TIDMUKC
RNS Number : 1945C
UK Coal PLC
27 April 2012
UK COAL PLC
Annual Report and Accounts 2011
For RNS purposes graphs and page numbers have been omitted.
Chairman's statement
Results for 2011
For the first time in four years UK Coal delivered a profitable
year, with overall pre-tax profits of GBP58.0m, compared to the
loss of GBP124.6m for 2010 and cumulative losses from 2008 to 2010
of GBP269m. This improved performance is in line with our Recovery
Plan, with an increase in revenue from improved production, stock
reductions and realised sales price, and from our initial steps in
addressing our cost base.
Net bank debt fell to GBP55 million at 31 December 2011 against
GBP141m in 2010. This reflects the realisation of value from our
property portfolio, with sales of GBP67m achieved at prices
slightly ahead of book values.
Recovery Plan
In my statement last year I set out an assessment of UK Coal's
business performance as I had found it on becoming Chairman in
November 2010. Shortly afterwards, we announced the detailed
priorities for the first steps of our Recovery Plan, which has
delivered a profit in 2011. We have made some significant progress
during the year:
i. We were very clear that our highest priority was to improve
the safety of our mining operations and made initial good progress.
Our All Accident Rate for 2011 improved by around 20%. A fatality
in September further accelerated our efforts, through our Critical
Safety Review, on the changes that are needed around behaviours and
working practices.
ii. Our property business, Harworth Estates, performed well with
net receipts from property disposals of GBP65m in the year.
iii. We made substantial progress in addressing high, and
unaffordable, workforce costs and the future service cost of the
Group's defined benefit pension schemes. Service costs have been
halved. Labour agreements reached during the year are expected to
hold per capita employment costs broadly at 2010 levels until the
end of 2013.
iv. We started work on balancing long term security of sales
contracts with more flexibility around market conditions.
v. Good progress was made in improving financial and operational
controls across all areas of the business. We continue to fight
inefficiency and high costs, although much remains to be done.
vi. We started work on rebuilding the management of the Company
with significant new appointments to our mining team in the second
half of the year.
vii. At year end, net bank debt, excluding restricted funds, was
reduced from GBP141m to GBP55m. Total net debt, excluding
restricted funds but including loan prepayments, has reduced from
GBP242m to GBP139m.
viii. By the end of 2011 we had completed the re-building of the
Board, with the appointment of four new Non-Executive Directors
since late 2010. These appointments have contributed a fresh
outlook and new determination to the Board.
Current progress
While there were significant achievements made in 2011,
difficulties at Daw Mill from late 2011 highlighted how much
remains to be done to put the UK Coal mining business on a stable
footing.
We highlighted in April last year that the Company once again
faced a potential three-month "face gap" at Daw Mill, following the
four-month face gap in 2010 which cost the Company the majority of
the GBP100m raised in October 2009. Our mining team developed a
two-part mitigation strategy to avoid a 2011 face gap.
At the end of 2011, the element of mitigation which relied on
extending the 32s face at Daw Mill failed as a result of combined
geological, workforce and management problems. Work started in
January 2012 on the second part of the mitigation strategy which
was to commence the next face early. The ramp-up of this face was
very slow, taking three months in Q1 2012.
The high fixed cost structure inherent in our deep mines and a
two week cash conversion cycle coupled with poor operational
performance has an immediate impact on the Group's financial
position. The current structure, whereby all mines are in the same
corporate entity, can quickly result in one mine putting the entire
Group at risk.
The problem of operational vulnerability is compounded by the
level of our pension deficit and debt to customers and banks. The
pension deficit, under the principles used by the Trustees to
determine future funding, has almost doubled from around GBP250m at
the last valuation in 2009 to approximately GBP430m.
As a result, the Company has recently announced its intention to
restructure the Group to isolate the operating risk of each deep
mine from the Group as a whole and mitigate future financial
uncertainty arising from operations at Daw Mill or other mines. It
was also announced that a consultation process has begun regarding
the early closure of Daw Mill in 2014, subject to the option to
retain Daw Mill under a new structure and operating model.
2012 restructuring
Our proposal to parties with an economic interest in UK Coal
would entail a more formal separation of mining and property
interests, each with an appropriate capital structure. The plan is
intended to isolate the operating and financial risk of each deep
mine from the Group as a whole and to address the funding and debt
structure of the Group.
We have continued constructive discussions with our principal
banking partners, Lloyds Banking Group, together with Barclays
Bank, the Pension Funds, our customers, the Department for Energy
and Climate Change and the Coal Authority. We are in the process of
tabling our detailed plan to these parties.
Our intended plan involves a substantial reduction of the
pension, and other, liabilities of UK Coal. Under this plan, the
Board believes that the value inherent in the mining business can
be properly exploited for the benefit of all stakeholders. A
minority equity stake in the mining business, together with an
interest in the future cash stream from the realisation of the
property portfolio, would be offered in consideration for the
reduction of pension scheme and, potentially, other stakeholder
liabilities.
The Board believes that there is potential value to be realised
from our substantial brownfield property portfolio through the
development process. It is proposed that the property company would
take over the bank debt of the Group and an agreed liability as
part of a compromise of the pension scheme. Our proposal is that
equity funding, which will be ring fenced to the property business,
will need to be raised for the period of time required to pay down
bank debt whilst the development process releases this value.
The Board believes that this plan is the only practicable way to
create a sustainable structure for the Group. We recognise that
this will require significant co-operation and support from all of
those with an economic interest in the Group. Without this support
there would be a significant risk to the Group, and, in particular,
to the continuation of the mining business. We hope to be able to
report on the result of our negotiations at our AGM in June.
Outlook
The reliance on coal in the current energy mix continues. During
this recent winter, mild as it was, coal generated around half of
the electricity needed in the UK. The proposed introduction of the
carbon support price may reduce the demand for coal, but coal
remains a key factor in keeping energy bills as low as
possible.
In the short and medium term, as the UK manages the transition
to a cleaner energy future, in a way that also maintains an
affordable price for electricity, coal continues to be part of the
energy mix. With over 100 years of reserves left in the UK, it is
important that we continue to use coal mined in the UK rather than
relying solely on imported coal.
We have two immediate over-riding priorities:
i. To operate the business safely and successfully, delivering
the continuing targets of our recovery plan and in particular to
improve production at Daw Mill where the recovery of 32s face still
has to be achieved and the equipment transferred to 33s on a timely
basis.
ii. To set out and negotiate, with our very wide range of
stakeholders, a new structure for the Group to enable it to
continue into the medium and longer term.
UK Coal has made significant progress on achieving the
objectives set at the beginning of the year. I believe we now have
a realistic and practical solution for taking the Group forward and
would like to thank all those at UK Coal who have contributed to
this progress.
Jonson Cox
Chairman
27 April 2012
Company Information and AdvisErs
Chairman Independent Auditors
Jonson Cox PricewaterhouseCoopers LLP
Benson House
33 Wellington Street
Leeds
LS1 4JP
Executive Directors Joint Stockbrokers
David Brocksom Numis Securities Limited
Gareth Williams # 10 Paternoster Square
Owen Michaelson London
EC4M 7LT
Non-Executive Directors
Lisa Clement --+*++
Keith Heller --+#++
Peter Hickson+*#=++
Steven Underwood
Company Secretary and Investec Bank PLC
Registered Office 2 Gresham Street
Richard Cole London
Harworth Park, Blyth Road EC2V 7QP
Harworth
Doncaster Solicitors
South Yorkshire Freshfields Bruckhaus Deringer
DN11 8DB LLP
65 Fleet Street
London
EC4Y 1HS
Registrars
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
Company Registered Number Principal Bankers
2649340 Lloyds Banking Group PLC
2(nd) Floor
-- Audit Committee Lisbon House
+ Nomination Committee 116 Wellington Street
* Remuneration Committee Leeds
= Senior Independent Non-Executive LS1 4LT
Director
++ Independent Non-Executive Director Barclays Bank PLC
# Safety Committee 2(nd) Floor
1 Park Row
Leeds
LS1 5WU
OPERATING AND FINANCIAL REVIEW FOR 2011
Business overview
UK Coal is the largest producer of coal in the UK, and a
significant supplier of energy to the UK's electricity industry. In
2011 we sold 8.0 million tonnes of coal, including 0.5m tonnes from
stocks (approximately 16% of the total amount of coal burned in the
UK). Predominantly our customers are in the electricity supply
industry ("ESI") and our production therefore represented around 5%
of the UK electricity supply.
The Group had three operational deep mines and five active
surface mines in 2011.
As a result of our heritage, we have a land portfolio of around
30,000 acres of land. This includes agricultural land originally
acquired for its underlying coal reserves, and the sites of former
mines and associated workings. It is largely focused on the UK coal
fields along the A1/M1 corridor through Nottinghamshire and
Yorkshire, and in Northumberland, although it also includes some
significant sites elsewhere.
Given their location and former use, these sites are often very
well connected to road, rail and electricity networks, and
represent an excellent opportunity for development of both
residential and employment buildings, helping to meet the long-term
needs of the UK.
Our business makes a significant contribution to the UK's energy
needs, to the local communities where our operations are based and
to social and economic regeneration programmes.
Business objectives
Mining
Deep mining
-- To improve safety significantly
-- To reduce risk and variability in operational performance
-- To improve the underlying development position of each mine
-- To optimise operating cost per tonne of output
-- To achieve an optimum balance between long-term sales
contracts and an ability to access short-term market prices for our
coal.
Surface mining
-- To improve safety significantly
-- To maintain sustainable levels of increased production over
the longer term through planning applications and consents
-- To maximise productivity
-- To maintain high environmental standards and close working
relationships with local communities.
Harworth Estates
-- To realise the value from our remaining agricultural and other non-core portfolio
-- To increase the value of our strategic land bank by gaining
more favourable planning designations
-- To maximise income from our business parks
-- To progress delivery partnerships to bring forward our strategic development sites
-- To generate value through renewable energy opportunities.
REVIEW OF OPERATIONS BY BUSINESS
Mining
General overview
Good progress was made in 2011 against the Group's Strategic
Recovery Plan with a return to profitability.
Revenue from the mining business for 2011 was GBP477.7 million
(2010: GBP342.8 million) and operating profit before non-trading
exceptional items was GBP54.5 million (2010: loss of GBP43.7
million). The revenue is derived from sales from deep mine
production of GBP366.3 million (2010: GBP276.7 million) and sales
from surface mine production of GBP111.4 million (2010: GBP66.1
million). The operating profit before non-trading exceptional items
is split as a deep mines profit of GBP32.4 million (2010: loss of
GBP44.1 million) and surface mines profit of GBP22.1 million (2010:
GBP0.4 million). With the continued replacement of lower priced
contracts with new, better priced contracts during the year, the
mining business was able to benefit from a strong market price and
average realised sales price per Gigajoule rose by over 25% to
GBP2.48/GJ (2010: GBP1.97/GJ).
Key performance indicators
2011 2010
--------- --------- --------- -------------- ---- ------ ------
Sales price per Gigajoule (GBP/GJ) 2.48 1.97
Tonnage sold (million tonnes) 8.0 7.2
Tonnage produced (million tonnes) 7.5 7.2
----------------------------------------------- ---- ------ ------
Market overview 2011
The UK burned an estimated 45 million tonnes of steam coal in
2011, the vast majority of this to generate electricity. Overall,
UK consumption was fairly static in comparison to 2010, which was
boosted by extreme winter weather conditions. Towards the end of
2011 coal became the electricity generators fuel of choice as
rising gas prices pushed down gas use enabling coal to increase its
share of the fuel mix to around 30% in the year. As we enter 2012
the profit margins on gas plant have been further squeezed and some
older gas stations have ceased generation.
The longer term demand for our product remains unaffected as the
electricity generation market is heavily dominated by imports. Coal
mined in the UK, including our own 7.5 million tonnes in 2011, can
only meet a portion of this demand making the UK a substantial
importer of coal. Demand in the UK will continue substantially to
exceed our supply capacity throughout this decade.
In 2010, high stock levels held by UK generators resulted in a
downturn in imports as they looked to bring these down to more
manageable levels. 2011 saw a resumption of coal buying which led
to imports rising by 22% to 32 million tonnes. UK power station
stocks started and ended 2011 at around 13 million tonnes.
Given the nature of the UK electricity supply industry, our
predominant market, we continue to have a small number of
significant customers. All of our major customers have retrofitted
flue gas desulphurisation ("FGD") onto their stations to meet the
requirements of the European Large Combustion Plant Directive
("LCPD").
The replacement legislation to the LCPD, the Industrial
Emissions Directive ("IED") has been approved in the European
Parliament and the UK is currently working towards finalising its
implementation. The IED will require further investment by the
generators to meet the tightening sulphur dioxide and nitrogen
oxide emission limit targets after 2015. However as it stands, the
IED would allow UK generators, without further investment, some
flexibility in their operational emissions but would limit their
running hours in return.
In July 2011 the UK Government published its White Paper on
'Electricity Market Reform' ("EMR") consultation outlining how it
intends to encourage investment in low carbon generation to meet
its long term carbon reduction targets. The White Paper put forward
four main principles to reach this goal; carbon price support, feed
in tariffs, capacity mechanisms and emission performance
standards.
The UK Government intends to introduce its carbon price support
mechanism in April 2013. This will reduce the competiveness of coal
fired plant against other types of generation. UK Coal believes
that this scheme is unnecessary as the Government's proposal to
introduce feed in tariffs would deliver the same result.
UK Coal strongly believes that existing coal fired generation
provides an essential low cost transition to the low carbon
economy. The UK Government recognises the importance coal plays in
providing diversity, security and flexibility in our energy
supplies but has stated that ultimately coal can only play its part
in the long term energy mix through carbon capture and storage
("CCS") enabled generators.
CCS involves capturing the CO(2) emitted from burning fossil
fuels, transporting it and storing it safely in geological
formations. CCS has the potential to reduce CO(2) emissions from
fossil fuel power stations by as much as 90%. The emission
performance standard proposals within the EMR proposals would force
all new coal power stations to fit CCS to a proportion of its
capacity from the start of operations. However, CCS imposes a
considerable power burden on generator stations, reducing the
overall efficiency and cost effectiveness of coal as a source of
energy.
Despite the disappointing news that the CCS scheme at Longannet
would not go ahead, the UK Government has reaffirmed that GBP1
billion would be still be available to support CCS projects within
the UK. The Government has recently published the CCS roadmap and
competition and we expect this to progress during 2012.
NW Europe steam coal price
International coal prices for near term deliveries started 2011
at $124 per tonne, remained above $120 per tonne until September
before falling back to finish the year at $112 per tonne as mild
weather across Europe affected demand.
The Far East remained the main driver in the international
market. China's imports were up by 10% although this was partially
offset by lower Japanese demand in the aftermath of the
tsunami.
In sterling terms, the price per tonne followed a similar trend,
starting 2011 at GBP79 per tonne (GBP3.13 per gigajoule), and
finishing the year at GBP72 per tonne (GBP2.85 per gigajoule). As
the mild winter progressed in Europe, coal stocks rose at
generators, reflecting lower demand. This resulted in a near term
reduction in coal price and, as at 30 March 2012, the average
forward market price for coal for deliveries in the remainder of
2012 was GBP67 per tonne.
[Graph omitted due to constraints of reporting service]
UK steam coal market
Coal delivered into the UK is priced using the
Amsterdam/Rotterdam/Antwerp (ARA) price which, for the process of
showing a landed UK price, is converted into sterling with the
additional cost of delivery into the UK then added. The average
forward price for 2012 on the ARA market at 31 December 2011 was
$112 per tonne. Converted into sterling at the then exchange rate
of $1.56:GBP1 and into its calorific value by dividing the tonnes
by 25.121, this equated to a forward sterling price of GBP2.86/GJ.
The additional cost of delivery to the UK brought this to a UK
delivered price of over GBP3.11/GJ.
[Graph omitted due to constraints of reporting service]
This table shows coal is the second most used fuel source in UK
electricity generation.
Percentage of electricity 2011 2010 2009 2008 2007 2006
generated by fuel type
% % % % % %
--------------------------- ----- ----- ----- ----- ----- -----
Gas 42 46 45 48 43 37
Coal 30 28 28 32 35 38
Nuclear 19 16 18 13 15 18
Oil, hydro and renewables 9 10 9 7 7 7
Total 100 100 100 100 100 100
--------------------------- ----- ----- ----- ----- ----- -----
Source: DECC Energy Statistics (2011 figures based on
provisional numbers)
Coal contracts
We aim to achieve a diverse mix of contracts with customers to
provide a 'natural hedge' between security of supply and the
ability to take advantage of international coal prices.
Around 95% of our coal sold is delivered to electricity
generator customers with the balance delivered to domestic and
industrial and steel making markets.
The contractual commitments at the end of December 2011 stood at
16.4 million tonnes compared to 21.2 million tonnes at December
2010.
Sales are substantially contracted for 2012, in a mix of
floating, floating within caps and collars and fixed contracts. We
are half way through the process of selling coal for 2013.
Deep mines
Our deep mines business consists of the operational mines at Daw
Mill (Warwickshire), Kellingley (Yorkshire) and Thoresby
(Nottinghamshire). Our deep mine at Welbeck ceased production in
early 2010 and Harworth remains mothballed and its future is
currently being reviewed.
Key performance indicators
2011 2010
------------------------------------------- --------- ---------
Coal mined (million tonnes) 5.7 5.8
Revenue (GBPm) 366.3 276.7
Operating cost* (GBPm) 296.5 288.9
Operating cost* per tonne/per Gigajoule 48.5/2.01 49.6/2.06
(GBP/tonne)/(GBP/GJ)
Operating cost** (GBPm) 333.9 320.8
Operating cost** per tonne/per Gigajoule 54.6/2.26 55.1/2.28
(GBP/tonne)/(GBP/GJ)
Operating profit/(loss) before non-trading
exceptional items (GBPm) 32.4 (44.1)
Development driveage metres 13,296 13,166
* before depreciation and excluding non-trading exceptional
items
** after depreciation but excluding non-trading exceptional
items
Deep mining has a cost base that is largely fixed relative to
production levels, and therefore the KPIs for the business focus on
the operating costs and on the output tonnage achieved from this
cost base. Other indicators which highlight the likelihood of
future production being achieved are also monitored, in particular,
the development metreage achieved, being the investment in future
coal panels. As in other businesses, the revenue and the realised
sales price are also monitored.
Colliery performance summary:
Production Operating cost* Production
2011 2010 2011 2010 Q1 2012 Q1 2011
m tonnes m tonnes (GBPm) (GBPm) m tonnes m tonnes
----------------------------------------------------------- -------- -------- -------- ------- -------- --------
Deep mines
Daw Mill 2.1 2.6 113.8 109.1 0.3 0.7
Kellingley 2.3 1.5 89.0 83.6 0.5 0.5
Thoresby 1.3 1.5 79.3 77.1 0.2 0.4
----------------------------------------------------------- -------- -------- -------- ------- -------- --------
Total ongoing deep mines production/costs before stock
movements 5.7 5.6 282.1 269.8 1.0 1.6
Welbeck - 0.2 - 14.6 - -
----------------------------------------------------------- -------- -------- -------- ------- -------- --------
Total deep mines production/ costs before stock movements 5.7 5.8 282.1 284.4 1.0 1.6
Stock movements 0.4 - 14.4 4.5 - -
----------------------------------------------------------- -------- -------- -------- ------- -------- --------
Total deep mines 6.1 5.8 296.5 288.9 1.0 1.6
----------------------------------------------------------- -------- -------- -------- ------- -------- --------
(*) Operating cost before non-trading exceptional items and
depreciation, with central costs absorbed.
During the year deep mining invested GBP30 million in capital
expenditure, of which GBP13.0 million and GBP10.0 million was in
respect of new face equipment at Daw Mill and Thoresby
respectively. An additional GBP3.5 million and GBP1.3 million was
invested to increase coal processing capacity at these two
mines.
Overall costs before stock movements (excluding Welbeck)
increased by 4.6%. This reflected the cost of increased production
levels, rises in electricity and other power tariffs and the impact
of increased developments costs on the profit and loss account.
Developments in 2011 were wholly expensed at Kellingley and
Thoresby rather than being capitalised to the balance sheet as in
early 2010 as part of the access costs to new seams.
Development driveage (metres) 2011 2010
------------------------------ ------ ------
Deep mines
Daw Mill 2,454 2,844
Kellingley 5,407 5,763
Thoresby 5,435 4,559
------------------------------ ------ ------
Total 13,296 13,166
------------------------------ ------ ------
Daw Mill
As previously reported, 32s face was re-planned to work through
a fault following further seismic information that showed it was
possible to safely mine through, albeit at a slower rate than 2010.
This progressed well until late November when, as a result of the
creation of steep gradients across the face, it became impossible
to advance the powered roof supports. The continued slow recovery
of 32's and the slow ramp up of the next coal panel left the mine
with minimal production throughout December and poor production in
Q1 2012.
We continue to work on the safe recovery of 32s. A decision will
be made whether to continue mining or to salvage the face early for
preparation of the 2013 panel, 33s, once certain milestones have
been achieved. If 32s is not capable of being safely recovered and
mined, it is possible that Daw Mill may have a face gap of up to
three months during the first half of 2013, although mitigating
plans are being put in place as a precaution.
The current panel, 303s, started ramping up in January and
immediately hit a known fault area, resulting in reduced Q1 2012
output. It has now moved beyond the known fault area and is
producing to plan.
Planned developments at Daw Mill have not been achieved for many
years. To address this and the poor mining performance, the Board,
having reviewed the strategic options for Daw Mill, implemented an
intensive intervention in the day to day management of the mine to
lift performance which has yielded positive results.
Notwithstanding this intervention, Daw Mill's performance led to
the decision to suspend developments on those faces to be mined
from 2014 and to start consultation with the workforce concerning
the future of this mine. Discussions continue in this regard.
Kellingley
Production for 2011 finished ahead of plan following the
successful transition from 501s to 502s. The experience gained from
working the first panel in the Beeston seam, 501s, was successfully
transferred to the new face.
Developments continue to make good progress and are on track for
completion in time for face installation.
The next face change to 503 is due in the Autumn of 2012.
Developments are progressing well as is our work to upgrade the
face equipment to the same specification successfully used on
502s.
Thoresby
Production was on plan in the second panel of the Deep Soft
seam, DS2, following a successful transfer from DS1. Developments
are continuing to progress and a transfer to DS3s has recently
taken place, with the ramp up on DS3s beginning in Q1 2012.
As reported previously, we have had high stocks of unprocessed
coal whilst additional washing capacity was commissioned. These
stocks had been reduced significantly by year end and have now
fallen to normal levels.
Development of DS4 is progressing well with the aim of producing
coal in late 2012/early 2013.
Harworth
Harworth colliery remains on a care and maintenance strategy. A
small, dedicated planning team has begun investigations to see
whether or not the mine should be reopened or capped and closed. It
is envisaged that this decision will take place in 2012.
Reserves and resources - deep mines
We estimate that we have approximately 148.5 million tonnes of
reserves and resources at our ongoing mines of which 34 million
tonnes of coal is accessible under the existing five year mining
and investment plans. The additional resources will become
accessible beyond this timeframe with investment required as
necessary.
Following changes to the mining plans, our available reserves
and resources across all mines have not changed significantly since
last year and our estimates, as at December 2011, of deep mine coal
reserves are set out in the following table:
Million Tonnes Proved Probable Total reserves Resources Total
Daw Mill 1.5 14 15.5 42 57.5
Kellingley 3.5 5.5 9 56 65
Thoresby 1.5 8 9.5 16.5 26
---------------- ------- --------- --------------- ---------- ------
Harworth 0 0 0 53 53
---------------- ------- --------- --------------- ---------- ------
TOTAL 6.5 27.5 34 167.5 201.5
---------------- ------- --------- --------------- ---------- ------
Reserve Reserves which are accessible using the current infrastructure
and in the current five year mining plan.
Resource Reserves which may require substantial development
and other costs to allow accessibility and are not
currently in the five year mining plan.
These reserves are calculated on the basis that Daw Mill
continues to operate beyond 2014. In the event of a decision to
close Daw Mill in early 2014, estimated reserves regarding Daw Mill
would reduce to between 4-5 million tonnes.
Our closed mines at Rossington, Thorne and Welbeck have 120
million tonnes of resources. We retain a licence on these resources
for possible future exploitation.
These figures are based on the Group's best estimates. A number
of factors may cause the actual production to vary significantly
from these estimates. These factors include:
-- Ongoing seismic surveying of reserves to confirm production estimates
-- Sale price of future coal and cost increases - these could
render production plans uneconomic or could allow extraction from
areas previously thought unviable
-- Production requirements - the need to maintain continuous
production can lead to early commencement of a new face, with coal
consequently being left unmined.
As stated last year, we have changed our reporting basis and are
now reporting our reserves and resources in accordance with the
criteria for internationally recognised reserve and resource
categories of the 'Australasian Code for Reporting Mineral
Resources and Ore Reserves'. This is published by the Joint Ore
Reserves Committee of the Australasian Institute of Mining and
Metallurgy, Australian Institute of Geoscientists and the Minerals
Council of Australia.
Surface mines
Key performance indicators
2011 2010
------------------------------------------------- --------- ---------
Coal mined (million tonnes) 1.8 1.4
Revenue (GBPm) 111.4 66.1
Operating cost* (GBPm) 87.7 63.7
Operating cost* per tonne/ per Gigajoule 47.3/1.97 45.1/1.91
(GBP/tonne/GBP/GJ)
Operating cost** (GBPm) 89.4 65.7
Operating cost** per tonne/ per Gigajoule 48.2/2.01 46.5/1.97
(GBP/tonne/GBP/GJ)
Operating profit before non-trading exceptional
items (GBPm) 22.1 0.4
Restoration spend (GBPm) 16.9 11.6
Sites with consent (number) 6 7
Reserves on sites with planning consent (million
tonnes) 5.1 5.3
------------------------------------------------- --------- ---------
* before depreciation and excluding non-trading exceptional
items
** after depreciation but excluding non-trading exceptional
items
Includes sites where planning committee approval has been
obtained and formal consent is pending
Production increased by 29% to 1.8 million tonnes compared to
1.4 million tonnes.
Operating costs increased in the year in absolute terms,
primarily due to additional sites in operation and a significant
increase in the cost of gas oil. Operating cost per Gigajoule
showed a more modest increase year on year due to a change in the
portfolio of mines being operated in 2011 compared to 2010 and
their respective coal yield operating costs.
Production was ahead of plan due to additional production from
Cutacre and Steadsburn sites as they entered their restoration
phases in the year, combined with increased production at Potland
Burn.
This increase against plan was offset by the delayed start to
Butterwell due to additional environmental work and delayed
planning permission for Lodge House Extension which came too late
to begin work in 2011. Butterwell began production in February 2012
and Lodge House commences mining shortly. In addition, Minorca was
granted planning permission in July 2011 and will enter production
in late 2012.
These planning successes mean that 100% of 2012 production is
consented with a similar level covered in 2013.
Over the last two years we have completed a significant amount
of restoration work on certain large former mine sites, especially
Stobswood, Maiden's Hall and Steadsburn. The level of restoration
work required in 2012 will therefore be commensurately lower.
The Surface Mines business has been strengthened during the year
with the external appointments of a Director of Surface Mining and
Head of Business Development. A strong pipeline of development
projects exists to support continuity and growth in the Surface
Mining business with the aim of increasing production levels.
Reserves and planning - surface mines
We estimate that we have surface mining reserves and resources
of 32.6 million tonnes (2010: 42.3 million tonnes) as shown in the
table below.
The year on year reduction follows a comprehensive review of the
development portfolio proposals which saw some long-term, low
probability sites being removed and land sold. As a result of this,
the remaining developments offer a higher average probability of
success.
Reserves
---------------------- ---------- --------------- ---------- ------
Total Reserves Inventory
Million Tonnes Proved Probable Total Resources and Resources coal Total
---------------------- ------- --------- ------ ---------- --------------- ---------- ------
Butterwell 1.0 1.0 1.0 1.0
Huntington Lane 0.3 0.3 0.3 0.3
Lodge House
Extension 0.7 0.7 0.7 0.7
Minorca 1.2 1.2 1.2 1.2
Park Wall North 0.6 0.6 0.6 0.6
Potland Burn 1.3 1.3 1.3 1.3
---------------------- ------- --------- ------ ---------- --------------- ---------- ------
Sites with planning 5.1 5.1 5.1 5.1
---------------------- ------- --------- ------ ---------- --------------- ---------- ------
Bradley 0.5 0.5 0.5 0.5
Hoodsclose 2.1 2.1 2.1 2.1
---------------------- ------- --------- ------ ---------- --------------- ---------- ------
Submitted for
planning 2.6 2.6 2.6 2.6
---------------------- ------- --------- ------ ---------- --------------- ---------- ------
Sites in development 6.5 6.5 18.4 24.9 45.2 70.1
---------------------- ------- --------- ------ ---------- --------------- ---------- ------
2011 Total 5.1 9.1 14.2 18.4 32.6 45.2 77.8
---------------------- ------- --------- ------ ---------- --------------- ---------- ------
2010 Total 5.3 11.2 16.5 25.8 42.3 33.7 76.0
---------------------- ------- --------- ------ ---------- --------------- ---------- ------
Although we have been successful in the previous 15
applications, the planning environment for surface mines,
notwithstanding the arrival of The National Planning Policy
Framework, remains challenging. This was demonstrated by the
setback with our proposed Bradley site. Despite having been
recommended for approval by the Planning Officer, the Planning
Committee voted against this scheme and we also lost on appeal. We
are now seeking a judicial review and expect a decision in
2013.
We expect to submit planning applications during 2012 for in
excess of 6 million tonnes of coal.
Coal reserves are the economically mineable part of the
company's identified coal tonnage. It includes allowances for
losses that may occur when the coal is mined. Reserves are
sub-divided into proved and probable reserves:
- Proved reserves represent the highest confidence category of
reserve estimate as detailed technical and economic studies have
demonstrated that extraction is viable and sites are either
working, have been granted planning permission or have a resolution
to grant planning permission.
- Probable reserves have a lower level of confidence than proved
reserves. Detailed technical and economic studies have demonstrated
that extraction is viable and planning applications have either
been submitted or will be submitted in the short term
Coal resource is that part of a coal deposit in such form,
quality and quantity that there is a reasonable prospect for
eventual extraction.
Inventory coal is any occurrence of coal in the ground that can
be estimated and reported without necessarily being constrained by
economic and geological potential, or other modifying factors.
Tonnages quoted are in accordance with the Australasian code for
reporting of exploration results, mineral resources and ore
reserves as established in 1971 by the Joint Ore Reserves
Committee.
Harworth Estates
Key performance indicators
2010
2011 (like for like) 2010
----------------------------- ----------------------------- ------------ ----------------- ------------
GBP million GBP million GBP million
RICS valuations of the property portfolio (GBPm) 282.3 279.6 338.9
Disposals
-Contracts exchanged in year* (net proceeds) 67.0 24.4
-Cash received in the year 64.5 22.7
------------------------------------------------------------ ------------ ----------------- ------------
* in addition we have conditionally exchanged contracts during
2011 on sales with potential net proceeds of GBP18.1 million where
we expect conditions to be satisfied during 2012.
The Group's property division, Harworth Estates, produced a
profit of GBP8.3 million (2010: GBP33.1million loss), including a
gain on investment properties of GBP6.0 million (2010: GBP34.7
million loss), of which GBP3.3 million was unrealised (2010:
GBP34.2 million loss). In addition, an accounting revaluation gain
of GBP4.5 million was taken directly to reserves (2010: GBP1.2
million), being the gains recognised on former operating properties
transferred to investment property status on their ceasing to be
operational sites.
While the focus of the year was on our accelerated disposals
programme, we continued to progress the promotion of strategic
planning for our portfolio.
Disposals
Disposals during the year secured net proceeds after costs of
GBP67.0 million from the sale of 10,200 acres of residential
development sites and agricultural land (and associated
properties). These sales resulted in a profit on disposal of GBP2.7
million. During the year we received GBP64.5 million of proceeds
net of costs with the balance to be received in 2012. These
proceeds were principally used to repay bank debt. We also
exchanged conditionally on further residential and commercial land
sales in 2011 which are expected to generate net proceeds of
GBP18.1 million over the next 3 years.
During 2012 disposals of agricultural and commercial properties
will continue to help reduce Group borrowing further.
Valuations
The successful 2011 accelerated land disposals programme
achieved prices which underpinned the valuations of both the
commercial and agricultural elements in our portfolio. Overall the
portfolio is valued at GBP282.3 million (a 1% increase on a like
for like basis from 2010). 'Undeveloped land' showed a small gain
against 2010 as our successes in gaining new or improved planning
status on a number of sites offset some planning reversals.
'Agricultural land' continued to show improving values but our
income yielding 'Commercial land' reduced in value slightly in a
challenging marketplace. Rental levels in this segment have
remained flat, a reflection of the difficult economic conditions
facing businesses. Overall the progress made across the portfolio
reflects the continuing difficult environment for commercial land
in the geographical areas our portfolio covers.
