Final Results
UK Coal PLC
03 March 2005
UK COAL PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2004
UK COAL PLC, the coal mining and property group, today announces its preliminary
audited results for the year ended 31 December 2004.
Financial and Operating Summary
• Operating loss from continuing operations before exceptional items £28.7
million (2003: Loss £1.8 million)
• Loss before tax £51.6 million (2003: Loss £1.2 million)
• Cash outflow before use of liquid resources, financing and dividends £7.5
million (2003: £39.1 million inflow)
• Final dividend 1 pence per share (2003: 5 pence per share)
• Deep mine output 12.0 million tonnes (2003: 14.8 million tonnes)
• Surface mine output 2.0 million tonnes (2003: 3.1 million tonnes)
• Coal sales from UK operations of 14.3 million tonnes (2003:18.9 million
tonnes)
• Average selling price £1.18 per gigajoule (2003: £1.12 per gigajoule)
• Total unit production costs £1.30 per gigajoule (2003:
£1.16 per gigajoule)
• Gross value of property before rehabilitation and restoration costs
£202 million (2002 valuation: £174 million)
• Property disposal proceeds of £4.3 million (2003: £9.7
million)
Chairman's Statement
2004 has proved to be a difficult year for our deep mines, which suffered from
geological problems, industrial action and poor operational performance. The
results have been disappointing. Decisive action was taken in September with the
appointment of Gerry Spindler as Chief Executive. He has already made
significant progress in reshaping and restructuring the business. Actions taken
in the latter part of the year have placed the business in a stronger position
to develop in the future.
Following the losses and cash outflow in 2004, and after taking into
consideration future plans, the Board has concluded that it is in the best
interests of shareholders to pay a reduced dividend, retaining cash within the
business. As a result, the Board is proposing the payment of a final dividend of
1 pence per share.
It is intended to pursue a progressive dividend policy from a base of 6p per
share, subject to improvements in operational performance.
For further information, please contact:
Financial: Ken Cronin
(Gavin Anderson & Company) Tel: 0207 554 1400
Mob: 07887 591 499
Operational: Stuart Oliver
Tel: 01525 381759
Mob: 07774 231178
Chief Executive's Report
Deep Mines
In 2004 our deep mines lost £37.8 million before exceptional items, a
deterioration of £29.3 million compared to the prior year and a significant
shortfall against the potential of these operations. It does not need further
explanation to conclude the year has been unsatisfactory. Some of this is due to
external factors, some due to internal issues which can and will be remedied.
The causes of the shortfall comparing to last year can be explained and serve to
demonstrate both the potential for improvement in the business and the
challenges in 2005.
On joining the business as Chief Executive, several key issues were apparent:
•Common disputes with the workforce, principally over bonus structure at
collieries. These caused disruptions to production in operations which were
losing money in any case
•Inadequate equipment availability
•An inability to complete underground development and construction
projects on time and on budget leaving gaps in production
•Inadequate operating processes to handle adverse conditions at the face
•An inability to maintain drivage rates sufficient to support new panel
development
•Low priced contracts not reflecting the current market price
•Unforeseen geology
Many of these are fundamental operating flaws and, while markets have been and
should continue to be buoyant, excellence for a coal company can only be
achieved operationally. UK COAL has well equipped coal mines which reflect an
aggressive level of investment, an experienced and knowledgeable workforce, and
the ability to achieve excellence as an ongoing business.
We have a long journey ahead to fix these issues. We continue to make progress
and great strides have already been made:
• At two collieries, the workforce has agreed to a wage structure that
eliminates bonuses and guarantees increases in machine available time. The
individual employee gets more security in earnings. The company can conduct its
business without the disruption of disputes over bonus structure and plan
working time more effectively. The precedent has now been established. This will
minimize face gaps, which, at the average UK colliery, cost £1,000,000 per week.
• Structured daily maintenance. The new programme is designed to predict
component failure and identify component life, allowing scheduled replacement
rather than unscheduled repairs. This eliminates the excess cost in both repairs
and lost production resulting from unanticipated failure. Over the last five
months this has resulted in a 10% improvement in equipment availability.
• Traditionally, UK mines have operated on a model which simply assumes
all costs to be fixed and production to be the sole determinant of
profitability. Recently introduced budgeting practice now requires that all
expenditure at the mine, including that which is not directly part of the mining
process, is identified and managed as a series of separate projects, with cost
and completion targets. This change will result in a reduction in the annual
cost of running a mine without adversely affecting productivity.
• New techniques in ground control, including polyurethane injection,
have been used with success to control adverse face conditions and accommodate
faster face advance. A standing face never gets any better and the ability to
continue mining in adverse conditions improves all aspects of a mines
performance.
These actions should significantly uplift earnings and the effort expended will
be focused and unstinting. The successes to date can only be described as work
in progress, but we will be building on these programmes in the coming year to
realise the potential of the business.
This leaves adverse geology. Many problems encountered in the business can be
laid at this door. Indeed, three collieries, Rossington, Kellingley and Welbeck
are suffering adverse geology today, requiring investment in the early part of
2005 in underground roadways. The process of reaching for new reserves
inevitably incurs additional initial costs.
New advances in seismic exploration will allow better definition of the unknown.
The company has demonstrated a capacity to achieve the unthinkable and overcome
the unimaginable and will continue to maximize the accessibility of more than
250 million tonnes of UK COAL'S deposits.
Surface Mines
There are nearly 100 million tonnes of surface mineable deposits at around 20 to
1 ratio of overburden to coal, an eminently economic resource at today's selling
prices. There is room in the UK's requirement to utilize every tonne of this
resource, providing a sensible economic solution for part of the energy needs of
the UK rather than stimulating imports at higher prices. All that is required is
planning permission, acknowledged to be a considerable hurdle. Nevertheless UK
COAL intends to expand its capacity in this arena, renewing efforts to obtain
planning permission based on improvements in the environmental acceptability of
brownfield site regeneration. The end result will be not only additional
indigenous production but also sites restored to a standard and at a cost
impossible without prior mining.
Customers
With respect to our markets and relations with customers, UK COAL will fully
comply with its existing contracts honoring its legal commitments. We have
successfully renegotiated a number of our contracts to reflect our expected
production and current market circumstances. We will, of course, resist
burdening future unsold production with the low priced contracts of the past.
