1.1. Name, registered office and line of business

These financial statements are the consolidated financial statements of the Jastrzębska Spółka Węglowa S.A. Group. The presentation currency of these statements is the Polish zloty (“PLN”).

The Jastrzębska Spółka Węglowa S.A. Group (“Group”) is comprised of Jastrzębska Spółka Węglowa S.A. and its Poland-based subsidiaries.

Attributable to shareholders of the Parent Company
NAME Jastrzębska Spółka Węglowa S.A.
REGISTERED OFFICE Aleja Jana Pawła II 4, 44-330 Jastrzębie-Zdrój, Poland
KRS 0000072093 – District Court in Gliwice, Poland, 10th Commercial Division of the National Court Register
REGON 271747631
NIP 633 000 51 10
LINE OF BUSINESS Mining, enrichment and sale of hard coal and sale of coke and hydrocarbons

Jastrzębska Spółka Węglowa S.A. (“JSW”, „Parent Company”) is the joint stock company, which is the parent company in the Group. According to the Articles of Association, the Parent Company may operate in the territory of the Republic of Poland and abroad. The duration of JSW is unspecified. The Parent Company’s shares have been traded publicly since 6 July 2011.

No changes in the name of the Parent Company were made in the financial year ended 31 December 2020.

The Jastrzębska Spółka Węglowa S.A. Group is the largest producer of metallurgical (coking) coal and a significant producer of coke in the European Union. For years, it has held the key position on the Polish and European market for metallurgical (coking) coal and coke, due to the high quality metallurgical (coking) coal it produces and due to its location in proximity to its main customers. The Group also mines steam coal.

As at 31 December 2020, the State Treasury was the majority shareholder of the Group.

In 2020, the State Treasury was the direct top-level controlling entity.

1.2. Composition of the group

As at 31 December 2020, JSW held, directly or indirectly, shares in 20 related companies, including:
◦ 19 subsidiaries (direct or indirect),
◦ 1 associated company.

The subsidiaries are consolidated by the full method. JSW Stabilization Closed-end Investment Fund was also consolidated.

The investment in the associate (Remkoks Sp. z o.o.) is measured by the equity method in the consolidated financial statements.

Information on companies comprising the Group and consolidated by the full method is provided below:

Item Company name Registered office Line of business Percentage of share capital held by Group companies Percentage of share capital held by Group companies
        31.12.2020 31.12.2019
Parent company
1. Jastrzębska Spółka Węglowa S.A. („JSW”) Jastrzębie- Zdrój Hard coal mining and sales, sales of coke and hydrocarbons. not applicable not applicable
Direct subsidiaries
2. JSW KOKS S.A. („JSW KOKS”) Zabrze Production of coke and hydrocarbons 96,28% 96,28%
3 Jastrzębskie Zakłady Remontowe Sp. z o.o. („JZR”) Jastrzębie -Zdrój Service activity pertaining to renovation of machinery and equipment, production of machinery for mining, quarrying and construction 62,09% 62,09%
4. Przedsiębiorstwo Budowy Szybów S.A. („PBSz”) Tarnowskie Góry Specialized mining services: designing and execution of vertical and horizontal mine workings and tunnels, construction services, architectural and engineering services, lease of machinery and equipment, assembly, repairs and upkeep of machinery for the mining, quarrying and construction industries. 95,01% 95,01%
5. JSW Innowacje S.A. („JSW Innowacje”) Katowice The Group’s research and development activity, feasibility studies and oversight over execution of projects and implementations. 100,00% 100,00%
6. Przedsiębiorstwo Gospodarki Wodnej i Rekultywacji S.A. („PGWiR”) Jastrzębie - Zdrój Provision of water and sewerage services, treatment and discharge of salt waters, supply of industrial water for the coal and power sector plants, reclamation activity, production of salt 100,00% 100,00%
7. Centralne Laboratorium Pomiarowo – Badawcze Sp. z o.o. („CLP-B”) Jastrzębie - Zdrój Technical research services, chemical and physiochemical analyses of minerals, and solid, liquid and gaseous materials and products 99,92% 99,92%
8. Jastrzębska Spółka Kolejowa Sp. z o.o. („JSK”) Jastrzębie - Zdrój Provision of railway lines, maintenance of railway infrastructure structures and equipment, construction and repair of railway tracks and facilities 100,00% 100,00%
9. JSW IT Systems Sp. z o.o. („JSW IT Systems” dawniej Advicom Sp. z o.o.) Jastrzębie - Zdrój Consulting with respect to computer hardware; activities related to software and data processing 100,00% 100,00%
10. JSU Sp. z o.o. („JSU”) Jastrzębie - Zdrój Insurance intermediation and insurance administration pertaining to insurance claims handling, provision of tourist and hotel services 100,00% 100,00%
11. JSW Logistics Sp. z o.o. („JSW Logistics”) Katowice Rail siding services, transportation of coal and coke, organizing the carriage of cargo and technical maintenance and repair of rail vehicles 100,00% 100,00%
12. JSW Szkolenie i Górnictwo Sp. z o.o. („JSW SiG”) Jastrzębie - Zdrój Mining support activity and operating the shower room in JSW’s mines 100,00% 100,00%
13. JSW Shipping Sp. z o.o. („JSW Shipping”) Gdynia Marine freight forwarding and marine transport agency services 100,00% 100,00%
Indirect subsidiaries
14. BTS Sp. z o.o. („BTS”) Dąbrowa Górnicza Transportation and general construction services 100,00% 100,00%
15. ZREM-BUD Sp. z o.o. („ZREM-BUD”) Dąbrowa Górnicza Manufacture of spare parts, assemblies and devices, steel structures, technical equipment, tools and instruments; mechanic and electric repairs and maintenance of automation technology, renovation and construction services 100,00% 100,00%
16. CARBOTRANS Sp. z o.o. („Carbotrans”) Zabrze Road transport of goods, mainly hydrocarbons and raw materials for their production 100,00% 100,00%
17. JZR Dźwigi Sp. z o.o. („JZR Dźwigi”) Jastrzębie - Zdrój Services related to production, upgrade, renovation, upkeep, inspection and repairs of material handling equipment. 84,97% 84,97%
18. JSW Ochrona Sp. z o.o. (“JSW Ochrona”) Jastrzębie - Zdrój Security services, auxiliary services related to maintaining order in buildings 100,00% 100,00%
19. Hawk-e Sp. z o.o. („Hawk-e”) Katowice Provision of services using drones for commercial purposes 100,00% 100,00%
20. JSW Zwałowanie i Rekultywacja Sp. z o.o. („JSW Zwałowanie i Rekultywacja”) Jastrzębie - Zdrój Provision of post-mining waste disposal and reclamation services. 100,00% 100,00%
Other entities
21. JSW Stabilization Closed-end Investment Fund (“JSW Stabilization FIZ”, “Fund”)* Warsaw The Fund’s only line of business is investment of cash raised through private proposals to purchase Investment Certificates, in the securities, Money Market Instruments and other proprietary rights as specified in the Articles of Association. 100,00% 100,00%
* Procentowy udział określony na podstawie procentowego zaangażowania Jednostki dominującej w portfel aktywów FIZ.

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CHANGES IN EQUITY RELATIONS IN 2020

On 30 March 2020, the Extraordinary Shareholder Meeting of JSK adopted a resolution to increase the JSK’s share capital from PLN 108,672,500.00 to PLN 132,081,500.00, i.e. by PLN 23,409,000.00, by way of issuing 46,818 new shares with the par value of PLN 500.00 each and JSW’s subscription for all of them. The increased share capital of the company was covered by a contribution-in-kind, including an ownership title and perpetual usufruct right to property and an ownership title to fixed assets in the form of JSW’s railway infrastructure in the area of the Szczygłowice Section of the Knurów-Szczygłowice Mine. JSW took up the above shares on 15 April 2020. The JSK’s share capital increase was registered in the National Court Register on 10 June 2020. The transaction has no effect on the Group’s consolidated financial statements.

On 1 July 2020, the Extraordinary Shareholder Meeting of JSW SHIPPING adopted a resolution to dissolve the company and open its liquidation procedure as of 1 July 2020. The JSW Management Board and Supervisory Board gave consent to the process of dissolution and liquidation of JSW SHIPPING. On 31 July 2020, the District Court Gdańsk-Północ in Gdańsk, 8th Commercial Division of the National Court Register, made an entry on the dissolution and opening of the liquidation of JSW SHIPPING. The planned date of completion of the Company’s liquidation process falls in the second half of 2021.

On 15 September 2020, the Extraordinary Shareholder Meeting of JSW Ochrona adopted a resolution to increase the share capital of JSW Ochrona from PLN 1,960,500.00 to PLN 2,000,000.00, by creating 79 new shares with the par value of PLN 500.00 each. The newly created shares were subscribed in full for by JSK and covered by a contribution-in-kind. The increase of the JSW Ochrona capital was registered in the National Court Register on 27 October 2020. The transaction has no effect on the Group’s consolidated financial statements.

2.1. Grounds for preparation of the financial statements

These consolidated financial statements of the Jastrzębska Spółka Węglowa S.A. Group for the financial year ended 31 December 2020 were prepared in accordance with the International Financial Reporting Standards (“IFRS”) approved for use in the European Union (“EU”).

The consolidated financial statements have been drawn up in accordance with the historical cost principle, except for financial derivatives, investments in the FIZ assets portfolio, interests in other entities and energy efficiency certificates (white certificates) that are measured at fair value.

2.2. Going concern assumption

These consolidated financial statements have been prepared based on the assumption that the Group would continue as a going concern for at least 12 months of the final date of the reporting period.

When assessing the Group's ability to continue as a going concern, the JSW Management Board analyses the occurrence of uncertainties relating to events or circumstances that may cast doubt on the Group's ability to continue as a going concern. These events include significant changes in the market environment and the economic and financial system both in Poland and across the world, caused by the situation resulting from the dissemination of the SARS-CoV-2 coronavirus, which affect the Group’s operational and financial standing. These unusual circumstances have prompted the Group to analyze the situation and the degree of the its exposure to the effects of the pandemic on an ongoing basis as well as to take actions to reduce the risks stemming from the disruption of business continuity. Note 9.5 presents the measures taken to secure the risk of liquidity loss and the management plans to handle the situation caused by the SARS-CoV-2 coronavirus pandemic.

As at the date of approval of these consolidated financial statements, no material uncertainties or circumstances (including the events described in Note 2.3) have been identified as indicating a threat to business continuity in the foreseeable future.

All assets and liabilities are posted in the consolidated statement of financial position based on the assumption that the Group will be able to obtain economic benefits from the assets and fulfill its obligations in the ordinary course of business.

2.3.1. Nature of the event and preventive measures taken

The first news from China regarding the SARS-CoV-2 coronavirus causing COVID-19 appeared at the end of 2019. In the first months of 2020, the virus spread across the globe and its negative impact gained momentum. The COVID-19 pandemic, causing disruptions in the economic and administrative system in Poland and resulting in important restrictions of the economic activity, influenced the Group’s operations and results in 2020.

From the outbreak of the pandemic the Group has taken a number of preventive measures and measures strengthening the safety of employees aimed at preventing the spreading of the coronavirus and implemented a contingency plan providing for efforts ensuring operational continuity.

2.3.2. Impact of the pandemic on conducted operating activity

The preventive change in the organization of work and the high absenteeism had an impact on the coal production level. In addition, from 9 to 28 June 2020, the usual coal mining production cycle in the “Knurów-Szczygłowice” and “Budryk” mines was suspended. The above measures were taken in the interest of the employees’ health and safety, in connection with the recommendations of the Silesian Voivode, the Silesian State Voivodeship Sanitary Inspector and the Minister of State Assets.

JSW’s coal production in 2020 was presented compared to PTE forecasts:

  I II III IV V VI VII VIII IX X XI XII YEAR 2020
Increase/(decrease) in production compared to PTE forecasts
(in 000s tons)
136,6 136,7 (110,1) (325,3) (378,8) (342,5) 0,9 (41,6) (70,0) (60,3) 4,6 (104,3) (1 154,1)

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Compared to the forecasts resulting from the PTE developed for 2020, the annual production of coal in JSW was 1,154.1 thousand tons lower, while the most significant deviation from the plan was in the months when the Parent Company was affected by the pandemic the most, i.e. in March, April, May and June 2020. Up until the outbreak of the pandemic, the production was higher than planned.

The progress of investment projects carried out in 2020 resulted primarily from the general limitations driven by the impact of the pandemic on the operation of cooperating companies and their ability to provide services and materials. In 2020, the progress of investment projects was lower than planned for 2020 in the PTE.

JSW has been performing its commercial contracts for the supply of coal to external buyers and to own coking plants on an ongoing basis. Coke sales were also carried out in accordance with the agreed schedules.

A return to restrictions associated with the subsequent waves of COVID-19 may pose a great risk to the Group’s operations. Limitation of rail or marine transport may be a strong risk factor which may disrupt or prevent the Group’s sales activity.

The developments during the COVID-19 pandemic in 2020 affected the level of economic and industrial activity globally and consequently also defined the level of demand for steel and raw materials for its production, including metallurgical (coking) coal and coke, which are the Group’s main products.

JSW’S AND THE GROUP’S COMMERCIAL SITUATION

Limitations of production in steel industry concern idling blast furnaces, whereas the production in coking plants, for technical and technological reasons, cannot be stopped but only reduced to a limited extent. As a result, purchases of metallurgical (coking) coal are continued by business partners, even though in a limited scope. Market coking plants (not tied to steelworks) are to a greater extent exposed to reduction of orders – metallurgical concerns in the first place reduce coke purchases from the outside, protecting the production of their in-house coking plants. The Group’s customers include steelworks that do not have their own coking plants, and JSW KOKS’s coking plants are the core coke suppliers for them. This increases the Group’s security regarding continuity of supplies to such buyers.

The impact of the restrictions associated with the COVID-19 pandemic on the Group is decreasing and in Q4 2020 the situation improved compared to the prior periods in 2020. The efforts made by the sales services and the noticeable improvement of demand from the business partners brought an increase in coal sales to external customers by approximately 8.0% vs. Q3 2020, while coke sales fell by 4.6%. In Q4 2020, production of coke rose by 9.1% and the slight decrease in sales resulted from a much lower coke inventories available in Q4 2020.

Coke continued to be dispatched to overseas markets and the demand on the European market grew noticeably.

Sales of JSW products were conducted mainly on the basis of long-term contracts, in which recovery to full contractual amounts is taking place.

ANNOUNCEMENT OF FORCE MAJEURE IN JSW

On 2 April 2020, JSW announced the occurrence of force majeure in JSW and notified the Group’s business partners of its occurrence and the consequences for some of the liabilities stemming from the concluded commercial agreements. The foregoing decision was made in connection with the spread of the SARS-CoV-2 virus and the related restrictions. The force majeure was terminated on 9 July 2020. As a result of the actions taken by JSW to mitigate the consequences of the obstacle to the performance of its contractual obligations, it was possible to substantially minimize the adverse business effects for JSW related to the SARS-CoV-2 coronavirus pandemic. In the said period JSW took a number of preventive measures aimed at averting the dissemination of coronavirus and implemented a contingency plan to ensure operational continuity and performance of the existing contracts.

IMPACT OF THE PANDEMIC ON THE FINANCIAL STANDING AND VALUATION OF ASSETS AND LIABILITIES

Costs incurred

In 2020 the Group incurred significant labor costs related to employees contracting COVID-19, their quarantine, the execution of preventive measures involving the need of phasing in “downtime” and costs related to handling and organizing the overall process to ensure that the pandemic’s repercussions are as least onerous as possible. In connection with the preventive measures taken, the Group incurred costs associated with, among others, the purchase of tents, non-contact thermometers, biological suits, medical masks, gloves, disinfectants and disinfection equipment. The Group also supported state institutions in combating the SARS-CoV-2 coronavirus pandemic, making financial and in-kind donations in the amount of PLN 3.3 million.

The total costs incurred for combating the COVID-19 pandemic in the Group were PLN 93.2 million, of which PLN 90.3 was recognized in other costs, PLN 2.2 million in cost of products, materials and goods sold and the remaining part was charged to selling and distribution expenses and administrative expenses.

Revenues earned

In 2020, in connection with the COVID-19 pandemic, the Group took advantage of the aid solutions offered by the State under the Anti-Crisis Shield, including mainly the co-funding of employee salaries from the Guaranteed Employee Benefits Fund for the maximum period of 3 months in the amount of PLN 182.5 million (the amount was fully captured in the financial result in 2020 and presented in other revenues – Note 4.3). The Group also received financial support from the Polish Development Fund (“PFR”) under the Financial Shield for Large Companies in the form of a preferential and liquidity loan, which is described in greater detail in Note 6.1. On account of the preferential interest rate on PFR loans, the Parent Company achieved revenue of PLN 27.4 million, which is the difference between the fair value of the loans and the amount received (the amount recognized in other revenues – Note 4.3).

The PFR’s financial aid was granted to cover the losses suffered in 2020 in connection with the COVID-19 pandemic and therefore the above revenue on account of the preferential interest rate was fully captured in the 2020 financial result.

Total revenues associated with the COVID-19 pandemic, which were received by the Group under the Anti-Crisis Shield and captured in other revenues amount to PLN 210.3 million. 

Impairment of non-current assets

The details of the completed impairment tests are presented in Note 7.5.

Impact of the SARS-COV-2 coronavirus pandemic on the assessment of expected credit losses

The level of impairment losses recognized in 2020 on trade receivables was affected by the deterioration of ratings of some business partners and recognition of the impact of the SARS-CoV-2 coronavirus pandemic on the credit quality of clients.

To take into account the impact of the SARS-CoV-2 coronavirus on the credit quality of the customers from the coal and coke trade receivables group, the Parent Company has adjusted the probability of default on the basis of external ratings through including an additional bonus for the risk associated with the economic situation and forecasts for the future. The effect of including the impact of the coronavirus on the amount of the impairment allowance recognized as at 31 December 2020 for coal and coke trade receivables was PLN 1.1 million.

The impairment allowance recognized for coal and coke trade receivables in the amount of PLN 15.3 million (Note 7.11) was additionally affected by a significant downgrading of the rating of one of the business partners (in the group of business partners with contribution to sales revenues above 2.5%), which resulted in an increase of the impairment allowance by PLN 11.2 million.

The Group is currently analyzing the impact of the COVID-19 pandemic on the market situation and signals that may indicate a deteriorating financial standing of the business partners caused by the pandemic and, if necessary, will continue to update the estimates adopted to calculate the expected credit losses in next reporting periods.

The above assessment has been made to the best of the Group’s knowledge as at the date of preparation of these consolidated financial statements. The actual scale of the future effects of the SARS-CoV-2 coronavirus pandemic and their impact on the activity and the financial and operational standing and prospects of the Group is currently unknown and impossible to estimate and depends on factors which are beyond the Group’s control and are subject to dynamic changes.


Liquidity position

The COVID-19 pandemic caused a temporary reduction of production, which has direct impact on the Group’s current activity, including the level of earned revenues and incurred costs, and, as a result, the Group’s financial liquidity and debt level. Accordingly, the Group is taking efforts to mitigate the impact of the pandemic on the Group’s liquidity, by taking advantage of the solutions available on the market to support working capital management and is applying for the public financial aid available on the market and funding available as part of the anti-crisis shield (more in Note 9.5 Financial risk management).

2.3.3 SUPPORTING SOLUTIONS APPLIED AS PART OF THE ANTI-CRISIS SHIELD

Because of the entry into force, on 1 April 2020, of the Act of 31 March 2020 on amending the act on special solutions associated with preventing, counteracting and combating COVID-19, other contagious diseases and crisis situations they precipitate and certain other acts, introducing solutions aimed at, among other things, supporting undertakings in the crisis caused by the COVID-19 pandemic (“Anti-Crisis Shield”), the Group takes advantage of support solutions, including mainly:

  1. Deferral of the payment deadline of the fee for perpetual usufruct of land from 31 March 2020 to 30 June 2020.
  2. Property tax: JSW and Group companies took advantage of the possibility of deferring the payment of property tax. The deferred tax was paid on the agreed dates.
  3. Deferral of the payment deadline for personal income tax.
  4. Deferral of the payment deadline for social insurance and health insurance, Labor Fund, Guaranteed Employee Benefit Fund, Bridge Pension Fund and Solidarity Fund contributions after the applications to defer the payment dates of ZUS contributions filed by JSW, JSW KOKS and PBSz are accepted.
  5. Assistance Program of the Polish Development Fund (“PFR”) JSW and JSW KOKS submitted applications to PFR under the Financial Shield for Large Companies for financial support in connection with combating the effects of the COVID-19 pandemic. In December 2020, the above companies signed loan agreements (for the liquidity and preferential loans) for the total amount of PLN 1,198.5 million. The loans were disbursed fully in December 2020. The loans may be used only to finance the current activity, including working capital. The loan agreements mentioned above are described in detail in Note 6.1.
  6. The Group obtained co-funding to employee salaries from the Guaranteed Employee Benefit Fund in the amount of PLN 182.5 million.
    On 30 July 2020, JSW submitted an application to the Voivodeship Labor Office in Katowice for co-funding of employee salaries from the Guaranteed Employee Benefit Fund for the maximum period of 3 months in the amount of PLN 166.9 million. The application was accepted by the Voivodeship Labor Office on 4 August 2020. In August 2020, JSW’s bank account was credited with the first tranche in the amount of PLN 55.6 million and in September 2020 with the remaining PLN 111.3 million. On 30 October 2020, JSW settled the received support and repaid the amount of PLN 6.5 million. The total amount of the support received on this account is PLN 160.4 million.
    On 29 July 2020, JSW KOKS submitted an application to the Voivodeship Labor Office in Katowice for subsidy to employee salaries from the Guaranteed Employee Benefit Fund for the period of 1 month in the amount of PLN 5.7 million, and on 7 August 2020 the same application for a subsidy for the period of 2 months in the amount of PLN 11.5 million. In August and September, the Voivodeship Labor Office in Katowice transferred to JSW KOKS’ bank account cash in the amount of PLN 17.1 million. In August and October 2020, after the settlement JSW KOKS repaid the subsidy in the amount of PLN 0.3 million. The total amount of the received support is PLN 16.8 million.
    Also JSW SiG took advantage of the subsidy to employee salaries from the Guaranteed Employee Benefit Fund obtaining a subsidy in the amount of PLN 5.0 million and JSU obtained a subsidy in the amount of PLN 0.3 million.
  7. In accordance with the Regulation issued by the Finance Minister on 27 March 2020, some subsidiaries have taken advantage of the prolongation of the deadline for submitting the statement on the amount of earned income (incurred loss) and payment of tax due by payers of corporate income tax for 2019 until 31 May 2020.

Other aid solutions, which the Group takes advantage of, are presented in Section 1.5. Management Board Report on the activity of Jastrzębska Spółka Węglowa S.A. and the Jastrzębska Spółka Węglowa S.A. Group for the financial year ended 31 December 2020.

2.4. Accounting policy and significant accounting estimates and judgments

Material accounting principles and material figures based on judgments and estimates have been presented as an element of the various explanatory notes to the consolidated financial statements.

The accounting policy adopted by the Group is consistent with the policy applied in the previous financial year, except for the adoption of new and amended standards as described in Note 2.6.

In order to prepare the consolidated financial statements according to the IFRS, one must adopt certain assumptions, make estimates and judgments, which affect the accepted accounting principles and the amounts shown in the consolidated financial statements. The assumptions and estimates result from past experiences and other factors, including anticipated future events that seem reasonable in the current situation. By definition, the resulting accounting estimations will rarely match the actual performance. Accounting estimations and judgments are subject to regular evaluation.

In Q1 2020, there were no significant changes of estimates and the estimation methodology that could affect the current period. On the other hand, in Q2-Q4 2020, changes related to the economic effects of COVID-19 were observed that affected the values of the estimates and the methodology of such estimates in the current period. These changes include an adjustment to expected credit losses related to a change in ratings of counterparties related to coal and coke receivables and the risk of debt collection from those counterparties in connection with the current economic situation and the future forecasts, which was described in Note 2.3. The overall effects and their scale are difficult to estimate at this moment. What will matter is the duration of the epidemic, its intensity and scope.

Items of the consolidated financial statements, which are exposed to material risk of significant adjustments to the carrying amount of assets and liabilities are described in the individual notes of these consolidated financial statements.

2.5. Principles of consolidation and recognition of investments in associates

These consolidated financial statements have been prepared on the basis of the Parent Company’s financial statements and the financial statements of its subsidiaries and associates. The financial statements of the consolidated entities are drawn up for the very same reporting period based on uniform accounting principles.

All intragroup transactions, settlements, revenues, costs and unrealized profits from transactions between Group companies are eliminated in full. Unrealized losses are ignored, unless they constitute a proof of impairment.

Subsidiaries are consolidated by the full method as of the date of acquisition, meaning when control is taken over them until the date of losing that control. Control exists when the Parent Company, because of its exposure to such an entity, is subject to exposure to varying returns, or if it holds rights to them and can also influence those returns by exercising control over the entity.

Associated companies are all the entities on which the Parent Company directly or through subsidiaries exerts significant influence but does not control them; this usually coincides with holding from 20% to 50% of the total number of votes in their decision-making bodies. Investments in associates are recognized using the equity method.

2.6. New standards, interpretations and their amendments

In these consolidated financial statements, the Group applied for the first time the following standard published by the International Accounting Standards Board (“IASB”) and endorsed in the European Union, which came into force in 2020 and has effect on the Group’s consolidated financial statements:

IFRS 9 Financial Instruments – Hedge accounting

Since 1 January 2020, the Group has been applying cash flow hedge accounting in accordance with the requirements of IFRS 9 “Financial Instruments”.
According to IFRS 9 (paragraph 7.2.24), hedging relationships that qualified for hedge accounting in accordance with IAS 39 that meet all the requirements for hedge accounting under IFRS 9, after taking into account any rebalancing of the hedging relationship on transition, are regarded as continuing hedging relationships.

When applying hedge accounting requirements in accordance with IFRS 9 for the first time, the hedge ratio value calculated in accordance with IAS 39 is used as the reference value for making decisions on the possible actions to rebalance the hedge ratio (IFRS 9: 7.2.25(b)). Rebalancing involves adjustment of the amount of the hedging instrument or hedged item in response to changes in external factors (in particular economic) affecting the effectiveness of the hedging relationship. Any gain or loss from such a rebalancing is recognized in profit or loss.

In accordance with paragraph 7.2.24 of IFRS 9, the Group continues the hedging relationships designated before the first application of hedge accounting provisions presented in IFRS 9. The Group considered the changes resulting from transition of the new standard as insignificant.

Other changes

The changes listed below, which are in effect from 2020, are not related to the Group’s business or have no material effect on the consolidated financial statements:

  • Amendments to references to the IFRS Framework,
  • Amendments to IFRS 9, IAS 39 and IFRS 7 – IBOR reform (Phase 1),
  • Amendments concerning IAS 1 “Presentation of Financial Statements” and IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors” in respect to the definition of “material”,
  • Amendments to IFRS 3 “Business Combinations” in respect to the definition of a “business”
  • Amendments to IFRS 16 “Leases” – COVID-19 rent reliefs.

When approving these consolidated financial statements, the Group did not elect for early application of the standards enumerated below, amendments to standards and interpretations that were published and endorsed in the EU but have not as yet become effective. The Group will apply the standards, amendments to standards and interpretations, to the extent applicable to its operations from the time they come into effect.

Standard Effective date
Amendments to IFRS 4 “Insurance Contracts” – temporary exemption from applying IFRS 9 “Financial Instruments” 1 January 2021
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 – IBOR reform (Phase 2) 1 January 2021

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The above standards and interpretations do not apply to the Group’s operations or will not exert a material impact on the consolidated financial statements.

IFRS as approved by the EU do not currently differ materially from the regulations adopted by the International Accounting Standards Board (IASB), with the exception of the following standards, amendments to standards and interpretations, which as at the date of these consolidated financial statements have not yet been adopted for application.

The standards and interpretations do not pertain to the Group’s operations or will not exert a material impact on the consolidated financial statements.

Standard Effective date *

Amendments to IFRS 10 “Consolidated Financial Statements” and IAS 28 “Investments in Associates and Joint Ventures” – sales or contributions of assets between an investor and its associate or joint venture.

Endorsement of this amendment has been deferred by the EU.
Amendments to IFRS 16 “Leases” – COVID-19-Related Rent Concessions – amendments concerning the date of payments initially due and payable 1 April 2021
Amendments to IFRS 3 “Business Combinations” – concerning references to the Framework 1 January 2022
Amendments to IAS 16 “Property, plant and equipment” – proceeds from products manufactured in the period before the use of property, plant and equipment begins 1 January 2022
Amendments to IAS 37 “Provisions, Contingent Liabilities and Contingent Assets” pertaining to the costs considered by an entity in an analysis whether a contract is onerous 1 January 2022
Annual improvements to IFRS 2018-2020 applicable to IFRS 1 “First-time adoption of International Financial Reporting Standards”, IFRS 9 “Financial Instruments”, IAS 41 “Agriculture”, IFRS 16 “Leases” 1 January 2022
IFRS 17 “Insurance Contracts” and amendments to IFRS 17 1 January 2023
Amendments to IAS 1 “Presentation of Financial Statements” – Classification of liabilities as current or non-current 1 January 2023
Amendments to IAS 1 “Presentation of Financial Statements” and IFRS Practice Manual 2 – regarding policy disclosures 1 January 2023
Amendment to IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors” – concerning the definition of estimates 1 January 2023
* Annual periods beginning on or after the respective date, as specified by the International Accounting Standards Board, are subject to change after their approval by the EU.

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The Group intends to apply the above standards that are applicable to its operations from the time they take force.

3.1. Operating segments


Selected accounting policies

OPERATING SEGMENTS

The Group presents information on operating segments in accordance with IFRS 8 "Operating Segments". The Group is organized and managed in segments by type of products offered and type of production activity.

After analyses of the aggregation criteria and quantitative thresholds, the following operating segments were established in the Group’s consolidated financial statements, which at the same time constitute reporting segments:

  • Segment 1 – Coal – includes extraction and sales of black coal;
  • Segment 2 – Coke – includes production and sales of coke and hydrocarbons;
  • Other segments – include activities performed by the Group’s entities other than those covered by Segments 1 or 2, such as, among others, specialist mining services, repair services, research and development activity, IT services, transportation services, etc.

The Management Board of the Parent Company has identified operating segments based on the financial reporting of the companies comprising the Group. Information originating from the reports is used for strategic decision-making in the Group.

The JSW Management Board is the corporate body that makes the key decisions in the Group. The measure of the financial results generated by the Group’s distinct operating segments analyzed by the Management Board of the Parent Company is the segment’s operating profit/loss determined according to IAS/IFRS. Revenues from transactions with external entities are measured in a manner consistent with the method applied for consolidated financial result.

Revenues from transactions between segments are eliminated in the consolidation process. Sales between segments are conducted on an arm’s length basis. According to the principles applied by the Management Board of the Parent Company to evaluate operating results of the respective segments, revenues and margins are recognized in segmental results at the moment a sale is made outside of the segment. Financial income and costs are not included in the financial result of the various segments.


