Final Results

RNS Number : 5341D

Coalfield Resources PLC

30 April 2013

 



Coalfield Resources plc

(the "Company")

Preliminary Results

For the year ended 29 December 2012

Key Points:

·     The restructuring of the UK Coal Group completed on 10 December 2012

·     The Company's only active investment is in Harworth Estates Property Group Ltd ("Harworth Estates").  It also retains a residual holding in UK Coal Mine Holdings Ltd ("Mine Holdings").

·     The Company has a 24.9 per cent stake in Harworth Estates which has a book value of  £50.3m

·     The Harworth Estates portfolio had an asset value of £260.1m at 29 December 2012

·     Mine Holdings took over the full pension liabilities of the former Group as part of the restructuring. As such the Company does not expect any economic return from this investment. The industry-wide pension funds have a first call on cash generated by the mines to repay the pension deficit, and as such the Company values its holding at a nominal £1.

Commenting on the results, Jonson Cox, Chairman, said:

"Following the restructuring on 10 December 2012, Coalfield Resources plc no longer has operational responsibilities but is an active investor in Harworth Estates.  The Company also holds a residual minority investment in Mine Holdings.  The restructuring effectively separates the Company and Harworth Estates from any liabilities associated with the defined benefits pension schemes.

"Harworth Estates continues to perform well.  The major fire, and subsequent closure of Daw Mill Colliery in Warwickshire, has had a material impact on the mining business.

"The fire has also led to a potential short term funding requirement for the Company as Mine Holdings resolves its issues following the closure of Daw Mill.

"In these circumstances, the Company has sought to obtain a facility, secured against its shareholding in Harworth Estates, from its bankers.  It is expected that this facility will be repaid through an equity fundraising during 2013".

Enquiries

Anthony Cardew / Alexandra Stoneham               Cardew Group                                                                                 
Tel: [phone]

Andrew Mackintosh                                                       Director of Communications, Coalfield Resources             
Tel: [phone]

Notes to Editors:

Coalfield Resources plc was formed following the restructuring of UK Coal plc on 10 December 2012.

It is an active investor in Harworth Estates which owns and manages around 30,000 acres of land and other property.

The other investment is in UK Coal Mine Holdings Ltd, which remains the biggest producer of coal in the UK despite the closure of Daw Mill Colliery in March 2013.

For more information, please go to:  www.coalfieldresoursces.com

Cautionary Statement:

This announcement contains forward-looking statements that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as anticipate, target, expect, estimate, intend, plan, goal, believe, will, may, should, would, could, is confident, or other words of similar meaning. Undue reliance should not be placed on any such statements because they speak only as at the date of this document and, by their very nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and Coalfield Resources plans and objectives, to differ materially from those expressed or implied in the forward-looking statements.

Coalfield Resources undertakes no obligation to revise or update any forward-looking statement contained within this announcement, regardless of whether those statements are affected as a result of new information, future events or otherwise, save as required by law and regulations.

CHAIRMAN'S STATEMENT

Overview of 2012

Having returned UK Coal to profit in 2011, as a result of an intense recovery programme across the whole business led by a new Board, this success was set back in 2012 by the failure of the mining management team's plan, and back-up plan, at Daw Mill Colliery.  A post-tax profit of £55.2m in 2011 was followed by a post-tax loss of £6.3m in 2012.  It became very clear in March 2012 that something far more radical was needed if the business was to survive, especially having regard to the deficit due to the pension fund of around £450m and the on-going challenges of ensuring mining was sufficiently reliable and profitable. 

The Board determined that that the only credible way forward was to seek a fundamental and solvent restructuring of the Group to prevent such mining events having an impact on all parts of the business in the future.

Restructuring

Following the announcement of our decision to restructure on 14 March 2012, we finally achieved a complex solvent restructuring, involving thirty nine steps and over 2,000 contractual documents on 10 December 2012. This dismantled the legacy of the British Coal structure and privatisation in 1994 and separated the Group into three parts: UK Coal Mine Holdings Ltd ("Mine Holdings"), Harworth Estates Property Group Ltd ("Harworth Estates") and Coalfield Resources plc ("the Company").  The largest share of value went to the Mining Division Sections of the Industry-Wide Pension Schemes ("Pension Schemes"), as the largest creditor of the Group.

