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Britain’s largest coal producer UK Coal plc (LSE:UKC) has reached an agreement in principle with its key economic stakeholders to restructure the business after the first half of the year showed a “disappointing performance”, the company said today.
In a statement, Chairman Jonson Cox said “a restructuring of the business was necessary to secure a stable platform for UK Coal and its stakeholders”, a move the company has already started in the past six months at a cost of £5.7 million.
That, along with the $6 million operating loss and other exceptional items, contributed to the £20.6 million pre-tax loss for the period January to June, compared to the £22 million profit it had a year ago.
The fall on profits was due to lower coal prices compounded by reduced production, which resulted in a 23% drop of revenue to £198.3 million, a stark contrast compared to £256.1 million for the comparable period a year ago.
Highly Complex
The mining, property, and electricity distribution firm said the “highly complex” process of restructuring was necessary if it is to survive as a business and counted the “goodwill and understanding” of its stakeholders as the key to ensure the company’s future.
Debt of the company stands at £138.3 million, six times more than its market value at yesterday’s valuation of £22.45 million, and the company is also in a deficit for its pension contribution at a staggering £430 million.
According to the restructuring plan, UK Coal will be divided into two separate entities, mining and property development businesses, with each mine operating as a separate operation to reduce the risk of any one mine’s failure from bringing down all mines.
The mining business will be debt-free as the property business will take on the company’s owed money, but will be the one to handle the pension deficit through a pension reduction scheme.
A non-binding heads of terms agreement was reached with the Pensions trustees, which deferred contribution for 2012 and 2013, to resume by 2014 at £30 million a year.
A holding company, which will manage the property business, will be set up with the Pension trustees investing £30 million for 75.1% stake and 24.9% controlled by the shareholders, who will give up the first £5 million dividend income in favour of the pension funds.
Whilst the Pension regulator did not raise any major objections, the Board of UK Coal said the proposals, which are still subject to legal documentation, offers a viable and sustainable future for the company.
Company Spotlight
UK Coal plc supplies about 40% of the coal needs in the UK, generating about 5% of electricity in the country. The company was formed following the privatisation of the UK coal industry in 1994.
The company became public during the same year, listed on the main market of the London Stock Exchange. It has lost over six times its market value in the past year, falling from 47 pence 12 months ago to 7.50 pence as of yesterday.
At 3:00 PM GMT, shares plummeted to a further 22% to 5.85 pence, with a turnover of more than 3.5 million shares.
