Final Results

UK Coal PLC 04 March 2004 4 March 2004 UK COAL PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2003 UK COAL PLC, the coal mining and property group, today announces its preliminary audited results for the year ended 31 December 2003. • Loss before tax and operating exceptional items £7.6 million (2002: profit £8.4 million) (Note a) • Profit after tax £3.9 million (2002: loss £81.8 million) (Note a&b) • Cash inflow before use of liquid resources, financing and dividends of £39.1 million (2002: outflow £25.2 million) • Final dividend maintained at 5 pence per share, giving total dividend for the year of 10 pence per share • UK sales volumes maintained at 18.9 million tonnes (2002: 18.9 million tonnes) • Unit costs in deep mines reduced despite continuing losses at the Selby Complex • Property sales increased, generating a profit of £5.8 million (2002: £2.0 million) • Investment aid accepted worth £35.4 million over the period 2003/05 Note a Includes net provision charge of £7.5 million (2002: Release £21.1 million) Note b After crediting £4.4 million in respect of operating exceptional items (2002: £88.4 million charge) Commenting on the results, Gordon McPhie, Chief Executive of UK COAL, said: 'The sharp rise in world coal prices in September 2003, offset to some degree by the reduced value of the US$, has been maintained. However, with forward contracted sales of 90% of production in 2004 and 50% of planned output in 2005 there will be limited benefit from the current high international prices over the next two years. 'Progress was made during the year in reducing unit operating costs, with costs of circa £1.09 per gigajoule being achieved at the ongoing collieries in the last quarter. Costs for 2004 will be affected by increases in line with inflation and the effect of geological problems at Rossington and Welbeck, resulting in revised mining plans which are expected to add around 3% to unit costs. 'The Company continues to focus on its extensive property portfolio, with proceeds from sales and rental income both showing increases. 'We have had a slow start to production in 2004, but expect to recover this later in the year. The continued efforts to reduce unit costs with our Project 105 initiatives and the closure of the loss-making Selby complex of mines, augur well for the future. In addition the year ahead should see further progress in adding value to the Company's property assets'. For further information, please contact: UK COAL PLC Today: 020 7554 1400 Gordon McPhie, Thereafter 01302 751 751 Chief Executive Financial Gavin Anderson & Company Liz Morley 020 7554 1400 Ken Cronin 020 7554 1400 Operational Stuart Oliver 01525 381 759 PRELIMINARY RESULTS STATEMENT: RESULTS Turnover for the year was £563.9 million (2002: £596.6 million). The profit on ordinary activities after tax was £3.9 million (2002: loss £81.8 million), including a net operating exceptional gain of £4.4 million (2002: net exceptional loss £88.4 million). UK COAL carried out its annual review of cost provisions for shaft treatment, the remediation of operational land, the restoration of spoil heaps and pumping. The net value of provisions created and released, excluding exceptional redundancy and concessionary fuel items, resulted in a net charge of £7.5 million, which has increased the cost of sales in the year (2002: net release of £21.1 million, which reduced cost of sales). Coal Investment Aid income of £3.5 million was recognised in the period (2002: nil). Net cash inflow from operating activities at £46.0 million (2002: £8.9 million) benefited from a reduction in coal stocks equating to £19.3 million (2002: coal stock increase £20.3 million). Cash flow has also benefited from the receipt of £8.4 million in respect of the sale of UK COAL's claim against TXU in Administration (see note 3f). The cash inflow before use of liquid resources, financing and dividends of £39.1 million (2002: net outflow of £25.2 million) reflects proceeds from property sales, which increased to £9.7 million (2002: £2.2 million), and reduced capital expenditure of £19.1 million (2002: £40.5 million). Capital expenditure will increase in 2004 to circa £50 million, which includes significant investment on new face equipment at Daw Mill and Kellingley Collieries. DIVIDEND Taking into account the net cash inflow in the period, the improved performance of Daw Mill Colliery and the future needs of the business during the Selby closure, the Board has decided to recommend to shareholders maintenance of the final dividend at 5.0 pence per share, bringing the total dividend for the year to 10.0 pence per share (2002: 10.0 pence per share). Subject to approval at the AGM on 27 April 2004, the dividend will be paid on 18 June 2004 to shareholders on the register on 21 May 2004. OPERATIONAL REVIEW Sales Coal sales volumes in the UK for the year at 18.9 million tonnes were at similar levels to 2002 but average income of £1.12p per gigajoule was 7p per gigajoule lower than in the previous year as a consequence of the low international