20th Mar 2007 07:00
Augean Plc20 March 2007 20 March 2007 Augean Plc Preliminary results for the year ended 31 December 2006 Augean PLC ("Augean" or "the group"), one of the UK's market leaders in themanagement of hazardous waste, announces its preliminary results for the yearended 31 December 2006. Financial highlights • 2% increase in turnover to £26.6m (2005: £26.1m) • 14% increase in turnover excluding landfill tax to £21.4m (2005: £18.9m) • 24% increase in operating profit before goodwill amortisation and exceptional items to £4.6m (2005: £3.7m) • 4% increase in profit before tax, goodwill amortisation and exceptional items to £3.6m (2005: £3.4m) • 35% increase in adjusted earnings per share to 5.6p (2005: 4.1p) • 37% increase in operating cash flow before provisions to £10.3m (2005: £7.6m) Operational highlights • Appointment of Peter Worlledge as chief executive with significant sales and marketing skills • Strategic review complete - sector provides significant opportunity for organic and acquisitive growth • Hazardous void increased by 3.7m m(3) to 7.0m m(3) by re-designation of non-hazardous void as part of asset development strategy • Acquisition and integration of Credential hazardous waste treatment business • IMS accreditation achieved in the landfill division • Terramundo land remediation centre at Port Clarence under construction • Current trading in line with management's expectations Commenting on the results, Chairman David Williams said: "Our objective of developing Augean as the leading company in the hazardouswaste sector continues. We have now resolved the internal issues, the market forour services is more defined and our strong cash flows allow us the opportunityto pursue more acquisitions. We look forward to a good 2007 for your company." For further information, please contact: Augean PLC David Williams, Chairman, Tel: 020 7248 0802Peter Worlledge, Chief Executive, Tel: 01937 844 980Peter Southby, Finance Director Financial DynamicsJonathon Brill, Tel: 020 7831 3113Billy Clegg There will be a meeting for analysts at 0930 today at the offices of MarwynCapital, 10th Floor, Bucklersbury House, 3 Queen Victoria Street, London EC4N8EL. Chairman's statement Turnover for the year ended 31 December 2006 increased from £26.1m to £26.6m.Excluding landfill tax, this represents a 14% increase year on year. Operatingprofit before the amortisation of goodwill increased by 7% from £3.7m to £4.0mand, if exceptional items are excluded, by 24% to £4.6m. Earnings per share,adjusted for the amortisation of goodwill and exceptional items, rose by 35%from 4.1 pence per share to 5.6 pence per share. Landfill tax is charged on the basis of tonnage deposited in our landfill sitesand increased in April 2006 from £18 per tonne to £21 per tonne; it will beincreased again to £24 per tonne in April of this year. A small portion of thelandfill tax we collect is retained for use on supporting local projects withinthe vicinity of our landfill sites. Much good work has been done in these areas. The business review which follows my report gives you a good idea of what hasbeen happening during the last year, both to our company and to the hazardouswaste sector in general. When we created this business barely two years ago it was in the expectationthat we could develop a company within the hazardous waste sector which could,over time, become the leader in its sector. This new sub-sector within the wasteindustry has been created as a result of changes in legislation byre-categorising certain types of waste such that they can only be disposed of inlicensed hazardous landfill sites. Like any new, developing business we havefaced a number of challenges, not all of which had favourable outcomes. We havemet those challenges head on and refined or adjusted our operations to best suitthe way we can offer our customers a more effective service. As an example wehad not initially anticipated the need for so much pre-treatment of waste as newlegislation was quickly introduced causing a demand for this. We moved swiftlyto secure the acquisition of businesses in this area allowing us to offer thisservice to customers which had hitherto not been required. Our ability to movefast when new legislation is introduced is one of our strengths. Similarly as the market place in our sector continued to change it was necessaryto make changes to our board and key personnel. We now enter 2007 with a teamwith strong sales and marketing skills. In short we believe that the market isnow settling down after its initial rush of new legislation and this has givenus time to understand it better and to make the adjustments which we believe arenecessary for the future. The strong position we hold in the hazardous waste market coupled with ourfinancial strength and future potential have not gone unrecognised during theyear under review. One51 Limited, a company based in Dublin, acquired asignificant equity stake in late 2006. This company has a waste division amongstits businesses and we welcome it as a shareholder. Changes to our board havebeen dealt with in the business review but I would like to add my thanks tothose departed