7th Mar 2007 07:30
Eurotunnel PLC/Eurotunnel S.A.07 March 2007 7 March 2007 Not for release before 7h30 UK time 2005 and 2006 results on a going concern basis 2005: Net result a major loss • Impairment £1.75 billion• Negative equity of £1.3 billion 2006: Excellent operating results • Revenue up, to £568 million (+5%), with revenues from Shuttle activity up by +7%• Excellent profitability from activities (operating margin / revenue), up four points to 59%• Strong improvement in trading profit: +42% to £220 million• Net loss due to the impact of financial charges: -£143 million A Safeguard Plan to avoid bankruptcy 2006 was a year devoted to restructuring of the company's operations and tonegotiations with the creditors, initially to find a consensual agreement andsubsequently, from 2 August onwards, in the context of a Safeguard Procedure.The Safeguard Plan put forward by the company was approved by the ParisCommercial Court on 15 January 2007. The Joint Board of Eurotunnel approved the accounts for 2005 and 2006, on thebasis of the Safeguard Plan, at its meeting, chaired by Jacques Gounon, on 6March 2007. The Auditors and Commissaires aux Comptes certified the accounts with matters ofemphasis, notably regarding going concern. This depends upon the fullimplementation of the Safeguard Plan and, particularly, upon the success of theExchange Tender Offer (ETO). If this was to fail, Eurotunnel would probably beput in liquidation. 2005 and 2006 results: net progress year on year Prepared according to IFRS 2006 2006/2005 2005 2004 2005/2004£ million Actual % change Reported Restated % changeExchange rate •/£ 1.462 1.465 1.466Shuttle services 318 +7% 295 285 +4%Railways 240 +2% 235 234 -Transport activities 558 +5% 530 519 +2%Non-transport activities 10 -12% 11 19 -41%Revenue 568 +5% 541 538 +1%Operating costs (233) -4% (242) (251) -4%Operating margin 335 +12% 299 287 +4%Depreciation (115) (146) (159)Trading profit 220 +42% 153 128 +19%Impairment - (1,750) (336)Other operating income and (expenses) 5 (28) (47)Operating profit / (loss) 225 (1,625) (255)Net financial charges * (368) (346) (332)Net loss (143) (1,971) (587)Operating margin / revenue 59% +4 pts 55% 53% +2 pts * Including the net cost of financing and debt service, other financial incomeand charges and income tax expense. Negative equity, but operations growing strongly The 2005 accounts show negative equity of £1.3 billion, on 31 December 2005,following an impairment which reduced the asset value to £5.1 billion. The operations, following a period of substantial reorganisation, were alreadyshowing significant improvement. The trading profit improved 19% compared to2004, to £153 million. In 2006, the operations were record making: revenue improved 5%, trading profitleapt by 42% to £220 million, and a corresponding profitability for activitiesof 59% (operating margin / revenue), up four points compared to 2005. However, in the absence of a financial restructuring of the debt, the companywas left with unsupportable financial charges (£368 million), which led to a netloss of £143 million. After restructuring, and assuming that this had takenplace on 1 January 2006, the pro forma net result (that is to say with interestcalculated on the basis of the new debt) would have been at break even for 2006,the final year of the MUC (Minimum Usage Charge). Jacques Gounon, Chairman and Chief Executive declared, "These excellentoperating results clearly show that it will only be through the new company,Groupe Eurotunnel SA (GET SA), created as a result of Safeguard and the ETO,relieved of more than half of the current debt and with substantially reducedfinancial charges, that we will finally be able to remove the spectre ofbankruptcy which threatened Eurotunnel in 2005." Annexes:Summary combined accounts for 2005 and 2006Financial analysis of 2005 and 2006 accounts No 009/2007 For media enquiries contact The Press Office on + 44 (0) 1303 284491. Email:[email protected] For investor enquiries contact Michael Schuller on + 44 (0) 1303 288 749.Email: [email protected] www.eurotunnel.com Eurotunnel manages the infrastructure of the Channel Tunnel and operatesaccompanied truck shuttle and passenger shuttle (car and coach) services betweenFolkestone, UK and Calais, France. Eurotunnel also earns toll revenue fromtrain operators (Eurostar for rail passengers, and EWS and SNCF for railfreight) which use the Tunnel. Eurotunnel is quoted in London, Paris andBrussels. EUROTUNNEL'S FINANCIAL ANALYSIS AND SUMMARY ACCOUNTS 2006 FINANCIAL ANALYSIS Shuttle services revenues grew by 7% in 2006 and operating expenses reduced forthe second year running, improving the operating margin compared to 2005 by asubstantial 12%. Depreciation decreased significantly following the impairmentcharge at the end of 2005 and trading profit improved by 42%. Operating profitgrew by £100 million, excluding the £1,750 million impairment charge in 2005.The net result in 2006 was a loss of £143 million compared to a net loss in2005, excluding the 2005 impairment charge, of £221 million. The results for 2006 and 2005 below have been prepared in accordance withInternational Financial Reporting Standards (IFRS). The table below and thecommentary that follows should be read in conjunction with Eurotunnel's fullCombined Accounts. The comparative figures for 2005 presented below have notbeen recalculated at a constant exchange rate as the euro/sterling combinationrate for the income statements for the years ending 31 December 2005 and 31December 2006 are so similar. Analysis of result 2006 2005 2006/2005£ million Actual Reported % change Exchange rate •/£ 1.462 1.465Shuttle services 318 295 +7%Railways 240 235 +2%Transport activities 558 530 +5%Non-transport activities 10 11 -12%Revenue 568 541 +5%Operating expenses (150) (144) +3%Employee benefit expense (83) (98) -15%Operating margin 335 299 +12%Depreciation (115) (146)Trading profit 220 153 +42%Impairment - (1,750)Other operating income and (expenses) 5 (28)Operating profit / (loss) 225 (1,625)Net cost of financing and debt service (334) (334)Other financial charges and income tax expense (34) (12)Net loss (143) (1,971)Operating margin / revenue 59% 55% +4 pts Revenue For the second consecutive year, revenues improved: in 2006 they increased to£568 million, 5% above 2005. In 2006, Shuttle revenues increased by 7% to £318 million. The Truckcross-Channel market has shown strong growth in 2006, and for the first timesince 1998 the cross-Channel Car market has grown, albeit by a modest 1%. The improvement in Truck Shuttle revenues of 7% was principally due to anincrease in average yields, mainly as a result of the full year effect of there-internalisation of the customers managed by an intermediary until 16 August2005. The small decline in volumes in 2006 was due to the transfer of traffic toEurotunnel during the first half of 2005 following the problems encountered atthe port of Calais (damaged loading ramp, storms, strikes), and by the decisionto reduce volumes from low-yielding small and medium accounts from Italy andEastern Europe. Passenger Shuttle revenues increased by 8% between 2005 and 2006, with carrevenues increasing by 10% and coach revenues decreasing by 11%. The increase in car revenues is due to 11% higher average yields in 2006compared to 2005. Eurotunnel benefited from the positive effect of its dynamicpricing policy in 2006. Volumes reduced slightly in 2006 (-1%), having benefitedin the first half of 2005 from the problems at the port of Calais. In 2006Eurotunnel continued with its policy of capacity reduction. The reduction in coach revenues in 2006 of 11% is mainly due to the decrease involumes of 13%, which returned to a level more in line with 2004 (6% above 2004)in the