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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 6.0 million.
Under its provisioning policy, the Group recognizes provisions for mining damages in the financial statements which are the result of operating the black coal mines owned by the Group 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 Understanding, 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, 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 Understanding agreed upon in JSW. The Parent Company appeared in the capacity of guarantor of the liabilities of KK Zabrze.
On 30 September 2016, JSW entered into a dispositive agreement with Agencja Rozwoju Przemysłu S.A. and Towarzystwo Finansowe “Silesia” Sp. z o.o. regarding the sale of 92.84% of shares of WZK Victoria for the total sale price of PLN 350.0 million. The whole amount for the sale of shares in WZK Victoria was paid in Q3 2016. The sales price is subject to reduction because of price adjustment based on the value of accumulated EBITDA of WZK Victoria for 2016-2019. The payment of a possible price adjustment will take place as a bullet payment within 3 months after the Shareholder Meeting of WZK VICTORIA approves the audited financial statements for 2019. EBITDA will be calculated by a renowned independent financial advisor and the calculations will be based on approved financial statements of WZK Victoria for 2016-2019, audited by a renowned independent auditor of the company. The calculation prepared in the above manner will be a binding arrangement for the parties and the basis for defining a price adjustment. If a price adjustment is not defined as provided for above, regardless of the reason, by 31 December 2020, the amount of price adjustment will be defined by a court.
As at 31 December 2018, the following sureties remained active in the Group:
As at 31 December 2018, there were the following active bank guarantees in the Group:
In connection with the signing of the agreement of 31 July 2014 to purchase an organized part of a business in the form of the KWK Knurów-Szczygłowice mine (“ZORG”) from Kompania Węglowa S.A. (“KW S.A.”), JSW has joint and several and subsidiary liability for the liabilities of Kompania Węglowa S.A. arising from or connected with running ZORG up to the acquisition date (inclusive):
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 2018 was PLN 29.0 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 2018, JSW received interest notes for past due payments (for years 2015-2018) in the total amount of PLN 6.9 million. The total amount of the contingent liability at the end of 2018 pertaining to the years 2016, 2017 and 2018 stood at PLN 57.5 million.
On 30 January 2018, JSW submitted a conditional binding proposal for the acquisition of 4,430,476 shares representing a 95.01% stake in the share capital of Przedsiębiorstwo Budowy Szybów S.A. with its registered office in Tarnowskie Góry (“PBSz”). PBSz’s line of business is the provision of specialized mining services: vertical mine workings (mainly shafts and prospecting shafts), horizontal mine workings and tunnels, construction services, architectural services, engineering services, rental of machinery and equipment without operators, installation services, repairs and upkeep of machinery for the mining, quarrying and construction industries. The acquisition, if consummated, will fit into the objectives of the Group’s Strategy. The execution of the Agreement is contingent on the fulfillment of a number of conditions precedent.
On 21 December 2018, representatives of JSW (“the Buyer”) and representatives of PBSZ 1 Sp. z o.o. in Katowice and PRIMETECH S.A. in Katowice (“Sellers”) signed a conditional agreement obligating them to sell the above shares in PBSz.
As a result of negotiations held between the parties to the agreement, the ultimate transaction settlement price has been set at PLN 204.0 million, of which PLN 199.0 million will be paid on the closing date of the transaction and PLN 5.0 million will be retained to guarantee the Seller’s warranties and will be settled no later than three months after the closing date. The full price will be used to repay loan liabilities in order to release collateral on PBSz’s shares and assets.
The conditional agreement takes into account the basic boundary conditions set forth in the term sheet of the purchase transaction (“Term Sheet”). Also, whether or not the final purchase agreement is executed at the closing of the transaction will depend on the Buyer’s obtaining the prior 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.
After the last day of the reporting period, i.e. on 15 January 2019, the decision of 14 January 2019 of the President of the Office of Competition and Consumer Protection (“UOKiK”) was received, in which, after having conducted an antitrust proceeding commenced in response to JSW’s application, the President of UOKiK gave concentration consent for JSW to acquire control over PBSz.
In 2018, neither the Parent Company nor other Group companies were parties to pending proceedings before a court or arbitration authority or a public administration body concerning accounts payable or accounts receivable with individual or aggregated value exceeding 10% of JSW’s equity. The Group takes part in court and administrative proceedings related to its ordinary business.
The court proceedings that may exert a material impact on the Group’s financial standing are presented in Section 4.7. 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 2018.