Interim Results
UK Coal PLC
07 September 2005
7th September 2005
UK COAL
Interim Report 2005
Financial Overview
For the six months ended 30 June 2005:
•Operating loss before exceptional items, £14.7 million (2004: loss of
£15.8 million)
•Loss for the period £30.6 million (2004: loss of £1.4 million)
•Funds outflow of £36.7 million after receipt of proceeds from sale of
Monckton of £8.0 million and property disposals of £8.2 million
•Net debt at 30 June 2005 £29.9 million including leasing and hire
purchase and cash held in respect of insurance and surface damage
liabilities (31 December 2004: £6.8 million net cash)
•£58.3 million increase in the gross valuation of the property portfolio
(excluding investment properties) representing £189.1 million in excess of
book value
•Value of Investment property portfolio increased to £17.8 million (31
December 2004: £6.7 million)
Operational Summary
•Deep mine production at ongoing mines 3.9 million tonnes (2004: 3.6
million tonnes)
•Total deep mines production 4.0 million tonnes (2004: 6.0 million tonnes)
•Sales volumes 4.8 million tonnes (2004: 7.4 million tonnes)
•Coal stocks 369,000 tonnes (31 December 2004: 647,000 tonnes)
•6 coal faces equipped during first half of the year
•New workforce agreements and working arrangements implemented at 4
collieries
•Ellington Colliery closed and decision taken to mothball Harworth.
Rossington Colliery will also be mothballed.
•Deep mine cost per GJ (for ongoing mines after deducting Coal Investment
Aid and before exceptional cost of sales) £1.55 (2004: £1.46)
•Surface mine production 0.6 million tonnes (2004: 1.2 million tonnes)
•Selling price per GJ £1.30 (2004: £1.17)
•Property sales proceeds £8.2 million (2004: £1.9 million) - planning
approvals for a further 140 acres
•Annualised rental income on commercial and business parks increased to
£1.2 million (31 December 2004: £0.9 million)
•Planning applications being progressed for the erection of up to 40 wind
turbines
Chairman's Statement
Results
During the six months ended 30 June 2005, the Group actively managed the issues
in the deep mines, targeting costs, management processes, industrial relations
and working practices. Rising sales prices and improved cost control contained
losses during a period where six coal faces were equipped. Deep mines made a
loss of £44.4 million, after exceptional costs of sale of £22.7 million, and an
unexpected face gap at Daw Mill, which reduced profitability. However, property
activities produced a profit of £10.4 million (2004: £2.4 million) and our other
businesses delivered a profit of £3.3 million (2004: £1.5 million). The profit
on disposal of our Monckton business was £2.9 million. This resulted in an
overall loss after tax of £30.6 million (2004: £1.4 million).
A decline in sales volumes, partially offset by higher coal prices, led to a
fall in turnover from continuing operations to £164.1 million (2004: £222.4
million). Coal sales fell to 4.8 million tonnes (2004: 7.4 million tonnes) as a
result of a reduction in production to 4.6 million tonnes (2004: 7.2 million
tonnes) reflecting colliery closures in 2004 and a reduction in surface mine
output. Overall coal stocks held amounted to 369,000 tonnes (31 December 2004:
647,000 tonnes).
Exceptional costs incurred in the period amounted to £22.7 million (2004:
revenue of £3.3 million). These primarily arose from costs at Kellingley and
Rossington collieries, recovering operations following force majeure events
(£7.5 million), the impairment of assets at Rossington (£5.6 million) and costs
resulting from the closure of Ellington (£5.1 million).
Coal Investment Aid claimed by UK COAL in respect of investments to access coal
reserves amounted to £10.4 million of which £8.1 million was credited to the
consolidated income statement(2004: £4.4 million). The remaining Investment Aid
was taken to deferred income and will be credited to the consolidated income
statement over the life of the assets to which it relates. The Investment Aid
debtor at 30 June 2005 amounted to £11.6 million (31 December 2004: £11.1
million).
We made good progress on our property activities in the period, with sales being
made from developments where UK COAL has extracted maximum value from the
planning process. Rental income received in the period on our commercial and
industrial lets and farm tenancies on surface mining land held was £2.2 million
(2004: £1.7 million). Profits on property sales were £4.5 million (2004: £1.3
million), and the Group has also recognised £4.5 million increase in the value
of its investment property portfolio (2004: £nil), which is now valued at £17.7
million (31 December 2004: £6.7 million).
A property valuation has been carried out in the period, updating the valuation
of 31 December 2004. Overall, this shows an increase of £58.3 million,
representing an excess over book value of £189.1 million. A fuller description
of the property revaluation is contained in the Chief Executive's Review of
Operations.
Cash Flow and Debt
The operating loss suffered in the period contributed to an outflow of funds
amounting to some £36.7 million. The net debt position of the Group at 30 June
2005 was £29.9 million (31 December 2004: net cash of £6.8 million). This
included leasing and hire purchase obligations, and cash of £54.5 million (31
December 2004: £55.3 million) held in respect of insurance requirements and
subsidence security funds.
Other major items affecting the cash flow in the period were redundancy payments
of £11.1 million, primarily in respect of Selby and Ellington closures, surface
mine restoration costs of £4.8 million, and a £6.5 million outflow in respect of
increased net working capital, mainly as a result of reduced trade creditors.
Liabilities in respect of shaft treatment, employers and public liability and
surface damage amounting to £6.6 million in total were settled in the period.
Capital expenditure amounted to £10.8 million and depreciation and impairment
was £26.4 million.
