coke wc problems?3 Oct 2014 13:09
The Group produces and trades coke through its Monckton coke plant. As we have previously reported, coke markets and pricing have been very volatile and this continues to hamper Monckton's activities. Difficulties in the financial and commercial position of some producers and customers are adding to the challenging trading conditions. The Group has always recognised the importance of balancing risk with maximising return on capital employed and is aware of the high levels of working capital already invested at Monckton and in its wider coke trading activities. We remain committed to minimising operational risk wherever possible, by avoiding significant open contractual positions. Against this background, the Board will, in the coming weeks, review whether Monckton can achieve sufficient contractual certainty in current market conditions to justify the level of working capital deployed to support the operation. At the end of May 2014 the coal and coke stocks at Monckton amounted to £17.5m. The Group will also look for opportunities to cut working capital levels in our German associate by reducing trading levels until normal market conditions resume.
The Group views its UK coal trading businesses as an important part of the Group and highly synergistic with its coal production activities. Although there will continue to be a key focus on developing production, trading and distribution activities in the UK, the Group does recognise that coal trading poses very intensive working capital demands. Opportunities will be sought to focus trading activities on core streams where the Group is best placed to add value, optimise its return on capital and maximise synergies and profits from its thermal and speciality coal markets. To achieve this focus, we currently envisage reducing bulk trading volumes by around 1.5m tonnes per annum and reducing working capital accordingly. A key focus of the Group will be to protect our market share and margins from the supply of coal into the thermal and speciality markets.
Other non-core activities are also under review, including the tyre crumbing operation, the joint venture with MIR Trade in Europe and the Rocpower operation. Notice has already been given to our joint venture partners to seek to wind down the activities of MIR Trade joint venture in an orderly fashion. The Group has recently received early stage interest from a third party in the acquisition of Rocpower's Commonside Lane facility and grid connection. In light of the decision to streamline the Group, the Board is willing to consider a disposal of the Rocpower assets and has written down the value of the assets in the Group balance sheet accordingly.
The Board expects this set of initiatives to liberate substantial cash resources, which will be available to enhance returns for shareholders.
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