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Annual Report and Accounts 2011 / Business Review / Financial Review 

Financial Review


EBITDA margin 28%

  • Revenues of EUR 1.6 billion
  • EBITDA of EUR 454 million
  • Net profit of EUR 130 million
  • Basic EPS of EUR 0.47
  • Proposed final dividend of EUR 0.07 per A share, bringing full year dividend to EUR 0.23
  • Strong balance sheet: EUR 537 million of cash and net debt of EUR 391 million with no significant short-term debt maturities
 Financial Review  Financial Review
 Financial Review  Financial Review
 Financial Review  

Marek Jelínek
Executive Director and Chief Financial Officer

 Marek Jelínek
 Marek Jelínek  Marek Jelínek  Marek Jelínek

As a result of our cautious approach to cash management, we retained a strong balance sheet in 2011 despite the deteriorating macro econcomic climate, and going into 2012, our solid financial position and high level of liquidity will allow us to focus our energies on managing our core business, expanding our existing footprint and developing our principal growth project at Dębieńsko.

We paid an interim dividend of EUR 0.16 per A Share and proposed a final dividend of 0.07 bringing the total dividend for 2011 to EUR 0.23 per A share. This is in line with our current dividend policy of distributing 50 per cent of consolidated annual net income over the course of the business cycle.


In the difficult macroeconomic environment of 2011 NWR delivered one of its strongest financial performances underpinned by a disciplined approach to cost control and continuing focus on the fundamentals of the business. Our total revenues for 2011 increased by 3 per cent year on year to EUR 1,632 million mainly as a result of increased revenues from both thermal and, to a lesser extent, coking coal. Total EBITDA for the year was EUR 454 million compared to EUR 464 million in 2010.

Due to our very stringent cost control, unit costs of EUR 82 per tonne for the coal segment and EUR 60 per tonne for the coke segment were broadly on target, a significant achievement given rising input cost inflation during the year. CAPEX was also well controlled and fell by 12 per cent during the year to a total of EUR 194 million.

Basic earnings per A Share for 2011 were EUR 0.47 (EUR 0.86 for 2010)1.


Revenues in the coal segment rose by 11 per cent to EUR 1,509 million. The main driver of revenue for the coal segment was the positive pricing environment for both coking and thermal coal, although this was limited by a lower than expected proportion of coking coal in the product mix. We increased revenues from coking coal by 8 per cent to EUR 800 million and thermal coal revenues by 27 per cent to EUR 437 million during the year.

The average coking coal price for 2011 was EUR 181 per tonne, an increase of 29 per cent, while the average price for thermal coal was EUR 70 per tonne, a 12 per cent increase over 2010.

Coal production for 2011 of 11.2 million tonnes and total external coal sales at 10.6 million tonnes slightly exceeded our full year coal production target of 11.0 million tonnes as well as the coal sales target of 10.3 million tonnes, as we took advantage of a strong thermal coal market in the last quarter to increase the thermal coal volumes. Indeed, we saw significant growth in demand for thermal coal during the year overall and into 2012.


Demand for merchant coke was strong early in the year but deteriorated in the second half of the year as the macro-economic situation worsened. The fall in coke sales volumes to 555 kilo tonnes for 2011 (1,100 kilo tonnes in 2010) was a result of our earlier decision to modernise and concentrate all coke production at a single site and the weak coke market in the second half of the year. The average achieved coke price of EUR 365 per tonne represents an increase of 33 per cent year-on-year. However, this increase in prices was more than offset by the decrease in sales volumes, and coke revenues for the year fell by 33 per cent to EUR 202 million.

Operating expenses

Our total operating expenses, net of other operating income and gain/loss from sale of material and property, plant and equipment (‘PPE’), for the year including depreciation and amortisation increased by 11 per cent from EUR 1,260 million in 2010 to EUR 1,394 million.

Mining unit costs during 2011 increased broadly in line with our targets by 12 per cent on a constant foreign exchange basis to EUR 82 per tonne (EUR 71 per tonne in 2010). This increase in costs reflected significant input cost inflation resulting from higher European steel prices, electricity prices, and increased contractor costs as well as continuing mine development and the scheduled maintenance of mining equipment. Personnel expenses increased by 4 per cent on a constant currency basis, reflecting a 4 per cent increase in basic wages in 2011.

Despite the 23 per cent decrease in production, the coke conversion costs per tonne have fallen significantly, by 17 per cent year on year, to EUR 60 per tonne, in line with our estimates. This decrease in unit costs is due to the concentration of our coke production in one facility at the end of 2010 which has had the desired effect in terms of cost optimisation.

Operating cash flow and CAPEX

Operating cash flow after working capital movements and before taxes and interest increased to EUR 382 million, up 5 per cent compared to 2010. Net operating cash flow for 2011 was EUR 258 million, 18 per cent lower than in 2010 due to increased interest payments as well as higher income tax payments.

Total CAPEX for 2011 was down 12 per cent to EUR 194 million. Maintenance and safety-related CAPEX for both the mining and the coking segments accounted for approximately EUR 100 million, while EUR 90 million was invested in operational improvements and the development of existing operations.

CAPEX spend on our Dębieńsko project in 2011 was approximately EUR 5 million, which predominantly consisted of engineering, project planning, land purchases and other pre-development costs for the project. We expect CAPEX to rise significantly during 2012 to EUR 40–50 million as we ramp up development of the project, having broken ground in December 2011.

