Unaudited H1 2014 Results

RNS Number : 7012P

New World Resources Plc

21 August 2014

 

Amsterdam, 21 August 2014

 

Unaudited H1 2014 Results

New World Resources Plc ('NWR' or the 'Company') today announces its unaudited financial results for the first six months of 2014. Comparative information, unless stated, is for the six months ended 30 June 2013.

H1 2014 Financial summary

§ Revenues from continuing operations of EUR 346 million, down 20%.

§ Coking coal average realised price of EUR 87/t, down 15%; Thermal coal average realised price of EUR 58/t, up 4%.

§ Cash mining unit costs[1] of EUR 64/t, down 24% (19% on a constant currency basis) on 5% higher production.

§ Selling and administrative expenses from continuing operations down 27% to EUR 71 million.

§ EBITDA from continuing operations of EUR 19 million.

§ Basic loss from continuing operations per A share of EUR (0.22).

§ Net debt of EUR 688 million, including cash of EUR 122 million.

§ Capital restructuring process continues with completion expected in October 2014.

§ As at 30 June 2014, EUR 10 million of an anticipated EUR 30 million of associated costs have been incurred in relation to the process.

H1 2014 Operational summary

§ Safety is our number one priority and the drive for a fatality-free operation continues. Regrettably, four miners lost their lives this year. Safety metrics LTIFR[2] of 7.16 in H1 2014, vs. 7.41 in FY 2013.

§ Coal production of 4.5Mt, up 5% and coal sales of 4.0Mt, down 17%.

§ Coal sales mix of 63% coking coal and 37% thermal coal.

§ CAPEX of EUR 24 million, down 71%.

§ Coal Inventory of 858kt, up 14% year on year.

 

§ Total headcount from continuing operations including contractors down 10%.

FY 2014 Prices[3]and targets

§ Coking coal Q3 2014 average price agreed at EUR 85/t, up 1% on previous quarter.

§ An average price of EUR 54/t has been agreed for thermal coal production in 2014.

§ Production and sales volume targets of 9.0 - 9.5Mt.

§ Target of 55% - 60% coking coal in the sales mix.

§ CAPEX below EUR 100 million.

§ Further improvement in LTIFR towards the 2015 target of below 5.

§ Cash mining unit costs in the mid EUR 60's including the Paskov Mine.

Review of the Group's capital structure

§ The Board initiated a review of the Group's capital structure on 22 January 2014.

§ The Group has engaged in discussions with all its stakeholders with a view to developing and implementing a capital structure that recognises and respects their interests.

§ On 2 June 2014, the Group announced that NWR NV had agreed the key terms of the restructuring of the capital structure with the Ad hoc Committee of noteholders and with the NWR Plc's majority shareholder, CERCL Mining B.V. (formerly known as BXR Mining B.V.).

§ On 2 July 2014, the Group announced that NWR NV had agreed revised terms to the proposed capital restructuring announced on 2 June 2014. The revised terms entail an amended consensual restructuring transaction and (in case this transaction can not be implemented) an alternative restructuring transaction.

§ Under the consensual restructuring transaction, EUR 185 million of additional capital is to be raised pursuant to a EUR 118 million rights issue to existing shareholders of NWR Plc, a EUR 32 million placing to existing noteholders and a EUR 35 million super senior credit facility to be provided by existing noteholders. CERCL Mining B.V. has irrevocably committed to invest new equity capital into the consensual restructuring transaction. The funds necessary to facilitate the transaction are fully committed by a group of certain existing noteholders and the majority shareholder.

§ On 29 July 2014, following an order of the High Court of Justice of England and Wales, NWR NV has convened two creditor meetings on 29 August 2014. At their respective meetings each class of noteholders will consider and, if thought fit, approve the consensual restructuring transaction or in the case of the senior secured noteholders consider and, if thought fit, approve the alternative restructuring transaction, if the senior unsecured noteholders vote down the consensual restructuring transaction.

§ On 30 July 2014, NWR announced that it had published the prospectus relating to, among other things, the proposed rights issue and placing in connection with the consensual restructuring transaction.

§ On 20 August 2014, the Extraordinary General meeting of Shareholders of the NWR Plc have approved resolutions which are required to be passed in order to implement various aspects of the consensual restructuring transaction, including the rights issue.

§ The capital restructuring process is on track to complete In October 2014.

Chairman's statement

Although we recorded a loss of almost EUR 57 million for the six months to the end of June 2014 (equivalent to a basic loss of EUR 0.22 per share), this is a big improvement on the result for the equivalent period in 2013 when we posted a basic loss from continuing operations of EUR 1.52 per share and an underlying loss of EUR 0.56 per share[4]. The first six months of 2014 witnessed a positive EBITDA from continuing operations of EUR 19 million, an increase of EUR 68 million compared to the equivalent period last year when an EBITDA loss from continuing operations of EUR 49 million was incurred.

This is a testimony to our efforts to continue to drive down costs and streamline the business. Cash mining unit costs were down 24% at EUR 64 a tonne (down 19% on a constant currency basis), six months ahead of schedule of our objective of attaining a mid EUR 60s run rate (including Paskov) by the end of the year. We also continued to focus on optimising our capital expenditure which at EUR 24 million for the six months was down EUR 61 million compared to the same period in 2013; this puts us in very good stead to reach our target of less than EUR 100 million in maintenance CAPEX for the 12 months.

Furthermore, we maintain our coal production and sales targets of between 9 and 9.5 million tonnes for the full year, with 55 to 60 per cent in favour of coking coal.

Alongside measures to optimise the operational side of the business, we have been looking to restructure the balance sheet through a UK court-sanctioned settlement (the 'Scheme of Arrangement') whereby, under the proposed consensual restructuring transaction, the existing senior secured notes and senior unsecured notes of NWR NV will be released in exchange for cash and/or new debt instruments. In this context up to EUR 185 million of additional capital is to be raised pursuant to the rights issue to existing shareholders, the placing to existing noteholders and super senior credit facility to be provided by existing noteholders. I am pleased that the funds necessary to facilitate the transaction have been fully committed by a group of certain existing noteholders and our majority shareholder - this is a vote of confidence in the business and its management.

The restructuring process will strengthen our balance sheet as not only will there be a significant reduction in the levels of outstanding debt, and hence debt servicing costs, but will position NWR to benefit all stakeholders when there is an upturn in market conditions.

