Contents
___________________________________________________________________
Solid Energy New Zealand Ltd Annual Report 2014
02
Financial Performance
03
Chair’s Report
04
Chief Executive’s Report
05
Financial and Operating Review
07
2014 Business Performance
08
Operating Review
09
Operations, Markets and Resources
11
Sustainability
13
Board of Solid Energy
14
Governance
17
Financial Statements
1
Financial Performance
_________________________________________________________________________________
2014 ($M)
Change
% Change
449.2
631.1
(181.9)
-29%
Operating costs excluding impairment and restructuring
(500.0)
(641.3)
141.3
22%
Earnings before Interest and taxation
(160.7)
(274.7)
114.0
Net Profit/(Loss) after Taxation (NPAT)
153.5
Revenue
2013 ($M)
(181.9)
(335.4)
Total Underlying Earnings Adjustments (net of Tax)
130.9
357.6
Underlying Earnings after Tax
(51.0)
22.2
7.5
(49.8)
57.3
12.5
91.6
(79.1)
Net Cashflow from Operating Activities
Shareholders’ Funds
Dividends Paid
Nil
Revenue ($ Million)
New Zealand
Nil
-
Operating Costs ($ Million)
Export
1000
(73.2)
Excluding impairment & restructuring
0
800
-200
600
-400
400
-600
200
-800
0
2010
2011
2012
2013
2014
EBIT ($ Million)
-1000
2010
2011
2012
2013
2014
Net Cashflow from Operating Activities ($ million)
100
120
0
-100
60
-200
-300
0
2010
2011
2012
2013
2014
Net Profit/(Loss) After Tax
-60
2012
600
-150
400
-250
2013
Equity
800
-50
2014
Net Debt
200
2010
2011
Coal Sales (Mt)
2012
2013
New Zealand
2014
0
Export
5
2010
2011
2012
2013
2014
All Injury Frequency Rate
No. of injuries per million hours worked requiring medial aid or
greater treatment
4
30
25
3
20
2
15
10
1
0
2011
Capital Employed ($ Million)
50
-350
2010
5
2010
2011
2012
2013
2014
Solid Energy New Zealand Ltd Annual Report 2014
0
2010
2011
2012
2013
2014
2
Chair’s Report
_________________________________________________________________________________
The company has had a challenging year compounded by
continued weakness in coal prices and strength in the NZ dollar
exchange rate. I would like to acknowledge the support Solid
Energy received from our shareholder, banks and noteholders
during 2014. The restructuring package agreed by the majority of
parties resulted in the company restructuring the business to divest
non-core assets and reduce the costs in the mining operations to
improve the profitability of our working mines.
When we prepared our business plan for 2014, the
Board considered it had adopted conservative
assumptions on coal price and currency. We
forecast an average export price of US$157/tonne
and an exchange rate of NZ/US 0.86. By March
2014 spot prices had fallen to US$107/tonne and
the NZ dollar had appreciated against the US dollar
by 14% to 0.88 in the year to June 2014. The fall in
coal prices represents a 68% fall from the highs of
US$330 a tonne in 2011.
These input prices are key for our business and the
only means we have of managing the impact is to
adjust our cost base and restructure to improve
profitability. During 2014 we reduced costs by
$141.3 million to $500 million (2013: $641.3 million).
Revenue for the year was $449.2 million (2013:
$631.1 million), a fall of $182 million year-on-year
caused by the fall in export prices and a 17% fall in
sales volume to 3.4Mt (2013: 4.1Mt). Domestic
sales fell 35% while export volumes increased 3%.
The loss for the year of $181.9 million (2013:
$335.4 million) was impacted primarily by further
asset impairment charges of $110.6 million and a
further $20.3 million of restructuring costs and oneoff items. Shareholders equity was $12.5 million at
year end and no dividends were paid.
Asset sales realised $39 million, the majority of
which was from the sale of non-core land. The
briquette plant in Southland was sold and
underground coal gasification assets disposed. We
are in the process of selling Nature’s Flame, the
wood pellet business, and the remaining non-core
land which will complete the transition to a business
focussed on extracting coal efficiently and safely.
The Board was very pleased to confirm the
appointment of Dan Clifford as our new Chief
Executive. Dan is an experienced mining engineer
and executive with a strong background in both
opencast and underground coal mining and a
successful record in restructuring mining operations
Solid Energy New Zealand Ltd Annual Report 2014
to be more efficient and economic without
compromising health and safety. I would like to
acknowledge and thank Garry Diack who led the
company last year and was able to bring his
experience and leadership to keep the team
together whilst driving through many of the
changes.
During 2014 we had a number of changes on the
Board. I would especially like to acknowledge the
contribution made by Mark Ford who resigned
unexpectedly as Chair for health reasons early in
2014.
Alan Broome and David Patterson finished their
terms on the Board during the year. Alan had been
on the Board for eight years and as Chair of the
Health and Safety Committee had been
instrumental in improving the safety of our mining
operations. Andy Coupe, Keiran Horne, Rabin
Rabindran and David Reece joined the Board
during the year.
Looking ahead, we are forecasting a gradual
improvement in coal prices, with a budget of
NZ$153/tonne for 2015. The Board has carefully
considered the financial strength of the balance
sheet and its capacity to absorb further losses. We
have agreed an indemnity with the Crown (the Deed
of Indemnity and Bond Facility), under which the
rehabilitation expenses are reimbursed by the
Crown. The indemnity creates an asset on the
balance sheet of $103 million.
Pip Dunphy
Chair
30 September 2014
3
Chief Executive’s Report
_______________________________________________________________________________________________________________________________________
The priority of reshaping the company to withstand a challenging
economic environment resulted in substantial cost reductions and
simplification of the company’s operations. A successful operational
performance against plan has assisted us to maintain market
relevance and a long-term ability to supply current and expected
customer demand.
Solid Energy’s objective to continually improve our
safety performance remained front of mind
throughout a year of change and resulted in an
improvement in our injury frequency rate from 12.9
to 9.7. Good progress was made in preparing for
the changes required under new mining health and
safety legislation and regulations.
During 2013, we completed major restructuring,
including reducing production and employee
numbers at Huntly East Mine and Stockton. A
further restructuring of corporate and support roles
was undertaken, reducing total staff by 16%, with
the business employing 862 permanent and fixedterm staff members at the end of June 2014 (2013:
1,029). This has been further reduced to 700 as of
today.
Cash operating costs reduced by 33% to $321
million. Coal production also reduced in response
to market conditions to 3.3 million tonnes from 3.9
million tonnes resulting in an improvement in cost
per tonne of 22%. Group EBITDAF, at $15.9
million, remains positive, reflective of the effort
during the year to reduce cash costs.
overburden and, subsequently, coal production, to
minimise costs. This led into the restructure of this
unit, predominantly based on Stockton Mine in
Buller, which was not completed until early in the
2015 year due to refinement of the initial plan.
In October 2013, with assistance from the New
Zealand Defence Force, physical works began on
the sealing of Pike River Mine ventilation shaft.
Extensive surface-based work continued throughout
the year, alongside a comprehensive process of risk
assessment and planning in relation to the project’s
final phases.
With almost constant change, the year has been
challenging for all our people, our contract partners
who support our business and the communities
which host our sites.
I understand that the
pressures faced by the business have a wider
impact and I am grateful for the continuing support
from our neighbours and others in our communities.
In looking ahead, our operational and investment
discipline must be aimed at significantly reducing
risk through detailed planning, focus on margin and
efficiency at a site by site level.
In our North Island Domestic Operations, a slight
delay in the Huntly East Mine restructuring
impacted that mine’s costs in the first two months of
the year, although it has since achieved its targets.
The mine is now essentially in a holding pattern,
awaiting a full feasibility study into its long-term
future. Rotowaro Opencast Mine met its targets for
the year. The South Island Domestic Operations
opened a new opencast area at Ohai Mine and took
over as operator at Reddale Mine, near Reefton.
Our Export Coal Operations did not meet plan as a
result of a decision in mid-year to reduce
Solid Energy New Zealand Ltd Annual Report 2014
Dan Clifford
Chief Executive
30 September 2014
4
Operating and Financial Review
_________________________________________________________________________________
Asset write downs of $110.6 million, coupled with
$20.3 million in one off-costs of restructuring,
redundancies and closures, and a 29% drop in
revenue, were the major contributors to a $181.9
million loss for the year ended 30 June 2014 (2013:
loss of $335.4 million).
Earnings before Interest and Taxation (EBIT) for the
year, after impairments and restructuring costs, was
a loss of $160.7 million, an improvement from a loss
of $274.7 million in the 2013 financial year.
Underlying earnings for the year were negative
$51.0 million, down from $22.2 million in the 2013
financial year.
Prices and Foreign Exchange: International coal
prices continued to decline. Average US dollar
prices received were down 20% on the previous
year, which combined with a strong New Zealand
dollar against the US dollar reduced EBIT by $109.1
million after hedging.
Volume: Coal sales volumes were 673,000 tonnes
lower for the period due to the reduced off-take by
domestic customers. EBIT decreased by $30.4
million as a result.
Mix: A change in the product mix sold increased
EBIT by $18.5 million. Hard coking coal sales
increased from 53% to 58% of total export sales,
while we reduced lower-margin thermal coal sales
from 19% to 3% of export sales, due to depressed
coal markets.
Costs: Cost of sales, exploration and other costs
decreased by $141.3 million to $500.0 million
largely as a result of a concerted effort to reduce
costs across the business.
million, and repairs and maintenance by $33.8
million as the company reduced activity and brought
work in-house. Direct and indirect exploration,
evaluation and development costs decreased by
$25.0 million.
Tax Expense: A minimal tax benefit has been
recognised in the year given the current lossmaking position of the business. The group incurred
a tax expense in the 2013 financial year of $40.1
million from writing off deferred tax assets due to
their recoverability being uncertain considering the
high level of unrecognised losses carried forward
and prices which are forecast to remain low within
the foreseeable future.
Capital Management and Funding: The significant
financial restructure in October 2013 included the
transfer of $75.0 million of debt into Redeemable
Preference Shares (RPS) and the issuance of a
further $25.0 million of RPS to the Crown, reducing
bank debt and Medium Term Notes at the end of
the period to $320.5 million (June 2013: $395.5
million). Debt facilities comprised bank debt of
$239.3 million, Medium Term Notes of $81.2 million,
and an undrawn Crown facility of $96.7 million.
Although net debt has decreased to $261 million
from $396 million in 2013, gearing increased to 95%
after further asset impairments. This resulted in a
decrease in shareholders’ equity from $91.6 million
to $12.5 million.
Solid Energy’s total assets at 30 June 2014 were
$636 million, down $223 million on the same time
last year due to reduced capital investment and
asset impairment.
Personnel costs decreased by $53.9 million and
restructuring and redundancy costs reduced by
$22.9 million. Contractor costs decreased by $32.6
_________________________________________________________________________________
2014 Export Sales
by Coal Type
2014 Export Sales
by Market
SEMI
SOFT 31%
COKING 63%
THERMAL 3%
SPECIALIST 3%
JAPAN 24%
INDIA 58%
Solid Energy New Zealand Ltd Annual Report 2014
CHINA 12%
SOUTH
AFRICA 6%
2014 New Zealand Sales
by Sector
DAIRY 19%
ELECTRICITY
35%
MEAT 8%
OTHER 6%
INDUSTRIAL 3%
STEEL 29%
5
Underlying Earnings Adjustments
Year Ended 30 June
(NZ$ million)
2014
2013
Impairments/(Reversals)
Export Operations (prior
year Stockton Mine only)
105.0
80.1
Spring Creek Mine
-
53.1
Underground Coal
Gasification
(0.5)
23.9
Briquette Plant
(0.4)
26.2
Cobden Bridge
(Greymouth)
-
8.8
Biodiesel New Zealand
-
0.6
Nature’s Flame
0.9
4.3
Land and Mineral Rights
4.8
32.9
Huntly East Mine
0.8
(14.6)
110.6
215.3
8.2
17.1
8.0
22.0
-
14.2
Non-core operations
4.1
48.9
Total One-Off Items
20.3
102.2
130.9
317.5
-
40.1
130.9
357.6
(181.9)
(335.4)
(51.0)
22.2
Total Net Impairments
One-Off Items
Redundancies
Stand down period and
restructuring costs
Other restructuring costs
Total Underlying
Earnings Adjustments
pre deferred tax write
off
Deferred tax write-off
Total Underlying
Earnings Adjustments
NPAT as reported
Underlying Earnings
Solid Energy New Zealand Ltd Annual Report 2014
Underlying Earnings Adjustments: Underlying
earnings for the year were negative $51.0 million,
compared to positive $22.2 million in the 2013
financial year. A number of items have been
excluded from net profit after tax in the calculation
of underlying earnings for the year (see table).
An impairment of $105.0 million was booked for
Export Operations as the company has adopted
lower future price assumptions, impacting the
assessment of future value. Combined with a high
New Zealand dollar, this has impacted the
assessment of asset carrying values.
A further impairment of $4.8 million was booked in
relation to the current market value of land
holdings and associated mineral rights deemed
surplus to requirements.
Restructuring costs including redundancies
totalled $16.2 million. The costs of operating
unprofitable or non-operating business units until
they are closed or divested resulted in additional
costs of $4.1 million.
Cashflows: Cashflows from operations were
positive $7.5 million compared to negative $49.8
million in 2013, with $164 million in decreased cash
receipts, largely as a result of lower prices, offset by
a decrease in payments to suppliers and employees
of $201 million. Net cashflows received were $57.6
million, with $39.0 million in proceeds from the sale
of surplus land and $25.0 million received from the
RPS issue. This was offset by capital investment of
$12.1 million (2013: $55.4 million), with
approximately $4.7 million related to spend on the
development of the Cypress pit at Stockton Mine.
6
2014 Business Performance
_________________________________________________________________________________
Stockton Coal Handling and Processing Plant
2014 Performance
Value: Operations
3.9
3.4
3.3
1.
Dividend Payout
2
Return on Equity
3
Return on Capital Employed
4
5
6
EBITDAF ($M)
7
Interest Cover (times)
8
Capital Investment ($M)
All Injury Frequency Rate
9
Lost Time Injury Frequency Rate
Environment
Achieved
Production Units (million tonnes)
Current Ratio
Health & Safety
Target
3.4
Gearing Ratio
Future Value
Achieved
3.5
Operating Margin
Value: Leverage/Solvency
2014
4.1
Dividend Yield
Value: Profitability
2014
Sales Units (million tonnes)
Dividend Paid ($M)
Value: Shareholder Returns
2013
10
Regulatory, abatement and enforcement notices
0
0
0
0%
0%
0%
Nil
Nil
Nil
-130%
-79%
Not
meaningful
-45%
-7%
-39%
8%
6%
4%
81%
65%
95%
48.8
30
15.9
0.5
1.9
2.2
2.2
1.5
0.7
55
37
12
12.9
11.4
9.7
3.1
3.2
1.5
0
0
1
1.
2.
3.
Dividends paid/Average commercial value, note average commercial value assumed to equal opening value 2012/13
Dividends paid/Net cashflow from operating activities less depreciation expense
Net profit after tax/Average Shareholder equity
a)
The calculation of Average Shareholder equity is assumed to be ordinary equity only and therefore
excludes the value of the redeemable preference shares
b)
The business plan does not provide for any IFRS fair value movements or asset revaluations
4. EBIT/Average capital employed: The calculation of average capital employed includes the value of redeemable preference shares
5. EBITDAF/Revenue
6. Net debt/(Net debt + equity): The calculation of equity includes the value of redeemable preference shares
7. Current assets/Current liabilities
8. EBITDAF/Interest expense
9. Number of injuries per 1,000,000 hours worked requiring medical aid or greater treatment
10. Number of injuries per 1,000,000 hours resulting in more than one lost work day or shift
Solid Energy New Zealand Ltd Annual Report 2014
7
Operating Review
_________________________________________________________________________________
Coal production for the year was down 14% to 3.3 million tonnes (Mt) (2013: 3.9 Mt) in response to the
depressed global coal market. Production at Huntly East Mine was scaled back to 100,000 tonnes (2013:
327,000 tonnes) as the economics of mining underground at Huntly could no longer justify continuing the
operation in its current form. Production at Stockton Opencast Mine was 1.82 Mt in line with the previous year
(2013: 1.86 Mt) but down 17% to 950,000 tonnes at Rotowaro Opencast Mine in the Waikato (2013: 1.14 Mt). In
the South Island, production at New Vale Mine in Southland dropped slightly to 291,000 tonnes (2013: 304,000
tonnes while small-scale opencast mining at other sites contributed 171,000 tonnes (2013: 252,000 tonnes)
including 116,000 tonnes at Strongman Opencast Mine and 46,000 tonnes at Reddale Opencast Mine near
Reefton.
_________________________________________________________________________________
Stockton (Thousand Tonnes)
2000
Rotowaro (Thousand Tonnes)
1500
1500
1000
1000
500
500
0
2010
2011
2012
2013
2014
0
Huntly East (Thousand Tonnes)
2010
2011
2012
2013
2014
New Vale (Thousand Tonnes)
400
300
300
200
200
100
100
0
2010
2011
2012
2013
2014
0
2010
2011
2012
2013
2014
Other Opencast (Thousand Tonnes)
300
200
100
0
2010
2011
2012
2013
2014
Includes Reddale, Ohai and Strongman Opencast Mines
Reddale Opencast Mine, Buller
Solid Energy New Zealand Ltd Annual Report 2014
8
Operations, Markets and Resources
________________________________________________________________________________
Former Stockton equipment in use
at Reddale Mine, Buller
Operations and Markets
Our business units – North Island, South Island and
Export – continued to adjust during the year to
ensure they are cost-competitive, efficient and
appropriately sized for current and expected market
demand. Good progress was made in renewing
long-term supply agreements with key customers at
home and overseas, with some changes agreed to
ensure a better match with our expected coking
coal product mix.
Although
cash-constrained,
the
company
maintained sufficient additional economic coal
reserves across the range of coal products to meet
planned production targets, deliver on contracts and
allow it to capitalise on any increase or
improvement in market opportunities.
Solid Energy’s strategy is based on a stable
domestic market supported by long-term coal
supply to contracted customers and continuing
global demand for coking coal driven primarily by
long-term relationships with steelmakers in India,
Japan and China.
North Island operations were reorganised early in
the financial year, with a reduction in Huntly East
Underground Mine’s contribution to the unit’s
product mix. Options were further developed to
extend the life of Rotowaro Opencast Mine and
towards resuming production from our Maramarua
opencast mining area. We renewed long-term
Solid Energy New Zealand Ltd Annual Report 2014
contracts with key North Island customers, New
Zealand Steel and Genesis Energy and concluded
a thermal coal supply agreement, for more than
100,000 tonnes a year, with a new customer.
Our South Island business supplies industrial
customers and wholesalers with a range of coals –
sub-bituminous thermal coals from Ohai Opencast
Mine, in Western Southland, and Reddale
Opencast Mine near Reefton; high-energy
bituminous coal from Strongman Opencast Mine
near Greymouth, and lignite from New Vale
Opencast Mine, near Gore.
Operational changes during the year included
taking over as mine operator and extending the
expected mine life at Reddale at the conclusion of
the original contract, developing new opencast pits
at Ohai and Strongman and upgrading the coal
processing infrastructure at New Vale Mine. Where
appropriate, some under-utilised items of mobile
plant were transferred from Stockton Opencast
Mine in support of these smaller domestic
operations. The South Island market remained
competitive, with continued growth in the dairy
processing sector.
Production for the export business unit remains
primarily based on Stockton Opencast Mine in
Buller, although planning continued during the year
to determine which other of the company’s West
Coast coking coal resources might best contribute.
9
Resources and Reserves
In response to our expectation of continuing
depressed pricing for internationally traded coking
coals, Stockton operations were restructured late in
the year, to support a reduced production plan for
the 2015 financial year of 1.4 million tonnes (Mt).
Solid Energy has access to approximately 230 Mt of
hard and semi-hard coking coal and specialist coal
resources at various stages of development, and 14
Mt of reserves. North Island thermal coal resources
at year-end were approximately 380 Mt, including 7
Mt of reserves.
South Island thermal coal
resources, excluding lignite, were approximately 68
Mt. Lignite resources in Southland were approximately 1160 Mt, including 8 Mt of reserves.
Development of the Cypress pit at Stockton was
completed during the year, with first coal around
mid-year. We successfully concluded new multiyear umbrella supply agreements with all our longterm international customers, a signal that despite
continued oversupply internationally, the distinctive
qualities of Solid Energy’s coals continue to be
valued.
The company’s review of its permit holdings
continued during the year, with nine permits
surrendered. Solid Energy aims to reach full JORC
compliance for its Tier 1 permit holdings by the end
of the 2015 financial year and this effort is led by its
senior geologists and mining engineers. This 2014
statement (summarised below) has been produced
according to the company’s resource and reserve
reporting standards.
Progress was made on a strategy to develop
profitable alternatives to the steelmaking industry
for a portion of our exports, with a two-year contract
signed with a global-scale silicon producer.
COAL RESOURCES AT 30 JUNE 2014
RESERVES (MT)
Total
Reserves
Product
North
Steel/Thermal
4.22
2.60
6.82
136.2
127
119
382.2
Buller
Hard coking coal
and semi-hard
coking coal
1.00
3.33
4.33
1.0
16
13
30
Semi-soft coking
coal
0.96
8.23
9.19
1.6
16
35
52.6
Thermal
0
0
0
0
1
3
4
Semi-soft coking
coal
0
0
0
3.7
1
0
4.7
0.27
0
0.27
0.3
0
14
14.3
Hard coking coal
and semi-hard
coking coal
0
0
0
6.0
10
28
44
Semi-soft coking
coal
0.23
0
0.23
13.0
32
44
89
Thermal
0
0
0
0
0
36
36
Thermal
0
0.17
0.17
0.2
4
9
13.2
4.35
3.88
8.23
181.6
298
681
1160.6
11.03
18.21
29.24
343.6
505
982
1830.6
Thermal
Grey
Southland
Lignite
Total Coal
2014
Probable
Total Coal
2013
Measured
Indicated
Total
Resources
Region
Reefton
Proven
RESOURCES (MT) including reserves
Inferred
34.62
1509
Solid Energy has used the 2012 JORC Code as a g uideline for reporting its 2014 Resources and Reserves. Resources are inclusive of
reserves and declared as coal-in-ground estimates as defined by Solid Energy’s Resource Reporting Standards. The JORC Code is set
by the Joint Ore Reserves Committee of the Australasian Institute of Mining and Metallurgy (AusIMM), the Australian Institute of
Geoscientists and the Minerals Council of Australia.