absence of the significant transfer of traffic to Eurtounnel from theport of Calais that occurred in the first half of 2005. Average yields increasedby a modest 2%. Railways revenues, which remained protected by the Minimum Usage Charge (MUC) inthe Railway Usage Contract until the end of November 2006, increased by 2% to£240 million for 2006. Revenue relating to the MUC protection amounted to £65million in 2006 and £72 million in 2005. Excluding the MUC protection, theunderlying increase in Railways revenues was 7% in 2006, resulting in part fromthe 5% increase in Eurostar passenger traffic travelling through the Tunnel. Thegrowth in Eurostar traffic, which had been restrained in 2005 by the terroristbombings and the Paris riots, began again in 2006. Rail freight tonnagetransported through the Tunnel fell by 1% compared to 2005. Revenue from non-transport activities decreased by £1m compared to 2005, to £10million. This revenue consisted largely of retail revenues from the facilitiesavailable on the two terminals. Operating margin For the second consecutive year, operating costs reduced in 2006. Operating expenses (excluding employee benefit expenses) increased by 3% to £150million in 2006, compared to £144 million in 2005. The main increases were asfollows: • Energy costs increased by 25%, from £21 million in 2005 to £26 million in 2006, despite reduced consumption, principally as a result of the increase in electricity prices in the UK. In France, a contract was in place up to September 2006 which limited the annual increase up to this date. • Maintenance costs increased by 6%, from £22 million in 2005 to £24 million in 2006. • Local taxes increased by 7%, from £20 million in 2005 to £21 million in 2006, largely as a result of the increase in the French Taxe Professionnelle, which was capped at 4% of the added value of the French companies, which in itself also increased. These increases were partially offset by reductions in the following areas: • A reduction of 11% in consumables, from £11 million in 2005 to £10 million in 2006. • Expenditure on consultants reduced by 10% from £13 million in 2005 to £11 million in 2006 following the implementation of the operational restructuring. Staff benefit expenses reduced by 15%, to £83 million in 2006 from £98 millionin 2005. 2006 benefited from almost a full year of reduced staff costs as thevoluntary redundancy plan departures were largely concentrated around the end of2005, continuing into 2006. The average number of employees evolved in a similarfashion, with 2,379 in 2006 compared to 3,017 in 2005. The combined effects of the increase in revenues and the reduction in operatingcosts led to an improvement in the operating margin, which increased by 12% from£299 million in 2005 to £335 million in 2006. The ratio of operating margin torevenue improved by 4 points, from 55% in 2005 to 59% in 2006. Trading profit The depreciation charge for 2006 decreased by £31 million to £115 million,following the impairment charge in 2005. Improved revenues and reduced costs and depreciation charges have resulted in animprovement in trading profit of 42% in 2006. Operating profit In 2006, no further indication of impairment was identified by Eurotunnelfollowing the charge of £1,750 million made in 2005. Other operating income and expenses for the year was a net income of £5 million.This included an income of £98 million for the release of advances from theRailways that were received under the Minimum Usage Charge clause of the RailwayUsage Contract following the expiry of the guarantee period, and expenses of £89 million relating to external costs associated with financial restructuring andthe Safeguard Procedure. The operating profit for 2006 was £225 million, compared to a profit of £125million in 2005 excluding the impairment charge. Net result Following the decision by the Paris Commercial Court on 2 August to openSafeguard Procedure for the benefit of 17 of Eurotunnel's companies, allinterest payments and debt repayments were suspended, and remained suspended at31 December 2006. Eurotunnel has accrued for all the interest on its debtincluding that which under the Safeguard Plan is suspended, as well as forrelated default interest. However, the arrangements set out in the SafeguardPlan relating to the cancellation of interest on notes and default interest,have not been taken into account. In October 2006, the Court-appointedrepresentatives (Administrateur Judiciaires) terminated the hedging contracts.Eurotunnel has recorded the end of these transactions and has accounted for thetermination indemnity as set out in the Safeguard Plan. Income from cash and cash equivalents reduced by £2 million, to £4 million in2006. Interest charges increased from £289 million in 2005 (£243 million ofinterest on loans and £46 million for the effective rate adjustment) to £318million in 2006 (£295 million of interest on loans and £23 million for theeffective rate adjustment). Since the end of the Stabilisation Period on 31December 2005, the Stabilisation Facility has carried interest, which in 2006amounted to £29 million. The increase in interest on loans is also due to anincrease in interest rates applicable within the framework of the existingCredit Agreements. Charges associated with the hedging contracts reduced from£51 million in 2005 to £19 million in 2006 as a consequence of the terminationof the contracts. Other financial charges of £34 million were incurred in 2006 compared to £12million in 2005. This increase is mainly due to the provision for depreciationmade to cover risks associated with certain financial contracts within theframework of the financial restructuring. The income tax expense for 2006 of £178,000 relates to the minimal legalobligations in France and to taxation charges for the marketing subsidiariescreated in 2005. The net result for 2006 was a loss of £143 million, compared to a loss of £221million in 2005 excluding the impairment charge. Cash flow £ million 2006 2005 Actual ReportedExchange rate •/£ 1.489 1.459Net cash flow from trading 343 279Other operating cash flows and taxation (25) (47)Net cash inflow from operating activities 318 232Net cash outflow from investing activities (9) (16)Net cash outflow from financing activities (238) (276)Increase / (decrease) in cash 71 (60) The variation in the euro exchange rate used to combine the accounts had anegative effect on the operating result of £3 million. The net cash inflow generated by Eurotunnel's operating activities was £318million in 2006, compared to £232 million in 2005. This improvement is mainlythe result of the higher operating margin as described above, together with areduction of £22 million in other operating cash flows. As a result of the Safeguard Procedure, the payment of outstanding amounts forgoods, services, taxation and social security charges incurred prior to 2 August2006 was suspended, and they remained suspended at 31 December 2006. This had afavourable effect on the cash flow situation at the end of 2006 of approximately£26 million. The £7 million reduction in net investment expenditure in 2006 results from thereduction in expenditure on the locomotive upgrade programme, and from thereduced cash generated from the sale of land compared to 2005. The net cash outflow from financing activities was £238 million in 2006,compared to £276 million in 2005. This decrease is explained by the absence ofpayments relating to debt service in accordance with the terms of the SafeguardProcedure under which Eurotunnel was placed with effect from 2 August 2006. Thishad a favourable effect on the cash flow in 2006 of approximately £75 million.In addition, in the period up to 2 August, interest rates used to calculate theinterest rose