1st Jun 2006 07:00
Shanks Group PLC01 June 2006 1 June 2006 Company Announcement - Preliminary Results 2006 Shanks Group plc - A leading European waste management group This has been another solid year of progress for Shanks, especially in the UK.Following the 2003 strategic review Shanks has responded to legislative andfiscal changes in a rapidly changing waste market and established itself as aleading player in the European waste management industry. Preliminary unaudited results for the year ended 31 March 2006 Financial Highlights • 5% increase in turnover to £443m (2005: £420m) • 11% increase in Headline Profit (profit from continuing activities before exceptional items and tax) to £34.0m (2005: £30.7m) • Profit before tax on continuing operations of £30.3m (2005: £19.7m) • Adjusted basic earnings per share were 9.6p (2005: 8.7p) • Basic earnings per share for continuing operations of 8.5p (2005: 5.4p) • Proposed final dividend of 3.8p per share (2005: 3.8p per share) bringing the total for the year to 5.7p per share (2005: 5.7p per share) Business Highlights • UK turnaround; trading profit of £4.1m from £1.5m loss in 2005 • Long term municipal waste projects advancing well • First new Mechanical Biological Treatment (MBT) plant at the East London Waste Authority (ELWA) project is now commissioning • Second ELWA plant and the Dumfries & Galloway plant will follow in late 2006 • First fuel supply agreement secured • European businesses steady • Exit from UK hazardous waste for £34m cash Commenting on the results, Michael Averill, Group Chief Executive of ShanksGroup plc said: "These improved results, for the second successive year, represent the outcomeof management action to enhance efficiency whilst concurrently implementing astrategy for future growth. Within the rapidly changing UK market, demand for higher value added servicesand more advanced solutions for waste management will grow. Shanks has theexpertise and know-how to exploit this opportunity. With the Group in a strongfinancial position we are confident in future progress" CHAIRMAN'S STATEMENT Financial Performance I am pleased to report a further improved performance for the 2005/6 year,driven principally by progress in the UK business. Reporting underInternational Financial Reporting Standards (IFRS) for the first time in 2005/6,Headline Profit (profit from continuing activities before exceptional items andtax) rose 11% to £34.0m (2005: £30.7m) despite increased energy costs. The taxrate on Headline Profit remained at 34% giving adjusted basic earnings per shareof 9.6p (2005: 8.7p). Basic earnings per share were 13.0p (2005: 33.1p). YourBoard recommends an unchanged final dividend of 3.8p per share which, ifapproved by shareholders, brings the total dividend for the year to 5.7p pershare (2005: 5.7p per share). Turnover from continuing operations increased 5% to £443m (2005: £420m) andprofit after tax was £30.4m (2005: £77.6m) of which £19.8m arose in thecontinuing business (2005: £12.6m). Continuing operations profit before tax was£30.3m (2005: £19.7m) after a £3.7m (2005: £0.5m) non-cash charge for the changein fair value of financial instruments. Profit after tax from discontinuedoperations was £10.6m (2005: £65.0m) principally due to the £8.7m pre-tax profiton the disposal of the UK hazardous waste business. Since 31 March 2005 borrowings relating to the core business fell by £35m to£76m (2005: £111m), mainly due to the proceeds from the exit from the UKhazardous waste business. By contrast Private Finance Initiative (PFI) companydebt has increased by £41m to £105m (2005: £64m) following substantial plannedcapital investment particularly in the East London Waste Authority (ELWA) andDumfries & Galloway (D&G) projects. As part of the adoption of IFRS the Group has moved to the financial assetaccounting model for its UK PFI contracts for the long term management ofmunicipal wastes. The change results in certain reclassifications in turnoverand operating costs. The underlying cash flows in all of our PFI projects areunaltered. A reconciliation between UK GAAP and IFRS of selected comparative financialhighlights is set out in the Financial Review. Divisional Review United Kingdom Trading profits from continuing UK activities showed a substantial improvementfor a second successive year increasing by £5.6m to £4.1m (2005: £1.5m loss). Following a review in 2003, Group strategy is to focus its UK businesses on thenew waste management markets generated by changes in European waste managementregulation and UK Landfill Tax. In a drive to meet the obligations contained in the European Landfill Directivea significant number of UK local authorities are, or will shortly be, tenderingfor long term municipal waste contracts, often using the PFI. The Group hasalready secured three such contracts all of which are proceeding broadlyaccording to plan. A range of new technologies is being commissioned withinthese projects including the core Mechanical Biological Treatment (MBT)technology developed with Italian partner, Ecodeco. The Group plans to exploitthis surge in demand and secure a share of this burgeoning market onsatisfactory terms. The programmed increase in Landfill Tax is also discouraging the disposal tolandfill of industrial and commercial waste as already experienced within theBenelux countries. The skills gained in these markets are transferable to theUK and will be used to build a franchise in industrial and commercial wasterecycling. With the development of these initiatives, coupled with determined managementaction to raise efficiency, results have improved. One small acquisition hasrecently been completed in the central belt of Scotland for a consideration of£0.8m. Belgium Trading profits in Belgium reduced to £15.7m (2005: £16.6m). Last year thedivision enjoyed substantial windfall landfill profits accruing from thescheduled refurbishment of the Brussels household waste incinerator. Furthervolumes diverted from public sector incinerators, in the year under review, havelargely offset this loss. The division has renewed for 10 years, and expanded the scope of, its contractfor waste collection in the City of Liege. Results from the Flanders hazardous waste operations, the sand quarry andgeneral waste activities in Brussels were lower. Two small acquisitions for a total of £0.6m were completed in Flanders. The Netherlands Trading profits in the Netherlands reduced to £23.5m (2005: £24.3m). Thismodest change masks more significant variances within the division. On 1 June2005 German landfill regulation changed radically. The effect was to eliminateseveral low cost disposal routes in Germany which had previously been exploited.The monthly impact has been monitored carefully with a programme of price andefficiency increases aimed at its mitigation. The programme has been successfulwith the monthly effect at year end being substantially reduced. By contrast both the Reym industrial cleaning unit and the ATM hazardous wastebusiness recorded significantly better performances. Three