Augean Plc
Annual Report 2005

Plain-text annual report

A u g e a n P L C A n n u a l R e p o r t 2 0 0 5 Annual Report 2005 Contents 2 Highlights 3 Chairman’s statement 4 Chief Executive’s review 10 Directors and advisers 11 Corporate governance 13 Report of the directors 18 Auditors’ report to the shareholders of Augean PLC 20 Consolidated profit and loss account 21 Consolidated balance sheet 22 Company balance sheet 23 Consolidated cash flow statement 24 Notes to the financial statements 47 Unaudited pro forma results for 2005 48 Notice of Annual General Meeting Augean PLC, a market leader in the management of hazardous waste, provides advice and cost-effective solutions to UK businesses’ waste problems. We work in partnership with our clients to provide long-term answers to the treatment and disposal of their waste. Our strict operating protocols take effect the moment an enquiry is made: our team of technical advisers determines the most effective route for the waste. This could be through our treatment facility, where appropriate, or direct to one of our landfill facilities. We currently own more than 10m cubic metres of void space. Augean Annual Report 2005 1 Financial highlights Turnover of £26.1m. Operating profit before amortisation of £3.7m. Loss before tax of £6.7m. Strong operating cash flow of £7.3m. * * * * Operational highlights Successfully integrated three separate businesses to form a more profitable unit. Prices stable. Granted Pollution Prevention Control permit to operate the stable non-reactive hazardous waste monocells at the Thornhaugh site. Planning regularised at King’s Cliffe. Operating management team strengthened. * * * * * 2 Augean Annual Report 2005 Chairman’s statement I have pleasure in presenting our first full set of results. During the period, on turnover of £26.1m, an operating profit of £3.7m was achieved before amortisation of intangible assets. After charges for amortisation of £10.1m and interest of £0.3m, a loss before tax of £6.7m was recorded. These charges for amortisation do not have a cash impact on our company and it is worth noting that net cash in-flow from operating activities during the period under review was £7.3m. This demonstrates our company’s cash generative capability. This result is slightly better than our revised expectations but well below the level we had hoped to achieve. The reasons for this were outlined in my statement accompanying the interim results as reported in September 2005. The hazardous waste market was boosted as a result of changes in legislation both in July 2004 and in July 2005. It is rapidly establishing itself as an important sub-sector within the waste industry and we now own a meaningful share of the total UK hazardous void space. Prices for hazardous waste, having leapt 18 months ago, are stable with some chemical waste prices trending upwards. Recognising the needs of our customers for pre- treatment services as well as the disposal facilities, we acquired Proactive Waste Solutions Limited for £8m. Proactive, a leading hazardous waste treatment operator is based in Cannock in the West Midlands and has a licensed site covering approximately 4,500 square metres. This acquisition, which has now been rebranded as Augean Treatment, is proving highly complementary to our hazardous landfill sites. At the time of our listing on AIM we noted our intention to appoint an additional independent non-executive director alongside Roger McDowell and during the period under review we have been pleased to welcome Andrew Bryce on to our Board in that role. Andrew is well-known and respected within the waste sector and in an ever changing regulatory environment, his input is invaluable. In December 2005, Gary Downey, our Finance Director, left the company. We have appointed an interim Finance Director and we will be making a statement regarding a permanent appointment in due course. Outlook We have established a strong position within a specialised niche of the waste industry. We have very little debt and enjoy good cash flow and I can report that the new year has started encouragingly as a result of progress which has been made in a number of important areas outlined in our Chief Executive’s review. David Williams 12 April 2006 Augean Annual Report 2005 3 Chief Executive’s review 2005 proved to be a year of progress for Augean and its employees as we have addressed a number of challenges. I am confident that the people and systems we have in place will give the company a firm base from which to strengthen our position in the growing hazardous waste sector. Market and legislation Augean was set up in 2004 to take advantage of the hazardous waste regulations which had recently been introduced in Europe and the UK; as with most legislation, however, this has taken time to be fully implemented and, more importantly, policed by the appropriate authorities. The Environment Agency has now increased its efforts to combat hazardous waste, particularly contaminated soils, being blatantly misdirected to non-hazardous facilities. An independent market report indicated that a year’s worth of special/hazardous construction and demolition waste was excavated and deposited in the six months leading up to the 16 July 2004 deadline of the new legislation. We believe that this abnormal quantity suppressed the volumes of this type of waste being produced from July 2004 to the middle of 2005. It is suggested in the report that quantities would recover to previous levels only towards the end of 2005, or even the second quarter of 2006. The introduction of the Waste Acceptance Criteria, in July 2005, created many new categories of hazardous waste but some confusion among our customers and resulted in a temporary dip in the volumes of chemical-related waste. I am pleased to report that this was partly outweighed by an increase in the volumes of construction related wastes. Landfill division We believe that, while the treatment and recovery of hazardous wastes will gradually increase over the next few years, landfill will always be needed to deal with waste that cannot be dealt with in this way, as well as for the final repository for waste from inhouse and external treatment facilities. As a result, our focus in the first half of 2005 was directed towards the integration of the two businesses which we acquired in December 2004. There were inevitable changes in personnel during the year, but I am pleased to report that many of the existing staff stayed with the business and, in a number of cases, took on expanded roles. 4 Augean Annual Report 2005 Market leader The UK’s market leader in the management of hazardous waste, providing advice and cost-effective solutions to UK businesses’ waste problems. Augean Annual Report 2005 5 Chief Executive’s review continued “We use Augean for all our hazardous waste disposals. Their attention to detail and professionalism is of the highest order.” Richard Pierce, Company Buyer, VHE Construction Plc We made a number of improvements in the Landfill division, including: ● secured a stable and enthusiastic sales team; ● approval from the Environment Agency for the hazardous waste monocells at Thornhaugh which will come on stream during the second quarter of 2006; ● a new regional office facility at King’s Cliffe, Peterborough; ● standardisation of weighbridge facilities to improve customer turn around times; ● a significant plant replacement programme, which reduced costs and improved efficiency; ● agreement from the Environment Agency to increase the annual hazardous waste licensed inputs at Port Clarence from 100,000 to 500,000 tonnes; and ● removal of waste from Thornhaugh to Marks Quarry, which improved the visual impact of the site and enabled us to continue to expand this important regional facility. At the end of March 2006, Marks Quarry will close on schedule. Marks Quarry will provide Augean with a modest revenue stream going forward in the form of Landfill Gas Royalties. Treatment division The acquisition of Proactive Waste Solutions, which was acquired in August 2005 to enable us to move towards providing customers with an overall solution to their hazardous waste problems, has proved to be an excellent addition to the Group. It has potential for significant expansion during the coming year. We recognise that this sector will continue to develop and, as a result, intend to expand the Treatment division during 2006. We plan to achieve this through a mixture of acquisitions, development at existing facilities, and by increasing the number of treatment options available. During the latter half of 2005, and the beginning of 2006, we have researched a number of treatment facilities in the UK and Europe, to enable us to formulate our strategy in this area. Financial performance Turnover for the period was £26.1m, generating an operating profit before amortisation of intangible assets of £3.7m, a loss before tax of £6.7m and a loss per share of 16.41p. Net assets at the period end were £104.7m and there was a net cash inflow from operating activities of £7.3m. The Board will not be recommending the payment of a dividend for the period ended 31 December 2005. 