Property
The property portfolio continues to be a key focus of the company, continually
gaining value as planning permissions are obtained. We have identified three key
strands to the business, which promise to deliver value and growth in the
future.
•Business parks are a welcome addition to our rental income, which will
grow as occupancy rates increase and further parks are added following the
closure of Selby. This is a growth area of the business, which is expected
to bring superior returns in the future as further new opportunities are
realised.
•Brownfield development and regeneration applies our considerable surface
mining skills to remediate and rehabilitate land, after producing income
from coal extraction, and exploiting opportunities which range from
residential developments to light industrial and business parks.
•Our significant portfolio of agricultural land provides a land bank for
surface mining, but also added value opportunities, which are taken as
appropriate.
The strength of the management team in this area has been augmented with the
appointment of James Shaw, formerly Property Director at AB Ports, to head the
property team.
The strategy for the property business remains robust, focused and dynamic. We
are adding planning permissions regularly. There continue however to be
significant opportunities emerging which will allow this business to mature in
the coming years.
Summary and Outlook
In summary, UK Coal is a company capable of internal growth through a number of
different avenues. It not only has the ability, given continued market
conditions, to generate cash from its coal operations with the reserve life to
fully fund liabilities, restore surface mine sites and reward investors, but
also has significant property potential.
Decisive action taken in 2004 has positioned the business well to benefit from
increased coal prices. We expect 2005 to be a transitional year to develop the
potential of our mining operations.
We will continue to invest in underground development, catching up on shortfalls
from 2004 as further coal reserves are accessed following geological faulting
encountered at Kellingley, Rossington and Welbeck.
The improved markets appear durable and in combination with lower costs and
increased productivity bode well for the future, returning the company to
profitability in 2006.
Financial Review
Profit and Loss Account
The Group sustained an operating loss on continuing operations before
exceptional items of £28.7 million (2003: £1.8 million).
The losses resulted from reduced deep mine operational performance, industrial
action at Kellingley and face changes in all mines, except Daw Mill, as well as
a longer than expected run down of the Selby complex of mines which finally
closed in October 2004.
The loss for the year before taxation was £51.6 million (2003: £1.2 million) and
is stated after charging exceptional items of £29.8 million in particular
relating to the closure of Ellington, the recognition of additional liabilities
in respect of the restoration of our Stobswood surface mine site, the write down
of certain surface mine assets, redundancy costs and amounts recovered against
TXU. The loss is stated after the release of provisions of £16.4 million (2003:
£11.3 million).
Turnover in the year fell to £442.9 million (2003: £563.9 million) reflecting
lower production in both deep and surface mines. Total coal sales from UK
operations were 14.3 million tonnes (2003: 18.9 million tonnes) and included
sales from coal stocks of 452,000 tonnes (2003: 775,000 tonnes).
Average selling prices in the year were £1.18 per gigajoule (2003: £1.12 per
gigajoule). This relatively small increase compared with rises in international
coal prices reflects contracts entered into when the international price of coal
was low.
Total unit production costs were £1.30 per gigajoule (2003: £1.16 per
gigajoule).
Our surface mining land bank of mainly agricultural property and our business
parks generated rental income in the year of £3.9 million (2003: £3.8 million)
and operating profit of £1.5 million (2003: £1.1 million.). Total disposals in
the year were £4.3 million (2003: £9.7 million) with a profit on disposal of
£2.8 million (2003: £5.8 million).
Exceptional Items
Stobswood
On 18th December 2003, the Group acquired certain of the assets and liabilities
of Crouch Mining Ltd, a third party surface mining contractor operating on a UK
COAL owned site at Stobswood in the North East of England, to complete coaling
and carry out land restoration work.
As part of the transaction, the Group assumed additional liabilities in respect
of land restoration on 3 sites with total estimated costs of £4.1 million, which
were provided for. This represented the difference between the costs of work to
be undertaken by Crouch Mining Ltd and UK COAL's estimate of the costs.
Planning permission to extend coaling operations at the site was subsequently
rejected. If upheld on appeal this will result in the restoration work to be
performed being both larger and more costly than originally envisaged.
To cover these and other additional costs, a further provision for the
restoration works has been made amounting to £10.8 million. As 2004 was the
accounting period following acquisition we increased the goodwill relating to
the acquisition of Stobswood by this amount. However, after reviewing for
impairment, this was written down to its recoverable amount of nil.
Surface Mining Plant
With surface mine planning consent becoming increasingly difficult to obtain in
England, plant has been identified which has become un-utilised. An additional
charge of £4.3 million has been made to reflect the lower value of these assets
either in future use or on sale as appropriate.
Ellington Colliery closure
Following the announced closure of Ellington Colliery in early 2005, charges of
£3.1 million have been made in the 2004 accounts, reflecting the write off of
assets to their recoverable amount. The cost of redundancies, which will depend
on transfers to other collieries, of up to £3.8 million will be charged in the
2005 accounts.
Cash Flow
The cash outflow in the period before the use of liquid resources, financing and
dividend was £7.5 million (2002: £39.1 million inflow). Within the cash flow
were benefits from a reduction in coal stocks amounting to £11.2 million, an
increase in creditor days reflecting equipment purchases towards the year end
generating £9.8 million, disposal proceeds of £19.8 million from the sale of our
Australian subsidiary, Gloucester Coal, and the repayment of the outstanding
balance due from Gloucester Coal of £19.0 million following its disposal. In
addition we received £15.2 million of Coal Investment Aid.
During the year, £23.5 million was paid in respect of redundancy costs mainly on
the closure of the Selby complex. £8.1 million was expended in restoring and
rehabilitating former surface mine sites, which have ceased coaling operations.
Balance Sheet
Capital Employed
Capital employed in the year was reduced reflecting the loss before tax for the
Group. Capital expenditure was £51.4 million (2003: £23.0 million), which
included new face equipment for Daw Mill and Kellingley Collieries together of
£25.4 million and capitalised development costs of £6.0 million (2003: £3.8
million). The depreciation charge in the year was £53.4 million (2003: £52.6
million).
Provisions
The Group makes provisions in respect of redundancies where there is an
obligation at the balance sheet date. Provisions are also made in respect of
employer and public liability claims, surface damages, surface and deep mine
restoration and rehabilitation costs including shaft capping where appropriate.
