Half Yearly Report

RNS Number : 5898V

Shanks Group PLC

04 November 2010

 



4 November 2010

Shanks Group plc, Europe's largest listed independent waste management company, today issues its results for the six months ended 30 September 2010.

Significant strategic progress and good profit performance in the face of continued weakness in key markets

Continuing Operations

	2010	2009	Change % Reported	Change % Constant Currency
Revenue	£348m	£335m	4%	7%
EBITDA	£48.9m	£51.7m	-5%	-2%
Trading profit	£24.7m	£26.5m	-7%	-3%
Operating profit (statutory basis)	£26.6m	£24.6m	8%	12%
Underlying free cash flow (UFCF)	£18.4m	£16.8m	10%	15%
Underlying profit before tax	£16.8m	£16.5m	2%	7%
Underlying EPS1	3.1p	3.3p	-6%	-2%
Basic EPS (statutory basis)	4.3p	3.5p	23%	28%
Dividend per share	1.0p	1.0p	-	-

Underlying measures exclude exceptional items, financing fair value remeasurements and amortisation of acquisition intangibles.  Trading profit is operating profit before amortisation of acquisition intangibles and exceptional items.  Underlying free cash flow is before dividends, growth capex, acquisitions and disposals.

¹The decline in EPS for the current period is due to the full year dilution following the Rights Issue in June 2009.

Financial Highlights

·     Profit before tax at constant currency up 7%

·     Excluding the one-off regulatory reduction in Belgian Landfill (£2.5m) and the adverse effect of exchange (£1.0m) profit before tax up 27%

·     EBITDA £48.9m with EBITDA margin of 14.0% (09/10: 15.4%) impacted by Belgian Landfill and currency

·     Revenue at constant currency up 7%

·     Strong cash generation with UFCF conversion of 74%.  Reduction in core net debt to £175m (£186m at March 2010)

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

·     5 year Benelux Retail Bond successfully completed raising €100m

Business Achievements

·     Strategic investment programme progressing well - annualised 8% post tax returns so far on projects completed

·     Strengthened UK PFI strategy - equity sale and collaboration agreement to share equity investments on future PFI contracts signed with John Laing Investments; acquisition of UK waste activities of United Utilities

·     PFI margin improvement plan on track (6% year to date)

·     Further management cost initiatives to mitigate strong pricing pressure - £9m savings realised in the first half and £15m expected for the full year

·     Rationalisation of the sorting centres as part of the Netherlands Fit for the Future Programme has increased utilisation from 74% to 79%

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

"We have made good progress in the first half of the year in executing our strategy across PFI municipal contracts, organic processing and recycling.  We have also delivered good profit before tax growth in what continue to be difficult trading conditions.  These market conditions together with the regulatory reduction in Belgian Landfill and adverse currency movements have been mitigated by new contract volumes, further cost saving initiatives, improvements in PFI margins, improved recyclate prices, early returns from our investment programme and lower financing costs.

The sale of the PFI equity stakes and the addition of United Utilities' waste business simplify our PFI business and also strengthen our position as one of the leading operators in the UK PFI waste market.

Although the recent UK Government spending review has removed PFI credits for a number of our bids, we expect that alternative funding mechanisms will mean that this should not have a significant impact on our overall strategic goals.

We continue to remain cautious about the near term economic outlook.  However we anticipate trading for 2010/11 to remain in line with the Board's expectations. 

In the medium term, with a clear strategy, supported by powerful regulatory and legislative drivers we are in an excellent position to capitalise on improving market conditions and the expected returns from our investment programme.  Shanks has become a leaner and more focused waste operator." 

Notes:

1.       The interim dividend of 1.0 pence per share will be paid on 14 January 2011 to shareholders on the register at close of business on 10 December 2010.

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

3.       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.

For further information contact:

Shanks Group plc

Tom Drury - Group Chief Executive	on 4 November:[phone]
Chris Surch - Group Finance Director	thereafter:[phone]
Tulchan Communications
John Sunnucks, David Allchurch	on 4 November: + 44 (0) 207 678 0152
	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

During this six month period we have continued to make good progress on the execution of the strategy to achieve our vision to be Europe's leading provider of sustainable waste management solutions.

Financial Performance

Underlying profit before tax at £16.8m was 2% up on the prior year, excluding the one-off regulatory reduction in Belgian Landfill (£2.5m) and currency fluctuations (£1.0m), increased by 27%.  Market conditions, although remaining difficult, have been generally as anticipated.  These conditions have been offset by new contract volumes, further cost saving initiatives, improvements in PFI margins, improved recyclate prices, early returns from our strategic investment programme and lower financing costs.

Revenue, excluding currency and the Belgian Landfill decline, increased by 9%.

Cost savings from last year's actions and new initiatives were £9m in the six month period.  We anticipate that this will grow to circa £15m for the full year.

The early returns from the current investment programme contributed £1.9m to trading profits in the period.  The annualised post tax return on projects completed so far is 8%.  We have identified a number of new projects within our strategic focus which can generate post tax returns in the range of 12% to 15%.

Cash resources continued to be tightly controlled and underlying free cash flow has increased.

On 22 October 2010, the Group issued €100m of five year bonds quoted on the London Stock Exchange to investors in Belgium and Luxembourg at an annual coupon of 5.0%.  This innovative offering provides flexible longer term funding in the currency that we require and is in line with our objective of securing long term financing to support our long term growth strategy.

Progress with Strategy

We continue to focus on three growth areas: municipal contracts, recycling and organic processing.  The key developments during the period under review have been in the UK following a period of heavy investment in previous years in the Benelux.

Municipal Contracts

Municipal Contracts remain central to our waste strategy and our capability has been reinforced by the recent agreements with John Laing Investments and United Utilities.

In line with our previously communicated intention, all of the subordinated debt and eighty per cent of the equity in the East London Waste Authority and Dumfries & Galloway PFI contracts were sold to John Laing Investments for £25m in cash on 29 September 2010.  The sale proceeds are in line with the March 2010 Directors' valuation of the PFI contracts and critically, Shanks will retain the long term operating contracts for both authorities.  The sale of these PFI equity interests has minimal impact on the trading results, provides cash for alternative investments and will simplify the reporting of the Group's financial results, including the removal of non-recourse debt from the balance sheet.  In addition a memorandum of understanding has also been signed with John Laing to potentially co-invest in the special purpose vehicles of future PFI contracts.  As part of this arrangement John Laing will contribute to Shanks' bid costs.  This arrangement fits with the overall strategy of reducing our equity contribution into PFI, while retaining the long term operating contracts.

