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Annual Report 2011

The English version of the annual report and the consolidated financial statements 2011 of HMS Bergbau AG is a one-to-one translation of the annual report and the audited consolidated financial statements 2011 of HMS Bergbau AG. The English version is not audited; in the event of variances, the German version shall take precedence over the English translation.

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Annual Report 2011 of HMS Bergbau AG / www.hms-ag.com

Expected

publication date

Start of the financial year 1 January 2012

Annual Report 2011 6 June 2012

Annual General Meeting August 2012

Interim Report 2012 September 2012

End of the financial year 31 December 2012

31.12.2011 31.12.2010 31.12.2009

Balance sheet figures EUR thousand EUR thousand EUR thousand

Total assets 14,591 26,456 28,117

Non-current assets 6,041 6,389 393

Current assets 8,490 20,028 27,621

Shareholders' equity 4,185 7,608 7,137

Provisions 1,728 1,476 1,549

Liabilities 8,678 17,373 19,432

2011 2010 2009

Cash flow figures EUR thousand EUR thousand EUR thousand

Cash flow from operating activities 4,002 8,069 -2,881

Cash flow from investment activities 67 -6,551 -46

Cash flow from financing activities -2,392 -1,420 80

Cash and cash equivalents at the end of

the period 3,963 2,286 2,279

2011 2010 2009

Income statement figures EUR thousand EUR thousand EUR thousand

Sales revenues 106,669 151,720 73,709

EBIT * -324 2,221 437

Net profit -1,038 364 103

Group Performance Indicators

Financial Calendar

* EBIT before extraordinary expenses and earnings

Group Performance Indicators


3

Index

Letter to the Shareholders

Management Talk

Report of the Supervisory Board

Investor Relations

Highlights

Group Management Report

Consolidated Financial Statements

Consolidated Balance Sheet

Consolidated Income Statement

Consolidated Cash Flow Statement

Consolidated Statement of Changes in Shareholders‘ Equity

Statement of Changes in Non-Current Assets

Notes to the Consolidated Financial Statement

Auditors‘ Report

Imprint

4

8

12

16

20

24

48

48

50

51

52

54

56

68

70

Index

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Dear Shareholders,

HMS Bergbau AG used 2011 to continue implementing its vertical integration. For this

reason, our activities were constantly guided by our goal of achieving coverage of HMS

Bergbau AG’s entire value added chain, from mining to logistics to customer deliveries.

A strong trading business with long-term, stable relationships with suppliers and

customers as well as strong value contributions are necessary to reach this strategic goal.

To expand our trading business, for instance, we concluded exclusive agreements with two

Indonesian coal producers in June 2011. These long-term contracts secure sole marketing

rights for HMS for a considerable production quantity of industrial coal in Asia, a market of

the future.

It is equally our expressed goal to increase the competitive advantages resulting from

vertical integration in order to generate sustainable company growth. By further

expanding our international business activities in Asia, the key growth market for coal, we

have come one step closer to this goal in the past year. For instance, in addition to coal

handling on behalf of third parties, we conducted our first trading transactions on our own

behalf via our harbour operations in South Kalimantan. This included acquiring,

processing, mixing and selling quantities from local producers. Our objective is to expand

these transactions in the future. Additionally, we have continued to develop our harbour

operations, thereby improving our control over the logistics chain in this area.

Currently, HMS Bergbau AG takes on coal from well-known, reliable producers and sales

companies, primarily in Indonesia, South Africa, Russia and Poland. In addition, we

exclusively represent a number of international coal producers and take care of the

complete marketing of the coal in selected markets. As a complete provider, we guarantee

not only the in time supply of raw materials, we also accept responsibility for the entire

transport logistics process. Our team charters ships, if needed; organises inland transport

by ship, train or truck; and assumes the handling in ports, warehouse management, coal

beneficiation and, last but not least, technical monitoring.

The sale of our investments in Poland’s HMS Bergbau Polska Sp. z.o.o. and Germany’s

KGHM HMS Bergbau AG was consistent with our strategy, in order to pool our know-how

and switch our focus to secure, high-margin business.

To make use of HMS Bergbau AG’s potential, we are dedicated to a performance-oriented,

yet highly ethical company culture. This is necessary to continue to be appealing to

qualified employees in the face of competition. Well-trained, flexible and active employees

are more important today than ever before. After all, the international coal trade is guided

by business relationships to customers and suppliers based on trust.

With this in mind, our goal is to achieve significant growth in the next two financial years,



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Heinz Schernikau, CEO

Heinz Schernikau established HMD Bergbau AG in 1995 in Berlin. He has been in the

international coal trade for more than 35 years and his positions include advisor to the Board

of leading coal producers in Asia and Europe. He has established extensive international

contacts and places particular importance on achieving long-term business relationships,

mutual trust and reliability.

Sebastian Giese, CFO

Sebastian Giese was appointed as CFO of HMS Bergbau AG in mid-July 2009. The former

auditor and tax consultant has long-standing experience in business consultancy and financial

audits. Prior to taking up his position on the Management Board, he worked for auditing firm

Ernst & Young, where some of his duties included advising and auditing the financial

statements of globally operating corporate groups.

Rüdiger Lorentz, COO

Rüdiger Lorentz became the COO of HMS Bergbau AG in 2010. He has worked for the

company since 2005. He started his career in the international raw materials trade over 23

years ago and has gathered outstanding knowledge of trade in the European, Asian and US

markets.

following the decrease in sales by 30% to EUR 107 million and an annual result of EUR

-1,038 million. We continue to see considerable growth potential in Asia and we also look

forward to profitable business prospects resulting from the exclusive marketing agreement

with ICHOR Coal N.V., HMS Bergbau’s 81% majority shareholder, especially in terms of

procurement in South Africa. Together with rising sales, we also expect a higher gross

margin from our business transactions, due to the further expansion of vertical

integration.

We would like to thank all our employees and business partners for the trust they have

shown in us this past year and look forward to a continued positive and successful working

relationship.

Heinz Schernikau Sebastian Giese Rüdiger Lorentz

CEO CFO COO


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Management Talk

Management Talk with the Board of Directors of HMS Bergbau AG, Heinz

Schernikau (CEO), Sebastian Giese (CFO) and Rüdiger Lorentz (COO)

Why was HMS Bergbau AG not able to match the positive development of the

previous year in 2011?

While in 2010 we more than doubled almost all sales and earnings key figures compared

to 2009 and profited from significantly higher trading volumes at the same time as coal

prices rose, sales revenues for 2011 fell by almost 30% to EUR 107 million. This full year

decline was mainly volume-driven and was due to the fact, that some agreements in

Europe expired and could not be compensated by the growth in Asia. The decline was also

due to significantly lower coal prices in the second half of 2011 compared to the

expectation of the beginning of the year.

Another reason for the decline were delivery delays that plagued Indonesian sourcing. This

was due to unexpected changes the legal situation for producers and exporters as well as

delays in those mines for which HMS holds exclusive marketing rights. The time lost here

could not be made up during the course of the year.

But despite all of this, our harbour operations in Indonesia significantly increased its

earnings contribution in 2011 and experienced a constant increase in trading volumes.

However, there is still considerable potential yet to be exploited.

Overall, the higher-margin exclusive marketing business in Asia as well as the high-margin

European business provided relatively lower earnings, thereby leading to a rise in the

materials usage ratio. As a consequence, the annual result amounted to EUR -1.0 million.

In December 2011, the former major shareholders of HMS Bergbau AG

contributed their shares to the Dutch company ICHOR Coal N.V., making ICHOR

Coal N.V. the new major shareholder of HMS Bergbau AG. What is the strategy

behind this deal and to what extent can HMS Bergbau AG profit from this?

The contribution of all HMS shares held by the former major shareholders – ERAG Energie

& Rohstoff AG, LaVo Verwaltungsgesellschaft mbH, Michaela und Heinz Schernikau – to

the newly formed ICHOR Coal N.V. led to the signing of a marketing agreement between

the two companies. Together with a financially strong commodities investor, the major

shareholder of HMS Bergbau AG’s and its new parent company, ICHOR Coal N.V., plans to

acquire coal deposits and coal mines in South Africa, and possibly also in Asia.

This marketing agreement allow HMS Bergbau AG to significantly increase its access to

new coal deposits also; the exclusive marketing agreement now enables the Company to

sustainably reinforce its future sourcing in South Africa.

Management Talk

7


The reasoning behind the international repositioning of HMS Bergbau AG is not just the

market expansion in Asia and South Africa, but above all a faster than expected cutback in

the European coal market. These market changes resulted in substantial declines in HMS

Bergbau AG’s market volumes in Europe in financial year 2011. Based on the future close

cooperation of both coal companies, which is also reinforced by having the same

executives sitting on both management boards, HMS Bergbau AG is taking an important

step in terms of having direct access to international coal deposits. The first significant

coal marketing activities are expected in the fourth quarter of 2012.

HMS Bergbau AG has an excellent international position with subsidiaries and

representative offices in Singapore, Indonesia, Pakistan and India as well as

exclusive marketing agreements in South Africa. Does this mean a simultaneous

withdrawal from the European business?

HMS Bergbau AG realised very early that a forward-looking company set up means having

to expand international business activities. As a result, we will focus primarily on the coal

growth market in Asia in order to benefit from rising coal exports in the region.

Indonesia will become one of the most important mining markets in the coming years as it

has excellent resources, favourable mining conditions and a central location in the Pacific

region which is experiencing quickly growing industrial demand. For this reason, we see

significant growth potential – particularly by securing large coal resources and developing

our own coal handling facilities. As increased prices are anticipated in the global market,

due to the rising demand of global energy consumption, securing our own resources, and

consequently the expansion along the value added chain, therefore plays an essential part

in strengthening our market position in the long term.

Despite this, we are concentrating our efforts on renewing contracts as well as signing

new long-term agreements with European power plant operators. In light of the decision

to phase out nuclear power and the current difficulties in implementing the move to

alternative energy sources, we expect the European demand for fossil fuels to be high. In

our opinion, coal power production will continue to be an important factor as a flexible

energy source in Europe.

At the same time, we are increasing our focus on expansion along the value added chain,

especially by signing and implementing exclusive marketing and cooperation agreements.

Management Talk

8


Report of the Supervisory Board of HMS Bergbau AG for

financial year 2011

Dear Shareholders,

In financial year 2011, the Supervisory Board of HMS Bergbau AG carried out its tasks as

stipulated by law and its Articles of Association and continuously monitored and advised

the Management Board in its work. We regularly obtained comprehensive information on

the current economic and financial position of the group, its business performance,

financial, investment and personnel planning as well as its strategic development at our

regular meetings and through additional verbal and written reports submitted to us by the

Management Board. This report pertains to the current earning situation, opportunities

and risks and risk management. The Supervisory Board discussed all fundamentally

important decisions in depth with the Management Board. We assessed in detail any

business transactions requiring our approval. The Supervisory Board voted on proposals

put forward by the Management Board if and when required by law or the Articles of

Association.

