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 ================================================================================================================== This information is provided by RNS The company news service from the London Stock Exchange

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