Final Results. Part 2

UK Coal PLC 01 March 2007 Notes to the Accounts 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. The change in policy from the previous year (requiring a restatement of the comparative figures) has been a widening of the definition of an investment property (See Note 7). The directors have adopted this change as they believe it provides more relevant information on the position of the Group. Basis of preparation These consolidated financial statements have been prepared in accordance with 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 at fair value through income statement and where IFRSs require an alternative treatment (principally in the areas of retirement benefit obligations, share based payments and financial instruments). In preparing the 2006 financial statements, UK COAL has not applied the following pronouncements for which adoption is not mandatory until the year ending 31 December 2007 and which have not yet been endorsed by the EU: IFRIC 7 'Applying the restatement approach under IAS 29 - Financial reporting in hyperinflationary economies' IFRIC 8 'Scope of IFRS2' IFRIC 9 'Reassessment of embedded derivatives' IFRIC11 'IFRS2 'Group and treasury transactions' IAS 1 amendment ' Presentation of financial statements Capital disclosures' IFRS 7 'Financial Instruments: Disclosures' IFRS 8 'Operating segments' The directors do not anticipate any of the above will have a material impact on the Group's financial statements. 2 Segmental reporting Revenue Revenue from continuing operations arises 2006 2005 from: £000 £000 Sale of goods 331,439 334,355 Rendering of services 8,274 6,859 339,713 341,214 The Group's operations are divided into the following segments: Deep mining The Group operated five ongoing deep mines in 2006 located in Central and Northern England. In February 2007, one deep mine at Maltby has been sold. Subsequent to this, the group has proven reserves of around 40 million tonnes, employing around 3,300 people. During 2006, mining operations were mothballed at Harworth and closed at Rossington. These are described as the closed deep mines in the segmental notes to the financial statements for 2006 and 2005. Surface mining The Group has four active surface mines and planning consent to mine a further site. Surface mine reserves of 14 million tonnes have either already been granted for mining, applied for or are planned for application during 2007. Property The Group has a portfolio of around 47,500 acres of predominantly agricultural land and has identified some 2,650 acres of this land as offering prime prospects for a mix of business park, residential, distribution and community development. Power Generation The Group has established its own power generation business, which utilises waste gas from mines to generate electricity and is actively pursuing the development of alternative power generation opportunities, including wind farms. Other This includes any activities not already included within one of the above segments and the results of joint ventures. Primary reporting format - business segments Year ended 31 December 2006 Ongoing Closed Deep Surface Power Deep Mines Deep Mines Mining Mining Property Generation Other Total £000 £000 £000 £000 £000 £000 £000 £000 Continuing operations Revenue - gross 285,613 25,328 310,941 31,222 5,990 6,493 1,265 355,911 Revenue - intra Group - - - (9,561) - (6,200) (437) (16,198) Revenue 285,613 25,328 310,941 21,661 5,990 293 828 339,713 Gross (loss) / profit (19,300) 193 (19,107) 1,197 3,286 1,726 (413) (13,311) before Exceptional Items within cost of sales Exceptional Items within (6,732) (25,392) (32,124) 4,127 - - (27,997) cost of sales Gross (loss) / profit (26,032) (25,199) (51,231) 5,324 3,286 1,726 (413) (41,308) Coal Investment Aid 7,892 - 7,892 - - - - 7,892 Net appreciation in fair - - - - 68,622 - - 68,622 value of properties Profit on disposal of - - - - 1,406 - - 1,406 investment properties Profit on disposal of (73) - (73) 489 - - - 416 operating property, plant and equipment Other operating income (9,781) - (9,781) (1,185) (14) 1,429 168 (9,383) and expenses Operating (loss)/ profit (27,994) (25,199) (53,193) 4,628 73,300 3,155 (245) 27,645 from continuing operations Finance costs (12,376) Finance income 2,261 Finance costs - net (10,115) Share of post-tax profit 105 from joint ventures Profit before tax 17,635 Tax (143) Profit for the year from 17,492 continuing activities Other segmental items Capital expenditure 21,464 - 21,464 7,340 3,256 4,508 - 36,568 Depreciation 38,119 1,544 39,663 3,885 - 782 186 44,516 Amortisation of surface - 1,061 1,061 mining development assets Stores equipment write 4,360 2,167 6,527 - - - - 6,527 down Provision -non cash 10,314 (3,451) 6,863 (5,382) - - 8 1,489 movement Year ended 31 Ongoing Closed Deep Surface