Annual Financial Report - par

RNS Number : 1765R

UK Coal PLC

27 April 2009

 



CONSOLIDATED INCOME STATEMENT
for the year ended 27 December 2008
					Year ended  27 December 2008		Year ended 29 December 2007
		Notes			£000		£000
Revenue		2			392,541		328,485
Cost of sales					(389,699)		(319,218)
Gross profit					2,842		9,267
Net appreciation in fair value of investment properties					23		66,799
Profit on disposal of investment properties					3,661		3,688
Gains on investment properties					3,684		70,487
Profit on sale of business		30			-		8,481
Other operating income and expenses		4			(8,774)		(5,579)
Operating (loss)/profit		2			(2,248)		82,656
Finance costs		6			(17,817)		(17,121)
Finance income		6			2,919		2,951
Finance costs - net		6			(14,898)		(14,170)
Share of post-tax profit from joint venture		14			1,503		537
(Loss)/profit before tax		3			(15,643)		69,023
Tax (charge)/credit		8			(100)		25,000
(Loss)/profit for the financial year					(15,743)		94,023
Attributable to:
Equity holders of the Company					(15,743)		94,023
(Loss)/earnings per share					pence		pence
Basic and diluted		11			(10.0)		59.9
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
for the year ended 27 December 2008
				Group	Group	Company	Company
				Year ended  27 December 2008	Year ended  29 December 2007	Year ended  27 December 2008	Year ended 29 December 2007
		Notes		£000	£000	£000	£000
Actuarial (loss)/gain on defined benefit pension schemes		24		(33,900)	35,733	-	-
Actuarial gain on Blenkinsopp pension scheme		24		262	464	-	-
Actuarial (loss)/gain on concessionary fuel reserve		24		(4,911)	1,280	-	-
Movement on deferred tax asset relating to retirement benefit liabilities		8		(2,257)	(22,012)	-	-
Movement on deferred tax asset relating to cash flow hedges		8		2,378	-	-	-
Impact of change in UK tax rate on deferred tax		8		-	(2,383)	-	-
Revaluation of property transferred from operating to investment properties		13		3,170	6,733	-	-
Cashflow hedges				(7,354)	-	-	-
Net (loss)/gain recognised directly in equity				(42,612)	19,815	-	-
(Loss)/profit for the financial year				(15,743)	94,023	(168,440)	(1,867)
Total recognised (expense)/income for the year				(58,355)	113,838	(168,440)	(1,867)
Attributable to:
Equity holders of the Company				(58,355)	113,838	(168,440)	(1,867)
BALANCE SHEETS
at 27 December 2008
				Group	Group	Company	Company
				As at 27 December 2008	As at 29 December 2007	As at 27 December 2008	As at 29 December 2007
	Notes			£000	£000	£000	£000
ASSETS
Non-current assets
Operating property, plant and equipment	12			181,801	199,551	-	-
Surface mine development and restoration assets	12			28,479	20,111	-	-
				210,280	219,662	-	-
Investment properties	13			404,658	384,291	-	-
Investments in subsidiaries	14			-	-	300,310	473,224
Investment in joint ventures	14			2,778	342	-	-
Deferred tax asset	8			36,121	36,000	-	-
Trade and other receivables	15			1,527	1,613	-	-
				655,364	641,908	300,310	473,224
Current assets
Inventories	16			46,752	39,756	-	-
Trade and other receivables	17			39,991	29,953	155,463	166,101
Derivative financial instruments	22			-	424	-	424
Cash and cash equivalents	18			71,102	70,068	40,682	20,063
				157,845	140,201	196,145	186,588
LIABILITIES
Current liabilities
Borrowings	19			(7,306)	(27,320)	-	-
Trade and other payables	20			(104,052)	(100,213)	(224,308)	(217,618)
Provisions	21			(35,206)	(31,061)	-	-
				(146,564)	(158,594)	(224,308)	(217,618)
Net current assets/(liabilities)				11,281	(18,393)	(28,163)	(31,030)
Non-current liabilities
Borrowings	19			(172,057)	(97,921)	-	-
Derivative financial instruments	22			(8,493)	(2,148)	-	(2,148)
Trade and other payables	20			(139)	(73)	-	-
Deferred tax liabilities	8			(815)	(815)	-	-
Provisions	21			(80,693)	(91,141)	-	-
Retirement benefit obligations	24			(104,016)	(73,171)	-	-
				(366,213)	(265,269)	-	(2,148)
Net assets				300,432	358,246	272,147	440,046
Shareholders' equity
Capital and reserves
Called up share capital	25			1,572	1,571	1,572	1,571
Share premium	26			30,756	30,756	30,756	30,756
Revaluation reserve	27			130,339	143,014	-	-
Capital redemption reserve	27			257	257	257	257
Fair value reserve	27			175,904	177,851	-	-
Hedging reserve	27			(4,976)	-	-	-
Retained (loss)/earnings	26			(33,420)	4,797	239,562	407,462
Total shareholders' equity				300,432	358,246	272,147	440,046
The financial statements were approved by the Board of Directors
on 27 April 2009 and were signed on its behalf by:
J S Lloyd	D G Brocksom
Chief Executive	Finance Director
CASH FLOW STATEMENTS
for the year ended 27 December 2008
			Notes	Group	Group	Company	Company
				Year ended  27 December 2008	Year ended  29 December 2007	Year ended  27 December 2008	Year ended 29 December 2007
				£000	£000	£000	£000
Cash flows from operating activities
(Loss)/profit for the financial year			2	(15,743)	94,023	(168,440)	(1,867)
Depreciation of property, plant and equipment			12	37,913	38,500	-	-
Amortisation of surface mine development and restoration assets			12	12,583	8,723	-	-
Net fair value appreciation in investment properties			13	(23)	(66,799)	-	-
Net interest payable/(receivable) and unwinding of discount on provisions			6	14,898	14,170	(1,886)	4,695
Net charge for share-based remuneration				540	284	540	284
Share of post-tax profit from joint ventures				(1,503)	(537)	-	-
Profit on sale of business			30	-	(8,481)	-	-
Profit on disposal of investment properties				(3,661)	(3,688)	-	-
Profit on disposal of operating property, plant and equipment				(82)	(1,598)	-	-
Capitalised surface mine restoration assets				(11,077)	(14,490)	-	-
Decrease in provisions				(18,265)	(38,818)	-	-
Tax charge/(credit)			8	100	(25,000)	-	-
Provision for impairment of investments			14	-	-	172,914	-
Increase in stocks				(6,996)	(3,116)	-	-
(Increase)/decrease in receivables				(9,952)	17,253	10,638	1,490
Increase/(decrease) in payables				3,805	(4,304)	6,690	30,084
Cash generated from operations				2,537	6,122	20,456	34,686
Loan arrangement fees paid				(1,231)	(1,610)	-	(601)
Interest paid				(12,518)	(11,578)	-	(4,669)
Cash (used in)/generated from operating activities				(11,212)	(7,066)	20,456	29,416
Cash flows from investing activities
Interest received				2,919	2,951	162	575
Net receipt from/(payment to) insurance and subsidence security funds				20,329	(6,794)	-	-
Net proceeds from sale of business			30	-	21,500	-	-
Proceeds on disposal of investment properties				6,032	13,335	-	-
Proceeds on disposal of operating property, plant and equipment				217	787	-	-
Net (investment in)/receipts from joint ventures				(933)	400	-	-
Development costs of investment properties				(14,090)	(7,547)	-	-
Pre-coaling expenditure for surface mines and deferred stripping costs				(9,874)	(4,650)	-	-
Purchase of operating property, plant and equipment				(25,753)	(23,046)	-	-
Cash (used in)/generated from investing activities				(21,153)	(3,064)	162	575
Cash flows from financing activities
Proceeds from issue of ordinary shares				1	-	1	-
Net drawdown of bank loans				59,494	27,223	-	(12,476)
Net (repayments of)/proceeds from obligations under hire purchase and finance leases				(5,767)	253	-	-
Cash generated from/(used in) financing activities				53,728	27,476	1	(12,476)
Increase in cash				21,363	17,346	20,619	17,515
At January
Cash				20,973	3,627	20,063	2,548
Cash equivalents				49,095	42,301	-	-
				70,068	45,928	20,063	2,548
(Decrease)/increase in cash equivalents (net receipt from insurance and subsidence security funds)				(20,329)	6,794	-	-
Increase in cash				21,363	17,346	20,619	17,515
				71,102	70,068	40,682	20,063
At December
Cash				42,336	20,973	40,682	20,063
Cash equivalents				28,766	49,095	-	-
Cash and cash equivalents			18	71,102	70,068	40,682	20,063
NOTES TO THE FINANCIAL STATEMENTS
1 ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
Basis of preparation
These consolidated financial statements have been prepared in accordance with European Union ('EU') Endorsed International Financial Reporting Standards ('IFRSs'), IFRIC interpretations and those parts of the Companies Act 1985 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of investment properties taken through the income statement. IFRSs also require an alternative treatment to the historic cost convention in certain circumstances (principally in the areas of retirement benefit obligations, share based payments and financial instruments).
Trading accounts within the Group are made up to an appropriate week end date around 31 December each year. For 2008, trading is shown for the year ended on 27 December 2008 (2007: year ended 29 December 2007).
The Group has adopted the amendment to IAS 39 'Financial instruments: recognition and measurement' and IFRS 7 'Financial instruments: disclosures' in 2008 with no material impact on either the current or prior periods.
In preparing the 2008 financial statements, the following pronouncements which are not yet effective have not been adopted early by the Group or Company.
IFRS 8 'Operating segments'. The new standard requires a 'management approach', under which segment information is presented on the same basis as that used for internal reporting purposes. The Group will apply IFRS 8 from 1 January 2009. The expected impact is still being assessed in detail by management, but it appears likely that the number of reportable segments, as well as the manner in which the segments are reported, will not change materially from our current internal reporting provided to the chief operating decision-maker.
IAS 23 (Amendment) 'Borrowing costs'. The standard is effective from 1 January 2009 and the amendment to the standard is still subject to endorsement by the EU. It requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset. The Group will apply IAS 23 (Amended) from 1 January 2009, subject to endorsement by the EU. The effect on the 2008 accounts would not be material.
Going concern
The accounts are prepared on the basis that the Group is a going concern. In forming its opinion as to going concern, the Board prepares a working capital forecast based upon its assumptions as to trading as well as taking into account the available borrowing facilities in line with the Treasury Policy above. The Board also prepares a number of alternative scenarios modelling the business variables and key risks and uncertainties, both as summarised in the Operating and Financial Review. The key factors that have been considered in this regard are:
the deep mines operate with a cost base which is largely fixed relative to current production levels. Consequently, unexpectedly large interruptions or prolonged reductions to production can have a material adverse impact on cash flow.
although the vast majority of coal production for 2009 is on fixed or capped/floor pricing bases, revenues in respect of certain floating rate contracts and uncontracted coal will vary based upon the market price for coal, which is expressed in dollars, and sterling/dollar exchange rates. These variables have, over the last year, proved to be very volatile and therefore there is an increased risk of unpredictability in coal revenues and cash flows.
the new contractual arrangements with its customers entered into since the year end and noted in the Operating and Financial Review. These arrangements provide increased funding to the Group either in the form of prepayments or loans and are noted in the Operating and Financial Review. Certain of these arrangements contain pre-conditions as to the availability and timing of this increased funding including the obligation to make certain investments in the mines. The Board has taken the likelihood of these conditions being met into account in assessing the likely availability and timing of funding. If these conditions were not met this could have a material adverse effect on the availability or timing of additional funding.
given recent general banking market difficulties the Board has to take account of the ability of the Group to access new or extended banking facilities. Certain facilities of £50 million and £52 million expire in May 2010 and September 2010 respectively. The Group is already actively engaged in seeking to replace and extend these facilities. Meetings have taken place with a number of banks and leasing institutions in respect of both these facilities and new finance lease arrangements and the Board is very encouraged by these discussions.
existing bank funding arrangements containing, in certain cases, covenants based upon loan to property value and net asset covenants. Given the current volatility of the general property market the market deterioration could outpace any planning gains, possibly resulting in a fall in property and net asset values. Similarly net asset values would be affected by adverse changes in profit expectations. In the event that this happens, the Group could breach these covenants which could result in the need to pay down in part some of these loans or a renegotiation of terms or, in extremis, a reduction or withdrawal of facilities by the banks concerned.
Whilst the Board notes that the matters set out above indicate the existence of material uncertainties which may cast significant doubt over the Group's ability to continue as a going concern it has concluded that the Group has adequate working capital and therefore confirms its belief that it is appropriate to use the going concern basis of preparation for the financial statements of the Group or the parent company. The financial statements do not include the adjustments that would result if the Group or the parent company were unable to continue as a going concern.
Consolidation
The consolidated financial information incorporates the financial statements of UK COAL ('the Company') and its subsidiaries, together 'the Group'.
Subsidiaries are entities over which the Group has power to govern the financial and operating policies. Control is presumed to exist where the Group owns more than half of the voting rights, unless in exceptional circumstances where it can be demonstrated that ownership does not constitute control. The consolidated financial statements includes all the assets, liabilities, revenues, expenses and cash flows of the parent and its subsidiaries, after eliminating intercompany balances and transactions. The results of subsidiaries sold or acquired are included in the consolidated income statement up to, or from, the date control passes.
The Group uses the purchase method of accounting to consolidate subsidiaries. On acquisition, the identifiable assets, liabilities and contingent liabilities being acquired are measured at their fair values at the date of acquisition. Accounting policies are changed where necessary to bring them into line with those adopted by the Group.
Joint ventures are those entities over whose activities the Group has joint control established by contractual agreement. Interests in joint ventures through which the Group carries on its business are classified as jointly controlled entities and accounted for using the equity method. This involves recording the investment initially at cost to the Group, and then in subsequent periods, adjusting the carrying amount of the investment to reflect the Group's share of the joint venture's results less any impairment in carrying value and any other changes to the joint venture's net assets such as dividends.
Foreign currencies
The presentational currency of the Group is sterling. Transactions in other currencies are translated at the exchange rate ruling at the date of the transaction.
