar payables (767) (2 819) (78) - 60 - (23) 10 - - Borrowings (3 450) (6 445) (491) - 381 - (2) 1 - - Other financial liabilities (46) (394) (5) - 4 - (1) - - - Impact on profit or loss 877 - (690) - (6) 2 - - Impact on other comprehensive income - (1 197) - 1 193 - - - - Value at risk Carrying amount 31 December 2021 Change in USD/PLN exchange rate Change in EUR/PLN exchange rate Change in GBP/PLN exchange rate 4.57 (+13%) 3.66 (-10%) 5.01 (+9%) 4.37 (-5%) 6.15 (+12%) 4.98 (-9%) Financial assets and liabilities as at 31 December 2021 profit or loss other comprehensive income profit or loss other comprehensive income profit or loss profit or loss profit or loss profit or loss [PLN mn] [PLN mn] Trade receivables 282 600 18 - (14) - 8 (5) 5 (4) Cash and cash equivalents 1 061 1 332 124 - (97) - 7 (4) 1 (1) Loans granted 8 169 8 249 1 035 - (812) - - - - - Cash pooling receivables 498 498 63 - (50) - - - - - Other financial assets 182 1 376 23 - (18) - - - - - Derivatives (1 172) (1 172) 10 (646) 2 527 - - - - Trade and similar payables (834) (2 613) (72) - 56 - (24) 13 - - Borrowings (3 053) (5 922) (378) - 296 - (7) 4 - - Other financial liabilities (193) (476) (22) - 17 - (2) 1 - - Impact on profit or loss 801 - (620) - (18) 9 6 (5) Impact on other comprehensive income - (646) - 527 - - - - in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 60 Note 7.5.1.4 Interest rate risk In 2022 the Company was exposed to the risk of changes in interest rates due to loans granted, investing free cash, participating in a cash-pooling service and borrowing. Positions with variable interest rates expose the Company to the risk of changes in cash flow from a given position as a result of changes in interest rates (i.e. it has an impact on the interest costs or income recognised in the profit or loss). Positions with fixed interest rates expose the Company to the risk of fair value changes of a given position, excluding items measured at amortised cost, for which the change in fair value does not affect their measurement and profit or loss. The main items which are exposed to interest rate risk are presented below: As at 31 December 2022 As at 31 December 2021 Cash flow risk Fair value risk Total Cash flow risk Fair value risk Total Cash and cash equivalents 1 356 - 1 356 1 733 - 1 733 Note 6.2 Loans granted 76 3 233 3 309 80 2 959 3 039 Note 7.1 Borrowings (2 530) (3 594) (6 124) (1 985) (3 577) (5 562) Cash pooling receivables 588 - 588 498 - 498 Cash pooling liabilities (321) - (321) (360) - (360) As at 31 December 2022 the Company had CIRS transactions (Cross Currency Interest Rate Swap) with maturities falling in June 2024 and June 2029, in the notional amount of PLN 2 billion, hedging both the sales revenues in the currency, as well as the variable interest rate of issued bonds. The open hedging position as at 31 December 2022 and as at 31 December 2021 is presented in the table in Note 7.5.1.3. An analysis of the Company’s sensitivity to interest rate risk, assuming changes in interest rates for the balance sheet items in PLN, USD and EUR (presented in basis points, bps) is presented in the following table. An expert method including recommendations of the ARMA model was used to determine the potential volatility of interest rates. 31 December 2022 change in interest rate 31 December 2021 change in interest rate +150 bps (PLN, USD, EUR) -100 bps (PLN, USD, EUR) +250 bps (PLN) +150 bps (USD, EUR) -100 bps (PLN) -50 bps (USD, EUR) profit or loss other comprehensi ve income profit or loss other comprehens ive income profit or loss other comprehensiv e income profit or loss other comprehensive income Cash and cash equivalents 20 - (14) - 33 - (12) - Borrowings (38) - 25 - (95) - 35 - Cash pooling 4 - (3) - (1) - 1 - Loans granted measured at fair value (299) - 237 - (106) - 37 - Derivatives – interest rate - 134 - (97) - 186 - (66) Impact on profit or loss (313) - 245 - (169) - 61 - Impact on other comprehensive income - 134 - (97) - 186 - (66) Presented amounts include cash accumulated in special purpose funds: Mine Closure Fund and Social Fund Impact of the reference rates reform The Company uses financial instruments based on variable interest rates, which fall under the reference rates reform. As a result of the reform, publication of certain IBOR rates ceased from 1 January 2022 and the next ones will cease to be published from 30 June 2023. The Company identified agreements which include clauses based on LIBOR and which will be changed once the reference rates are superseded. These are mainly borrowing and factoring agreements. In 2022 some of the bilateral financing agreements were annexed in order to introduce SOFR or CME Term SOFR rates. Negotiations are underway with other financial institutions aimed at replacing LIBOR rates with an alternative benchmark. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 61 On 7 July 2022, an Act on crowdfunding for business and support for borrowers, which is a basis to change the WIBOR and WIBID rates applicable to instruments in PLN, was adopted. As a result of legislative changes in September 2022, the Steering Committee of the National Work Group for reform of the reference rates selected WIRON as the target Risk-Free Rate (RFR) for the Polish financial market. Details on the replacement of current rates by an alternative one will be published in 2023, and the publication of old WIBOR and WIBID rates will end in 2025. Until 2025, the IBOR reform will not have an impact on the interest rate applied in the Company’s derivatives, because the CIRS transactions entered into (open cross currency interest rate swaps) and bonds issued by the Company are based on the WIBOR reference rate. In the case of this benchmark, until 2025 we are in the transitional period, during which adjustments to transactions entered into before the reform will not be required. After 2025, the IBOR reform may have an impact on cash flow hedging of variable interest of issued bonds (Tranche B) in the amount of PLN 1.6 billion, based on WIBOR 6M, that is CIRS transactions (cross currency swap) with maturity falling in 2029. The Company applied temporary exemptions from application of specific requirements of hedge accounting under IFRS 9 due to the IBOR reform and adopted an assumption that it may continue the hedge relationships. The notional amounts of hedging instruments to which these exemptions apply are disclosed in the following table. As at 31 December 2022, the Company estimated that the impact of IBOR reform on the financial statements will be immaterial. As at 31 December 2022, the Company held financial instruments based on variable interest rates, which were not yet replaced by alternative rates. Type of instrument Carrying amount as at 31 December 2022 Loans granted WIBOR 1M 88 Bank loans USD LIBOR 1M (528) Debt securities WIBOR 6M (2 002) Derivatives (CIRS for 2029, PLN 1 600 million) WIBOR 6M (198) Total (2 640) in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 62 Note 7.5.1.5 Impact of hedge accounting on the financial statements The following table contains information on changes in the fair value of instruments, as well as corresponding changes in the fair value of hedged positions during the reporting period, being the basis for recognising the effective and ineffective portions of changes in the fair value of hedging instruments in the years 2021-2022 (net of the tax effect). As at 31 December 2022 from 1 January 2022 to 31 December 2022 from 1 January 2022 to 31 December 2022 As at 31 December 2021 from 1 January 2021 to 31 December 2021 from 1 January 2021 to 31 December 2021 Balance of other comprehensive income due to cash flow hedging for relations Change in the value of hedged item Balance of other comprehensive income due to cash flow hedging for relations relation type risk type instrument type – hedged item remaining in hedge accounting for which hedge accounting was ceased Change in the value of hedging instrument remaining in hedge accounting for which hedge accounting was ceased Change in the value of hedged item Change in the value of hedging instrument Cash flow hedging Commodity risk (copper) Options – Sales revenue (21) (11) (327) 255 (1 357) - 979 (981) intrinsic value 152 - - 325 (1 027) - - (976) time value (173) (11) - (70) (330) - - (5) Commodity risk (silver) Options – Sales revenue 19 - 16 (21) 92 15 (172) 14 intrinsic value 30 - - (16) 163 12 - 172 time value (11) - - (5) (71) 3 - (158) Currency risk (USD) Options – Sales revenue 402 - (183) 403 (1) - 115 (192) intrinsic value 193 - - 182 23 - - (114) time value 209 - - 221 (24) - - (78) Loans – Sales revenue - (64) - - - (80) - - intrinsic value - (64) - - - (80) - - Currency-interest rate risk Options – Sales revenue (569) - 154 (137) (431) - 406 (371) intrinsic value (569) - - (137) (431) - - (371) Options – Finance income/costs 315 - (181) 152 162 - (332) 300 intrinsic value 315 - - 152 162 - - 300 Total, including: 146 (75) (521) 652 (1 535) (65) 996 (1 230) Total intrinsic value 121 - - 506 (1 110) (68) - (989) Total time value 25 (75) - 146 (425) 3 - (241) The inefficiency of the hedging which was recognised in profit or loss in the reporting periods 2021-2022 was immaterial. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 63 The table below presents information on the impact of hedge accounting on profit or loss and other comprehensive income (net of the tax effect). from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 relation type risk type instrument type Profits or (losses) due to hedging recognised in other comprehensive income Amount reclassified from other comprehensive income to the statement of profit or loss as a reclassification adjustment, due to realisation of a hedged item in the period Profit or (loss) due to hedging recognised in other comprehensive income Amount reclassified from other comprehensive income to the statement of profit or loss as a reclassification adjustment, due to realisation of a hedged item in the period Cash flow hedging Commodity risk (copper) Options 800 (525) (2 047) (1 903) Commodity risk (silver) Options 26 114 (11) (30) Currency risk (USD) Options 357 (46) (260) (72) Loans - (16) - (16) Currency-interest rate risk CIRS 56 41 (113) (43) Total 1 239 (432) (2 431) (2 064) Item of the statement of profit or loss which includes a reclassification adjustment: * revenues from contracts with customers, other operating income and (costs), ** revenues from contracts with customers, *** revenues from contracts with customers, other finance income and (costs). in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 64 The following table contains information on changes in other comprehensive income (excluding the tax effect) in the period in connection with the application of hedge accounting in 2021 and 2022. 2022 2021 Effective value * Cost of hedging ** Total Effective value * Cost of hedging ** Total Other comprehensive income – transactions hedging against commodity and currency risk – as at 1 January (1 178) (422) (1 600) (735) (498) (1 233) Impact of measurement of hedging transactions (effective part) 1 124 115 1 239 (2 128) (303) (2 431) Reclassification to profit or loss due to realisation of hedged item 122 310 432 1 685 379 2 064 Other comprehensive income – transactions hedging against commodity and currency risk – as at 31 December 68 3 71 (1 178) (422) (1 600) * Effective portions of changes in the fair value of hedging instruments due to hedged risk - intrinsic value of option. ** Time value of option + CCBS (Cross Currency Basis Swap). in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 65 Note 7.5.2 Credit risk Credit risk is defined as the risk that the Company’s counterparties will not be able to meet their contractual liabilities and involves three main areas:  the creditworthiness of the customers with whom physical sales transactions are undertaken;  the creditworthiness of the financial institutions (banks/brokers) with whom, or through whom, hedging transactions are undertaken, as well as those in which free cash and cash equivalents are deposited; and  the financial standing of subsidiaries - borrowers. In particular, the Company is exposed to credit risk due to:  cash and cash equivalents and deposits;  derivatives;  trade receivables;  loans granted (Note 6.2);  guarantees granted (Note 8.6); and  other financial assets. Accounting policies The Company recognises impairment loss on expected credit losses on financial assets measured at amortised cost. Expected credit losses are credit losses weighed by the default probability. The Company applies the following models for designating impairment losses: - the simplified model – for trade receivables, - the general (basic) model – for other financial assets. Under the general model the Company monitors changes in the level of credit risk related to a given financial asset and classifies financial assets to one of three stages of determining impairment losses – based on observations of changes in the level of credit risk compared to an instrument’s initial recognition. In particular, the following are monitored: the credit rating and the financial condition of the customer and the payment delay period. Depending on which degree it is classified to, an impairment loss is estimated for a 12-month period (degree 1) or in the horizon of lifetime (degree 2 and degree 3). The absolute indicator of default is an over due period of more than 90 days. The detailed principles of classification of loans granted to individual degrees of loss allowance for expected credit losses was described in note 6.2. Under the simplified model the Company does not monitor changes in the level of credit risk during an instrument’s life and estimates the expected credit loss over the time horizon of maturity of the instrument based on historical data respecting the repayments of receivables. Note 7.5.2.1 Credit risk related to cash, cash equivalents and bank deposits The Company periodically allocates free cash in accordance with the requirements to maintain financial liquidity and limit risk and in order to protect capital and maximise interest income. As at 31 December 2022, the total amount of free and restricted cash and cash equivalents of PLN 985 million (as at 31 December 2021, PLN 1 332 million) was held in bank accounts and in short-term deposits. The detailed structure of cash and cash equivalents is presented in note 8.5. All entities with which deposit transactions are entered into by the Company operate in the financial sector. These are solely banks registered in Poland or operating in Poland as branches of foreign banks, which belong to European, American and Chinese financial institutions with medium-high and medium ratings, an appropriate level of equity and a strong, stable market position. Credit risk in this regard is continuously monitored through the on-going review of the financial standing and by maintaining an appropriately low level of concentration of resources in individual financial institutions. The following table presents the level of concentration of cash and deposits, with the assessed creditworthiness of the financial institutions: in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 66 Rating level As at 31 December 2022 As at 31 December 2021 Medium-high from A+ to A- according to S&P and Fitch, and from A1 to A3 according to Moody’s 85% 71% Medium from BBB+ to BBB- according to S&P and Fitch, and from Baa1 to Baa3 according to Moody’s 15% 29% Weighed by amount of deposits. As at 31 December 2022 the maximum single entity share of the amount exposed to credit risk arising from cash and bank deposits amounted to 36%, or PLN 354 million (as at 31 December 2021: 58%, or PLN 778 million). As at 31 December 2022 As at 31 December 2021 Counterparty 1 354 778 Counterparty 2 335 255 Counterparty 3 70 120 Counterparty 4 68 104 Other 158 75 Total 985 1 332 Impairment losses on cash and cash equivalents were determined individually for each balance of a given financial institution. External bank ratings were used to measure credit risk. The analysis determined that these assets have a low credit risk at the reporting date. The Company used a simplification permitted by the standard and the impairment loss was determined on the basis of 12-month credit losses. The calculation of impairment determined that the amount of the impairment loss is insignificant. These assets are classified to Degree 1 of the impairment model. Note 7.5.2.2 Credit risk related to derivatives transactions All entities with which derivative transactions are entered into by the Company operate in the financial sector 3 . The Company’s credit exposure related to derivatives by main counterparties is presented in the table below. As at 31 December 2022 As at 31 December 2021 Financial receivables Financial liabilities Fair value Exposure to credit risk Financial receivables Financial liabilities Fair value Exposure to credit risk Counterparty 1 260 (250) 10 260 227 (195) 32 227 Counterparty 2 226 (172) 54 226 162 (112) 50 162 Counterparty 3 154 (33) 121 154 113 (437) (324) 113 Counterparty 4 120 (53) 67 120 78 (57) 21 78 Other 787 (636) 151 787 279 (1 358) (1 079) 279 Total 1 547 (1 144) 403 1 547 859 (2 159) (1 300) 859 Open derivatives 1 510 (1 110) 400 849 (2 000) (1 151) Settled derivatives, net 37 (34) 3 10 (159) (149) excluding embedded derivatives Taking into consideration the receivables due to open derivatives transactions entered into by the Company (excluding embedded derivatives) as at 31 December 2022 and net receivables 4 due to settled derivatives, the maximum single entity share of the amount exposed to credit risk arising from these transactions amounted to 17%, or PLN 260 million (as at 31 December 2021: 26%, or PLN 227 million). 3 Does not concern embedded derivatives in purchase contracts for metal-bearing materials. 4 The Company offsets receivables and liabilities due to settled derivatives, for which the future flows are known at the end of the reporting period, pursuant to the principles of net settlements of cash flows adopted in framework agreements with individual customers. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 67 In order to reduce cash flows and at the same time to limit credit risk, the Company carries out net settlements (based on standard framework agreements entered into with its customers, regulating the trade of financial instruments, meaning ISDA or based on a template of the Polish Bank Association). Moreover, the resulting credit risk is continuously monitored by reviewing the credit ratings and is limited by striving to diversify the portfolio while implementing hedging strategies. Despite the concentration of credit risk associated with derivatives’ transactions, the Company has determined that, due to its cooperation solely with renowned financial institutions, as well as continuous monitoring of their ratings, it is not materially exposed to credit risk as a result of transactions concluded with them. The following table presents the structure of ratings of the financial institutions with whom the Company had derivatives transactions, representing exposure to credit risk. Rating level As at 31 December 2022 As at 31 December 2021 Medium-high from A+ to A- according to S&P and Fitch, and from A1 to A3 according to Moody’s 84% 98% Medium from BBB+ to BBB- according to S&P and Fitch, and from Baa1 to Baa3 according to Moody’s 16% 2% Note 7.5.2.3 Credit risk related to trade receivables For many years, the Company has been cooperating with a large number of customers, which affects the geographical diversification of trade receivables. The majority of sales go to EU countries. Trade receivables (net) As at 31 December 2022 As at 31 December 2021 Poland 60% 73% European Union (excluding Poland) 15% 12% Asia 22% 13% Other countries 3% 2% Accounting policies The Company applies the simplified model of calculating the allowance for impairment of trade receivables (regardless of their maturity). The expected credit loss on trade receivables is calculated at the closest ending date of the reporting period following the recognition of a receivable in the statement of financial position and is updated at every subsequent reporting period ending date. In order to estimate the expected credit loss on trade receivables, the Company applies a provision matrix, made on the basis of historical levels of payment of trade receivables, which is periodically recalibrated in order to update it. Loss allowance for expected credit losses is measured at the amount equal to expected credit losses during the whole life of the receivabl es. The Company adopted an assumption that the receivable risk is characterised by the number of days of delay and this parameter determines the estimated PD, i.e. the probability of a delay in payment of trade receivables by at least 90 days. For the purpose of estimating PD, 5 risk groups have been selected based on the criteria of number of days of delays in payment, according to ranges presented below as “Important estimates and assumptions”. The Company defines default as being a failure by a customer to meet its liabilities after a period of 90 days from the due date. In order to estimate the loss allowance for expected credit losses, the Company takes into account also collaterals by allocating expected recovery rates to the particular types of collaterals. Moreover, the Company takes into account forward- looking information in the applied parameters of the model for estimating expected losses, by adjusting the base coefficients of default probability. This means that if as a result of analysis of macroeconomic data, such as for example: current GDP dynamics, inflation, unemployment rate, or WIG index, the Company recognises any deterioration in them in comparison to the previous period, in the ECL calculation the looking forward factor, which corrects the risk connected with any decrease in receivables recovery, is taken into account. Despite the growing inflation, alongside the favourable performance of among others the GDP, unemployment rate, and also forecasts of these indicators, the Company did not note any deterioration of macroeconomic factors as at the end of the reporting period, that is on 31 December 2022. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 68 The following table presents the change in trade receivables measured at amortised cost. 2022 2021 Gross amount as at 1 January 134 101 Change in the balance of receivables 32 33 Note 10.2 Gross amount as at 31 December 166 134 The following table presents the change in the estimation of expected credit losses on trade receivables measured at amortised cost. 2022 2021 Loss allowance for expected credit losses as at 1 January 1 10 Allowance utilised - (9) Note 10.2 Loss allowance for expected credit losses as at 31 December 1 1 The Company limits its exposure to credit risk related to trade receivables by evaluating and monitoring the financial condition of its customers, setting credit limits, requiring collateral and non-recourse factoring. The terms of factoring agreements entered into meet the criteria of removing receivables from the books at the moment of their purchase by the factor. As at 31 December 2022, the amount of receivables transferred to factoring, for which payment from factors was not received, amounted to PLN 4 million (as at 31 December 2021: PLN 17 million). Information on the amount of revenues from sales subjected to factoring in the financial period is presented in part 2. An inseparable element of the credit risk management process performed by the Company is the continuous monitoring of receivables and the internal reporting system. Buyer’s credit is only provided to proven customers. In the case of new customers, an effort is made to ensure that sales are based on prepayments or trade financing instruments which transfer the credit risk to financial institutions. The Company makes use of the following forms of collateral: • registered pledges, bank guarantees, promissory notes, notarial enforcement declarations, corporate guarantees, cessation of receivables, mortgages and documentary collection; • ownership rights to goods to be transferred to the buyer only after payment is received; • a receivables insurance contract, which covers receivables from entities with buyer’s credit which have not provided strong collateral or have provided collateral which does not cover the total amount of the receivables. Taking into account the aforementioned forms of collateral and the credit limits received from the insurance company, as at 31 December 2022 the Company had secured 76% of its trade receivables (as at 31 December 2021: 84%). The total net value of the Company’s trade receivables as at 31 December 2022, excluding the fair value of collaterals, up to the value of which the Company may be exposed to credit risk, amounts to PLN 620 million (as at 31 December 2021: PLN 600 million). The concentration of credit risk in the Company is related to the terms of payment allowed to key clients. Consequently, as at 31 December 2022 the balance of receivables from the Company’s 7 largest clients, in terms of trade receivables at the end of the reporting period, represented 64% of the balance of trade receivables (as at 31 December 2021: 69%). Despite the concentration of this type of risk, the Company believes that due to the available historical data and the many years of experience in cooperating with its clients, as well as to securities used, the level of credit risk is low. Important estimates and assumptions 31 December 2022 31 December 2021 Time frame Percent (allowance for impairment) Gross amount of receivables Allowance for impairment in individual time frames Gross amount of receivables Allowance for impairment in individual time frames Not overdue 0.69 69 (1) 77 (1) <1,30) 3 2 - 1 - <30,60) 30.42 1 - - - <60,90) 64.83 - - - - Default 100 - - - - Total 72 (1) 78 (1) in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 69 Note 7.5.2.4 Credit risk related to other financial assets As at 31 December 2022, the major items in other financial assets were: • cash accumulated in the special purpose Mine Closure Fund in the amount of PLN 358 million (as at 31 December 2021: PLN 384 million, including the bank account of the Tailings Storage Facility Restoration Fund); • receivables due to cash pooling in the amount of PLN 588 million (as at 31 December 2021: PLN 498 million). Credit risk in this regard is continuously monitored through the review of the financial standing and assets of the subsidiaries participating in the cash pooling. The account of the special purpose fund, used to accumulate cash in order to cover the costs of decommissioning of mines is managed by a bank with a medium-high rating (principles of credit risk management connected with allocation of cash in financial institutions are described in Note 7.5.2.1). Impairment losses on cash accumulated on the bank account of the Mine Closure Fund was determined based on an external bank rating. The analysis determined that these assets have a low credit risk at the reporting date. The Company used a simplification permitted by the standard and the impairment loss was determined on the basis of 12-month credit losses. The calculation of impairment determined that the amount of expected impairment loss is insignificant. Note 7.5.2.5 Credit risk related to loans granted Entities which were granted loans do not have ratings assigned to them by independent rating agencies. The following table presents a structure of ratings of entities which were granted loans by the Company, per the internal methodology of the Company: Rating level As at 31 December 2022 As at 31 December 2021 Medium-high from A+ to A- according to S&P and Fitch, and from A1 to A3 according to Moody’s 99% - Medium from BBB+ to BBB- according to S&P and Fitch, and from Baa1 to Baa3 according to Moody’s 1% 100% Loans granted measured at amortised cost The Company estimates expected credit losses related to loans granted measured at amortised cost in accordance with the general approach. Loans granted do not have collaterals limiting the exposure to credit risk, therefore the maximum amount exposed to loss due to credit risk is the gross amount of the loans, less expected credit losses recognised pursuant to IFRS 9. The following tables present the change in the gross amount of loans granted measured at amortised cost. Total Degree 1 Medium rating Degree 2 Medium rating POCI Medium rating Gross amount as at 1 January 2022 5 505 213 3 664 1 628 increase in the amount of loan (granting a loan) 22 22 - - repayment (776) (121) (466) (189) modification of terms to the agreement (21) - (21) - exchange differences 417 12 284 121 interest accrued using the effective interest rate 297 20 162 115 reversal of loss allowance recognised at the moment of initial recognition of a loan 162 - - 162 other changes (2) (1) (1) - Gross amount as at 31 December 2022 5 604 145 3 622 1 837 of which: PLN 742 million concerns the repayment of principal amount and PLN 34 million concerns the repayment of interest. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 70 Total Degree 1 Medium rating Degree 2 Medium rating POCI Medium rating Gross amount as at 1 January 2021 5 352 601 3 254 1 497 increase in the amount of loan (granting a loan) 20 20 - - repayment (1 178) (448) - (730) modification of terms to the agreement 2 2 - - exchange differences 357 9 260 88 interest accrued using the effective interest rate 295 29 150 116 reversal of loss allowance recognised at the moment of initial recognition of a loan 657 - - 657 Gross amount as at 31 December 2021 5 505 213 3 664 1 628 There were no transfers of loans between degrees of impairment in any of the presented reporting periods. The following tables present the change in the loss allowances for expected credit losses for loans measured at amortised cost. Total Degree 1 Degree 2 POCI Loss allowance for expected credit losses as at 1 January 2022 98 2 96 0 changes in risk parameters (50) - (50) - exchange differences 4 - 4 - Loss allowance for expected credit losses as at 31 December 2022 52 2 50 0 Total Degree 1 Degree 2 POCI Loss allowance for expected credit losses as at 1 January 2021 179 5 98 76 changes in risk parameters (94) (3) (10) (81) exchange differences 13 - 8 5 Loss allowance for expected credit losses as at 31 December 2021 98 2 96 0 Loans measured at amortised cost (Note 6.2) Carrying amount Degree 1 Degree 2 POCI As at 1 January 2021 5 173 596 3 156 1 421 As at 31 December 2021 / 1 January 2022 5 407 211 3 568 1 628 As at 31 December 2022 5 552 143 3 572 1 837 In 2022 and 2021 no loans were reclassified to degree 3 of the measurement. For loans measured at amortised cost (excluding POCI), interest is accrued on the gross value using the IRR rate set at the moment of initial recognition of the loan. For POCI loans, interest is accrued on the gross value less any allowance for impairment recognised at the moment of initial recognition, an IRR rate adjusted by credit risk defined at the moment of the loan’s initial recognition (CEIR, credit-adjusted effective interest rate). in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 71 Loans granted measured at fair value The carrying amount of loans measured at fair value as at 31 December 2022 amounted to PLN 3 233 million. As at 31 December 2021, the carrying amount was PLN 2 959 million. More disclosures on the fair value measurement were presented in Note 7.1. The loans granted do not have collaterals limiting exposure to credit risk, therefore the Company estimates the maximum, potential losses due to credit risk in the amount of 100% of their current fair value, i.e. USD 734 million (PLN 3 233 million), of which the amount of USD 634 million is due to the nominal value of loans granted. The following table presents changes in the carrying amount of loans granted measured at fair value during the period. 2022 2021 Carrying amount as at 1 January 2 959 2 477 Loan repaid (324) (547) Note 4.2 Fair value gains 601 1 056 Note 4.2 Fair value losses - (9) Loss on realisation of instruments (2) (18) Other changes (1) - Carrying amount as at 31 December 3 233 2 959 Sensitivity analysis of the fair value of loans due to the change in forecasted cash flows of Sierra Gorda As at 31 December 2022 and in the comparable period, the Company classified the measurement to fair value of loans granted to level 3 of the fair value hierarchy because of the utilisation in the measurement of a significant unmeasurable parameter, begin the forecasted cash flows of Sierra Gorda S.C.M. More disclosures on the main assumptions (including unobservable input data) assumed for the calculation of cash flows of Sierra Gorda were presented in the consolidated financial statements in Note 7.5.2.4. Because of the significant sensitivity of the forecasted cash flows of Sierra Gorda S.C.M. to changes in the copper price, pursuant to IFRS 13 para. 93.f the Company performed a sensitivity analysis of the fair value (level 3) of loans to changes in copper prices. Copper price [USD/t] Scenarios 31 December 2022 2023 2024 2025 2026 2027 LT Base 8 200 8 500 8 500 8 500 8 500 7 700 Base minus 0.1 [USD/lb] 7 980 8 280 8 280 8 280 8 280 7 480 Base plus 0.1 [USD/lb] 8 420 8 720 8 720 8 720 8 720 7 920 Scenarios 31 December 2021 2022 2023 2024 2025 2026 LT Base 8 500 8 000 7 500 7 500 7 500 7 000 Base minus 0.1 [USD/lb] 8 280 7 780 7 280 7 280 7 280 6 780 Base plus 0.1 [USD/lb] 8 720 8 220 7 720 7 720 7 720 7 220 Fair value Carrying amount 31 December 2022 [PLN million] Fair value Fair value Carrying amount 31 December 2021 [PLN million] Fair value Classes of financial instruments [PLN million] Base plus 0.1 [USD/lb] Base minus 0.1 [USD/lb] [PLN million] Base plus 0.1 [USD/lb] Base minus 0.1 [USD/lb] Loans granted measured at fair value 3 233 3 233 3 475 2 912 2 959 2 959 3 239 2 753 Loans granted measured at amortised cost 5 090 5 408 5 140 5 030 5 340 5 176 5 375 5 290 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 72 Concentration risk The Company estimates the concentration risk to be at the level of 100%, since receivables due to loans granted are intra- group loans (Note 12.1), and 97% of the balance are loans granted to subsidiaries Future 1 Sp. z o.o., Quadra FNX FFI s.a.r.l and Quadra FNX Holding Chile Limitada, and the majority of which was transferred to finance the joint venture Sierra Gorda; 2% of the balance are loans granted to KGHM INTERNATIONAL LTD., and 1% of the balance are loans granted to companies in Poland. Detailed information on the loan granting transactions are presented in Note 6.2. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 73 PART 8 – Borrowings and the management of liquidity and capital Note 8.1 Capital management policy Capital management in the Company is aimed at securing funds for business development and maintaining the appropriate level of liquidity. The Company monitors the Group’s level of financial security, among others using the Net Debt/EBITDA ratio presented in the table below, which was calculated on the basis of data presented in the Consolidated financial statements of the KGHM Group. Ratios Calculations 31 December 2022 31 December 2021 Net Debt/EBITDA relation of net debt to adjusted EBITDA 0.8 0.6 Net Debt borrowings, debt securities and lease liabilities less free cash and its equivalents 5 264 4 069 Adjusted EBITDA profit on sales plus depreciation/amortisation recognised in profit or loss and impairment losses on non-current assets 6 675 7 131 Net debt does not include reverse factoring liabilities and cash pooling liabilities in connection with the utilisation of resources under the system by KGHM Polska Miedź S.A. ** Adjusted EBITDA for the period of 12 months ended on the last day of the reporting period, excluding EBITDA of the joint venture Sierra Gorda S.C.M. In the process of managing liquidity and capital, the Group also pays attention to adjusted operating profit, calculated on the basis of data from the Consolidated financial statements of the KGHM Polska Miedź S.A. Group, which is the basis for calculating the financial covenant and which is comprised of the following items: from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Profit on sales 4 344 4 710 Interest income on loans granted to a joint venture 582 494 Other operating income and costs 962 726 Adjusted operating profit 5 888 5 930 Presented amount does not include gains on reversal of allowances for impairment of loans granted to a joint venture. As at the reporting date, in the financial period and after the reporting date, up to the date of publication of these financial statements, the value of a financial covenant subject to the obligation to report as at 30 June 2022 and 31 December 2022, met the conditions stipulated in the credit agreements. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 74 Note 8.2 Equity Accounting policies Share capital is recognised at nominal value. Other reserves from the measurement of financial instruments arise from the measurement of cash flow hedging instruments (Note 7.2, Accounting policies) and the measurement of financial assets measured at fair value through other comprehensive income (Note 7.3, Accounting policies) less any deferred tax effect. Accumulated other comprehensive income consists of actuarial gains/losses on post-employment benefits less any deferred tax effect (Part 11, Accounting policies). Retained earnings are the sum of profit for the current year and accumulated profits from previous years, which has not been paid out as dividends, but increased the reserve capital or was not distributed. Note 8.2.1 Share capital As at 31 December 2022 and at the date of signing of these financial statements, the Company’s share capital, in accordance with the entry in the National Court Register, amounted to PLN 2 000 million and was divided into 200 000 000 shares, series A, fully paid, each having a face value of PLN 10. All of the shares are bearer shares. The Company has not issued preference shares. Each share grants the right to one vote at the general meeting. The Company does not have treasury shares. In the reporting and in the comparable periods, there were no changes in either registered share capital or in the number of issued shares. Additionally, in 2022 and 2021, there were no changes in the ownership of significant blocks of shares of KGHM Polska Miedź S.A. The Company’s shareholder structure as at 31 December 2022, established on the basis of notifications received by the Company pursuant to art. 69 of the Act on public offerings and conditions governing the introduction of financial instruments to organised trading, and on public companies, is shown in the following table: shareholder number of shares/votes total nominal value of shares (PLN) percentage held in share capital/total number of votes State Treasury 63 589 900 635 899 000 31.79% Nationale-Nederlanden Otwarty Fundusz Emerytalny 10 104 354 101 043 540 5.05% Aviva Otwarty Fundusz Emerytalny Aviva Santander 10 039 684 100 396 840 5.02% Other shareholders 116 266 062 1 162 660 620 58.14% Total 200 000 000 2 000 000 000 100.00% On 5 January 2023 the Company was informed of the merger of the companies Powszechne Towarzystwo Emerytalne Allianz Polska Spółka Akcyjna (PTE Allianz Polska S.A.) and Aviva Powszechne Towarzystwo Emerytalne Aviva Santander Spółka Akcyjna. As a result of the merger, the total number of shares of KGHM Polska Miedź S.A. recorded on the accounts of the funds managed by PTE Allianz Polska S.A.: Allianz Otwarty Fundusz Emerytalny, Allianz Polska Dobrowolny Fundusz Emerytalny and Drugi Allianz Polska Otwarty Fundusz Emerytalny amounted to 12 241 453, representing 6.12% of the Company’s share capital. The Company’s shareholder structure as at the date of signing of these financial statements is presented in the following table: shareholder number of shares/votes total nominal value of shares (PLN) percentage held in share capital/total number of votes State Treasury 63 589 900 635 899 000 31.79% Powszechne Towarzystwo Emerytalne Allianz Polska Spółka Akcyjna 12 241 453 122 414 530 6.12% Nationale-Nederlanden Otwarty Fundusz Emerytalny 10 104 354 101 043 540 5.05% Other shareholders 114 064 293 1 140 642 930 57.04% Total 200 000 000 2 000 000 000 100.00% Total number of shares recorded on the accounts of funds managed by Powszechne Towarzystwo Emerytalne Allianz Polska Spółka Akcyjna: Allianz Otwarty Fundusz Emerytalny, Allianz Polska Dobrowolny Fundusz Emerytalny and Drugi Allianz Polska Otwarty Fundusz Emerytalny in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 75 Note 8.2.2 Changes of other equity items in the period Other reserves from measurement of financial instruments Retained earnings Investments in equity instruments measured at fair value through other comprehensive income Other reserves from measurement of cash flow hedging financial instruments Total other reserves from measurement of financial instruments Accumulated other comprehensive income Reserve capital created in accordance with the Commercial Partnerships and Companies Code, art. 396 Reserve capital created from profit in accordance with the Company’s Statutes Profit/(loss) from previous years As at 1 January 2021 ( 392) ( 998) (1 390) ( 872) 667 18 085 2 236 Dividend paid - - - - - - ( 300) Transfer of profit for the period to reserve capital - - - - - 1 479 (1 479) Reclassification of the result of disposal of equity instruments measured at fair value through other comprehensive income - - - - - - ( 18) Total comprehensive income, of which: 17 ( 297) ( 280) 543 - - 5 169 Profit for the period - - - - - - 5 169 Other comprehensive income 17 ( 297) ( 280) 543 - - - Reclassification of the result of disposal of equity instruments measured at fair value through other comprehensive income 18 - 18 - - - - Loss on the sale of equity instruments ( 1) - ( 1) - - - - Note 7.2 Impact of effective cash flow hedging transactions entered into - (2 431) (2 431) - - - - Note 7.2 Amount transferred to profit or loss in connection with realisation of derivatives - 2 064 2 064 - - - - Note 11.2 Actuarial gains on post-employment benefits - - - 670 - - - Note 5.1.1 Deferred income tax - 70 70 ( 127) - - - As at 31 December 2021 ( 375) (1 295) (1 670) ( 329) 667 19 564 5 608 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 76 Other reserves from measurement of financial instruments Retained earnings Investments in equity instruments measured at fair value through other comprehensive income Other reserves from measurement of cash flow hedging financial instruments Total other reserves from measurement of financial instruments Accumulated other comprehensive income Reserve capital created in accordance with the Commercial Partnerships and Com panies Code, art. 396 Reserve capital created from profit in accordance with the Company’s Statutes Profit/(loss) from previous years As at 1 January 2022 ( 375) (1 295) (1 670) ( 329) 667 19 564 5 608 Dividend paid - - - - - - ( 600) Transfer of profit for the period to reserve capital - - - - - 4 569 (4 569) Total comprehensive income, of which: ( 79) 1 354 1 275 ( 373) - - 3 533 Profit for the period - - - - - - 3 533 Other comprehensive income ( 79) 1 354 1 275 ( 373) - - - Change in fair value of investments in equity instruments ( 97) - ( 97) - - - - Note 7.2 Impact of effective cash flow hedging transactions entered into - 1 239 1 239 - - - - Note 7.2 Amount transferred to profit or loss in connection with realisation of derivatives - 432 432 - - - - Note 11.2 Actuarial losses on post-employment benefits - - - ( 460) - - - Note 5.1.1 Deferred income tax 18 ( 317) ( 299) 87 - - - As at 31 December 2022 ( 454) 59 ( 395) ( 702) 667 24 133 3 972 *Based on the Act of 15 September 2000, i.e. the Commercial Partnerships and Companies Code, the Company is required to create reserve capital for any potential (future) or existing losses, to which no less than 8% of a given year’s profit is transferred until the reserve capital has been built up to no less than one-third of the registered share capital. The reserve capital created in this manner may not be employed otherwise than in covering the loss reported in the financial statements. As at 31 December 2022 the statutory reserve capital in the Company amounted to PLN 667 million, and is recognised in retained earnings in the item reserve capital created in accordance with art. 396 of the Commercial Partnerships and Companies Code. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 77 Information related to dividends paid may be found in Note 12.2. Note 8.3 Liquidity management policy The Management Board is responsible for the management of financial liquidity in the Company, and it is performed based on the approved, appropriate Policy. The Financial Liquidity Committee is a body supporting the Management Board. The basic principles resulting from the Financial Liquidity Management Policy are: • assuring the stable and effective financing of the Company’s activities, • investment of financial surpluses in safe financial instruments, • limits for individual financial investment categories, • limits for the concentration of funds in financial institutions, • a required investment level rating for banks in which the funds are deposited, and • effective management of working capital. Under the liquidity management process, the Company utilises instruments which enhance its effectiveness. One of the instruments used by the Company to deal with on-going operating activities is cash pooling - locally in PLN, USD and EUR and internationally in USD and CAD. The Cash Pooling service is aimed at optimising the management of cash resources, limiting interest costs, the effective financing of current working capital needs and the support of short-term financial liquidity in the Group. In 2022 the cash pooling system was modified in order to optimise the process of exchanging currencies by the domestic companies of the KGHM Polska Miedź S.A. Group. The modification of these services introduced the daily and automatic consolidation of the currency liquidity of the domestic companies of the KGHM Polska Miedź S.A. Group at the level of the Company. Consolidation is performed through the daily (automatic) conversion into PLN of the positive and negative balances in EUR and USD on the accounts of the companies participating in the cash pooling system. In order to support current liquidity and to optimise these services, the Company entered into an overdraft facility agreement with the bank in which the cash pooling system operates in the amount of PLN 200 million with availability to 15 May 2023 and the possibility of utilisation in the following currencies: PLN, USD and EUR. In 2022, as part of the management of the special purpose fund called Tailings Storage Facility Restoration Fund, created in July 2013 in accordance with article 137 of the Act dated 14 December 2012 on waste, the Company altered the form of securing the fund, from cash-based to being based on bank guarantees (non-cash), in order to free up the cash accumulated in this fund and to reduce the costs of its servicing. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 78 Note 8.3.1 Contractual maturities for financial liabilities Financial liabilities – as at 31 December 2022 Contractual maturities from the end of the reporting period Maturity period Total (without discounting) Carrying amount Financial liabilities up to 3 months over 3 to 12 months over 1 to 3 years over 3 years Borrowings 776 327 840 1 706 3 649 3 435 Debt securities liabilities - 174 699 2 093 2 966 2 002 Lease liabilities 22 58 156 1 160 1 396 687 Cash pooling payables 321 - - - 321 321 Other liabilities due to settlement under cash pooling contracts 29 - - - 29 29 Trade payables 2 801 4 26 344 3 175 3 005 Derivatives – currency contracts - 2 1 - 3 146 Derivatives – commodity contracts – metals 13 26 1 - 40 395 Derivatives – interest rates - - 28 348 376 569 Embedded derivatives 43 - - - 43 43 Other financial liabilities 108 35 35 6 184 179 Total 4 113 626 1 786 5 657 12 182 10 811 Financial liabilities arising from derivatives are calculated at their intrinsic values excluding the discount effect. ** Liabilities of KGHM Polska Miedź S.A. towards the Group companies within the cash pooling’s credit limit. *** Other current financial liabilities due to the return of cash deposits towards all participants in cash pooling which presented a positive balance at the end of the reporting period. Overdue financial liabilities as at 31 December 2022 Overdue period up to 1 month over 1 month to 3 months over 3 months to 12 months over 1 year Total / Carrying amount Trade payables 1 - 8 4 13 The tables above regarding maturities do not include financial guarantees in the amount of PLN 969 million, which are due if there is a breach in contractual terms by parties to which the guarantees were granted and toward which the Company cannot postpone payments, that is they must be paid on demand within 3 months. Details on financial guarantees and their maturity dates were described in Note 8.6. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 79 Financial liabilities – as at 31 December 2021 Contractual maturities from the end of the reporting period Maturity period Total (without discounting) Carrying amount Financial liabilities up to 3 months over 3 to 12 months over 1 to 3 years over 3 years Borrowings 93 316 1 410 1 469 3 288 2 980 Debt securities liabilities - 84 561 1 910 2 555 2 001 Lease liabilities 20 48 126 1 082 1 276 580 Cash pooling payables 360 - - - 360 360 Other liabilities due to settlement under cash pooling contracts 25 - - - 25 25 Trade payables 2 504 13 25 353 2 895 2 745 Similar payables – reverse factoring 2 53 - - 55 55 Derivatives – currency contracts - - - - - 55 Derivatives – commodity contracts – metals 144 611 313 - 1 068 1 514 Derivatives – interest rates - - 20 294 314 431 Embedded derivatives 21 - - - 21 21 Other financial liabilities 234 11 10 10 265 264 Total 3 403 1 136 2 465 5 118 12 122 11 031 Financial liabilities arising from derivatives are calculated at their intrinsic values excluding the discount effect. ** Liabilities of KGHM Polska Miedź S.A. towards the Group companies within the cash pooling’s credit limit. *** Other current financial liabilities due to the return of cash deposits towards all participants in cash pooling which presented a positive balance at the end of the reporting period. Overdue financial liabilities – as at 31 December 2021 Overdue period up to 1 month over 1 month to 3 months over 3 months to 12 months over 1 year Total / Carrying amount Trade payables 21 8 7 6 42 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 80 Note 8.4 Borrowings Accounting policies Liabilities arising from borrowings are initially recognised at fair value, less (in the case of payment) or plus (in the case of accrual) transaction costs which are an integral part of the financing drawn, and are measured at amortised cost at the reporting date using the effective interest rate method. Accrued interest is recognised in finance costs, unless it is capitalised through property, plant and equipment or intangible assets. Note 8.4.1 Net debt As at 31 December 2022 As at 31 December 2021 Bank loans 528 596 Loans 1 859 2 060 Debt securities 2 000 2 000 Leases 613 524 Total non-current liabilities due to borrowings 5 000 5 180 Bank loans* 666 ( 3) Loans 382 327 Cash pooling liabilities 321 360 Debt securities 2 1 Leases 74 57 Total current liabilities due to borrowings 1 445 742 Total borrowings 6 445 5 922 Free cash and cash equivalents 971 1 318 Net debt 5 474 4 604 * In 2021 presented amounts include the preparation fee paid in the amount PLN 13 million which decreases financial liabilities due to bank loans. ** In 2021 presented amounts include the preparation fee paid in the amount PLN 3 million which decreases financial liabilities due to bank loans. *** Liabilities of KGHM Polska Miedź S.A. towards the Group companies within the credit limit in the group of accounts participating in the cash pooling system Liabilities due to borrowings, debt securities and leases – breakdown by currency (translated into PLN) and by type of interest rate As at 31 December 2022 As at 31 December 2021 USD/LIBOR 528 ( 16) EUR/EURIBOR - 60 PLN/WIBOR 2 323 2 301 USD/fixed 2 907 2 996 EUR/fixed 15 14 PLN/fixed 672 567 Total 6 445 5 922 * The amount includes KGHM Polska Miedź S.A.’s liabilities towards Group companies due to cash pooling in the amount of PLN 321 million (PLN 300 million in 2021) within the credit limit. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 81 As at 31 December 2022, the Company’s liabilities due to borrowing, issued debt securities, leases and cash pooling amounted to PLN 6 445 million, or USD 780 million, PLN 2 995 million and EUR 3 million (as at 31 December 2021 liabilities amounted to PLN 5 922 million, or USD 734 million, PLN 2 868 million and EUR 16 million). The structure of debt changed in comparison to 2021 in terms of an increase in current liabilities, which are affected by the current and scheduled repayments of principals of bank and other loans drawn. Apart from this, and pursuant to the adopted strategy, borrowing is aimed at ensuring long term financial stability whose structure is based on diversified and long term financing sources. Note 8.4.2 Net debt changes As at 1 January 2022 Cash flows Accrued interest Exchange differences Other changes As at 31 December 2022 Liabilities due to borrowing Bank loans 593 550 63 ( 25) 13 1 194 Loans 2 387 ( 425) 73 206 - 2 241 Debt securities 2 001 ( 130) 131 - - 2 002 Leases 581 ( 71) 28 - 149 687 Cash pooling liabilities 360 ( 44) 5 - - 321 Total debt 5 922 ( 120) 300 181 162 6 445 Free cash and cash equivalents 1 318 ( 347) - - - 971 Net debt 4 604 226 300 181 162 5 473 A conclusion and modification of lease agreements. Liabilities due to borrowing As at 1 January 2021 Cash flows Accrued interest Exchange differences Other changes As at 31 December 2021 Bank loans 1 860 (1 476) 59 150 - 593 Loans 2 461 ( 339) 74 191 - 2 387 Debt securities 2 000 ( 36) 37 - - 2 001 Leases 510 ( 76) 25 - 122 581 Cash pooling liabilities 284 76 - - - 360 Total debt 7 115 (1 851) 195 341 122 5 922 Free cash and cash equivalents 2 120 ( 802) - - - 1 318 Net debt 4 995 (1 049) 195 341 122 4 604 A conclusion and modification of lease agreements. Currency risk and interest rate risk are related to borrowings. A description of exposures to financial risks may be found in Note 7.5. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 82 Reconciliation of cash flows recognised in net debt change to the statement of cash flows from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Financing activities Proceeds from borrowings 605 205 Proceeds from/(Expenditures on) cash pooling ( 40) 76 Repayment of borrowings ( 352) (1 889) Repayment of lease liabilities ( 44) ( 51) Repayment of interest on borrowings and debt securities ( 107) ( 72) Repayment of interest on leases ( 9) ( 8) Investing activities Paid capitalised interest on borrowings ( 173) ( 112) TOTAL ( 120) (1 851) Note 8.4.3 Detailed information concerning the main sources of borrowings As at 31 December 2022, the Company had open credit lines, investment loans and debt securities with a total balance of available financing in the amount of PLN 15 136 million, out of which PLN 5 437 million had been drawn (as at 31 December 2021 the Company had open credit lines, investment loans and debt securities with a total balance of available financing in the amount of PLN 14 191 million, out of which PLN 4 997 million had been drawn). The structure of financing sources is presented below. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 83 Unsecured, revolving syndicated credit facility A credit facility in the amount of USD 1 500 million (PLN 6 603 million), obtained on the basis of a financing agreement concluded with a syndicate of banks in 2019 with a maturity of 20 December 2024 and an option to extend it by a further 2 years (5+1+1). In the years 2020- 2021 the Company received consent from Syndicate Members to extend the term of the agreement by 2 years in total, i.e. to 20 December 2026. The limit of available financing during the extension period will amount to USD 1 438 million (PLN 6 330 million). The funds acquired through this credit facility are used to finance general corporate purposes. Interest is based on LIBOR plus a bank margin, depending on the net debt/EBITDA ratio. The credit facility agreement obliges the Company to comply with the financial covenant and non- financial covenants. Financing parameters meet the standard conditions of these types of transactions. Pursuant to contractual terms and conditions, the Company is obliged to report the level of financial covenant for the reporting periods, i.e. as at 30 June and as at 31 December. The Company continuously monitors the risk of exceeding the levels of the financial covenant stipulated in the credit facility agreement. As at the reporting date, during the financial y ear and after the reporting date, up to the publication of this Report, the value of the financial covenant resulting in the obligation to report as at 30 June 2022 and as at 31 December 2022, complied with the provisions of the agreement. In 2022, the Company altered the judgement regarding the recognition of a preparatory fee and determined that the preparatory fee paid due to the signing of a borrowing agreement in the form of a revolving credit facility represents a payment benefitting the Company by gaining access to financing under terms set and accepted by the Company, and not a cost of financial liabilities incurred under this agreement. Therefore , the unamortised amount of the preparatory fee was recognised as an asset and was reclassified in the statement of financial position under accruals (respectively short- and long-term) and continues to be settled on a straight-line basis in the financial result for the period to the end of the life of the revolving syndicated credit facility agreement. 2022 2022 2021 Amount granted Amount of the liability Amount of the liability 6 603 528 - Preparatory fee - (14) Carrying amount of liabilities due to bank loans 528 (14) Investment loans Loans granted by the European Investment Bank in the total amount of PLN 3 340 million. 1. Investment loan in the amount of PLN 2 000 million, with three instalments drawn and the payback periods expiring on 30 October 2026, 30 August 2028 and 23 May 2029 and utilised to the maximum available amount. The funds acquired through this loan were used to finance Company investment projects related to modernisation of metallurgy and development of the Żelazny Most tailings storage facility. The loan’s instalments have a fixed interest rate. 2. Investment loan in the amount of PLN 1 340 million granted by the European Investment Bank in December 2017 with a financing period of 12 years. The Company has drawn three instalments under this loan with the payback periods expiring on 28 Ju ne 2030, 23 April 2031 and 11 September 2031. The unutilised part of the loan in the amount of PLN 440 million, by which the amount of financing granted to the Parent Entity was increased in June 2021, is available until April 2023. The funds acquired thro ugh this loan are used to finance the Company’s projects related to development and replacement at various stages of the production process. The loan’s instalments have a fixed interest rate. The loan agreements oblige the Company to comply with the financial covenant and non- financial covenants commonly stipulated in such types of agreements. Pursuant to contractual terms and conditions, the Company is obliged to report the level of the financial covenant for the reporting periods, i.e. as at 30 June and a s at 31 December. The Company continuously monitors the risk of exceeding the levels of the financial covenant stipulated in the loan agreements. As at the reporting date, during the financial year, and after the reporting date, up to the publication of this Report, the value of the financial covenant resulting in the obligation to report as at 30 June 2022 and as at 31 December 2022, complied with the provisions of the loan agreements. 2022 2022 2021 Amount granted Amount of the liability Amount of the liability 3 340 2 241 2 387 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 84 Other bank loans Bank loans in the total amount of PLN 3 193 million are used for financing working capital and supporting the management of current financial liquidity. The Company holds lines of credit in the form of credit agreements. These are working capital facilities and credit accounts with availability of up to 4 years. The funds under open lines of credit are available in USD, EUR and PLN with interest based on a fixed interest rate or variable LIBOR, EURIBOR and WIBOR plus a margin. 2022 2022 2021 Amount granted Amount of the liability Amount of the liability 3 193 666 609 Preparatory fee - (2) Carrying amount of liabilities due to bank loans 666 607 Debt securities A bond issue program was established on the Polish market by an issue agreement on 27 May 2019. The issue with a nominal value of PLN 2 000 million, under which bonds were issued with a maturity of 5 years in the amount of PLN 400 million and a redemption date of 27 June 2024 as well as bonds with a maturity of 10 years in the amount of PLN 1 600 million and a redemption date of 27 June 2029. The nominal value of one bond is PLN 1 000, and the issue price is equal to the nominal value. The bonds’ interest rate is based on variable WIBOR plus a margin. The funds from the issue of the bonds are used to finance general corporate purposes. 2022 2022 2021 Nominal value of the issue Amount of the liability Amount of the liability 2 000 2 002 2 001 Total bank and other loans, debt securities 5 437 4 997 Preparation fee which decreases liabilities due to bank loans - (16) Carrying amount of liabilities due to bank and other loans, debt securities 5 437 4 981 The aforementioned sources ensure the availability of external financing in the amount of PLN 15 136 million. The funds available for use from these sources cover the liquidity needs of the Company and the Group. The syndicated credit in the amount of USD 1 500 million (PLN 6 603 million), the investment loans in the amount of PLN 3 340 million, and other bank loans in the amount of PLN 3 193 million, are unsecured. Note 8.5 Cash and cash equivalents Accounting policies Cash and cash equivalents include mainly cash in bank accounts and deposits with maturities of up to three months from the date of their placement (the same applies to the statement of cash flows). Cash is measured at its nominal amount plus interest, including a loss allowance for expected credit losses (Note 7.5.2.1). in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 85 As at 31 December 2022 As at 31 December 2021 Cash in bank accounts 418 593 Other financial assets with a maturity of up to 3 months from the date of acquisition – deposits 567 739 Total cash and cash equivalents 985 1 332 Restricted cash 14 14 Free cash and cash equivalents 971 1 318 As at 31 December 2022, the Company had cash in bank deposits in the amount of PLN 25 million (as at 31 December 2021 PLN 7 million), which are funds in separate VAT accounts, designated for servicing split payments. These funds are gradually used to pay the VAT payables to suppliers. Note 8.6 Liabilities due to guarantees granted Guarantees and letters of credit are an essential financial liquidity management tool of the Group. Accounting policies The Company issued guarantees which meet the definition of contingent liabilities pursuant to IAS 37 and recognises them in contingent liabilities, and guarantees which meet the definition of financial guarantees under IFRS 9, and which are measured and recognised as financial instruments pursuant to this standard. The financial guarantee agreement is an agreement obliging its Issuer to make certain payments compensating the holder of the guarantee for the loss they will incur due to a debtor’s failure to pay on the due date, pursuant to the initial or amended terms of a debt instrument. At the moment of initial recognition, the Company recognises the financial guarantee at its fair value, in the following items of the statement of financial position: • financial assets measured at amortised cost (other financial assets), • other liabilities (deferred income). The liability due to the financial guarantee granted as at the end of the reporting period is recognised at the higher of two amounts: the initial value of the issued guarantee less the amount of profits recognised in profit or loss on guarantees, or the amount of an allowance for expected credit losses – set pursuant to the principles of the general model, described in accounting policies in Note 7.5.2. Important estimates and assumptions For the calculation of expected credit loss, the Company adopts estimates for the rating, PD (probability of default) and LGD parameters (loss given default) similarly as for the loans granted (Note 6.2). Calculation of the expected credit losses takes place in the horizon remaining to the end of the guarantee, while the rating of a guarantee’s beneficiary is adopted as the rating of the entity used for the purposes of calculating the PD parameter. As at 31 December 2022, the Company held liabilities due to guarantees granted in the total amount of PLN 1 609 million. The most significant items secure the following obligations: Sierra Gorda S.C.M. – securing the performance of concluded agreements in the amount of PLN 969 million (as at 31 December 2021, PLN 670 million): • PLN 969 million (USD 220 million) - a corporate guarantee (financial) securing repayment of a Revolving Credit Facility, with maturity of the guarantee to September 2024. The recognised balance sheet valuation of the liability due to the financial guarantee granted amounts to PLN 57 million (as at 31 December 2021: PLN 58 million), other entities: • PLN 126 million - securing the proper execution by the Company of future environmental obligations related to the obligation to restore terrain, following the conclusion of operations of the Żelazny Most tailings storage facility (as at 31 December 2021 in the amount of PLN 124 million), the guarantee is valid for up to 1 year, • PLN 461 million (USD 90 million, CAD 18 million) - securing the restoration costs of the Robinson mine, the Podolsky mine and the Victoria project (as at 31 December 2021 in the amount of PLN 402 million, or USD 90 million, CAD 12 million), the guarantee is valid for up to 1 year, • PLN 14 million - securing claims on behalf of Marshal of the Voivodeship of Lower Silesia to cover costs related to collecting and processing waste, the guarantee is valid to 6 March 2023, • PLN 2 million - securing obligations related to tax and customs duties, the guarantee is valid indefinitely, • PLN 7 million (PLN 2 million and CAD 2 million) - securing the obligations related to proper execution of agreements concluded by KGHM Polska Miedź S.A. and Group companies (as at 31 December 2021 in the amount of PLN 10 million, or PLN 3 million and CAD 2 million), the guarantee is valid for up to 3 years, in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 86 • PLN 30 million - securing the obligations drawn by Brokerage House due to settlements of transactions on the markets run by Towarowa Giełda Energii S.A, the guarantee was valid until 31 December 2022. Based on the knowledge held, at the end of the reporting period the Company assessed the probability of payments resulting from contingent liabilities as low. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 87 PART 9 – Non-current assets and related liabilities Note 9.1 Mining and metallurgical property, plant and equipment and intangible assets Accounting policies – property, plant and equipment The most important property, plant and equipment of the Company is property, plant and equipment related to the mining and metallurgical operations, comprised of land, buildings, water and civil engineering structures, such as: primary mine tunnels (including shafts, wells, galleries, drifts, primary chambers), backfilling, drainage and firefighting pipelines, piezometric holes and electricity, signal and optical fibre cables. Machines, technical equipment, motor vehicles and other movable fixed assets, as well as right-to-use assets recognised in accordance with IFRS 16 Leases, including perpetual usufruct rights to land, are also included in mining and metallurgical property, plant and equipment. Property, plant and equipment, excluding usufruct right-to-use assets, are recognised at cost less accumulated depreciation and accumulated impairment losses. In the initial cost of items of property, plant and equipment the Company includes discounted decommissioning costs of fixed assets related to mining and other facilities which, in accordance with binding laws, will be incurred following the conclusion of activities. Principles of recognition and measurement of decommissioning costs are presented in Note 9.4. An asset’s carrying amount includes costs of significant components, regular major overhauls and significant periodic repairs, the performance of which determines further use of the asset. Costs are increased by borrowing costs (i.e. interest, exchange differences and fees representing an adjustment to interest cost) that were incurred for the purchase or construction of a qualifying item of property, plant and equipment. Right-to-use assets are initially measured at cost, which comprises the initial lease liability and all lease payments paid on the date the lease began and before that date, less any lease incentives received, any initial direct costs incurred by the lessee and an estimate of costs which will be incurred by the lessee due to the disassembly or removal of a base asset or renovation of the site in which it was placed. The perpetual usufruct right to land is measured at the amount of the liability on the perpetual usufruct right to land, which is measured using the perpetual rent method and all lease payments paid on the date the lease began or before that date (including payments for acquisition of this right on the market). After the initial recognition, a right-to-use asset, excluding the perpetual usufruct right to land measured using the perpetual rent method, is measured at cost decreased by accumulated depreciation/amortisation and accumulated impairment losses, adjusted by the updated measurement of lease liabilities. Items of property, plant and equipment (excluding land and perpetual usufruct rights to land) are depreciated by the Company, pursuant to the model of consuming the economic benefits from the given item of property, plant and equipment: • using the straight-line method, for items which are used in production at an equal level throughout the period of their usage, • using the units of production method, for items in respect of which the consumption of economic benefits is directly related to the quantity of units produced, and this production is not spread evenly through the period of their usage. In particular it relates to machines and mining equipment in gas-steam blocks. The useful lives, and therefore the depreciation rates of fixed assets used in the production of copper, are adapted to the plans for the closure of operations, and in the case of right-to-use assets to the earlier of these two dates – either to the useful life end date or to the lease end date, unless the ownership of an asset is transferred to the Company before the end of the lease, in which case depreciation rates are adjusted to the estimated useful life end date. For individual groups of fixed assets, the following useful lives have been adopted, estimated based on the anticipated useful lives of mines and metallurgical plants: For own fixed assets: in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 88 Group Fixed assets type Total useful lives Buildings and land Land Not subject to depreciation Buildings: - buildings in mines and metallurgical plants, - sheds, reservoirs, container switchgears 40-100 years 20-30 years Primary mine tunnels 22-90 years Pipelines: - backfilling to transfer sand with water, - technological, drainage, gas and firefighting 6-9 years 22-90 years Electricity, signal and optical fibre cables 10-70 years Technical equipment, machines, motor vehicles and other fixed assets Technical equipment and machines: - mining vehicles, mining roof support - conveyor belts, belt weigher - switchboards, switchgears 4-10 years 10-66 years 4-50 years Motor vehicles: - underground electric locomotives, - mining vehicles, railway vehicles, tankers, transportation platforms - trolleys, forklift, battery-electric truck - cars, trucks, special vehicles - underground diesel locomotives 20-50 years 7-35 years 7-22 years 5-22 years 10-20 years Other fixed assets, including tools and equipment 5-25 years For right-to-use fixed assets: Group Type of right-to-use Total period of use Buildings and land Perpetual usufruct right to land measured using the perpetual rent method Not subject to depreciation Transmission easements 6-54 years (period of depreciation depends on the period of depreciation of an asset in respect of which a transmission easement was established) Land 5-30 years Buildings – warehouses 22 years Other buildings 3-5 years Structures 3 years Computer sets 3 years Technical equipment, machines, motor vehicles and other fixed asset Machines and technical equipment 3-4 years Motor vehicles 3 years Equipment and other 5 years The Company performs regular reviews of its property, plant and equipment in terms of the adequacy of applied useful lives to current operating conditions. The individual significant parts of a fixed asset (significant components), whose useful lives are different from the useful life of the given fixed asset as a whole are depreciated separately, applying a depreciation rates which reflects its anticipated useful life. Non-financial assets are tested for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 89 An impairment loss is recognised as the amount by which the carrying amount of the given asset or cash-generating unit exceeds its recoverable amount. For the purpose of impairment analysis, assets are grouped at the lowest level at which they generate cash inflows, independently from other assets (cash-generating units). Cash-generating units are determined separately, each time an impairment test is to be performed. If an impairment test indicates that the recoverable amount (i.e. the higher of: the fair value decreased by costs to sell and its value in use) of a given asset or cash-generating unit is lower than its carrying amount, an impairment loss is recognised as the difference between the recoverable amount and the carrying amount of a given asset or cash- generating unit. The impairment loss is allocated to individual assets within the cash-generating units, proportionally to the share of an individual asset’s carrying amount in the carrying amount of the entire unit. If such an allocation is made, the carrying amount of the asset may not be lower than the highest of the three following values: fair value decreased by costs to sell, value in use and zero. Accounting policies – intangible assets Mining and metallurgical intangible assets are mainly comprised of exploration and evaluation assets. Exploration and evaluation assets are measured at cost less accumulated impairment losses. The following expenditures are recognised in the cost of the asset: • geological projects; • obtaining environmental decisions; • obtaining concessions and mining usufruct for geological exploration; • work related to drilling (drilling; geophysical and hydrogeological research; geological, analytical and geotechnical services; etc.); • the purchase of geological information; • the preparation of geological documentation and its approval; • the preparation of economic and technical assessments of resources for the purpose of making decisions regarding applying for mine operating concessions; and • equipment usage costs (property, plant and equipment) used in exploratory work. Expenditures on exploration and evaluation assets are measured at cost less accumulated impairment losses and are recognised as intangible assets not yet available for use. The Company is required to test an individual entity (project) for impairment when: • the technical feasibility and commercial viability of extracting mineral resources is demonstrable; and • the facts and circumstances indicate that the carrying amount of exploration and evaluation assets may exceed their recoverable amount. Any potential impairment losses are recognised prior to reclassification resulting from the demonstration of the technical and economic feasibility of extracting the mineral resources. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 90 Property, plant and equipment Intangible assets Buildings and land Technical equipment, machines, motor vehicles and other fixed assets Fixed assets under construction Exploration and evaluation assets Other Total As at 1 January 2021 Gross carrying amount 12 548 13 492 5 393 344 547 32 324 Accumulated depreciation/amortisation (5 321) (6 931) - - ( 94) (12 346) Impairment losses ( 1) ( 11) ( 7) ( 118) ( 4) ( 141) Net carrying amount 7 226 6 550 5 386 226 449 19 837 Changes in 2021 net Settlement of fixed assets under construction 1 304 1 090 (2 394) - - - Purchases - - 2 020 49 226 2 295 Leases – new contracts, modification of contracts 24 97 - - - 121 Self-constructed - - 66 1 - 67 Capitalised borrowing costs - - 118 - 1 119 Change in provisions for decommissioning costs of mines and tailings storage facilities ( 333) - - - - ( 333) Depreciation/amortisation, of which: ( 377) (1 007) - - ( 11) (1 395) own fixed assets ( 350) ( 991) - - ( 11) (1 352) leased fixed assets ( 27) ( 16) - - - ( 43) Recognition of impairment losses - ( 7) ( 11) - ( 2) ( 20) Utilisation of impairment losses - - 9 - 6 15 Other changes ( 1) ( 7) ( 9) - 148 131 As at 31 December 2021 Gross carrying amount 13 505 14 250 5 194 394 921 34 264 Accumulated depreciation/amortisation (5 661) (7 516) - - ( 104) (13 281) Impairment losses ( 1) ( 18) ( 9) ( 118) - ( 146) Net carrying amount, of which: 7 843 6 716 5 185 276 817 20 837 own fixed assets and intangible assets 7 363 6 612 5 185 276 817 20 253 leased fixed assets 480 104 - - - 584 Purchase of the CO 2 emission rights in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 91 Property, plant and equipment Intangible assets Buildings and land Technical equipment, machines, motor vehicles and other fixed assets Fixed assets under construction Exploration and evaluation assets Other Total As at 1 January 2022 Gross carrying amount 13 505 14 250 5 194 394 921 34 264 Accumulated depreciation/amortisation (5 661) (7 516) - - ( 104) (13 281) Impairment losses ( 1) ( 18) ( 9) ( 118) - ( 146) Net carrying amount 7 843 6 716 5 185 276 817 20 837 Changes in 2022 net Settlement of fixed assets under construction 658 1 419 (2 077) - - - Purchases - - 2 416 71 19 2 506 Leases – new contracts, modification of contracts 132 18 - - - 150 Self-constructed - - 72 2 - 74 Capitalised borrowing costs - - 179 - 2 181 Change in provisions for decommissioning costs of mines and tailings storage facilities 16 - - - - 16 Depreciation/amortisation, of which: ( 408) (1 039) - - ( 14) (1 461) own fixed assets ( 405) (1 016) - ( 14) (1 435) leased fixed assets ( 3) ( 23) - ( 26) Recognition of impairment losses - - ( 4) - ( 2) ( 6) Utilisation of impairment losses - 4 6 - 2 12 Other changes - ( 32) ( 13) - 78 33 As at 31 December 2022 Gross carrying amount 14 278 15 086 5 771 467 1 020 36 622 Accumulated depreciation/amortisation (6 036) (7 986) - - ( 118) (14 140) Impairment losses ( 1) ( 14) ( 7) ( 118) - ( 140) Net carrying amount, of which: 8 241 7 086 5 764 349 902 22 342 own fixed assets and intangible assets 7 660 6 987 5 764 349 902 21 662 leased fixed assets 581 99 - - - 680 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 92 Note 9.1.1 Mining and metallurgical property, plant and equipment– fixed assets under construction As at 31 December 2022 As at 31 December 2021 Deposit Access Program 3 318 2 796 Construction of the SW-4 shaft 589 565 Investment activity related to the development and operation of the Żelazny Most Tailings Storage Facility 280 424 Damówka pumping station with a backwater pipeline in the Tailings Division 145 131 BAT As – Installation for arsenic and mercury removal from gases before Solinox installation 117 113 Modernisation of the tankhouse at Głogów I Copper Smelter and Refinery – reconstruction of the roof and walls of the tankhouse 96 89 Note 9.1.2 Expenses related to mining and metallurgical assets from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Purchase (2 506) (2 295) Change in liabilities due to purchase 27 54 Other ( 210) ( 140) Total (2 689) (2 381) Note 9.2 Other property, plant and equipment and intangible assets Accounting policies Other property, plant and equipment are recognised at cost less accumulated depreciation and accumulated impairment losses. The policy regarding impairment is presented in Note 9.1. Depreciation is done using the straight- line method. For individual groups of fixed assets, the following useful lives have been adopted: Group Total useful lives Buildings 25-60 years Technical equipment and machines 4-15 years Motor vehicles 3-14 years Other fixed assets 5-10 years Intangible assets presented as “other intangible assets” include in particular: acquired property rights not related to mining operations and software. These assets are measured at cost less any accumulated amortisation and impairment losses. Intangible assets are amortised using the straight-line method over their anticipated useful lives. The useful lives of the main groups of intangible assets are as follows: Group Total useful lives Acquired property rights not related to mining activities 5-50 years Software 2-5 years Other intangible assets 40-50 years in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 93 Property, plant and equipment Intangible assets Buildings and land Technical equipment, machines, motor vehicles and other fixed assets Fixed assets under construction Other intangible assets Total As at 1 January 2021 Gross carrying amount 57 245 14 199 515 Accumulated depreciation/amortisation (38) (176) - (134) (348) Net carrying amount as at 1 January 2021 19 69 14 65 167 As at 31 December 2021 Gross carrying amount 58 252 9 209 528 Accumulated depreciation/amortisation (39) (182) - (149) (370) Net carrying amount as at 31 December 2021 19 70 9 60 158 own fixed assets and intangible assets 18 70 9 60 157 leased fixed assets 1 - - - 1 Net changes in 2022 Settlement of fixed assets under construction 7 25 (32) - - Purchase - - 34 6 40 Liquidation - (11) - - (11) Other changes - 11 - 1 12 Depreciation/amortisation, of which: (1) (26) - (16) (43) property, plant and equipment and intangible assets (1) (26) - (16) (43) As at 31 December 2022 Gross carrying amount 66 266 10 216 558 Accumulated depreciation/amortisation (41) (197) - (165) (403) Net carrying amount, of which: 25 69 10 51 155 own fixed assets and intangible assets 24 69 10 51 154 leased fixed assets 1 - - - 1 As at 31 December 2022 and 31 December 2021 the Company did not have any assets pledged as security for liabilities. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 94 Note 9.3 Depreciation/amortisation Property, plant and equipment Intangible assets from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Note 4.1 Depreciation/amortisation 1 474 1 408 30 27 recognised in profit or loss 1 407 1 338 27 25 cost of manufacturing products 1 375 1 309 25 23 administrative expenses 32 29 2 2 being part of the manufacturing costs of assets 67 70 3 2 Note 9.4 Provision for decommissioning costs of mines and other technological facilities Accounting policies Important estimates, assumptions and judgments The provision for future decommissioning costs of mines and other technological facilities is recognised based on the estimated expected costs of decommissioning of such facilities and of restoring the sites to their original condition following the end of operations. Estimation of this provision is based on specially- prepared studies using ore extraction forecasts (for mining facilities), and technical-economic studies prepared either by specialist firms or by the Company. The amount of provision represen ts the estimated future decommissioning costs of mines discounted to present value. Revaluation of this provision is made in two stages: 1) estimation of the costs of decommissioning mines to the current value in connection with the change in prices using the price change indices of construction-assembly production published by the Central Statistical Office. 2) discounting of the decommissioning costs to the current value using real discount rates calculated based on the nominal interest rates and the inflation rate (quotient of the nominal rate and the inflation rate), whereby: • the nominal interest rate is based on the yield on treasury bonds at the end of the reporting period, with maturities nearest to the planned financial outflows and if there are no treasury bonds with maturities close to the planned financial outflows - the nominal interest rate is determined by the professional judgment of the Company's Management on the basis of the consistency of the adopted assumptions, • the inflation rate is based on the forecast of future inflation used in the calculation of future employee benefits liabilities. A change in the discount rate or in the estimated decommissioning cost adjusts the value of the relevant item of a fixed asset, unless it exceeds the carrying amount of the item of a fixed asset (any surplus above this amount is recognised in other operating income). The increase in the provision due to the time lapse is recognised in finance costs. The provision for decommissioning costs of mines and other technological facilities includes the balance of the Mine Closure Fund and Tailings Storage Facility Restoration Fund, which the Company creates under separate regulations, i.e. the Act of 9 In 2022, the Company revised its approach to the discount rates used to estimate a provision. At the end of the reporting period, with a bond yield of +/- 6.845% and inflation of +/- 13.1% (at the end of the comparable period: respectively +/-3.6% and +/-7.6%), the Company received and applied for the years 2022- 2023 a negative real discount rate of -5.53% instead of a rate of ”0” in line with the previous approach. For the subsequent two measurement periods, that is for 2024 and 2025, the Company adopted inflation rates at the level of the NBP’s forecast, that is 5.9% and 3.5%, respectively, and for subsequent periods, following the NBP’s forecast - at the level of 2.5%, in line with the long-term inflation target. Moreover, for the first 10 years of measurement of the provision (that is to 2032), the Company adopted a risk-free rate of 6.845% (measurement of 10-year treasury bonds) due to the fact that it is the only publicly available information on the risk-free rate for the subsequent 10 years, and pursuant to the adopted judgment, this rate was not modified. The Company will adjust the risk- free rate to the level of this rate announced at every subsequent end of the reporting period in order to measure the provision at those days. In turn, taking into account the high volatility of the risk- free rate that took place in the last period, based on quotations of 10- year treasury bonds, the Company applied a professional judgment to determine this rate for the estimation of provisions falling after a period of 10 years from the end of the annual reporting period based on the historical observation of the ratio of the risk- free rate to the assumed inflation target. As a result of the judgement, the Company adopted the risk-free rate of 3.5% for the estimation of provision for 10 years from the end of the annual reporting period, which translated into a real discount rate of 0.98%. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 95 June 2011 Geological and Mining Law and the Act of 14 December 2012 on waste, respectively. The role of the Funds is to secure cash for the future realisation by the Company of its obligations related to the closure, decommissioning and restoration of mines and tailings storage facilities, by collecting them in the manner provided for by the laws. In the case of the Mine Closure Fund, the Company has separated a bank cash account to which it transfers cash equivalent to 3% of the depreciation charges on fixed assets of mines, determined in accordance with the provisions of the Income Tax Act. Details on the credit risk related to the cash accumulated on the separate account of Mine Closure Fund are presented in Note 7.5.2.4. In the case of Tailings Storage Facility Restoration Fund, in July 2022 the Company changed the form of securing the funds of this Fund, replacing a separate bank account with financial guarantees issued by the bank on demand of the Company, of which the Company is also a beneficiary. As at 31 December 2022, the amount of guarantees was PLN 98 million, and their value is updated on an annual basis. The Company strives to fully secure funds for the restoration of individual tailings storage facilities in the year, for which the liquidation and restoration schedule provides for the closure of a given tailings storage facility, by systematic increasing the value of these guarantees. As at 31 December 2022 As at 31 December 2021 Provisions at the beginning of the reporting period 824 1 192 Note 9.1 Changes in estimates recognised in fixed assets 16 ( 333) Mine Closure Fund and Tailing Storage Facility Restoration Fund 428 - Utilisation ( 5) - Other ( 2) ( 35) Provisions at the end of the reporting period, including: 1 261 824 - non-current provisions 1 233 811 - current provisions 28 13 Change in the presentation: to the presentation together with the non-current part of the provision for decommissioning costs of mines and other facilities, which is a result of the change in judgment as to the period of expected cash outflows from the fund. Impact of the change in discount rate on the provision for decommissioning costs of mines As at 31 December 2022 As at 31 December 2021 increase in discount rate by 1 percentage point (258) ( 263) decrease in discount rate by 1 percentage point 700 - Assuming that the discount rate cannot fall below the level of 0%. Note 9.5 Capitalised borrowing costs During the period between 1 January 2022 to 31 December 2022, the Company recognised PLN 181 million of borrowing costs in property, plant and equipment and intangible assets (during the period from 1 January 2021 to 31 December 2021: PLN 119 million). The capitalisation rate applied by the Company to determine borrowing costs in 2022 amounted to 4.56% (in 2021: 3.07%). in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 96 Note 9.6 Lease disclosures – the Company as a lessee Accounting policies As a lessee, the Company identifies leases in usufruct agreements, inter alia, land, perpetual usufruct right to land, and transmission easements, buildings and constructions as well as technical equipment and machines. The Company applies a uniform lease accounting model, which assumes that the lessee recognises the right-to-use assets and lease liabilities related to all lease agreements, including exemptions. The Company does not recognise lease assets and liabilities in relation to: • short-term leases - for agreements without the option to purchase an asset, concluded for a period shorter than 12 months from the commencement of the agreement, including agreements concluded for an indefinite period with a short notice period if there is no reasonable certainty that the Company will not make use of termination, • leases in respect of which the underlying asset has a low value. In the case of an agreement that is or includes a lease, the Company recognises each lease component under the agreement as a lease, separately from non-lease components. The lease period covers the irrevocable period of the lease agreement, including periods for which the lease can be extended if it is reasonably certain that the lessee will exercise that right, and the periods for which the lease can be terminated if it is reasonably certain that the lessee will not exercise that right. The right-to-use assets and the measurement policy for these assets are presented in Note 9.1. The Company initially measures the lease liability at the present value of lease payments due to be paid as at the date of initial recognition, which include: fixed lease pay ments, variable lease payments which are dependent on an index or rate, amounts which the lessee is expected to pay under the guaranteed residual value, the strike price call option if it is reasonably certain that the lessee will exercise the option, and penalties for terminating the lease if the lease period was set with the assumption that the lessee will terminate the agreement. In fixed lease payments, the Company also includes payments for the exclusion of land from forestry and agricultural production, if they relate to land used under lease agreements. The lease payments exclude variable payments made by the lessee to the lessor for the right to use the underlying asset during the lease period, which depend on external factors other than payments based on a rate or index. After the date the lease began, the Company measures the carrying amount of lease liabilities by: • an increase due to interest on lease liabilities, • a decrease due to paid lease payments, • an update due to reassessment or modification of a lease agreement. Lease liabilities are presented in Note 8. Lease rate - lease payments are discounted by the Company using the incremental borrowing rate of the lessee because generally speaking, the interest rate of a lease agreement is difficult to determine. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 97 Lease disclosures – the Company as a lessee from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Note 9.1 Depreciation/amortisation cost 26 43 Note 4.3 Interest cost 10 8 Short-term lease cost 9 8 Cost associated with variable lease payments not recognised in the measurement of lease liabilities - 3 Note 8.4.2 Total cash outflows due to leases 71 76 Note 9.1 Increase in right-to-use assets 38 121 As at 31 December 2022 As at 31 December 2021 Note 9.1 Note 9.2 Carrying amount of right-to-use assets (division by underlying assets in notes, pursuant to references) 681 585 Note 8.4.2 Carrying amount of right-to-use liabilities 575 581 As at 31 December 2022, the Company had lease agreements that contained extension options and termination options, and the estimated value of future cash outflows, to which the Company is potentially exposed and are not included in the measurement of lease liabilities amounted to PLN 10 million and PLN 36 million respectively. The Company has lease agreements containing guaranteed residual values, which have been included in the measurement of lease liabilities. In addition, the Company has not yet commenced lease agreements, to which it is obliged as a lessee, and the value of future cash outflows on this account is PLN 4 million. Note 9.7 Non-current assets held for sale and liabilities associated with them As at 31 December 2022, the Company identified the shares of KGHM TOWARZYSTWO FUNDUSZY INWESTYCYJNYCH S.A. in the amount of PLN 3 million as assets held for sale, due to the fulfilment of the criteria set in IFRS 5 (i.e. they are available for immediate sale in their current state, the sale is highly probable, and it is expected that it will take place within 1 year from the date of classification as held for sale). Due to their insignificant value, these shares were not separated in the statement of financial position to a separate item "Non-current assets held for sale" and are included in this statement under the item "Investments in subsidiaries". As at 31 December 2021, the Company did not have any non-current assets held for sale. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 98 PART 10 – Working capital Note 10.1 Inventories Accounting policies The Company measures inventories at cost, not higher than the sales price less costs of completing production and costs to sell. Any differences in the value of finished goods constitutes a write-down and is recognised in the costs of sold products. The costs of inventories of finished goods, half-finished goods and work in progress include costs directly related to the production and variable and fixed indirect costs of production, assigned respectively. Fixe d indirect costs of production are allocated on the basis of the normal level of production capacity utilisation. The valuation of the inventory component disposal is made according to the weighted average purchase price and the weighted average actual production cost. The Company also classifies as inventories stand-by spare parts that do not meet the criteria for recognition as property, plant and equipment in accordance with IAS 16 par. 7 and in accordance with the principles of capitalization of signif icant components, adopted in the accounting principles of the Company, where a materiality threshold of at least PLN 300 thousand has been set, for which the spare parts are analysed in terms of meeting the capitalization criteria of IAS 16. In relation to above, stand- by spare parts are in particular recognised as inventories, the value of which is insignificant or are not replaced at regular intervals, or which, after their installation, due to the failure of a spare part in an item of property, plant and equipment, will not contribute to obtain higher economic benefits from further use of this component, than those assumed at the moment of initial recognition of the component and putting it into use. The costs of such stand-by spare parts are recognised in profit or loss as they are used up, as current maintenance costs of assets. Important estimates, assumptions and judgments The Company measures inventories at cost, not higher than the net realisable value. The net realisable value is the estimated sales price achieved during ordinary course of business activities less estimated costs of completing production/performing a service and the estimated, necessary costs to sell. The potential difference in the amounts represents a write- down of inventories of copper, silver and other products (at various processing stages) , up to the net realisable value is recognised in the cost of manufacturing of sold products in the period, in which the write-down was recognised. The Company determines the net sales price of copper at the end of the reporting period on the basis of forward LME (London Metal Exchange) curve for the metal, set for months in which the sale of metal inventories will be made. As at 31 December 2022 As at 31 December 2021 Materials 1 503 1 124 Half-finished goods and work in progress 4 495 3 260 Finished goods 1 444 965 Merchandise 81 87 Total net carrying amount of inventories 7 523 5 436 Write-down of inventories in the financial period from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Write-down recognised in cost of sales 13 41 Write-down reversed in cost of sales 52 20 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 99 Maturities of inventories As at 31 December 2022 As at 31 December 2021 Maturity over the 12 months from the end of the reporting period 76 80 Maturity of up to 12 months from the end of the reporting period 7 447 5 356 As at 31 December 2022 and in the comparable period, the value of inventories with a maturity of over 12 months mainly includes stand-by inventories of materials and spare parts to maintain production continuity, packages of spare parts under contractual obligations and the finished rhenium product. Note 10.2 Trade receivables Accounting policies Trade receivables are initially recognised at the transaction price, unless the receivables contains a significant financial component subject to separation and therefore the receivables are initially recognised at fair value. After initial recognition, receiv ables are measured as follows: • receivables not transferred to non-recourse factoring and not based on the M+ pricing formula: at amortised cost while taking into account the loss allowance for expected credit losses (trade receivables with maturity dates of less than 12 months are not discounted), • receivables transferred to non-recourse factoring: at fair value through profit or loss, where the fair value is determined in the amount of their carrying amount less the factor’s compensation, which include, among others, interest costs and risk assumption costs. Because of the short duration betwe en the transferral of receivables to the factor and its payment and due to the low credit risk of the counterparty (factor), the fair value of these receivables does not include an adjustment by the impact of these factors. Receivables transferred to non-recourse factoring are obligatorily designated to the category of financial assets measured at fair value through profit or loss, because they were classified to a business model in which cash flows are realised solely by selling financial assets. • receivables based on the M+ pricing formula: at fair value through profit or loss, where the fair value is set as the nominal value (i.e. at the price in the invoice), adjusted by the impact of market and credit risks. Adjustment due to the market risk is calculate d as the difference between the current market price for a given pricing period in the future (the period in which there will be a final determination of the settlement price) and the receivables’ price recognised in the accounting books (multiplied by the sales volume). Adjustment due to the credit risk is calculated analogously to the calculation of expected credit losses for trade receivables measured at amortised cost. Receivables based on the M+ pricing formula are obligatorily designated to the category of financial assets measured at fair value through profit or loss, because these assets do not pass the SPPI (solely payments of principal and interest) test because of the element of variable price after the date of initial recognition of the receivables. Receivables measured at fair value may be measured based on the M+ pricing formula as well as due to the transfer to factoring. The measurements are carried out independently of each other. The result of both measurements is recognised in the profit or loss in other operating income/(costs). The Company is exposed to the credit risk and currency risk related to trade receivables. Credit risk management and assessment of the credit quality of receivables is presented in Note 7.5.2.3. while information on the currency risk is presented in Note 7.5.1.3. The following table presents the carrying amounts of trade receivables and the loss allowance for expected credit losses: as at 31 December 2022 as at 31 December 2021 Trade receivables measured at amortised cost - gross value 166 134 Loss allowance for expected credit losses ( 1) ( 1) Trade receivables measured at amortised cost - net value 165 133 Trade receivables measured at fair value 455 467 Total 620 600 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 100 Note 10.3 Trade and similar payables Accounting policies Trade and similar payables are initially recognised at fair value less transaction cost and are measured at amortised cost at the end of the reporting period. Accrued interest due to repayment of payables at a later date, in particular payables transferred to reverse factoring, is recognised in profit or loss, in the item “finance costs”. Important estimates, assumptions and judgments Trade and similar payables presented in the statement of financial position also contain trade payables transferred to reverse factoring, which are in the category of “similar”. At the moment of transfer of the liabilities to reverse factoring, the Company recognises payables towards the factor, who due to the subrogation of receivables, from the legal point of view, assumes the rights and obligations common for trade payables. The Company analysed the key IFRS requirements related to the issue and in the Company’s opinion the presentation of balances of liabilities transferred to factoring in the statement of financial position and the reflection of reverse factoring transactions in the statement of cash flows in the Company’s financial statements are consistent with the requirements of IFRS, and in particular with the opinion of the International Financial Reporting Standards Interpretations Committee on the presentation of reverse factoring transactions in the statement of financial position and statement of cash flows, published in December 2020. In terms of the judgement applied related to the presentation of reverse factoring, the Company indicates that the actual deadline for the payment of trade payables covered by reverse factoring agreements is longer (up to 180 days) than the deadline for the payment of other trade payables which are not transferred to factoring, which usually amounts to 60 days, and it may indicate a change in the nature of these payables from trade to debt. However, this feature was assessed by the Company as insufficient to consider that the nature of the payables changed completely when the trade payables were transferred to reverse factoring. Apart from the above criterion, no other terms of payables covered by reverse factoring differ from the terms of other trade payables. As at 31 December 2022 As at 31 December 2021 Non-current trade payables 186 187 Current trade payables 2 819 2 558 Similar payables – reverse factoring - 55 Trade and similar payables 3 005 2 800 In 2022, the factors’ total participation limit amounted to PLN 1 500 million (in 2021: 1 500 million). Currently, the Company has two agreements for the provision of factoring services which was implemented in 2019 in order to make it possible for suppliers to receive repayment of receivables faster, as part of the standard procurement process executed by the Company, alongside an extension of payment dates of payables by the Company to the factor. In the current year, because of the good liquidity situation of the Company, there were no reasons to use this form of settlement, and as at 31 December 2022 no liabilities were transferred to the factors and therefore no trade payables were covered by reverse factoring (in the year ended 31 December 2021, liabilities in the amount of PLN 988 million were transferred to the factor; the value of trade payables covered by reverse factoring as at 31 December 2021 amounted to PLN 55 million); in the current year, there were payments towards the factors in the amount of PLN 55 million (in the year ended 31 December 2021 in the amount of PLN 2 187 million). Interest costs accrued and paid towards the factor in 2022 amounted to PLN 0.5 million (in the year ended 31 December 2021 the interest costs accrued and paid amounted to PLN 9 million). Repayment dates of receivables due to reverse factoring do not exceed 12 months, and consequently all payables transferred to reverse factoring are presented as short-term. The item trade and similar payables contains payables due to the purchase and construction of fixed and intangible assets which, as at 31 December 2022, amounted to PLN 185 million in the non-current part and PLN 975 million in the current part (as at 31 December 2021, respectively PLN 186 million and PLN 910 million). The Company is exposed to currency risk arising from trade and similar payables and to liquidity risk. Information on currency risk is presented in Note 7.5.1.3 and on liquidity risk in Note 8.3. The fair value of trade and similar payables approximates the carrying amount. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 101 Note 10.4 Changes in working capital Accounting policies Cash flows arising from interest on reverse factoring transactions are presented in cash flows from financing activities. The actually repaid principal amounts of receivables transferred to reverse factoring to a factor are presented in cash flows from operating activities. Moreover, the Company, as regards the changes in working capital in the statement of cash flows, presented a separate line “Change in trade payables transferred to factoring” for the purposes of clear and transparent presentation. Important estimates, assumptions and judgments Due to the lack of uniform market practice with respect to the presentation of reverse factoring transactions in the statement of cash flows, the Management Board had to apply its own judgment in this regard. The Company had to make an assessment as to whether expenses related to payments towards the factor should be classified to cash flows from operating activities or to cash flows from financing activities in the statement of cash flows. Pursuant to IAS 7.11, an entity should present cash flows from operating, investing and financing activities in a manner which is most appropriate to its business, because it provides information that allows users of financial statements to assess the impact of those activities on the financial position of the entity and the amount of its cash and cash equivalents. Due to the above, in the Company’s view: • presentation of the repayment of the principal amounts of receivables in the reverse factoring in cash flows from operating activities is compliant with the objective of individual transaction elements and consistent with the presentation of these transactions in the statement of financial position. When legal subrogation of receivables is made by the factor, from a legal standpoint, the factor assumes the rights and responsibilities characteristic for trade receivables. Only cash flows from the repayment of principal amounts of receivables from liabilities due to the purchase and construction of fixed assets and intangible assets are presented under investing activities (more information may be found in Note 10.3), • however, the financial aspect related to the factoring transaction is reflected in the presentation of interest in financing activities. This is consistent with recognising this interest in financing costs in the statement of profit or loss pursuant to the accounting policy adopted by the Company for the presentation of interest cost of reverse factoring in the financial activities. Inventories Trade receivables Trade payables Similar payables Working capital As at 1 January 2022 (5 436) ( 600) 2 745 55 (3 236) As at 31 December 2022 (7 523) ( 620) 3 004 - (5 139) Change in the statement of financial position (2 087) ( 20) 259 ( 55) (1 903) Depreciation/amortisation recognised in inventories 60 - - - 60 Liabilities due to purchase of property, plant and equipment and intangible assets - - ( 34) - ( 34) Adjustments 60 - ( 34) - 26 Change in the statement of cash flows (2 027) ( 20) 225 ( 55) (1 877) in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 102 Inventories Trade receivables Trade payables Similar payables Working capital As at 1 January 2021 (3 555) ( 351) 2 232 1 264 ( 410) As at 31 December 2021 (5 436) ( 600) 2 745 55 (3 236) Change in the statement of financial position (1 881) ( 249) 513 (1 209) (2 826) Depreciation/amortisation recognised in inventories 57 - - - 57 Liabilities due to purchase of property, plant and equipment and intangible assets - - ( 116) 54 ( 62) Liabilities due to interest on reverse factoring - - - 1 1 Adjustments 57 - ( 116) 55 ( 4) Change in the statement of cash flows (1 824) ( 249) 397 (1 154) (2 830) in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 103 PART 11 – Employee benefits Accounting policies The Company is obliged to pay specified benefits following the period of employment (retirement benefits due to one-off retirement-disability rights, post-mortem benefits and the coal equivalent) and other long-term benefits (jubilee bonuses), in accordance with the Collective