significantly, which increased interest payments for this period. SUMMARY COMBINED ACCOUNTS Income statement At 31 At 31 December December 2005(£'000) 2006 Revenue * 567,600 541,464Operating expenses 347,838 388,775Trading profit 219,762 152,689Impairment of property, plant - 1,750,000and equipmentOther operating income and 4,821 (27,663)(expenses)Operating profit / (loss) 224,583 (1,624,974)Income from cash and cash 3,747 5,414equivalentsCost of servicing debt (gross) 336,777 339,587Net cost of financing and debt 333,030 334,173serviceOther financial income and (34,256) (12,225)(charges)Income tax expense 178 31Loss for the year (142,881) (1,971,403)Loss per Unit (in pence) ** (5.6) (77.4)Exchange rate •/£ 1.462 1.465 * Including £64,821,000 in 2006 relating to the Minimum Usage Charge under theterms of the contract between the rail companies and Eurotunnel (2005:£71,996,000). ** There is no difference between the diluted loss per Unit and the loss perUnit. Balance sheet At 31 December At 31 December 2006 2005(£'000)ASSETSTotal non-current assets 4,978,467 5,194,159Total current assets 271,284 195,185Total assets 5,249,751 5,389,344EQUITY AND LIABILITIESTotal equity (1,315,203) (1,308,225)Total non-current liabilities 17,613 6,286,193Total current liabilities 6,547,341 411,376Total equity and liabilities 5,249,751 5,389,344Exchange rate •/£ 1.489 1.459 Notes 1. The summary balance sheet and income statement are extracted from the Annual Report and Accounts of Eurotunnel which were approved by the Joint Board on 6 March 2007. 2. The balance sheet and income statement consist of the combination of the Consolidated Accounts of Eurotunnel P.L.C. together with Eurotunnel SA and its subsidiaries, applying exchange rates as described in the Annual Report and Accounts. The accounts have been prepared in accordance with IFRS accounting principles, under the historical cost convention and on the going concern basis (see note 4 below). 3. Loss per Unit: The basic loss per Unit for the year is calculated using the weighted average number of Units in issue during the year of 2,546,156,268 (2005: 2,546,114,213) and the loss for the year of £142,881,000 (2005: loss of £1,971,403,000). There is no difference between the diluted loss per Unit and the loss per Unit. 4. On the basis of the Safeguard Plan approved at the beginning of 2007 by the Paris Commercial Court and on the implementation of the financial restructuring, Eurotunnel's Combined Accounts were approved by the Joint Board on 6 March 2007 on a going concern basis. The validity of the going concern principle is dependant on the success of the implementation of the restructuring approved by the Paris Commercial Court. This involves, notably: the success of the Tender Offer, the Term Loan to be drawn and any legal action aimed at blocking the Safeguard Plan to fail. In the event that all of the elements of the Safeguard Plan are not put into place, Eurotunnel's ability to trade as a going concern would not be assured. The Combined Accounts would be subject to certain adjustments, the amounts of which cannot be measured at present. They would relate to the impairment of assets to their net realisable value, the recognition of liabilities and the classification of non-current assets and liabilities as current assets and liabilities. 5. The Auditors and Commissaires aux Comptes have reported on the 2006 Combined Accounts. Their report contained matters of emphasis relating to going concern, the valuation of property, plant and equipment, the consequences of the implementation of the Safeguard Plan on the Combined Accounts and the non-approval of the 2005 Combined Accounts. IMPORTANT EVENTS AND DETAILED FINANCIAL AND LEGAL ASPECTS OF THE SAFEGUARD PLAN Important events Eurotunnel's 2006 revenues totalled £568 million, a 5% increase on the previousyear. This increase in revenues occurred in the context where the company nolonger seeks volumes as a priority and where the number of trucks and carstravelling onboard the shuttles was stable compared to the previous year. Revenue from the operation of the shuttles which link Folkestone in the UK toCoquelles in France carrying trucks or tourist vehicles is the principal driverbehind this growth; their revenue growing by 7% to £318 million in 2006,compared to £295 million in 2005: • The Passenger Shuttle service accounted for a significant portion of this growth, with the new pricing policy proving well suited to developments in this market. The policy is helping to win and retain customers in the most valuable segments. • Truck transportation remains Eurotunnel's spearhead, and continued to generate the majority of Shuttle service revenue. Truck revenues increased by 7%, due in particular to the decision to stop using intermediaries to market the service. Revenues from the Railways are slightly higher (+2%) at £240 million. Theyinclude payments due under the Minimum Usage Charge (MUC), £65 million for 11months of 2006. The ending of this arrangement on 30 November 2006 has deprivedEurotunnel of £6 million of revenue compared with 2005. Eurotunnel's financial position On 13 July 2006, the Joint Board decided to ask the Paris Commercial Court toplace the company under its protection as part of a Safeguard Procedure (definedby French law 2005-845 of 26 July 2005). The Paris Commercial Court opened theSafeguard Procedure for 17 Eurotunnel companies on 2 August 2006. In accordance with applicable laws, the Safeguard Procedure ended the alertprocedure initiated by the Commissaires aux Comptes on 6 February 2006. On 2 August 2006, Calyon and HSBC Bank plc, as the Agent Bank under the CreditAgreements, served notice of a default event relating to the Senior Debt, FourthTranche Debt, Tier 1A Debt, Tier 1 Debt, Tier 2 Debt and Tier 3 Debt, althoughthey did not demand accelerated payment of the corresponding debts. On 26 October 2006, the Joint Board approved, in accordance with the SafeguardLaw, the terms of a Proposed Safeguard Plan devised by the company with thesupport of court-appointed judicial administrators and creditor representatives.The main aspects of this plan, the aim of which is to reduce debt by 54%, are asfollows: • The creation of a new parent company, Groupe Eurotunnel SA (GET SA), which will make a Tender Offer for Eurotunnel Units. • The restructuring of the current £6.3 billion debt through the refinancing or restructuring of the various debt components. This will involve a new loan of £2.84 billion from an international banking consortium and the issue by GET SA of £1.275 billion of notes redeemable in shares (NRS). These NRS are redeemable in GET SA shares for a maximum term of three years and one month. 