Unaudited Nine Month 2015 Results

London, 19 November 2015

Unaudited 9M 2015 Results

New World Resources Plc ('NWR' or the 'Company') today announces its unaudited financial results for the first nine months of 2015. Comparative information, unless otherwise stated, is for the nine months of 2014.

9M 2015 Financial summary

§ Revenues of EUR 445 million, down 12%.

§ Coking coal average realised price of EUR 92/t, up 7%.

§ Thermal coal average realised price of EUR 51/t, down 9%.

§ Cash mining unit costs1 of EUR 69/t, up 2% on 10% lower production

§ Selling and administrative expenses down 14% to EUR 86 million.

§ EBITDA of EUR (4) million, vs. EUR 4 million in 9M 2014.

§ Non-cash gain of EUR 47 million on fair value revaluation of mandatory convertible notes.

§ Basic loss per A share of 0.28 eurocents compared to a basic loss per A share of 15.96 eurocents for 9M 2014.

§ Net debt of EUR 321 million.

§ Cash of EUR 57 million as of 30 September 2015.

9M 2015 Operational summary

§ Safety metrics LTIFR2 of 5.64 vs. 8.18 in FY 2014.

§ Coal production of 5.7Mt, down 10% and coal sales of 5.4Mt, down 12%.

§ Coal sales mix of 59% coking coal and 41% thermal coal.

§ CAPEX of EUR 28 million, down 38%.

§ Coal Inventory of 1,014kt, up 66% year on year.

§ Total headcount including contractors down 5%.

2015 Prices and targets3

§ Average price for coking coal production agreed at EUR 93/t.

§ Average price for thermal coal production agreed at EUR 52/t.

§ Production and sales volume of 7.5-8.0Mt and 8.0Mt, respectively.

§ Coking coal in the sales mix to be below 60% target, principally due to the anticipated Q4 sell-down of thermal coal inventories.

§ Cash mining unit costs of around EUR 65 per tonne.

§ CAPEX of EUR 30-40 million.

§ Improvement in LTIFR towards the target of below 5.

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Boudewijn Wentink, Finance and Legal Director stated:

"Our business continues to feel pressure from slower global industrial output. Since the beginning of the year, we have seen a further deterioration in the global coal market: prices for hard coking coal have come down by 33%.

Our region is structurally short of hard coking coal, a commodity essential to the steel-making process, which usually allows us to achieve pricing around import parity. The market for our thermal coal remains subdued due to continued regional oversupply and aggressive pricing by certain competitors.

The still-tough market underlines the importance of our continuous efforts to strengthen NWR's operational and financial performance, including business and portfolio optimisation. In the period under review, while we successfully reduced overhead costs by 10%, our cash mining unit costs have increased by 2% to EUR 69 per tonne due to lower production, though down from EUR 71 at the half year.

Also, we have entered into discussions with the Czech Republic government about the future of our Paskov mine, after the existing agreement with the government ended on 30 September 2015. These discussions are ongoing.

Our realised pricing for the year to date has been stable, as has our sales mix. Production volumes are in line with our full-year guidance and our safety performance continues to improve. The revenue for the nine months was EUR 445 million, down 12% due to lower sales volumes.

We have achieved good cash control, though experienced a one-time negative working capital impact. Accordingly, the net cash balance was EUR 57 million as of 30 September - but by the end of October this had already bounced back up to EUR 77 million. We are working towards our full-year sales target of 8Mt, lowering levels of inventory and thereby contributing to our net cash position.

We have decided to retain our existing management structure in 2016. Gareth Penny will remain as Executive Chairman of NWR and Dale Ekmark as Managing Director of OKD."

Selected financial and operational data4

9M 2015 earnings call and webcast:

NWR's management will host an analyst and investor conference call on 19 November 2015 at 10:00 GMT (11:00 CET). The presentation will be made available via a live audio webcast on www.newworldresources.eu and then archived on the Company's website.

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

UK: +44(0)20 3427 1900

Europe: +31(0)20 716 8256

US: +1646 254 3362

Confirmation Code: 4694061

Investor and Media Contact:

Radek Nemecek

Tel: +420 727 982 885

[email protected]

Website: www.newworldresources.eu

About NWR:

New World Resources Plc is a Central European hard coal producer. 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. 

