Final Results

Shanks Group PLC 25 May 2004 25 May 2004 Company Announcement Shanks Group plc - Preliminary Results 2004 * Trading in line with pre-close statement * Financial highlights were: 2004 2003 Turnover Â£588m Â£551m Headline profit (before tax, Â£30.3m Â£34.3m exceptional items and goodwill amortisation) Exceptional items - Â£(5.5)m Goodwill amortisation Â£(11.6)m Â£(10.6)m __________ __________ Profit on ordinary activities before Â£18.7m Â£18.2m taxation __________ __________ Core business net debt Â£281m Â£279m PFI Companies net debt Â£28m Â£19m __________ __________ Net Group debt Â£309m Â£298m __________ __________ EBITDA (before exceptional items) Â£104m Â£100m * Earnings per share: Adjusted basic earnings per share 8.9p 10.1p (before exceptional items and goodwill amortisation) Basic earnings per share 3.9p 3.9p * Proposed final dividend per share 3.8p 3.8p Announcing the Preliminary Results for 2004 Group Chairman Mr I M Clubb made the following statement: In the year to 31 March 2004, Group turnover increased by Â£37m (7%) to Â£588m (2003: Â£551m). Profit before tax, exceptional items and goodwill amortisation (Headline Profit) was 12% lower at Â£30.3m (2003: Â£34.3m - restated). However, following management action, the performance in the second half at Â£16.2m represented a 15% improvement versus the first half and 7% increase versus the comparable period last year. The main reasons for this recovery were better results from the UK landfill and power business and from hazardous waste processing in the Netherlands. Interest expense reduced slightly to Â£17.9m (2003: Â£18.7m). There were no exceptional charges (2003: Â£5.5m) and goodwill amortisation amounted to Â£11.6m (2003: Â£10.6m). The resulting profit before tax was slightly higher at Â£18.7m (2003: Â£18.2m - restated). The tax rate on headline profit remained the same at 31%. Profit after tax, exceptional items and goodwill amortisation was therefore Â£9.2m (2003: Â£9.1m - restated). Earnings per share (eps) before exceptional items and goodwill amortisation fell by 12% to 8.9p (2003: 10.1p - restated). Basic eps was 3.9p (2003: 3.9p). Your Board recommends an unchanged final dividend of 3.8 pence per share which, if approved by shareholders, brings the total dividend for the year to 5.7 pence per share (2003: 5.7p). Cash generation remained strong with earnings before interest, tax, depreciation, amortisation and exceptional items (EBITDA) at Â£104m (2003: Â£100m). The core business net debt increased marginally by Â£2m to Â£281m (2003: Â£279m) and the Public Finance Initiative (PFI) companies' debt grew by Â£9m mainly due to capital expenditure relating to the East London Waste Authority (ELWA) contract. Group consolidated net borrowings therefore increased by Â£11m to Â£309m. DIVISIONAL REVIEW UK Waste Services Trading profits in the year fell by Â£4.3m to Â£15.4m (2003: Â£19.7m). However, trading profits in the second half were Â£9.1m, which was Â£2.8m better than the first half. This encouraging turnaround has been due to the continued growth of the power business and higher volumes and better prices in landfill. Several loss making contracts in the collection and recycling business were cancelled. The losses incurred, together with exit costs, constrained performance. The first full year of the ELWA contract, which commenced in December 2002, had a positive impact. Both the ELWA and Argyll & Bute PFI contracts performed in line with their business plans. UK Chemical Services The improving trend continued with trading losses reducing by a further Â£1.2m to Â£0.2m (2003: Â£1.4m - restated). Better operating performance from the fluidised bed Waste to Energy plant at Fawley was the main contributor. The high temperature incineration market remained difficult with continuing downward price pressure. The other hazardous waste treatment activities performed well, particularly in Scotland. The on-site treatment business benefited from overseas contracts in the Falklands. Belgium Trading profits in Belgium improved by Â£1.2m to Â£15.7m (2003: Â£14.5m). These better results were due to higher prices and increased capacity from power which more than offset the anticipated fall in landfill volumes due to the Landfill Directive, the contaminated land remediation activity performed well in contrast to the hazardous waste business at Sobry which had a difficult year. Netherlands Trading profits reduced by Â£1.7m to Â£24.2m (Â£2003: Â£25.9m). This decline was mainly due to lower volumes and prices in the solid waste business due to the economic slowdown, particularly in the construction industry. The hazardous waste business at ATM improved in the second half benefiting from the repermitting of the pyrolysis plant and the installation of additional soil cleaning capacity. The Reym industrial cleaning business continued to perform well. Central Services Central Services costs increased by Â£0.7m as a result of a greater than expected pension charge partially offset by administrative cost savings. DEVELOPMENTS United Kingdom The strategic alliance with Italian partner Ecodeco has given the Group a viable deliverable solution to the municipal waste landfill diversion targets required of the UK by the EU Landfill Directive. The successful ELWA contract was the first of a select number of bids the Group is making in this burgeoning market. Dumfries & Galloway where the Group remains preferred bidder is the second such contract. Since the year end the Waste Services and Chemical Services activities have been combined under a single management team to reduce administrative costs and to focus the sales operation on the opportunities arising from the changing legislative environment. There will also be benefits from withdrawal from the loss making contracts in the collection and recycling business. Benelux In the Netherlands, the expanded capacity of the ATM soil cleaner, the repermitting of the ATM pyrolysis plant and the new waste wood processing plant at Utrecht will provide growth. The repermitting of the company's major landfill