7th Sep 2006 07:01
Hargreaves Services PLC07 September 2006 For Immediate Release 7 September 2006 HARGREAVES SERVICES plc Preliminary results for the year ended 31 May 2006 Hargreaves Services plc (AIM:HSP), a leading provider of transport and supportservices to the energy and waste sectors announces its preliminary results forthe year ended 31 May 2006. HIGHLIGHTS • Flotation on AIM, raising £20m net of expenses • Successful integration of The Monckton Coke & Chemical Company following its acquisition for a gross purchase consideration including costs of £13.9m in June 2005 • Formation of joint venture company, Coal 4 Energy, with UK Coal to supply light industrial and domestic coal and related products • Completion of the acquisition of fleet tanker operator, Gilbraith Tankers Ltd • Group turnover including share of joint ventures up 77% to £155.0m (2005: £87.6m) • Total operating profit up 106% to £7.2m (2005: £3.5m) • Profit before tax up 134% to £5.5m (2005: £2.3m) • Maiden Final Dividend of 5p per share • Substantial new contract wins maintains high visibility of earnings • Strong current trading conditions Chairman, Tim Ross commented: "I am pleased to report that order books are atrecord levels, with additional long-term contracts already secured with majorblue chip companies. On 1st September 2006 the Group acquired Norec Limited. Weare committed to expansion and anticipate significant progress in the comingyear, by organic growth and selective acquisition." EnquiriesHargreaves Services plc 0191 373 4485Gordon BanhamPeter Dillon Buchanan Communications 0207 466 5000Diane Stewart/Tim Anderson Brewin Dolphin Securities 0113 241 0130Andrew KitchingmanAndy Emmott Chairman's statement I was extremely pleased to be invited to become Chairman last year and amcorrespondingly delighted to be able to report record results to you now. Groupturnover (including share of joint ventures) of £155.0m (2005: £87.6m) andoperating profit of £7.2m (2005: £3.5m) demonstrate the very significantprogress achieved in the last year. Highlights of the year were the acquisition of The Monckton Coke & ChemicalCompany Ltd in June 2005 for a gross purchase consideration (including costs) of£13.9m and, coinciding with my appointment in November, the flotation of theCompany on the AIM market of the London Stock Exchange. This raised £20m net ofexpenses and enabled the Company to move forward with significant financialresources available for expansion. Subsequently, in April 2006 Coal 4 Energy Ltdwas established jointly with UK Coal PLC, to bring together the strength andexperience of both companies in the supply of coal and related products to thelight-industrial and domestic sectors. The new company is now the largestsupplier to this market in the UK. The Group is currently organised into four major trading divisions: • Minerals • Transport • Industrial • Monckton Each Division is a significant player in its own market sector.Taken together, the Divisions make up an unrivalled supply chainin the provision of carbon-based and related minerals. The Group is strongly focused on services to the energy sector and has developed into the largest independent UK supplier of solidfuels to the generators, foundries, cement and other chemical industries. The Group's investments at the ports of Immingham and Newport provide it with excellent geographic coverage, with corresponding logistical efficiencies by road, rail and water. I am also pleased to report a significant increase in demand for products from abroad, notably Scandinavia. We anticipate further growth in overseas markets, with particularly bright prospects in Germany. Since my appointment I have been greatly impressed by the work ethic, motivation and loyalty of our employees at all levels.The work that the Group undertakes across a wide geographic area is physically demanding and frequently involves extremely tightdeadlines. On behalf of the Board, I would like to thank each and every one of them, whose skill and effort are the backbone of the Group's success. As indicated in the prospectus at the time of flotation, I am pleased to report that the Board has recommended a maiden dividend of 5p per share payable immediately after the Annual General Meeting on 10 October 2006. Finally, I am pleased to report that order books are at record levels, with additional long-term contracts already secured with major blue chip companies. We are committed to expansion and anticipate significant progress in the coming year, by organic growth and selective acquisition. Tim RossChairman 7 September 2006 Group Chief Executive's statement I am pleased to announce that the group turnover (including share ofjoint ventures) for the year ended 31 May 2006 was £155.0m (2005:£87.6m) an increase of 77%. Total operating profit was £7.2m (2005:£3.5m) an increase of 106% which fully achieved directors'expectations. The Board have recommended the payment of a final dividend of 5p pershare, in line with projections given at the time of flotation. Thisrelates to performance in the second half of the