Final Results
Shanks Group PLC
01 June 2006
1 June 2006
Company Announcement - Preliminary Results 2006
Shanks Group plc - A leading European waste management group
This has been another solid year of progress for Shanks, especially in the UK.
Following the 2003 strategic review Shanks has responded to legislative and
fiscal changes in a rapidly changing waste market and established itself as a
leading player in the European waste management industry.
Preliminary unaudited results for the year ended 31 March 2006
Financial Highlights
• 5% increase in turnover to £443m (2005: £420m)
• 11% increase in Headline Profit (profit from continuing activities before
exceptional items and tax) to £34.0m (2005: £30.7m)
• Profit before tax on continuing operations of £30.3m (2005: £19.7m)
• Adjusted basic earnings per share were 9.6p (2005: 8.7p)
• Basic earnings per share for continuing operations of 8.5p (2005: 5.4p)
• Proposed final dividend of 3.8p per share (2005: 3.8p per share) bringing
the total for the year to 5.7p per share (2005: 5.7p per share)
Business Highlights
• UK turnaround; trading profit of £4.1m from £1.5m loss in 2005
• Long term municipal waste projects advancing well
• First new Mechanical Biological Treatment (MBT) plant at the East
London Waste Authority (ELWA) project is now commissioning
• Second ELWA plant and the Dumfries & Galloway plant will follow in
late 2006
• First fuel supply agreement secured
• European businesses steady
• Exit from UK hazardous waste for £34m cash
Commenting on the results, Michael Averill, Group Chief Executive of Shanks
Group plc said:
'These improved results, for the second successive year, represent the outcome
of management action to enhance efficiency whilst concurrently implementing a
strategy for future growth.
Within the rapidly changing UK market, demand for higher value added services
and more advanced solutions for waste management will grow. Shanks has the
expertise and know-how to exploit this opportunity. With the Group in a strong
financial position we are confident in future progress'
CHAIRMAN'S STATEMENT
Financial Performance
I am pleased to report a further improved performance for the 2005/6 year,
driven principally by progress in the UK business. Reporting under
International Financial Reporting Standards (IFRS) for the first time in 2005/6,
Headline Profit (profit from continuing activities before exceptional items and
tax) rose 11% to £34.0m (2005: £30.7m) despite increased energy costs. The tax
rate on Headline Profit remained at 34% giving adjusted basic earnings per share
of 9.6p (2005: 8.7p). Basic earnings per share were 13.0p (2005: 33.1p). Your
Board recommends an unchanged final dividend of 3.8p per share which, if
approved by shareholders, brings the total dividend for the year to 5.7p per
share (2005: 5.7p per share).
Turnover from continuing operations increased 5% to £443m (2005: £420m) and
profit after tax was £30.4m (2005: £77.6m) of which £19.8m arose in the
continuing business (2005: £12.6m). Continuing operations profit before tax was
£30.3m (2005: £19.7m) after a £3.7m (2005: £0.5m) non-cash charge for the change
in fair value of financial instruments. Profit after tax from discontinued
operations was £10.6m (2005: £65.0m) principally due to the £8.7m pre-tax profit
on the disposal of the UK hazardous waste business.
Since 31 March 2005 borrowings relating to the core business fell by £35m to
£76m (2005: £111m), mainly due to the proceeds from the exit from the UK
hazardous waste business. By contrast Private Finance Initiative (PFI) company
debt has increased by £41m to £105m (2005: £64m) following substantial planned
capital investment particularly in the East London Waste Authority (ELWA) and
Dumfries & Galloway (D&G) projects.
As part of the adoption of IFRS the Group has moved to the financial asset
accounting model for its UK PFI contracts for the long term management of
municipal wastes. The change results in certain reclassifications in turnover
and operating costs. The underlying cash flows in all of our PFI projects are
unaltered.
A reconciliation between UK GAAP and IFRS of selected comparative financial
highlights is set out in the Financial Review.
Divisional Review
United Kingdom
Trading profits from continuing UK activities showed a substantial improvement
for a second successive year increasing by £5.6m to £4.1m (2005: £1.5m loss).
Following a review in 2003, Group strategy is to focus its UK businesses on the
new waste management markets generated by changes in European waste management
regulation and UK Landfill Tax.
In a drive to meet the obligations contained in the European Landfill Directive
a significant number of UK local authorities are, or will shortly be, tendering
for long term municipal waste contracts, often using the PFI. The Group has
already secured three such contracts all of which are proceeding broadly
according to plan. A range of new technologies is being commissioned within
these projects including the core Mechanical Biological Treatment (MBT)
technology developed with Italian partner, Ecodeco. The Group plans to exploit
this surge in demand and secure a share of this burgeoning market on
satisfactory terms.
The programmed increase in Landfill Tax is also discouraging the disposal to
landfill of industrial and commercial waste as already experienced within the
Benelux countries. The skills gained in these markets are transferable to the
UK and will be used to build a franchise in industrial and commercial waste
recycling.
With the development of these initiatives, coupled with determined management
action to raise efficiency, results have improved. One small acquisition has
recently been completed in the central belt of Scotland for a consideration of
£0.8m.
Belgium
Trading profits in Belgium reduced to £15.7m (2005: £16.6m). Last year the
division enjoyed substantial windfall landfill profits accruing from the
scheduled refurbishment of the Brussels household waste incinerator. Further
volumes diverted from public sector incinerators, in the year under review, have
largely offset this loss.
The division has renewed for 10 years, and expanded the scope of, its contract
for waste collection in the City of Liege.
Results from the Flanders hazardous waste operations, the sand quarry and
general waste activities in Brussels were lower.
Two small acquisitions for a total of £0.6m were completed in Flanders.
The Netherlands
Trading profits in the Netherlands reduced to £23.5m (2005: £24.3m). This
modest change masks more significant variances within the division. On 1 June
2005 German landfill regulation changed radically. The effect was to eliminate
several low cost disposal routes in Germany which had previously been exploited.