small acquisitions for an aggregate consideration of £2.6m were completedduring the year. Flection, our small computer refurbishment business, was sold in the year to itsmanagement for a total consideration of £1.4m of which a part is deferred. Central Services Central Services costs increased to £4.4m (2005: £3.4m) due, inter alia, tooverlap of new and retiring Board members and costs associated with theimplementation of IFRS. Developments United Kingdom Commissioning of the first MBT plant is underway on time at the ELWA project atthe Frog Island site on the north bank of the Thames. Progress is encouragingwith the process operating to the requisite performance standards, includingancillary equipment. These results bode well for the commissioning of thesecond ELWA plant at Jenkins Lane and the D&G plant later this year. Theseflagship projects are already attracting substantial interest from othercouncils and will shortly be serving as a showcase for these technologies. Benelux The Group continues its programme of tuck-in acquisitions and investments in newindustrial cleaning activities. Various other opportunities are also underconsideration. Directorate Mr Richard Biffa retired from the Board as Non-Executive Director in June 2005followed by former Group Finance Director, Mr David Downes, in December 2005. Ithank them both for their contributions and wise counsel and wish them well inretirement. Mr Adrian Auer, who was appointed as a Non-Executive Director in May 2005, willsucceed me as Chairman with effect from the Annual General Meeting on 27 July2006. Mr Philippe Delaunois is also due to retire as a Non-Executive Directorduring the next financial year on attaining age 65. Mr Peter Johnson, alsoappointed as a Non-Executive Director in May 2005, will assume Chairmanship ofthe Audit Committee. Outlook The disposal of the UK hazardous waste business marked the last major element inthe restructuring of the Group. With a strong balance sheet and the necessaryfinancial resources in place the Group is well positioned to further itsstrategic agenda. The UK PFI projects continue to advance although progress onfurther contracts will be slower than expected. The Group is also pursuingopportunities to grow its business in the Benelux countries. The Group is well positioned to improve its trading performance particularly ina market where the ownership of a number of major competitors is currentlychanging. The Board is therefore confident in further progress. I M ClubbChairman 2005/6 OPERATING REVIEW Thanks are once again due to the staff who have responded superbly to theindustry's rapidly changing conditions. United Kingdom During the year the Group exited the UK hazardous waste business, which had beenidentified as low growth and therefore non-core. In two transactions the Grouprealised a total cash consideration of £34m generating a disposal profit of£8.7m. Trading profits from continuing UK activities showed a substantial improvementfor the second year running, increasing by £5.6m to £4.1m, including propertydisposals. Turnover was flat at £126m. The recent overhead reduction programmecontributed substantially to this turnaround, as did a strong performance fromour land remediation activities in the run up to new restrictions on landfilldisposal in July 2005. Our joint venture landfills also performed well, helpedby additional power production at the Avondale site. Despite rising fuel costs,the overall results of collections, transfer and recycling improved and furthernew initiatives should maintain progress. We have made one small tuck-inacquisition for £0.8m which strengthens our position in the central belt ofScotland. On the new accounting basis, as described in the Financial Review, PFI tradingprofit has fallen by £0.7m, due to increased bid costs and some one-offrestructuring charges at ELWA. There was a positive impact of a full year'scontribution from the D&G contract. As last year, there has been significant investment in our three PFI contracts.The investment programme in Argyll & Bute (A&B) is now substantially completeand the first of two major facilities in East London is in the commissioningstage. The facility should be fully operational by the end of the summer. Thesecond ELWA facility is scheduled to follow six months later. The D&G facility,which is ahead of schedule, is expected to complete in a similar time frame.All three contracts are performing broadly to their plans. Encouragingly, wehave recently executed our first contract to supply Solid Recovered Fuel (SRF)from the MBT process to the cement industry. This agreement is a recognition ofthe role which SRF will play in the new world of high energy costs. Belgium Trading profit in Belgium declined less than expected from last year's level of£16.6m to £15.7m. One off inputs diverted from incinerators in Wallonia due totechnical problems, replaced inputs received during the scheduled maintenanceshut down of the Brussels incinerator in 2004/5. Total turnover increased £8mto £110m. Our sand quarry in Wallonia had a difficult year due to low activity levels inthe construction sector. The Flemish hazardous waste market was harsher than inrecent years reflecting the general economic situation. We successfully renewed an enlarged ten year contract for municipal wastecollection and street cleaning for the City of Liege. This contract, whichstarted in July 2005, should provide predictable revenues and cash flows for thefuture. Two small acquisitions were completed in Flanders for a total of £0.6m. The Netherlands Trading profit from continuing operations in the Netherlands declined to £23.5m(2005: £24.3m) on turnover £14m higher at £206m. Although there has been arecovery in the construction industry, our solid waste businesses haveexperienced higher elimination costs as a result of changes in the Germanlandfill regulatory regime in June 2005. Volumes of contaminated soil processed at our hazardous waste treatmentfacility, ATM, increased following recent investments in additional capacity.Our industrial cleaning business, Reym, performed extremely well aided byincreased oil exploration on the back of high crude prices. Reym's 2004/5performance was also adversely affected by a single loss making contract. Three small acquisitions were completed during the year for a total £2.6m. The computer refurbishment business, Flection, which was considered to benon-core, was sold to management for £1.4m in November 2005. There was noprofit or loss on disposal. FINANCIAL REVIEW IFRS The results for the year ended 31 March 2006 are the first audited resultspresented under International Financial Reporting Standards (IFRS). The adoption of IFRS has no impact on the Group's cash flows or the manner inwhich the Group's operations are run. The major impact of the adoption of IFRS on the Group's reported results are: • the presentation of the results relating to discontinued activities; • accounting for PFI contracts on a "financial asset" basis. The impact of this is to divide the