6 Augean Annual Report 2005 Partnerships We work in partnership with our clients to provide long-term answers to the treatment and disposal of their waste. Augean Annual Report 2005 7 Chief Executive’s review continued “When it comes to the complete hazardous waste one-stop shop, there’s only one company we would use and that’s Augean.” Michael Coleman, Contracts Manager, Vertase F.L.I. Future developments During 2006 we will embark on a number of exciting developments to broaden the Group’s range of services and to deliver shareholder value. These include: ● increasing throughput at Augean Treatment’s Cannock treatment facility through the introduction of 24-hour working; ● increasing the types of waste handled at Augean Treatment’s Cannock facility by constructing a pilot plant to consolidate hazardous waste streams. This will be followed by a permanent installation towards the end of 2006; ● developing treatment and pre-treatment facilities at our Port Clarence facility in the North-East of England; ● developing an Augean treatment facility at a third-party site in the Yorkshire region; ● introducing wharfage facilities at Port Clarence to enable us to capitalise on the lack of hazardous facilities in Southern England; and ● opening of a purpose-built laboratory at our King’s Cliffe site, in April 2006, for testing customers’ material. This will reduce our reliance on third-party laboratory facilities and improve customer service. Management team During the integration of the three businesses it has acquired, the Company has strengthened its management team at all levels. At the operating level, we have added a depth and experience of management to successfully drive volumes to our landfill and treatment businesses and to give the company capacity to make further acquisitions and move the company forward. The strengthened team includes individuals with great experience in the waste industry. No company can survive without a dedicated management team which believes in, and supports, the ethos and strategy of its Board of Directors. I am happy to say that, at Augean, we have such a team which is supported by a strong and committed workforce and I thank everyone for their valuable contribution during 2005. John Huntington 12 April 2006 8 Augean Annual Report 2005 Operating protocols Our strict operating protocols take effect the moment an enquiry is made: our team of technical advisers determines the most effective route for the waste. Augean Annual Report 2005 9 Directors and advisers Directors David Williams – (non-executive Chairman) David has 35 years’ experience in the investment market. He has been Chairman of public and private companies and was, for seven years, Chairman of Waste Recycling Group plc. He took it through flotation and saw its market capitalisation grow from £8m to £550m at its peak. David is currently Chairman of Marwyn Capital Limited and associated companies. John Huntington – (Chief Executive) John, a chartered accountant, has over 15 years’ experience in the waste industry. In 1996 he led a management buy-out of Darrington Quarries Limited, a landfill and quarry business, which was bought in 1997 by Waste Recycling Group plc (“WRG”). He joined WRG as Group Operations Director, becoming Managing Director in 1999. He left WRG in 2001, having overseen acquisitions in the waste sector before joining Augean as Chief Executive in December 2004. Roger McDowell – (non-executive director) Roger was appointed Managing Director of Oliver Ashworth Limited, a pipeline products distributor in 1988, and the business was listed in 1996 before being sold to Saint Gobain in 1998. Since the sale of the business, Roger has held a number of non- executive roles and is currently a non-executive director of Intec Telecom Systems plc, Booth Industries plc and a director of several private companies. Andrew Bryce – (non-executive director) Andrew has had a long career in environmental law in the UK and currently runs his own law firm, Andrew Bryce & Co, which specialises in personal legal consultancy, and advising boards on strategic, environmental management and liability issues. He was previously an equity partner and Head of Environmental Services at City law firm Cameron Markby Hewitt (now part of CMS Cameron McKenna). He has held the Chairmanship and Vice Chairmanship of the United Kingdom Environmental Law Association and is currently Convenor of its Waste Working Party. 10 Augean Annual Report 2005 Secretary Susan Fadil FCIS Registered office 4 Rudgate Court Walton Wetherby LS23 7BF Registered number 5199719 (incorporated and registered in England and Wales) Nominated adviser Bridgewell Securities Limited Old Change House 128 Queen Victoria Street London EC4V 4BJ Auditors RSM Robson Rhodes LLP 30 Finsbury Square London EC2P 2YU Solicitors Mayer Brown Rowe & Maw LLP 11 Pilgrim Street London EC4V 6RW Walker Morris Kings Court 12 Kings Street Leeds LS1 2HL Bankers Bank of Scotland 155 Bishopgate London EC2M 3YB HSBC Bank plc 70 Pall Mall London SW1Y 5EZ Registrars Computershare Investor Services PLC PO Box 82, The Pavilions Bridgewater Road Bristol BS99 7NH Website www.augeanplc.com Corporate governance The company is not required to comply with the Combined Code prepared by the Committee on Corporate governance, appended to the Listing Rules of the FSA, however the company has regard to the requirements of the Code and its activities in these areas are described below. The Board of Directors The Board currently comprises the Chairman, the Chief Executive and two non-executive directors. The directors have split the roles of Chairman and Chief Executive, but due to the size of the company, the directors do not believe that additional non-executive directors would be beneficial. The directors will however review the position on a regular basis. The composition of the Board is reviewed regularly. Appropriate training, briefings, and induction are available to all directors on appointment and subsequently as necessary, taking into account existing qualifications and experience. Executive directors’ normal retirement age is 60 and non-executive directors’ normal retirement age is 65. One-third of all directors are subject to annual reappointment by shareholders. The Board meets approximately ten times a year but additional meetings are held to review and approve special matters if necessary. Each director is provided with sufficient information to enable them to consider matters in good time for meetings and enable them to discharge their duties properly. There is a formal schedule of matters reserved for the Board’s decision. All directors have access to the advice and services of the Company Secretary, who is also responsible for ensuring that Board procedures are followed. There is also a procedure in place for any director to take independent professional advice if necessary, at the company’s expense. Board committees The company has established a number of committees, details of which are set out below. Audit committee The Audit committee members comprise non-executive directors and the Chairman of the company, and meets at least twice a year. The executive directors, if necessary, and the company’s external Auditors attend the meetings. The Audit committee considers the adequacy and effectiveness of the risk management and control systems of the group. It reviews the scope and results of the external audit, its cost effectiveness and the objectivity of the Auditors. It also reviews, prior to publication, the Interim Report, the preliminary announcement, the annual financial statements and the other information included in the full Annual Report. Remuneration committee The Remuneration committee consists of the Chairman and the non-executive directors. It meets at least twice a year and reviews and advises upon the remuneration and benefits packages of the executive directors. The remuneration of the Chairman and non-executive directors is decided upon by the full Board. Augean Annual Report 2005 11 Corporate governance continued Internal controls The directors are responsible for the group’s system of internal control and for reviewing its effectiveness whilst the role of management is to implement Board policies on risk management and control. It should be recognised that the group’s system of internal control is designed to manage, rather than eliminate, the risk of failure to achieve the group’s business objectives and can only provide reasonable, and not absolute, assurance against material mis-statement or loss. The group operates a series of controls to meet its needs. These controls include, but are not limited to, the annual strategic planning and budgeting process, a clearly defined organisational structure with authorisation limits and reviews by senior management of monthly financial and operating information including comparisons with budgets. The Audit committee receives reports from management and the Auditors concerning the system of internal control and any material control weaknesses. Significant risk issues are referred to the Board for consideration. The Board does not believe it is currently appropriate to establish a separate, independent internal audit function given the size of the group. Directors’ remuneration The Remuneration committee’s principal function is to set remuneration of the group’s executive directors to ensure they are fairly compensated for their contribution to the company’s performance. Basic salaries are set to ensure high quality executive directors