4th May 2005 07:30
Eurotunnel PLC/Eurotunnel S.A.04 May 2005 Further to the 2004 preliminary results announcement of 26 April 2005 andfollowing the statutory publication of the Group Combined Accounts in France,Eurotunnel now releases the Summary Group Combined Accounts and full FinancialAnalysis. SUMMARY EUROTUNNEL GROUP COMBINED ACCOUNTS Balance Sheet 31 DECEMBER 2004 31 DECEMBER 2003 £'000 £'000ASSETSTANGIBLE FIXED ASSETSConcession fixed assets 6,933,599 7,424,826Other fixed assets - 2,032Total tangible fixed assets 6,933,599 7,426,858 FINANCIAL FIXED ASSETSShares 2,224 1,165Others 16,686 16,040Total fixed assets 6,952,509 7,444,063 Stocks 7,185 8,830Trade debtors 41,014 46,062Other debtors 26,246 14,258Other financial debtors 167,437 541,666Investments and liquid funds 181,224 212,206Total current assets 423,106 823,022 Prepaid expenses 36,545 52,592Total assets 7,412,160 8,319,677 SHAREHOLDERS' FUNDS AND LIABILITIESIssued share capital 285,400 285,398Share premium account 2,368,389 2,368,387Other reserve 3,483 3,483Profit and loss account reserve (1,635,097) (300,872)Loss for the year (569,733) (1,334,225)Exchange adjustment reserve 75,799 77,016Total shareholders' funds 528,241 1,099,187 Provisions 144,752 99,508 Loan notes 1,035,464 950,646Loans 5,220,057 5,289,297Accrued interest 98,094 124,922Other financial creditors 167,437 541,666Other creditors 204,404 191,767Total creditors 6,725,456 7,098,298 Deferred income 13,711 22,684Total shareholders' funds and liabilities 7,412,160 8,319,677 Profit and Loss Account YEAR ENDED YEAR ENDED 31 DECEMBER 2004 31 DECEMBER 2003 £'000 £'000TURNOVEROperating revenue 538,123 566,376Other income 17,050 17,568Total turnover 555,173 583,944 OPERATING EXPENDITUREMaterials and services (net) 157,394 162,329Staff costs 103,678 104,720Depreciation 100,258 124,173Provisions 22,003 21,616Other operating charges 550 1,322Total operating expenditure 383,883 414,160 Operating profit 171,290 169,784 FINANCIAL INCOMEInterest receivable and similar income 31,641 41,327Profit on disposal of investments 286 408Exchange differences 1,037 1,270Total financial income 32,964 43,005 FINANCIAL CHARGESInterest payable and similar charges 330,087 359,490Exchange differences 1,071 2,653Total financial charges 331,158 362,143 Financial result (298,194) (319,138)Exceptional result * (442,806) (1,184,847)Taxation 23 24 RESULTLoss for the year (569,733) (1,334,225)Loss per Unit (22.4p) (56.5p)Units (millions) ** 2,546 2,363Fully diluted loss per Unit *** (19.1p) (53.3p) * Including an exceptional impairment of tangible fixed assets of £395 million (2003:£1,300 million).** Weighted average number of units in the year.*** Assuming conversion of Stabilisation Advances and Notes into Units and the exercise ofshare options, and excluding consequences of future refinancing. Cash Flow Statement YEAR ENDED YEAR ENDED 31 DECEMBER 2004 31 DECEMBER 2003 £'000 £'000Net cash inflow from operating activities 283,312 314,304Taxation (24) (24)Returns on investments and servicing of finance (281,241) (277,878)Capital expenditure (18,934) (24,717)Other non-operating cash flows (13,835) 20,391Cash (outflow)/inflow before financing (30,722) 32,076 Financing (724) (68,100)Decrease in cash in the period (31,446) (36,024) Notes 1. The summary balance sheet, profit and loss account and cash flow statementare extracted from the Annual Report and Accounts of Eurotunnel which wereapproved by the Board on 25 April 2005. 2. The Group balance sheet, profit and loss account and cash flow statementconsist of the combination of the consolidated accounts of Eurotunnel plctogether with Eurotunnel SA and its subsidiaries, applying exchange rates asdescribed in the Annual Report and Accounts. The accounts have been prepared inaccordance with the accounting principles applicable in France, under thehistorical cost convention and on the going concern basis (see Note 6 below). 3. The Eurotunnel Group includes leasing companies in the UK which had totaloutstanding debt at 31 December 2004 of £167 million. This debt is fully securedon lease receivables due to the companies. During the year, the interestreceivable and similar income arising in to the leasing companies amounts to £27million. This is matched by an equivalent amount in interest payable. 