Preliminary FY07 Results
UK Coal PLC
18 April 2008
UK COAL PLC ('UK COAL')
Preliminary Financial Results for Year Ended 31 December 2007
Strong operating performance. Strong growth in profits. Strong outlook
Highlights
• Operating profit up 200% to £82.7m (2006: £27.6m )
• Profit before tax up 292% to £69.0m (2006: £17.6m)
• EPS up 412% to 59.9p (2006: 11.7p). Excluding tax credit, EPS up 276%
to 44.0p (2006: 11.7p).
• Net assets per share up 46% to £2.28 (2006: £1.56)
• Average sales price per gigajoule up 15% to £1.62 (2006: £1.41)
• Deep mines in operating profit in the second half of 2007
o H1 operating loss before non-trading exceptional items of £24.7m
o H2 operating profit before non-trading exceptional costs £10.1m
• Major jump in surface mines' operating profit due to increased sites,
output and selling prices
o Operating profit £8.5m (2006: £0.5m)
• Power generation operating profit up 39% to £4.3m (2006: £3.1m)
• Further gains in property portfolio valuation reflecting long term
potential
o Like for like RICS portfolio valuation up 21% to £411m (2006: £344m)
o Estimate of Project Worth in 2012 up 17% to £935m (2006: £800m)
o Estimate of Project Worth in 2013 £1 bn
o Planned developable acreage increased 40% to 3,696 acres
• Year end gearing reduced to 23% (2006: 28%) reflecting substantial
growth in net earnings
David Jones, Chairman, said
'UK COAL has delivered another year of substantial progress in all our
businesses. Pre-tax profits grew almost fourfold to £69 million; earnings per
share increased 412% to 59.9 pence; and assets per share increased 46% to 228
pence. We have shown we have a strong growth platform, that we are effectively
executing our strategy and that we have the potential to deliver further
substantial value this year and beyond.
'In mining, last year, the world coal price has almost doubled, we have
successfully moved our overall sales prices closer to the market price and we
are progressively securing a balance of contracts at floating, capped and
collared, and fixed prices. This is significantly altering the underlying
economics of our mining operations and enabling us to invest in accessing more
reserves in both our deep and surface mines. There will always be
unpredictabilities, particularly in deep mining; but the demand and price
environment for coal has improved notably and has created a more positive
backcloth than at any time in UK Coal's corporate life.
'In Harworth Estates, we have also delivered further good progress in both the
current value of our portfolio and in its substantially greater estimated future
value with the benefit of the planning permissions we are currently pursuing.
There has been much publicity about downward pressure on UK commercial property
values. However, the longer term outlook for property in the UK, with its
structural shortage of land for development, remains positive; the construction
phase of our developments only starts to become significant in 2009 onwards and
none of our estimates of future Worth include any potential for development
phase profits.
'With a positive outlook for all our businesses, we face the current financial
year with considerable confidence.'
Enquiries:
Media:
Citigate Dewe Rogerson
Anthony Carlisle
Tel: 020 7638 9571 / Mobile: 07973 611 888
Analysts and investors:
Jon Lloyd
Chief Executive, UK COAL PLC
Tel: 01302 755002
David Brocksom
Group Finance Director, UK COAL PLC
Tel: 01302 755012
Citigate Dewe Rogerson
Scott Fulton
Tel: 020 7638 9571 / Mobile: 07788 144 993
Notes to Editors:
UK COAL is Britain's biggest producer of coal, supplying around 15% of all the
coal burned in the country, and is one of Britain's largest brownfield site
property developers, owning some 46,500 acres of land, of which some 3,696 acres
is currently planned for development. In addition, UK COAL has its own power
generation business, principally utilising waste methane gas from mines to
generate electricity, and also pursuing the development of wind farms.
Financial Highlights
2007 2006 % change
Income Statement
Revenue 328.5 339.7 -3.3%
Operating profit (£m) 82.7 27.6 +200%
Profit before tax (£m) 69.0 17.6 +292%
Earnings per share (pence) 59.9 11.7 +412%
Earnings per share excluding tax (pence) 44.0 11.7 +276%
Divisional Breakdown - Operating profit/(loss) before non-trading
exceptional items
Deep Mines (£m) (14.6) (30.4) +52%
Surface Mines (£m) 8.5 0.5 +1600%
Power (£m) 4.3 3.1 +39%
Others (£m) 0.7 (0.2)
Property (£m) 73.2 73.3 -
Operating profit before non-trading exceptional items (£m) 72.1 46.3 +56%
Balance Sheet
Net assets (£m) 358.2 244.1 +47%
Net assets value per share (£) 2.28 1.56 +46%
Year end gearing (%)* 23 28 -18%
Average sales price/Gigajoule (£/GJ) 1.62 1.41 +15%
* Gearing excludes restricted cash balances
While group revenue was slightly lower than in 2006 - by 3.3% to £328.5m - this
was expected and was primarily the result of the sale of our Maltby deep mine in
February last year, the period of low production at Daw Mill in the first
quarter of last year whilst additional safety works were undertaken and the
planned face change it managed in the second half. These effects were only in
part offset by the very strong growth in our surface mines' revenues and the
growth in power division's revenues.
We believe that revenues will grow significantly in 2008, principally as a
result of the increase in realised sale price for all our coal production. We
estimate a 2008 average realised sale price of £1.75 to £1.80 per gigajoule (GJ)
compared with £1.62 in 2007.
Group operating profit rose by 200% to £82.7m (2006: £27.6m). This is after
allowing for the £20m profits shortfall against expectations at Daw Mill in the
first half following a period of non-production and the £8.5m gain on the
disposal of Maltby.