Monetary assets and liabilities are translated at year end exchange rates and the resulting exchange rate differences are included in the consolidated income statement within the results of operating activities if arising from trading activities and within finance cost/income if arising from financing.
All Group companies have a functional currency of sterling which is consistent with the presentational currency of the consolidated Group financial statements.
Segment reporting
A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns or whose operational characteristics are different to those of other business segments. A geographical segment is engaged in providing products and services within a particular economic environment that are subject to risks and returns which are different from those of segments operating in other economic environments.
The Group manages its business primarily by reference to business segments, and this approach is adopted in the accounting policies as the primary segment. Deep mining comprises the underground mining operations of the Group and related labour services and our captive insurance company. In addition from 2008, the methane generation operations which were formerly included within a separate Power division are now included within the deep mines segment. Surface mining incorporates all mining activities at surface level, together with the plant hire operations of the Group. The Property division, Harworth Estates, maintains, develops and rents the Group's property portfolio. Any activity not falling into any of these categories is included in the Other segment. As the Group is based and operates in a single geographical market, the United Kingdom, no secondary segmentation is provided.
Revenue
Revenue comprises sales (excluding intra group sales) of coal, property rental income and other external sales, including sales of power and of labour services.
Coal transactions
Revenue is recognised when delivery of the product or service has been made and when the customer has a legally binding obligation to settle under the terms of the contract and has assumed all significant risks and rewards of ownership.
A large proportion of production is sold under medium to long term contracts. Revenue is only recognised on individual sales when all of the significant risks and rewards of ownership have been transferred to a third party. In most instances this is when the product is despatched, being the point at which title to the product is transferred to the purchaser.
Service transactions
Rental income is recognised during the period in which rents due to the Group accrue. Sales of power are recognised when electricity is transferred into the local distribution network.
Exceptional items
Items that are both material and non recurring and whose significance is sufficient to warrant separate disclosure and identification within the consolidated financial statements are referred to as exceptional items and disclosed within their relevant income statement category within note 2, segmental reporting. Items that may give rise to classification as exceptional items include, but are not limited to, significant and material restructuring closures and reorganisation programmes, asset impairments, and profits or losses on the disposal of businesses.
Exceptional items are divided into non-trading and trading exceptional items, depending upon the impact of the event giving rise to the cost or income on the ongoing trading operations and the nature of the costs or income involved. Non-trading exceptional items include costs and income arising from closure, rationalisation and business disposals.
Property related transactions, including changes in the fair value of investment properties, and profits and losses arising on the disposal of property assets are not included in the definition of exceptional items as they are expected to recur, but are separately disclosed on the face of the consolidated income statement, where material.
Coal Investment Aid
Coal Investment Aid is received as a contribution towards qualifying expenditure, as defined by the Department for Energy and Climate Change ('DECC'), incurred by the Group. If the expenditure has been charged in the consolidated income statement then the related investment aid is credited to the consolidated income statement in the same period. Where the investment aid relates to the purchase of property, plant and equipment, the investment aid is held on the consolidated balance sheet as deferred income and is credited to the consolidated income statement over the lives of the assets to which it relates.
Profit or loss on disposal
Disposals are accounted for when legal completion of the sale has occurred or there has been an unconditional exchange of contracts. Profits or losses on disposal arise from deducting the asset's net carrying value from the net proceeds (being net purchase consideration less clawback liability arising on disposal) and is recognised in the consolidated income statement. Net carrying value includes valuation in the case of investment properties and historic cost or deemed cost less accumulated depreciation in the case of all other property, plant and equipment.
In the case of investment properties, the revaluation reserve, which arose on transfer from operating property to investment property, for the property disposed of is treated as realised on disposal of the property and transferred to retained earnings.
Investment properties and operating properties
The Group holds the following types of freehold property:
- Working deep mines in production
- Working surface mines in production
- Property held for administrative purposes
- Property held for rental income, capital appreciation or both
Working deep mines in production, working surface mines in production, and property held for administrative purposes are held as operating properties (as these assets are used or intended to be used within the operations of the Group) and are accounted for at historic depreciated cost, in accordance with IAS16 'Property, Plant and Equipment'.
All other freehold properties are held as investment properties (as these are held to earn rentals or for capital appreciation or both) and are accounted for at valuation and in accordance with IAS40 'Investment Property' or if appropriate, in inventories as assets held for disposal.
Investment properties
Investment properties comprise freehold land and buildings and are measured at fair value. The fair values are determined by obtaining an independent valuation prepared in accordance with the current edition of the Appraisal and Valuation Standards published by the Royal Institution of Chartered Surveyors. External, independent valuation firms having appropriate, recognised professional qualifications and recent experience in the location and category of property being valued, value the portfolio at each reporting date.
In accordance with IAS 40, for properties transferred from operating properties to investment properties, any difference between the book value and the first valuation on recognition as an investment property is taken to reserves. Subsequent gains or losses arising from changes in the fair values of assets are recognised in the consolidated income statement, net of any property clawback by DECC (see accounting policy on property clawback) on deemed disposal. Investment properties are not depreciated.
Properties being held for their long term rental income or capital appreciation but with the added potential for coal extraction are held as investment properties, being transferred to operating properties at fair value when planning permission to mine the site has been received and mining operations have commenced and are transferred back to investment properties once mining has terminated.
Where the development of an investment property commences with a view to sale, the property is transferred from investment properties to inventories at fair value, which is then considered to represent deemed cost.
Operating properties
Operating properties which are acquired or constructed are initially recorded at cost, being the purchase price of the asset and other costs incurred to bring the asset into existing use, and subsequently stated at historic cost less accumulated depreciation (other than freehold land which is not depreciated). Where properties are transferred from investment properties to operating properties, this transfer is made at fair value, which is then considered to represent deemed cost.
Properties which have historically been used as working deep mines or working surface mines (operating properties) are transferred to property held for rental income or capital appreciation (investment properties), when there is a change in use, at the point when a decision is made to pursue planning with a view to future development (rather than for short term sale) or rental, and once mining has ceased. IAS 16 is applied up to the date of transfer and any difference at that date between the book value and fair value is taken to the revaluation reserve.
Properties in the course of development
Directly attributable costs incurred in the course of developing a property are capitalised as part of the cost of the property. For operating properties amortisation of these costs follows the depreciation policy for the property. Development costs on investment properties are capitalised and the change in value is recognised through the next revaluation.
Exploration and evaluation
Exploration and evaluation expenditure comprises costs that are directly attributable to: - Researching and analysing existing exploration data; - Conducting geological studies, exploratory drilling and sampling; - Examining and testing extraction and treatment methods; and/or - Compiling prefeasibility and feasibility studies.
Exploration expenditure relates to the initial search for deposits with economic potential. Evaluation expenditure arises from a detailed assessment of deposits that have been identified as having economic potential.
Capitalisation of exploration and evaluation (pre-coaling) expenditure commences when there is a high degree of confidence in the project's viability and hence it is probable that future economic benefits will flow to the Group. Such capitalised exploration and evaluation expenditure is reviewed for impairment when facts and circumstances indicate that its carrying value exceeds its recoverable amount.
Subsequent recovery of the resulting carrying value depends on successful development of the area of interest or sale of the project. If a project does not prove viable, all irrecoverable costs associated with the project net of any related impairment provisions are written off.
Plant and equipment
The cost of plant and equipment comprises its purchase price and any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in accordance with agreed specifications. Plant and equipment is stated at historic cost less accumulated depreciation.
Once a mining project has been established as commercially viable, expenditure other than that on land, buildings, plant and equipment is capitalised under 'mine development assets' together with any amount transferred from 'exploration and evaluation'.
During the development of a mine, before production commences, development stripping costs are capitalised as part of the investment in construction of the mine (see accounting policy on mining assets).
Costs associated with commissioning new assets, in the period before they are capable of operating in the manner intended by management, are capitalised. Development costs incurred after the commencement of production are capitalised to the extent they are expected to give rise to a future economic benefit.
On conversion to IFRS, the Group opted to continue to measure operating property, plant and equipment (excluding investment properties) at historic cost, less accumulated depreciation, in the consolidated balance sheet.
Mining assets
Mine development
The purpose of mine development is to access and establish infrastructure in order to allow the safe and efficient extraction of recoverable reserves. Depreciation on mine development is charged from the time when full production commences or from when the assets are put to use. On commencement of full production, depreciation is charged over the estimated tonnage of the recoverable reserves. Coal extracted prior to the commencement of full production is credited against the cost of mine development where it can be clearly shown that the production of saleable material is directly attributable to bring the asset to the condition necessary for it to be capable of operating in the manner intended by management; otherwise such revenue (and the costs of producing the saleable material) is recognised in the income statement.
Mines and surface works
Assets acquired on the privatisation of British Coal in 1994 were valued at discounted net recoverable value, based on the contemporary mining plans, in accordance with the accounting guidance existing at that time. Depreciation is charged over the estimated tonnage of the recoverable reserves. Subsequent additions to mines and surface works are accounted for at cost, and depreciated over their individual estimated reserves.
Seismic and geological mapping costs
Expenditure on seismic and geological mapping costs which increases the value of the reserves by identifying additional reserves over and above those previously recognised, or increases the value of the existing known reserves by providing information which enables reserve estimates to be increased, is capitalised. This expenditure is depreciated over the estimated tonnage of the recoverable reserves as these are extracted. If the information does not fulfil either of these criteria, the cost is charged to the consolidated income statement as incurred.
Surface mine development and restoration assets
Costs incurred prior to coaling for surface mines are capitalised as surface mine development and restoration assets within tangible fixed assets and a separate provision for the outstanding restoration and rehabilitation obligations is established. Both of these costs are then charged to the consolidated income statement (net of any residual value) over the recoverable reserves of the mine. Expenditure on sites not expected to be worked within ten years is written off.
Deferred stripping costs
Overburden and other mine waste materials are often removed during the initial development of a mine site in order to access the mineral deposit. This activity is referred to as development stripping. The directly attributable costs (inclusive of an allocation of relevant overhead expenditure) are capitalised as surface mine development assets and are amortised together with restoration and pre-coaling costs, once coaling commences, over the tonnage of coal expected to be extracted.
The Group defers stripping costs incurred subsequently, during the production stage of its operations, for those operations where this is the most appropriate basis for matching the costs against the related economic benefits and the effect is material.
The amount of stripping costs deferred is based on the ratio obtained by dividing the tonnage of waste mined by the quantity of coal mined. Stripping costs incurred during the period are deferred to the extent that the current period ratio exceeds the remaining life of mine ratio. Such deferred costs are then charged against reported profits to the extent that, in subsequent periods, the current period ratio falls short of the life of mine ratio. Changes to the life of mine ratio are accounted for prospectively.
If the Group were to expense the production stage stripping costs as incurred, there would be greater volatility in the year to year results from operations and excess stripping costs would be expensed at an earlier stage of a mine's operation.
Depreciation
The costs of operating properties, excluding freehold land, and the cost of all other plant and equipment, less estimated residual value, are written off on a straight line basis over the asset's expected useful life. Residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Changes to the estimated residual values or useful lives are accounted for prospectively. The costs of heavy surface mining and other plant and equipment are depreciated at varying rates depending upon their expected usage.
Indicative expected lives for non-current assets are set out below:
Freehold land						not depreciated
Operating properties (excluding land)						25 to 50 years
Mines and surface works - Heavy mining equipment						8 to 20 years
Plant and equipment
- Plant and equipment						3 to 15 years
- Motor vehicles						3 to 5 years
Impairment
Operating property, plant and equipment are reviewed for impairment if there is any indication that their carrying amount may not be recoverable.
The carrying value of cash generating units (taking into account related liabilities and allocated central net assets) is tested for impairment by comparison with expected relevant future cash flows discounted at the pre-tax cost of capital taking into account appropriate risk; provision is made for any impairment identified. Cash generating units comprise individual mines or groups of mines depending upon the nature of the income streams derived from each.
When a review for impairment is conducted, the recoverable amount is assessed by reference to the higher of 'value in use' (being the present value of expected future cash flows of the relevant cash generating unit) or 'fair value less costs to sell'. Where there is no binding sale agreement or active market, fair value less costs to sell is based on the best information available to reflect the amount the Group could receive for the cash generating unit in an arm's length transaction.
Future cash flows are based on:
- estimates of the quantities of the reserves and resources for which there is a high degree of confidence of economic extraction
- anticipated production levels and costs
- anticipated coal prices
Cost levels incorporated in the cash flow forecasts are based on the current long term mine plan for the cash generating unit. For impairment reviews, recent cost levels are considered, together with expected changes in costs that are compatible with the current condition of the business and which meet the requirements of IAS 36, 'Impairment of assets'. IAS 36 'Impairment of assets' includes a number of restrictions on the future cash flows that can be recognised in respect of restructurings and improvement related to capital expenditure.
Hire purchases and leases - as lessee
Leases which transfer substantially all the risks and rewards of ownership to the Group are treated as finance leases. All other leases are treated as operating leases. Assets held under hire purchase and finance lease arrangements are capitalised and depreciated according to the depreciation rate of the applicable asset category. The outstanding capital obligations are included in payables. Interest is allocated to accounting periods over the hire purchase or lease term to reflect a constant rate of charge on the remaining balance of the obligation. Costs in respect of the operating leases are charged to the consolidated income statement as incurred.
Hire purchases and leases - as lessor
The Group grants leases over land and buildings in the course of its property business. These do not substantially transfer the risks and rewards of ownership to the lessee, and therefore they are accounted for as operating leases.
Financial instruments
The Group recognises financial instruments when it becomes party to the contractual provisions of the instrument. Financial assets are derecognised when the contractual right to receive the cash flows expire or it has transferred the financial asset and the economic benefit of the cash flows. Financial liabilities are derecognised when the obligation specified in the contract is discharged, cancelled or expires.
Financial instruments are used to support the Group's operations. Interest is charged to the consolidated income statement as incurred or earned. Issue costs for instruments subsequently recorded at amortised cost are netted against the fair value of the related debt instruments on initial recognition and are charged to the consolidated income statement over the term of the relevant facility.