Focal points of the meetings

In financial year 2011, the Supervisory Board of HMS Bergbau AG held four meetings.

Subjects that were regularly discussed included the current business performance of the

company and its subsidiaries as well as its liquidity, net assets and financial position. All

resolutions required by law and the Articles of Association were passed. The Management

Board informed the Supervisory Board promptly about important matters between

meetings. If necessary, resolutions were passed by circular resolution.

The strategic focus of the group, company planning and the organisational structure,

which has to be adjusted accordingly, including all resulting personnel changes in the

Company and its subsidiaries, were again at the centre of the Supervisory Board’s

meetings in financial year 2011. In particular the advancing internationalisation and the

drop in sales in the European market played a major role. Our discussions also focused on

the signing of a marketing agreement with Ichor Coal N.V., which is now the majority

shareholder of the company. In this context, we also discussed the expected effects from

the changes made to the shareholder structure. The Management Board regularly

informed us about the general market performance, price and earnings forecasts as well



9

as intended measures. The Management Board also presented to and discussed with us

potential future projects. Important transactions approved by the Supervisory Board are

described in the company and group management report. In addition, the Supervisory

Board confirmed the existing pension commitment for the CEO.

Personnel changes

The members of the Supervisory Board did not change in financial year 2011. The actions

of Dr. Hans-Dieter Harig, Dr. h. c. Michael Bärlein and Michaela Schernikau in financial

year 2010 were approved by the statutory shareholders’ meeting on 18 August 2011.

Annual financial statements 2011

The annual financial statements and consolidated financial statements of HMS Bergbau AG

for financial year 2011 were prepared in accordance with the German Commercial Code

(Handelsgesetzbuch – HGB). The company’s auditor in 2011, Ernst & Young GmbH

Wirtschaftsprüfungsgesellschaft, Berlin, was appointed to audit the annual financial

statements of HMS Bergbau AG and the consolidated financial statements, the company

and group management report and the report of the Management Board on relationships

with associated companies (“dependent company report”) in financial year 2011.

The auditor audited the annual financial statements of HMS Bergbau AG as well as the

consolidated financial statements and the company and group management report,

including the accounting system, in accordance with the generally accepted German

standards for auditing financial statements promulgated by the Institute of Public Auditors

in Germany (Institut der Wirtschaftsprüfer – IDW) and issued an unqualified audit opinion.

The internal control system was also deemed to be effective.

All Supervisory Board members were provided with the annual and consolidated financial

statements, the company and group management report, the dependent company report

and the corresponding audit reports in good time. We examined the documents and

discussed them in detail at our meeting on 23 May 2012. Both the Management Board and

auditor were present at the meeting and provided detailed answers to all questions placed

by the Supervisory Board. The auditor also reported on the key points of the audit. Our

own examination of the annual and consolidated financial statements as well as the

company and group management report did not lead to any objections and we approved

the audit results. After its final inspection of all documents, the Supervisory Board did not


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raise any objections and approved the annual financial statements of HMS Bergbau AG as

of 31 December 2011 and the consolidated financial statements as of 31 December 2011,

as prepared by the Management Board, at its meeting on 23 May 2012. The 2011 annual

financial statements have therefore been prepared and approved in accordance with

Section 172 of the German Stock Corporation Act (AktG).

On 23 May 2012, the Management Board proposed to carry HMS Bergbau AG’s net profit

of EUR 1,321,679.28 forward to new account. We also examined and approved this

proposal.

The dependent company report prepared by the Management Board indicates that HMS

Bergbau AG did not incur any disadvantage from the legal transactions with associated

companies stated therein and received appropriate compensation. This report was also

audited by the auditor, who issued the following audit opinion:

“After dutifully examining and assessing the dependent company report, we confirm that

1. the actual information provided therein is correct, and

2. that the services provided by the company were appropriate for the legal

transactions stated therein.”

Our own audit of the dependent company report also did not lead to any objections and

we therefore approved the auditor’s audit. After finalising our own audit, we therefore did

not raise any objections against the Management Board’s declarations at the end of the

dependent company report.

There were no conflicts of interest between the members of the Supervisory Board during

the reporting period.

The Supervisory Board would like to thank the Management Board and all employees for

their commitment in financial year 2011.

Berlin, May 2012

Dr. Hans-Dieter Harig

Chairman of the Supervisory Board



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Members of the Supervisory Board during the reporting period

Dr. Hans-Dieter Harig, chairman

Dr. h. c. Michael Bärlein, deputy

Michaela Schernikau, member


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Investor Relations

General developments in the capital markets

2011 was in the grip of pending sovereign bankruptcies in Europe. And it was not just the

share markets that were heavily influenced by this nightmare scenario in the second half

of the year in particular. The DAX, the German share index, fell by some 25% in just three

months over the summer. On 18 August 2011 alone, the lead index dropped 5.82%, its

greatest daily loss since November 2008. Apart from the significant decline in response to

the natural disaster in Japan, the DAX initially climbed by 6.7% at the end of the first half

of 2011 from 6,914 points to 7,376 points. Then the DAX started to drop at the end of July

due to concerns regarding the state of major European banks and fears of a global

economic slump. Until the end of the year the German index of the 30 most important

listed companies fell by 14.7%, closing the year at 5,898 points. In 2012, the DAX had a

very encouraging start, standing above 6,800 points in mid-February 2012.

The Entry Standard Index also lost considerable ground in 2011. The selection index

opened the year at 581 points, but fell by more than 33% by 31 December 2011, closing

the year at 387 points. Then again the Entry Standard Index mirrored the Dax by

performing well at the beginning of the year, standing above 400 points in February 2012.

The Daxsubsector All Industrial Products & Services Performance Index followed a similar

trend to the DAX in 2011. The special value index lost some 16% over the course of the

year. In a very friendly stock market climate at the beginning of 2012, the Daxsubsector

All Industrial as well came close to its value at the start of 2011.

Performance of selected indices since 2011

Source: Deutsche Börse AG; Ariva.de; HMS Bergbau AG

Investor Relations

0%

20%

40%

60%

80%

100%

120%

140%

Jan11

Feb11

Mar11

Apr11

May11

Jun11

Jul11

Aug11

Sep11

Oct11

Nov11

Dec11

Jan12

Feb12

Mar12

HMS Bergbau AG (Xetra)

Entry Standard Index

DAX Deutscher Aktien Index

Daxsubsector All Industrial Products & Services Performance Index


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0

2

4

6

8

10

12

14

16

Jan11

Feb11

Mar11

Apr11

May11

Jun11

Jul11

Aug11

Sep11

Oct11

Nov11

Dec11

Jan12

Feb12

Mar12

HMS Bergbau AG (Xetra)

HMS share performance

The global negative effects from pending sovereign bankruptcies and the associated euro

crisis also affected the performance of HMS shares. After opening 2011 at EUR 12.00, the

share droped to some EUR 7.00 by mid-April 2011, recovering only slightly by the end of

June 2011. Over the course of the remaining year, the HMS share plotted a sideways

course, mostly between EUR 9.00 and EUR 10.00. The share of the international coal

supplier closed on 31 December 2011 at EUR 9.49, down 20.9% on the opening figure.

HMS share performance

Source: Deutsche Börse AG; Ariva.de; HMS Bergbau AG

EUR

Investor Relations

14


81%

19%

ICHOR Coal N.V. Free float

Shareholder structure

The share capital of HMS Bergbau AG is comprised of 4 million shares with a nominal

value of EUR 1.00 each and as such amounts to EUR 4.0 million.

The shareholder structure of HMS Bergbau AG was reorganised in December 2011. HMS

Bergbau AG’s known major shareholders – ERAG Energie & Rohstoff AG, LaVo

Verwaltungsgesellschaft mbH, Michaela and Heinz Schernikau – contributed their HMS

shares to ICHOR Coal N.V. as part of an exclusive marketing agreement. The fundamental

motive behind this transaction is to increase HMS Bergbau AG’s access to coal deposits in

South Africa. With this transaction ICHOR Coal N.V. now owns a majority stake in HMS

Bergbau AG, currently holding 81% of the shares and being the new parent company. The

free float therefore now amounts to less than 19%.

The share buy-back programme resolved at the shareholders’ meeting on 12 October

2009 to allow additional leeway, independently from the capital market, provides for the

buyback of up to 10% of the share capital. As of 31 December 2012 HMS Bergbau AG held

248,307 own shares.

Shareholder structure on 31 December 2011

Investor relations activities

HMS Bergbau AG once again far exceeded the requirements of the Entry Standards in

2011. All capital market-relevant communications were published in both German and

English. The Management Board of HMS Bergbau AG has regularly held talks with

institutional investors and industry analysts on the business model and the Company’s

future prospects as well as other capital market-relevant issues.

Source: HMS Bergbau AG

Investor Relations


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Basic data

ISIN / WKN DE0006061104 / 606110

Share symbol HMU

Bloomberg ticker code HMU GY

Reuters code HMUG.DE

Market segment / transparency level Open Market / Entry Standard

Designated sponsor / listing partner Close Brothers Seydler Bank AG

Investor relations GFEI Aktiengesellschaft

Share capital in EUR 4,000,000

Number of outstanding shares 4,000,000

Free float 19%

Performance data as of 31.12.2011 (in EUR)

Share price on 31.12.2010 (Xetra) 12.00

Share price on 31.12.2011 (Xetra) 9.49

Highest price 2011 (04.02.2011) 14.00

Lowest price 2011 (12.04.2011) 7.00

Market capitalisation on 31 December 2011 37,960,000

Total performance 2011 (%)

HMS Bergbau AG -22.5

DAX -14.7

Daxsubsector All Industrial Products & Services -16.0

Entry All Share Performance Index -33.4

Key capital market data as of 31 December 2011

Statutory shareholders’ meeting

The 2011 statutory shareholders’ meeting was held on 18 August 2011 at the business

premises of HMS Bergbau AG in Berlin. All points on the agenda were approved with a

100% consent by the shareholders. Besides the appropriation of net profits, the approval

of the actions of the members of the Management Board and Supervisory Board and the

proposed appointment of the auditors for financial year 2011 was voted on.

The 2012 statutory shareholders’ meeting will likely take place in July 2012.

