Interim Results
UK Coal PLC
09 September 2002
9 September 2002
UK COAL PLC
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2002
UK COAL PLC, the UK's leading coal mining group, today announces its Interim
results for the six months ended 30 June 2002.
• Profit before tax and exceptional redundancy costs £0.5 million (2001:
Loss before tax and exceptional coal aid of £30.7 million)
• Loss before tax of £12.5 million (2001: £10.8 million)
• Cash inflow from operations of £25.5 million (2001: £96.0 million,
includes £54.7 million of Coal Aid), and stock increased by
£25.7 million (2001: stock decrease £12.9 million)
• Dividend maintained at 5.0 pence per share (2001: 5.0 pence per
share)
• Sales volumes 9.6 million tonnes (2001: 10.4 million tonnes)
• Deep mine and Surface mine production increased to 8.3 million tonnes
(2001: 7.6 million tonnes) and 2.2 million tonnes
(2001: 2.1 million tones) respectively in the UK
• In depth Business Review (Project 105) now showing benefits, with
reduction of unit costs despite difficult mining conditions at Daw
Mill.
Commenting on the results, Gordon McPhie, Chief Executive of UK
COAL, said:
'Market conditions for coal have been adversely affected by several factors,
including low gas prices, increased stocks at power stations and a recent drop
in international coal prices.'
'We are encouraged by the progress made by Project 105 in terms of increased
efficiencies and reduced costs and will continue to focus on costs and the
review of high cost operations in order to create a profitable business
embracing coal production and property interests.'
For further information, please contact:
UK COAL PLC
Gordon McPhie, Chief Executive Today : 020 7554 1400
Thereafter : 01302 751751
Gavin Anderson & Company
Liz Morley 020 7554 1400
Fiona Grant Duff
CHAIRMAN'S STATEMENT
Results
In the half year to 30 June 2002 the Group reported a profit before taxation and
exceptional redundancy costs of £0.5 million (2001: Loss before taxation and
exceptional coal aid, £30.7 million). After exceptional redundancy costs
totalling £13.0 million incurred largely in relation to the Prince of Wales
Colliery closure, loss before interest and taxation was £12.5 million (2001:
£10.8 million loss after Coal Operating Aid of £19.9 million).
Cash inflow from operations was £25.5 million (2001: £96.0 million, which
included £54.7 million of Coal Operating Aid). Stock increased by £25.7 million
(2001: stock decrease of £12.9 million).
Dividends
The Board has declared an interim dividend of 5.0 pence per share (2001: 5.0
pence per share). The level of dividend has been determined taking into account
the net cash inflow from operating activities and the underlying cash generation
in the period.
Business Review
The trading update published on 16 July explained that market conditions remain
competitive with falling international prices and coal usage by the generators
declining from the higher levels of 2001. Sales volumes in the first half-year
were 9.6 million tonnes (2001: 10.4 million tonnes) which, together with
increased output from both deep and surface mines, has resulted in an increase
in stocks of 1.0 million tonnes (2001: reduction of 0.6 million tonnes).
During the period spot sale contracts for 1.8 million tonnes have been agreed
for delivery during the year. In addition, following our announcement in May to
access further reserves at Ellington Colliery, we have agreed a one-year
extension, to September 2003, of the contract to supply Alcan with coal from
Ellington.
Overall production unit costs in the first half-year have been reduced from
£1.33 per gj to £1.21 per gj as some of the benefits of Project 105 take effect,
in spite of difficult geological conditions affecting Daw Mill.
Deep mine production in the period increased to 8.3 million tonnes (2001: 7.6
million tonnes). As previously reported, we have suffered a delay in achieving
full production at Daw Mill where a section of the face is experiencing
unforeseen geological features, creating difficult operating conditions. This
has resulted in production being reduced to an average of 5,000 tonnes per week.
Following further investigative work indications are that the difficult
operating conditions will remain through the year-end. A number of initiatives
are being tried to speed up progress through the area where the coal has been
disturbed.
On 30 January the Group announced the closure of Prince of Wales Colliery, which
ceased operations on 30 August.
It was announced on 16 July 2002 that the Selby mine complex would be phased out
over a 20-month period, due to deteriorating geological conditions and
continuing financial losses (during the first 6 months of 2002 the Selby group
of mines made operating losses of £14.3 million). In order to maintain
operations at Selby until the Spring of 2004, over 20 miles of development
headings need to be driven to access and prepare replacement faces for
production. The Group has set targets to achieve this objective. The closure
date may be brought forward if targets are not met.
