Harworth Group PLC · LSE:HWG
Harworth — UK Coal — H1 2008 Earnings Presentation
42 slides from Harworth's earnings presentation, Aug 28, 2008
Slide 1: 2008 Interim Results
2008 INTERIM RESULTS 28 August 2008
Slide 2: UK Coal: Strong platform for value creation
UK Coal : Strong platform for value creation • Demonstrating our growth platform • Changed pricing environment for mining – changes opportunity for value creation • Increasing I i the th value l off our property t business b i • Positive long term outlook for all businesses 2
Slide 3: Results for First Half of 2008
Results for First Half of 2008 • Total T t l sales l 3.7mt 3 7 t (2007 H1 H1: 3 3.8mt) 8 t) • Average realised sales price £1.79 / gigajoule (2007 H1: £1.52/GJ) • Revenue £172.9m (2007 H1: £146.2m) • Harworth H th E Estates t t profits fit £20.5m £20 5 (2007 H1: H1 £ 54 54.0m) 0 ) • Operating (loss)
Slide 4: Group Financials
GROUP FINANCIALS
Slide 5: Segmental income statement
Segmental income statement H1 2008 H1 2007 FY 2007 £m £m £m Deep mines (25.7) (24.7) (14.6) Surface mines 5.0 4.5 8.5 - surface mines restoration provision (5.6) - - Power 15 1.5 17 1.7 43 4.3 Other 0.1 - 0.7 Total mining and power (24.7) (18.5) (1.1) Property Net gains from investment properties 19
Slide 6: Revenue
Revenue H1 2008 H1 2007 FY 2007 Deep Mines Output (m tonnes) 2.8 3.2 6.4 Surface Mines Output (m tonnes) 0.9 0.7 1.5 Maltby Output (m tonnes) - 0.1 0.2 Production (m tonnes) 3.7 4.0 8.1 Sales (m tonnes) 3.7 3.8 8.0 Sales price (£/GJ) 1.79 1.52 1.62 £m £m £m Coal sales 161.8 138.4 314.3 Oth sales Oth
Slide 7: Contract position
Contract position Contracts at 30 June 2008: 21m tonnes (December 2007: 24m tonnes) • To be delivered as: 4.5 – 5.0m tonnes due for delivery in remainder of 2008 6.0 – 7.0m tonnes in 2009 “Legacy” contracts at June c.10.5m tonnes @ £1.55/GJ Contracts outstanding for delivery after end 2009: c 10
Slide 8: Sales Price
Sales Price Expected p realised sale p price for full yyear c.£1.90 - £1.95/GJ • assumes market around $175/tonne for last 6 months of year • (equivalent c.£3.50/GJ at an illustrative $2:£1) 2009 average realised sales price expected to be over £2.10/GJ • assumes no significant market change 8
Slide 9: NW Europe Steam Coal Price
NW Europe Steam Coal Price 200 4 150 3 £/GJ $/t 100 2 50 Latest F/Cast A ctua ctual 1 F/Cast June 2008 F/Cast M arch 2008 F/Cast Dec 2007 F/Cast Sept 2007 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source:API#2 - McCloskey Group / TFS Brokers Basis: <1%S, CIF NW Europe, 600
Slide 10: Operating costs
Operating costs £m H1 2008 H1 2007 FY 2007 Deep Mines costs costs, excl depreciation Ongoing 136.3 118.9 238.8 Closed / sold - 8.3 7.4 Surface Mines costs (incl SM amortisation) amortisation), excl depreciation 31.6 31 6 15.5 15 5 41.2 41 2 Revaluation of SM restoration provisions 5.6 - - Other cost
Slide 11: Exceptionals, finance and tax
Exceptionals, finance and tax £m H1 2008 H1 2007 FY 2007 Non-trading exceptional items Maltby - 12.2 12 2 8.5 8 5 Closures and redundancies (0.4) (1.5) 3.8 Costs associated with Harworth colliery (0.5) (1.1) (1.7) (0.9) 9.6 10.6 Net finance costs Interest and other (5.5) (3.6) (12.2) Mark to market
Slide 12: Income statement
Income statement £m H1 2008 H1 2007 FY 2007 Revenue 172 9 172.9 146 2 146.2 328 5 328.5 Total costs (197.0) (162.6) (326.9) Trading (loss) / profit before investment property gains (24.1) (16.4) 1.6 Investment property gains 19.9 51.9 70.5 Amount unrealised 19.8 51.0 66.8 Operating profit before non
Slide 13: Cashflow
Cashflow £m H1 2008 H1 2007 FY 2007 Operating (loss) / profit (5.1) 45.1 82.7 Revaluation of property (19.8) (19 8) (51.0) (51 0) (66.8) (66 8) Profits on sale of fixed assets (0.1) (2.2) (5.3) Profit on sale of Maltby - (12.2) (8.5) Depreciation/diminution 20.3 19.6 38.5 SM restoration prov revalua
Slide 14: Borrowings
