Final Results

RNS Number : 2394M

Shanks Group PLC

20 May 2010

Shanks Group plc, Europe's largest listed independent waste management company, today issues its results for the year ended 31 March 2010.

Robust performance in a challenging environment

Continuing Operations

	2010	2009	Change

Revenue	£684m	£686m	0%
EBITDA	£102.1m	£106.3m	-4%
Trading profit*	£51.1m	£61.7m	-17%
Underlying free cash flow (UFCF)**	£54.5m	£34.0m	60%
Underlying profit before tax***	£33.2m	£43.9m	-24%
Underlying EPS****	6.5p	10.4p	-38%
Dividend per share****	3.0p	1.7p	+76%

*Operating profit before amortisation of acquisition intangibles, exceptional items and discontinued operations

**Underlying free cash flow is before dividends, growth capital expenditure, acquisitions and disposals

***Before amortisation of acquisition intangibles, exceptional items and discontinued operations

****Comparative adjusted to reflect the bonus element of the Rights Issue

Financial Highlights

· EBITDA down 4% at £102.1m with EBITDA margin held at 14.9% (2009:15.5%)

· Strong cash generation with UFCF conversion of 107%. Reduction in core net debt of £104m to £186m

· Net debt to EBITDA ratio at 1.8x (management target below 2.5x)

· Excellent cost management with £10m planned savings realised and another £10m from lower waste disposal costs

· Continued investment in growth strategy with £30m spend in the year

· Strong profit improvement in Canada and UK operations mitigating a challenging Benelux environment

· Dividend 3p per share, reflecting long term confidence in the Group

Business Highlights

· Netherlands - cost savings mitigate economic headwinds

· Belgium - Solid Waste more challenging than expected, Foronex restructured and positioned for future margin enhancement

· UK - growth investments on track, significant improvement in profit

· UK PFI - £720m Cumbria contract mobilising well and improving ELWA margin. Short listed stage on six PFI opportunities. Directors' valuation of existing PFI portfolio of £65m to £80m

· Canada - second site at Ottawa commissioned on schedule at the end of January

Statutory Reporting

	2010	2009	Change

Operating profit	£35.8m	£59.2m	-39%
Profit before tax	£19.6m	£29.3m	-33%
Profit for the year	£37.6m	£6.4m	+487%
Basic EPS*	10.0p	2.1p	+376%

*Comparative adjusted to reflect the bonus element of the Rights Issue

Commenting on the results, Tom Drury, Chief Executive of Shanks Group plc, said:

"Against the backdrop of a deep recession exacerbated by the coldest winter in Europe for 30 years this has proved to a challenging year. Despite this we have made good progress in delivering of our key priorities and delivered a robust performance.

In the near term we will continue to focus on maintaining our strong customer relationships, investing in our strategy and protecting our balance sheet strength. We are encouraged by preliminary indications towards the end of our final quarter that we are through the worst of the downturn in waste volumes with recyclate prices also on an upward trend. However, we expect conditions to remain challenging in the near term for our construction related businesses. Furthermore, the significant impact of the expected decline in Belgian Landfill following the introduction of the new tax regime and potential currency headwinds will constrain the growth potential in the near term. Overall we anticipate trading for 2010/11 to be in line with the Board's expectations.

In the medium term, we remain confident that a combination of returns from our strategic investments and relatively high margins on incremental volumes arising from the economic recovery will generate strong growth. Our strategic focus remains on the three growth areas of recycling, organic processing and municipal UK PFI which are supported by compelling regulatory and legislative industry drivers."

Notes:

1. Management will be holding an analyst presentation at 9:30 a.m. today, 20 May at the offices of RBS Hoare Govett, 250 Bishopsgate, London, EC2M 4AA.

2. A copy of this announcement is available on the Company's website (www.shanksplc.co.uk) as will the presentation being made today to financial institutions.

3. The final dividend of 2.0 pence per share will be paid on 6 August 2010 to shareholders on the register at close of business on 9 July 2010.

For further information contact:

Shanks Group plc on 20 May: +44 (0) 207 678 0152

Tom Drury; Group Chief Executive thereafter: +44 (0) 1908 650582

Chris Surch; Group Finance Director

Tulchan Communications on 20 May: + 44 (0) 207 678 0152

John Sunnucks, David Allchurch thereafter: + 44 (0) 207 353 4200

Forward-looking statements

Certain statements in this announcement constitute "forward-looking statements".

Forward-looking statements may sometimes, but not always, be identified by words such as "will", "may", "should", "continue", "believes", "expects"," intends" or similar expressions. These forward-looking statements are subject to risks, uncertainties and other factors which as a result could cause Shanks Group's actual future financial condition, performance and results to differ materially from the plans, goals and expectations set out in the forward-looking statements. Such statements are made only as at the date of this announcement and, except to the extent legally required, Shanks Group undertakes no obligation to revise or update such forward-looking statements.

Chief Executive's Statement

The last twelve months have proved eventful for Shanks with the Rights Issue and the unsolicited approach from the Carlyle Group absorbing a significant amount of management time. Throughout the year however, I have been mindful that these corporate activities must not allow us to be deflected from the need to maintain momentum towards our short and medium term goals in what are extremely competitive and rapidly changing markets.

We have a clear strategy based on our vision of Shanks becoming Europe's leading provider of sustainable waste management solutions through investment in recycling, organic processing and UK PFI projects. The introduction of green energy subsidies for organic technologies from Toronto to Amsterdam and the increasing use of landfill bans and rising taxes confirm the compelling industry drivers upon which our strategy is based. The opening of Europe's largest industrial wet anaerobic digestion facility in the port of Amsterdam reinforces Shanks' leading position in this rapidly growing market.

As evidence of the value being created in our PFI activities, the Board has for the first time this year published a Directors' valuation of its existing PFI portfolio. Recent improvements in the operational performance of existing projects allow us to identify a valuation of £65m to £80m.

Together with the steady pursuit of our medium term goals we are focused on delivering in the near term. Against the backdrop of a deep recession exacerbated by the coldest winter in Europe for 30 years this has proved to be a challenging year. Nevertheless, the overall Group performance was creditable and compares well with our European peers.

Financial Performance

Underlying profit before tax fell by £10.7m (24%) to £33.2m on revenues down 0.2%. The profit impact of the recession is estimated at £20-£25 million and includes lower volumes, lower recyclate prices and pricing pressure not offsetting underlying cost increases. In addition to the recession the business has been impacted by the harsh weather conditions and the decline in Belgian Landfill following the increase in taxes on 1 January 2010. To mitigate the above we have delivered on the previously announced £10m cost programme, made additional savings through lower waste disposal costs of £10 million and improved the margins within PFI.

Furthermore we have maintained a tight control of the cash resources through strong working capital management and lower maintenance capital expenditure.

While adapting to this recessionary environment, the Group has remained focused on its long term strategic goals, and during the year the Group invested £30m in growth projects. These investments, together with the higher operational gearing resulting from the reductions in the cost base, will enhance our ability to grow as markets recover.

Progress during the year

At the Rights Issue a number of near term priorities were identified and I am pleased to report good progress against them:

Reduce debt and hold below 2.5x EBITDA

The net debt to EBITDA ratio was 1.8x at the end of March 2010

Achieve cost savings of £10m per annum

Savings of £10m achieved with a further £10m of savings in waste disposal costs

Reduce maintenance capex as a percentage of depreciation to around 50%

Target achieved with an actual outcome of 53% (96% in 2008/9)

Make targeted divestments of non core assets and improve operating cash flow

Avondale landfill joint venture sold for £27m of which £21m has been received. The sale of PFI equity was interrupted by the Carlyle approach and the Board is now evaluating the most appropriate time to sell.

Maintain investment in our focused growth strategy

£30m of growth capex was invested this year and it has remained a very high priority for the Group that we continue to invest in our strategy. Progress in implementing the key projects is highlighted below.

These near term priorities have run in parallel with progress towards the five strategic objectives I set when I joined as CEO:

1. Invest to drive organic growth where returns are greatest

Organic revenue declined by 5% as a consequence of the economic downturn. Returns from new projects began to contribute to trading profits and we continue to see a number of new projects within our strategic focus able to generate returns in excess of our target of 15%.

2. Develop our infrastructure further to support sustainable waste management

In organics we commissioned a new 100,000 tonne composting facility in Ottawa and this is producing good quality compost from municipal household waste. We also started construction work on our first UK organics plant - an anaerobic digestion plant in Cumbernauld, Scotland - which is expected to commission this Autumn. Finally we made very good progress with the flagship Greenmills project in the port of Amsterdam which will be operational in June and will process 100,000 tonnes per annum of organic waste through anaerobic digestion and 300,000 tonnes per annum of waste water. Further phases of the project could see the production of high quality fertiliser pellets and the production of bio ethanol from organic waste.

In recycling, we have made further upgrades to our recycling/solid recovered fuel plant in Ghent to increase its recycling rate and have completed most of the work on our new 150,000 tonnes per annum recycling centre which will open in Glasgow in the Autumn.