The shaft treatment and pit top restoration costs for the Selby sites are
provided for in the Group balance sheet. Redundancy costs totalling around £40
million, £10 million of which will be Government funded, will be treated as an
exceptional cost in the second half-year profit and loss account for 2002,
reflecting the date of the announcement. The cash flow during the closure period
should be neutral, provided that performance targets are achieved.
Surface mine operations produced 2.2 million tonnes (2001: 2.1 million tonnes).
Planning approval was obtained for 2.6 million tonnes (2001: 1.9 million
tonnes). Two new sites commenced production during April.
The operations in Australia, Gloucester Coal (previously CIM Resources),
produced sales of £17.0 million (2001: £17.7million) from 1.3 million tonnes of
coal (2001: 1.3 million tonnes). The Australian activities produced an
operating profit of £1.8 million (2001: £1.6 million), and made an overall
profit of £0.3 million (2001: loss £1.2 million), after currency hedge costs of
£1.5 million (2001: £2.8 million). The unfavourable hedge contracts terminate at
the end of 2002 when overall profitability is expected to improve.
Project 105 - Operational Review
We are now one year into the two year Project which will reduce costs to our
target of 105p per gj. The primary focus of the project has been improving
performance in the Deep Mines. The four main pillars of the strategy are:
productivity improvement; cost cutting; risk management; and a focus on mines
that are economically viable in the long term.
• Productivity: We have made fundamental changes to the process and
practices we use to manage the mines and these are already having both an
operational and a financial impact.
• Costs: Savings have been obtained on material purchases with the full
benefit of new contract arrangements flowing through in 2003. Capital spend
has also been reduced by forward planning of equipment availability within
the Group, looking at alternative options and as a consequence of
negotiations with major suppliers.
• Risk Management: Unforeseen geological risks have negatively impacted the
Deep Mines performance in 2002. The Group is harnessing emerging
technologies to improve geophysical information and further reduce
geological risk.
• Portfolio: The viability of the Deep Mines portfolio has been
significantly strengthened through the closure of Prince of Wales; the
announced closure of the uneconomic Selby Complex in first quarter 2004; our
cessation of mining at Clipstone and its planned return to the Coal
Authority in 2003. These measures will reduce loss-making activities. We
are continuing to look at the economic viability of all the mines,
particularly in the light of current market conditions and the international
market prices for coal.
The Project 105 initiative has also focused on other elements of the business
and has had a significant impact on the Surface Mining and Marketing areas. The
implementation effort will continue over the next year with the major focus on
embedding Project 105 initiatives for the long term, taking out unnecessary
costs and reducing deep mining risk.
Mines Gas Generation
In March we were successful in bidding to join the UK Emissions Trading Scheme,
designed to reduce the volume of greenhouse gases emitted to the atmosphere.
We are committed to a phased reduction in annual emissions reaching 400,000
tonnes of carbon dioxide equivalent (CO2e) per annum reduction after five years,
qualifying for over £21 million of the £215 million the Government is making
available to help kick-start emissions trading over the next five years.
UK COAL plans to qualify for annual payments under the scheme by installing
engines to convert methane gas, extracted from mines for safety reasons, into
electricity for use on site. Methane has a global warming potential of 21 times
that of the carbon dioxide that is created when it is burnt.
Twin state-of-the-art engines have been installed by UK COAL at Thoresby
Colliery, near Mansfield, Notts and are now generating about a third of the
electricity being used at the mine. Similar engines are to be installed at
three other collieries to further reduce greenhouse gas emissions.
Property Portfolio
The rental income from properties in the first half-year, which is included in
turnover, was £1.8 million (2001: £1.8 million), generating an operating profit
of £0.7 million (2001 £0.9 million).
We continue to dispose of properties where we consider we can achieve maximum
added value. In the period we made a profit of £1.0 million, (2001 : £1.2
million) principally from the sale of land at Wimblebury for housing
development. We anticipate further sales in the second half-year.
The Property and Estates business has made further progress with outline
planning permission being obtained for 80 acres at Tetron Point (former Nadins
Surface Mine), near Burton-on-Trent comprising 1.5 million sq ft of offices,
industrial and warehousing development.
Outlook
The market for coal has reduced this year as a result of low gas prices and
increased coal stocks at power stations. In the last few months international
coal prices have fallen to the low levels last experienced in August 1999, with
the price per tonne into North West Europe falling from $34 at the beginning of
the year to below $26 during August. Adverse exchange rates have further
weakened the competitive position.
The Group has a strong forward order book, amounting to some 49 million tonnes
over the period to 2010, with a tapering profile of annual contract volumes.
