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The Straits Times  Nov 13  Comment 
November 14, 2014 12:57 AM PROPERTY giant Frasers Centrepoint (FCL) has plans to place bigger bets on Australia and China to offset the slowdown in Singapore's real estate market.
The Straits Times  Sep 19  Comment 
September 20, 2014 1:07 AM FRASERS Centrepoint (FCL) has launched its first perpetual bond issuance, which is also the biggest cash-raising exercise of its type by a non-bank firm in Singapore since 2012.
The Straits Times  Aug 11  Comment 
August 12, 2014 1:12 AM ACCOUNTING processes connected to the company's recent share market listing affected the bottom line at Frasers Centrepoint (FCL) in the third quarter.
Channel News Asia  Aug 7  Comment 
Singapore mainboard-listed Frasers Centrepoint Limited (FCL) looks set to take control of Australia's Australand Property Group in a deal valued at S$3 billion.
Channel News Asia  Jul 10  Comment 
A residential site at Sembawang Avenue has received only four bids. A consortium comprising FCL Tampines Court and KH Capital submitted the highest bid of about S$214 million for the 22,189.7 square metre site.
Channel News Asia  Jul 9  Comment 
Singapore property giant Frasers Centrepoint Ltd (FCL) has got clearance from the Foreign Investment Review Board of Australia (FIRB) to go ahead with plans to buy Australand Property Group in a deal worth around A$2.6 billion.
Reuters  Jul 1  Comment 
Singapore's Frasers Centrepoint Ltd (FCL) , a company backed by Thai billionaire Charoen Sirivadhanabhakdi, has reached a deal to buy Australia's Australand Property Group for...
The Straits Times  Jun 9  Comment 
June 10, 2014 1:22 AM THAI billionaire Charoen Sirivadhanabhakdi's Singapore real estate company Frasers Centrepoint (FCL) could raise as much as US$358 million (S$448 million) by listing a hospitality industry trust business in Singapore, two...
The Straits Times  Jun 6  Comment 
June 07, 2014 1:16 AM YOU can't deny that when Thai billionaire Charoen Sirivadhanabhakdi does something, he does it in grand style.
The Straits Times  May 12  Comment 
May 13, 2014 1:38 AM FRASERS Centrepoint (FCL) has bought a major Sydney hotel as the firm looks increasingly to Australia, given the softer Singapore property market.




 
TOP CONTRIBUTORS

Foundation Coal Holdings(NYSE:FCL) is the fourth largest coal producer in the U.S. in terms of tons produced. The company's 13 mines in Wyoming, Pennsylvania and West Virginia yielded 71.8 million tons of coal in 2007.[1] Steam coal, which constituted over 92% of the coal used worldwide in 2004[2], accounted for 97% of FCL's sales volume and 89% of its $1.49 billion revenue.[3] Almost all of these sales were made to electric utilities in the United States.

Coal is the predominant source of electricity worldwide, accounting for roughly 40% of electricity produced in 2005.[4] World Coal Institute expects global demand for coal to rise by 40% over the next 20 years, primarily driven by China's energy appetite.[5] However, coal is not a scarce commodity, and as a result the company faces stiff price competition. Even though coal prices jumped by 160% between July 2007 and July 2008[6], FCL, due to its long-term supply agreements with electric utilities and steel producers, did not benefit from the increase. In fact, in the first quarter of 2008, FCL's net income fell by 74% compared to the year before because of an 11% rise in cost of production.[7]

Business Overview

Foundation Coal Holdings accounted for 6% of US coal production in terms of volume.[8] The company sold 73.6 million tons of coal, of which 71.8 million tons were produced in its own mines.[9] The company's coal reserves are estimated to be around 1.6 billion tons; at the 2007 production levels, the reserves have a life of 22 years.[10]

Almost all of the company's sales were made to electric utilities. Steam coal, primarily used in electricity generation, made up 97% of the production volume and 89% of the company's revenue. Metallurgical (Met) coal, used for steel production, accounted for the other 3% of volume and 11% of revenue. The company engages in long-term price contracts with electric utilities and steel producers for the sale of coal; 79% of the company's revenue in 2007 came from contracts with life of 1 year or more.[11] Due to these contracts a change in the spot price of coal does not directly translate into a change in FCL's revenue, and thus insulates the company against short-term price fluctuations.