61.7% of these NRS are redeemable early in cash by the issuer. • Current holders of Eurotunnel Units who tender their Units to the Tender Offer will, if they tender all their Units to the Offer and depending on how many NRS are redeemed in cash, receive at least 13% of GET SA's capital. They will be able to subscribe NRS up to a maximum nominal amount of £60 million and will receive share warrants exercisable at nominal value as part of the Tender Offer. They will also benefit from certain travel privileges. On 18 December 2006, Eurotunnel's Joint Board approved the financing proposalsfor the Safeguard Plan drawn up by a consortium made up of Goldman Sachs andDeutsche Bank, which has since been joined by Citigroup. These proposals allowthe Proposed Safeguard Plan to be financed in full through: • a long-term loan of £1.5 billion and €1.965 billion, equal to a total of £2.84 billion, in the form of a traditional bank loan with a term of between 35 and 43 years depending on the tranche; • the underwriting of the sterling- and euro-denominated NRS allotted to Tier 3 debt-holders in an amount equivalent to £965 million, allowing these debt-holders to receive cash instead of NRS if they so desire. These proposals leave additional debt capacity of £225 million, allowing certainNRS to be redeemed in cash if required. In its judgements dated 15 January 2007, the Paris Commercial Court approved theProposed Safeguard Plan presented by Eurotunnel. Two Commissioners for theExecution of the Plan were appointed for a maximum term of 37 months. More detailed financial and legal information about the Safeguard Plan isprovided at the end of this note. Safeguard Procedure: consequences on the financial statements and forecast cashflow in 2007 Impact on debt The execution of the Safeguard Plan will lead to the restructuring of thecurrent debt. As a result, medium- and long-term debt (non-current financialliabilities) has been reclassified as short-term debt (current financialliabilities). Cancellation of interest-rate hedging contracts In October 2006, the Court-appointed representatives (AdministrateurJudiciaires) terminated the hedging contracts. Eurotunnel recorded the unwindingof these transactions and has accounted for amounts due to the parties to thesecontracts under the Safeguard Plan. Other operating expenses Costs of £189 million have been accounted for relating to the SafeguardProcedure and to the financial restructuring. Impact on the cash position in 2006 As part of the Safeguard Procedure, the payment of £26 million of trade, tax andemployment-related liabilities relating to the period prior to 2 August 2006 hasbeen suspended. £75 million of debt service payments have also been suspended. Forecast cash flow in 2007 Based on forecasts made in late January 2007, the cash position is sufficient tocover expenses arising from the complete and definitive implementation of thefinancial restructuring within the specified timeframe. The financialrestructuring will also give Eurotunnel access to an additional €75 millionfacility to deal with contingencies. Going concern Based on the Safeguard Plan and the implementation of the related financialrestructuring, Eurotunnel's Combined Accounts were approved by the Joint Boardon 6 March 2007 on a going concern basis. The company's status as a going concern depends directly on the success of therestructuring approved by the Paris Commercial Court. This requires: the TenderOffer to be a success, the Term Loan to be drawn and any legal action aimed atblocking the Safeguard Plan to fail. • The Tender Offer requires a minimum acceptance rate of 60%. If the proportion of Units tendered to the Tender Offer is lower than 60%, and provided that GET SA has not abandoned this threshold in accordance with applicable regulations, this Tender Offer acceptance condition would not be met. • The drawing of the Term Loan, as with any credit agreement of this type, is subject to several conditions that must be met by 30 June 2007, some of which may fall outside of Eurotunnel's control. If these conditions are not met and if the lenders do not waive them, Eurotunnel would be unable to carry out the cash redemptions and payments specified by the Safeguard Plan. • Eurotunnel has been, is currently and may in future be involved in certain administrative or legal procedures, particularly in France and the UK. Some of these procedures, if successful, could delay or threaten the implementation of the Safeguard Plan. Some note holders have lodged various legal actions challenging the decision of the Paris Commercial Court of 15 January 2007 to approve the Safeguard Plan. These actions relate principally to the manner in which the meetings were convened and conducted under the Safeguard Procedure. At this stage, these actions would not prevent the Safeguard Plan from proceeding. Some aspects of the Safeguard Plan may have to be adjusted in order to beimplemented effectively. The type and extent of these adjustments cannot begauged at the moment. Such adjustments, if they became necessary, would fallunder the regulatory framework governing the execution of the Safeguard Plan. In the event that all of the elements of the Safeguard Plan are not put inplace, Eurotunnel's ability to trade as a going concern would not be assured.The Combined Accounts would be subject to certain adjustments, the amounts ofwhich cannot be measured at present. They would relate to the impairment ofassets to their net realisable value, the recognition of liabilities and theclassification of non-current assets and liabilities as current assets andliabilities. The asset value on liquidation has been estimated by the valuer/auctioneer appointed by the Safeguard Procedure at £890 million. Negative equity The recognition of impairment charges at 31 December 2005 caused Eurotunnel'smain companies (EPLC, ESA, FM and CTG) to have negative total equity. Under the Safeguard Plan, GET SA will reconstitute these companies' equitythrough the capitalisation of debt. Litigation Eurotunnel and the Railways (SNCF and British Railways Board) reached anagreement on 24 July 2006 ending the dispute that began in 2001 relating to thecalculation of their contribution to the Channel Tunnel's operating costs. This dispute was referred to a court of arbitration, which had issued a rulingfor the period from 1997 to 2002. An initial partial agreement was reached inDecember 2005 between Eurotunnel and the Railways covering the period from 1999to 2004. Under the 24 July 2006 agreement, Eurotunnel agreed to reduce the Railways'contribution for the non-time barred years, and for 2003 and 2004, by an annualamount of £3 million, making a total of £15 million. It also agreed to set up asimple and fair system for sharing operating expenses from 2005 onwards. The new agreement is definitive and brings to an end the various disputesconcerning operating costs. It confirms the agreement relating to the years upto 2004, settles the 2005 financial year and sets out a lump sum mechanism forthe majority of operating costs for each of the years from 2006 to 2014inclusive. Consultation mechanisms were also put in place to determine theRailways' contribution to renewal investments that concern them. Detailed financial and legal aspects of the Safeguard Plan Under the Safeguard Plan: • A new group structure will be set up, including the creation of GET SA, which will be central to the reorganisation. GET SA's ordinary shares will be listed for trading on Eurolist by Euronext(TM), included on the Official List of the United Kingdom Listing Authority and listed for trading on the London Stock Exchange. • GET SA will make a Tender Offer allowing holders of Eurotunnel Units to receive GET SA ordinary shares and GET SA warrants in exchange for these Units. • FM and EFL are the entities that contracted Eurotunnel's senior debt. They will take out a long-term loan that will enable, taking into account the cash flow available: (a) the refinancing of all current debt up to Tier 2; (b) to make cash payments to holders of Tier 3 debt and note-holders as set out in the Safeguard Plan; (c) to pay accrued interest on the current debt in accordance with the terms and limits set out in the Safeguard Plan; and (d) Groupe Eurotunnel to access a cash facility of more than €100 million to cover its operational requirements, including restructuring costs. • A UK subsidiary of GET SA will issue notes redeemable in shares (NRS) for a total nominal amount of £571,042,142 and €1,032,248,700. The main characteristics of these NRS are as follows: • They will be automatically redeemed in GET SA ordinary shares between the 13th and the 37th month following their issue. • They will be divided into two series, i.e. NRS I and NRS II. NRS I notes will not be redeemable