Solid Energy New Zealand Ltd Annual Report 2014
10
Sustainability
_________________________________________________________________________________
Health and Safety
While overall health and safety performance
continued to improve, it was due to a constant focus
by our employees at every site as we completed the
restructuring of the business. The severity of
injuries suffered by staff and contractors was
significantly reduced in part due to early intervention
treatments. The combined all injuries frequency rate
– incidents per million hours worked requiring
medical treatment – at 30 June 2014 was down to
9.7 (2013: 12.9).
Five staff and contractors lost time from work due to
injury in 2014, an improvement on the previous year
and, as a result, our lost-time frequency rate ended
lower at 1.5 for staff and contractors at the end of
June 2014 (2013: 3.10).
During the year we continued to focus on
improvements to our health and safety systems and
to implement changes required under the new
mining legislation enacted as a result of
recommendations by the Pike River Royal
Commission.
In September 2013, Huntly East Mine hosted an
underground mine disaster management exercise
to test the new protocols governing multi-agency
response to an emergency.
We are on track to meeting the new requirements
which include appointments to safety critical
positions, improvement to principal hazard and
principal control plans and worker participation.
All Injury Frequency Rate
Lost-Time Injury Frequency Rate
10
30
Number of injuries per
million hours requiring
medical aid or greater
treatment
12 month rolling LTI
frequency rate per 1 million
hours worked
Emergency exercise
at Huntly East Mine
5
0
25
20
15
10
5
0
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
_________________________________________________________________________________
Our People
In the first half of the year we completed a
prolonged period of restructuring refocusing on our
core coal mining capability which had started in
August 2012.
A review of management and support jobs at
Stockton Mine was completed early in the financial
year. Further changes were made at Huntly East
Mine, with production cut to about a third of the
previous year, with a resulting reduction in jobs, as
the economics of mining underground at Huntly
could no longer justify keeping the operation going
in its current form.
Solid Energy New Zealand Ltd Annual Report 2014
At year end, we reduced production and further
reduced jobs at Stockton Mine. This was a
necessary response to continuing low international
prices as on current projections we had to reduce
costs to keep the mine operating.
11
In August 2014 we confirmed a new corporate
structure which is aligned with the company’s
reduced size, scope and scale and which will better
support our mining operations to deliver their
operational plans.
At year end, we employed 862 permanent and
fixed-term staff (2013: 1029). Turnover in the year,
excluding redundancies, was down to 16.3% (2013:
20.9%)
Staff Numbers (Permanent and Fixed Term)*
Staff Turnover (%)*
1800
25
1500
20
1200
15
900
10
600
5
300
0
2010
2011
2012
2013
2014
(*Excludes contractors)
0
2010
2011
2012
2013
2014
(*Excluding redundancies)
_________________________________________________________________________________
Environment and Community
A total of 15 non-compliance events (2013: 15)
were recorded at Solid Energy sites during the year,
one of which resulted in the company being issued
an abatement notice (later withdrawn).
The majority of events related to turbidity or
suspended solids exceedances, primarily following
heavy rainfall. In each case, we informed the
authorities and implemented corrective measures.
Five of these events occurred at Stockton Mine and
a substantial remedial works programme was
completed to resolve the issues. There was one
instance of elevated aluminium concentration
exceeding consented limits in July 2013.
At Reddale Mine there were two incidents that
related to turbidity and suspended solids
exceedance that were also influenced by high
rainfall events. Elevated concentrations of nickel
were detected in water samples in July 2013. Dust
non-compliances were recorded in Southland at the
Mataura Briquetting Plant and at Ohai Mine.
Solid Energy New Zealand Ltd Annual Report 2014
Our principal opencast mines, Rotowaro and
Stockton,
met
their
rehabilitation
targets,
respectively completing 40 and 20 hectares, and
overall we completed rehabilitation of 71 hectares
(2012: 73 hectares). Our net disturbed land area at
all operations decreased by 10 hectares in the year
(2012: 1687.5 hectares)
Site rehabilitation post-mining is one of the
company’s most significant liabilities and is built into
mine budgets throughout their productive lifetimes.
A review was begun this year to ensure a consistent
approach is being used to estimate the future costs
of closing off land after mining. While this review
will not be fully incorporated into our budgets until
mid-2015, some adjustment was made at year end,
with the total liability figure reducing by $48.7 million
to $166.1 million (a total which includes $60.1
million of liabilities which the company manages on
behalf of the Crown).
12
The Board of Solid Energy
_________________________________________________________________________________
PIP DUNPHY B.Hort.Sci,CFA,
Chair
Pip Dunphy has worked in New
Zealand financial markets for more
than 20 years, assisting local and
offshore companies in capital
raising, interest rate and currency
risk management and as a board
director.
NEVILLE SNEDDON BE Mining
(Sydney), ME (UNSW), MAIMM,
Grad.AICD
Neville Sneddon is a mining
engineer with more than 40 years
experience in the Australian mining
industry as a company director and
in senior management roles with
the NSW Mines Department.
Directorships
• Mint Asset Manager (Chair)
• New Zealand Clearing and
Depository Corporation Ltd (Chair)
• Abano Healthcare Group Ltd
• FSF Management Company Ltd
Other
• New Zealand Superannuation
Fund, Board Member
• Next Foundation, Advisor
Directorships
• CSM Energy Ltd (Australia)(Chair)
• Stanmore Coal Ltd (Australia)
(Chair)
ANDY COUPE LLB
Andy Coupe is a professional
company director with more than
30 years experience in investment
banking.
Directorships
• Farmright Ltd (Chair)
• Barramundi Ltd
• Kingfish Ltd
• Marlin Global Ltd
• Gentrack Group Ltd
Other
• Takeovers Panel (Deputy
Chairman)
• Cobbora Holding Company Pty Ltd
(Australia)
Other
• Australasian Institute of Mining and
Metallurgy (Chairman – Hunter
Branch)
RABIN RABINDRAN LLB, MA
Rabin Rabindran is a barrister and
legal consultant specialising in
major national and international
project structuring, negotiation and
documentation
mainly
in
construction, energy, transport and
infrastructure development.
Directorships
• Bank of India (NZ) Ltd (Chair)
• Auckland Transport
• New Zealand Liaoning International
Investment & Development Co Ltd
• Singapore Chapter, ASEAN New
Zealand Business Council (Chair)
Solid Energy New Zealand Ltd Annual Report 2014
KEIRAN HORNE BCM, BA
Keiran Horne, a consultant with
HFK Ltd, is a Chartered Accountant
with
more
than
20
years
experiences as a business advisor
and insolvency practitioner.
Directorships
• Breastscreen Otago Southland Ltd
• Crown Asset Management Ltd
Other
• Institute of Chartered Accountants,
Member
• Institute of Directors, Member
• INSOL New Zealand, Member
DAVID REECE BE Mining, Grd
Dip Min Res (Risk Management),
MAICD
David Reece has more than 35
years experience as a mining
engineer and operational risk
manager in the Australian and
international mining industries. He
is a principal consultant with The
Safety Managers and has been
Senior Inspector of Mines with the
Queensland Mines Inspectorate.
Directorships
• Carbon Credit Corporation (C3) Pty
Ltd (Australia)
• The Safety Managers Pty Ltd
(Australia)
____________________________
During the year, the following also
held office as Director:
Alan Broome (to 30 April 2014)
David Patterson (to 30 April 2014)
Mark Ford (to 21 May 2014)
13
Governance
_________________________________________________________________________________
Solid Energy New Zealand Ltd is a state-owned
enterprise incorporated on 24 February 1987 as a
private limited liability company. The shareholders
of the company are the Minister of Finance and the
Minister for State Owned Enterprises. Solid
Energy’s ordinary share capital is 60,900,000 $1.00
shares, with each shareholder holding 50%.
Solid Energy’s strategic purpose is to secure,
develop and mine coal resources for commercial
operation in order to create wealth for the
shareholder in a manner that has a strong and robust
licence to operate from stakeholders.
Regulatory Framework
The primary legal responsibilities of Solid Energy
are the same as those that apply to any other
private company with the addition of the
requirements set out in the State Owned
Enterprises Act 1986. State owned enterprises
(SOEs) are Crown-owned companies that operate
as commercial businesses.
The principle objective of every SOE is to operate
as a successful business and to be as profitable
and efficient as comparable businesses that are not
owned by the Crown. SOEs are also required by
statute to be good employers and to exhibit a sense
of social responsibility.
Further information on the governance and
accountability regime for SOEs can be located in
the Owner’s Expectations Manual for state owned
enterprises at http://www.comu.govt.nz
Shareholder Engagement
The Board is accountable to Shareholding Ministers
for creating and delivering value through the effective
governance of the business. The Board has
developed
a
strategy
for
engaging
and
communicating with the Shareholding Ministers,
aspects of which are requirements of the State
Owned Enterprises Act. In this regard, the Board is
required to produce an annual Statement of
Corporate Intent, an Interim Report and an Annual
Report, all of which must be presented to Parliament
by the relevant Shareholding Minister. Outside of
these requirements, the Shareholding Ministers are
encouraged to make their views known to the Board
and to raise matters of concern directly with it.
The Board also uses a range of formal and informal
measures to ensure that it understands and
effectively responds to shareholder questions and
matters relating to the management and governance
of the company. In addition to consulting with
Solid Energy New Zealand Ltd Annual Report 2014
Shareholding Ministers on transactions above an
agreed value threshold, the Board adheres to a “no
surprises” policy which ensures that Shareholding
Ministers are provided with regular information and
updates on the business.
Continuous Disclosure
Under the State Owned Enterprises Continuous
Disclosure Rules, Solid Energy is expected to
disclose the terms of material transactions entered
into as well as any information in its possession that
will have an impact on Solid Energy’s commercial
value. These rules also require Solid Energy to
announce publicly detailed financial results at the
end of each half and full financial year.
Role and Responsibilities
The Board is accountable to the Shareholding
Ministers. The role of the Board is to assist Solid
Energy to achieve its principal objective. The
performance of the Board and the corresponding
contributions of the Directors to the Board’s collective
decision-making process are essential to fulfil this
role.
Independence
Each of the Directors of the company is considered
by the Board to be independent of management
and free from any business or other relationship
that could materially interfere with the exercise of
their independent judgement, except where
declared and managed accordingly.
Duties and Delegation
The Companies Act 1993 sets out the legal duties
of company directors, including the duty to act in
good faith and in the best interests of the
company. A number of other duties are set out in
the Act which place responsibilities of high
endeavour upon anyone assuming the mantle of
director.
In discharging its duties, the Board has specifically
reserved certain matters for its own consideration
and decision making. These are:
• appointing the Chief Executive (CE)
• approving overall strategy and annual budgets
• determining matters in accordance with approved
delegations of authority
• formal determinations required by the company’s
constitutional documents, by statute or by other
external regulation.
14
Beyond those matters, the Board has delegated
authority to achieve the strategic purpose to the CE,
who is expected to take all decisions and actions
which, in the CE’s judgement, are reasonable, having
regard to the limits imposed by the Board. The CE
remains accountable to the Board for the authority
that is delegated and for the performance of the
business. The Board monitors the decisions and
actions of the CE and the performance of the
business to gain assurance that progress is being
made towards the strategic purpose.
The Board also monitors the performance of the
company and assesses its risk profile through its
committees. The CE is required to report to the Board
regularly in the spirit of openness and trust, on the
progress being made by the business. The Board and
its committees determine the information required
from the CE, any employee or external party including
the external auditor. Open dialogue between
individual members of the Board and the CE and
other senior managers is encouraged, so as to assist
the Directors in gaining a better understanding of
Solid Energy’s business.
Training
Structured opportunities are provided to build a
Director’s knowledge through initiatives such as
visits to Solid Energy sites around New Zealand.
Knowledge is also built through involvement with
the CE and other senior employees in Board
meetings and business briefings, attendance at
development sessions focused on specific topics of
relevance and an induction programme specifically
tailored to the needs of incoming Directors.
Chair
The Chair of Solid Energy is responsible for leading
the Board and ensuring that it is operating to
acceptable governance standards. The chair is
responsible for leadership of the Board and
ensuring its effectiveness in all aspects of its role by
promoting a culture of openness and debate, and
by facilitating the contribution made by Directors.
She is responsible for ensuring that good
communication is maintained with the Shareholding
Ministers, and that all Directors are made aware of
their views. Her duties include building an effective,
high-performing and collegial team of Directors, and
ensuring that they operate effectively as a Board.
give rise to an actual or potential conflict of interest.
The Board has in place a process for disclosing and
dealing with conflicts of interest, including
maintaining an interests register which ensures that
all Directors are aware of the existence and nature
of any disclosure of interest made by a Director.
Solid Energy’s Constitution provides that a Director
who is interested in a transaction may not vote on a
matter relating to that transaction. Such a Director
may attend a meeting at which a matter relating to
the transaction arises and may be included among
the Directors for the purposes of determining the
presence of a quorum. It is the expectation of
Shareholding Ministers for Directors who are
interested in a transaction to absent themselves
from deliberation unless the Board resolves that this
is not required.
Directors’ Appointment Process
Solid Energy’s Shareholding Ministers are responsible
for the appointment of each Director to the Board of
Solid Energy. The process is managed by Treasury’s
Commercial Operations group with the Shareholding
Ministers being accountable to Parliament for the
appointment of Directors. Directors are generally
appointed for a term of three years and may be
reappointed at the expiry of that term, subject to their
contribution having been satisfactory and their skills
continuing to be relevant to Solid Energy’s Board.
Directors’ Insurance and Indemnity
The company has arranged policies of Directors’
liability insurance which, together with an indemnity
given to the Directors pursuant to Section 162 of the
Companies Act 1993, ensures that generally
Directors will incur no monetary loss as a result of
actions undertaken by them as Directors. Certain
actions are specifically excluded, for example the
incurring of penalties and fines which may be
imposed in respect of breaches of the law.
Directors’ Loans
There were no loans by any member of the Solid
Energy group to Directors.
Directors’ Conflicts Of Interest
Under sections 139 to 149 of the Companies Act, a
Director of a company must avoid a situation in
which he or she has, or can have, a direct or
indirect interest that conflicts, or possibly may
conflict, with the interests of the company. Under
the requirements of the Companies Act, Directors
must disclose any relationship and/or matters that
Solid Energy New Zealand Ltd Annual Report 2014
15
Directors’ Remuneration
The following people held office as Director during the period and received the following remuneration for the period:
Current Directors
Pip Dunphy (appointed 10 December 2012; appointed Deputy Chair September 2013 and Chair March 2014)
$106,888
Andy Coupe (appointed 1 October 2013)
$47,145
Keiran Horne (appointed 1 January 2014)
$25,535
Rabin Rabindran (appointed 1 January 2014)
$22,070
David Reece (appointed 9 June 2014)
$3,333
Neville Sneddon (appointed 8 November 2012)
$58,895
Former Directors serving in the 2014 Financial Year
Alan Broome (appointed 1 May 2006; retired 30 April 2014)
$54,158
Mark Ford (appointed 3 September 2012; resigned 21 May 2014). Fees paid to Watercare Services
$63,333
David Patterson (appointed 1 May 2010; retired 30 April 2014)
$40,308
Board Committees
Audit and Risk Committee
Remuneration Committee
The Audit and Risk Committee assists the Board in
discharging its responsibilities with regard to
financial reporting, external and internal audits and
controls, including reviewing Solid Energy’s halfyearly and annual financial statements, considering
the scope of the company’s annual external audit
and the extent of non-audit work undertaken by
external auditors, approving the company’s internal
audit programme, advising on the appointment of
external auditors and reviewing the effectiveness of
Solid Energy’s risk management and internal
control systems.
Members
The principal roles of the Remuneration Committee
are to consider and determine all elements of the
remuneration of the CE and the other heads of the
business units of the company (the Leadership
Team) as defined by the CE and to determine
targets for any performance-related pay schemes
operated by the company. This committee makes
recommendations to the Board in regard to all
elements of remuneration of the members of the
Leadership Team. The committee receives
independent advice on benchmarking and best
practice. The remuneration of all Directors is
determined by the Shareholding Minister.
Andy Coupe (Chair), Pip Dunphy, Keiran Horne
Members
Rabin Rabindran (Chair), Pip Dunphy, Keiran Horne
Health, Safety and Environmental Committee
The principal responsibility of the Health Safety and
Environment Committee is to review and make
recommendations
to
the Board
on the
appropriateness and effectiveness of the company’s
health, safety and environmental strategy,
performance and governance. This committee also
reviews the outcomes of all investigations into
significant health, safety and environmental
incidents, and keeps the Board informed of new
developments, trends and/or forthcoming significant
impacts on health, safety and environmental
matters generally, which may be relevant to Solid
Energy and its group’s operations.
Coalcorp Insurance Services Ltd
Coalcorp Insurance Services (CIS) is Solid Energy’s
wholly-owned captive insurer. It provides primary
insurance protection for Solid Energy’s assets and
revenue. CIS, in turn, purchases reinsurance in the
global market.
Members
Keiran Horne (Chair), Steve Surridge, CFO
Members
Neville Sneddon (Chair), Rabin Rabindran, David Reece
Solid Energy New Zealand Ltd Annual Report 2014
16
The Directors present the
Financial Statements for
the year ended 30 June 2014
_________________________________________________________________________________
Activities
Solid Energy develops and supplies coal resourcebased products and services in New Zealand and
internationally. Solid Energy’s business activities
involve developing and producing coal and lignites
from a resource base of 1.8 billion tonnes, from
mines producing approximately 3.3 million tonnes
(Mt) of product per annum supplying the export and
New Zealand markets in equal measure.
These activities are supported by:
•
Logistics management,
distribution;
•
transportation
Results
2014
$million
Net (loss) for the period
(181.9)
Dividends paid
Nil
Equity at beginning of period
91.6
Shareholders’ equity at 30 June 2014
12.5
This equity was represented by:
and
Total assets of
636.1
Marketing, sales and trading (in New Zealand
and internationally);
Total liabilities of
623.7
•
Management of land and resources required for
these activities;
Dividends
•
Coal resource development activities to maintain
and renew the business;
•
Environmental management.
Solid Energy may undertake these activities by way
of full or shared ownership, joint ventures,
franchising arrangements, subcontracting, agency
or any combination of these.
The Directors did not pay a dividend in the year.
Accounting Policies
Accounting policies are updated annually to comply
with changes in accounting standards. The details
of minor changes in accounting standards are set
out in Note 2 (A) of the financial statements.
Reserve Cover
Auditors
Solid Energy has immediate consented access to
29.24 Mt on coal reserves, from a total resource
base of 1830 Mt. Solid Energy uses the AusIMM
JORC Code 2012 as a guideline for reporting
reserves and resources.
In accordance with Section 19 of the State Owned
Enterprises Act 1986, the Office of the Auditor
General is auditor for Solid Energy. The Controller
and Auditor General has appointed Alex Skinner of
KPMG to act on her behalf.
The amount payable to the auditors during the
period was:
Solid Energy New Zealand Ltd Annual Report 2014
•
Audit fee: $270,000
•
Review of the half year accounts: $63,000
17
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2014
PARENT
GROUP
see
notes
2014
2013
2014
2013
$M
$M
$M
$M
Revenue
4 (A)
449.2
631.1
437.2
609.2
Cost of sales
4 (B)
(474.8)
(596.6)
(455.6)
(553.4)
Gross profit/(loss)
(25.6)
34.5
(18.4)
55.8
Other income
Exploration, evaluation and development expenses
4 (C)
4 (D)
13.9
(0.6)
2.6
(25.6)
5.3
(0.6)
1.9
(23.3)
Shared services and administrative expenses
4 (E)
(24.6)
(19.1)
(25.3)
(18.9)
Other expenses and restructuring costs
4 (F)
(16.2)
(39.3)
(15.5)
(23.4)
Impairment
4 (G)
(110.6)
(215.3)
(120.0)
(269.6)
Results from operating activities
(163.7)
(262.2)
(174.5)
(277.5)
Realised and unrealised gains on derivatives
4 (H)
3.4
2.3
3.5
1.7
Finance income
4 (H)
3.9
0.5
32.9
0.4
Finance expenses
4 (H)
(26.1)
(35.9)
(24.8)
(26.9)
(18.8)
(33.1)
11.6
(24.8)
(0.1)
-
-
-
(182.6)
(295.3)
(162.9)
(302.3)
Net finance income/(expense)
Share of (loss) of jointly controlled entities
14
(Loss)/profit before income tax
Income tax expense
5
(Loss)/profit after tax
0.7
(40.1)
0.7
(13.0)
(181.9)
(335.4)
(162.2)
(315.3)
OTHER COMPREHENSIVE INCOME
Items that are or may be reclassified subsequently to profit or loss:
Cashflow hedges - effective portion of changes in fair value
24
3.3
4.9
3.4
4.4
Cashflow hedges - reclassified to profit or loss
24
1.5
(2.3)
1.5
(2.1)
5 (B) / 24
(0.7)
(1.5)
(0.7)
(1.3)
24
(1.3)
2.5
(0.2)
0.5
2.8
3.6
4.0
1.5
(179.1)
(331.8)
(158.2)
(313.8)
(179.1)
(331.8)
(158.2)
(313.8)
(179.1)
(331.8)
(158.2)
(313.8)
Income tax benefit/(expense) on fair value of cashflow hedges
Net change in fair value of available-for-sale financial assets
Other comprehensive income for the year, net of income tax
Total comprehensive (loss)/income for the year
Total comprehensive (loss)/income attributable to:
Members of the parent
Total comprehensive (loss)/income for the year
The accompanying notes form an integral part of these financial statements
Solid Energy New Zealand Ltd Annual Report 2014
18
STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2014
see
notes
Current assets
GROUP
PARENT
2014
2013
2014
2013
$M
$M
$M
$M
Cash and cash equivalents
6
71.7
14.1
71.6
13.0
Trade and other receivables
7
56.1
81.8
95.6
173.5
Derivatives
10
0.9
-
0.9
-
Inventories
11
74.3
91.1
73.4
90.2
21.7
Crown receivable
21
5.0
21.7
5.0
Assets classified as held for sale
26
62.3
55.9
11.3
12.7
270.3
264.6
257.8
311.1
4.0
Total current assets
Non-current assets
Trade and other receivables
7
2.9
4.0
2.9
Derivatives
10
2.9
-
2.9
-
-
0.5
-
0.2
Biological assets
Investment property
12
-
2.0
-
2.0
Other investments
13
-
7.0
36.5
22.9
Stripping in advance
15
64.7
99.7
64.7
99.7
Property, plant and equipment
16
148.2
254.3
125.0
195.8
Mining assets
17
91.8
159.2
84.7
151.9
Crown receivable
21
55.1
67.5
55.1
67.5
Intangible assets
18
0.2
0.4
0.2
0.4
Total non-current assets
365.8
594.6
372.0
544.4
Total assets
636.1
859.2
629.8
855.5
65.6
Current liabilities
Accounts payable and accruals
19
82.8
96.8
55.6
Derivatives
10
0.1
2.0
0.1
2.0
Interest-bearing borrowings
20
-
395.5
14.1
441.7
Provisions
21
35.3
81.2
33.9
72.9
Liabilities associated with assets classified as held for sale
26
2.0
3.4
-
-
120.2
578.9
103.7
582.2
Total current liabilities
Non-current liabilities
Term interest-bearing borrowings
20
322.3
3.6
320.5
-
Term lease liability
22
9.9
10.4
9.9
10.4
Derivatives
10
0.6
0.4
0.4
0.4
Investment deficit in joint venture
14
0.8
0.7
-
-
Term provisions
21
169.8
173.6
164.4
173.4
Total non-current liabilities
503.4
188.7
495.2
184.2
Total liabilities
623.6
767.6
598.9
766.4
12.5
91.6
30.9
89.1
60.9
Net assets
Equity
Issued capital
23
60.9
60.9
60.9
Redeemable Preference Shares
23
100.0
-
100.0
-
(151.3)
30.6
(132.1)
30.1
Retained earnings
Other reserves
Total equity
24
2.9
0.1
2.1
(1.9)
12.5
91.6
30.9
89.1
Signed for and on behalf of the Board of Directors, which authorised the issue of the Financial Report on 30 September 2014.