transactions into two parts for accounting purposes: - the financing of the construction of assets for the local authority; - the provision of waste management services using existing assets as well as those created under the contract. The income stream from the waste authority is allocated between the two parts. The part attributed to the service contract is treated as sales, which after operating costs produces an operating profit. The part relating to the construction of assets is treated as funding cash flows (i.e. repayment of capital and interest). In the balance sheet the costs relating to the construction of the assets are classified as an interest bearing "financial asset". It is the Group's opinion that this treatment better reflects the commercial substance of the transactions, provides greater transparency for the financial community and also represents current best practice; • at the financial close of a PFI contract, the price of the service is determined by, inter alia, the long term interest rate available in the market. The Group therefore protects itself against future fluctuations in interest rates by entering into an interest rate swap to match its future cash inflows and outflows. Under IFRS we are required to revalue these swaps at current market value irrespective of the commercial reasons for entering into them. Revaluation of these swaps can lead to large accounting gains or losses but does not affect the long term profitability of the contract as the Group has matched its long term revenue and costs. Whilst IFRS does allow these gains and losses to be taken directly to reserves, it is on the proviso that onerous verification requirements are fulfilled. The Group believes it is not worth expending significant resources fulfilling these requirements in respect of an item that does not reflect commercial reality. In future, accounting for changes in the market value could therefore cause major fluctuations to our reported profits. These changes are excluded from our Headline Profit; • goodwill is no longer amortised but is subject to annual impairment reviews; • the net deficit of the Group's UK pension scheme is now consolidated into the Group's balance sheet. The change in the basis for recognising future pension liabilities gives rise to an increased pension charge; • the cost of share based payments to employees is charged to profits; • certain leases classified as operating under UK GAAP are now classified as finance, increasing property, plant and equipment and net debt accordingly; • joint venture investments are proportionately consolidated, resulting in our share of assets and liabilities, including debt, being consolidated on a line by line basis; • dividends are now only included in the accounts once approved, as opposed to when proposed; • deferred tax is now provided in respect of revalued properties, even if there is little likelihood of the revaluation crystallizing. The table below shows a reconciliation between UK GAAP and IFRS of selected 2004/5 financial highlights: Reconciliation between UK GAAP and IFRS of selected financial highlights Adjusted Headline earnings per Profit beforeYear ended 31 March 2005 Trading profit profit share tax Net assets Net debt £m £m pence £m £m £m________________________________________________________________________________________________________________________ As reported under UK GAAP 44.1 33.3 9.4 64.4 194.7 (162.3)Discontinued activities (7.1) (3.1) (0.8) (54.2) - -________________________________________________________________________________________________________________________ UK GAAP - continuing 37.0 30.2 8.6 10.2 194.7 (162.3)Financial asset accounting (1.5) 1.1 0.3 1.1 2.4 (1.6)Fair value of interest rate swaps - - - (0.5) (2.6) (3.7)Intangible/goodwill amortisation - - - 9.6 9.6 -Pensions (0.1) (0.7) (0.2) (0.7) (18.9) -Share based payments - - - (0.1) - -Leases 0.6 0.1 - 0.1 0.1 (9.6)Joint ventures - - - - - (1.5)Dividends - - - - 8.9 -Deferred tax - - - - (5.2) -________________________________________________________________________________________________________________________ As reported under IFRS 36.0 30.7 8.7 19.7 189.0 (178.7)======================================================================================================================== Financial Results The background to the Group's trading performance is given in the 2005/6Operating Review above. The UK hazardous waste and the Netherlands computer refurbishment businessestogether generated £0.4m of operating profits in the period prior to theirdisposals and are classified as discontinued. They are estimated to have lost£0.2m after taking into account their financial charges, before inclusion ofdisposal profits of £8.7m. Changes in the average Euro exchange rate during the year had a positive £0.1meffect on Group Headline Profit. Finance charges for the continuing business were £0.4m lower at £4.9m, beforetaking into account the change in market value of financial instruments, whichwas £3.7m adverse (2005: £0.5m adverse). The average tax rate on Headline Profit was constant year on year at 34%. Theunderlying rates of tax in the countries where the Group operates were: UK: 30%,the Netherlands: 29% and Belgium: 34%. The Group suffers a higher effectivecharge in Belgium as landfill tax is non- deductible for corporation taxpurposes. Cashflow Details of the Group's cash flow performance are shown in the table below. Group Cash Flow 2006 2005 Change Core PFI Total Total £m £m £m £m £m________________________________________________________________________________ Trading profit* 39 - 39 36 3Depreciation and landfill provisions 30 - 30 27 3________________________________________________________________________________ EBITDA 69 - 69 63 6Working capital (5) 3 (2) (1) (1)Net capital expenditure and acquisitions (33) (47) (80) (67) (13)Interest, tax, dividends and other (23) 3 (20) (27) 7________________________________________________________________________________ Underlying cash flow 8 (41) (33) (32) (1)Business disposals 31 - 31 188 (157)Exceptional cashflows (2) - (2) (3) 1Exchange (2) - (2) (5) 3________________________________________________________________________________ Group Cash Flow 35 (41) (6) 148 (154) ================================================================================* operating profit before exceptional items The underlying cash generated by the core business was £8m after net capitalexpenditure of £33m. The £31m inflow from business disposals comprises the saleproceeds and cash flows relating to the discontinued businesses during the year.This includes a £5m payment into the Group's UK defined benefit pension schemeto cover the residual liabilities of the employees of the UK hazardous wasteactivities who became deferred pensioners. The exceptional cash outflow of £2mwas principally redundancy costs related to the reorganisation of the UKbusinesses started last year. There was a £2m adverse movement on thetranslation of Group's Euro denominated debt into Sterling, giving a reductionin core debt of £35m. The non-recourse aggregated debt in the PFI companiesincreased by £41m mainly due to the construction work in the ELWA and D&Gcontracts. Capital Expenditure/Acquisitions The Group spent £80m net on capital expenditure (2005: £67m) of which £33m wasin the core business and £47m on PFI contracts. The core business growth capitalprojects included six small acquisitions; one in the UK, three in theNetherlands and two in Belgium. Other major items included the purchase of asite in Rotterdam and the construction of a new storage shed at ATM. The corebusiness maintenance capital expenditure was £23m (2005: £21m). The expenditureon PFI contracts relates principally to construction of MBT facilities at ourELWA and D&G contracts. 