The process involved the agreement of our principal banking partners, Lloyds Banking Group, together with Barclays Bank, and of the Pension Schemes, the Pensions Regulator, our four key generator customers, the Department of Energy and Climate Change and the Coal Authority.  The restructuring was completed on 10 December 2012 to create a more stable platform for the Company, Harworth Estates and Mine Holdings to continue.

The principal value in the Company now relates to the 24.9% interest in Harworth Estates. The value of the portfolio of Harworth Estates, on a 100% basis, is carried at £260.1m on which Harworth Estates carries debt of £75.3m.  The portfolio is largely of former coalfield land for development,  and the intention is to seek long term value through development on which a good start has been made in the last 18 months with the sales outlined below.

We also agreed to maintain a non-controlling interest in Mine Holdings, the mining business, which was accepted as part of receiving the property interest.  The controlling interest in Mine Holdings transferred to an Employee Benefit Trust ("EBT").  Together with the EBT, the Company agreed to establish a Shareholder Committee which provides advice and governance to Mine Holdings but with no prospect of any meaningful financial return.  While the Shareholder Committee has no day to day control, it has been very active in supporting Mine Holdings in 2013 and working with stakeholders to ensure its survival since the Daw Mill fire.

Fire and closure of Daw Mill

During 2012, and as part of the restructure, we determined the need to appoint a new Chief Executive and new Finance Director for Mine Holdings.  We welcomed Kevin McCullough and Steve Hutchinson to these roles and both have made a positive start in what, shortly afterwards, became trying circumstances. 

The fire that broke out on 22 February 2013 at Daw Mill, and led to its subsequent closure, has had a significant impact on Mine Holdings.  The mine will be closed, safely, over coming months in the aftermath of the fire.

With the understanding and support of all parts of government, led by the Department for Energy and Climate Change, the Company has honoured its responsibilities and worked tirelessly with all parties to find a way forward for the remaining mines.  While carrying no formal responsibility, the Company has believed it is in the best interest of all parties to find an on-going future for the mines.  There is no shareholder value for Coalfield Resources in its holding in Mine Holdings, although Mine Holdings remain liable to pay the Company's running costs of up to £3m pa and outstanding debts for the restructure of £3.6m.

Currently, the Company continues to be in discussions with Mine Holdings about the potential restructuring of the mines and the effect this could have on the Company. 

Following the restructuring in December 2012, and as a non-controlling shareholder, the Company is not in a position to make any further comment on the Mine Holdings business. It is worth noting that, without last December's restructuring, the effect of the Daw Mill fire would have directly threatened the mining, property and holding company viability and most likely would have wiped out remaining shareholder value across the entire group.

Facility and likely fundraising

Notwithstanding the overall benefits of last year's separation, a direct consequence of the Daw Mill fire is that the Company has been notified by UK Coal Operations Limited ("UKCOL"), the main trading subsidiary of Mine Holdings, of its current inability to meet the indemnity it had given to the Company.  This indemnity, which was given under the terms of the restructuring, was for UKCOL to indemnify the Company for the costs arising from the fees on the restructuring (the remaining balance of which is approximately £3.6m) and to pay the running costs of the Company (up to £3.0m per annum but, after a cost reduction exercise, will be around half this amount).

In these circumstances the Company has sought to obtain a banking facility, secured against its shareholding in Harworth Estates. The bank has provided a credit approved term sheet for this facility on the basis of a limited guarantee from the Company's major shareholder, Peel Holdings Limited, and an undertaking of a fund-raising event by the Company should UKCOL continue to be unable to meet its liabilities.

Peel Holdings has agreed to the limited guarantee required by Lloyds TSB Bank plc, and has further offered assistance to facilitate a fund-raising event.  Although no longer a premium listed company, the Board voluntarily undertook at the time of the shareholder approval to move to standard listing, that it would seek approval for any related party transaction with Peel Holdings.  This was principally intended to apply to property-related transactions.   In the current exceptional circumstances, the Board has determined that it is in shareholder interests to proceed with the Peel support, and will seek ratification after the event from shareholders should the situation persist and a fund-raising event be required.

Harworth Estates

Over the last two years, Harworth Estates has carried out a successful sales programme which contributed to halving the bank debt of the Group.  As part of the restructuring, Coalfield Resources has no bank debt as this debt was transferred to Harworth Estates.   As part of the restructuring, control of Harworth Estates was transferred to the Pension Schemes in exchange for releasing the Company and Harworth Estates from their pension guarantee obligations and payment of £30.0m into Harworth Estates.  This was achieved by Harworth Estates issuing additional shares to the Pension Schemes equivalent to 75.1% of the total shares. The sale of Harworth Power for £20.3m in 2012 and continuing progress with schemes such as Waverley, the former Orgreave Colliery, have reinforced the business.  At Waverley, construction began on the first 250 of potentially 3,900 houses.  Rolls-Royce and the University of Sheffield also signed contracts to build major facilities on the site.

