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UK Coal PLC (HWG)

  Print      Mail a friend       Annual reports

Tuesday 19 April, 2011

UK Coal PLC

Final Results

RNS Number : 0557F
UK Coal PLC
19 April 2011
 



19 April 2011

 

UK COAL PLC ("UK COAL")

 

Preliminary Financial Results for the Year Ended 25 December 2010

 


2010
£m

2009
£m







Total Group Revenue (£m)

351.2 

316.0 

11.0%

Average sales price per Gigajoule (£/GJ)

1.97 

1.87 

5.3%

Non-cash property revaluation reduction (£m)

(34.2)

(25.7)

(33.1)%

Operating loss before non-trading exceptional items (£m)

(74.3)

(93.1)

20.2%

Loss after tax (£m)

(125.1)

(127.5)

1.9%

Total group debt including generator balances (£m)

(242.4)

(181.9)

(24.2)%





2010 highlights

 

·      Improved production despite Daw Mill face gap

·      Total Group production of 7.2 million tonnes (2009: 7.0 million tonnes)

Deep mine production 5.8 million tonnes (2009: 5.7 million tonnes)

Surface mine production 1.4 million tonnes (2009: 1.3 million tonnes)

·      Property sales target met - £24 million sold in 2010

·      Group banking facilities renewed to July 2012

·      Net cash outflow from operating activities £35.0 million (2009: £77.0 million)

 

Operational Highlights

 

·      Over the last three months immediate and difficult action taken to improve performance

·      Wide-ranging Strategic Recovery Review to tackle deep-rooted problems is well advanced

·      Board objective to create a profitable and safe group for all stakeholders

·      Q1 2011 production of 2.1 million tonnes with 1.6 million from deep and 0.5 million tonnes from surface mines

·      £10.5 million proceeds from sale of 1,500 acres of agricultural land in Q1 2011

 

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

 

"The Group delivered a further year of poor operational performance with a pre-tax loss of £124.6 million, a loss per share of 41.8p and operating cash outflow of £35.0 million.   These results follow pre-tax losses of £129.1 million in 2009 and £15.6 million in 2008, bringing us to three years of unacceptable performance in a row. The Board is determined to arrest the trend of under-delivery and to seek value for our shareholders.  The viability of UK Coal over the medium term depends on appropriately rewarding the equity capital required to finance the business.  The Board fully appreciates that investors deserve a far better return than they have experienced over recent years. Over the last three months we have taken some immediate and difficult steps to improve performance, while a full strategic plan is developed."



 

 

 

Enquiries:

 

Jonson Cox,

Chairman, UK Coal PLC                            Tel: 01302 755002

 

David Brocksom,

Group Finance Director, UK Coal PLC          Tel: 01302 755002

 

Media:

 

Anthony Cardew, Cardew Group                Tel: 020 7930 0777 / 07770 720389

 

Rupert Pittman, Cardew Group                  Tel: 020 7930 0777 / 07976 249289

 

 

Analysts and Investors:

 

At 9am this morning, UK Coal plc will hold a presentation of their Preliminary results to analysts at the offices of Numis Securities Ltd, The London Stock Exchange Building, 10 Paternoster Square, London EC4M 7LT.


In the light of significant holdings by private shareholders, the Company will also repeat this presentation at 10am on Monday 9 May at Harworth, Doncaster. Any private shareholders wishing to attend this meeting should ring 01302 755013 or 01302 755002 to confirm their attendance.


No new material information will be released at this meeting.

 

A copy of the Annual Report and Accounts will be issued shortly by RNS and on the Company's website, www.ukcoal.com

 

Notes to Editors:

 

UK COAL is a mining, property and power company employing 2,657 people with its headquarters at Harworth Park, Harworth, near Doncaster, South Yorkshire.

 

Britain's biggest producer of coal, UK COAL operates three deep mines in the Midlands and Yorkshire, and surface mines in the North East, the North West and the Midlands.  Over 90% of the total annual output is sold to generate around 5% of Britain's electricity requirements.