We remain active bidders for UK PFI projects which will help the UK government meet its landfill diversion targets. Work has started on the mechanical biological treatment (MBT) plants in our recently signed Cumbria contract. We have moved successfully through the short listing stages of a number of MBT opportunities and after a couple of early disappointments in our energy-from-waste partnership with Wheelabrator, we have secured some strong positions in that market as well. With Shanks in the final four bidders or better in six opportunities we remain confident of meeting our goal of securing 1.5m tonnes under management.

3. Share our core capabilities and technologies within the Group

Orgaworld has supported the launch of our organics business in the UK and has designed the new plant we will commission in Cumbernauld. They have also assisted the UK team in making operational improvements to our MBT plants.

In the Benelux we have seen improving cooperation in the management of wood waste across the region. As there has been a shortage of waste in the Netherlands we were the first company to secure a license to export pre treated waste from the UK to the Netherlands where it is being processed into fuel pellets at our Icova facility.

4. Maximise asset utilisation and minimise unit costs

I am pleased with the progress made in both our Netherlands and Belgian operations to move from a plant based view of asset utilisation to a country level view. This has allowed us to move waste across various facilities and either mothball existing plants or avoid new capital expenditure. As an example we are now feeding our Ghent recycling facility with waste from Brussels, avoiding capital investment in Brussels and improving substantially the utilisation at Ghent which now runs on a 24 hour basis. I expect further progress in this area this year as we become more sophisticated in measuring and managing capacity utilisation.

5. Continue to use acquisitions to improve asset utilisation and re-orient the portfolio to high growth markets

Given the economic conditions we have not made any significant acquisitions this year.

Culture

We have continued our progress towards establishing a culture that is characterised as entrepreneurial within a clear central framework and direction. Our local managers have demonstrated this attitude through their innovative approach to realising cost savings and their ability to retain their customers during the downturn. Alongside this we have moved, through our "Fit for the Future" programme, towards a more consistent way of managing resources across the Group. We have also begun to implement a more structured performance and programme management framework that will allow us to deliver more consistently and effectively.

Outlook

In the face of some very challenging economic conditions, we have made good progress on the delivery of our key priorities and delivered a robust performance.

Group Trading Results

The Netherlands remains the main source of the Group's profits contributing before group central services 67%, with Belgium contributing 26% and the remaining 7% split between the UK and Canada.

Revenue and Trading Profit by Geographical Region

	Revenue				Trading Profit
	2010	2009	Variance		2010	2009	Variance
	£m	£m	£m	%	£m	£m	£m	%

Netherlands	354	356	(2)	-1%	36.7	44.9	(8.2)	-18%
Belgium	176	180	(4)	-2%	14.0	19.5	(5.5)	-28%
United Kingdom	147	147	-	-	2.1	1.0	1.1	114%
Canada	8	5	3	75%	1.9	1.2	0.7	61%
Central Services	(1)	(2)	1	-	(3.6)	(4.9)	1.3	27%
Total	684	686	(2)	0%	51.1	61.7	(10.6)	-17%
Discontinued	1	11	(10)		0.3	4.7	(4.4)
	685	697	(12)	-2%	51.4	66.4	(15.0)	-23%

The Netherlands: Operational Review - trends, performance and outlook

Overall trading profit after £2.6m of exchange gains was 18% down on last year. The key developments were:

· Solid Waste underlying revenues fell 10%, impacted by the economic downturn and construction and demolition exposure

· £2m profit drag from lower recyclate prices but upward trend through the second half

· Robust performance from Hazardous Waste and Organics

· Management actions, particularly cost reduction initiatives and lower Hazardous waste disposal costs have mitigated adverse volume and pricing trends

Netherlands Revenue and Trading Profit by Activity

	Revenue				Trading Profit
	2010	2009	Variance		2010	2009	Variance
	€m	€m	€m	%	€m	€m	€m	%

Solid Waste	246	274	(28)	-10%	27.3	38.4	(11.1)	-29%
Hazardous Waste	144	151	(7)	-5%	16.4	18.8	(2.4)	-13%
Organic Treatment	13	12	1	9%	2.2	1.9	0.3	16%
Country Central Services	(4)	(5)	1		(4.5)	(4.5)	-	0%
Total (€m)	399	432	(33)	-8%	41.4	54.6	(13.2)	-24%
Total
(£m at average FX rate)	354	356	(2)	-1%	36.7	44.9	(8.2)	-18%

Netherlands Trading Margins by Activity

	Trading Margin
	2010	2009	Variance
	%	%	%

Solid Waste	11.1	14.0	(2.9)
Hazardous Waste	11.4	12.4	(1.0)
Organic Treatment	16.7	15.6	1.1
Total	10.4	12.6	(2.2)

The Solid Waste business was impacted significantly by the economic downturn, particularly in the construction and demolition sector. The underlying decline in revenue of 10% reflected lower volumes and increased pricing pressure. The downturn was exacerbated by the worst weather conditions in 30 years which impacted the business from mid December to early March. The cost reduction plans have somewhat mitigated the downturn and the full year target of €5m was exceeded. In addition, actions have been taken to offset the downturn by pushing into new markets. We have successfully entered the Dutch municipal market with contracts for 50,000 tonnes of bulky waste, 38,000 tonnes of municipal collection and most recently a contract to collect and sort electrical waste.

The Solid Waste activity currently derives approximately 45% of its trading profit from construction and demolition (C&D) waste, with the balance being from more general industrial and commercial (I&C) waste together with landfill and groundworks. All sectors of the business have been impacted by the economic cycle. In the year, C&D and I&C (excluding landfill) volumes were down 11% and 4% respectively. The profitability of the Solid Waste business was also impacted by the significant changes in recyclate prices. The significant downturn in the first half has been offset by a significant upward trend in the second half in both paper and metal prices. However, the net adverse impact for the year 2009/10 was around £2m. Indications are that these higher recyclate prices will continue for the foreseeable future as the underlying driver is the continued strong economic growth in Asia. Actions have also been taken to reduce the cost of disposal to incinerators which has provided a small benefit in the second half and will deliver an increased benefit next year.

Excess capacity in the Continental European incineration market is exerting downward pressure on prices. Although there is no direct impact on our business, we are taking action to mitigate any indirect consequences. This includes the renegotiation of disposal costs referred to above, the cost savings delivered this year and the plans to make additional cost savings that are well advanced and will benefit future years.

In Hazardous Waste, both ATM and Reym held up reasonably well throughout the year. Through continued investment ATM has maintained its relatively low unit costs and, despite quite significant pricing pressure and lower soil volumes, has been able to maintain gross margins through ongoing cost reduction initiatives. Volumes in the waste water treatment plant are up on the prior year and investment in increased water treatment storage facilities is being made. Reym has benefited from its close alignment with the oil industry which has remained relatively robust during the downturn. The order books for ATM and Reym remain strong.

Our Organic Treatment activity, Orgaworld, continues to trade satisfactorily in its home market of the Netherlands, generating trading margins of 20%. Overall margins are lower reflecting the increase in business development costs as we increase our efforts to expand into new regions. A large 100,000 tonne per annum anaerobic digestion (AD) facility and 300,000 tonne waste water facility in Amsterdam, known as the Greenmills project, will come on line in June. This is the largest industrial AD facility of its kind in Europe.

Outlook

The actions taken during the harshest trading conditions for many years, including reducing costs, maintaining the customer base and continuing to invest for growth position this business well for the economic recovery in the medium term.

Belgium: Operational Review - trends, performance and outlook

Overall trading profit after £1.0m of exchange gains was 28% down on the prior year. The key developments were:

· Solid Waste volumes fell 4% and prices 2% but second half trends more stable

· Foronex impacted by economic headwinds and revenue fell 17%. Management actions included the decision to exit from loss making Animal Bedding, price increases and cost savings

· Landfill profit decline impacted ahead of schedule with further significant drag expected in 2010/11

· Hazardous Waste impacted by the recession and the previously announced restructuring plan to reduce costs has mitigated the impact

Belgium Revenue and Trading Profit by Activity

	Revenue				Trading Profit
	2010	2009	Variance		2010	2009	Variance
	€m	€m	€m	%	€m	€m	€m	%

Solid Waste	144	154	(10)	-6%	5.3	9.7	(4.4)	-46%
Landfill	15	20	(5)	-24%	5.7	7.3	(1.6)	-22%
Power	7	7	-	0%	4.6	4.8	(0.2)	-4%
Hazardous Waste	51	60	(9)	-14%	3.9	5.7	(1.8)	-31%
Sand Quarry	3	4	(1)	-10%	0.8	1.4	(0.6)	-47%
Country Central Services	(21)	(26)	5	15%	(4.5)	(5.3)	0.8	16%
Total (€m)	199	219	(20)	-9%	15.8	23.6	(7.8)	-33%
Total
(£m at average FX rates)	176	180	(4)	-2%	14.0	19.5	(5.5)	-28%

Belgium Trading Margins by Activity

	Trading Margin
	2010	2009	Variance
	%	%	%

Solid Waste	3.7	6.3	(2.6)
Landfill & Power	47.4	44.9	2.5
Hazardous Waste	7.7	9.6	(1.9)
Sand Quarry	21.7	36.7	(15.0)
Total	8.0	10.8	(2.8)

Although market conditions in the Belgian Solid Waste business have been more challenging than originally anticipated, the Solid Waste business excluding Foronex has performed relatively well with stable I&C volumes and declines in C&D resulting in overall volume decline of 4%. The second half has seen some stabilisation and in the final quarter, despite the weather, volumes were up on the third quarter. Also, in recent months there has been upward price pressure in certain regions. In addition, investments in the SRF line in Ghent have been made that will increase the throughput and reduce costs in the coming year.