Harworth Estates currently has property assets of around £260m, and we now look forward to achieving the medium and long term realisation of value from the portfolio, for the benefit of both its shareholders.

People

As part of the restructuring, significant management changes have been made:

Non-Executive Director Keith Heller has stepped down from the Board to take the lead role on the EBT.  I would like to thank Keith for the constructive role he played on the Board and we continue to benefit from his energy and broad experience as the EBT Trustee on the Shareholder Committee.

Peter Hickson, Lisa Clement and Steven Underwood remain on the Board of the Company and I thank them for their valuable advice during the year. 

Owen Michaelson has stepped down from the Board and has been appointed as Chief Executive of Harworth Estates where his leadership will continue to take the business forward.

By mutual agreement, Gareth Williams stood down from the Board as Managing Director of the mining business in early 2013.

On 31 December 2012, David Brocksom stood down from his position as Finance Director having completed the restructuring, but has remained available in a transitional role during the early part of 2013.

Jeremy Hague has been appointed as Finance Director for the Company and is likely to also return to Harworth Estates as Finance Director in due course.

The Board of Harworth Estates has been strengthened by the appointment of Martyn Bowes, representing the Pension Schemes, together with Tony Donnelly as an independent Non-Executive Director.   Steven Underwood and I, who are both directors of Coalfield Resources, have also been appointed as members of the Board.

The Shareholder Committee, which provides advice, guidance and governance to the Mine Holdings on behalf of economic stakeholders, consists of Peter Hickson, Lisa Clement, Keith Heller, Colin Reed and Jonson Cox.  We have sought to support Mining management through their Daw Mill crisis and recognise that the role may change should there be a potential future mine restructuring.

As formerly agreed, and following the restructure and appointments of Kevin McCullough and Owen Michaelson, I have reduced my time commitment accordingly to two days a week having made a significantly more intense contribution in 2012.  I remain Chairman of the Company, and have been asked by both shareholders to serve as Chairman of Harworth Estates.  On a transitional basis I have served as Chairman of the Shareholder Committee, which offers guidance to Mine Holdings, although this may change under a post-Daw Mill restructuring.

Outlook

Following a very turbulent 2012, due mainly to the operational issues at Daw Mill, the restructuring of the Group helped put Harworth Estates and Mine Holdings on a more stable footing.  The fire at Daw Mill, and subsequent closure, has been a bitter blow for Mine Holdings but we understand the remaining mines continue to be viable.

As an active investor in Harworth Estates, the Company will continue to provide strong support to help ensure the on-going success of Harworth Estates.

I would like to thank everyone who played a part in our December 2012 restructuring, particularly our customers and suppliers.

Jonson Cox

Chairman

30 April 2013

REVIEW OF OPERATIONS

Following the restructuring on 10 December 2012, the Company is principally an active investor in Harworth Estates and carries a residual non-controlling stake in Mine Holdings. The Company does not believe that there was, or is, any practical prospect of a return from its investment in Mine Holdings and accepted this ownership as part of the overall deal, and the requirement of providing governance to the mining business

The progress made in 2011 on the Recovery Plan by the Group was reversed in 2012, due mainly to a failure of the mining management team to deliver promised performance from Daw Mill under both its base plan for the 32 coalface and unacceptable delays in the contingency plans to have the 33 panel ready to schedule, together with a slight reduction in production at the other deep mines.

During the period 1 January 2012 to 10 December 2012, the date that the Group restructured and the Company changed its name to Coalfield Resources plc, the following operating results were achieved:

Deep mines
Daw Mill performed very poorly throughout the year following the slow recovery of 32s face and delays in the 33 face, and produced 1.4m tonnes (2.1m tonnes for full year in 2011).  Kellingley and Thoresby also under performed with Kellingley producing 2.0m tonnes (2.3m tonnes in 2011) and Thoresby producing 1.2 m tonnes (1.3m tonnes in 2011).  A total of 4.6m tonnes were produced by the deep mines (5.7m tonnes in 2011).

