Harworth Gp Regulatory News (HWG)

Coalfield Resources plc

("Coalfield Resources", "CfR" or "the Company")

Final Results for the year ended 31 December 2014

Coalfield Resources plc is a property investment holding company. Its only significant investment is a 24.9% stake in Harworth Estates Property Group Limited ("Harworth Estates" or "HEL") in which it takes an active investment management role.

CfR key points:

· Profit from continuing operations of £3.5m (2013: £3.3m)

· Net assets of £58.7m (2013: £55.2m)

· Net assets per share of 9.7p (2013: 9.1p), reflecting our underlying investment in Harworth Estates

· Heads of Terms agreed with Pension Protection Fund (PPF) to acquire its 75.1% shareholding in Harworth Estates (the "Proposed Acquisition")

· Plan for the departure of Jeremy Hague and appointment of Michael Richardson as Finance Director

Harworth Estates key points:

· Net assets increased to £249m (2013: £235m) on a property portfolio value of £290m (2013: £277m)

· Waverley site further land sales - seventh phase released, eight acres commercial development including delivery of 52,000 sq ft pre-sale design and build scheme

· Logistics North (near Bolton) - first two sales completed (720,000 sq ft) on site with potential to deliver 4 million sq ft of high-quality employment space for distribution and manufacturing businesses

· First phase residential sales at: Prince of Wales site, first phase released following remediation programme (planning for 700 plots); and Rossington, two sales conditionally exchanged (165 plots) on this 1,200 plot scheme

· Potential residential and commercial schemes including: 1,100 plots at Coalville and 325 plots at Gawber secured; seven residential planning applications submitted with potential to secure a further approx. 2,000 dwellings; and two commercial applications submitted at Daw Mill colliery and Rockingham for 650,000 sq ft

· Debt refinanced, in February 2015, on substantially improved terms

Commenting on the results, Jonson Cox, Chairman of Coalfield Resources, said:

"We have made good progress in growing the asset value of Harworth Estates, which continued to perform well in its second year of trading as a specialist brownfield investment property development company.

"We have also announced the Proposed Acquisition for a total consideration of approximately £150m. This acquisition would give a strong platform for growing Harworth. We will continue to work with the PPF to deliver the transaction which is proceeding to plan."

Enquiries

Anthony Cardew / Tom Horsman, Cardew Group T: +44 (0)20 7930 0777

Notes to Editors:

Coalfield Resources plc is a property investment holding company. Its only significant investment is a 24.9% stake in Harworth Estates Property Group Limited in which it takes an active investment management role.

Harworth Estates Property Group Ltd is a leading property and development company, which operates as a standalone business managing a portfolio of some 27,000 acres of land across approximately 200 sites located throughout the Midlands and North of England. Harworth Estates specialises in the regeneration of former coalfield sites and other brownfield land into employment areas, new residential properties and low carbon energy projects.

Cautionary Statement

This announcement contains forward-looking statements that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as anticipate, target, expect, estimate, intend, plan, goal, believe, will, may, should, would, could, is confident, or other words of similar meaning. Undue reliance should not be placed on any such statements because they speak only as at the date of this document and, by their very nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and Coalfield Resources plans and objectives, to differ materially from those expressed or implied in the forward-looking statements.

Coalfield Resources undertakes no obligation to revise or update any forward-looking statement contained within this announcement, regardless of whether those statements are affected as a result of new information, future events or otherwise, save as required by law and regulations.

Chairman's Statement

Overview of 2014

I am pleased to report on the second full year of Coalfield Resources plc following the disposal in December 2012 of the former UK Coal plc's mining and property businesses ("the 2012 Restructuring"). Our shareholding in Harworth Estates, a specialist developer of brownfield investment property, is our principal source of value. This business continued to perform well in 2014.

We have worked as an active, minority investor, alongside both the Industry Wide Mining Pension Schemes ("Pension Schemes") and the Pension Protection Fund ("PPF"). Our small team provides board leadership, financial, legal and governance services to Harworth Estates on behalf of all investors. In August 2014, the majority ownership of Harworth Estates transferred from the Pension Schemes to the PPF.

We were delighted on 18 November 2014 to announce a non-binding heads of terms to acquire the PPF's 75.1% stake in Harworth Estates for a total consideration of approximately £150m. The consideration will be a shareholding of between 25% and 29.9% in the Company with the balance of the consideration payable in cash from an expected firm placing and open offer to shareholders during the first quarter of 2015. Re-establishing Harworth Estates within a single corporate structure will be a material step in the realisation of value from our brownfield property portfolio. 