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. The Group's principal financing is a £250m multicurrency revolving creditfacility with five major banks expiring in April 2010. Adjusting for cash, thisfacility was less than 25% utilised at 31 March 2006. The 2001 notes issuedunder the Group's private placement of £36m have maturity dates between 2009 and2013. The Group also has £26m of working capital facilities with various banks. Each of the Group's PFI projects has senior debt facilities which contributeapproximately 85% of the capital funding required. These facilities are securedon the future cash flows of the PFI companies with no recourse to the Group as awhole. Repayment of these facilities, and any equity bridge facility in respectof the remaining capital funding, commences when construction is complete andconcludes one to two years prior to the expiry of the PFI contract period. Asthe Group currently holds 100% of the equity in its PFI companies, the net debtof £105m is fully consolidated in the Group balance sheet. The maximum whichcould be drawn down under these facilities at 31 March 2006 is £159m. Insurance The Group places all its insurance with leading insurance companies with soundfinancial credentials. For obligatory insurances, the policy is to obtain thenecessary cover at competitive rates. For other areas, regular risk assessmentsare undertaken to identify and assess risks. Where appropriate insurance isthen used to mitigate these risks. The level of cover put in place will dependon the nature of the risks and the cost and extent of cover available in themarket. The majority of our insurances are renewed annually. The Group uses renowned international brokers to advise on risk management,appropriate insurers, cover levels and benchmarking. Insurance requirements for our UK PFI contracts are set out in the funding andproject agreements. Pensions Under IFRS the Group uses IAS19 - Employee Benefits to account for pensions.The pension charge for the continuing business for the year has increased to£5.7m (2005: £4.8m). The net retirement benefit obligations which relate to thedefined benefit section of our UK scheme have reduced to £10.3m (2005: £16.9m),mainly as a result of the £5m payment made in November 2005. This related tothe residual liabilities of the UK hazardous waste employees who have becomedeferred pensioners. A £1.2m curtailment gain arose on these pensionersbecoming deferred, which is included in the profit from discontinued operations. The defined benefit section of the UK scheme was closed to new members inSeptember 2002 and new employees are now offered a defined contributionarrangement. The triennial actuarial valuation of this scheme, based on theassets and liabilities as at 1 April 2003, showed a smoothed funding deficit of£12m. The Group reduced its annual pension cash contributions by £0.3m witheffect from 1 April 2005 following a £10m lump sum payment into the scheme inMarch 2005. Going Concern The Directors, having reviewed the Group's 2006/7 budget, its medium term plansand its 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. Notes: 1. Management will be holding an analyst presentation at 9:30 am today, 1 June at ABN AMRO's offices at 250 Bishopsgate, London, EC2M 4AA. 2. A copy of this announcement is available on the company's website (www.shanks.co.uk) as will the presentation being made today to financial institutions. 3. Copies of the Annual Report will be posted to shareholders by 26 June 2006 after which they will be available, on request from the company at Astor House, Station Road, Bourne End, Buckinghamshire, SL8 5YP, or on the company website. 4. The final dividend of 3.8 pence per share will be paid on 4 August 2006 to shareholders on the register at close of business on 14 July 2006. For further information contact: Shanks Group plc on 1 June, telephone: 020 7678 0383Ian Clubb, Chairman thereafter, telephone: 01628 554920Michael Averill, Group Chief ExecutiveFraser Welham, Group Finance Director Citigate Dewe Rogerson telephone: 020 7282 2945Ginny Pulbrook Consolidated Income StatementYear ended 31 March 2006 (unaudited) 2006 2005 Note £m £m_________________________________________________________________________________________ Continuing operationsRevenue 2 442.5 420.4_________________________________________________________________________________________ Cost of sales - ongoing (358.6) (336.3)Cost of sales - restructuring costs 3 - (5.2) _________________ Total cost of sales (358.6) (341.5)_________________________________________________________________________________________ Gross profit 83.9 78.9_________________________________________________________________________________________ Administrative expenses - ongoing (45.0) (48.1)Administrative expenses - restructuring costs 3 - (5.3) _________________ Total administrative expenses (45.0) (53.4)_________________________________________________________________________________________ Operating profit 2 38.9 25.5_________________________________________________________________________________________ Finance charges:Interest payable and other (12.7) (10.7)Interest receivable 7.8 5.4Change in fair value of financial instruments (3.7) (0.5) _________________ Total finance charges 4 (8.6) (5.8)_________________________________________________________________________________________ Profit before tax from continuing operations 2 30.3 19.7Tax 5 (10.5) (7.1)_________________________________________________________________________________________ Profit after tax for the year from continuing operations 2 19.8 12.6 Discontinued operationsProfit after tax for the year from discontinued operations 2 10.6 65.0_________________________________________________________________________________________ Profit for the year 30.4 77.6========================================================================================= Dividend per share 6 5.7p 5.7p Earnings per share- basic 7 13.0p 33.1p- diluted 7 12.9p 33.1p Earnings per share from continuing operations- basic 7 8.5p 5.4p- diluted 7 8.4p 5.4p========================================================================================= Consolidated Balance SheetAt 31 March 2006 (unaudited) At 31 March At 