Although a major fire broke out at Daw Mill on 22 February 2013, after the end of the reporting year end, it is mentioned here as the subsequent closure has had a considerable impact on Mine Holdings' business.

Harworth Colliery remained on a care and maintenance strategy throughout the period and would need significant reinvestment to reopen which Mine Holdings would need to secure.

Surface mines

Surface mines performed well and increased their output by 11 per cent in a very wet year that produced significant operating issues. The combined surface mines produced 2.0 m tonnes (1.8m tonnes in 2011).

Harworth Estates

Harworth Estates produced an operating profit of £15.8m (2011: £8.4m) after a revaluation gain of £16.2m (2011: £3.3m).

Highlights for Harworth Estates included the sale of Harworth Power for £20.3m, the approval of planning permission at the 120 acre Rossington site near Doncaster, a lease to operate the Prince of Wales coal fines recovery project near Pontefract and the start of construction on the first of potentially 3,900 new homes at Waverley, the site of the former Orgreave Colliery between Sheffield and Rotherham.  On the same site, land was sold to Rolls Royce and contracts exchanged with the University of Sheffield to enable the construction of a major new manufacturing facility and educational centre.

The Harworth Estates portfolio is currently valued at £260.1m (2011:£250.6m).

Key Performance Indicators

Following the restructuring on the 10 December, the Group's Key Performance Indicators have changed dramatically. As we now have no control over, or expect any economic value from, the mining business (Mine Holdings) there is no reason for the Group to continue to report the metrics associated with that business. The Group is now focused on its investment in Harworth Estates. Again as the Group does not control Harworth Estates, although is an active investor, the previous property metrics, while remaining appropriate for Harworth Estates, are not appropriate for the Group as a non-controlling investor.

The Key Performance Indicator for the Group is now the net asset value of the Group's investment in Harworth Estates. As stated in the accounts this is £50.3m as at 29 December 2012.

The net asset value is monitored by the Company on a regular basis as it has two directors on the board of Harworth Estates. As such they are briefed regularly and able to enter into discussion with Harworth Estates over business performance and strategy.

FINANCIAL REVIEW

Following the restructuring the Group now consists of the Parent Company, together with some minor subsidiaries, an investment of 24.9% in Harworth Estates valued at £50.3m, and an investment in the mining business Mine Holdings valued at a notional £1 (together the "Current Group").

This financial review is split into two parts. Firstly the activities, assets, liabilities and obligations of the Current Group are described, and secondly, the impact of the restructuring on the Group as it existed prior to restructuring (the "Former Group") is discussed.

Current Group

Continuing Operations

The Group's continuing operations comprise those of an investment holding company. For the year ended 29 December 2012 the Group had operating profit of £0.1m (2011: operating loss £1.6m).  Since the date of restructuring the Group's costs have been recharged to Harworth Estates and Mine Holdings on a monthly basis. Additionally the Group levied a monthly charge for company secretarial services to the two businesses at a small margin.

Balance sheet

Following the restructuring, the Current Group's balance sheet reflects the following assets and liabilities at 29 December 2012:

	£m
Assets
Non-current assets
Investments in associates	50.3
Total non-current assets	50.3
Current assets
Trade and other receivables	3.9
Assets classified as held for resale	21.3
Cash and cash equivalents	-
Total current assets	25.2
Total assets	75.5
Current liabilities
Trade and other payables	(9.7)
Liabilities classified as held for resale	(16.7)
Provisions	(0.5)
Total current liabilities	(26.9)
Net current liabilities	(1.7)
Non-current liabilities
Retirement benefit obligations	(0.7)
Total non-current liabilities	(0.7)
Total liabilities	(27.6)
Net assets	47.9

Investments in associates

The Group contributed 75.1% of its holding in the Harworth Estates to the Pension Schemes during the restructuring process. The Group holds the remaining 24.9% of Harworth Estates and accounts for its interest as an investment in associates valued at £50.3m. This represents 105% of the Group's net assets. The Group's share of net assets of Harworth Estates has been reduced by £5.0m to reflect the fact that, under the terms of the Shareholder Agreement, the first £5.0m of dividend income due to the Company will be paid to the Pension Schemes.

