18th Apr 2008 07:00
UK Coal PLC18 April 2008 UK COAL PLC ("UK COAL") Preliminary Financial Results for Year Ended 31 December 2007 Strong operating performance. Strong growth in profits. Strong outlook Highlights • Operating profit up 200% to £82.7m (2006: £27.6m ) • Profit before tax up 292% to £69.0m (2006: £17.6m) • EPS up 412% to 59.9p (2006: 11.7p). Excluding tax credit, EPS up 276% to 44.0p (2006: 11.7p). • Net assets per share up 46% to £2.28 (2006: £1.56) • Average sales price per gigajoule up 15% to £1.62 (2006: £1.41) • Deep mines in operating profit in the second half of 2007 o H1 operating loss before non-trading exceptional items of £24.7m o H2 operating profit before non-trading exceptional costs £10.1m • Major jump in surface mines' operating profit due to increased sites, output and selling prices o Operating profit £8.5m (2006: £0.5m) • Power generation operating profit up 39% to £4.3m (2006: £3.1m) • Further gains in property portfolio valuation reflecting long term potential o Like for like RICS portfolio valuation up 21% to £411m (2006: £344m) o Estimate of Project Worth in 2012 up 17% to £935m (2006: £800m) o Estimate of Project Worth in 2013 £1 bn o Planned developable acreage increased 40% to 3,696 acres • Year end gearing reduced to 23% (2006: 28%) reflecting substantial growth in net earnings David Jones, Chairman, said "UK COAL has delivered another year of substantial progress in all ourbusinesses. Pre-tax profits grew almost fourfold to £69 million; earnings pershare increased 412% to 59.9 pence; and assets per share increased 46% to 228pence. We have shown we have a strong growth platform, that we are effectivelyexecuting our strategy and that we have the potential to deliver furthersubstantial value this year and beyond. "In mining, last year, the world coal price has almost doubled, we havesuccessfully moved our overall sales prices closer to the market price and weare progressively securing a balance of contracts at floating, capped andcollared, and fixed prices. This is significantly altering the underlyingeconomics of our mining operations and enabling us to invest in accessing morereserves in both our deep and surface mines. There will always beunpredictabilities, particularly in deep mining; but the demand and priceenvironment for coal has improved notably and has created a more positivebackcloth than at any time in UK Coal's corporate life. "In Harworth Estates, we have also delivered further good progress in both thecurrent value of our portfolio and in its substantially greater estimated futurevalue with the benefit of the planning permissions we are currently pursuing.There has been much publicity about downward pressure on UK commercial propertyvalues. However, the longer term outlook for property in the UK, with itsstructural shortage of land for development, remains positive; the constructionphase of our developments only starts to become significant in 2009 onwards andnone of our estimates of future Worth include any potential for developmentphase profits. "With a positive outlook for all our businesses, we face the current financialyear with considerable confidence." Enquiries: Media: Citigate Dewe RogersonAnthony CarlisleTel: 020 7638 9571 / Mobile: 07973 611 888 Analysts and investors: Jon LloydChief Executive, UK COAL PLCTel: 01302 755002 David Brocksom Group Finance Director, UK COAL PLCTel: 01302 755012 Citigate Dewe RogersonScott Fulton Tel: 020 7638 9571 / Mobile: 07788 144 993 Notes to Editors: UK COAL is Britain's biggest producer of coal, supplying around 15% of all thecoal burned in the country, and is one of Britain's largest brownfield siteproperty developers, owning some 46,500 acres of land, of which some 3,696 acresis currently planned for development. In addition, UK COAL has its own powergeneration business, principally utilising waste methane gas from mines togenerate electricity, and also pursuing the development of wind farms. Financial Highlights 2007 2006 % changeIncome StatementRevenue 328.5 339.7 -3.3%Operating profit (£m) 82.7 27.6 +200%Profit before tax (£m) 69.0 17.6 +292%Earnings per share (pence) 59.9 11.7 +412%Earnings per share excluding tax (pence) 44.0 11.7 +276% Divisional Breakdown - Operating profit/(loss) before non-trading exceptional itemsDeep Mines (£m) (14.6) (30.4) +52%Surface Mines (£m) 8.5 0.5 +1600%Power (£m) 4.3 3.1 +39%Others (£m) 0.7 (0.2)Property (£m) 73.2 73.3 -Operating profit before non-trading exceptional items (£m) 72.1 46.3 +56% Balance SheetNet assets (£m) 358.2 244.1 +47%Net assets value per share (£) 2.28 1.56 +46%Year end gearing (%)* 23 28 -18% Average sales price/Gigajoule (£/GJ) 1.62 1.41 +15% * Gearing excludes restricted cash balances While group revenue was slightly lower than in 2006 - by 3.3% to £328.5m - thiswas expected and was primarily the result of the sale of our Maltby deep mine inFebruary last year, the period of low production at Daw Mill in the firstquarter of last year whilst additional safety works were undertaken and theplanned face change it managed in the second half. These effects were only inpart offset by the very strong growth in our surface mines' revenues and thegrowth in power division's revenues. We believe that revenues will grow significantly in 2008, principally as aresult of the increase in realised sale price for all our coal production. Weestimate a 2008 average realised sale price of £1.75 to £1.80 per gigajoule (GJ)compared with £1.62 in 2007. Group operating profit rose by 200% to £82.7m (2006: £27.6m). This is afterallowing for the £20m profits shortfall against expectations at Daw Mill in thefirst half following a period of non-production and the £8.5m gain on thedisposal of Maltby. Net finance costs increased to £14.2m (2006: £10.1m), reflecting the higherlevel of drawn debt, the cost of mark-to-market adjustment on interest rateswaps of £1.9m (2006: gain of £0.6m) and the unwinding of discounts in relationto provisions in the balance sheet of £3.9m (2006: £4.6m). We have applied hedgeaccounting from 1 January, 2008, and this will minimise the volatility of theswaps on our income statement going forward. Group profit before tax increased almost 300% to £69m (2006: £17.6m). Earningsper share, including a £25m deferred tax credit relating to the Group'saccumulated tax losses, increased 5 times to 59.9p. Excluding the tax credit,earnings per share increased almost 4 times to 44p. The growth in operating profitability and further strong working capitalmanagement produced an operating cash outflow for 2007 of £7.1m (2006: outflowof £28.9m). Together with the proceeds from the sale of businesses, this allowedthe Group to maintain capex and to increase the development expenditure on itsproperty portfolio. Year end gearing fell from 28% to 23% as a result of theincrease in our property asset values recognised on the balance sheet. As a result of the substantial increase in retained earnings, net assets on thebalance sheet at 31 December 2007 were 47% higher at £358.2m. This equates to anet asset value per share of £2.28 compared to £1.56 in 2006. PRELIMINARY RESULTS STATEMENT OVERVIEW AND OUTLOOK I said last year that UK COAL had put in place a far stronger platform forfuture value creation and that 2007 would see the execution of our strategy go agreat deal further. I am delighted to report this has indeed been the case. We have deliveredanother year of substantial progress in our businesses. Pre-tax profits grewalmost four-fold to £69.0 million, earnings per share increased 412% to 59.9pence, and net assets per share increased 46% to 228.0 pence. We have shown thatwe have a strong growth platform, that we are effectively executing ourstrategy, and that we have the potential to continue delivering furthersubstantial value this year and beyond. Regrettably we have to report on the loss of the lives of two colleagues at twoseparate mines during the year. Nothing can ever be said to reduce the impact ofa fatality on the family, friends, colleagues and on the rescuers directlyinvolved. My condolences, and those of each individual Board member, goes out toall of those affected, and our thanks are similarly extended for the braveefforts of those involved in rescue. We are dedicated to enhancing controls andto making changes to improve safety at all of our operations. To reinforce thisobjective, the Board has established a Health and Safety Committee to haveoversight of these matters. In mining, we have been successful in our continued negotiations with customersto move our overall sales prices closer to the world market price for coal andare progressively moving the Group's contracts position towards a balance ofcontracts at floating, capped and collared, and fixed (or RPI linked) prices.This is significantly altering the underlying economics of our mining operationsand enabling us to invest in accessing more reserves in both our deep andsurface mining operations. We announced that there would be a period of non-production during the earlypart of 2007 at Daw Mill, our largest mine, and this had a substantial impact onthe first half production and profitability of our deep mining business. In thesecond half of the year, however, our deep mines operated profitably, despitemanaging face changes and, for 2008, they have the prospect of increasedproduction at an increased overall selling price. Meanwhile, our surface mineproduction sharply increased last year and is scheduled to increase again thisyear. I will always make the point that we face challenges and that,particularly in deep mining, there remains an element of unpredictability. Thesefactors should not be underestimated. That said, however, the demand and priceenvironment for coal has improved notably and has created a more positivebackcloth than at any time in UK COAL's corporate life. In Harworth Estates, we have also delivered further good progress in evolvingour development plans, gaining further planning permissions and growing thevalue of our portfolio. Notwithstanding the downward pressure on UK commercialproperty values during the second half of last year, the RICS value of our landand property, excluding the deep mine sites, increased to £411 million, alike-for-like increase of 21%. Our estimate for "Project Worth", the worth of the portfolio in 2012, with thebenefit of the planning permissions we are seeking, grew from £800 million atDecember 2006 to £935 million by December 2007. Taking a view to 2013, ourestimate of this worth increases to in excess of £1 billion. These estimates areexpressed in 2007 money terms. Whilst there is downward pressure at present onUK property values in our view, the longer term outlook for property in the UK,with its structural shortage of land for development, remains positive and verylittle of our land is as yet developed. The construction phase for our planneddevelopments starts to become significant from 2009 onwards, and none of ourestimates of future worth include any potential for development phase profits. As expected, mines output in the first quarter of the new financial year wasrestrained by face changes at each of Kellingley, Thoresby and Welbeck, thelatter starting later than planned following the fatality at the end of 2007.Overall first quarter production in 2008 was 1.7m tonnes (2007: ongoingoperations 1.7m tonnes) reflecting these face changes and the slow ramp up ofthe new face at Daw Mill, but in line with achievement of our overall resultsexpectations for 2008. With a positive outlook for all our businesses, we face the current financialyear with considerable confidence. MINING AND POWER Our strategy for mining is framed by the selling prices which we can achieve,the production economics of our collieries and the geological and other factorscharacterising each colliery. We are focussed on accessing and mining reservesonly where there is a clear prospect of creating substantial value over time. The principal change in the market