Obligations to pump minewater for closed collieries are also provided along with
obligations in respect of the provision of concessionary fuel.
As a requirement of the Financial Services Authority (FSA) and Coal Authority,
cash is held to match provisions in respect of employer and public liabilities
and surface damage respectively. At the year-end cash held for such purposes was
£55.3 million (2003: £56.9 million).
Cash
Net cash at the year-end was £7.3 million (2003: 29.2 million). Net cash
included leasing and hire purchase liabilities of £36.1 million (2003: £23.9
million), bank borrowings of £12.2 million (2003: £7.2 million) and cash,
including bonded cash, of £55.6 million (2003: £60.4 million).
During the year additional leasing and hire purchase contracts were taken out in
respect of second sets of face equipment for Daw Mill and Kellingley collieries.
Pensions
The Company operates defined contribution schemes in respect of all employees
who joined after privatisation in 1994.
The Company also operates pension schemes providing benefits based on final
pensionable pay for those employees who transferred under the provisions of the
Transfer of Undertakings, Protection of Employment regulations (TUPE). These
schemes commenced on privatisation following the Coal Industry Act in 1994.
The Company currently accounts for pensions under the provisions of SSAP 24.
This resulted in a total charge in the year of £16.6 million (2003: £15.4
million). At the year end the net prepayment in respect of pensions increased by
£2.0 million to £3.3 million representing the difference between the company's
cash contributions to the schemes and the charge to the profit and loss account.
Under UK Accounting Standards, FRS 17 will replace SSAP 24 for the 2005
accounting period. As required by the transitional rules of FRS 17 we have
disclosed the full effect on the profit and loss account and balance sheet had
we adopted the Standard in 2004. Inclusion of pension charges and obligations
under FRS 17 in the 2004 accounts would have resulted in an increased charge to
the profit and loss account of £1.2 million and a reduction in net assets of
£116.5 million.
The deficit has not been reduced in respect of taxation relief due to the
Group's brought forward tax losses.
Funding
At the year-end the Group had undrawn facilities of £42 million on its 3 year
£50 million revolving facility, which expires in June 2007, and £2 million
undrawn under corporate leasing facilities, which expire in June 2006.
Gloucester Coal
During the year the Group disposed of its 97% investment in Gloucester Coal
Limited (GCL), its mining activity in Australia. This sale was completed on 2nd
April 2004.
The price for the sale of UK COAL's 75,572,049 shares in GCL was A$0.69 (28.5p)
per share, resulting in net proceeds after transaction costs of A$47.8 million
(£19.8 million). The consideration was received in cash. A profit on disposal of
£2.5 million is included in the profit and loss account.
GCL incurred a trading loss in the three months prior to the sale of £1.2
million.
Investment Aid
For 2004 the Group has made claims for £20.9 million under the Government's Coal
Investment Aid scheme. Of this, £8.9 million was credited to the profit and loss
account and £12.3million was included within deferred income.
Cash receipts totalled £15.2 million, and £11.1 million was included in debtors
at the year end.
On 16th September 2004 the Group was awarded a further £14.0 million in respect
of its investment programmes for 7 collieries.
As a result of the additional allocation, at 31st December 2004, the Group has
£24.6 million of unclaimed Investment Aid allocated to it by the Dti which will
be received subject to capital and revenue expenditure disbursements in 2005 and
2006.
As a result of the closure of Ellington Colliery in February 2005, £0.6 million
of aid will not be claimed and will return to the scheme pool.
Dividend
The final dividend for the year of 1 pence per share (2003: 5 pence per share)
will be paid, subject to approval at the AGM on 26th April 2005,on the 17th June
2005 to shareholders on the register on the 20th May 2005.
Contingent liabilities
The transfer of employees to UK COAL PLC on privatisation was subject to the
Transfer of Undertakings (Protection of Employment) 1981 regulations (TUPE). To
date, early-retirement pension-related redundancy arrangements for transferred
employees who become members of the Industry Wide Coal Staff Superannuation
Scheme (IWCSSS) have been paid in accordance with arrangements in place at the
time of privatisation.
A claim has now been commenced in the High Court and will be heard at the end of
this year/beginning of 2006. This claim will determine whether, in the light of
a recent ruling in relation to TUPE by the European Court of Justice in an
unrelated case, UK COAL is required to provide early-retirement pension-related
benefits on redundancy on the basis of service with UK COAL, salary at the date
of redundancy and certain service-based enhancements.
Depending on the outcome of the court proceedings and determination of the
various legal issues, the estimated cost to UK COAL in respect of redundancies
before 31 December 2004 has been estimated to range between zero and around £30
million. This is dependent upon the exact nature of the eventual court ruling,
the circumstances and age of individual employees at the date of redundancy and
whether any cost falls to be met by third parties.
UK COAL is vigorously defending this claim. No provision has been made in the
2004 year end accounts due to the uncertainties and difficulties in quantifying
any financial exposure.
International Financial Reporting Standards (IFRS)
The financial statements have been prepared under UK Generally Accepted
Accounting Practice. From 2005, UK listed companies will have to prepare
financial statements under IFRS. The new accounting standards will in some cases
change the balances and amounts recorded in the financial statements. UK COAL
will be publishing its opening balance sheet for the 2004 year-end under IFRS in
mid July 2005 ahead of its preliminary announcement of interim results in
September 2005.
OPERATIONAL REVIEW
Market Conditions
The sharp increase in international coal prices seen in the last quarter of 2003
has been maintained throughout 2004 and into the first quarter of 2005. However
with much of our production committed to sales contracts already in place in
respect of the electricity generation market the Company will not derive the
full benefit from these market conditions in the short term.
The price outlook for international coal remains strong, which will provide the
backdrop for improving realisations in the future.
Electricity Supply Industry
Total coal sales to the power station market at 12.1 million tonnes (2003: 16.8
million tonnes) were adversely affected by lower than expected production.