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Operating and financial review and

New World Resources Plc

Consolidated statement of comprehensive income

All activities were with respect to continuing operations.

1Includes gain on revaluation of Convertible Notes for the nine-month period ended 30 September 2015 of EUR 46,783 thousand (2014: nil) and for the three-month period ended 30 September 2015 a loss of EUR 2,435 thousand (2014: nil).

The notes on pages 10 to 20 are an integral part of these condensed consolidated interim financial statements.

New World Resources Plc

Consolidated statement of financial position

The notes on pages 10 to 20 are an integral part of these condensed consolidated interim financial statements.

New World Resources Plc

Consolidated statement of cash flows

The notes on pages 10 to 20 are an integral part of these condensed consolidated interim financial statements.

New World Resources Plc

Consolidated statement of changes in equity

The notes on pages 10 to 20 are an integral part of these condensed consolidated interim financial statements.

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 condensed consolidated interim 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

Revenues. The Group's revenues decreased by 12% from EUR 504 million in the 9M 2014 to EUR 445 million in the 9M 2015. This is mainly attributable to lower sales volumes of both coking coal and thermal coal, due to lower production.

Cost of sales. Cost of sales decreased from EUR 464 million to EUR 396 million or by 15% in the 9M 2015 compared to the 9M 2014. This is mainly attributable to lower depreciation following the impairment charge recognised in 2014; and lower production as well as lower input costs per equipped coal panel resulting in lower consumption of mining material and spare parts.

Selling expenses. Selling expenses decreased from EUR 47 million to EUR 39 million or by 19% in the 9M 2015, attributable to lower sales volumes resulting in lower transport costs.

Administrative expenses. Administrative expenses of EUR 48 million decreased from EUR 53 million or by 10%, attributable to a decrease in administrative headcount, resulting in lower personnel expenses, and savings in advisory services.

EBITDA. The 9M 2015 saw a negative EBITDA of EUR 4 million, representing a decrease of EUR 8 million compared to EBITDA of EUR 4 million recorded in the 9M 2014, attributable mainly to the decrease in revenues, partially offset by the decrease in operating expenses.

Finance income. Increase in finance income of EUR 55 million is principally due to the EUR 47 million decrease in the fair value of the Convertible Notes (financial instrument recognised at fair value through profit or loss) between 31 December 2014 and 30 September 2015.

Profit for the period and underlying loss. The reported loss for the period was EUR 16 million, compared to the loss of EUR 128 million in 9M 2014. Excluding the impact of the movement in the fair value of the Convertible Notes, the Group would have recorded a loss of EUR 63 million in the 9M 2015.

Senior Secured Notes Payment in Kind ('PIK') Interest. On 1 May 2015 the Group exercised its option to pay PIK interest on the Senior Secured Notes. The result was the issue of a further EUR 16.5 million Senior Secured Notes at a fair value of EUR 10.7 million and with the same terms and conditions of the original Senior Secured Notes. This resulted in a gain of EUR 1.3 million being recorded in the three months ended 30 June 2015. Please refer to note 13 Contingencies and Other Commitments for further information.

3 Basis of Presentation

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

§ for the nine-month period ended 30 September 2015, with the nine-month period ended 30 September 2014 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 2014, which are contained within the 2014 Annual Report and Accounts of the Company, available on the Company's website at www.newworldresources.eu.

Going concern basis of accounting

The Group manages its liquidity (EUR 57 million (31 December 2014: EUR 128 million)) through receivables financing and other working capital measures. The Senior Secured Notes and the Convertible Notes have features that would result in interest being able to be paid in kind rather than in cash in certain circumstances.

At the present market prices of coal, the Group is 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 177 million at 30 September 2015.

Based on the current projections, the Directors consider that the Group has sufficient cash available to meet its funding requirements for at least the next 12 months following the date of this report. However, given the continuing worsening of the outlook for the prices achievable for the Group's products, this will require the Group to take further significant actions to reduce cost.