31 March 2006 2005 Note £m £m_______________________________________________________________________________ Non-current assetsIntangible assets 144.4 140.5Property, plant and equipment 183.6 202.4Loans to joint ventures 0.6 1.6Other investments 2.3 1.3Trade and other receivables 120.1 75.6Deferred tax assets 16.5 14.1 _______________________________ 467.5 435.5 _______________________________ Current assetsInventories 9.0 9.3Trade and other receivables 97.3 109.1Current tax receivables 0.4 3.0Cash and cash equivalents 59.4 32.5 _______________________________ 166.1 153.9_______________________________________________________________________________ Total assets 633.6 589.4_______________________________________________________________________________ Current liabilitiesBorrowings (10.9) (4.0)Trade and other payables (114.1) (125.7)Current tax payables (10.4) (4.2)Provisions 8 (9.1) (11.9) _______________________________ (144.5) (145.8) _______________________________ Non-current liabilitiesBorrowings (237.3) (207.2)Other non-current liabilities (0.7) (1.0)Deferred tax liabilities (15.9) (15.6)Provisions 8 (16.3) (13.9)Retirement benefit obligations (10.3) (16.9) _______________________________ (280.5) (254.6)_______________________________________________________________________________ Total liabilities (425.0) (400.4)_______________________________________________________________________________ Net assets 208.6 189.0=============================================================================== EquityShare capital 23.5 23.4Share premium 93.7 93.2Exchange reserve 5.0 3.1Retained earnings 86.4 69.3_______________________________________________________________________________ Total equity 208.6 189.0=============================================================================== Consolidated Cash Flow StatementYear ended 31 March 2006 (unaudited) 2006 2005 Note £m £m______________________________________________________________________________________________ Net cash from operating activities 9 (c) 58.9 64.9______________________________________________________________________________________________ Investing activitiesPurchase of intangible assets (0.2) (0.3)Purchases of property, plant and equipment (31.9) (34.4)Disposal of property, plant and equipment 3.1 6.9Financial asset capital advances (48.8) (37.2)Financial asset capital repayments 1.9 0.7Acquisition of subsidiary and other businesses (4.2) (1.7)Net proceeds from disposal of subsidiary and other businesses 34.0 175.0Income received from other investments 0.7 0.1______________________________________________________________________________________________ Net cash used in investing activities 9 (c) (45.4) 109.1______________________________________________________________________________________________ Financing activitiesInterest paid (12.6) (12.9)Interest received 7.8 5.2Proceeds from issue of shares 0.6 0.1Dividends paid (13.4) (13.3)Increase (repayment) of borrowings 32.2 (151.4)Increase in obligations under finance leases 1.8 2.5Repayments of obligations under finance leases (3.0) (2.5)______________________________________________________________________________________________ Net cash flow from financing activities 13.4 (172.3)______________________________________________________________________________________________ Net increase in cash and cash equivalents 26.9 1.7Cash and cash equivalents at beginning of year 32.5 30.8______________________________________________________________________________________________ Cash and cash equivalents at end of year 59.4 32.5============================================================================================== Consolidated Movement in Net DebtYear ended 31 March 2006 (unaudited) 2006 2005 £m £m______________________________________________________________________________________________ Net increase in cash and cash equivalents 26.9 1.7(Increase) repayment of borrowings and finance leases (31.0) 151.4Amortisation of loan fees (0.4) (0.3)Exchange loss (1.9) (4.5)Change in fair value of financial instruments (3.7) (0.5)______________________________________________________________________________________________ Movement in net debt (10.1) 147.8Net debt at beginning of year (178.7) (326.5)______________________________________________________________________________________________ Net debt at end of year (188.8) (178.7)============================================================================================== Analysis of Net Debt.At 31 March 2006 (unaudited) At 31 At 31 March March 2006 2005 £m £m______________________________________________________________________________________________ Principal Group net debt 75.9 110.6Private Finance Initiative net debt 105.5 64.4______________________________________________________________________________________________ Total Group net debt before fair value of interest rate swaps 181.4 175.0Fair value of Private Finance Initiative interest rate swaps 7.4 3.7______________________________________________________________________________________________ Total Group net debt 188.8 178.7============================================================================================== Consolidated Statement of Recognised Income and ExpenseYear ended 31 March 2006 (unaudited) 2006 2005 £m £m______________________________________________________________________________________________ Exchange gain on translation of foreign operations 1.9 3.1Actuarial (loss) gain on defined benefit pension schemes (0.6) 0.1______________________________________________________________________________________________ 1.3 3.2Deferred tax in respect of the above 0.2 -______________________________________________________________________________________________ Net income recognised directly in equity 1.5 3.2Profit for the year 30.4 77.6______________________________________________________________________________________________ Total recognised income and expense for the year 31.9 80.8============================================================================================== Consolidated Statement of Changes in EquityYear ended 31 March 2006 (unaudited) Share Share Exchange Retained capital premium reserve earnings Total £m £m £m £m £m___________________________________________________________________________________________________ Balance carried forward at 31 March 2005 23.4 93.2 3.1 69.3 189.0Issue of share capital 0.1 0.5 - - 0.6 Exchange gain on translation of foreign operations - - 1.9 - 1.9Profit for the year - - - 30.4 30.4Actuarial loss on defined benefit pension schemes - - - (0.4) (0.4)Share based payments - - - 0.5 0.5Dividends paid in the year (see note 6) - - - (13.4) (13.4)___________________________________________________________________________________________________ Balance carried forward at 31 March 2006 23.5 93.7 5.0 86.4 208.6=================================================================================================== The Exchange reserve comprises all foreign