In 2004,
•UK power stations consumed some 50.6 million tonnes (2003: 53.2 million
tonnes)
•Steam coal imports increased by 18% from 24.9 million tonnes to 29.5
million tonnes
•International coal prices hit record highs during the year
Even with high international prices, demand for coal for power generation has
remained close to last year's high levels. This was mainly the result of poor
performance at nuclear stations and high spot gas prices. The fuel mix for
electricity generation in 2004 compared to the previous year was:
2004 2003
Coal 34% 35%
Gas 41% 38%
Nuclear 20% 22%
Oil, hydro & renewables 5% 5%
From 1st January 2005, UK power stations are required to participate within the
EU Emissions Trading Scheme (EUETS). The EUETS is designed to limit carbon
dioxide emissions throughout the EU. Within the UK power stations are to be
responsible for achieving reductions above the level of other industries. The
effect on coal consumption will be dependent on the price of carbon allowances
together with the relative prices of coal and gas.
During the year UK COAL has added to its portfolio of contracts, in line with
the policy of maintaining tapering levels of contract cover going forward. In
total over the five years from 2005, 37.5 million tonnes is committed (before
subtracting the estimated effects of force majeure on supplies to Drax). This
reduces from 11.3 million tonnes in 2005 to 4.0 million tonnes in 2009. On 10th
February 2005 we invoked force majeure provisions within the agreements to
supply coal to Drax Power Limited. We have assessed that the events, relating to
adverse geology at nearby collieries, have caused a shortfall of 750,000 tonnes
in the contract year to March 2005 and will lead to projected shortfalls of
500,000 tonnes for each future contract year. We will be taking reasonable steps
to minimise the effect of these circumstances on future delivery obligations and
we will keep Drax informed of any developments and periodically revise our
delivery estimates.
Industrial and Domestic
Sales volumes into both the industrial and domestic markets have benefited from
the rise in price of competing fuels, and at 2.2 million tonnes showed a slight
increase on the previous year.
The domestic market continues to decline by more than 10% per annum. Despite
this, UK COAL maintained the same level of sales in 2004 compared to the
previous year at the expense of imported coals. Following increases in gas
prices to domestic users and the rise in international coal, UK COAL has been
able to raise prices by around 25% during the year, the full benefit of which
will be achieved in 2005.
In the industrial market, a number of contracts have been renewed taking into
account the increased prices of competing international supplies. This process
will continue into 2005 as further existing contracts come to an end.
Production
DEEP MINES 2004 (million tonnes) 2003 (million tonnes)
Ongoing mines
Daw Mill 3.0 2.2
Harworth 0.9 1.2
Kellingley 0.9 1.6
Maltby 1.4 1.4
Rossington 0.6 0.9
Thoresby 1.1 1.5
Welbeck 0.9 1.6
Sub Total 8.8 10.4
Closed or closing Mines
Clipstone 0.0 0.2
Riccall 1.2 0.9
Stillingfleet 1.4 1.6
Wistow 0.1 1.1
Ellington 0.5 0.6
Sub total: 3.2 4.4
Deep Mines Total 12.0 14.8
Surface Mines Total 2.0 3.1
Total UK Production 14.0 17.9
Deep Mines
Output in the deep mines was 12.0 million tonnes including 2.7 million tonnes
from the Selby Complex. Output was reduced in the continuing mines as a result
of geological conditions at Rossington and Welbeck and poor operational
performance at Thoresby, Harworth and Kellingley. Deep mine unit costs were
£1.34 per gigajoule (2003: £1.18 per gigajoule).
Daw Mill performed well producing 3.0 million tonnes, achieving 100,000 tonnes
in one week in the last quarter.
Capital expenditure in 2004 amounted to £51.4 million. Second sets of face
equipment were purchased for Daw Mill and Kellingley collieries to significantly
reduce gaps in production in future mining plans. All of our continuing
collieries are equipped to be capable of working to high levels of
effectiveness.
On the 12th January 2005, Ellington Colliery encountered an ingress of water on
its working face. This resulted in the loss of the current coalface and
equipment. With a risk of further severe flooding in the mine, the decision was
taken to close the colliery on the 21st February 2005 for safety reasons.
Ellington Colliery supplied all of its output to the nearby Alcan plant. The
contract is currently being supplied from stocks held at the site, supplemented
by local surface mines. Ellington stocks are expected to be exhausted by the
summer of 2005 but production from local surface mines will continue to be
available.
Following the review of operations at Harworth Colliery, new working
arrangements have been accepted by the workforce. We are carrying out a review
at Kellingley Colliery and have recently completed our review at Welbeck
Colliery. The review process involves the workforce looking for new ways of
working and improving performance.
Surface Mines
Surface mining activities declined in the year with the lack of planning
consents to mine new sites constraining output. Output was 2.0 million tonnes
reflecting the completion of coaling operations at longer standing sites (2003:
3.1 million tonnes)
Unit costs were £1.10 per gigajoule (2003: £1.11 per gigajoule).
The number of sites in restoration and rehabilitation increased during the year
to 38, £8.1 million being expended on this activity. Coaling operations ceased
at 5 sites; St Johns II and Moorhouse, both in Wakefield, Ferry Moor near
Barnsley, Forge and Monument in Derbyshire and Hicks Lodge in Leicestershire.
One small new site was brought into production.
Three sites with reserves of 2.7 million tonnes had planning approval
submissions rejected by the respective Mineral Planning Authorities during the
year. These decisions impacted adversely on costs for restoration works at
existing sites and on the under-utilisation of plant. Appeals are being lodged
against all three decisions and it is likely that these will now go to Public
Inquiry in late 2005 and early 2006.
We are continuing to work hard to secure the future of this business and are
actively looking at additional sites in Wales and Scotland to utilise our
significant surface mining plant and equipment and expertise. We are working
hard to secure planning permissions in England and applications to access a
further 3 million tonnes of reserves will be lodged in 2005. At the year-end,
surface mining activities had reserves with planning consent amounting to 3.2
million tonnes (2003: 5.2 million tonnes).
Property
The property activities of UK COAL have developed steadily. We are following the
strategy of securing planning for the development of former surface mines and
collieries, converting and cleaning brownfield sites and managing the income
from agricultural rents.
We submitted planning applications in the year amounting to 80 acres and
planning permission for 40 acres to be used for industrial purposes was granted.
Applications for 140 acres are being progressed.
Business parks have continued to grow by further developments at Asfordby with
the proposed construction of new units, the intended re-use of the Selby site
for industrial and commercial purposes and the establishment of a container
depot at Cannock.