environment is the sharp increase in theinternationally traded price of coal. Driven by global energy demand, this pricerose last year by circa 90% and over the last two years it has grown byapproximately 140%. Alongside this, there is an increased recognition of the value of security ofcoal supply, both within the Government's thinking on energy policy and withinthe UK electricity generators' strategy. All this reinforces the role ofindigenous coal as a long-term fuel resource. Against this backcloth, we have been successful in our continued negotiationswith customers to reduce the proportion of our deep mine production committed inpast years at historically low selling prices. This, and the increasing volumeof our surface mine production, enabled us to increase our average sales pricelast year by around 15% to £1.62 per Gigajoule (GJ). As at 31 December 2007, total contracted forward sales to all customers hadincreased to 24.0 million tonnes (31 December 2006: 17.9 million tonnes). Of thecontracted tonnage, approximately 13 million tonnes is considered to havecontracted at historic, lower fixed prices, of circa £1.55 per GJ. The balanceis at higher and/or more variable prices having been contracted more recently.Our contracts position now include an element of sales negotiated at marketrates, along with contracts priced at capped and collared or fixed prices, whichmay also be subject to inflation adjustments. We have estimated a 2008 realisedsales price of between £1.75 - £1.80 per GJ, based upon the forward price for2008 Rotterdam delivery of $118 per tonne as at December 2007 and dependent uponexpected tonnages. This progress has enabled us to commit to around £55 million of new investmentover the next 3 years in our Thoresby colliery and a similar amount over 3 yearsin our Kellingley colliery. This investment will extend the lives of the minesby some 10 years beyond their previously anticipated closure dates and add over3 million tonnes a year to our planned deep mine production from 2009 to around2018. At the same time, we continue actively seeking permissions for additionalsurface mining sites. As I reported in last year's Statement, we completed the sale of our Maltbycolliery in February 2007 for a cash consideration of £21.5 million, therebyimproving the operating profile of our deep mining business. This resulted in aprofit on disposal of £8.5 million, lower than originally reported as theimprovement in the pension fund deficit over the year reduced the anticipatedbenefit arising from the transfer of pension liabilities. Our power generation operation, Harworth Power, generated 181,835 MWh (2006:119,717 MWh) of electricity from methane pumped from our deep mines andsuccessfully completed a new generating station at Stillingfleet. We alsocontinued with the lengthy process of seeking planning permissions for windfarms to be built on some of our sites successfully receiving planning consentfor our first, 9MW, wind farm site in February 2008 at Lynemouth,Northumberland. Overall our Mining and Power businesses produced an operating loss beforenon-trading exceptional items of £1.8 million (2006: loss of £26.8 million),with a loss in the deep mines business of £14.6 million (2006: loss of £30.4million) being offset by profits in the surface mines and power businesses of£8.5 million and £4.3 million respectively (2006: £0.5 million and £3.1 millionrespectively). Deep mine colliery performance Production (million tonnes) Operating cost (£m)* 2007 2006 2007 2006 On-going minesDaw Mill 2.2 2.7 70.9 68.2Kellingley 1.8 2.1 67.8 69.2Thoresby 1.4 1.5 50.7 53.4Welbeck 1.0 1.2 49.4 44.9On-going deep mines 6.4 7.5 238.8 235.7Closed/sold deep mines 0.2 1.4 7.4 66.0Total Deep Mines 6.6 8.9 246.2 301.7 *operating costs before non-trading exceptional items and depreciation costs, with central costs absorbed. Daw Mill As previously announced, following the fatality at Daw Mill in January 2007 themine ceased production for a month. Production remained very low for 2 furthermonths whilst additional safety work was carried out. The costs incurred in thisperiod can be measured at approximately £11.5 million, including the additionalcosts of £3.5 million reinforcing the entries to the coal face, to take intoaccount the knowledge learnt following the fatality. In addition to these costswas the significant value of lost output, bringing the total impact to theincome statement of an estimated £20 million against original expectations. Inthe second half of 2007, as planned, Daw Mill had to manage a face change andencountered delays and difficulties in ramping up production, further reducingoutput against original expectations for the year. However, Daw Mill is now working well on this new panel, which given thethickness of its large seams, consists of over 5 million tonnes of coal. Withthe new face now in full production and no further face changes until late in2009, the outlook for Daw Mill is robust. Kellingley As expected, Kellingley output fell, as a result of encountering adversegeological conditions on both its coal faces. The colliery continues to bestrongly productive in an area of difficult geological conditions, althoughproduction will remain lower than its previous performance until the move ismade to a new area of reserves in the Beeston seam, with coal production due tostart in mid 2009. The Beeston seam and related areas being accessed at a cost of circa £55 millionconsist of estimated reserves and resources of around 18 million tonnes andextend the life of the mine to at least 2017. Thoresby Thoresby's output for the year was slightly better than envisaged at the startof the year as a result of the planned face change at the colliery beingachieved 2 weeks earlier than scheduled. Production in the existing Parkgateseam will continue until late 2009, during which time the geology will bedifficult and production restrained. As a result of new customer contracts, wehave been able to commit to a major investment