SEGMENT-SPECIFIC INFORMATION FOR REPORTING PURPOSES:

Coal Coke Other segments * Consolidation adjustments ** Total
FOR THE PERIOD ENDED 31 DECEMBER 2020
Total segment sales revenues 5 577,2 3 047 1 489,6 (3 124,4) 6 989,4
- Revenues on inter-segment sales 2 022,6 - 1 101,8 (3 124,4) -
- Sales revenues from external customers 3 554,6 3 047,0 387,8 - 6 989,4
Segment’s gross profit/(loss) on sales (603,2) 197,7 160,4 (102,8) (347,9)
Segment's operating profit/(loss) (1760,2) (50,7) 92,2 (24,6) (1 743,3)
Depreciation and amortization (935,0) (107,7) (133,9) 71,7 (1 104,9)
OTHER SIGNIFICANT NON-CASH ITEMS:
- Recognition of impairment losses for non-financial non-current assets (516,6) - - - (516,6)
TOTAL SEGMENT ASSETS, INCLUDING: 9 384,9 2 458,3
2 132,0 (829,6) 13 145,6
Increases in non-current assets (other than financial instruments and deferred income tax assets) 1 684,2 127,6 235,3 (77,4) 1 969,7

* No operations classified in “Other segments” meet the aggregation criteria and quantitative thresholds defined by IFRS 8 Operating Segments, to be accounted for as a separate operating segment
** The "Consolidation adjustments" column eliminates the effects of intra-segment transactions within the Group

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  Coal Coke Other segments * Consolidation adjustments ** Total
FOR THE PERIOD ENDED 31 DECEMBER 2019
Total segment sales revenues 7 688,0 3 545,0 1 294,0 (3 855,2) 8 671,8

- Revenues on inter-segment sales

2 916,9 - 938,3 (3 855,2) -

- Sales revenues from external customers

4 771,1  3 545,0  355,7 - 8 671,8
Segment’s gross profit/(loss) on sales 1 177,2 285,4 172,6 (31,6) 1 603,6
Operating profit of the segment 478,1 259,5 93,2 74,8 905,6
Depreciation and amortization (878,6) (103,4) (108,9) 57,0 (1 033,9)
OTHER SIGNIFICANT NON-CASH ITEMS:

Reversal of impairment losses for non-financial non-current assets

5,6 189,8  -  - 195,4
TOTAL SEGMENT ASSETS, INCLUDING: 8 280,7 2 343,9 1 955,9 (744,5) 11 836,0
Increases in non-current assets (other than financial instruments and deferred income tax assets) 2 424,1 107,5 528,7 (318,1) 2 742,2
* No operations classified in “Other segments” meet the aggregation criteria and quantitative thresholds defined by IFRS 8 Operating Segments, to be accounted for as a separate operating segment
** The "Consolidation adjustments" column eliminates the effects of intra-segment transactions within the Group

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Presented below is reconciliation of the results (operating profit/(loss)) generated by the segments with pre-tax profit/(loss):

  2020 2019
OPERATING PROFIT/(LOSS) (1 743,3) 905,6
Financial income 8,1 26,5
Financial costs (132,5) (104,4)
Share in profits/(losses) of associates 0,1 0,3
PROFIT/(LOSS) BEFORE TAX (1 867,6) 828,0

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Segment assets

The amounts of total assets are measured in a manner consistent with the method applied in the consolidated statement of financial position. These assets are allocated by segment's business and by physical location of the asset component.
Group assets are located in Poland.

The reconciliation of segment assets with the Group's total assets is presented below:

  31.12.2020 31.12.2019
SEGMENT ASSETS 13 145,6 11 836,0
Investments in associates 1,2 1,2
Deferred tax assets 877,0 525,0
Investments in the FIZ Asset Portfolio, long-term 612,0 1 174,0
Other non-current assets 378,7 376,1
Income tax overpaid 3,4 162,8
Financial derivatives 7,8 60,5
Investments in the FIZ Asset Portfolio, short-term - 700,0
Other current financial assets 5,2 90,8
TOTAL ASSETS ACCORDING TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION 15 030,9 14 926,4

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Information relating to geographical areas

The geographic breakdown of revenues on sales is depicted by the buyer's country of origin:

  Note 2020 2019
Sales in Poland, of which:
Coal   2 438,8 3 509,2
Coke   381,9 720,0
Other segments   370,1 354,7
TOTAL SALES IN POLAND   3 190,8 4 583,9
Sales abroad, including:
EU member states, of which:   3 365,6 3 486,9
Coal   1 115,8 1 261,9
Coke   2 232,6 2 224,5
Other segments   17,2 0,5
Non-EU Europe, of which:   218,9 601,0
Coke   218,9 600,5
Other segments   - 0,5
Other states, of which: 214,1 -
Coke 213,6 -
Other segments 0,5 -
Total sales abroad, including:   3 798,6 4 087,9
Coal   1 115,8 1 261,9
Coke   2 665,1 2 825,0
Other segments   17,7 1,0
TOTAL SALES REVENUES 4.1 6 989,4 8 671,8

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Revenues on sales – geographic breakdown by the country of origin of the counterparty making the purchase:

  2020 2019
Poland 3 190,9 4 583,9
Germany 1 129,9 1 006,6
Austria 907,5 1 308,6
Czech Republic 688,2 769,1
Romania 335,6 18,9
Singapore 214,0 -
Switzerland 132,7 471,1
Slovakia 123,9 118,1
Belgium 102,3 98,8
Norway 86,2 129,9
Spain 54,8 74,3
France 16,0 21,1
Sweden 7,5 9,7
Luxembourg - 60,2
Other countries - 1,5
TOTAL SALES REVENUES 6 989,4 8 671,8

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Information on key customers

For the period from 1 January to 31 December 2020, revenues on sales to two clients, to each one of them individually, exceeded 10% of the Group's revenues on sales. Revenues on sales to one of them were PLN 1,463.0 million and to the other PLN 881.9 million. Revenues on sales to those clients were included in the Coal segment and in the Coke segment.

For the period from 1 January to 31 December 2019, revenues on sales to two clients, to each one of them individually, exceeded 10% of the Group's revenues on sales. Revenues on sales to one of them were PLN 2,502.6 million and to the other PLN 1,288.1 million. Revenues on sales to those clients were included in the Coal segment and in the Coke segment.

4.1. Sales revenues

SELECTED ACCOUNTING POLICIES

Sales revenues

In its operating activity, the Group generates revenues mainly on sales of metallurgical (coking) coal and sales of coke. To a smaller extent, the Group also sells steam coal and hydrocarbons.

The Group has introduced a five-step model for recognizing revenues, which involves, in the following order: identification of a customer contract, identification of individual performance obligations, specification of a transaction price, allocation of the transaction price to the individual performance obligations and the capture of revenue at the moment the contractual obligation is performed.

The Group recognizes sales revenues at the time of fulfillment (or in the course of fulfillment) of the performance obligation through the transfer of the good or service (i.e. the asset) promised to the client (the client obtains control over this asset), in the amount that reflects the amount of remuneration that, in accordance with the Group’s expectations, it is owed in exchange for the provision of promised goods or services to the client.

Sales revenues are recognized as amounts equal to the transaction price assigned to a given performance obligation.

To determine the transaction price, the Group takes into account the conditions of the contract and the customary trade practices applied by the company. The transaction price is the amount of consideration that – according to the Group’s expectation – will be due to it in consideration for the transfer of the goods or services promised to a client, net of the amounts collected on behalf of third parties (for example, some sales taxes). The consideration specified in the contract with a client may include fixed amounts, variable amounts or both types of amounts.

Some contracts with the Group’s counterparties comprise provisions on qualitative adjustments constituting the basis for calculating the final sales price, or certain forms of rewarding the customer. If it is highly unlikely that a large part of the cumulative revenues are reversed in the future then, in such cases, under IFRS 15, the amount of the variable compensation is taken into account in the transaction price. A follow-up assessment of variable compensation should be performed at the end of each reporting period.

The Group has concluded long-term master agreements containing basic quantitative arrangements per annum and options. Each time before the year begins they are made specific and divided into quarters and the terms for exercising the options are defined. Operationally, the arrangements for specific quarters are made through quarterly negotiations. Therefore, the Group assumes that performance obligations arise under contracts with the expected term up to 1 year and on this basis uses the exemption specified in IFRS 15 and does not present the transaction price attached to the performance obligations not fulfilled under these agreements.

The main contracts for the sale of coal and coke (which represented 91.4% of total sales revenues in 2020 and 93% in 2019) the Group also uses international trade rules, i.e. INCOTERMS (FCA, DAP, FOB). The moment of passing control over the promised goods and services to the customer is shown precisely in each delivery rule.

Based on the terms of deliveries applicable to most contract, the Group concluded that the moment of passing control to the customer takes place when the goods are delivered to the client or handed over to the carrier and completion of the transportation service, if any. In such a case, the asset is generally physically delivered or its title is transferred to the recipient or significant risks and rewards associated with the asset sold are handed over to the recipient. In such cases, pursuant to IFRS 15, all goods and services (i.e. supply of goods in the form of coal or coke, including related transport services) promised in the contract should be treated as a single performance obligation and the revenue should be recognized once at a specified time.

  2020 2019
Sales of coal 3 554,6 4 771,1
Sales of coke 2 832,9 3 259,3
Sales of hydrocarbons 214,1 285,7
Other business 387,8 355,7
TOTAL SALES REVENUES 6 989,4 8 671,8

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4.2. Cost of products, materials and goods sold

SELECTED ACCOUNTING POLICIES

COST OF PRODUCTS, MATERIALS AND GOODS SOLD

The total cost of products, materials and goods sold consists of:

  • the cost of manufacturing products incurred in a given reporting period, adjusted for the change in products and adjusted for the value of performances and property, plant and equipment produced for own use and expensable mining pits,
  • selling and distribution expenses and administrative expenses incurred in the reporting period, which are presented separately in the statement of profit or loss and other comprehensive income,
  • cost of products and materials sold.

Manufacturing costs, which may be tied directly to revenues earned by the Group influence the financial result for the reporting period in which they occurred.

Manufacturing costs, which may be tied only indirectly to revenues or other benefits achieved by the Group affect the Group’s financial result to the extent they pertain to the reporting period, ensuring their commensurability to revenues or other economic benefits.

COST OF PRODUCTS, MATERIALS AND GOODS SOLD

  2020 2019
Depreciation and amortization 1 104,9 1 033,9
Consumption of materials and energy, of which: 1 570,3 1 722,1
- consumption of materials 1 151,3 1 319,8
- consumption of energy 419,0 402,3
External services 1 667,9 1 817,2
Taxes and fees 4 442,3 4 447,2
Other costs by nature 211,6 190,4
Cost of materials and goods sold 72,6 80,2
Wartość sprzedanych materiałów i towarów 25,0 51,7
TOTAL COSTS BY NATURE 9 094,6 9 342,7
Selling and distribution expenses (288,5) (261,5)
Administrative expenses (697,7) (709,3)
Cost of performances and property, plant and equipment produced for own use
and expensable mining pits
(984,3) (772,2)
Movement in products 213,2 (531,5)
COST OF PRODUCTS, MATERIALS AND GOODS SOLD 7 337,3 7 068,2

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4.3. Other revenues

  Note 2020 2019
Costs incurred in connection with the COVID-19, of which: 2.3 210,3 -
- co-funding to employee salaries received from the Guaranteed Employee Benefit Fund 182,5 -
- revenue on account of the preferential interest rate charged on the PFR loan 27,4 -
Reversal of an impairment loss on property, plant and equipment, intangible assets and right-of-use assets 7.5 10,2 195,4
Interest   26,4 19,0
Damages and penalties received   24,2 20,2
Expired liabilities   18,2 18,5
Subsidies (written off according to their amortization)   4,4 3,9
Reversal of impairment losses on receivables on account of the disputed property tax   0,9 5,0
Disclosure of goods   0,5 10,0
Reduction of output VAT   - 5,5
Other   19,0 12,0
TOTAL OTHER INCOME   314,1 289,5

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4.4. Other costs

  Note 2020 2019
Impairment loss on property, plant and equipment, intangible assets and right-of-use assets 7.5 516,6 -
Costs incurred in connection with the COVID-19 pandemic 2.3 90,3 -
Interest   47,0 39,6
- including mortgage interest on liabilities calculated pursuant to Article 5 of the Polish Act on Payment Terms in Commercial Transactions   38,6 30,0
Donations   9,9 18,6
Recognition of impairment losses on receivables and other financial assets 18,6 3,4
Recognition of the provision for ZK Dębieńsko 8,8 8,5
Enforcement fees and penalties   3,6 2,8
Output VAT   - 5,5
Other   12,9 16,7
TOTAL OTHER COSTS   707,7 95,1

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4.5. Other net gains/(losses)

  Note 2020 2019
Gains/(losses) on the disposal of property, plant and equipment   (7,7) (31,4)
FX gains and losses   16,1 (1,9)
Gains/(losses) on financial derivatives   (39,6) 61,6
Profits/(losses) from fair value measurement and realization of the FIZ asset portfolio 9.3 (9,8) 11,4
Interest income of the FIZ asset portfolio 9.3 25,4 36,5
Other   - 2,2
TOTAL OTHER NET GAINS/(LOSSES)   (15,6) 78,4

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4.6. Financial income and costs

  2020 2019
Interest income on cash and cash equivalents 1,7 15,8
Revaluation of interest on liabilities for disputed property tax 0,6 5,4
FX gains and losses on cash and Fx Forward transactions 3,5 4,1
Other 2,3 1,2
TOTAL FINANCIAL INCOME 8,1 26,5
Interest cost: 61,0 48,9
– unwinding of the discount on account of long-term provisions 27,5 35,2
– interest on bonds - 0,3
- interest and fees on loans and borrowings 31,3 12,4
– other interest 2,2 1,0
FX gains and losses on bonds from realization of the hedged position 37,3 32,0
Interest on leases 30,6 22,9
Other 3,6 0,6
TOTAL FINANCIAL COSTS

132,5

104,4
NET FINANCIAL REVENUES / (COSTS) (124,4) (77,9)
 

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4.7. Earnings/(loss) per share

SELECTED ACCOUNTING POLICIES

Basic earnings/(loss) per share

Basic earnings/(loss) per share are calculated as the quotient of earnings/(loss) attributable to shareholders of the Parent Company and the weighted average number of ordinary shares during the year.

Diluted earnings/(loss) per share

Diluted earnings/(loss) per share are calculated by adjusting the weighted average number of common shares in a manner allowing for a potential complete conversion into common shares causing dilution. The Parent Company has no instruments that would cause dilution of the potential common shares. Accordingly, diluted earnings/(loss) per share are equal to the basic earnings/(loss) per share of the Parent Company.

  2020 2019
Net profit /(loss) attributable to shareholders of the Parent Company (1 546,0) 628,9
Weighted average number of common shares 117 411 596 117 411 596
BASIC AND DILUTED EARNINGS/(LOSS) PER SHARE (IN PLN PER SHARE) (13,17) 5,36

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5. Explanatory notes pertaining to tax


SELECTED ACCOUNTING POLICIES

CURRENT AND DEFERRED TAX

Income tax for the reporting period comprises current tax and deferred tax.

The current income tax liability is calculated on the basis of the applicable tax regulations. The current income tax accrues on taxable income for the period and recognized as a payment obligation in accordance with the tax regulations. In a situation when the value of paid monthly advances exceeds the value of due tax, a receivable amount arises, which is returned by the Tax Office after the annual CIT-8 tax returns are filed.

Deferred tax liabilities and assets resulting from temporary differences between the tax base of assets and liabilities and their carrying amount in the consolidated financial statements, except for temporary differences resulting from the initial recognition of an asset or liability in a transaction other than a business combination, which at the time of the transaction affects neither the financial result nor the taxable result.

Deferred tax is determined using the tax rates that are expected to apply at the moment when the carrying amounts of assets and liabilities are realized, based on the tax regulations in effect on the final day of the reporting period.

The Group recognizes a deferred tax asset on a tax loss based the assumption that taxable income would be recorded in the future allowing the Group to use the asset.

A deferred tax liability resulting from temporary differences arising on investments in subsidiaries and associates is recognized unless the timing of the reversal of temporary differences is controlled by the Group and the differences are unlikely to be reversed in the foreseeable future.

All deferred tax assets and liabilities are treated as long-term and are not discounted. They are offset at the level of standalone statements of Group companies, provided that there is an enforceable legal right to set off the recognized amounts.
Current and deferred tax is recognized in profit or loss, with the exception of taxes linked to items recognized in other comprehensive income or directly in equity (income tax is then captured in other comprehensive income or in equity, respectively).

MATERIAL ESTIMATES

As at the final day of a reporting period, the Group assesses the ability to settle the deferred tax assets and verifies unrecognized deferred tax assets.

Based on the forecasts for the Group companies anticipating that taxable income would be earned in subsequent years, it was decided that there is no risk of the deferred tax asset recognized in these consolidated financial statements not being realized.

The main component of the deferred tax asset on the tax loss is the tax loss incurred by the Parent Company (PLN 285.9 million) and JSW KOKS (PLN 32.0 million). Based on the JSW Financial Model for 2020-2030, the Parent Company prepared an analysis of the ability to settle the 2020 tax loss. According to forecasts drawn up for JSW and JSW KOKS, in subsequent years the companies will earn tax profit, which will allow them to settle deferred tax assets on the tax loss.


5.1. Income tax

Income tax captured in net result:

  2020 2019
Current tax: 29,6 30,5
- current tax liability 28,5 20,4
– adjustments posted in the current period relating to tax from the previous years 1,1 10,1
Deferred tax (359,8) 147,9
TOTAL INCOME TAX CAPTURED IN NET RESULT (330,2) 178,4

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Income tax captured in other comprehensive income

  2020 2019
Deferred tax:  
– actuarial gains/(losses) (4,4) (10,4)
– change in the value of hedges 5,1 7,4
TOTAL INCOME TAX CAPTURED IN OTHER COMPREHENSIVE INCOME 0,7 (3,0)

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Reconciliation of the theoretical tax calculated on pre-tax profit/(loss) and the statutory tax rate to the income tax liability shown in net result is as follows:

  2020 2019
Profit/(loss) before tax (1 867,6) 828,0
Tax calculated at the rate of 19% (354,8) 157,3
Tax effect of income not classified as income according to tax regulations 2,7 (3,1)
Tax effect of costs which are not tax-deductible expenses according to tax regulations 20,8 14,1
Adjustments posted in the current period relating to tax from the previous years 1,1 10,1
INCOME TAX CHARGES TO THE NET PROFIT/(LOSS) (330,2) 178,4

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  2020 2019
Effective tax rate 17,7% 21,5%
Key factors affecting the effective tax rate The main reason of the change of the effective tax rate for 2020 compared to 2019 is the high pre-tax loss of PLN 1,867.6 million; accordingly any permanent differences weigh less in the reconciliation of the effective tax rate. Moreover, the following also contributed to the change of the effective tax rate: The main reason for the higher effective tax rate in 2019 was the decline in pre-tax profit by more than PLN 1 billion; accordingly any permanent differences weigh more in the reconciliation of the effective tax rate. The level of the effective tax rate in 2019 was also affected by:

• recognition of the equivalent of depreciation charges financed with subsidies and grants in the amount of PLN 1.3 million, and an update of interest on real property tax in the amount of PLN 1.1 million, which are not classified as taxable income,
• recognition of the PFRON charge in the amount of PLN 30.4 million, donations made in the amount of PLN 8.5 million, expenditures towards costs of representation in the amount of PLN 1.1 million, provisions of PLN 2.2 million, allowances for subsidized property, plant and equipment in the amount of PLN 17.6 million, which are not taxable expenses and the fact that utilization of PLN 11.5 million of provisions for pending legal issues was not recognized as taxable expense,
• recognition in the financial result of the tax of PLN 0.5 million on account of correction of tax returns for previous years,
• recognition of forgiveness of a potential liability of PLN 5.0 million, which is not a balance sheet revenue.

The above differences between pre-tax result and the taxable base are “permanent differences” which affect the level of the effective tax rate.

• recognition of depreciation charges financed with subsidies and grants in the amount of PLN 1.0 million, and an update of interest on real property tax in the amount of PLN 5.5 million, which are not classified as taxable income,
• recognition of the PFRON charge in the amount of 28.7 million, donations made in the amount of PLN 18.6 million, expenditures towards costs of representation in the amount of PLN 4.4 million, provisions of PLN 1.8 million, which are not taxable expenses;
• recognition in the financial result of the tax of PLN 10.1 million on account of correction of tax returns for previous years.
The above differences between pre-tax profit and the taxable base constitute “permanent differences” which affect the level of the effective tax rate.

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5.2. Deferred tax

Deferred tax assets and liabilities are offset at the level of financial statements of individual Group companies and therefore the following amounts are shown in the consolidated financial statements:

  31.12.2020 31.12.2019
Deferred tax assets  
– to be realized after the period of 12 months 935,2 548,5
– to be realized within the period of 12 months 266,1 257,9
TOTAL 1 201,3 806,4
Deferred tax liabilities  
– to be realized after the period of 12 months 320,9 282,4
– to be realized within the period of 12 months 18,7 21,5
TOTAL 339,6 303,9
DEFERRED TAX ASSETS 877,0 525,0
DEFERRED TAX LIABILITIES 15,3 22,5

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Change in deferred tax is as follows:

  2020 2019
Surplus of deferred tax assets over deferred tax liabilities
– AS AT 1 JANUARY
502,5 653,9
Impact of implementing IFRS 16 as of 1 January 2019 - 8,6
Credited/(charged) to net profit/(loss) 359,9 (147,9)
Acquisition of businesses (PBSz) - (15,1)
Increase/(decrease) of other comprehensive income (0,7) 3,0
Surplus of deferred tax assets over deferred tax liabilities
- AS AT 31 DECEMBER
861,7 502,5
Deferred tax assets 877,0 525,0
Deferred tax liabilities 15,3 22,5

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Change in deferred tax asset and liabilities before offsetting

DEFERRED TAX ASSETS Employee benefit liabilities Provisions Unpaid salaries
and other benefits
Tax loss Measurement of non-financial non-current assets Other Total
AS AT 1 JANUARY 2019 (audited data) 174,0 147,9 22,9 2,8 436,9 102,0 886,5
Impact of implementing IFRS 16 as of 1 January 2019 - - - - 8,6 - 8,6
AS AT 1 JANUARY 2019 (restated data) 174,0 147,9 22,9 2,8 445,5 102,0 895,1
(Charged)/credited to net profit 12,0 18,1 3,2 4,7 (138,7) 4,3 (96,4)
Acquisition of businesses (PBSz) 1,0 2,0 - - 0,2 1,5 4,7
Increase/(decrease) of other comprehensive income 10,4 - - - - (7,4) 3,0
AS AT 31 DECEMBER 2019 (audited data) 197,4 168,0 26,1 7,5 307,0 100,4 806,4
(Charged)/credited to net profit/(loss) 10,0 17,0 37,4 314,5 (11,5) 28,2 395,6
Increase/(decrease) of other comprehensive income 4,4 - - - - (5,1) (0,7)
AS AT 31 DECEMBER 2020 211,8 185,0 63,5 322,0 295,5 123,5 1 201,3

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DEFERRED TAX LIABILITIES Value of expensable mining pits Measurement of other non-financial non-current assets Other Total
AS AT 1 JANUARY 2019 165,0 21,6 46,0 232,6
Charged/(credited) to net profit/(loss) 24,3 6,8 20,4 51,5
Acquisition of businesses (PBSz) - 17,2 2,6 19,8
AS AT 31 DECEMBER 2019 189,3 45,6 69,0 303,9
Charged/(credited) to net profit/(loss) 41,7 5,5 (11,5) 35,7
AS AT 31 DECEMBER 2020 231,0 51,1 57,5 339,6

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Settlement periods of deferred tax assets

The table below presents the periods in which deferred tax assets on tax loss may be settled in accordance with the Corporate Income Tax Act, resulting from the forecasts prepared by Group companies envisaging that taxable profits would be earned in the subsequent years:

  Settlement period Total
  2021 2022 2023 2024 2025  
Deferred tax assets on tax loss 16,8 98,6 148,2 56,2 2,2 322,0

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6. Explanatory notes pertaining to debt


SELECTED ACCOUNTING POLICIES

LIABILITIES RELATED TO DEBT

  • Loans and borrowings

Upon initial recognition, loans and borrowings are recognized at fair value less the incurred transaction costs. After initial recognition, the liabilities are measured at their amortized cost. Any and all differences between the received amount (minus transaction costs) and the redemption amount are recognized using the effective interest rate method in the consolidated statement of profit or loss and other comprehensive income over the term of pertinent agreements.

  • Lease liabilities

At the commencement date of a lease contract, the Group recognizes a right-of-use asset and a lease liability. The principles for recognizing the right-of-use asset are presented in Note 7.4. Lease liabilities are measured on recognition in present values. Such liabilities include the net present value of the following lease payments:

  • fixed lease payments less any lease incentives due,
  • variable lease payments based on indices and rates,
  • amounts expected to be paid as part of the guaranteed residual value of the leased item,
  • exercise price of the purchase option, if it can be assumed with reasonable assurance that it will be exercised,
  • payment of contractual penalties for termination of a lease if the term of the lease reflects the lessee’s exercise of the lease termination option.

After the lease commencement date, the Group measures the lease liability by increasing the carrying amount to reflect interest on the lease liability, reducing the carrying amount to reflect the lease payments made and remeasuring the carrying amount to reflect any reassessment or change of the lease term, change of the purchase option, change in the amounts expected to be payable under a residual value guarantee, change of future lease payments resulting from a change in the index/rate, or to reflect revised in-substance fixed lease payments.

In order to remeasure a lease liability, taking into account changes in lease payments, the Group recognizes the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset.

The remeasurement of the lease liability is performed by discounting the revised lease payments using a revised discount rate if there is a change in the lease term, or there is a change in the assessment of an option to purchase the underlying asset. If there is a change in the amounts expected to be payable under a residual value guarantee and a change in future lease payments resulting from a change in an index or a rate used to determine those payments, the Group remeasures the lease liability by discounting the revised lease payments by using the previous discount rate.

Lease payments are discounted using the interest rate used in the lease, if it can be readily determined. If that rate cannot be readily determined, the Group uses the lessee’s incremental borrowing rate.

The Group benefits from an exemption from the application of IFRS 16 requirements, which are described in detail in Note 7.4.

MATERIAL ESTIMATES

Estimates and calculations affecting the measurement of lease liabilities and right-of-use assets:

  • determination of the term of the agreements (also for agreements with an indefinite term or with a renewal option)

By determining the lease term, the Group takes into account all the material facts and circumstances, which constitute an economic incentive to exercise the extension option or not to exercise the termination option. The terms covered by the contract extension option or the notice period are taken into account in the determination of the lease term, if there is reasonable assurance that the contract will be renewed or that it will not be terminated. An assessment of the lease term is carried out as at the lease commencement date. A reassessment is made if a material event or a significant change in circumstances controlled by the lessee occurs that affect this assessment.

In the case of agreements concluded for an indefinite term, the most likely useful life period of the right-of-use asset is estimated or the life expectancy of the Company is used, whichever better reflects the period, during which there is reasonable assurance that the Group will not exercise the termination right.

  • determination of the interest rate used to discount future cash flows,

For the purpose of measuring the lease liability and right-of-use assets, the Group has estimated the incremental borrowing rates used for discounting future cash flows. To determine the incremental borrowing rate, the Group has assumed that the discount rate should reflect the cost of financing that would be incurred to purchase an asset of value similar to the leased item. In order to estimate the discount rate, the Group took into account the following parameters of the agreement: type, duration, currency and potential margin that it would have to pay to financial institutions in order to obtain financing.

In 2020, the Group applied incremental borrowing rates of 0.2% to 5.21%.


LIABILITIES RELATED TO DEBT

  Note 31.12.2020 31.12.2019
Loans and borrowings 6.1 2 007,8 359,1
Lease liabilities 6.2 632,9 613,1
TOTAL 2 640,7 972,2
including:    
long-term   2 092,5 740,0
short-term   548,2 232,2

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6.1. Loans and borrowings

  31.12.2020 31.12.2019
LONG-TERM: 1 686,3 333,3
Bank loans 598,6 179,9
Borrowings 1 087,7 153,4
SHORT-TERM: 321,5 25,8
Bank loans 40,9 14,8
Borrowings 280,6 11,0
TOTAL 2 007,8 359,1

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The fair value of loans and borrowings is not significantly different from their carrying amount.

Loans and borrowings taken as at 31 December 2020, by maturity:

Currency of the loan/borrowing Value of the loan/borrowing

at the end of the reporting period
of which, repayable:
short-term
long-term
up to 1 year
to 2 years
from 2 years
up to 3 years
from 3 years
to 5 years
above
5 years
Loans
PLN 360,8 0,8 - - 360,0 -
USD 278,7 40,1 53,0 53,0 106,1 26,5
Borrowings
PLN 1 368,3 280,6 361,5 365,6 306,8 53,8
TOTAL 2 007,8 321,5 414,5 418,6 772,9 80,3

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Loans and borrowings taken out as at 31 December 2019, by maturity:

Currency of the loan/borrowing Value of the loan/borrowing

at the end of the reporting period
of which, repayable:
short-term
long-term
up to 1 year
to 2 years
from 2 years
up to 3 years
from 3 years
to 5 years
above
5 years
Loans
PLN 100,1 0,1 - - 100,0 -
 USD  94,6  14,7  14,5  14,5  29,1  21,8
Borrowings
PLN 164,4 11,0 25,2 33,4 56,1 38,7
TOTAL 359,1 25,8 39,7 47,9 185,2 60,5

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The Group has at its disposal the following unused credit facilities:

  31.12.2020 31.12.2019
Unused credit facilities 39,6 260,7

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Average (nominal) interest rate on loans and borrowings:

  31.12.2020 31.12.2019
PLN 1,61% 3,50%
USD 2,93% 4,64%

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The fair value of loans and borrowings is not significantly different from their carrying amount.

LOAN AGREEMENTS FOR THE GOVERNMENT PROGRAM ENTITLED “THE POLISH DEVELOPMENT FUND’S FINANCIAL SHIELD FOR LARGE COMPANIES”

  1. LIQUIDITY LOAN GRANTED TO JSW BY THE POLISH DEVELOPMENT FUND

On 9 December 2020, a liquidity loan agreement was signed between JSW, Polski Fundusz Rozwoju S.A. (“PFR”) and JZR as one of the guarantors. Under the agreement, a liquidity loan in the amount of PLN 1.0 billion will be granted to the Parent Company under the government program entitled “The Polish Development Fund’s Financial Shield for Large Companies”. The loan may be used only to finance the current activity, including working capital. The loan in the amount of PLN 1.0 billion was drawn down on 17 December 2020. The loan will be repaid quarterly, from June 2021 to 30 September 2024. The annual interest rate for the loan is fixed and in each year of financing it is equal to the margin stipulated for that year (1.25% in the 1st year, 1.75% in the 2nd and 3rd year, 2.75% in the 4th year from the date of signing the loan agreement).

  1. PREFERENTIAL LOAN GRANTED TO JSW BY THE POLISH DEVELOPMENT FUND

On 23 December 2020, a loan agreement was signed between JSW, Polski Fundusz Rozwoju S.A. (“PFR”) and JZR and JSW KOKS as guarantors of the loan. Under the agreement, a preferential loan in the amount of PLN 173.6 million was granted to the Parent Company under the government program entitled “The Polish Development Fund’s Financial Shield for Large Companies”. The loan may be used only to finance the current activity, including working capital. The loan in the amount of PLN 173.6 million was drawn down on 30 December 2020. The loan will be repaid quarterly, from June 2021 to 30 September 2024. The annual interest rate for the loan is fixed and in each year of financing it is equal to the margin stipulated for that year (1.25% in the 1st year, 1.75% in the 2nd and 3rd year, 2.75% in the 4th year from the date of signing the loan agreement). The final maturity of the liabilities under the loan is 30 September 2024. At the same time, JSW may apply to PFR to cancel part of the loan in accordance with the terms and conditions set forth in the agreement and the Regulations of the “Polish Development Fund’s Financial Shield for Large Companies”, i.e. up to 75% of the “Actual COVID Loss”. The decision on the possible cancellation will be made by PFR.

On 15 December 2020, an intercreditor agreement was concluded between JSW, PFR and JSW’s financial creditors, who were parties to the Consortium financing contract of 9 April 2019. The signing of the contract was the main condition precedent allowing PFR to disburse the liquidity loan and the preferential loan.

The liquidity loan and preferential loan agreements provided for collateral in the form of sureties extended in favor of PFR by the following subsidiaries:

  • JZR, up to the total amount of PLN 300.0 million (as at 31 December 2020, a surety in the amount of PLN 300.0 million has been established),
  • JSW KOKS, up to the total amount of PLN 1,375.1 million (as at 31 December 2020, a surety in the amount of PLN 434.0 million has been established),
  1. PREFERENTIAL LOAN GRANTED TO JSW KOKS BY THE POLISH DEVELOPMENT FUND

On 23 December 2020, a loan agreement was signed between JSW KOKS and PFR. Under the agreement, a preferential loan in the amount of PLN 24.9 million was granted to JSW KOKS under the government program entitled “The Polish Development Fund’s Financial Shield for Large Companies”. The loan will be repaid quarterly, from June 2021 to 30 September 2024. The annual interest rate for the loan is fixed and in each year of financing it is equal to the margin stipulated for that year (1.25% in the 1st year, 1.75% in the 2nd and 3rd year, 2.75% in the 4th year from the date of signing the loan agreement). The loan in the amount of PLN 24.9 million was drawn down in December 2020. JSW KOKS may apply to PFR to cancel part of the loan in accordance with the terms and conditions set forth in the agreement and the Regulations of the “Polish Development Fund’s Financial Shield for Large Companies”, i.e. up to 75% of the “Actual COVID Loss”. The decision on the possible cancellation will be made by PFR.