Context and history

In December 2012, the Board of UK Coal plc implemented a solvent restructuring which separated the mining activities from the brownfield property interests. The deficit of the pension funds, of the order of £450m, and any claim on the Company was addressed by granting a first claim on surplus cash flow from the de-merged mining business to the Pension Schemes and by granting them a 75.1% shareholding in Harworth Estates to whom the Pension Schemes also provided £30m of funding. Coalfield Resources was released from its liability for the pension deficit to the schemes. Shareholders in Coalfield Resources secured an ongoing 24.9% shareholding in Harworth Estates.

A residual minority stake in the de-merged mining business held by CfR, together with a shareholder oversight role, were both relinquished on a further mining restructuring in July 2013.

Coalfield Resources now has no remaining direct exposure to the de-merged mining business, other than an indemnity in respect of the small Blenkinsopp pension scheme, where the Company's liability is also guaranteed by Harworth Estates.

Harworth Estates

Harworth Estates has performed well in its second year of trading as an independent property development company. Net assets increased to £249m (2013: £235m) on a property portfolio value of £289.6m (2013: £276.7m). A return of £14.0m was delivered on the opening net assets of £235m, with £15.7m from increases in valuation at year end. Operating activities generated £0.7m, with a further £8.0m of profit recognised on its asset sales (of £29.4m) in the year. A £6.9m tax charge was recognised as a deferred tax liability on valuation gains.

Results of Harworth Estates (audited)

Harworth Estates has benefitted from improved confidence in the housing market across the North and the Midlands. Highlights for Harworth Estates during 2014 were:

· Waverley site further land sales - seventh phase (81 plots) released; 8 acres commercial development including delivery of 52,000 sq ft pre-sale design and build scheme

· Logistics North (near Bolton) - first two sales completed (720,000 sq ft) on site with potential to deliver 4 million sq ft of high-quality employment space for distribution and manufacturing businesses

· First phase residential sales at: Prince of Wales site, 131 plots following remediation programme (planning for 700 plots); and Rossington, two sales conditionally exchanged (165 plots) on this 1,200 plot scheme

· Planning progress on both residential and commercial schemes including: 1,100 plots at Coalville and 325 plots at Gawber secured; 7 residential planning applications submitted with potential to secure a further approx. 2,000 dwellings; and 2 applications submitted at Daw Mill and Rockingham for 650,000 sq ft of commercial space

· Taking over the former Harworth colliery in a state ready for redevelopment, following the successful acquisition in 2014 of the former Daw Mill colliery

· The company completed its first acquisition of a new non-mining site, with its purchase of the former Skelton Grange power station site in Leeds from RWE Npower. 

In last year's financial statements we reminded shareholders that Harworth Estates, as owner of most of the mining freeholds, had also provided certain bonding lines as a necessary condition of the 2012 Restructuring. The intention was that vacant possession would revert to Harworth Estates following closure and restoration of the mines, providing the opportunity for future redevelopment.

Given the historical issues in the deep mining business, the negative outlook at the start of 2014 for coal prices and ongoing operational difficulties within the UK coal industry, Harworth Estates provided £9.1 million against a loan receivable and its pension obligation to Coalfield Resources and £8.9 million against certain property assets on the basis that these pieces of land may have unfulfilled obligations if the mining business tenants defaulted on their leases. These were reflected in the Company's share of profits of associates and investment in associates in its 2013 results. No change has been made to the level provided last year. A dedicated director was appointed by Harworth Estates in early 2014 solely to focus on managing mining tenant issues. Good progress has been made towards a formal re-assessment at the end of 2015 of the remaining exposure.

Strategy

CfR believes that Harworth Estates has significant opportunities to create further value from its land portfolio of approximately 27,000 acres and specialist brownfield remediation and development skills. The Board believes that its strength in the regions of in Yorkshire, the North East and the East Midlands provides scope for further growth as regional economies strengthen.

 In addition, we see the opportunity for Harworth Estates to acquire other brownfield sites in related industries. The first such acquisition has been Skelton Grange, the site of a former RWE Npower power station in Leeds. This acquisition takes Harworth Estates into the West Yorkshire market.

