Consistent growth strategy
Our strategy is based on delivering growth from our market-facing divisions: Commercial Waste, Hazardous Waste and Municipal. Across all our divisions we aim to drive margin expansion, invest in infrastructure, and manage the portfolio. As the significant investments we have made over the last few years result in new facilities coming online, we will now place greater emphasis on the other two levers: margin expansion and portfolio management.
Market conditions suggest consolidation
In response to the structural over-capacity in European waste markets, there are signs of increased M&A activity. This may lead to opportunities to deliver value through synergistic acquisitions. We remain alert to opportunities which will strengthen our market positions, and will continue to exercise capital discipline. We will also explore opportunities to realise value and reduce leverage through the selective sale of non-core or under-performing assets.
Robust financial position
We focus on capital discipline and good management of our cash. This year we have delivered another year of strong underlying free cash flow (UFCF). UFCF was £56.8m (2015: £23.4m) and the UFCF% was 172% (2015: 69%).
Last year we indicated that net debt would rise as we reached a peak of capital investment during this financial year and into 2016/17. Accordingly, we put in place amended bank covenants to allow greater headroom during this leverage peak. We also implemented a range of projects to recycle capital, including the successful sale of our Wakefield PFI assets in March for £30m of which £26m was received by 31 March. As a result, core net debt at the year end was £193m, better than expectations. Net debt to EBITDA increased to 2.6 times.
Earnings per share and dividend
Underlying basic earnings per share for the year reduced to 4.7 pence (2015: 5.0 pence). This reflects stable underlying earnings, with the prior year benefiting from a one-off tax credit. Based on the Board’s confidence in the Group’s future earnings potential, I am pleased to confirm that we will be recommending an unchanged final dividend of 2.35 pence per share, payable on 29 July 2016 to shareholders on the register on 1 July 2016. The Board intends to maintain this level of dividend until earnings recover, such that the dividend is back within the range of 2.0 to 2.5 times cover. Once this is the case a progressive dividend policy can be resumed.