Final Results
Shanks Group PLC
31 May 2007
31 May 2007
Company Announcement - Preliminary Results 2007
Shanks Group plc, a leading European waste management company, today issues its
results for the year ended 31 March 2007.
Financial highlights
• Headline profit (profit from continuing operations before exceptional
items and tax) rose 15% to £39.2m (2006: £34.0m)
• 15% increase in turnover to £509m (2006: £442m)
• 18% increase in adjusted* earnings per share to 11.3p (2006: 9.6p)
• 5% increase in final dividend to 4.0p per share, bringing the total
dividend for the year to 5.9p per share (2006: 5.7p per share)
Business Highlights
• The Netherlands operating profit ahead 32% with Smink acquisition
contributing strongly
• Belgium operating profit up 10%
• Further recent acquisitions expand geographic coverage and provide new
technologies
• East London Waste Authority (ELWA) Phase I fully operational and Phase II
commissioning
• UK market poised for growth as new regulations take effect and Landfill
Tax increases
• Michael Averill to retire. Tom Drury, former executive director of United
Utilities and Managing Director of Vertex, will join the Board in September
as Group Chief Executive Designate
Commenting on the results, Michael Averill, Group Chief Executive of Shanks
Group plc said:
'Recent acquisitions, especially Smink in the Netherlands, together with strong
organic growth delivered this substantially improved result.
Within Benelux further acquisitions will ensure continued robust performance.
In the UK Shanks is well placed to exploit growth opportunities within the
rapidly evolving municipal market. The Group has established an enviable
reputation for the delivery of local authority waste management projects. Many
more councils are in or commencing the tendering process for the management of
their waste. Rapidly increasing Landfill Tax will also accelerate growth in the
Industrial and Commercial (I&C) Solid Waste recycling business.
I would like to thank all Shanks staff for their support during my 13 years as
Group Chief Executive. Their skills coupled with a strong financial position
leave the Group poised for further progress. I wish Tom Drury every success.'
*On continuing operations excluding the change in fair value of interest rate
swaps net of tax
CHAIRMAN'S STATEMENT
Financial Performance
I am pleased to report a significant improvement in performance for the year to
31 March 2007. Headline profit (profit from continuing operations before
exceptional items and tax) rose 15% to £39.2m (2006: £34.0m) driven principally
by a strong performance in the Netherlands following the Smink acquisition in
June 2006. Adjusted basic earnings per share improved 18% to 11.3p from last
year's 9.6p following a 1% reduction in the effective tax rate to 33% (2006:
34%). As a result your Board is recommending a 5% increase in final dividend to
4.0p per share (2006: 3.8p per share) which, if approved by shareholders, brings
the total dividend for the year to 5.9p per share (2006: 5.7p per share).
Turnover from continuing operations increased 15% to £509m (2006: £442m) and
profit before tax was £46.1m (2006: £30.3m) after a £6.9m non cash gain (2006:
£3.7m charge) on the change in the fair value of interest rate swaps.
During the year borrowings relating to the core business increased by £58m to
£134m (2006: £76m) after acquisition expenditure totalling £65m. Private
Finance Initiative (PFI) company debt also increased by £18m to £123m (2006:
£105m) following continued capital investment in the East London Waste Authority
(ELWA) and Dumfries & Galloway (D&G) projects.
Divisional Review
United Kingdom
Operating profit from continuing operations decreased by £0.9m to £3.2m (2006:
£4.1m) following lower contributions from PFI projects and Contaminated Land
Services.
Phase I of the project at Frog Island on the north bank of the river Thames is
now fully commissioned and operating at capacity. Phase II of the project
suffered a delay caused by the insolvency of a subcontractor. The supplier has
been rescued as a going concern and all equipment has now been delivered.
Commissioning has commenced in line with the revised timetable with the
objective of achieving full operations over the summer. As this is later than
expected operating costs will be higher during the delay period. A programmed
price increase in Summer 2007 will enhance profitability following recent higher
costs associated with the operation of new facilities. Like the ELWA project,
the D&G contract is serviced using the innovative Mechanical Biological
Treatment (MBT) technology developed with Italian partner Ecodeco. The D&G
plant is also fully commissioned and operating normally. There has been
significant interest from the cement industry in the Solid Recovered Fuel (SRF)
produced by the MBT process and large scale deliveries have commenced. Further
increases are programmed when ELWA Phase II is commissioned.
As previously reported a stricter interpretation of landfill regulations by the
Scottish Environment Protection Agency (SEPA) has caused substantially increased
costs on the former local authority landfill sites within our Scottish PFI
projects. A mitigation programme has commenced and is beginning to bear fruit.
The market for Contaminated Land Services in the year was significantly reduced
from a particularly strong 2005/6. Nevertheless, a number of smaller projects
have been completed making a positive contribution to results.
The logistics and recycling business has recorded substantial increases in
trading profit fuelled in part by two acquisitions in the Central Belt of
Scotland for a total consideration of £12m.
Our two landfill joint ventures have also traded well showing increases on the
already strong performance recorded last year.
Belgium
Operating profit improved 10% to £17.3m (2006: £15.7m). All geographic regions
recorded increased profits contributing to this pleasing result. In particular
household waste diverted to our landfill from public sector incinerators, which
were suffering temporary shut downs, prevented the expected decline in landfill
performance.
The 10 year contract for municipal waste collection signed in July 2005 with the
City of Liege is fully operational and contributing according to its plan.
The acquisition of Stordeur, a small waste collection company, in Wallonia was
completed for a consideration of £0.6m.
The Netherlands
Netherlands activities delivered a strong performance with operating profits
increasing 32% to £31.0m (2006: £23.5m).
The largest contribution to this improvement was the company Smink Beheer BV
which was acquired by the Group for a net consideration of £43m at the end of
June 2006. This acquisition extends our geographic coverage eastward from our
strong presence in the Randstad area. The early performance has been in line
with our plans and synergy opportunities with our existing business are now
being exploited.
One further acquisition complementing our existing solid waste activities was
completed for a consideration of £10m. The majority of these solid waste
businesses enhanced their profits during the year as the programme of price and
efficiency increases delivered improvements following the negative impact in
2005/6 accruing from the closing off of low cost recycling outlets in Germany.
