Jastrzebska Spolka Weglowa SA

WSE:JSW

Earnings Call Transcript 2023-Q1

[Tomasz Cudny, executive]

Good morning, ladies and gentlemen. I'd like to welcome everybody to the results conference of the JSW Group in Q1 2023. The Management Board consisted of 6 persons. So we had Mr. [ Kaluza ] who is responsible for Development and for Financial Affairs. We had Robert Ostrowski, who is responsible in terms of Sales Issues, Commercial Issues. We had Sebastian Bartos who is responsible in terms of Technical Affairs. We had Mr. Edward Pazdziorko, the person responsible for Employee Affairs. Mr. [ Wojtków ] is not present. And my name is Tomasz Cudny, and I'm responsible for running the overall management team. So we are satisfied with our ability to present the results. which continue to be sustained at a very high level. And I can say with full conviction that our position on the commodities market continues to be very strong, even though we can observe a certain slowdown and this is linked to coke prices and coal. And so thanks to the fact that we're flexible and we're able to basically adapt to market conditions. We've been able to transpose that into financial results.

So our results are the outcome of executing our strategy, which we've consistently and unwaveringly delivered on and this was adopted in 2020. And not only the strategy is something I'd like to emphasize, but also the engagement and the hard work of all of the people in the group have contributed to the results the company has delivered. I think we've got good reason to be proud. I'm convinced that in upcoming years, we're going to be able to maintain these results, and we're going to be able to improve them, especially since coking coal is a very important and significant part of the green transition. Let's go ahead and move on to the presentation of the results. During the first quarter, of 2023, our coal production is down by 2.5% versus Q4 2022. And it came in at [ 3,382.1 million ] tons coke production, where we observed here a sharp increase. It's up by 14.3% and over Q4 2022. And it was [ 772.7 tons. ] And so our mining cash cost and our conversion cost is on the graph. And so for the MCC has moved up by 13.2% to PLN 638.9 per ton. But if we look at the cash -- sorry, the conversion cost, it's down 18% to PLN 290.1 per ton. We have pretty significant growth in terms of our sales revenue of 7.4%, and we had revenue top line of PLN 4.458 billion. The average price during this period has hedged up by 1.6% in terms of coal. And so, now the average price of PLN 1,221 per ton, and we had a slight decline in coke of 6.8%.

And so we're very pleased to present our EBITDA result, which is up by 1.2%, coming in at PLN 1.956 billion. And this, of course, all of these activities boil down to our net result, which is up by or up over Q4 2022 by 0.8%, and the net result has come in at PLN 1.26 billion.

And now we can go on to a presentation of the results by the individual management Board members.

[Edward Pazdziorko, executive]

So welcome, ladies and gentlemen. I'd like to tell you about the results of coal and coke production. Let's begin with coal production. So we were operating in 4 mines. We have the integrated mine along with Borynia, Zofiówka, we have Budryk. We have the independent mine and then we have Knurów-Szczyglowice , an integrated mine, and then we have another stand-alone mine, which is Pniówek. So if we look at coal production in Q1 2023, it was above 3.3 million tons, and it was down by 2.5%. So some 80,000 tons. And this was because of the number of longwalls as we recall, in 2022, it was a very difficult year for us because of the various events that transpired at that time. And so we were mobilized in all of the sections of our mines to actually utilize to the greatest extent of the other longwalls in the sections and that's why we began Q1 of this year with a smaller number of these active longwalls. And you can see that in terms of the number of active longwalls. We had, on average, slightly more than 20.3 active longwalls in Q1 2023, whereas in Q4, we had 23.6, and this is down by 14%, and this is because we completed the extraction operations on some of the longwalls. And so -- we had to close down some of them and then do the preparations to launch new longwalls and so now we're in the process of rebuilding the number of longwalls where we're active. And so we'll have a more stable distribution in terms of the number of active longwalls in the future. If we look at the individual extraction records and looking at individual or stand-alone mines, [ Pniówek ] had the highest result of more than [ 785,000 tons ]. And if we look at the organization as a mine, we can say that the Knurów-Szczyglowice had the biggest output more than 1.17 billion tons. If we look at preparatory works, we did that on some 72 fronts. So we had 47 of our own employees, and we had 25 that were being prepared by external companies. We did more than 20,834 running meters compared to Q4. We were down by 3.5%. So 750 meters. But if we compare Q1 2023 to Q1 2022, we had an increase of more than 20%, so this was an additional 2,500 meters. And so if we look at the intensity ratio of new corridor works it was [ 6.2% ]. So this means that we've maintained our continuity for the future.

If we look at coke production in turn, as the CEO, I mentioned, Mr. [indiscernible] Q1 showed production of 772.7 million tons. And so this was up by 14 points, 3% more. And if we compare that to Q1 of the previous year, this is down by 11%, and this was a reaction to what was happening amongst our offtakers as local blast furnaces were being shutdown, and we can see the upswing in Q1 of this year. We see that more blast furnaces are coming back on board to produce coke -- to produce steel, excuse me.

And so we have the [indiscernible] coking plant, we had capacity utilization ratio of some 98% [indiscernible] nearly 83% and above 93% in the Radlin coking plant. If we look at the coke production, we can say that above all, we were producing blast furnace coke as more than 73.4%, industrial coke was 27.5%. And then we've had foundry coke of 0.1%.

So thank you very much for your attention.

