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Press Releases / 2012 / Unaudited results for the first quarter 2012 

Unaudited results for the first quarter 2012

16/5/2012

New World Resources Plc (‘NWR’ or the ‘Company’) today announces its financial results for the three-month period ended 31 March 2012.

Highlights

  • Revenues of EUR 347 million, down 10%
  • EBITDA of EUR 54 million, down 34%
  • Net profit of EUR 6 million, up 80%
  • Basic EPS of EUR 0.02
  • Cash flow from operations of EUR 80 million
  • Net debt of EUR 385 million, down 2% since the beginning of the year
  • LTIFR[1] improved by 4% to 7.17, the best result in the Company’s history
  • Coal production of 2.4Mt, and external sales of 2.3Mt (1.3Mt coking coal)
  • Coke production of 175kt, and external sales of 155kt
  • Q2 coking coal and coke prices agreed at EUR 130/t and EUR 298/t respectively
  • Debiensko CAPEX for 2012 capped at EUR 5 million pending project’s review
  • Agreement with trade unions on 3% increase in basic wages from 1 April 2012
  • 2012 guidance on production, sales, coal mix and unit costs unchanged

Chairman’s statement

Operational performance during the first three months was in line with our expectations including the slower rate of production in the first quarter and our full year 2012 production and sales targets remain unchanged. In April we successfully concluded negotiations with the trade unions ensuring a positive outcome for our mining employees whilst keeping the Company’s largest cost component contained. Coupled with other favourable cost movements we are on track to achieve the previously announced target of flat unit costs in local currency for the full year 2012.

Our injury frequency rate showed continued improvement in the first quarter of 2012, decreasing by 4% year-on-year, and all our operations were fatality-free during the period.

Improving the coal mix is one of NWR's operational priorities. In February we announced that the deteriorating trend in our product mix has reversed in the short term. In the first quarter of 2012, we have seen very strong coking coal volumes and we are on track to achieve our previously announced full year guidance on coal mix, which marks an improvement compared to 2011. For the medium term, we have initiated expansion projects from our existing mining footprint to unlock approximately 30 million tonnes of coking coal reserves.

Our balance sheet remains robust. Net debt decreased for the third consecutive quarter and we have no immediate refinancing obligations ahead of us. We repaid in full the EUR 100 million revolving credit facility, which is now fully available. However we remain alert to continuing challenges, including increased flows of US coal into Europe, the muted outlook for Eurozone economies and financial markets in general. We therefore continue to focus on prudently managing and constantly evaluating our operations, capital expenditure and funding.

In that respect, we have capped our CAPEX spending at Debiensko in 2012 at EUR 5 million, reflecting changed water management conditions as well as inflationary pressures in Poland. We decided to carry out a thorough review of the project’s key parameters before advancing the CAPEX programme.

Industrialisation and urbanisation in China, India and other rapidly developing emerging economies will continue to require huge imports of steel-making materials. And although we appear to be entering an era of weak or even negative growth rates in developed economies, we believe that continued growth in emerging markets will provide a floor to international coking coal prices.

Steel production in the CEE region has been on an improving trajectory since the beginning of the year. Steel mills in our customer markets are currently running at utilisation rates of between 80 and 90 per cent with steel production up 7 per cent in the quarter compared to the previous quarter. An important end market for us – car production – is maintaining its momentum in the CEE region. Vehicle production in the Czech Republic alone increased by 14 per cent in the first quarter relative to the previous year.

To conclude, we reiterate our full year 2012 guidance that NWR expects to extract between 10.8Mt and 11Mt of coal and produce 700kt of coke this year. External sales of coal are projected to reach between 10.25Mt and 10.5Mt of coal, split approximately 52 per cent thermal coal and 48 per cent coking coal.  Additionally, we expect to sell 600kt of coke this year. We also reiterate our target of flat mining unit costs in Czech Koruna for the full year.

