TIDMUKC
RNS Number : 7328J
UK Coal PLC
10 August 2012
UK COAL PLC ("UK COAL")
Unaudited Financial Results for the Half Year Ended 30 June
2012
Key Points
-- Agreement reached in principle on the restructuring with key stakeholders
-- Total Group revenue fell 23% to GBP198.3m (H1 2011:
GBP256.1m) as a result of significantly lower sales volumes
-- Poor performance at Daw Mill and Thoresby reduced total
production to 3.3m tonnes (H1 2011: 4.1m tonnes)
-- Positive progress made with the safety programme
-- Average sales price per Gigajoule GBP2.43 (H1 2011: GBP2.36/GJ)
-- Operating loss before non-trading exceptional items* of
GBP6.0m (H1 2011: Profit of GBP35.2m). Reduced sales volumes offset
by slightly higher averaged realised sales prices
-- Loss after tax and exceptional items* of GBP20.6m (H1 2011: profit of GBP22.2m)
-- Property sales of GBP16.7m in the period (H1 2011: GBP53.8m)
-- Group net bank debt of GBP66.1m at period end (December 2011: GBP54.7m)
-- Total net debt, including generator loan/prepayments reduced
GBP0.5m to GBP138.3m (December 2011: GBP138.8m)
* H1 2012: GBP5.7m exceptional costs relating to the refinancing
and the restructuring of the business
H1 2011: a net non-trading exceptional credit in the period of
GBP0.1m arising from a charge related to the refinancing more than
offset by a pension scheme curtailment gain
Commenting on the results, Jonson Cox, Chairman, said:
"Our first half year results for 2012 show a disappointing
performance, caused by the poor Daw Mill performance in Q1 and the
weakening coal price seen in Q2. These factors were mitigated by an
improved consistency of production in Q2. We have continued to
progress with the recovery of Daw Mill's 32s face, and are in the
process of re-commissioning the face.
"The production problems and the risks of operating Daw Mill in
its current structure, when combined with the pension deficit and
the level of bank and generator debt, led the Board to conclude
that a restructuring of the business was necessary to secure a
stable platform for UK Coal and its stakeholders. We are pleased to
report today that we have reached an agreement in principle with
key economic stakeholders on the restructuring."
Further Information
Analysts Presentation
A presentation to analysts is being held at Cardew Group, 12
Suffolk Street, London, SW1Y 4HG at 9.00am.
Press Call
A conference call for press is being held at 12.00pm:
Dial in Number: 020 3140 0694
Pin: 477621#
Enquiries
Analysts and Investors:
Jonson Cox,
Chairman, UK Coal PLC Tel: 01302 755002
David Brocksom,
Group Finance Director, UK Coal PLC Tel: 01302 755002
Media:
Anthony Cardew / Emma Crawshaw Tel: 020 7930 0777
Cardew Group
Andrew Mackintosh Tel: 020 7930 0777
Director of Communications, UK Coal
For more information, please go to: www.ukcoal.com
Notes to Editors
UK COAL is a mining, property and power company employing c2,500
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.
Harworth Estates, the property division of UK Coal, is one of
the largest landowners in the UK. With access to over 30,000 acres
of land, Harworth Estates create and develop new opportunities
across all sectors of the UK property market.
Harworth Estates is committed to environmental best practice,
creating new sustainable communities, thousands of new homes and
new business space across Yorkshire, the Midlands and the
North.
For more information, please go to: www.ukcoal.com
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 UK Coal's plans and
objectives, to differ materially from those expressed or implied in
the forward-looking statements.
UK Coal 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
INTRODUCTION
Performance in 2012 has brought major challenges to UK Coal.
Nonetheless, positive progress was made with our safety programme
and improvements have continued with our Lost Time Accidents Rates
dropping by 40% in the first half of 2012 compared to 2011.
However, continued improvement requires daily vigilance if UK Coal
is to reach the position to which we aspire.
First half year production was 3.3 million tonnes (H1 2011: 4.1
million tonnes, FY 2011: 7.5 million tonnes). Our three deep mines
produced 2.4 million tonnes (H1 2011: 3.1 million tonnes, FY 2011:
5.7 million tonnes). Kellingley achieved a higher level of output
than in the first half of 2011, but both Thoresby and Daw Mill saw
a drop in production - Thoresby due to a split seam in the final
stages of mining DS2s which reduced coal yield and Daw Mill due to
the slow ramp up and performance of 303s.
Surface mining had a good first half from the four producing
sites when compared to the six sites in operation in the same
period last year. First half production was 0.9 million tonnes (H1
2011: 1.0 million tonnes, FY 2011: 1.8 million tonnes) and
production has begun at two further sites, with an additional site
expected to begin production in the last quarter of 2012.
International coal prices have seen a significant fall from the
highs of 2011 when they averaged GBP3.01/GJ for the year compared
with GBP2.40/GJ for the first 6 months of 2012, having dropped as
low as GBP2.13/GJ in May. This follows the rise in shale gas
production in North America, and the consequential falls in US gas
and coal prices, which has resulted in US-supplied coal further
depressing the market in NW Europe, that was already affected by
economic worries. On a positive note, forward coal prices show some
signs of strengthening over the remainder of 2012 and through
2013.
We have continued to make further steady progress in realising
value from our property portfolio, with sales of GBP16.7m in the
period.
The production problems and the risks of operating Daw Mill in
its current structure, when combined with the pension deficit and
the level of bank and generator debt, led the Board to conclude
that a restructuring of the business was necessary to secure a
stable platform for UK Coal and its stakeholders. We are pleased to
report today that we have reached an agreement in principle with
key economic stakeholders on the restructuring.
RESULTS
Group revenues fell 23% in the first half of 2012 to GBP198.3m
(H1 2011: GBP256.1m, FY 2011: GBP488.2m) following significantly
lower sales volumes at slightly higher average realised sales
prices (H1 2012 GBP2.43/GJ: H1 2011 GBP2.36/GJ, FY 2011:
GBP2.48/GJ). This led to an operating loss of GBP6.0m before
non-trading exceptional items in the first half of 2012, some
GBP41.2m worse than the operating profit before non-trading
exceptional items of GBP35.2m booked in H1 2011.
Exceptional costs totalling GBP5.7m have been incurred in the
period (H1 2011: GBP0.1m credit, FY 2011: GBP16.1m credit). These
costs relate to refinancing and restructuring activities carried
out in the first half of 2012. Professional fees of GBP3.5m have
been classified as non-trading exceptional items and refinancing
costs of GBP2.2m have been classified as exceptional finance
costs.
We have continued our drive to realise value from our brownfield
property portfolio and achieved disposals in the period with net
book value of GBP16.3m. These sales generated a profit on disposal
of GBP0.4m (H1 2011: GBP2.1m, FY 2011: GBP2.7m). The net proceeds
of disposals received in the first half of 2012 of GBP11.4m (H1
2011: GBP36.0m, FY 2011: GBP64.3m), including GBP3.5m received in
relation to property exchanges in 2011, have been used to reduce
Group debt.
In addition to the property disposals achieved in the half, we
have secured in June 2012 the conditional sale of our Harworth
Power business for GBP20.3m. This sale is conditional upon
shareholder approval following the issue of a circular to
shareholders.
The Group made a loss before tax of GBP20.6m in the period (H1
2011: GBP22.1m profit, FY 2011: GBP58.0m profit), reflecting
operating loss before exceptional items of GBP6.0m, net interest
costs of GBP8.9m and exceptional costs relating to the refinancing
and the restructuring of GBP5.7m.
The net debt owed to Generators and Banks fell by GBP0.5m to
GBP138.3m from GBP138.8m at December 2011.
RESTRUCTURING
During the course of the year, the Board has concluded that UK
Coal's operating structure and balance sheet are not appropriate
for the level of operating risk in the business. In particular, the
Company continues to owe its customers and its banks GBP138.3m and
has a funding deficit to the Pension Funds of approximately
GBP430m. The debt and the pension fund deficit combined rule out
the possibility of Shareholders receiving any return from their
equity in the Company until these issues are addressed.
We have made significant progress towards a restructuring of the
business. It is a highly complex process that involves the goodwill
and understanding of a range of stakeholders including the Pension
Funds, the Pensions Regulator, our principal banking partner Lloyds
Banking Group, Barclays, our customers, the Department for Energy
and Climate Change and the Coal Authority.
A non-binding heads of terms agreement has been reached with the
Pension Trustees, and an agreement in principle with the
Generators, which would result in a combined c.GBP90m of support to
UK Coal over the period to the end of 2015 once the proposed
restructuring is implemented. Under the proposed plan the mining
business would be left free of bank debt and would have an
affordable pension deficit reduction scheme. Each mine will be
restructured into separate legal entities to reduce the risk of any
one mine's failure from bringing down all mines. This is expected
to create a more stable platform to release the value in the mining
business. As part of this arrangement, from 2014 the Pension Funds
will receive GBP30m per annum plus any cash in the mining business
above a minimum headroom requirement of GBP50m, after agreeing to
defer any deficit contributions in 2012 and 2013.
As part of the proposed plan to address the deficit, it is
intended that the Pension Trustees will also invest GBP30m in the
property business to enable the release of the latent undeveloped
value in the property portfolio. In exchange, the Pension Trustees
will receive a direct stake of 75.1% in that business, with
existing shareholders being entitled to the benefit of the
remaining 24.9%. This stake would be held through a new holding
company which would not guarantee the pension liability. In return
for the stake, the first GBP5m of shareholders' dividend income
would be paid to the Pension Funds. The terms of the proposed
restructuring could mean that shareholders' principal continuing
economic interest in the Group will be a minority stake in the long
term development potential of its property assets. The Company made
strenuous attempts to secure an option for shareholders to
subscribe part of the new equity, but the primary condition of the
Pension Funds was to have a controlling shareholding in a separated
property business.
The Company has had constructive discussions in relation to the
Heads and Terms with the Pension Regulator, who has not raised any
major objections to the proposals. The observations which have been
raised by the Regulator appear capable of resolution. The proposed
restructuring has also been explored with our major stakeholders
and the Board has concluded that it offers UK Coal a viable, and
sustainable, future. It remains subject to agreement of legally
binding documentation with stakeholders.
OUTLOOK
UK Coal's Board believes that a restructuring creates a
sustainable platform, allowing us to continue to produce coal to
supply power stations and get full value from the property
portfolio for the Group. There is still much work to be done and
there remain significant challenges and risks to completing the
process. Without a restructuring, the Group will remain exposed to
significant risk on its financial headroom and covenants. With the
ever present challenge of operational difficulties, there is a
significant risk to the continuation of the mining business, jobs,
and the local economies around our mines in the absence of creating
additional headroom.
Principal operational issues continue to be the level of
production risk in the deep mines, at Daw Mill in particular, the
price of coal and the reduction of operating costs at the
mines.
Daw Mill remains on a course to close in early 2014, or before,
unless it can achieve key targets. The mine is expected to endure
another face gap in 2013, reflecting the results of past poor
performance and the failure last year fully to mitigate a 2012 face
gap. We have set out clearly the terms under which the Company
would seek to extend the life of Daw Mill to realise its full
potential. One of these conditions was the adoption of new shift
patterns. We regret that a recent ballot of the workforce rejected
the proposals of our new Mine Director at Daw Mill, rendering it
unlikely that the mine will be able to continue to operate under
the required lower risk operating model.
With coal retaining a significant role in the UK's energy mix,
there is still an opportunity for indigenous coal rather than
relying on imported coal. There remains a need for coal in the
medium term in the UK.
I would like to thank the workforce and management at UK Coal
for all their hard work this year. It has been an exceptionally
difficult period as we faced the challenges of low production
levels. However, with the improving prospects of a successful
restructuring we aim to exploit safely the economic potential of
this Company for all its stakeholders.