and my wishes for much success to those joining us. A specialthank you particularly to Clive Gilham, who did so much good work on an interimbasis before handing over the financial reins to Peter Southby. Our objective of developing Augean as the leading company in the hazardous wastesector continues. We have now resolved the internal issues, the market for ourservices is more defined and our strong cash flow allows us the opportunity topursue more acquisitions. We look forward to a good 2007 for your company. Business review Introduction 2006 proved to be a difficult year for Augean. Some of the challenges the groupfaced were market-driven but others should have been foreseen. Hindsight revealsshortcomings in the forecasting process which led to the trading statementissued in October 2006. In common with other parties in the sector, the grouphad failed to anticipate the impact of the further tightening of the regulatoryregime in July 2006 which resulted in a significant downturn in volumes ofchemical waste into landfill for the remainder of the year. Poor forward marketvisibility also handicapped the group's ability to anticipate reduced volumes ofconstruction-related wastes in the second half. This led to a disappointingresult for the full year which the board believes does not reflect theunderlying capability of the business. In October 2006 John Huntington stepped down and Roger McDowell moved fromnon-executive director to interim chief executive with a brief to undertake areview of the group's assets, improve the core business processes and lead thesearch for a new chief executive. The new executive team also includes PeterSouthby who took up his appointment as finance director on the same day and PaulBlackler who subsequently joined the board as commercial director. Together thedirectors have made significant progress towards realising these goals.Specifically, the team has completed the asset review, concluded a rigorousbudgeting round, improved processes around forecasting and successfullyrecruited Peter Worlledge whom the board welcomes as chief executive, furtherstrengthening management capability to deliver future growth. Peter hasimpressive experience in sales and marketing and will be focussing on drivingvolumes through our treatment and landfill businesses. Notwithstanding the difficulties, Augean has made some real progress during theyear, with a strong cash generation performance, further development of thetreatment division through the acquisition of the Credential hazardous business,commencement of construction of the Terramundo facility and confirmation ofsignificant increase in the hazardous void space at the Port Clarence site.These and other highlights are covered in more depth in this report. Importantly 2006 also saw the last stage of implementation of the HazardousWaste Regulations. This will greatly improve the predictability of the marketand further reinforces enthusiasm for the sector. The hazardous waste market Hazardous waste is a key issue for a number of different stakeholders includingproducers, contractors, regulators and indeed the wider community. High levelsof regulation and enforcement are necessary to ensure that hazardous waste ismanaged safely and responsibly in an environment where export from the UnitedKingdom is not a practical possibility. Society is clearly prioritisingsustainability in the management of waste and the government is focused ondecoupling waste creation from economic growth. The government's Waste Strategy(2000) established a vision of sustainable waste management for the countrylooking forward to 2020. This strategy promotes the concept of a wastehierarchy with waste prevention as the first priority, followed by re-use,recycling, energy recovery and finally disposal. The last two years have seen a significant step change in the management anddisposal of hazardous waste as a result of changes to the law. The EnvironmentAgency's priority has been to ensure the safe management of hazardous wasteduring this period of change. During 2006 two significant changes affected the market. The first was thetightening of the limit values for waste acceptance criteria ("WAC") and thesecond was the development of treatment of hazardous waste. In July 2006 the Environment Agency enforced a further tightening of the limitvalues set within the regulations for waste acceptance into landfill. The impacton the market was significant and materially reduced chemicals volumes intoAugean's landfill division. The diversion of wastes from direct landfill totreatment put pressure on the low technology infrastructure as the treatmentsector is still coming to terms with the permitting regime under the PollutionPrevention Control ("PPC") Regulations. The market is now stabilising and theregulator is seeking to provide specified timescales for operators to invest inthe appropriate technologies to develop capacity and infrastructure to ensurethat the gap between hazardous landfill and high temperature incineration isfilled. This provides more certainty about investment opportunities both in aclearer understanding of the wastes which are problematic and the size