Final Results
Coalfield Resources plc
Final Results
for the year ended 28 December 2013
Coalfield Resources plc ("CfR" or "the Group") is an investment holding company. Its only significant investment is a 24.9% stake in Harworth Estates Property Group Limited ("Harworth Estates") in which it takes an active investment management role.
CfR Key Points:
Harworth Estates Key Points:
Commenting on the results, Jonson Cox, Chairman of Coalfield Resources, said:
"Following the insolvency and further restructuring of the mining business in July 2013, Coalfield Resources' sole focus has been its role as active investor in Harworth Estates. While we have a minority holding, we are working closely with the majority Pension Fund investor to drive value for all shareholders.
"Harworth Estates had a strong first year of trading as an independent property development company, generating a net 6% increase in net asset value to £235m, repaying £22m of its inherited bank debt and investing £10m in its land assets. While we are aware of the challenges inherent in moving forward from our mining heritage, the Board of CfR remains confident of the ability of Harworth Estates to deliver and grow shareholder value."
Enquiries
Anthony Cardew / Emma Crawshaw, Cardew Group T: 020 7930 0777
Notes to Editors
Coalfield Resources plc
Coalfield Resources was, until December 2012, the parent company of the UK's largest coal miner, UK Coal. In one of the most complex restructurings in UK corporate history, Coalfield Resources, which was previously known as UK Coal plc, split its operating business into two separate units - property and mining - and gifted 75% of the property business to the trustees of the mining business pension fund. At the same time, in December 2012, it relinquished control of the coal mining operations to an Employee Benefit Trust, retaining only a minority equity stake which ranked behind the debt owed to the pension funds.
Consequent upon this restructuring, Coalfield Resources effectively became a property company through its 24.9% shareholding in Harworth Estates Property Group Limited, the property business it owns jointly with the former mining companies pension fund.
In 2013, the former mining business suffered a major fire at one of its mines which caused a failure and restructuring of that business. Coalfield Resources no longer has any equity interest in the mining business.
Harworth Estates
Harworth Estates is a leading property and development company owning and managing around 31,370 acres across some 200 projects, with consent for 8,000 new homes. It specialises in regenerating coalfields and brownfield land for industrial and commercial opportunities, low carbon energy projects, residential developments and leisure uses.
Cautionary Statement
This announcement contains forward-looking statements that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as anticipate, target, expect, estimate, intend, plan, goal, believe, will, may, should, would, could, is confident, or other words of similar meaning. Undue reliance should not be placed on any such statements because they speak only as at the date of this document and, by their very nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and Coalfield Resources plans and objectives, to differ materially from those expressed or implied in the forward-looking statements.
Coalfield Resources undertakes no obligation to revise or update any forward-looking statement contained within this announcement, regardless of whether those statements are affected as a result of new information, future events or otherwise, save as required by law and regulations.
Chairman's Statement
I am pleased to report on the first full year of Coalfield Resources plc, following the de-merger in December 2012, of the former UK Coal plc's mining and property businesses (the 2012 Restructuring).
Since the 2012 Restructuring, our shareholding in Harworth Estates, a brownfield property developer, has been the principal source of value. Our focus has been our role as active, minority investor, working alongside the majority Pension Fund investor. Our small team provides Board leadership, and financial, legal and governance services to Harworth Estates on behalf of both investors. Both investors are entirely aligned as long term seekers of value from the property portfolio.
We are pleased to note a successful start to Harworth Estates in its new ownership. In 2013, the business generated an increase in net asset value of £13m (6%), repaid £22m of its inherited bank debt and invested £10m in its land assets.
Context and history
In March 2012, the Board determined that mining performance was once again threatening the survival of the UK Coal group. The principal economic stakeholders in the group - the banks, electricity generators, the pension fund and the shareholders - worked together on the solvent 2012 Restructuring to separate the group's mining and property interests. We understand that the complexity of stakeholder interests made this one of the most challenging restructurings of recent years. The 2012 Restructuring was completed on 10 December 2012.