exchange differences arising from thetranslation of the financial statements of foreign operations as well as fromthe translation of liabilities that hedge the Group's net investment in foreignoperations. The reserve also includes any related taxation. Notes to the Financial Statements(unaudited) 1 Basis of preparation of financial statements and status of financial statements The figures and financial information for the year ended 31 March 2006 are extracted from but do not constitute the statutory financial statements for that year. The figures and financial information for the year are unaudited but have been approved by the Board of Directors. The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), Article 4 of the European Union IAS Regulation and with those parts of the Companies Act 1985 that are applicable to companies reporting under IFRS. The financial statements have been prepared on the basis of the requirements of IFRS in issue and endorsed by the EU which are effective (or available for early adoption) at 31 March 2006. Comparative figures for the year ended 31 March 2005 and the Group's balance sheet as at 31 March 2004 that were previously reported in accordance with accounting principles generally accepted in the United Kingdom (UK GAAP) have been restated to comply with IFRS. Summary reconciliations between UK GAAP and IFRS are set out in note 10. The IFRS accounting policies have been applied consistently to all periods presented and throughout the Group for the purposes of the consolidated financial statements. Full IFRS accounting policies will be disclosed in the financial statements for the year ended 31 March 2006. 2 Segmental reporting Waste Management business shown by management responsibility and geographical area: 2006 2005 £m £m ___________________________________________________________________________ (a) Continuing operations Revenue United Kingdom 126.1 126.2 Belgium 110.2 102.2 Netherlands 206.2 192.0 ________________ Total revenue 442.5 420.4 ________________ Group 429.9 410.2 Share of joint ventures 12.6 10.2 ________________ Total revenue 442.5 420.4 =========================================================================== Trading profits* United Kingdom 4.1 (1.5) Belgium 15.7 16.6 Netherlands 23.5 24.3 Central Services (4.4) (3.4) ________________ Total trading profit 38.9 36.0 ________________ Group 35.7 34.1 Share of joint ventures 3.2 1.9 ________________ Total trading profit 38.9 36.0 Restructuring costs (United Kingdom) (see note 3) - (10.5) ________________ Total operating profit 38.9 25.5 =========================================================================== Operating profits United Kingdom 4.1 (12.0) Belgium 15.7 16.6 Netherlands 23.5 24.3 Central Services (4.4) (3.4) ________________ Total operating profit 38.9 25.5 ___________________________________________________________________________ Finance charges Interest payable and other (12.7) (10.7) Interest receivable 7.8 5.4 Change in fair value of financial (3.7) (0.5) instruments ________________ Total finance charges (8.6) (5.8) ___________________________________________________________________________ Profit before tax from continuing operations 30.3 19.7 Tax (10.5) (7.1) ___________________________________________________________________________ Profit after tax and profit for the year from continuing 19.8 12.6 operations =========================================================================== * operating profits before restructuring costs 2006 2005 £m £m __________________________________________________________________________(b) Discontinued operations Revenue United Kingdom 18.4 78.5 Netherlands 4.9 11.1 ________________ Total revenue 23.3 89.6 __________________________________________________________________________ Operating profits United Kingdom 0.7 7.1 Netherlands (0.3) - ________________ Total operating profit 0.4 7.1 __________________________________________________________________________ Profit on disposal of operations (United Kingdom) 8.7 59.4 __________________________________________________________________________ Finance charges Net external interest (0.6) (3.5) Discount unwind and loan fee amortisation - (0.5) ________________ Total finance charges (0.6) (4.0) __________________________________________________________________________ Profit before tax from discontinued operations 8.5 62.5 Tax credit 2.1 2.5 __________________________________________________________________________ Profit after tax and profit for the year from continuing 10.6 65.0 operations ========================================================================== Net external interest has been allocated to discontinued operations by applying the external interest rate to the net operating assets employed. (c) Analysis of net assets At 31 March At 31 March 2006 2005 £m £m _________________________________________________________________________ United Kingdom Gross assets 175.0 163.9 Gross liabilities (50.9) (73.2) ________________________ Net operating assets 124.1 90.7 ________________________ Belgium Gross assets 73.8 70.0 Gross liabilities (42.4) (39.2) ________________________ Net operating assets 31.4 30.8 ________________________ Netherlands Gross assets 307.9 302.3 Gross liabilities (47.8) (50.5) ________________________ Net operating assets 260.1 251.8 ________________________ Central Services Gross assets 0.6 3.6 Gross liabilities (9.4) (6.5) ________________________ Net operating assets (8.8) (2.9) _________________________________________________________________________ Total Gross assets 557.3 539.8 Gross liabilities (150.5) (169.4) _________________________________________________________________________ Net operating assets 406.8 370.4 Corporation tax (10.0) (1.2) Deferred tax 0.6 (1.5) Net debt (188.8) (178.7) _________________________________________________________________________ Net assets 208.6 189.0 ========================================================================= 3 Restructuring costs The restructuring costs of £10.5m in the year to 31 March 2005 arose on the integration and reorganisation of the Group's business in the United Kingdom. The effect of this item was to reduce the tax charge for the year by £3.1m. 4 Finance charges 2006 2005 £m £m ______________________________________________________________________________________________ Interest payable and other: Interest payable on bank loans and overdrafts repayable within five years 5.4 5.6 Interest payable on other loans 6.5 4.3 Share of interest of joint ventures 0.1 0.2 Unwinding of discount on long term landfill liabilities 0.3 0.3 Amortisation of bank fees 0.4 0.3 ______________________________________________________________________________________________ Total interest payable 12.7 10.7 ______________________________________________________________________________________________ Interest receivable: Interest receivable (2.2) (2.4) Interest receivable on financial assets relating to PFI contracts (5.6) (3.0) ______________________________________________________________________________________________ Total interest receivable (7.8) (5.4) ______________________________________________________________________________________________ Change in fair value of financial instruments 3.7 0.5 ______________________________________________________________________________________________ Net finance charges 8.6 5.8 ============================================================================================== 5 Tax The tax charge based on the profit for the year is made up as follows: 2006 2005 £m £m ______________________________________________________________________________ Current tax UK corporation tax at 30% (2005: 30%) - Current year 4.3 3.4 - Prior year (1.9) - Double tax relief (2.2) (2.8) Overseas tax - Current year 9.8 7.6 - Prior year (0.1) 1.2 ______________________________________________________________________________ Total current tax 9.9 9.4 ______________________________________________________________________________ Deferred tax - Current year (0.4) (3.8) - Prior year (1.1) (1.0) ______________________________________________________________________________ Total deferred tax (1.5) (4.8) ______________________________________________________________________________ Total tax charge for the year 8.4 4.6 ============================================================================== Total tax charge - continuing operations 10.5 7.1 Total tax credit - discontinued operations (2.1) (2.5) ______________________________________________________________________________ Total tax charge for the year 8.4 4.6 ============================================================================== 6 Dividends 2006 2005 £m £m _______________________________________________________________________________________________________________ Amounts recognised as distributions to equity holders in the year: Final dividend paid for the year ended 31 March 2005 of 3.8p per ordinary share (2004: 3.8p) 8.9 8.9 Interim dividend paid for the year ended 31 March 2006 of 1.9p per ordinary share (2005: 1.9p) 4.5 4.4 _______________________________________________________________________________________________________________ 13.4 13.3 =============================================================================================================== Proposed final dividend for the year ended 31 March 2006 of 3.8p per share (2005: 3.8p) 8.9 8.9 =============================================================================================================== The proposed final dividend for the year ended 31 March 2006 of 3.8 pence per share was approved by the Board on 1 June 2006 and, subject to approval by the Shareholders at the Annual General Meeting on 27 July 2006, will be paid on 4 August 2006 to shareholders on the Register at close of business on 14 July 2006. 7 Earnings per share 2006 2005 ______________________________________________________________________________________________ Number of shares Weighted average number of ordinary shares for basic earnings per share 234.3 234.1 Effect of share options in issue 0.8 0.6 ______________________________________________________________________________________________ Weighted average number of ordinary shares for diluted earnings per share 235.1 234.7 ============================================================================================== Calculation of basic and adjusted basic earnings per share Earnings for basic earnings per share being profit for the year (£m) 30.4 77.6 Earnings from discontinued operations (£m) (10.6) (65.0) ______________________________________________________________________________________________ Earnings for basic earnings per share from continuing operations (£m) 19.8 12.6 Restructuring costs (net of tax) (£m) - 7.4 Change in fair value of financial instruments (net of tax) (£m) 2.6 0.4 ______________________________________________________________________________________________ Earnings for adjusted basic earnings per share (£m) 22.4 20.4 ______________________________________________________________________________________________ Basic earnings per share (pence) 13.0p 33.1p Basic earnings per share from continuing operations (pence) 8.5p 5.4p Basic earnings per share from discontinued operations (pence) 4.5p 27.7p Adjusted basic earnings per share (pence) 9.6p 8.7p ============================================================================================== Calculation of diluted earnings per share Earnings for basic earnings per share being profit for the year (£m) 30.4 77.6 Effect of dilutive potential ordinary shares (£m) - - ______________________________________________________________________________________________ Earnings for diluted earnings per share (£m) 30.4 77.6 Earnings from discontinued operations (£m) (10.6) (65.0) ______________________________________________________________________________________________ Earnings for diluted earnings per share from continuing operations (£m) 19.8 12.6 ______________________________________________________________________________________________ Diluted earnings per share (pence) 12.9p 33.1p Diluted earnings per share on continuing operations (pence) 8.4p 5.4p Diluted earnings per share on discontinued operations (pence) 4.5p 27.7p ============================================================================================== The Directors believe that adjusting profits and earnings per share for the effect of exceptional items enables comparison with historical data calculated on the same basis. Exceptional items are those items that need to be disclosed separately on the face of the income statement because of their size or incidence. The credit or charge for the fair value of interest rate swaps is also considered to be exceptional as the Group has chosen not to apply hedge accounting for these swaps to avoid meeting onerous verification requirements in respect of an item that does not reflect the commercial reality. 