year. Review of operations During the year there were three significant events. First, theacquisition of The Monckton Coke & Chemical Company Ltd ('Monckton')in June 2005. This was followed in November 2005 by the flotation ofthe group on the AIM market of the London Stock Exchange. Afterexpenses, £20m was raised to help the group grow both organicallyand by acquisition. Finally a joint venture company, Coal 4 EnergyLimited, was formed with UK Coal PLC in April 2006, which is now thelargest UK supplier of light industrial and domestic coal. The Group operates with four reporting divisions, enabling a clearlyfocused management structure, with defined lines of reporting. TheGroup has successfully integrated Monckton since acquisition, and weare pleased to report its operating profit of £2.1m. In addition theGroup has achieved expansion within each division, with excellentprogress in market share and profitability. Minerals Division The Minerals Division is principally concerned with the import andsubsequent sale of carbon based materials to end users. Main areasof site operations are the port of Immingham and the port ofNewport. The majority of imported material is for the powergeneration industry. The large increases in oil and gas prices havemade coal the favoured fuel for power generation, this coupled withthe decline of UK production has increased the demand for imports.The Division was well positioned at Immingham and Newport to takeadvantage of this increased activity, particularly the recentcompletion of new facilities by Associated British Ports atImmingham which has allowed the group to contract for additionaltonnage. During the year there was substantially increased activityby the Division with growth in materials imported for its ownaccount, and materials handled for others. The increased volumes, coupled with contained overheads, has led toan excellent result, with both sales and operating profitsconsiderably increased. The Division is headed by Steve Anson, and is now believed to be thelargest importer of coal into the UK (excluding direct imports bygenerators and steel producers). It adds value to products byprocessing, prior to despatch by road or rail. The increasing variety and volume of materials, comprising coal,anthracite, coke, petcoke, biomass, pumice, shale, ash, andaggregates all contribute to the growth achieved. The commencementof the Coal 4 Energy joint venture with UK Coal in April 2006 willadditionally enhance volumes for the future. Industrial Division The Industrial Division is principally concerned with the handling,processing and managing of carbon based products. There are sizeableoperations at a number of customer locations, particularly in thepower generation industry. This provides the customer with anessential part of the comprehensive supply chain offered by theGroup. The handling of coal stocks, integrated with biomass feed,and ash disposal makes for a complete service. During the year salesincreased, margins were maintained and overheads contained. Theresult was satisfactory progress. Group Chief Executive's statement (continued) Transport Division This Division is principally concerned with bulk haulage, and is thelargest bulk haulier in the UK. The Division is headed by Paul Young.The Division's customer base is largely major blue chip companies, forwhom dedicated haulage, often on long-term index-linked contracts,provides a substantial base load of work. The year produced a good result, despite cost pressures, particularlydiesel fuel and tyres. The market was reasonably buoyant, but remainscompetitive. A number of new contracts were won, and the 2005 introduction of theWorking Time Directive was successfully dealt with at an operationallevel. The Division has also had considerable benefit from the haulage ofmaterials for other parts of the Group. The ability to react swiftly tomarket opportunities, plus investment in modern vehicles and leadingtechnology to control vehicle movements, all contribute to theefficiencies that give customer satisfaction. The Monckton Coke & Chemical Company Limited ('Monckton') This company is the last independent coke producer in the UK, and wasacquired from UK Coal on 17 June 2005. Since acquisition a five yearcontract has been signed with a major UK customer, sales contractsnegotiated directly with Scandinavian customers and up to a ten yearcontract agreed for the supply of coal. Capital expenditure of £0.5m hasenabled the combined heat and power plant, which produces electricityfor sale to the National Grid from excess gas generated, to increaseefficiency and allow the plant to meet new environmental regulations. The result of the above has been to significantly increase both marginand profit, and the acquisition has been successfully integrated intothe Group. The recently announced purchase of a tyre crumbing plant at acost of £1.0m will bring additional revenue by processing used tyres,which now are restricted from input into landfill. Revenue is generatedby charging for the tyre disposal, and by sale of the processed crumbedproduct. The