Harworth Group PLC · LSE:HWG
Harworth — UK Coal — FY2007 Earnings Presentation
50 slides from Harworth's earnings presentation, Apr 18, 2008
Slide 1: 2007 Preliminary Results
2007 PRELIMINARY RESULTS 18 April 2008
Slide 2: Strong platform for value creation
Strong platform for value creation • Delivering on our growth platform • Sharp increase in profits, earnings and assets per share • Increasing the value of our property business • Securing planning permissions. Evolving development plans • Construction phase starts 2009. No account yet taken of deve
Slide 3: Group Financials
GROUP FINANCIALS
Slide 4: Year of good progress
Year of good progress • Output • Ongoing deep mines 6.4mt (2006: 7.5mt) • Surface mines up 150% at 1.5mt • Revenue £328.5 reflecting 15% sale price increase to £1.62 GJ • Investment property profits £70.5m (2006: £70.0m) • Operating profit before exceptionals £72.1m (2006: £46.2m) • PBT of £69.0m (2
Slide 5: Revenue
Revenue 2007 2006 Production (m tonnes) 8.1 9.5 Sales (m tonnes) 8.0 9.7 Sales price (£/ GJ) 1.62 1.41 £m £m Coal / related sales 318.7 331.4 Other sales 5.0 3.1 Rental income 4.8 5.2 Revenue 328.5 339.7 5
Slide 6: Operating costs
Operating costs £m 2007 2006 Deep Mines costs, excl depreciation Ongoing 238.8 235.7 Closed / sold 7.4 66.0 Surface Mines (incl SM amortisation) 41.2 17.3 Other costs, net of inter-company eliminations 1.0 - Costs including surface mine amortisation 288.4 319.0 Depreciation / diminution 38.5 44.5 To
Slide 7: Exceptionals, finance and tax
Exceptionals, finance and tax £m 2007 2006 Non-trading exceptional items Maltby 8.5 - Closures and redundancies 2.0 (18.6) Finance costs (14.1) (10.1) Tax 25.0 (0.1) • Maltby disposal raised £21.5m cash • H1 profit £12.2m • FY reduction due to lower pension deficit on transfer • Closures and redunda
Slide 8: Income statement
Income statement £m 2007 2006 Revenue 328.5 339.7 Total costs (326.9) (363.5) Trading profit before investment property gains 1.6 (23.8) Investment property gains 70.5 70.0 (unrealised £66.8m, 2006 : £68.6m) Operating profit before non trading exceptionals 72.1 46.2 Maltby 8.5 - Closures and redunda
Slide 9: Segmental income statement
Segmental income statement £m 2007 2006 Change % Deep mines (14.6) (30.4) -52% Surface mines 8.5 0.5 1600% Power 4.3 3.1 39% Other 0.7 (0.3) Total mining and power (1.1) (27.1) -96% Property Net gains from investment properties 70.5 70.0 1% Other income less expenses 2.7 3.3 -18% Total property 73.2
Slide 10: H1 / H2 Split mining and power
H1 / H2 Split mining and power H1 H2 2007 Tonnage produced 4.0mt 4.1mt 8.1mt Tonnage sold 3.8mt 4.2mt 8.0mt Sales price / GJ £1.52 £1.70 £1.62 £m £m £m Total revenue 143.6 180.1 323.7 Operating profit pre non trading exceptionals Deep mines (24.7) 10.1 (14.6) including Daw Mill costs (11.0) (0.5) (1
Slide 11: Cashflow
Cashflow £m 2007 2006 Operating profit 82.6 27.6 Revaluation of property (66.8) (68.6) Profits on sale of fixed assets (5.3) (1.8) Profit on sale of Maltby (8.5) - Depreciation/diminution 38.5 44.5 Redundancy provisions release (8.8) - Working capital 9.8 19.2 Other movements (4.8) (4.1) Interest pa
Slide 12: Borrowings
Borrowings £m December Movement December 2007 2006 Gross borrowings (125.3) (27.5) (97.8) Available cash 21.0 17.3 3.7 Net borrowings less available cash (104.3) (10.2) (94.1) Restricted cash** 49.1 6.8 42.3 Net debt (55.2) (3.4) (51.8) Gearing as percentage of EV * 22.5% 27.8% *Net Borrowings less
Slide 13: Balance sheet
Balance sheet £m 2007 2006 Fixed Assets Operating assets 199.6 228.2 Surface mines development assets 20.1 9.7 Investment properties 384.3 311.7 Deferred tax asset 36.0 35.7 Other 1.9 1.2 641.9 586.5 Inventories 39.8 36.6 Debtors 30.4 48.3 Creditors (100.3) (106.6) Other (3.0) (1.2) Gross debt, less