Investor Relations

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Highlights

Highlights during the reporting period

June 2011

Focus of HMS Bergbau AG on the Asian market

HMS Bergbau AG has focused on the growth market in Asia since June in order to profit

from rising coal exports in the region. The subsidiaries in Singapore, Indonesia, Pakistan

and India promise an optimal profile. At the same time, the HMS Group sold its investment

in Poland, to focus in Europe on secure and high-margin transactions.

June 2011

Conclusion of two long-term marketing agreements

HMS Bergbau AG concluded two long-term marketing agreements with Indonesian coal

producers. The cooperation agreement with Singapore-based Bencoolen Coal Pte Ltd.

secures the entire output of the Sumatra located coal mine exclusively for HMS Bergbau

AG. The agreement with a coal mine operator in East Kalimantan also guarantees the sale

of the mined coal to the Asian market since August 2011.

July 2011

HMS Bergbau AG publishes its figures for 2010

Financial year 2010 was closed with significant year-on-year sales and earnings increases:

Group sales revenues rose by 106%, Group EBIT by an above-average 409% and

consolidated profit by 253%.

September 2011

HMS Bergbau AG publishes figures for the first half of 2011

In the first six months of financial year 2011, HMS-Bergbau AG pursued its vertical

integration strategy and expanded its international business activities in the Asian growth

market. Key strategic goals were achieved despite the 21.9% year-on-year drop in sales

revenues and the EUR 1,278 thousand fall in EBIT.

December 2011

ICHOR Coal N.V. announces majority stake

In December, HMS Bergbau AG signed an exclusive agreement with ICHOR Coal N.V. that

specifies the contribution of all HMS shares held by major shareholders of HMS Bergbau

AG into the newly formed ICHOR Coal N.V. For HMS Bergbau AG, this close cooperation

with ICHOR Coal N.V. represents another important step towards direct access to

international coal producers. Both companies plan their sustainable expansion in an

international coal market that is constantly growing despite the change in the energy

market.

Highlights


17

After the reporting period

April 2012

HMS Bergbau AG decides on capital increase for further growth

With the Supervisory Board’s approval, the Management Board of HMS Bergbau AG deci-

ded to increase the Company’s share capital excluding subscription rights. The Company’s

share capital was increased by EUR 370,000 to EUR 4,370,000. Majority shareholder

ICHOR Coal N.V. was the applicant for the new shares.

Highlights

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1. Overview

HMS Bergbau AG trades in coal and energy raw materials worldwide and supplies steam

coal, coking coal and coking coal products to major European and international power

plants, cement manufacturers and industrial consumers. HMS Bergbau AG focuses on

building long-term, profitable business relationships with international producers and

consumers, and is planning to further expand its international activities, particularly with

regard to the Asian market.

The following table shows the HMS Group structure as of 31 December 2011:

Berlin, Deutschland

Katowice, Polen

Jakarta, Indonesien

Berlin, Deutschland

Berlin, Deutschland

Berlin, Deutschland

100%

100%

51%

100%

100%



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Our strategy of paying particular attention to long-term developments on the global

commodity markets without losing sight of current trends continues to be based on the

following factors:

Price developments: Highly volatile price developments can result in fluctuating

margins at all stages of the value added chain. Vertical integration of mining,

handling and transport can provide long-term competitive advantages, particularly

when taking into account current and expected future continued price increases.

This can also effectively counteract market fluctuations.

Internationalisation of the markets: The commodities markets are continuing to

grow closer together as a result of international trade and improved logistics. At the

same time, market transparency is increasing thanks to trading platforms and index

-based trading activities. This also increases competition.

Need for investment: Investing in our own resources is essential if we are to push

ahead with vertical integration within the value added chain and ensure that future

supply covers the growing demand for energy. In this context, it makes particular

sense for HMS to enter into exclusive marketing agreements financed by

prepayments.

Our long-term strategy of vertical integration, i.e. covering the entire value added chain

from mining to logistics to customer deliveries, therefore rests on the following basic

principles:

Strong trade business: The foundation for our future growth and success as a

business is the further expansion of our trade, with solid, long-term customer and

supplier relationships and stable contributions to value.

Growth: We aim to generate adequate growth, which will arise from sustainable

increases in earnings, by means of vertical integration and the competitive

advantages arising from it. A key element in this growth will be our entering into

exclusive marketing agreements.

Company culture: Our business embodies a performance-focused, international

corporate culture across all Group companies; this helps to increase our

attractiveness as an employer and hence our success in competition for qualified

international employees to put our strategies successfully into practice.


20


2. Business and economic environment

Once again, developments in the industrialised and emerging nations varied this year.

While developing and emerging countries, as defined by the International Monetary Fund

(IMF), showed 6% growth in 2011, the industrialised nations grew by just 1.5%. The IMF’s

provisional forecast for global growth in 2011 comes to 4%.

In Germany, the economy once again showed strong growth in 2011, continuing economic

recovery in the second year after the financial and economic crisis. Provisional figures

issued by the German Federal Statistical Office put GDP, adjusted for prices, at 3.0%

above that seen in the previous year, with the economic upturn being at its strongest in

the first half of the year.

One of the factors driving growth was personal consumer spending, which increased by

1.5%, a rate last seen five years ago. Investments in equipment (up 8.3%) and buildings

(up 5.4%) demonstrated particularly notable increases. The German export industry again

delivered a high rate of growth, expanding by 8.2% in 2011, while imports of goods and

services climbed by 7.2%.

There was also good news in terms of productivity in 2011, with economic recovery taking

GDP per capita (economically active population), adjusted for price, up 1.6% year-on-

year.

The positive economic developments and the consequent increase in tax revenue saw the

public-sector budget deficit standing at EUR 26.7 billion, according to provisional

calculations. This results in a deficit ratio of 1.0% when measured against GDP − well

below the benchmark value of 3% defined in the Maastricht treaty, in contrast to 2009

and 2010, which saw the benchmark value exceeded.

Driving the global economy

The major factor driving global economic growth, worldwide energy consumption and the

related increase in CO2 emissions remains the rising global population, particularly in

developing countries. According to figures based on a range of public sources, the global

population continues to grow by an average of 1% to 1.2% annually, despite the economic

crisis that has affected the world; if this trend proceeds at the same rate, 8.2 billion

people will be living on the Earth by 2030.

However, energy consumption is increasing at a faster rate than population, as specific

consumption per person is rising along with the number of people. This trend is

attributable not only to the continuous rise in the urban population and the concomitant

increase in specific energy consumption, but also, and above all, to catch-up effects in

hitherto underdeveloped countries.

The International Energy Agency (IEA) estimates that more than 20% of the global

population does not have access to electricity. Approximately 40% of the world’s people



21

14,905

14,269 14,401 14,537

14,128

14,216

13,428

14,083

13,411

12,500

13,000

13,500

14,000

14,500

15,000

15,500

1990 1995 2000 2005 2010

still cook using traditional biomass (wood) and heat their homes with coal briquettes.

Emerging and developing countries have a correspondingly large amount of ground to

make up in terms of approaching the standards of living enjoyed in the industrialised

nations.

This is also why emerging and developing nations are currently unwilling to fall into line

with the demands of European industrialised countries on energy saving and cuts in

emissions; from their perspective, the priorities are to meet their populations’ basic needs

for food and water, provide them with access to electricity, and in this way increase their

standard of living.

Primary energy consumption in Germany

Despite an increasing demand for energy across the globe, energy consumption in

Germany fell by almost 5% in 2011, hitting the lowest level seen since the beginning of

the 1970s. Preliminary figures issued by the Working Group on Energy Balances

(Arbeitsgemeinschaft Energiebilanzen e. V.) indicate that energy consumption sank to

13,411 petajoules (PJ), or, expressed differently, 457.6 million tonnes HCU. Mild weather

was given as one reason for the decline. Adjusted for the effects of temperature, energy

consumption fell by just 1.0% in 2011. High energy prices and action to improve energy

efficiency prompted by these price levels are likely to be substantial factors affecting the

decrease.

Development of primary energy consumption in Germany

Source: Arbeitsgemeinschaft Energiebilanzen e.V.; HMS Bergbau AG


22


33.8%

20.6%

12.6%

11.7%

8.8%

10.8% 1.7%

Mineral oil Natural gas Hard coal

Lignite Nuclear energy Renewable energies

Other

Last year’s consumption of mineral oil amounted to 4,549 PJ (155.2 million tons HCU), a

year-on-year reduction of 3% which took consumption to the lowest level seen since

1990. Consumption of natural gas declined more steeply still, with 2,780 PJ (94.2 million

tonnes HCU) of natural gas used in 2011, around 10% less than during the previous year.

Hard coal consumption saw only a slight decline in 2011, by 0.7%, with a total of 1,685 PJ

(57.5 million tonnes HCU) consumed. The use of hard coal in power plants, which

accounted for over two-thirds of total consumption, fell by approximately 2% in 2011. By

contrast, the steel industry’s demand for hard coal rose by around 4%. Consumption of

lignite increased likewise by almost 4%, to 1,568 PJ (53.5 million tonnes HCU). This

growth reflects the positive development in deliveries to power plants, which account for

around 90% of domestic lignite production. Nuclear energy’s share of Germany’s energy

balance fell by almost 23% in the wake of the countryʼs decision to exit nuclear power. By

contrast, renewable energies expanded by 4.1% and saw their share of the countryʼs

energy rise to almost 11%, which translated to 1,449 PJ (49.4 million tonnes HCU). On

balance, Germanyʼs trading of power with its European neighbours produced a slight

export surplus amounting to 5 billion kWh. Nevertheless, this development belies a

marked increase in electricity imports and decline in power exports; the export surplus in

2010 was 17 billion kWh.

Germany’s energy mix in 2011

Source: Arbeitsgemeinschaft Energiebilanzen e.V.; HMS Bergbau AG



23

80%

90%

100%

110%

120%

130%

140%

Jan11

Feb11

Mar11

Apr11

May11

Jun11

Jul11

Aug11

Sep11

Oct11

Nov11

Dec11

Jan12

WTI crude oil NYMEX Brent crude oil ICE

The decisions taken by policymakers in 2010 and 2011 on subsidies for renewables and

the nuclear switch-off have given rise to small changes in proportions in 2011ʼs primary

energy balance; for instance, hard coalʼs share in the energy mix rose from 12% to

12.6%, and lignite now makes up 11.7% of energy sources used in Germany, after 10.7%

in the previous year.

The decline in energy consumption has seen energy-related CO2 emissions fall by over

3%. Adjusted for the effects of temperatures, this means an increase in emissions of

around one per cent.