prices prevailing at the time of contract negotiations. Coal burn for power generation yet again exceeded expectations, with 34% of the UK's electricity being sourced from coal (2002: 32%). UK power stations consumed some 53.2 million tonnes of coal during the year (2002: 47.7 million tonnes). During the year, the price of internationally traded coal almost doubled in US$ terms, ending 2003 on a record high. However, with most of our sales tied to contracts negotiated or agreed earlier, the Company was unable to capitalise on the increase in international prices. Mining Coal production for the Group was 17.9 million tonnes (2002: 19.5 million tonnes) in the UK and 1.7 million tonnes (2002: 2.4 million tonnes) in Australia. The reduction in deep mine production, down to 14.8 million tonnes (2002: 15.2 million tonnes) was largely due to the continuing poor performance of the Selby Complex, where output of 3.6 million tonnes was a million tonnes less than the previous year, reflecting ongoing geological and engineering difficulties. The Selby mines will cease production by the summer of 2004. Daw Mill, however, continued to make good progress producing 2.2 million tonnes. Flexible working arrangements have been introduced at Maltby Colliery, where a new British and European record for driving underground roadways was recently established. Surface mine production of 3.1 million tonnes (2002: 4.3 million tonnes) reflected the completion of coaling at long-standing sites and the increasing difficulty in securing new planning consents for replacement capacity. Planning applications submitted in the year totalled 2.7 million tonnes, these rest with the Mineral Planning Authority. Further schemes, which would access a total of 3.5 million tonnes of reserves, have been identified for submission for planning consent in 2004. Geological problems at Ellington, Rossington and Welbeck, together with the poor performance at Selby and increased surface mine costs, resulted in total operating costs for all mining operations in 2003 of £1.16p per gigajoule (2002: £1.18p per gigajoule). Operating costs of circa £1.09p per gigajoule were achieved at the eight ongoing deep mines in the last quarter. Coal Investment Aid Applications for Coal Investment Aid relating to the accessing of coal reserves at the eight ongoing deep mines within the Group were submitted to the Department of Trade and Industry in line with the scheme outlined in the Energy Review White Paper. The Company was offered some £36.5 million in aid for schemes at all eight ongoing collieries. The Company has now accepted offers of aid worth around £35.4 million. Production output 2003 2002 Deep Mines (mt) (mt) Ongoing Mines Daw Mill 2.2 0.8 Ellington 0.6 0.7 Harworth 1.2 1.2 Kellingley 1.6 1.6 Maltby 1.4 1.4 Rossington 0.9 0.7 Thoresby 1.5 1.5 Welbeck 1.6 1.7 ------------------- --------------- ----------------- Sub Total 11.0 9.6 ------------------- --------------- ----------------- Closed or Closing Clipstone* 0.2 0.3 Prince of Wales** - 0.7 Riccall ++ 0.9 1.3 Stillingfleet ++ 1.6 1.9 Wistow + 1.1 1.4 ------------------- --------------- ----------------- Sub Total 3.8 5.6 ------------------- --------------- ----------------- Deep Mines Total: 14.8 15.2 ------------------- --------------- ----------------- Surface Mines Total 3.1 4.3 ------------------- --------------- ----------------- Total UK Production 17.9 19.5 ------------------- --------------- ----------------- Gloucester Coal (Australia) 1.7 2.4 ------------------- --------------- ----------------- Total Production 19.6 21.9 ------------------- --------------- ----------------- * Ceased production April 2003 ** Ceased production August 2002 + Ceasing production March 2004 (Selby Complex) ++ Ceasing production July 2004 (Selby Complex) Property Proceeds from property sales were £9.7 million (2002: £2.2 million), generating a profit of £5.8 million (2002: £2.0 million). The major area of activity has been the Tetron Point development in South Derbyshire where, further sales are anticipated. Rental income from properties in the year was £3.8 million (2002: £3.4 million) generating an operating profit of £1.1 million (2002: £0.9 million). The Company has maintained its strategy of creating added value by seeking planning permissions to develop former surface mines and collieries, converting brownfield sites to clean compacted areas suitable for development and active management of its property portfolio and agricultural holdings. Australia Gloucester Coal, the Group's mining activity in New South Wales, achieved sales of 1.9 million tonnes in the year, compared with 2.4 million tonnes in 2002, as coal extraction from the Stratford Mine has been completed. Production began at the extension to the Bowens Road site and, in March 2003, production also started at the new Duralie site which, together with Bowens Road, will produce an annual combined tonnage of some 2.0 million tonnes of coking and thermal coals. The movement in the year of the A$/US$ exchange rate from 56 cents to the current