This consensual restructuring plan has so far progressed well with shareholder approval given on yesterday's EGM and lock-up agreements received, by value, from 85% of the senior secured noteholders and 65% from the unsecured noteholders. The threshold required for approval in value of each class of creditors is 75% of those present and voting. I am confident that we will gain the requisite majorities at the creditor meetings that are scheduled for 29 August 2014.

However, as announced on 2 July 2014, the Group has - as part of its contingency planning - agreed a proposed alternative restructuring plan with certain holders of the senior secured notes, in case the consensual restructuring plan is not capable of being implemented. This contingency planning is required to ensure the continuation of our operations in the Czech Republic and in Poland. This alternative restructuring transaction is delivered through an insolvency of NWR NV. Its stakeholders are being paid in accordance with their respective rankings and this could leave certain categories of stakeholders with minimal or no recoveries. In light of this consequence, both the Boards of NWR NV and the NWR Plc repeat their recommendation to support the consensual restructuring plan as it takes into account the interests of all stakeholders of the Group.

The past few years have undeniably been tough, not just for NWR but for the whole coal mining sector and related industries. However, I am confident that with the radical steps that we have taken, and are continuing to do so, NWR will emerge as a much stronger regional player and better positioned to capitalise on the opportunities that will be afforded when conditions recover.

Gareth Penny

Executive Chairman of NWR

Selected financial and operational data (continuing operations) [5]

(EUR m, unless otherwise stated)	H1 2014	H1 2013	Chg
Revenues	346	434	(20%)
Cost of sales	299	467	(36%)
Excluding Change in inventories	328	442	(26%)
Cash mining unit costs (EUR/t)[6]	64	84	(24%)
Gross profit	48	(33)	-
Selling and administrative expenses	71	98	(27%)
EBITDA	19	(49)	-
Impairment loss on PPE	0	307
Operating Loss	(23)	(439)	-
Loss for the period	(57)	(400)	-
Basic Loss per A share (EUR)	(0.22)	(1.52)
Total assets	850	1,6496	(48%)
Cash and cash equivalents	122	1767	(30%)
Net debt	688	6537	5%
Net working capital	(11)	467	-
Net cash flow from operations	(40)	(6)[7]	-
CAPEX	24	857	(71%)
Total headcount incl. contractors	14,619	16,206	(10%)
LTIFR	7.16	5.78	24%
Production & Sales (kt)	H1 2014	H1 2013	Chg
Coal production	4,497	4,281	5%
External sales	4,019	4,816	(17%)
Coking coal[8]	2,544	2,306	10%
Thermal coal[9]	1,475	2,510	(41%)
Period end inventory	858	755	14%
Average realised prices (EUR/t)
Coking coal	87	102	(15%)
Thermal coal	58	56	4%

 

H1 2014 earnings call and webcast:

NWR's management will host an analyst and investor conference call on 21 August 2014 at 10:00 BST (11:00 CEST). The presentation will be made available via a live audio webcast on www.newworldresources.euand then archived on the Company's website.

For those who would like to join the live call, dial in details are as follows:

UK and the rest of Europe +44 (0)20 3427 1905

US and the rest of North America +1 646 254 3365

The Netherlands +31 (0)20 716 8257

Czech Republic 800 701 229

Poland 00 800 121 4329

Participant's access code: 7887608

Contact details:

Noteholders Nick Cox-Johnson +44 (0) 7957 596 729 [email protected]	Media Toby Moore, Andrew Hey +44 (0) 207 638 9571 [email protected] [email protected]
Financial Adviser to NWR The Blackstone Group International Partners LLP Martin Gudgeon / Paul O'Donnell /  Shirish Joshi +44 (0) 207 451 4000 [email protected] [email protected] [email protected]	Legal Adviser to NWR White & Case LLP Christian Pilkington / Rebecca Campbell / Boris Docekal +44 (0) 207 532 1000 [email protected] [email protected] [email protected]
Financial Adviser to Committee Moelis & Company UK LLP Charles Noel-Johnson/ Rohan Choudhary   +44 (0) 207 634 3500 [email protected] [email protected]   Legal Adviser to Committee Freshfields Bruckhaus Deringer LLP Sean Lacey / Geoff O'Dea /  Emma Gateaud +44 (0) 207 936 4000 [email protected] [email protected] emma.gateaud@freshfields.com   Information Agent Lucid Issuer Services Limited Sunjeeve Patel +44 (0) 207 704 0880 [email protected] Shareholders Radek Nemecek +31 (0) 629 537 908 [email protected]

 

About NWR Plc

New World Resources Plc is a Central European hard coal producer, listed at the London, Prague and Warsaw stock exchanges. NWR produces quality coking and thermal coal for the steel and energy sectors in Central Europe through its (indirect) subsidiary OKD, the largest hard coal mining company in the Czech Republic.

 

About NWR N.V

New World Resources N.V. is a wholly owned subsidiary of NWR Plc. It is a company incorporated under the laws of the Netherlands and registered at Dutch Trade Register of the Chamber of Commerce under number 34239108 and registered as an overseas company at Companies House in the UK with UK establishment number BR016952 and its address at 115 Park Street, London, W1K 7AP, United Kingdom (Telephone +44 (0) 207 371 5990, Fax +44 (0) 207 371 5999).

 

 

 

 

Condensed consolidated interim financial informationfor the six-month periodended 30 June 2014

 

 

 