 

The Group owns around 37,900 acres of land and other property. Harworth Estates, the property arm of the business, currently has plans to develop 85 sites covering a developable area of more than 4,000 acres, creating opportunities for building around 30,000 homes and 32 million square feet of business space over the next decade.

 

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

 

 

CHAIRMAN'S STATEMENT

 

I joined UK Coal as Chairman on 15 November 2010. In this, my first statement, it is appropriate to take stock of the Group's position and to set out how the Board plans to take UK Coal forward.

 

THE YEAR OF 2010

 

For 2010 the Group delivered a further year of poor operational performance with a pre-tax loss of £124.6 million, a loss per share of 41.8p and operating cash outflow of £35.0 million.   These results follow pre-tax losses of £129.1 million in 2009 and £15.6 million in 2008, bringing us to three years of unacceptable performance in a row.  Cumulative losses over three years amount to £269.3 million.

 

THE BUSINESS CONTEXT

 

It will be clear to those who have followed UK Coal that the causes of these severe losses are deeply rooted and require a complete overhaul of strategy and execution.  To frame the way forward, we need to take into account the performance of the Company over the last five years across a number of areas:

 

(i)  Operating performance: levels of safety, production volumes and operating costs have all deteriorated over the last 5 years.  Safety performance - our highest priority - has been unacceptable.  Production levels have consistently fallen short of expectation. Operating costs have grown relentlessly with labour costs per employee increasing from £44k in 2006 to £61k in 2010.  Deep mine operating costs have doubled from £28 per tonne to £56 per tonne

 

(ii) Contract strategy: in striking the balance between the predictability of fixed price contracts and being able to capitalise on rising coal prices, the Group has placed more weight on the certainty of fixed prices.  Thus, in 2010, compared to a market average sales price of £2.37/GJ, the Group achieved an average of only £1.97/GJ (equivalent to £60 per tonne and £47 per tonne respectively).  This is compounded by a contract mix preventing UK Coal from fully realising proceeds closer to market prices, which currently are projected by the market to be around £3/GJ throughout 2011 and into 2012.

(iii) Development: each of our three on-going deep mines has underperformed its investment programme in developing new coal-faces at some point in the last three years.  The most notable was Daw Mill where, in early 2010, a four month face gap caused the Group to burn through the majority of the cash it had raised from its 2009 equity issue.  Whether caused by geological conditions or poor management and planning, if the next panel of coal is not ready before the previous face is exhausted the result is a 'face gap' or a gap in production and pressure on the development of the subsequent face.  It was confirmed in January 2011 that slow progress in 2010 was likely to cause a face gap again this year at Daw Mill. I report below the steps we have taken to address this unacceptable position.

(iv) Financial structure: the Company has become over reliant on debt. At the year-end, net debt (including generator loans/prepayments but excluding restricted cash balances) has increased from £94 million in 2006 to £242 million in 2010. At the same time the deficit in the defined benefit pension scheme has grown to a level broadly equivalent to the rest of the Group's debt as measured on the actuarial basis used by the Trustees, in part reflecting the fact that the Group's defined benefit schemes remain open to future accrual.


 

RELIANCE ON PROPERTY

 

To mitigate poor operational and financial performance, UK Coal has relied heavily on the potential of its property portfolio both to underpin future value and to use as security for its banking facilities. The portfolio valuations fell in both 2009 (£25.7 million) and 2010 (£34.2 million).  It is now clearly apparent that the projections under Project Worth (presented in the 2009 accounts to be £615 million in 2012 rising to £820 million in 2014) are neither realistic nor deliverable in the context of current market conditions.  A series of new approaches is required to unlock and develop the future value that exists in the property portfolio.