are attracted and retained by the company. They reflect the knowledge, skill and experience of each individual director. Executive directors have rolling service contracts with notice periods of not more than 12 months in writing. Pension provision is made at a rate of 10% of basic salary for executive directors, which is payable directly into a nominated pension fund. The Remuneration committee is also responsible for ensuring the group’s option schemes are operated properly. Details of directors’ share options in the period ending 31 December 2005 are disclosed in the report of the directors. Going concern The directors have a reasonable expectation that the group as a whole has adequate resources to continue in operational existence for the foreseeable future. In light of the net current liabilities as at 31 December 2005 the directors have further considered the company’s ability to continue as a going concern on the basis of detailed forecast cash flows for the next 12 months. On the basis of these cash flows, the directors are confident that the company will be able to meet its liabilities as they fall due. Consequently these financial statements have been prepared on a going concern basis. Annual General Meeting At the Annual General Meeting on 31 May 2006, all of the directors will retire pursuant to Article 95 of the Articles of Association of the Company and, being eligible, offer themselves for re-election. At that date no director has a contract with an unexpired notice period of more than 12 months. 12 Augean Annual Report 2005 Report of the directors The directors present their report and the audited financial statements for the period from incorporation of 6 August 2004 to 31 December 2005. Principal activities and business review Augean was incorporated on 6 August 2004 and was admitted to AIM on 10 September 2004. It was formed to acquire and manage businesses in the UK waste management sector (having initially also considered the water supply sector too). The company’s buy and build strategy is to supply customers with complete hazardous waste solutions. Central to this strategy was the belief of the directors that this sector was likely to see a period of consolidation and changes in ownership as a result of, amongst other things: ● regulatory and legislative change; ● public awareness and concern over environmental issues; ● the need for increased efficiency; and ● the rising cost of debt. The group’s financial risk management policies, its use of financial instruments and its exposure to financial risks are described in note 24. Acquisitions since incorporation The company has now identified and acquired three companies operating in the UK waste management sector: Atlantic Waste Holdings Limited (“Atlantic”), Zero Waste Holdings Limited (“Zero”) and Proactive Waste Solutions Limited (“Proactive”). Key features of these acquisitions are: ● the business of each are established; ● the companies are specialist operators; ● Atlantic and Zero manage landfill operations with a licence to accept a wide range of hazardous waste; ● the combined hazardous waste landfill capacity acquired places Augean in a strong position in a key market segment and provides a basis for further expansion and consolidation; and ● Proactive supplies customers with hazardous waste solutions in the form of treatment and transfer. The business of Atlantic consists of two operating landfill sites. King’s Cliffe is a wide range permitted hazardous waste site. Thornhaugh is an operating non-hazardous waste site which now includes monocells for stable non-reactive hazardous waste. The business of Zero consists of two landfill sites in the North-East of England. Port Clarence is a wide range permitted hazardous waste site. Marks Quarry is a non-hazardous waste site reaching the end of its life. The business of Proactive is that of a leading hazardous waste treatment operator. This acquisition is highly complementary to Augean’s hazardous waste landfill sites and is in line with our strategy to supply customers with complete hazardous waste solutions. Proactive is based in Cannock in the West Midlands. Augean Annual Report 2005 13 Report of the directors continued Atlantic acquisition Under the terms of the Atlantic acquisition agreement, the entire issued share capital of Atlantic was acquired for an aggregate consideration of £66.5m, including costs, together with the assumption of indebtedness. The consideration payable was satisfied by the payment of cash (including £2m recovered from a warranty claim) and the issue of ordinary shares to the value of £15m. The Atlantic acquisition agreement contained warranties in respect of general matters, taxation and environmental issues. Zero acquisition Under the terms of the Zero acquisition agreements, all of the issued share capital of Zero was acquired for an aggregate consideration of £5.5m, including costs, together with the assumption of indebtedness. The Zero acquisition agreements contain warranties only as to title of the vendors to the shares. Proactive acquisition Under the terms of the Proactive acquisition agreement, the entire issued share capital of Proactive was purchased for £8.2m, including costs. The Proactive acquisition agreement contained warranties in respect of general matters, taxation and environmental issues. Results and dividends The group’s loss after taxation for the period was £8m on turnover of £26.1m. The directors have not recommended an ordinary dividend for the period. Payment of creditors The group agrees terms of payment in advance, ensuring that suppliers are aware of these terms, and abides by them. Trade creditors at the balance sheet date represented 41 days’ purchases. Employees The group operated a policy of devolved management for the operating divisions. We believe in close consultation with employees on matters of concern to them. In compliance with current legislation, it is the group’s policy to encourage the employment of disabled persons wherever this is practicable. Every endeavour is made to ensure that disabled employees, and those who become disabled whilst in the group’s employment, benefit from training and career development programmes in common with all employees. Charitable and political donations During the period the group made one charitable donation, amounting to £5,000, to an educational charity concerning environmental issues which is local to one of the landfill sites. It also contributed £367,167 of its landfill tax liability to Entrust registered environmental bodies as permitted by government regulations. No political donations were made during the period. 14 Augean Annual Report 2005 Directors’ remuneration Name Andrew Bryce Gary Downey Stephen Gutteridge John Huntington Roger McDowell Keith Tozzi David Williams Salaries/fees £’000 Compensation for loss of office £’000 Taxable benefits £’000 Pension contributions £’000 15 145 10 175 25 15 90 475 – 167 – – – – – 167 – 2 – 2 – 1 – 5 – 15 – 17 – 1 – 33 Total £’000 15 329 10 194 25 17 90 680 Prior to their appointment John Huntington and Gary Downey received £220,000 and £180,000 respectively, following termination of their consultancy agreements, in respect of their introductions to the company of the Atlantic Waste Holdings Limited and Zero Waste Holdings Limited acquisitions. In addition John Huntington and Gary Downey also received £37,442 and £39,365 respectively in respect of the consultancy agreements prior to becoming directors. Marwyn Capital Limited (of whom David Williams is Chairman) was paid £570,000 for professional advice and £50,000 for temporary office accommodation during the period. Directors Those directors serving at the end of the year had interests in the share capital of the company at 31 December 2005 as stated below. There has been no change since 31 December 2005 to the date of this report. Name of director David Williams (appointed 6 August 2004) John Huntington (appointed 15 December 2004) Roger McDowell (appointed 15 December 2004) Andrew Bryce (appointed 1 June 2005) Keith Tozzi (appointed 6 August 2004 and resigned 31 March 2005) Stephen Gutteridge (appointed 6 August 2004 and resigned 31 March 2005) Gary Downey (appointed 15 December 2004 and resigned 18 December 2005) Ordinary shares 31 December 2005 On appointment 480,000 60,000 20,000 – – – – – 50,000 20,000 – 1 1 32,000 Augean Annual Report 2005 15 Report of the directors continued Details of share options held by the current directors: Name of director David Williams John Huntington Date of grant Number of options Exercise price Exercise period 15 December 2004 15 December 2004 500,000 500,000 180p Ten years from issue 180p Ten years from issue The share options were awarded on 15 December 2004, being the date of the acquisitions of Atlantic Holdings Limited and Zero Waste Holdings Limited and the appointment of John Huntington. There were no share options in existence prior to that date. These share options have no performance criteria. During the accounting period and since the award of the share options, the share price reached a peak of 270p and a low of 112p, and closed at 146p on 31 December 2005. In addition to the share options listed above, Marwyn Capital Limited (of whom David Williams is Chairman) has warrants over the share capital as described further in note 17. Substantial shareholdings The company was aware of the following interests of more than 3% in its shares as at 1 March 2006 (the latest practicable date for this report): Goldman Sachs Asset Management Cycladic Capital Management North Atlantic Value LLP Adrian Kirby Jupiter Asset Management Henderson Global Investors Invesco MPC Investors Killik stockbrokers UBS Global Asset Management Lehman Brothers MLIM Slater Investments Number of shares 8,450,832 7,615,660 5,381,000 5,160,103 3,824,591 3,527,375 3,124,099 2,997,800 2,844,740 2,750,638 2,638,792 2,357,336 2,297,500 % 12.9 11.6 8.2 7.9 5.8 5.4 4.8 4.6 4.3 4.2 4.0 3.6 3.5 Corporate governance A statement by the directors on Corporate governance immediately precedes this report. 