While the POP 2010 capital investment programme was completed in 2010, we continue to see benefits from the investments made in new machinery which requires less ongoing maintenance and replacement of technology.

1 Includes EUR 82 million one-off gain from the sale of NWR Energy and EUR 23 million positive tax refund.

Exchange rates

The relevant exchange rate for us is the Euro/Czech Koruna. The Czech Koruna appreciated by 3 per cent during the year to an average exchange rate of CZK/EUR 24.59. Our policy is to hedge 70 per cent of our foreign exchange cash flow exposure in order to provide sufficient clarity and predictability to our ongoing business. The move to quarterly rather than annual pricing for coking coal means that we now make more frequent adjustments to our hedging positions throughout the year.

Over time, with the development of the Debiensko project, we will start to see exposure to the Polish Zloty where we expect to adopt the same hedging policy. We do not to expect this exposure to be very significant during 2012.

Financial expenses and taxes

Net financial expenses decreased by 22 per cent to EUR 89 million in 2011. Both financial income and financial expenses decreased, mainly as a result of lower currency effects. In 2010, the financial expenses were also impacted by fees and interest expenses related to the proposed Lubelski Węgiel ‘BOGDANKA’ Spółka Akcyjna acquisition, as well as fees related to the repayment in full of the Senior Secured Facility.

NWR recorded net income tax expense of EUR 57 million in 2011, compared to a EUR 31 million net expense in the same period of 2010, which included a one-off tax refund associated with the reversal of the Czech tax authority’s position on certain interest expenses that were previously deemed non tax-deductible.

Liquidity and capital resources

As a result of our cautious approach to cash management, we retained a strong balance sheet with EUR 391 million net debt and EUR 537 million of unrestricted cash at the end of 2011. This, together with our safe debt maturity profile, enables us to provide necessary financing for our Debiensko growth project and to take advantage of any potential M&A opportunities in the Central European region should they arise.

Due to the ongoing uncertainty in the Eurozone, we have been extremely conservative with regard to managing our cash during 2011. To this end, we have modified the cash flow instruments we use and reduced our exposure to the European banking sector which was perceived as risky. Furthermore, to strengthen our financial position we put in place a Revolving Credit Facility of EUR 100 million in February 2011. At the end of the year we chose to fully draw down the funds, although we had no immediate funding needs, in order to prevent the facility becoming unavailable to us in future. We intend to repay this loan once we become more comfortable with the situation in the Eurozone.

Our net debt at the end of 2011 was EUR 391 million, up 22 per cent from 31 December 2010, mainly due to the payment of the final dividend for the 2010 financial year (EUR 58 million and EUR 40 million B shares dividend) and the interim dividend for the 2011 financial year (EUR 43 million).

We currently have two outstanding bonds, with the nearest significant maturity not due until 2015, when the outstanding EUR 258 million Senior Notes mature. During 2011, we bought back EUR 10 million of these bonds and we might continue to do this on a small scale as and when they become available.

During 2012 we will continue to watch the markets closely so we are able to take advantage of opportunities either to raise new financing or to refinance our debt as they arise.


We paid an interim dividend of EUR 0.16 per A Share and proposed a final dividend of 0.07 bringing the total dividend for 2011 to EUR 0.23 per A share. This is in line with our current dividend policy of distributing 50 per cent of consolidated annual net income over the course of the business cycle.


We successfully completed our reincorporation in the United Kingdom during 2011 at a cost of approx. EUR 6.5 million. As a result of the redomiciliation process, we became eligible for inclusion in the FTSE 250 index as well as the FTSE 350 Mining index and thereby increased our visibility and exposure to international investor community. We remain confident about the benefits of undertaking this process for shareholders of the Company in the longer-term.


Going into 2012 our solid financial position with a balance sheet and high level of liquidity will allow us to focus our energies on managing our core business, expanding our existing footprint and developing our growth project at Dębieńsko.

Our financial position also stands us in good stead to face potential recessionary scenarios in the Eurozone and we remain focused on the longer-term goals of our business. Additionally we have built flexibility into our mining production plan for 2012 so we are able to accelerate or reduce production depending on demand for our products. Given the significant shortage of both coking and thermal coal in Central Europe, we do not expect coal volumes to be impacted by a severe economic slowdown although this may have an impact on prices. We expect to produce between 10.8 and 11.0 million tonnes of coal in 2012.

As we have again seen in 2011, demand for coke is more sensitive to the economic environment. Our production target for coke for 2012 is 700 kilo tonnes, compared to 770 kilo tonnes produced in 2011. We will continue to sell a higher proportion of foundry coke which provides more value added and has a more diversified customer base.

We continue to target very stringent cost control for 2012 and our guidance is for flat mining unit costs year on year on a constant exchange rate basis.

We expect CAPEX in 2012 to be around EUR 250 million, including EUR 40–50 million of CAPEX for the Debiensko project as we ramp up development of the mine during 2012. The ongoing CAPEX in our current operations will be used mainly to finance incremental underground development work aimed at maintaining production volumes and improving the coal mix. Further it includes expenditure for replacement and renewal of longwall sets, development sets, maintenance of mining equipment, as well as safety-related CAPEX.

Furthermore, we continue to believe that there is significant potential for consolidation in our region and our strong financial position means that we have sufficient financing strength should an opportunity present itself in the course of the year.


Marek Jelínek

Executive Director and Chief Financial Officer