Risks and opportunities

Succession and hiring for key jobs

Risk that the lack of an effective system for planning human resources and succession for key personnel may pose a threat to the Company's business model and key objectives.

The Company's ability to operate effectively may deteriorate if the Company unexpectedly loses people performing key functions within the organisation and fails to replace them. If the Company's competitors offer better employment terms, the Company might lose some of its management staff. The lack of an effective system for planning human resources and succession for key personnel may cause the following: impact on the consolidated statement of profit and loss on an annual basis, depending on the scale of the problem, disruptions in the Company's activities and fulfilment of its obligations toward counterparties that require atypical actions, reduced ability to achieve strategic or operational objectives, potential loss of sales markets that would be difficult to make up within a year, necessity to recognise provisions for legal and regulatory liabilities. The potential loss of a key manager as a result of a failing to offer employment terms that are more attractive than those offered by competitors.

Relations with trade unions and collective disputes

Risk that actions or decisions taken by management or trade union representatives lead to a breakdown of mutual relations, which can cause a conflict and in consequence threaten the Company's operational continuity or implementation of its strategy.

The most severe form of trade unions' protests are occupation actions and strikes, which may be undertaken due to: lower wages caused by the Company's deteriorating financial situation, a sharp increase in unemployment in the Company's environment, limitation of vested rights (especially in the field of employee entitlements), liquidation, restructuring, late wage payments caused by lack of financial liquidity, no wage increases, solidarity strikes to support strikers at other companies in the region, breaking the social dialogue relationship. Risk of disagreement with trade unions on key matters pertaining to employment terms and wages, including adjustment of wages to market conditions and the Company's financial situation, which may have a negative impact on JSW's financial results. The Company's failure to maintain an appropriate social dialogue may have a material adverse impact on its activities. Trade unions' demands may lead to disputes and in consequence to strikes or other events. Disputes and protest campaigns organised by the trade unions present at the Company have an impact on changes in JSW S.A.'s policies or procedures, which in turn could have a material negative impact on JSW S.A.'s perspectives, results and financial standing, and in consequence on how the Company is perceived by economic partners, including banks in particular.

Actions taken to minimise the risk: appointment of a Supporting Steering Committee at JSW, composed of JSW Management Board representatives and trade union representatives. The Supporting Steering Committee's tasks include providing support for the Ministry's Mining Steering Committee. It focuses on discussing strategic activities involving JSW S.A. Conclusions from the committee's work are not binding, rather constituting opinions or suggestions. In connection with an extraordinary situation that JSW S.A. found itself due to the pronouncement of a state of epidemic in Poland related to coronavirus (COVID-19) and the extenuating circumstances at the Silesian mines resulting from a large number of coronavirus cases and a decision by the Ministry of State Assets to halt operations at JSW S.A.'s mines, the Management Board along with Representative Trade Unions at JSW S.A. executed an agreement regarding rules for remunerating employees for being ready to work and employees performing extraordinary work for the duration of the COVID-19 pandemic, i.e. during mine stoppage and stand-by days at JSW S.A.'s mines.

Work-related accidents and other hazards

Risk of work-related accidents that threaten the life, health and safety of employees, cause property damage or environmental pollution, damage the Company's reputation or result in other negative consequences.

This risk will almost certainly materialise within the next quarter as a technical, organisational or human factor and as a result of an unforeseen event resulting from the technical and natural hazards related to mining operations.

Actions taken to minimise the risk: on-going periodic workplace health and safety training and job-specific instructions. Periodic analysis of the level of safety at the Company's sites along with preventive conclusions, appointment of an occupational health and safety committee at the Company's sites and on-going control of work conditions by occupational health and safety personnel and the on-site social labour inspector, preventive actions after workplace accidents. Employees are familiarised with manuals, technologies, technical projects, etc. Job-specific occupational health and safety audits are performed for jobs and work locations that feature the highest exposure to hazards. Preventive measures are taken that result from the circumstances and causes of accidents at work.

Employee availability, allocation and development of human resources and subcontractor availability

Risk associated with limited recruitment options, inappropriate selection of employees, inappropriate allocation and development of human resources, employee departures and the unavailability of subcontractors.

In order to secure qualified personnel for the future, the Company minimises risk associated with limited recruitment options, inappropriate selection of employees, inappropriate allocation and development of human resources, employee departures and the unavailability of subcontractors.

PR, media image, brand and reputation

Risk associated with an unfavourable portrayal of the Company (image and brand) among various stakeholder groups due to negative media messaging, black PR, data leaks, conflicts of interest, environmental aspects, crisis situations, social unrest, collective disasters, breaches of safety rules and other events having an adverse impact on the Company's image.

The large number of Covid-19 cases among miners led to a change in how the mines worked, a temporary limit on production at some of the mines and, most importantly, a negative perception of the miners as a professional group facing hostility and constituting a danger to the society. At the same time, miners participated in social campaigns that were well perceived - plasma donations and support for healthcare professionals and local governments in the fight against COVID-19. Internal documents, audit results continue to be leaked to the media, which strengthens the society's negative view of how JSW Group operates (JSW Innowacje, the case of the former audit office head), which is straining the Company's image. A lack of credible information from the Company or response to unfavourable coverage and lack of image and lobbying activities increases the likelihood for materialisation of risk associated with an unfavourable view of the Company by investors, authorities, local communities, Polish general public and own employees. The dissemination of untrue or unfavourable information pertaining to the Company may have a temporary adverse impact on JSW's image as a credible and fair employer that cares about the safety of its employees, a company that is transparent, consistently implementing its development strategy, introducing modern technologies and being an essential element in modern low-emission economy. Activities undertaken by JSW's Management Board must be supported with appropriate communication tailored to specific stakeholder groups - stock market analysts, journalists, trade unions, employees, bondholders, local authorities and government representatives. JSW is feeling the effects of the mining sector's negative perception in the context of environmental pollution, impact on the health of residents and aversion, mainly on the part of the financial sector, to working with coal producers. JSW S.A.'s negative perception through the prism of prosecutorial charges for employees of JSW and subsidiaries. Scandals concerning improper management, molestation and harassment at JSW Group. Mining disasters/accidents may fuel the Company's negative perception as employer in an exceptionally dangerous and unpredictable industry. Leaks of internal documents (Management Board resolutions, agreements, inspection and audit results). Negative reaction by residents of mining municipalities to the more frequent rock mass tremors related to the confluence of mining operations and the geological structure of the deposits. Protests and accusations by competitors interested in the same coal deposits. Personal conflicts within the company attract news media attention, which can have a materially negative impact on the firm's external image. Employee unrest and concern for workplace safety during the pandemic.