in Belgium is a significant success and will underpin results in the Wallonia region. Other opportunities in Belgium, particularly in land remediation are being pursued. Outlook The directors remain confident that the performance problems of the past two years are now behind them and due to the actions taken, barring unforeseen circumstances, a period of recovery will ensue. The disposal of the UK landfill and related power operations changes the character of the Group in the UK as described in the circular to shareholders to be dated 27th May 2004. The remainder of the UK business will benefit from their recent integration and current cost reduction programme. The financial flexibility resulting from the disposal, together with the extensive range of technical capabilities assembled, leaves the Group well placed to compete in the changing European waste market, particularly when tendering for UK long term municipal contracts. CHIEF EXECUTIVE'S OPERATING REVIEW In last year's review it was reported how the Group's continental businesses had performed robustly but that severe trading difficulties had negatively impacted UK trading results, particularly, within the Waste Services division. As a consequence of this underperformance significant management and organisational changes were made and it is pleasing to report that, as expected, they began to deliver improvements in the second half of the year under review. The Chemical Services division again improved in the year. The economic slowdown in the Netherlands, particularly in the construction industry, resulted in a 7% dip in trading profit but this shortfall was largely offset by a strong performance in Belgium. Our markets remain extremely competitive resulting in significant challenges for all staff. They have responded creditably during the year for which I thank them. Group Turnover Total turnover for the year grew to Â£588m. In the UK Landfill turnover increased only as a result of the higher Landfill Tax, whilst revenues from Collection and Recycling reduced as the Group strategically withdrew from several loss making activities. The ELWA PFI project, Power and Chemical Services were therefore the principal contributors to UK growth. In the Netherlands growth accrued mainly from the full year effect of earlier acquisitions and from expansion at ATM. Belgium revenue was maintained by increased electricity revenues and by a good performance in contaminated land remediation offset by reduced volumes at Sobry. United Kingdom Throughout the year the Group traded with two divisions, Waste Services which collects and manages municipal, commercial and industrial wastes and, Chemical Services which specialises in the treatment of hazardous chemical waste and related services including recovery. Since year end these two divisions have been rationalised into one under a new Managing Director, Ian Goodfellow. Increasingly advancing regulation rendered the distinction between these two divisions redundant. It is expected that the new organisation will bring greater customer focus at reduced cost, particularly, in the area of administration. Waste Services started the year at a low ebb before the benefit of the management actions reported earlier began to accrue. Trading profits were lower at Â£15.4m (2003: Â£19.7m) with the decline being overwhelmingly due to a reduced performance from landfill activities. The inability to increase prices at a rate consistent with rising costs has been the principal reason for the lower profits. Efficiency drives in the collection and recycling business are also bringing improved results. Power generation activities continue to prosper with profits increasing by c.Â£3m as results benefited from enhanced capacity and the Renewables Order, which provides premium prices for electricity generated from renewable sources. Both the Group's PFI contracts at Argyll & Bute and for the East London Waste Authority (ELWA) performed according to their plans. Progress has been made building the composting plants for Argyll & Bute and, since year end, the orders for the first Mechanical Biological Treatment (MBT) units have been let for ELWA. The Group hopes to close a long-term contract for Dumfries & Galloway shortly and is pursuing a number of similar opportunities with various local councils within the UK. The technology base assembled by the Group is well adapted to meeting the landfill diversion requirements currently in place on local authorities. Chemical Services continued its improving trend in the year and, although trading losses were not totally eliminated, (2004: Â£0.2m loss; 2003: Â£1.4m loss - restated) the division remained cash positive. The improved performance of the new fluidised bed incineration plant at Fawley was the main contributor to progress. Elsewhere the market for the incineration at high temperature remains harsh but other activities showed modest improvements. Belgium Operations in Belgium are similar to those in the UK but exclude incineration and include specialist demolition, soil decontamination and industrial cleaning. Once more the management has delivered a creditable result with trading profit improving by Â£1.2m to Â£15.7m. At the beginning of calendar year 2004 the Group succeeded in the repermitting of the extension to its landfill at Mont St Guibert. Although subject to appeal, confidence remains high that the site will continue to deliver good results in coming years. As in the UK, profits from electricity generation have also improved due to higher prices and capacity enhancements. Notable success has been achieved in the area of contaminated land remediation with further opportunities emerging. The limited operations in the frontier area of Northern France have also performed broadly in line with our plans. Netherlands Netherlands operations are similar to those in Belgium but exclude landfill and include computer refurbishment. Trading profit for the year, as expected, reduced by Â£1.7m to Â£24.2m. The general economic slowdown resulted in pressure on prices most markedly in