Slide 14: Provisions
Provisions £m 2008 2009 2010 - Beyond Total Restricted 2012 Cash Provisions offset by restricted funds Employee insurance liabilities etc 7.1 5.5 5.9 0.4 18.9 25.7 Surface damage (subsidence) 3.6 3.3 7.2 2.3 16.4 23.4 10.7 8.8 13.1 2.7 35.3 49.1 Provisions to be funded Surface Mining site restoratio
Slide 15: Surface Mines: Balance sheet & cashflow
Surface Mines : Balance sheet & cashflow £m 2007 2006 Surface Mine Summary Cashflows Operating profit 8.5 0.5 Amortisation of development / restoration asset 8.8 1.1 Pre coaling - cash spent (4.7) (5.1) Post coaling / restoration - cash spent (11.7) (11.2) Cashflow for the year 0.9 (14.7) Surface Mi
Slide 16: Retirement benefit liabilities
Retirement benefit liabilities 2007 2007 2007 £m Total Pensions Fuel Deficit January 2007 (120.5) (95.8) (24.7) Contributions less current service cost 6.8 6.5 0.3 Benefit of Maltby Sale 3.3 2.4 0.9 Net actuarial gain 37.5 36.2 1.3 Expected return on assets less interest on deficit (0.3) 0.9 (1.2) D
Slide 17: Cash summary
Cash summary Tax • No material payments until £264m of mining losses used up Pensions • £6-7m deficit payment likely in 2008 Provisions • Surface Mines – Old large British Coal sites need to be restored • Deep Mines – Extension of lives moves cash impact of provisions to 2015+ • Restricted cash more
Slide 18: Financial summary
Financial summary Strong progress in 2007 • Operating profit up 200%. EPS up 276% excluding tax credit. Assets per share up 46% • Securing the benefits of an improved coal selling price • Jump in surface mining production • Power generation profit up 39% • Strong gains in property portfolio valuatio
Slide 19: Mining and Power
MINING AND POWER
Slide 20: Mining: Improved environment changes mindset
Mining: Improved environment changes mindset Pricing environment • Improved pricing environment / long term demand for coal • Better customer relationships • Increased ability to get closer to market prices Accessing more reserves • Investment to extend lives at Kellingley & Thoresby • Re-examining
Slide 21: Mining
Mining Positive longer term pricing outlook • Transitioning through old contracts • 2008: c £1.75 - £1.80 /GJ • H1 more contract fulfilment/ H2 more market sales • 2009+: further sales price gains Extending deep mines lives • Daw Mill Current seam c.22mt to 2014/15 Then potentially 400‟s block - inv
Slide 22: NW Europe spot steam coal price
NW Europe spot steam coal price 160 3 140 2.5 120 100 2 £/GJ $/tonne 80 1.5 60 1 40 Actual Mar 2007 Fwd Jun 2007 Fwd Sep 2007 Fwd 0.5 20 Dec 2007 Fwd Latest Fwd 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source:API#2 - McCloskey Group / TFS Brokers Forward Prices based on l
Slide 23: UK Coal: Contracted tonnage
UK Coal : Contracted tonnage Contract position end Dec 2007: • Total contracted tonnage 24 million tonnes • c.13 million tonnes „old‟ contracts @ approx £1.55/GJ • Newer contracts are both fixed and floating Assuming $118 / tonne 2008 ARA market price • Equates to ex-pit price of £2.60 / GJ, at $2:£
Slide 24: Deep Mines: Overview
Deep Mines : Overview Production Cost before depreciation 2007 2006 2007 2006 m tonnes m tonnes £ million £ million Daw Mill 2.2 2.7 70.9 68.2 Kellingley 1.8 2.1 67.8 69.2 Thoresby 1.4 1.5 50.7 53.4 Welbeck 1.0 1.2 49.4 44.9 Total Ongoing 6.4 7.5 238.8 235.7 Closed/sold 0.2 1.4 7.4 66.0 Total Deep M
Slide 25: Daw Mill