of circa £55 million andtherefore, in late 2009, production will transfer to the Deep Soft seam with itsestimated reserves and resources of circa 12 million tonnes. Welbeck Welbeck was originally due to close during 2007, but the identification of 4further coal panels together with the improvement in coal prices have extendedthe life of the mine until at least 2009. Operations were affected by a fatalitycaused by a fall of rock on a coal face being salvaged in November. This greatlyslowed down a face transfer and has delayed the start date of the new coal facein 2008. Closed mines Production ceased at Rossington Colliery in April 2006 and, following a periodof equipment salvage, the mine closed and the shafts were filled. At HarworthColliery, during the year, we also moved the mine from its previous mothballedstatus to a closure. We have investigated the requirements for investment to access new coal atWelbeck Colliery. Unfortunately the level of investment required, coupledespecially with the coal potential, the timescales involved and the level ofassurance needed in terms of contracted customer demand, all militate againstthe investment. Welbeck Colliery may, therefore, have to close when the currentworkable reserves are exhausted in 2009. Costs relating to this closure would beincurred as exceptional items in 2008 and 2009. Improved coal prices do encourage a further review of the potential of theGroup's assets however. To this end we are considering again the opportunity toreopen Harworth Colliery, in conjunction with a mixed use development of thesite, although any decision in this regard is not likely in the immediatefuture. HARWORTH ESTATES Our land and property portfolio is of very considerable value and we haveclearly mapped out our strategy for realising this value. The changes we have seen in UK commercial property valuations and home pricetrends have had a very limited effect on us for the reasons already stated. Ourwork last year, therefore, has increased the RICS valuation of our propertyportfolio to £411 million up 21% on a like-for-like basis. Our estimate of theworth of our property portfolio in 2012 has increased as a result from £800million to £935 million and, taking a view for a further year out, to £1 billionin 2013. The portfolio's RICS valuation at the year end is summarised in the table below: Dec-07 Dec-06 Like-for-Like £m £m percentage change*Business Parks 54.0 48.3 9.4%Commercial with planning 37.5 41.4 4.1%Other commercial & residential 212.0 152.7 34.9%Agricultural 107.2 101.5 12.4%Total 410.7 343.9 21.0% * The "like-for-like" percentage change takes account of properties reclassifiedfrom Agricultural to other commercial and residential together with anadjustment for asset sales and development expenditure. Surface mine sites currently being mined are included in the value above basedon their restored land value of £26.4 million (2006: £32.2 million). Whilesites, otherwise being held for their long term investment potential, are beingused by the Group for its mining and other activities, changes in valuations arenot reflected in the balance sheet. As at 31 December 2007 a total of £11.1million (2006: £17.6 million) has not been included in the balance sheet as aresult. Operating deep mine sites are not included in the above valuation. During 2007, we secured a number of key planning consents and we furtherexpanded our property development plans - increasing the number of projects inour "Project Worth" development programme from 60 to 76 and increasing the netdevelopable acreage from 2,650 to 3,696 acres. During the middle of the year, wealso saw a significant change in Government policy towards promoting newhousing. This has increased the likelihood of our gaining residential consent ona larger proportion of our acreage. Among the key achievements last year were the establishment of a joint venturewith Helical Governetz to promote our Waverley/Orgeave site, near Rotherham, fora 645,000 sq ft Government office relocation campus, and the submission andshort listing of our Eco Town bid for a major housing scheme at Rossington, nearDoncaster. In early January 2008, a planning application for 250 homes and 150,000 sq ft ofindustrial space was approved at Edlington, Doncaster. Negotiations continuepositively on our major scheme at Prince of Wales, Pontefract, where, oncehighway design matters have been fully resolved, the Council is expected togrant planning approval shortly. I am confident that we will continue to make significant further progress duringthe current year and, step-by-step, enhance and crystallise the value of ourportfolio. We further strengthened the Executive team in Harworth Estates by theappointment in the final quarter of Mike Jones, a highly experiencedConstruction Director who joins us with 20 years experience in the constructionindustry, most recently with the highly successful Castlemore Securities GroupLimited of Birmingham. Overall Harworth Estates produced a profit of £73.2 million (2006: £73.3million), including gains on Investment Properties of £70.5 million (2006: £70.0million), of which £66.8 million was unrealised (2006: £68.6 million). A furtherrevaluation gain of £6.7 million was taken directly to reserves, being theincrease in value from historic cost to market value in respect of formeroperating properties transferred to Investment Property status on their ceasingto be operational sites. PRINCIPAL DEVELOPMENT ACTIVITIES DURING 2007 Waverley/Orgreave, Rotherham The Advance Manufacturing Park ("AMP") continues to develop at pace with 5further buildings constructed by occupiers and the commencement on site of a100,000 sq ft part pre-let, part speculative development of hybrid industrialunits in a joint venture with Strategic Sites Limited. In the final quarter of the year we announced that the Highfield CommercialBusiness Park, which gained outline planning consent in 2006 for 650,000 sq ftof mixed commercial space, would change