the construction industry which remains the most important market segment for the division. Good progress has been made during the year at ATM where a new permit has been received for the pyrolysis plant with processing restarted in September 2003. The division is now rebuilding the market for these services. Additionally, capacity in the soil cleaning installation has been expanded following the regularisation of national specifications for cleaned soils. A new wood processing plant has been built at the Van Vliet Group near Utrecht with commissioning starting since year end. More generally costs continue to be contained by exporting certain waste streams for processing at lower costs in Germany. Prospects The Group is currently being reshaped through the disposal of its landfill and electricity from landfill gas assets. Further details are contained in the Circular to the Shareholders to be dated 27th May 2004. The remaining UK businesses have been restructured, refocused and will operate at lower cost. The continental businesses are performing well and have expansion potential. The technology portfolio available to the Group together with improved financial flexibility leaves the Group well placed to exploit waste management markets, changing as a result of new regulations and fiscal measures. FINANCIAL DIRECTOR'S REVIEW Finance Function The Finance function continues to be proactively involved in all aspects of the business focusing on financial control, operating performance and business development opportunities. All operating divisions are controlled against their headline profit and cash flow budgets. Headline profit is pre tax profit before exceptional items and goodwill amortisation. Management of financial resources, particularly cash, working capital and capital expenditure, is key to the success of the Group's strategy. All investment decisions are rigorously appraised. Accounting Policies The Group's accounting policies are heavily influenced by its PFI and landfill businesses. Bid costs of Â£0.4m on PFI projects (2003: Â£0.1m) incurred prior to preferred bidder status were written off. At the year end the post preferred bid costs amounted to Â£3.1m (2003: Â£1.2m). Directly attributable interest on separately identifiable major capital projects is capitalised. For this year end the interest capitalised totalled Â£0.2m (2003: Â£Nil). Although debt in PFI companies is limited recourse to the Group, it is consolidated into net debt as the Group owns 100% of the equity of these companies. Accounting for the long term liabilities on landfill sites is governed by FRS 12 - Provisions and Contingencies. A real discount factor of 2% has been used to assess the present value of these long term liabilities, which are expected to be incurred between now and circa 2050. The annual unwinding of this discount is shown in other finance charges. Financial Results The Operating Review covers the background to the Group's trading performance. Interest costs were slightly lower at Â£17.9m (2003 : Â£18.7m) reflecting the profile of debt and the maturity of the 1993 Â£20m private placement with a coupon of 8.9%. Other finance charges comprise discount unwind on long term landfill liabilities of Â£2.1m (2003: Â£1.8m) and amortisation of bank fees of Â£0.7m (2003: Â£0.5m). Headline profit benefited by Â£1.6m due to changes in the average euro exchange rate during the year. Goodwill amortisation rose by Â£1.0m to Â£11.6m (2003: Â£10.6m) with Â£0.4m arising from the full year impact of ELWA, and Â£0.6m due to currency movements. Taxation The average tax rate on headline profit remained at 31% (2003: 31%) despite the growing proportion of profits from countries with higher tax rates. The underlying rates of tax in the countries where the Group operates were UK: 30%, Netherlands: 35% and Belgium: 34%. The Group suffers a higher charge in the UK as expenditure on landfill void does not attract capital allowances and in Belgium where landfill tax is non deductible for corporation tax. Cash Flow The underlying cash utilisation on the core business was Â£7m after net investments of Â£55m, but before the favourable effect of Â£5m on the translation of Euro denominated debt into its sterling equivalent. Principal borrowings increased marginally by Â£2m to Â£281m. The limited recourse debt of the PFI companies which is consolidated into Group net debt increased by Â£9m to Â£28m. Details of the Group's cash flow performance are shown in the table below. 2004 2003 Â£m Core Business PFI Business Total Total Change Operating Profit* 50 1 51 56 (5) Depreciation/Landfill Provisions 52 1 53 44 9 _______________________________________________________ EBITDA 102 2 104 100 4 Working Capital (9) 4 (5) 23 (28) Net Capex/Acquisitions (55) (13) (68) (63) (5) Interest, Tax, Dividends and Other (45) (2) (47) (46) (1) ________________________________________________________ Underlying cash flow (7) (9) (16) 14 (30) Currency Translation 5 - 5 (22) 27 ________________________________________________________ Group Cash Flow (2) (9) (11) (8) (3) ======================================================== *before goodwill amortisation and exceptional items Capital Expenditure/Acquisitions The Group spent Â£69m gross on capital expenditure (2003: Â£63m). The major growth capital projects were on further landfill void at Calvert, expansion of the ATM soil cleaner, the wood plant at Utrecht and PFI project expenditure. The replacement of operating assets, such as landfill cells, vehicles and containers amounted to Â£30m (2003: Â£35m). Sales of fixed assets, including surplus property raised Â£4m (2003: Â£7m). Two small acquisitions at a total cost of Â£3m, of which Â£2m was goodwill, were completed by Shanks Netherlands. Treasury and Risk Management Policy The Group treasury policy is to use financial instruments with a spread of maturity dates and sources in order to reduce funding risk. Borrowings are drawn in the same currencies as the underlying investment to reduce cash and translation exposure on exchange rate movements. No other