[Sebastian Bartos, executive]

So welcome, ladies and gentlemen. I'd like to say a few words about the sales area and perhaps I'll speak more -- give you a tight narrative. We gave you a much lengthy word narrative during the sum up of the full year results. So now we've entered a new quarter of the year. And so we should not count on stability in the commodity sphere and especially having in mind the current geopolitical context, but what we're trying to do is maximize our revenue and have stable relations struck with our off-takers for many years to come. As we look at Q1 of this year and comparing it to Q1 of the previous year, so -- Q 4 of last year, and so we can think about what has acted to our benefit and what hasn't been to our benefit. We consider 2 elements that feed into this picture. If we look at steel production across the globe, we see that it continues to grow on other continents. If we look at GDP production, we can see that steel production continues to grow. The 7.7% increase across the world is basically an echo of that the world needs steel. Steel Is -- production is growing, and this is usually being done with the utilization of conventional steel production methods. So this is the blast furnace approach. We have a different situation in the EU, and we've talked about this with you in the past. We had a pretty disruptive year in 2022. And this gave us the ability to generate very high revenue and profits but we saw that the quarter was very -- the year was very volatile. So if you look at Q2 and Q3 and Q4, we saw that very strong declines in Q4 and then upswings in Q1. So if we look in EU, we see in theory, an increase in steel production of almost 7%, but the situation here is totally different from what we see across the globe. What Mr. Pazdziorko said at the beginning is true. And this is something that's acting to our benefit after a very demanding H2 in steel production and coke production. We can see that blast furnaces are coming back online, not all of them, some of that for technological reasons, but some of them are coming back online. And if we drill down into the data, we had 9.2 million in production and 10 million in January and then more in March. So 6.8% growth. That's vis-a-vis Q4 2022. But if you look at Q1 and the current quarter, it's a decline of 5.3%. So Europe continues to have some problems in steel production. So it's not really achieving those figures. So we see some pros and cons.

What's happening or what's happened with the coking coal prices in this period? The volatility of commodity prices is something that's just business as usual in our activities, in our operations. And there are 2 or 3 contributing factors in Q2, Q3. So we had natural factors like floods and logistics problems. Another stimulus was the geopolitical swings and the Chinese authorities after talking with the Australian government decided to allow for imports of coal from Australia again. And this was something that allowed for the rebuilding of positions and had an impact on prices, something that was of importance is that Europe wants to start to turn on these blast furnaces again in this latter half of the year, needed more coking coal than in the past. And we saw that coking coal prices both in semi-soft and the top grades had an upward trend. So it does vary, but this was driven by the fact that semi-soft prices in Europe, especially last year, had a very high price level because we had the Russian Federation and there was lower quality, and there was an unnatural situation between the top quality and the lower quality grades. And so certain grades were being sought after and now things are starting to normalize.

If we look at steel prices in Q4, we had roughly EUR 600 per ton of flat goods. Here, we have an increase of some 20% to roughly 800 without getting into the details. Basically, the automobile industry is producing much more. Some of the distorted [indiscernible] are being normalized and coming back, and this is one of the reasons for sales of flat goods. But if we look at the long construction goods, the rods, we can see that prices have slipped. And so there's a natural [ dilution. ]

If we look at the construction industry, we can see that there are other difficulties such as inflation and interest rates. So these were macroeconomic concerns. And this is a bit of a hindrance to doing large-scale infrastructural investments. If we look at coke prices, after a very tough year, especially the latter half of the year, for coke. And we talked about the oversupply of coke due to what was happening with gas prices because it was a profitable undertaking to produce coke just to generate gas even if they had to put things on the yard. And so we see now that more blast furnaces are being brought online. And that means there is growth in terms of the blast furnace coke on the European market, to a lesser extent in China because Europe was underpriced. So the next slide is something that we show as a matter of a standard presentation of what happens with JSW's product prices. And so our coking coal prices versus the 5-month window, this is basically the benchmark window and we have a number of models for pricing. So we have negotiations, Nippon method. And so once again, we see that there's a very healthy relationship between our prices and the benchmark prices and looking at the discounts, were above 90%, and this is all versus the Australian. So it's a little bit down from what we saw in Q4. but it's reverted to the standard level of these ratios. Well, Q4 was a little bit abnormal because we've said that relations are the most important thing with our off-takers are the most important. So sometimes, we have difficulties in terms of production, things that are totally be under our control.

We never lose those volumes with our off-takers. We always find a way in which we can catch up to ensure that we don't lose those volumes from our long-term contracts. And you can see that Q4, what we've had an abnormally high ratio. This was caused by the fact that we were able to catch up for Q3 volumes in Q4. So we had higher prices in Q4. And basically, this is something that was usually priced at a lower level. So now in Q1 we're maintaining those relations by catching up with volume, and we want to show our long-term loyalty to customers. And we're doing this on the conditions of Q4, so the prices are a little bit lower and that's why this ratio is a little bit lower. Another thing that's hasn't happened, helped us. This is the USD exchange rate softening. So the dollar has fallen by some 6%, and this has had an impact on this ratio in terms of how the relationship between USD benchmark and the PLN looks. So analysts and investors are aware of how we're building value. So I don't think we need to make much more of a commentary here.