New World Resources Plc

Consolidated statement of comprehensive income

	Six-month period ended 30 June			Three-month period ended 30 June
EUR thousand	2014	2013 (restated)		2014	2013 (restated)
Continuing operations
Revenues	346,344	433,750		173,809	222,835
Cost of sales	(298,537)	(467,225)		(151,545)	(232,448)
Gross profit / (loss)	47,807	(33,475)		22,264	(9,613)
Selling expenses	(34,119)	(54,086)		(18,474)	(32,832)
Administrative expenses	(37,204)	(43,912)		(18,983)	(22,607)
Impairment loss on property, plant and equipment	-	(307,137)		-	(307,137)
(Loss) / gain from sale of property, plant and equipment	(339)	1		(294)	1
Other operating income	1,525	1,235		563	593
Other operating expenses	(1,122)	(1,527)		(594)	(785)
Operating loss	(23,452)	(438,901)		(15,518)	(372,380)
Financial income	2,877	13,032		419	2,378
Financial expense	(35,733)	(57,238)		(17,724)	(18,702)
Capital restructuring	(9,970)	-		(7,626)	-
Loss before tax	(66,278)	(483,107)		(40,449)	(388,704)
Income tax benefit	9,423	83,397		10,258	69,586
Loss from continuing operations	(56,855)	(399,710)		(30,191)	(319,118)
Discontinued operations
Profit from discontinued operations, net of tax	-	3,979		-	3,715
Loss for the period	(56,855)	(395,731)		(30,191)	(315,403)
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation differences	(321)	(37,934)		20	(10,805)
Derivatives - change in fair value	-	(3,023)		-	(424)
Derivatives - transferred to profit and loss	-	(4,327)		-	(1,922)
Income tax relating to components of other comprehensive income	84	3,361		40	1,149
Items that will never be reclassified to profit or loss	-	-		-	-
Total other comprehensive income for the period, net of tax	(237)	(41,923)		60	(12,002)
Total comprehensive income for the period	(57,092)	(437,654)		(30,131)	(327,405)
Loss attributable to:
Shareholders of the Company	(56,855)	(395,731)		(30,191)	(315,403)
Total comprehensive income attributable to:
Shareholders of the Company	(57,092)	(437,654)		(30,131)	(327,405)
(LOSS) / EARNINGS PER SHARE (EUR)
A share
Basic loss	(0.22)	(1.50)		(0.12)	(1.20)
Diluted loss	(0.22)	(1.50)		(0.12)	(1.20)
Basic loss from continuing operations	(0.22)	(1.52)		(0.12)	(1.21)
Diluted loss from continuing operations	(0.22)	(1.51)		(0.12)	(1.21)
Basic earnings from discontinued operations	-	0.02		-	0.01
Diluted earnings from discontinued operations	-	0.01		-	0.01
B share
Basic earnings	152.30	220.60		76.10	103.20
Diluted earnings	152.30	220.60		76.10	103.20

The notes on pages 13 to 24 are an integral part of this condensed consolidated financial information.

New World Resources Plc

Consolidated statement of financial position

	30 June	31 December	30 June
EUR thousand	2014	2013	2013
ASSETS
Property, plant and equipment	519,980	533,737	1,229,500
Accounts receivable	1,717	5,769	5,801
Deferred tax	54,411	44,747	9,855
Restricted deposits	25,973	23,742	10,621
Derivatives	-	-	2
TOTAL NON-CURRENT ASSETS	602,081	607,995	1,255,779
Inventories	57,653	29,681	113,525
Accounts receivable and prepayments	65,153	89,352	101,556
Income tax receivable	2,472	2,243	2,371
Cash and cash equivalents	122,390	183,665	175,732
Restricted cash	-	7,000	-
TOTAL CURRENT ASSETS	247,668	311,941	393,184
TOTAL ASSETS	849,749	919,936	1,648,963
EQUITY
Share capital	105,900	105,863	105,863
Share premium	2,368	2,368	2,368
Foreign exchange translation reserve	30,775	30,897	50,373
Restricted reserve	121,565	121,680	128,611
Equity-settled share based payments	15,471	15,421	14,747
Hedging reserve	-	-	1,344
Merger reserve	(1,631,161)	(1,631,161)	(1,631,161)
Other distributable reserve	1,684,463	1,684,463	1,684,463
Retained earnings	(666,191)	(609,629)	(35,089)
TOTAL EQUITY	(336,810)	(280,098)	321,519
LIABILITIES
Provisions	162,811	167,449	174,304
Long-term loans	-	34,598	55,406
Bonds issued	762,094	760,870	759,638
Employee benefits	47,935	49,308	87,841
Deferred revenue	781	2,369	3,287
Deferred tax	807	814	21,699
Other long-term liabilities	330	526	756
Cash-settled share-based payments	435	1,279	780
Derivatives	3,724	6,303	7,298
TOTAL NON-CURRENT LIABILITIES	978,917	1,023,516	1,111,009
Provisions	6,963	2,945	11,108
Accounts payable and accruals	133,709	141,496	168,629
Accrued interest payable on bonds	16,548	16,548	16,067
Derivatives	1,591	1,734	6,698
Income tax payable	175	240	82
Current portion of long-term loans	48,493	13,555	13,851
Cash-settled share-based payments	163	-	-
TOTAL CURRENT LIABILITIES	207,642	176,518	216,435
TOTAL LIABILITIES	1,186,559	1,200,034	1,327,444
TOTAL EQUITY AND LIABILITIES	849,749	919,936	1,648,963

The notes on pages 13 to 24 are an integral part of this condensed consolidated financial information.