The monthly impact has been monitored carefully with a programme of price and
efficiency increases aimed at its mitigation. The programme has been successful
with the monthly effect at year end being substantially reduced.
By contrast both the Reym industrial cleaning unit and the ATM hazardous waste
business recorded significantly better performances.
Three small acquisitions for an aggregate consideration of £2.6m were completed
during the year.
Flection, our small computer refurbishment business, was sold in the year to its
management for a total consideration of £1.4m of which a part is deferred.
Central Services
Central Services costs increased to £4.4m (2005: £3.4m) due, inter alia, to
overlap of new and retiring Board members and costs associated with the
implementation of IFRS.
Developments
United Kingdom
Commissioning of the first MBT plant is underway on time at the ELWA project at
the Frog Island site on the north bank of the Thames. Progress is encouraging
with the process operating to the requisite performance standards, including
ancillary equipment. These results bode well for the commissioning of the
second ELWA plant at Jenkins Lane and the D&G plant later this year. These
flagship projects are already attracting substantial interest from other
councils and will shortly be serving as a showcase for these technologies.
Benelux
The Group continues its programme of tuck-in acquisitions and investments in new
industrial cleaning activities. Various other opportunities are also under
consideration.
Directorate
Mr Richard Biffa retired from the Board as Non-Executive Director in June 2005
followed by former Group Finance Director, Mr David Downes, in December 2005. I
thank them both for their contributions and wise counsel and wish them well in
retirement.
Mr Adrian Auer, who was appointed as a Non-Executive Director in May 2005, will
succeed me as Chairman with effect from the Annual General Meeting on 27 July
2006. Mr Philippe Delaunois is also due to retire as a Non-Executive Director
during the next financial year on attaining age 65. Mr Peter Johnson, also
appointed as a Non-Executive Director in May 2005, will assume Chairmanship of
the Audit Committee.
Outlook
The disposal of the UK hazardous waste business marked the last major element in
the restructuring of the Group. With a strong balance sheet and the necessary
financial resources in place the Group is well positioned to further its
strategic agenda. The UK PFI projects continue to advance although progress on
further contracts will be slower than expected. The Group is also pursuing
opportunities to grow its business in the Benelux countries.
The Group is well positioned to improve its trading performance particularly in
a market where the ownership of a number of major competitors is currently
changing. The Board is therefore confident in further progress.
I M Clubb
Chairman
2005/6 OPERATING REVIEW
Thanks are once again due to the staff who have responded superbly to the
industry's rapidly changing conditions.
United Kingdom
During the year the Group exited the UK hazardous waste business, which had been
identified as low growth and therefore non-core. In two transactions the Group
realised a total cash consideration of £34m generating a disposal profit of
£8.7m.
Trading profits from continuing UK activities showed a substantial improvement
for the second year running, increasing by £5.6m to £4.1m, including property
disposals. Turnover was flat at £126m. The recent overhead reduction programme
contributed substantially to this turnaround, as did a strong performance from
our land remediation activities in the run up to new restrictions on landfill
disposal in July 2005. Our joint venture landfills also performed well, helped
by additional power production at the Avondale site. Despite rising fuel costs,
the overall results of collections, transfer and recycling improved and further
new initiatives should maintain progress. We have made one small tuck-in
acquisition for £0.8m which strengthens our position in the central belt of
Scotland.
On the new accounting basis, as described in the Financial Review, PFI trading
profit has fallen by £0.7m, due to increased bid costs and some one-off
restructuring charges at ELWA. There was a positive impact of a full year's
contribution from the D&G contract.
As last year, there has been significant investment in our three PFI contracts.
The investment programme in Argyll & Bute (A&B) is now substantially complete
and the first of two major facilities in East London is in the commissioning
stage. The facility should be fully operational by the end of the summer. The
second ELWA facility is scheduled to follow six months later. The D&G facility,
which is ahead of schedule, is expected to complete in a similar time frame.
All three contracts are performing broadly to their plans. Encouragingly, we
have recently executed our first contract to supply Solid Recovered Fuel (SRF)
from the MBT process to the cement industry. This agreement is a recognition of
the role which SRF will play in the new world of high energy costs.
Belgium
Trading profit in Belgium declined less than expected from last year's level of
£16.6m to £15.7m. One off inputs diverted from incinerators in Wallonia due to
technical problems, replaced inputs received during the scheduled maintenance
shut down of the Brussels incinerator in 2004/5. Total turnover increased £8m
to £110m.
Our sand quarry in Wallonia had a difficult year due to low activity levels in
the construction sector. The Flemish hazardous waste market was harsher than in
recent years reflecting the general economic situation.
We successfully renewed an enlarged ten year contract for municipal waste
collection and street cleaning for the City of Liege. This contract, which
started in July 2005, should provide predictable revenues and cash flows for the
future.
Two small acquisitions were completed in Flanders for a total of £0.6m.
The Netherlands
Trading profit from continuing operations in the Netherlands declined to £23.5m
(2005: £24.3m) on turnover £14m higher at £206m. Although there has been a
recovery in the construction industry, our solid waste businesses have
experienced higher elimination costs as a result of changes in the German
landfill regulatory regime in June 2005.
Volumes of contaminated soil processed at our hazardous waste treatment
facility, ATM, increased following recent investments in additional capacity.
Our industrial cleaning business, Reym, performed extremely well aided by
increased oil exploration on the back of high crude prices. Reym's 2004/5
performance was also adversely affected by a single loss making contract.
Three small acquisitions were completed during the year for a total £2.6m.
The computer refurbishment business, Flection, which was considered to be
non-core, was sold to management for £1.4m in November 2005. There was no
profit or loss on disposal.
FINANCIAL REVIEW
IFRS
The results for the year ended 31 March 2006 are the first audited results
presented under International Financial Reporting Standards (IFRS).