Power December 2005 Deep Deep Mining Mining Property Generation Other Total Mines Mines £000 £000 £000 £000 £000 £000 £000 £000 Restated Restated Restated Restated Continuing operations Revenue - gross 261,757 41,342 303,099 67,478 4,843 3,730 12,170 391,320 Revenue - intra (13,163) - (13,163) (34,075) - (2,868) - (50,106) Group Revenue 248,594 41,342 289,936 33,403 4,843 862 12,170 341,214 Gross (loss) / (18,011) (19,326) (37,337) 6,048 2,224 916 1,380 (26,769) profit before Exceptional Items within cost of sales Exceptional Items (20,343) (26,306) (46,649) (2,504) (49,153) within cost of sales Gross (loss) / (38,354) (45,632) (83,986) 3,544 2,224 916 1,380 (75,922) profit Coal Investment 13,135 1,506 14,641 14,641 Aid Net appreciation - - - - 40,668 - - 40,668 in fair value of properties Profit on disposal - - - - 2,746 - - 2,746 of investment properties Profit on disposal 305 - 305 158 - - - 463 of operating property, plant and equipment Profit on disposal - - - - - - 3,100 3,100 of business Other operating (9,398) - (9,398) (2,859) 53 2,446 2 (9,756) income and expenses Operating (loss) / (34,312) (44,126) (78,438) 843 45,691 3,362 4,482 (24,060) profit from continuing operations Finance costs (11,753) Finance income 2,992 Finance costs - (8,761) net Loss before tax (32,821) Tax (relating to (72) discontinued operations) Loss for the year (32,893) Other segmental items Capital 16,603 930 17,533 1,874 8,082 26 - 27,515 expenditure Impairment - 6,601 6,601 500 - - - 7,101 Depreciation 33,849 3,265 37,114 4,715 - 919 270 43,018 Amortisation of - - - 1,911 - - - 1,911 surface mining development assets Stores equipment 2,078 2,618 4,696 - - - - 4,696 write down Provision - non 19,299 13,669 32,968 (601) - - 12 32,379 cash movement Amount provided 1,782 720 2,502 - - - - 2,502 against Coal Investment Aid claim Balance Sheet at 31 December 2006 Ongoing Closed Deep Surface Power Deep Deep Mining Mining Property Generation Other Total Mines Mines £000 £000 £000 £000 £000 £000 £000 £000 ASSETS Non current assets Operating 189,322 - 189,322 25,708 14,585 8,324 3 237,942 property, plant and equipment Investment - - - - 311,677 - - 311,677 properties Investment in - - - - - - 205 205 joint venture Deferred tax asset 35,752 - 35,752 - - - - 35,752 Trade and other - - - 475 489 - - 964 receivables 225,074 - 225,074 26,183 326,751 8,324 208 586,540 Current assets Inventories 31,477 1,700 33,177 3,463 - - - 36,640 Trade and other 36,788 - 36,788 2,874 277 764 6,901 47,604 receivables Derivative - - - - - - 675 675 financial instruments Cash and cash 42,337 - 42,337 - 1,042 - 2,549 45,928 equivalents 110,602 1,700 112,302 6,337 1,319 764 10,125 130,847 LIABILITIES Current liabilities Financial liabilities - Borrowings (3,564) - (3,564) (3,027) 4,814 (950) (12,774) (15,501) Trade and other (69,470) (440) (69,910) (10,144) (15,247) (4,737) (6,246) (106,284) payables Provisions (13,628) (5,629) (19,257) (8,310) - - (364) (27,931) (86,662) (6,069) (92,731) (21,481) (10,433) (5,687) (19,384) (149,716) Net current assets 23,940 (4,369) 19,571 (15,144) (9,114) (4,923) (9,259) (18,869) /(liabilities) Non current liabilities Financial liabilities - Borrowings (7,576) - (7,576) (6,203) (68,163) (344) 22 (82,264) Trade and other - - - (130) (182) - - (312) payables Deferred tax - - - - (1,172) - - (1,172) liabilities Provisions (65,580) (8,669) (74,249) (45,060) - - - (119,309) Retirement benefit (120,495) - (120,495) - - - - (120,495) obligations (193,651) (8,669) (202,320) (51,393) (69,517) (344) 22 (323,552) Net assets/ 55,363 (13,038) 42,325 (40,354) 248,120 3,057 (9,029) 244,119 (liabilities) Balance Sheet at 31 December 2005 Ongoing Closed Deep Surface Power Deep Deep Mining Mining Property Generation Other Total Mines Mines £000 £000 £000 £000 £000 £000 £000 £000 Restated Restated ASSETS Non current assets Operating 206,345 5,042 211,387 24,162 14,238 4,596 4 254,387 property, plant and equipment Investment - - - - 251,161 - - 251,161 properties Trade and other 2,394 - 2,394 476 - - 1,858 4,728 receivables 208,739 5,042 213,781 24,638 265,399 4,596 1,862 510,276 Current assets Inventories 34,395 4,994 39,389 2,779 - - - 42,168 Trade and other 54,089 211 54,300 1,774 1,140 68 6,030 63,312 receivables Cash and cash 52,260 1 52,261 - 533 - 426 53,220 equivalents 140,744 5,206 145,950 4,553 1,673 68 6,456 158,700 LIABILITIES Current liabilities Financial liabilities - Borrowings (6,416) - (6,416) (3,510) - (912) (52,148) (62,986) Trade and other (86,411) (968) (87,379) (4,201) (10,299) (411) (2,637) (104,927) payables Provisions (20,731) (14,023) (34,754) (17,528) - - (38) (52,320) (113,558) (14,991) (128,549) (25,239) (10,299) (1,323) (54,823) (220,233) Net current assets 27,186 (9,785) 17,401 (20,686) (8,626) (1,255) (48,367) (61,533) /(liabilities) Non current liabilities Financial