TIDMUKC
RNS Number : 1944C
UK Coal PLC
27 April 2012
27 April 2012
UK Coal
("UK Coal", the "Group" or the "Company")
Preliminary Results
For the year ended 31 December 2011
Key Points:
-- Total Group Revenue of GBP488.2 million (2010: GBP351.2m)
-- Operating profit/(loss) before non-trading exceptional items
of GBP65.2m (2010: GBP(74.3m))
-- Profit/(loss) before tax of GBP58.0m (2010: GBP(124.6m))
-- Total production of 7.5m tonnes (2010: 7.2m tonnes), in line
with expectations
-- Average sales price per Gigajoule (GBP/GJ): GBP2.48 (2010:
GBP1.97)
-- Property sales of GBP67m achieved slightly ahead of book
value
-- Group net bank debt reduced to GBP55m (2010: GBP141m)
-- Total net debt, including generator loan/prepayments reduced
from GBP242m to GBP139m
Commenting on the results, Jonson Cox, Chairman, said:
"For the first time in four years UK Coal delivered a profitable
year, with overall pre-tax profits of GBP58.0m, compared to the
loss of GBP124.6m for 2010 and cumulative losses from 2008 to 2010
of GBP269m. This improved performance is in line with our Recovery
Plan, with an increase in revenue from improved production, stock
reductions and realised sales price, and from our initial steps in
addressing our cost base. Our programme to reduce bank debt,
through development and sale of the property portfolio succeeded in
more than halving bank debt over the year.
"However, recent operational performance at Daw Mill, the
near-doubling of our pension deficit and the level of debt in the
mining business have continued to highlight how much remains to be
done to put the UK Coal mining business on a stable footing. The
Company has announced its intention to seek the agreement of key
economic stakeholders in the company to a restructuring of the
Group, and a reduction in its debt, to create a long term stable
financial footing for the business and to isolate the operating
risk of each deep mine from the Group as a whole.
"Under this new structure, the Board believes that the value
inherent in the mining business and value in the brownfield
property portfolio can be realised for the benefit of all
stakeholders."
Further Information
Analysts Presentation
A presentation to analysts is being held at Cardew Group, 12
Suffolk Street, London, SW1Y 4HG at 9.30am.
Press Call
A conference call for press is being held at 12.30pm:
Dial in Number: 020 3140 0698
Pin: 361102#
Enquiries
David Brocksom Finance Director, UK Coal Tel: 020 7930 0777
Andrew Mackintosh Director of Communications, UK Coal Tel: 020
7930 0777
Anthony Cardew / Emma Crawshaw Cardew Group Tel: 020 7930
0777
Notes to Editors:
UK COAL is a mining, property and power company employing
c.2,500 people with its headquarters at Harworth Park, Harworth,
near Doncaster, South Yorkshire.
Britain's biggest producer of coal, UK COAL operates three deep
mines in the Midlands and Yorkshire, and surface mines in the North
East, the North West and the Midlands. Over 90% of the total annual
output is sold to generate around 5% of Britain's electricity
requirements.
The Group owns around 30,000 acres of land and other property.
Harworth Estates, the property arm of the business, currently has
plans to develop 85 sites covering a developable area of more than
4,000 acres, creating opportunities for building around 30,000
homes and 32 million square feet of business space over the next
decade.
For more information, please go to: www.ukcoal.com
Cautionary Statement:
This announcement contains forward-looking statements that are
based on current expectations or beliefs, as well as assumptions
about future events. These forward-looking statements can be
identified by the fact that they do not relate only to historical
or current facts. Forward-looking statements often use words such
as anticipate, target, expect, estimate, intend, plan, goal,
believe, will, may, should, would, could, is confident, or other
words of similar meaning. Undue reliance should not be placed on
any such statements because they speak only as at the date of this
document and, by their very nature, they are subject to known and
unknown risks and uncertainties and can be affected by other
factors that could cause actual results, and UK Coal's plans and
objectives, to differ materially from those expressed or implied in
the forward-looking statements.
UK Coal undertakes no obligation to revise or update any
forward-looking statement contained within this announcement,
regardless of whether those statements are affected as a result of
new information, future events or otherwise, save as required by
law and regulations.
CHAIRMAN'S STATEMENT
Results for 2011
For the first time in four years UK Coal delivered a profitable
year, with overall pre-tax profits of GBP58.0m, compared to the
loss of GBP124.6m for 2010 and cumulative losses from 2008 to 2010
of GBP269m. This improved performance is in line with our Recovery
Plan, with an increase in revenue from improved production, stock
reductions and realised sales price, and from our initial steps in
addressing our cost base.
Net bank debt fell to GBP55 million at 31 December 2011 against
GBP141m in 2010. This reflects the realisation of value from our
property portfolio, with sales of GBP67m achieved at prices
slightly ahead of book values.
Recovery Plan
In my statement last year I set out an assessment of UK Coal's
business performance as I had found it on becoming Chairman in
November 2010. Shortly afterwards, we announced the detailed
priorities for the first steps of our Recovery Plan, which has
delivered a profit in 2011. We have made some significant progress
during the year:
i. We were very clear that our highest priority was to improve
the safety of our mining operations and made initial good progress.
Our All Accident Rate for 2011 improved by around 20%. A fatality
in September further accelerated our efforts, through our Critical
Safety Review, on the changes that are needed around behaviours and
working practices.
ii. Our property business, Harworth Estates, performed well with
net receipts from property disposals of GBP65m in the year.
iii. We made substantial progress in addressing high, and
unaffordable, workforce costs and the future service cost of the
Group's defined benefit pension schemes. Service costs have been
halved. Labour agreements reached during the year are expected to
hold per capita employment costs broadly at 2010 levels until the
end of 2013.
iv. We started work on balancing long term security of sales
contracts with more flexibility around market conditions.
v. Good progress was made in improving financial and operational
controls across all areas of the business. We continue to fight
inefficiency and high costs, although much remains to be done.
vi. We started work on rebuilding the management of the Company
with significant new appointments to our mining team in the second
half of the year.
vii. At year end, net bank debt, excluding restricted funds, was
reduced from GBP141m to GBP55m. Total net debt, excluding
restricted funds but including loan prepayments, has reduced from
GBP242m to GBP139m.
viii. By the end of 2011 we had completed the re-building of the
Board, with the appointment of four new Non-Executive Directors
since late 2010. These appointments have contributed a fresh
outlook and new determination to the Board.
Current progress
While there were significant achievements made in 2011,
difficulties at Daw Mill from late 2011 highlighted how much
remains to be done to put the UK Coal mining business on a stable
footing.
We highlighted in April last year that the Company once again
faced a potential three-month "face gap" at Daw Mill, following the
four-month face gap in 2010 which cost the Company the majority of
the GBP100m raised in October 2009. Our mining team developed a
two-part mitigation strategy to avoid a 2011 face gap.
At the end of 2011, the element of mitigation which relied on
extending the 32s face at Daw Mill failed as a result of combined
geological, workforce and management problems. Work started in
January 2012 on the second part of the mitigation strategy which
was to commence the next face early. The ramp-up of this face was
very slow, taking three months in Q1 2012.
The high fixed cost structure inherent in our deep mines and a
two week cash conversion cycle coupled with poor operational
performance has an immediate impact on the Group's financial
position. The current structure, whereby all mines are in the same
corporate entity, can quickly result in one mine putting the entire
Group at risk.
The problem of operational vulnerability is compounded by the
level of our pension deficit and debt to customers and banks. The
pension deficit, under the principles used by the Trustees to
determine future funding, has almost doubled from around GBP250m at
the last valuation in 2009 to approximately GBP430m.
As a result, the Company has recently announced its intention to
restructure the Group to isolate the operating risk of each deep
mine from the Group as a whole and mitigate future financial
uncertainty arising from operations at Daw Mill or other mines. It
was also announced that a consultation process has begun regarding
the early closure of Daw Mill in 2014, subject to the option to
retain Daw Mill under a new structure and operating model.
2012 restructuring
Our proposal to parties with an economic interest in UK Coal
would entail a more formal separation of mining and property
interests, each with an appropriate capital structure. The plan is
intended to isolate the operating and financial risk of each deep
mine from the Group as a whole and to address the funding and debt
structure of the Group.
