KGHM Polska Miedz SA
WSE:KGH
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
105.75
170
|
| Price Target |
|
We'll email you a reminder when the closing price reaches PLN.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
KGHM Polska Miedz SA
You don't have any saved screeners yet
I believe that we may start. Good afternoon, ladies and gentlemen. I would like to welcome you at the meeting, which was convened to discuss financial performance of KGHM Group for 2018. I would like to welcome everyone who joined us here in this room, and I would like to welcome everyone who has joined online. We have live streaming, and it's also possible to send questions.
As I mentioned earlier, today, we are going to discuss results for the past year, and we will also talk about the current situation at KGHM. We will talk about the delivery of our plans. We will have presentation from Marcin Chludzinski, the President of the Management Board; Katarzyna Kreczmanska-Gigol, VP and CFO; Radoslaw Stach, VP for Production; Pawel Gruza, VP responsible for International Assets; and Adam Bugajczuk, VP, Development.
I believe that we may start. Let me turn the floor to President of the Management Board.
Ladies and gentlemen, it is an excellent opportunity to discuss our results for 2018. But in addition to that, we may also take a look at what's happening right now and what is the delivery status of our strategic investment projects and other projects that are underway.
Together, between the members of the Management Board, we will give you the picture of the summary of 2018 and also the insight into recurrent developments.
So starting at the meta level, I may say that 2018 was the year of challenges. There were a lot of high emotions. And since July 2018, when we started the term as members of the Management Board, we had to face all these challenges. The first major challenge was carried over from 2017. It was the breakdown of a smelter at Glogów. It shut down 1/3 of our production capacity. It also impacted 2018. Since Q1, the smelter was shut down. It was actually being reintroduced into production. And I may say that 2018 was very successful under the circumstances that I have described. Despite such developments, we were able to maintain our production. There was a slight drop of 3%. And I believe that all the production services and many other people who intensified their actions in second half of 2018 may claim credit for the success.
So what was the first major challenge? Another major challenge that is still visible on the radar is related to our international assets. International assets is a legacy project that keeps us busy with new challenges. And I may say with great confidence that in 2018 we have taken a lot of effort to optimize and better supervise international assets. And we've seen the first outcomes during the past -- during the last half of 2018, and we already see them right now. And this becomes a trend.
What I have in mind, in particular, is Sierra Gorda. Copper production on a year-to-year basis is up by 20%. And this is a major turnaround. We see that this has become a fairly stable trend. This is not something that happened on its own, it was the product of our management action. Obviously, as it happens in such cases, success has many fathers. And everyone expected that success much earlier, but it turned out that 2018 was quite a breakthrough. And actually, the fathers are not that numerous as you may think. And some fathers and mothers are sitting behind this table. Some of them were serving on the board during the previous terms, and their efforts have been paying off.
Now we also see positive outcomes of initiatives that were defined last year. We revised our strategy, and we came up with new strategic projects. And as I said, we have seen some outcomes. And this is our response to what is happening around the world. On this slide, you see the volatility of copper price 2018, especially the last 6 months, were very difficult. The prices were going down below $6,000 per tonne. And the prices were much lower than budgeted, which was a challenge as it impacted our financial performance, our revenue and EBITDA. And given instability of 2018; the first half of 2018 was very good and was in line with the budget, but the second half of 2018 was completely deterrent and it was completely divergent from whatever was budgeted in terms of the macro indicators. So given the magnitude of the challenge, I believe that performance that we delivered is really excellent given the circumstances.
The copper prices and the developments that unfolded in 2018, where it was quite clear that trade war -- no macroeconomic stability as a result of the trade war. 50% of the global demand for copper comes from China. There was huge uncertainty, and that was reflected in the price of copper.
We are more stable in terms of economic relation between China and U.S. right now. And therefore, we believe that the price that we have currently seems to be quite optimal price. And it was in line with our prior projections, which are available in the public domain. It is our intention to show to you what we believe is the actual situation and the true picture. And it seems that we are right on target when it comes to copper price projections.
