Management Report on Company Business
Activities and Assets

SALES AND MARKETING

Marketing Programmes and Concepts

Marketing identifies the needs and requirements of the target market so that the demands of end customers are satisfied more effectively and the Company's targets are met. The Company's results evidence the fact that it achieved the goals it had set itself. The Marketing Department makes full use of a range of different instruments for its activities, primarily effective communication. The whole process of marketing communication is based on specific product features. In 2001, the Company organized seven seminars for the mayors of towns and cities and for energy plant operators. The themes of these seminars concentrated on the efficient consumption of Bílina brown coal in automatic hot-water boilers as a means of protecting the environment.

Other activities profiling Severočeské doly a.s. and reaffirming the positive Company image include its participation in exhibitions and trade fairs. Regional specialized trade fairs presented ecological and economical facility heating and energy savings. The Company took part in the key international trade fairs Pragotherm and Aqua-therm, which focus on energy, facility heating, and ecology. It has now become something of a tradition for Severočeské doly a.s. to attend the International Mechanical-Engineering Fair in Brno. The Company's presentations at all these exhibitions and trade fairs bore the legend 'First on the Way to Energy', expressing the major significance of the Company for the Czech energy industry.

Coal Products

The Company sold sorted coal in the cube sort (granularity of 40 –100 mm), nut 1 (granularity of 20 –40 mm), and nut 2 (granularity of 10 –25 mm) to selected industrial customers and consumers in the tertiary sphere (i.e. households, schools, authorities, and hospitals). Rough powder (granularity of 0 –10 mm) and industrial mixes (granularity of 0 –30 mm) were supplied to producers of heat and electricity, in particular ČEZ power stations and large heat plants. Coal sales were very good thanks to the quality of the coal produced, price incentives, rising sales in all fuel groups in the latter half of the year, and the influence of the severe winter weather. Year-on-year, sales of sorted coal rose 131,000 tons (7.12%), sales of rough powder went up by 109,000 tons (11.4%), and industrial mixes registered a year-on-year increase in sales by more than 207,000 tons (1.1%).

Supplies of Output

The output of Severočeské doly a.s. was supplied to several market segments: the 'large power industry', which is dominated by ČEZ, the segment of large and medium-sized industrial and municipal heat plants, and the segment of retail consumers, which is supplied through a distribution chain of fuel dealers operating in the individual regions.
In 2001, ČEZ consumed 18.1 million tons – the same amount as in the year previous. This accounted for 80.3% of total sales for Severočeské doly a.s. and 60.5% of ČEZ's brown coal supply. Other top customers included the Ústí nad Labem Heat Plant and ECK Generating Kladno.
Export operations concentrated on direct coal exports to the E.ON Schwandorf Power Station in Bavaria. Exports to Slovakia, Austria, Slovenia, Croatia, Poland, and Hungary were made through CARBOUNION BOHEMIA.

Non-Coal Products

A significant area of Company trading is the sale of non-coal products and services. These are primarily oxyhumolites with a high humic acid salt content sold under the brand names 'Ořechové mořidlo(Nut Stain) and Dralig. Their quality is attested by an ISO9002 certificate. At present, intensive tests are being carried out on new products under the brand dames Fortehum L/Na and L/K. Other by-products include plugging and brick clay, sand, and kaolin.

Sales by product (%)	Where our coal goes (%)
Cube ko2 2.2 % Nut o1 3.7 % Nut o2 2.8 % Rough powder 4.7 % Industrial mixes 86.6 %	ČEZ, a.s. 80.3 % Power plants over 50 MW 6.3 % Power plants 50 MW and under 0.3 % Fuel dealers 10.3 % Export to Slovakia 1.0 % Other export 1.8 %

Coal Sale Distribution Routes in the Czech Republic

There are several different distribution routes from the mining company to the end consumer. Medium-term and long-term sales contracts are concluded with major industrial consumers directly. Coal dealers are another market area which, although much smaller than direct consumers in the industrial and municipal sphere, is still significant. In addition to the regional dealers, there are also national vendors (e.g. EXPOL TRADE, MEIXNER&HANUŠ, UHLOZBYT, MEXI). Severočeské doly's coverage of the Czech Republic via a network of top fuel dealers is illustrated on the map.

Sales Strategy and Contractual Arrangements

The strategy in sales is centred on medium-and long-term coal supply contracts. This ensures approximately 75% of sales are guaranteed long term and means the Company has some idea of how to proceed in its other business and investment programmes. In 1997, Severočeské doly a.s. and ČEZ entered into an agreement on future coal supply purchase contracts up to 2015 with an option to renew until 2030. Based on this agreement, the Company signed a framework agreement with ČEZ on coal supplies in the years 1996 – 2001. The specific parameters of these agreements are subject to annual clarification in purchase agreements signed for each individual year.
Severočeské doly a.s. continued its business cooperation with Teplárna Ústí nad Labem (TUL). Under long-term contracts we extended TUL an interest-bearing loan in 1996 – 1997 and TUL agreed to buy a minimum of 0.9 million tons of brown coal from us each year until 2008.
In 2000, a long-term contract was signed with ECK Generating Kladno for coal supplies to the Kladno Generating Centre in the period until 2020.
We also have a large number of contracts with coal dealers who supply to CINERGETIKA Ústí nad Labem, Lovochemie Lovosice, Moravskoslezské teplárny Olomouc, MORAVSKÉ TEPLÁRNY Zlín, and others.