The balance sheet of Harworth Estates as at 29 December 2012 shows net assets of £221.7m as follows:

Assets	£m
Non-current assets
Intangible assets	0.7
Investment property	260.1
Investments in joint ventures	1.8
Other	1.3
Total non-current assets	263.9
Current assets
Trade and other receivables	17.7
Cash and cash equivalents	31.6
Total current assets	49.3
Total assets	313.2
Current liabilities
Trade and other payables	(15.3)
Borrowings	(14.6)
Provisions	(0.1)
Total current liabilities	(30.0)
Non-current liabilities
Derivative financial instruments	(0.8)
Borrowings	(60.7)
Total non-current liabilities	(61.5)
Total liabilities	(91.5)
Net assets	221.7

Investments classified as available for sale

In December 2012, as part of the restructuring, the Group acquired 33% of the voting rights and 90% of the economic rights of Mine Holdings. The investment in Mine Holdings is carried at fair value of £1.

Ordinarily it is presumed that where an investor holds 20% or more of the voting power of an entity, it has significant power over that entity. Management has concluded that post restructuring it has no control or significant influence over Mine Holdings and therefore has accounted for the investment as an available for sale investment rather than as an investment in an associate under IAS 39, 'Financial instruments: Recognition and measurement'. The main considerations by management were:

-  Majority voting is held by the Employee Benefit Trust with the Company retaining limited rights under the Shareholders' Agreement; 

-  Mine Holdings maintains its own independent Board, none of whom has served as directors of the Company and are explicitly prohibited from acting in the interests of the Company;

-  Although the Company holds a 90% economic interest in Mine Holdings, the large pension deficit means Mine Holdings is unlikely to pay dividends in the near future and therefore the economic rights lack substance; and

-     There is no economic incentive given that future dividends and investment value are limited until the pension schemes deficits are cleared.

These factors support the conclusion to value the investment at £1 as an investment available for sale.

Trade and other receivables

The trade and other receivables balance of £3.9m includes £3.6m of amounts due from Mine Holdings. As disclosed in note 33 (post balance sheet events), Mine Holdings suffered a major underground fire at its Daw Mill colliery in February 2013. On 7 March Mine Holdings announced that it was closing Daw Mill colliery. These events may have an impact upon Mine Holdings' ability to settle the amounts due to the Company.

Assets and liabilities classified as held for resale

At restructuring the Company agreed a put and call option with Mine Holdings to acquire the entire issued share capital of one of its subsidiaries, Harworth Insurance Company Limited. The consideration for the option was £4.7m (shown as deferred income within trade and other payables). Exercise of the option is conditional upon obtaining FSA consent or the parties agreeing that such consent is no longer legally required. Since the option had not been exercised at the year end, the assets and liabilities of Harworth Insurance Limited have been presented as held for resale.

Trade and other payables

The balance of £9.7m includes £4.7m deferred income on the grant of the call option to Mine Holdings to acquire Harworth Insurance Company Limited, together with fees due to professional advisers in respect of restructuring.

Provisions

With the exception of a £0.5m redundancy provision, the Group has no provisions at the year-end.

Retirement benefit obligations

The Blenkinsopp scheme, which shows a deficit of £0.7m at the year-end, has been retained as a liability of the Group. The Group received an indemnity from UK Coal Operations Limited to cover the expected £0.2m annual contribution to the Blenkinsopp scheme. All other retirement benefit obligations have been passed to Mine Holdings. The Company received a charge at restructuring over the active collieries of Thoresby and Kellingley and over Daw Mill, which is subject to closure, in order to provide some security over this liability.

Bank facilities

The restructured Group has no bank borrowings or bank facilities at the year-end. All facilities relating to the Group were transferred to Harworth Estates or repaid upon restructuring.

Following the Daw Mill fire in February 2013, and the resultant liabilities this created for Mine Holdings, there is an increased risk that they will be unable to honour the indemnities given to the Company in the immediate future. As discussed in the Chairman's statement, the Company has entered into negotiations to secure a one year bank facility that would enable it to meet these liabilities should they fall due. The Company has received a credit approved Heads of Terms for a suitable facility and based on this the Board believes that an appropriate facility will be entered into by the half year. The Company would look to repay the loan and raise sufficient funds to cover any liabilities not settled from the proceeds of an equity raising during 2013. The Board has received an informal commitment to underwrite an equity raising which provides comfort that the facility can be repaid.

Tax

The Group paid no corporation tax on continuing operations in 2012 (2011: £nil), although there was a tax charge in the prior year of £0.7m which related to changes in the rate at which deferred tax is provided.

The Group has no recognised deferred tax assets or liabilities, but has an unrecognised deferred tax asset of £3.4m at December 2012 in respect of unused tax losses (£2.5m), other timing differences (£0.7m) and the Blenkinsopp pension scheme (£0.2m).