in cash, whereas the issuer may elect to redeem NRS II notes in cash. • The redemption price of the NRS that the issuer elects to redeem in cash will be 140% of nominal value. • NRS II notes redeemable in cash will carry interest at 6% per year, while NRS I notes not redeemable in cash will pay interest at 3% per year. • Holders of Eurotunnel Units who tender their Units to the Tender Offer will be able to subscribe for NRS up to a maximum nominal amount of £60 million. • Under the Safeguard Plan, NRS will be allotted to: - Holders of Tier 3 debt, up to £430,523,751 and €783,729,300, in return for assigning all of their Tier 3 debt claims to the issuer of the NRS; - Note-holders, up to £104,827,303 and €183,547,000, in return for assigning all of their note claims to the issuer of the NRS; and - Tier 3 Cash Option Arrangers, for an amount of £35,691,088 and €64,972,400, pursuant to their undertaking to arrange the Tier 3 cash option. • The NRS will be listed for trading on Eurolist by Euronext(TM). • As holders of capital securities in GET SA, Tier 3 debt-holders and note-holders who own NRS will be granted certain specific corporate governance rights (until all of NRS are redeemed in GET SA ordinary shares) through a preferred share issued by GET SA. This preferred share will be owned by a UK-registered company, owned in turn by Tier 3 debt-holders and note-holders who own NRS. • Monetisation arrangements will be put in place for NRS, allowing Tier 3 debt holders to exercise the Tier 3 cash option instead of receiving NRS, and allowing other Tier 3 debt-holders and note-holders to finance the corresponding cash payment by subscribing in cash the NRS to which the Tier 3 debt-holders exercising the Tier 3 cash option were entitled. Four Tier 3 debt-holders representing €397,146,552.43 and £304,606,625.20 of the Tier 3 debt have elected to exercise the cash option. The NRS that became available as a result have been fully subscribed by other Tier 3 debt-holders and by a large proportion of note-holders. • GET SA will issue GET SA warrants exercisable in the event of additional value crystallising in Groupe Eurotunnel. The warrants will be listed on Eurolist by Euronext(TM). 55% of them will be allotted to Unit-holders tendering their Units to the Tender Offer and 45% to note-holders. • ESA and EPLC's capital structure will be reorganised as soon as the Tender Offer closes. This will involve the UK subsidiary of GET SA that issues the NRS capitalising some or all of the Tier 3 assigned to it as part of the Safeguard Plan. This capitalisation of debt will take the form of ESA and EPLC capital increases reserved for this UK subsidiary of GET SA. In addition, similar debt capitalisation transactions will be carried out for FM, CTG and EFL. The Combined Accounts for 2005, which were approved by the Joint Board on 6March 2007 and were included in the opening balance sheet at 1 January 2006,will be submitted to shareholders who will be called upon to approve the 2005and 2006 accounts. The loss for 2005 is included in the retained earnings at 1January 2006. EUROTUNNEL'S FINANCIAL ANALYSIS AND SUMMARY ACCOUNTS 2005 FINANCIAL ANALYSIS Revenues from the Shuttle business increased by 4% compared to 2004 despitecontinued intense competition in the cross-Channel market. Operating expensesand employee benefit expenses decreased by 4% and depreciation decreased by £13million. The resulting trading profit improved by 19%. An impairment charge of£1,750 million was made in 2005 and other operating expenses reducedsignificantly compared to 2004, leading to an operating loss of £1,625 millionin 2005 compared to a loss of £255 million in 2004. The net loss in 2005 was£1,971 million, compared to the loss of £587 million in 2004. Excluding the 2005and 2004 impairment charges (£1,750 million and £336 million respectively), thenet result improved by £30 million. With effect from 1 January 2005, Eurotunnel is required to apply InternationalFinancial Reporting Standards (IFRS) when preparing its accounts. The accountingprinciples now being applied by Eurotunnel are described in note 2, and theimpact of the new accounting principles are described in note 23, to the 2005Combined Accounts. The comparative figures for 2004 in the table below have been restated toreflect the adoption of IFRS, but have not been recalculated at a constantexchange rate as the euro/sterling combination rate for the income statementsfor the years ending 31 December 2005 and 31 December 2004 are so similar. Thetables and commentary below should be read in conjunction with the Eurotunnel'sfull Combined Accounts. Analysis of result 2005 2004 2005/2004£ million Actual Restated(1) % changeExchange rate •/£ 1.465 1.466Shuttle services 295 285 +4%Railways 235 234 -Transport activities 530 519 +2%Non-transport activities 11 19 -41%Revenue 541 538 +1%Operating expenses (144) (146) -1%Employee benefit expense (98) (105) -7%Operating margin 299 287 +4%Depreciation (146) (159)Trading profit 153 128 +19%Impairment (1,750) (336)Other operating expenses (28) (47)Operating loss (1,625) (255)Net cost of financing and debt service (334) (336)Other financial (charges) and income and income tax (12) 4expenseNet loss (1,971) (587)Operating margin / revenue 55% 53% +2 pts (1) Prepared under IFRS as described in note 2 of the 2005 Combined Accounts. Revenue Shuttle services revenues improved by 4% to £295 million compared to 2004. The 10% increase in Truck shuttle revenues results principally from increasedaverage yields following Eurotunnel's re-establishment of direct control overthe sales and pricing policy for the small and medium accounts with effect from16 August 2005, and to the positive effect of Eurotunnel's new strategy for itstruck customers. This increase in prices has been accompanied by a 2% increasein volumes which was in part due to the problems at the port of Calais duringthe first half of 2005 (collapsed loading ramp, storms, strikes), partiallyoffset by the decision to reduce volumes from low-yielding small and mediumaccounts from Italy and Eastern Europe. In total, Passenger shuttle revenues reduced by 5%: car revenues fell by 6%whilst coach revenues increased by 15%. The decrease in car revenues is as a result of the combination of the 3%decrease in volumes in a context of significantly reduced capacity fromSeptember 2005, and 4% lower average yields due to market price competition. In contrast, coach revenues increased by 15% as a result of the 22% increase involumes which was mainly due to a significant transfer of coaches to Eurotunnelduring the disruptions at the port of Calais at the beginning of 2005 and whichcontinued after these problems had been resolved, and, to a lesser extent, tothe strong growth in Eastern European traffic. The effect of this increase involumes was partially offset by a decrease in average yields of 6%. Railways revenue remained stable at £235 million (£234 million in 2004) andremains protected until the end of November 2006 by payments under theprovisions of the Minimum Usage Charge (MUC) in the Railway Usage Contract whichin 2005 amounted to £72 million. The number of Eurostar passengers travellingthrough the Tunnel increased by 2%. Volume growth was restrained by theterrorist bombings in London in July 2005 and the riots in France in October2005. Rail freight volumes carried through the Tunnel fell by 16%. Revenues from non-transport activities amounted to £11 million, down 41%compared to 2004 (£19 million) mainly as a result of a reduction in of landrevenues in 2005. Total revenue in 2005 was £541 million, an improvement of £3 million compared to2004. Operating margin Operating expenses (excluding employee benefit expenses) reduced by 1% to £144million in 