of themarket. The waste market has traditionally been characterised by high volumesbut low technology. When the Landfill Directive and Hazardous Waste Directiveswere adopted the regulator made clear the need for step change in the wastesector. Two years later, with all the Directive objectives now transposed intoUK law, the industry is now being driven to achieve the standards. Augean is well placed to take advantage of these opportunities within thetreatment sector as a continued tightening of regulation will favour responsibleoperators with the ability and vision to invest in new technologies. The Hazardous Waste Regulations 2005 have changed the way waste movements aretracked. For the first time in the sector a much more robust reporting protocolhas started to provide clearer statistics on types, quantities and disposal andrecycling activities. The data has demonstrated that the overall UK hazardouswaste market is in excess of four million tonnes per annum. The market for hazardous landfill is more clearly defined and data from theEnvironment Agency demonstrates that the underlying market is approximately onemillion tonnes per annum. However this does not take into account theenforcement position the regulator is seeking to take on mismanagement nor doesit reflect the stabilising market which is becoming better educated aboutcompliance and commercial implications. Strategy In October 2006 the directors announced a strategic review to encompass a reviewof the group's assets and to set a clear direction for the group's future. Thatreview is now complete and has confirmed the directors' belief that the sectorprovides significant opportunity for growth, both organically and byacquisition. Within the landfill division, the group owns significant assets in the form ofvoid space at its three operational sites. A full review of the void space byan external consultancy has confirmed that the currently owned and permittedvoid space amounts to 8.3 million cubic metres. Moreover, following asuccessful application to re-designate some of the void at Port Clarence ashazardous, over 85% of the group's void is now permitted to take hazardous wastewhich commands a significant price premium over non-hazardous waste in themarket. Furthermore, the group currently owns a number of pieces of landadjacent to existing operations which could potentially provide significantadditional void in the future. The group continues to take the necessary stepsto protect and develop its interests in this area, while maximising the value ofthe existing void through constant pricing and operational review. Asset development continues to be at the centre of the group's strategy. In thecontext of a tightening regulatory environment, investment in facility upgradesand service enhancement is imperative. While the upgrading of treatment sitesis a pre-requisite of the PPC regime, the group believes that there is astrategic benefit to the search for new technologies and their commercialapplication to the sector. Augean continues to seek out these opportunities. While the rapid pace of change in the market provides scope for significantorganic growth, the board continues to believe that acquisitions will play animportant part in the group's further development. The group's acquisitionstrategy is complementary to its drive for organic growth, as acquisitions maybring strategic advantage either by way of location, integration of services ornew technologies. The treatment sector in particular is highly fragmented andundergoing considerable change at the current time and the group continues topursue opportunities actively in this area. However, any acquisitions mustdemonstrably add value to the group and as it became clear during the course of2006 that a number of potential targets would not meet the group's strategicrequirements, the directors made the decision not to proceed with thoseprojects. This resulted in exceptional costs being incurred of £0.2m. However,the board continues to believe that the right acquisitions at an appropriateprice will deliver shareholder value. Principal risks and their mitigation The performance of the business is linked to economic activity in the markets itserves, principally the industrial and construction sectors. Fluctuations inthe economy in these sectors therefore affect group performance. This risk ismitigated by diversifying the customer base as far as possible. In addition tothis general economic risk there are a number of risks specific to the wasteindustry: Environmental legislation Regulation is a key driver of the waste market. This is further complicated bythe rapid rate of change in legislation resulting from the increased profile ofenvironmental issues. Changes in the legislation or its interpretation can havea significant and far reaching impact on markets. The group endeavours tomitigate this risk by employing high quality technical management to interpretthe evolving legislative framework and its impact on the group's operations. Inaddition, the group maintains a presence on a number of industry groups to haveinfluence in the shaping of evolving policy. Environmental compliance All