The acquisition on 21 October 2010 of the UK waste activities of United Utilities also represents an important step forward in the roll-out of our PFI strategy and strengthens our position as one of the UK's leading operators of municipal waste contracts.  Shanks will take United Utilities' place on all of its existing bids including preferred bidder for a PPP municipal solid waste treatment contract for both Derbyshire County and Derby City Councils and short-list positions at Leicestershire and Gloucestershire. Other than a small initial payment, any consideration will be contingent upon the successful financial closure of individual projects and payable from win fees.  We will also take on additional skilled technical and commercial resources from the United Utilities' bid team, strengthening and complementing our existing resources.  This acquisition together with our existing pipeline of bids puts us in a strong position to achieve our goal of 1.5m tonnes of municipal waste under management. 

Although the recent UK Government Spending Review removed PFI credits for a number of our PFI bids, we expect that alternative funding mechanisms will mean that this should not have a significant impact on our overall strategic goals.

The investments in organic processing and recycling remain on track.

Organic Processing

The €16m Greenmills anaerobic digestion (AD) and waste water facility in Amsterdam is now operational with the first electricity being supplied to the grid.  The commissioning of the new £8m AD plant in Scotland will be up and running in the final quarter of this year.  There are a number of developments and plans for further AD facilities in both the UK and Canada.  Planning permission has been received for a 48,000 tonne AD facility at Bicester, Oxfordshire.

First half profits in Canada were affected by the temporary closure of the site in London, Ontario whilst an upgrade to improve odour levels was implemented.  The plant is now operational.

Recycling

The new £7m recycling centre at Blochairn, Scotland is now processing waste and we expect it to be fully operational soon.  The enhancements to the recycling / solid recovered fuel facility in Ghent, Belgium are now finalised and the anticipated increased throughput is being achieved.  The Foronex biomass facility at Bree which supplies wood product to the electricity industry is also ramping up.

Outlook

Despite remaining cautious about the near term macro economic outlook, we anticipate trading for 2010/11 to remain in line with the Board's expectations.

In the medium term, with a clear strategy, supported by powerful regulatory and legislative drivers we are in an excellent position to capitalise on improving market conditions and the expected returns from our investment programme.

Group Trading Results

The Group's organisational structure reflects the distribution of the national markets in which it operates with divisions in the Netherlands, Belgium, the UK and Canada.  The principal activities of the Group are providing solutions in the areas of Solid Waste, Hazardous Waste, Organic Treatment and PFI Contracts.  Full details of the markets and activities for each division are included in the March 2010 Annual Report.

The Netherlands remains the main source of the Group's profits contributing 67% before group central services with Belgium contributing 25% and the remaining 8% split between the UK and Canada.

Revenue and Trading Profit by Geographical Region
	First Half Revenue					First Half Trading Profit
	10/11	09/10	Variance			10/11	09/10	Variance
	£m	£m	£m	%		£m	£m	£m	%
Netherlands	174	174	-	-		18.1	18.3	(0.2)	(1)
Belgium	85	88	(3)	(3)		6.8	9.3	(2.5)	(27)
United Kingdom	85	69	16	23		1.9	(0.2)	2.1	>100
Canada	5	4	1	26		0.2	0.7	(0.5)	(77)
Central Services	(1)	-	(1)			(2.3)	(1.6)	(0.7)	(42)
Total	348	335	13	4		24.7	26.5	(1.8)	(7)
Discontinued ops	-	1	(1)			-	0.3	(0.3)
	348	336	12	4		24.7	26.8	(2.1)	(8)

Group return on operating assets

	10/11	09/10
Return on operating assets	13.5%	15.9%

The return on operating assets measure is based on a rolling twelve month pre tax trading profit divided by average net assets excluding core debt, acquisition related intangibles and tax.  The principal reason for the year on year decline is the £2.5m decrease in profits from the Belgian Landfill.

The Netherlands: Operational Review

In the face of very challenging market conditions, the Netherlands has performed well with overall revenue and trading profit excluding exchange rising by 4% and 3% respectively.  Operating margins were maintained above 10%.

	First Half Revenue					First Half Trading Profit
	10/11	09/10	Variance			10/11	09/10	Variance
	€m	€m	€m	%		€m	€m	€m	%
Solid Waste	126	125	1	1		12.8	13.3	(0.5)	(4)
Hazardous Waste	76	69	7	11		9.2	8.5	0.7	9
Organic Treatment	7	7	-	2		1.7	1.3	0.4	31
Country Central Services	(3)	(3)	-	-		(2.2)	(2.3)	0.1	3
Total (€m)	206	198	8	4		21.5	20.8	0.7	3
Total £m (at average FX rates)	174	174	-	-		18.1	18.3	(0.2)	(1)

	10/11	09/10
Return on operating assets	17%	18%

The Solid Waste business continues to be significantly impacted by the economic downturn reflected in lower volumes in the construction markets and continued pricing pressure.  In the six month period, construction and demolition (C&D) volumes decreased by 4% whereas industrial and commercial (I&C) volumes which are influenced by general production levels were up 5%.  The higher recyclate prices noted at the end of the last financial year have continued and account for €1.2m of the movement in profitability in the period.  Management actions taken at the beginning of the calendar year to reduce the cost of disposal to incinerators, together with other cost savings, have had a significant positive effect on the results in this period.  The move into new markets continues with new contracts in the bulky waste market reducing the downturn in C&D volumes.

Progress to move from a plant based view of asset utilisation to a country level view continues and this has resulted in the rationalisation of the sorting centres as part of the Fit for the Future programme and has increased utilisation from 74% to 79%.

Excess capacity in the Continental European incineration market continues to exert significant downward pressure on prices in the municipal markets.  Although there is no direct impact on our business, we are taking action through strong cost control to mitigate the indirect consequences.

In Hazardous Waste, both ATM and Reym have performed well in the first six months.  At ATM, a strong performance of the waste water plant, together with further cost reduction initiatives has offset lower soil volumes and pricing pressure.  Volumes in waste water treatment are 10% up on the prior year due to increased demand and new additional storage facilities will come on line in the second half.  The Reym business continues to perform strongly winning a €2m per annum contract with Corus.

Our Organic Treatment business, Orgaworld, continues to trade well in its home market of the Netherlands.  The Greenmills anaerobic digestion and waste water facility in the port of Amsterdam is now operational and will start to contribute in the second half.

Belgium: Operational Review

Excluding the decline in Landfill, revenue and trading profit, excluding exchange, rose by 9% and 5% respectively with operating margins maintained at 7%.

	First Half Revenue					First Half Trading Profit
	10/11	09/10	Variance			10/11	09/10	Variance
	€m	€m	€m	%		€m	€m	€m	%
Solid Waste	75	72	3	4		4.9	3.8	1.1	28
Landfill	3	10	(7)	(72)		1.1	3.9	(2.8)	(72)
Power	4	4	-	(12)		2.0	2.5	(0.5)	(19)
Hazardous Waste	28	24	4	17		2.3	1.9	0.4	20
Sand Quarry	2	2	-	-		0.4	0.5	(0.1)	(16)
Country Central Services	(11)	(12)	1	11		(2.7)	(2.1)	(0.6)	(27)
Total (€m)	101	100	1	1		8.0	10.5	(2.5)	(24)
Total £m (at average FX rates)	85	88	(3)	(3)		6.8	9.3	(2.5)	(27)

	10/11	09/10
Return on operating assets	19%	32%

Market conditions in the Belgian Solid Waste business have continued to be challenging, however I&C volumes have started to pick up and ended the period 5% up on the prior year.  The recent enhancements to the SRF line at Ghent are now fully operational with increased throughput and lower costs contributing to a strong first half performance.  The combined heat and power facility, a joint venture partnership with Intrinergy, will be operational in the second half.