Agricultural land continues to be managed on a tenancy basis to selected
occupiers. Whilst incomes have remained static over the period, a strategy has
been introduced to capture development opportunities throughout the agricultural
portfolio. After taking into account capital appreciation from reductions in
clawback liability on holding land transferred over in 1994, agricultural rents
and lettings provide an overall return of around 7%.
Rental income for properties in the year was £3.9 million (2003 £3.8 million).
Income from property sales was £4.3 million (2003 £9.7 million).
We disposed of a number of properties in the year, predominately on our Tetron
Point site.
The property valuation was reviewed at the end of the year. The gross value,
which is stated before deduction of restoration and rehabilitation costs,
increased by £28 million to £202 million representing a 16% improvement compared
to 2002. The increase was a result of additional planning consents achieved
since the last valuation in December 2002 and a rise in property and land
values.
Other Businesses
Monckton Coke and Chemical Ltd
Monckton Coke and Chemical Company benefited from increases in the price of its
coking products. Profits were however held back due to a shortage of suitable
input coal in the early part of the year. Sales increased to £19.8 million and
the company made an operating profit of £0.3 million. With world coke prices
remaining high, the outlook for the business is improving.
Lionheart Heating Services
Lionheart heating services was sold in July 2004 for a consideration of £0.2
million. The company made a loss in the period prior to disposal of £0.2
million. This business supplied and installed heating systems and was non core
to the group. We were pleased to find a buyer who is able to develop this
business.
Harworth Power
Harworth Power develops operations which use renewable and sustainable energy
resources so reducing emissions to the atmosphere.
Electricity generated by Harworth Power from methane and other sources had an
internal sales value of £4.0 million (2003: £4.0 million).
2004 has been another successful year in reducing greenhouse gas emissions. We
have improved performance of our power generation equipment and installed
additional flare systems, which both reduces the amount of waste methane
released into the atmosphere and utilises waste methane from mining to produce
electricity for our own and general consumption. These actions have reduced the
volume of emissions of CO2 to the atmosphere by the equivalent of 430,000 tonnes
of CO2.
By meeting our emission reduction targets we qualified for payments in 2004 of
£3.0 million (2003: £3.2 million) under the UK Emissions Trading Scheme (UKETS)
The increase of renewable generating capacity will play an important part in the
reduction of greenhouse gas emissions.
We have several former mining sites which may be suitable for wind power
generation and we are currently investigating a number of projects with the
intention of bringing them forward for planning consent.
Health and Safety
The health and safety of our employees continues to be of prime importance with
regular health screenings and safety training given to all employees in mining
operations.
Improvements in safety continued at all our operations. The deep mine operations
had 44 accidents classified as major in 2004 compared to 48 in 2003. The
non-major injury rate per 100,000 manshifts similarly reduced to 26.0 compared
to 31.4 in 2003. The overall injury rate reduced to 29.5 per 100,000 manshifts,
a significant improvement on the prior year rate of 34.7. Surface mines reduced
major accidents to 2 (2003: 6).
Directors
In March 2004, Christopher Mawe was appointed to the Board as Finance Director.
In August Graham Menzies was appointed as a non-executive Director and in
October Gerry Spindler was appointed as Chief Executive.
In October, Melvin Garness retired from the board after 20 years service with UK
COAL.
Environmental Legislation
As reported last year the market for our deep mined coal was under threat
through the Large Combustion Plant Directive. If implemented as then proposed,
it would have encouraged even those power stations fitted with highly efficient
flue gas desulphurisation equipment to burn low sulphur coal at the expense of
UK deep mined coal. During the year we have had our concerns recognised, and the
currently proposed implementation of the Large Combustion Plant Directive is not
expected to preclude us from our traditional markets.
Consolidated Profit and Loss Account
For the year ended 31 December
2004 2003
Notes £000 £000
Turnover: 2
Continuing operations 433,818 533,767
Discontinued operations 9,092 30,087
===========================================================================================
442,910 563,854
Cost of sales before exceptional items (461,533) (558,982)
Exceptional cost of sales 3 (29,797) 2,803
===========================================================================================
Cost of sales (491,330) (556,179)
===========================================================================================
Gross (loss)/profit (48,420) 7,675
Coal Investment Aid 3 8,902 3,522
Other operating income & expenses (11,707) (11,359)
-------------------------------------------------------------------------------------------
Operating loss on continuing operations
before exceptional items (28,704) (1,819)
Exceptional items (20,895) 6,325
-------------------------------------------------------------------------------------------
Operating (loss)/profit -continuing operations (49,599) 4,506
Operating loss - discontinued operations (1,626) (4,668)
-------------------------------------------------------------------------------------------
Operating loss (51,225) (162)
Profit on sale of land and buildings 2,760 5,830
Profit on sale of businesses 1,983 -
===========================================================================================
(Loss)/profit on ordinary activities before
interest and taxation (46,482) 5,668
Interest receivable and similar income 4,605 3,141
Interest payable and similar charges (3,868) (3,486)
Unwinding of discount on provisions 7 (5,885) (6,570)
===========================================================================================
Net interest payable and similar charges (5,148) (6,915)
===========================================================================================
Loss on ordinary activities before
taxation (51,630) (1,247)
Taxation - 5,109
===========================================================================================
(Loss)/profit on ordinary activities after
taxation (51,630) 3,862
Equity minority interest 51 138
===========================================================================================
(Loss)/profit for the financial year (51,579) 4,000
Dividend (8,786) (14,591)
===========================================================================================
Loss sustained for the year (60,365) (10,591)
===========================================================================================
(Loss)/earnings per ordinary share (35.3)p 2.7p
Diluted (loss)/earnings per ordinary share (35.0)p 2.7p
There is no material difference between the loss on ordinary activities before
taxation and the loss sustained for the year stated above and their historic
costs equivalents.