We have continued constructive discussions with our principal
banking partners, Lloyds Banking Group, together with Barclays
Bank, the Pension Funds, our customers, the Department for Energy
and Climate Change and the Coal Authority. We are in the process of
tabling our detailed plan to these parties.
Our intended plan involves a substantial reduction of the
pension, and other, liabilities of UK Coal. Under this plan, the
Board believes that the value inherent in the mining business can
be properly exploited for the benefit of all stakeholders. A
minority equity stake in the mining business, together with an
interest in the future cash stream from the realisation of the
property portfolio, would be offered in consideration for the
reduction of pension scheme and, potentially, other stakeholder
liabilities.
The Board believes that there is potential value to be realised
from our substantial brownfield property portfolio through the
development process. It is proposed that the property company would
take over the bank debt of the Group and an agreed liability as
part of a compromise of the pension scheme. Our proposal is that
equity funding, which will be ring fenced to the property business,
will need to be raised for the period of time required to pay down
bank debt whilst the development process releases this value.
The Board believes that this plan is the only practicable way to
create a sustainable structure for the Group. We recognise that
this will require significant co-operation and support from all of
those with an economic interest in the Group. Without this support
there would be a significant risk to the Group, and, in particular,
to the continuation of the mining business. We hope to be able to
report on the result of our negotiations at our AGM in June.
Outlook
The reliance on coal in the current energy mix continues. During
this recent winter, mild as it was, coal generated around half of
the electricity needed in the UK. The proposed introduction of the
carbon support price may reduce the demand for coal, but coal
remains a key factor in keeping energy bills as low as
possible.
In the short and medium term, as the UK manages the transition
to a cleaner energy future, in a way that also maintains an
affordable price for electricity, coal continues to be part of the
energy mix. With over 100 years of reserves left in the UK, it is
important that we continue to use coal mined in the UK rather than
relying solely on imported coal.
We have two immediate over-riding priorities:
i. To operate the business safely and successfully, delivering
the continuing targets of our recovery plan and in particular to
improve production at Daw Mill where the recovery of 32s face still
has to be achieved and the equipment transferred to 33s on a timely
basis.
ii. To set out and negotiate, with our very wide range of
stakeholders, a new structure for the Group to enable it to
continue into the medium and longer term.
UK Coal has made significant progress on achieving the
objectives set at the beginning of the year. I believe we now have
a realistic and practical solution for taking the Group forward and
would like to thank all those at UK Coal who have contributed to
this progress.
Jonson Cox
Chairman
27 April 2012
REVIEW OF OPERATIONS BY BUSINESS
Mining
General overview
Good progress was made in 2011 against the Group's Strategic
Recovery Plan with a return to profitability. Revenue from the
mining business for 2011 was GBP477.7 million (2010: GBP342.8
million) and operating profit before non-trading exceptional items
was GBP54.5 million (2010: loss of GBP43.7 million). The revenue is
derived from sales from deep mine production of GBP366.3 million
(2010: GBP276.7 million) and sales from surface mine production of
GBP111.4 million (2010: GBP66.1 million). The operating profit
before non-trading exceptional items is split as a deep mines
profit of GBP32.4 million (2010: loss of GBP44.1 million) and
surface mines profit of GBP22.1 million (2010: GBP0.4 million).
With the continued replacement of lower priced contracts with new,
better priced contracts during the year, the mining business was
able to benefit from a strong market price and average realised
sales price per Gigajoule rose by over 25% to GBP2.48/GJ (2010:
GBP1.97/GJ).
Key performance indicators
2011 2010
--------- --------- --------- -------------- ---- ------ ------
Sales price per Gigajoule (GBP/GJ) 2.48 1.97
Tonnage sold (million tonnes) 8.0 7.2
Tonnage produced (million tonnes) 7.5 7.2
----------------------------------------------- ---- ------ ------
Market overview 2011
The UK burned an estimated 45 million tonnes of steam coal in
2011, the vast majority of this to generate electricity. Overall,
UK consumption was fairly static in comparison to 2010, which was
boosted by extreme winter weather conditions. Towards the end of
2011 coal became the electricity generators fuel of choice as
rising gas prices pushed down gas use enabling coal to increase its
share of the fuel mix to around 30% in the year. As we enter 2012
the profit margins on gas plant have been further squeezed and some
older gas stations have ceased generation.
The longer term demand for our product remains unaffected as the
electricity generation market is heavily dominated by imports. Coal
mined in the UK, including our own 7.5 million tonnes in 2011, can
only meet a portion of this demand making the UK a substantial
importer of coal. Demand in the UK will continue substantially to
exceed our supply capacity throughout this decade.
In 2010, high stock levels held by UK generators resulted in a
downturn in imports as they looked to bring these down to more
manageable levels. 2011 saw a resumption of coal buying which led
to imports rising by 22% to 32 million tonnes. UK power station
stocks started and ended 2011 at around 13 million tonnes.
Given the nature of the UK electricity supply industry, our
predominant market, we continue to have a small number of
significant customers. All of our major customers have retrofitted
flue gas desulphurisation ("FGD") onto their stations to meet the
requirements of the European Large Combustion Plant Directive
("LCPD").
The replacement legislation to the LCPD, the Industrial
Emissions Directive ("IED") has been approved in the European
Parliament and the UK is currently working towards finalising its
implementation. The IED will require further investment by the
generators to meet the tightening sulphur dioxide and nitrogen
oxide emission limit targets after 2015. However as it stands, the
IED would allow UK generators, without further investment, some
flexibility in their operational emissions but would limit their
running hours in return.
In July 2011 the UK Government published its White Paper on
'Electricity Market Reform' ("EMR") consultation outlining how it
intends to encourage investment in low carbon generation to meet
its long term carbon reduction targets. The White Paper put forward
four main principles to reach this goal; carbon price support, feed
in tariffs, capacity mechanisms and emission performance
standards.
The UK Government intends to introduce its carbon price support
mechanism in April 2013. This will reduce the competiveness of coal
fired plant against other types of generation. UK Coal believes
that this scheme is unnecessary as the Government's proposal to
introduce feed in tariffs would deliver the same result.
UK Coal strongly believes that existing coal fired generation
provides an essential low cost transition to the low carbon
economy. The UK Government recognises the importance coal plays in
providing diversity, security and flexibility in our energy
supplies but has stated that ultimately coal can only play its part
in the long term energy mix through carbon capture and storage
("CCS") enabled generators.
CCS involves capturing the CO(2) emitted from burning fossil
fuels, transporting it and storing it safely in geological
formations. CCS has the potential to reduce CO(2) emissions from
fossil fuel power stations by as much as 90%. The emission
performance standard proposals within the EMR proposals would force
all new coal power stations to fit CCS to a proportion of its
capacity from the start of operations. However, CCS imposes a
considerable power burden on generator stations, reducing the
overall efficiency and cost effectiveness of coal as a source of
energy.
Despite the disappointing news that the CCS scheme at Longannet
would not go ahead, the UK Government has reaffirmed that GBP1
billion would be still be available to support CCS projects within
the UK. The Government has recently published the CCS roadmap and
competition and we expect this to progress during 2012.
NW Europe steam coal price
International coal prices for near term deliveries started 2011
at $124 per tonne, remained above $120 per tonne until September
before falling back to finish the year at $112 per tonne as mild
weather across Europe affected demand.
The Far East remained the main driver in the international
market. China's imports were up by 10% although this was partially
offset by lower Japanese demand in the aftermath of the
tsunami.
In sterling terms, the price per tonne followed a similar trend,
starting 2011 at GBP79 per tonne (GBP3.13 per gigajoule), and
finishing the year at GBP72 per tonne (GBP2.85 per gigajoule). As
the mild winter progressed in Europe, coal stocks rose at
generators, reflecting lower demand. This resulted in a near term
reduction in coal price and, as at 30 March 2012, the average
forward market price for coal for deliveries in the remainder of
2012 was GBP67 per tonne.
UK steam coal market
Coal delivered into the UK is priced using the
Amsterdam/Rotterdam/Antwerp (ARA) price which, for the process of
showing a landed UK price, is converted into sterling with the
additional cost of delivery into the UK then added. The average
forward price for 2012 on the ARA market at 31 December 2011 was
$112 per tonne. Converted into sterling at the then exchange rate
of $1.56:GBP1 and into its calorific value by dividing the tonnes
by 25.121, this equated to a forward sterling price of GBP2.86/GJ.