Pip Dunphy (Chair)
Andy Coupe (Director)
The accompanying notes form an integral part of these financial statements
Solid Energy New Zealand Ltd Annual Report 2014
19
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2014
GROUP
Ordinary
Capital
see
notes
note 23
$M
As at 1 July 2013
Attributable to equity holders of the parent
Cash
Available
Retained
Flow
for sale
Earnings
Hedge
reserve
Reserve
note 23
note 24
note 24
$M
$M
$M
$M
Redeemable
Preference
Shares
Total
Equity
$M
60.9
-
30.6
(2.4)
2.5
91.6
Total comprehensive income/(loss) for the year
Transactions with owners in their capacity as owners:
-
-
(181.9)
4.1
(1.3)
(179.1)
Issue of Redeemable Preference Shares
23
-
100.0
-
-
-
100.0
Dividends
29
-
-
-
-
-
-
As at 30 June 2014
60.9
100.0
(151.3)
1.7
1.2
12.5
As at 1 July 2012
60.9
-
366.0
(3.5)
-
423.4
Total comprehensive income/(loss) for the year
Transactions with owners in their capacity as owners:
-
-
(335.4)
1.1
2.5
(331.8)
Dividends
-
-
-
-
-
-
60.9
-
30.6
(2.4)
2.5
91.6
Issued
Capital
Redeemable
Preference
Shares
Retained
Earnings
note 23
$M
note 23
$M
$M
Cash
Flow
Hedge
Reserve
note 24
$M
60.9
-
-
30.1
(162.2)
100.0
-
29
As at 30 June 2013
PARENT
see
notes
As at 1 July 2013
Total comprehensive income/(loss) for the year
Transactions with owners in their capacity as owners:
Issue of Redeemable Preference Shares
Dividends
23
29
-
Available
for sale
reserve
Total
Equity
note 24
$M
$M
(2.4)
4.2
0.5
(0.2)
89.1
(158.2)
-
-
-
100.0
-
As at 30 June 2014
60.9
100.0
(132.1)
1.8
0.3
30.9
As at 1 July 2012
Total comprehensive income/(loss) for the year
Transactions with owners in their capacity as owners:
60.9
-
-
345.4
(315.3)
(3.4)
1.0
0.5
402.9
(313.8)
-
-
-
-
-
-
60.9
-
30.1
(2.4)
0.5
89.1
Dividends
29
As at 30 June 2013
The accompanying notes form an integral part of these financial statements
Solid Energy New Zealand Ltd Annual Report 2014
20
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2014
see
notes
GROUP
PARENT
2014
$M
2013
$M
2014
$M
2013
$M
486.7
0.2
1.0
487.9
651.1
0.5
651.6
474.1
1.0
475.1
632.9
0.4
633.3
(456.9)
(0.6)
(22.9)
(480.4)
7.5
(657.5)
(18.1)
(4.0)
(21.8)
(701.4)
(49.8)
(439.5)
(0.6)
(23.3)
(463.4)
11.7
(606.7)
(15.9)
(3.0)
(23.1)
(648.7)
(15.4)
39.0
0.1
39.1
11.5
1.5
13.0
44.3
4.7
49.0
3.2
3.8
1.5
8.5
(4.0)
(0.7)
(8.1)
(12.8)
26.3
(35.7)
(0.7)
(0.7)
(19.0)
(56.1)
(43.1)
(4.8)
(0.7)
(7.0)
(15.0)
(0.2)
(27.7)
21.3
(15.1)
(0.7)
(0.7)
(11.3)
(58.6)
(86.4)
(77.9)
25.0
1.1
26.1
100.5
3.6
1.1
105.2
25.0
1.1
26.1
103.8
1.1
104.9
(1.8)
(0.5)
(2.3)
(0.5)
(0.5)
(0.5)
(0.5)
(0.5)
(0.5)
Net cash flows from financing activities
23.8
104.7
25.6
104.4
Net increase/(decrease) in cash and cash equivalents
Opening cash and cash equivalents
Closing cash and cash equivalents
57.6
14.1
71.7
11.8
2.3
14.1
58.6
13.0
71.6
11.1
1.9
13.0
Cash flows from/(used in) operating activities
Cash was provided from:
Customers
Dividends received
Interest received
Cash was applied to:
Payments to suppliers and employees
Exploration and evaluation expenditure
Tax paid
Interest paid
Net cash flows from/(used in) operating activities
25
Cash flows from/(used in) investing activities
Cash was provided from:
Borrowing from subsidiary
Proceeds from sale of property, plant and equipment
Proceeds from sale of investment property
Proceeds from sale of other non-current assets
Cash was applied to:
Purchase of property, plant and equipment
Capitalised interest
Investment in intangible assets
Investment in mining assets
Investment in subsidiary
Loans to subsidiaries
Net cash flows from/(used in) investing activities
Cash flows from/(used in) financing activities
Cash was provided from:
Issue of Redeemable Preference Shares
Medium Term Notes and bank loans
Other interest-bearing borrowings
Repayment of lease receivable
Cash was applied to:
Repayment of other interest -bearing borrowings
Repayment of lease liability
6
During the year, certain portions of bank debt and a holding of Medium Term Notes were exchanged for $75.0 million of Redeemable Preference
Shares. Refer to Note 23.
The accompanying notes form an integral part of these financial statements
Solid Energy New Zealand Ltd Annual Report 2014
21
Notes to the Financial Statements
FOR THE YEAR ENDED 30 JUNE 2014
1. CORPORATE INFORMATION
These financial statements are for Solid Energy New Zealand Ltd (''Solid Energy''), its subsidiaries and joint venture as per note 28.
Solid Energy is a profit-oriented company incorporated in New Zealand. Solid Energy is registered under the Companies Act 1993.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Basis of Preparation and Statement of Compliance
The financial statements for the year ended 30 June 2014 have been prepared in accordance with Generally Accepted Accounting Practice in
New Zealand and the requirements of the Companies Act 1993, the Financial Reporting Act 1993, and the State Owned Enterprises Act 1986.
The financial statements comply with New Zealand equivalents to International Financial Reporting Standards, and other applicable Financial
Reporting Standards, as appropriate for profit-oriented entities. The financial statements comply with International Financial Reporting Standards
(IFRS).
The financial statements have been prepared on an historical cost basis, except for:
•
Investment property, derivative financial instruments and available-for-sale financial assets that have been measured at fair value;
•
Provisions and Crown receivable which are measured at net present value;
•
Tangible mining assets which include capitalised rehabilitation provisions; and
•
Assets classified as held for sale which are measured at the lower of carrying amount or fair value less cost to sell.
The financial statements are presented in New Zealand dollars and all values are rounded to the nearest one-tenth of one million dollars ($
million).
New accounting standards and interpretations
(i)
Changes in accounting policy and disclosures
The accounting policies adopted are consistent with those of the previous financial year, with the exception of the impact of the following new
accounting standards which have been adopted for the year ended 30 June 2014:
a)
IFRIC 20 Stripping Costs (effective for the reporting period commencing 1 July 2013).
This standard provides guidance on the treatment of production phase stripping costs. Stripping in advance is now classified as a noncurrent asset in accordance with this interpretation - refer (R) Stripping In Advance.
b)
The following accounting standards have been adopted but have not had any significant impact on the financial statements for the year
ended 30 June 2014:
•
NZ IAS 28 Investments in Associates and Joint Ventures
•
NZ IFRS 10 Consolidated Financial Statements
•
NZ IFRS 11 Joint Arrangements
•
NZ IFRS 12 Disclosure of Interests in Other Entities
•
NZ IFRS 13 Fair Value Measurement
Where necessary the analysis of certain comparatives has been amended to improve the information provided to the reader.
(ii) Solid Energy has elected not to early adopt the following relevant standards which have been issued but are not yet effective for the group:
•
NZ IFRS 9 Financial Instruments (effective for the reporting period commencing 1 July 2017)
The first phase of NZ IFRS 9 Financial Instruments addresses the classification and measurement of financial assets. At this stage it is
expected that the new standard will only have a minor impact on the classification and measurement of Solid Energy's current financial
assets.
•
NZ IFRS 15 Revenue from Contracts with Customers (effective for the reporting period commencing 1 July 2018)
NZ IFRS 15 clarifies the principles for recognising revenue. At this stage the impact on the group's financial statements has not been
concluded.
(B) Basis of Consolidation
The consolidated financial statements comprise the financial statements of Solid Energy and its subsidiaries at year end ("the group"). The
financial statements of subsidiaries are prepared for the same reporting period as the parent company, adjustments are made to bring into line
any dissimilar accounting policies that may exist.
All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full.
Unrealised losses are eliminated unless costs cannot be recovered.
Subsidiaries are consolidated from the date on which control is transferred to the group and cease to be consolidated from the date on which
control is transferred out of the group. Where there is loss of control of a subsidiary, the consolidated financial statements include the results for
the part of the reporting year during which Solid Energy had control.
Solid Energy New Zealand Ltd Annual Report 2014
22
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Investments in subsidiaries held by Solid Energy are accounted for at cost in the separate financial statements of the parent entity. The
acquisition of subsidiaries is accounted for using the purchase method of accounting. The purchase method of accounting involves allocating the
cost of the business combination to the fair value of the assets acquired and the liabilities and contingent liabilities assumed at the date of
acquisition (refer note 2(C)).
(C) Business Combinations
The purchase method of accounting is used to account for all business combinations regardless of whether equity instruments or operations are
acquired. Cost is measured as the fair value of the assets given, shares issued or liabilities incurred or assumed at the date of exchange plus
costs directly attributable to the combination.
Except for non-current assets or disposal groups classified as held for sale (which are measured at fair value less costs to sell), all identifiable
assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the
acquisition date. The excess of the cost of the business combination over the net fair value of the group's share of the identifiable net assets
acquired is recognised as goodwill. If the cost of acquisition is less than the group's share of the net fair value of the identifiable net assets of the
subsidiary, the difference is recognised as a gain in profit or loss, but only after a reassessment of the identification and measurement of the net
assets acquired.
(D) Foreign Currency Translation
Both the functional and presentation currency of Solid Energy and its New Zealand subsidiaries is New Zealand dollars ($). Transactions in
foreign currencies are initially recorded in the functional currency at the exchange rates ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are re-translated at the rate of exchange ruling at the reporting date. All differences in monetary
assets and liabilities in the consolidated financial statements are taken to profit or loss.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of
the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when
the fair value was determined.
(E) Revenue, Finance Income and Other Income
Revenue, finance income and other income are recognised to the extent that it is probable that the economic benefits will flow to the group and
the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:
Revenue
Sale of goods
Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and can be measured reliably.
Risks and rewards are considered to have passed to the buyer at the time of delivery of the goods to the customer. For free on board export
shipments delivery is deemed to have taken place once the ship is fully loaded and the bill of lading is issued.
Finance Income
Interest
Revenue is recognised as the interest accrues (using the effective interest method, which is the rate that exactly discounts estimated future cash
receipts through the expected life of the financial instrument) to the net carrying amount of the financial asset.
Dividends
Revenue is recognised when the shareholders' right to receive the payment is established.
Other Income
Rental income
Rental income arising on properties is accounted for on a straight-line basis over the lease term.
(F) Income Tax
Income tax comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items recognised
directly into equity. Deferred income tax is provided on all temporary differences at the reporting date between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes.
Deferred income tax liabilities are recognised for all taxable temporary differences:
i)
except where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
ii)
in respect of taxable temporary differences associated with investments in subsidiaries and interests in joint arrangements, except where the
timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the
foreseeable future.
Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to
the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of
unused tax assets and unused tax losses can be utilised:
i)
except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or
liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable
profit or loss; and
ii)
deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future
and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred income tax
assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available
to allow all or part of the deferred income tax asset to be utilised.
Solid Energy New Zealand Ltd Annual Report 2014
23
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the
liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
(G) GST
Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST) except:
i)
where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is
recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and
ii)
for receivables and payables which are stated with the amount of GST included.
The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Statement of
Financial Position. Cash flows are included in the Statement of Cash Flows on a gross basis and the GST component of cash flows arising from
investing and financing activities, which is recoverable from, or payable to, the taxation authority is classified as an operating cash flow.
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.
(H) Share Capital
Share capital is classified as equity if it is non-redeemable, or is redeemable only at the company's option, and any dividends are discretionary.
Dividends on share capital classified as equity are recognised as distributions within equity in the period in which they are declared.
(I)
Property, Plant and Equipment
•
The group has five classes of property, plant and equipment:
•
Land, buildings and structures;
•
Leasehold improvements;
•
Plant and equipment;
•
Leased infrastructure asset; and
•
Capital work in progress.
Depreciation
Land is carried at cost less any impairment losses. Land is not depreciated. Capital work in progress is carried at cost less any impairment losses.
Capital work in progress is not depreciated. When an item of capital work in progress is commissioned it transfers to the appropriate property,
plant and equipment category and depreciation commences.
All other property, plant and equipment is stated at cost less accumulated depreciation and any impairment in value. Depreciation is calculated on
a straight-line basis over the assets' expected economic life. Leased assets are depreciated over the shorter of the lease term and their useful
economic lives. The expected economic lives of assets are as follows:
•
Buildings and structures
10 to 25 years
•
Leasehold improvements
Lease term
•
Plant and equipment
5 to 15 years
•
Leased infrastructure asset
30 years
Depreciation methods, useful lives and residual values are reassessed at the reporting date. Property, plant and equipment under construction
are recorded as work in progress and are not depreciated until they are ready for productive use.
Impairment
The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying
value may not be recoverable. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for
the cash-generating unit to which the asset belongs.
If any such indication exists, and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are
written down to their recoverable amount. The recoverable amount of plant and equipment is the greater of fair value less costs to sell and value
in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset. Impairment losses are recognised in profit or loss.
(J) Mining Assets
Mining assets includes exploration and evaluation, mines in development and mines in production, for both tangible and intangible assets.
Tangible mining assets
(i)
Exploration and evaluation
Exploration, evaluation and development expenditure is stated at cost and is accumulated in respect of each identifiable area of interest.
Expenditure is only carried forward to the extent that it is expected to be recouped through the successful development of the area of interest (or
alternatively by its sale), or where activities in the area have not yet reached a stage which permits a reasonable assessment of the existence, or
otherwise, of economically recoverable reserves.
(ii) Mines in development
Once a decision is made to proceed with commercial production, the expenditure incurred on successful areas of interest is reclassified as "Mines
in development".
Solid Energy New Zealand Ltd Annual Report 2014
24
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(iii) Mines in production
Mining assets are transferred to "Mines in production" in the year production commences.
Mine production assets, comprising successful areas of interest, subsequent development expenditure and capitalised rehabilitation provisions
are amortised to profit or loss over the remaining productive life of the operation on a unit of production basis, subject to a maximum remaining
productive life of 20 years.
Accumulated costs in relation to an abandoned area are written off in full in the period in which the decision is made to abandon the area.
Intangible mining assets
Mineral reserve assets comprise mining rights and mining licences and are classified between exploration and evaluation, mines in development
and mines in production as per tangible assets above. Mineral reserve assets are stated at cost less any accumulated amortisation and
impairment loss. Amortisation is charged to profit or loss on mineral reserve assets on a straight-line basis over the estimated useful life of the
mineral right. The estimated useful life of mineral right assets is subject to a maximum of 20 years.
(K) Intangible Assets
Emission Trading Scheme (ETS ) units
Solid Energy has obligations under the New Zealand Emission Trading Scheme (ETS). Solid Energy is required to account for CO 2 equivalent
emissions associated with designated activities, principally the mining and selling of coal. Solid Energy, as a coal miner, is designated as a
default participant for the coal that it mines and is required to surrender eligible emissions units associated with coal sold domestically and directly
associated with mining coal that is subsequently exported. Very large customers can elect to manage the obligation themselves.
Solid Energy is required to account for CO 2 equivalent emissions associated with designated activities, principally the mining and selling of coal.
Solid Energy, as a coal miner, is designated as a default participant for the coal that it mines and is required to surrender eligible emissions units
associated with coal sold domestically and directly associated with mining coal that is subsequently exported. Very large customers can elect to
manage the obligation themselves.
Solid Energy is required to surrender 1 eligible emission unit for every 2 tonnes of CO 2 equivalent emitted. These units can be sourced:
•
Through the purchase of units;
•
Directly from projects that reduce emissions;
•
Via allocation by the Government as compensation for ETS costs; or
•
By paying a fixed price of $25 per emission unit to the Government.
Purchased ETS units are recognised as an intangible asset and measured at cost. ETS units are purchased in order to settle ETS obligations and
are therefore not amortised.
(L) Investment Property
Investment properties are measured initially at cost, including transaction costs. The carrying amount includes the cost of replacing part of an
existing investment property at the time that cost is incurred if the recognition criteria are met, and excludes the costs of day-to-day servicing of
an investment property. Subsequent to initial recognition, investment properties are stated at fair value, which is based on active market prices,
adjusted if necessary, for any difference in the nature, location or condition of the specific asset at the reporting date. Gains or losses arising from
changes in the fair values of investment properties are recognised in profit or loss in the year in which they arise.
Investment properties are de-recognised either when they have been disposed of or when the investment property is permanently withdrawn from
use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are
recognised in profit or loss in the year of retirement or disposal. Transfers are made to investment property when, and only when, there is a
change in use, evidenced by ending of owner-occupation, commencement of an operating lease to another party or ending of construction or
development. Transfers are made from investment property when, and only when, there is a change in use, evidenced by commencement of
owner-occupation or commencement of development with a view to sale.
For a transfer from investment property to owner-occupied property or inventories, the deemed cost of property for subsequent accounting is its
fair value at the date of change in use. If the property occupied by the group as an owner-occupied property becomes an investment property, the
group accounts for such property in accordance with the policy stated under property, plant and equipment up to the date of change in use.
(M) Interest in Joint Arrangements
Joint arrangements are those entities over whose activities the group has joint control established by contractual agreement. The group has an
interest in a joint arrangement that is a joint venture.
The interest in a joint venture entity is accounted for in the consolidated financial statements using the equity method of accounting and is carried
at cost by the parent entity. Under the equity method, the group's share of the results of the joint venture entity is recognised in profit or loss, and
the share of movements in reserves is recognised in the Statement of Financial Position.
(N) Other Investments
All other investments are initially recognised at fair value, being the consideration given and, in the case of an investment not at fair value,
through profit or loss, including acquisition costs associated with the investment. After initial recognition, investments which are classified as
available-for-sale, are measured at fair value.
Gains or losses on available-for-sale investments are recognised as a separate component of equity until the investment is sold, collected or
otherwise disposed of, or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity
is included in profit or loss.
Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity when the group has the
positive intention and ability to hold to maturity. Other long-term investments that are intended to be held to maturity, such as bonds, are
subsequently measured at amortised cost using the effective interest method.
Solid Energy New Zealand Ltd Annual Report 2014
25
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Amortised cost is calculated by taking into account any discount or premium on acquisition over the period to maturity. For investments carried at
amortised cost, gains and losses are recognised in income when the investments are de-recognised or impaired. Purchases and sales of financial
assets that require delivery of assets within the time-frame generally established by regulation or convention in the marketplace are recognised
on the trade date, i.e. the date that the group commits to purchase the asset.
(O) Leases
The determination of whether an arrangement is, or contains a lease, is based on the substance of the arrangement and requires an assessment
of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the
asset.