Financial instruments are recorded initially at fair value. Subsequent measurement depends on the designation of the instrument, as follows:
a) Financial assets/liabilities held for short term gain, including derivatives other than hedging instruments, are measured at fair value and movements in fair value are credited/charged to the consolidated income statement in the period.
b) Loans and receivables/payables and non-derivative financial assets/liabilities with fixed or determinable payments that are not quoted in an active market, are measured at amortised cost. These are included in current assets/liabilities except for instruments that mature after more than 12 months which are included in non current assets/liabilities.
The Group holds derivative financial instruments ('derivatives') to manage exposure to fluctuations in interest rates. Derivatives are designated as hedges, when applicable, and treated as such from the inception of the relevant contracts. Amounts payable or receivable in respect of interest rate swap agreements are recognised as adjustments to the interest expense over the period of the contracts.
Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows are recognised directly in equity, and the ineffective portion is recognised immediately in the income statement. If the cash flow hedge of a firm commitment or forecasted transaction results in the recognition of an asset or liability, then, at the time the asset or liability is recognised, the associated gains or losses on the derivative that had previously been recognised in equity are included in the initial measurement of the asset or liability. For hedges that do not result in recognition of an asset or a liability, amounts deferred in equity are recognised in the income statement in the same period in which the hedged item affects net profit or loss.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the income statement in the period.
Borrowing costs
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the consolidated income statement over the period of the borrowings using the effective interest method.
Inventories
Inventories are valued at the lower of cost and net realisable value. Values of spares and consumables are based on average purchase prices. Appropriate provisions are made for slow moving and obsolete stock. Coal is recognised as stock when delivered to the surface and is valued at the average cost of extraction.
Trade receivables
Trade receivables are recognised initially at fair value and are subsequently reduced by any provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due. Indicators of impairment would include financial difficulties of the debtor, likelihood of the debtor's insolvency, default in payment or a significant deterioration in credit worthiness. Any impairment is recognised in the income statement within 'other operating income and expenses'. When a trade receivable is uncollectable, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against 'other operating income and expenses' in the income statement.
Trade payables
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
Property clawback
Under the terms of the 1994 privatisation Sale and Purchase Agreement, DECC is entitled to a percentage of any property gain (above certain thresholds and after deducting an amount representing corporation tax thereon) accruing, or treated as accruing to the Group, as a result of the disposal or deemed disposal or major development of certain properties acquired at privatisation. The percentage applied is 36% for 2007, reducing by 3 percentage points per annum until 31 March 2015, when it reduces to zero. If properties are disposed of, or are deemed to have been disposed of during this period, a part of the relevant gain will become payable to DECC. A liability for clawback in respect of property disposals is recognised only when an actual or deemed disposal occurs. A liability for clawback on a deemed disposal as a result of granting a lease is recognised over the life of the lease.
Cash and cash equivalents
In the preparation of the Group's and Company's cash flow statements, cash and cash equivalents represent short term liquid investments which are readily realisable. Cash which is subject to restrictions, being held to match certain liabilities, is included in cash and cash equivalents in the consolidated balance sheet.
Provisions for restoration, rehabilitation and environmental costs
An obligation to incur restoration, rehabilitation and environmental costs arises when environmental disturbance is caused by the development or ongoing production of a mining property. These costs consist of shaft treatment and pit top restoration, spoil heap restoration, pumping activities and ground and ground water contamination at deep mines and soil excavation and surface rehabilitation at surface mines.
Such costs arising from the decommissioning of plant and other site restoration work, discounted to their estimated present value, are provided for and capitalised within property, plant and equipment at the start of each project, as soon as the obligation to incur such costs arises. These provisions do not include any additional obligations which are expected to arise from future damage and are estimated on the basis of a closure plan. These costs are charged against income over the life of the operation, through the depreciation of the asset as an operating cost and the unwinding of the discount on the provision as a financing cost.
Costs for restoration of subsequent site damage which is created on an ongoing basis during production are provided for at their estimated present values and charged against income as extraction progresses.
Changes in the measurement of a liability relating to the decommissioning of plant or other site preparation work that result from changes in the estimated timing or amount of the cash flow, or a change in the discount rate, are added to, or deducted from, the cost of the related asset in the current period. If a decrease in the liability exceeds the carrying amount of the asset, the excess is recognised immediately in the income statement. If the asset value is increased and there is an indication that the revised carrying value is not recoverable, an impairment test is performed in accordance with the accounting policy above.
Other Provisions
Surface damage (subsidence)
Provision is made for the estimated present value of the cost of damage to structures on the surface as a result of settlement during the production phase of underground mining. The provision is calculated in respect of each colliery, location of mining activity and type of property affected or likely to be affected based on claims expected and claims submitted and using historical settlement experience. These costs are charged to the income statement. Movements in the provisions are presented as an operating cost, except for the unwinding of the discount which is shown as a financing cost.
Employer and public liability claims
The Group has established a UK Government approved and Financial Services Authority ('FSA') regulated UK based insurance subsidiary (Harworth Insurance Company Limited). This insures employer and public liability risks, buying reinsurance with third parties above certain levels. Provision is made for the estimated value of both known, and incurred but not reported, third party claims on an actuarially determined basis taking into account expected reinsurance recoveries.
Redundancy
Provision is made for the estimated present value of redundancy costs when there is a demonstrable commitment to terminate the employment of either an employee or group of employees. The expected amounts of redundancy payments, including any amounts in respect of ex gratia payments, are provided where the employment terminations have been communicated to employees. These costs are charged to the income statement. Movements in the provisions are presented as an operating cost, except for the unwinding of the discount which is shown as a financing cost.
Where contributions to redundancy costs have been firmly committed by third parties, these contributions are credited to the consolidated income statement in the same period to the extent, that the related redundancy cost has been recognised.
Employee benefits
Pension obligations
The Group operates pension schemes providing benefits based on final pensionable pay for employees who joined the Group on privatisation in 1994. Employees within defined benefit schemes are members of industry wide schemes, being either the Industry Wide Coal Staff Superannuation Scheme ('IWCSSS') or the Industry Wide Mineworkers' Pension Scheme ('IWMPS'), both of which commenced on privatisation following the Coal Industry Act 1994. The assets of the Schemes are held separately from those of the Group, being funds administered by Trustees of the Schemes. A qualified actuary assesses the cost of current service and revalue the schemes annually under the provisions of IAS 19 using the Projected Unit Credit Method. A full valuation for funding purposes is carried out by the Schemes' actuaries triennially. The Group accounts for pensions and similar benefits under IAS 19 'Employee benefits'. In respect of defined benefit plans, obligations are measured at discounted present value and plan assets are recorded at fair value. Service costs are charged systematically over the service lives of employees and financing costs are recognised in the periods in which they arise. Actuarial gains and losses are recognised in the consolidated statement of recognised income and expense.
The Group also operates defined contribution schemes in respect of all employees who joined after the privatisation date in 1994. The cost of this is charged to the consolidated income statement as incurred.
Concessionary fuel
Provision is made for the estimated liability arising from the obligation to provide concessionary fuel benefits to certain retired and current employees. The costs of the concessionary fuel benefits are determined annually by a qualified actuary using the same Projected Unit Credit Method adopted for the pension schemes. The arrangement is unfunded so no assets are held directly to meet the obligations. The regular service cost and interest on the scheme liabilities are charged to the consolidated income statement. Actuarial gains and losses are charged to the consolidated statement of recognised income and expense, representing the difference between actual and expected performance.
Share-based payments
The fair value of share plans is recognised as an expense in the consolidated income statement over the expected vesting period of the grant. The fair value of share plans is determined at the date of grant, taking into account any market based vesting conditions attached to the award. Non-market based vesting conditions (e.g. earnings per share targets) are taken into account in estimating the number of awards likely to vest. The estimate of the number of awards likely to vest is reviewed regularly and the expense charged adjusted accordingly. The fair value of employee share option plans is calculated using a generally accepted simulation model.
The proceeds received, net of any directly attributable transaction costs, are credited to share capital (nominal value) and share premium (any increment) when the options are exercised.
On conversion to IFRS, the Group, in recognising fair values of share-based payments to employees, chose to apply the exemption only to include those awards made after 7 November 2002 which had not vested at 31 December 2003 in its calculations at the date of transition.
Taxation
Current tax
The charge or credit for current tax is based on the results for the year adjusted for items that are either not subject to taxation or for expenditure which cannot be deducted in computing the tax charge or credit. The tax charge or credit is calculated using taxation rates that have been enacted or substantively enacted at the balance sheet date.
Deferred tax
Deferred tax is recognised using the balance sheet liability method on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit. Deferred tax is recognised in respect of all taxable temporary timing differences, with certain limited exceptions:
- deferred tax is not provided on the initial recognition of an asset or liability in a transaction that does not affect accounting profit or taxable profit and is not a business combination; and - deferred tax assets are only recognised if it is probable that there will be sufficient profits from which the future reversal of the underlying timing differences can be deducted. In deciding whether future reversal is probable, the directors review the Group's forecasts and make an estimate of the aggregate deferred tax asset that should be recognised. This aggregate deferred tax asset is then allocated into the different categories of deferred tax, taking account of the fact that the deferred tax asset in relation to the pension deficit will be recognised over a longer period, as the pension liability reverses over the average remaining service life of employees.
In relation to investment properties, a deferred tax liability is provided on the basis of normal income tax rules for the proportion of the property's carrying amount expected to be recovered through use and is provided using capital gains tax rules in respect of the remainder of the property's carrying amount (including all land) expected to be recovered through sale. Provision is made for gains on disposal of property, plant and equipment that have been rolled over into replacement assets only where, at the balance sheet date, there is a commitment to dispose of the replacement assets.
Deferred tax is calculated at the tax rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date. Deferred tax is charged or credited to the consolidated income statement, except where it applies to items credited or charged to equity, in which case the deferred tax is also dealt with in equity.
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.
Dividend distribution
Dividend distribution to the Company's shareholders is recognised in the financial statements in the year in which the dividends are paid (in the case of interim dividends) or approved by the Company's shareholders (in the case of final dividends).
Judgements in applying accounting policies and key sources of estimation uncertainty
Many of the amounts included in the financial statements involve the use of judgement and/or estimation. These judgements and estimates are based on management's best knowledge of the relevant facts and circumstances, having regard to previous experience, but actual results may differ from the amounts included in the financial statements. Information about such judgements and estimation is contained in the accounting policies and/or the notes to the financial statements, and the key areas summarised below.
Areas of judgement and sources of estimation uncertainty that have the most significant effect on the amounts recognised in the financial statements are:
Estimation of colliery asset lives Capitalised mine development costs (deep and surface mines) are amortised over the tonnage of coal expected to be extracted in the future. If the amount of coal expected to be extracted varies, this will impact on the amount of the asset which should be carried in the consolidated balance sheet. See accounting policy above.
Determination of coal reserve estimates Reserves are used in the calculation of depreciation, amortisation and impairment charges, the assessment of life of mine stripping ratios and for forecasting the timing of the payment of close down and restoration and clean up costs.
In assessing the life of a mine for accounting purposes, mineral resources are only taken into account where there is a high degree of confidence of economic extraction. There are numerous uncertainties inherent in estimating coal reserves, and assumptions that are valid at the time of estimation may change significantly when new information becomes available.
Changes in the forecast prices of commodities, exchange rates, production costs or recovery rates may change the economic status of reserves and may, ultimately, result in the reserves being restated.
Deferral of stripping costs See accounting policy above.
Capitalisation of exploration and evaluation costs   See accounting policy above.
Estimation of fair value of investment property The fair value of investment property reflects, amongst other things, rental income from our current leases, assumptions about rental income from future leases and the possible outcome of planning applications, in the light of current market conditions. The valuation has been arrived at primarily after consideration of market evidence for similar property, although in the case of those properties where it is considered market value will be informed by their ultimate redevelopment potential, development appraisals have been undertaken to estimate the residual value of the landholding after due regard to the cost of, and revenue from the development of the property. In such instances, 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, the values reported are subject to material uncertainty, and a change in fair values could have a material impact on the Group's results. Investment properties are disclosed in note 13.
Estimation of post retirement benefit obligations Retirement benefits represent obligations that will be settled in the future and require assumptions to project benefit obligations and fair values of plan assets. Retirement benefit accounting is intended to reflect the recognition of future benefit costs over the employee's approximate service period, based on the terms of the plans and the investment and funding decisions made by the Group. These are subject to actuarial estimates of, amongst other items, rate of return on investments, rate of salary increases, rate of price inflation, the cost of funding future liabilities and post retirement life expectancy. Details of the significant estimates used are set out in note 24.
Estimation of other provisions (including clawback liabilities)  Provisions are dependent on assessments of whether the criteria for recognition have been met, including estimates of the outcome and the amount of the potential cost of resolution. Provisions are recognised by a charge against income when it is probable that a liability has been incurred and the amount of such liability can be reasonably estimated.
Estimation of close down and restoration costs Estimated provisions are established in the consolidated balance sheet and amortised in proportion to the coal expected to be extracted from a site. If that expected tonnage or the actual cost varies, then the provision may be under or over stated. Estimates for environmental restoration provisions are based on the nature and seriousness of the contamination as well as on the technology required for clean up. The provisions are disclosed in note 21.
Review of asset carrying values and impairment charges  The Group performs impairment testing in accordance with the accounting policy above. The calculation of recoverable amount requires the use of estimates and assumptions consistent with the most recent budgets and plans that have been formally approved by management. Significant factors considered when using estimates to assess the carrying value of assets include future coal prices, expected annual production, expected colliery operating costs, remaining colliery lives and coal reserves and discount rates. Refer to note 12 for the key assumptions used in the calculations.
Recoverability of deferred tax assets The recognition of deferred tax assets requires considerable judgement as to the future profitability of the mining business. The recognition of a deferred tax liability in relation to property revaluations requires an estimate to be made of the proportion of the value of a property which will be recovered through use, compared to the proportion of the value which will be recovered through sale. Deferred tax is disclosed in note 8.