FCL operates through 13 mines, which are located in the three major coal producing regions in the US: Powder River Basin (PRB), Northern Appalachia (NAPP) and Central Appalachia (CAPP). PRB coal, while less expensive to extract due to its proximity to the surface, has a lower heat capacity (8800 btu/pound) than NAPP or CAPP coal (12500 btu/ton). Moreover, due to its distance from major markets the PRB coal is also more expensive to transport. Hence, in 2007, PRB coal commanded a much lower average price ($12.5/ton) than NAPP or CAPP coal ($70/ton).[12] PRB accounted for over 70% of the company's production volume and slightly less than 32% of the company's revenue in 2007.[13]

Business Financials

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FCL: Financial Performance [14]

FCL's revenue in 2007 was $1.49 billion, up 1.3% from the year before; and, its net income was $32 million, up 3.2% from the year before.[15] On the other hand, operating margins fell from 28% in 2005 to 22% in 2007.[16] This can be explained by the fact that FCL's depreciation expenses shot up by 20% during the same period, to $1.13 billion in 2007.[17] Being a very cash-intensive business, FCL has been able to maintain a high leverage -- in fact, in 2007, 72% of FCL's operating income was used to pay interest expenses. [18]

Market Overview

Coal is the predominant source of electricity worldwide, accounting for roughly 40% of electricity produced in 2005.[19]. In the US, coal accounts for 50% of the electricity produced, and the US Dept. of Energy expects it to rise to 60% by 2030.[20] China is the world's largest consumer of coal, with over 2.6 billion tons consumed in 2007, and demand is expected to rise to 3.0 billion tons by 2010.[21]. China generates 80 percent of its electricity from coal, and thus demand for the commodity is heavily tied to the country's GDP growth.

On the other hand, coal is abundant in supply all over the world, and the US has enough coal for another 250 years.[22] The price of coal is determined by its heat capacity, sulfur content and proximity to markets or consumers. Generally, coal from the same region fetches a very similar price, and coal producers make most of their sales locally. Thus Foundation can do very little to distinguish its coals in the market, and must compete in terms of price, making it difficult for them to maintain high margins.

Trends and Forces

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Electricity Production in U.S. by source [23]
Construction of new coal power plants in the US
Construction of new coal power plants in the US [24]

High oil and natural gas prices make coal a more viable energy source

As a form of energy, coal faces most of its competition from natural gas, a cleaner burning source of power that contributed about 20% to US electricity production.[25] Oil also competes with coal for electricity generation, but its high price and concerns of peak oil has induced utility companies to shift away from it. In 2005, oil contributed around 10%, down from nearly 20% in the 1970s, to US electricity production.[26] Both Oil and natural gas prices have risen rapidly since 2002. Oil jumped from $23/barrel to $143/barrel, while US natural gas rose from $3/thousand cft to $8.4/thousand cft between Jan 2002 and July 2008.[27]

Between 2008 and 2012, 29 new coal power plants with capacity of over 15,000 MW are expected to be completed in the US.[28] Even though the price coal has also risen, it is still considered to be a much cheaper source of energy than natural gas and oil. The price of CAPP and NAPP coal increased nearly 160% over the last year, rising from $55/ton in July 2007 to around $140/ton in July 2008.[29] However, Foundation has not been able to benefit from this rise since 79% of its sales are made through long-term contracts. In the first quarter of 2008, FCL's revenue rose by 4.5% compared to the first quarter of 2007, while net income fell by 74%, because of an 11% rise in cost of production.[30]

Commodity cycles make it difficult to maintain high margins for long periods

Generally, coal from the same region has similar attributes and hence fetches the same price. This means coal producers are subject to stiff competition and are vulnerable to price cycles. Strong demand for coal leads to higher prices as suppliers cannot adjust production levels quickly. However, once the prices are high, the abundance of coal brings a lot of new mines into operation which increase supply and drive down prices. On the other hand, when the prices reach a low level, many mines are forced to close down due to shrinking margins, which in turn, increases prices again. These cycles can be triggered by transportation problems such as strikes, extreme weather conditions, or by rising prices of other energy commodities.

As a result of these cycles, coal producers see their margins shrink or expand between one period and the next. Foundation's operating margin has shrunk from 28% in 2005 to 22% in 2008.[31] However, long-term supply contracts with coal users such as electric utilities offer short-term insulation from these cycles. In 2007, 79% of Foundation's sales were made through contracts with a life of one year or more.[32] However, while price of coal jumped by 160% between July 2007 and July 2008[33], Foundation's was not able to benefit from the surge because of these contracts. In the first quarter of 2008, its revenue increased by only 5.4% while its volume remained stable.[34]

Growing environmental concerns push regulation and demand for alternative energy

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Estimated CO2 emissions per Terra watt of various electricity sources[35]

Coal is one of the dirtiest forms of energy production. Its burning releases pollutants that contribute to environmental problems such as smog, acid rain and global climate change.[36] Governments around the world are being pushed to adopt policies to reduce environmental degradation. Regulations, such as the Kyoto Protocol[37] and the Clean Air Act[38] mandate emission caps through cap-and-trade systems of trading carbon credits and have increased costs for coal users.