Actions taken to minimise the risk: The PR unit, which responds to questions from reporters and, most importantly, initiates topics that strengthen the firm's positive image as a company caring for the safety of its employees, engaging in the problems of local communities, having a clear growth vision and adapting innovative, eco-friendly solutions. As part of internal and external communication, the PR unit implements an active information policy that is aimed at building JSW's positive image and organises contacts between the Management Board and the media. Daily media monitoring makes it possible to control information that is published about the company in mass media and therefore to take pre-emptive action and respond to negative messaging that influences the general public. The Company is engaged in active communications with its surroundings, sending out press releases to journalists, responding to questions from the media, denying untrue information and presenting the Management Board's view on matters that require its response and comment, as well as publishing informational and educational videos. Close collaboration has been established with the Ministry of State Assets in order to streamline the information policy for the mining sector and improve its image. Internal legal acts were put in place to address levels of access to information and ways of publishing information externally. Control procedures were implemented, i.e. ISO standards - information security. Internal communication: communication within the firm includes the company newspaper along with ad hoc editions, flyers, posters and letters to the crew in crisis situations. Internal radio stations are another channel for rapidly distributing Management Board announcements and important messages. The PR unit also runs the employee website where employees have access to all essential documents, information on company events, wage information, the company newspaper and the Foreman's Section. In crisis situations, the print run is increased for newspapers that the mines subscribe to and where sponsored content is published. A newsletter for employees with access to a computer was launched in order to make communications more effective. The PR unit also has an email for employee purposes [email protected] Employees must have access to first-hand information so that they do not have to look for it elsewhere. Employee awareness should also be built, and the rationality of decisions taken by the Management Board should be explained to the employees. Employees create the firm's external image which is why internal communication is so crucial. A positive media campaign runs continuously with the intention to solidify the firm's reputation as a responsible employer and good neighbour. External communication - carried out by the Communication and PR unit - communication between the firm and its external environment using mass media, website, which features a COVID section, and social media: Twitter, Instagram, LinkedIn, company channel on YouTube, with plenty of videos showing the activities that are being undertaken in the fight against the virus and activities addressed to local communities, supporting hospitals and the healthcare system. Communication is based on the spokesperson's direct contacts with reporters, interviews with management board members, press briefings and company publications. To protect the good reputation of its employees, JSW together with JSW Foundation organised a social campaign entitled STOP THE HATE Do not slander the miners, which received lots of attention in social and traditional media and was endorsed by a host of celebrities and artists. Due to the negative perception of the coal sector, JSW is planning to change its name so as to not be associated with thermal coal suppliers. Traditional and social media monitoring - selection and comprehensive analysis of media information concerning JSW, competitors and industry. The communication and PR unit also has a dedicated tool for monitoring online content. The tool makes it possible to respond to negative content online much more quickly and effectively. The communication and PR unit has increased activity on the firm's website and in social media - YouTube, Instagram, Twitter. This includes large volumes of videos showing JSW's engagement in the problems of local communities, financial support for regional institutions, educational sites and hospitals. Illustrative materials showing the work of JSW’s mines in the face of the epidemic threat and the precautions taken are also being developed. Internal communication has been ramped up - employees are being informed about activities undertaken by JSW's crisis team - internal radio stations, company newspaper (ad hoc editions, posters). The PR unit also responds to questions from reporters on an on-going basis, organises interviews with Management Board members, sends out press releases and places sponsored content in the media.

Corporte social responsibility

Risk that the Company will be negatively perceived by the general public due to improper concern for the social / public good.

JSW Group's economic activities may lead to disputes with local communities in areas where the Group operates or intends to operate. These situations may in turn lead to protests and third-party claims. The inability to amicably resolve issues related to local communities may have a material adverse impact on the Company's/Group's activities, financial situation and results in the future.

Risk that the Company would not be perceived by investors as transparent and trustworthy.

Disclosure of inside information before it is published. Unreliable disclosure of information by the Company: failure to identify circumstances as creating inside information, or deliberate failure to publish a report; late publication of current and periodic reports; unreliable preparation of a report (lack of all necessary information enabling investors to assess the materiality of information - its impact on the company's share price); publication of reports in breach of promptness. Unequal treatment of the Company's shareholders as regards access to material information. The possibility of a proceeding being instigated by capital market regulators, which could result in penalties being imposed on the Company and its Management Board, and in extreme cases the suspension of listing or removal from the exchange. This situation may lead to a substantial decline in share price and a loss of shareholders' trust.

Breaches of ethics standards

Risk that the Company's employees will act in breach of corporate ethics standards or that the defining, implementing and enforcing these standards will not be effective and consistent with the Company's objectives.

Awareness of personal liability, reporting system, document workflow standards and sanctions for failure to discharge duties reduce the risk of unethical conduct.

Fraud and other abuses

Risk that employees, in breach of ethics standards, will commit a crime or offence consisting of acting with direct or possible intent, leading to the appropriation of someone else's property or entrusted property, use of entrusted money, materials or equipment contrary to the intended purpose and/or for the wrong purpose, most often for personal material or non-material gain.

Due to the fact that the Group is a very large organisation, highly varied in terms of values and types of assets, executed transactions and number of employees, there is a risk of dishonest actions by employees, e.g.: fraud, document forgery, which could generate financial losses or reputation damage for the Group.