Consolidated Statement of Total Recognised Gains and
Losses
For the year ended 31 December
2004 2003
£000 £000
(Loss)/profit for the financial year (51,579) 4,000
Exchange (losses)/gains on translation of overseas (854) 4,721
subsidiaries
Surplus arising on revaluation of tangible property assets - 220
================================================================================
Total recognised gains and losses for the financial year (52,433) 8,941
================================================================================
Balance Sheet
As at 31 December
Group Group
2004 2003
Notes £000 £000
ASSETS
Fixed assets:
Tangible fixed operating assets 357,904 393,148
Investment properties 6,720 6,720
Investments - other - 27
================================================================================
364,624 399,895
Current assets:
Stocks 47,641 59,496
Debtors: amounts falling due after one year 4,131 637
Debtors: amounts falling due within one year 65,708 81,772
Cash at bank and in hand 55,617 60,350
================================================================================
173,097 202,255
================================================================================
Total assets 537,721 602,150
================================================================================
LIABILITIES
Capital and reserves
Called up share capital 1,462 1,460
Share premium account 122 2
Revaluation reserve 5,034 5,034
Capital redemption reserve 257 257
Profit and loss account 163,759 215,489
================================================================================
Shareholders' funds, attributable to equity
interests 5 170,634 222,242
Equity minority interest - 262
================================================================================
Capital employed 170,634 222,504
Provisions for liabilities and charges 7 210,484 226,987
Creditors: amounts falling due after more than
one year 25,152 15,302
Creditors: amounts falling due within one
year 131,451 137,357
================================================================================
367,087 379,646
================================================================================
Total funds employed 537,721 602,150
================================================================================
Consolidated Cash Flow Statement
For the year ended 31 December
2004 2003
Notes £000 £000
Operating activities
Net cash inflow from operating activities 17,333 46,026
================================================================================
Returns on investments and servicing of finance
Interest paid on bank borrowings (1,731) (1,171)
Interest paid on hire purchase and finance leases (1,763) (1,933)
Financing costs (512) (203)
Interest received 4,591 2,577
Inland Revenue interest received 14 564
================================================================================
Net cash inflow/(outflow) from returns on investments 599 (166)
and servicing of finance
Taxation - 3,967
Capital expenditure and financial investment:
Development expenditure (5,995) (3,778)
Purchase of fixed assets (45,375) (15,300)
Receipts from sale of fixed assets 6,382 10,410
===============================================================================
(44,988) (8,668)
Disposal of businesses 6 19,988 -
Cash disposed with sale of subsidiary (417) -
Purchase of trade and assets - (2,076)
================================================================================
Cash (outflow)/inflow before use of liquid resources, (7,485) 39,083
financing and dividends
Equity dividends paid (14,573) (14,521)
================================================================================
Cash (outflow)/inflow before use of liquid resources (22,058) 24,562
and financing
Management of liquid resources:
Cash deposited in subsidence security fund (1,521) (792)
Cash expended to cover insurance requirements 3,143 4,471
Other cash security deposits 2,053 (2,053)
===============================================================================
3,675 1,626
Net cash (outflow)/inflow before financing (18,383) 26,188
Financing:
Issue of ordinary share capital 122 128
Drawdown/(repayment) of bank borrowings 5,067 (21,343)
Hire purchase and finance lease capital repaid (9,986) (8,690)
Increase in finance lease debt 22,185 4,737
===============================================================================
Net cash inflow/(outflow) from financing 17,388 (25,168)
===============================================================================
(Decrease)/increase in cash (995) 1,020
===============================================================================
Reconciliation of Operating (Loss)/Profit to Net Cash Inflow from
Operating Activities
For the year ended 31 December
2004 2003
£000 £000
Continuing Activities
Operating (loss)/profit (49,599) 4,506
Depreciation of tangible fixed assets 48.924 52,048
Impairment of tangible fixed assets 6,579 -
Net charge for surface mine development and 274 5,832
restoration assets
(Profit)/ loss on disposal of plant and machinery (557) 138
Shares purchased to fulfil long term incentive (43) -
plan liabilities
Decrease in stocks 10,693 20,038
Decrease in debtors 23,153 201
Decrease in creditors (22,142) (35,976)
DTI contributions to redundancy payments 5,200 4,800
================================================================================
Net cash inflow from continuing operating activities 22,482 51,587
================================================================================
Discontinued Activities
Operating loss (1,626) (4,668)
Depreciation on tangible fixed assets 161 568
Net (credit)/charge for surface mine development (1,923) 1,213
and restoration assets
Decrease/(increase) in stocks 135 (327)
Increase in debtors (1,951) (3,052)
Increase in creditors 55 705
================================================================================
Net cash outflow from discontinued operating activities (5,149) (5,561)
================================================================================
Exceptional operating cash flows
Included within net cash inflow from continuing operating
activities are amounts of £23.5 million
paid in respect of redundancy payments , £15.2 million received under the
Government's Investment Aid scheme and £5.0 million in respect of Selby post
coaling costs.
Reconciliation of Net Cash Flow to Movement in Net
Funds
At 1 At 31
January Exchange Other non December
2004 Cash flow adjustment cash changes 2004
£000 £000 £000 £000 £000
Net cash at bank 1,384 (995) (63) - 326
Liquid resources 58,966 (3,675) - - 55,291
Bank borrowings (7,224) (5,067) - 66 (12,225)
Hire purchase and finance (23,907) (12,199) - - (36,106)
leases
==============================================================================================
29,219 (21,936) (63) 66 7,286
==============================================================================================
Major non-cash transactions
During the year the Group entered into finance lease arrangements in respect of
assets with a total capital value at the inception of the lease of
£22,185,000 (2003 : £2,387,000).
Notes to the Accounts
1 Accounting policies
The financial statements are prepared in accordance with applicable accounting
standards.
