29th Jan 2008 10:28
Rio Tinto PLC29 January 2008 Coal & Allied annual results 2007 - profit affected by infrastructureconstraints and adverse weather 29 January 2008 Summary • Profit before tax was $79.3 million compared with $270.3 million in 2006 • Profit after tax was $109.8 million compared with $207.6 million in 2006 • 2007 production of 23.9 million tonnes was 17 per cent lower than 2006 • Final dividend has been maintained at 25 cents per ordinary share. Commenting on the full year results, Coal & Allied's Managing Director, Hubievan Dalsen, said; "Coal & Allied's profit in 2007 was disappointing and wasadversely affected by infrastructure constraints and Hunter Valley Coal Chainperformance. This was exacerbated by severe flooding in the Hunter Valley inJune following a severe weather event. Domestic sales were also lower. "The profit after tax benefited from a one-off tax credit of $46 million, whichwas reported in the announcement of results for the half year to June 2007. "Demurrage costs were substantially higher than 2006 because of the extendedqueue of ships awaiting loading and consequent delays at the port of Newcastleduring the year. "In 2007, Coal & Allied suffered a number of port allocation cutbacks, whichprevented it from maximising its production capabilities in a marketexperiencing strong global demand and buoyant prices for thermal coal. "In response to these cutbacks, Coal & Allied had to reduce production at itsthree operations. Coal & Allied is well placed to take advantage of the strongmarket conditions when capacity becomes available in the Hunter Valley CoalChain." Mr van Dalsen said the Capacity Balancing System was approved by the AustralianConsumer and Competition Commission (ACCC) to manage allocations of portcapacity to producers. "After both the shipping queues and demurrage fees rose, producers later agreedto reinstate a revised Capacity Balancing System, which remains in place today,"Mr van Dalsen said. "Coal & Allied has always maintained that a long term sustainable commercialframework is required to underpin investment and provide certainty in the HunterValley. We welcome the appointment of the former Premier of the State of NewSouth Wales, Nick Greiner, as facilitator in finding a resolution to the HunterValley Coal Chain constraint issues. We look forward to a speedy and effectiveresolution to this critical infrastructure problem." Summary of performance Coal & Allied's results for 2007 are shown below, along with comparative resultsfor 2006. Year to 31 December Change 2007 2006 % Revenue ($ millions) 1,374.5 1,415.0 (2.9)Profit before tax 79.3 270.3 (70.7) Profit after tax ($ millions) 109.8 207.6 (47.1)Operating cash flow ($ millions) 76.3 127.5 (40.2) 25.0 25.0 -Coal production1 (million tonnes) 23.9 28.8 (16.9)Coal shipments1 (million tonnes) 25.5 27.6 (7.6) 1 Production and shipments are on a 100% basis. Shipments exclude purchasedcoal. Details of full production and shipments are shown in the Financial andOperating Statistics appendix. Profit Profit before tax was $79.3 million, which was 70.7 per cent lower than 2006.Despite higher US dollar coal prices, the main reasons for the reduced profitbefore tax in 2007 were lower sales volumes, the adverse effects of a strongerAustralian dollar, higher demurrage costs resulting from extended ship queuesoff the coast of Newcastle during the year and higher interest costs on higherdebt levels. In addition, due to port allocation constraints it has beennecessary to purchase coal at spot prices to satisfy 2007 contractualcommitments. These coal purchases resulted in an approximate $20 millionreduction in 2007 profit before tax. Profit after tax was $109.8 million and benefited from a $46 million one-offcredit to income tax that was announced at the release of results for the June2007 half year. Revenue Revenue was 2.9 per cent lower than in 2006. However, Free-on-Board coal salesrevenue was 5.2 per cent lower, with coal shipments being adversely affected byHunter Valley coal chain infrastructure constraints throughout 2007 and severeweather conditions in June 2007. US dollar denominated coal prices were higherby seven per cent, but were offset by the adverse effects of the strongerAustralian dollar which averaged 11 per cent higher in 2007. Costs The Hunter Valley infrastructure constraints and subsequent production cutbacksby Coal & Allied resulted in each of the company's three mines standing downequipment to match production capacity with its port allocation. Accordingly,contractor costs and other variable production costs were lower than 2006.Demurrage costs had a $50 million adverse impact on 2007 profit before taxcompared with the corresponding period. As a result of a substantial netdrawdown of coal inventory (C&A share 2.2 million tonnes), the charge to profitwas $60 million higher compared with 2006. Administration and other mining costs were higher, primarily due to feasibilitystudies for the Mount Pleasant project and Lower Hunter Land project, as well ashigher insurance costs and contributions to COAL21 Clean Coal research funds. Production Managed production of saleable coal declined by 4.9 million tonnes to 23.9million tonnes. This decline was consistent with Coal & Allied's reduced portallocation of coal sales through the Port of Newcastle and a lower level ofdomestic contracted coal sales. Capital expenditure Total capital expenditure for the year was $122.4 million compared with $147.9million in 2006. Expenditure related predominantly to sustaining purposes,including replacement of heavy mobile equipment and major maintenance to plantand equipment. Cash flow Net operating cash flow was $76.3 million compared with $127.5 million in 2006because of lower profits. Capital expenditure was lower by $25.5 millionresulting in a free cash outflow of $38.5 million compared with $15.7 million in2006. Debt Net debt of $311.6 million at the end of 2007 was higher when compared with$278.1 million in 2006, because of lower free cash flow, with interest costsrising by $9 million. Gearing (net debt to net debt + equity) was 28.0 per centat 31 December 2007, compared with 25.7 per cent at 31 December 2006. Dividends Final dividend has been maintained at 25 cents per ordinary share. Infrastructure In March 2007, a revised capacity balancing system was reinstated with theapproval of the ACCC. A severe weather event in June 2007 led to increasedshipping queues in the second quarter and very significant loading delays. Following the severe weather in June, which caused extensive damage to the railnetwork, the queue of ships awaiting loading at Newcastle peaked at 79 vessels. The extent of the queue resulted in cut backs to port allocations for allproducers in the Hunter Valley. Throughout 2007, coal producers engaged in discussions with the aim of agreeinga methodology for allocating coal chain capacity in 2008. In the absence ofagreement by producers, the providers of port and rail infrastructure for theHunter Valley Coal Chain developed a Vessel Queue Management System (VQMS) basedon their actual contracts with the coal producers. In November 2007, anapplication was made to the ACCC to have the system authorised. The ACCC did notgrant interim authorisation for the VQMS, but did grant interim authorisation tocontinue the existing Capacity Balancing System. Hunter Valley coal producers will be required to work constructively to maximiseefficiencies in the coal chain. Coal & Allied supports the appointment of anindependent facilitator, Nick Greiner, to help resolve short-to-medium termallocation issues. While these shorter term issues need to be addressed, coalproducers also need to achieve a long-term resolution to the coal chain capacityissues. Coal & Allied believes that the State Government of New South Walesmust allow Port Waratah Coal Services (PWCS) to enter into fixed and firm longterm contracts with coal producers, which will allow all coal producers torealise their growth potential. A long term commercial framework to underpininvestment and provide security to customers and producers is critical to thisobjective. PWCS has commenced an expansion to increase nominal annual capacity to 113million tonnes from the current level of 102 million tonnes. The cost of thisexpansion is expected to total $458 million, with incremental output scheduledfor availability in the final quarter of 2009. The additional port capacity isexpected to be available ahead of the corresponding rail capacity. Market conditions During 2007, the growth in demand for thermal coal was driven by imports fromthe Asia Pacific basin. Japanese coal demand was stronger than 2006 (by about3.3 million tonnes), while Korean import levels grew solidly in 2007 (up 5.7million tonnes) due to the