The Foronex wood-based markets have continued to be adversely impacted by the weak economic backdrop.  Overall revenue is down 6% year on year and the business was broadly break even.  We continue to refocus the business into the biomass industry and the Bree facility is now up and running following a temporary shut down at one of our customers' electricity power stations.  The Animal Bedding division and all associated assets of this business have now been sold.  We remain confident of the attractive growth potential within the biomass market.

Overall the Hazardous Waste business has improved profit by 20% year on year.  This is mainly due to the reduced cost base in the manual cleaning business in Wallonia, as a result of last year's restructuring plan.  Volumes have also increased at the Roeselare green energy plant but pricing still remains challenging.

As anticipated, Landfill volumes were significantly lower than the prior period due to the January 2010 increase in landfill tax and bans on landfilling of municipal solid waste.  This has resulted in a 72% drop in profits in the first six months.

As anticipated, profits are lower in the Power business due to lower power prices.

United Kingdom: Operational Review

Revenue and trading profit before PFI bid costs rose by 23% and 306% respectively with trading margins, before bid costs, increasing significantly to 4.5%.

	First Half Revenue					First Half Trading Profit
	10/11	09/10	Variance			10/11	09/10	Variance
	£m	£m	£m	%		£m	£m	£m	%
Solid Waste	35	32	3	11		2.5	2.2	0.3	16
Landfill & Power	3	3	-	(10)		0.1	0.3	(0.2)	(75)
Hazardous Waste	8	1	7	389		1.5	0.2	1.3	762
PFI Contracts	39	33	6	19		2.4	0.6	1.8	260
Country Central Services	-	-	-	-		(2.7)	(2.4)	(0.3)	(14)
UK Operations	85	69	16	23		3.8	0.9	2.9	306
PFI Bid Team	-	-	-	-		(1.9)	(1.1)	(0.8)	(70)
	85	69	16	23		1.9	(0.2)	2.1	>100
Discontinued operations	-	1	(1)			-	0.3	(0.3)
TOTAL	85	70	15	21		1.9	0.1	1.8	>100

	10/11	09/10
Return on operating assets	7%	1%

Trading conditions in Solid Waste have remained weak with overall trading volumes in the core solid waste collections business down by 3%.  These volume shortfalls have been more than offset by price increases and further actions on cost control.  The new recycling facility at Blochairn, Scotland is being commissioned and will be fully operational in the final quarter.  It is anticipated that, due to strong volumes, returns will be delivered ahead of plan.

The organics plant being built in Cumbernauld will be operational in the last quarter of this financial year.

The Hazardous Waste activities have performed very well in the period due to a number of good contracts in the contaminated land services business.

The contribution from our existing PFI portfolio has improved significantly from the previous year, due principally to continued management actions, resulting in margin improvements in particular at the ELWA site.  The Cumbria contract continues to perform well and in line with expectations and the construction of the mechanical biological treatment (MBT) facilities are on track.  The margin on PFI contracts for the first half was 6% and we remain confident that this will reach 7% for the full year.

The PFI market remains active and bid costs were up £0.8m at £1.9m reflecting increased bidding activity. Our bid pipeline is strong and has been further enhanced by the recent acquisition of the UK waste activities of United Utilities.

Canada: Operational Review

First half profits were affected by the temporary closure of the London site whilst an upgrade to improve odour levels was implemented.  The plant is now operational and a significantly higher contribution is expected in the second half.  The Ottawa site is fully operational and is performing well and in line with our expectations.

	First Half Revenue					First Half Trading Profit
	10/11	09/10	Variance			10/11	09/10	Variance
	$m	$m	$m	%		$m	$m	$m	%
Organic Treatment	7	6	1	17		0.3	1.2	(0.9)	(79)
Total £m (at average FX rates)	5	4	1	26		0.2	0.7	(0.5)	(77)

	10/11	09/10
Return on operating assets	5%	9%

We continue to pursue further opportunities in Canada which could support additional plants in this territory.

Financial Review

Revenue

Revenue from continuing operations increased £13.5m to £348.4m.  Excluding the effects of currency translation of £10m, revenue was 7% up on the prior year.

Profit

Details of the Group's trading performance are given in the country operational 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 prior year benefited from the reversal of charges for equity settled share-based payments as vesting conditions would not be met.

Sterling has strengthened against the Euro in the six month period resulting in a 4% fall in Euro denominated profits.  Excluding the effects of currency translation of £1.0m and the anticipated decline in profits from the Belgian Landfill, trading profit was 7% up on the prior year.

Operating profit on a statutory basis, after taking account of all exceptional items and amortisation of acquisition intangibles, has increased 8% from £24.6m to £26.6m.

Non trading and exceptional items excluded from underlying profit

Certain items are excluded from underlying profit due to their size, nature or incidence to enable a better understanding of performance.  Total non trading and exceptional items of £6.3m (2009/10: £0.9m credit) include:

·     Amortisation of intangible assets acquired in a business combination £1.8m (2009/10: £1.9m)

·     Profit on sale of PFI equity share £3.7m as described below (2009/10: £nil)

·     Financing fair value remeasurements £8.2m charge (2009/10: £2.8m credit)

On 29 September 2010, Shanks sold all of the subordinated debt and 80 per cent of the equity in the East London Waste Authority (ELWA) and Dumfries & Galloway (D&G) PFI contracts to John Laing Investments whilst retaining the long term operating contracts for both ELWA and D&G for total proceeds of £25m.

Net Finance Costs

Finance charges excluding the change in fair value of interest rate swaps have decreased £2.1m to £7.9m (2009/10: £10.0m), principally due to a decrease in both core borrowing levels and bank interest rates.

The 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 £8.2m adverse (2009/10: £2.8m favourable) change in the market value of these swaps in the period.  Revaluation of these swaps can lead to large accounting gains and losses but does not affect the long term profitability of the contract.  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 income statement.  All 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.  On 29 September 2010 the interest rate swaps relating to the ELWA and D&G PFI contracts were disposed of as part of the PFI equity sale.

Taxation

The average tax rate on underlying profits fell to 26.8% (2009/10: 28.7%).  This was attributable to a reduction in the Belgian effective tax rate caused by a reduction in landfill volumes in Belgium and small effective tax rate reductions in other territories.