Employe actions resulting in legal breaches by the company

There is a risk that as a result of actions, omissions or breaches by employees / subcontractors on behalf of the Company or its subsidiaries a legal breach will take place, either in good or bad faith.

The profile and nature of the business and its size/scope necessitate contacts and transactions with a large number of counterparties and therefore the highest diligence in documenting these transactions for accounting purposes, diligent and reliable verification of invoice settlements in substantive terms at the execution stage. There is a risk that as a result of actions, omissions or breaches by employees / subcontractors on behalf of the Company or its subsidiaries a legal breach will take place, either in good or bad faith.

Actions taken to minimise the risk: verification of existing internal regulations and sensitising employees to the ongoing reporting of noticed irregularities in the functioning of the management system, updating the scopes of tasks and coherent functioning of the management system, as well as compliance with internal regulations facilitate competent conduct by employees, consistent with the Company's objectives and strategy. Monitoring and analysing potential events through: legal rules and protections included in contracts with external entities, internal legal rules included in resolutions adopted by the Management Board of Jastrzębska Spółka Węglowa S.A. (Regulations, Instructions, Procedures, Policies, Methodologies, Codes), regulations issued by the President of JSW S.A.'s Management Board, rules included in the Integrated Management System.

Breaches of personal data protection rules

Risk of breach of security leading to accidental or unlawful destruction, loss, modification, unauthorised disclosure or unauthorised access to personal data sent, stored or otherwise processed: employees, persons under civil law contracts, customers, contractors, JSW Group employees, employees of external companies working for the Company and other persons whose personal data is processed by the Company in connection with the performance of its activities.

There is a risk of loss, destruction, damage, modification or accidental disclosure of personal data to unauthorised persons. There is also a risk of breaching personal data protection resulting from ignorance or intentional acts by employees.

Actions taken to minimise the risk: a breach of personal data protection rules may have grave financial, operational and strategic consequences and might make negative effects on image highly likely. JSW S.A. is the administrator of its employees' personal data. The Company also processes the personal data of customers, counterparties and employees of external service providers. Despite a high level of security of the data being processed in IT systems and elsewhere, there is a risk related to the loss, destruction, damage, modification or accidental disclosure of personal data to unauthorised persons, disclosure of data by entities that were entrusted with the personal data for processing purposes. There is also a risk associated with breaches of security of personal data resulting from a lack of awareness or intentional actions by employees. Preventing the loss and unauthorised disclosure of personal data by implementing a Security Policy - Rules for Personal Data Protection at JSW Group, training to raise awareness of security in processing personal data for employees, continuous analysis of organisational safeguards.

Cyberattack on group's information resources

Risk that information security will be compromised by hacking or social engineering attacks by organised groups

Despite the high level of security applied to the processed data in IT systems and beyond, there is a risk of a cyberattack on information resources. The effect may disrupt the supply of goods and services in parts of the value chain, requiring non-standard actions, financial effects, limited impact on the ability to achieve strategic or operational objectives. There is a risk of a cyberattack on information resources.

Division of competemces and effectiveness of delegating responsibilities

Risk that an unclear division of competences and limitations in delegating responsibilities and duties will lead employees to take on unacceptable risk from the viewpoint of the Company's interests or that excessive restrictions will lower the effectiveness of decision-making processes.

Jastrzębska Spółka Węglowa is an organisation in which the tasks and responsibilities of specific units and employees are defined in the regulations of organisational units. However, this does not reduce the risk that an imprecise division of competences between the various cells materialises in a crisis situation or under atypical circumstances, which would give rise to the risk of competence disputes between managers and in consequence lead to contradictory, ineffective or pointless activities. However, this is unlikely because the scopes of activities include replacements for absent employees.

Epidemic threat

This is a risk that due to environmental factors and in the presence of an epidemic, the health and life of JSW's employees might be under threat. The Company might be forced to limit its operations, which may have an adverse impact on its financial situation.

Threat to employee life and health, impact on work organisation and thus on operating activities and in consequence on financial results. As a result of the emergence of the epidemic threat (SARS-Cov-2), the likelihood of this threat materialising is very high.

Decision-making process at the organisation and the company's organisational structure

Risk that an improper organisational structure in reference to the processes being performed will affect management effectiveness and threaten JSW's business objectives or necessitate reorganisation of decision-making processes.

An improper organisational structure may lead to delays in business processes, introduce restrictions in internal and external communication, redundant tasks, performance of tasks unrelated to business processes and an extended decision-making process. In the case of changes in the Company's organisational structure, when there is a need to reorganise the decision-making process in the transition period, management might be temporarily destabilised in the various management areas, plan assumptions might be threatened or information flow might be disrupted. Communication difficulties that hinder decision-making may arise in epidemiological emergencies.

Actions taken to minimise the risk: changes in the Company's structure are appropriately prepared in legal and organisational terms, and the structure is adapted to the current requirements and market trends. The materialisation of this risk gives rise to medium effects in the following categories: financial, operational, legal and regulatory. The Company's Rules for setting Internal Regulations. The Management Board has appointed a Crisis Team that monitors the epidemiological emergency on an on-going basis and responds to emerging threats. On-going updating of internal regulations and continuous improvement of existing control mechanisms. Meetings of the corporate bodies in accordance with the Polish Commercial Companies Code and Regulations take place using direct means of long-distance communication, in as far as possible. Changes in the Group's structure are appropriately prepared in legal and organisational terms, and the structure is adapted to the existing requirements and market trends. In order to establish consistent and transparent operating procedures and standards for the Group, JSW Group's Code was drafted, along with JSW Group's Corporate Governance Regulations.

Effectiveness od corporate internal regulations

Risk that incomplete, out-of-date or inconsistent internal regulations will cause employees to act ineffectively or in contradiction to the Company's objectives and strategy.