The additional cost of delivery to the UK brought this to a UK
delivered price of over GBP3.11/GJ.
This table shows coal is the second most used fuel source in UK
electricity generation.
Percentage of electricity 2011 2010 2009 2008 2007 2006
generated by fuel type
% % % % % %
--------------------------- ----- ----- ----- ----- ----- -----
Gas 42 46 45 48 43 37
Coal 30 28 28 32 35 38
Nuclear 19 16 18 13 15 18
Oil, hydro and renewables 9 10 9 7 7 7
Total 100 100 100 100 100 100
--------------------------- ----- ----- ----- ----- ----- -----
Source: DECC Energy Statistics (2011 figures based on
provisional numbers)
Coal contracts
We aim to achieve a diverse mix of contracts with customers to
provide a 'natural hedge' between security of supply and the
ability to take advantage of international coal prices.
Around 95% of our coal sold is delivered to electricity
generator customers with the balance delivered to domestic and
industrial and steel making markets.
The contractual commitments at the end of December 2011 stood at
16.4 million tonnes compared to 21.2 million tonnes at December
2010.
Sales are substantially contracted for 2012, in a mix of
floating, floating within caps and collars and fixed contracts. We
are half way through the process of selling coal for 2013.
Deep mines
Our deep mines business consists of the operational mines at Daw
Mill (Warwickshire), Kellingley (Yorkshire) and Thoresby
(Nottinghamshire). Our deep mine at Welbeck ceased production in
early 2010 and Harworth remains mothballed and its future is
currently being reviewed.
Key performance indicators
2011 2010
------------------------------------------- --------- ---------
Coal mined (million tonnes) 5.7 5.8
Revenue (GBPm) 366.3 276.7
Operating cost* (GBPm) 296.5 288.9
Operating cost* per tonne/per Gigajoule 48.5/2.01 49.6/2.06
(GBP/tonne)/(GBP/GJ)
Operating cost** (GBPm) 333.9 320.8
Operating cost** per tonne/per Gigajoule 54.6/2.26 55.1/2.28
(GBP/tonne)/(GBP/GJ)
Operating profit/(loss) before non-trading
exceptional items (GBPm) 32.4 (44.1)
Development driveage metres 13,296 13,166
* before depreciation and excluding non-trading exceptional
items
** after depreciation but excluding non-trading exceptional
items
Deep mining has a cost base that is largely fixed relative to
production levels, and therefore the KPIs for the business focus on
the operating costs and on the output tonnage achieved from this
cost base. Other indicators which highlight the likelihood of
future production being achieved are also monitored, in particular,
the development metreage achieved, being the investment in future
coal panels. As in other businesses, the revenue and the realised
sales price are also monitored.
Colliery performance summary:
Production Operating cost* Production
2011 2010 2011 2010 Q1 2012 Q1 2011
m tonnes m tonnes (GBPm) (GBPm) m tonnes m tonnes
----------------------------------------------------------- -------- -------- -------- ------- -------- --------
Deep mines
Daw Mill 2.1 2.6 113.8 109.1 0.3 0.7
Kellingley 2.3 1.5 89.0 83.6 0.5 0.5
Thoresby 1.3 1.5 79.3 77.1 0.2 0.4
----------------------------------------------------------- -------- -------- -------- ------- -------- --------
Total ongoing deep mines production/costs before stock
movements 5.7 5.6 282.1 269.8 1.0 1.6
Welbeck - 0.2 - 14.6 - -
----------------------------------------------------------- -------- -------- -------- ------- -------- --------
Total deep mines production/ costs before stock movements 5.7 5.8 282.1 284.4 1.0 1.6
Stock movements 0.4 - 14.4 4.5 - -
----------------------------------------------------------- -------- -------- -------- ------- -------- --------
Total deep mines 6.1 5.8 296.5 288.9 1.0 1.6
----------------------------------------------------------- -------- -------- -------- ------- -------- --------
(*) Operating cost before non-trading exceptional items and
depreciation, with central costs absorbed.
During the year deep mining invested GBP30 million in capital
expenditure, of which GBP13.0 million and GBP10.0 million was in
respect of new face equipment at Daw Mill and Thoresby
respectively. An additional GBP3.5 million and GBP1.3 million was
invested to increase coal processing capacity at these two
mines.
Overall costs before stock movements (excluding Welbeck)
increased by 4.6%. This reflected the cost of increased production
levels, rises in electricity and other power tariffs and the impact
of increased developments costs on the profit and loss account.
Developments in 2011 were wholly expensed at Kellingley and
Thoresby rather than being capitalised to the balance sheet as in
early 2010 as part of the access costs to new seams.
Development driveage (metres) 2011 2010
------------------------------ ------ ------
Deep mines
Daw Mill 2,454 2,844
Kellingley 5,407 5,763
Thoresby 5,435 4,559
------------------------------ ------ ------
Total 13,296 13,166
------------------------------ ------ ------
Daw Mill
As previously reported, 32s face was re-planned to work through
a fault following further seismic information that showed it was
possible to safely mine through, albeit at a slower rate than 2010.
This progressed well until late November when, as a result of the
creation of steep gradients across the face, it became impossible
to advance the powered roof supports. The continued slow recovery
of 32's and the slow ramp up of the next coal panel left the mine
with minimal production throughout December and poor production in
Q1 2012.
We continue to work on the safe recovery of 32s. A decision will
be made whether to continue mining or to salvage the face early for
preparation of the 2013 panel, 33s, once certain milestones have
been achieved. If 32s is not capable of being safely recovered and
mined, it is possible that Daw Mill may have a face gap of up to
three months during the first half of 2013, although mitigating
plans are being put in place as a precaution.
The current panel, 303s, started ramping up in January and
immediately hit a known fault area, resulting in reduced Q1 2012
output. It has now moved beyond the known fault area and is
producing to plan.
Planned developments at Daw Mill have not been achieved for many
years. To address this and the poor mining performance, the Board,
having reviewed the strategic options for Daw Mill, implemented an
intensive intervention in the day to day management of the mine to
lift performance which has yielded positive results.
Notwithstanding this intervention, Daw Mill's performance led to
the decision to suspend developments on those faces to be mined
from 2014 and to start consultation with the workforce concerning
the future of this mine. Discussions continue in this regard.
Kellingley
Production for 2011 finished ahead of plan following the
successful transition from 501s to 502s. The experience gained from
working the first panel in the Beeston seam, 501s, was successfully
transferred to the new face. Developments continue to make good
progress and are on track for completion in time for face
installation. The next face change to 503 is due in the Autumn of
2012. Developments are progressing well as is our work to upgrade
the face equipment to the same specification successfully used on
502s.
Thoresby
Production was on plan in the second panel of the Deep Soft
seam, DS2, following a successful transfer from DS1. Developments
are continuing to progress and a transfer to DS3s has recently
taken place, with the ramp up on DS3s beginning in Q1 2012.
As reported previously, we have had high stocks of unprocessed
coal whilst additional washing capacity was commissioned. These
stocks had been reduced significantly by year end and have now
fallen to normal levels. Development of DS4 is progressing well
with the aim of producing coal in late 2012/early 2013.
Harworth
Harworth Colliery remains on a care and maintenance strategy. A
small, dedicated planning team has begun investigations to see
whether or not the mine should be reopened or capped and closed. It
is envisaged that this decision will take place in 2012.
Reserves and resources - deep mines
We estimate that we have approximately 148.5 million tonnes of
reserves and resources at our ongoing mines of which 34 million
tonnes of coal is accessible under the existing five year mining
and investment plans. The additional resources will become
accessible beyond this timeframe with investment required as
necessary.
Following changes to the mining plans, our available reserves
and resources across all mines have not changed significantly since
last year and our estimates, as at December 2011, of deep mine coal
reserves are set out in the following table:
Million Tonnes Proved Probable Total reserves Resources Total
Daw Mill 1.5 14 15.5 42 57.5
Kellingley 3.5 5.5 9 56 65
Thoresby 1.5 8 9.5 16.5 26
---------------- ------- --------- --------------- ---------- ------
Harworth 0 0 0 53 53
---------------- ------- --------- --------------- ---------- ------
TOTAL 6.5 27.5 34 167.5 201.5
---------------- ------- --------- --------------- ---------- ------
Reserve Reserves which are accessible using the current infrastructure
and in the current five year mining plan.