2 Segmental and geographical analysis
2004 Deep Mining Surface Mining Property Other Australia Total
businesses
£'000 £'000 £'000 £'000 £'000 £'000
------------------------------------------------------------------------------------------------------------
Turnover
Continuing operations 364,848 45,028 3,912 20,030 - 433,818
Discontinued operations 2,874 6,218 9,092
------------------------------------------------------------------------------------------------------------
Total 364,848 45,028 3,912 22,904 6,218 442,910
============================================================================================================
Operating result before exceptional items
Continuing operations (37,820) 4,065 1,512 3,539 - (28,704)
Discontinued operations (412) (1,214) (1,626)
------------------------------------------------------------------------------------------------------------
Total (37,820) 4,065 1,512 3,127 (1,214) (30,330)
============================================================================================================
Exceptional items (5,767) (15,128) - - - (20,895)
Operating (loss)/profit (43,587) (11,063) 1,512 3,127 (1,214) (51,225)
Profit/(loss) on sale of - - 2,760 (506) 2,489 4,743
fixed assets and subsidiaries
------------------------------------------------------------------------------------------------------------
(Loss)/profit before (43,587) (11,063) 4,272 2,621 1,275 (46,482)
interest and taxation ==================================================================
Net interest payable (5,148)
------------------------------------------------------------------------------------------------------------
Loss before taxation (51,630)
------------------------------------------------------------------------------------------------------------
Net assets/(liabilities) 115,969 (27,005) 91,949 (15,880) - 165,033
==================================================================
Unallocated net assets/(liabilities):
Dividend payable (1,684)
Net debt and finance leases 7,285
------------------------------------------------------------------------------------------------------------
Net assets 170,634
===========================================================================================================
2003 Deep Mining Surface Mining Property Other Australia Total
businesses
£'000 £'000 £'000 £'000 £'000 £'000
------------------------------------------------------------------------------------------------------------
Turnover
Continuing operations 447,351 66,236 3,813 16,367 - 533,767
Discontinued operations 4,454 25,633 30,087
------------------------------------------------------------------------------------------------------------
Total 447,351 66,236 3,813 20,821 25,633 563,854
============================================================================================================
Operating result before exceptional items
Continuing operations (8,552) 668 1,061 5,004 - (1,819)
Discontinued operations (676) (3,992) (4,668)
------------------------------------------------------------------------------------------------------------
Total (8,552) 668 1,061 4,328 (3,992) (6,487)
============================================================================================================
Exceptional items 6,325 - - - - 6,325
Operating (loss)/profit (2,227) 668 1,061 4,328 (3,992) (162)
Profit on sale of fixed - - 5,830 - - 5,830
assets and subsidiaries
------------------------------------------------------------------------------------------------------------
Profit/(loss) before (2,227) 668 6,891 4,328 (3,992) 5,668
interest and taxation ==================================================================
Net interest payable (6,915)
--------------------------------------------------------------------------------------------------
Loss before taxation (1,247)
============================================================================================================
Net assets/(liabilities) 129,119 (13,729) 88,023 (12,217) 10,312 201,507
==================================================================
Unallocated net assets/(liabilities):
Dividend payable (7,471)
Net debt and finance leases 28,468
------------------------------------------------------------------------------------------------------------
Net assets 222,504
============================================================================================================
The format of the segmental analysis has been changed from last year's to give a
clearer presentation.
Other businesses includes surface mine contract mining, manufactured fuel and
combined heat and power and emissions trading which last yearwere shown
separately but have been included together on the grounds of materiality.
All turnover and profits/(losses) before taxation, with the exception of
Australia, arose in the United Kingdom
2004 2003
£000 £000
Geographical analysis of turnover by destination:
United Kingdom 426,741 530,287
Europe 9,951 9,525
Asia - Pacific 6,218 24,042
--------------------------------------------------------------------------------
Total 442,910 563,854
================================================================================
2004 2003
3 Exceptional items £000 £000
Redundancy a (6,277) (2,672)
Selby post coaling b (6,223) -
Stores equipment and asset write-back c - 689
Impairment of assets on closure of Ellington d (3,109) -
Colliery
Surface mine equipment e (4,323) -
Pension obligation in respect of employees of f (1,299) -
company disposed of in prior years
Stobswood restoration g (10,805) -
Amounts recovered against TXU debtor h 2,239 6,467
Provision against other amounts recoverable. i - (1,681)
--------------------------------------------------------------------------------
Exceptional cost of sales (29,797) 2,803
Coal Investment Aid j 8,902 3,522
================================================================================
(20,895) 6,325
--------------------------------------------------------------------------------
a Costs for redundancies announced during the year at deep mines collieries,
other than Selby Complex, surface mining operations and head office
reorganisation, including senior management (2003: costs predominantly
associated with the closure of the Selby mines and surface works and head office
reorganisation)
b Costs incurred between cessation of coaling and commencement of restoration
work at Selby not provided at December 2002 when the impairment in value
was recognised.
c Release of a claim accrual and accruals for equipment and stores provided for
in 2002.
d Following the announced closure of Ellington Colliery, the carrying value and
estimated useful economic lives of the mine and surface works has been
reviewed giving rise to an impairment in value of £2,256,000 and a write-down
in the value of stores stocks of £853,000.
e Write down in value of redundant surface mine equipment.
f Pension obligations in respect of Blenkinsopp Collieries Ltd which went into
liquidation after UK COAL disposed of its interest in a previous year.
g Following a review of the fair values of net liabilities assumed on the
acquisition of the trade and assets of a surface mining contractor in 2003,
additional restoration provisions have been made in respect of the Stobswood
site giving rise to goodwill of £10,805,000. This goodwill has been impaired
to its recoverable amount of £nil.
h Additional monies credited to the profit and loss account as UK COAL's
entitlements, under the agreement selling it's claim against TXU, become clearer
as resolution of the agreement progresses.
i Provision against fuel debtor and amounts settled in relation to long-term
contracts.
j Coal Investment Aid receivable under the Government Aid Scheme.
4 Revision to provisional fair values on 2003 acquisition
On 18 December 2003, the Group acquired the trade and certain of the assets of a
surface mining contractor employed on three of the Group's surface mining sites
with the objective of undertaking, up to completion of restoration , the surface
mining operations on those sites. The provision for restoration costs at
acquisition amounted to £3.8 million.
During 2004 the Group has performed a comprehensive review of the cost of site
restoration and concluded that additional provisions of £10,805,000 are
required. These additional provisions arise primarily because more information
has become available in 2004 which has made it apparent that the initial
computations were based on revisions to planning permission and an extension to
the site which so far have not been forthcoming. An adjustment has therefore
made to the provisional fair value as set out below:
Provisional Final fair
fair value to value to
the Group Adjustments the Group
£'000 £'000 £'000
Plant and equipment 1,500 - 1,500
Additional restoration and (4,055) (10,805) (14,860)
redundancy provisions
------------------------------------------------------------------------------------------------------------------------
Net liabilities assumed (2,555) (10,805) (13,360)
Goodwill 10,805
------------------------------------------------------------------------------------------------------------------------
Consideration (2,555)
------------------------------------------------------------------------------------------------------------------------
Consideration satisfied
by:-
Release of creditors and (4,555)
retentions
Cash 2,000
------------------------------------------------------------------------------------------------------------------------
(2,555)
------------------------------------------------------------------------------------------------------------------------
The additional goodwill created has been impaired to nil value because there is
no ongoing value in the site acquired.