Our hazardous waste divisions in total also delivered a better result than in
the prior year.
Central Services
Central Services costs rose by 20% to £5.3m (2006: £4.4m). Higher recruitment
costs and increase of National Insurance contributions on share options were the
largest elements of the movement.
Developments
United Kingdom
In November 2006 the Group was appointed as preferred bidder for the 25 year
contract to manage the waste of Cumbria County Council. Negotiations continue
and it is expected that the contract will commence in 2008.
Offers are also being made for numerous similar local authority contracts as the
Group seeks to capitalise on progress already made with the MBT technology in
this market. The UK Government estimates that at least £10bn must be spent on
new infrastructure to process municipal waste if the requirements of the
European Union (EU) Landfill Directive are to be met. The March 2007 Budget
announced an increase in the Landfill Tax escalator. From April 2008 it will
increase from £3 per tonne per annum to £8 per tonne per annum. The Tax,
currently £24 per tonne, will therefore rise to £32 per tonne in 2008 and
continue with a £8 per tonne annual increase until a rate of £48 per tonne is
reached in 2010. This change should accelerate the development of the local
authority market.
The Tax will also provide a substantial disincentive for the landfilling of I&C
waste. This change together with the regulatory requirement from October 2007
to pre treat all waste prior to landfill will provide further stimulus to the
Group's emerging I&C recycling activities.
Three recent Government policy proposals on Planning, Energy and Waste published
in late May 2007 provide endorsement for the Shanks strategy. Household waste
recycling is to be increased, landfill reduced and there will be greater
emphasis on renewable energy, including, from SRF. Planning for these major
items of infrastructure should also be simplified.
It is expected that the market for Contaminated Land Services will improve in
2007/8 particularly with opportunities to decontaminate sites which will be used
for the 2012 London Olympic Games.
The Netherlands
Since the end of the year under review the Group has completed the acquisition
of a Randstad solid waste business for a consideration of £3m. This company,
Kluivers was purchased from its management.
More importantly, in mid April 2007, the company Orgaworld was purchased for
£10m, £3m of which is deferred, with the potential for further payments up to
£14m dependent on future profits growth. This company is involved in the
composting and anaerobic digestion of biodegradable waste and brings a new
technology and expertise which can be exploited Group wide over time.
Belgium
As landfill volumes are expected to decline the Group continues to search for
acquisitions, particularly in recycling industries, which will provide new
compensating revenue streams. A number of organic growth projects are also
under consideration.
Directorate
Your Group Chief Executive, Michael Averill, has an agreement with the company
whereby he could retire at age 57, an event now less than one year away. The
Board therefore considered it prudent to commence a search for his replacement
in good time and is delighted to announce the appointment to the Board of Tom
Drury (age 45) as Group Chief Executive Designate, with effect from 3 September
2007. Michael Averill will stand down from his present position and resign from
the Board on 30 September 2007, and at that time Tom Drury will assume Michael's
role. Michael will however be retained in an advisory capacity until May 2008.
Following an early career with Unilever and PricewaterhouseCoopers, since 1991
Tom Drury has had a distinguished career with United Utilities plc, and was
appointed a main Board director in 2005. In 1996 he was appointed Managing
Director of Vertex, and until the recent sale of the business to US private
equity, was responsible for taking Vertex to a leading position in the UK's
highly competitive business process outsourcing market, with turnover of circa
£400 million, over 9,000 employees, and a blue chip client base.
The Board is delighted that Tom has agreed to accept the position of Group Chief
Executive of Shanks, and we look forward to working with him.
During his 13 years as Group Chief Executive Michael has successfully overcome
many challenges, and he will be delivering to his successor a strong company,
which is well positioned to benefit from the rapid changes that are taking place
in the waste management sector. The Board offers sincere thanks for his
leadership and contribution over the years and wishes him every success for the
future.
Ian Clubb retired as your Chairman at the 2006 AGM. At the 2007 meeting both
Philippe Delaunois and Barry Pointon will also retire from the Group. I thank
all retiring directors for their positive contributions and wise counsel and
wish them well for the future.
I am also delighted to welcome Eric van Amerongen, a Dutch national, and Stephen
Riley to the Board. They bring great international and electricity industry
experience respectively.
Outlook
Recent changes across the Group have positioned Shanks within growth markets.
It has a strong balance sheet, and the resources and skills are in place to
capitalise on market opportunities. I am therefore confident of further
progress in the current year and for the future.
A Auer
Chairman
2007 OPERATING REVIEW
Thanks are once again due to the staff who have responded superbly to the
industry's rapidly changing conditions to deliver a 19% improvement in Operating
Profit from continuing operations which increased £7.3m to £46.2m (2006:
£38.9m). Tables 1 and 2 below give an overview of the Group's operating returns
by geographical region.
Table 1: Turnover and Operating Profit by Geographical Region
Turnover Operating Profit
2007 2006 Variance 2007 2006 Variance
£m £m £m % £m £m £m %
United Kingdom 133 126 7 6% 3.2 4.1 (0.9) (22%)
Belgium 123 110 13 12% 17.3 15.7 1.6 10%
Netherlands 253 206 47 23% 31.0 23.5 7.5 32%
Central Services - - (5.3) (4.4) (0.9) 20%
______________________________________________________________
Continuing 509 442 67 15% 46.2 38.9 7.3 19%
Discontinued 23 0.4
_______________ _______________
TOTAL 509 465 46.2 39.3
_______________ _______________
Table 2: Operating Cashflow and Return on Capital Employed after PFI Project
Financing
Operating Cashflow Return on Capital Employed
2007 2006 Var 2007 2006 Var
£m £m £m % % %
United Kingdom (14.3) (0.5) (13.8) 17 18 (1)
Belgium 21.8 16.1 5.7 55 50 5
Netherlands 33.2 20.6 12.6 12 9 3
Central Services (5.6) (4.4) (1.2)
____________________________________________________________________
Continuing 35.1 31.8 3.3 15 13 3
____________________________________________________________________
United Kingdom
Operating profit was down £0.9m at £3.2m (2006: £4.1m). The major factors
behind this are summarised in Table 3 below.