Financial support under the governmental program entitled “The Polish Development Fund’s Financial Shield for Large Companies” was granted on preferential terms. In accordance with the requirements of IAS 20 “Accounting for Government Grants and Disclosure of Government Assistance” the loan received on preferential terms is recognized in the balance sheet at fair value. The Group has made such a measurement and presents the loan including the value of market interest. Because of the above, the actual value of debt is different from the liability as at the final date of the reporting period. On account of the preferential interest rate on PFR loans, the Parent Company achieved revenue of PLN 27.4 million, which it recognized fully in the 2020 financial result in other revenues (Note 4.3).

CONSORTIUM FINANCING CONTRACT

On 9 April 2019, a financing contract was entered into by and between JSW and Agencja Rozwoju Przemysłu S.A., Bank Gospodarstwa Krajowego, Bank Polska Kasa Opieki S.A., Powszechna Kasa Oszczędności Bank Polski S.A. (“PKO BP”) and ICBC (Europe) S.A. Branch in Poland (“Consortium”). This financing was granted in the form of:

  1. a term loan of PLN 100.0 million,

  2. term loans facilities A and C in the USD equivalent of PLN 300.0 million,

  3. renewable loan B in the amount of PLN 360.0 million.

The financing is planned for a maximum term of 7 years, however the financing in the form of the revolving loan has been set for 5 years with the possibility of extending it by up to 2 years.

The obtained funds are to focus, among others, on financing the Group’s investments, other general corporate needs of the Group, and financing the JSW’s acquisition of a 95.01% stake in Przedsiębiorstwo Budowy Szybów S.A.

On 28 June 2019, the term loan in the amount of PLN 100.0 million was disbursed. The loan will be repaid in quarterly installments of PLN 4.8 million starting from June 2021. The loan is denominated in Polish zloty. The loan bears interest at a floating interest rate. As at 31 December 2020, the outstanding balance on the loan is PLN 99.5 million.

On 16 May 2019, part of term loan C to finance the Parent Company’s acquisition of a 95.01% stake in Przedsiębiorstwo Budowy Szybów S.A. was drawn in the amount of USD 26.0 million. The loan will be repaid quarterly, starting from December 2019. In connection with the provisions of the loan agreements with PFR and the intercreditor agreement, repayment of the loan in the last quarter of 2020 and Q1 2021 was deferred until the commencement date of the service of the PFR debt, that is June 2021 (principal installments that would be payable in that period will be added pro rata to the principal amounts payable from June 2021). The final maturity date will remain the same. The loan bears interest at a floating interest rate. As at 31 December 2020, the outstanding balance on the loan is PLN 82.9 million.

As at 3 January 2020, term loan A was drawn down in the amount of USD 52.4 million. The loan will be repaid quarterly, starting from June 2021. The loan bears interest at a floating interest rate. As at 31 December 2020, the outstanding balance on the loan is PLN 195.8 million.

On 11 December 2019, part of the renewable loan was drawn down in the amount of PLN 100.0 million. On 3 January 2020, the remaining portion of the renewable loan in the amount of PLN 260.0 million was drawn down. The loan bears interest at a floating interest rate. As at 31 December 2020, the outstanding balance on the loan is PLN 360.1 million.

The financing contract with the Consortium imposes a number of covenants on the Parent Company and other Group companies. According to contractual clauses, the total share of EBITDA of guarantors (JSW KOKS as the initial guarantor) and the Parent Company in the Group’s total EBITDA must be no less than 85%. As at 30 June 2020, the above covenant was not satisfied. If the ratio falls below the required level, the Parent Company will have to procure that, within 60 days of delivery of the compliance certificate, another Group entity approved by lenders becomes an additional surety. Due to the time-consuming process of establishing a new surety, the Consortium agreed to have this requirement satisfied by 25 November 2020, thus extending the deadline by 30 days. On 23 November 2020, JZR became an additional surety provider. JZR extended a surety to the Consortium up to the amount of PLN 690.0 million and USD 117.8 million.

As at 30 September 2020, this requirement was not satisfied, however JSW asked the Consortium to set less restrictive benchmarks for selected covenants for the duration of the SARS-CoV-2 coronavirus pandemic.

On 9 December 2020, the Consortium agreed to suspend the sanctions resulting from a failure to meet the following covenants:

  • the net financial debt/EBITDA ratio for Q4 2020 and Q1 2021,
  • the obligation that the total share of EBITDA of the sureties (JSW KOKS and JZR) and JSW in the Group’s total EBITDA be no less than 85% in Q3 and Q4 2020 and in Q1 2021.

The funds invested in the FIZ asset portfolio are an important element of the “Cash Buffer”.

On 18 August 2020, JSW signed Annex no. 1 to the Financing Contract with the Consortium of financial institutions under which, among others, the required Cash Buffer was reduced to PLN 760.0 million (till 31 December 2021) and the allowed debt limits were increased. The Annex came into force upon satisfaction of the conditions precedent, i.e. on 12 October 2020. As at 31 December 2020 and in the periods subject to verification in accordance with the Financing Contract, as at the date of approval of these consolidated financial statements the condition regarding maintaining the Cash Buffer was satisfied.

FINANCING CONTRACT WITH THE EUROPEAN INVESTMENT BANK

On 9 April 2019, a financing contract was entered into by and between JSW, its subsidiary JSW KOKS and the European Investment Bank (“EIB”) with its registered office in Luxembourg. This financing was granted in the form of a term facility in the amount of EUR 58.5 million for JSW and JSW KOKS.

On 15 October 2020, the JSW Management Board adopted a resolution to terminate, by mutual consent of the parties, the financing contract with EIB. The agreement terminating the EIB contract was finally signed on 20 October 2020 and, as at the date of preparing these consolidated financial statements, the process of releasing the collateral established in favor of EIB for this funding is being finalized.

PREFERENTIAL LOAN AGREEMENT WITH NFOŚIGW

On 9 December 2019, a preferential loan was partly released in the amount of PLN 36.9 million by JSW KOKS from the National Fund for Environmental Protection and Water Management in Warsaw (NFOŚiGW”), which was granted in the amount of PLN 134.0 million as part of the Operational Programme Infrastructure and Environment for the implementation of a project titled “Improvement of Energy Efficiency at JSW KOKS S.A.” related to the construction of a power unit in the Radlin Coking Plant. The loan was granted at an interest rate of 0%. Due to delays in project work caused by changes in the schedule of the General Contractor for the Investment, the transferred funds were not used. In accordance with §4 of the Regulation of the Minister of Development and Finance of 7 December 2017 on advance payments under programs financed with the participation of European funds (Journal of Laws of 2017, item 2367), the unused tranche of the loan in the amount of PLN 22.8 million was returned on 5 March 2020 and the previously calculated preferential interest rate on the loan was adjusted. On 9 June 2020, the loan tranche in the amount of PLN 22.8 million was drawn down again. By 7 September 2020, PLN 16.4 million was utilized to settle investment invoices and PLN 6.4 million was returned to the Ministry of Finance. The next loan tranche in the amount of PLN 22.8 million was received on 12 October 2020. JSW KOKS also received three disbursements in the form of a refund in the total amount of PLN 7.1 million in Q4 2020. As at 31 December 2020, the outstanding debt amount is PLN 60.4 million. In accordance with the requirements of IAS 20 “Accounting for Government Grants and Disclosure of Government Assistance” the loan received on preferential terms is recognized in the balance sheet at fair value. JSW KOKS has made such a measurement and presents the loan including the value of market interest, while the difference is recognized as deferred income and will be written off to other operating income based on the depreciation period of the fixed assets financed by the loan. Because of the above, the actual value of debt is different from the liability as at the final date of the reporting period.

The loan will be amortized quarterly, starting from September 2022.

According to the agreement, the loan is secured by a PLN 167.5 million mortgage on real estate, an assignment of rights from the insurance policy and a blank promissory note with a promissory note declaration guaranteed by JSW..

LOAN AGREEMENT WITH NFOŚiGW

On 27 June 2014, JSW KOKS signed a preferential loan agreement with the National Fund for Environmental Protection and Water Management to implement the project entitled “Upgrade of the BTX plant with associated hydrocarbons facilities at the Radlin Coking Plant”. As at 31 December 2020, the outstanding debt amount is PLN 22.5 million.

NON-RENEWABLE LOAN AGREEMENT WITH BOŚ S.A.

On 14 May 2019, a non-renewable loan agreement was signed between JSW KOKS and BOŚ S.A. in the amount of PLN 60.1 million to finance the task entitled “Modernization of coke oven battery no. 4 at the Przyjaźń Coking Plant”, which at the same time is co-financed under a separate agreement signed by JSW KOKS on 17 October 2018 with NFOŚiGW in Warsaw in the amount of PLN 200.0 million.

As at the end of the reporting period, the loan has not been drawn down.

Under the agreement, the non-renewable loan will be secured on:

  1. surety extended by JSW up to PLN 90.2 million,
  2. registered pledge on coal inventories worth no less than PLN 75.0 million and no less than 100 thousand tons of coal with an assignment of an insurance policy up to the amount of no less than PLN 20.0 million;
  3. registered pledge on machinery and equipment to be purchased as part of the task entitled “Modernization of coke oven battery no. 4 at the Przyjaźń Coking Plant” up to the amount of PLN 90.2 million.

MULTI-PURPOSE FACILITY AGREEMENT WITH BGK

On 23 January 2020, a multi-purpose overdraft facility agreement in the amount of PLN 20.0 million was concluded by and between PBSz and Bank Gospodarstwa Krajowego. In accordance with the signed agreement, PBSz may use the granted limit in the form of:

  • a current account overdraft up to the full amount of the limit,
  • bank guarantees cumulatively up to the maximum exposure amount of PLN 5.0 million.

The total exposure in respect of all products must not exceed the limit amount of PLN 20.0 million.

In accordance with the agreement, the multi-purpose facility is secured by:

  1. a mortgage on real property in the amount of PLN 30.0 million and an assignment of rights under an insurance policy,
  2. an assignment of receivables under the agreement.

At the end of the reporting period, PLN 0.5 million of the multi-purpose facility has been used for a bank guarantee.

MULTI-PURPOSE OVERDRAFT AGREEMENT WITH PKO BP S.A.

On 17 February 2020, a multi-purpose overdraft facility agreement of PLN 20.0 million was concluded by and between PBSz and PKO BP. In accordance with the signed agreement, PBSz may use the granted limit in the form of:

  • a current account overdraft up to PLN 15.0 million,
  • bank guarantees cumulatively up to the maximum exposure amount of PLN 5.0 million.

In accordance with the agreement, the multi-purpose overdraft facility is secured by:

  1. a mortgage on real property in the amount of PLN 30.0 million and an assignment of rights under an insurance policy,
  2. an assignment of receivables under the agreement.

PREFERENTIAL LOAN AGREEMENT WITH WFOŚiGW

On 12 August 2020, JSW KOKS signed a preferential loan agreement for PLN 34.0 million with the Voivodship Fund for Environmental Protection and Water Management (“WFOŚiGW”) in Katowice. The purpose of the agreement is to co-finance, through a preferential loan, the investment task entitled “Construction of a power unit in the Radlin Coking Plant”. The loan was granted within the framework of the horizontal aid for environmental protection program. The loan will be repaid quarterly, starting from December 2022. As at 31 December 2020, the outstanding balance on the loan is PLN 25.0 million.

Under to the agreement, the preferential loan is secured with a mortgage on real property in the amount of PLN 42.1 million and an assignment of rights under an insurance policy.

LOAN AGREEMENT WITH WFOŚiGW

On 22 May 2017, JSW started utilizing a loan of PLN 10.0 million from the Voivodship Fund for Environmental Protection and Water Management in Katowice under an agreement signed on 23 March 2017. The loan will be amortized quarterly, in installments of PLN 0.5 million, starting from September 2017. The loan bears interest at a floating interest rate. In connection with the partial repayment of the loan from the Voivodship Fund for Environmental Protection and Water Management in Katowice, on 20 March 2020 the lender agreed for a partial release of the loan repayment collateral in the form of an assignment of receivables from a term deposit account, which, after the change, amounts to PLN 5.1 million. On 23 December 2020, JSW signed an agreement with WFOŚiGW in Katowice in the matter of a partial forgiveness of the loan of PLN 3.0 million. In accordance with the agreement, part of the loan may be forgiven if it is allocated for the execution of an environmental investment resulting in an environmental effect up until 31 March 2022. By 30 September 2022, JSW must confirm the environmental effect by providing appropriate documents. As at 31 December 2020, JSW has not recognized any indebtedness on account of this loan.

OTHER COLLATERAL FOR LOANS AND BORROWINGS

(in addition to the collateral described above):

  • mortgage on real properties in the amount of PLN 56.3 million,
  • registered pledges on movable assets of PLN 56.3 million,
  • assignments of receivables under bank agreements/accounts.

If the loans and borrowings are secured with non-current assets then additional security is provided in the form of an assignment of rights under insurance agreements for these assets. Blank promissory notes with a promissory note declaration are another form of security used to secure liabilities under contracted loans and borrowings.

6.2. Lease liabilities

The currency structure of the Group’s lease liabilities after translation to PLN is as follows:

  31.12.2020 31.12.2019
PLN 626,8 606,4
EUR 6,1 6,7
TOTAL 632,9 613,1

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Lease liabilities captured in the consolidated statement of financial position:

  Nota 31.12.2020 31.12.2019
Lease liabilities 632,9 613,1
TOTAL   632,9 613,1
including:    
long-term   406,2 406,7
short-term   226,7 206,4

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In its measurement of lease liabilities, the Group includes variable lease payments associated with reference interest rates.

The subsidiary PBSz has at its disposal unused lease limits of PLN 16.2 million (PLN 2.2 million granted by PEKAO LEASING Sp. z o.o. with its registered office in Warsaw and PLN 14.0 million granted by ING Lease Polska Sp. z o.o.).

SALE AND LEASEBACK

In 2020, as part of the master agreement to grant a lease limit of PLN 34.5 million with PEKAO LEASING Sp. z o.o., JZR signed sale and leaseback agreements. The subject matter of the agreements included machinery and equipment and means of transportation with total worth of PLN 34.4 million. The purchase and sale transactions pertaining to those assets had no effect on the result due to the fact that the sale and leaseback were made at the same amount.

In connection with the entry into force, on 1 April 2020, of the Act of 31 March 2020 on amending the act on special solutions associated with preventing, counteracting and combating COVID-19, other infectious diseases and crisis situations they precipitate and certain other acts, the Group has taken advantage of the implemented support solutions permitting an extension of payment due dates for perpetual usufruct of land.

6.3. Reconciliation of debt

The table below depicts the movement in debt as at 31 December 2020:

  Loans and borrowings Lease liabilities TOTAL
AS AT 1 JANUARY 2020 359,1 613,1 972,2
Proceeds from drawing down debt: 1 698,2 210,2 1 908,4
- received financing 1 698,2 - 1 698,2
- new lease agreements signed - 210,2 210,2
Adjustments related to changes in lease agreements - (5,2) (5,2)
Accrued interest and fees 31,3 30,6 61,9
Debt-related payments: (73,2) (215,6) (288,8)
- repayment of debt (principal) (45,1) (185,7) (230,8)
- interest and commissions paid (28,1) (29,9) (58,0)
FX gains and losses (2,5) 0,4 (2,1)
Other increases / (decreases) (5,1) (0,6) (5,7)
AS AT 31 DECEMBER 2020 2 007,8 632,9 2 640,7

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The table below depicts the movement in debt as at 31 December 2019:

  Loans and borrowings Liabilities under debt securities issued Lease liabilities TOTAL
AS AT 1 JANUARY 2019 (audited data) 70,0 121,0 40,3 231,3
Impact of implementing IFRS 16 as of 1 January 2019 - - 341,7 341,7
AS AT 1 JANUARY 2019 (restated data) 70,0 121,0 382,0 573,0
Proceeds from drawing down debt: 328,7 - 312,9 641,6
- received financing 328,7 - - 328,7
- new lease agreements signed -  - 312,9 312,9
Accrued interest 15,4 0,3 23,2 38,9
Debt-related payments: (52,6) (121,3) (140,6) (314,5)
- repayment of debt (principal) (37,2) - (121,4) (158,6)
- bond redemption - (121,0) - (121,0)
- interest and commissions paid (15,4) (0,3) (19,2) (34,9)
FX gains and losses (1,2) - 0,1 (1,1)
Acquisition of businesses (PBSz) - - 25,1 25,1
Other increases / (decreases) (1,2) - 10,4 9,2
AS AT 31 DECEMBER 2019 359,1 - 613,1 972,2

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7.1. Property, plant and equipment


Selected accounting policies

Key items of property, plant and equipment include:

  • buildings and structures – in particular structures for mining and colliery, such as vertical and horizontal capital pits,
  • technical equipment and machinery – held by JSW to be used in the production process associated with coal mining, in particular mining machines, such as powered supports, longwall shearers and roadheaders, machinery and equipment for coal preparation.
  • expensable mining pits – preparatory mine workings, dinting workings and other related to the operation of the longwall and mining fields;
  • property, plant and equipment under construction.

As at the initial recording date, property, plant and equipment is measured at the purchase price or manufacturing cost. On the final date of the reporting period, property, plant and equipment items are measured at initial value less accumulated depreciation and accumulated impairment losses.

The initial value of property, plant and equipment includes the discounted liquidation cost of property, plant and equipment used in underground mining operations which, according to the applicable Geological and Mining Law Act, must be liquidated after the operations are discontinued.

The mine liquidation costs included in the initial value of property, plant and equipment are depreciated with the depreciation method used for depreciation of the property, plant and equipment to which they are related, starting from the moment the given property, plant and equipment item is commissioned for use, throughout the period set in the liquidation plan of facility groups being part of the anticipated mine liquidation schedule.

The subsequent expenditures are recognized in the carrying amount of the property, plant and equipment item or captured as a separate property, plant and equipment item (where applicable) only when it is probable that the Group will obtain economic benefits from this item and the cost of this item may be measured reliably. All other expenditures towards repairs and upkeep are posted in the financial result of the financial period in which they are incurred.

Depreciation of property, plant and equipment is calculated using the linear method to distribute their initial values, minus their final values, over their useful life periods. The estimated useful life periods for the individual groups of property, plant and equipment are, respectively:

  • Buildings and structures (including capital pits) 1-79 years,
  • Technical equipment and machinery 1-79 years;
  • Means of transportation 1-39 years;
  • Other property, plant and equipment 1-31 years,
  • Land is not depreciated
  • Property, plant and equipment under construction are not depreciated.

When determining the useful life of property, plant and equipment comprising the permanent underground and overground infrastructure, the life expectancy of a mine is taken into account. For the property, plant and equipment items that constitute movable assets of a mine, when determining the useful life, the possibility of using them in other JSW S.A. mines is taken into account.

Profits and losses on the sale of property, plant and equipment are determined by comparing proceeds on the sale with their book value and recognized in the financial result as other net profits/losses item.

Leased assets are recognized in a separate item of the consolidated statement of financial position which is discussed in Note 7.4.

Upon initial recognition, mine workings that are used to access operational mining pits, i.e. expensable mining pits, are measured at the accumulated cost incurred to build them, minus the value of coal mined during their construction, measured at the production cost determined from the beginning of the year until the end of the month preceding the settlement. Capitalized cost of expensable mining pits (which are classified as prepaid expenses) are presented in the financial statements as a separate item of property, plant and equipment. The expenditures for expensable mining pits are settled pro rata to the production of coal in respective longwall areas. This is presented as depreciation in the financial result.

In the second half of each year, the Parent Company analyzes the amounts of capitalized costs of expensable mining pits in terms of their connection with revenues to be earned in subsequent financial periods.

 

Material estimates

Impairment

As at every day ending the reporting period, the Group estimates whether objective indications have occurred that may point to impairment of a property, plant and equipment item. Impairment tests for property, plant and equipment are carried out in accordance with the accounting principles set forth in Note 7.5.

The Group sets the estimated useful lives and consequently the depreciation rates for particular property, plant and equipment. This estimate is based on the anticipated useful lives of those assets. The correct application of depreciation periods and rates and the final value of property, plant and equipment are subject to annual reviews in the fourth quarter of the year in order to make appropriate adjustments to depreciation charges starting from the next financial year. The review of depreciation rates for property, plant and equipment conducted in Q4 2019 resulted in a PLN 44.5 million decrease in depreciation in 2020 vs. the previous year.

Expensable mining pits are settled pro rata to the coal volume production in individual longwall areas. The length of the settlement period of an expensable mining pit depends on the estimated quantity of coal in a given seam, which has gained access through the mining pit.


Property, plant and equipment

  Note Land Buildings and structures Expensable mining pits * Technical equipment and machinery Other property, plant and equipment Property, plant and equipment under construction ** Total
AS AT 1 JANUARY 2020
Gross value   47,3 8 216,3 996,3 7 801,4 511,3 1 353,7 18 926,3
Accumulated depreciation ***   - (4 242,6) - (5 515,3) (392,3) (103,8) (10 254,0)
NET CARRYING AMOUNT   47,3 3 973,7 996,3 2 286,1 119,0 1 249,9 8 672,3
Increases   - 19,7 605,4 20,1 0,7 1 008,2 1 654,1
Change in the provision for mine closure costs 7.15 - 107,6 - - - - 107,6
Transfers from commenced investments   9,1 430,3 - 705,6 44,0 (1 189,0) -
Decreases   (1,2) (15,2) (19,4) (7,3) (1,4) (3,4) (47,9)
Depreciation and amortization   - (159,6) (357,3) (352,2) (32,1) - (901,2)
Impairment loss - recognition 7.5 - (342,9) (9,0) (49,1) (2,0) (90,4) (493,4)
Impairment loss - reversal - - - 4,1 - - 4,1
Impairment loss – movement between groups - (58,8) - (35,7) - 94,5 -
NET CARRYING AMOUNT   55,2 3 954,8
1 216,0 2 571,6 128,2 1 069,8 8 995,6
AS AT 31 DECEMBER 2020
Gross value   55,2 8 690,4 1 216,0 8 420,9 551,0 1 169,2 20 102,7
Accumulated depreciation ***   - (4 735,6) - (5 849,3) (422,8) (99,4) (11 107,1)
NET CARRYING AMOUNT   55,2 3 954,8 1 216,0 2 571,6 128,2 1 069,8 8 995,6
* Capitalized costs of expensable mining pits are recognized in accordance with the coal production volumes from respective longwall areas. Upon settlement, an expensable mining pit is actually liquidated; therefore, the table does not contain any accumulated depreciation numbers
** The capital expenditures incurred by the Group (except for expenditures for expensable mining pits) are accumulated in the "Property, plant and equipment under construction" item and in the month they are commissioned for use they are transferred to the appropriate type group of property, plant and equipment.
*** This item includes accumulated depreciation and impairment losses on property, plant and equipment

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  Nota Grunty Budynki i budowle Wyrobiska ruchowe* Urządzenia techniczne i maszyny Inne rzeczowe aktywa trwałe Rzeczowe aktywa trwałe w budowie** Razem
AS AT 1 JANUARY 2019
Gross value   43,0 7 603,2 868,0 7 160,6 494,0 1 352,7 17 521,5
Accumulated depreciation ***   - (4 210,0) - (5 376,5) (383,9) (248,1) (10 218,5)
NET CARRYING AMOUNT
(audited data)
  43,0 3 393,2 868,0 1 784,1 110,1 1 104,6 7 303,0
Reclassifications as at 1 January 2019 (IFRS 16)   - - - (42,4) (9,2) - (51,6)
NET BOOK VALUE (restated data)   43,0 3 393,2 868,0 1 741,7 100,9 1 104,6 7 251,4
Increases   - 3,6 533,3 3,9 1,1 1 504,5 2 046,4
Change in the provision for mine closure costs 7.15 - 68,9 - - - - 68,9
Transfers from commenced investments   4,3 607,1 - 799,4 48,3 (1 459,1) -
Acquisition of businesses (PBSz)   - 23,2 - 34,5 2,5 11,8 72,0
Decreases   - (22,8) (16,4) (5,9) (0,6) (56,2) (101,9)
Depreciation   - (169,0) (357,4) (300,0) (32,8) - (859,2)
Impairment loss - reversal 7.5 - 70,2 - 124,4 0,1 - 194,7
Impairment loss – movement between groups****     (0,7) (31,2) (111,9) (0,5) 144,3 -
NET CARRYING AMOUNT   47,3 3 973,7 996,3 2 286,1 119,0 1 249,9 8 672,3
AS AT 31 DECEMBER 2019
Gross value   47,3 8 216,3 996,3 7 801,4 511,3 1 353,7 18 926,3
Accumulated depreciation ***   - (4 242,6) - (5 515,3) (392,3) (103,8) (10 254,0)
NET CARRYING AMOUNT   47,3 3 973,7 996,3 2 286,1 119,0 1 249,9 8 672,3
* Capitalized costs of expensable mining pits are recognized in accordance with the coal production volumes from respective longwall areas. Upon settlement, an expensable mining pit is actually liquidated; therefore, the table does not contain any accumulated depreciation numbers
** The capital expenditures incurred by the Group (except for expenditures for expensable mining pits) are accumulated in the "Property, plant and equipment under construction" item and in the month they are commissioned for use they are transferred to the appropriate type group of property, plant and equipment.
*** This item includes accumulated depreciation and impairment losses on property, plant and equipment
**** This item resulted from the impairment tests carried out, which was described in detail in Nocie 7.5

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Depreciation of property, plant and equipment

The items, which include depreciation of property, plant and equipment and the settlement of expensable mining pits, are listed below:

  2020 2019
Cost of products, materials and goods sold 884,6 836,4
Selling and distribution expenses 2,7 2,5
Administrative expenses 12,0 12,7
Cost of performances and property, plant and equipment produced for own use 1,5 7,3
Other costs 0,4 0,3
TOTAL DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
AND THE SETTLEMENT OF EXPENSABLE MINING PITS
901,2 859,2

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Other information on property, plant and equipment

As at 31 December 2020, the net value of property, plant and equipment items securing the repayment of liabilities is PLN 2,135.7 million (as at 31 December 2019: PLN 2,243.5 million) and this is security for the repayment of liabilities under debt financing agreements. The security interest for loans and borrowings is described in Note 6.1.

In 2020 and in 2019, there were no capitalized costs of external financing of property, plant and equipment in the Group.

7.2. Goodwill


Selected accounting policies

Goodwill

Goodwill is measured at initial value less impairment losses, if any. Goodwill is not amortized but is subject to an annual impairment test, irrespective of whether there is any indication of impairment.

The goodwill acquired in a business combination is, from the acquisition date, allocated to individual cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated shall:

  • represent the lowest level at which the goodwill is monitored for internal management purposes;
  • cannot be larger than an operating segment as defined in IFRS 8 before aggregation.

A cash-generating unit to which goodwill has been allocated is tested for impairment annually, and also whenever there is an indication that the unit may be impaired.

The Group has recognized the operating segment as the lowest level in the Group, to which goodwill may be classified and at which goodwill is monitored for internal management purposes. Goodwill is recognized in a separate item of the consolidated statement of financial position.

Material estimates

Impairment

Goodwill is subject to an impairment test annually and on each date ending the reporting period, as at which the relevant indications exist. Impairment tests for goodwill are carried out in accordance with the accounting principles presented in Note 7.5.


Goodwill

In 2019, the Group carried out a purchase price allocation for the acquisition of shares in Przedsiębiorstwo Budowy Szybów S.A. (“PBSz”) in Tarnowskie Góry, which is discussed in detail in Note 10.3. As a result of this transaction, the Group presented in its consolidated statement of financial position prepared as at 31 December 2019 the goodwill of PLN 57.0 million, as specified in the table below:

31.12.2019
Purchase price (after adjustment for the retained amount) 199,0
Non-controlling interests (4.99%) 7,5
Fair value of acquired assets and liabilities (net assets) (149,5)
GOODWILL 57,0

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Given the accounting policy in effect in the Group, the JSW Management Board believes that, for impairment testing purposes, the goodwill obtained in the purchase price allocation process for PBSz shares should be allocated to the cash generating unit, i.e. PBSz, which is part of the Other segment.

The summary of the goodwill allocation at the segment level is presented below:

2020 2019
Coal segment - -
Coke segment - -
Other segments (Poland) 57,0 57,0
TOTAL 57,0 57,0

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7.3. Intangible assets


Selected accounting policies

Intangible assets

The Group holds the following main items of intangible assets:

The right to use geological information is capitalized at the amount of expenses incurred to purchase it. The capitalized expenses are written off throughout the estimated useful life of information. The estimated useful life of geological information is from 5 to 45 years.

Purchased software licenses are capitalized at the amount of expenses incurred for the purchase and preparation for use of specific computer software. The capitalized costs are written off throughout the estimated useful life of the software, which is 2 to 10 years.

Economic copyrights are capitalized at the amount of expenses incurred to purchase them. The estimated useful life of economic copyrights is from 31 to 64 years.

In intangible assets, the Parent Company recognizes certificates of origin of energy purchased to fulfill the obligation to redeem them as required by the Energy Law regulations. The act on renewable energy sources offers the company, which has the status of an industrial offtaker, the ability to buy on its own and produce for redemption proprietary rights under certificates of origin of energy, or for them to remit the substitution fee. The property rights following from certificates of origin of energy produced in renewable energy sources or using agricultural biogas are created when they are entered in the registry of certificates and expire at the time of their redemption. The deadline for the obligation to redeem the certificates of origin or to pay the substitution fees for the year is 30 June of the following year.

Certificates of origin are measured initially at their purchase price, while certificates of origin from the Group’s own production are measured at market prices (of the last day of the month in which the energy, to which the certificates pertain, was produced) in proportion to other operating revenues. If their fair value cannot be determined then the certificates of origin are measured at the unit substitution fee for the year as announced by the President of ERO.

Expenditures for the purchase of certificates of origin of energy, due to their special character, were included in the consolidated statement of cash flows, as cash flows on operating activity.

Perpetual usufruct rights – those acquired against payment as well as those acquired free of charge – are recorded in a separate item of the consolidated statement of financial position as an element of a right-of-use asset, which is presented in Note 7.4.


Material estimates

Impairment
As at every day ending the reporting period, the Group estimates whether objective indications have occurred that may point to impairment of the above intangible assets. Impairment tests for intangible assets are carried out in accordance with the accounting principles presented in Note 7.5.

Periods of useful life for intangible assets

The Group sets the estimated useful lives and consequently the amortization rates for particular intangible assets. This estimate is based on the anticipated useful lives of those assets. The correct application of amortization periods and rates and the final value of intangible assets are subject to annual reviews in the fourth quarter of the year in order to make appropriate adjustments to amortization charges starting from the next financial year.

The review of amortization rates for intangible assets conducted in Q4 2019 resulted in a decrease in amortization in 2020 vs. the previous year by PLN 0.4 million.


Intangible assets

  Geologic information Certificates of origin Other intangible assets Total
AS AT 1 JANUARY 2020
Gross value 33,6 37,4 140,3 211,3
Write-off (18,2) - (75,8) (94,0)
NET CARRYING AMOUNT 15,4 37,4 64,5 117,3
Increases - 21,2 14,8 36,0
Decreases - *(39,2) (4,7) (43,9)
Amortization (0,7) - (8,5) (9,2)
Impairment loss - recognition (3,8) - (1,2) (5,0)
NET CARRYING AMOUNT 10,9 19,4 64,9 95,2
AS AT 31 DECEMBER 2020
Gross value 33,6 19,4 145,6 198,6
Write-off (22,7) - (80,7) (103,4)
NET CARRYING AMOUNT 10,9 19,4 64,9 95,2

* In accordance with the decisions of the President of the Energy Regulatory Office to redeem certificates of origin for electricity.

