Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 

Good operating performance overtaken by asset writedowns

31 August 2012
Good operating performance overtaken by asset writedowns

Solid Energy’s underlying earnings of $99.7 million (2011: $86.2 million) for the year ended 30 June 2012 is good in a deteriorating market, says Solid Energy Chairman, John Palmer. However, the company’s decision to impair a number of assets has resulted in a loss of $40.2 million (2011: profit of $87.2 million). Total asset impairments, net of tax, of $110.6 million have been booked as at 30 June 2012.

Earlier this week, Solid Energy announced that it plans to reduce underground coal mining operations and exit renewable fuel production. The company plans to wind back operations at Huntly East Underground Mine and is reviewing the future of Spring Creek Underground Mine. The Nature’s Flame wood pellet business has been set up as a standalone operation and the biodiesel business will be divested. As a result, Solid Energy is taking the opportunity to write down these and other assets.

“This result and the changes we are proposing to preserve the long-term value of the business clearly reflect the impact of the global economic downturn and the impact of worldwide commodity markets on the business,” says John Palmer. “Our underground mines have struggled for some time to be profitable as costs have escalated, while at the same time export coal prices have weakened substantially. The current carrying values of these mines cannot be justified based on projected earnings and have therefore been written down.

“In recent years the company has made a significant investment developing renewable energy businesses. The harsh reality is that other fuels are far more competitive in the current financial environment. We took a long-run view of these businesses which relied on a sustained price premium which has largely failed to materialise.”
Revenue of $978.4 million was up 18% on the previous year (2011: $828.7 million), the second-highest annual revenue (2009: $979.5 million). Coal sales were up 13% to 4.6 Million tonnes (Mt) (2011: 4.1 Mt) boosted by product stockpiled due to shipping delays at the Port of Lyttelton following the Canterbury earthquakes in June 2011. Coal exports of 2.4 Mt were up 20% on the previous year (2011: 2.0 Mt) with New Zealand coal sales up 6% at 2.2 Mt (2011: 2.1 Mt). Prices ranged from a high of US$300/tonne for hard coking coal at the start of the financial year, to a low of US$206/tonne, then up to US$225 at year end. The average US dollar price received in the first half of the year was up 31% on the prior year, but softened to up 9% overall for the full year. Average New Zealand dollars prices were up 6% for the full year.”

The company paid a dividend of $30 million on 30 September 2011. Mr Palmer says that given the volatility and continued weakness of international coal markets, the company has not declared a further dividend for the year.

During the year, Solid Energy met a number of key milestones in delivering its long-term growth strategy. The $22 million underground coal gasification pilot plant started producing syngas in April 2012 and the $29 million Mataura domestic-scale briquette plant is about to start production. In May 2012, the company proved coal seam gas technology at its Huntly demonstration plant, producing high-quality gas, converted to electricity on site and exported into the national grid. The company is closing down the plant to focus its commercialisation efforts on the significantly larger Taranaki field.
Outlook
John Palmer concludes: “Solid Energy’s financial situation for the next period will continue to be challenging and is worse than during the 2008 global financial crisis. In 2008-09 when US dollar export coal prices collapsed, the New Zealand dollar followed. Coal prices rebounded relatively quickly in the following year, whereas this time, with a high New Zealand dollar, we expect prices to be weak for a prolonged period.

“In addition, the company’s investments over the last four years increased its debt by $250 million.. We are actively managing the business to minimise the impacts of a weak international coal market and to maintain performance. Management’s focus is generating cash and reorganising the company to manage through this difficult period. In the short-term international coal markets will continue to be volatile, but we remain confident in our long-term demand outlook which is strong and unchanged.”


Year Ended 30 June
NZ$M
2012
NZ$M
2011

Change
Revenue978.4828.7+18%
EBITDA [1]44.9200.8-78%
EBIT [2](27.7)137.2-120%
Net Profit after Tax(40.2)87.2-146%
Total Underlying Earnings adjustments
(net of tax)
139.9(1.0)-
Underlying Earnings after tax [3]99.786.2+16%
Operating Cashflow142.2128.9+10%
Dividends Paid
3020-
Return on Equity [4]-9%18%-
Gearing Ratio [5]42%30%-

Definitions (All amounts are NZ$ million unless otherwise stated)
1 EBITDA: Earnings Before Interest, Tax, Depreciation & Amortisation
2 EBIT: Earnings Before Interest & Tax
3 Underlying Earnings: Net Profit after Tax excluding, impairments, & large one off items
4 Return on Equity: Net profit after tax / Average shareholders’ equity
5 Gearing Ratio: Net debt / (Net debt + equity)


ENDS

© Scoop Media

 
 