operating sites and activities are regulated by environmental authorities inline with the requirements set out within licences and permits. These licencesand permits are required to carry on the business. Therefore the negotiation of,and compliance with, their terms is of paramount importance as withdrawal ortemporary suspension could have a significant impact on the group's ability tooperate. Adherence to the highest environmental standards is also important toensure the maintenance of good relations with local communities and to satisfycustomers. The group mitigates this risk through the employment of technicalexpertise throughout the group and through the provision of training to developthe group's staff to understand their role in ensuring compliance is maintained. Further details of how the group monitors and controls environmentalcompliance are given in the group's corporate social responsibility ("CSR")report. Health and safety By its nature, the waste industry has inherent risks in the area of health andsafety. As employees are the group's most important and valuable assets, theirhealth and safety is vital. The group continues to invest and resource thebusiness to ensure that the highest health and safety standards are imposed andmaintained. Further details of the group's approach to health and safety can befound in the CSR report. Price risk The waste sector has experienced significant changes in the commercial frameworkfor the management of hazardous waste. The group continues to review itspricing policies to ensure that it influences and stabilises the market. Thegroup believes that the sector has aligned to the change in the commercialstructure and envisages a more stable and stronger price driven sector goingforward. Divisional review Treatment The acquisition of the Credential business in May 2006 brought two new transfersites to the treatment division at Hinckley and Worcester. Following thisacquisition, the group has appointed a divisional managing director to driveforward the development of the integrated treatment business. The performanceof the division has been pleasing with the new centres complementing theexisting treatment and transfer station at Cannock. Turnover for the enlargeddivision was £8.1m and operating profit was £1.4m, representing an operatingmargin of 17%. The division now provides a broader range of services to thesector. All the sites are being incorporated into the PPC regulations and as a result anoperational review is underway to deliver further enhanced management standards. As the hazardous waste and landfill regulations are fully adopted the markethas seen a shift in requirements for more sophisticated process technology todeliver infrastructure that is fit for purpose and sustainable. This isproviding great opportunities within the division for asset upgrades to meet themarket and the business is developing a range of new technologies to fulfil theopportunities. For example, at Cannock new plant has been installed to developan enhanced treatment process. Testing and the building of technical data onthe process technology and the market have continued during the latter half of2006. The site is to be extended in early 2007 to provide further capacitywhilst the full upgrade, which is subject to a revised planning consent, isnearing completion. Further enhancement of services is planned at the Hinckleysite where adjoining land is to be developed in 2007 to enable the installationof value added technologies. At Worcester, the development programme isreviewing further treatment and recycling technologies to complement theexisting services. Landfill Excluding landfill tax, turnover for the landfill division decreased by 13% to£15.1m following the closure of the non-hazardous Mark's Quarry site. However,the group's focus on higher value hazardous waste resulted in an improvement inmargin to 21%, with the division generating £3.2m of operating profit.Hazardous volumes increased by 34% to 241,000 tonnes, but the reduced chemicalsvolumes in the second half of the year resulted in a less favourable sales mix,with average hazardous prices falling to £53 per tonne. Operationally, the landfill division has delivered benchmark standards in 2006which have been reflected in the attainment of Integrated Management System ("IMS") accreditation. The achievement of the division in gaining accreditationto the standards ISO 14001, OHSAS 18001 and ISO 9001 has signalled the group'scommitment to recognised business standards that demonstrate excellence in allfacets of business operation. These standards are being rolled out across thewhole group in 2007. The market for hazardous waste landfill has seen further changes as theregulator implemented the full WAC. The consequence was a change in the dynamicsof the landfill market with a progressive growth in the volumes of residues fromthe treatment of hazardous waste to hazardous landfill. The market is not yetfully stable as the regulator reviews its enforcement policy. However it isclear that in the UK, as elsewhere in Europe, there will continue to be arequirement for hazardous waste landfill to underpin the rapidly