The Foronex wood based markets have been adversely impacted by the weak economic backdrop. Overall revenue is down 17% year on year and the business was loss making. The downturn in revenue has been partly mitigated by management action to reduce costs and increase prices (overall by 10%) particularly for previously low margin contracts. One of the key attractions of the business is its ability to produce fuel for the biomass industry from the wood waste and by-products it handles. An investment recently completed at the Bree facility to increase the supply of wood product into the electricity industry is now contributing after initial start up difficulties Significant new contracts have also been signed with key electricity producers. A recent strategic review has reconfirmed the attractive growth potential within the biomass market. The management of the business has been strengthened and a decision made to exit the Animal Bedding business. This business unit was a major contributor to the losses in the current year. We are confident that Foronex will make a significant contribution to the results in the coming year.

As anticipated, the Hazardous Waste business has experienced lower revenue and profits. The previously announced restructuring plan to reduce the cost base of the manual cleaning business has been implemented and is now starting to benefit results. The investments in the green energy plant are also now contributing to the results.

Landfill profitability declined by 22% principally associated with the January 2010 increase in landfill tax and bans on landfilling of municipal solid waste.

The Power business remains relatively stable although looking forward power prices are currently lower.

Outlook

As anticipated Landfill volumes going forward will be at a significantly lower level than in 2009/10 and overall trading conditions are expected to remain challenging until the underlying economic recovery is fully established. Actions taken in the Foronex business and the benefits from investments made in both Solid Waste and Hazardous Waste will improve performance over time.

United Kingdom: Operational Review - trends, performance and outlook

The results of the UK are presented to reflect the sale of the Avondale joint venture as a discontinued operation. The key developments for the year were:

· Driven by a transformed and improving PFI result, trading profits increased by £1.4m and operating margin increased from 2.1% to 3.1%

· Solid Waste volumes fell 8% (only 1% in the second half) and the profit impact was mitigated by price increases and cost reductions

· Cumbrian PFI performed well, ELWA improved recycling performance and margins

· Short listed stage on six PFI opportunities

· Directors' valuation of the existing PFI portfolio of £65m to £80m

United Kingdom Revenue and Trading Profit by Activity

	Revenue				Trading Profit
	2010	2009	Variance		2010	2009	Variance
	£m	£m	£m	%	£m	£m	£m	%

Solid Waste	65	73	(8)	-11%	5.5	6.3	(0.8)	-14%
Landfill & Power	6	5	1	22%	0.9	0.9	-	0%
Hazardous Waste	6	20	(14)	-71%	0.9	1.7	(0.8)	-48%
PFI Contracts	70	49	21	42%	2.4	(0.4)	2.8	734%
Country Central Services	-	-	-	-	(5.2)	(5.4)	0.2	4%
UK Operations	147	147	-	0%	4.5	3.1	1.4	44%
PFI Bid Team	-	-	-		(2.4)	(2.1)	(0.3)	-11%
TOTAL	147	147	-	0%	2.1	1.0	1.1	114%
Discontinued operations	1	11	(10)		0.3	4.7	(4.4)
	148	158	(10)	-6%	2.4	5.7	(3.3)	-58%

United Kingdom Trading Margins by Activity

	Trading Margin
	2010	2009	Variance
	%	%	%
Solid Waste	8.4	8.7	(0.3)
Landfill & Power	14.9	18.0	(3.1)
Hazardous Waste	15.1	8.6	6.5
PFI Contracts	3.5	(0.8)	4.3
UK Operations	3.1	2.1	1.0

In Solid Waste, due to the difficult economic backdrop, trading conditions have been challenging. Overall trading volumes in the core solid waste collections business are down by 8% though this has been in part mitigated by price increases together with strong action on costs where the restructuring programme implemented last year has delivered in line with expectations.

The downturn in the UK construction market has adversely impacted our Hazardous Waste activities which comprise the contaminated land services business. Here the number of site decontamination jobs from general construction activities is down substantially and we have consequently lowered our headcount to reduce costs.

The contribution from our existing PFI portfolio was significantly up on the previous year partly due to the contribution from Cumbria, which achieved financial close during the period and is performing well. The margins on this contract are in line with our expectations. Planning permission for the two mechanical biological treatment (MBT) facilities has been received and construction of the Hespin Wood facility has commenced. Management actions have helped the ELWA PFI to show significantly improved results versus last year. The margin improvement is in line with our expectations and we expect to make further improvement in 2010/11.

The Scottish PFI contracts continue to have weak financial performance which is expected. A provision has been made against the Dumfries and Galloway contract this year and further details are given in the Financial Review.

The PFI market remains active with many authorities now beginning their procurement processes. PFI bid costs were up £0.3m at £2.4m reflecting increased bidding activity. The next two years will see a large number of deals being closed. We believe that our extensive experience in bidding combined with the quality and breadth of our offering positions us well to win our share of tenders. During the year we have proceeded to the next stage of a number of bids.

On the basis that we are now achieving the expected margins at ELWA following our improvement programme and at Cumbria to assist the market in valuing our PFI stakes, a Directors' valuation has been performed. Using the cash flows of the financing vehicles and the operating contracts discounted at c.8% the Directors estimate the value of the existing PFI contracts to be £65m to £80m.

Following the launch of Orgaworld in the UK we recently announced a joint venture with Energen Biogas. The partnership will develop and operate a 60,000 tonnes per year Anaerobic Digestion (AD) plant capable of generating enough renewable electricity to power up to 3,000 homes. The plant will utilise proven Orgaworld AD technology to process a range of organic materials including supermarket waste, household and commercial kitchen waste, food processing waste and organic materials generated by existing Shanks operations. The process will produce a high quality fertiliser for use on agricultural land and generate up to 3MW of renewable electricity. The site has been chosen as a result of the Scottish Government's clear strategic objectives to minimise the quantities of both commercial and municipal waste sent to landfill and maximise recycling. It will provide a cost effective alternative to landfill and help local authorities and businesses increase their recycling rates. The facility is under construction and is due to open in Autumn 2010.

Outlook

Legislative support for landfill diversion strategy continues to strengthen and as a result the UK has significant growth potential. We remain confident that the actions we are taking, including our strategic investments put us in a strong position to take advantage. Although, as in the other territories, the near term economic environment means that conditions remain challenging, we are confident that we will achieve significant benefit from the upturn.

Canada - Operational Review - trends, performance and outlook

During the year trading profit increased to £1.9m (2008/9: £1.2m) and the key factors were:

· Strong growth in revenue and trading profit despite construction damage related issues at the London, Ontario plant. A 23% operating margin was achieved.

· Ottawa commissioned on schedule at the end of January and is now ramping up as planned

Outlook

We are pursuing further opportunities elsewhere in Canada which could support additional plants in this territory. We expect continued good progress in both growth and margins.

Financial Review

Revenue

Revenue from continuing operations decreased £1.6m to £683.5m. Excluding the effects of currency translation of £39m revenue was 5% down on the prior year.

Profit

Details of the Group's trading performance are given in the country business reviews. Group Central Services relates to the cost of the small headquarters which includes the Group finance, treasury, tax and company secretarial functions. The results in the year benefited from the reversal of charges for equity settled share-based payments as vesting conditions will not be met and cost containment. Overall costs reduced from £4.9m to £3.6m.

The Euro has continued to strengthen against Sterling in the year causing a 6% enhancement to Euro denominated profits.

Operating profit on a statutory basis, after taking account of all exceptional items and amortisation of acquisition intangibles, has decreased 39% from £59.2m to £35.8m.

Non trading and exceptional items excluded from underlying profits

Certain items are excluded from trading profit and underlying profit due to their size, nature or incidence to enable a better understanding of performance. Total non trading and exceptional items of £13.6m (2008/9: £14.6m) include:

· Amortisation of intangible assets acquired in a business combination £3.9m (2008/9: £3.8m)

· Profit on disposal of properties £nil (2008/9: £3.3m)

· Financing fair value remeasurements £1.7m credit (2008/9: £12.1m charge)

· Exceptional operating items £11.4m as described below (2008/9: £2.0m)

In view of the continuing losses on the Dumfries and Galloway PFI operating contract a reassessment of the future profits was undertaken. This together with a change in the discount rate to 8% to reflect recent market changes has resulted in a one-off non cash accounting provision of £6.7m for this contract.

As referred to in the Business Review of Belgium a decision has been taken to exit the loss making Animal Bedding business of Foronex. Taking into account the expected realisation of the assets, the net write off amounts to £1.9m.

Professional fees of £2.7m have been incurred as a result of the unsolicited approach made by the Carlyle Group.

In addition a number of relatively small one off adjustments relating to non trading items have been made. The net of these is a £0.1m charge.

Net Finance Costs

Finance charges excluding the change in fair value of interest rate swaps have increased £0.1m to £17.9m (2008/9: £17.8m).