The exceptional tax credit of £8.5m in the current year relates to the release of provisions booked in prior periods relating to the withdrawal of industrial buildings allowances enacted in the Finance Act 2008.  A detailed review of historic capital expenditure on PFI infrastructure has been agreed with the tax authorities.  This review identified that a significant level of expenditure qualified for plant and machinery allowances which had previously been allocated to industrial buildings allowances.

Earnings per share

Underlying earnings per share from continuing operations, which excludes the effect of exceptional items, decreased by 6% despite the higher profits.  This decline was due to further dilution from the 2009 Rights Issue as the average number of shares included in the calculation has increased from 352.4m last year to 396.8m this year.

Basic earnings per share from continuing operations increased from 3.5 pence per share to 4.3 pence per share.

Discontinued Operations

The profits from discontinued operations in the prior year relate to the sale of the Avondale joint venture in May 2009.

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 an interim dividend of 1.0 pence.

Cash Flow and Net Debt

A summary of the cash flows in relation to core funding is shown below.

Summarised Group Cash Flow
	H1 10/11	H1 09/10	Difference
	£m	£m	£m
EBITDA	49	52	(3)
Working capital movement and other	(10)	(1)	(9)
Net replacement capital expenditure	(17)	(17)	-
Interest & tax	(4)	(17)	13
Underlying cash flow	18	17	1
Dividends / issue of shares	(8)	67	(75)
Net growth capital expenditure	(20)	(15)	(5)
Discontinued operations	-	17	(17)
Acquisitions and Disposals	24	(3)	27
PFI funding & others	(8)	(3)	(5)
Net core cash flow	6	80	(74)
Free cash flow conversion *	74%	63%

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

The outflow on working capital in the period was due to short term timing issues, principally receipts from customers which were received in early October.

The ratio of replacement capital spend to depreciation was 68% for the period and this is line with our expectations as spend on a number of larger projects have fallen into this half year.

Growth capital expenditure of £20m included spend on the Greenmills facility in Amsterdam, Blochairn recycling facility in Glasgow, ATM waterside expansion and the Ghent SRF plant.

Interest and tax payments in the prior year included £7m for refinancing fees paid in relation to the April 2009 refinancing.  Interest payments are also £3m lower as the semi-annual settlement relating to the non-recourse PFI debt fell due after the date of disposal of the PFI equity.

The acquisitions and disposals spend of £24m included the proceeds from the PFI equity sale together with deferred consideration receivable from the disposal of Avondale net of scheduled deferred consideration payments on previous acquisitions in the Netherlands.

The exchange rate on the Euro has moved from 1.12 at 31 March 2010 to 1.15 at 30 September 2010.  The net cash flow of £6m together with £7m on the translation into Sterling of the Group's Euro and Canadian Dollar denominated debt and £2m for the amortisation of loan fees has decreased core debt by £11m in the year.

Non recourse borrowings relating to PFI/PPP contracts and other project finance have decreased from £134m to £35m as a result of the PFI equity sale in September 2010.

Treasury

On 22 October 2010 the Group issued €100m of five year bonds quoted on the London Stock Exchange to investors in Belgium and Luxembourg at an annual coupon of 5.0%.  The proceeds were used to repay term loans under the Group's €302m facility which is due to expire in 2012.

Retirement Benefits

At 30 September 2010 the net retirement benefit deficit relating to the UK schemes was £9.2m compared to £4.9m at 31 March 2010 as a result of the movement in discount rates in the period.

Further to the 5 April 2009 triennial valuation of the Group's UK defined benefit retirement scheme the Group has agreed to fund the deficit over an eight year period with a payment of £1.8m per annum for two years from April 2010 and then increasing to £3.0m per annum.  This payment profile will be reconsidered at the next valuation due in April 2012.

Principal Risks and Uncertainties

The Group operates a formal framework for the identification and evaluation of key risks applicable to each area of the business.  These, along with any mitigating actions. are monitored on a continuing basis at both operating and Group Board level.  The principal risks and uncertainties facing the Group have not changed from those set out in the 2010 Annual Report.  These include the risks associated with the Group's positioning in the recycling and energy recovery area of the waste hierarchy, waste volumes, commodity prices, acquisitions, environmental legislation, SHE (safety, health, environmental) and foreign exchange.  Further details of the Group risks and risk management process can be found on page 39 of the 2010 Annual Report.

Looking forward over the remainder of the year, the main area of uncertainty continues to be the impact of the economic downturn on trading activities and the timing of the recovery.

Consolidated Income Statement

Six months ended 30 September 2010

		2010/11	2009/10	2009/10
		First Half	First Half	Full Year
	Note	£m	£m	£m
Continuing operations Revenue	2	348.4	334.9	683.5
Cost of sales before amortisation of acquisition intangibles		(294.1)	(278.4)	(569.6)
Amortisation of acquisition intangibles	3	(1.8)	(1.9)	(3.9)
Total cost of sales		(295.9)	(280.3)	(573.5)
Gross profit		52.5	54.6	110.0
Administrative expenses		(29.6)	(30.0)	(62.8)
Exceptional items	3	3.7	-	(11.4)
Operating profit	2,3	26.6	24.6	35.8
Interest payable		(13.1)	(14.8)	(29.3)
Interest receivable		5.2	4.8	11.4
Change in fair value of interest rate swaps		(8.2)	2.8	1.7
Net finance charges	2	(16.1)	(7.2)	(16.2)
Profit before tax	2	10.5	17.4	19.6
Tax before exceptional tax		(1.8)	(5.0)	(6.7)
Exceptional tax	3	8.5	-	5.2
Total tax	4	6.7	(5.0)	(1.5)
Profit for the period from continuing operations		17.2	12.4	18.1
Profit from discontinued operations		-	16.5	19.5
Profit for the period		17.2	28.9	37.6
Dividend per share	5	1.0p	1.0p	3.0p
Earnings per share from continuing operations
- basic	6	4.3p	3.5p	4.8p
- diluted	6	4.3p	3.5p	4.8p
Total earnings per share for the period
- basic	6	4.3p	8.2p	10.0p
- diluted	6	4.3p	8.2p	10.0p

The interim financial information and related comparative information is unaudited.

The notes on pages 17 to 26 form an integral part of this condensed interim financial information.

Consolidated Statement of Comprehensive Income

Six months ended 30 September 2010

	2010/11	2009/10	2009/10
	First Half	First Half	Full Year
	£m	£m	£m
Profit for the period	17.2	28.9	37.6
Other Comprehensive Income
Exchange (loss) gain on translation of foreign operations	(9.2)	0.6	(6.4)
Interest rate hedges	(4.7)	(3.3)	(4.5)
Actuarial loss on defined benefit pension schemes	(7.2)	(11.0)	(6.8)
Tax in respect of other comprehensive income items	3.2	3.0	3.2
Other comprehensive expense for the period, net of tax	(17.9)	(10.7)	(14.5)
Total comprehensive (expense) income for the period	(0.7)	18.2	23.1

The interim financial information and related comparative information is unaudited.

The notes on pages 17 to 26 form an integral part of this condensed interim financial information.