developingtreatment sector. At Port Clarence the development of the hazardous void capacity has beenconcluded with a permit variation achieved to convert a significant change inthe void use. The variation results in an uplift in hazardous void ofapproximately 3.7m cubic metres. The site continues to be a strong asset forthe group and further build programmes to install additional technologies tomeet the emerging markets are a strategic priority. At King's Cliffe enhancement of the site has continued. A number of land bankopportunities are currently being prepared for consent applications. The siteis also being considered for the possible future expansion of the Terramundobusiness to provide further strategic capacity. King's Cliffe also housesAugean's laboratory services division. Established in April 2006, thelaboratory provides clients with a more focused and rapid testing servicespecifically for the onerous requirements of WAC. The merchant laboratorieswere delivering poor turnaround times with results taking up to four weeks to beissued with consequential delays to waste movements. The Augean facilityachieves a turnaround time of seven days, significantly improving the wasteproducer's ability to assess the best options for the waste streams. Furtherupgrades are planned in 2007 to broaden the testing capacity so that alloutsourcing of compliance monitoring can be handled in-house and to provide anenhanced service to clients. The Thornhaugh site continues to be quarried under a sub-contract producingmodest royalties for limestone. This process underpins the future developmentof valuable void which will be adopted under the new permit for stablenon-reactive hazardous waste ("SNRHW"). As with King's Cliffe, a number ofopportunities for extension of the site will be a key focus for 2007 planningstrategy. In particular Cook's Hole, the site adjacent to Thornhaugh, is underreview to upgrade the existing consents for extraction. During the year, thegroup addressed an issue of overtipping inherited from the previous owners ofthe site. The group's pre-emptive approach to rectifying the problemunfortunately resulted in a prosecution by the Environment Agency. Theresulting fines and costs totalled £0.2m and have been recognised in full duringthe year. The remediation work in respect of the overtipping has now been fullyconcluded to the satisfaction of the Environment Agency. The non-hazardous site at Mark's Quarry was completed and closed during theyear. The plan for restoration of the site is now underway and progressingwell. In the future, the site will continue to generate a modest level ofroyalties from a gas management plant. Terramundo The Terramundo facility is an excellent example of strategic asset development.Terramundo is a joint venture between Augean and DEC NV (part of the DEME Group)to treat contaminated soils. Situated at Port Clarence, the soil treatmentplant provided by DEC will provide complementary services to the landfilldivision and targets waste streams failing WAC along with providing clients withan enhanced sustainability offering. The residues from the process will beavailable for the Port Clarence landfill. The facility is due to be opened in April 2007. Great interest has been shownfrom the entire sector, particularly with the facility having access to seatransportation through a wharf on the River Tees. Further technologies arebeing reviewed to enhance the facility in 2007/8. Financial review Trading Group turnover for the year ended 31 December 2006 increased by 2% to £26.6m(2005: £26.1m). This includes a contribution from the acquisition of theCredential hazardous business made in May 2006 of £3.2m and also includeslandfill tax charged to customers, on which the group makes no margin, of £5.1m(2005: £7.2m). Excluding landfill tax, turnover increased by 14% in the year. Operating margin In assessing operating margin, management excludes amortisation of goodwill asthis assists in understanding the underlying business performance. Operatingprofit before the amortisation of goodwill increased by 7% to £4.0m (2005:£3.7m). Operating profit in the year was adversely affected by exceptionalitems relating to the departure of the previous chief executive, the impositionof a fine following action by the Environment Agency and costs incurred inrespect of aborted acquisitions (each £0.2m). Excluding exceptional items,underlying operating profit increased by 24% to £4.6m. Finance costs In May 2006 the group extended its borrowing facilities in connection with theacquisition of the Credential hazardous business. As a result, net financecosts increased to £1.0m (2005: £0.3m), including £0.1m (2005: £0.1m) ofunwinding of discount on provisions. Cash finance costs were covered 4.9 times(2005: 19.7 times) by underlying operating profit. Tax The group has benefited in the year from the utilisation of tax losses in itslandfill businesses. This has resulted in a tax credit of £0.1m (2005: chargeof £1.4m). While there continues to be uncertainty over the extent and timingof the tax losses, the group believes that it will continue to benefit from areduced tax rate in the short term. Dividend