The adoption of IFRS has no impact on the Group's cash flows or the manner in
which the Group's operations are run.
The major impact of the adoption of IFRS on the Group's reported results are:
• the presentation of the results relating to discontinued activities;
• accounting for PFI contracts on a 'financial asset' basis. The impact of
this is to divide the transactions into two parts for accounting purposes:
- the financing of the construction of assets for the local authority;
- the provision of waste management services using existing assets as
well as those created under the contract.
The income stream from the waste authority is allocated between the two
parts. The part attributed to the service contract is treated as sales,
which after operating costs produces an operating profit. The part
relating to the construction of assets is treated as funding cash flows
(i.e. repayment of capital and interest). In the balance sheet the costs
relating to the construction of the assets are classified as an interest
bearing 'financial asset'. It is the Group's opinion that this treatment
better reflects the commercial substance of the transactions, provides
greater transparency for the financial community and also represents
current best practice;
• at the financial close of a PFI contract, the price of the service is
determined by, inter alia, the long term interest rate available in the
market. The Group therefore protects itself against future fluctuations in
interest rates by entering into an interest rate swap to match its future
cash inflows and outflows.
Under IFRS we are required to revalue these swaps at current market value
irrespective of the commercial reasons for entering into them. Revaluation
of these swaps can lead to large accounting gains or losses but does not
affect the long term profitability of the contract as the Group has matched
its long term revenue and costs. Whilst IFRS does allow these gains and
losses to be taken directly to reserves, it is on the proviso that onerous
verification requirements are fulfilled. The Group believes it is not
worth expending significant resources fulfilling these requirements in
respect of an item that does not reflect commercial reality. In future,
accounting for changes in the market value could therefore cause major
fluctuations to our reported profits. These changes are excluded from our
Headline Profit;
• goodwill is no longer amortised but is subject to annual impairment
reviews;
• the net deficit of the Group's UK pension scheme is now consolidated into
the Group's balance sheet. The change in the basis for recognising future
pension liabilities gives rise to an increased pension charge;
• the cost of share based payments to employees is charged to profits;
• certain leases classified as operating under UK GAAP are now classified as
finance, increasing property, plant and equipment and net debt accordingly;
• joint venture investments are proportionately consolidated, resulting in
our share of assets and liabilities, including debt, being consolidated on
a line by line basis;
• dividends are now only included in the accounts once approved, as opposed
to when proposed;
• deferred tax is now provided in respect of revalued properties, even if
there is little likelihood of the revaluation crystallizing.
The table below shows a reconciliation between UK GAAP and IFRS of selected
2004/5 financial highlights:
Reconciliation between UK GAAP and IFRS of selected financial highlights
Adjusted
Headline earnings per Profit before
Year ended 31 March 2005 Trading profit profit share tax Net assets Net debt
£m £m pence £m £m £m
________________________________________________________________________________________________________________________
As reported under UK GAAP 44.1 33.3 9.4 64.4 194.7 (162.3)
Discontinued activities (7.1) (3.1) (0.8) (54.2) - -
________________________________________________________________________________________________________________________
UK GAAP - continuing 37.0 30.2 8.6 10.2 194.7 (162.3)
Financial asset accounting (1.5) 1.1 0.3 1.1 2.4 (1.6)
Fair value of interest rate swaps - - - (0.5) (2.6) (3.7)
Intangible/goodwill amortisation - - - 9.6 9.6 -
Pensions (0.1) (0.7) (0.2) (0.7) (18.9) -
Share based payments - - - (0.1) - -
Leases 0.6 0.1 - 0.1 0.1 (9.6)
Joint ventures - - - - - (1.5)
Dividends - - - - 8.9 -
Deferred tax - - - - (5.2) -
________________________________________________________________________________________________________________________
As reported under IFRS 36.0 30.7 8.7 19.7 189.0 (178.7)
========================================================================================================================
Financial Results
The background to the Group's trading performance is given in the 2005/6
Operating Review above.
The UK hazardous waste and the Netherlands computer refurbishment businesses
together generated £0.4m of operating profits in the period prior to their
disposals and are classified as discontinued. They are estimated to have lost
£0.2m after taking into account their financial charges, before inclusion of
disposal profits of £8.7m.
Changes in the average Euro exchange rate during the year had a positive £0.1m
effect on Group Headline Profit.
Finance charges for the continuing business were £0.4m lower at £4.9m, before
taking into account the change in market value of financial instruments, which
was £3.7m adverse (2005: £0.5m adverse).
The average tax rate on Headline Profit was constant year on year at 34%. The
underlying rates of tax in the countries where the Group operates were: UK: 30%,
the Netherlands: 29% and Belgium: 34%. The Group suffers a higher effective
charge in Belgium as landfill tax is non- deductible for corporation tax
purposes.
Cashflow
Details of the Group's cash flow performance are shown in the table below.
Group Cash Flow 2006 2005 Change
Core PFI Total Total
£m £m £m £m £m
________________________________________________________________________________
Trading profit* 39 - 39 36 3
Depreciation and landfill provisions 30 - 30 27 3
________________________________________________________________________________
EBITDA 69 - 69 63 6
Working capital (5) 3 (2) (1) (1)
Net capital expenditure and acquisitions (33) (47) (80) (67) (13)
Interest, tax, dividends and other (23) 3 (20) (27) 7
________________________________________________________________________________
Underlying cash flow 8 (41) (33) (32) (1)
Business disposals 31 - 31 188 (157)
Exceptional cashflows (2) - (2) (3) 1
Exchange (2) - (2) (5) 3
________________________________________________________________________________
Group Cash Flow 35 (41) (6) 148 (154)
================================================================================
* operating profit before exceptional items
The underlying cash generated by the core business was £8m after net capital
expenditure of £33m. The £31m inflow from business disposals comprises the sale
proceeds and cash flows relating to the discontinued businesses during the year.