Mike Salamon, Executive Chairman of NWR

Selected consolidated financial and operational data

(EUR m, unless otherwise stated)

Q1 2012

Q1 2011

% chg

 

Revenues

347

385

(10%)

 

EBITDA

54

82

(34%)

 

Operating profit

11

38

(71%)

 

Profit for the period

6

3

80%

 

Basic earnings per A share (EUR)

0.02

0.01

96%

 

 

 

 

 

 

Total assets

2,328

2,277

2%

 

Net debt

385

307

26%

 

Net working capital

98

(27)

 

 

 

 

 

 

 

Net cash flow from operations

73

119

(39%)

 

CAPEX

69

66

4%

 

 

 

 

 

 

Average number of staff incl. contractors

17,991

18,058

(0%)

 

LTIFR

7.17

7.46

(4%)

 

 

The Company’s revenues decreased by EUR 38 million in Q1 2012 compared to Q1 2011 mainly due to decreased revenues from thermal coal and coke.

Lower decline in inventories in Q1 2012 compared to Q1 2011 together with broadly flat operating expenses resulted in EBITDA of EUR 54 million for Q1 2012, a EUR 28 million decrease compared to the same period of 2011.

Depreciation and amortisation remained flat year-on-year at EUR 43 million and the operating profit for the period was EUR 11 million.

Net financial expenses decreased by 89% to EUR 3 million in Q1 2012 reflecting lower net foreign exchange loss, and higher net profit on derivatives revaluation when compared to Q1 2011. As a result, the profit before tax was EUR 8 million, 27% below the level in the same period of 2011.

The Company recorded a net income tax expense of EUR 2 million in Q1 2012, compared to a EUR 7 million net expense in the same period of 2011 and NWR’s consolidated profit for the period was EUR 6 million, up 80% compared to Q1 2011.

The basic earnings per A share for the three-month period ended 31 March 2012 amounted to EUR 0.02.

Operating cash flow before taxes and interest was EUR 80 million, down 34% compared to Q1 2011 reflecting lower revenues from thermal coal and coke, as well as less positive developments in working capital. Net operating cash flow after interest and income tax for Q1 2012 was EUR 73 million, 39% lower than in Q1 2011.

Total capital expenditure in Q1 2012 amounted to EUR 69 million, 4% above the Q1 2011 level. This includes CAPEX of EUR 2 million spent on the Debiensko project.

As at 31 March 2011, the Company’s net debt was EUR 385 million, down 2% from 31 December 2011. The Company’s first significant debt maturity is not until 2015. In March we fully repaid the EUR 100 million revolving credit facility and during 2012 we will continue to watch the markets closely so that we are able to take advantage of opportunities either to raise new financing or to refinance our debt as they arise.

Health and safety

The safety of our workforce is an absolute priority and the investment in modern mining technologies bought under the POP 2010 programme has helped bring down the LTIFR in recent years. In the first quarter of 2012 our LTIFR showed another 4% improvement to 7.17 loss-time injuries per one million hours worked in the NWR Group. This is the lowest injury rate ever achieved in the history of NWR and NWR’s management is committed to reducing LTIFR below 5 by 2015.

Development projects

At present NWR has three major projects in its pipeline in various stages of development, Debiensko and Morcinek in Poland and Frenstat in the Czech Republic.

In the first quarter of 2012, construction works on the Debiensko project progressed according to plan. However, the risk profile related to water management has changed and long-term water treatment liabilities now need to be reviewed. In addition, recent competitive bids for certain parts of the project reflect inflationary pressures for mining equipment and services in Poland.

We have, therefore, capped CAPEX spend for 2012 at EUR 5 million, pending a review of the project’s parameters. The review will involve several months of engineering work.