Property and other fixed asset sales generated cash of £8.5 million (2004: £2.7
million) and the proceeds from the disposal of businesses amounted to £8.0
million in the period (2004: £19.4 million).
Dividend
Following the operating losses suffered in the first half of 2005, which
resulted in a cash outflow and increased debt levels, the Board is not
proposing an interim dividend. A final dividend will be considered in April 2006.
Contingent Liability
In our Report and Accounts for the year ended 31 December 2004, we referred to a
claim against the Company to determine whether the Company may be required to
provide certain early retirement pension related benefits on redundancy. Neither
the legal analysis of the merits of the claim nor the difficulties inherent in
quantifying any financial cost to the Company have changed, and therefore no
provision has been made in the accounts. The Board considers, on the basis of
legal and actuarial advice, that the cost to the Company is now estimated to be
between zero and £40 million (31 December 2004: between zero and £30 million).
However, the complexities of the legal issues involved, and the difficulties in
quantifying financial exposure, mean there is a possibility that the cost to the
Company may exceed £40 million.
The increase in the range of estimated cost is principally the result of
redundancies announced since 31 December 2004, and a better estimate of
pensionable salary which could require a top up by the Company to pensions in
payment and already paid by the former British Coal Corporation.
The case is due to be heard in the High Court during December 2005. The Company
continues to vigorously defend the claim.
Outlook
With fewer face gaps and having equipped new faces at most mines, we expect more
consistent deep mine production in the second half of the year, assisted by the
ongoing reorganisation of the workforce and working practices.
Contract re-negotiations have been concluded with all major customers giving
increased sales coverage going forward at prices more reflective of the current
international market background. At the end of June 2005, total contracted coal
sales to the end of 2010, including an estimate of sales to non Electricity
Supply Industry markets, was 38.4 million tonnes with averaged proceeds (in 2005
prices) ranging between £1.31 and £1.40 per gigajoule across all years. These
prices are subject to full RPI inflation and are dependent on the out-turn in
international coal prices.
The delays in obtaining planning consents will prevent any improvement in
surface mine production in the second half but we will be seeking to make best
use of the more favourable background to obtain planning consents to begin
improvements in surface mine outputs in 2006.
We will continue to accelerate the exploitation of our property portfolio and to
realise the potential for our power generation business and expect to make good
progress in these areas.
Chief Executive's Review of Operations
Deep Mines
The Group entered the year with eight deep mines, three of which were considered
higher risk and which were under review. Conditions at these mines in the first
half of the year have proved this initial assessment to be correct, and despite
operational improvements, we have been forced to take the decision to close
Ellington and plan to move two other mines to 'care and maintenance'.
Our deep mines produced 4.0 million tonnes in the six months to 30 June 2005
compared to 6.0 million tonnes in the same period in 2004. This reduction is
attributable to the closure of the Selby complex in 2004, an unplanned face gap
at Daw Mill, the closure of Ellington Colliery in January and excess methane at
Harworth Colliery. Ongoing mine production, including Harworth and Rossington,
amounted to 3.9 million tonnes (2004: 3.6 million tonnes).
During the period, the Group has equipped six new coal faces, which has
necessitated heavy investment in equipment, manpower and management time and it
is a credit to our people that this has been achieved despite sometimes
extremely difficult mining conditions.
Operational initiatives in respect of new workforce agreements, cost control
practices and ground control techniques have proved beneficial. In particular,
during the early part of the year, the working practices in the deep mines were
reviewed. New workforce agreements are now in place at four collieries. These
agreements have resulted in increased guaranteed production time at the
coalfaces, improved operational efficiency and fewer bonus disputes. The
workforce and management teams have responded well to the challenges to achieve
better performance.
We have also significantly improved cost control in the deep mines. We are
involved in a large number of projects, each of which consumes substantial
resources and management time. Control has been improved by the introduction of
project costing. This has enabled the cost base to be reduced and has
compensated for some of the production shortfalls. Tight control of costs will
remain a feature of the operations in future.
These operating improvements have delivered tangible benefits in both working
practices and cost control which have helped to mitigate the impact of lower
deep mine production. The benefits have been particularly felt at Welbeck and
Kellingley collieries. Total deep mine unit costs on the reduced output levels
for ongoing collieries, after deducting Coal Investment Aid and excluding
exceptional costs, were £1.55 per gigajoule (2004: £1.46 per gigajoule).
The improved output levels and general performance at some mines have, however,
been offset by an unplanned face gap at Daw Mill. This was mainly due to the
time needed to resolve the problem of floor heave, a complication not
anticipated when the developments were designed some two years ago. The
development design for the next panel is being changed to enable the next move
to be carried out more efficiently when it takes place in early 2007.
Harworth Colliery was one of the first to complete its operational review. We
introduced new working practices and workforce involvement unique in British
mining. Performance levels on underground projects improved substantially. The
mine, however, suffered from high methane levels in the first quarter slowing
coal extraction and also encountered extremely difficult geological conditions
in the region of reserves being worked. Following experience on this face, it
was considered unlikely that further reserves could be economically extracted
from this area of the mine. It is disappointing, following such excellent
progress, that once the currently developed coal panel has been extracted early
next year, the seam will have to be abandoned.
Plans are now being drawn up at Harworth to mothball the mine, reducing the cost
base. This strategy will allow future access to substantial areas of reserves in
an alternate coal seam. Investment here will be dependent on anticipated
returns, government support and the future coal price. Following this decision,
the Group has retained fixed assets with a value of £12 million, which relate to
the winding equipment, surface works, mine access and land curtilage. These
assets will be reviewed periodically to test impairment and written down as
appropriate after taking into account the costs of remediation and restoration.