8 Provisions Site restoration and aftercare Other Total £m £m £m _______________________________________________________________________________ At 31 March 2005 17.8 8.0 25.8 Provided - cost of sales 0.7 0.1 0.8 Provided - finance charges 0.3 - 0.3 Provided - discontinued businesses - 4.8 4.8 Reclassified 1.2 - 1.2 Utilised (3.0) (4.7) (7.7) Exchange rate movements 0.2 - 0.2 _______________________________________________________________________________ At 31 March 2006 17.2 8.2 25.4 =============================================================================== Current 2.3 6.8 9.1 Non-current 14.9 1.4 16.3 _______________________________________________________________________________ At 31 March 2006 17.2 8.2 25.4 =============================================================================== Current 4.9 7.0 11.9 Non-current 12.9 1.0 13.9 _______________________________________________________________________________ At 31 March 2005 17.8 8.0 25.8 =============================================================================== 9 Notes to the cash flow statement 2006 2005 £m £m ___________________________________________________________________________________________ (a) Continuing operations Net cash from operating activities Operating profit from continuing operations 38.9 25.5 Amortisation of intangible assets 0.5 0.5 Impairment loss on intangible assets - 0.5 Depreciation of property, plant and equipment 28.9 25.7 Impairment loss on property, plant and equipment - 2.8 Charge for long term landfill provisions 0.5 1.0 ___________________________________________________________________________________________ Earnings before interest, tax, depreciation and amortisation ("EBITDA") 68.8 56.0 Gain on disposal of property, plant and equipment (1.3) (1.4) Net (decrease) increase in provisions (4.4) 0.5 Share based payments 0.5 0.1 ___________________________________________________________________________________________ Operating cash flows before movements in working capital 63.6 55.2 (Increase) in inventories (1.2) (3.3) Decrease (increase) in receivables 7.9 (11.2) (Decrease) increase in payables (11.1) 16.3 ___________________________________________________________________________________________ Cash generated by operations 59.2 57.0 Income taxes paid (1.5) (6.4) ___________________________________________________________________________________________ Net cash from operating activities 57.7 50.6 =========================================================================================== Investing activities Purchase of intangible assets (0.2) (0.3) Purchases of property, plant and equipment (30.7) (33.2) Disposal of property, plant and equipment 3.1 6.6 Financial assets capital advances (48.8) (37.2) Financial assets capital repayments 1.9 0.7 Acquisitions of subsidiary and other businesses (4.2) (1.7) Net proceeds from disposal of subsidiary and other businesses 34.0 175.0 Income received from other investments 0.7 0.1 ___________________________________________________________________________________________ Net cash used in investing activities (44.2) 110.0 =========================================================================================== (b) Discontinued operations Net cash from operating activities Operating profit from discontinued activities 0.4 7.1 Depreciation of property, plant and equipment 2.1 10.7 Decrease in provisions (2.8) (9.0) ___________________________________________________________________________________________ Operating cash flows before movements in working capital (0.3) 8.8 (Increase) decrease in inventories (0.4) 0.3 Decrease in receivables 1.4 2.3 Increase in payables 0.5 2.9 ___________________________________________________________________________________________ Cash generated by operations 1.2 14.3 ___________________________________________________________________________________________ Net cash from operating activities 1.2 14.3 =========================================================================================== Investing activities Purchases of property, plant and equipment (1.2) (1.2) Disposal of property, plant and equipment - 0.3 ___________________________________________________________________________________________ Net cash used in investing activities (1.2) (0.9) =========================================================================================== (c) Total Group operations Net cash from operating activities Operating profit from all operations 39.3 32.6 Amortisation of intangible assets 0.5 0.5 Impairment loss on intangible assets - 0.5 Depreciation of property, plant and equipment 31.0 36.4 Impairment loss on property, plant and equipment - 2.8 Charge for long term landfill provisions 0.5 0.3 ___________________________________________________________________________________________ Earnings before interest, tax, depreciation and amortisation ("EBITDA") 71.3 73.1 Gain on disposal of property, plant and equipment (1.3) (1.4) Decrease in provisions (7.2) (7.8) Share based payments 0.5 0.1 ___________________________________________________________________________________________ Operating cash flows before movements in working capital 63.3 64.0 (Increase) in inventories (1.6) (3.0) Decrease (increase) in receivables 9.3 (8.9) (Decrease) increase in payables (10.6) 19.2 ___________________________________________________________________________________________ Cash generated by operations 60.4 71.3 Income taxes paid (1.5) (6.4) ___________________________________________________________________________________________ Net cash from operating activities 58.9 64.9 =========================================================================================== Investing activities Purchases of intangible assets (0.2) (0.3) Purchases of property, plant and equipment (31.9) (34.4) Disposal of property, plant and equipment 3.1 6.9 Financial assets debtor capital advances (48.8) (37.2) Financial assets capital repayments 1.9 0.7 Acquisitions of subsidiary and other businesses (4.2) (1.7) Net proceeds from disposal of subsidiary and other businesses 34.0 175.0 Income received from other investments 0.7 0.1 ___________________________________________________________________________________________ Net cash used in investing activities (45.4) 109.1 =========================================================================================== 10 Reconciliation of UK GAAP to IFRS As stated in note 1, the Group previously prepared its financial statements in accordance with UK Generally Accepted Accounting Principles (UK GAAP). As a result of adopting IFRS in respect of the year ending 31 March 2006, the Group has restated comparative information for 2004/5. As required by IFRS1 - First-time Adoption of International Financial Reporting Standards, the reconciliations between previously reported UK GAAP based information and their IFRS equivalents is set out below. Profit 31 March 2005 Share Share Exchange Retained Total for the capital premium reserve earnings equity year £m £m £m £m £m £m __________________________________________________________________________________________________________________ Previously reported under UK GAAP 23.4 93.2 - 78.1 194.7 46.9 IFRS2 - Share based payments - - - - - (0.1) IFRS3 - Business combinations - - - 9.6 9.6 16.9 IAS10 - Events after the balance sheet date - - - 8.9 8.9 13.3 (dividends) IAS19 - Employee benefits - - - (18.9) (18.9) 0.2 IAS17 - Leases - - - 0.1 0.1 0.1 IAS12 - Deferred tax - - - (5.2) (5.2) - IAS21 - Foreign currencies - - 3.1 (3.1) - - IAS39 - Fair value of interest rate swaps - - - (2.6) (2.6) (0.4) IAS39 - Adoption of financial asset accounting - - - 2.4 2.4 0.7 __________________________________________________________________________________________________________________ Reported now under IFRS 23.4 93.2 3.1 69.3 189.0 77.6 ================================================================================================================== This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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