Resource Reserves which may require substantial development
and other costs to allow accessibility and are not
currently in the five year mining plan.
These reserves are calculated on the basis that Daw Mill
continues to operate beyond 2014. In the event of a decision to
close Daw Mill in early 2014, estimated reserves regarding Daw Mill
would reduce to between 4-5 million tonnes.
Our closed mines at Rossington, Thorne and Welbeck have 120
million tonnes of resources. We retain a licence on these resources
for possible future exploitation.
These figures are based on the Group's best estimates. A number
of factors may cause the actual production to vary significantly
from these estimates. These factors include:
-- Ongoing seismic surveying of reserves to confirm production
estimates
-- Sale price of future coal and cost increases - these could
render production plans uneconomic or could allow extraction from
areas previously thought unviable
-- Production requirements - the need to maintain continuous
production can lead to early commencement of a new face, with coal
consequently being left unmined.
As stated last year, we have changed our reporting basis and are
now reporting our reserves and resources in accordance with the
criteria for internationally recognised reserve and resource
categories of the 'Australasian Code for Reporting Mineral
Resources and Ore Reserves'. This is published by the Joint Ore
Reserves Committee of the Australasian Institute of Mining and
Metallurgy, Australian Institute of Geoscientists and the Minerals
Council of Australia.
Surface mines
Key performance indicators
2011 2010
------------------------------------------------- --------- ---------
Coal mined (million tonnes) 1.8 1.4
Revenue (GBPm) 111.4 66.1
Operating cost* (GBPm) 87.7 63.7
Operating cost* per tonne/ per Gigajoule 47.3/1.97 45.1/1.91
(GBP/tonne/GBP/GJ)
Operating cost** (GBPm) 89.4 65.7
Operating cost** per tonne/ per Gigajoule 48.2/2.01 46.5/1.97
(GBP/tonne/GBP/GJ)
Operating profit before non-trading exceptional
items (GBPm) 22.1 0.4
Restoration spend (GBPm) 16.9 11.6
Sites with consent (number) 6 7
Reserves on sites with planning consent (million
tonnes) 5.1 5.3
------------------------------------------------- --------- ---------
* before depreciation and excluding non-trading exceptional
items
** after depreciation but excluding non-trading exceptional
items
Includes sites where planning committee approval has been
obtained and formal consent is pending
Production increased by 29% to 1.8 million tonnes compared to
1.4 million tonnes.
Operating costs increased in the year in absolute terms,
primarily due to additional sites in operation and a significant
increase in the cost of gas oil. Operating cost per Gigajoule
showed a more modest increase year on year due to a change in the
portfolio of mines being operated in 2011 compared to 2010 and
their respective coal yield operating costs.
Production was ahead of plan due to additional production from
Cutacre and Steadsburn sites as they entered their restoration
phases in the year, combined with increased production at Potland
Burn.
This increase against plan was offset by the delayed start to
Butterwell due to additional environmental work and delayed
planning permission for Lodge House Extension which came too late
to begin work in 2011. Butterwell began production in February 2012
and Lodge House commences mining shortly. In addition, Minorca was
granted planning permission in July 2011 and will enter production
in late 2012.
These planning successes mean that 100% of 2012 production is
consented with a similar level covered in 2013. Over the last two
years we have completed a significant amount of restoration work on
certain large former mine sites, especially Stobswood, Maiden's
Hall and Steadsburn. The level of restoration work required in 2012
will therefore be commensurately lower.
The Surface Mines business has been strengthened during the year
with the external appointments of a Director of Surface Mining and
Head of Business Development. A strong pipeline of development
projects exists to support continuity and growth in the Surface
Mining business with the aim of increasing production levels.
Reserves and planning - surface mines
We estimate that we have surface mining reserves and resources
of 32.6 million tonnes (2010: 42.3 million tonnes) as shown in the
table below.
The year on year reduction follows a comprehensive review of the
development portfolio proposals which saw some long-term, low
probability sites being removed and land sold. As a result of this,
the remaining developments offer a higher average probability of
success.
Reserves
---------------------- ---------- --------------- ---------- ------
Total Reserves Inventory
Million Tonnes Proved Probable Total Resources and Resources coal Total
---------------------- ------- --------- ------ ---------- --------------- ---------- ------
Butterwell 1.0 1.0 1.0 1.0
Huntington Lane 0.3 0.3 0.3 0.3
Lodge House
Extension 0.7 0.7 0.7 0.7
Minorca 1.2 1.2 1.2 1.2
Park Wall North 0.6 0.6 0.6 0.6
Potland Burn 1.3 1.3 1.3 1.3
---------------------- ------- --------- ------ ---------- --------------- ---------- ------
Sites with planning 5.1 5.1 5.1 5.1
---------------------- ------- --------- ------ ---------- --------------- ---------- ------
Bradley 0.5 0.5 0.5 0.5
Hoodsclose 2.1 2.1 2.1 2.1
---------------------- ------- --------- ------ ---------- --------------- ---------- ------
Submitted for
planning 2.6 2.6 2.6 2.6
---------------------- ------- --------- ------ ---------- --------------- ---------- ------
Sites in development 6.5 6.5 18.4 24.9 45.2 70.1
---------------------- ------- --------- ------ ---------- --------------- ---------- ------
2011 Total 5.1 9.1 14.2 18.4 32.6 45.2 77.8
---------------------- ------- --------- ------ ---------- --------------- ---------- ------
2010 Total 5.3 11.2 16.5 25.8 42.3 33.7 76.0
---------------------- ------- --------- ------ ---------- --------------- ---------- ------
Although we have been successful in the previous 15
applications, the planning environment for surface mines,
notwithstanding the arrival of The National Planning Policy
Framework, remains challenging. This was demonstrated by the
setback with our proposed Bradley site. Despite having been
recommended for approval by the Planning Officer, the Planning
Committee voted against this scheme and we also lost on appeal. We
are now seeking a judicial review and expect a decision in
2013.
We expect to submit planning applications during 2012 for in
excess of 6 million tonnes of coal.
Coal reserves are the economically mineable part of the
company's identified coal tonnage. It includes allowances for
losses that may occur when the coal is mined. Reserves are
sub-divided into proved and probable reserves:
- Proved reserves represent the highest confidence category of
reserve estimate as detailed technical and economic studies have
demonstrated that extraction is viable and sites are either
working, have been granted planning permission or have a resolution
to grant planning permission.
- Probable reserves have a lower level of confidence than proved
reserves. Detailed technical and economic studies have demonstrated
that extraction is viable and planning applications have either
been submitted or will be submitted in the short term.
Coal resource is that part of a coal deposit in such form,
quality and quantity that there is a reasonable prospect for
eventual extraction.
Inventory coal is any occurrence of coal in the ground that can
be estimated and reported without necessarily being constrained by
economic and geological potential, or other modifying factors.
Tonnages quoted are in accordance with the Australasian code for
reporting of exploration results, mineral resources and ore
reserves as established in 1971 by the Joint Ore Reserves
Committee.
Harworth Estates
Key Performance indicators
2010
2011 (like for like) 2010
------------------------------- ------------------------------- ------------ ----------------- ------------
GBP million GBP million GBP million
RICS valuations of the property portfolio (GBPm) 282.3 279.6 338.9
Disposals
-Contracts exchanged in year* (net proceeds) 67.0 24.4
-Cash received in the year 64.5 22.7
---------------------------------------------------------------- ------------ ----------------- ------------
* in addition we have conditionally exchanged contracts during
2011 on sales with potential net proceeds of GBP18.1 million where
we expect conditions to be satisfied during 2012.
The Group's property division, Harworth Estates, produced a
profit of GBP8.3 million (2010: GBP33.1million loss), including a
gain on investment properties of GBP6.0 million (2010: GBP34.7
million loss), of which GBP3.3 million was unrealised (2010:
GBP34.2 million loss). In addition, an accounting revaluation gain
of GBP4.5 million was taken directly to reserves (2010: GBP1.2
million), being the gains recognised on former operating properties
transferred to investment property status on their ceasing to be
operational sites.