Table 3: United Kingdom Operating Profit Major Factor Analysis
2007 2006 Change
£m £m £m
Operating Profit 3.2 4.1 (0.9)
__________________________________
Major Factors:
Solid Waste 1.8
Joint Ventures 0.6
Contaminated Land Services (1.2)
PFI - Argyll & Bute and Dumfries & Galloway (1.5)
Overheads and PFI bid team 0.5
Property disposals and other (1.1)
________
Total (0.9)
________
Solid Waste improved significantly on prior year aided by the acquisition and
integration of Eden Ltd and the waste management and recycling activities of
John W Hannay & Co Limited during the first half of the year. In the Central
Belt of Scotland virtually all waste collected by our vehicles now passes
through a recycling centre; there is very little that goes directly to landfill.
Across the board recycling levels are increasing as we move towards our
Benelux model of collection fleets feeding large regional recycling centres
which allow waste to be diverted from landfill to more cost effective outlets.
We see this as a significant competitive advantage as the market shifts to
accommodate the ban on landfilling of untreated non-hazardous waste from October
2007 and the escalation in the rate of landfill tax; now scheduled to increase
by £8 per tonne per annum.
Our joint venture landfills have improved due to increased waste inputs and, at
the Avondale site, additional green electricity production.
Contaminated Land Services was down year on year due to a particularly large
contract in the previous year and low market activity levels in 2007. The
outlook is more promising with the potential of significant work from the clean
up of the 2012 Olympics site in East London.
The first of our innovative Mechanical Biological Treatment (MBT) facilities
used on the East London Waste Authority (ELWA) PFI contract and that used on the
Dumfries and Galloway (D&G) contract are now operational. Construction of the
second ELWA facility was interrupted by financial problems at a subcontractor
during the second half. This has now been resolved and commissioning is
underway, albeit a couple of months later than planned. This will not affect
the scheduled price rise in summer 2007 which will address the current predicted
squeeze in profits on the project.
Stricter interpretation of landfill regulations by the Scottish Environmental
Protection Agency (SEPA) is causing costs to rise significantly on the former
local authority landfill sites now managed by the Group within the D&G and
Argyll & Bute (A&B) contracts. Lower investment returns will result. The
mitigation programme started early in the year is beginning to yield benefits.
The MBT facility in the D&G contract is not affected by this issue.
Finally one-off profits from surplus property disposals were significantly lower
than in 2006.
Belgium
Operating profit improved 10% on last year's already strong performance to
£17.3m (2006: £15.7m). The major factors behind this are summarised in Table 4
below.
Table 4: Belgian Operating Profit Major Factor Analysis
2007 2006 Change
£m £m £m
Operating Profit 17.3 15.7 1.6
__________________________________
Major Factors:
Industrial & commercial Solid Waste 1.7
Municipal collections 0.2
Other (0.3)
________
Total 1.6
________
All three Belgian regions showed a marked improvement, particularly in the
industrial and commercial sector. Our landfill in Wallonia continued to benefit
from bonus volumes diverted from public sector incinerators experiencing
operational difficulties. There was also a full year's benefit from the
enlarged Liege municipal collection contract which commenced in July 2005.
During the year one small tuck-in acquisition costing £0.7m was completed.
The outlook for the coming year is that the contribution from landfill will fall
as the bonus volumes are unlikely to be repeated and restrictions on landfilling
of non-hazardous waste from October 2007 and increased landfill tax on municipal
waste from January 2008 divert waste away from landfill.
The Netherlands
Operating profit in the Netherlands improved 32% to £31.0m (2006: £23.5m). The
key factors are summarised in Table 5.
Table 5: The Netherlands Operating Profit Major Factor Analysis
2007 2006 Change
£m £m £m
Operating Profit 31.0 23.5 7.5
__________________________________
Major Factors:
Smink (including synergies) 4.7
Solid Waste 2.5
Hazardous Waste 0.2
Other 0.1
________
Total 7.5
________
The acquisition of Smink Beheer BV on 30 June 2006 has expanded our geographical
coverage eastwards from our strong presence in the Randstad area. The
performance in the first nine months, which is in line with our acquisition
plan, has significantly enhanced earnings.
In December 2006 we completed a second tuck in acquisition for £10m which will
augment our collection and recycling activities in The Hague.
Profits from the existing solid waste businesses have improved. In June 2005
disposal costs rose sharply as the result of the introduction of the landfill
ban in Germany, depressing results. The effect of these cost increases had been
substantially mitigated by the start of the current year by increased recycling
and price increases. The construction industry, a major source of customers, is
also buoyant boosting activity levels.
Our hazardous waste treatment activities performed well due in part to increased
activity in the petrochemical sector, stimulated by high oil prices.
Central Services
Central Service costs increased by £0.9m to £5.3m (£4.4m). The major elements
within this were higher recruitment costs associated with the appointment of new
Board Directors and increased provision for National Insurance on share options
as the share price has risen.
FINANCIAL REVIEW
Table 6: Summarised Group Profit and Loss (£m)
2007 2006 Variance
£m £m £m %
Turnover 509 442 67 15
Operating Profit 46.2 38.9 7.3 19
Finance Charges (7.0) (4.9) (2.1) (43)
_____________________________________
Headline Profit 39.2 34.0 5.2 15
IAS 39 adjustment 6.9 (3.7) 10.6
______________________________
Profit Before Tax continuing 46.1 30.3 15.8
______________________________
Tax - Headline 33% (2005/6:34%) (12.8) (11.6) (1.2)
Tax - IAS 39 adjustment (2.0) 1.1 (3.1)
______________________________
Profit After Tax continuing 31.3 19.8 11.5
Profit After Tax discontinued - operations - (0.2) 0.2
Profit After Tax discontinued - disposal - 10.8 (10.8)
______________________________
Profit for the Year 31.3 30.4 0.9
______________________________
The background to the Group's trading performance is given in the Operating
Review above. The contributions to Turnover and Operating Profit from
acquisitions during the year were £37.0m and £5.5m respectively, the majority
being attributable to the Smink Beheer BV acquisition.