 

A UNIQUE LEGACY

 

UK Coal represents one of the last parts of a proud and distinct industrial heritage in the UK.  Our operations support some 3,000 highly skilled, direct employees and several thousand more jobs in the supply chain.  The UK is likely to remain partly dependent on coal for power generation for the next decade, which ties in with the current lifetime of our deep mines and reserves and resources of 48 million tonnes. The introduction of a carbon support price in 2013 will further dampen the demand for coal, but it is noteworthy that in the last winter, coal accounted for up to 44% of the fuel mix in power generation.  Exploitation of our further reserves and resources - in the order of 49 million tonnes - beyond the next decade depends on cleaner technologies such as carbon capture and storage.

 

THE BOARD'S APPROACH

 

It is clear that the Group is in a poor position: over-financed by debt, encumbered with production costs which are too high and over exposed to the market for brownfield property.

 

The Board has taken stock of this position and is determined to arrest the trend of under-delivery and to seek value for our shareholders. 

 

IMMEDIATE STEPS

 

Our initial steps to improve matters were delayed by an explosive ignition of methane at our Kellingley Mine on 23 November. I am pleased to report that all 218 men were safely evacuated with no injuries sustained.  While the fire was extinguished, 156 underground workers were laid off on basic pay (saving around £200k in costs), until they returned when operations resumed on 9 December.  This is the first time the Group has exercised its right to do so. We also reached agreement with our workforce at each of our deep mines to continue producing and dispatching coal throughout most of the Christmas period to mitigate the effect of lost production from Kellingley, again a change from the norm.

 

Over the last three months we have taken some immediate and difficult steps to improve performance.  Measures to reduce the cost base have included the necessary repudiation of an unaffordable Group-wide RPI pay award at 1 January 2011 which would have cost £5m, the pruning of allowances and a significant reduction in the size of the head office.  As a result of these steps we expect a £12 million cost reduction for 2011 compared to our original budgets. We have also made clear to all parties the need to close the current final salary pension schemes in the Group so as to divert funds to reduce the deficit.  In all these actions, we have appreciated the cooperation and help of the workforce. The urgent need for further change has been communicated clearly to all colleagues and unions and we believe that the message is understood.

 

On the Property front, in the closing weeks of 2010, we placed considerable emphasis on the projection given on 28 October 2010 of achieving sales of £24 million by the end of December.  I am pleased to say that our property team achieved this milestone.

 

On learning of the potential 2011 face gap, we promptly appointed a new manager of Daw Mill in February 2011.  He has acted quickly in developing and initiating a delivery plan. This includes the improvement of underground transport capabilities, new working patterns, and enhanced maintenance and availability of key capital equipment.  In recent weeks, we have benefited from full engagement in our recovery plan of key members of the development workforce at Daw Mill to mitigate the possibility of a face gap.  I thank them for their co-operation.

 

I am also pleased to confirm that Lloyds Banking Group has agreed to extend our borrowing facilities, and take out a smaller participant, while the Board undertake a full review of the business in anticipation that a successful implementation of the review will lead to longer term support.  I thank our Finance Director, David Brocksom, for his efforts in securing this financing.

 

STRATEGY

 

The Board is in the course of a Strategic Recovery Review to tackle the deep-rooted problems in UK Coal.  The review is wide ranging and well advanced.  We intend to identify and develop a viable business model for our Deep and Surface Mines and our Property Divisions.  The review will identify the conditions and steps necessary to restore the Group to economic health for the period over which there remains dependence in the UK on coal for power generation.

 

The key priorities for the review include:

 

·      The Group's commercial strategy for the sale of coal

·      Operating costs and, in particular, terms, conditions and flexibility of employees

·      The predictability and reliability of production and over-ground operations

·      Improving the process for the development of new coal faces

·      Creation of the surface mining business as a profitable, sustainable, standalone business

·      The level and form of pension provision, cost and deficit funding

·      Developing a strategy for releasing the value in the property portfolio

·      A plan for the exploitation of the Group's coal reserves beyond those accessible from the current infrastructure

 

We have started to negotiate early recommendations of the review.  We anticipate that we will be in a position to say more about the outcome of the review at the time of the Annual General Meeting in June.