4. Loss per Unit 2004 2003 (p) (p) Basic (22.4) (56.5)Pre-exceptional result (5.0) (6.3)Fully diluted * (19.1) (53.3) * Assuming conversion of Stabilisation Advances and Notes into Units andthe exercise of share options, and excluding consequences of futurerefinancing. The basic loss per Unit for the year is calculated using the weighted averagenumber of Units in issue during the year of 2,546,110,015 (2003: 2,363,089,041)and the loss for the year of £569,733,000 (2003 loss: £1,334,225,000). Thepre-exceptional loss per Unit is calculated using the above weighted averagenumber of Units in issue, but using the loss of £126,927,000 (2003 loss:£149,378,000) before crediting the exceptional loss of £442,806,000 (2003 loss:£1,184,847,000). The fully diluted loss per Unit, excluding the consequences ofany future refinancing, is calculated using the fully diluted number of Units of2,990,433,422 (2003: 2,503,070,356) which includes the conversion ofStabilisation Notes, Stabilisation Advances and the exercise of share optionsbased on market conditions at the balance sheet date. 5. The Eurotunnel Group accounts comply with French generally acceptedaccounting principles ("GAAP") which differ in certain aspects from UK GAAP. Thesignificant differences, which affect the loss before taxation and shareholders'funds and are described in detail in Note 23 of the Group's full accounts forthe year ended 31 December 2004, arise in the treatment of the consolidation ofquasi-subsidiaries and of equity issue costs. Had the Combined Accounts beenprepared under UK GAAP, loss before tax would have increased by £3 million(2003: decrease of £170 million) and shareholders' funds at 31 December 2004would have increased by £247 million (2003: increase of £250 million). 6. As indicated in the financial analysis, the going concern basis is dependenton the Group's ability to put in place a refinancing plan or if not to obtain anagreement from the Lenders within the existing arrangements in the second halfof 2006 at the latest. If such plans were not successful and the Group's abilityto trade as a going concern was not assured, certain adjustments would need tobe made to the accounts. Those adjustments would relate to the impairment ofassets to their net realisable value and the recognition of contingentliabilities. Such amounts cannot be measured at present. Within the French andBritish legal frameworks, the Lenders may seek to exercise the right tosubstitution included in the Concession Agreement and the securities over assetsset out in the Credit Agreements. 7. An impairment charge on the fixed assets has been recorded in the accountsat 31 December 2004. This is described in detail in the financial analysis. 8. The auditors and commissaires aux comptes have reported on the CombinedAccounts. Their report contained two matters of emphasis, one on going concernin the absence of a refinancing plan in the second half of 2006 at the latest(see Note 6 above) and one on asset valuation (see Note 7 above and thefinancial analysis). FINANCIAL ANALYSIS Intense competition in the short straits markets and continued contraction ofthe passenger market in 2004, have led to shuttle revenues 7% below 2003 atconstant exchange rates. Operating revenue was 4% below 2003, whilst overalloperating costs excluding cost of sales increased slightly. Depreciation chargesdecreased significantly following the impairment charge at the end of 2003,resulting in an operating profit 2% above 2003. Net interest charges decreasedby 5%, resulting in a 14% improvement in the underlying result at constantexchange rates. The underlying loss in 2004 was £127 million compared to £148million in 2003 at constant exchange rates. After an impairment charge of £395million and other net exceptional losses of £48 million in 2004, the net resultfor the year was a loss of £570 million compared to a net loss of £1,334 millionafter an impairment charge of £1,300 million and exceptional profits of £115million in 2003. To make a valid comparison between 2004 and 2003 in both sterling and euros, theunderlying loss for 2003 has been restated at the exchange rate used for the2004 results (£1=€1.466) as set out in the table below. Analysis of result 2004 2003 2004/2003 2003£ million Actual Restated % change ReportedExchange rate •/£ 1.466 1.466 1.435 Shuttle services 285 306 -7% 309Railways 234 230 +2% 232Transport activities 519 536 -3% 541Non-transport activities 19 24 -23% 25Operating revenue 538 560 -4% 566Other income 17 18 18Total turnover 555 578 -4% 584Cost of sales ( 3) ( 9) ( 9)Operating costs ( 258) ( 256) +1% ( 259)Operating margin 294 313 -6% 316Depreciation and provisions ( 123) ( 146) ( 146)Operating profit 171 167 +2% 170Net interest ( 298) ( 315) -5% ( 318)Underlying loss ( 127) ( 148) -14% ( 148)Exchange gains/(losses) - ( 1)Exceptional (loss)/profit ( 48) 115Net loss before impairment charge ( 175) ( 34)Impairment charge ( 395) ( 1 300)Net loss after impairment charge ( 570) ( 1 334) Turnover Shuttle Services revenue decreased by 7% at constant exchange rates to £285million, principally due to the intense competition in the truck market puttingcontinued pressure on prices and to the further decline in the passenger marketreducing Eurotunnel's passenger shuttle volumes. Railways revenue increased slightly to £234 million as a result of inflation,and remains protected until the end of November 2006 by payments under theprovisions of the Minimum Usage Charge (MUC) in the Railway Usage Contract,which amounted to £67 million in 2004. Revenue of £19 million from