rate of 77 cents caused a significant shortfall in revenues on the Japanese coking coal contracts which were agreed when the exchange rate was at a lower level. These contracts will be renewed in April 2004 for 12 months and agreements have been reached with significant price increases, and currency rates have been fixed for circa 65% of the income. Gloucester Coal incurred a loss in the year of £4.0 million (2002: loss £0.7 million). The increased revenue from sales post April 2004 should ensure that the company returns to profitability during the year. Discussions are ongoing with parties who have expressed an interest in making an offer for Gloucester Coal. BALANCE SHEET Capital employed in fixed assets (excluding surface mine development and restoration costs) was reduced, with fixed asset additions of £23.0 million (2002: £35.9 million) compared to a depreciation charge for the year of £52.6 million (2002: £59.3 million). At the year-end hire purchase and finance lease liabilities were £23.9 million (2002: £25.5 million) in respect of surface and underground equipment. Asset financing has been secured for £27.5 million to acquire plant and equipment for new coal faces at Daw Mill and Kellingley collieries. Bank borrowings reduced by the year-end to £7.2 million (2002: £28.4 million) PENSIONS The net deficit under FRS 17 'Retirement Benefits' transitional arrangements is £102.7 million (2002: £108.1 million). Whilst there has been an improvement in equity markets during 2003, salary increases, particularly for the staff members of the National Association of Colliery Overmen, Deputies and Shotfirers (NACODS) and the British Association of Colliery Management (BACM) have increased the liability, which has offset the gains in the equity markets. We anticipate future salary increases will be more in line with inflation increases. The actuarial valuation at December 2003 for the two main pension schemes is under way, but will not be completed until later this year. Any new funding rates will come into effect in 2005. ENVIRONMENTAL LEGISLATION Two significant new pieces of environmental regulation affecting potential coal use and consumption continue to be the subject of extensive discussion and debate. Government decisions are expected by May on which route is to be pursued to implement the Large Combustion Plant Directive (LCPD) by 2008. The Government is undertaking further analysis before deciding whether to opt for a National Emission Reduction Plan (NERP), which we have warned will substantially reduce the market available for the UK coal industry, or prescribed Emission Limit Values (ELV) to reduce sulphur emissions. We, together with other coal producers, have campaigned for the introduction of ELVs that will encourage generators to equip their stations with flue-gas desulphurisation plant, produce a better environmental outcome and preserve the potential market for UK mined coal in power stations. The Government has also issued the draft National Allocation Plan indicating how they intend to implement the EU Emissions Trading Scheme from January 2005. This scheme will involve the trading, across Europe, of CO2 emission allowances. The draft allocation for coal burning power stations in the UK would allow average annual consumptions of around 38 million tonnes of coal from 2005 to 2007, before any trading of allowances is taken into account. DIRECTORS David Jones succeeded John Robinson as Chairman following the AGM in April 2003 and was joined on the Board by new Non-Executive Directors Peter Hazell and James Murray on 22 September 2003, both having significant experience in the property sector, and who will assist in further developing the Group property strategy. Christopher Mawe joined the Company on 1 March 2004 as Finance Director. Brian Staples resigned as a non-Executive Director with effect from 31 December 2003, while Robert Shrager has informed the Board that he will not be seeking re-election at the AGM having been a Non-Executive Director with the Company for the past 10 years. Melvin Garness, Company Secretary and Commercial Director, gave the Board notice in October 2003 of his intention to retire from the Board in October 2004. OUTLOOK The sharp rise in world coal prices in September 2003, offset to some degree by the reduced value of the US$, has been maintained. However, with forward contracted sales of 90% of producion in 2004 and 50% of planned output in 2005 there will be limited benefit from the current high international prices over the next two years. Costs for 2004 will be affected by increases in line with inflation and the effect of geological problems at Rossington and Welbeck, resulting in revised mining plans which are expected to add around 3% to unit costs. The Company continues to focus on its extensive property portfolio, with proceeds from sales and rental income both showing increases. We have had a slow start to production in 2004, but expect to recover this later in the year. The continued efforts to reduce unit costs with our Project 105 initiatives and the closure of the loss-making Selby complex of mines, augur well for the future. In addition the year ahead should see further progress in adding value to the Company's property assets. 