A full independent valuation of our property portfolio was
undertaken as at December 2011 in accordance with appraisal and
valuation standards published by the Royal Institution of Chartered
Surveyors
The portfolio valuation is summarised in the table below;
Dec-11 Dec-10 Dec-10
like for like
GBPm GBPm GBPm %
Agricultural
Retained for Surface
Mining 21.9 25.4 21.6 1.4%
Mixed 27.2 60.4 25.1 8.4%
Low grade 3.5 6.1 3.7 -5.4%
52.6 91.9 50.4 4.4%
Undeveloped land
With planning 106.2 42.7 98.0 8.4%
Application submitted 10.6 71.3 14.1 -24.8%
Without planning 53.9 63.8 55.8 -3.4%
170.7 177.8 167.9 1.7%
Commercial land with
rental income
Part or fully developed 27.7 28.6 28.6 -3.1%
In development 16.2 16.0 16.4 -1.2%
43.9 44.6 45.0 -2.4%
Investment Properties
at valuation 267.2 314.3 263.3 1.5%
Operational
Potential development 5.0 13.0 5.5 -9.1%
Agricultural 3.6 5.1 4.4 -18.2%
Other 6.5 6.5 6.4 1.6%
Operational Properties
at valuation 15.1 24.6 16.3 -7.4%
Total Properties at valuation 282.3 338.9 279.6 1.0%
-------------------------------- ------- ------- ------- -------
The like-for-like percentage change from December 2010
comparatives are after property reclassification and take into
account adjustments for asset sales with a book value of GBP63.7
million and purchases, development expenditure and depreciation
which together net to GBP4.4 million.
Active surface mine sites are included in the value above based
on their restored land value of GBP15.1 million (2010: GBP24.6
million). Sites currently being used by the Group for mining and
other activities are recorded at cost less impairment and changes
in valuations are not reflected in the balance sheet. As at
December 2011, a total of GBPnil (2010: GBP5.1 million) has not
been included in the balance sheet as a result. Operating deep mine
sites are not included in the above valuation.
We continue to engage different valuation firms dependent on the
type and location of our property and have used the same firms as
in 2010. BNP Paribas Real Estate value all the Group's commercial,
residential and development sites. Smiths Gore value the majority
of the agricultural portfolio, while Bell Ingram value our
agricultural properties in the north of England and Scotland. The
commercial and residential land contained within the BNP Paribas
valuation has been valued in a market with very little comparable
evidence available.
In accordance with RICS 'Red Book' guidance therefore, the
valuers make the following statement, the same as last year, which
is consistent with a significant number of other declarations made
on portfolios throughout the country:
'Our valuation is on the basis of market value. This is an
internationally recognised basis and is defined as:
"The estimated amount for which a property should exchange on
the date of valuation between a willing buyer and a willing seller
in an arm's length transaction after proper marketing wherein the
parties had each acted knowledgeably, prudently and without
compulsion."
'This basis of valuation is accepted as meeting the criteria for
assessing "fair value" under International Financial Reporting
Standards. International Accounting Standard 16 requires that the
fair value of land and buildings is usually determined from market
based evidence; that is evidence derived from sales comparison.
This is the approach we have generally adopted. However, where the
property assets are of such a size or a nature that there is no
direct evidence of sales to form a basis of comparison, we have had
regard to residual development appraisals in part informed by gross
development values derived from sales comparison.
'As a consequence, on account of the sensitivity of the market
value to the detail of any future planning consent, and the
potential for material variance in the actuality of development
costs, as compared with our own estimates, together with the
subjective nature of hope value, we must state that our valuation
(consistent with the guidance of the Red Book), is subject to
material uncertainty.'
Market conditions and development
In a fragile property market, we have proved that there is still
a market for the right product and location. Transaction volumes
remain low and we have had to be more innovative in our offering at
the design and planning stages to attract buyers and achieve values
in line with expectations. Our confidence in creating and
delivering value from our diverse portfolio has increased but
cautiousness remains across the property market in the short term
which may affect performance in 2012.
The benefit of our divisional structure is being realised with
focused teams able to highlight and develop opportunities for both
short term quick wins and longer term value creation. This
structure has also improved accountability and the ability to focus
spend and resources on projects where best opportunities are seen.
Our developments generate jobs, build homes and provide new
recreational facilities and we have shown our ability to increase
land values and generate short term income streams using innovative
methods such as harnessing energy from low carbon sources and
recovery of previously waste materials.
Strategic land
Harworth Estates has a large and diverse land portfolio with
significant potential given our industrial history. Our development
sites have excellent strategic locations, substantial power
supplies and are significant in size.
The Strategic Land division has a residential land bank
totalling in excess of 7,500 plots and 4.4m sq ft of employment
space, of which 969 plots and 0.3m sq ft are consented. In
2011:
-- Outline planning consent was obtained for a further 500
residential plots and ancillary commercial development at Ellington
and Lynemouth, Northumberland
-- A further 400 at Mapplewell near Barnsley, South Yorkshire
-- Conditional contracts have been exchanged with Gleeson and
Jones Homes to enable the development of sites at Barnsley, South
Yorkshire and Harworth, Nottinghamshire.
In addition to the consented sites a further 42 sites (around
2,300 acres) have been promoted which, subject to planning, may
generate 6,500 plots and 4m sq.ft of employment space. Our largest
planning application to be submitted in 2012 is for an urban
extension at Rossington, South Yorkshire to regenerate the former
colliery site with around 1,200 new homes, a food store,
pub/restaurant and hotel.
Harworth Estates continues to seek development partners for our
consented sites and to deliver significant growth and employment
opportunities.
Developments
Our Development portfolio includes four principal sites:
-- Waverley, South Yorkshire
-- Prince of Wales, West Yorkshire
-- Harworth Colliery, Nottinghamshire
-- Yorkshire Main, South Yorkshire.
These represent over 6,000 residential plots as well as offices,
retail and leisure uses of some 1.9m sq ft.
Our largest development site (Waverley, South Yorkshire)
conditionally exchanged residential sales contracts with Taylor
Wimpey, Barratt Homes and Harron Homes on the first phase of
construction for 254 homes. A contract with Rolls-Royce PLC was
conditionally exchanged for 17.4 acres on the Waverley Advanced
Manufacturing Park to build a 170,000 sq. ft. high-tech
manufacturing unit and the remainder of the Park has been allocated
as an Enterprise Zone. This deal was completed on 18 April
2012.
To maximise value we are phasing plot availability and putting
in the necessary infrastructure, such as road networks, wherever
appropriate.
We will adopt similar strategies on other sites as required.
Business parks
We currently have 1m sq. ft. of built secondary industrial and
business premises on 10 active business parks, some of which are
former mine sites that provide low cost facilities and
opportunities to various businesses. We also have 120 acres of
expansion land and a further 320 acres of land with planning
consent, or an employment allocation, for commercial space. This
gives us the potential to create 4.5 million sq. ft. of new build
accommodation.
We are actively marketing these sites for further development
either in-house as pre-let opportunities or with development
partners to assist us in planning, promotion and realisation. One
such scheme is our Cutacre site, near Bolton, which is viewed as a
major regional distribution site for the North West.
Our active and proposed business parks are valuable assets with
the potential to grow the current rental income significantly and
increase capital value, or realise capital receipts.
Natural resources
Our large and diverse portfolio provides opportunities for our
land that is outside typical development areas. Our focus on these
sites is to maximise the opportunities for low carbon energy
generation and environmental operations.
In 2011:
-- A deal on Bilsthorpe, Nottinghamshire was completed to enable
the construction of a 10MW wind farm, led by Peel Energy and John
Laing Infrastructure
-- An Option with EDF for a wind farm at Hilltop, County Durham
(6MW) was signed and terms with another wind farm developer on our
Bewick Drift, Northumberland (6MW) scheme were agreed
-- GBP2m of secondary aggregates, coal fines and scrap metals
were recovered from former mining sites as part of our restoration
and remediation programme
-- A Waste to Energy partnership agreement was signed with Peel
Environmental at 11 sites to enable the appraisal and development
of various opportunities
-- A Memorandum of Understanding was signed with Linc Energy to
explore the prospects of underground coal gasification at three of
our sites.
Many of our brownfield sites provide significant power supplies,
rail connectivity, minimal proximity to neighbours, links to
emerging government regeneration policies or general opportunities
for recycling redundant material following the closure of a mine or
previous site activity.
We have a sustainable programme that promotes new opportunities
and provides benefits to the Group in the short, medium and long
term. We are currently looking at 60 potential schemes (covering
over 11,000 acres) with proposals for mineral recovery, renewable
energy, waste recycling, coal bed methane, gas storage and land
reclamation projects.
Harworth Power
Harworth Power is the UK's leading coal mine methane power
generator and operates a high quality clean energy portfolio with
access to long term gas reserves.
In 2011, Harworth Power made an operating profit of GBP2.4m
(2010: GBP2.5m). Income increased by GBP1.7m but profitability
remained flat due to a GBP1m credit in 2010 for sale of Carbon
Credits and GBP0.2m profit on sale of assets.
It operates fourteen gas engines, with an installed capacity of
26MW, and generates enough energy from methane captured from four
of UK Coal's deep mine sites to supply 30,000 homes with
electricity.
We consider that there is value in this operating business as a
standalone entity separate from UK Coal whilst retaining both a
rental income stream and the opportunity to sell the methane gas
generated from our mines. We have started a process to explore the
potential sale of this business. We will update further on this
should the process progress towards a definitive transaction.
Agriculture
Whilst 2011 saw the disposal of many agricultural sites, we
still have a substantial portfolio that is either suitable for long
term development including surface mining, adjacent to former
mining activity or adjacent to potential development sites.
Our strategy is to sell agricultural land where there is no long
term development potential or identify suitable development
proposals where we can realise value but retain working rights
agreements or clawback arrangements.
Sustainable Property Business
In the long term the aim is to become a leading regeneration
specialist and create a sustainable property company with a large
and varied land bank which generates significant future growth
opportunities. We now have a strong track record in turning
brownfield sites into economic opportunities.
FINANCIAL REVIEW
Group revenues have risen in the year to GBP488.2 million from
GBP351.2 million in 2010. This was achieved through higher sales
volumes and higher realised sales prices. The increase in sales
volumes arose from improved production from surface mines and a
stock lift from the abnormally high opening stock levels following
the bad weather in December 2010. The improvement in the average
realised sales price was achieved through a strong market price for
coal and the replacement of old, below market price, contracts with
some newer contracts at current market prices. At the end of 2011,
only 0.5 million tonnes of these old contracts remained to be
delivered predominantly in 2012 at a price of circa GBP1.65/GJ.
With these changes, we achieved an average sales price per
gigajoule of GBP2.48/GJ compared to the GBP1.97/GJ in 2010.
Property disposals were made during the year with a net value of
GBP67.0 million resulting in a profit on disposals of GBP2.7
million. Net proceeds of GBP64.5 million were received in the year,
being used to reduce Group debt, with the balance receivable in
2012.. The year end revaluation of the investment property
portfolio produced an upward valuation of GBP3.3 million (2010:
loss GBP34.2 million).
There was an improvement in the year in the operating profit
before non-trading exceptional items, which at GBP65.2 million was
GBP139.5 million better than the previous year's loss of GBP74.3
million. This was driven by the significant improvement in group
revenues noted above and a GBP3.3 million gain on investment
properties compared to a GBP34.2 million loss in 2010.
There have been non-trading exceptional items during the year
resulting in an exceptional income of GBP16.1 million in the period
(2010: GBP13.1 million charge). The charges/credits in the current
year included:
-- Pension scheme past service cost
A past service gain of GBP16.4 million arose from the benefit
changes made to the industry wide pension schemes and concessionary
fuel scheme at the end of 2011 and their impact on assumptions as
to future salary growth
-- Refinancing costs
Costs of GBP1.7 million were incurred in relation to
professional fees relating to the refinancing exercise conducted in
the first half of the year
-- Pension scheme curtailment
There was a curtailment gain of GBP1.4 million in the first half
of the year reflecting the reduction in the pension scheme deficit
as relevant members ceased to be active members following current
and prior year redundancies, mainly as a result of the closure of
Welbeck in 2010.
The operating profit after these non-trading exceptional items
for 2011 was GBP81.3 million compared with a loss of GBP87.4
million in 2010. Group profit before tax was GBP58.0 million
compared to a loss before tax of GBP124.6m in 2010.
Financing expenses
Net finance expenses in the year were GBP22.9 million compared
to GBP27.4 million in 2010 (excluding exceptional finance costs,
which were GBPnil in 2011 (2010: GBP9.9 million)). The reduction
arose from a net repayment of loans during the year of GBP84.3
million (2010: net increase in loans GBP12.3 million) leading to a
reduction in bank interest in the year to GBP9.2 million (2010:
GBP11.6 million), and the fair value of interest rate swaps, which
provided a credit of GBP0.1 million compared to a charge of GBP1.5
million. These reductions were offset by an increase in the
interest charge on generator loans and prepayments to GBP9.2
million (2010: GBP8.6 million) which arose on a higher average
generator loan balance as the loans reached the maximum drawn value
and entered repayment phases during the year.
The Group had cash deposits held by our captive insurance
company against insurance claims and, similarly, ring-fenced funds
held on behalf of the Coal Authority securing surface damage claims
resulting from mining. These totalled GBP14.7 million and GBP8.9
million respectively at December 2011 (2010: GBP15.7 million and
GBP8.8 million). In addition to the ring-fenced funds held on
behalf of the Coal Authority, a GBP10.0 million insurance bond is
held by the Coal Authority as further security against any possible
surface damage claims. This bond matures in December 2012. These
deposits were secured against liabilities as at December 2011 of
GBP8.5 million and GBP16.5 million respectively (2010: GBP13.0
million and GBP15.4 million respectively).
Tax
The Group paid no corporation tax in 2011 (2010: GBPnil),
although there was a tax charge for the year of GBP2.7 million
(2010: GBP0.5 million) which related to deferred tax as outlined
below.
At December 2011, the Group had estimated gross trading losses
of GBP230 million (2010: GBP312 million) and gross timing
differences of GBP230 million, the latter arising largely from
unclaimed or disclaimed capital allowances (2010: GBP195 million),
both of which are available to offset against future profits in the
mining business. The trading losses had a tax value of GBP57.7
million at a tax rate of 25% (2010: GBP84.2 million at 27%), while
the gross timing differences had a tax value of GBP57.7 million at
a 25% tax rate (2010: GBP52.7 million at 27%). Capital allowances
have been disclaimed where possible to allow flexibility for the
future. The reduction in gross trading losses in the year reflects
both the operating performance and the result of disclaiming
capital allowances.
The net deficit on the balance sheet in respect of retirement
provisions represents an additional tax timing difference of
GBP36.2 million at a tax rate of 25% (2010: GBP46.3 million at
27%).
The Group recognised a deferred tax asset of GBP31.5 million at
December 2011 (2010: GBP34.5 million). The Group continues to
review its deferred tax asset, given the nature of the business and
its historic performance. The deferred tax charge in the year arose
due to the change in the rate at which deferred tax is provided
from 27% at the end of 2010 to 25% in line with the forthcoming
confirmed reduction in the rate of corporation tax, and adjustments
in relation to prior year's deferred tax balances. The impact of
the rate change on the opening deferred tax asset was a charge of
GBP2.4 million (2010: GBP0.9 million) in the income statement and a
charge of GBPnil (2010: GBP0.3 million) direct to reserves. The
adjustment on prior year deferred tax balances was GBP0.3 million.
The charges were offset by a credit of GBP0.1 million (2010: GBP1.4
million) for deferred tax on the amortisation (out of the hedging
reserve) of previously effective hedge accounting movements. All
previously effective hedge accounting movements have now been
recycled out of reserves.
The Group has around GBP350 million 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 which has been recognised in
the financial statements of GBP1.2 million (2010: GBP1.3
million).
Earnings per share
The earnings per share for the period was 18.5 pence (2010: loss
41.8 pence).
Funding
Generator Loans/ Prepayments
The Group is party to certain contracts for coal supply which
resulted in increased cash flows to the business in 2009, 2010 and
2011 compared to the original contracts in place. The increased
cashflows have been treated in the financial statements, together
with actual customer loans, as generator loans and prepayments.
During the year, these arrangements have moved from the drawdown
phase into the repayment phase, and a net GBP17.1m was repaid in
2011 (2010 GBP25.8 million drawdown). The balance outstanding at
the year end, including accrued interest, was GBP84.1 million
(2010: GBP101.2 million).
The impact on our cashflows due to net repayment commitments for
these generator loans and repayments is as follows:
GBPmillion 2012 2013 2014 2015
------------------ ----- ----- ----- -----
Net cash outflow (49) (21) (17) (10)
Bank facilities
At the year end, the Group had around GBP97 million of bank
facilities and a further GBP10.0 million outstanding under finance
leases.
Excluding the impact of future property disposals, the weighted
average maturity of the facilities, as at December 2011 was 0.9
years (2010: 1.4 years).
Since the year end, we have renewed and extended our banking
facilities, with the following principal changes:
-- Extensions to the maturity of the Revolving Credit Facility
("RCF"), the Additional Revolving Facilities ("ARF"), the Harworth
Estate (Waverley Prince) Limited 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
GBP27.5m, reduces by GBP7.5m on 30 September 2012 with the balance
amortising to GBPnil over the period June 2013 to November 2013.
The facility reduces from GBP20m to GBP12.5m for a short period at
the end of 2012, before reverting to GBP20m, matching the profile
of the Group's borrowing requirements.
Over and above these extended bank facilities, we have extended
the term of the GBP10m of unsecured stand-by facility from Peel
Holdings.This is available for drawing in the event that both the
RCF, and part of the ARF, are drawn.
This facility has also been extended, amortising gradually from
August 2013 to mature in November 2013.
Following the changes, a summary of our principal bank
facilities at April 2012 is shown below:-
Facility Margin
GBP million over LIBOR
---------------------- --------------- -----------------
RCF 22(1,2) 300 - 400 bps(4)
Additional revolving Up to 28(3) 1,600 bps
facilities
HEWPL facility 27(1) 450 bps
EOS facility 20 300 - 400 bps
Total Up to 97
---------------------- --------------- -----------------
Notes
(1) Facility reduces GBP for GBP as proceeds from property sales
are applied
(2) Reduces by GBP2 million over October and November 2012
(3) Facility reduces by GBP7.5m on 30 September 2012 and
amortises to nil over the period June 2013 to November 2013, with a
short period of reduction to GBP12.5m at the end of 2012.(4) Margin
dependent on level of committed facility
The above table excludes fully drawn finance leases and other
small bank loans which totalled some GBP10 million at December
2011, and the Peel Holdings loan facility noted above.
The facilities at April 2012 reflect reductions resulting from
property disposal receipts since the year ended December 2011.
These totalled GBP3m in Q1.Net bank debt was GBP75m at the end of
March 2012, including GBP9m of finance leases. Total net debt,
including generator loans/prepayments but excluding restricted
funds, at the end of March 2012 was GBP154m.
Movement in group net debt
A summary of movements in our group net debt position is set out
below.
2011 2010
GBP million GBP million
Operating profit/(loss) before non-trading exceptionals 65.2 (74.3)
Revaluation of property (3.3) 34.2
(Profit)/loss on sale of fixed assets and investment
properties (3.3) 0.3
Depreciation/diminution 40.5 35.2
Cash impact of non- trading exceptionals (0.3) (13.1)
Non- cash movement in mining provisions 4.4 5.2
Net working capital movements 14.5 (1.1)
Finance costs/interest payments (including loan
arrangement fees) (21.2) (12.2)
Other movements 1.3 2.3
---------------------------------------------------------- ------------ ------------
97.8 (23.5)
Deep mines
Capital expenditure - cash (31.8) (26.8)
Capital expenditure - new finance leases - (1.7)
Payments against provisions (10.8) (13.1)
Fixed asset disposal proceeds 1.3 0.3
---------------------------------------------------------- ------------ ------------
(41.3) (41.3)
Surface mines
Amortisation of restoration assets 17.1 14.0
Pre-coaling expenditure (2.6) (5.4)
Deferred stripping adjustment (0.9) (3.0)
Restoration expenditure (16.9) (11.6)
---------------------------------------------------------- ------------ ------------
(3.3) (6.0)
Harworth Estates
Net proceeds of sales of investment properties 64.3 22.7
Planning and development expenditure (4.8) (2.1)
---------------------------------------------------------- ------------ ------------
59.5 20.6
Pension contributions in excess of current service
cost (10.0) (5.8)
Net movement in restricted funds 0.9 3.3
Generator loans (17.1) 25.8
86.5 (26.9)
---------------------------------------------------------- ------------ ------------
The total decrease in net debt in the year was GBP86.5 million
(2010: increase of GBP26.9 million).
The Group has continued to invest significantly in the business
in the year. A total of GBP31.8 million was invested in the mining
business on fixed assets, with some GBP28 million incurred on face
equipment and additional coal processing capacity at Daw Mill and
Thoresby, all of which was paid during the year. There were no new
finance leases taken out in the year. Capital investment in the
year was lower than the GBP44.7 million in 2010 which included the
final elements of the significant investments in the new seams at
Kellingley and Thoresby which were completed in 2010.
A further GBP2.6 million has been spent on pre-coaling expenses
in preparation for the opening up of the three new surface mines
opening in 2012 (2010: GBP5.4 million) and GBP4.8 million (2010:
GBP2.1 million) on costs associated with gaining and fulfilling
planning consents on investment properties.
Our ongoing project to dispose of surplus property assets has
realised GBP64.3 million of net sales proceeds from investment
properties (2010: GBP22.3 million), and a further GBP0.2 million
from the sale of operating properties (2010: GBP0.4 million). These
proceeds have been applied against bank borrowings in the year. The
cash generated in the business has been used in part to repay
GBP17.1 million of Generator loans, compared to the drawdown of
these facilities of GBP25.8 million in 2010.
Balance sheet
The net assets of the Group at December 2011 were GBP146.0
million compared to GBP81.4 million in 2010. The increase in net
assets is due principally to the trading profit for the year of
GBP55.2 million (2010: GBP125.1 million loss) and a decrease in the
deficit on retirement obligations of GBP26.9 million.
Provisions
2011 2010
GBP million GBP million
------- ------------------------------------------ ------------ ------------
(i) Employer and public liabilities 8.5 13.0
Surface damage 16.5 15.4
-------------------------------------------------- ------------ ------------
Restoration and closure costs of surface
(ii) mines 41.2 51.6
------- ------------------------------------------ ------------ ------------
(iii) Restoration and closure costs of deep
mines
- shaft treatment and pit top 9.6 9.9
- spoil heaps 2.5 2.9
- pumping costs - 2.8
Ground/groundwater contamination 10.1 6.3
-------------------------------------------------- ------------ ------------
(iv) Redundancy 0.4 3.2
------- ------------------------------------------ ------------ ------------
88.8 105.1
-------------------------------------------------- ------------ ------------
(i) Employer and public liabilities and surface damage
provisions
Provisions are made for current and estimated obligations in
respect of claims made by employees and contractors relating to
accident or disease as a result of the business activities of the
Group. This is managed by our captive insurance company, Harworth
Insurance Company Limited, a UK based FSA registered company. As at
December 2011, it held GBP14.7 million of cash deposits and GBP6.4
million of property assets to meet GBP8.5 million of
liabilities.
Surface damage provision relates to the Group's liability to
compensate for subsidence damage arising essentially from past deep
mining operations. Claims can be lodged by the public up to six
years after the date of relevant damage. The estimate is based on
historical claims experience, following a detailed assessment of
the nature of damage foreseen. The increase in the surface damage
provisions is in line with the mining pattern at Daw Mill and
Kellingley. As at December 2011, the Group had GBP8.9 million of
ring-fenced deposits and an insurance bond, maturing in December
2012, for a further GBP10.0 million to provide security to meet
GBP16.5 million of liabilities.
(ii) Surface mines
Pre-coaling costs in respect of surface mine activities are
broadly the costs incurred in preparing the site for mining and
related costs in respect of planning gain. These are treated as
deferred costs on the balance sheet. During the course of the
mining process these costs are written off over the expected
production tonnage of the mine.
Restoration and rehabilitation provisions represent the expected
cost of the reinstatement of soil and overburden, discounted for
the time value of money.
This provision, together with an equal and opposite non-current
asset, is created when coaling commences. Along with other
pre-coaling expenses, this asset is written off in proportion to
the expected recoverable reserves of the mine.
Expenditures for restoration and rehabilitation are offset
against the provisions as incurred. The unwinding of the discount
for the time value of money is included within the finance
cost.
As at December 2011, the Group had a non-current asset of
GBP25.7 million (2010: GBP35.7 million), relating to expenditure on
pre-coaling and similar expenses, deferred stripping costs and the
recognition of restoration and rehabilitation liabilities on sites
that had started coaling. At the same date, provisions for
restoration and rehabilitation totalled GBP41.2 million (2010:
GBP51.6 million) after expenditure of GBP16.9 million in the
year.
(iii) Deep mines
We maintain provisions in respect of the costs of restoring our
deep mines to the required standard and planning conditions. The
amount provided represents the discounted net present value of the
expected costs. Costs are charged to the provision as incurred and
the unwinding of discount is included within the finance costs for
the year. The provision can be broken down into operating and
closed mines.
GBP million
----------------- ------------
Operating mines 10.5
Closed mines 11.7
----------------- ------------
22.2
----------------- ------------
47% of the deep mines provision relates to the three mines
classified as 'operating' which will be utilised after the point of
closure. We expect that we may utilise GBP0.2 million of the closed
mine provision in 2012 and GBP2.2 million in 2013, representing
predominantly the costs in respect of the former Welbeck and
Rossington collieries. The remaining balance of GBP9.3 million will
be utilised beyond 2013.
(iv) Redundancy provisions
Redundancy provisions are created when the decision to make the
redundancies has been made and communicated, usually through the
representatives of the workforce.
Retirement benefit obligations
The Group has a deficit, calculated under International
Accounting Standards, on its defined benefit pension and retirement
schemes of GBP144.7 million (2010: GBP171.6 million). All new
employees who joined after the privatisation in 1994 are eligible
to join defined contribution schemes.
The defined benefit pension and retirement schemes comprise two
funded industry wide schemes, together with an unfunded
concessionary fuel scheme. The deficit noted above includes a
liability of GBP43.7 million (2010: GBP36.5 million) in relation to
the unfunded concessionary fuel scheme. All of these schemes are
valued annually by our independent actuaries, the Government
Actuary's Department.
The schemes have been for these financial statements valued
under International Accounting Standard 19 (IAS 19), using the
projected unit method and discounting future scheme liabilities on
the basis of AA-rated corporate bond yields of over 15 years. The
discount rate used, net of inflation, was 2.0% (2010: 2.1%).
Changes to the status of the defined benefit schemes and the
concessionary fuel scheme were agreed and implemented during the
year, resulting in a credit of GBP16.4 million to the income
statement in recognition of the effect of these changes on past
service costs.
Movements in the net liabilities of the schemes in 2011 are set
out below.
Concessionary
Pension* fuel Total
GBP million GBP million GBP million
-------------------------------------- ------------ -------------- ------------
December 2010 135.1 36.5 171.6
Contributions paid less current
service cost (10.0) (0.7) (10.7)
Change in fund value compared
to expected return 20.1 2.0 22.1
Actuarial (gain)/loss on liabilities (28.0) 7.5 (20.5)
Gains on curtailment (1.4) - (1.4)
Past service cost (14.8) (1.6) (16.4)
-------------------------------------- ------------ -------------- ------------
December 2011 101.0 43.7 144.7
-------------------------------------- ------------ -------------- ------------
*Including Blenkinsopp scheme
There was a significant decrease in the deficit on the pension
schemes of GBP34.1 million. The main movements were:
-- The benefit changes agreed with stakeholders at the end of
2011 affected past service benefits with a resulting credit of
GBP14.8 million. The change with the largest impact on the
liabilities was the introduction of a cap, restricting the benefit
of future salary increases to inflation.
-- An actuarial gain on the funds' liabilities of GBP28.0
million arising from the change in actuarial assumptions.
Principally, this was due to a reduction in the assumed rate of
growth of CPI relative to growth in RPI, but also included an
experience gain of GBP5.5 million as salary growth was lower than
expected.
-- A loss in the year of GBP20.1 million due to returns in the
year on the funds' assets being lower than expected.
-- Contributions, above the current service cost, of GBP10.0
million. In total, the Group paid GBP22.5 million to the schemes in
2011, covering both current service and deficit contributions.
Further deficit contributions of around GBP20 million are expected
to be made in 2012 of which c.GBP15 million will be treated as
deficit payments under IAS 19 with the balance expressed as finance
costs.
GBP10.8 million of the movement in the deficit on the pension
schemes has been credited to the Consolidated Statement of
Comprehensive Income ("SOCI") in the year.
There has been an increase in the liability for the unfunded
concessionary fuel scheme of GBP7.2 million, relating mainly to the
increase in the cost of the fuel benefit, which averaged around 20%
over the year. The interest cost on the liability exceeded the
contributions in the year and there was an actuarial loss of
GBP7.5m on the liability. These impacts were partly offset by a
gain of GBP1.6 million arising from benefit changes agreed at the
end of 2011, which reduced the benefits accruing in the future by
10%. The increase in the cost of fuel benefits is reflected in the
changes to the actuarial assumptions and has been charged to the
SOCI.
Details relating to retirement benefit obligations are shown in
note 25 to the financial statements.
Pension schemes' funding levels
Contributions to the schemes are determined by the schemes'
actuary on the basis of triennial valuations. The last agreed
triennial valuations, which were finalised during 2011, were as of
31 December 2009. The Trustees of the schemes estimated that the
combined deficit of the industry wide schemes as at the end of
December 2009, but adjusted for the rule changes agreed in 2011,
was around GBP250 million, using assumptions which differ from
those that we are required to use under IAS 19.
On the same set of assumptions used by the Trustees, but updated
for changes in market rates, the Company has estimated that the
deficit, calculated on this basis, had increased to GBP430 million
at December 2011, with liabilities of around GBP875 million of
which just under half were in respect of active members. The next
valuation date of the schemes for funding purposes will be 31
December 2012. If the assumptions used by the Trustees result in a
significantly increased deficit compared to the 2009 valuation,
then it is likely that negotiations would result in significantly
increased deficit funding levels compared to the currently agreed
GBP20m per annum level.
KEY RISKS AND UNCERTAINTIES
The mining industry carries inherent risk and is subject to
market and other external risks which cannot be fully controlled,
mitigated or insured against. In particular, it is in the nature of
deep mining that certain events can give rise to the risk of very
material consequences, including the loss of a mine or of life, the
financial consequences of which cannot be meaningfully quantified
in advance. Set out below are some of the principal risks and
uncertainties identified by the Directors which could materially
affect the financial condition, performance, strategies and
prospects of the Group. The following risk information is not
intended to be a comprehensive overview.
Mining risk
Health, safety and environment
All of our mining operations are subject to potential health and
safety risks, and the possibility of pollution of water, air or
soil, or damage to surface assets.
We continue to focus on the importance of safety issues and
strive to create as safe a working environment as possible. Ongoing
Health and Safety training is improving on our Health and Safety
performance across the Group.
Underground hazards are continually monitored, in particular the
risks from methane gas and from fire, enabling immediate action to
be taken in the event of any abnormal reading. There is only very
limited insurance, or insurance with high excess or uneconomic
premia, available in the market against these risks which might
normally be insurable in other industries. UK Coal has insurance
covering a reasonable level of loss, but subject to a material
level of insurance excess.
Financing risk
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. The
maturity of the Group's debt profile at December 2011 is shown in
Note 20 to the financial statements and the facilities available,
including their maturities, are noted earlier in the Financial
Review. Following the extension to our main facilities as noted
earlier in the Finance Review, 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.
Major unforeseeable production shortfalls or geological
constraints
The operating costs of our deep mines are largely fixed relative
to production levels. Output is therefore key to our short-term
financial performance and indeed to the viability of the mines and
the business. This risk is compounded by a short cash conversion
cycle resulting in production changes having a fairly immediate
impact on cash flow.
In an operation as complex as deep mining there are inevitable
risks to production from the failure of equipment. We therefore
seek to maintain adequate supplies of equipment spares to ensure
that any downtime is limited and to operate at high levels of
machine availability.
Our mining plans and development programmes are designed to
minimise the time between one face finishing and a new face
starting with production reaching normal levels (known as face
gaps). During this time coal production may be limited and the
economic impact is closely monitored. Historically, development
work has underperformed against long term requirements and
therefore a significant element of our investment programme, both
in capitalised and expensed spend, is aimed at increasing the
amount of development 'bank', i.e., developments ready ahead of
requirements, which reduces the risk of face gaps.
The geology of the ground in which we are mining is an important
factor in our business. Whilst bore holes are drilled, and modern
seismic surveys (including 3D) offer better information than in the
past, we can still face unexpected geological conditions. These may
sometimes be revealed when the roadway gates are initially driven,
or by knowledge from previous workings in the area such as seams
above or below those being mined. The extent of geological faulting
or other conditions in the coal seam are not totally
predictable.