We are also undertaking expansion initiatives within our existing mining footprint in the Karvina region aimed at improving our product mix. Two expansion projects at the Karvina Mine are aimed at accessing to more than 30 million tonnes of coking coal via our existing operations by 2016 – 2017. In March 2012 we submitted a notice of intention to further extend mining activities in the Karvina Mine to the Ministry of Environment of the Czech Republic.


 

Coal segment

 

Q1 2012

Q1 2011

% chg

ex-FX

P&L (EUR m)

 

 

 

 

Revenues

314

342

(8%)

(7%)

EBITDA

54

81

(33%)

(35%)

Operating profit

13

40

(66%)

(72%)

Production & Sales (kt)

 

 

 

 

Coal production

2,389

2,582

(7%)

 

Sales to coke segment

140

158

(11%)

 

External sales

2,289

2,637

(13%)

 

Coking coal

1,290

1,169

10%

 

Thermal coal

999

1,468

(32%)

 

Period end inventory

264

46

474%

 

Average realised prices[2] (EUR/t)

 

 

 

Coking coal

141

154

(8%)

(6%)

Thermal coal

75

67

12%

15%

Costs (EUR/t)

 

 

 

Mining unit costs[3]

97

90

8%

11%

Total coal production in Q1 2012 was 7% below the level in the same period of 2011, and external coal sales were 13% lower year-on-year mainly due to lower volumes of thermal coal, whereas external coking coal sales volumes marked a 10% year-on-year increase. Thus revenues for the coal segment decreased by 8% mainly due to lower thermal coal revenues which were only partly offset by higher revenues from coking coal.

External coking coal sales in Q1 2012 comprised approximately 52% hard coking coal and 41% semi-soft coking coal, and 7% PCI coking coal. Thermal coal sales in the period were approximately 78% thermal coal and 22% middlings.

While the coal segment’s cost profile in Q1 2012 was flat, mining unit costs rose by 8% in the first three months of 2012 compared to Q1 2011 due to the 7% decrease in production.

The coal segment generated EBITDA of EUR 54 million, a decrease of 33% compared to Q1 2011 fully attributable to lower revenues.

Coal segment outlook

As previously announced, the average agreed price of coking coal for delivery in the second calendar quarter of 2012 is EUR 130 per tonne, a decrease of 8% compared to the first quarter realised price and in line with similar developments in the global coking coal markets. This average price is based on expected Q2 2012 coking coal sales of approximately 50% hard coking coal, 43% semi-soft coking coal, and 7% PCI coking coal. The average price agreed for thermal coal sales for the 2012 calendar year is EUR 74 per tonne, an 11% increase compared to the 2011 average realised price. This average price is based on expected FY 2012 mix of 82% thermal coal and 18% middlings.

NWR reiterates its FY 2012 targets of production between 10.8Mt and 11Mt and external sales between 10.25Mt and 10.5Mt. The external sales split is expected to be approximately 48% coking coal and 52% thermal coal in 2012.

On the basis of the April agreement with the trade unions, the coal segment’s total personnel expenses for 2012 are expected to remain broadly flat in CZK terms compared to the previous year. NWR therefore continues to expect its mining unit costs to remain broadly flat in FY 2012, excluding any impact from foreign exchange fluctuations.

Coke segment

 

Q1 2012

Q1 2011

% chg

ex-FX

P&L (EUR m)

 

 

 

 

Revenues

57

71

(19%)

(19%)

EBITDA

6

7

(15%)

(26%)

Operating income

4

5

(21%)

(39%)

Production & Sales (kt)

 

 

 

 

Coke production

175

202

(13%)

 

Coke sales

155

180

(14%)

 

Period end inventory

161

45

258%

 

Average realised prices[4]  (EUR/t)

 

 

 

Coke

310

337

(8%)

(8%)

Costs

 

 

 

Conversion unit costs[5] (EUR/t)

64

61

4%

7%

Coal purchase charges[6]  (EUR m)

35

43

(19%)

(19%)

Revenues for the coke segment decreased by 19% due to a year-on-year decrease in both sales volumes and prices in Q1 2012. Coke sales in Q1 2012 were approximately 71% foundry coke, 21% blast furnace coke, and 8% other types.

