Harworth Group PLC · LSE:HWG
Harworth — UK Coal — FY2005 Earnings Presentation
32 slides from Harworth's earnings presentation, 2006
Slide 1: Preliminary Results Year Ended 31 December 2005
PRELIMINARY RESULTS YEAR ENDED 31 DECEMBER 2005
Slide 2: Operational Review and Strategy
Operational Review and Strategy Chief Executive – Gerry Spindler
Slide 3: Agenda
Agenda • Overview • Deep mines performance • Market for Coal • Surface mines • Property • Power • Financial Performance • Strategy & Outlook • Questions 3
Slide 4: Performance Overview
Performance Overview • Deep mines performance improved throughout H2 • Management action taking effect -Fewer face gaps -Increasing prices -Improved productivity • Surface mines reflect existing planning -New permits granted for 1.25 millions tonnes • Property developed -Improved rentals -Increased
Slide 5: Overview
Overview H2 05 2005 2004 Deep mine output 5.0mt 9.0mt 12.0mt Surface mine output 0.5mt 1.0mt 2.0mt Coal sales from UK operations 5.2mt 10.0mt 14.2mt Average selling price £1.37 per GJ £1.35 per GJ £1.18 per GJ Total unit production costs £1.42 per GJ £1.47 per GJ £1.30 per GJ Gross value of property
Slide 6: Tonnes per man shift have increased in the second half of the year
Tonnes per man shift have increased in the second half of the year to a point higher than in any of the last five years, providing a good platform for 2006 6
Slide 7: Cost per GJ reducing in final quarter
Cost per GJ reducing in final quarter 2005 Cost / GJ Deep Mines 2.00 1.89 1.78 1.50 1.69 1.54 1.59 1.35 £ / GJ 1.27 1.26 Ongoing 1.00 Total 0.50 0.00 Q1 Q2 Q3 Q4 Q4 benefited from improved performance 7
Slide 8: Higher output starting to reflect potential for future
Higher output starting to reflect potential for future 2005 Tonnes Produced Deep Mines 3,500 3,000 3,028 2,500 Tonnes '000 2,480 2,000 2,090 2,173 Ongoing 1,961 1,500 1,807 Total 1,610 1,357 1,000 500 0 Q1 Q2 Q3 Q4 Q4 tonnage includes 2 face changes 8
Slide 9: Market Dynamics
Market Dynamics • Strong upward price pressure: - China and US increasing domestic consumption - World coal demand rising - Domestic coal demand increased to 52 million tonnes (2004: 50 million tonnes) - Decline In UK production has put pressure on port capacity and rail infrastructure favouring dom
Slide 10: UK Gas Market
UK Gas Market • North Sea unable to meet UK demand • Growing realisation that UK is now in a world market • UK now has to complete for gas supply • Significant risk of pipeline disruption -Ukraine / Georgia • LNG now a global commodity and will go to the highest bidder • Gas prices to UK domestic co
Slide 11: UK Generation Forecast
UK Generation Forecast 400 350 51 50 51 52 50 mtce mtce mtce 300 mtce mtce 250 Coal Oil TWh 200 Gas 150 Nuclear Renewables 100 50 0 2004 2005 2006 2007 2008 Source:Dti Energy Trends - actual UK COAL forecast of energy mix 11
Slide 12: Contracted ESI Sales, by Customer with Estimated Other Markets
Contracted ESI Sales, by Customer with Estimated Other Markets Price for contracted tonnage (£/GJ) (2006 money) £1.35/GJ 2005 ESI Firm Price £1.39/GJ 2006 £1.44/GJ 2007 ESI Floating Price - between cap and £1.47/GJ 2008 Remaining collar production £1.52/GJ 2009 sold at spot Other Markets Estimate £1
Slide 13: Main Seaborne Coal Flows 2004
Main Seaborne Coal Flows 2004 (Million Tonnes) Maritime trade: 685 Mt Incl. 505 Mt steam coal 180 Mt coking coal Global hard coal production: 4.6 Bn t Source: Verein der Kohlenimporteure 13
Slide 14: Coal Imports into the UK
Coal Imports into the UK 18000 16000 14000 12000 Thousand Tonnes 2004 Steam 10000 2005 Steam 2004 Coking 8000 2005 Coking 6000 4000 2000 0 Australia Colombia Indonesia Poland Russia S. Africa USA Other Coking Source: Business Trade Systems 14
Slide 15: Surface Mining
Surface Mining • Production of 1.0 mt (2004: 2.0 mt). • Progress made, planning approval achieved for Stony Heap and Stobswood North • Remain optimistic in respect of further new sites • Planning applications for 12 sites totalling 10.3 million tonnes will be in progress in 2006 • Restoration work c
Slide 16: Property Overview
Property Overview • Sufficient land bank and project flow to eliminate the need to invest in acquisition • Objective of developing durable income -Restoration -Planning gains -Retaining and growing increased value 16
Slide 17: Property
Property • Operating profit (before revaluations) of £2.3m (2004: £1.8m) • Profit on sale of assets £9.6m (2004: £2.8m) • Development activities progressing well -Compaction and restoration works at Orgreave -Infrastructure works at development sites -New build, 20,000 sq ft building at Bilsthorpe,