liabilities - Borrowings (11,051) - (11,051) (1,490) (19,720) (1,294) - (33,555) - Derivative - - - - - - (55) (55) financial instruments Deferred tax - - - - (1,029) - - (1,029) liabilities Provisions (61,639) (9,181) (70,820) (50,635) - - (323) (121,778) Retirement benefit (142,338) - (142,338) - - - - (142,338) obligations (215,028) (9,181) (224,209) (52,125) (20,749) (1,294) (378) (298,755) Net assets/ 20,897 (13,924) 6,973 (48,173) 236,024 2,047 (46,883) 149,988 (liabilities) Cash Flow Ongoing Closed Deep Surface Power 2006 2005 Statement Deep Deep Mining Mining Property Generation Other Total Total Mines Mines For the year ended 31 December 2006 £000 £000 £000 £000 £000 £000 £000 £000 £000 Restated Restated Cash flows from operating activities (Loss)/profit for (28,975) (25,199) (54,174) 2,233 69,720 3,038 (3,325) 17,492 (32,893) the year Depreciation/ 38,119 1,544 39,663 4,946 - 782 186 45,577 52,030 impairment of property, plant and equipment Net fair value - - - - (68,622) - (68,622) (40,668) appreciation in investment properties Net interest 981 - 981 2,395 3,437 117 3,185 10,115 8,376 payable and amortisation of discount on provisions Net charge for - - - - - - 198 198 173 share based remuneration Net capitalised - - - (5,382) - - - (5,382) (2,298) surface mine development and restoration costs Profit on 73 - 73 (489) (1,406) - - (1,822) (3,209) disposal of property, plant and equipment Profit on sale of - - - - - - - - (3,100) interests in businesses Decrease in (16,647) (8,247) (24,894) (11,352) - - - (36,246) (21,378) provisions Tax - - - - 143 - - 143 72 Operating cash (6,449) (31,902) (38,351) (7,649) 3,272 3,937 244 (38,547) (42,895) flows before movements in working capital Decrease/Increase 2,919 3,294 6,213 (685) - - - 5,528 2,004 in stocks Decrease/ 19,695 211 19,906 (1,099) 374 (696) 312 18,797 (1,551) (Increase) in receivables Decrease/ (16,942) (528) (17,470) 6,073 (810) 4,326 2,808 (5,073) (2,376) (Increase) in payables Cash (used in) / (777) (28,925) (29,702) (3,360) 2,836 7,567 3,364 (19,295) (44,818) generated from operations Tax paid - - - (72) Financing cost - - - - (698) - (330) (1,028) (738) Interest paid (848) - (848) (472) (2,303) (118) (3,198) (6,939) (5,744) Cash (used in) / (1,625) (28,925) (30,550) (3,832) (165) 7,449 (164) (27,262) (51,372) generated from operating activities Cash flows from investing activities Interest received 2,056 - 2,056 18 31 1 155 2,261 2,992 Net receipt from 9,915 - 9,915 - - - - 9,915 3,075 insurance and subsidence security funds Disposal of - - - - - - - - 8,844 businesses Proceeds on - - - 5,594 18,597 - - 24,191 15,861 disposal of property, plant and equipment Investment in - - - - - - (205) (205) - joint venture Development costs - - - - (3,256) - - (3,256) (8,082) of investment properties Purchase of (21,607) - (21,607) (7,196) - (4,509) - (33,312) (19,433) operating property, plant and equipment Cash (used in)/ (9,636) - (9,636) (1,584) 15,372 (4,508) (50) (406) 3,257 generated from investing activities Net Operating (11,261) (28,925) (40,186) (5,416) 15,207 2,941 (214) (27,668) (48,115) Cash flow by Segment Secondary format - geographic segments The Group manages its business segments on a global basis. The Group is entirely based in the United Kingdom. The United Kingdom is the home of the parent company. An analysis of revenue by destination, together with capital expenditure and segment assets is given in the following table: Revenue Segment Capital assets expenditure 2006 2005 2006 2005 2006 2005 £000 £000 £000 £000 £000 £000 Continuing Restated operations United Kingdom 339,713 333,272 717,387 668,976 36,568 27,515 Europe - 7,942 - - - - 339,713 341,214 717,387 668,976 36,568 27,515 3 Expenses by nature Notes 2006 2005 £000 £000 Restated Revenue 339,713 341,214 Depreciation of property, plant and (39,027) (38,207) equipment - owned assets Depreciation of property, plant and (6,550) (6,722) equipment - under finance leases Net credit for surface mine development and 5,382 2,316 restoration assets Profit on disposal of investment 1,406 2,746 properties Profit on disposal of operating property, 416 463 plant and equipment Repairs and maintenance (63,592) (60,004) Rent receivable 5,222 4,841 Staff costs (175,131) (175,631) Inventories - cost of inventories recognised as (39,280) (41,361) an expense Operating expense for investment property: - for properties where rental (1,256) (797) received Operating lease payments (268) (386) Net appreciation in fair value of 68,622 40,668 investment properties Profit on sale of business - 3,100 Other expenses (47,907) (64,888) Exceptional items 4 (20,105) (31,412) Operating profit/(loss) 27,645 (24,060) 4 Exceptional Items 2006 2005 Notes £000 £000 Restated Exceptional Items within cost of sales In relation to mine closures Harworth - mothballing