This includes a £5m payment into the Group's UK defined benefit pension scheme
to cover the residual liabilities of the employees of the UK hazardous waste
activities who became deferred pensioners. The exceptional cash outflow of £2m
was principally redundancy costs related to the reorganisation of the UK
businesses started last year. There was a £2m adverse movement on the
translation of Group's Euro denominated debt into Sterling, giving a reduction
in core debt of £35m. The non-recourse aggregated debt in the PFI companies
increased by £41m mainly due to the construction work in the ELWA and D&G
contracts.
Capital Expenditure/Acquisitions
The Group spent £80m net on capital expenditure (2005: £67m) of which £33m was
in the core business and £47m on PFI contracts. The core business growth capital
projects included six small acquisitions; one in the UK, three in the
Netherlands and two in Belgium. Other major items included the purchase of a
site in Rotterdam and the construction of a new storage shed at ATM. The core
business maintenance capital expenditure was £23m (2005: £21m). The expenditure
on PFI contracts relates principally to construction of MBT facilities at our
ELWA and D&G contracts.
Treasury and Risk Management Policy
The 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 net 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.
The Group's principal financing is a £250m multicurrency revolving credit
facility with five major banks expiring in April 2010. Adjusting for cash, this
facility was less than 25% utilised at 31 March 2006. The 2001 notes issued
under the Group's private placement of £36m have maturity dates between 2009 and
2013. The Group also has £26m of working capital facilities with various banks.
Each of the Group's PFI projects has senior debt facilities which contribute
approximately 85% of the capital funding required. These facilities are secured
on the future cash flows of the PFI companies with no recourse to the Group as a
whole. Repayment of these facilities, and any equity bridge facility in respect
of the remaining capital funding, commences when construction is complete and
concludes one to two years prior to the expiry of the PFI contract period. As
the Group currently holds 100% of the equity in its PFI companies, the net debt
of £105m is fully consolidated in the Group balance sheet. The maximum which
could be drawn down under these facilities at 31 March 2006 is £159m.
Insurance
The Group places all its insurance with leading insurance companies with sound
financial credentials. For obligatory insurances, the policy is to obtain the
necessary cover at competitive rates. For other areas, regular risk assessments
are undertaken to identify and assess risks. Where appropriate insurance is
then used to mitigate these risks. The level of cover put in place will depend
on the nature of the risks and the cost and extent of cover available in the
market. The majority of our insurances are renewed annually.
The Group uses renowned international brokers to advise on risk management,
appropriate insurers, cover levels and benchmarking.
Insurance requirements for our UK PFI contracts are set out in the funding and
project agreements.
Pensions
Under IFRS the Group uses IAS19 - Employee Benefits to account for pensions.
The pension charge for the continuing business for the year has increased to
£5.7m (2005: £4.8m). The net retirement benefit obligations which relate to the
defined benefit section of our UK scheme have reduced to £10.3m (2005: £16.9m),
mainly as a result of the £5m payment made in November 2005. This related to
the residual liabilities of the UK hazardous waste employees who have become
deferred pensioners. A £1.2m curtailment gain arose on these pensioners
becoming deferred, which is included in the profit from discontinued operations.
The defined benefit section of the UK scheme was closed to new members in
September 2002 and new employees are now offered a defined contribution
arrangement. The triennial actuarial valuation of this scheme, based on the
assets and liabilities as at 1 April 2003, showed a smoothed funding deficit of
£12m. The Group reduced its annual pension cash contributions by £0.3m with
effect from 1 April 2005 following a £10m lump sum payment into the scheme in
March 2005.
Going Concern
The Directors, having reviewed the Group's 2006/7 budget, its medium term plans
and its banking arrangements 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 the financial statements.
Notes:
1. Management will be holding an analyst presentation at 9:30 am today, 1 June
at ABN AMRO's offices at 250 Bishopsgate, London, EC2M 4AA.
2. A copy of this announcement is available on the company's website
(www.shanks.co.uk) as will the presentation being made today to financial
institutions.
3. Copies of the Annual Report will be posted to shareholders by 26 June 2006
after which they will be available, on request from the company at Astor
House, Station Road, Bourne End, Buckinghamshire, SL8 5YP, or on the
company website.
4. The final dividend of 3.8 pence per share will be paid on 4 August 2006 to
shareholders on the register at close of business on 14 July 2006.