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  Geologic information Perpetual usufruct right to land Certificates of origin Other intangible assets Total
AS AT 1 JANUARY 2019
Gross value 31,0 92,5 11,8 99,1 234,4
Write-off (17,0) (17,4) - (69,2) (103,6)
NET CARRYING AMOUNT
(audited data)
14,0 75,1 11,8 29,9 130,8
Reclassification as at 1 January 2019 – IFRS 16 - (75,1) - (0,2) (75,3)
ET CARRYING AMOUNT
(restated data)
14,0 - 11,8 29,7 55,5
Increases 2,6 - 25,6 9,0 37,2
Acquisition of businesses (PBSz) - - - 36,1 36,1
Decreases - - - (0,7) (0,7)
Amortization (1,2) - - (9,6) (10,8)
NET CARRYING AMOUNT 15,4 - 37,4 64,5 117,3
AS AT 31 DECEMBER 2019
Gross value 33,6 - 37,4 140,3 211,3
Write-off (18,2) - - (75,8) (94,0)
NET CARRYING AMOUNT 15,4 - 37,4 64,5 117,3

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Amortization of intangible assets

The items, which include amortization of intangible assets, are listed below:

  2020 2019
Cost of products, materials and goods sold 7,6 9,1
Selling and distribution expenses - 0,1
Administrative expenses 1,6 1,6
TOTAL AMORTIZATION OF INTANGIBLE ASSETS 9,2 10,8

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Other information concerning intangible assets

As at 31 December 2020, the net value of intangible assets items securing the repayment of liabilities is PLN 15.3 million (as at 31 December 2019: PLN 10.8 million) and this is security for the repayment of liabilities under debt financing agreements. The security interest for loans and borrowings is described in Note 6.1.

In 2020 and in 2019, there were no capitalized costs of external financing of intangible assets in the Group.

7.4. Right-of-use asset


Selected accounting policies

Right-of-use asset

At the commencement date of a lease, the Group recognizes a right-of-use asset and a lease liability. The rules for recognizing lease liabilities are presented in Note 6.

Under lease contracts, the Group uses mainly longwall shearers and roadheaders and mining machines, means of transport, computer and multimedia equipment, as well as real property and the perpetual usufruct right to land.

On initial recognition, a right-of-use asset is measured at cost. The cost of a right-of-use asset consists of:

  • the amount of initial measurement of the lease liability,
  • any lease payments made at or before the commencement date, less any lease incentives received;
  • any initial direct costs incurred by the lessee in connection with the execution of a lease agreement,
  • an estimate of costs to be incurred by the lessee in connection with the duty of dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease, unless those costs are incurred to produce inventories.

After the lease commencement date, the Group measures the right-of-use asset at cost less any accumulated amortization and any accumulated impairment losses and adjusted for any revaluation of the lease liability other than unwinding of the discount.

The Group benefits from an exemption from the application of IFRS 16 requirements when the following are recognized:

  • short-term lease – a lease that, at the commencement date, has a lease term of 12 months or less. This simplification was not applied to short-term lease agreements for productive assets used in underground mines. A lease that contains a purchase option is not a short-term lease.
  • lease of low value assets – assets, whose initial unit value of a new leased item does not exceed PLN 20 thousand, except for perpetual usufruct right to land and lease agreements to which a purchase option was introduced.

Payments related to short-term leases and leases of low value assets are recognized on a straight-line basis in costs of the current period.

For leases where the Group is a lessee, for contracts containing lease components as well as non-lease components, if they cannot be separated, the Group applies a simplification and accounts for each lease component and non-lease component as a single lease component.


Material estimates

Determination of the amortization rate

The Group sets amortization rates individually for each item right-of-use assets. A right-of-use asset is amortized using a straight-line method over the useful life of assets no longer than the term of the lease based on the concluded agreements. Amortization rates depend on the term of the agreement. In the case of agreements concluded for an indefinite term, the amortization period is set based on the most likely useful life period of the asset, or the useful life of the Company is used as its amortization period, whichever better reflects the period, in which there is reasonable assurance that the Group will not exercise the termination option.
If the Group has reasonable assurance that it will exercise the purchase option, the right-of-use asset is amortized over the useful life of that asset.

Impairment

As at every day ending the reporting period, the Group estimates whether objective indications have occurred that may point to impairment of right-of-use assets. Impairment tests are carried out in accordance with the accounting principles presented in Note 7.5.


Right-of-use asset

Note Land Buildings and structures Technical equipment and machinery Other property, plant and equipment Perpetual usufruct right to land Other intangible assets Total
AS AT 1 JANUARY 2020
Gross value   15,1 21,8 576,6 52,9 215,2 0,7 882,3
Accumulated amortization *   (0,7) (2,8) (215,2) (17,7) (26,9) (0,7) (264,0)
NET CARRYING AMOUNT 14,4 19,0 361,4 35,2 188,3 - 618,3
New lease agreements 0,6 1,0 199,4 9,0 0,2 - 210,2
Adjustments resulting from changes to lease contracts - (1,2) (6,4) (0,5) 2,9 - (5,2)
Other increases - - 1,2 - 0,5 - 1,7
Amortization (0,6) (3,2) (170,7) (15,0) (4,3) - (193,8)
Other decreases - (0,6) (19,0) (0,6) (0,3) - (20,5)
Impairment loss - recognition 7.5 - (2,7) (15,4) (0,1) - - (18,2)
Impairment loss - reversal 7.5 - 0,5 5,6 - - - 6,1
NET CARRYING AMOUNT 14,4 12,8 356,1 28,0 187,3 - 598,6
AS AT 31 DECEMBER 2020
Gross value 15,5 20,3 630,8 45,0 218,5 - 930,1
Accumulated amortization * (1,1) (7,5) (274,7) (17,0) (31,2) - (331,5)
NET CARRYING AMOUNT 14,4 12,8 356,1 28,0 187,3 - 598,6
* This item includes accumulated amortization and impairment losses of the right-of-use assets

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Note Land Buildings and structures Technical equipment and machinery Other property, plant and equipment Perpetual usufruct right to land Other intangible assets Total
AS AT 1 JANUARY 2019
(restated data)
Gross value   14,8 9,7 275,3 29,1 208,4 0,8 538,1
Accumulated amortization *   (0,2) (0,1) (85,7) (6,2) (22,3) (0,6) (115,1)
NET CARRYING AMOUNT
including:
14,6 9,6 189,6 22,9 186,1 0,2 423,0
Impact of IFRS 16 14,6 9,6 147,2 13,7 111,0 - 296,1
Reclassification of assets in finance leases as at 1 January 2019 - - 42,4 9,2 75,1 0,2 126,9
New lease agreements 0,3 8,3 279,8 24,7 0,1 - 313,2
Acquisition of businesses (PBSz) - 4,0 36,4 0,4 3,5 - 44,3
Other increases - - 0,3 0,2 14,2 - 14,7
Amortization (0,5) (2,7) (143,2) (12,2) (4,4) (0,2) (163,2)
Other decreases - (0,2) (2,2) (0,8) (11,2) - (14,4)
Impairment loss - reversal 7.5 - - 0,7 - - - 0,7
NET CARRYING AMOUNT 14,4 19,0 361,4 35,2 188,3 - 618,3
AS AT 31 DECEMBER 2019
Gross value 15,1 21,8 576,6 52,9 215,2 0,7 882,3
Accumulated amortization * (0,7) (2,8) (215,2) (17,7) (26,9) (0,7) (264,0)
NET CARRYING AMOUNT 14,4 19,0 361,4 35,2 188,3 - 618,3
* This item includes accumulated amortization and impairment losses of the right-of-use assets

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Costs of leases

Amounts related to leases that are presented in the statement of profit or loss and other comprehensive income:

  2020 2019
Amortization of right-of-use assets, recognized as: 193,8 163,2
- cost of products, materials and goods sold 181,5 154,0
- administrative expenses 3,3 3,2
- cost of performances and property, plant and equipment produced for own use 9,0 6,0
Interest cost (included in financial costs) 30,6 22,9
Cost related to short-term leases, recognized as: 17,4 1,5
- cost of products, materials and goods sold 16,7 0,7
- selling and distribution expenses 0,6 0,6
- administrative expenses 0,1 0,2
Cost of leases for low-value contracts (captured as the cost of products, materials and goods sold) 0,5 0,3
TOTAL COSTS OF LEASES 242,3 187,9

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Other information on right-of-use assets

As at 31 December 2020, the net value of right-of-use assets securing the repayment of liabilities is PLN 53.1 million (as at 31 December 2019: PLN 51.0 million) and constitutes mainly security for the repayment of liabilities under debt financing agreements. The security interest for loans and borrowings is described in Note 6.1.

In 2020 and in 2019, there were no capitalized costs of external financing of right-of-use asset in the Group.

7.5. Impairment of non-financial non-current assets

Selected accounting policies

Impairment of non-financial non-current assets

Goodwill is subject to annual tests to verify whether an impairment has occurred, and in each instance when indications of impairment arise. Other non-financial non-current assets (assets that are subject to depreciation and amortization) are analyzed for impairment any time any events or changes in circumstances indicate that their carrying amount may not be realized.

If the carrying amount of a non-financial non-current asset exceeds its estimated recoverable amount then its carrying amount is subject to an impairment loss down to its recoverable amount. Recoverable value is the higher of: fair value of the assets minus the selling and distribution expenses, or value in use.

For the purpose of the impairment analysis, assets are grouped at the lowest level where there are identifiable separate cash flows (cash flow centers). Impairment tests for non-financial non-current assets are conducted based on the principle that, for assets not withdrawn from use, the smallest group of assets is a mine or another subsidiary company (“cash-generating unit – CGU”). For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to individual cash-generating units, or groups of cash-generating units. Information on the specification of the CGU, to which goodwill is allocated, is presented in Note 7.2.

If an impairment test shows that the recoverable amount of a non-financial asset or a cash-generating unit is lower than its carrying amount then an impairment loss is made at the amount of the difference between the recoverable amount and the carrying amount of the asset or the CGU. After the impairment loss is recognized, the depreciation charge for the asset is adjusted so that the remaining net amount (after the loss is recognized) is depreciated over the remaining useful life.

Non-financial assets whose impairment has been found earlier are evaluated at every end date of the reporting period for the occurrence of premises indicating that the impairment loss may be reversed. Impairment losses pertaining to goodwill cannot be reversed.
Recognition and reversal of impairment losses on non-financial non-current assets is presented in the consolidated statement of profit or loss and other comprehensive income in the "other income/cost" item.

Material estimates

As at each day ending the reporting period, the Group estimates whether objective indications have occurred that may point to impairment of non-financial non-current assets. When analyzing the occurrence of the indications, the Group reviews external as well as internal factors.

Impairment of non-current assets is analyzed by estimating the recoverable amounts of cash-generating units and is based on a number of assumptions, which are discussed further in this Note.


Impairment losses

Because of the volatile macroeconomic environment, the Group regularly reviews the indications that may suggest a decline in the recoverable amount of the assets in the respective Group companies. Impairment of non-current assets is analyzed by estimating the recoverable amounts of cash-generating units (CGUs). Such analysis is based on a number of significant assumptions, some of which are beyond the Group’s control. Significant changes in these assumptions affect the results of impairment tests and, as a consequence, may lead to significant changes in the Group’s financial standing and financial performance.

In the current reporting period, the Group analyzed the signs of impairment of the carrying amount of assets under IAS 36 Impairment of Assets, in order to verify whether any further impairment of assets may have occurred.

The table below depicts movements in impairment losses for non-current assets:

  2020 2019
Property, plant and equipment Intangible assets Right-of-use asset TOTAL Property, plant and equipment Intangible assets Right-of-use asset TOTAL
OPENING BALANCE (audited data) 3 630,9
2,3 62,2 3 695,4
3 929,4 6,3 - 3 935,7
Reclassification as at 1 January 2019 - - - - (14,0) (4,0) 18,0 -
Impact exerted by IFRS 16 as at 1 January 2019 - - - - - - 45,6 45,6
OPENING BALANCE (restated data) 3 630,9 2,3 62,2 3 695,4
3 915,4 2,3 63,6 3 981,3
Impairment loss recognized 493,4 5,0 18,2 516,6 - - - -
Reclassification of impairment losses on right-of-use assets to impairment losses on property, plant and equipment 13,8 - (13,8) -
Impairment loss used (113,3) - (8,5) (121,8) (89,6) - (0,7) (90,3)
Reversal of charge (4,1) - (6,1) (10,2) (194,7) - (0,7) (195,4)
Reclassification of the impairment loss for assets to accumulated depreciation (1,0) - - (1,0) (0,2) - - (0,2)
Other decreases (0,1) - (0,1)
AS AT 31 DECEMBER 4 019,6 7,3 52,0 4 078,9 3 630,9 2,3 62,2 3 695,4

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Coal segment

Grounds leading to impairment

Property, plant and equipment is the biggest item of JSW’s assets. The rise of the SARS-CoV-2 coronavirus pandemic in China in 2019 and its dynamic propagation across the globe in 2020 was identified as a factor that could have materially contributed to the change in the value of assets.

The SARS-CoV-2 coronavirus pandemic caused a drop in raw material prices, froze the economies through closures of production plants and commercial establishments, which contributed significantly to the loss of a portion of revenue and will affect future profitability and may also cause difficulties in raising the funding.

Outside of China, as at the date of analyzing impairment indications pertaining to non-current assets, i.e. 30 June 2020, the spread of the SARS-CoV-2 coronavirus pandemic eliminated steel production capacity of 252.0 million tons (annually), which represents 10% of the total global steel production capacity. The reduction of steel production capacity in Europe in blast furnaces (through shutdowns and production reductions) was about 35.0 million tons, which represented 27% of the installed production capacity in blast furnaces. According to CRU, 17 blast furnaces had been shut down in Europe with the total production capacity of 26.8 million tons, while production has been reduced in 7 additional furnaces, i.e. in ArcelorMittal (Eisenhüttenstadt), SSAB, ThyssenKrupp (Duisburg), Tata Steel (Ijmuiden, Port Talbot), Saarstahl (Dilliger Hütte).

As at 30 June 2020, the JSW Management Board considered the SARS-CoV-2 coronavirus pandemic as an indication for conducting an impairment test, an external information triggering the necessity to adjust investment plans and affecting the volatility of steam coal, metallurgical (coking) coal and coke prices, as well as the ability to place coal on the market. As a result of the analysis, it has been determined that an impairment test must be conducted for the Jastrzębie-Bzie Mine CGU (the CGU was established on 1 January 2020).

The impairment test was carried out per CGU by determining their recoverable amount. Determination of fair value for very large asset groups with no active market and very few comparable transactions is in practice subject to a large estimation error. In the case of entire mines for which the value in the local market needs to be determined, there are no observable fair values. Consequently, the recoverable amount of the analyzed assets must be determined on the basis of estimation of their value in use using the method of net discounted cash flows on the basis of the financial projections prepared for 2021-2025.

The assumed economic useful life of the Jastrzębie-Bzie mine goes beyond 2025, hence the residual value has been determined on the basis of the remaining period of use. Adoption of five-year financial projections is justified due to the fact that in the current economic situation there are no reliable data for the next reporting periods due to significant volatility of different types of factors, such as: prices, inflation rates, exchange rates and interest rates. The recoverable amount for the Jastrzębie-Bzie Mine as at 30 June 2020 was determined at PLN (2,458.5) million.

Following the tests conducted as at 30 June 2020, an impairment loss of PLN 430.9 million was recognized for the assets of the Jastrzębie-Bzie Mine.

As at 31 December 2020, the analysis of indications has been conducted and no new indications that could affect the value of assets have been found; also the indications identified in the past years, which resulted in the recognition of an impairment of the Zofiówka Section of the Borynia-Zofiówka Mine, the Budryk Mine and the Knurów-Szczygłowice Mine, have not disappeared.

The analysis of coal prices for the period from 1 July 2020 to 17 February 2021 points to a significant volatility of coal prices caused by the current pandemic situation and the inability to build stable long-term plans for the steel and coal markets.

Considering the following:

  1. the existing value of assets of the Jastrzębie-Bzie Mine, the Zofiówka Section of the Borynia-Zofiówka Mine, the Knurów-Szczygłowice Mine and the Budryk Mine as well as the cash flows generated by them in the Financial Model used for the purposes of the impairment test of the non-current assets as at 30 June 2020;
  2. forecasts of a very significant volatility of coal prices, lack of information on the dates of returning to full production capacity in the steel industry as well as the unknown period of recession in the industries buying products from JSW, which may affect the capacity to place coal from the mine currently being developed on the market;
  3. lack of long-term forecasts as at 31 December 2020 that would take into account the sudden increase of metallurgical (coking) coal prices, which occurred at the break of January and February 2021 and lack of certainty as to how long the higher coal prices may be maintained over the long term,

it is justified to recognize an impairment loss allowance for the non-current assets of the Jastrzębie-Bzie Mine in the amount of PLN 85.7 million, which includes changes in the value of assets of the CGU between 30 June and 31 December 2020.

The fact that the impairment loss is recognized for the Jastrzębie-Bzie Mine only is justified by the fact that a negative recoverable amount was calculated for that CGU as at 30 June 2020 in the amount of PLN (2,458.5) million for a 5-year forecast period. No changes in the price of coal will cause the Jastrzębie-Bzie Mine to generate positive cash flows in the projection period. The investment activities for the Jastrzębie-Bzie Mine were continued in H2 2020 and are taken into account in the long-term forecasts for the whole life of the mine. As a result of the investment activities and changes of the operating boundaries of JSW mines, i.e. the transfer of assets associated with Area N in seam 505/1, the non-current assets of the Jastrzębie-Bzie Mine increased by PLN 128.2 million. As at 31 December 2020, the assets of the Jastrzębie-Bzie Mine, after calculations taking into account the provisions, long-term liabilities and working capital as well as impairment losses recognized as at 30 June 2020, amounted to PLN 85.7 million and were fully captured in other costs in the consolidated statement of profit or loss and other comprehensive income as at 31 December 2020. For other CGUs, as at 31 December 2020 no indications have been identified that would justify impairment tests and accordingly impairment allowances were not updated. The value of the impairment loss linked to the assets used by the CGU is:

- Borynia-Zofiówka Mine, Zofiówka Section: PLN 896.6 million,

- Budryk Mine: PLN 547.6 million,

- Knurów-Szczygłowice Mine: PLN 1,887.9 million.

The impairment test has been calculated on the basis of the Parent Company’s Financial Model.

Below we present the assumptions made for the calculations of the impairment test as at 30 June 2020:

  • useful life of the Jastrzębie-Bzie Mine until 31 December 2084,
  • coal price forecasts for the 2021-2025 period were based on the average coal price in the CRU report for 2021-2024,
  • the headcount is to be maintained as assumed in the JSW Strategy for 2020-2030,
  • the level of capital expenditures was adapted to the levels guaranteeing stable production in the future,
  • cash flows from investing activities were adjusted for lease expenditures, while taking into account the right-of-use assets in the value of the tested assets,
  • the impairment analysis was determined on the basis of the latest economic data prepared in real terms and using the average weighted average cost of capital (WACC) in the projection period at a level of 5.95%,
  • financing of expenditures for mine closure from the Mine Closure Fund (FLZG),
  • the existing provisions for employee benefits and other provisions ascribed to the given mine were taken into account in order to measure the value of the tested assets.

As a result of the tests carried out by JSW, which pointed to an impairment of the carrying amount of Jastrzębie-Bzie Mine’s asset and changes in the value of assets of the Jastrzębie-Bzie Mine, an impairment loss allowance was recognized in the total amount of PLN 516.6 million. The estimates were calculated in accordance with the provisions of IAS 36. The impairment loss allowance recognized due to the loss of value of non-current assets, pertains to the Coal segment and was recognized in other costs in the consolidated statement of profit or loss and other comprehensive income.

The results of the sensitivity analysis carried out for individual cash generating units have shown that the biggest impact on the value in use of the tested assets was caused primarily by changes in coal prices, changes in the average weighted cost of capital and changes in the production level. Presented below are the estimated changes in the recoverable amount resulting from the most significant changes for the entity affected by the impairment loss on non-current assets as at 30 June 2020. The changes will not change the impairment amount because the recoverable amount remains negative.

Jastrzębie-Bzie Mine

Parameter Change Impact on recoverable amount (PLN million)
Change of coal price for the entire forecast period 1% 89,8
-1% (89,8)
Change of discount rate 0,5 p.p. 7,4
-0,5 p.p. (7,4)
Change of production level for the entire forecast period 1% 70,4
-1% (70,4)

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In the comparative reporting period, the Parent Company analyzed the indications to verify whether any further impairment of assets may have occurred or a reversal of any of the losses recognized previously. In particular, the Management Board considered the indication specified in item 12(d) of IAS 36, i.e. the value of JSW’s net assets exceeding its market capitalization. This indication arose at the moment of preparation of the financial statements for 2018. At the same time, impairment tests were carried out and appropriate impairment losses were recognized in the ledgers for 2018. As a result of an analysis conducted in 2019, it was determined that there were no new or other indications, both external and internal, to carry out an impairment test for cash generating units (“CGUs”). Moreover, in the period under analysis no significant changes were observed in terms of the figures and metrics, which constituted the assumptions adopted in the model for calculating recoverable amount and constituting grounds for the previously established provisions, nor was there a necessity to increase or reverse them. However there were indications that the impairment loss should be moved from the Zofiówka Section to the Jastrzębie-Bzie Mine (OG Jastrzębie I) in accordance with the information below.

By decision of the JSW Management Board of 29 October 2019 in the matter of organizational changes aimed at implementing the “Adjustment Measures Program” to the current market situation of JSW and the Group, as of 1 January 2020 the Jastrzębie Section was separated from the Borynia-Zofiówka-Jastrzębie Mine and was subordinated to the Bzie-Dębina Mine under development. The projected production activity period of the new Jastrzębie-Bzie Mine in respect to the deposit in the “Jastrzębie I” Mining Area was set until 31 December 2025. The analysis has shown that, in the period of mining the OG Jastrzębie I deposit, the non-current assets, which cannot be opened in other areas or sold, will generate negative cash flows. Taking the above into account, a portion of the impairment losses for assets of the Zofiówka Section CGU (recognized as at 31 December 2018) was reclassified to separate assets of OG Jastrzębie I up to the net value of fixed assets classified as buildings and structures and capitalized costs of longwall areas (expensable mining pits) of OG Jastrzębie I in the amount of PLN 60.7 million.

Coke segment

The Group believes that the impact of COVID-19 on the coke segment should not be long term. After a short drop in Q2 2020, in H2 2020 the production capacity utilization and sales volumes showed a steady upward trend. The ratio of coke to coal prices, both the one achieved in 2020 and forecast for 2021, stays at a level favorable for the Group. According to the current knowledge, the projected ratios of coke to coal prices point to the capacity to achieve positive financial results in 2021.

Accordingly, as at the final day of the reporting period, no grounds were found for carrying out an impairment test for JSW KOKS’ assets.

The analysis performed by JSW KOKS in 2019 showed that the coke market has clearly recovered, prices have risen (inventories were liquidated at much higher prices than expected on the final day of the reporting period) and full capacity utilization has been restored. As a result, at the time of preparing the consolidated financial statements, the following are observed: improvement of the economic situation on the coke market, increase in prices, increase in production volumes. Moreover, a significant increase in the value of assets of the CGU (Radlin Coking Plant) was observed as a result of stabilization of production parameters and capacities, as well as production currently underway and expected in the long term for the purposes of a favorable commercial contract, and the investment task in the construction of the CHP plant at the Radlin Coking Plant is expected to result in a significant increase in the cash flow of this CGU in the long term. Other important factors affecting the evaluation of these indications are the positive future paths of coal purchase prices and coke sales prices.

Therefore, no indications of impairment were identified for the Jadwiga Coking Plant and the Przyjaźń Coking Plant. In the case of the Radlin Coking Plant, it was decided that the impairment indications, which resulted in the recognition of impairment losses in previous years have already ceased. A decision was made to carry out impairment testing for the Radlin Coking Plant.

The test for the Radlin Coking Plant was performed by determining the recoverable amount of this CGU. The recoverable amount of the analyzed assets has been determined on the basis of estimation of their value in use using the method of net discounted cash flows on the basis of the financial projections prepared for 2020-2024.

No termination date has been set for the CGU and therefore the value in use was determined with the use of residual value.

Below are presented the assumptions that have been made for the impairment test as at 31 December 2019:

  • coal and coke price forecasts for the years 2020-2024 based on the JSW Strategy including the Group’s subsidiaries for 2020-2030,
  • stabilization of coke production level in 2020-2024,
  • the impairment analysis was determined on the basis of the latest economic data prepared in real terms and using the average weighted average cost of capital (WACC) in the projection period at a level of 6.83%,
  • inclusion of the existing provisions for employee benefits and other provisions ascribed to the given coking plant to determine the value of the tested property,
  • capital expenditures were assumed at the level stated in the Strategy, adjusted for development expenditures,
  • Capital expenditures and subsequent operating cash flows related to the construction of the Radlin CHP Plant and the production and sale of electricity and heat were excluded from the test, however we are aware of the significant positive impact that these new assets will have on the capacity to generate future cash flows,
  • for residual cash flows, CAPEX was assumed to be equal to depreciation and amortization in the last year of the projection,
  • administrative expenses were allocated to CGUs using the production level allocation key.

As a result of the calculations, as at 31 December 2019, the following recoverable amount of the Radlin Coking Plant was determined, which is also the value in use of that CGU:

Recoverable amount Recoverable amount
CGU (coking plant) 574,6 189,8

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The total impairment loss reversed as a result of the impairment test carried out in 2019 on the property, plant and equipment of the Radlin Coking Plant in the amount of PLN 189.8 million was recognized as other revenue in the Group’s consolidated statement of profit or loss and other comprehensive income.

Results of sensitivity analysis have shown that the biggest impact on the value in use of the tested assets was caused primarily by changes in the revenue level, the prices of the main production material, i.e. coal, and changes in the average weighted cost of capital.

The table below presents the estimated impact of the most important changes in key parameters on the value in use of the tested assets of the Radlin Coking Plant as at 31 December 2019:

Parametr Change Impact on value in use of tested assets, in thousands of PLN
Increase of the value in use Decrease of the value in use
Change in revenues for the entire forecast period 1% 76,4 -
-1% - (76,4)
Discount rate 1 p.p. - (60,9)
-1 p.p. 81,1 -
Change of coal price for the entire forecast period 1% - (59,5)
-1% 59,5 -

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The change in parameters does not materially affect the value of the reversed impairment loss, because the Radlin Coking Plant CGU shows high value in use of the tested assets in the period under analysis.

OTHER SEGMENTS

Impairment of goodwill

According to the standard, testing measures recoverable amount of the cash generating unit to which goodwill is allocated. Recoverable amount is defined as the higher of: fair value less cost to sell, and the value in use (estimated present value of the future cash flows expected to be derived from the cash-generating unit). Value in use has been assumed for the testing calculation purposes.

The recoverable amount was calculated at the level of the cash generating unit (“CGU”), i.e. PBSz.
The assumptions regarding, among others, the projected revenues, costs, capital expenditures, result from the financial forecasts prepared on the basis of the strategy of PBSz that the company intends to implement over the next 5 years, the discount rate at 5.99% (in real terms) (in 2019, the discount rate should be at 6.81%).

The projections included in the above Strategy are, at the moment of testing, the most likely estimate that the Group could make. There are no other estimates to suggest that other values should be assumed. The projection period is 5 years.

The results of the tests performed as at 31 December 2020 and as at 31 December 2019 indicated no need to recognize impairment loss for the Group’s asset (goodwill).

7.6. Investment property


Selected accounting policies

Investment property

Investment property includes property that is held to earn rent or for value appreciation or both and property that is being constructed or developed for future use as investment property.

Investment property is initially measured at purchase cost or manufacturing cost, including the costs of transaction and borrowing costs. After initial recognition, the Group measures all investment property according to the cost model, i.e. purchase price or manufacturing cost, less accumulated depreciation and accumulated impairment losses.

Investment properties are depreciated using the straight-line method over their useful life. The estimated useful life of investment property is 42 years.
Investment properties are removed from the ledgers when sold or withdrawn from use permanently, provided that no benefits from its disposal are expected in the future.


Investment property

  2020 2019
AS AT 1 JANUARY
Net book value at the beginning of the period 23,9 21,1
Depreciation and amortization (0,7) (0,7)
Acquisition of businesses (PBSz) - 3,5
NET CARRYING AMOUNT 23,2 23,9
AS AT 31 DECEMBER
Gross value 34,5 34,5
Accumulated amortization * (11,3) (10,6)
NET CARRYING AMOUNT 23,2 23,9
* This item includes accumulated depreciation and an impairment loss on investment property

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Rental income from and cost associated with investment property:

  2020 2019
Rental income from investment properties 1,2 1,7
Direct operating expenses generating rental income in the period (0,9) (1,0)

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7.7. Investments in the fiz asset portfolio


Selected accounting policies

Investments in the fiz asset portfolio

Financial assets held in the FIZ investment portfolio are classified as:

   - financial assets measured at fair value through profit or loss,
   - financial assets measured at amortized cost.

Financial assets measured at amortized cost include those assets that meet the SPPI test and are held for the purpose of collecting the principal and interest; these include mainly: cash and bank deposits and receivables resulting from current activity.

Financial liabilities measured at amortized cost include liabilities arising in current activity.

In the FIZ portfolio, the Group does not hold debt instruments measured at fair value through other comprehensive income (i.e. assets meeting the SPPI test and held for the purpose of collecting the principal and interest and for sale).

All other assets in the FIZ portfolio are classified as “measured at fair value through profit or loss”.

In respect of financial assets measured at amortized cost, impairment losses are calculated using the model of expected credit losses The Group applies a three-stage impairment model:

  • Stage 1 – balance positions for which credit risk has not increased significantly since initial recognition. Moreover, Stage 1 also includes financial assets with high credit quality (investment grade). Expected credit losses are calculated based on the probability of default within 12 months (i.e. total expected credit loss is multiplied by the probability that such loss occurs within the next 12 months);
  • Stage 2 – balance positions for which has increased significantly since initial recognition, but there is no objective evidence of impairment; expected credit losses are determined based on the probability of default for the entire lifetime of the asset;
  • Stage 3 – balance positions with an objective indication of impairment.

For financial assets measured at amortized cost, interest income is calculated using the effective interest rate method and recognized in the “other net gains/losses” line item.

A gain or loss on the fair value measurement of investments and on realization of the FIZ portfolio is recognized in the financial result and presented in the “other net gains/losses” line item in the period in which it occurred.


One of the important actions that the Parent Company took to prevent potential threats related to the deterioration of liquidity, was the establishment of the Closed-End Investment Fund (“FIZ”, “Fund”). The Fund has been established for a specific term until 30 December 2024 with an option of extending its term of operation by no more than three years. In periods of upswing on the coal markets, JSW intends to transfer a portion of its cash surpluses to FIZ to have them invested. The Company will be able to use the funds accumulated in FIZ in periods of market downturn and/or in periods of negative cash flows generated by JSW. In parallel, these funds will offer financial support for long-term and medium-term expense planning associated with the execution of investment projects of strategic importance for JSW and the Group aimed at, among other objectives, the expansion of mining capacity, improved access to deposits, coal preparation and coke production.

The Fund subscribes to a conservative investment policy. Its only business is investment of funds accumulated through private offerings of Investment Certificates in very secure liquid assets specified in the Articles of Association, including primarily State Treasury bonds and other treasury and banking debt instruments for which the applicable exposure limit has been strictly defined in the Fund’s investment policy. The Fund has been entered in the register pursuant to the decision of 26 January 2018. The fund is managed by Towarzystwo Funduszy Inwestycyjnych Energia S.A. On 6 February 2018, the Fund commenced its investment operations by way of the Investment Committee of TFI Energia making the first investment decision on the allocation of the Fund’s assets.

The carrying amount of investments in the FIZ asset portfolio as at 31 December 2020 was PLN 612.0 million, while it was PLN 1,874.0 million as at 31 December 2019.

The funds invested in the FIZ asset portfolio are an important element of the “Cash Buffer”, i.e. the obligation resulting from financing contract signed with the Consortium. On 12 October 2020, Annex no. 1 to the Financing Contract with the Consortium entered into force. Under the annex, among others, the required Cash Buffer was reduced to PLN 760.0 million (till 31 December 2021) and the allowed debt limits were increased. As at 31 December 2020 and in the periods subject to verification in accordance with the Financing Contract, as at the date of approval of these consolidated financial statements the condition regarding maintaining the Cash Buffer was satisfied.