 

OUTLOOK

 

While the first quarter of 2011 has seen many challenges, production has been reliable and steady at 2.1 million tonnes, with output of 1.6 million tonnes from deep mines and 0.5 million tonnes from surface mines.  Our output level reflects some throttling back of production and costs at Daw Mill to mitigate the risk of a face gap in the year.

 

We sold 1,500 acres of agricultural land in Q1 with gross proceeds of £10.5 million.  These disposals were principally two significant agricultural estates: 590 acres at Stockley Hill, Lancashire and a 279 acre part of our Sandy Lane site in Staffordshire.

 

Success for UK Coal will need difficult changes, the full engagement and understanding of our employees and their trade unions and the continuing support of our banks - Lloyds Banking Group in particular - of our suppliers and of our customers. With this support, the Board is determined to do its best to re-create a safe and profitable Group over the medium term for employees, other stakeholders and our long-suffering shareholders.

 

Jonson Cox
Chairman

 



FINANCIAL AND OPERATING REVIEW

 

FINANCIAL REVIEW

 

The mining results reflect the transition taking place from a business which in 2009 was based on four deep mines (three of which were mining remnants of old seams), supported by surface mines, supplying a substantial portion of its output under legacy contracts.  By the end of 2010, the business was based on three deep mines each with better quality reserves, still supported by surface mines, and with just 2.7 million tonnes of legacy contracts remaining to be delivered, predominantly in 2011.

 

In 2010, Kellingley and Thoresby started to produce coal in their new seams with the increased output resulting in a more commercial cost per tonne, and with the closure of Welbeck reducing absolute total costs.  Despite the major setback at Daw Mill, costs per tonne sold from deep mines fell from £58.1/tonne in 2009 to £55.1/tonne in 2010.

 

We supplied 4.1 million tonnes of coal under the legacy contracts in 2010, leaving 2.7 million tonnes to deliver, the majority of which will be delivered in 2011, with a consequential increase in deliveries under the new contracts we put in place in 2009.

 

Group revenues have risen in the year to £351.2 million from £316.0 million in 2009.  This has been achieved both through higher sales volumes and higher realised sales prices.  The increase in sales volume has arisen from the improved production performance in the year despite the Daw Mill face gap.  The improvement in the average realised sales price has been achieved as the newer coal supply contracts with our customers helped us to move towards a more profitable portfolio of contracts, enabling us to better access the strong market price present throughout the year.  As a result, we have achieved an average sales price per Gigajoule of £1.97/GJ compared to the £1.87/GJ realised in 2009.

 

Property disposals during the year realised net proceeds of £24.4 million, £22.7 million of which was received in the year, and resulted in a small loss of £0.5 million.  The balance, together with £1.9 million of net proceeds from a sale conditionally exchanged during the year, is to be received in 2011.  The net proceeds have been used to reduce Group debt.  The loss on revaluation of the investment properties in the year was £34.2 million (2009: £25.7 million).

 

Overall, the Group loss before tax of £124.6 million is £4.5 million lower than the loss of £129.1 million of 2009.  There was an improvement in the year in the operating loss before non-trading exceptional items, which at £74.3 million was £18.8 million better than the previous year.  This improvement was achieved despite a higher loss on revaluation of investment properties of £34.2 million compared to a loss of £25.7 million in 2009.

 

There have been non-trading exceptional items during the year resulting in a charge of £13.1 million in the period (2009: £13.1 million).  The charges/credits in the current year included:

 

·      Restructuring, reorganisation and refinancing costs

 

Costs of £12.3 million were incurred in relation to the restructuring and reorganisation of the business.  Of these, £6.6 million related to professional fees incurred in relation to refinancing, £4.9 million related to professional costs incurred in the year on the exercise undertaken to reorganise the operations in our deep mines, and £0.9 million on redundancy and other costs.

 

·      Costs in relation to Harworth mine

 

Costs of £1.7 million (2009: £3.5 million) have been incurred in the care and maintenance of the Harworth mine, which is currently mothballed.  The costs were higher in 2009 as exploration costs were incurred at the start of that year to prove its coal reserves.