And in 2019, we believe that the price of copper will be on our side. So it's no longer going to be a challenge as it was in 2018, a tough challenge that we had to face.
Now 2018 carried a lot of challenges, but at the same time, we were able to take a fresh look at the KGHM and development plans. We revised the strategy in December 2018, and I will revisit some of the strategic assumptions when I summarize our presentation.
The strategy was devised for 5 years. I will explain what has happened along the way. As I said, the strategy is for 5 years, but its impact is forward-looking for the next 15, 20 or even longer more years.
The good news is that all think tanks and analysts agree that until 2030, on average, demand for copper will be up by 30%. So this is an incremental growth of demand, and it will be beneficial to us and to the entire industry. This is triggered by the development of transportation systems, electro-mobility, energy sector, infrastructure, et cetera.
Another good news is that copper has no good equivalent. There is nothing else that can replace copper. Therefore, when we maintain proper production level, when we streamline the cost and keep cost efficiency at the right level, plus we have innovative projects in the pipeline, we are able to make a lot of money on this trend and we can take a huge advantage of this opportunity. Obviously, I'm talking about the trend and opportunities that may present themselves under foreseeable circumstances. There are always some extraordinary events. But under a regular scenario, the market should grow -- or the demand should grow by 30%.
The important news is that it's not very likely that there will be more supply. There are no new mining projects that are ready for the launch. And as a result, you would have the inflowing cathodes or concentrate supplies. Things happen very slowly here. Some analysts claim that we may see some deficits over 3 consecutive years. So we have to be ready for whatever is going to happen. We have to take advantage of the opportunity that is presenting itself. The strategy that we have devised is to make sure that we'll be able to take advantage and fully benefit from this emerging trend.
Now that would be all in terms of introduction. And now I would like to turn the floor to Radoslaw Stach and Katarzyna Kreczmanska-Gigol for the production and economic results.
Ladies and gentlemen, let me start with the production result. 2018 is 634,000 tonnes. It is slightly higher than the budget for 2018. It is slightly lower than 2017. We were down by 3%. However, given some situations that we had, the overall performance and the overall production was really excellent.
Sales of payable copper is a true reflection of production. And here, we were able to deliver a slight growth compared to the budget.
Now moving on, when we look at payable copper production, on a quarter-to-quarter basis, the situation is really good. At the end of Q3, we said that performance is really good, and we are able to show that Q4 was really good. So production in Poland was up. We also had an increased production at Sierra Gorda. There was a slight divergence from the plan at international level because of some sections of the deposit. So on a year-to-year basis, payable copper production was down by 3%, but overall, it was an excellent performance given all the challenges that we had with the smelter and overall difficult situation in the whole sector.
Now moving on to other metals. Silver production was standing good on a quarter-to-quarter basis. On an annual basis, 2018 was similar to 2017. As we said earlier, silver is an additive metal to copper and it is always a function of the copper production. Therefore, the precious metals like TPM were down because certain sections were depleted and, therefore, we see the lower numbers. And now molybdenum on an annual basis is less, but in Q4, we see an excellent result. Molybdenum will be revisited later on.
Now the next slide is about inventories of copper. So we were saying on a regular basis that we are able to reduce the inventories of copper. We took certain measures in the second half of 2018 and therefore, we are able to reduce the inventory. And this is very visible.
Now when you look at the copper anode's inventories, the movement that you see there is consistent with the plan that we have for the copper smelter where we are going to have a shutdown, planned shutdown.
And finally, I would like to highlight main initiatives of 2018. Well, first, we were able to reduce inventories of copper concentrate. And here, we were very successful. We were able to reduce the inventory to a greater extent than initially planned. We processed more than anticipated. We also launched the roasting installation. We mentioned in Q4 the rest is in the pipeline. And we went live with the roaster. And the roasting installation have been in business for the last 45 years with no interrupted operations, so the plan has been delivered. And as a result, the smelter can produce more. This also uses capacity of the flash furnaces, and overall, this is a very positive news that comes from the end of 2018.