The Group has been investing in a portfolio of financial assets through the Fund in which the Parent Company holds 100% outstanding investment certificates. The Fund may invest its assets in:

  • debt securities,
  • money market instruments,
  • currencies,
  • derivatives, including non-standardized derivatives, provided that they are negotiable,
  • deposits in banks.

The basic criterion for selecting the investments is the possibility of earning as high as possible rate of return, while minimizing the risk associated with the issuer’s insolvency, interest rate volatility and limited liquidity risk.

On 28 May 2020, the Investor Meeting of the JSW Stabilization Closed-end Investment Fund adopted a resolution to amend the articles of association of FIZ. The changes affected mainly the investment policy, among others extension of the category of treasury instruments issuers, increase of the permitted maturity of money market bank debt instruments.

Rules for diversifying investments:

  1. Money market securities or instruments issued by a single entity, accounts receivable from that entity and participations in that entity cannot constitute a total of more than 20% (twenty percent) of the Fund’s asset value. The limitation does not apply to securities issued, guaranteed or secured by the State Treasury, the National Bank of Poland, OECD member states or any international financial institutions of which the Republic of Poland is a member or at least one of the OECD member states.
  2. Bonds guaranteed or secured by the State Treasury may represent up to 100% of the Fund’s asset value.
  3. Bonds of the European Investment Bank may represent up to 20% of the Fund’s asset value.
  4. Deposits in a single domestic bank, foreign bank or credit institution must not account for more than 20% of the Fund’s asset value.
  5. Currency exposure – construed as the total value of investments in foreign currencies and other types of investment denominated in foreign currencies, must not exceed 10% of the Fund’s net asset value.
  6. Corporate bonds or local government bonds will jointly account for no more than 10% of the Fund’s net asset value, while bonds issued by a single entity must not represent more than 1% of the Fund’s net asset value.
  7. Debt securities and money market instruments issued by banks will jointly account for no more than 25% of the Fund’s net asset value, it being understood that, for the purposes of application of this limit, debt securities and money market instruments issued by Bank Gospodarstwa Krajowego will not be classified as debt securities or money market instruments issued by banks. The share of a single issuer must not exceed 5% of the net asset value (while for covered bonds the share of a single issuer must not exceed 10% of the net asset value).
  8. Debt securities and money market instruments issued by Bank Gospodarstwa Krajowego will represent no more than 20% of the net asset value.

The following table presents the structure of the Fund’s net asset portfolio at the end of the reporting period.

  31.12.2020 31.12.2019
FUND ASSETS 612,0 1 900,2
Financial assets at fair value through profit or loss 368,7 892,8
Covered bonds (not quoted on an active market) 30,6 204,0
Debt securities, of which: 338,1 688,8
- bonds (quoted) 338,1 688,8
Financial assets measured at amortized cost 243,3 1 007,4
Debt securities, of which: 189,3 -
- bonds (not quoted) 189,3 -
Deposits - 661,8
Buy-sell-back transactions - 272,9
Cash and cash equivalents 53,9 72,6
Fund’s receivables 0,1 0,1
FUND’S LIABILITIES (121,3) (26,2)
Liabilities (121,3) (26,2)
Derivatives (non-standardized derivatives – interest rate swap (IRS) in PLN) (25,0) (10,1)
Liabilities on the Fund’s sell-buy-back transactions * (91,5) _
Other liabilities of the Fund (4,8) (16,1)
FUND’S NET ASSETS 490,7 1 874,0
* Liabilities on the Fund’s sell-buy-back transactions in the amount of PLN 91.5 million pertain to Sell-Buy-Back (SBB) transactions A SBB transaction involves a sale of securities held and a simultaneous obligation to buy them back on the terms and conditions agreed by the parties. The agreement in question was concluded for the JSW Stabilization FIZ portfolio on 18 December 2020. On that date, 63 thousand IZ0823 bonds were sold and the parameters of the Fund’s buy-back of the same number of bonds on 12 January 2021 were agreed on.
As a result of the concluded SBB transaction, on 18 December 2020, PLN 91.5 million was credited to the Fund’s account and then allocated to covering the Fund’s liabilities on account of concluded transaction and partially is recognized as cash on a bank account. The bonds were transferred to the buyer.

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For financial assets measured at fair value through profit or loss (debt securities, covered bonds), there is no active market and in their case the Group also cannot apply the valuation techniques resulting in reliable values. Accordingly, the value received from the Fund’s manager based on information received from the custodian is deemed to be its fair value.

Considering the significant value of the Fund’s liabilities as at the end of the reporting period, the Group presented the Fund’s liabilities in the consolidated statement of financial position in a separate line item “FIZ liabilities”. The net value of the Fund’s assets constitutes the Parent Company’s actual exposure to the Investment Certificates issued by the Fund and, as at 31 December 2020, amounted to PLN 490.7 million.

In 2020, in exchange for the redemption of Investment Certificates of the JSW Stabilization FIZ, recognized in the consolidated financial statements as investments in the FIZ asset portfolio, the Group obtained proceeds in the amount of PLN 1,398.8 million. The redemption of certificates was preceded by the sale of financial assets invested in FIZ.

  • In connection with resolution of the JSW Management Board adopted on 8 January 2020 and approval of the JSW Supervisory Board of 13 January 2020, the Investment Certificates of the JSW Stabilization Closed-end Investment Fund (FIZ) were redeemed in the amount of PLN 400.0 million for series A and PLN 300.0 million for series B. On 26 February 2020, the Parent Company’s bank account was credited with the funds in the amount of PLN 300.7 million and on 3 April 2020 the amount of PLN 391.7 million.
  • In connection with resolution of the JSW Management Board adopted on 29 April 2020 and approval of the JSW Supervisory Board from the same date, the Investment Certificates of the JSW Stabilization Closed-end Investment Fund (FIZ) were redeemed in the total estimated amount of PLN 400.0 million for series A and series B. On 19 June 2020, the Parent Company’s bank account was credited with the funds in the amount of PLN 200.9 million and on 3 July 2020 the amount of PLN 100.8 million. On 3 September 2020, the amount of PLN 102.1 million was credited to the Parent Company’s bank account.
  • In connection with resolution of the JSW Management Board adopted on 8 October 2020 and approval of the JSW Supervisory Board from the same date, the Investment Certificates of the JSW Stabilization Closed-end Investment Fund (FIZ) were redeemed in the total estimated amount of PLN 300.0 million for series A. As a result of the above decisions, on 4 and 26 November 2020, the account of the Parent Company was credited with cash in the total amount of PLN 302.6 million.

The monies obtained from the redemption of the FIZ assets are used for the Group’s current operations as well as for its investment activity. The Group strives to keep the Fund and rebuild its value when the market conditions are favorable.

The funds invested in the FIZ asset portfolio are an important element of the “Cash Buffer”, i.e. the obligation resulting from financing contract signed with the Consortium.

Credit risk

In the case of financial assets measured at amortized cost (i.e. deposits and cash and cash equivalents), the Group classifies them as Stage 1 in terms of impairment because of the high rating of their credit quality and the potential impairment allowance is not significant and it was not recognized. The disclosures of the assessment of credit quality on the basis of external ratings for cash and deposits constituting the fund’s assets are presented in Note 9.5.1(d).

Credit risk 31.12.2020 31.12.2019
Amounts reflecting the maximum exposure to credit risk if the fair value of additional collateral is not taken into account: 612,0 1 900,2
- Cash in bank 53,9 72,6
- Receivables 0,1 0,1
- Buy-Sell-Back Transactions - 272,9
- Investment components quoted on an active market (State Treasury bonds) 338,1 283,7
- Investment components not quoted on an active market 219,9 1 270,9

The table does not include the Fund’s liabilities and therefore it does not reconcile with the table presenting the structure of the Fund’s net assets at the end of the reporting period.

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Significant concentration of credit risk is 10% of the issuer’s share in total assets.

Credit risk 31.12.2020 31.12.2019
Instances of significant concentration of credit risk in individual investment categories, by balance sheet categories 476,8 1 021,0
      SANTANDER BANK POLSKA SA 26,2 369,7
Cash 26,0 19,7
Deposits - 294,2
Bonds not quoted on an active market - 55,8
Derivatives 0,2 -
BANK GOSPODARSTWA KRAJOWEGO 253,3 -
Bonds quoted on an active market 211,0 -
Bonds not quoted on an active market 42,3 -
      BNP PARIBAS BANK POLSKA S.A. - 367,6
Bank deposits - 367,6
      STATE TREASURY OF THE REPUBLIC OF POLAND 127,1 283,7
Bonds quoted on an active market 127,1 283,7
POLISH DEVELOPMENT FUND 70,2 -
Bonds not quoted on an active market 70,2 -

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7.8. Other non-current financial assets


Selected accounting policies

Other non-current financial assets

According to the provisions of the Geological and Mining Law Act and the Minister of Economy's Regulation on the principles of establishing and managing a mine closure fund, the Parent Company is obligated to accumulate funds on a separate bank account of the Mine Closure Fund (Fundusz Likwidacji Zakładów Górniczych – FLZG), which may be expended solely and exclusively to finance a total or partial closure of a mine. The charge for the Mine Closure Fund in 2020 was set in the amount of 3% of the depreciation charge on the property, plant and equipment of mines set in accordance with income tax laws.

Cash and cash equivalents of the Mine Closure Fund, due to restrictions on their disposal, are presented in the consolidated statement of financial position as non-current financial assets, regardless of their maturity. The Group measures these assets using the effective interest rate method, taking into account the allowance for expected credit losses.


Other non-current financial assets

  Note 32.12.2020 31.12.2019
Non-current financial assets - cash and cash equivalents of the Mine Closure Fund 9.1 348,4 351,9
gross value   348,7 352,0
impairment loss (0,3) (0,1)
Ownership interest and shares in other entities   0,1 0,1
Financial receivables   0,6 3,9
Other non-financial receivables   29,6 20,2
TOTAL   378,7 376,1

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All the non-current financial assets are denominated in Polish zloty.

The fair value of non-current financial assets is not significantly different from their carrying amount.

Cash and cash equivalents of the Mine Closure Fund were classified as Stage 1 of the impairment classification and the amount of the impairment allowance is insignificant.

Information on the degrees of assessment of credit risk for cash based on external agency ratings is presented in Nocie 9.5.1.

7.9. Inventories


Selected accounting policies

Inventories

Inventories are stated at purchase price or production cost which, however, is not higher than their net sales prices. The net sales price is the estimate sales price in ordinary course of business, less pertinent variable selling and distribution expenses. The cost of finished products and production in progress comprises direct labor, auxiliary materials, other direct costs and pertinent general production costs (based on normal production capacity).

Finished products inventories include mainly the inventory of coal and coke produced in the Group.

The Group recognizes proprietary rights from energy efficiency certificates as goods. White certificates are certificates confirming the saving of a specific quantum of energy as a result of completing investments to enhance energy efficiency. The proprietary rights arising from these certificates are recognized by the Group in its accounting ledgers as of the date they are awarded. These rights on their initial recognition are measured as the product of the number of awarded rights and the unit market price per property right arising from a certificate of origin on the date the certificate or origin was awarded and property rights acquired. The second posting is in other revenues. Sales of energy efficiency certificates increase revenues from sales of goods and cost of goods sold. The measurement of the outgoing certificates of origin is determined by the FIFO method.

The consumption of finished products is determined using the weighted average method. The value of consumption of materials and goods is determined using the "first in first out" (FIFO) method.


Material estimates

Impairment loss for inventories

If any events occur that cause inventories to lose their 'value in use', the Group makes a relevant impairment loss, making sure however that the carrying amount of inventories never exceeds their recoverable amount.

The Group recognized impairment losses on inventories of finished products if they are measured at net sales price, which is lower than their manufacturing cost. The manufacturing cost at the end of a reporting period is the average manufacturing cost, calculated from the beginning of the year to the relevant reporting month. The net selling price is assumed to be equal to realistically achievable market prices. The prices of metallurgical (coking) coal are set quarterly, based on the quotations of Australian coal, which are the benchmark for global prices, while steam coal prices are set annually based on the lowest current contractual price.

Impairment losses on inventories of finished products, both recognition and reversal, is captured as cost of the period when the charge took place.

Impairment losses on inventories of materials are made no less frequently than at end of each quarter and captured as cost of the period in the "Cost of products, materials and goods sold" item.


Inventories

  31.12.2020 31.12.2019
Materials 105,3 144,2
Production in progress 7,7 6,6
Finished products 756,2 970,6
Goods 11,1 9,4
TOTAL 880,3 1 130,8

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The inventories of finished products as at 31 December 2020 included, among others, inventories of 2,180.0 thousand tons of coal produced by the Group worth PLN 629.9 million and inventories of 183.1 thousand tons of coke produced by the Group worth PLN 122.4 million (as at 31 December 2019: 1,789.4 thousand tons of coal worth PLN 587.9 million and 485.8 thousand tons of coke worth PLN 378.3 million).

Impairment losses for inventories

The table below presents impairment losses for inventories:

  2020 2019
AS AT 1 JANUARY 149,0 25,0
Impairment loss recognized 215,1 166,6
Impairment loss used (138,8) (43,1)
Reversal of charge (0,2) (0,1)
Acquisition of businesses (PBSz) - 0,6
AS AT 31 DECEMBER 225,1 149,0

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Recognition and reversal of impairment loss amounts for inventories were recognized as costs in the current reporting period.
Impairment losses for inventories recognized in 2020 refer to finished products and materials and merchandise.

7.10. Other current financial assets


Selected accounting policies

Other current financial assets

In other current financial assets the Group recognizes mainly bank term deposits. The Group classifies bank term deposits as assets measured at amortized cost. An asset is classified as belonging to this category if both of the following conditions are satisfied:

      (a) the Group’s intention is to maintain these financial assets to receive the contracted cash flow, and

      (b) for which the contractual clauses trigger cash flows at specified dates that are solely payments of the unpaid principal and the interest on that amount.

The financial assets in this category after their initial recognition are measured at amortized cost while using the effective interest rate, after subtracting any possible impairment losses.


Other current financial assets are presented in the following table:

  31.12.2020 31.12.2019
Deposits 5,2 90,8
TOTAL OTHER CURRENT FINANCIAL ASSETS 5,2 90,8

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As at 31 December 2020 and 31 December 2019, bank term deposits were classified as Stage 1 in terms of impairment because of the high rating of their credit quality and the potential impairment allowance is not significant and it was not recognized. The disclosures of the assessment of credit quality on the basis of external ratings and information on credit risk concentration are presented in Note 9.5.1(d).

7.11. Trade and other receivables


Selected accounting policies

Trade and other receivables

Financial receivables are initially recognized at fair value, with the fair value of trade receivables upon initial recognition being the nominal value resulting from issued sale invoices. After initial recognition, trade receivables and other financial receivables are measured at amortized cost using the effective interest rate method (all trade receivables meet the SPPI test and are held in order to collect contractual cash flows), taking into account the impairment losses. Trade receivables with a date of maturity shorter than 12 months from the date of their origin (i.e. not containing a financing element) are not subject to discounting and are measured at their nominal value. Other receivables, which are not financial assets, are measured at the end of the reporting period at the due payment amount.


Material estimates

Impairment losses for receivables

As at the date ending the reporting period, the Group estimates the expected credit loss on financial assets measured at amortized cost. The impairment model is based on a calculation of expected losses.

With regard to trade receivables which do not comprise any significant financing component, a simplified approach was used and the impairment loss was measured on the basis of expected credit losses for the entire life of the instrument. The Group has classified its trade receivables to Stage 2 of the financial asset impairment classification envisaged in IFRS 9, except for receivables for which an impairment has been identified – these receivables have been classified to Stage 3 of that classification. The Group assumes that the moment of impairment is the moment the receivables are forwarded for collection, but no later than on the 90th day past due.

Trade receivables are the most important line item of financial assets in the Group’s consolidated financial statements and it is subject to the new rules for the calculation of expected credit losses.

To determine the impairment losses the Group has distinguished the following groups of trade receivables, determined on the basis of similarity of the credit risk characteristics:

  • coal and coke trade receivables from the main business partners, i.e. business partners whose percentage of sales revenues is above 2.5% in a given reporting period,
  • coal and coke trade receivables from other business partners whose percentage of sales revenues is below 2.5% in a given reporting period,
  • other trade receivables.

The analysis of the coal and coke trade receivables from the main business partners has been carried out individually for each business partner on the basisof the probability of insolvency determined on the basis of external ratings and publicly available rating agency information on the probability of default and the expected loss has been calculated on the basis of these probabilities, average maturity for the receivables portfolio and on the basis of the expected recovery rate.

The analysis of coal and coke trade receivables from other business partners has been carried out on the basis of the calculated weighted average of probability of insolvency for the portfolio and the expected loss has been calculated for this portfolio on the basis of these probabilities, average maturity and on the basis of the expected recovery rate.

For other trade receivables (except for those analyzed individually as not serviced), a portfolio has been carried out and a simplified impairment loss matrix has been applied in individual age brackets on the basis of expected credit losses throughout the life of the receivable based on the default ratio determined on the basis of historical data (for the last three years).

The expected credit loss is estimated and revalued on every subsequent day ending a reporting period.


TRADE AND OTHER RECEIVABLES

  31.12.2020 31.12.2019
Gross trade receivables 732,4 709,0
- including receivables on account of valuation of long-term contracts 24,0 19,2
Impairment loss (73,2) (80,4)
Net trade receivables 659,2 628,6
Prepaid expenses 25,3 30,7
Prepayments 1,2 3,3
Receivables related to taxes and social security 189,9 176,6
Other receivables 22,8 26,9
TOTAL TRADE AND OTHER RECEIVABLES 898,4 866,1

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The fair value of net trade and other receivables is not significantly different from their carrying amount.

The Group is exposed to credit risk resulting from trade receivables. Credit risk management (including credit risk concentration) is presented in Note 9.5.1.

The currency structure of the Group's trade receivables after conversion to PLN is as follows:

  31.12.2020 31.12.2019
Trade receivables [PLN] 381,6 458,9
Trade receivables [EUR] 204,5 138,0
Trade receivables [USD] 69,8 28,7
Trade receivables [CZK] 3,3 3,0
TOTAL TRADE RECEIVABLES 659,2 628,6

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Impairment losses for trade receivables

The table below depicts the changes in the impairment loss for trade receivables:

  2020 2019
AS AT 1 JANUARY 80,4 79,6
Impairment loss recognized 32,0 3,7
Acquisition of businesses (PBSz) - 0,8
Utilization of the impairment loss for uncollectible receivables (29,0) (0,8)
Reversal of unused amounts (0,7) (3,2)
Charge transferred (9,5) 0,3
AS AT 31 DECEMBER 73,2 80,4

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The changes in gross values did not materially affect the value of impairment losses.

The level of impairment losses recognized in 2020 on trade receivables was affected by the deterioration of ratings of some business partners and recognition of the impact of the SARS-CoV-2 coronavirus pandemic on the credit quality of clients.

To take into account the impact of the SARS-CoV-2 coronavirus pandemic on the credit quality of the customers from the coal and coke trade receivables group, the Group has adjusted the probability of default on the basis of external ratings through including an additional bonus for the risk associated with the economic situation and forecasts for the future. The effect of including the impact of the coronavirus on the amount of the impairment allowance recognized as at 31 December 2020 for coal and coke trade receivables was PLN 1.1 million.

The amount of the PLN 32.0 million allowance for trade receivables recognized in 2020 was affected mainly by the recognition of an allowance of PLN 14.8 million for coal and coke receivables (including PLN 11.2 million due to a rating downgrade of one of the business partners).

The structure of trade receivables and impairment losses, broken down by trade receivables grouped by similarity of the credit risk characteristics is presented in the table below:

  2020 2019
Gross trade receivables Impairment loss Gross trade receivables Impairment loss
Coal and coke trade receivables 584,9 (15,3) 535,2 (0,4)
- from the main business partners (above 2.5% sales revenues) 387,4 (12,9) 403,9 (0,1)
- from other business partners (below 2.5% sales revenues) 197,5 (2,4) 131,3 (0,3)
Other trade receivables 90,2 (0,6) 94,2 (0,4)
Trade receivables with identified impairment 57,3 (57,3) 79,6 (79,6)
TOTAL AS AT 31 DECEMBER 732,4 (73,2) 709,0 (80,4)

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The table below presents the age structure of trade receivables as at 31 December 2020:

  Regular Past due Total
up to 1 month from 1 to 3 months from 3 to 6 months from 6 to 12 months above 12 months
Gross trade receivables 647,9 23,8 3,6 1,0 4,6 *51,5 732,4
Impairment loss (15,5) (0,2) (0,7) (0,9) (4,4) (51,5) (73,2)
NET TRADE RECEIVABLES 632,4 23,6 2,9 0,1 0,2 - 659,2
* These items concern trade receivables covered for the most part by bankruptcy proceedings and trade receivables after court judgments. These receivables have been covered in full by an impairment loss.

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As at 31 December 2020, PLN 84.5 million of trade receivables was past due. That figure included PLN 27.4 million of receivables that were not found impaired and an impairment loss of PLN 15.4 million was recognized for them in 2020, while PLN 57.1 million were found impaired and an impairment loss of PLN 6.4 million in respect of them was recognized in 2020.

The table below presents the age structure of trade receivables as at 31 December 2019:

  Regular Past due Total
up to 1 month from 1 to 3 months from 3 to 6 months from 6 to 12 months above 12 months
Gross trade receivables 513,3 114,1 1,3 0,5 2,2 *77,6 709,0
Impairment loss (0,8) - (0,2) (0,4) (1,4) (77,6) (80,4)
NET TRADE RECEIVABLES 512,5 114,1 1,1 0,1 0,8 - 628,6
* These items concern trade receivables covered for the most part by bankruptcy proceedings and trade receivables after court judgments. These receivables have been covered in full by an impairment loss.
As at 31 December 2019, PLN 195.7 million of trade receivables was past due. That figure included PLN 115.4 million of receivables that were not found impaired and an impairment loss of PLN 2.1 million was recognized for them in 2019, while PLN 80.3 million were found impaired and an impairment loss of PLN 3.7 million in respect of them was recognized in 2019.

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7.12. Cash and cash equivalents


Selected accounting policies

Cash and cash equivalents

Cash and cash equivalents comprise cash in hand, call deposits in banks, other short-term investments with high liquidity and original maturity up to three months.

Overdraft facilities are presented in the consolidated statement of cash flows as a component of cash flows from financing activities. The overdraft facility contracted under the financing contract with the Consortium is presented in the consolidated statement of financial position as an element of long-term loans and borrowings in non-current liabilities.

The Group classifies cash and cash equivalents as financial assets measured at amortized cost, while taking into account impairment losses calculated in accordance with the expected loss model.


Material estimates

Impairment losses for cash and cash equivalents

The Group estimates impairment losses for cash and cash equivalents on the basis of the probability of insolvency calculated on the basis of external ratings of the banks in which the cash is kept and publicly available rating agency information pertaining to probability of insolvency and the expected loss is calculated on the basis of these probabilities, the time horizon of the exposure to credit risk and on the basis of the expected recovery rate.

In connection with the low associated credit risk, cash and cash equivalents are assigned a 3-month horizon for credit risk exposures.


  Note 31.12.2020 31.12.2019
Cash at bank and in hand 9.1 1 492,8 339,1
gross value 1 492,9 -
impairment loss (0,1) -
Short-term bank deposits 9.1 104,5 11,2
gross value 104,5 11,2
TOTAL 1 597,3 350,3
including restricted cash 60,3 70,2

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The value of restricted cash as at 31 December 2020 was PLN 60.3 million (as at 31 December 2019: PLN 70.2 million) and included funds deposited in the VAT account (under the split-payment arrangement), bid bonds and performance bonds and funds received by JZR under an agreement with the State Treasury Minister to provide support which does not constitute public aid, designated for specific investment projects. In the course of its business, the Group makes payments on the above accounts on an ongoing basis.

As at 31 December 2020 and 31 December 2019, cash and cash equivalents were classified as Stage 1 in terms of impairment because of the high rating of their credit quality and the potential impairment allowance is not significant and it was not recognized. This is why no movements in this impairment allowance were presented in 2020 and 2019. The disclosures of the assessment of credit quality on the basis of external ratings and information on credit risk concentration are presented in Note 9.5.1(d).

The currency structure of the Group's cash and cash equivalents, after conversion to PLN, is as follows:

  31.12.2020 31.12.2019
PLN
Cash at bank and in hand 1 480,0 283,0
Short-term bank deposits 104,5 11,2
TOTAL 1 584,5 294,2
EUR
Cash at bank and in hand 11,7 11,7
TOTAL 11,7 11,7
USD
Cash at bank and in hand 0,1 43,9
TOTAL 0,1 43,9
CZK
Cash at bank and in hand 1,0 0,5
TOTAL 1,0 0,5
TOTAL 1 597,3 350,3

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Cash and cash equivalents are identical in the consolidated statement of cash flows and in the consolidated statement of financial position.

7.13. Equity

7.13.1. Share capital


Selected accounting policies

Share capital

Common shares are classified as share capital. The share capital is recognized in the amount specified in the articles of association and registered in the court register of the Parent Company, taking into account an adjustment for hyperinflation of the part of the share capital which comes from before 31 December 1996.

The costs incurred directly in connection with the issue of new shares and options are presented in the equity as decrease, after tax, of proceeds from the issue.


  Number of shares
(thousand)
Common shares
par value
Hyperinflation
adjustment
Total
As at 31 December 2019 117 412 587,0 664,9 1 251,9
As at 31 December 2020 117 412 587,0 664,9 1 251,9

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As at 31 December 2020, the share capital of JSW was PLN 587,057,980.00 and was divided into 117,411,596 common shares with no voting preference, fully paid up, with a par value of PLN 5.00 each. All the shares were issued and registered as at the end date of the reporting period. The total number of votes linked to all the shares issued by JSW is 117,411,596 votes at the Shareholder Meeting of JSW.

The Parent Company's share capital as at 31 December 2020 consists of the following share series:

Series Number of shares
A 99 524 020
B 9 325 580
C 2 157 886
D 6 404 110
TOTAL 117 411 596

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As at 31 December 2020 and as at the date of these consolidated financial statements, the structure of JSW's shareholders was as follows*:

Shareholder Number of shares Number of votes at the Shareholder Meeting % of the share capital % of total votes at the Shareholder Meeting
State Treasury 64 775 542 64 775 542 55,16% 55,16%
Other shareholders 52 636 054 52 636 054 44,84% 44,84%
TOTAL 117 411 596 117 411 596 100,00% 100,00%

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* According to Current Report No. 8/2021 of 19 February 2021, the only shareholder with at least 5% of votes at the last JSW Shareholder Meeting held on 19 February 2021 was the State Treasury with 64,387,333 votes or a 54.84% share of all the votes.

JSW does not have a detailed list of the shareholder structure as at 31 December 2020 or as at the date of these consolidated financial statements. In the reporting period, JSW did not receive any information about exceeding the percentage thresholds of the total number of votes specified in Article 69 Section 1 of the Act on Public Offerings and the Conditions for Floating Financial Instruments in an Organized Trading System and on Public Companies. The only shareholder of JSW which held a number of shares constituting 5% of the share capital and giving it the right to the same amount of votes at the Shareholder Meeting, as at 31 December 2020 and as at the date of preparation and publication of this report was the State Treasury.

7.13.2. Capital on revaluation of financial instruments

Selected accounting policies

Capital on revaluation of financial instruments

The capital on revaluation of financial instruments includes the valuation of hedging instruments, which meet the cash flow hedge accounting criteria.

Change in capital on revaluation of financial instruments

  2020 2019
OPENING BALANCE (20,6) (52,1)
Change in valuation of hedging instruments (26,2) 10,3
Change in valuation of hedging instruments posted to profit or loss of the period if the hedged item is realized 53,4 28,6
Deferred tax (5,1) (7,4)
CLOSING BALANCE 1,5 (20,6)

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In the current reporting period, as a result of the measurement of transactions to hedge future cash flow, the amount of PLN 22.1 million was recognized in other comprehensive income, of which:

  • PLN 0.7 million is the positive valuation driven by the change in fair value of the effective part of hedging instruments,
  • PLN (29.4) million is the negative valuation driven by the change in fair value of the effective part of hedging instruments,
  • PLN 2.5 million is the positive valuation driven by the change in fair value of the effective part of hedging instruments (loan),
  • PLN 53.4 million is the value posted to the period’s profit or loss if the hedged position is realized (bonds, loans and forward contracts),
  • PLN (5.1) million is the tax effect of the above items (deferred tax).

In the comparative reporting period, as a result of the measurement of transactions to hedge future cash flow, the amount of PLN 31.5 million was recognized in other comprehensive income, of which:

  • PLN 15.2 million is the positive valuation driven by the change in fair value of the effective part of hedging instruments,
  • PLN (6.1) million is the negative valuation driven by the change in fair value of the effective part of hedging instruments,
  • PLN 1.2 million is the positive valuation driven by the change in fair value of the effective part of hedging instruments (loan),
  • PLN (3.3) million is the value posted to the period’s profit or loss if the hedged position is realized (FX Forward),
  • PLN 31.9 million is the value posted to the period’s profit or loss if the hedged position is realized (bonds, loan),
  • PLN (7.4) million is the tax effect of the above items (deferred tax).

7.13.3. Retained earnings

As at 31 December 2020, retained earnings of the Jastrzębska Spółka Węglowa S.A. Group amounted to PLN 4,761.9 million (PLN 6,326.9 million as at 31 December 2019). This item includes, among others, the Parent Company’s supplementary capital.
Supplementary capital was created from allowances from profit generated by JSW in previous reporting periods. Also, pursuant to the requirements of the Commercial Company Code, joint stock companies are required to create supplementary capital to cover losses. At least 8% of the profit generated in any financial year, as disclosed in the standalone financial statements of the Parent Company, is transferred to this category of capital until it reaches at least one-third of the entity’s share capital. The use of the supplementary capital is decided by the Shareholder Meeting of JSW, however, the portion of the supplementary capital representing one-third of the share capital may only be used to cover a loss posted in the financial statements and cannot be allocated to other purposes.

7.13.4. Non-controlling interest

The table below presents details on the Group’s subsidiaries with non-controlling interest:

Company name Registered office Percentage stake held by the Group Profit/(loss) allocated to non-controlling interest
for the year
Accumulated value
of non-controlling interest
31.12.2020 31.12.2019 2020 2019 31.12.2020 31.12.2019
JZR Jastrzębie-Zdrój 62,09% 62,09% 10,5 13,9 320,6 309,9
JSW KOKS Zabrze 96,28% 96,28% (2,0) 6,7 67,4 69,6
PBSz Tarnowskie Góry 95,01% 95,01% (0,3) (0,3) 6,8 7,1
Other subsidiaries with non-controlling interest - Nota 1.2 Nota 1.2 0,4 0,4 2,0 1,7
TOTAL - - - 8,6 20,7 396,8 388,3

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Change in the balance of non-controlling interest

  2020 2019
OPENING BALANCE 388,3 364,0
Share in net profit/(loss) 8,6 20,7
Share in of other comprehensive income items (0,1) (0,7)
Change in the balance of non-controlling interest - 4,3
CLOSING BALANCE 396,8 388,3

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The table below contains selected financial data of the Group’s key entities holding non-controlling interest:

Item JZR JSW KOKS PBSz
2020 2019 2020 2019 2020 2019
STATEMENT OF FINANCIAL POSITION
Assets 974,7 933,4 2 602,4 2 461,6 258,0 264,5
Equity 845,6 817,5 1 811,7 1 869,9 136,6 143,2
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
Sales revenues 253,5 270,8 3 041,2 3 584,0 239,7 127,6
Net profit/(loss) 27,9 35,0 (52,4) 179,4 (6,3) (6,0)

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7.13.5. Dividends paid and proposed


Selected accounting policies

Dividends

Dividend payments to shareholders are recognized as liability in the Group's consolidated financial statements in the period when they are approved by the shareholders.

 


The per share dividend ratio is calculated as the quotient of the dividend payable to the shareholders of the Parent Company and the number of ordinary shares outstanding as at the dividend record date.