Net finance costs increased to £14.2m (2006: £10.1m), reflecting the higher
level of drawn debt, the cost of mark-to-market adjustment on interest rate
swaps of £1.9m (2006: gain of £0.6m) and the unwinding of discounts in relation
to provisions in the balance sheet of £3.9m (2006: £4.6m). We have applied hedge
accounting from 1 January, 2008, and this will minimise the volatility of the
swaps on our income statement going forward.
Group profit before tax increased almost 300% to £69m (2006: £17.6m). Earnings
per share, including a £25m deferred tax credit relating to the Group's
accumulated tax losses, increased 5 times to 59.9p. Excluding the tax credit,
earnings per share increased almost 4 times to 44p.
The growth in operating profitability and further strong working capital
management produced an operating cash outflow for 2007 of £7.1m (2006: outflow
of £28.9m). Together with the proceeds from the sale of businesses, this allowed
the Group to maintain capex and to increase the development expenditure on its
property portfolio. Year end gearing fell from 28% to 23% as a result of the
increase in our property asset values recognised on the balance sheet.
As a result of the substantial increase in retained earnings, net assets on the
balance sheet at 31 December 2007 were 47% higher at £358.2m. This equates to a
net asset value per share of £2.28 compared to £1.56 in 2006.
PRELIMINARY RESULTS STATEMENT
OVERVIEW AND OUTLOOK
I said last year that UK COAL had put in place a far stronger platform for
future value creation and that 2007 would see the execution of our strategy go a
great deal further.
I am delighted to report this has indeed been the case. We have delivered
another year of substantial progress in our businesses. Pre-tax profits grew
almost four-fold to £69.0 million, earnings per share increased 412% to 59.9
pence, and net assets per share increased 46% to 228.0 pence. We have shown that
we have a strong growth platform, that we are effectively executing our
strategy, and that we have the potential to continue delivering further
substantial value this year and beyond.
Regrettably we have to report on the loss of the lives of two colleagues at two
separate mines during the year. Nothing can ever be said to reduce the impact of
a fatality on the family, friends, colleagues and on the rescuers directly
involved. My condolences, and those of each individual Board member, goes out to
all of those affected, and our thanks are similarly extended for the brave
efforts of those involved in rescue. We are dedicated to enhancing controls and
to making changes to improve safety at all of our operations. To reinforce this
objective, the Board has established a Health and Safety Committee to have
oversight of these matters.
In mining, we have been successful in our continued negotiations with customers
to move our overall sales prices closer to the world market price for coal and
are progressively moving the Group's contracts position towards a balance of
contracts at floating, capped and collared, and fixed (or RPI linked) prices.
This is significantly altering the underlying economics of our mining operations
and enabling us to invest in accessing more reserves in both our deep and
surface mining operations.
We announced that there would be a period of non-production during the early
part of 2007 at Daw Mill, our largest mine, and this had a substantial impact on
the first half production and profitability of our deep mining business. In the
second half of the year, however, our deep mines operated profitably, despite
managing face changes and, for 2008, they have the prospect of increased
production at an increased overall selling price. Meanwhile, our surface mine
production sharply increased last year and is scheduled to increase again this
year. I will always make the point that we face challenges and that,
particularly in deep mining, there remains an element of unpredictability. These
factors should not be underestimated. That said, however, the demand and price
environment for coal has improved notably and has created a more positive
backcloth than at any time in UK COAL's corporate life.
In Harworth Estates, we have also delivered further good progress in evolving
our development plans, gaining further planning permissions and growing the
value of our portfolio. Notwithstanding the downward pressure on UK commercial
property values during the second half of last year, the RICS value of our land
and property, excluding the deep mine sites, increased to £411 million, a
like-for-like increase of 21%.
Our estimate for 'Project Worth', the worth of the portfolio in 2012, with the
benefit of the planning permissions we are seeking, grew from £800 million at
December 2006 to £935 million by December 2007. Taking a view to 2013, our
estimate of this worth increases to in excess of £1 billion. These estimates are
expressed in 2007 money terms. Whilst there is downward pressure at present on
UK property values in our view, the longer term outlook for property in the UK,
with its structural shortage of land for development, remains positive and very
little of our land is as yet developed. The construction phase for our planned
developments starts to become significant from 2009 onwards, and none of our
estimates of future worth include any potential for development phase profits.
As expected, mines output in the first quarter of the new financial year was
restrained by face changes at each of Kellingley, Thoresby and Welbeck, the
latter starting later than planned following the fatality at the end of 2007.
Overall first quarter production in 2008 was 1.7m tonnes (2007: ongoing
operations 1.7m tonnes) reflecting these face changes and the slow ramp up of
the new face at Daw Mill, but in line with achievement of our overall results
expectations for 2008.
With a positive outlook for all our businesses, we face the current financial
year with considerable confidence.
MINING AND POWER
Our strategy for mining is framed by the selling prices which we can achieve,
the production economics of our collieries and the geological and other factors
characterising each colliery. We are focussed on accessing and mining reserves
only where there is a clear prospect of creating substantial value over time.
The principal change in the market environment is the sharp increase in the
internationally traded price of coal. Driven by global energy demand, this price
rose last year by circa 90% and over the last two years it has grown by
approximately 140%.
Alongside this, there is an increased recognition of the value of security of
coal supply, both within the Government's thinking on energy policy and within
the UK electricity generators' strategy. All this reinforces the role of
indigenous coal as a long-term fuel resource.