We manage our mining risks with a well-structured risk
management policy. Experienced personnel ensure any operational
difficulties are mitigated where ever possible to ensure a
continuous production process throughout the year.
Market price risk
We are exposed to the risks of fluctuating coal prices as our
revenue and earnings are directly related to the prevailing prices
for the coal produced.
We have historically mitigated this risk in part through longer
term customer contracts to provide more certainty of both demand
and price. In the past some of these contracts have worked to our
disadvantage due to increases in the world price of coal.
Therefore, we have moved towards a strategy of a balanced mix of
longer term contracts on fixed, capped and collared and floating
prices, and whilst maintaining an element of shorter term contract
and spot sales. We remain exposed, however, to market price
fluctuations the impact of which will vary dependant upon the
interaction between the market price and the level of any caps or
collars. At around the current market price, we estimate a 10 pence
per gigajoule market price movement would have a full year impact
in 2012 of cGBP8m in revenue terms.
The Group holds some fixed price contracts, which in some cases
are subject to RPI adjustment, resulting in a reduction in sales
price in the event of deflation that might not be matched by
commensurate falls in costs. The Group also holds some nominal
fixed price contracts where the sales price will not change even if
inflation was higher than expected.
We aim to reduce costs on a continuous basis and maintain an
efficient production process to maximise our returns throughout the
price cycle.
We remain exposed to the impact on our market of changes in
Government regulation, in particular with reference to the
development of a low carbon economy.
EMPLOYMENT RISK
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 25 to the financial statements,
these schemes have a combined deficit of GBP101.0 million at
December 2011. 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.
Other employment risks
The Group operates in a highly unionised environment
particularly for the deep mines. During the year the need to change
terms and conditions resulted in some difficulties but these were
resolved with the assistance of ACAS and industrial disputes were
not a material feature. To minimise such risks there remains a
strong focus on improving employee and trade union engagement.
The Group relies on the quality and technical competence of its
workforce. In an industry which has shrunk in size in recent years,
with an ageing workforce, the ability of the Group to attract and
retain key skills remains a priority.
PROPERTY RISK
Property market downturn or volatility
As noted earlier in the Review of Operations, land values are
potentially volatile to changes in the wider environment. Economic
conditions affect both business and consumer investment confidence
and both of these have a knock-on effect for residential and
commercial land prices. Our agricultural estate has proved less
volatile in the past and we would expect it to remain so given the
more mature nature of the land's usage.
The "immaturity", in planning terms, of our brownfield sites
means that a considerable amount of value can be added by the work
we do in advancing them through the planning process. We continue
to seek favourable planning outcomes on our development portfolio
in order to increase and allow this value to be realised, both of
which help to mitigate the carrying value risk of these
properties.
Planning approvals
The planning regime affects both Harworth Estates and our mining
businesses and any major changes could affect the business, either
positively or negatively. We have seen improvements in the planning
environment in recent years, particularly in the planning regime
surrounding the surface mine business, where greater recognition is
being given both for the need for coal and the high environmental
standards of the design and operation of the schemes. The resources
available to planning authorities to process planning applications
in a reasonable timescale continue to be a restraining factor on
the Group and in the development of activities meeting overall
Government targets and the Group's aspirations.
Corporate Social Responsibility
Impact and benefits
As a major employer, mining operator and landowner within
Central and Northern England, UK Coal strives to minimise the
impact of its operations by maintaining a corporate focus on the
local environment, communities, economy and the safety of our
employees.
A commitment to Corporate Social Responsibility sees us work
with a range of stakeholders, including Business in the Community,
to help deliver significant benefits to the areas in which we
work.
A National asset
UK Coal is Britain's largest producer of coal, supplying around
5% of the country's energy needs for electricity generation. The
Group has three deep mines located in Central and Northern England
with substantial reserves and employs c2,500 people.
UK Coal produces around 40% of the coal mined in the UK. The
chief market for coal in the UK is the electricity generation
sector which uses coal for approximately 30% of its annual power
generation. Around 95% of UK Coal's production is sold to
electricity generators, accounting for 19% of coal burnt at power
stations in the UK. The remainder of UK Coal's production is sold
to industry and merchants, where it is principally used for direct
fire applications such as the manufacture of cement and domestic
and commercial heating.
Whilst primarily focused on coal mining activities, UK Coal
operates a broad business portfolio that also encompasses renewable
energy generation and the creation and development of new
opportunities across all sectors of the property market. Focussing
on this sector helps reach government targets of creating 30% of
the UK's electric energy requirements from renewable sources.
A caring employer
UK Coal employs a highly skilled and well trained workforce
which is essential for the long term success of the business. The
aim is to attract, retain and motivate high calibre employees and
encourage personal and professional development.
The Group also:
-- Carries out continuous workforce development through a
rolling programme of performance management training, work practice
reviews, refresher courses and appraisals
-- Communicates regularly with employees to engage and inform on
operational and organisational information
-- Has feedback channels to listen to the views and suggestions of employees
-- As an equal opportunities employer, UK Coal welcomes
diversity and supports the employment of disabled people, provided
that they can be employed in a safe working environment.
Safety and health
As we set about dealing with deep rooted issues around safety
and health in early 2011 our progress was overshadowed by the loss
of Gerry Gibson, a well respected colleague at Kellingley colliery.
This event resulted in a wide ranging review of the safety
practices across the whole company with the full involvement of the
workforce and Trade Unions. The review accelerated an ongoing
process which continues to promote safe working and the
identification and eradication of risks.
For 2011 the full year lost time injury frequency rate improved
by over 7% to 25.27 per 100,000 man shifts worked (2010: 27.42 per
100,000 man shifts). This is an improvement of 27% since the end of
2009. For UK Coal to meet its target of a 40% reduction by year end
2012 we will need to improve by a further 15% in this full year
2012. Our All Accident Rate also improved by over 19% in the full
year 2011 85.63 per 100,000 manshifts, compared to the full year
2010 (2010: 106.14 per 100,000 manshifts).
Safety improvement strategy progress
The overriding objective is to achieve zero harm following the
introduction of the twelve guiding standards on sound safety
management. Supporting the existing external audit processes, a
self-audit process was introduced in 2011 across the mining
business with all operations using this to define areas of strength
and weakness within the twelve standards.
UK Coal continues to ensure the basics of good safety management
are correct, with the same principles and processes embedded across
the organisation. In 2011, we introduced a behavioural safety
program which has provided further training in recognising and
intervening on behavioural safety issues for over 450 managers.
The on-going focus is to sustain the progress already made and
make improvements where required. This depends on a number of
factors which include:
-- Leadership at all levels being committed to proactive safety and health improvements
-- Developing a competent workforce, from management to
operators, who can effectively control hazards in their
workplace
-- A continuation on improving the management of risk, and in
particular major hazard risks associated with mining operations
-- Ensuring the organisation has the skills to learn from
incidents or near hits reported, internal and external to the
organisation
-- Clear monitoring of where improvements can be made.
Risk management
In 2011 the organisation focussed on introducing the visible
'felt' leadership element of safety improvement. Particular
emphasis was placed on ensuring our front line managers were
equipped to intervene where safe behaviours, or safe systems, were
absent.
In 2012 the focus is on introducing a risk management approach
that can be applied consistently across the Group. A programme has
been developed to assist those involved at an operational level
with specific responsibilities for implementing risk management. It
is designed to ensure they have a full understanding of the process
and this is implemented in their part of the organisation.
The risk management programme complements work being conducted
centrally to examine major hazard risks with a low probability of
occurrence, but very high potential consequences. From this, a set
of Major Risk Standards and supporting Guidelines will be developed
and deployed into the business.
Looking forward
Maintaining focus on continual improvement is essential to
ensure we achieve our safety goals. 2012 is about the development
of major hazard standards. In 2013 we will roll these effectively
across the organisation and develop a way of auditing, measuring
compliance and developing targeted improvement programmes for each
site.
[Graphs omitted due to constraints of reporting service]
Environment
As a significant part of the energy sector, UK Coal is aware of
the impact that our operations have on the surrounding environment
and has strong environmental policy commitments which:
-- Minimise pollution and comply with environmental legislation,
and any agreements with external organisations in order to comply
with ISO 14001
-- Maintain certification of environmental management systems to
international standards at all mines, and progress certification in
other areas of the business
-- Set and regularly review objectives and targets to achieve
continual improvement in environmental performance, including a
reduction in the use of natural resources
-- Use the principles of sustainable development to design new
projects and restore completed sites to include long-term
environmental or community benefits
-- Provide access to contact us about environmental issues, and give a prompt response
-- Ensure this policy is communicated to all employees, contractors and suppliers
-- Encourage the efficient use of coal with minimum emissions
-- Maximise the use of other natural resources recovered with the coal.
UK Coal's environmental programme is managed by the environment
advisor, who is an active participant in the CBI East Midlands
Environment Committee, which meets regularly with like-minded
companies to share good environmental practice, and is a member of
Business in the Community, Yorkshire and Humberside Environment
Experts Group.
Certification to ISO 14001 covers all surface and deep mined
sites, and our mining services department. Application of our
certified system improves both the day to day operational
procedures and longer-term environmental risk management over our
main activities. Our Environmental Policy is reviewed by both
in-house and external auditors to ensure continued compliance.
Monitoring and analysis of emissions to air, water and land, as
well as the use of natural resources, are carried out and, where
appropriate, programmes to reduce emissions, or to reduce the use
of natural resources are designed and implemented. As new
legislative regulations on waste and resources are introduced, our
programmes to encourage use of the waste hierarchy by reducing,
re-using and re-cycling, continue to show positive benefits to the
environment.
The success of our policies is judged by the use of key
performance indicators. One of the most significant is the need to
reduce the use of energy. In the middle of 2010 a target was set to
reduce energy use by three per cent. When comparing 2011 to 2010,
we achieved ac5% reduction in energy usage.
Social and community issues
UK Coal believes in supporting suitable community projects
around its surface and deep mines and work with suppliers and
customers to restore former coal mining sites by investing in
sustainable land regeneration projects and renewable technologies.
We consistently measure the impact of our mining and development
activities to help mitigate risks associated with our operations
and meet environmental and safety standards.
Most of our projects are located in areas of previously mined
land. We not only have a responsibility to keep supplying the UK's
energy industry with vital coal supplies, but also play an
important role in addressing issues around subsidence and surface
restoration at previously neglected mine workings.
To help these areas thrive once more, Harworth Estates helps
build communities by providing a range of sustainable mixed use
developments offering a range of homes, recreational facilities,
wildlife habitats and commercial space. Our sites offer real
potential to generate investment by bringing important job
opportunities and positive change to local communities. A wide
range of consultation and engagement exercises are carried out to
ensure local people are fully informed about our projects and have
the opportunity to contribute to development plans and shape their
communities.
Over the years UK Coal has invested millions of pounds in
projects as diverse as schools, sports clubs and the creation of
green spaces. All have benefitted from substantial funds provided
by the extraction of indigenously mined coal.
UK Coal's surface mine restoration team has won further awards
in the last 12 months for their work on land rehabilitation. Close
collaboration between UK Coal, Leeds City Council and the RSPB has
resulted in a former mine site, St. Aidan's near Leeds, being
transformed over 10 years into an area of international wildlife
importance.
Board of Directors
Jonson Cox
Jonson Cox was appointed as Chairman with effect from 15
November 2010. He was formerly Group Chief Executive of Anglian
Water Group from January 2004 until March 2010. For the same period
he was Chairman of Anglian Water Services Limited and Morrison plc.
He is a non-executive director of Wincanton plc.
David Brocksom
David Brocksom was appointed Finance Director in September 2007.
He was previously Finance Director of Pace Micro Technology PLC and
Avesco plc and has worked in a number of UK listed companies, for
over 13 years as a Board member. He qualified as a Chartered
Accountant with Price Waterhouse having read Law at Cambridge
University. He was a non-executive director of Helius Energy
plc.
Gareth Williams
Gareth Williams was appointed Managing Director of the Mining
Division with effect from 1 August 2010 having been appointed to
the Board as Mining Director on 15 February 2010. He has over 20
years' experience in coal mining in a wide range of international
roles with Anglo Coal, part of Anglo American plc; he has been
General Manager of some of Anglo's largest coal mines and Head of
Operational Performance for Anglo Coal Canada and South America.
Gareth gained an honours degree in Mining Engineering at the
University of Otago/Auckland in 1988.
Owen Michaelson
Owen Michaelson is a Chartered Surveyor. He was appointed
Managing Director of the Property Division with effect from 1
August 2010. He was formerly a non-executive director of the
Company and has specialised in the remediation and development of
brownfield and contaminated land, waste management operations and
power generation. He holds a non-executive directorship within the
Peel Group.
Peter Hickson
Peter Hickson is Senior Independent Director and was appointed
as a non-executive director and Chairman of the Remuneration
Committee with effect from 1 July 2011. He is currently Chairman of
Communisis plc and Chairman of Chemring Group plc. He was Chairman
of Anglian Water Group from 2003 to 2009, and served as Finance
Director of Powergen plc between 1996 and 2002. He was a
non-executive director of Kazakhmys plc from 2009 to 2011, Scottish
Power plc from 2006 to 2007, Marconi Corporation plc from 2004 to
2007 and RAC plc from 1994 to 2002. He was also Senior Independent
Director of London & Continental Railways Ltd between 2007 and
2011. He is a trustee and Board member of Orbis Charitable Trust,
the international sight saving charity, and a Fellow of the
Institute of Chartered Accountants.
Lisa Clement
Lisa Clement is a Chartered Accountant and was appointed as a
non-executive director and Chair of the Audit Committee with effect
from 15 December 2011. She was formerly Chief Financial Officer of
Sea Containers Limited, Managing Director of Capita Learning and
Development and has held senior divisional roles at Cendant Inc.
and BPP Holdings Plc.
Keith Heller
Keith Heller was appointed as a non-executive director and
Chairman of the Safety Committee with effect from 19 April 2011. He
was formerly Co-Chairman of DB Schenker Rail, Chief Executive of
English Welsh and Scottish Railway, President of Euro Cargo Rail
and Senior Vice President Canadian National Railway. He was a Board
member of the Railway Safety and Standards Board.
Steven Underwood
Steven Underwood is Chief Executive of the Peel Group of
companies, and was appointed to the Board as a non-executive
director with effect from 1 August 2010. He is also currently a
non-executive director of Pinewood Shepperton PLC, and an alternate
director of Capital Shopping Centres Group plc.
DIRECTORS' REPORT
The directors present their report and the audited consolidated
financial statements for 2011. These will be laid before the 2012
Annual General Meeting. Details of all resolutions to be proposed
at the Annual General Meeting are set out in the notice calling the
meeting, which is enclosed with this report.
PRINCIPAL ACTIVITIES, BUSINESS REVIEW AND FUTURE
DEVELOPMENTS
The principal activities of the Group comprise surface and
underground coal mining, property regeneration and management and
power generation. The principal activity of the Company during 2011
was that of a holding company.
The Chairman's Statement and the Operating and Financial Review
are incorporated by reference. These provide a review of the
Group's business which includes the:
-- Development and performance of the Group in the year and its position at the year end;
-- Principal risks and uncertainties faced by the Group;
-- Key Performance Indicators used to measure the Group's performance;
-- Environmental and employee priorities facing the Group; and
-- Group's future development and outlook for 2012.
DIVIDENDS PER ORDINARY SHARE
There was no interim dividend paid during the year (2010:
GBPnil). The directors are not recommending the payment of a final
dividend in respect of the 2011 financial year (2010: GBPnil).
LAND AND PROPERTY
The Group's investment property was re-valued at the year end,
full details of which are set out in the Operating and Financial
Review.
DEVELOPMENT
The Group actively develops its mining and property portfolios,
full details of which are found in the Operating and Financial
Review and in the Notes to the Financial Statements).
DIRECTORS
The directors who served during the year were: David Brocksom,
Lisa Clement,
Jonson Cox, Peter Hazell, Keith Heller, Peter Hickson, Owen
Michaelson, Mike Toms, Kevin Whiteman, Steven Underwood and Gareth
Williams.
Peter Hickson and Lisa Clement were appointed non-executive
directors with effect from 1 July 2011 and 15 December 2011
respectively and will offer themselves (and are recommended by the
Board) for election at the 2012 Annual General Meeting. Keith
Heller was appointed with effect from 19 April 2011 and re-elected
at the 2011 Annual General Meeting.
Kevin Whiteman retired as a non-executive director on 31 March
2011. Mike Toms and Peter Hazell retired as non-executive directors
on 30 June 2011 and 31 December 2011 respectively.
In accordance with the Articles of Association, Gareth Williams
and Steven Underwood will retire by rotation and seek
re-appointment at the 2012 Annual General Meeting. The Board
unanimously recommends their re-election.
All executive directors have service contracts, which may be
terminated by the Company on not more than twelve months' notice;
for all non-executive directors the notice period is three months
with the exception of Peter Hickson, Senior Independent Director,
whose appointment is subject to six months' notice. There are no
directors on fixed term contracts. There are no contractual clauses
that give any of the directors an entitlement to compensation
exceeding their due payment in lieu of notice. Details of
indemnities from the Company and insurance taken out for the
benefit of the directors is set out in the Corporate Governance
Report.
The interests of the directors in the shares of the Company are
shown in the report on directors' remuneration.
CHARITABLE DONATIONS
The contributions made by the Group during the year for
charitable purposes were GBPnil (2010: GBP39,325). No political
donations were made in 2011 (2010: GBPnil). Charitable donations
made in 2010 were predominantly to associations and charities
involved with the coal industry and local communities.
EMPLOYEES
The Group consults on and discusses with employees matters
likely to affect their interests. Internal news-sheets are produced
and distributed free to all employees regularly. Information on
matters of concern to employees is given periodically to achieve a
common awareness on the part of all employees of the financial and
economic factors affecting the Group's performance.
DISABLED PERSONS
The Group gives full and fair consideration to suitable
applications for employment by disabled persons and all disabled
persons are provided with training to assist in obtaining
promotions and developing their career. Opportunities also exist
for employees of the Group who become disabled, to continue in
their employment or to be trained for other positions within the
Group.
HEALTH AND SAFETY
UK Coal is committed to maintaining high standards of health and
safety in every area of the business. It is the aim of the Group to
exceed the requirements of the Health and Safety at Work Act 1974
and all other relevant health and safety legislation and the Group
has established a committee of the Board to oversee health and
safety. Details of the Group's commitment to health and safety are
found in the Corporate Social Responsibility section.
During the year UK Coal Mining Ltd ("UKCML") was ordered to pay
the sum of GBP1.2m, comprising GBP450,000 in fines and GBP750,000
in costs, in respect of breaches of health and safety legislation
brought against it by the Health and Safety Executive ("HSE")
following four fatalities in 2006 and 2007. Subsequent to the
year-end UKCML, has pleaded guilty to 2 charges for breaches of
health and safety legislation, following a further fatality in
2009. It is anticipated that UKCML will be fined in summer 2012.
Provision has been made for this in the financial statements for
2011.
TREASURY POLICY AND LIQUIDITY
The Group maintains borrowing lines estimated to be sufficient
to cover forecast cash requirements. In this assessment, the Group
only takes into account existing or renewing facilities and new
facilities where these have received credit approval or
equivalent.
The Group enters into hedging transactions required to cover the
operations of the business. The principal function of the financial
instruments held by the Group is to provide security, raise funds
and mitigate some interest rate risks.
Details of financial risks in respect of market risk, credit
risk and liquidity risk are set out in note 24 to the financial
statements.
SUPPLIER PAYMENT POLICY
The Company and the Group does not follow any specific external
code or standard on payment practice. Its policy is normally to pay
suppliers according to terms of business agreed with them on
entering into contracts and to keep to the payment terms providing
the relevant goods or services have been supplied in accordance
with the contracts.
The Group had 65 days' purchases outstanding at 31 December 2011
(2010: 78 days) based on the average daily amount invoiced by
suppliers during the year.
ETHICAL POLICY
UK Coal is committed to working with its employees, customers,
suppliers and contractors to promote responsible working and
trading practices. It also provides assistance to the wider
community by way of financial support for charitable and other
local causes. Further information regarding how the Group addresses
social and community issues is shown in the report on corporate
social responsibility.
QUALITY AND INTEGRITY OF PERSONNEL
It is the Group's policy to employ the highest calibre of
management and staff and encourage the highest standards of
personal integrity. Recruitment procedures are designed to identify
and reward high calibre individuals.
SHARE CAPITAL, VOTING RIGHTS AND TRANSFER OF SHARES
Details of the structure of the Company's share capital and
changes in the share capital during the year are disclosed in note
26 to the financial statements.
The rights and obligations attaching to the Company's ordinary
shares are set out in the Company's Articles of Association, copies
of which can be obtained from Companies House in the UK or by
writing to the Company Secretary. In particular, subject to
particular statutes and the Company's Articles of Association,
shares may be issued with such rights or restrictions as the Board
may determine.
Shareholders are entitled to attend, speak and vote at general
meetings of the Company, to appoint one or more proxies and, if
they are corporations, to appoint corporate representatives. On a
show of hands at a general meeting every holder of ordinary shares
present in person shall have one vote and every proxy present who
has been duly appointed by a member entitled to vote on the
resolution has one vote and on a poll, every member present in
person or by proxy, shall have one vote for every ordinary share
held. Further details regarding voting, including deadlines for
voting, at the Annual General Meeting can be found in the notes to
the Notice of the Annual General Meeting. No person is, unless the
Board decides otherwise, entitled to attend or vote either
personally or by proxy at a general meeting or to exercise any
other shareholder rights if he or any person with an interest in
shares has been sent a notice under section 793 of the Companies
Act 2006 and has failed to supply the Company with the requisite
information within the prescribed period.
Shareholders may receive a dividend and on a liquidation may
share in the assets of the Company. The Company has one class of
ordinary shares which carry equal voting rights and no contractual
right to receive payment.
The instrument of transfer of a certificated share may be in any
usual form or in any other form which the Board may approve. The
Board may refuse to register any instrument of transfer of a
certificated share which is not fully paid, provided that the
refusal does not prevent dealings in shares in the Company from
taking place on an open and proper basis. The Board may also refuse
to register a transfer of certificated share unless the instrument
of transfer: (i) is lodged, duly stamped (if stampable), at the
registered office of the Company or any other place decided by the
Board accompanied by the certificate for the share to which it
relates and such other evidence as the Board may reasonably require
to show the right of the transferor to make the transfer; (ii) is
in respect of only one class of shares; (iii) is in favour of not
more than four transferees. Transfers of uncertificated shares must
be carried out using the relevant system and the Board can refuse
to register a transfer of an uncertificated share in accordance
with the regulations governing the operation of the relevant system
and with UK legislation. Restrictions may also be imposed on
certain Group employees who are required to seek approval from the
Company before dealing in shares in accordance with the
requirements of the Listing Rules of the United Kingdom Listing
Authority.
There are no other limitations on the holding of ordinary shares
in the Company and the Company is not aware of any agreements
between holders of securities that may result in restrictions on
the transfer of securities or on voting rights.
Details of major shareholdings are included in the Corporate
Governance section of this Annual Report. Details of employee share
schemes can be found in the Directors' Remuneration Report.
SIGNIFICANT AGREEMENTS
The Companies Act 2006 requires us to disclose the following
significant agreements that take effect, alter or terminate on a
change of control of the Company:
The facility agreement originally dated 25 July 2007 as amended
and restated from time to time for the committed term loan facility
provided to Harworth Estates (Waverley Prince) Limited by Bank of
Scotland PLC relating to the redevelopment of the Prince of Wales
and Waverley, Rotherham sites contains mandatory prepayment
provisions entitling the lender to terminate the facilities (and
demand immediate repayment of all outstanding amounts due under and
in respect of such facilities) upon a change of control of the
Company.
The terms of the agreements originally dated 13 September 2007
as amended, restated, varied and or novated from time to time for
the committed revolving debt and property facilities provided to UK
Coal Mining Limited by Lloyds TSB Commercial Finance Limited (among
others) include a termination event entitling the lenders to
terminate the facilities (and demand immediate repayment of all
outstanding amounts due under and in respect of such agreements)
upon a change of control of the Company.
The facility agreement originally dated 7 May 2008 as amended
and restated from time to time for the term loan facility provided
to EOS Inc. Ltd by Barclays Bank PLC includes a termination event
entitling the Bank to terminate the facility (and demand immediate
repayment of all outstanding amounts due in respect of the
facility) upon a change of control of the Company.
The terms of the facility agreement originally dated 14 April
2011 as amended and restated from time to time provided to the
Company by Peel Holdings Finance Limited include a mandatory
prepayment provision causing the facility to be cancelled upon (and
to become immediately due and payable five business days following)
a change of control of the Company.
The facilities agreement originally dated 11 May 2010 as amended
and restated from time to time for the revolving credit facilities
provided to UK Coal Mining Limited by Lloyds TSB Commercial Finance
Limited includes (a) an event of default entitling the lender to
cancel the commitments and demand that all amounts outstanding
under and in respect of such facilities are immediately due and
payable upon a change of control of the Company, and (b) a
mandatory prepayment provision causing the facility to be cancelled
and become immediately due and payable upon a sale of all or
substantially all of the assets of the Company and its subsidiaries
or upon a listing of any part of the share capital of any member of
the Company's group to the London Stock Exchange PLC, the
Alternative Investment Market or any recognised investment
exchange.
There are no agreements between the Company and its directors or
employees that provide for compensation for loss of office or
employment that occurs because of a takeover bid.
GOING CONCERN
These financial statements are 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 with particular consideration to
production levels and key risks and uncertainties as summarised in
the Operating and Financial Review as well as taking into account
the available borrowing facilities in line with the Treasury Policy
disclosed in the Directors' Report.
The key factors that have been considered in this regard
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.
-- 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.
AUDITORS AND DISCLOSURE OF INFORMATION TO AUDITORS
Each of the directors at the date of approval of this report
confirms that, so far as the director is aware, there is no
relevant audit information (being information needed by the
Company's auditors in connection with preparing its report) of
which the Company's auditors are unaware. In addition, each
director confirms that he has taken all the steps that he ought to
have taken as a director in order to make himself aware of any
relevant audit information and to establish that the Company's
auditor is aware of that information.
A resolution to reappoint PricewaterhouseCoopers LLP as auditors
to the Company will be proposed at the Annual General Meeting.
By order of the Board
RICHARD COLE
COMPANY SECRETARY 27 APRIL 2012
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the Annual Report,
the Directors' Remuneration Report and the financial statements in
accordance with applicable law and regulations.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the directors
have prepared the Group and Parent Company financial statements in
accordance with International Financial Reporting Standards
("IFRSs") as adopted by the European Union. Under company law the
directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of
affairs of the Group and the Company and of the profit or loss of
the Group for that period. In preparing these financial statements,
the directors are required to:
-- Select suitable accounting policies and then apply them consistently;
-- Make judgements and accounting estimates that are reasonable and prudent;
-- State whether applicable IFRSs as adopted by the European
Union have been followed, subject to any material departures
disclosed and explained in the financial statements; and
-- Prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and the Group and enable them to
ensure that the financial statements and the Directors'
Remuneration Report comply with the Companies Act 2006 and, as
regards the Group financial statements, Article 4 of the IAS
Regulation. They are also responsible for safeguarding the assets
of the Company and the Group and hence for taking reasonable steps
for the prevention and detection of fraud and other
irregularities.
The directors are responsible for the maintenance and integrity
of the Group's website. Legislation in the United Kingdom governing
the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Each of the directors, whose names and functions are detailed in
the Company and Advisors section confirm that, to the best of their
knowledge:
-- The Group financial statements, which have been prepared in
accordance with IFRSs as adopted by the EU, give a true and fair
view of the assets, liabilities, financial position and profit of
the Group; and
-- The Directors' Report contained in the Annual Report includes
a fair review of the development and performance of the business
and the position of the Group, together with a description of the
principal risks and uncertainties that it faces.
Corporate Governance
The Group recognises the importance of, and is committed to,
high standards of Corporate Governance and the following sections
explain how the Group has applied the main and supporting
principles set out in the UK Corporate Governance Code ('Code'),
issued by the Financial Reporting Council in June 2010, a copy of
which is publicly available at
www.frc.org.uk/corporate/ukcgcode.cfm. The Board confirms that the
Group has complied with the provisions set out in the Code
throughout the year ended December 2011 save that in light of the
need to develop the two distinct principal businesses within the
Group it has aligned the Board and management structure such that
the Managing Directors of the Mining and Property Divisions
respectively report to the Chairman, who retains overall leadership
of the Group. At this time, the Chairmanship is substantially a
full-time role although it is intended that, over time, it should
reduce in commitment and revert to a non-executive position.
The Board of Directors
The Company is headed by a Board of Directors, comprising the
Chairman, three executive directors and four non-executive
directors, three of whom are determined by the Board to be
independent. The Board recognises that Steven Underwood, who is a
Director and representative of Peel Holdings, which is the major
shareholder in the Group, is not independent. It is considered that
his skills and experience are relevant to the business and he
contributes to the realisation of the Group's strategy.
The Chairman has overall leadership of the Company, with
responsibility for ensuring the development and implementation of
the Board's strategies and policies. He is also responsible for the
running of the Board including, but not limited to, ensuring that a
fixed schedule of matters is exclusively retained for the Board's
review and approval, and that a framework exists to allow the clear
and timely dissemination of relevant information to all directors
for such review to occur. The Senior Independent Director is Peter
Hickson.
The Board of the Company is responsible for setting the Group's
objectives and policies and for the stewardship of the Group's
resources. The Board is responsible to the shareholders for the
overall management of the Group.
The Board considers its non-executive directors bring judgement,
knowledge and experience to the Board's deliberations. They have no
financial or contractual interests in the Company, other than
interests in ordinary shares as disclosed in the Directors'
Remuneration Report. Non-executive directors are offered the
opportunity to attend meetings with major shareholders and would
attend them if requested by major shareholders.
All directors have access to the advice and services of the
Company Secretary, who is responsible to the Board for ensuring
that Board procedures are complied with. The appointment and
removal of the Company Secretary are matters for the Board as a
whole. The Board has established a procedure under which any
director, wishing to do so in furtherance of his duties, may take
independent advice at the Company's expense.
The Group maintains an appropriate level of directors' and
officers' insurance in respect of legal action against the
directors. Further, there are indemnities between the Group and all
directors in respect of costs and expenses suffered from an
investigation by a regulatory body which are not covered by
insurance.
The interests of the directors in the shares of the Company are
shown in the Directors' Remuneration Report.
Attendance at Board Meetings
Attendance by individual directors at Board meetings (including
those convened and held as conference calls) and at Committees
during 2011 is shown in the table below. Attendance by
non-Committee members at Committee meetings is not included.
Board Audit Remuneration Nomination Safety
Possible Actual Possible Actual Possible Actual Possible Actual Possible Actual
J Cox 13 13 - - - - 2 2 3 3
D G Brocksom 13 13 - - - - - - - -
K Heller
(appointed
19.04.11) 8 8 3 3 1 1 - - 3 3
L Clement
(appointed
15.12.11) 1 1 1 1 - - - - - -
P Hickson
(appointed
01.07.11) 6 6 - - 1 1 - - 2 2
O Michaelson 13 12 - - - - - - - -
S Underwood 13 11 - - - - - - - -
G Williams 13 13 - - - - - - 3 3
M Toms
(resigned
30.06.11) 7 6 2 2 3 3 - - - -
P Hazell
(resigned
31.12.11) 13 11 4 4 4 4 2 2 - -
K Whiteman
(resigned
31.03.11) 4 4 - - 1 1 - - - -
Committees
The Group's governance structure ensures that all decisions are
made by the most appropriate people, in such a way that the
decision making process itself does not unnecessarily delay
progress. The Board has delegated specific responsibilities to the
Nomination, Remuneration, Audit and Safety Committees, as described
below. Each committee has terms of reference that the whole Board
has approved, which can be found on the Group's website. Board and
committee papers are circulated in advance of each meeting so that
all directors are fully briefed. Papers are supplemented by reports
and presentations to ensure that Board members are supplied in a
timely manner with the information they need.
Nomination Committee
The Nomination Committee leads the process for Board
appointments by making recommendations to the Board about filling
Board vacancies and appointing additional persons to the Board. The
Committee also considers and makes recommendations to the Board on
its composition, balance and membership and on the re-appointment
by shareholders of any director under the retirement by rotation
provisions in the Company's Articles of Association.
The Committee's members are the independent non-executive
directors and the Chairman. Although the Chairman is also Chairman
of the Committee, he will not chair the Committee when it deals
with the appointment of a successor to the chairmanship. The
Nomination Committee evaluates the balance of skills, knowledge and
experience on the Board and, in the light of this evaluation,
prepares a description of the roles and capabilities required for a
particular appointment.
During the year the Committee engaged the services of external
search consultants to assist with the recruitment of Peter Hickson,
Keith Heller and Lisa Clement as independent non-executive
directors. In addition, external search consultants were used to
recruit senior managers for both the Mining and Property
Divisions.