4 March 2004 CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 31 December 2003 Before Before Operating Operating Operating Operating Exceptional Exceptional Group Exceptional Exceptional Group Items Items 2003 Items Items 2002 Notes £'000 £'000 £'000 £'000 £'000 £'000 ------------------- ------ -------- -------- ------- -------- -------- ------- Turnover 2 563,854 - 563,854 596,602 - 596,602 ------------------- ------ -------- -------- ------- -------- -------- ------- Cost of sales before exceptional items (558,982) - (558,982) (570,887) - (570,887) Exceptional cost of sales Impairment in value of colliery assets 3 - - - - (20,191) (20,191) Net closure and redundancy costs 3 - (1,983) (1,983) - (55,643) (55,643) Amount recovered/(pro vided) against TXU 3 - 6,467 6,467 - (6,358) (6,358) Provision against other amounts receivable 3 - (1,681) (1,681) - (9,309) (9,309) ------------------- ------ -------- -------- ------- -------- -------- ------- Cost of Sales (558,982) 2,803 (556,179) (570,887) (91,501) (662,388) ------------------- ------ -------- -------- ------- -------- -------- ------- Gross profit / (loss) 4,872 2,803 7,675 25,715 (91,501) (65,786) ------------------- ------ -------- -------- ------- -------- -------- ------- Coal Investment Aid 3 - 3,522 3,522 - - - Other operating income and expenses 4 (11,359) - (11,359) (13,686) - (13,686) ------------------- ------ -------- -------- ------- -------- -------- ------- Total other operating income & expenses (11,359) 3,522 (7,837) (13,686) - (13,686) ------------------- ------ -------- -------- ------- -------- -------- ------- Operating (loss)/profit (6,487) 6,325 (162) 12,029 (91,501) (79,472) Profit on sale of land and buildings 5,830 - 5,830 2,033 - 2,033 ------------------- ------ -------- -------- ------- -------- -------- ------- (Loss)/profit on ordinary activities before interest and taxation (657) 6,325 5,668 14,062 (91,501) (77,439) ------------------- ------ -------- -------- ------- -------- -------- ------- Interest receivable and similar income 5 3,141 - 3,141 5,181 - 5,181 Interest payable and similar charges 6 (3,486) - (3,486) (2,854) - (2,854) Unwinding of discount on provisions 11 (6,570) - (6,570) (7,999) - (7,999) ------------------- ------ -------- -------- ------- -------- -------- ------- Net interest payable and similar charges (6,915) - (6,915) (5,672) - (5,672) ------------------- ------ -------- -------- ------- -------- -------- ------- (Loss)/profit on ordinary activities (7,572) 6,325 (1,247) 8,390 (91,501) (83,111) before taxation Taxation 8 7,007 (1,898) 5,109 (1,791) 3,142 1,351 ------------------- ------ -------- -------- ------- -------- -------- ------- (Loss)/profit on ordinary activities (565) 4,427 3,862 6,599 (88,359) (81,760) after taxation Equity minority interest 138 - 138 82 - 82 ------------------- ------ -------- -------- ------- -------- -------- ------- (Loss)/profit for the financial year (427) 4,427 4,000 6,681 (88,359) (81,678) Dividend 9 (14,591) - (14,591) (14,584) - (14,584) ------------------- ------ -------- -------- ------- -------- -------- ------- (Loss sustained)/pro fit for the year (15,018) 4,427 (10,591) (7,903) (88,359) (96,262) ------------------- ------ -------- -------- ------- -------- -------- ------- (Loss) /earnings per ordinary share (0.3p) 3.0p 2.7p 4.6p (60.6p) (56.0p) ------------------- ------ -------- -------- ------- -------- -------- ------- STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES for the year ended 31 December 2003 2003 2002 £'000 £'000 --------------------------------------------------------- --------- -------- Profit/(loss) for the financial year 4,000 (81,678) --------------------------------------------------------- --------- -------- Exchange adjustments 4,721 (355) Surplus arising on revaluation of investment properties 220 4,814 --------------------------------------------------------- --------- -------- Total recognised gains and losses for the financial year 8,941 (77,219) --------------------------------------------------------- --------- -------- CONSOLIDATED BALANCE SHEET for the year ended 31 December 2003 Group Group Company Company 2003 2002 2003 2002 Notes £'000 £'000 £'000 £'000 -------------------------- ------- --------- --------- -------- --------- ASSETS Fixed assets Tangible fixed operating assets 393,148 427,211 - - Investment properties 6,720 6,500 - - Investments - in subsidiaries - - 491,213 491,213 - other 27 38 - 399,895 433,749 491,213 491,213 Current assets Stocks 59,496 79,152 - - Debtors: amounts falling due after one year 637 8,873 20,154 20,154 Debtors: amounts falling due within one year 81,772 73,143 173,218 199,264 Cash at bank and in hand 13 60,350 60,893 252 - -------------------------- ------- --------- --------- -------- --------- 202,255 222,061 193,624 219,418 -------------------------- ------- --------- --------- -------- --------- Total assets 602,150 655,810 684,837 710,631 -------------------------- ------- --------- --------- -------- --------- LIABILITIES Capital and reserves Called up share capital 1,460 1,458 1,460 1,458 Share premium account 2 290,872 2 290,872 Revaluation reserve 5,034 4,814 - - Capital redemption reserve 257 257 257 257 Profit and loss account 215,489 (69,638) 439,329 164,174 -------------------------- ------- --------- --------- -------- --------- Shareholders' funds, attributable to equity interests 222,242 227,763 441,048 456,761 Equity minority interest 262 331 - - -------------------------- ------- --------- --------- -------- --------- Capital employed 222,504 228,094 441,048 456,761 Provisions for liabilities and charges 11 226,987 258,699 - - Creditors: amounts falling due after more than one year 12 15,302 22,790 - - Creditors: amounts falling due within one year 12 137,357 146,227 243,789 253,870 -------------------------- ------- --------- --------- -------- --------- 379,646 427,716 243,789 253,870 -------------------------- ------- --------- --------- -------- --------- Total funds employed 602,150 655,810 684,837 710,631 -------------------------- ------- --------- --------- -------- --------- CONSOLIDATED CASH FLOW STATEMENT for the year ended 31 December 2003 2003 2002 £'000 £'000 ----------------------------------------------------- --------- --------- Operating activities Net cash inflow from continuing operating activities 46,026 8,918 ----------------------------------------------------- --------- --------- Returns from investments and servicing of finance Interest paid on bank borrowings (1,171) (401) Interest paid on hire purchase and finance leases (1,933) (1,853) Financing costs (203) (636) Interest received 2,577 5,181 Inland Revenue interest received 564 - ----------------------------------------------------- --------- --------- Net cash (outflow)/inflow from returns on investments and servicing of finance (166) 2,291 Taxation 3,967 36 Capital expenditure and financial investment Development expenditure (3,778) (35) Purchase of fixed assets (15,300) (40,475) Receipts from sale of fixed assets 10,410 4,082 ----------------------------------------------------- --------- --------- (8,668) (36,428) Acquisitions and disposals Purchase of trade and assets (2,076) - ----------------------------------------------------- --------- --------- Cash inflow/(outflow) before use of liquid resources, financing and dividends 39,083 (25,183) Equity dividends paid (14,521) (14,529) ----------------------------------------------------- --------- --------- Cash inflow/(outflow) before use of liquid resources and financing 24,562 (39,712) Management of liquid resources Cash deposited in subsidence security fund (792) (2,664) Cash expended/(deposited) to cover insurance 4,471 (2,075) requirements Other cash security deposits (2,053) - ----------------------------------------------------- --------- --------- 1,626 (4,739) Net cash inflow/(outflow) before financing 26,188 (44,451) Financing Issue of ordinary share capital 128 - (Repayment)/drawdown of bank borrowings (21,343) 27,994 Hire purchase and finance lease capital repaid (8,690) (12,975) Increase in finance lease debt 4,737 8,414 ---------------------------------------------------- --------- --------- Net cash (outflow)/inflow from financing (25,168) 23,433 ---------------------------------------------------- --------- --------- Increase /(decrease) in cash 1,020 (21,018) ---------------------------------------------------- --------- --------- NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2003 Reconciliation of operating loss to net cash inflow from operating activities 2003 2002 £'000 £'000 Continuing activities Operating loss (162) (79,472) Depreciation on tangible fixed assets 52,616 59,299 Exceptional impairment - 20,191 Net charge for surface mine development and restoration assets 7,045 11,413 Loss/(profit) on disposal of plant and machinery 138 (296) Decrease/(increase) in stocks 19,711 (7,286) (Increase )/decrease in debtors (2,851) 12,332 Decrease in creditors (35,271) (7,263) DTI contribution to redundancy payments 4,800 - ------------------------------------- --------- -------- Net cash inflow from continuing operating activities 46,026 8,918 ------------------------------------- --------- -------- Exceptional operating cash flows Included within net cash inflow from continuing operating activities are amounts of £11.9 million paid in respect of redundancy payments, £8.4 million received in respect of the sale of UK Coal's claim against TXU (in administration) and £0.6 million paid in settling long-term contracts. Reconciliation of net cash flow to movement in net funds At 1 January Cash flow Exchange Other non At 31 adjustment cash December changes 2003 2003 £'000 £'000 £'000 £'000 £'000 -------------------- ------------ --------- --------- -------- -------- Net cash at bank 301 1,020 63 - 1,384 Liquid resources 60,592 (1,626) - - 58,966 Bank borrowings (28,386) 21,343 - (181) (7,224) Hire purchase and finance leases (25,473) 3,953 - (2,387) (23,907) -------------------- ------------ --------- --------- -------- -------- 7,034 24,690 63 (2,568) 29,219 -------------------- ------------ --------- --------- -------- -------- Major non cash transactions During the year the Group entered into finance lease arrangements in respect of assets with a total capital value at the inception of the leases of £2,387,000 (2002: £7,336,000). 