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Solid Energy posts small first-half loss of $40.9m, yet to draw on Crown funding

Solid Energy, the financially distressed state-owned coal miner, reported a smaller first-half loss is it focuses on containing costs in the face of weak global coal prices, but has yet to draw down on Crown funding put in place to keep the company afloat.

The Christchurch-based SOE made a net loss of $40.9 million in the six months ended Dec 31, down from a loss of $318.2 million when it wore impairment charges of some $222.7 million, it said in a statement. Underlying earnings, a measure that strips out impairments and large one-off items, was a loss of $28.7 million, compared to a profit of $3.5 million, while revenue sank 28 percent to $236.1 million.

"The company's stringent controls on spending and productivity improvements have had a positive impact on the half year result, but weak global coal markets remain challenging," acting chair Pip Dunphy said.

"The company's financial recovery is likely to be prolonged and will depend on a number of factors, including continuing improvement in its business performance and higher prices in international coal markets," she said.

Still, earnings were slightly ahead of expectations, and the company hasn't needed to draw down under two $50 million working capital facilities made available by the government as part of last year's restructuring package to reduce the miner's bank debt.

Earnings before interest, tax, depreciation, amortisation and fair value adjustments fell 17 percent to $15.2 million. The SOE is targeting EBITDAF of $30 million in the 2013/14 financial year, rising to $41 million and $51 million in the following years, according to its Statement of Corporate Intent.

The result comes days after would-be Denniston Plateau coal miner Bathurst Resources said it will lay off 29 staff and clamp down on costs in an attempt to ride out the lowest world prices for coking coal in the past nine years. Solid mines similar coals at its nearby Stockton mine.

The SOE cut costs by $74.2 million to $255.5 million, having slashed its workforce to 867 people as at Dec 31 from 1,658 in July 2012.

Solid Energy lifted export sales of coal 10 percent to 1.1 million tonnes, though New Zealand sales almost halved to 600,000 tonnes due to New Zealand Steel and Genesis Energy changing their supply arrangements.

The weaker domestic sales weighed on Solid Energy's cash flow, with an operational outflow of $1.2 million, compared to an outflow of $55.8 million a year earlier.

(BusinessDesk)

More by Paul McBeth

Comments and questions
2

When is a loss of $40.9 million over six months small?

Who was the CE and MP's that created this mess agian?

Far too many CEO's try to max out dividends to shareholders, and don't believe in building up other income streams to tide the company over in lean years.

State owned enterprises should not be leveraging debt in the way they have over the last decade. A profitable business will be paying down debt, as well as expanding when the right opportunities present themselves.

The MMP political system in NZ is not conducive to sound business management - and valuations of assets are questionable. Solid Energy is technically Bankrupt, even though it's clampdown on the cheque book is to be commended. The Banking industry will have to get their $360m back before the NZ Govt can expect any dividends.

Solid Energy would have been better advised to build up substantial shareholding in Genesis Energy and NZ Steel at Glenbrook, rather than invest in bio-fuels they had no functionable experience in.

It is dissapointing that the men in white shirts who stare at computer screens and travel luxury class all over the world to play games of golf and attend cocktail parties - could so easily destroy so many jobs for the miners. They seemed to be so out-of-touch with falling coal prices, and kept spending at record levels. "Rome was burning, so they kept playing golf".

One has to ask whether Directors can have too many Directorships and not enough octopus arms?