  2020 2019
Dividends - 200,8
Number of common shares as at the dividend record date 117 411 596 117 411 596
DIVIDEND PER SHARE (IN PLN PER SHARE) - 1,71

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Distribution of the 2019 profit

On 30 June 2020, the Ordinary Shareholder Meeting of JSW made a decision on the distribution of net profit for the financial year ended 31 December 2019 in the amount of PLN 330.4 million. With this distribution, it made an allocation to cover the net loss incurred on the first application date of IFRS 16 Leases in the amount of PLN 37.6 million and to cover the net loss incurred in Other comprehensive income in the amount of PLN 33.5 million. The Shareholder Meeting decided to allocate the remaining portion of the 2019 financial result in the amount of PLN 259.3 million, to supplementary capital.

Proposal to cover the loss for 2020

In 2020, the Parent Company incurred a net loss of PLN 1,541.1 million, which the JSW Management Board will propose to cover with supplementary capital.

In accordance with the agreements on the liquidity loan and the preferential loan under the governmental program entitled “The Polish Development Fund’s Financial Shield for Large Companies” signed by JSW in December 2020, and described in more detail in Note 6.1, JSW’s Management Board is obliged, inter alia, not to recommend to the Shareholder Meeting to adopt resolutions on distribution of dividend, interim dividend, or any other remuneration, including remuneration on the account of retired shares or another amount on or in respect of its share capital.

7.14. Employee benefit liabilities


Selected accounting policies

Employee benefit liabilities

In accordance with the provisions of labor law, the Group pays employee benefits on account of the following:

• post-employment benefits: retirement or disability severance pays, equalization disability benefits, write-offs for the Company Social Benefits Fund for old-age and disability pensioners, death benefits,
• other long-term employee benefits: jubilee awards,
• other employee benefits: unused holiday leaves.

Since 2015, the JSW Management Board has not taken an allowance for the Company Social Benefits Fund for old-age and disability pensioners and it terminated the payment of free coal allowance for old-age and disability pensioners.

In its consolidated statement of financial position, the Group recognizes the commitment to pay the above benefits in the amount equal to the present value of the liability as at the end of the reporting period, taking into account actuarial gains and losses.

The amount of the post-employment benefit liability in the form of defined benefit plans (retirement and disability severance awards, adjustment disability benefits, write-offs for the Company Social Benefit Fund for old-age and disability pensioners) and jubilee awards is calculated by an independent actuarial advisory company using the projected unit benefit method, until the expiration of this liability.

Employee benefit liabilities are calculated using an individual method, for each employee separately. The liability for an employee is calculated based on the anticipated amount of the respective benefit that the Group undertakes to pay out on the basis of internal regulations and pertinent provisions of law. The amount calculated is subject to actuarial discounting as at the final day of the reporting period and then decreased by actuarially discounted amounts of annual provision charges, as at the same day, which the Group makes to increase the provision of the respective employee. The actuarial discount means the product of the financial discount and probability of survival of the respective employee as a Group employee until the time of receipt of the benefit.

Defined benefit plans expose the Group to actuarial risk, which includes:

  •  interest rate risk – a decrease of interest on bonds will increase liabilities of the plan,
  •  longevity risk – the present value of liabilities of the defined benefit plan is calculated by reference to the best mortality estimates for plan members, both during and after the employment period. An increase in the expected life span of plan members will result in an increase of the value of liabilities,
  •  payroll risk – the present value of liabilities of the defined benefit plan is calculated by reference to the future remuneration of plan members. Accordingly, an increase in salaries of plan members will also increase the amount of liabilities.

The cost components of the post-employment defined benefits are classified as follows:

  • costs of current employment – as operating expenses,
  • net interest on the net liability derived from a changing value of provisions due to the passage of time – as financial costs,
  • actuarial gains/losses resulting from changes in actuarial assumptions – as other comprehensive income.

On the other hand, with respect to other long-term employee benefits, current employment costs and actuarial gains/losses are recognized as operating expenses, while net interest as financial costs.

The provision for death benefits is calculated on the basis of historical data, amounts of death benefits paid over the 5 years preceding the balance sheet date, using the discount rate recommended by the actuary and the expected inflation rate and statistical number of years remaining to be worked by Group employees, constituting the difference between the average retirement age of the Group’s employees and the average age of the employees as at the final day of the reporting period.

Provisions for unused holiday leaves are calculated at the end of each quarter of the financial year. The provision is calculated as follows: number of days of unused holiday leave at the end of the previous financial year and previous years plus the number of holiday leave days to which employees are entitled on the end date of the reporting period, less the number of days of holiday leave used from 1 January to the end of the reporting period, multiplied by the daily holiday rate with obligatory charges. The calculated amount of the provision for unused holiday leave is recognized after analysis, in the amount approved by the Management Board.


Material estimates and assumptions

The balance sheet liability on account of future employee benefits is equal to the present value of the defined benefits liability. The present value of employee benefit liabilities depends on a number of factors that are determined using actuarial methods, with several assumptions. Any changes in these assumptions affect the carrying amount of employee benefit liabilities.

One of the primary assumptions for determining the amount of the liability is the interest rate. As at the end date of the reporting period, based on the opinion issued by an independent actuary, the proper discount rate is applied, which reflects the interest rate of T-bonds denominated in the currency of the future disbursement of benefits, with maturities close to the dates of payment of the pertinent liabilities. Assumptions regarding future mortality rates and probability of the employee becoming a disability benefit recipient were estimated based on the statistical data from Polish survival tables for men and women published by the Central Statistical Office, as at the measurement date. The main assumptions adopted for the valuation as at 31 December 2020 and the sensitivity of liabilities on account of future employee benefits to changes in such assumptions are disclosed in the following Note.


Employee benefit liabilities

  31.12.2020 31.12.2019
EMPLOYEE BENEFIT LIABILITIES CAPTURED IN THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION ON ACCOUNT OF:
– retirement and disability severance pays 255,2 239,0
– jubilee awards 530,6 507,8
– adjustment disability benefits 143,7 138,3
– write-offs for the Company Social Benefits Fund for old-age and disability pensioners 22,7 17,1
– other employee benefits 123,3 102,5
TOTAL 1 075,5 1 004,7
including:  
– long-term 886,7 832,5
– short-term 188,8 172,2

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The amounts of employee benefit liabilities on account of retirement and disability severance pays, jubilee awards, equalization disability benefits and write-offs for the Company Social Benefits Fund for old-age and disability pensioners are recognized in the consolidated financial statements based on the actuarial valuation calculated by an independent actuarial consulting firm.

Change in employee benefit liabilities

  2020 2019
Post-employment benefits Other benefits TOTAL Post-employment benefits Other benefits TOTAL
AS AT 1 JANUARY 417,6 587,1 1 004,7 351,7 530,8 882,5
Current headcount cost 24,4 84,8 109,2 20,3 41,8 62,1
Interest cost 7,8 9,6 17,4 10,3 13,5 23,8
Past employment costs (2,7) (3,7) (6,4) - - -
Actuarial losses/(gains) captured in pre-tax profit/loss - 20,2 20,2 0,2 44,2 44,4
Actuarial losses/(gains) captured in other comprehensive income: 23,4 - 23,4 54,7 0,1 54,8
- arising from changes in financial assumptions * 22,2 - 22,2 47,3 0,1 47,4
- arising from changes in demographic assumptions * 0,5 - 0,5 (0,9) - (0,9)
- arising from other changes in assumptions and ex post adjustments of actuarial assumptions * 0,7 - 0,7 8,3 - 8,3
TOTAL RECOGNIZED IN COMPREHENSIVE INCOME 52,9 110,9 163,8 85,5 99,6 185,1
Benefits paid out (25,5) (67,5) (93,0) (21,0) (54,1) (75,0)
Acquisition of businesses (PBSz) - - - 1,4 10,8 12,2
AS AT 31 DECEMBER 445,0 630,5 1 075,5
417,6 587,1 1 004,7

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* Effects of changes in economic assumptions include discounting changes and projected increases in benefit bases. Effects of changes in demographic assumptions include changes in the assumed employee turnover, mortality rates and the number of employees leaving the company to collect disability benefits. Other changes include not only changes in other assumptions but also all updates of valuation data.

Post-employment benefits include: retirement or disability severance pays, death benefits, equalization disability benefits, while other benefits include: jubilee awards and unused holiday leaves.

Employee benefit costs captured in the consolidated statement of profit or loss and other comprehensive income

  2020 2019
EMPLOYEE BENEFIT COSTS CAPTURED IN PRE-TAX PROFIT/(LOSS) ON ACCOUNT OF:
– retirement and disability severance pays 24,6 19,8
– jubilee awards 80,0 96,8
– adjustment disability benefits 2,6 3,8
– write-offs for the Company Social Benefits Fund for old-age and disability pensioners 0,2 -
– other employee benefits 33,0 9,9
TOTAL 140,4 130,3

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  2020 2019
EMPLOYEE BENEFIT COSTS CAPTURED IN OTHER COMPREHENSIVE INCOME ON ACCOUNT OF:
– retirement and disability severance pays 7,1 24,7
– adjustment disability benefits 11,1 23,0
– write-offs for the Company Social Benefits Fund for old-age and disability pensioners 5,4 6,9
– other employee benefits (0,2) 0,2
TOTAL 23,4 54,8

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Total amount of employee benefit costs captured in the consolidated statement of profit or loss and other comprehensive income:

  2020 2019
Cost of products, materials and goods sold 110,4 92,1
Selling and distribution expenses 1,5 0,7
Administrative expenses 11,1 13,7
Financial costs 17,4 23,8
TOTAL RECOGNIZED IN PRE-TAX PROFIT/(LOSS) 140,4 130,3
Amount captured in other comprehensive income 23,4 54,8
TOTAL RECOGNIZED IN COMPREHENSIVE INCOME 163,8 185,1

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Key actuarial assumptions

Key actuarial assumptions adopted for days ending the reporting periods*:

  2020 2019
Discount rate * 1,50% 2,00%
Assumed average annual increase in the basis for calculating the provision for retirement and disability severance pays, jubilee awards and equalization disability benefits * 2,50% 2,50%
Weighted average employee mobility ratio * 2,69% 2,76%
* As at 31 December 2020, the Group had 30,593 employees (of which 21,973, or 71.8%, were JSW employees) and therefore the actuarial assumptions used to measure employee benefit liabilities of the Parent Company had the greatest impact on the level of employee benefit liabilities.

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Sensitivity analysis

A sensitivity analysis was carried out as at 31 December 2020 and 31 December 2019 to determine how the results of actuarial valuation are affected by changes in the discount rate assumed for measurement and how the levels of employee benefit liabilities are affected by the planned changes in the benefit measurement base within the range of -/+0.5 p.p.

Sensitivity analysis as at 31 December 2020:

Discount rate Planned changes in bases
Employee benefit liabilities on account of: Carrying amount of the provision -0,5 p.p. +0,5 p.p. -0,5 p.p. +0,5 p.p.
– retirement and disability severance pays 255,2 267,5 243,4 246,5 264,2
– jubilee awards 530,6 549,3 511,9 515,0 545,9
– adjustment disability benefits 143,7 154,2 134,3 133,9 154,6
– write-offs for the Company Social Benefits Fund for old-age and disability pensioners 22,7 24,9 20,8 22,7 22,7
TOTAL 952,2 995,8 910,4 918,1 987,4
CARRYING AMOUNT 43,7 (41,8) (34,1) 35,2

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Sensitivity analysis as at 31 December 2019:

Discount rate Planned changes in bases
Employee benefit liabilities on account of: Carrying amount of the provision -0,5 p.p. +0,5 p.p. -0,5 p.p. +0,5 p.p.
– retirement and disability severance pays 239,0 250,4 228,4 229,0 249,8
– jubilee awards 507,8 525,7 491,0 488,5 528,1
– adjustment disability benefits 138,3 148,0 129,6 129,1 148,4
– write-offs for the Company Social Benefits Fund for old-age and disability pensioners 17,1 18,7 15,7 17,1 17,1
RAZEM 902,2 942,8 864,7 863,7 943,4
CARRYING AMOUNT   40,6 (37,5) (38,5) 41,2

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In these analyses, the present value of the defined benefit liability was calculated using the forecast unit benefits method, which is the same method that was used to calculate the employee benefit liability in the consolidated statement of financial position.

Maturity of employee benefit liabilities

Results of actuarial valuation of employee benefit liabilities as at 31 December 2020, by maturities:

Period of payment  
Employee benefit liabilities on account of: 2021 2022 2023 2024 2025 Other
– retirement and disability severance pays 19,2 12,6 12,5 12,9 13,8 184,2
– jubilee awards 55,4 50,6 46,2 43,8 42,1 292,5
– adjustment disability benefits 7,2 7,0 6,8 6,7 6,6 109,4
– write-offs for the Company Social Benefits Fund for old-age and disability pensioners 0,8 0,7 0,7 0,7 0,7 19,1
RAZEM 82,6 70,9 66,2 64,1 63,2 605,2

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Results of actuarial valuation of employee benefit liabilities as at 31 December 2019, by maturities:

Period of payment  
Employee benefit liabilities on account of: 2020 2021 2022 2023 2024 Other
– retirement and disability severance pays 22,4 10,4 11,7 11,4 13,5 169,6
– jubilee awards 55,6 45,8 44,8 40,2 39,9 281,5
– adjustment disability benefits 7,3 7,0 6,9 6,6 6,6 103,9
– write-offs for the Company Social Benefits Fund for old-age and disability pensioners 0,6 0,6 0,6 0,5 0,5 14,3
RAZEM 85,9 63,8 64,0 58,7 60,5 569,3

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7.15. Provisions


Selected accounting policies

Provisions

The Group recognizes provisions, in particular for:

The provision for future costs associated with closure of a mine is established, inter alia, on the basis of the obligations following from the Geological and Mining Law imposing on mining enterprises an obligation to close mines upon completion of operation, in the amount of anticipated costs associated with:

  • securing or liquidating mine workings and facilities and mine unit equipment;
  • securing the unused part of the mineral deposit;
  • securing the neighboring mineral deposits;
  • securing the workings of neighboring mines;
  • undertaking necessary measures to protect the environment and reclaim the land and develop the sites left after mining operations.

The provision amounts are presented in the present value of the expenditures which are expected to be required to fulfill the obligation. The interest rate before tax is then used, which reflects the current assessment of the market regarding the value of money over time and the risk associated specifically with the given liability. The initial estimation of the mine closure provision increases the value of property, plant and equipment. Increase of the provisions associated with elapse of time is recognized as interest expenses. Changes in the amount of the provisions associated with updating the estimates pertaining to them (discount rate, inflation rate, life expectancy of the mines, expected nominal value of liquidation expenditures) are recognized as an adjustment correction of the value of non-current assets subject to the liquidation obligation.

The Group recognizes provisions for mining damage only for reported mining losses caused by the activity of the mines owned by the Group, in the amount resulting from documented claims for the same title or at the amount of expenditures to protect the area against the effects of mining operations. Since there is no reliable estimation methodology, the provision for mining damage does not include those damages that will arise in the future. The Group discloses these liabilities as contingent liabilities.

The provision for removing mining damage is calculated based on a reliable estimation of cost of repairing the facilities, structures and compensation being the effect of the mining operations or protective measures taken by the Group against the effects of mining operations on the areas covered by the concessions. The starting point for recognition of the provision are the impacts of mining operations, resulting from execution of mine operation plans, identified on the surface. The provision is presented as the present value of expenditures required to fulfill this obligation.

An environmental provision is recognized when, as a result of a past event, the Group has a present, legal or customary obligation to make an cash expenditure and an amount of that obligation can be reliably estimated. The amount of the provision is determined by discounting the projected future cash flows to present value using a discount rate that reflects current market assessments of the time value of money and the risks, if any, associated with the liability.

The provision for property tax, legal claims, warranty repairs et al. is recognized when the Group has the legal or customary obligation resulting from past events and it is probable that fulfillment of the obligation will cause the necessity to pay out funds, and its size has been reliably estimated. Provisions are not recognized for future operating losses.

Provisions are recognized respectively as operating expenses, other expenses, financial costs, depending on the circumstances surrounding the future obligations.


Material estimates

The balance of provisions is verified as at each final day of the reporting period and is adjusted to reflect the current, most appropriate estimate. The estimates and assumptions adopted to calculate the provisions are disclosed in the subsequent part of the Note.


Provisions

  Property tax Mining damage Mine closures Environmental Protection Other provisions Total
AS AT 1 JANUARY 2020            
long-term - 198,8 605,9 57,3 4,9 866,9
short-term 14,3 134,6 13,8 46,1 91,5 300,3
Total 14,3 333,4 619,7 103,4 96,4 1 167,2
Recognition of additional provisions 4,1 135,6 107,6 5,0 27,5 279,8
Reversal of unused provisions (4,6) (13,9) - (1,4) (19,8) (39,7)
Provision recognized - interest expense 1,7 - 9,3 0,7 - 11,7
Provisions used (5,8) (91,8) (6,2) (3,2) (15,9) (122,9)
AS AT 31 DECEMBER 2020 9,7 363,3 730,4 104,5 88,2 1 296,1
long-term - 219,3 707,8 79,0 4,0 1 010,1
short-term 9,7 144,0 22,6 25,5 84,2 286,0

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  Property tax Mining damage Mine closures Environmental Protection Other provisions Total
AS AT 1 JANUARY 2019            
long-term - 217,5 547,0 19,9 3,6 788,0
short-term 20,1 144,7 - 49,0 59,3 273,1
Total 20,1 362,2 547,0 68,9 62,9 1 061,1
Recognition of additional provisions 0,8 88,1 68,9 37,3 49,0 244,1
Reversal of unused provisions (4,3) (21,7) (2,1) (0,7) (9,3) (38,1)
Provision recognized - interest expense 0,3 - 10,9 0,5 - 11,7
Provisions used (2,6) (95,2) (5,0) (2,6) (6,8) (112,2)
Acquisition of businesses (PBSz) - - - - 0,6 0,6
AS AT 31 DECEMBER 2019 14,3 333,4 619,7 103,4 96,4 1 167,2
long-term - 198,8 605,9 57,3 4,9 866,9
short-term 14,3 134,6 13,8 46,1 91,5 300,3

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Mine closures

Estimating the provision for mine closure costs

The main assumptions made when determining the cost of mine closure include the assumptions with regards to the life of a mine, anticipated inflation and long-term discounting rates and the expected nominal cost of closing the respective mines, which are determined by the Company. Any changes to these assumptions affect the carrying amount of the provision.

Based on the concessions held for the mining of black coal and methane as a concomitant mineral, the size of the documented resource base of the mines according to an official evaluation of the resources and forecasts of the mining capacity of the mines, the following periods for conducting production activities by particular mining facilities within the organizational structure of JSW are anticipated:

Mines According to the status
na 31.12.2020 na 31.12.2019
Borynia-Zofiówka Mine
– Borynia Section do 31.12.2051 do 31.12.2051
– Zofiówka Section do 31.12.2051 do 31.12.2051
Budryk Mine do 31.12.2077 do 31.12.2077
Pniówek Mine do 31.12.2071 do 31.12.2051
Jastrzębie-Bzie Mine* do 31.12.2084 do 31.12.2084
Knurów-Szczygłowice Mine  
– Knurów Section do 31.12.2084 do 31.12.2072
– Szczygłowice Section

do 31.12.2078

do 31.12.2078

* As of 1 January 2020, the JSW Management Board made a decision to change the organizational structure of two mines. The Jastrzębie Section has been spun off from the Borynia-Zofiówka-Jastrzębie Mine and subordinated to the Bzie-Dębina Mine under development and the name of the mine was changed to “Jastrzębie-Bzie”.

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The above forecasts of mine lives have been prepared under an assumption that the coal resources in active JSW mines have been fully exhausted, regardless of business performance. This assumption includes the implementation of future investments related to the construction of new mining levels or opening and developing of new deposits and sections and areas that have not been opened in JSW mines. As a result of the documentation of the Pniówek deposit up to the depth of 1300m (where the previous depth of documentation was 1100m), the amount of resources potentially available for extraction increased. Based on the increased resource base, following the analysis, the life expectancy of the Pniówek Mine was extended from 31 December 2051 to 31 December 2071.

If, due to market conditions, it is financially impossible to carry out the capital expenditures needed to fully develop the documented resources or extraction of some resources may prove to be unprofitable the life expectancy of the mines may be reduced.

  2020 2019
Inflation rate* 2,26% 2,00%
Nominal discount rate** 2,82% 2,94%
Average real discount rate from 5 most recent years*** 0,55% 0,92%

* The assumed inflation rate is the average inflation rate assumed for the measurement of the provision over the last 5 years.
** The assumed nominal discount rate is the average discount rate assumed for the measurement of the provision over the last 5 years.
*** Real discount rate was negative, so the average real discount rate for the last 5 years was assumed in order to remeasure the provision.

If the discount rates used were 0.5% points lower than the JSW Management Board's estimates then the carrying amount of the provision for mine closure costs would be PLN 190.4 million more and if the discount rates used were 0.5% points higher than the carrying amount of the provision would be PLN 148.2 million less.

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Estimations of coal resources

Coal resources are the estimated volumes of coal which may be extracted legally and in an economically-justified manner from the mining areas where the Parent Company operates. JSW estimates the size of the resources based on the geological data about the size, depth and shape of the deposits. Interpretation of this information requires complex judgments prepared by qualified specialists. Estimation of coal resources that are suitable for extraction is based on factors such as coal prices, future investment requirements, cost of production and assumptions and samples regarding the deposit's geological parameters. Any changes in coal resource estimations may affect the anticipated life of mines and thus, indirectly, also the carrying amount of property, plant and equipment, provisions for mine closure costs, deferred tax assets and depreciation expenses.

JSW’s mines have a total of approx. 7,073.3 million tons of resources of coal, including approx. 1,233.4 million tons of recoverable coal reserves (based on mine resource appraisal reports as at 31 December 2020).

Recoverable coal reserves in respective mines:

Mines 31.12.2020 31.12.2019
  w mln ton w mln ton
Borynia-Zofiówka Mine* 178,2 195,0
- Borynia Section 85,5 87,1
- Zofiówka Section 92,7 92,3
- Jastrzębie Section* - 15,6
Budryk Mine 248,0 249,6
Pniówek Mine 304,2 262,3
Knurów-Szczygłowice Mine 313,4 316,0
– Knurów Section 134,6 135,7
– Szczygłowice Section 178,8 180,3
Jastrzębie-Bzie Mine* 189,6 -
Bzie-Dębina Mine under development* - 174,2
* As of 1 January 2020, the JSW Management Board made a decision to change the organizational structure of two mines. The Jastrzębie Section has been spun off from the Borynia-Zofiówka-Jastrzębie Mine and subordinated to the Bzie-Dębina Mine under development and the name of the mine was changed to “Jastrzębie-Bzie”.

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As at the final date of the reporting period, JSW remeasured the provision for mine closure costs. The provision was measured by using the projected inflation rate and the updated value of expected liquidation costs of the individual mines. Remeasurement of the provision as at 31 December 2020 entailed an increase in the provision by PLN 107.6 million, which was recognized in property, plant and equipment in line with IFRIC 1 (Note 7.1).

MINING DAMAGE

Due to the need to remove mining damage resulting from the operations of mines, the Parent Company has established a provision for mining damage. The value of work necessary to remove mining damage as at 31 December 2020 was PLN 363.3 million and was calculated as the estimated cost of repairs of facilities and structures and of compensations resulting from the consequences of mining operations.

The moment of recognition (creation) of a financial provision is when a cause and effect relationship is determined between the mining exploitation carried out by a mining enterprise and damage caused to a building or a property. The provision is presented as the present value of expenditures required to fulfill this obligation and estimated based on the knowledge of the mine’s technical function.

The Group expects that PLN 144.0 million of the provision will be used in 2021. The remaining amount of this provision will be used in the period from 2022 to 2028. The JSW mines classify the tasks based on their knowledge of the dates of repair of the individual damage (individual evaluation of tasks) or the agreed compensation payment dates. The tasks included in the non-current provision are systemically reclassified to the current part based on the technical and economic plan accepted for the year. The movement of individual provisions from non-current to current should occur quarterly or more frequently, i.e. when events or circumstances occur that require such movement of the provision.

ENVIRONMENTAL PROTECTION

As at 31 December 2020, the Parent Company recognized a provision for environmental protection associated with biological reclamation of land in the total amount of PLN 84.2 million. Based on the administrative decisions received, current zoning plans and the applicable act on the protection of arable land, JSW is legally obligated to reclaim the storage yards after it discontinues its industrial activity.

The Group’s coke plants recognize a provision for the costs of remediation of contaminated sites in accordance with the law regulating the issues of soil, earth and groundwater pollution. The owner of the land where contamination of the earth's surface occurs is obliged to carry out remediation steps. As a result of the conducted tests, the existence of pollution with risk-causing substances was found in the areas of the Jadwiga, Przyjaźń and Radlin coking plant and in the areas of the former coking plants Dębieńsko and Makoszowy.
Installations holding an integrated permit have the option to postpone remediation until the end of the installation’s operation if the operator demonstrates that it does not pose a significant threat to human health or the condition of the environment. The provision applies to installations currently in operation. Since no installations are in operation in the areas of the closed coking plants, JSW KOKS will have to carry out remediation and will not be able to postpone the process. At present, further work is underway to prepare reports on the contamination status of the soil, earth and groundwater in these areas. The provisions were estimated by taking into account primarily the costs of works related to the construction of sheet piling and reactive barriers, as well as the use of soil mixing and soil washing processes. The calculation also includes the necessary preparatory, documentation and acceptance works. Based on market data, an average cost estimate was prepared for the above-mentioned works per 1 hectare. The projected remediation costs of the hydrocarbons installations area in the former Makoszowy Coking Plant were estimated at PLN 9.0 million and of the hydrocarbons installations area in the Dębieńsko Coking Plant at PLN 10.9 million (as at 31 December 2019, the provision was PLN 19.9 million).

PROPERTY TAX

An assessment or risk conducted by the Group's coke plants, associated with the classification of fixed assets for property tax purposes, based on the updated risk calculation and assessment in this respect resulted in reducing the provision amount to PLN 9.7 million as at 31 December 2020 (PLN 14.3 million as at 31 December 2019).
OTHER PROVISIONS
Other provisions include mainly:

  • the provision for the liquidation costs of the Dębieńsko Coking Plant in the amount of PLN 18.6 million PLN 13.4 million as at 31 December 2019),
  • provision for the litigation against JSW filed by FAMUR S.A. for payment of compensation for the loss in property resulting from endogenous fire that occurred underground in the Krupiński Mine. The total amount of this provision is PLN 8.7 million (PLN 12.8 million as at 31 December 2019),
  • provision created by JSW KOKS for the reclamation fund of the waste storage yard in the amount of PLN 4.6 million (PLN 4.6 million as at 31 December 2019),
  • provision for compensation liabilities on account of non-contractual use of a real property (land located within a former protection zone) affected by installations owned by one of the companies. According to the Civil Code, the damages period is 10 years. Accordingly, the company recognizes a provision for liabilities on account of damages. In 2019, the legal standing of this land was subject to repeated analysis. Since this is mainly a forested, uninhabited area that is not used for agricultural production, it is estimated that the probability of claims being raised is low. As at 31 December 2020, the provision amounts to PLN 1.8 million (PLN 1.8 million as at 31 December 2019),
  • provision for the claim of Agencja Rozwoju Przemysłu S.A. and Towarzystwo Finansowe „Silesia” Sp. z o.o. resulting from the share purchase agreement pertaining to Wałbrzyskie Zakłady Koksownicze Victoria S.A. in connection with a failure to satisfy the commitments under the contract (adjustment of the sales price based on the accumulated EBITDA of WZK Victoria for years 2016-2019) in the amount of PLN 1.8 million,
  • provision for the litigation against JSW filed by FAMUR S.A. for payment of a due amount. The total provision amount is PLN 1.1 million,
  • provision for penalties for failing to adhere to a contract (including PLN 19.1 million of provisions for lawsuits brought by natural persons against the Parent Company).

7.16. Trade and other liabilities


Selected accounting policies

Trade and other liabilities

Current liabilities comprise trade and other liabilities maturing within 12 months of the final day of the reporting period. Initially liabilities are recognized at fair value, but this measurement, because of the short-term nature of the liabilities, corresponds to the nominal value of the liability and, in later periods, financial liabilities are shown at amortized cost, using the effective interest rate method (for trade liabilities this corresponds to the required payment amount), while other non-financial liabilities at the required payment amount.

Non-current liabilities are initially recognized at fair value minus the transaction costs incurred, and in the next periods are shown at amortized cost, using the effective interest rate method.

The increase in liabilities due to lapse of time is recorded as financial costs.

Subsidies

Subsidies are not recognized until obtaining reasonable assurance that the Group will satisfy the required conditions and receives such subsidies.
Subsidies with the principal condition that the Group acquires or develops non-current assets, are recognized in the consolidated statement of financial position in the deferred income line item and charged to the financial result systematically throughout the anticipated useful life of such assets.
Subsidies also include benefits arising from loans received from state institutions, if the interest rate is below market rates. Liabilities on account of such loans are initially recognized at fair value and the difference between such initial value of the loan and the amount received constitutes a subsidy from the state. The subsidy is initially captured in deferred income and recognized in the financial result in correspondence with the costs that such a subsidy is intended to compensate.
Other subsidies are systematically recognized in revenues, over a period required to compensate the costs which such subsidies were intended to compensate.
Subsidies due as compensation of costs or losses already incurred or as a form of direct financial support for the Group without incurring future costs, are recognized in the financial result over the period in which they are due.


Material estimates

Estimation of interest on liabilities

Pursuant to Article 5 of the Polish Act on Payment Terms in Commercial Transactions of 8 March 2013, the Group calculates, not less frequently than as at the end of each quarter, hypothetical interest on liabilities for which the contractually defined payment term is longer than 30 days. The amount of calculated interest is then adjusted to the level of forecast amounts owed by the Parent Company to counterparties on account of the rights due to them. JSW charges 50% of the maximum amount of interest due to hypothetical counterparties to its financial result; this amount corresponds to the current level of the risk of counterparties raising a claim to pay interest for the term of payment extended over and above the one prescribed in the Act on payment terms in commercial transactions. Hypothetical interest on liabilities accruing for 2020 amounted to PLN 38.6 million (in 2019: PLN 30.0 million).

The remaining part of the expected risk of the Group being charged any hypothetical late interest is recognized as contingent liabilities.


Trade and other liabilities

  Nota 31.12.2020 31.12.2019
FINANCIAL LIABILITIES
Trade liabilities   902,8 1 119,7
Accruals and deferred income   14,6 14,9
Other liabilities of a financial nature, including:   317,0 711,4
– investment liabilities   250,9 679,0
– other liabilities   66,1 32,4
TOTAL   1 234,4 1 846,0
NON-FINANCIAL LIABILITIES
Deferred income   102,0 102,3
Other liabilities of a non-financial nature, including:   1 215,8 952,4
– liabilities for social security contributions and other taxes   801,0 506,9
– trade advances   6,5 17,0
– payroll   347,1 336,6
– other   61,2 91,9
TOTAL   1 317,8 1 054,7
TOTAL TRADE AND OTHER LIABILITIES   2 552,2 2 900,7
including:    
long-term   128,9 118,9
short-term   2 423,3 2 781,8

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The Group has received subsidies under which it is obligated to use the funds received solely and exclusively for the performance of tasks specified in the relevant subsidy agreements and to meet the conditions set forth in the agreements. In 2020 and 2019, those conditions were satisfied. The subsidy amount recognized in profit or loss is specified in Note 4.3.
In connection with the entry into force, on 1 April 2020, of the Act of 31 March 2020 on amending the act on special solutions associated with preventing, counteracting and combating COVID-19, other infectious diseases and crisis situations they precipitate and certain other acts, the Group has taken advantage of the implemented support solutions permitting an extension of payment due dates for civil and public law liabilities.

8. Notes to the consolidated statement of cash flows


Selected accounting policies

STATEMENT OF CASH FLOWS

The consolidated statement of cash flows is prepared using the indirect method.

Interest paid on leases and loans and borrowings is presented in cash flows from financing activities (except for interest on the loan from NFOŚiGW (JSW KOKS) and loans from WFOŚiGW (JSW), which are presented in cash flows from operating activities).