 

·      Pension scheme curtailment

 

There has been a curtailment gain of £1.0 million reflecting the reduction in the pension scheme deficit as the relevant members ceased to be active members following current and prior year redundancies.

 

The operating loss after these non-trading exceptional items for 2010 was £87.4 million compared with a loss of £106.2 million in 2009.

 

Financing expenses

 

Net finance expenses in the year (excluding exceptional finance costs) increased to £27.4 million (2009: £24.6 million).  The interest charge on generator loans and prepayments in the year increased to £8.6 million (2009: £4.0 million) as we drew down on these facilities.  At the same time, other non-exceptional finance costs fell, in particular with the expiry of interest rate swaps and with the benefit of the exceptional write off of bank finance arrangement fees.

 

The Group had cash deposits held by our captive insurance company against insurance claims and, similarly, ring-fenced funds held on behalf of the Coal Authority securing surface damage claims resulting from mining. These totalled £15.7 million and £8.8 million respectively at December 2010 (2009: £19.1 million and £8.7 million). In addition to the ring-fenced funds held on behalf of the Coal Authority, a £10 million bond is held by the Coal Authority as further security against any possible surface damage claims. These deposits were secured against liabilities as at December 2010 of £13.0 million and £15.4 million respectively.

 

Exceptional finance costs

 

Following the Group's refinancing in April 2010, as outlined in last year's Annual Report and in the 2010 Interim Report earlier in the year, previously capitalised bank arrangement fees of £2.7 million were written off together with an estimated £5.0 million of new arrangement fees incurred in respect of the renegotiated facilities. The ultimate cost of the new facility fees is dependent on the value of land sales achieved in the period to July 2011. A similar level and structure of bank arrangement fees has been incurred in respect of the April 2011 extension of the facilities.

 

Furthermore, the fair value of the related interest rate swaps of £2.2 million which had previously been hedge accounted was recycled from reserves to the income statement on the extinguishment of the associated loans. The combined value of these items of £9.9 million has been classified as an exceptional finance cost.

 

Loss per share

 

Loss per share for the period was 41.8 pence (2009: 72.9 pence).

 

OPERATIONAL REVIEW

 

MINING

 

The deep mining business undertook face changes at the three remaining deep mines in 2010.  Two of these faces were delivered on budget and on time but this was overshadowed by the unacceptable delay to Daw Mill's new face, resulting in the face gap reported in last year's accounts.

 

Although this led to a disappointing year, the lost production was largely mitigated by better levels of production from both Thoresby and Kellingley, and the commencement of operations at three new surface mines.

 

During the year, the Group ran a 'Safety at the Heart' campaign where, over a three month period, all employees attended one day safety courses.  This process was the start of UK Coal's journey to become 'best in class' and even at this very early stage, there has been a 21% reduction in the total accident rate per 100,000 manshifts for 2010.

 

A major project was undertaken at Daw Mill to accelerate improvement in general mine productivity by identifying process bottlenecks.  Over 24 weeks, this project resulted in improved equipment reliability, increased belt availability and better production productivity, which in Q4 2010, led to the first ever one million tonnes being produced from a face in a quarter.  A similar process has been introduced into Kellingley during the first quarter of 2011, and part of the benefits of the project in 2011 will be realised in the development of new coal faces at our mines to reduce the future risk of face gaps.

 

Revenue from the mining business for 2010 was £345.4 million (2009: £310.2 million) and operating loss before non-trading exceptional items was £41.2 million (2009: £68.6 million).  The revenue is derived from deep mines sales of £279.3 million (2009: £250.2 million) and surface mines sales of £66.1 million (2009: £60.0 million).  The operating loss before non-trading exceptional items is split as a deep mines loss of £41.6 million (2009: loss of £70.5 million) and surface mines profit of £0.4 million (2009: profit of £1.9 million).  The gradual reduction in the relative amount of older legacy coal contracts, and some newer contracts, have helped increase the average realised sales price by allowing access to the strong market price for coal prevailing in the second half of the year. Average realised sales per Gigajoule was £1.97/GJ (2009: £1.87/GJ).