While the focus of the year was on our accelerated disposals
programme, we continued to progress the promotion of strategic
planning for our portfolio.
Disposals
Disposals during the year secured net proceeds after costs of
GBP67.0 million from the sale of 10,200 acres of residential
development sites and agricultural land (and associated
properties). These sales resulted in a profit on disposal of GBP2.7
million. During the year we received GBP64.5 million of proceeds
net of costs with the balance to be received in 2012. These
proceeds were principally used to repay bank debt. We also
exchanged conditionally on further residential and commercial land
sales in 2011 which are expected to generate net proceeds of
GBP18.1 million over the next 3 years.
During 2012 disposals of agricultural and commercial properties
will continue to help reduce Group borrowing further.
Valuations
The successful 2011 accelerated land disposals programme
achieved prices which underpinned the valuations of both the
commercial and agricultural elements in our portfolio. Overall the
portfolio is valued at GBP282.3 million (a 1% increase on a like
for like basis from 2010). 'Undeveloped land' showed a small gain
against 2010 as our successes in gaining new or improved planning
status on a number of sites offset some planning reversals.
'Agricultural land' continued to show improving values but our
income yielding 'Commercial land' reduced in value slightly in a
challenging marketplace. Rental levels in this segment have
remained flat, a reflection of the difficult economic conditions
facing businesses. Overall the progress made across the portfolio
reflects the continuing difficult environment for commercial land
in the geographical areas our portfolio covers.
A full independent valuation of our property portfolio was
undertaken as at December 2011 in accordance with appraisal and
valuation standards published by the Royal Institution of Chartered
Surveyors.
The portfolio valuation is summarised in the table below;
Dec-11 Dec-10 Dec-10
like for like
GBPm GBPm GBPm %
Agricultural
Retained for Surface
Mining 21.9 25.4 21.6 1.4%
Mixed 27.2 60.4 25.1 8.4%
Low grade 3.5 6.1 3.7 -5.4%
52.6 91.9 50.4 4.4%
Undeveloped land
With planning 106.2 42.7 98.0 8.4%
Application submitted 10.6 71.3 14.1 -24.8%
Without planning 53.9 63.8 55.8 -3.4%
170.7 177.8 167.9 1.7%
Commercial land with
rental income
Part or fully developed 27.7 28.6 28.6 -3.1%
In development 16.2 16.0 16.4 -1.2%
43.9 44.6 45.0 -2.4%
Investment Properties
at valuation 267.2 314.3 263.3 1.5%
Operational
Potential development 5.0 13.0 5.5 -9.1%
Agricultural 3.6 5.1 4.4 -18.2%
Other 6.5 6.5 6.4 1.6%
Operational Properties
at valuation 15.1 24.6 16.3 -7.4%
Total Properties at valuation 282.3 338.9 279.6 1.0%
-------------------------------- ------- ------- ------- -------
The like-for-like percentage change from December 2010
comparatives are after property reclassification and take into
account adjustments for asset sales with a book value of GBP63.7
million and purchases, development expenditure and depreciation
which together net to GBP4.4 million.
Active surface mine sites are included in the value above based
on their restored land value of GBP15.1 million (2010: GBP24.6
million). Sites currently being used by the Group for mining and
other activities are recorded at cost less impairment and changes
in valuations are not reflected in the balance sheet. As at
December 2011, a total of GBPnil (2010: GBP5.1 million) has not
been included in the balance sheet as a result. Operating deep mine
sites are not included in the above valuation.
We continue to engage different valuation firms dependent on the
type and location of our property and have used the same firms as
in 2010. BNP Paribas Real Estate value all the Group's commercial,
residential and development sites. Smiths Gore value the majority
of the agricultural portfolio, while Bell Ingram value our
agricultural properties in the north of England and Scotland. The
commercial and residential land contained within the BNP Paribas
valuation has been valued in a market with very little comparable
evidence available.
In accordance with RICS 'Red Book' guidance therefore, the
valuers make the following statement, the same as last year, which
is consistent with a significant number of other declarations made
on portfolios throughout the country:
'Our valuation is on the basis of market value. This is an
internationally recognised basis and is defined as:
"The estimated amount for which a property should exchange on
the date of valuation between a willing buyer and a willing seller
in an arm's length transaction after proper marketing wherein the
parties had each acted knowledgeably, prudently and without
compulsion."
'This basis of valuation is accepted as meeting the criteria for
assessing "fair value" under International Financial Reporting
Standards. International Accounting Standard 16 requires that the
fair value of land and buildings is usually determined from market
based evidence; that is evidence derived from sales comparison.
This is the approach we have generally adopted. However, where the
property assets are of such a size or a nature that there is no
direct evidence of sales to form a basis of comparison, we have had
regard to residual development appraisals in part informed by gross
development values derived from sales comparison.
'As a consequence, on account of the sensitivity of the market
value to the detail of any future planning consent, and the
potential for material variance in the actuality of development
costs, as compared with our own estimates, together with the
subjective nature of hope value, we must state that our valuation
(consistent with the guidance of the Red Book), is subject to
material uncertainty.'
Market Conditions and Development
In a fragile property market, we have proved that there is still
a market for the right product and location. Transaction volumes
remain low and we have had to be more innovative in our offering at
the design and planning stages to attract buyers and achieve values
in line with expectations. Our confidence in creating and
delivering value from our diverse portfolio has increased but
cautiousness remains across the property market in the short term
which may affect performance in 2012.
The benefit of our divisional structure is being realised with
focused teams able to highlight and develop opportunities for both
short term quick wins and longer term value creation. This
structure has also improved accountability and the ability to focus
spend and resources on projects where best opportunities are seen.
Our developments generate jobs, build homes and provide new
recreational facilities and we have shown our ability to increase
land values and generate short term income streams using innovative
methods such as harnessing energy from low carbon sources and
recovery of previously waste materials.
Strategic land
Harworth Estates has a large and diverse land portfolio with
significant potential given our industrial history. Our development
sites have excellent strategic locations, substantial power
supplies and are significant in size.
The Strategic Land division has a residential land bank
totalling in excess of 7,500 plots and 4.4m sq ft of employment
space, of which 969 plots and 0.3m sq ft are consented. In
2011:
-- Outline planning consent was obtained for a further 500
residential plots and ancillary commercial development at Ellington
and Lynemouth, Northumberland
-- A further 400 at Mapplewell near Barnsley, South Yorkshire
-- Conditional contracts have been exchanged with Gleeson and
Jones Homes to enable the development of sites at Barnsley, South
Yorkshire and Harworth, Nottinghamshire.
In addition to the consented sites a further 42 sites (around
2,300 acres) have been promoted which, subject to planning, may
generate 6,500 plots and 4m sq.ft of employment space. Our largest
planning application to be submitted in 2012 is for an urban
extension at Rossington, South Yorkshire to regenerate the former
colliery site with around 1,200 new homes, a food store,
pub/restaurant and hotel.
Harworth Estates continues to seek development partners for our
consented sites and to deliver significant growth and employment
opportunities.
Developments
Our Development portfolio includes four principal sites:
-- Waverley, South Yorkshire
-- Prince of Wales, West Yorkshire
-- Harworth Colliery, Nottinghamshire
-- Yorkshire Main, South Yorkshire.
These represent over 6,000 residential plots as well as offices,
retail and leisure uses of some 1.9m sq ft. Our largest development
site (Waverley, South Yorkshire) conditionally exchanged
residential sales contracts with Taylor Wimpey, Barratt Homes and
Harron Homes on the first phase of construction for 254 homes. A
contract with Rolls-Royce PLC was conditionally exchanged for 17.4
acres on the Waverley Advanced Manufacturing Park to build a
170,000 sq. ft. high-tech manufacturing unit and the remainder of
the Park has been allocated as an Enterprise Zone. This deal was
completed on 18 April 2012.
To maximise value we are phasing plot availability and putting
in the necessary infrastructure, such as road networks, wherever
appropriate.
We will adopt similar strategies on other sites as required.
Business parks
We currently have 1m sq. ft. of built secondary industrial and
business premises on 10 active business parks, some of which are
former mine sites that provide low cost facilities and
opportunities to various businesses. We also have 120 acres of
expansion land and a further 320 acres of land with planning
consent, or an employment allocation, for commercial space. This
gives us the potential to create 4.5 million sq. ft. of new build
accommodation.