The mothballing of activities has resulted in an impairment charge in the period
to the carrying value of fixed assets amounting to £1.0 million and the write
off of consumable stores and stocks of £0.5 million.
As with all our mines, employees at Harworth Colliery are highly experienced,
motivated workers with unique skills. Wherever possible, employees from Harworth
are being transferred to improve operational efficiency at other mines.
Redundancy costs will be incurred in the second half in respect of employees who
cannot or choose not to be transferred. Such costs are expected to amount to
around £9 million and, in accordance with accounting standards, have not been
provided in the period.
At Rossington, which began the year under review, attempts were made to
establish advancing longwall panels productive enough to support the extensive
rehabilitation expense necessary to support the future development. Advancing
longwalls have not been used in British mines for some years and are not used
elsewhere in the world because of inherent problems controlling cycle times and
gate roads. It was, therefore, a trial which ultimately has not produced the
required result, and, as such, Rossington will be mothballed once extraction is
completed at the current panel. As a result, the carrying value of Rossington's
assets has been reviewed, resulting in an impairment charge to the consolidated
income statement of £5.6 million.
Coal selling prices in the six months ended 30 June 2005 began to reflect the
improvement in international coal prices with unit income averaging £1.30 per
gigajoule (2004: £1.17 per gigajoule). Certain energy prices, particularly gas,
have experienced unprecedented increases in the period, improving coal's
relative competitive position.
The force majeure dispute with Drax Power Limited has been settled amicably,
involving the re-pricing and re-phasing of the tonnage shortfall.
Surface Mines
Surface mine activity declined in the period as a result of four sites
completing coaling. Output from the Group's six mines was 0.6 million tonnes
(2004: 1.2 million tonnes). Cost control contained the losses and surplus plant
has been applied to restore sites. We are more optimistic that further planning
approvals will be obtained which will allow access to the substantial reserves,
and our plant capacity is being maintained accordingly.
Unit costs were £1.28 per gigajoule (2004: £1.03 per gigajoule) reflecting lower
activity levels. Extraction was completed in the period at four mines, which are
now in restoration.
While no new planning consents were received in the six months ended 30 June
2005, three sites with a total tonnage of 2.7 million tonnes are in the Public
Inquiry process following appeal and, subject to approval, will be available to
start production in 2006.
Two further schemes, totalling 0.6 million tonnes, were submitted for planning
approval in the first half of the year. Four projects with total reserves of 4
million tonnes will be submitted for planning approval in the second half of the
year.
Planning permission is currently held for one project with a total of 1.5
million tonnes of reserves. This is scheduled to begin production later in 2006,
with extraction of the reserves to be phased over a four year period.
The total coal reserves, held within our property portfolio, including projects
currently being worked and in planning, have a potential of around 100 million
tonnes. This holding has increased due to higher coal prices, which have
improved the viability of previously uneconomic projects.
Property
The Group continues to increase the value of its property portfolio by focussing
on three key areas: commercial lets, development properties and improving rents
from agricultural land held for surface mining purposes.
The property team is developing these areas by adding value where appropriate
through the planning system and by active development of certain sites. Joint
venture projects have been entered into where appropriate, and more will follow.
With such a large property portfolio, surplus land is identified and sold when
maximum value has been created after gaining planning permission.
In the commercial lets area, we have made good progress in growing annual
rentals, which increased during the period by £0.3 million. Applications for
business park use have been submitted in respect of all the former Selby mines
and a planning application for an additional building is about to be lodged for
the Asfordby site. If these applications are successful, our business parks will
cover a total of 290 acres, of which 175 acres is currently awaiting approval.
A review of the Group's properties which are substantially let and held for
investment purposes was carried out during the six months ended 30 June 2005. In
this period, leases have been signed in respect of one former disposal point and
the Whitemoor business park is fully let. In accordance with accounting
standards, we have recognised £4.5 million of gains in the valuation of our
investment portfolio in the income statement for the six months ended 30 June
2005, with a further gain of £5.6 million reflected in reserves. Future
movements in the value of our investment properties will similarly be taken to
profit. The Group now has £17.8 million of properties in this category yielding
a rental income of £1.2 million per year.
Our development activities have progressed well. We have gained planning
permission for further tranches of our land and have put land into the planning
process. Master planning is ongoing for the Orgreave and Prince of Wales sites,
and planning permission is in place for the Waverley AMP and other sites. The
total area of sites being promoted or with planning consent now amounts to some
1,250 acres and these are included in the table below as 'working surface mines'
or 'other land'.
Agricultural land held for surface mining purposes has increased in value in the
period, and additional focus has been directed towards this area, with the aim
of creating further development opportunities where appropriate.
Property proceeds in the first half year amounted to £8.2 million (2004: £1.9
million). Further property sales, currently under negotiation, are expected to
be finalised during the second half year.
Property Valuation
A full independent property valuation of all properties has been carried out in
the period, in accordance with the 'RICS Appraisal and Valuation Standards'
published by the Chartered Institute of Surveyors. This follows the limited
update to the 2002 valuation carried out at 31 December 2004. It is pleasing to
report that the gross valuation (excluding investment properties) has increased
by 29% to £260.3 million (31 December 2004: £201.9 million), the major reason
being the uplift in agricultural values since 2002.Agricultural land is valued
on an existing use basis. The valuation is before the deduction of
rehabilitationand restoration costs of £71.2 million (31 December 2004: £77.2
million), which are provided in the accounts and relate mainly to working
surface mines and sites in aftercare. On a like for like basis, the property
portfolio has shown again of £74.9 million (37.1%), which takes into account
disposals, transfers to investment properties and development expenditure. A
fuller analysis of the property valuation, excluding investment properties, is
set out in the table below.
