Marek Jelínek

Executive Director and
Chief Financial Officer of NWR

Financial review and outlook

For the year ended 31 December 2008, the Company’s revenues amounted to EUR 2,041 million, an improvement of 49 per cent over 2007. NWR’s largest revenue-generating business is coking coal production, which accounted for EUR 860 million of external net sales in 2008 on an EXW basis. Over the year, coking coal sales revenues increased by 48 per cent, reflecting both higher prices and an increase in volumes sold.

Revenue from sales of thermal coal rose by 39 per cent (EXW) and thermal coal prices held up well. Although thermal coal generally produces lower profit margins than coking coal, the demand for thermal coal tends to be less volatile as it is used to generate electricity.

The Company also produces coke primarily from its own coking coal production. Coke is sold to steel producers and foundries. Higher coke sale prices helped produce an improvement in revenue from coke sales of 48 per cent (EXW).

NWR also sells by-products of the coke production cycle to generate additional revenue, including sulphuric acid and benzene. Further sources of income derive from electricity trading and the sale of coal-bed methane.

Costs

Cost inflation rose throughout the industry in 2008. The most significant expenses for NWR are related to personnel, including contractors. This category accounts for approximately 50 per cent of our total costs.

Total underlying costs increased by approximately 8 per cent excluding the impact of Czech Karbon, non-recurring IPO advisory costs, share-based payments and the strong appreciation of the Czech Koruna. A sound performance in light of industry-wide growth in input costs throughout most of 2008.

EBITDA

EBITDA of EUR 697 million for 2008 represents an increase of 99 per cent compared to EUR 351 million achieved in the previous year, significantly improving the EBITDA margin from 26 per cent in 2007 to 34 per cent in 2008.

Dividend

The Directors of NWR have declared a final dividend for the year ended 31 December 2008 of EUR 0.18 per A share. Together with the interim dividend of EUR 0.28 per A share paid in October 2008, this takes the full year dividend payable to A shareholders post-IPO to EUR 0.46 per share in respect of the year ended 31 December 2008.

This represents a 35 per cent payout ratio for 2008, reflecting the current challenging economic climate as well as the unpredictability of the markets over the next 12 months. This payout was aimed at preserving the balance sheet, and associated strategic flexibility, whilst still retaining an attractive overall yield. The Board remains committed to its policy of distributing approximately 50 per cent of its annual net income over the business cycle and expects to resume a higher payout ratio once markets show signs of improvement and greater predictability.

Cash flows

Net operating cash flow for the year 2008 was EUR 523 million, an increase of 103 per cent compared to EUR 258 million in the year 2007, mainly driven by higher revenues due to higher prices of coal and coke achieved.

Exchange rates

The Company’s functional currency for financial reporting purposes is the Euro. The Czech Koruna appreciated against the Euro by approximately 11.3 per cent between the year ended 31 December 2007 and the year ended 31 December 2008. In October 2008, NWR unwound its EUR/CZK hedges that were in place for OKD for the period 2009-2013. This did not impact its existing hedging structures for the year 2008.

NWR expects, subject to market conditions, to put in place new hedging contracts in the first half of 2009 to achieve its stated policy of having 70 per cent of its foreign currency exposure hedged.

Sale of Bastro

On 2 December 2008, NWR announced that OKD finalised the sale of Bastro to Bucyrus DBT Europe GmbH, the German subsidiary of Bucyrus International, Inc., a mining equipment manufacturer. The sale is consistent with the Company’s ongoing efforts to focus on its core business of coal mining. Bastro will continue to supply mining equipment and engineering services to OKD.

CAPEX 2009

NWR plans to continue its major capital expenditure programmes in 2009 in line with the Company’s strategy to invest in the long-term sustainability of its business.

Currently, total capital expenditure budgeted for 2009 amounts to approximately EUR 289 million. EUR 116 million of this is related to POP 2010.

Investment in maintenance and safety at OKD is expected to amount to approximately EUR 87 million and EUR 36 million respectively.

CAPEX at OKK is expected to amount to approximately EUR 29 million, including investment in the COP 2010 programme, maintenance and safety.

NWR also plans to spend approximately EUR 17 million on its Polish development projects in 2009.

The Company continues to review the implementation of its investment plans to ensure optimum scheduling and cash flow enhancement.

Outlook

The severity of the economic crisis is reflected in the steel market, which has seen major cuts in production with consequent knock-on effects on coking coal and coke demand and prices.

In light of these circumstances and the slower than typical off-take for coking coal seen in the beginning of the year, NWR will target production of 12.1 million tonnes of coal in 2009. The Company expects approximately 52 per cent of production to be coking coal and 48 per cent thermal coal.

NWR has reduced output for its coking facilities and is now targeting production of approximately 850 kt of coke in 2009, a 34 per cent reduction compared to 2008.

The Company has tightened cost management, aiming at a 2009 cash cost per tonne below the 2008 level. Furthermore, the Company continues to review its strategic investment plans to optimise returns and cash flow.

NWR believes that the fundamentals for both thermal and coking coal markets remain positive in the long-term. Hence, its strategy is to ensure that it will be well positioned to take full advantage of opportunities arising when the economy and the coal markets begin to recover.

Marek Jelínek

Executive Director and
Chief Financial Officer of NWR

Key financial highlights

Year ended 31 December
EUR millions			2008 EUR	2007 EUR	% change
Revenues			2,041	1,367	49%
EBITDA			697	351	99%
Operating profit			531	208	156%
Net profit for the period			352	196	79%