Letter from the president

Letter from Jarosław Zagórowski, CEO of Jastrzębska Spółka Węglowa SA

 

Dear Stakeholders,

The ability to cope in tough market conditions is a test of operational effectiveness for every business organization. The past year was a period of such demanding challenges for our Capital Group. Operating under the pressure exerted by the not so readily discernible changes taking place in our environment stemming from the crisis in the European Union, the Polish economy’s slowdown and pressure exerted by downward coal and coke price trends,we generated a satisfactory result. I am profoundly convinced that in 2012 we fully utilized our employees’ knowledge and skills, our financial and technical means and the time available to buildthe company’s potential steadily and provide for its long-term growth. Having regard for the difficult position of the steel sector in Europe, the company’s commercial departments actively looked for new customers. As a result of the work and commitment they demonstrated, we acquired new coke customers in unconventional areas, including Brazil.

Thanks to its professionally prepared and implemented operating strategy the company carried out its various tasks according to plan focused on achieving a higher level of production than in 2011. The realistic and precise investment program afforded the company safety in conducting measures to support growth while simultaneously utilizing the company’s potential to the maximum degree possible. During the course of last year the Company concentrated on maintaining a high level of production and procuring new seams to be mined in the long-term. At the same time, our corporate linkswere strengthened to achieve high operational effectiveness throughout the Capital Group.

Our employees are our organization’s strong suit; that is why we constantly invest in their development and enhance governance processes. We see reserves that remain dormant in this area and we are looking for the best solutions to enhance our performance. In 2012 we undertook measures to enhance work productivity in relationship to payroll expenses by tapping into tried and true solutions such as bonus systems. These solutions contributed to noticeable improvement in work efficiency and productivity, which as a natural consequence exerted an influence on the planned process of pursuing the company’s strategy. Measures such as rationalizing and cutting some fixed expenses, which are a major burden for the Polish mining sector,will also be conducted resolutely in 2013.

Last year the Group increased capital expenditures, in particular to procure coal production from new seams and to raise the level of safety for miners working below the surface. Capital expenditures were nearly PLN 1 816.7 million, yielding 22.9% growth compared to 2011 when they were PLN 1 478.6 million.The key events in 2012 concerning the Group’s long-term development and maintaining the pace of production included obtaining a concession for the Pawłowice 1 deposit,extending the period of mining to 31 December 2051;opening the Bzie-Dębina 2 –Zachód and the Bzie–Dębina 1 – Zachóddeposits with access to approximately 100 million tons of recoverable coal reservesas well as an application for a new concession to extract coal and methane until 2030 at KWK Krupiński with access to 48.8 million tons of recoverable coal reserves. As a consequence of steadfastly pursuing the growth strategy in 2012,recoverable reserves grew by 74.6 million tons. The current status of the resource base in the company’s mines shows 567.6 million tons of recoverable coal reserves.

In terms of key investmentsin technology and work safety the purchase of an automated longwall shearer for KWK Pniówek must be mentioned. This shearer makes it possible to double production on longwalls with similar parameters. It is outfitted with a bi-channel communications system that registers every event on a longwall and the relevant reaction of plant and machinery. In 2012 the Group also commissioned one of the most modern coking gas treatment installations in Europein WZK VICTORIA SA. In turn, the decision was made in our energy segment to build a 71 MWe power generation unit in the Przyjaźń Coke Plant.

JSW SA, as a company belonging to the elite WIG20 clubwhose members are the largest entities on the Warsaw Stock Exchange, is constantly endeavoring to be a leader in model relations with employees and stakeholders. As a result of taking a responsible approach an agreement was reached for a lasting and rational mechanism to set employee wages taking into consideration employee expectations and current inflation. Last year the company adopted its Corporate Social Responsibility strategy for 2013 – 2015,specifying its priorities in this area. Modern governance systems were implemented having the current and strategic directions of growth throughout the Group in mind. A competence development system and a management by objective system have been implemented for the management. A motivational and performance bonus system was successfully implemented for employees. As this solution has been construed in a transparent manner and since how it func-tions is easy to understand, it has been well received by employees who perceive the strong link between the effectiveness of their activity and the level of their wages.

The company unwaveringly treats the safety of all employees in the workplace as a priority. In addition to the planned investments in new technologies to improve safety, constant efforts are being expended to stimulate employee awareness of their accountability for work safety in the positions they hold and in the positions held by others. One positive outcome of the company’s safety policy is the 24.9% decline in the number of work accidents in 2012 compared to 2011 among our own employees and contractors providing services to JSW SA. Our responsible approach to attaining CSR-related objectives has garnered market recognition: for the second time JSW SA joined the group of companies listed in the RESPECT Index on the Warsaw Stock Exchange.

2013 is a very difficult period in the minds of managers, especially the managers of mining companies;it will be a time of continuing to grapple with crisis in the European Union economy, strong price pressure exerted by the domestic power sector and the steel sector with ever higher competition being posed by coal imports. This will also be a period of ongoing decisive changes to cut costs effectively, to use machinery better and to improve technology. The JSW SA Management Board, the managers and employees have proven many times thatthey cope excellently even in extraordinarily tough macroeconomic conditions, thereby effectively building the value of the company. Therefore I have no doubts that we will be successful in achieving our plans in 2013,providing satisfaction to our employees and shareholders.

Jarosław Zagórowski
CEO
Jastrzębska Spółka Węglowa SA