RNS Number:9054M
Water Hall Group Plc
30 June 2003
WATER HALL GROUP PLC
CHAIRMAN'S STATEMENT
I believe that for the first time since my appointment as Chairman of the
Company, I am able, with some clarity, to see the way forward. There have been
numerous problem areas, typically those associated with that of justifying an
Alternative Investment Market (AIM) listing for a small company, in that it is
necessary for it to develop and expand, whether organically or by acquisition,
or by a combination of both, from a very small base.
I reported in my statement in last year's annual report that in April 2002 the
Company achieved a successful fund raising by way of a Placing and Open Offer of
ordinary shares raising #1,095,000 before expenses. This has enabled a reduction
in bank borrowings and the overdraft to be replaced by a medium term bank loan.
The Company had a number of embryo ventures which, during the middle of the year
the Board decided to cease, believing that the potential returns were not
sufficiently immediate to justify further investment. In addition, the failure
to obtain new planning consents for gravel extraction and subsequent landfill at
the Water Hall Complex (the Complex) compelled the Board to adopt an alternative
strategy for the future of the operation. This alternative strategy involved a
much higher focus being placed upon the waste recycling area of the business,
which should result in increased profits and strong cash flow. The Board's
objective is to drive the cash flow from the business through profitability and
fixed asset conversion to cash, and to apply it to accelerated debt reduction
and building cash balances. In this connection, central operating costs have
been significantly reduced and will continue to be maintained at a level
consistent with the needs and size of the present business.
The Company regards its unconsented gravel and consented landfill assets as
having the potential for significant uplift in value given appropriate planning
consents. These planning consents vary from new ones to amendments of existing
ones. The existing consented landfill operations, given some modification to the
existing planning consents, could give rise to the establishment of an advanced
recycling facility, providing a much needed resource in Hertfordshire, as well
as additional value for the Company. However, given the most recent history
with regard to new planning consents and the uncertainties arising from the
draft National, Regional and Local Minerals Plan Reviews, over the future use of
the Company's unconsented assets, the Board intends to pursue progress in this
area with some caution and does not intend to commit significant financial
resources in pursuit of the objectives. As a consequence, all costs relating to
the potential exploitation of unconsented reserves have been written off to the
profit and loss account contributing substantially to the exceptional charge in
the year.
Moreover, in the circumstances, your Board also decided to obtain a professional
valuation of the Group's mineral and landfill reserves. This valuation not only
supports the Board's decision to write down the unconsented reserves but also
substantially endorsed the carrying value of the consented reserves.
Tanzifco International (TI), a company in which the Company has a 49.7%
investment, and which manages a 15 year street cleaning and waste management
contract on behalf of the Governorate of Suez in Egypt, has experienced
considerable difficulties in obtaining the full extent of the monies due from
the Governorate within the terms of the contract. The Company, while represented
on the board, no longer has any significant management or financial influence
over TI. This follows the resignation from the Company's board of Richard
Barlow, who was significantly involved with the Suez contract. Accordingly, to
reflect this change of circumstances during the year, the shareholding in TI has
been treated as a trade investment and not as an associated company as in the
previous year. The Board is advised by the board of TI that following a yet to
be scheduled court hearing due later this year, payment substantially in full is
expected to be received. The managing shareholder, Tanzifco WLL of Kuwait (TK),
has provided loans to finance TI's operations, pending receipt of monies
outstanding. There exists no obligation on the Company to provide further monies
to, or make additional investment in TI.
Given that the Company's consented gravel and landfill assets have a relatively
short finite life, the Board concluded that the main focus should be that of
driving those assets for profit and cash. There is little likelihood that
suitable or affordable purchases of replacement assets can be made within either
the quarry or the waste management sector and as such the Board believes that
the best way forward will be to develop the Company through the acquisition of
profitable, non-related businesses, funded as appropriate through a combination
of the strong cash flow from the existing business, debt and the issue of new
shares. Subject to sufficient support being available, any acquisition would be
expected to be significant in relation to the Company's present size.
The results for 2002 are impacted by the failure to obtain new planning
consents, and the consequential write down of unconsented reserves and the costs
associated with exiting from the embryo ventures. These have been treated as
exceptional charges to the profit and loss account.