The Board has been acutely aware of the discount to NAV inherent in CfR's share price which has ranged between 32% and 43% during the year. The Board believes that this discount has reflected both our minority ownership and the constraints of the particular capital and ownership structure of Harworth Estates, both of which would be removed if the Proposed Acquisition is successful. In 2013 the Board undertook to continue to make available the listed Company as one of a number of options for a future efficient financial structure of Harworth Estates, to ensure liquidity and the ability to finance growth.

The Board set as a strategic objective for 2014 the consolidation of the shareholding structure of Harworth Estates into one vehicle, capable of raising additional development equity, optimising value and efficiency and creating an ongoing sustainable, specialist property business. Progress was limited until the transfer of the majority shareholding to the PPF was completed. We were delighted on 18 November 2014 to announce that heads of terms had been agreed for the acquisition of the PPF shareholding by CfR, with a continuing substantial shareholding for the PPF, in the enlarged group.

Board

The Board of CfR consists of three non-executives, together with a part-time Chairman and the Finance Director. The Chairman and the Finance Director devote most of their available time to the Harworth Estates business. During the year Geoff Mason returned to the business on a part time basis as Company Secretary.

Prospective Board changes

On Completion of the Proposed Acquisition to acquire the PPF's shareholding in Harworth Estates, the Board proposes to invite Owen Michaelson, the Chief Executive and Michael Richardson the Finance Director of Harworth Estates to join the Board together with Martyn Bowes as a non-executive director nominated by the Pension Protection Fund and Anthony Donnelly, as an independent non-executive director. Both Martyn and Tony currently serve on the Board of Harworth Estates.

At the meeting to approve the 2014 accounts, Jeremy Hague, Finance Director of the Company since January 2013 offered to step down and leave the Company with effect from 30 April 2015 to facilitate the management changes. Michael Richardson will assume the role of Finance Director of Coalfield Resources and, on completion of the transaction, of the enlarged Group.

I would like to place on record our thanks to Jeremy for long service with the Company, and predecessor businesses. Jeremy has played a significant role in helping the Company navigate the challenges of the last two years and to bring about the Proposed Acquisition. He will leave with the best wishes of the Board for the next stage of his career.

Outlook

We continue to see good interest in the property sector. Harworth Estates is a beneficiary of this through the increased demand and improved prices for commercial and residential land. This can be seen in both the valuation gains achieved and also the disposals made. The Board is confident of the ability of our underlying asset, Harworth Estates, to deliver and grow shareholder value from the redevelopment of the former coalfields and other former industrial sites.

Jonson Cox

Chairman

19 February 2015

Financial Review

2014 has been the Group's second full year of operational trading following the 2012 Restructure of UK Coal plc. During the year, the Company has continued to solely focus on its investment in Harworth Estates and how to realise and create value for its shareholders, which in turn delivers value to the shareholders of the Company.

Income statement

The Board are pleased to report Harworth Estates has continued to perform well and we have recorded a profit in the year of £3.5m (2013: £3.1m) in respect of our 24.9% shareholding in this associate. This result includes a £1.7m charge in respect of Harworth Estates recognising a tax charge of £6.9m (2013: £nil) for deferred tax (principally in respect of revaluation gains) in its 2014 results. Previously the business had access to sufficient losses to cover potential deferred tax.

The only revenue reported is from recharging management time and running costs of the business to Harworth Estates, as provided for under the amended Shareholder Agreement between the Company, Harworth Estates and the Pension Protection Fund. A small operating loss is reported in the year, mainly due to certain costs incurred which are not rechargeable under the Shareholder Agreement. The liability, as calculated under IAS 19, for the Blenkinsopp pension scheme has decreased this year to £564k (2013: £683k), this is despite the significant fall in recent months of corporate bond yields, which are now at record lows in both real and nominal terms but offset by the fact that most assets are in bonds and gilts which performed well compared to other investments. Our indemnity and security mean we recognise an equal asset, as we did last year, and as such this does not impact our results. While we have the indemnity and security from Harworth Estates, the ongoing contributions in 2014 were met by UK Coal Production Limited as primary obligor under the indemnity.

We received £10k of financing income in the year. This was in respect of interest received from cash balances held.

This results in a profit attributable to shareholders of £3.5m for 2014 (2013: £1.7m).

Balance sheet

Net assets have increased to £58.7m (2013: £55.2m). This is mainly as a result of the increase in the value of our investment in Harworth Estates which is now £56.9m (2013: £53.4m).

Trade payables and receivables reduced during the year by £24k and £72k respectively.