We are actively marketing these sites for further development
either in-house as pre-let opportunities or with development
partners to assist us in planning, promotion and realisation. One
such scheme is our Cutacre site, near Bolton, which is viewed as a
major regional distribution site for the North West.
Our active and proposed business parks are valuable assets with
the potential to grow the current rental income significantly and
increase capital value, or realise capital receipts.
Natural resources
Our large and diverse portfolio provides opportunities for our
land that is outside typical development areas. Our focus on these
sites is to maximise the opportunities for low carbon energy
generation and environmental operations.
In 2011:
-- A deal on Bilsthorpe, Nottinghamshire was completed to enable
the construction of a 10MW wind farm, led by Peel Energy and John
Laing Infrastructure
-- An Option with EDF for a wind farm at Hilltop, County Durham
(6MW) was signed and terms with another wind farm developer on our
Bewick Drift, Northumberland (6MW) scheme were agreed
-- GBP2m of secondary aggregates, coal fines and scrap metals
were recovered from former mining sites as part of our restoration
and remediation programme
-- A Waste to Energy partnership agreement was signed with Peel
Environmental at 11 sites to enable the appraisal and development
of various opportunities
-- A Memorandum of Understanding was signed with Linc Energy to
explore the prospects of underground coal gasification at three of
our sites.
Many of our brownfield sites provide significant power supplies,
rail connectivity, minimal proximity to neighbours, links to
emerging government regeneration policies or general opportunities
for recycling redundant material following the closure of a mine or
previous site activity.
We have a sustainable programme that promotes new opportunities
and provides benefits to the Group in the short, medium and long
term. We are currently looking at 60 potential schemes (covering
over 11,000 acres) with proposals for mineral recovery, renewable
energy, waste recycling, coal bed methane, gas storage and land
reclamation projects.
Harworth Power
Harworth Power is the UK's leading coal mine methane power
generator and operates a high quality clean energy portfolio with
access to long term gas reserves.
In 2011, Harworth Power made an operating profit of GBP2.4m
(2010: GBP2.5m). Income increased by GBP1.7m but profitability
remained flat due to a GBP1m credit in 2010 for sale of Carbon
Credits and GBP0.2m profit on sale of assets.
It operates fourteen gas engines, with an installed capacity of
26MW, and generates enough energy from methane captured from four
of UK Coal's deep mine sites to supply 30,000 homes with
electricity.
We consider that there is value in this operating business as a
standalone entity separate from UK Coal whilst retaining both a
rental income stream and the opportunity to sell the methane gas
generated from our mines. We have started a process to explore the
potential sale of this business. We will update further on this
should the process progress towards a definitive transaction.
Agriculture
Whilst 2011 saw the disposal of many agricultural sites, we
still have a substantial portfolio that is either suitable for long
term development including surface mining, adjacent to former
mining activity or adjacent to potential development sites.
Our strategy is to sell agricultural land where there is no long
term development potential or identify suitable development
proposals where we can realise value but retain working rights
agreements or clawback arrangements.
Sustainable Property Business
In the long term the aim is to become a leading regeneration
specialist and create a sustainable property company with a large
and varied land bank which generates significant future growth
opportunities. We now have a strong track record in turning
brownfield sites into economic opportunities.
FINANCIAL REVIEW
Group revenues have risen in the year to GBP488.2 million from
GBP351.2 million in 2010. This was achieved through higher sales
volumes and higher realised sales prices. The increase in sales
volumes arose from improved production from surface mines and a
stock lift from the abnormally high opening stock levels following
the bad weather in December 2010. The improvement in the average
realised sales price was achieved through a strong market price for
coal and the replacement of old, below market price, contracts with
some newer contracts at current market prices. At the end of 2011,
only 0.5 million tonnes of these old contracts remained to be
delivered predominantly in 2012 at a price of circa GBP1.65/GJ.
With these changes, we achieved an average sales price per
gigajoule of GBP2.48/GJ compared to the GBP1.97/GJ in 2010.
Property disposals were made during the year with a net value of
GBP67.0 million resulting in a profit on disposals of GBP2.7
million. Net proceeds of GBP64.5 million were received in the year,
being used to reduce Group debt, with the balance receivable in
2012.. The year end revaluation of the investment property
portfolio produced an upward valuation of GBP3.3 million (2010:
loss GBP34.2 million).
There was an improvement in the year in the operating profit
before non-trading exceptional items, which at GBP65.2 million was
GBP139.5 million better than the previous year's loss of GBP74.3
million. This was driven by the significant improvement in group
revenues noted above and a GBP3.3 million gain on investment
properties compared to a GBP34.2 million loss in 2010.
There have been non-trading exceptional items during the year
resulting in an exceptional income of GBP16.1 million in the period
(2010: GBP13.1 million charge). The charges/credits in the current
year included:
-- Pension scheme past service cost
A past service gain of GBP16.4 million arose from the benefit
changes made to the industry wide pension schemes and concessionary
fuel scheme at the end of 2011 and their impact on assumptions as
to future salary growth
-- Refinancing costs
Costs of GBP1.7 million were incurred in relation to
professional fees relating to the refinancing exercise conducted in
the first half of the year
-- Pension scheme curtailment
There was a curtailment gain of GBP1.4 million in the first half
of the year reflecting the reduction in the pension scheme deficit
as relevant members ceased to be active members following current
and prior year redundancies, mainly as a result of the closure of
Welbeck in 2010.
The operating profit after these non-trading exceptional items
for 2011 was GBP81.3 million compared with a loss of GBP87.4
million in 2010. Group profit before tax was GBP58.0 million
compared to a loss before tax of GBP124.6m in 2010.
Financing expenses
Net finance expenses in the year were GBP22.9 million compared
to GBP27.4 million in 2010 (excluding exceptional finance costs,
which were GBPnil in 2011 (2010: GBP9.9 million)). The reduction
arose from a net repayment of loans during the year of GBP84.3
million (2010: net increase in loans GBP12.3 million) leading to a
reduction in bank interest in the year to GBP9.2 million (2010:
GBP11.6 million), and the fair value of interest rate swaps, which
provided a credit of GBP0.1 million compared to a charge of GBP1.5
million. These reductions were offset by an increase in the
interest charge on generator loans and prepayments to GBP9.2
million (2010: GBP8.6 million) which arose on a higher average
generator loan balance as the loans reached the maximum drawn value
and entered repayment phases during the year.
The Group had cash deposits held by our captive insurance
company against insurance claims and, similarly, ring-fenced funds
held on behalf of the Coal Authority securing surface damage claims
resulting from mining. These totalled GBP14.7 million and GBP8.9
million respectively at December 2011 (2010: GBP15.7 million and
GBP8.8 million). In addition to the ring-fenced funds held on
behalf of the Coal Authority, a GBP10.0 million insurance bond is
held by the Coal Authority as further security against any possible
surface damage claims. This bond matures in December 2012. These
deposits were secured against liabilities as at December 2011 of
GBP8.5 million and GBP16.5 million respectively (2010: GBP13.0
million and GBP15.4 million respectively).
Tax
The Group paid no corporation tax in 2011 (2010: GBPnil),
although there was a tax charge for the year of GBP2.7 million
(2010: GBP0.5 million) which related to deferred tax as outlined
below.
At December 2011, the Group had estimated gross trading losses
of GBP230 million (2010: GBP312 million) and gross timing
differences of GBP230 million, the latter arising largely from
unclaimed or disclaimed capital allowances (2010: GBP195 million),
both of which are available to offset against future profits in the
mining business. The trading losses had a tax value of GBP57.7
million at a tax rate of 25% (2010: GBP84.2 million at 27%), while
the gross timing differences had a tax value of GBP57.7 million at
a 25% tax rate (2010: GBP52.7 million at 27%). Capital allowances
have been disclaimed where possible to allow flexibility for the
future. The reduction in gross trading losses in the year reflects
both the operating performance and the result of disclaiming
capital allowances.
The net deficit on the balance sheet in respect of retirement
provisions represents an additional tax timing difference of
GBP36.2 million at a tax rate of 25% (2010: GBP46.3 million at
27%).