Jonson Cox
Chairman
10 August 2012
Operating review
SAFETY
Safety remains our core priority and we strive to create a zero
accident environment by minimising any risk of accidents
occurring.
Over the period, we continued with training and education of all
employees to improve capabilities with particular focus on improved
risk identification and assessment.
Further focus within the business has led to the creation of a
Central Safety Committee, which is chaired by the Managing Director
of Mining and externally assisted by Du Pont Sustainable Solutions.
Focus on the historical 'lagging' indicators continues to track the
improvements in accident rates on a monthly basis.
Increased attention has also been placed on 'leading' indicators
which include simple, but effective, safety observations, mini risk
assessments and the introduction of self-auditing safety
reviews.
Results from this continuous effort have yielded a 28%
improvement in Total Accidents Rates for the period 2012 in
comparison to 2011 and a 40% reduction in Lost Time Accidents Rates
for the same period.
Whilst these results show an improved performance, every
employee understands that there is still a massive effort required
before we can compare ourselves to 'best in class' which continues
to be our main objective.
MINING
Coal market
International coal prices delivered into NW Europe have seen a
dramatic fall from the highs of 2011 when they averaged GBP3.01/GJ
for the year compared with GBP2.40/GJ for the first 6 months of
2012, having dropped as low as GBP2.13/GJ in May. This is in part a
consequence of the rise in shale gas production in North America
resulting in a reduction in coal burn for electricity generation in
the US and the increased export of coal from the US and Columbia to
NW Europe. Imports into the UK are 49% higher year on year.
Coal burn by electricity producers in the UK in the first half
of 2012, still accounts for 43% of the energy mix.
Forward coal prices show some signs of strengthening over the
remainder of 2012 and through 2013: on 6 August, those prices were
circa GBP2.44/GJ, GBP2.57/GJ and GBP2.75/GJ for the fourth quarter
of 2012 and for the full years of 2013 and 2014 respectively.
Coal sales
In the first half, an average realised sales price of GBP2.43/GJ
was achieved compared to GBP2.36/GJ H1 2011 and GBP2.48/GJ FY 2011.
This is despite the fall of market coal prices and is due to the
reduction of disadvantageous legacy contracts and their replacement
with new contracts on more market-based terms.
Deep Mines
Colliery performance
summary:
Production Production Production Operating Operating Operating
cost* cost* cost*
(m tonnes) (m tonnes) (m tonnes) (GBPm) (GBPm) (GBPm)
H1 2012 H1 2011 FY 2011 H1 2012 H1 2011 FY 2011
------------------------- ------------ ------------ ------------ ---------- ---------- ----------
Deep mines
Daw Mill 0.8 1.4 2.1 58.6 56.6 113.8
Kellingley 1.1 1.0 2.3 45.8 47.3 89.0
Thoresby 0.5 0.7 1.3 41.4 40.8 79.3
Total deep mines
production / costs
before stock movements 2.4 3.1 5.7 145.8 144.7 282.1
------------------------- ------------ ------------ ------------ ---------- ---------- ----------
Stock movements - - 0.4 1.1 7.4 14.4
Total deep mines 2.4 3.1 6.1 146.9 152.1 296.5
------------------------- ------------ ------------ ------------ ---------- ---------- ----------
* Operating cost before non-trading exceptional items and
depreciation costs, with central costs absorbed.
The deep mines performance in the first half of 2012 was
disappointing, primarily due to production problems at Daw
Mill.
Daw Mill
As previously reported, the slow ramp up of 303s coal panel,
following the production difficulties on the previous panel, 32s,
in late 2011 resulted in poor production in Q1 2012.
Daw Mill finally reached anticipated levels of production in
March, and has continued to mine in line with expectations. The
recovery of 32s, which has involved a very significant amount of
engineering work, was ongoing in the period and we are now in the
process of re-commissioning the face. There is more work required
before the resumption of production at more normal output rates and
to leave behind a heating that has been causing risk whilst the
face has been standing. The intention is now to make this face the
primary production unit until completion in late Q3 2012. The
ability to mine the remaining coal on 32s face, and to salvage and
transfer the equipment from 32s to 33s in a timely manner, will
determine the length of a face gap next year already estimated at
around 12 weeks between the completion of the current 303s face and
the expected start date for 33s.
Deep mine costs are largely fixed relative to production levels.
The increased costs at Daw Mill reflect the problems encountered in
both the safe recovery of 32s face and the difficult ramp up of the
303s face.
Daw Mill remains in consultation around whether it will close
after the conclusion of 33s face by 2014. As reported in the
Chairman's Statement, this is only avoidable if a lower risk
operating model can be agreed. The recent rejection of revised
shift patterns by sections of the workforce makes this less likely
to be agreed.
Kellingley
Kellingley continues to make good progress with production and
developments and performance was in line with expectations. The
next face change is due later this month as the current panel
finishes. Despite mechanical issues with the 502s face chain that
needed a week to resolve, Kellingley still managed to produce more
coal in the first half of 2012 than in the same period in 2011. It
is thanks to the great efforts made by the mine workforce and
management that Kellingley was able to increase its production
levels in the first six months of 2012, despite the setback of the
502s chain.
Although there is still a lot to do, the 503s face change is on
track to be complete in late August and includes the installation
of extended canopies which will allow for an even safer working
environment.
Thoresby
Transfer of production at Thoresby to DS3s took place in the
period and mining is progressing well. Production was affected
during the final stages of coaling on the previous panel, DS2s, due
to a known seam split which reduced the volume of saleable coal
available for extraction.
At the same time developments are underway towards the next face
required for Q1 2013 and remain a key focus of the mines
activities.
In addition to the coal from Thoresby itself, the surface
washing plant has also been preparing inferior coal and slurries
from the surrounding area for sale.
Harworth
The mine remains under care and maintenance and preliminary
discussions and investigations are underway around the viability of
reopening the mine.
Technical visits have also taken place to European mines that
have similar geological conditions and it is hoped that a decision
will be made by the end of 2012.
Surface Mining
H1 2012 H1 2011 FY 2011
----------------------------------------- -------- -------- --------
Production (m tonnes) 0.9 1.0 1.8
Operating costs* (GBPm) 37.1 48.6 87.7
Operating costs per gigajoule* (GBP/GJ) 1.92 1.93 1.97
----------------------------------------- -------- -------- --------
* Operating cost before non-trading exceptional items and
depreciation costs, with central costs absorbed.
Surface mining had a good first half with production from the
four producing sites compared to six sites in operation during the
same period last year. During the period production commenced at
both Butterwell and Lodge House Extension whilst Minorca is on
schedule to commence operation during the fourth quarter of
2012.
This is a good production performance in a period that, although
it started with a dry mild winter, was followed by some extremely
wet conditions.
The reduction in total operating costs reflects the lower number
of sites being mined. Costs per gigajoule have been held despite an
increase in the unit cost of fuel.
Planning
During the period a planning application was submitted for
Shortwood Farm (Nottinghamshire), which has reserves of 1.3 million
tonnes of coal. It is anticipated that three further applications
will be submitted for new sites in the second half of the year.
Following the rejection of our appeal against the refusal to
grant planning for our Bradley mine (0.5 million tonnes), a
judicial review has been lodged and is expected to be heard by
early 2013.
HARWORTH ESTATES
The first half of 2012 has seen a continuation of our disposals
programme and some significant steps in creating value across the
remaining portfolio. We sold properties with a net book value of
GBP16.3m, realising GBP16.7m and giving a profit on disposals of
GBP0.4m.
Despite having achieved these disposals, the total valuation of
our property portfolio decreased by only GBP10.6m to GBP271.7m
(December 2011: GBP282.3m), due to gains achieved in adding value
through planning progress and maximising developable land. On a
like for like basis (after allowing for sales, purchases,
depreciation and development spend) our overall portfolio value has
increased by 1.2%, as set out in the table below.
The major increases in valuation during the period relate to
undeveloped land where better planning designation and maximisation
of developable land area has given rise to valuation gains. The
sales made during the period have underpinned our valuations and we
remain encouraged by the interest being shown across this
portfolio. Business Parks have reduced in value in what remains a
difficult market for secondary industrial premises.
June December December 2011
2012 2011 like-for-like*
GBPm GBPm GBPm %
Agriculture** 37.1 39.1 37.1 0.0%
Business Parks 69.1 75.0 75.4 (8.4)%
Major Developments 77.9 84.3 73.7 5.7%
Natural Resources 34.9 31.0 30.7 13.6%
Strategic Land 52.7 52.9 51.6 2.1%
------------------------------- ------ --------- -------- --------
Total properties at valuation 271.7 282.3 268.5 1.2%
------------------------------- ------ --------- -------- --------
* The like for like December 2011 comparative and percentage
change figures take into account adjustments for asset sales of
GBP16.3m and purchases, development expenditures and depreciation
of GBP2.5m.
** including surface mining land.
Consistent with June 2011, we have not employed external
consultants to carry out the half yearly valuation. This valuation
has been undertaken by suitably qualified employees with both
appropriate professional qualifications (FRICS/MRICS) and a
comprehensive knowledge of the properties and associated markets.
The valuation basis and assumptions are consistent with those used
in December 2011. In line with prior years, a full external RICS
valuation will be carried out and reported in the year end
accounts.
Major Developments
Work has begun on the first phase of 4,000 homes at Waverley,
South Yorkshire, with some off-plan sales already secured and show
homes are due to open in the autumn. Planning consent has been
secured for a further 400 homes at North Gawber near Barnsley and a
conditional land sale has been agreed for 120 homes at
Harworth.
Planning has also been submitted for a training centre for the
University of Sheffield at our commercial development at Waverley
which has also seen the completion of two land sales contracts with
Rolls-Royce totalling 34 acres at the Advanced Manufacturing Park.
Rolls-Royce intends to build two factories; the first will be an
Advanced Blade Casting Facility to manufacture blades for jet
engines and the second will be associated with advanced nuclear
manufacturing involved in future power generation projects.
Construction work began on 9 July.
Progress with the commercial side of the Waverley site continues
and our work with key stakeholders, such as Sheffield Local
Enterprise Partnership, has resulted in around 100 acres of
commercial land being included within the Sheffield Enterprise Zone
that provides financial incentives for businesses. Harworth Estates
has also submitted a bid to Government for Regional Growth Fund
monies to help forward fund key infrastructure at Waverley and
accelerate development.
At Prince of Wales, we are reviewing the up-front infrastructure
costs with a view to achieving cost savings to facilitate the
release of the first phase of development in 2013. At our Harworth
site, Asda began work on a 22,000 sq ft food store in June.
Strategic Land
Our strategic land division has also achieved success in the
first half of 2012 with 115 consented plots sold at Ball Hill,
South Normanton to Taylor Wimpey and 148 plots at Goldthorpe,
Barnsley to Gleeson Homes. There is a potential future land bank
capable of accommodating circa 7,300 residential plots and 4.4m sq
ft of employment space, of which 965 plots and 0.3m sq ft of
employment space is already consented. Five planning applications
were submitted during the first half of 2012 which, if successful,
will contribute a further 1,259 consented plots plus further
commercial development. Some 42 sites are now being actively
promoted through the development plan system which have the
potential to produce 5,076 plots and land to accommodate 4m sq ft
of employment space, subject to planning approval.
Business Parks
Our business park portfolio operated in line with expectations
in a challenging environment, with tenant retention levels
remaining high and only a small number of business relocations.
North West Leicestershire District Council gave consent for the
promotion and development of around 575,000sq ft of B2 industrial
and B8 distribution accommodation and we anticipate planning
consent on our 60 acre "Lounge" site at Ashby de la Zouch,
Leicestershire, following a resolution to grant planning for a new
rail linked national distribution facility (up to 875,000 sq
ft).
