Performance Report 2007 Sokolovská uhelná SU www.suas.cz In both sports and business, teamwork is the key to success. SU Performance Report 2007 Sokolovská uhelná Performance Report 2007 SU An integral part of the region SU Contents Performance Report 2007 Sokolovská uhelná is the biggest independent power producer in the Czech Republic. We are also the strongest player in the region’s economy and its largest employer as well. Contents 05 Results at a Glance 05 Important Moments of 2007–2008 06 Letter from the Chairman 08 People in the Management of Sokolovská uhelná 12 Company Profile 14 Description of the Divisions 20 Board of Directors’ Report on Company Financial Performance in 2007 20 Business Environment 26 Production and Sales 2 Performance Report 2007 Contents SU As part of our responsibility for regional development, Sokolovská uhelná is a long-term initiator and supporter of social, sport, cultural, and educational activities. 30 Earnings Analysis 33 Structure of Assets and Sources of Financing 35 Capital Construction 38 Work Force 42 Environmental Stewardship 47 Public Relations 50 Business Strategy 53 Organization Chart as of 31 December 2007 54 Financial Statements 56 Contacts 3 SU Results at a Glance / Important Moments of 2007–2008 Performance Report 2007 4 Performance Report 2007 Results at a Glance / Important Moments of 2007–2008 SU Results at a Glance Units 2007 2006 2005 2004 Production Coal extracted kt 10,273.5 10,329.2 10,307.1 10,081.1 Overburden extracted m3 thousands 29,572.4 29,230.6 32,684.0 32,191.0 Electricity – heat/power plant GWh 1,688.8 1,607.3 1,698.2 1,633.2 Electricity – combined cycle power plant GWh 1,804.4 1,821.4 1,899.7 1,791.0 Coal gas m3 millions 1,164.1 1,198.8 1,187.9 1,141.3 Sales Coal kt 6,120.8 6,107.3 6,153.2 6,068.6 – of which, e.g.: sorted kt 204.4 274.1 240.1 258.4 briquettes kt 235.6 328.8 286.8 285.7 Electricity – heat/power plant GWh 1,104.5 1,018.8 1,007.8 839.5 Electricity – combined cycle power plant GWh 1,797.2 1,838.1 1,891.9 1,797.6 Heat TJ 2,055.5 2,216.6 2,251.5 2,298.8 Financial indicators Revenues CZK millions 9,006.4 8,373.8 7,437.0 7,172.2 Net income CZK millions 1,558.7 1,168.6 533.3 551.4 Capital expenditure CZK millions 839.3 685.3 555.8 808.0 Average number of employees persons 4,686 4,739 4,888 5,194 Average monthly wage CZK 25,513 23,472 21,125 20,000 Important Moments 2007–2008 2007 January Coal sales fall due to record-high winter temperatures March Auditors issue an unqualified opinion on the Company’s 2006 financial statements Extraordinary General Meeting April New subsidiary, SOKOREST, s.r.o., a corporate cafeterias company, is established June Annual General Meeting Extraordinary event at Division Zpracování – combustion of pyrophoric sediments with subsequent explosion during cleaning of a Rectisol heat exchanger that had been taken out of service Termination of relationship with EUREST, spol. s r.o. July Fatal work-related accident at Division Družba August Bottom of pit flooded during a power outage at Division Družba Overhaul of Unit 1 of Combined Cycle Power Plant (CCPP) completed September Landslide at Jiří Mine November First lighting of burner on Utilization of Gasworks Liquid By-products (UGLB) project December 2008 annex to Collective Agreement signed 2008 March Auditors issue an unqualified opinion on the Company’s 2007 financial statements 5 SU Letter from the Chairman Performance Report 2007 Letter from the Chairman Dear business and regional partners of our company, dear co-workers: It my pleasant duty to state that 2007, the year that we sum Negative influences include, most significantly, certain up in this report, was financially the most successful yet in natural anomalies that require constant attention, the Company’s 14-year history. These results are all the particularly in terms of occupational safety. This attention more valuable when we consider that they were achieved needs to be especially vigilant, because work crews are in a highly competitive business environment. undergoing a generational shift as older employees retire and younger ones are hired to take their place, yet the Our basic strategy is unchanged: to exploit the Sokolov specialized qualifications necessary make it impossible to Basin’s brown coal reserves in a careful and considerate add new employees flexibly from the market labor pool. manner, and to convert them into forms of energy demanded by the market. During the entire process, we emphasize The positive and negative influences discussed above are strict compliance with the latest environmental standards and long-term in character and we will continue to face them in