2 SEGMENTAL REPORTING
Revenue
					Year ended December 2008		Year ended December 2007
Revenue from operations arises from:					£000		£000
Sale of goods					374,798		318,671
Rendering of services					12,624		5,037
Rental income					5,119		4,777
					392,541		328,485
The Board has determined that the primary segmental reporting format is by business segments, based on the Group management and internal reporting structure. As the Group operates in a single geographical market, the United Kingdom, no secondary segmentation is provided. The operations are divided into the following segments:
Deep mining
The Group has 4 operating deep mines in 2008 located in central and northern England. The Group has estimated total reserves and resources of approximately 105 million tonnes. Closed/sold deep mines consists of Rossington and Harworth collieries and the Maltby colliery which was sold in 2007. The Group generates electricity from mines methane at both operating and closed sites. In 2008, these operations are included within the deep mining segment for the first time, having been disclosed as a separate segment in previous years. Comparative information has been restated to reflect this change.
Surface mining
The Group has 5 active coaling surface mines and planning consent to mine 3 further sites. Planning consent in respect of surface mine reserves of 11 million tonnes have either already been granted, applied for or is planned to be applied for during 2009.
Property
The Group has a portfolio of approximately 45,000 acres and has identified circa 3,700 net acres of this land as offering prime prospects for a mix of business park, residential, distribution and community development. Certain land has been identified as potentially suitable for windfarms and this opportunity is being pursued.
Other
This includes any activities not already included within one of the above segments and any unallocated items.
Segment results, assets and liabilities include items before non-trading exceptional items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly interest-bearing borrowings and taxation.
Primary reporting format - business segments
Year ended December 2008	Ongoing	Closed/sold	Deep	Surface
	deep mines	deep mines*	mining	mining	Property	Other	Total
	£000	£000	£000	£000	£000	£000	£000
Continuing operations
Revenue - gross	309,103	-	309,103	83,575	5,181	2,195	400,054
Revenue - intra Group	-	-	-	(7,125)	(20)	(368)	(7,513)
Revenue	309,103	-	309,103	76,450	5,161	1,827	392,541
Operating profit/(loss) before non-trading exceptional items	(12,795)	-	(12,795)	10,416	4,706	(489)	1,838
Non-trading exceptional items
- Rationalisation, closure and other costs	(468)	(3,456)	(3,924)	(162)	-	-	(4,086)
Operating loss after non-trading exceptional items	(13,263)	(3,456)	(16,719)	10,254	4,706	(489)	(2,248)
Finance costs							(17,817)
Finance income							2,919
Finance costs - net							(14,898)
Share of post-tax profit from joint ventures							1,503
Loss before tax							(15,643)
Tax charge							(100)
Loss for the year							(15,743)
Other segmental items
Capital expenditure	21,487	-	21,487	3,137	15,219	-	39,843
Depreciation	34,772	-	34,772	2,936	162	43	37,913
Surface mine development costs and restoration assets capitalised	-	-	-	20,951	-	-	20,951
Amortisation of surface mine development and restoration assets	-	-	-	12,583	-	-	12,583
Provisions - non cash charge	6,900	-	6,900	14,370	-	45	21,315
* Closed/sold deep mines includes income and expenditure arising at the Harworth colliery.
Property operating profit includes the net appreciation in fair value of properties of £23,000 and profit on disposal of investment properties of £3,661,000.
Non-trading exceptional items
Rationalisation, closure and other costs are predominantly associated with the deep mines operations and consist of costs of £3,447,000 for Harworth colliery and redundancy costs of £1,072,000, offset by income of £433,000 from the release of provisions following the settlement of HMRC and redundancy disputes, since these were recorded as exceptional costs in prior years.
All trading and non-trading exceptional items are included in cost of sales.
Year ended December 2007	Ongoing	Closed/sold	Deep	Surface
	deep mines	deep mines*	mining	mining	Property	Other	Total
	£000	£000	£000	£000	£000	£000	£000
Continuing operations
Revenue - gross	262,549	7,375	269,924	60,399	4,803	1,286	336,412
Revenue - intra Group	-	-	-	(7,542)	-	(385)	(7,927)
Revenue	262,549	7,375	269,924	52,857	4,803	901	328,485
Operating profit/(loss) before non-trading exceptional items	(9,704)	(600)	(10,304)	8,543	73,200	694	72,133
Non-trading exceptional items
- Profit on sale of business	238	8,243	8,481	-	-	-	8,481
- Rationalisation, closure and other costs	4,078	(1,811)	2,267	(225)	-	-	2,042
Operating profit after non-trading exceptional items	(5,388)	5,832	444	8,318	73,200	694	82,656
Finance costs							(17,121)
Finance income							2,951
Finance costs - net							(14,170)
Share of post-tax profit from joint venture							537
Profit before tax							69,023
Tax credit							25,000
Profit for the year							94,023
Other segmental items
Capital expenditure	19,796	1,040	20,836	1,447	8,116	194	30,593
Depreciation	34,720	529	35,249	3,079	172	-	38,500
Surface mine development costs and restoration assets capitalised	-	-	-	19,140	-	-	19,140
Amortisation of surface mine development and restoration assets	-	-	-	8,723	-	-	8,723
Provisions - non cash charge/(credit)	(245)	(8,633)	(8,878)	12,086	-	17	3,225
* Closed/sold deep mines consists of income and expenditure arising at the Harworth and Maltby collieries.
Property operating profit includes the net appreciation in fair value of properties of £66,799,000 and profit on disposal of investment properties of £3,688,000.
From 2008, the methane generation operations have been included within the deep mining segment. In 2007, these results were reported as a separate business segment, with revenue of £4,145,000, operating profit before non-trading exceptional items of £4,333,000, non-trading exceptional items of £238,000 and operating profit after non-trading exceptional items of £4,571,000. Capital expenditure in this segment was £3,422,000 and depreciation was £1,056,000.
Trading exceptional items
Deep mines operating loss includes recovery and related costs for Daw Mill of £11,505,000.
Non-trading exceptional items
The profit on sale of business arose on the sale of Maltby colliery in February 2007.
Rationalisation, closure and other costs are predominantly associated with the deep mines operations and consist of a net credit of £8,767,000 following settlement of a dispute on tax deductions arising on redundancies with HMRC and pension curtailment gains of £668,000, offset by mothballing costs of £1,811,000 for Harworth colliery, redundancy costs of £3,065,000, write-down of stores equipment in connection with a strategic review on closure of deep mine operations of £1,737,000 and other costs of £780,000.
All trading and non-trading exceptional items are included in cost of sales.
Balance sheet
at December 2008
	Ongoing	Closed/sold	Deep	Surface
	deep mines	deep mines*	mining	mining	Property	Other	Total
	£000	£000	£000	£000	£000	£000	£000
Assets and liabilities
Segment assets	258,023	13	258,036	54,792	418,043	1,104	731,975
Investment in joint ventures	-	-	-	-	874	1,904	2,778
Total segment assets	258,023	13	258,036	54,792	418,917	3,008	734,753
Segment liabilities	(223,559)	(8,443)	(232,002)	(72,160)	(25,237)	(3,199)	(332,598)
Segment net assets/(liabilities)	34,464	(8,430)	26,034	(17,368)	393,680	(191)	402,155
Group borrowings							(179,366)
Cash and cash equivalents (unrestricted)							42,337
Net deferred tax asset							35,306
Net assets							300,432
* Closed/sold deep mines includes the assets and liabilities of Harworth and Rossington collieries and Maltby colliery which was sold in 2007.
Cash and cash equivalents that are subject to restriction have been included within the appropriate segment, along with the related provisions.
Deficits resulting from retirement benefit obligations are included within the deep mining segment.
Balance sheet
at December 2007
	Ongoing	Closed/sold	Deep	Surface
	deep mines	deep mines*	mining	mining	Property	Other	Total
	£000	£000	£000	£000	£000	£000	£000
Assets and liabilities
Segment assets	277,909	-	277,909	43,577	401,680	1,628	724,794
Investment in joint venture	-	-	-	-	-	342	342
Total segment assets	277,909	-	277,909	43,577	401,680	1,970	725,136
Segment liabilities	(197,639)	(11,346)	(208,985)	(67,185)	(15,388)	(6,249)	(297,807)
Segment net assets/(liabilities)	80,270	(11,346)	68,924	(23,608)	386,292	(4,279)	427,329
Group borrowings							(125,241)
Cash and cash equivalents (unrestricted)							20,973
Net deferred tax asset							35,185
Net assets							358,246
* Closed/sold deep mines includes the assets and liabilities of Harworth and Rossington collieries and Maltby colliery which was sold in 2007.
From 2008, the methane generation operations have been included within the deep mining segment. In 2007, the assets were £9,088,000 and the liabilities were £4,737,000.
Cash and cash equivalents that are subject to restriction have been included within the appropriate segment, along with the related provisions.
Deficits resulting from retirement benefit obligations are included within the deep mining segment.
3 PROFIT BEFORE TAX
			Notes		Year ended December 2008		Year ended December 2007
					£000		£000
Profit before tax is stated after (charging)/crediting:
Depreciation of property, plant and equipment - owned assets					(34,100)		(34,449)
Depreciation of property, plant and equipment - under finance leases					(3,813)		(4,051)
Amortisation of surface mine development, restoration and closure assets			12		(12,583)		(8,723)
Coal Investment Aid			33		3,106		2,926
Profit on disposal of investment properties					3,661		3,688
Profit on disposal of operating property, plant and equipment					82		1,598
Repairs and maintenance for deep and surface mining					(64,427)		(60,157)
Staff costs			5		(175,333)		(156,975)
Spares and consumables used					(44,700)		(20,298)
Operating expense for rental investment property					(2,251)		(1,360)
Operating lease payments					(317)		(252)
4 OTHER OPERATING INCOME AND EXPENSES
					Year ended December 2008		Year ended December 2007
					£000		£000
Administrative expenses					(13,547)		(13,103)
Other operating income					4,773		7,524
Other operating income and expenses					(8,774)		(5,579)
Due to the nature of the Group's business, distribution expenses are treated as a part of cost of sales. Other operating income includes Coal Investment Aid of £3,106,000 (2007: £2,926,000).
5 EMPLOYEE INFORMATION
The average number of persons (including the Board of Directors) employed by the Group during the year was:
				Group		Company
				Year ended  December 2008	Year ended  December 2007	Year ended  December 2008	Year ended December 2007
				Number	Number	Number	Number
Deep mining				2,554	2,701	-	-
Surface mining				531	499	-	-
Property				19	15	-	-
Other				75	73	7	7
				3,179	3,288	7	7
Total staff costs for the Group were:
				Group		Company
				Year ended  December 2008	Year ended  December 2007	Year ended  December 2008	Year ended December 2007
Staff costs (including the Board of Directors)				£000	£000	£000	£000
Wages and salaries				145,258	128,842	1,151	1,428
Social security costs				14,535	12,948	120	403
Pension and post retirement benefit costs				15,000	14,901	168	118
Share-based payments				540	284	540	284
				175,333	156,975	1,979	2,233
Wage and salary costs in 2007 include the benefit of pension curtailment gains as disclosed within note 2.
Key management compensation
					Year ended December 2008		Year ended December 2007
					£000		£000
Salaries and short-term employee benefits					1,386		2,330
Post employment benefits					240		182
Termination benefits					-		249
Share-based payments					34		215
					1,660		2,976
The compensation details above are for members of the Executive Management Committee during the year. Current members of the Executive Management Committee are shown in the Corporate Governance Report.
Directors' remuneration and interests
Detailed information relating to directors' remuneration and their interests in share options is shown on the Directors' Remuneration Report and forms part of these financial statements.
6 FINANCE INCOME AND COSTS
					Year ended December 2008		Year ended December 2007
					£000		£000
Interest expense
- Bank borrowings					(11,816)		(8,868)
- Hire purchase agreements and finance leases					(879)		(810)
- Unwinding of discount on provisions					(4,257)		(3,933)
- Amortisation of the issue costs of bank loans					(1,626)		(1,610)
Gains/(losses) on interest rate swaps not eligible for hedge accounting					761		(1,900)
Finance costs					(17,817)		(17,121)
Finance income					2,919		2,951
Net finance costs					(14,898)		(14,170)
7 AUDITOR REMUNERATION
During the year the Group obtained the following services from its auditors, PricewaterhouseCoopers LLP, at costs as detailed below:
					Year ended December 2008		Year ended December 2007
					£000		£000
Audit Services
- Fees payable to the Company auditors for the audit of the parent Company and the consolidated accounts					70		100
Non-audit services
- The audit of the Company's subsidiaries pursuant to legislation					220		248
- Other services pursuant to legislation					81		50
- Tax advisory and compliance services					111		212
- Other services					121		115
					603		725
From time to time, the Group employs PricewaterhouseCoopers LLP on assignments additional to their statutory audit duties where their expertise and experience with the Group are important. They are awarded assignments on a competitive basis. The Audit Committee reviews non-audit assignments quarterly, and approves all assignments above a set threshold cost.
8 TAX
					Year ended December 2008		Year ended December 2007
Analysis of charge/(credit) in the year					£000		£000
Corporation tax					100		-
Deferred tax					-		(25,000)
Taxation charge/(credit)					100		(25,000)
The tax for the year is different to the standard rate of corporation tax in the UK of 28% (2007: 30%). The differences are explained below:
					Year ended December 2008		Year ended December 2007
					£000		£000
(Loss)/profit before taxation					(15,643)		69,023
(Loss)/profit before taxation multiplied by the rate of
Corporation tax in the UK of 28% (2007: 30%)					(4,380)		20,707
Effects of:
Expenses not deducted/income not chargeable for tax purposes					2,255		(22,222)
Deferred tax not recognised					2,225		(23,485)
Total taxation charge/(credit)					100		(25,000)
Deferred taxation
Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 28% (2007: 28%). Deferred tax assets and liabilities are offset when there is a legally enforced right to offset current tax assets against current tax liabilities and when the deferred taxes relate to the same fiscal authority. The Group's deferred tax liability in respect of fixed assets can all be offset in this way, apart from the liability of £815,000 (2007:£815,000) in respect of revaluation gains on investment properties expected to be recovered through future use.
