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Shanks Group PLC (SKS)

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Friday 31 March, 2006

Shanks Group PLC

Pre-Close Trading Statement

Shanks Group PLC
31 March 2006

31 March 2006

Company Announcement

Shanks Group plc Pre-Close Period Trading Statement

Shanks Group plc, a leading European waste management company today issues the
following pre-close period trading statement. The Group's preliminary
announcement of the results for the year to 31 March 2006 will be published on
Thursday 1 June 2006.

The Group announces that, except for a small negative impact on Profit Before
Tax due to an additional IFRS accounting change detailed below, overall trading
for the year to 31 March 2006 is in line with its expectations.

Following the recent disposal of the hazardous waste operations, the
restructuring of the UK business is substantially complete. Management's
attention is now dedicated to growing the ongoing businesses where performance
continues to improve. The Group is pursuing opportunities in the increasingly
active UK market for long-term municipal waste management contracts, bids having
recently been submitted for 25-year PFI contracts at Greater Manchester,
Cambridgeshire and Cumbria. Further news on the progress of these bids is
expected in 2006/7, however none of the contracts is likely to reach financial
close until 2007/8.

The Mainland European operations continue to perform robustly. There are signs
of improvement in the construction sector in The Netherlands although more
generally economic conditions remain flat. In June 2005 new landfill regulations
came into force in Germany severely restricting the types of waste that can be
landfilled. This has all but extinguished exports of waste from The Netherlands
to Germany, causing Dutch elimination costs to rise sharply. Shanks is
mitigating the impact of these increased costs by identifying alternative
elimination routes and increasing prices to our customers. The ongoing effect at
the close of the year is therefore substantially reduced when compared to the
initial impact.

From 1 April 2005 the Group has adopted International Financial Reporting
Standards (IFRS). IFRS are still in their early stages and interpretation of the
standards and generally accepted practice is still evolving. Since the
publication of the Interim results in November 2005 there has been a move to
'Financial Asset' accounting for PFI contracts. This is based on the
International Financial Reporting Interpretations Committee (IFRIC) draft
interpretation D12 - 'Service Concession Arrangements - Determining the
Accounting Model'. In light of this draft interpretation and the approach being
adopted by other companies involved in the PFI sector, the Group has concluded
that it is appropriate to adopt the 'Financial Asset' treatment in respect of
its PFI activities. The impact of this change is to divide the transactions into
two parts for accounting purposes:

  • the financing of the construction of assets for the local authority;
  • the provision of waste management services using existing assets as well
    as those created under the contract.

The income stream from the waste authority is allocated between the two parts,
that attributed to the service contract is treated as sales, which after
operating costs produces an operating profit. The part relating to the
construction of assets is treated as funding cash flows (i.e. repayment of
capital and interest). In the balance sheet the costs relating to the
construction of the assets are classified as an interest bearing 'financial
asset'. It is the Group's opinion that this treatment better reflects the
commercial substance of the transactions and provides greater transparency for
the financial community.

The adoption of 'Financial Asset' accounting is expected to have a small
negative impact on Profit Before Tax for the year ending 31 March 2006, but will
result in more significant reclassifications between Turnover, Operating Profit
and Interest. There is no effect on the cash flows of the PFI projects, all of
which are progressing as planned.

                                      Ends


For further information contact:

Michael Averill, Group Chief Executive
Fraser Welham, Group Finance Director
Shanks Group plc, telephone +44 (0)1628 554920
www.shanks.co.uk


Ginny Pulbrook, Executive Director, Citigate Dewe Rogerson
Fiona Bradshaw, Associate Director, Citigate Dewe Rogerson

Telephone +44 (0) 207 282 2945


                      This information is provided by RNS
            The company news service from the London Stock Exchange