New World Resources Plc

Consolidated statement of cash flows

	Six-month period ended 30 June			Three-month period ended 30 June
EUR thousand	2014	2013		2014	2013
Cash flows from operating activities
Loss before tax from continuing operations	(66,278)	(483,107)		(40,449)	(388,704)
Profit before tax from discontinued operations	-	5,623		-	4,832
Loss before tax	(66,278)	(477,484)		(40,449)	(383,872)
Adjustments for:
Depreciation and amortisation	42,458	86,356		22,322	42,864
Impairment loss on property, plant and equipment	-	307,137		-	307,137
Changes in provisions	(2,776)	(4,669)		(1,829)	348
Loss / (gain) on disposal of property, plant and equipment	339	6		294	(8)
Interest expense, net	31,899	30,052		16,200	14,304
Change in fair value of derivatives	(2,723)	(7,663)		(2,259)	(4,359)
Loss on early bond redemption	-	8,116		-	-
Capital restructuring	9,970	-		7,626	-
Equity-settled share-based payment transactions	263	920		232	534
Operating cash flows before working capital changes	13,152	(57,229)		2,137	(23,052)
(Increase) / decrease in inventories	(27,972)	37,809		(6,466)	26,227
Decrease in receivables	28,607	28,170		8,151	30,788
(Decrease) / increase in payables and deferred revenue	(19,668)	(2,244)		90	1,469
(Increase) / decrease in restricted cash and restricted deposits	(2,255)	2,342		(3,989)	215
Currency translation and other non-cash movements	81	13,475		(44)	1,108
Cash generated from operating activities	(8,055)	22,323		(121)	36,755
Interest paid	(31,231)	(26,169)		(20,318)	(20,875)
Corporate income tax (paid) / refunded	(274)	(2,325)		(257)	47
Net cash flows from operating activities	(39,560)	(6,171)		(20,696)	15,927
Cash flows from investing activities
Interest received	473	1,018		115	508
Purchase of land, property, plant and equipment	(24,225)	(84,909)		(12,468)	(25,380)
Proceeds from sale of property, plant and equipment	148	70		143	7
Proceeds from disposal of discontinued operations	7,000	-		-	-
Net cash flows from investing activities	(16,604)	(83,821)		(12,210)	(24,865)
Cash flows from financing activities
Senior Notes due 2015 redemption	-	(257,565)		-	-
Fees paid on Senior Notes due 2015 redemption	-	(4,749)		-	-
Repayments of other long term loans	-	(7,123)		-	(7,123)
Proceeds from Senior Notes due 2021 issue	-	275,000		-	-
Transaction costs related to Senior Notes due 2021	-	(4,328)		-	(241)
Transaction costs related to capital restructuring	(5,086)	-		(3,513)	-
Net cash flows from financing activities	(5,086)	1,235		(3,513)	(7,364)
Net effect of currency translation	(25)	(2,522)		17	(871)
Net decrease in cash and cash equivalents	(61,275)	(91,279)		(36,402)	(17,173)
Cash and Cash Equivalents at the beginning of period	183,665	267,011		158,792	192,905
Cash and Cash Equivalents at the end of period	122,390	175,732		122,390	175,732

The notes on pages 13 to 24 are an integral part of this condensed consolidated financial information.

New World Resources Plc

Consolidated statement of changes in equity

EUR thousand	Share capital	Share premium	Foreign exchange translation reserve	Restricted reserve	Equity-settled share based payment	Hedging reserve	Merger reserve	Other distributable reserve	Retained earnings	Consolidated group total
Balance at 1 January 2014	105,863	2,368	30,897	121,680	15,421	-	(1,631,161)	1,684,463	(609,629)	(280,098)
Loss for the period	-	-	-	-	-	-	-	-	(56,855)	(56,855)
Total other comprehensive income, net of tax	-	-	(122)	(115)	-	-	-	-	-	(237)
Total comprehensive income for the period	-	-	(122)	(115)	-	-	-	-	(56,855)	(57,092)
Transaction with owners recorded directly in equity
Issue of A Shares under Deferred bonus plan	37	-	-	-	(213)	-	-	-	293	117
Share options for A Shares	-	-	-	-	263	-	-	-	-	263
Total transactions with owners	37	-	-	-	50	-	-	-	293	380
Balance at 30 June 2014	105,900	2,368	30,775	121,565	15,471	-	(1,631,161)	1,684,463	(666,191)	(336,810)

 

Balance at 1 January 2013	105,863	2,368	81,735	132,691	13,827	7,825	(1,631,161)	1,684,463	360,642	758,253
Loss for the period	-	-	-	-	-	-	-	-	(395,731)	(395,731)
Total other comprehensive income, net of tax	-	-	(31,362)	(4,080)	-	(6,481)	-	-	-	(41,923)
Total comprehensive income for the period	-	-	(31,362)	(4,080)	-	(6,481)	-	-	(395,731)	(437,654)
Transaction with owners recorded directly in equity
Share options for A Shares	-	-	-	-	920	-	-	-	-	920
Total transactions with owners	-	-	-	-	920	-	-	-	-	920
Balance at 30 June 2013	105,863	2,368	50,373	128,611	14,747	1,344	(1,631,161)	1,684,463	(35,089)	321,519

The notes on pages 13 to 24 are an integral part of this condensed consolidated financial information.

 

New World Resources PlcOperating and Financial Reviewfor the six-month period ended 30 June 2014 ('6M 2014')

 

1. Corporate Information

New World Resources Plc ('NWR' or the 'Company') is a public limited liability company with its registered office at One Silk Street, London EC2Y 8HQ, United Kingdom.

These consolidated financial statements comprise the Company and its subsidiaries (together the 'Group'). The Group is primarily involved in coal mining. The objective of the Company is to act as a holding company and to provide management services for the Group.

2. Financial Results Overview

On 6 December 2013, the Group completed the sale of OKK Koksovny, a.s. ('OKK'), representing its entire Coke segment, whose results are presented as a discontinued operation in the comparative period.

Continuing Operations

Revenues. The Group's revenues decreased by 20% (17% on a constant currency basis), from EUR 434 million in 6M 2013 to EUR 346 million in 6M 2014. This is mainly attributable to lower sales volumes of thermal coal that were partly offset by higher realised prices, as well as to lower realised prices of coking coal that were partly offset by higher sales volumes.

Cost of sales. Cost of sales decreased from EUR 467 million to EUR 299 million or by 36% (32% on a constant currency basis) in 6M 2014 compared to 6M 2013. This is mainly attributable to:

§ lower depreciation following the impairment charge recognised in 2013;

§ less development work combined with lower input costs per equipped coal panel resulting in lower consumption of mining material and spare parts;

§ lower consumption of energy combined with lower energy prices resulting in lower energy costs; and

§ reduction in headcount combined with lower holiday allowances, resulting in lower personnel expenses.

Cost of sales are further positively affected by a EUR 54 million year on year inventory impact following the build-up of inventories in the first six months of 2014 compared to the reduction in inventories in the comparative period.

Selling expenses. Selling expenses decreased from EUR 54 million to EUR 34 million or by 37% (35% on a constant currency basis) in 6M 2014, attributable to lower sales volumes and lower transport prices; and reduced inventory allowances.

Administrative expenses. Administrative expenses decreased from EUR 44 million to EUR 37 million or by 15% (10% on a constant currency basis) mainly due to reduction in administrative headcount resulting in lower personnel expenses.

EBITDA. 6M 2014 saw a positive EBITDA from continuing operations of EUR 19 million, an increase of EUR 68 million compared to negative EBITDA of EUR 49 million recorded in 6M 2013, attributable mainly to the decrease in operating expenses that outweighed the decrease in revenues.

Capital Restructuring. The Group incurred EUR 10 million in costs relating to the Capital Restructuring as described in note 3.