					As at December 2008		As at December 2007
					£000		£000
Deferred tax asset - to be recovered after more than 12 months					36,121		36,000
Deferred tax liability - to be recovered after more than 12 months					(815)		(815)
Net deferred tax asset					35,306		35,185
The movement on the deferred tax asset is shown below:
					Year ended December 2008		Year ended December 2007
					£000		£000
At the beginning of the year					35,185		34,580
Amounts credited to the consolidated income statement					-		25,000
Amounts credited/(charged) to consolidated statement of recognised income and expense					121		(24,395)
At the end of the year					35,306		35,185
A deferred tax asset of £36,121,000 (2007: £36,000,000) has been recognised to the extent that it is expected to be recovered, based on forecasts of future taxable profits. Further deferred tax assets have not been recognised owing to the uncertainty as to their recoverability. If these deferred tax assets were recognised, the total asset would be £113,314,000 (2007: £101,397,000) as set out below:
				As at  December 2008	As at  December 2008	As at December 2007	As at December 2007
				Total	Total	Total	Total
				amount	potential	amount	potential
				recognised	asset/	recognised	asset/
					(liability)		(liability)
				£000	£000	£000	£000
Fixed asset timing differences				(815)	29,228	(815)	(815)
Other timing differences				-	9,596	-	7,670
Trading losses				24,643	42,987	24,643	74,049
Retirement benefit liabilities				9,100	29,125	11,357	20,493
Cash flow hedges				2,378	2,378	-	-
Net deferred tax asset				35,306	113,314	35,185	101,397
The fixed asset timing difference relates to the deferred tax liability arising from the directors' estimate of the proportion of revaluation gains on investment properties which will be recovered through use. No tax liability has been recognised in relation to the balance of the gain which is expected to be realised through sale, due to the fact that the Group has unrecognised capital losses brought forward of £388,000,000 (2007: £392,000,000).
The movement on deferred tax asset credited/(charged) to equity during the year is as follows:
					2008		2007
					£000		£000
Impact on deferred tax asset due to change in tax rate					-		(2,383)
Movement on deferred tax asset relating to retirement benefit liabilities in the period					(2,257)		(22,012)
Movement on deferred tax asset relating to cash flow hedges in the period					2,378		-
Deferred tax asset movement credited/(charged) to equity					121		(24,395)
The Company has no recognised or unrecognised deferred tax in 2008 or 2007.
9 LOSS FOR THE FINANCIAL YEAR OF THE PARENT ENTITY
As permitted by section 230 of the Companies Act 1985, the Company's income statement has not been included separately in these financial statements. The loss for the financial year was £168,440,000 (2007: loss £1,867,000). This is after an impairment charge against the carrying value of investments in subsidiaries of £172,914,000 in the current year (2007: £nil) (see note 14).
10 DIVIDENDS
No dividends have been paid or proposed in relation to 2008 or 2007.
11 (LOSS)/EARNINGS PER SHARE
(Loss)/earnings per share has been calculated by dividing the (loss)/earnings attributable to ordinary shareholders by the weighted average number of shares in issue and ranking for dividend during the year.
In calculating the diluted (loss)/earnings per share, the weighted average number of ordinary shares is adjusted for the diluting effect of share options potentially issuable under the Group's employee share option plans.
					Year ended December 2008		Year ended December 2007
					£000		£000
(Loss)/profit before tax					(15,643)		69,023
Tax (charge)/credit					(100)		25,000
(Loss)/profit for the year					(15,743)		94,023
Weighted average number of shares used for basic earnings per share calculation					157,154,163		156,839,338
Dilutive effect of share options					-		-
Weighted average number of shares used for diluted earnings per share calculation					157,154,163		156,839,338
Basic and diluted (loss)/earnings per share (pence)					(10.0)		59.9
(Loss)/earnings per share, as adjusted to exclude tax, for the year are (10.0) pence (2007: earnings 44.0 pence).
12 TOTAL OPERATING PROPERTY, PLANT AND EQUIPMENT
						Surface mine
			Deep mines			development
			including			and
		Operating	surface	Plant and		restoration
		properties	works	equipment	Sub total	assets	Total
Group		£000	£000	£000	£000	£000	£000
Cost:
At January 2008		19,676	786,937	90,615	897,228	37,939	935,167
Additions		1,129	21,480	3,144	25,753	20,951	46,704
Disposals		-	-	(2,969)	(2,969)	(9,262)	(12,231)
Transfer to investment properties		(5,844)	-	-	(5,844)	-	(5,844)
At December 2008		14,961	808,417	90,790	914,168	49,628	963,796
Depreciation:
At January 2008		4,346	626,262	67,069	697,677	17,828	715,505
Charge for the year		162	33,469	4,282	37,913	12,583	50,496
Disposals		-	-	(2,834)	(2,834)	(9,262)	(12,096)
Transfer to investment properties		(389)	-	-	(389)	-	(389)
At December 2008		4,119	659,731	68,517	732,367	21,149	753,516
Net book amount:
At December 2008		10,842	148,686	22,273	181,801	28,479	210,280
Cost:
At January 2007		18,759	811,628	93,194	923,581	24,040	947,621
Additions		569	17,414	5,063	23,046	19,140	42,186
Disposals		(43)	(42,105)	(7,642)	(49,790)	(5,241)	(55,031)
Transfer to investment properties		(1,256)	-	-	(1,256)	-	(1,256)
Transfer from investment properties		1,647	-	-	1,647	-	1,647
At December 2007		19,676	786,937	90,615	897,228	37,939	935,167
Depreciation:
At January 2007		4,174	622,306	68,853	695,333	14,346	709,679
Charge for the year		172	34,194	4,134	38,500	8,723	47,223
Disposals		-	(30,238)	(5,918)	(36,156)	(5,241)	(41,397)
At December 2007		4,346	626,262	67,069	697,677	17,828	715,505
Net book amount:
At December 2007		15,330	160,675	23,546	199,551	20,111	219,662
Surface mine development and restoration assets net book amounts includes capitalised pre-coaling costs of £12,471,000 (2007: £10,821,000 ), restoration/rehabilitation costs of £12,340,000 (2007: £9,290,000) and deferred stripping costs of £3,668,000 (2007: £nil). These are depreciated over the estimated tonnage of the recoverable reserves as these are extracted.
Surface mine asset additions in the period of £20,951,000 (2007: £19,140,000) comprise £6,206,000 (2007: £4,650,000) in respect of pre-coaling expenditure, £11,077,000 (2007: £14,490,000) recognised as a non-current asset on the creation of a corresponding provision for restoration and rehabilitation costs and £3,668,000 (2007: £nil) of deferred stripping costs.
Included in property, plant and equipment is £20,132,000 (2007: £5,806,000) of capitalised work in progress which is not depreciated.
Assets under finance leases, disclosed under deep mines including surface works and plant and equipment, have the following net book amounts:
					As at December 2008		As at December 2007
					£000		£000
Cost					26,245		30,334
Aggregate depreciation					(12,739)		(10,990)
Net book amount					13,506		19,344
Certain land and buildings with a book value of £nil (2007: £6,588,000) are subject to security to cover surface damage provisions.
In accordance with IAS 36, tangible fixed assets are reviewed for impairment if there is any indication that their carrying amount may not be recoverable. An impairment review has been performed for the tangible fixed assets of the deep and surface mining business since the net assets of the Group exceed its market capitalisation at the year end. In the year ended December 2008, no impairment charges were recognised. The estimates of recoverable amount were based on value-in-use calculations, using a pre-tax discount rate of 12.5% which reflects the specific risks of the business. These calculations use cash flow projections based on financial budgets approved by management covering a five year period. Cash flows beyond the five year period are extrapolated assuming a zero growth rate.
Sensitivity analysis No impairment of fixed assets would be recognised by the Group if any of the following occurred in isolation: - The revised estimated pre-tax discount rate applied to the discounted cash flows was increased to 18.0%;  - The estimated long-term price of coal of $72/tonne assumed in calculating the discounted cash flows decreased by 4%; and  - The estimated level of annual production assumed in calculating the discounted cash flows decreased by 0.25 million tonnes.
13 INVESTMENT PROPERTIES
					As at December 2008		As at December 2007
At valuation - Group					£000		£000
At the beginning of the year					384,291		311,677
Additions					14,090		7,547
Disposals					(2,371)		(8,074)
Fair value uplift					23		66,799
Transfer from operating property, plant and equipment at net book amount					5,455		1,256
Revaluation of property transferred to investment properties					3,170		6,733
Transfer to operating property, plant and equipment					-		(1,647)
At the end of the year					404,658		384,291
The properties were valued at December 2008, in accordance with the Appraisal and Valuation Standards of the Royal Institution of Chartered Surveyors, by three firms, Atisreal, Smiths Gore and Bell Ingram, all independent firms with relevant experience of valuations of this nature. The valuation excludes any deduction of rehabilitation and restoration costs which are stated within provisions in the balance sheet.
Key assumptions within the basis of fair value are:
- The sites will be cleared of redundant buildings, levelled and prepared ready for development
- The values are on a basis that no material environmental contamination exists on the subject or adjoining sites, or where this is present the sites will be remediated to a standard consistent with the intended use, the costs for such remediation being separately provisioned
- No deduction or adjustment has been made in relation to clawback provisions, or other taxes which may be payable in certain events
Had the above investment properties been carried at historic cost, rather than fair value, their value would be £98,397,000 (2007: £81,351,000).
Land and buildings with a value of £345,280,000 (2007: £245,765,000) are subject to fixed and floating charges to cover borrowings against those assets and £7,886,000 (2007: £3,281,000) are subject to restrictions as they cover insurance requirements. Other property, plant and equipment is subject to floating charges to cover liabilities due to bank borrowings.
14 INVESTMENTS
Investment in joint ventures
At December 2008, the Group owned 50% of the 1,000 £1 issued equity shares in Coal4Energy Limited, a company incorporated in Great Britain which was formed in 2006 as a joint venture company with Hargreaves Services PLC (''Hargeaves'') to produce, market and distribute domestic and industrial coal products. Subsequent to the year end, in January 2009, the 50% shareholding in Coal4Energy was sold to Hargreaves, realising a profit on sale of £6,500,000.
During the year the Group acquired 50% of the issued shares in UK Strategic Partnership Limited as a joint venture company with Strategic Sites Limited for the development of certain investment properties. The first development will be at the Advanced Manufacturing Park at Waverley, South Yorkshire.
					2008		2007
					£000		£000
Beginning of the year					342		205
Additions					933		-
Share of profit					1,503		537
Dividends					-		(400)
End of year					2,778		342
The Group's share of the results of its joint ventures, all of which are unlisted, and its share of the assets (including goodwill and liabilities) are as follows:
	Country of incorporation		Assets	Liabilities	Revenues	Profit/(loss)	Interest held
			£000	£000	£000	£000	%
2008
Coal4Energy Limited	England and Wales		9,696	(7,792)	36,630	1,562	50
UK Strategic Partnership Limited	England and Wales		4,230	(3,356)	-	(59)	50
Total			13,926	(11,147)	36,630	1,503
2007
Coal4Energy Limited	England and Wales		7,026	(6,684)	30,217	537	50
Total			7,026	(6,684)	30,217	537
Investment in subsidiaries
Company							£000
Cost:
At January and December 2008							473,224
Provision for impairment:
At January 2008							-
Charge for the year							(172,914)
At December 2008							(172,914)
Net book amount:
At December 2008							300,310
Cost and net book amount:
At January and December 2007							473,224
As a result of the decline in the Group's market capitalisation, the investment held by the parent company has been written down to its estimated recoverable amount. Note 12 details the value-in-use calculations.
Investments in subsidiaries are stated at cost. As permitted by section 133 of the Companies Act 1985, where the relief afforded under section 131 of the Companies Act 1985 applies, cost is the aggregate of the nominal value of the relevant number of the Company's shares and the fair value of any other consideration given to acquire the share capital of the subsidiary undertakings. The Directors consider that to give full particulars of all subsidiary undertakings would lead to a statement of excessive length. A list of principal subsidiary undertakings is given below. A full list of subsidiary undertakings will be annexed to the Company 's next annual return.
Particulars of the principal Group undertakings at December 2008 are as follows:
							Proportion of
							nominal value
							of issued share
					Description		capital held by
					of shares		Company
	Activity				held		%
Harworth Group Limited	Holding company				Ordinary		-
UK Coal Holdings Limited	Holding company				Ordinary		100
Harworth Insurance Company Limited	Insurance				Ordinary		100
Harworth Power Limited	Power generation				Ordinary		-
Mining Services Limited	Surface mining plant operations				Ordinary		-
UK Coal Mining Limited	Underground and surface mining				Ordinary		-
Centechnology (UK) Limited	Labour contracting services				Ordinary		-
EOS Inc.Ltd	Property company				Ordinary		-
Harworth Estates (Agricultural Land) Limited	Property company				Ordinary		-
Harworth Estates (Waverley Prince) Limited	Property company				Ordinary		-
The Group owns 100% of the issued share capital and voting rights of all of the above companies.
All of the above companies are incorporated in England and Wales. They are all included in the Group's consolidated results.
15 TRADE AND OTHER RECEIVABLES - NON-CURRENT
Amounts classed as non-current are as follows:
				Group		Company
				As at December 2008	As at December 2007	As at December 2008	As at December 2007
				£000	£000	£000	£000
Other receivables				1,527	1,613	-	-
Other receivables include £865,000 (2007: £956,000) of long-term deposits held as security for surface mines.
16 INVENTORIES
				Group		Company
				As at December 2008	As at December 2007	As at December 2008	As at December 2007
				£000	£000	£000	£000
Coal stocks				21,412	16,282	-	-
Spares and consumables				25,340	23,474	-	-
				46,752	39,756	-	-
The cost of inventories recognised as an expense and included in cost of sales amounted to £44,700,000 (2007: £20,298,000).
During the year, further provision of £883,000 has been created against stores stock, the charge for which is included in cost of sales.