16 Augean Annual Report 2005 Statement of directors’ responsibilities for the financial statements Company law in the United Kingdom requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the company and the group and of the profit or loss of the group for that period. In preparing those financial statements, the directors are required to: ● select suitable accounting policies and then apply them consistently; ● make judgements and estimates that are reasonable and prudent; and ● state whether applicable United Kingdom accounting standards have been followed. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for the maintenance and integrity of the corporate and financial information on the group’s website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements and other information included in annual reports may differ from legislation in other jurisdictions. Auditors The Auditors, RSM Robson Rhodes LLP, are willing to continue in office and a resolution to reappoint them will be proposed at the Annual General Meeting. Signed by order of the Board John Huntington Chief Executive 12 April 2006 Augean Annual Report 2005 17 Auditors’ report to the shareholders of Augean PLC We have audited the financial statements comprising the consolidated profit and loss account, the consolidated balance sheet, the company balance sheet, the consolidated cash flow statement and the related notes 1 to 27 to the financial statements. This report is made solely to the company’s shareholders, as a body, in accordance with Section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company’s shareholders those matters we are required to state to them in an Auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s shareholders as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and Auditors The directors’ responsibilities for preparing the Annual Report and the financial statements in accordance with applicable law and United Kingdom Accounting Standards are set out in the statement of directors’ responsibilities in the report of the directors. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the report of the directors is not consistent with the financial statements, if the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and transactions with the company and other members of the group is not disclosed. We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information comprises only the report of the directors, the Chairman and Chief Executive’s statement and the statement on Corporate governance. We consider the implications for our report if we become aware of any apparent mis-statements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the company’s circumstances, consistently applied and adequately disclosed. 18 Augean Annual Report 2005 We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material mis-statement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion the financial statements give a true and fair view of the state of affairs of the company and the group as at 31 December 2005, and of the group’s loss for the period from 6 August 2004 to 31 December 2005 and have been properly prepared in accordance with the Companies Act 1985. RSM Robson Rhodes LLP London 12 April 2006 Augean Annual Report 2005 19 Consolidated profit and loss account for the period from 6 August 2004 to 31 December 2005 Turnover Cost of sales Gross profit Administrative expenses excluding amortisation of intangibles Amortisation of goodwill Amortisation of other intangible assets Total administrative expenses Operating profit before amortisation of intangible assets Operating loss Interest payable and similar charges Interest receivable and similar income Loss on ordinary activities before taxation Tax on loss on ordinary activities Loss on ordinary activities after taxation Retained loss for the financial period Note 2 2 3 4 4 7 18 2005 £’000 26,113 (18,025) 8,088 (4,400) (10,052) (28) (14,480) 3,688 (6,392) (565) 287 (6,670) (1,380) (8,050) (8,050) 2005 pence Basic and diluted loss per share 8 (16.41) All transactions in the period derived from acquired operations There were no recognised gains or losses in the period other than the loss for the period and therefore no statement of total recognised gains and losses is presented. The notes on pages 24 to 46 form an integral part of these financial statements. 20 Augean Annual Report 2005 Consolidated balance sheet at 31 December 2005 Fixed assets Intangible fixed assets Tangible fixed assets Current assets Stocks Debtors Creditors: amounts falling due within one year Net current liabilities Total assets less current liabilities Creditors: amounts falling due after more than one year Provisions for liabilities and charges Net assets Capital and reserves Called up share capital Share premium Profit and loss account Equity shareholders’ funds The notes on pages 24 to 46 form an integral part of these financial statements. Note 2005 £’000 9 11 12 13 14 15 17 18 18 18 85,812 29,547 115,359 1 6,870 6,871 (9,838) (2,967) 112,392 (335) (7,336) 104,721 6,549 106,222 (8,050) 104,721 Augean Annual Report 2005 21 Company balance sheet at 31 December 2005 Fixed assets Tangible fixed assets Fixed asset investments Current assets Debtors Creditors: amounts falling due within one year Net current liabilities Total assets less current liabilities Creditors: amounts falling due after more than one year Net assets Capital and reserves Called up share capital Share premium Profit and loss account Equity shareholders’ funds Note 2005 £’000 11 10 12 13 14 17 18 18 18 1,000 116,404 117,404 388 (5,683) (5,295) 112,109 (8) 112,101 6,549 106,222 (670) 112,101 The financial statements were approved by the Board on 12 April 2006 and signed on its behalf by: John Huntington Chief Executive The notes on pages 24 to 46 form an integral part of these financial statements. 22 Augean Annual Report 2005 Consolidated cash flow statement for the period from 6 August 2004 to 31 December 2005 Net cash inflow from operating activities Returns on investments and servicing of finance Taxation Capital expenditure and financial investment Acquisitions and disposals Cash outflow before financing Financing Decrease in cash in the period Reconciliation of net cash flow to movement in net debt Decrease in cash in the period Cash outflow from decrease in debt and lease financing Change in net debt arising from cash flows New finance leases and hire purchase agreements Debt acquired with subsidiary Movement in net debt in the period Net funds at 6 August 2004 Net debt at 31 December 2005 Note 20 21 21 21 21 Note 2005 £’000 7,316 (278) – (4,589) (64,674) (62,225) 61,496 (729) 2005 £’000 (729) 703 (26) (63) (3,502) (3,591) – 22 (3,591) Augean Annual Report 2005 23 Notes to the financial statements for the period from 6 August 2004 to 31 December 2005 1 Accounting policies Basis of accounting The group financial statements have been prepared under the historical cost convention. The company has taken advantage of Section 230 of the Companies Act 1985 and has not included a profit and loss account in these financial statements. The company’s loss for the period is given in note 18. Basis of consolidation The group financial statements incorporate the financial statements of the company and its subsidiary undertakings only. Acquisitions are accounted for under the acquisition method. The results of companies acquired or disposed of are included in the profit and loss account after or up to the date that control passes respectively. Turnover The turnover shown in the profit and loss account represents amounts invoiced during the period, inclusive of landfill tax but exclusive of value added tax, relating to the principal activities of the group. Intangible assets Goodwill arising on the acquisition of subsidiary undertakings and businesses, representing the excess of the fair value of the consideration given over the fair value of the identifiable assets and liabilities acquired, is capitalised and amortised on a straight-line basis over its useful economic life, with specific account taken of the period of site licences (which currently expire between seven to ten years). Provision is made for any impairment. Royalty agreements which are related to specific landfill sites are capitalised and amortised over the life of the related site licence (which currently expires in ten years). Investments Investments held as fixed assets are valued at historic cost less any provision for impairment. Tangible fixed assets and depreciation The acquisition, commissioning and site infrastructure costs for each landfill site are capitalised