For further information contact:
Shanks Group plc on 1 June, telephone: 020 7678 0383
Ian Clubb, Chairman thereafter, telephone: 01628 554920
Michael Averill, Group Chief Executive
Fraser Welham, Group Finance Director
Citigate Dewe Rogerson telephone: 020 7282 2945
Ginny Pulbrook
Consolidated Income Statement
Year ended 31 March 2006 (unaudited)
2006 2005
Note £m £m
_________________________________________________________________________________________
Continuing operations
Revenue 2 442.5 420.4
_________________________________________________________________________________________
Cost of sales - ongoing (358.6) (336.3)
Cost of sales - restructuring costs 3 - (5.2)
_________________
Total cost of sales (358.6) (341.5)
_________________________________________________________________________________________
Gross profit 83.9 78.9
_________________________________________________________________________________________
Administrative expenses - ongoing (45.0) (48.1)
Administrative expenses - restructuring costs 3 - (5.3)
_________________
Total administrative expenses (45.0) (53.4)
_________________________________________________________________________________________
Operating profit 2 38.9 25.5
_________________________________________________________________________________________
Finance charges:
Interest payable and other (12.7) (10.7)
Interest receivable 7.8 5.4
Change in fair value of financial instruments (3.7) (0.5)
_________________
Total finance charges 4 (8.6) (5.8)
_________________________________________________________________________________________
Profit before tax from continuing operations 2 30.3 19.7
Tax 5 (10.5) (7.1)
_________________________________________________________________________________________
Profit after tax for the year from continuing operations 2 19.8 12.6
Discontinued operations
Profit after tax for the year from discontinued operations 2 10.6 65.0
_________________________________________________________________________________________
Profit for the year 30.4 77.6
=========================================================================================
Dividend per share 6 5.7p 5.7p
Earnings per share
- basic 7 13.0p 33.1p
- diluted 7 12.9p 33.1p
Earnings per share from continuing operations
- basic 7 8.5p 5.4p
- diluted 7 8.4p 5.4p
=========================================================================================
Consolidated Balance Sheet
At 31 March 2006 (unaudited)
At 31 March At 31 March
2006 2005
Note £m £m
_______________________________________________________________________________
Non-current assets
Intangible assets 144.4 140.5
Property, plant and equipment 183.6 202.4
Loans to joint ventures 0.6 1.6
Other investments 2.3 1.3
Trade and other receivables 120.1 75.6
Deferred tax assets 16.5 14.1
_______________________________
467.5 435.5
_______________________________
Current assets
Inventories 9.0 9.3
Trade and other receivables 97.3 109.1
Current tax receivables 0.4 3.0
Cash and cash equivalents 59.4 32.5
_______________________________
166.1 153.9
_______________________________________________________________________________
Total assets 633.6 589.4
_______________________________________________________________________________
Current liabilities
Borrowings (10.9) (4.0)
Trade and other payables (114.1) (125.7)
Current tax payables (10.4) (4.2)
Provisions 8 (9.1) (11.9)
_______________________________
(144.5) (145.8)
_______________________________
Non-current liabilities
Borrowings (237.3) (207.2)
Other non-current liabilities (0.7) (1.0)
Deferred tax liabilities (15.9) (15.6)
Provisions 8 (16.3) (13.9)
Retirement benefit obligations (10.3) (16.9)
_______________________________
(280.5) (254.6)
_______________________________________________________________________________
Total liabilities (425.0) (400.4)
_______________________________________________________________________________
Net assets 208.6 189.0
===============================================================================
Equity
Share capital 23.5 23.4
Share premium 93.7 93.2
Exchange reserve 5.0 3.1
Retained earnings 86.4 69.3
_______________________________________________________________________________
Total equity 208.6 189.0
===============================================================================
Consolidated Cash Flow Statement
Year ended 31 March 2006 (unaudited)
2006 2005
Note £m £m
______________________________________________________________________________________________
Net cash from operating activities 9 (c) 58.9 64.9
______________________________________________________________________________________________
Investing activities
Purchase of intangible assets (0.2) (0.3)
Purchases of property, plant and equipment (31.9) (34.4)
Disposal of property, plant and equipment 3.1 6.9
Financial asset capital advances (48.8) (37.2)
Financial asset capital repayments 1.9 0.7
Acquisition of subsidiary and other businesses (4.2) (1.7)
Net proceeds from disposal of subsidiary and other businesses 34.0 175.0
Income received from other investments 0.7 0.1
______________________________________________________________________________________________
Net cash used in investing activities 9 (c) (45.4) 109.1
______________________________________________________________________________________________
Financing activities
Interest paid (12.6) (12.9)
Interest received 7.8 5.2
Proceeds from issue of shares 0.6 0.1
Dividends paid (13.4) (13.3)
Increase (repayment) of borrowings 32.2 (151.4)
Increase in obligations under finance leases 1.8 2.5
Repayments of obligations under finance leases (3.0) (2.5)
______________________________________________________________________________________________
Net cash flow from financing activities 13.4 (172.3)
______________________________________________________________________________________________
Net increase in cash and cash equivalents 26.9 1.7
Cash and cash equivalents at beginning of year 32.5 30.8
______________________________________________________________________________________________
Cash and cash equivalents at end of year 59.4 32.5
==============================================================================================
Consolidated Movement in Net Debt
Year ended 31 March 2006 (unaudited)
2006 2005
£m £m
______________________________________________________________________________________________
Net increase in cash and cash equivalents 26.9 1.7
(Increase) repayment of borrowings and finance leases (31.0) 151.4
Amortisation of loan fees (0.4) (0.3)
Exchange loss (1.9) (4.5)
Change in fair value of financial instruments (3.7) (0.5)
______________________________________________________________________________________________
Movement in net debt (10.1) 147.8
Net debt at beginning of year (178.7) (326.5)
______________________________________________________________________________________________
Net debt at end of year (188.8) (178.7)
==============================================================================================
Analysis of Net Debt.
At 31 March 2006 (unaudited)
At 31 At 31
March March
2006 2005
£m £m
______________________________________________________________________________________________
Principal Group net debt 75.9 110.6
Private Finance Initiative net debt 105.5 64.4
______________________________________________________________________________________________
Total Group net debt before fair value of interest rate swaps 181.4 175.0
Fair value of Private Finance Initiative interest rate swaps 7.4 3.7
______________________________________________________________________________________________
Total Group net debt 188.8 178.7
==============================================================================================
Consolidated Statement of Recognised Income and Expense
Year ended 31 March 2006 (unaudited)
2006 2005
£m £m
______________________________________________________________________________________________
Exchange gain on translation of foreign operations 1.9 3.1
Actuarial (loss) gain on defined benefit pension schemes (0.6) 0.1
______________________________________________________________________________________________
1.3 3.2
Deferred tax in respect of the above 0.2 -
______________________________________________________________________________________________
Net income recognised directly in equity 1.5 3.2
Profit for the year 30.4 77.6
______________________________________________________________________________________________
Total recognised income and expense for the year 31.9 80.8
==============================================================================================
Consolidated Statement of Changes in Equity
Year ended 31 March 2006 (unaudited)
Share Share Exchange Retained
capital premium reserve earnings Total
£m £m £m £m £m
___________________________________________________________________________________________________
Balance carried forward at 31 March 2005 23.4 93.2 3.1 69.3 189.0
Issue of share capital 0.1 0.5 - - 0.6
Exchange gain on translation of foreign operations - - 1.9 - 1.9
Profit for the year - - - 30.4 30.4
Actuarial loss on defined benefit pension schemes - - - (0.4) (0.4)
Share based payments - - - 0.5 0.5
Dividends paid in the year (see note 6) - - - (13.4) (13.4)
___________________________________________________________________________________________________
Balance carried forward at 31 March 2006 23.5 93.7 5.0 86.4 208.6
===================================================================================================
The Exchange reserve comprises all foreign exchange differences arising from the
translation of the financial statements of foreign operations as well as from
the translation of liabilities that hedge the Group's net investment in foreign
operations. The reserve also includes any related taxation.