The continuing business of gravel extraction, aggregate production and waste
management which had sales of #7,094,000 (2001 - #7,131,000) and produced an
operating profit of #288,000 (2001 - #246,000) before exceptional items and
produced pre-tax profits before exceptional items for these continuing
businesses of #57,000 (2001 - loss #173,000) equating to a weighted average
earnings per share of 0.11p(1) (2001 - loss per share of 0.51p).
The Group made exceptional charges of #2,643,000 during the year, partly as a
consequence of the failure to obtain two major planning consents during 2002 and
partly from the Board's decision to write off the carrying value of the
remaining unconsented reserves. This decision resulted from the continuing
uncertainty surrounding the draft National, Regional and Local Mineral Plan
Reviews. A further #218,000 relates to discontinued local authority operations
(2001 - #43,000). The total loss for the year of #2,804,000 (2001 - #173,000)
equates to a weighted average loss per share for the year of 5.64p (2001 -
0.51p).
Further details of the results for the year can be found in the Preliminary
Results Announcement under Note 1 - Turnover and Segmental analysis. No taxation
was payable in respect of the year.
The balance sheet at the year-end stood at #2,563,000 (2001 - #4,551,000), the
equivalent of 4.55p per ordinary share (2001 - 13.43p per share). Net debt at
the year-end was #2,466,000 (2001 - #3,381,000), representing a gearing level of
96.2% (2001 - 74.3%) which would be 68.5% (2001 - 59.0%) if reduced by #710,000
of cash held in escrow for restoration and aftercare purposes. The increase in
gearing reflects the impact on net assets of the write down of the Group's
reserves and not an increase in debt or a cash outflow from operations as during
2002 the Group repaid #915,000 of net debt.
The Company's available distributable reserves do not permit the payment of a
dividend at this stage. The Board is mindful of the need for many shareholders
to receive dividends and is committed to returning the Company to the dividend
list at the earliest opportunity.
It remains incumbent upon management and the Board to keep operational and
central costs at the lowest realistic level and to deliver to the balance sheet
as much cash as is possible from the existing operations. Trading for the first
five months of 2003 has been good and every effort is being made by management
and the Board to sustain this improvement into the second half of the year.
During the year, Brian Ward and Richard Barlow, both directors, left the
Company. I would like to thank them for their contribution and wish them well
for the future. I would also like to thank employees at all levels, who have
coped and adapted to the changes and disruption of the past year, and who
continue to give their wholehearted support to the Company. I would anticipate
reporting to you further on all aspects of the Company's activities at the time
of the interim announcement, which is presently forecast to be made during
September.
The Annual General Meeting is set for 11.00am on 30 July and will be held at the
County Club, High Street, Guildford, when I would hope to provide an update on
trading for the year.
John Leach
Chairman
27 June 2003
GROUP PROFIT AND LOSS ACCOUNT
for the year ended 31 December 2002
2002 2002 2002 2001
(Continuing (Exceptional Total
operations items and
before discontinued
exceptional operations)
items and
discontinued
Notes operations)
#'000 #'000 #'000 #'000
Turnover 1 7,094 - 7,094 7,131
Cost of sales (5,393) (2,643) (8,036) (5,505)
Gross (loss)/profit 1,701 (2,643) (942) 1,626
Administrative expenses
Continuing operations (1,413) - (1,413) (1,380)
Discontinued operations - (218) (218) (43)
Group operating (loss)/profit
Continuing operations 1 288 (2,643) (2,355) 246
Discontinued operations 1,2 - (218) (218) (43)
(Loss)/profit on ordinary
activities before interest 288 (2,861) (2,573) 203
Net interest payable (231) - (231) (376)
(Loss)/profit on ordinary
activities before taxation 57 (2,861) (2,804) (173)
Tax on loss on ordinary activities - - - -
(Loss)/profit for the year 57 (2,861) (2,804) (173)
Loss per ordinary share 3
Basic (5.64)p (0.51)p
Diluted (5.64)p (0.51)p
There are no recognised gains or losses for the current or prior year other than
as stated in the profit and loss account and accordingly a statement of total
recognised gains and losses has not been presented.