Group as a lessee
Finance leases, which transfer to the group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the
inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments
are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining
balance of the liability. Finance charges are included in profit or loss as finance costs. Capitalised leased assets are depreciated over the shorter
of the estimated useful life of the asset and the lease term. Leases where the lessor retains substantially all the risks and benefits of ownership of
the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the
leased asset and recognised over the lease term on the same basis as the lease payments. Operating lease payments are recognised as an
expense in the income statement on a straight-line basis over the lease term. The cost of improvements to leasehold properties is capitalised,
disclosed as leasehold improvements, and amortised over the unexpired period of the lease or the estimated useful life of the improvements,
whichever is the shorter.
Group as a lessor
Leases which transfer substantially all the risks and benefits incidental to ownership of the leased item are classified as finance leases. Finance
lease receivables are capitalised at the inception of the lease at the fair value of the leased assets or, if lower, at the present value of the
minimum lease payments. Operating lease receipts are recognised as other income in profit or loss on a straight-line basis over the lease term.
(P) Impairment of Mining and Other Non-Current Assets
The carrying amount of property, plant and equipment, mineral reserve assets, exploration, evaluation and development expenditure and
stripping in advance are reviewed at each reporting date to determine whether there is an indication of an impairment loss. If any such indication
exists, the assets recoverable amount is estimated. For any asset that does not generate largely independent cash flows, the recoverable amount
is determined for the cash-generating unit to which the asset belongs. If the carrying amount of the asset (or cash-generating unit) exceeds this
recoverable amount, the asset (or cash-generating unit) is written down to the recoverable amount. The recoverable amount of an asset is
determined as the higher of its net selling value and value in use. Value in use is determined by estimating future cash flows and discounting
them to their present value using a risk-adjusted pre-tax discount rate appropriate to the risks inherent in the asset.
Equity instruments are deemed to be impaired when there is a significant or prolonged decline in the fair value below the original purchase price.
The recoverable amount of the group's investments in held-to-maturity debt instruments and receivables carried at cost is calculated as the
present value of estimated cashflows, discounted at the original effective interest rate. Receivables with a short duration are not discounted.
When an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate
of its recoverable amount, but only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been
determined, net of depreciation or amortisation, if no impairment loss had been recognised.
(Q) Inventories
Inventories of by-product and saleable coal are valued at the lower of weighted average cost or net realisable value. By-product coal is
contaminated and diluted coal which requires significant further processing to become saleable. When both saleable coal and by-product coal are
produced from an operation the costs are allocated based on the relative net realisable values of the two products at the point they become
separately identifiable.
Costs include direct material, labour and transportation expenditure incurred in getting such inventories to their existing location and condition,
together with an appropriate portion of overhead expenditure.
Inventories of materials, consumable supplies and maintenance spares expected to be used in production are valued at weighted average cost.
Surplus and obsolete inventories are valued at net realisable value if lower than cost.
Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs
necessary to make the sale.
(R) Stripping in Advance
As part of its mining operations, Solid Energy incurs costs for the removal of overburden and other waste materials (stripping costs) both during
the development phase (development stripping) and production phase (production stripping) of its operations.
Development stripping
Stripping costs incurred in the development phase of a mine, before the production phase commences, are capitalised in mining assets as part of
the cost of constructing the mine. The capitalisation of development stripping costs ceases when the mine is commissioned and ready for use as
intended by management.
After the commencement of production, further development of a mine may require a phase of stripping that is similar in nature to development
phase stripping. The cost of such stripping is accounted for in the same way as development stripping.
Production stripping
Separately identifiable stripping costs incurred during the production phase are capitalised as a stripping in advance asset where the costs are
associated with improved access to coal to be mined in the future.
The amount of stripping costs capitalised is based on the strip ratio that is obtained by dividing the total tonnage of waste expected to be mined
over the life of the mine by the quantity of coal expected to be mined across the life of the mine. Stripping costs incurred in the period are
capitalised to the extent that the current period actual strip ratio exceeds the life of the pit average strip ratio. Significant changes in estimates to
the economically recoverable reserves are accounted for prospectively, from the date of the change.
Solid Energy New Zealand Ltd Annual Report 2014
26
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Amortisation
The stripping in advance asset is subsequently amortised using the units of production method over the life of the identified component of coal
that became more accessible as a result of the stripping activity. Economically recoverable reserves, which comprise proven and probable
reserves, are used to determine the expected useful life of the identified component of coal. The stripping in advance asset is then carried at cost
less amortisation and any impairment losses.
(S) Derivative Financial Instruments and Hedging
The group uses derivative financial instruments such as foreign currency contracts and interest rate swaps to hedge its risks associated with
foreign currency and interest rate fluctuations. Solid Energy's treasury policy does not allow derivative financial instruments to be held or issued
for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments.
Derivative financial instruments are recognised initially at fair value and retested on this basis at each reporting period. The gain or loss on remeasurement to fair value is recognised immediately in profit or loss unless the derivatives meet the criteria for hedge accounting (see below).
Cash flow hedges
Cash flow hedges (forward foreign currency contracts and interest rate swaps) are used to hedge the foreign currency and interest rate risk of
forecast transactions which meet the conditions for hedge accounting. The portion of the gain or loss on the hedging instrument that is
determined to be an effective hedge is recognised directly in equity and the ineffective portion is recognised in profit or loss. For all cash flow
hedges, the gains or losses that are recognised in equity are transferred to profit or loss in the same year in which the hedged forecasted
transaction affects the net profit and loss, for example when the future sale actually occurs.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge
accounting. Any cumulative gain or loss on the hedging instrument recognised in equity is kept in equity until the forecasted transaction occurs. If
a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to profit or loss for the
year.
De-recognition of derivative financial instruments
The de-recognition of a financial instrument takes place when the group no longer controls the contractual rights that comprise the financial
instrument, which is normally the case when the instrument is sold, or all the cash flows attributable to the instrument are passed through to an
independent third party.
(T) Accounts Receivable
Trade receivables
Accounts receivable, which generally have 30-90 day terms, are recognised and carried at the invoice amount less an allowance for any
uncollectible amounts.
Collectability of trade receivables is reviewed on an on-going basis at an operating unit level. Individual debts that are known to be uncollectible
are written off when identified. An impairment provision is recognised when there is objective evidence that the group will not be able to collect the
receivable. Financial difficulties of the debtor and default on payments are considered objective evidence of impairment. The amount of the
impairment loss is the receivable carrying amount compared to the present value of estimated future cash flows, discounted at the original
effective interest rate.
Related party receivables
An impairment assessment is undertaken each financial year by examining the financial position of the related party and the market in which the
related party operates to determine whether there is objective evidence that a related party receivable is impaired. When such evidence exists,
the group recognises an allowance for the impairment loss.
(U) Cash and Cash Equivalents
Cash and cash equivalents comprise cash at bank and in hand, short-term deposits with an original maturity of three months or less and bank
overdrafts and overnight cash facilities.
(V) Provisions
Provisions are recognised when the group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow
of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the
obligation. Where the group expects some or all of a provision to be reimbursed, for example the Crown's share of end of mine life rehabilitation
costs, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any
provision is presented in profit or loss net of any reimbursement, except for rehabilitation costs (see below).
If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that
reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is
used, the increase in the provision due to the passage of time is recognised as a finance cost.
Onerous contracts
A provision is made for onerous contracts when the net present value of any contract in which the unavoidable costs of meeting the obligations
under the contract exceed the economic benefits expected to be received under it.
Rehabilitation costs
The group is required under the terms of its mining licences to rehabilitate mine sites at the end of their productive lives to a condition consistent
with the group's environmental policies. The estimated cost of any end of mine life rehabilitation is provided for at the commencement of the
mining project, with a corresponding asset recognised in relation to the mine site. Measurement of the rehabilitation provision is on the basis of
expected future costs discounted using a risk-free rate. The inflation rate and risk-free rates used are those published by the New Zealand
Treasury for use in accounting valuations.
Solid Energy New Zealand Ltd Annual Report 2014
27
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Any increases in the rehabilitation provision that relate to the on-going production of the mine are expensed as the obligation arises. Any other
change in the net present value of rehabilitation costs, including those resulting from new disturbances, updated cost estimates and changes to
the lives of operations are capitalised to mine assets. Changes in net present value relating purely to discounting future values are reflected in
finance expenses.
Mobile plant costs
Mobile plant costs comprise mobilisation, demobilisation and mobile plant leased maintenance cost provisions. Mobilisation costs are those costs
incurred in relocating contractor mobile plant to the mine site at the start of the contract. Mobilisation costs are initially recorded in prepayments
and amortised over the life of the contract. Mobilisation assets are included within prepayments and mobilisation liabilities are included within
provisions.
Demobilisation costs are those costs relating to the cost of removing mobile plant fleet from the mine site at the end of the contract.
Demobilisation costs are provided for at the start of the contract and are amortised over the life of the contract.
The group is required to maintain leased mine site mobile plant equipment to a minimum standard under the lease agreements and to pay for
costs associated with the removal of mobile plant fleets from the mine sites at the end of the contracts. The costs required to replace worn
components on mine site mobile plant fleets are provided for based on the number of hours the mobile plant has been used. Costs associated
with the removal of the fleet at the end of the contracts are provided for at the start of the mining contract and are amortised over the life of the
contract.
(W) Crown Receivable
The group has an indemnity from the Crown for the Crown's share of end of mine life rehabilitation costs relating to mining assets prior to 1 April
1987. Measurement of the Crown receivable is on the basis of expected future costs discounted using a risk-free rate.
(X) Interest-Bearing Loans and Borrowings
All loans and borrowings are initially recognised at cost, being the fair value of the consideration received net of issue costs associated with the
borrowing. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective
interest method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement. Gains and
losses are recognised in profit or loss when the liabilities are de-recognised and as well as through the amortisation process.
Borrowing Costs
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost
of that asset. Qualifying assets are those that take a significant amount of time to get ready for their intended use or sale. Capitalisation of
borrowing costs is not applied to the borrowing costs associated with mining assets in the exploration and evaluation phase or to assets held for
potential future mining activities.
Other borrowing costs are recognised as an expense as incurred.
(Y) Accounts Payable
Trade and other payables are carried at amortised cost. They represent liabilities for goods and services provided to the group prior to the end of
the financial year that are unpaid and arise when the group becomes obliged to make future payments in respect of the purchase of these goods
and services. The amounts are unsecured and are usually paid within 30 days of recognition.
(Z) Employee Entitlements
Long-term employee entitlements
Long-term employee entitlements such as long service leave and other entitlements that are vesting are recognised when they accrue to
employees. Liabilities are accrued on an actuarial basis in respect to entitlements that are vested and expected to crystallise in the future.
Short-term employee entitlements
Short-term employee entitlement obligations such as salaries and wages and annual leave are expensed as the related service is provided.
Defined contribution plans
Obligations for contributions to defined contribution pension plans are recognised as an expense in profit or loss when they are due.
(AA) Non-current assets Held for Sale or Distribution
Non-current assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale or distribution
rather than continuing use, are classified as held for sale or distribution. Immediately before classification as held for sale or distribution, the
assets, or components of a disposal group, are remeasured in accordance with the group's accounting policies. Thereafter the assets, or disposal
group, are measured at the lower of their carrying amount and fair value less cost to sell. Any impairment loss on a disposal group is first
allocated to goodwill and then to remaining assets and liabilities on a pro rata basis except that no loss is allocated to inventories, financial
assets, deferred tax assets, employee benefit assets, investment property or biological assets, which continue to be measured in accordance with
the group's accounting policies. Impairment losses on initial classification as held for sale or distribution and subsequent gains or losses on
remeasurement are recognised in profit or loss. Gains are not recognised in excess of any cumulative impairment loss.
Once classified as held for sale or distribution, intangible assets and property, plant and equipment are no longer amortised or depreciated, and
any equity-accounted investee is no longer equity accounted.
Solid Energy New Zealand Ltd Annual Report 2014
28
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
(A) Use of Estimates and Assumptions
The preparation of the consolidated financial statements requires management to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets, liabilities, income and expenses. These estimates and associated
assumptions are based on historical experience, supported by independent external industry sources where appropriate, and various other
factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying
amounts of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in
which the estimates are revised and in any future periods affected.
The group has identified the following critical accounting policies under which significant judgements, estimates and assumptions are made and
where actual results may differ from these estimates under different assumptions and conditions and may materially affect financial results or the
financial position reported in future periods.
Further details of the nature of these assumptions and conditions may be found in the relevant notes to the financial statements.
Recoverable amount of non-current assets
Assumptions are required to be made in order to assess the recoverability of non-current assets where there is an impairment indicator at the
reporting date. Key assumptions include the timing and value of expected production and sales volumes, commodity prices, exchange rates,
discount rates, mineral rights, operating costs, and future capital expenditure. Judgement is also required to allocate assets and corporate
overheads to appropriate cash generating units.
Rehabilitation
In calculating the estimated future costs of rehabilitating and restoring areas disturbed in the mining process, estimates and assumptions have
been made. The amount the group is expected to incur to settle these future obligations includes estimates of discount and inflation rates,
expected mine life, application of the relevant legislative requirements for rehabilitation, and the future expected costs of rehabilitation for each
site. The provision is reviewed at each reporting date and updated based on the best available estimates and assumptions at that time.
Determination of coal reserves and resources
Estimated recoverable reserves and resources are used to determine the amortisation of mine production assets, in accounting for stripping in
advance costs, performing impairment testing and forecasting the timing of rehabilitation costs. Estimates are prepared by appropriately qualified
persons, using the 2012 JORC Code as a guideline, but will be impacted by assumptions relating to commodity prices, exchange rates,
production costs and recoveries amongst other factors.
Deferred Taxation
Judgement is required in assessing whether deferred tax assets are recognised for unused tax losses and temporary differences. Deferred tax
assets are recognised only if it is probable that future taxable profits will be available to utilise those losses. Determination of future taxable profits
requires assumptions to be made regarding future commodity prices, cash flows, capital requirements, exchange rates, and estimates of
recoverable reserves.
(B) Determination of Fair Value
A number of the group's accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and
liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. Where applicable,
further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.
Mining Assets
The fair value of mining assets not currently included in the 10-year mine and market plan is based on market values. The market value is
determined by valuing remaining economically-viable resources on a dollar per tonne basis with reference to comparable company multiples of
listed coal companies, adjusted where appropriate to take account of mining conditions, coal quality, and time to develop coal.
Held for Sale Assets
The fair value of land classified as held for sale is based on active market values, being the estimated amount for which a property could be
exchanged on the date of the valuation between a willing buyer and a willing seller in an arm's length transaction after proper marketing wherein
the parties had each acted knowledgeably, prudently and without compulsion. Valuations are performed by an external, independent valuation
company, having appropriate recognised professional qualifications and experience in the location and category of property being valued.
Investments in equity and debt securities
For investments that are actively traded in organised financial markets, fair value is determined by reference to stock exchange quoted market bid
prices at the close of business on the balance sheet date. For investments where there is no quoted market price, fair value is determined by
reference to the current market value of another comparable instrument which is substantially the same or by reference to the quoted repurchase
price for co-operative shares.
Derivatives
The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. The fair
values of financial instruments that are not traded in an active market are determined using valuation techniques. The group uses a variety of
methods and makes assumptions that are based on market conditions existing at each balance date. Other techniques, such as estimated
discounted cash flows, are used to determine fair value for the remaining financial instruments. The fair value of interest rate swaps is calculated
as the present value of the estimated future cash flows. The fair value of forward exchange contracts is determined using forward exchange
market rates at the balance sheet date. Fair values reflect the credit risk of the financial instrument and include adjustments to take account of the
credit risk of the group and counterparty where material.
Solid Energy New Zealand Ltd Annual Report 2014
29
4. REVENUE, INCOME AND EXPENSES
see
notes
(A)
437.2
609.2
437.2
609.2
(334.5)
(8.5)
(440.4)
(18.9)
(329.9)
-
(425.1)
(0.2)
(38.2)
(22.3)
(71.3)
(38.6)
(23.3)
(75.4)
(34.5)
(21.5)
(69.7)
(32.9)
(22.5)
(72.7)
(474.8)
(596.6)
(455.6)
(553.4)
2.7
11.2
2.6
-
1.7
3.6
1.5
0.4
13.9
2.6
5.3
1.9
(0.5)
(0.1)
-
(15.4)
(3.1)
(7.1)
(0.5)
(0.1)
-
(15.3)
(1.0)
(7.0)
(0.6)
(25.6)
(0.6)
(23.3)
-
-
-
-
Audit or review of the financial statements
Other assurance-related services
Total Auditor's remuneration
(0.4)
(0.4)
(0.3)
(0.3)
(0.4)
(0.4)
(0.3)
(0.3)
Directors' fees
Sponsorship
(0.4)
-
(0.3)
(0.7)
(0.4)
-
(0.3)
(0.7)
(3.9)
(10.2)
(4.9)
(1.2)
(3.9)
(10.2)
(4.9)
(1.2)
(9.7)
(11.7)
(10.4)
(11.5)
(24.6)
(19.1)
(25.3)
(18.9)
-
-
0.7
2.1
-
(24.5)
-
(10.9)
(4.4)
(4.0)
(7.8)
(1.0)
(0.2)
(12.5)
(4.4)
(4.0)
(7.8)
(1.0)
(0.2)
(12.5)
Cost of sales
17
Other income
Exploration, evaluation and development expenses
Shared services and administrative expenses comprise:
Bad debts
Auditor's remuneration comprises:
Depreciation
Shared services
Other administrative expenses including personnel,
travel, professional services, utilities and premise costs
Other expenses and restructuring costs
Subvention income/(expense)
Restructuring costs and redundancies comprising:
Spring Creek
Huntly East Mine
Stockton
Corporate
Other
Total restructuring costs and redundancies
Fair value movement
(i)
2013
$M
631.1
Non-coal development expensed
Coal exploration and evaluation expenditure
Research and development expensed
(F)
2014
$M
631.1
Rental income
Surplus on sale of property, plant and equipment
(E)
2013
$M
449.2
Amortisation of mining assets
Distribution, direct selling and other costs
(D)
2014
$M
449.2
Coal production costs
Renewables production costs
Depreciation
(C)
PARENT
Revenue
Sale of goods
(B)
GROUP
(i)
-
(0.9)
-
(0.7)
(16.2)
(39.1)
(16.2)
(25.3)
-
(0.2)
-
(0.2)
(16.2)
(39.3)
(15.5)
(23.4)
Restructuring costs include redundancy entitlements, bank facility restructure fees, legal and professional services fees paid to consultants
for restructuring advice, contractor stand down and contract exit costs, and operational costs of Spring Creek while the mine was in a
consultation period regarding the restructure.
Solid Energy New Zealand Ltd Annual Report 2014
30
4. REVENUE, INCOME AND EXPENSES (continued)
see
notes
(G)
(i)
(Impairment)/impairment reversal
(Impairment)/impairment reversal of property, plant and
equipment and mining assets
Impairment of stripping in advance
Impairment of loans to subsidiary
Impairment of investment in subsidiary
GROUP
PARENT
2014
2013
2014
2013
$M
$M
$M
$M
(i)-(viii)
(76.0)
(189.7)
(77.4)
(115.4)
(i)
(ix)
(x)
(34.6)
-
(25.6)
-
(34.6)
(8.0)
-
(25.6)
(114.1)
(14.5)
(110.6)
(215.3)
(120.0)
(269.6)
Export Operations - Sustained weak export coal markets and a continued high New Zealand dollar have resulted in a further reduction in
projected future value for the Export Operation’s cash generating unit (CGU). An impairment of $105.0 million has been recognised as a
result (2013: $80.1 million). The recoverable amount of the CGU is based on value in use for the economic coal resources included in the
current mine and market plan, a probability adjusted value in use for potential development options that could be developed within the 10
year period, and an assessment of fair value for resources not currently included in the 10-year mine and market plan. Key assumptions
used in the discounted cash-flow projections are:
•
Average production of 1.62 Mt per year over a 10-year mine plan, with 32.1 Mt of resources valued beyond this period (2013: average
production of 1.6 Mt per year over a six -year mine plan, with 61.7 Mt of resources valued beyond this period);
•
Export coal price assumptions have been sourced from an external industry source. The hard coking coal price forecast in real
US$/tonne is as follows:
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY24
132
140
142
147
167
180
175
173
174
178
(2013: forecast to recover to US$200/tonne by 2016 financial year);
•
The exchange rate applied is the NZD/USD forward curve as at 1 July 2014 off the spot rate of 0.8778 (2013: NZD/USD rate of 0.80);
•
Market - predominantly existing export customers in Asia;
•
Logistics costs are assumed to remain on existing contractual terms, although Solid Energy is currently in dispute with a key logistics
provider over that provider’s purported cancellation of the contract to transport coal. The company will strongly defend its position.
There is no liability associated with this action. Should the decision go against Solid Energy the impact will be in the valuation of the
export business;
•
Stockton Yellow Goods are assumed to be leased on similar terms that reflect the remaining economic value of the assets at the time
of contract expiry;
•
Corporate costs are allocated on a reasonable and consistent basis using a range of measures that reflect the use of each shared
service; and
•
Post-tax real discount rate of 8.7% to reflect Weighted Average Cost of Capital (2013: 8.7%).
•
The key assumptions used in the discounted cash-flow projections are export coal sales price, NZD/USD exchange rate and costs. A
US$5 per tonne decrease in the hard coking coal price throughout the planned 10-year period would result in a $37 million decrease
in the recoverable amount. A 1 cent increase in NZD/USD rate throughout the planned 10-year period would result in a $13 million
decrease in the recoverable amount of the export business. A NZ$5 per tonne increase in costs per tonne sold would result in a $40
million decrease in the recoverable amount.
(ii) Spring Creek – During the 2014 financial year, there was no impairment of the Spring Creek CGU. During the 2013 financial year continued
weakened coal markets, oversupply of mining equipment in the global market, and a lack of viable mining plans resulted in an impairment of
to the Spring Creek CGU of $53.1 million. As a consequence the Cobden Bridge asset which was used to rail coal out of Spring Creek, was
impaired by $8.8 million.