product may also be used as a coal substitute into thecoking ovens, which in addition to being converted into coke, will giverise to additional gas for electricity production. This operation willonly be fully commissioned for the financial year 2007/08. Joint Ventures Hargreaves Coal Combustion Products Ltd, which assists coal firedgenerating stations with the sale of ash as a by-product, continued togrow, and is now recognised as a UK leader in this field. Hargreaves (Bulk Liquid Transport) Ltd, which operates a substantialfleet of road tankers, had a successful year, retaining its sizeablecontracts and achieving further profitable growth. In May 2006 itacquired the business of Gilbraith Tankers Ltd a long established andwell reputed road tanker business based in the North West. This hasincreased both volume and geographic spread. Coal 4 Energy Ltd is a joint venture with UK Coal PLC, and commencedtrading in April 2006. The company is selling to the light industrialand domestic markets, coal previously supplied by each partner. Thesynergy by way of more efficient distribution, reduced overhead, andcommon marketing will allow the company to prosper. ThyssenKrupp Metallurgical Supplies Ltd enjoyed another satisfactoryyear of operation. Group Chief Executive's statement (continued) Employees The Group results, growth and future prosperity rely on the skill, dedicationand motivation of all employees. By the nature of what we do, there are tightdeadlines over wide geographic areas. The work is often hard and dirty, and onlyby the efforts of our people at all levels are our customers expectations fullymet. The Group Board joins me in thanking new and existing employees for thepart they have played in the continued growth and success of the Group. Numbersemployed have increased from 495 in 2005 to 585 in 2006 and we welcome these newcolleagues to the Group. Group Board We welcome Tim Ross, who was appointed in November 2005 as Non-ExecutiveChairman. With his experience, background and other relevant directorships headds greatly to the Group's expertise, and his sound advice is provinginvaluable. Our Non-Executive Vice-Chairman, County Councillor Robert Young, chose to standdown in November 2005 when the Group floated. As former owner his knowledge andwisdom have been of immense use. Fortunately he has agreed to remain availableon a part-time consultancy basis. We thank him for his support and contributionover many years. Current trading and outlook The markets in which the Group trades and has core competence are always subjectto fluctuation, but remain strong. Further sustained and profitable growth ofthe Group is anticipated. The Group acquired Norec Limited on the 1st September 2006, in line with theannouncements in July 2006 that discussions were taking place. Norec employs inexcess of 510 people, and specialises in the provision of labour and equipmentto major industrial users on long term contracts. This £5.5m investmentdemonstrates the commitment of the Group Board to a policy of substantial andcontinued growth within the areas of its expertise. I look forward to being able to report continued quality growth across alldivisions in the future. Gordon BanhamGroup Chief Executive 7 September 2006 Financial review The trading results for the year ended 31 May 2006 are a record for the Group.Group turnover (including share of joint ventures) reached £155.0m (2005:£87.6m) and total operating profit was £7.2m (2005:£3.5m) increases of 77% and106% respectively. During the year, the Group achieved a number of objectives, particularly theacquisition of The Monckton Coke & Chemical Company Ltd ('Monckton') for a grosspurchase consideration, including costs, of £13.9m in June 2005. Flotation onthe AIM market, which raised £20.0m net of expenses in November 2005. Finally ajoint venture commenced in April 2006 in partnership with UK Coal PLC. Inaddition substantial organic growth was achieved throughout the year. The Group operates as three trading divisions within Hargreaves Services (UK)Ltd, plus Monckton and four joint venture companies. The Minerals Division which imports, processes, handles and delivers carbonbased minerals has achieved a very significant growth in volume. The investmentsin the Port of Immingham and Port of Newport have greatly increased capacity. The Industrial Division provides equipment and labour services on site for majorindustrial customers, it has shown good growth, and outsourcing by blue chipclients has considerable future potential. The Transport Division, which includes waste haulage, is the largest bulkhaulier in the United Kingdom. It has a number of depots and operationalcentres, which allows the fleet to be cost effectively deployed over a widegeographic area. The Division increased its turnover, client base and operatingprofit during the year. Monckton was acquired in June 2005, and is the last independent coke works inthe United Kingdom. Since acquisition, a long term contract with the major UKcustomer has been secured, as has long term raw material supply, both on indexlinked