Finance charges for the continuing business increased £2.1m to £7.0m, before
taking into account the International Accounting Standard (IAS) 39 change in
market value of financial instruments (see below). This increase reflected
interest rate rises since last year and the higher level of core borrowings, due
to acquisitions.
The IAS 39 change in market value of financial instruments relates to interest
rate swaps which fix the interest rate on PFI contract borrowing. At the
financial close of a PFI contract the price of the service is determined by,
inter alia, the long term interest rate available in the market. The Group
therefore protects itself against future fluctuations in interest rates by
entering into interest rate swaps to match its future cash inflows and outflows.
Under IAS 39 these swaps must be valued at current market value irrespective
of the commercial reasons for entering into them. Revaluation of these swaps
can lead to large accounting gains or losses but does not affect the long term
profitability of the contract as the Group has matched its long term revenue and
costs. Whilst IAS 39 does allow these gains and losses to be taken directly to
reserves, it is on the proviso that onerous verification requirements are
fulfilled. The Group believes it is not worth expending significant resources
fulfilling these requirements in respect of an item that does not reflect
commercial reality. These changes in value are excluded from our Headline
Profit. There was a £6.9m favourable (2006: £3.7m adverse) change in the market
value of these swaps during the year.
The average tax rate on Headline Profit fell to 33% (2006: 34%). This was
attributable to a reduction in the Dutch headline rate from 29% to 25.5% in
January 2007. The underlying rates of tax in the United Kingdom and Belgium
remained unchanged at 30% and 34% respectively. In Belgium the effective rate
on landfill derived profits is higher as landfill tax is non-deductible for
corporation tax. This is mitigated via a deduction for notional interest on
Belgian equity introduced in January 2006.
Average Euro / Sterling exchange rates have been stable year on year and so have
had little impact on reported profits. Small differences in year end rates have
had a minor impact on the balance sheet.
Cash Flow
Details of the Group's cash flow performance are summarised in Table 7 below.
Table 7: Summarised Group Cashflow
2007 2006
Core PFI Total Total Diff
£m £m £m £m £m
Operating Profit 47 (1) 46 39 7
Depreciation & Landfill Provisions 35 - 35 30 5
___________________________________________________________
EBITDA 82 (1) 81 69 12
Working Capital Movement 9 (4) 5 (2) 7
Net Capital Expenditure (39) (30) (69) (76) 7
Interest,Tax,Dividends,Other (46) 17 (29) (20) (9)
___________________________________________________________
Underlying Cashflow 6 (18) (12) (29) 17
Acquisitions (65) - (65) (4) (61)
Discontinued & Exceptional (3) - (3) 29 (32)
Exchange 4 - 4 (2) 6
___________________________________________________________
Debt Movement (58) (18) (76) (6) (70)
___________________________________________________________
The underlying cash generated by the core business was £6m after net capital
expenditure of £39m. The £65m outflow on acquisitions is the amount paid plus
net debt in the acquired entities. In the case of Smink this was a significant
positive cash balance. The discontinued and exceptional cash outflow of £3m
comprises costs related to the UK reorganisation instigated in 2004 and the
disposed of UK Landfill and Power and Hazardous Waste businesses. There was a
£4m favourable movement on the translation of Group's Euro denominated debt into
Sterling, giving an increase in core net debt of £58m.
The non-recourse aggregated net debt in the PFI companies increased by £18m
mainly due to the funding of the construction work in the ELWA and D&G
contracts.
Capital Expenditure
The Group spent £69m net on capital expenditure (2006: £76m) of which £39m was
in the core business and £30m on PFI contracts. The core business maintenance
capital expenditure was £28m (2006: £23m), asset disposal proceeds were £2m and
expenditure on growth projects was £13m. Major growth projects in the core
business included the expansion of the sorting facilities at one of our Dutch
Solid Waste sites, extra storage facilities at our ATM hazardous waste treatment
facility in Moerdijk and additional green electricity generation at our joint
venture landfill in Scotland.
The capital expenditure on PFI contracts relates principally to construction of
MBT facilities at our ELWA and D&G contracts. This expenditure is treated as
Financial Asset advances.
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 exposure 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.
The Group's principal financing is a £250m multicurrency revolving credit
facility with five major banks expiring in April 2010. Adjusting for cash, this
facility was less than 50% utilised at 31 March 2007. The 2001 notes issued
under the Group's private placement of £35m have maturity dates between 2009 and
2013. The Group also has £26m of working capital facilities with various banks.
Each of the Group's PFI 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 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 contract period. As
the Group currently holds 100% of the equity in its PFI companies, the net debt
of £123m is fully consolidated in the Group balance sheet. The maximum which
could be drawn down under these facilities at 31 March 2007 is £155m.
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 renowned international brokers to advise on risk management,
appropriate insurers, cover levels and benchmarking.
Insurance requirements for our UK PFI contracts are set out in the funding and
project agreements.
Pensions
The Group uses IAS19 - Employee Benefits to account for pensions. The pension
charge for the continuing business for the year has increased to £6.6m (2006:
£5.7m). The net retirement benefit obligations, which relate solely to the
defined benefit section of our UK scheme, have reduced to £8.4m (2006: £10.3m).
The majority of pension arrangements within our Belgian and Dutch operations are
considered to be defined contribution in nature.
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. During the year a triennial actuarial valuation was completed
based on the assets and liabilities as at 5 April 2006. This showed a funding
deficit of £2.5m, £19.2m less than the previous valuation. The main factors
which have affected the funding position since the previous valuation are:
• favourably: the returns on the scheme assets and additional contributions
over and above the ongoing service cost. The additional contributions
include a total of £15m paid into the scheme following the sale of the UK
Landfill and Power business in 2004 and the UK Hazardous waste activities
in 2005 in respect of the residual liabilities of those employees who
became deferred pensioners as a result of the sales;
• adversely: the reduction in gilt yields and increase in the life expectancy
of the members.