GROUP BALANCE SHEET
as at 31 December 2002
Notes 2002 2001
#'000 #'000
Fixed assets
Tangible assets 4 4,386 7,707
Investments 5 213 231
4,599 7,938
Current assets
Stocks 48 40
Debtors - due after more than one year 45 45
- due within one year 2,266 2,023
Cash at bank and in hand - escrow deposits 710 694
Cash at bank and in hand 118 -
3,187 2,802
Creditors: amounts falling due within one year
Bank overdraft and other borrowings (2,150) (2,877)
Trade and other creditors (1,857) (1,988)
(4,007) (4,865)
Net current liabilities (820) (2,063)
Total assets less current liabilities 3,779 5,875
Creditors: amounts falling due after more than one year (257) (317)
Provision for liabilities and charges (959) (1,007)
Net assets 2,563 4,551
Capital and reserves
Called up share capital 6 3,613 3,389
Share premium account 3,757 3,165
Profit and loss account (4,807) (2,003)
Shareholders' funds 2,563 4,551
Shareholders' funds are attributable to:
Equity shareholders (deficit) / funds (487) 4,551
Non-equity shareholder's funds 3,050 -
GROUP CASH FLOW STATEMENT
for the year ended 31 December 2002
2002 2001
#'000 #'000
Net cash inflow from operating activities 698 1,572
Returns on investment and servicing of finance
Interest received 16 21
Interest paid (193) (334)
Interest element of finance leases and hire purchase contracts (18) (48)
(195) (361)
Capital expenditure and financial investment
Purchase of own tangible fixed assets (282) (770)
Sale of tangible fixed assets 48 65
Amounts transferred to Environment Agency escrow account (16) (158)
(250) (863)
Acquisitions
Investments - (231)
Net cash inflow before financing 253 117
Financing
Issue of share capital 1,095 (103)
Expenses of share issue (279) -
Increase in bank and other loans 1,310 217
Capital element of hire purchase and finance lease contracts (224) (292)
1,902 (178)
Increase/(decrease) in cash 2,155 (61)
Reconciliation of net cash flow to movement in net debt
Increase/(decrease) in cash in the period 2,155 (61)
Cash (inflow)/outflow from change in bank and other loans (1,310) 75
Repayments of capital elements of finance leases and hire purchase contracts 224 -
Change in net debt resulting from cash flows 1,069 14
New finance leases (154) (240)
Movement in net debt in the year 915 (226)
Net debt at 1 January (3,381) (3,155)
Net debt at 31 December (2,466) (3,381)
NOTES
1. Turnover and Segmental Analysis
Operating 2002 2001
profit/
(loss) Operating
before loss after
exceptional exceptional Loss Loss
items items before before
Exceptional taxation Net taxation Net
items assets assets
Turnover Turnover
Quarry 1,530 (44) (1,395) (1,439) (1,473) 264 1,270 (64) 1,115
Products
Landfill 5,298 421 (1,248) (827) (980) 1,950 5,861 1 3,160
Recycling 266 - - - (7) 91 - - -
SQ 7,094 377 (2,643) (2,266) (2,460) 2,305 7,131 (63) 4,275
Environmental
Water Hall
International
- (89) - (89) (110) 258 - (67) 276
Total
Continuing
Operations 7,094 288 (2,643) (2,355) (2,570) 2,563 7,131 (130) 4,551
Discontinued
operations
Best Value
Partnerships
- (218) - (218) (234) (43)
Total 7,094 70 (2,643) (2,573) (2,804) 2,563 7,131 (173) 4,551
Operations
All turnover and losses before taxation are derived from activities within the
United Kingdom and all net assets are in the United Kingdom, other than those
attributable to Water Hall International which relate to the investment in
Egypt. Turnover of Landfill operations includes #2,039,000 (2001 #2,217,000)
relating to Landfill Tax.