Although Daw Mill will incur losses in the second half of the year, we are
confident that it will emerge as one of the Group's lowest cost producers.
The work of Project 105 is providing benefits through increased efficiencies and
reduced costs. This is demonstrated by the Group achieving a small operating
profit despite difficulties in bringing new reserves at Daw Mill into
production. The focus remains on driving down unit costs and continuing to
review high cost operations to create a profitable business embracing coal
production and property interests.
Consolidated profit & loss account for the six months ended 30 June 2002
6 months to 6 months to Year to
30-June 30-June 31-December
2002 2001 2001
Notes £' 000 £' 000 £' 000
Turnover 2 310,773 340,066 662,499
Cost of sales (299,356) (359,183) (671,090)
Exceptional items - redundancy costs (13,016) - -
-Prince of Wales Colliery - - (15,771)
Went Edge
write-down -
Total cost of sales (312,372) (359,183) (686,861)
Gross loss (1,599) (19,117) (24,362)
UK Coal Operating Aid - 19,886 21,658
Other operating income and expenses (9,955) (10,063)3) (20,640)
Operating loss (11,554) (9,294) (23,344)
Profit on sale of land and buildings 987 1,225 1,857
Loss on ordinary activities before interest (10,567) (8,069) (21,487)
And taxation
Interest receivable and similar income 3 3,730 2,985 5,644
Interest payable and similar charges 4 (1,424) (1,341) (2,697)
Unwinding of discount on provisions 10 (4,270) (4,360) (7,944)
Net interest (1,964) (2,716) (4,997)
Loss on ordinary activities before taxation (12,531) (10,785) (26,484)
Taxation 5 1,354 2,798 8,112
Loss on ordinary activities after taxation (11,177) (7,987) (18,372)
Equity minority interest 29 98 96
Loss for the period (11,148) (7,889) (18,276)
Dividends 7 (7,292) (7,292) (14,584)
Loss sustained for the period (18,440) (15,181) (32,860)
Loss per ordinary share 6 (7.6p) (5.4p) (12.5p)
Statement of total recognised gains and losses for the six months ended 30 June 2002
Notes 6 months to 6 months to Year to
30-June 30-June 31-December
2002 2001 2001
£' 000 £' 000 £' 000
Loss for the period after minority interest (11,148) (7,889) (18,276)
Exchange adjustments 731 (389) (785)
Total recognised gains and losses for the (10,417) (8,278) (19,061)
period
Consolidated balance sheet at 30 June 2002
At At At
30-June 30-June 31-December
2002 2001 2001
£' 000 £' 000 £' 000
Fixed assets
Tangible assets 461,418 492,585 485,787
Investments 40 39 40
461,458 492,624 485,827
Current assets
Stocks 97,579 64,805 71,866
Debtors : amounts falling due after one year 7,771 1,508 8,318
Debtors : amounts falling due within one 88,888 120,928 86,055
year
Cash at bank and in hand 8 73,657 78,981 77,181
267,895 266,222 243,420
Total assets 729,353 758,846 729,247
Equity shareholders' funds 9 301,857 337,641 319,566
Equity minority interests 418 371 416
Capital employed 302,275 338,012 319,982
Provisions for liabilities and charges 10 266,483 261,742 257,408
Creditors: amounts falling due after more 11 23,855 12,554 20,066
than
one year
Creditors: amounts falling due within one 11 136,740 146,538 131,791
year
427,078 420,834 409,265
Total funds employed 729,353 758,846 729,247
Consolidated cash flow statement for the six months ended 30 June 2002
Restated *
6 months to 6 months to Year to
30-June 30-June 31-December
2002 2001 2001
Notes £' 000 £' 000 £' 000
Operating activities
Net cash inflow from operating activities 12 25,474 95,957 115,497
Returns from investments and servicing of finance
Interest paid (76) (78) (157)
Interest paid on hire purchases and finance leases (654) (895) (1,729)
Interest received 3,730 2,617 5,644
Net cash inflow from returns on investments 3,000 1,644 3,758
And servicing of finance
Taxation 13 (466) (481)
Capital expenditure and financial investment
Development expenditure (35) (7,405) (9,980)
Purchase of fixed assets (27,158) (23,729) (37,243)
Receipts from sale of fixed assets 2,228 1,026 4,344
(24,965) (30,108) (42,879)
Cash inflow before financing and dividends 3,522 67,027 75,895
Equity dividends paid (7,288) (7,287) (14,573)
Cash (outflow) / inflow before use of liquid (3,766) 59,740 61,322
resources and financing
Management of liquid resources
Cash deposited in subsidence security fund (2,153) - (20,567)
Cash deposited to cover insurance requirements (302) 1,406 (1,849)
Net cash (outflow) / inflow before financing (6,221) 61,146 38,906
Financing
Repayment of bank borrowings (342) (437) (896)
Hire purchase and finance lease capital repaid (3,880) (5,708) (8,609)
Increase in debt 4,414 - -
Net inflow/(outflow) from financing 192 (6,145) (9,505)
(Decrease) / increase in cash (6,029) 55,001 29,401
Note - the cash flow for the six months to 30 June 2001 has been restated to
incorporate Management of liquid resources.