The Board initially appoints all new directors, having first
considered recommendations made to it by the Nomination Committee.
Following such appointment, the director is required to retire and
seek re-appointment at the next Annual General Meeting. There is a
process of rotation, which ensures that approximately one third of
all directors are required to retire and seek re-appointment at
each Annual General Meeting.
The Nomination Committee considers succession planning for
appointments to the Board and to senior management positions so as
to maintain an appropriate balance of skills and experience both on
the Board and in the Company.
Remuneration Committee
The composition and work of the Remuneration Committee are
described in the Directors' Remuneration Report.
Audit Committee and Auditors
The Audit Committee comprises Lisa Clement (Chair), and Keith
Heller.
Peter Hazell, who retired from the Board on 31 December 2011,
was Chairman throughout the period and Messrs Whiteman and Toms
were both members of the Committee until they resigned as directors
(on 31 March 2011 and 30 June 2011 respectively).
The Board is satisfied that Lisa Clement has recent and relevant
financial experience and that all members of the Committee are
independent non-executive directors. The Chairman, Finance Director
and the external auditors are invited to attend meetings. The
minutes of meetings of the Committee are circulated to all
directors. The Committee meets at least four times a year to review
the Group's accounting and financial reporting practices, the work
of internal and external auditors and compliance with policies,
procedures and applicable legislation. The Audit Committee also
reviews the half year and annual financial statements before
submission to the Board and periodically reviews the scope, remit
and effectiveness of internal audit provision and the effectiveness
of the Group's internal control systems. It also reviews
"whistle-blowing" arrangements by which employees of the Group may,
in confidence, raise concerns about possible financial or other
improprieties. The terms of reference of the Audit Committee are
available to shareholders on request and are also available on the
Group's website.
The auditors throughout 2011 have been PricewaterhouseCoopers
LLP.
Fees to PricewaterhouseCoopers LLP
2011 2010
GBP000 GBP000
Audit Fees 319 305
Other audit related fees 62 130
Tax compliance and advice services 81 -
------- -------
462 435
------- -------
The Board recognises the importance of safeguarding auditor
objectivity and has taken the following steps to ensure that
auditor independence is not compromised:
-- The Audit Committee reviews the audit appointment periodically;
-- It is Group policy that the external auditors will not, as a
general rule, provide consulting services to the Group. The
external auditors provide audit-related services such as regulatory
and statutory reporting as well as formalities relating to
shareholder and other circulars;
-- The external auditors may undertake due diligence reviews and
provide assistance on tax matters given their knowledge of the
Group's businesses. Such provision will, however, be assessed on a
case by case basis so that the best placed adviser is retained. The
Audit Committee monitors the application of the policy in this
regard and keeps the policy under review;
-- The Audit Committee reviews on a regular basis all fees paid
for audit, and all other fees, with a view to assessing
reasonableness of fees, value of delivery, and any independent
issues that may have arisen or may potentially arise in the future;
and
-- The auditors report to the Directors and the Audit Committee
confirming their independence in accordance with Auditing
Standards.
Safety Committee
The Board has a Safety Committee to assist it in ensuring that
the Group complies with its health and safety obligations and to
review and recommend to the Board strategic options that may
enhance the policies, standards and processes that operate within
the Group. The Committee comprises Keith Heller (Chairman) Peter
Hickson, Jonson Cox and Gareth Williams and meetings are attended
by all relevant senior managers. Kevin Whiteman was Chairman of the
Committee up to his retirement from the Board on 31 March 2011.
Stuart Hoult, Safety Director, has a direct reporting line to the
Committee.
Other Meetings
In accordance with best practice, the Chairman has frequent
meetings with the non-executive directors without the executive
directors being present.
A meeting of the non-executive directors, chaired by the Senior
Independent Director (without the Chairman), takes place at least
annually, to appraise the Chairman's performance.
Directors' Development
All directors receive induction on joining the Group and access
to further training is made available. The Group provides the
necessary internal and external resources to enable directors to
develop and update their knowledge and capabilities.
Performance Evaluation
The performance of the Board and its committees is considered
and reviewed by the Board throughout the financial year with
matters requiring attention identified and addressed. The
Chairman's performance is reviewed by the non-executive directors,
led by the Senior Independent Director, after consultation with the
executive directors. The Chairman holds responsibility for the
appraisal of the performance of the non-executive directors
together with responsibility to conduct a performance evaluation of
executive directors and members of the Executive Management
Committee.
Executive Management Committee
The Executive Management Committee was established to manage and
co-ordinate all strategic and key operational issues. It comprises
the Chairman, Finance Director, Managing Director, Mining and
Managing Director, Property with attendance by the Company
Secretary, Chief Operating Officer-Recovery Programme (an interim
appointment), HR Director and Director of Communications.
There are in addition two separate executive teams responsible
for the Mining and Property Divisions under the leadership of
Gareth Williams and Owen Michaelson respectively.
Directors Conflict of Interest Procedures
A director has a duty under the Companies Act 2006 to avoid a
situation in which he has or can have a direct or indirect interest
that conflicts or possibly may conflict with the interests of the
Company. This duty is in addition to the existing duty that a
director owes to the Company to disclose to the Board any
transaction or arrangement under consideration by the Company. The
Company's Articles of Association allow the directors to authorise
conflicts and potential conflicts. The Board has a procedure when
deciding whether to authorise a conflict or potential conflict of
interest. Firstly, only independent directors (i.e. only those that
have no interest in the matter under consideration) will be able to
take the relevant decision. Secondly, in taking the decision the
directors must act in a way they consider, in good faith, will be
most likely to promote the Company's success. In addition, the
directors will be able to impose limits or conditions when giving
authorisation if they think this is appropriate.
Relations with Shareholders
The Group maintains on-going dialogue with major shareholders
through regular presentations and meetings to outline the Group's
trading environment and objectives and also offers them the
opportunity to meet non-executive directors. The Senior Independent
Director is available to all shareholders. Private investors are
encouraged to attend the Annual General Meeting where they have the
opportunity to question the Board.
Substantial Shareholdings in the Company
The directors have been notified of the following substantial
shareholdings as at 27 April 2012:
Company Number of % of
----------------------------------- -------
Shares Issued
------------------------------- -------
Share Capital
------------------------------- ------- ---------------- ----------------
Goodweather Holdings Ltd* 87,054,470 29.09
UBS Investment Bank 25,512,154 8.52
Pelham Capital 22,376,560 7.48
----------------------------------- ------- ---------------- ----------------
* Member of Peel Holdings.
Powers of Directors to Allot Shares
At the 2011 Annual General Meeting of the Company held on 9 June
2011, the directors were authorised to allot new shares up to an
aggregate nominal amount of GBP997,660. In accordance with the
latest institutional guidelines published by the Association of
British Insurers, a resolution to seek authority to allot new
shares up to an aggregate nominal value of GBP1,995,320 will be
proposed at the next Annual General Meeting (full details are
available in the 2012 Notice of Annual General Meeting).
Purchase of Own Shares
At the 2011 Annual General Meeting of the Company, shareholders
gave the Company permission, until the conclusion of the next
Annual General Meeting of the Company, to purchase up to 29,929,815
ordinary shares of 1 pence each of the Company. No such purchases
were made during the year. The directors will seek renewal of a
similar authority at the next Annual General Meeting (full details
are available in the 2012 Notice of Annual General Meeting).
Internal Control Risk Assessment
There is an on-going process for identifying, evaluating and
managing the significant risks of the Group, and this process has
been in place throughout the year under review. An updated
strategic risk assessment of the Group's risks and effectiveness of
internal controls was reviewed on 27 March 2012; it was concluded
that there were no strategic risks that had not been considered nor
any significant weaknesses in internal controls that had not been
identified.
The updated assessment supplements on-going dialogue between the
Board and the directors and managers responsible for monitoring
risks at an operational level. During the year the Board received
internal audit reports and reviews by the Health & Safety
Management department. These reports identified areas of risk
exposure, recommendations made and actions implemented. They also
highlighted new areas of legislation that will impact on the risk
profile of the Group, and provided positive assurance that
procedures are working and assisting in the attainment of business
objectives. Operational and financial risk management is delegated
to directors and managers who are responsible for the day-to-day
management of the business.
The following controls are embedded in the procedures of the
relevant business units:
Operational - detailed mining production and development plans
are agreed on an annual basis and updated each month. Operational
Review meetings are held with senior management to discuss
performance against plan and to decide and implement any actions
required. There are Group-wide and local procedures against which
compliance is monitored. Detailed operational plans are agreed
annually for Harworth Estates with these reviewed on a monthly
basis at a formal divisional Board meeting attended by all
divisional directors and members of the Executive Management
Committee.
Health & Safety - full details of the health and safety
policies and practices of the Group are set out in the Corporate
Social Responsibility section.
Environmental Management - full details of the environmental
policies and practices of the Group are set out in the Corporate
Social Responsibility section.
Financial (which assist in the financial reporting and
consolidation of the Group's financial statements) - these controls
are considered under the following headings:
Cost budgeting
The annual budget setting process includes a detailed review of
each business unit and final budgets are approved by the Board.
Costs and performance are monitored on a monthly basis against
budgets. Monthly Operational Review meetings are held with senior
management to discuss financial issues.
Treasury
The terms of reference for the Treasury department are approved
and kept under review by the Board. The Treasury department is
responsible for placing deposits, for arranging borrowings and for
making payments. These transactions are subject to director or
senior management authorisation.
Insurance risk
The Group holds insurance cover for all employer liability and
public liability claims, which is issued by its captive insurance
company, and which limits the Group's exposure to GBP250,000 per
claim. All claims are subject to expert assessment and challenge
and, where appropriate, independent medical and legal opinion.
Capital expenditure
Board approval of all major capital projects is required.
Smaller capital projects are approved in accordance with the
Group's delegated authorities.
Assurance Procedures
In 2011, assurance was provided by an in-house team of Internal
Auditors during the first half of the year and external specialists
who undertook specific reviews in the second half of the year.
Assurance was further provided by in-house Health & Safety
Auditors and Environmental Auditors. This resource was supplemented
by the HM Inspectorate of Mines (Health & Safety) and other
Health & Safety Commission personnel, legal advisors and
professional claims handlers (Insurance and Claims Management) and
external environmental consultants (Environmental Management).
Reports were prepared and summarised at management level for
reporting to the Board as either standing or intermittent agenda
items. The Audit Committee reviewed internal audit reports and
corporate governance matters. The Group has recently appointed a
Head of Internal Audit who will manage all external resources and
lead a strengthened in-house team.
Going Concern
As set out more fully in the Directors' Report and note 1, the
directors have formed the conclusion that the Company and Group
have adequate resources to continue in operational existence for
the foreseeable future. The financial statements have, therefore,
been prepared on the going concern basis.
Annual General Meeting
The Board encourages shareholders to exercise their right to
vote at the Annual General Meeting. The notice calling the meeting
and related papers are sent to shareholders at least 20 working
days before the meeting and separate resolutions are proposed on
each substantially separate issue.
Shareholders are encouraged to participate through a question
and answer session and individual directors or, where appropriate,
the Chairman of the relevant committee, respond to those questions
directly. Shareholders have the opportunity to talk informally to
the directors before and after the formal proceedings.
Directors' Remuneration Report
*Denotes auditable elements of the Remuneration Report
Context
This report is set in the context of the Recovery Plan for UK
Coal, of which the principal objective is to restructure the Group
to provide a stable platform for the Group's mining and property
businesses. This, it is believed, will provide greatest value for
all stakeholders. In addressing remuneration issues, the
Remuneration Committee has acted to incentivise key executives to
meet operational targets and deliver the restructuring plan,
thereby aligning executive reward to the challenges facing the
Group.
Introduction
This report has been prepared in accordance with the
requirements of the Large and Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008. The report also meets the
relevant requirements of the Listing Rules and has complied with
the provisions set out in The UK Corporate Governance Code relating
to remuneration matters.
Remuneration Committee
Responsibility for reviewing Group remuneration strategy and
policy, recommending any changes and approving individual
remuneration packages for the Chairman, Executive Directors and
other senior executives rests with the Remuneration Committee (the
"Committee"). The Committee consists of independent Non-Executive
Directors and meets on at least two occasions each year.
The members of the Committee are:
-- Peter Hickson (Committee Chairman from 1 July 2011);
-- Lisa Clement (with effect from 15 December 2011).
Mike Toms was Committee Chairman until his retirement from the
Board on 30 June 2011, and Peter Hazell and Kevin Whiteman were
both members of the Committee until they resigned as Directors (on
31 December 2011 and 31 March 2011 respectively).
The Committee may seek any information it requires from any
employee or director, and all employees and directors are required
to co-operate with any request made by the Committee. Richard Cole
(Company Secretary) provided information to the Committee during
the year.
The Committee also meets without management and exercises its
judgement using publically available information. During the year
Mr Toms received information and independent executive remuneration
advice from specialist remuneration consultants, New Bridge Street,
a trading name of Aon Corporation, who were appointed by the
Committee. Executive Directors do not participate in discussions
relating to their own remuneration. The Committee liaises with the
Audit Committee where appropriate; this includes confirmation of
the Group's financial performance to assist in determining whether
performance targets and measures have been achieved and to ensure
that the structure for the incentive arrangements throughout the
Group are appropriate from a risk perspective. It also liaises with
the Safety Committee in respect of the safety element of the annual
bonus scheme.
The Committee has terms of reference, approved by the Board,
which are available from the Company Secretary and via the Group's
website.
Remuneration Policy
The policy for the current and future periods for the
remuneration and incentivisation of Executive Directors and other
senior executives is as follows:
-- To ensure that individual rewards and incentives are aligned
with the performance of the Company and interests of
shareholders;
-- To ensure that performance-related elements of remuneration
constitute a significant proportion of an executive's remuneration
package; and
-- To maintain a competitive remuneration package which enables
the Company to attract, retain and motivate high calibre
executives.
The Committee reviews executive remuneration and implements
incentive arrangements to support the objective of rewarding those
individuals who deliver shareholder value. In developing these
arrangements the Committee and its advisers consider current best
and market practice. The Committee will review remuneration
arrangements after the restructuring plan has been finalised to
ensure that they remain appropriate. Potential major changes will
be discussed with major shareholders prior to adoption.
Executive Director remuneration (excluding the Chairman)
comprises a base salary, an annual performance bonus, participation
in a long term incentive plan or arrangement, a car or car
allowance plus fuel card, pension contributions to a defined
contribution pension scheme or a pension allowance, life assurance
and health insurance. Gareth Williams, for 2011 only, participates
in a deferred share based annual bonus scheme. Bonus payments and
benefits in kind are not pensionable. An appropriate balance is
maintained between fixed remuneration and performance-related
remuneration.
Jonson Cox, Chairman, receives, in place of the existing annual
bonus and long-term incentive arrangements, bespoke share based
awards, which were awarded in February 2011, to reflect the nature
of the role and the strategic and operational challenges presented
by the Company over the three years following his appointment.
The following paragraphs explain the operation of the main
constituents of the remuneration policy.
Base Salaries
Executive Directors' salaries are normally reviewed by the
Remuneration Committee on an annual basis. In determining salary
levels for executives the Committee has, principally, had regard to
external comparators for roles of equivalent size and complexity
and, for Mr Brocksom specifically, the number of years without an
increase. Following a review of executive salary levels, Messrs
Brocksom, Williams and Michaelson's base salaries have been
increased from GBP234,675 to GBP242,889, GBP230,000 to GBP240,350
and from GBP230,000 to GBP236,900 respectively with effect from 1
January 2012.
Annual Bonus for Executive Directors
With the exception of the Chairman, Executive Directors
participate in an annual bonus arrangement. The Committee sets both
the performance measures and targets based on the Group's business
priorities. These targets ensure that incentives are payable only
for demonstrably superior Group and individual performance. The
annual bonus provided in 2011 an incentive opportunity in the range
of 0% to 75% of base salary for Executive Directors.
The Committee has reviewed executive performance in 2011 against
the Group performance targets related to safety, production,
cashflow, profit before tax, operating costs and property sales,
each executive's personal targets and, for Mr Michaelson only,
specific property related performance targets. In light of
achievement against these targets and significant leadership and
contribution in an extremely challenging environment the Committee
has awarded the following bonuses. David Brocksom has been awarded
a bonus of GBP114,404 (2010: GBP70,000), Gareth Williams GBP106,375
(2010: GBP113,077) and Owen Michaelson GBP144,900 (2010:
GBP25,000). The bonus for the period represents 48.75% of annual
basic pay for David Brocksom, 46.25% for Gareth Williams and 63%
for Owen Michaelson.
In light of the announcement made on 14 March 2012 to
re-structure the Group, these bonuses will not become payable until
the sufficient short term recovery of the mining business and the
proposals for restructuring have been fully developed and tabled
with key stakeholders. The company has taken a similar approach
with all bonuses for 2011 across the management teams.
As disclosed in last year's Remuneration Report, Gareth
Williams' annual bonus opportunity (for 2011 only) has been
supplemented with a deferred bonus arrangement, whereby a maximum
of 500,000 shares in the Company would be awarded at the end of the
2011 financial year based on the achievement of operational targets
for 2011; the award (which is not pensionable) will vest, subject
generally to continued employment, on 31 December 2013. The
Committee has decided that it is appropriate to defer consideration
of these operational measures until the proposed restructuring has
been completed.
The delayed consideration of operational measures applicable to
the deferred bonus arrangement will not impact the maximum number
of shares that may be granted under Mr Williams' award or the
vesting date of the award once the number of shares under award has
been determined. The Committee is satisfied that this amendment to
the terms of Mr Williams' award is appropriate in light of the
challenges presented by the Company's current position, and that
the amended terms are an appropriate means of incentivising and
retaining Mr Williams. Once granted: the number of shares under the
award may be adjusted in the event of any variation of share
capital or special dividend; the award cannot be transferred or
charged by Mr Williams; the award cannot be amended to the
advantage of Mr Williams except in respect of minor amendments to
benefit the administration of the award, to take account of changes
in legislation or to obtain or maintain favourable tax, exchange
control or regulatory treatment. The amended arrangement is entered
into pursuant to the authority contained in Listing Rule
9.4.2R(2).
A resolution was passed by shareholders at the 2011 Annual
General Meeting to satisfy the award through the issue of new,
rather than existing, shares.
The Committee has agreed one-off bonus arrangements for 2012,
which replace the normal potential awards, only in respect of
Messrs Williams, Michaelson and Brocksom. Messrs Williams and
Michaelson have the opportunity to receive an enhanced bonus of up
to 150% of base salary in the event of the restructuring plan
announced on 14 March 2012 being successfully implemented. The
first half of this bonus (of up to 75% of salary) will be payable
at the end of 2012 for achievement of specific targets to improve
the operational and financial performance of the business together
with achieving key personal targets. The second half of the bonus
(of up to 75% of salary) will be paid on successful implementation
of the restructure plan during 2012 but will be deferred until the
end of 2013 and shall be conditional upon the continued employment
of Messrs Williams and Michaelson. Mr Brocksom shall, for 2012,
have the opportunity to receive an enhanced bonus of up to 100% of
his base salary subject to successful implementation of the
restructuring plan and successful management of the Group's
financial position, together with a one-off bonus equivalent in
value to a maximum of 250,000 shares which is dependant on the
achievement of personal performance targets for the 2012 financial
year.
Chairman
Mr Cox, Chairman, is paid a base salary of GBP350,000 per annum
on the basis he provided four days per week in 2011; this
requirement falls to three days per week in 2012. In the light of
the time Mr Cox has been providing, and is expected to provide, in
2012, the Committee has agreed to supplement Mr Cox's base salary
by GBP120,000 for this year only. However, this will not be paid
until the sufficient short term recovery of the mining business and
the proposals for restructuring have been fully developed and
tabled with key stakeholders.
In connection with the Chairman's appointment and instead of his
participation in the annual bonus and long-term incentive plan,
share based awards were designed to reflect the specific
challenges, of the role.
On 4 February 2011, and in connection with his appointment, Mr
Cox was granted the following awards pursuant to the authority
contained in Listing Rule 9.4.2R(2):
-- A Long Term Award to acquire up to 2,800,000 ordinary 1 pence
shares which will normally vest on 15 November 2013 (being the
third anniversary of Mr Cox's appointment) subject to continued
employment and satisfaction of performance criteria related to the
turnaround and recovery of the Company. The Committee has recently
determined that the condition for the vesting of these shares
should be the substantive completion of the three year Recovery
Plan which commenced on the appointment of Mr Cox in November 2010.
The Committee amended the conditions applicable to the Long Term
Award in light of the Company's current financial position which
has made the original targets relating to de-gearing and the
company's equity value inappropriate. In light of current business
conditions the Committee is satisfied that the amended performance
condition applicable to the Long Term Award is no less challenging
than the original targets.
-- The Committee has the discretion to scale back the award if
it is not satisfied that there has been an improvement in the
underlying financial performance of the Company having regard to
cash-flow, profit, net asset value, dividend and gearing. Mr Cox
will be entitled to the value of any dividends paid between the
grant and the vesting dates.
-- An Annual Award over 1,520,000 shares which was to normally
vest on an annual basis in three equal tranches subject to Mr Cox's
continued employment and progress against the achievement of
strategic key performance indicators over the three year period.
These required the stabilisation of the mining business, delivery
of short, medium and long-term value in the property business,
creation of appropriate levels of financial headroom, achievement
of financial stability with a de-leveraged balance sheet and
development of a long-term strategy. In addition there is a
requirement to provide effective leadership to the Board and to
develop a Chief Executive to enable the reversion to a conventional
governance structure. The Committee has decided that in light of
the strategic importance of the Recovery Plan these key performance
indicators should be primarily assessed against the achievement of
the Recovery Plan, and therefore the condition for the vesting of
these shares should be the same as the Long Term Award shares.
Progress will be assessed by the Committee annually and the
Committee will continue to review the appropriate strategic key
performance indicators applicable to Mr Cox's Annual Award.
-- Following Mr Cox's proposal that, in light of the Company's
strategic recovery plan being over a three year period, it would be
more appropriate to measure progress towards achievement of the key
performance criteria over the plan's full three period, the
Committee amended the terms of the plan so that vesting would be at
the end of the three year period. It has, however, reviewed Mr
Cox's progress against the targets and concluded that, in respect
of the first year of the three periods, he was on track to meet the
key performance indicators in full.
To the extent the awards vest, awards may be satisfied with
either existing shares (other than treasury shares) or, following
shareholder approval at the 2011 Annual General Meeting through new
issue, rather than existing, shares.
Long Term Incentive Plan ('2010 LTIP')
Under the 2010 LTIP an annual award of up to 100% of base salary
is conditionally allocated to each Executive Director (excluding
the Chairman). Messrs Williams, Brocksom and Michaelson were
granted awards of 100% of salary in 2011.
These shares are released to the Executive three years from the
date of grant of award, contingent upon predetermined performance
targets being met. The performance conditions for awards in 2011
are based on a comparison of the Company's Total Shareholder Return
("TSR") against the constituents of the FTSE all share index
excluding financial and investment companies over a three year
period commencing at the beginning of the 2011 financial year.
Twenty five per cent of the award will vest if TSR is ranked at the
median of the comparator group rising on a straight-line basis to
full vesting if the Company's TSR is ranked at or above the upper
quartile. In addition the Company's absolute TSR has to be positive
over the three year performance period and the Committee must be
satisfied that there has been an underlying improvement in the
Company's financial performance.
Awards may be satisfied with newly issued shares or existing
shares.
In light of the plan to restructure the Group, it is not
expected that any further awards will be granted and that following
completion of the restructuring plan long term incentives for
executives will be reviewed and an appropriate incentivisation
structure put into place.
Share Usage
The 2010 LTIP contains limits which control the issuance of new
shares to satisfy share awards. This limit restricts the issue of
new shares to an amount equivalent to no more than 5% of issued
share capital over any ten year period. As at 31 December 2011 the
level of issuance of new shares was at 0.4% of the current issued
share capital.
Shareholding Guideline
An executive shareholding guideline applies for Executive
Directors and other selected senior executives. To the extent
awards vest under the 2010 LTIP the Directors will be required to
retain no less than 50% of the net of tax value of the shares until
a holding equivalent to 100% of salary is attained (50% of salary
for other senior executives). This same guideline applies to the
Chairman in respect of any shares that vest under his bespoke
arrangements.
Performance Graph
[Graph omitted due to constraints of reporting service]
The above graph displays the values, by the end of 2011, of
GBP100 invested in the Company on 31 December 2006 compared with
the value of GBP100 invested in the FTSE Small Cap Index (excluding
investment trusts). The other points are the values at intervening
financial year-ends.
Other Terms and Conditions of Service
The Executive Directors' service contracts, including
arrangements for early termination, are considered carefully by the
Committee and are designed to recruit, retain and motivate
Executive Directors of the quality required to manage the Group.
The Committee considers that a notice period of no more than one
year is appropriate. It is the Company's policy not to enter into
service contracts that provide written notice of more than one
year.
In respect of Jonson Cox, employment will continue until
terminated by the Company giving not less than twelve months
written notice, or by Mr Cox giving the Company not less than six
months written notice. David Brocksom's, Gareth Williams' and Owen
Michaelson's contracts shall continue until either they or the
Company terminate it by not less than 12 months' notice in
writing.
When calculating termination payments, the Committee takes into
account a variety of factors including individual and Group
performance, the obligation of the Executive Director to mitigate
his own loss (for example by gaining new employment) and the best
interests of the Group. Should the Company terminate the contract
of an Executive Director, compensation for loss of office is
limited to the amounts payable under these notice periods. There
are no special provisions for payments on a change of control.
Non-Executive Directors
The Board aims to recruit Non-Executive Directors of a high
calibre with broad commercial and other relevant experience.
Non-Executive Directors are appointed for an initial three year
period. The terms of their engagement are set out in a letter of
appointment. The initial appointment and any subsequent
re-appointment is subject to election or re-election by
shareholders at the Annual General Meeting. The letters of
appointment contain three months' notice periods, with the
exception of Peter Hickson, Senior Independent Director, whose
appointment is subject to six months' notice.
Compensation for loss of office is limited to the amounts
payable under these notice periods. The Board considers these
notice periods appropriate given the skills and expertise of the
Directors.
To reflect the role fulfilled by Peter Hickson as Senior
Independent Non-Executive Director in a business where the Chairman
has a part-executive role, he is paid a fee of GBP65,000 per annum;
this includes his responsibilities as Chairman of the Remuneration
Committee. Other Non-Executive Directors are paid a basic fee of
GBP40,000 per annum with an additional fee of GBP6,000 per annum
payable for chairing a committee.
Non-Executive Directors are not eligible to participate in any
of the Company's share schemes, incentive schemes or pension
schemes.
Directors' Service Contracts and Letters of Appointment
Contract Unexpired Term Notice Period
Date (as at Dec 2011)
------------------------ --------- ------------------ --------------
Chairman
Jonson Cox 15.11.10 Rolling 1 year 1 year
Executive Directors
David Brocksom 04.09.07 Rolling 1 year 1 year
Owen Michaelson 30.07.10 Rolling 1 year 1 year
Gareth Williams 15.02.10 Rolling 1 year 1 year
Non-Executive Directors
Peter Hickson 30.06.11 2 years 6 months 6 months
Lisa Clement 29.11.11 2 years 11 months 3 months
Keith Heller 18.04.11 2 years 3 months 3 months
Steven Underwood 27.07.10 1 year 7 months 3 months
There are no liabilities in respect of directors' service
contracts that require disclosure. Copies of directors' service
contracts and agreements are available to shareholders for
inspection at the Company's registered office by application to the
Company Secretary.
Directors' Emoluments for the Year-Ended December 2011*
Salary/ Allowances Annual Benefits Total Total
Fees bonus in kind 2011 2010
(iii)
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------- ------------ ----------- ------- --------- --------- -----------
Chairman
Jonson Cox(i) 350 20 - 9 379 49
Executive Directors
David Brocksom
(ii) 235 10 114 8 367 321
Owen Michaelson
(ii) 230 10 145 3 388 149
Gareth Williams
(ii) 230 10 106 5 351 422
Non-Executive Directors
Peter Hickson -
(appointed 01.07.11) 33 - - - 33
Lisa Clement 2 - - - 2 -
(appointed 15.12.11)
Keith Heller (iv) 32 - - - 32 -
(appointed 19.04.11)
Steven Underwood
(v) 13 - - - 13 -
Peter Hazell 46 - - - 46 46
(resigned 31.12.11)
Mike Toms 23 - - - 23 46
(resigned 30.06.11
)
Kevin Whiteman 11 - - - 11 46
(resigned 31.03.11) -
(i) Jonson Cox receives a car allowance of GBP20,000 per annum
which is included in allowances above.
(ii) David Brocksom, Owen Michaelson and Gareth Williams each
receive a car allowance of GBP10,000 per annum which is included in
allowances above.
(iii) Benefits in kind comprise car benefits, life assurance and health insurance.
(iv) Fees in respect of the services provided by Keith Heller are paid to S/Dolo Inc.
(v) Fees payable for the services provided by Steven Underwood
commenced with effect from 1 September 2011 and are paid to Peel
Management Limited.
Pension Contributions*
The Chairman and Executive Directors are entitled to receive an
annual pension contribution at the rate of 30% of base salary.
During the year Owen Michaelson was a member of the UK Coal money
purchase pension scheme. The money purchase scheme does not provide
additional post-retirement benefits (including contingent death
benefits). Pension contributions on behalf of executive directors
were as follows:
Pension Contributions Pension Contributions
2011 2010
----------------- ---------------------- ----------------------
GBP000 GBP000
Jonson Cox (i) 114 5
David Brocksom
(ii) 70 70
Owen Michaelson 69 29
Gareth Williams
(i) 69 60
322 164
---------------------- ----------------------
(i) This was paid as an allowance
(ii) Of this, GBP67,601 was paid to Mr Brocksom's personal
arrangements and GBP2,802 as an allowance.
Long Term Incentive Plan*
Interest Interest Interest Interest Vesting End of performance
at Dec awarded lapsed at Dec 2011 date period
2010 during
the year
(i)
----------------- --------- ---------- --------- ------------------------ --------- -------------------
No. of No. of No. of No. of shares
shares shares shares
----------------- --------- ---------- --------- ------------------------ --------- -------------------
David Brocksom
Executive LTIP
2009 (ii) 133,734 - 133,734 - 5.5.12 Dec-11
Executive LTIP
2010 (iii) 586,687 - - 586,687 26.8.13 Dec-12
Executive LTIP
2011 (i) (iii) - 680,217 - 680,217 20.4.14 Dec-13
----------------- --------- ---------- --------- ------------------------ --------- -------------------
Total 720,421 680,217 133,734 1,266,904
----------------- --------- ---------- --------- ------------------------ --------- -------------------
Owen Michaelson
Executive LTIP
2010 (iii) 575,000 - - 575,000 26.8.13 Dec-12
Executive LTIP
2011 (i) (iii) - 666,665 - 666,665 20.4.14 Dec-13
----------------- --------- ---------- --------- ------------------------ --------- -------------------
Total 575,000 666,665 - 1,241,665
----------------- --------- ---------- --------- ------------------------ --------- -------------------
Gareth Williams
Executive LTIP
2010 (iii) 575,000 - - 575,000 26.8.13 Dec-12
Executive LTIP
2011 (i) (iii) - 666,665 - 666,665 20.4.14 Dec-13
----------------- --------- ---------- --------- ------------------------ --------- -------------------
Total 575,000 666,665 - 1,241,665
----------------- --------- ---------- --------- ------------------------ --------- -------------------
(i) The share price at the date of the awards for Messrs
Brocksom, Michaelson and Williams on 20 April 2011 was 34.5
pence.
(ii) The performance conditions for the 2009 awards required
absolute TSR growth between 75% and 150% for between 30% and 100%
of an award to vest (with straight line vesting between these
points). In addition, the Company was required to achieve EPS
growth of at least RPI + 3% over the performance period. The
performance targets were not achieved and, therefore, the 2009
awards have lapsed in full.
(iii) The performance conditions for 2010 and 2011 awards
require relative TSR performance against the FTSE all share index
excluding financial and investment companies over a three year
period commencing at the beginning of the 2010 and 2011 financial
years respectively. Twenty five per cent of the award will vest if
TSR is ranked at the median of the comparator group rising on a
straight-line basis to full vesting if the Company's TSR is ranked
at or above the upper quartile. In addition the Company's absolute
TSR has to be positive over the three year performance period and
the Committee must be satisfied that there has been an underlying
improvement in the Company's financial performance.
Jonson Cox - Share Awards*
Interest
awarded
Interest during the Interest Vesting Performance
at Dec 2010 year (i) at Dec 2011 date period
------------------- -------------- ------------ ------------- --------- ------------
3 years to
Annual Award (ii) - 1,520,000 1,520,000 15.11.13 15.11.13
Long Term Award 3 years to
(iii) - 2,800,000 2,800,000 15.11.13 15.11.13
------------------- -------------- ------------ ------------- --------- ------------
(i) The share price at the date of the awards on 4 February 2011 was 45.5 pence.