Natural Resources
Our 'Waste to Energy' joint venture with Peel Environmental saw
scoping reports issued for Kellingley and North Selby prior to
planning applications being submitted. Leases have also been signed
for both a power plant/mines gas scheme at Gedling and for a wind
turbine on the Lynemouth Colliery site in Northumberland with Wind
Energy Direct. This is the first stage of a mixed-use development
on the site.
Following planning approval for coal recovery operations at the
former colliery tip at Rossington, RecyCoal Ltd will produce an
estimated 950,000 tonnes of recycled coal enabling the
redevelopment of the site. Coal fines recovery also started at
Bilsthorpe.
Sale of Harworth Power Generation
In June 2012, UK Coal announced that a conditional contract for
the sale of Harworth Power (Generation) Limited had been entered
into with Red Rose Infrastructure Limited, for a total cash
consideration of GBP20.3m.
Red Rose Infrastructure Limited is managed by Capital Dynamics
Clean Energy and Infrastructure, an independent asset management
firm focusing in the clean energy, infrastructure and property
sectors, which in January 2012 announced the acquisition of a 64MW
portfolio of landfill gas assets in the UK.
The disposal forms part of the Company's plan to improve
operational and financial performance and strengthen its balance
sheet, in part through an asset realisation programme.
Due to the size of the disposal relative to the size of the
Company, completion of the sale is conditional upon shareholder
approval following the issue of a circular to shareholders.
Upon completion of the disposal, GBP20m is payable by the buyer
in cash with the remaining GBP0.3m of the consideration being
deferred, dependent upon the granting of future rights to gas
extraction.
FINANCIAL REVIEW
Financial performance
A review of the performance of the Group and the individual
businesses has been given in the Operating Review and further
detailed disclosures are contained in the financial statements
accompanying this report.
Group revenues have fallen 23% in the first half of 2012 to
GBP198.3m (H1 2011: GBP256.1m, FY 2011: GBP488.2m) as a result of
significantly lower sales volumes, which more than offset the
slightly higher average realised sales prices achieved during the
period. The reduction in sales volume arose mainly from production
issues at Daw Mill in the first quarter of the year and at
Thoresby, as described in the Operating Review.
The average realised sales price for the first half of
GBP2.43/GJ (H1 2011: GBP2.36/GJ, FY 2011: GBP2.48/GJ) reflects the
final benefits of having worked through the very old low priced
legacy sales contracts, notwithstanding weakened coal market prices
in Q2 2012.
The difficulties encountered in the deep mining operation gave
rise to an operating loss before non-trading exceptional items of
GBP6.0m in the first half of 2012, some GBP41.2m worse than the
operating profit before non-trading exceptional items of GBP35.2m
booked in H1 2011.
Property disposals in the period with net book value of GBP16.3m
generated a profit on disposal of GBP0.4m (H1 2011: GBP2.1m, FY
2011: GBP2.7m). Net proceeds of GBP11.4m (H1 2011: GBP36.0m, FY
2011: GBP64.3m) received in the period were used to pay down Group
debt.
There was a net non-trading exceptional charge in the period of
GBP3.5m (H1 2011: GBP0.1m credit, FY 2011: GBP16.1m credit). This
arose from a charge for professional fees in relation to the
refinancing of the business in the period of GBP1.9m and
professional fees incurred in relation to the restructuring of the
business of GBP1.6m. Operating loss after non-trading exceptional
items was GBP9.5m (H1 2011: GBP35.3m profit, FY 2011: GBP81.3m
profit).
The Group made a loss before tax of GBP20.6m in the period (H1
2011: GBP22.1m profit, FY 2011: GBP58.0m profit).
Financing expenses
Total net finance costs in the first half of 2012 were GBP11.1m
(H1 2011: GBP13.2m, FY 2011: GBP22.9m). Included in the first half
were GBP2.2m of expenses related to one-off transaction fees (H1
2011: GBPnil, FY 2011 GBPnil).
Excluding exceptional finance costs, the net finance costs were
GBP4.3m less than the corresponding period last year. The reduction
in average borrowings over the period of GBP67m accounted for GBP3m
of the decrease, with net gains on interest rate swaps accounting
for a further GBP1m of the difference.
Group net debt
In the period, property with a net book value of GBP16.3m was
sold with total net proceeds of GBP16.7m, of which GBP11.4m was
received in the period. The bulk of the proceeds received, together
with circa GBP3.5m received in the first half in relation to
property exchanges in 2011, has been used to reduce Group debt
which fell by GBP0.5m to GBP138.3m at the end of the period
(December 2011: GBP138.8m).
As reported in the 2011 Annual Report, the Group renewed and
extended certain of its banking facilities in April 2012.
A summary of the Group's principal bank facilities as at 30 June
2012 is given below:
Facility Margin
GBPm over LIBOR Maturity
------------------------------------ -------- ---------- ------------ ------------
Revolving Credit Facility (RCF) 20.5(1,2) 300-400 December
bps(4) 2013
Additional Revolving Facility (ARF) up to 1,600 bps December
27.5(3) 2013
Harworth Estate (Waverley Prince) 25.3(1) 450 bps December
Limited Facility 2013
EOS Inc Facility 19.9(5) 300-400 December
bps 2013
------------------------------------ -------- ---------- ------------ ------------
Total up to
93.2m
------------------------------------ -------- ---------- ------------ ------------
Notes
1 Facility reduces GBP for GBP as property sales are
applied.
2 Reduces by GBP2m between October and November 2012
3 Facility reduces by GBP7.5m on 30 September 2012 and amortises
to GBPnil over the period June 2013 to November 2013, with a short
period of reduction to GBP12.5m at the end of 2012
4 The margin is dependent on the level of committed
facility.
5 Facility reduces by GBP0.2m per quarter from September
2012.
In addition to the above facilities, the unsecured stand-by
facility of GBP10m from Peel Holdings Finance Limited was extended
to mature in November 2013. The facility amortises gradually over
the period August 2013 to November 2013, and is available for
drawing in the event that both the RCF and part of the ARF are
drawn.
At June 2012, generator loans/prepayments totalled GBP72.2m (H1
2011: GBP97.5m, FY 2011: GBP84.1m) and (fully drawn) finance leases
totalled GBP7.7m (H1 2011: GBP11.5m, FY 2011; GBP9.7m).
As part of the proposed restructuring outlined in the Chairman's
statement, the above bank facilities will need to be renegotiated
to provide revised covenant and other terms.
Taxation
There has been no corporation tax charge in the period (H1 2011:
credit of GBP0.1m, FY 2011: charge of GBP2.7m).
The Group has gross tax losses estimated at GBP230m and gross
timing differences of GBP230m, both as at December 2011, and both
of which are available to offset against future profits of the
mining business. In addition the deficit in respect of retirement
benefits represents an additional future tax deductible
expense.
The Group also has around GBP350m of capital losses which can be
offset against profits arising on disposals of properties which
were held by the Group in 2002. These capital losses are sufficient
to offset the vast majority of the deferred tax liability which
would otherwise be required in respect of the investment
properties, leaving a small deferred tax liability of GBP1.2m which
has been recognised in the financial statements.
The Group continues to review its deferred tax asset given the
nature of its business, its historic performance and in the light
of the proposed restructuring referred to in the Chairman's
statement. Although the Group has made a loss in the first half of
2012, there have been no movements in deferred tax balances in the
six months to June 2012 (H1 2011: GBPnil, FY 2011: GBP3.0m), and
the Group has continued to recognise a deferred tax asset of
GBP31.5m, being the amount expected to be recovered based on
forecasts of future taxable profits, offset by a deferred tax
liability of GBP1.2m at June 2012. At this point, further deferred
tax assets have not been recognised owing to the uncertainty as to
their recoverability. The position will again be reviewed at the
year end.
Although there has been no movement in the deferred tax balances
in the balance sheet, in the prior period there was a deferred tax
credit in the income statement of GBP0.1m relating to the recycling
from reserves of deferred tax on the fair value movements on
interest rate swaps. All of these movements have now been
recycled.
Retirement benefit obligations
The Group's defined benefit obligations comprise two funded
industry wide schemes, the small Blenkinsopp scheme and an unfunded
concessionary fuel scheme.
The industry wide schemes, which are closed to new entrants but
are required to be open for future service, had a combined deficit
under IFRS of GBP115.6m at June 2012 (December 2011: GBP101.0m).
The deficit has increased under IFRS over the first half by
GBP14.6m principally due to an actuarial loss of GBP17.0m due to
changes in the assumptions used to calculate the scheme's
liabilities, partially offset by an actuarial gain of GBP1.5m due
to higher than expected investment returns, and the Group's
contributions being GBP2.7m more than the cost of accruing
benefits.
The overall post service obligations also include an unfunded
liability in respect of the concessionary fuel scheme of GBP45.6m
(December 2011: GBP43.7m). The increase primarily reflects changes
in the assumptions used to calculate the scheme's liabilities.
Overall the Group's post retirement net liabilities have
therefore increased by GBP16.5m over the period.
Concessionary
Pension fuel Total
GBPm GBPm GBPm
------------------------------------------ --------- -------------- -------
At January 2012 101.0 43.7 144.7
Interest cost less expected return on
assets 1.8 1.1 2.9
Difference between actual return and
expected return on assets (1.5) - (1.5)
Actuarial loss in respect of liabilities 17.0 1.2 18.2
Contributions paid less current service
cost (2.7) (0.4) (3.1)
At June 2012 115.6 45.6 161.2
------------------------------------------ --------- -------------- -------
As we noted in the Annual Report, the funding of the Defined
Benefit Schemes is determined on assumptions that differ from those
required to be used under IFRS. On the basis used to determine
future funding, the deficit is significantly larger, being
estimated at cGBP430m at December 2011.
Net Assets
Principally as a result of the loss after tax of GBP20.6m and
the actuarial losses on the pension schemes and concessionary fuel
scheme of GBP16.7m, the Group's net assets fell in the first half
of the year from GBP146.0m at the start of the year to GBP109.3m at
June 2012.
KEY RISKS AND UNCERTAINTIES
UK Coal PLC operates in an industry which carries inherent risk,
and is subject to market and other external risks which cannot be
fully controlled, mitigated or insured against. The Key Risks and
Uncertainties identified by the directors which exist within the
Group remain those disclosed on pages 25 to 26 in the Annual Report
and Accounts 2011, and include risks from mining, financing,
employment and property.
The key risks include the production risk inherent within any
deep mining business, as deep mines operate with a cost base which
is largely fixed relative to production levels. Consequently,
unexpectedly large interruptions or prolonged reductions in
production can have a material adverse impact on cash flow.
Performance in 2009 and 2010, and in the first half of 2012,
illustrated the difficulties inherent in deep mining operations
and, in particular, the impact of unpredictable geological
conditions and/or other operational issues on production volumes
from our deep mines.
At present work on Daw Mill's 32s face is progressing. Difficult
conditions remain to be overcome in order to restart mining and
recover the equipment. The equipment is needed on Daw Mill's next
face and its timely recovery is required to avoid extending a face
gap in H1 2013.
In part, the Group finances its business through debt. The
ability to raise funds on reasonable terms in the longer term
depends on a number of factors, including general economic,
political and capital market conditions and credit availability as
well as business performance. There can be no assurance that
financing in the longer term will be available or, if it is, that
it will be available on acceptable terms for the Group. Following
the extension to our main facilities in April 2012, there are now
no significant facility maturities in the next 12 months. However,
there is a longer term risk that the Group may become unable to
refinance its bank debt or unable to obtain new or additional bank
debt if this is required.