costs 4a (10,264) - Harworth - write off of assets 4b (3,589) - Harworth - impairment of assets 4c - (967) Rossington - mothballing costs 4d (4,809) - Rossington - write off of assets 4e (203) - Rossington - impairment of assets 4f - (5,634) Stores equipment provision 4g (6,527) (4,696) Redundancy 4h (1,995) (24,249) Post retirement benefits 4i 4,355 5,180 Ellington post coaling 4j - (5,635) Selby post coaling 4k - 249 Other exceptional items Maltby - recovery costs 4l (6,973) - Daw Mill - recovery costs 4m (2,392) - Surface mining - reversal of 4n 4,400 (500) impairment charge Recovery costs at Kellingley and 4o - (12,551) Rossington Costs incurred following approach 4p - (350) for company Exceptional Items within cost of (27,997) (49,153) sales Other exceptional items Coal Investment Aid 4q 7,892 17,143 Amount provided against Coal 4r - (2,502) Investment Aid claim Profit on disposal of business 4s - 3,100 Total Exceptional Items (20,105) (31,412) Operating profit before Exceptional 47,750 7,352 Items Net charge for Exceptional Items (20,105) (31,412) Operating profit/(loss) 27,645 (24,060) Exceptional Items in relation to mine closures (a) The decision was taken to mothball the Harworth Colliery during 2006. In the year, attempts to develop a new face and to salvage the mining equipment proved unsuccessful. As a result, abortive development costs of £2,940,000, net salvage costs of £2,467,000 and post coaling costs of £4,857,000 were incurred. (b) In addition to the above, the remaining assets of the Harworth Colliery were written off £3,589,000. (c) The decision was taken during 2005 to mothball the Harworth Colliery, the assets were reviewed giving rise to an impairment of £967,000. (d) The decision was taken to mothball, and later to close, the Rossington Colliery during 2006. In the year, post coaling costs of £4,809,000 were incurred. (e) In addition to the above, the remaining assets of the Rossington Colliery were written off in 2006 of £203,000. (f) The decision was taken during 2005 to mothball, and later to close, the Rossington Colliery, the assets were reviewed giving rise to an impairment of £5,634,000. (g) In light of deep mine closures during the year, a strategic review was undertaken of the expected future utilisation of stores equipment. As a result, a provision was created against the carrying value of these items of £6,527,000 (2005: £4,696,000). (h) Costs in relation to redundancies announced prior to the year end have been recognised during the year of £1,995,000 (2005: £24,249,000). (i) A one-off gain arose as a result of the reduction in the Group's liability to provide post retirement benefits in respect of employees leaving UK COAL's employment during the year of £4,355,000 (2005: £5,180,000). (j) During 2005, post coaling costs were incurred at the Ellington Colliery following the cessation of mining operations in January 2005. (k) During 2005, a provision release was recognised in relation to a difference between costs incurred on the cessation of coaling and the commencement of restoration work at Selby. Other Exceptional Item (l) In July 2006 a major roof fall occurred at Maltby Colliery, resulting in the inability to mine for 3 months and the invocation of the force majeure clause of certain coal supply contracts. Net mining costs during this period have therefore been treated as exceptional costs of £6,973,000. (m) Costs incurred related to health and safety incidents at Daw Mill of £2,392,000. (n) An impairment provision release arose following the disposal of surface mining plant during the year of £4,400,000. (o) During 2005, additional labour costs were incurred at Rossington and Kellingley consequent to the revised mining plans following invocation of the force majeure clause within certain coal supply contracts. (p) During 2005, costs were incurred following an approach from a consortium looking to acquire the Company. It comprised fees from property advisers, lawyers and financial advisers. (q) Coal investment aid receivable under the Government Aid Scheme of £7,892,000 (2005: £17,143,000). This scheme has now closed for new applications. (r) In 2005, a provision was created against the Coal investment aid debtor in relation to payments which were being challenged as a result of the closure or mothballing of collieries, or revised mining plans. (s) During 2005 a profit was earned on the disposal of the Monckton business. 