The Group recognised a deferred tax asset of GBP31.5 million at
December 2011 (2010: GBP34.5 million). The Group continues to
review its deferred tax asset, given the nature of the business and
its historic performance. The deferred tax charge in the year arose
due to the change in the rate at which deferred tax is provided
from 27% at the end of 2010 to 25% in line with the forthcoming
confirmed reduction in the rate of corporation tax, and adjustments
in relation to prior year's deferred tax balances. The impact of
the rate change on the opening deferred tax asset was a charge of
GBP2.4 million (2010: GBP0.9 million) in the income statement and a
charge of GBPnil (2010: GBP0.3 million) direct to reserves. The
adjustment on prior year deferred tax balances was GBP0.3 million.
The charges were offset by a credit of GBP0.1 million (2010: GBP1.4
million) for deferred tax on the amortisation (out of the hedging
reserve) of previously effective hedge accounting movements. All
previously effective hedge accounting movements have now been
recycled out of reserves.
The Group has around GBP350 million of capital losses which can
be offset against profits arising on disposals of properties which
were held by the Group in 2002. These capital losses are sufficient
to offset the vast majority of the deferred tax liability which
would otherwise be required in respect of the investment properties
leaving a small deferred tax liability which has been recognised in
the financial statements of GBP1.2 million (2010: GBP1.3
million).
Earnings per share
The earnings per share for the period was 18.5 pence (2010: loss
41.8 pence).
Funding
Generator Loans/ Prepayments
The Group is party to certain contracts for coal supply which
resulted in increased cash flows to the business in 2009, 2010 and
2011 compared to the original contracts in place. The increased
cashflows have been treated in the financial statements, together
with actual customer loans, as generator loans and prepayments.
During the year, these arrangements have moved from the drawdown
phase into the repayment phase, and a net GBP17.1m was repaid in
2011 (2010 GBP25.8 million drawdown). The balance outstanding at
the year end, including accrued interest, was GBP84.1 million
(2010: GBP101.2 million).
The impact on our cashflows due to net repayment commitments for
these generator loans and repayments is as follows:
GBPmillion 2012 2013 2014 2015
------------------ ----- ----- ----- -----
Net cash outflow (49) (21) (17) (10)
Bank facilities
At the year end, the Group had around GBP97 million of bank
facilities and a further GBP10.0 million outstanding under finance
leases.
Excluding the impact of future property disposals, the weighted
average maturity of the facilities, as at December 2011 was 0.9
years (2010: 1.4 years).
Since the year end, we have renewed and extended our banking
facilities, with the following principal changes:
-- Extensions to the maturity of the Revolving Credit Facility
("RCF"), the Additional Revolving Facilities ("ARF"), the Harworth
Estate (Waverley Prince) Limited facility and the EOS Inc. Ltd
facility to the end of December 2013 have all been agreed
-- The financial profile of the ARF were modified so that the
amount available to be drawn, which was initially increased to
GBP27.5m, reduces by GBP7.5m on 30 September 2012 with the balance
amortising to GBPnil over the period June 2013 to November 2013.
The facility reduces from GBP20m to GBP12.5m for a short period at
the end of 2012, before reverting to GBP20m, matching the profile
of the Group's borrowing requirements.
Over and above these extended bank facilities, we have extended
the term of the GBP10m of unsecured stand-by facility from Peel
Holdings.This is available for drawing in the event that both the
RCF, and part of the ARF, are drawn.
This facility has also been extended, amortising gradually from
August 2013 to mature in November 2013.
Following the changes, a summary of our principal bank
facilities at April 2012 is shown below:-
Facility Margin
GBP million over LIBOR
---------------------- --------------- -----------------
RCF 22(1,2) 300 - 400 bps(4)
Additional revolving Up to 28(3) 1,600 bps
facilities
HEWPL facility 27(1) 450 bps
EOS facility 20 300 - 400 bps
Total Up to 97
---------------------- --------------- -----------------
Notes
(1) Facility reduces GBP for GBP as proceeds from property sales
are applied
(2) Reduces by GBP2 million over October and November 2012
(3) Facility reduces by GBP7.5m on 30 September 2012 and
amortises to nil over the period June 2013 to November 2013, with a
short period of reduction to GBP12.5m at the end of 2012.
(4) Margin dependent on level of committed facility
The above table excludes fully drawn finance leases and other
small bank loans which totalled some GBP10 million at December
2011, and the Peel Holdings loan facility noted above.
The facilities at April 2012 reflect reductions resulting from
property disposal receipts since the year ended December 2011.
These totalled GBP3m in Q1.Net bank debt was GBP75m at the end of
March 2012, including GBP9m of finance leases. Total net debt,
including generator loans/prepayments but excluding restricted
funds, at the end of March 2012 was GBP154m.
Movement in group net debt
A summary of movements in our group net debt position is set out
below.
2011 2010
GBP million GBP million
Operating profit/(loss) before non-trading exceptionals 65.2 (74.3)
Revaluation of property (3.3) 34.2
(Profit)/loss on sale of fixed assets and investment
properties (3.3) 0.3
Depreciation/diminution 40.5 35.2
Cash impact of non- trading exceptionals (0.3) (13.1)
Non- cash movement in mining provisions 4.4 5.2
Net working capital movements 14.5 (1.1)
Finance costs/interest payments (including loan
arrangement fees) (21.2) (12.2)
Other movements 1.3 2.3
--------------------------------------------------------- ------------ ------------
97.8 (23.5)
Deep mines
Capital expenditure - cash (31.8) (26.8)
Capital expenditure - new finance leases - (1.7)
Payments against provisions (10.8) (13.1)
Fixed asset disposal proceeds 1.3 0.3
--------------------------------------------------------- ------------ ------------
(41.3) (41.3)
Surface mines
Amortisation of restoration assets 17.1 14.0
Pre-coaling expenditure (2.6) (5.4)
Deferred stripping adjustment (0.9) (3.0)
Restoration expenditure (16.9) (11.6)
--------------------------------------------------------- ------------ ------------
(3.3) (6.0)
Harworth Estates
Net proceeds of sales of investment properties 64.3 22.7
Planning and development expenditure (4.8) (2.1)
--------------------------------------------------------- ------------ ------------
59.5 20.6
Pension contributions in excess of current service
cost (10.0) (5.8)
Net movement in restricted funds 0.9 3.3
Generator loans (17.1) 25.8
86.5 (26.9)
--------------------------------------------------------- ------------ ------------
The total decrease in net debt in the year was GBP86.5 million
(2010: increase of GBP26.9 million).
The Group has continued to invest significantly in the business
in the year. A total of GBP31.8 million was invested in the mining
business on fixed assets, with some GBP28 million incurred on face
equipment and additional coal processing capacity at Daw Mill and
Thoresby, all of which was paid during the year. There were no new
finance leases taken out in the year. Capital investment in the
year was lower than the GBP44.7 million in 2010 which included the
final elements of the significant investments in the new seams at
Kellingley and Thoresby which were completed in 2010.
A further GBP2.6 million has been spent on pre-coaling expenses
in preparation for the opening up of the three new surface mines
opening in 2012 (2010: GBP5.4 million) and GBP4.8 million (2010:
GBP2.1 million) on costs associated with gaining and fulfilling
planning consents on investment properties.
Our ongoing project to dispose of surplus property assets has
realised GBP64.3 million of net sales proceeds from investment
properties (2010: GBP22.3 million), and a further GBP0.2 million
from the sale of operating properties (2010: GBP0.4 million). These
proceeds have been applied against bank borrowings in the year. The
cash generated in the business has been used in part to repay
GBP17.1 million of Generator loans, compared to the drawdown of
these facilities of GBP25.8 million in 2010.
Balance sheet
The net assets of the Group at December 2011 were GBP146.0
million compared to GBP81.4 million in 2010. The increase in net
assets is due principally to the trading profit for the year of
GBP55.2 million (2010: GBP125.1 million loss) and a decrease in the
deficit on retirement obligations of GBP26.9 million.