Borrowings £m June 2008 Movement Dec 2007 Gross borrowings (148.2) (22.9) (125.3) U Unrestricted t i t d cash h 29 2.9 (18 1) (18.1) 21 0 21.0 Net borrowings less unrestricted cash (145.3) (41.0) (104.3) Restricted cash* 37.4 (11.7) 49.1 Net debt (107.9) (52.7) (55.2) Shareholders' funds 319.8 358.2
Slide 15: Balance sheet
Balance sheet £m H1 2008 H1 2007 FY 2007 Fixed Assets Operating assets 191.0 210.4 199.6 Surface mines development assets 31.1 16.7 20.1 Investment properties 413.9 360.7 384.3 Deferred tax asset 36.0 35.7 36.0 Other 3.4 1.0 1.9 675.4 624.5 641.9 Inventories 46.2 43.7 39.8 Debtors 42.4 39.1 30.4 Cre
Slide 16: Retirement benefit liabilities
Retirement benefit liabilities £m Total Pensions Fuel Deficit January 2008 (73.2) (49.8) (23.4) Contributions paid less current service cost 2.5 2.3 0.2 Change in fund value compared to expected return (43 5) (43.5) (42 8) (42.8) (0 7) (0.7) Actuarial gain on liabilities 12.5 12.3 0.2 Deficit June 2
Slide 17: Financial summary
Financial summary Improved international coal price showing through Continuing C i i to work k through h h legacy l contracts – significant i ifi fall f ll off ff in i next 18 months Cost price increases reflecting energy/commodity market Property P t planning l i progress / agricultural i lt l land
Slide 18: Mining and Power
MINING AND POWER
Slide 19: Mining: Improved environment continues
Mining: Improved environment continues Market environment • Improved pricing environment / long term demand for coal • Very strong customer relationships • Realised R li d sales l price i shows h ability bilit tto gett closer l tto iinternational t ti l market k t prices i Developing the business •
Slide 20: Mines: Overview
Mines : Overview Deep mines Production Cash cost before depreciation 2008 H1 2007 H1 FY 2007 2008 H1 2007 H1 FY 2007 M tonnes M tonnes M tonnes £m £m £m Daw Mill 1.6 1.2 2.2 42.4 33.0 70.9 Kellingley g y 0.5 0.8 1.8 35.1 35.0 67.8 Thoresby 0.3 0.6 1.4 32.9 28.8 50.7 Welbeck 0.4 0.6 1.0 25.9 22.1 49.
Slide 21: Deep Mines
Deep Mines Daw Mill • Ramped up new face in Q1 • Fastest 2m tonnes ever mined from single coal face achieved in August 2008 - 214 days • Panel contained over 6m tonnes at commencement– mining without face change to end 2009 Kellingley • Was producing ahead of forecast • Suffered last minute poor geo
Slide 22: Surface Mines and Power
Surface Mines and Power Surface mines output up 28.5% • Planning timescales extending • Park Wall planning delay made up in other output • Diesel cost increases affect both operating costs and provision requirements • Cost per GJ at high end of expectation • Additional restoration provision charge f
Slide 23: Mining and Power - Summary
Mining and Power - Summary Positive pricing outlook • Transitioning T iti i th through h contracts t t – realised li d price i starting t ti tto show h iimpact, t bbutt 2009 kkey year Long term future • Daw Mill Current seam c.20mt to 2014/15 Then potentially 400’s 400 s block - investment 2010+ c£1
Slide 24: Harworth Estates
HARWORTH ESTATES
Slide 25: Summary
Summary Increasing the portfolio value despite market • 5.3% like for like increase in RICS valuation to £438.4million • Project Worth valued on an annual basis Evolving the development plans • Prince of Wales – planning consent finally approved by Committee • Rossington in Doncaster long-short list
Slide 26: Overview
Overview H1 2008 H1 2007 FY 2007 £m £m £m G i on Investment Gains I t t Properties P ti 19 9 19.9 51 9 51.9 70 5 70.5 Realised gains 0.1 0.9 3.7 Unrealised gains 19.8 51.0 68.6 Rental income less operating expenses 0.6 2.1 2.7 Operating profit 20.5 54.0 73.2 Cash received on disposals 0.9 4.6 13.3 J
Slide 27: 2008 H1: Principal Progress
2008 H1 : Principal Progress Property valuation increased to £438m – like for like increase of 5% from Dec 07 • Planning gains, lettings and agricultural land appreciation Prince of Wales (J32 M62 / A1M) • Planning Committee approval for phase 1 • 913 homes and 250,000 sqft office/ employment space
Slide 28: 2008 H1: Principal Progress