Finance charges on core borrowings increased £0.1m to £19.0m (2008/9: £18.9m). This included a decrease in core borrowing levels and bank interest rates of £4.2m, adverse effect of exchange of £0.8m and an increase in loan fee amortisation of £3.2m. The increase in loan fee amortisation relates to fees of £7.4m incurred in the refinancing in April 2009 which are being written off over a two year period.

Net Financial Income from PFI remained constant at £1.1m. This comprises interest income on the financial assets arising on the UK PFI contracts net of the interest charge on the PFI net debt before taking into account the International Accounting Standard (IAS) 39 change in market value of financial instruments.

The IAS39 change in market value of financial instruments relates to interest rate swaps which fix the interest rate on PFI contract and other project finance borrowings and under IAS39 these must be valued at current market value. There was a £1.7m favourable (2008/9: £12.1m adverse) change in the market value of these swaps in the year. Revaluation of these swaps can lead to large accounting gains and losses but does not affect the long term profitability of the contract as the Group has matched its long term revenue and costs. IAS39 does allow these gains and losses to be taken directly to reserves as long as the actual cash flows remain in close correlation to those originally forecast. For the earlier PFI contracts planning delays rendered the interest rate swaps ineligible to be matched to the underlying loans and as a result changes in fair value are included in the profit and loss account. The Group has recently entered into additional interest rate swaps for the Cumbria PPP contract and loan financing. Interest rate swaps entered into after 31 March 2009 are considered to be effective at this time for hedge accounting purposes and the portion of any effective gain or loss is recognised directly in equity.

Taxation

The effective tax rate on underlying profit fell to 27% (2008/9: 29%). This was attributable to the split of the Group's profits and a lower than statutory rate in the Netherlands. The statutory rates of tax in the Netherlands, Belgium, UK and Canada are 25.5%, 34%, 28% and 34% respectively. In Belgium the effective rate on landfill profits is higher as landfill tax is non deductible for corporation tax.

The exceptional tax credit of £5.2m in the current year relates to the release of provisions held in respect of earlier periods which have now been closed. This release has been recognised as exceptional on the grounds of materiality.

The £18.4m exceptional tax charge in the prior year related to the withdrawal of industrial buildings allowances which were enacted in the Finance Act 2008. This principally relates to the non discounted value of tax relief that would have been available on the PFI infrastructure towards the end of the 25 year PFI contracts.

Earnings per share

Underlying earnings per share from continuing operations, which excludes the effect of exceptional items, decreased by 38% to 6.5 pence per share as a result of the profit decline and the dilution effect of the Rights Issue. The average number of shares included in the calculation has increased from 299.1m last year to 374.4m this year.

Basic earnings per share from continuing operations increased from 1.0 pence per share to 4.8 pence per share.

Discontinued Operations

The profits from discontinued operations of £19.5m relate to the sale of the Avondale joint venture in May 2009 and include the profits to date of sale of £0.3m and the profit on disposal of £19.2m. The sale also included contingent consideration of £3.0m which has been received during the second half of the year.

Dividend

The Group intends to pursue a progressive dividend policy within a range of 2 to 2.5 times cover in the medium term. Consistent with this policy, the Board has recommended a final dividend of 2.0 pence, making the full year dividend 3.0 pence, an increase of 76% on the total paid in respect of 2009 (1.7 pence as adjusted to reflect the bonus element of the Rights Issue).

Cash Flow and Net Debt

A summary of the cash flows in relation to core funding is shown below. All prior period comparatives have been amended to show discontinued operations separately.

Summarised Group Cash Flow

	2010	2009	Difference
	£m	£m	£m

Trading profit	51	62	(11)
Depreciation & landfill provisions	51	44	7
EBITDA	102	106	(4)
Working capital movement and other	5	-	5
Net replacement capital expenditure	(28)	(43)	15
Interest & tax	(25)	(30)	5
Underlying free cash flow	54	33	21
Dividends / issue of shares	63	(14)	77
Net growth capital expenditure	(30)	(30)	-
Discontinued operations	20	1	19
Acquisitions	(9)	(25)	16
PFI funding & others	(6)	(3)	(3)
Net cash flow	92	(38)	130

Free cash flow conversion*	107%	55%

*Free cash flow conversion is defined as underlying free cash flow divided by trading profit

The strong focus on cash management has resulted in an underlying free cash flow significantly improved on last year. Working capital levels have been tightly monitored during the year and kept at more normal levels.

The previously announced tighter controls on capital spend have resulted in lower replacement spend which, excluding the effect of timing of payments at last year end, has been maintained at 53% of depreciation compared to 96% in the prior year. Growth capital spend of £30m included Orgaworld tunnel composting facilities in Canada, initial spend on the Greenmills waste water and anaerobic digestion project in the Netherlands, processing of wood to biomass at the Foronex Bree facility, increased power capacity in Belgium and new recycling facilities in the UK.

Interest and tax payments included £7m (2008/9: £nil) relating to refinancing fees paid in relation to the April 2009 refinancing.

The net proceeds from the Rights Issue of £67m have been used to repay a proportion of the Group's multicurrency term loan and revolving bank credit facility and the scheduled July repayment of £14m of the Group's Pricoa private placement. At 31 March 2010, the bank credit facility was 75% utilised.

The inflow of £20m from discontinued operations included £18m of cash consideration received from the sale of the UK landfill joint venture, £3m share of debt disposed of together with an outflow of £1m from the joint venture in the period to disposal.

The acquisition spend of £9m related to deferred consideration payable in respect of previous acquisitions in the Netherlands and the investment and subsequent short term funding in the UK organics joint venture in Scotland. The outflow in the prior period related principally to the Foronex acquisition in April 2008.

The net cash flow of £92m together with £8m on the translation into Sterling of the Group's Euro and Canadian Dollar denominated debt and £4m for unamortised loan fees has decreased core debt by £104m in the year.

Non recourse borrowings relating to PFI/PPP contracts and other project finance have increased from £118m to £134m principally due to the start up of the Cumbria PPP contract and the initial draw downs of debt.

Treasury

The Group's treasury policy is to use financial instruments with a spread of maturity dates and sources in order to reduce funding risk. Borrowings are drawn in the same currencies as the underlying investment to reduce cash and net translation exposures on exchange rate movements. No other currency hedging mechanisms are used. The Group maintains a significant proportion of its debt on fixed rates of interest in order to protect interest cover.

At 31 March 2010, the Group's principal financing was a €360m term loan and multicurrency revolving credit facility with six major banks entered into on 7 April 2009 and expiring in April 2012. At 31 March 2010, €58m of this facility had been prepaid and cancelled following the receipt of the proceeds of the Rights Issue and the sale of the Group's stake in Avondale Environmental Limited. The term loan of €212m equivalent was fully drawn in Euro and Canadian Dollars on three month interest periods. Some €15m equivalent was drawn as an ancillary facility in Sterling to provide a Letter of Credit to support the Group's future investment in the Cumbria PPP project. The remaining €75m represented committed funds available for drawing in Sterling, Euro or Canadian Dollars by way of a revolving credit facility on three days notice. Interest is based on LIBOR or EURIBOR for the relevant period. The facility contains a requirement for interest rates to be hedged and this was met by the Group entering into a two year fixed interest swap commencing on 9 July 2009 with a principal of €180m underwritten at an effective interest rate of 1.74%. The definitions of the covenants of this facility exclude the results of PFI and other project companies and the results of joint ventures except where received in cash. The margin was fixed for the first six months and then varies on a ratchet fixed by the Debt:EBITDA ratio for the prior quarter on a rolling twelve month calculation. The financial covenants of this facility are principally the ratio of Debt:EBITDA of less than 3.00:1, interest cover of not less than 3.00:1 and a minimum net worth of £225m.

The 2001 notes issued under the Group's Pricoa private placement of €52m carry fixed interest at 6.9% and have repayments due April 2011 (€18m) and September 2013 (€18m). The financial covenants of this facility are identical to those of the Group's bank financing outlined above.

The Group also has £25m of working capital facilities with various banks. Cashflows are pooled at a country level and each operation is tasked with operating within the limits of the locally available working capital facilities.

Each of the Group's PFI / PPP projects has senior debt facilities which contribute approximately 85% of the capital funding required. These facilities are secured on the future cash flows of the PFI / PPP companies with no recourse to the Group as a whole. Repayment of these facilities, and any equity bridge facility in respect of the remaining capital funding, commences when construction is complete and concludes one to two years prior to the expiry of the PFI / PPP contract period. As the Group currently holds 100% of the equity in its PFI / PPP companies, the net debt of £125m and the fair value of the interest rate swaps used to fixed interest rates of £17m are fully consolidated in the Group balance sheet. The maximum which could be drawn down under these facilities at 31 March 2010 is £45m. The interest rates on these loans vary with one month LIBOR during the construction period and three month or six month LIBOR in the post-construction period. In order to provide a fixed price to the client local authority varying only with inflation, interest rates are fixed at between 6.20% and 7.58% with a weighted average of 6.55% by means of interest rate swaps at the time of contract inception.

The Group also has a 50% interest in a joint venture in Belgium which is funded by a non-recourse project funding facility of £25m of which £18m has been drawn at 31 March 2010. This loan is repayable over 11 years from 31 December 2011 and carries interest at a rate of 6.96%. The Group's 50% share of the drawn loan is disclosed in the financial statements.

