K312 LS loader, POP 2010, Staříč Site, Paskov Mine

Longwall face, Karviná Mine

Coke extrusion, Svoboda Coking Plant

Coking Batteries, Svoboda Coking Plant

Drilling works at a development section, Staříč Site, Paskov Mine

Operational review

Over the year, revenues were up 49 per cent to EUR 2.04 billion. EBITDA increased by 99 per cent to EUR 697 million, significantly improving EBITDA margin to 34 per cent. Profit for the year was EUR 352 million, an increase of 79 per cent over 2007. Our operating cash flow rose by 103 per cent to EUR 523 million, and coal production was stable at 12.7 million tonnes.

These record figures were achieved through sound operational execution and strong financial results from our coal and coke businesses. Total underlying costs increased by approximately 8 per cent excluding the impact of CZECH-KARBON s.r.o. (“Czech Karbon”), (the entity that buys electricity for the Group and also sells electricity to third parties in the Czech market), a sound performance in light of an industry-wide increase in input costs in 2008.

Adjusted earnings per A share increased by 76 per cent to EUR 1.30, benefiting from strong revenue growth due to coal prices achieved in 2008, which was partially offset by an increase in the underlying tax rate.

Coal operations

Our principal activity of hard coal mining is largely conducted through our wholly-owned subsidiary, OKD. We produce both coking coal and thermal coal (also known as steam coal). Coking coal is used as a raw material in steel production, and thermal coal is sold to electric utilities, industrial users and other producers of electricity.

Traditionally, coking coal commands higher prices and generates higher revenues with higher margins for OKD relative to thermal coal. Of our 12.7 million tonnes of hard coal produced in 2008, 7.4 million tonnes were coking coal, which we sell to European steel markets or use at our own coking plants. Another 5.1 million tonnes were thermal coal, which we export mainly to Austria, Poland, Slovakia and Germany.

Hard coal mining operations take place in our four active mining complexes in the Upper Silesian basin of the north east region of the Czech Republic. The four facilities are Karviná, Darkov, ČSM and Paskov and between them cover an area of approximately 120 sq km. All coal produced by OKD tends to be of good quality, with the highest quality coal produced from the Paskov mine.

Our four mines have 23 shafts extracting coal from depths ranging from 600 to 1,000 metres below the surface. All the mines extract coal from multiple seams using the longwall mining method with shearers or ploughs in connection with mechanised shields or single hydraulic props to cut coal and to secure the excavated area.

Maintaining productivity levels became increasingly challenging due to the ageing machinery, some of which is more than 15 years old. Our POP 2010 programme is a major recapitalisation scheme involving over EUR 330 million of machinery. The investment is currently replacing a large portion of existing assets with the latest technology enabling us to increase productivity levels and overcome the ongoing decline in the number of skilled mineworkers.

Coking operations

We operate two coking plants through our subsidiary, OKK. These plants, Šverma and Svoboda, are located close to our coal mines and comprise five coking batteries, with a combined capacity of approximately 1.3 million tonnes per year.

In 2008, OKK produced 1.3 million tonnes of coke, largely from our own coking coal. Of that total, 0.4 million tonnes was foundry coke, 0.6 million tonnes was metallurgical coke (also known as blast-furnace coke) and the remainder was heating coke for the chemicals industry.

The Šverma facility produces metallurgical coke through two conventional top-charging coke ovens with approximately 70 cells per oven. Each cell has a capacity of 15 tonnes of coke per load with coking time of 18 to 22 hours.

The Svoboda facility uses the stamp-charging process to produce foundry and metallurgical coke. The facility comprises three ovens, with approximately 50 cells per oven. The capacity of the cells is 21 tonnes of coal, yielding 16 tonnes of coke per load on average with coking time of approximately 32 hours. The Svoboda facility produced 0.4 million tonnes of coke in 2008.

The refurbishment of the first section of Svoboda coke plant battery No. 8 has been completed and the start-up of the chamber took place in December 2008. The superior quality of the coke being produced in the refurbished coke battery validates the decision to upgrade the No. 8 production facility.

Preparatory works for the construction of the new No. 10 coking battery at the Svoboda plant started in summer 2008 and is proceeding according to plan.

Rationalisation and centralisation of non-mining functions

2008 saw the culmination of recent efforts to centralise and unify certain administrative functions across the organisation, many of which had previously been handled separately in different locations.

All the Company’s energy assets, including water and heat, have now been brought together under the umbrella of NWR Energy.

Maintenance activities have been centralised into a single business unit, employing approximately 1,000 people. This unit will offer maintenance services to other companies as well as to our own operations. Previously, this work was divided across five different locations, with inevitable duplication and consequent decrease in cost efficiency.

In the past, each mine tended to operate as a stand-alone company; this was particularly true with respect to functions such as HR. A cultural development programme is now under way, which will train 1,000 people from all the mines and help to develop a corporate HR strategy.

Support functions such as finance, legal services and reclamation have been centralised, with the new units providing services to the entire Company.

These changes will help the Company operate more effectively as a single entity. The Company was privatised and restructured in the decade to 2004, following nearly 50 years as a state-run organisation. The Company was acquired by the RPG Group and NWR was formed in 2005. In May 2008, NWR became a public company listed on three European stock exchanges.

It is vital that NWR’s operations function in a unified and tightly organised manner. We aim to retain the best practices of the Company and to improve them. The new corporate identity of NWR is built on strengthening and consolidating decades of tradition. The rationalisation of these non-mining functions will draw the various parts more closely together and help to unify and streamline the Company.