1.Accounting policies The financial statements are prepared in accordance with applicable accounting standards in the United Kingdom. 2.Segmental and geographical analysis --------------------------------------- --------- -------- 2003 2002 £ '000 £ '000 --------------------------------------- --------- -------- Turnover Continuing operations: Coal sales - deep mines 447,351 445,087 Coal sales - surface mines 66,236 96,305 UK Mining 513,587 541,392 Manufactured fuel and combined heat and power 16,965 15,908 Other associated activities 3,856 4,724 Australia - coal sales 25,633 31,145 Property activities 3,813 3,433 --------------------------------------- --------- -------- 563,854 596,602 --------------------------------------- --------- -------- Geographical Analysis United Kingdom 530,287 557,874 Europe 9,525 7,583 Asia - Pacific 24,042 31,145 --------------------------------------- --------- -------- 563,854 596,602 --------------------------------------- --------- -------- Loss before taxation Coal sales - deep mines (Note a) (8,552) (5,904) Coal sales - surface mines 668 16,461 Exceptional items (Note 3) 6,325 (91,501) --------------------------------------- --------- -------- UK Mining (1,559) (80,944) Manufactured fuel and combined heat and power 360 (635) Emissions Trading 3,230 4,153 Other associated activities 738 (2,270) Australia - coal sales (3,992) 1,834 - hedging losses - (2,517) Property activities - rentals 1,061 907 - profit on sales 5,830 2,033 Net interest payable and similar charges (6,915) (5,672) --------------------------------------- --------- -------- (Loss) before taxation (1,247) (83,111) --------------------------------------- --------- -------- Net assets/(liabilities) Deep Mines 128,946 149,298 Surface Mines (13,729) 12 UK Mining 115,217 149,310 Manufactured fuel and combined heat and power (1,664) (1,107) Other associated activities (10,553) (15,049) Australia 10,312 11,916 Property activities 88,023 83,256 --------------------------------------- --------- -------- 201,335 228,326 --------------------------------------- --------- -------- Unallocated net assets/(liabilities): Dividend payable (7,299) (7,292) Net funds and finance leases 28,468 7,060 --------------------------------------- --------- -------- 222,504 228,094 --------------------------------------- --------- -------- Note a: Includes the effect of net increase of provisions of £7.5 million (2002: net release of provision of £21.1 million) 3.Exceptional items comprise the following: 2003 2002 Note £'000 £'000 Impairment a - (20,191) Net redundancy and closure cost Redundancy b (2,672) (60,378) Stores equipment and asset write-back/(write-off ) c 689 (9,765) DTI contribution d - 10,000 Concessionary fuel e - 4,500 ---------------------------------- ----- ----------- -------- (1,983) (55,643) ---------------------------------- ----- ----------- -------- Amounts recovered /(provided) against TXU debtor f 6,467 (6,358) Provision against other amounts receivable g (1,681) (9,309) Coal Investment Aid h 3,522 - ---------------------------------- ----- ----------- -------- 6,325 (91,501) ---------------------------------- ----- ----------- -------- Notes a. Following the announcement of the closure of mining operations at Selby, the carrying value and estimated useful economic lives of the mines and surface were reviewed, giving rise to an impairment in value in 2002. b. Costs predominantly associated with the closure of the Selby mines and surface works and head office reorganisation (2002: Costs predominantly associated with the closure of Prince of Wales Colliery and the closure of the Selby mines and surface works.) c. Equipment and stores at Clipstone and Selby, and a claim accrual provided for in 2002, released in 2003. d. Government contribution to redundancy costs arising at Selby mines. e. Reduction in liability to provide concessionary fuel deliveries. f. A major customer, TXU Europe Energy Trading Ltd, with which UK COAL had a contract for fuel deliveries up to March 2009, went into administration in November 2002. UK COAL agreed with the administrator to fix the Company's liability in respect of claims at £28 million covering unpaid invoices for fuel delivered (£6.4 million provided at December 2002) and future losses under the contract. In 2003 UK COAL sold its claim under an agreement providing an immediate payment to UK COAL of £8.4 million with the two parties to the agreement sharing equally in distributions above 40% and below 30% down to a minimum of 15% (giving UK COAL a minimum of 22.5% of the final agreed debt). When TXU goes into liquidation, while the level of distribution is uncertain, the Board are confident that the gross level of debt agreed with the administrator will be accepted by the liquidator and accordingly, the profit and loss account includes, as an exceptional item, the minimum amount payable under the agreement for the sale of the debt, £6.3 million (which is 22.5% of £28 million). g. Provision against fuel debtor and amounts settled in relation to long-term contracts (2002: provision against certain amounts recoverable under long-term contracts where settlement is dependent on future planning permission and contract negotiations). h. Coal Investment Aid receivable under the Government Aid Scheme. 