Harworth Group PLC · LSE:HWG
Harworth — UK Coal — Investor Presentation (July 2005)
57 slides from Harworth's investor presentation, Jul 22, 2005
Slide 1: Presentation to Analysts
Presentation to Analysts Kellingley Colliery – 22nd July 2005
Slide 2: Agenda
AGENDA • Trading update – Gerry Spindler CEO • Deep mines – Gerry Spindler CEO • Sales & marketing – Nigel Yaxley • Change management – Norman Haslam • Surface mines – Patrick O’Brien • Property – James Shaw • Harworth Power – Tom Breheny • Financial – Chris Mawe • Outlook – Gerry Spindler CEO 2
Slide 3: Trading Update - Overview
TRADING UPDATE - OVERVIEW • Sales approximately £164 million (2004: £228 million) • Loss before tax of around £30 million (2004: £6 million) • Further non cash charges will result from closure of Harworth • Net debt increased by £36 million to £85 million • Unit income £1.32/GJ (2004: £1.17/GJ) • De
Slide 4: Deep Mines
DEEP MINES • Operational Review • Issues and Progress • Focus for H2 2005 • Production 4
Slide 5: Operational Review
Operational Review • Production at ongoing collieries 3.9 million tonnes (2004: 3.6 million tonnes) • Production affected in H1 by: - Unexpected face gap at Daw Mill - Closure of Ellington - Excess methane gas at Harworth - Equipping 6 new coal faces in H1 • Fewer planned face changes in H2 will inc
Slide 6: 2004 cf 2005: H1 Production Comparison by Mine
2004 cf 2005 : H1 Production Comparison by Mine H1 2004 H1 2005 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 Daw Mill Harworth Ellington Rossington Maltby Welbeck Thoresby Kellingley 6
Slide 7: 2004 cf 2005: H1 Production Comparison by Mine
2004 cf 2005 : H1 Production Comparison by Mine Colliery 2004 2005 Diff Daw Mill 1,325 718 -607 Harworth 541 278 -263 Ellington 281 91 -190 - 1,126 kt Rossington 231 165 -66 Maltby 440 432 -8 Welbeck 429 467 38 Thoresby 420 786 366 + 1,195 kt Kellingley 253 1044 791 Sub-Total 3,920 3,981 61 Selby Mi
Slide 8: Impact of Face Gaps of 2005 H1
Impact of Face Gaps of 2005 H1 • Six planned face transfers during H1 • Only Maltby planned a face gap – mine re-structuring plan 2005 - Week Number ‘Re-phased’ Average Income Face 1 2 Board income/ Impact Gap 1 2 3 4 5 6 7 8 9 10 11 12 13 14 16 17 18 19 20 21 22 23 25 26 5 4 Budget tonne on H1 Week
Slide 9: Planned face transfers during 2005 H2
Planned face transfers during 2005 H2 • Three planned face transfers during H2 • Fewer face transfers will increase output and lower unit costs 2005 - Week Number 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 Face gap weeks July August September October November Decem
Slide 10: Issues and Progress
Issues and Progress • Positive workforce agreements - Now in place at five out of seven collieries, with a sixth due in September 8 Resulting in guaranteed time at the coal face 8 Reduction in disputes (4,400 shifts in H1 2004, nil in H1 2005) 8 Management focused in on planning complex mining activ
Slide 11: Focus for H2 2005
Focus for H2 2005 • Mine Manager accountability -Weekly accountabilities to key KPI’s focusing in on short term improvements • Cycle time improvement -Cycle time analysis, breaking the cycle down into its component parts ascertaining best practice and communicating this across all shifts • Shift han
Slide 12: Markets
MARKETS • Market Background • Energy Commodity Prices • Renegotiation of Contracts • Contracted Sales • “Cap and Collar” Contract Structure 12
Slide 13: Market Background
Market Background • Unprecedented increase in energy prices -Gas prices Jan-Jun 2005 up 40% on 2004 – forwards even higher -Coal prices (ARA) remain significantly above long term average -Carbon price recently trading up to €29/tonne leading to coal/gas switching • Regulatory uncertainty (particular