Notes to the Financial Statements
(unaudited)
1 Basis of preparation of financial statements and status of financial
statements
The figures and financial information for the year ended 31 March 2006 are
extracted from but do not constitute the statutory financial statements for
that year. The figures and financial information for the year are
unaudited but have been approved by the Board of Directors.
The financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS), Article 4 of the
European Union IAS Regulation and with those parts of the Companies Act
1985 that are applicable to companies reporting under IFRS. The financial
statements have been prepared on the basis of the requirements of IFRS in
issue and endorsed by the EU which are effective (or available for early
adoption) at 31 March 2006.
Comparative figures for the year ended 31 March 2005 and the Group's
balance sheet as at 31 March 2004 that were previously reported in
accordance with accounting principles generally accepted in the United
Kingdom (UK GAAP) have been restated to comply with IFRS. Summary
reconciliations between UK GAAP and IFRS are set out in note 10.
The IFRS accounting policies have been applied consistently to all periods
presented and throughout the Group for the purposes of the consolidated
financial statements. Full IFRS accounting policies will be disclosed in
the financial statements for the year ended 31 March 2006.
2 Segmental reporting
Waste Management business shown by management responsibility and
geographical area:
2006 2005
£m £m
___________________________________________________________________________
(a) Continuing operations
Revenue United Kingdom 126.1 126.2
Belgium 110.2 102.2
Netherlands 206.2 192.0
________________
Total revenue 442.5 420.4
________________
Group 429.9 410.2
Share of joint ventures 12.6 10.2
________________
Total revenue 442.5 420.4
===========================================================================
Trading profits* United Kingdom 4.1 (1.5)
Belgium 15.7 16.6
Netherlands 23.5 24.3
Central Services (4.4) (3.4)
________________
Total trading profit 38.9 36.0
________________
Group 35.7 34.1
Share of joint ventures 3.2 1.9
________________
Total trading profit 38.9 36.0
Restructuring costs (United Kingdom) (see note 3) - (10.5)
________________
Total operating profit 38.9 25.5
===========================================================================
Operating profits United Kingdom 4.1 (12.0)
Belgium 15.7 16.6
Netherlands 23.5 24.3
Central Services (4.4) (3.4)
________________
Total operating profit 38.9 25.5
___________________________________________________________________________
Finance charges Interest payable and other (12.7) (10.7)
Interest receivable 7.8 5.4
Change in fair value of financial (3.7) (0.5)
instruments
________________
Total finance charges (8.6) (5.8)
___________________________________________________________________________
Profit before tax from continuing operations 30.3 19.7
Tax (10.5) (7.1)
___________________________________________________________________________
Profit after tax and profit for the year from continuing 19.8 12.6
operations
===========================================================================
* operating profits before restructuring costs
2006 2005
£m £m
__________________________________________________________________________
(b) Discontinued operations
Revenue United Kingdom 18.4 78.5
Netherlands 4.9 11.1
________________
Total revenue 23.3 89.6
__________________________________________________________________________
Operating profits United Kingdom 0.7 7.1
Netherlands (0.3) -
________________
Total operating profit 0.4 7.1
__________________________________________________________________________
Profit on disposal of operations (United Kingdom) 8.7 59.4
__________________________________________________________________________
Finance charges Net external interest (0.6) (3.5)
Discount unwind and loan fee amortisation - (0.5)
________________
Total finance charges (0.6) (4.0)
__________________________________________________________________________
Profit before tax from discontinued operations 8.5 62.5
Tax credit 2.1 2.5
__________________________________________________________________________
Profit after tax and profit for the year from continuing 10.6 65.0
operations
==========================================================================
Net external interest has been allocated to discontinued operations by
applying the external interest rate to the net operating assets employed.
(c) Analysis of net assets At 31 March At 31 March
2006 2005
£m £m
_________________________________________________________________________
United Kingdom Gross assets 175.0 163.9
Gross liabilities (50.9) (73.2)
________________________
Net operating assets 124.1 90.7
________________________
Belgium Gross assets 73.8 70.0
Gross liabilities (42.4) (39.2)
________________________
Net operating assets 31.4 30.8
________________________
Netherlands Gross assets 307.9 302.3
Gross liabilities (47.8) (50.5)
________________________
Net operating assets 260.1 251.8
________________________
Central Services Gross assets 0.6 3.6
Gross liabilities (9.4) (6.5)
________________________
Net operating assets (8.8) (2.9)
_________________________________________________________________________
Total Gross assets 557.3 539.8
Gross liabilities (150.5) (169.4)
_________________________________________________________________________
Net operating assets 406.8 370.4
Corporation tax (10.0) (1.2)
Deferred tax 0.6 (1.5)
Net debt (188.8) (178.7)
_________________________________________________________________________
Net assets 208.6 189.0
=========================================================================
3 Restructuring costs
The restructuring costs of £10.5m in the year to 31 March 2005 arose on the
integration and reorganisation of the Group's business in the United
Kingdom. The effect of this item was to reduce the tax charge for the year
by £3.1m.