Insurance

The Group places all its insurance with leading insurance companies with sound financial credentials. For obligatory insurances, the policy is to obtain the necessary cover at competitive rates. For other areas, regular risk assessments are undertaken to identify and assess risks; where appropriate insurance is then used to mitigate these risks. The level of cover put in place will depend on the nature of the risks and the cost and extent of cover available in the market. The majority of our insurances are renewed annually.

The Group uses international brokers to advise on risk management, appropriate insurers, cover levels and benchmarking.

Insurance requirements for our UK PFI/PPP contracts are set out in the funding and project agreements.

Retirement Benefits

The Group uses IAS19 - Employee Benefits to account for pensions. The pension charge for the year has increased to £10.2m (2009: £9.1m). Using assumptions laid down in IAS19 there was a net retirement benefit deficit of £4.9m (2009: £0.7m). This relates solely to the defined benefit section of our UK schemes. The defined benefit section of the UK scheme was closed to new members in September 2002 and new employees are now offered a defined contribution arrangement. The triennial valuation of the Group's UK defined benefit retirement scheme as at 5 April 2009 has recently been completed and the Group has agreed to fund the deficit over an eight year period with a payment of £1.8m per annum in the first two years and then increasing to £3.0m per annum. This payment profile will be reconsidered at the next valuation due in April 2012.

The Group participates in several multi-employer schemes in the Netherlands. These are accounted for as defined contribution plans as it is not possible to split the assets and liabilities of the schemes between participating companies and the Group has been informed by the schemes that it has no obligation to make additional contributions in the event that the schemes have an overall deficit.

The pension arrangements within our Belgian operations are considered to be defined contribution in nature.

Consolidated Income Statement

year ended 31 March 2010

		2010	2009
	Note	£m	£m
Continuing operations
Revenue	2	683.5	685.1
Cost of sales before amortisation of acquisition intangibles		(569.6)	(560.9)
Amortisation of acquisition intangibles		(3.9)	(3.8)
Total cost of sales		(573.5)	(564.7)
Gross profit		110.0	120.4
Administrative expenses before exceptional items		(62.8)	(62.5)
Exceptional items	3	(11.4)	1.3
Total administrative expenses		(74.2)	(61.2)
Operating profit	2,3	35.8	59.2
Interest payable		(29.3)	(28.5)
Interest receivable		11.4	10.7
Change in fair value of interest rate swaps		1.7	(12.1)
Net finance charges	4	(16.2)	(29.9)
Profit before tax	2	19.6	29.3
Tax before exceptional tax		(6.7)	(7.8)
Exceptional tax		5.2	(18.4)
Total tax	5	(1.5)	(26.2)
Profit for the year from continuing operations		18.1	3.1
Profit from discontinued operations	9	19.5	3.3
Profit for the year		37.6	6.4

Dividend per share*	6	3.0p	1.7p

Earnings per share from continuing operations*
- basic	7	4.8p	1.0p
- diluted	7	4.8p	1.0p
Total earnings per share for the year*
- basic	7	10.0p	2.1p
- diluted	7	10.0p	2.1p

* Comparative per share figures have been restated for the bonus element of the Rights Issue.

Consolidated Statement of Comprehensive Income

year ended 31 March 2010

	2010	2009
	£m	£m
Profit for the year	37.6	6.4
Exchange (loss) gain on translation of foreign operations	(6.4)	35.0
Interest rate hedges	(4.5)	-
Actuarial loss on defined benefit pension schemes	(6.8)	(12.1)
Tax in respect of other comprehensive income items	3.2	3.4
Other comprehensive income for the year, net of tax	(14.5)	26.3
Total comprehensive income for the year	23.1	32.7

The notes on pages 22 to 32 are an integral part of these consolidated financial statements.

Consolidated Balance Sheet

at 31 March 2010

		At	At
		31 March	31 March
		2010	2009
	Note	£m	£m
Non-current assets
Intangible assets		299.7	314.7
Property, plant and equipment		383.8	388.2
Other investments and loans to joint ventures		6.1	2.5
Trade and other receivables		170.8	156.4
Deferred tax assets		18.3	12.6
		878.7	874.4
Current assets
Inventories		9.9	10.4
Trade and other receivables		166.1	162.7
Current tax receivable		-	1.5
Cash and cash equivalents		51.3	27.0
		227.3	201.6
Total assets		1,106.0	1,076.0
Liabilities
Non-current liabilities
Borrowings		(380.2)	(420.6)
Other non-current liabilities		(20.4)	(18.0)
Deferred tax liabilities		(68.9)	(66.9)
Provisions	10	(33.1)	(32.3)
Retirement benefit obligations		(6.8)	(1.0)
		(509.4)	(538.8)
Current liabilities
Borrowings		(9.5)	(30.7)
Trade and other payables		(195.6)	(191.7)
Current tax payable		(2.4)	(12.2)
Provisions	10	(3.9)	(3.0)
		(211.4)	(237.6)
Total liabilities		(720.8)	(776.4)
Net assets		385.2	299.6

Equity
Share capital		39.7	23.8
Share premium		99.3	99.2
Exchange reserve		57.8	64.2
Retained earnings		188.4	112.4
Total equity		385.2	299.6

The notes on pages 22 to 32 are an integral part of these consolidated financial statements.

The Financial Statements on pages 18 to 32 were approved by the Board of Directors and authorised for issue on 20 May 2010.

Consolidated Statement of Changes in Equity

year ended 31 March 2010

	Share	Share	Exchange	Merger	Retained	Total
	capital	premium	reserve	reserve	earnings	equity
	£m	£m	£m	£m	£m	£m
Balance at 1 April 2009	23.8	99.2	64.2	-	112.4	299.6
Profit for the year	-	-	-	-	37.6	37.6
Other comprehensive income	-	-	(6.4)	-	(8.1)	(14.5)
Total comprehensive income for the year	-	-	(6.4)	-	29.5	23.1
Proceeds from shares issued*	15.9	0.1	-	51.0	-	67.0
Transfer to retained earnings*	-	-	-	(51.0)	51.0	-
Share based compensation	-	-	-	-	(0.5)	(0.5)
Dividends	-	-	-	-	(4.0)	(4.0)
Balance at 31 March 2010	39.7	99.3	57.8	-	188.4	385.2

Balance at 1 April 2008	23.7	97.4	29.2	-	129.8	280.1
Profit for the year	-	-	-	-	6.4	6.4
Other comprehensive income	-	-	35.0	-	(8.7)	26.3
Total comprehensive income for the year	-	-	35.0	-	(2.3)	32.7
Share based compensation	-	-	-	-	(0.1)	(0.1)
Proceeds from shares issued	0.1	1.8	-	-	-	1.9
Dividends	-	-	-	-	(15.0)	(15.0)
Balance at 31 March 2009	23.8	99.2	64.2	-	112.4	299.6

* Relating to the Rights Issue completed in June 2009.

The exchange reserve comprises all foreign exchange differences arising since 1 April 2005 from the translation of the financial statements of foreign operations as well as from the translation of liabilities that hedge the Group's net investment in foreign operations.

The notes on pages 22 to 32 are an integral part of these consolidated financial statements.

Consolidated Statement of Cash Flows

year ended 31 March 2010

		2010	2009
	Note	£m	£m
Net cash flow from:
Continuing activities	11	89.3	86.2
Discontinued operations	11	(0.8)	5.0
Cash flows from operating activities		88.5	91.2
Investing activities
Continuing operations:
- Purchases of intangible assets		(0.4)	(0.5)
- Purchases of property, plant and equipment		(59.1)	(85.7)
- Disposals of property, plant and equipment		2.3	8.5
- Financial asset capital advances		(24.7)	(16.1)
- Financial asset capital repayments		17.1	10.2
- Acquisition of subsidiary and other businesses		(4.9)	(20.5)
- Income received from other investments		-	0.3
- Loans granted to joint ventures		(3.7)	-
Discontinued operations:
- Disposal of joint venture		21.1	-
- Discontinued operations investing activities		(0.1)	(3.3)
Net cash used in investing activities		(52.4)	(107.1)
Financing activities
Continuing operations:
- Interest and loan fees paid		(28.8)	(25.7)
- Interest received		11.0	11.0
- Net proceeds from issue of shares		67.0	0.7
- Dividends paid		(4.0)	(15.0)
- (Decrease) increase in net borrowings		(50.3)	18.5
- Repayments of obligations under finance leases		(6.2)	(2.7)
Discontinued operations financing activities		(0.1)	(0.1)
Net cash flow used in financing activities		(11.4)	(13.3)
Net increase (decrease) in cash and cash equivalents		24.7	(29.2)
Effect of foreign exchange rate changes		(0.4)	3.0
Cash and cash equivalents at beginning of year		27.0	53.2
Cash and cash equivalents at end of year		51.3	27.0

The notes on pages 22 to 32 are an integral part of these consolidated financial statements.

Notes to the Financial Statements

1. Basis of Preparation

The figures and financial information for the year ended 31 March 2010 are extracted from but do not constitute the statutory financial statements for that year. The figures and financial information are audited. The income statement, statement of comprehensive income, statement of changes in equity and statement of cash flows for the year ended 31 March 2009 and the balance sheet as at 31 March 2009 have been derived from the full Group accounts published in the Annual Report and Accounts 2009 which have been delivered to the Registrar of Companies and on which the report of the independent auditors was unqualified and did not contain a statement under either section 237(2) or section 237(3) of the Companies Act 1985. The statutory accounts for the year ended 31 March 2010 will be filed with the Registrar of Companies in due course.

The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and therefore comply with Article 4 of the EU IAS Regulation and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The Group has applied all accounting standards and interpretations issued relevant to its operations and effective for accounting periods beginning on 1 April 2009. The IFRS accounting policies have been applied consistently to all periods presented and throughout the Group for the purpose of the consolidated financial statements.

Shanks Group plc believes that trading profit, underlying profit before tax, underlying profit after tax, underlying free cash flow and underlying earnings per share provide useful information on underlying trends to shareholders. These measures are used by Shanks for internal performance analysis and incentive compensation arrangements for employees. The terms 'trading profit', 'exceptional items' and 'adjusted' are not defined terms under IFRS and may therefore not be comparable with similarly titled profit measures reported by other companies. It is not intended to be a substitute for, or superior to GAAP measurements of profit. The term 'underlying' refers to the relevant measure being reported for continuing operations excluding exceptional items, financing fair value remeasurements and amortisation of acquisition intangibles, excluding landfill void and computer software. Trading profit is defined as continuing operating profit before amortisation of acquisition intangibles and exceptional items.

Notes to the Financial Statements (continued)

2. Segmental reporting

Management has determined the operating segments based on the reports reviewed by the Board of Directors and the executive committee. The Group operates in The Netherlands, Belgium, the United Kingdom and Canada.. The Group is organised and managed mainly by geographical location. Each geographical location can be analysed according to the following types of activity:

Solid Waste	Non-hazardous solid waste collections, transfer, recycling and treatment
Landfill and Power*	Landfill disposal (including contaminated soils) and power generation from landfill gas
Hazardous Waste	Industrial cleaning, hazardous waste transport, treatment (including contaminated soils) and disposal and contaminated land remediation
Organic Treatment	Anaerobic digestion and tunnel composting of source segregated organic waste streams
PFI Contracts	Long term United Kingdom municipal waste treatment contracts
Sand Quarry	Mineral extraction

*Belgium Landfill is viewed separately to Belgium Power.

In addition to the waste activities detailed above we have small infrastructure and groundworks operations in Ghent in Belgium and Amersfoort in the Netherlands. Due to their small size the infrastructure and groundworks activities are reported as part of the Solid Waste activities.

The profit measure the Group uses to evaluate performance is trading profit. Trading profit is operating profit before the amortisation of acquisition intangibles (excluding landfill void and computer software) and exceptional items. The Group accounts for inter-segment trading on an arm's length basis.

		2010	2009
Revenue		£m	£m
Netherlands	Solid Waste	217.8	225.6
	Hazardous Waste	127.8	124.3
	Organic Treatment	11.9	10.2
	Intra-segment revenue	(3.8)	(4.3)
		353.7	355.8
Belgium	Solid Waste	127.9	126.4
	Landfill	13.5	16.5
	Power	5.8	5.7
	Hazardous Waste	45.4	49.0
	Sand Quarry	3.1	3.2
	Intra-segment revenue	(19.3)	(21.0)
		176.4	179.8
United Kingdom	Solid Waste	65.3	72.6
	Landfill and Power	6.1	4.9
	Hazardous Waste	5.9	20.1
	PFI Contracts	69.4	48.8
		146.7	146.4
Canada	Organic Treatment	8.2	4.7
Inter-segment revenue		(1.5)	(1.6)
Total revenue from continuing operations		683.5	685.1
Group		671.7	674.2
Share of joint ventures		11.8	10.9
Total revenue from continuing operations		683.5	685.1
Total revenue from discontinued operations		1.5	11.4
Total revenue		685.0	696.5

Notes to the Financial Statements (continued)

2. Segmental reporting - continued

		2010	2009
Segment Results		£m	£m
Trading Profit
Netherlands	Solid Waste	24.2	31.6
	Hazardous Waste	14.5	15.4
	Organic Treatment	2.0	1.7
	Country Central Services	(4.0)	(3.8)
		36.7	44.9
Belgium	Solid Waste	4.7	8.0
	Landfill	5.0	6.0
	Power	4.1	4.0
	Hazardous Waste	3.5	4.7
	Sand Quarry	0.7	1.2
	Country Central Services	(4.0)	(4.4)
		14.0	19.5
United Kingdom	Solid Waste	5.5	6.3
	Landfill and Power	0.9	0.9
	Hazardous Waste	0.9	1.7
	PFI Contracts	2.4	(0.4)
	PFI Bid Team	(2.4)	(2.1)
	Country Central Services	(5.2)	(5.4)
		2.1	1.0
Canada	Organic Treatment	1.9	1.2
Group Central Services		(3.6)	(4.9)
Total trading profit		51.1	61.7
Amortisation of acquisition intangibles		(3.9)	(3.8)
Exceptional items		(11.4)	1.3
		(15.3)	(2.5)
Total operating profit from continuing operations		35.8	59.2
Group		34.8	58.0
Share of joint ventures		1.0	1.2
Total operating profit		35.8	59.2
Finance charges
	Interest payable	(29.3)	(28.5)
	Interest receivable	11.4	10.7
	Change in fair value of interest rate swaps	1.7	(12.1)
Net finance charges		(16.2)	(29.9)
Profit before tax for the year		19.6	29.3

Notes to the Financial Statements (continued)

2. Segmental reporting - continued

		2010	2009
Net assets		£m	£m
Netherlands	Gross non-current assets	501.1	523.9
	Gross current assets	77.3	84.1
	Gross liabilities	(121.0)	(120.7)
	Net operating assets	457.4	487.3
Belgium	Gross non-current assets	115.3	113.1
	Gross current assets	48.9	53.4
	Gross liabilities	(74.6)	(80.7)
	Net operating assets	89.6	85.8
United Kingdom	Gross non-current assets	213.0	205.6
	Gross current assets	45.8	34.1
	Gross liabilities	(48.1)	(37.4)
	Net operating assets	210.7	202.3
Canada	Gross non-current assets	31.0	19.0
	Gross current assets	3.2	1.1
	Gross liabilities	(1.3)	(1.1)
	Net operating assets	32.9	19.0
Group Central Services	Gross non-current assets	-	0.2
	Gross current assets	0.8	0.4
	Gross liabilities	(14.8)	(6.1)
	Net operating liabilities	(14.0)	(5.5)
Total	Gross non-current assets	860.4	861.8
	Gross current assets	176.0	173.1
	Gross liabilities	(259.8)	(246.0)
Net operating assets		776.6	788.9
Current tax		(2.4)	(10.7)
Deferred tax		(50.6)	(54.3)
Net debt		(338.4)	(424.3)
Net assets		385.2	299.6

Notes to the Financial Statements (continued)

3. Reconciliation of underlying information and exceptional items

	2010	2009
Non trading and exceptional items in operating profit	£m	£m
Restructuring charge	1.9	2.0
Profit on disposal of properties	-	(3.3)
Dumfries and Galloway PFI contract	6.7	-
Exceptional professional fees	2.7	-
Other non trading one off items	0.1	-
Total non trading and exceptional items in administrative expenses	11.4	(1.3)
Amortisation of acquisition intangibles	3.9	3.8
Total non trading and exceptional items in operating profit	15.3	2.5

A restructuring charge of £1.9m has been made for the exit of the loss making Animal Bedding business of Foronex. In view of the continuing losses on the Dumfries and Galloway PFI operating contract a one off non cash provision of £6.7m has been made which is primarily allocated to the financial asset. Professional fees of £2.7m have been incurred as a result of the unsolicited approach made by the Carlyle Group. In addition a number of relatively small one off adjustments relating to non-trading items have been made. The net of these is a £0.1m charge.