Ladies and gentlemen, as regards financial results, revenues were higher by 1%, which is good news because the year 2018 was a time of planned refurbishment of the smelter. So in terms of revenues, obtaining this result was difficult and therefore, we consider this result as a major success. Please note that the negative impact on the amount of revenues came from the change of U.S. dollar to PLN exchange rate. If it hadn't been for all that negative impact of the exchange rate for U.S. dollar, probably, that difference might have been even better.
As regards per unit cost in the Capital Group, we had the refurbishment. We had a strengthening of the PLN to U.S. dollar. C1 cost within the Capital Group was higher than in 2017. Please note that this was simply the impact of the C1 rate in the parent company, that is KGHM. In Sierra Gorda, the cost was considerably lower.
Now I would like to move straight on to the slides which address our liquidity, and then I will come back to the results as such. Ladies and gentlemen, we can see already the first results of the implementation of the new funding strategy. This is seen on a level of cash flows, because cash levels, as you could see, increased significantly. We used factoring to a greater scale than ever before. We released some cash what was previously frozen in receivables and these are the activities which we undertake as part of our new strategy. Please also note one important factor, namely, the level of our debt. If you consider the debt level in U.S. dollars, it went down slightly compared with 2017.
And the favorable exchange rate to U.S. dollar played a role. And if we convert the amount into PLN, the debt in PLN is slightly higher than it was in 2017. However, it is not driven by an actual increase in debt, but in conversion of currencies. Ladies and gentlemen, net debt to adjusted EBITDA ratio is slightly higher than it was in 2017, but we had lower EBITDA due to the planned downtime worse exchange rate to U.S. dollar. So finally, the ratio is somewhat lower. However, it remains at a very satisfactory level.
If you look at the basic figures, debt to adjusted EBITDA ratio was planned at the level of 2 for the end of the year. It was actually much lower at 1.6.
Let's come back to the operating results because this is something you might be interested in. As regards EBITDA, it is lower by 14% in the group. But please note that this was, above all, due to the change in inventories, which grew in connection with the failure that occurred at the end of 2017. And there was also a negative impact from the growth of cost, cost related to a new [ BMC ] contract performed in the U.K., which translated into higher revenues. If you consider net result, please note that the net result is higher by 9% than in 2017 and that in spite of the fact that adjusted EBITDA was lower than in 2017.
We recorded a positive impact of exchange rate differences. We had no write-offs for impairment of tangible fixed assets as happened in 2017. And also, the result on engagement and joint ventures was positive, so that was the reversal of the previously established write-offs on Sierra Gorda.
And I think these are the most important points that I wanted to present. Thank you.
Thank you. Now we will move on to our production assumptions in the context of the plan. We will repeat some data that have already been presented, but also we will refer to the strategic initiatives. And I will ask colleagues from the Management Board to present these aspects.
As regards investments, in 2018, all key investments of key significance for our company were completed on schedule and within the budget. What we consider as our future or the program of making the deposit available, GG-1 shaft is being explored, and the development of all overground infrastructures being conducted that is related to the construction of more than 57 kilometers of corridors that provide access to this deposit. This is very important because in the upcoming years, that will give us access to new exploitation fields. These are things that will ensure stable production in the upcoming years.
Last year, we successfully completed negotiations with Zukowice municipality. As a result, we were able to start work on the construction of another shaft, and that implies access to other deposits and our future development.
As regards projects in smeltering, the CFO has already mentioned the roaster launch. We also started the development of RMR in Legnica. And in midyear, that will be ready to be handed over for operations.
In the context of that adjustment program, we have several dozen projects, also expanded with arsenium in order to meet all requirements related to natural environment protection. Of course, we cannot forget investment related to the development of Iron Bridge and works that are being conducted in [indiscernible], of course, are moving ahead full steam. We expect to hand over the investment for use at the end of the year. All those things are under control.