4.Other operating income and expenses 2003 2002 £'000 £'000 ---------------------------------- -------------- -------- Administrative expenses 16,286 18,164 Other operating income (4,927) (4,478) ---------------------------------- -------------- -------- Other operating income & expenses 11,359 13,686 Due to the nature of the Group's business, distribution expenses are treated as a part of the cost of sales. Administrative expenses include £0.7 million (2002: £3.0 million) in respect of fees payable to Bain & Co., the consultants engaged to assist with Project 105. 5.Interest receivable and similar income 2003 2002 £'000 £'000 ---------------------------------- -------------- -------- Interest receivable from short-term deposits 2,577 5,181 Interest receivable from Inland Revenue 564 - ---------------------------------- -------------- -------- 3,141 5,181 6.Interest payable and similar charges 2003 2002 £'000 £'000 ----------------------------------- ------------ -------- On bank loans, overdrafts and other loans repayable within 5 1,171 401 years Amortisation of loan issue costs (FRS4) 384 545 On finance leases and hire purchases, repayable within 1,931 1,908 5 years ------------ -------- ----------------------------------- 3,486 2,854 7.Loss on ordinary activities before taxation 2003 2002 £'000 £'000 ----------------------------------- ------------ -------- Loss on ordinary activities before taxation is stated after charging/(crediting): Depreciation - tangible owned assets 46,344 50,661 Depreciation - assets held under hire purchase and finance 6,272 8,638 leases Net charge for surface mine development and restoration assets 7,045 11,413 Loss/(profit) on disposal of tangible fixed assets - plant and equipment 138 (296) Profit on disposal of tangible fixed assets (5,830) (2,033) - land and buildings Auditor's remuneration (Company, £35,000, 2002: 245 241 £35,000) Rent receivable (3,814) (3,433) 8.Taxation 2003 2002 £'000 £'000 ---------------------------------- ------------ -------- On ordinary activities United Kingdom corporation tax at 30% (2002: 30%) (1,898) - Adjustment in respect of prior years (5,109) - Overseas taxation - 3 ---------------------------------- ------------ -------- Total current tax on ordinary activities (7,007) 3 ---------------------------------- ------------ -------- Deferred tax Origination and reversal of timing differences - 2,514 Adjustment in respect of prior years - (726) ---------------------------------- ------------ -------- Total deferred tax on ordinary activities - 1,788 ---------------------------------- ------------ -------- On exceptional items United Kingdom corporation tax at 30% (2002: 30%) 1,898 - Origination and reversal of timing differences - (3,142) ---------------------------------- ------------ -------- Total tax on exceptional items 1,898 (3,142) ---------------------------------- ------------ -------- Total current tax (5,109) 3 Total deferred tax - (1,354) ---------------------------------- ------------ -------- Tax credit on loss on ordinary activities (5,109) (1,351) ---------------------------------- ------------ -------- The tax credit of £5.1 million arose as a result of the Group reaching agreement with the Inland Revenue on the open issues relating to prior years. 9.Dividends 2003 2003 2002 2002 ------------------ ------------ ----------- ----------- --------- pence £'000 pence £'000 per share per share ------------------ ------------ ----------- ----------- --------- Interim 5.0p 7,292 5.0p 7,292 Final 5.0p 7,299 5.0p 7,292 ------------ ----------- ----------- --------- 10.0p 14,591 10.0p 14,584 The number of shares in issue at 31 December 2003 was 145,988,490 (2002: 145,847,454). Subject to approval at the AGM, the final dividend of 5 pence per share (2002: 5.0 pence per share) will be paid on 18 June 2004 to shareholders on the register at 21 May 2004. The total dividend recommended for the year is 10 pence per share (2002: 10.0 pence per share). 