17 TRADE AND OTHER RECEIVABLES - CURRENT
				Group		Company
				As at December 2008	As at December 2007	As at December 2008	As at December 2007
				£000	£000	£000	£000
Trade receivables				32,508	21,242	-	-
Less: provision for impairment of trade receivables				(136)	(22)	-	-
Net trade receivables				32,372	21,220	-	-
Other receivables				1,399	710	949	235
Prepayments and accrued income				5,750	5,691	-	-
Amounts owed by joint ventures				470	2,332	-	-
Amounts owed by subsidiary undertakings				-	-	154,514	165,866
				39,991	29,953	155,463	166,101
The carrying amount of trade and other receivables approximate to their fair value. All of the Group's receivables are denominated in sterling.
Due to the nature of the Group's activities, a substantial amount of the Group's sales are to a limited number of large industrial customers within the power generation sector. Whilst this concentration provides an increased credit risk, due to the financial strength of the power sector, management does not believe that this is significant.
The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables as disclosed in note 23. The Group does not hold any collateral as security.
Movements on the Group provisions for impairment of trade receivables are as follows:
						Group
						2008	2007
						£000	£000
At the start of the year						22	6,140
Provisions for impairment of receivables						200	380
Receivables written off during the year as uncollectible						(77)	(6,490)
Unused amounts reversed						(9)	(8)
At the end of the year						136	22
The creation and releases of the provision for impaired receivables have either been included in cost of sales or other operating income and expenses in the consolidated income statement. Amounts charged to the allowance account are generally written off when there is no expectation of any additional recoveries.
The other classes of assets within trade and other receivables do not contain impaired assets.
As of December 2008, there were provisions against trade receivables of £136,000 (2007: £22,000) which were impaired. The Group has assessed that it is unlikely that these receivables will be recovered. The ageing of these receivables is as follows:
						Group
						As at December 2008	As at December 2007
						£000	£000
3 to 6 months						136	22
As of December 2008, trade receivables of £2,653,000 (2007: £908,000) were past due but not impaired. These relate to a number of customers for whom there is no recent history of default and consequently there are no indications at the reporting date that they will not meet their payment obligations. The ageing analysis of these trade receivables is as follows:
						Group
						As at December 2008	As at December 2007
						£000	£000
Up to 3 months						1,901	619
Over 3 months						752	289
						2,653	908
18 CASH AND CASH EQUIVALENTS
				Group		Company
				As at December 2008	As at December 2007	As at December 2008	As at December 2007
				£000	£000	£000	£000
Cash deposited to cover insurance requirements				20,425	25,692	-	-
Subsidence security fund				8,341	23,403	-	-
				28,766	49,095	-	-
Cash held and other cash balances				42,336	20,973	40,682	20,063
				71,102	70,068	40,682	20,063
Total cash held subject to restrictions to cover insurance and surface damage liabilities at the year end amounts to £28,766,000 (2007: £49,095,000). In addition to this, security to cover surface damage liabilities in the form of an insurance bond for £10,000,000 (2007: £nil) has been granted during the year.
19 BORROWINGS
				Group		Company
				As at December 2008	As at December 2007	As at December 2008	As at December 2007
Current				£000	£000	£000	£000
Borrowings due within one year or on demand:
Secured - bank loans and overdrafts				1,365	21,339	-	-
Finance lease obligations				5,941	5,981	-	-
				7,306	27,320	-	-
				Group		Company
				As at December 2008	As at December 2007	As at December 2008	As at December 2007
Non-current				£000	£000	£000	£000
Borrowings due after more than one year:
Secured - bank loans and overdrafts				169,871	90,008	-	-
Finance lease obligations				2,186	7,913	-	-
				172,057	97,921	-	-
The carrying value of the Group's external borrowings, which consist of floating rate and fixed rate short-term borrowings, approximates to fair value. All of the Group's borrowings are denominated in sterling.
Bank loans and overdrafts due within one year or on demand are stated after deduction of unamortised borrowing costs of £1,841,000 (2007: £1,309,000). Non-current bank loans and overdrafts are stated after deduction of unamortised borrowing costs of £1,020,000 (2007: £1,946,000). The Group's Revolving Credit Facility can be drawn when required and is committed until 2010.
During 2008, new bank loans were taken out with a value of £13,929,000 (2007: £42,951,000), secured on the Group's investment properties and certain other fixed assets.
On 24 April 2008, a 12 month unsecured facility for £10,000,000 was granted by the Group's major shareholder, Peel Holdings. No drawings on this facility were made during the period.
The bank loans and overdrafts are secured by way of fixed and floating charges over certain assets of the Group.
The maturity profile of the Group's drawn and undrawn external bank facilities is as follows:
					2008		2007
					£000		£000
Expiring within 1 year					12,606		74,091
Expiring between 1 and 2 years					102,389		2,171
Expiring between 2 and 5 years					91,424		118,082
					206,419		194,344
These facilities are all nominally at floating interest rates, but interest rate swaps with principal value of £125,779,000 (2007: £114,970,000) are held to convert these borrowings to fixed interest rates.
Of the unutilised borrowing facilities, £17,715,000 (2007: £28,300,000) is linked to certain properties and can only be utilised against expenditure related to these properties.
The maturity profile of the Group's borrowings is as follows:
		2008			2007
		Finance			Finance
		Debt	leases	Total	Debt	leases	Total
Group		£000	£000	£000	£000	£000	£000
Within 1 year		1,365	5,941	7,306	21,339	5,981	27,320
Between 1 and 2 years		96,469	2,011	98,480	1,896	5,935	7,831
Between 2 and 5 years		73,402	175	73,577	88,112	1,978	90,090
		171,236	8,127	179,363	111,347	13,894	125,241
The minimum lease payments under finance leases fall due as follows:
					As at December 2008		As at December 2007
					£000		£000
Within 1 year					6,442		6,881
Between 1 and 5 years					2,298		8,526
					8,740		15,407
Future finance charges on finance leases					(613)		(1,513)
Present value of finance lease liabilities					8,127		13,894
Lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default.
The Company had no external borrowings at December 2008 or December 2007.
20 TRADE AND OTHER PAYABLES
				Group		Company
				As at December 2008	As at December 2007	As at December 2008	As at December 2007
				£000	£000	£000	£000
Current
Trade payables				47,787	40,823	-	-
Amounts owed to subsidiary undertakings				-	-	224,049	217,320
Other taxation and social security				12,958	15,272	-	-
Accruals and deferred income				43,307	44,118	259	298
				104,052	100,213	224,308	217,618
Non-current
Accruals and deferred income				139	73	-	-
Included within accruals and deferred income is £3,878,000 (2007: £6,984,000) representing contributions to capital expenditure in the form of Coal Investment Aid (see note 33).
21 PROVISIONS
						Reassessment of
		At				discount rate and	At
		January	Provided	Released	Utilised	unwinding	December
		2008	in year	in year	in year	of discount	2008
Group		£000	£000	£000	£000	£000	£000
Employer and public liabilities		18,875	3,384	-	(3,543)	-	18,716
Surface damage		16,405	4,733	(1,684)	(5,736)	(299)	13,419
Claims		39	45	-	(22)	-	62
Redundancy		4,099	1,072	(433)	(3,542)	-	1,196
Restoration and closure costs of surface mines		54,598	14,208	-	(8,862)	(586)	59,358
Restoration and closure costs of deep mines:
- shaft treatment and pit top		12,193	384	(126)	(1,425)	(1,278)	9,748
- spoil heaps		3,224	-	(2)	(115)	(266)	2,841
- pumping costs		6,304	-	-	-	(977)	5,327
Ground/groundwater contamination		6,465	-	(266)	-	(967)	5,232
		122,202	23,826	(2,511)	(23,245)	(4,373)	115,899
Accounting life extension During the year ended December 2008, the discounted deep mine decommissioning liabilities reduced following the extension of the accounting lives of Kellingley and Thoresby deep mines by 7 years to 2017. As a result of the accounting life extensions, the level of undiscounted estimated decommissioning liabilities remains unchanged. However, the decommissioning workstreams will occur later, therefore reducing the discounted decommissioning liabilities by £6,400,000. In accordance with IFRIC 1, Changes in Existing Decommissioning, Restoration and Similar Liabilities, the reduction in discounted deep mine decommissioning liabilities is fully offset by a corresponding decrease in the capitalised deep mine development assets. As a result, there is no net revaluation impact for this change in the consolidated income statement.
During the year ended December 2008, the Group has revised the rate used to discount the liabilities for restoration and decommissioning. These provisions have been stated in the consolidated balance sheet at current price levels, discounted at a long-term real rate of interest of 2% per annum to take account of the timing of payments. As a result, the revaluation impact for this change of £2,600,000 has been recorded within operating income.
The total of provisions created, net of provisions released, was £21,315,000 (2007: £3,225,000). This included a net charge of £639,000 (2007: net credit £5,702,000) in respect of non-trading exceptional items.
Provisions have been analysed between current and non-current as follows:
						As at December 2008	As at December 2007
						£000	£000
Current						35,206	31,061
Non-current						80,693	91,141
						115,899	122,202
Provisions are expected to be settled within the timescales set out in the following table. It should be noted that these are based on the information available at the time the consolidated financial statements were prepared and are subject to a number of estimates and uncertainties, as noted below:
			Within 1 year	1-2 years	2-5 years	More than 5 years	Total
			£000	£000	£000	£000	£000
Employer and public liabilities			7,063	4,530	6,511	612	18,716
Surface damage			3,083	2,748	5,761	1,827	13,419
Claims			62	-	-	-	62
Redundancy			1,196	-	-	-	1,196
Restoration and closure costs of surface mines			23,764	12,149	19,621	3,824	59,358
Restoration and closure costs of deep mines:
- shaft treatment and pit top			31	1,677	1,507	6,533	9,748
- spoil heaps			7	856	601	1,377	2,841
- pumping costs			-	-	-	5,327	5,327
Ground/groundwater contamination			-	-	-	5,232	5,232
			35,206	21,960	34,001	24,732	115,899
The nature of the Group's obligations and an indication of the uncertainties surrounding each of the above provisions is provided below:
Employer and public liabilities Provisions are made for current and estimated obligations in respect of claims made by employees, contractors and the general public relating to accident or disease as a result of the business activities of the Group. These relate primarily to the claims held by the Group's captive insurance company, Harworth Insurance Limited. Ownership over land and buildings and dedicated cash deposits, as set out in notes 13 and 18, has been granted to cover these provisions.
Surface damage Provision is made for the Group's liability to compensate for subsidence damage arising from past mining operations. Claims can be lodged by the public up to six years after the date of the relevant damage. The estimate is based on historical claims experience, following a detailed assessment of the nature of the damage foreseen. Security over dedicated cash deposits and an insurance bond, as set out in note 18, has been granted to cover these provisions.
Claims Where surface mine sites owned by the Group are mined by external contractors and mining conditions vary from those specified in the contract, the external contractors may be entitled to claim further costs incurred. Claims are settled with individual contractors, generally at the completion of a surface mining site. All claims provisions are based on known mining conditions encountered, historical experience and contracted rates.
Redundancy Provision is made for current estimated future costs of redundancy and ex-gratia payments to be made where this has been communicated to those employees concerned.
Restoration and closure costs of surface mines Provisions are made for the total costs of reinstatement of soil excavation and for surface restoration, such as topsoil replacement and landscaping. Costs become payable after coal mining has been completed. Further liabilities for aftercare can extend after restoration, for a period of up to six years.
Restoration and closure costs of deep mines:
Shaft treatment and pit top - provisions are made to meet the Group's liability to fill and cap all mine shafts and return pit top areas to a condition consistent with the required planning permission. No liabilities will arise until decommissioning of each individual colliery. The current pit top provision reflects existing planning permissions that require pit areas to be restored to former use, usually agricultural. The Group will, where possible, seek planning permission for development use, which, if successful, may reduce the expected cost.
Spoil heaps - provisions are made for the costs payable to bring spoil heaps to a condition consistent with the required planning permission and to complete approved restoration schemes. An element of spoil heap restoration is ongoing, although the majority of costs will be incurred after the decommissioning of a colliery.
Pumping costs - there is a legal requirement to continue pumping activities at certain mine sites following closure and for a period into the future. The provision is based on current experience and the net present value of future cost projections. Pumping costs on continuing operations are expensed as incurred.
Ground/groundwater contamination - provisions are made for the Group's legal or constructive obligation to address ground and groundwater pollutants at its operating sites. The provision is based on estimates of volumes of contaminated soil and the historical contract costs of ground contamination treatment. These costs will usually be incurred following the decommissioning of a site.
22 FINANCIAL INSTRUMENTS AND DERIVATIVES
The Group's principal financial instruments include derivative financial instruments, trade and other receivables, cash and cash equivalents, restricted cash, interest bearing borrowings and trade and other payables.
Derivative financial instruments
					Assets		Liabilities
					£000		£000
At the end of the year
Fair value - 2008					-		8,493
Fair value - 2007					424		2,148
The Group uses interest rate swaps in order to fix the interest payable on a large proportion of its variable rate borrowings. The fair value of derivative financial instruments is valued, where possible, using quoted market prices. The fair value of these instruments equals the book value at December 2008 and December 2007. For those swaps which are effective cash flow hedges under IAS 39 the effective portion of their fair value movements has been deferred in reserves. Exposures have been presented as net positions by a counterparty whenever there is the intention and ability to legally set off assets and liabilities.
Hedging relationships
As at December 2008, cash flow hedges were in place up to July 2012. The movement in effective hedging relationships in the year was a loss of £7,354,000 (2007: £nil) and is recorded in the hedge reserve within equity (see note 27). The movement in the fair value of contracts which are not effective for hedge accounting purposes, or which were not designated as cash flow hedges, being a gain of £761,000 (2007: loss of £1,900,000) in the year is presented within finance costs in the consolidated income statement (see note 6). The total notional principal of outstanding interest rate swaps that the Group is committed to is £125,779,000 (2007: £114,970,000). The weighted average fixed interest rate and period to maturity of the Group's interest rate swaps was 7.32% (2007: 7.34%) and 2.2 years (2007: 2.8 years), respectively. The Company has no interest rate swaps.