Summary of Properties Book Value Valuation Valuation
30 June 2005 30 June 2005 31 Dec 2004
£000 £000 £000
Sites with Planning for
development (Note 1) 260 32,260 41,420
Working Surface Mines (Note 2) 9,056 73,925 49,696
Surface Mining Land bank 38,168 63,596 48,786
Sites in Aftercare 13,110 15,139 9,159
Other Land (Note 3) 10,595 75,332 52,845
Total 71,189 260,252 201,906
Note 1: At 30 June 2005, the category 'Sites with planning for development' is
net of disposals with proceeds of £8.2 million.
Note 2: Includes Orgreave surface mine site.
Note 3: Principally consists of former operational land in evaluation, planning
or master planning process.
The valuation exceeds the amount recorded in the books by £189.1 million (31
December 2004: £126.3 million).
At 30 June 2005, investment properties were valued at £17.8 million, compared to
£6.7 million at 31 December 2004. Two properties reclassified as investment
properties account for £9.5 million of the increase, the remainder being the
increase in the value of Asfordby business park in the period.
Power Generation
Harworth Power is engaged in the generation of electricity utilising methane gas
from both operating and closed deep mines. In the six months to 30 June 2005,
Harworth Power generated 48,000 MWH of electricity with a value of £1.9 million
from its installed capacity of 32 MW.
Harworth Power is currently progressing planning applications for former
colliery and surface mining land to establish up to 40 wind turbines with a
capacity of 80 MW. The first of these applications will be determined in late
September 2005 and the remainder over the next two years.
Other Operations
The Monckton Coke and Chemical Company Limited ('Monckton'), which was engaged
in the production of coke, was sold during June 2005. The business was sold for
a total consideration of £12.0 million with £8.0 million received immediately
and the remaining £4.0 million receivable on the first and second anniversaries
of the sale in equal amounts. A further £1.1 million will be received in respect
of working capital.
Monckton was sold to Hargreaves (UK) Limited, which has significant interests in
this area. The terms of the sale reflect the current high prices for coking coal
products and allow us to receive a royalty on future sales in addition to
supplying coal at market prices. The disposal will allow the business to move
forward and through the royalty and coal sale agreement enable us to participate
in the future success of the operation.
Production - 6 months to June H1 2005(mt) H1 2004(mt)
Ongoing collieries
Daw Mill 0.7 1.4
Kellingley 1.0 0.3
Maltby 0.4 0.4
Thoresby 0.8 0.4
Welbeck 0.5 0.4
Sub total 3.4 2.9
Harworth 0.3 0.5
Rossington 0.2 0.2
Sub total - ongoing collieries 3.9 3.6
Selby Complex - 2.1
Other closed mines 0.1 0.3
Total Deep Mines 4.0 6.0
Surface Mines 0.6 1.2
Total Production 4.6 7.2
UK COAL PLC
Consolidated income statement for the six months ended 30 June 2005
6 months 6 months 12 months
to June to June to Dec
2005 2004 2004
Notes £'000 £'000 £'000
Continuing operations
Turnover 2 164,118 222,385 433,818
Cost of sales 3 (205,936) (233,021) (471,038)
----------------------------------------------------------------------------------------------
Gross loss (41,818) (10,636) (37,220)
Coal Investment Aid 4 8,102 4,449 8,902
Appreciation in fair value of investment properties 4,530 - -
Profit on disposal of land and buildings 4,461 1,315 2,760
Profit on disposal of business 4, 10 2,918 - -
Other operating income and expenses (4,579) (3,251) (11,492)
----------------------------------------------------------------------------------------------
Operating loss (26,386) (8,123) (37,050)
Net interest (payable)/receivable 5 (1,561) 1,186 737
Unwinding of discount on provisions 5 (2,566) (3,049) (5,885)
----------------------------------------------------------------------------------------------
Net finance costs 5 (4,127) (1,863) (5,148)
----------------------------------------------------------------------------------------------
Loss before tax (30,513) (9,986) (42,198)
Tax (71) - -
----------------------------------------------------------------------------------------------
Loss for the period from continuing operations (30,584) (9,986) (42,198)
----------------------------------------------------------------------------------------------
Discontinued operations
Loss for the period from discontinued operations - (1,302) (1,626)
Profit on disposal of businesses - 9,936 10,293
----------------------------------------------------------------------------------------------
Total profit from discontinued operations - 8,634 8,667
----------------------------------------------------------------------------------------------
Loss for the period (30,584) (1,352) (33,531)
==============================================================================================
Attributable to :-
Equity holders of the parent (30,584) (1,305) (33,480)
Minority interest - (47) (51)
-------- -------- ---------
(30,584) (1,352) (33,531)
======== ======== =========
Loss per share 8 p p p
From continuing operations:
Basic and diluted (20.6) (6.8) (29.0)
From discontinued operations:
Basic and diluted 0.0 5.9 6.0
From total operations:
Basic and diluted (20.6) (0.9) (23.0)
Consolidated statement of recognised income and expense
for the six months ended 30 June 2005
6 months 6 months 12 months
to June to June to Dec
2005 2004 2004
£'000 £'000 £'000
Actuarial losses on defined benefit pension
schemes (3,722) (990) (14,025)
Actuarial gain on concessionary fuel reserve - - 2,307
-------- -------- --------
Net expense recognised directly in equity (3,722) (990) (11,718)
Transfers to/(from) equity
Accrual for long term incentive plan liabilities 87 (322) (211)
Loss for period (30,584) (1,352) (33,531)
-------- -------- --------
Total recognised expense for the period (34,219) (2,664) (45,460)
======== ======== ========
Attributable to :-
Equity holders of the parent (34,219) (2,617) (45,409)
Minority interest - (47) (51)
-------- -------- --------
(34,219) (2,664) (45,460)
======== ======== ========
Consolidated statement of changes in equity