(iii) Underground Coal Gasification (UCG) – During the 2014 financial year, the partial sale of the UCG pilot plant in Huntly results in an
impairment reversal of $0.5 million. During the 2013 financial year, the plant was shut down following successful trials, resulting in an
impairment of $23.9 million. The recoverable amount of the UCG was based on fair value less costs to sell.
(iv) Briquette Plant - During the 2014 financial year, the sale of the Mataura domestic-scale briquette plant realised an impairment reversal of
$0.4 million. During the 2013 year, following a refocus of the company’s strategy away from near-term lignite developments, the decision
was made to impair the plant by $26.2 million.
(v) Nature's Flame - During 2014 financial year, Solid Energy impaired the Nature's Flame business by $0.9 million (2013: $4.3 million) based
on fair value as the company looked to divest the business. The recoverable amount of the CGU was based on its value in use in accordance
with Note 2 (P) Impairment of Mining and Other Non-Current Assets. The post-tax real discount rate used in measuring value in use for the
year ended 30 June 2013 was 8.7% to reflect Weighted Average Cost of Capital.
(vi) Land and Mineral Reserves - During the 2014 financial year, a $4.8 million (2013: $32.9 million) impairment of land and associated mineral
rights was recognised due to a comprehensive review of land holdings with a view to divestment as part of a strategic response to the
weakened global coal markets, and continued downward pressure on coal resource values. The recoverable amount of the land was based
on fair value.
(vii) Huntly East Mine - During the 2014 financial year, a $0.8 million impairment (2013: $6.4 million impairment) in relation to ceased ventilation
shaft development expenditure was recognised. During the 2013 financial year, an additional impairment reversal of $21.0 million was
recognised due to completed supply negotiations with major customers resulting in Huntly and Rotowaro assets being aggregated into a
North Island Operations CGU based on the blend of coal required to achieve contract specifications.
(viii) Biodiesel - During the year ended 30 June 2013, the assets of the Biodiesel business were sold and an impairment of $0.6 million was
recognised.
Solid Energy New Zealand Ltd Annual Report 2014
31
4. REVENUE, INCOME AND EXPENSES (continued)
(ix) Subsidiary loans - The parent company, Solid Energy New Zealand Ltd, provides funding to subsidiaries. The funding is repayable on
demand.
At 30 June, the following entities did not have sufficient equity to repay funding they had received and an impairment of the balance was provided
for in the parent company as follows:
PARENT
2014
2013
$M
$M
Biodiesel
Solid Energy Renewable Fuels
(0.1)
(2.8)
(3.5)
(5.2)
Spring Creek Mining Company
Solid Energy Land Holdings
(5.1)
(8.0)
(100.3)
(5.1)
(114.1)
(x) Investment in subsidiary - During the year ended 30 June 2013, the parent company, Solid Energy New Zealand Ltd, fully impaired its
investments of $7.3 million in Biodiesel and $7.2 million in Solid Energy Renewable Fuels due to negative net equity in the subsidiaries and
limited prospects of trading to profitability in the near future.
GROUP
see notes
(H)
PARENT
2014
$M
2013
$M
2014
$M
2013
$M
2.6
2.5
2.7
1.9
0.8
(0.2)
0.8
(0.2)
3.4
2.3
3.5
1.7
Interest income from bank deposits
1.0
0.5
1.0
0.4
Other finance income
Dividend income
2.7
0.2
3.9
0.5
31.9
32.9
0.4
Interest expense
Interest expense intercompany
(22.9)
-
(21.1)
-
(22.0)
(1.3)
(20.2)
(2.2)
Foreign exchange option costs
Other finance expenses
Discount rate unwind on term provisions
(2.7)
(0.5)
(26.1)
(0.9)
(11.6)
(2.3)
(35.9)
(2.7)
1.2
(24.8)
(0.9)
(3.8)
0.2
(26.9)
Net finance income/(expenses)
(18.8)
(33.1)
11.6
(24.8)
Finance related income/(expenses)
Realised and unrealised gains/(losses) on derivatives:
Net gain on fair value of cash flow hedges transferred from
equity on realisation
Ineffective portion of changes in fair value of cash flow
hedges
Finance income:
Finance expenses:
(I)
Included within cost of sales, exploration, evaluation and development and administrative expenses are:
Depreciation
Operating lease payments
Personnel costs:
Wages and salaries
Contributions to defined contribution plans
Solid Energy New Zealand Ltd Annual Report 2014
16
(42.1)
(27.4)
(43.5)
(32.7)
(38.4)
(26.5)
(37.8)
(31.1)
(77.2)
(3.5)
(80.7)
(126.9)
(7.7)
(134.6)
(75.4)
(3.5)
(78.9)
(123.8)
(7.6)
(131.4)
32
5. INCOME TAX
GROUP
see notes
PARENT
2014
$M
2013
$M
2014
$M
2013
$M
Income tax (benefit)/expense can be reconciled to accounting (loss)/profit as follows:
Accounting (loss)/profit before tax
(182.6)
(A) Income tax (benefit)/expense
Tax at the group's statutory income tax rate of 28%
Adjustments in respect of current income tax of previous years
Effect of deferred tax assets derecognised
5 (D)
Tax effect of other expenditure not subject to tax
Tax effect of income not subject to tax
Tax effect of remission income
Group losses utilised in respect of current year
Non-deductible subvention expense in respect of prior year
Non-deductible subvention expense in respect of current year
Unrecognised movement in temporary differences
Unrecognised current year tax losses
Other
5 (D)
5 (D)
Aggregate income tax expense
(295.3)
(162.9)
(302.3)
(51.1)
-
(82.7)
(0.4)
40.5
(45.6)
-
(84.6)
(0.5)
13.6
0.1
(1.7)
3.9
7.1
(2.8)
-
2.8
(8.9)
3.9
38.2
-
-
-
(0.5)
0.5
0.3
1.0
0.4
(1.0)
15.8
32.3
-
44.7
33.8
(0.1)
19.8
27.0
-
31.4
14.6
(0.1)
(0.7)
40.1
(0.7)
13.0
(0.7)
(0.4)
40.5
(0.7)
(0.5)
13.5
(0.7)
40.1
(0.7)
13.0
-
(4.4)
-
(3.5)
-
0.4
4.0
-
0.5
3.0
-
-
-
-
0.7
(0.7)
-
42.0
(40.5)
(1.5)
-
0.7
(0.7)
-
15.1
(13.5)
(1.3)
(0.3)
-
-
-
-
Comprising:
Current tax
Deferred tax
Income tax expense
(B) Recognised tax assets and liabilities
Current income tax (liability):
Opening balance
Charged to income
Tax paid
Closing balance
Deferred tax asset/(liability):
Opening balance
Charged to income
Charged to equity
Other
Closing balance
Solid Energy New Zealand Ltd Annual Report 2014
5(D)
5(E)/24
33
5. INCOME TAX (continued)
GROUP
PARENT
2014
$M
2013
$M
2014
$M
2013
$M
Deferred income tax at 30 June relates to the following:
Deferred tax assets:
Provisions
0.7
0.7
0.7
0.4
Gross deferred tax assets
0.7
0.7
0.7
0.4
Deferred tax liabilities:
Derivatives
Lease receivable
(0.6)
-
(0.1)
(0.7)
-
(0.1)
Lease liability
Investments
Gross deferred tax liabilities
(0.1)
(0.7)
(0.2)
(0.4)
(0.7)
(0.7)
(0.2)
(0.1)
(0.4)
-
-
-
-
234.1
230.1
218.6
215.6
-
4.0
12.4
-
3.0
234.1
234.1
231.0
218.6
231.0
3.1
218.6
15.5
231.0
-
218.6
-
234.1
234.1
231.0
218.6
Net deferred tax assets/(liabilities)
(C) Imputation credit account
Opening balance
Prior year adjustment
Imputation credit attached to dividends paid in the year
Income tax payments, adjustments and transfers during the year
Closing balance
At balance date the imputation credits available to the shareholders of the parent were:
Through direct shareholding in the parent company
Through shareholding in subsidiaries
Imputation credit account closing balance
(D) Unrecognised deferred tax assets
At 30 June 2014, it is not considered probable that future taxable profit will be available to utilise tax losses and deductible temporary differences
of the group or parent. The group has $282.8 million (2013: $174.4 million) tax losses and $365.3 million (2013: $301.9 million) deductible
temporary differences for which no deferred tax asset has been recognised. The amount of tax losses is subject to confirmation by Inland
Revenue and the losses will continue to be carried forward subject to meeting the minimum shareholding continuity requirements. Approximately
$53.8 million of the group's tax losses were incurred by Spring Creek Mining Company prior to that company being wholly owned by the group,
and those tax losses can only be utilised by Spring Creek Mining Company itself.
(E) Charged to equity
Amounts charged or credited directly to equity include the net change in fair value of cash flow hedges.
6. CASH AND CASH EQUIVALENTS
Reconciliation to statement of cash flows
For the purposes of the statement of cash flows, cash and cash equivalents comprise the following:
GROUP
PARENT
Cash at bank and in hand
Short-term deposit
2014
$M
63.6
8.1
2013
$M
14.1
-
2014
$M
63.5
8.1
2013
$M
13.0
-
Total cash and cash equivalents
71.7
14.1
71.6
13.0
The short-term deposit is a guarantee for an environmental bond (see note 31).
Solid Energy New Zealand Ltd Annual Report 2014
34
7. TRADE AND OTHER RECEIVABLES
GROUP
see notes
Trade receivables
Allowance for impairment loss
2014
2013
2014
2013
$M
$M
$M
$M
50.9
72.5
50.4
72.4
-
-
-
-
50.9
72.5
50.4
72.4
-
-
236.1
(196.3)
279.7
(188.3)
-
-
39.8
91.4
8.1
-
12.2
1.1
8.3
-
12.6
1.1
59.0
85.8
98.5
177.5
56.1
2.9
81.8
4.0
95.6
2.9
173.5
4.0
59.0
85.8
98.5
177.5
(A)
Loans to subsidiaries
Allowance for impairment loss
(B)
(B)
Prepayments
Current lease receivable
(C)
Total trade and other receivables
PARENT
Comprising:
Current
Non-current
(A) Allowance for impairment loss
Trade receivables are non-interest-bearing and are generally on 30-90 day terms. A provision for impairment loss is recognised when there is
objective evidence that an individual trade receivable is impaired.
At 30 June, the ageing analysis of trade receivables is as follows:
Total
0-30 days
31-60 days
61-90 days
91+ days PDNI*
2014 Group
2013 Group
2014 Parent
$M
50.9
72.5
50.4
$M
50.4
71.0
50.3
$M
0.6
-
$M
0.5
0.5
0.1
$M
0.4
-
2013 Parent
72.4
70.9
0.6
0.5
0.4
*Past due not impaired (PDNI)
Receivables past due but not considered impaired are: $Nil (2013: $0.4 million). Payment terms on these amounts have not been renegotiated
however credit has been stopped until full payment is made. Each operating unit has been in direct contact with the relevant debtor and is
satisfied that payment will be received in full.
(B) Loans to subsidiaries
For further details on the allowance for impairment loss on loans to subsidiaries see note 4 (G) (ix). For terms and conditions on related party
receivables refer to note 28.
(C) Lease Receivable
The group had a finance lease receivable contract which had expired at 30 June 2014. The lease has not been renewed.
see
notes
Up to 1 year
Total minimum lease payments
Less amounts representing finance lease charges
Present value of minimum lease payments
Solid Energy New Zealand Ltd Annual Report 2014
7
GROUP
PARENT
2014
2013
2014
2013
$M
-
$M
1.2
1.2
$M
-
$M
1.2
1.2
-
(0.1)
-
(0.1)
-
1.1
-
1.1
35
8. FINANCIAL INSTRUMENTS
The group's financial instruments comprise trade receivables, accounts payable, notes, bank loans, intercompany loans, available-for-sale
investments, cash and cash equivalents and derivatives. The following tables provide an analysis of financial assets and financial liabilities by
category:
Group
see
notes
As at 30 June 2014
Loans and
Receivables
Availablefor-sale
financial
assets
Other
financial
liabilities
Derivatives
classified as
held for
trading
Derivatives
designated
cash flow
hedging
instrument
Total
$M
$M
$M
$M
$M
$M
6
71.7
-
-
-
-
71.7
50.9
Assets:
Cash and cash equivalents
Trade and other receivables
(excluding prepayments)
Derivatives
7
50.9
-
-
-
-
10
-
-
-
2.9
0.9
3.8
Crown receivable
21
60.1
-
-
-
-
60.1
182.7
-
-
2.9
0.9
186.5
Total financial assets
Liabilities:
Derivatives
10
-
-
-
(0.5)
(0.2)
(0.7)
Interest-bearing borrowings
Term lease liability
Accounts payable and accruals
(excluding employee entitlements)
20
22
-
-
(322.3)
(9.9)
-
-
(322.3)
(9.9)
19
-
-
(75.7)
-
-
(75.7)
-
-
(407.9)
(0.5)
(0.2)
(408.6)
Total financial liabilities
Group
$M
$M
$M
$M
Derivatives
designated
cash flow
hedging
instrument
$M
6
14.1
-
-
-
-
14.1
7
72.5
-
-
-
-
72.5
7
1.1
89.2
7.0
-
-
-
-
1.1
7.0
89.2
176.9
7.0
-
-
-
-
-
(399.1)
(10.4)
-
(2.4)
-
-
-
(86.7)
-
-
(86.7)
-
-
(496.2)
-
(2.4)
(498.6)
see
notes
As at 30 June 2013
Loans and
Receivables
Availablefor-sale
financial
assets
Derivatives
classified as
held for
trading
Other
financial
liabilities
Total
$M
Assets:
Cash and cash equivalents
Trade and other receivables
(excluding prepayments)
Lease receivable
Available-for-sale investments
Crown receivable
13
21
Total financial assets
183.9
Liabilities:
Derivatives
Interest-bearing borrowings
Term lease liability
Accounts payable and accruals
(excluding employee entitlements)
Total financial liabilities
10
20
22
19
Solid Energy New Zealand Ltd Annual Report 2014
(2.4)
(399.1)
(10.4)
36
8. FINANCIAL INSTRUMENTS (continued)
Parent
see
notes
Availablefor-sale
financial
assets
Loans and
Receivable
As at 30 June 2014
Other
financial
liabilities
Derivatives
classified as
held for
trading
Derivatives
designated
cash flow
hedging
instrument
Total
$M
$M
$M
$M
$M
$M
6
71.6
-
-
-
-
71.6
7
50.4
-
-
-
-
50.4
7
39.8
60.1
221.9
-
-
2.9
2.9
0.9
0.9
39.8
3.8
60.1
225.7
-
-
(0.5)
-
-
-
(320.5)
(14.1)
(9.9)
(0.5)
(320.5)
(14.1)
(9.9)
Assets:
Cash and cash equivalents
Trade and other receivables
(excluding prepayments)
Loans to subsidiaries
Derivatives
Crown receivable
Total financial assets
Liabilities:
Derivatives
Interest-bearing borrowings
Loans from subsidiaries
Term lease liability
Accounts payable and accruals
(excluding employee entitlements)
Total financial liabilities
Parent
10
21
10
20
20
22
19
see
notes
As at 30 June 2013
-
-
-
(48.6)
-
-
(48.6)
-
-
(393.1)
(0.5)
-
(393.6)
Loans and
Receivable
Availablefor-sale
financial
assets
Other
financial
liabilities
Derivatives
classified as
held for
trading
$M
$M
$M
$M
Derivatives
designated
cash flow
hedging
instrument
$M
Total
$M
Assets:
Cash and cash equivalents
Trade and other receivables
(excluding prepayments)
Loans to subsidiaries
Lease receivable
Available-for-sale investments
13.0
-
-
-
-
13.0
7
72.4
-
-
-
-
72.4
7
91.4
1.1
-
1.4
-
-
-
7
13
91.4
1.1
1.4
Crown receivable
21
6
Total financial assets
89.2
-
-
-
-
89.2
267.1
1.4
-
-
-
268.5
Liabilities:
Derivatives
10
-
-
-
-
(2.4)
(2.4)
Interest-bearing borrowings
Loans from subsidiaries
Term lease liability
Accounts payable and accruals
(excluding employee entitlements)
Total financial liabilities
20
20
22
-
-
(395.5)
(46.2)
(10.4)
-
-
(395.5)
(46.2)
(10.4)
19
-
-
(55.6)
-
-
(55.6)
-
-
(507.7)
-
(2.4)
(510.1)
Risk Exposures and Responses
The main risks arising from the group's operations are commodity price risk, foreign currency risk, interest rate risk, credit risk, liquidity risk and
equity price risk. The group uses different methods to measure and manage different types of risks to which it is exposed. These include
monitoring levels of exposure to interest rate and foreign exchange risk and assessments of market forecasts for interest rate, foreign exchange
and commodity prices. Ageing analyses and monitoring of specific credit allowances are undertaken to manage credit risk. Liquidity risk is
monitored through the development of future rolling cash flow forecasts. Primary responsibility for identification and control of financial risks rests
with the Board. The Board reviews and agrees policies for managing each of the risks identified below, including the setting of limits for trading in
derivatives, hedging cover of foreign currency and interest rate risk, credit allowances, and future cash flow forecast projections.
The group enters into derivative transactions, principally interest rate swaps and forward currency contracts and options. The group manages the
financial market risks arising from operations to within acceptable levels of risk tolerance, in accordance with the group treasury policy.
Solid Energy New Zealand Ltd Annual Report 2014
37
8. FINANCIAL INSTRUMENTS (continued)
Commodity Price Risk
The group's major price risk is export coal pricing with respect to direct and /or indirect calculation of revenue, and the valuation of inventory and
mineral rights. Export coking coal prices can fluctuate significantly, with the spot price ranging from US$107 per tonne to US$330 per tonne for
export coking coal over the last three years. The group does not hedge the spot price, and financial instrument exposure to commodity price risk
at balance date is minimal due to the fact that all export shipments have been sold at contracted rates. The terms of the sales contracts are set
quarterly.
Foreign currency risk
The group's exposure to foreign currency risk relates to the group's export receipts and import and certain other payments which are primarily
denominated in US$. The group also has foreign currency risk with respect to the direct and indirect calculation of inventory and mineral right
valuations.
The group's policy aligns with the quarterly pricing of its export sales contracts. During the year ended 30 June 2014, as a requirement of the
capital restructure (see note 23) the policy was reviewed and amended to require cover of between 60% and 100% of its 0-3 months expected
net US$ cash flow and up to 80% of its 3-6 months expected net US$ cash flow.
At 30 June 2014, the group had hedged 96% of its 0-3 months foreign currency firm commitments and 0% of its 3-6 months foreign currency firm
commitments.
At 30 June 2013, the group had hedged 58% of its 0-3 months foreign currency firm commitments. This was outside of policy at the time as the
group was unable to take out any further foreign currency contracts due to external constraints placed upon the group.
Interest rate risk
The group's exposure to market interest rates relates primarily to the group's debt obligations and lease obligations. The level of debt is disclosed
in notes 6 and 20 and the operating lease commitments are disclosed in note 27. At balance date, the group had the following mix of financial
assets and liabilities exposed to New Zealand variable interest rate risk that are not designated in cash flow hedges:
see
notes
Financial Assets:
Cash at bank and in hand
Short-term deposit
Total financial assets
GROUP
PARENT
2014
$M
2013
$M
2014
$M
2013
$M
6
6
63.6
8.1
71.7
14.1
14.1
63.5
8.1
71.6
13.0
13.0
20
20
(36.3)
(36.3)
(67.5)
(67.5)
(36.3)
(14.1)
(50.4)
(67.5)
(46.2)
(113.7)
35.4
(53.4)
21.2
(100.7)
Financial Liabilities:
Unhedged portion of floating rate debt
Loan from subsidiary
Total financial liabilities
Net exposure
The group's policy is to manage its finance costs using a mix of fixed and variable rate debt. The group's policy is to maintain between 50% and
100% of its expected borrowings over the next 12 months at fixed rates (2013: between 40% and 90%) which are carried at amortised cost and it
is acknowledged that fair value exposure is a by-product of the group's policy to manage its cash flow volatility arising from interest rate changes.
At 30 June 2014 the group had contracted 78% of expected borrowings over the next 12 months at fixed rates (2013: 71%).
To manage this mix in a cost-efficient manner, the group enters into interest rate swaps in which the group agrees to exchange, at specified
intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed-upon notional principal amount.
These swaps are designated to hedge underlying debt obligations. At 30 June 2014, the group had $223 million (2013: $256 million) of interest
rate swaps which were used to hedge current and future debt. The fair value in the group of the interest rate swaps was $2.2 million (2013: ($1.4
million)).
The group constantly analyses its interest rate exposure. Within this analysis consideration is given to potential renewals of existing positions,
alternative financing, alternative hedging positions and the mix of fixed and variable interest rates.
Credit Risk
Credit risk arises from the financial assets of the group, which comprise receivables, cash and short-term deposits and derivative financial
instruments. The group's exposure to credit risk arises from potential default of the counter party, with a maximum exposure equal to the carrying
amount of these instruments. The parent also has credit risk arising from loans to related parties.
The group trades only with recognised, creditworthy third parties, and as such collateral is not requested nor is it the group's policy to securitise its
trade and other receivables. It is the group's policy that all customers who wish to trade on credit terms are subject to credit verification
procedures including an assessment of their independent credit rating, financial position, past experience and industry reputation. For export
sales letters of credit are used to manage credit risk where appropriate. Receivable balances are monitored on an on-going basis in accordance
with Note 2 (T) Accounts Receivable, with the result that the group's exposure to bad debts is not significant. Derivative counterparties and cash
transactions are limited to high-credit-quality financial institutions. The group’s exposures and the credit ratings of its counterparties (if any) are
regularly monitored to ensure that compliance with the parameters set in the Treasury Policy is maintained. There are no significant
concentrations of credit risk within the group and financial instruments are spread amongst a number of financial institutions to minimise the risk
of default of counterparties.
Solid Energy New Zealand Ltd Annual Report 2014
38
8. FINANCIAL INSTRUMENTS (continued)
Liquidity Risk
The group's objective is to ensure it has the ability to generate or obtain sufficient cash in a timely manner and at a reasonable price to meet its
financial commitments as they fall due.