when incurred. These costs are then depreciated over the useful life of the site, which is assessed with reference to the usage of the void space available. Cell engineering costs are capitalised when incurred. The depreciation charged to the profit and loss account is calculated with reference to actual costs to date and expected future costs for each cell, the total of which is spread over the useful life of the cell. Useful life is again assessed by the usage of the void space available. Other tangible fixed assets are stated at cost, net of depreciation and any provision for impairment. Depreciation is provided evenly on all other tangible fixed assets at rates calculated to write off the cost, less estimated residual value, of each asset over their useful lives as follows: Freehold buildings Plant and machinery fifty years two to ten years 24 Augean Annual Report 2005 1 Accounting policies continued Hire purchase agreements Assets held under hire purchase agreements are capitalised and disclosed under tangible fixed assets. The capital element of future payments is treated as a liability and the interest is charged to the profit and loss account on a straight-line basis. Leased assets Where the group enters into a lease which entails taking substantially all the risks and rewards of ownership of an asset, the lease is treated as a finance lease. The asset is recorded in the balance sheet as a tangible fixed asset and is depreciated in accordance with the above depreciation policies. Future instalments under such leases, net of finance charges, are included within creditors. Rentals payable are apportioned between the finance element, which is charged to the profit and loss account on a straight- line basis, and the capital element which reduces the outstanding obligation for future instalments. Rentals under operating leases are charged on a straight-line basis over the lease term. Taxation Current tax is provided at amounts expected to be paid (or recovered) using tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is recognised on all timing differences where the transactions or events that give the group an obligation to pay more tax in the future, or a right to pay less in the future, have occurred by the balance sheet date. Deferred tax assets are recognised when it is more likely than not that they will be recovered. Deferred tax is measured on an undiscounted basis using average rates of tax that have been enacted or substantively enacted by the balance sheet date. Restoration and after-care provisions The anticipated total cost of restoration and post-closure monitoring and after-care is charged to the profit and loss account over the expected useful life of the sites in proportion to the amount of void consumed at the sites during the period. The costs of restoration and post-closure monitoring will be charged to the provision when incurred. The provision has been estimated using current costs and is discounted. Retirement benefits Contributions made by the group to individual pension schemes are charged to the profit and loss account as they fall due. Debt and finance costs Debt is initially stated at the amount of the net proceeds of the debt after deduction of issue costs. The carrying amount is increased by the finance cost in respect of the accounting period and reduced by payments made in the period. Finance costs are recognised in the profit and loss account over the term of such instruments. Augean Annual Report 2005 25 Notes to the financial statements continued for the period from 6 August 2004 to 31 December 2005 2 Segmental analysis Landfill division Treatment division 2005 Adjusted operating profit* £’000 3,327 361 3,688 Operating (loss)/profit £’000 (6,568) 176 (6,392) Net assets £’000 96,474 8,247 104,721 Turnover £’000 24,184 1,929 26,113 All activities arise solely within the United Kingdom. * Operating profit before the amortisation of goodwill and other intangible assets. 3 Operating loss Operating loss is arrived at after charging. Auditors’ remuneration for audit services * Amortisation of intangible fixed assets Depreciation of tangible assets – owned assets – assets held under finance leases and hire purchase contracts Operating leases – plant and machinery 2005 £’000 62 10,080 4,867 119 225 * Total fees payable to the Auditors during the period were £230,215, of which £168,215 related to non-audit services. The audit fee for the company was £16,000. 4 Interest payable and receivable Interest payable Interest payable on bank loans and overdrafts Finance leases and hire purchase contracts Interest and charges on debt factoring Unwinding discount on provisions Interest receivable Interest received from bank and treasury accounts 26 Augean Annual Report 2005 2005 £’000 157 41 276 91 565 287 287 5 Employees Average monthly number of employees, including directors, analysed by function was: Selling Operational Administration Staff costs, including directors: Wages and salaries Social security costs Other pension costs 6 Directors’ emoluments Directors’ remuneration Emoluments to executive directors Emoluments to non-executive directors Company pension contributions to money purchase schemes Highest paid director The above amounts for remuneration include the following in respect of the highest paid director: Emoluments – salary and benefits Company contributions to money purchase schemes 2005 Number 10 48 20 78 2005 £’000 3,019 290 67 3,376 2005 £’000 517 130 33 680 2005 £’000 314 15 329 Full disclosure of all remuneration, including pension contributions, and share options for directors is made within the report of the directors. Augean Annual Report 2005 27 Notes to the financial statements continued for the period from 6 August 2004 to 31 December 2005 7 Taxation i) Tax on loss on ordinary activities Current tax: UK corporation tax on loss for the period Adjustments in respect of prior periods Tax charge on loss on ordinary activities ii) Current tax reconciliation Loss on ordinary activities before tax Theoretical tax at UK corporation tax rate 30% Effects of: Expenses not deductible for tax purposes Capital allowances for period in excess of depreciation Goodwill amortised Utilisation of acquired tax losses Other short-term timing differences Actual current tax charge for period 2005 £’000 1,380 – 1,380 2005 £’000 6,670 (2,001) 105 456 3,024 (190) (14) 1,380 No deferred tax asset has been recognised during the period in respect of timing differences as there is uncertainty over the extent and timing of its recovery. 28 Augean Annual Report 2005 8 Loss per share Basic and diluted loss per share 2005 pence 16.41 For the period ended 31 December 2005, the calculation of the basic loss per ordinary share was based on the weighted average of 49,065,022 ordinary shares in issue during the period and loss after taxation of £8,050,000. No diluted loss per share arises due to the loss in the year, resulting in no dilutive share options. 9 Intangible fixed assets Group Cost: At 6 August 2004 Acquired with subsidiary Acquisitions At 31 December 2005 Amortisation: At 6 August 2004 Charge for the period At 31 December 2005 Net book value: At 6 August 2004 At 31 December 2005 Royalty agreement £’000 Goodwill arising on consolidation £’000 – – 95,223 95,223 – 10,052 10,052 – 669 – 669 – 28 28 – 641 Total £’000 – 669 95,223 95,892 – 10,080 10,080 – – 85,171 85,812 The royalty agreement was the sole asset of Broomco (3611) Limited, which was acquired in the period for £669,000. Augean Annual Report 2005 29 Notes to the financial statements continued for the period from 6 August 2004 to 31 December 2005 2005 £’000 116,404 116,404 Country of registration or incorporation Proportion held % Nature of business 100 100 100 100 100 100 100 100 100 100 Dormant Dormant Dormant Dormant Dormant Dormant Skip hire Landfill site Dormant 77 Aggregate and minerals Waste management Waste treatment Dormant Dormant Landfill site Waste management Landfill site Dormant Receipt of royalties 100 100 100 100 100 100 100 100 10 Fixed asset investments Company Cost: Additions At 31 December 2005 Details of the subsidiary companies are as follows: Name of company *Augean Waste Limited Atlantic Waste Limited Atlantic Waste Services Limited Atlantic Freeholds Limited Atlantic Freeholds (No. 2) Limited Wastego Services Limited Wastego Recycle Limited Atlantic Waste (Thornhaugh) Limited Atlantic Waste (Thornhaugh) (No. 2) Limited GCN Limited Wastego Limited England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales *Proactive Waste Solutions Limited England and Wales Zero Waste Limited Wastego Quarries Limited *Augean North Limited *Atlantic Waste Holdings Limited Augean South Limited *Zero Waste Holdings Limited *Broomco (3611) Limited England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales * identifies those companies owned directly by the company. 