Going Concern
The Directors, having reviewed the Group's 2007/8 budget, its medium term plans
and its banking arrangements are satisfied that the Group has sufficient
resources to continue operations for the foreseeable future. Accordingly they
continue to adopt the going concern basis in preparing the financial statements.
Notes:
1. Management will be holding an analyst presentation at 9:30 a.m. today, 31
May at ABN AMRO's offices at 250 Bishopsgate, London, EC2M 4AA.
2. A copy of this announcement is available on the company's website
(www.shanks.co.uk) as will the presentation being made today to financial
institutions.
3. Copies of the Annual Report will be posted to shareholders on 25 June 2007
after which they will be available, on request from the company at Astor
House, Station Road, Bourne End, Buckinghamshire, SL8 5YP, or on the
company website.
4. The final dividend of 4.0 pence per share, if approved by shareholders,
will be paid on 3 August 2007 to shareholders on the register at close of
business on 13 July 2007.
For further information contact:
Shanks Group plc on 31 May, telephone: 020 7678 0383
Adrian Auer, Chairman thereafter, telephone: 01628 554920
Michael Averill, Group Chief Executive
Fraser Welham, Group Finance Director
Citigate Dewe Rogerson telephone: 020 7282 2945
Ginny Pulbrook
Consolidated Income Statement
Year ended 31 March 2007
2007 2006
Note £m £m
________________________________________________________________________________
Continuing operations
Revenue 2 508.5 442.5
Cost of sales (412.9) (358.6)
________________________________________________________________________________
Gross profit 95.6 83.9
Administrative expenses (49.4) (45.0)
________________________________________________________________________________
Operating profit 2 46.2 38.9
________________________________________________________________________________
Finance charges:
Interest payable (18.2) (12.7)
Interest receivable 11.2 7.8
Change in fair value of interest rate swaps 6.9 (3.7)
________________________________________________________________________________
Total finance charges 3 (0.1) (8.6)
________________________________________________________________________________
Profit before tax from continuing operations 2 46.1 30.3
Tax 4 (14.8) (10.5)
________________________________________________________________________________
Profit after tax for the year from continuing operations 2 31.3 19.8
Discontinued operations
Profit after tax for the year from discontinued operations 2 - 10.6
________________________________________________________________________________
Profit for the year 9 31.3 30.4
================================================================================
Dividend per share 5 5.9p 5.7p
Earnings per share
- basic 6 13.3p 13.0p
- diluted 6 13.3p 12.9p
Earnings per share from continuing operations
- basic 6 13.3p 8.5p
- diluted 6 13.3p 8.4p
================================================================================
Consolidated Statement of Recognised Income and Expense
Year ended 31 March 2007
2007 2006
£m £m
________________________________________________________________________________
Exchange (loss) gain on translation of foreign operations (3.9) 1.9
Actuarial gain (loss) on defined benefit pension schemes 0.5 (0.6)
________________________________________________________________________________
(3.4) 1.3
Deferred tax in respect of defined benefit pension schemes (0.1) 0.2
________________________________________________________________________________
Net (expense) income recognised directly in equity (3.5) 1.5
Profit for the year 31.3 30.4
________________________________________________________________________________
Total recognised income and expense for the year 27.8 31.9
================================================================================
Consolidated Balance Sheet
At 31 March 2007
At 31 At 31
March 2007 March 2006
Note £m £m
________________________________________________________________________________
Non-current assets
Intangible assets 198.3 144.4
Property, plant and equipment 209.0 183.6
Other investments and loans to joint ventures 1.8 2.9
Trade and other receivables 141.9 120.1
Deferred tax assets 10.8 15.0
________________________________________________________________________________
561.8 466.0
________________________________________________________________________________
Current assets
Inventories 5.4 9.0
Trade and other receivables 119.4 97.3
Current tax receivable 2.1 1.4
Cash and cash equivalents 42.7 59.4
________________________________________________________________________________
169.6 167.1
________________________________________________________________________________
Total assets 731.4 633.1
________________________________________________________________________________
Current liabilities
Borrowings (28.9) (10.9)
Trade and other payables (127.3) (114.1)
Current tax payable (13.4) (8.3)
Provisions 8 (6.3) (9.1)
________________________________________________________________________________
(175.9) (142.4)
________________________________________________________________________________
Non-current liabilities
Borrowings (271.2) (237.3)
Other non-current liabilities (2.3) (0.7)
Deferred tax liabilities (27.4) (17.5)
Provisions 8 (22.5) (16.3)
Retirement benefit obligations (8.4) (10.3)
________________________________________________________________________________
(331.8) (282.1)
________________________________________________________________________________
Total liabilities (507.7) (424.5)
________________________________________________________________________________
Net assets 223.7 208.6
================================================================================
Equity
Share capital 23.5 23.5
Share premium 94.0 93.7
Exchange reserve 1.1 5.0
Retained earnings 105.1 86.4
________________________________________________________________________________
Total equity 223.7 208.6
================================================================================
Consolidated Cash Flow Statement
Year ended 31 March 2007
2007 2006
Note £m £m
________________________________________________________________________________
Net cash from operating activities 10 (c) 71.3 58.9
________________________________________________________________________________
Investing activities
Purchase of intangible assets (1.1) (0.2)
Purchases of property, plant and equipment (39.3) (31.9)
Disposal of property, plant and equipment 2.7 3.1
Financial asset capital advances (30.9) (48.8)
Financial asset capital repayments 1.4 1.9
Acquisition of subsidiary and other businesses (65.3) (4.2)
Net proceeds from disposal of subsidiary and other businesses - 34.0
Income received from other investments 1.1 0.7
________________________________________________________________________________
Net cash used in investing activities 10 (c) (131.4) (45.4)
________________________________________________________________________________
Financing activities
Interest paid (17.1) (12.6)
Interest received 11.2 7.8
Proceeds from issue of shares 0.3 0.6
Dividends paid (13.4) (13.4)
Increase in borrowings 64.6 32.2
Increase in obligations under finance leases 0.9 1.8
Repayments of obligations under finance leases (3.0) (3.0)
________________________________________________________________________________
Net cash flow from financing activities 43.5 13.4
________________________________________________________________________________
Net (decrease) increase in cash and cash equivalents (16.6) 26.9
Cash and cash equivalents at beginning of year 59.4 32.5
________________________________________________________________________________
Cash and cash equivalents at end of year 42.8 59.4
================================================================================
Consolidated Movement in Net Debt
Year ended 31 March 2007
2007 2006
£m £m
________________________________________________________________________________
Net (decrease) increase in cash and cash equivalents (16.6) 26.9
Increase in borrowings and finance leases (62.5) (31.0)
Amortisation of loan fees (0.4) (0.4)
Exchange gain (loss) 4.0 (1.9)
Change in fair value of interest rate swaps 6.9 (3.7)
________________________________________________________________________________
Movement in net debt (68.6) (10.1)
Net debt at beginning of year (188.8) (178.7)
________________________________________________________________________________
Net debt at end of year (257.4) (188.8)
================================================================================
Analysis of Net Debt.