At 30 June 2014, the terms of the capital restructure of both the bank debt and notes that was in progress at 30 June 2013 (see note 23) had
been agreed and the group had the following facilities available for its immediate use:
Group
Available Facility
Drawn as at 30
June 2014
< 1 year
Bank loans
Crown working capital facility
Crown surplus land assets term loan facility
Crown stand-by facility
Total
Total Available
facility
1-5 years
>5 Years
239.3
-
-
239.3
50.0
-
239.3
50.0
-
-
16.7
30.0
-
16.7
30.0
239.3
-
336.0
-
336.0
The availability of the surplus land assets term loan facility will reduce progressively as surplus land assets are sold. All facilities have a maturity
date of 7 September 2016.
The table below reflects all contractually fixed payments for settlement, repayments and interest resulting from recognised financial liabilities,
including derivative financial instruments as of 30 June 2014. For derivative financial instruments the market value is presented, whereas for the
other obligations the respective undiscounted cash flows for the respective upcoming fiscal years are presented. Cash flows for financial liabilities
without fixed amount or timing are based on the conditions existing at 30 June 2014.
At 30 June 2014, the contractual maturities of the bank debt and the Medium Term Notes (notes) reflect the balance sheet classification. At 30
June 2013, bank debt and notes were classified as current liabilities as the group did not have an unconditional right to defer settlement for at
least 12 months after the reporting date following a technical breach of the debt gearing and minimum shareholders' funds bank covenants during
the period.
However, at 30 June 2013, as the group considered that it was in compliance with the covenants in the Deed Poll for the notes, and the
provisions relating to event of default under the Deed Poll had not been triggered, the contractual payments of the notes reflected the terms of the
original Deed Poll rather than the balance sheet classification as current liabilities.
The contractual maturities of financial liabilities, including interest payments and excluding the impact of netting agreements are:
Group
As at 30 June 2014
Accounts payable and accruals
(excluding employee entitlements)
Term lease liability
Bank loans
Medium Term Notes
Other interest-bearing liabilities
Interest rate swaps
Outflow
Inflow
Total group financial liabilities
As at 30 June 2013
Accounts payable and accruals
(excluding employee entitlements)
Term lease liability
Bank loans
Medium Term Notes
Other interest-bearing liabilities
Foreign currency forward contracts
Outflow
Inflow
Interest rate swaps
Outflow
Inflow
Total group financial liabilities
≤ 6 months
6-12 months
1-5 years
> 5 Years
Total
$M
$M
$M
$M
$M
Fair Value/
Carrying
Value
$M
(75.7)
-
-
-
(75.7)
(75.7)
(0.7)
(7.7)
(2.9)
(0.2)
(0.7)
(7.7)
(2.9)
(0.2)
(5.3)
(257.7)
(85.0)
(1.8)
(15.6)
(11.5)
-
(22.3)
(273.1)
(102.3)
(2.2)
(9.9)
(239.3)
(81.2)
(1.8)
(1.9)
1.8
(87.3)
(1.6)
1.4
(11.7)
(8.1)
7.7
(350.2)
(27.1)
(11.6)
10.9
(0.7)
(476.3)
(408.6)
$M
$M
$M
$M
$M
$M
(86.7)
-
-
-
(86.7)
(86.7)
(0.8)
(300.5)
(3.4)
(0.2)
(0.8)
(3.4)
(0.2)
(5.6)
(93.8)
(4.0)
(16.7)
(27.4)
-
(23.9)
(300.5)
(128.0)
(4.4)
(10.4)
(300.5)
(95.0)
(3.6)
(46.8)
45.8
-
-
-
(46.8)
45.8
(1.0)
(4.1)
3.6
(393.1)
(4.1)
3.6
(4.9)
(20.9)
20.3
(104.0)
(3.7)
3.9
(43.9)
(32.8)
31.4
(1.4)
(545.9)
(498.6)
Solid Energy New Zealand Ltd Annual Report 2014
39
8. FINANCIAL INSTRUMENTS (continued)
Parent
≤ 6 months
As at 30 June 2014
Accounts payable and accruals
(excluding employee entitlements)
Term lease liability
Bank loans
Medium Term Notes
6-12 months
$M
1-5 years
>5 Years
Fair Value/
Carrying
Value
Total
$M
$M
$M
$M
$M
(48.6)
-
-
-
(48.6)
(48.6)
(0.7)
(7.7)
(2.9)
(0.7)
(7.7)
(2.9)
(5.3)
(257.7)
(85.0)
(15.6)
(11.5)
(22.3)
(273.1)
(102.3)
(9.9)
(239.3)
(81.2)
(14.4)
-
-
-
(14.4)
(14.1)
(1.7)
(1.4)
(7.4)
-
1.6
1.3
7.1
-
(10.5)
10.0
(0.5)
Total parent financial liabilities
(74.4)
(11.4)
(348.3)
(27.1)
(461.2)
(393.6)
As at 30 June 2013
Accounts payable and accruals
(excluding employee entitlements)
Term lease liability
(55.6)
-
-
-
(55.6)
(55.6)
(0.8)
(0.8)
(5.8)
(16.5)
(23.9)
(10.4)
(300.5)
(3.4)
(47.1)
(3.4)
-
(93.8)
-
(27.4)
-
(300.5)
(128.0)
(47.1)
(300.5)
(95.0)
(46.2)
(46.8)
45.8
-
-
-
(46.8)
45.8
(1.0)
(3.9)
3.4
(3.9)
3.4
(19.7)
19.1
(3.8)
4.0
(31.3)
29.9
(1.4)
(408.9)
(4.7)
(100.2)
(43.7)
(557.5)
(510.1)
Loans from subsidiaries
Interest rate swaps
Outflow
Inflow
Bank loans
Medium Term Notes
Loans from subsidiaries
Foreign currency forward contracts
Outflow
Inflow
Interest rate swaps
Outflow
Inflow
Total parent financial liabilities
Equity Price Risk
At 30 June 2014, the group owned $5.6 million of shares that are included as held for sale assets (2013: $7.0 million included as available-forsale investments – refer note 13). Equity risk results from the re-pricing of these investments. The group does not undertake equity trading as the
investments are only held as an indirect result of land currently being leased for dairying. As such there are no significant exposures to equity
instruments.
Sensitivity analysis
The table below summarises the sensitivity of financial assets and financial liabilities to changes in interest rate and currency risks with all other
variables held constant.
2014
Interest rate risk
+ 100 basis
points
2013
- 100 basis
points
+ 100 basis
points
- 100 basis
points
Profit
Equity
Profit
Equity
Profit
Equity
Profit
Equity
$M
$M
$M
$M
$M
$M
$M
$M
4.7
0.4
0.7
0.4
(4.9)
(0.4)
(0.7)
(0.4)
(0.5)
7.5
(0.5)
0.5
(7.9)
0.5
4.7
0.2
0.2
(4.9)
(0.2)
(0.2)
(1.0)
6.5
(1.0)
1.0
(6.9)
1.0
Group
Hedged interest rate financial instruments
Unhedged financial assets and liabilities
Parent
Hedged interest rate financial instruments
Unhedged financial assets and liabilities
Solid Energy New Zealand Ltd Annual Report 2014
40
8. FINANCIAL INSTRUMENTS (continued)
Sensitivity Analysis (continued)
2014
Foreign Currency Risk
Strengthen 10%
2013
Weaken 10%
Strengthen 10%
Weaken 10%
Profit
$M
Equity
$M
Profit
$M
Equity
$M
Profit
$M
Equity
$M
Profit
$M
Equity
$M
Unhedged foreign currency financial assets and liabilities
-
4.9
-
-
(4.0)
-
-
5.2
-
-
(4.2)
-
Parent
Hedged forward exchange contracts
Unhedged foreign currency financial assets and liabilities
-
4.9
-
-
(4.0)
-
-
5.2
-
-
(4.2)
-
Group
Hedged forward exchange contracts
The group and parent do not currently use financial instruments to manage price risk and therefore there is no sensitivity to changes in price
arising from financial instruments at year end (2013:$Nil).
Management believe the exposures at balance date are representative of the risk exposure inherent in the financial instruments.
9. FAIR VALUES
The following table sets out an analysis of items that are measured subsequent to initial recognition at fair value and are grouped into levels
based on the degree to which the fair value is observable:
•
•
•
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets
Level 2 fair value measurements are those derived from inputs other than quoted prices included within level 1 that are observable for the
asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on
observable market data (unobservable inputs)
2014
Group
Foreign currency forward contracts
Interest rate swaps
Available-for-sale investments
Held for sale assets
2013
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
$M
$M
$M
$M
$M
$M
$M
$M
-
0.9
2.2
-
0.9
2.2
-
(1.0)
(1.4)
-
(1.0)
(1.4)
5.6
-
28.5
34.1
7.0
-
-
11.8
7.0
11.8
-
0.9
-
0.9
-
(1.0)
-
(1.0)
1.2
2.4
-
9.8
2.4
11.0
1.4
-
(1.4)
-
10.1
(1.4)
1.4
10.1
Parent
Foreign currency forward contracts
Interest rate swaps
Available-for-sale investments
Held for sale assets
The group has $28.5 million (2013: $11.8 million) and the parent has $9.8 million (2013: $10.1 million) of held for sale assets carried at fair value
less costs to sell which are based on independent valuations using the market comparison approach and assumed selling costs of 3% where
appropriate.
Solid Energy New Zealand Ltd Annual Report 2014
41
10. DERIVATIVES
Derivative financial instruments are used by the group in the normal course of business in order to hedge exposure to fluctuations in interest and
foreign exchange rates.
Foreign currency cash flow hedges
In order to protect against exchange rate movements, the group enters into forward exchange contracts and collar and call options for US$.
These contracts are hedging a portion of export receipts and are timed to mature in line with sales receipts.
The foreign currency contracts are considered to be highly effective hedges as they are matched against firm commitments and any mark to
market gain or loss on the contracts attributable to the hedged risk is taken directly to equity. When the hedged firm commitment is realised, for
example when the hedged sale actually occurs, the gains or losses that were previously recognised in equity are transferred to profit or loss.
Core debt interest rate cash flow hedges
In order to protect against interest rate movements in the group’s core debt, the group enters into interest rate swaps. These contracts are
hedging a portion of interest payments and the timing of payments and receipts is matched to the interest payments on the underlying
borrowings.
These contracts are considered to be highly effective hedges as they are matched to current and future borrowing commitments and any mark to
market gain or loss on the contracts attributable to the hedged risk is taken directly to equity. When the hedged firm commitment is realised, for
example when the hedged interest payment actually occurs, the gains or losses that were previously recognised in equity are transferred to profit
or loss. At 30 June 2014, the group had not yet reset existing interest rate swaps which were effective under the previous facility to match the
restructured debt facility, hence the interest rate swaps became ineffective. The cumulative gain or loss on the interest rate swaps recognised
directly in equity has been transferred to profit or loss as the hedged forecast transactions occur.
Fair value of derivatives
The fair value of cash flow hedges at reporting date was as follows:
GROUP
2014
Foreign currency forward contracts
Interest rate swaps - core debt
Comprising:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
2013
PARENT
2014
2013
$M
0.9
2.2
$M
(1.0)
(1.4)
$M
0.9
2.4
$M
(1.0)
(1.4)
3.1
(2.4)
3.3
(2.4)
0.9
-
0.9
-
2.9
(0.1)
(0.6)
(2.0)
(0.4)
2.9
(0.1)
(0.4)
(2.0)
(0.4)
3.1
(2.4)
3.3
(2.4)
Changes in fair value of derivatives recognised in profit and loss
Changes in the fair value of derivatives recognised as a loss in profit and loss for the group and parent during the year totalled $0.8 million and
$0.8 million respectively (2013: $0.2 million and $0.2 million respectively).
At 30 June 2014 all underlying forecast transactions and related hedges remain highly probable to occur as originally forecast.
Nominal value of derivatives
The nominal value of derivatives at reporting date was as follows:
GROUP
PARENT
2014
2013
2014
2013
$M
$M
$M
$M
Assets
Nominal value of qualifying cash flow hedges
Foreign currency forward contracts
Interest rate swap contracts
44.8
-
44.8
-
115.0
-
115.0
-
159.8
-
159.8
-
Liabilities
Nominal value of qualifying cash flow hedges
Foreign currency forward contracts
Interest rate swap contracts
Exchange rate at year end (US$)
Solid Energy New Zealand Ltd Annual Report 2014
-
45.8
-
45.8
108.6
256.3
88.0
233.0
108.6
302.1
88.0
278.8
0.8755
0.7738
0.8755
0.7738
42
11. INVENTORIES
GROUP
Coal stock - work in progress
Coal stock - finished goods
Materials and stores
PARENT
2014
$M
2013
$M
2014
$M
2013
$M
23.3
36.9
14.1
27.8
44.6
18.7
23.3
36.2
13.9
27.8
44.0
18.4
74.3
91.1
73.4
90.2
During the year ended 30 June 2014, the group wrote down the value of stores by $1.0 million reflecting slow moving and obsolete stores. There
were no significant inventory write downs during the year ended 30 June 2013.
12. INVESTMENT PROPERTY
GROUP
2014
$M
2013
$M
PARENT
2014
$M
2013
$M
Reconciliation of carrying amounts
Opening balance as at 1 July
Disposal
Net (loss) from fair value adjustments
Transfer to held for sale assets
Closing balance as at 30 June
2.0
3.7
2.0
3.7
(2.0)
(1.5)
(0.2)
-
(2.0)
(1.5)
(0.2)
-
-
2.0
-
2.0
Investment properties are carried at fair value. In the current year the investment properties have been reclassified to held for sale assets.
13. OTHER INVESTMENTS
see
notes
Available-for-sale investments
Investments in controlled entities
(A)
28
GROUP
2014
$M
-
2013
$M
7.0
7.0
PARENT
2014
$M
36.5
36.5
2013
$M
1.4
21.5
22.9
(A) Available-for-sale investments
At 30 June 2014, the available-for-sale investments were transferred to held for sale assets. At 30 June 2013, available-for-sale investments
consisted of investments of $6.9 million in Fonterra Co-Operative Group Ltd and $0.1 million in Ballance Agri-Nutrients Ltd ordinary shares which
were held in relation to land being utilised for dairy farming. The shares had no fixed maturity date or coupon rate. The fair value of the shares
was determined directly by reference to the market bid price.
Solid Energy New Zealand Ltd Annual Report 2014
43
14. INVESTMENT IN JOINT VENTURE
GROUP
2014
2013
$M
$M
Opening balance as at 1 July
Share of (losses) after tax
(0.7)
(0.1)
(0.7)
-
Closing balance as at 30 June
(0.8)
(0.7)
2.7
2.7
4.0
4.0
Current liabilities
Non-current liabilities
(4.4)
-
(5.5)
-
Total liabilities
(4.4)
(5.5)
Net liabilities
(1.7)
(1.5)
Share of net liabilities of joint venture
(0.8)
(0.7)
Extract from statement of financial performance of joint venture:
Revenue
(Loss)
(0.2)
-
Share of (loss) of joint venture
(0.1)
-
(A) Movements in the carrying value of the group's joint venture
(B) Summarised financial information
Extract from statement of financial position of joint venture:
Current assets
Non-current assets
Total assets
Investment in joint venture entities consist of a 50% (2013: 50%) equity interest in Stockton Alliance Ltd (refer note 28).
15. STRIPPING IN ADVANCE
see
notes
Reconciliation of carrying amounts
Opening balance as at 1 July
Stripping capitalised
Stripping expensed
Impairment
Closing balance as at 30 June
Solid Energy New Zealand Ltd Annual Report 2014
4 (G) (i)
GROUP
2014
$M
99.7
28.9
(29.3)
(34.6)
64.7
2013
$M
122.4
104.4
(101.5)
(25.6)
99.7
PARENT
2014
$M
99.7
28.9
(29.3)
(34.6)
64.7
2013
$M
122.4
104.4
(101.5)
(25.6)
99.7
44
16. PROPERTY, PLANT AND EQUIPMENT
Reconciliation of net carrying amounts
GROUP
Year ended 30 June 2014
At 1 July 2013 net of accumulated
depreciation and impairment
Additions - externally acquired
Transfers from capital work in progress
Disposals
Impairment
Reclassified as held for sale
Depreciation charge for the year
At 30 June 2014 net of accumulated
depreciation and impairment
At 30 June 2014
Cost
Accumulated depreciation and impairment
Net carrying amount
Land,
Buildings &
Structures
Leasehold
improvements
Plant &
Equipment
Leased
Infrastructure
Asset
Capital
Work in
Progress
Total
$M
$M
$M
$M
$M
$M
89.3
2.1
143.9
2.8
16.2
254.3
2.2
(26.4)
(7.6)
(2.0)
(2.9)
(0.1)
(0.9)
11.2
(1.3)
(25.3)
(38.2)
(1.0)
(0.1)
4.0
(13.4)
(4.3)
-
4.0
(27.8)
(38.2)
(2.0)
(42.1)
52.6
1.1
90.3
1.7
2.5
148.2
114.7
(62.1)
52.6
5.2
(4.1)
1.1
453.2
(362.9)
90.3
15.1
(13.4)
1.7
8.2
(5.7)
2.5
596.4
(448.2)
154.2
2.6
169.4
12.1
74.6
412.9
19.5
(5.0)
(29.9)
(46.8)
(2.7)
0.7
(0.2)
(1.0)
66.0
(0.3)
(50.6)
(1.3)
(39.3)
(8.8)
(0.5)
36.6
(86.2)
(7.4)
(1.4)
-
36.6
(12.9)
(90.7)
(48.1)
(43.5)
89.3
2.1
143.9
2.8
16.2
254.3
131.5
(42.2)
89.3
5.6
(3.5)
2.1
512.6
(368.7)
143.9
15.1
(12.3)
2.8
16.2
16.2
681.0
(426.7)
254.3
148.2
Year ended 30 June 2013
At 1 July 2012 net of accumulated
depreciation and impairment
Additions - externally acquired
Transfers from capital work in progress
Disposals
Impairment
Reclassified as held for sale
Depreciation charge for the year
At 30 June 2013 net of accumulated
depreciation and impairment
At 30 June 2013
Cost
Accumulated depreciation and impairment
Net carrying amount
During the year, the group impaired property, plant and equipment by $38.2 million (2013: $90.7 million) (refer note 4 (G) (i) - (viii)).
Solid Energy New Zealand Ltd Annual Report 2014
45
16. PROPERTY, PLANT AND EQUIPMENT (continued)
PARENT
Year ended 30 June 2014
Land,
Buildings &
Structures
Leasehold
improvements
Plant &
Equipment
Leased
Infrastructure
Asset
Capital
Work in
Progress
Total
$M
$M
$M
$M
$M
$M
At 1 July 2013 net of accumulated
depreciation and impairment
39.1
2.1
142.5
2.8
9.3
195.8
Additions - externally acquired
Transfers from capital work in progress
Disposals
Impairment
Reclassified from held for sale
Depreciation charge for the year
2.4
(0.1)
(6.5)
4.8
(2.1)
(0.1)
(0.9)
10.6
(1.2)
(33.0)
(35.3)
(1.0)
(0.1)
4.7
(13.0)
-
4.7
(1.4)
(40.5)
4.8
(38.4)
At 30 June 2014 net of accumulated
depreciation and impairment
37.6
1.1
83.6
1.7
1.0
125.0
68.2
(30.6)
37.6
5.0
(3.9)
1.1
382.3
(298.7)
83.6
15.1
(13.4)
1.7
2.4
(1.4)
1.0
473.0
(348.0)
57.1
2.5
167.0
12.1
65.8
304.5
8.2
(3.5)
(8.1)
(12.7)
(1.9)
0.6
(1.0)
53.2
(0.3)
(43.0)
(34.4)
(8.8)
(0.5)
14.3
(62.0)
(7.4)
(1.4)
-
14.3
(11.2)
(61.3)
(12.7)
(37.8)
39.1
2.1
142.5
2.8
9.3
195.8
64.3
(25.2)
39.1
5.4
(3.3)
2.1
429.6
(287.1)
142.5
15.1
(12.3)
2.8
9.3
9.3
523.7
(327.9)
At 30 June 2014
Cost
Accumulated depreciation and impairment
Net carrying amount
125.0
Year ended 30 June 2013
At 1 July 2012 net of accumulated
depreciation and impairment
Additions - externally acquired
Transfers from capital work in progress
Disposals
Impairment
Reclassified as held for sale
Depreciation charge for the year
At 30 June 2013 net of accumulated
depreciation and impairment
At 30 June 2013
Cost
Accumulated depreciation and impairment
Net carrying amount
195.8
During the year, the parent impaired property, plant and equipment by $40.5 million (2013: $61.3 million) (refer note 4 (G) (i) - (viii)).
The agreement by which Solid Energy purchased the business from the Crown recognises potential land claims that may be lodged under the
Treaty of Waitangi Act 1975. The effect on the valuation of assets resulting from potential claims cannot be quantified. However, under the Treaty
of Waitangi (State Enterprises) Act 1988, the Crown will compensate Solid Energy for any loss that occurs upon the resumption of any interest in
land by the Crown.