As is customary, our bank facilities are subject to covenants,
in our case focussing primarily on loan to property value, adjusted
earnings and adjusted tangible net worth. Although we are in
compliance with these covenants, a fall in the valuations of our
properties or a shortfall in production could have an impact on
such covenants in the future which could in turn lead to increased
charges and possibly a limitation of facilities available.
The Group also faces significant pension risk. Under the terms
of the 1994 privatisation, those employees transferred to the
employment of UK Coal Mining Ltd ("UKCML") became members of one of
two Industry Wide Defined Benefit Pension Schemes. These schemes
are sectionalised, meaning that UKCML has no unprovided liabilities
in respect of the employees of other companies in the industry. UK
Coal PLC and UKCML both have a responsibility in respect of these
pension schemes under the Protected Persons Regulations which
provides that it is not permitted to close off the schemes for
future service, although in certain circumstances, later
legislation may override this.
Under IAS 19, as noted in note 13 to this Interim Report, these
schemes have a combined deficit of GBP115.6 million at June 2012.
This deficit is, in accordance with IAS, calculated using a
discount rate in line with the market rate for corporate bonds.
Under the Technical Provisions, which are the basis for the
triennial calculation of the pension liabilities for the Pensions
Regulator and for agreement on funding rates with the Trustees,
different rates, based on gilt yields, are employed. Depending on
changes in these rates prevailing at, and investment performance
to, the next valuation date (being 31 December 2012), a higher
deficit than that as at December 2009 could lead to materially
higher deficit contributions being needed in later years.
As described in detail in the Chairman's Statement, the Group is
presently pursuing a proposed restructuring, but there is an added
risk that the restructuring is unsuccessful. The proposed
restructuring is progressing well, and the Board has received the
agreement in principle of key stakeholders. In the absence of the
proposed restructuring, or a similar transaction which offers the
same amount of financial benefit, the Group faces the risk that it
would not be able to continue as a going concern.
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE
INTERIM FINANCIAL REPORT
The Directors confirm that this condensed consolidated interim
financial information has been prepared in accordance with IAS 34
as adopted by the European Union and that the interim management
report includes a fair review of the information required by DTR
4.2.10, namely:
- an indication of important events that have occurred during
the first six months and their impact on the condensed set of
financial statements, and a description of the key risks and
uncertainties for the remaining six months of the financial year;
and
- material related parties transactions in the first six months
and any material changes in the related party transactions
described in the last annual report.
The Directors of UK Coal PLC are listed in the UK Coal PLC
Annual Report and Accounts 2011. Changes in Directors since
December 2011 are shown in the Chairman's Statement. A list of
current Directors is maintained on the UK Coal PLC website:
www.ukcoal.com.
By order of the Board:
Jonson Cox David Brocksom
Chairman Finance Director
10 August 2012 10 August 2012
INDEPENDENT REVIEW REPORT TO UK COAL PLC
Introduction
We have been engaged by the Company to review the condensed
consolidated interim financial information in the interim report
for the six months ended 30 June 2012, which comprises the
Consolidated Income Statement, the Consolidated Statement of
Comprehensive Income, the Consolidated Statement of Changes in
Shareholders' Equity, the Consolidated Balance Sheet, the
Consolidated Statement of Cash Flows and related notes. We have
read the other information contained in the interim report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the Condensed
Consolidated Interim Financial Statements.
Directors' Responsibilities
The interim report is the responsibility of, and has been
approved by, the Directors. The Directors are responsible for
preparing the interim report in accordance with the Disclosure and
Transparency Rules of the United Kingdom's Financial Services
Authority.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed consolidated financial information
included in this interim report has been prepared in accordance
with International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed consolidated interim financial information in the
interim report based on our review. This report, including the
conclusion, has been prepared for and only for the Company for the
purpose of the Disclosure and Transparency Rules of the Financial
Services Authority and for no other purpose. We do not, in
producing this report, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown
or into whose hands it may come save where expressly agreed by our
prior consent in writing.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed consolidated interim
financial information in the interim report for the six months
ended 30 June 2012 is not prepared, in all material respects, in
accordance with International Accounting Standard 34 as adopted by
the European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Services Authority.
Emphasis of Matter - Going Concern
In arriving at our review conclusion, which is not modified, we
have considered the adequacy of the disclosures made in the basis
of preparation note within the condensed consolidated interim
financial information concerning the Company's ability to continue
as a going concern. The main areas of uncertainty relate to the
successful implementation of the proposed restructuring,
operational conditions at Daw Mill, production issues within the
deep mine business, volatility of sales price and the covenants
attached to the banking facilities. These matters indicate the
existence of material uncertainties which may cast significant
doubt about the Company's ability to continue as a going concern.
The condensed consolidated interim financial information does not
include the adjustments that would result if the Group or the
parent Company were unable to continue as a going concern.
PricewaterhouseCoopers LLP
Chartered Accountants
Leeds
10 August 2012
Notes:
a) The maintenance and integrity of the UK Coal PLC website is
the responsibility of the directors; the work carried out by the
auditors does not involve consideration of these matters and,
accordingly, the auditors accept no responsibility for any changes
that may have occurred to the interim financial report since it was
initially presented on the website.
b) Legislation in the United Kingdom governing the preparation
and dissemination of financial information may differ from
legislation in other jurisdictions.
Consolidated income statement
for the six months ended 30 June 2012
Unaudited Unaudited Audited
6 months 6 months year ended
ended ended
30 June 25 June 31 December
2012 2011 2011
Continuing operations Note GBP000 GBP000 GBP000
-------------------------------------------- ---- --------- --------- -----------
Revenue 2 198,273 256,085 488,216
Cost of sales (202,362) (217,565) (402,639)
-------------------------------------------- ---- --------- --------- -----------
Gross (loss)/profit (4,089) 38,520 85,577
Net increase in fair value of investment
properties 3,070 - 3,325
Profit on disposal of investment properties 420 2,105 2,685
-------------------------------------------- ---- --------- --------- -----------
Net profit on investment properties 3,490 2,105 6,010
Other operating income and expenses (8,921) (5,317) (10,317)
-----------
Operating (loss)/profit 2 (9,520) 35,308 81,270
Finance costs (11,285) (13,345) (23,112)
Finance income 185 132 256
-------------------------------------------- ---- --------- --------- -----------
Net finance costs 3 (11,100) (13,213) (22,856)
Share of post-tax profit/(loss) from
joint ventures 61 20 (431)
-----------
(Loss)/profit before tax (20,559) 22,115 57,983
Tax credit/(charge) 4 - 110 (2,742)
-------------------------------------------- ---- -----------
(Loss)/profit for the period (20,559) 22,225 55,241
-------------------------------------------- ---- --------- --------- -----------
Attributable to:
Equity holders of the Company (20,559) 22,225 55,241
-------------------------------------------- ---- --------- --------- -----------
(Loss)/earnings per share pence pence pence
Basic and diluted 6 (6.9) 7.4 18.5
-------------------------------------------- ---- --------- --------- -----------
Consolidated statement of comprehensive income
for the six months ended 30 June 2012
Unaudited Unaudited Audited
6 months 6 months year ended
ended ended
30 June 25 June 31 December
2012 2011 2011
GBP000 GBP000 GBP000
--------------------------------------------------- --------- --------- -----------
(Loss)/profit for the period (20,559) 22,225 55,241
Other comprehensive (expense)/income:
Actuarial (loss)/gain on industry wide pension
schemes (15,349) (27,985) 10,633
Actuarial (loss)/gain on Blenkinsopp pension
scheme (53) (27) 132
Actuarial loss on concessionary fuel reserve (1,271) (8,676) (7,463)
Amortisation of interest rate swaps recycled
from reserves - 372 372
Movement on deferred tax asset relating
to cash flow hedges - (110) (110)
Revaluation of property transferred from operating
to investment properties - 5,089 4,519
---------------------------------------------------
Total other comprehensive (expense)/income (16,673) (31,337) 8,083
Total comprehensive (expense)/income for
the period (37,232) (9,112) 63,324
--------------------------------------------------- --------- --------- -----------
Attributable to:
Equity holders of the Company (37,232) (9,112) 63,324
--------------------------------------------------- --------- --------- -----------
The notes are an integral part of the condensed consolidated
interim financial statements.
Consolidated statement of changes in shareholders' equity
for the six months ended 30 June 2012
Share
Ordinary premium Other Retained Total
shares account reserves earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000
--------
Balance at January 2011 2,993 30,756 229,128 (181,484) 81,393
Profit for the six months to June 2011 - - - 22,225 22,225
Other comprehensive income:
Actuarial losses on post retirement
benefits - - - (36,688) (36,688)
Property revaluation on transfer to
investment properties - - 5,089 - 5,089
Transfer of realised gain on disposed
properties - - (36,885) 36,885 -
Hedging reserve amortised in period - - 372 - 372
Movement on deferred tax asset in relation
to cash flow hedges - - (110) - (110)
Total comprehensive (expense)/income
for the period ended June 2011 - - (31,534) 22,422 (9,112)
Transactions with owners:
Accrual for long term incentive plan
liabilities - - - 692 692
- - - 692 692
------------------------------------------- -------- ------- -------- --------- --------
Balance at June 2011 (unaudited) 2,993 30,756 197,594 (158,370) 72,973
Profit for the six months to December
2011 - - - 33,016 33,016
Other comprehensive income:
Actuarial gain on post retirement benefits - - - 39,990 39,990
Fair value profit on revaluation of
investment properties - - 3,325 (3,325) -
Property revaluation on transfer to
investment properties - - (570) - (570)
Transfer of realised gain on disposed
properties - - (7,812) 7,812 -
Total comprehensive (expense)/income
for the period ended December 2011 - - (5,057) 77,493 72,436
Transactions with owners:
Accrual for long term incentive plan
liabilities - - - 594 594
- - - 594 594
------------------------------------------- -------- ------- -------- --------- --------
Balance at December 2011 (audited) 2,993 30,756 192,537 (80,283) 146,003
Loss for the six months to June 2012 - - - (20,559) (20,559)
Other comprehensive income:
Actuarial losses on post retirement
benefits - - - (16,673) (16,673)
Fair value profit on revaluation of
investment properties - - 3,070 (3,070) -
Transfer of realised gain on disposed
properties - - (9,815) 9,815 -
Total comprehensive expense for the
period ended June 2012 - - (6,745) (30,487) (37,232)
Transactions with owners:
Accrual for long term incentive plan
liabilities - - - 513 513
- - - 513 513
------------------------------------------- -------- ------- -------- --------- --------
Balance at June 2012 (unaudited) 2,993 30,756 185,792 (110,257) 109,284
------------------------------------------- -------- ------- -------- --------- --------
Consolidated balance sheet
at 30 June 2012
Unaudited Unaudited Audited
2012 2011 2011
Note GBP000 GBP000 GBP000
---- --------- --------- ---------
ASSETS
Non-current assets
Operating property, plant and
equipment 7 212,595 229,800 223,495
Surface mine development and restoration
assets 7 29,703 27,559 25,745
----------------------------------------- ---- --------- --------- ---------
242,298 257,359 249,240
Investment properties 8 252,084 271,907 250,640
Investment in joint ventures 14 3,040 3,430 2,979
Deferred tax asset 31,509 34,474 31,509
Other receivables 7,025 3,136 3,357
--------- --------- ---------
535,956 570,306 537,725
----------------------------------------- ---- --------- --------- ---------
Current assets
Inventories 33,799 40,652 34,754
Trade and other receivables 40,897 62,637 26,302
Unrestricted cash balances 9 3,533 1,687 1,689
Restricted cash balances 9 23,959 23,907 23,589
Non-current assets classified
as held for sale 10 6,316 - 16,600
--------- --------- ---------