fixed price basis. In addition exports to Scandinavian clients are nowmade directly. Capital expenditure of £0.5m has increased the efficiency of thecombined heat and power plant, thus generating additional electricity fromby-product gas. Operating profit of £2.1m reflected the actions taken. In August 2006 a tyre crumbing plant was purchased for £1.0m which it is plannedto relocate to Monckton in due course. Changes in legislation mean that usedtyres can no longer be put into landfill. Substantial income is generated fromboth receipts for acceptance of used tyres and sale of crumbed product. Theproduct may potentially also be used as a coal substitute in the coking ovens,and this will additionally produce more gas for electricity generation, of whichthe surplus is sold to the National Grid. The tyre crumbing facility will onlybe fully operational in the 2007/08 financial year. Existing joint ventures ThyssenKrupp Metallurgical Supplies Ltd, and HargreavesCoal Combustion Products Ltd traded well, and are the dominant UK suppliers intheir markets. Hargreaves Bulk Liquid Transport Ltd, which operates a fleet of road tankers hada record year. In addition it acquired in May 2006 the fleet and assets ofGilbraith Tankers Ltd, a long established and well reputed company based in theNorth West. This increases volume, client base and geographic coverage. A new joint venture company, Coal 4 Energy Ltd, in partnership with UK Coal PLC,commenced trading in April 2006. This amalgamates the light industrial anddomestic coal sales of both companies, making it the largest UK supplier tothese markets. Combined volume, more efficient distribution and reduced overheadwill all play a part in the successful launch of this venture. Financial review (continued) Divisional performance The Divisions enjoy a considerable amount of inter-divisional trade as part ofthe integrated solutions provided to clients. This level of inter-divisionalactivity, cross utilisation of the overhead base and other facilities limits theusefulness of analysis beyond direct costs. Below are stated divisional results: 2006 2006 2006 2006 2006 Minerals Industrial Transport Monckton Total £000 £000 £000 £000 £000 Group 75,040 8,292 41,564 22,088 146,984turnover Segment 2,130 539 2,394 2,143 7,206operatingprofit Segment 2,063 420 2,277 2,033 6,793profit beforetax Common costs (1,320) Group profit 5,473beforetaxation 2005 2005 2005 2005 2005 Minerals Industrial Transport Monckton Total £000 £000 £000 £000 £000 Group 33,924 7,236 38,091 - 79,251turnover Segment 1,795 476 857 - 3,128operatingprofit Segment 2,088 312 345 - 2,745profit beforetax Common costs (397) Group profit 2,348beforetaxation Profitability during the year was substantially increased due to volumeincreases against a largely fixed overhead base. Financial review (continued) Key financial performance indicators The group monitors a range of key performance indicators. Group wide examplesare: 2006 2005 • Turnover (including group share £155.0m £87.6m of joint ventures)• Gross margin 11.6% 12.4%• Interest cover 3.9 3.3• Profit before tax/turnover 3.7% 3.0%• Effective tax rate 33.3% 37.3%• Cash (absorbed by)/generated (£0.2m) £3.3m from operations• Gearing ratio 24% 274% Further comment on a number of the above key performance indicators can be foundin this Financial Review. In addition there are a significant number of further key performance indicatorswhich are used to measure the business on a more detailed basis, and these arelisted here for information. • Tonnage handled per week/month • Number of loads per month• Tonnage sold • Revenue and contribution per vehicle• Purchase price per tonne • Road traffic accident analysis• Sales value per tonne • Non-road traffic accident analysis• Quality of coal • Staff turnover levels• Waste handled by type and • Injury claims average weight Gross profit Overall gross profit percentage of 11.6% (2005: 12.4%) represents a smallreduction from the previous period. This is entirely due to the changed mix insales, particularly the high volume, lower margin, quantity of mineral sales. Inabsolute terms, gross profit of £17.0m (2005: £9.8m) shows an increase of 73%. Financial review (continued) Total operating profit Total operating profit of £7.2m (2005: £3.5m) represents an increase of 106% dueto increased volumes, contained overheads, and the acquisition of Monckton. Interest and profit before taxation Net interest charges of £1.8m (2005: £1.0m) reflect the restructuring offinances following flotation on the AIM market in November 2005. This included£455,000 of finance costs on shares classified as liabilities which wereincurred prior to the flotation of the company, at which point these shares wereredeemed. The flotation raised £20m net of expenses. Interest is covered 3.8times by total operating profit and 5.6 times by EBITDA (earnings beforeinterest, tax, depreciation and amortisation). The record group profit of £5.9m (2005: £2.3m) before taxation (and financecosts on shares classified as liabilities) was fully up to Directors'expectations. Group profit