demand by new coal-fired capacity. Taiwanese import growth was relatively weak in 2007, up 1.4 million tonnes on2006 levels, while there was negative growth in most importing Atlanticcountries due to the milder winter. There was continued strength in thesemi-soft coking coal market during 2007. China's net exports of coal continuedto fall dramatically in 2007, largely offsetting Indonesia's coal export growth. Looking forward, the demand for thermal coal is robust and coal prices areexpected to be higher compared with 2007. Safety At Coal & Allied, the Lost Time Injury Frequency Rate was slightly higher at0.44 per million person hours in 2007 from 0.21 per million person hours in2006. However, Coal & Allied sites recorded a number of significant safetyachievements. The Mount Thorley Warkworth Safety team reached the finals of the NSW MineralsCouncil Safety Innovation Awards with its collision avoidance system called 'Duck In". Hunter Valley Operations was awarded the Rio Tinto Chief Executive Safety Awardin 2007, following on from its Most Improved Safety Award in 2006. Mount Pleasant In 2006, Coal & Allied commenced a feasibility study on the Mount Pleasantthermal coal project located adjacent to the Bengalla coal mine nearMuswellbrook in the Hunter Valley. Greater certainty surrounding coal chaininfrastructure in the Hunter Valley is required before the feasibility study canbe finalised. Lower Hunter Land In 2006, Coal and Allied signed a memorandum of understanding with the StateGovernment of New South Wales to facilitate the provision of extensive landconservation corridors in the Lower Hunter Valley through the transfer of 80 percent of the company's land holdings after mining has been completed, oncondition that the remaining 20 per cent of land holdings are developed.Extensive community consultation continued throughout 2007 with various optionsconsidered. Feasibility studies will be conducted in 2008 to finalise theseoptions. Climate Change Coal & Allied is a long-term contributor to a range of projects that support theresearch, development and deployment of clean coal technologies, including avoluntary contribution of funds to the COAL21 levy. In 2007 Coal & Alliedlaunched a climate change action plan. This plan is multi faceted and aims tocreate an enabling environment where all employees can contribute to thesolution for climate change. Initiatives include metering and monitoring energyusage at Coal & Allied operations, and implementing energy improvementprogrammes across all sites. Coal & Allied Financial and Operating Statistics 2007 2006Production and shipments '000 tonnes '000 tonnes Total saleable production 2Hunter Valley Operations 10,094 12,025Mount Thorley Operations 2,924 3,895Bengalla 5,155 5,545Warkworth 5,776 7,341Total 23,949 28,806 Coal & Allied equity share of productionHunter Valley Operations (100%) 10,094 12,023Mount Thorley Operations (80%) 2,339 3,116Bengalla (40%) 2,062 2,218Warkworth (55.57%) 3,211 4,082Total 17,706 21,439 Total shipments 1 25,522 27,634 Shipments by market 1Japan 11,558 10,140Asia (excluding Japan) 6,024 6,885Europe 1,701 1,524Americas 1,980 2,251Domestic 1,588 4,257Other 2,671 2,577Total 25,522 27,634 Shipments by product 1Export thermal 20,379 20,224Domestic thermal 1,588 4,257Coking 3,555 3,153Total 25,522 27,634 Financial 2007 2006 $ million $ millionTotal assets 1,899.8 1,864.9Capital expenditure and investments 122 148Depreciation and amortisation 101 96Employees 1,417 1,355Net debt to net debt + equity (%) 28.0 25.7Earnings per share (cents) 126.8 239.7 1 Shipments are on a 100% basis and exclude purchased coal 2 Production is on a 100% basis About Rio Tinto Rio Tinto is a leading international mining group headquartered in the UK,combining Rio Tinto plc, a London listed company, and Rio Tinto Limited, whichis listed on the Australian Securities Exchange. Rio Tinto's business is finding, mining, and processing mineral resources. Majorproducts are aluminium, copper, diamonds, energy (coal and uranium), gold,industrial minerals (borax, titanium dioxide, salt, talc) and iron ore.Activities span the world but are strongly represented in Australia and NorthAmerica with significant businesses in South America, Asia, Europe and southernAfrica. Forward-Looking Statements This announcement includes "forward-looking statements" within the meaning ofSection 27A of the Securities