Daw Mill 2007 2006 Output (m tonnes) 2.2 2.7 Operating costs (excl depn) (£m) 70.9 68.2 Cost per GJ (£) 1.29 1.02 Reserves and resources (m tonnes est) 22 Mineral potential (m tonnes est) 41 Effective 2 month production lost • Costs of closed period and recovery £11.5 million Slow start to new face
Slide 26: Kellingley
Kellingley 2007 2006 Output (m tonnes) 1.8 2.1 Operating costs (excl depn) (£m) 67.8 69.2 Cost per GJ (£) 1.65 1.42 Reserves and resources (m tonnes est) 55 Mineral potential (m tonnes est) 5 Geology led to expected fall in production Working through last of Silkstone seam until mid 2009 Ahead of pl
Slide 27: Thoresby
Thoresby 2007 2006 Output (m tonnes) 1.4 1.5 Operating costs (excl depn) (£m) 50.7 53.4 Cost per GJ (£) 1.46 1.51 Reserves and resources (m tonnes est) 23 Mineral potential (m tonnes est) 2 Improved face gap performance helped production Remaining Parkgate coal will be difficult to produce Ahead of
Slide 28: Welbeck
Welbeck 2007 2006 Output (m tonnes) 1.0 1.2 Operating costs (excl depn) (£m) 49.4 44.9 Cost per GJ (£) 2.01 1.59 Reserves and resources (m tonnes est) 5 Originally due to close in 2007 Fatality in late 2007 delayed start of face in Q1 2008 Three further panels being accessed given improved coal pric
Slide 29: Surface Mines
Surface Mines 2007 2006 Output (m tonnes) 1.5 0.6 Operating costs (excl depn*) (£m) 41.2 17.3 Operating cost per GJ* (£) 1.11 1.23 Operating profit** (£m) 8.5 0.5 Sites with planning consent 7 5 Sites with planning consent (m tonnes) 4.3 4.1 Total coal potential without planning*** (m tonnes) 97 Out
Slide 30: Harworth Power
Harworth Power 2007 2006 Output (MWh) 181,835 119,717 Operating profit (£m) 4.3 3.1 Net income/ MWh (£, excl emissions trading credits) 23.1 10.9 Installed capacity (MW) 29 13 Completed Stillingfleet gas installation Additional gas engines at Harworth Wind power planning applications: • Stonish Hill
Slide 31: Harworth Estates
HARWORTH ESTATES
Slide 32: Summary
Summary Increasing the portfolio value • 21% like for like increase in RICS valuation to £411 million • 17% increase in 2012 Project Worth est to £935m. • 2013 - >£1bn Evolving the development plans • Increased development acreage • Prince of Wales – resolving highway issues • Rossington in Doncaste
Slide 33: Overview
Overview £m 2007 2006 Gains on Investment Properties £70.5 £70.0 Realised gains £ 3.7 £ 1.4 Unrealised gains £66.8 £68.6 Rental income, less operating expenses £ 2.7 £ 3.3 Operating Profit £73.2 £73.3 Cash received on disposals £13.3 £18.6 £m Dec 2007 Dec 2006 Like for RICS Values like* % Business P
Slide 34: Project Worth estimates
Project Worth estimates £m 2012 2013 • December 2006 £800 • June 2007 £900 • December 2007 £935 >£1 bn Portfolio now consists of : • 76 sites • 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 sq ft on 2,
Slide 35: 2007 RICS value of principal sites
2007 RICS value of principal sites £m Waverley, Sheffield - new community 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, 1300 residential, 235k sqft employment 20-
Slide 36: Key developments
Key developments Waverley Orgreave, J33 M1 Sheffield Parkway • Advance Manufacturing Park - continued development through land sales and development with our JV partners Strategic Sites Ltd & Yorkshire Forward • Highfield Commercial - JV with Helical Governetz to promote 645,000 sq ft government rel
Slide 37: Key developments
Key developments Cutacre, J4 M61 Bolton • 1,000 acre site adjoining Greater Manchester motorway network and also rail connected • Master Planning and stakeholder consultation underway • Aim to create 250 acre premium mixed use Business Park following completion of mining in 2011/2012 Rossington Rege
Slide 38: Key Developments