2005, compared to £146 million in 2004. The main increases were asfollows: • Consumables increased by 50% from £8 million in 2004 to £11 million in 2005, largely due to increased usage as a result of the rail replacement programme which began in 2005. • The cost of energy increased by 17% from £18 million in 2004 to £21 million in 2005, despite the decrease in traffic. This is mainly explained by higher UK electricity prices, which increased significantly in October 2004, and which increased further in October 2005. In France, electricity prices were covered by a contract up until September 2006, which limited the annual increase up until this date. • Communication and consultancy costs increased by 17% from £17 million to £20 million, following an increased usage of external consultants during the operational restructuring, and higher costs for the annual general meetings. These increases were partially offset by decreases in the following areas: • Maintenance costs reduced by 13% from £26 million in 2004 to £22 million in 2005. • Insurance costs reduced by 16% from £11 million to £9 million as a result of lower insurance premiums. • The cost of temporary staff reduced by 86% from £3 million in 2004, to under £0.5 million in 2005 as a result of the operational restructuring and the reduction in capacity. Staff benefit expenses reduced by 7% to £98 million in 2005, compared to £105million in 2004. This reduction was proportionate to the reduction in averagestaff numbers, which reduced from 3,269 in 2004 to 3,017 for 2005. As part ofthe operational restructuring, the number of staff employed by Eurotunnelreduced during 2005, particularly at the end of the year, as a result of thevoluntary redundancy plan. The combined effects of the increase in revenue and the reduction in operatingexpenses have led to an improved operating margin, which increased by 4% to £299 million for 2005 (2004: £287 million). The ratio of operating margin to revenueimproved by 2 points, from 53% in 2004 to 55% in 2005. Trading profit Depreciation charges reduced by 8% in 2005 as a result of the impairment chargemade in 2004. Improved revenues and decreased operating expenses and depreciation charges havegenerated the increase in trading profit of 19% in 2005. Operating result At 31 December 2005, Eurotunnel carried out a valuation of the value in use ofits assets, corresponding to an implicit discount rate of 8.4% which led to animpairment charge of £1,750 million. The impairment charge at 31 December 2004was £336 million, and corresponded to an implicit discount rate of 7.2%.Impairment charges have no impact on Eurotunnel's liquidity position. In 2005, other operating expenses totalled £28 million relating principally toexternal costs associated with financial restructuring and to costs relating tothe termination of certain contracts. A further provision of £12 million wasmade in 2005 to cover the costs of the operational restructuring. The operating result in 2005 was a loss of £1,625 million, compared to a loss of£255 million in 2004. Net result The cost of servicing the debt remained stable (£289 million in 2005 compared to£288 million in 2004), and charges relating to hedging instruments went from £54million in 2004 to £51 million in 2005. Other financial charges and income was a net charge of £12 million in 2005compared to a net income of £4 million in 2004. This variance is mainly due to aprovision for depreciation to cover risks associated with certain financialcontracts within the framework of the financial restructuring. The only income tax expense incurred by Eurotunnel relates to the minimal legalobligations in France. The net result for 2005 was a loss of £1,971 million compared to the loss in2004 of £587 million. Excluding the impairment charges of £1,750 million in 2005and £336 million in 2004, the net result improved by £30 million. Cash flow £ million 2005 2004 Actual Restated (1)Exchange rate •/£ 1.459 1.418 Net cash inflow from trading 279 293Net cash outflow from other operating activities and (47) (14)taxation Net cash inflow from operating activities 232 279Net cash outflow from investing activities (16) (28)Net cash outflow from financing activities (276) (282) Decrease in cash (60) (31) (1) Prepared under IFRS as described in note 2 of the 2005 Combined Accounts. The variation in the euro exchange rate used to combine the accounts had anegative effect on the operating result of £4 million. The net cash inflow from trading was £279 million in 2005, down £14 millioncompared to 2004. Eurotunnel made a payment of £5 million in 2005 to make goodpart of the deficits in Eurotunnel's UK pension funds. The increase in otheroperating cash outflows compared to 2004 is due to expenditure during 2005 onthe operational restructuring. Following the decrease in cash inflow from trading of £14 million and theincrease of £33 million in other operating cash outflows, the net cash inflowfrom operating activities decreased by £47 million between 2004 and 2005. The net cash outflow from investing activities was £16 million in 2005 comparedto £28 million in 2004. This decrease was due to a reduction in capitalexpenditure of £6 million and an increase in 2005 in cash received from landsales. The net cash outflow from financing activities was £276 million in 2005, adecrease of £6 million compared to 2004. Interest paid on bank debt reduced by£18 million as a result of a decrease in payments relating to the Junior Debt.The net interest paid on hedging contracts went from £36 million in 2004 to £48million in 2005. During 2005, the average interest rates for part of thevariable rate sterling-denominated debt went below the floor rates and thereforegenerated additional charges. SUMMARY COMBINED ACCOUNTS Income statement At 31 At 31 December 2005 December(£'000) 2004Revenue 541,464 538,123Operating expenses 388,775 410,277Trading profit 152,689 127,846Impairment of property, plant 1,750,000 335,810and equipmentOther operating expenses 27,663 47,518Operating loss (1,624,974) (255,482)Income from cash and cash 5,414 5,359equivalentsCost of servicing debt (gross) 339,587 341,620Net cost of financing and debt 334,173 336,261serviceOther financial (charges) and (12,225) 4,343incomeIncome tax expense 31 23Loss for the year (1,971,403) (587,423)Loss per Unit (in pence) * (77,4) (23.1)Exchange rate •/£ 1.465 1.466 * There is no difference between the diluted loss per Unit and the loss perUnit. Balance sheet At 31 December At 31 December 2005 2004(£'000)ASSETSTotal non-current assets 5,194,159 7,119,590Total current assets 195,185 268,375Total assets 5,389,344 7,387,965EQUITY AND LIABILITIESTotal equity (1,308,225) 541,695Total non-current liabilities 6,286,193 6,452,741Total current liabilities 411,376 393,529Total equity and liabilities 5,389,344 7,387,965Exchange rate •/£ 1.459 1.418 Notes 1. The summary balance sheet and income statement are extracted from the Annual Report and Accounts of Eurotunnel which were approved by the Joint Board on 6 March 2007. 2. The balance sheet and income statement consist of the combination of the Consolidated Accounts of Eurotunnel P.L.C. together with Eurotunnel SA and its subsidiaries, applying exchange rates as described in the Annual Report and Accounts. The accounts were been prepared for the first time in accordance with IFRS accounting principles, under the historical cost convention and on the going concern basis (see note 4 below). 