Other financial assets and liabilities				December 2008		December 2007
				Book value	Fair value	Book value	Fair value
Group Assets				£000	£000	£000	£000
Cash and cash equivalents				71,102	71,102	70,068	70,068
Trade and other receivables				41,518	41,518	41,369	41,369
Derivative financial instruments				-	-	424	424
Liabilities
Bank borrowings				171,236	171,236	111,347	111,347
Finance lease liabilities				8,127	8,127	13,894	13,894
Trade and other payables				104,191	104,191	100,213	100,213
Derivative financial instruments				8,493	8,493	2,148	2,148
In accordance with IAS 39, the Group classifies the assets and liabilities in the analysis above as 'loans and receivables' and 'other financial liabilities', respectively. At the 2008 and 2007 year ends, the Group did not have any 'held to maturity' or 'available for sale' financial assets or 'held for trading' financial assets and liabilities as defined by IAS 39. At the year end date, the Company held cash and cash equivalents, classified as loans and receivables, of £40,682,000 (2007: £20,063,000).
The carrying value of the Group's external borrowings, which consist of floating rate and fixed rate short-term borrowings, approximates to fair value. Details of the maturity profile of these financial liabilities are included in note 19. The carrying value of other long-term receivables approximates to fair value. For other financial assets and liabilities, which are all short-term in nature, the carrying value approximates to fair value.
23 FINANCIAL RISK MANAGEMENT
The Group's activities expose it to a variety of financial risks: market (interest rate) risk, credit risk and liquidity risk. The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance. The Group uses derivative financial instruments to hedge certain risk exposures.
Risk management is carried out by a central treasury function under policies approved by the Board of Directors. Group treasury identifies, evaluates and hedges financial risks in close co-operation with the Group's mining and property businesses. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments and investment of excess liquidity.
Interest rate risk
The Group has an exposure to interest rate risk arising on changes in interest rates in the United Kingdom and therefore seeks to limit this net exposure. This is achieved by the use of derivative instruments such as interest rate swaps to hedge a proportion of the Group's borrowings over the period of the related loan. These interest rate swaps, allow the Group to exchange, at specified intervals (usually quarterly), the difference between contracted fixed rates and floating rate interest payable on borrowings calculated by reference to the agreed notional amounts. The Group does not enter into instruments which are leveraged or held for speculative purposes.
If interest rates on sterling denominated borrowings during the year had been 2% higher or lower with all other variables held constant, post-tax profit for the year would have been £638,000 (2007: £489,000) lower or higher, as a result of higher or lower interest expense on floating rate borrowings which have not been economically hedged with an interest rate swap contract. An increase or decrease of 2% represents the Group's assessment of a reasonably possible change in interest rates.
The sensitivity of post-tax profit is calculated based on floating rate borrowings at the balance sheet date, after deducting amounts hedged into fixed rates by interest rate swaps.
Currency risk
During 2008 and 2007, the Group's borrowings at variable and fixed rates were denominated in sterling. No foreign exchange contracts were entered into in 2008 (none in 2007) as the Group has no direct material foreign exchange exposure.
Credit risk
The Group is subject to credit risk arising from outstanding receivables and committed cash and cash equivalents and deposits with banks and financial institutions. The Group's policy is to manage credit exposure to trading counterparties within defined trading limits. All of the Group's significant counterparties are assigned internal credit limits.
The Group sells coal to large industrial and commercial customers. All of its electricity supply industry customers have an investment grade quality rating (from Standard and Poor's) of between A and BBB-. No credit limits were exceeded during the reporting period and management does not expect any losses from non-performance by these counterparties.
If any of the Group's customers are independently rated, these ratings are used. Otherwise, if there is no independent rating, the Group assesses the credit quality of the customer taking into account its financial position, past experience and other factors.
The Group is exposed to counterparty credit risk on cash and cash equivalent balances. The Group holds cash on deposit with a number of financial institutions. The Group manages its credit risk exposure by limiting individual deposits to clearly defined limits. For banks and financial institutions, only independently rated parties with an investment grade quality rating (from Standard and Poor's) of at least A- rated are accepted.
Liquidity risk
The Group is subject to the risk that it will not have sufficient borrowing facilities to fund its existing business and its future plan for growth. The Group manages its liquidity requirements with the use of both short and long-term cash flow forecasts. These forecasts are supplemented by a financial headroom position which is used to demonstrate funding adequacy for at least a 12 month period.
Subsequent to the year end, in support of the committed credit facilities, the Group has renegotiated some of its coal supply contracts with its customers with the result that increased cash flows have been agreed in the form of prepayments and loans. Details of these transactions are disclosed in note 34.
The Group's main source of liquidity is its operating mining business. Cash generation by this business is dependent upon the reliability of the Group's deep and surface mines in producing coal, the realised selling price for coal, operational risk and capital investment expenditure and maintenance requirements. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of committed credit facilities. Due to the dynamic nature of the underlying businesses, Group treasury aims to maintain flexibility in funding by keeping committed credit lines available.
The net debt position, after restricted cash, of £104,268,000 at the beginning of the year had increased during the year to £137,027,000 at the year end. The Group generated negative cash flow from operating activities after capital expenditure for the year of £32,365,000 (2007: £10,130,000).
As at December 2008, around two thirds of the total bank facilities was provided by banks which, following the takeover by Lloyds TSB plc of HBOS plc, are now part of the Lloyds Banking Group plc. Also, at December 2008 just less than 10% was provided by Landsbanki, the failed Icelandic bank which is seeking to close and recover its loan book as part of the bank's closure process. Facilities provided by Landsbanki were largely fully drawn in advance of the collapse of the bank.
The Group's committed borrowing facilities at December 2008 were subject to financial covenants based on loan to value (''LTV'') calculations which are tested on a quarterly basis. These covenants restrict the Group's ability to access committed facilities within a range of 50% - 75% of the value of certain properties on which the borrowings are secured. These covenants affect around two thirds of the facilities as at December 2008. The Group is currently in compliance with these covenants at the year end date. However, a decrease in the valuations of the Group's properties could impact on covenants resulting in increased charges and potential reduction in the availability of facilities.
The table below analyses the Group's financial liabilities which will be settled on a net basis into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.
				Less than 1 year	Between 1 and 2 years	Between 2 and 5 years
				£000	£000	£000
At December 2008
Bank borrowings				11,218	107,109	75,842
Finance lease liabilities				6,442	2,112	186
Trade and other payables				104,052	139	-
Derivative financial instruments				4,050	1,566	1,616
At December 2007
Bank borrowings				30,719	9,532	105,331
Finance lease liabilities				6,881	6,435	2,091
Trade and other payables				100,213	73	-
Derivative financial instruments				(196)	77	1,029
Capital risk management
The Group is subject to the risk that its capital structure will not be sufficient to support the growth of the business. The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total equity. Net debt is calculated as total borrowings (including borrowings as shown in the consolidated balance sheet) less cash and cash equivalents. The gearing ratios for the Group at December 2008 and December 2007 were as follows:
				2008		2007
				£000		£000
Total borrowings				179,363		125,241
Less: Unrestricted cash and cash equivalents (note 18)				(42,336)		(20,973)
Net debt				137,027		104,268
Total equity				300,432		358,246
Gearing ratio				45.6%		29.1%
24 RETIREMENT BENEFIT OBLIGATIONS
Defined contribution pension schemes
The Group operates defined contribution pension schemes in respect of all employees who joined after the privatisation date in 1994. Contributions to defined contribution schemes in the year amounted to £1,368,000 (2007: £1,229,000).
Defined benefit obligations
The balance sheet amounts in respect of retirement benefit obligations are:
					As at December 2008		As at December 2007
					£000		£000
Industry wide schemes					74,079		48,893
Blenkinsopp					660		835
Concessionary fuel					29,277		23,443
					104,016		73,171
Contributions to defined benefit schemes during the year amounted to £20,116,000 (2007: £20,118,000). At December 2008, contributions of £nil remained unpaid (2007: £854,000).
Industry wide schemes
The Group operates pension schemes providing benefits based on final pensionable pay. The majority of the employees within defined benefit schemes are members of industry wide schemes, being either the Industry Wide Coal Staff Superannuation Scheme ('IWCSSS') or the Industry Wide Mineworkers' Pension Scheme ('IWMPS'), both of which commenced on privatisation following the Coal Industry Act 1994. The pension schemes are valued annually by qualified independent actuaries for the purposes of IAS 19 and the preparation of financial statements. The assumptions which usually have the most significant effect on the results of the valuation are the discount rate, which is based on bond yields, and the rates of increases in salaries and pensions. The main assumptions underlying the valuations of the Group sections of each scheme were as follows:
					As at December 2008		As at December 2007
Discount rate					6.5% p.a.		5.8% p.a.
Rate of return on investments					6.4% p.a.		6.7% p.a.
Rate of salary increases					3.6% p.a.		3.3% p.a.
Rate of price inflation					2.6% p.a.		3.3% p.a.
Rate of return on equities					7% p.a.		7% p.a.
Rate of return on debt					5.2% p.a.		5.8% p.a.
Rate of cash commutation					20.0%- 25.0%		22.50%
					Year ended December 2008		Year ended December 2007
Longevity at age 60 for current pensioners (years)
IWMPS and IWCSSS
- Men					22.0 - 23.7		20.4 - 22.3
IWCSSS
- Women					26.3		26.7
Longevity at age 60 for future pensioners (years)
IWMPS and IWCSSS
- Men					23.3 - 24.7		21.4 - 22.9
IWCSSS
- Women					27.2		27.2
IWCSSS pensions in payment are assumed to increase in line with price inflation. For the IWMPS, the assumed pension increases depend on the period of service accrual (before April 1997: no increases, 1997 to 2005: in line with price inflation, after April 2005: 1.9%).
The overall expected rate of return on assets is based on a historic view of the yields from equities and the rates prevailing on applicable bonds at the balance sheet date.
The amounts recognised in the consolidated balance sheet are as follows:
			2008	2007	2006	2005	2004
			£000	£000	£000	£000	£000
Fair value of plan assets			316,464	372,188	348,325	301,540	231,744
Present value of funding obligations			(390,543)	(421,081)	(442,794)	(418,270)	(344,925)
Net liability recognised in the balance sheet			(74,079)	(48,893)	(94,469)	(116,730)	(113,181)
None of the pension schemes owns any shares in the Company.
The amounts recognised in the consolidated income statement are:
					Year ended December 2008		Year ended December 2007
					£000		£000
Current service cost					(12,341)		(13,593)
Interest cost					(24,534)		(22,034)
Expected return on plan assets					25,473		22,925
Effect of curtailment or settlement					-		2,427
					(11,402)		(10,275)
Current service cost is charged to cost of sales, with interest cost less expected return on plan assets included in administration expenses and effect of curtailment or settlement is included in non-trading exceptional items. A further £33,900,000 loss (2007: £35,733,000 gain) has been reflected in the statement of recognised income and expense in the year. This represents the net effect of experience and actuarial gains and losses on the schemes in the year.
					Year ended December 2008		Year ended December 2007
Change in assets					£000		£000
Fair value of plan assets at the start of the year					372,188		348,325
Expected return on plan assets					25,473		22,925
Actuarial losses on assets					(92,915)		(237)
Employer contributions					20,116		19,264
Plan participants' contributions					3,762		3,381
Benefits paid					(12,160)		(8,975)
Effect of Maltby colliery sale					-		(13,349)
December cash contributions accrued					-		854
Fair value of plan assets at the end of the year					316,464		372,188
The major categories of the schemes' assets are as follows:
					As at December 2008		As at December 2007
					£000		£000
Equity securities					215,889		293,493
Debt securities					100,575		78,695
					316,464		372,188
The actual return on plan assets was a loss of £67,442,000 (2007: gain of £22,688,000).
					Year ended December 2008		Year ended December 2007
Change in defined benefit obligations					£000		£000
Present value of defined benefit obligation at the start of the year					(421,081)		(442,794)
Current service cost					(12,341)		(13,593)
Interest cost					(24,534)		(22,034)
Plan participants' contributions					(3,762)		(3,381)
Curtailment gain					-		668
Actuarial gain					59,015		35,970
Benefits paid					12,160		8,975
Effect of Maltby colliery sale					-		15,108
Present value of defined benefit obligation at the end of the year					(390,543)		(421,081)
					Year ended December 2008		Year ended December 2007
Analysis of the movement of the balance sheet liability					£000		£000
At the start of the year					(48,893)		(94,469)
Total amounts recognised in the income statement					(11,402)		(10,275)
Contributions					20,116		20,118
Net actuarial (loss)/gain recognised in the year					(33,900)		35,733
At the end of the year					(74,079)		(48,893)
					Year ended December 2008		Year ended December 2007
Cumulative actuarial gains and losses recognised in equity					£000		£000
At the start of the year					23,900		(11,833)
Net actuarial (loss) / gain in the year					(33,900)		35,733
At the end of the year					(10,000)		23,900
					Year ended December 2008		Year ended December 2007
Experience gains and losses					£000		£000
Actual return less expected return on schemes' assets					(92,915)		(237)
Experience losses arising on schemes' liabilities					(2,914)		(1,495)
Changes in assumptions underlying present value of liabilities					61,929		37,465
Net actuarial (loss) / gain					(33,900)		35,733
History of experience losses
			2008	2007	2006	2005	2004
			£000	£000	£000	£000	£000
Actual return less expected return on schemes' assets			(92,915)	(237)	9,634	36,975	10,171
Percentage of year end scheme assets			(29%)	0%	3%	12%	4%
Experience losses arising on schemes' liabilities			(2,914)	(1,495)	(3,721)	(5,242)	(7,074)
Percentage of the present value of schemes' liabilities			1%	0%	1%	1%	2%
Contributions are determined by a qualified actuary on the basis of triennial valuations, using the Projected Unit Credit method. The most recent valuations for the purpose of determining contributions were at 31 December 2006, which were agreed in December 2008.
The contribution expected to be paid to the schemes during the year ending December 2009 is around £21,000,000 including current service costs.
Blenkinsopp
Blenkinsopp is a section of the IWMPS covering the pension arrangements of the various companies comprising parts of the former British Coal. Blenkinsopp Collieries Limited was sold by the Group in 1998. However, it has since gone into liquidation and the retirement liabilities have reverted to the Group. The liability as at December 2008 is £660,000 (2007: £835,000), the amount recognised in the income statement is £87,000 (current service costs £38,000 and interest cost less expected return on plan assets £49,000) and the amount recognised in statement of recognised income and expense is £262,000 (2007: £464,000). Cumulative actuarial gains recognised in equity for this Blenkinsopp section were £726,000 (2007: £464,000).