108,504 128,883 102,934
----------------------------------------- ---- --------- --------- ---------
Total assets 644,460 699,189 640,659
----------------------------------------- ---- --------- --------- ---------
LIABILITIES
Current liabilities
Borrowings - bank loans, overdrafts
and finance leases 11 (5,156) (5,647) (37,541)
- generator loans and prepayments 11 (40,223) (34,674) (41,723)
Derivative financial instruments - (1,061) (546)
Trade and other payables (130,612) (100,587) (113,759)
Provisions 12 (12,638) (25,721) (13,480)
--------- --------- ---------
(188,629) (167,690) (207,049)
----------------------------------------- ---- --------- --------- ---------
Net current liabilities (80,125) (38,807) (104,115)
----------------------------------------- ---- --------- --------- ---------
Non-current liabilities
Borrowings - bank loans, overdrafts
and finance leases 11 (64,418) (105,839) (18,849)
- generator loans and prepayments 11 (32,014) (62,863) (42,386)
Derivative financial instruments (3,447) (6,248) (4,470)
Trade and other payables (498) (5,323) (736)
Deferred tax liabilities (1,171) (1,265) (1,171)
Provisions 12 (83,799) (74,823) (75,290)
Retirement benefit obligations 13 (161,200) (202,165) (144,705)
--------- --------- ---------
(346,547) (458,526) (287,607)
----------------------------------------- ---- --------- --------- ---------
Total liabilities (535,176) (626,216) (494,656)
----------------------------------------- ---- --------- --------- ---------
Net assets 109,284 72,973 146,003
----------------------------------------- ---- --------- --------- ---------
SHAREHOLDERS' EQUITY
Capital and reserves
Called up share capital 2,993 2,993 2,993
Share premium account 30,756 30,756 30,756
Revaluation reserve 115,846 129,789 113,097
Capital redemption reserve 257 257 257
Fair value reserve 69,603 67,548 64,993
Amounts recognised in reserves relating to
non-current assets held for sale 86 - 14,190
Retained losses (110,257) (158,370) (80,283)
Total shareholders' equity 109,284 72,973 146,003
----------------------------------------- ---- --------- --------- ---------
Consolidated statement of cash flows
for the six months ended 30 June 2012
Unaudited Unaudited Audited
6 months 6 months year ended
ended ended
30 June 25 June 31 December
2012 2011 2011
Note GBP000 GBP000 GBP000
---------------------------------------------------- ---- --------- --------- -----------
Cash flows from operating activities
(Loss)/profit for the period 2 (20,559) 22,225 55,241
Depreciation/impairment of property, plant
and equipment 7 21,281 19,806 40,499
Amortisation of surface mine development and
restoration assets 7 7,897 9,236 17,121
Net fair value increase in investment properties 8 (3,070) - (3,325)
Net interest payable and unwinding of discount
on provisions 3 11,100 13,213 22,856
Net charge for share-based remuneration 513 692 1,286
Share of post-tax (profit)/loss from joint
ventures (61) (20) 431
Profit on disposal of investment properties (420) (2,105) (2,685)
Profit on disposal of operating property, plant
and equipment (1,318) (11) (657)
Capitalised surface mine restoration assets (8,905) - (3,684)
Increase/(decrease) in provisions 6,772 (6,227) (19,635)
Tax (credit)/charge 4 - (110) 2,742
Pension contributions in excess of charge (177) (6,126) (23,597)
Operating cash flows before movements in working
capital 13,053 50,573 86,593
Decrease in inventories 955 9,682 15,580
(Increase)/decrease in receivables (12,936) (16,264) 2,094
Increase/(decrease) in payables 15,418 (14,690) (3,197)
---------------------------------------------------- ---- --------- --------- -----------
Cash generated from operations 16,490 29,301 101,070
Loan arrangement fees paid (1,419) (1,035) (744)
Interest paid (10,806) (6,446) (20,678)
--------- --------- -----------
Cash generated from operating activities 4,265 21,820 79,648
---------------------------------------------------- ---- --------- --------- -----------
Cash flows from investing activities
Interest received 185 132 256
Net (payment of)/receipt from insurance and
subsidence security funds (370) 567 885
Proceeds on disposal of investment properties 11,440 36,045 64,342
Proceeds on disposal of operating property,
plant and equipment 2,379 30 1,349
Development costs of investment properties 8 (2,606) (1,302) (4,774)
Pre-coaling expenditure for surface mines and
deferred stripping costs (2,950) (1,120) (3,507)
Purchase of operating property, plant and equipment 7 (13,273) (15,425) (31,815)
--------- --------- -----------
Cash (used in)/generated from investing activities (5,195) 18,927 26,736
---------------------------------------------------- ---- --------- --------- -----------
Cash flows from financing activities
Net proceeds from/(repayment of) bank loans 16,581 (31,402) (84,282)
Net repayment of generator loans and prepayments (11,872) (6,182) (17,078)
Repayments of obligations under hire purchase
and finance leases (1,935) (1,903) (3,762)
--------- --------- -----------
Cash generated from/(used in) financing activities 2,774 (39,487) (105,122)
---------------------------------------------------- ---- --------- --------- -----------
Increase in unrestricted cash balances 1,844 1,260 1,262
---------------------------------------------------- ---- --------- --------- -----------
At commencement of period
Unrestricted cash balances 1,689 427 427
Restricted cash balances 23,589 24,474 24,474
---------------------------------------------------- ---- --------- --------- -----------
25,278 24,901 24,901
Increase in unrestricted cash balances 1,844 1,260 1,262
Decrease in restricted cash balances (net payment
of/(receipt from) insurance and subsidence security
funds) 370 (567) (885)
27,492 25,594 25,278
---------------------------------------------------- ---- --------- --------- -----------
At end of period
Unrestricted cash balances 3,533 1,687 1,689
Restricted cash balances 23,959 23,907 23,589
----------------------------------------------------
Cash and cash equivalents 9 27,492 25,594 25,278
---------------------------------------------------- ---- --------- --------- -----------
Notes to the condensed consolidated interim financial
statements
for the six months ended 30 June 2012
1. Basis of preparation of the condensed consolidated interim financial statements
General information
UK Coal PLC (the 'Company') is a limited liability company
incorporated and domiciled in the UK. The address of its registered
office is Harworth Park, Blyth Road, Harworth, Doncaster, DN11
8DB.
The Company is listed on the London Stock Exchange.
The condensed consolidated interim financial statements for the
six months ended 30 June 2012 comprise the Company and its
subsidiaries (together referred to as the 'Group').
The condensed consolidated interim financial statements do not
comprise statutory accounts within the meaning of section 434 of
the Companies Act 2006. The Group financial statements for the year
ended 31 December 2011 were approved by the Board of Directors on
27 April 2012 and delivered to the Registrar of Companies. The
report of the auditor on those accounts was unqualified but
contained an emphasis of matter paragraph in relation to going
concern.
The condensed consolidated interim financial statements for the
period ended 30 June 2012 have been reviewed, not audited and were
approved by the Board on 10 August 2012.
Basis of preparation
The condensed consolidated interim financial statements for the
six months ended 30 June 2012 have been prepared in accordance with
the Disclosure and Transparency Rules of the Financial Services
Authority and with IAS 34 'Interim financial reporting' as adopted
by the European Union ('EU'). The condensed consolidated interim
financial statements should be read in conjunction with the Group
financial statements for the year ended 31 December 2011 which have
been prepared in accordance with IFRSs as adopted by the EU.
Going concern
This interim report is prepared on the basis that the Group is a
going concern. In forming its opinion as to going concern, the
Board prepares cash flow forecasts based upon its assumptions as to
trading as well as taking into account the available borrowing
facilities in line with the Treasury Policy disclosed in the
Directors' Report in the Group's Annual Report and Accounts for the
year ended 31 December 2011 ("Annual Report"). The Board also
prepares a number of alternative scenarios modelling the business
variables and Key Risks and Uncertainties as summarised in this
document and outlined in more detail in the Annual Report on pages
25 and 26, in particular taking into account the production and
price risks inherent in a deep mining business.
In forming its opinion as to going concern, the Board has
particularly considered the prospect of a successful implementation
of the proposed restructuring outlined in the Chairman's Statement,
and the support from the Pension Schemes Trustees and from the
customers that are a part of the proposal. The proposed
restructuring is progressing well, and we have received the
agreement in principle of key stakeholders including the Pension
Schemes Trustees and our principal bankers Lloyds Banking Group.
The Board concluded that the restructuring is likely to be
implemented and also concluded that, in the absence of the proposed
restructuring or a similar transaction that offered the same level
of financial benefit, the Group would be unlikely to be a going
concern.
The Board also considered that critical to the viability of the
business is the timely recovery of the 32s face equipment at Daw
Mill for use on the new 33s panel due to commence mining in Spring
2013. The timing and prospect of the recovery remains a significant
uncertainty for the Group given the complexities of the operational
conditions currently being encountered. These operational
conditions need to be overcome in a timely manner in order to
enable the safe removal of the equipment and to prevent the current
forecasted 12 week face gap arising in early 2013 being
extended.
The other key factors that have been considered in forming its
going concern conclusion are:
-- The deep mines operate with a cost base which is largely
fixed relative to production levels. Consequently, unexpectedly
large interruptions or prolonged reductions in production can have
a fairly immediate material adverse impact on cash flow. Recent
performance has been illustrative of the difficulties inherent in
deep mining operations and the impact of unpredictable geological
conditions and/or other operational issues on production volumes,
and on development and salvage activities at our deep mines. In
particular, development, face installation progress and salvage and
overhaul of equipment from previous faces all need to be completed
in time to enable new faces to be operational on the exhaustion of
old faces.
-- Bank funding arrangements contain, in certain cases,
covenants based upon, in particular, operating profits adjusted for
property revaluations and depreciation, interest cover, loan to
property values and net asset values. Property valuations affect
the loan to value covenants and net asset values and similarly net
asset values are affected by operational performance. Breach of
covenants could result in the need to pay down in part some of
these loans, additional costs, or a renegotiation of terms or, in
extremis, a reduction or withdrawal of facilities by the banks
concerned. In this regard, the Board has noted that the existing
bank facility agreements will need to be renegotiated as part of
the proposed restructuring of the business.
-- Revenues in respect of certain floating rate contracts,
capped/collared contracts and uncontracted coal will vary based
upon the market price for coal, which is expressed in dollars, and
sterling/dollar exchange rates. These variables have, over the last
year, proved to be volatile and therefore there is a risk of
unpredictability in coal revenues and therefore cash flows.
The Board notes that the matters set out above indicate the
existence of material uncertainties which may cast significant
doubt over the Group's ability to continue as a going concern.
Nevertheless, the Board confirms its belief that it is appropriate
to use the going concern basis of preparation for these financial
statements. These financial statements do not include the
adjustments that would result if the Group or the Parent Company
were unable to continue as a going concern.
Accounting policies
Except as described below, the accounting policies applied are
consistent with those of the Group financial statements for the
year ended 31 December 2011, as described in those annual financial
statements.
Taxes on income in the interim periods are accrued using the tax
rate that would be applicable to expected annual earnings.
(a) New and amended standards adopted by the Group
The following new standards and amendments to standards are
mandatory for the first time for the financial year beginning 1
January 2011:
- IAS 24, 'Related party disclosures' (revised 2009) has been
applied from 1 January 2011.
- 'Prepayments of a minimum funding requirement' (Amendments to
IFRIC 14), issued in November 2009. The amendments correct an
unintended consequence of IFRIC 14, 'IAS 19 - The limit on a
defined benefit asset, minimum funding requirements and their
interaction'. Without the amendments, entities are not permitted to
recognise as an asset some voluntary prepayments for minimum
funding contributions. This was not intended when IFRIC was issued,
and the amendments correct the problem. The Group has applied this
from 1 January 2011, but the impact of its adoption is not
considered to be significant.