non-transport activities in 2004 included revenuesfrom retail, telecoms activities and land sales. Other income of £17 million largely comprises the release of provisions forlarge scale maintenance. Total turnover for 2004 was 4% lower than 2003, at £555 million. Operating profit The decrease in cost of sales reflects the value of land stocks disposed of in2004 compared to 2003. Operating costs excluding cost of sales increasedslightly compared to 2003 with increased annual general meeting costs, higherelectricity costs and maintenance costs for rolling stock (acceleration ofmid-life refit of shuttle fleet) and infrastructure, more than offsettingreductions in other areas. Depreciation decreased by £24 million largely due to the impairment charge of£1,300 million at the end of 2003. The operating profit improved by 2% at constant exchange rates to £171 million. Net interest charges At £298 million in 2004, net interest charges were 5% below 2003 at constantexchange rates. During January 2004 more than £4 billion of debt passed fromfixed to variable rates of interest. After taking into account charges of £59million for the hedging contracts, the interest charge for the year reduced by£4 million at constant exchange rates. Following their conversion at the end of2003, no interest was incurred in 2004 on the Equity Notes compared to £12million incurred in 2003, and several small debt repurchases in the second halfof 2003 and at the beginning of 2004 also served to reduce net interest chargesby £2 million. The underlying loss of £127 million in 2004 reduced by 14% compared to 2003 atconstant exchange rates. Net result The exceptional result excluding impairment charge in 2004 was a loss of £48million. Costs related to the operational restructuring (£6 million),refinancing (£14 million), and a charge of £36 million to cover the consequencesof the implementation of the DARE plan. A net profit of £7 million was generatedby the sale of fixed assets, and a profit of £2 million was generated by therepurchase of debt at a discount to its face value. The net result before impairment in 2004 was a loss of £175 million compared toa net loss before impairment of £34 million in 2003. Impairment charge The Group applies the methodology of IAS36 which is equivalent to UK AccountingStandard FRS11 which requires the net book value of assets to be compared todiscounted future operating cash flows. The application of this method in 2004gave rise to an exceptional impairment of £395 million. A charge of £1,300million was made in 2003. This impairment charge has no impact on the Group's liquidity position or itsloan covenants. The net result for 2004 was a loss of £570 million compared to a net loss of£1,334 million in 2003. Cash flow 2004 2003£ million Actual ReportedExchange rate •/£ 1.418 1.419 Net cash flow from operations 283 315Capital expenditure (net) (19) (25)Cash flow after capital expenditure 264 290Net interest paid in cash (281) (278)Other non-operating cash flows & taxation (13) 20Financing (1) (68)Decrease in cash balances (31) (36) Cash flow Cash flow from operating activities in 2004 was £283 million. The majority ofthe reduction compared to 2003 was due to lower shuttle revenues. Net capital expenditure fell from £25 million in 2003 to £19 million in 2004resulting in net cash flow from operating activities after capital expenditureof £264 million. Interest cover after capital expenditure (which measures cashflow after capital expenditure as a proportion of the net interest charge dueand payable) was 96%. The £13 million net payment in respect of other non-operating cash flows in 2004relates to expenditure on refinancing and operational restructuring. FINANCING Eurotunnel's funding falls into three main components - Core Debt, a BufferZone, and Shareholders' Funds. The Core Debt totalling £4.9 billion comprises £0.4 billion of Senior and 4thTranche Debt, £3.3 billion of Junior Debt, £0.7 billion of Tier 1A Debt, and£0.5 billion of Resettable Advances. No debt repayments under the Credit Agreement are due before 2006. In theabsence of any significant modification to the debt covenants, total debtrepayments over the period 2006 to 2009 will total £274 million, starting with£4 million in 2006, increasing to £163 million in 2009. The Buffer Zone of £1.5 billion includes £0.5 billion drawings under theStabilisation Facility. The Stabilisation Advances carry 0% interest until 2006.Under the Credit Agreement, Eurotunnel, subject to the agreement of itsshareholders, is able to convert the Stabilisation Advances and Notes(1)outstanding at the end of 2005 into Units. In order to convert theStabilisation Advances and Notes into Units in accordance with the provisions ofthe 1998 restructuring, Eurotunnel will have to propose that its shareholdersvote on the conversion at an extraordinary general meeting to be held before theend of 2005. This Buffer Zone also includes £0.9 