But I would like to say a few words about the coke market. What I said at the outset and the latter half of the year was a tough period because of oversupply of what's happening with gas prices. And I think these are things that you know. So in Q1, we're building volumes and prices. And so that's why this ratio of 87% is higher than what we saw in the previous quarter. And this is a consequence of these activities. So if you look at the steam coal market, totally different market, totally different set of rules and the prices we've agreed for the first quarter. These are totally new prices that have been agreed upon in totally new reality. They're higher than what we saw in previous years.

As you can see on the graph and the 107% show that the steam coal price in JSW is higher than what we see on the domestic market. The ratio itself, however, is lower than in the previous quarter. That's because Q4 gave us the opportunity to sell off some additional quantities because of difficulties in production that we had in the northern mines, Pniówek. And so basically, we were able to catch up in terms of the overall quantities of production. So we had high calorific coal grades and also some others where we were selling on the spot market at higher prices than we have in our contracts. And now in this quarter, we're coming online with the new price arrangements, and we were able to deliver on an ongoing basis, and that's why we're at 107% above the standard domestic price benchmark.

And now we can look at the next slide, which is the sales of coal produced in the [ JSW Group ] to external customers. In Q1, we were able to sell to our long-term customers, much more coal than in the previous quarter and this is beneficial to us because we were selling this coal at better price conditions. If you go back to the previous slide, you can see that the company has benefited doubling because we were selling inventories at higher prices than we could have done in Q4. I don't think I need to quote the figures because they're written here on the page. So Mr. Pazdziorko already mentioned the sales of coal to internal customers to our own coking plants. So after the incident that transpired in Q4, when we had an explosion in the grinding plant. So we have the ability to produce higher volumes of coke, and this is something that's happening. And so the blast furnaces that have been brought back online in the market. That means that more and more coke is needed, and that means we're not maybe at the ability to have 100% utilization of capacity. But we can do more, and then we need more coal to do that from our group, and that's why we have an upswing of nearly 14% between these 2 quarters. If we look at the sales to external customers. So this is a matter of volume and prices. In both cases, we have increases, and that means that our revenue is up by 11%. And then if we look at the average selling price, if we look at steam coal, this is up by some 17%. We have totally new prices agreed upon for 2023. And then we're up by less than 2%. If we look at coking coal. Here, we have the fact that some of the tons from the previous quarter, we have to deliver at the previous prices, and that's why the growth is lower than on the international market, but even so, it's very positive for us.

Then if we can look at the sales of coke. If we look at the movement from Q4 to Q1, it's up by 11.5%, 840,000 tons of coke sold to customers. So we're coming back to our regular sales performance. So this nominally looks to be about the level of our nominal production values. And this is what we've been doing in Q1, Q2 will be able to cooperate that once we can review the results. Then if we look at the average coke sales price, we have a slight decline of nearly 7%. As I mentioned, we didn't have production in the previous quarter. So we had to basically catch up for a shortfall from the previous quarter. And we continue to have oversupply of volumes. And then we can see that in Q1, we started to sell them. And then we saw the inventory starting to fall. And that's why we had this relation. This ratio is slightly or relationship slightly distorted. If we look at the revenues on sales of coke and hydrocarbons to external customers, we have slightly lower prices, but a greater tonnage, and that means that the total revenue is up by 4.7%. Then the last slide I have, which is the inventory of coal and coke. So we've been able to reduce the inventory of coal quite substantially. And so 600,000 is not a bad level, but brought it down to 456,000 tons. So we've really shaved that down. So we've been able to sell that inventory at much better prices in Q1 than we would have had in Q4. So if we look at what happened in coke, I already mentioned, we -- many blast furnaces were brought back online. We're able to produce coke aligned to the current market conditions. And then we have the ports. And what we had here, we were able to basically liquefy those inventories, and that means we're down to almost -- a little bit below 180,000 tons. So I think this commentary is sufficient, and we'll be able to say more about everything once we complete the first half of the year. Thank you.

[Edward Pazdziorko, executive]

So ladies and gentlemen, I'd like to tell you a bit about the investments of the JSW Group. So if you look at our CapEx on an accrual basis, net of consolidation exclusions or eliminations. So we had CapEx of more than PLN 945 million. And if we break it down by segment, the leading CapEx spend was in the coal segment of nearly PLN 794 million. In the coke segment, we had CapEx of nearly PLN 106 million and I'll speak about that in greater detail a little bit later than the other segment. The CapEx spend was nearly PLN 46 million. It was mostly the renovation company as well as [indiscernible] in terms of CapEx for investments. So we can say that when we compare Q4 and Q1, so we're down by 15.6%. So we had a pretty ambitious quarter in Q4. So we -- and the CapEx spend of nearly PLN 1.12 billion. So if we compare Q1 2023 to Q1 2022, we can say that we had an increase of nearly 62%, so nearly PLN 362 million more. So as we look at CapEx, we can say that we spent money on investments across the group. So we were purchasing PPE. And we had expenditures related to leases and so we had [ PLN 1.340 billion ] and this was comparable to Q4 2022. So nearly 27% more. And this is a result of certain time deferments in terms of payments, in terms of investments that we completed in Q4 2022. And it's worth mentioning here that the coal segment was the leading area of CapEx spend. So we can say that the growth was almost 27% from PLN 280 million, almost PLN 300 million. And then if we look at the accrual basis in Q1, we had some PLN 794 million, so it was 12.4%, down from the previous quarter. So in Q4 2022 and so we can say that the CapEx fell because of spending less for investment goods and lease-related expenditures. So in Q1, we had subsegments like investment construction work. So PLN 210 million, then we had modernization of mechanized shields and purchasing transportation equipment [ PLN 137 million ], and then we had more than PLN 400 million for finished capital assets and lease some PLN 47 million. And so if we compare year-on-year, so Q1 2023 to Q1 '22, we were up by some 73% by more than PLN 330 million. We increased the CapEx spend.