5 Finance income and costs 2006 2005 £000 £000 Interest expense Restated - Bank borrowings (6,377) (3,959) - Hire purchase agreements and finance (1,204) (1,877) leases - Provisions unwinding of discount (4,550) (5,123) - Discounting of non-current receivables 142 (391) - Amortisation of issue costs of bank loans (1,028) (344) Fair value loss on financial instruments - Interest rate swaps: fair value hedges (34) (4) - Fair value of interest rate swaps 675 (55) Finance costs (12,376) (11,753) Finance income 2,261 2,992 Net finance costs (10,115) (8,761) 6 Operating property, plant and equipment In order to provide more relevant information in relation to the Group's property portfolio, the directors have widened the categories of property recognised as investment properties. This change in accounting policy has led to a restatement of the Group's prior year consolidated income statement, consolidated balance sheet and statement of changes in shareholders' equity. The effect of the adjustment is: Group £000 Uplift in revaluation 87,670 Provision for deferred (1,029) tax Net increase in equity shareholders' funds 86,641 at 1 January 2005 Year ended 31 December 2005: - Income statement adjustments 29,273 - Revaluation gains taken to the revaluation 48,805 reserve Net increase in equity shareholders' funds 164,719 at 31 December 2005 The impact on the consolidated income statement is as follows: 2006 2005 £000 £000 Revaluation gains 59,051 36,138 Revaluation in profit on (11,059) (6,865) disposal 47,992 29,273 Tax (143) - 47,849 29,273 Group Surface mine development Mines and and Operating surface Plant and restoration properties works machinery assets Total £000 £000 £000 £000 £000 Restated Restated Restated Cost: At 1 January 2006 18,225 803,564 102,973 17,341 942,103 Additions 143 21,464 5,006 6,699 33,312 Disposals - (13,400) (14,785) - (28,185) Transfer from investment 391 - - - 391 properties At 31 December 2006 18,759 811,628 93,194 24,040 947,621 Depreciation: At 1 January 2006 3,987 592,184 78,260 13,285 687,716 Charge for the year 187 39,663 4,666 1,061 45,577 Disposals - (9,541) (14,073) - (23,614) At 31 December 2006 4,174 622,306 68,853 14,346 709,679 Net book amount : At 31 December 2006 14,585 189,322 24,341 9,694 237,942 Cost: At 1 January 2005 - as 82,934 812,549 121,560 62,628 1,079,671 previously stated Prior year adjustment - (56,370) - - (4,411) (60,781) transfer to Investment Properties (note 7) At 1 January 2005 as 26,564 812,549 121,560 58,217 1,018,890 restated Additions 19 17,599 269 1,546 19,433 Disposals (83) (26,520) (3,885) (42,422) (72,910) Transfer to investment (7,421) - - - (7,421) properties Transfer from investment 280 - - - 280 properties Monckton assets sold (1,134) (64) (14,971) - (16,169) At 31 December 2005 18,225 803,564 102,973 17,341 942,103 Depreciation: At 1 January 2005 - as 7,016 575,276 85,234 53,913 721,439 previously stated Prior year adjustment - (26) - - (665) (691) transfer to Investment Properties (note 7) At 1 January 2005 as 6,990 575,276 85,234 53,248 720,748 restated Charge for the year 319 36,808 5,891 1,911 44,929 Impairment - 6,601 500 - 7,101 Disposals - (26,437) (3,592) (41,874) (71,903) Transfer to investment (2,547) - - - (2,547) properties Monckton assets sold (775) (64) (9,773) - (10,612) At 31 December 2005 3,987 592,184 78,260 13,285 687,716 Net book amount : At 31 December 2005 14,238 211,380 24,713 4,056 254,387 Assets under finance leases, disclosed under plant and machinery and mines and surface works, have the following net book amount: 2006 2005 £000 £000 Cost 46,213 58,033 Aggregate depreciation (20,864) (27,713) Net book amount 25,349 30,320 Certain land and buildings are subject to a fixed charge to cover borrowings against those assets. Other property, plant and equipment is subject to a floating charge to cover either liabilities due to the Coal Authority or bank borrowings. 7 Investment properties 2006 2005 £000 £000 At valuation - Group Restated At 1 January as 251,161 6,720 previously stated Transfer from operating - 60,090 property, plant and equipment Revaluation gain on - 87,670 Accounting Policy change At 1 January as restated 251,161 154,480 Additions 3,256 8,082 Disposals (14,023) (10,033) Fair value uplift 71,674 40,668 Transfer from operating - 4,874 property, plant and equipment Revaluation gain on transfer from - 53,370 operating property, plant and equipment Transfer to operating (391) (280) property, plant and equipment At 31 December 311,677 251,161 The investment properties comprise all properties which are not designated as operating properties. The properties were valued during the year, in accordance with the Appraisal and Valuation Standards of the Royal Institution of Chartered Surveyors, by Atisreal, Smiths Gore and Bell Ingram, 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 by UK COAL to a standard consistent with the intended use; and No deduction or adjustment has been made in relation to clawback provisions, or other taxes which may be payable. Certain of the Group's borrowings are secured by a fixed charge over the investment properties. Had the above investment properties been carried at cost, rather than fair value , their value would be as