At 31 March 2007
At 31 At 31
March 2007 March 2006
£m £m
________________________________________________________________________________
Core Business net debt (134.0) (75.9)
Private Finance Initiative net debt (122.9) (105.5)
________________________________________________________________________________
Total Group net debt before fair value of interest rate swaps (256.9) (181.4)
Fair value of Private Finance Initiative interest rate swaps (0.5) (7.4)
________________________________________________________________________________
Total Group net debt (257.4) (188.8)
================================================================================
Notes to the Financial Statements
1 Basis of preparation of financial statements
The figures and financial information for the year ended 31 March 2007 are
extracted from but do not constitute the statutory financial statements for
that year. The figures and financial information for the year are audited.
The income statement, statement of recognised income and expense and cash
flow statement for the year ended 31 March 2006 and the balance sheet at 31
March 2006 have been derived from the full Group accounts published in the
Annual Report and Accounts 2006 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 financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS) as required by Article 4
of the European Union IAS Regulation. The Group has applied all accounting
standards and interpretations issued relevant to its operations and
effective for accounting periods beginning on 1 April 2006. The IFRS
accounting policies have been applied consistently to all periods presented
and throughout the Group for the purposes of the consolidated financial
statements.
2 Segmental reporting
Waste management business shown by management responsibility and
geographical area:
2007 2006
£m £m
_____________________________________________________________________________________
(a) Continuing operations
Revenue United Kingdom 133.2 126.1
Belgium 122.9 110.2
Netherlands 252.4 206.2
______________________
Total revenue 508.5 442.5
______________________
Group 494.0 429.9
Share of joint ventures 14.5 12.6
_____________________________________________________________________________________
Total revenue 508.5 442.5
=====================================================================================
Operating profit United Kingdom 3.2 4.1
Belgium 17.3 15.7
Netherlands 31.0 23.5
Central Services (5.3) (4.4)
______________________
Total operating profit 46.2 38.9
______________________
Group 42.2 35.7
Share of joint ventures 4.0 3.2
_____________________________________________________________________________________
Total operating profit 46.2 38.9
=====================================================================================
Finance charges Interest payable (18.2) (12.7)
Interest receivable 11.2 7.8
Change in fair value of financial instruments 6.9 (3.7)
_____________________________________________________________________________________
Total finance charges (0.1) (8.6)
_____________________________________________________________________________________
Profit before tax from continuing operations 46.1 30.3
Tax (14.8) (10.5)
_____________________________________________________________________________________
Profit after tax for the year from continuing operations 31.3 19.8
=====================================================================================
(b) Discontinued operations
Revenue United Kingdom - 18.4
Netherlands - 4.9
_____________________________________________________________________________________
Total revenue - 23.3
=====================================================================================
Operating profits United Kingdom - 0.7
Netherlands - (0.3)
_____________________________________________________________________________________
Total operating profit - 0.4
_____________________________________________________________________________________
Profit on disposal of operations (United Kingdom) - 8.7
_____________________________________________________________________________________
Finance charges Interest payable - (0.6)
_____________________________________________________________________________________
Profit before tax from discontinued operations - 8.5
Tax - 2.1
_____________________________________________________________________________________
Profit after tax and profit for the year from discontinued operations - 10.6
=====================================================================================
(c) Analysis of net assets At 31 March 2007 At 31 March 2006
£m £m
_____________________________________________________________________________________
United Kingdom Gross assets 216.6 175.0
Gross liabilities (34.5) (50.9)
________________________________
Net operating assets 182.1 124.1
________________________________
Belgium Gross assets 74.2 73.8
Gross liabilities (47.6) (42.4)
________________________________
Net operating assets 26.6 31.4
________________________________
Netherlands Gross assets 384.0 307.9
Gross liabilities (67.3) (47.8)
________________________________
Net operating assets 316.7 260.1
________________________________
Central Services Gross assets 0.9 0.6
Gross liabilities (17.3) (9.4)
________________________________
Net operating assets (16.4) (8.8)
_____________________________________________________________________________________
Total Gross assets 675.7 557.3
Gross liabilities (166.7) (150.5)
_____________________________________________________________________________________
Net operating assets 509.0 406.8
Current tax (11.3) (6.9)
Deferred tax (16.6) (2.5)
Net debt (257.4) (188.8)
_____________________________________________________________________________________
Net assets 223.7 208.6
=====================================================================================
3 Finance charges
2007 2006
£m £m
_____________________________________________________________________________________
Continuing operations
Interest payable:
Interest payable on borrowings wholly repayable within five years 9.3 6.2
Interest payable on other borrowings 7.6 5.7
Share of interest of joint ventures 0.1 0.1
Unwinding of discount on long term landfill liabilities 0.8 0.3
Amortisation of bank fees 0.4 0.4
_____________________________________________________________________________________
Total interest payable 18.2 12.7
_____________________________________________________________________________________
Interest receivable:
Interest receivable (3.4) (2.2)
Interest receivable on financial assets relating to PFI contracts (7.8) (5.6)
_____________________________________________________________________________________
Total interest receivable (11.2) (7.8)
_____________________________________________________________________________________
Change in fair value of interest rate swaps (6.9) 3.7
_____________________________________________________________________________________
Net finance charges 0.1 8.6
=====================================================================================
4 Tax
The tax charge based on the profit for the year is made up as follows:
2007 2006
£m £m
___________________________________________________________________________
Current tax
UK corporation tax at 30% (2006: 30%)
- Current year 5.2 1.9
- Prior year (0.4) (3.2)
Double tax relief (2.0) (2.2)
Overseas tax
- Current year 8.0 10.7
- Prior year 1.0 (0.1)