Labour Agreement. The amount of the liabilities due to both of these benefits is estimated at the end of the reporting period by an independent actuary using the projected unit credit method. The present value of liabilities from these benefits is determined by discounting estimated future cash outflow using the yield on treasury bonds expressed in the currency of the future benefits payments, with maturities similar to those of the liabilities due to be paid. Actuarial gains and losses from the measurement of specified benefits following the period of employment are recognised in other comprehensive income in the period in which they arose. Actuarial gains/losses from the measurement of other benefits (for example benefits due to jubilee bonuses) are recognised in profit or loss. Important estimates and assumptions The carrying amount of the liability due to future employee benefits is equal to the present value of the liabilities due to defined benefits. The amount of the liability depends on many factors, which are used as assumptions in the actuarial method. Any changes to the assumptions may impact the carrying amount of the liability. Discount rates are one of the basic parameters for measuring the liability. At the end of the reporting period, based on the opinion of an independent actuary, an appropriate discou nt rate for the Company is used for setting the present value of estimated future cash outflow due to these benefits. In setting the discount rate for the reporting period, the actuary applies yields of State Treasury bonds available at the balance sheet date, with maturities approximate to the average maturities of measured liabilities. Other macroeconomic assumptions used to measure liabilities due to future employee benefits, such as the inflation rate or the minimum salary, are based on current market conditions. In accordance with IAS 19 par. 78, the actuarial assumptions adopted for the purpose of measurement of employee benefits in the Company are consistent, as they reflect the economic relations between such factors as inflation, salary growth rate, discount rate and coal price growth rate. The additional analysis of assumptions p repared by the Company determined that the balance of provisions achieved using the adopted assumptions as to the salary growth and coal price growth could be achieved using the alternative paths of price growth of 6.0% and coal price growth of 6.25%. Taking into account the adopted finance discount rate of 6.75% it should be noted that the assumptions adopted for the measurement are consistent, pursuant to IAS 19 paragraph 78. The assumptions used to measurement as at 31 December 2022 are presented in Note 11.2. Impact of changes in the indicators on the balance of liabilities As at 31 December 2022 As at 31 December 2021 an increase in the discount rate by 1 percentage point (231) ( 242) a decrease in the discount rate by 1 percentage point 278 308 an increase in the coal price growth rate and the salary growth rate by 1 percentage point 299 228 a decrease in the coal price growth rate and the salary growth rate by 1 percentage point (227) ( 177) in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 104 Note 11.1 Employee benefits liabilities As at 31 December 2022 As at 31 December 2021 Non-current 2 394 2 040 Current 237 130 Liabilities due to future employee benefits programs 2 631 2 170 Employee remuneration liabilities 494 422 Accruals (unused annual leave, bonuses, other) 634 578 Employee liabilities 1 128 1 000 Total employee benefits liabilities 3 759 3 170 Employee benefits expenses from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Remuneration 3 387 2 992 Costs of social security and other benefits 1 296 1 142 Costs of future benefits 149 115 Note 4.1 Employee benefits expenses 4 832 4 249 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 105 Note 11.2 Changes in liabilities related to future employee benefits programs Total liabilities Jubilee awards Retirement and disability benefits Coal equivalent Other benefits As at 1 January 2021 2 848 445 408 1 965 30 Note 11.1 Total costs recognised in profit or loss 115 15 32 66 2 Interest costs 37 6 5 26 0 Current service costs 104 35 27 40 2 Actuarial gains recognised in profit or loss ( 26) ( 26) - - - Note 8.2.2 Actuarial gains recognised in other comprehensive income ( 670) - ( 41) ( 627) ( 2) Benefits paid ( 123) ( 42) ( 30) ( 50) ( 1) As at 31 December 2021 2 170 418 369 1 354 29 Note 11.1 Total costs recognised in profit or loss 149 39 35 73 2 Interest costs 78 15 13 49 1 Current service costs 77 30 22 24 1 Actuarial gains recognised in profit or loss ( 6) ( 6) - - - Note 8.2.2 Actuarial (gains)/losses recognised in other comprehensive income 460 - ( 17) 479 ( 2) Benefits paid ( 148) ( 51) ( 26) ( 70) ( 1) As at 31 December 2022 2 631 406 361 1 836 28 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 106 As at 31 December 2022 2021 2020 2019 2018 Present value of liabilities due to employee benefits 2 631 2 170 2 848 2 492 2 376 Main actuarial assumptions adopted for measurement as at 31 December 2022: 2023 2024 2025 2026 2027 and beyond - discount rate 6.75% 6.75% 6.75% 6.75% 6.75% - coal price growth rate 87.90% 5.90% 3.50% 2.50% 2.50% - rate of growth of the lowest salary 19.60% 5.70% 5.00% 4.00% 4.00% - expected inflation 13.10% 5.90% 3.50% 2.50% 2.50% - future expected increase in salary 16.00% 9.00% 5.00% 4.00% 4.00% * The increase in coal prices in 2023 was presented as an average for all Divisions of the Company. At the end of 2022, coal prices in individual Divisions which are the basis for setting the benefit ranged from 996.60 PLN/t to 1 792.00 PLN/t. In 2023 there will be an adjustment of coal prices to a uniform level of 2 150 PLN/t, and in 2024 and subsequent years the coal price growth rate was adopted at the level of expected inflation. Main actuarial assumptions adopted for measurement as at 31 December 2021: 2022 2023 2024 2025 2026 and beyond - discount rate 3.60% 3.60% 3.60% 3.60% 3.60% - coal price growth rate 10.00% 3.60% 2.50% 2.50% 2.50% - rate of growth of the lowest salary 7.50% 5.10% 4.00% 4.00% 4.00% - expected inflation 7.60% 3.60% 2.50% 2.50% 2.50% - future expected increase in salary 8.00% 6.50% 4.00% 4.00% 4.00% * At the end of 2021, coal prices in individual Divisions of the Company which are the basis for setting the coal benefit ranged from 887.95 PLN/t to 983.60 PLN/t. An assumption was adopted on a 10% increase of coal prices in 2022, and in 2023 and subsequent years the coal price growth rate was adopted at the level of expected inflation. The change in actuarial gains/losses was caused by a change in the assumptions in respect of the discount rate, coal prices and future expected changes of salary. For purposes of reassessment of the liabilities at the end of the current period, the parameters assumed were based on available forecasts of inflation, analysis of coal prices rates and of the lowest salary rates, and also based on the anticipated profitability of long-term treasury bonds. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 107 Actuarial gains/losses adopted for measurement as at 31 December 2022 versus individual assumptions adopted as at 31 December 2021 Change in financial assumptions 38 Change in demographic assumptions (36) Other changes 452 Total actuarial (gains)/losses 454 Actuarial gains/losses adopted for measurement as at 31 December 2021 versus individual assumptions adopted as at 31 December 2020 Change in financial assumptions ( 700) Change in demographic assumptions ( 101) Other changes 105 Total actuarial (gains)/losses ( 696) Maturity profile of future employee benefits liabilities Year of maturity: Total liabilities jubilee awards retirement and disability benefits c oal equivalent post- mortem benefits 2023 236 51 54 129 2 2024 228 40 57 129 2 2025 177 35 17 123 2 2026 169 32 21 114 2 2027 155 31 17 105 2 Other years 1 666 217 195 1 236 18 Total liabilities in the statement of financial position as at 31 December 2022 2 631 406 361 1 836 28 Maturity profile of future employee benefits liabilities Year of maturity: Total liabilities jubilee awards r etirement and disability benefits coal equivalent post- mortem benefits 2022 129 42 30 55 2 2023 169 39 63 66 1 2024 109 29 15 64 1 2025 107 30 15 60 2 2026 106 28 19 57 2 Other years 1 550 250 227 1 052 21 Total liabilities in the statement of financial position as at 31 December 2021 2 170 418 369 1 354 29 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 108 PART 12 – Other notes Note 12.1 Related party transactions The accounting policies and important estimates and assumptions presented in Note 10 are applicable to transactions entered into with related parties. Operating income from related parties from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 From subsidiaries 900 1 736 From other related parties 28 61 Total 928 1 797 In 2022, dividends incomes from subsidiaries amounted to PLN 29 million (in the comparable period: PLN 37 million). As at 31 December 2022 As at 31 December 2021 Trade and other receivables from related parties 9 724 9 150 From subsidiaries, including: 9 667 9 092 loans granted 8 784 8 366 From other related parties 57 58 Payables towards related parties 1 662 1 571 Towards subsidiaries 1 605 1 513 Towards other related parties 57 58 from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Purchases from related entities 9 994 7 782 Purchase of products, merchandise, materials and other purchases from subsidiaries 9 994 7 782 The State Treasury is an entity controlling KGHM Polska Miedź S.A. at the highest level. The Company makes use of the exemption to disclose a detailed scope of information on transactions with the Polish Government and entities controlled or jointly controlled by the Polish Government, or over which the Polish Government has significant influence (IAS 24.25). Pursuant to the scope of IAS 24.26, in the period from 1 January to 31 December 2022, the Company concluded the following transactions with the Polish Government and entities controlled or jointly controlled by the Polish Government, unusual due to their nature or amount: • due to an agreement on setting mining usufruct for the extraction of mineral resources and for the exploration for and assessment of mineral resources – balance of payables as at 31 December 2022 in the amount of PLN 229 million (as at 31 December 2021: PLN 228 million); including payables due to mining usufruct for the extraction of mineral resources recognised in costs in the amount of PLN 35 million (as at 31 December 2021: PLN 30 million), • due to a reverse factoring agreement with the company PEKAO FAKTORING Sp. z o.o. – as at 31 December 2022, the Company had no payables (as at 31 December 2021, payables in the amount of PLN 28 million and interest costs for 2021 in the amount of PLN 6 million), • banks related to the State Treasury executed the following transactions and economic operations on the Company’s behalf: spot currency exchange, depositing cash, cash pooling, granting bank loans, guarantees and letters of credit (including documentary letters of credit), processing of a documentary collection, running bank accounts, servicing of business credit cards, servicing of special purpose funds and entering into transactions on the forward currency market. State Treasury companies may purchase bonds issued by KGHM Polska Miedź S.A. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 109 Other transactions between the Company and the Polish Government and with entities controlled or jointly controlled by the Polish Government, or over which the government has significant influence, were within the scope of normal, daily economic operations. These transactions concerned the following: • the purchase of materials, merchandise and services to meet the needs of current operating activities. In the period from 1 January to 31 December 2022, the turnover from these transactions amounted to PLN 3 050 million (from 1 January to 31 December 2021: PLN 1 687 million), and, as at 31 December 2022, the unsettled balance of liabilities from these transactions amounted to PLN 254 million (as at 31 December 2021: PLN 166 million), • sales to Polish State Treasury Companies. In the period from 1 January to 31 December 2022, the turnover from these sales amounted to PLN 163 million (from 1 January to 31 December 2021: PLN 193 million), and, as at 31 December 2022, the unsettled balance of receivables from these transactions amounted to PLN 193 million (as at 31 December 2021: PLN 9 million). Note 12.2 Dividends paid In accordance with Resolution No. 6/2022 of the Ordinary General Meeting of KGHM Polska Miedź S.A. dated 21 June 2022 regarding the appropriation of profit for the year ended 31 December 2021, the profit in the amount of PLN 5 169 million was appropriated as follows: as a shareholders dividend in the amount of PLN 600 million (PLN 3.00 per share) and transfer of PLN 4 569 million to the Company’s reserve capital. The Ordinary General Meeting of KGHM Polska Miedź S.A. set the dividend date for 2021 at 7 July 2022 and the dividend payment date for 2021 at 14 July 2022. In accordance with Resolution No. 7/2021 of the Ordinary General Meeting of KGHM Polska Miedź S.A. dated 7 June 2021 regarding the appropriation of profit for the year ended 31 December 2020, the profit in the amount of PLN 1 779 million was appropriated as follows: as a shareholders dividend in the amount of PLN 300 million (PLN 1.50 per share) and transfer of PLN 1 479 million to the Company’s reserve capital created in accordance with art. 396 § 1 of the Commercial Partnerships and Companies Code. All shares of the Company are ordinary shares. As at the date of publication, no decision was made on the dividend payout or allocation of profit for 2022. Note 12.3 Other assets Accounting policies Receivables not constituting financial assets are initially recognised at nominal value, and at the end of the reporting period they are measured in the amount receivable. Accounting policies concerning financial assets were described in Note 7. As at 31 December 2022 As at 31 December 2021 Other non-current non-financial assets 117 54 Non-financial advances 36 22 Receivables due to overpayment of property tax 69 3 Prepayments 12 4 Other - 25 Other current assets 464 366 Note 7.1 Other current financial assets 322 289 Receivables due to guarantees granted 29 20 Receivables due to settled derivatives 37 10 Receivables due to compensation for energy- intensive sector due to allocation the costs of purchasing CO2 emission rights to the price of electricity 98 41 Receivables due to payments for letters of credit 1 1 Loans granted 22 117 Other 135 100 Other current non-financial assets 142 77 Non-financial advances 111 55 Prepayments 23 16 Other 8 6 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 110 Note 12.4 Other liabilities Accounting policies Other financial liabilities are initially recognised at fair value less transaction cost, and at the end of the reporting period they are measured at amortised cost. As at 31 December 2022 As at 31 December 2021 Trade payables 186 187 Other 74 66 Other liabilities – non-current 260 253 Special purpose funds - 410 Accruals, including: 517 397 provision for purchase of property rights related to consumed electricity 83 98 charge for discharging of gases and dusts to the air 391 260 Liabilities due to the settlement of the Tax Group 12 13 Deferred income 41 29 Other liabilities due to settlements under cash pooling contracts 29 25 Other 176 275 Other liabilities – current 775 1 149 *Change in the presentation to the presentation together with the non-current part of Provision for decommissioning costs of mines and other facilities, which is a result of change in judgment as to the period of expected cash outflows from the fund. Note 12.5 Assets and liabilities not recognised in the statement of financial position The value of contingent assets and liabilities and other liabilities not recognised in the statement of financial position were determined based on estimates. As at 31 December 2022 As at 31 December 2021 Contingent assets 373 485 Guarantees received 115 250 Promissory note receivables 253 207 Other 5 28 Contingent liabilities 701 644 Note 8.6 Guarantees granted 641 566 Real estate tax on mine tunnels 34 47 Other 26 31 Other liabilities not recognised in the statement of financial position 34 99 Liabilities towards local government entities due to expansion of the tailings storage facility 34 99 Note 12.6 Capital commitments related to property, plant and equipment and intangible assets Capital commitments incurred in the reporting period, but not yet recognised in the statement of financial position, were as follows (as at 31 December of a given year): in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 111 As at 31 December 2022 As at 31 December 2021 Capital commitments due to the purchase of: property, plant and equipment 2 676 2 025 intangible assets 126 28 Total capital commitments 2 802 2 053 Note 12.7 Employment structure from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 White-collar employees 4 909 4 838 Blue-collar employees 13 771 13 682 Total (full-time) 18 680 18 520 Note 12.8 Other adjustments in the statement of cash flows from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Losses on disposal of property, plant and equipment and intangible assets 22 5 Income tax (expenses)/proceeds from the tax group companies 69 ( 9) Other 23 11 Total 114 7 Accounting policies In cash flows from operating activities in the statement of cash flows, the Company presents receivables due to cash pooling and other liabilities due to settlements within cash pooling agreements in the item “change in other receivables and liabilities”. Receivables due to cash pooling are receivables from Group companies, which at the end of the reporting period incurred a debt within the cash pooling agreement. Other liabilities due to settlement within cash pooling agreements are liabilities of the Company towards participants in the cash pooling system to repay, after the end of the reporting period, of cash transferred by them, which were not used by the Company for its own needs. Within cash flows from financing activities, the Company presents proceeds and expenses due to cash pooling and they represent the Company’s debt towards participants in the cash pooling system, that is cash which the Company uses for its own needs. Important estimates, assumptions and judgments The cash pooling system was implemented in the KGHM Polska Miedź S.A. Group to actively manage the current shortages and surpluses of cash on bank accounts of companies participating in the system to possibly the most efficiently manage the cash and limits of debt with high volatility and liquidity. KGHM Polska Miedź S.A., as a participant in the system as well as a coordinator in the system, does not treat this activity as an investment activity established in order to invest free cash and gener ate profits, but solely as supporting Group companies in managing their current shortages and surpluses. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 112 Note 12.9. Remuneration of key managers from 1 January 2022 to 31 December 2022 Remuneration of members of the Management Board (in PLN thousands) Period when function served Remuneration for the period of service as a member of the Management Board Remuneration after the period of service as a member of the Management Board Benefits due to termination of employment Total earnings Members of the Management Board serving in the function as at 31 December 2022 Tomasz Zdzikot 01.09-31.12 373 - - 373 Mirosław Kidoń 10.12-31.12 64 - - 64 Marek Pietrzak 01.01-31.12 1 079 - - 1 079 Marek Świder 15.03-31.12 836 - - 836 Mateusz Wodejko 21.12-31.12 32 - - 32 Members of the Management Board not serving in the function as at 31 December 2022 Marcin Chludziński 01.01-11.10 1 939 - 435 2 374 Adam Bugajczuk 01.01-31.08 1 667 - - 1 667 Paweł Gruza 01.01-09.08 1 604 - 163 1 767 Andrzej Kensbok 01.01-06.12 1 679 - 298 1 977 Katarzyna Kreczmańska-Gigol - - 277 - 277 Jerzy Paluchniak 01.09-11.10 120 - - 120 Radosław Stach - - 277 - 277 Dariusz Świderski 01.01-21.02 148 600 14 762 TOTAL - 9 541 1 154 910 11 605 from 1 January 2021 to 31 December 2021 Remuneration of members of the Management Board (in PLN thousands) Period when function served Remuneration for the period of service as a member of the Management Board Remuneration after the period of service as a member of the Management Board Benefits due to termination of employment Total earnings Members of the Management Board serving in the function as at 31 December 2021 Marcin Chludziński 01.01-31.12 2 220 - - 2 220 Adam Bugajczuk 01.01-31.12 1 886 - - 1 886 Paweł Gruza 01.01-31.12 1 881 - - 1 881 Andrzej Kensbok 16.04-31.12 698 - - 698 Marek Pietrzak 26.10-31.12 177 - - 177 Dariusz Świderski 15.05-31.12 603 - - 603 Members of the Management Board not serving in the function as at 31 December 2021 Katarzyna Kreczmańska- Gigol 01.01-15.04 1 193 - 475 1 668 Radosław Stach 01.01-15.04 1 189 - 41 1 230 TOTAL 9 847 - 516 10 363 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 113 from 1 January 2022 to 31 December 2022 Remuneration of members of the Supervisory Board (in PLN thousands) Period when function served Current employee benefits Current benefits due to serving in the function Total earnings Members of the Supervisory Board serving in the function as at 31 December 2022 Agnieszka Winnik -Kalemba 01.01-31.12 - 164 164 Katarzyna Krupa 01.01-31.12 - 149 149 Wojciech Zarzycki 22.06-31.12 - 78 78 Józef Czyczerski 01.01-31.12 203 150 353 Przemysław Darowski 01.01-31.12 - 149 149 Andrzej Kisielewicz 01.01-31.12 - 149 149 Bogusław Szarek 01.01-31.12 372 149 521 Marek Wojtków 07.10-31.12 - 35 35 Radosław Zimroz 07.10-31.12 - 35 35 Piotr Ziubroniewicz 24.11-31.12 - 15 15 Members of the Supervisory Board not serving in the function as at 31 December 2022 Piotr Dytko 22.06-07.10 - 44 44 Jarosław Janas 01.01-21.06 - 71 71 Robert Kaleta 01.01-07.10 - 115 115 Bartosz Piechota 01.01-21.06 - 71 71 TOTAL 575 1 374 1 949 from 1 January 2021 to 31 December 2021 Remuneration of members of the Supervisory Board (in PLN thousands) Period when function served Current employee benefits Current benefits due to serving in the function Total earnings Members of the Supervisory Board serving in the function as at 31 December 2021 Agnieszka Winnik -Kalemba 01.01-31.12 - 142 142 Katarzyna Krupa 06.07-31.12 - 66 66 Jarosław Janas 01.01-31.12 - 136 136 Józef Czyczerski 01.01-31.12 186 136 322 Przemysław Darowski 01.01-31.12 - 136 136 Robert Kaleta 06.07-31.12 - 66 66 Andrzej Kisielewicz 01.01-31.12 - 144 144 Bartosz Piechota 01.01-31.12 - 136 136 Bogusław Szarek 01.01-31.12 265 136 401 Members of the Supervisory Board not serving in the function as at 31 December 2021 Katarzyna Lewandowska 01.01-20.04 - 42 42 Marek Pietrzak 01.01-25.10 - 111 111 TOTAL 451 1 251 1 702 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 114 Note 12.10 Remuneration of the entity entitled to audit the financial statements and of entities related to it (in PLN thousands) PricewaterhouseCoopers Polska Spółka z ograniczoną odpowiedzialnością Audyt Sp.k. (PwC) performed audits of financial statements of KGHM Polska Miedź S.A. for 2021 and 2022. from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 PricewaterhouseCoopers Polska Spółka z ograniczoną odpowiedzialnością Audyt Sp.k. 1 580 1 125 audit of annual financial statements 850 728 assurance services, of which: 730 397 review of financial statements 550 324 other assurance services 180 73 Other companies of PricewaterhouseCoopers Polska 99 169 Note 12.11 Disclosure of information on the Company’s activities regulated by the Act on Energy Note 12.11.1 Introduction KGHM Polska Miedź S.A. meets the definition of an “energy enterprise” under the Act on Energy. Pursuant to article 44 of the Act on Energy, the Company is required to prepare, on the basis of the Company’s accounting records, information about its regulated activities. The scope of information concerning regulated activities, pursuant to article 44 of the aforementioned Act, constitute the Company’s business activities in: • distribution of electricity; • distribution of gaseous fuels; and • trade in gaseous fuels. Note 12.11.2 Description of regulated activities KGHM Polska Miedź S.A. conducts the following types of energy-related activities: - Distribution of electricity – an activity which consists of distributing the electricity, used to meet the needs of clients conducting business activities; - Trade in gaseous fuels – an activity which consists of trading in nitrogen-enriched natural gas and is conducted to meet the needs of clients engaged in business activities; and - Distribution of gaseous fuels – an activity which consists of distributing nitrogen-enriched natural gas by utilising the distribution grids located in the Legnica and Głogów municipalities in order to meet the needs of clients conducting business activities. Note 12.11.3 Basic principles of regulatory accounting Regulatory accounting is a specific type of accounting, if compared to the accounting carried out in accordance with the Accounting Act of 29 September 1994, conducted by an entrepreneur for its regulated activities including energy activities. In addition to the accounting principles which were described in these financial statements and were the basis for the keeping of the accounting records and for preparation of the Company’s financial statements, KGHM Polska Miedź S.A. applies the following accounting policies for the purposes of regulatory accounting: Causality principle The allocation of particular revenue and costs is made in accordance with a given assets’ intended purpose and utilisation of assets to meet the needs of a specified type of activity or service, with the causality principle governing the recognition of items of revenue and costs in specified types of activity and with the principle of consistency between recognition by types of activity of items of revenue and costs, which stems from the fact that these items reflect different aspects of the same events. Objectivity and non-discrimination principle The allocation of assets, liabilities, equity, revenue and costs is done objectively and is not aimed at making profits or incurring losses. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 115 Continuation and comparability principle The methods and principles used in preparing the report on regulatory accounting are applied in a continuous manner. This report was prepared using the same principles for the current and comparable periods. Transparency and consistency principle The methods applied in preparing the report on regulatory accounting are transparent and consistent with the methods and principles applied in other calculations performed for regulatory purposes and with the methods and principles applied in preparing the financial statements. Materiality principle (feasibility principle) The Company permits certain simplifications in measurement, recognition and allocation of items of assets, liabilities, equity, revenue and costs as long as it does not significantly distort the true picture of the financial position and assets presented in the financial statements on regulated activities. Note 12.11.4 Detailed principles of regulatory policy – methods and principles governing the allocation of assets, liabilities, equity, costs and revenues The Company prepares financial information on its regulated activities by overlapping the regulated activities’ structure with the Company’s organisational structure. The Company applies, in a continuous manner, various methods for the allocation of revenue, costs, assets and liabilities to specific types of regulated activities. The following methods were used: • specific (direct) identification method – applied if a direct identification of value is possible, for example the level of revenue from certain activities, • direct allocation method (e.g. the purchase cost of production fuel) – this method is applied if there is a direct cause- and-effect relationship between the consumed resource and the corresponding cost, • indirect allocation method on the basis of a predetermined allocation key, this method is used among others, to allocate cost in a situation where no direct cause-and-effect relationship between the utilised resource and the cost item exists and there is a need to use a cost driver (an allocation key) which enables linkage of items with their respective cost. The most commonly used allocation keys are: • revenue key – value of revenue is the allocation key; • production key – production units are the allocation key; • power key – the installed power of machines and equipment is used for the allocation of indirect costs; • cost key – the value of costs is the allocation key; • mixed keys, which combine elements of several different keys; and • other keys appropriate for a specific case. Assets In the statement of financial position of KGHM Polska Miedź S.A. for the current and comparable periods, the following items of assets of regulated activities were recognised: Non-current assets: 1.Fixed assets, 2.Fixed assets under construction, Current assets: 1. Trade receivables. Other items of assets in the Company’s statement of financial position were allocated to other activities due to the lack of a link between these items and regulated activities, or because the share of these items in regulated activities is immaterial. Fixed assets The identification and allocation of specific items of fixed assets to regulated activities takes place when these items of fixed assets are brought into use. Based on the key consumption for energy carriers, being the quantitative share in sales of the energy carrier in the total volume of the purchased energy carrier less losses, the percentage in the carrying amount of fixed assets used in the energy activities is established. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 116 Share = Volume of energy carriers sold externally in the reporting period x 100% Total volume of purchased energy carrier for the reporting period – losses Fixed assets under construction The allocation of fixed assets under construction to regulated activities is achieved by the detailed identification of expenditures on fixed assets under construction which are related to regulated activities, based on the analysis of accounting records. The remaining expenditures on fixed assets under construction are recognised in other activities of the Company. The Company recognises the full amount of deferred tax assets due to other deductible temporary differences under other activities, due to their immaterial share in regulated activities. Trade receivables Allocation of receivables in specific types of regulated activities is done on the basis of detailed identification of revenues from specific types of regulated activities, by analysing the accounting records with respect to unsettled sales invoices. The remaining amount of trade receivables is recognised in other activities. The Company recognises the full amount of other receivables (i.e. apart from trade receivables) in other activities due to their immaterial share in regulated activities. Equity and liabilities In the statement of financial position, the following items were recognised in equity and liabilities for the current and comparable periods with respect to regulated activities: Equity Liabilities I. Non-current liabilities: 1. Deferred tax liabilities; 2. Future employee benefits liabilities. II. Current liabilities: 1. Future employee benefits liabilities. The full amount of other items of liabilities are recognised by the Company in other activities, due to their immaterial share in regulated activities. Equity The Company allocates equity to regulated activities as an item offsetting the assets and liabilities. Deferred tax liabilities With respect to regulated activities, deferred tax liabilities were identified arising from taxable temporary differences between the depreciation of property, plant and equipment and intangible assets for tax purposes and their carrying amount. The allocation of deferred tax liabilities due to the depreciation of property, plant and equipment and the amortisation of intangible assets, with respect to regulated activities, is performed through the use of indicators set for property, plant and equipment and intangible assets. The Company allocates all deferred tax liabilities arising from other taxable temporary differences to other operating activities. Non-current and current liabilities due to future employee benefits Liabilities due to future employee benefits are allocated to individual types of regulated activities using a revenue key through the indirect allocation method. Revenues from sales Following an analysis of revenues in terms of their allocation to individual types of regulated activities, the Company identified groups of operations which met the following conditions: • revenues from the sale of electricity – distribution; • revenues from the sale of nitrogen-enriched natural gas – distribution; and • revenues from the sale of nitrogen-enriched natural gas – trade. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 117 Revenues from sales are allocated to individual types of regulated activities using the individual identification method. Operating costs Following an analysis of costs in terms of their allocation to individual types of regulated activities, the following types of operating costs were identified: • costs of electricity distribution services and the distribution of natural gas; • the value of the sold merchandise related to trade in natural gas; and • administrative expenses associated with electricity sold. Costs of sales, selling costs and administrative expenses are allocated to separate types of regulated activities based on the Company's account of the actual costs. Income tax The amount of income tax presented in the statement of profit or loss for individual types of regulated activities is set as a multiple of the financial result and the effective tax rate. The amount of current income tax decreases or increases deferred income tax, which is calculated from the difference between the carrying amount and the taxable amount of the respective assets of regulated activities. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 118 Statement of financial position pursuant to article 44 of the Act on Energy Company in total Principal activities Energy activities, of which: Electricity Gas As at 31 December 2022 Distribution Trade Distribution ASSETS Property, plant and equipment 21 195 21 070 125 121 - 4 Intangible assets 1 302 1 302 - - - - Other non-current assets 14 210 14 210 - - - - Non-current assets 36 707 36 582 125 121 - 4 Inventories 7 523 7 523 - - - - Trade receivables 620 600 20 7 8 5 Other current assets 3 145 3 145 - - - - Current assets 11 288 11 268 20 7 8 5 TOTAL ASSETS 47 995 47 850 145 128 8 9 EQUITY AND LIABILITIES Equity 29 675 29 543 132 116 8 8 Deferred tax liabilities 705 695 10 10 - - Employee benefits liabilities 2 394 2 391 3 3 - - Provisions for decommissioning costs of mines and other technological facilities 1 233 1 233 - - - - Other non-current liabilities 5 979 5 979 - - - - Non-current liabilities 10 311 10 298 13 13 - - Employee benefits liabilities 1 365 1 365 - - - - Other current liabilities 6 644 6 644 - - - - Current liabilities 8 009 8 009 - - - - TOTAL LIABILITIES 18 320 18 307 13 13 - - TOTAL EQUITY AND LIABILITIES 47 995 47 850 145 129 8 8 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 119 Company in total Principal activities Energy activities, of which: Electricity Gas As at 31 December 2021 Distribution Turnover Distribution ASSETS Property, plant and equipment 19 842 19 721 121 118 - 3 Intangible assets 1 153 1 153 - - - - Other non-current assets 13 676 13 676 - - - - Non-current assets 34 671 34 550 121 118 - 3 Inventories 5 436 5 436 - - - - Trade receivables 600 587 13 8 5 - Other current assets 2 751 2 751 - - - - Current assets 8 787 8 774 13 8 5 - TOTAL ASSETS 43 458 43 324 134 126 5 3 EQUITY AND LIABILITIES Equity 25 840 25 717 123 115 5 3 Deferred tax liabilities 290 282 8 8 - - Employee benefits liabilities 2 040 2 037 3 3 - - Provisions for decommissioning costs of mines and other technological facilities 811 811 - - - - Other non-current liabilities 6 566 6 566 - - - - Non-current liabilities 9 707 9 696 11 11 - - Employee benefits liabilities 1 130 1 130 - - - - Other current liabilities 6 781 6 781 - - - - Current liabilities 7 911 7 911 - - - - TOTAL LIABILITIES 17 618 17 607 11 11 - - TOTAL EQUITY AND LIABILITIES 43 458 43 324 134 126 5 3 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 120 Statement of profit or loss pursuant to article 44 of the Act on Energy Company in total Principal activities Energy activities, of which: Electricity Gas from 1 January 2022 to 31 December 2022 Distribution Trade Distribution Revenues from contracts with customers 28 429 28 323 106 35 62 9 Cost of sales (23 157) (23 022) ( 135) ( 40) ( 93) ( 2) Gross profit 5 272 5 301 ( 29) ( 5) ( 31) 7 Selling costs and administrative expenses (1 306) (1 306) - - - - Profit on sales 3 966 3 995 ( 29) ( 5) ( 31) 7 Other operating income and costs 1 299 1 299 - - - - Finance income/(costs) ( 269) ( 269) - - - - Profit before income tax 4 996 5 025 ( 29) ( 5) ( 31) 7 Income tax expense (1 463) (1 453) ( 10) ( 9) - ( 1) Profit for the period 3 533 3 572 ( 39) ( 14) ( 31) 6 Company in total Principal activities Energy activities, of which: Electricity Gas from 1 January 2021 to 31 December 2021 Distribution Trade Distribution Revenues from contracts with customers 24 618 24 552 66 43 18 5 Cost of sales (19 441) (19 358) ( 83) ( 44) ( 38) ( 1) Gross profit 5 177 5 194 ( 17) ( 1) ( 20) 4 Selling costs and administrative expenses (1 073) (1 073) - - - - Profit on sales 4 104 4 121 ( 17) ( 1) ( 20) 4 Other operating income and costs 3 088 3 088 - - - - Finance income/(costs) ( 476) ( 476) - - - - Profit before income tax 6 716 6 733 ( 17) ( 1) ( 20) 4 Income tax expense (1 547) (1 538) ( 9) ( 8) - ( 1) Profit for the period 5 169 5 195 ( 26) ( 9) ( 20) 3 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 121 Note 12.12 Information on the impact of COVID-19 and the war in Ukraine on the Company’s operations KEY RISK CATEGORIES The most significant risk factors related to the COVID-19 pandemic and the war in Ukraine impacting the Company’s activities are: • increased absenteeism amongst employees of the core production line as a result of subsequent waves of infection by the SARS-CoV-2 virus, • further increase in the prices of fuels and energy carriers, • interruptions in the supply chain and the availability of materials (e.g. steel), fuels and energy on international markets, • interruptions and logistical restrictions as regards international transport, • restrictions in certain sales markets, a drop in demand and optimisation of inventories of raw materials and finished products amongst customers, • the global economic slowdown, • potential exceptional legal changes, • volatility in copper, silver and molybdenum prices, • volatility in the USD/PLN exchange rate, • volatility in electrolytic copper production costs, including in particular due to the minerals extraction tax, changes in the value of purchased copper-bearing materials consumed and volatility in prices of energy carriers and electricity, • the increase in prices of materials and services due to the observed high inflation, and • the general uncertainty on financial markets and the economic effects of the crisis. Evaluation of the key categories of risk which are impacted by the coronavirus pandemic and/or the war in Ukraine is performed by the on-going monitoring of selected information in the areas of production, sales, supply chains, personnel management and finance, in order to support the verification and assessment process of the current financial and operating situation of KGHM Polska Miedź S.A. IMPACT ON THE METALS MARKET AND SHARES PRICE From the Company’s point of view, an effect of the COVID-19 pandemic and the war in Ukraine is an increase in market risk related to volatility in metals prices and market indices. The Company’s share price at the end of 2022 increased by 45% compared to the price at the end of the third quarter of 2022, decreased by 9% compared to the end of 2021 and at the close of trading on 30 December 2022 amounted to PLN 126.75. During the same periods the WIG index increased by 14% and fell by 17%, while the WIG20 index increased by 30% and fell by 21%. As a result of changes in the share price of KGHM, the Company’s capitalisation decreased from PLN 27.88 billion at the end of 2021 to PLN 25.35 billion at the end of 2022. After a stable first half of 2022, when the average price of copper amounted to 9 761 USD/t, the price decreased by 18.6% compared to the average price of cooper in the second quarter of 2022. However, from November 2022, an upward trend was recorded and in the fourth quarter of 2022 the average price of copper increased by 3.3.% compared to the average price of cooper in the third quarter of 2022. The average price of copper in the entire year of 2022 amounted to 8 797 USD/t, which was at the level assumed in the budget. IMPACT ON THE FUELS AND ENERGY CARRIERS MARKETS AND ON THE AVAILABILITY OF RAW AND OTHER MATERIALS The potential continuation of increases in prices of fuels and energy carriers may still be the main factor generating a further increase in the Company’s cost of sales, selling costs and administrative expenses. While individual limitations have been observed in the availability of raw and other materials, at present KGHM Polska Miedź S.A. is still not experiencing a substantial negative impact of these limitations on its operations. Taking into consideration the continuity of supply of energy carriers (natural gas, coal, coke), at present KGHM Polska Miedź S.A. is not experiencing a negative impact from the suspension of Russian natural gas, coal and coke deliveries, and is fully capable of maintaining the continuity of the core production business and other production processes. KGHM Polska Miedź S.A., as one of the largest electricity consumers in the country, has been diversifying its demand for electricity for many years according to an effective strategy developed over the years, which includes self-generation. The purchase is realised under bilateral contracts, framework agreements with many suppliers and on the Polish Power Exchange (these contracts are not financial instruments under IFRS). The policy for the purchase of electricity and gaseous fuel has been advanced for years under the Standing Commission for the purchase of electricity, gaseous fuel and property rights. Nevertheless, regardless of the lack of a significantly negative impact of the above-described restrictions on the Company's operations, KGHM recorded a negative impact of the increase in prices on the fuel and energy carriers market, which ultimately caused deviations in the realisation of the budget assumptions for 2022 on the cost side of KGHM Polska Miedź S.A. Details on the operating results of the segments can be found in the Management Board’s report on the activities of KGHM Polska Miedź S.A. and the KGHM Polska Miedź S.A. Group in 2022. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 122 IMPACT ON THE SPA ACTIVITIES OF EQUITY INVESTMENTS OF THE COMPANY The increased number of patients with the SARS-CoV-2 virus omicron variant recorded at the start of 2022, and in subsequent months the war in Ukraine, caused a temporary decline in the number of reservations and customer stays in the spa facilities. Nonetheless, beginning at the turn of April and May 2022, the situation systematically improved and stabilised. Starting from 16 May 2022, the state of pandemic was rescinded and was replaced by the state of pandemic threat, which remains in force until rescinded. In the fourth quarter of 2022 no direct negative impact of COVID-19 was recorded on the functioning of the market in which these companies operate. Therefore, the financial forecasts of these companies for 2023 and subsequent years do not assume restrictions of their operations or any temporary suspensions in the operations of their spa facilities. The spa companies involved in curative activities, which are financed from public funds, take advantage of the protection arising from the law on particular solutions aimed at protecting consumers of natural gas due to the situation on the natural gas market. The protection provided by this law will be in force to the end of 2023. The financial obligations of the spas to their creditors and lessors in the fourth quarter of 2022 were regulated on time, while the improved results, despite the higher-than-expected costs of electricity, natural gas and debt servicing, had a positive impact on meeting the conditions included in the investment loan agreement with the bank Pekao S.A. As a result of the funds received from the 2.0 Shield for Large Enterprises from the Polish Development Fund (PDF, Polski Fundusz Rozwoju S.A.) for periods in which the operations were shut down, in August 2022 Uzdrowisko Połczyn Grupa PGU S.A. and Uzdrowiska Kłodzkie S.A. – Grupa PGU settled the obtained support and received permission for remission of the loan. Other companies which received subsidies under the PDF’s Financial Shield program for the Small and Medium-sized Enterprises sector are awaiting the decision of the PDF as to the settlement of the support. IMPACT ON THE ACTIVITIES OF THE COMPANY The pandemic situation caused by COVID-19 did not have a significant impact on the operations of the Company. At the date of publication of this report the Management Board of KGHM Polska Miedź S.A. estimates the risk of loss of going concern caused by COVID-19 to still be low. The geopolitical situation associated with the direct aggression of Russia against Ukraine and the implemented system of sanctions does not currently limit the operations of KGHM Polska Miedź S.A., while the risk of interruptions to the operational continuity of the Company in this regard continues to be still considered as low. Despite the high inflation observed in the global economy, resulting in the tightening of the monetary policy, the demand for the Company‘s key products did not deteriorate significantly in the fourth quarter of 2022. The metal prices were characterised by an upward dynamic resulting, among others, from the depreciation of the US dollar. In addition, the easing of the "zero COVID" policy by the Chinese authorities gave rise to the expectation of increased consumption of metals in China in 2023, which also had a positive impact on the increase in metal prices at the end of 2022. In the following year, the main sources of risk for economic development will be the high level of inflation and Russia’s aggression against Ukraine, which may result in an economic slowdown in key industries for metal consumption (e.g. construction). Currently, it is not possible to estimate the impact of these factors on the potential net result, however the situation is continuously being monitored and simultaneously possible mitigation measures are being used. In terms of the availability of capital and the level of debt, the Company holds no bank loans drawn from institutions threatened with sanctions. With respect to exchange differences (the measurement of balance sheet items denominated in foreign currencies), a weakening of the PLN may increase foreign exchange gains (unrealised) due to the fact that the amount of the loans granted by the Company in USD is higher than the amount of borrowings in USD. PREVENTIVE ACTIONS IN THE COMPANY In KGHM Polska Miedź S.A. thanks to the implementation of a variety of preventative measures there were no production stoppages which would have been directly attributable to the pandemic and the war in Ukraine, and the copper production in 2022 was higher than the level assumed in the budget. For years, KGHM Polska Miedź S.A. has applied procedures related to the monitoring of repayment of receivables. The timeliness of payments by customers is subject to daily reporting, while any recorded interruptions in cash flows from customers are immediately explained. In terms of sales, currently the majority of the Company’s customers do not report significantly negative impact from the previous waves of the pandemic on their activities, thanks to which the trade receivables towards the Company are paid on time, while deliveries are sent to customers without major interruptions. The strategy of diversification of suppliers applied by the Company and the use of alternative solutions at the present time effectively mitigate the risk of interruptions in the supply chains of raw and other materials. At the same time, KGHM Polska Miedź S.A. is fully capable of meeting its financial obligations. The financial resources held by the Company and the obtained borrowings guarantee its continued financial liquidity. The financing structure based on long-term and diversified sources of financing, provided the Company with long-term financial stability by maintaining a stable spread of debt maturities and optimising its cost. Currently, the Company also does not identify a significant risk of in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 123 a breach in the financial terms (so-called “covenants”) contained in external financing agreements, related to the COVID-19 pandemic and the war in Ukraine. KGHM Polska Miedź S.A. continues to advance its investment projects in accordance with established schedules and therefore does not identify any risk to their continuation due to the effects of the coronavirus pandemic and the war in Ukraine. During the reporting period there were no interruptions in the continuity of the Company’s operations caused by infections of this virus amongst the employees and no substantially higher level of absenteeism amongst employees was recorded. In the Company, the process continued of implementing a comprehensive business continuity management system, which also enables a detailed breakdown of the scope of actions undertaken as regards managing corporate risk in terms of the risk of a catastrophic impact and the small probability of their occurrence. Taking into consideration the risk of appearance of new mutations of the SARS-CoV-2 virus and the next wave of the COVID- 19 pandemic observed in China, there is still uncertainty as to the potential development of the pandemic situation in the world, in particular as to the consequence of its impact on the economic and social situation in Poland and globally. From the start of the COVID-19 pandemic, China maintained a restrictive “zero covid” policy, and in the fourth quarter of 2022 it decided to lift most of the restrictions. The expected economic recovery, given the improved pandemic situation so far, was slowed down by Russia’s aggression against Ukraine with an impact on food security, high prices of energy and the Producer Price Index, as well as problems with access to synthetic fertilizers. With respect to stability in the continuity of energy carriers supply chains, the directions of energy-climate geopolitics will be of importance, especially in the context of gaining independence by European countries from Russian deliveries of natural gas and coal and the effects of the plan adopted by the EU Member States to reduce natural gas consumption in winter. The Company continuously monitors the international economic situation in order to assess its potential negative impact on KGHM Polska Miedź S.A. and to take anticipative actions to mitigate this impact. Note 12.13 Risks and hazards associated with climate change KGHM Polska Miedź S.A. is a conscious and responsible participant in the energy transition, and adaptation to climate changes and the management of climate risk are of key importance to it. The Company continuously evaluates the risk associated with the climate and the impact on its operations under the process of Corporate Risk Management of the KGHM Polska Miedź S.A. Group, which was described in more detail in the Management Board’s report on the activities of the Company and the KGHM Polska Miedź S.A. Group in 2022. The negative impact of climate change on the activities of KGHM Polska Miedź S.A. is analysed using the classification presented below. The Company is exposed to physical climate risk, arising from specified events, in particular related to violent and chronic weather phenomena resulting from changes in the climate, such as storms, floods, fires or heat waves, as well as permanent changes in weather patterns, which could impact the operations of the Company, among others, through disruptions in the supply chain, the continuity of the core business and an increase in operating costs directly related to the core business as well as through more difficult working conditions. The climate risk related to the transition, to which the Company is exposed, arises from the need to adapt the economy to gradual climate change. This risk category comprises questions related to legal requirements, technological progress towards a low-carbon economy and changes in demand and supply for certain products and services, whose production is associated with the climate risk as well as the growing expectations of stakeholders regarding the Company as to the reduction of its impact on the climate. A detailed description of identified, key climate risks associated with negative impact of climate changes on the activities of KGHM Polska Miedź S.A., including parameters used in their assessment and actions undertaken by the Company to mitigate their impact, is presented in the Management Board’s report on the activities of the Company and the KGHM Polska Miedź S.A. Group in 2022. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 124 While assessing the impact of identified climate risks on the Company’s activities, in particular the volatile costs of CO 2 emission rights, the increase in costs of electricity, costs associated with research and additional expenditures on development of internal energy sources, the following areas were subjected to detailed assessment: • adopted periods of economic utility of fixed assets and their residual values, • existence of indications of the possibility of impairment of property, plant and equipment and intangible assets, • assumptions which are a part of the measurement of loans granted, • revaluation of the provision for future decommissioning costs of mines and other technological facilities, • revaluation of provisions for additional costs of sales, selling costs and administrative expenses, • liabilities and liabilities due to guarantees associated with potential fines and environmental penalties. As a result of the aforementioned work, as at 31 December 2022 no material impact of climate risk on the aforementioned areas was identified. Note 12.14 Subsequent events Notification on a crossing of the 5% threshold in the total number of votes On 6 January 2023, the Management Board of KGHM Polska Miedź S.A. announced that the Company received a notification from Powszechne Towarzystwo Emerytalne Allianz Polska S.A. dated 5 January 2023. According to the notification received, Powszechne Towarzystwo Emerytalne Allianz Polska S.A. which manages Allianz Polska Otwarty Fundusz Emerytalny („Allianz OFE”), which in turn manages Allianz Polska Dobrowolny Fundusz Emerytalny („Allianz DFE”) as a result of a merger performed on 30 December 2022, with the company Aviva Powszechne Towarzystwo Emerytalne Aviva Santander Spółka Akcyjna which manages Drugi Allianz Polska Otwarty Fundusz Emerytalny („Drugi Allianz OFE”), the interest held in the share capital and the total number of votes in the Company on the accounts of Allianz OFE, Allianz DFE and Drugi Allianz OFE crossed the threshold of 5%. Prior to the merger, in total on the accounts of Allianz OFE and Allianz DFE there were 1 741 592 shares, representing 0.87% of the Company’s share capital and granting the right to 1 741 592 of the votes amounting to 0.87% of the total number of votes at the Company’s General Meeting. On the account of Drugi Allianz OFE there were 10 499 861 shares, representing 5.25% of the Company’s share capital and granting the right to 10 499 861 of the votes amounting to 5.25% of the total number of votes at the Company’s General Meeting. Following the merger, in total on the accounts of Allianz OFE, Allianz DFE and Drugi Allianz OFE there was an increase to 12 241 453 shares, representing 6.12% of the Company’s share capital and granting the right to 12 241 453 of the votes amounting to 6.12% of the total number of votes at the Company’s General Meeting. Annexes signed to bank guarantees On 3 February 2023, BNP Paribas Bank Polska S.A., at the Company’s request, issued annexes to bank guarantees issued pursuant to art 137 section 2 of the Act of 14 December 2012 on waste (unified text: Journal of Laws of 2022, item 699). In order to create a tailings storage facility restoration fund, which increased the total value of guarantees from the amount of PLN 98 million to PLN 120 million, with maturity falling on 15 February 2024. Drawing of an instalment of the unsecured, revolving syndicated credit facility On 6 February 2023, the Company drew an instalment of the unsecured, revolving syndicated facility under the agreement signed on 20 December 2019 with the syndicate of banks. The liability in the amount of USD 50 million (or PLN 219 million per the NBP exchange rate from the drawing date) was drawn for the period of 2 weeks, and after that period it was extended by 1 month. The credit facility’s interest is based on LIBOR rate plus a margin. Issuance of a bank guarantee to secure liabilities On 14 February 2023, at the Company’s request, a bank guarantee was issued to secure liabilities arising from a surety agreement signed between KGHM Polska Miedź S.A., Dom Maklerski Banku Ochrony Środowiska S.A. and Izba Rozliczeniowa Giełd Towarowych S.A., aimed at assuring by the Company the liabilities of Dom Maklerski due to the settlement of transactions to purchase electricity at the Polish Power Exchange (Towarowa Giełda Energii), up to the total amount of PLN 150 million, with maturity falling on 31 March 2023. Loan granted by the Company to KGHM INTERNATIONAL LTD. On 23 February 2023, a loan agreement was entered into between KGHM Polska Miedź S.A. and KGHM INTERNATIONAL LTD. in the amount of USD 105.5 million (PLN 473 million, 4.4879 USD/PLN) for the advancement of the Victoria project. The loan’s interest was set at arm’s length. The agreement expires on 31 December 2033. Drawing of an instalment from the European Investment Bank On 6 March 2023, the Company drew an instalment of the investment loan from the European Investment Bank under the agreement signed on 11 December 2017. The liability in the amount of USD 99 million, which is the equivalent of the available financing in the amount of PLN 440 million, was drawn for the period of 12 years. Funds acquired under this instalment are used to continue investment projects advanced by the Company. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 125 Conclusion of an agreement for sale of shares of KGHM TFI S.A. On 13 March 2023, KGHM Polska Miedź S.A. concluded an Agreement for the sale of 100% of the shares of KGHM TOWARZYSTWO FUNDUSZY INWESTYCYJNYCH SPÓŁKA AKCYJNA (“Shares”) with Agencja Rozwoju Przemysłu S.A. (“Buyer”). The carrying amount of shares as at 31 December 2022 amounted to PLN 3 million. The sale of the Shares was contingent on meeting the conditions precedent, among others no objections raised by the Polish Financial Supervision Authority. The ownership rights to the Shares will be transferred to the Buyer at the moment an appropriate entry is made in the Share Register. The sale of the Shares is the last stage of the reorganisation under the Group’s structure, which comprised the liquidation of closed-end, non-public investment funds. KGHM TFI S.A. has not managed any funds since 20 December 2022, that is from the date of deregistration of the KGHM VII FIZAN fund. As at the end of the reporting period, the value of sold shares of KGHM TFI S.A. amounted to PLN 3 million. Due to the insignificant value, these assets were not reclassified in the Company’s statement of financial position to “Assets held for sale”. in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 126 PART 13 - Quarterly financial information of KGHM Polska Miedź S.A. SEPARATE STATEMENT OF PROFIT OR LOSS from 1 October 2022 to 31 December 2022 from 1 October 2021 to 31 December 2021 from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Revenues from contracts with customers 6 646 6 648 28 429 24 618 Cost of sales (5 628) (5 448) (23 157) (19 441) Gross profit 1 018 1 200 5 272 5 177 Selling costs and administrative expenses ( 425) ( 346) (1 306) (1 073) Profit on sales 593 854 3 966 4 104 Other operating income, including: ( 5) 301 2 172 4 273 fair value gains on financial assets measured at fair value through profit or loss ( 175) ( 243) 631 1 070 reversal of impairment losses on financial instruments 31 273 213 807 Other operating costs, including: ( 896) ( 410) ( 873) (1 185) impairment losses on financial instruments ( 1) 7 ( 7) ( 4) Finance income 537 35 148 70 Finance costs ( 90) ( 134) ( 417) ( 546) Profit/(Loss) before income tax 139 646 4 996 6 716 Income tax expense ( 144) ( 329) (1 463) (1 547) PROFIT/(LOSS) FOR THE PERIOD ( 5) 317 3 533 5 169 Weighted average number of ordinary shares (million) 200 200 200 200 Basic/diluted earnings per share (in PLN) ( 0.03) 1.59 17.67 25.85 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 127 Explanatory notes to the statement of profit or loss Note 13.1 Expenses by nature from 1 October 2022 to 31 December 2022 from 1 October 2021 to 31 December 2021 from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Depreciation of property, plant and equipment and amortisation of intangible assets 387 356 1 504 1 435 Employee benefits expenses 1 344 1 097 4 832 4 249 Materials and energy, including: 3 446 2 681 13 687 10 242 Purchased metal-bearing materials 2 158 1 769 8 859 7 132 Electrical and other energy 415 284 1 921 1 230 External services, including: 684 545 2 238 1 884 Transport 87 72 328 278 Repairs, maintenance and servicing 217 181 699 569 Mine preparatory work 201 128 617 510 Minerals extraction tax 746 1 009 3 046 3 548 Other taxes and charges 140 ( 74) 487 398 Advertising costs and representation expenses 31 23 80 63 Property and personal insurance 9 9 39 35 Reversal of write-down of inventories ( 12) ( 1) ( 52) ( 20) Write-down of inventories 7 13 13 41 Other costs 8 10 21 26 Total expenses by nature 6 790 5 668 25 895 21 901 Cost of merchandise and materials sold (+) 118 127 449 339 Change in inventories of products and work in progress (+/-) ( 790) 44 (1 665) (1 562) Cost of products for internal use (-) ( 65) ( 45) ( 216) ( 164) Total cost of sales, selling costs and administrative expenses, including: 6 053 5 794 24 463 20 514 Cost of sales 5 628 5 448 23 157 19 441 Selling costs 46 41 173 156 Administrative expenses 379 305 1 133 917 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 128 Note 13.2 Other operating income/(costs) from 1 October 2022 to 31 December 2022 from 1 October 2021 to 31 December 2021 from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Gains on derivatives, of which: ( 12) 9 268 323 measurement ( 62) ( 21) 108 209 realisation 50 30 160 114 Exchange differences on assets and liabilities other than borrowings - 135 500 511 Interest on loans granted and other financial receivables 94 79 348 304 Fees and charges on re-invoicing of costs of bank guarantees securing payments of liabilities 1 1 31 68 Reversal of impairment losses on financial instruments measured at amortised cost, including: 31 273 213 807 loans 31 270 213 752 Fair value gains on financial assets measured at fair value through profit or loss, including: ( 175) ( 243) 631 1 070 loans ( 192) ( 256) 601 1 056 Reversal of impairment losses on shares in subsidiaries - - - 1 010 Dividends income - - 29 37 Profit on the disposal of shares in subsidiaries 2 13 2 25 Release of provisions 2 7 12 22 Refund of excise tax for previous years 1 - 1 5 Overpayment of property tax 24 8 25 8 Other 27 19 112 83 Total other operating income ( 5) 301 2 172 4 273 Losses on derivatives, of which: ( 115) ( 176) ( 490) ( 768) measurement ( 11) 3 ( 116) ( 141) realisation ( 104) ( 179) ( 374) ( 627) Impairment losses on financial instruments measured at amortised cost ( 1) 7 ( 7) ( 4) Exchange differences on assets and liabilities other than borrowings ( 796) - - - Fair value losses on financial assets measured at fair value through profit or loss, including: ( 6) 21 ( 87) ( 63) loans - - - ( 9) Financial support granted to municipalities ( 1) - ( 100) - Impairment losses on shares and investment certificates in subsidiaries - ( 182) - ( 182) Provisions recognised 74 ( 28) ( 16) ( 58) Donations granted ( 20) ( 13) ( 53) ( 29) Compensations, fines and penalties paid and costs of litigation ( 8) ( 5) ( 28) ( 6) Losses on disposal of property, plant and equipment (including costs associated with disposal of fixed assets) ( 8) 1 ( 22) ( 5) Impairment losses on fixed assets under construction and intangible assets not yet available for use ( 3) ( 6) ( 6) ( 13) Other ( 12) ( 29) ( 64) ( 57) Total other operating costs ( 896) ( 410) ( 873) (1 185) Other operating income and (costs) ( 901) ( 109) 1 299 3 088 in PLN millions, unless otherwise stated KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 129 Note 13.3 Finance income/(costs) from 1 October 2022 to 31 December 2022 from 1 October 2021 to 31 December 2021 from 1 January 2022 to 31 December 2022 from 1 January 2021 to 31 December 2021 Exchange differences on borrowings 436 - - - Gains on derivatives - realisation 83 35 130 70 Result of the settlement of a transaction hedging against interest rate risk due to the issue of bonds with a variable interest rate 18 - 18 - Total income 537 35 148 70 Interest on borrowings 17 ( 30) ( 48) ( 92) leases ( 3) ( 2) ( 10) ( 8) Bank fees and charges on borrowings ( 6) ( 7) ( 30) ( 28) Exchange differences on measurement and realisation of borrowings - ( 54) ( 179) ( 338) Losses on derivatives, of which: ( 98) ( 41) ( 149) ( 80) measurement - - - ( 1) realisation ( 98) ( 41) ( 149) ( 79) Unwinding of the discount effect ( 3) ( 2) ( 11) ( 8) Total costs ( 90) ( 134) ( 417) ( 546) Finance income/(costs) 447 ( 99) ( 269) ( 476) KGHM Polska Miedź S.A. Separate Financial Statements for 2022 Translation from the original Polish version 130 SIGNATURES OF ALL MEMBERS OF THE MANAGEMENT BOARD These financial statements were authorised for issue on 21 March 2023. President of the Management Board Tomasz Zdzikot Vice President of the Management Board Mateusz Wodejko Vice President of the Management Board Marek Pietrzak Vice President of the Management Board Mirosław Kidoń Vice President of the Management Board Marek Świder SIGNATURE OF PERSON RESPONSIBLE FOR ACCOUNTING Executive Director of Accounting Services Centre Chief Accountant Agnieszka Sinior