for the six months ended 30 June 2005
6 months 6 months 12 months
to June to June to Dec
2005 2004 2004
£'000 £'000 £'000
Total recognised expense for the period
attributable to
equity holders of the parent (34,219) (2,617) (45,409)
Dividends (1,483) (7,299) (14,602)
Accrual for long term incentive plan
liabilities - 1,476 368
Increase in revaluation reserve 5,565 - -
Shares purchased to fulfil
long term incentive plan liabilities - - (43)
Ordinary shares issued in the period 1,663 61 122
-------- -------- ---------
(28,474) (8,379) (59,564)
Equity at commencement of period 56,789 116,353 116,353
-------- -------- ---------
Equity at end of period 28,315 107,974 56,789
======== ======== =========
Consolidated balance sheet
At 30 June 2005
30 June 30 June 31 December
2005 2004 2004
Notes £'000 £'000 £'000
Assets
Non current assets
Property, plant and equipment 336,263 367,761 358,232
Investment properties 17,750 6,720 6,720
Trade and other receivables 4,627 634 4,131
-------- -------- ---------
358,640 375,115 369,083
-------- -------- ---------
Current assets
Inventories 37,067 56,226 47,641
Trade and other receivables 53,576 92,163 62,358
Cash and cash equivalents 9 54,865 57,431 55,617
-------- -------- ---------
145,508 205,820 165,616
-------- -------- ---------
Liabilities
Current liabilities
Bank overdrafts and loans 9 (57,330) (16,547) (12,225)
Trade and other payables (87,325) (112,795) (106,827)
Obligations under hire purchase and
finance leases 9 (10,365) (9,022) (10,998)
Provisions 11 (40,323) (44,669) (46,837)
-------- -------- ---------
(195,343) (183,033) (176,887)
-------- -------- ---------
Net current (liabilities)/assets (49,835) 22,787 (11,271)
-------- -------- ---------
Non current liabilities
Trade and other payables (44) (162) (44)
Obligations under hire purchase
and finance leases 9 (16,335) (12,021) (25,108)
Provisions 11 (123,911) (150,727) (138,812)
Retirement benefit obligations 12 (140,200) (127,018) (137,059)
-------- -------- ---------
(280,490) (289,928) (301,023)
-------- -------- ---------
Net assets 28,315 107,974 56,789
======== ======== =========
Equity
Capital and reserves
Ordinary shares 1,485 1,461 1,462
Share premium 1,762 62 122
Revaluation reserve 5,565 - -
Capital redemption reserve 257 257 257
Fair value reserve 4,530 - -
Retained earnings 14,716 106,194 54,948
-------- -------- ---------
Total equity 28,315 107,974 56,789
======== ======== =========
Consolidated cash flow statement for
the six months ended 30 June 2005
6 months 6 months 12 months
to June to June to Dec
2005 2004 2004
Notes £'000 £'000 £'000
Cash flows from operating activities
Loss for the period 2 (30,584) (1,352) (33,531)
Depreciation/impairment of
property, plant and equipment 26,370 22,346 55,336
Fair value appreciation in investment
properties (4,530) - -
Net interest receivable and amortisation of
discount on provisions 3,884 1,863 5,148
Net charge/(credit) for share based
remuneration 87 (322) (211)
Net credit for surface mine
development and restoration costs (339) (3,151) (1,649)
Profit on sale of property, plant
and equipment (4,562) (1,315) (3,317)
Profit on sale of interest in businesses (2,918) (9,936) (10,293)
Decrease in provisions (22,859) (17,467) (29,200)
Tax 71 - -
DTI contributions to redundancy payments - 5,200 5,200
-------- -------- ---------
Operating cash flows before movements in
working capital (35,380) (4,134) (12,517)
Decrease in stocks 7,105 2,243 10,828
Decrease/(increase) in receivables 8,472 (1,524) 24,589
(Decrease)/increase in payables (22,119) 3,007 (5,524)
-------- -------- ---------
Cash (used in)/generated from operations (41,922) (408) 17,376
Tax paid (71) - -
Interest paid (2,596) (1,139) (4,006)
-------- -------- ---------
Cash (used in)/generated from
operating activities (44,589) (1,547) 13,370
-------- -------- ---------
Cash flows from investing activities
Interest received 1,541 1,297 4,605
Net receipt from insurance
provision fund 786 2,306 3,675
Disposal of businesses 8,844 19,383 19,571
Proceeds on disposal of property,
plant and equipment 8,474 2,742 6,382
Purchase of property, plant and
equipment (10,767) (23,734) (51,370)
-------- -------- ---------
Cash generated from/(used in)
investing activities 8,878 1,994 (17,137)
-------- -------- ---------
Cash flows from financing activities
Proceeds from issue of share capital 1,663 61 122
New bank loans raised 44,971 9,073 5,067
Purchase of treasury shares - - (43)
Proceeds from new finance leases 4,939 - 22,185
Repayment of obligations under hire purchase
and finance leases (14,345) (2,864) (9,986)
Dividends paid (1,483) (7,267) (14,573)
-------- -------- ---------
Cash generated from/(used in)
financing activities 35,745 (997) 2,772
-------- -------- ---------
Effects of exchange rate changes - (63) (63)
-------- -------- ---------
Increase/(decrease) in cash 34 (613) (1,058)
======== ======== =========
At commencement of period
Cash 326 1,384 1,384
Cash equivalents 55,291 58,966 58,966
-------- -------- ---------
55,617 60,350 60,350
Reduction in cash equivalents
(net receipt from insurance fund) (786) (2,306) (3,675)
Increase/(decrease) in cash 34 (613) (1,058)
-------- -------- ---------
54,865 57,431 55,617
======== ======== =========
At end of period
Cash 360 771 326
Cash equivalents 54,505 56,660 55,291
-------- -------- ---------
Cash and cash equivalents 9 54,865 57,431 55,617
======== ======== =========
Notes to the Financial Statements for the six months ended 30 June 2005
Basis of preparation of interim statements
The interim financial statements have been prepared in accordance with the
accounting policies of the Group under IFRS as set out in the 'Restatement of
FinancialInformation for 2004 under International Accounting Standards and
International Financial Reporting Standards' (collectively
referred to as 'IFRS' ) which can be found on the Group's website. These
standards and interpretations are subject to ongoing review and endorsement by
the EU or possible amendment by interpretive guidance from the International
Financial Reporting Interpretations Committee (IFRIC) and are therefore
still subject to change.