follows: 2006 2005 £000 £000 Cost 76,318 63,781 Additions 3,256 8,082 Transfer from operating - 4,874 property, plant and equipment Disposals (2,964) (171) Transfer to operating (391) (248) property ,plant and equipment Revaluation and fair 235,458 174,843 value uplift Total 311,677 251,161 8 Financial liabilities - Borrowings Current Group Company 2006 2005 2006 2005 £000 £000 £000 £000 Borrowings due within one year or on demand: Secured - bank loans and 10,176 55,575 12,476 52,395 overdrafts Unsecured - bank loans - - - - and overdrafts 10,176 55,575 12,476 52,395 Finance lease obligations 5,325 7,411 - - 15,501 62,986 12,476 52,395 Non current Group Company 2006 2005 2006 2005 £000 £000 £000 £000 Borrowings due after more than one year : Secured - bank loans and 73,948 19,720 - - overdrafts Unsecured - bank loans - - - - and overdrafts 73,948 19,720 - - Finance lease obligations 8,316 13,835 - - 82,264 33,555 - - Bank loans and overdrafts due within one year or on demand are stated after deduction of unamortised borrowing costs of £1,259,000 (2005: £556,000). Non current bank loans and overdrafts are stated after deduction of unamortised borrowing costs of £2,072,000 (2005: £280,000). The Group's Revolving Credit Facility comprises one month rolling drawdowns, and are thus disclosed under amounts falling due within one year. The facility is, however, committed until 2008. During 2006, new bank loans were taken out of £58,947,000 with associated borrowing costs of £3,275,000 and additional borrowing costs of £248,000 were incurred on existing bank loans. The bank loans and overdrafts are secured by way of fixed and floating charges over certain assets of the Group. The exposure of the Group to interest rate changes when borrowings reprice is as follows: Within More than 1 year 2-5 years 5 years Total £000 £000 £000 £000 At 31 December 2006 Secured and unsecured 10,176 73,948 - 84,124 borrowings Add back borrowing costs 1,259 2,072 - 3,331 Total borrowings 11,435 76,020 - 87,455 Effect of interest rate (2,237) (52,965) - (55,202) swaps 9,198 23,055 - 32,253 At 31 December 2005 - restated Secured and unsecured 55,575 19,720 - 75,295 borrowings Add back borrowing costs 556 280 - 836 Total borrowings 56,131 20,000 - 76,131 Effect of interest rate - (17,000) - (17,000) swaps 56,131 3,000 - 59,131 The above swaps have an average interest rate of 4.82% (2005: 4.65%). The debt under which these swaps are held are treated as fixed interest rate. The effective interest rates at the balance sheet date were as follows. 2006 2005 Bank overdraft 6.0% 5.5% Bank borrowings 6.7% 6.1% Finance leases 6.4% 6.6% The carrying amount of the Group's borrowings are denominated in sterling. The minimum lease payments under finance leases fall due as follows: 2006 2005 £000 £000 Not later than one year 6,206 8,733 Later than one year, but 9,114 15,310 not more than five years More than five years - 186 15,320 24,229 Future finance charges on (1,679) (2,983) finance leases Present value of finance 13,641 21,246 lease liabilities 9 Provisions At At 1 January Provided Released Utilised Unwinding 31 December 2006 in year in year in year of 2006 discount £000 £000 £000 £000 £000 £000 Group Employer and public 17,998 5,562 - (4,604) 900 19,856 liabilities Surface damage 21,988 3,763 (3,317) (3,274) 660 19,820 Claims 1,538 8 - (5) - 1,541 Restoration and closure 66,362 3,238 (8,620) (11,172) 1,941 51,749 costs of surface mines Restoration and closure costs of deep mines: - shaft treatment and 18,494 1,044 (347) (2,098) 542 17,635 pit top - spoil heaps 5,029 148 (543) (564) 151 4,221 - pumping costs 8,985 - (1,442) (1,000) 71 6,614 Ground/groundwater 9,483 - - - 285 9,768 contamination Redundancy 24,221 4,949 (2,954) (10,180) - 16,036 174,098 18,712 (17,223) (32,897) 4,550 147,240 Provisions have been analysed between current and non current as follows: 2006 2005 £000 £000 Current 27,931 52,320 Non current 119,309 121,778 147,240 174,098 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 1-2 years 2-5 years More than 5 years Total year £000 £000 £000 £000 £000 Employer and public 8,693 4,465 4,577 2,121 19,856 liabilities Surface damage 3,214 4,258 9,368 2,980 19,820 Claims 1,041 500 - - 1,541 Restoration and 7,310 10,665 29,775 3,999 51,749 closure costs of surface mines Restoration and closure costs of deep mines: shaft treatment and 3,149 2,756 931 10,799 17,635 pit top spoil heaps 321 627 307 2,966 4,221 pumping costs - - - 6,614 6,614 Ground/groundwater - - - 9,768 9,768 contamination Redundancy 4,203 11,833 - - 16,036 27,931 35,104 44,958 39,247 147,240 The total of provisions created net of provisions released was £1.5 million (2005: £32.4 million). This included a charge of £2.0 million (2005: £29.6 million) in respect of Exceptional Items and a release of £0.5 million (2005: £2.8 million) in respect of non exceptional items. A brief description of 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 and the general public relating to accident or disease as a result of the business activities of the Group. This is covered by dedicated cash deposits. 