Slide 14: UK Oil & Gas Prices
UK Oil & Gas Prices 70 100 90 60 80 Oil 50 70 60 Oil p/Therm $/Barrel 40 Forward 50 30 40 Gas 20 30 Gas 20 Forward 10 10 0 0 99 J '00 J '01 J '02 J '03 J '04 J '05 J '06 J '07 J Source: International Petroleum Exchange 14
Slide 15: NW Europe Spot Steam Coal Price
NW Europe Spot Steam Coal Price (Delivered Into Deep Water Ports) 80 70 Actual 60 $ / tonne Forward 50 Dec03 40 Forward 30 Jun05 20 91 92 93 94 95 96 97 98 99 '00 '01 '02 '03 '04 '05 '06 '07 '08 Source: McCloskey Group / TFS Brokers Basis: <1%S, CIF NW Europe, 6000 Kcal / Kg NAR (25.122 GJ/Tonne) 15
Slide 16: Renegotiation of Contracts
Renegotiation of Contracts • Contract renegotiation completed with key major customers -Additional revenue in 2005 -Rescheduling of tonnages -Increased contract cover going forward -Prices more reflective of current international market background • Total 38 million tonnes in contract to 2010 (inclu
Slide 17: Contracted ESI Sales and Estimated Other Markets
Contracted ESI Sales and Estimated Other Markets 2005 £1.30- £1.31/GJ ESI Firm Price 2006 £1.30- £1.36/GJ Financial Year ESI Floating 2007 £1.31- £1.46/GJ Price - between cap and collar 2008 £1.32- £1.47/GJ Other Markets Estimate 2009 £1.31- £1.45/GJ 0 2 4 6 8 10 12 14 16 18 Million tonnes per annum
Slide 18: Cap and Collar Contract Structure
“Cap and Collar” Contract Structure • Price dependent on international price and £:$ exchange rate within a cap and collar price band -Cap and collar prices increase annually by UK inflation -Price within the band includes an agreed ‘add on’ to represent transport advantage of UK COAL production uni
Slide 19: Change Management
CHANGE MANAGEMENT • Mine review process • Successes 19
Slide 20: Mine Review Process
Mine Review Process What is it? • Magma Copper model • Involving/Democratic/Structured Facilitation • Open Book • Challenging/Motivational 20
Slide 21: Successes
Successes • Kellingley – Shift pattern imposed last year, now accepted by the workforce – 132 hours MAT with great flexibility below 132 hours • Welbeck guaranteed MAT from 75 hours per week to 140 hours per week • Harworth guaranteed MAT from 75 hours per week to 120 hours per week • Reduction in d
Slide 22: Surface Mines
SURFACE MINES • Strategy • Operational Review • Planning Progress • Land Bank & Prospects 22
Slide 23: Strategy
Strategy • Re-establish surface mining production volumes at a minimum of 2 million tonnes per annum • Ensure sufficient new sites in planning system to provide continuity of mining operations • Continue liaison with planning authorities to ensure surface mining is not discriminated against • Mining
Slide 24: Operational Review
Operational Review • Production 570,000 tonnes (2004: 1.2 million tonnes) • 2.7 million tonnes of reserves with planning consent to mine • Four sites completed coaling and now in restoration • Restoration will be completed on Hicks Lodge, Arkwright, Southfield, Forge & Monument and Park Brook during
Slide 25: Planning Progress
Planning Progress • 2.7 million tonnes submitted to Public Inquiry – awaiting planning determination on these three sites • 2 schemes totalling 620,000 tonnes submitted for planning in H1 • 4 schemes to be submitted in H2 - total of 4 million tonnes • Representations made to MP’s and Ministers regar
Slide 26: Land Bank & Prospects
Land Bank & Prospects • 6 schemes previously refused planning are to be resubmitted in 2006 – total of 6.75 million tonnes • Due to start production on Cutacre, near Bolton (1.5 million tonnes) during 2006 • More potential sites - higher coal prices have improved the economics of previously less via