Solid Energy New Zealand Ltd Annual Report 2014
46
17. MINING ASSETS
see
notes
Reconciliation of net carrying amounts
Tangible mining assets
Intangible mining assets
Total mining assets
(A)
(B)
GROUP
PARENT
2014
$M
2013
$M
2014
$M
2013
$M
83.1
8.7
91.8
147.4
11.8
159.2
76.5
8.2
84.7
141.3
10.6
151.9
(A) Tangible mining assets
GROUP
Year ended 30 June 2014
Exploration
and
Evaluation
Mines in
Development
Mines in
Production
Total
At 1 July 2013 net of accumulated amortisation and impairment
Additions - internal development
Other cost adjustments
Transfers
Impairment
Amortisation charge for the year
At 30 June 2014 net of accumulated amortisation and impairment
$M
24.5
0.1
(1.9)
(10.1)
12.6
$M
31.7
5.5
(26.0)
(0.5)
10.7
$M
91.2
2.5
(16.7)
27.9
(24.4)
(20.7)
59.8
$M
147.4
8.1
(16.7)
(35.0)
(20.7)
83.1
At 30 June 2014
Cost
Accumulated amortisation and impairment
Net carrying amount
28.2
(15.6)
12.6
18.4
(7.7)
10.7
434.9
(375.1)
59.8
481.5
(398.4)
At 1 July 2012 net of accumulated amortisation and impairment
Additions - internal development
Other cost adjustments
Transfers
(Impairment)/Impairment reversal
Amortisation charge for the year
At 30 June 2013 net of accumulated amortisation and impairment
29.4
0.6
(5.5)
24.5
50.6
6.4
(1.6)
(23.7)
31.7
183.3
13.4
(20.9)
1.6
(64.0)
(22.2)
91.2
263.3
20.4
(20.9)
(93.2)
(22.2)
At 30 June 2013
Cost
Accumulated amortisation and impairment
Net carrying amount
30.0
(5.5)
24.5
65.1
(33.4)
31.7
416.7
(325.5)
91.2
511.8
(364.4)
147.4
83.1
Year ended 30 June 2013
PARENT
Year ended 30 June 2014
Exploration
and
Evaluation
Mines in
Development
Mines in
Production
147.4
Total
At 1 July 2013 net of accumulated amortisation and impairment
Additions - internal development
Other cost adjustments
Transfers
Impairment
Amortisation charge for the year
At 30 June 2014 net of accumulated amortisation and impairment
$M
24.5
0.1
(1.9)
(10.1)
12.6
$M
31.1
5.4
(26.0)
(0.5)
10.0
$M
85.7
1.5
(16.2)
27.9
(24.4)
(20.6)
53.9
$M
141.3
7.0
(16.2)
(35.0)
(20.6)
76.5
At 30 June 2014
Cost
Accumulated amortisation and impairment
Net carrying amount
28.2
(15.6)
12.6
10.6
(0.6)
10.0
336.3
(282.4)
53.9
375.1
(298.6)
Solid Energy New Zealand Ltd Annual Report 2014
76.5
47
17. MINING ASSETS (continued)
(A) Tangible mining assets (continued)
PARENT
Year ended 30 June 2013
Exploration
and
Evaluation
Mines in
Development
Mines in
Production
Total
At 1 July 2012 net of accumulated amortisation and impairment
Additions - internal development
Other cost adjustments
Transfers
Impairment
Amortisation charge for the year
At 30 June 2013 net of accumulated amortisation and impairment
$M
29.4
0.6
(5.5)
24.5
$M
46.3
5.5
(0.7)
(20.0)
31.1
$M
148.2
6.3
(20.9)
0.7
(26.5)
(22.1)
85.7
$M
223.9
12.4
(20.9)
(52.0)
(22.1)
141.3
At 30 June 2013
Cost
Accumulated amortisation and impairment
Net carrying amount
30.0
(5.5)
24.5
57.4
(26.3)
31.1
318.5
(232.8)
85.7
405.9
(264.6)
141.3
(B) Intangible mining assets
GROUP
Year ended 30 June 2014
Exploration
and
Evaluation
Mines in
Development
Mines in
Production
Total
At 1 July 2013 net of accumulated amortisation and impairment
Additions
Transfers
Impairment
Amortisation charge for the year on intangibles
At 30 June 2014 net of accumulated amortisation and impairment
$M
3.7
(2.1)
(1.5)
0.1
$M
-
$M
8.1
2.1
(1.6)
8.6
$M
11.8
(1.5)
(1.6)
At 30 June 2014
Cost
Accumulated amortisation and impairment
Net carrying amount
5.3
(5.2)
0.1
-
29.5
(20.9)
8.6
34.8
(26.1)
8.7
At 1 July 2012 net of accumulated amortisation and impairment
Impairment
Amortisation charge for the year on intangibles
At 30 June 2013 net of accumulated amortisation and impairment
5.8
(2.1)
3.7
-
12.4
(3.2)
(1.1)
8.1
18.2
(5.3)
(1.1)
11.8
At 30 June 2013
Cost
Accumulated amortisation and impairment
Net carrying amount
7.9
(4.2)
3.7
12.0
(12.0)
-
27.2
(19.1)
8.1
47.1
(35.3)
8.7
Year ended 30 June 2013
PARENT
Year ended 30 June 2014
Exploration
and
Evaluation
Mines in
Development
Mines in
Production
11.8
Total
At 1 July 2013 net of accumulated amortisation and impairment
Additions
Transfers
Impairment
Amortisation charge for the year on intangibles
At 30 June 2014 net of accumulated amortisation and impairment
$M
3.7
(2.1)
(1.5)
0.1
$M
-
$M
6.9
2.1
(0.9)
8.1
$M
10.6
(1.5)
(0.9)
At 30 June 2014
Cost
Accumulated amortisation and impairment
Net carrying amount
5.3
(5.2)
0.1
-
17.3
(9.2)
8.1
22.6
(14.4)
8.2
Solid Energy New Zealand Ltd Annual Report 2014
8.2
48
17. MINING ASSETS (continued)
(B) Intangible mining assets (continued)
Exploration
and
Evaluation
PARENT
Mines in
Development
Mines in
Production
Total
Year ended 30 June 2013
At 1 July 2012 net of accumulated amortisation and impairment
Impairment
Amortisation charge for the year on intangibles
At 30 June 2013 net of accumulated amortisation and impairment
$M
5.8
(2.1)
3.7
$M
-
$M
7.3
(0.4)
6.9
$M
13.1
(2.1)
(0.4)
10.6
At 30 June 2013
Cost
Accumulated amortisation and impairment
Net carrying amount
7.9
(4.2)
3.7
12.0
12.0)
-
15.0
(8.1)
6.9
34.9
(24.3)
10.6
18. INTANGIBLE ASSETS
GROUP
Reconciliation of carrying amounts
Opening balance as at 1 July
Additions
Remittance of ETS units to settle ETS obligations
Closing balance as at 30 June
PARENT
2014
$M
2013
$M
2014
$M
2013
$M
0.4
0.7
(0.9)
0.2
1.1
0.7
(1.4)
0.4
0.4
0.7
(0.9)
0.2
1.1
0.7
(1.4)
0.4
Emission Trading Scheme (ETS ) units are purchased to satisfy the group’s ETS obligations.
19. ACCOUNTS PAYABLE AND ACCRUALS
GROUP
see notes
Trade accounts payable and accruals
Payables to joint venture
Employee entitlements
Lease liability (current portion)
Total accounts payable and accruals
22
2014
$M
72.5
2.7
7.1
0.5
82.8
PARENT
2013
$M
82.2
4.0
10.1
0.5
96.8
2014
$M
45.4
2.7
7.0
0.5
55.6
2013
$M
51.1
4.0
10.0
0.5
65.6
(A) Fair value
The carrying value of current payables is assumed to approximate fair value.
(B) Related party payables
For terms and conditions of related party payables refer to note 28.
(C) Interest rate risk, foreign exchange and liquidity risk
Information regarding interest rate, foreign exchange and liquidity risk exposure is set out in note 8.
Solid Energy New Zealand Ltd Annual Report 2014
49
20. INTEREST-BEARING BORROWINGS
see
notes
Loans from subsidiaries
Medium Term Notes
Bank loans
Other interest-bearing borrowings
(A)
GROUP
PARENT
2014
2013
2014
$M
$M
$M
2013
$M
81.2
95.0
14.1
81.2
46.2
95.0
239.3
1.8
300.5
3.6
239.3
-
300.5
-
322.3
399.1
334.6
441.7
441.7
Comprising:
Current
Non-current
-
395.5
14.1
322.3
3.6
320.5
-
322.3
399.1
334.6
441.7
(A) Medium Term Notes
During October 2013, a Debt Rescheduling and Debt Exchange Compromise was reached which required the exchange of a specified portion of
the notes for Redeemable Preference Shares (see note 23).
During the year ended 30 June 2013, the company issued a tranche of $25 million of notes under a Supplemental Deed dated 7 November 2012,
maturing 12 November 2019 with a coupon rate of 7%. The issue represented the third in a series of unsecured senior notes pursuant to the note
programme constituted under a Deed Poll for Medium Term Notes dated 3 December 2009
Details of the notes are shown below:
GROUP
8% fixed rate note maturing December 2016
7% fixed rate note maturing March 2018
7% fixed rate note maturing November 2019
PARENT
2014
$M
2013
$M
2014
$M
2013
$M
20.0
50.0
11.2
20.0
50.0
25.0
20.0
50.0
11.2
20.0
50.0
25.0
81.2
95.0
81.2
95.0
(B) Interest rate risk, foreign exchange and liquidity risk
The interest rate applicable to loans from subsidiaries at 30 June 2014 was 5.0% (2013: 5.0%) and is repayable on demand.
The weighted average interest rate of bank loans and notes, including commitment fees, margin and net interest rate swap costs at 30 June 2014
was 7.04% (2013: 5.63%).
Further information regarding interest rate, foreign exchange and liquidity risk exposure is set out in note 8.
(C) Assets pledged as security and restrictions on use
The Crown loan facilities (undrawn at 30 June 2014) are secured by a General Security Deed over the personal, other and real property of the
company and its guaranteeing subsidiaries, which grants to the Crown a first ranking security interest over its personal property, a charge over its
other property and a mortgage to the Crown in its present and future interest in any real property.
Proceeds from certain divestments are required to be deposited into a Locked Account, from which no amount can be withdrawn without written
consent from a majority of lenders and the Crown. The balance of this account at 30 June 2014 was $1.3 million.
The notes ($81.2 million) and bank loans ($239.3 million) are unsecured and other interest-bearing borrowings ($1.8 million) are secured by
mortgage over a specific property.
The notes, bank loans and Crown facilities are subject to repayments under an Excess Cashflow mechanism, which could accelerate repayment
of the drawn facility prior to its maturity date of 7 September 2016. If early repayment occurs, this will be on a pro-rata basis, with no priority given
to any lender.
(D) Defaults and breaches
The terms of the notes, bank loans and Crown facilities require the company and its guaranteeing subsidiaries to meet a number of financial and
non-financial covenants and pledges on an on-going basis.
At 30 June 2014, the group was in compliance with its covenants.
At 30 June 2013, bank debt and notes were classified as current liabilities as the group did not have an unconditional right to defer settlement for
at least 12 months after the reporting date following a technical breach of the debt gearing and minimum shareholders' funds bank covenants
during the period. All penalties and obligations under a breach of covenants were waived and during the current period the group agreed a capital
restructure with the group's shareholder and the requisite number of banks and note-holders (see note 23).
Solid Energy New Zealand Ltd Annual Report 2014
50
21. PROVISIONS
(A) Movements in provisions
GROUP
Mobile plant
provision
Opening balance as at 1 July 2013
Arising during the year
Amounts incurred and charged
Unused amounts reversed
Effect of change in discount rate and inflation estimates
Effect of discount rate unwind
Closing balance as at 30 June 2014
Comprising:
Current
Non-current
As at 30 June 2014
Opening balance as at 1 July 2012
Arising during the year
Amounts incurred and charged
Unused amounts reversed
Effect of change in discount rate and inflation estimates
Effect of discount rate unwind
Closing balance as at 30 June 2013
Comprising:
Current
Non-current
As at 30 June 2013
Rehabilitation
provision
Other
Total
$M
28.9
16.6
(9.3)
36.2
$M
214.8
10.6
(12.0)
(51.9)
4.6
166.1
$M
11.1
4.2
(5.9)
(6.6)
2.8
$M
254.8
31.4
(27.2)
(58.5)
4.6
19.9
16.3
36.2
12.6
153.5
166.1
2.8
2.8
35.3
169.8
28.1
22.1
(21.3)
28.9
230.2
6.5
(6.5)
(9.4)
(10.0)
4.0
214.8
9.4
6.6
(4.9)
11.1
267.7
35.2
(32.7)
(9.4)
(10.0)
4.0
28.2
0.7
28.9
41.9
172.9
214.8
11.1
11.1
81.2
173.6
205.1
205.1
254.8
254.8
PARENT
Mobile plant
provision
Opening balance as at 1 July 2013
Arising during the year
Amounts incurred and charged
Unused amounts reversed
Effect of change in discount rate and inflation estimates
Effect of discount rate unwind
Closing balance as at 30 June 2014
Comprising:
Current
Non-current
As at 30 June 2014
Opening balance as at 1 July 2012
Arising during the year
Amounts incurred and charged
Unused amounts reversed
Effect of change in discount rate and inflation estimates
Effect of discount rate unwind
Closing balance as at 30 June 2013
Comprising:
Current
Non-current
As at 30 June 2013
Solid Energy New Zealand Ltd Annual Report 2014
Rehabilitation
provision
Other
Total
$M
28.9
16.6
(9.3)
36.2
$M
210.8
9.0
(12.0)
(51.7)
4.6
160.7
$M
6.6
4.2
(2.8)
(6.6)
1.4
$M
246.3
29.8
(24.1)
(58.3)
4.6
19.9
16.3
36.2
12.6
148.1
160.7
1.4
1.4
33.9
164.4
28.1
22.1
(21.3)
28.9
229.1
3.6
(6.5)
(9.4)
(10.0)
4.0
210.8
6.6
6.6
257.2
32.3
(27.8)
(9.4)
(10.0)
4.0
28.2
0.7
28.9
38.1
172.7
210.8
6.6
6.6
72.9
173.4
198.3
198.3
246.3
246.3
51
21. PROVISIONS (continued)
(B) Nature and timing of provisions
Mobile plant provision
The group provides for costs relating to the mobilisation and demobilisation of mobile plant fleet to and from mine sites and for costs associated
with the usage of components on leased plant.
Rehabilitation provision
The group is required by various legislation controlling its mining activities to rehabilitate to an agreed condition, the land on which its mining
activities occur. The final cost of rehabilitation cannot be established with certainty. In accordance with note 2(V) Provisions, increases in the
provision for rehabilitation costs at operational mine sites were capitalised to mining assets and will be amortised to profit or loss over the
remaining productive life of the operation on a unit of production basis. Any increases in provisions relating to closed sites are charged directly to
profit or loss.
The discount rate estimate for rehabilitation costs uses a risk-free rate for discounting future rehabilitation costs. At 30 June 2014 the risk-free
discount rate was assessed as ranging from 3.7% for cash flows in one year’s time to 5.5% for cashflows in greater than 20 year’s time (2013:
5.50%) nominal with inflation estimated at 2.1% to 2.50% (2013: 2.50%). The rates used are the rates published by the New Zealand Treasury for
use in accounting valuations.
Due to the long-term nature of the rehabilitation requirements, the calculation of the provision includes the use of estimates, some of which are
subject to significant uncertainty. The group continues to refine its estimates as more information and experience is gathered in relation to future
costs, however there may be significant future variances from current estimates.
The company has an indemnity from the Crown for the Crown's share of end of mine life rehabilitation costs relating to mining activities prior to 1
April 1987. Subsequent to reporting date, the group has signed a Deed of Indemnity and Bond Facility with the Crown (refer note 33).
GROUP
Crown receivable
Comprising:
Current
Non-current
PARENT
2014
$M
60.1
2013
$M
89.2
2014
$M
60.1
2013
$M
89.2
5.0
55.1
60.1
21.7
67.5
89.2
5.0
55.1
60.1
21.7
67.5
89.2
Other provision
The group has a $1.6 million (2013: $4.5 million) provision to supply coal at below market prices, and a $1.2 million (2013: $Nil) provision for
contracted diesel purchases surplus to operational requirements.
22. LEASE LIABILITY
The group has a finance lease over the Cobden Bridge with a carrying amount of $10.4 million (2013: $10.9 million) for both the group and the
company. The lease contract expires in 22 years. The lease has no terms of renewal, purchase options or escalation clauses.
Finance lease commitments - group as a lessee
see
notes
GROUP
PARENT
2014
2013
2014
2013
$M
$M
$M
$M
Up to 1 year
1 to 5 years
1.4
5.3
1.5
5.5
1.4
5.3
1.5
5.5
Over 5 years
15.6
16.9
15.6
16.9
Total minimum lease payments
22.3
23.9
22.3
23.9
(11.9)
(13.0)
(11.9)
(13.0)
10.4
10.9
10.4
10.9
0.5
0.5
0.5
0.5
9.9
10.4
9.9
10.4
10.4
10.9
10.4
10.9
Less amounts representing finance lease charges
Present value of minimum lease payments
Comprising:
Current
Non-current
Solid Energy New Zealand Ltd Annual Report 2014
19
52
23. EQUITY
GROUP
60,900,000 ordinary shares each fully paid
100,000,000 Redeemable Preference Shares each fully paid
PARENT
2014
$M
2013
$M
2014
$M
2013
$M
60.9
60.9
60.9
60.9
100.0
-
100.0
-
160.9
60.9
160.9
60.9
Fully paid ordinary shares carry one vote per share and carry equal right to dividends and surplus on winding up.
Key terms relating to the Redeemable Preference Shares (RPS) are as follows:
•
•
•
RPS are redeemable at the discretion of the Board.
RPS will have preferred access to distributions in priority to ordinary shares.
RPS are entitled on redemption to $1.00 per share plus 5% per annum, compounding quarterly from issue date, less any dividends paid on
RPS during the term. No dividends can be paid to the ordinary shareholders until the RPS are redeemed.
Capital management
During the current period the group agreed a capital restructure with the group’s shareholder and the requisite number of banks and note-holders,
the key terms of which had been agreed prior to the signing of the 30 June 2013 financial statements. The restructure was triggered by a
significant and sustained reduction in international coal prices and a high New Zealand dollar.
The key features of the capital restructure involved:
•
•
•
•
•
•
•
A restructuring of the bulk of the group's bank debt facilities, including renegotiation of covenant requirements;
An exchange of certain portions of bank debt and a holding of Medium-Term Notes for $75.0 million of Redeemable Preference Shares;
Issuing of $25.0 million of additional Redeemable Preference Shares to the Crown for cash;
A secured working capital facility of up to $50.0 million provided by the Crown (undrawn at 30 June 2014);
A secured term loan facility of up to (approximately) $50.0 million provided by the Crown (undrawn at 30 June 2014). As the surplus land
assets are sold this facility will progressively reduce (see note 8), or be repaid. Under the terms of the financing arrangements, proceeds
from the sale of surplus land may not be available to fund on-going operations (see note 20);
A secured stand-by facility of up to $30.0 million to be provided by the Crown, if required (undrawn at 30 June 2014); and
Maturity date of 7 September 2016 for the Crown and bank debt facilities.
There were no dividends paid for the year ended 30 June 2014 (2013: $Nil).
24. RESERVES
GROUP
Cash flow hedge reserve
Available-for-sale revaluation reserve
PARENT
2014
2013
2014
$M
$M
$M
2013
$M
1.7
1.2
(2.4)
2.5
1.8
0.3
(2.4)
0.5
2.9
0.1
2.1
(1.9)
Nature and purpose of reserves
Cash flow hedge reserve
This reserve records the portion of the gain or loss on a hedging instrument in a cash flow hedge that is determined to be an effective hedge, net
of deferred tax.
see
notes
GROUP
PARENT
2014
$M
2013
$M
2014
$M
2013
$M
(2.4)
4.8
(3.5)
2.6
(2.4)
4.9
(3.4)
2.3
(0.7)
(1.5)
(0.7)
(1.3)
1.7
(2.4)
1.8
(2.4)
Year ended 30 June
Opening balance as at 1 July
Net gain/(loss) recognised on cashflow hedges
Income tax (expense)/benefit related to gains and losses
recognised in other comprehensive income
Closing balance as at 30 June
Solid Energy New Zealand Ltd Annual Report 2014
5 (B)
53
24. RESERVES (continued)
Available-for-sale revaluation reserve
This reserve arises on the revaluation of available-for-sale investments.
GROUP
see
notes
PARENT
2014
$M
2013
$M
2014
$M
2013
$M
Year ended 30 June
Opening balance as at 1 July
Net (loss) / gain on revaluation of available for sale financial
assets
Closing balance as at 30 June
2.5
-
0.5
-
(1.3)
2.5
(0.2)
0.5
1.2
2.5
0.3
0.5
25. RECONCILIATION OF PROFIT AFTER TAXATION TO NET CASH FLOWS FROM
OPERATING ACTIVITIES
GROUP
PARENT
2014
$M
2013
$M
2014
$M
2013
$M
(181.9)
(335.4)
(162.2)
(315.3)
Depreciation
Amortisation of mining assets
Movement in fair value of investment property
42.1
22.3
-
43.5
23.3
0.2
38.4
21.5
-
37.8
22.5
0.2
Movement in fair value of other assets
Impairment of property, plant and equipment and mining assets
Impairment of loan to subsidiary
76.0
-
0.3
189.7
-
77.4
8.0
115.4
114.1
Impairment of subsidiary investment
Intercompany dividend
Unrealised (gain)/loss on foreign exchange contracts
(1.4)
0.3
(31.9)
(1.5)
14.5
0.5
0.1
0.5
40.5
2.3
(1.1)
13.8
(0.3)
16.2
1.0
-
19.8
-
17.3
(0.7)
22.4
(2.1)
0.9
-
1.4
7.4
0.9
-
1.4
7.4
157.7
328.7
128.3
347.6
(14.0)
24.6
1.1
(59.5)
15.0
1.3
(10.0)
25.2
1.1
(66.2)
20.8
1.3
16.8
35.0
-
2.8
22.7
(4.4)
16.8
35.0
-
(2.2)
22.7
(3.5)
63.5
(22.1)
68.1
(27.1)
(48.7)
(1.0)
(15.4)
3.7
(50.1)
2.1
(18.3)
7.4
(Loss)/profit after taxation
Non-cash items
Share of loss of joint venture
Deferred taxation movement taken to profit or loss
Discount unwind on term provision
Rehabilitation adjustments
Held for sale adjustments
Subvention payments
ETS Units surrendered
Write off of research and development projects
Movements in working capital
Accounts payables and accruals
Accounts receivable
Non-current prepayments
Inventories
Stripping in advance
Tax payable
Other statement of financial position movements
Rehabilitation provision
Other provisions
Crown receivable
29.1
(8.6)
29.1
(8.6)
(20.6)
(20.3)
(18.9)
(19.5)
(11.2)
-
(0.7)
(3.6)
-
(0.4)
(0.7)
(11.2)
(0.7)
(3.6)
(1.1)
7.5
(49.8)
11.7
(15.4)
Items classified as investing/financing activities
(Surplus) on sale of property, plant and equipment
Interest costs capitalised
Net cash flows from/(used in) operating activities
Solid Energy New Zealand Ltd Annual Report 2014
54
26. ASSETS CLASSIFIED AS HELD FOR SALE
Nature's Flame
The group continues to actively market the operations of Nature's Flame. Refer to Note 4 (G) (v) for impairments recognised in relation to the
assets of Nature's Flame.