30 Augean Annual Report 2005 11 Tangible fixed assets Freehold land and buildings £’000 Engineered cells £’000 Plant and machinery £’000 Group Cost: At 6 August 2004 Acquisitions Additions At 31 December 2005 Depreciation At 6 August 2004 Charged in the period At 31 December 2005 Net book value At 6 August 2004 At 31 December 2005 – 26,473 922 27,395 – 2,521 2,521 – 24,874 – 2,320 3,147 5,467 – 2,210 2,210 – 3,257 Total £’000 – 29,881 4,652 34,533 – 4,986 4,986 – – 1,088 583 1,671 – 255 255 – 1,416 29,547 Plant and machinery includes the following amounts in respect of assets held under finance leases and hire purchase contracts. Cost Accumulated depreciation Net book value 2005 £’000 609 186 423 For the purpose of establishing their fair values on acquisition, the King’s Cliffe, Thornhaugh, Port Clarence and Marks Quarry sites were valued as at 14 December 2004 by Savills Chartered Surveyors, acting in the capacity of external valuers. The sites were valued on the basis of existing use value and reflected their planned and permitted consents at that date. The valuations were carried out in accordance with the RICS Appraisal and Valuation Standards. Savills’ valuation report was dated 24 March 2006. Provisional fair values for the properties acquired were recorded in the published interim accounts at higher amounts than those identified above. Augean Annual Report 2005 31 Notes to the financial statements continued for the period from 6 August 2004 to 31 December 2005 11 Tangible fixed assets continued For the purpose of establishing their fair values on acquisition, the cost of cells engineered has been provisionally estimated by external engineers as at 14 December 2004 with reference to their design specification and condition on a depreciated replacement cost basis. Company Cost At 6 August 2004 Additions At 31 December 2005 Depreciation At 6 August 2004 Charged in the period At 31 December 2005 Net book value At 6 August 2004 At 31 December 2005 Freehold land and buildings £’000 Plant and machinery £’000 – 769 769 – 5 5 – 764 – 262 262 – 26 26 – 236 Total £’000 – 1,031 1,031 – 31 31 – 1,000 Plant and machinery includes the following amounts in respect of assets held under finance leases and hire purchase contracts. Cost Accumulated depreciation Net book value 2005 £’000 22 4 18 32 Augean Annual Report 2005 12 Debtors Group Trade debtors Other debtors Prepayments and accrued income Company Other debtors Prepayments 13 Creditors: amounts falling due within one year Group Bank overdraft (see note 16) Obligations under hire purchase contracts and finance leases Debt factoring (see note 16) Trade creditors Corporation tax Other taxation and social security Accruals Company Bank overdraft Amounts due to subsidiary undertakings Obligations under finance leases and hire purchase contracts 2005 £’000 5,735 339 796 6,870 2005 £’000 191 197 388 2005 £’000 729 181 2,346 2,235 1,530 1,608 1,209 9,838 180 5,496 7 5,683 Augean Annual Report 2005 33 Notes to the financial statements continued for the period from 6 August 2004 to 31 December 2005 14 Creditors: amounts falling due after more than one year Group Loan (see note 16) Obligations under finance leases and hire purchase contracts Company Obligations under finance leases and hire purchase contracts 15 Provisions for liabilities and charges Opening provision Provision at acquisition date Charge during the period Closing provision Restoration and after-care costs of landfill sites £’000 – 1,017 334 1,351 2005 Other provisions £’000 – 5,985 – 5,985 2005 £’000 100 235 335 8 8 Total £’000 – 7,002 334 7,336 The provision for restoration and after-care relates to closure and post-closure costs for all landfill sites for the estimated life of the landfill sites. It is expected that the expenditure will be incurred partially on completion of the landfill sites and in part after the closure of the landfill sites, which will be over a very considerable period of years. The provision has been estimated using current costs and is discounted, using a real rate of 3%. No costs were expended during the period. Other provisions relate to the cost of capping cells engineered and the cost for remediation of more waste on a landfill site acquired from Atlantic Holdings Limited than allowed for under planning consents. All costs expended during the period were recovered in a cash recovery from the vendors under a warranty claim, as referred to in the report of the directors. 34 Augean Annual Report 2005 16 Analysis of debt Group Bank overdraft Obligations under hire purchase contracts and finance leases Loan Debt factoring Maturity of debt In one year or less, or on demand In more than one year, but not more than two years In more than two years, but not more than five years Obligations under finance leases and hire purchase contracts are repayable as follows: Due within one year Due between one to two years Due between two to five years 2005 £’000 729 416 100 2,346 3,591 3,256 214 121 3,591 2005 £’000 181 114 121 416 The group’s debt factoring is secured upon the debtors of Atlantic Waste Services Limited, of Atlantic Waste (Thornhaugh) Limited and of Augean South Limited. The obligations under hire purchase contracts and finance leases are secured against the specific assets financed. The bank overdraft and guarantees are secured by way of cross guarantees and indemnities across the group. For further information on financial instruments see note 24. Augean Annual Report 2005 35 Notes to the financial statements continued for the period from 6 August 2004 to 31 December 2005 17 Share capital Authorised – 100,500,000 shares of 10p Allotted, called up and fully paid – 65,488,892 shares of 10p The changes in authorised share capital during the period were: 2005 £’000 10,050 6,549 On incorporation £10,000,000 comprising 100,000,000 ordinary shares of 10p each were authorised and then on 10 August 2004 there was an increase to include 50,000 redeemable preference shares of £1 each. Finally on 31 October 2004 the preference shares were converted into 500,000 ordinary shares of 10p each. The changes in issued share capital during the period were: On incorporation two subscriber shares of 10p each were issued at par followed by 50,000 redeemable preference shares of £1 each paid up one quarter on 10 August 2004 and 1,600,000 ordinary shares of 10p each at a value of £1.25 on 7 September 2004. On 31 October 2004 the 50,000 redeemable preference shares were redeemed at par and finally on 14 December 2004 63,888,890 ordinary shares of 10p each were issued at a value of £1.80. In addition to the ordinary shares issued, there are ordinary shares under option and warrants which are described below: There are share options outstanding of 2,294,234 which have been awarded to existing directors (1,000,000 shares), previous directors (850,000 shares) and employees (444,234 shares). There are warrants to convert in to new ordinary shares of 1,309,776 which have been issued to both Marwyn Capital Limited (of whom David Williams is Chairman) and Numis Securities Limited on the following terms. Each warrant will be over 1% of the issued share capital and is exercisable from 15 March 2005 until 14 December 2009, being the fifth anniversary of the date of admission of the ordinary shares. The exercise price for the warrants will be 180p per share. The warrants will lapse six weeks after a takeover if they have not then been exercised. In the event of any variation in the share capital of the company, the company shall, if requested by the warrant holder, instruct the Auditors of the company to determine what adjustment (if any) should be made to the number and nominal value of the shares subject to the warrants and/or the exercise price. The warrants granted to Marwyn and Numis are transferable by Marwyn and Numis to their respective shareholders, directors, officers and employees. In summary the total potential number of ordinary shares that might be issued should all existing share options and warrants be exercised is as follows: Ordinary shares in issue Share options Warrants Total potential issued share capital 36 Augean Annual Report 2005 65,488,892 2,294,234 1,309,776 69,092,902 18 Combined reconciliation of movements in shareholders’ funds and movement in reserves Group At 6 August 2004 Placing Issue costs Retained loss At 31 December 2005 Company At 6 August 2004 Placing Issue costs Retained loss At 31 December 2005 Share capital £’000 – 6,549 – – 6,549 – 6,549 – – 6,549 Share premium £’000 Profit and loss account £’000 Shareholders’ funds £’000 – 110,451 (4,229) – 106,222 – 110,451 (4,229) – 106,222 – – – (8,050) – 117,000 (4,229) (8,050) (8,050) 104,721 – – – (670) (670) – 117,000 (4,229) (670) 112,101 19 Operating lease commitments The group has annual commitments under non-cancellable operating leases as follows: Leases which expire – Within one year – Within two to five years 2005 Other £’000 61 373 434 20 Reconciliation of operating loss to net cash inflow from operating activities Operating loss Amortisation of intangible fixed assets Depreciation Decrease in debtors Decrease in creditors Net cash inflow from operating activities 2005 £’000 (6,392) 10,080 4,986 2,244 (3,602) 7,316 Augean Annual Report 2005 37 Notes to the financial statements continued for the period from 6 August 2004 to 31 December 2005 21 Gross cash flows Returns on investment and servicing of finance Interest paid and similar charges Interest received Capital expenditure and financial investment Payments to acquire tangible fixed assets Acquisition of subsidiaries Payments to acquire subsidiary undertakings Cash acquired with subsidiary undertakings Financing Net proceeds of share issue Capital element of finance lease payments Debt factor advances Repayment of loans Redemption of preference