3. Loss per Unit: The basic loss per Unit for the year is calculated using the weighted average number of Units in issue during the year of 2,546,114,213 (2004: 2,546,110,015) and the loss for the year of £1,971,403,000 (2004: loss of £587,423,000). There is no difference between the diluted loss per Unit and the loss per Unit. 4. On the basis of the Safeguard Plan approved at the beginning of 2007 by the Paris Commercial Court and on the implementation of the financial restructuring, Eurotunnel's Combined Accounts were approved by the Joint Board on 6 March 2007 on a going concern basis. The validity of the going concern principle is dependant on the success of the implementation of the restructuring approved by the Paris Commercial Court. This involves, notably: the success of the Tender Offer, the Term Loan to be drawn and any legal action aimed at blocking the Safeguard Plan to fail. In the event that all of the elements of the Safeguard Plan are not put into place, Eurotunnel's ability to trade as a going concern would not be assured. The Combined Accounts would be subject to certain adjustments, the amounts of which cannot be measured at present. They would relate to the impairment of assets to their net realisable value, the recognition of liabilities and the classification of non-current assets and liabilities as current assets and liabilities. 5. The Auditors and Commissaires aux Comptes have reported on the 2005 Combined Accounts. Their report contained matters of emphasis relating to going concern and the valuation of property, plant and equipment. IMPORTANT EVENTS The new operational model In 2005, Eurotunnel carried out a major operational restructuring. The new Truck Shuttle strategy consists of giving priority to contract clientswho provide a daily usage estimate. This allows Eurotunnel to enhance clientsatisfaction by adjusting capacity in line with demand. The reduction incapacity improved Truck Shuttle load factors. In addition, Eurotunnel hasbrought commercial business previously subcontracted to Transferry backin-house, enabling it to improve service quality for all clients throughoutEurope. The partnership agreements between Eurotunnel and its agent forexploiting the EurotunnelPlus brand and services ended on 16 August 2005. In operational terms, the reduction in transport capacity led to a fall ofaround 15% in the number of Truck Shuttle departures, without affecting servicequality. The load factor improved substantially, from 59% in 2004 to 71% in2005. For the Passenger Shuttle service, a new pricing policy was introduced for thecar business in June 2005. The new policy is to offer a more transparentreservation service, introducing journeys based on single fares, standardjourneys not based on the length of stay, Flexiplus journeys that can be changedat no additional cost, dedicated payment booths and priority boarding. PassengerShuttle capacity was substantially reduced in the second half of 2005, by around25% compared to the second half of 2004. This improved the load factor andlowered costs. In 2004, a provision of £36 million was made for the employee-relatedconsequences of the operational restructuring and for the early cancellation ofcertain outsourcing contracts. An additional £12 million provision was booked in2005 to cover the total number of staff departures following the negotiationswith UK and French staff representatives which resulted in agreements based onnegotiated voluntary departures. The voluntary departures continued in 2006. Eurotunnel's financial position On 13 July 2006, the Joint Board decided to ask the Paris Commercial Court toplace the company under its protection as part of a Safeguard Procedure (definedby French law 2005-845 of 26 July 2005). The Paris Commercial Court opened theSafeguard Procedure for 17 Eurotunnel companies on 2 August 2006. In accordance with applicable laws, the Safeguard Procedure ended the alertprocedure initiated by the Commissaires aux Comptes on 6 February 2006. On 2 August 2006, Calyon and HSBC Bank plc, as the Agent Bank under the CreditAgreements, served notice of a default event relating to the Senior Debt, FourthTranche Debt, Tier 1A Debt, Tier 1 Debt, Tier 2 Debt and Tier 3 Debt, althoughthey did not demand accelerated payment of the corresponding debts. On 26 October 2006, the Joint Board approved, in accordance with the SafeguardLaw, the terms of a Proposed Safeguard Plan devised by the company with thesupport of court-appointed judicial administrators and creditor representatives.The main aspects of this plan, the aim of which is to reduce debt by 54%, are asfollows: • The creation of a new parent company, Groupe Eurotunnel SA (GET SA), which will make a Tender Offer for Eurotunnel Units. • The restructuring of the current £6.3 billion debt (at 31 December 2006) through the refinancing or restructuring of the various debt components. This will involve a new loan of £2.84 billion from an international banking consortium and the issue by GET SA of £1.275 billion of notes redeemable in shares (NRS). These NRS are redeemable in GET SA shares for a maximum term of three years and one month. 61.7% of these NRS are redeemable early in cash by the issuer. • Current holders of Eurotunnel Units who tender their Units to the Tender Offer will, if they tender all their Units to the Offer and depending on how many NRS are redeemed in cash, receive at least 13% of GET SA's capital. They will be able to subscribe for NRS up to a maximum nominal amount of £60 million and will receive share warrants exercisable at nominal value as part of the Tender Offer. They will also benefit from certain travel privileges. On 18 December 2006, Eurotunnel's Joint Board approved the financing proposalsfor the Safeguard Plan drawn up by a consortium made up of Goldman Sachs andDeutsche Bank, which has since been joined by Citigroup. These proposals allowthe Proposed Safeguard Plan to be financed in full through: • a long-term loan of £1.5 billion and €1.965 billion, equal to a total of £2.84 billion, in the form of a traditional bank loan with a term of between 35 and 43 years depending on the tranche; • the underwriting of the sterling- and euro-denominated NRS allotted to Tier 3 debt-holders in an amount equivalent to £965 million, allowing these debt-holders to receive cash instead of NRS if they so desire. These proposals leave additional debt capacity of £225 million, allowing certainNRS to be redeemed in cash if required. In its judgements dated 15 January 2007, the Paris Commercial Court approved theProposed Safeguard Plan presented by Eurotunnel. Two Commissioners for theExecution of the Plan were appointed for a maximum term of 37 months. Going concern Taking into account the uncertainties relating to Eurotunnel's ability to meetits commitments within a timeframe compatible with its financial position, theCommissaires aux Comptes initiated a warning procedure on 6 February 2006relating to ESA and FM, in accordance with French legislation. The Commissairesaux Comptes' special warning report is presented in the 2005 Annual Accounts. The Joint Board was unable to gauge the company's status as a going concern, andwas therefore unable to finalise the 2005 financial statements within the legaldeadline. Eurotunnel asked the Paris Commercial Court for, and obtained, authorisation todelay convening the shareholders' meeting to approve the financial statementsuntil 31 December 2006. This deadline was later extended until 31 March 2007. Based on the Safeguard Plan approved by the Paris Commercial Court in early 2007and the implementation of the financial restructuring, Eurotunnel's CombinedAccounts were approved by the Joint Board on 6 March 2007 on a going concernbasis. The company's status as a going concern depends directly on the success of therestructuring approved by the Paris Commercial Court. This requires the TenderOffer to be a success, the Term Loan to be drawn and any legal action aimed atblocking the Safeguard Plan to fail. • The Tender Offer requires a minimum acceptance rate of 60%. If the proportion of Units tendered to the Tender Offer is lower than 60%, and provided that GET SA has not abandoned this threshold in accordance with applicable regulations, this Tender Offer acceptance condition would not be met. • The drawing of the Term Loan, as with any credit agreement of this type, is subject to several conditions that must be met by 30 June 2007, some of which may fall outside of Eurotunnel's control. If these conditions are not met and if the lenders do not waive them, Eurotunnel would be unable to carry out the cash redemptions and payments specified by the Safeguard Plan. • Eurotunnel has been, is currently and may in future be involved in certain administrative or legal procedures, particularly in France and the UK. Some of these procedures, if successful, could delay or threaten the implementation of the Safeguard Plan. Some note holders have lodged various legal actions challenging the decision of the Paris Commercial Court of 15 January 2007 to approve the Safeguard Plan. These actions relate principally to the manner in which the meetings were convened and conducted under the Safeguard Procedure. At this stage, these actions would not prevent the Safeguard Plan from proceeding. Some aspects of the Safeguard Plan may have to be adjusted in order to beimplemented effectively. The type and extent of these adjustments cannot begauged at the moment. Such adjustments, if they became necessary, would fallunder the regulatory framework governing the execution of the Safeguard Plan. In the event that all of the elements of the Safeguard Plan are not put inplace, Eurotunnel's ability to trade as a going concern would not be assured.The Combined Accounts would be subject to certain adjustments, the amounts ofwhich cannot be measured at present. They would relate to the impairment ofassets to their net realisable value, the recognition of liabilities and theclassification of non-current assets and liabilities as current assets andliabilities. The asset value on liquidation has been estimated by the valuer/auctioneer appointed by the Safeguard Procedure at £890 million. 2005 financial statements Asset value Eurotunnel's assets are valued in accordance with IAS36, which defines anasset's recoverable value as the higher of fair value and value in use. Value inuse is calculated by discounting projected future operating cash flows (aftercapital expenditure) and applying Adjusted Present Value methodology. Thismethod takes into account assumptions regarding future cash flows and debtlevels, as well as market interest rates during the Concession. Applying IAS36 at 31 December 2004 gave assets a value in use that was £336million lower than their net carrying value, leading to an impairment charge onproperty, plant and equipment for the same amount. When the calculation at 31 December 2004 was made, there was uncertainty aboutthe company's status as a going concern. It was made on the basis of cash flowsbased on operational and financial contracts in place at the time, and was madebefore the refinancing plan had been developed. In making its calculations,Eurotunnel assumed a level of debt £1.3 billion lower than that stated at thebalance sheet date, with a corresponding increase in capital. The calculation of value in use at 31 December 2005 took into account theSafeguard Plan, and used an implicit discount rate of 8.4%, as opposed to 7.2%in 2004. This led to a £1,750 million impairment charge. The increase in the implicit discount rate was due to the new operationalmodel's impact on specific asset risks (asset beta of 0.57 compared to 0.43 in2004), and the new financing structure based on the Safeguard Plan, involving anew loan of £2.84 billion and the issue of NRS for an amount of £1.275 billion. Relatively minor changes in assumptions would lead to material changes in thevalue in use. For example, a 0.1-point change in the implied discount rate wouldcorrespond to a change in the value in use of assets of approximately £92million, and a 0.5-point change would change their value by approximately £489million. Financial liabilities Financial liabilities are presented on the balance sheet in accordance withtheir contractual maturity. The execution of the Safeguard Plan in 2007 willsubstantially change the amounts, characteristics and maturity of this debt. Negative equity The recognition of impairment charges as described above caused Eurotunnel'smain companies (EPLC, ESA, FM and CTG) to have negative total equity. Under the Safeguard Plan, GET SA will reconstitute these companies' equitythrough the capitalisation of debt. Litigations Under the Railway Usage Contract dated 29 July 1987 between the Railways (SNCFand BRB) and Eurotunnel, the Railways are required to pay a contribution to theoperating costs of Eurotunnel in each year. On 21 November 2001, the Railwaysinitiated arbitration proceedings under the auspices of the InternationalChamber of Commerce, aimed at reducing the amount of this contribution, firstlyfor the years 1997 and 1998, and secondly for the years 1999 to 2002. The amountclaimed by the Railways for all of these years together is estimated to be amaximum of £100 million. In a first award made on 26 April 2002, the Arbitration Tribunal ordered theRailways to pay to Eurotunnel the full amount of the provisional contribution toits 2002 operating costs. The Arbitration Tribunal, in a second partial award made on 30 January 2003,rejected the Railways' claim regarding the operating costs contribution for 1997and 1998 on the basis that it was time barred. The Arbitration Tribunal, in athird partial award given on 4 May 2005: • rejected the Railways' claim regarding the operating costs contribution for 2000 on the basis that it was time barred; • rejected the Railways' claims on allegations of breach of contract by Eurotunnel; • set out a number of clarifications on the interpretation of Usage Contract provisions regarding cost allocations, and on the practice of the parties in this respect. The determination of the final amount of the operating costs contribution fornon-time barred years will be carried out within the scope of the expert'smission as set out in the Usage Contract. In light of this award, Eurotunnel andthe Railways met together at the end of 2005 to seek an amicable resolution tothe dispute. An agreement was signed on 23 December 2005, by which Eurotunnelaccepted a reduction of the Railways' contribution for the non-time barred yearsas well as for 2003 and 2004 for a lump sum of £3 million for each year (£15million in total). This settlement agreement was reached on the condition that adefinitive agreement would be reached before 31 May 2006 on a simplified andreasonable system of allocation of operating costs for future years with effectfrom 2005 inclusive. Should such an agreement not be reached by this date, theRailways would be obliged to repay the advance paid by Eurotunnel under thesettlement agreement, and the expert's mission, which has been suspended until31 May 2006, would re-commence. The Arbitration Tribunal, which remainsconstituted, would render a final award upon completion of the expertise, andwould pronounce any potential condemnations against Eurotunnel and/or SNCF andBRB. The impact of the settlement agreement has been taken into account in 2005. In 2006, Eurotunnel and the Railways came to a definitive agreement, on thebasis of the above conditions. Eurotunnel has reached a settlement agreement in the contractual dispute thatstarted in 2004 between Eurotunnel and its agent Transferry. The impact of thissettlement has been taken into account in 2005. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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