(ii) (iii) The performance conditions are set out above
Directors' Interests in Ordinary Shares*
The directors' beneficial interests in ordinary shares of the
Company and its subsidiaries at the end of the financial year were
as set out below. None of the directors had an interest in shares
of the Company's subsidiaries during the year.
Beneficial Beneficial
interest interest
in ordinary in ordinary
shares at shares at
Dec-11 Dec-10
No. of shares No. of shares
------------------ -------------- ----------------
Jonson Cox 196,945 100,000
David Brocksom 47,090 28,675
Owen Michaelson 75,000 52,366
Gareth Williams - -
Peter Hickson - -
Lisa Clement - -
Keith Heller 525,000 -
Steven Underwood 31,369 1,652
------------------ -------------- ----------------
There have been no changes in Directors' interests in shares
between the end of the year and 27 April 2012.
The market value of the Company's shares during the year ranged
from 28.5 pence to 55.25 pence. The market value on 31 December
2011 was 28.5 pence.
External Appointments
The Remuneration Committee recognises the importance of allowing
Executive Directors to take Non-Executive Director roles elsewhere.
Mr Cox's business interests include a Non-Executive Directorship of
Wincanton PLC for which he received (and retained) fees of
GBP49,173 in 2011. Mr Michaelson holds a non-executive directorship
within the Peel Group and the Peel Group has confirmed that he
receives no remuneration nor participates in any form of incentive
arrangement which might benefit him currently or at any future time
from his involvement with the Peel Group.
This report has been approved by the Board for submission to
shareholders at the 2012 Annual General Meeting, and signed on
behalf of the Board by Peter Hickson.
By order of the Board
Peter Hickson
Chairman
Remuneration Committee
27 April 2012
INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF UK Coal PLC
We have audited the Group and Parent Company financial
statements (the "financial statements") of UK Coal PLC for the year
ended 31 December 2011 which comprise the Consolidated Income
Statement, the Consolidated Statement of Comprehensive Income, the
Group and Company Balance Sheet, the Group and Company Statement of
Cash Flows, the Consolidated and Company Statement of Changes in
Shareholders' Equity and the related notes.The financial reporting
framework that has been applied in their preparation is applicable
law and International Financial Reporting Standards (IFRSs) as
adopted by the European Union and, as regards the Parent Company
financial statements, as applied in accordance with the Companies
Act 2006.
Respective responsibilities of Directors and Auditors As
explained more fully in the Directors' Responsibilities Statement,
the directors are responsible for the preparation of the Group
financial statements and for being satisfied that they give a true
and fair view. Our responsibility is to audit and express an
opinion on the Group financial statements in accordance with
applicable law and International Standards on Auditing (UK and
Ireland). Those standards require us to comply with the Auditing
Practices Board's Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and
only for the Company's members as a body in accordance with Chapter
3 of Part 16 of the Companies Act 2006 and for no other purpose. We
do not, in giving these opinions, 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 the Audit of the Financial Statements An audit involves
obtaining evidence about the amounts and disclosures in the
financial statements sufficient to give reasonable assurance that
the financial statements are free from material misstatement,
whether caused by fraud or error. This includes an assessment of:
whether the accounting policies are appropriate to the Group's and
Parent Company's circumstances and have been consistently applied
and adequately disclosed; the reasonableness of significant
accounting estimates made by the directors; and the overall
presentation of the financial statements. In addition, we read all
the financial and non-financial information in the Annual Report
and Accounts 2011 to identify material inconsistencies with the
audited financial statements. If we become aware of any apparent
material misstatements or inconsistencies we consider the
implications for our report.
Opinion on financial statements In our opinion:
-- the financial statements give a true and fair view of the
state of the Group's and of the Parent Company's affairs as at 31
December 2011 and of the Group's profit and Group's and Parent
Company's cash flows for the year then ended;
-- the Group financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union;
-- the Parent Company financial statements have been properly
prepared in accordance with IFRSs as adopted by the European Union
and as applied in accordance with the provision of the Companies
Act 2006; and
-- the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006 and, as regards the
Group financial statements, Article 4 of the IAS Regulation.
Emphasis of Matter - Going Concern
In forming our opinion on the financial statements, which is not
modified, we have considered the adequacy of the disclosures given
in note 1 to the financial statements concerning the ability of the
Group and Parent Company to continue as a going concern. We note
that the matters set out in note 1 to the financial statements
indicate the existence of material uncertainties which may cast
significant doubt over the ability of the Group and the Parent
Company to continue as a going concern. The 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.
Opinion on other matters prescribed by the Companies Act 2006 In
our opinion:
-- the information given in the Directors' Report for the
financial year for which the financial statements are prepared is
consistent with the financial statements; and
-- the information given in the Corporate Governance Statement
with respect to internal control and risk management systems and
about share capital structures is consistent with the financial
statements.
Matters on which we are required to report by exception We have
nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you
if, in our opinion:
-- adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been received
from branches not visited by us: or
-- the Parent Company financial statements and the part of the
Directors' Remuneration Report to be audited are not in agreement
with the accounting records and returns; or
-- certain disclosures of directors' remuneration specified by law are not made; or
-- we have not received all the information and explanations we require for our audit; or
-- a corporate governance statement has not been prepared by the Parent Company.
Under the Listing Rules we are required to review:
-- the Directors' Statement in relation to going concern;
-- the part of the Corporate Governance Statement relating to
the company's compliance with the nine provisions of the UK
Corporate Governance Code specified for our review; and
-- certain elements of the report to shareholders by the Board on directors' remuneration.
Steve Denison (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Leeds
27 April 2012
Notes:
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 financial statements since they were
initially presented on the website.
Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Consolidated Income Statement
for the year ended 31 December 2011
Year ended Year ended
31 December 25 December
2011 2010
Continuing operations Note GBP000 GBP000
------------------------------------------------ ---- ------------ ---------------
Revenue 2 488,216 351,179
Cost of sales (402,639) (383,937)
Gross profit/(loss) 85,577 (32,758)
Net increase/(decrease) in fair value of investment
properties 3,325 (34,197)
Profit/(loss) on disposal of investment
properties 2,685 (550)
------------------------------------------------ ---- ------------ ---------------
Net profit/(loss) on investment properties 6,010 (34,747)
Other operating income and expenses 4 (10,317) (19,890)
Operating profit/(loss) 2 81,270 (87,395)
Finance costs 6 (23,112) (37,643)
Finance income 6 256 275
------------------------------------------------ ----
Net finance costs 6 (22,856) (37,368)
Share of post-tax (loss)/profit from joint
ventures 14 (431) 147
Profit/(loss) before tax 3 57,983 (124,616)
Tax charge 8 (2,742) (479)
Profit/(loss) for the financial year 55,241 (125,095)
------------------------------------------------ ---- ------------ ---------------
Attributable to:
Equity holders of the Company 55,241 (125,095)
------------------------------------------------ ---- ------------ ---------------
Earnings/(loss) per share pence pence
Basic and diluted 11 18.5 (41.8)
------------------------------------------------ ---- ------------ ---------------
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2011
Year ended Year ended
31 December 25 December
2011 2010
Note GBP000 GBP000
------------------------------------------------------------ ---- ------------------ ----------------
Profit/(loss) for the financial year 55,241 (125,095)
Other comprehensive income:
Actuarial gain on industry wide pension schemes 25 10,633 49,651
Actuarial gain on Blenkinsopp pension scheme 25 132 161
Actuarial loss on concessionary fuel reserve 25 (7,463) (76)
Rate change on deferred tax asset relating to retirement
benefit liabilities 8 - (325)
Amortisation of interest rate swaps recycled from reserves 23 372 3,848
Movement on deferred tax asset relating to cash flow
hedges 8 (110) (1,357)
Revaluation of property transferred from operating to
investment properties 13 4,519 1,223
Total other comprehensive income 8,083 53,125
------------------------------------------------------------ ---- ------------------ ----------------
Total comprehensive profit/(loss) for the financial year 63,324 (71,970)
------------------------------------------------------------ ---- ------------------ ----------------
Attributable to:
Equity holders of the Company 63,324 (71,970)
------------------------------------------------------------ ---- ------------------ ----------------
The notes are an integral part of the consolidated financial
statements.
Consolidated Statement of Changes in Shareholders' Equity
Share
Ordinary premium Other Retained Total
shares account reserves earnings equity
Note GBP000 GBP000 GBP000 GBP000 GBP000
Balance at January 2010 2,993 30,756 271,503 (152,463) 152,789
Loss for the financial year to
December
2010 - - - (125,095) (125,095)
Other comprehensive income:
Actuarial gain on post retirement
benefits 25 - - - 49,736 49,736
Fair value loss on revaluation of
investment
properties 13 - - (34,197) 34,197 -
Property revaluation on transfer
to
investment properties 13 - - 1,223 - 1,223
Transfer of realised gain on
disposed
properties 28 - - (11,892) 11,892 -
Rate change on deferred tax asset
relating
to retirement
benefit liability 8 - - - (325) (325)
Hedging reserve - amortised in
period 28 - - 3,848 - 3,848
Movement on deferred tax asset in
relation
to cash flow hedges 8 - - (1,357) - (1,357)
Total comprehensive loss for the period
ended December 2010 - - (42,375) (29,595) (71,970)
Transactions with owners:
Accrual for long term incentive
plan
liabilities 26 - - - 574 574
- - - 574 574
----------------------------------- ------- ----------- ------------- ------------- -------------- -------------
Balance at December 2010 2,993 30,756 229,128 (181,484) 81,393
Profit for the financial year to
December
2011 - - - 55,241 55,241
Other comprehensive income:
Actuarial gain on post retirement
benefits 25 - - - 3,302 3,302
Fair value profit on revaluation
of
investment properties 13 - - 3,325 (3,325) -
Property revaluation on transfer
to
investment properties 13 - - 4,519 - 4,519
Transfer of realised gain on
disposed
properties 28 - - (44,697) 44,697 -
Hedging reserve - amortised in
period 28 - - 372 - 372
Movement on deferred tax asset in
relation
to cash flow hedges 8 - - (110) - (110)
Total comprehensive profit for the period
ended December 2011 - - (36,591) 99,915 63,324
Transactions with owners:
Accrual for long term incentive
plan
liabilities 26 - - - 1,286 1,286
- - - 1,286 1,286
----------------------------------- ------- ----------- ------------- ------------- -------------- -------------
Balance at December 2011 2,993 30,756 192,537 (80,283) 146,003
----------------------------------- ------- ----------- ------------- ------------- -------------- -------------
Retained earnings include a cumulative actuarial loss on the
Group's retirement benefit obligations of GBP85,161,000 (2010:
GBP88,463,000).
Company Statement of Changes in Shareholders' Equity
Share
Ordinary premium Other Retained Total
shares account reserves earnings equity
Company Note GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------------ ---- -------------- ------------- ------------- ------------- -------------
Balance at January 2010 2,993 30,756 257 332,281 366,287
Loss for the financial year - - - (16,960) (16,960)
Other comprehensive income:
Actuarial gain on post retirement
benefits 25 - - - 161 161
Transactions with owners:
Accrual for long term incentive
plan
liabilities 26 - - - 574 574
------------------------------------ ---- -------------- ------------- ------------- ------------- -------------
Balance at January 2011 2,993 30,756 257 316,056 350,062
Loss for the financial year - - - (3,829) (3,829)
Other comprehensive income:
Actuarial gain on post retirement
benefits 25 - - - 132 132
Transactions with owners:
Accrual for long term incentive
plan
liabilities 26 - - - 1,286 1,286
Balance at December 2011 2,993 30,756 257 313,645 347,651
------------------------------------ ---- -------------- ------------- ------------- ------------- -------------
Balance Sheets
at 31 December 2011
Group Group Company Company
As at As at As at As at
31 December 25 December 31 December 25 December
2011 2010 2011 2010
Note GBP000 GBP000 GBP000 GBP000
---------------------------------- ---- ------------------ ----------------- ----------------- ------------------
ASSETS
Non-current assets
Operating property, plant and
equipment 12 223,495 237,153 - -
Surface mine development and
restoration
assets 12 25,745 35,675 - -
---------------------------------- ---- ------------------ ----------------- ----------------- ------------------
249,240 272,828 - -
Investment properties 13 250,640 314,237 - -
Investment in subsidiaries 14 - - 300,310 300,310
Investment in joint ventures 14 2,979 3,410 - -
Deferred tax asset 8 31,509 34,474 - -
Other receivables 15 3,357 3,136 - -
537,725 628,085 300,310 300,310
---------------------------------- ---- ------------------ ----------------- ----------------- ------------------
Current assets
Inventories 16 34,754 50,334 - -
Trade and other receivables 17 26,302 25,916 216,307 211,309
Cash and cash equivalents 19 25,278 24,901 419 384
Non-current assets classified as
held
for sale 18 16,600 - - -
102,934 101,151 216,726 211,693
---------------------------------- ---- ------------------ ----------------- ----------------- ------------------
Total assets 640,659 729,236 517,036 512,003
---------------------------------- ---- ------------------ ----------------- ----------------- ------------------
LIABILITIES
Current liabilities
Borrowings - bank loans,
overdrafts
and finance leases 20 (37,541) (56,251) - -
- generator
loans and
prepayments 20 (41,723) (26,428) - -
Derivative financial instruments 23 (546) (1,145) - -
Trade and other payables 21 (113,759) (110,557) (168,793) (161,089)
Provisions 22 (13,480) (34,915) - -
(207,049) (229,296) (168,793) (161,089)
---------------------------------- ---- ------------------ ----------------- ----------------- ------------------
Net current (liabilities)/assets (104,115) (128,145) 47,933 50,604
---------------------------------- ---- ------------------ ----------------- ----------------- ------------------
Non-current liabilities
Borrowings - bank loans,
overdrafts
and finance leases 20 (18,849) (85,361) - -
- generator
loans and
prepayments 20 (42,386) (74,760) - -
Derivative financial instruments 23 (4,470) (5,462) - -
Trade and other payables 21 (736) (9,925) - -
Deferred tax liabilities 8 (1,171) (1,265) - -
Provisions 22 (75,290) (70,171) - -
Retirement benefit obligations 25 (144,705) (171,603) (592) (852)
(287,607) (418,547) (592) (852)
---------------------------------- ---- ------------------ ----------------- ----------------- ------------------
Total liabilities (494,656) (647,843) (169,385) (161,941)
---------------------------------- ---- ------------------ ----------------- ----------------- ------------------
Net assets 146,003 81,393 347,651 350,062
---------------------------------- ---- ------------------ ----------------- ----------------- ------------------
SHAREHOLDERS' EQUITY
Capital and reserves
Called up share capital 26 2,993 2,993 2,993 2,993
Share premium 30,756 30,756 30,756 30,756
Revaluation reserve 28 113,097 129,420 - -
Capital redemption reserve 28 257 257 257 257
Fair value reserve 28 64,993 99,713 - -
Hedging reserve 28 - (262) - -
Amounts recognised in reserves
relating
to non-current assets held for
sale 18 14,190 - - -
Retained (loss)/earnings 27 (80,283) (181,484) 313,645 316,056
Total shareholders' equity 146,003 81,393 347,651 350,062
---------------------------------- ---- ------------------ ----------------- ----------------- ------------------
The financial statements were approved by the Board of Directors
on 27 April 2012 and were signed on its behalf by:
J Cox D G Brocksom Company Registered No. 2649340
Chairman Finance Director
Statements of Cash Flows
for the year ended 31 December 2011
Group Group Company Company
Year ended Year ended Year ended Year ended
31 December 25 December 31 December 25 December
2011 2010 2011 2010
Note GBP000 GBP000 GBP000 GBP000
------------------------------------------ ---- ---------------- --------------- ---------------- ---------------
Cash flows from operating activities
Profit/(loss) for the financial year 2 55,241 (125,095) (3,829) (16,960)
Depreciation/impairment of property, plant
and equipment 12 40,499 35,187 - -
Amortisation of surface mine development
and restoration assets 12 17,121 14,033 - -
Net fair value (increase)/decrease in
investment
properties 13 (3,325) 34,197 - -
Net interest payable/(receivable) and
unwinding
of discount on provisions 6 22,856 37,368 (156) (1,303)
Net charge for share-based remuneration 1,286 574 1,286 574
Share of post-tax loss/(profit) from joint
ventures 431 (147) - -
(Profit)/loss on disposal of investment
properties (2,685) 550 - -
Profit on disposal of operating property,
plant and equipment (657) (243) - -
Decrease in capitalised surface mine
restoration
assets (3,684) (19,493) - -
(Decrease)/increase in provisions (19,635) 43 - -
Pension contributions (in excess of)/lower
than charge (23,597) 506 (128) (68)
Tax charge/(credit) 8 2,742 479 701 (1,438)
Operating cash inflows/(outflows) before
movements
in working capital 86,593 (22,041) (2,126) (19,195)
Decrease in stocks 15,580 5,425 - -
Decrease/(increase) in receivables 2,094 (724) (4,998) (9,344)
(Increase)/decrease in payables (3,197) (5,816) 7,159 14,768
Cash generated from/(used in) operations 101,070 (23,156) 35 (13,771)
Loan arrangement fees paid (744) (1,195) - (159)
Consortium relief received - 538 - -
Interest (paid)/received (20,678) (11,236) - 1,445
Cash generated from/(used in) operating
activities 79,648 (35,049) 35 (12,485)
------------------------------------------ ---- ---------------- --------------- ---------------- ---------------
Cash flows from investing activities
Interest received 256 275 - -
Net receipt from insurance and subsidence
security funds 885 3,298 - -
Proceeds on disposal of investment
properties 64,342 22,297 - -
Proceeds on disposal of operating
property,
plant and equipment 1,349 703 - -
Development costs of investment properties (4,774) (2,105) - -
Pre-coaling expenditure for surface mines
and deferred stripping costs (3,507) (8,404) - -
Purchase of operating property, plant and
equipment (31,815) (26,789) - -
Cash generated from/(used in) investing
activities 26,736 (10,725) - -
------------------------------------------ ---- ---------------- --------------- ---------------- ---------------
Cash flows from financing activities
Net (repayment of)/proceeds from bank
loans (84,282) 12,348 - -
Net (repayment of)/proceeds from generator
loans and prepayments (17,078) 25,831 - -
Repayments of obligations under hire
purchase
and finance leases (3,762) (5,565) - -
Cash (used in)/generated from financing
activities (105,122) 32,614 - -
------------------------------------------ ---- ---------------- --------------- ---------------- ---------------
Increase/(decrease) in cash 1,262 (13,160) 35 (12,485)
------------------------------------------ ---- ---------------- --------------- ---------------- ---------------
At January
Cash 427 13,587 384 12,869
Cash equivalents 24,474 27,772 - -
24,901 41,359 384 12,869
Decrease in cash equivalents (net receipt from
insurance and subsidence security funds) (885) (3,298) - -
Increase/(decrease) in cash 1,262 (13,160) 35 (12,485)
25,278 24,901 419 384
------------------------------------------ ---- ---------------- --------------- ---------------- ---------------
At December
Cash 1,689 427 419 384
Cash equivalents 23,589 24,474 - -
Cash and cash equivalents 19 25,278 24,901 419 384
------------------------------------------ ---- ---------------- --------------- ---------------- ---------------
Notes to the Financial Statements
for the year ended 31 December 2011
1. ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of
these consolidated financial statements are set out below. These
policies have been consistently applied to all the years presented,
unless otherwise stated.
Basis of preparation
These consolidated financial statements have been prepared in
accordance with European Union ("EU") Endorsed International
Financial Reporting Standards ("IFRSs"), IFRIC interpretations and
those parts of the Companies Act 2006 applicable to companies
reporting under IFRS. The consolidated financial statements have
been prepared under the historical cost convention, as modified by
the revaluation of investment properties and financial assets and
financial liabilities (including derivative instruments) at fair
value through profit or loss.
Trading financial statements within the Group are made up to the
last Saturday in December each year. For 2011, trading is shown for
the year ended on 31 December 2011 (2010: year ended 25 December
2010).
General information
The Company is a public limited company, which is listed on the
London Stock Exchange and incorporated and domiciled in the UK. The
address of its registered office is: UK Coal PLC, Harworth Park,
Blyth Road, Harworth, Doncaster, South Yorkshire, DN11 8DB.
Going concern
These financial statements are 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 with particular consideration to
production levels and key risks and uncertainties as summarised in
the Operating and Financial Review as well as taking into account
the available borrowing facilities in line with the Treasury Policy
disclosed in the Directors' Report.
The key factors that have been considered in this regard
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.
-- 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.
Changes in accounting policy and disclosures
(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 2013, but is
available for early adoption. The Group is yet to assess IFRS 9's
full impact or determine its date of adoption.
-- 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.
Consolidation
The consolidated financial information incorporates the
financial statements of UK COAL ('the Company') and its
subsidiaries, together 'the Group'.
Subsidiaries are entities over which the Group has power to
govern the financial and operating policies. Control is presumed to
exist where the Group owns more than half of the voting rights,
unless in exceptional circumstances where it can be demonstrated
that ownership does not constitute control. The consolidated
financial statements include all the assets, liabilities, revenues,
expenses and cash flows of the parent and its subsidiaries, after
eliminating intercompany balances and transactions. The results of
subsidiaries sold or acquired are included in the consolidated
income statement up to, or from, the date control passes.
The Group uses the purchase method of accounting to consolidate
subsidiaries. On acquisition, the identifiable assets, liabilities
and contingent liabilities being acquired are measured at their
fair values at the date of acquisition. Accounting policies are
changed where necessary to bring them into line with those adopted
by the Group.
Joint ventures are those entities over whose activities the
Group has joint control established by contractual agreement.
Interests in joint ventures through which the Group carries on its
business are classified as jointly controlled entities and
accounted for using the equity method. This involves recording the
investment initially at cost to the Group, and then in subsequent
periods, adjusting the carrying amount of the investment to reflect
the Group's share of the joint venture's results less any
impairment in carrying value and any other changes to the joint
venture's net assets such as dividends.
Segmental reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker.
The chief operating decision-maker, who is responsible for
allocating resources and assessing performance of the operating
segments, has been identified as the Executive Management Committee
as detailed in Note 2.
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,
along with the related provisions.
The Group manages its business primarily by reference to
operating segments, and this approach is adopted in the accounting
policies as the primary segment. Deep mining comprises the
underground mining operations of the Group and related labour
services and the captive insurance company. Surface mining
incorporates all mining activities at surface level, together with
the plant hire operations of the Group. The Property division,
Harworth Estates, maintains, develops and rents the Group's
property portfolio and operates the Group's methane generation
activities. Any activity not falling into any of these categories
is included in the Other segment.
Investments Investments held by the Company in subsidiary
undertakings are carried at cost less impairments to write them
down to their recoverable amount. An impairment to the carrying
value of investments is made if there is an indication at the
balance sheet date that the carrying value is not recoverable.
Foreign currencies
The presentational currency of the Group is sterling.
Transactions in other currencies are translated at the exchange
rate ruling at the date of the transaction. Monetary assets and
liabilities are translated at year end exchange rates and the
resulting exchange rate differences are included in the
consolidated income statement within the results of operating
activities if arising from trading activities and within finance
cost/income if arising from financing.
All Group companies have a functional currency of sterling which
is consistent with the presentational currency of the consolidated
Group financial statements.
Revenue
Revenue comprises sales (excluding intra group sales) of coal,
property rental income and other external sales, including sales of
power and of labour services.
Coal transactions
Revenue is recognised when delivery of the product or service
has been made and when the customer has a legally binding
obligation to settle under the terms of the contract and has
assumed all significant risks and rewards of ownership.
A large proportion of production is sold under medium to long
term contracts. Revenue is only recognised on individual sales when
all of the significant risks and rewards of ownership have been
transferred to a third party. In most instances this is when the
product is despatched, being the point at which title to the
product is transferred to the purchaser.
Service transactions
Rental income is recognised during the period in which rents due
to the Group accrue. Sales of power are recognised when electricity
is transferred into the local distribution network.
Exceptional items
Items that are both material and non-recurring and whose
significance is sufficient to warrant separate disclosure and
identification within the consolidated financial statements are
referred to as exceptional items and disclosed within their
relevant income statement category within note 2, segmental
reporting. Items that may give rise to classification as
exceptional items include, but are not limited to, significant and
material restructuring closures and reorganisation programmes,
asset impairments, and profits or losses on the disposal of
businesses.
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 closure,
rationalisation and business disposals.
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.
Profit or loss on disposal
Disposals are accounted for when legal completion of the sale
has occurred or there has been an unconditional exchange of
contracts. Profits or losses on disposal arise from deducting the
asset's net carrying value from the net proceeds (being net
purchase consideration less clawback liability arising on disposal)
and are recognised in the consolidated income statement. Net
carrying value includes valuation in the case of investment
properties and historic cost or deemed cost less accumulated
depreciation in the case of all other property, plant and
equipment.
In the case of investment properties, the revaluation reserve,
which arose on transfer from operating property to investment
property, for the property disposed of is treated as realised on
disposal of the property and transferred to retained earnings.
Investment properties and operating properties
The Group holds the following types of freehold property:
- Working deep mines in production
- Working surface mines in production
- Property held for administrative purposes and
- Property held for rental income, capital appreciation or
both
Working deep mines in production, working surface mines in
production, and property held for administrative purposes are held
as operating properties (as these assets are used or intended to be
used within the operations of the Group) and are accounted for at
historic depreciated cost, in accordance with IAS 16 'Property,
Plant and Equipment'.
All other freehold properties are held as investment properties
(as these are held to earn rentals or for capital appreciation or
both) and are accounted for at valuation, in accordance with IAS40
'Investment Property'.
Investment properties
Investment properties comprise freehold land and buildings and
are measured at fair value. The fair values are determined by
obtaining an independent valuation prepared in accordance with the
current edition of the Appraisal and Valuation Standards published
by the Royal Institution of Chartered Surveyors. External,
independent valuation firms having appropriate, recognised
professional qualifications and recent experience in the location
and category of property being valued, are used to value the
portfolio at each reporting date.
In accordance with IAS 40, for properties transferred from
operating properties to investment properties, any difference
between the book value and the first valuation on recognition as an
investment property is taken to reserves. Subsequent gains or
losses arising from changes in the fair values of assets are
recognised in the consolidated income statement, net of any
property clawback by DECC (see accounting policy on property
clawback) on deemed disposal. Investment properties are not
depreciated.
Properties being held for their long term rental income or
capital appreciation but with the added potential for coal
extraction are held as investment properties, being transferred to
operating properties at fair value when planning permission to mine
the site has been received and mining operations have commenced and
are transferred back to investment properties once mining has
terminated.
Where the development of investment property commences with a
view to sale, the property is transferred from investment
properties to non-current assets classified as held for sale, which
is then considered to represent deemed cost.
Operating properties
Operating properties which are acquired or constructed are
initially recorded at cost, being the purchase price of the asset
and other costs incurred to bring the asset into existing use, and
subsequently stated at historic cost less accumulated depreciation
(other than freehold land which is not depreciated). Where
properties are transferred from investment properties to operating
properties, this transfer is made at fair value, which is then
considered to represent deemed cost.
Properties which have historically been used as working deep
mines or working surface mines (operating properties) are
transferred to property held for rental income or capital
appreciation (investment properties), when there is a change in
use, at the point when a decision is made to pursue planning with a
view to future development (rather than for short term sale) or
rental, and once mining has ceased. IAS 16 is applied up to the
date of transfer and any difference at that date between the book
value and fair value is taken to the revaluation reserve.
Properties in the course of development
Directly attributable costs incurred in the course of developing
a property are capitalised as part of the cost of the property. For
operating properties depreciation of these costs follows the
depreciation policy for the property. Development costs on
investment properties are capitalised and the change in value is
recognised through the next revaluation.
Exploration and evaluation
Exploration and evaluation expenditure comprises costs that are
directly attributable to:
- Researching and analysing existing exploration data;
- Conducting geological studies, exploratory drilling and
sampling;
- Examining and testing extraction and treatment methods;
and/or
- Compiling prefeasibility and feasibility studies.
Exploration expenditure relates to the initial search for
deposits with economic potential. Evaluation expenditure arises
from a detailed assessment of deposits that have been identified as
having economic potential.
Capitalisation of exploration and evaluation (pre-coaling)
expenditure commences when there is a high degree of confidence in
the project's viability and hence it is probable that future
economic benefits will flow to the Group. Such capitalised
exploration and evaluation expenditure is reviewed for impairment
when facts and circumstances indicate that its carrying value
exceeds its recoverable amount.
Subsequent recovery of the resulting carrying value depends on
successful development of the area of interest or sale of the
project. If a project does not prove viable, all irrecoverable
costs associated with the project net of any related impairment
provisions are written off.
Plant and equipment
The cost of plant and equipment comprises its purchase price and
any costs directly attributable to bringing the asset to the
location and condition necessary for it to be capable of operating
in accordance with agreed specifications. Plant and equipment is
stated at historic cost less accumulated depreciation.
Once a mining project has been established as commercially
viable, expenditure other than that on land, buildings, plant and
equipment is capitalised under 'mine development assets' together
with any amount transferred from 'exploration and evaluation'.
During the development of a mine, before production commences,
development stripping costs are capitalised as part of the
investment in construction of the mine (see accounting policy on
mining assets).
Costs associated with commissioning new assets are capitalised
in the period before they are capable of operating in the manner
intended by management. Development costs incurred after the
commencement of production are capitalised to the extent they are
expected to give rise to a future economic benefit.
Mining assets
Mine development
The purpose of mine development is to access and establish
infrastructure in order to allow the safe and efficient extraction
of recoverable reserves. Depreciation on mine development is
charged from the time when full production commences or from when
the assets are put to use. On commencement of full production,
depreciation is charged over the estimated tonnage of the
recoverable reserves. Coal extracted prior to the commencement of
full production is credited against the cost of mine development
where it can be clearly shown that the production of saleable
material is directly attributable to bringing the asset to the
condition necessary for it to be capable of operating in the manner
intended by management; otherwise such revenue (and the costs of
producing the saleable material) is recognised in the consolidated
income statement.
Mines and surface works
Assets acquired on the privatisation of British Coal in 1994
were valued at discounted net recoverable value, based on the
contemporary mining plans, in accordance with the accounting
guidance existing at that time. Depreciation is charged over the
estimated tonnage of the recoverable reserves. Subsequent additions
to mines and surface works are accounted for at cost, and
depreciated over their individual estimated reserves.
Seismic and geological mapping costs
Expenditure on seismic and geological mapping costs which
increases the value of the reserves by identifying additional
reserves over and above those previously recognised, or increases
the value of the existing known reserves by providing information
which enables reserve estimates to be increased, is capitalised.
This expenditure is depreciated over the estimated tonnage of the
recoverable reserves as these are extracted. If the information
does not fulfil either of these criteria, the cost is charged to
the consolidated income statement as incurred.
Surface mine development and restoration assets
Costs incurred prior to coaling for surface mines are
capitalised as surface mine development and restoration assets
within tangible fixed assets once a planning application is to be
made and a separate provision for the outstanding restoration and
rehabilitation obligations is established. Both of these costs are
then charged to the consolidated income statement (net of any
residual value) over the recoverable reserves of the mine.
Deferred stripping costs
Overburden and other mine waste materials are often removed
during the initial development of a mine site in order to access
the mineral deposit. This activity is referred to as development
stripping. The directly attributable costs (inclusive of an
allocation of relevant overhead expenditure) are capitalised as
surface mine development assets and are amortised together with
restoration and pre-coaling costs, once coaling commences, over the
tonnage of coal expected to be extracted.
The Group defers stripping costs incurred subsequently, during
the production stage of its operations, for those operations where
this is the most appropriate basis for matching the costs against
the related economic benefits and the effect is material.
The amount of stripping costs deferred is based on the ratio
obtained by dividing the tonnage of waste mined by the quantity of
coal mined. Stripping costs incurred during the period are deferred
to the extent that the current period ratio exceeds the remaining
life of mine ratio. Such deferred costs are then charged against
reported profits to the extent that, in subsequent periods, the
current period ratio falls short of the life of mine ratio. Changes
to the life of mine ratio are accounted for prospectively.
If the Group were to expense the production stage stripping
costs as incurred, there would be greater volatility in the year to
year results from operations and excess stripping costs would be
expensed at an earlier stage of a mine's operation.
Depreciation
The costs of operating properties, excluding freehold land, and
the cost of all other plant and equipment, less estimated residual
value, are written off on a straight line basis over the asset's
expected useful life. Residual values and useful lives are
reviewed, and adjusted if appropriate, at each balance sheet date.
Changes to the estimated residual values or useful lives are
accounted for prospectively. The costs of heavy surface mining and
other plant and equipment are depreciated at varying rates
depending upon their expected usage.
Indicative expected lives for non-current assets are set out
below:
Freehold land not depreciated
25 to 50
Operating properties (excluding land) years
Mines and surface works - Heavy mining
equipment 8 to 20 years
Plant and equipment
- Plant and equipment 3 to 15 years
- Motor vehicles 3 to 5 years
Impairment
Operating property, plant and equipment are reviewed for
impairment if there is any indication at the balance sheet date
that their carrying amount may not be recoverable.