Act of 1933, as amended, and Section 21E of theSecurities Exchange Act of 1934, as amended. All statements other thanstatements of historical facts included in this announcement, including, withoutlimitation, those regarding Rio Tinto's financial position, business strategy,plans and objectives of management for future operations (including developmentplans and objectives relating to Rio Tinto's products, production forecasts andreserve and resource positions), are forward-looking statements. Suchforward-looking statements involve known and unknown risks, uncertainties andother factors which may cause the actual results, performance or achievements ofRio Tinto, or industry results, to be materially different from any futureresults, performance or achievements expressed or implied by suchforward-looking statements. Such forward-looking statements are based on numerous assumptions regarding RioTinto's present and future business strategies and the environment in which RioTinto will operate in the future. Among the important factors that could causeRio Tinto's actual results, performance or achievements to differ materiallyfrom those in the forward-looking statements include, among others, levels ofactual production during any period, levels of demand and market prices, theability to produce and transport products profitably, the impact of foreigncurrency exchange rates on market prices and operating costs, operationalproblems, political uncertainty and economic conditions in relevant areas of theworld, the actions of competitors, activities by governmental authorities suchas changes in taxation or regulation and such other risk factors identified inRio Tinto's most recent Annual Report on Form 20-F filed with the United StatesSecurities and Exchange Commission (the "SEC") or Form 6-Ks furnished to theSEC. Forward-looking statements should, therefore, be construed in light of suchrisk factors and undue reliance should not be placed on forward-lookingstatements. These forward-looking statements speak only as of the date of thisannouncement. Rio Tinto expressly disclaims any obligation or undertaking(except as required by applicable law, the City Code on Takeovers and Mergers(the "Takeover Code"), the UK Listing Rules, the Disclosure and TransparencyRules of the Financial Services Authority and the Listing Rules of theAustralian Securities Exchange) to release publicly any updates or revisions toany forward-looking statement contained herein to reflect any change in RioTinto's expectations with regard thereto or any change in events, conditions orcircumstances on which any such statement is based. Nothing in this announcement should be interpreted to mean that future earningsper share of Rio Tinto plc or Rio Tinto Limited will necessarily match or exceedits historical published earnings per share. Subject to the requirements of the Takeover Code, none of Rio Tinto, any of itsofficers or any person named in this announcement with their consent or anyperson involved in the preparation of this announcement makes any representationor warranty (either express or implied) or gives any assurance that the impliedvalues, anticipated results, performance or achievements expressed or implied inforward-looking statements contained in this announcement will be achieved. For further information, please contact: Media Relations, London Media Relations, Australia Christina Mills Ian Head Office: +44 (0) 20 7781 1154 Office: +61 (0) 3 9283 3620 Mobile: +44 (0) 7825 275 605 Mobile: +61 (0) 408 360 101 Nick Cobban Amanda Buckley Office: +44 (0) 20 7781 1138 Office: +61 (0) 3 9283 3627 Mobile: +44 (0) 7920 041 003 Mobile: +61 (0) 419 801 349 Media Relations, US Nancy Ives Mobile: +1 619 540 3751 Investor Relations, London Investor Relations, Australia Nigel Jones Dave Skinner Office: +44 (0) 20 7753 2401 Office: +61 (0) 3 9283 3628 Mobile: +44 (0) 7917 227 365 Mobile: +61 (0) 408 335 309 David Ovington Simon Ellinor Office: +44 (0) 20 7753 2326 Office:+ 61 (0) 7 3867 1068 Mobile: +44 (0) 7920 010 978 Investor Relations, North America Jason Combes Office: +1 (0) 801 685 4535 Mobile: +1 (0) 801 558 2645 Email: [email protected] Websites: www.riotinto.com www.coalandallied.com.au High resolution photographs available at: www.newscast.co.uk This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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