Our cash balance at the end of 2014 was £1.5m (2013: £1.4m).

Blenkinsopp pension scheme - asset and liability

As mentioned above, we have recognised an asset of £564k (2013: £683k) to offset the liability in respect of the Blenkinsopp pension scheme. The IAS 19 valuation of the liability has reduced during the year to £564k (2013: £683k). The valuation methodology and general assumptions have remained consistent with last year. Over the last few months of 2014 corporate bond yields fell significantly, and yields were at record lows in both real and nominal terms, which meant that discount rates for pensions accounting were significantly lower than 2013, which placed a higher value on liabilities. Whilst long term inflation expectations are slightly lower than 2013 (which reduces liabilities) this did not offset the increase in liabilities due to lower discount rates. While equity markets have fallen, most assets in the scheme are in bonds or gilts which performed well during the year and offset the higher liability values. This resulted in the decreased IAS 19 liability recorded at the balance sheet date.

Harworth Insurance Company Limited (HICL)

The Company retains a 100% shareholding in a former insurance business, HICL. This is classified as held for sale as there is a put and call option over its shares. During July 2014 we completed the sale of the insurance business assets and liabilities to Royal Sun Alliance. The assets held for sale are £5.1m (2013: £21.7m), the liabilities held for sale are £0.5m (2013: £17.1m) and an amount in respect of deferred income in trade and other payables of £4.6m (2013: £4.6m). The only balance sheet assets held by HICL (and its subsidiaries) is a single property asset, cash balances and investments, and some working capital. As deferred income in the Company equals the remaining net assets of the HICL business, no profit or loss will arise on the sale when the disposal completes. With the sale of the insurance business assets and liabilities now completed it is highly probable that the option will be exercised in 2015.

The put and call option over the shares of HICL remains held by the administrators of Ocanti No.1 Limited (formerly UK Coal Mine Holdings Ltd). CfR is in discussion with the administrators of Ocanti No.1 Limited regarding any appropriate further consideration due to the Group from this sale, following the events of the further Mining Group July 2013 Restructuring.

Cash flow

The cash balance was £1.5m at the year-end (2013: £1.4m). The balance remains in line with last year end reflecting the recharging to Harworth Estates of costs incurred, under the shareholder agreement between CfR and the Pension Protection Fund.

Net asset per share

Discount to net asset value

At the start of 2014 the shares were trading at 6.0p per share which equated to a discount to the underlying net asset value of 34%. This discount fluctuated through the year. At the point of suspension from trading on 18 November 2014, the share price was 5.4p, a discount of 43%.

Whilst the discount to net asset value represents an indicator of potential impairment to the investment in Harworth Estates, the Directors are confident that the carrying amount of the investment does not exceed its recoverable amount and therefore no impairment is required.

Taxation

There has been no corporation tax charged in the year (2013: £nil). At 31 December 2014 the Group had neither any recognised deferred tax assets nor deferred tax liabilities (2013: £nil) (excluding any recognised in its investments in associates).

Key performance indicators

The Key Performance Indicators remain in line with those stated in last year's report and these are focused on our investment in Harworth Estates. The Group does not control Harworth Estates but is an active investor. While property metrics would be appropriate for Harworth Estates, they are not appropriate for the Group whilst it remains as a non-controlling investor.

The Key Performance Indicator for the Group is now the net asset value of its investment in Harworth Estates. As stated in the financial statements this is £56.9m as at 31 December 2014. The net asset value is monitored by the Group on a regular basis through its two Directors on the board of Harworth Estates. They play an active part in the direction and strategy of Harworth Estates and in assessing business performance.

Principal risks and uncertainties

The Group's performance, including the current or future value of its assets, will depend on macro property market conditions that affect its investment in Harworth Estates. The Group's two Directors on the board of Harworth Estates monitor this investment and ensure where possible that the business strategy of Harworth Estates minimises these risks. The risks are principally:

Sales value risk

The sale of remediated brownfield land to house builders and commercial developers is an important source of proceeds and the gaining of residential and commercial planning consents is an important source of valuation growth for Harworth Estates. Any decline in general property market conditions including (i) the market for residential and commercial land and/or residential and commercial property not functioning properly; (ii) a decline in market values; and/or (iii) a decline in the availability and/or an increase in the cost of credit for residential and commercial buyers, may have an adverse impact on the Harworth Estates results, financial condition and/or prospects, which may then in turn have a negative impact on the Group in terms of the value of its investment in Harworth Estates. These risks are not controllable by the Group.

