Financial instruments

Information on financial instruments with respect to eliminating the price changes risk, credit risk, risk of significant cash flow disruptions and risk of loss of financial liquidity

Credit risk is identified mainly with respect to trade receivables associated with the reliability of buyers. Internal changes in the Group’s trading policy with respect to the sale of coke, causing shifts in sales from related entities (coking plants and Polski Koks S.A.) to JSW S.A. remained without a significant impact on the Group’s credit risk. The ArcelorMittal Group and companies controlled by the State Treasury continue to be the dominant buyers, their receivables accounting for 36.2% and 12.4%, respectively, of total trade receivables as at 31 December 2012. The risk of overdue receivables is mitigated by: insuring part of trade receivables in insurance companies, collateralizing liabilities with blank promissory notes, providing guarantees granted by entities with an established market position, assigning receivables or letters of credit. In addition, in justified cases, sales are executed after the counterparty makes a prepayment.

On an ongoing basis, the Group monitors risks associated with cash flow disruptions and risk of loss of liquidity. In order to minimize such risks, the Group maintains funds at a safe level enabling it to service its current liabilities. Moreover, the Group has access to credit facilities in the form of current account overdrafts to support its liquidity management needs. The Group invests uncommitted cash in banks with an established market position.

As part of its foreign exchange risk management, in 2012 the Group used foreign exchange forward contracts and multi-currency loans. The purpose of such transactions was to secure the Group’s cash flows against foreign exchange risk emerging in the course of commercial activity.

Financial risk management objectives and methods in JSW S.A.

In 2012, each Capital Group company which was exposed to foreign exchange risk conducted its own policy in this area. In December 2012, the Group completed work related to unification of its foreign exchange risk management principles and procedures. The result was the formulation of the JSW Capital Group Foreign Exchange Risk Management Policy which entered into force on 1 January 2013. The objective of the Policy is, among others, to define the rules for foreign exchange risk management, in particular the rules for identification, quantification, monitoring and reporting foreign exchange risk, which in turn should lead to limiting the adverse effect of foreign exchange risk factors on cash flows and the Group’s economic result.

In the Group, derivatives are carried at fair value. For record-keeping purposes, the Group uses bank valuations. The Group does not apply hedge accounting.