Loss for the period. The reported loss from continuing operations for the period is EUR 57 million, compared to the loss of EUR 400 million in 6M 2013. Excluding the impact of impairment charges, the loss for the comparative period would have been EUR 149 million.

3. Basis of Presentation

The condensed consolidated interim financial statements (the 'financial statements') presented in this document are prepared:

§ for the six-month period ended 30 June 2014, with the six-month period ended 30 June 2013 as the comparative period;

§ based on the recognition and measurement criteria of International Financial Reporting Standards as adopted by European Union ('adopted IFRS') and on the going concern basis (see further on next page); and

§ in accordance with IAS 34 Interim Financial Reporting.

The financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements as at and for the year ended 31 December 2013, which are contained within the 2013 Annual Report and Accounts of the Company, available on the Group's website at www.newworldresources.eu.

Going concern basis of accounting

The Group manages its liquidity through cash (EUR 122 million (31 December 2013: EUR 184 million)) and receivable financing.

At the present market prices for coal, the Group is currently cash flow negative and the current low coal price environment has placed significant pressure on the Group's liquidity position and also on its solvency resulting in the Group having net liabilities of EUR 337 million at 30 June 2014.

The prolonged global pressure on both coking and thermal coal prices, the expiry on 7 February 2014 of the Group's RCF and the likely downward revision of coal resource and reserve balances (as a direct result of the deterioration in the long term coal price outlook), triggered the Directors to initiate a review of the Group's capital structure on 22 January 2014. Following such a review, the Group commenced the Capital Restructuring announced on 6 June 2014 which includes the Rights Issue and the Placing of shares in the Company as well as the financial, debt and corporate restructuring of the Group. 

As part of the Capital Restructuring the Group anticipates raising net proceeds from the Rights Issue and Placing of EUR 144 million (EUR 150 million of gross proceeds, less expected issue costs of EUR 6 million). In addition, the Group will repurchase the Existing Notes for a mixture of cash and new debt, comprising (i) cash consideration of EUR 90 million (ii) New Senior Secured Notes of EUR 300 million (iii) New Convertible Notes of EUR 150 million, and (iv) New Contingent Value Rights of EUR 35 million. In addition Existing Noteholders will provide a Super Senior Credit Facility of EUR 35 million for the working capital requirements of the Group.

In order for the Capital Restructuring to be implemented there are other conditions that need to be fulfilled, including obtaining (i) Shareholder approval at a General Meeting (ii) the approval of requisite majorities of holders of the Existing Notes; (iii) approval from the relevant courts; and (iv) consent from the ECA Facility Lenders to an amended ECA Facility.

As at 30 June 2014 the Group is in breach of one of its undertakings under the ECA Facility of EUR 48 million as it moved its Centre of Main Interest to England and is also potentially in default of the ECA Facility due to having commenced negotiations with its creditors as part of the Capital Restructuring. While the ECA Facility Lenders have not taken (and have not indicated that they intend to take) any steps in respect of the breach, they have reserved their right in respect of it and may withhold their consent to an amended ECA Facility.

There is a risk that one or more of these steps, including the consent from the ECA Facility Lenders, may not be completed or satisfied by 31 October 2014. Unless at least 50% of the Existing Noteholders who have responded to a request for extension within 5 Business Days and, to the extent necessary, the relevant court approve an extension of the period for completion of the Capital Restructure, the Capital Restructuring will not occur. If the Capital Restructuring does not occur, no funds will be available to be drawn by, or released to, the Group and the Group will not benefit from the injection of equity capital from the Rights Issue and the Placing.

If funds are not available to be drawn, and the Capital Restructuring does not proceed, the Directors are of the opinion that the Group would become insolvent.

If the Capital Restructuring does proceed, the Group will have sufficient working capital available, that is, for at least the next 12 months following the date of this report. However, under a reasonable Downside Scenario, arising from a deterioration in coal prices and/or other operating issues, the Directors expect the Group to breach the minimum available cash requirement for the Super Senior Facility, which is set at EUR 40 million and is first tested as at 31 October 2015. At that time the ECA Facility would also be capable of acceleration and, should that acceleration be reasonably probable, all of the remaining debt of the Group could become immediately repayable.

If the proceeds of the Rights Issue and the Placing are not received and the other steps of the Capital Restructuring are not implemented, the Group intends to proceed with the Alternative Restructuring Plan, whereby, the Group would transfer its interests in its subsidiaries into a special purpose vehicle, which would issue new debt instruments in exchange for the existing Senior Secured Notes. This procedure would result in the insolvency of the remaining Group.

 

The Directors recognise that the combination of these circumstances represents a material uncertainty that may cast significant doubt as to the Group's ability to continue as a going concern and that it may be unable to realise all of its assets and discharge all of its liabilities in the normal course of business. Nevertheless, the Directors expect that the Capital Restructuring will obtain all of the necessary approvals and consents, in October 2014, to ensure the continued operation of the Group and that the risks associated with a deterioration in coal prices and/or other operating issues have been appropriately taken into consideration and accordingly the financial statements have been prepared on a going concern basis and no break up adjustments have been made.

On 30 July 2014, NWR announced that it had published a prospectus and circular relating to, among other things, the proposed rights issue and placing in connection with the consensual restructuring transaction. The prospectus describes the Capital Restructuring in more details, containsfurther risks relating to the Capital Restructuring and includes a pro forma statement of net assets which illustrates the impact of the Capital restructuring on the Group's financial position. The defined terms used above have the meaning given in the prospectus.

4. Significant Accounting Policies

The financial statements have been prepared under the historical cost convention, except for certain financial instruments, which are stated at fair value.

The financial statements have been prepared on the basis of accounting policies and methods of compilation consistent with those applied in the consolidated financial statements as at and for the year ended 31 December 2013, with the exception described below.

New standards and interpretations

The Group adopted the following new/revised standards, which are effective for its accounting period starting 1 January 2014:

 

§ IAS 27 Separate Financial Statements (as revised in 2011, effective 1 January 2014)

§ IAS 28 Investments in Associates and Joint Ventures (as revised in 2011, effective 1 January 2014)

§ Amendment to IAS 32 Financial Instrument: Presentation - Offsetting Financial Assets and Financial Liabilities (effective 1 January 2014)

§ IFRS 10 Consolidated Financial Statements (effective 1 January 2014)

§ IFRS 11 Joint Arrangements (effective 1 January 2014)

§ IFRS 12 Disclosure of Involvement with Other Entities (effective 1 January 2014)

The adoption of the new/revised standards has no impact on the recognised assets, liabilities and comprehensive income of the Group.

