Mark Burton Speech: Solid Energy—annual report

Thank you for inviting me to speak to you this evening. Tonight is a celebration of Solid Energy’s success, and it’s a privilege to join you.

Yesterday, I took great delight in tabling Solid Energy’s 2002 annual report in the House. It was wonderful to put on record this company’s significant turnaround over the last three years.

In 2002, Solid Energy took its place as the 5th most profitable State-Owned Enterprise. You can be proud of your performance. I certainly am.

You have achieved record export sales of 1.8 million tonnes, record total sales of 3.35 million tonnes, record revenue of $264.5 million, and record profits of $38 million—all of which are significant achievements.

At the same time, the Company has been paying greater attention to its social and environmental responsibilities, as is appropriate for our SOEs.

Yet only three years ago, Solid Energy was close to bankruptcy, having incurred a loss of $86 million in the 1998/99 financial year. Shareholders’ funds had been reduced to only $36 million.

The Asian financial crisis was in full swing, leading to a significant reduction in both the price and demand for coal. The Mt Davy mine had to be closed for safety reasons.

The previous management and board of Solid Energy had entered into an inappropriate level of forward foreign exchange cover. And—adding to the pressure—the company was forced to take out government loans of more than $40 million.

I am delighted to see that all this is now history. The original loans have all been repaid with interest, and Solid Energy has proved to be a very good investment indeed for the Crown.

It has also been good for New Zealand Incorporated, with the Company generating $160 million in foreign exchange earnings last year.

This turnaround in performance could not have been achieved without the dedication and determination of Solid Energy’s staff, management and board, who never wavered in their efforts to make this company successful again.

It’s also important to acknowledge that this company’s fantastic turnaround could also not have been achieved without Solid Energy’s customers and suppliers, some of whom are here tonight. I thank you on behalf of Solid Energy for your ongoing support.

And now—you are now ready to achieve even more in the future, and are presently implementing a long-term plan, which aims to double both production and exports over the next 5-10 years.

And, while any export commodity producer is subject to the ups and downs of the international market, I have quiet confidence that with the dedication and determination of its staff, and the leadership of the Management and Board, Solid Energy has every chance for continued success.

Finally, thank you and congratulations to everyone involved in turning Solid Energy around. I wish you every success for the future.

(496 words)
Appendix I - Key indicators
Solid Energy New Zealand Ltd All figures $ millions unless stated 2001/02 2000/01 1999/00 1998/99
Operating Revenue 264.5 219.3 185.9 159.9
Operating Profit / (Loss) before unusual items 38.1 5.6 (0.8) (8.7)
Unusual items - - 0.9 (77.9)
Net Profit / (Loss) Before Taxation 38.1 5.6 0.1 (86.6)
Income Tax Credit / (Taxes Paid) - 0.6 1.1 0.6
Net Profit / (Loss) After Taxation 38.1 6.0 1.3 (86.0)
Dividends paid - - - -
Crown subordinated debt (repaid)/drawn down (45.4) - - 42.0
Return on average shareholders’ funds 61% 14.7% 3.4% (108%)
Return on total assets 25.3% 4.5% 3.3% (4.1%)
The improved financial performance is primarily due to higher volumes, lower overhead, transport and mine production costs per tonne, as well as the elimination of most remaining adverse forward foreign exchange contracts that were entered into by Solid Energy in 1997.

Volumes
(millions of tonnes) 2001/02 2000/01 1999/00 1998/99
Tonnes of coal sold 3.35 2.97 2.81 2.57
Tonnes of coal exported 1.80 1.66 1.42 1.19
Financial Position

Solid Energy’s financial position has improved significantly over the last year, and it has repaid all of the Crown’s subordinated debt, which had been advanced in 1999 due to the substantial losses that were incurred during 1998/99.
Financial Indicator 2001/02 2000/01 1999/00 1998/99
Equity to Total Assets 47.9% 33.1% 27.5% 22.1%
Debt to Debt + Equity (net of cash) 21.6% 57.6% 64.2% 62.9%

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