As a result of the 2012 Restructuring, the mining business was left free of bank debt and with control transferred to a new Employee Benefit Trust. All surplus cash flow from mining operations was allocated to pay down the pension deficit. In consideration for relinquishing any claim it may have had as a creditor of Harworth Estates and providing £30m of development funding, the Pension Funds took a 75.1% shareholding in Harworth Estates. All bank debt was secured only on the property business. Shareholders in CfR secured a 24.9% shareholding in Harworth Estates.
Harworth Estates
Harworth Estates has performed strongly in its first year of trading as an independent property development company. Net assets increased to £235m (2012: £222m) on a property portfolio value of £278m (2012: £260m). A return of £33m was delivered on the opening property portfolio of £260m, with £24.5m from increases in valuation at year end, £8.3m by way of profit on its £19m of asset sales in the year, and £1.4m from operating activities.
Results of Harworth Estates (un-audited)
|
|
|
£m |
|
Profit from operations |
|
1.4 |
|
Profit on disposals |
|
8.3 |
|
Gross valuation gain |
24.5 |
|
|
Impairment for restoration on reversion of mining leasehold obligations |
-8.9 |
|
|
Net valuation increase |
|
15.6 |
|
Profit from ordinary business |
|
25.3 |
|
Exceptional provision |
|
-9.1 |
|
Profit before interest |
|
16.2 |
|
Interest |
|
-3.3 |
|
Profit before tax |
|
12.9 |
Harworth Estates has benefitted from improved confidence in the housing market across the North and the Midlands.
· On its flagship Waverley development, sales to date have exceeded management's expectations with land sales for 238 new homes.
· The Logistics North development achieved outline planning consent in 2013 and will provide 4 million sq ft of distribution and manufacturing space.
· Re-development has begun on the Prince of Wales site which will deliver 900 new homes and a country park in Pontefract, West Yorkshire.
· Construction has commenced of the infrastructure for the Rossington site which will provide 1,200 new homes.
· A number of loans from public bodies have been secured to fund accelerated infrastructure works, including over £11m on the Waverley site.
Further Mining Group Restructuring
Within three months of the 2012 Restructuring, a catastrophic fire at Daw Mill colliery forced the closure of that mine and brought about the subsequent insolvency and restructuring of the mining business in July 2013.
The insolvency of UK Coal Mine Holdings Ltd and subsidiaries left CfR with £5m of potential liabilities, including restructuring fees from the 2012 Restructuring, which had been due to be reimbursed by the mining businesses. The Board of CfR secured an emergency loan from Lloyds Bank to enable it to pay these fees while it undertook a Rights Issue which was successfully completed in September 2013. All the 2012 Restructuring fees have now been paid and the bank loan fully repaid. The 2012 Restructuring provided that on insolvency of the Mining business, the obligation for CfR's running costs transferred to Harworth Estates, with an accompanying obligation that CfR's efforts are focused on delivering value from Harworth Estates.
A necessary condition of the 2012 Restructuring was that Harworth Estates owned most of the mining freeholds, with vacant possession reverting to Harworth Estates following closure and restoration of the mines, providing the opportunity for future redevelopment. Certain defined bonding facilities were also provided to the mining businesses. Given the insolvency of the mines in 2013 ("Mining Group July 2013 Restructuring"), the historical issues in the deep mining business, the negative outlook for coal prices and ongoing operational difficulties within the UK coal industry, Harworth Estates has undertaken contingency planning to protect and mitigate the impact of further mining difficulties including closure. In light of these factors and the potential impact on Harworth Estates assets, it has reduced its asset value by £18m.
Using its core skills in brownfield regeneration, Harworth Estates has managed the closure of the Daw Mill colliery in association with the Coal Authority. Harworth Estates has now acquired the surface freehold of the 120 acre site for redevelopment, and will look to develop this site, taking advantage of its railhead links and industrial infrastructure.
A consequence of the Mining Group July 2013 Restructuring is that the 75.1% shareholding in Harworth Estates held by the Pension Funds is expected to transfer in due course to the Pension Protection Fund. CfR is establishing an effective working relationship with both parties.