If we look at the second segment, which is quite important in our group. So the business CapEx in JSW KOKS. So we had nearly PLN 160 million spent, down by some 37% from Q4 2022, PLN 62 million and this is because of spending less to modernize coking battery #4 in the [ Przyjazn ] coking plant and the construction of the Radlin power generation unit, as well as for PPE, property, plant and equipment. But if we compare Q1 2023 to Q1 2022, we have an increase of 11.5% almost. So [ 9 million, 11 million, ] and this is related to the Radlin power generation unit. So thank you for your attention.

[Robert Ostrowski, executive]

So welcome, ladies and gentlemen. My colleagues have provided detailed information about our operations in Q1 in terms of prices, production volumes, the sales context, market context. And now I can tell you a little bit about how this has influenced the financial side of the group. We present the group as a group because if you look at individual units, things could be quite distorted. So we present this on a consolidated basis. So one of the observations at the get-go. If we look at Q1 2022, the data for that year in terms of revenue, and the result, this was an extraordinary year compared to subsequent periods because we had the war in Ukraine and also the extraordinary high price hikes that took place. So this is something that we have to have in mind when providing commentary on the results in this year.

But if we look at Q4 and Q1 of this year in terms of revenue and results, we can say that these 2 quarters are pretty similar. So the revenue in Q1 is up by 7.4% over Q4 2022 came in at PLN 4.458 billion. So if you look at the net results and the EBITDA results, they're quite similar to one another. So if we look at EBITDA, net of one-offs -- is about PLN 1.956 billion. So the -- I'll say a few words about adjustments and what that entailed. But they had marginal impact and as we compare Q1 of this year to Q1 of the previous year, we can see a pretty big decline, but this is primarily caused by the fact that -- by caused by the price increases. And so, the net result in Q1 of this year is PLN 1.266 billion, which is pretty close to what we saw in Q4 of last year, net working capital.

And I would ask that you remember that in Q4, our current assets, we acquired certificates in our closed-end investment fund some PLN 9 billion and that basically adjusted to our working capital. And that means that had an impact on the value in Q1. In any case, net working capital moved up to PLN 947 million in Q1 of this year. On subsequent slides, what we'd like to discuss are the EBITDA drivers or the drivers of the financials of the group. So let me begin with the top line. So sales revenues. In Q1, as I mentioned previously, we were up, and there are several major contributing factors. The biggest one of these factors in line with what Sebastian Bartos said. So we increased by nearly 11%. The number of tons of coal signed sold. And this gave us an impact of PLN 209 million almost. This increased our revenue by PLN 209 million. The second most important factor was the impact of the coke sales volume which is an increase of 86,000 tons, and this generated an additional income of PLN 147 million. Another positive factor that contributed to revenue growth in Q1 was the impact of the change in steam coal sales price. This led to an increase in revenue by PLN 75.4 million. And so this is PLN 107 per ton. To a lesser extent, we saw the impact of coking coal price change. This was a little bit below PLN 34 million. I think it's worthwhile mentioning that if we look at the prices of coking coal and coal, we can see that it's not just the absolute value of these prices that was important, but it's also worth mentioning that there are FX differences. And I'd like to mention the 2 major negative factors. The first one was the impact of the coke price change. So they were -- coke prices were down in Q1 and this cost our revenue to fall by PLN 96.7 million and we had steam coal sales volume down by 60,000 tons, and this had a financial impact of PLN 47 million. If we look at expenses by nature in the group, you can see very clearly that costs grew in Q1 to PLN 3.642 billion. This is 7.4% up from Q4. This is an increase of PLN 251 million. And I think it's worthwhile to emphasize one more thing here. First, we're looking at costs not only on an absolute basis, but in respect of our production activities. So we had some incidents in [ Szczyglowice ], in Pniówek, we had a fire. After a few days. We, last year, announced force majeure and the impact of that event in terms of the reduction -- this was a loss of some 250,000 tons. And we continue to bear the consequences of that in terms of production volumes. And we're looking at a number of volume approaches to fill that gap in production, but this is not yet the moment to talk about that. And so the difference between quarters is a difference of some 80,000 tons despite the fact that the costs have grown.