Estimates

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing these consolidated financial statements, the significant judgements made by the management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements of the Company as at and for the year ended 31 December 2013. 

5. Non-IFRS Measures

The Company defines EBITDA as net profit/(loss) before income tax, net financial costs, depreciation and amortisation, impairment of property, plant and equipment ('PPE') and gains/losses from the sale of PPE.

While the amounts included in EBITDA are derived from the Group's financial information, it is not a financial measure determined in accordance with adopted IFRS and should not be considered as an alternative to net income or operating income as a sole indication of the Group's performance or as an alternative to cash flows as a measure of the Group's liquidity. The Company currently uses EBITDA in its business operations to, among others, evaluate the performance of its operations, develop budgets and measure its performance against those budgets.

The Company defines net debt as total debt less cash and cash equivalents. Total debt includes issued bonds, long-term and short-term interest‑bearing loans and borrowings, less related expenses. Interest‑bearing loans, bond issues, and borrowings are measured at amortised cost.

6. Exchange Rates

(EUR/CZK)	6M 2014	6M 2013	y/y %
Average exchange rate	27.444	25.699	7%
End of period exchange rate	27.453	25.949	6%

Throughout this document, the financial results and performance in both the current and comparative periods are expressed in Euros. The financial information could differ considerably if the financial information was presented in CZK. The Company may where deemed relevant, present variances using constant foreign exchange rates (constant currency basis), marked 'ex-FX', excluding the estimated effect of currency translation differences. These are non-IFRS financial measures.

7. Financial Performance of Continuing Operations

Revenues

The Group's largest source of revenue is the sale of coking coal, which accounted for 64% of total revenues in 6M 2014, whilst the sale of thermal coal accounts for 25% of total revenues in this period.

(EUR thousand)	6M 2014	6M 2013 (restated)	y-y	y/y %	ex-FX
External coking coal sales (EXW)*	221,644	234,902	(13,258)	(6%)	(2%)
External thermal coal sales (EXW)*	85,005	140,977	(55,972)	(40%)	(38%)
Coal transport	24,296	36,884	(12,588)	(34%)	(31%)
Sale of coal by-products	9,228	10,276	(1,048)	(10%)	(5%)
Other revenues	6,171	10,711	(4,540)	(42%)	(38%)
Total revenues	346,344	433,750	(87,406)	(20%)	(17%)

*For the purpose of this analysis, where the Group sells products on an EXW or similar basis, the notional transport element is shown separately in order to separate the impact of changing transport revenues from changes in the underlying achieved price for the products sold.

Total revenues decreased by 20% mainly as a result of lower sales volumes of thermal coal that were partly offset by its higher realised prices (see table below). In addition, revenues decreased due to lower realised prices of coking coal that were partly offset by its higher sales volumes. Lower sales volumes and lower transport charges also resulted in a decrease of transport revenues, with a similar decrease in transport costs, with no material impact on profitability.

Average realised sales prices (EUR per tonne)	6M 2014	6M 2013 (restated)	y-y	y/y %	ex-FX
Coking coal (EXW)	87	102	(15)	(15%)	(11%)
Thermal coal (EXW)	58	56	2	4%	7%

All of the Group's coking coal sales are priced quarterly and the majority of thermal coal sales are priced on a calendar year basis.

Total production of coal in 6M 2014 increased by 5% compared to 6M 2013. Coal volumes sold were lower by 17% as a result of lower thermal coal sales, partially offset by increased sales of coking coal in 6M 2014.

Coal inventories increased by 478kt in 6M 2014 compared to a decrease by 532kt in 6M 2013.

Coal performance indicators (kt)	6M 2014	6M 2013 (restated)	y-y	y/y %
Coal production	4,497	4,281	216	5%
External coal sales	4,019	4,816	(797)	(17%)
Coking coal	2,544	2,306	238	10%
Thermal coal	1,475	2,510	(1,035)	(41%)
Period end inventory*	858	755	103	14%

* Inventory consists of coal available for immediate sale and coal that has to be converted from raw coal. Opening and closing inventory balances do not always reconcile due to various factors such as production losses.

 

Cost of Sales

(EUR thousand)	6M 2014	6M 2013 (restated)	y-y	y/y %	ex-FX
Consumption of material and energy	102,744	136,087	(33,343)	(25%)	(20%)
of which : mining material and spare parts	61,138	82,064	(20,926)	(25%)	(22%)
: energy consumption	35,642	51,050	(15,408)	(30%)	(25%)
Service expenses	69,960	81,635	(11,675)	(14%)	(9%)
of which : contractors	34,759	40,062	(5,303)	(13%)	(7%)
: maintenance	17,672	17,239	433	3%	7%
Personnel expenses	110,657	140,021	(29,364)	(21%)	(16%)
Depreciation and amortisation	39,809	79,704	(39,895)	(50%)	(47%)
Net gain from material sold	(1,642)	(2,501)	859	(34%)	(30%)
Change in inventories of finished goods and work in progress	(28,993)	25,310	(54,303)	-	-
Other operating expenses/(income)	6,002	6,969	(967)	(14%)	(8%)
of which : compensation of, and provision for mining damages	2,764	3,621	(857)	(24%)	(19%)
Total cost of sales	298,537	467,225	(168,688)	(36%)	(32%)
Excluding the change in inventories impact	327,530	441,915	(114,385)	(26%)	(21%)

Excluding the EUR 54 million year on year impact in change in inventories driven by the Group producing on stock, cost of sales decreased by EUR 114 million, principally as a result of:

§ lower depreciation following the impairment charge recognised in 2013;

§ a decrease in development work combined with lower input costs per equipped coal panel lowering consumption of mining material and spare parts;

§ a decrease in consumption of energy combined with lower energy prices resulting in lower energy costs; and

§ a 10% decrease in the number of employees combined with lower holiday allowances, resulting in lower personnel expenses.