Short-term lease payments and leases on low-value assets, which are excluded from the scope of IFRS 16, are presented in cash flows from operating activities.


8.1. Net cash from operating activities

  Note 2020 2019
Profit/(loss) before tax   (1 867,6 828,0
Depreciation and amortization 4.2 1 104,9 1 033,9
(Profit) / loss on the sale of property, plant and equipment 4.5 7,7 31,4
Interest and profit-sharing   47,3 (31,6)
Movement in financial derivatives   85,2 (20,3)
Change in employee benefit liabilities   47,4 55,2
Change in provisions   21,2 36,6
Change in inventories   250,5 (470,8)
Change in trade and other receivables   (30,2) 351,2
Change in trade liabilities, other liabilities   88,4 (42,1)
Impairment loss on property, plant and equipment, intangible assets and right-of-use assets 7.5 506,4 (195,4)
Other cash flows   (20,5) (38,3)
CASH FROM OPERATING ACTIVITIES   240,7 1 537,8

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Reconciliation of changes in employee benefit liabilities in the consolidated statement of cash flows:

  Note 2020 2019
Change in employee benefit liabilities from the consolidated statement of financial position 7.14 70,8 122,2
Actuarial gains/(losses) captured in other comprehensive income 7.14 (23,4) (54,8)
Acquisition of businesses (PBSz)   - (12,2)
CHANGE IN EMPLOYEE BENEFIT LIABILITIES IN THE CONSOLIDATED STATEMENT OF CASH FLOWS   47,4 55,2

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Uzgodnienie zmiany stanu rezerw w skonsolidowanym sprawozdaniu z przepływów pieniężnych:

  Note 2020 2019
Change in provisions in the consolidated statement of financial position 7.15 128,9 106,1
Change in the mine closure provision 7.1 (107,6) (68,9)
Acquisition of businesses (PBSz)   - (0,6)
Other (0,1)
CHANGE IN PROVISIONS IN THE CONSOLIDATED STATEMENT OF CASH FLOWS   21,2 36,6

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Reconciliation of the change in inventories in the consolidated statement of cash flows:

  Note 2020 2019
Change in inventories in the consolidated statement of financial position 7.9 250,5 (474,3)
Acquisition of businesses (PBSz)   - 3,5
CHANGE IN INVENTORIES IN THE CONSOLIDATED STATEMENT OF CASH FLOWS   250,5 (470,8)

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Reconciliation of change in trade and other receivables in the consolidated statement of cash flows:

  Note 2020 2019
Change in trade and other receivables from the consolidated statement of financial position 7.11 (32,3) 280,6
Adjustment for outstanding receivables from sales of property, plant and equipment and intangible assets 0,2 -
Acquisition of businesses (PBSz)   - 68,8
Other   1,9 1,8
CHANGE IN TRADE AND OTHER RECEIVABLES IN THE CONSOLIDATED STATEMENT OF CASH FLOWS   (30,2) 351,2

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Reconciliation of the change in financial derivatives in the consolidated statement of cash flows:

  2020 2019*
Change in financial derivatives in the consolidated statement of financial position 60,5 (58,0)
Adjustment for profits/(losses) on measurement of hedging instruments in other comprehensive income transferred to the financial result in connection with the realization of the hedged position 24,7 37,7
CHANGE IN FINANCIAL DERIVATIVES IN THE CONSOLIDATED STATEMENT OF CASH FLOWS 85,2 (20,3)

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9. Notes to the financial instruments


Selected accounting policies

Financial instruments

The Group has the following financial instrument categories:

  • measured at amortized cost
  • measured at fair value through profit or loss
  • measured at fair value through other comprehensive income
  • hedging instruments

As at the final date of the reporting period, the Group held no financial instruments measured at fair value through other comprehensive income.

The JSW Management Board defines the classification of financial assets. The classification of financial assets depends on the business model employed to manage the financial assets and the characteristics of the contractual cash flow (SPPI test) of a given component of financial assets. The classification of financial assets is accomplished at the time of initial recognition and may only be altered when the business model for managing financial assets is altered.

Classification of financial assets and liabilities to individual categories:

An asset is classified as belonging to this category if both of the following conditions are satisfied

  • the Group’s intention is to maintain these financial assets to receive the contracted cash flow, and
  • for which the contractual clauses trigger cash flows at specified dates that are solely payments of the unpaid principal and the interest on that amount.

The Group classifies mainly the following as assets measured at amortized cost:

  • trade receivables,
  • bank term deposits and
  • cash and cash equivalents.

The financial assets in this category after their initial recognition are measured at amortized cost while using the effective interest rate, after subtracting any possible impairment losses. In turn, trade receivables with a date of maturity shorter than 12 months from the date of their origin (i.e. not containing a financing element) are not subject to discounting and are measured at their nominal value.

The Group classifies the following as financial liabilities measured at amortized cost:

  • trade and other financial liabilities,
  • loans and borrowings.

The Group classifies the following as assets measured at fair value through profit or loss:

  • derivatives not designated for hedge accounting purposes,
  • ownership interest and shares in other entities,
  • Investments in the FIZ asset portfolio.

A gain or loss on the measurement of a financial asset classified as being measured at fair value through profit or loss is recognized in the financial result in the period in which it occurs.

The Group classifies liabilities for derivatives not designated for hedge accounting purposes as liabilities measured at fair value through profit or loss.

This category includes assets and liabilities hedging various specific types of risk under hedge accounting. The Group classifies derivatives to which it applies hedge accounting as hedging instruments. The applied hedge accounting principles are described in Note 9.4.

The Group made a decision to implement the hedge accounting requirements under IFRS 9 as of 1 January 2020.


9.1. Categories and classes of financial instruments

Financial assets

Financial instrument classes Note
Financial instrument categories
Amortized cost Fair value through profit or loss Hedging instruments
TOTAL
AS AT 31 DECEMBER 2020
Receivables of FIZ   0,1 - - 0,1
gross value   0,1 - - 0,1
Covered bonds   - 30,6   30,6
Debt securities   189,3 338,1   527,4
Cash and cash equivalents in FIZ   53,9 - - 53,9
gross value   53,9 - - 53,9
Long-term receivables 7.8 0,6 - - 0,6
gross value   0,6 - - 0,6
Interests in other entities   - 0,1 - 0,1
Trade receivables 7.11 659,2 - - 659,2
gross value   732,4 - - 732,4
impairment losses   (73,2) - - (73,2)
Financial derivatives   - 7,4 0,4 7,8
Bank term deposits 7.10 5,2 - - 5,2
gross value   5,2 - - 5,2
Cash and cash equivalents * 7.8, 7.12 1 945,7 - - 1 945,7
gross value   1 946,1 - - 1 946,1
impairment losses   (0,4) - - (0,4)
TOTAL   2 854,0
376,2 0,4 3 230,6

* This item also includes funds accumulated to finance the closure of a mine (Cash and cash equivalents of the Mine Closure Fund) – Note 7.8.

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None of the significant financial assets that were not overdue were renegotiated during the last year.

Financial instrument classes Note
Financial instrument categories
Amortized cost Fair value through profit or loss Hedging instruments
TOTAL
AS AT 31 DECEMBER 2019
Receivables of FIZ   0,1 - - 0,1
gross value   0,1 - - 0,1
Covered bonds   - 204,0   204,0
Debt securities   272,9 688,8   961,7
Deposits   661,8 - - 661,8
gross value   661,8 - - 661,8
Cash and cash equivalents in FIZ   72,6 - - 72,6
gross value   72,6 - - 72,6
Long-term receivables 7.8 3,9 - - 3,9
gross value   3,9 - - 3,9
Interests in other entities   - 0,1 - 0,1
Trade receivables 7.11 628,6 - - 628,6
gross value   709,0 - - 709,0
impairment losses   (80,4) - - (80,4)
Financial derivatives   - 48,9 11,6 60,5
Bank term deposits 7.10 90,8 - - 90,8
gross value   90,8 - - 90,8
Cash and cash equivalents * 7.8, 7.12 702,2 - - 702,2
gross value   702,3 - - 702,3
impairment losses   (0,1) - - (0,1)
TOTAL   2 432,9 941,8 11,6 3 386,3
* This item also includes funds accumulated to finance the closure of a mine (Cash and cash equivalents of the Mine Closure Fund) – Note 7.8.

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Financial liabilities

Financial instrument classes Note
Financial instrument categories
Amortized cost Fair value through profit or loss Hedging instruments Outside the scope of IFRS 9
TOTAL
AS AT 31 DECEMBER 2020
Loans and borrowings 6.1 1 729,1 - 278,7 - 2 007,8
Financial derivatives   - 6,4 2,7 - 9,1
FIZ derivatives – interest rate swap (IRS) in PLN 7.7 25,0 - - - 25,0
Liabilities on the Fund’s sell-buy-back transactions 7.7 91,5 91,5
Other liabilities of FIZ 7.7 4,8 - - - 4,8
Lease liabilities 6.2 - - - 632,9 632,9
Trade and other financial liabilities 7.16 1 234,4 - - - 1 234,4
TOTAL   3 084,8
6,4 281,4 632,9 4 005,5

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Financial instrument classes Note
Financial instrument categories
Amortized cost Fair value through profit or loss Hedging instruments Outside the scope of IFRS 9
TOTAL
AS AT 31 DECEMBER 2019
Loans and borrowings 6.1 264,5 - 94,6 - 359,1
Financial derivatives   - 0,4 0,9 - 1,3
FIZ derivatives – interest rate swap (IRS) in PLN 7.7 10,1 - - - 10,1
Other liabilities of FIZ 7.7 16,1 - - - 16,1
Lease liabilities 6.2 - - - 613,1 613,1
Trade and other financial liabilities 7.16 1 846,0 - - - 1 846,0
TOTAL   2 136,7 0,4 95,5 613,1 2 845,7

As at 31 December 2020 and as at 31 December 2019, the fair value of financial assets and liabilities measured at amortized cost did not differ significantly from their carrying amounts.

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9.2. Fair value hierarchy

Financial instruments carried at fair value in the consolidated statement of financial position are analyzed for valuation procedures. The hierarchy of valuation procedures has been defined as follows:

  •  Level 1: Listed (unadjusted) prices from active markets for identical assets or liabilities.
  •  Level 2: Input data other than the listings covered by this level which may be determined or observed for an asset or liability item directly (i.e. in the form of price) or indirectly (i.e. through calculations based on prices).
  •  Level 3: Input data for the valuation of assets or liabilities, which are not based on the observable market data (i.e. data which cannot be observed).

As at 31 December 2020 and as at 31 December 2019, the Group held financial assets and liabilities measured at fair value. These items include derivatives in the form of FX forward transactions for which the maturity date falls after the end date of the reporting period and investments in the FIZ assets portfolio and shares in other entities. In terms of the assumptions adopted for valuation purposes, they are classified as level 2 in the above hierarchy.

Group’s material financial assets and liabilities carried at fair value:

 

31.02.2020
Level 2

31.12.2019
Level 2
FINANCIAL ASSETS:
Investments in the FIZ asset portfolio 612,0 1 874,0
Financial derivatives, including: 7,8 60,5
financial assets – FX hedges 0,4 11,6
FINANCIAL LIABILITIES
FIZ liabilities 121,3 -
Financial derivatives, including: 9,1 1,3
financial liabilities – FX hedges 2,7 0,9

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The fair value of financial instruments which are not traded on active markets is measured by using adequate valuation techniques. Such valuation techniques optimize the use of observable market data where they are available and rely to the smallest possible extent on the entity-specific estimations. Where all the significant data used for measurement at fair value are observable, the financial instrument is classified as level 2.

9.3. Income, cost, profit and loss items recognized in the statement of profit or loss and other comprehensive income, by categories of financial instruments

  Note Financial assets/liabilities at fair value through profit or loss Financial assets/liabilities measured at amortized cost Hedging instruments Total
FOR THE PERIOD ENDED 31 DECEMBER 2020
Interest income/(cost) recognized in:   25,4 (72,1) - (46,7)
other income   - 26,0 - 26,0
other expenses   - (42,5) - (42,5)
financial income 4.6 - 1,7 - 1,7
financial costs   - (57,3) - (57,3)
other net gains/(losses) 4.5 25,4 - - 25,4
Foreign currency gains/(losses) recognized in:   - 18,2 2,5 20,7
other net gains/(losses) 4.5 - 16,1 - 16,1
financial income 4.6 - 3,5 - 3,5
financial costs 4.6 - (1,4) (37,3) (38,7)
other comprehensive income   - - 39,8 39,8
Income/(costs) on measurement and exercise of derivatives, recognized in:   (23,4) - (28,8) (52,2)
other net gains/(losses) 4.5 (23,4) - (16,2) (39,6)
other comprehensive income   - - (12,6) (12,6)
Impairment losses for trade receivables reversed/(recognized) in:   - (31,3) - (31,3)
cost by nature   - (17,2) - (17,2)
other income   - 0,5 - 0,5
other expenses   - (14,6) - (14,6)
Gains/ (losses) on valuation of non-current liabilities (discount), recognized in: - 0,3 - 0,3
other expenses - 0,3 - 0,3
Profits/(losses) from fair value measurement and realization of the FIZ asset portfolio recognized in:   (9,8) - - (9,8)
other net gains/(losses) 4.5 (9,8) - - (9,8)
Total   (7,8) (84,9) (26,3) (119,0)

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  Note Financial assets/liabilities at fair value through profit or loss Financial assets/liabilities measured at amortized cost Hedging instruments Instrumenty zabezpieczające Total
FOR THE PERIOD ENDED 31 DECEMBER 2019
Interest income/(cost) recognized in:   36,5 - (38,3) - (1,8)
other income   - - 19,0 - 19,0
other expenses   - - (39,6) - (39,6)
financial income 4.6 - - 15,8 - 15,8
financial costs   - - (33,5) - (33,5)
other net gains/(losses)   36,5 - - - 36,5
Foreign currency gains/(losses) recognized in:   - - 2,3 (30,8) (28,5)
other net gains/(losses) 4.5 - - (1,9) - (1,9)
financial income 4.6 - - 4,2 - 4,2
financial costs 4.6       (32,0) (32,0)
other comprehensive income         1,2 1,2
Income/(costs) on measurement and exercise of derivatives, recognized in:   59,7 - - 7,7 67,4
other net gains/(losses) 4.5 59,7 - - 1,9 61,6
other comprehensive income   - - - 5,8 5,8
Impairment losses for trade receivables reversed/(recognized) in:   - - (0,4) - (0,4)
cost by nature   - - 1,5 - 1,5
other income   - - 0,1 - 0,1
other expenses   - - (2,0) - (2,0)
Gains/(losses) on changes in fair value recognized in:   11,4 - - - 11,4
other net gains/(losses)   11,4 - - - 11,4
Total   107,6 - (36,4) (23,1) 48,1

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9.4. Financial derivatives


Selected accounting policies

FINANCIAL DERIVATIVES

Financial derivatives are carried at fair value as at the date of concluding the contract and then revalued to fair value as at each final day of the reporting period. Financial derivatives are shown as assets when their value is positive and as liabilities when their value is negative, and the profit or loss from their valuation is shown immediately in the financial result.

A financial derivative is classified as a short-term financial instrument if the settlement date of that instrument of its part is within one year from the final day of the reporting period. If the settlement date of the financial instrument is over one year from the final day of the reporting period then such an instrument or part thereof is classified as a long-term financial instrument.

HEDGE ACCOUNTING

For accounting purposes, hedging involves proportionate offsetting of results obtained through changes in fair value or changes in cash flows from the hedging instrument and hedged position.

The Group employs hedge accounting to hedge cash flows. The application of cash flow hedge accounting makes it possible to post the effective part of the hedge to other comprehensive income, which in effect is accumulated in capital, which leads to matching the impact on the financial result of hedge instruments measurement and the pursuit of the hedged position.

The Group applies hedge accounting with respect to foreign exchange risk.

Cash flow hedging is a hedge against the threat of volatility of cash flows which can be attributed to a specific risk type associated with the respective asset or liability or with a highly probable contemplated transaction and which could influence profit or loss.

Gains or losses on the changing fair value of the cash flow hedge instrument are recognized in other comprehensive income in the part constituting effective hedge, while any ineffective portion of the hedge is recognized in the profit or loss of the current period. The effective part captured in other comprehensive income is posted to profit or loss in the same period in which the hedged position affects profit or loss.

The assessment whether a hedge is effective is based on the existence of an economic relationship between the hedged item and the hedging instrument. The requirement that an economic relationship exists means that the hedging instrument and the hedged item have values that generally move in the opposite direction because of the same risk. The Group designates a hedge relationship if there is an economic relationship between the hedged item and the hedging instrument.

The effectiveness of a hedge is determined at the inception of a hedging relationship, at the end of each quarter and when material changes are identified in transaction parameters or hedging strategy. The Group makes a qualitative or quantitative assessment of hedge effectiveness.
The amount of ineffectiveness of the hedging relationship is calculated if changes in the value (absolute value) of the hedging instrument during the measurement period exceed changes in the fair value (absolute value) of the hedged item. The ineffectiveness amount is charged to the profit and loss account in the period to which the effectiveness measurement applies.

Sources of ineffectiveness for currency risk may include, in particular, the difference between the maturity of a hedging instrument on the last business day of a month and maturities of a hedged item, which is realized on consecutive days of a month.

The Group ceases to apply cash flow hedge accounting if the hedging instrument expires, is sold, reversed or realized or the purpose of risk management for a relationship changes or if the hedge no longer meets the hedge accounting criteria pertaining to effectiveness and realization of the planned transaction is no longer expected.

The Group made a decision to implement the hedge accounting requirements under IFRS 9 as of 1 January 2020.


Financial assets after conversion to PLN:

31.12.2020 31.12.2019
Hedge derivatives Derivatives carried at fair value through profit or loss Total Hedge derivatives Derivatives carried at fair value through profit or loss Total
FX forward:            
– EUR - - - 8,0 1,8 9,8
– USD 0,4 7,4 7,8 3,6 21,1 24,7
Commodity options - - - - 0,2 0,2
Commodity swaps - - - - 25,8 25,8
TOTAL, OF WHICH 0,4 7,4 7,8 11,6 48,9 60,5
- short-term 0,4 7,4 7,8 11,6 48,9 60,5

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Financial liabilities after conversion to PLN:

31.12.2020 31.12.2019
Hedge derivatives Derivatives carried at fair value through profit or loss Total Hedge derivatives Derivatives carried at fair value through profit or loss Total
FX forward:            
– EUR 2,7 4,9 7,6 - 0,1 0,1
– USD - 1,5 1,5 0,9 0,3 1,2
TOTAL, OF WHICH 2,7 6,4 9,1 0,9 0,4 1,3
- short-term 2,7 6,4 9,1 0,9 0,4 1,3

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The nominal values of contracts expressed in their respective currencies are presented in the table below:

Contract Currency 31.12.2020 31.12.2019
Hedge derivatives Derivatives carried at fair value through profit or loss Hedge derivatives Derivatives carried at fair value through profit or loss
FX FORWARD EUR 34,0 44,3 88,5 23,9
sale   34,0 44,3 88,5 23,9
FX FORWARD USD 6,0 62,6 60,5 235,0
sale   6,0 62,6 60,5 235,0

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The nominal values of commodity contracts hedging the price risk, expressed in millions of tons, are presented in the table below:

Contract 31.12.2020 31.12.2019
Hedge derivatives Derivatives carried at fair value through profit or loss Hedge derivatives Derivatives carried at fair value through profit or loss
COMMODITY SWAP - - - 0,2
sale - - - 0,2

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9.5. Financial risk management

The Group is exposed to various risks in each area of its activity. In order to achieve its strategic objectives, the Group actively manages the risks arising in its operations, striving to mitigate or eliminate their potential negative effect on the financial result. In addition to the financial risks discussed in these consolidated financial statements, the Group is exposed to non-financial risks, which include risks arising from its social and economic and market settings, with its business activity, environmental risks and risks related to its legal environment. Non-financial risks are discussed in detail in Section 6.2 of the Management Board Report on the activity of Jastrzębska Spółka Węglowa S.A. and the Jastrzębska Spółka Węglowa S.A. Group for the financial year ended 31 December 2020.

9.5.1. Financial risk management

The business conducted by the Group exposes it to the following financial risks: market risk (including: price risk, foreign exchange risk and cash flow risk related to changes in interest rates), credit risk and liquidity risk.

Source of exposure

Valuation

Risk management / implemented instruments

Price risk

Future trading contracts related to metallurgical (coking) coal sales, whose price remains linked to the quotation of this raw material on the global market (JSW bases the price on the quotation of Australian coals, which are the benchmark for global prices)

Cash flow forecasts.
Sensitivity/scenario analysis

FX Swap (implemented in 2019)

The principles for managing metallurgical (coking) coal price risk are described in the Coking Coal Price Risk Management Policy.

Foreign exchange volatility risk

Planned, contracted sales of goods and products, whose price is indexed or denominated in a currency other than PLN.

Recognized financial assets and liabilities denominated in currencies other than PLN.

Sensitivity/scenario analysis

Derivatives – FX Forward
natural hedging

According to the FX Risk Management Policy at the Jastrzębska Spółka Węglowa S.A. Group.

Risk of cash flow volatility caused by changes in interest rates

Cash and cash equivalents and deposits, investments in the FIZ asset portfolio, liabilities under loans and borrowings, lease liabilities – bearing interest at floating interest rates

Sensitivity/scenario analysis

The Group does not use derivatives to hedge against interest rate risk.

Credit risk

Credit risk is concentrated in the following areas: trade liabilities, cash and bank term deposits, derivatives, investments in the FIZ asset portfolio.

Aging analysis
Credit ratings
Diversification of buyers, required collateral, use of advance payments or insurance of receivables, monitoring of business partners.
Cooperates exclusively with highly credible banks. Diversification of risk through setting the maximum level of concentration of derivative transactions

Liquidity risk

Risk of a shortage of cash or unavailability of short-term financing, leading to a temporary or permanent loss of capacity to settle financial liabilities or forcing it to raise funding on disadvantageous terms.

Strategy and annual forecasts (PTE)
Monitoring of JSW’s liquidity
Daily monitoring of available cash with a one-month horizon.

Diversification of funding sources and use of available tools, including:
• obtaining external funding,
• Stabilization Fund (“FIZ”) – safety buffer,
• cash management system known as PCP,
• use of available banking tools in settlements of transactions with business partners 

Implemented JSW Group’s Liquidity Management Policy and procedure

Financial risk management is performed at the level of the JSW’s Management Board. There are separate organizational units which monitor exposures to the individual financial risks. The Management Board adopts the written principles of overall risk management as well as policies covering specific risk areas, such as currency risk, interest rate risk, credit risk and liquidity risk.

a. Price risk

Commodity price risk

Commodity price risk is defined by the Group as the possibility that changes in product prices may have an adverse effect on its financial result. The situation on the metallurgical (coking) coal and coke market is related to the market for steel and metallurgical products; market trend cycles display price fluctuations in these sectors. Metallurgical (coking) coal prices depend strongly on demand on the global metallurgy and steel market, while steam coal prices additionally depend also on other domestic producers. Even though JSW has regular offtakers, the Parent Company must compete with local and overseas suppliers (chiefly coke and metallurgical (coking) coal). Growth in the significance of price indices and the disappearance of the traditional benchmark for metallurgical (coking) coal agreed upon prior to the period of deliveries open up possibilities for employing various settlement periods and reference prices. This may lead to greater price volatility and periodic price differences than in the case of having negotiations rely on a single quarterly benchmark. The ownership change processes in the European steel industry force greater market activity, resulting in an increased diversification of sales. In case of changes in market prices and in order to ensure stable allocation of volumes on the market, the Group mitigates their impact on its financial standing by taking the following actions:

  • optimize production volume,
  • optimize the production structure to increase efficiency of product sales (increase production of goods commanding better prices and finding demand in the period – optimization of the sales structure),
  • optimize the selling directions of the products.

A downturn in global economies, in particular in the steel and power industry or events causing a significant decline in demand for coal and coke, may have an adverse impact on the Group’s activity, results and financial standing.

The regulations and restrictions caused by the measures aimed at limiting the spread of COVID-19 may cause a decline in production in all areas of business which, as a consequence, causes a domino effect in the remaining part of the supply chain. The restrictions that have been imposed on economic activity may temporarily lead to reduced demand and significant decreases in the prices of commodities, including metallurgical (coking) coal, steam coal and coke.

In order to react to changing prices at the right moment, the Group constantly monitors markets, analyzes them and tracks on an ongoing basis price trends on the coal, coke, steel and electricity markets and rail and marine cargo transport. Also, an analysis is conducted to monitor the opportunities and the terms for the offtakers to obtain coal or coke from alternative sources on the domestic market or from foreign, mainly overseas markets. The terms and conditions of long-term contracts allow for periodic price negotiations (annually for steam coal and quarterly for metallurgical (coking) coal and quarterly, semi-annually or annually for coke). To achieve the risk management goals, the Group observes the rules described in the JSW Group’s Sales Procedure and the rules of the Financial Risk Committee at the JSW Group, which monitors the inflow of currencies from deliveries of coal, coke and hydrocarbons.

The overriding objective of the principles for managing the risk of metallurgical (coking) coal prices adopted by the Group is to reduce the impact of fluctuations in metallurgical (coking) coal prices on the Group’s cash flows to an acceptable level. The Group assumes that the application of the metallurgical (coking) coal price risk management principles described in the Coking Coal Price Risk Management Policy will increase the probability of achieving planned cash flows and the stability of its planned growth in the long term.
The metallurgical (coking) coal price risk management process is carried out with while keeping the separation of roles and duties related to executive functions (related to the conclusion of derivatives) from control, supervisory or management functions.

The Group has a Financial Risk Committee, which advises the JSW Management Board on the management of the metallurgical (coking) coal price risk. Within the limit awarded by the JSW Management Board, the Financial Risk Committee may decide on the implementation of hedging strategies or, where such limit is or could be overrun, recommend their implementation to the JSW Management Board. As at 31 December 2020, the Group had no active transactions hedging the risk of changes in coal prices.

In the comparative period ended 31 December 2019, the Group implemented transactions hedging the economic risk of changes in metallurgical (coking) coal prices (commodity swap) for the total nominal volume of 240 thousand tons and maturities from September 2019 to August 2020. As at 31 December 2019, the Group had active transactions hedging the risk of changes in coal prices in the total nominal volume of 185 thousand tons. As at 31 December 2019, the fair value of the derivatives hedging the risk of changes in metallurgical (coking) coal prices was PLN 26.0 million.

The Group has no material investments in capital securities and therefore is not exposed to price risk related to changes in the prices of such investments.

b. Foreign exchange risk

The Group is exposed to significant foreign exchange risk due to its foreign currency exposure which may affect the amounts of future cash flows and the financial result. Sales are the main source of FX risk in the Group: sales denominated in EUR and USD and sales indexed to EUR and USD.

The carrying amounts of selected items denominated in foreign currencies, following a conversion into PLN, are as follows:

SELECTED BALANCE SHEET ITEMS 31.12.2020 31.12.2019
EUR USD EUR USD
Cash and cash equivalents 11,4 0,1 11,7 43,9
Trade receivables 209,4 69,9 142,7 28,7
Financial derivatives measured through profit or loss (assets) - 7,4 1,8 47,2
Hedges (assets) - 0,4 8,0 3,6
Trade liabilities (9,9) (0,5) (7,8) (0,3)
Loans and borrowings - (280,2) - (95,2)
Financial derivatives measured through profit or loss (liabilities) (4,9) (1,5) (0,1) (0,3)
Hedges (liabilities) (2,7) - - (0,9)
NET EXPOSURE 203,3 (204,4) 156,3 26,7

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The Group's sensitivity to appreciation and depreciation of the EUR/PLN and USD/PLN exchange rates is presented in the table below. Sensitivity analysis includes only the items denominated in foreign currencies which remain open at the end of the reporting period and presents the potential change in the value of financial assets and liabilities as a result of a change in the exchange rate. The sensitivity analysis is calculated on the basis of the implied volatility published by the Reuters service as at 31 December 2020 for the current period and as at 31 December 2019 for comparative data.

Analysis of sensitivity to changes of exchange rates:

    EUR/PLN rate EUR/PLN rate
31.12.2020 31.12.2019 31.12.2020 31.12.2019
net profit other comprehensive income net profit other comprehensive income net profit other comprehensive income net profit other comprehensive income
% change 5,9% 4,6% 10,1% 8,3%
Change in the value of financial assets 13,0 - 7,1 - 7,1 - 8,1 -
Change in the value of financial liabilities (12,6) (9,3) (5,0) (17,3) (23,8) (30,5) (73,8) (26,9)
Effect on results before tax
or other comprehensive income
0,4 (9,3) 2,1 (17,3) (16,7) (30,5) (65,7) (26,9)
Tax effect (0,1) 1,8 (0,4) 3,3 3,2 5,8 12,5 5,1
EFFECT ON NET RESULTS 0,3 - 1,7 - (13,5) - (53,2) -
IMPACT ON OTHER COMPREHENSIVE INCOME - (7,5) - (14,0) - (24,7) - (21,8)

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When the exchange rates drop (change by minus %), the sensitivity analysis produces values identical to those in the table above but with an opposite sign.

The overriding objective of the Group's policy is to mitigate the exchange risk arising from its exposure to foreign currencies. The Group has been measuring its FX risk on an ongoing basis and takes actions to mitigate the effect it has on its financial standing. FX risk is managed in the Group in accordance with the FX Risk Management Policy at the Jastrzębska Spółka Węglowa S.A. Group.

The Group has allocated the executive, decision-making, supervisory, control and analytical functions to individual organizational units (the "division of tasks" principle).

In the Group, there is a Financial Risk Committee, responsible for making key FX risk management decisions, in particular for hedging contracted and planned cash flows.

In an attempt to eliminate FX risk, in 2020 the Group concluded FX forward transactions (external), in accordance with the hedge ratios adopted by the JSW Management Board and the Financial Risk Committee. Intra-group hedging transactions have also been concluded in the Group. The maturity of the transactions did not exceed 18 months.

In its FX risk management processes, the Group also applies natural hedging, i.e. takes out loans and to a small extent makes small purchases of materials, services or investment assets in the foreign currencies, in which it earns revenues.

Hedge accounting

The Parent Company employs cash flow hedge accounting In principle, derivative transactions to hedge the denominated exposure with maturities exceeding six months are designated for hedge accounting. At the inception of the hedge JSW formally designates and documents the hedging relationship. Effectiveness of the hedge instruments used by the Parent Company is monitored on an ongoing basis and is subject to continuous evaluation.

In 2020, the Group designated FX Forward transactions with a nominal amount of EUR 88.0 million and USD 6.0 million for hedge accounting.

As at 31 December 2020, the Group had outstanding FX Forward derivatives with a total notional amount of EUR 78.3 million and USD 68.6 million, of which EUR 34.0 million and USD 6.0 million were hedge transactions for hedge accounting purposes. Derivative transactions hedge proceeds from the sales of products and goods which the Group expects to receive by December 2021.

In 2020, the Group designated for hedge accounting a USD-denominated loan (taken out in 2020) as an instrument hedging future USD-denominated cash flows. The purpose of the Group’s hedging actions to obtain protection against the risk of changing USD/PLN exchange rate is to guarantee a specific level of the PLN equivalent of USD receipts from coke sales fulfilled by the Group. The position being hedged is a highly probable USD-denominated cash flow, which is received repayment periods of principal installments and is matched with the USD-denominated principal installment amount. A detailed listing of dates and volume of the designated hedging instrument is specified in the principal installment repayment schedule adopted by the Group.

The effective part of the change in the fair value of hedge transactions in the amount of PLN (26.2) million was recognized in other comprehensive income. The ineffective part of the fair value of hedging transactions and the change in the fair value of derivatives not designated for hedge accounting in the amount of PLN 1.2 million was recognized in the period’s profit or loss. As a result of realization of the hedged item, in the period from January to December 2020 the amount of PLN (53.4) million was recognized in the financial result (of which PLN 37.3 million was charged to financial costs – Note 4.6, while PLN 16.1 million was recognized in other net gains/(losses) – Note 4.5.