And above all, its employee benefits. So the impact of employee benefits expense change is PLN 258 million. Energy is up by PLN 15 million. But if we look at external services, those are down by PLN 72.2 million. And let me say a few words about this bridge which tells you about the changes in expenses by nature. So on the eighth of February, the management signed a salary agreement with the trade unions representing the staff. So as of 1 January this year, we had an increase in the salary front of 15.4% and this means that in Q1, along with [indiscernible] and other derivatives. So this is an increase of PLN 160 billion. And so we had an agreement signed with the trade unions last year in December, and we increased the value of the meal from PLN 30-odd to PLN 50. If we look at electricity, energy consumption quarter-on-quarter, it's an increase of PLN 50 million. This is because of the unit price having grown by PLN 190 per megawatt hour with minus the cost of certificates and distribution. And so these are the major drivers that defined what our level of costs by nature was in Q1 2023 versus Q4 2022. So we talked previously about the mining cash costs. Here, we have a few of the underlying factors contributing to the increase to PLN 638.9. This is up by some 13% over Q4 2022 and we can see the biggest impact of employee benefits. This is a result of the agreements I mentioned to you a month ago. So the overall impact is PLN 65.5 per ton. So that affects our mining cash cost in Q1 of this year. But we have to remember that there is a production decline in the previous quarter. The second factor, which has increased the mining cash cost, and that's the consumption of materials and energy, it's up by PLN 18.39 per ton. As I mentioned, this is because the cost of energy purchased from external parties is up by PLN 190 per megawatt hour. We also saw some increase in material prices of PLN 11 million. So the impact is a little bit below PLN 3 per ton. And so -- we have also the materials we used in mining pits and then external services as a result of the costs having fallen by some PLN 50 million for renovations and other mining services. And so this is PLN 20 million and more. So the cash cost fell then by PLN 23.1 per ton. Another piece of important information, which affected our mining cash costs. This is the volume of production which fell by [ 8,000 ] tons in Q1 and to a large extent, this is the outcome of what happened in the Knurów section when the fire took place. Now we can say that the cash conversion cost bridge has a higher number of contributing factors. So I will begin with the negative factors, there are a few were -- in fact, there are only 2 material factors. One is taxes and charges. So PLN 17.42 per ton. This is a result of setting up a provision for CO2 emissions. This is in excess of PLN 10 million for provision. But then we had a release of a reversal of provisions of some PLN 3 million. And so this -- let me tell you at the beginning that the cash conversion doesn't include the cost of purchasing coal to produce coke. The energy consumption is the second factor causing costs to grow -- the cash conversion cost to grow. So a higher consumption led to basically an additional cost of PLN 3 million. And this is because of steam. So this converts into PLN 4.1 and so this -- we had an increase in energy of [ PLN 39 ] per ton. So the volume is the most important thing here for the cash conversion cost. It was up by some 97,000 tons, that's an increase of some 14% over Q4 of last year. So the second important factor that reduced our cash conversion costs. These were employee benefits. They fell by some PLN 16 million -- actually more than PLN 16 million in Q1. This is nearly PLN 21 per ton. This is because of actuarial provisions falling versus Q4. And then the salary fund also dipped by some PLN 6 million. So another positive factor, if we think about the cash conversion. This is external services, net of transport and the cost of coal feedstock. And so -- this is a difference of PLN 7.75 per ton. This is because of doing less renovation and other services, while transport costs were on the rise for the coking plants. And the last item, which exhibiting impact, a positive impact. So this is an increase of PLN 5.78. This is the consumption of materials net of coal feedstock. So it was down by PLN 4.5 million. So that compares to [ PLN 5.78 million. ] So as PLN 5.78 per ton.

So if we compare these costs in both of the segments, the mining cash cost and the cash conversion cost. MCC is up by 13.4%. So it's some PLN 2.4 billion. And on a unit basis. So we had nearly PLN 16 per ton, and then we had 14.6. If we look at the coke segment in turn, we can see that the cash conversion cost is down to PLN 224 million, and that's sort of PLN 90 per ton, and this was driven by costs being lower in Q1, plus the higher production volume of coke. Now we can go on to the EBITDA drivers in the group. So EBITDA in the net right, the net results are comparable in Q1 of this year to Q4 of last year. We have a number of factors that had a positive as well as a negative contribution. So we had the impact of core sales volume and price. We talked about that. Mr. Bartos talked about that, and that improved the EBITDA by nearly PLN 271 million. So that was the coal segment. On the sales side, in turn -- in turn coke -- impact of coke sales volume and price. This moved things up by PLN 50.4 million. The average sales prices were lower, but we had a higher volume of coke, was up by 40-some-odd thousand tons. And so this led to an EBITDA upswing -- uptick.

And we have other sales revenue. So this is a negative impact of PLN 12.2 million. This is not very significant. But if you look at the cost by nature, this sort of an impact of PLN 251 million. I already mentioned the reasons for that. The impact of the results of other activities improved EBITDA by PLN 155 million. So on one hand, we have higher other revenue. On the other hand, we can save that other costs -- the cost of other activities fell. And so this is generally linked to the lower provision. And so we had impact of depreciation and amortization cost was down by [indiscernible] or up. So we had the fair value -- valuation of the assets in our closed-end investment fund, the fees. And so that led to an EBITDA of -- well, in any case, we had the change in inventories discussed by Mr. Bartos, so the difference here was PLN 196.8 million, basically for the inventory PLN 277 million with a negative sign. If we look at nonrecurring events, so the total impact is PLN 9.4 million, it's a small item which I don't think I need to discuss. There were no major events that are transpired in Q1, at least on a nonrecurring basis. And so at the end of the day, we have PLN 1.9 billion. Now if you look at the impact of operating segments on EBITDA. So the coal segment made a contribution to EBITDA. It's up by PLN 237 million for the reasons I've discussed previously. So the volume of products sold and the prices. So if we look at the change in coke segment, this was a negative impact of nearly PLN 91 million. So on one hand, we had a lower level of the operating result. So the revenue was up by some PLN 70 million, but costs were up by PLN 160 million. So we have a negative growth here. The change in the other segment was nearly PLN 92 million. This is a positive. Then we have the changes in consolidation eliminations, some transactions between JSW and the coking plants. So in the stand-alone results, we have a profit on those sales. But -- we see that in the inventory yards at the end, but through these transactions, well, we actually eliminate those transactions and their impact in the consolidated results. And then if we look -- we have the nonrecurring events coming at PLN 9.4 billion, and the EBITDA with nonrecurring events is PLN 1.965 billion.