___________________________________________________________________________
Total current tax 11.8 7.1
___________________________________________________________________________
Deferred tax
- Current year 2.1 1.6
- Prior year 0.9 (0.3)
___________________________________________________________________________
Total deferred tax 3.0 1.3
___________________________________________________________________________
Total tax charge for the year 14.8 8.4
===========================================================================
Total tax charge - continuing operations 14.8 10.5
Total tax credit - discontinued operations - (2.1)
___________________________________________________________________________
Total tax charge for the year 14.8 8.4
===========================================================================
5 Dividends
2007 2006
£m £m
___________________________________________________________________________________________________________________
Amounts recognised as distributions to equity holders in the year:
Final dividend paid for the year ended 31 March 2006 of 3.8p per ordinary share (2005: 3.8p) 8.9 8.9
Interim dividend paid for the year ended 31 March 2007 of 1.9p per ordinary share (2006: 1.9p) 4.5 4.5
___________________________________________________________________________________________________________________
13.4 13.4
===================================================================================================================
Proposed final dividend for the year ended 31 March 2007 of 4.0p per share (2006: 3.8p) 9.4 8.9
===================================================================================================================
The proposed final dividend for the year ended 31 March 2007 of 4.0 pence
per share was approved by the Board on 29 May 2007 and, subject to approval
by the Shareholders at the Annual General Meeting on 26 July 2007, will be
paid on 3 August 2007 to shareholders on the Register at close of business
on 13 July 2007.
6 Earnings per share
2007 2006
______________________________________________________________________________________________
Number of shares
Weighted average number of ordinary shares for basic earnings per share 234.8 234.3
Effect of share options in issue 0.8 0.8
______________________________________________________________________________________________
Weighted average number of ordinary shares for diluted earnings per share 235.6 235.1
==============================================================================================
Calculation of basic and adjusted basic earnings per share
Earnings for basic earnings per share being profit for the year (£m) 31.3 30.4
Earnings from discontinued operations (£m) - (10.6)
______________________________________________________________________________________________
Earnings for basic earnings per share from continuing operations (£m) 31.3 19.8
Change in fair value of interest rate swaps (net of tax) (£m) (4.8) 2.6
______________________________________________________________________________________________
Earnings for adjusted basic earnings per share (£m) 26.5 22.4
______________________________________________________________________________________________
Basic earnings per share (pence) 13.3p 13.0p
Basic earnings per share from continuing operations (pence) 13.3p 8.5p
Basic earnings per share from discontinued operations (pence) - 4.5p
Adjusted basic earnings per share (pence) 11.3p 9.6p
==============================================================================================
Calculation of diluted earnings per share
Earnings for basic earnings per share being profit for the year (£m) 31.3 30.4
Effect of dilutive potential ordinary shares (£m) - -
______________________________________________________________________________________________
Earnings for diluted earnings per share (£m) 31.3 30.4
Earnings from discontinued operations (£m) - (10.6)
______________________________________________________________________________________________
Earnings for diluted earnings per share from continuing operations (£m) 31.3 19.8
______________________________________________________________________________________________
Diluted earnings per share (pence) 13.3p 12.9p
Diluted earnings per share on continuing operations (pence) 13.3p 8.4p
Diluted earnings per share on discontinued operations (pence) - 4.5p
==============================================================================================
The Directors believe that adjusting profits and earnings per share for the
effect of 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. Changes in fair values of interest rate swaps that
the Group is required to enter into in relation to its PFI arrangements are
excluded as they do not reflect commercial reality.
7 Business combinations
(a) On 30 June 2006 the Group acquired 100% of the share capital of Smink
Beheer B.V., a waste management company in the Netherlands, for a total
consideration of £60.8m. The goodwill recognised is attributable to Smink's
strong position and profitability and the significant synergies expected to
arise post acquisition. From acquisition to 31 March 2007, Smink Beheer
B.V. has contributed £27.0m to revenue and £2m to profit after tax. The
aggregate book value of the assets and liabilities acquired and the
provisional fair value to the Group, pending completion of the evaluation
of the business, were as follows:
Fair Provisional
Book value fair
value adjustment value
£m £m £m
_______________________________________________________________________________
Intangible assets 1.8 24.9 26.7
Property, plant and equipment 9.6 3.3 12.9
Other non-current receivables - 1.5 1.5
Inventories 0.1 - 0.1
Trade receivables 6.0 - 6.0
Other current receivables 0.4 - 0.4
Cash 16.7 - 16.7
Trade payables (2.1) - (2.1)
Other current payables (3.8) - (3.8)
Current tax payable (5.5) 3.3 (2.2)
Deferred tax liabilities (1.1) (9.9) (11.0)
Provisions (5.3) (1.5) (6.8)
_______________________________________________________________________________
16.8 21.6 38.4
Provisional goodwill 22.4
_______________________________________________________________________________
60.8
===============================================================================
Satisfied by:
Cash consideration 59.0
Deferred consideration 1.5
Costs incurred 0.3
_______________________________________________________________________________
Total consideration 60.8
===============================================================================
(b) During the period the Group completed the acquisition of other tuck-in
businesses. The goodwill recognised is attributable to synergy benefits
through the amalgamation of the acquired businesses with existing
businesses. From acquisition to 31 March 2007, the businesses contributed
£10.0m to revenue and £0.1m to profit after tax. The aggregate book value
of the assets and liabilities acquired and the provisional fair value to
the Group, pending completion of the evaluation of the businesses, were as
follows:
Fair Provisional
Book value fair
value adjustment value
£m £m £m
_______________________________________________________________________________
Intangible assets - 1.1 1.1
Property, plant and equipment 8.6 4.4 13.0
Other current liabilities (0.1) - (0.1)
Borrowings (0.5) - (0.5)
Deferred tax liabilities - (0.4) (0.4)
_______________________________________________________________________________
8.0 5.1 13.1
Provisional goodwill 9.1