The board does not recommend the payment of a dividend for the year ended 31December 2006. It continues to review the group's financial situation in orderto ensure that dividends are paid to shareholders at the earliest opportunityprovided this is at an appropriate point in the group's development. Earnings per share Basic earnings per share adjusted to exclude the impact of amortisation ofgoodwill and exceptional items increased by 35% to 5.6p (2005: 4.1p). Theweighted average number of shares in issue increased to 65.5m (2005: 49.1m) asshares issued following the placing completed in the prior period were only inexistence for part of that period. There was no increase in issued sharecapital during 2006. Cash flow The group continued to be highly cash-generative during the year. Net cashinflow from operating activities was £6.3m (2005: £7.3m) but this was afterspending £4.0m (as previously provided) on capping cells and remediation oflandfill sites acquired in the prior period. Excluding this expenditure,operating cash flow at £10.3m represented a conversion rate of 260% of operatingprofit before amortisation of goodwill (2005: 198%). After deducting capitalexpenditure, interest and tax, free cash flow was £3.8m (2005: £2.4m).Following the acquisition of the Credential hazardous business for £11.0m, netdebt has increased to £10.9m (2005: £3.6m). Capital expenditure Capital expenditure fell to £1.3m in the year (2005: £4.5m). The major ongoingareas of capital expenditure for the group are in landfill cell construction andin cell capping at the end of the cell's life. The timing of these costs is afunction of the size of the cells and the rate of fill. During 2006 noadditional cells were built but in 2007 an increase to a more normal level ofcapital expenditure is anticipated. Treasury operations Details of the group's treasury risk management policies are set out in theannual report. The group does not speculate in financial instruments. Accounting policies During the year the group adopted FRS 20 on share-based payments. From 2006 theapplication of FRS 20 results in an additional charge to the profit and lossaccount in respect of share options issued as incentives to employees. Thisamounted to £0.1m in the year. Further details are provided in the annualreport. International Financial Reporting Standards ("IFRS") As an AIM-listed company, the group will be required to adopt IFRS in itsfinancial statements for the year ending 31 December 2007. The group continuesto prepare for this conversion and anticipates the major effects of adoptingIFRS to be in following areas: • the cessation of the routine amortisation of goodwill, which will become subject to a detailed annual test for impairment; • a detailed review of the intangible assets acquired as part of future acquisitions, and where such assets are identified, their amortisation over expected useful lives; and • the requirement to provide additional segmental information. The environment, employees and the community The group recognises the important role it plays in the environment andcommunities within which it operates. This commitment is reflected in thedetailed CSR report published alongside the annual report. The environment All operating sites and activities are strictly regulated by environmentalauthorities through the PPC regulations. Their aim, based on the IntegratedPollution Prevention and Control ("IPPC") directive, is to provide an integratedapproach to pollution control to prevent emissions into air, water or land. Thewaste sector is being developed from a low technology base to compliance withBest Available Technique ("BAT"). BAT focuses on a number of key areasincluding emissions to air, land and water, energy efficiency, waste reduction,raw materials consumption, noise, vibration and heat, accident prevention andthe condition of the site. The business continues to deliver the objectives of BAT through its operationsand is working closely with the regulators to ensure that Augean is a leader incompliance in the sector. Employees Augean continues to invest in its employees and listens to their concerns. Theboard recognises that motivated people deliver the business objectives and takesthis opportunity to thank all the group's staff for their dedication during whathas been a difficult year. The business has recently concluded an employeesurvey to consult with employees and to provide a focus on areas forimprovement. A number of actions to develop the working environment are plannedfor 2007. In employment practices the business recognises the importance ofequal opportunities and good communication standards. The community Through the Landfill Tax Credit Scheme Augean contributes to many localinitiatives and will continue to support the communities in the areas in whichthe group operates. Objectivity in decision-making and full accountability ofthe distribution of funds is maintained. One significant highlight in the yearwas a contribution of £291,000 to the Saltholme International Nature Reserve inthe Tees Valley. The reserve has transformed a former industrial area into awild flower meadow. Areas of wet derelict