The carrying value of cash generating units (taking into account
related liabilities and allocated central net assets) is tested for
impairment by comparison with expected relevant future cash flows
discounted at the pre-tax cost of capital taking into account
appropriate risk and provision is made for any impairment
identified. Cash generating units comprise individual mines or
groups of mines depending upon the nature of the income streams
derived from each.
When a review for impairment is conducted, the recoverable
amount is assessed by reference to the higher of 'value in use'
(being the present value of expected future cash flows of the
relevant cash generating unit) or 'fair value less costs to sell'.
Where there is no binding sale agreement or active market, fair
value less costs to sell is based on the best information available
to reflect the amount the Group could receive for the cash
generating unit in an arm's length transaction.
Future cash flows are based on:
- Estimates of the quantities of the reserves and resources for
which there is a high degree of confidence of economic
extraction
- Anticipated production levels and costs
- Anticipated coal prices
Cost levels incorporated in the cash flow forecasts are based on
the current long term mine plan for the cash generating unit. For
impairment reviews, recent cost levels are considered, together
with expected changes in costs that are compatible with the current
condition of the business and which meet the requirements of IAS 36
'Impairment of assets'. IAS 36 'Impairment of assets' includes a
number of restrictions on the future cash flows that can be
recognised in respect of restructurings and improvement related to
capital expenditure.
Finance and operating leases - as lessee
Leases which transfer substantially all the risks and rewards of
ownership to the Group are treated as finance leases. All other
leases are treated as operating leases. Assets held under hire
purchase and finance lease arrangements are capitalised and
depreciated according to the depreciation rate of the applicable
asset category. The outstanding capital obligations are included in
payables. Interest is allocated to accounting periods over the hire
purchase or lease term to reflect a constant rate of charge on the
remaining balance of the obligation. Costs in respect of the
operating leases are charged to the consolidated income statement
on a straight line basis over the term of the lease.
Finance and operating leases - as lessor
The Group grants leases over land and buildings in the course of
its property business. These do not substantially transfer the
risks and rewards of ownership to the lessee, and therefore they
are accounted for as operating leases.
Financial instruments and derivatives
The Group recognises financial instruments when it becomes party
to the contractual provisions of the instrument. Financial assets
are derecognised when the contractual right to receive the cash
flows expire or it has transferred the financial asset and the
economic benefit of the cash flows. Financial liabilities are
derecognised when the obligation specified in the contract is
discharged, cancelled or expires.
Financial instruments are used to support the Group's
operations. Interest is charged to the consolidated income
statement as incurred or earned. Issue costs for instruments
subsequently recorded at amortised cost are netted against the fair
value of the related debt instruments on initial recognition and
are charged to the consolidated income statement over the term of
the relevant facility.
Financial instruments are recorded initially at fair value.
Subsequent measurement depends on the designation of the
instrument, as follows:
a) Financial assets/liabilities held for short term gain,
including derivatives other than hedging instruments, are measured
at fair value and movements in fair value are credited/charged to
the consolidated income statement in the period.
b) Loans and receivables/payables and non-derivative financial
assets/liabilities with fixed or determinable payments that are not
quoted in an active market, are measured at amortised cost. These
are included in current assets/liabilities except for instruments
that mature after more than 12 months which are included in
non-current assets/liabilities.
The Group holds derivative financial instruments ('derivatives')
to manage exposure to fluctuations in interest rates. Derivatives
are designated as hedges, when applicable, and treated as such from
the inception of the relevant contracts. Amounts payable or
receivable in respect of interest rate swap agreements are
recognised as adjustments to the interest expense over the period
of the contracts.
Changes in the fair value of derivative financial instruments
that are designated and effective as hedges of future cash flows
are recognised directly in equity, and the ineffective portion is
recognised immediately in the income statement as a finance cost.
If the cash flow hedge of a firm commitment or forecasted
transaction results in the recognition of an asset or liability,
then, at the time the asset or liability is recognised, the
associated gains or losses on the derivative that had previously
been recognised in equity are included in the initial measurement
of the asset or liability. For hedges that do not result in
recognition of an asset or a liability, amounts deferred in equity
are recognised in the consolidated income statement in the same
period in which the hedged item affects net profit or loss.
Hedge accounting is discontinued when the hedging instrument
expires or is sold, terminated, or exercised, or no longer
qualifies for hedge accounting. At that time, any cumulative gain
or loss on the hedging instrument recognised in equity is retained
in equity until the forecasted transaction occurs. If a hedged
transaction is no longer expected to occur, the net cumulative gain
or loss recognised in equity is transferred to the consolidated
income statement in the period.
Changes in the fair value of derivative financial instruments
that do not qualify for hedge accounting are recognised immediately
in the consolidated income statement as a finance cost.
Borrowing costs
Borrowings are recognised initially at fair value, net of
transaction costs incurred. Borrowings are subsequently stated at
amortised cost; any difference between the proceeds (net of
transaction costs) and the redemption value is recognised in the
consolidated income statement over the period of the borrowings
using the effective interest method.
Inventories
Inventories are valued at the lower of cost and net realisable
value. Values of spares and consumables are based on average
purchase prices. Appropriate provisions are made for slow moving
and obsolete inventories. Coal is recognised as inventories when
delivered to the surface and is valued at the average cost of
extraction.
Trade receivables
Trade receivables are recognised initially at fair value and are
subsequently reduced by any provision for impairment. A provision
for impairment of trade receivables is established when there is
objective evidence that the Group will not be able to collect all
amounts due. Indicators of impairment would include financial
difficulties of the debtor, likelihood of the debtor's insolvency,
default in payment or a significant deterioration in credit
worthiness. Any impairment is recognised in the consolidated income
statement within 'other operating income and expenses'. When a
trade receivable is uncollectible, it is written off against the
allowance account.
Subsequent recoveries of amounts previously written off are
credited against 'other operating income and expenses' in the
income statement.
Trade payables
Trade payables are obligations to pay for goods and services
that have been acquired in the ordinary course of business from
suppliers. Trade payables are classified as current if payment is
due within one year or less. If not, they are presented as
non-current liabilities. Trade payables are recognised initially at
fair value and subsequently measured at amortised cost using the
effective interest method.
Property clawback
Under the terms of the 1994 privatisation Sale and Purchase
Agreement, DECC is entitled to a percentage of any property gain
(above certain thresholds and after deducting an amount
representing corporation tax thereon) accruing, or treated as
accruing to the Group, as a result of the disposal or deemed
disposal or major development of certain properties acquired at
privatisation. The percentage applied was 21% for 2011, reducing by
3 percentage points per annum until 31 March 2015, when it reduces
to zero. If properties are disposed of, or are deemed to have been
disposed of during this period, a part of the relevant gain will
become payable to DECC. A liability for clawback in respect of
property disposals is recognised only when an actual or deemed
disposal occurs. A liability for clawback on a deemed disposal as a
result of granting a lease is recognised over the life of the
lease.
Cash and cash equivalents
In the preparation of the Group's and Company's cash flow
statements, cash and cash equivalents represent short term liquid
investments which are readily realisable. Cash which is subject to
restrictions, being held to match certain liabilities, is included
in cash and cash equivalents in the consolidated balance sheet.
Provisions for restoration, rehabilitation and environmental
costs
An obligation to incur restoration, rehabilitation and
environmental costs arises when environmental disturbance is caused
by the development or ongoing production of a mining property.
These costs consist of shaft treatment and pit top restoration,
spoil heap restoration, pumping activities and ground and ground
water contamination at deep mines and soil excavation and surface
rehabilitation at surface mines.
Such costs arising from the decommissioning of plant and other
site restoration work, discounted to their estimated present value,
are provided for and capitalised within operating property, plant
and equipment at the start of each project, as soon as the
obligation to incur such costs arises. These provisions do not
include any additional obligations which are expected to arise from
future damage and are estimated on the basis of a closure plan.
These costs are charged against income over the life of the
operation, through the depreciation of the asset as an operating
cost and the unwinding of the discount on the provision as a
financing cost.
Costs for restoration of subsequent site damage which is created
on an ongoing basis during production are provided for at their
estimated present values and charged against income as extraction
progresses.
Changes in the measurement of a liability relating to the
decommissioning of plant or other site preparation work that result
from changes in the estimated timing or amount of the cash flow, or
a change in the discount rate are added to, or deducted from, the
cost of the related asset in the current period. If a decrease in
the liability exceeds the carrying amount of the asset, the excess
is recognised immediately in the consolidated income statement. If
the asset value is increased and there is an indication that the
revised carrying value is not recoverable, an impairment test is
performed in accordance with the accounting policy above.
Other provisions
Surface damage (subsidence)
Provision is made for the estimated present value of the cost of
damage to structures on the surface as a result of settlement
during the production phase of underground mining. The provision is
calculated in respect of each colliery, location of mining activity
and type of property affected or likely to be affected based on
claims expected and claims submitted and using historical
settlement experience. These costs are charged to the consolidated
income statement. Movements in the provisions are presented as an
operating cost, except for the unwinding of the discount which is
shown as a financing cost.
Employer and public liability claims
The Group has established a DECC approved and Financial Services
Authority ("FSA") regulated UK based insurance subsidiary (Harworth
Insurance Company Limited). This insures employer and public
liability risks, buying reinsurance with third parties above
certain levels. Provision is made for the estimated value of both
known, and incurred but not reported, third party claims on an
actuarially determined basis taking into account expected
reinsurance recoveries.
Redundancy
Provision is made for the estimated present value of redundancy
costs when there is a demonstrable commitment to terminate the
employment of either an employee or group of employees. The
expected amounts of redundancy payments, including any amounts in
respect of ex gratia payments, are provided where the employment
terminations have been communicated to employees. These costs are
charged to the income statement. Movements in the provisions are
presented as an operating cost, except for the unwinding of the
discount which is shown as a financing cost.
Where contributions to redundancy costs have been firmly
committed by third parties, these contributions are credited to the
consolidated income statement in the same period to the extent,
that the related redundancy cost has been recognised.
Employee benefits
Pension obligations
The Group operates pension schemes providing benefits based on
final pensionable pay for employees who joined the Group on
privatisation in 1994. Employees within defined benefit schemes are
members of industry wide schemes, being either the Industry Wide
Coal Staff Superannuation Scheme ("IWCSSS") or the Industry Wide
Mineworkers' Pension Scheme ("IWMPS"), both of which commenced on
privatisation following the Coal Industry Act 1994. The assets of
the Schemes are held separately from those of the Group, being
funds administered by Trustees of the Schemes. A qualified actuary
assesses the cost of current service and revalues the schemes
annually under the provisions of IAS 19 using the Projected Unit
Credit Method. A full valuation for funding purposes is carried out
by the Schemes' actuaries triennially. The Group accounts for
pensions and similar benefits under IAS 19 'Employee benefits'. In
respect of defined benefit plans, obligations are measured at
discounted present value and plan assets are recorded at fair
value. Certain additional benefits may become payable dependent
upon the funding levels of the schemes being at "sustainable
levels". These liabilities are only provided if it is reasonably
certain that the schemes' funding, investment policy and growth
assumptions mean that it is likely that the Scheme Actuary will be
in a position, at a future date, to certify that the schemes are at
a "sustainable" level of funding. Service costs are charged
systematically over the service lives of employees and financing
costs are recognised in the periods in which they arise. Actuarial
gains and losses are recognised in the Statement of Comprehensive
Income.
The Group also operates defined contribution schemes in respect
of all employees who joined after the privatisation date in 1994.
The cost of this is charged to the consolidated income statement as
incurred.
Concessionary fuel
Provision is made for the estimated liability arising from the
obligation to provide concessionary fuel benefits to certain
retired and current employees. The costs of the concessionary fuel
benefits are determined annually by a qualified actuary using the
same Projected Unit Credit Method adopted for the pension schemes.
The arrangement is unfunded so no assets are held directly to meet
the obligations. The regular service cost and interest on the
scheme liabilities are charged to the consolidated income
statement. Actuarial gains and losses are charged to the Statement
of Comprehensive Income, representing the difference between actual
and expected performance.
Share-based payments
The fair value of share plans is recognised as an expense in the
consolidated income statement over the expected vesting period of
the grant. The fair value of share plans is determined at the date
of grant taking into account any market based vesting conditions
attached to the award. Non-market based vesting conditions (e.g.
earnings per share targets) are taken into account in estimating
the number of awards likely to vest. The estimate of the number of
awards likely to vest is reviewed regularly and the expense charged
adjusted accordingly. The fair value of employee share option plans
is calculated using a generally accepted simulation model.
The proceeds received net of any directly attributable
transaction costs, are credited to share capital (nominal value)
and share premium (any increment) when the options are
exercised.
Tax
Current tax
The charge or credit for current tax is based on the results for
the year adjusted for items that are either not subject to taxation
or for expenditure which cannot be deducted in computing the tax
charge or credit. The tax charge or credit is calculated using
taxation rates that have been enacted or substantively enacted at
the balance sheet date.
Deferred tax
Deferred tax is recognised using the balance sheet liability
method on temporary differences between the carrying amounts of
assets and liabilities in the financial statements and the
corresponding tax basis used in the computation of taxable profit.
Deferred tax is recognised in respect of all taxable temporary
timing differences, with certain limited exceptions:
- deferred tax is not provided on the initial recognition of an
asset or liability in a transaction that does not affect accounting
profit or taxable profit and is not a business combination; and
- deferred tax assets are only recognised if it is probable that
there will be sufficient profits from which the future reversal of
the underlying timing differences can be deducted. In deciding
whether future reversal is probable, the directors review the
Group's forecasts and make an estimate of the aggregate deferred
tax asset that should be recognised. This aggregate deferred tax
asset is then allocated into the different categories of deferred
tax, taking account of the fact that the deferred tax asset in
relation to the pension deficit will be recognised over a longer
period, as the pension liability reverses over the average
remaining service life of employees.
In relation to investment properties, a deferred tax liability
is provided on the basis of normal income tax rules for the
proportion of the property's carrying amount expected to be
recovered through use and is provided using capital gains tax rules
in respect of the remainder of the property's carrying amount
(including all land) expected to be recovered through sale.
Provision is made for gains on disposal of property, plant and
equipment that have been rolled over into replacement assets only
where, at the balance sheet date, there is a commitment to dispose
of the replacement assets.
Deferred tax is calculated at the tax rates that are expected to
apply in the periods in which timing differences reverse, based on
tax rates and laws enacted or substantively enacted at the balance
sheet date. Deferred tax is charged or credited to the consolidated
income statement, except where it applies to items credited or
charged to equity, in which case the deferred tax is also dealt
with in equity.
Share capital
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of new shares or options are
shown in equity as a deduction, net of tax, from the proceeds.
Dividend distribution
Dividend distribution to the Company's shareholders is
recognised in the financial statements in the year in which the
dividends are paid (in the case of interim dividends) or approved
by the Company's shareholders (in the case of final dividends).
Judgements in applying accounting policies and key sources of
estimation uncertainty
Many of the amounts included in the financial statements involve
the use of judgement and/or estimation. These judgements and
estimates are based on management's best knowledge of the relevant
facts and circumstances, having regard to previous experience, but
actual results may differ from the amounts included in the
financial statements. Information about such judgements and
estimation is contained in the accounting policies and/or the notes
to the financial statements, and the key areas summarised
below.
Areas of judgement and sources of estimation uncertainty that
have the most significant effect on the amounts recognised in the
financial statements are:
Estimation of future production levels
Along with estimations required as part of the going concern
review, estimates of future production are used in the forecasting
process which is used in the assessment of the carrying value of
certain assets, impairment charges, colliery asset lives and coal
reserve estimates.
Review of asset carrying values and impairment charges
The Group performs impairment testing in accordance with the
accounting policy. The calculation of recoverable amount requires
the use of estimates and assumptions consistent with the most
recent budgets and plans that have been formally approved by
management. Significant factors considered when using estimates to
assess the carrying value of assets include future coal prices,
expected annual production, expected colliery operating costs,
remaining colliery lives and coal reserves and discount rates.
Refer to note 12 for the key assumptions used in the
calculations.
Estimation of colliery asset lives
Capitalised mine development costs (deep and surface mines) are
amortised over the tonnage of coal expected to be extracted in the
future.
If the amount of coal expected to be extracted varies, this will
impact on the amount of the asset which should be carried in the
consolidated balance sheet. See accounting policy above.
Determination of coal reserve estimates
Reserves are used in the calculation of depreciation,
amortisation and impairment charges, the assessment of life of mine
stripping ratios and for forecasting the timing of the payment of
close down and restoration and clean up costs.
In assessing the life of a mine for accounting purposes, mineral
resources are only taken into account where there is a high degree
of confidence of economic extraction. There are numerous
uncertainties inherent in estimating coal reserves, and assumptions
that are valid at the time of estimation may change significantly
when new information becomes available.
Changes in the forecast prices of commodities, exchange rates,
production costs or recovery rates may change the economic status
of reserves and may, ultimately, result in the reserves being
restated.
Deferral of stripping costs
See accounting policy above.
Capitalisation of exploration and evaluation costs
See accounting policy above.
Estimation of fair value of investment property
The fair value of investment property reflects, amongst other
things, rental income from our current leases, assumptions about
rental income from future leases and the possible outcome of
planning applications, in the light of current market conditions.
The valuation has been arrived at primarily after consideration of
market evidence for similar property, although in the case of those
properties where it is considered market value will be informed by
their ultimate redevelopment potential, development appraisals have
been undertaken to estimate the residual value of the landholding
after due regard to the cost of, and revenue from the development
of the property.
In such instances, on account of the sensitivity of the market
value to the detail of any future planning consent, and the
potential for material variance in the actuality of development
costs, as compared with our own estimates, together with the
subjective nature of hope value, the values reported are subject to
material uncertainty, and a change in fair values could have a
material impact on the Group's results. Investment properties are
disclosed in note 13.
Judgements in applying accounting policies and key sources of
estimation uncertainty (continued)
Estimation of post retirement benefit obligations
Retirement benefits represent obligations that will be settled
in the future and require assumptions to project benefit
obligations and fair values of plan assets. Retirement benefit
accounting is intended to reflect the recognition of future benefit
costs over the employee's approximate service period, based on the
terms of the plans and the investment and funding decisions made by
the Group. These are subject to actuarial estimates of, amongst
other items, rate of return on investments, rate of salary
increases, rate of price inflation, the cost of funding future
liabilities and post retirement life expectancy. Details of the
significant estimates used are set out in note 25.
Estimation of other provisions (including clawback
liabilities)
Provisions are dependent on assessments of whether the criteria
for recognition have been met, including estimates of the outcome
and the amount of the potential cost of resolution. Provisions are
recognised by a charge against income when it is probable that a
liability has been incurred and the amount of such liability can be
reasonably estimated.
Estimation of close down and restoration costs
Estimated provisions are established in the consolidated balance
sheet and amortised in proportion to the coal expected to be
extracted from a site. If that expected tonnage or the actual cost
varies, then the provision may be under or over stated. Estimates
for environmental restoration provisions are based on the nature
and seriousness of the contamination as well as on the technology
required for clean up. The provisions are disclosed in note 22.
Recoverability of deferred tax assets
The recognition of deferred tax assets requires considerable
judgement as to the future profitability of the mining business.
The recognition of a deferred tax liability in relation to property
revaluations requires an estimate to be made of the proportion of
the value of a property which will be recovered through use,
compared to the proportion of the value which will be recovered
through sale. Deferred tax is disclosed in note 8.
2. SEGMENTAL REPORTING
In accordance with IFRS 8 'Operating segments', 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. As at
December 2011, the Executive Management Committee consisted of the
following individuals:
Chairman Jonson Cox
Finance Director David Brocksom
Managing Director - Mining Gareth Williams
Managing Director - Property Owen Michaelson
Company Secretary Richard Cole
Chief Operating Officer - Recovery Programme Tony Martin
HR Director David Stewart
Communications Director Andrew Mackintosh
On 25 January 2012 David Stewart left the Company.
The Committee considers that the Group's operating segments
comprise the following:
Deep mining
The Group had three ongoing operating deep mines in 2011 (2010:
three) located in central and northern England. The Group has
estimated total reserves and resources of approximately 201.5
million tonnes (2010: 204 million tonnes like for like). The closed
deep mines consist of the closed Welbeck and mothballed Harworth
collieries.
Surface mining
The Group had six active coaling surface mines during 2011
(2010: six) (three finished coaling during the year) and had
planning committee approval or consent to mine three further sites
(2010: one). Planning consent in respect of surface mine reserves
of 8 million tonnes has either already been granted or application
submitted.
Property
The Group had a portfolio of approximately 27,500 acres (2010:
37,900 acres) and has identified circa 4,000 net acres of this land
as offering prime prospects for a mix of business park,
residential, distribution and community development. Certain land
has been identified as potentially suitable for wind farms and this
opportunity is being pursued. The Property Division also operates
the Group's methane generation activities in which electricity is
generated from mines methane at both operating and closed
sites.
Other
This includes any 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, along with the related
provisions.
Revenue
Year ended Year ended
December December
2011 2010
Revenue from operations GBP000 GBP000
arises from:
------------------------ -------------- --------------
Sale of goods 481,931 345,434
Rendering of services 16 19
Rental income 6,269 5,726
488,216 351,179
------------------------ -------------- --------------
Revenues of approximately GBP421,000,000 (2010: GBP313,000,000)
are derived from four (2010: four) external customers. These
revenues are attributable to the deep and surface mining
segments.
Year ended December 2011 Ongoing Closed Deep Surface
deep mines deep mines* mining mining Property Other Total
(+)
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 increase
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
- Rationalisation, closure
and other costs 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- property (431)
Profit before tax 57,983
Tax charge (2,742)
---------- ------------ ---------- ---------- -------------- ---------- ------------
Profit for the year 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 fair
value of properties of GBP3,325,000 and profit on disposal of
investment properties of GBP2,685,000.
In 2011, Harworth Power has been included in the property
segment, with revenue of GBP3,413,000 and operating profit of
GBP2,435,000 for the year ended December 2011. Depreciation for
this period in this segment was GBP1,007,000.
Non-trading exceptional items
Rationalisation, closure and other costs consists of
professional fees in relation to the 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 to 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 which are within
other operating expenses.
Year ended December 2010 Ongoing Closed Deep Surface
deep mines deep mines* mining mining Property Other Total
(+)
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------- ----------- ------------- ----------- --------- ----------- ------------ ------------
Continuing operations
Revenue - gross 250,683 26,841 277,524 74,026 10,303 6 361,859
Revenue - intra Group (828) - (828) (7,935) (1,917) - (10,680)
------------------------- ------------- --------- ----------- ------------
Revenue - external 249,855 26,841 276,696 66,091 8,386 6 351,179
------------------------- ----------- ------------- ----------- --------- ----------- ------------ ------------
Operating (loss)/profit
before non-trading
exceptional
items and net decrease
in fair value of
investment
properties (45,386) 1,291 (44,095) 382 3,554 47 (40,112)
Net decrease in fair
value
of investment properties - - - - (34,197) - (34,197)
Operating (loss)/profit
before non-trading
exceptional
items (45,386) 1,291 (44,095) 382 (30,643) 47 (74,309)
------------------------- ----------- ------------- ----------- --------- ----------- ------------ ------------
Non-trading exceptional
items
- Rationalisation,
closure
and other costs (3,810) (1,721) (5,531) (293) (17) (7,245) (13,086)
------------------------- ----------- ------------- ----------- --------- ----------- ------------ ------------
Operating (loss)/profit
after non-trading
exceptional
items (49,196) (430) (49,626) 89 (30,660) (7,198) (87,395)
Finance costs (27,696)
Exceptional finance costs (9,947)
Finance income 275
------------------------- ----------- ------------- ----------- --------- ----------- ------------ ------------
Net finance costs (37,368)
Share of post-tax profit from
joint ventures- property 147
Loss before tax (124,616)
Tax charge (479)
----------- ------------- ----------- --------- ----------- ------------ ------------
Loss for the year (125,095)
------------------------- ----------- ------------- ----------- --------- ----------- ------------ ------------
Other segmental items
Capital expenditure 43,929 - 43,929 105 2,270 457 46,761
Depreciation/impairment 31,602 288 31,890 1,977 1,255 65 35,187
Surface mine development
costs and restoration
assets capitalised - - - 27,897 - - 27,897
Amortisation of surface
mine development and
restoration
assets - - - 14,033 - - 14,033
Provisions - non
cash-charge 4,501 (2,111) 2,390 22,286 17 - 24,693
------------------------- ----------- ------------- ----------- --------- ----------- ------------ ------------
* Closed deep mines includes income and expenditure arising at
the Welbeck and Harworth collieries. In 2010, Welbeck colliery was
reclassified from ongoing deep mines to closed deep mines.
+ 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 loss includes the net decrease in fair value
of properties of GBP34,197,000 and loss on disposal of investment
properties of GBP550,000.
In 2011, Harworth Power has been included in the property
segment. Previously, these results were shown in the deep mining
segment, with revenue of GBP2,625,000 and operating profit of
GBP2,478,000 for the year ended December 2010. Depreciation for
this period in this segment was GBP1,093,000.
Non-trading exceptional items
Rationalisation, closure and other costs consists of
restructuring costs of GBP4,860,000, care and maintenance costs for
Harworth colliery of GBP1,721,000, professional fees in relation to
the refinancing of GBP6,727,000, redundancy costs of GBP310,000
offset by a curtailment gain of GBP1,050,000 and other costs of
GBP518,000. All non-trading exceptional items are included in cost
of sales, with the exception of professional fees in relation to
refinancing which are within other operating expenses.
Exceptional finance costs
Following the Group's refinancing in April 2010, previously
capitalised issue costs of bank loans of GBP2,743,000 were written
off and the additional arrangement fees incurred on the replacement
facilities which totalled GBP4,998,000 were expensed. Furthermore,
the fair values of the related interest rate swaps which had
previously been hedge accounted, totalling GBP2,206,000 were
recycled from reserves to the income statement in line with the
relevant accounting standards. All of these costs have been treated
as exceptional finance costs (see Note 6).
Total assets
at December 2011
Ongoing Closed Deep Surface
deep mines deep mines* mining mining Property Other Total
(+)
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
------------- ----------- ----------- --------- ------------
Cash and cash
equivalents
(unrestricted) 1,689
Deferred tax asset 31,509
Total assets per
balance
sheet 640,659
-------------------- ------------- --------------- ------------- ----------- ----------- --------- ------------
Total assets
at December 2010
Ongoing Closed Deep Surface
deep mines deep mines* mining mining Property Other Total
(+)
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------- ------------- --------------- ------------- ----------- ----------- --------- ------------
Segment assets 292,483 203 292,686 59,766 337,629 844 690,925
Investment in joint
ventures - - - - 3,410 - 3,410
Total segment assets 292,483 203 292,686 59,766 341,039 844 694,335
------------- ----------- ----------- --------- ------------
Cash and cash
equivalents
(unrestricted) 427
Deferred tax asset 34,474
Total assets per
balance
sheet 729,236
-------------------- ------------- --------------- ------------- ----------- ----------- --------- ------------
* Closed deep mines includes the assets of Welbeck and Harworth
collieries. In 2010, Welbeck colliery was reclassified from ongoing
deep mines to closed deep mines and accordingly the comparative
information has been restated to reflect this change.
+ 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. PROFIT/(LOSS) BEFORE TAX
Year ended Year ended
December December
2011 2010
Note GBP000 GBP000
---------------------------------------------------- ---- --------------- ---------------
Profit/(loss) before tax is stated after
(charging)/crediting:
Depreciation of property, plant and equipment
- owned assets 12 (37,859) (29,914)
Depreciation of property, plant and equipment
- under finance leases 12 (2,640) (5,050)
Amortisation of surface mine development, restoration
and closure assets 12 (17,121) (14,033)
Impairment of operating plant and equipment 12 - (223)
Coal Investment Aid 33 - 1,011
Profit/(loss) on disposal of investment properties 2,685 (550)
Profit on disposal of operating property,
plant and equipment 657 243
Repairs and maintenance for deep and surface
mining (61,791) (53,531)
Staff costs 5 (160,392) (176,254)
Pension past service credits 5 16,378 -
Spares and consumables used (29,165) (34,217)
Operating expense for rental investment property (4,228) (1,842)
Operating lease payments (3,094) (192)
------------------------------------------------------------ ---- --------------- ---------------
Depreciation and impairment of operating property, plant and
equipment is included within cost of sales.
4. OTHER OPERATING INCOME AND EXPENSES
Year ended Year ended
December December
2011 2010
GBP000 GBP000
------------------------------------ ------------ ------------
Administrative expenses (17,181) (23,191)
Other operating income 6,864 3,301
Other operating income and expenses (10,317) (19,890)
------------------------------------ ------------ ------------
Due to the nature of the Group's business, distribution expenses
are treated as part of cost of sales. Other operating income
includes Coal Investment Aid of GBPnil (2010: GBP1,011,000), as
disclosed in note 33.
5. EMPLOYEE INFORMATION
The average number of persons (including the Board of Directors)
employed by the Group during the year was:
Group Company
Year ended Year Year ended Year
December ended December ended
2011 December 2011 December
2010 2010
Number Number Number Number
---------------------------- ------- ---------- ----------------- --------------- ---------------- ----------------
Deep mining 2,026 2,247 - -
Surface mining 517 538 - -
Property 26 19 - -
Other 36 73 7 8
2,605 2,877 7 8
---------------------------- ------- ---------- ----------------- --------------- ---------------- ----------------
Total staff costs for the Group were:
Year ended Year ended Year ended Year ended
December December December December
2011 2010 2011 2010
Staff costs (including the Board GBP000 GBP000 GBP000 GBP000
of Directors)
------------------------------------ -------------- ------------ -------------- ------------
Wages and salaries 131,108 142,956 1,810 2,542
Social security costs 13,421 14,252 185 184
Pension and post retirement benefit
costs 14,577 18,472 153 245
Share-based payments 1,286 574 1,286 574
160,392 176,254 3,434 3,545
Past service credit (see note (16,378) - - -
2)
144,014 176,254 3,434 3,545
------------------------------------ -------------- ------------ -------------- ------------
Key management compensation
Year ended Year
December ended
2011 December
2010
GBP000 GBP000
--------------------------------- --------------- ------------
Salaries and short-term employee
benefits 2,062 1,514
Post employment benefits 167 297
Termination benefits - 435
2,229 2,246
--------------------------------- --------------- ------------
The compensation details above are for members of the Executive
Management Committee during the year. Current members of the
Executive Management Committee are shown in note 2.
Directors' remuneration and interests
Detailed information relating to directors' remuneration and
their interests in share options is indicated by * within the
Directors' Remuneration Report and forms part of these financial
statements.
6. FINANCE COSTS AND FINANCE INCOME
Year ended Year
December ended
2011 December
2010
GBP000 GBP000
--------------------------------------------- -------------- ------------
Interest expense
- Bank borrowings (9,227) (11,594)
- Hire purchase agreements and finance
leases (915) (1,237)
- Unwinding of discount on provisions (3,319) (3,336)
- Amortisation of the issue costs of loans (537) (1,446)
- Generator loans and prepayments (9,187) (8,618)
Gains on interest rate swaps not eligible
for hedge accounting 445 177
Amortisation of interest rate swaps recycled
from reserves (372) (1,642)
Finance costs (23,112) (27,696)
Arrangement fees related to refinancing - (4,998)
Write off of previously capitalised issue
costs of bank loans - (2,743)
Fair value of interest rate swaps recycled
from reserves - (2,206)
---------------------------------------------
Exceptional finance costs - (9,947)
Finance income 256 275
--------------------------------------------- -------------- ------------
Net finance costs (22,856) (37,368)
--------------------------------------------- -------------- ------------
7. AUDITORS REMUNERATION
During the year the Group obtained the following services from
its auditors, PricewaterhouseCoopers LLP, at costs as detailed
below:
Year ended Year
December ended
2011 December
2010
GBP000 GBP000
--------------------------------------------------- -------------- -------------
Audit services
Fees payable to the Company auditors for the audit of the
parent Company and the
consolidated accounts 75 75
Fees payable to the Company auditors and its associates for
other services:-
- The audit of the Company's subsidiaries pursuant
to legislation 244 230
- Other services pursuant to legislation 45 50
- Tax advisory and compliance services 81 -
- Other services 17 80
462 435
--------------------------------------------------- -------------- -------------
From time to time, the Group employs PricewaterhouseCoopers LLP
on assignments additional to their statutory audit duties where
their expertise and experience with the Group are important. They
are awarded assignments on a competitive basis. The Audit Committee
reviews non-audit assignments quarterly, and approves all
assignments above a predetermined cost threshold.