Against this backcloth, we have been successful in our continued negotiations
with customers to reduce the proportion of our deep mine production committed in
past years at historically low selling prices. This, and the increasing volume
of our surface mine production, enabled us to increase our average sales price
last year by around 15% to £1.62 per Gigajoule (GJ).
As at 31 December 2007, total contracted forward sales to all customers had
increased to 24.0 million tonnes (31 December 2006: 17.9 million tonnes). Of the
contracted tonnage, approximately 13 million tonnes is considered to have
contracted at historic, lower fixed prices, of circa £1.55 per GJ. The balance
is at higher and/or more variable prices having been contracted more recently.
Our contracts position now include an element of sales negotiated at market
rates, along with contracts priced at capped and collared or fixed prices, which
may also be subject to inflation adjustments. We have estimated a 2008 realised
sales price of between £1.75 - £1.80 per GJ, based upon the forward price for
2008 Rotterdam delivery of $118 per tonne as at December 2007 and dependent upon
expected tonnages.
This progress has enabled us to commit to around £55 million of new investment
over the next 3 years in our Thoresby colliery and a similar amount over 3 years
in our Kellingley colliery. This investment will extend the lives of the mines
by some 10 years beyond their previously anticipated closure dates and add over
3 million tonnes a year to our planned deep mine production from 2009 to around
2018. At the same time, we continue actively seeking permissions for additional
surface mining sites.
As I reported in last year's Statement, we completed the sale of our Maltby
colliery in February 2007 for a cash consideration of £21.5 million, thereby
improving the operating profile of our deep mining business. This resulted in a
profit on disposal of £8.5 million, lower than originally reported as the
improvement in the pension fund deficit over the year reduced the anticipated
benefit arising from the transfer of pension liabilities.
Our power generation operation, Harworth Power, generated 181,835 MWh (2006:
119,717 MWh) of electricity from methane pumped from our deep mines and
successfully completed a new generating station at Stillingfleet. We also
continued with the lengthy process of seeking planning permissions for wind
farms to be built on some of our sites successfully receiving planning consent
for our first, 9MW, wind farm site in February 2008 at Lynemouth,
Northumberland.
Overall our Mining and Power businesses produced an operating loss before
non-trading exceptional items of £1.8 million (2006: loss of £26.8 million),
with a loss in the deep mines business of £14.6 million (2006: loss of £30.4
million) being offset by profits in the surface mines and power businesses of
£8.5 million and £4.3 million respectively (2006: £0.5 million and £3.1 million
respectively).
Deep mine colliery performance
Production (million tonnes) Operating cost (£m)*
2007 2006 2007 2006
On-going mines
Daw Mill 2.2 2.7 70.9 68.2
Kellingley 1.8 2.1 67.8 69.2
Thoresby 1.4 1.5 50.7 53.4
Welbeck 1.0 1.2 49.4 44.9
On-going deep mines 6.4 7.5 238.8 235.7
Closed/sold deep mines 0.2 1.4 7.4 66.0
Total Deep Mines 6.6 8.9 246.2 301.7
*operating costs before non-trading exceptional items and depreciation costs,
with central costs absorbed.
Daw Mill
As previously announced, following the fatality at Daw Mill in January 2007 the
mine ceased production for a month. Production remained very low for 2 further
months whilst additional safety work was carried out. The costs incurred in this
period can be measured at approximately £11.5 million, including the additional
costs of £3.5 million reinforcing the entries to the coal face, to take into
account the knowledge learnt following the fatality. In addition to these costs
was the significant value of lost output, bringing the total impact to the
income statement of an estimated £20 million against original expectations. In
the second half of 2007, as planned, Daw Mill had to manage a face change and
encountered delays and difficulties in ramping up production, further reducing
output against original expectations for the year.
However, Daw Mill is now working well on this new panel, which given the
thickness of its large seams, consists of over 5 million tonnes of coal. With
the new face now in full production and no further face changes until late in
2009, the outlook for Daw Mill is robust.
Kellingley
As expected, Kellingley output fell, as a result of encountering adverse
geological conditions on both its coal faces. The colliery continues to be
strongly productive in an area of difficult geological conditions, although
production will remain lower than its previous performance until the move is
made to a new area of reserves in the Beeston seam, with coal production due to
start in mid 2009.
The Beeston seam and related areas being accessed at a cost of circa £55 million
consist of estimated reserves and resources of around 18 million tonnes and
extend the life of the mine to at least 2017.
Thoresby
Thoresby's output for the year was slightly better than envisaged at the start
of the year as a result of the planned face change at the colliery being
achieved 2 weeks earlier than scheduled. Production in the existing Parkgate
seam will continue until late 2009, during which time the geology will be
difficult and production restrained. As a result of new customer contracts, we
have been able to commit to a major investment of circa £55 million and
therefore, in late 2009, production will transfer to the Deep Soft seam with its
estimated reserves and resources of circa 12 million tonnes.
Welbeck
Welbeck was originally due to close during 2007, but the identification of 4
further coal panels together with the improvement in coal prices have extended
the life of the mine until at least 2009. Operations were affected by a fatality
caused by a fall of rock on a coal face being salvaged in November. This greatly
slowed down a face transfer and has delayed the start date of the new coal face
in 2008.
Closed mines
Production ceased at Rossington Colliery in April 2006 and, following a period
of equipment salvage, the mine closed and the shafts were filled. At Harworth
Colliery, during the year, we also moved the mine from its previous mothballed
status to a closure.