grassland have become a new wetlandhome for hundreds of birds with planted reed beds attracting new and excitingwildlife. During 2006 good progress has been made with architects preparing theworking drawings for a new iconic visitor centre and associated facilities.Details of the other varied community projects with which Augean has beeninvolved can be found in the CSR report. Augean also ensures that it keeps the communities in which the group operatesinformed about the group's operations and plans through regular liaisoncommittees and newsletters. Outlook The changes in how the UK manages its waste have brought significantopportunities to develop sustainable solutions to the emerging hazardous wastesector. Consolidation, higher barriers to entry and the requirements to providecompliant and technically driven services have placed Augean in a favourableposition to realise those opportunities. The landfill market is stabilising andwith the introduction of complementary services such as the Terramundo facilityand shipping logistics the outlook is more encouraging in 2007. The treatmentdivision offers exciting growth opportunities as the market moves from a lowtechnology base to one of sustainable process technology. During the last few months Augean has rigorously reviewed its business. This hasincluded a more searching approach to budgeting which, when coupled with animproved understanding of the market informed by new statistical data, gives agreater degree of confidence in expectations for the current year. Augeanbelieves that the quality of its assets, the enthusiasm and commitment of thenew management team, with its focus on sales and marketing and the higher levelof certainty in the marketplace will produce a result more in line with thegroup's capability and a significant improvement on 2006. Current trading is inline with management's expectations as the group will continue to strive towardsthis objective and looks forward to delivering a greater degree of success forall stakeholders in the year ahead. Consolidated profit and loss accountfor the year ended 31 December 2006 Before exceptional Exceptional items items Total 2006 2006 2006 2005 Note £'000 £'000 £'000 £'000Turnover 2- Continuing operations 23,364 - 23,364 26,113- Acquisitions 3,197 - 3,197 - 26,561 - 26,561 26,113Cost of sales (16,942) - (16,942) (18,025)Gross profit 9,619 - 9,619 8,088Administrative expenses excluding (5,042) (623) (5,665) (4,400)amortisation of goodwillAmortisation of goodwill (10,405) - (10,405) (10,080)Total administrative expenses (15,447) (623) (16,070) (14,480)Operating profit before amortisation of 2 4,577 (623) 3,954 3,688goodwillOperating profit/(loss)- Continuing operations (6,188) (623) (6,811) (6,392)- Acquisitions 360 - 360 - (5,828) (623) (6,451) (6,392)Finance charges (1,020) - (1,020) (278)Loss before tax (6,848) (623) (7,471) (6,670)Profit/(loss) before tax and amortisation 3,557 (623) 2,934 3,410of goodwill Tax 3 89 - 89 (1,380)Retained loss for the financial period 5 (6,759) (623) (7,382) (8,050) Earnings per shareBasic and diluted loss per share 4 (10.3p) (1.0p) (11.3p) (16.4p) There were no recognised gains or losses in the period other than the loss forthe year and therefore no statement of total recognised gains and losses ispresented. Consolidated balance sheetat 31 December 2006 2006 2005 Note £'000 £'000Fixed assetsIntangible fixed assets 84,390 85,812Tangible fixed assets 28,963 29,547 113,353 115,359Current assetsDebtors 6,034 6,871 6,034 6,871Creditors: amounts falling due within one year (10,786) (9,838)Net current liabilities (4,752) (2,967)Total assets less current liabilities 108,601 112,392Creditors: amounts falling due after more than one year (7,119) (335)Provisions for liabilities and charges (4,084) (7,336)Net assets 97,398 104,721Capital and reservesCalled up share capital 5 6,549 6,549Share premium 5 106,222 106,222Profit and loss account 5 (15,373) (8,050)Equity shareholders' funds 5 97,398 104,721 Consolidated cash flow statementfor the year ended 31 December 2006 2006 2005 Note £'000 £'000Net cash inflow from operating activities 6 6,269 7,316Returns on investments and servicing of finance 7 (1,026) (278)Tax paid (82) -Capital expenditure and financial investment 7 (1,345) (4,589)Acquisitions and disposals 7 (11,112) (64,674)Cash outflow before financing (7,296) (62,225)Financing 7 6,389 61,496Decrease in cash in the period (907) (729) 2006 2005 £'000 £'000Reconciliation of net cash flow to movement in net debtDecrease in cash in the period (907) (729)Cash (inflow)/outflow from (increase)/decrease in debt and lease financing (6,389) 703Change in net debt arising from cash flows (7,296) (26)New finance leases and hire purchase agreements - (63)Debt acquired with subsidiary - (3,502)Movement in net debt in the period (7,296) (3,591)Net debt at beginning of period (3,591) -Net debt at end of period (10,887) (3,591) Notes 1 Financial information The financial information in this preliminary announcement is prepared on thebasis of the accounting policies set out in the accounts for the period ended 31December 2005 with the exception of the accounting treatment of