The 'Restatement of Financial Information for 2004' includes a reconciliation of
equity at 30 June 2004 under UK GAAP to equity under IFRS and a reconciliation
of the loss for the period to 30 June 2004 under UK GAAP to the loss for the
period under IFRS.
A number of IFRS Standards and Interpretations are not yet mandatory but can
be adopted early under their respective transition arrangements. UK COAL has
adopted early IFRS 6 'Exploration for and Evaluation of Mineral Resources' and
the amendment to IAS 19 'Employee Benefits: Actuarial Gains and Losses, Group
Plans and Disclosures'. These Standards and Interpretations have not yet been
endorsed by the EU.
In preparing the interim financial statements, UK COAL has not applied
the following pronouncements for which adoption is not mandatory until the year
ending 31 December 2006 and which have not yet been endorsed by the EU:
IFRIC 4 'Determining whether an Arrangement contains a Lease'
IFRIC 5 'Rights to Interests arising from Decommissioning, Restoration and
Environmental Rehabilitation Funds'
UK COAL has adopted IFRS 5 'Non-current Assets Held for Sale and Discontinued
Operations' with effect from 1 January 2005, with no restatement of comparative
information for 2004.
The interim financial statements are not statutory accounts for the purposes
of S240 of the Companies Act 1985. The Financial Information for the year ended
31 December 2004 is based on the statutory accounts for the financial year ended
31 December 2004 restated for the effects of the adoption of IFRS as published
on 19 July 2005. The statutory accounts, on which the
auditors issued an unqualified opinion, have been delivered to the Registrar
of Companies. The auditors issued an unqualified special purpose audit opinion
on the restated Financial
Information. The half-year figures, which are for the 26 week period (2004:
26 weeks) ended 30 June 2005, 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 statements on 6 September 2005.
Significant and Exceptional Items
Items that are both material and non-recurring and whose significance is
sufficient to warrant separate disclosure and identification within the
financial statements are referred to as Exceptional Items and disclosed
within their relevant income statement category. Items that may give rise to
classification as Exceptional Items include, but are not limited to, significant
and material restructuring and reorganisation programmes, asset impairments,
profits or losses arising on disposal of businesses and income from the DTI in
relation to Aid.
Property related transactions, including changes in the fair value of
investment properties and profits or losses arising on disposals of property
assets are not included in the definition of Exceptional Items as
they are expected to recur, but are separately disclosed on the face of the
consolidated income statement where material.
2 Segmental analysis
Six months to 30 June 2005
Deep Surface Other
Mining Mining Property businesses Australia Total
£'000 £'000 £'000 £'000 £'000 £'000
Continuing
operations
Turnover 134,583 14,842 2,534 12,159 - 164,118
---------------------------------------------------------------------------------------------------
Gross (loss)/profit
before Exceptional
Items within cost of sales (26,086) 2,023 1,372 3,549 - (19,142)
Exceptional Items within
cost of sales (22,676) - - - - (22,676)
---------------------------------------------------------------------------------------------------
Gross (loss)/profit (48,762) 2,023 1,372 3,549 - (41,818)
Coal Investment Aid 8,102 - - - - 8,102
Appreciation in fair value
of investment properties - - 4,530 - - 4,530
Profit on sale of land & buildings - - 4,461 - - 4,461
Profit on disposal of business - - - 2,918 - 2,918
Other operating income and (3,722) (617) - (240) - (4,579)
expenses
---------------------------------------------------------------------------------------------------
Operating(loss)/profit (44,382) 1,406 10,363 6,227 - (26,386)
Net finance costs (4,127)
----------------------------------------------------------------------------------------------------
Loss before tax (30,513)
Tax (71)
---------------------------------------------------------------------------------------------------
Loss for the period (30,584)
===================================================================================================
Segmental (liabilities)/assets (15,448) (14,845) 103,113 (15,339) - 57,481
Unallocated net assets/ (liabilities)
Net debt and finance leases (29,166)
---------------------------------------------------------------------------------------------------
Net assets 28,315
===================================================================================================
Six months to 30 June 2004 Deep Surface Other
Mining Mining Property businesses Australia Total
£'000 £'000 £'000 £'000 £'000 £'000
Continuing operations
Turnover 183,190 25,228 2,102 11,865 - 222,385
---------------------------------------------------------------------------------------------------
Gross (loss)/profit
before Exceptional
Items within cost
of sales (21,426) 4,773 1,073 1,694 - (13,886)
Exceptional Items within
cost of sales 3,250 - - - - 3,250
---------------------------------------------------------------------------------------------------
Gross (loss)/profit (18,176) 4,773 1,073 1,694 - (10,636)
Coal Investment Aid 4,449 - - - - 4,449
Profit on sale of land &
buildings - - 1,315 - - 1,315
Other operating income and
expenses (2,556) (523) - (172) - (3,251)
---------------------------------------------------------------------------------------------------
Operating (loss)/profit 16,283) 4,250 2,388 1,522 - (8,123)
Net finance costs (1,863)
---------------------------------------------------------------------------------------------------
Loss for the period from continuing operations (9,986)
Discontinued
operations
Turnover 5,856 5,856