Developments in crude oil prices

Prices for the various types of crude oil showed varying trends in 2011. In the past, WTI

prices were traditionally slightly higher than those for Brent crude. This changed in 2011,

with WTI crude trading at USD 89.35 a barrel at the beginning of the year and USD 98.90

at its end, an increase of approximately 10.7%. Whereas Brent crude fetched USD 92.6 a

barrel at the start of the year, it had seen a rise of about 16.1% by the yearʼs conclusion,

with the price per barrel standing at USD 107.5. At times, the spread between the two

types of oil was as high as almost USD 30; the gap only began narrowing slightly again at

the end of October 2011.

Development of WTI and Brent crude prices

Source: Ariva.de; HMS Bergbau AG


24


120 years’ worth of coal reserves

When it comes to how much longer coal reserves will last, it is important to differentiate

between resources and reserves. ‘Resources’ is the term used to refer to the total amount

of a mineral substance, i.e. in this case coal, in a deposit. 'Reserves’ are the part of these

resources which are demonstrably present and which it is currently technologically

possible and cost-effective to mine. In other words, if prices rise, parts of a deposit

previously considered resources might be counted as reserves, because the higher prices

mean higher mining and extraction costs can be absorbed. Conversely, a decline in prices

might render deposits no longer cost-effective to mine.

According to Germany’s Federal Institute for Geosciences and Natural Resources (BGR),

current knowledge of reserves that can be mined cost-effectively puts estimated global

hard coal reserves at 723 billion tonnes.

The BGR estimates that hard coal resources stand at 17,167 billion tonnes; the resource/

reserve ratio is approximately 23.7:1, and has improved notably since the BGR’s last

estimate (21:1). This is attributable to a substantial increase in the volume of resources.

These figures notwithstanding, estimates of global coal resources are nowhere near as

accurate as those in the case of oil and natural gas. The statistical reach of coal resources

is currently put at about 120 years (based on approximately 6.1 billion tonnes mined in

2009). At current rates of production, oil reserves will last 40 to 45 years and gas reserves

60 to 65 years.

Coal prices at moderate levels

Coal prices, which had been continuously on the rise since 2009, declined in 2011,

according to the two key coal price indexes. The API2 index recorded a fall in coal prices

from USD 131.81 per tonne at the beginning of the year to USD 112.40 per tonne at its

end, which translates to a decline of almost 15%. The downward trend was more apparent

still in the API 4 index, which opened the year 2011 at USD 129.16 per tonne and closed

about 18% lower, at USD 105.66 per tonne. Hereafter, API 4 saw a slight increase, while

API 2 continued to move south.



25

Trade

HMS Bergbau AG’s international trading in coal is characterised by relationships of trust

with customers and suppliers. HMS Bergbau AG’s principal customers include power plant

operators and cement manufacturers. We also supply coal to steel manufacturers and

industrial companies such as glassworks and paper factories.

HMS Bergbau AG serves both the private and public sectors.

We purchase coal from reliable major-name production and sales companies, largely

based in Indonesia, South Africa, Russia, Poland, and North and South America. In

addition to this, we represent some international coal production companies exclusively,

i.e. we handle all their coal marketing in particular markets.

Through the harbour operations in South Kalimantan, Indonesia, acquired in 2010 HMS

Bergbau AG commenced trading as well as handling coal for third parties. We purchased

volumes of coal from small local producers, processed, mixed and sold it. We plan to

continue developing this sector of our trading operations in the future and to expand it.

0,00

20,00

40,00

60,00

80,00

100,00

120,00

140,00

160,00

Jan. 11 Feb. 11 Mrz. 11 Apr. 11 Mai. 11 Jun. 11 Jul. 11 Aug. 11 Sep. 11 Okt. 11

USD/t

API-2 und API-4 weekly Jahr 2011

API2 API4 Source: Argusmedia.com; HMS Bergbau AG

API-2 und API-4 weekly year 2011


160

140

120

100

80

60

40

20

Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11

26


Raw materials production

We intend to secure a reliable supply for consumers in the long term by accessing our own

raw materials resources. Pushing ahead with this strategy in 2011, we continued to realise

and secure access to coal deposits through exclusive marketing largely by means of

exclusive marketing rights for smaller producers which do not have their own international

sales organisations.

We entered into two long-term exclusive marketing contracts with coal producers in

Indonesia in June 2011; these agreements secure us sole marketing rights to a significant

production volume of steam coal in the highly promising Asian market.

Logistics

As a one-stop provider, we not only ensure our customers are supplied with the raw

materials they need on time, but also take care of the complete transport and logistics

process. Our team charters shipping where required, organises intra-country transport by

water, rail or road, takes care of harbour procedures, warehousing management, coal

processing and technical monitoring. We continued in the past year to develop the harbour

operations in South Kalimantan, Indonesia, that we acquired in 2010; the acquisition has

constituted a considerable improvement to our control over the logistics chain in this field.

Research and development

The global environmental drive for reducing greenhouse gases continues to pose a long-

term challenge to the energy industry. We remain convinced that introducing a market-

ready form of CCS technology and adapting power plants accordingly could enable German

coal-fired power plants to cut CO2 emissions by approximately 80% by the year 2050 – a

course of action to which there will be no alternative in the long run. However, the

German federal government has once again failed to create the legal framework that

would allow this to happen. We do not believe the current legal environment offers us a

way of cost-effectively continuing the project embarked upon at HMS Bergbau AG Oil &

Gas Division for CO2 storage and investigation into a corresponding aquifer structure; we

do not anticipate this situation changing in the medium term.

Employees

HMS Group continues to participate intensively in international competition for qualified

employees. We therefore aim for long-term employment relationships between staff and

HMS Group. Company management continues to focus on ongoing employee

development



27

development – together with highly specialised and continuing training – to reach the

Company’s strategic goals. In keeping with this strategy, we have hired additional

employees, particularly in the Asian market, and are planning further hiring. Risks

resulting from employee fluctuation are accounted for with succession and substitute

planning. We conducted training for employees, particularly those new to the Company.


28


3. Results of Group operations

Results of operations of HMS Group in financial year 2011 compared to the

previous year were as follows:

The decline in sales revenues is largely quantity-related; in this context, we have not seen

a continuation of the positive development registered in the previous year. Firstly, we

recorded decreases in volumes due to the expiry of some European contracts. A further

factor was the fact that, despite the unexpectedly steep rise in Indonesian trade

agreements, sourcing in Indonesia was subject to delivery delays arising from

unanticipated changes in the legal framework for producers and exporters and delays in

the mines for which HMS possesses exclusive marketing rights. Overall, the increase

recorded in Asia was unable to balance out the decline in our European business. This

development is also reflected in the materials usage ratio. The higher-margin exclusive

marketing business in Asia and high-margin European business contributed less, relatively

speaking, to our result. Furthermore, our cooperation with German Pellets has failed to

show a positive impact on our earnings position. Our harbour operations in Indonesia

generated a significantly greater share of earnings in 2011 than in the previous year,

showing continuous increases in volume; however, the performance continues to fall short

of expectations as of the time of acquisition. Personnel costs remained steady year-on-

EUR thousand % EUR thousand % EUR thousand %

Sales = Total performance 106,669 100 151,720 100 -45,051 -30

Cost of Materials 103,329 97 145,987 96 -42,657 -29

Personnel Costs 1,473 1 1,472 1 1 0

Depreciation 457 0 338 0 119 35

Other operating costs

/ other operating earnings 1,766 2 1,803 1 -37 -2

Taxes (excluding income taxes) 10 0 2 0 8 >100,0

Operating costs 107,035 100 149,601 99 -42,566 -29

Operating result -366 0 2,119 1 -2,484 <-100,0

Earnings from investments and financial result -450 -756 306 41

Earnings before income taxes -815 1,363 -2,178 <-100,0

Income taxes 0 776 -776 -100

Extraordinary expenses 223 223 0 0

Minority interests 4 7 -3 -43

Net profit -1,034 371 -1,405 <-100,0

2011 2010 Change



29

year, with new hires, particularly in the Asia Trade, offset by staff reductions in the

European Trade. Other operating costs, less other operating earnings, is primarily

attributable to HMS Bergbau AG, as the principal determinant of the results of Group

operations. Other expenditure less other earnings arises particularly from repair and

maintenance expenses for the harbour operations, one-off expenses relating to our

ongoing exploration of the Asian market, and selling costs, which are higher in our Asian

than in our European business. The decline in our financial result largely reflects the

reduced use, in line with the fall in sales, of our credit facilities. Further, the financial

result includes the net balance, amounting to EUR 219 thousand, of interest expenses on

pension obligations and income from the pledged plan assets. The previous year’s income

from investments arises primarily from the write-up of the investment in KGHM HMS

Bergbau AG, Berlin.


30


4. Group net assets

Net assets of HMS Group compared to the previous year were as follows:

The decline in non-current assets is primarily due to normal depreciation and amortisation

on the Indonesian harbour operations. The inventories result entirely from prepayments

made on coal deliveries. HMS Group held no coal stocks of its own as of the balance sheet

date. Receivables relate to trade receivables from power plant operators in Germany and

customers in Asia. The year-on-year decline is substantially an effect of the balance sheet

date. Other assets are comprised principally of a receivable in the amount of EUR 516

thousand from securing the rights to key real estate for the NIWKA project. A share buy-

back programme saw the Company acquiring own shares. The principal concern here was

to provide acquisition capital for mining projects in Indonesia; acquisition via shares or in

a mixed form is intended to increase the seller’s commitment to the project and its

interest in the projectʼs long-term success to a level higher than that which would be seen

in a cash acquisition. The concrete projects whose potential acquisition would have been

financed by this have either not come to fruition after careful consideration or become

subject to delays. Non-current liabilities include pension obligations. The EUR 1,500

thousand promissory note loan included in the previous year matures at the end of 2012,

as such it is recorded in current liabilities. The Company also has current liabilities to

suppliers and banks for financing trade.


Assets

Fixed assets 6,041 41 6,389 24 -348 -5

Inventories 1,792 12 1,814 7 -22 -1

Receivables 2,052 14 15,153 57 -13,101 -87

Cash and cash equivalents 3,963 27 2,286 9 1,677 73

Other assets 743 5 814 3 -71 -9

14,591 100 26,456 100 -11,865 -45

Capital

Equity 6,577 45 7,608 29 -1,031 -14

Own shares -2,392 -16 0 0 -2,392

Non-current liabilities 1,079 7 1,991 8 -912 -46

Current liabilities 9,327 64 16,857 64 -7,530 -45

14,591 100 26,456 100 -11,865 -45

31.12.2011 31.12.2010 Change



31

2011

EUR

1. 4,001

2. 67

3. -2,392

4.