Coke conversion unit costs increased by just 4% despite the 13% drop in production. Together with the lower cost of inputted coal, the impact of lower revenues on the operating result was muted and EBITDA was EUR 6 million in Q1 2012, which is only EUR 1 million lower than EBITDA in the comparable period of 2011.

Coke segment outlook

As previously announced, the average price of coke agreed for delivery in the second calendar quarter of 2012 is EUR 298 per tonne, a 4% decrease compared to the first quarter realised price, which is mainly due to lower prices in the European foundry coke market. This average price is based on the expectation of Q2 2012 sales of approximately 67% foundry coke, 16% blast furnace coke and 16% other types.

NWR expects to produce 700kt and sell 600kt of coke in FY 2012.

Coke unit conversion costs are expected to increase in line with the expected decrease in production in FY 2012.

Q1 2012 earnings analyst conference call

NWR management will host an analyst and investor conference call on 16 May 2012 at 10:00 GMT (11:00 CET) to discuss the financial results for the period. The call will include a brief Q&A session.

The presentation will be also made available via a live audio webcast on www.newworldresources.eu and the webcast will be then archived on the Company’s website.

Dial in details:

UK & the rest of Europe (Toll)                       +44 (0) 20 7784 1036

US (Toll)                                                        +1 646 254 3361

Czech Republic (Toll free)                              800 701 231

Poland (Toll free)                                            00 800 121 4330

The Netherlands (Toll)                                   +31 (0) 20 721 9158

Access Code                                                 5541511

A replay of the conference call will be available for one week by dialling:

+44 (0) 20 7111 1244 (Access code: 5541511)

For further information:

Investor Relations                                        Corporate Communications

Radek Nemecek                                            Petra Masinova

Tel: +31 20 570 2244                                    Tel: +31 20 570 2229

E-mail: rnemecek@nwrgroup.eu                   E-mail: pmasinova@nwrgroup.eu

Website: www.newworldresources.eu


About NWR

New World Resources Plc is one of Central Europe’s leading hard coal and coke producers. NWR produces quality coking and thermal coal for the steel and energy sectors in Central Europe through its subsidiary OKD, the largest hard coal mining company in the Czech Republic. NWR's coke subsidiary OKK, is Europe's largest producer of foundry coke. NWR currently has development projects in Poland and Czech Republic, which form part of NWR's regional growth strategy. NWR is a FTSE 250 company, with listings in London, Prague and Warsaw.



[1] Lost Time Injury Frequency Rate represents the number of reportable injuries in the NWR Group causing at least three days of absence per million hours worked including contractors.

[2] Final realised prices can be influenced by a range of factors including, but not limited to, exchange rate fluctuations, quality mix, timing of the deliveries and flexible provisions in the individual agreements. Thus the actual realised price for the period may differ from the average agreed prices previously announced. All of the forward-looking price guidance for 2012 is based on an exchange rate of CZK/EUR of 25.00. Prices are expressed as a blended average between the different qualities of coal and are ex works.

[3] Mining costs per tonne reflect the operating costs incurred in mining both coking coal and thermal coal. They exclude transportation costs and D&A.

[4] Final realised prices can be influenced by a range of factors including, but not limited to, exchange rate fluctuations, quality mix, timing of the deliveries and flexible provisions in the individual agreements. Thus the actual realised price for the period may differ from the average agreed prices previously announced. All of the forward-looking price guidance for 2012 is based on an exchange rate of CZK/EUR of 25.00. Prices are expressed as a blended average between the different types of coke and are ex works.

[5] Coke conversion costs per tonne reflect the operating costs incurred in producing all types of coke and exclude the costs of input coal, transportation costs, and D&A.

[6] Both internal and third party coal purchases.

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