The exceptional items arise mainly from writing off previously capitalised
planning and other costs relating to two unsuccessful planning applications and
providing in full for the impairment of the Group's remaining unconsented
reserves, following a change in the Company's planning strategy due to the
refusal of the two planning applications and the delay in the announcement of
national and regional guidelines on aggregates and landfill development. As a
result the Group's unconsented mineral reserves and landfill resources have been
written down by #2,270,000 and its related engineering and other costs, included
in debtors, by #154,000. In addition a re-appraisal of the volume of the
Group's remaining consented landfill resources and related engineering costs by
the Group's advisors has resulted in an exceptional charge of #219,000.
The discontinued operations are those of Best Value Partnerships Ltd providing
services to local authorities from which the Group withdrew in September 2002.
2. Group Operating (Loss)/Profit
2002 2001
#'000 #'000
Group operating (loss)/profit is stated after charging/(crediting):
Depreciation of tangible fixed assets
- Owned assets - normal 1,294 989
- Leased assets 228 230
- Owned assets - exceptional 2,270 -
Auditors' remuneration - Group - current year 15 15
- Company - current year 21 21
- Company - in respect of prior year - 14
Operating leases - Plant and equipment 243 210
- Other assets 13 27
Profit on disposal of fixed assets (3) (1)
Fees payable to Deloitte & Touche in 2002 for non-audit services amounted to
#56,000 (2001 - #90,000 to Ernst & Young). #44,000 of this amount relates to
the April 2002 share issue, as does #42,000 of the amount payable to Ernst &
Young, which was carried forward as a prepayment in the 2001 accounts, and both
amounts were charged to the share premium accounts in 2002.
3. Loss Per Ordinary Share
Basic: Loss per ordinary share has been calculated on the loss on ordinary
activities after taxation of #2,804,000 (2001 - #173,000) and on a weighted
average of 49,694,829 (2001 - 33,888,671) ordinary shares in issue during the
year. The average has been calculated on the 33,888,671 shares in issue before
17 April 2002 and the 56,291,102 ordinary shares in issue thereafter (see note
6).
Diluted: The loss attributable to ordinary shareholders and the number of
ordinary shares for the purposes of calculating the diluted earnings per
ordinary share are identical to those used for basic earnings per ordinary
share.
FRS 14 requires presentation of diluted EPS when a company could be called upon
to issue shares that would decrease net profit, or increase net loss per share.
For a loss making company with outstanding share options, net loss per share
would only be increased by the exercise of out of the money options. Since it
seems inappropriate to assume that option holders would act irrationally, no
adjustment has been made to diluted EPS for out of the money share options.
4. Tangible Fixed Assets
Landfill Mineral Land and Plant and
resources reserves buildings equipment Total
#'000 #'000 #'000 #'000 #'000
Cost
At 1 January 2002 10,159 1,819 800 2,899 15,677
Additions 213 80 36 320 649
Disposals - - (24) (49) (73)
Transfers to engineering - - (271) - (271)
costs
At 31 December 2002 10,372 1,899 541 3,170 15,982
Depreciation
At 1 January 2002 5,827 551 113 1,479 7,970
Provided in Year 1,696 1,298 201 597 3,792
Disposals - - (10) (18) (28)
Transfers to engineering
costs
- - (138) - (138)
At 31 December 2002 7,523 1,849 166 2,058 11,596
Net Book Value
At 31 December 2002 2,849 50 375 1,112 4,386
At 31 December 2001 4,332 1,268 687 1,420 7,707
The Group's mineral reserves and landfill resources were valued at 31 December
2002 on the basis of market value by Gerald Eve, Chartered Surveyors. The
valuation was undertaken in accordance with the Appraisal and Valuation
standards of the Royal Institution of Chartered Surveyors. This valuation
accords with the historical cost net book value of the Group's mineral reserves
and landfill resources included in these accounts.
Landfill resources includes costs of #906,000 (2001 - #693,000) and accumulated
depreciation of #423,000 (2001 - #301,000) arising from the capitalisation of
the FRS12 asset being the unexpended portions of the Group's future restoration
costs.
The Group's landfill and mineral resources and land and buildings are all
freehold and include the cost of options amounting to #65,000 (2001 - #122,000)
to acquire land adjacent to the Water Hall Complex should planning permissions
be granted for the extraction of minerals. These options expire between 2006
and 2019.