Contingent Liabilities

Following restructuring the Group has a contingent liability in respect of guarantees that it has provided on behalf of Mine Holdings in respect of certain finance leases. At the year-end the outstanding amount payable on these finance leases was £0.4m and they were due to be settled within one year. As disclosed in the Going Concern section of the Directors' Report and note 33 (post balance sheet events), the fire at Daw Mill colliery and the subsequent closure of the mine may have an impact on Mine Holdings' ability to settle the finance leases. The Board expects that should any of the guarantees be called the liability would be up to £0.4m.

Additionally the Group had a potential liability of £1.8m in respect of its former VAT group. This liability was settled immediately after the year end.

Former Group

Following the restructuring which was completed on 10 December 2012, the mining, property and insurance activities of the Former Group ceased to form part of the consolidated financial statements with effect from that date. Additionally, as a result of the disposal of Harworth Power Generation Limited in October 2012, the Current Group no longer has any power generation activities. Accordingly, as required by IFRS 5, 'Non-current assets held for sale and discontinued operations', these activities have been classified as discontinued operations within the Income Statement for 2012 and have also been classified as discontinued operations in the comparative period.

Discontinued Operations

In the 49 weeks prior to restructuring, the Mining business generated sales of £360.2m, £117.4m less than the 53 week comparative period in 2011. The reduction in revenue was as a result of significantly lower sales volume, combined with a lower average realised selling price achieved for the year. The lower sales volumes arose mainly from on-going production problems at Daw Mill. The Mining business suffered a £126.3m operating loss during the year (2011: £70.7m profit) as a result of the volume shortfall and a £78.0m impairment charge in respect of Daw Mill following an impairment review of the Mining business and the announcement of plans to consult on the closure of Daw Mill colliery in 2014.

Property disposals of £24.0m were made prior to restructuring, resulting in a loss on disposal of £0.4m. Net proceeds of £21.5m were received during the year. The Property business recorded a £15.8m operating profit before tax in the year (2011: £8.4m) after a  £16.2m revaluation gain (2011: £3.3m) was booked on the property portfolio.

In October 2012 Harworth Power (Generation) Limited was disposed of for aggregate consideration of £20.3m, of which £20.0m was payable upon completion, at a profit of £13.2m after fees.  Prior to disposal the Power Generation business (comprising Harworth Power Limited and Harworth Power (Generation) Limited) generated a £0.6m operating profit (2011: £2.4m).

In light of the on-going losses in the mining business, the directors reviewed the appropriateness of the deferred tax asset relating to mining activities. They reached the conclusion that the deferred tax asset could no longer be supported and consequently £29.8 m of deferred tax assets have been derecognised during the year, with £21.6m being charged to discontinued operations.

Loss after tax on discontinued operations amounted to £149.1m (2011: profit after tax £57.9m). Additionally a profit on disposal of discontinued operations, net of restructuring fees of £143.1m has been recognised in the financial statements in 2012. This profit arose mainly as result of shedding the net liabilities of the Mining business.

Financing expenses

Net financing expenses relating to discontinued operations were £16.7m compared to £22.5m in 2011. Excluding one-off exceptional finance costs of £2.2m relating to refinancing, the reduction in average borrowings in the period and net gains on interest rate swaps accounted for the majority of the of the reduced interest charge.

Tax

At December 2011, the Group had estimated gross trading losses of £230m and gross timing differences of £230m, the latter arising largely from unclaimed or disclaimed capital allowances, both of which were available to offset against future profits in the mining business.  These gross trading losses and gross timing differences brought forward, together with those accumulated during the year, were transferred to Mine Holdings at restructuring and will be available to offset against future profits in that business.

The net deficit on the balance sheet in respect of retirement provisions at the date of restructuring of £94.1m resulted in an additional tax timing difference of £21.6m (at a tax rate of 23%) available to Mine Holdings.

Of the net deferred tax asset of £30.3m brought forward from 2011, £29.8m relating to the Mining business was derecognised during the year, with £21.6m being charged to discontinued operations and the balance being charged to the consolidated statement of comprehensive income. The directors were of the view that there would be insufficient profits generated within the Mining business from which the future reversal of timing differences could be deducted.