1,677

0

2,286

3,963

5.

3,963

Cash flow from current operating activities

Cash flow from investment activities

Cash and cash equivalents at the end of the period

Composition of cash and cash equivalents

Cash and cash equivalents

Cash flow from financing activities

Cash and cash equivalents at the end of the period

Changes in cash and cash equivalents affecting payment

Other changes in cash and cash equivalents

Cash and cash equivalents at the beginning of the period

5. Group financial position

Cash and cash equivalents developed as follows in financial year 2011:

The positive cash flow from current operating activities is primarily a reflection of

developments in our working capital, while the positive cash flow from investment

activities arises from the sale of our investment in KGHM HMS Bergbau AG. The negative

cash flow from financing activities is the result of payouts for the buy-back of own shares.

In the context of the information given above, the financial year 2011 resulted in a loss of

EUR 1,034 thousand, which represents a year-on-year decline of EUR 1,405 thousand.

Further, the balance sheet total fell by EUR 11,865 thousand, due largely to a decrease in

receivables and liabilities from our trade business.


32


6. Information on the consolidated financial statements

of HMS Bergbau AG

HMS Bergbau AG is the parent company of HMS Group. HMS Bergbau AG remains respon-

sible for the central control functions – strategy, finance, accounting/controlling – and all

important trading activities. The majority of trade agreements are conducted via this com-

pany; in other words, the activities of HMS Bergbau AG are a key factor for the situation of

the entire HMS Group. The annual financial statements of HMS Bergbau AG are prepared

in accordance with German Commercial Law (HGB) and the German Stock Corporation Act

(AktG). The following table provides an overview:

Net assets

As HMS Bergbau AG engages in trading activities, its net assets are mainly influenced by

receivables from customers as well as current trade payables and liabilities to banks.

Changes are largely due to balance sheet date effects. Further, net assets are influenced

by the pursuit of central control functions and strategic objectives, particularly by the issu-

ance of a loan in the amount of EUR 7,172 thousand to the Indonesian HMS company in

2010 to finance the acquisition of harbour operations. Inventories, amounting to EUR

1,078 thousand, are the result of prepayments made on future deliveries which in turn are

financed by prepayments of customers. Non-current liabilities relate to pension provisions.

Please refer to our discussion of Group net assets for information on our own shares.

TEUR % TEUR % TEUR %

Assets

Fixed assets 7,774 64 7,314 27 460 6

Inventories 1,078 9 1,811 7 -733 -41

Receivables 1,891 15 15,957 59 -14,066 -88

Cash and cash equivalents 797 7 2,050 8 -1,253 -61

Other assets 709 6 31 0 678 >100,0

12,249 100 27,163 100 -14,914 -55

Capital

Equity 8,127 66 8,431 31 -304 -4

Own shares -2,392 -20 0 0 -2,392

Non-current liabilities 1,079 9 1,991 7 -912 -46

Current liabilities 5,435 44 16,741 62 -11,306 -68

12,249 100 27,163 100 -14,914 -55

31.12.2011 31.12.2010 Change



33

Results of operations

Ordinary trading activities are a major influence on results of operations of HMS Bergbau

AG. The decline in sales revenues is largely quantity-related. Developments across the

Group are also reflected in HMS Bergbau AG's materials usage ratio, which has increased

on account of the relative decline in earnings generated by the higher-margin exclusive

marketing business in Asia and high-margin business in Europe. Personnel costs declined

slightly year-on-year, with staff reductions in Trade Europe offset by new hires, particu-

larly in the Asia Trade division; these new hires were employed directly by HMS Bergbau

Indonesia. The small rise in other expenditure less other earnings was due particularly to

an increase in one-off expenses related to our ongoing entry into the Asian market and a

rise in contract-related selling costs, which are higher in our Asian than in our European

business. The increase of the financial result is particularly a reflection of earnings from

intragroup loans and the reduced use, in line with the fall in sales, of trade finance credit

lines.


Sales = Total performance 101,354 100 147,329 100 -45,975 -31

Costs of Materials 98,775 98 142,042 96 -43,267 -31

Personnel Costs 1,238 1 1,312 1 -74 -6

Depreciation 27 0 31 0 -4 -13

Other operating costs

/ other operating earnings 1,582 2 1,609 1 -27 -2

Taxes (excluding income taxes) 2 0 2 0 0 18

Operating costs 101,625 100 144,996 98 -43,371 -30

Operating result -271 0 2,333 2 -2,604 <-100,0

Earnings from investments and financial result 190 -107 297 >100,0

Earnings before income taxes -81 2,226 -2,307 <-100,0

Income taxes 0 776 -776 -100

Extraordinary expenses 223 223 0 0

Net profit -304 1,227 -1,531 <-100,0

2011 2010 Change


34


Financial position

The financial position of HMS Bergbau AG also reflects the Company’s functions. Trade

financing as part of current operations amounted to EUR 2,224 thousand as of 31 Decem-

ber 2011. EUR 1,500 thousand of long-term base financing within the debt capital was

repaid in financial year 2010, leaving short-term financing in the amount of EUR 1,500

thousand which matures in November 2012. The Company has issued a long-term loan to

its Indonesian subsidiary to finance the acquisition of harbour operations in Indonesia. The

financial position of the HMS Group is significantly influenced by HMS Bergbau AG; please

refer to the details we have provided in this context.



35

7. Events after the balance sheet date

Making use of authorised capital pursuant to Section 4 (4) of the Articles of Association,

HMS Bergbau AG has increased the Company’s share capital of EUR 4,000,000.00 by EUR

370,000 to up to EUR 4,370,000 against cash deposits by issuing 370,000 new common

bearer shares. The new shares carry full entitlement to dividends for financial year 2012.

The gross proceeds of the issue, which amount to EUR 3.0 million, are to strengthen HMS

Bergbau AGʼs equity base and help finance further growth.


36


8. Risks and opportunities

The Management Board of HMS Bergbau AG is responsible for Group risk management,

which is integrated into all operational processes at HMS Group. Future opportunities and

risks are identified, classified, evaluated, controlled and monitored as part of business

operations. It is and remains our policy to only enter into risks if they also bring with them

significant opportunities for generating earnings. If possible, risks should be minimised or

transferred to third parties. Opportunities are assessed for their earnings potential.

The following sections describe opportunities and risks that could have significant impact

on the Company’s net assets, financial position and results of operations:

Price fluctuations

In the HMS Group’s traditional business, trade in coal using back-to-back contracts and

index- or fixed-price-based purchasing and sales agreements, there are no effects on

contractually agreed margins for the individual transactions. Where the back-to-back

principle is deviated from, as is the case in relation to small numbers of spot trades

handled via our harbour operations or for individual business transactions in Asia which

might specify different base values on the purchase and sale side for heating value

calculation, price risks may arise. We evaluate such risks on a daily basis as part of our

risk management system, taking into account current forward prices and expected

volatility. In the context of the expansion of our trading activities in Asia, we continue to

hold to the principle of avoiding significant risk positions in purchasing and sales and

excluding these risks at contract stage. We will not alter our policy of aiming to realise

solely back-to-back transactions.

Financial risks

Exchange rate and interest rate fluctuations can have a significant impact on HMS Group’s

earnings. Our financial risk management therefore aims primarily to hedge currency risks

via currency forwards without entering into speculative transactions. Furthermore, we

attempt to eliminate currency differences in financing, purchasing and sales. All Group

companies are obliged to assess all exchange rate risks and hedge against those

identified. Changes to interest rates, in other words risks from interest-bearing liabilities,

as well as a risk premium and currency-specific differences are accounted for as financing

costs and included in the assessment of each transaction. If deemed appropriate in the

long term in a risk management context, and after evaluation of all possible scenarios, we

exchange variable interest rates for fixed interest rates. HMS continues to be liable for

bank liabilities to a third party; these amounted to EUR 3.1 million on the balance sheet

date. The risk that this liability will be called in is considered slight; further, the right of

recourse to the principal debtor remains in force.



37

Creditworthiness of business partners and counterparty risk

Credit risks arise from our business relationships with customers, and increase on account

of the ongoing growth in the proportion of our business partners located in Asia. In this

context, our risk management aims to obtain corresponding collaterals for vulnerable

transactions or to insure our receivables where financially practicable. Further, we secure

payment promises in advance of deliveries by using letters of credit. Failure or partial

failure to deliver on the part of suppliers may also give rise to risks which cannot be

transferred completely to the purchaser. Our risk management policies in respect to these

risks involve deploying staff on the ground, examining individual contract terms in detail

and paying specific attention to the content of contracts.

Political risks

The expansion of our business to the Asian market exposes us to a higher level of legal

and political risk from, for example, attempts to exert political influence, disruptions to the

supply chain, civil disturbances or deleterious strategies as part of economic policies. We

include risks from environmental and other geographical influences in this category.

Furthermore, uncertainties arise from the existing legal framework, which is and will

remain subject to ongoing change. In the Asian market in particular, the excellent

opportunities available to us go hand in hand with an increased level of risk. Our risk

management responds to individual risks by attempting to draw up corresponding

contractual arrangements or eliminate the risks by consulting with experienced local

partners. Unfortunately, it is never possible to completely eliminate such risks. In

Indonesia, for instance, the beginning of 2011 saw changes to mining regulations and

related laws on coal exports for which some suppliers were unprepared, leading to delays

in mining and delivery, some of which were significant.

Investment risks

The HMS Group’s investment in an Indonesian harbour operation continues to give rise to

risks relating to the investment’s cost-effectiveness and profitability, which are

substantially dependent on the investment strategy's implementation. Our risk

management attempts to identify potential negative impacts on our business at an early

stage by means of continuous monitoring of the marketing strategy and of the status of its

implementation in order to respond to such risks accordingly by adjustments to the

strategy.


38


Risks and opportunities resulting from Company strategy

Decisions on investments and acquisitions are made by employing an assessment and

approval process, as they carry considerable opportunities and risks. Experts are also

consulted in certain cases. The Management Board of HMS Bergbau AG makes the final

decision and, if necessary, obtains the approval of the Supervisory Board. We take

particular care to exhaustively investigate and weigh up risks and opportunities when

entering into long-term agreements. The main factors to examine are the size of the

reserve, logistics infrastructure, the financial situation, legal requirements, management

and the political landscape. Our risk management system implements measures such as

obtaining expert advice and reports. In the Trade division, we are able to identify

opportunities and risks at the earliest possible stage by intensively monitoring and

analysing markets and competitors. Overall, the risk management system places HMS

Group in a position to mitigate the above risks and utilise any resulting opportunities.