currency hedging mechanisms are used. The Group maintains a significant proportion of its debt on fixed rates of interest in order to protect interest cover. Where underlying interest rates are floating, swaps are used to achieve the desired level of fixed rates. The counterparties to these instruments are all AA rated banks. The core debt is provided by the euro326m multicurrency revolving credit facility which was amended in May 2004 to expire in October 2005 and the $145m multicurrency fixed or floating interest rate private placement facility from Prudential Insurance Company of America (PRICOA) which has various longer term maturity dates. The Group also has Â£47m of working capital facilities with various banks. The limited recourse borrowings of the Group's two 100% owned PFI companies, created to finance the investment required to service these contracts, are separate from the Group's principal banking facilities. Typically the Group invests approximately 10-20% of the capital requirement from its core borrowings in the form of equity or subordinated debt with the remainder being provided by financial institutions secured on the project with limited recourse to the Group. Insurance The policy on insurance is to secure the maximum cover available in the market at reasonable prices. The Group therefore carries catastrophe insurance, including pollution cover, but self-insures up to a maximum aggregate level of Â£2m. Pensions The Group continues to use SSAP24 Pension Costs to account for pensions and has adopted the transitional arrangements permitted by FRS17 - Retirement Benefits. On the snapshot FRS17 basis, the net pension liability remained at Â£20m, as the partial recovery in equity values from their recent lows was matched by the increase in the scheme liabilities. The UK defined benefit scheme was closed to new members in September 2002 and new employees are now offered a defined contribution arrangement. The triennial actuarial valuation, based on the assets and liabilities as at 1 April 2003 showed a smoothed funding deficit of Â£12m. The Group raised its annual pension cash contributions by Â£1.4m with effect from 1 April 2004. Under SSAP 24 the pension charge for year ended 31st March 2004 has increased by Â£2.0m to Â£5.1m (2003: Â£3.1m). The employee contribution increased from 5% to 7% of relevant earnings with effect from 1 May 2004. Going Concern The Directors have reviewed the Group's 2004/05 budget and medium term plans thereafter in the light of its current financial position. The Directors are satisfied that the Group has sufficient resources to continue operations for the foreseeable future. Accordingly they continue to adopt the going concern basis in preparing its financial statements. Note: Copies of the Annual Report and Accounts will be posted to shareholders by 28 June 2004, after which they will be available, on request, from the company at Astor House, Station Road, Bourne End, Bucks SL8 5YP. Subject to approval at the AGM, the proposed final dividend of 3.8 pence per share will be paid on 20 August 2004 to shareholders on the register at close of business on 16 July 2004. For further information contact: Ian Clubb; Chairman, Shanks Group plc Michael Averill; Group Chief Executive David Downes; Group Finance Director or John Shaughnessy; Group Head of External Relations On 25 May 2004, telephone: 07767 290049 On 26 May 2004, telephone: 020 7678 8000 Thereafter, telephone: 01628 524523 Consolidated Profit and Loss Account year ended 31 March 2004 2004 2003 Note Total Before Exceptional Total exceptional items restated* items restated* Â£m Â£m Â£m Â£m ------------------------------------------------------------------------------------------------------------ Turnover: Group and share of joint ventures: 596.7 558.5 - 558.5 Less: share of turnover of joint ventures (8.6) (7.1) - (7.1) ------------------------------------------------------------------------------------------------------------ Group turnover 2 588.1 551.4 - 551.4 Cost of sales (482.3) (447.2) (3.2) (450.4) ------------------------------------------------------------------------------------------------------------ Gross profit 105.8 104.2 (3.2) 101.0 ============================================================================================================ Group operating profit before 49.4 53.9 (4.4) 49.5 goodwill amortisation Goodwill amortisation (11.6) (10.6) - (10.6) ------------------------------------------------------------------------------------------------------------ Group operating profit 3 37.8 43.3 (4.4) 38.9 Share of operating profit of joint ventures 1.6 1.4 - 1.4 ------------------------------------------------------------------------------------------------------------ Total operating profit 2 39.4 44.7 (4.4) 40.3 Non-operating exceptional items: - on disposal of operations 4 - - (0.6) (0.6) ------------------------------------------------------------------------------------------------------------ Profit before finance charges and taxation 2 39.4 44.7 (5.0) 39.7 Finance charges - interest 5 (17.9) (18.7) - (18.7) Finance charges - other 6 (2.8) (2.3) (0.5) (2.8) ------------------------------------------------------------------------------------------------------------ Profit on ordinary activities before taxation 2 18.7 23.7 (5.5) 18.2 Taxation 7 (9.5) (10.6) 1.5 (9.1) ------------------------------------------------------------------------------------------------------------ Profit on ordinary activities after taxation 9.2 13.1 (4.0) 9.1 and profit for the period Equity dividends paid and proposed 8 (13.3) (13.3) ------------------------------------------------------------------------------------------------------------ Retained loss transferred to reserves (4.1) (4.2) ============================================================================================================ Earnings per share 9 - Basic 3.9p 3.9p - Adjusted basic before exceptional items and goodwill amortisation 8.9p 10.1p - Diluted 3.9p 3.9p Dividend per share 8 5.7p 5.7p ============================================================================================================ * 2003 figures have been restated following the change of accounting policy in respect of capitalisation of interest. See Note 1 for details. Consolidated Balance Sheet at 31 March 2004 Note 2004 2003 restated* Â£m Â£m Â£m Â£m ----------------------------------------------------------------------------------------------------------------- Fixed assets Intangible assets 183.8 198.0 Tangible assets 356.2 325.2 Investments in joint ventures: Share of gross assets 12.8 13.6 Share of gross liabilities (8.1) (8.4) ----------------- ----------------- Share of net assets 4.7 5.2 Loans to joint ventures 3.9 2.9 ----------------- ----------------- Total investment in joint ventures 8.6 8.1 Other unlisted investments 1.1 1.1 ----------------------------------------------------------------------------------------------------------------- Total fixed assets 549.7 532.4 Current assets Stocks 8.1 7.0 Debtors 137.7 129.6 Cash at bank and in hand 30.3 20.5 ----------------- ----------------- 176.1 157.1 ----------------- ----------------- Creditors: amounts falling due within one year Borrowings (15.8) (4.9) Other creditors (165.9) (159.1) ----------------- ----------------- (181.7) (164.0) ----------------- ----------------- Net current liabilities (5.6) (6.9) ----------------------------------------------------------------------------------------------------------------- Total assets less current liabilities 544.1 525.5 Creditors: amounts falling due after more than one year Borrowings (323.6) (313.1) Other creditors (8.4) (0.2) ----------------- ----------------- (332.0) (313.3) Provisions for liabilities and charges 11 (74.8) (68.4) ----------------------------------------------------------------------------------------------------------------- Net assets 137.3 143.8 ================================================================================================================= Capital and reserves Called up share capital 23.4 23.4 Share premium account 93.1 93.1 Profit and loss account 20.8 27.3 ----------------------------------------------------------------------------------------------------------------- Equity shareholders' funds 137.3 143.8 ================================================================================================================= Consolidated Cash Flow Statement year ended 31 March 2004 Note 2004 2003 restated* Â£m Â£m Â£m Â£m ------------------------------------------------------------------------------------------------------------------- Net cash flow from operating activities 12(a) 91.2 120.9 Returns from investments and servicing of finance Interest paid (21.2) (20.5) Interest received 1.1 1.8 ----------------- ----------------- (20.1) (18.7) Tax paid (4.6) (11.6) Capital expenditure and financial investment Purchase of tangible fixed assets (68.3) (59.8) Sale of tangible fixed assets 4.1 6.9 ----------------- ----------------- (64.2) (52.9) Acquisitions and disposals Purchase of subsidiaries and other 12(b) (1.5) (9.8) businesses Additional loans to joint ventures - (0.4) Sale of subsidiaries and joint ventures - 0.4 ----------------- ----------------- (1.5) (9.8) Equity dividends paid (13.3) (13.3) ------------------------------------------------------------------------------------------------------------------- Net cash flow before use of liquid (12.5) 14.6 resources and financing Financing Issue of ordinary share capital - 0.1 Debt financing 12(c) 13.0 11.2 ------------------------------------------------------------------------------------------------------------------- Increase in cash 0.5 25.9 =================================================================================================================== Reconciliation of net cash flow to 12(d) movement in net debt Increase in cash in the year 0.5 25.9 Debt financing 12(c) (13.0) (11.2) ------------------------------------------------------------------------------------------------------------------- Change in net debt resulting from (12.5) 14.7 cash flows Inception of finance leases (1.5) - Financing acquired with subsidiaries (2.3) - Amortisation of loan fees (0.7) (0.5) Exchange rate (loss) gain on net debt 5.4 (22.2) ------------------------------------------------------------------------------------------------------------------- Movement in net debt in the year (11.6) (8.0) Net debt at 31 March 2003 (297.5) (289.5) ------------------------------------------------------------------------------------------------------------------- Net debt at 31 March 2004 (309.1) (297.5) =================================================================================================================== Net debt represents total borrowings less cash in hand. * 2003 figures have been restated following the change of accounting policy in respect of capitalisation of interest. See Note 1 for details. Reconciliation of Movements in Shareholders' Funds at 31 March 2004 Note 2004 2003 restated* Â£m Â£m ------------------------------------------------------------------------------------------- Profit for the period 9.2 9.1 Equity dividends (13.3) (13.3) ------------------------------------------------------------------------------------------- Retained (loss) profit transferred to reserves (4.1) (4.2) Issue of share capital - 0.1 Currency translation (loss) gain (4.0) 12.4 Tax attributable to currency translation - (0.3) Movements in goodwill: currency translation adjustment 1.6 (5.7) ------------------------------------------------------------------------------------------- Net movement in equity shareholders' funds (6.5) 2.3 ------------------------------------------------------------------------------------------- Opening equity shareholders' funds - as previously reported 143.2 140.7 Prior year adjustment (see Note 1) 0.6 0.8 ------------------------------------------------------------------------------------------- Opening equity shareholders' funds - restated 143.8 141.5 ------------------------------------------------------------------------------------------- Closing