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 relevant damage. The estimate is based on historical claims experience, following a detailed assessment of the nature of damage foreseen. This is covered by dedicated cash deposits. 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. 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 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 on 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 on the decommissioning of a site. 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. 10 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 £1.4 million ( 2005: £1.7 million ). Defined Benefit Obligations The balance sheet amounts in respect of retirement benefit obligations are: 2006 2005 £000 £000 Industry Wide 94,469 116,730 Schemes Blenkinsopp 1,299 1,299 Concessionary Fuel 24,727 24,309 120,495 142,338 Contributions to defined benefit schemes during the year amounted to £20.3 million (2005: £19.3 million). A deferred tax asset of £35.8 million (2005: £nil) has been recognised in the year on the expectation that the Group generates sufficient taxable profits over the period during which the deficit is expected to reverse. In 2005, the deferred tax asset not recognised in the financial statements was £42.3 million. 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. Contributions are determined by a qualified actuary on the basis of triennial valuations, using the projected unit method. The most recent valuations were at 31 December 2003. 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 UK COAL sections of each scheme were as follows: 2006 2005 Discount rate 5.10% pa 4.70% pa Rate of return on 7.00% pa 7.00% pa investments Rate of salary 3.10% pa 2.70% pa increases Rate of price 3.10% pa 2.70% pa inflation Rate of return on 7.00% pa 7.00% pa equities Rate of return on 5.10% pa 4.70% pa debt Rate of cash 22.5% pa 20.0% pa commutation Pensions in payment are assumed to increase in line with price inflation. Post retirement mortality has been estimated using applicable standard mortality tables. Normal health and ill health pensioners have been rated up by between one and three years and by five years respectively for the IWCSS, and by between two and eight years for the IWMPS. 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: 2006 2005 2004 2003* 2002* £000 £000 £000 £000 £000 Fair value of plan 348,325 301,540 231,744 193,324 149,836 assets Present value of (442,794) (418,270) (344,925) (296,059) (257,923) funding obligations Net liability (94,469) (116,730) (113,181) (102,735) (108,087) recognised in the balance sheet None of the pension schemes owns any shares in the Company. The amounts recognised in the consolidated income statement are: 2006 2005 £000 £000 Current service (14,185) (12,802) cost Interest cost (19,905) (18,053) Expected return on 20,577 16,109 plan assets Effect of 3,025 2,191 curtailment or settlement (10,488) (12,555) The above amounts are charged to cost of sales, except for the interest cost, which is included in administrative expenses. A further £12.5 million (2005: £10.3 million) has been charged to the consolidated 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. Change in assets 2006 2005 £000 £000 Fair value of plan 301,540 231,744 assets at 1 January Expected return on 20,577 16,109 plan assets Actuarial gains on 9,634 36,975 assets Employer 20,271 19,292 contributions Plan participants' 3,837 3,903 contributions Benefits paid (7,534) (6,483) Fair value of plan 348,325 301,540 assets at 31 December The major categories of the schemes' assets are as follows: 2006 2005 £000 £000 Equity securities 288,574 256,060 Debt securities 59,751 45,480 348,325 301,540 The actual return on plan assets was £30.2 million (2005: £53.1 million). Change in defined benefit obligations 2006 2005 £000 £000 Present value of (418,270) (344,925) defined benefit obligation at 1 January Current service (14,185) (12,802) cost Interest cost (19,905) (18,053) Plan participants' (3,837) (3,903) contributions Curtailment gain 3,025 2,191 Actuarial gain / 2,844 (47,261) (loss) Benefits paid 7,534 6,483 Present value of (442,794) (418,270) defined benefit obligation at 31 December Analysis of the movement of the balance sheet liability 2006 2005 £000 £000 1 January (116,730) (113,181) Total expense as (10,488) (12,555) above Contributions 20,271 19,292 Net actuarial gain/ 12,478 (10,286) (loss) from participants' gains recognised in the year 31 December (94,469) (116,730) Cumulative actuarial gains and losses