Key Developments Lounge, A42 Ashby de la Zouch • 104 acre site - 60 acre Southern section in JV with development partner, Gazeley, for 850,000 sq ft rail connected distribution hub • Planning Application submitted and active dialogue with Local Authority and other stakeholders, consent anticipated b
Slide 39: Key developments
Key developments Yorkshire Main, Doncaster • Planning received January 2008 for 250 homes and 160,000 sq ft of industrial development • Marketing of residential and construction sites underway Dawley Road, Nr Telford, Shropshire • Potential surface mine site with opportunity to restore suitable for
Slide 40: Strong platform for value creation
Strong platform for value creation • Delivering on our growth platform • Sharp increase in profits, earnings and assets per share • Increasing the value of our property business • Securing planning permissions. Evolving development plans • Construction phase starts 2009. No account yet taken of deve
Slide 41: Appendices
APPENDICES Appendix I Surface Mine Balance Sheet Items Appendix II Coal Demand and Supply Appendix III UK Coal Principal Locations
Slide 42: Balance sheet: Surface mines
Appendix I Balance sheet : Surface mines £m 2007 2006 Development and restoration assets At 1January 9.7 4.1 Additions: Pre-coaling - cash spent in the year 4.7 5.1 Capitalised provisions 14.5 1.6 Amortisation (8.8) (1.1) Development and restoration assets at 31 December 20.1 9.7 Restoration provisi
Slide 43: Future worldwide coal burn
Appendix II Future worldwide coal burn (billion tonnes) 10 9 Others 8 South America 7 Other Asia Russia 6 Africa Others 5 South Africa Pacific 4 Australia 3 Europe North America 2 China 1 0 1973 1980 1985 1990 1995 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Slide 44: Increased global demand for coal
Increased global demand for coal • International Energy Agency predicts coal burn worldwide will continue to increase by c 2bn tonnes from 2010-2030 2004 2010 2015 2030 OECD (b tonnes) (b tonnes) (b tonnes) (b tonnes) North America 1.1 1.2 1.2 1.4 Europe 0.8 0.9 0.9 0.9 Pacific 0.4 0.4 0.4 0.4 TOTAL
Slide 45: UK demand for coal
UK demand for coal • UK coal demand at normal levels after 2006 peak (Million tonnes) 2000 2001 2002 2003 2004 2005 2006 2007 Electricity Generators 46.1 50.9 47.7 52.5 50.5 52.1 57.3 55.0 Coke Ovens 8.7 7.9 6.5 6.6 6.4 6.6 7.1 7.0 Industry 3.1 3.1 3.0 2.9 2.6 2.5 2.4 2.1 Domestic 1.9 1.9 1.3 1.0 0.
Slide 46: UK electricity generation: energy mix
UK electricity generation : energy mix • The fuel mix in the generating sector returned to normal levels after 2006 • The steady decline in nuclear coupled with reducing imports from Russia helps to reinforce the need for indigenous production in the medium term. (%) 2000 2001 2002 2003 2004 2005 20
Slide 47: UK electricity generation: Capacity & peak demand projections
UK electricity generation: Capacity & peak demand projections Forecast Capacity (MW) vs Forecast Demand • Annual demand expected to 120,000 grow by ~1% per annum UK Electricity Supply • 20GW by 2020 new build 100,000 requirement • 7GW Committed new build 80,000 • No change in last six months • Incre
Slide 48: Coal Forum: Predicted coal burn for the UK
Coal Forum : Predicted coal burn for the UK High Coal Scenario 60 50 Low Coal Scenario mt per year 40 30 20 10 0 2006 2012 2016 2020 2024 Flue Gas Desulphurisation Non Flue Gas Desulphurisation Source : Coal Forum 48
Slide 49: UK electricity: Sources of coal 2007
UK electricity : Sources of coal 2007 15% 21% UK COAL Russia 8% Colombia S Africa Other Imports 35% Other Indigenous 14% 7% Source: DBERR Energy Statistics 49
Slide 50: Principal site locations
UK COAL Principal Locations Principal site locations Appendix III 50