As a result of numerous regulations being introduced at the Company, there is a chance of inconsistencies causing difficulties in effectively managing the organisation. Extensive internal regulations in many of the Company's business areas may lead to interpretation differences, especially when competences and scopes of activities of organisational units and cells within the Company overlap.

Legal limitions in management

Risk that legal requirements pertaining to the activities of the Company and its subsidiaries will hinder effective management and threaten JSW S.A.'s business objectives.

External factors that are entirely unpredictable in terms of timing as well as in relation to the subjective and objective scope and in other areas and legal scopes might materialise, especially with regard to the Company's widely defined business.

quantity and quality of coke produced by the group

Risk associated with a major decline in the quantity and quality of coke produced by the Group versus customer expectations.

Risk associated with a decline in the supply of coke in the fourth quarter of 2020, driven by development of the epidemiological situation related to the spread of SARS-CoV-2. This threat may lead to an increase in cases and absences for JSW KOKS employees, resulting in the need to reduce coke output. It cannot be ruled out that state or local authorities impose restrictions on industrial plant operations or restrictions in transport, which could make it impossible for JSW to deliver coke to its customers. The risk of reduced quality of the coke being produced at JSW KOKS' coking plants results from potential limitations in the availability of coals due to the effects of the pandemic on JSW's mines. The possibility for reduced capacity to receive coke by customers in connection with potential administrative and logistics restrictions due to the coronavirus may necessitate the storing of coke at the coking plant and externally, which could lead to its degradation and a drop in physical and chemical properties. Restricted potential, or the lack of ability to, perform contractual obligations by JSW as regards volume and/or quality could cause a major loss of market share, making it necessary to undertake corrective measures, along with a considerable and long-term divergence in the Company's actual operating results from its operating and strategic targets.

Risk associated with global recession

Risk that the Company's/Group's planned financial results will not be achieved due to a major decline in economic conditions globally and therefore a decrease in the demand for coal and coke or steel or a major decline in their prices.

A global economic downturn, especially in the steel and energy industries, could lead to a major decline in demand for coal and coke and have a negative impact on the Group's operations, results and financial situation. Regulations and restrictions related to the fight against COVID-19 are resulting in a dynamic decline in production in all operating areas, which is creating a domino effect in other parts of the supply chain. Steel plants are limiting their output due to problems with procuring raw materials, personnel availability and a decline in demand from end customers and government restrictions. Declining industrial production, including in the strategic automotive sector, is halting construction projects (mainly infrastructure), causing demand for steel products to drop. The unknown time-frame of the COVID-19 pandemic and its effects in future periods are highly likely to result in reduced steel output and reduced use of coke and coking coal. Cyclicality in industries linked to the Group, their financial situation, legal and tax regulations, economic conditions in countries are factors that are beyond the Group's control but have a substantial impact on its planned and actual strategic and operational objectives. A decline in the demand for coals and coke or steel or a sharp decrease in market prices may result in the Group being unable to generate profits.

Swings in demand and supply on key product markets

Risk of negative impact of changes in the level and structure of supply/demand for the Group's products on its business and financial strategy.

An oversupply of coal, coke and steel on global markets may result in a considerable decline in prices, which may have a substantial unfavourable impact on the Group's operations, results and financial situation. Due to the mutual links between the industries, a down-turn (lack of demand) on the coke and steel market directly has an impact on results generated on the coal market. The expansion of local competitors may also be a threat due to an increase in the domestic volume of coal and coke obtained at much lower production costs or the influx of cheap coal and coke from abroad. Considerable changes in the quality of the coals/coke produced by JSW Group also contribute to the risk of distortions in the level and structure of supply and demand for the Group's products. The materialisation of this risk would likely be due to distortions taking place on the steel market, leading to a decline in coke by JSW's customers and in the most recent period limitations and restrictions related to the COVID-19 pandemic. A lack of supply results in lower revenue from products sales, higher costs and lower use of production capacities. An imbalance between supply and demand has a considerable impact on achieving the Company's strategic objectives, makes it necessary to search for alternative solutions (e.g. overseas markets). A change in quality parameters resulting from on-going production activities has a considerable impact on the volume received by the Company's counterparties; a lack of stability in these parameters may disrupt the demand and supply structure. Disruptions in the demand and supply structure are one of the more material effects causing disruptions in the supply of goods and necessitate corrective measures. Reduced output of coke due to problems on the steel market may have a direct impact on the volume of coking coal sold and therefore on the level of coal sales. An oversupply in the global coal, coke and steel markets may result in a considerable decline in prices, which may have a substantial unfavourable impact on the Group's operations, results and financial situation. Due to the mutual links between the industries, a down-turn (lack of demand) on the coke and steel market has a direct impact on results generated on the coal market. The expansion of local competitors may also be a threat due to an increase in domestic volume of coal and coke obtained at much lower production costs or the influx of cheap coal and coke from abroad. Considerable changes in the quality of the coals/coke produced by JSW Group also contribute to the risk of distortions in the level and structure of demand and supply for the Group's products. The materialisation of this risk would likely be due to distortions taking place on the steel market, leading to a decline in coke production by JSW's customers and in the most recent period limitations and restrictions related to the COVID-19 pandemic.

Risk associated with reduced production capacities for blast-furmace pig iron in europe

Risk of losing market share as a result of reduced demand for coke due to reduced steel output.

A major economic slowdown would be accompanied by a reduction in the production capacities for blast-furnace pig iron in Europe and would have a material adverse impact on the demand for coke. At the same time, there is a strong tendency for steelmakers toward becoming independent from external purchases of raw materials by balancing / expanding internal coke production capacities. The likelihood that this risk will materialise is rather high due to the current difficult situation on the steel market, the extinguishing of blast furnaces and reducing coke output as a result of restrictions and limitations related to the COVID-19 pandemic. A substantial loss of the ability to generated added value as regards the production and sale of coke at the Group caused by the loss of traditional sales markets in Europe and therefore a material adverse impact on the Group's consolidated results and its strategic and operational objectives.