We have investigated the requirements for investment to access new coal at
Welbeck Colliery. Unfortunately the level of investment required, coupled
especially with the coal potential, the timescales involved and the level of
assurance needed in terms of contracted customer demand, all militate against
the investment. Welbeck Colliery may, therefore, have to close when the current
workable reserves are exhausted in 2009. Costs relating to this closure would be
incurred as exceptional items in 2008 and 2009.
Improved coal prices do encourage a further review of the potential of the
Group's assets however. To this end we are considering again the opportunity to
reopen Harworth Colliery, in conjunction with a mixed use development of the
site, although any decision in this regard is not likely in the immediate
future.
HARWORTH ESTATES
Our land and property portfolio is of very considerable value and we have
clearly mapped out our strategy for realising this value.
The changes we have seen in UK commercial property valuations and home price
trends have had a very limited effect on us for the reasons already stated. Our
work last year, therefore, has increased the RICS valuation of our property
portfolio to £411 million up 21% on a like-for-like basis. Our estimate of the
worth of our property portfolio in 2012 has increased as a result from £800
million to £935 million and, taking a view for a further year out, to £1 billion
in 2013.
The portfolio's RICS valuation at the year end is summarised in the table below:
Dec-07 Dec-06 Like-for-Like
£m £m percentage change*
Business Parks 54.0 48.3 9.4%
Commercial with planning 37.5 41.4 4.1%
Other commercial & residential 212.0 152.7 34.9%
Agricultural 107.2 101.5 12.4%
Total 410.7 343.9 21.0%
* The 'like-for-like' percentage change takes account of properties reclassified
from Agricultural to other commercial and residential together with an
adjustment for asset sales and development expenditure.
Surface mine sites currently being mined are included in the value above based
on their restored land value of £26.4 million (2006: £32.2 million). While
sites, otherwise being held for their long term investment potential, are being
used by the Group for its mining and other activities, changes in valuations are
not reflected in the balance sheet. As at 31 December 2007 a total of £11.1
million (2006: £17.6 million) has not been included in the balance sheet as a
result. Operating deep mine sites are not included in the above valuation.
During 2007, we secured a number of key planning consents and we further
expanded our property development plans - increasing the number of projects in
our 'Project Worth' development programme from 60 to 76 and increasing the net
developable acreage from 2,650 to 3,696 acres. During the middle of the year, we
also saw a significant change in Government policy towards promoting new
housing. This has increased the likelihood of our gaining residential consent on
a larger proportion of our acreage.
Among the key achievements last year were the establishment of a joint venture
with Helical Governetz to promote our Waverley/Orgeave site, near Rotherham, for
a 645,000 sq ft Government office relocation campus, and the submission and
short listing of our Eco Town bid for a major housing scheme at Rossington, near
Doncaster.
In early January 2008, a planning application for 250 homes and 150,000 sq ft of
industrial space was approved at Edlington, Doncaster. Negotiations continue
positively on our major scheme at Prince of Wales, Pontefract, where, once
highway design matters have been fully resolved, the Council is expected to
grant planning approval shortly.
I am confident that we will continue to make significant further progress during
the current year and, step-by-step, enhance and crystallise the value of our
portfolio.
We further strengthened the Executive team in Harworth Estates by the
appointment in the final quarter of Mike Jones, a highly experienced
Construction Director who joins us with 20 years experience in the construction
industry, most recently with the highly successful Castlemore Securities Group
Limited of Birmingham.
Overall Harworth Estates produced a profit of £73.2 million (2006: £73.3
million), including gains on Investment Properties of £70.5 million (2006: £70.0
million), of which £66.8 million was unrealised (2006: £68.6 million). A further
revaluation gain of £6.7 million was taken directly to reserves, being the
increase in value from historic cost to market value in respect of former
operating properties transferred to Investment Property status on their ceasing
to be operational sites.
PRINCIPAL DEVELOPMENT ACTIVITIES DURING 2007
Waverley/Orgreave, Rotherham
The Advance Manufacturing Park ('AMP') continues to develop at pace with 5
further buildings constructed by occupiers and the commencement on site of a
100,000 sq ft part pre-let, part speculative development of hybrid industrial
units in a joint venture with Strategic Sites Limited.
In the final quarter of the year we announced that the Highfield Commercial
Business Park, which gained outline planning consent in 2006 for 650,000 sq ft
of mixed commercial space, would change its focus and that we would promote it
as a 645,000 sq ft Government relocation office campus. We will develop this
through a joint venture with development and relocation investment specialist,
Helical Governetz Limited. This announcement has been well received nationally
and locally. Marketing to potential Government department occupiers and to
organisations in their supply chain has started and major infrastructure works
will commence later in 2008.
Harworth Estates also continues to pursue planning for the new community of
3,800 homes with associated leisure, retail, social, health, education and
country park elements on the Waverley site. The project has received the public
backing of the Local Authority and other key stakeholders, although the delay in
the implementation of the Local Authorities Local Development Framework ('LDF')
has meant that, by agreement with the Local Authority, the Group will now be
submitting a planning application for the entire site masterplan during the
middle of the year, whilst still pursuing designation through the LDF in
parallel.
Prince of Wales, Pontefract
Having had a frustrating year in 2007, progress on the planning application for
the first 913 homes and 250,000 sq ft of employment space continues and should
shortly be successfully completed. The delay has principally centred on
resolving highway access issues both within the congested local network and on
the adjoining M62 motorway junction, issues which, we believe, have now been
addressed. As a technical departure from an old adopted plan showing the site as
an operating colliery (and part greenbelt) the application will, when approved
by the Council, be referred to the Government for confirmation that the Local
Authority may proceed with the granting of the consent. That approval is
expected as the scheme wholly accords with Government policy.