Strategy
Following the 2012 Restructuring, CfR is entirely focussed on increasing value in the Harworth Estates business for the Pension Funds and shareholders of CfR. The Board is acutely aware of the discount to NAV inherent in CfR's share price (34% discount as at 28 December 2013) and sees a material opportunity to grow value in the Harworth Estates business.
Following a successful first year of independent operation for Harworth Estates, the shareholders and prospective owners of the Pension Funds' interest have jointly supported a strategic review, currently underway, to define the capital structure which would optimise value and efficiency and create an ongoing sustainable, specialist property business. The parties are all fully aligned in seeking full value over the long term for both shareholders.
Board
The Board of CfR consists of three non-executives, together with the Chairman and the Finance Director. In 2013 the Board undertook to continue to make available the listed company as one of a number of options for a future efficient financial structure of Harworth Estates, with liquidity and the ability to finance growth. It is expected to be clearer by the end of 2014 what role the listed company may play in an optimal capital structure for Harworth Estates. At the conclusion of those discussions, the Board will review its appropriate composition. The Chairman and the Finance Director devote most of their time to the Harworth Estates business.
Outlook
We have seen a recovery of interest in the property sector in the last 12 months. Harworth Estates is a beneficiary of this, through the increased demand and improved prices for commercial and residential land. This can be seen in both the valuation gains it has achieved and also the disposals it has made. Notwithstanding the challenges inherent in moving forward from its mining heritage, the Board is confident of the ability of our underlying asset, Harworth Estates, to deliver and grow shareholder value from the redevelopment of the former coalfields and other former industrial sites.
Jonson Cox
Chairman
28 March 2014
Financial Review
2013 has been the first full year of trading of the Group following the 2012 Restructure.
Income Statement
We are pleased to report a profit attributable to shareholders of £1.7m for 2013 (2012: loss of £6.3ml). This arises principally from our investment in Harworth Estates.
The principal revenue reported is generated from recharging management time and running costs of the business to Harworth Estates. Some revenue was generated from similar recharges to the mining business prior to the Mining Group July 2013 Restructuring referred to above taking place. Since then all revenue has been from Harworth Estates under the amended shareholder agreement which provides for the business' running costs to be met. A small pre-exceptional operating loss is reported in the year, mainly due to expensing an historic share-based payment scheme, which as a non-cash cost, is not recoverable under the shareholder agreement and hence shows as a loss.
Following the Mining Group July 2013 Restructuring we secured a charge on the land associated with two deep mine sites. This was in addition to a charge on the Daw Mill site surface as security against the Blenkinsopp pension obligation. Harworth Estates also entered into an agreement to guarantee the payment of this obligation up to a value of £3.1m. Taking this into account, the liability previously disclosed is now secured and as such we have recognised an asset equal to the IAS 19 liability value. This has resulted in an exceptional gain being shown in the Income Statement for the year ended 28 December 2013 of £683k (2012: £nil).
We incurred £252k of financing costs in respect of interest and fees associated with the emergency loan taken out in May 2013 to pay certain 2012 Restructuring creditors. This loan was fully repaid in September 2013 following receipts from the Rights Issue.
Following the successful first year of independent trading from Harworth Estates we have recorded a profit of £3.1m on our 24.9% shareholding in this associate.
The events of the Mining Group July 2013 Restructuring which included the administration of various mining companies gave rise to a £1.6m loss from discontinued operation, in relation to both debts not settled and additional restructuring fees.
Balance Sheet
Net assets have increased to £55.2m (2012: £47.9m). This is mainly as a result of the increase in the investment in Harworth Estates which is now £53.4m (2012: £50.3m) and the Rights Issue.
Trade payables and provisions have reduced significantly during the year. These mainly related to restructuring fees due to professional advisers arising from the 2012 Restructuring. These were paid in part from the emergency bank loan and in part from the proceeds of the Rights Issue in September 2013.