(b) New and amended standards, and interpretations mandatory for
the first time for the financial year beginning 1 January 2011 but
not currently relevant to the Group (although they may affect the
accounting for future transactions and events)
- Amendment to IAS 32, 'Financial instruments: Presentation -
Classification of rights issues' is not applicable as the Group has
not made a rights issue during the period.
- IFRIC 19, 'Extinguishing financial liabilities with equity
instruments' is not applicable as the Group has not used equity to
settle financial liabilities.
(c) New standards, amendments and interpretations issued but not
effective for the financial year beginning 1 January 2011, but not
adopted early,
- IFRS 9 'Financial instruments', issued in November 2009. This
addresses the classification and measurement of financial assets
and is likely to affect the Group's accounting for its financial
assets. The standard is not applicable until 1 January
- IAS 19 'Employee benefits' was amended in June 2011. The
impact on the Group will be as follows: to eliminate the corridor
approach and recognise all actuarial gains and losses in other
consolidated income as they occur, to immediately recognise all
past service costs and to replace interest costs and expected
return on plan assets with a net interest amount that is calculated
by applying the discount rate to the net defined benefit
liability.
- IFRS 10 'Consolidated financial statements' builds on existing
principles by identifying the concept of control as the determining
factor in whether an entity should be included within the
consolidated financial statements of the parent company. The
standard provides additional guidance to assist in the
determination of control where this is difficult to assess. The
Group is yet to assess IFRS 10's full impact and intends to adopt
IFRS 10 no later than the accounting period beginning on or after 1
January 2013, subject to endorsement by the EU.
- IFRS 12 'Disclosures of interests in other entities' includes
the disclosure requirements for all forms of interests in other
entities, including joint arrangements, associates, special purpose
vehicles and other off balance sheet vehicles. The Group is yet to
assess IFRS 12's full impact and intends to adopt IFRS 12 no later
than the accounting period beginning on or after 1 January 2013,
subject to endorsement by the EU.
- IFRS 13 'Fair value measurement' aims to improve consistency
and reduce complexity by providing a precise definition of fair
value and a single source of fair value measurement and disclosure
requirements for use across IFRSs. The requirements, which are
largely aligned between IFRS and US GAAP, do not extend the use of
fair value accounting but provide guidance on how it should be
applied where it is already required or permitted by other
standards within IFRS or US GAAP. The Group is yet to assess IFRS
13's full impact and intends to adopt IFRS 13 no later than the
accounting period beginning on or after 1 January 2012, subject to
endorsement by the EU.
- Amendment to IAS 12 'Income taxes' on deferred tax. IAS 12
currently requires an entity to measure the deferred tax relating
to an asset depending on whether the entity expects to recover the
carrying amount of the asset through use or sale. It can be
difficult and subjective to assess whether the recovery will be
through use or through when the asset is measured using the fair
value model in IAS 40 'Investment property'. This amendment
therefore introduces an exception to the existing principle for the
measurement of deferred tax assets or liabilities arising on
investment property measured at fair value. As a result of the
amendments, SIC 21, 'Income taxes - recovery of revalued
non-depreciable assets', will no longer apply to investment
properties carried at fair value. The amendments also incorporate
into IAS 12 the remaining guidance previously contained in SIC 21,
which is withdrawn.
Exceptional items
Items that are both material and non-recurring and whose
significance is sufficient to warrant separate disclosure and
identification within the condensed consolidated interim financial
statements are referred to as exceptional items and disclosed
within their relevant income statement category within note 2.
Items that may give rise to classification as exceptional items
include, but are not limited to, significant and material
restructuring, closures and reorganisation programmes and asset
impairments.
Exceptional items are divided into non-trading and trading
exceptional items, depending upon the impact of the event giving
rise to the cost or income on the ongoing trading operations and
the nature of the costs or income involved. Non-trading exceptional
items include costs and income arising from rationalisation and
closure.
Property related transactions, including changes in the fair
value of investment properties, and profits and losses arising on
the disposal of property assets are not included in the definition
of exceptional items as they are expected to recur, but are
separately disclosed on the face of the consolidated income
statement, where material.
Seasonality
Significant seasonal or cyclical variations in the Group's total
revenues are not experienced during the financial year.
Estimates and judgements
The preparation of the condensed consolidated interim financial
statements requires management to make judgements, estimates and
assumptions that affect the application of accounting policies and
the reported amounts of assets and liabilities, income and expense.
Actual results may differ from these estimates.
In preparing these condensed consolidated interim financial
statements, the significant judgements made by management in
applying the Group's accounting policies and the key sources of
estimation uncertainty were the same as those that applied to the
consolidated financial statements for the year ended 31 December
2011.
2. Segmental reporting
The chief operating decision-maker has been identified as the
Executive Management Committee, as detailed below. The Committee
manages and co-ordinates all strategic and key operational issues.
The Committee considers that the operating segments comprise the
following:
- Mining, split between deep mining, including the contract
services operations, and surface mining, including the plant and
equipment fleet operation;
- Harworth Estates, our property division including the wind
farm portfolio and methane extraction/electricity generation
operations of Harworth Power; and
- Other, consisting of operations not controlled by the mining
or property businesses and unallocated central activities which do
not represent a separate reportable segment in accordance with IFRS
8.
The performance of the operating segments is assessed on a
measure of operating profit/loss. This measurement basis excludes
the effect of non-trading exceptional items and finance costs and
income which are not included in the results of the operating
businesses.
Total assets for the segments exclude deferred tax and cash and
cash equivalents (unrestricted) as these are managed centrally.
Cash and cash equivalents that are subject to restriction have been
included within the appropriate segment.
The Executive Management Committee as at 30 June 2012 consisted
of:
Chairman Jonson Cox
Finance Director David Brocksom
Managing Director - Mining Gareth Williams
Managing Director - Property Owen Michaelson
Company Secretary Jeremy Rhodes
HR Director Colin Reed
Communications Director Andrew Mackintosh
Subsequent to the period end Jeremy Rhodes stood down as Company
Secretary and Geoff Mason was appointed with effect from 8 August
2012.
Revenue 6 months 6 months Year ended
ended June ended June December
2012 2011 2011
Revenue from operations arises from: GBP000 GBP000 GBP000
-------------------------------------- ---------- ---------- ----------
Sale of goods (including electricity) 195,439 253,424 481,931
Rendering of services 16 123 16
Rental income 2,818 2,538 6,269
198,273 256,085 488,216
-------------------------------------- ---------- ---------- ----------
Ongoing Closed Deep Surface
deep mines deep mines* mining mining Property Other** Total
Six months ended June 2012 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------- ----------- -------- ------- -------- ------- --------
Continuing operations
Revenue - gross 147,381 - 147,381 49,621 6,413 - 203,415
Revenue - intra Group - - - (3,653) (1,489) - (5,142)
---------------------------------- ---------- ----------- -------- ------- -------- ------- --------
Revenue - external 147,381 - 147,381 45,968 4,924 - 198,273
---------------------------------- ---------- ----------- -------- ------- -------- ------- --------
Operating (loss)/profit
before non-trading exceptional
items and net increase
in fair value of investment
properties (19,064) (520) (19,584) 8,405 2,118 - (9,061)
Net movement in fair value
of investment properties - - - - 3,070 - 3,070
Operating (loss)/profit
before non-trading exceptional
items (19,064) (520) (19,584) 8,405 5,188 - (5,991)
Non-trading exceptional
items - - - - - (3,529) (3,529)
Operating (loss)/profit
after non-trading exceptional
items (19,064) (520) (19,584) 8,405 5,188 (3,529) (9,520)
Finance costs (9,064)
Exceptional finance costs (2,221)
Finance income 185
Net finance costs (11,100)
Share of post-tax profit from
joint ventures 61
Loss before tax (20,559)
Tax credit -
Loss for the period ended 30 June
2012 (20,559)
---------------------------------------------- ----------- -------- ------- -------- ------- --------
Other segmental items
Capital expenditure 12,666 - 12,666 229 2,984 - 15,879
Depreciation 20,056 - 20,056 459 606 160 21,281
Surface mine development
costs and restoration assets
capitalised - - - 11,855 - - 11,855
Amortisation of surface
mine development and restoration
assets - - - 7,897 - - 7,897
Provisions - non-cash charge 4,708 97 4,805 8,994 - - 13,799
---------------------------------- ---------- ----------- -------- ------- -------- ------- --------
* Closed deep mines includes income and expenditure arising at
the Welbeck and Harworth collieries.
** Other consists of operations not controlled by the mining or
property businesses and unallocated central activities which do not
represent a separate reportable segment in accordance with IFRS
8.
Property operating profit includes the net increase in the fair
value of properties of GBP3,070,000 and a profit on disposal of
investment properties of GBP420,000.
Exceptional items
Exceptional items totalling GBP5,750,000 have been charged to
the consolidated income statement in respect of refinancing and
restructuring, of which GBP3,529,000 has been treated as
non-trading exceptional items and GBP2,221,000 has been treated as
exceptional finance costs. These costs consist of professional fees
relating to refinancing and restructuring the business together
with additional transaction fees in respect of the refinancing.
Ongoing Closed Deep Surface
deep mines deep mines* mining mining Property Other** Total
Six months ended June 2011 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------- ----------- ------- ------- -------- ------- --------
Continuing operations
Revenue - gross 191,263 - 191,263 64,515 5,321 - 261,099
Revenue - intra Group (385) - (385) (3,582) (1,047) - (5,014)
---------------------------------- ----------- ------- ------- -------- ------- --------
Revenue - external 190,878 - 190,878 60,933 4,274 - 256,085
---------------------------------- ---------- ----------- ------- ------- -------- ------- --------
Operating profit/(loss)
before non-trading exceptional
items and net decrease
in fair value of investment
properties 20,916 (421) 20,495 11,433 3,269 - 35,197
Net movement in fair value
of investment properties - - - - - - -
Operating profit/(loss)
before non-trading exceptional
items 20,916 (421) 20,495 11,433 3,269 - 35,197
Non-trading exceptional
items 1,430 - 1,430 - - (1,319) 111
---------------------------------- ---------- ----------- ------- ------- -------- ------- --------
Operating profit/(loss)
after non-trading exceptional
items 22,346 (421) 21,925 11,433 3,269 (1,319) 35,308
Finance costs (13,345)
Finance income 132
---------------------------------- ---------- ----------- ------- ------- -------- ------- --------
Net finance costs (13,213)
Share of post-tax profit from
joint ventures 20
Profit before tax 22,115
Tax credit 110
---------- ----------- ------- ------- -------- ------- --------
Profit for the period ended 25
June 2011 22,225
---------------------------------------------- ----------- ------- ------- -------- ------- --------
Other segmental items
Capital expenditure 14,855 - 14,855 27 1,473 372 16,727
Depreciation 18,244 - 18,244 923 555 84 19,806
Surface mine development
costs and restoration assets
capitalised - - - 1,120 - - 1,120
Amortisation of surface
mine development and restoration
assets - - - 9,236 - - 9,236
Provisions - non-cash charge 8,662 - 8,662 2,750 - - 11,412
---------------------------------- ---------- ----------- ------- ------- -------- ------- --------
* Closed deep mines includes income and expenditure arising at
the Welbeck and Harworth collieries.
** Other consists of operations not controlled by the mining or
property businesses and unallocated central activities which do not
represent a separate reportable segment in accordance with IFRS
8.
Property operating profit includes no movement in the fair value
of investment properties but includes a profit on disposal of
investment properties of GBP2,105,000.
Non-trading exceptional items
Non-trading exceptional items consists of a pension scheme
curtailment gain of GBP1,430,000, (included in cost of sales) and
professional fees in relation to refinancing the business of
GBP1,319,000, (included within other operating expenses).