Consolidated Balance Sheet

At 30 September 2010

		At 30	At 30	At 31
		September	September	March
		2010	2009	2010
	Note	£m	£m	£m
Non-current assets
Intangible assets		289.1	307.9	299.7
Property, plant and equipment	7	381.8	378.8	383.8
Other investments and loans to joint ventures		5.6	2.5	6.1
Trade and other receivables		44.4	175.5	170.8
Deferred tax assets		23.4	16.1	18.3
		744.3	880.8	878.7
Current assets
Inventories		8.9	11.5	9.9
Trade and other receivables		157.7	152.9	166.1
Current tax receivable		-	1.6	-
Cash and cash equivalents	11	64.3	42.5	51.3
		230.9	208.5	227.3
Total assets		975.2	1,089.3	1,106.0
Liabilities
Non-current liabilities
Borrowings	11	(268.2)	(374.5)	(380.2)
Other non-current liabilities		(19.7)	(18.5)	(20.4)
Deferred tax liabilities		(49.4)	(66.8)	(68.9)
Provisions	8	(40.2)	(30.6)	(33.1)
Retirement benefit obligations	9	(12.6)	(11.6)	(6.8)
		(390.1)	(502.0)	(509.4)
Current liabilities
Borrowings	11	(19.8)	(11.6)	(9.5)
Trade and other payables		(178.7)	(178.5)	(195.6)
Current tax payable		(4.7)	(9.9)	(2.4)
Provisions	8	(5.1)	(3.4)	(3.9)
		(208.3)	(203.4)	(211.4)
Total liabilities		(598.4)	(705.4)	(720.8)
Net assets		376.8	383.9	385.2
Equity
Share capital		39.7	39.7	39.7
Share premium		99.3	99.2	99.3
Exchange reserve		48.6	64.8	57.8
Retained earnings		189.2	180.2	188.4
Total equity		376.8	383.9	385.2

The interim financial information and related comparative information is unaudited.

The notes on pages 17 to 26 form an integral part of this condensed interim financial information.

Consolidated Statement of Changes in Equity

Six months ended 30 September 2010

	Share	Share	Exchange	Merger	Retained	Total
	Capital	premium	Reserve	Reserve	earnings	equity
	£m	£m	£m	£m	£m	£m
Balance at 1 April 2010	39.7	99.3	57.8	-	188.4	385.2
Profit for the period	-	-	-	-	17.2	17.2
Other comprehensive income	-	-	(9.2)	-	(8.7)	(17.9)
Total comprehensive (expense) income for the period	-	-	(9.2)	-	8.5	(0.7)
Share based compensation	-	-	-	-	0.2	0.2
Dividends	-	-	-	-	(7.9)	(7.9)
Balance at 30 September 2010	39.7	99.3	48.6	-	189.2	376.8
Balance at 1 April 2009	23.8	99.2	64.2	-	112.4	299.6
Profit for the period	-	-	-	-	28.9	28.9
Other comprehensive income	-	-	0.6	-	(11.3)	(10.7)
Total comprehensive income for the period	-	-	0.6	-	17.6	18.2
Proceeds from shares issued*	15.9	-	-	51.0	-	66.9
Transfer to retained earnings*	-	-	-	(51.0)	51.0	-
Share based compensation	-	-	-	-	(0.8)	(0.8)
Balance at 30 September 2009	39.7	99.2	64.8	-	180.2	383.9

* Relating to the Rights Issue completed in June 2009.

The interim financial information and related comparative information is unaudited.

The notes on pages 17 to 26 form an integral part of this condensed interim financial information.

Consolidated Statement of Cash Flows

Six months ended 30 September 2010

		2010/11	2009/10	2009/10
		First	First	Full
		Half	Half	Year
	Note	£m	£m	£m
Net cash flow from:
Continuing activities	10	34.8	44.8	89.3
Discontinued operations	10	-	(0.8)	(0.8)
Cash flows from operating activities		34.8	44.0	88.5
Investing activities
Continuing operations:
- Purchases of intangible assets		-	(0.1)	(0.4)
- Purchases of property, plant and equipment		(40.8)	(28.6)	(59.1)
- Disposals of property, plant and equipment		1.7	1.5	2.3
- Financial asset capital advances		(12.6)	(16.5)	(24.7)
- Financial asset capital repayments		5.7	5.4	17.1
- Acquisition of subsidiary and other businesses		(2.6)	(3.3)	(4.9)
- Disposal of subsidiary and other businesses		26.4	-	-
- Income received from other investments		0.1	-	-
- Loans granted /(repaid by) to joint ventures		0.9	-	(3.7)
Discontinued operations:
- Disposal of joint venture		-	18.1	21.1
- Discontinued operations investing activities		-	(0.1)	(0.1)
Net cash used in investing activities		(21.2)	(23.6)	(52.4)
Financing activities
Continuing operations:
- Interest and loan fees paid		(5.7)	(16.4)	(28.8)
- Interest received		4.7	4.8	11.0
- Net proceeds from issue of shares		-	66.9	67.0
- Dividends paid		(7.9)	-	(4.0)
- Increase/(decrease) in net borrowings		12.6	(56.9)	(50.3)
- Repayments of obligations under finance leases		(2.7)	(2.8)	(6.2)
Discontinued operations investing activities		-	(0.1)	(0.1)
Net cash used in financing activities		1.0	(4.5)	(11.4)
Net increase  in cash and cash equivalents		14.6	15.9	24.7
Effect of foreign exchange rate changes		(1.6)	(0.4)	(0.4)
Cash and cash equivalents at beginning of period		51.3	27.0	27.0
Cash and cash equivalents at end of period		64.3	42.5	51.3

The interim financial information and related comparative information is unaudited.

The notes on pages 17 to 26 form an integral part of this condensed interim financial information.

Notes to the Consolidated Interim Financial Statements

1    Basis of preparation and status of financial information

Shanks Group plc is a public limited company incorporated and domiciled in the United Kingdom under the Companies Act 2006.

This condensed interim financial information for the half year ended 30 September 2010 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim Financial Reporting' as adopted by the European Union.  The half-yearly condensed financial report should be read in conjunction with the 2010 Annual Report and Accounts, which have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union.

The condensed interim financial information is unaudited and was approved by the Board of Directors on 4 November 2010.

These interim financial results do not comprise statutory accounts within the meaning of Section 498 of the Companies Act 2006.  Statutory accounts for the year ended 31 March 2010 were approved by the Board of directors on 20 May 2010 and delivered to the Registrar of Companies.  The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006.

Use of adjusted measures

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 'underlying' 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.

Accounting Policies

Except as described below, accounting policies adopted are consistent with those of the 2010 Annual Report and Accounts for the year ended 31 March 2010 and as described in those annual financial statements.