shares 22 Analysis of changes in net debt 2005 £’000 565 (287) 278 4,589 4,589 65,832 (1,158) 64,674 97,821 (358) (345) (35,572) (50) 61,496 6 August 2004 £’000 Cash flow £’000 Acquisitions £’000 Other changes £’000 31 December 2005 £’000 Cash at bank and in hand Overdraft Debt due within one year Debt due after one year Finance leases/HP Net debt – – – – – – – – – (729) (729) 345 – 358 703 (26) – – – (2,691) (100) (711) (3,502) (3,502) – – – – – (63) (63) (63) – (729) (729) (2,346) (100) (416) (2,862) (3,591) 38 Augean Annual Report 2005 23 Acquisition of subsidiary undertakings During the period the group acquired three operating companies, being Atlantic Waste Holdings Limited and Zero Waste Holdings Limited (“the Landfill division”) and Proactive Waste Solutions Limited. These acquisitions are described in detail in the report of the directors. All the assets and liabilities of those acquired companies have been recorded at their fair values reflecting their condition at the relevant acquisition date. However the assessment of these fair values in relation to the Landfill division is complex and has resulted in significant revisions throughout the period as the review, which is still ongoing, has progressed. As such, provisional fair values have been included within the reported results, which may result in further changes to the carrying value of these net assets during the next financial year. The fair value adjustments in relation to Proactive Waste Solutions have been finalised in this period. 1) Acquisition of Atlantic Waste Holdings Limited Intangible fixed assets Tangible fixed assets Debtors Cash at bank and in hand Creditors falling due within one year Provisions for liabilities and charges Book value £’000 Fair value adjustments £’000 63 52,469 6,526 76 (22,691) (482) (63) (35,035) (608) – (2,828) (3,091) Fair value £’000 - 17,434 5,918 76 (25,519) (3,573) Net separable assets/(liabilities) 35,961 (41,625) (5,664) Goodwill Satisfied by: Consideration Consideration comprises: Cash paid Shares issued Acquisition expenses 72,126 66,462 50,000 15,000 1,462 66,462 The provisional fair value adjustments consist of reduced values for the freehold properties (of £32,002,000) based upon valuations by Savills and the cells engineered (of £3,033,000) based upon the engineering estimates for depreciated replacement cost, provisions for capping cells that were full but not capped at the acquisition date (£1,386,000) and provisions for the appropriate proportion of capping cells that were in use then (£357,000). In addition, provision was made to the carrying value of debtors (of £608,000) and write off of purchased goodwill (of £63,000). Further provisions (of £4,176,000) were charged in respect of the remediation of more waste on site than allowed for under planning consents. Augean Annual Report 2005 39 Notes to the financial statements continued for the period from 6 August 2004 to 31 December 2005 23 Acquisition of subsidiary undertakings continued The results of the Atlantic Waste Holdings group for its last financial period prior to acquisition and for the period up to the date of acquisition were: Period 1 January 2004 to Period 1 April 2004 to 31 March 2004 14 December 2004 £’000 £’000 Turnover Cost of sales Administrative expenses Operating loss Interest payable Minority interests Loss on ordinary activities before taxation Tax on loss on ordinary activities Loss on ordinary activities after taxation There were no recognised gains or losses other than the losses shown above. Net cash outflows in respect of the acquisition comprised: Cash consideration paid to the vendors Cash at bank and in hand acquired Acquisition expenses Cash paid to settle indebtedness 4,066 (3,557) (1,764) (1,255) (207) (1) (1,463) – (1,463) 14,133 (5,214) (10,592) (1,673) (810) – (2,483) – (2,483) £’000 50,000 (76) 1,462 51,386 14,354 65,740 40 Augean Annual Report 2005 23 Acquisition of subsidiary undertakings continued 2) Acquisition of Zero Waste Limited Tangible fixed assets Stocks Debtors Cash at bank and in hand Creditors falling due within one year Provisions for liabilities and charges Net separable assets/(liabilities) Goodwill Satisfied by: Consideration Consideration comprises: Cash paid Acquisition expenses Book value £’000 Fair value adjustments £’000 12,338 1 2,147 679 (23,053) (937) (8,825) (179) – (4) – (1,196) 404 (975) Fair value £’000 12,159 1 2,143 679 (24,249) (533) (9,800) 15,315 5,515 5,032 483 5,515 The provisional fair value adjustments consist of increased values for the freehold properties (of £1,375,000) and reduced values for the cells engineered, based on depreciated replacement cost (of £1,554,000), provisions for capping cells that were full but not capped at the acquisition date (£1,152,000). In addition, adjustments were made to the carrying value of debtors (of £4,000), creditors (of £44,000) and provisions for restoration and after-care (of £404,000). Augean Annual Report 2005 41 Notes to the financial statements continued for the period from 6 August 2004 to 31 December 2005 23 Acquisition of subsidiary undertakings continued The results of the Zero Waste Holdings group for its last full financial year prior to acquisition and for the period up to the date of acquisition were: Turnover Cost of sales Administrative expenses Operating profit Other operating income Interest payable Loss on ordinary activities before taxation Tax on loss on ordinary activities Retained loss for the period Other finance costs of non-equity shares Retained loss for the period Year ended Period 30 September 1 October 2004 to 2004 14 December 2004 £’000 £’000 5,623 (4,578) (654) 391 166 (2,074) (1,517) – (1,517) (849) (2,366) 1,156 (509) (206) 441 10 (476) (25) – (25) (194) (219) The financial information above for the year ended 30 September 2004 has been extracted from the audited financial statements for the year then ended after making such adjustments as were considered necessary for the purposes of the acquisition document dated 19 November 2004. There were no recognised gains or losses other than the losses shown above. Net cash outflows in respect of the acquisition comprised: £’000 5,032 (679) 483 4,836 21,218 26,054 Cash consideration paid to the vendors Cash at bank and in hand acquired Acquisition expenses Cash paid to settle indebtedness 42 Augean Annual Report 2005 23 Acquisition of subsidiary undertakings continued 3) Acquisition of Proactive Waste Solutions Limited Tangible fixed assets Debtors Cash at bank and in hand Creditors falling due within one year Net separable (liabilities)/assets Goodwill Satisfied by: Consideration Consideration comprises: Cash paid Acquisition expenses Book value £’000 Fair value adjustments £’000 288 1,106 403 (1,314) 483 – (53) – (26) (79) Fair value £’000 288 1,053 403 (1,340) 404 7,782 8,186 8,000 186 8,186 The fair value adjustments comprise an increase in provisions for bad debts (£53,000) and an increase in accruals for waste material on hand requiring treatment (£26,000). Augean Annual Report 2005 43 Notes to the financial statements continued for the period from 6 August 2004 to 31 December 2005 23 Acquisition of subsidiary undertakings continued The results for Proactive Waste Solutions for its last full financial year prior to acquisition and for the period up to the date of acquisition were: Year ended Period 31 December 1 January 2005 to 26 August 2005 £’000 2004 £’000 Turnover Cost of sales Administrative expenses Operating profit Interest payable Profit on ordinary activities before taxation Tax on loss on ordinary activities Profit on ordinary activities after taxation There were no recognised gains or losses other than the losses shown above. Net cash outflows in respect of the acquisition comprised: Cash consideration Cash at hand and in hand acquired Acquisition expenses 4,020 (2,005) (1,432) 583 (38) 545 (185) 360 3,516 (1,609) (1,319) 588 (12) 576 (184) 392 £’000 8,000 (403) 186 7,783 44 Augean Annual Report 2005 24 Financial instruments The group’s principal financial instruments during the period comprised bank loans, cash on short-term deposit, debt factoring, hire purchase and an interest-free loan. The main purpose of these financial instruments is to finance the group’s operations and to manage the interest rate risk arising from its sources of finance. The group has various other financial instruments such as short-term debtors and creditors which arise directly from its operations. As permitted under FRS 13, these short-term instruments have been excluded from the following disclosures in this note. There was no material difference between the fair value of the assets and liabilities and their book value. It is, and has been, throughout the period under review, the group’s policy that no trading in financial instruments shall be undertaken. All the group’s transactions take place in sterling and so there is no foreign currency risk. The main risks arising from the group’s financial instruments are interest rate risk and liquidity risk. Liquidity risk The group carries low levels of debt and short-term flexibility is achieved by overdraft facilities of up to £20m including the guarantees mentioned in note 26. These facilities are on demand. Interest rate risk The group finances its operations through a mixture of retained profits and bank borrowings and hire purchase. Due to the low level of the group’s borrowings no interest rate swaps or other forms of risk management have been undertaken. The group regularly reviews its exposure to interest rate risk and will take future action if required to minimise the impact on the business of movements in interest rates. The interest rate profile of the group’s financial liabilities at 31 December 2005 was: – bank overdraft – debt factor advances – loan – hire purchase Interest free £’000 Fixed rate £’000 Floating rate £’000 – – 100 – 100 – – – 416 416 729 2,346 – – 3,075 Total £’000 729 2,346 100 416 3,591 The interest rate on the floating rate borrowings is based on a percentage over the relevant bank rate. The hire purchase agreements have a weighted average interest rate of 7% and a weighted average duration of two years. The maturity profile of the group’s financial liabilities has been covered in note 16. Augean Annual Report 2005 45 Notes to the financial statements continued for the period from 6 August 2004 to 31 December 2005 25 Post-balance-sheet events There have been no post-balance-sheet events. 