Surplus Land
The group is committed to an active programme to sell land, buildings and other related assets that are part of an approved divestment strategy.
Refer to Note 4 (G) (vi) for impairments recognised in relation to the surplus land.
$28.5 million of held for sale assets carried at fair value less costs to sell are based on independent valuations using the market comparison
approach and assumed selling costs of 3% where appropriate.
GROUP
PARENT
2014
2013
2014
2013
$M
$M
$M
$M
9.1
19.7
-
-
9.3
(14.5)
(4.8)
(0.9)
(40.5)
(65.7)
(86.5)
2.1
(1.2)
(2.8)
(1.9)
(15.5)
(8.1)
(23.6)
(A) Loss for the year from discontinued operations
Revenue
Other income
Expenses
Impairments
Net (loss) before tax
Attributable income tax benefit
-
0.9
-
-
(0.9)
(85.6)
(1.9)
(23.6)
Net cash flows from operating activities
Net cash flows from investing activities
Net cash flows from financing activities (intercompany funding)
0.3
35.1
0.7
(15.6)
6.5
(3.2)
(0.5)
1.7
-
(15.5)
-
Net cash flows from discontinued operations
36.1
(12.3)
1.2
(15.5)
Net (loss) / profit after tax
(B) Cash flows from discontinued operations
27. COMMITMENTS
(A) Operating lease commitments - group as a lessee
The group has entered into commercial leases on mobile plant, offices, office equipment and vehicles. These leases have terms between 1 and 8
years with a renewal option on the office lease. Future minimum rentals payable under non-cancellable operating leases as at 30 June are as
follows:
GROUP
Up to 1 year
1 to 5 years
Over 5 years
Total minimum lease payments
Total future minimum sublease payments due
PARENT
2014
$M
29.4
38.0
3.8
71.2
2013
$M
31.0
43.1
4.7
78.8
2014
$M
27.7
36.2
1.9
65.8
2013
$M
28.6
39.6
2.6
70.8
1.9
2.3
1.2
1.6
(B) Operating leases - group as a lessor
The group has entered into residential and farm property leases on the properties it is holding for potential future coal development. All leases
include a clause to enable upward revision of the rental charge on an annual basis according to prevailing market conditions. Future minimum
rentals receivable under non-cancellable operating leases as at 30 June are as follows:
GROUP
PARENT
2014
$M
2013
$M
2014
$M
2013
$M
Up to 1 year
1 to 5 years
Over 5 years
1.1
0.9
1.5
1.3
1.2
1.5
0.6
0.1
-
0.7
0.4
-
Total minimum lease payments
3.5
4.0
0.7
1.1
Solid Energy New Zealand Ltd Annual Report 2014
55
27. COMMITMENTS (continued)
(C) Contractual commitments
The group has a number of operational contracts with various parties in relation to the purchase of coal, mine operations and the transportation of
coal. At 30 June 2014 the group is committed to spending a minimum of $101.6 million (2013: $105.6 million) over the following 12 months.
(D) Capital Commitments
The group’s contractual commitments to purchase property, plant, equipment and mining assets at 30 June 2014 are estimated to be $1.1 million
(2013: $1.9 million).
28. RELATED PARTY TRANSACTIONS
(A) Ultimate parent
Solid Energy is a limited liability company incorporated in New Zealand under the Companies Act 1993 and is wholly owned by the Government
of New Zealand. The liabilities of Solid Energy and its subsidiaries are not in any way guaranteed by the Government of New Zealand.
(B) Subsidiaries
The consolidated financial statements include the financial statements of Solid Energy and the subsidiaries and joint venture in the following
table:
Country of
incorporation
Equity Interest
Investment
2014
%
2013
%
2014
$M
2013
$M
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
11.5
-
11.5
-
Name
Subsidiaries:
CoalCorp Insurance Services Ltd
Terrace Coal Mine Ltd
Solid Energy Renewable Fuels Ltd*
Biodiesel New Zealand Ltd*
Coal Bed Methane Ltd
Pike River (2012) Ltd (previously Waikato Mining and
Contracting Ltd)
Spring Creek Mine Holdings Ltd*
Coal New Zealand Ltd
Coal New Zealand International Ltd
Solid Energy Land Holdings Ltd
Solid Energy Briquettes Ltd
Nature's Flame Italia SRL
Spring Creek Mining Company
New Zealand
100%
100%
-
-
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
Italy
New Zealand
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
25.0
36.5
10.0
21.5
Joint venture:
Stockton Alliance Ltd
New Zealand
50%
50%
-
-
* The parent investments in Solid Energy Renewable Fuels Ltd and Biodiesel New Zealand Ltd were impaired by $Nil (2013: $7.2 million) and
$Nil (2013: $7.3 million) during the year ended 30 June 2013 (refer note 4 (G) (x).
(C) Key management personnel
Compensation for key management personnel:
GROUP
PARENT
2014
$M
2013
$M
2014
$M
2013
$M
Short-term employee entitlements
2.0
4.6
2.0
4.6
Contributions to defined contribution plans
Termination benefits
0.1
-
0.3
0.1
0.1
-
0.3
0.1
Total compensation
2.1
5.0
2.1
5.0
(D) Transactions with related parties
Solid Energy undertakes transactions with other state owned enterprises and Government departments. These transactions are carried out on a
commercial and arms-length basis and it is not considered that these fall within the intended scope of related parties disclosure.
Subsidiaries
CoalCorp Insurance Services Ltd, a 100% owned subsidiary, provides insurance services to Solid Energy, the value of these services during the
year was $4.4 million (2013: $5.7 million). The company made claims totalling $Nil with CoalCorp Insurance Services Ltd during the year (2013:
$Nil). CoalCorp Insurance Services Ltd paid a dividend of $31.9 million to Solid Energy during the year.
Solid Energy New Zealand Ltd Annual Report 2014
56
28. RELATED PARTY TRANSACTIONS (continued)
Solid Energy owns the Spring Creek Mine, a 100% owned subsidiary, which was placed on care and maintenance in October 2012.
The costs recharged to Spring Creek during the year were $3.0 million (2013: $33.8 million). Solid Energy purchased coal from Spring Creek for
resale into the domestic and international markets. During the year the total value of these purchases was $0.1 million (2013: $1.4 million).
The parent company, Solid Energy, provides and receives funding from its subsidiary companies. These loans are repayable on demand. It is not
the current intention of the parent company to demand payment of the loans and the parent company has undertaken to provide funding support
as required for the next twelve months. Interest on these loans is subject to interest between 0% and 5% at 30 June 2014 (2013: between 0%
and 5%).
At 30 June 2014 the amount borrowed by the parent Solid Energy from subsidiary companies totalled $14.1 million (2013: $46.2 million) (refer
note 20) with interest accrued during the year of $1.3 million (2013: $2.2 million). At 30 June 2014 the total amount loaned to subsidiaries was
$236.1 million (2013: $279.7 million). Of the $236.1 million loaned to subsidiaries $196.3 million (2013: $188.3 million) has been provided for,
refer note 4 (G) (ix) for more information.
Stockton Alliance Ltd
Solid Energy has entered into a 50/50 joint venture agreement with Downer EDI Mining (NZ) Ltd to provide staff to operate the Stockton Mine.
The joint venture is known as Stockton Alliance Ltd. During the year $31.8 million (2013: $42.9 million) was paid to employees of Stockton
Alliance Ltd and recharged to Solid Energy. At 30 June 2014 the net amount owing to Stockton Alliance Ltd from Solid Energy was $2.7 million
(2013: $4.0 million).
Terms and conditions of transactions with related parties
Sales to and purchases from related parties are made via arm’s length transactions both at normal market prices and on normal commercial
terms. Outstanding related party trade receivable and trade payable balances at year end are unsecured, interest free and settlement occurs in
cash. There are no guarantees which have been provided or received for any related party receivables or payables.
Restrictions on use of group assets
Coalcorp Insurance Services Ltd (CIS) is a licensed captive insurance company under the Insurance (Prudential Supervision) Act 2010 (IPSA). A
condition of the licence, issued by the Reserve Bank under IPSA requires CIS to maintain a solvency margin in accordance with the Solvency
Standard for Captive Insurers Transacting Non-Life Insurance Business of at least $0. The Standard also requires a minimum capital amount of
$1 million. As at 30 June 2014 CIS had a solvency margin of $5.0 million.
(E) Interests register
For the purposes of Section 140 of the Companies Act 1993 and clause 26 of the company’s constitution the following Directors’ interests are
disclosed. All transactions with parties in which Directors and key management personnel have an interest are conducted on arms length
commercial terms.
Current directors:
There are no interests to disclose.
Key management personnel
Solid Energy was a sponsor of the Christchurch Symphony Orchestra through Arts Management Ltd. Bill Luff is a Director of Arts Management
Ltd and a trustee of the Christchurch Symphony Orchestra Trust. Solid Energy ceased sponsorship of the Orchestra on 30 June 2013.
Tony King was appointed Chief Operating Officer on 1 August 2013. Prior to this he was employed as Interim Operations Manager on a fixed
term contract. Solid Energy had previously entered into agreements for supply of services with Option One Ltd. Tony King is a Director of Option
One Ltd.
(F) Directors insurance
The group has arranged policies of Directors’ Liability insurance which, together with an indemnity given to the Directors, ensures that generally
Directors will incur no monetary loss as a result of actions undertaken by them as Directors. Certain actions are specifically excluded, for example
the incurring of penalties and fines which may be imposed in respect of breaches of the law.
29. DIVIDENDS
No dividend was paid during the year ended 30 June 2014 (2013: Nil).
30. CONTINGENT LIABILITIES
The group is required to pay $25.0 million by instalment, triggered when extraction at Pike River over a consecutive 12-month period reaches
250,000 tonnes or when the total aggregate extraction over any period reaches 1.25 million tonnes (whichever occurs first). The group also has
further potential instalment payment obligations which are dependent on the outcome of drift recovery project.
Due to the significant uncertainty surrounding any potential future mining at the Pike River Mine and the outcome of the drift recovery project, the
financial effects of the instalment payments cannot be reliably estimated and no provision has been made for the payments.
There were no other significant contingent liabilities at 30 June 2014 (2013: Nil).
Solid Energy New Zealand Ltd Annual Report 2014
57
31. PERFORMANCE BONDS AND GUARANTEES
The group has performance bonds and guarantees in respect of environmental liabilities outstanding at 30 June 2014 totalling $66.6 million
(2013: $57.4 million) which may be drawn down in the event the group fails to perform under various contracts and licenses. No loss is expected
in respect of these bonds.
32. CONSENTS
The company is required by the Resource Management Act 1991 to hold various consents, issued under that Act, before it can mine. The
company has all the consents it requires for its current operations. Consents are issued for varying periods and are renewed upon expiry. The
company anticipates all expiring consents to be renewed.
33. SIGNIFICANT AFTER REPORTING DATE EVENTS AND TRANSACTIONS
Subsequent to reporting date, the group sold a further $10.5 million of land classified as held for sale, resulting in a gain on sale of $0.9 million.
The group also received a conditional offer for the sale of the Nature’s Flame business which is expected to settle in October 2014.
Subsequent to reporting date, the group has signed a Deed of Indemnity and Bond Facility with the Crown. The Deed of Indemnity creates an
asset, recognised on signing, of $103 million. Under this Deed the Crown will reimburse the costs of the rehabilitation expenses of Solid Energy,
Pike River (2012) Ltd and Spring Creek Mining Company to the extent of $103 million in present value terms.
There were no other significant events after reporting date.
34. GOING CONCERN
The financial statements have been prepared using the going concern assumption.
The group recorded a loss of $182 million for the year ended 30 June 2014 (2013: $335 million loss) with positive working capital of $150 million
(2013: $314 million).
The group has bank and note debt of $321 million (2013: $396 million) and cash on hand of $71.7 million (2013: $14.1 million).
The Directors believe the going concern assumption is a valid basis on which to prepare the financial statements. The Directors reached this
conclusion having regard to:
•
Future cash flow forecasts over a three year period, being the period of time it is forecast to take for the performance of the business
to turn around in a sustainable way, and to circumstances which they believe will occur which could affect the validity of the going
concern assumption. Forecasts as detailed in note 4 (G) (i) include key assumptions on coking coal prices provided by an external
industry source, which show a modest recovery in prices over the next 3 years, exchange rates based on the NZD/USD forward curve
as at 1 July 2014, and operating costs.
•
Sufficient undrawn working capital facilities of $50.0 million;
•
The Deed of Indemnity and Bond Facility with the Crown signed after the reporting date, but prior to signing the accounts, which
generates a positive net asset position of $103m in September 2014;
•
Existing Crown and bank debt facilities mature on 7 September 2016.
There remains a material uncertainty, relating to the level of future coal prices, exchange rates, and operating costs, which impacts on the group's
ability to generate sufficient cash flows for any repayment or refinancing requirements at the maturity of the group financing arrangements.
Furthermore, no assurance can be given as to further support from the Crown.
Recovery of the market price of coal and a continued focus on cost reductions are required to build a sustainable business. Based on current
projections, the company will not return to profitability until the 2017 financial year. There continues to be a near-term risk that the coal price does
not recover and/or the New Zealand dollar is stronger against the US dollar than the assumptions sourced from external industry sources detailed
in note 4.
These financial statements do not include adjustments relating to the recoverability and classification of recorded asset amounts nor to the
amounts and classification of liabilities that may be necessary should the group be unable to continue as a going concern.
Solid Energy New Zealand Ltd Annual Report 2014
58
INDEPENDENT AUDITOR’S REPORT
TO THE READERS OF SOLID ENERGY NEW ZEALAND LIMITED AND GROUP’S FINANCIAL STATEMENTS FOR THE YEAR ENDED
30 JUNE 2014
The Auditor-General is the auditor of Solid Energy New Zealand Limited (the company) and group. The Auditor-General has appointed me, Alex
Skinner, using the staff and resources of KPMG, to carry out the audit of the financial statements of the company and group on her behalf.
We have audited the financial statements of the company and group on pages 18 to 58, that comprise the statement of financial position as at 30
June 2014, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year ended on that date,
and the notes to the financial statements that include accounting policies and other explanatory information.
Opinion on the Financial Statements
In our opinion, the financial statements of the company and group on pages 18 to 58:
•
comply with generally accepted accounting practice in New Zealand;
•
comply with International Financial Reporting Standards; and
•
give a true and fair view of the company and group’s:
o
financial position as at 30 June 2014; and
o
financial performance and cash flows for the year ended on that date.
Going concern assumption
Without modifying our opinion, we draw your attention to the disclosures in note 34 on page 58 about the financial statements being prepared using
the going concern assumption. Fundamental to the use of that assumption is the Deed of Indemnity and Bond Facility with the Crown signed
subsequent to balance date as detailed in note 33 on page 58. Further, there is material uncertainty relating to the level of future coal prices,
exchange rates and operating costs that will determine the group’s ability to generate sufficient cash flows to operate within the group financing
arrangements or for any repayment or refinancing requirements at the maturity of the group financing arrangements. If the group was unable to
continue as a going concern, adjustments may have to be made to reflect the situation that assets may have to be realised and liabilities extinguished
at amounts which could differ from the amounts at which they are recorded in the statement of financial position. We consider the disclosures to be
adequate.
Export operations carrying values
In addition, without modifying our opinion, we draw your attention to the disclosures in note 4 (G) (i) on page 31 about the key assumptions used in
the discounted cash-flow projections for Export Operations. In particular, we draw your attention to the assumptions about the price of export coal,
exchange rates and operating costs, and the sensitivity of these assumptions. If actual results vary from these assumptions, it may have a material
effect on the future cash flows generated by the group and the carrying value of Export operations. We consider the disclosures to be adequate.
Opinion on other legal requirements
In accordance with the Financial Reporting Act 1993 we report that, in our opinion, proper accounting records have been kept by the company and
group as far as appears from an examination of those records.
Our audit was completed on 30 September 2014. This is the date at which our opinion is expressed.
The basis of our opinion is explained below. In addition, we outline the responsibilities of the Board of Directors and our responsibilities, and we
explain our independence.
Basis of opinion
We carried out our audit in accordance with the Auditor-General’s Auditing Standards, which incorporate the International Standards on Auditing
(New Zealand). Those standards require that we comply with ethical requirements and plan and carry out the audit to obtain reasonable assurance
about whether the financial statements are free from material misstatement.
Material misstatements are differences or omissions of amounts and disclosures that, in our judgement, are likely to influence readers’ overall
understanding of the financial statements. If we had found material misstatements that were not corrected, we would have referred to them in our
opinion.
An audit involves carrying out procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures
selected depend on our judgement, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments we consider internal control relevant to the preparation of the company and group’s financial statements
that give a true and fair view of the matters to which they relate. We consider internal control in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company and group’s internal control.
An audit also involves evaluating:
•
the appropriateness of accounting policies used and whether they have been consistently applied;
•
the reasonableness of the significant accounting estimates and judgements made by the Board of Directors;
•
the adequacy of all disclosures in the financial statements; and
•
the overall presentation of the financial statements.
Solid Energy New Zealand Ltd Annual Report 2014
59
We did not examine every transaction, nor do we guarantee complete accuracy of the financial statements. Also we did not evaluate the security
and controls over the electronic publication of the financial statements.
In accordance with the Financial Reporting Act 1993 we report that we have obtained all the information and explanations we have required. We
believe that we have obtained sufficient and appropriate audit evidence to provide a basis for our audit opinion.
Responsibilities of the Board of Directors
The Board of Directors is responsible for preparing financial statements that:
•
comply with generally accepted accounting practice in New Zealand; and
•
give a true and fair view of the company and group’s financial position, financial performance and cash flows for the year ended on that
date.
The Board of Directors is also responsible for such internal control as it determines is necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud or error. The Board of Directors is also responsible for the publication of the financial
statements, whether in printed or electronic form. The Board of Directors’ responsibilities arise from the State Owned Enterprises Act 1986 and the
Financial Reporting Act 1993.
Responsibilities of the Auditor
We are responsible for expressing an independent opinion on the financial statements and reporting that opinion to you based on our audit. Our
responsibility arises from section 15 of the Public Audit Act 2001 and section 19(1) of the State Owned Enterprises Act 1986.
Independence
When carrying out the audit we followed the independence requirements of the Auditor-General, which incorporate the independence requirements
of the External Reporting Board.
Partners and employees of our firm may deal with certain subsidiaries on normal terms within the ordinary course of trading activities of the business
of those subsidiaries. These matters have not impaired our independence as auditors of the company and group. Other than the audit, we have no
relationship with, or interests in, the company and or any of its subsidiaries.
Alex Skinner
KPMG
On behalf of the Auditor-General
Christchurch, New Zealand
Solid Energy New Zealand Ltd Annual Report 2014
60
Employee Remuneration
_________________________________________________________________________________
The number of employees who earned more than
$100,000 (gross earnings plus company benefits) in the
2014 financial year is detailed in the table opposite.
Remuneration Band
2013
2014
Gross earnings include retirement and redundancy
payments. Company benefits include superannuation,
vehicles, medical and life insurance.
$100,000 - $110,000
$110,000 - $120,000
137
71
43
37
32 employees who earned more than $100,000 in the
financial year received redundancy payments and
terminated employment with the company.
$120,000 - $130,000
$130,000 - $140,000
$140,000 - $150,000
53
54
33
39
32
16
The former Interim Chief Executive received an incentive
payment of $50,000 when he left the company at year-end.
No other incentive payments were made to employees on
Individual Employment Agreements in the 2014 year.
$150,000 - $160,000
$160,000 - $170,000
$170,000 - $180,000
45
15
18
11
16
8
$180,000 - $190,000
$190,000 - $200,000
$200,000 - $210,000
9
16
16
6
8
11
$210,000 - $220,000
$220,000 - $230,000
$230,000 - $240,000
11
8
8
5
5
4
$240,000 - $250,000
$250,000 - $260,000
$260,000 - $270,000
7
2
5
1
3
$270,000 - $280,000
$280,000 - $290,000
$290,000 - $300,000
7
5
2
$300,000 - $310,000
$310,000 - $320,000
$320,000 - $330,000
2
3
1
1
$330,000 - $340,000
$340,000 - $350,000
$350,000 - $360,000
1
1
1
2
1
$360,000 - $370,000
$370,000 - $380,000
$380,000 - $390,000
1
2
2
$390,000 - $400,000
$410,000 - $420,000
$470,000 - $480,000
4
1
1
Production payments totalling $0.3 million were made
during the financial year to employees on Collective
Agreements at Huntly East Mine in accordance with the
provision of those agreements. No production payments
were made at Stockton Mine as the performance targets
specified in the agreement were not met.
$490,000 - $500,000
$500,000 - $510,000
$520,000 - $530,000
Solid Energy New Zealand Ltd Annual Report 2014
1
2
1
1
1
$530,000 - $540,000
$550,000 - $560,000
$570,000 - $580,000
2
$600,000 – $610,000
$610,000 - $620,000
$650,000 - $660,000
2
2
1
$650,000 - $660,000
$700,000 - $710,000
$790,000 - $800,000
1
1
$1,290,000 - $1,300,000
$1,450,000 – $1,460,000
1
1
1
1
1
61
REGISTERED OFFICE
Solid Energy New Zealand Ltd
15 Show Place
Addington
PO Box 1303
Christchurch 8014
New Zealand
Tel: +64 (0) 3 345 6000
Fax: +64 (0) 3 345 6016
www.coalnz.com
ISSN 1176-3909