Maybe a few pieces of information from the balance sheet, so assets of the group at the end of March, PLN 28 billion and -- so we have current liabilities of PLN 7.5 billion. We have to fix capital and PLN 20.5 billion. And then we have property, plant and equipment of PLN 11 billion. And then we have also the fees, the investment fund, intangible assets of PLN 130.9 million. Other noncurrent assets, PLN 8.4 billion, and that means -- but this doesn't include the assets in our fees and our close on the investment front, and this is -- these are liquid assets. Then we have a look at our net working capital from a different point of view. I won't look at the individual items. We come to the same figure for net working capital of PLN 947 million. And then if we look at our ratios, which we monitor and we give you reports on that in terms of the ratio of fixed capital to noncurrent assets. So we have the gray line, which incorporates the money we have in our closed-end investment fund and so then we have an approach where they treated as fixed assets. So in both cases, we can see that we meet the target of fixed capital to noncurrent assets ratio. If we look at net debt, if we add the assets we have in the form of cash from that fund. So we have PLN 8.968 billion and we have PLN 3.8 billion otherwise. And then we have few other words about the cash flow in the group. At the end of last year, we had PLN 4.8 billion in cash flow, and then we had the various categories of cash flows where money was spent. So we had depreciation as well as profit similar levels, and we have PLN 114 million, which is a positive change and change in inventory. So we were selling more coal than we produced. And then we had 456,000 tons of coal in the coal yards at the end of the year. And so if we look at coke, at the end of March, we had 179,000 tons as opposed to 247,000 tons. So these changes led to positive changes in cash flow. If we look at trade and other receivables, we have a negative adjustment of PLN 127 million. If you look at the change in trade and other liabilities. This has increased the cash flow by PLN 150 million. So this is an upward movement. And the other operating cash flows for a variety of reasons, had a negative impact of nearly PLN 214 million.

If we look at the investment side of things, investment cash flow is PLN 921 million. This is mostly the purchases of fixed assets. So this is some PLN 97 million. And then we had the paydown of loans and borrowings. So it's almost PLN 200 million spent to pay back PFR, the Polish development fund. Then we had FX differences and other financing cash flows of PLN 7.5 million. And so the cash at the end of the quarter was PLN 5.5 billion. And so this might cause you to give pause what's happening. What we, as a management team intend to do with this cash, while we're waiting for the decision about the windfall tax. We know that there's some legal solutions that are being bandied about and discussed. In terms of what's going to happen with that tax, we decided to keep this money in cash in the form of accounts. We also have to pay the corporate income tax, so they can be substantial amounts that we'll have to pay. And that's why we maintained liquid assets. And this money is working on the bank accounts, term deposits, but we're not utilizing the money for the other purposes. So generally speaking, the financial position of the group is excellent in terms of revenue costs and the results, and we have comparable results quarter-on-quarter. And so the capital position and the financial position and condition of the group are excellent. So thank you very much.

[Unknown Executive]

So thank you very much. Now we can go on to the questions -- Q&A session. So we've received some questions and I'll read them out and people continue to call in.

[Unknown Executive]

The first question, why do we have the softness of volumes in Q1 2023? And do you anticipate that it will be continued in subsequent quarters?

[Edward Pazdziorko, executive]

Ladies and gentlemen, as I respond to your question, I wouldn't say that we have a softness of volumes every year, every quarter. Well, these are operating entities where we're working on longwalls, active longwalls. I mentioned that in Q4 2022 was a quarter in which we mobilized our efforts and we had great access to longwall. So it was a pretty good period. And so based on the work that we've done in the past, that means that we exhausted a number of those longwalls. And if we look at the reports and the conferences that we've hold -- held. We had the 2 major events that took place in 2022, and they exhibited a negative impact on us and on our production and so that meant that we had to adjust our plans. And this would have an impact on what's happening in 2023 and 2024. This is something that's happened in Q1. So we saw that in Q4, we finished the production in a number of the longwalls, and so then we got into the period of preparing more longwalls and outfitting them. So we can say that we spent this time to prepare in order to have a higher level of production, especially in the latter half of the year.

[Unknown Executive]

The second question, does the company intend to revise its full year target in terms of volume?

[Edward Pazdziorko, executive]

Of course. Mr. Ostrowski talked about this when he discussed the financial results that in March in Knurów-Szczyglowice, we had a fire on the [ Knurow ] section and the impact was 250,000 in terms of volume. Nevertheless, we're undertaking a variety of efforts in order to compensate for that volume by the end of this year to offset that. And so this longwall, we want be able to utilize it because it's excluded from operations in the near future, so maybe things can happen in the second half of the year.

[Unknown Executive]

Then we have a question about the payment of a bonus for the second half of last year and the first half of this year. Are there any negotiations underway with the trade unions on that subject?

[Tomasz Cudny, executive]

Well, no negotiations are underway in terms of altering the conditions of employee benefits. So in February of this year, we have this agreement and they anticipate this agreement.