--------------------------------------------------------------------------------------------------
Loss for the period (1,302) (1,302)
Profit on disposal of business 9,936 9,936
--------------------------------------------------------------------------------------------------
Total profit from discontinued
operations 8,634 8,634
--------------------------------------------------------------------------------------------------
Loss for the period (1,352)
==================================================================================================
Segmental assets/ 13,702 (20,946) 90,161 (12,998) 18,215 88,134
(liabilities)
Unallocated net assets
Net debt and finance leases 19,840
--------------------------------------------------------------------------------------------------
Net assets 107,974
==================================================================================================
Year to 31 December 2004
Deep Surface Other
Mining Mining Property businesses Australia Total
£'000 £'000 £'000 £'000 £'000 £'000
Continuing operations
Turnover 364,848 45,028 3,912 20,030 - 433,818
Gross (loss)/profit
before Exceptional
Items within cost
of sales (29,793) 5,620 1,840 4,105 - (18,228)
Exceptional
Items within cost
of sales (14,669) (4,323) - - - (18,992)
-------------------------------------------------------------------------------------------------
Gross (loss)/profit (44,462) 1,297 1,840 4,105 - (37,220)
Coal Investment Aid 8,902 - - - - 8,902
Profit on sale of land &
buildings - - 2,760 - - 2,760
Other operating
income and expenses (9,393) (1,539) - (560) - (11,492)
-------------------------------------------------------------------------------------------------
Operating (loss)/profit (44,953) (242) 4,600 3,545 - (37,050)
Net finance costs (5,148)
-------------------------------------------------------------------------------------------------
Loss for the year from
continuing operations (42,198)
Discontinued operations
Turnover 2,874 6,218 9,092
-------------------------------------------------------------------------------------------------
Loss for the year (412) (1,214) (1,626)
Profit on disposal of
businesses 188 10,105 10,293
-------------------------------------------------------------------------------------------------
Total (loss)/profit
from discontinued
operations (224) 8,891 8,667
-------------------------------------------------------------------------------------------------
Loss for the
year (33,531)
=================================================================================================
Segmental assets/(liabilities)
Unallocated net assets 393 (27,208) 92,276 (15,957) - 49,504
Net debt and finance leases 7,285
-------------------------------------------------------------------------------------------------
Net assets 56,789
=================================================================================================
3 Cost of sales
6 months 6 months 12 months
to 30 June to 30 June to 31 Dec
2005 2004 2004
£'000 £'000 £'000
Exceptional Items within cost of sales
Redundancy (2,373) 3,250 (6,277)
Selby post coaling - - (6,223)
Ellington post coaling (5,070) - -
Ellington impairment - - (3,109)
Stores equipment (1,160) - -
Impairment of assets on mothballing of Harworth (967) - -
Impairment of assets at Rossington (5,631) - -
Recovery costs at Kellingley and Rossington (7,475) - -
Surface mine equipment - - (4,323)
Pension obligation in respect of companies disposed
of in prior years - - (1,299)
Amount recovered against TXU debtor - - 2,239
--------------------------------------------------------------------------------------------
(22,676) 3,250 (18,992)
Other cost of sales (183,260) (236,271) (452,046)
--------------------------------------------------------------------------------------------
Total cost of sales (205,936) (233,021) (471,038)
============================================================================================
4 Exceptional Items
6 months 6 months 12 months
to 30 June to 30 June to 31 Dec
2005 2004 2004
Note £'000 £'000 £'000
Exceptional Items within cost of sales 3 (22,676) 3,250 (18,992)
Other Exceptional Items:
Coal Investment Aid 8,102 4,449 8,902
Profit on disposal of business 2,918 - -
---------------------------------------------------------------------------------------------
Total Exceptional Items (11,656) 7,699 (10,090)
=============================================================================================
---------------------------------------------------------------------------------------------
Operating loss before Exceptional Items (14,730) (15,822) (26,960)
Net (charge)/ credit for Exceptional Items (11,656) 7,699 (10,090)
---------------------------------------------------------------------------------------------
Operating loss (26,386) (8,123) (37,050)
---------------------------------------------------------------------------------------------
5 Net finance costs
6 months 6 months 12 months
to 30 June to 30 June to 31 Dec
2005 2004 2004
£'000 £'000 £'000
Interest expense:
Interest payable on bank borrowings (1,398) (425) (1,731)
Amortisation of issue costs of bank loan (134) (250) (446)
Interest payable on hire purchase
agreements and finance leases (1,067) (865) (1,691)
Discounting of non current receivables (503) - -
-------- -------- ---------
Interest payable and similar charges (3,102) (1,540) (3,868)
Interest receivable 1,541 2,726 4,605
-------- -------- ---------
Net interest (payable)/receivable (1,561) 1,186 737
Unwinding of discounts in provisions (2,566) (3,049) (5,885)
-------- -------- ---------
(4,127) (1,863) (5,148)
======== ======== =========
6 Taxation
The tax charge for the six months to 30 June 2005 relates solely to winding up
the Australian operations. Due to losses arising in the UK, there is no
taxation charge in the period and no credit has been recognised for
losses arising, due to uncertainty over when value for those losses will
be received.