Thank you.
It should be stressed in the context of production that all the initiatives that have just been enumerated will have an enormous positive effect on the result of 2018, 2019 and that will all have impact on our production activity this year.
Pawel Gruza, please address the foreign assets and what we should expect this year in this regard.
Thank you very much. Ladies and gentlemen, of course, Sierra Gorda, our key leading project in foreign assets has its historical circumstances so which are not the subject of today's presentation. We can only highlight what we did in order to improve the situation of Sierra Gorda, in particular in the second half of 2018.
A new system of oversight was introduced. This new supervision system was more direct, and it caused an increased discipline in Sierra Gorda in terms of production, refurbishment. And I would like to draw your attention to the fact that, particularly in Sierra Gorda, it is important to maintain permanent operations because there are no buffers. That mine was designed to operate along those lines. And we are successful in doing that. We have fewer unplanned downtime, and that translates into the value of production and financial parameters.
We are implementing the program of debottlenecking. And that program encompasses a variety of optimization activities, investment activities, which also bring good results. In particular, that was seen in the fourth quarter last year. These results are also carried over to the first month of 2019, something for which we -- with which we are very satisfied and which makes us optimistic about the prospects of keeping better throughput capacities throughout the rest of 2019. We're talking about a significant increase in production here.
Another project which is also linked to Sierra Gorda is the stock of oxygen ore, which was recovered in the sulfide mine. We made some studies how this resource could be used and how it can contribute to increased volumes of production of the KGHM Group in the future. Tentative analyses confirm our assumptions about the possibility to complete this project, but the final success will depend on the consent and goodwill of our Japanese partner, Sumito (sic) [ Sumitomo ].
We also have resources which are planned further ahead into the future, that is Victoria and Sudbury Basin, and this is still under study. Interest is being expressed in this resource. Potential partners might also join operations on this deposit. We are now at the stage of studying regulatory and legal constraints linked to this deposit.
We can say the same about Ajax, which is another future resource of KGHM, on which we are also working in the context of regulatory requirements.
Let me also mention the contract of DMC. This is linked to the application of state-of-the-art techniques of building mining shafts. There is a slightly new approach of project pipeline here, searching for projects that are promising initiatives around the world, submitting bids and procurement procedures where we see chances of succeeding. And we managed to win a major contract in the U.K. which will give a new lease of life to DMC. And on top of this success, we will build on further successes. You know the principle of success, breeding success, and we hope to obtain more contracts. Thank you.
So by summarizing, I would like to revisit the initial slides where we will refer to the strategy.
And as I mentioned earlier, 2018 was the year of challenges. But we were doing more than just addressing challenges. We closed the year with the revised strategy, which opened the new prospects for KGHM and supports its capacity to take advantage of the emerging trend where we see the growing demand for copper globally. This strategy is being translated into specific actions in 2019.
To be able to take part in this race, KGHM has to be more agile and well placed to onboard new technologies. Once we do it, we are better prepared to take advantage of macroeconomic conditions and emerging demand.
This strategy covers all areas: local production, international production, our energy generation and higher self-sufficiency when it comes to power supplies. It also covers innovation, projects, R&D and our search for the projects that help improve our cost-efficiency and production efficiency.
Each strategy starts with the first step. We have already made the first steps. In terms of power generation, we identified some areas for possible photovoltaic investment projects. We are running analysis today, and we may be moving to the execution soon.
We are the industry where we consume a lot of energy. Therefore, it's not that we are trying to follow the global trend, but this is the actual need. While having our own generation sources, we would be able to have better diversify supplies of electricity. But we're also in line with the global trend where the green copper, copper which is produced with the use of renewable sources, has become more prevalent. So to be able to compete globally, we have to be able to produce and use renewable sources.