The following new standards and amendments to standards, which are mandatory for the first time for the financial year beginning 1 April 2010, are relevant for the group:

IFRS 3 (revised), 'Business Combinations'. The revised standard applies to business combinations completing on or after 1 January 2010 with no requirement to re-state previous business combinations. The revised standard continues to apply the acquisition method to business combinations with some significant changes. For example, all payments to purchase a business are recorded at fair value at acquisition date, with contingent consideration payments classified as a liability and subsequently re-measured through the Consolidated Income Statement. All acquisition related costs are expensed. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree at either fair value or at the non-controlling interest's proportionate share of the acquiree's net assets. There has been no material impact to the Group's Interim Financial Statements on adopting IFRS 3 (revised).

IAS 27 (revised), 'Consolidated and Separate Financial Statements'. As the Group has adopted IFRS 3 (revised) it is required to adopt IAS 27 (revised) at the same time which applies prospectively for transactions occurring after 1 January 2010. The revised standard requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and such transactions no longer result in goodwill or gains and losses arising. The revised standard also specifies the accounting when control is lost. In such instances any remaining interest in the entity is re-measured to fair value and a gain or loss is recognised in profit or loss. There has been no material impact to the Group's Interim Financial Statements on adopting IAS 27 (revised).

The following amendments to standards and interpretations, which are mandatory for the first time for the financial year beginning 1 April 2010, are either not currently relevant or material for the Group:

·      IFRIC 17, 'Distributions of Non-cash Assets to Owners';

·      IAS 39 (amendment), Financial Instruments: Recognition and Measurement - Eligible Hedged Items;

·      IFRS 1 (revised), First-time Adoption of IFRS;

·      IFRS 1 (amendment), 'Additional Exemptions for First-time Adopters', effective for annual periods commencing on or after 1 January 2010;

·      IFRS 2 (amendment), Share-based Payment - Group Cash-settled Share-based Payment Transactions;

·      IAS 32 (amendment), 'Financial Instruments: Presentation', classification of Rights Issues, effective for annual periods commencing on or after 1 February 2010;

·      Improvements to IFRSs (2009).

Notes to the Consolidated Interim Financial Statements

continued

1    Basis of preparation and status of financial information - continued

The following new standards, new interpretations and amendments to standards have been issued but are not effective for the financial year beginning 1 April 2010 and have currently not been early adopted:

·      IFRS 9,'Financial Instruments', issued in December 2009, effective for annual periods beginning on or after 1 January 2013, subject to EU endorsement;

·      IAS 24 (Revised), 'Related Party Disclosures', effective for annual periods beginning on or after 1 January 2011;

·      IFRS 1 (Amendment), 'Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters', effective for annual periods beginning on or after 1 July 2010;

·      IFRIC 14 (amendment), 'Prepayments of a Minimum Funding Requirement', effective for annual periods beginning on or after 1 January 2011, subject to EU endorsement; and

·      IFRIC 19, 'Extinguishing Financial Liabilities with Equity Instruments', effective for annual periods beginning on or after 1 July 2010.

2    Segmental analysis

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.  As the waste markets are different in each member state of the European Union, 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

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 accounting policies of the reportable segments are the same as those described in note 1, except that pension expense for the United Kingdom is recognised and measured on the basis of cash payments to the pension plan.  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. 

Notes to the Consolidated Interim Financial Statements

continued

2    Segmental analysis - continued

				2010/11	2009/10	2009/10
				First	First	Full
				Half	Half	Year
Revenue				£m	£m	£m
Netherlands	Solid Waste			106.3	109.4	217.8
	Hazardous Waste			64.5	60.6	127.8
	Organic Treatment			6.1	6.3	11.9
	Intra-segment revenue			(2.5)	(2.0)	(3.8)
				174.4	174.3	353.7
Belgium	Solid Waste			63.7	63.4	127.9
	Landfill			2.4	8.8	13.5
	Power			2.6	3.1	5.8
	Hazardous Waste			24.2	21.5	45.4
	Sand Quarry			1.7	1.8	3.1
	Intra-segment revenue			(9.2)	(10.7)	(19.3)
				85.4	87.9	176.4
United Kingdom	Solid Waste			35.0	31.8	65.3
	Landfill and Power			2.8	3.1	6.1
	Hazardous Waste			8.0	1.6	5.9
	PFI Contracts			39.2	32.9	69.4
				85.0	69.4	146.7
Canada	Organic Treatment			4.8	3.6	8.2
Inter-segment revenue				(1.2)	(0.3)	(1.5)
Total revenue from continuing operations				348.4	334.9	683.5
Group				343.1	329.4	671.7
Share of joint ventures				5.3	5.5	11.8
Total revenue from continuing operations				348.4	334.9	683.5
Total revenue from discontinued operations				-	1.5	1.5
Total revenue				348.4	336.4	685.0

Notes to the Consolidated Interim Financial Statements

continued

2    Segmental analysis - continued

				2010/11	2009/10	2009/10
				First	First	Full
				Half	Half	Year
Profit before tax				£m	£m	£m
Trading Profit *
Netherlands		Solid Waste		10.8	11.7	24.2
		Hazardous Waste		7.8	7.4	14.5
		Organic Treatment		1.4	1.3	2.0
		Country Central Services		(1.9)	(2.1)	(4.0)
				18.1	18.3	36.7
Belgium		Solid Waste		4.1	3.4	4.7
		Landfill		0.9	3.5	5.0
		Power		1.7	2.1	4.1
		Hazardous Waste		1.9	1.6	3.5
		Sand Quarry		0.4	0.5	0.7
		Country Central Services		(2.2)	(1.8)	(4.0)
				6.8	9.3	14.0
United Kingdom		Solid Waste		2.5	2.2	5.5
		Landfill and Power		0.1	0.3	0.9
		Hazardous Waste		1.5	0.2	0.9
		PFI Contracts		2.4	0.6	2.4
		PFI Bid Team		(1.9)	(1.1)	(2.4)
		Country Central Services		(2.7)	(2.4)	(5.2)
				1.9	(0.2)	2.1
Canada		Organic Treatment		0.2	0.7	1.9
Group Central Services				(2.3)	(1.6)	(3.6)
Total trading profit *				24.7	26.5	51.1
Amortisation of acquisition intangibles				(1.8)	(1.9)	(3.9)
Exceptional items				3.7	-	(11.4)
				1.9	(1.9)	(15.3)
Total operating profit from continuing operations				26.6	24.6	35.8
Group				26.5	24.2	34.8
Share of joint ventures				0.1	0.4	1.0
Total operating profit				26.6	24.6	35.8
Finance charges
Interest payable				(13.1)	(14.8)	(29.3)
Interest receivable				5.2	4.8	11.4
Change in fair value of interest rate swaps				(8.2)	2.8	1.7
Total finance charges				(16.1)	(7.2)	(16.2)
Profit before tax for the period				10.5	17.4	19.6

* Trading profit is operating profit before amortisation of acquisition intangibles, excluding landfill void and computer software, and before exceptional items.