equity shareholders' funds 137.3 143.8 =========================================================================================== * 2003 figures have been restated following the change of accounting policy in respect of capitalisation of interest. See Note 1 for details. Statement of Total Recognised Gains and Losses at 31 March 2004 2004 2003 restated Â£m Â£m ---------------------------------------------------------------------------------------------- Profit for the period 9.2 9.1 Currency translation gain (loss) on net investments (including goodwill) (9.4) 34.6 Currency translation (loss) gain on borrowings 5.4 (22.2) Tax attributable to currency translation - (0.3) ---------------------------------------------------------------------------------------------- Total recognised gains and losses relating to the period 5.2 21.2 Prior year adjustment - see note 1 0.6 - ---------------------------------------------------------------------------------------------- Total recognised gains and losses since last annual report 5.8 21.2 ============================================================================================== Notes to the Financial Statements 1 (a) Status of financial statements The figures and financial information for the year ended 31 March 2004 are extracted from but do not constitute the statutory financial statements for that year. Those financial statements have not yet been delivered to the Registrar, but include the auditors' report which was unqualified and did not contain a statement under Section 237 (2) or (3) of the Companies Act 1985. The figures and financial information for the year ended 31 March 2003 included in the preliminary announcement are extracted from but do not constitute the financial statements for that year. Those financial statements have been delivered to the Registrar and included the auditors' report which was unqualified and did not contain a statement under Section 237 (2) or (3) of the Companies Act 1985. (b) Prior Year Adjustments (i) Change in accounting policy Following the Group's expansion through successful bidding for PFI contracts, the Group is now committed to a significant capital expenditure programme. Finance costs associated with such capital projects have been capitalised as part of the cost of construction as this will match the finance costs against the benefits obtained from increased revenues in the future. This change in accounting policy has been dealt with as a prior year adjustment as the Group has incurred finance costs on capital projects in earlier years. The reported cost of sales and profit after tax for the year ended 31 March 2003 have been reduced by Â£0.2m. Tangible fixed assets have been increased by Â£0.9m, the deferred tax provision increased by Â£0.3m and equity shareholders' funds by Â£0.6m for the year ended 31 March 2003. (ii) Comparatives restatement Following review by the Waste Services Division, the classification of costs between costs of sales and administration expenses has been revised. Comparative figures have been restated accordingly. The effect is to reduce cost of sales by Â£3.2m and to increase administration expenses by the same amount for 2003. Gross profit has increased by Â£3.2m whilst there is no effect on the Group operating profit for 2003. 2 Segmental analysis The Group operates in one segment, Waste Management, in the United Kingdom, Belgium and The Netherlands. 2004 2003 Total restated Total Â£m Â£m ------------------------------------------------------------------------------------------ (a) Turnover by origin and by destination of service United Kingdom: - Waste services 244.2 233.6 - Chemical services 40.8 36.6 ------------------------------------------------------------------------------------------ United Kingdom 285.0 270.2 Belgium 102.7 95.2 The Netherlands 200.4 186.0 ------------------------------------------------------------------------------------------ Group turnover 588.1 551.4 ========================================================================================== Share of joint venture turnover 8.6 7.1 ========================================================================================== (b) Operating profits Trading profits: United Kingdom: - Waste services 15.4 19.7 - Chemical services (0.2) (1.4) ------------------------------------------------------------------------------------------ United Kingdom 15.2 18.3 Belgium 15.7 14.5 The Netherlands 24.2 25.9 Central Services (4.1) (3.4) ------------------------------------------------------------------------------------------ Operating profit before exceptional items and goodwill amortisation 51.0 55.3 Exceptional operating items - (4.4) Goodwill amortisation (11.6) (10.6) ------------------------------------------------------------------------------------------ Total operating profit 39.4 40.3 United Kingdom: - Waste services 12.6 13.1 - Chemical services (0.3) (1.8) ------------------------------------------------------------------------------------------ United Kingdom 12.3 11.3 Belgium 15.1 13.9 The Netherlands 16.3 18.7 Central Services (4.3) (3.6) ------------------------------------------------------------------------------------------ Total operating profit 39.4 40.3 Non-operating exceptional items - (0.6) ------------------------------------------------------------------------------------------ Profit before finance charges and taxation 39.4 39.7 Finance charges - interest (17.9) (18.7) Finance charges - other (2.8) (2.3) Finance charges - exceptional - (0.5) ------------------------------------------------------------------------------------------ Profit on ordinary activities before taxation 18.7 18.2 ========================================================================================== At At 31 March 31 March 2004 2003 Â£m Â£m ------------------------------------------------------------------------------------------ (c) Net assets United Kingdom: - Waste services 176.5 158.3 - Chemical services 33.2 33.6 ------------------------------------------------------------------------------------------ United Kingdom 209.7 191.9 Belgium 22.0 23.1 The Netherlands 229.6 237.9 ------------------------------------------------------------------------------------------ Net operating assets 461.3 452.9 Unallocated net assets (liabilities): Assets under the course of construction 14.8 18.2 Net debt (309.1) (297.5) Other unallocated net liabilities (29.7) (29.8) ------------------------------------------------------------------------------------------ Net assets 137.3 143.8 ========================================================================================== 3 Operating exceptional items The exceptional leachate treatment costs of Â£3.2m in 2003 related to the regulatory requirement to reduce historic leachate levels at United Kingdom landfill sites. The exceptional reorganisation costs of Â£1.2m in 2003 related to United Kingdom restructuring costs. The tax effect of these exceptional costs was to reduce the current tax charge by Â£1.3m. 4 Non-operating exceptional items 2004 2003 Â£m Â£m --------------------------------------------------------------------------------------------------- Loss on disposal of assets - (0.6) =================================================================================================== The exceptional loss in 2003 arose on the disposal of non-performing assets and surplus property. There was no tax effect arising in respect of this loss. 5 Finance charges - interest 2004 2003 Â£m Â£m -------------------------------------------------------------------------------------------- Net interest payable: Interest payable on bank loans and overdrafts repayable within five years 12.0 12.4 Interest payable on other loans 7.0 7.9 Share of interest of joint ventures 0.2 0.2 -------------------------------------------------------------------------------------------- 19.2 20.5 Interest receivable (1.1) (1.8) Interest cost capitalised as part of tangible fixed assets (0.2) - -------------------------------------------------------------------------------------------- 17.9 18.7 ============================================================================================ 6 Finance charges - other Other finance charges relate to the unwinding of the discount on long term landfill liabilities of Â£2.1m (2003: Â£1.8m) and the amortisation of bank fees of Â£0.7m (2003: Â£0.5m). An exceptional finance cost of Â£Nil (2003: Â£0.5) arose on the modification of the Group's banking covenants. The tax effect of the 2003 exceptional cost was to reduce the current tax charge by Â£0.2m. 7 Taxation The taxation charge (credit) based on the profit for the year is made up as follows: 2004 2003 Â£m Â£m -------------------------------------------------------------------------------------- Current tax: United Kingdom Corporation tax at 30% (2003: 30%) - current year 2.7 3.7 - prior year - (1.8) Double taxation relief (3.0) (4.2) Overseas 10.1 11.1 -------------------------------------------------------------------------------------- 9.8 8.8 Deferred tax (0.7) (0.1) Joint ventures 0.4 0.4 -------------------------------------------------------------------------------------- 9.5 9.1 ====================================================================================== 8 Equity dividends 2004 2003 Â£m Â£m -------------------------------------------------------------------------------- Interim dividend of 1.9p per ordinary share (2003: 1.9p) 4.4 4.4 Proposed final dividend of 3.8p per ordinary share (2003: 3.8p) 8.9 8.9 -------------------------------------------------------------------------------- Total dividend of 5.7p per ordinary share (2003: 5.7p) 13.3 13.3 ================================================================================ The proposed final dividend will be paid on 20 August 2004 to shareholders on the register at close of business on 16 July 2004. 9 Earnings per share Basic earnings per share are calculated by dividing the profit after tax for the period by the weighted average number of shares in issue during the period. 2004 2003 ----------------------------------------------------------------------------------------------------------------- Calculation of basic earnings per share Profit for the period (Â£m) 9.2 9.1 Exceptional items (net of tax) (Â£m) - 4.0 Goodwill amortisation (Â£m) 11.6 10.6 ----------------------------------------------------------------------------------------------------------------- Earnings before exceptional items and goodwill amortisation (Â£m) 20.8 23.7 ----------------------------------------------------------------------------------------------------------------- Average number of shares in issue during the period 234.0m 234.0m Basic earnings per share (pence) 3.9p 3.9p Adjusted basic earnings per share before exceptional items and goodwill amortisation (pence) 8.9p 10.1p ================================================================================================================= Calculation of diluted earnings per share Average number of shares in issue during the period 234.0m 234.0m Effect of share options in issue 0.4m 0.2m ----------------------------------------------------------------------------------------------------------------- Total 234.4m 234.2m ================================================================================================================= Diluted earnings per share (pence) 3.9p 3.9p ================================================================================================================= The Directors believe that adjusting basic earnings per share for the effect of exceptional items and goodwill amortisation enables a comparison with historical data calculated on the same basis. 