Moreover, the Energy Policy Act of 1992 [39] offers subsidies to competing renewable energy sources, and 20 US states have mandated targets for use of clean energy. For example Pennsylvania plans to obtain 18% of its energy from clean sources by 2020.[40] However, while other sources of energy, such as wind energy and solar power, are cleaner than coal, they are also much more expensive, which limits their adoption. Renewable energy sources collectively contributed less than 8 percent to US electricity production in 2005[41].

Clean coal offers hope for the coal industry

Regulations such as the Clean Air Act Amendments of 1990[42], by imposing restrictive standards on carbon and sulfur emission, drove down coal prices in the 1990s.[43] However, over the years, they have forced coal power plants to adopt technologies to reduce the harmful impact of coal. In 2008, these measures have become more common and has resulted in a renewal of the coal power industry, illustrated by 15,000 MW of new power plants being built between 2008 and 2012.[44]

Sulfur scrubbers, which reduce sulfur emissions by 95%, offer an example of such technologies at work. The advent of these scrubbers have made the NAPP coal, which has a high sulfur content relative to heat capacity, more marketable. The price of NAPP coal has jumped by 160% between July 2007 and July 2008.[45] The NAPP was FCL's most profitable sector, and accounted for 71% of the company's operating income in 2007.[46]

Real price of Bituminous Coal (1949-2007)
Real price of Bituminous Coal (1949-2007)[47]

Competition

Foundation Coal, being a commodity producer, has no way to distinguish its product from those of its competitors. The company operates as a price-taker in a competitive environment against other coal producers in the US.

' Revenue($ bn) Net Income ($ mm) Tons Sold (mm)
Foundation Coal[48]1.4932.6173.6
Peabody Energy[49]4.57264.3237.8
Massey Energy[50]2.4194.139.9
Arch Coal[51]2.42174.7135
CONSOL[52]3.76267.865.5


References

  1. FCL 2007 10-K, Item 4: Business, Page 4
  2. U.S. Dept. of Energy, 2004
  3. FCL 2007 10-K, Item 4: Business, Page 4
  4. World Coal Institute, retrieved 7/17/2008
  5. World Coal Institute, Retrieved 7/18/08
  6. Energy Information Administration, Coal News and Market, Retrieved 7/18/08
  7. FCL 2008 1Q 10-Q, Financial Information, Page 3
  8. FCL 2007 10-K, Page 4
  9. FCL 2007 10-K, Page 4
  10. FCL 2007 10-K, Page 4
  11. FCL 2007 10-K, Page 8
  12. FCL 2007 10-K, Page 137
  13. FCL 2007 10-K, Page 137
  14. FCL 2007 10-K, Page 54
  15. FCL 2007 10-K, Page 54
  16. FCL 2007 10-K, Page 54
  17. FCL 2007 10-K, Page 54
  18. FCL 2007 10-K, Page 54
  19. World Coal Institute, retrieved 7/17/2008
  20. FCL 2007 Annual report, Page 13
  21. China's coal demand in 2010 will exceed 3 billion tons, People's Daily Online, 4/17/08
  22. FCL 2007 Annual report, Page 13
  23. FCL 2007 Annual report, Page 8
  24. FCL 2007 Annual report, Page 13
  25. FCL 2007 Annual report, Page 13
  26. FCL 2007 Annual report, Page 8
  27. Bloomberg.com
  28. FCL 2007 Annual report, Page 13
  29. Energy Information Administration, Coal News and Market, Retrieved 7/18/08
  30. FCL 2008 1Q 10-Q, Financial Information, Page 3
  31. FCL 2007 10-K, Page 54
  32. FCL 2007 10-K, Page 8
  33. Energy Information Administration, Coal News and Market, Retrieved 7/18/08
  34. FCL 2008 1Q 10-Q, Financial Information, Page 3
  35. IEA, Hydro-Power and the Environment, May 2000
  36. IEA, Hydro-Power and the Environment, May 2000
  37. The Kyoto Protocol
  38. Clean Air Act Amendments of 1990
  39. The Energy Policy Act of 1992
  40. States with Renewable Energy Standards, US Dept. of Energy, Retrieved 7/23/08
  41. FCL 2007 Annual report, Page 13
  42. Clean Air Act Amendments of 1990
  43. Coal Price 1949-2007, Energy Information Administration, Retrieved 07/23/08
  44. FCL 2007 Annual report, Page 13
  45. Energy Information Administration, Coal News and Market, Retrieved 7/18/08
  46. FCL 2007 10-K, Page 137
  47. Coal Price 1949-2007, Energy Information Administration, Retrieved 07/23/08
  48. FCL 2007 10-K
  49. BTU 2007 10-K, Item 5, Page 50
  50. Massey Energy 2007 10-K
  51. ACI 2007 10-K
  52. Consol 2007 10-K
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