its focus and that we would promote itas a 645,000 sq ft Government relocation office campus. We will develop thisthrough a joint venture with development and relocation investment specialist,Helical Governetz Limited. This announcement has been well received nationallyand locally. Marketing to potential Government department occupiers and toorganisations in their supply chain has started and major infrastructure workswill commence later in 2008. Harworth Estates also continues to pursue planning for the new community of3,800 homes with associated leisure, retail, social, health, education andcountry park elements on the Waverley site. The project has received the publicbacking of the Local Authority and other key stakeholders, although the delay inthe implementation of the Local Authorities Local Development Framework ("LDF")has meant that, by agreement with the Local Authority, the Group will now besubmitting a planning application for the entire site masterplan during themiddle of the year, whilst still pursuing designation through the LDF inparallel. Prince of Wales, Pontefract Having had a frustrating year in 2007, progress on the planning application forthe first 913 homes and 250,000 sq ft of employment space continues and shouldshortly be successfully completed. The delay has principally centred onresolving highway access issues both within the congested local network and onthe adjoining M62 motorway junction, issues which, we believe, have now beenaddressed. As a technical departure from an old adopted plan showing the site asan operating colliery (and part greenbelt) the application will, when approvedby the Council, be referred to the Government for confirmation that the LocalAuthority may proceed with the granting of the consent. That approval isexpected as the scheme wholly accords with Government policy. G Park Distribution Development, Lounge, Ashby-de-la-Zouch In August 2007, we submitted a planning application for the first phasedevelopment of a 850,000 sq ft distribution hub, which we will develop as ajoint venture with Gazeley PLC. Negotiations continue with the Local Authorityand other stakeholders, and we become progressively more confident of approvalas the negotiations continue. We are targeting a fully implementable planningconsent being obtained by the joint venture by the end of the year. South Leicester Industrial Development, Ellis Town In July 2007, we submitted, in joint venture with Graftongate Developments andLegal & General, a 2 phase planning application with a 300,000 sq ftdistribution unit and 250,000 sq ft of small and medium sized industrial unitson this former coal preparation and disposal site. We expect a determination onthis site in the first half of 2008 and work is targeted to commence on the siteby the year end. The Former Yorkshire Main Colliery, Edlington, Doncaster Following an unexpected planning refusal in August 2007, we progressed an appealto the Secretary of State and in parallel resubmitted the planning applicationto the Local Authority. In January 2008 the consent for 250 residential unitsand 150,000 sq ft of industrial development was granted. Marketing of theresidential element and construction of the industrial element is to commence bythe year end. Gascoigne Wood Following a Call In by the Secretary of State, as a result of a single objectionfrom a local major landowner, in August 2007, we received planning consent forthe reuse of the buildings and sidings. The third party then sought High Courtreview of the Secretary of State's decision. In the meantime, we have enteredinto a lease with rail operator EWS to service a major gypsum contract betweenour customer at Drax and British Gypsum. We intend to proceed with lettings onthe site and are confident that the High Court challenge will ultimately bedismissed. Business Parks Our first generation Business Parks are generally reused former mine buildingswith some new build infill. They continue to be well tenanted and attract strongdemand when units become available. During the year, we obtained planningconsent for a further Business Park at Riccall in the Selby area and we arepursuing planning approval on 3 similar additional sites in Yorkshire. TheRiccall site is already 47% let with good enquiries for the balance of thespace. Property Disposals During the year we disposed of 1,106 acres of surplus agricultural land whichhad no further development opportunities. In addition, we completed sales of 2sites at Tetron and Denby where we determined that the maximum value and minimumrisk generated optimum returns by sale rather than development. In June, we soldthe final development plot at Denby to DEB Limited for them to construct apurpose-built world HQ and manufacturing unit, and in November we sold the final10 acres of the current development phase at Tetron to LSP Limited to constructa distribution warehouse for medical supplies. DIVIDEND Over the coming years, the Group will be making significant investments in ourmining and property businesses, in both of which we see significant opportunityto drive superior shareholder value. For this reason and to preserve financialflexibility, the Board has decided not to recommend a dividend. We will keepthis under review but future dividends will be dependent both on our futureperformance and on our view of how best to drive total shareholder value. BOARD During the year, we made a number of Board changes. At the end of May, weannounced that Gerry Spindler was to leave the Group in order to return with hisfamily to the USA. We were delighted to announce Jon Lloyd as Gerry's successor.Jon has exceeded the Board's expectations in the way he is leading the Group anddeveloping our strategy and its execution. In September, Chris Mawe left theGroup in order to pursue other interests, and we welcomed David Brocksom, hissuccessor as Finance Director. We further strengthened our non-executive Director team during the year. LastJune, Kevin Whiteman, who is