PRELIMINARY RESULTS YEAR ENDED 31 DECEMBER 2004

(1)

PRELIMINARY RESULTS

(2)

Overview

(3)

Highlights

18.9mt 14.3mt

Coal sales from UK operations

£174m (2002) £202m

Gross value of property before

rehabilitation and restoration costs

£1.16 per Gj £1.30 per Gj

Total unit production costs

£1.12 per Gj £1.18 per Gj

Average selling price

3.1mt 2.0mt

Surface mine output

14.8mt 12.0mt

Deep mine output

5p per share 1p per share

Final dividend

£39.1m £(7.5m)

Cash (outflow) / inflow before dividend

£(1.2m) £(51.6m)

Loss before tax

£(1.8m) £(28.7m)

Operating loss from continuing

operations before exceptional items

2003

2004

(4)

Operational Review and Strategy

Chief Executive – Gerry Spindler

(5)

Strategy

• Resolve issues in deep mines

• Regenerate surface mining business

(6)

Deep Mines - Key Issues

• Workforce disputes (2004 impact ~£10m)

- Mostly related to bonus structure

- Led to serious performance shortfalls

• Poor equipment availability (~£10m)

8 Over-emphasis on Machine Available Time

8 Inadequate time available for prudent preventive maintenance

• Mine performance shortfall (~£25m)

- Decrease of 1.9 million tonnes from 2003 to 2004

- Low Development rates due to poor logistics and geologic difficulties, leading directly to face gaps

- Spending continued at annual budget levels despite lower production

(7)

Deep Mines - Progress to Date

• Positive Workforce agreements at 2 collieries

-Increased face time

-Daily Bonuses replaced with different pay structure

-Should reduce disputes, reduce management time devoted to complex bonus schemes, and improve ability to plan complex mining activities

-Reduces probability of face gaps, which typically cost £1m per week

• Structured daily maintenance

-Designed to dedicate significant time to maintenance EVERY DAY

-Targeting component replacement and reduced downtime

-Results in improved overall availability

• New cost control practices

-Previous system treated all costs as fixed, all costs now are managed on a project basis

-New system provides focused management for each project for on-time, on-cost performance

• New ground control techniques

-First attempts with polyurethane injection to improve problematic face conditions quite successful, leading to fewer face production delays

(8)

Surface Mines – Key Issues

• Replaces imports

• 100 million tonnes of reserves

-

20:1 ratio overburden to coal

• Economic at today’s prices

• Planning permissions represent barrier

• Surface mine schemes have low cost start up which would

produce higher operating margins combined with low

operational risk

• Use of brownfield sites has benefit on local communities

and have development potential after mining operation

ceased

(9)

Surface Mines – Key Tasks

• 4.7m tonnes for four sites to be submitted for planning

approval in 2005

• 3 additional sites under appeal with 2.7m tonnes

• Working to change attitudes

-

Environmentally sensitive schemes

-

Brownfield site regeneration (complete with mining)

-

High standard of rehabilitation

• Revitalise surface mining by increasing awareness of

benefits

• Increase the political lobby to modify the presumption

(10)

Contracted ESI Sales and Estimated Other

Markets

0 2 4 6 8 10 12 14 16 18 2009 2008 2007 2006 2005 Fin an cia l Y ea r

Million tonnes per annum

Firm ESI Drax FM Other Markets £1.336-£1.487/GJ £1.301-£1.309/GJ £1.300-£1.361/GJ £1.312-£1.460/GJ £1.321-£1.468/GJ

(11)

NW Europe Spot Steam Coal Price

(Delivered Into Deep Water Ports)

20 30 40 50 60 70 80 91 92 93 94 95 96 97 98 99 '00 '01 '02 '03 '04 '05 '06 '07 $ / t on n e Actual Forward Mar03 Forward Sep03 Forward Mar04 Forward Sep04 Forward Dec04 Forward Feb05

(12)

Property - Key Issues

• Four key focus areas:

Business parks

• Increase occupancy

• Grow rental income

• Add parks

Brownfield re-generation

• Restore operating sites

• Rehabilitate un-used land

• Exploit opportunities - Residential

- Light industrial - Business parks

Agricultural land

• Land bank for surface mining

• Surplus land

• Develop rental incomes

• Good yields

Utilize planning to leverage all areas to increase value of Land

•Market Value before deduction of Costs and excluding Asfordby and operating collieries £202 m (2002: £174m)

(13)

Financial Results

(14)

Segmental Profit/(Loss)

Year ended 31 December 2004

2004

2003

£m

Coal sales - Deep Mines (37.8) (8.6)

Coal sales - Surface Mines 4.1 0.7

Other businesses 3.1 4.3

Australia coal sales (1.2) (4.0)

Property activities - rentals & ongoing 1.5 1.1

Loss before interest & exceptional items (30.3) (6.5)

Exceptional items (20.9) 6.3

Profit on sale of businesses 1.9 0.0

Property activities - profit on sales 2.8 5.8

Operating (loss)/profit (46.5) 5.7

Net interest (5.1) (6.9)

(15)

Movement in Operating Profit before Interest

and Exceptional items

(8.6) 21.0 (67.2) 17.0 (37.8) -70 -50 -30 -10 10 30 50

£ m

illio

ns

"Deep Mine" Movement

2003 to 2004

(2.8) mT

(16)

Exceptional Items

2004 2003

£m £m

Redundancy (6.3) (2.7)

Selby post coaling (6.2)

-Other closure items - 0.7

Impairment re Ellington Colliery (3.1)

-Net redundancy & closure costs (15.6) (2.0)

Surface mine equipment written down (4.3)

-Pension deficit of company disposed of (1.3)

-Stobswood restoration costs (10.8)

-Recovered against TXU debtor 2.2 6.5

Provision against other amounts receivable- - (1.7)

Coal Investment Aid 8.9 3.5

(17)

Cash Flow

year ended 31 December

2004 2003

£m £m

EBITDA 2.2 52.5

Surface mine restoration (8.1) (18.3)

Reduction in coal stocks 11.2 19.3

Investment Aid received 15.2

-Other working capital and provisions (2.3) (0.4) Net redundancy payments inc. Government contribution (18.3) (7.1)

Cash inflow from operating activities (0.1) 46.0

Net interest and finance charges 0.6 (0.2)

Taxation 0.0 4.0

Capital expenditure (51.4) (21.1)

Capital sales (property/plant & machinery) 4.8 10.4 Disposal of subsidiaries (including repayment of loan) 38.6 0.0

Cash (outflow)/inflow before financing and dividends (7.5) 39.1

Opening net debt (29.7) (53.5)

Closing net debt (48.1) (29.7)

Gearing 28% 13%

(18)

Balance Sheet

31 Dec 2004 31 Dec 2003 £m £m Fixed assets 364.6 399.9 Stocks 47.6 59.5 Debtors 69.9 82.4

Cash (less bonded cash) 0.3 1.4

Total Assets 482.4 543.2

Creditors 156.6 152.7

Provision for liabilities (less bonded cash) 155.2 168.0

Net Assets 170.6 222.5

(19)

Pensions (defined benefit schemes)

2004

2003

£m

Charge to profit & loss (SSAP24)

14.5

13.4 Charge to profit & loss (FRS17)

13.3

21.1 Contributions paid

16.6

14.6 FRS17

Opening deficit

102.7

108.1 (Increase)/decrease

10.5 (5.4)

Closing deficit

113.2

102.7

• Actuarial loss from Improved life expectancy main reason for increase in deficit