[Unknown Executive]

When we'll look at the salary front. Should we assume that salaries in subsequent years will grow in parallel with inflation?

[Tomasz Cudny, executive]

We don't have those type -- we don't have those type of assumptions in our planning.

[Unknown Executive]

The next question is the company giving consideration to taking over Bogdanka in order to reduce its methane outprint in the group? And does JSW consider joint investments with Bogdanka?

[Wojciech Kaluza, executive]

We don't have strategic plans and we don't -- in terms of taking over Bogdanka, we are not planning any joint investments with Bogdanka.

[Unknown Executive]

There's also a question about asking for an update about the annual CapEx in the medium term and if there's any deviation from the official forecast?

[Edward Pazdziorko, executive]

Well, the strategy, we embraced for 2022, 2030, calls for an average CapEx of PLN 2.4 billion per annum. If we look at our investments, we can see -- that we see that over the first 3 years, we will actually exceed that average anticipated for this full year for this period of the strategy. So there might be some changes in subsequent 3 years.

[Unknown Executive]

So if we look at the hydrocarbons. What's happening there? Because as prices fall versus Q4 '22, I'd like to ask how deep these price declines are?

[Sebastian Bartos, executive]

So we're talking about coking gas, benzol and tar basically, the prices are behaving totally differently. If we look at sulfur, we have very strong price clients but some of the other areas are very marginal. So generally speaking, this doesn't have any impact on the revenue. If we look at the gas prices, we had to decline tens of percentage points. So the prices of tar, this is highly sought-after product. So the price declines are marginal. Historically, they're at the highest level we've seen in terms of blast furnace production.

And if you look at benzol, we have prices based on what's happening with gasoline. And so here, the prices have been moving up. So generally speaking, we can say that in Q1, we saw an increase in the revenues on hydrocarbons. That's because our coking plants were producing more coke and that means they have more coking gas. And so the declines on coke and gas prices were not so strong that we would have a shortfall in revenue, quite the opposite.

So if you add the prices -- high prices of tar and for benzol, I think we have an increase of 3% to 4%. We have an increase of 3% to 4% in terms of the revenue in Q1 over Q4. Thank you.

[Unknown Executive]

What is the current change in the production mix at the Budryk mine in terms of having a higher share of type 35? And when do you intend to reach the target level?

[Edward Pazdziorko, executive]

So if you look at Budryk, is a mine that has many, many investments under way. If we look -- if we look at type 35, it's a hard coking coal, and so we are doing preparatory works here in certain mines scenes number 405/1 and 405/2. We have also a second undertaking, which is modernization or upgrade of our coal wash plant. And the idea is that by 2026, we should have a minimum level of hard coking coal in the overall production of some 95%. And so this is linked to our environmental targets. And so this applies to our air-conditioning and this will be in a closed cycle.

And if we look at the second strategic -- at the second strategic goal, the modernization of the upgrade of the co-wash plant. This is basically part of our environmental strategy because there are a number of solutions that are planned to have basically close cycle and so a circular approach. So we're going to use the flotation. We're going to -- so as we utilize methane on a commercial basis and from other sources. And this means that our entire strategy is based on executing environmental limits. And that means that type 35 coal will represent a certain target in the strategy in the future.

[Unknown Executive]

So what is the current utilization level in terms of capacity in the European blast furnace milling industry?

[Sebastian Bartos, executive]

There's a lot of information about renewing production. We can see the utilization ratio is up much very strongly. And you can see that in our presentation, both in the coking segment and the coal segment. And so we talked about bring back online. The blast furnaces U.S. [indiscernible] and so the Chinese owner of HBIS in [indiscernible]. And so we had another blast furnaces. And then Mittal is doing the same in Europe. So we can say that this is something that's clearly positive to us, acting as a boom. But there are cases where these blast furnaces were not brought back online for different reasons. We have the [indiscernible] in England, technically speaking, it's not capable of being reunited. We have 2 fires in [ Mittal, ] where the blast furnace is coming back online was pushed back in time. And so we have also another blast furnace in [indiscernible] that hasn't been launched, but this is positive because Mittal is doing a major CapEx. And so this will extend the lifetime of that blast furnace by another 20 years. So we can say that all these cases are pretty positive. We either have extraordinary events where the blast furnaces weren't brought back online. So it was either a technological thing that caused us to be delayed in time.

[Unknown Executive]

So in the latter half of 2022, the demand for coking coal in Europe was supported by integrated producers, and they wanted to produce coking gas and this led to surplus coke on the market. So is this something that's still happening after the declining gas prices?

[Sebastian Bartos, executive]

I think we've talked about that quite extensively. So the 2 numbers speak for themselves. So we can say that our inventories are down by 70,000 tons and as you saw in the presentation, this speaks for itself, and that means that the increase in sales by 11.5% as you saw in the presentation, what this means that the demand is much better, much stronger than it was.

[Unknown Executive]

And the next question about the market. If we look at the 3-month shutdown of the blast furnace #2 in [indiscernible] because of the renovation, is this affecting the amount of POs in the [indiscernible] coking plant? Or is it producing at the same level? Having in mind what's happening outside of ArcelorMittal?