G Park Distribution Development, Lounge, Ashby-de-la-Zouch
In August 2007, we submitted a planning application for the first phase
development of a 850,000 sq ft distribution hub, which we will develop as a
joint venture with Gazeley PLC. Negotiations continue with the Local Authority
and other stakeholders, and we become progressively more confident of approval
as the negotiations continue. We are targeting a fully implementable planning
consent being obtained by the joint venture by the end of the year.
South Leicester Industrial Development, Ellis Town
In July 2007, we submitted, in joint venture with Graftongate Developments and
Legal & General, a 2 phase planning application with a 300,000 sq ft
distribution unit and 250,000 sq ft of small and medium sized industrial units
on this former coal preparation and disposal site. We expect a determination on
this site in the first half of 2008 and work is targeted to commence on the site
by the year end.
The Former Yorkshire Main Colliery, Edlington, Doncaster
Following an unexpected planning refusal in August 2007, we progressed an appeal
to the Secretary of State and in parallel resubmitted the planning application
to the Local Authority. In January 2008 the consent for 250 residential units
and 150,000 sq ft of industrial development was granted. Marketing of the
residential element and construction of the industrial element is to commence by
the year end.
Gascoigne Wood
Following a Call In by the Secretary of State, as a result of a single objection
from a local major landowner, in August 2007, we received planning consent for
the reuse of the buildings and sidings. The third party then sought High Court
review of the Secretary of State's decision. In the meantime, we have entered
into a lease with rail operator EWS to service a major gypsum contract between
our customer at Drax and British Gypsum. We intend to proceed with lettings on
the site and are confident that the High Court challenge will ultimately be
dismissed.
Business Parks
Our first generation Business Parks are generally reused former mine buildings
with some new build infill. They continue to be well tenanted and attract strong
demand when units become available. During the year, we obtained planning
consent for a further Business Park at Riccall in the Selby area and we are
pursuing planning approval on 3 similar additional sites in Yorkshire. The
Riccall site is already 47% let with good enquiries for the balance of the
space.
Property Disposals
During the year we disposed of 1,106 acres of surplus agricultural land which
had no further development opportunities. In addition, we completed sales of 2
sites at Tetron and Denby where we determined that the maximum value and minimum
risk generated optimum returns by sale rather than development. In June, we sold
the final development plot at Denby to DEB Limited for them to construct a
purpose-built world HQ and manufacturing unit, and in November we sold the final
10 acres of the current development phase at Tetron to LSP Limited to construct
a distribution warehouse for medical supplies.
DIVIDEND
Over the coming years, the Group will be making significant investments in our
mining and property businesses, in both of which we see significant opportunity
to drive superior shareholder value. For this reason and to preserve financial
flexibility, the Board has decided not to recommend a dividend. We will keep
this under review but future dividends will be dependent both on our future
performance and on our view of how best to drive total shareholder value.
BOARD
During the year, we made a number of Board changes. At the end of May, we
announced that Gerry Spindler was to leave the Group in order to return with his
family to the USA. We were delighted to announce Jon Lloyd as Gerry's successor.
Jon has exceeded the Board's expectations in the way he is leading the Group and
developing our strategy and its execution. In September, Chris Mawe left the
Group in order to pursue other interests, and we welcomed David Brocksom, his
successor as Finance Director.
We further strengthened our non-executive Director team during the year. Last
June, Kevin Whiteman, who is Chief Executive of Kelda Group, and has extensive
coal mining experience from his time with British Coal, joined our Board and, in
October 2007, we welcomed Owen Michaelson, who has substantial brownfield land
and property development experience and who is a director of Peel Holdings, our
largest shareholder.
David Jones, Chairman
18 April 2008
CONSOLIDATED INCOME STATEMENT
for the year ended 31 December
2007 2006
£000 £000
Revenue 328,485 339,713
Cost of sales (319,218) (381,021)
Gross profit/(loss) 9,267 (41,308)
Net appreciation in fair value of investment properties 66,799 68,622
Profit on disposal of investment properties 3,688 1,406
Gains on investment properties 70,487 70,028
Profit on sale of business 8,481 -
Other operating income and expenses (5,579) (1,075)
Operating profit 82,656 27,645
Finance costs (17,121) (12,376)
Finance income 2,951 2,261
Finance costs - net (14,170) (10,115)
Share of post-tax profit from joint venture 537 105
Profit before tax 69,023 17,635
Tax credit/(charge) 25,000 (143)
Profit for the year 94,023 17,492
Attributable to:
Equity holders of the Company 94,023 17,492
Earnings per share Pence Pence
Basic and diluted 59.9 11.7
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
for the year ended 31 December
Group Group
2007 2006
£000 £000
Actuarial gain on defined benefit pension schemes 35,733 12,478
Actuarial gain on Blenkinsopp pension scheme 464 -
Actuarial gain/(loss) on concessionary fuel reserve 1,280 (855)
Movement on deferred tax asset relating to retirement benefit (22,012) 35,752
liabilities
Impact of change in UK tax rate on deferred tax (2,383) -