5 Reconciliation of movements in shareholders funds
Group
2004 2003
£000 £000
Profit/(loss) for the financial year. (51,579) 4,000
Dividends (note 12) (8,786) (14,591)
Exchange differences (854) 4,721
Surplus on revaluation - 220
Goodwill charged to profit and loss account 9,164 -
on disposal of businesses
Accrual for long term incentive plan liabilities 368 -
Shares purchased to fulfil long term incentive (43) -
plan liabilities
Shares issued during the year 122 129
--------------------------------------------------------------------------------
Movement in shareholders' funds (51,608) (5,521)
Opening shareholders' funds 222,242 227,763
================================================================================
Closing shareholders' funds 170,634 222,242
-------------------------------------------------------------------------------
6 Disposal of businesses Profit/(loss)
On sale
£'000
Gloucester Coal Limited 2,489
Lionheart's heating services business (506)
----------------
1,983
On 2 April 2004, the Group disposed of its Australian
subsidiary, Gloucester Coal Limited
For a cash consideration, net of transaction costs, £'000
of £19,800,000. Net assets disposed of were as follows:
Tangible fixed assets 29,676
Stocks 1,007
Debtors 5,019
Creditors (6,919)
Intra-group loans at date of sale (18,991)
Cash 417
Provisions (1,155)
----------------
9,054
Less: Equity minority interests (213)
----------------
8,841
Goodwill previously written off to reserves 8,470
----------------
17,311
Profit on disposal 2,489
----------------
Cash consideration, net of transaction costs 19,800
The Group disposed of Lionheart's heating services £'000
business during the second half year.
Net assets disposed of were as follows:
Goodwill previously written off to reserves 694
----------------
Loss on disposal (506)
----------------
Cash consideration 188
7 Provisions for liabilities and charges
As at Created Released Subsidiary Utilised Unwinding At
01-Jan in year in year sold in year of discount 31-Dec
2004 2004
£000 £000 £000 £000 £000 £000 £000
Group
Employer and public 24,429 5,787 (1,524) - (8,822) 910 20,780
liabilities
Surface damage 21,855 7,209 (3,317) - (3,751) 656 22,652
Concessionary fuel 25,080 21 (527) - (621) 882 24,835
Claims - 1,026 - - - - 1,026
Restoration & closure 74,073 12,459 (2,276) (1,155) (8,093) 2,199 77,207
costs - surface mines
Restoration & closure -
costs - deep mines
shaft treatment and pit 23,011 2,938 (2,351) - (964) 690 23,324
top
spoil heaps 5,283 - - - (52) 158 5,389
pumping costs 9,248 - (1,185) - - 67 8,130
Ground/groundwater 10,769 - (23) - (26) 323 11,043
contamination
Redundancy 33,239 11,592 (5,195) - (23,538) - 16,098
========================================================================================================================
226,987 41,032 (16,398) (1,155) (45,867) 5,885 210,484
------------------------------------------------------------------------------------------------------------------------
The total of provisions created net of provisions released was £24.6 million
(2003: £14.3 million). This included £4.5 million (2003: £2.7 million) in
respect of exceptional items and £21.4 million (2003: release of £11.6 million)
in respect of non-exceptional items.
A brief description of the nature of the Group's obligations and an indication
of the uncertainties surrounding each of the above provisions is provided below:
Employer and public liabilities - provisions are made for current and estimated
obligations in respect of claims made by employees and the general public
relating to accident or disease as a result of the business activities of the
Group.
Surface damage - provision is made for the Group's liability to compensate for
subsidence damage arising from past mining operations. Claims can be lodged by
the public up to six years after the date of relevant damage. The estimate is
based on historical claims experience following a detailed assessment of the
nature of damage foreseen.
Concessionary fuel - provision is made for retirement benefits payable to
employees in the form of heating coal. The costs of the concessionary fuel
benefits are determined by a qualified actuary on the basis of triennial
valuations.
Claims - where surface mine sites owned by the Group are mined by external
contractors and mining conditions vary from those specified in the contract, the
external contractors may be entitled to claim further costs incurred. Claims are
settled with individual contractors, generally at the completion of a surface
mining site. All claims provisions are based on known mining conditions
encountered, historical experience and contracted rates.
Restoration and closure costs: surface mines - provisions are made for the total
costs of reinstatement of soil excavation and for surface restoration such as
topsoil replacement and landscaping. Costs become payable after coal mining has
completed. Further liabilities for after-care can extend after restoration, for
a period of up to six years.
Restoration and closure costs - deep mines:
Shaft treatment and pit top - provisions are made to meet the Group's liability
to fill and cap all mine shafts and return pit top areas to a condition
consistent with the required planning permission. No liabilities will arise
until decommissioning of each individual colliery. The current pit top provision
reflects existing planning permissions that require pit areas to be restored to
former use, usually agricultural. The Group will, where possible, seek planning
permission for development use, which, if successful, may reduce the expected
cost.
Spoil heaps - provisions are made for the costs payable to bring spoil heaps to
a condition consistent with required planning permission and to complete
approved restoration schemes. An element of spoil heap restoration is ongoing,
although the majority of costs will be incurred on decommissioning of a
colliery.
Pumping costs - there is a legal requirement to continue pumping activities at
certain mine sites following closure and for a period into the future. The
provision is based on current experience and present value projections of
future costs. Pumping costs on continuing operations are expensed as incurred.
Ground/groundwater contamination - provisions are made for the Group's legal or
constructive obligation to address ground and groundwater pollutants at its
operating sites. The provision is based on estimates of volumes of contaminated
soil and the historical contract costs of ground contamination treatment. These
costs will usually be incurred on the decommissioning of a site.
Redundancy - provision is made for current estimated future costs of redundancy
and ex-gratia payments to be made where this has been communicated to those
employees concerned.
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