10.Reconciliation of movements in shareholders' funds Group Group Company Company 2003 2002 2003 2002 £'000 £'000 £'000 £'000 -------------------------- -------- -------- ---------- ---------- Profit/(loss) for financial year 4,000 (81,678) (1,251) (72,143) Dividends (14,591) (14,584) (14,591) (14,584) Exchange differences 4,721 (355) - - Surplus on revaluation 220 4,814 - - Shares issued during the year 129 - 129 - -------------------------- -------- -------- ---------- ---------- Movement in shareholders' funds (5,521) (91,803) (15,713) (86,727) Opening shareholders' funds 227,763 319,566 456,761 543,488 -------------------------- -------- -------- ---------- ---------- Closing shareholders' funds 222,242 227,763 441,048 456,761 -------------------------- -------- -------- ---------- ---------- 11.Provisions for liabilities and charges At 1 Created Released Utilised Unwinding At 31 January in year in year in year of December 2003 discount 2003 £'000 £'000 £'000 £'000 £'000 £'000 ------------------ -------- -------- -------- -------- --------- -------- Employer & public liabilities 29,529 5,580 - (11,779) 1,099 24,429 Surface damage 23,839 6,798 - (9,497) 715 21,855 Concessionary fuel 25,074 - (325) (559) 890 25,080 Claims 975 - (975) - - - Restoration & closure costs - surface mines 84,417 9,997 (4,572) (18,302) 2,533 74,073 Restoration & closure costs - deep mines shaft treatment and pit top 25,913 5 (3,406) (277) 776 23,011 Spoil heaps 5,573 - (432) (25) 167 5,283 Pumping costs 10,169 - (986) - 65 9,248 Ground/ground- water contamination 10,867 - (423) - 325 10,769 Gas plant decommissioning 153 158 - (311) - - Redundancy 42,190 3,097 (170) (11,878) - 33,239 ------------------ -------- -------- -------- -------- --------- -------- 258,699 25,635 (11,289) (52,628) 6,570 226,987 ------------------ -------- -------- -------- -------- --------- -------- Changes to provisions that arise as a result of redundancy programmes are treated as exceptional items in the profit and loss account, consistent with the nature of the underlying event, which is usually the closure of a mine. Other provision changes relate to revisions in estimates arising in the ordinary course of business and are charged/credited within the appropriate caption in the profit and loss account. The net provision created/released of £14.3 million (2002: £34.8 million) includes £2.7 million (2002: £55.9 million) in respect of exceptional items and £11.6 million (2002: release of £21.1 million) in respect of non-exceptional items. The latter includes £4.1 million (see Note 14) created (2002: £nil) on acquisition of the assets of a surface mining contractor that is off-set by equivalent amounts as a result of the same acquisition resulting in no profit and loss account impact. 12..Creditors 2003 2002 £'000 £'000 Creditors - amounts falling due after more than one year -------------------------------------- ------------ -------- Hire purchase and finance lease liabilities 15,106 18,256 Retentions 196 4,534 -------------------------------------- ------------ -------- 15,302 22,790 -------------------------------------- ------------ -------- Creditors - amounts falling due within one year -------------------------------------- ------------ -------- Trade creditors 50,791 55,209 Other taxation and social security 18,374 13,697 Hire purchase and finance lease liabilities 8,801 7,217 Bank borrowings 7,224 28,386 Dividends payable 7,471 7,401 Accruals and deferred income 44,696 33,191 Corporation tax - 1,126 --------------------------------------- ------------ -------- 137,357 146,227 -------------------------------------- ------------ -------- 13.Cash at bank and in hand 2003 2003 2002 2002 Change Change in year in year £'000 £'000 £'000 £'000 ------------------------ ---------- ---------- --------- -------- Monies deposited to cover insurance requirements 32,890 (4,471) 37,361 2,075 Subsidence security fund 24,023 792 23,231 2,664 Other security funds 2,053 2,053 - - Other cash balances 1,384 1,083* 301 (21,027)* ------------------------ ---------- ---------- --------- -------- 60,350 (543) 60,893 (16,288) ------------------------ ---------- ---------- --------- -------- * Includes, £ 63,000 (2002: £9,000) of exchange differences. Included within the cash balance of £60.4 million (2002: £60.9 million) are amounts totalling £32.9 million (2002: £37.4 million) held by the Group's insurance subsidiary and £24.0 million (2002: £23.2 million) deposited by way of security to cover subsidence liabilities. 14.Acquisition of trade and assets On 18 December 2003, the Group acquired the trade and certain of the assets of a surface mining contractor employed on three of the Group's surface mining sites with the objective of undertaking, up to completion of restoration, the surface mining operations on those sites. Being so close to the year end, these surface mining operations did not have any material effect on the Group's trading results. Provisional fair value £'000 Plant and equipment 1,500 Additional restoration and redundancy provision (4,055) -------------------------------- ----------------------- Net liabilities assumed (2,555) The net liabilities assumed were satisfied by cash consideration of £2.0 million and the release of creditors and retentions amounting to £4.6 million. This information is provided by RNS The company news service from the London Stock Exchange IVIIS

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