Now to give you some specific projects. In April, we launched the new logistics, and the new system will help us better manage inventory of materials and reduce costs. As a result, we'll be able to access parts and materials much faster whether at the smelter level or at the mine level. It's several thousand SKUs, and once we improve logistics, we will obviously improve efficiency of our purchasing processes. All put together should generate sizable savings on purchasing contracts at the headquarter levels and for individual branches of the company. Along the way, we implement SAP system that will support our purchasing system. So that's all supporting our efficiency-geared measures.
In addition to that, we work on some other initiatives that help us make KGHM more sustainable company. This is not a sprint. We have to be forward-looking, and we have to look at the next 10, 15 or 20 years to prepare new mining sites.
The Glogów business, this initiative has been started some time ago, a few years ago. The G1 shaft is being continued despite some geological problems. We were also able to locate G2 shaft. This is where we are getting into the new mining area. We are applying for licenses at the Kopla area and the Bytom Odrzanski. These are just exploration licenses. And there are some disputes related to these licenses because of some legacy issues. But the ministry was obliged to review the decision-making process and licensing process as a result of the court order. Therefore, we see that we may get these licenses, and they will help sustain the life time of KGHM.
Magnesium salt is another license -- magnesium and potassium salt is another license. Here, the deposit is located at [ Polkowice], which is right on the coast of the Baltic Sea, it seems to be quite exotic location, but not as exotic as Sierra Gorda. These materials are needed for our production. The licensing process was put on hold because there were some legal disputes. But the Supreme Administrative Court came up with a final decision, and now we are able to resume the operation of this project.
We are not sure whether we are going to operate it on our own or whether we'll work with the partner. We have to complete the exploration process, and then we can decide what would be the business model for the actual operation of this salt, magnesium and potassium salt.
We already have some experience with salt mining in the other location at Polkowice. So we are working on this project not to have the immediate impact, but to have a prospect for sustained operation for the next 20 years or so.
At this moment, we're looking at some other potential mining sites that can be subject to exploration, and we want to include them in our long-term plan just to work on the development of the longer lifecycle for KGHM. These licenses would involve some other investments that have to become part of our long-term thinking.
And while I'm just mentioning the areas that have not covered by our investment plans yet, but we started thinking about it. Now all the technology lines are being subject to the review. We wanted to improve the cost efficiency. We have over 160 R&D projects. We are reducing the number of projects and we want to focus on those that are most important to us. We want to focus on production, smelting and logistics that, put together, constitute our main production line.
We are very much interested in solutions that supports circular economy so what we are able to recover a lot from our site products or waste products. As you know, from the waste products, we are able to recover silver and we are doing quite well with it. So we are looking for other opportunities to explore possible recovery of other metals or other products that can be sold. So again, we are going to focus on that in 2019.
We summarized 2018, let me say again, the year of challenges. But as a result of addressing the challenges, we were able to maintain the adequate level of production, and we also maintained the right cost level.
The labor cost has been going up. We see that in the service sector and also elsewhere. Last year, there were some extraordinary events like breakdown of the furnace. It was a costly event. The natural gas prices were also growing last year and were impacted our performance. So all these projects involving logistics, KPI for purchasing and the new approach to the decision-making process where the capital group is making decisions with the involvement of the CEO of the daughter companies, so all those things are to improve our overall performance.
We are also testing new solutions, working with our external partners. These solutions are geared to improve our production, mining production. So hopefully, once we deliver all these projects, we will be able to improve EBITDA, and we will be better placed to take opportunity of the growing demand for copper within the next decade up to 2030.
Well, thank you so much for the presentations. Now we will be happy to take any questions you may have. We will take questions from the audience in the room. And we will also answer questions that were sent online.
So to floor is open for questions and I would like to request everyone to introduce themselves before they ask their question.