 

We have continued to invest heavily in our deep mines during the year in line with our strategy to increase the productivity and reduce the uncertainty of output from that business.  We have accessed coal from the new seams at Kellingley and Thoresby, with the ramp up on Kellingley's new panel (501s) completed in March 2010 and on Thoresby's new panel (DS1) in April 2010.  

 

During 2011 all three deep mines will have face changes, with Kellingley and Thoresby suitably advanced with their developments.  Development levels at Daw Mill have been unacceptable during the year but mitigating actions have been taken to reduce the risk of face gaps at any of the three mines.

 

The Surface Mining business had a much improved year with an increase in output in 2010 to 1.4 million tonnes as compared to 1.3 million tonnes in 2009.  Three new surface mines commenced operations during the second half of 2010 at Potland Burn (Northumberland), Park Wall North (Co Durham) and Huntington Lane (Shropshire). This took the number of operational sites to six at the year end (2009: four).

 

Following a review of our Blair House Surface Mine in Fife, Scotland, the decision was made to dispose of the site.

 

Market overview

The UK burned an estimated total of 45 million tonnes of steam coal in 2010, the vast majority of this being used to generate electricity.  Overall consumption rose in the UK by 6% in 2010 compared to 2009, with demand in the electricity market favourably affected by a combination of better economic news, poorer performance at nuclear stations and colder weather at the end of the year.

 

We continue to have a small number of significant customers in the UK electricity supply industry, our predominant market, and all of these have retrofitted flue gas desulphurisation ("FGD") onto their stations to meet the requirements of the European Large Combustion Plant Directive ("LCPD"). 

 

The replacement legislation to the LCPD, the Industrial Emissions Directive ("IED") has been approved in the European Parliament and the UK is currently working towards finalising its implementation. The IED will require further investment by the generators to meet the tightening sulphur dioxide and nitrogen oxide emission limit targets after 2015. However as it stands, the IED would allow UK generators, not investing, some flexibility in their operational emissions but would limit their running hours in return.

 

On 16 December 2010 the UK Government published its 'Electricity Market Reform' ("EMR") consultation outlining how it intends to encourage investment in low carbon generation to meet its long term carbon reduction targets. The consultation puts forward four main principles to reach this goal; carbon price support, feed in tariffs, capacity mechanisms and emission performance standards. 

 

UK Coal believes that existing coal fired generation provides an essential low cost transition to the low carbon economy. The UK Government recognises the importance coal plays in providing diversity, security and flexibility in our energy supplies but has stated ultimately coal can only play its part in the long term energy mix via carbon capture and storage ("CCS").

 

CCS involves capturing the CO2 emitted from burning fossil fuels, transporting it and storing it safely in geological formations. CCS has the potential to reduce CO2 emissions from fossil fuel power stations by as much as 90%. The emission performance standard proposals within the EMR proposals would force all new coal power stations to fit CCS to a proportion of its capacity from the start of operations.

 

To assist the development of CCS within the UK, the Government have confirmed they will be willing to give financial support for four commercial demonstration schemes to kick-start this development. Confirmation of the first scheme is expected to be announced during 2011 along with details of the process for determining the other three.

 

In the recent budget, the Government confirmed their intention to introduce a Carbon Floor Price from April 2013 as part of their Electricity Market Reform programme.  The floor price would start at £16 per tonne CO2 in 2013 rising to a target price of £30 per tonne in 2020.  This policy is designed to encourage investment in low carbon generation, although given the rapid implementation date, it is unlikely in the short term to result in anything other than a windfall gain for existing low carbon generation at the expense of higher electricity prices and a less competitive coal generation sector.

 

Coal Prices

 

International coal prices (NW Europe deliveries) for near term deliveries started 2010 at $86 per tonne, fell back to $73 per tonne in the spring before recovering to finish the year back at $126 per tonne.