share optionswhere FRS 20 has been adopted for grants of equity instruments after 7 November2002 that had not yet vested as of 1 January 2006. The impact for the year ended 31 December 2006 has been to charge the profit andloss account with an amount of £59,000 and credit this to reserves. There was noimpact in 2005 on the balance sheet or the profit and loss account for therevised treatment of these share options. The financial information set out in this preliminary announcement does notconstitute statutory accounts within the meaning of s240 of the Companies Act1985. Statutory accounts for the year ended 31 December 2006 will be dispatchedto shareholders by 2 May 2007 for approval at the Annual General Meeting to beheld on 5 June 2007. The statutory accounts contain an unqualified audit report,which did not include a statement under s237 (2) or (3) of the Companies Act1985, and will be delivered to the Registrar of Companies in accordance withs242 of the Companies Act 1985. 2 Segmental analysis 2006 2005 Adjusted Adjusted operating Operating operating Operating Turnover profit* (loss)/ Turnover profit* (loss)/ profit profit £'000 £'000 £'000 £'000 £'000 £'000Landfill division 18,447 3,190 (7,414) 24,184 3,327 (6,568)Treatment division 8,114 1,387 963 1,929 361 176 26,561 4,577 (6,451) 26,113 3,688 (6,392) * Operating profit before exceptional items (comprising compensation for loss ofoffice and related costs of £224,000, fines and costs relating to an EnvironmentAgency prosecution of £218,000 and costs of aborted acquisitions of £181,000)and the amortisation of goodwill. All activities arise solely in the UK. 3 Tax 2006 2005 £'000 £'000Current tax:UK corporation tax on loss for the period - 1,380Adjustments in respect of prior periods (89) -Tax charge on loss (89) 1,380 Current tax reconciliation 2006 2005 £'000 £'000Loss before tax (7,471) (6,670)Theoretical tax at UK corporation tax rate of 30% (2,241) (2,001)Effects of:Expenses not deductible for tax purposes 122 105Depreciation in excess of capital allowances 847 456Goodwill amortised 3,032 3,024Utilisation of acquired tax losses (600) (190)Other timing differences (mainly relating to specific tax rules for the (1,160) (14)timing of landfill deductions)Actual current tax charge for period - 1,380 No deferred tax asset has been recognised during the year in respect of timingdifferences and tax losses in certain of the group's subsidiaries as there isuncertainty over the extent and timing of its recovery. The potential asset isanalysed as follows: 2006 2005 £'000 £'000Depreciation in excess of capital allowances 777 502Unused tax losses carried forward 2,950 3,550Other timing differences (mainly relating to specific tax rules for the timing 685 1,845of landfill deductions)Unrecognised deferred tax asset 4,412 5,897 4 Earnings per share 2006 2005 Pence PenceBasic and diluted loss per share (11.3) (16.4)Adjusted earnings per share 5.6 4.1 For the period ended 31 December 2006, the calculation of the basic loss pershare was based on 65,488,892 shares (2005: weighted average of 49,065,022shares) in issue during the period and the loss after tax of £7,382,000 (2005:£8,050,000). The adjusted earnings per share is based on the same numbers ofshares and the loss after tax adjusted for amortisation of goodwill andexceptional items of £3,646,000 (2005: £2,030,000). No diluted loss per share arises due to the loss in the year, resulting in nodilutive share options. 5 Combined reconciliation of movements in group shareholders' funds andreserves Share Share Profit and loss Shareholders' capital premium account funds £'000 £'000 £'000 £'000GroupAt 1 January 2006 6,549 106,222 (8,050) 104,721Share-based payment - - 59 59Retained loss for the year - - (7,382) (7,382)At 31 December 2006 6,549 106,222 (15,373) 97,398 6 Reconciliation of operating loss to net cash inflow from operatingactivities 2006 2005 £'000 £'000Operating loss (6,451) (6,392)Amortisation of goodwill 10,405 10,080Depreciation 4,574 4,986After-care provisions 168 235Earnings before interest, tax, depreciation and amortisation ("EBITDA") 8,696 8,909Loss on sale of fixed assets 100 -Share-based payments 59 -Decrease in debtors 1,012 2,244Increase / (decrease) in creditors 475 (3,602)Provisions spent (4,073) (235)Net cash inflow from operating activities 6,269 7,316 7 Gross cash flows 2006 2005 £'000 £'000Returns on investment and servicing of financeInterest paid and similar charges 1,056 565Interest received (30) (287) 1,026 278Capital expenditure and financial investmentPayments to acquire tangible fixed assets 1,516 4,589Receipts from the sale of fixed assets (171) - 1,345 4,589Acquisition of businessesPayments to acquire businesses - current year acquisitions 11,018 65,832Payments to acquire businesses - prior year acquisitions 94 -Cash acquired with businesses - (1,158) 11,112 64,674FinancingNet proceeds of share issue - 97,821Capital element of finance lease payments (165) (358)Repayment of debt factor advances (2,346) (345)Receipts/(repayment) of loans 8,900 (35,572)Redemption of preference shares - (50) 6,389 61,496 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
AUG.L