39

9. Forecast report

Compared to other energy sources, coal continues to have the largest reserves and

resources in the world. Figures compiled by the German Federal Institute for Geosciences

and Natural Resources (BGR) indicate that reserves are sufficient to last a further 120 to

200 years, depending on the type of coal and global economic developments. It is an

established fact that the remaining coal reserves are sufficient to cover expected demand

for many decades to come. Scientific and market analyses show that the percentage of

coal in global energy production will continue to rise at an above-average rate going

forward. According to the IEA (International Energy Agency), hard coal is set to remain

the most commonly used commodity for the production of electricity. The chart below

illustrates how the growth of industry in China and India is compensating the global

decline in coal-generated electricity. The largest driver of this development is the growing

world population, which is set to reach 8.2 billion by 2030 leading to, as rising energy

consumption. The share of coal in global power production will go up from 40% today to

45% in 2030. Over the next 50 years, a primary energy matrix without coal is

unimaginable.

Quelle: International Energy Agency „World Energy Outlook 2010“

1990 2000 2010 2020 2030 2035

12.000

10.000

8.000

6.000

4.000

2.000

0

TWh

OECD Other non-OECD China Indien

primary energy matrix

Quelle: International Energy Agency „World Energy Outlook 2010“

1990 2000 2010 2020 2030 2035

12.000

10.000

8.000

6.000

4.000

2.000

0

TWh

OECD Other non-OECD China Indien


India

40


The steady rise in global energy consumption seen in recent years, with coal being the

fastest growing primary energy source, will continue in the years ahead. Coal prices are

likely to proceed on an upward trend, driven by the exponential growth in industrial

demand from the Asia Pacific region and current developments in public opinion on nuclear

power. We expect the Pacific region to continue growing in importance as the largest sales

market. HMS Group is therefore increasingly focusing its strategic orientation on Asia. In

our opinion, Indonesia will become one of the most important mining markets in the

coming years as it has excellent resources, favourable mining conditions and a central

location in the Pacific region. We can see significant growth potential – particularly for

securing large coal resources and developing our own transshipment centres. By securing

our own resources, we are aiming to guarantee supply in the long term for our end

customers in the Asian market. We anticipate rising prices in the global market. Securing

our own resources, and consequently the expansion of the value added chain to include all

steps from production to end customer sales, therefore both play an essential part in

strengthening our market position in the long term. The steep price increases we

anticipate taking place in the years to come find their expression in the future prices for

the API2 index (CIF ARA) at the European Energy Exchange’s Leipzig trading centre for

energy and energy-related products. One year ago, the price a tonne of coal was expected

to fetch in 2012 was between USD 95 and USD 102; it has now reached USD 104 to USD

112. We do not anticipate demand for fossil fuels to decline in Europe, particularly given

the German government’s decision to switch off the country’s nuclear power plants and

current difficulties in the realisation of the aimed-for shift to renewables. Coal-generated

electricity is a flexible form of energy supply and will retain its significance, in Europe and

elsewhere. We continue to focus our efforts on renewing expired agreements and entering

into new long-term contracts with European power plant operators. In financial years 2012

and 2013 in particular, our principal task remains to regain market share in Europe while

pushing ahead with the expansion of our business in Asia. At the same time, we need to

stick to our strategy of expanding the value added chain, particularly by means of entering

into and realising exclusive marketing and cooperation agreements.

The beginning of financial year 2012 has progressed with very little change from

developments in the last quarter of the previous year. As expected, incoming orders in the

European market were low; however, we were able to access opportunities with regard to

marketing American coking coal and expect deliveries to commence from the third quarter

of this year. Price volatility in Asia means customer markets are behaving with a high

degree of caution. We expect this trend to reverse in the second quarter on account of

demand. We continue to see considerable growth potential in Asia. In this context, we

anticipate that the next two financial years will represent a considerable improvement in



41

performance compared to 2011. We expect increases in sales revenues and also expect

our pursuit of vertical integration to provide us with increased gross margins. The

anticipated positive trend should also have a positive effect on Group EBITDA.


42


10. Main features of the remuneration system

The Supervisory Board decides upon the remuneration system for the Management Board

of HMS Bergbau AG, including all material contractual elements, and reviews it regularly.

It also determines remuneration for individual Management Board members. Management

Board remuneration comprises fixed elements along with variable, performance-related

components. Fixed remuneration is paid as a monthly salary, regardless of performance.

Management Board members also receive additional non-cash benefits, which mainly

consist of the private use of a company car and are taxable. Performance-related

remuneration is dependent on the Company’s annual result and the personal performance

of the Management Board member in question. The remuneration of the Chief Executive

Officer also includes pension commitments.

11. Closing statement in accordance with Section 312 (3)

of the German Stock Corporation Act (AktG)

According to the knowledge available to HMS Bergbau AG at the time of carrying out a

legal transaction with an associated company, it received appropriate compensation for

each legal transaction and neither implemented measures nor refrained from

implementing measures neither on behalf of nor in the interest of the controlling company

or an associated company during the reporting period.



43

12. Forward-looking statements

The management report includes forward-looking statements that reflect the current

opinion of HMS Group’s management with regard to future events. Any statement

contained in this report reflecting or building upon intentions, assumptions, expectations,

forecasts and underlying assumptions is a forward-looking statement. These statements

are based upon plans, estimates and forecasts that are currently available to HMS Group’s

management. They therefore only refer to the point in time at which they were made.

Forward-looking statements are naturally subject to risks and uncertainties, which could

result in actual developments differing significantly from these forward-looking

statements or events implied or expressed therein. HMS Group does not assume any

responsibility for such statements and does not intend to update such statements in view

of new information or future events.

Berlin, April 2012


CEO CFO COO


44


Consolidated Balance Sheet as of 31 December 2011

Assets 31.12.2011 31.12.2010

EUR EUR EUR

A. Non-current assets

I. Intangible

assets

1. Licences, industrial

property rights, similar

rights and values and

licences in such

rights and values

4,876,730.77 5,079,307.52

II. Property, plant and equipment

1. Technical equipment and

machinery 1,055,728.29 1,182,626.43

2. Other equipment, office and

factory equipment 105,126.65 123,069.81

3. Advance payments and

assets under construction 3,612.38 4,037.16

1,164,467.32 1,309,733.40

6,041,198.09 6,389,040.92

B. Current assets

I. Inventories

1. Advance payments 1,792,202.88 1,814,177.30

1,792,202.88 1,814,177.30

II. Receivables and

other assets

1. Trade

receivables 1,673,825.21 12,737,441.10

2. Receivables from

associates 0.00 2,414,989.86

3. Other

assets 1,060,545.54 775,338.21

2,734,370.75 15,927,769.18

III. Cash and cash

equivalents 3,962,959.58 2,286,291.79

8,489,533.21 20,028,238.27

C. Accruals and deferrals 60,480.64 39,133.67

14,591,211.94 26,456,412.86



45

Shareholders' equity and liabilities 31.12.2011 31.12.2010

EUR EUR EUR

A. Shareholders' equity

I. Issued capital

1. Subscribed capital 4.000.000,00 4.000.000,00

2. Own shares -248.307,00 0,00

3.751.693,00 4.000.000,00

II. Capital reserve 748.014,97 1.991.800,00

III. Profit reserves

1. Statutory reserve 5.112,92 5.112,92

2. Other profit reserves 273.158,45 1.173.158,45

IV. Consolidated net loss

(pY: profit) -680.080,45 354.068,26

V. Difference in equity due to

currency conversion 40.025,18 32.408,27

VI. Minority

interests 47.370,92 51.312,76

4.185.294,99 7.607.860,66

B. Provisions

1. Pension provisions and similar

obligations 1.079.250,72 491.105,40

2. Tax provisions 407.858,00 561.858,00

3. Other provisions 240.607,98 422.735,28

1.727.716,70 1.475.698,68

C. Liabilities

1. Liabilities to

banks 6.980.300,11 7.026.975,86

2. Prepayments received

on orders 386.145,11 1.509.263,10

3. Trade

payables 742.283,94 7.746.840,86

4. Other liabilities 569.471,09 1.089.773,70

of which taxes EUR 44.222,66

(pY. EUR 1.044.662,50)

8.678.200,25 17.372.853,52

14.591.211,94 26.456.412,86


46


Consolidated Income Statement 2011

2011 2010

EUR EUR EUR

1. Sales 106.669.321,02 151.779.839,47

2. Other operating earnings 391.237,25 1.053.226,96

107.060.558,27 152.773.066,44

3. Cost of materials

a) Costs for raw materials and

supplies and for goods

purchased 102.654.017,89 145.814.659,33

b) Cost for services

purchased 675.072,02 171.849,60

103.329.089,91 145.986.508,92

4. Personnel costs

a) Wages and salaries 1.190.871,17 1.067.810,22

b) Social security

costs and pension

support costs 281.838,11 403.846,66

- of which for pensions

EUR 149.865,00

(py. EUR 283.072,00)

1.472.709,28 1.471.656,88

5.

456.933,81 337.834,48

6. Other operating expenses 2.157.404,40 2.856.479,05

7. Earnings from investments 0,00 11.527,49

8. Earnings from investments

in associates 31.381,87 88.881,62

9. Other interest and

similarearnings 34.933,61 90.267,79

10. Interest and similar expenses 516.056,48 947.100,89

-449.741,00 -756.424,00

11. Earnings from ordinary

activities -805.320,13 1.364.163,11

12. Extraordinary expenses 222.748,32 222.748,40

13. Income taxes 5,17 775.966,48

14. Other taxes 10.016,93 1.874,10

15. Net loss (previous year: profit) -1.038.090,55 363.574,13

16. Gain (pY: Loss) carried forward

from the previous year 354.068,26 -16.447,11

17. Loss attributable to

minority interests for the period 3.941,84 6.941,24

18. Consolidated net loss

(previous year: profit) -680.080,45 354.068,26

Amortisation of intangible

and equipment

non-current assets and

depreciation of property, plant

Consolidated Income Statement


47

Consolidated Cash Flow Statement 2011

2011 2010

EUR thousand EUR thousand

1. Cash flow from current operating activities

-1,038 364

457 338

252 -60

0 -12

-22 115

13,098 1,508

-8,694 5,816

-51 0

Cash flow from current operating activities 4,002 8,069

2. Cash flow from investment activities

-61 -1,297

0 -5,254

128 0

Cash outflow from investment activities 67 -6,551

3. Cash flow from financing activities

0 80

-2,392 0

Cash outflow from the repyment of other financial liabilities 0 -1,500

Cash flow from financing activities -2,392 -1,420

4. Cash and cash equivalents at the end of the period

1,677 98

0 -89

Cash and cash equivalents at the start of the period 2,286 2,279

Cash and cash equivalents at the end of the period 3,963 2,286

5. Composition of cash and cash equivalents

Cash and cash equivalents 3,963 2,286

Cash and cash equivalents at the end of the period 3,963 2,286

Changes of cash and cash equivalents affecting payment

(sub totals 1 to 3)