Robert Maj, IPOPEMA Securities. I have 2 questions. One is local production in Poland. Recently, you were saying that refinery production could be approximately 400,000 tonnes and over 1,000 tonnes of silver that's in the budget. It's end of March now. Are we actually on the right path to deliver this number? And now another question is about international assets. The Morrison mine is planned for shutdown in Q1 and McCreedy West is resuming production. Would you be able to explain these decisions? And another question is about Victoria project. Can we expect anything from that over the next months? Do you see any possible value for this project so that this project starts producing in the foreseeable future and that would involve obviously some CapEx?
Well, to answer your first question, production for 2019, well, after January, we may say that we delivered the plan. There is no risk. Everything is done by the book. As I said, the new installations and the challenges that we faced in 2018, they were all resolved so we do not see any emerging risks at this point. Well, we were speaking about the problem that we had at Rudna, however, it's not impacting our overall performance. So I do not see any immediate risk.
Let me add to that in the smelting production, we see a positive upside coming from the roasting installation. Roasting installation is supporting production capacity. Well, there are still some challenges when you are at the ramp-up period and especially when you implement an innovative installation, you are on the learning curve before you actually figure out what you have to do to make sure that there are no failures and there is a continuous operation with no interruption.
And to answer your question about Sudbury, well, the decision to place one of the mines on current maintenance was based on the low price of nickel. That was the main driver for this decision. And there are a few factors coming to the play. Well, first, we are flexible in our decision-making. When we manage our international assets. We are probably more flexible than previous boards. On the other hand, we want to make the decisions in a very objective way. We don't want to suffer from the historical sentiments. So once we see that the mine is generating losses, we make the decision to put it on hold. Now Victoria, Victoria is a future-oriented project. It is currently under analysis. At this point, we don't have any CapEx planned for that project. But we are all the time involved in the international discussions with prospective partners.
And so far, no final decision has been made about this project. The write-offs that you were seeing -- that you've seen on Sierra Gorda.
Well, this is a product of some complex accounting processes. You should not look at the reversal of the write-off alone. You have to understand that taking the view over historical accounting developments of 2018 when we had loans extended for that project. But overall, we see the outcome of improved management. And we do hope that production performance will be sustained, and as a result, we should be able to revalue the value of this project over the lifetime so we will be able to complete the reversal.
Could you suggest a date by when Sierra Gorda is going to repay finally its debt, will that be 3, 4 years?
The repayment of external liabilities should occur earlier. And the repayment of liabilities towards the group be that KGHM or Sumitomo Group, that's an area on which I will not comment right now and will not give you any specific date. However, I can say that this date will depend on the results generated by Sierra Gorda. And external funding will, of course, be paid on time. In the annual report in covenants, you mentioned the year 2025 is the final date of the repayment of a loan to the group. So I'm just wondering whether it's going to be extended or will you stay within this schedule? Of course, that is planned on favorable parameters, but we're also considering other options in the context of this debt.
I have 2 more questions, if you allow me. With regard to assets that are already active in production in international activity, you have increased lifetime from 17 to 18 years in Sudbury, that's probably driven by Victoria mainly. But could you give us any date by when those currently active assets, Morrison and McCreedy will be decommissioned?
Of course, they have their life of mine. But we continue natural exploration of the open mine sections and that gives us flexibility to the final deadlines. I would also like to mention that an element of our strategy that was communicated not a long time ago was the openness to various forms of alienation or divestment of those foreign assets. So I would like to sense it due to the fact that such moves would be possible for KGHM International to make.
And the last question concerning costs in Poland and KGHM MSA. Just a moment ago, we had a meeting with another mine, Big 20, and they said their production cost grew by 30% in 2019. Can you refer in any way to your cost of energy this year?
We can say that we have a large portion of energy cost hedged in terms of price. We are awaiting to see how the situation develops and we feel quite comfortable.
Are there any further questions? So maybe in the meantime, I will read out the question that was sent to our email box by UBS. Reduction of working capital in the fourth quarter. Part of this reduction came from the expected reduction of levels, but also it came from lower trade receivables with an increase in trade payables. Thanks to the user factoring, we accelerated the turnover of receivables, which caused the better situation of cash at the end of the year. What does it mean? That was a quotation from our press release. Can the assumption be continued? Or can I expect further reduction in inventories in 2019?