4 Finance charges
2006 2005
£m £m
______________________________________________________________________________________________
Interest payable and other:
Interest payable on bank loans and overdrafts repayable within five years 5.4 5.6
Interest payable on other loans 6.5 4.3
Share of interest of joint ventures 0.1 0.2
Unwinding of discount on long term landfill liabilities 0.3 0.3
Amortisation of bank fees 0.4 0.3
______________________________________________________________________________________________
Total interest payable 12.7 10.7
______________________________________________________________________________________________
Interest receivable:
Interest receivable (2.2) (2.4)
Interest receivable on financial assets relating to PFI contracts (5.6) (3.0)
______________________________________________________________________________________________
Total interest receivable (7.8) (5.4)
______________________________________________________________________________________________
Change in fair value of financial instruments 3.7 0.5
______________________________________________________________________________________________
Net finance charges 8.6 5.8
==============================================================================================
5 Tax
The tax charge based on the profit for the year is made up as follows:
2006 2005
£m £m
______________________________________________________________________________
Current tax
UK corporation tax at 30% (2005: 30%)
- Current year 4.3 3.4
- Prior year (1.9) -
Double tax relief (2.2) (2.8)
Overseas tax
- Current year 9.8 7.6
- Prior year (0.1) 1.2
______________________________________________________________________________
Total current tax 9.9 9.4
______________________________________________________________________________
Deferred tax
- Current year (0.4) (3.8)
- Prior year (1.1) (1.0)
______________________________________________________________________________
Total deferred tax (1.5) (4.8)
______________________________________________________________________________
Total tax charge for the year 8.4 4.6
==============================================================================
Total tax charge - continuing operations 10.5 7.1
Total tax credit - discontinued operations (2.1) (2.5)
______________________________________________________________________________
Total tax charge for the year 8.4 4.6
==============================================================================
6 Dividends
2006 2005
£m £m
_______________________________________________________________________________________________________________
Amounts recognised as distributions to equity holders in the year:
Final dividend paid for the year ended 31 March 2005 of 3.8p per ordinary share (2004: 3.8p) 8.9 8.9
Interim dividend paid for the year ended 31 March 2006 of 1.9p per ordinary share (2005: 1.9p) 4.5 4.4
_______________________________________________________________________________________________________________
13.4 13.3
===============================================================================================================
Proposed final dividend for the year ended 31 March 2006 of 3.8p per share (2005: 3.8p) 8.9 8.9
===============================================================================================================
The proposed final dividend for the year ended 31 March 2006 of 3.8 pence
per share was approved by the Board on 1 June 2006 and, subject to approval
by the Shareholders at the Annual General Meeting on 27 July 2006, will be
paid on 4 August 2006 to shareholders on the Register at close of business
on 14 July 2006.
7 Earnings per share
2006 2005
______________________________________________________________________________________________
Number of shares
Weighted average number of ordinary shares for basic earnings per share 234.3 234.1
Effect of share options in issue 0.8 0.6
______________________________________________________________________________________________
Weighted average number of ordinary shares for diluted earnings per share 235.1 234.7
==============================================================================================
Calculation of basic and adjusted basic earnings per share
Earnings for basic earnings per share being profit for the year (£m) 30.4 77.6
Earnings from discontinued operations (£m) (10.6) (65.0)
______________________________________________________________________________________________
Earnings for basic earnings per share from continuing operations (£m) 19.8 12.6
Restructuring costs (net of tax) (£m) - 7.4
Change in fair value of financial instruments (net of tax) (£m) 2.6 0.4
______________________________________________________________________________________________
Earnings for adjusted basic earnings per share (£m) 22.4 20.4
______________________________________________________________________________________________
Basic earnings per share (pence) 13.0p 33.1p
Basic earnings per share from continuing operations (pence) 8.5p 5.4p
Basic earnings per share from discontinued operations (pence) 4.5p 27.7p
Adjusted basic earnings per share (pence) 9.6p 8.7p
==============================================================================================
Calculation of diluted earnings per share
Earnings for basic earnings per share being profit for the year (£m) 30.4 77.6
Effect of dilutive potential ordinary shares (£m) - -
______________________________________________________________________________________________
Earnings for diluted earnings per share (£m) 30.4 77.6
Earnings from discontinued operations (£m) (10.6) (65.0)
______________________________________________________________________________________________
Earnings for diluted earnings per share from continuing operations (£m) 19.8 12.6
______________________________________________________________________________________________
Diluted earnings per share (pence) 12.9p 33.1p
Diluted earnings per share on continuing operations (pence) 8.4p 5.4p
Diluted earnings per share on discontinued operations (pence) 4.5p 27.7p
==============================================================================================
The Directors believe that adjusting profits and earnings per share for the
effect of exceptional items enables comparison with historical data
calculated on the same basis. Exceptional items are those items that need
to be disclosed separately on the face of the income statement because of
their size or incidence. The credit or charge for the fair value of
interest rate swaps is also considered to be exceptional as the Group has
chosen not to apply hedge accounting for these swaps to avoid meeting
onerous verification requirements in respect of an item that does not
reflect the commercial reality.