before taxation was £5.4m (2005: £2.3m). Cash flow EBITDA of £10.1m (2005: £5.6m) was generated from operating activities. Theflotation proceeds were substantially used to redeem debt, principally loans andpreference shares (including exit dividends), arising from the management buyoutin 2004 and on the acquisition of Monckton in 2005, and also to reduce workingcapital. Contracted finance lease payments of £2.4m (2005: £2.6m) representinvestment in fixed assets. Net worth The capital and reserves of the Group have increased to £26.3m (2005: £4.4m),principally due to the net proceeds from flotation of £20m, plus retainedearnings. Dividend The Group's stated policy is to pay an interim and final dividend, split onethird/two thirds each year. Accordingly the Board have proposed a final dividendfor this year, as the Group was only listed in November 2005, half way throughthe financial year. The final dividend proposed of 5p per share is ahead of thatprojected in the prospectus. Post balance sheet event On the 1 September, the Group acquired Norec Limited for a consideration of£5.5m from existing funds. Norec currently employs 510 people and providesequipment and labour on site to major industrial companies. This substantialacquisition for the Industrial Division emphasises the desire of the Group toexpand both organically and by strategic acquisition. Peter M DillonGroup Financial Director 7 September 2006 Consolidated profit and loss account for the year ended 31 May 2006 Note 2006 2005 £000 £000 £000 £000 Turnover: group and 155,001 87,570share of jointventuresLess: share ofturnover of jointventuresContinuing operations (8,017) (8,319) Group turnover 146,984 79,251Group turnoverContinuing operations 124,896 79,251Acquisitions 22,088 - 146,984 79,251Cost of sales (129,955) (69,414) Gross profit 17,029 9,837Administrative (10,177) (6,749)expenses Group operating profitContinuing operations 4,709 3,088Acquisitions 2,143 - 6,852 3,088Share of operating 380 460profit in jointventures Total operating profit 7,232 3,548Profit/(loss) on saleof fixed assets -continuing 60 (77) operationsInterest receivable 74 10Other finance costs (20) -Interest payable andsimilar charges -groupFinance costs onshares classified asliabilities (pre (455) - flotation costs)Other (1,382) (1,090) (1,837) (1,090)Interest payable and (36) (43)similar charges -joint ventures Profit on ordinary 5,473 2,348activities beforetaxationTax on profit on 2 (1,823) (876)ordinary activities Profit for the 3,650 1,472financial year Earnings per share 4Ordinary shares 20.32p 9.43pA Ordinary shares 29.71p 9.43p Diluted earnings per 4shareOrdinary shares 20.21p 9.43pA ordinary shares 29.71p 9.43p The group had no discontinued operations. Earning per share relate entirely tocontinuing operations. Consolidated balance sheet at 31 May 2006 Note 2006 2005 £000 £000 £000 £000Fixed assetsIntangible assets - goodwill 5,745 364Tangible assets 21,146 12,506InvestmentsInvestments in joint venturesShare of gross assets 7,328 2,585Share of gross liabilities (6,431) (1,886) 897 699Other investments 83 83 980 782 27,871 13,652Current assetsStocks 15,055 3,671Debtors 21,167 15,328Cash at bank and in hand 15,022 2,633 51,244 21,632Creditors: amounts falling due (26,904) (16,299)within one year Net current assets 24,340 5,333 Total assets less current 52,211 18,985liabilitiesCreditors: amounts falling dueafter more than oneyear (21,521) (12,931)Provisions for liabilities and (4,064) (1,654)charges Net assets excluding pension 26,626 4,400liabilities Net pension liability (328) - Net assets including pension 26,298 4,400liabilities Capital and reservesCalled up share capital 2,368 3,000Share premium account 19,082 -Other reserves 29 20Capital redemption reserve 1,530 -Profit and loss account 3,289 1,380 Shareholders' funds (2005:£1,946,000 26,298 4,400non-equity on the FRS 4 basis) Consolidated cash flow statement for the year ended 31 May 2006 Note 2006 2005 £000 £000 Cash flow statement Cash flow from operating (215) 3,321activitiesReturns on investments and (2,508) (905)servicing of financeTaxation (895) (14)Capital expenditure (2,067) (134)Acquisitions (3,376) (567) Cash (outflow)/inflow before (9,061) 1,701financing Financing 21,450 650 Increase in cash in the year 12,389 2,351 Reconciliation of net cashflow tomovement in net debt 6 Increase in cash in the year 12,389 2,351 Net cash inflow from (2,985) (623)financing Change in net debt resulting 9,404 1,728from cash flowsRelease/(accrual) of premiumon redemption of loanstock 135 (182)New finance leases (3,880) (2,269) Movement in net debt in the 5,659 (723)yearNet debt at the start of the (12,073) (11,350)year Net debt at the end of the (6,414) (12,073)year Following the adoption of the presentation requirements of FRS 25 'Financialinstruments: presentation and disclosure' the Group has, with effect from 1 June2005, reclassified certain elements of share capital from shareholders' funds toliabilities. Consolidated statement of total recognised gains and losses for the year ended 31 May 2006 2006 2005 £000 £000Profit