1 Preparation of interim statements
The interim financial statements have been prepared on the basis of the
accounting policies set out in the Group's 2001 statutory accounts. The interim
financial statements are not statutory accounts for the purposes of S240 of the
Companies Act 1985. The figures for the full year to 31 December 2001 do not
constitute the statutory accounts for the year. They have been abridged from the
statutory accounts which have been filed with the Register of Companies and
contain the auditors' report, which was unqualified and did not contain a
statement under either S237(2) or S237(3) of the Companies Act 1985. The
half-year figures, which are for a 26-week period (2001: 26 weeks), have not
been audited, but have been reviewed by the auditors. The auditors' review
report is included with the interim statements. The Board approved the interim
financial statements on 9 September 2002.
During the period, the Group has incorporated within the financial statements
two Abstracts issued by the Urgent Issues Task Force (UITF). Following the
introduction of UITF Abstract 32 'Employee benefit trusts and other intermediate
payment arrangements', the Group has recognised the assets of the trust and
treated them as its own assets in the current period's financial statements.
This change has no impact on previous periods. In respect of UITF Abstract 35
'Death-in-service and incapacity benefits', the financial obligations of
incapacity benefits are included within the assumptions used in valuing the
Scheme liabilities for both of the Group's defined benefit schemes ; the
Industry Wide Coal Staff Superannuation Scheme, and the Industry Wide
Mineworkers' Pension Scheme. There is full insurance cover in both schemes for
death-in-service benefits.
2 Segmental and geographical analysis Restated
(note 2)
6 months to 6 months to Year to
30-Jun 30-Jun 31-Dec
2002 2001 2001
£' 000 £' 000 £' 000
Turnover
Continuing operations
Coal sales - deep mines 238,044 252,044 488,924
Coal sales - surface mines 43,909 53,936 101,806
Surface mines contract mines and associated 1,758 5,600 10,598
activities
Manufactured fuel and combined heat and power 8,303 8,972 18,046
Australia - coal sales 16,961 17,695 39,226
Property activities 1,798 1,819 3,899
310,773 340,066 662,499
Geographical analysis
United Kingdom 289,503 321,273 615,526
European Community Countries 1,900 167 3,020
Rest of Europe 2,409 931 4,727
Asia - Pacific 16,961 17,695 39,226
310,773 340,066 662,499
Loss before taxation
Continuing operations
Coal sales - deep mines (note 3) (5,950) (35,160) (46,745)
- deep mines coal operating aid - 19,886 21,658
Coal sales - surface mines 6,966 7,743 17,935
Surface mines contract mines and associated (453) 74 (572)
activities
Manufactured fuel and combined heat and power (98) (55) (81)
Australia - coal sales 1,798 1,595 4,246
- hedging losses (1,511) (2,788) (4,440)
Property activities - rentals and other property 710 891 1,906
activities (note 4)
- profit on sales 987 1,225 1,857
Net interest payable (1,964) (2,716) (4,997)
Provision for debtor in liquidation - (1,480) (1,480)
Exceptional items (13,016) - (15,771)
(12,531) (10,785) (26,484)
Note 1: Due to the nature of the Group's business distribution expenses are
treated as a part of cost of sales.
Note 2: Coal sales figures for deep mines and surface mines have been
restated for the six months to 30 June 2001 to the basis used for the
year to 31 December 2001. Total sales for the six months remain
unaltered.
Note 3: Stated after crediting £1.4 million which relates to the release of a
provision for concessionary fuel costs resulting from the decision to
close Prince of Wales.
This amount is included in the provision release in note 10.
Note 4: Costs associated with operating the property segment are now
recognised in the property segment; previously these were treated as
part of the cost of the surface mining operation. Comparatives
have therefore been restated to show the impact of including these
costs in the appropriate segment in the prior year.