Notes to the Consolidated Interim Financial Statements

continued

3    Reconciliation of underlying information and exceptional items

	2010/11	2009/10	2009/10
	First	First	Full
	Half	Half	Year
Non-trading and exceptional items in operating profit	£m	£m	£m
Restructuring charge	-	-	1.9
Dumfries and Galloway contract	-	-	6.7
Exceptional professional fees	-	-	2.7
Profit on disposal of subsidiaries	(3.7)	-	-
Other non-trading one off items	-	-	0.1
Exceptional items	(3.7)	-	11.4
Amortisation of acquisition intangibles	1.8	1.9	3.9
Total non-trading and exceptional items in operating profit	(1.9)	1.9	15.3

The Group has recognised an exceptional gain of £3.7m net of associated taxes arising from the £24.6m sale of all of the subordinated debt and 80 per cent of the equity in the East London Waste Authority (ELWA) and Dumfries & Galloway (D&G) PFI contracts. The gain is stated net of costs, net assets disposed, and a gross £9.6m provision for the remaining life of the D&G operating contract.  The removal of the net assets of the subsidiaries has resulted in a significant decrease in trade and other receivables and in non-recourse net debt.

An exceptional tax credit of £8.5m arose in the period relating to the partial release of provisions booked in March 2009 in respect of the abolition of Industrial Buildings Allowances relating to the above contracts.  A detailed review of historic capital allowances on PFI infrastructure was performed which has been agreed with the taxation authorities.

	2010/11	2009/10	2009/10
	First	First	Full
	Half	Half	Year
Operating profit to trading profit	£m	£m	£m
Operating profit from continuing operations	26.6	24.6	35.8
Non trading and exceptional items	(1.9)	1.9	15.3
Trading profit	24.7	26.5	51.1

	2010/11	2009/10	2009/10
	First	First	Full
	Half	Half	Year
EBITDA	£m	£m	£m
Operating profit from continuing operations	26.6	24.6	35.8
Amortisation of intangible assets	2.5	2.8	5.9
Depreciation of property, plant and equipment	24.0	24.4	50.1
Non trading and exceptional items	(1.9)	1.9	15.3
Exceptional depreciation and amortisation	-	-	(1.1)
Amortisation of acquisition intangibles	(1.8)	(1.9)	(3.9)
Non-exceptional gains on property, plant and equipment	(0.6)	(0.2)	(0.6)
Non cash landfill related expense	0.1	0.1	0.6
Underlying EBITDA	48.9	51.7	102.1

	2010/11	2009/10	2009/10
	First	First	Full
	Half	Half	Year
Profit before tax to underlying profit before tax	£m	£m	£m
Profit before tax	10.5	17.4	19.6
Non trading and exceptional items	(1.9)	1.9	15.3
Change in fair value of interest rate swaps	8.2	(2.8)	(1.7)
Underlying profit before tax	16.8	16.5	33.2

Notes to the Consolidated Interim Financial Statements

continued

3    Reconciliation of underlying information and exceptional items (continued)

	2010/11	2009/10	2009/10
	First	First	Full
	Half	Half	Year
Profit after tax to underlying profit after tax	£m	£m	£m
Profit after tax	17.2	12.4	18.1
Non trading and exceptional items, net of tax	(2.4)	1.4	12.6
Change in fair value of interest rate swaps, net of tax	6.0	(2.0)	(1.3)
Exceptional tax	(8.5)	-	(5.2)
Underlying profit after tax	12.3	11.8	24.2

4    Tax

Tax expense is recognised based on management's best estimate of the weighted average annual tax rate expected for the full financial year. The estimated average annual tax rate for the year to 31 March 2011 is 26.8% (2009/10: 28.7%).

5    Dividends

	2010/11	2009/10	2009/10
	First	First	Full
	Half	Half	Year
	£m	£m	£m
Amounts recognised as distributions to equity holders in the period:
Interim dividends	-	-	4.0
Final dividends	7.9	-	-
Total dividends	7.9	-	4.0
An interim dividend of 1.0p per share was approved by the Board on 4 November 2010 and will be paid on 14 January 2011 to shareholders on the register at close of business on 10 December 2010.  In 2009/10 an interim dividend of 1.0p per share was paid. The final dividend for 2009/10 of 2.0p per share (2008/9: nil) was approved by the shareholders at the Annual General Meeting on 22 July 2010 and was paid on 6 August 2010.

Notes to the Consolidated Interim Financial Statements

continued

6    Earnings per share

	2010/11		2009/10		2009/10
	First		First		Full
	Half		Half		Year
Number of shares
Weighted average number of ordinary shares for basic earnings per share	396.8m		352.4m		374.4m
Effect of share options in issue	0.3m		0.1m		0.3m
Weighted average number of ordinary shares for diluted earnings per share	397.1m		352.5m		374.7m
Calculation of basic and underlying basic earnings per share for continuing operations
Earnings for basic earnings per share being profit (loss) for the period (£m)	17.2		12.4		18.1
Change in fair value of interest rate swaps (net of tax) (£m)	6.0		(2.0)		(1.3)
Amortisation of acquisition intangibles (net of tax) (£m)	1.3		1.4		2.9
Other exceptional items (net of tax) (£m)	(3.7)		-		9.7
Exceptional tax charge (£m)	(8.5)		-		(5.2)
Earnings for underlying basic earnings per share (£m)	12.3		11.8		24.2
Basic earnings per share	4.3p		3.5p		4.8p
Underlying earnings per share (see note below)	3.1p		3.3p		6.5p
Calculation of diluted earnings per share for continuing operations
Earnings for basic earnings per share being profit (loss) for the period (£m)	17.2		12.4		18.1
Effect of dilutive potential ordinary shares (£m)	-		-		-
Earnings for diluted earnings per share (£m)	17.2		12.4		18.1
Diluted earnings (loss) per share	4.3p		3.5p		4.8p

Total earnings per share
Basic and diluted earnings per share for continuing operations	4.3p	3.5p	4.8p
Basic and diluted earnings per share for discontinued operations	-	4.7p	5.2p
Total basic and diluted earnings per share	4.3p	8.2p	10.0p

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 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.

7    Property, plant and equipment

During the six months ended 30 September 2010, the Group acquired assets with a cost of £34.1m (2009/10: £30.2m), disposed of assets with a net book value of £1.2m (2009/10: £1.3m) and charged depreciation of £24.0m (2009/10: £24.4m). The major growth projects are as defined in the financial review.

At 30 September 2010, the Group had capital commitments of £45.0m (2009/10: £23.1m). This included £34.6m in relation to financial assets (2009/10: £1.6m) for the Cumbria PFI contract.