Revaluation of property transferred to investment properties 6,733 -
Net gain recognised directly in equity 19,815 47,375
Profit for the year 94,023 17,492
Total recognised income for the year 113,838 64,867
Attributable to:
Equity holders of the Company 113,838 64,867
CONSOLIDATED BALANCE SHEET
for the year ended 31 December
Group Group
2007 2006
£000 £000
ASSETS
Non current assets
Operating property, plant and equipment 199,551 228,248
Surface mine development and restoration assets 20,111 9,694
Total operating property, plant and equipment 219,662 237,942
Investment Properties 384,291 311,677
Investment in joint venture 342 205
Deferred tax asset 36,000 35,752
Trade and other receivables 1,613 964
641,908 586,540
Current assets
Inventories 39,756 36,640
Trade and other receivables 29,953 47,604
Derivative financial instruments 424 675
Cash and cash equivalents 70,068 45,928
140,201 130,847
LIABILITIES
Current liabilities
Financial liabilities
- Borrowings (27,320) (19,281)
Trade and other payables (100,213) (106,284)
Provisions (31,061) (27,931)
(158,594) (153,496)
Net current liabilities (18,393) (22,649)
Non current liabilities
Financial liabilities
- Borrowings (97,921) (78,484)
- Derivative financial instruments (2,148) -
Trade and other payables (73) (312)
Deferred tax liabilities (815) (1,172)
Provisions (91,141) (119,309)
Retirement benefit obligations (73,171) (120,495)
(265,269) (319,772)
Net assets 358,246 244,119
Equity
Capital and reserves
Ordinary shares 1,571 1,566
Share premium 30,756 30,756
Revaluation reserve 143,014 141,040
Capital redemption reserve 257 257
Fair value reserve 177,851 112,342
Retained earnings 4,797 (41,842)
Total equity 358,246 244,119
CASH FLOW
for the year ended 31 December Group Group
2007 2006
£000 £000
Cash flows from operating activities
Profit for the year 94,023 17,492
Depreciation/impairment of property, plant and equipment 38,500 44,516
Amortisation of surface mine development and restoration assets 8,723 1,061
Net fair value appreciation in investment properties (66,799) (68,622)
Net interest payable and amortisation of discount on provisions 14,170 10,115
Net charge for share based remuneration 284 198
Share of post-tax profit from joint venture company (537) (105)
Profit on disposal of investment property (3,688) (1,406)
Profit on disposal of operating property, plant and equipment (1,598) (416)
Profit on sale of business (8,481) -
Capitalised surface mine restoration assets (14,490) (1,584)
Decrease in provisions (38,818) (41,628)
Tax (credit)/charge (25,000) 143
Operating cash flows before movements in working capital (3,711) (40,236)
(Increase)/decrease in stocks (3,116) 5,528
Decrease in receivables 17,253 18,797
Decrease in payables (4,304) (5,073)
Cash generated/(used in) from operations 6,122 (20,984)
Financing cost (1,610) (1,028)
Interest paid (11,578) (6,939)
Cash used in operating activities (7,066) (28,951)
Cash flows from investing activities
Interest received 2,951 2,261
Net (payment to)/receipt from insurance and subsidence security funds (6,794) 9,915
Net proceeds from sale of business 21,500 -
Proceeds on disposal of operating property, plant and equipment 787 5,594
Proceeds on disposal of Investment Properties 13,335 18,597
Net receipts from/(investment in) joint venture company 400 (100)
Development costs of investment properties (7,547) (3,256)
Pre-coaling expenditure for surface mines (4,650) (5,115)
Purchase of operating property, plant and equipment (23,046) (26,613)
Cash (used in)/generated from investing activities (3,064) 1,283
Cash flows from/(used in) financing activities
Proceeds from issue of ordinary shares - 29,067
Net drawdown of bank loans 27,223 8,829
Net proceeds/(repayments) of obligations under hire purchase and finance leases 253 (7,605)
Cash generated from financing activities 27,476 30,291
Increase in cash 17,346 2,623
At 1 January
Cash 3,627 1,004
Cash equivalents 42,301 52,216
45,928 53,220
Increase/(decrease) in cash equivalents (net receipt from insurance and subsidence 6,794 (9,915)
security funds)
Increase in cash 17,346 2,623
70,068 45,928
At 31 December
Cash 20,973 3,627
Cash equivalents 49,095 42,301
Cash and cash equivalents 70,068 45,928
NOTES
1 Segmental reporting
Segmental income statement
Year ended 31 December 2007
Deep Surface Power Property Other Total
Mining Mining
£000 £000 £000 £000 £000 £000
Continuing operations
Revenue - gross 265,779 60,399 8,575 4,803 1,286 340,842
Revenue - intra Group - (7,542) (4,430) - (385) (12,357)
Revenue 265,779 52,857 4,145 4,803 901 328,485
Operating profit/(loss) before non-trading
exceptional items (14,637) 8,543 4,333 73,200 694 72,133
Non-trading exceptional items
- Profit on sale of business 8,481
- Rationalisation, closure and other costs 2,042
Operating profit after non-trading exceptional items 82,656
Finance costs (17,121)
Finance income 2,951
Finance costs - net (14,170)
Share of post-tax profit from joint ventures 537
Profit before tax 69,023
Tax credit 25,000
Profit for the year 94,023
Other segmental items
Capital expenditure 17,414 1,447 3,422 8,116 194 30,593
Depreciation 34,193 3,079 1,056 172 - 38,500
Surface mines development costs and restoration
assets capitalised - 19,140 - - - 19,140
Amortisation of surface mining development and
restoration assets - 8,723 - - - 8,723
Provisions - non cash charge/(credit) (8,878) 12,086 - - 17 3,225
Property operating profit includes the gains on Investment Properties of
£70,487,000 being net appreciation in fair value of properties of £66,799,000
and profit on disposal of Investment Properties of £3,688,000.
Trading exceptional items
Deep mines operating loss includes Coal Investment Aid income of £2,926,000 and
recovery and related costs for Daw Mill of £11,505,000.