10 Acquisitions During the year, the Group made two minor acquisitions in the Netherlands. The book values of net assets acquired and the provisional fair value to the Group were as follows: Â£m ------------------------------------------------------------------------------------------ Tangible assets 2.1 Financing assumed with acquisition (2.3) ------------------------------------------------------------------------------------------ Net liabilities acquired (0.2) Provisional goodwill 1.4 ------------------------------------------------------------------------------------------ Cash consideration (including costs) 1.2 ========================================================================================== During the year the Group completed the evaluation of the businesses acquired in the year ended 31 March 2003. Additional goodwill of Â£0.3m arose in the year due to additional acquisition costs. 11 Provisions for liabilities and charges Site Aftercare Leachate Reorgan- Onerous Deferred Total restoration isation leases Taxation Â£m Â£m Â£m Â£m Â£m Â£m Â£m At 31 March 2003 18.6 26.4 3.2 0.6 0.4 18.9 68.1 - as previously reported Prior year - - - - - 0.3 0.3 adjustment ----------------------------------------------------------------------------------------------------------------- At 31 March 2003 18.6 26.4 3.2 0.6 0.4 19.2 68.4 - restated Provided 2.6 3.5 - 0.1 - - 6.2 - cost of sales - finance charges 0.7 1.4 - - - - 2.1 - taxation - - - - - (0.7) (0.7) Utilised (2.5) (0.8) (2.0) (0.4) - - (5.7) Reassessment of 5.1 - - - - - 5.1 costs Exchange rate (0.1) (0.1) - - - (0.4) (0.6) movements ----------------------------------------------------------------------------------------------------------------- At 31 March 2004 24.4 30.4 1.2 0.3 0.4 18.1 74.8 ================================================================================================================= 12 Notes to the cash flow statement 2004 2003 Before Exceptional Total exceptional costs Total costs Â£m Â£m Â£m Â£m ------------------------------------------------------------------------------------------------------------------- (a) Net cash flow from operating activities Total operating profit 39.4 44.9 (4.4) 40.5 Amortisation of intangible assets 11.6 10.6 - 10.6 Depreciation of fixed assets included 46.7 42.1 - 42.1 in operating profits Amounts written off joint venture 0.5 - - - investment Provision for aftercare and site 6.1 2.8 - 2.8 restoration ------------------------------------------------------------------------------------------------------------------- Earnings before interest, taxation, 104.3 100.4 (4.4) 96.0 depreciation and amortisation (EBITDA) (Profit) loss on sale of fixed assets (0.6) 0.1 - 0.1 Increase decrease in stocks (1.1) (0.4) - (0.4) (Increase) decrease in debtors (8.8) 5.2 - 5.2 Increase in creditors 4.6 27.2 0.5 27.7 Exceptional provision cost - - 3.2 3.2 Other provision cost 0.1 - - - Utilisation of provisions (5.7) (9.5) - (9.5) Share of profits of joint ventures (1.6) (1.4) - (1.4) ------------------------------------------------------------------------------------------------------------------- Net cash flow from operating 91.2 121.6 (0.7) 120.9 activities =================================================================================================================== 2004 2003 Â£m Â£m ------------------------------------------------------------------------------------------------------------------- (b) Subsidiary undertakings and businesses purchased during the year Tangible fixed assets 2.1 1.1 Financing assumed with acquisition (2.3) - ------------------------------------------------------------------------------------------------------------------- Net assets (liabilities) acquired (0.2) 1.1 Provisional goodwill capitalised 1.7 8.7 ------------------------------------------------------------------------------------------------------------------- Total estimated consideration 1.5 9.8 =================================================================================================================== (c) Analysis of financing Short term loan (advance) repayment (0.3) 0.1 Long term loan advances 34.0 17.8 Long term loan repayments (20.0) (5.8) Finance lease net repayments (0.7) (0.9) ------------------------------------------------------------------------------------------------------------------- Net cash flow from debt 13.0 11.2 =================================================================================================================== (d) Analysis of net debt in the balance sheet At 31 March Cash Debt Non cash At 31 March 2003 flows acquired Items 2004 Â£m Â£m Â£m Â£m Â£m ------------------------------------------------------------------------------------------------------------------- Cash at bank and in hand 20.5 9.8 - - 30.3 Overdrafts (3.7) (9.3) (2.3) - (15.3) ---------------- 0.5 ---------------- Debt due within one year (0.6) 0.3 - - (0.3) Debt due after more than (313.0) (14.0) - 4.7 (322.3) one year Finance leases (0.7) 0.7 - (1.5) (1.5) ---------------- (13.0) ------------------------------------------------------------------------------------------------------------------- Total (297.5) (12.5) (2.3) 3.2 (309.1) =================================================================================================================== Non cash items comprise the amortisation of loan fees of Â£0.7m and exchange gain on translation of long term loans in currencies other than sterling of Â£5.4m, and the inception of new finance leases. 13 Contingent liabilities The Group is subject to a claim for the use of mineral rights at the Group's Greengairs landfill site in Scotland, which was originally quantified at Â£25m. The Directors' of the Group continue to resist the magnitude of the claim. Negotiations are continuing between the Group and the claimant and in the event these are not successful a court hearing has been scheduled for June 2004. At the current time, it is not possible to quantify with reasonable accuracy the likely liability arising for the Group and accordingly no potential loss has been provided for at 31 March 2004. 14 Post balance sheet event On 25th May 2004, the Group reached agreement, subject to shareholders' approval, for the disposal of the United Kingdom landfill and power business for a consideration of Â£227.5m less costs. This information is provided by RNS The company news service from the London Stock Exchange

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