Report of the Directors
FINANCIAL PERFORMANCE
Group revenue increased 18.7% to £626.5m (2009 £528.0m) with acquisitions accounting for £89.7m and organic growth of £8.8m which included landfill tax of £6.3m.
Profit before interest, tax and amortisation of intangibles (PBITA) at £73.1m was £9.6m (15.1%) above last year (2009 £63.5m).
Pbita rose 15.1% to £73.1 million
Profit before interest, tax, depreciation and amortisation of intangibles (PBITDA) rose 9.1% to £114.8m (2009 £105.2m).
Finance costs after elimination of net pensions interest, discount unwind in provisions and IFRIC 12 contract interest receivable were £18.3m (2009 £20.7m) and were 3.9 times covered by operating profit (2009 3.0 times).
Gross finance costs after elimination of net pensions interest, discount unwind in provisions and IFRIC 12 contract interest receivable were £22.2m (2009 £23.3m) partly offset by £3.9m income arising from loans to joint ventures and overnight deposits (2009 £2.6m).
Profit before tax at £55.1m was £15.2m higher (2009 £39.9m) an increase of 38%.
Dividends
The Company paid interim dividends of 88.06 pence (total £10.6m) and 27.38 pence (total £15.6m) per ordinary share on the 30 June 2009 and 1 December 2009 respectively (2009 77.4 pence and 83.89 pence per ordinary share totalling £9.3m and £10.1m paid on 30 June 2008 and 1 December 2008 respectively).
The Directors do not recommend payment of a final dividend. The profit for the year of £41.3m (2009 £21.4m) has been transferred to reserves. The retained earnings at 31 March 2010 was £31.9m (2009 deficit of £3.2m).
Taxation
The tax charge for the year was £13.8m (2009 £18.5m), including a deferred tax charge of £2.9m (2009 charge of £6.4m) giving an effective rate of 28% (2009 28%).
The Group's total tax contribution extends beyond that of the corporation tax charge. Tax payments made by the Group totalled £230.4m (2009 £217.3m). In addition to corporation tax payments of £6.6m (2009 £6.3m) the Group paid landfill tax of £135.7m (2009 £134.1m), value added tax of £42.2m (2009 £39.6m), vehicle taxes of £11.2m (2009 £9.3m), payroll taxes of £27.3m (2009 £20.9m) and business rates of £7.4m (2009 £7.1m).
Tax payments made in 2009/10
Going concern
Having considered the Group's funding position and financial projections, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the financial statements.
Capital structure
The Group is funded by a combination of equity and debt (raised by Pennon Group Plc) and direct borrowing. At the year end, net debt stood at £420.1m (2009 £443.4m), equivalent to 3.7 times PBITDA (2009 4.1 times).
Changes in legislation and taxation is driving the industry to commit to alternative methods of waste management, which necessarily involves substantial up front investment in manufacturing and recycling facilities. To more accurately reflect the long term demand on funds such projects will require, a capital restructuring exercise was undertaken by the Group. On 17 July 2009 the Group was recapitalised with Viridor Limited issuing a further 45,000,000 £1 Ordinary shares for a cash consideration of £45.0m. The proceeds of this issue were used to reduce Group debt by a corresponding amount.
On 26 March 2010, the Group disposed of a 5% interest in Viridor Waste Management Limited for £50m, to the parent undertaking, Pennon Group Plc. The transaction will result in the reduction in loans provided by the parent company by a corresponding amount in equal installments over 5 years. The fair value of the cash flows arising from this debt for equity swap is recognised in these financial statements at £42m.
On 17 July 2009, Viridor Waste Management Limited, a wholly owned subsidiary, received a loan of £80.0m from Pennon Group Plc which was wholly applied to the reduction in overnight debt.
Treasury policies and objectives
The Group receives treasury services from the treasury function of its parent, Pennon Group Plc, which seeks to ensure that sufficient funding is available to meet foreseeable needs, maintains reasonable headroom for contingencies and manages interest rate risk.
Further explanations can be found in accounting policies.
Capital investment
The Group invested £46.6m in property, plant and equipment in 2010 (2009 £84.0m) with landfill investment accounting for £21.4m (2009 £39.0m), recycling facilities £15.1m (2009 £10.9m), power generation capacity accounting for £3.9m (2009 £13.7m) and other projects £6.2m (2009 £20.4m).
Debt profile
During the year new borrowings and finance lease drawdowns, less debt repayments were £135.9m (2009 £30.2m). At 31 March 2010, loans and finance lease obligations were £481.5m (2009 £447.1m) and the Group held cash and deposits of £61.4m (2009 £3.7m), with net debt of £420.1m (2009 £443.4m). The parent company secured an additional £25.0m 5-10 year finance lease facility for the Group at competitive rates, despite a challenging environment in the debt market.
Group debt has a maturity profile of 0 - 10 years (note25) with a weighted average maturity of 3.7 years (2009 3.6 years) and a fair value of £488.6m (2009 £451.9m).
The components of the Group debts and related terms are:
- Parent company loans - £420.8m (2009 £339.1 m), of which approximately 30% is fixed at 6% per annum and 23% fixed at 5% per annum (2009 22% and 31% respectively) .
- Bank overdrafts - £11.0m (2009 £75.8m) at 0.25% above Barclays Bank Plc base rate which remained at 0.5% throughout the year, with the effective rate for the year at 0.75% (2009 1.5%).
- Finance leasing - £49.7m (2009 £32.2m), with interest linked to the movement in the London interbank offered rate (LIBOR).
Interest rate risk management
Net interest costs of £18.8m equated to an average interest rate of 4.4% (2009 £23.2m equating to 5.6%).
As previously stated, management of the Group debt structure and related debt finance costs is undertaken by Pennon Group plc.
Refinancing risk management
As previously stated, management of Treasury Policies and Objectives is undertaken by Pennon Group plc.
Counterparty risk management
Counterparty risk arises from the investment of surplus funds which are pooled with certain other Pennon Group companies. Surplus funds of Viridor are usually placed in short-term fixed interest deposits or the overnight money markets. All deposits are with counterparties that have a credit rating threshold approved by the board of Pennon Group Plc.
Liquidity management
Liquidity management is determined by Pennon Group Plc.
Pennon Group Plc has considerable financial resources to support its broad spread of business activities. Consequently, the Directors (two of whom are members of the Pennon Group Board) believe that such policies, as enacted by the parent, support the Group's requirements and manage it's business risks successfully despite the current uncertain economic outlook.
Cashflow
The net cash inflow from operating activities was £22.6m (2009 £42.0m). Capital expenditure outflows were £50.2m (2009 £82.2m) and net expenditure on acquisitions was £9.3m (2009 £3.4m).
Cash flows derived from the issue of shares was £45.0m (2009 nil) and net cash inflows arising from new borrowing was £135.9m (2009 £30.2m). Equity dividends paid were £26.2m (2009 £19.4m) and net interest paid was £21.3m (2009 £21.6m).