These projections assume that the EUR 35 million Super Senior Credit Facility, which is fully drawn and matures in October 2016, will be repaid at that time (or earlier in the event of the minimum cash covenant, which requires the Restricted Group (NWR NV and its subsidiaries) to maintain at least EUR 40 million in cash, being at risk of being breached), which would result in a minimal amount of cash being available. Whilst the Directors have commenced negotiations with the providers of this facility to provide alternative financing, there is no guarantee that alternative financing will be available.

There is therefore a risk that the cash available to the Group is not sufficient for funding requirements over this period. In particular, (a) unexpected production or other operating issues, or (b) a delay in the implementation of the planned cost reduction activities or the failure of these activities to deliver the level of cost reduction anticipated or (c) further deterioration in coal prices (although coal prices are fixed for most of the Group's anticipated remaining 2015 sales, the Group is exposed to prices on approximately 25% of its coking coal sales remaining in 2015 and to all sales in 2016), could result in the Group running out of cash in Q3 2016 (or possibly earlier).

In the event that it becomes likely that there will be a shortfall in available cash, the Group proposes to seek alternative sources of liquidity, which could include the sale of certain of the assets of OKD and NWR Karbonia, or raising additional debt (to the extent permitted by the New Senior Notes Indenture, the Super Senior Credit Facility and the ECA Facility) or equity. If no viable alternative liquidity solutions are then available, the Group will attempt to sell the businesses of OKD and NWR Karbonia and, failing that, will initiate the orderly wind-down of some or all of the Group's assets, therefore effectively liquidating the Group's assets. Most of these actions require negotiation and/or the consent of multiple stakeholders of the Group, such as (depending on the route chosen) financiers, government, trade unions and shareholders.

In addition, the Directors recognise that NWR N.V. has significant debt repayments scheduled over the period to 2020, which it will probably not be able to meet and that as a consequence the N.V. will need to refinance these liabilities. There is no guarantee that a refinancing can be achieved.

The Directors recognise that these circumstances represent 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 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 do not include the adjustments that would result if the Group were unable to continue as a going concern.

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 2014, with the exception described below.

New standards and interpretations

The Group adopted the following new interpretation, which are effective for its accounting period starting 1 January 2015:

§ IFRIC 21 Levies (effective 17 June 2014)

The adoption of the new interpretation 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 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 31 December 2014 and for the year then ended. 

5 Non-IFRS Measures

The Company defines:

§ EBITDA as net profit/loss before income tax, net finance costs, depreciation and amortisation, impairment of property, plant and equipment ('PPE') and gains/losses from the sale of PPE;

§ Underlying profit/loss as profit/loss before material one-off impacts;

§ Net debt as total debt (carrying amounts of all its issued bonds and long-term interest-bearing borrowings) less cash and cash equivalents.

While the amounts included in EBITDA are derived from the Group's financial statements, 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.

6 Exchange Rates

Throughout this document, financial results and performance in both the current and comparative periods are expressed in Euros. Financial results and performance could differ considerably if 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

Revenues

The Group's largest source of revenue is the sale of coking coal, which accounted for 65% of total revenues in the 9M 2015, whilst the sale of thermal coal accounts for 25% of total revenues in this period.

*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 realised revenues for the products sold.

Total revenues decreased by 12% mainly as a result of lower sales volumes of both coking coal and thermal coal, due to lower production. Lower sales volumes and lower transport charges also resulted in a decrease of transport revenues, with a similar decrease in transport costs, hence no material impact on profitability.

The majority of both coking coal and thermal coal sales have been priced on a calendar year basis in 2015, while in 2014 the Group's coking coal sales were priced on quarterly basis.

Total production of coal in 9M 2015 decreased by 10% compared to 9M 2014, while sales volumes decreased by 12%.

Coal inventories increased by 346kt in 9M 2015, compared to an increase by 232kt in 9M 2014.

* 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

Excluding the EUR 9 million year on year impact in change in inventories driven by the higher build-up of stock, cost of sales decreased by EUR 59 million, as a result of:

§ lower depreciation following the impairment charge recognised in 2014;

§ lower production and lower input costs per equipped coal panel resulting in lower consumption of mining material and spare parts;

§ lower maintenance works undertaken in the 9M 2015; and

§ a 7% decrease in the number of employees, resulting in lower personnel expenses.