8. TAX
Year ended Year
December ended
2011 December
2010
Analysis of tax charge in the year GBP000 GBP000
---------------------------------------- -------------- --------------
Corporation tax - current year - -
- prior year (19) (8)
Deferred tax - current year 2,448 (403)
- prior year 313 890
Tax charge 2,742 479
---------------------------------------- -------------- --------------
The tax for the year is different to the standard rate of
corporation tax in the UK of 26.5% (2010: 28%). The differences are
explained below:
Year ended Year ended
December December
2011 2010
GBP000 GBP000
----------------------------------------------------------- --------------- ----------------
Profit/(loss) before tax 57,983 (124,616)
----------------------------------------------------------- --------------- ----------------
Profit/(loss) before tax multiplied by rate of corporation
tax in the UK of 26.5% (2010: 28%) 15,365 (34,892)
Effects of:
Use of brought forward losses not recognised (15,688) -
Expenses not deducted and income not chargeable for
tax purposes (828) 9,502
Deferred tax not recognised 1,153 24,081
Rate change on opening deferred tax asset 2,446 906
Prior year deferred tax movement 313 890
Prior year consortium relief adjustment (19) (8)
Total tax charge 2,742 479
----------------------------------------------------------- --------------- ----------------
Deferred tax
Deferred tax is calculated in full on temporary differences
under the liability method using a tax rate of 25% (2010: 27%).
This reduction reflects the new main rate of corporation tax which
would have been in force from 1 April 2012 as provided in the
Finance Act 2011. Further reductions to the main rate have been
enacted subsequent to the balance sheet date to reduce the rate to
24% from 1 April 2012 and then a further 1% per annum to 22% by 1
April 2014. However, these changes had not been substantively
enacted at the balance sheet date and, therefore, are not included
in these financial statements.
Deferred tax assets and liabilities are offset when there is a
legally enforced right to offset current tax assets against current
tax liabilities and when the deferred taxes relate to the same
fiscal authority. The Group's deferred tax liability in respect of
fixed assets can all be offset in this way, apart from the
liability of GBP1,171,000 (2010: GBP1,265,000) in respect of
revaluation gains on investment properties expected to be recovered
through future use.
As at As at
December December
2011 2010
GBP000 GBP000
------------------------------------------------ ------------ ------------
Deferred tax asset - to be recovered after more
than 12 months 31,509 34,474
Deferred tax liability - to be paid after
more than 12 months (1,171) (1,265)
Net deferred tax asset 30,338 33,209
------------------------------------------------ ------------ ------------
The movement on the net deferred tax asset is shown below:
Year ended Year ended
December December
2011 2010
GBP000 GBP000
--------------------------------------------- ------------- -------------
At the beginning of the year 33,209 35,378
Amounts charged to the consolidated income
statement (2,761) (487)
Amounts charged to consolidated statement of
comprehensive income (110) (1,682)
At the end of the year 30,338 33,209
--------------------------------------------- ------------- -------------
A deferred tax asset of GBP31,509,000 (2010: GBP34,474,000) has
been recognised to the extent that it is expected to be recovered,
based on forecasts of future taxable profits. Further deferred tax
assets have not been recognised owing to the uncertainty as to
their recoverability. If these deferred tax assets were recognised,
the total asset would be GBP152,459,000 (2010: GBP185,006,000) as
set out below:
As at As at As at As at
December December December December
2011 2011 2010 2010
Total Total Total Total
amount potential amount potential
recognised asset recognised asset
GBP000 GBP000 GBP000 GBP000
------------------------------- -------------- ------------ -------------- -----------
Fixed asset timing differences (1,171) 47,264 (1,265) 42,655
Other timing differences - 11,199 - 9,994
Trading losses 22,139 57,683 23,915 84,240
Retirement benefit liabilities 8,125 36,176 8,775 46,333
Cash flow hedges 1,245 137 1,784 1,784
Net deferred tax asset 30,338 152,459 33,209 185,006
------------------------------- -------------- ------------ -------------- -----------
The fixed asset timing difference recognised relates to the
deferred tax liability arising from the directors' estimate of the
proportion of revaluation gains on investment properties which will
be recovered through use. No tax liability has been recognised in
relation to the balance of the gain which is expected to be
realised through sale, due to the fact that the Group has
unrecognised capital losses brought forward of GBP350,000,000
(2010: GBP379,000,000).
The movement on the deferred tax asset charged to equity during
the year is as follows:
2011 2010
GBP000 GBP000
------------------------------------------------------ -------------- -------------
Movement on deferred tax asset relating to retirement
benefit liabilities in the period - (325)
Movement on deferred tax asset relating to cash flow
hedges in the period (110) (1,357)
------------------------------------------------------
Deferred tax asset movement charged to equity (110) (1,682)
------------------------------------------------------ -------------- -------------
The Company has no recognised or unrecognised deferred tax in
2011 or 2010.
9. LOSS FOR THE FINANCIAL YEAR FOR THE PARENT ENTITY
As permitted by section 408 of the Companies Act 2006, the
Company's income statement and statement of comprehensive income
have not been included separately in these financial statements.
The loss for the financial year was GBP3,829,000 (2010: loss
GBP16,960,000).
10. DIVIDENDS
No dividends have been paid or proposed in relation to 2011 or
2010.
11. EARNINGS/(LOSS) PER SHARE
Earnings/(loss) per share has been calculated by dividing the
profit/(loss) attributable to ordinary shareholders by the weighted
average number of shares in issue and ranking for dividend during
the year.
In calculating the diluted earnings/(loss) 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.
Year ended Year ended
December December
2011 2010
GBP000 GBP000
--------------------------------------------------- ---------------------- ---------------------
Profit/(loss) before tax 57,983 (124,616)
Tax charge (2,742) (479)
--------------------------------------------------- ---------------------- ---------------------
Profit/(loss) for the year 55,241 (125,095)
--------------------------------------------------- ---------------------- ---------------------
Weighted average number of shares used for basic
earnings per share calculation 299,298,160 299,298,160
Dilutive effect of share options - -
Weighted average number of shares used for diluted
earnings per share calculation 299,298,160 299,298,160
--------------------------------------------------- ---------------------- ---------------------
Basic and diluted earnings/(loss) per share
(pence) 18.5 (41.8)
--------------------------------------------------- ---------------------- ---------------------
Basic and diluted earnings/(loss) per share, as adjusted to
exclude tax, for the year is 19.4 pence (2010: loss 41.6
pence).
12. OPERATING PROPERTY, PLANT AND EQUIPMENT
Deep mines Surface
including mine development
Operating surface Plant and restoration
properties works and equipment Sub total assets Total
Group GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------- ----------------- ----------------- ---------------- --------------- -------------------- ------------------
Cost:
At January
2011 23,984 857,365 89,470 970,819 55,416 1,026,235
Additions 13 30,174 1,618 31,805 7,191 38,996
Disposals (167) - (8,797) (8,964) (1,380) (10,344)
Transfers - 1,469 (1,469) - - -
Transfer to
investment
properties (4,103) - - (4,103) - (4,103)
At December
2011 19,727 889,008 80,822 989,557 61,227 1,050,784
-------------- ----------------- ----------------- ---------------- --------------- -------------------- ------------------
Depreciation:
At January
2011 4,444 655,848 73,374 733,666 19,741 753,407
Charge for the
year 163 37,390 2,946 40,499 17,121 57,620
Transfers - 1,009 (1,009) - - -
Disposals - - (8,103) (8,103) (1,380) (9,483)
At December
2011 4,607 694,247 67,208 766,062 35,482 801,544
-------------- ----------------- ----------------- ---------------- --------------- -------------------- ------------------
Net book
amount:
At December
2011 15,120 194,761 13,614 223,495 25,745 249,240
-------------- ----------------- ----------------- ---------------- --------------- -------------------- ------------------
Cost:
At January
2010 15,008 876,027 89,715 980,750 40,757 1,021,507
Additions 165 43,929 562 44,656 27,897 72,553
Disposals (338) (62,591) (807) (63,736) (13,238) (76,974)
Transfer from
investment
properties 9,485 - - 9,485 - 9,485
Transfer to
investment
properties (336) - - (336) - (336)
At December
2010 23,984 857,365 89,470 970,819 55,416 1,026,235
-------------- ----------------- ----------------- ---------------- --------------- -------------------- ------------------
Depreciation:
At January
2010 4,282 686,549 70,924 761,755 18,150 779,905
Charge for the
year 162 31,667 3,135 34,964 14,033 48,997
Impairment - 223 - 223 - 223
Disposals - (62,591) (685) (63,276) (12,442) (75,718)
At December
2010 4,444 655,848 73,374 733,666 19,741 753,407
-------------- ----------------- ----------------- ---------------- --------------- -------------------- ------------------
Net book
amount:
At December
2010 19,540 201,517 16,096 237,153 35,675 272,828
At January
2010 10,726 189,478 18,791 218,995 22,607 241,602
-------------- ----------------- ----------------- ---------------- --------------- -------------------- ------------------
Surface mine development and restoration assets net book amounts
include capitalised pre-coaling costs of GBP9,216,000 (2010:
GBP11,373,000), restoration/rehabilitation costs of GBP14,223,000
(2010: GBP19,554,000) and deferred stripping costs of GBP2,306,000
(2010: GBP4,748,000). These are depreciated over the estimated
tonnage of the recoverable reserves as these are extracted.
Surface mine asset additions in the period of GBP7,191,000
(2010: GBP27,897,000) comprise GBP2,606,000 (2010: GBP5,416,000)
for pre-coaling expenditure, GBP3,685,000 (2010: GBP19,493,000)
recognised as a non-current asset on the creation of a
corresponding provision for restoration and rehabilitation costs
and GBP900,000 (2010: GBP2,988,000) of deferred stripping
costs.
Included in operating property, plant and equipment is
GBP9,131,000 (2010: GBP25,543,000) of capitalised work in progress
which is not depreciated.
Assets under finance leases, disclosed under deep mines
including surface works and plant and equipment, have the following
net book amounts:
As at As at
December December
2011 2010
GBP000 GBP000
----------------------- ------------ ---------
Cost 21,894 41,589
Aggregate depreciation (14,999) (29,702)
Net book amount 6,895 11,887
----------------------- ------------ ---------
In accordance with IAS 36, tangible fixed assets are reviewed
for impairment if there is any indication that their carrying
amount may not be recoverable. An impairment review has been
performed for the tangible fixed assets of the deep and surface
mining business as a result of movements in the coal price and
other assumptions. The estimates or recoverable amount were based
on value-in-use calculations, using a pre-tax discount rate of 10%.
These calculations use cash flow projections based on financial
budgets approved by management covering a five year period.
Following the completion of mining at Welbeck colliery, an
impairment charge of GBPnil (2010: GBP223,000) was required for its
remaining fixed assets.
Sensitivity analysis
No impairment of fixed assets would be recognised by the Group
if any of the following occurred in isolation:
- The revised estimated pre-tax discount rate applied to the
discounted cash flows was increased to over 20%;
- The estimated long-term price of coal of $97/tonne assumed in
calculating the discounted cash flows decreased by 7.5%; and
- The estimated level of annual production assumed in
calculating the discounted cash flows decreased by 5%.
13. INVESTMENT PROPERTIES
As at As at
December December
2011 2010
At valuation - Group GBP000 GBP000
At the beginning of the year 314,237 377,995
Additions 4,774 2,105
Disposals (63,718) (23,740)
Fair value increase/(decrease) 3,325 (34,197)
Transfer from operating property, plant and equipment
at net book amount 4,103 336
Transfer to operating property, plant and
equipment at net book amount - (9,485)
Transfer to non-current assets held for (16,600) -
sale
Revaluation of property transferred to
investment properties 4,519 1,223
At the end of the year 250,640 314,237
------------------------------------------------------ -------------- ------------
The properties were valued at December 2011, in accordance with
the Appraisal and Valuation Standards of the Royal Institution of
Chartered Surveyors, by three firms, BNP Paribas Real Estates,
Smiths Gore and Bell Ingram, all independent firms with relevant
experience of valuations of this nature. The valuation excludes any
deduction of rehabilitation and restoration costs which are stated
within provisions in the balance sheet.
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
- No deduction or adjustment has been made in relation to
clawback provisions, or other taxes which may be payable in certain
events
Had the above investment properties been carried at historic
cost, rather than fair value, their value would be GBP80,630,000
(2010: GBP90,827,000).
Land and buildings with a value of GBP282,335,000 (2010:
GBP298,617,000) are subject to fixed charges to cover borrowings
against those assets and GBP6,390,000 (2010: GBP8,842,000) are
subject to restrictions as they cover insurance requirements. Other
property, plant and equipment is subject to floating charges to
cover liabilities due to bank borrowings.
14. INVESTMENTS
Investment in joint ventures
The Group holds 50% of the issued ordinary shares in UK
Strategic Partnership Limited as a joint venture company with
Strategic Sites Limited for the development of certain investment
properties. The first development was at the Advanced Manufacturing
Park at Waverley, South Yorkshire.
The Group also holds 50% of the issued ordinary shares in Bates
Regeneration Limited as a joint venture company with Banks Property
Limited for the development of an investment property at Blyth,
Northumberland.
2011 2010
GBP000 GBP000
-------------- ------------
At the beginning of the year 3,410 3,263
Share of (loss)/profit - property joint ventures (431) 147
At the end of the year 2,979 3,410
------------------------------------------------- -------------- ------------
The Group's share of the results of its joint ventures, all of
which are unlisted, and its share of the assets (including goodwill
and liabilities) are as follows:
Country of incorporation Assets Liabilities Revenues Profit/(loss) Interest
held
GBP'000 GBP'000 GBP'000 GBP'000 %
------------------------- ------------------------- ------- ----------- -------- ------------- --------
2011
UK Strategic Partnership England and
Limited Wales 3,362 (2,784) 830 (454) 50
Bates Regeneration England and
Limited Wales 3,570 (1,169) - 23 50
Total 6,932 (3,953) 830 (431)
----------------------------------------------------- ------- ----------- -------- ------------- --------
2010
UK Strategic Partnership England and
Limited Wales 4,062 (3,030) 242 119 50
Bates Regeneration England and
Limited Wales 3,495 (1,117) - 28 50
Total 7,557 (4,147) 242 147
----------------------------------------------------- ------- ----------- -------- ------------- --------
Investment in subsidiaries
Company GBP000
----------------------------- -----------
Cost:
At January and December 2011 473,224
----------------------------- -----------
Provision for impairment:
At January and December
2011 (172,914)
----------------------------- -----------
Net book amount:
At December 2011 300,310
----------------------------- -----------
Cost:
At January and December 2010 473,224
----------------------------- -----------
Provision for impairment:
At January and December 2011 (172,914)
----------------------------- -----------
Net book amount:
At December 2010 300,310
----------------------------- -----------
Investments in subsidiaries are stated at cost less provision
for impairment. As permitted by section 616 of the Companies Act
2006, where the relief afforded under section 612 of the Companies
Act 2006 applies, cost is the aggregate of the nominal value of the
relevant number of the Company's shares and the fair value of any
other consideration given to acquire the share capital of the
subsidiary undertakings. The Directors consider that to give full
particulars of all subsidiary undertakings would lead to a
statement of excessive length. A list of principal subsidiary
undertakings is given below. A full list of subsidiary undertakings
will be annexed to the Company's next annual return.
Particulars of the principal Group undertakings at December 2011
are as follows:
Proportion
of
nominal value
of issued
share
Description capital held
by
of shares the Company
Activity held %
------------------------------- -------------------------------- ------------ ------------------------
Harworth Group Limited Holding company Ordinary -
UK Coal Holdings Limited Holding company Ordinary 100
Harworth Insurance Company
Limited Insurance Ordinary 100
Harworth Properties Limited Property company Ordinary -
Harworth Power Limited Power generation Ordinary -
Mining Services Limited Surface mining plant operations Ordinary -
UK Coal Mining Limited Underground and surface Ordinary -
mining and property activities
Centechnology (UK) Limited Labour contracting Ordinary -
services
EOS Inc.Ltd Property company Ordinary -
Harworth Estates (Agricultural Property company Ordinary -
Land) Limited
Harworth Estates (Waverley Property company Ordinary -
Prince) Limited
Potland Burn Limited Property company Ordinary -
UK Coal (Investments) Limited Property company Ordinary -
------------------------------- -------------------------------- ------------- ------------------------
The Group owns 100% of the issued share capital and voting
rights of all of the above companies.
All of the above companies are incorporated in England and
Wales. They are all included in the Group's consolidated
results.
15. OTHER RECEIVABLES - NON CURRENT
Amounts classed as non-current are as follows:
Group Company
As at As at As at As at
December December December December
2011 2010 2011 2010
GBP000 GBP000 GBP000 GBP000
------------------ ------------ ---------- --------------- -------------
Other receivables 3,357 3,136 - -
------------------ ------------ ---------- --------------- -------------
Other receivables include GBP2,422,000 (2010: GBP2,071,000) of
long-term deposits held as security for surface mines.
16. INVENTORIES
Group Company
As at As at As at As at
December December December December
2011 2010 2011 2010
GBP000 GBP000 GBP000 GBP000
----------------------- ----------- --------- --------------- -------------
Coal stocks 15,238 32,906 - -
Spares and consumables 19,516 17,428 - -
34,754 50,334 - -
----------------------- ----------- --------- --------------- -------------
The cost of spares and consumables recognised as an expense and
included in cost of sales amounted to GBP29,165,000 (2010:
GBP34,001,000).
A net realisable value provision credit of GBPnil (2010:
GBP1,379,000) against coal stocks was included in cost of sales in
the year.
17. TRADE AND OTHER RECEIVABLES - CURRENT
Group Company
As at As at As at As at
December December December December
2011 2010 2011 2010
GBP000 GBP000 GBP000 GBP000
---------------------------------------- --------------- ------------- --------------- -------------
Trade receivables 21,599 23,415 - -
Less: provision for impairment of
trade receivables (79) (97) - -
Net trade receivables 21,520 23,318 - -
Other receivables 1,161 174 64 972
Prepayments and accrued income 3,621 2,424 - 77
Amounts owed by subsidiary undertakings - - 216,243 210,260
26,302 25,916 216,307 211,309
---------------------------------------- --------------- ------------- --------------- -------------
The carrying amount of trade and other receivables approximate
to their fair value. All of the Group's receivables are denominated
in sterling.
Due to the nature of the Group's activities, a substantial
amount of the Group's sales are to a limited number of large
industrial customers within the power generation sector. Whilst
this concentration provides an increased credit risk, due to the
financial strength of the power sector, management does not believe
that this is significant.
The maximum exposure to credit risk at the reporting date is the
carrying value of each class of receivables as disclosed in note
23. The Group does not hold any collateral as security.
Movements on the Group provisions for impairment of trade
receivables are as follows:
Group
2011 2010
GBP000 GBP000
------------------------------------------- ---------------- --------------
At the beginning of the year 97 273
Provisions for impairment of receivables - 9
Receivables written off during the year as
uncollectable (12) (21)
Unused amounts reversed (6) (164)
At the end of the year 79 97
------------------------------------------- ---------------- --------------
The creation and releases of the provision for impaired
receivables have either been included in cost of sales or other
operating income and expenses in the consolidated income statement.
Amounts charged to the allowance account are generally written off
when there is no expectation of any additional recoveries.
The other classes of assets within trade and other receivables
do not contain impaired assets.
As of December 2011, there were provisions against trade
receivables of GBP79,000 (2010: GBP97,000) which were impaired. The
Group has assessed that it is unlikely that these receivables will
be recovered. The ageing of these receivables is as follows:
As at As at
December December
2011 2010
GBP000 GBP000
-------------- --------------- ---------------
3 to 6 months - 9
Over 6 months 79 88
-------------- --------------- ---------------
79 97
-------------- --------------- ---------------
As of December 2011, trade receivables of GBP21,186,000 (2010:
GBP20,792,000) were fully performing.
As of December 2011, trade receivables of GBP334,000 (2010:
GBP2,526,000) were past due but not impaired. These relate to a
number of customers for whom there is no recent history of default
and consequently there are no indications at the reporting date
that they will not meet their payment obligation. The ageing
analysis of these trade receivables is as follows:
Group
As at As at
December December
2011 2010
GBP000 GBP000
--------------- -------------- -------------
Up to 3 months 213 2,327
Over 3 months 121 199
--------------- -------------- -------------
334 2,526
--------------- -------------- -------------
18. NON-CURRENT ASSETS CLASSIFIED AS HELD FOR SALE
Group Company
As at As at As at As at
December December December December
2011 2010 2011 2010
GBP000 GBP000 GBP000 GBP000
--------------------- ----------- ------------ -------------- ------------
Investment properties 16,600 - - -
--------------------- ----------- ------------ -------------- ------------
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. The conditions
for these sales are expected to be satisfied during 2012 upon which
the disposal will be recognised in the financial statements. As a
result, these properties have been classified as assets held for
sale and have been presented separately in the balance sheet.
The amount recognised in reserves relating to these properties
was GBP14,190,000 (2010: GBPnil).
19. CASH AND CASH EQUIVALENTS
Group Company
As at As at As at As at
December December December December
2011 2010 2011 2010
GBP000 GBP000 GBP000 GBP000
---------------------------------- ------------ ------------ ---------------- --------------
Cash deposited to cover insurance
requirements 14,735 15,705 - -
Subsidence security fund 8,854 8,769 - -
---------------------------------- ------------ ------------ ---------------- --------------
23,589 24,474 - -
Cash held and other cash balances 1,689 427 419 384
25,278 24,901 419 384
---------------------------------- ------------ ------------ ---------------- --------------
Total cash held subject to restrictions to cover insurance and
surface damage liabilities at the year end amounts to GBP23,589,000
(2010: GBP24,474,000). In addition to this, security to cover
surface damage liabilities in the form of an insurance bond for
GBP10,000,000 (2010: GBP10,000,000) is in place.
20. BORROWINGS
Group Company
As at As at As at As at
December December December December
2011 2010 2011 2010
Current GBP000 GBP000 GBP000 GBP000
------------------------------------------- ------------- ------------ --------------- -------------
Bank loans, overdrafts and finance leases due within
one year or on demand:
Secured - bank loans and overdrafts 31,007 52,427 - -
Finance lease obligations 6,534 3,824 - -
37,541 56,251 - -
------------------------------------------- ------------- ------------ --------------- -------------
Generator loans and prepayments due within
one year 41,723 26,428 - -
------------------------------------------- ------------- ------------ --------------- -------------
Total borrowings - due within one year
or on demand 79,264 82,679 - -
------------------------------------------- ------------- ------------ --------------- -------------
Group Company
As at As at As at As at
December December December December
2011 2010 2011 2010
Non-current GBP000 GBP000 GBP000 GBP000
------------------------------------------ ------------- ----------- ------------------- -----------------
Bank loans, overdrafts and finance leases due after
more than one year:
Secured - bank loans and overdrafts 15,712 75,752 - -
Finance lease obligations 3,137 9,609 - -
18,849 85,361 - -
Generator loans and prepayments due after
more than one year 42,386 74,760 - -
------------------------------------------ ------------- ----------- ------------------- -----------------
Total borrowings - due after more than
one year 61,235 160,121 - -
------------------------------------------ ------------- ----------- ------------------- -----------------
The carrying value of the Group's external borrowings, which
consist of floating rate and fixed rate short-term borrowings,
approximates to fair value. All of the Group's borrowings are
denominated in sterling.
Bank loans and overdrafts due within one year or on demand are
stated after deduction of unamortised borrowing costs of GBP989,000
(2010: GBP380,000). Non-current bank loans and overdrafts are
stated after deduction of unamortised borrowing costs of GBPnil
(2010: GBP402,000).
During the period, the Group made repayments of GBP84,282,000
against bank loans and overdrafts. The amount drawn under the
Revolving Credit Facility ("RCF") is disclosed as current as, at
the balance sheet date, it was due for repayment in July 2012.
Interest and finance fees of GBP3,028,000 were capitalised to
the Harworth Estates (Waverley Prince) Limited loan during
2011.
During the year GBP3,762,000 was paid under finance leases.
These leases are due to be repaid in the period 2011 through to
2014.
The Group is party to certain contracts for coal supply which
resulted in increased cash flows to the business in 2009, 2010 and
2011. 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 year
GBP17,078,000 has been repaid against these balances.
No new bank loans were taken out during 2011 (2010: GBPnil).
The bank loans and overdrafts are secured by way of fixed and
floating charges over certain assets of the Group.
The maturity profile of the Group's drawn and undrawn external
bank facilities is as follows:
2011 2010
GBP000 GBP000
------------------------------- --------------- ---------
Expiring within 1 year 81,253 104,385
Expiring between 1 and 2 years 15,712 60,443
Expiring between 2 and 5 years - 20,712
------------------------------- --------------- ---------
96,965 185,540
------------------------------- --------------- ---------
These facilities are all nominally at floating interest rates,
but interest rate swaps/caps with principal value of GBP67,150,000
(2010: GBP21,950,000) are held to convert an element of these
borrowings to fixed/capped interest rates.
The maturity profile of the Group's bank and finance lease
borrowings is as follows:
2011 2010
Generator Generator
loans and Finance loans and Finance
Debt prepayments leases Total Debt prepayments leases Total
Group GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------
Within 1
year 31,007 41,723 6,534 79,264 52,427 26,428 3,824 82,679
Between 1
and 2 years 15,712 17,461 2,253 35,426 57,754 41,286 6,472 105,512
Between 2
and 5 years - 24,925 884 25,809 17,998 33,474 3,137 54,609
46,719 84,109 9,671 140,499 128,179 101,188 13,433 242,800
----------
The minimum lease payments under finance leases fall due as
follows:
As at As at
December December
2011 2010
GBP000 GBP000
------------------------------------------- -------------- ----------
Within 1 year 7,176 4,757
Between 1 and 5 years 3,337 10,431
10,513 15,188
Future finance charges on finance leases (842) (1,755)
Present value of finance lease liabilities 9,671 13,433
------------------------------------------- -------------- ----------
Lease liabilities are effectively secured as the rights to the
leased asset revert to the lessor in the event of default.
Since the year end, we have renewed and extended our banking
facilities, with the following principal changes:
-- Extensions to the maturity of the RCF, the Additional
Revolving Facilities ("ARF"), the Harworth Estates (Waverly Prince)
Limited 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, we have 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.
21. TRADE AND OTHER PAYABLES
Group Company
As at As at As at As at
December December December December
2011 2010 2011 2010
GBP000 GBP000 GBP000 GBP000
--------------- ------------- --------------- -------------
Current
Trade payables 51,688 53,128 - -
Amounts owed to subsidiary
undertakings - - 158,409 147,427
Taxation and social security 14,262 12,730 - -
Accruals and deferred income 47,809 44,699 10,384 13,662
113,759 110,557 168,793 161,089
----------------------------- --------------- ------------- --------------- -------------
Non-current
Trade payables 736 9,925 - -
----------------------------- --------------- ------------- --------------- -------------
22. PROVISIONS
At At
January Provided Released Utilised Unwinding December
2011 in year in year in year of discount 2011
Group GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------- ------------- ------------- ---------------
Employer and public
liabilities 13,040 2,212 (1,804) (4,996) - 8,452
Surface damage 15,338 4,295 (1,471) (2,253) 583 16,492
------------- ------------- ------------- ---------------
28,378 6,507 (3,275) (7,249) 583 24,944
Claims 15 - - - - 15
Redundancy 3,162 4,682 - (7,399) - 445
Restoration and closure
costs
of surface mines 51,632 7,813 (3,266) (16,935) 1,915 41,159
Restoration and closure costs of
deep mines:
- shaft treatment and
pit top 9,866 - - (584) 364 9,646
- spoil heaps 2,929 - - (556) 111 2,484
- pumping costs 2,771 - (2,869) - 98 -
Ground/groundwater
contamination 6,333 3,496 - - 248 10,077
105,086 22,498 (9,410) (32,723) 3,319 88,770
------------- ------------- ------------- ---------------
In accordance with IAS 37 'Provisions, contingent liabilities
and contingent assets', discounting has not been applied against
the insurance provisions in respect of employer and public
liabilities.
The total of provisions created, net of provisions released, are
GBP13,088,000 (2010: GBP24,693,000).
Provisions have been analysed between current and non-current as
follows:
As at As at
December December
2011 2010
GBP000 GBP000
------------ ----------- ---------
Current 13,480 34,915
Non-current 75,290 70,171
88,770 105,086
------------ ----------- ---------
Provisions are expected to be settled within the timescales set
out in the following table. It should be noted that these are based
on the information available at the time the consolidated financial
statements were prepared and are subject to a number of estimates
and uncertainties, as noted below:
Within More than
1 year 1-2 years 2-5 years 5 years Total
GBP000 GBP000 GBP000 GBP000 GBP000
-------------- --------------
Employer and public liabilities 3,450 1,950 2,768 284 8,452
Surface damage 3,809 3,372 7,069 2,242 16,492
-------------- --------------
7,259 5,322 9,837 2,526 24,944
Claims 15 - - - 15
Redundancy 445 - - - 445
Restoration and closure costs of
surface mines 5,516 9,506 21,999 4,138 41,159
Restoration and closure costs of
deep mines:
- shaft treatment and pit
top 60 51 2,514 7,021 9,646
- spoil heaps 185 25 802 1,472 2,484
Ground/groundwater contamination - 2,095 4,722 3,260 10,077
13,480 16,999 39,874 18,417 88,770
--------------------------------- -------------- --------------
The nature of the Group's obligations and an indication of the
uncertainties surrounding each of the above provisions are provided
below:
Employer and public liabilities
Provisions are made for current and estimated obligations in
respect of claims made by employees, contractors and the general
public relating to accident or disease as a result of the business
activities of the Group. These relate primarily to the claims held
by the Group's captive insurance company, Harworth Insurance
Company Limited. Ownership over land and buildings and dedicated
cash deposits, as set out in notes 13 and 19, has been granted to
cover these provisions.
Surface damage
Provision is made for the Group's liability to compensate for
subsidence damage arising from past mining operations. Claims can
be lodged by the public up to six years after the date of the
relevant damage. The estimate is based on historical claims
experience, following a detailed assessment of the nature of the
damage foreseen. Security over dedicated cash deposits and an
insurance bond, as set out in note 19, has been granted to cover
these provisions.
Claims
Where surface mine sites owned by the Group are mined by
external contractors and mining conditions vary from those
specified in the contract, the external contractors may be entitled
to claim further costs incurred. Claims are settled with individual
contractors, generally at the completion of a surface mining site.
All claims provisions are based on known mining conditions
encountered, historical experience and contracted rates.
Redundancy
Provision is made for current estimated future costs of
redundancy and ex-gratia payments to be made where this has been
communicated to those employees concerned.
Restoration and closure costs of surface mines
Provisions are made for the total costs of reinstatement of soil
excavation and for surface restoration, such as topsoil replacement
and landscaping. Costs become payable after coal mining has been
completed. Further liabilities for aftercare can extend after
restoration, for a period of up to six years.
Restoration and closure costs of deep mines:
Shaft treatment and pit top - provisions are made to meet the
Group's liability to fill and cap all mine shafts and return pit
top areas to a condition consistent with the required planning
permission. No liabilities will arise until decommissioning of each
individual colliery. The current pit top provision reflects
existing planning permissions that require pit areas to be restored
to former use, usually agricultural. The Group will, where
possible, seek planning permission for development use, which, if
successful, may reduce the expected cost.
Spoil heaps - provisions are made for the costs payable to bring
spoil heaps to a condition consistent with the required planning
permission and to complete approved restoration schemes. An element
of spoil heap restoration is ongoing, although the majority of
costs will be incurred after the decommissioning of a colliery.
Pumping costs - there is a legal requirement to continue pumping
activities at certain mine sites following closure and for a period
into the future. The provision is based on current experience and
the net present value of future cost projections. Pumping costs on
continuing operations are expensed as incurred.
Ground/groundwater contamination - provisions are made for the
Group's legal or constructive obligation to address ground and
groundwater pollutants at its operating sites. The provision is
based on estimates of volumes of contaminated soil and the
historical contract costs of ground contamination treatment. These
costs will usually be incurred following the decommissioning of a
site.
23. FINANCIAL INSTRUMENTS AND DERIVATIVES
The Group's principal financial instruments include derivative
financial instruments, trade and other receivables, cash and cash
equivalents, interest bearing borrowings and trade and other
payables.
Derivative financial instruments
Assets Liabilities
GBP000 GBP000
--------------- --------------
At the end of the year
Fair value - 2011 - 5,016
Fair value - 2010 - 6,607
--------------- --------------
The Group uses interest rate swaps in order to fix the interest
payable on a large proportion of its variable rate borrowings. The
fair value of derivative financial instruments is valued, where
possible, using quoted market prices. The fair value of these
instruments equals the book value at December 2011 and December
2010.
For those swaps which are effective cash flow hedges under IAS
39 the effective portion of their fair value movements has been
deferred in reserves. Exposures have been presented as net
positions by a counterparty whenever there is the intention and
ability to legally set off assets and liabilities.
Under IFRS 7 'Financial Instruments: Disclosures' all derivative
financial instruments are classed as level 2 as they are not traded
in an active market and the fair value is therefore determined
through discounting future cash flow.
Hedging relationships
As at December 2011, cash flow hedges were in place up to July
2013. None of these hedging relationships are effective for hedge
accounting purposes.