	2010	2009
Operating profit to trading profit	£m	£m
Operating profit from continuing operations	35.8	59.2
Non trading and exceptional items	15.3	2.5
Trading profit	51.1	61.7

	2010	2009
EBITDA	£m	£m
Operating profit from continuing operations	35.8	59.2
Amortisation of intangible assets	5.9	5.5
Depreciation of property, plant and equipment	50.1	44.6
Non trading and exceptional items	15.3	2.5
Exceptional depreciation and amortisation	(1.1)	-
Amortisation of acquisition intangibles	(3.9)	(3.8)
Non-exceptional gains on property, plant and equipment	(0.6)	(2.0)
Non cash landfill related expense	0.6	0.3
Underlying EBITDA	102.1	106.3

	2010	2009
Underlying profit before tax to profit before tax	£m	£m
Profit before tax	19.6	29.3
Non trading and exceptional items	15.3	2.5
Change in fair value of interest rate swaps	(1.7)	12.1
Underlying profit before tax	33.2	43.9

	2010	2009
Underlying profit after tax to profit after tax	£m	£m
Profit after tax	18.1	3.1
Non trading and exceptional items, net of tax	12.6	0.9
Change in fair value of interest rate swaps, net of tax	(1.3)	8.7
Exceptional tax	(5.2)	18.4
Underlying profit after tax	24.2	31.1

Notes to the Financial Statements (continued)

4. Finance charges

	2010	2009
	£m	£m
Interest payable:
Interest payable on borrowings wholly repayable within five years	14.8	17.5
Interest payable on other borrowings	8.6	7.8
Share of interest of joint ventures	0.1	0.3
Unwinding of discount on long term landfill liabilities	1.3	1.1
Unwinding of discount on deferred consideration payable	0.8	1.3
Amortisation of bank fees	3.7	0.5
Total interest payable	29.3	28.5
Interest receivable:
Interest receivable on financial assets relating to PFI contracts	(9.7)	(9.0)
Unwinding of discount on deferred consideration receivable	(0.4)	-
Other interest receivable	(1.3)	(1.7)
Total interest receivable	(11.4)	(10.7)
Change in fair value of interest rate swaps	(1.7)	12.1
Net finance charges	16.2	29.9

5. Tax

The tax charge based on the profit for the year is made up as follows:

		2010	2009
		£m	£m
Current tax:	UK corporation tax at 28% (2009: 28%)
	- Current year	0.2	1.9
	- Prior year	0.2	(1.5)
	Double tax relief	-	(2.9)
	Overseas tax
	- Current year	8.4	12.8
	- Prior year	(3.5)	(1.4)
	Exceptional	(5.2)	-
Total current tax		0.1	8.9
Deferred tax
- Current year		1.0	(1.1)
- Prior year		0.4	-
- Exceptional		-	18.4
Total deferred tax		1.4	17.3
Total tax charge for the year		1.5	26.2

The exceptional tax credit of £5.2m relates to a release of provisions in respect of prior year tax matters.

As a result of changes enacted in the Finance Act 2008 there will be a phased withdrawal of industrial buildings allowances over a period of 4 years. This resulted in an £18.4 million exceptional tax charge in the year ended 31 March 2009. This principally relates to the non-discounted value of tax relief that would have been available on the PFI infrastructure towards the end of the 25 year PFI contracts.

Notes to the Financial Statements (continued)

6. Dividends

	2010	2009
	£m	£m
Amounts recognised as distributions to equity holders in the year:
Final dividend paid for the year ended 31 March 2009 of nil per share (2008: 4.2p; 3.4p after adjustment for the Rights Issue)	-	10.0
Interim dividend paid for the year ended 31 March 2010 of 1.0p per share (2009: 2.1p; 1.7p after adjustment for the Rights Issue)	4.0	5.0
	4.0	15.0
Proposed final dividend for the year ended 31 March 2010 of 2.0p per share (2009: nil)	7.9	-

7. Earnings per share

	2010	2009*
Number of shares
Weighted average number of ordinary shares for basic earnings per share	374.4m	299.1m
Effect of share options in issue	0.3m	0.1m
Weighted average number of ordinary shares for diluted earnings per share	374.7m	299.2m

Calculation of basic and underlying basic earnings per share
Earnings for basic earnings per share being profit for the year (£m)	18.1	3.1
Change in fair value of interest rate swaps (net of tax) (£m)	(1.3)	8.7
Amortisation of acquisition intangibles (net of tax) (£m)	2.9	2.8
Exceptional restructuring (net of tax) (£m)	-	1.4
Exceptional profit on disposal of properties (net of tax) (£m)	-	(3.3)
Other exceptional items (net of tax) (£m)	9.7	-
Exceptional tax charge (£m)	(5.2)	18.4
Earnings for underlying basic earnings per share (£m)	24.2	31.1
Basic earnings per share	4.8p	1.0p
Underlying earnings per share (see note below)	6.5p	10.4p

Calculation of diluted earnings per share
Earnings for basic earnings per share being profit for the year (£m)	18.1	3.1
Effect of dilutive potential ordinary shares (£m)	-	-
Earnings for diluted earnings per share (£m)	18.1	3.1
Diluted earnings per share	4.8p	1.0p

Total earnings per share
Basic and diluted earnings per share for continuing operations	4.8p	1.0p
Basic and diluted earnings per share for discontinued operations	5.2p	1.1p
Total basic and diluted earnings per share	10.0p	2.1p

*The average number of shares is adjusted in the prior period for the impact of the Rights Issue. The bonus factor used was 1.2585.

The Directors believe that adjusting earnings per share for the effect of the amortisation of acquisition intangibles (excluding landfill void and computer software) and exceptional items enables comparison with historical data calculated on the same basis. Exceptional items are those items that need to be disclosed separately on the face of the income statement because of their size or incidence to enable a better understanding of performance. Changes in the fair values of interest rate swaps that the Group is required to enter into in relation to its earlier PFI arrangements are considered to be exceptional items.

Notes to the Financial Statements (continued)

8. Business combinations

(a) On 1 October 2009 the Group acquired 25% of the share capital of Energen Biogas in Scotland and an option over a further 25%. Total consideration includes the cash paid for the option and the Group has consolidated the company as a 50% Joint Venture. Energen Biogas is developing and will operate a 60,000 tonne per year Anaerobic Digestion plant capable of generating enough renewable electricity to power up to 3,000 homes. From acquisition to 31 March 2010 Energen Biogas has not contributed to revenue or profit after tax as it is still in the construction phase of the plant. The aggregate book value of the assets and liabilities acquired and the fair value to the Group were as follows:

Net assets acquired:	Book value	Fair value adjustment	Fair value
	£m	£m	£m
Property, plant and equipment	0.1	-	0.1
Trade and other payables	(0.1)	-	(0.1)
Net assets acquired	-	-	-
Goodwill			1.6
			1.6

Satisfied by:			£m
Cash consideration paid, including costs			1.6
Net debt acquired			-
Cash outflow on acquisition			1.6

(b) For acquisitions completed in the year ended 31 March 2009 there have been no amendments to the provisional fair values disclosed last year.

Notes to the Financial Statements (continued)

9. Discontinued operations

On 14 May 2009, the Group completed the sale of the 50% holding in Avondale Environmental Limited for a consideration of £15m payable on completion, £3m deferred for twelve months, £6m payable over the next seven years and £3m contingent on planning approval for an increase in the landfill void. Since completion planning has been approved and the contingent consideration is included in the profit on disposal calculation. The results of the business are presented in this financial information as a discontinued operation.

Financial information relating to Avondale for the period to the date of disposal is set out below. The income statement and cash flow statement distinguish discontinued operations from continuing operations.

Income statement information
	2010	2009
	£m	£m
Revenue	1.5	11.4
Cost of sales	(0.8)	(6.4)
Gross profit	0.7	5.0
Administrative expenses	(0.4)	(0.3)
Operating profit	0.3	4.7
Finance charges	-	(0.1)
Profit before tax	0.3	4.6
Tax	-	(1.3)
Profit from discontinued operations	0.3	3.3

	2010	2009
Profit is stated after charging:	£m	£m
Staff costs - wages and salaries	-	0.4
Depreciation of property, plant and equipment	0.2	1.3
Repairs and maintenance expenditure on property, plant and equipment	-	0.2
Operating lease minimum lease payments for plant and machinery	-	0.1

Net assets disposed:
			£m
Property, plant and equipment			10.4
Inventories			0.1
Trade and other receivables			2.4
Trade and other payables			(1.7)
Provisions			(0.6)
Tax			(1.2)
Borrowings			(3.4)
Net assets disposed			6.0

				£m
Total consideration, net of costs				25.2
Net assets disposed				(6.0)
Profit on disposal				19.2

				£m
Cash consideration received, net of costs				17.7
Net debt disposed of				3.4
Cash inflow on disposal				21.1

Notes to the Financial Statements (continued)

10. Provisions

	Site restoration
	and aftercare		Other		Total
	£m		£m		£m
At 31 March 2009	28.4		6.9		35.3
Provided - cost of sales	1.1		-		1.1
Released - cost of sales	-		(0.5	)	(0.5	)
Provided - administrative expenses	-		4.0		4.0
Finance charges - unwinding of discount	1.1		-		1.1
Disposal of business	(0.6	)	-		(0.6	)
Utilised	(0.2	)	(2.3	)	(2.5	)
Exchange	(0.8	)	(0.1	)	(0.9	)
At 31 March 2010	29.0		8.0		37.0
Current	0.6		3.3		3.9
Non-current	28.4		4.7		33.1
At 31 March 2010	29.0		8.0		37.0
Current	0.4		2.6		3.0
Non-current	28.0		4.3		32.3
At 31 March 2009	28.4		6.9		35.3

11. Notes to the cash flow statement

	2010	2009
Group	£m	£m
Continuing operations
Operating profit from continuing operations	35.8	59.2
Amortisation of intangible assets	5.9	5.5
Depreciation of property, plant and equipment	50.1	44.6
Exceptional gain on disposal of property, plant and equipment	-	(3.3)
Non-exceptional gain on disposal of property, plant and equipment	(0.6)	(2.0)
Net increase (decrease) in provisions	1.1	(4.4)
Share-based payments	(0.6)	0.8
Operating cash flows before movement in working capital	91.7	100.4
Increase in inventories	-	(2.6)
(Increase) decrease in receivables	(5.1)	18.6
Increase (decrease) in payables	9.9	(15.5)
Cash generated by operations	96.5	100.9
Income taxes paid	(7.2)	(14.7)
Net cash from operating activities - continuing operations	89.3	86.2

