Net Loss For Solid Energy
25 March 2008
Half year loss but energy producer forecasts profitability for full year
Energy producer, Solid Energy New Zealand Ltd, has produced a net loss after tax of $2.7 million for the half year ended 31 December 2007. The result, while disappointing, is not unexpected and Solid Energy is forecasting a return to profitability for the full year and a strong result in the 2009 year as Stockton Opencast Mine returns to full production and the benefits of strong international coal prices flow through into the business.
At 2.05 million tonnes (mt), overall coal production fell by 12.4% (2006: 2.34 mt) for the half year. New Zealand sales were marginally lower at 1.21 mt (2006: 1.22 mt) and exports down 24.7% to 843,000 tonnes (2006: 1.12 mt). Profit was down $38 million (2006: 35.3 million) and revenue down 14% to $240.4 million from $279.5 million for the same period last year.
Among the contributing factors were continuing production difficulties at Stockton, the company’s main export mine, that carried over from the previous year and the slippage of an export shipment into the second half of the year. In the North Island demand from Genesis Energy for its Huntly Power Station was less than expected.
Solid Energy Chairman, John Palmer, says lower long-term export contract prices also combined with the higher New Zealand dollar further depressing the company’s international revenues.
“While the result is disappointing, the short-term outlook remains positive. From the fourth quarter Solid Energy will benefit from expected record benchmark prices for internationally-traded coals. That increase, and a return to planned production levels at Stockton, should result in a return to good profitability in the second half of the year and a stronger result in the 2009 year,” Mr Palmer says.
“Like other resource companies, Solid Energy is seeing very high escalations in production costs, particularly in equipment, materials and specialist suppliers. The inflation outlook for New Zealand is of concern, coupled with and partially driven by a skills shortage and very tight labour market, which is especially acute in our industry. Customer uncertainty about the cost of the proposed Emissions Trading Scheme (ETS) is raising the risk profile for the long-term security of Solid Energy’s domestic coal supply business,” Mr Palmer says.
Chief Executive Officer, Dr Don Elder, says key challenges for the business include sustaining production target rates, while containing cost escalations in the face of the risk of a higher New Zealand dollar, and agreeing a new long-term contract with New Zealand Steel. However there had also been a number of positive developments in the period.
“We signed an 18-year transport agreement with Pike River Coal to carry up to 1.3 million tonnes of coal a year by rail from its mine to the export port of Lyttelton and, late in the period, we resumed coal extraction at Spring Creek Underground Mine following a 14-month development programme. We also reached a short-term agreement with New Zealand Steel for coal supply to its Glenbrook Mill and continue to discuss the possibility of a longer-term contract that would underwrite further expansion of our Waikato mines. To date, however, uncertainty about the potential impact of the ETS has prevented us from concluding these discussions,” he says.
“Our renewable energy portfolio made progress, with Biodiesel New Zealand successfully testing New Zealand-grown oilseed rape as a feedstock, and the launch of Switch, an energy systems designer and supplier with a focus on renewable energy such as solar hot water heating. In the half year, we’ve finalised plans to build a large-scale biodiesel production facility near Christchurch, producing 15 million litres per annum in the first stage, with capacity to expand to 70 million litres. Plans to build a third Nature’s Flame wood pellet production facility at Taupo are underway.
“The company continues to invest in new energy technologies that have the potential to underwrite New Zealand’s growing future energy needs. In the Waikato, trials to extract gas from deep coal seams have been encouraging and a decision will be made in the coming year on whether to proceed with commercial production. Studies continue into the potential for Southland lignites to contribute to New Zealand’s future energy needs, particularly the viability of a coal to liquid fuel plant,” Dr Elder says.
Unaudited Result for six months ended 31 December 2007
6 Months to
31 Dec 2007 6 Months to
31 Dec 2006
Tonnes of Coal sold – total
• New Zealand 2.05 M
1.21 M 2.34 M
Sales Turnover $240.4 M $279.5 M*
Earnings before Interest and Taxation $0.5 M $54.3 M*
Surplus after Taxation -$2.7 M $35.3 M*
Dividend Paid - -
Return on Shareholders Funds (annualised) -2.9% 27.4%*
Return on Average Assets (annualised) -1.5% 15.2%*
Note: The half-year report is Solid Energy’s first set of financial statements based on New Zealand International Financial Reporting Standards. To ensure earlier results provide relevant comparisons, these have been restated. There has been no significant impact as a result of this restatement.