Concessionary fuel
The Group operates a concessionary fuel arrangement in the UK. Provision for concessionary fuel is made to cover the future retirement costs for those employees who currently benefit as part of their regular terms of employment, or former employees who are benefiting in retirement. This relates only to employees who transferred under privatisation. A 1% annual allowance is made to reduce the provision for employees who are expected to be unable to take the benefits.
An actuarial valuation was carried out by an independent actuary at December 2008. The major assumptions used by the actuary were:
					Year ended December 2008		Year ended December 2007
Discount rate					6.5% p.a.		5.8% p.a.
Inflation assumption					2.6% p.a.		3.3% p.a.
The amounts recognised in the balance sheet are as follows:
			2008	2007	2006	2005	2004
			£000	£000	£000	£000	£000
Net liability recognised in the balance sheet			(29,277)	(23,443)	(24,727)	(24,309)	(22,579)
The amounts recognised in the consolidated income statement are:
					Year ended December 2008		Year ended December 2007
					£000		£000
Current service cost					(309)		(424)
Interest cost					(1,347)		(1,214)
Effect of curtailment or settlement					-		946
					(1,656)		(692)
Current service cost is charged to cost of sales, interest cost is included in administration expenses and effect of curtailment or settlement is included in non-trading exceptional items. A further £4,911,000 loss (2007: £1,280,000 gain) has been reflected in the statement of recognised income and expense in the year. This represents the net effect of experience and actuarial gains and losses on the schemes in the year.
					Year ended December 2008		Year ended December 2007
Analysis of the movement of the balance sheet liability					£000		£000
Concessionary fuel reserve at the start of the year					(23,443)		(24,727)
Current service cost					(309)		(424)
Benefits paid to former employees during the year					733		696
Interest cost					(1,347)		(1,214)
Actuarial (loss)/gain					(4,911)		1,280
Effect of curtailment or settlement					-		946
Concessionary fuel reserve at the end of the year					(29,277)		(23,443)
The valuation of the balance sheet liability has been based on market prices for the related coal products at the end of the year. The actuarial loss in the year arises principally as a result of the increases experienced in those market prices.
					Year ended December 2008		Year ended December 2007
Cumulative actuarial gains and losses recognised in equity					£000		£000
At the start of the year					(1,263)		(2,543)
Net actuarial (loss)/gain in the year					(4,911)		1,280
At the end of the year					(6,174)		(1,263)
					Year ended December 2008		Year ended December 2007
Experience gains and losses					£000		£000
Experience (loss)/gain on concessionary fuel reserve					(8,510)		444
Changes in assumptions underlying present value of liabilities					3,599		836
Total amount recognised in statement of recognised income and expense					(4,911)		1,280
			2008	2007	2006	2005	2004
History of experience gains and losses			£000	£000	£000	£000	£000
Experience (loss)/gain on concessionary fuel reserve			(8,510)	444	1,258	-	3,186
Percentage of concessionary fuel reserve			(29)%	2%	5%	0%	14%
25 CALLED UP SHARE CAPITAL
				2008		2007
Group and Company Authorised share capital				Number of shares	£000	Number of shares	£000
At the start and end of the year
Ordinary shares of 1 pence each				250,000,000	2,500	250,000,000	2,500
Issued and fully paid
Ordinary shares of 1 pence each
At the start of the year				157,128,220	1,571	156,651,482	1,566
Issued during the year				124,527	1	476,738	5
At the end of the year				157,252,747	1,572	157,128,220	1,571
124,527 ordinary shares were issued at par on 31 October 2008 to fulfil awards crystallised under the Long Term Incentive Plan ('LTIP').
Long Term Incentive Plan
A Long Term Incentive Plan was introduced in 2000 for Executive Directors and Senior Executives. Details of the plan are set out in the Directors' Remuneration Report. During the year, 124,527 (2007: 476,738) shares were reserved against the award of shares under the LTIP. The shares are awarded at an exercise price of £nil. Shares outstanding at December 2008 are as follows:
						2008	2007
						Number	Number
Exercisable from 2009						-	377,221
Exercisable from 2010						279,126	292,083
Exercisable from 2011						359,570	-
The awards granted in the year were valued using a Monte Carlo simulation utilising Black-Scholes methodology as follows:
					2008	2007	2007
Grant date					22 April	18 September	2 March
Share price at grant date					£4.53	£5.03	£4.95
Exercise price					£nil	£nil	£nil
Number of employees					18	10	17
Shares under option					366,160	144,406	241,411
Vesting period (years)					3	3	3
Expected volatility					34.3%	33.5%	33.5%
Option life (years)					3	3	3
Expected life (years)					2.69	2.23	2.84
Risk free rate					4.36%	4.97%	5.05%
Possibility of ceasing employment before vesting					5%pa	5%pa	5%pa
Fair value per option					£1.97	£2.83	£2.91
The expected volatility is based on historical volatility over the last nine years. The expected life is the average expected period to exercise. The risk free rate of return is the yield on zero-coupon UK Government bonds of a term consistent with the assumed option life. A reconciliation of option movements over the year to December 2008 is shown below:
					Year ended December 2008		Year ended December 2007
					Number		Number
Outstanding at the start of the year					793,831		1,191,186
Granted					366,160		385,817
Exercised					(124,527)		(458,668)
Expired					(396,768)		(324,504)
Outstanding at the end of the year					638,696		793,831
Bonus Share Matching Plan
A Bonus Share Matching Plan for Executive Directors and Senior Executives, was introduced in 2000. It is no longer operated by the Group.
					Year ended December 2008		Year ended December 2007
					Number		Number
Outstanding at the start of the year					-		22,322
Expired					-		-
Interests matured					-		(22,322)
Outstanding at the end of the year					-		-
The total charge for the year relating to employee share-based payment plans was £540,000 (2007: £284,000) all of which related to equity settled share-based payment transactions.
26 RESERVES
			Ordinary	Share premium	Other reserves	Retained	Total
			shares	account	(note 27)	earnings	equity
Group			£000	£000	£000	£000	£000
At January 2007			1,566	30,756	253,639	(41,842)	244,119
New shares issued			5	-	-	-	5
Profit in the year			-	-	-	94,023	94,023
Actuarial gains on post-retirement benefits			-	-	-	37,477	37,477
Long term incentive plan liabilities - value of employee services			-	-	-	284	284
Movement on deferred tax asset in relation to retirement benefit liabilities			-	-	-	(24,395)	(24,395)
Disposal of investment properties			-	-	(6,049)	6,049	-
Revaluation of investment properties			-	-	6,733	-	6,733
Fair value gain on revaluation of investment properties			-	-	66,799	(66,799)	-
At January 2008			1,571	30,756	321,122	4,797	358,246
New shares issued			1	-	-	-	1
Loss in the year			-	-	-	(15,743)	(15,743)
Actuarial gains on post-retirement benefits			-	-	-	(38,549)	(38,549)
Long term incentive plan liabilities - value of employee services			-	-	-	540	540
Movement on deferred tax asset in relation to retirement benefit liabilities			-	-	-	(2,257)	(2,257)
Transfer of realised gain on disposed properties			-	-	(17,815)	17,815	-
Revaluation on recognition of investment properties			-	-	3,170	-	3,170
Fair value gain on revaluation of investment properties			-	-	23	(23)	-
Cash flow hedges			-	-	(7,354)	-	(7,354)
Movement on deferred tax asset in relation to cash flow hedges			-	-	2,378	-	2,378
At December 2008			1,572	30,756	301,524	(33,420)	300,432
Retained earnings include a cumulative actuarial loss on the Group's retirement benefit obligations of £15,448,000 (2007: gain of £23,101,000)
			Ordinary	Share premium	Other reserves	Retained	Total
			shares	account	(note 27)	earnings	equity
Company			£000	£000	£000	£000	£000
At January 2007			1,566	30,756	257	409,045	441,624
New shares issued			5	-	-	-	5
Loss in the year			-	-	-	(1,867)	(1,867)
Long term incentive plan liabilities - value of employee services			-	-	-	284	284
At January 2008			1,571	30,756	257	407,462	440,046
New shares issued			1	-	-	-	1
Profit in the year			-	-	-	4,474	4,474
Provision for impairment of investment in subsidiaries			-	-	-	(172,914)	(172,914)
Long term incentive plan liabilities - value of employee services			-	-	-	540	540
At December 2008			1,572	30,756	257	239,562	272,147
27 OTHER RESERVES
			Hedging	Revaluation	Capital redemption	Fair value
			reserve	reserve	reserve	reserve	Total
Group			£000	£000	£000	£000	£000
At January 2008			-	143,014	257	177,851	321,122
Revaluation on recognition of investment properties			-	3,170	-	-	3,170
Transfer of realised gain on disposed properties			-	(15,845)	-	(1,970)	(17,815)
Fair value gain on revaluation of investment properties			-	-	-	23	23
Cash flow hedges			(7,354)	-	-	-	(7,354)
Movement in deferred tax asset on cash flow hedges			2,378	-	-	-	2,378
At December 2008			(4,976)	130,339	257	175,904	301,524
						Capital
						redemption
						reserve	Total
Company						£000	£000
At January and December 2008						257	257
None of the other reserves balances at either the 2008 or 2007 year ends represented realised reserves.
28 CAPITAL AND OTHER FINANCIAL COMMITMENTS
					As at December 2008		As at December 2007
Group					£000		£000
Property, plant and equipment					38,613		12,200
Investment property					865		2,100
					39,478		14,300
29 OPERATING LEASE COMMITMENTS
Group
The minimum lease payments due to the Group under non-cancellable operating leases, all of which relate to property rentals, are as follows:
					As at December 2008		As at December 2007
					£000		£000
Lease expiring:
Within 1 year					4,354		5,444
Later than 1 year and less than 5 years					5,890		9,063
After 5 years					20,007		19,055
					30,251		33,562
The minimum lease payments due by the Group under non-cancellable operating leases, all of which relate to rights over land usage, are as follows:
					As at December 2008		As at December 2007
					£000		£000
Lease expiring:
Within 1 year					220		127
Later than 1 year and less than 5 years					347		124
After 5 years					261		119
					828		370
The Company had no interest in any operating leases (2007: £nil).
30 SALE OF BUSINESS
On 26 February 2007, Maltby colliery was sold to Hargreaves Services PLC ('Hargreaves') with a transfer of operational assets and liabilities, together with the workforce. Hargreaves was the second largest customer for Maltby. The consideration of £21,500,000 resulted in a profit on sale of £8,481,000.
31 CONTINGENT LIABILITIES
Guarantees have been given in the normal course of business for performance bonds of £1,235,000 (2007: £2,558,000) to cover the performance of work under a number of Group contracts.
The Company is liable for the pension schemes contributions and deficit on the Industry Wide Schemes. Furthermore, the Company has provided a guarantee for an insurance bond for £10,000,000 which is used as security to cover surface damage liabilities.
There are no other material contingent liabilities at December 2008 for which provision has not been made in these financial statements.
32 RELATED PARTY TRANSACTIONS
Group
During the year, the Group made various payments to industry wide defined benefit pension schemes. Details of these transactions are set out in note 24 to the financial statements.
Key management compensation is disclosed in note 5.
Transactions with joint ventures
The following transactions were carried out with the joint ventures:
					Year ended December 2008		Year ended December 2007
					£000		£000
UK Strategic Partnership Limited
Sales of land to related party					1,292		-
Purchases of goods and services from related party					143		-
Coal4Energy Limited
Sales of goods and services to related party:
- Coal					24,436		29,114
- Services					580		516
					25,016		29,630
Purchases of goods and services from related party:
- Coal					5		24
- Finance costs					3		23
					8		47
Sales and purchases to and from the joint ventures were carried out on commercial terms and conditions and at market prices.
Profit of £62,000 has been recognised in the period on the sale of land to UK Strategic Partnership Limited.
Balances owing from/(to) joint ventures
Coal4Energy Limited
The balance arising from sales of goods and services at December 2008 was £61,000 (December 2007: £2,332,000) owed from the joint venture, and the balance arising from purchase of goods and services at December 2008 was £nil (December 2007: £nil).
UK Strategic Partnership Limited
The balance arising from sales at December 2008 was £409,000 (December 2007: £nil).
Peel Holdings Limited
On 24 April 2008, the Group's major shareholder, Peel Holdings Limited, granted a £10,000,000 unsecured facility committed for 12 months.
Company
The Group manages its financing arrangements centrally. Amounts are transferred within the Group dependent on the operational needs of individual companies. The Directors do not consider it meaningful to set out the gross amounts of transfers between individual companies. Details of the Company's cash and indebtedness are set out in notes 18 and 19 and amounts due from or owed to subsidiary undertakings are set out in notes 17 and 20.
The Company received vehicle hire services from Mining Services Limited of £nil (2007: £6,000).
33 GOVERNMENT GRANTS
The Group has received support from the Government, in the form of, Coal Investment Aid, in order to provide assistance towards investment in the industry. Details of how this aid is treated is set out in note 1 to the financial statements. Amounts credited to the income statement are as follows:
					Year ended December 2008		Year ended December 2007
					£000		£000
Release of deferred income					3,106		2,926
34 POST BALANCE SHEET EVENTS
As disclosed in note 14, the 50% shareholding in Coal4Energy Limited, one of the Group's joint ventures, was sold in January 2009 to Hargreaves, the joint venture partner, realising a profit on sale of £6,500,000.
Following discussions held with customers after the year end, as outlined in the Operating and Financial Review, we have successfully negotiated new, or amended old, long term supply contracts. The negotiations have led to an increase in contractual coal commitments from 24.0 million tonnes at the end of 2007 to 36.1 million tonnes at the start of calendar year 2009, and increased cash flows into the business in 2009 and 2010 in the form of customer prepayments, loans and other contractual terms. The total benefit in cash flow terms of these arrangements will be of the order of £85 million in 2009 and a further £15 million in 2010, with repayments to be made in later years up to 2015.

 

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