for the financialyearGroup 3,377 1,145Share of joint ventures 273 327 3,650 1,472Effect of adoption of FRS25 on 1 June2005 (with comparativesnot restated) (166) - 3,484 1,472Actuarial loss arising on retirement (50) -benefit schemeDeferred tax arising on losses in 15 -retirement benefit scheme Total recognised gains andlosses relatingto the financial year 3,449 1,472 Reconciliations of movements in group shareholders' funds for the year ended 31 May 2006 Group 2006 2005 £000 £000 Profit for the financial 3,650 1,472yearEffect of adoption ofFRS 25 on 1 June2005 (with comparativesnot restated) (2,087) -Dividends and financecosts of non-equityshares (comparatives onFRS 4 basis) - (331)Other recognised losses (35) -Net finance costs anddividends creditedback to reserves(comparatives on FRS 4 basis) - 138Conversion of debt to 391 -equityNew share capitalsubscribed (net of issuecosts) 19,979 27 Net addition to 21,898 1,306shareholders' fundsOpening shareholders' 4,400 3,094funds Closing shareholders' 26,298 4,400funds 1 Accounting policies This announcement has been prepared on the basis of the accounting policies setout in the 31 May 2005 financial statements, except that the following newstandards have been adopted for the first time: • FRS 21 'Events after the balance sheet date'; • the presentation requirements of FRS 25 'Financial instruments: presentation and disclosure'; and • FRS 28 'Corresponding amounts'. The accounting policies under these new standards are set out below. FRS 28'Corresponding amounts' has had no material effect as it imposes the samerequirements for comparatives as hitherto required by the Companies Act 1985.The adoption of FRS 21 'Events after the balance sheet date' does not affect thecomparative numbers. As a result of its adoption the 2006 proposed dividend isnot included in creditors as it was not declared and approved before the yearend. The corresponding amounts in these financial statements are, other than thosecovered by the exception permitted by FRS 25, restated in accordance with thenew policies. FRS 25 permits the corresponding amounts not to be restated andthe Group has adopted this approach. The financial instruments policy set outbelow provides further details of the current year and comparative year basesand of the change booked on 1 June 2005. Classification of financial instruments issued by the Group Following the adoption of FRS 25, financial instruments issued by the Group aretreated as equity (i.e. forming part of shareholders' funds) only to the extentthat they meet the following two conditions: a) they include no contractual obligations upon the Company (or Group asthe case may be) to deliver cash or other financial assets or to exchangefinancial assets or financial liabilities with another party under conditionsthat are potentially unfavourable to the Company (or Group); and b) where the instrument will or may be settled in the Company's own equityinstruments, it is either a non-derivative that includes no obligation todeliver a variable number of the Company's own equity instruments or is aderivative that will be settled by the Company's exchanging a fixed amount ofcash or other financial assets for a fixed number of its own equity instruments. To the extent that this definition is not met, the proceeds of issue areclassified as a financial liability. Where the instrument so classified takesthe legal form of the Company's own shares, the amounts presented in thesefinancial statements for called up share capital and share premium accountexclude amounts in relation to those shares. Where a financial instrument that contains both equity and financial liabilitycomponents exists these components are separated and accounted for individuallyunder the above policy. The finance cost on the financial liability component iscorrespondingly higher over the life of the instrument. Finance payments associated with financial liabilities are dealt with as part ofinterest payable and similar charges. Finance payments associated with financialinstruments that are classified as part of shareholders' funds, are dealt withas appropriations in the reconciliation of movements in shareholders' funds. Both the Group and the company have taken advantage of the transitionalarrangements of FRS 25 not to restate corresponding amounts in accordance withFRS 25. The adjustments necessary to implement this policy have been made as at1 June 2005 with the net adjustment to net assets, after tax, taken through thecurrent period reconciliation of movements in shareholders' funds. Correspondingamounts for year 2005 are presented and disclosed in accordance with therequirements of FRS 4 (as applicable in 2005). The main differences between thecomparative year and current year bases of accounting are shown below: Effect on the group balance sheet at 1 June 2005 At 31 May At 1 June 2005 Reclassification 2005 £000 £000 £000 Shares classified asliabilities- falling due after morethan one year - 2,087 2,087 Share capital 3,000 (1,921) 1,079Profit and loss account 1,380 (166) 1,214 The nature of the