Provisions
2011 2010
GBP million GBP million
------- ------------------------------------------ ------------ ------------
(i) Employer and public liabilities 8.5 13.0
Surface damage 16.5 15.4
-------------------------------------------------- ------------ ------------
Restoration and closure costs of surface
(ii) mines 41.2 51.6
------- ------------------------------------------ ------------ ------------
(iii) Restoration and closure costs of deep
mines
- shaft treatment and pit top 9.6 9.9
- spoil heaps 2.5 2.9
- pumping costs - 2.8
Ground/groundwater contamination 10.1 6.3
-------------------------------------------------- ------------ ------------
(iv) Redundancy 0.4 3.2
------- ------------------------------------------ ------------ ------------
88.8 105.1
-------------------------------------------------- ------------ ------------
(i) Employer and public liabilities and surface damage
provisions
Provisions are made for current and estimated obligations in
respect of claims made by employees and contractors relating to
accident or disease as a result of the business activities of the
Group. This is managed by our captive insurance company, Harworth
Insurance Company Limited, a UK based FSA registered company. As at
December 2011, it held GBP14.7 million of cash deposits and GBP6.4
million of property assets to meet GBP8.5 million of
liabilities.
Surface damage provision relates to the Group's liability to
compensate for subsidence damage arising essentially from past deep
mining operations. Claims can be lodged by the public up to six
years after the date of relevant damage. The estimate is based on
historical claims experience, following a detailed assessment of
the nature of damage foreseen. The increase in the surface damage
provisions is in line with the mining pattern at Daw Mill and
Kellingley. As at December 2011, the Group had GBP8.9 million of
ring-fenced deposits and an insurance bond, maturing in December
2012, for a further GBP10.0 million to provide security to meet
GBP16.5 million of liabilities.
(ii) Surface mines
Pre-coaling costs in respect of surface mine activities are
broadly the costs incurred in preparing the site for mining and
related costs in respect of planning gain. These are treated as
deferred costs on the balance sheet. During the course of the
mining process these costs are written off over the expected
production tonnage of the mine.
Restoration and rehabilitation provisions represent the expected
cost of the reinstatement of soil and overburden, discounted for
the time value of money.
This provision, together with an equal and opposite non-current
asset, is created when coaling commences. Along with other
pre-coaling expenses, this asset is written off in proportion to
the expected recoverable reserves of the mine.
Expenditures for restoration and rehabilitation are offset
against the provisions as incurred. The unwinding of the discount
for the time value of money is included within the finance
cost.
As at December 2011, the Group had a non-current asset of
GBP25.7 million (2010: GBP35.7 million), relating to expenditure on
pre-coaling and similar expenses, deferred stripping costs and the
recognition of restoration and rehabilitation liabilities on sites
that had started coaling. At the same date, provisions for
restoration and rehabilitation totalled GBP41.2 million (2010:
GBP51.6 million) after expenditure of GBP16.9 million in the
year.
(iii) Deep mines
We maintain provisions in respect of the costs of restoring our
deep mines to the required standard and planning conditions. The
amount provided represents the discounted net present value of the
expected costs. Costs are charged to the provision as incurred and
the unwinding of discount is included within the finance costs for
the year. The provision can be broken down into operating and
closed mines.
GBP million
----------------- ------------
Operating mines 10.5
Closed mines 11.7
----------------- ------------
22.2
----------------- ------------
47% of the deep mines provision relates to the three mines
classified as 'operating' which will be utilised after the point of
closure. We expect that we may utilise GBP0.2 million of the closed
mine provision in 2012 and GBP2.2 million in 2013, representing
predominantly the costs in respect of the former Welbeck and
Rossington collieries. The remaining balance of GBP9.3 million will
be utilised beyond 2013.
(iv) Redundancy provisions
Redundancy provisions are created when the decision to make the
redundancies has been made and communicated, usually through the
representatives of the workforce.
Retirement benefit obligations
The Group has a deficit, calculated under International
Accounting Standards, on its defined benefit pension and retirement
schemes of GBP144.7 million (2010: GBP171.6 million). All new
employees who joined after the privatisation in 1994 are eligible
to join defined contribution schemes.
The defined benefit pension and retirement schemes comprise two
funded industry wide schemes, together with an unfunded
concessionary fuel scheme. The deficit noted above includes a
liability of GBP43.7 million (2010: GBP36.5 million) in relation to
the unfunded concessionary fuel scheme. All of these schemes are
valued annually by our independent actuaries, the Government
Actuary's Department.
The schemes have been for these financial statements valued
under International Accounting Standard 19 (IAS 19), using the
projected unit method and discounting future scheme liabilities on
the basis of AA-rated corporate bond yields of over 15 years. The
discount rate used, net of inflation, was 2.0% (2010: 2.1%).
Changes to the status of the defined benefit schemes and the
concessionary fuel scheme were agreed and implemented during the
year, resulting in a credit of GBP16.4 million to the income
statement in recognition of the effect of these changes on past
service costs.
Movements in the net liabilities of the schemes in 2011 are set
out below.
Concessionary
Pension* fuel Total
GBP million GBP million GBP million
-------------------------------------- ------------ -------------- ------------
December 2010 135.1 36.5 171.6
Contributions paid less current
service cost (10.0) (0.7) (10.7)
Change in fund value compared
to expected return 20.1 2.0 22.1
Actuarial (gain)/loss on liabilities (28.0) 7.5 (20.5)
Gains on curtailment (1.4) - (1.4)
Past service cost (14.8) (1.6) (16.4)
-------------------------------------- ------------ -------------- ------------
December 2011 101.0 43.7 144.7
-------------------------------------- ------------ -------------- ------------
*Including Blenkinsopp scheme
There was a significant decrease in the deficit on the pension
schemes of GBP34.1 million. The main movements were:
-- The benefit changes agreed with stakeholders at the end of
2011 affected past service benefits with a resulting credit of
GBP14.8 million. The change with the largest impact on the
liabilities was the introduction of a cap, restricting the benefit
of future salary increases to inflation.
-- An actuarial gain on the funds' liabilities of GBP28.0
million arising from the change in actuarial assumptions.
Principally, this was due to a reduction in the assumed rate of
growth of CPI relative to growth in RPI, but also included an
experience gain of GBP5.5 million as salary growth was lower than
expected.
-- A loss in the year of GBP20.1 million due to returns in the
year on the funds' assets being lower than expected.
-- Contributions, above the current service cost, of GBP10.0
million. In total, the Group paid GBP22.5 million to the schemes in
2011, covering both current service and deficit contributions.
Further deficit contributions of around GBP20 million are expected
to be made in 2012 of which c.GBP15 million will be treated as
deficit payments under IAS 19 with the balance expressed as finance
costs.
GBP10.8 million of the movement in the deficit on the pension
schemes has been credited to the Consolidated Statement of
Comprehensive Income ("SOCI") in the year.
There has been an increase in the liability for the unfunded
concessionary fuel scheme of GBP7.2 million, relating mainly to the
increase in the cost of the fuel benefit, which averaged around 20%
over the year. The interest cost on the liability exceeded the
contributions in the year and there was an actuarial loss of
GBP7.5m on the liability. These impacts were partly offset by a
gain of GBP1.6 million arising from benefit changes agreed at the
end of 2011, which reduced the benefits accruing in the future by
10%. The increase in the cost of fuel benefits is reflected in the
changes to the actuarial assumptions and has been charged to the
SOCI.
Details relating to retirement benefit obligations are shown in
note 25 to the financial statements in the Annual Report.
Pension schemes' funding levels
Contributions to the schemes are determined by the schemes'
actuary on the basis of triennial valuations. The last agreed
triennial valuations, which were finalised during 2011, were as of
31 December 2009. The Trustees of the schemes estimated that the
combined deficit of the industry wide schemes as at the end of
December 2009, but adjusted for the rule changes agreed in 2011,
was around GBP250 million, using assumptions which differ from
those that we are required to use under IAS 19.
On the same set of assumptions used by the Trustees, but updated
for changes in market rates, the Company has estimated that the
deficit, calculated on this basis, had increased to GBP430 million
at December 2011, with liabilities of around GBP875 million of
which just under half were in respect of active members. The next
valuation date of the schemes for funding purposes will be 31
December 2012. If the assumptions used by the Trustees result in a
significantly increased deficit compared to the 2009 valuation,
then it is likely that negotiations would result in significantly
increased deficit funding levels compared to the currently agreed
GBP20m per annum level.
This information is provided by RNS
The company news service from the London Stock Exchange
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