mandates, particularly in view of our region’s status as a spa future years as well. Trends in the European Union are and sanatorium care center. another factor that will affect us more and more, albeit indirectly. We will have to continue to react flexibly to In so doing, Sokolovská uhelná continues to respect the changes in the fuel and energy base, plant locations, and region’s needs and meet standards of good corporate energy transport, as well as to stricter application of citizenship. While fulfilling our long-term vision, we dealt environmental perspectives. successfully with dynamic changes in our immediate environs and in the entire Karlovy Vary Region. Similarly, One of these new factors is a change in the system of we coped with changes and influences ensuing from our greenhouse gas emission allowances. The impact of these activities within the Czech Republic, as well as impacts changes on the Czech Republic’s economy and that of the originating in the European Union and developments in entire European Union is beyond dispute. global fuel and energy markets. In conclusion of this report on the successful year 2007, Our success in the face of these factors and influences is I would like to thank all the corporate partners whose reflected in the financial results, which are extraordinarily constructive efforts supported us and express my good and give us cause to declare 2007 the most confidence that our cooperation will continue at this level. successful year in Company history to-date. Income before tax reached CZK 1,834 billion. My sincere thanks also go out to all our Company’s employees. They played a direct role in the excellent This result is not happenstance – it is the latest in a continuous results of 2007 and I am confident that they will approach series of similar earnings results in recent years. It is good the challenges of 2008 with similar skill and dedication. news for the region and its residents, as well as for the wide range of companies that work with us. An analysis of the positive and negative causes that, in total, brought about this striking accomplishment, confirms that our strong points prevail. Most importantly, they include a correctly focused and thoroughly implemented František Štěpánek corporate strategy, continuous development of the Chairman of the Board of Directors professional potential of qualified Company employees, Sokolovská uhelná, právní nástupce, a.s. and effective exploitation of natural conditions. 6 Performance Report 2007 Letter from the Chairman SU “In terms of income, 2007 was the most successful year in the Company’s 14-year history. We are not changing our strategy; as we mine the brown coal reserves of the Sokolov Basin, we fully respect the region’s spa and sanatorium industry. Social responsibility is a big priority for us.” 7 SU People in the Management Performance Report 2007 People in the Management of Sokolovská uhelná Board of Directors František Štěpánek Jaroslav Rokos Jiří Pöpperl Chairman of the Board of Directors Vice Chairman of the Board Member of the Board of Directors and Chief Executive Officer of Directors and Finance Director and Technology Director Chairman of the Board of Directors Statutory representative Member of the Board of Directors of Golf Sokolov a.s. of Malé Versailles, s.r.o. of Golf Sokolov a.s. Member of the Board of Directors Chairman of the Supervisory Board Member of the Sokolov Municipal of Sokolovská obchodní, a.s. of FK Baník Sokolov a.s. Assembly Member of the Supervisory Board Member of the Supervisory Boards of Coal Energy, a.s. of Golf Sokolov a.s., SATER- Graduate of the Technical University CHODOV spol. s r.o., PRODECO a.s. of Ostrava, Graduate of Technical University Born in 1956, of Ostrava, Graduate of University of Economics, 28 years’ mining experience; Born in 1953, Prague, and Prague International Technology Director of Sokolovská 28 years’ mining experience; Business School, uhelná, a.s. since October 2004, Production Director in 1994–1999, and Born in 1963, Member of the Board of Directors Member of the Board and CEO of 23 years’ mining experience; of Sokolovská uhelná, právní Sokolovská uhelná, a.s. since 1999, Finance Director of Sokolovská nástupce, a.s. since 2005. Chairman of the Board of Sokolovská uhelná, a.s. since 1995, Chairman těžební, a.s. in 2002–2005, Chairman of the Supervisory Board of Sokolovská of the Board of Directors of Sokolovská těžební, a.s. in 2002–2005, Vice uhelná, a.s. in 2004–2005, Chairman Chairman of the Board of Directors of the Board of Directors of Sokolovská of Sokolovská uhelná, a.s. in uhelná, právní nástupce, a.s. since 2004–2005, Vice Chairman of the 2005.