[Sebastian Bartos, executive]

Well, this is a very interesting question. And how this impacts JSW, I'd like to remind you once a go. So between JSW and Mittal, we have very good commercial relations. We have been working together under a long-term contract, and we understand what's important to ArcelorMittal and the coking batteries that are located in [indiscernible]. They are used not only to support [indiscernible] this coking plant is also catering to the other plants that Mittal has. So if any operations are being taken or renovations, I think there is also a current report that was issued in terms of investments to the tune of [ PLN 116 million. ] This was to improve environmental issues, reduce CO2 emissions, and they don't have any impact on the delivery of coal from JSW to the Mittal Group.

[Unknown Executive]

The next question is also linked to the [indiscernible] coking plant. Do we think there's going to be a longer downtime there because of renovations that could have a negative impact on the sales volume in JSW?

[Sebastian Bartos, executive]

I think I responded to that question a moment ago. Mittal, of course, it's doing an investment. This is pro-environmental investment. This doesn't have any impact on our commercial relations. We continue to deliver coal in line with the contract. Basically, there are some shortages from our side that have to be filled in for in the future. We have to catch up, so we don't see any threats to the JSW Group as a result.

[Unknown Executive]

And then we have a last question about costs. When do you plan to present the updated strategy, especially if we think about MCC and CCC and productivity per employee?

[Wojciech Kaluza, executive]

Thank you very much for the question. So it was stated several times today that JSW is executing the strategy that was adopted last year. And so we're moving in on -- basically we're acting on those targets. Nothing has changed here. So if you look at the business plan, where we have certain changes in MCC and CCC, having in mind the volatility -- great volatility in the market. The company is observing the current situation. And if there's going to be any reason to revise the major assumptions for the strategy, then we'll notify of course, all of the stakeholders.

[Unknown Executive]

So we have a question about the future CapEx. To what extent should we anticipate in the future? Would we say that Q1 '23 is a benchmark or reference point for the rest of the quarters of this year and perhaps a future.

[Edward Pazdziorko, executive]

I mentioned previously, if we look at investments, we anticipate that in the subsequent quarters of this year, that we'll have a climbing trend of CapEx, especially third and fourth quarters. As I mentioned previously, over these first 3 years, well, if we're looking at the average CapEx spend, but basically in the first 3 years, we're going to basically do this more quickly but we want to maintain that average for the overall period of the strategy.

[Unknown Executive]

So then we have another question related to that. And so CapEx is substantially above the strategy. Will this contribute in the relatively short term to higher productivity amongst employees?

[Edward Pazdziorko, executive]

So tons per person, so we have higher CapEx across all of our plants or mines. And this is because we want to gain access to new layers to new quantities of coal and having in mind the fact that investments are long-term processes. So we can't speak directly to what the output -- productivity will be.

[Unknown Executive]

We also received a large number of questions about the dividend payments. What's possible here?

So investors would like to ask for a response to that question in terms of what might happen with the dividend.

[Robert Ostrowski, executive]

Ladies and gentlemen, these questions keep coming up at each one of our conferences held in recent period. And so the approach of the management hasn't changed. So we signed some loan agreements with PFR, and we reported to the market that there were certain limitations in terms of dividend payments. At that time, this did not spur how much discussion. Over the last 2 years, we've had extraordinary profit. We understand the expectations of the shareholders to pay out dividends. We still have certain limitations. And so we submitted a motion about not paying a dividend because of the limitations placed on us but the shareholders will make a decision about what will happen with the dividend. So if this dividend is paid out, then we have to be ready to prepay the loan to PFR. Our policy hasn't changed here.

And if you talk about the other talks and limitations, we've informed everybody of that. And so the status quo is exactly the same.

[Unknown Executive]

The next question as a management team, do you know what's going to happen with the windfall tax? And is it possible that it will be implemented for 2022? And do you think it will continue to be enforced?

[Robert Ostrowski, executive]

Well, this is a public discussion, and we've spoken out on that potential commitment. So decisions about placing a burden on some sectors of the economy was made in Brussels, and this applies to all EU member states, including Poland. So we have to act reasonably and we should anticipate that this type of tax or levy will be implanted in Poland as well without really knowing the algorithm. We have to take into account and factor in that risk, and that's why we maintain a high cash balance. And so the management is calculating this risk and the funds we maintain on the accounts are there in order to cover that commitment.

[Unknown Executive]

And the last question about costs of Q1. Why did we have such a high increase in employee benefits? And should we anticipate that these values of this growth rate will continue to transpire in subsequent quarters?

[Robert Ostrowski, executive]

Well, we already responded to that question when we talked about expenses by nature in the group. And we had the salary agreement signed by the management. One was in December, one was in February. There were 2 of them in total, and -- but they took force on the first -- as of the first of January, and this has an impact on salaries as well as payroll-related expenses. So this is an increase of 15.4%. This is an increase of salaries across the full year. And as Mr. [indiscernible] said, we are not engaged any discussions about any follow-up increases of salaries. So this incorporates the inflationary pressure we see across the year. So thank you very much.

[Tomasz Cudny, executive]

Thank you very much. So if that was the last question that we received during the conference, I'd like to thank you very much and so all of the other questions that the management Board receives and the Investor Relations Department receives, we'll respond to them.

I'd like to thank our employees of the group, our business partners that you've contributed to generating such good results. I'd like to thank everybody for the work that you've done to prepare today's conference. And I'd like to thank those persons who participated in today's conference.

So thank you very much for your attendance. [Statements in English on this transcript were spoken by an interpreter present on the live call.]