Plant and equipment of the Group includes assets held under finance leases and
hire purchase contracts with a net book value of #886,000 (2001 - #928,000).
Depreciation on these assets of #228,000 (2001 - #230,000) has been charged in
the profit and loss account.
5. Investments
2002
#'000
At 31 December 2001 (classified as an associate) 231
Foreign exchange translation differences (18)
At 31 December 2002 (re-classified as a trade investment) 213
Total fixed asset investments 213
The trade investment comprises:
* #84,000 representing a 49.7% (48.7% direct plus 1% indirectly held by a
director and a former director of the Company who are also directors of Tanzifco
international WLL) investment in the ordinary shares of Tanzifco International
WLL, which is incorporated in Egypt and holds a 15 year contract for the
provision of city cleaning services to the Governorate of Suez and commenced on
1 March 2002; and
* #129,000 (2001 - #147,000) of unsecured loans to Tanzifco International
WLL repayable during the life of the Suez contract.
The investment in Tanzifco International WLL has been re-classified during the
year from an associated company to a trade investment as Water Hall Group plc no
longer exercises significant operational and financial influence over the
activities of the investment for reasons explained in the Directors' Report.
6. Share Capital
2002 2001
#'000 #'000
Authorised
46,000,000 Ordinary shares of 10p each - 4,600
33,888,671 Non-voting deferred shares of 9p each 3,050 -
155,001,961 Ordinary shares of 1p each 1,550 -
Total 4,600 4,600
Allotted, called up and fully paid
33,888,671 Ordinary shares of 10p each - 3,389
33,888,671 Non-voting deferred shares of 9p each 3,050 -
56,291,102 Ordinary shares of 1p each
33,888,671 Arising on the subdivision of the 10p ordinary shares 339 -
22,402,431 Issued during the year 224 -
Total 3,613 3,389
At an Extraordinary General Meeting on 17 April 2002 shareholders approved
resolutions which, inter alia, gave effect to the following:
* Each existing ordinary share of 10p was subdivided into one
restructured ordinary share of 1p and one ordinary share of 9p, which was
converted into a deferred share of 9p.
* The deferred shares have no dividend or voting rights and may be
purchased by the Company for a negligible consideration.
* Each unissued ordinary share was sub-divided into 10 restructured
ordinary shares of 1p.
* The new 1p ordinary shares have the same rights as the 10p ordinary
shares in existence before the restructuring.
As a consequence, the company's authorised share capital remains at #4,600,000
but is now divided into 155,001,961 ordinary shares of 1p each and 33,888,671
non-voting deferred shares of 9p each.
The 22,402,431 new shares issued as a result of the Placing and Open Offer
immediately following the EGM raised #1,095,000 (#816,000 net of expenses of
#279,000) increasing the Company's issued and fully paid share capital of
#224,024 and the share premium account by #592,000 net of share issue expenses.
Following this restructuring the company has 56,291,102 ordinary shares in
issue. 500,000 of the 1p ordinary shares were issued at 5p per share in
consideration for services supplied by the Company's advisers in connection with
the Placing and Open Offer.
Share options
Number
Number of of option Exercise Dates normally
options holders price exercisable
Scheme
Water Hall Group plc
Executive Share Option
Scheme 1999 2,588,067 2 13.5p Oct 2003 to Dec 2010
7. The financial information set out above does not constitute the Company's
financial statements for the years ended 31 December 2002 or 2001. The
financial information for 2001 is derived from the financial statements for 2001
which have been delivered to the Registrar of Companies. The auditors have
reported on the 2001 statements; their report was unqualified and did not
contain a statement under section 237(2) or (3) of the Companies Act 1985. The
financial statements for 2002 have been audited and will be delivered to the
Registrar of Companies following the Company's Annual General Meeting on 30 July
2003. The auditors have reported on the 2002 statements; their report was
unqualified and did not contain a statement under section 237(2) or (3) of the
Companies Act 1985.
8. A copy of the Company's annual report and accounts for 2002 will be
mailed to shareholders shortly and will also be available for collection from
the Company's registered office
--------------------------
(1) Excludes exceptional charges of 5.32p per share and costs of discontinued
operations of 0.43p per share.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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