10. Working capital

in PLN millions, unless otherwise stated

Note 10.1 Inventories

Accounting policies	Significant estimates and assumptions
The Group measures inventories at cost, not higher than the sales price less costs of completing production and costs to sell. Inventory disposals are measured at weighted average cost.	In the consolidated financial statements the amount of those inventories of the KGHM INTERNATIONAL LTD. Group which arise from the leaching process, is determined based on the estimated recovery of metal from ore. The nature of the process of leaching copper from ore limits the precision of monitoring the level of inventories arising during this process. In subsequent reporting periods, adjustments are made to the estimated recovery of copper from the leaching of ore in a given reporting period to the level of production achieved in the subsequent period. As at 31 December 2018 the provisionally-set value of inventories amounted to PLN 55 million (as at 31 December 2017, PLN 47 million).

Accounting policies

Significant estimates and assumptions

The Group measures inventories at cost, not higher than the sales price less costs of completing production and costs to sell.

Inventory disposals are measured at weighted average cost.

In the consolidated financial statements the amount of those inventories of the KGHM INTERNATIONAL LTD. Group which arise from the leaching process, is determined based on the estimated recovery of metal from ore. The nature of the process of leaching copper from ore limits the precision of monitoring the level of inventories arising during this process. In subsequent reporting periods, adjustments are made to the estimated recovery of copper from the leaching of ore in a given reporting period to the level of production achieved in the subsequent period.
As at 31 December 2018 the provisionally-set value of inventories amounted to PLN 55 million (as at 31 December 2017, PLN 47 million).

	As at 31 December 2018	As at 31 December 2017
Materials	727	722
Half-finished goods and work in progress	3 239	3 104
Finished products	805	561
Merchandise	212	175
Total net carrying amount of inventories	4 983	4 562

Note 4.4	Write-down of inventories during the reporting period	from 1 January 2018 to 31 December 2018	from 1 January 2017 to 31 December 2017
	Write-down recognised in cost of sales	(28)	(37)
	Write-down reversed in cost of sales	30	5

Maturities of inventories	As at 31 December 2018	As at 31 December 2017
Maturity over the 12 months from the end of the reporting period	289	126
Maturity of up to 12 months from the end of the reporting period	4 694	4 436

Note 10.2 Trade receivables

Accounting policies
Trade receivables are initially recognised at the transaction price. After initial recognition, receivables are measured: receivables not transferred to full factoring: at amortised cost while taking into account loss allowance for expected credit losses (trade receivables with maturity dates of less than 12 months are not discounted), receivables transferred to full factoring: at fair value through profit or loss, while, because of the short duration between the recognition of receivables and transferral to the factor and due to the low credit risk of the counterparty (factor), the fair value of these receivables is approximate to the carrying amount, receivables priced upon the M+ formula: value is set as the nominal value (i.e. at the cost in the invoice), adjusted by the impact of market and credit risks. Adjustment due to the market risk is calculated as the difference between the current market price for a given pricing period in the future ( a period in which there will be a final settlement of the 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.

Accounting policies

Trade receivables are initially recognised at the transaction price. After initial recognition, receivables are measured:

receivables not transferred to full factoring: at amortised cost while taking into account loss allowance for expected credit losses (trade receivables with maturity dates of less than 12 months are not discounted),
receivables transferred to full factoring: at fair value through profit or loss, while, because of the short duration between the recognition of receivables and transferral to the factor and due to the low credit risk of the counterparty (factor), the fair value of these receivables is approximate to the carrying amount,
receivables priced upon the M+ formula: value is set as the nominal value (i.e. at the cost in the invoice), adjusted by the impact of market and credit risks. Adjustment due to the market risk is calculated as the difference between the current market price for a given pricing period in the future ( a period in which there will be a final settlement of the 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.

The Group is exposed to the credit risk and currency risk arising from trade receivables. Credit risk management and assessment of the credit quality of receivables is presented in Note 7.5.2.3. Information on currency risk is presented in Note 7.5.1.3.

The following table presents the carrying amounts of trade receivables and the amount of expected credit losses:

	As at 31 December 2018	As at 31 December 2017
Trade receivables measured at amortised cost - gross value	714	1 569
Loss allowance for expected credit losses (lifetime) - under IFRS 9	(57)	-
Allowance for impairment – under IAS 39	-	(47)
Trade receivables measured at amortised cost - net value	657	1 522
Trade receivables measured at fair value, including:	304	-
transferred to factoring	70	-
priced upon M+ formula	234	-
Total	961	1 522

Note 10.3 Trade payables

Accounting policies
Trade payables are initially recognised at fair value and are measured at amortised cost at the end of the reporting period. Trade payables with maturity dates of less than 12 moths are not discounted.

	As at 31 December 2018	As at 31 December 2017
Non-current trade payables	171	172
Current trade payables	2 053	1 823
Trade payables	2 224	1 995

The item trade payables contains payables due to the purchase and construction of fixed assets and intangible assets which, as at 31 December 2018, amounted to PLN 163 million in the non-current part and PLN 565 million in the current part (as at 31 December 2017, respectively PLN 163 million and PLN 398 million).
The Group is exposed to currency risk arising from trade payables and liquidity risk. Information on currency risk is presented in Note 7.5.1.3 and the liquidity risk in Note 8.3.1.
The fair value of trade payables approximates the carrying amount.

Note 10.4 Changes in working capital

	Inventories	Trade receivables	Trade payables	Total working capital
As at 31 December 2017	(4 562)	(1 522)	1 995	(4 089)
Change in accounting policies – application of IFRS 9	-	2	-	2
As at 1 January 2018, after application of IFRS 9	(4 562)	(1 520)	1 995	(4 087)
As at 31 December 2018	(4 983)	(961)	2 224	(3 720)
Change in the statement of financial position	(421)	559	229	367
Exchange differences from translation of foreign operations statements with a functional currency other than PLN	32	27	(13)	46
Depreciation/amortisation recognised in inventories	95	-	-	95
Liabilities due to purchase of property, plant and equipment and intangible assets	-	-	(141)	(141)
Other	-	-	-	-
Adjustments	127	27	(154)	-
Change in the statement of cash flows	(294)	586	75	367

	Inventories	Trade receivables	Trade payables	Total working capital
As at 1 January 2017	(3 497)	(1 292)	1 613	(3 176)
As at 31 December 2017	(4 562)	(1 522)	1 995	(4 089)
Change in the statement of financial position	(1 065)	(230)	382	(913)
Exchange differences from translation of foreign operations statements with a functional currency other than PLN	(66)	(64)	30	(100)
Depreciation/amortisation recognised in inventories	64	-	-	64
Liabilities due to purchase of property, plant and equipment and intangible assets	-	-	(39)	(39)
Other	-	-	(8)	(8)
Adjustments	(2)	(64)	(17)	(83)
Change in the statement of cash flows	(1 067)	(294)	365	(996)