Actions taken to minimise the risk: detailed analysis of European and global sales markets, diversification of sales markets. Search for new sales directions, including overseas markets. Efforts to retain existing customers and an aggressive pricing policy intended to diversify sales by entering new sales markets.

Changes in steelmaking technologies affectin demand for coke

Risk of losing markets as a result of technological changes affecting coke demand levels and structure.

Analyses of steel production show a stable share of blast-furnace production in Asia, Europe and South America. In other regions, the share of steel production using the electric arc process is growing. The blast furnace process will remain the dominant way of steelmaking but there is a noticeable change in quality expectations as regards the CSR and CRI parameters toward over 60% and below 30%. In the long term, the cost of raw materials and energy will have a decisive say on which steelmaking technologies are used. Currently, the risk of these threats materialising is seen as likely although it may be hindered by the slowdown brought on by the COVID-19 pandemic. The process of moving away from blast-furnace steelmaking will reduce the demand for coke, and the rising popularity of Pulverized Coal Injection (PCI) technology for blast furnaces will further reduce the demand for coke and will necessitate higher coke quality parameters. Failing to keep up with the technological changes in coke production will lead to a substantial loss of added value and have a considerable impact on achieving the planned strategic and operational objectives.

Actions taken to minimise the risk: detailed analysis of European and global sales markets, diversification of sales markets. Search for new sales directions, including overseas markets. Monitoring how the quality of coke is adapted to customer requirements, executing multiannual contracts, use of synergies as a Group offering coke and coking coal, searching for new sales markets, monitoring the market in terms of technological changes and the level of steel production, customer requirements and competitors' actions. Efforts to retain existing customers and an aggressive pricing policy intended to diversify sales by entering new sales markets.

Risk associated with production capacity efficiency and productivity

Risk that production volumes and break-even points will remain strongly distorted due to the quantity and quality of deposit being different from estimates as a result of divergent geological conditions and technical and organisational constraints.

Estimates concerning coal resources invariably contain a certain level of uncertainty and some degree depend on geological criteria that may ultimately prove to be imprecise. Furthermore, limited technical and organisational capabilities, including: use of inappropriate production technologies; improper scheduling of deliveries of materials, equipment and spare parts, and inadequate employee competences may have an impact on the quantity and quality of the coal being mined. Historic data does not constitute the basis for formulating precise operational forecasts as it is of no use in mining operations. Methane is the dominant threat factor present at the Company's mines. To minimise the risk of methane explosions, the level of production at longwalls is adapted to the maximum permissible level of methane release and not to the longwalls' production capacities. Taking into account the fact that the Company's mining operations will largely be conducted on its existing grounds, it is expected that the level of mining threats encountered (faults, methane, trembling, water and fire hazards, etc.) will be close to what it currently is and will have an impact on output volumes and the shape of longwalls

Production restrictions and management of mining machine and equipment park

Risk that production will be below the expected volumes due to: longer than expected stoppage of machines and equipment due to their re-construction, stand-by caused by technological works, maintenance and overhaul works, repair and service works, as a result of an ineffective process for the delivery of machines and equipment and sub-components within an appropriate time-frame and in appropriate technical condition.

This risk will almost certainly materialise over the next three months due to the high presence of machinery in the production process, increasing the likelihood of down-time due to machine failure, necessity to re-build machinery or inappropriate selection of technical solutions for the existing geological and mining conditions. An increase in the failure rate of the machines installed in technological lines can be expected due to restrictions in repair costs. The existing legal system related to the supply of mining machines and equipment and commissioning repair, modernisation and service works may substantially contribute to the inability to provide appropriate protections for the faultless technological operation of the mining machine and equipment park.

Actions taken to minimise the risk: oversight of the Technical and Economic Plan. Oversight of contracts related to repairs, servicing and inspections of machines and equipment. Monitoring and reporting on the production process. On-going analysis of emergencies, determining the causes and taking preventive actions, monitoring the reasons for stoppages at longwalls by industrial automation systems. Participation in the work of the Tender Commission in order to select appropriate machines and equipment depending on the conditions in the deposit. Oversight and control of contracts executed with external entities regarding the delivery and modernisation of mining machines and equipment and service work, monitoring their performance with the use of the Production Means Management system and the Electronic contract register. QNK application - Designing the haulage of conveyors for mines allows for the selection of the maximum capacity of the conveyor, calculated for a specific shape and speed of the stream and the type of transported material. The underground transport safety system is an important supporting tool that allows for engineering work to be performed on calculating the traction of suspended monorails and their configuration based on the resources registered in the Production Means Management module. Coordination of activities related to development at JSW Group and external counterparties - LDO module - supplier portal, which is aimed at the electronic flow of documents pertaining to repair and service orders, with the option to register economic events in the work sheets of machines and equipment. Analysis of the work sheets of machines and equipment in terms of automatically registered events from other modules as regards operations and costs to maintain a given asset.

Productions continuity and management of incidents

Risk that production or production levels will be distorted due to improper management of production or inappropriate incident management resulting in a decision by a mining regulator or another public administration authority to completely or temporarily shut down production.

The materialisation of this risk is nearly certain in the next 12 months due to the possibility of: less than optimal scheduling of the production process; use of inappropriate production technologies; weak management of employees (e.g. inadequate level of employee competences, inadequate way of remunerating employees); higher than predicted level of natural hazards, which may stop or limit the mining capabilities at longwalls and increase the possibility of random underground events, i.e. fires, methane explosions and ignitions, coal dust explosions, methane and rock outbursts as well as rock falls as a result of which supervisory authorities may decide to completely or temporarily shut down production.