Selling Expenses

(EUR thousand)	6M 2014	6M 2013 (restated)	y-y	y/y %	ex-FX
Transport costs	24,434	36,960	(12,526)	(34%)	(32%)
Personnel expenses	1,312	1,558	(246)	(16%)	(11%)
Allowance for inventories on stock	2,769	9,228	(6,459)	(70%)	(68%)
Other expenses	5,604	6,340	(736)	(12%)	(6%)
Total selling expenses	34,119	54,086	(19,967)	(37%)	(35%)

Lower sales volumes together with lower transport charges resulted in a reduction in transport costs by 34%, with a similar decrease in transport revenues, with no material impact on profitability. The Group recognised lower allowance for inventories compared to 6M 2013.

Administrative Expenses

(EUR thousand)	6M 2014	6M 2013 (restated)	y-y	y/y %	ex-FX
Personnel expenses	21,086	26,903	(5,817)	(22%)	(17%)
Service expenses	8,267	9,504	(1,237)	(13%)	(7%)
Other expenses	7,851	7,505	346	5%	11%
Total administrative expenses	37,204	43,912	(6,708)	(15%)	(10%)

Administrative expenses decreased by 15% mainly due to reduction in administrative headcount resulting in lower personnel expenses. 

 

 

 

Total Personnel Expenses and Headcount

(EUR thousand)	6M 2014	6M 2013 (restated)	y-y	y/y %	ex-FX
Personnel expenses	135,008	172,088	(37,080)	(22%)	(16%)
Employee benefit provision	(1,327)	(2,528)	1,201	(48%)	(44%)
Share-based payments	(301)	(756)	455	(60%)	(55%)
Total personnel expenses	133,380	168,804	(35,424)	(21%)	(16%)

Total personnel expenses have reduced principally through lower headcount (see below) and lower holiday allowances based on the new Collective Bargaining Agreement with employees, executed in December 2013.

	6M 2014	6M 2013 (restated)	y-y	y/y %
Employees headcount (average)	11,560	12,907	(1,347)	(10%)
Contractors headcount (average)	3,059	3,299	(240)	(7%)
Total headcount (average)	14,619	16,206	(1,587)	(10%)

EBITDA

(EUR thousand)	6M 2014	6M 2013 (restated)	y-y	y/y %	ex-FX
EBITDA from continuing operations	19,345	(48,893)	68,238	-	-

The Group's EBITDA from continuing operations increased by EUR 68 million compared to 6M 2013 mainly as a result of lower operating expenses that outweigh the decrease in revenues.

As EBITDA is a non-IFRS measure, the following table provides a reconciliation of EBITDA from continuing operations and net loss after tax.

(EUR thousand)	6M 2014	6M 2013 (restated)
Net loss after tax from continuing operations	(56,855)	(399,710)
Income tax	(9,423)	(83,397)
Net financial expenses	32,856	44,206
Capital restructuring	9,970	-
Depreciation and amortisation	42,458	82,872
Impairment loss on property, plant and equipment	-	307,137
Loss / (gain) from sale of PPE	339	(1)
EBITDA from continuing operations	19,345	(48,893)

Impairment

As at 30 June 2013, due to reduced price expectations for the Group's products, the Group assessed the recoverable amount of its cash generating units ('CGUs'). As a result, an impairment loss of EUR 307 million was recognised. Further as at 31 December 2013, following continued price reductions a further impairment loss of EUR 500 million was recorded.

 

As at 30 June 2014, while prices have continued to decline for the Group's products, the Group considers these reductions to be in line with the expectations and assumptions made as at 31 December 2013 and accordingly has assessed that the Group's CGUs remain stated at their recoverable value.

Financial Income and Expense

(EUR thousand)	6M 2014	6M 2013 (restated)	y-y	y/y %
Financial income	(2,877)	(13,032)	10,155	(78%)
Financial expense	35,733	57,238	(21,505)	(38%)
Net financial expense	32,856	44,206	(11,350)	(26%)

The decrease in net financial expense of EUR 11 million in 6M 2014 compared to 6M 2013 is mainly attributable to the loss recorded in the comparative period due to the repayment of the Senior Notes due 2015 (EUR 8 million), consisting of the write off of unamortised transaction costs (EUR 4 million) and the cost of early redemption (EUR 4 million), and to a decrease in realised and unrealised FX losses (EUR 5 million).

Loss from Continuing Operations before Tax

The loss before tax in 6M 2014 was EUR 66 million, down EUR 417 million compared to a loss of EUR 483 million in 6M 2013.

Income Tax

The Group recorded a net income tax benefit of EUR 9 million in 6M 2014, compared to a net income tax benefit of EUR 83 million in 6M 2013.

Deferred tax assets are recognised to the extent that they are recoverable in the jurisdiction in which they were incurred.

Loss from Continuing Operations

The Group recognised a loss from continuing operations of EUR 57 million in 6M 2014, which represents a decrease of EUR 343 million compared to the loss of EUR 400 million in 6M 2013.

8. (Loss) / Earnings per Share

(EUR)	6M 2014	6M 2013 (restated)
	Total	Continuing operations	Discontinued operations	Total
A share - basic (loss) / earnings	(0.22)	(1.52)	0.02	(1.50)
A share - diluted (loss) / earnings	(0.22)	(1.51)	0.01	(1.50)
B share - basic earnings	152.30	220.60	-	220.60
B share - diluted earnings	152.30	220.60	-	220.60

The calculation of (loss)/earnings per share was based on (loss)/profit attributable to the shareholders of the Company and a weighted average number of shares outstanding during the six-month period ended 30 June:

(EUR thousand)	6M 2014	6M 2013 (restated)
	Total	Continuing operations	Discontinued operations	Total
(Loss) / profit for the period	(56,855)	(399,710)	3,979	(395,731)
(Loss) / profit attributable to A shares	(58,415)	(401,495)	3,979	(397,516)
Profit attributable to B shares	1,523	2,206	-	2,206
Eliminations between Mining and Real Estate divisions	37	(421)	-	(421)

 

	6M 2014	6M 2013
Weighted average number of A shares (basic)	264,710,416	264,648,002
Weighted average number of A shares (diluted)	265,544,372	265,388,788
Weighted average number of B shares (basic)	10,000	10,000
Weighted average number of B shares (diluted)	10,000	10,000

9. Cash Flow

(EUR thousand)	6M 2014	6M 2013
Net cash flows from operating activities	(39,560)	(6,171)
Net cash flows from investing activities	(16,604)	(83,821)
Net cash flows from financing activities	(5,086)	1,235
Net effect of currency translation	(25)	(2,522)
Total decrease in cash	(61,275)	(91,279)

 

Cash Flow from Operating Activities

Cash outflows arising from operating activities, after working capital changes and before interest and tax payments in 6M 2014 were EUR 8 million, reflecting amongst others the fact the Group was producing on stock. 