8 Provisions
Site restoration
and aftercare Other Total
£m £m £m
_______________________________________________________________________________
At 31 March 2005 17.8 8.0 25.8
Provided - cost of sales 0.7 0.1 0.8
Provided - finance charges 0.3 - 0.3
Provided - discontinued businesses - 4.8 4.8
Reclassified 1.2 - 1.2
Utilised (3.0) (4.7) (7.7)
Exchange rate movements 0.2 - 0.2
_______________________________________________________________________________
At 31 March 2006 17.2 8.2 25.4
===============================================================================
Current 2.3 6.8 9.1
Non-current 14.9 1.4 16.3
_______________________________________________________________________________
At 31 March 2006 17.2 8.2 25.4
===============================================================================
Current 4.9 7.0 11.9
Non-current 12.9 1.0 13.9
_______________________________________________________________________________
At 31 March 2005 17.8 8.0 25.8
===============================================================================
9 Notes to the cash flow statement
2006 2005
£m £m
___________________________________________________________________________________________
(a) Continuing operations
Net cash from operating activities
Operating profit from continuing operations 38.9 25.5
Amortisation of intangible assets 0.5 0.5
Impairment loss on intangible assets - 0.5
Depreciation of property, plant and equipment 28.9 25.7
Impairment loss on property, plant and equipment - 2.8
Charge for long term landfill provisions 0.5 1.0
___________________________________________________________________________________________
Earnings before interest, tax, depreciation and amortisation ('EBITDA') 68.8 56.0
Gain on disposal of property, plant and equipment (1.3) (1.4)
Net (decrease) increase in provisions (4.4) 0.5
Share based payments 0.5 0.1
___________________________________________________________________________________________
Operating cash flows before movements in working capital 63.6 55.2
(Increase) in inventories (1.2) (3.3)
Decrease (increase) in receivables 7.9 (11.2)
(Decrease) increase in payables (11.1) 16.3
___________________________________________________________________________________________
Cash generated by operations 59.2 57.0
Income taxes paid (1.5) (6.4)
___________________________________________________________________________________________
Net cash from operating activities 57.7 50.6
===========================================================================================
Investing activities
Purchase of intangible assets (0.2) (0.3)
Purchases of property, plant and equipment (30.7) (33.2)
Disposal of property, plant and equipment 3.1 6.6
Financial assets capital advances (48.8) (37.2)
Financial assets capital repayments 1.9 0.7
Acquisitions of subsidiary and other businesses (4.2) (1.7)
Net proceeds from disposal of subsidiary and other businesses 34.0 175.0
Income received from other investments 0.7 0.1
___________________________________________________________________________________________
Net cash used in investing activities (44.2) 110.0
===========================================================================================
(b) Discontinued operations
Net cash from operating activities
Operating profit from discontinued activities 0.4 7.1
Depreciation of property, plant and equipment 2.1 10.7
Decrease in provisions (2.8) (9.0)
___________________________________________________________________________________________
Operating cash flows before movements in working capital (0.3) 8.8
(Increase) decrease in inventories (0.4) 0.3
Decrease in receivables 1.4 2.3
Increase in payables 0.5 2.9
___________________________________________________________________________________________
Cash generated by operations 1.2 14.3
___________________________________________________________________________________________
Net cash from operating activities 1.2 14.3
===========================================================================================
Investing activities
Purchases of property, plant and equipment (1.2) (1.2)
Disposal of property, plant and equipment - 0.3
___________________________________________________________________________________________
Net cash used in investing activities (1.2) (0.9)
===========================================================================================
(c) Total Group operations
Net cash from operating activities
Operating profit from all operations 39.3 32.6
Amortisation of intangible assets 0.5 0.5
Impairment loss on intangible assets - 0.5
Depreciation of property, plant and equipment 31.0 36.4
Impairment loss on property, plant and equipment - 2.8
Charge for long term landfill provisions 0.5 0.3
___________________________________________________________________________________________
Earnings before interest, tax, depreciation and amortisation ('EBITDA') 71.3 73.1
Gain on disposal of property, plant and equipment (1.3) (1.4)
Decrease in provisions (7.2) (7.8)
Share based payments 0.5 0.1
___________________________________________________________________________________________
Operating cash flows before movements in working capital 63.3 64.0
(Increase) in inventories (1.6) (3.0)
Decrease (increase) in receivables 9.3 (8.9)
(Decrease) increase in payables (10.6) 19.2
___________________________________________________________________________________________
Cash generated by operations 60.4 71.3
Income taxes paid (1.5) (6.4)
___________________________________________________________________________________________
Net cash from operating activities 58.9 64.9
===========================================================================================
Investing activities
Purchases of intangible assets (0.2) (0.3)
Purchases of property, plant and equipment (31.9) (34.4)
Disposal of property, plant and equipment 3.1 6.9
Financial assets debtor capital advances (48.8) (37.2)
Financial assets capital repayments 1.9 0.7
Acquisitions of subsidiary and other businesses (4.2) (1.7)
Net proceeds from disposal of subsidiary and other businesses 34.0 175.0
Income received from other investments 0.7 0.1
___________________________________________________________________________________________
Net cash used in investing activities (45.4) 109.1
===========================================================================================
10 Reconciliation of UK GAAP to IFRS
As stated in note 1, the Group previously prepared its financial statements
in accordance with UK Generally Accepted Accounting Principles (UK GAAP).
As a result of adopting IFRS in respect of the year ending 31 March 2006,
the Group has restated comparative information for 2004/5. As required by
IFRS1 - First-time Adoption of International Financial Reporting Standards,
the reconciliations between previously reported UK GAAP based information
and their IFRS equivalents is set out below.
Profit
31 March 2005 Share Share Exchange Retained Total for the
capital premium reserve earnings equity year
£m £m £m £m £m £m
__________________________________________________________________________________________________________________
Previously reported under UK GAAP 23.4 93.2 - 78.1 194.7 46.9
IFRS2 - Share based payments - - - - - (0.1)
IFRS3 - Business combinations - - - 9.6 9.6 16.9
IAS10 - Events after the balance sheet date - - - 8.9 8.9 13.3
(dividends)
IAS19 - Employee benefits - - - (18.9) (18.9) 0.2
IAS17 - Leases - - - 0.1 0.1 0.1
IAS12 - Deferred tax - - - (5.2) (5.2) -
IAS21 - Foreign currencies - - 3.1 (3.1) - -
IAS39 - Fair value of interest rate swaps - - - (2.6) (2.6) (0.4)
IAS39 - Adoption of financial asset accounting - - - 2.4 2.4 0.7
__________________________________________________________________________________________________________________
Reported now under IFRS 23.4 93.2 3.1 69.3 189.0 77.6
==================================================================================================================
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