	2010	2009
	£m	£m
Discontinued operations
Operating profit	0.3	4.7
Depreciation of property, plant and equipment	0.2	1.3
Net decrease in provisions	-	(0.6)
Operating cash flows before movement in working capital	0.5	5.4
(Increase) decrease in receivables	(0.1)	0.3
(Decrease) increase in payables	(1.1)	0.4
Cash generated by operations	(0.7)	6.1
Income taxes paid	(0.1)	(1.1)
Net cash from operating activities - discontinued operations	(0.8)	5.0

Notes to the Financial Statements (continued)

11. Notes to the cash flow statement (continued)

Consolidated movement in net debt

	2010	2009
	£m	£m
Net increase (decrease) in cash and cash equivalents	24.7	(29.2)
Decrease (increase) in borrowings and finance leases	52.0	(18.3)
Amortisation of loan fees	(3.7)	(0.5)
Capitalisation of loan fees	7.4	-
Exchange gain (loss)	8.6	(37.5)
Change in fair value of interest rate swaps	(3.1)	(12.1)
Movement in net debt	85.9	(97.6)
Net debt at beginning of year	(424.3)	(326.7)
Net debt at end of year	(338.4)	(424.3)

Analysis of net debt

	At	At
	31 March	31 March
	2010	2009
	£m	£m
Cash and cash equivalents	51.3	27.0
Current borrowings	(9.5)	(30.7)
Non-current borrowings	(380.2)	(420.6)
Total Group net debt	(338.4)	(424.3)

	At	At
	31 March	31 March
	2010	2009
	£m	£m
Core Business net debt	(185.6)	(290.0)
PFI companies and other project finance net debt	(134.1)	(118.7)
Total Group net debt before fair value of interest rate swaps	(319.7)	(408.7)
Fair value of interest rate swaps	(18.7)	(15.6)
Total Group net debt	(338.4)	(424.3)

APPENDIX

The following additional information, summarised from the Shanks Group plc Annual Report and Accounts 2010, is disclosed in accordance with Disclosure and Transparency Rule 6.3.5.

1. Principal Risks and Uncertainties and Their Mitigation

The Group's positioning in the Recycling and Energy Recovery area of the waste hierarchy

The vision to be Europe's leading supplier of sustainable waste management solutions and its repositioning away from disposal by way of landfill and incineration of the more traditionally-focused waste companies brings risks to the successful exploitation of the significant opportunities the strategy entails.

The repositioning strategy into the recycling and energy recovery sector requires a significant commitment to capital expenditure for the further development of infrastructure to support sustainable waste management. Implicit in this is a commitment to complete capital projects on-time and on-budget. To mitigate against the risk of over-runs and over-spends in the capital programme much greater emphasis has been placed on project management skills across the Group. This has included the appointment of project management professionals, the use of dedicated project managers, the regular monitoring of project plans by senior management and the buying-in of external professional resource where appropriate.

The gaining of market share, the retention of customers as well as the reputation of the Group as a whole depends on the provision of appropriate, cost-effective and innovative schemes and facilities for the customers in the geographical areas in which the Group operates. The output from these facilities, secondary building materials, solid recovered fuel (SRF) and compost have to be of a sufficient quality to meet customers' needs. The Group has invested in quality certification technology to improve the quality of recyclate and the introduction of new sorting lines to meet this challenge. The monitoring of product quality is a continuous process in the business.

Volumes

The performance of our industrial & commercial (I&C) businesses is linked to the economic activity in the sectors we serve, in particular the construction sector. A significant proportion of the Group's I&C customer arrangements (in contrast to municipal arrangements) are annual price agreements without any customer commitments as to volumes. As a result the Group has little visibility as to future tonnages or revenues from such commercial arrangements. The volume of I&C waste received closely mirrors the I&C output in the geographical areas in which the Group's facilities are located. Unlike municipal waste, industrial projects, and therefore I&C waste volumes, are dependent on the availability of credit and underlying economic confidence. In the year ended 31 March 2010 the I&C sector accounted for approximately 30% of the Group's revenues and we are therefore exposed to fluctuations in this sector across our national markets. We mitigate this risk by diversifying our customer base where possible and by reducing costs.

Commodity prices

The sale of recyclable materials provides a significant source of income across the Group. As seen over the last two years, the level of global economic activity can have a dramatic effect on commodity prices and hence the value of these recyclables. Where the Group collects or processes segregated recyclable streams such as paper and cardboard, it endeavours to reduce the exposure to fluctuations in commodity prices by linking input prices directly to corresponding quoted commodity prices. Where the recyclables are recovered from residual waste streams their value is small compared to the costs of handling the stream, so is not separately identified in the overall price to the customer. However, the combined value of recyclables extracted from large volumes of residual waste can be significant and the impact of changing prices therefore becomes material. For certain streams, the Group seeks to limit exposure to fluctuations in commodity prices in the short to medium term by entering into agreements with off takers, however in the longer term fluctuations in the value of these streams have to be covered in the collection or gate fee to the waste producer.

Acquisitions

Acquisition of businesses in high growth markets is one of the elements of the Group's strategy. Although no major acquisitions have been made in the year the need to identify appropriate targets, perform high quality due diligence and successfully manage the integration of acquisitions remain key to the delivery of longer term business objectives. The Group continues to closely manage the integration of the Foronex acquisition in Belgium. The recent strategic review of this business below forms part of the ongoing integration effort.

The risks mentioned above, plus uncertainties inherent in any acquisition, are mitigated by good market knowledge within the business at senior levels, the appropriate allocation of both internal and external resource in due diligence and the use of experienced staff in integration planning and the ongoing management of acquired businesses.

Environmental legislation

The waste management industry is subject to extensive government regulation. EU, Dutch, Belgian, UK and Canadian laws and regulations have a substantial impact on the Group's business, as well as providing significant opportunities. A large number of complex laws, rules, orders, court decisions and interpretations govern landfill taxes, green energy subsidies, environmental protection, health, safety, land use, transportation and related matters. This is further complicated by the rapid rate of change in legislation resulting from the increased profile of environmental issues. Changes in the legislation or its interpretation can have a significant and far reaching impact on markets. The Group endeavours to mitigate this risk by employing high quality management in each of our divisions to influence the evolving legislative framework. We therefore actively lobby for our interests at European, national and regional levels through trade associations and federations.

Safety, health, and environmental (SHE) compliance

Whilst the Group is subject to the same health and safety and employment law as other companies, the potential impacts for those involved in waste management are higher than for most other industry sectors. Waste management is acknowledged to be one of the highest risk industries with fatal and serious accident rates at least as high as those in construction, agriculture and other sectors with known elevated risk profiles.

Shanks' employees are the Group's most important and valuable asset and their health and safety is paramount so while there is no obligation on companies to publicly declare accidents and incidents suffered by its employees the Group firmly believes it must make clear and unambiguous statements to all stakeholders, internal and external, of the standards it expects and the extent to which they are attained. As a result the Group sets out its accident record in the Corporate Responsibility section of the Annual Report. Since reporting commenced in 2001/02 the trend has been one of almost continuous improvement which is testament to the considerable management resource to ensure the highest health and safety practices are imposed and maintained.

Virtually all operating sites need to hold local licences, permits and other permissions to operate and compliance with these are monitored by various regulatory agencies. In the event of non-compliance Shanks may receive notices from local authorities or other regulatory agencies specifying actions to be taken and the associated timescales to remediate non-compliance. If Shanks fails to carry out the specified actions the relevant agencies have the power to revoke such licences, permits and permissions.

Waste management companies with poor compliance records or those which have attracted public or political concern will find it more difficult to obtain and renew local permissions than businesses with a more positive image. Maintaining the highest environmental standards is also important to ensure continuing acceptance of operations by host communities and to satisfy customers. Details of how the Group monitors and controls environmental compliance are given in the Corporate Responsibility section of the Annual Report.

Foreign exchange

With the majority of the Group's business being conducted in Europe the Group is at risk of adverse movements in foreign exchange rates. The Group's exposure to exchange rate movements is governed by the Board-approved Treasury Policy.

The Group's refinancing in April 2009 was arranged with UK, Dutch and Belgian banks and are multi-currency facilities. Borrowings are drawn, so far as possible, in the same currencies as the underlying investment to reduce net translation exposure on exchange rate movements.

Under the Group's financing arrangements the covenants are all measured at average rates so the risk of breaching the covenant as a result of exchange movements has therefore been eliminated.

However, the Group's strategy is to leave income risk unhedged. In the year ended 31 March 2010 foreign exchange movements contributed circa £2.7m towards the Group's underlying profit before tax but adverse movements in exchange rates could have a negative impact on translations of the results of the Group's overseas subsidiaries into sterling.

2. Directors' Responsibility Statement

The 2010 Annual Report which will be published in June 2010 contains a responsibility statement in compliance with DTR 4.1.12. This states that on 20 May 2010, the date of the approval of the Annual Report, the Directors confirm that to the best of their knowledge:

· the Group and Company financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group: and

· the 'Business Review' section in the Annual Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

There have been no changes to the Directors of Shanks Group plc since the 2009 Annual Report. A list of current directors is shown on the Company website.

This information is provided by RNS

The company news service from the London Stock Exchange

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