Slide 27: The Property Division of UK COAL
The Property Division of UK COAL
Slide 28: Property
Property • Harworth Estates • Property Portfolio - Overview • Sales • New Lettings • New Developments • Planning • Joint Ventures • Outlook • Summary 28
Slide 29: Harworth Estates
Harworth Estates Harworth Estates is actively engaged in exploiting UK COAL’s Property Portfolio The principal areas of activities are... • Detailed appraisals of UK COAL’s major development sites • Finalising a full external valuation of the Property Portfolio for incorporation in the 2005 Annual R
Slide 30: Property Portfolio - Overview
Property Portfolio - Overview Operational Property 6,700 acres Former Operational Property 18,300 acres (Including Restoration Land) Prospective Mines 23,500 acres Total 48,500 acres Of Which :- Operating Business Parks 130 acres Development Sites with Planning Consent 425 acres Sites subject to Pla
Slide 31: Sales
Sales 2005: 1st half year £8.2 million 2004: 1st half year £1.9 million • Tetron Point - Swadlincote • Waverley AMP - Sheffield Mined, Decontaminated, Compacted, Serviced & Sold above Valuation 31
Slide 32: New Lettings
New Lettings • Cannock D.P (Staffordshire): 50 Year Lease • Whitemoor (Selby): 75% Let • Asfordby (Leicestershire): 93% Let (existing buildings) Increased Annual Roll: £420,000 p.a. 32
Slide 33: Asfordby
Asfordby Masterplan Masterplan Proposed Phase 1 New Development • 30,000 Sqft Proposed Pre-Let Industrial Building to existing Tenant • 10 Year Lease • Overall Master Plan provides for an additional 400,000Sqft of B2, B8 33
Slide 34: Bilsthorpe
Bilsthorpe Proposed Proposed Phase Phase 11 • Phase 1: East Midlands Development Agency Grant Funded • Phase 1: 72,500 Sqft on 7.5 acres • Total Development Site: 41 acres (Further 425,000 Sqft potential) 34
Slide 35: Planning
Planning • Potential 540,000 Sqft • Selby Complex • Gascoigne Wood 100 acres • 8 Miles Rail Sidings • Mixed use Development • Prince of Wales • Location • 5 Towns Strategic Development Framework • 80 acre outline B1, B2, B8 • Waverley AMP / • 55 acre Highfield Commercial Orgreave • Masterplan 3800 H
Slide 36: Joint Ventures
Joint Ventures • Two Sites • 100 Developable acres • Market Value • Profit Share • Waverley AMP - an update 36
Slide 37: Outlook for 2nd Half
Outlook for 2nd Half • Sales currently under negotiation in excess of £6 million • New Lettings currently Under Negotiation will add in excess of £350,000 to the Annual Rent Roll 37
Slide 38: Summary
Summary • The 1st half figures for 2005 show considerable improvements both in rental income and development profits compared to 2004 • Increased Property Profits will continue into the 2nd half of 2005 • The year-end valuation in 2005 of the entire portfolio will show significant increase over 2004
Slide 39: Harworth Power Ltd
Harworth Power Ltd
Slide 40: Harworth Power
HARWORTH POWER • Strategy • Management • Mines Gas Generation • Wind Farms • Recycled and renewable oils 40
Slide 41: Strategy
Strategy • Develop mines gas business to fully utilise existing and potential UK COAL resources • Develop wind farms to maximise economic returns from suitable land assets • Development of renewable energy projects 41
Slide 42: Management
Management • A dedicated in-house development team • Independent specialist consultancy firms engaged 42
Slide 43: Mines Gas Generation
Mines Gas Generation • 32MW of mines gas power generation • Electricity produced used internally with any excess sold onto the local distribution network • Mines gas utilised earns CO2 credits within the UK ETS (Emission Trading Scheme) – value £2.5 million pa • Potential for additional capacity at
Slide 44: Wind Farms