Actions taken to minimise the risk: monitoring and analysing production indicators in order to update production planning on an on-going basis; maintaining production plans based on investment plans; setting schedules as necessary to carry out mining works, including assessment of the possibility to conduct mining works using internal crews or commissioning works to specialised external entities; systematic analysis of geological and mining conditions occurring in areas where works are conducted, i.e. examining rock mass from mining excavations (e.g. by making exploratory and research boreholes), monitoring and on-going analysis of natural hazards; optimisation of preparatory and operational works in the field of: workload (verification of employment taking into account current production needs), selection of machines and equipment appropriate to the conditions in a given deposit; continuous improvement of management competences and employees' professional qualifications; continuous analysis and adaptation of internal regulations and procedures to generally applicable legal and regulatory solutions in the area of planning investment works, removing, containing and neutralising threats, failures, damages, faults, etc.

Risk associated with acquiring and managing coal resources

Risk of reduced ability to secure and economically use attractive coal resources.

Resources might not be available when needed or, if available, their extraction might not be possible at a competitive cost at the time. The Group might not be able to precisely evaluate or might incorrectly evaluate the geological structure of deposits, quality of resources and/or geological and engineering parameters of rockmass in prospective areas, which may have an unfavourable impact on its profitability and financial situation. In addition, the Group's planned investment, acquisition and exploration projects might not generate further substantial resources or the extraction of such resources might not be profitable. The efficiency of the deposit acquisition and management process may also be limited due to changes in laws, existing regulations, etc. and decisions and arrangements - or changes thereto - with external entities, e.g. local government authorities. The materialisation of this risk might mean a considerable reduction of the Group's activities in the future and a lack of the ability to effectively use invested capital or tangible assets. The potential negative effects can be alleviated in a multiannual time-frame.

Operating activities - planning of production

Risk that as a result of unforeseen mining and geological, market or regulatory conditions production will decline or costs will increase in comparison with the assumptions used in production planning.

The materialisation of this risk is nearly certain over the next two years due to the possibility of: more difficult than assumed geological conditions, such as disruptions in the continuity of deposits characterised by variability and irregularity, which may limit the efficiency with which longwall sections are mined; the level of natural hazards being higher than forecast, which may reduce the extraction capacity of longwalls or increase the probability of random events, i.e. fire, methane explosion and ignition, coal dust explosion, methane and rock outburst as well as rock falls; failure of machinery and equipment used for mining and processing; limited technical and organisational capabilities; the inability to extract coal from the available resources at a competitive cost at the time; incorrect scheduling of the delivery of materials, equipment and spare parts; planning processes based on the most likely scenarios (no extreme scenario analysis); unexpected changes in market conditions; changes in legal regulations concerning the coal industry.

Actions taken to minimise the risk: planning production on the basis of monitoring and analysing production indicators; forecasts concerning market conditions; on-going updating of production planning in connection with a systematic analysis of conditions present in the mining areas, i.e. analysis of rock mass in mining excavations by drilling prospecting and research holes, conducting on-going analysis and monitoring of natural hazards associated with mining and geological conditions, and establishing schedules for performing essential mining works; monitoring and analysing production indicators, adapting production to the economic situation, optimising preparatory and operational works in the field of: work load, the possibility of performing mining works by internal crews or commissioning works to specialised external entities, verifying employment taking into account current production needs, continuous improvement of managerial competences, improving the professional qualifications of employees; running production plans based on investment plans involving the selection of machinery and equipment appropriate to the conditions in a given deposit; adapting internal regulations and procedures to generally applicable legal and regulatory solutions.

Supplies price risk

Risk associated with cash flows and financial results diverging from the expected targets due to growth in the prices of supplies essential in the production process.

The supplies price risk is a risk of losses due to changes in the prices of supplies. Changes in the prices of raw materials, exchange rates, cost of labour result in a change (increase) in the prices of purchased goods.

In the long term, the likelihood of commodity price hikes might increase due to the market situation. Currently, in the light of the pandemic, production problems related to product shortages on the market, increased demand for personal protection equipment result in major price increases. Personnel costs, transport costs, electricity costs, exchange rate changes and tougher access to external financing have an influence in the long-term on commodity prices for the manufacturers of products for the mining industry. Suppliers diversifying their businesses (a growing share of production and supplies to entities outside of mining and for exports), merging into groups, and their financial situation, which in extreme cases can lead to bankruptcy, have a material impact on the level of competitiveness on the market for products for the mining industry. In assessing the risk of rising commodity prices, risk associated with JSW S.A. being charged by suppliers with statutory interest on payment deadlines longer than the statutory 30 days must also be factored in. The current financial standing of the mining industry may result in an increase in the potential number of bidders in tenders, which would have a material impact on the prices secured in these tenders. The financial situation of mining companies means that some suppliers must use external financing (e.g. credit facilities, factoring), the cost of which is passed on to the Company in the form of higher prices. The prices of products have an impact on the level of the Company's costs and profitability. Increases in product prices compared to the technical and economic plan may result in a limited capacity to finance purchases.

Actions taken to minimise the risk: monitoring, market analysis, contractual terms concerning material and equipment supplies. Executed contracts make it possible to negotiate prices, payment deadlines and substitute purchases. Emergency purchases are performed. Control mechanisms protect the ordering party against the risk of an inability to perform contacts, however they do not eliminate the associated consequences: necessity to purchase supplies that were not accounted for in the planning process as well as unplanned supplies at higher prices; complete withdrawal from a purchase or a limited-scope purchase.

Currency risk - changes in pln exchange rate vs EUR and USD

Risk associated with cash flows and financial results diverging from the expected targets due to exchange rate fluctuations. Risk of having an ineffective hedging program.

The Company is exposed to significant currency risk due to its currency exposure, which may have an impact on the level of cash flows and financial results. The main source of the Company's currency risk is product sales: indexed and denominated in USD and EUR. Given the Company's revenue and cost structure, a stronger PLN v. USD and EUR may lead to a decline in the Company's revenue and thus also its operating results. Given the fact that a large share of JSW Group's revenue is exposed to currency risk, exchange rate fluctuations may have a material impact on the Group's results.

