15th May 2014 14:50
LONDON (Alliance News) -Shanks Group PLC Thursday said it swung to a pretax profit in its last financial year, buoyed by a gain on the UK solid waste business it sold last October and helped by cost cutting in some businesses and revenue growth in others, but it said it expects some of its markets to remain challenging in the current year.
The waste management company, which has a solid waste in Benelux, a hazardous waste unit, a UK municipal waste business and an organics unit, reported a pretax profit of GBP7.7 million for the 12 months to March 31, compared with a loss of GBP10.1 million a year earlier. Its revenue rose to GBP636.4 million, from GBP614.6 million, while its net loss narrowed to GBP28.3 million, from a GBP35.3 million loss.
Excluding exceptional items like impairment charges and restructuring costs, pretax profit was flat at GBP30.2 million.
In its statement, the company said its expectations for the current year are unchanged. It expects its hazardous waste and UK municipal divisions to grow, while further cost cutting in its Benelux solid waste unit will offset the challenges it is facing in those markets. Its organics unit, meanwhile, is expected to be hit by price pressure and the cost of bidding for more contracts in Canada.
Its Benelux solid waste business posted its first profit growth for five years in its last financial year thanks to its cost cutting, with trading profit up 16% to GBP19.7 million despite a 5% decline in revenue to GBP324 million.
The business is being hit hard by the economic downturn in the Netherlands, particularly handling waste from the contracting construction sector. However, Chief Executive Peter Dilnot told Alliance News that the business is well placed when the turnaround comes, although he isn't calling the bottom of the cycle yet.
The company is bang on track with its three-year EUR19 million cost cutting programme, Dilnot said. The company said it realised EUR10 million of cuts in fiscal 2014, and will realise a further EUR4 million this year. The total cost of the programme has increased slightly to EUR23 million.
Dilnot said the company remains committed to the bulk of its Benelux solid waste business. The company previously pulled out of solid waste handling in the UK after deciding it couldn't drive appropriate returns. However, it was only the seventh or eighth largest in that business line in the UK, while it is number one or two in the Benelux countries.
Shanks said its hazardous waste business had also exceeded expectations by offsetting the end of a highly profitable contract in the previous year. Trading profit was flat at GBP19.9 million on revenue growth of 3%. It said trading profit was up by a double-digit amount excluding the big fiscal 2013 contract.
Dilnot predicted double-digit earnings growth for the unit as it invests in capacity and the range of products it can handle. However, he also said the company would sustain its returns in a business it expects to be its profit and growth engine.
As it had previously flagged, Shanks' organics division had a challenging year due to over-capacity hitting its anaerobic digestion facilities in Benelux and due to operational challenges in Canada, where it has been restricted in the amount it can process at its plant in London until it can deal with the odours that composting produces.
Dilnot said the company had commissioned new emissions control equipment that was resulting in reduced odour, and was conversing with authorities "at every level". Ontario's Minister of Environment had visited the plant Wednesday, he said.
Shanks said it will invest up to EUR1 million in contract bid costs for other potential municipal deals in Canada in the current financial year.
Its UK municipal unit posted 19% revenue growth to GBP137 million, driven by the first full year of a contract in Wakefield, West Yorkshire. Reported divisional profit declined slightly to GBP9.2 million, although underlying divisional profit improved significantly excluding the success fee income it booked last year, it said.
Dilnot told Alliance News that the company was sticking to its stated strategy of considering potential bolt-on acquisitions in a sector "ripe for consolidation". However, the company would be very strict about what it will consider, looking at whether a deal would add value and generate returns on the price paid.
Shanks kept its fiscal 2014 dividend flat at 3.45 pence, after a flat final dividend of 2.35 pence that it said reflected its confidence in its medium-term growth prospects.
Its focus on capital discipline delivered a strong cash performance, meaning that core net debt stood at GBP156 million at the end of the year, better than the company and many analysts had expected.
Shanks Group shares were down 0.5% at 100.00 pence Thursday, but it was outperforming a 0.8% decline in the FTSE Small-Cap index.
Investec Securities said the results contained few major new surprises, but it was evident after a peer group analysis that Shanks was outperforming the sector.
"This has not happened by accident as management has been actively managing its business portfolio, eliminating structural costs and maintaining strong financial discipline. Once the market headwinds subside, the operational gearing in the business should benefit the group. Hence, we keep our positive view on the stock," Investec analyst John Lawson said in a note to clients. It has an Add recommendation on the stock.
By Steve McGrath; [email protected]; @SteveMcGrath1
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