RJB, which has about 80 per cent of its sales under long-term contracts, said profit fell to pounds 30.43m during the six months ended June, from pounds 57.5m. RJB slashed the dividend by 70 per cent to 3p a share in the face of lower production and faltering demand. RJB's coal sales dropped 18 per cent over the period amid competition from cheaper natural gas and as environmental concerns led some utilities to burn less coal.
"The dividend cut was a little more than I had anticipated but the profit drop comes as no surprise," said Charles Kernot, an analyst at Paribas Capital Markets. RJB's stock has dropped 39 percent since the beginning of this year.
The company said its main sales contracts were re-negotiated at lower volumes and at "substantially lower prices". RJB gets 133p a gigajoule for coal under long term contracts, down from 143p a year ago. Some analysts think that price will fall to as little as 120p a gigajoule in the next year.
Power generators like National Power and PowerGen turned to cheaper imports from Columbia, the US and Africa, encouraged by a stronger pound. They were also allowed more scope to choose fuels, and picked natural gas over coal for more of their new ventures. Meanwhile, mild winter weather cut domestic and industrial demand for coal as a heating fuel.
By 2000, RJB expects UK coal consumption to decline to 45 million tons a year, from about 52 million tons in 1997, as generators switch to burning relatively cheaper natural gas. That said, the Government's energy review, announced on 8 October, has clarified the concerns about current and future market demand. Copyright: IOS & Bloomberg