The movement in the fair value of contracts which are not
effective for hedge accounting purposes, or which were not
designated as cash flow hedges, being a gain of GBP445,000 (2010:
GBP177,000) in the year is presented within finance costs in the
consolidated income statement (see note 6).
The application of hedge accounting in the year has resulted in
an income statement credit of GBP445,000 (2010: GBP177,000) for
ineffective hedges, no movement in reserves (2010: GBPnil) for
effective hedge relationships and a charge to income of GBP372,000
(2010: GBP3,848,000), representing the amortisation of reserves for
discontinued hedging relationships.
In 2010, the Group entered into a notional principal
GBP40,000,000 fixed interest cap agreement at a rate of 4.75%
effective between 29 July 2011 and 31 July 2013. The terms of the
agreement provide that the initial notional principal is amortised
by GBP20,000,000 per year. At the year end, the notional principal
was GBP35,000,000. In 2011, the Group entered into a fixed
interest/interest rate cap agreement with a total initial notional
principle of GBP46,000,000, amortising down to GBP16,500,000 in May
2013. The average fixed interest rate swap element over the
lifetime of the agreement is 38%.
The total notional principal of outstanding fixed interest rate
swaps that the Group is committed to is GBP32,650,000 (2010:
GBP21,950,000). The weighted average fixed interest rate and period
to maturity of the Group's interest rate swaps was 8.15% (2010:
8.69%) and 0.8 years (2010: 1.4 years), respectively.
The Company has no interest rate swaps.
Other financial assets and liabilities
December 2011 December 2010
Book value Fair value Book value Fair value
Group GBP000 GBP000 GBP000 GBP000
--------------------------------- ------------- ------------ ------------- ------------
Assets
Cash and cash equivalents 25,278 25,278 24,901 24,901
Trade and other receivables 29,659 29,659 29,052 29,052
Liabilities
Bank borrowings 46,719 46,719 128,179 128,179
Finance lease liabilities 9,671 9,671 13,433 13,433
Generator loans and prepayments 84,109 93,746 101,188 113,607
Trade and other payables 114,495 114,495 120,482 120,482
Derivative financial instruments 5,016 5,016 6,607 6,607
------------- ------------ ------------- ------------
In accordance with IAS 39, the Group classifies the assets and
liabilities in the analysis above as 'loans and receivables' and
'other financial liabilities', respectively. At the 2011 and 2010
year ends, the Group did not have any 'held to maturity' or
'available for sale' financial assets or 'held for trading'
financial assets and liabilities as defined by IAS 39.
At the year end, the Company held cash and cash equivalents of
GBP419,000 (2010: GBP384,000).
The carrying value of the Group's external borrowings, which
consist of floating rate and fixed rate short-term borrowings,
approximates to fair value. Details of the maturity profile of
these financial liabilities are included in note 20.
The carrying value of other long-term receivables approximates
to fair value.
For other financial assets and liabilities, which are all
short-term in nature, the carrying value approximates to fair
value.
24. FINANCIAL RISK MANAGEMENT
The Group's activities expose it to a variety of financial
risks: market (interest rate) risk, credit risk and liquidity risk.
The Group's overall risk management programme focuses on the
unpredictability of financial markets and seeks to minimise
potential adverse effects on the Group's financial performance. The
Group uses derivative financial instruments to hedge certain risk
exposures.
Risk management is carried out by a central treasury function
under policies approved by the Board of Directors. Group treasury
identifies, evaluates and hedges financial risks in close
co-operation with the Group's mining and property businesses. The
Board provides written principles for overall risk management, as
well as written policies covering specific areas, such as interest
rate risk, credit risk, use of derivative financial instruments and
non-derivative financial instruments and investment of excess
liquidity.
Interest rate risk
The Group has an exposure to interest rate risk arising on
changes in interest rates in the United Kingdom and therefore seeks
to limit this net exposure. This is achieved by the use of
derivative instruments such as interest rate swaps and fixed
interest caps to hedge a proportion of the Group's borrowings over
the period of the related loan. The interest rate swaps, allow the
Group to exchange, at specified intervals (usually quarterly), the
difference between contracted fixed rates and floating rate
interest payable on borrowings calculated by reference to the
agreed notional amounts. The Group does not enter into instruments
which are leveraged or held for speculative purposes.
If interest rates on sterling denominated borrowings during the
year had been 2% higher with all other variables held constant,
post-tax profit for the year would have been GBP1,200,000 (2010:
GBP2,067,000) lower, as a result of higher interest expense on
floating rate borrowings which have not been economically hedged
with an interest rate swap contract. An increase or decrease of 2%
represents the Group's assessment of a reasonably possible change
in interest rates.
The sensitivity of post-tax profit is calculated based on
floating rate borrowings at the balance sheet date, after deducting
amounts hedged into fixed rates by interest rate swaps.
Currency risk
During 2011 and 2010, the Group's borrowings at variable and
fixed rates were denominated in sterling. No foreign exchange
contracts were entered into in 2011 (none in 2010) as the Group has
no direct material foreign exchange exposure.
Credit risk
The Group is subject to credit risk arising from outstanding
receivables and committed cash and cash equivalents and deposits
with banks and financial institutions. The Group's policy is to
manage credit exposure to trading counterparties within defined
trading limits. All of the Group's significant counterparties are
assigned internal credit limits.
The Group sells coal to large industrial and commercial
customers. All of its electricity supply industry customers have an
investment grade quality rating (from Standard and Poor's) of
between A and BBB+. No credit limits were exceeded during the
reporting period and management does not expect any losses from
non-performance by these counterparties.
If any of the Group's customers are independently rated, these
ratings are used. Otherwise, if there is no independent rating, the
Group assesses the credit quality of the customer taking into
account its financial position, past experience and other
factors.
The Group is exposed to counterparty credit risk on cash and
cash equivalent balances. The Group holds cash on deposit with a
number of financial institutions. The Group manages its credit risk
exposure by limiting individual deposits to clearly defined limits.
For banks and financial institutions, only independently rated
parties with an investment grade quality rating (from Standard and
Poor's) of at least A- rated are accepted.
Liquidity risk
The Group is subject to the risk that it will not have
sufficient borrowing facilities to fund its existing business and
its future plan for growth. The Group manages its liquidity
requirements with the use of both short and long-term cash flow
forecasts. These forecasts are supplemented by a financial headroom
position which is used to demonstrate funding adequacy for at least
a 12 month period.
The Group's main source of liquidity is its operating mining
business. Cash generation by this business is dependent upon the
reliability of the Group's deep and surface mines in producing
coal, the realised selling price for coal, operational risk and
capital investment expenditure and maintenance requirements.
Prudent liquidity risk management implies maintaining sufficient
cash and marketable securities and the availability of funding
through an adequate amount of committed credit facilities. Due to
the dynamic nature of the underlying businesses, Group treasury
aims to maintain flexibility in funding by keeping committed credit
lines available.
The net debt position, excluding restricted cash, of
GBP242,373,000 at the beginning of the year had reduced during the
year to GBP138,810,000 at the year end. The Group generated cash
from operating activities after investing activities for the year
of GBP106,384,000 (2010: used GBP45,774,000).
As at December 2011, 77% of the total bank facilities of
GBP97,000,000 was provided by the Lloyds Banking Group plc.
The Group's committed borrowing facilities are subject to
financial covenants based on loan to value ("LTV") calculations
which are tested on a quarterly basis. These covenants restrict the
Group's ability to access committed facilities within a range of
25% - 75% of the value of certain properties on which the
borrowings are secured. These covenants affect 99% of the bank
facilities as at December 2011. The Group is currently in
compliance with these covenants at the year end date. However, a
decrease in the valuations of the Group's properties could impact
on covenants resulting in increased charges and potential reduction
in the availability of facilities.
The table below analyses the Group's financial liabilities which
will be settled on a net basis into relevant maturity groupings
based on the remaining period at the balance sheet date to the
contractual maturity date. The amounts disclosed in the table are
the gross contractual undiscounted cash flows.
Between Between
Less than 1 and 2 and
1 year 2 years 5 years
GBP000 GBP000 GBP000
--------------------------------- ------------ ------------ -------------
At December 2011
Bank borrowings 36,377 16,695 -
Finance lease liabilities 7,176 2,426 911
Generator loans and prepayments 49,348 21,060 27,355
Trade and other payables 113,759 736 -
Derivative financial instruments 3,291 2,289 -
------------ ------------ -------------
At December 2010
Bank borrowings 58,750 63,844 18,831
Finance lease liabilities 4,757 7,095 3,336
Generator loans and prepayments 31,531 49,483 42,693
Trade and other payables 110,557 9,925 -
Derivative financial
instruments 1,931 2,482 1,718
--------------------------------- ------------ ------------ -------------
Capital risk management
The Group is subject to the risk that its capital structure will
not be sufficient to support the growth of the business. The
Group's objectives when managing capital are to safeguard the
Group's ability to continue as a going concern in order to provide
returns for shareholders and benefits for other stakeholders and to
maintain an optimal capital structure to reduce the cost of
capital.
In order to maintain or adjust the capital structure, the Group
may adjust the amount of dividends paid to shareholders, return
capital to shareholders, issue new shares or sell assets to reduce
debt.
Consistent with others in the industry, the Group monitors
capital on the basis of the gearing ratio. This ratio is calculated
as net debt divided by total equity. Net debt is calculated as
total borrowings (including borrowings as shown in the consolidated
balance sheet) less unrestricted cash and cash equivalents
The gearing ratios for the Group at December 2011 and December
2010 were as follows:
2011 2010
GBP000 GBP000
--------------------------------------------- ------------ ------------
Total borrowings 140,499 242,800
Less: Unrestricted cash and cash equivalents
(note 19) (1,689) (427)
--------------------------------------------- ------------ ------------
Net debt 138,810 242,373
Total equity 146,003 81,393
--------------------------------------------- ------------ ------------
Gearing ratio 95.1% 297.8%
--------------------------------------------- ------------ ------------
25. RETIREMENT BENEFIT OBLIGATIONS
Defined contribution pension schemes
The Group operates defined contribution pension schemes in
respect of all employees who joined after the privatisation date in
1994. Contributions to defined contribution schemes in the year
amounted to GBP1,425,000 (2010: GBP1,530,000).
Defined benefit obligations
The balance sheet amounts in respect of retirement benefit
obligations are:
Group Company
As at As at As at As at
December December December December
2011 2010 2011 2010
GBP000 GBP000 GBP000 GBP000
-------------- ------------ --------------- -------------
Industry wide schemes 100,417 134,269 - -
Blenkinsopp 592 852 592 852
Concessionary fuel 43,696 36,482 - -
144,705 171,603 592 852
-------------- ------------ --------------- -------------
Contributions to defined benefit schemes during the year
amounted to GBP23,836,000 (2010: GBP22,118,000). At December 2011,
contributions of GBP2,066,000 remained unpaid (2010: GBPnil).
Industry wide schemes
The Group operates pension schemes providing benefits based on
final pensionable pay. The majority of the employees within defined
benefit schemes are members of industry wide schemes, being either
the Industry Wide Coal Staff Superannuation Scheme ("IWCSSS") or
the Industry Wide Mineworkers' Pension Scheme ("IWMPS"), both of
which commenced on privatisation following the Coal Industry Act
1994. The pension schemes are valued annually by qualified
independent actuaries for the purposes of IAS 19 and the
preparation of financial statements. The assumptions which usually
have the most significant effect on the results of the valuation
are the discount rate, which is based on bond yields, and the rates
of increases in salaries and pensions. The main assumptions
underlying the valuations of the Group sections of each scheme were
as follows:
As at December As at December
2011 2010
Discount rate 4.9% p.a. 5.5% p.a.
Rate of return on investments 5.2% p.a. 6.5% p.a.
Rate of salary increases - IWMPS 1.9% p.a. 3.7% p.a.
Rate of salary increases - IWCSSS 2.9% p.a. 4.4% p.a.
Rate of price inflation (RPI) 2.9% p.a. 3.4% p.a.
Rate of return on equities 6.0% p.a. 7.3% p.a.
Rate of return on debt 3.7% p.a. 4.8% p.a.
Rate of cash commutation 20.0%-25.0% 20.0%-25.0%
--------------
Year ended Year ended
December December
2011 2010
Longevity at age 60 for current pensioners
(years)
IWMPS and IWCSSS
- Men 22.5 - 25.1 22.5 -
25.0
IWCSSS
- Women 27.4 27.3
Longevity at age 60 for future pensioners
(years)
IWMPS and IWCSSS
- Men 23.4 - 25.8 23.4 -
25.7
IWCSSS
- Women 28.2 28.1
IWCSSS pensions in payment are assumed to increase in line with
retail price inflation in respect of service to December 2011. For
the IWMPS, the assumed pension increases depend on the period of
service accrual (before April 1997: no increases, after 1997: in
line with statutory minimum increases based on consumer price
inflation). In the case of both schemes, following changes in the
schemes' rules in 2011, future salary increases exceeding the rate
of inflation are not taken into account (RPI in respect of the
IWCSSS, CPI in respect of the IWMPS) in respect of benefits accrued
from service to December 2011.
The overall expected rate of return on assets is based on an
historic view of the yields from equities and the rates prevailing
on applicable bonds at the balance sheet date.
The amounts recognised in the consolidated balance sheet are as
follows:
2011 2010 2009 2008 2007
GBP000 GBP000 GBP000 GBP000 GBP000
------------- ---------- ---------- ------------
Fair value of plan assets 448,937 431,746 379,949 316,464 372,188
Present value of funding obligations (549,354) (566,015) (564,822) (390,543) (421,081)
Net liability recognised in
the balance sheet (100,417) (134,269) (184,873) (74,079) (48,893)
------------- ---------- ---------- ------------ -----------
None of the pension schemes own any shares in the Company.
The amounts recognised in the consolidated income statement
are:
Year ended Year
December ended
2011 December
2010
GBP000 GBP000
------------------------------------ -------------- -------------
Current service cost (12,660) (15,250)
Interest cost (31,034) (32,265)
Expected return on plan assets 28,174 26,421
Effect of curtailment or settlement 1,430 1,050
Past service cost 14,814 -
724 (20,044)
------------------------------------ -------------- -------------
Current service cost is charged to cost of sales, with interest
cost less expected return on plan assets included in administration
expenses and the effect of curtailment is included in non-trading
exceptional items. A further GBP10,633,000 gain (2010:
GBP49,651,000 gain) has been reflected in the statement of
comprehensive income in the year. This represents the net effect of
experience and actuarial gains and losses on the schemes in the
year.
In the case of both schemes, for service after December 2011,
pensions in payment increases will be in line with the statutory
minimum based on consumer price inflation.
Year ended Year ended
December December
2011 2010
Change in assets GBP000 GBP000
------------- -----------
Fair value of plan assets at the start of
the year 431,746 379,949
Expected return on plan assets 28,174 26,421
Actuarial (losses)/gains on assets (17,272) 17,155
Employer contributions 22,495 20,997
Plan participants' contributions 3,044 3,601
Benefits paid (19,250) (16,377)
Fair value of plan assets at the end of the
year 448,937 431,746
------------- -----------
The major categories of the schemes' assets are as follows:
As at As at
December December
2011 2010
GBP000 GBP000
---------- ---------
Equity securities 289,253 289,900
Debt securities 159,684 141,846
448,937 431,746
---------- ---------
The actual return on plan assets was a gain of GBP10,902,000
(2010: gain of GBP43,576,000).
Year ended Year ended
December December
2011 2010
Change in defined benefit obligations GBP000 GBP000
-------------
Present value of defined benefit obligation at
the start of the year (566,015) (564,822)
Current service cost (12,660) (15,250)
Interest cost (31,034) (32,265)
Plan participants' contributions (3,044) (3,601)
Curtailment gain 1,430 1,050
Actuarial gain 27,905 32,496
Benefits paid 19,250 16,377
Past service cost 14,814 -
Present value of defined benefit obligation at
the end of the year (549,354) (566,015)
------------- ---------------
Year ended Year ended
December December
2011 2010
Analysis of the movement of the balance sheet GBP000 GBP000
liability
-------------- -----------
At the start of the year (134,269) (184,873)
Total amounts recognised in the income statement 724 (20,044)
Contributions 22,495 20,997
Net actuarial gain recognised in the year 10,633 49,651
At the end of the year (100,417) (134,269)
-------------- -----------
Year ended Year ended
December December
2011 2010
Cumulative actuarial gains and losses recognised GBP000 GBP000
in equity
------------ -----------
At the start of the year (78,588) (128,239)
Net actuarial gain in the year 10,633 49,651
At the end of the year (67,955) (78,588)
-----------
Year ended Year ended
December December
2011 2010
Experience gains and losses GBP000 GBP000
------------------------------------------------- ------------- ------------
Actual return less expected return on schemes'
assets (17,272) 17,155
Experience gains arising on schemes' liabilities 5,472 7,386
Changes in assumptions underlying present
value of liabilities 22,433 25,110
Net actuarial gain 10,633 49,651
------------- ------------
History of experience gains/(losses)
2011 2010 2009 2008 2007
GBP000 GBP000 GBP000 GBP000 GBP000
------------
Actual return less expected return
on schemes' assets (17,272) 17,155 31,840 (92,915) (237)
Percentage of year end scheme
assets (4)% 4% 8% (29)% 0%
Experience gains/(losses) arising
on schemes' liabilities 5,472 7,386 (7,412) (2,914) (1,495)
Percentage of the present value of
schemes' liabilities 1% 1% 1% 1% 0%
------------
Contributions are determined by a qualified actuary on the basis
of triennial valuations, using the projected credit unit method.
The most recent valuations for the purpose of determining
contributions were at 31 December 2009, which were agreed in
September 2011.
The contributions expected to be paid to the schemes in the year
ending December 2012 will be around GBP26,000,000 including deficit
contributions.
Blenkinsopp
Blenkinsopp is a section of the IWMPS covering the pension
arrangements of the various companies comprising parts of the
former British Coal. Blenkinsopp Collieries Limited was sold by the
Group in 1998. However, it has since gone into liquidation and the
retirement liabilities have reverted to the Group and Company. The
liability as at December 2011 is GBP592,000 (2010: GBP852,000),
employer's contributions for the year were GBP192,000 (2010:
GBP158,000), the amount recognised in the income statement is
GBP64,000 (2010: GBP90,000) (current service costs GBP16,000 (2010:
current service cost GBP28,000) and interest cost less expected
return on plan assets GBP48,000 (2010: GBP62,000)) and the
actuarial gain recognised in the statement of comprehensive income
is GBP132,000 (2010: gain GBP161,000). Cumulative actuarial gains
recognised in equity for this Blenkinsopp section were GBP617,000
(2010: GBP485,000).
These are the only defined benefit obligations held by the
Company.
Concessionary fuel
The Group operates a concessionary fuel arrangement in the UK.
Provision for concessionary fuel is made to cover the future
retirement costs for those employees who currently benefit as part
of their regular terms of employment, or former employees who are
benefiting in retirement. This relates only to employees who
transferred under privatisation. A 1% annual allowance is made to
reduce the provision for employees who are expected to be unable to
take the benefits.
An actuarial valuation for the purpose of IAS 19 was carried out
by an independent actuary at December 2011. The major assumptions
used by the actuary were:
Year ended Year
December ended
2011 December
2010
Discount rate 4.9%p.a. 5.5%p.a.
Inflation assumption 2.9%p.a. 3.4%p.a.
---------- ---------
The amounts recognised in the balance sheet are as follows:
2011 2010 2009 2008 2007
GBP000 GBP000 GBP000 GBP000 GBP000
----------- ---------
Net liability recognised in the
balance sheet (43,696) (36,482) (34,879) (29,277) (23,443)
----------- ---------
The amounts recognised in the consolidated income statement
are:
Year ended Year
December ended
2011 December
2010
GBP000 GBP000
-------------- -------------
Current service cost (476) (515)
Interest cost (1,988) (1,975)
Past service cost 1,564 -
(900) (2,490)
-------------- -------------
Current service cost is charged to cost of sales and interest
cost is included in administration expenses. A further loss of
GBP7,463,000 (2010: GBP76,000 loss) has been reflected in the
statement of comprehensive income in the year. This represents the
net effect of experience and actuarial gains and losses on the
schemes in the year.
Year ended Year
December ended
2011 December
2010
Analysis of the movement of the balance GBP000 GBP000
sheet liability
-------------- -------------
Concessionary fuel reserve at the start
of the year (36,482) (34,879)
Current service cost (476) (515)
Benefits paid to former employees during
the year 1,149 963
Interest cost (1,988) (1,975)
Actuarial loss (7,463) (76)
Past service cost 1,564 -
Concessionary fuel reserve at the end
of the year (43,696) (36,482)
-------------- -------------
The valuation of the balance sheet liability has been based on
market prices for the related coal products at the end of the
year.
Year ended Year
December ended
2011 December
2010
Cumulative actuarial gains and losses GBP000 GBP000
recognised in equity
------------ -------------
At the start of the year (10,360) (10,284)
Net actuarial loss in the year (7,463) (76)
At the end of the year (17,823) (10,360)
------------ -------------
Year ended Year
December ended
2011 December
2010
Experience gains and losses GBP000 GBP000
-------------- -------------
Experience (loss)/gain on concessionary
fuel reserve (6,795) 942
Changes in assumptions underlying present
value of liabilities (668) (1,018)
Total amount in statement of comprehensive
income (7,463) (76)
-------------- -------------
2011 2010 2009 2008 2007
History of experience gains GBP000 GBP000 GBP000 GBP000 GBP000
and losses
------------ ---------- ------------
Experience (loss)/gain on concessionary
fuel reserve (6,795) 942 3,559 (8,510) 444
Percentage of concessionary
fuel reserve (16)% 3% 10% (29)% 2%
------------ ---------- ------------
26. CALLED UP SHARE CAPITAL
2011 2010
Number of Number of
Group and Company shares GBP000 shares GBP000
---------------------- --------------- ---------------
Authorised share capital
At the start and end
of the year
Ordinary shares of 1 Unlimited Unlimited Unlimited Unlimited
pence each
Issued and fully paid
Ordinary shares of 1
pence each
At the start of the
year 299,298,160 2,993 299,298,160 2,993
Issued during the year - - - -
At the end of the year 299,298,160 2,993 299,298,160 2,993
---------------------- --------------- ---------------
No shares vested during 2011 or 2010 under the Long Term
Incentive Plan ("LTIP").
Long Term Incentive Plan
A Long Term Incentive Plan was introduced in 2000 for Executive
Directors and Senior Executives. Details of the plan are set out in
the Directors' Remuneration Report. During the year, nil (2010:
nil) shares were reserved against the award of shares under the
LTIP. The shares are awarded at an exercise price of GBPnil. Shares
outstanding at December 2011 are as follows:
2011 2010
Number Number
--------- ---------
Exercisable from 2012 - 853,969
Exercisable from 2013 7,751,339 3,551,837
Exercisable from 2014 4,105,744 0
--------- ---------
The awards granted in the year were valued using a Monte Carlo
simulation utilising Black-Scholes methodology as follows:
2011 2011 2011 2010 2010 2009 2008
--------------- ----------
Grant date 3 November 31 August 20 April 15 November 26 August 5 May 22 April
Share price at grant GBP0.33 GBP0.47 GBP0.35 - GBP0.39 GBP1.38 GBP4.53
date
Exercise price GBPnil GBPnil GBPnil GBPnil GBPnil GBPnil GBPnil
Number of employees 1 2 18 1 19 18 18
Shares under option 50,000 202,659 4,225,142 4,320,000 3,551,837 886,740 366,160
Vesting period (years) 3 3 3 3 3 3 3
Expected volatility 60.7% 59.8% 59.3% N/A 57.8% 46.7% 34.3%
Option life (years) 3 3 3 3 3 3 3
Expected life (years) 2.84 2.66 2.30 1.87 2.35 2.66 2.69
Risk free rate 0.78% 0.98% 1.68% N/A 0.88% 1.92% 4.36%
Possibility of ceasing
employment before
vesting 5.6%p.a. 5%p.a. 5%p.a. 5%p.a. 5%p.a. 5% pa 5% pa
Fair value per option GBP0.20 GBP0.35 GBP0.23 GBP0.40 GBP0.11 GBP0.82 GBP1.97
--------------- ----------
The expected volatility is based on historical volatility over
the last five years. The expected life is the average expected
period to exercise. The risk free rate of return is the yield on
zero-coupon UK Government bonds of a term consistent with the
assumed option life. A reconciliation of option movements over the
year to December 2011 is shown below:
Year ended Year ended
December December
2011 2010
Number Number
Outstanding at the start of the year 8,725,806 1,438,224
Granted 4,477,801 7,871,837
Expired (1,346,524) (584,255)
Outstanding at the end of the year 11,857,083 8,725,806
The total charge for the year relating to employee share-based
payment plans was GBP1,286,000 (2010: GBP574,000) all of which
related to equity settled share-based payment transactions.
27. RETAINED (LOSS)/EARNINGS
2011 2010
Group Note GBP000 GBP000
At January (181,484) (152,463)
Profit/(loss) for the financial
year 55,241 (125,095)
Actuarial gains on post retirement
benefits 25 3,302 49,736
Rate change on deferred tax asset relating
to retirement benefit liability 8 - (325)
Fair value (profit)/loss on revaluation
of investment properties 13 (3,325) 34,197
Transfer of realised gain on disposed
properties 28 44,697 11,892
Accrual for long-term incentive
plan liabilities 26 1,286 574
At December (80,283) (181,484)
------------------------------------------- --------------
2011 2010
Company Note GBP000 GBP000
------------------------------------------- --------------- --------------
At January 316,056 332,281
Loss for the financial year (3,829) (16,960)
Actuarial gain on post retirement
benefits 25 132 161
Accrual for long-term incentive
plan liabilities 26 1,286 574
At December 313,645 316,056
------------------------------------------- ---- --------------
28. OTHER RESERVES
Capital Assets Fair
Hedging Revaluation redemption held value
for
reserve reserve reserve sale reserve Total
Group Note GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At January 2010 (2,753) 127,497 257 - 146,502 271,503
Revaluation on recognition
of investment properties 13 - 1,223 - - - 1,223
Transfer of realised loss/(gain)
on disposed properties - 700 - - (12,592) (11,892)
Fair value loss on
revaluation
of investment properties 13 - - - - (34,197) (34,197)
Hedging reserve - amortised
in period 23 3,848 - - - - 3,848
Movement in deferred tax
asset on cash flow hedges 8 (1,357) - - - - (1,357)
At January 2011 (262) 129,420 257 - 99,713 229,128
Revaluation on recognition
of investment properties 13 - 4,519 - - - 4,519
Transfer of realised gain
on disposed properties - (6,652) - - (38,045) (44,697)
Fair value gain on
revaluation
of investment properties 13 - - - - 3,325 3,325
Hedging reserve - amortised
in period 23 372 - - - - 372
Amounts recognised in
reserves
relating to non-current
assets held for sale 18 - (14,190) - 14,190 - -
Movement in deferred tax
asset on cash flow hedges 8 (110) - - - - (110)
At December 2011 - 113,097 257 14,190 64,993 192,537
---- ----------------
None of the other reserves balances at either the 2011 or 2010
year ends represented realised reserves.
29. CAPITAL AND OTHER FINANCIAL COMMITMENTS
Capital expenditure contracted for at the end of the reporting
period but not yet incurred is as follows:
As at As at
December December
2011 2010
Group GBP000 GBP000
-------------- ------------
Property, plant and equipment 11,895 27,746
Investment property 559 844
12,454 28,590
-------------- ------------
30. OPERATING LEASE COMMITMENTS
Group
The minimum lease payments due to the Group under
non-cancellable operating leases, all of which relate to property
rentals, are as follows:
As at As at
December December
2011 2010
GBP000 GBP000
------------- ----------
Lease expiring:
Within 1 year 2,988 5,302
Later than 1 year and less than 5
years 7,273 8,964
After 5 years 25,130 20,189
35,391 34,455
------------- ----------
The minimum lease payments due by the Group under
non-cancellable operating leases, which relate to rights over land
usage and plant hire, are as follows:
As at As at
December December
2011 2010
GBP000 GBP000
-------------- ----------
Lease expiring:
Within 1 year 3,453 1,184
Later than 1 year and less than 5
years 13,617 4,421
After 5 years 814 1,337
17,884 6,942
-------------- ----------
The Company had no interest in any operating leases (2010:
GBPnil).
31. CONTINGENT LIABILITIES
Guarantees have been given in the normal course of business for
performance bonds of GBP5,619,000 (2010: GBP4,209,000) 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 which
is used as security to cover surface damage liabilities.
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 December
2011 for which provision has not been made in these financial
statements.
32. RELATED PARTY TRANSACTIONS
Group
During the year, the Group made various payments to industry
wide defined benefit pension schemes. Details of these transactions
are set out in note 25 to the financial statements.
Key management compensation is disclosed in note 5.
Transactions with joint ventures
The following transactions were carried out with the joint
ventures:
Year ended Year
December ended
2011 December
2010
GBP000 GBP000
Bates Regeneration Limited
Sale of services to related party - 12
- 12
-------------
Transactions with Bates Regeneration Limited were carried out on
commercial terms and conditions and at market prices.
Balances owing from/(to) joint ventures
Bates Regeneration Limited
The balance arising from sales at December 2011 was GBPnil
(December 2010 GBP12,000).
Company
The Group manages its financing arrangements centrally. Amounts
are transferred within the Group dependent on the operational needs
of individual companies. All amounts are repayable on demand, carry
no security and incur interest at LIBOR +2%, except UK Coal Mining
Limited at LIBOR +3.5%. Details of the Company's receivables and
indebtedness are set out in notes 17 and 21 and amounts due from or
owed to subsidiary undertakings are set out below:
As at December As at
2011 December
2010
Owed to:- GBP000 GBP000
---------------
UK Coal Mining Limited (93,873) (78,905)
Harworth Power Limited (10,824) (8,417)
Centechnology (UK) Limited (1,813) (1,713)
Harworth Park Services Limited (7) (10)
UK Coal Holdings Limited (36) (35)
Harworth Group Limited (6,578) (6,450)
Harworth Guarantee Co. Limited (48) (46)
Potland Burn Limited (21,349) (27,668)
Dormant and non-trading companies (23,881) (24,183)
(158,409) (147,427)
------------- ---------------
As at As at
December December
2011 2010
Owed by:- GBP000 GBP000
Mining Services Limited 5,511 6,171
LHTC Limited 2,987 2,917
Harworth Mining Limited 6,981 6,294
EOS Inc. Ltd 12,258 10,959
Harworth Estates (Agricultural Land)
Limited 6,821 24,185
Harworth Estates (Waverley Prince)
Limited 97,928 77,667
Harworth Insurance Limited 335 124
Dormant and non-trading companies 83,422 81,943
216,243 210,260
------------------------------------------------------
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 2011 as the facility was undrawn in the
period. Total fees of GBP311,000 were incurred in 2011 in relation
to the facility of which GBP261,000 was paid during the year with
the remaining GBP50,000 paid in 2012.
We received shareholder approval on 11 July 2011 for waste to
energy joint ventures with members of the Peel Group for 11 sites
which are part of our property portfolio. Joint venture companies
have been set up for each of these sites but none are operating.
The market value of these sites at 11 July 2011 was GBP7,000,000
with an agreed base option price, subject to appropriate planning
permissions, of GBP14,700,000.
Peel Wind Farms (IOM) Limited has sold a wind farm development
activity at Bilsthorpe in Nottinghamshire to a third party and has
paid UK Coal GBP868,000 in connection with this sale in October
2011. This transaction represented a smaller related party
transaction pursuant to the Listing Rules and the appropriate
confirmations set out in Listing Rule 11.1.10 were provided to the
Financial Services Authority.
As reported in the 2010 Annual Report and Accounts, the Company
agreed to sell 164 acres of farmland near Tyldesley in Greater
Manchester to Peel Investments (Intermediate) Limited, a subsidiary
of Peel Holdings Finance Limited, for a cash consideration of
GBP1,600,000 of which GBP1,060,000 was received in 2010, and the
balance received in July 2011. This transaction represented a
smaller related party transaction pursuant to the Listing Rules and
the appropriate confirmations set out in Listing Rule 11.1.10 were
provided to the Financial Services Authority.
33. GOVERNMENT GRANTS
The Group has received support from the Government, in the form
of Coal Investment Aid, in order to provide assistance towards
investment in the industry. Detail of how this aid is treated is
set out in note 1 to the financial statements. Amounts credited to
the income statement are as follows:
Year ended Year
December ended
2011 December
2010
GBP000 GBP000
Release of deferred income - 1,011
----------
34. POST BALANCE SHEET EVENTS
As outlined in the operating and financial review, the Group has
restructured its banking arrangements and the stand-by facility
from Peel Holdings Finance Limited since the year end. Note 20
identifies the principal changes to those facilities.
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 GBP40,000,000
will need to be recognised. In addition, depreciation would be
accelerated on the remaining tangible fixed assets with a net book
value at December 2011 of GBP46,000,000. Other related costs,
including redundancies, will depend on the outcome of negotiations
and cannot yet be estimated with any degree of accuracy.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR LFFIISLIRFIF
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