26 Contingent liabilities and cross guarantees In accordance with Part II of the Environment Protection Act 1990, the group has to make such financial provision as is deemed adequate by the Environment Agency to discharge its obligations under the relevant waste management licence at its landfill sites. Consequently bank guaranteed bonds have been provided in favour of the Environment Agency in respect of the King’s Cliffe, Thornhaugh, Port Clarence and Marks Quarry landfill sites. Total bank guarantees outstanding at the year end were £6,696,000, although the bond for the King’s Cliffe site (expected to be £3,508,000) had not then been issued. Future site restoration costs for each landfill site have been provided in note 15. 27 Related party disclosures There were no transactions or contracts of significance with related parties, other than those disclosed in the section on Corporate governance and note 17. FRS 8 “Related party Transactions” requires the disclosure of the details of material transactions between reporting entities and related parties. The group has taken advantage of exemptions under FRS 8 not to disclose transactions between subsidiary 90% or more of whose voting rights are controlled within the group. 46 Augean Annual Report 2005 Unaudited pro forma results for 2005 This pro forma does not form part of the group’s statutory accounts. The purpose of the pro forma is solely to represent the performance of the group as though it had commenced trading on 1 January 2005 and it comprised those activities and operations that existed then. Consolidated profit and loss account: pro forma for the period from 1 January 2005 to 31 December 2005 Turnover Cost of sales Gross profit Administrative expenses Amortisation of goodwill Amortisation of other intangible assets Total administrative expenses Operating profit before amortisation of intangible assets Operating loss Interest payable and similar charges Interest receivable and similar income Loss on ordinary activities before taxation 2005 £’000 25,235 (17,586) 7,649 (3,755) (9,657) (28) 13,440 3,894 (5,791) (554) 260 (6,085) Augean Annual Report 2005 47 Notice of Annual General Meeting Notice is hereby given that the Annual General Meeting of Augean PLC will be held at Mayer Brown Row & Maw, 11 Pilgrim Street, London EC4V 6RW at 11.00 am on 31 May 2006 for the following business, resolutions 1 to 7 being proposed as ordinary resolutions and resolution 8 as a special resolution: Ordinary business 1 To receive and adopt the report of the directors and the financial statements of the company for the period ended 31 December 2005. 2 To re-appoint RSM Robson Rhodes LLP as Auditors and to authorise the directors to fix their remuneration. 3 To re-elect David Williams as a director. 4 To re-elect John Huntington as a director. 5 To re-elect Roger McDowell as a director. 6 To re-elect Andrew Bryce as a director. 7 In substitution for all existing authorities (save to the extent already utilised), the directors of the company be and they are hereby generally and unconditionally authorised pursuant to Section 80 of the Companies Act 1985 (“the Act”) to exercise all the powers of the company to allot, grant options over, offer or otherwise deal with or dispose of any relevant securities (within the meaning of Section 80(2) of the Act) up to an aggregate nominal amount of £327,445 provided that this authority (unless previously renewed, varied or revoked by the company in general meeting) shall expire at the end of the next Annual General Meeting of the company to be held after the date of the passing of this resolution or, 15 months from the date of the passing of this resolution, whichever is the earlier and that the directors shall be entitled under the authority conferred by Section 80(7) of the Act and this resolution to make at any time prior to the expiry of such authority any offer or agreement which would or might require securities of the company to be allotted after the expiry of such authority and the directors may allot relevant securities in pursuance of that offer or agreement as if the authority hereby conferred had not expired. Special business 8 In substitution for all existing authorities (save to the extent already utilised), subject to the passing of resolution 7 above, the directors of the company be and they are hereby generally empowered pursuant to Section 95 of the Act to allot equity securities (within the meaning of Section 94(2) of the Act and/or where such an allotment constitutes an allotment of equity securities by virtue of Section 94(3A) of the Act) for cash pursuant to the authority conferred on them by resolution 7 above as if section 89(1) of the Act did not apply to any such allotment, provided that the power conferred by this resolution shall be limited to: 48 Augean Annual Report 2005 8.1 the allotment of equity securities in connection with an issue or offering by way of rights in favour of holders of equity securities and any other persons entitled to participate in such issue or offering where the equity securities respectively attributable to the interests of such holders and persons are proportionate (as nearly as may be) to the respective numbers of equity securities held by or deemed to be held by them on the record date of such allotment subject only to such exclusions or other arrangements as the directors may consider necessary or expedient to deal with fractional entitlements or legal or practical problems under the laws or requirements of any recognised regulatory body or any territory; and 8.2 the allotment (otherwise than pursuant to paragraph 8.1 above) of equity securities for cash up to an aggregate nominal value not exceeding £327,445. and this power (unless previously renewed, varied or revoked) shall expire at the end of the next Annual General Meeting of the company to be held after the date of the passing of this resolution or 15 months from the date of the passing of this resolution, whichever is the earlier but the company may make any offer or agreement which would or might require equity securities to be allotted after the expiry of this authority and the directors may allot equity securities in pursuance of that offer or agreement as if the authority hereby conferred had not expired. By order of the Board John Huntington Chief Executive 12 April 2006 4 Rudgate Court Walton Wetherby West Yorkshire LS23 7BF Notes: 1 2 3 Only those members registered in the register of members of the company as at 11.00 am on 29 May 2006 or, in the event that the meeting is adjourned, in the register of members 48 hours before the time of any adjourned meeting shall be entitled to attend or vote at the meeting in respect of the number of shares registered in their name at that time. Any member entitled to attend and vote at the meeting may appoint one or more other persons as a proxy or proxies to attend and, in the event of a poll, to vote instead of him or her. A proxy need not be a member of the company. Shareholders will receive a Proxy Form with this document. Proxy Forms should be lodged with the company’s Registrar or submitted not later than 48 hours before the time for which the AGM is convened. Completion of the appropriate Proxy Form does not prevent a member from attending and voting in person if he/she is entitled to do so and so wishes. The register of directors’ interests in shares in the company will be available for inspection at the registered office of the company during business hours only on any weekday (excluding Saturdays, Sundays and public holidays) from the date of this notice until the conclusion of the Annual General Meeting and will be available on the day of AGM, at the place of the AGM, from at least 15 minutes prior to the AGM until its conclusion. Designed and produced by 85four. Photography by Ric Gemmell and Robert Wheeler. Printed in England by Cousin ISO 14001. Augean PLC 4 Rudgate Court, Walton Wetherby LS23 7BF www.augeanplc.com Contacting Augean To find out more about how Augean can help your business call us on 01937 844980, fax us on 01937 844241 or email us at contact@augeanplc.com to arrange for a sales adviser to call you. 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