main effects upon the balance sheets at 1 June 2005 and uponthe current year consolidated profit and loss account, statement of totalrecognised gains and losses and cash flow statement are as follows: • The ordinary shares, A ordinary shares, A preference shares and Bpreference shares in existence at 1 June 2005 are treated as part ofshareholders' fund in comparative periods. The A preference shares and Bpreference shares and elements of the ordinary and the A ordinary shares aretreated as liabilities at the start of the current period, increasing net debtand reducing reported share capital and net assets at the start of the currentperiod. As a consequence, the reconciliation of net cash flow to the movement innet debt in the current year is also affected. At 31 May 2006 the only class ofshare in existence is equity ordinary shares; • Finance payments in respect of these shares do not affect the profitfor the financial year in the comparative year but are charged in the profit andloss account as interest in the current year. Any cumulative unpaid financepayments in respect of these shares are now classified as liabilities andtherefore reduce net assets. In respect of elements of FRS 4 non-equity shares,the cash flow statement is unaffected as the finance payments are dealt with asservicing of finance in both years in accordance with FRS 1. In respect ofelements of FRS 4 equity shares that are classified as liabilities, the financepayments, which would now be included in servicing of finance, would have beenincluded in dividends paid. The comparative year disclosures follow FRS 4 as applicable. This includes theanalysis of comparative periods' shareholders' funds into equity and non-equitycomponents. FRS 4 used 'equity' as a sub-set of shareholders' funds, whereas FRS25 applies the term 'equity' to issued financial instruments other than those,or those components classified as liabilities. The effect on the current period of the new policy is to present £455,000 asinterest charges in 2006 which would hitherto have been included as £455,000 individends and thereto to reduce profit on ordinary activities before taxation bythis amount in the year ended 31 May 2006. The main effects on the primary statements in the comparative year, had FRS 25been adopted, would have been similar to those stated above. In particular, the2005 non-equity dividends and related finance charges of £331,000 (note 3) whichwere charged to equity in 2005, would have been treated as interest payable andsimilar charges in 2005 had FRS 25 been adopted. 2 Taxation Analysis of charge in period 2006 2005 £000 £000 £000 £000UK corporation taxCurrent tax on income 1,580 618for the periodShare of joint 49 80ventures' current taxAdjustment in respect (145) 100of prior years Total current tax 1,484 798 Deferred taxOrigination of timing 317 68differencesShare of joint 22 10ventures' deferred tax Total deferred tax 339 78 Tax on profit on 1,823 876ordinary activities Factors affecting the tax charge for the current period The current tax charge for the period is lower (2005: higher) than the standardrate of corporation tax in the UK of 30% (2005: 30%). The differences areexplained below. 2006 2005 £000 £000Current tax reconciliationProfit on ordinary activities before tax 5,473 2,348 Current tax at 30% (2005: 30%) 1,642 704 Effects of:Finance charges on shares classified as 115 -liabilities (current year only)Expenses not deductible for tax purposes 243 128Capital allowances for period in excess of (315) (57)depreciation - group- share of joint ventures (52) (30)Small companies tax rates (49) (7)Tax losses utilised - (40)Tax losses carried forward in joint venture 31 -Chargeable gain 14 -Adjustment in respect of prior years (145) 100 Total current tax charge (see above) 1,484 798 Factors affecting the tax charge for future periods The group has unrelieved UK corporation tax losses of approximately £nil (2005:£370,000) available to carry forward against profits from the same trade. 3 Dividends and finance costs As more fully explained in note 1 the classification of payments/deductions asdividends are determined on a different bases in the current and comparativeyears. 2006 2005 £000 £000Dividends on ordinary sharesProposed dividend of 5p per share (2005: 1,184 -£nil) The above amount has not been included within creditors as it was not approvedbefore the year end. 2006 2005 £000 £000Dividends and finance charges on otherclasses of sharesPremium payable on redemption of A 76 153preference sharesDividends on A preference shares 76 153Dividends on B preference shares 12 25Dividends on A convertible preferred 291 -ordinary shares 455 331 Charged to interest payable and similar 455 -chargesCharged to shareholders' funds (2005: on - 331FRS 4 basis) 455 331 4 Earnings per share All earnings per share disclosures relate to continuing operations as the grouphad no discontinued operations in either 2005 or 2006. Up until 30 November 2005 two classes of ordinary share were in existence, £1ordinary shares and £1 A ordinary shares. With effect from 30 November 