billion of Participating Loan Notes whichcarry 1% fixed interest until 2006. The third component of the financing structure is represented by Shareholders'Funds, which at 31 December 2004 totalled £0.5 billion. (1) Based on the £530 million Stabilisation Advances and Notes that wereoutstanding on 31 December 2004, such conversion would lead to the creation of444 million new Units at a fixed conversion rate of £1.19 (at a euro/sterlingexchange of €1.418). This conversion of the Stabilisation Advances and Noteswould represent 15% of the total number of Units in circulation. Fully dilutedshare capital on this basis would be 2,990 million Units (including the exerciseof stock options). In the absence of conversion and on the basis of currentinterest rates, an additional financial charge of approximately £27 million ayear would be payable by the Group from 1 January 2006. Financing at 31 December 2004 £ billionSenior Debt 0.4 CORE DEBTJunior Debt 4.5 Tier 1A Resettable AdvancesStabilisation Facility 1.5 BUFFER ZONE Participating Loan Notes Accrued interestTOTAL DEBT 6.4Shareholders' funds 0.5 EQUITY FINANCIAL SITUATION Operational restructuring - project DARE In June 2004, Eurotunnel commenced an in-depth review of the financial andoperational aspects of each of the Group's activities. Project DARE willcontribute to the recovery of the company. A key element of this project is toincrease margins from the core shuttle businesses by better aligning capacity todemand. The reduction in surplus capacity, additional reductions inadministrative costs and a complete review of subcontractor and suppliercontracts, will give rise to cost savings. The implementation of project DAREcommenced in November 2004; the full benefit of this plan is anticipated toimpact from 2006. A provision of £36 million has been made in the 2004 accountsfor the consequences of this on staffing levels and for the early termination ofcertain subcontracts. Forecast cash position The financial consequences of the forecasts prepared in the light of the 2004results and the current outlook for the Group, taking into account theconsequences of project DARE, are as follows: >> During 2005 the cash flow position remains protected by the mechanism bywhich interest that cannot be paid in cash can be settled by way ofStabilisation Advances up to a limit of £60 million. Taking into account therisks, especially those associated with the implementation of DARE, eitherfinancial or operational, the cash flow position remains subject to certainuncertainties. On the basis of the latest operating forecasts available at thedate of the accounts, the amount of un-used Stabilisation Advances should allowsufficient cash up until the end of 2005, on which date the level of availablecash is projected to be equal to the Permitted Float of £25 million (this is themaximum amount of cash that may be held by the Group as defined in the CreditAgreements). >> In 2006 the Group will no longer benefit from the Stabilisation Advances,rendering the cash flow position more vulnerable particularly at the end ofJanuary and July 2006 because of the interest payments due under the currentCredit Agreements. >> From the first half of 2007 Eurotunnel will not be able to meet itscontractual debt repayments. >> The cash flow forecasts are based on assumptions that the Group considersto be both reasonable and realistic. The forecasts assume the conversion of theStabilisation Advances and Notes into Units by 1 January 2006. In the absence ofthis conversion and on the basis of current interest rates and the StabilisationAdvances and Notes as at 31 December 2004, an additional financial charge ofapproximately £27 million a year would be payable by the Group. Furthermore,significant disruptions to the operations of the Group or events that areunforeseeable or unquantifiable at the date of the accounts in conjunction with,amongst other issues, the Railways dispute, could accelerate the date at whichthe Group would be unable to meet its financial obligations. Financial restructuring Eurotunnel has obtained a waiver from the Lenders which is valid up to 31January 2006 and which defines the conditions under which the Group can startdebt restructuring negotiations with its creditors. In particular, the waiverrequires a proposal of a restructuring plan by no later than 15 July 2005, aswell as the establishment of a structured means of communication betweenEurotunnel and its creditors. The waiver can be terminated at any time shouldeither party not meet its respective responsibilities. In order to convert the Stabilisation Advances and Notes into Units inaccordance with the provisions of the 1998 restructuring, Eurotunnel will haveto propose that its shareholders vote on the conversion at an extraordinarygeneral meeting to be held before the end of 2005. The conditions andconsequences of the potential conversion are described in notes 11c and 14c ofthe