Selling Expenses

Lower sales volumes combined with lower transport charges resulted in a reduction in transport costs by 35%, with a similar decrease in transport revenues, resulting in no material impact on profitability. Higher level of lower quality thermal coal on stock in combination with low thermal coal prices caused higher allowance for inventories in 9M 2015.

Administrative Expenses

The decrease in administrative expenses is attributable to a decrease in administrative headcount resulting in lower personnel expenses, and saving in advisory services.

Total Personnel Expenses and Headcount

Total personnel expenses decreased due to lower headcount (see below); partially offset by the costs associated with reducing this headcount.

EBITDA

The Group's EBITDA decreased by EUR 8 million compared to the 9M 2014 mainly as a result of the decrease in revenues, partially offset by the decrease in operating expenses.

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

Finance Income and Expense

The main impact on finance income is through the Convertible Notes, which are designated at fair value through profit or loss ('FVTPL') and the EUR 47 million impact represents the decrease in their fair value between 31 December 2014 and 30 September 2015.

The decrease in interest expenses reflects the exchange of the original notes (nominal EUR 775 million) for the new notes (nominal EUR 317 million as at 30 September 2015) as part of the Capital Restructuring completed in October 2014. For more information about the terms and conditions of this indebtedness please refer to note 13 Contingencies and Other Commitments.

Loss before Tax

The loss before tax in the 9M 2015 was EUR 13 million, a decrease of EUR 120 million compared to a loss of EUR 133 million in the 9M 2014.

Income Tax

The Group recorded a net income tax expense of EUR 3 million in the 9M 2015, compared to a net income tax benefit of EUR 5 million in the 9M 2014.

The gain recognised on fair value change of the Convertible Notes is taxable income and NWR NV recorded a preliminary provision of EUR 3 million in the 9M 2015.

The Group has accumulated tax losses for which no deferred tax asset is recognised as it is not probable that these losses will be recoverable within the timeframe for utilising these losses on standalone entities level.

Loss for the period

The Group recognised a loss of EUR 16 million in the 9M 2015, which represents a decrease of EUR 112 million, compared to the loss of EUR 128 million in the 9M 2014.

8 Earnings / Loss per Share

The calculation of earnings/loss per share is based on profit/loss attributable to the shareholders of the Company and a weighted average number of shares outstanding during the respective periods:

9 Cash Flow

Cash Flow from Operating Activities

Cash outflows arising from operating activities, after working capital changes and before interest and tax in the 9M 2015 were EUR 37 million, EUR 19 million higher compared to cash outflows of EUR 18 million in the 9M 2014, following lower EBITDA and substantially lower level of receivable factoring when compared to both 30 September 2014 and 30 June 2015.

Cash Flow from Investing Activities

Capital expenditures amounted to EUR 28 million in the 9M 2015, a decrease of EUR 17 million when compared to the 9M 2014. Cash flow from investing activities in the 9M 2014 was positively influenced by a release of EUR 7 million from an escrow account related to the sale of the coke subsidiary in 2013.

Cash Flow from Financing Activities

Cash flow from financing activities reflects the transaction costs in relation to the Capital Restructuring.

10 Borrowings, Liquidity and Capital Resources

The principal uses of cash are anticipated to fund planned operating expenditures, working capital requirements, capital expenditures, scheduled debt service requirements, and other distributions.

Indebtedness and liquidity

As at 30 September 2015, the Group held cash and cash equivalents of EUR 57 million and had indebtedness of EUR 378 million (carrying value), of which EUR 3 million is contractually repayable in the next 12 months. This results in a net debt position for the Group of EUR 321 million, 14% higher when compared to EUR 281 million as at 31 December 2014.

For more information about the liquidity and going concern basis of accounting please refer to note 3 Basis of Presentation. For more information about the terms and conditions of this indebtedness please refer to note 13 Contingencies and Other Commitments.

11 Financial Instruments

Financial assets and liabilities by category

The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair value where the carrying amount is a reasonable approximation of fair value (for example accounts receivable or accounts payable).

Fair value hierarchy

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

In order to determine the fair value of the financial instruments, the Company implements valuation techniques used by banks or uses third party professional evaluators; and all significant inputs have been based on observable market data.

12 Segments and Divisions

The Group is 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 Group is primarily involved in coal mining and as such presents only one segment. The whole Mining Division represents the Coal segment.