Ongoing Closed Deep Surface
deep mines deep mines* mining mining Property Other** Total
Year ended December 2011 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------- ----------- ------- ------- -------- ------- --------
Continuing operations
Revenue - gross 366,269 - 366,269 119,461 13,430 6 499,166
Revenue - intra Group - - - (8,038) (2,912) - (10,950)
---------------------------------- ---------- ----------- ------- ------- -------- ------- --------
Revenue - external 366,269 - 366,269 111,423 10,518 6 488,216
---------------------------------- ---------- ----------- ------- ------- -------- ------- --------
Operating profit/(loss)
before non-trading exceptional
items and net decrease
in fair value of investment
properties 34,861 (2,492) 32,369 22,055 7,402 11 61,837
Net increase in fair value
of investment properties - - - - 3,325 - 3,325
Operating profit/(loss)
before non-trading exceptional
items 34,861 (2,492) 32,369 22,055 10,727 11 65,162
Non-trading exceptional
items 17,808 - 17,808 - - (1,700) 16,108
---------- ----------- ------- ------- -------- ------- --------
Operating profit/(loss)
after non-trading exceptional
items 52,669 (2,492) 50,177 22,055 10,727 (1,689) 81,270
Finance costs (23,112)
Finance income 256
Net finance costs (22,856)
Share of post-tax loss from joint
ventures (431)
Profit before tax 57,983
Tax charge (2,742)
---------------------------------- ---------- ----------- ------- ------- -------- ------- --------
Profit for the year ended 31 December
2011 55,241
---------------------------------------------- ----------- ------- ------- -------- ------- --------
Other segmental items
Capital expenditure 30,174 - 30,174 499 5,534 372 36,579
Depreciation 37,390 - 37,390 1,710 1,169 230 40,499
Surface mine development
costs and restoration assets
capitalised - - - 7,191 - - 7,191
Amortisation of surface
mine development and restoration
assets - - - 17,121 - - 17,121
Provisions - non-cash charge 4,069 3,496 7,565 5,523 - - 13,088
---------------------------------- ---------- ----------- ------- ------- -------- ------- --------
* Closed deep mines includes income and expenditure arising at
the Welbeck and Harworth collieries
** Other consists of operations not controlled by the mining or
property businesses and unallocated central activities which do not
represent a separate reportable segment in accordance with IFRS
8.
Property operating profit includes the net increase in the fair
value of properties of GBP3,325,000 and a profit on disposal of
investment properties of GBP2,685,000.
Non-trading exceptional items
Rationalisation, closure and other costs consists of
professional fees in relation to refinancing of GBP1,700,000, a
curtailment gain of GBP1,430,000 and an accounting adjustment
relating to past service costs in pension schemes of GBP16,378,000
following changes in the schemes rules in the year. All non-trading
exceptional items are included in cost of sales with the exception
of professional fees in relation to refinancing the business which
are included within other operating expenses.
Total assets Ongoing Closed Deep Surface
deep mines deep mines* mining mining Property Other** Total
as at June 2012 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------- ----------- ------- ------- -------- ------- -------
Segment assets 252,228 188 252,416 62,620 290,247 1,095 606,378
Investment in joint
ventures - - - - 3,040 - 3,040
Total segment assets 252,228 188 252,416 62,620 293,287 1,095 609,418
------------------------- ---------- ----------- ------- ------- -------- -------
Unrestricted cash 3,533
Deferred tax asset 31,509
Total assets per balance
sheet 644,460
------------------------- ---------- ----------- ------- ------- -------- ------- -------
Total assets Ongoing Closed Deep Surface
deep mines deep mines* mining mining Property Other** Total
as at June 2011 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------- ----------- ------- ------- -------- ------- -------
Segment assets 292,955 193 293,148 47,854 317,259 1,337 659,598
Investment in joint
ventures - - - - 3,430 - 3,430
Total segment assets 292,955 193 293,148 47,854 320,689 1,337 663,028
------------------------- ---------- ----------- ------- ------- -------- -------
Unrestricted cash 1,687
Deferred tax asset 34,474
Total assets per balance
sheet 699,189
------------------------- ---------- ----------- ------- ------- -------- ------- -------
Total assets Ongoing Closed Deep Surface
deep mines deep mines* mining mining Property Other** Total
as at December 2011 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------- ----------- ------- ------- -------- ------- -------
Segment assets 265,251 179 265,430 44,388 293,752 912 604,482
Investment in joint
ventures - - - - 2,979 - 2,979
Total segment assets 265,251 179 265,430 44,388 296,731 912 607,461
------------------------- ---------- ----------- ------- ------- -------- -------
Unrestricted cash 1,689
Deferred tax asset 31,509
Total assets per balance
sheet 640,659
------------------------- ---------- ----------- ------- ------- -------- ------- -------
* Closed deep mines includes the assets of Welbeck and Harworth
collieries
** Other consists of operations not controlled by the mining or
property businesses and unallocated central activities which do not
represent a separate reportable segment in accordance with IFRS
8.
Cash and cash equivalents that are subject to restriction have
been included within the appropriate segment, along with the
related provisions.
3. Finance costs and income
6 months 6 months Year
ended ended ended
June June December
2012 2011 2011
GBP000 GBP000 GBP000
--------------------------------------- -------- -------- --------
Interest expense
- Bank borrowings (3,177) (4,724) (9,227)
- Hire purchase agreements and finance
leases (418) (487) (915)
- Unwinding of discount on provisions (895) (1,685) (3,319)
- Amortisation of issue costs of bank
loans (1,405) (425) (537)
- Generator loans and prepayments (3,593) (4,950) (9,187)
Gains/(losses) on interest rate swaps
not eligible for hedge accounting 424 (702) 445
Amortisation of interest rate swaps
recycled from reserves - (372) (372)
--------------------------------------- -------- -------- --------
(9,064) (13,345) (23,112)
Exceptional finance costs relating to
refinancing (2,221) - -
Finance costs (11,285) - -
Finance income 185 132 256
Net finance costs (11,100) (13,213) (22,856)
--------------------------------------- -------- -------- --------
4. Tax
The tax in the period is GBPnil (June 2011: GBP110,000 credit;
December 2011: GBP2,742,000 charge).
The Directors have assessed the carrying value of the deferred
tax asset based on the current and proposed restructured Group. The
assessment has been based on the associated cash flow forecasts
under both scenarios. The outcome of this assessment supports the
carrying value at 30 June 2012. Given the restructuring, outlined
in the Chairman's Statement, is not finalised the Directors will
continue to monitor the impact any changes would have on the
carrying value of the deferred tax asset.
5. Dividends
No dividends have been paid or proposed in relation to 2011. No
interim dividend is proposed for the six months ended June
2012.
6. (Loss)/earnings per share
(Loss)/earnings per share has been calculated by dividing the
(loss)/earnings attributable to ordinary shareholders by the
weighted average number of shares in issue and ranking for dividend
during the period.
In calculating the diluted (loss)/earnings per share, the
weighted average number of ordinary shares is adjusted for the
diluting effect of share options potentially issuable under the
Group's employee share option plans.
6 months 6 months Year
ended ended ended
June June December
2012 2011 2011
GBP000 GBP000 GBP000
--------------------------------------- ----------- ----------- -----------
(Loss)/profit for the period (20,559) 22,225 55,241
--------------------------------------- ----------- ----------- -----------
Weighted average number of shares used
for basic and diluted (loss)/earnings
per share calculations 299,298,160 299,298,160 299,298,160
--------------------------------------- ----------- ----------- -----------
Basic and diluted (loss)/earnings per
share (pence) (6.9) 7.4 18.5
--------------------------------------- ----------- ----------- -----------
7. Operating property, plant and equipment
Operating Surface mine
property, development
plant and restoration
and
equipment assets Total
Net book value GBP000 GBP000 GBP000
--------- ----------- --------
At January 2011 237,153 35,675 272,828
Additions 15,425 1,120 16,545
Disposals (19) - (19)
Net transfer to investment properties (2,953) - (2,953)
Depreciation charge (19,806) (9,236) (29,042)
--------- ----------- --------
At June 2011 229,800 27,559 257,359
Additions 16,380 6,071 22,451
Disposals (842) - (842)
Net transfer to investment properties (1,150) - (1,150)
Depreciation charge (20,693) (7,885) (28,578)
--------- ----------- --------
At December 2011 223,495 25,745 249,240
Additions 13,273 11,855 25,128
Disposals (1,061) - (1,061)
Net transfer from investment properties 3,105 - 3,105
Transfer to non-current assets held
for sale (4,936) - (4,936)
Depreciation charge (21,281) (7,897) (29,178)
--------- ----------- --------
At June 2012 212,595 29,703 242,298
---------------------------------------- --------- ----------- --------
In addition to the above, the Group is committed to a further
GBP14,100,000 (June 2011: GBP27,860,000; December 2011:
GBP11,895,000) of expenditure for operating property, plant and
equipment.
In accordance with IAS 36, operating property, plant and
equipment is reviewed for impairment if there is any indication
that their carrying amount may not be recoverable. As a result of
the operating loss recorded by the Group in the period, and also
the significant fall in the market capitalisation of the Group, an
impairment review has been carried out on a basis consistent with
previous years.
The Group announced on 14 March 2012 that it is consulting on
the potential closure of Daw Mill, once it has mined coal from
existing and part developed coal panels in 2014. The consultation
process is continuing and no decisions have yet been made. The
Group estimates that were an irrevocable decision be made to close
Daw Mill in 2014, an impairment loss of approximately GBP36,000,000
will need to be recognised. In addition, depreciation would be
accelerated on the remaining tangible fixed assets with a net book
value at June 2012 of GBP40,000,000. Other related costs, including
redundancies, will depend on the outcome of negotiations and cannot
yet be estimated with any degree of accuracy.
The Directors have assessed the carrying value of the mining
assets based on the current and proposed restructured Group. The
assessment has been based on the associated cash flow forecasts
under both scenarios. The outcome of this assessment supports the
carrying value at 30 June 2012. Given the restructuring, outlined
in the Chairman's Statement, is not finalised the Directors will
continue to monitor the impact any changes would have on the
carrying value of the mining assets
8. Investment properties
6 months 6 months Year ended
ended ended
June June December
2012 2011 2011
At valuation GBP000 GBP000 GBP000
-------------------------------------------- -------- -------- ----------
At start of period 250,640 314,237 314,237
Additions 2,606 1,302 4,774
Disposals (697) (51,674) (63,718)
Fair value adjustment 3,070 - 3,325
Net transfer (to)/from operating property,
plant and equipment (3,105) 2,953 4,103
Transfer to non-current assets held
for sale (430) - (16,600)
Revaluation gain on transfer from operating
property, plant and equipment - 5,089 4,519
At end of period 252,084 271,907 250,640
-------------------------------------------- -------- -------- ----------
In addition to the above, the Group is committed to a further
GBP1,071,000 (June 2011: GBP631,000; December 2011 GBP559,000) of
expenditure for investment properties.
An internal review of the valuation of investment properties was
carried out as at 30 June 2012. The review was undertaken by
suitably qualified employees with both appropriate professional
qualification (FRICS/ MRICS) and a comprehensive knowledge of these
properties and associated markets. The valuation basis and
assumptions are consistent with those used as at 31 December 2011.
Following this review the Directors are of the opinion that, in the
current market, the change in the value of the Group's investment
property portfolio as at 30 June 2012 is an increase of
GBP3,070,000. In line with prior years, a full external valuation
will be carried out and reported in the year end accounts.