Chief Executive of Kelda Group, and has extensivecoal mining experience from his time with British Coal, joined our Board and, inOctober 2007, we welcomed Owen Michaelson, who has substantial brownfield landand property development experience and who is a director of Peel Holdings, ourlargest shareholder. David Jones, Chairman18 April 2008 CONSOLIDATED INCOME STATEMENTfor the year ended 31 December 2007 2006 £000 £000Revenue 328,485 339,713Cost of sales (319,218) (381,021)Gross profit/(loss) 9,267 (41,308) Net appreciation in fair value of investment properties 66,799 68,622Profit on disposal of investment properties 3,688 1,406Gains on investment properties 70,487 70,028Profit on sale of business 8,481 -Other operating income and expenses (5,579) (1,075)Operating profit 82,656 27,645Finance costs (17,121) (12,376)Finance income 2,951 2,261Finance costs - net (14,170) (10,115)Share of post-tax profit from joint venture 537 105Profit before tax 69,023 17,635Tax credit/(charge) 25,000 (143)Profit for the year 94,023 17,492 Attributable to:Equity holders of the Company 94,023 17,492 Earnings per share Pence Pence Basic and diluted 59.9 11.7 CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEfor the year ended 31 December Group Group 2007 2006 £000 £000Actuarial gain on defined benefit pension schemes 35,733 12,478Actuarial gain on Blenkinsopp pension scheme 464 -Actuarial gain/(loss) on concessionary fuel reserve 1,280 (855)Movement on deferred tax asset relating to retirement benefit (22,012) 35,752liabilitiesImpact of change in UK tax rate on deferred tax (2,383) -Revaluation of property transferred to investment properties 6,733 -Net gain recognised directly in equity 19,815 47,375Profit for the year 94,023 17,492Total recognised income for the year 113,838 64,867 Attributable to:Equity holders of the Company 113,838 64,867 CONSOLIDATED BALANCE SHEETfor the year ended 31 December Group Group 2007 2006 £000 £000ASSETSNon current assetsOperating property, plant and equipment 199,551 228,248Surface mine development and restoration assets 20,111 9,694Total operating property, plant and equipment 219,662 237,942Investment Properties 384,291 311,677Investment in joint venture 342 205Deferred tax asset 36,000 35,752Trade and other receivables 1,613 964 641,908 586,540Current assetsInventories 39,756 36,640Trade and other receivables 29,953 47,604Derivative financial instruments 424 675Cash and cash equivalents 70,068 45,928 140,201 130,847LIABILITIESCurrent liabilitiesFinancial liabilities - Borrowings (27,320) (19,281)Trade and other payables (100,213) (106,284)Provisions (31,061) (27,931) (158,594) (153,496)Net current liabilities (18,393) (22,649)Non current liabilitiesFinancial liabilities - Borrowings (97,921) (78,484) - Derivative financial instruments (2,148) -Trade and other payables (73) (312)Deferred tax liabilities (815) (1,172)Provisions (91,141) (119,309)Retirement benefit obligations (73,171) (120,495) (265,269) (319,772)Net assets 358,246 244,119 EquityCapital and reservesOrdinary shares 1,571 1,566Share premium 30,756 30,756Revaluation reserve 143,014 141,040Capital redemption reserve 257 257Fair value reserve 177,851 112,342Retained earnings 4,797 (41,842)Total equity 358,246 244,119 CASH FLOWfor the year ended 31 December Group Group 2007 2006 £000 £000Cash flows from operating activitiesProfit for the year 94,023 17,492Depreciation/impairment of property, plant and equipment 38,500 44,516Amortisation of surface mine development and restoration assets 8,723 1,061Net fair value appreciation in investment properties (66,799) (68,622)Net interest payable and amortisation of discount on provisions 14,170 10,115Net charge for share based remuneration 284 198Share of post-tax profit from joint venture company (537) (105)Profit on disposal of investment property (3,688) (1,406)Profit on disposal of operating property, plant and equipment (1,598) (416)Profit on sale of business (8,481) -Capitalised surface mine restoration assets (14,490) (1,584)Decrease in provisions (38,818) (41,628)Tax (credit)/charge (25,000) 143Operating cash flows before movements in working capital (3,711) (40,236) (Increase)/decrease in stocks (3,116) 5,528Decrease in receivables 17,253 18,797Decrease in payables (4,304) (5,073)Cash generated/(used in) from operations 6,122 (20,984)Financing cost (1,610) (1,028)Interest paid (11,578) (6,939)Cash used in operating activities (7,066) (28,951)Cash flows from investing activitiesInterest received 2,951 2,261Net (payment to)/receipt from insurance and subsidence security funds (6,794) 9,915Net proceeds from sale of business 21,500 -Proceeds on disposal of operating property, plant and equipment 787 5,594Proceeds on disposal of Investment Properties 13,335 18,597Net receipts from/(investment in) joint venture company 400 (100)Development costs of investment properties (7,547) (3,256)Pre-coaling expenditure for surface mines (4,650) (5,115)Purchase of operating property, plant and equipment (23,046) (26,613)Cash (used in)/generated from investing activities (3,064) 1,283Cash flows from/(used in) financing activitiesProceeds from issue of ordinary shares - 29,067Net drawdown of bank loans 27,223 8,829Net proceeds/(repayments) of obligations under hire purchase and finance leases 253 (7,605)Cash generated from financing activities 27,476 30,291Increase in cash 17,346 2,623 At 1 JanuaryCash 3,627 1,004Cash equivalents 42,301 52,216 45,928 53,220Increase/(decrease) in cash equivalents (net receipt from insurance and subsidence 6,794 (9,915)security funds)Increase in cash 17,346 2,623 70,068 45,928At 31 DecemberCash 20,973 3,627Cash equivalents 49,095 42,301Cash and cash equivalents 70,068 45,928 NOTES 1 Segmental reporting Segmental income statementYear ended 31 December 2007 Deep Surface Power Property Other Total Mining Mining £000 £000 £000 £000 £000 £000Continuing operationsRevenue - gross 265,779 60,399 8,575 4,803 1,286 340,842Revenue - intra Group - (7,542) (4,430) - (385) (12,357)Revenue 265,779 52,857 4,145 4,803 901 328,485 Operating profit/(loss) before non-trading exceptional items (14,637) 8,543 4,333 73,200 694 72,133 Non-trading exceptional items- Profit on sale of business 8,481- Rationalisation, closure and other costs 2,042Operating profit after non-trading exceptional items 82,656Finance costs (17,121)Finance income 2,951Finance costs - net (14,170)Share of post-tax profit from joint ventures 537Profit before tax 69,023Tax credit 25,000Profit for the year 94,023 Other segmental itemsCapital expenditure 17,414 1,447 3,422 8,116 194 30,593Depreciation 34,193 3,079 1,056 172 - 38,500Surface mines development costs and restoration assets capitalised - 19,140 - - - 19,140Amortisation of surface mining development and restoration assets - 8,723 - - - 8,723Provisions - non cash charge/(credit) (8,878) 12,086 - - 17 3,225 Property operating profit includes the gains on Investment Properties of£70,487,000 being net appreciation in fair value of properties of £66,799,000and profit on disposal of Investment Properties of £3,688,000. Trading exceptional items Deep mines operating loss includes Coal Investment Aid income of £2,926,000 andrecovery and related costs for Daw Mill of £11,505,000. Non-trading exceptional items The profit on sale of business in 2007 relates to the sale of Maltby colliery inFebruary 2007. Rationalisation, closure and other costs are predominantly associated with thedeep mines operations and include a net credit of £8,767,000 followingsettlement of a dispute on tax deductions arising on redundancies with HMRC,mothballing costs of £1,811,000 for Harworth Colliery, redundancy costs of£3,065,000, write down of stores equipment in connection with a strategic reviewon closure of deep mine operations of £1,737,000, pension curtailment gains of£668,000 and other costs of £780,000. All trading and non-trading exceptional items are included in cost of salesexcept for Coal Investment Aid which is included within other operating incomeand expenses. Year ended 31 December 2006 Deep Surface Power Property Other Total Mining Mining £000 £000 £000 £000 £000 £000Continuing operationsRevenue - gross 310,941 31,222 6,493 5,990 1,265 355,911Revenue - intra Group - (9,561) (6,200) - (437) (16,198)Revenue 310,941 21,661 293 5,990 828 339,713 Operating profit/(loss) before non-trading exceptional items (30,434) 501 3,155 73,300 (245) 46,277 Non-trading exceptional items- Rationalisation, closure and other costs (18,632)Operating profit after non-trading 27,645exceptional itemsFinance costs (12,376)Finance income 2,261Finance costs - net (10,115)Share of post-tax profit from joint ventures 105Profit before tax 17,635Tax (143)Profit for the year 17,492Other segmental itemsCapital expenditure 21,607 497 4,509 3,256 - 29,869Depreciation 39,663 3,885 782 - 186 44,516Surface mines development costs and restoration assets capitalised - 6,699 - - - 6,699Amortisation of surface mining development and restoration assets - 1,061 - - - 1,061Provisions - non cash charge/(credit) 6,863 (5,382) - - 8 1,489 Property operating profit includes the gains on Investment Properties of£70,028,000 being net appreciation in fair value of properties of £68,622,000and profit on disposal of Investment Properties of £1,406,000. Trading exceptional items Deep mines operating loss includes Coal Investment Aid income of £7,892,000 andrecovery costs for Daw Mill and Maltby of £9,365,000. Non-trading exceptional items Rationalisation, closure and other costs predominantly relates to the deep minesand includes mothballing and other closure costs of £18,865,000 for Harworth andRossington, redundancy costs of £1,995,000, write down of stores equipment inconnection with a strategic review of deep mine operations of £6,527,000 andpension curtailment gains of £4,355,000. It also includes the reversal ofimpairment charges of £4,400,000 following the disposal of certain surfacemining plant. All trading and non-trading exceptional items are included in cost of salesexcept for Coal Investment Aid which is included within other operating incomeand expenses. 2 Segmental balance sheet Balance Sheetat 31 December 2007 Deep Mining Surface Power Property Other Total Mining £000 £000 £000 £000 £000 £000Assets and liabilitiesSegment assets 266,266 43,577 11,643 401,680 1,628 724,794Investment in joint venture - - - - 342 342Total segment assets 266,266 43,577 11,643 401,680 1,970 725,136 Segment liabilities (208,288) (67,185) (697) (15,388) (6,249) (297,807)Segment net assets/(liabilities) 57,978 (23,608) 10,946 386,292 (4,279) 427,329 Group borrowings (125,241)Cash and cash equivalents 20,973(unrestricted)Net deferred tax asset 35,185Net assets 358,246 Cash and cash equivalents that are subject to restriction have been includedwithin the appropriate segment, along with the related provisions. Balance Sheetat 31 December 2006 Deep Surface Power Property Other Total Mining Mining £000 £000 £000 £000 £000 £000Assets and liabilitiesSegment assets 301,588 32,520 9,088 327,028 7,579 677,803Investment in joint venture - - - - 205 205Total segment assets 301,588 32,520 9,088 327,028 7,784 678,008 Segment liabilities (283,911) (63,644) (4,737) (15,429) (6,610) (374,331)Segment net assets/(liabilities) 17,677 (31,124) 4,351 311,599 1,174 303,677 Group borrowings (97,765)Cash and cash equivalents 3,627(unrestricted)Net deferred tax asset 34,580Net assets 244,119 Cash and cash equivalents that are subject to restriction have been includedwithin the appropriate segment, along with the related provisions. 3 Provisions At At 1 January Provided Released Utilised Unwinding 31 December 2007 in year in year in year of discount 2007 £000 £000 £000 £000 £000 £000GroupEmployer and public 19,856 4,082 (1,190) (4,467) 594 18,875liabilitiesSurface damage 19,820 6,418 (5,707) (4,766) 640 16,405Claims 1,541 17 (750) (769) - 39Restoration and closure costs of surface mines 51,749 16,590 (3,754) (11,717) 1,730 54,598Restoration and closurecosts of deep mines:- shaft treatment and pit top 17,635 2,439 (4,481) (3,857) 457 12,193- spoil heaps 4,221 350 (1,062) (385) 100 3,224- pumping costs 6,614 - (494) - 184 6,304Ground/groundwater contamination 9,768 - (3,531) - 228 6,465Redundancy 16,036 4,188 (9,890) (6,235) - 4,099 147,240 34,084 (30,859) (32,196) 3,933 122,202 Provisions are expected to be settled within the timescales set out in thefollowing table. Within 1 year 1-2 years 2-5 years More than 5 Total years £000 £000 £000 £000 £000Employer and public 7,115 5,535 5,913 312 18,875liabilitiesSurface damage 3,609 3,281 7,218 2,297 16,405Restoration and closure costs of surface mines 14,412 18,538 15,427 6,221 54,598Restoration and closure costsof deep mines: - shaft treatment and pit top 1,395 1,344 1,752 7,702 12,193 - spoil heaps 392 591 569 1,672 3,224 - pumping costs - - - 6,304 6,304Ground/groundwater contamination - - - 6,465 6,465Redundancy 4,099 - - - 4,099Claims 39 - - - 39 31,061 29,289 30,879 30,973 122,202 The total of provisions created, net of provisions released, was £3,225,000(2006: £1,489,000). This included a net credit of £5,702,000 (2006: £1,995,000)in respect of non-trading exceptional items. 4 Cash and cash equivalents 2007 2006 £000 £000Cash deposited to cover insurance requirements 25,692 19,553Subsidence security fund 23,403 22,748 49,095 42,301Cash held and other cash balances 20,973 3,627 70,068 45,928 Total cash held subject to restrictions to cover insurance and surface damageliabilities at the year end amounts to £49,095,000 (2006: £42,301,000). 5 Financial liabilities - borrowings 2007 2006Current £000 £000Secured - bank loans and overdrafts 21,339 13,956Finance lease obligations 5,981 5,325 27,320 19,281 Non currentSecured - bank loans and overdrafts 90,008 70,168Finance lease obligations 7,913 8,316 97,921 78,484 Total 125,241 97,765 6 Deferred tax 2007 2006 £000 £000At 1 January (34,580) 1,029Amounts (credited)/charged to the consolidated income statement (25,000) 143Amounts charged/(credited) to consolidated statement of recognised 24,395 (35,752)income and expenseAt 31 December (35,185) (34,580) The tax credit at 31 December 2007 relates to the recognition of previouslyunrecognised tax losses. These losses have been recognised at 31 December 2007due to the reduction in the deferred tax asset relating to the pension liabilityand not any change in forecast Group profitability. 7 Investment Properties 2007 2006 £000 £000At 1 January 311,677 251,161Additions 7,547 3,256Disposals (8,074) (14,023)Fair value uplift 66,799 71,674Transfer from operating property, plant and equipment at net book 1,256 -amountRevaluation of property transferred to Investment Properties 6,733 -Transfer to operating property, plant and equipment (1,647) (391)At 31 December 384,291 311,677 8 Basis of preparation The consolidated financial statements have been prepared in accordance withEuropean Union ("EU") Endorsed International Financial Reporting Standards ("IFRSs"), IFRIC interpretations and those parts of the Companies Act 1985applicable to companies reporting under IFRS. The consolidated financialstatements have been prepared under the historical cost convention, as modifiedby the revaluation of Investment Properties taken through the income statement.IFRSs also require an alternative treatment to the historic cost convention incertain circumstances (principally in the areas of retirement benefitobligations, share based payments and financial instruments). The results have been extracted from the audited financial statements of theGroup for the year ended 31 December 2007. These audited financial statementsincorporate an unqualified audit report. The results do not constitute statutoryaccounts within the meaning of Section 240 of the Companies Act 1985. Statutoryaccounts for the year ended 31 December 2006, which incorporated an unqualifiedauditors' report, have been filed with the Registrar of Companies. The preliminary results statement together with the unaudited table of reservesand resources in note 9 have been extracted from the Chairman's statement andOperating and Financial Review as incorporated in the 2007 Annual Report andAccounts. 9 Reserves and resources (unaudited) (i) Deep mines We estimate that we have approximately 105 million tonnes of reserves andresources at our ongoing mines of which 45 million tonnes of coal is accessibleunder existing five year mining and investment plans. The additional resourceswill become accessible with future investment required as current mining plansapproach completion. Our estimate as at 31 December 2007 of our deep mine coal reserves are set outin the following table, in million tonnes: Ongoing colliery Reserves Resources Total reserves Mineral Total and Potential resourcesDaw Mill 22 - 22 41 63Kellingley 10 45 55 5 60Thoresby 11 12 23 2 25Welbeck 2 3 5 16 21TOTAL 2007 45 60 105 64 1692006 40 70 110 63 173 (ii) Surface mines We currently have planning consents in place for 7 sites equivalent to 4.3million tonnes, and applications already submitted for a further 4 sitesequivalent to 4.7 million tonnes. We expect during 2008 to submit planningapplications for a further 6 sites equivalent to 5.1 million tonnes. A summary of estimated remaining reserves by planning stage is set out in thetable below, in thousand tonnes: Sites with planning Applications submitted Applications to be consent for planning, decision submitted in the awaited following 12 months Maidens Hall Extension 90 - -Cutacre 765 - -North Stobswood 395 - -Steadsburn 1,088 - -Long Moor 686 - -Sharlston 307 - -Lodge House 1,000 - - Potland Burn - 2,000 -Park Wall North - 1,275 -Bradley - 550 -Huntington Lane - 900 - Blair House - - 700Butterwell - - 1,000Minorca - - 1,250Chesterfield Canal - - 530Stockley Hill - - 1,000Field House - - 600 Total reserves in process 2007 4,331 4,725 5,080 Total reserves in process 2006 4,103 5,350 4,600 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Harworth Gp