Our cash balance at the end of 2013 was £1.4m (2012: £0.1m) which includes the balance of the cash raised from the Rights Issue after repaying the 2012 Restructuring fees and the bank loan.
Blenkinsopp pension scheme
As mentioned above we have recognised an asset of £683k to offset the liability in respect of the Blenkinsopp pension scheme. The IAS 19 valuation of the liability has reduced slightly during the year to £683k (2012: £720k). Valuation assumptions used have remained consistent with last year.
Harworth Insurance Company Limited (HICL)
CfR retains a 100% shareholding in an insurance business, HICL, which is classified as held for sale as there is a put and call option over its shares. The assets held for sale are £21.7m (2012: £21.3m) and the liabilities held for sale are £17.1m (2012: 16.7m) and an amount in respect of deferred income in trade and other payables of £4.6m (2012: £4.6m). It is expected the sale of the insurance business will be completed in late 2014 to a major UK insurer.
There remains a put and call option over the shares of HICL, now held by the administrators of Ocanti No.1 Limited (formerly UK Coal Mine Holdings Ltd). CfR is in discussion with the administrators of Ocanti No 1 Limited (formerly UK Coal Mine Holdings Ltd) regarding the appropriate further consideration due to the Group from this sale, following the events of the Mining Group July 2013 Restructuring.
Cash flow
The cash balance was £1.4m at the year end (2012: £0.1m). The increase in cash is mainly due to the balance of funds raised for the Rights Issues in September 2013 after settling liabilities in respect of fees from the 2012 Restructuring.
Net Asset per share
|
28-Dec-13 |
29-Dec-12 |
|||
|
£m |
Pence per share |
£m |
Pence per share |
|
|
Harworth Estates Group |
||||
|
Investment properties |
278.5 |
- |
260.1 |
- |
|
Other asset and liabilities |
(43.8) |
- |
(38.4) |
- |
|
Net assets |
234.7 |
- |
221.7 |
- |
|
Coalfield Resources plc |
||||
|
24.9% share in Harworth Estates Group |
58.4 |
9.6 |
55.3 |
18.5 |
|
£5.0 million dividend restriction |
(5.0) |
(0.8) |
(5.0) |
(1.7) |
|
Carrying value of investment |
53.4 |
8.8 |
50.3 |
16.8 |
|
Other assets and liabilities |
1.8 |
0.3 |
(2.4) |
(0.8) |
|
Net assets |
55.2 |
9.1 |
47.9 |
16.0 |
|
Number of shares in issue |
605,456,480 |
|
299,298,160 |
|
Note - December 2012 shares in issue were pre the Rights Issue in 2013
Discount to net asset value
At 27 December 2013, the closing price of CfR's shares was 6.0p per share compared to a net asset value of 9.1p per Ordinary Share, a discount of 34%. This compares to a discount of 58% based on the share price of 6.75p per share, being the closing price on 28 December 2012.
Taxation
There has been no corporation tax charge in the period (2012: credit of £10k). At 28 December 2013 the Group had neither any recognised deferred tax assets nor deferred tax liabilities (2012: £nil).
Principal risks and uncertainties
The Group's performance, including the current or future value of its assets, will depend on macro property market conditions that affect its investment in Harworth Estates. The Group has two Directors on the board of Harworth Estates to monitor its investment and ensure where possible its business strategy minimises these risk. The risks are principally:
Sales value risk
The sale of remediated brownfield land to house builders and commercial developers is an important source of revenue and the gaining of residential and commercial planning consents is an important source of valuation growth for Harworth Estates. As such any decline in general property market conditions including (i) the market for residential and commercial land and/or residential and commercial property not functioning properly; (ii) a decline in market values; and/or (iii) a decline in the availability and/or an increase in the cost of credit for residential and commercial buyers, may have an adverse impact on the Harworth Estates results, financial condition and/or prospects, which may then in turn have a negative impact on the Group in terms of the value of its investment in Harworth Estates. These risks are not controllable by the Group.