Cash Flow from Investing Activities

Capital expenditures amounted to EUR 24 million in 6M 2014, a decrease of EUR 61 million when compared to 6M 2013 (of which EUR 4 million spent in coke segment in 6M 2013). 

Cash flow from investing activities was positively influenced by a release of EUR 7 million from an escrow account related to the sale of Coke segment in December 2013 (the Coke segment was sold for EUR 95 million with EUR 7 million paid on escrow account to be released three months after the date of sale, subject to the satisfaction of any claims by the purchaser under the OKK Share Purchase Agreement).

Cash Flow from Financing Activities

Cash flow from financing activities reflects the transaction costs related to capital restructuring of EUR 5 million. Cash flow from financing activities in the comparative period was influenced by issuance of new EUR 275 million Senior Notes due 2021 (the '2021 Notes') that were used to repay in full the outstanding amount of EUR 258 million under the Senior Notes due 2015 (the '2015 Notes'). Additional transaction costs of EUR 9 million were incurred in connection with the refinancing. Cash flow from financing activities in the comparative period also consisted of an instalment of the ECA Facility of EUR 7 million.

10. Borrowings, Liquidity and Capital Resources

The liquidity requirements of the Group arise primarily from the need to fund operating losses, working capital requirements and the need to fund capital expenditures. The principal uses of cash are anticipated to fund planned operating expenditures, capital expenditures, scheduled debt service on the Senior Notes and other borrowings, and other distributions.

Indebtedness and liquidity

As at 30 June 2014, the Group held cash and cash equivalents of EUR 122 million and had indebtedness of EUR 810 million (carrying value), of which EUR 48 million is contractually repayable in the next 12 months (see below). This results in a net debt position for the Group of EUR 688 million, 10% higher when compared to EUR 625 million as at 31 December 2013.

As a reaction to the continuation of difficult trading conditions and price pressures and the expiry of the Group' EUR 100 million RCF credit line (expired on 7 February 2014), the Directors initiated a review of the Group's capital structure. For more information about the review, liquidity and going concern basis of accounting please refer to note 3 Basis of Presentation.

The ECA Facility of EUR 48 million as at 30 June 2014, contains an undertaking of each obligor not to conduct its business in a manner that is reasonably likely to change its centre of main interest (the ''COMI''). NWR NV is in breach of this undertaking as it moved its COMI to England in the beginning of June 2014. NWR NV is also potentially in default of the ECA Facility due to having commenced negotiations with its creditors as part of the Capital Restructuring. The lenders under the ECA Facility have not taken, and have not indicated that they intend to take, any steps in respect of the breach, however, they reserved their rights in respect of it. As a consequence, the outstanding amount of the ECA Facility has been recognised as current liability in its whole as at 30 June 2014.

11. Financial Instruments

Financial assets and liabilities by category

Financial assets and liabilities are categorised as shown below and stated at their carrying amounts. Where the carrying amount of a financial asset or liability does not approximate its fair value, this is disclosed.

(EUR thousand)	30 June 2014	31 December 2013	30 June 2013
Financial assets
Loans and receivables
Accounts receivable and prepayments	66,870	95,121	107,357
Cash and cash equivalents
Restricted deposits	25,973	30,742	10,621
Cash and cash equivalents	122,390	183,665	175,732
	215,233	309,528	293,710
Financial liabilities
At fair value through profit and loss
Derivative financial liabilities	5,315	8,037	13,996
Financial liabilities at amortised cost
Borrowings	48,493	48,153	69,257
Bonds issued including accrued interest*	778,642	777,418	775,705
Accounts payable and accruals	134,820	144,391	172,672
Cash-settled share-based payments	598	1,279	780
	967,868	979,278	1,032,410
*the fair value of the bonds was:	388,018	492,845	384,078

Fair value hierarchy

The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:

Level 1	quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2	inputs other than quoted prices included within Level 1 that are observable for the asset or liabilities, either directly (i.e. as prices) or indirectly (i.e. derived from prices)
Level 3	inputs for the asset or liability that are not based on observable market data (unobservable inputs)

In order to determine the fair value of the financial instruments, the Company implements valuation techniques used by banks in which all significant inputs were based on observable market data.

(EUR thousand)	30 June 2014	31 December 2013	30 June 2013
	Level 2	Level 2	Level 2
Financial liabilities at fair value through profit and loss
Interest rates derivatives(1)	5,315	8,037	9,228
Foreign exchange forwards(2)	-	-	4,768
	5,315	8,037	13,996

(1)The fair value of interest rate derivatives is estimated by discounting the difference between the contractual interest rate and current interest rate for the residual maturity of the contract using a risk-free interest rate.

(2) The fair value of foreign exchange forwards is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate.

12. Segments and Divisions

Until the end of 2013, NWR's business was organised into two main segments - Coal and Coke segment. On 6 December 2013, the Group completed the sale of its entire Coke segment, following a strategic decision to focus on its mining business. Coke segment is presented separately as discontinued operations within comparative period (see Note 13). Financial and other performance measures of the remaining Coal segment are regularly evaluated by theChief Operating Decision Maker ('CODM'). The CODM is the Company's Board of Directors.

The Group is further organised into two divisions: the Mining Division ('MD') and the Real Estate Division ('RED'). The Company had A Shares and B Shares outstanding for the presented periods. The A Shares and B Shares are tracking stocks, which are designed to reflect the financial performance and economic value of the MD and RED, respectively. Due to the public listing of the Company's A shares, the Group provides divisional reporting showing separately the performance of the MD and RED. The main rights, obligations and relations between the RED and MD are described in the Divisional Policy Statement, available at the Company's website www.newworldresources.eu. The divisional reporting, as such, is essential for the evaluation of the equity attributable for the listed part of the Group. The whole Mining Division represents the Coal segment.