Ladies and gentlemen, as regards reduction of the working capital, that is the effect of our pilot transactions with regard to the use of factoring. And this application is, for the time being, to a relatively small scale. That is what occurred at the end of 2018. So by all means, it is possible to see further effects of improvements in the turnover of receivables, longer period of trade payables. Our target is to shorten cash conversion cycle, and we see that the actions we are undertaking are bringing effect. Thank you.
And there was also a question about inventories in 2019. What determined our level of inventories but also contributed to lower dynamics of EBITDA in 2018, was the heap of 440 tonnes as a consequence of the failure of furnace in Glogów, so we had to build up stock at that time. And that later helped us to reduce this heap with increased production in the smelter. After the first quarter, we will be able to give you more specific details. But for the time being, we are handling reasonably the inventory that was initially planned to spread over 3 years. We are able to shorten dramatically this period, which will have a positive impact on the final result. But we also have some planned refurbishment of Legnica smelter. We are building up the stock of anodes in the context of that refurbishment. As a result, the inventories were not diminished as dramatically as we are utilizing the heap because the levels have to be maintained for 2019.
Thank you. I have one more question to the CFO in the context of U.S. dollar exchange rate and prices of copper. Can you comment on hedging activity of the company in 2018 and the approach of the company to hedging in 2019?
Ladies and gentlemen, I always repeat that we have very efficient services that work on market risk. So in terms of hedging, we are really good at it, which means that in 2019, there will be no deterioration in this area.
Thank you very much. Any questions from the room?
One more question concerning HR costs. I understand the agreement that you signed at the beginning of the year covers the increase in the HR cost in KGHM, I'd say? Or do you expect some further increase like one-off bonuses or any similar activities? And also I have a question about your operations in Chile. What are your remuneration negotiations with trade unions like there? When can we expect in Chile?
As regards remuneration, we did everything that was required from us by the collective bargaining agreement, which was an element of legacies in the company, something that we found when we came. And also the increase of salaries is one of the conditions of this agreement. We have certain obligations for this year in the context of remuneration, but we do not expect any extraordinary activities in this respect.
Thank you for this question. The process of negotiations with trade unions in Chile is much more normalized and regulated legally than is the case in Poland. We are advanced in negotiations with the last trade union of 3, 2 agreements that were successfully signed. And now we expect the third trade union will also soon sign the agreement within the legal framework within which we operate. And that is the expectation which will come true.
Can you disclose level of pay raises there?
For the sake of negotiations with last trade union, I will decline to answer this question.
Pawel Wieprzowski, Wood & Company. I have 2 questions. One is about the production guidance for this year. Assuming that you achieve your production guidelines, what working capital of that you are able to release? And the second question is about more quantified target about shortening the conversion of cash and reduction of working capital.
Maybe I will start with the shortening of the cash conversion cycle. As regards inventory turnover cycle, it is very long in our company. And here, apart from the activities which are operational, we cannot do much financially on this point. In this regard, turnover receivables and payables, here, we have instruments that are available in the market, which are used to work on this. And we use such instruments. We want to shorten this cycle as much as we can. And we want to bring about the situation where throughout the capital group factoring is used, precisely because we don't want to use liabilities to finance. We don't want to use receivables to finance our liabilities. We will want to shorten cash conversion cycle and bring it close to 0. But given the long inventory cycles and building up stock levels in the context of planned refurbishment, for sure, we won't be able to achieve the 0 levels. But in the years when no refurbishment is planned, such levels are possible to achieve.
Ladies and gentlemen, I'm looking through the questions that were asked online and it seems that answers have already been provided on the subjects have already been mentioned. So unless there are further questions from the room, we will end this meeting inviting you to stay in touch with us. We are at your disposal in direct communication. We also encourage you to contact us through our website. Thank you very much, and see you at our next meeting. Thank you.