2008 H1 : Principal Progress Cutacre (J4 M61 Bolton) – 1,000 acre site adjoining Greater Manchester motorway network with rail connection • Included in Bolton “Preferred Options Core Strategy” as potential 258 acre premium mixed use Business Park following completion of mining in 2012 Gascoigne Wood
Slide 29: UK Coal: Strong platform for value creation
UK Coal : Strong platform for value creation Demonstrating our growth platform Changed pricing environment for mining – changes opportunity for value creation I Increasing i the th value l off our property t business b i Positive long term outlook for all businesses 29
Slide 30: Thank you
Thank you
Slide 31: Appendices
APPENDICES Appendix I Financial: Analysis of provisions at June 2008 Appendix II Coal Market Statistics 2007 Appendix III Harworth Estates: Principal Sites Key Developments Appendix IV UK Coal Principal Locations
Slide 32: Provisions Appendix I
Provisions Appendix I £m Within 1 Within 1-2 Within 2-5 More than Total Restricted year years years 5 years Cash Provisions offset by restricted funds Employee insurance liabilities etc 5.5 5.3 6.0 1.9 18.7 19.7 Surface damage (subsidence) 3.0 2.7 6.0 1.9 13.6 17.7 8.5 8.0 12.0 3.8 32.3 37.4 Provisi
Slide 33: RICS value of principal sites
2008 H1: RICS value of principal sites Appendix II £m Waverley Sheffield Waverley, - new community 50 60 50-60 Highfield Commercial - JV with Helical for Government Campus 10-20 AMP - successful JV’s with Yorkshire Forward & Strategic Sites 7.5-10 Prince of Wales, Pontefract - 297 acres, 1,300 resid
Slide 34: Project Worth estimates December 2007
Project Worth estimates December 2007 Appendix II 2012 2013 • December 2006 £800m • December 2007 £935m >£1 bn Portfolio now consists of : • 76 sites • g Gross acreage 13,800 acres • Net developable 3,696 acres Ultimately supporting : • Housing c 25,000 plots on 1,339 net acres • Commercial c 35 m s
Slide 35: Future Worldwide Coal Burn
Future Worldwide Coal Burn (billion tonnes) Appendix III 2020 IEA Forecast 9 1b ttonnes 9.1bn 10 2007 Consumption 9 6.1bn tonnes Others 8 South America Other Asia 7 Russia 6 Africa Others 5 South Africa Pacific 4 Australia 3 Europe 2 North America China 1 0 1973 1980 1985 1990 1995 2000 2002 2003 20
Slide 36: UK demand for coal
UK demand for coal Appendix III Analysis of Total UK Coal Demand 80 70 60 ((Million tonnes) 50 Others Domestic 40 Industry Coke Ovens 30 Electricityy Generators 20 10 0 2000 2001 2002 2003 2004 2005 2006 2007 Source: DBERR Energy Statistics 36
Slide 37: UK electricity generation: energy mix
UK electricity generation : energy mix Appendix III UK Electricity Generation: Energy Mix 100% 80% Renewables /Others 60% Oil Nuclear Gas 40% Coal 20% 0% 2000 2001 2002 2003 2004 2005 2006 2007 Source: DBERR Energy Statistics: 37
Slide 38: UK electricity generation: capacity and peak demand projections
UK electricity generation: Appendix III Capacity p y&p peak demand p projections j as of end 2007 Forecast Capacity (MW) vs Forecast Demand UK Electricity Supply 120,000 100,000 80 000 80,000 60,000 40,000 20,000 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Hydro Nuclear Imports Ren
Slide 39: Coal Forum: Predicted coal burn for the UK
Coal Forum: Predicted coal burn for the UK Appendix III High Coal Scenario 60 50 Low Coal Scenario per yearr 40 30 mt p 20 10 0 2006 2012 2016 2020 2024 Flue Gas Desulphurisation Non Flue Gas Desulphurisation Source : Coal Forum – March 2008 39
Slide 40: UK electricity: Sources of coal 2007
UK electricity : Sources of coal 2007 Appendix III 15% 21% UK COAL Russia 8% Colombia S Africa Other Imports p 35% Other Indigenous 14% 7% Source: DBERR Energy Statistics 40
Slide 41: Principal site locations
UK COAL Principal Locations Principal site locations Appendix IV 41
Slide 42: Disclaimer
Disclaimer • These presentation slides contain certain forward-looking statements with respect to the operations performance and financial condition UK COAL. operations, COAL By their nature nature, these statements involve uncertainty since future events and circumstances can cause results and deve