3 Interest receivable and similar income
6 months to 6 months to Year to
30-Jun 30-Jun 31-Dec
2002 2001 2001
£' 000 £' 000 £' 000
Interest receivable 3,730 2,985 5,644
4 Net interest payable and similar charges
Interest paid on hire purchase and finance leases
- repayable within 5 years 655 906 1,828
- repayable after 5 years 381 - 21
Amortisation of loan issue costs 312 357 691
on bank loans,overdrafts and other loans
repayable within 5 years 76 78 157
1,424 1,341 2,697
5 Taxation
On ordinary activities
United Kingdom corporation tax at 30 % ( 2001 : 30 % )
Current - - (6,497)
Deferred (1,354) (2,705) (3,150)
Overseas taxation - (93) -
Under /( over ) provision in respect of prior years
Current - - (3,634)
Deferred - - 3,494
Overseas taxation - - (91)
(1,354) (2,798) (9,878)
On exceptional items
United Kingdom corporation tax at 30 % (2001:30%)
Current - - 6,497
Deferred - - (4,731)
- - 1,766
(1,354) (2,798) (8,112)
6 Earnings per share
Earnings per share have been based on the number of shares in issue and ranking
for dividend being 145,847,454 (June 2001 - 145,847,273 :
Dec 2001 - 145,847,454)
6 months to 6 months to Year to
30 Jun 30 Jun 31 Dec
2002 2001 2001
£' 000 £' 000 £' 000
Loss per ordinary share (7.6p) (5.4p) (12.5p)
There is no difference between basic and diluted earnings per share.
7 Dividends
The ordinary dividend will be paid on 22 November 2002 to shareholders on the
register on 25 October 2002. The interim report will be circulated to all
ordinary shareholders and will be available at the Company's registered office
at Harworth Park, Blyth Road, Harworth, Doncaster, South Yorkshire, DN11 8DB.
2002 2002 2001 2001
Pence per Pence per
share £' 000 share £'000
Interim 5.0 7,292 5.0 7,292
Final 5.0 7,292
10.0 14,584
8 Cash at bank and in hand
30-June 30-June 31-December
2002 2001 2001
Cash deposited to cover insurance requirements 35,588 32,031 35,286
Subsidence security fund 22,720 - 20,567
Other cash balances 15,349 46,950 21,328
73,657 78,981 77,181
9 Movement in shareholders' funds
6 months to
30-June
2002
£' 000
Shareholders' funds at 1 January 2002 319,566
Loss sustained for the period (18,440)
Exchange adjustment 731
Shareholders' funds at 30 June 2002 301,857
10 Provisions for liabilities & charges
At 1st January Created Released Utilised Unwinding At 30 June
2002 in period in period In period of discount 2002
£'000 £'000 £'000 £'000 £'000 £'000
Provisions 256,054 21,331 (4,384) (10,788) 4,270 266,483
Deferred taxation 1,354 - - (1,354) - -
257,408 21,331 (4,384) (12,142) 4,270 266,483
11 Creditors
The creditors figure shown in the balance sheet includes the following
liabilities:
30-June 30-June 31-December
2002 2001 2001
£' 000 £' 000 £' 000
Creditors : amounts falling due after more than one year
Hire purchase and finance lease liabilities 18,793 8,096 15,373
Creditors : amounts falling due within one year
Bank borrowings * 510 665 492
Hire purchase and finance lease liabilities 6,354 5,368 7,325
6,864 6,033 7,817
* Bank borrowings at 30 June 2002 are stated after deduction of unamortised loan
arrangement costs of £156,000(31 December 2001: £ 467,000)
12 Reconciliation of operating loss to net cash inflow from operating activities
6 months to 6 months to Year to
30-June-02 30-June-01 31-December-01
£' 000 £' 000 £' 000
Continuing activities
Operating loss (11,554) (9,294) (23,344)
Depreciation on tangible fixed assets 32,405 31,283 59,173
Went Edge write-off - - 15,771
Net charge for surface mine development and 8,938 5,891 9,135
restoration assets
(Increase) /decrease in coal and other stocks (25,713) 12,882 5,817
(Increase ) / decrease in debtors (2,149) 6,889 13,877
Increase / (decrease ) in creditors 23,547 13,516 (18,274)
Decrease in Coal Operating Aid receivable - 34,790 53,342
Net cash inflow from continuing operating 25,474 95,957 115,497
activities
13 Post balance sheet event
On 16 July UK COAL announced the closure of the Selby complex with production
being phased out over the period to March 2004.
This decision was taken following the publication of an independent study by IMC
Group Consulting on behalf of the Department of Trade and Industry. This study
supported the views of UK COAL that the Selby complex of mines was not a viable
operation due to deteriorating geological conditions.
This information is provided by RNS
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