 

China remained the main driver in the international market with steam coal imports growing by 35 million tonnes, an increase of 60%.  This combined with major supply disruptions towards the end of the year and cold winter weather across Europe saw prices rise to their highest level since October 2008.  The recent events in Japan, and the subsequent reaction of other nations to the risks in their nuclear industry, have provided further support to near term coal prices.

 

In sterling terms, the price per tonne followed a similar trend, starting 2010 at £53 per tonne (£2.12/GJ), falling to £48 per tonne in the spring and recovering at the year end to £81 per tonne. At 5 April 2011 the average forward market price for coal for deliveries in the remainder of 2011 was $131 or £79 per tonne (£3.18/GJ).

 

In 2009 lower coal burn, caused by the economic downturn and good nuclear performance, led to a significant rise in the amount of coal held on stock at power stations. During 2010 generators have cut back on their import activities in order to reduce their inventories. This has seen steam coal imports fall by 40% in 2010 to just under 20 million tonnes. As a result power station stocks reduced from 22 million tonnes at the start of the year to finish at 13.4 million tonnes at the end of December 2010.

 

  

HARWORTH ESTATES

 

Our property division, Harworth Estates produced a loss of £33.1 million (2009: £24.5 million loss), including a loss on investment properties of £34.7 million (2009: £25.7 million loss), of which £34.2 million was unrealised (2009: £25.7 million).  A revaluation gain of £1.2 million was taken directly to reserves (2009: £52,000), being the gains recognised on former operating properties transferred to investment property status on their ceasing to be operational sites. We also disposed of an operating property which realised a gain of £62,500 (2009: nil).

 

During the course of 2010 Harworth Estates continued its full planning activities with a view to ensuring that it maintains a healthy pipeline of future sites which can either be offered into the market for sale, or developed out through appropriate delivery mechanisms to maximise and realise shareholder value, as market conditions improve. While the focus of our planning team this year has been on progressing existing applications through the planning system we have submitted a limited number of new applications during the year.

 

While we continued to progress promotion and strategic planning across our portfolio, 2010 was predominately focussed on realising cash from our surplus agricultural portfolio in order to reduce bank borrowing.

 

Disposals during the year secured gross receipts of £26.0 million from the sale of 2,260 hectares (5,600 acres) of mainly agricultural land and associated properties as part of our debt reduction programme.  The net proceeds after costs and related land purchases of £24.4 million produced a small loss on disposal of £0.5 million, with £22.7 million of the net proceeds received in 2010 and the balance to be received in 2011.  The net proceeds received were used to repay bank debt within the Group.  We also exchanged conditionally on a further sale at the end of the year with net proceeds of £1.9 million which we expect to receive in 2011.

 

In order to reduce borrowing further we are marketing further surplus agricultural land and certain commercial sites for sale in 2011.

 

The 2010 land disposals programme resulted in prices which reinforced the values placed on our agricultural portfolio, which showed a modest increase of 0.4% on a like for like basis from 2009. Our 'part or fully developed out' income yielding commercial land maintained its value with occupancy and rental levels holding up despite the difficult economic conditions facing businesses.  However, 2010 continued to be a difficult environment for our undeveloped land portfolio and our 'in development' commercial land which together showed a decline of 14.6% on a like for like basis. While we saw some decreases on certain commercial sites the reduction was predominately driven by lower valuations on our long term residential sites, where land values remain under pressure from both a house builder demand perspective, and from longer than forecast build out periods as house buyer confidence remains fragile.

 

The property market remained fragile during 2010 with very little transactional volume. While our income yielding commercial and agricultural portfolio remained stable in value terms, conditions in the residential and commercial development environment remained difficult. We continue to remain cautious about the short term and as such, like many other major land owners and developers, we are continuing to restrict expenditure on infrastructure and are not undertaking speculative construction.  As reported last year we have maintained full scale planning application and associated activities and will continue to do so throughout 2011 under our new structure which will focus efforts and spend on those projects where we see the best opportunity to increase and realise value in the short to medium term.

 

 

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This information is provided by RNS
The company news service from the London Stock Exchange
 
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