Planning risk
Harworth Estates' continued progress with its projects for future delivery is dependent on the continued success of its applications for planning permission. Current or future planning applications may not result in the desired outcome or may be granted on unduly onerous terms. Failure to obtain such permissions may reduce the speed Harworth Estates can implement its strategy, and have an adverse impact on its business, which may in turn have a negative impact on the Group's investment in Harworth Estates.
Further, Harworth Estates development operations are contingent upon an effectively functioning planning system. Changes in law or policy affecting planning, infrastructure, environment (including waste disposal) and or sustainability issues could adversely affect the timing or costs associated with development opportunities. This could lead to reduction in value or delays in delivering project values with an adverse effect on Harworth Estates which may in turn have a negative impact on the Group's investment in Harworth Estates.
Property valuation movements and liquidity
Properties, including those in which Harworth Estates has invested, or may invest in the future, can be relatively illiquid investments. This lack of liquidity may affect Harworth Estates ability to realise its valuation gains, vary its portfolio or dispose of or liquidate part of its portfolio in a timely fashion and or/at satisfactory prices. The valuation of property is subject to uncertainty and cash generated on disposal may be different from the value on Harworth Estates balance sheet. This may mean that the value ascribed by Harworth Estates to its properties may not reflect the value realised on sale. Valuations may fluctuate as a result of factors such as changes in regulatory requirements and applicable laws (including taxation and planning), political conditions, the condition of financial markets, interest and inflation fluctuations. Each of these factors may have an adverse effect on Harworth Estates which may in turn have a negative impact on the Group's investment in Harworth Estates.
Minority shareholding and single investment
The Group has only a 24.9% shareholding in Harworth Estates and whilst it does maintain significant influence over Harworth Estates, as such it does not have any control over this company. The ownership and control of the remaining 75.1% shareholding is owned by the Pension Trustees of the Industry Wide Mineworkers Pension Scheme and it is expected this will ultimately be transferred to the Pension Protection Fund.
The shareholders' agreement between CfR and the Pension Trustees contains drag along rights pursuant to which the Group may be required, by other holders of shares in Harworth Estates (''the Drag Sellers'') who propose to transfer a controlling interest (as defined in the shareholders' agreement) to a third party on bona fide arm's length terms, to sell all of its shares in Harworth Estates to such third party on the same or equivalent terms as those agreed between the Drag Sellers and the third party purchaser.
Under the terms of the shareholders' agreement and Harworth Estates Articles, if the Pension Trustees or the Group wish to transfer any of their shares in Harworth Estates to a third party purchaser, they must first grant the other party a right of first offer before selling such shares to a third party purchaser. If the Pension Trustees subsequently seek to transfer a controlling interest in Harworth Estates to a third party purchaser the Group is also granted a right to match the highest price submitted by a third party purchaser.
If the Group does not or cannot purchase the shares representing a controlling interest in Harworth Estates pursuant to its right of first offer or its matching right within the required timescale and the Pension Trustees subsequently sell such a controlling interest to a third party purchaser, the Pension Trustees may insist that the Group also sells its entire shareholding to such third party purchaser on the same terms pursuant to the drag along provisions summarised above.
Consequently, the drag provisions may not give the Group sufficient time to maximise the value of its Harworth Estates shareholding for shareholders. This would fundamentally alter its key revenue stream from both dividends and recharged expenses.
Funding of the Group's on-going running costs
The on-going running costs and employee costs are met by Harworth Estates under an agreement entered into as part of the 2012 Restructuring and varied as part of the Mining Group July 2013 Restructuring. This agreement covers the Group's full cash costs based on current expectations until 31 December 2016. From 1 January 2017, other than for the employment costs of the executive team which are indemnified, subject to limits, indefinitely by Harworth Estates, CfR will have to fund its on-going running costs from cash reserves or from dividends from Harworth Estates.
Treasury Policy and Liquidity
The Group has no borrowings and has cash balances estimated to be sufficient to cover forecast cash requirements. Details of financial risks in respect of credit risk and liquidity risk are set out in the relevant note to the accompanying financial statements.
This information is provided by RNS
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