Non-trading exceptional items
The profit on sale of business in 2007 relates to the sale of Maltby colliery in
February 2007.
Rationalisation, closure and other costs are predominantly associated with the
deep mines operations and include a net credit of £8,767,000 following
settlement of a dispute on tax deductions arising on redundancies with HMRC,
mothballing costs of £1,811,000 for Harworth Colliery, redundancy costs of
£3,065,000, write down of stores equipment in connection with a strategic review
on closure of deep mine operations of £1,737,000, pension curtailment gains of
£668,000 and other costs of £780,000.
All trading and non-trading exceptional items are included in cost of sales
except for Coal Investment Aid which is included within other operating income
and expenses.
Year ended 31 December 2006
Deep Surface Power Property Other Total
Mining Mining
£000 £000 £000 £000 £000 £000
Continuing operations
Revenue - gross 310,941 31,222 6,493 5,990 1,265 355,911
Revenue - intra Group - (9,561) (6,200) - (437) (16,198)
Revenue 310,941 21,661 293 5,990 828 339,713
Operating profit/(loss) before non-trading
exceptional items (30,434) 501 3,155 73,300 (245) 46,277
Non-trading exceptional items
- Rationalisation, closure and other costs (18,632)
Operating profit after non-trading 27,645
exceptional items
Finance costs (12,376)
Finance income 2,261
Finance costs - net (10,115)
Share of post-tax profit from joint ventures 105
Profit before tax 17,635
Tax (143)
Profit for the year 17,492
Other segmental items
Capital expenditure 21,607 497 4,509 3,256 - 29,869
Depreciation 39,663 3,885 782 - 186 44,516
Surface mines development costs and
restoration assets capitalised - 6,699 - - - 6,699
Amortisation of surface mining development
and restoration assets - 1,061 - - - 1,061
Provisions - non cash charge/(credit) 6,863 (5,382) - - 8 1,489
Property operating profit includes the gains on Investment Properties of
£70,028,000 being net appreciation in fair value of properties of £68,622,000
and profit on disposal of Investment Properties of £1,406,000.
Trading exceptional items
Deep mines operating loss includes Coal Investment Aid income of £7,892,000 and
recovery costs for Daw Mill and Maltby of £9,365,000.
Non-trading exceptional items
Rationalisation, closure and other costs predominantly relates to the deep mines
and includes mothballing and other closure costs of £18,865,000 for Harworth and
Rossington, redundancy costs of £1,995,000, write down of stores equipment in
connection with a strategic review of deep mine operations of £6,527,000 and
pension curtailment gains of £4,355,000. It also includes the reversal of
impairment charges of £4,400,000 following the disposal of certain surface
mining plant.
All trading and non-trading exceptional items are included in cost of sales
except for Coal Investment Aid which is included within other operating income
and expenses.
2 Segmental balance sheet
Balance Sheet
at 31 December 2007
Deep Mining Surface Power Property Other Total
Mining
£000 £000 £000 £000 £000 £000
Assets and liabilities
Segment assets 266,266 43,577 11,643 401,680 1,628 724,794
Investment in joint venture - - - - 342 342
Total segment assets 266,266 43,577 11,643 401,680 1,970 725,136
Segment liabilities (208,288) (67,185) (697) (15,388) (6,249) (297,807)
Segment net assets/(liabilities) 57,978 (23,608) 10,946 386,292 (4,279) 427,329
Group borrowings (125,241)
Cash and cash equivalents 20,973
(unrestricted)
Net deferred tax asset 35,185
Net assets 358,246
Cash and cash equivalents that are subject to restriction have been included
within the appropriate segment, along with the related provisions.
Balance Sheet
at 31 December 2006
Deep Surface Power Property Other Total
Mining Mining
£000 £000 £000 £000 £000 £000
Assets and liabilities
Segment assets 301,588 32,520 9,088 327,028 7,579 677,803
Investment in joint venture - - - - 205 205
Total segment assets 301,588 32,520 9,088 327,028 7,784 678,008
Segment liabilities (283,911) (63,644) (4,737) (15,429) (6,610) (374,331)
Segment net assets/(liabilities) 17,677 (31,124) 4,351 311,599 1,174 303,677
Group borrowings (97,765)
Cash and cash equivalents 3,627
(unrestricted)
Net deferred tax asset 34,580
Net assets 244,119
Cash and cash equivalents that are subject to restriction have been included
within the appropriate segment, along with the related provisions.
3 Provisions
At At
1 January Provided Released Utilised Unwinding 31 December
2007 in year in year in year of discount 2007
£000 £000 £000 £000 £000 £000
Group
Employer and public 19,856 4,082 (1,190) (4,467) 594 18,875
liabilities
Surface damage 19,820 6,418 (5,707) (4,766) 640 16,405
Claims 1,541 17 (750) (769) - 39
Restoration and closure
costs of surface mines 51,749 16,590 (3,754) (11,717) 1,730 54,598
Restoration and closure
costs of deep mines:
- shaft treatment and pit top 17,635 2,439 (4,481) (3,857) 457 12,193
- spoil heaps 4,221 350 (1,062) (385) 100 3,224
- pumping costs 6,614 - (494) - 184 6,304
Ground/groundwater
contamination 9,768 - (3,531) - 228 6,465
Redundancy 16,036 4,188 (9,890) (6,235) - 4,099
147,240 34,084 (30,859) (32,196) 3,933 122,202
Provisions are expected to be settled within the timescales set out in the
following table.