Wind Farms • The UK has the best wind resources in Europe • Prime sites already owned - potential to convert low value land into high value wind energy sites • Low technical and financial risk – low initial capital outlay provides option to develop • Good returns from generation of renewable electri
Slide 45: Recycled Vegetable Oils (RVO) & Palm Oils
Recycled Vegetable Oils (RVO) & Palm Oils • Portfolio of sites available to install up to 170MW of renewable bio fuel power generation • Potential to use RVO in existing generating plant • Currently evaluating a number of generation units at Business Parks • Access to source a secure supply of RVO a
Slide 46: Financial
FINANCIAL • Trading update • International Financial Reporting Standards 46
Slide 47: Trading Update – H1
Trading Update – H1 • Mining activities -Sales proceeds of £1.32/GJ (2004: £1.17/GJ) -Pre exceptional operating costs of £1.47/GJ (2004: £1.30/GJ) -Exceptional items: 8 Ellington closure and redundancy (£7.0 million) 8 Lost development and production – Kellingley and Rossington (£12.5 million) • Dis
Slide 48: Trading Update – H1
Trading Update – H1 • Property activities -Investment & Commercial Properties 8 Rental income £1.0 million (2004: £0.8 million) 8 Square feet under rental 304,000 (2004: 280,000) 8 Commercial lease 21 acres (2004: nil) 8 4 further business parks being developed -Agricultural 8 Rental income £1.5 mil
Slide 49: Trading Update – H1
Trading Update – H1 • Power generation -Electricity generated comparable to previous year -Improved profitability from higher electricity prices and lower maintenance costs -Planning for wind farms in progress 49
Slide 50: IFRS
IFRS INTERNATIONAL FINANCIAL REPORTING STANDARDS 50
Slide 51: Introduction
Introduction • First IFRS results for UK COAL – 6 months ended 30 June 2005 – 2004 figures restated • Year ended 31 December 2004 restated • Reconciliations between UK GAAP and IFRS published 51
Slide 52: Overview of Financial Impact
Overview of Financial Impact UK GAAP IFRS Difference £000 £000 £000 Loss before tax (51,630) (33,531) 18,099 Basic loss per share (35.3)p (23.0)p 12.3p Net assets 170,634 56,789 (113,845) • Improvement in loss before tax - Profit on disposal of Gloucester Coal - Goodwill impairment on the acquisitio
Slide 53: Impact on 2004 Consolidated Income Statement
Impact on 2004 Consolidated Income Statement Impact on 2004 consolidated income statement STD £000 Lower depreciation due to higher residual values on freehold IAS 16 328 Lower pension charge IAS 19 192 Interest on concessionary fuel provision IAS 19 -1,687 Increase in holiday pay accrual IAS 19 -60
Slide 54: Impact on 2004 Consolidated Balance Sheet
Impact on 2004 Consolidated Balance Sheet Impact on 2004 consolidated balance sheet STD £000 Lower depreciation on freehold buildings IAS 16 328 Recognition of pension deficit on balance sheet IAS 19 -117,830 Decrease in provision for concessionary fuel reserve IAS 19 2,256 Provision created for hol
Slide 55: Conclusions
Conclusions • 2004 impact -Adjustment to profit – arising from timing issues -Impact on net asset as a result of IAS19 (pension deficit brought onto balance sheet) -Cash flows not affected, although some reclassification • Ongoing performance measurement -No significant impact on the income statemen
Slide 56: Outlook
OUTLOOK • Fewer face changes in H2 – consistent production • Operational benefits from management action being seen • Rossington and Welbeck remain under review • Harworth to be mothballed – will result in some non cash charges • Continue to seek new planning remissions to utilise our considerable s
Slide 57: Presentation to Analysts
Presentation to Analysts Kellingley Colliery – 22nd July 2005