2005 theA ordinary shares converted into ordinary shares. Also on this date the ordinaryshares (including those arising on the conversion of the A ordinary shares) wereeach subdivided into 10 ordinary shares of 10p each. Earnings per share for each class of ordinary share are as follows: 2006 2005 Ordinary sharesBasic earnings per share 20.32p 9.43pDiluted earnings per share 20.21p 9.43p A ordinary sharesBasic earnings per share 29.71p 9.43pDiluted earnings per share 29.71p 9.43p The calculation of earnings per share is based on the profit for the year (afterdeduction of non-equity dividends in the comparative year on an FRS 4 basis) andon the weighted average number of shares in issue and ranking for dividend inthe year. Ordinary shares 2006 2005 £000 £000 Profit for the year 3,650 1,472Deduction of non-equity dividends (2005: - (331)FRS 4 basis) Profit after deduction of non-equity 3,650 1,141dividends Weighted average number of shares 17,962,000 12,105,000Earnings per ordinary share (pence) 20.32p 9.43p On 30 November 2005 the company's ordinary shares of £1 each were subdividedinto ten ordinary shares of 10p each. The weighted average number of shares inboth 2005 and 2006 has been adjusted as if the subdivision had occurred at thebeginning of 2005. Diluted earnings per share is based on the profit for the year of £3,650,000above and on 18,073,000 ordinary shares, being the weighted average number ofordinary shares in issue in the year adjusted to the dilutive effect of theshare options outstanding. A ordinary shares Immediately prior to flotation on 30 November 2005 an exit dividend of £291,000was payable on this class of share in accordance with the Articles ofAssociation. From this date the A ordinary shares converted into ordinaryshares. The dividend rights of the Ordinary and A ordinary shares were identicalin all other respects. The calculation of the additional earnings per A ordinaryshare arising on this dividend in 2006 is as follows: 2006 Exit dividend £291,000Weighted average number of A ordinary 2,191,000shares in issueAdditional earnings per A ordinary share 13.28p The earnings per A ordinary shares for the 2006 year comprises the earnings pershare to 30 November 2005 (the date on which they were converted) of 16.43p(based on a half year profit of £2,018,000 and a weighted number of shares of12,280,000), plus the additional earnings per A ordinary share of 13.28p above.There is no dilutive effect on the A ordinary shares. In 2005 the earnings per share on the A ordinary shares was identical to that ofthe ordinary shares at 9.43p 5 Reconciliation of group operating profit to operating cashflows 2006 2005 £000 £000 Group operating profit 6,852 3,088Depreciation and amortisation 3,239 2,130Increase in stocks (7,916) (2,078)Increase in debtors (1,364) (3,261)(Decrease)/increase in creditors (1,026) 3,442 Net cash (outflow)/inflow from (215) 3,321operating activities 6 Analysis of net debt At beginning Non-cash At end of of year Cash flow changes year £000 £000 £000 £000 Cash in hand, 2,633 12,389 - 15,022at bankFinance leases (4,083) 2,381 (3,880) (5,582)Invoice (8,290) (2,544) - (10,834)discountingadvancesBank and other loans (12) 13 (15) (14)due within one yearBank and other loansdue after more thanone year (2,321) (2,835) 150 (5,006) Total (12,073) 9,404 (3,745) (6,414) Non-cash changes arise from the inception of finance leases and release of theaccrued premium on redemption of loan stock. 7 Acquisitions The company acquired the entire issued share capital of The Monckton Coke &Chemical Company Limited on 17 June 2005. The resulting goodwill of £5,695,000was capitalised and will be amortised over 20 years, the period over which thedirectors anticipate the group to derive continuing economic benefit. Book and fair value £000Fixed assetsTangible 5,558 Current assetsStock 3,468Debtors 4,314 Total assets 13,340 LiabilitiesExternal creditors (3,086)Intercompany creditors (6,803)Provisions (2,000) Total liabilities (11,889) Net assets 1,451 Goodwill 5,695 Net purchase consideration and costs of 7,146acquisition Analysed as: Gross consideration before adjustment for 13,949intercompany loanIntercompany loan (6,803) Net consideration 7,146 Satisfied by: Cash 8,835Deferred consideration outstanding at 31 4,614May 2006Deferred consideration paid by 31 May 2006 500Repayment of intercompany loan (6,803) 7,146 8 Status of accounts The financial information set out above does not constitute the Group'sstatutory accounts for the years ended 31 May 2006 or 31 May 2005 but is derivedfrom those accounts. Statutory accounts for the year ended 31 July 2005 havebeen delivered to the Registrar of Companies, and those for the year ended 31July 2006 will be delivered following the company's Annual General Meeting. Theauditors have reported on those accounts; their reports were unqualified and didnot contain statements under Section 237(2) or (3) of the Companies Act 1985. These results were approved by the Board of Directors on 7 September 2006. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Hargreaves Serv