in PLN millions, unless otherwise stated
The following Group companies have significant trade receivables: the KGHM INTERNATIONAL LTD. Group PLN 353 million, KGHM Polska Miedź S.A. PLN 305 million, CENTROZŁOM WROCŁAW S.A. PLN 72 million, NITROERG S.A. PLN 33 million, WPEC w Legnicy S.A. PLN 30 million, „MCZ” S.A. PLN 15 million, and WMN “Łabędy” PLN 10 million.
The Parent Entity 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 2020, the amount of receivables transferred to factoring, for which payment from factors was not received, amounted to PLN 15 million (as at 31 December 2019: PLN 22 million). Information on the amount of revenues from sales subjected to factoring in the financial period is presented in Note 2.4.
An inseparable element of the credit risk management process performed by the Parent Entity is the continuous monitoring of receivables and the internal reporting system.
Buyer’s credit is only provided to proven, long-term customers. In the case of new customers, an effort is made to ensure that sales are based on prepayments or trade financing instruments which wholly transfer the credit risk to financial institutions.
The Parent Entity makes use of the following forms of collateral:
Taking into account the above forms of collateral and the credit limits received from the insurance company, as at 31 December 2020 the Parent Entity had secured 75% of its trade receivables (as at 31 December 2019, 64%).
Moreover, the Parent Entity enters into net settlement framework agreements, when it recognises both receivables and liabilities with the same customer.
Although KGHM INTERNATIONAL LTD. does not use collateral, credit risk connected with trade receivables is subject to monitoring, and the majority of sales are to proven, long-term customers conducting international activities.
Assessment of concentration of credit risk in the Group:
| Sector concentration |
While KGHM Polska Miedź S.A. and KGHM INTERNATIONAL LTD. operate in the same sector, these two companies are different both in terms of their portfolios of products as well as in terms of the geographic location and nature of their customers, and consequently this sector concentration of credit risk is considered to be acceptable. Other companies of the Group operate in various economic sectors, such as transport, construction, commerce, industrial production and energy. As a consequence, in the case of most Group companies, in terms of sectors, there is no concentration of credit risk. |
| Customers concentration | As at 31 December 2020 the balance of receivables from the 7 largest customers represented 42% of trade receivables (2019: 29%). Despite the concentration of this type of risk, it is believed that due to the availability of historical data and the many years of experience cooperating with its customers, as well as to the securing used, the level of credit risk is low. |
| Geographical concentration | Companies of the Group have been cooperating for many years with a large number of customers, which affects the geographical diversification of trade receivables. Geographical concentration of credit risk for trade receivables is presented in the table below: |
| Trade receivables (net) | As at 31 December 2020 |
As at 31 December 2019 |
|---|---|---|
| Poland | 38% | 40% |
| European Union (excluding Poland) | 14% | 17% |
| Asia | 13% | 4% |
| Other countries | 35% | 39% |
The Group 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 after the moment of 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 Group’s entities apply provision matrices, made on the basis of historical levels of payment of trade receivables, which are periodically recalibrated in order to update them.
Loss allowance for expected credit losses is measured at the amount equal to expected credit losses during the whole life of the receivables. The Group 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 in payment, according to ranges presented below as “Important estimates and assumptions”.
Default is defined 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, collateral is also taken into account by allocating expected recovery rates to the particular types of collateral.
Moreover, forward-looking information is taken into account 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 Group recognises any deterioration in them in comparison to the previous period, in the ECL calculation the looking forward factor, which corrects risk connected with any decrease in receivables recovery, is taken into account. As at 31 December 2020, or the end of the reporting period, no deterioration of macroeconomic factors was noted.
| Time frame | Percent of allowance for impairment* | Gross amount of receivables | Allowance for impairment in individual time frames** |
|---|---|---|---|
| Not overdue | 0.2-5.3 | 404 | (5) |
| <1,30) | 0.2-16 | 28 | – |
| <30,60) | 5.5-52.9 | 2 | – |
| <60,90) | 23.9-81.5 | 1 | – |
| Default | 100 | 51 | (45) |
| Total | 486 | (50) |
The following table presents the change in trade receivables measured at amortised cost.
| Gross amount | |
|---|---|
| Gross amount as at 1 January 2020 | 548 |
| Change in the balance of receivables | (102) |
| Utilisation of a loss allowance in the period | (2) |
| [Note 10.2] Gross amount as at 31 December 2020 | 444 |
The following table presents the change in the estimation of expected credit losses on trade receivables measured at amortised cost.
| Amount of allowance | |
|---|---|
| Loss allowance for expected credit losses as at 1 January 2020 | 53 |
| Change in allowance in the period recognised in profit or loss | (2) |
| Utilisation of a loss allowance in the period | (2) |
| [Note 10.2] Loss allowance for expected credit losses as at 31 December 2020 | 53 |
As at 31 December 2020, disputed receivables amounted to PLN 38 million (as at 31 December 2019, PLN 38 million). The Group is taking actions aimed at recovering these receivables or explaining the validity of pursuing claims.