recognised in equity 2006 2005 £000 £000 1 January (24,311) (14,025) Net actuarial gains 12,478 (10,286) /(losses) in the year 31 December (11,833) (24,311) Experience gains and losses 2006 2005 £000 £000 Actual return less 9,634 36,975 expected return on schemes' assets Experience losses (3,721) (5,242) arising on schemes' liabilities Changes in 6,565 (42,019) assumptions underlying present value of liabilities Net actuarial gain/ 12,478 (10,286) (loss) History of experience gains and losses 2006 2005 2004 2003* 2002* £000 £000 £000 £000 £000 Actual return less 9,634 36,975 10,171 19,694 (53,260) expected return on schemes' assets Percentage of year 3% 12% 4% 10% 36% end scheme assets Experience (losses) / (3,721) (5,242) (7,074) 5,650 1,396 gains arising on schemes' liabilities Percentage of the 1% 1% 2% 2% 1% present value of schemes' liabilities *The amounts for 2003 and 2002 are those disclosed under FRS17, as reported in prior years. The contribution expected to be paid to the schemes during the year ending 31 December 2007 amounts to £19.1 million. Blenkinsopp Blenkinsopp is a section of the industry wide mineworkers scheme covering the pension arrangements of the various companies comprising parts of the former British Coal. Blenkinsopp Collieries Limited was sold by UK COAL in 1998, however it has since gone into liquidation and the retirement liabilities have reverted to UK COAL. The liability of £1.3 million (2005: £1.3 million, 2004: £1.3 million) has been estimated on an ongoing basis since commencement in 2004. Concessionary fuel The Group operates a Concessionary Fuel arrangement in the UK. An actuarial valuation was carried out by an independent actuary at 31 December 2006.The major assumptions used by the actuary were: 2006 2005 Discount rate 5.10% 4.70% Inflation 3.10% 2.70% assumption Coal price 3.10% 2.70% inflation The amounts recognised in the balance sheet are as follows: 2006 2005 2004 2003* 2002* £000 £000 £000 £000 £000 Net liability (24,727) (24,309) (22,579) (23,444) (25,598) recognised in the balance sheet The amounts recognised in the consolidated income statement are: 2006 2005 £000 £000 Current service (392) (489) cost Interest cost (1,138) (795) Effect of 1,330 2,989 curtailment or settlement (200) 1,705 The above amounts are charged to cost of sales, except for the interest cost, which is included in administrative expenses. A further loss of £0.9 million (2005: gain of £4.0 million) has been charged to the consolidated statement of recognised income and expense in the year. This represents the net effect of experience and actuarial gains and losses on the scheme in the year. Analysis of the movement of the balance sheet liability 2006 2005 £000 £000 Concessionary Fuel (24,309) (22,579) reserve at 1 January Current service (392) (489) cost Benefits paid to 637 560 former employees during the year Interest cost (1,138) (795) Actuarial loss (855) (3,995) Gains on 1,330 2,989 curtailments Concessionary Fuel (24,727) (24,309) reserve at 31 December Cumulative actuarial gains and losses recognised in equity 2006 2005 £000 £000 1 January (1,688) 2,307 Net actuarial (855) (3,995) (loss)/gain in the year 31 December (2,543) (1,688) Experience gains and losses 2006 2005 £000 £000 Experience gains on 1,258 - Concessionary Fuel reserve Changes in (2,113) (3,995) assumptions underlying present value of liabilities Total amount (855) (3,995) recognised in statement of income and expense History of experience gains and losses 2006 2005 2004 2003* 2002* £000 £000 £000 £000 £000 Experience gains on 1,258 - 3,186 4,297 829 Concessionary Fuel reserve Percentage of 5% 0% 14% 17% 3% Concessionary Fuel reserve *The amounts for 2003 and 2002 are those disclosed under FRS17, as reported in prior years. 11 Post balance sheet events Sale of Maltby Colliery Following the year end,the Maltby Colliery was sold to Hargeaves Services PLC (Hargeaves) with a transfer of operational assets and liabilities, together with the workforce. Hargeaves is the second largest customer for Maltby. The consideration of £21.5 million resulted in a profit on disposal of £13 million. Daw Mill Colliery As a result of the fatal accident in January 2007 at the Daw Mill Colliery, caused by a fall of ground, the Health and Safety Executive ( 'HSE' ) issued an order for a systematic review of ground control requirements in an area of the mine associated with current production phase. As a result, production at Daw Mill was restricted for over a month. No other operations were affected. UK COAL adheres to the highest standards of safety and deeply regrets the fatal accident. The Company has offered its fullest sympathies to the family. END This information is provided by RNS The company news service from the London Stock Exchange

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