Actions taken to minimise the risk: the Company actively manages its currency risk exposure. The principal objective of the Company's policy is to reduce to a minimum risk resulting from currency exposure. The Company continually measures currency risk and takes actions intended to minimise impact on its financial standing. The Company has a Currency Risk Management Policy, and a Currency Risk Committee has been appointed. The Group hedges its exposure at the level of plans and contracts, using hedging ratios approved by JSW's Management Board. Executive functions, decision-making functions, supervisory functions, control functions and analytical functions have been split among the Company's various organisational units (the rule of "task division"). Monthly reports are prepared concerning the Group's currency exposure and hedging ratios, which are presented at Management Board meetings and in semi-annual intervals at meetings of JSW S.A.'s Supervisory Board. A support system for currency risk management has been deployed.

Interest rate risk

Risk associated with cash flows and financial results changing and diverging from the expected targets due to changes in interest rates. Risk of ineffective management of debt and interest income and costs.

The Company's exposure to the risk of changes in interest rates mainly concerns the fact that cash flows can change as a result of changes in market interest rates. JSW finances its operating and investing activities also with external funding with interest calculated using variable interest rates, and invests cash in financial assets that mostly feature variable interest rates. The Company is currently mainly exposed to interest rate risk with regard to its assets related to its FIZ asset portfolio, cash and deposits and credit and loan liabilities. The Company is also exposed to interest rate changes, albeit to a lesser degree, on its lease liabilities. The economic crisis accompanying the COVID-19 pandemic forced central banks to pursue an ultra-easy monetary policy in order to stimulate the economy. According to analysts, the doveish stance of these central banks foretells a long-term stabilisation of interest rates at low levels. Taking into account JSW S.A.'s current exposure to interest rates, structure, contractual provisions, etc. (as at 30 September 2020) it can be estimated that the potential impact of changes in interest rates by +50 basis points on JSW S.A.'s net financial result is approx. PLN +1.5 million, while a change of -50 basis points would mean approx. PLN -4.5 million.

Actions taken to minimise the risk: on-going analysis of exposure to interest rate risk, financial markets and potential interest rate hedging operations related to financing secured. Hedge accounting has been implemented. JSW S.A. has a Policy for Managing Interest Rate Risk, along with a procedure that specifies a framework for the strategy to manage interest rate risk, permissible tools and rules for treasury operations in the risk management area, including a division of responsibilities that makes it possible to appropriately control treasury operations as regards managing the interest rate risk. Monthly reports are prepared concerning the Company's exposure to interest rate risk, which are presented at Management Board meetings and in semi-annual intervals at meetings of JSW S.A.'s Supervisory Board. The Company continuously manages its position, first by striving to open and maintain opposite positions (assets and liabilities) based on a variable interest rate, which makes it possible to partly neutralise the impact of interest rate changes on the Company's results. Market interest rates and market forecasts for interest rates are analysed on an on-going basis. The Company also periodically organises conference calls with the chief economists of the banks it works with to discuss expected levels of interest on a 12-month horizon. These activities help in pre-emptively responding to changes in market interest rates.

Credit risk concerning financial receivables

Risk that a counterparty will fail to meet its financial liabilities toward the Company, causing it to suffer economic losses in effect. Risk of an ineffective process of managing receivables concerning allocated cash and receivables concerning the settlement of futures transactions.

Credit risk concerning JSW S.A.'s financial receivables is focused in the following areas: cash and bank deposits, derivative instruments and financial receivables. Credit risk concerning financial receivables may result from their concentration or difficulties in recovery

Actions taken to minimise the risk: procedures for allocating free financial resources and procedure for managing currency risk at JSW Group are in place. These procedures limit credit risk pertaining to the financial institutions JSW works with. JSW S.A. has a Policy for allocating free financial funds. The Company allocates its cash into banks with a strong market position and ratings issued by international rating agencies. Pursuant to an agreement executed on 9 April 2019 between JSW and Pekao S.A., PKO BP S.A. and BGK concerning banking transactions, cooperation related to deposits and allocation activity currently takes place with selected banks with a strong market position that meet the requirements of the Policy for allocating free funds. To minimise risk associated with allocating funds, the Company has reduced the number of financial institutions that it works with, retaining only banks with a strong market position.

Liquidity risk and working capital management risk

Risk of insufficient funding or lack of access to short-term financing, leading to a temporary or permanent loss of ability to meet financial liabilities or making it necessary to raise financing on unfavourable terms.

Loss of liquidity gives rise to the risk of bankruptcy. Due to a strong dependence of cash flows and the level of generated cash on the sales prices for coal and coke as well as a continuously high level of investment expenditures, if the Company's market situation significantly deteriorates, it would be exposed to the risk of losing liquidity. Difficult market conditions, including suppressed demand due to the pandemic, have a negative impact on liquidity. The Company generates negative cash flows from operating activities and investing activities. In effect, the balance of available cash decreases. The Company currently has a negative balance in its real cash pooling service. Due to a strong dependence of cash flows and the level of generated cash on the sales prices for coal and coke as well as a continuously high level of investment expenditures, if the Group's market situation significantly deteriorates, it would be exposed to the risk of losing liquidity.

JSW group's m&a strategy

Risk that the exogenous growth strategy of JSW/JSW Group will not achieve the expected results in the form of growth in value as a result of mergers and acquisitions.

Mergers and acquisitions as exogenous are not often carried out by JSW Group due to their cost, multidimensionality, complexity and the scale and variety of risks. The main risks of M&A processes are in the following areas: financial, organisational, operational, strategic, market and political. They may potentially have a considerable impact on the Company's market and balance sheet value, e.g. if unsuccessful acquisitions are completed/finalised or major errors in these processes occur.

Actions taken to minimise the risk: support from external professional advisers; carrying out the M&A process with the support of an adviser significantly reduces the possibility for this risk to materialise due to a multidimensional approach, starting with financial and legal analyses and ending with the multi-variant approach applied in analyses. Ensuring technical and organisational conditions and financial support in order to achieve the expected synergy effects that influence value growth. Strategic acquisitions feature a multi-level corporate oversight path related to the required approvals. Ensuring technical and organisational conditions as well as financial, strategic, market and political support create an opportunity for effective mergers and acquisitions, contributing to growth in JSW's market and balance sheet value.