Key assumptions within the basis of fair value are:
- the sites will be cleared of redundant buildings, levelled and
prepared ready for development;
- the values are on a basis that no material environmental
contamination exists on the subject or adjoining sites, or where
this is present the sites will be remediated to a standard
consistent with the intended use, the costs for such remediation
being separately provisioned; and
- no deduction or adjustment has been made in relation to
clawback provisions, or other taxes which may be payable in certain
events.
9. Cash and cash equivalents
As at As at As at December
June June
2012 2011 2011
GBP000 GBP000 GBP000
---------------------------------- ------ ------ --------------
Unrestricted cash balances 3,533 1,687 1,689
Cash deposited to cover insurance
requirements 15,021 15,090 14,735
Subsidence security fund 8,938 8,817 8,854
---------------------------------- ------ ------ --------------
Total restricted cash balances 23,959 23,907 23,589
Cash and cash equivalents 27,492 25,594 25,278
---------------------------------- ------ ------ --------------
10. Non-current assets classified as held for sale
As at As at As at December
June June
2012 2011 2011
GBP000 GBP000 GBP000
------
Operating property, plant
and equipment 4,936 - -
Investment properties 1,380 - 16,600
Non-current assets classified
as held for sale 6,316 - 16,600
------------------------------ ------ ------ --------------
On 22 June 2012 the Company announced that it had entered into a
conditional contract to sell the entire share capital of its
indirectly held subsidiary Harworth Power (Generation) Limited for
a total cash consideration of GBP20,300,000. The net book value of
the operating property, plant and equipment held within the
property segment relating to this sale is GBP4,936,000. The
conditions for the disposal of the shares are expected to be met
during the second half of 2012 and so the fixed assets have been
treated as assets classified as held for sale.
On the grounds of non-materiality, the activities of Harworth
Power (Generation) Limited have not been disclosed as a
discontinued operation.
Conditional sales contracts were exchanged during 2011 for the
disposal of investment properties, held within the property
reporting segment, with fair value of GBP16,600,000 at December
2011. In the period to 30 June 2012, properties with a net book
value of GBP15,650,000 have been sold with gross proceeds of
GBP18,600,000 with a further GBP430,000 being classified as assets
held for sale. The balance remaining of GBP1,380,000 has been sold
in July 2012 with proceeds of GBP1,380,000.
The amount recognised in reserves relating to these properties
was GBP86,000 (June 2011: GBPnil, December 2011 GBP14,190,000).
11. Borrowings
As at June As at As at December
June
2012 2011 2011
GBP000 GBP000 GBP000
-------------------------------- ---------- ------- --------------
Bank loans, overdrafts and
finance leases
Current 5,156 5,647 37,541
Non-current 64,418 105,839 18,849
69,574 111,486 56,390
-------------------------------- ---------- ------- --------------
Generator loans and prepayments
Current 40,223 34,674 41,723
Non-current 32,014 62,863 42,386
72,237 97,537 84,109
-------------------------------- ---------- ------- --------------
Total
Current 45,379 40,321 79,264
Non-current 96,432 168,702 61,235
141,811 209,023 140,499
-------------------------------- ---------- ------- --------------
Borrowings at June 2012 are stated after deduction of
unamortised borrowing costs of GBP2,451,000 (June 2011: GBP631,000;
December 2011: GBP989,000).
During the period, the Group's borrowings increased by
GBP2,774,000. No additional finance lease facilities have been
secured during the period. The leases are due to be repaid in the
period from 2012 to 2014.
The Group is party to certain contracts for coal supply which
resulted in increased cash flows to the business in 2009, 2010,
2011 and 2012. These benefits together with accrued implied
interest are treated as generator loans and prepayments, and will
be repaid either out of later revenue or as separate repayments
which commenced in October 2010 and end in 2015. Interest is
charged on these outstanding amounts using actual or implied
interest rates. The average interest rate on these balances is 11%.
During the period GBP11,872,000 has been repaid against these
balances.
As reported in the Annual Report and Accounts 2011, the Group
renewed and extended its banking facilities in the period to 30
June 2012, with the following principal changes:
- Extensions to the maturity of the RCF, the Additional
Revolving Facilities ("ARF"), the Harworth Estates (Waverly Prince)
Ltd ("HEWPL") facility and the EOS Inc. Ltd facility to the end of
December 2013 have all been agreed;
- The financial profile of the ARF were modified so that the
amount available to be drawn, which was initially increased to
GBP27,500,000, reduces by GBP7,500,000 on 30 September 2012 and
amortises over the period June 2013 to November 2013. The facility
reduces from GBP20,000,000 to GBP12,500,000 for a short period at
the end of 2012, before reverting to GBP20,000,000.
Over and above these extended bank facilities, the Group
extended the term of a further GBP10,000,000 of unsecured stand-by
facility from Peel Holdings Finance Limited, which is available for
drawing in the event that both the RCF and part of the ARF are
fully drawn. This facility, which amortises gradually over the
period August 2013 to November 2013, has also been extended to
mature in November 2013.
12. Provisions
As at December Provided Released Utilised Unwinding As at
June
2011 in period in period in period of discount 2012
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------------- -------------- --------- --------- --------- ----------- ------
Employer and public liabilities 8,452 1,599 (142) (1,105) - 8,804
Surface damage 16,492 3,112 - (4,774) 173 15,003
-------------- --------- --------- --------- ----------- ------
24,944 4,711 (142) (5,879) 173 23,807
Claims 15 - - - - 15
Redundancy 445 325 - (546) - 224
Restoration and closure
costs of surface mines 41,159 8,905 - (392) 489 50,161
Restoration and closure costs
of deep mines:
- shaft treatment and
pit top 9,646 - - (11) 101 9,736
- spoil heaps 2,484 - - (199) 26 2,311
Ground/groundwater contamination 10,077 - - - 106 10,183
88,770 13,941 (142) (7,027) 895 96,437
--------------------------------- -------------- --------- --------- --------- ----------- ------
The nature of the Group's obligations is as disclosed in the
Annual Report and Accounts for the year ended 31 December 2011.
Restricted funds of GBP23,959,000 have been set aside to meet
the liabilities due on the employer and public liabilities and
surface damage provisions above together with assets secured of
GBP5,470,000 and a bond of GBP10,000,000 repayable December
2012.
Provisions have been allocated between current and non-current
as follows:
As at As at
June June As at December
2012 2011 2011
GBP000 GBP000 GBP000
--------------------------- ------- -------- ---------------
Provisions payable within
one year 12,638 25,721 13,480
Provisions payable after
more than one year 83,799 74,823 75,290
---------------
96,437 100,544 88,770
--------------------------- ------- -------- ---------------
Provisions are expected to be settled within the timescales set
out in the following table:
More than
Within 1-2 years 2-5 years 5 years Total
1 year
GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------------- ------- --------- --------- --------- ------
Employer and public liabilities 3,533 1,894 2,988 389 8,804
Surface damage 3,425 3,053 6,399 2,126 15,003
------- --------- --------- --------- ------
6,958 4,947 9,387 2,515 23,807
Claims 15 - - - 15
Redundancy 224 - - - 224
Restoration and closure
costs of surface mines 5,311 7,174 33,538 4,138 50,161
Restoration and closure costs of
deep mines:
- shaft treatment and
pit top 65 71 2,505 7,095 9,736
- spoil heaps 65 - 759 1,487 2,311
Ground/groundwater contamination - 2,086 5,051 3,046 10,183
12,638 14,278 51,240 18,281 96,437
--------------------------------- ------- --------- --------- --------- ------
13. Retirement benefit obligations
The balance sheet amounts in respect of retirement benefit
obligations are:
As at As at As at December
June June
2012 2011 2011
GBP000 GBP000 GBP000
---------------------- ------- ------- --------------
Industry wide schemes 115,579 156,343 101,009
Concessionary fuel 45,621 45,822 43,696
161,200 202,165 144,705
---------------------- ------- ------- --------------
Industry wide schemes
The amounts recognised in the consolidated balance sheet are as
follows:
As at As at As at December
June June
2012 2011 2011
GBP000 GBP000 GBP000
-------------------------- --------- --------- --------------
Fair value of plan assets 463,849 445,192 450,043
Present value of funding
obligations (579,428) (601,535) (551,052)
Net liability recognised
in the balance sheet (115,579) (156,343) (101,009)
-------------------------- --------- --------- --------------
The amounts recognised in the consolidated income statement
are:
6 months 6 months Year
ended ended ended
June June December
2012 2011 2011
GBP000 GBP000 GBP000
------------------------ -------- -------- --------
Current service cost (4,979) (6,606) (12,676)
Interest cost (13,476) (15,590) (31,123)
Expected return on plan
assets 11,626 14,091 28,215
Effect of curtailment - 1,430 1,430
Past service cost - - 14,814
(6,829) (6,675) 660
------------------------ -------- -------- --------
Current service cost is charged to cost of sales, with interest
cost less expected return on plan assets included as part of
administration expenses within other operating expenses and the
effect of curtailment and past service cost are included in
non-trading exceptional items.
Concessionary fuel
The amounts recognised in the consolidated balance sheet are as
follows:
As at As at As at December
June June
2012 2011 2011
GBP000 GBP000 GBP000
------------------------- -------- -------- --------------
Net liability recognised
in the balance sheet (45,621) (45,822) (43,696)
------------------------- -------- -------- --------------
The amounts recognised in the consolidated income statement
are:
6 months 6 months Year
ended ended ended
June June December
2012 2011 2011
GBP000 GBP000 GBP000
--------------------- -------- -------- --------
Current service cost (235) (238) (476)
Interest cost (1,066) (999) (1,988)
Past service cost - - 1,564
(1,301) (1,237) (900)
--------------------- -------- -------- --------
Current service cost is charged to cost of sales and interest
cost is included as part of administration expenses within other
operating expenses.
14. Related party transactions
Investments in joint ventures
As at June As at June As at December
2012 2011 2011
GBP000 GBP000 GBP000
---------- ---------- --------------
UK Strategic Partnership Limited 627 1,032 578
Bates Regeneration Limited 2,413 2,398 2,401
3,040 3,430 2,979
--------------------------------- ---------- ---------- --------------
There have been no transactions with joint ventures in the
period.
Balances owing from/(to) joint ventures
Peel Group
The GBP10,000,000 unsecured facility from Peel Holdings Finance
Limited was originally agreed in 2010 and renewed in 2011. The
facility was due to expire at the end of July 2012 but was extended
in April 2012 until November 2013, amortising in value by
GBP2,500,000 per month from August 2013 to November 2013. No
interest was payable in 2012 as the facility was undrawn in the
period. Total fees of GBP345,000 were incurred in the period in
relation to the facility.
15. Contingent liabilities
Guarantees have been given in the normal course of business for
performance bonds at June 2012 of GBP4,104,000 (June 2011:
GBP4,209,000; December 2011: GBP5,619,000) to cover the performance
of work under a number of Group contracts.
The Company is liable for the pension schemes contributions and
deficit on the industry wide schemes. Furthermore the Company has
provided a guarantee for an insurance bond for GBP10,000,000 (June
2011: GBP10,000,000; December 2011: GBP10,000,000) which is used as
security to cover surface damage liabilities which are provided in
the Group accounts. This bond is repayable in December 2012.
Under the rules for the Industry Wide pension schemes,
additional benefits may become payable if, according to the Scheme
Actuary, the schemes become funded on a "sustainable basis". Given
the current level of deficit in the schemes and the uncertainty
over whether the sustainability test will be met, it is not
probable that such additional benefits would become payable.
There are no other material contingent liabilities at June 2012
(June 2011: GBPnil; December 2011: GBPnil) for which provision has
not been made in these financial statements.
16. Post balance sheet event
Since the period end and as noted in the Chairman's Statement,
we have reached agreement in principle with a number of key
stakeholders with regard to a possible restructuring of the Group.
There remains significant risk in converting this agreement into a
formal restructure.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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