_______________________________________________________________________________
22.2
===============================================================================
Satisfied by:
Cash consideration 21.8
Costs incurred 0.4
_______________________________________________________________________________
Total consideration 22.2
===============================================================================
8 Provisions
Site
restoration
and aftercare Other Total
£m £m £m
______________________________________________________________________________
At 31 March 2006 17.2 8.2 25.4
Provided - cost of sales 2.1 - 2.1
Provided - finance charges 0.8 - 0.8
Acquired with acquisitions of businesses 4.3 2.4 6.7
Utilised (3.1) (2.8) (5.9)
Exchange (0.3) - (0.3)
______________________________________________________________________________
At 31 March 2007 21.0 7.8 28.8
==============================================================================
Current 0.8 5.5 6.3
Non-current 20.2 2.3 22.5
______________________________________________________________________________
At 31 March 2007 21.0 7.8 28.8
==============================================================================
Current 2.3 6.8 9.1
Non-current 14.9 1.4 16.3
______________________________________________________________________________
At 31 March 2006 17.2 8.2 25.4
==============================================================================
9 Consolidated statement of changes in shareholders' funds
Share Share Exchange Retained
capital premium Reserve Earnings Total
£m £m £m £m £m
___________________________________________________________________________________________________
Balance carried forward at 31 March 2006 23.5 93.7 5.0 86.4 208.6
Issue of share capital - 0.3 - - 0.3
Exchange loss on translation of foreign operations - - (3.9) - (3.9)
Profit for the year - - - 31.3 31.3
Actuarial gain on defined benefit pension schemes - - - 0.4 0.4
Share based payments - - - 0.4 0.4
Dividends paid in the year (see note 5) - - - (13.4) (13.4)
___________________________________________________________________________________________________
Balance carried forward at 31 March 2007 23.5 94.0 1.1 105.1 223.7
===================================================================================================
10 Notes to the cash flow statement
2007 2006
£m £m
__________________________________________________________________________________________
(a) Continuing operations
Net cash from operating activities
Operating profit from continuing operations 46.2 38.9
Amortisation of intangible assets 2.3 0.5
Depreciation of property, plant and equipment 30.0 28.7
Charge for long term landfill provisions 2.1 0.5
__________________________________________________________________________________________
Earnings before interest, tax, depreciation and amortisation ('EBITDA') 80.6 68.6
Gain on disposal of property, plant and equipment (1.0) (1.3)
Decrease in provisions (4.3) (4.4)
Share based payments 0.6 0.5
__________________________________________________________________________________________
Operating cash flows before movements in working capital 75.9 63.4
Decrease (increase) in inventories 3.7 (1.2)
(Increase) decrease in receivables (7.3) 7.9
Increase (decrease) in payables 8.9 (10.9)
__________________________________________________________________________________________
Cash generated by operations 81.2 59.2
Income taxes paid (9.9) (1.5)
__________________________________________________________________________________________
Net cash from operating activities 71.3 57.7
==========================================================================================
Investing activities
Purchase of intangible assets (1.1) (0.2)
Purchases of property, plant and equipment (39.3) (30.7)
Disposal of property, plant and equipment 2.7 3.1
Financial assets capital advances (30.9) (48.8)
Financial assets capital repayments 1.4 1.9
Acquisitions of subsidiary and other businesses (65.3) (4.2)
Net proceeds from disposal of subsidiary and other businesses - 34.0
Income received from other investments 1.1 0.7
__________________________________________________________________________________________
Net cash used in investing activities (131.4) (44.2)
==========================================================================================
(b) Discontinued operations
Net cash from operating activities
Operating profit from discontinued activities - 0.4
Depreciation of property, plant and equipment - 2.1
Decrease in provisions - (2.8)
__________________________________________________________________________________________
Operating cash flows before movements in working capital - (0.3)
Increase in inventories - (0.4)
Decrease in receivables - 1.4
Increase in payables - 0.5
__________________________________________________________________________________________
Cash generated by operations - 1.2
__________________________________________________________________________________________
Net cash from operating activities - 1.2
==========================================================================================
Investing activities
Purchases of property, plant and equipment - (1.2)
__________________________________________________________________________________________
Net cash used in investing activities - (1.2)
==========================================================================================
2007 2006
£m £m
__________________________________________________________________________________________
(c) Total Group operations
Net cash from operating activities
Operating profit from all operations 46.2 39.3
Amortisation of intangible assets 2.3 0.5
Depreciation of property, plant and equipment 30.0 30.8
Charge for long term landfill provisions 2.1 0.5
__________________________________________________________________________________________
Earnings before interest, tax, depreciation and amortisation ('EBITDA') 80.6 71.1
Gain on disposal of property, plant and equipment (1.0) (1.3)
Decrease in provisions (4.3) (7.2)
Share based payments 0.6 0.5
__________________________________________________________________________________________
Operating cash flows before movements in working capital 75.9 63.1
Decrease (increase) in inventories 3.7 (1.6)
(Increase) decrease in receivables (7.3) 9.3
Increase (decrease) in payables 8.9 (10.4)
__________________________________________________________________________________________
Cash generated by operations 81.2 60.4
Income taxes paid (9.9) (1.5)
__________________________________________________________________________________________
Net cash from operating activities 71.3 58.9
==========================================================================================
Investing activities
Purchases of intangible assets (1.1) (0.2)
Purchases of property, plant and equipment (39.3) (31.9)
Disposal of property, plant and equipment 2.7 3.1
Financial assets debtor capital advances (30.9) (48.8)
Financial assets capital repayments 1.4 1.9
Acquisitions of subsidiary and other businesses (65.3) (4.2)
Net proceeds from disposal of subsidiary and other businesses - 34.0
Income received from other investments 1.1 0.7
__________________________________________________________________________________________
Net cash used in investing activities (131.4) (45.4)
==========================================================================================
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