Changes of cash and cash equivalents from changes in

exchange rates, basis of consolidation and measurement

Decrease in inventories, trade receivables and other

assets

Decrease in trade payables and other liabilities

Cash outflow for investments in intangible assets

Cash outflow for investments in property, plant and

equipment

Other

Cash inflow from the sale of consolidated companies

Cash outflow from the purchase of own shares

Net earnings for the period (including minority interests)

before extraordinary items

Depreciation and amortisation on non-current assets

Decrease in provisions

Earnings from the disposal of consolidated subsidiaries

and other business units as well as non-current assets

Other non-payment related expenses (+)/earnings (-)

Cash inflow from additions to equity

Consolidated Cash Flow Statement

48


Consolidated Statement of Changes

in Shareholders’ Equity 2011

Subscribed Capital Generated Accumulated Shareholders' Share-

capital reserve consolidated other equity acc. to holders'

common shares shareholders' consolidated consolidated equity

equity net earnings balance sheet

Balancing

item

from

currency

conver-

sion

EUR EUR EUR EUR EUR EUR

31.12.2009 4,000,000.00 1,951,000.00 1,161,824.26 4,634.16 7,117,458.42 7,117,458.42

40,625.52 40,625.52 40,625.52

40,800.00 -12,851.40 27,948.60 27,948.60

0.00 40,800.00 0.00 27,774.12 68,574.12 68,574.12

0.00 0.00 370,515.37 0.00 370,515.37 370,515.37

31.12.2010 4,000,000.00 1,991,800.00 1,532,339.63 32,408.28 7,556,547.91 7,556,547.91

-248,307.00 -1,243,785.03 -900,000.00 -2,392,092.03 -2,392,092.03

7,616.90 7,616.90 7,616.90

-248,307.00 -1,243,785.03 -900,000.00 7,616.90 -2,384,475.13 2,384,475.13

0.00 0.00 -1,034,148.71 0.00 -1,034,148.71 -1,034,148.71

31.12.2011 3,751,693.00 748,014.97 -401,809.08 40,025.18 4,137,924.07 4,137,924.07

Total consolidated

net earnings

Other Changes

Parent company

Purchase of treasury

shares

Changes in basis of

consolidation

Additions to capital

reserve

Total consolidated

net earnings

Consolidated Statement of Changes in Shareholders’ Equity


49

Minority Shareholders' Consolidated

interests equity shareholders'

equity

EUR EUR EUR

19,054.00 19,054.00 7,136,512.42

0.00 40,625.52

39,200.00 39,200.00 67,148.60

39,200.00 39,200.00 107,774.11

-6,941.24 -6,941.24 363,574.13

51,312.76 51,312.76 7,607,860.66

-2,392,092.03

7,616.90

-2,384,475.13

-3,941.84 -3,941.84 -1,038,090.55

47,370.92 47,370.92 4,185,294.99

Minority interests

common shares

31.12.2009

31.12.2010

31.12.2011

Total consolidated

net earnings

Other Changes

Purchase of treasury

shares

Changes in basis of

consolidation

Additions to capital

reserve

Total consolidated

net earnings

Consolidated Statement of Changes in Shareholders’ Equity

50



as of 31 December 2011

01.01.2011 Currency Additions Disposals 31.12.2011

conver-

sion

EUR EUR EUR EUR EUR

I. Intangible

assets

5.259.072,30 63.506,75 0,00 0,00 5.322.579,05

II. Property, plant and equipment

-3.539,54 0,00 0,00 0,00 -3.539,54

1.286.530,44 9.905,38 40.921,38 0,00 1.337.357,20

353.224,87 -2.926,08 19.662,82 22.077,99 347.883,62

4.037,16 -424,78 0,00 0,00 3.621,38

1.640.252,93 6.554,52 60.584,20 22.077,99 1.685.313,66

III. Financial assets

Investments 38.347,89 0,00 0,00 0,00 38.347,89

6.937.673,12 70.061,27 60.584,20 22.077,99 7.046.240,60

Licences, industrial

property rights, similar

rights and values and

licences in such rights and

Leasehold improvements

on third-party property

Technical equipment and

machinery

Other equipment, office

and factory equipment

Advance payments and

assets under construction

Historical costs



51

01.01.2011 Currency Additions Disposals 31.12.2011 31.12.2011 31.12.2010

conver-

sion

EUR EUR EUR EUR EUR EUR EUR

179,764.78 11,547.27 254,536.23 0.00 445,848.28 4,876,730.77 5,079,307.52

-3,539.54 0.00 0.00 0.00 -3,539.54 0.00 0.00

103,904.01 7,715.08 170,009.82 0.00 281,628.91 1,055,728.29 1,182,626.43

230,155.06 285.14 32,387.76 20,070.99 242,756.97 105,126.65 123,069.81

0.00 0.00 0.00 0.00 0.00 3,612.38 4,037.16

330,519.53 8,000.22 202,397.58 20,070.99 520,846.34 1,164,467.32 1,309,733.40

38,347.89 0.00 0.00 0.00 38,347.89 0.00 0.00

548,632.20 19,547.49 456,933.81 20,070.99 1,005,042.51 6,041,198.09 6,389,040.92

Accumulated amortisation and depreciation Book values


52


Notes to the Consolidated Financial Statements

HMS Bergbau AG

Berlin

Financial Year 2011

I. General information

The consolidated financial statements of HMS Bergbau AG were prepared in accordance

with German commercial law and the additional regulations of the German Stock

Corporation Act (AktG), applying the relevant regulations of the German Accounting Law

Modernisation Act (BilMoG). The financial year of the Group and all companies included in

the consolidated financial statements corresponds to the calendar year.

In accordance with Section 292 (1) of the German Commercial Code (HGB), the balance

sheet, income statement, notes as well as cash flow statement and statement of changes

in shareholders‟ equity were presented separately.

The income statement was prepared using the total cost method.



53

II. Basis of consolidation

1. Information on all Group companies

All German and foreign associated subsidiaries were included in the consolidated financial

statements.

2. Investments

The parent company holds shares in the following investments:

Carbo-KH, Kemrowo, Russia (inactive)

The company’s interest in KGHM HMS Bergbau AG was sold in 2011.

Name Headquarter Share Shareholders’ Last annual equity result

% EUR thousand EUR thousand

HMS Bergbau AG Coal Division Berlin 100 34 -2 HMS Bergbau AG Iron Ore & Metals Division Berlin 100 16 -2 HMS Bergbau AG Oil & Gas

Division Berlin 51 96 -9 HMS Niwka Coal Production

Company Sp. z o.o. Katowice 100 -362 -127 PT. HMS Bergbau Indonesia Jakarta 100 -824 -411


54


III. Consolidation principles

The annual financial statements of the consolidated subsidiaries were prepared on

31 December 2011, the same balance sheet date as the parent company.

The annual financial statements of the German subsidiaries were all prepared in

accordance with German commercial law and the accounting and valuation principles of

HMS Bergbau AG.

The annual financial statements of the foreign subsidiaries were prepared in accordance

with the applicable laws of each country. They were reconciled with the financial reporting

standards of the parent company. The balance sheet and income statement structure was

adjusted to match that of the parent company.

The consolidated financial statements were prepared on the balance sheet date of the

parent company.

1. Capital consolidation method

Pursuant to Section 301 (1) no. 1 of the German Commercial Code (HGB) (old version),

the capital of the fully consolidated companies was consolidated on the date of acquisition

according to the book value method by offsetting acquisition costs with the subsidiary‟s

equity share at the time of acquisition or its initial consolidation. No new interests were

purchased during the financial year.

2. Date of initial consolidation

The date on which capital within the meaning of Section 301 (2) of the German

Commercial Code (HGB) must be consolidated is always the date of foundation by the

parent company. The capital of subsidiaries established before the financial year is

therefore also consolidated according to the value of the company at the time it was

founded. Any profit and loss generated by the subsidiaries before 1 January 2008 was

included in and offset against the profit reserve of the parent company. This did not result

in a difference within the meaning of Section 301 (1) of the German Commercial Code

(HGB).

3. Debt consolidation

Mutual receivables and liabilities between the consolidated companies are offset and

eliminated when consolidating the company’s debt.



55

4. Consolidation of costs and earnings, elimination of intercompany profits

Intragroup sales are offset against corresponding intragroup expenses.

Expenses and earnings from other business transactions between consolidated companies

are also offset.

Intercompany profits from intragroup deliveries and services did not arise.

5. Consolidation principles for investments

Pursuant to Section 311 of the German Commercial Code (HGB), the 25.1% share in

KGHM HMS Bergbau AG, Berlin, was included in the consolidated financial statements at

equity according to the book value method. The investment in KGHM HMS Bergbau AG,

Berlin, was sold during the year under review. The positive difference arising from the

difference between purchase price and book value according to the at-equity method was

recorded as income in the income statement.


56


IV. Currency conversion principles

The consolidated financial statements are prepared in euros, the functional and reporting

currency of the parent company.

In accordance with Section 308a sentence 1 of the German Commercial Code

(Handelsgesetzbuch –HGB), the balance sheets of foreign subsidiaries are converted at the

spot exchange rate prevailing on the balance sheet date and their income statements at

the average annual rate in accordance with Section 308a sentence 2 HGB. Shareholders‟

equity is converted at the historical rate.

Differences arising from currency conversion for assets and liabilities are recognised in

equity without affecting income.

Differences from the conversion of income statement items were reported under

consolidated net earnings as costs or earnings.



57

V. Accounting and valuation principles

1. Accounting and valuation

The consolidated financial statements comply with the applicable regulations of Section

298 of the German Commercial Code (HGB).

Intangible assets are valued at cost less scheduled straight-line amortisation.

Property, plant and equipment were recognised at cost and subject to scheduled

depreciation if they had a finite useful life.

Please refer to III.5. “Consolidation principles for investments” for details on accounting

and valuation principles for investments.

Scheduled depreciation and amortisation was carried out according to the expected

useful lives of assets.

Prepayments made on inventories were recognised at cost subject to the strict

principle of lower of cost or market.

Receivables and other assets were recognised at nominal value or fair value as of the

balance sheet date.