At the date of restructuring the Group had around £365m of capital losses which could be offset against profits arising on disposals of properties which were held by the Group in 2002.  These capital losses will be used to offset a chargeable gains degrouping charge arising in Harworth Estates on restructuring, with the balance being carried forward in Harworth Estates post-restructuring. It is estimated that the value of losses available to Harworth Estates will be in excess of £150m. These losses remain available to Harworth Estates only while the Company retains control for tax purposes of UK Coal Mining Limited which is currently a subsidiary of Mine Holdings.

Provisions

Of the £88.8m of provisions brought forward from December 2011, £14.8m were utilised and £0.3m were released during 2012. After additional provisions of £34.6m were made during the year and an unwind of discount of £1.7m applied, with the exception of £0.5m of redundancy provisions retained by the Group the balance of £101.2m of provisions was transferred from the Group upon restructuring. Mine Holdings inherited £94.4m of provisions and Harworth Estates acquired £6.7m of provisions. Additionally, £8.3m of employer and public liabilities in the books of Harworth Insurance Company Limited have been transferred to liabilities held for resale.

Retirement benefit obligations

At the beginning of the year the Group had a deficit, calculated under International Accounting Standards, on its defined benefit pension and retirement schemes of £144.7m. All new employees who joined after the privatisation in 1994 have been eligible to join defined contribution schemes. 

The Blenkinsopp scheme, which showed a deficit of £0.7m at the year-end, has been retained as a liability of the Group. The large defined benefit pension and retirement schemes comprising two funded industry wide schemes, together with an unfunded concessionary fuel scheme, were transferred to Mine Holdings upon restructuring.  The brought forward deficit noted above included a liability of £43.7m in relation to the unfunded concessionary fuel scheme.  All of these schemes are valued annually by our independent actuaries, the Government Actuary's Department.

For these financial statements the schemes have been valued underIAS19 'Employee Benefits' , using the projected unit method and discounting future scheme liabilities on the basis of AA-rated corporate bond yields of over 15 years. The discount rate used, net of inflation, was 1.5% (2011: 2.0%).

Movements in the net liabilities of the schemes during 2012 are set out below.

	Pension*	Concessionary fuel	Total
	£m	£m	£m
December 2011	101.0	43.7	144.7
Contributions paid less current service cost	(2.1)	(0.9)	(3.0)
Change in fund value compared to expected return	(16.0)	2.1	(13.9)
Actuarial loss on liabilities	99.2	5.8	105.0
Contribution of 75.1% of Property  business to Pension Trustees	(138.0)	-	(138.0)
Transfer on restructuring	(43.4)	(50.7)	(94.1)
December 2012	0.7	-	0.7

*Including Blenkinsopp scheme

Prior to the transfer of £43.4m of liabilities to the Mining business upon restructuring, there was a significant decrease in the deficit on the pension schemes of £56.9m.  The main movements were:

·     An actuarial loss on the funds' liabilities of £99.2m arising from the change in actuarial assumptions.  Principally this was due to a reduction of 0.5% in the discount rate, net of inflation, used to value future scheme liabilities.

·     The transfer of 75.1% of the Property business to the Pension Schemes, at a value of £138m (after a £30m equity injection from the Pension Schemes), is treated as a deficit contribution.

·     A gain of £16.0m due to returns on the funds' assets being higher than expected.

£79.5m of the movement in the deficit on the pension schemes has been charged to the Consolidated Statement of Comprehensive Income ("SOCI") in the year.

Prior to restructuring there was an increase in the liability for the unfunded concessionary fuel scheme of £7.0m, of which approximately £4m was due to a reduction in discount rate used to value the scheme liabilities and £3m was due to fuel costs increases over and above the assumption made in 2011.  £5.8m of the movement in the deficit has been charged to SOCI in the year. The deficit at the date of restructuring has been transferred to the Mining business.

Details relating to retirement benefit obligations are shown in note 25 to the financial statements.

Earnings per share

The loss per share for the period was 2.1 pence (2011: profit of 18.5 pence).

Movement in group net debt

A summary of movements in our group net debt position is set out below.