Within 1 year 1-2 years 2-5 years More than 5 Total
years
£000 £000 £000 £000 £000
Employer and public 7,115 5,535 5,913 312 18,875
liabilities
Surface damage 3,609 3,281 7,218 2,297 16,405
Restoration and closure costs
of surface mines 14,412 18,538 15,427 6,221 54,598
Restoration and closure costs
of deep mines:
- shaft treatment and pit top 1,395 1,344 1,752 7,702 12,193
- spoil heaps 392 591 569 1,672 3,224
- pumping costs - - - 6,304 6,304
Ground/groundwater
contamination - - - 6,465 6,465
Redundancy 4,099 - - - 4,099
Claims 39 - - - 39
31,061 29,289 30,879 30,973 122,202
The total of provisions created, net of provisions released, was £3,225,000
(2006: £1,489,000). This included a net credit of £5,702,000 (2006: £1,995,000)
in respect of non-trading exceptional items.
4 Cash and cash equivalents
2007 2006
£000 £000
Cash deposited to cover insurance requirements 25,692 19,553
Subsidence security fund 23,403 22,748
49,095 42,301
Cash held and other cash balances 20,973 3,627
70,068 45,928
Total cash held subject to restrictions to cover insurance and surface damage
liabilities at the year end amounts to £49,095,000 (2006: £42,301,000).
5 Financial liabilities - borrowings
2007 2006
Current £000 £000
Secured - bank loans and overdrafts 21,339 13,956
Finance lease obligations 5,981 5,325
27,320 19,281
Non current
Secured - bank loans and overdrafts 90,008 70,168
Finance lease obligations 7,913 8,316
97,921 78,484
Total 125,241 97,765
6 Deferred tax
2007 2006
£000 £000
At 1 January (34,580) 1,029
Amounts (credited)/charged to the consolidated income statement (25,000) 143
Amounts charged/(credited) to consolidated statement of recognised 24,395 (35,752)
income and expense
At 31 December (35,185) (34,580)
The tax credit at 31 December 2007 relates to the recognition of previously
unrecognised tax losses. These losses have been recognised at 31 December 2007
due to the reduction in the deferred tax asset relating to the pension liability
and not any change in forecast Group profitability.
7 Investment Properties
2007 2006
£000 £000
At 1 January 311,677 251,161
Additions 7,547 3,256
Disposals (8,074) (14,023)
Fair value uplift 66,799 71,674
Transfer from operating property, plant and equipment at net book 1,256 -
amount
Revaluation of property transferred to Investment Properties 6,733 -
Transfer to operating property, plant and equipment (1,647) (391)
At 31 December 384,291 311,677
8 Basis of preparation
The consolidated financial statements have been prepared in accordance with
European Union ('EU') Endorsed International Financial Reporting Standards
('IFRSs'), IFRIC interpretations and those parts of the Companies Act 1985
applicable to companies reporting under IFRS. The consolidated financial
statements have been prepared under the historical cost convention, as modified
by the revaluation of Investment Properties taken through the income statement.
IFRSs also require an alternative treatment to the historic cost convention in
certain circumstances (principally in the areas of retirement benefit
obligations, share based payments and financial instruments).
The results have been extracted from the audited financial statements of the
Group for the year ended 31 December 2007. These audited financial statements
incorporate an unqualified audit report. The results do not constitute statutory
accounts within the meaning of Section 240 of the Companies Act 1985. Statutory
accounts for the year ended 31 December 2006, which incorporated an unqualified
auditors' report, have been filed with the Registrar of Companies.
The preliminary results statement together with the unaudited table of reserves
and resources in note 9 have been extracted from the Chairman's statement and
Operating and Financial Review as incorporated in the 2007 Annual Report and
Accounts.
9 Reserves and resources (unaudited)
(i) Deep mines
We estimate that we have approximately 105 million tonnes of reserves and
resources at our ongoing mines of which 45 million tonnes of coal is accessible
under existing five year mining and investment plans. The additional resources
will become accessible with future investment required as current mining plans
approach completion.
Our estimate as at 31 December 2007 of our deep mine coal reserves are set out
in the following table, in million tonnes:
Ongoing colliery Reserves Resources Total reserves Mineral Total
and Potential
resources
Daw Mill 22 - 22 41 63
Kellingley 10 45 55 5 60
Thoresby 11 12 23 2 25
Welbeck 2 3 5 16 21
TOTAL 2007 45 60 105 64 169
2006 40 70 110 63 173
(ii) Surface mines
We currently have planning consents in place for 7 sites equivalent to 4.3
million tonnes, and applications already submitted for a further 4 sites
equivalent to 4.7 million tonnes. We expect during 2008 to submit planning
applications for a further 6 sites equivalent to 5.1 million tonnes.
A summary of estimated remaining reserves by planning stage is set out in the
table below, in thousand tonnes:
Sites with planning Applications submitted Applications to be
consent for planning, decision submitted in the
awaited following 12 months
Maidens Hall Extension 90 - -
Cutacre 765 - -
North Stobswood 395 - -
Steadsburn 1,088 - -
Long Moor 686 - -
Sharlston 307 - -
Lodge House 1,000 - -
Potland Burn - 2,000 -
Park Wall North - 1,275 -
Bradley - 550 -
Huntington Lane - 900 -
Blair House - - 700
Butterwell - - 1,000
Minorca - - 1,250
Chesterfield Canal - - 530
Stockley Hill - - 1,000
Field House - - 600
Total reserves in process 2007 4,331 4,725 5,080
Total reserves in process 2006 4,103 5,350 4,600
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