Risk associated with identification of strategic objectives

Risk of failing to capitalise on the potential for development or expansion into existing and new markets due to an incorrect identification of potential investment targets (projects) or the Company's financial situation.

There is a considerable risk of failing to achieve the assumptions and objectives in the Company's investment projects as regards development and expansion into existing and new markets. This risk may materialise due to incorrectly defined key strategic assumptions, wrongly estimated benefits and development directions in the Strategy. This risk depends on the type of lost development opportunities, therefore its effects are difficult to specify unequivocally. This risk may materialise in the strategic and operational areas.

Strategic investment projects

Risk that JSW's key initiatives and flagship projects will not be completed as expected or will not generate the expected results.

Given the multiannual cycle of a key strategic project, there is a possibility of delays, divergences from the asset and financial schedule due to geological and mining conditions, performance of work by external firms, changes in macroeconomic forecasts, a down-turn on the coal market, etc. Flagship investment projects have a material impact on strategic and operational objectives. The emergence of adverse events may lead to a temporary loss of ability to generate added value. The potential negative effects can be alleviated within a multiannual time-frame.

Actions taken to minimise the risk: implementation of project management methodology and establishment of appropriate project management structures. Preparing documentation for a strategic project that takes into account all identifiable organisational, technical, economic, environmental and social aspects, along with economic analysis. Providing appropriate communication at each stage of the project. Preparing periodic reports on investment progress, serving as basis for potential corrective and adjustment measures. Continuous oversight of projects: analysis of material, financial and scheduling divergences. Appointing working teams to solve major problems in the course of the project. Cooperating with scientific and research units, experts. Implementing incentive solutions in the project management process. Updating the project documentation. Evaluating projects in terms of their fit with JSW Group's strategy. Defining an investment project portfolio for optimising the value-add process at JSW Group. Securing appropriate budgets for project financing. Ensuring proper and competent oversight of investments at the Company's sites.

Resource allocation - business portfolio strategy

Risk that the Company will not maximise the results of its activities due to suboptimal allocation of resources or the definition of an incorrect business segment structure in the context of strategy.

This risk can materialise at least once every two years and can be the result of: greenlighting and implementing ineffective investment projects (suboptimal use of the Company's resources and funds), insufficiently strict and systematic approach to the prioritisation of ventures, lack of a common way to measure effects that would allow for a unified assessment of ventures and allocation of resources, social limitations influencing project prioritisation, large changes over time in global markets with direct impact on the prices of products sold by JSW Group, which in consequence may influence the outcomes of projects being implemented. Incorrect allocation of resources and funds may have grave consequences at the strategy implementation stage, i.e. implementation of ineffective investments, lack of funds for other projects. The materialisation of this risk may generate outcomes in the following categories: operational, market, accounting, tax, financial and strategic

Project structure and implementation

Risk that the Company will become exposed to excessive risk or will incur losses due to incorrect definition of project structure and the implementation process, which would influence strategic objectives.

There is a risk that a project will fail due to the project structure being defined incorrectly and because of potential difficulties in its implementation. Because of complexity, ventures that consist of numerous projects accumulate the separate risks resulting from each of these projects. Divergences in project delivery timelines, material and financial scope, withdrawal from a project may temporarily influence the Company's activities and value. The potential negative effects can be alleviated within a short time-frame.

Integrating new businesses

Risk of failure to integrate newly-acquired entities in order to obtain the expected synergy effects.

Material risk associated with the failure to achieve the expected objectives concerning synergy effects, integration and joint implementation of projects and ventures with entities acquired by JSW S.A. This risk is present in the following areas: financial, operational, strategic, market, accounting, tax, political, legal/regulatory and corporate. An important issue is the risk of a lack of cooperation and implementation of joint projects related to the operations of JSW S.A. and JSW Group and a lack, or insufficient development, of cooperation between JSW S.A. and JSW Group entities in the area of operations and research, development and innovations.

Effectiveness of strategic planning and monitoring objectives

Risk that JSW Group's existing objectives and strategic directions and the strategy management process will not properly permeate into the process of planning and monitoring the implementation of plans by organisational units as a tool to control strategy implementation.

Risk associated with forecasts and planning carries with it the danger that forecasts constituting the basis for a decision on the commencement of a planned investment by the Company will be incorrect as a result of changes in economic, legal and social surroundings. Forecasts concerning financial results or planned investments may not come to pass despite the use of correct assumptions in the forecasting process. Little likelihood for unfamiliarity with the strategy at organisational cells. Little chance of undesired activities concerning updating the Strategy in the area of ad hoc economic, political and social needs and objectives. Loss of opportunities, loss of funds. Possible temporary material impact on the Company's functioning and value in the short term. Potential negative effects can be alleviated within a relatively short time-frame.

Evaluating potential investments and strategic transactions

Risk of engaging in unprofitable, unsuccessful or too risky investments and transactions due to improper evaluation/analysis of the potential transaction, including for example: measurement of the investment, comprehensive analyses (due diligence; legal, tax, audit, financial, technical, environmental and ecological resulting from assumptions specified in JSW's climate policy 2020-2030, including those related to the scenarios described in the document regarding the transition to low-emission economy pre-transaction or incorrect transaction decisions at each stage of the project/transaction).

This is a very significant risk related to the failure to achieve the expected parameters and objectives in projects/strategic transactions (including M&As). It is difficult to completely mitigate this risk despite JSW S.A. having carried out comprehensive, holistic due diligence analyses, valuations and further studies and analyses. This risk may materialise at least once in the next five years. Risk that may be reflected in how strategic and operational objectives are achieved. A lack of full protection from this risk due to the specific nature and complexity and multidimensionality of these processes and a large presence of legal risks.