 
Business Headlines | Sci-Tech Headlines

 

Chartered Accountants: COVID-19 Fails To Knock Kiwi Investor Confidence, But More Disclosure Wanted

Three months of COVID-19 lockdown and investment turmoil has done little to knock confidence in New Zealand capital markets and listed companies with overall investor sentiment very similar to 2019, an investor survey held in mid June shows. However, ... More>>

ALSO:

Taxation: Black-Market Tobacco Sidesteps $287 Million In Excise Tax

Year-on-year increases in consumption of illicit tobacco in New Zealand have seen illegal trade swell to 11.5% of the total market. If consumed legally, illicit products would have netted the Government $287 million in excise tax during 2019. Independent ... More>>

ALSO:

Energy Sector: Meridian Spilled Water To Hike Electricity Prices - Authority Ruling

The Electricity Authority has found that generator Meridian Energy manipulated the power market, costing consumers about $80 million. More>>

ALSO:

XE Data Update: RBNZ Official Cash Rate Decision

The RBNZ will keep the Official Cash Rate (OCR) at 0.25%. T he key points in the RBNZ statement are: RBNZ keeps the OCR unchanged at 0.25% Maintain the LSAP (large scale asset purchase) at NZD$60 billion. Committee prepared to use additional monetary ... More>>

ALSO:

Electricity: Kiwis Ignore Promise Of Cheaper Power

Electric Kiwi and Flick Electric Co are joint winners of Canstar Blue’s award for Most Satisfied Customers | Electricity Providers From putting on an extra layer – rather than turning on a heater – to turning off lights and choosing the energy-saving ... More>>

ALSO:

Economy: COVID-19 Contributes To 1.6 Percent Fall In March Quarter GDP

Gross domestic product (GDP) fell 1.6 percent in the March 2020 quarter, the largest drop in 29 years, as the initial effects of COVID-19 restrictions impacted on economic activity, Stats NZ said today. This quarter’s GDP results showed a widespread drop ... More>>

ALSO:


Electricity: Transmission Pricing For A Low Carbon Future

The Electricity Authority has decided on new guidelines for transmission pricing. James Stevenson-Wallace, Chief Executive of the Electricity Authority says the new guidelines will deliver significant benefits to consumers, through lower electricity ... More>>

ALSO:

NIWA: The Climate Record That Keeps Getting Broken

Among the multitude of New Zealand climate statistics there is one record that continues to be broken month after month. Since January 2017 there has not been one month that recorded a below average nationwide temperature, according to NIWA’s seven station ... More>>

ALSO:

Govt: Extended Loan Scheme Keeps Business Afloat

Small businesses are getting greater certainty about access to finance with an extension to the interest-free cashflow loan scheme to the end of the year. The Small Business Cashflow Loan Scheme has already been extended once, to 24 July. Revenue and Small ... More>>

ALSO:

Science: 2019 Prime Minister’s Science Prizes Announced

The 2019 Prime Minister’s Science Prizes have been announced in a digital livestream event today. The Prizes recognise the impact of science on New Zealanders’ lives, celebrate the achievements of current scientists and encourage scientists of the ... More>>

ALSO:


RNZ: Fuel, Alcohol Costs To Go Up From Today

The increase today in the taxes on fuel, road user charges and alcohol is being called a tone-deaf move. More>>

ALSO:

Stardome Observatory: Young Kiwi Astro-Photographer Shoots For The Stars

Matariki by Josh Kirkley. The stars are aligning for up-and-coming Auckland-based astro-photographer Josh Kirkley (Kāi Tahu). During lockdown, one of his images was picked up by NASA and shared on the space agency’s Instagram to its 59.2 million ... More>>


DCANZ: Time For EU To Commit To A Level Playing Field For Trade

The Dairy Companies Association of New Zealand (DCANZ) has welcomed New Zealand Trade Minister David Parker’s statement that it is unacceptable for New Zealand exporters to continue facing an ‘unlevel playing field’ in the EU. Details leaked ... More>>

ALSO:

Potatoes New Zealand: Protecting NZ Fries As Part Of PNZ Pandemic Recovery & Transformation Plan

Potatoes New Zealand has met with Minister Faafoi this week to discuss investigating the potential importation of heavily discounted frozen potato chips into New Zealand. With MBIE’s support we are undertaking an investigation to gather evidence of the ... More>>

ALSO:


New Zealand Government: Supporting Kiwi Businesses To Resolve Rent Disputes

The Government will legislate to ensure businesses that suffered as a result of the COVID-19 response will get help to resolve disputes over commercial rent issues, Justice Minister Andrew Little announced today. More>>

ALSO: