2nd Jun 2005 07:00
Shanks Group Plc02 June 2005 Shanks Group plcPreliminary Results 2005 Shanks Group plc ("Shanks") a leading European independent waste managementcompany, announces its preliminary results for the year ended 31 March 2005. Highlights Key features are: •Headline Profit (before tax, exceptional items and goodwill amortisation) rose by 10% to £33.3m (2004: £30.3m) due to better than expected results from the continuing business; •Operating profit before goodwill amortisation and exceptional items on continuing businesses rose by 22% to £38.3m (2004: £31.3m); •As a result of the landfill and power disposal, turnover was lower at £504m (2004: £588m); •Profit before tax of £64.4m (2004: £18.7m) after exceptional profit of £41.1m; •Adjusted earnings per share were 9.4p per share (2004: 8.9p per share); •Maintained final dividend of 3.8p per share, bringing the total dividend for the year to 5.7p (2004: 5.7p); •Reduction in total debt to £162m (March 2004: £309m), of which £63m (March 2004: £28m) is non-recourse debt in PFI companies; •PFI contract for Dumfries & Galloway commenced in November 2004 Commenting on the results, Michael Averill, Chief Executive of Shanks Group plcsaid: "These results provide further evidence that Shanks not only is in a soundfinancial position but is also strategically positioned at the higher technologybased end of the waste treatment and disposal industry. We are therefore ideallyplaced to compete in the changing European waste market, particularly in theburgeoning UK municipal PFI market." CHAIRMAN'S STATEMENT Financial Performance I am pleased to announce a 10% growth in the Group's profit before tax,exceptional items and goodwill (Headline Profit) from £30.3m to £33.3m.Operating profit before goodwill and exceptional items on the continuingbusinesses was up 22% to £38.3m from £31.3m. This improvement was achievedthrough a substantial turnaround in the continuing UK business as a result ofmanagement actions. In its strategic review Shanks determined that landfill volumes will reduce inthe future. The combined effect of the Landfill Directive and steeply risingLandfill Tax will provide a stimulus for higher technology waste managementsolutions. As a consequence on 1 July 2004 the Group completed the disposal ofits UK landfill and related power (L&P) operations for a gross consideration of£227.5m. The trading profit (operating profit before goodwill and exceptional items) ofthe discontinued business was £5.8m (2004: £19.7m). An exceptional profit of£52.5m was achieved on the disposal. Other disposals resulted in a netexceptional loss of £1.0m, after £2.1m of goodwill write off and there was anexceptional charge of £10.4m for the restructuring of UK operations. Overall turnover was lower at £504m (2004: £588m) reflecting the L&P divestment.Continuing business revenue increased by £9m to £466m (2004: £457m). Financecharges reduced markedly to £10.8m (2004: £20.7m). After the net exceptional profit of £41.1m (2004: £Nil) and goodwillamortisation of £10.0m (2004: £11.6m), the Group profit before tax was £64.4m(2004: £18.7m). The tax rate on the headline profit increased to 34% (2004: 31%)due to the increased mix of profits from countries where underlying tax ratesare higher than the UK. Profit after tax was £60.2m (2004: £9.2m). Adjusted basic earnings per share (eps), before exceptional items and goodwillamortisation, increased by 6% to 9.4 pence per share (2004: 8.9 pence pershare). Basic eps were 25.7 pence per share (2004: 3.9 pence per share). YourBoard recommends an unchanged final dividend of 3.8 pence per share which, ifapproved by shareholders, brings the total dividend for the year to 5.7 penceper share (2004: 5.7p). Since 31 March 2004, debt relating to the core business has fallen by £182mwhilst Private Finance Initiative company (PFICO) debt increased by £35m. PFICOdebt, which is bank debt in companies set up for PFI contracts and which isnon-recourse to the core Group, is consolidated as the PFICOs are wholly owned.Total Group debt at 31 March 2005 was £162m, of which £99m is core and £63m isPFICO debt. Divisional Review United Kingdom As a result of the L&P disposal, the UK operations have been reorganised under asingle management team to reduce administration costs and to focus the saleseffort on the opportunities arising from the changing legislative environment.Before exceptional charges, the continuing businesses delivered a majorturnaround from the £4.5m trading loss in 2004 to a trading profit of £1.4m.This encouraging improvement of £5.9m is mainly in the collection and recyclingbusiness where management took the decision in 2004 to discontinue several lossmaking contracts. Vehicle operations have been rationalised, surplus assetsdisposed and overheads substantially reduced. Although the contaminated landoperation performed well, the incineration activity at Fawley continued tooperate in a challenging market. The contributions from the existing PFI businesses at Argyll & Bute and EastLondon were in line with their business plans. A new 25 year PFI contract withDumfries & Galloway commenced in November 2004. Belgium Trading profits in Belgium improved by £0.6m to £16.3m (2004: £15.7m). Thesebetter results were due to higher landfill volumes, following the receipt of thenew permit last year and windfall sales during the maintenance shutdown of theBrussels municipal incinerator. There was also the full year effect of increasedpower capacity which came on line during last year. These factors more thanoffset the adverse effects of exchange rates, the land remediation activity andthe special waste business. Netherlands Trading profits were maintained at £24.0m (2004: £24.2m) with the smallreduction entirely due to exchange rate effects. As foreseen, the businesscontinued to be adversely affected in the solid waste market where over capacityhas led to price reductions. However higher volumes were received from thegreenhouse waste market and performance improved at the ATM hazardous wastefacility. Central Services Central Services costs at £3.4m (2004: £4.1m) were lower due to a reduction inthe pension charge from last year's elevated level. Developments United Kingdom The strategic alliance with Italian partner Ecodeco has resulted in adeliverable solution to the municipal waste landfill diversion targets requiredof the UK by the EU Landfill Directive. This exciting technology based onmechanical biological treatment (MBT) is being used in the new contract withDumfries & Galloway. Construction of the MBT plants at Frog Island for the EastLondon Waste Authority (ELWA) contract is now well underway. Benelux In the Netherlands the expanded capacity of the ATM soil cleaner, there-permitted ATM pyrolysis plant and the new waste wood processing plant atUtrecht will provide opportunities for further growth. However, the core solidwaste market remains difficult. In Belgium, we anticipate household waste willbe diverted from our landfill in Wallonia in the long term to meet the EULandfill Directive. Various projects are under evaluation to provide new sourcesof profits. Directorate Mr Fraser Welham has been appointed as Group Finance Director with effect fromJune 2005. He has been our Finance Director in Belgium for the last seven years.Mr David Downes, the current Group Finance Director, will remain as a Directoruntil his retirement at the end of 2005 to ensure a smooth handover ofresponsibilities and, based on his experience, give strategic input intosuitable structures for the Group's current and future PFI contracts.Two new Non-Executive Directors, Mr Adrian Auer and Mr Peter Johnson wereappointed in May to replace Mr Richard Biffa who retires in June 2005. They willprovide continuity during the period when two further Non-Executive Directors,including me, retire from the Board on reaching the age of 65. I express thanksto the retiring Directors. Outlook Results from the UK operations, whilst still under performing, have neverthelessshown marked progress. The Directors are confident that, with the managementactions taken, this improvement will continue. The Benelux operations haveperformed robustly in difficult market conditions which it is anticipated willimprove when their economies recover. These results provide further evidence of the Group's sound financial positionand its strategic position at the higher technology based end of the wastetreatment and disposal industry. It is ideally placed to compete in the changingEuropean waste market and for UK PFI projects in particular. I M ClubbChairman CHIEF EXECUTIVE'S OPERATING REVIEW The most significant development in the 2004/5 year was the sale of the UKlandfill and related power activities. This transaction not only transformed theGroup balance sheet by reducing debt but also honed the UK operations into asmaller clearly focused single unit concentrating on future opportunities. It isstrongly believed that advancing regulatory pressure from the EU LandfillDirective coupled with steeply rising Landfill Tax will drive waste fromlandfill into the newer higher value added services on which the Group will nowconcentrate. The business model already operating in our continental operationsprovides the example and much of the know-how for these developments. Once morethese continental businesses have performed robustly despite the prevailingdepressed economic conditions. The last year has been a challenging one for our staff who have respondedsuperbly. I thank them all. Group Turnover Turnover from continuing activities of £466m together with a £38m contributionfrom the discontinued L&P business brings the total for the year to £504m (2004:£588m). Continental turnover was flat at £304m whilst revenue in the UKcontinuing business improved 5% to £162m (2004: £154m). United Kingdom UK operations now involve the collection and management of commercial andindustrial wastes, treatment and recycling of hazardous chemical wastesincluding high temperature incineration. There is also a significant activity incontaminated land and a portfolio of long term contracts treating municipalwaste under the Private Finance Initiative. I am pleased to report that a very substantial improvement in performance hasbeen delivered as trading losses of £4.5m have been turned into trading profitsof £1.4m. The new combined UK operation, Shanks Waste Management, hassubstantially reduced overhead, delivered operating efficiencies and sold poorlyperforming businesses and surplus assets. An exceptional charge of £10.4m hasbeen taken to cover the associated costs. As the rationalisation programme iscontinuing there should be further significant benefit in the current year. The largest improvement has been evident in our waste collections business wherethe performance of some depots is now at industry average. The remainingchallenge is to bring all units to this level. Our contaminated land remediationbusiness enjoyed a strong year as regulations continue to tighten on landfilldisposal. Similarly the chemical treatment of hazardous waste has improvedmodestly. The incineration performance has however been disappointing withcontinuing harsh markets and unplanned maintenance shutdowns limitingthroughput. Encouragingly however the contract with the Rural Payments Agency todispose of Meat and Bone Meal from the BSE cattle crisis has been extended for afurther 15 months to May 2006. Share of operating profits from joint ventureactivities has increased to £1.8m from £1.6m. The Group has now won three contracts for the long term management of municipalwaste under the Private Finance Initiative. This year has seen significantinvestment in the existing Argyll & Bute and East London Waste Authoritycontracts. The investment programme in Argyll & Bute is nearing completion andconstruction at the first of two major facilities in East London is welladvanced and operations should commence in 2006. Both projects are performing totheir plans. During the year, a 25 year contract to serve Dumfries & Galloway reachedfinancial close underscoring our confidence in Mechanical Biological Treatment(MBT) technology developed for these applications with our Italian partner,Ecodeco. The contract has a projected revenue of £6m in its first full year andis already contributing profits which will increase in a full year. Constructionof the new MBT facilities has already commenced. Belgium Operations in Belgium are similar to those in the UK but exclude hightemperature incineration and include specialist demolition, industrial cleaningand landfill. Trading profit in the year has risen to £16.3m from £15.7m in 2004. This is acreditable performance given the size of last year's outstanding contributionfrom contaminated land remediation. Following the repermitting of the extension to the landfill site at Mont SaintGuibert in early 2004, the site has been able to accept greater volumes of wasteand, in particular, provide disposal capacity to the City of Brussels during theshutdown of its incinerator for major planned maintenance. Profits at the sitefrom electricity generation from landfill gas also advanced whilst results fromthe processing of hazardous waste reduced as volumes declined in the currentmarket. Netherlands Dutch operations are similar to those in Belgium but exclude landfill anddemolition and include computer refurbishment. Trading profit for the year wasbroadly flat at £24.0m (2004: £24.2m). The recession in the all important construction industry continued resulting inpressure on prices and volumes in our solid waste business. This however wasmore than offset by improvements in our business serving the greenhouse marketand by the overall performance in our ATM hazardous waste processing facility.Recent investments in soil cleaning and paint waste capacity resulted inenhanced throughput. Sludge treatment volumes were however less buoyant than inprevious years. Our industrial cleaning unit Reym also performed well, a result which would havebeen still better if not for a single substantially loss making contract.The waste wood processing plant near Utrecht was commissioned during the yearand is now operating successfully. Prospects Our continental businesses are performing well and have interesting expansionopportunities, including small tuck-in acquisitions. The first quarter's profitsfrom the L&P disposal will not recur but it is expected that the continuing UKrecovery and increases in PFI profits will result in an overall improvement inthe current year. In the next 5 years some 30% of the UK market for municipal waste will betendered as local authorities strive to meet the EU Landfill Directive targets. The innovative MBT technology is now proven as deliverable in the planningarena. The Group therefore intends to pursue these opportunities vigorously.The already announced Landfill Tax increases will further encourage newrecycling and recovery technologies for commercial and industrial waste. Thetechnologies currently employed in the Netherlands are transferable to the UK tomeet this demand as it emerges. Overall the Group is well placed to compete inits growing markets. FINANCIAL DIRECTOR'S REVIEW Financial Results The Operating Review above covers the background to the Group's tradingperformance. The L&P business contributed £5.8m to trading profits in the firstthree months before its disposal and is classified as discontinued. It isestimated to have contributed £3m to headline profit, after taking into accountits financial charges. Changes in the average euro exchange rate during the yearhad an adverse £0.4m effect on Group headline profit. Finance charges were much lower at £10.8m (2004: £20.7m) reflecting the L&Pdisposal proceeds received in July 2004. Goodwill amortisation fell by £1.6m to£10.0m (2004: £11.6m) due to the sale of the L&P and other businesses. Goodwillarising on the acquisition of the Dumfries & Galloway PFI contract has beenprovisionally estimated at £7.7m. This reflects the assumption of netliabilities (£3.8m) and bid costs incurred (£3.9m). The average tax rate on headline profit increased to 34% (2004: 31%) as a resultof the proportion of profits from countries with higher tax rates. Theunderlying rates of tax in the countries where the Group operates were UK: 30%.Netherlands: 35% and Belgium: 34%. The Group suffers a higher charge in Belgiumas landfill tax is non deductible for corporation tax purposes. Cash Flow Details of the Group's cash flow performance are shown in the table below: 2005 2004 Core PFI £m Business Business Total Total Change-----------------------------------------------------------------------Operating Profit* 42 2 44 51 (7)Depreciation/ Landfill Provisions 38 1 39 53 (14)-----------------------------------------------------------------------EBITDA* 80 3 83 104 (21)Working Capital (12) (4) (16) (5) (11)Net Capex and Acquisitions (33) (32) (65) (68) 3Interest, Tax, Dividends and Other (39) (2) (41) (47) 6-----------------------------------------------------------------------Underlying Cash Flow (4) (35) (39) (16) (23)Business Disposals 190 - 190 - 190Currency Translation (4) - (4) 5 (9)-----------------------------------------------------------------------Group Cash Flow 182 (35) 147 (11) 158=======================================================================* before goodwill amortisation and exceptional items The underlying cash utilisation of the core business was £4m after net capitalexpenditure of £33m. The adverse working capital movement includes the £10mpension prepayment relating to the L&P disposal. The £190m net cash proceedsfrom business disposals, partially offset by the adverse £4m translation of theEuro denominated debt into its sterling equivalent, resulted in a reduction of£182m in core debt. The non-recourse aggregated debt in the PFICOs increased by£35m mainly due to the construction work-in-progress on the ELWA contract. Capital Expenditure/Acquisitions The Group spent £65m net on capital expenditure (2004: £68m) of which £33m wasin the core business and £32m on PFI contracts. The core business growth capitalprojects include the purchase of land at Hoek van Holland, Brussels transferstation expansion, capacity increases at ATM and the new wood plant at Utrecht.The core business maintenance capital expenditure reduced to £21m (2004: £32m)due to the L&P disposal. The expenditure on PFI contracts mainly related to ELWAbut includes costs of £4m in respect of the acquisition of Shanks Dumfries &Galloway Limited. Directly attributable interest on separately identifiable major capital projectsis capitalised. As at 31 March 2005 the interest capitalised totalled £0.8m(2004: £0.2m). PFI Projects - Balance Sheet Treatment and Risk Matters The Group has already won three 25 year contracts to manage local authoritywaste arisings. The considerable opportunity to expand this business is set outin the Chairman's Statement and the Operating Review. A typical structure for these contracts is shown on the Group's website atwww.shanks.co.uk although each one has its own small variations. A separate PFI company (PFICO) is created to contract with each local authority.The PFICO is typically financed by non-recourse senior debt (c.80%) from theFunders with an investment from the Group's subsidiary, Shanks PFI Investments,in the form of subordinated debt (c.19%) and pinpoint equity (c.1%). As allPFICOs have thus far been controlled by the Group, their non-recourse debt isconsolidated onto the face of the Group balance sheet. The breakdown between thetwo debt categories of core and PFICO debt is shown in the financial statements. The Group's investment is initially provided by the Funders in the form of anequity bridge loan. This bridge is underwritten by an irrevocable letter ofcredit under the Group's core banking facility in the Funders' favour. Theequity bridge is repaid when the major operating facilities have beenconstructed. Equity bridges totalling £27m in respect of ELWA and D&G areexpected to be repaid in 2007. This will reduce PFICO debt and increase coredebt correspondingly. A tripartite Project Agreement (PA) is negotiated with the local authority andthe Funders which defines the PFICOs performance obligations and its liabilitiesin the event of non-performance. The PA is the master contract to which allother contracts are linked. In order for the PFICO to meet its obligations under the PA, it enters into twoprincipal subcontracts with a Group subsidiary, Shanks Waste Management (SWM).The first contract is to Engineer, Procure and Construct (EPC) the processplants and ancillary facilities. Normal construction industry performance bondsare required by PFICO from SWM. SWM in turn obtains performance bonds from itssub-contractors (such as Ecodeco). The majority of the SWM risk is thereforepassed down to experienced contractors. It retains only the residual riskrelating to the contractors' credit worthiness and the interface risk betweenthe various contractors. The second contract is for the Operations and Maintenance (O&M) of the localauthorities' waste business. During contract negotiations SWM will agree withthe PFICO, the Funders and the local authority appropriate performance levelsand penalties in the event of SWM's non-performance. The Funders providing thedebt, which is non-recourse to the Group, insist on being able to remove SWM forserious non-performance and, in extremis, may take control of the PFICO. The Group provides guarantees covering the performance of SWM under both the EPCand O&M contract to the PFICO up to the level of the agreed liability caps. Ifthe project fails, the Group's equity investment in the PFICO could be at risk.However, it is important to note that waste management is the Group's corecompetence. These guarantees and risks are therefore in the normal course ofbusiness. Upon financial close PFICO assumes the substantial bid costs previously incurredby the Group. This means that PFICO debt increases and the core debt reducescorrespondingly. As PFICO immediately takes over the existing local authority'swaste facilities and associated liabilities under the PA contract, thetransaction is accounted for under the rules for acquisition accounting.Goodwill arises from the net liabilities assumed and the bid costs incurred, andis written off over the life of the contract. Profit and positive cash flows accrue to the Group immediately after financialclose from both the PA contractor (PFICO) and the O&M contract (SWM). Variousplanning permissions and permits under the EPC contract are then applied forand, upon their receipt, construction of the new facilities is commenced.Typically it can take five years before the EPC contract is complete. Although all PFICOs have historically been wholly owned by the Group, variousalternative structures are being considered for the future. It is also possiblethat there will be subcontract agreements with non Group companies rather thanwith SWM. When the EPC contract is complete, the risk profile of the project issubstantially reduced and consideration will be given to the sale of some, butprobably not all, of the Group's equity in the PFICO. There is an emergingsecondary market for low risk PFI equity investments which could allow the Groupto reduce its equity holdings and provide funds for future PFI projects. The O&Msubcontract will however be retained by SWM. Bid costs of £1.2m on PFI projects (2004: £1.0m) incurred prior to preferredbidder status were written off. At 31 March 2005 the prepaid post preferred bidcosts amounted to £Nil (2004: £3.1m). Treasury and Risk Management Policy The treasury policy is to use financial instruments with a spread of maturitydates and sources in order to reduce funding risk. Borrowings are drawn in thesame currencies as the underlying investment to reduce cash and net translationexposure on exchange rate movements. No other currency hedging mechanisms areused. The Group maintains a significant proportion of its debt on fixed rates ofinterest in order to protect interest cover. On receipt of the L&P proceeds, the Group repaid its syndicated borrowings andreduced its private placement facility from €131m to €52m before entering into abank bridging loan. This bridge was repaid on 4 May 2005 from the proceeds of anew loan facility with five major banks. This is a £250m multicurrency revolvingcredit facility expiring in May 2010. The private placement maturity datesremain between 2009 and 2013. The Group also has £47m of working capitalfacilities with various banks. Insurance The policy on insurance is to secure the maximum cover available in the marketat reasonable prices. The Group therefore carries catastrophe insurance,including pollution cover, but self-insures up to a maximum aggregate level of£2m. Pensions The Group continues to use SSAP24 - Pension Costs to account for pensions andhas adopted the transitional arrangements permitted by FRS17 - RetirementBenefits. Under SSAP 24 the pension charge for year ended 31 March 2005 hasdecreased to £2.5m (2004: £5.1m) due in part to the L&P disposal. On the FRS17 basis, the net pension liability has reduced to £11.8m (2004:£19.7m) mainly as a result of a £10m payment made in March 2005 relating to theresidual liabilities of the L&P employees who have become deferred pensioners inthe UK defined benefit scheme (the Scheme). There is no additional chargeagainst current year profits arising from this payment as the current chargealready reflects the liability. The Scheme was closed to new members in September 2002 and new employees are nowoffered a defined contribution arrangement. The triennial actuarial valuation,based on the assets and liabilities as at 1 April 2003 showed a smoothed fundingdeficit of £12m. The Group raised its annual pension cash contributions by £1.4mwith effect from 1 April 2004. The employee contribution rate was increased from5% to 7% of relevant earnings with effect from 1 May 2004. Going Concern The Directors' having reviewed the Group's 2005/6 budget, its medium term plansand its new banking arrangements are satisfied that the Group has sufficientresources to continue operations for the foreseeable future. Accordingly theycontinue to adopt the going concern basis in preparing the financial statements. International Financial Reporting Standards (IFRS) For the year starting 1 April 2005, the Group results will be presented underIFRS for the first time. The Group has established a project team which isassessing the impact of implementation. IFRS standards are currently beingreviewed and interpreted. Based on the work done to date the most significantadjustments arising from IFRS adoption are described below: IFRS 2 - Share-based Payments. This requires measurement of share basedtransactions with employees at fair value at the date of grant. This value formsthe basis of the charge to profits over the period between grant and exercise. IFRS 3 - Business Combinations. Goodwill is carried at cost and subject toannual impairment reviews rather than amortisation as required by UK GAAP. Onfirst-time adoption of IFRS, the Group will take advantage of the option not torestate past business combinations and to treat the carrying value of goodwillat the transition date as cost. IAS 10 - Events after the Balance Sheet. Proposed dividends are not recognisedas a liability as they are subject to approval prior to payment. IAS 12 - Income taxes. Deferred tax assets and liabilities are recognised forall timing differences contained in the balance sheet. IAS 19 - Employee Benefits. Pensions liabilities are recognised based onactuarial valuations. Actuarial gains and losses will not be reflected in theincome statement but taken through the Statement of Recognised Income andExpense. IAS 21 - The effect of Changes in Foreign Exchange Rates. Exchange ratevariances on monetary items are included in the income statement unless they arepart of a net investment or designated as a hedge. IAS 21 is more prescriptivein determining the designation of items, including intra-group loans. IAS 39 - Financial Instruments: recognition and measurement. The Group expectsto apply hedge accounting for interest rate swaps and foreign exchange balancesheet hedges. The extent of increased volatility will depend on prevailinginterest and currency rates in the relevant accounting period and theeffectiveness of hedges. Note: Copies of the Annual Report and Accounts will be posted to shareholders by 27June 2005, after which they will be available, on request, from the company atAstor House, Station Road, Bourne End, Buckinghamshire SL8 5YP. Subject toapproval at the AGM, the proposed final dividend of 3.8 pence per share will bepaid on 5 August 2005 to shareholders on the register at close of business on 15July 2005. For further information contact: Shanks Group plc Ian Clubb; Chairman on 2 June, telephone: 07831 295348Michael Averill; Group Chief Executive thereafter, telephone: 01628 524523David Downes; Group Finance Director Citigate Dewe Rogerson telephone: 0207 2822945Ginny Pulbrook Management will be holding an analyst presentation at 10:00am today, Thursday 2June at ABN AMRO's offices at 250 Bishopsgate, London, EC2M 4AA. Consolidated Profit and Loss Accountyear ended 31 March 2005 Note 2005 2004 Continuing Discontinued Total Total £m £m £m £m-----------------------------------------------------------------------------------------------Turnover: Group and share ofjoint ventures 475.9 37.9 513.8 596.7Less: share of turnover ofjoint ventures (10.2) - (10.2) (8.6)-----------------------------------------------------------------------------------------------Group turnover 2 465.7 37.9 503.6 588.1Cost of sales (378.9) (30.5) (409.4) (482.3)-----------------------------------------------------------------------------------------------Gross profit 86.8 7.4 94.2 105.8===============================================================================================Group operating profit beforeexceptional items and goodwillamortisation 36.4 5.8 42.2 49.4Exceptional operating costs 3 (10.4) - (10.4) -Goodwill amortisation (9.6) (0.4) (10.0) (11.6)-----------------------------------------------------------------------------------------------Group operating profit 2 16.4 5.4 21.8 37.8Share of operating profit ofjoint ventures 1.9 - 1.9 1.6-----------------------------------------------------------------------------------------------Total operating profit 2 18.3 5.4 23.7 39.4Non-operating exceptionalitems: - net profit on disposal of operations 4 51.5 ------------------------------------------------------------------------------------------------Profit before finance chargesand tax 75.2 39.4Finance charges - interest 5 (9.7) (17.9)Finance charges - other 6 (1.1) (2.8)-----------------------------------------------------------------------------------------------Profit on ordinary activitiesbefore tax 2 64.4 18.7Tax 7 (4.2) (9.5)-----------------------------------------------------------------------------------------------Profit on ordinary activitiesafter tax and profit for the period 60.2 9.2Dividends 8 (13.3) (13.3)-----------------------------------------------------------------------------------------------Retained profit (loss)transferred to reserves 46.9 (4.1)===============================================================================================Earnings per share- basic 9 25.7p 3.9p- adjusted basic before exceptional items and goodwill amortisation 9 9.4p 8.9p- diluted 9 25.6p 3.9p Dividend per share 8 5.7p 5.7p=============================================================================================== Consolidated Balance Sheetat 31 March 2005 Note 2005 2004 £m £m £m £m------------------------------------------------------------------------------------------------------------------Fixed assetsIntangible assets 150.1 183.8Tangible assets 229.5 356.2Investments in joint ventures: Share of gross assets 13.2 12.8 Share of gross liabilities (7.6) (8.1) --------------- --------------- Share of net assets 5.6 4.7 Loans to joint ventures 3.2 3.9 --------------- ---------------Total investment in joint ventures 8.8 8.6Other unlisted investments 1.0 1.1------------------------------------------------------------------------------------------------------------------Total fixed assets 389.4 549.7Current assets Stocks 9.1 8.1 Debtors 11 124.7 137.7 Cash at bank and in hand 32.1 30.3 --------------- --------------- 165.9 176.1 --------------- ---------------Creditors: amounts falling due within one year Borrowings (0.7) (15.8) Other creditors 12 (135.7) (165.9) --------------- --------------- (136.4) (181.7) --------------- ---------------Net current assets (liabilities) 29.5 (5.6)-------------------------------------------------------------------------------------------------------------------Total assets less net current assets 418.9 544.1 Creditors: amounts falling due after more than yearBorrowings (193.7) (323.6)Other creditors (0.1) (8.4) --------------- --------------- (193.8) (332.0)Provisions for liabilities and charges 13 (30.4) (74.8)-------------------------------------------------------------------------------------------------------------------Net assets 194.7 137.3===================================================================================================================Capital and reservesCalled up share capital 23.4 23.4Share premium account 93.2 93.1Profit and loss account 78.1 20.8-------------------------------------------------------------------------------------------------------------------Equity shareholders' funds 194.7 137.3=================================================================================================================== Consolidated Cash Flow Statementyear ended 31 March 2005 Note 2005 2004 £m £m £m £m-------------------------------------------------------------------------------------------------------------------Net cash flow from operating activities 14(a) 60.3 95.3Returns from investments and servicing of finance Interest paid (14.2) (21.2) Interest received 2.2 1.1 --------------- --------------- (12.0) (20.1)Tax paid (9.3) (8.7) Capital expenditure and financial investment Purchase of tangible fixed assets (66.1) (68.3) Sale of tangible fixed assets 6.8 4.1 --------------- --------------- (59.3) (64.2)Acquisitions and disposals Purchase of subsidiaries and other businesses 14(b) (3.9) (1.5) Disposals of subsidiaries and other businesses 14(c) 189.4 - Movement in loans to joint ventures and sale of subsidiaries and joint ventures 1.0 - --------------- --------------- 186.5 (1.5)Equity dividends paid (13.3) (13.3)--------------------------------------------------------------------------------------------------------------------Net cash flow before use ofliquid resources and financing 152.9 (12.5)FinancingIssue of ordinary share capital 0.1 -Debt financing 14(d) (135.9) 13.0--------------------------------------------------------------------------------------------------------------------Increase in net cash 17.1 0.5====================================================================================================================Reconciliation of net cash flow to movement in net debt 14(e)Increase in net cash in the year 17.1 0.5Debt financing 14(d) 135.9 (13.0)--------------------------------------------------------------------------------------------------------------------Change in net debt resulting from cash flows 153.0 (12.5)Inception of new finance leases (1.6) (1.5)Financing assumed with acquisitions - (2.3)Amortisation of loan fees (0.3) (0.7)Exchange rate (loss) gain on net debt (4.3) 5.4--------------------------------------------------------------------------------------------------------------------Movement in net debt in the year 146.8 (11.6)Net debt at 31 March 2004 (309.1) (297.5)--------------------------------------------------------------------------------------------------------------------Net debt at 31 March 2005 (162.3) (309.1)====================================================================================================================Net debt represents total borrowings less cash in hand. Analysis of Net DebtAt 31 March 2005 At At 31 March 31 March 2005 2004 £m £m-------------------------------------------------------------------------------------------------------------------- Principal Group net debt 99.5 280.9Private Finance Initiative company net debt 62.8 28.2-------------------------------------------------------------------------------------------------------------------- Total Group net debt 162.3 309.1==================================================================================================================== Reconciliation of Movements in Shareholders' Fundsat 31 March 2005 Note 2005 2004 £m £m-------------------------------------------------------------------------------------------------------------------- Profit for the period 60.2 9.2Equity dividends 8 (13.3) (13.3)-------------------------------------------------------------------------------------------------------------------- Retained (loss) profit transferred to reserves 46.9 (4.1)Issue of share capital 0.1 -Currency translation gain (loss) 4.6 (4.0)Movements in goodwill: currency translation adjustment (1.5) 1.6Goodwill previously written off to reserves and now charged to the profit for the period on disposal of operations 7.3 ---------------------------------------------------------------------------------------------------------------------Net movement in equity shareholders' funds 57.4 (6.5)Opening equity shareholders' funds 137.3 143.8--------------------------------------------------------------------------------------------------------------------Closing equity shareholders' funds 194.7 137.3==================================================================================================================== Statement of Total Recognised Gains and Lossesat 31 March 2005 2005 2004 £m £m-------------------------------------------------------------------------------------------------------------------Profit for the period 60.2 9.2Currency translation (loss) gain on net investments(including goodwill) 8.9 (9.4)Currency translation gain (loss) on borrowings (4.3) 5.4-------------------------------------------------------------------------------------------------------------------Total recognised gains and losses relating to the period 64.8 5.2=================================================================================================================== Notes to the Financial Statements 1 Status of financial statements The figures and financial information for the year ended 31 March 2005 areextracted from but do not constitute the statutory financial statements for thatyear. Those financial statements have not yet been delivered to the Registrar,but include the auditors' report which was unqualified and did not contain astatement under Section 237 (2) or (3) of the Companies Act 1985. The figuresand financial information for the year ended 31 March 2004 included in thepreliminary announcement are extracted from but do not constitute the financialstatements for that year. Those financial statements have been delivered to theRegistrar and included the auditors' report which was unqualified and did notcontain a statement under Section 237 (2) or (3) of the Companies Act 1985. 2 Segmental analysis The Group operates in one segment, Waste Management, in the United Kingdom,Belgium and The Netherlands. 2005 2004 £m £m----------------------------------------------------------------------- (a) Turnover by origin and by destination of service United Kingdom 161.7 153.7 Belgium 100.9 102.7 The Netherlands 203.1 200.4 --------------------------------------------------------------- Continuing operations 465.7 456.8 Discontinued operations 37.9 131.3 --------------------------------------------------------------- Group turnover 503.6 588.1 =============================================================== Share of joint venture turnover 10.2 8.6 =============================================================== (b) Operating profits Trading profits: United Kingdom 1.4 (4.5) Belgium 16.3 15.7 The Netherlands 24.0 24.2 Central Services (3.4) (4.1) ---------------------------------------------------------------- Continuing operations 38.3 31.3 Discontinued operations 5.8 19.7 ---------------------------------------------------------------- Operating profit before exceptional items and goodwill amortisation 44.1 51.0 Exceptional operating items - UK reorganisation costs (10.4) - Goodwill amortisation (10.0) (11.6) ---------------------------------------------------------------- Total operating profit 23.7 39.4 ================================================================ United Kingdom (9.8) (5.9) Belgium 15.7 15.1 The Netherlands 16.2 16.3 Central Services (3.8) (4.3) ---------------------------------------------------------------- Continuing operations 18.3 21.2 Discontinued operations 5.4 18.2 ---------------------------------------------------------------- Total operating profit 23.7 39.4 Non-operating exceptional net profit 51.5 - ---------------------------------------------------------------- Profit before finance charges and taxation 75.2 39.4 Finance charges - interest (9.7) (17.9) Finance charges - other (1.1) (2.8) ---------------------------------------------------------------- Profit on ordinary activities before taxation 64.4 18.7 ================================================================ At At 31 March 31 March 2005 2004 £m £m -----------------------------------------------------------------(c) Net assets United Kingdom 69.9 98.5 Belgium 23.7 22.0 The Netherlands 240.2 229.6 Discontinued operations - 115.4 ----------------------------------------------------------------- Net operating assets 333.8 465.5 Unallocated net assets (liabilities): Assets under the course of construction 29.7 14.8 Net debt (162.3) (309.1) Other unallocated net liabilities (6.5) (33.9) ----------------------------------------------------------------- Net assets 194.7 137.3 ================================================================= Other unallocated net liabilities include debtors and creditors relating to taxation, dividends and pensions. 3 Operating exceptional items The exceptional reorganisation cost of £10.4m relates to the integration andreorganisation of the Group's business in the United Kingdom. It includes £3.3mfor the impairment of tangible fixed assets. The remaining charge relates toredundancies and other closure costs. This charge has no effect on the currenttax charge and increases the deferred tax credit by £3.1m. 4 Non-operating exceptional items 2005 2004 £m £m ----------------------------------------------------------------------Profit on disposal of United Kingdom landfill and power operations 52.5 -Net loss on disposal of other operations (1.0) - ----------------------------------------------------------------------Net profit on sale of subsidiaries and other operations 51.5 - ====================================================================== The profit of £52.5m on disposal of the United Kingdom landfill and poweroperations is stated after charging £7.3m of goodwill previously written off toreserves. The profit was principally tax free but associated costs haveincreased the deferred tax credit by £4.1m. There is no tax associated with theloss on disposal of other operations. 5 Finance charges - interest 2005 2004 £m £m----------------------------------------------------------------------- Net interest payable:Interest payable on bank loans and overdrafts repayablewithin five years 7.8 12.0Interest payable on other loans 4.5 7.0Share of interest of joint ventures 0.2 0.2----------------------------------------------------------------------- 12.5 19.2Interest receivable (2.2) (1.1)Interest costs capitalised as part of tangible fixed assets (0.6) (0.2)----------------------------------------------------------------------- 9.7 17.9======================================================================= 6 Finance charges - other Other finance charges relate to the unwinding of the discount on long termlandfill liabilities of £0.8m (2004: £2.1m) and the amortisation of bank fees of£0.3m (2004: £0.7m). 7 Taxation The taxation charge (credit) based on the profit for the year is made up asfollows: 2005 2004 £m £m-----------------------------------------------------------------------Current tax: United Kingdom corporation tax at 30%(2004: 30%)- current year 2.8 2.7Double taxation relief (2.8) (3.0)Overseas tax- current year 7.6 10.1- prior year 1.2 ------------------------------------------------------------------------ 8.8 9.8Deferred tax (5.2) (0.7)Joint ventures 0.6 0.4----------------------------------------------------------------------- 4.2 9.5======================================================================= 8 Equity dividends 2005 2004 £m £m----------------------------------------------------------------------- Interim dividend of 1.9p per ordinary share (2004: 1.9p) 4.4 4.4Proposed final dividend of 3.8p per ordinary share (2004: 3.8p) 8.9 8.9----------------------------------------------------------------------- Total dividend of 5.7p per ordinary share (2004: 5.7p) 13.3 13.3=======================================================================The proposed final dividend will be paid on 5 August 2005 to shareholders on theregister at close of business on 15 July 2005. 9 Earnings per share Basic earnings per share are calculated by dividing the profit after tax for theRelated Shares:
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