		2012	2011
		£m	£m
Operating (loss)/profit from continuing operations		0.1	(1.6)
Operating (loss)/profit from discontinued operations		(109.2)	66.8
Operating profit/(loss) before non-trading exceptionals		(109.1)	65.2
Revaluation of property		(16.2)	(3.3)
Profit on sale of investment properties, operating property, plant and equipment		(1.6)	(3.3)
Depreciation/impairments of property, plant and equipment		119.6	40.5
Cash impact of non-trading exceptionals		-	(0.3)
Non- cash movement in mining provisions		34.3	4.4
Net working capital movements		17.3	14.5
Finance costs/interest payments (including loan arrangement fees)		(13.6)	(21.2)
Other movements		5.4	1.3
		36.1	97.8
Deep mines
Capital expenditure - cash		(19.8)	(31.8)
Payments against provisions		(11.7)	(10.8)
Disposal proceeds on operating property, plant and equipment		3.5	1.3
		(28.0)	(41.3)
Surface mines
Amortisation of restoration assets		15.8	17.1
Pre-coaling expenditure		(4.4)	(2.6)
Deferred stripping adjustment		(18.5)	(0.9)
Restoration expenditure		(3.1)	(16.9)
		(10.2)	(3.3)
Harworth Estates
Net proceeds of sales of investment properties		21.5	64.3
Planning and development expenditure		(5.2)	(4.8)
		16.3	59.5
Pension contributions in excess of current service cost		(2.1)	(10.0)
Proceeds from sale of business		52.6	-
Net movement in restricted funds		23.6	0.9
Generator loans		(33.5)	(17.1)
		54.8	86.5

The total decrease in net debt in the year was £54.8m (2011: decrease of £86.5m).

KEY RISKS AND UNCERTAINTIES

Following the restructure the key risks and uncertainties of the Group fundamentally changed from those facing an active operational mining and property developer into those facing an active investment holder, with non-controlling interests in a Mining business and a Property business.

Property risk

The Group now holds a non-controlling 24.9% investment in Harworth Estates. While the Group has no operational exposure the value of its investment is subject to the risks inherent in Harworth Estates. These are:

Property market downturn or volatility

Land values are potentially volatile to changes in the wider environment.  Economic conditions affect both business and consumer investment confidence and both of these have a knock-on effect for residential and commercial land prices. The agricultural part of the Harworth Estates estate has proved less volatile in the past and we would expect it to remain so given the more mature nature of the land's usage.

The "immaturity", in planning terms, of Harworth Estates brownfield sites means that a considerable amount of value can be added by the work carried out in advancing them through the planning process. Harworth Estates continue to seek favourable planning outcomes across the development portfolio in order to increase and allow this value to be realised, both of which help to mitigate the carrying value risk of these properties.

Planning approvals

Any major changes in the planning regime could affect the value of Harworth Estates, either positively or negatively.

Mining risk

As shown in the financial statements the Group does not recognise any economic value in its investment in Mines Holdings. As such the Group is no longer exposed to any risks from these operations. The Group does still have some exposure to residual financial liabilities and guarantees from Mine Holdings and UK Coal Operations Limited 'UKCOL' and these are explained more fully in the Going Concern statement included in the Directors' Report.

Pension risk

Following the restructure, the Group no longer bears any risks under the terms of the 1994 privatisation for those employees who transferred to the employment of UK Coal Mining Ltd and became members of one of two Pension Schemes. As disclosed in the accounts, the Group does still have some risk from fluctuations in the value of the Blenkinsopp section of the scheme. The liabilities of this scheme are disclosed in the financial statements under note 25. This scheme is closed to new members. The scheme deficit is, in accordance with International Accounting Standards, calculated using a discount rate in line with the market rate for corporate bonds.  Under the Technical Provisions, which are the basis for the triennial calculation of the pension liabilities for the Pensions Regulator and for agreement on funding rates with the Trustees, different rates, based on gilt yields, are employed.  Depending on changes in these rates prevailing at, and investment performance to, the next valuation date (being 31 December 2012), a higher deficit than that as at December 2009 could lead to higher deficit contributions being needed in later years.

Financing risk

The Group requires funding from its investments on an on-going basis to cover its operational costs (being mainly salaries, office running costs and cost associated with maintaining its Stock Exchange listing). This funding comes from contractual agreements to pay management charges. Should this management charge not be paid the Group would require external funding. This could be debt or equity. The Group is currently in the process of securing a debt facility to cover certain obligations in the event that Mine Holdings and/or UKCOL fail to honour certain indemnities - these are discussed in more detail in the Going Concern statement included in this report . The ability to raise funds on reasonable terms depends on a number of factors, including general economic, political and capital market conditions and credit availability as well as business credit worthiness. There can be no assurance that debt financing in the longer term will be available or, if it is, that it will be available on acceptable terms for the Group. 

Any major changes in the planning regime could affect the value of Harworth Estates, either positively or negatively.

 

END

 

 

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