full Combined Accounts. Finally, in the context of the proposed financial restructuring, Eurotunnelcould look into, amongst other options and within the terms and conditions ofthe existing Credit Agreements, the putting into place of an additional line ofcredit up to a maximum of £50 million. Initial enquiries have confirmed thefeasibility of putting this into place should the necessity arise. Going concern The going concern basis is dependent on the Group's ability to put in place arefinancing plan or, if not, to obtain an agreement from the Lenders within theexisting arrangements in the second half of 2006 at the latest. The Group believes that these measures described above, which are intended toprovide a satisfactory solution to the financing requirements of the Group, canbe put in place before the date at which the Group will be unable to meet itsfinancial obligations. The application of the going concern assumption in the 31December 2004 annual accounts has been based on the assumptions described above. Impairment The valuation of the Group's assets has been carried out in accordance withIAS36, which compares the net book value of the assets to the value of thediscounted forecast future operating cash flows, and by using the AdjustedPresent Value (APV) methodology. The application of this standard at 31 December 2003 gave rise to a value in use£1.3 billion lower than the net book value of the assets, and led to animpairment charge for this amount in the 2003 accounts. At 31 December 2004, Eurotunnel updated its impairment calculation, using animplicit discount rate of 7.2% (2003: 7%), which led to an additional impairmentcharge of £395 million. Taking into account the increasing uncertainties that the Group is facing,Eurotunnel considered it appropriate at this date to use values in the upperranges for the market risk premium and the asset "beta" ratios. The implicit discount rate was determined in accordance with the standard on thebasis of the Group constituting a single income generating unit and using theAPV methodology. This methodology requires assumptions to be made for both theforecast cash flows and the future level of the Group's debt over the life ofthe Concession, as well as for the market interest rate. The value in use was calculated in the context of the going concern uncertaintyand on the basis of operating cash flows which assume no changes to existingoperational and financing contracts. In addition, and only for the purposes ofthis valuation, the Group has assumed, as in the previous year, an interestsaving based on a level of debt £1.3 billion lower than the current level ofdebt. Within the assumption of no changes to existing contracts, all other thingsbeing equal, other foreseeable levels of debt would not lead to an implicitdiscount rate of greater than 7.7%. Relatively small changes in the assumptionsused would lead to material changes in the value in use. By way of example, avariation of 0.10% in the implicit discount rate would correspond to a change inthe value in use of the fixed assets of approximately £150 million. Railways dispute Under the Railways Usage Contract dated 29 July 1987 (the "RUC") between theRailways and Eurotunnel, the Railways are required to bear a proportion of theoperating costs of Eurotunnel in each year. The Railways commenced arbitration proceedings under the auspices of theInternational Chamber of Commerce in respect of the amount of theircontribution, firstly for financial years ended 31 December 1997 and 1998, andsecondly for financial years ended 31 December 1999 to 31 December 2002. Thetotal amount claimed by the Railways is estimated to be a maximum of £100million. The Arbitration Tribunal, in an award made on 30 January 2003, rejected theRailways' claim for 1997 and 1998 on the basis that it was time barred. TheTribunal's decision is final. The Arbitration Tribunal will decide on theadmissibility and validity of the claim for 1999 to 2002 in a separate phase ofproceedings; its decision is expected to follow in 2005. Eurotunnel remains confident in the outcome of these proceedings and hastherefore not changed its position from previous years; consequently a provisionhas not been made in these accounts or in the Group's financial projections. Media enquiries: Eurotunnel Press Office, tel: + 44 (0) 1303 288728 or + 44 (0) 1303 288737 Investor enquiries: Xavier Clement, tel: + 33 1 55 27 36 27 News release no. 936 Eurotunnel manages the infrastructure of the Channel Tunnel and operatesaccompanied truck shuttle and passenger shuttle (car and coach) services betweenFolkestone, UK and Calais, France. Eurotunnel also earns toll revenue fromother train operators (Eurostar for rail passengers, and EWS and SNCF for railfreight) which use the Tunnel. Eurotunnel is quoted in London, Paris andBrussels. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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