Planning risk

Harworth Estates continued progress with its projects for future delivery is dependent on the continued success of its applications for planning permissions. Current or future planning applications may not result in the desired outcome or may be granted on unduly onerous terms. Failure to obtain such permissions may reduce the speed Harworth Estates can implement its strategy and have an adverse impact on its business, which may in turn have a negative impact on the Group's investment in Harworth Estates.

Further, Harworth Estates development operations are contingent upon the effective functioning of the planning system at both regional and national level. Changes in law or policy affecting planning, infrastructure, environment (including waste disposal) and/or sustainability issues could adversely affect the timing or costs associated with development opportunities. This could lead to reduction in value or delays in delivering project values with an adverse effect on Harworth Estates which may in turn have a negative impact on the Group's investment in Harworth Estates.

Property valuation movements and liquidity

Properties, including those in which Harworth Estates has invested, or may invest in the future, can be relatively illiquid investments. This lack of liquidity may affect Harworth Estates ability to realise its valuation gains, vary its portfolio or dispose of, or liquidate part of its portfolio in a timely fashion and/or at satisfactory prices. The valuation of property is subject to uncertainty and cash generated on disposal may be different from the value on Harworth Estates balance sheet. This may mean that the value ascribed by Harworth Estates to its properties may not reflect the value realised on sale. Valuations may fluctuate as a result of factors such as changes in regulatory requirements and applicable laws (including taxation and planning), political conditions, the condition of financial markets, interest and inflation fluctuations. Each of these factors may have an adverse effect on Harworth Estates which may in turn have a negative impact on the Group's investment in Harworth Estates.

Minority shareholding and single investment

The Group has only a 24.9% shareholding in Harworth Estates. While it does maintain significant influence over Harworth Estates, currently it does not have any control over this company. The ownership and control of the remaining 75.1% shareholding is with the Pension Protection Fund following the transfer of this shareholding from the Trustees of the Industry Wide Mineworkers and Industry Wide Coal Staff Pension Schemes in August 2014.

The Shareholder Agreement between the Company and the Pension Protection Fund contains drag along rights pursuant to which the Company may be required, by other holders of shares in Harworth Estates (''the Drag Sellers'') who propose to transfer a controlling interest (as defined in the shareholders' agreement) to a third party on bona fide arm's length terms, to sell all of its shares in Harworth Estates to such third party on the same or equivalent terms as those agreed between the Drag Sellers and the third party purchaser.

Under the terms of the Shareholder Agreement and the Articles of Association of Harworth Estates, if the Pension Protection Fund or the Company wish to transfer any of their shares in Harworth Estates to a third party purchaser, they must first grant the other party a right of first offer before selling such shares to a third party purchaser. If the Pension Protection Fund subsequently seek to transfer a controlling interest in Harworth Estates to a third party purchaser, the Company is also granted a right to match the highest price submitted by a third party purchaser. As referred to in the Chairman's Statement the Company is currently proposing to acquire the 75.1% stake in Harworth Estates it does not currently own. Should this transaction complete this risk will no longer apply. 

If the Company does not or cannot purchase the shares representing a controlling interest in Harworth Estates pursuant to its right of first offer or its matching right within the required timescale and the Pension Protection Fund subsequently sell such a controlling interest to a third party purchaser, the Pension Protection Fund may insist that the Company also sells its entire shareholding to such third party purchaser on the same terms as the drag-along provisions summarised above.

Consequently, the drag provisions may not give the Company sufficient time to maximise the value of its Harworth Estates shareholding for shareholders. This would fundamentally alter its key revenue stream from both dividends and recharged expenses.

Funding of the Company's on-going running costs

The on-going running costs and employee costs are met by Harworth Estates under an agreement entered into as part of the 2012 Restructuring and varied as part of the Mining Group July 2013 Restructuring. This agreement covers the Company's cash costs based on current expectations until 31 December 2016. From 1 January 2017, other than for the employment costs of the executive team which are indemnified, subject to limits, indefinitely by Harworth Estates, the Company will have to fund its other on-going running costs from cash reserves or from dividends from Harworth Estates.

Treasury policy and liquidity

The Group has no borrowings and has cash balances estimated to be sufficient to cover forecast cash requirements. Details of financial risks in respect of credit risk and liquidity risk are set out in the relevant note to the accompanying financial statements.