7 Dividends
2005 2005 2004 2004
per share £'000 per share £'000
Final in respect of 2003 5.0p 7,299
Interim in respect of 2004 5.0p 7,303
Final in respect of 2004 paid 17 1.0p 1,483
June 2005
8 Loss per share
Loss per share has been based on the weighted average number of shares in
issue and ranking for dividend, being 148,421,290 (June 2004: 146,033,889,
December 2004:146,079,661) and on the loss after taxation and minority
interests.
In calculating diluted loss per share, the weighted average number of shares
is adjusted for the diluting effect of the share options being 209,700
(June 2004: 2,884,791,December 2004: 1,295,771 ) giving a diluted number of
ordinary shares of 148,630,990 (June 2004: 148,918,680, December 2004:
147,375,432). However inclusion of these potentially dilutive shares would
decrease the loss per share from continuing operations and, therefore,
they have been disregarded in calculating loss per share.
9 Cash and cash equivalents
30 June 30 June 31 December
2005 2004 2004
£'000 £'000 £'000
Cash deposited to cover insurance 28,353 30,254 29,747
requirements
Subsidence security fund 26,152 24,943 25,544
Other security funds - 1,463 -
Other cash balances 360 771 326
-------- -------- ---------
Cash and cash equivalents 54,865 57,431 55,617
Debt (58,061) (16,672) (12,666)
Finance leases and hire purchase contracts (26,700) (21,043) (36,106)
-------- -------- ---------
Net (debt)/ funds (29,896) 19,716 6,845
======== ======== =========
Debt at 30 June 2005 is before unamortised borrowing costs of £731,000 (June
2004: £125,000 - December 2004: £441,000)
10 Disposal of subsidiary
On 17 June 2005 the Group disposed of its wholly owned subsidiary, The Monckton
Coke & Chemical Company Limited, for a consideration of £12,000,000 before
transaction costs plus an incremental adjustment in respect of working capital
in the sum of £1,114,000. Of the £12,000,000 consideration, £8,000,000 was
received immediately with the remainining £4,000,000 receivable in two equal
instalments on the first and second anniversaries of the sale.
£'000
Property, plant & equipment 5,557
Inventories 3,469
Trade & other receivables 4,314
Cash & cash equivalents (844)
Trade & other payables (1,222)
Provisions (1,588)
---------
9,686
Profit on disposal 2,918
---------
Cash consideration, net of transaction costs 12,604
=========
11 Provisions
1 January Created Released Subsidiary Utilised Unwinding 30 June
2005 in period in period sold in period of discount 2005
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Employer and public
liabilities 20,780 2,285 (75) - (3,023) 495 20,462
Surface damage 22,652 1,745 (1,555) - (1,296) 334 21,880
Claims 1,026 - - - (18) - 1,008
Restoration and
closure costs of
surface mines 77,207 100 (2,398) - (4,810) 1,136 71,235
Restoration and
closure costs of
deep mines
shaft treatment
and pit top 23,324 1,107 (3,010) - (2,233) 326 19,514
spoil heaps 5,389 - - - (211) 79 5,257
pumping costs 8,130 - - - (5) 34 8,159
Ground/groundwater 11,043 - (280) (1,582) - 162 9,343
contamination
Redundancy 16,098 4,518 (2,145) - (11,095) - 7,376
------- ------- ------- ------- -------- -------- ---------
185,649 9,755 (9,463) (1,582) (22,691) 2,566 164,234
======= ======= ======= ======= ======== ======== =========
Provisions payable within one year 40,323
Provisions payable after more than one year 123,911
---------
164,234
---------
12 Pensions 30 June 30 June 31 December
2005 2004 2004
£'000 £'000 £'000
Retirement benefit obligations - Blenkinsopp 1,299 - 1,299
Retirement benefit obligations -
Concessionary fuel 22,772 24,165 22,579
Retirement benefit obligations - Industry
Wide Schemes 116,129 102,853 113,181
-------- -------- ---------
140,200 127,018 137,059
-------- -------- ---------
13 Contingent liability
In our Report and Accounts for the year ended 31 December 2004, we
referred to a claim against the Company to determine whether the Company
may be required to provide certain early retirement pension related
benefits on redundancy. Neither the legal analysis of the merits of the
claim nor the difficulties inherent in quantifying any financial cost to
the Company have changed, and therefore no provision has been made in the
accounts. The Board considers, on the basis of legal and actuarial advice,
that the cost to the Company is now estimated to be between zero and £40
million (31 December 2004: between zero and £30 million). However, the
complexities of the legal issues involved, and the difficulties in
quantifying financial exposure, mean there is a possibility that the cost
to the Company may exceed £40 million.
The increase in the range of estimated cost is principally the result of
redundancies announced since 31 December 2004, and a better estimate of
pensionable salary which could require a top up by the Company to pensions
in payment and already paid by the former British Coal Corporation.
The case is due to be heard in the High Court during December 2005. The
Company continues to vigorously defend the claim.
This information is provided by RNS
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