Pension obligations were calculated according to the projected unit credit method, using

the „2005 G“ mortality tables compiled by Prof. Klaus Heubeck, assuming a fluctuation

and salary trend of 0% and a discount rate of 5.14% (previous year: 5.15%). In financial

year 2010, due to the first-time application of the German Accounting Law Modernisation

Act (BilMoG), the amount allocated for pension provisions, calculated in accordance with

actuarial principles, came to EUR 3,341 thousand, which will be spread over a period of 15

years pursuant to Article 67 (1), sentence 1, of the Introductory Act to the German

Commercial Code (EGHGB). EUR 446 thousand of this sum was allocated as of 31

December 2011. The remaining amount, which comes to EUR 2,895 thousand, will

recorded to pension obligations, in an annual amount of EUR 223 thousand until the year

2024.

Tax provisions include taxes for the financial year 2010 that have not yet been assessed.

Other provisions take into account all discernible risks and contingent liabilities and are

recognised to the amount of the settlement value, i. e. including expected increases in

prices and costs.

Liabilities are recognised at their settlement value.

The conversion of business transactions concluded in foreign currencies was carried

out using the spot exchange rate in accordance with Section 256a HGB.


58


VI. Notes on the consolidated balance sheet

The statement of changes in non-current assets shows the development of individual

non-current assets, including details on amortisation and depreciation, during the financial

year.

As in the previous year, all receivables and liabilities have remaining terms of less than

one year. After offsetting against the claims from the reinsurance of pension obligations

(EUR 1,338 thousand), pension obligations amounted to EUR 1,079 thousand.

Other assets include receivables in the amount of EUR 516 thousand from securing the

rights to key real estate for the NIWKA project and prepayments on commissions in the

amount of EUR 65 thousand.

Deferred taxes arise largely from the difference in valuation of the provision for pensions

and from the valuation of the loss carry-forward assessed as utilizable in the future. The

calculation of the temporary differences uses the corporation and business tax rates for

the financial year (31.83%). Calculation of taxes as of 31 December 2011 once again, as

on the previous year’s balance sheet date, resulted in a deferred tax asset surplus. The

Company has exercised the option in Section 274 of the German Commercial Code (HGB)

not to capitalise the tax relief calculated.

The statutory shareholders’ meeting held on 12 October 2009 authorised the management

Board of HMS Bergbau AG to acquire up to 10% of own shares of the share capital in

existence at the time of the resolution, which amounted to EUR 4,000,000.00. The

Management Board made use of this authorisation and the Company acquired 248,307

common bearer shares at a nominal value of EUR 1.00 each during the financial year. In

accordance with Section 272 (1a) of the German Commercial Code (HGB), the difference

between the nominal value and the purchase price was offset against other profit

reserve to the amount of EUR 900 thousand and against the capital reserve to the

amount of EUR 1,244 thousand.

The Group’s contingent liabilities as of 31 December 2011 were as follows:

The Group is jointly liable for credit obligations of an external company up to a maximum

amount of EUR 3,300 thousand, which can be called upon in USD, EUR or Polish Zlotys.

These obligations were valued at USD 4,219 thousand as of 31 December 2011, while

bank deposits of the entity sharing joint and several liability were valued at PLN 800

thousand and EUR 20 thousand.

The risk of the joint liability being used has been classed as unlikely given the principal

debtor‟s financial situation and the regulations put in place when the shares were sold.



59

On 31 December 2011, the group’s purchase obligations from traded contracts amounted

to EUR 19,993 thousand, all relating to 2011. Additional other financial liabilities largely

arise from rental and leasing agreements. The maturities of liabilities are as follows:

Up to 1 year EUR 127 thousand 127

Between 1 and 5 years EUR 62 thousand 62

More than 5 years EUR 0 thousand

Liabilities to banks amounted to EUR 6,980 thousand as of the balance sheet date;

entirely with terms of less than one year.

The pension provision in the amount of EUR 1,079 thousand was offset against pledged

plan assets exclusively to fulfil the pension obligations, which had a fair value of EUR

1,338 thousand as of the balance sheet date.


60


VII. Notes on the consolidated income statement

Sales of EUR 106,669 thousand were generated in the financial year, mainly from trade in

coal products such as steam coal, coking coal and anthracite. Broken down by region,

sales revenues were generated in Europe (41%), Asia (42%) and Africa (17%).

Material costs are principally attributable to the global purchase of steam coal, coking

coal and anthracite.

Other operating earnings primarily encompass income from the reversal of provisions

(EUR 197 thousand), whose most significant component is from the reversal of tax

provisions for the financial year 2010 in the amount of EUR 154 thousand. Additionally,

other operating earnings include reimbursements of advanced costs (EUR 65 thousand), a

compensation payment (EUR 28 thousand) and currency conversion gains (EUR 23

thousand).

Other operating expenses result primarily from delivery costs (EUR 512 thousand),

vehicle and travel expenses (EUR 499 thousand), legal and consulting expenses (EUR 261

thousand), money transfer costs (EUR 198 thousand), occupancy costs (EUR 147

thousand) and currency conversion expenses (EUR 106 thousand).

Investment income contains the profit of the sale of the Company’s investment in KGHM

HMS Bergbau AG.

The financial result includes the net balance, amounting to EUR 219 thousand, of

interest expenses on pension obligations and income from the pledged plan assets.

Extraordinary expenses include 1/15th of the addition of pension provisions resulting

from the change in valuation pursuant to Section 253 (1) sentence 2 of the German

Commercial Code (HGB).



61


62


VIII. Other information

1. Members of the Management Board and Supervisory Board

During the last financial year, the Company’s transactions were conducted by the

Management Board, whose members are as follows:

Herrn Heinz Schernikau, CEO,

Herrn Sebastian Giese, CFO,

Herrn Rüdiger Lorentz, COO.

The total remuneration of the Management Board in financial year 2011 – excluding

additions to pension provisions – was EUR 518 thousand (previous year: EUR 439

thousand).

During the financial year, the Supervisory Board was composed of the following

members:

Herr Dr. Hans-Dieter Harig; engineer, retired, Chairman,

Herr Dr. h.c. Michael Bärlein; lawyer, Berlin, Deputy Chairman,

Frau Michaela Schernikau; businesswoman, Managing Director, Berlin .

In the financial year, Dr. Hans-Dieter Harig was also a member of the Supervisory Boards

of the following companies: E.ON Energie AG, Munich; Rheinkalk GmbH, Wülfrath;

Bilfinger Berger Power Services GmbH, Oberhausen; and Möller Group GmbH & Co. KG,

Bielefeld.

In the financial year, Michaela Schemikau was also a member of the Supervisory Boards of

the following companies: HMS Bergbau AG Iron Ore & Metals Division, Berlin; HMS

Bergbau AG Coal Division, Berlin; and S+O Mineral Industries AG, Frankfurt am Main.

2. Remuneration of members of the Supervisory Board

Supervisory Board remuneration amounted to EUR 40 thousand (previous year: EUR 39

thousand).

3. Auditor’s fee

The fee for the audit of the annual financial statements was EUR 60 thousand (previous

year: EUR 65 thousand). The auditing firm did not carry out any other services for the

Company.



63

4. Annual average number of employees

The average number of people employed during the financial year was 23.

5. Types of shares

HMS Bergbau AG has share capital worth EUR 4,000,000.00, divided into:

4,000,000 common bearer shares at a nominal value of EUR 1.00 each.

6. Authorised capital

On the balance sheet date, HMS Bergbau AG still had EUR 2,000,000 in

authorised capital.

Berlin, 05. April 2012


Vorstandsvorsitzender Finanzvorstand Handelsvorstand


64


Auditor’s report

We issued the following opinion on the consolidated financial statements and the group

management report:

”We have audited the consolidated financial statements prepared by HMS Bergbau AG,

Berlin, comprising the balance sheet, the income statement, the notes to the consolidated

financial statements, the cash flow statement, and the statement of changes in equity,

together with the group management report for the fiscal year from 1th January to 31th

December 2011. The preparation of the consolidated financial statements and the group

management report in accordance with German commercial law is the responsibility of the

company’s management. Our responsibility is to express an opinion on the consolidated

financial statements and the group management report based on our audit.

We conducted our audit of the consolidated financial statements in accordance with

Sec. 317 HGB (“Handelsgesetzbuch”: German Commercial Code) and German generally

accepted standards for the audit of financial statements promulgated by the Institut der

Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Those standards require

that we plan and perform the audit such that misstatements materially affecting the

presentation of the net assets, financial position and results of operations in the

consolidated financial statements in accordance with [German] principles of proper

accounting and in the group management report are detected with reasonable assurance.

Knowledge of the business activities and the economic and legal environment of the group

and expectations as to possible misstatements are taken into account in the determination

of audit procedures. The effectiveness of the accounting-related internal control system

and the evidence supporting the disclosures in the consolidated financial statements and

the group management report are examined primarily on a test basis within the

framework of the audit. The audit includes assessing the annual financial statements of

those entities included in consolidation, the determination of entities to be included in

consolidation, the accounting and consolidation principles used and significant estimates

made by management, as well as evaluating the overall presentation of the consolidated

financial statements and the group management report. We believe that our audit

provides a reasonable basis for our opinion.

Our audit has not led to any reservations.

In our opinion, based on the findings of our audit, the consolidated financial statements

comply with the legal requirements [and supplementary provisions of the partnership

agreement/articles of incorporation and bylaws] and give a true and fair view of the net

Auditor’s report


65

assets, financial position and results of operations of the group in accordance with

[German] principles of proper accounting. The group management report is consistent

with the consolidated financial statements and as a whole provides a suitable view of the

group’s position and suitably presents the opportunities and risks relating to future

development."

Berlin, 12. April 2012

Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft

Plett Ottenhus Wirtschaftsprüfer Wirtschaftsprüfer

Auditor’s report

66


Imprint

Publisher:

HMS Bergbau AG

An der Wuhlheide 232

12459 Berlin

Deutschland

Phone: +49 (30) 65 66 81-0

Fax: +49 (30) 65 66 81-15

E-mail: [email protected]

www.hms-ag.com

Concept, editorial, design:

GFEI Aktiengesellschaft

Am Hauptbahnhof 6

60329 Frankfurt

Deutschland

Phone: +49 (0) 69 / 743 037 00

Fax: +49 (0) 69 / 743 037 22

E-mail: [email protected]

www.gfei.de

Imprint


67

HMS Bergbau AG

An der Wuhlheide 232

D - 12459 Berlin

Telefon: +49 (30) 65 66 81-0

Fax: +49 (30) 65 66 81-15

E-Mail: [email protected]

Internet: www.hms-ag.com

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