Notes to the Consolidated Interim Financial Statements

continued

8    Provisions

	Site restoration
	and aftercare	Other	Total
	£m	£m	£m
At 31 March 2010	29.0	8.0	37.0
Provided    -  cost of sales	0.5	-	0.5
-  finance charges	0.5	0.4	0.9
Disposal of subsidiaries	(0.6)	9.9	9.3
Utilised	(0.3)	(1.2)	(1.5)
Exchange rate movements	(0.7)	(0.2)	(0.9)
At 30 September 2010	28.4	16.9	45.3
Current	0.5	4.6	5.1
Non-current	27.9	12.3	40.2
At 30 September 2010	28.4	16.9	45.3
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	3.0	3.4
Non-current	27.9	2.7	30.6
At 30 September 2009	28.3	5.7	34.0

      Other provisions principally relate to onerous contracts, warranties and indemnities.

9    Retirement benefit obligations

The only significant change in the pension assumptions from those presented in the annual financial statements for the year ended 31 March 2010 is the discount rate applied. The discount rate applied to the UK retirement benefit plans has moved from 5.6% to 5.0% in line with market data. This and other changes in actuarial assumptions have led to an increase in the liability by £6.4m.

10  Cash flows from operating activities

	2010/11	2009/10	2009/10
	First	First	Full
	Half	Half	Year
	£m	£m	£m
Continuing operations
Operating profit from continuing operations	26.6	24.6	35.8
Amortisation of intangible assets	2.5	2.8	5.9
Depreciation of property, plant and equipment	24.0	24.4	50.1
Exceptional gain on disposal of businesses	(3.7)	-	-
Non-exceptional gain on disposal of property, plant and equipment	(0.6)	(0.2)	(0.6)
Net (decrease) increase in provisions	(1.5)	(1.3)	1.1
Share based payments	0.2	(0.8)	(0.6)
Operating cash flows before movement in working capital	47.5	49.5	91.7
Decrease (increase) in inventories	0.7	(1.5)	-
(Decrease) increase in receivables	(5.7)	5.2	(5.1)
(Decrease) increase in payables	(4.7)	(3.6)	9.9
Cash generated by operations	37.8	49.6	96.5
Income taxes paid	(3.0)	(4.8)	(7.2)
Net cash from operating activities - continuing operations	34.8	44.8	89.3
Discontinued operations
Operating profit	-	0.3	0.3
Depreciation of property, plant and equipment	-	0.2	0.2
Operating cash flows before movement in working capital	-	0.5	0.5
Increase   in receivables	-	(0.1)	(0.1)
Decrease in payables	-	(1.1)	(1.1)
Cash generated by operations	-	(0.7)	(0.7)
Income taxes paid	-	(0.1)	(0.1)
Net cash from operating activities - discontinued operations	-	(0.8)	(0.8)

Notes to the Consolidated Interim Financial Statements

continued

11  Consolidated movement in net debt

	2010/11	2009/10	2009/10
	First	First	Full
	Half	Half	Year
	£m	£m	£m
Net increase in cash and cash equivalents	14.6	15.9	24.7
Net (increase) decrease in borrowings and finance leases	(9.1)	55.0	52.0
Capitalisation of loan fees	-	7.6	7.4
Amortisation of loan fees	(2.3)	(1.9)	(3.7)
Net debt & interest rate swaps disposed of with businesses	119.6	-	-
Exchange gain	6.4	5.8	8.6
Change in fair value of interest rate swaps	(14.5)	(1.7)	(3.1)
Movement in net debt	114.7	80.7	85.9
Net debt at beginning of period	(338.4)	(424.3)	(424.3)
Net debt at end of period	(223.7)	(343.6)	(338.4)

      Analysis of net debt

	At 30	At 30	At 31
	September	September	March
	2010	2009	2010
	£m	£m	£m
Cash and cash equivalents	64.3	42.5	51.3
Current borrowings	(19.8)	(11.6)	(9.5)
Non-current borrowings	(268.2)	(374.5)	(380.2)
Total Group net debt	(223.7)	(343.6)	(338.4)

	At 30	At 30	At 31
	September	September	March
	2010	2009	2010
	£m	£m	£m
Core net debt	(175.1)	(197.9)	(185.6)
PFI companies and other project finance net debt	(34.9)	(128.4)	(134.1)
Total Group net debt before fair value of interest rate swaps	(210.0)	(326.3)	(319.7)
Fair value of interest rate swaps	(13.7)	(17.3)	(18.7)
Total Group net debt	(223.7)	(343.6)	(338.4)

As at 30 September 2010, the Group had undrawn committed facilities of £96.4m (2009: £117.0m).

12  Related party transactions

There have been no additional significant or unusual related party transactions to those disclosed in the Group's Annual Report for 31 March 2010.

Notes to the Consolidated Interim Financial Statements

continued

13   Post balance sheet events

On 21 October 2010 Shanks acquired the UK waste PFI interests of United Utilities PLC (UU), strengthening its position as one of the country's leading operators of municipal waste contracts.   Shanks will take UU's place on all of its existing bids including preferred bidder for a PPP municipal solid waste (MSW) treatment contract for both Derbyshire County and Derby City Councils and short-list positions at Leicestershire and Gloucestershire. Other than a small initial payment, any consideration will be contingent upon the successful financial closure of individual projects and payable from win fees.  Shanks will also take on additional skilled technical and commercial resources from the UU bid team, strengthening and complementing its existing resources to enable it to deliver on its increased pipeline of PFI opportunities.

On 22 October 2010 the Group issued €100m of five year bonds quoted on the London Stock Exchange to investors in Belgium and Luxembourg at an annual coupon of 5%.  The proceeds were used to repay term loans under the Group's €302m facility which is due to expire in 2012.

Statement of directors' responsibilities

The directors confirm that to the best of their knowledge:

This condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the European Union.

The interim management report herein includes:

·      a fair review of the information required by DTR 4.2.7 of the Disclosure and Transparency Rules, being an indication of the important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements;

·      a description of the principal risks and uncertainties for the remaining six months of the year; and

·      DTR 4.2.8 of the Disclosure and Transparency Rules, being related party transaction or changes in the related party transactions described in the 2010 Annual Report that materially affected the Group's results or financial position during the six months ended 30 September 2010.

On 30 September 2010 Jacques Petry was appointed as a Non-executive director.  A list of current directors is maintained on the Shanks Group plc website: www.shanksplc.co.uk.

By order of the Board

T W Drury	C Surch
Group Chief Executive	Group Finance Director
4 November 2010	4 November 2010

Independent Review Report to Shanks Group plc

Introduction

We have been engaged by the Company to review the condensed interim financial information in the half-yearly financial report for the six months ended 30 September 2010, which comprises the consolidated income statement, consolidated statement of comprehensive income, consolidated balance sheet, consolidated statement of changes in equity, consolidated statement of cash flows and related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors.  The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union.  The condensed interim financial information included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed interim financial information in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed interim financial information in the half-yearly financial report for the six months ended 30 September 2010 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

PricewaterhouseCoopers LLP
Chartered Accountants
4 November 2010
London

Notes:

(i) The maintenance and integrity of the Shanks Group plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

(ii) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

END

 

 

IR LLFSTLELVIII