The tables below provide details of these derivative transactions:

Open FX transactions as at 31 December 2020 are as follows:

Termin rozliczenia transakcji
Transaction type up to 1 month 2 to 3 months 4 to 6 months 7 to 12 months Total
TRANSACTIONS AT FAIR VALUE THROUGH PROFIT OR LOSS
FX Forward (3,7) 3,0 1,3 0,4 1,0
HEDGE TRANSACTIONS
FX Forward - (0,4) (1,5) (0,4) (2,3)
Total (3,7) 2,6 (0,2) - (1,3)

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Open FX transactions as at 31 December 2019 are as follows:

Termin rozliczenia transakcji
Transaction type up to 1 month 2 to 3 months 4 to 6 months 7 to 12 months Total
TRANSACTIONS AT FAIR VALUE THROUGH PROFIT OR LOSS
FX Forward 3,1 2,9 3,8 12,8 22,6
HEDGE TRANSACTIONS
FX Forward - 2,3 4,2 4,2 10,7
Total 3,1 5,2 8,0 17,0 33,3

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c. Risk of cash flow volatility caused by changes in interest rates

The main sources of interest rate risk in the Group include:

  •  investments in the FIZ asset portfolio,
  •  cash and cash equivalents and deposits,
  •  liabilities on account of loans and borrowings,
  •  lease liabilities.

The Group’s exposure to interest rate risk concerns primarily potential changes in cash flows caused by shifts in market interest rates. The Group finances its operating and investing activities partly with external funds bearing interest at floating interest rates and invests free cash in financial assets which also in most cases bear interest at floating interest rates. Interest rate risk arises from the volatility of the following reference rates: WIBOR 1M, WIBOR 3M, WIBID 1M, LIBOR 3M for USD.

The items of the consolidated statement of financial position, which are exposed to changes in interest rates, are presented in the following table:

  31.12.2020 31.12.2019
fixed variable fixed variable
Non-current financial assets:
Cash and cash equivalents of the Mine Closure Fund - 348,4 - 351,9
Investments in the FIZ asset portfolio - 612,0 - 1 174,0
Current financial assets:
Bank term deposits 5,2 - 90,8 -
Cash and cash equivalents 1 597,3 - - 350,3
Investments in the FIZ asset portfolio - - - 700,0
Long-term financial liabilities
Loans and borrowings 964,0 722,3 36,9 296,4
Zobowiązania z tytułu leasingu 347,4 58,8 352,3 54,4
Current financial liabilities
Loans and borrowings 257,3 64,2 - 25,8
Lease liabilities 196,8 29,9 180,8 25,6
FIZ liabilities - 121,3 - -

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The Group does not use derivatives to hedge against interest rate risk.

The tables below present the potential impact of a change in interest rates on net result (analysis of sensitivity to interest rate changes). The analysis only covers these positions in financial instruments, which are exposed to interest rate risk as at the last day of the reporting period. The level of changes in interest rates accepted in 2020 reflects the hypothetical change in the level of the PLN reference rate.

Impact of an increase in the interest rate:

PLN interest rate USD interest rate
31.12.2020 31.12.2019 31.12.2020 31.12.2019
net profit/loss net profit/loss net profit/loss net profit/loss
Volatility in basis points + 50pb + 50pb + 50pb + 50pb
Change in the value of financial assets 4,7 13,0 - 0,2
Change in the value of financial liabilities (3,2) (4,4) (1,4) (0,5)
Effect on results before tax 1,5 8,6 (1,4) (0,3)
Tax effect (0,3) (1,6) 0,3 0,1
EFFECT ON NET RESULTS 1,2 7,0 (1,1) (0,2)

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PLN interest rate USD interest rate
31.12.2020 31.12.2019 31.12.2020 31.12.2019
net profit/loss net profit/loss net profit/loss net profit/loss
Volatility in basis points - 50pb - 50pb - 50pb - 50pb
Change in the value of financial assets (4,7) (13,0) - (0,2)
Change in the value of financial liabilities 0,8 4,4 0,3 0,5
Effect on results before tax (3,9) (8,6) 0,3 0,3
Tax effect 0,7 1,6 (0,1) (0,1)
EFFECT ON NET RESULTS 3,2 (7,0) 0,2 0,2

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The Group is exposed to interest rate risk primarily in PLN and USD. With respect to EURIBOR rates, their volatility is low and foreign currencies are only a small fraction of the overall cash exposed to the risk of interest rate changes; therefore, their effect on the Group's financial results is insignificant.

d. Credit risk

Credit risk in the Group is concentrated in the following areas:

  •  trade receivables,
  •  cash and bank term deposits,
  •  derivatives,
  •  investments in the FIZ assets portfolio (covered bonds, bonds, receivables under buy sell back transactions, deposits, cash and cash equivalents).

According to the Group's assessment, the maximum exposure to credit risk on the final day of the reporting period is the full carrying amount of trade receivables without the fair value of security accepted, cash and cash equivalents and financial assets in the form of bank term deposits and FIZ assets.

Credit risk associated with trade receivables

Credit risk identified in trade receivables is associated with their concentration and timely service. Sales are made to a limited number of buyers and therefore there is a concentration of risk associated with trade receivables. The trading policy for coke sales implemented in the JSW Group in the past years has reduced the credit risk associated with trade receivables through diversification of buyers.

In 2020, the ArcelorMittal Group and companies with the State Treasury in the shareholding structure still remain the principal buyers, responsible for respectively 27.0% and 16.3% of all trade receivables as at 31 December 2020. The share of the ArcelorMittal Group and the companies with the State Treasury as a shareholder in the Group’s trade receivables is lower compared to the previous year (in 2019 it was 32.2% and 31.2%, respectively, of all trade receivables).

Restrictions associated with counteracting the COVID-19 pandemic, including the suspension of a number of industries, may deteriorate the financial situation of recipients, which in turn may adversely affect the timely payment of receivables.

The Group operates on a volatile market and is exposed to the risk of uncollectible receivables. This risk is mitigated by the fact that most of the Group’s clients are large steel conglomerates with solid market position, or local commercial power plants. The Group does not require any security interest from buyers with a strong market position, considering the strategic nature of the cooperation and the ability to assess their financial documents. Other offtakers must put forward security, such as an irrevocable letter of credit or a blank promissory note. The clients who are unable to submit the security satisfactory to the Group can make a purchase against prepayment or have their receivables insured by insurance companies.

As at 31 December 2020, 12.4% of the Group’s trade receivables were insured and 8.9% of the Group’s trade receivables were secured by letters of credit (as at 31 December 2019: 10.5% of trade receivables were insured, 4.7% were secured by letters of credit and 0.1% secured by blank promissory notes).

Taking into account the above security interest and the history of cooperation with the customers, the risk of uncollectible receivables is deemed to be very low.

Credit risk associated with cash and bank term deposits

The credit risk pertaining to cash and cash equivalents is limited because the Group invests its cash in banks with established market position and holding a rating awarded by international rating agencies.

Concentration of financial resources in banks:

Bank Rating Rating agency 31.12.2020 31.12.2019
A A2 Moody’s 60,8% 86,7%
B A- FITCH 20,5% 11,3%
C BBB+ FITCH 17,7% -
Other - - 1,0% 2,0%
      100,0% 100,0%

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This information covers the cash and short-term deposits presented in Nocie 7.8., Nocie 7.10. and Nocie 7.12.

Considering the above credit ratings of financial institutions, the Management Board considers the level of risk of the investment activity to be low, despite significant concentration.

Credit risk associated with financial derivatives

The Group selects cooperating banks for concluding forward transactions following similar principles as in the case of time deposits of available cash. In accordance with the FX Risk Management Policy in the Group, the Group hedges FX risk, among others by benefiting from natural hedges and entering into hedging transactions with banks. To minimize the risk associated with execution of hedging transactions, the Group cooperates exclusively with highly credible banks. To diversify the risk associated with the execution of hedging transactions, the Financial Risk Committee defines the maximum concentration level for derivative transactions (the maximum nominal amount of transactions open at a single bank). The process of hedging exchange risk is monitored on an ongoing basis. The highest concentration level in one bank as at 31 December 2020 is about 15% of the permitted limit (36% of the permitted limit in 2019).

Credit risk associated with investments in the FIZ asset portfolio

Credit risk associated with investments in the FIZ asset portfolio is presented in Note 7.7.

e. Liquidity risk

In connection with the high capital expenditures incurred and the strong dependence of cash flows on coal and coke sale prices, in periods of bad economic conditions the Group is exposed to liquidity risk.

The current tough market conditions, manifested in reduced demand, also as a result of the pandemic, have had an adverse effect on liquidity, mainly because of lower sales and consequently lower cash flows from operating activities. The low positive cash flows from operating activities generated in 2020 do not exceed the high investing expenditures. The Group supported itself with the high inflows from the redemption of FIZ assets and proceeds from loans and borrowings. The funds from the redemption of FIZ assets and proceeds from loans and borrowings allowed it to increase the available cash balance considerably as compared to the end of the previous year.

Materialization of the risk of loss of liquidity is one of the most important factors that may affect the Group’s viability as a going concern. This is why the Group takes various strategic and operational measures to minimize the risk of loss of liquidity.

Liquidity management

The Group’s overriding task in the liquidity risk management process is to ensure ongoing monitoring and planning of the liquidity level. The Group also intends to maintain the proper financing structure by keeping an appropriate level of long-term financing sources.

The Group’s process of liquidity risk management, supported by the implemented Liquidity Management Policy and process in the JSW Group calls for, among others, effective monitoring and reporting of the liquidity position, among others, to take preventive measures in the event of a threat to liquidity and maintaining an appropriate (minimum) level of cash available for service of current payments.

The Group is pursuing the liquidity management policy under which it diversifies financing sources and takes advantage of the available tools to ensure effective liquidity management. Among other things, the following were used to increase the Group’s liquidity security:

  a) On 9 April 2019, the Parent Company signed the financing contract with the Consortium for the total amount of PLN 460.0 million and USD equivalent of PLN 300.0 million. Most of the funds from the available credit facilities were drawn down in the period when there was a need to finance operations. In January 2020, JSW drew down funds in the amount of USD 52.4 million and PLN 260.0 million.

  b) The Parent Company has in place the Stabilization Fund providing a safety cushion in times of economic downturn when it is necessary to incur expenditures not fully covered by cash inflows. With this in mind, a Cooperation Agreement was signed with TFI Energia S.A. (formerly PGE Towarzystwo Funduszy Inwestycyjnych S.A.), under which JSW established the JSW Stabilization Closed-End Investment Fund (JSW Stabilization FIZ). The following redemptions of FIZ assets took place in 2020:

  •  On 8 January 2020 the JSW Management Board and on 13 January 2020 the JSW Supervisory Board made decisions to redeem series A Investment Certificates in the amount of PLN 400.0 million and series B Investment Certificates in the amount of PLN 300.0 million.
  •  On 29 April 2020, the JSW Management Board adopted a resolution to redeem series A and series B Investment Certificates of the JSW Stabilization Fund (FIZ) in the estimated total amount of PLN 400.0 million. On the same day, the JSW’s Supervisory Board, in accordance with the JSW Articles of Association, gave consent to the redemption.
  •  On 8 October 2020, the JSW Management Board adopted a resolution to redeem Investment Certificates of the JSW Stabilization FIZ for an estimated total amount of PLN 300.0 million. On the same day, the JSW’s Supervisory Board, in accordance with the JSW Articles of Association, gave consent to the redemption.

Accordingly, in 2020, the Parent Company obtained proceeds in the amount of PLN 1,092.8 million (series A) and PLN 306.0 million (series B) from the redemption of Investment Certificates of the JSW Stabilization FIZ fund.

The proceeds from the redemption of FIZ assets are used both for JSW’s current operations and for investment activity.

The Group strives to keep the Fund and rebuild its value when the market conditions are favorable.

The funds invested in the FIZ asset portfolio are an important element of the “Cash Buffer”, i.e. the obligation resulting from financing contract signed with the Consortium.

  c) In connection with the entry into force of the Act of 31 March 2020 amending the act on special solutions associated with preventing, counteracting and combating COVID-19, other contagious diseases and crisis situations they precipitate and certain other acts, introducing solutions aimed at, among other things, supporting undertakings in the crisis caused by the COVID-19 pandemic (“Anti-Crisis Shield”), since JSW has satisfied the criteria for using the aid solutions, on 15 July 2020 it filed an application to obtain financing of PLN 1,750.0 million as part of The Polish Development Fund’s Financial Shield for Large Companies. In December 2020, the Parent Company signed a liquidity loan agreement for PLN 1.0 billion and a preferential loan agreement for PLN 173.6 million with PFR under the governmental program entitled “The Polish Development Fund’s Financial Shield for Large Companies”.

Additionally, on 23 December 2020, the subsidiary JSW KOKS signed a preferential loan agreement for PLN 24.9 million with PFR under the governmental program entitled “The Polish Development Fund’s Financial Shield for Large Companies”.

The loans were disbursed fully in December 2020. The loan agreements mentioned above are described in detail in Note 6.1.

  d) On 30 July 2020, JSW also submitted an application to the Voivodeship Labor Office in Katowice for co-funding to employee salaries from the Guaranteed Employee Benefit Fund for the maximum period of 3 months in the amount of PLN 166.9 million. The Parent Company received the funds in the requested amount in August and September 2020. On 30 October 2020 JSW settled the received support and repaid the amount of PLN 6.5 million. The total amount of the support received is PLN 160.4 million.

Additionally, Group Companies also used the opportunity to defer payments of public liabilities (more in Note 2.3).

  e) In order to achieve more effective management of current liquidity, the Group has in place a cash management system referred to as Physical Cash Pooling (“PCP”).

  f) In emergencies, the Group takes optimization measures in the cost and investment area in order to maintain the safe level of cash and net debt and the contractual covenants.
The financing contract with the Consortium imposes a number of covenants on JSW and other Group companies. According to contractual clauses, the total share of EBITDA of guarantors (JSW KOKS as the initial guarantor) and the JSW in the Group’s total EBITDA must be no less than 85%. As at 30 June 2020, the above covenant was not satisfied. If the ratio falls below the required level, the Parent Company will have to procure that, within 60 days of delivery of the compliance certificate, another Group entity approved by lenders becomes an additional surety. Due to the time-consuming process of establishing a new surety, the Consortium agreed to have this requirement satisfied by 25 November 2020, thus extending the deadline by 30 days. On 23 November 2020, JZR became an additional surety provider. JZR extended a surety to the Consortium up to the amount of PLN 690.0 million and USD 117.8 million.

As at 30 September 2020, this requirement was not satisfied, however JSW asked the Consortium to set less restrictive benchmarks for selected covenants for the duration of the SARS-CoV-2 pandemic.

On 9 December 2020, the Consortium agreed to suspend the sanctions resulting from a failure to meet the following covenants:

  • the net financial debt/EBITDA ratio for Q4 2020 and Q1 2021,
  • the obligation that the total share of EBITDA of the sureties (JSW KOKS and JZR) and JSW in the Group’s total EBITDA be no less than 85% in Q3 and Q4 2020 and in Q1 2021.

The funds invested in the FIZ asset portfolio are an important element of the “Cash Buffer”.

On 18 August 2020, JSW signed Annex no. 1 to the Financing Contract with the Consortium under which, among others, the required Cash Buffer was reduced to PLN 760.0 million (till 31 December 2021) and the allowed debt limits were increased. The Annex came into force upon satisfaction of the conditions precedent, i.e. on 12 October 2020. As at 31 December 2020 and in the periods subject to verification in accordance with the Financing Contract, as at the date of approval of these consolidated financial statements, the condition regarding maintaining the Cash Buffer was satisfied.

  g) Use of available banking tools in settlements of transactions with business partners.

  h)  Handling the procedure and signing framework agreements for servicing and discounting third party letters of credit for settlements of transactions executed with JSW’s business partners – the use of this solution with an early discounting option of letters of credit is a tool designed to support working capital and liquidity in the event of payment backlogs at the buyer’s end.

In connection with the Group’s measures taken with the aim of mitigating the liquidity risk, the Group considers the current level of liquidity risk to be acceptable.

The table below contains an analysis of the Group's financial liabilities by age group, distributed according to time to contractual maturity on the last day of the reporting period. The amounts presented in the table represent undiscounted contractual cash flows. The balances of trade liabilities and other financial liabilities maturing within 12 months are recognized at their carrying amounts, since the impact of discounting is not significant in terms of value.

  Under 1 year From 1
to 2 years
From 2
to 5 years
Above
5 years
TOTAL
AS AT 31 DECEMBER 2020
Loans and borrowings 355,6 463,2 1 261,4 84,8 2 165,0
Trade and other financial liabilities 1 213,6 2,7 3,7 24,5 1 244,5
Lease liabilities 232,1 201,1 108,8 358,2 900,2
Financial derivatives (gross-settled) 461,2 - - - 461,2
TOTAL 2 262,5 667,0 1 373,9 467,5 4 770,9
STAN NA 31 GRUDNIA 2019
Loans and borrowings 39,5 52,0 248,1 77,6 417,2
Trade and other financial liabilities 1 840,6 1,6 3,2 16,7 1 862,1
Lease liabilities 233,2 187,9 130,1 374,9 926,1
Financial derivatives (gross-settled) 708,4 - - - 708,4
TOTAL 2 821,7 241,5 381,4 469,2 3 913,8

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9.5.2. Capital risk management

Risk management

The overriding goal of the Group’s capital management process is to maintain creditworthiness and safe levels of capital ratios reflecting the correct ratio of debt to equity.

In order to maintain the optimum capital structure, the level of key debt/equity ratios are examined and analyzed regularly in reporting periods.

To maintain or adjust the capital structure, the Group may make a decision regarding dividend payments to Shareholders in a given year, which is described in the Prospectus and regarding changes in the principles and assumptions for obtaining dividend distributions from subsidiaries. Requirements imposed by financial institutions and banks financing Group entities may deviate from the general principles described in the Dividend Policy. As at the date of these consolidated financial statements, the Group is subject to restrictions on the distribution of dividends under the financing contract with the Consortium and the liquidity and preferential loan agreements granted by PFR. Details of those agreements are provided in Note 6.1.

In 2020 and in the previous year no changes were introduced to the assumptions, objectives, policies or processes in this respect.

The Group monitors the capital status using appropriate ratios:

   a) net financial debt / (equity + net financial debt)

Net financial debt as defined by the Group includes: debt liabilities (loans and borrowings and lease liabilities), less cash and cash equivalents (including the net assets of FIZ and deposits, but without cash and cash equivalents of the Mine Closure Fund). Equity is understood as equity attributable to shareholders of the Parent Company and non-controlling interest.

31.12.2020 31.12.2019
Net financial debt 547,5 (1 342,9)
Equity + net financial debt 7 846,6 7 508,6
NET FINANCIAL DEBT / (EQUITY + NET FINANCIAL DEBT) 7,0% (17,9%)

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The change in the financial debt/(equity + net financial debt) ratio in 2020 compared to the previous year is due to an increase in liabilities on account of the loans granted to JSW and JSW KOKS by PFR in the amount of PLN 1.2 billion. The negative value of the ratio in 2019 resulted from the negative net financial debt, i.e. the amount of cash being higher than debt.

   b) Net financial debt/EBITDA

The net financial debt/EBITDA ratio is calculated at the Group level, based on the regulations and definitions set out in the financing contract between the Parent Company and the Consortium. Pursuant to the requirements of the above financing contract, the Parent Company as a matter of priority strives to maintain its net financial debt/EBITDA ratio at no more than 3.3x. According to the provisions of financing contracts, JSW is obligated to present appropriate calculations of the ratios as at the end of each quarter. On 9 December 2020, the Consortium agreed to suspend the sanctions caused by the failure to meet the net financial debt/EBITDA covenant in Q4 2020 and in Q1 2021. According to JSW’s tentative estimates, as at the date of approval of these consolidated financial statements, the above ratio for 2020 will be satisfied.

10.1. Contingent items

Contingent assets

Due to judgments handed down by administrative courts regarding the possibility of taxing roof supports of underground mine workings, JSW submitted correction tax returns to townships for the years not covered by the tax proceedings. In this situation, in H2 2017 JSW ceased to activate in its receivables subsequent taxes paid to the townships by virtue of taxed mining roof supports as specified in the surveying decisions and started to recognize them as contingent receivables. The amount of the real estate tax paid but possibly recoverable is PLN 10.9 million.

Contingent liabilities

Under its provisioning policy, the Group recognizes provisions for mining damages in the consolidated financial statements which are the result of operating the black coal mines owned by JSW in the current value of expenditures necessary to satisfy the liability. The Group is not aware of a method for measuring future mining damage arising from past mining activity, which would allow for a reliable estimation of future rectification costs of such damages.

As a result of discussions conducted with the social side in the Voivodship Social Dialog Commission pertaining to, among others, guarantee of employment and matters associated with the public offering, on 5 May 2011, the JSW Management Board signed and the trade unions operating in the Parent Company initialed a memorandum of agreement with the Management Board ("Memorandum of Agreement"). In the Memorandum of Agreement, the parties agreed among others that by principle the employment guarantee period for JSW employees is 10 years from the date the JSW's shares are made public. If JSW fails to observe the employment guarantee the Parent Company will be obligated to pay a compensation in the amount corresponding to the product of the average monthly salary in JSW in the year preceding the termination of the employment contract and the number of months remaining till the elapse of the employment guarantee (in the case of administration employees, no more than 60 times the average salary in the preceding year). The provisions relating to the employment guarantee came into force on the date the shares of JSW were made public on the Warsaw Stock Exchange.

Moreover, on 18 May 2011, Kombinat Koksochemiczny Zabrze S.A. (“KK Zabrze”) and JSW concluded a memorandum of understanding with the trade unions operating in KK Zabrze regarding the social guarantee package for KK Zabrze employees; its content with respect to employment guarantees is the same as the content of the Memorandum of Agreement agreed upon in JSW. The employment guarantee period for KK Zabrze employees is 10 years from the effective date of the social package. The Parent Company appeared in the capacity of guarantor of the liabilities of KK Zabrze.

On 19 October 2020, JSW received a notice of termination of a surety in the amount of PLN 0.3 million for the liabilities of Wojewódzki Szpital Specjalistyczny Nr 2 specialist hospital in Jastrzębie-Zdrój for the loan contracted from Bank Ochrony Środowiska S.A.

Pursuant to Article 5 of the Polish Act on Payment Terms in Commercial Transactions of 8 March 2013, the Group calculates, not less frequently than as at the end of each quarter, hypothetical interest on liabilities for which the contractually defined payment term is longer than 30 days. The amount of calculated interest is then adjusted to the level of forecast amounts owed by the Group to counterparties on account of the rights due to them. The Group charges 50% of the maximum amount of interest due to hypothetical counterparties to its financial result; this amount corresponds to the current level of the risk of counterparties raising a claim to pay interest for the term of payment extended over and above the one prescribed in the Act on payment terms in commercial transactions. Hypothetical interest on liabilities for 2020 was PLN 38.6 million. The remaining part of the expected risk of the Group being charged any hypothetical late interest is recognized as contingent liabilities. Interest exceed their statute of limitations after 3 years of the date of payment of the invoice, for which interest was due. In 2020, JSW received interest notes for past due payments (for years 2017-2020) in the total amount of PLN 13.3 million. The total amount of the contingent liability at the end of 2020 pertaining to the years 2018, 2019 and 2020 stood at PLN 49.8 million.

Information on material court, administrative and arbitration proceedings

In 2020, the Group companies took part in court and administrative proceedings related to their activities. The court proceedings that may exert material impact on the Group’s financial standing and profitability are presented in Section 5.6. Management Board Report on the activity of Jastrzębska Spółka Węglowa S.A. and the Jastrzębska Spółka Węglowa S.A. Group for the financial year ended 31 December 2020.

10.2. Future contractual liabilities

Future contractual liabilities incurred on the dates ending the reporting periods that are not included in the consolidated statement of financial position include:

  31.12.2020 31.12.2019
Contractual liabilities incurred to purchase property, plant and equipment and intangible assets 576,0 799,3
Other 17,3 52,5
TOTAL 593,3 851,8

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10.3. Business combinations, acquisitions and sales of shares

In 2020, there were no business combinations, acquisitions or sales of shares, or transactions resulting in changes in non-controlling interests

Business combinations, acquisitions and sales of shares in 2019

Acquisition of PRZEDSIĘBIORSTWO BUDOWY SZYBÓW S.A.

On 20 May 2019, a dispositive agreement was signed between PRIMETECH S.A. in Katowice and its subsidiary and JSW on the sale of 4,430,476 shares representing 95.01% in the share capital of Przedsiębiorstwo Budowy Szybów S.A. in Tarnowskie Góry. There were numerous conditions precedent that had to be satisfied prior the execution of the Agreement (the Buyer obtaining consent of the Office for Competition and Consumer Protection (UOKiK) to carry out the purchase of a stake in PBSz, obtaining a favorable decision of JSW’s Supervisory Board and Shareholder Meeting, reaching an agreement by the parties, acting in good faith, on certain technical conditions for the settlement of the transaction and obtaining statements issued by third parties with substantially agreed wording).

As a result of negotiations between the parties, the ultimate transaction price was set at PLN 204.0 million, of which PLN 199.0 million was paid on the closing date of the transaction and PLN 5.0 million was retained to guarantee the Seller’s warranties and was to be settled no later than three months after the closing date.

Following the post-acquisition review of PBSz conducted by JSW, the PBSz’s 2018 EBITDA was adjusted, which had not achieved the EBITDA assumed by the Parties in the agreement, which according to the SPA was the condition for paying out the retained amount. The post-acquisition audit also demonstrated that the Sellers might have breached the representations they made. Despite the meetings and correspondence in this matter, the Sellers failed to explain these concerns. In connection with the above, JSW believes that the retained amount should not be paid out, about which it informed the Seller. An opposing view on the matter is expressed by the company Famur S.A. which does not concur with the position of JSW regarding EBITDA of PBSz in 2018, stating that EBITDA resulted from the Company’s 2018 financial statements approved by the auditor. On 16 December 2020, JSW and Famur S.A. entered into an agreement pursuant to which Famur decided to waive the receivables under the retained amount, due from JSW, in full. The waiver ends the dispute between JSW and PRIMETECH. The above waiver was a result of the intention to launch a partnership cooperation between Famur, its subsidiaries and JSW.

In its consolidated financial statements for 2019, the JSW Group recognized the PBSz-related balance sheet items at fair value in accordance with the requirements of IFRS 3; as a result, goodwill of PLN 57.0 million has been recognized, which is a difference between the fair value of the purchased net assets of PLN 142.0 million and their purchase price of PLN 199.0 million.

The tables below present the purchase price allocation of PBSz S.A. at fair values:

Date of acquisition
of Przedsiębiorstwo Budowy Szybów S.A.

Property, plant and equipment

72,0

Intangible assets

36,1

Investment property

3,5

Right-of-use asset

44,3

Other non-current assets

4,8

Inventories

3,5

Trade and other receivables

68,8

Cash and cash equivalents

28,1

TOTAL ASSETS

261,1

Deferred tax liabilities

(17,0)

Current income tax liabilities

(0,1)

Employee benefit liabilities

(12,2)

Lease liabilities

(25,2)

Provisions

(0,6)

Trade and other liabilities

(56,5)

TOTAL LIABILITIES

(111,6)

TOTAL NET ASSETS

149,5

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PURCHASE PRICE ADJUSTMENT

Purchase price (after adjustment for the retained amount)

199,0

Non-controlling interests (4.99%)

7,5

Fair value of acquired assets and liabilities (net assets)

(149,5)

GOODWILL

57,0

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The table below presents the outflows of cash for the purchase of PBSz:

2019

Outflow of cash for the purchase (adjusted for the retained amount)

(199,0)

Cash obtained in the acquisition

28,1

GOODWILL

(170,9)

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Changes in non-controlling interest in 2019

  • Subscription to shares in the increased capital of JZR

On 16 July 2019, the Extraordinary Shareholder Meeting of JZR adopted a resolution to increase the JZR’s share capital. After the capital increase, the JSW’s stake in the JZR’s share capital rose to 62.09%, while the State Treasury’s stake went down to 37.91%.

Change in non-controlling interest as at 31 December 2019:

JZR*

PBSz

Total

Non-controlling interest before the transaction

308,9

-

308,9

Change in the balance of non-controlling interest

(3,2)

7,5

4,3

Difference amount captured in retained earnings

3,2

-

3,2

* Prezentowane razem z jednostką zależną JZR Dźwigi

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10.5. Auditor’s fee

The audit firm authorized to audit the consolidated financial statements of the Jastrzębska Spółka Węglowa S.A. Group for the financial year ended 31 December 2020 is PricewaterhouseCoopers Polska spółka z ograniczoną odpowiedzialnością Audyt sp.k. (“PWC”). The audit firm was selected on 29 November 2017 by the JSW Supervisory Board.

The agreement between JSW and PricewaterhouseCoopers Polska Spółka z ograniczoną odpowiedzialnością Audyt Sp. k. was signed on 13 March 2018 and pertains to the audit of JSW’s financial statements for 2018-2020, the consolidated financial statements of the Jastrzębska Spółka Węglowa S.A. Group 2018-2020, review of JSW’s interim financial statements for H1 2018, 2019 and 2020 and the interim consolidated financial statements of the Jastrzębska Spółka Węglowa S.A. Group for H1 2018, 2019 and 2020.

The audit of the financial statements of key subsidiaries, i.e. JSW KOKS, JZR and PBSz for the financial year ended 31 December 2020 was carried out under separate contracts signed with PricewaterhouseCoopers Polska spółka z ograniczoną odpowiedzialnością Audyt sp.k.

Total fees of the statutory auditor, which include the fee for PWC and other audit firms auditing the financial statements of the subsidiaries are presented in the table below:

  2020 (PLN thousand) 2019
(PLN thousand)
Statutory Auditor’s fee in respect of the Parent Company 408,3 302,3
Mandatory audit 226,3 226,3
Review of the interim financial statements 76,0 76,0
Other services * 106,0 -
Statutory Auditor’s fee in respect of the subsidiaries 449,8 515,7
Mandatory audit 449,8 447,3
Other services ** - 68,4
TOTAL 858,1 818,0
* The service of preparing reports on reviews of financial covenants, evaluation of the report on compensation of the Management Board and Supervisory Board, review of compliance with the ESEF regulation,
** Additional procedures associated with the addition of a new company (PBSz) to the Group in 2019

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10.6. Subsequent events

According to our knowledge, there were no material events after 31 December 2020, i.e. after the end of the reporting period, other than those described below, that could have a significant effect on the evaluation of economic position, financial position and performance but had not been recognized in the consolidated financial statements for the financial year ended 31 December 2020.

  •  On 18 January 2021, the JSW Supervisory Board adopted a resolution to dismiss Włodzimierz Hereźniak from the position of the President of the Management Board. Until the new President is appointed, the president’s duties will be discharged by Mr. Artur Dyczko, who will also perform his current duties of the Vice-President of the JSW Management Board for Technical and Operational Matters. The JSW Supervisory Board entrusted Radosław Załoziński, Vice-President of the Management Board for Financial Matters, with the duties of the Vice-President of the Management Board for Sales.
  •  On 9 February 2021, the JSW Supervisory Board adopted a resolution appointing Ms. Barbara Piontek to the position of President of the Management Board for the 10th term of office, effective as of 1 March 2021.

Representations of the management board of JASTRZĘBSKA SPÓŁKA WĘGLOWA S.A.

On the accuracy of the preparation process of the consolidated financial statements

The JSW Management Board hereby represents that, according to its best knowledge, these annual consolidated financial statements and the comparative data have been prepared in compliance with the applicable accounting principles and they are a true, accurate and clear presentation of the economic position, financial position and the performance of the Jastrzębska Spółka Węglowa S.A. Group.

The consolidated financial statements of the Jastrzębska Spółka Węglowa S.A. Group for the financial year ended 31 December 2020 were prepared and published in accordance with the Commission Delegated Regulation 2019/815 of 17 December 2018 supplementing Directive 2004/109/EC of the European Parliament and of the Council with regard to regulatory technical standards on the specification of a single electronic reporting format.

The Management Board report on the activity of Jastrzębska Spółka Węglowa S.A. and the Jastrzębska Spółka Węglowa S.A. Group for the financial year ended 31 December 2020 contains a true presentation of developments, achievements and the position of the Jastrzębska Spółka Węglowa S.A. Group, including a description of key threats and risks.