Management Report on Company Business
Activities and Assets

FINANCIAL ACTIVITIES

Despite the ongoing trend of reducing interest rates, Severočeské doly a.s. posted a profit of CZK 502 million on financial transactions in 2001, a rise of CZK 25 million on 2000.

Financial Investments

Financial investments consisted of a portfolio of top-grade bonds and Eurobonds, long-term deposit promissory notes at leading Czech banks, an interest-bearing cash loan, and equities, as well as the spin-off of certain assets to subsidiaries. The equity and loan investments are strategic in character.
The Company made active use of money market instruments (short-term financial assets)in its cash-flow management programme. It generated revenues on treasury bills, bank deposits, deposit certificates, and bank deposit promissory notes by collecting yields from them and by selling them before their maturity, as well as on the share certificates of open-ended mutual funds and on buy-sell back transactions in bonds. Current account balances were placed in overnight and atvis deposits.
At year end, the Company held bonds with a total acquisition cost of CZK 4,273 million, up CZK 1,805 million from year end 2000. Teplárna Ústí nad Labem repaid CZK 57 million on a loan, of which CZK 228 million remained outstanding at the end of the year. The Company also held long-term deposit bills with a total acquisition cost of CZK 99 million, treasury bills in the amount of CZK 1,271 million, share certificates amounting to CZK 250 million, and bank deposit promissory notes and certificates totaling CZK 2,026 million. Overall financial investments rose 19.0% and financial assets 23.8% over the year.

Ownership Interests

SUBSIDIARIES (AT 31 DECEMBER 2001)


Company	Number of shares	Shareholding at nominal value (CZK’000)	Share of registered capital (%)

SEVEROČESKÉ DOLY – VTP, a.s	12,308	123,080	100.00

Skládka Tušimice, akciová společnost	13,635	136,350	97.29

SD – Autodoprava, a.s.	317,084	317,084	100.00

SHD – SOFT (ware), a.s.	5,580	8,928	50.82

Severozápadní ENERGO GROUP, a.s	21	21,000	51.22

SD – 1.strojírenská, a.s.	2	2,000	100.00

SD – Kolejová doprava, a.s	2	2,000	100.00

Subsidiaries total		610,442

SEVEROČESKÉ DOLY – VTP was established in 1997 by the spin-off of Severočeské doly’s drilling and blasting unit to form a separate company. In the same year, Severočeské doly’s truck transport was spun off and now does business as a subsidiary of Severočeské doly a.s. under the name SD – Autodoprava. In the same spirit, subsidiaries SD – 1.strojírenská and SD – Kolejová doprava were established at the end of 2001.
The Company’s stake in Skládka Tušimice indicates its interest in waste management. In 2000, SHD – SOFT (ware) became a subsidiary of Severočeské doly a.s. This move has made it possible for the Company to make a more rational contribution to the management and development of the information system. By establishing the company Severozápadní ENERGO GROUP, Severočeské doly a.s. contributed to the realization of a project to support employment in the region.

OTHER SHAREHOLDINGS (AT 31 DECEMBER 2001)


Company	Number of shares	Shareholding at nominal value (CZK’000)	Share of registered capital (%)

Equity securities with substantial influence

Výzkumný ústav pro hnědé uhlí, a.s.	27,399	27,399	38.97

SHD – KOMES, a.s.	168,235	168,235	46.33

Teplárna Ústí nad Labem, a.s.	354,418	354,418	34.22

Coal Energy, a.s.	1	10,000	20.00

Other investment securities and participating interests

Mostecká uhelná společnost, a.s.	1,000	1,000	0.00

Sokolovská uhelná, a.s.	1,000	1,000	0.00

Total other shareholdings		562,052

The Company’s stake in Výzkumný ústav pro hnědé úhlí (the Brown Coal Research Institute) allows us to participate in the management and supervision of the activities of the Institute, which is a key institution for applied research in fields crucial to the development of the brown coal industry.
The stake in SHD – KOMES is an instrument of control over one of the largest suppliers of materials consumed by Severočeské doly’s operations. At the same time, the stake is also a long-term investment in SHD – KOMES’s fixed assets that are useful in the sales, service, and tourism sectors.
The stake in Teplárna Ústí nad Labem represents the Company’s strategic alliance with this thermal energy producer based on a loan provided by Severočeské doly a.s. against the heat plant’s agreeing to buy coal from the Company for a period of at least ten years. In the second half of the year, a project was implemented with ČEZ, Mostecká uhelná společnost, Sokolovská uhelná, and CARBOUNION BOHEMIA to establish the joint venture Coal Energy. This company started operating as an exporter of electricity generated at conventional Czech coal power stations in a move intended to eliminate the negative impact of putting Temelín Nuclear Power Station into service.

Financial Risk Management

Severočeské doly a.s. applies a conservative risk policy for the handling of its idle financial assets. This policy entails diversification of financial activities among top-quality financial institutions and issuers with a high credit rating. The Company monitors and controls fundamental interest rate indicators in order to eliminate the undesirable impacts of interest rate movements. Standard financial market instruments are used to manage interest rate and foreign currency risk.

How Investments are Financed