Slide 18: Project Pipeline
Project Pipeline Description of property Location Valuation Band Waverley (Orgreave) Decontaminated 600 acre surface mine. Coal production ended in Catcliffe, off the Sheffield 6 2005. Currently partially compacted and restored with completion Parkway, Junction 33 M1, due in 2007. 250 acre developme
Slide 19: Harworth Power
Harworth Power • Better methane capture, increased generation • Operating profit1 £1.4m (2004: £1.3m) • Income of £2.4m from UK Emissions Trading Scheme (2004: £3.0m) continues for a further year – replacement scheme being discussed • Wind power potential starting to be realised • Planning permissio
Slide 20: Financial Results
Financial Results Finance Director – Chris Mawe
Slide 21: Summary Performance 2005
Summary Performance 2005 H1 Q3 Q4 H2 Year £'000 £'000 £'000 £'000 £'000 Deep Mines (29,808) (17,579) 957 (16,622) (46,430) Surface Mines 1,406 868 1,073 1,941 3,347 Property (inc revaluation surplus/deficit) 10,363 397 5,658 6,055 16,418 Harworth power (inc UKETS credits) 1,993 531 838 1,369 3,362 O
Slide 22: Segmental Profit/(Loss)
Segmental Profit/(Loss) Year ended 31 December 2005 Exceptional items reflect one off costs at four collieries 2005 2004 £m £m Deep Mines (46.4) (39.2) Surface Mines 3.3 4.1 Property activities 16.4 4.6 Power 3.4 4.2 Other businesses 1.4 (0.7) Loss before interest & exceptional items (21.9) (27.0) E
Slide 23: Exceptional Items
Exceptional Items One off costs incurred at four collieries Stores Asset Closure stock impairment cost Redundancy Other Total £000 £000 £000 £000 £000 £000 Harworth (1,685) (967) (8,913) (11,565) Rossington (933) (5,634) (3,331) (4,843) (14,741) Kellingley (7,708) (7,708) Ellington (14) (5,635) (3,0
Slide 24: Cash Flow
Cash Flow year ended 31 December 2005 2004 £000 £000 Operating cash flow before exceptional items 4,199 5,235 Exceptional items -42,186 -10,261 Operating cash flow -37,987 -5,026 Decrease in stocks 2,004 10,828 Working capital -197 2,238 Net interest and financing -3,490 599 Tax -71 0 Net receipt fr
Slide 25: Balance Sheet
Balance Sheet 31 Dec 2005 31 Dec 2004 £m £m Non current assets 344.5 369.1 Stocks 42.2 47.6 Debtors 63.0 62.4 Cash (less bonded cash) 1.0 0.3 Total Assets 450.7 479.4 Creditors 201.2 155.1 Provision for liabilities (less bonded cash) 121.9 130.4 Pension liabilities 142.3 137.1 Net Assets (14.7) 56.8
Slide 26: Independent Property Valuation
Independent Property Valuation Land Category Dec-04 Dec-05* £'000 £'000 Business Parks 17,410 19,210 Development Properties Commercial with Planning 34,004 30,060 Other Projects 91,406 114,993 Agricultural 59,086 92,157 Total exc. investment properties 201,906 256,419 Investment Properties 6,720 17,
Slide 27: Pensions (defined benefit schemes)
Pensions (defined benefit schemes) Good asset returns – lower bond yields – increased liabilities 2005 2004 £m £m Charge to profit & loss 12.6 13.3 Contributions paid 19.3 16.9 Opening deficit 113.2 102.7 Increase/(decrease) 3.5 10.5 Closing deficit 116.7 113.2 • Gains from better than forecast retu
Slide 28: Pensions – assets & Liabilities
Pensions – assets & Liabilities UK Coal - IW Schemes - Assets and liabilities on IAS19 basis 450 2.70% 400 2.50% 350 300 2.30% 250 £m 2.10% 200 150 1.90% 100 1.70% 50 0 1.50% Dec 03 Mar 04 Jun 04 Sep 04 Dec 04 Mar 05 Jun 05 Sep 05 Dec 05 Assets Liabilities Net liability Real discount rate Main assum
Slide 29: Strategy & Outlook
Strategy & Outlook • Actions in 2005 have positioned business to recover • Develop deep mines -Drive productivity -Advance market negotiations -Extend mine lives by securing appropriate support & contractual terms • Secure surface mine planning & exploit reserve base -Manage costs -Perform value add
Slide 30: Strategy & Outlook – Pricing Opportunities
Strategy & Outlook – Pricing Opportunities 2.10 2.00 1.90 ARA 1.80 1.70 1.60 £/GJ 1.50 1.40 1.30 UK COAL 1.20 1.10 1.00 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 30
Slide 31: Strategy & Outlook
Strategy & Outlook • Develop Harworth Power’s opportunities -Methane as core, supported by emissions trading credits -Develop wind -Explore further opportunities • Maximise property value – self funding from disposals and rental income -Value added restoration & site clean up -Planning gains -Develo
Slide 32: Preliminary Results Year Ended 31 December 2005
PRELIMINARY RESULTS YEAR ENDED 31 DECEMBER 2005